3SBio Inc. - Proxy Solicitation & Information Statement 2005

THIS CIRCULAR IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION

If you are in any doubt as to any aspect of this circular, you should consult your stockbroker or other registered dealer in securities, bank manager, solicitor, professional accountant or other professional adviser.

If you have sold or transferred all your shares in Hongkong Chinese Limited, you should at once hand this circular to the purchaser or transferee or to the bank, stockbroker or other agent through whom the sale or transfer was effected for transmission to the purchaser or transferee.

The Stock Exchange of Hong Kong Limited takes no responsibility for the contents of this circular, makes no representation as to its accuracy or completeness and expressly disclaims any liability whatsoever for any loss howsoever arising from or in reliance upon the whole or any part of the contents of this circular.

HONGKONG CHINESE LIMITED 香港華人有限公司[*]

(Incorporated in Bermuda with limited liability)

(Stock Code: 655)

MAJOR TRANSACTION

SUBSCRIPTION OF INTEREST IN LIMITED PARTNERSHIP

28th July, 2005

* For identification purpose only

CONTENTS

	Page
Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	1
Letter from the Board
Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	5
LAAP Investment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	6
Investment objectives and key investment policies of LAAP . . . . . . . . . . . . . . . .	6
Admission of additional Limited Partners
and maximum targeted fund size . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	7
Key features of constitution and management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	7
Investment management fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	15
Status of the transaction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	16
The Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	16
Conditions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	30
Reasons for and benefits of investing in LAAP . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	30
Financial effects . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	32
Risk factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	32
Listing Rules implications . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	33
Information on the Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	34
Financial and trading prospects of the Group . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	34
Further information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	34
Appendix I – Financial information of the Group . . . . . . . . . . . . . . . . . . . . . . . . . . . .	35
Appendix II – Pro forma financial information of the Group . . . . . . . . . . . . . . . . . .	90
Appendix III – General information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	95

DEFINITIONS

In this circular, the following terms and expressions shall have the following meanings, unless the context otherwise requires:

“Advisory Council”	an advisory council of LAAP to be established as soon
	as practicable after Initial Closing with not less than
	three members to be selected from among the Limited
	Partners, to consult with the General Partner as to
	investment policies, corporate governance issues and
	method of valuation for investments of LAAP;
“ASM”	Argyle Street Management Limited, a company
	established in the British Virgin Islands with limited
	liability on 28th December, 2001;
“associates”	has the meaning ascribed to it under the Listing Rules;
“Board”	the board of directors of the Company;
“Capital Commitment(s)”	amount(s) agreed to be contributed by the Limited
	Partners to the capital of LAAP;
“Company”	Hongkong Chinese Limited (香港華人有限公司*), a
	company incorporated in Bermuda with limited
	liability, the shares of which are listed on the Stock
	Exchange and whose shares are owned as to
	approximately 72.26 per cent. by LCR;
“connected person(s)”	has the meaning ascribed to it under the Listing Rules;
“Director(s)”	the director(s) of the Company;
“Final Closing”	the final closing held by LAAP for the admission of
	any Limited Partner, which shall not be more than 12
	months after the Initial Closing unless the Advisory
	Council otherwise agrees;
“Final Drawdown Date”	the final date when commitments can be called from
	Limited Partners, being the fifth anniversary of the
	last day of the month of the Final Closing;
“General Partner”	LAAP General Partner Limited, a company established
	on 10th May, 2005 under the laws of the Cayman
	Islands as an indirect wholly-owned subsidiary of
	ASM, to be appointed as the general partner of LAAP;
“Group”	the Company and its subsidiaries;

For identification purpose only

– 1 –

DEFINITIONS

“Hong Kong”
the Hong Kong Special Administrative Region of the PRC;

“Initial Closing” the date on which Pacific becomes a Limited Partner of LAAP by becoming a party to the Limited Partnership Agreement (which is expected to be on or before 31st August, 2005);

“Investment Advisor” ImPac Asset Management (HK) Limited, a company incorporated in Hong Kong with limited liability on 13th November, 1990 and an indirect wholly-owned subsidiary of the Company, which will provide investment advice to the Investment Manager and perform certain administrative services;
“Investment Advisor Agreement” the investment advisor agreement to be entered into between the Investment Manager and the Investment Advisor pursuant to which the Investment Advisor shall provide investment advice to the Investment Manager and perform certain administrative services;
“Investment Manager” Lippo ASM Investment Management Limited, a company incorporated in the Cayman Islands with limited liability on 10th May, 2005, being a 49 per cent. to 51 per cent. joint venture between the respective wholly-owned subsidiaries of the Company and ASM, which will be appointed as the investment manager of LAAP pursuant to the Management Agreement;
“Investment Manager the Investment Manager and any of its subsidiaries Group Company” which may be incorporated or acquired (directly or indirectly) by it;
“LAAP” or “Limited Partnership” Lippo ASM Asia Property LP, established on 12th May, 2005 in the Cayman Islands as a limited partnership;
“LAAP Investment”
the investment to be made by Pacific in LAAP for an amount of up to HK$1,450 million on the terms and conditions set out in the Term Sheet and as detailed in the “Letter from the Board”;
“Latest Practicable Date” 25th July, 2005, being the latest practicable date prior to the printing of this circular for ascertaining certain information contained herein;

– 2 –

DEFINITIONS

“LCR”	Lippo China Resources Limited力寶華潤有限公司, a
	company incorporated in Hong Kong with limited
	liability, the shares of which are listed on the Stock
	Exchange and whose shares are owned as to
	approximately 71.13 per cent. by Lippo;
“Limited Partner(s)”	each of the limited partners of LAAP;
“Limited Partnership Agreement”	the limited partnership agreement to be entered into
	initially between the General Partner and Pacific, as a
	Limited Partner, to govern their relationship and
	provide for the manner of operation and management
	of LAAP;
“Lippo”	Lippo Limited力寶有限公司, a company incorporated
	in Hong Kong with limited liability, the shares of
	which are listed on the Stock Exchange;
“Listing Rules”	the Rules Governing the Listing of Securities on the
	Stock Exchange;
“Macau”	the Macao Special Administrative Region of the PRC;
“Management Agreement”	the management agreement to be entered into between
	the General Partner and the Investment Manager
	which provides for the delegation to the Investment
	Manager by the General Partner of its powers of
	management and administration under the Limited
	Partnership Agreement;
“Model Code”	the Model Code for Securities Transactions by Directors
	of Listed Issuers under the Listing Rules;
“Pacific”	Pacific Landmark Holdings Limited, a company
	incorporated in the British Virgin Islands with limited
	liability on 1st November, 2004, which is a wholly-
	owned subsidiary of the Company;
“PRC”	the People’s Republic of China;
“SFO”	the Securities and Futures Ordinance (Chapter 571 of
	the Laws of Hong Kong);
“Share(s)”	ordinary shares of HK$1.00 each in the issued share
	capital of the Company;
“Shareholders”	holders of Shares of the Company;

– 3 –

DEFINITIONS

“Shareholders’ Agreement” the shareholders’ agreement to be entered into among the respective wholly-owned subsidiaries of the Company and ASM, and the Investment Manager governing the relationship between the respective wholly-owned subsidiaries of the Company and ASM as shareholders of the Investment Manager and providing for the operation and management of the Investment Manager; “Stock Exchange” The Stock Exchange of Hong Kong Limited; “Subscription Agreement” the subscription agreement to be entered into between LAAP and Pacific for the investment of up to HK$1,450 million in LAAP by Pacific as the founding Limited Partner; “Term Sheet” the conditional legally binding term sheet entered into by the General Partner and Pacific dated 6th June, 2005 in respect of the LAAP Investment; “HK$” Hong Kong dollar, the lawful currency of Hong Kong; “MOP” Macau pataca, the lawful currency of Macau; “S$” Singapore dollar, the lawful currency of Singapore; and “US$” United States dollar, the lawful currency of the United States of America.

– 4 –

LETTER FROM THE BOARD

HONGKONG CHINESE LIMITED 香港華人有限公司[*]

(Incorporated in Bermuda with limited liability)

(Stock Code: 655)

Non-executive Directors: Dr. Mochtar Riady (Chairman) Mr. Leon Nim Leung Chan

Executive Directors: Mr. Stephen Riady (Chief Executive Officer) Mr. John Luen Wai Lee, J.P. Mr. Kee Yee Kor

Independent Non-executive Directors: Mr. Albert Saychuan Cheok Mr. Victor Ha Kuk Yung Mr. King Fai Tsui

Registered office: Clarendon House Church Street Hamilton HM 11 Bermuda

Principal place of business: 24th Floor Tower One Lippo Centre 89 Queensway Hong Kong

28th July, 2005

To the Shareholders

Dear Sir or Madam,

MAJOR TRANSACTION

SUBSCRIPTION OF INTEREST IN LIMITED PARTNERSHIP

INTRODUCTION

Reference is made to the joint announcement of Lippo, LCR and the Company dated 6th June, 2005 announcing that Pacific, a wholly-owned subsidiary of the Company, entered into the Term Sheet for the LAAP Investment. The Company is beneficially owned as to approximately 72.26 per cent. by LCR, which in turn is beneficially owned as to approximately 71.13 per cent. by Lippo. The LAAP Investment exceeds 25 per cent. but does not exceed 100 per cent. of the total assets and market capitalisation of the Company and therefore constitutes a major transaction for the Company under Chapter 14 of the Listing Rules.

The purpose of this circular is to provide you with further information on the LAAP Investment, the Limited Partnership Agreement, the Management Agreement, the Subscription Agreement, the Shareholders’ Agreement and the Investment Advisor Agreement as detailed below.

* For identification purpose only

– 5 –

LETTER FROM THE BOARD

LAAP INVESTMENT

On 6th June, 2005, Pacific, a wholly-owned subsidiary of the Company, entered into the Term Sheet with the General Partner to invest up to HK$1,450 million in LAAP, as a founding Limited Partner. Pursuant to the Term Sheet, Pacific’s Capital Commitment may be drawn down by LAAP at such times (from Initial Closing up to the Final Drawdown Date) and in such amounts (not exceeding Pacific’s agreed total Capital Commitment of HK$1,450 million) as required by LAAP for the purposes of making investments complying with LAAP’s investment objectives, and in paying the costs and expenses of LAAP.

INVESTMENT OBJECTIVES AND KEY INVESTMENT POLICIES OF LAAP

LAAP has been established on 12th May, 2005 in the Cayman Islands as a limited partnership. Based on the property price indices in Hong Kong, Taipei, Shanghai, Bangkok, Singapore, Jakarta and Kuala Lumpur, the General Partner is aware of the growth potential of property investment and the stable income generated from the rental market in East Asia, and aims at capturing the potential capital gain from property appreciation. Accordingly, the investment objectives of LAAP is to invest in real estate in the East Asia region, in particular in Malaysia, Singapore, Thailand, Indonesia, the PRC (including both Hong Kong and Macau) and Japan.

LAAP seeks long-term capital growth through a well-diversified portfolio of investments in income producing projects including commercial and residential usages, direct investments in high potential properties and green field development projects as well as listed and/or unlisted equity, bonds and/or equity equivalent securities of companies invested predominately in real estate.

The long term capital growth which LAAP sought aligns with the term of LAAP, which is set at ten years, however, the terms in holding the various investments will also depend on the type of investments and the investment environment at the time of acquisition.

The General Partner shall engage independent qualified valuers to conduct separate valuations on individual properties at least once a year and shall mark-to-market the valuation of all other listed securities and bonds. The General Partner shall value the unlisted equities/bonds at fair value, at either the cost price or at such other fair value price or cash realisable value as may be reasonably determined by the General Partner with regard to reliable information available, taking into account historical and projected financial information and operating data and other relevant factors. The General Partner shall monitor and analyse the performance of LAAP periodically (i.e. quarterly on its real estate investment and weekly on the securities and/or bonds equivalent investments).

As a control to the liquidity of LAAP, LAAP cannot make any investment in any single portfolio investment that would result in LAAP having invested more than 50 per cent. of the total Capital Commitments (including Capital Commitments that were not then drawndown) of the Limited Partners at the relevant time in a single portfolio investment without the super majority approval of not less than two thirds of the members of the Advisory Council. Details of the investment restrictions of LAAP are set out in point (vi) under the sub-section headed “Limited Partnership Agreement” below.

– 6 –

LETTER FROM THE BOARD

The execution by Pacific and the General Partner of the Subscription Agreement, pursuant to which Pacific will become a Limited Partner with a Capital Commitment of HK$1,450 million, shall take place as soon as practicable and, in any event, on or before the Initial Closing (which is expected to be on or before 31st August, 2005).

ADMISSION OF ADDITIONAL LIMITED PARTNERS AND MAXIMUM TARGETED FUND SIZE

In addition to the amount of up to HK$1,450 million agreed to be invested in LAAP by Pacific pursuant to the Term Sheet, LAAP intends to invite subscriptions from up to 13 Limited Partners (including Pacific), of up to an aggregate amount of HK$3.5 billion (including the HK$1,450 million to be invested by Pacific) of total Capital Commitments. Capital Commitments exceeding the targeted maximum fund size of HK$3.5 billion may only be accepted with the prior approval of the Advisory Council. These potential Limited Partners will be sophisticated professional investors including institutions and companies which have made, or are interested in making, substantial property investments in East Asia, and may also include wealthy individuals or families. They and their respective ultimate beneficial owners are expected to be third parties independent of, and not connected with, Lippo, LCR or the Company or any of their respective connected persons. No additional Limited Partner investors have been specifically identified at this time. At any time after the Initial Closing, expected to be on or before 31st August, 2005, and up to the Final Closing Date (not to be more than 12 months after the Initial Closing unless the Advisory Council otherwise agrees), the General Partner, with the approval of the Advisory Council, may arrange for one or more further closings to be held (as necessary) to accommodate the admission of further Limited Partners. The minimum Capital Commitment for each Limited Partner admitted to the Limited Partnership will be US$1 million (equivalent to approximately HK$7.8 million), although commitments of lesser amount may be accepted at the discretion of the General Partner, with the prior consent of the Advisory Council.

KEY FEATURES OF CONSTITUTION AND MANAGEMENT

Overview

Key features of LAAP, in common with other limited partnership vehicles, are as follows:

There is only one general partner who has the right to manage and take any and all actions on behalf of the Limited Partnership which the Limited Partnership has the power and capacity to take in its own name, subject to the restrictions and other terms specified in the Limited Partnership Agreement constituting the Limited Partnership, described below.
The General Partner has unlimited liability for the obligations of the Limited Partnership.

– 7 –

LETTER FROM THE BOARD

The liability of the Limited Partners is limited to the amount of the Capital Commitment agreed to be contributed by the respective Limited Partner to LAAP.
The provisions relating to the distribution of income and profits received by the Limited Partnership are set out in the Limited Partnership Agreement and are described below. In summary, the Limited Partners are entitled to all or substantially all of the income and profits of the Limited Partnership and the General Partner is ultimately required to distribute all income and profits to the Limited Partners. The distribution of income and profits is made by reference to the dollar amount of the Capital Commitment actually drawn down and paid to LAAP by each Limited Partner and used to acquire the investment giving rise to the distribution. The Capital Commitment of a Limited Partner is the total amount of capital required to be invested in the Limited Partnership, as a legally binding commitment, which can be drawn down by the General Partner to make investments for the Limited Partnership, on a pro rata basis among all the Limited Partners.
Subject to the minimum individual Capital Commitment of each Limited Partner of US$1 million, the targeted maximum fund size of HK$3.5 billion, and the absolute limit of not more than 13 Limited Partners, additional Limited Partners (in addition to Pacific) can be invited by the General Partner, with the prior approval of the Advisory Council, to join at any time after the Initial Closing and up to the Final Closing Date.

Power of Management

The General Partner will, subject to the delegation of the General Partner’s powers to the Investment Manager under the Management Agreement as detailed under the sub-section headed “Management Agreement” below, have full power of management, control and operation of and determination of policy with respect to, LAAP and its investment and other activities. As such, the Investment Manager is responsible for the investment decisions of LAAP subject to the terms of the Management Agreement. In certain circumstances (as detailed below in this sub-section), approval from the Advisory Council is required. Pursuant to the Investment Advisor Agreement, the Investment Advisor will be appointed to advise the Investment Manager.

In addition, LAAP will establish an Advisory Council consisting of at least three members not affiliated with the General Partner. The first three members shall be appointed by Pacific, the founding Limited Partner. Each subsequent Limited Partner making minimum Capital Commitments of HK$700 million or more shall be entitled to appoint an additional member of the Advisory Council.

Nevertheless, the Advisory Council may consider appointing additional members nominated by Limited Partners with Capital Commitments of less than HK$700 million in circumstances where the members of the Advisory Council consider that such person(s) would bring particular benefits or insights to the Advisory Council.

– 8 –

LETTER FROM THE BOARD

The Advisory Council will meet as required, and at least quarterly, to consult with the General Partner as to investment policies, corporate governance issues and method of valuation. With the consent of the Advisory Council, LAAP may enter into investments other than real estate, vary the countries it invests in and invest in a single investment portfolio investment that would result in LAAP having invested more than 50 per cent. of the total Capital Commitments of LAAP at the relevant time in that single portfolio investment. The Advisory Council shall take no part in the control or management of LAAP nor shall it have any power or authority to act and to invest for or on behalf of LAAP.

Drawdown of Capital Commitments

Capital Commitments will be drawn down by LAAP pro rata from the Limited Partners at such times during the period after Initial Closing and prior to the Final Drawdown Date (i.e. the fifth anniversary of the last day of the month of the Final Closing), and in such amounts not exceeding the aggregate Capital Commitments of all Limited Partners, as required by LAAP for the purposes of making investments of LAAP complying with its investment objectives, and paying the costs and expenses of LAAP.

Distribution of Proceeds of Portfolio Investments and Income

Upon the approval of Limited Partners representing not less than a majority (i.e. over 50 per cent.) of the aggregate Capital Commitments of all the Limited Partners at the time in question, net proceeds attributable to the disposition of an investment of LAAP will be distributed to all Limited Partners in proportion to the amount of their respective Capital Commitments actually drawn down and paid to LAAP and used to acquire the investment giving rise to the distribution.

Any and all income received with respect to an investment will be distributed to the Limited Partners, in proportion to their respective Capital Commitments actually drawn down and paid to LAAP and used to acquire the investment giving rise to the distribution, on a periodic basis and no less frequently than quarterly.

Rights of First Refusal

Limited Partners shall have the benefit of rights of first refusal in relation to any sale or transfer of any Limited Partner’s interests in LAAP. Any Limited Partner wishing to sell or transfer their interests in LAAP will be required to offer such interests to the other Limited Partners. Limited Partners wishing to purchase any interest in LAAP will be required to indicate the amount of interest offered for sale that they wish to purchase. In circumstances where the amount of interest requested to be purchased by the Limited Partners is equal to or less than the amount of interest offered for sale, such interest will be allocated in satisfaction of the applications received.

– 9 –

LETTER FROM THE BOARD

If the amount of interest requested to be purchased by the Limited Partners is greater than the amount of interest offered for sale, then the General Partner shall allocate the interest offered for sale in proportion to the amounts requested to be purchased by the Limited Partners, provided that no Limited Partner shall be required to purchase more than the amount of interest requested to be purchased by it. Such allocation process shall be repeated until there are no amounts of interest remaining to be purchased.

If the interest offered for sale is offered subject to a condition that all the interest offered for sale must be purchased by the Limited Partners, and the Limited Partners do not offer to purchase all the interest offered for sale, then the selling Limited Partner shall be entitled to dispose of all its interest to an independent third party. Alternatively, if the interest offered for sale is not offered subject to such a condition and if, following the allocation process set out above, part of the interest has not been requested to be purchased by the Limited Partners, then the selling Limited Partner shall be entitled to dispose of that part of the interest not requested to be purchased by the Limited Partners to an independent third party. Such third party purchaser must adhere to the Limited Partnership Agreement.

Other than a sale or transfer in accordance with the foregoing rights of first refusal, the Limited Partners may not withdraw from LAAP in any circumstances.

Term

LAAP shall have a term of ten years from the date of the Final Closing (which is expected to be one year after the Initial Closing). Two consecutive additional one year extensions to the ten-year term may be granted as determined by the General Partner with the prior consent of the Advisory Council, to allow for the orderly disposal of LAAP’s investments and the distribution to the Limited Partners of the disposal proceeds. Other than on expiry of the term, LAAP shall be dissolved (i) after the Final Drawdown Date, upon the sale or disposal of all the portfolio investments acquired by LAAP in circumstances in which Limited Partners representing a majority of the aggregate Capital Commitments of all the Limited Partners do not consent to the reinvestment of the sale proceeds; (ii) upon the entry of a judicial decree of dissolution of LAAP under the laws of the Cayman Islands; (iii) at such time as there are no Limited Partners; (iv) if the General Partner determines that, due to a change in applicable law, rules or regulations, LAAP cannot operate effectively in accordance with its investment objectives or the terms of the agreement constituting LAAP; or (v) on the expiry of not less than 12 months’ written notice given by Limited Partners representing a majority of the aggregate Capital Commitments of all the Limited Partners.

General Partner

LAAP General Partner Limited, being the General Partner, was incorporated in the Cayman Islands on 10th May, 2005 and is an indirect wholly-owned subsidiary of ASM. Its principal business is investment management. Having regard to the unlimited liability of the general partner of a limited partnership, as referred to above, the General Partner has been established as a special purpose vehicle to serve as the general partner of LAAP and will not conduct any other business or activities.

– 10 –

LETTER FROM THE BOARD

The management team of the General Partner of LAAP shall consist of the following:

Mr. Kin Chan

Mr. Kin Chan has been ASM’s Chief Investment Officer since ASM was founded in December 2001. Before co-founding ASM, Mr. Kin Chan was the Managing Director and the Chief Executive of Lazard Asia Limited, a merchant banking and corporate advisory business, from March 2000 to October 2001. Before that, Mr. Kin Chan worked with Goldman, Sachs & Co from August 1989 to January 2000 where he worked in Hong Kong, New York and Singapore. Mr. Kin Chan has over 14 years experience in the asset management and corporate finance industry. Mr. Kin Chan was Vice President of Goldman, Sachs & Co when he left in 2000.

By taking up the aforesaid positions, Mr. Kin Chan is one of the few individuals with pan-Asian transaction experience specialized in the real estate sections and combines technical skills and relationships with relevant Asian business people and organisations.

Mr. Kin Chan has been involved in a number of real estate investment projects in many of the countries in South East Asia for the funds under the management of ASM and the clients of Goldman, Sachs & Co and Lazard Asia Limited.

Mr. Kin Chan has extensive contacts in the real estate business community in Asia. The real estate-related transactions he has worked on exceed US$2 billion in value. These transactions included distressed property-related investments in Thailand, the PRC, Hong Kong and Indonesia.

Mr. V-Nee Yeh

Mr. V-Nee Yeh co-founded Value Partners Limited (“VPL”) in 1993 with Mr. Cheah Cheng Hye. VPL has grown to become one of the leading independent asset management companies in Asia with assets under management in excess of US$2.4 billion.

Mr. V-Nee Yeh was previously with Lazard Freres & Co., NY in 1984 in corporate finance, Lazard Asia Limited in 1987 in merger and acquisition and later served as a partner in Lazard Brothers & Co., London in 1988 before co-founding VPL. Such companies are prominent international financial advisory and asset management firms providing specialised solutions to complex financial and strategic challenges advisory services.

Mr. V-Nee Yeh acquired over 20 years experience in the asset management and corporate finance industry.

– 11 –

LETTER FROM THE BOARD

Mr. V-Nee Yeh was a council member of the Stock Exchange until its merger with the Hong Kong Futures Exchange. Currently, he sits on the Stock Exchange’s listing committee, as well as the Securities and Futures Commission’s Takeovers and Mergers Panel. He is a member of the Listing Committee of the China Securities Regulatory Commission through 2003.

Mr. V-Nee Yeh is familiar with real estate investments worldwide including in the United States, Japan and much of the rest of Asia.

Ms. Angie Yick Yee Li

Ms. Angie Yick Yee Li has been a fund manager of the ASM Asia Recovery Fund (a fund managed by ASM) since March 2002 and is currently a member of ASM’s management team. While with ASM, Ms. Li has acquired substantial experience in direct investments in the real estate markets in the South East Asia region, ex-Japan as well as real estate linked bonds, equities and other related investments for the funds under the management of ASM, which are approximately US$200 million.

Prior to joining ASM, Ms. Li worked with Lazard Asia (Hong Kong) Limited since August 2001, a company providing corporate finance advisory services and Lazard Freres & Co., NY from July 1997 to August 2001, where she participated in a number of major merger and acquisition and restructuring transactions in the telecommunications, media and technology sectors.

Ms. Li has over 7 years experience in the asset management and corporate finance industry.

Ms. Li has a number of academic distinctions. At Columbia University, she was awarded the Fellowship of the Graduate School of Art and Social Science and President Fellowship. She is also a scholar of the Sir Edward Youde Memorial Fund for Overseas Studies sponsored by the Hong Kong Government.

Mr. Kin Chan will be a director of the corporate director of the General Partner. The positions to be held by Mr. V-Nee Yeh and Ms. Angie Yick Yee Li are yet to be determined.

ASM

ASM’s principal business (since its incorporation) is investing in Asian distressed assets ex-Japan. ASM has been beneficially owned as to 40 per cent. by Mr. Kin Chan, 30 per cent. by Mr. V-Nee Yeh and the balance by the management team of ASM since February 2004. ASM’s assets under management are approximately US$200 million, including the ASM Asia Recovery Fund. ASM, its directors and its wholly-owned subsidiaries also control a Taiwanese based fund management company which has approximately US$500 million under management.

– 12 –

LETTER FROM THE BOARD

To the best of the Directors’ knowledge, information and belief having made all reasonable enquiry, each of Mr. Kin Chan, Mr. V-Nee Yeh, the General Partner, ASM and their ultimate beneficial shareholders (where appropriate) is a third party independent of, and not connected with, Lippo, LCR, the Company or any of their respective connected persons, and are not connected persons of any of Lippo, LCR or the Company. Neither Mr. Kin Chan, Mr. V-Nee Yeh, the General Partner, ASM, or their ultimate beneficial shareholders or any of their respective associates holds any shares in any of Lippo, LCR or the Company. The Company invested US$0.5 million in the ASM Asia Recovery Fund in 2002. As at 31st March, 2005, the value of this holding has more than doubled since the investment was made.

Advisory Council

The Advisory Council will be authorised under the Limited Partnership Agreement to consent to, approve or waive any matter requiring the consent, approval or waiver of the Advisory Council under the Limited Partnership Agreement and to provide advice to the General Partner as requested by the General Partner in connection with matters relating to LAAP. The Advisory Council is a committee of the Limited Partnership and will take no part in the control or management of the Limited Partnership in dealings with persons who are not the General Partner or the Limited Partners, nor shall it have any power or authority to act for or on behalf of LAAP. All investment decisions as well as all responsibility for the management of LAAP remain with the General Partner. Other than those matters referred to in the sub-section headed “Limited Partnership Agreement” below for which the consent, approval, review or waiver of the Advisory Council is required by the Limited Partnership Agreement, actions taken by the Advisory Council will be advisory only and the General Partner shall not be required or bound to act in accordance with any decision, action or comment of the Advisory Council or any of its members.

Investment Manager

Lippo ASM Investment Management Limited, a company incorporated in the Cayman Islands with limited liability on 10th May, 2005, will be appointed by the General Partner as the Investment Manager pursuant to the Management Agreement as detailed below. The Investment Manager is a 49 per cent. : 51 per cent. joint venture between the respective wholly-owned subsidiaries of the Company and ASM. The Company’s indirect interest in the Investment Manager will be equity accounted for in its accounts. The sole business of Lippo ASM Investment Management Limited will be to act as the investment manager of LAAP. It will not provide similar investment management services to other funds. Mr. Kin Chan, Mr. V-Nee Yeh and Ms. Angie Yick Yee Li will be the representatives from ASM responsible for the management and operation of the Investment Manager. Their profiles are detailed under the sub-section headed “General Partner” above. Mr. Christopher James Williams, who shall be appointed as a non-executive director of the Investment Manager, shall provide such advice in respect of the business and operations of the Investment Manager as may be required from time to time. Mr. Williams is a practising solicitor in Hong Kong and is a partner in the firm of Richards Butler. He is qualified as a solicitor in England and Wales and in Hong Kong and has over 19 years of legal experience. His areas of specialisation include corporate finance, capital markets, mergers and acquisitions, joint ventures and cross border transactions.

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Messrs. Jonathan Miles Foxall and Thio Gim Hock will be the representatives of the Company responsible for the management and operation of the Investment Manager. Both Messrs. Foxall and Thio are directors of certain subsidiaries of Lippo engaging principally in property development, investment and management and have been responsible for managing and supervising the property investments of the Group since February 1991 and March 2005 respectively.

Mr. Jonathan Miles Foxall has 29 years’ property experience and has been responsible for a series of property transactions and development projects in Australia, Thailand, Malaysia, Singapore, Hong Kong, Macau and the PRC. Mr. Foxall is a fellow member of both the Royal Institute of Chartered Surveyors and the Hong Kong Institute of Surveyors.

Mr. Thio Gim Hock has been involved in property development field since 1973. Mr. Thio has been responsible for property acquisition, development, marketing and management in Singapore, Malaysia, Indonesia, Thailand, Hong Kong and London in respect of residential, office, retail, commercial, hotel and resorts projects.

Messrs. Kin Chan, Christopher James Williams, Jonathan Miles Foxall and Thio Gim Hock will sit on the board of directors of the Investment Manager. The positions to be held by Mr. V-Nee Yeh and Ms. Angie Yick Yee Li are yet to be determined.

Investment Advisor

ImPac Asset Management (HK) Limited, a company incorporated in Hong Kong with limited liability on 13th November, 1990, will be appointed as the Investment Advisor to the Investment Manager to provide investment advice to, and perform certain administrative services for the Investment Manager. It is based in Hong Kong and is not currently providing, or intending to provide, any similar advisory services to investment managers other than Lippo ASM Investment Management Limited. It is a licensed corporation registered with the Securities and Futures Commission to conduct Types 4, 5 and 9 regulated activities under the SFO. Being an indirect wholly-owned subsidiary of the Company, its results are consolidated into the results of the Group. The directors of the Investment Advisor are Messrs. Tai Chiu Ng, Eric Fook Wah Lai, Alex Shiu Leung Au and Andrew Tat Kwong Hau and their profiles are set out below:

Mr. Tai Chiu Ng is a qualified accountant and holds a master degree in Business (Electronic Commerce) from Curtin University of Technology in Australia, a master degree in International Banking and Financial Studies from the Heriot-Watt University in the United Kingdom and a doctor degree in Business Administration from the University of Hull in the United Kingdom. He is a fellow member of the Hong Kong Institute of Certified Public Accountants, the Association of Chartered Certified Accountants and the Institute of Chartered Secretaries and Administrators. Mr. Ng has over 20 years’ experience in the accounting and corporate finance fields in Hong Kong. He is a licensed person registered with the Securities and Futures Commission to conduct Types 4, 5, 6 and 9 regulated activities under the SFO.

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Mr. Eric Fook Wah Lai holds a degree in Business Administration from The Chinese University of Hong Kong. He has over 20 years’ experience in the local securities dealing and investment advisory businesses and provides portfolio management services to individual and institutional clients of the securities arm of the Group. He is a licensed person registered with the Securities and Futures Commission to conduct Types 1, 2, 4, 5, 6 and 9 regulated activities under the SFO.

Mr. Alex Shiu Leung Au is the Chief Financial Officer of the Group. He holds a bachelor degree of Commerce (Accounting) from the University of Birmingham in the United Kingdom and is an associate member of both the Institute of Chartered Accountants in England and Wales and the Hong Kong Institute of Certified Public Accountants. He has nearly 20 years’ experience in the accounting, treasury and financial fields.

Mr. Andrew Tat Kwong Hau is the Company Secretary of the Company. He holds a master degree in Business Administration from the University of Warwick in the United Kingdom. He is a fellow member of both the Institute of Chartered Secretaries and Administrators and the Hong Kong Institute of Company Secretaries. He has over 20 years’ experience in the corporate secretarial field.

Messrs. Ng and Lai have substantial knowledge and actual experience in the field of corporate finance, investment advisory and management. They have been appointed by the Investment Advisor as its responsible officers in respect of Types 4, 5 and 9 regulated activities under the SFO. On the other hand, Mr. Au has extensive experiences in treasury and financial management and will be responsible for accounting and financial matters of the Investment Advisor. Mr. Hau has extensive experience in the corporate secretarial and administration field and will be responsible for the compliance and corporate secretarial matters of the Investment Advisor. Though the experiences of the aforesaid directors are not directly related to real estate investments, it will not undermine the ability of the Investment Advisor in providing investment advisory services to the Investment Manager since they are all qualified professionals with substantial and solid business experiences. In order to strengthen and enhance the directors’ knowledge about the real estate markets in East Asia, the Investment Advisor will recruit additional property analysts and experts specialising in real estate investment in East Asia so as to provide prompt property market research, analysis and information to the directors of the Investment Advisor.

INVESTMENT MANAGEMENT FEES

For the period from Initial Closing to Final Drawdown Date, the General Partner will in accordance with the Limited Partnership Agreement receive from LAAP an annual fee of 1 per cent. of the Capital Commitments. After the Final Drawdown Date, the annual fee will be 1 per cent. of capital contributions used to fund the cost of, and which remain invested in, investments. The fee is payable semi-annually in advance. The amount of the fee was determined by arm’s length negotiations between the General Partner and Pacific and is on normal commercial terms so far as the Company, LCR and Lippo are concerned.

For the period from Initial Closing to the Final Drawdown Date, the Investment Manager will receive an annual management fee payable by the General Partner under

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the Management Agreement from the annual fee of 1 per cent. as described above received by the General Partner from LAAP. It is intended that the General Partner will only retain sufficient of the management fee to pay its expenses and those of administering and maintaining the status and good standing of LAAP with a small margin not more than 20.7 per cent. of the annual fee payable to the General Partner. The amount to be retained by the General Partner shall be determined between the General Partner and the Investment Manager and payable semi-annually in advance. The remainder will be passed to the Investment Manager, as agreed between the General Partner and the Investment Manager on the basis of arm’s length negotiations and set out in the Management Agreement. After the Final Drawdown Date, the Investment Manager will receive an annual management fee, calculated on the same basis as described above, on the total amount of the Capital Commitments of the Limited Partners actually drawn down prior to the Final Drawdown Date (i.e. the fifth anniversary of the last day of the month of the Final Closing) and invested in portfolio assets.

The Investment Advisor shall receive a fee in an amount to be determined and specified in the Investment Advisor Agreement. It is the present intention of the parties to the Investment Advisor Agreement that such fee will be determined on cost-plus basis. The costs to be incurred by the Investment Advisor shall include staff wages, professional fees and other costs incidental in discharging its duties pursuant to the Investment Advisor Agreement. The mark up margin is yet to be determined between the Investment Manager and the Investment Advisor and the Directors currently estimate such margin will be around 10 per cent. to 15 per cent.

The aforesaid remunerations have been determined after arm’s length negotiation between the parties. The Directors consider that the remuneration payable to each of the General Partner and the Investment Manager is fair and reasonable and on normal commercial terms.

STATUS OF THE TRANSACTION

The Term Sheet is legally binding and subject to the conditions set out below. If the conditions are fulfilled, the following detailed transaction documents will be entered into as soon as practicable after fulfillment of the conditions, which is expected to be on or before 31st August, 2005: (i) the Limited Partnership Agreement; (ii) the Management Agreement; (iii) the Subscription Agreement; (iv) the Shareholders’ Agreement; and (v) the Investment Advisor Agreement, subject to the transaction having been approved by shareholders of Lippo, LCR and the Company in accordance with the requirements of the Listing Rules.

THE AGREEMENTS

Limited Partnership Agreement

Parties: General Partner Limited Partner

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The Limited Partnership Agreement will initially be entered into between the General Partner and Pacific, as a Limited Partner. New Limited Partners investing in LAAP will become parties to the Limited Partnership Agreement prior to making their respective investments. The Limited Partnership is established for a term of ten years from the date of the Final Closing, although two consecutive additional one year extensions to the ten-year term may be granted as determined by the General Partner with the prior consent of the Advisory Council, to allow for the orderly disposal of the Limited Partnership’s investments and the distribution of the disposal proceeds to the Limited Partners.

The Limited Partnership Agreement will set out the terms governing the relationship between the General Partner and the Limited Partners and provide for the manner of operation and management of LAAP. The Limited Partnership Agreement will provide, among other things, that:

(i) the General Partner will have full power of management, control and operation of, and determination of policy with respect to, LAAP, its investments and other activities in accordance with the stated investment objectives of LAAP, namely investment in real estate in the jurisdictions referred to under the section headed “Investment objectives and key investment policies of LAAP” above and no Limited Partner shall take part in the management or control of LAAP’s investment or other activities;
(ii) commitments will be drawn down by LAAP from the Limited Partners as needed to make investments and to pay liabilities and expenses of LAAP during the period from the Initial Closing to the Final Drawndown Date (i.e. the fifth anniversary of the last day of the month of the Final Closing). The timing and amount of such drawdowns shall be determined by the General Partner by written notice to the Limited Partners (with the prior consent of the Advisory Council);
(iii) the term of LAAP will be ten years from the date of the Final Closing, subject to up to two consecutive additional one year extensions as determined by the General Partner with the prior consent of the Advisory Council;
(iv) upon the approval of Limited Partners representing not less than a majority (i.e. over 50 per cent.) of the aggregate Capital Commitments of all the Limited Partners at the time in question, net proceeds attributable to the disposal of investments of LAAP will be distributed to all Limited Partners in proportion to the amount of their respective Capital Commitments actually drawn down and paid to LAAP and used to acquire the investment giving rise to the distribution;

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(v) as soon as practicable after Initial Closing, LAAP will establish an Advisory Council of at least three members selected from among Limited Partners. The first three members shall be appointed by Pacific, the founding Limited Partner. Each subsequent Limited Partner making minimum Capital Commitments of HK$700 million or more will be entitled to appoint an additional member to the Advisory Council. Nevertheless, the Advisory Council may consider appointing additional members nominated by Limited Partners with Capital Commitments of less than HK$700 million in circumstances where the members of the Advisory Council consider that such person(s) would bring particular benefits or insights to the Advisory Council. The Advisory Council will meet at least quarterly (or more frequently, if required) and consult with the General Partner on investment policies, valuations and conflicts of interest;
(vi) the prior super majority approval of not less than two thirds of the members of the Advisory Council will be required before the General Partner will cause or permit LAAP to (a) invest in any investment other than real estate assets or transactions based primarily on the value of underlying real estate; or (b) invest in any jurisdiction other than those set out under the section headed “Investment objectives and key investment policies of LAAP” above; or (c) terminate or amend the Management Agreement, otherwise than pursuant to any other express term of the Management Agreement, the Limited Partnership Agreement, or the Investment Advisor Agreement; or (d) make any investment in any single portfolio investment that would result in LAAP having invested more than 50 per cent. of the total Capital Commitments of the Limited Partners at the relevant time in that single portfolio investment; or (e) take any action or exercise any power, discretion or authority once a notice of removal of the General Partner has been given by Limited Partners under the Limited Partnership Agreement (see (vii) below);
(vii) the General Partner may be removed by a vote of Limited Partners representing a majority of the total Capital Commitments agreed to be invested by all the Limited Partners of the Limited Partnership at the relevant time in the following circumstances: (a) the insolvency of the General Partner; or (b) the occurrence of any event that causes the General Partner to cease to be the General Partner of the Limited Partnership under the Partnership Law; or (c) any failure by the General Partner to comply with applicable laws and regulations and such other circumstances; or (d) a failure by the General Partner or the Investment Manager to comply with their respective obligations under the Limited Partnership Agreement and the Management Agreement (such removal to be subject to the prior approval of not less than a majority of the members of the Advisory Council);
(viii) Limited Partners will have a right of first refusal in relation to the sale and transfer by any Limited Partner of their interests in LAAP. Any Limited Partner wishing to sell or transfer their interests in LAAP will be required to offer such interests to the other Limited Partners. Limited Partners wishing to purchase any interest in LAAP will be required to indicate the amount of

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interest offered for sale that they wish to purchase. In circumstances where the amount of interest requested to be purchased by the Limited Partners is equal to or less than the amount of interest offered for sale, such interest will be allocated in satisfaction of the applications received;

Other than a sale or transfer in accordance with the foregoing rights of first refusal, the Limited Partners may not withdraw from LAAP in any circumstances;

(ix) the General Partner will ensure that annual audited financial statements of LAAP are produced, together with quarterly progress reports with respect to investments and a monthly summary of key-events during the month in question;
(x) borrowings of, and indebtedness incurred by, the Limited Partnership shall be borrowings or indebtedness solely of the Limited Partnership and without recourse to the Limited Partners. Subject to this, the Limited Partnership may borrow or guarantee indebtedness up to an amount equal to 50 per cent. of the aggregate Capital Commitments of the Limited Partners at that time. Any borrowing in excess of this amount would require the prior consent of the Advisory Council;
(xi) other than on expiry of the term as detailed in paragraph (iii) above, the Limited Partnership shall be dissolved in the circumstances set out under the sub-section headed “Term” on page 10 of this circular;

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(xii) the General Partner shall receive the fee as set out under the section headed “Investment management fees” on pages 15 and 16 of this circular; and
(xiii) subject to the minimum individual Capital Commitment of each Limited Partner of US$1 million, the targeted maximum fund size of HK$3.5 billion, and the absolute limit of not more than 13 Limited Partners, the General Partner, with the approval by way of simple majority of the Advisory Council, may arrange for one or more further closings to be held (as necessary) to accommodate the admission of further Limited Partners at any time after the Initial Closing, expected to be on or before 31st August, 2005 and up to the Final Closing Date. Nevertheless, commitments of lesser amount may be accepted at the discretion of the General Partner, with the prior consent by way of simple majority of the Advisory Council.

If the General Partner or the Investment Manager fails to comply with its respective obligations under, in the case of the General Partner, the Limited Partnership Agreement and the Management Agreement and, in the case of the Investment Manager, the Management Agreement and the Investment Advisor Agreement, being the agreements relating to the Limited Partnership and its operation and management to which they are respective parties, the Limited Partners can, with the prior approval of a majority of the members of the Advisory Council, remove and replace the General Partner by a resolution of Limited Partners representing a majority of the total Capital Commitments agreed to be invested by all the Limited Partners of the Limited Partnership at the relevant time. Upon the removal of the General Partner, the Management Agreement automatically terminates. The General Partner’s appointment is not automatically terminated upon the termination of the Management Agreement.

Management Agreement

Parties: General Partner Investment Manager

On or immediately prior to Initial Closing, the General Partner and the Investment Manager will enter into the Management Agreement pursuant to which the Investment Manager will act as the investment manager of LAAP from Initial Closing and for the duration of the term of LAAP but subject to early termination of not less than six months written notice from either party to the Management Agreement or immediately on the occurrence of certain “termination events”, namely:

(i) the insolvency of the Investment Manager; or
(ii) the General Partner ceases to be the general partner of the Limited Partnership or if the General Partner or any company that controls the General Partner suffers a change of control that has not been previously approved by the Limited Partners; or
(iii) the expiration or early termination of the Limited Partnership Agreement; or

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(iv) the Investment Manager ceasing to be authorised under any applicable laws, rules or regulation to manage or operate, or act as manager of, the Limited Partnership; or
(v) the Investment Manager committing a material breach of its obligations under the Management Agreement (which, if capable of remedy, is not remedied within 21 days’ notice) or disregarding its obligations and duties under the Management Agreement; or
(vi) by a vote of Limited Partners representing a majority of the Capital Commitments agreed to be invested by all Limited Partners of the Limited Partnership at the relevant time; or
(vii) there occurs a change in control of the Investment Manager or any company that controls the Investment Manager, and such change of control has not been previously approved by each of the shareholders of the Investment Manager.

In the event that the term of LAAP is extended for one or more additional one year extensions, the Management Agreement may be extended for similar additional one year periods by agreement between the General Partner and the Investment Manager.

The Investment Manager will be Lippo ASM Investment Management Limited, a company established on 10th May, 2005 under the laws of the Cayman Islands and owned as to 49 per cent. and 51 per cent. by wholly-owned subsidiaries of the Company and ASM respectively. The sole business of Lippo ASM Investment Management Limited will be to act as the investment manager of LAAP. It will not provide similar investment management services to other funds. The financial results of the Investment Manager will not be consolidated in the financial statements of the Company but the interest in the Investment Manager will be equity accounted for in the financial statements of the Company.

Pursuant to the Management Agreement, the General Partner will delegate its powers in relation to portfolio management and administration of LAAP to the Investment Manager, including investigating, analysing, structuring and negotiating potential investments, monitoring the performance of investments and making recommendations to the General Partner in relation to the acquisition and realisation of investments. As such, the Investment Manager will be responsible for the investment decisions of LAAP subject to the terms of the Management Agreement. The Investment Manager will not assume the liabilities of the General Partner in connection with the Limited Partnership, but will be required to indemnify LAAP under the Management Agreement in respect of any breach of the Management Agreement by the Investment Manager. It is anticipated that the Company, through its 49 per cent. interest in the Investment Manager, will gain from the transfer of know-how and expertise from the General Partner and ASM. The Investment Manager shall receive the fee for such services referred to under the section headed “Investment management fees” above.

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Subscription Agreement

Parties: LAAP Pacific

The Subscription Agreement will set out the terms and conditions on which Pacific will invest up to HK$1,450 million in LAAP as a founding Limited Partner. The Subscription Agreement will provide, among other things, that:

(i) Pacific will invest up to HK$1,450 million in LAAP as a Limited Partner;
(ii) such investment will be subject to the terms of the Limited Partnership Agreement, to which Pacific will become a party; and
(iii) LAAP will give representations and warranties to Pacific, including as to its formation and standing and its power to enter into the Subscription Agreement and Pacific will give certain representations and warranties to LAAP including as to its status and the purpose of Pacific’s investment in LAAP.

Shareholders’ Agreement

Parties: a wholly-owned subsidiary of the Company a wholly-owned subsidiary of ASM Investment Manager

The Shareholders’ Agreement will set out the terms governing the relationship between the respective wholly-owned subsidiaries of the Company and ASM as shareholders of the Investment Manager and provide for the operation and management of the Investment Manager. The Shareholders’ Agreement will provide, among other things, that:

(i) each of the respective wholly-owned subsidiaries of ASM and the Company shall be entitled to appoint two directors to the board of the Investment Manager and the subsidiary of the Company shall have the right to appoint the chairman of the board from any of its representatives. The chairman shall not have an additional or casting vote;
(ii) the respective wholly-owned subsidiaries of ASM and the Company shall not transfer any shares in the Investment Manager without the prior written consent of the other to such transfer;
(iii) any new offers of shares or other securities in the capital of the Investment Manager will be subject to rights of pre-emption in favour of the respective wholly-owned subsidiaries of the Company and ASM;

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(iv) the following “reserved matters” will require the approval of the respective wholly-owned subsidiaries of ASM and the Company prior to their being conducted by the Investment Manager:
(i) any material change in the nature of the business of any Investment Manager Group Company or the way in which such business is carried on;
(ii) the alteration, variation or replacement of the memorandum and articles of association or the constitutive documents of any Investment Manager Group Company (including any change of name);
(iii) any corporate restructuring or reorganisation of any Investment Manager Group Company or plans or proposal thereof;
(iv) any matters affecting the share capital, share premium account, or other capital of any Investment Manager Group Company including (without limitation) the issue and allotment of or agreeing to issue and allot any shares or securities of any class or grant of any options, warrants or any other rights or creation of any loan capital having attached thereto a right of conversion into or subscription for share capital or otherwise carrying out any act which have or may have the effect of diluting the equity interest of any shareholder in the Investment Manager or in respect of any other Investment Manager Group Company, the equity interest of the Investment Manager, whether direct or indirect, in such Investment Manager Group Company;
(v) the increase, reduction, cancellation, purchase or redemption of the authorized or issued share capital of the Investment Manager and/or any Investment Manager Group Company;
(vi) the making of any investment or expenditure which exceeds 5 per cent. of the net asset value of the Investment Manager as stated in the most recent consolidated accounts of the Investment Manager;
(vii) the acquisition or disposal, mortgaging or charging by any Investment Manager Group Company of any land, property or estate or any interest therein or granting or permitting to arise any encumbrance over or in respect thereof other than in the ordinary course of its business and in relation to its daily business operations;

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(viii) the sale or disposal of the whole or a substantial part of the undertaking, goodwill or the assets of any Investment Manager Group Company (including the Investment Manager’s interest, directly or indirectly, in any of its subsidiaries);
(ix) the declaration or payment of any dividend or distribution of assets or the capitalisation, repayment or other forms of distribution of any amount standing to the credit of any reserve of any Investment Manager Group Company or the redemption or purchase of any shares or any other reorganisation of the share capital of any Investment Manager Group Company;
(x) the sale, transfer, licensing, creating any charge or other encumbrance or otherwise disposal of any trade marks, patents or other intellectual property owned by any Investment Manager Group Company;
(xi) the acquisition of any shares, debentures, debenture stock, securities or other obligations of any company;
(xii) the amalgamation or merger or consolidation of any Investment Manager Group Company with or into any other company, or reconstruction or amalgamation of its business;
(xiii) the flotation or other public offering of shares in any Investment Manager Group Company and any matters and arrangements relating thereto;
(xiv) the approval of the annual budget in respect of each Investment Manager Group Company for each financial year or agreeing any variation to or departure from such annual budget;
(xv) the lending of any moneys or providing credit in any form other than in the ordinary course of the business of the relevant Investment Manager Group Company or by way of placing surplus funds on deposit with a bank or other institution the normal business of which includes the acceptance of deposits;
(xvi) the borrowing of any moneys or accepting of any other financial facilities or credit other than trade facilities obtained from banks and other financial institutions in the ordinary course of the business of the relevant Investment Manager Group Company;
(xvii) the borrowing of any money which would result in the ratio of total debt to equity of any Investment Manager Group Company exceeding 50 per cent.;

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(xviii) the giving of any guarantee or surety or creating any mortgage, charge, lien or encumbrance of any kind by the Investment Manager or any Investment Manager Group Company over its assets;
(xix) the creation, permission to arise or issue of any debenture constituting a pledge, lien or charge (whether by way of fixed or floating charge, mortgage, encumbrance or other security) on all or any of the undertaking, assets or rights of any Investment Manager Group Company or factoring any book debts except for the purpose of securing borrowings from banks or other financial institutions in the ordinary course of business;
(xx) the appointment and removal of the auditors or the changing of accounting policies and practices or financial year or accounting reference date of any Investment Manager Group Company;
(xxi) the formation, acquisition, disposition, liquidation or winding up of any Investment Manager Group Company or shares in any subsidiary or any interest in any partnership or joint venture or taking of any steps to effect its winding up or passing any resolution to liquidate it;
(xxii) the passing of any resolution for the winding up of any Investment Manager Group Company or undertaking any merger, reconstruction or liquidation exercise concerning any Investment Manager Group Company or applying for the appointment of a receiver, manager or judicial manager or like officer or applying to the court in any relevant jurisdiction to order a meeting of creditors or any class of creditors or members or any class of members or to sanction any such compromise or arrangement as is referred to in Section 166 of the Companies Ordinance or the equivalent under the laws of the relevant jurisdiction;
(xxiii) the application to the court in any relevant jurisdiction to order a meeting of creditors or any class of creditors or members or any class of members or to sanction any such compromise or arrangement in any manner similar to that as referred to in Section 166 of the Companies Ordinance or the equivalent under the laws of the relevant jurisdiction;
(xxiv) the entering into, approving or making adjustments of or modifications to terms of transactions between any Investment Manager Group Company and the directors and/or shareholders of any Investment Manager Group Company involving the interest of any director and/or shareholder of the Investment Manager Group Company, including but not limited to the making of any loans or advances, whether directly or indirectly, or the provision of any guarantee, indemnity or security for or in connection with any indebtedness of liabilities of any director or shareholder of the Investment Manager Group Company;

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(xxv) the entering into of any transaction between any Investment Manager Group Company and the directors and/or shareholders of any Investment Manager Group Company or any other persons or companies associated with any of the above other than transactions entered into on normal commercial terms and on an arm’s length basis;
(xxvi) the entering into of any abnormal or unusual contract or contract outside the ordinary course of business of the Investment Manager Group Company or under which the Investment Manager may incur costs of US$125,000 or more or which may not be fulfilled or completed within one year;
(xxvii) the entering into of any agreement, transaction or arrangement which is not negotiated and not entered into on an arm’s length basis and in the ordinary course of business of any Investment Manager Group Company or the payment of any fee, charge or other sum to any person except pursuant to a transaction which has been negotiated and entered into on an arm’s length basis and in the ordinary course of business of such Investment Manager Group Company;
(xxviii) the institution, compromise, settlement of or withdrawal from material legal proceedings or the submission to arbitration of any material dispute (in each case other than a dispute involving one of the shareholders or a director appointed by them) involving any Investment Manager Group Company provided that for this purpose “material” matter shall mean any matter or number of related or similar matters, where the possible liability exceeds US$125,000;
(xxix) the introduction of any profit sharing scheme, employee share option scheme or share participation scheme, or the alteration to the terms thereof;
(xxx) the adoption of the audited accounts of any Investment Manager Group Company;
(xxxi) the appointment, removal and conditions of employment of any employee earning US$125,000 or more per year;
(xxxii) the adoption of or amendment to any business plan;
(xxxiii) the acquisition of any assets or property (other than in the ordinary course of business) with a total cost of more than US$125,000;
(xxxiv) the sale or disposal of any fixed assets for a total price per transaction of more than US$125,000;

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(xxxv) the appointment of a managing director of any Investment Manager Group Company;
(xxxvi) any matters concerning, affecting or varying any rights, powers, privileges, entitlements, obligations or liabilities attaching to the shares held by each shareholder;
(xxxvii) any matters concerning, affecting or varying any rights, powers, duties, obligations or liabilities of the Investment Manager or the General Partner under the Management Agreement, including, without limitation, any amendment to or assignment or termination thereof requiring the consent or approval of the Investment Manager;
(xxxviii) any delegation of the powers of the board of directors of any Investment Manager Group Company in relation to any of the matters referred to in paragraphs (i) to (xxxvii) above; and
(xxxix) any amendment, modification, variation, deletion or addition to or in respect of any or all of the matters referred to in paragraphs (i) to (xxxviii) above.
(v) the wholly-owned subsidiary of the Company being the party to the Management Agreement shall be granted an option, exercisable at any time when the Management Agreement subsists, to acquire all of the shares of the Investment Manager held by the wholly-owned subsidiary of ASM for an amount equal to the fair value of such shares, such amount to be determined by multiplying the net asset value of the Investment Manager (based on its latest consolidated audited accounts) by 51 per cent.

Investment Advisor Agreement

Parties: ImPac Asset Management (HK) Limited Investment Manager

ImPac Asset Management (HK) Limited, an indirect wholly-owned subsidiary of the Company, will act as the investment advisor to the Investment Manager. It was incorporated in Hong Kong on 13th November, 1990 and is based in Hong Kong. It is not currently providing, or intending to provide, any similar advisory services to investment managers other than Lippo ASM Investment Management Limited. Its principal functions will be to identify, review (including by conducting due diligence) and recommend potential investments to the Investment Manager and to co-ordinate the provision of administrative services to LAAP, monitoring investments and assisting in the compilation of financial information to be ultimately provided to the Limited Partners. The Investment Advisor will have employees based in Hong Kong performing those functions and is therefore required to be registered with the Securities and Futures Commission in Hong Kong under the SFO.

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Investment advisory services to be performed by the Investment Advisor include:

(i) facilitating the sourcing of opportunities for possible investments by LAAP consistent with the investment objectives of LAAP, including providing initial screening of such opportunities and making recommendations on such opportunities to the Investment Manager;
(ii) carrying out due diligence on potential investments by LAAP and advising the Investment Manager as to the terms of acquisition or disposal of any investments;
(iii) periodically reporting to the Investment Manager thereon including providing one or more representatives to attend meetings with the General Partner, LAAP or Limited Partners to report on investments and related matters;
(iv) providing the Investment Manager with written reports and other materials relating thereto as the Investment Manager may reasonably require;
(v) providing advice to the Investment Manager concerning the exercise of voting and other rights attaching to or arising in respect of investments;
(vi) keeping under review each investment with a view to identifying, procuring and evaluating possible divestment opportunities;
(vii) calculating the value of particular investments as and when reasonably required by the Investment Manager;
(viii) preparing monthly, quarterly and yearly progress reports and valuations (prepared by the Investment Advisor) of the investments in accordance with such procedures and on such a basis as the Investment Manager may require; and
(ix) carrying out such other investment advisory activities and other actions in connection with the Investment Advisor’s appointment under the Investment Advisor Agreement as may be reasonably requested by the Investment Manager (and which are within the Investment Advisor’s power and control, do not require material additional expenditure to be incurred by the Investment Advisor and are not materially detrimental to the Investment Advisor’s business).

The Investment Advisor shall receive a fee in an amount to be determined and specified in the Investment Advisor Agreement.

Unless previously terminated, the Investment Advisor Agreement shall continue for the entire length of the term of the Limited Partnership and shall expire on the date the Limited Partnership is liquidated.

– 28 –

LETTER FROM THE BOARD

The Investment Manager and the Investment Advisor shall be entitled to terminate the appointment of the other party to the Investment Advisor Agreement at any time by giving notice in writing to the other party to the Investment Advisor Agreement, as the case may be, if:

(i) an event of insolvency occurs in relation to the other party to the Investment Advisor Agreement; or
(ii) the General Partner ceases to be the general partner of the Limited Partnership or if the General Partner or any company that controls the General Partner suffers a change of control that has not been previously approved by the Limited Partners; or
(iii) upon the expiration or early termination of the Limited Partnership Agreement; or
(iv) the other party to the Investment Advisor Agreement, either (i) commits any material breach of its obligations under the Investment Advisor Agreement; or (ii) is negligent in the performance of its duties or disregards its obligations and duties under the Investment Advisor Agreement.

In addition, the Investment Manager shall be entitled to terminate the appointment of the Investment Advisor at any time by giving notice in writing to the Investment Advisor if:

(i) Limited Partners representing not less than 50 per cent. of the Capital Commitments of the Limited Partners vote in favour of such termination; or
(ii) any of the Investment Advisor or any company that controls the Investment Advisor suffers a change of control that has not been previously approved by the Investment Manager in writing, such approval not to be unreasonably withheld.

Finally, the Investment Advisor shall be entitled to terminate its appointment under the Investment Advisor Agreement at any time by giving notice in writing to the Investment Manager if the Investment Manager ceases to be the sole and exclusive investment manager to the General Partner. No notice period is required for the aforesaid termination of the Investment Advisor Agreement.

– 29 –

LETTER FROM THE BOARD

CONDITIONS

The LAAP Investment is conditional on:

(i) the approval of the shareholders of each of Lippo, LCR and the Company at the relevant extraordinary/special general meetings (as the case may be) of each of the foregoing to be convened to approve the matters set out in the Term Sheet, including the five agreements referred to above. In the case of LCR and the Company, written shareholders’ consents from Lippo and LCR have been obtained in lieu of convening meetings of shareholders; and
(ii) the obtaining of all relevant regulatory approvals in the Cayman Islands for the establishment of LAAP and, following the obtaining of such approvals, the establishment and registration of LAAP in the Cayman Islands. As at the Latest Practicable Date, all such approvals have been obtained and LAAP is established and registered in the Cayman Islands.

All the aforesaid conditions save for obtaining the approval from the shareholders of Lippo have been fulfilled as at the Latest Practicable Date.

No investment management activities or investment decisions of LAAP will take place within Hong Kong and, accordingly, none of LAAP, the General Partner or the Investment Manager are required to be authorised by, or registered with, the Securities and Futures Commission in Hong Kong. All investment management activities or investment decisions of LAAP, the General Partner and the Investment Manager will take place in jurisdictions where LAAP, the General Partner or the Investment Manager, as the case may be, has been advised by their legal advisers in those jurisdictions that no authorisation or registration is required.

REASONS FOR AND BENEFITS OF INVESTING IN LAAP

The Group has accumulated a substantial amount of cash and other investment in securities (over 150 different types of listed or unlisted equity securities, debt securities and investment funds). As at 31st May, 2005, it had unaudited other investments in securities of approximately HK$1.1 billion and cash and bank balances of approximately HK$0.5 billion, totalling approximately HK$1.6 billion, representing approximately 47 per cent. of the Group’s total assets at that date, which it wishes to deploy. There is no material change in the value of the securities investments as at the Latest Practicable Date as compared to their value as at 31st May, 2005. Of the HK$1.1 billion other investments in securities as at 31st May, 2005, approximately HK$0.7 billion, being its market value as at 31st May, 2005, were listed investments and approximately HK$0.4 billion were unlisted investments. The unlisted investments are valued based on their quoted prices or net asset values provided by the investment brokers. Such unlisted investments are purchased and realised by the Company from time to time. Based on past experiences, most of these securities can be realised within one month and, accordingly, are considered by the Directors to be liquid investments. Based on audited consolidated accounts of the Company as of 31st December, 2004, the Group had other investments in securities of approximately

– 30 –

LETTER FROM THE BOARD

HK$1.1 billion and cash and bank balances of approximately HK$0.8 billion, totalling approximately HK$1.9 billion, representing approximately 55 per cent. of its total assets at that date. Of the HK$1.1 billion other investments in securities as at 31st December, 2004, approximately HK$0.7 billion were listed investments and approximately HK$0.4 billion were unlisted investments. The Company has identified property in East Asia as an attractive area of investment opportunity. The Directors consider that participation in LAAP will provide an effective medium for investments in Asian property markets and one to which other prospective Limited Partners may be attracted as co-investors, increasing the ability of LAAP to network and tackle larger projects. ASM, being a professional investment manager with a highly experienced team and proven record, will promote deal flow and ensure that projects are properly vetted and administered. By participating as a Limited Partner, through Pacific, the Company will not take any responsibility for any debts or other obligations of LAAP. Similarly, the wholly-owned subsidiary of the Company which is a shareholder of the Investment Manager will not take any responsibility for any debts or other obligations of LAAP in that capacity. Although the Group will not have any direct control over the General Partner who has the right to manage and take any and all actions on behalf of LAAP, the Group will be able to exert significant influence through its 49 per cent. interest in the Investment Manager. Moreover, the Investment Manager will be advised by the Investment Advisor which is a wholly-owned subsidiary of the Company. With such investment management and advisory structure, and the solid background and experience of ASM, the Directors are of the view that the interests of the Company and the Shareholders will be properly safeguarded.

The opportunity for real estate investment in East Asia is growing and the economic environment has improved significantly. The Directors consider that certain commercial and residential property assets may be acquired at attractive prices as rents and capital values in certain East Asian markets are at historically low levels. The Directors believe that the prospects for real estate investment in the near term are encouraging, based on the favourable prospects for strong economic growth throughout the region driven by on-going economic and structural reforms. Based on the aforesaid, the Directors consider the LAAP Investment which seeks capital growth by investing in real estate in the East Asia region to be in the interest of the Company and the Shareholders. The Directors consider that the initial term of ten years for the Limited Partnership is appropriate in view of the long term nature of property investment. Moreover, the Directors consider that LAAP, by actively managing its real estate investments in conjunction with ASM, will add value for Pacific and the other Limited Partners. In this regard, the Company hopes to gain from the wealth of experience which ASM has accumulated in actively managing its own investment portfolio.

– 31 –

LETTER FROM THE BOARD

FINANCIAL EFFECTS

When Pacific is called to inject capital into LAAP, such amount will be recognised as investment in an associate. The LAAP Investment will be funded from the cash resources and the sales proceeds from realisation of certain securities investments of the Company. As set out in the unaudited pro forma consolidated balance sheet in Appendix II – “Pro forma financial information of the Group”, the Directors estimate that approximately HK$450 million cash resources and approximately HK$1,000 million sales proceeds from the securities investment realisation will be used for funding the LAAP Investment. Since the Group’s actual balance of other investments in securities and bank and cash changes from time to time, the actual outlays from each category might be different from the aforesaid figures. Certain amount of securities investments will be realised following the approval of the LAAP Investment so as to meet Pacific’s obligations in respect of drawdowns for funding the investments in the Limited Partnership. The management of the Company will closely monitor the performance of these securities investments to ensure that Pacific will have sufficient funding to meet its HK$1,450 million Capital Commitment.

The total assets and the net asset value of the Group will not be affected because of the subscription. However, non-current and current assets will be increased and reduced by HK$1,450 million respectively and the current ratio, calculated as dividing current assets by current liabilities, will be reduced from 3.5:1 to 1.6:1. The Directors consider the current ratio of 1.6:1 following the injection of HK$1,450 million into LAAP is healthy and do not expect such reduction will have any significant adverse impact on the Group’s liquidity. With the LAAP Investment to be funded from the internal resources of the Group and the total assets remain unchanged, the Group’s gearing ratio will not be affected. The Directors consider that the LAAP Investment will improve the earning base of the Group in view of the expected quarterly distribution to be made by LAAP in due course having regard to the favourable prospects of real estate investment in the East Asia region.

RISK FACTORS

The risk factors associated with the LAAP Investment are as follows:

Illiquidity of real estate investment

Investment in real property are generally illiquid, limiting the ability of LAAP to realise property assets for cash at short notice, or requiring a substantial reduction in the price which might otherwise be sought for such assets to ensure a quick sale.

Property investment risks

The revenue and value of property investment projects may be affected by a number of factors, including international, regional and local economic climates; local real estate conditions; interest rates and exchange rate fluctuations and changes in governmental regulations. No assurance can be given that these factors will not have any adverse effect on LAAP’s financial or other prospects which in turn may affect the Group’s return from the LAAP Investment.

– 32 –

LETTER FROM THE BOARD

Reliance on the General Partner and the Investment Manager

Pursuant to the Limited Partnership Agreement, the General Partner has full power of management, control and operation of and determination of policy with respect to, LAAP, its investments and other activities. The General Partner will delegate its power of management and administration over LAAP to the Investment Manager pursuant to the Management Agreement. Although the Group can exert influence through its 49 per cent. interest in the Investment Manager, it will not have the power to control the General Partner which is an independent third party.

LISTING RULES IMPLICATIONS

The Company is beneficially owned as to approximately 72.26 per cent. by LCR, which in turn is beneficially owned as to approximately 71.13 per cent. by Lippo. Pacific is a wholly-owned subsidiary of the Company. The LAAP Investment exceeds 25 per cent. but does not exceed 100 per cent. of the total assets and market capitalisation of the Company and therefore constitutes a major transaction for the Company under Chapter 14 of the Listing Rules.

As the LAAP Investment is an investment in a newly established entity, there are no net profits attributable to LAAP or to the Capital Commitments contributed to the Limited Partnership by Pacific. As the Company will not control LAAP, the results and balance sheet of LAAP will not be consolidated into that of the Company. Subject to the review by the auditors of the Company, the Company will equity accounted for the results of LAAP whereby the LAAP Investment is initially recognised at cost and adjusted thereafter for the post-acquisition change in Pacific’s share of net assets of LAAP, and the profit or loss of the Company shall include its share of profit or loss of LAAP because the Company can exert influence on LAAP through its interest in the Investment Manager. No guarantee or other security will be given by Lippo, LCR, the Company or Pacific, or required by the General Partner or LAAP, as part of, or in connection with, the LAAP Investment.

As stated above, shareholders’ approval is required to approve the LAAP Investment and the relevant agreements. In this respect, no shareholders of Lippo, LCR or the Company or their respective associates have any interest in the LAAP Investment different from the other shareholders of Lippo, LCR and the Company in general and consequently no shareholders will be required to abstain from voting at the relevant shareholders’ meetings. LCR, which is beneficially interested in an aggregate of 973,240,440 Shares through itself and HKCL Holdings Limited (representing approximately 72.26 per cent. of the existing issued share capital of the Company), has given written approval to the Company to enter into the Term Sheet for the LAAP Investment. Similarly, Lippo, which is beneficially interested in an aggregate of 6,544,696,389 shares in LCR through Skyscraper Realty Limited (representing approximately 71.13 per cent. of the existing issued share capital of LCR), has given written approval to LCR to enter into the Term Sheet for the LAAP Investment. In accordance with Rule 14.44 of the Listing Rules, the written shareholder’s approvals have been accepted in lieu of holding the relevant general meetings.

– 33 –

LETTER FROM THE BOARD

INFORMATION ON THE COMPANY

The principal activity of the Company is investment holding. Its subsidiaries are principally engaged in investment holding, property investment and development, fund management, underwriting, corporate finance, securities broking, securities investment, treasury investment, money lending, banking and other related financial services.

FINANCIAL AND TRADING PROSPECTS OF THE GROUP

Looking ahead, the general prospects for the Hong Kong economy for the coming year look promising with a forecast of a 4.5 to 5.5 per cent. Gross Domestic Product growth in 2005 according to 2005-06 budget speech. The extension of the Individual Traveller Scheme and the coming into effect of Phase 2 of the Closer Economic Partnership Arrangement on 1st January, 2005 has provided further momentum to local economic growth. While the general prospects look good, there are some uncertainties on the global economic front, reflecting concerns over the pace of economic growth in the United States, increasing interest rates, high oil prices and slowing down of the PRC economy.

Overall, the Group remains optimistic about business in the future. With its strong and healthy financial position, the Group is in an excellent position to benefit from the economic growth in Asia. During the first half of the year, the Group has expanded its property portfolio by acquiring high quality properties in Macau and Singapore. Going forward, the Group will continue to explore suitable investment opportunities, especially in the financial and investment sectors, in addition to its investment in LAAP, look into properties markets in the Asian region with an aim of bringing additional value to the Group. Management will continue to adopt a cautious and prudent approach when assessing new investment opportunities.

FURTHER INFORMATION

Your attention is drawn to the information set out in the appendices to this circular.

Yours faithfully, By Order of the Board Hongkong Chinese Limited John Luen Wai Lee Director

– 34 –

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

1. THREE-YEAR FINANCIAL SUMMARY

Set out below is a summary of the audited consolidated profit and loss account and consolidated balance sheet of the Group for each of the three years ended 31st December, 2004, extracted from the relevant annual reports of the Company:

(a) Consolidated Profit and Loss Account

	For the year	ended 31st	December
	2004	2003	2002
	HK$’000	HK$’000	HK$’000
Turnover	1,177,912	617,246	260,287
Cost of sales	(1,030,090)	(455,777)	(111,541)
Gross profit	147,822	161,469	148,746
Other revenue	–	4,171	–
Administrative expenses	(70,531)	(70,165)	(85,340)
Other operating expenses	(39,725)	(34,422)	(37,247)
Write-back of provision/(Provisions)
for bad and
doubtful debts relating to:
Banking operation	666	(3,753)	(4,025)
Non-banking operations	(1,203)	(1,916)	(19,851)
Provisions for impairment losses:
An associate	(16,603)	–	–
Investment securities	(2,776)	(20,000)	–
Goodwill	–	–	(3,330)
Net unrealised holding
gain/(loss) on other
investments in securities	(61,303)	54,926	(6,448)
Net unrealised gain/(loss)
on transfer of investment
securities and held-to-maturity
securities to other investments
in securities	(7,856)	20,483	–
Write-back of provision/(Provision)
for loss on guaranteed return
arrangement for fund management	–	10,868	(88,290)
Loss on disposal of subsidiaries	–	–	(10,545)
Profit/(Loss) from operating activities	(51,509)	121,661	(106,330)
Finance costs	(4,873)	(4,700)	(4,228)
Share of results of associates	(5,309)	(6,488)	(133)
Profit/(Loss) before tax	(61,691)	110,473	(110,691)
Tax	(4,743)	(5,182)	(427)
Profit/(Loss) before minority interests	(66,434)	105,291	(111,118)
Minority interests	1,477	776	(250)
Net profit/(loss) from ordinary activities
attributable to shareholders	(64,957)	106,067	(111,368)

– 35 –

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

(b) Consolidated Balance Sheet

ASSETS NON-CURRENT ASSETS Goodwill Fixed assets Investment properties Properties under development Interests in associates Interests in a jointly controlled entity Investment securities Held-to-maturity securities Assets less liabilities attributable to banking operation Deposit paid for long term investments CURRENT ASSETS Property held for sale Loans and advances Other investments in securities Debtors, prepayments and deposits Certificates of deposit held Client trust bank balances Cash and bank balances TOTAL ASSETS EQUITY AND LIABILITIES CAPITAL AND RESERVES Share capital Reserves MINORITY INTERESTS CURRENT LIABILITIES Bank loans Creditors, accruals and deposits received Provision for loss on guaranteed return arrangement for fund management Tax payable TOTAL EQUITY AND LIABILITIES	As 2004 HK$’000 56,553 10,704 96,144 99,767 27,166 7,313 365,658 – 175,411 – 838,716 10,140 175,598 1,144,248 167,496 – 389,123 762,273 2,648,878 3,487,594 1,346,829 1,359,505 2,706,334 30,204 208,761 539,260 – 3,035 751,056 3,487,594	at 31st December 2003 2002 HK$’000 HK$’000 60,893 63,881 5,004 3,550 16,750 7,336 – – 48,544 64,117 – – 171,867 132,846 – 355,152 156,081 148,971 – 74,342 459,139 850,195 – – 91,888 115,260 1,033,890 166,098 330,369 261,275 – 1,000,000 430,558 253,930 1,335,116 834,449 3,221,821 2,631,012 3,680,960 3,481,207 1,346,829 1,351,537 1,474,494 1,428,260 2,821,323 2,779,797 24,793 27,006 10,000 21,000 822,042 515,114 – 138,290 2,802 – 834,844 674,404 3,680,960 3,481,207	at 31st December 2003 2002 HK$’000 HK$’000 60,893 63,881 5,004 3,550 16,750 7,336 – – 48,544 64,117 – – 171,867 132,846 – 355,152 156,081 148,971 – 74,342 459,139 850,195 – – 91,888 115,260 1,033,890 166,098 330,369 261,275 – 1,000,000 430,558 253,930 1,335,116 834,449 3,221,821 2,631,012 3,680,960 3,481,207 1,346,829 1,351,537 1,474,494 1,428,260 2,821,323 2,779,797 24,793 27,006 10,000 21,000 822,042 515,114 – 138,290 2,802 – 834,844 674,404 3,680,960 3,481,207
			850,195
			– 115,260 166,098 261,275 1,000,000 253,930 834,449
			2,631,012
			3,481,207

			1,351,537 1,428,260
			2,779,797
			27,006
			21,000 515,114 138,290 –
			674,404
			3,481,207

– 36 –

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

2. AUDITED FINANCIAL STATEMENTS

The following is a summary of the audited consolidated income statement of the Company for the two years ended 31st December, 2004, the audited consolidated balance sheet of the Group and the audited balance sheet of the Company as at 31st December, 2004 and 2003, the audited consolidated statement of changes in equity and audited consolidated cash flow statement of the Group for the two years ended 31st December, 2004 together with accompanying notes extracted from the annual report of the Company for the year ended 31st December, 2004:

Consolidated Profit and Loss Account

For the year ended 31st December, 2004

Note Turnover 5 Cost of sales Gross profit Other revenue Administrative expenses Other operating expenses Write-back of provision/(Provisions) for bad and doubtful debts relating to: Banking operation Non-banking operations Provisions for impairment losses: An associate Investment securities Net unrealised holding gain/(loss) on other investments in securities Net unrealised gain/(loss) on transfer of investment securities and held-to-maturity securities to other investments in securities 6 Write-back of provision for loss on guaranteed return arrangement for fund management Profit/(Loss) from operating activities 7 Finance costs 11 Share of results of associates Profit/(Loss) before tax Tax 12 Profit/(Loss) before minority interests Minority interests Net profit/(loss) from ordinary activities attributable to shareholders 13 & 27 Earnings/(Loss) per share 14 Basic Diluted Distributions 15 Interim, declared and paid Final, proposed/paid after the balance sheet date		2004 HK$’000 1,177,912 (1,030,090) 147,822 – (70,531) (39,725) 666 (1,203) (16,603) (2,776) (61,303) (7,856) – (51,509) (4,873) (5,309) (61,691) (4,743) (66,434) 1,477 (64,957) HK cents (4.8) N/A HK$’000 20,202 40,405		2003 HK$’000 617,246 (455,777) 161,469 4,171 (70,165) (34,422) (3,753) (1,916) – (20,000) 54,926 20,483 10,868 121,661 (4,700) (6,488) 110,473 (5,182) 105,291 776 106,067 HK cents 7.9 N/A HK$’000 20,202 40,405

– 37 –

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

Consolidated Balance Sheet

As at 31st December, 2004

Note ASSETS NON-CURRENT ASSETS Goodwill 16 Fixed assets 17 Investment properties 18 Properties under development 19 Interests in associates 20 Interests in a jointly controlled entity 21 Investment securities 22 Assets less liabilities attributable to banking operation 23 CURRENT ASSETS Property held for sale Loans and advances Other investments in securities 24 Debtors, prepayments and deposits 25 Client trust bank balances Cash and bank balances TOTAL ASSETS EQUITY AND LIABILITIES CAPITAL AND RESERVES Share capital 26 Reserves 27 MINORITY INTERESTS CURRENT LIABILITIES Bank loans 28 Creditors, accruals and deposits received 29 Tax payable TOTAL EQUITY AND LIABILITIES	2004 HK$’000 56,553 10,704 96,144 99,767 27,166 7,313 365,658 175,411 838,716 10,140 175,598 1,144,248 167,496 389,123 762,273 2,648,878 3,487,594 1,346,829 1,359,505 2,706,334 30,204 208,761 539,260 3,035 751,056 3,487,594	2003 HK$’000 60,893 5,004 16,750 – 48,544 – 171,867 156,081
		459,139
		– 91,888 1,033,890 330,369 430,558 1,335,116
		3,221,821
		3,680,960

		1,346,829 1,474,494
		2,821,323
		24,793
		10,000 822,042 2,802
		834,844
		3,680,960

– 38 –

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

Consolidated Summary Statement of Changes In Equity

For the year ended 31st December, 2004

Note Total equity as at 1st January Surplus on revaluation of investment properties 27 Exchange differences on translation of the financial statements of foreign entities Net gain/(loss) not recognised in the consolidated profit and loss account Net profit/(loss) from ordinary activities attributable to shareholders 27 Repurchase of shares 27 2002 final distribution, declared 27 2003 interim distribution, declared 15 & 27 2003 final distribution, declared 15 & 27 2004 interim distribution, declared 15 & 27 Total equity as at 31st December	2004 HK$’000 2,821,323 7,461 3,114 10,575 (64,957) – – – (40,405) (20,202) 2,706,334	2003 HK$’000 2,779,797 – (969) (969) 106,067 (2,965) (40,405) (20,202) – – 2,821,323

– 39 –

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

Balance Sheet

As at 31st December, 2004

Note ASSETS NON-CURRENT ASSETS Fixed assets 17 Interests in subsidiaries 30 Interests in associates 20 Investment securities 22 CURRENT ASSETS Other investments in securities 24 Debtors, prepayments and deposits Cash and bank balances TOTAL ASSETS EQUITY AND LIABILITIES CAPITAL AND RESERVES Share capital 26 Reserves 27 CURRENT LIABILITIES Bank loans 28 Creditors, accruals and deposits received TOTAL EQUITY AND LIABILITIES	2004 HK$’000 2,135 2,005,994 – 31,915 2,040,044 337,033 25,944 364,529 727,506 2,767,550 1,346,829 1,305,757 2,652,586 108,761 6,203 114,964 2,767,550	2003 HK$’000 1,626 1,793,759 28,435 31,915
		1,855,735
		194,681 1,984 742,831
		939,496
		2,795,231

		1,346,829 1,393,605
		2,740,434
		– 54,797
		54,797
		2,795,231

– 40 –

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

Consolidated Cash Flow Statement

For the year ended 31st December, 2004

Note Cash flows from operating activities Cash from/(used in) operations 31(a) Interest received Dividend received from listed investments Dividend received from an associate Taxes paid: Hong Kong Overseas Net cash from/(used in) operating activities Cash flows from investing activities Capital injection to banking operation Return of capital by an associate Receipts from disposal of investment securities Payments to acquire: Fixed assets Properties under development Investment properties Investment securities Associates Increase in interests in subsidiaries Increase in interests in associates Advance from banking operation Advances to associates Advance to a jointly controlled entity Disposal of a subsidiary, net of cash disposed of 31(b) Acquisition of subsidiaries, net of cash acquired 31(c) Deposits refunded from long term investments Net cash used in investing activities Cash flows from financing activities Interest paid Distributions paid Drawdown of bank loans_(Note) Repayment of bank loans(Note)_ Repurchase of shares Issue of shares by subsidiaries to minority shareholders Advance from minority shareholders of a subsidiary Net cash from/(used in) financing activities	2004 HK$’000 (353,849) 38,176 16,930 – (1,815) (11) (300,569) (29,100) – 2,340 (7,764) (97,193) (71,682) (216,822) (1,903) – (17,083) 15,540 (1,587) (7,313) (1,264) 21,224 – (412,607) (3,466) (60,607) 545,761 (347,000) – 4,398 610 139,696	2003 HK$’000 850,280 53,481 4,745 7,379 (609) – 915,276 – 25,478 – (3,068) – – (20,952) (24,154) (2,067) – – (7) – – – 267 (24,503) (4,700) (60,607) 142,000 (153,000) (2,965) – – (79,272)

– 41 –

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

Note Net increase/(decrease) in cash and cash equivalents Cash and cash equivalents at beginning of year Exchange realignments Cash and cash equivalents at end of year Analysis of balances of cash and cash equivalents: Cash and bank balances	2004 HK$’000 (573,480) 1,335,116 637 762,273 762,273	2003 HK$’000 811,501 525,228 (1,613) 1,335,116 1,335,116

Note: The amounts exclude bank loans drawn down by the Group for lending to its margin clients in respect of the initial public offerings. All such bank loans were fully repaid during the year.

– 42 –

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

Notes to the Financial Statements

1. CORPORATE INFORMATION

The principal activity of the Company is investment holding. Its subsidiaries, associates and a jointly controlled entity are principally engaged in investment holding, property investment and development, fund management, underwriting, corporate finance, securities broking, securities investment, treasury investment, money lending, banking and other related financial services.

In the opinion of the Directors, the ultimate holding company of the Company is Lippo Cayman Limited which is incorporated in the Cayman Islands.

2. IMPACT OF RECENTLY ISSUED HONG KONG FINANCIAL REPORTING STANDARDS (“HKFRS”)

The Hong Kong Institute of Certified Public Accountants has issued a number of new and revised Hong Kong Financial Reporting Standards and Hong Kong Accounting Standards, herein collectively referred to as the new HKFRSs, which are generally effective for accounting periods beginning on or after 1st January, 2005. The Group has not early adopted these new HKFRSs in the financial statements for the year ended 31st December, 2004. The new HKFRSs may result in changes in the future as to how the Group’s financial performance and financial position are prepared and presented.

3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

(a) Basis of preparation

These financial statements have been prepared in accordance with Hong Kong Financial Reporting Standards (which also include Statements of Standard Accounting Practice (“SSAPs”) and Interpretations) issued by the Hong Kong Institute of Certified Public Accountants, accounting principles generally accepted in Hong Kong and the disclosure requirements of the Companies Ordinance. They have been prepared under the historical cost convention, except for the periodic remeasurement of investment properties and certain securities investments as further explained below.

(b) Basis of consolidation

The consolidated financial statements incorporate the financial statements of the Company and its subsidiaries for the year ended 31st December, 2004. The results of subsidiaries acquired or disposed of during the year are consolidated from or to their effective dates of acquisition or disposal, respectively. All significant intercompany transactions and balances within the Group are eliminated on consolidation.

Minority interests shown in the consolidated profit and loss account and the consolidated balance sheet represent the interests of outsider shareholders in the results and net assets of the Company’s subsidiaries, respectively.

(c) Subsidiaries

A subsidiary is a company whose financial and operating policies the Company controls, directly or indirectly, so as to obtain benefits from its activities.

The results of subsidiaries are included in the Company’s profit and loss account to the extent of dividends received and receivable. Interests in subsidiaries are stated in the Company’s balance sheet at cost less any impairment losses.

– 43 –

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

(d) Joint venture companies

A joint venture company is a company set up by contractual arrangement, whereby the Group and other parties undertake an economic activity. The joint venture company operates as a separate entity in which the Group and the other parties have an interest.

The joint venture agreement between the venturers stipulates the capital contributions of the joint venture parties, the duration of the joint venture and the basis on which the assets are to be realised upon its dissolution. The profits and losses from the joint venture company’s operations and any distributions of surplus assets are shared by the venturers, either in proportion to their respective capital contributions, or in accordance with the terms of the joint venture agreement.

A joint venture company is treated as:

(i) a subsidiary, if the Group has unilateral control, directly or indirectly, over the joint venture company;
(ii) a jointly controlled entity, if the Group does not have unilateral control, but has joint control, directly or indirectly, over the joint venture company;
(iii) an associate, if the Group does not have unilateral or joint control, but holds, directly or indirectly, generally not less than 20 per cent. of the joint venture company’s registered capital and is in a position to exercise significant influence over the joint venture company; or
(iv) a long term investment, if the Group holds, directly or indirectly, less than 20 per cent. of the joint venture company’s registered capital and has neither joint control of, nor is in a position to exercise significant influence over, the joint venture company.

(e) Jointly controlled entity

A jointly controlled entity is a joint venture company which is subject to joint control, resulting in none of the participating parties having unilateral control over the economic activity of the jointly controlled entity.

The Group’s share of the post-acquisition results and reserves of jointly controlled entities is included in the consolidated profit and loss account and consolidated reserves, respectively. The Group’s interests in jointly controlled entities are stated in the consolidated balance sheet at the Group’s share of net assets under the equity method of accounting, less any impairment losses.

(f) Associates

An associate is a company, not being a subsidiary or a jointly controlled entity, in which the Group has a long term interest of generally not less than 20 per cent. of the equity voting rights and over which it is in a position to exercise significant influence.

The Group’s share of the post-acquisition results and reserves of associates is included in the consolidated profit and loss account and consolidated reserves, respectively. The Group’s interests in associates are stated in the consolidated balance sheet at the Group’s share of net assets under the equity method of accounting, less any impairment losses. Goodwill arising from the acquisition of associates is included as part of the Group’s interests in associates.

The results of associates are included in the Company’s profit and loss account to the extent of dividends received and receivable. The Company’s interests in associates are treated as long term assets and are stated at cost less any impairment losses.

– 44 –

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

(g) Goodwill

Goodwill arising from the acquisition of subsidiaries and associates represents the excess of the cost of the acquisition over the Group’s share of the fair values of the identifiable assets and liabilities acquired as at the date of acquisition.

Goodwill arising from acquisition is recognised in the consolidated balance sheet as an asset and amortised on the straight-line basis over its estimated useful life of not exceeding 20 years. Goodwill is stated in the consolidated balance sheet at cost less any accumulated amortisation and any impairment losses which may be present. In the case of associates, any unamortised goodwill is included in the carrying amount thereof, rather than as a separately identified asset on the consolidated balance sheet.

On disposal of subsidiaries or associates, the gain or loss on disposal is calculated by reference to the net assets at the date of disposal, including the attributable amount of goodwill which remains unamortised and any relevant reserves, as appropriate.

The carrying amount of goodwill is reviewed annually and written down for impairment when it is considered necessary. A previously recognised impairment loss for goodwill is not reversed unless the impairment loss was caused by a specific external event of an exceptional nature that was not expected to recur, and subsequent external events have occurred which have reversed the effect of that event.

(h) Negative goodwill

Negative goodwill arising from the acquisition of subsidiaries and associates represents the excess of the Group’s share of the fair values of the identifiable assets and liabilities acquired as at the date of acquisition, over the cost of the acquisition.

To the extent that negative goodwill relates to expectations of future losses and expenses that are identified in the acquisition plan and that can be measured reliably, but which do not represent identifiable liabilities as at the date of acquisition, that portion of negative goodwill is recognised as income in the consolidated profit and loss account when the future losses and expenses are recognised.

To the extent that negative goodwill does not relate to identifiable expected future losses and expenses as at the date of acquisition, negative goodwill is recognised in the consolidated profit and loss account on a systematic basis over the remaining average useful life of the acquired depreciable/amortisable assets. The amount of any negative goodwill in excess of the fair values of the acquired non-monetary assets is recognised as income immediately.

In the case of associates, any negative goodwill not yet recognised in the consolidated profit and loss account is included in the carrying amount thereof, rather than as a separately identified item on the consolidated balance sheet.

On disposal of subsidiaries or associates, the gain or loss on disposal is calculated by reference to the net assets at the date of disposal, including the attributable amount of negative goodwill which remains unamortised and any relevant reserves, as appropriate. Any attributable negative goodwill previously credited to the capital reserve at the time of acquisition is written back and included in the calculation of the gain or loss on disposal.

(i) Impairment of assets

An assessment is made at each balance sheet date of whether there is any indication of impairment of any asset, or whether there is any indication that an impairment loss previously recognised for an asset in prior years may no longer exist or may have decreased. If any such indication exists, the asset’s recoverable amount is estimated. An asset’s recoverable amount is calculated as the higher of the asset’s value in use and its net selling price.

– 45 –

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

An impairment loss is recognised only if the carrying amount of an asset exceeds its recoverable amount. An impairment loss is charged to the profit and loss account in the period in which it arises, unless the asset is carried at a revalued amount, when the impairment loss is accounted for in accordance with the relevant accounting policy for that revalued asset.

A previously recognised impairment loss is reversed only if there has been a change in the estimates used to determine the recoverable amount of an asset, however not to an amount higher than the carrying amount that would have been determined (net of any depreciation/ amortisation), had no impairment loss been recognised for the asset in prior years. A reversal of an impairment loss is credited to the profit and loss account in the period in which it arises, unless the asset is carried at a revalued amount, when the reversal of the impairment loss is accounted for in accordance with the relevant accounting policy for that revalued asset.

(j) Fixed assets and depreciation

Fixed assets, other than investment properties, are stated at cost less accumulated depreciation and any impairment losses. The cost of an asset comprises its purchase price and any directly attributable costs of bringing the asset to its working condition and location for its intended use. Expenditure incurred after fixed assets have been put into operation, such as repairs and maintenance, is normally charged to the profit and loss account in the period in which it is incurred. In situations where it can be clearly demonstrated that the expenditure has resulted in an increase in the future economic benefits expected to be obtained from the use of the asset, the expenditure is capitalised as an additional cost to that asset.

Depreciation of fixed assets is calculated on the straight-line basis to write off the cost of each asset over its estimated useful life. The principal annual rates used for this purpose are as follows:

Land and buildings 1 per cent. Leasehold improvements Over the remaining lease terms Furniture, fixtures and equipment 10 per cent. to 33[1] /3 per cent. Motor vehicles 20 per cent. to 25 per cent.

The gain or loss on disposal or retirement of a fixed asset, other than investment properties, recognised in the profit and loss account is the difference between the net sales proceeds and the carrying amount of the relevant asset.

(k) Investment properties

Investment properties are interests in land and buildings in respect of which construction work and development have been completed and which are intended to be held on a long term basis for their investment potential, with any rental income being negotiated at arm’s length. Such properties are stated at their open market values on the basis of annual professional valuations at the end of each financial year and are not depreciated except where the unexpired terms of the leases are 20 years or less, in which case the then carrying amounts are amortised on the straight-line basis over the respective remaining lease terms. Changes in the values of investment properties are dealt with as movements in the investment property revaluation reserve. If the total of this reserve is insufficient to cover a deficit, on a portfolio basis, the excess of the deficit is charged to the profit and loss account. Any subsequent revaluation surplus is credited to the profit and loss account to the extent of the deficit previously charged.

Upon disposal of an investment property, the relevant portion of the investment property revaluation reserve realised in respect of previous valuations is released to the profit and loss account.

(l) Properties under development

Properties under development intended for sale are stated at the lower of cost and net realisable value, which is determined by reference to prevailing market prices, on an individual property basis. Other properties under development are stated at cost less any impairment losses.

– 46 –

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

(m) Investment securities

Investment securities are investments in equity securities, debt securities and investment funds which are intended to be held on a continuing strategic or long term purpose. Investment securities are included in the balance sheet at cost less impairment losses, on an individual investment basis.

When a decline in the fair value of a security below its carrying amount has occurred, the carrying amount of the security is reduced to its fair value, as determined by the Directors. The amount of the impairment is charged to the profit and loss account for the period in which it arises. When the circumstances and events which led to the impairment losses cease to exist and there is persuasive evidence that the new circumstances and events will persist for the foreseeable future, the amounts of the impairment previously charged is credited to the profit and loss account to the extent of the amount previously charged.

(n) Other investments in securities

Other investments in securities are those securities which are not classified as investment securities nor held-to-maturity securities, and are stated at their fair values on the basis of their quoted prices at the balance sheet date, on an individual investment basis. Unrealised holding gains or losses arising from changes in fair values of securities are dealt with in the profit and loss account as they arise.

(o) Property held for sale

Property held for sale is stated at the lower of cost and net realisable value, which is determined by reference to prevailing market prices, on an individual property basis.

(p) Revenue recognition

Revenue is recognised when it is probable that the economic benefits will flow to the Group and when the revenue can be measured reliably, on the following bases:

(i) rental income, in the period in which the properties are let and on the straight-line basis over the lease terms;
(ii) dealings in securities and sale of investments, on the transaction dates when the relevant contract notes are exchanged;
(iii) interest income, in proportion to time, taking into account the principal outstanding and the effective interest rate applicable;
(iv) dividend income, when the shareholders’ right to receive payment has been established; and
(v) commission income is accounted for, in the period when receivable, unless it is charged to cover the costs of a continuing service to, or risk borne for, customers, or is interest income in nature. In this case, commission income is recognised on a pro rata basis over the relevant period.

(q) Income tax

Income tax comprises current and deferred tax. Income tax is recognised in the profit and loss account or in equity if it relates to items that are recognised in the same or a different period directly in equity.

Deferred tax is provided, using the liability method, on all temporary differences at the balance sheet date between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes.

– 47 –

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

Deferred tax liabilities are recognised for all taxable temporary differences in respect of taxable temporary differences associated with investments in subsidiaries, associates and interests in joint ventures, except where the timing of the reversal of the temporary differences can be controlled and it is probable that the temporary differences will not reverse in the foreseeable future.

Deferred tax assets are recognised for all deductible temporary differences, carryforward of unused tax assets and unused tax losses, to the extent that it is probable that taxable profit will be available against which the deductible temporary differences, and the carryforward of unused tax assets and unused tax losses can be utilised. In respect of deductible temporary differences associated with investments in subsidiaries, associates and interests in joint ventures, deferred tax assets are only recognised to the extent that it is probable that the temporary differences will reverse in the foreseeable future and taxable profit will be available against which the temporary differences can be utilised.

The carrying amount of deferred tax assets is reviewed at each balance sheet date and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred tax asset to be utilised. Conversely, previously unrecognised deferred tax assets are recognised to the extent that it is probable that sufficient taxable profit will be available to allow all or part of the deferred tax asset to be utilised.

Deferred tax assets and liabilities are measured at the tax rates that are expected to apply to the period when the asset is realised or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted at the balance sheet date.

(r) Provisions

A provision is recognised when a present obligation (legal or constructive) has arisen as a result of a past event and it is probable that a future outflow of resources will be required to settle the obligation, provided that a reliable estimate can be made of the amount of the obligation.

When the effect of discounting is material, the amount recognised for a provision is the present value at the balance sheet date of the future expenditures expected to be required to settle the obligation. The increase in the discounted present value amount arising from the passage of time is included in finance costs in the profit and loss account.

(s) Employee benefits

Paid leave entitlement

The Group provides paid annual leave to its employees under their employment contracts on a calendar year basis. Under certain circumstances, such leave which remains untaken as at the balance sheet date is permitted to be carried forward and utilised by the respective employees in the following year. An accrual is made at the balance sheet date for the expected future cost of such paid leave earned during the year by the employees and carried forward at the balance sheet date.

Retirement benefits costs

Employer’s contributions made by the Group to the Mandatory Provident Fund schemes operated for the benefits of employees of the Group as required under the Hong Kong Mandatory Provident Fund Schemes Ordinance are charged to the profit and loss account when incurred. The assets of the schemes are held separately from those of the Group in independently administered funds.

– 48 –

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

(t) Operating leases

Leases where substantially all the rewards and risks of ownership of assets remain with the lessor are accounted for as operating leases. Where the Group is the lessor, assets leased by the Group under operating leases are included in non-current assets and rentals receivable under the operating leases are credited to the profit and loss account on the straight-line basis over the lease terms. Where the Group is the lessee, rentals payable under the operating leases are charged to the profit and loss account on the straight-line basis over the lease terms.

(u) Foreign currencies

Foreign currency transactions are recorded at the applicable exchange rates ruling at the transaction dates. Monetary assets and liabilities denominated in foreign currencies at the balance sheet date are translated at the applicable exchange rates ruling at that date. Exchange differences are dealt with in the profit and loss account.

On consolidation, the financial statements of overseas subsidiaries, associates and jointly controlled entities denominated in foreign currencies, are translated into Hong Kong dollars using the net investment method. The profit and loss accounts of overseas subsidiaries, associates and jointly controlled entities are translated into Hong Kong dollars at the weighted average exchange rates for the year, and their balance sheets are translated into Hong Kong dollars at the exchange rates ruling at the balance sheet date. The resulting translation differences are included in the exchange equalisation reserve.

For the purpose of the consolidated cash flow statement, the cash flows of overseas subsidiaries are translated into Hong Kong dollars at the exchange rates ruling at the dates of the cash flows or at an approximation thereto, the weighted average exchange rates for the year. Frequently recurring cash flows of overseas subsidiaries which arise throughout the year are translated into Hong Kong dollars at the weighted average exchange rates for the year.

(v) Cash and cash equivalents

For the purpose of the consolidated cash flow statement, cash and cash equivalents represent cash on hand and demand deposits, and short term highly liquid investments which are readily convertible into known amounts of cash and which are subject to an insignificant risk of changes in value, and have a short maturity of generally within three months when acquired, less bank overdrafts which are repayable on demand and form an integral part of the Group’s cash management.

For the purpose of the balance sheet, cash and bank balances comprise cash on hand and at banks, including term deposits, which are not restricted as to use.

(w) Related parties

Parties are considered to be related if one party has the ability, directly or indirectly, to control the other party or exercise significant influence over the other party in making financial and operating decisions. Parties are also considered to be related if they are subject to common control or common significant influence. Related parties may be individuals or corporate entities.

(x) Dividends and distributions

Final dividends and distributions proposed by the Directors are classified as a separate allocation of distributable reserves within the capital and reserves section of the balance sheet, until they have been approved by the shareholders in a general meeting. When these dividends and distributions have been approved by the shareholders and declared, they are recognised as a liability.

Interim dividends and distributions are simultaneously proposed and declared because the Company’s memorandum of association and bye-laws grant the Directors the authority to declare interim dividends and distributions. Consequently, interim dividends and distributions are recognised immediately as a liability when they are proposed and declared.

– 49 –

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

(y) Accounting for banking operation

Banking operation represent operation carried out through The Macau Chinese Bank Limited (“MCB”). The principal accounting policies which are specific to the banking operation are described below:

(i) Advances to customers, banks and other financial institutions

Advances to customers, banks and other financial institutions are reported in the balance sheet at the principal amount outstanding, net of provisions for bad and doubtful debts. Advances to banks and other financial institutions include placements with banks and other financial institutions of more than one year.

All advances are recognised when cash is advanced to borrowers.

Cash rebates granted in relation to residential mortgage loans are capitalised and amortised to the profit and loss account on the straight-line basis over the terms of the loans, or, where relevant, the early repayment penalty period.

(ii) Finance leases and hire purchase contracts

The amounts due from customers in respect of finance leases and hire purchase contracts are included in the balance sheet at net investment which represents the total rentals receivable under finance leases and hire purchase contracts less unearned income. Finance income implicit in the rentals receivable is credited to the profit and loss account over the lease period so as to produce an approximately constant periodic rate of return on the net investment for each accounting period.

(iii) Off-balance sheet financial instruments

Off-balance sheet financial instruments arise from forward and swap transactions undertaken by the banking operation in the foreign exchange, interest rate and equity markets. The accounting for these instruments is dependent upon whether the transactions are undertaken for trading purposes or to hedge risk.

Transactions undertaken for trading purposes are marked to market and the gains or losses arising is recognised in the profit and loss account. Transactions designated as hedges are valued on an equivalent basis to the assets, liabilities or net positions that they are hedging. Any profit or loss is recognised in the profit and loss account on the same basis as that arising from the related assets, liabilities or net positions.

Unrealised gains and losses on transactions which are marked to market are included under assets and liabilities, respectively, in the balance sheet.

4. SEGMENT INFORMATION

Segment information is presented by way of business segment as the primary segment reporting format and geographical segment as the secondary segment reporting format.

The Group’s operating businesses are structured and managed separately, according to the nature of their operations. The Group’s business segments represent different strategic business units which are subject to risks and returns that are different from those of the other business segments. In respect of geographical segment reporting, turnover is based on the location of customers, and assets and capital expenditure are based on the location of the assets. Descriptions of the business segments are as follows:

(a) the property investment and development segment includes letting and development of properties;
(b) the treasury investment segment includes investments in cash and bond markets;

– 50 –

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

(c) the securities investment segment includes dealings in securities and disposal of investments;
(d) the corporate finance and securities broking segment provides securities and futures brokerage, investment banking, underwriting and other related advisory services;
(e) the banking business segment engages in the provision of commercial and retail banking services;
(f) the information technology segment engages in the development of computer hardware and software; and
(g) the “other” segment comprises principally money lending and fund management services.

An analysis of the Group’s segment information by business segment is set out below:

Group

2004 Revenue External Inter-segment Total Segment results Unallocated corporate expenses Share of results of associates Loss before tax Tax Loss before minority interests Minority interests Net loss from ordinary activities attributable to shareholders	Property investment and development HK$’000 2,056 – 2,056 (2,486 ) –	Treasury investment HK$’000 12,988 906 13,894 12,327 –	Securities investment HK$’000 1,073,582 – 1,073,582 (5,263 ) –	Corporate finance and securities broking HK$’000 65,045 1,453 66,498 4,077 –	Banking business HK$’000 16,198 – 16,198 3,972 –	Information technology HK$’000 900 – 900 (10,817 ) (2,379 )	Other HK$’000 7,143 – 7,143 (2,225 ) (2,930 )	Inter- segment elimination Consolidated HK$’000 HK$’000 – 1,177,912 (2,359 ) – (2,359 ) 1,177,912 – (415) (55,967 ) – (5,309 ) (61,691 ) (4,743 ) (66,434 ) 1,477 (64,957 )

– 51 –

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

Group

	Property			Corporate
	investment			finance and				Inter-
	and	Treasury	Securities	securities	Banking	Information		segment
2004	development	investment	investment	broking	business	technology	Other	elimination	Consolidated
	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000
Segment assets	226,930	721,008	1,507,047	721,143	232,696	3,567	20,394	–	3,432,785
Interests in associates	–	–	–	1,334	–	–	25,832	–	27,166
Interests in a jointly
controlled entity	7,313	–	–	–	–	–	–	–	7,313
Unallocated assets									20,330
Total assets									3,487,594
Segment liabilities	2,672	–	110,250	622,890	–	22	2,805	–	738,639
Unallocated liabilities									12,417
Total liabilities									751,056
Other segment information:
Capital expenditure	4,948	–	–	781	–	101	1,012	–	6,842
Depreciation	(564 )	–	(402)	(681 )	(785 )	(267 )	(241 )	–	(2,940 )
Write-back of provision/
(Provisions) for bad and
doubtful debts relating to:
Banking operation	–	–	–	–	666	–	–	–	666
Non-banking operations	–	–	–	(1,203 )	–	–	–	–	(1,203 )
Provision for impairment loss
in investment securities	–	–	(2,776 )	–	–	–	–	–	(2,776 )
Net unrealised holding loss
on other investments in
securities	–	–	(61,303 )	–	–	–	–	–	(61,303 )
Negative goodwill recognised
as income/(Amortisation of
goodwill) arising from
acquisition of subsidiaries	–	–	–	–	(3,356 )	(806 )	146	–	(4,016 )
Write-back of deficit on
revaluation of
investment properties	316	–	–	–	–	–	–	–	316
Unallocated:
Capital expenditure									922
Depreciation									(431 )
Provision for impairment loss
in an associate									(16,603 )

– 52 –

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

Group

2003 Revenue External Inter-segment Total Segment results Unallocated corporate expenses Share of results of associates Profit before tax Tax Profit before minority interests Minority interests Net profit from ordinary activities attributable to shareholders	Property investment and development HK$’000 323 – 323 (515 ) –	Treasury investment HK$’000 51,461 706 52,167 50,097 –	Securities investment HK$’000 460,092 – 460,092 91,310 –	Corporate finance and securities broking HK$’000 56,828 1,008 57,836 4,784 –	Banking business HK$’000 21,434 – 21,434 4,808 –	Information technology HK$’000 – – – (6,422 ) (5,419 )	Other HK$’000 31,279 – 31,279 10,573 (1,069 )	Inter- segment elimination Consolidated HK$’000 HK$’000 – 621,417 (1,714 ) – (1,714 ) 621,417 706 155,341 (38,380 ) – (6,488 ) 110,473 (5,182 ) 105,291 776 106,067

– 53 –

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

Group

	Property			Corporate
	investment			finance and				Inter-
	and	Treasury	Securities	securities	Banking	Information		segment
2003	development	investment	investment	broking	business	technology	Other	elimination	Consolidated
	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000
Segment assets	16,750	1,308,931	1,216,007	796,547	216,722	4,166	55,362	–	3,614,485
Interests in associates	–	–	–	1,340	–	3,143	44,061	–	48,544
Unallocated assets									17,931
Total assets									3,680,960
Segment liabilities	–	–	59,937	730,312	–	120	26,748	–	817,117
Unallocated liabilities									17,727
Total liabilities									834,844
Other segment information:
Capital expenditure	–	–	–	14	26,982	–	1,596	–	28,592
Depreciation	–	–	(539)	(665 )	(820 )	–	(238 )	–	(2,262 )
Provision for bad and
doubtful debts relating to:
Banking operation	–	–	–	–	(3,753 )	–	–	–	(3,753 )
Non-banking operations	–	–	–	(1,916 )	–	–	–	–	(1,916 )
Provision for impairment
loss on investment
securities	–	–	(20,000 )	–	–	–	–	–	(20,000 )
Net unrealised holding gain
on other investments in
securities	–	–	54,926	–	–	–	–	–	54,926
Write-back of provision for
loss on guaranteed
return arrangement for
fund management	–	–	–	–	–	–	10,868	–	10,868
Amortisation of goodwill
arising from acquisition
of subsidiaries	–	–	–	–	(3,240 )	–	(378 )	–	(3,618 )
Deficit on revaluation of
investment properties	(316 )	–	–	–	–	–	–	–	(316 )
Unallocated:
Capital expenditure									1,458
Depreciation									(168 )

– 54 –

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

Geographical segments

An analysis of the Group’s segment information by geographical segment is set out below:

Group

2004 Revenue Segment assets Interests in associates Interests in a jointly controlled entity Total assets Capital expenditure 2003 Revenue Segment assets Interests in associates Total assets Capital expenditure	Hong Kong HK$’000 551,467 1,696,399 17,477 – 2,816 Hong Kong HK$’000 323,672 2,651,119 26,904 1,637	Republic of Singapore HK$’000 216,778 571,149 – – – Republic of Singapore HK$’000 234,896 16,962 3,143 1,431	Japan HK$’000 120,181 201,857 – – – Japan HK$’000 – 19,878 – –	Other Consolidated HK$’000 HK$’000 289,486 1,177,912 983,710 3,453,115 9,689 27,166 7,313 7,313 3,487,594 4,948 7,764 Other Consolidated HK$’000 HK$’000 62,849 621,417 944,457 3,632,416 18,497 48,544 3,680,960 26,982 30,050	Other Consolidated HK$’000 HK$’000 289,486 1,177,912 983,710 3,453,115 9,689 27,166 7,313 7,313 3,487,594 4,948 7,764 Other Consolidated HK$’000 HK$’000 62,849 621,417 944,457 3,632,416 18,497 48,544 3,680,960 26,982 30,050

					3,632,416 48,544
					3,680,960

					30,050

– 55 –

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

5. TURNOVER

Turnover represents the aggregate of gross rental income, gross income on treasury investment which includes interest income on bank deposits and held-to-maturity securities, gross proceeds from sales of investments, gross income from underwriting and securities broking, interest and other income from money lending business, gross income from licensing of software, gross income from fund management, dividend income and net interest income, commissions, dealing income and other revenues from a banking subsidiary, after eliminations of all significant intra-group transactions.

An analysis of the turnover of the Group by principal activity is as follows:

Property investment and development Treasury investment Securities investment Corporate finance and securities broking Banking business Information technology Other	Group 2004 2003 HK$’000 HK$’000 2,056 323 12,988 51,461 1,073,582 460,092 65,045 56,828 16,198 17,263 900 – 7,143 31,279 1,177,912 617,246	Group 2004 2003 HK$’000 HK$’000 2,056 323 12,988 51,461 1,073,582 460,092 65,045 56,828 16,198 17,263 900 – 7,143 31,279 1,177,912 617,246
		617,246

Turnover attributable to banking business represents turnover generated from MCB, a licensed credit institution under the Financial System Act of the Macao Special Administrative Region of the People’s Republic of China. Turnover attributable to banking business is analysed as follows:

Interest income Interest expenses Commission income Net dealing income and other revenues	Group 2004 2003 HK$’000 HK$’000 11,247 12,442 (1,777) (2,023 5,793 5,400 935 1,444 16,198 17,263	Group 2004 2003 HK$’000 HK$’000 11,247 12,442 (1,777) (2,023 5,793 5,400 935 1,444 16,198 17,263
		17,263

6. NET UNREALISED GAIN/(LOSS) ON TRANSFER OF INVESTMENT SECURITIES AND HELD-TO-MATURITY SECURITIES TO OTHER INVESTMENTS IN SECURITIES

During the year, investment securities of a total cost of HK$19,019,000 (2003 – investment securities of a total cost of HK$54,681,000 and held-to-maturity securities of a total amortised cost of HK$357,153,000) were transferred to other investments in securities at market value or fair value to reflect the Group’s current intention to sell the investments in response to changes in market conditions, resulting in a loss at the date of transfer of HK$7,856,000 (2003 – gain of HK$20,483,000).

– 56 –

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

7. PROFIT/(LOSS) FROM OPERATING ACTIVITIES

Profit/(Loss) from operating activities is arrived at after crediting/(charging):

Gross rental income
Less:_Outgoings
Net rental income
Staff costs(Note (a)):
Wages and salaries
Retirement benefit costs
_Less:_Forfeited contributions
Net retirement benefit costs
Total staff costs
Interest income(Note (b)):
Listed investments
Unlisted investments
Other
Dividend income:
Listed investments
Unlisted investments
Provision for impairment losses on unlisted investment
securities
Net realised gain on unlisted investment securities
Net realised and unrealised holding gain/(loss) on other
investments in securities:
Listed
Unlisted
Other unlisted investment income
Net unrealised gain/(loss) on transfer of investment
securities and held-to-maturity securities to other
investments in securities:
Listed
Unlisted
Depreciation:
Banking operation
Other
Loss on disposal of fixed assets
Exchange gains/(losses) – net
Write-back of deficit/(Deficit) on revaluation of
investment properties
Auditors’ remuneration
Minimum lease payments under operating lease rentals
in respect of land and buildings
Amortisation of goodwill arising from acquisition of
subsidiaries(Note (c))
Negative goodwill recognised as income(Note (c))_

Group
2004
2003
HK$’000
HK$’000
2,056
323
(1,378)
(128)
678
195
(53,952)
(55,448)
(3,221)
(3,058)
181
73
(3,040)
(2,985)
(56,992)
(58,433)
19,259
22,301
1,171
10,163
12,988
18,997
16,452
4,745
478
–
(2,776)
(20,000)
340
–
(66,968)
80,649
33,111
16,582
5,253
–
(3,766)
12,946
(4,090)
7,537
(785)
(820)
(2,586)
(1,610)
(415)
–
6,933
(2,101)
316
(316)
(1,342)
(1,076)
(8,827)
(8,225)
(4,245)
(3,618)
229
–

– 57 –

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

Note:

(a) The amounts include the Directors’ emoluments disclosed in Note 8 to the financial statements.
(b) The amounts exclude income relating to the banking operation of the Group.
(c) The amortisation of goodwill and negative goodwill recognised as income for the year are included under “Other operating expenses” on the face of the consolidated profit and loss account.

8. DIRECTORS’ EMOLUMENTS

Directors’ emoluments for the year, disclosed pursuant to the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited and Section 161 of the Hong Kong Companies Ordinance, are as follows:

Directors’ fees Basic salaries, housing and other allowances and benefits in kind Bonuses paid and payable Retirement benefits costs	Group 2004 2003 HK$’000 HK$’000 389 318 12,367 4,275 1,200 – 36 36 13,992 4,629	Group 2004 2003 HK$’000 HK$’000 389 318 12,367 4,275 1,200 – 36 36 13,992 4,629
		4,629

Included in Directors’ emoluments were fees of HK$180,000 (2003 – HK$279,000) paid to the independent non-executive Directors in respect of the year.

The number of Directors whose emoluments fell within the following bands is as follows:

Emoluments bands_(HK$)_: Nil – 1,000,000 1,000,001 – 1,500,000 1,500,001 – 2,000,000 2,500,001 – 3,000,000 7,500,001 – 8,000,000	Group 2004 2003 Number of Number of Directors Directors 5 4 1 1 1 2 1 – 1 – 9 7	Group 2004 2003 Number of Number of Directors Directors 5 4 1 1 1 2 1 – 1 – 9 7
		7

There were no arrangements under which a Director waived or agreed to waive any emoluments during the year.

– 58 –

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

9. SENIOR EXECUTIVES’ EMOLUMENTS

The emoluments of the three (2003 – five) highest paid employees are as follows:

Basic salaries, housing and other allowances and benefits in kind Bonuses paid and payable Retirement benefits costs	Group 2004 2003 HK$’000 HK$’000 11,105 8,987 – 11,150 314 289 11,419 20,426	Group 2004 2003 HK$’000 HK$’000 11,105 8,987 – 11,150 314 289 11,419 20,426
		20,426

The five highest paid individuals for the year included two Directors (2003 – Nil), details of whose emoluments are set out in Note 8 to the financial statements.

The number of non-director highest paid employees whose emoluments fell within the following bands is as follows:

Emoluments bands(HK$): 2,000,001 – 2,500,000 2,500,001 – 3,000,000 3,000,001 – 3,500,000 3,500,001 – 4,000,000 4,500,001 – 5,000,000 5,500,001 – 6,000,000	Group 2004 2003 Number of Number of individuals individuals 1 – – 1 1 1 – 1 – 1 1 1 3 5	Group 2004 2003 Number of Number of individuals individuals 1 – – 1 1 1 – 1 – 1 1 1 3 5
		5

10. RETIREMENT BENEFITS COSTS

The Group previously operated several defined contribution schemes pursuant to the Occupational Retirement Schemes Ordinance which were replaced by the Mandatory Provident Fund schemes (the “MPF schemes”) in December 2000 when the Mandatory Provident Fund Schemes Ordinance became effective. The assets of the schemes are held separately from those of the Group in independently administered funds.

Contributions made to the MPF schemes are based on a percentage of the employees’ relevant income and are charged to the profit and loss account as they become payable in accordance with the rules of the schemes. The Group’s employer contributions vest fully with the employees when contributed into the schemes except for the Group’s employer voluntary contributions forfeited when the employees leave employment prior to fully vesting in such contributions, which can be used to reduce the amount of future employer contributions or to offset against future administrative expenses, in accordance with the rules of the schemes.

During the year, the amounts of forfeited employer contributions under the MPF schemes utilised to reduce the amount of employer contributions or for payments of administrative expenses amounted to HK$181,000 (2003 – HK$73,000). The amounts of forfeited voluntary contributions available to offset future employer contributions against the above schemes were not material at the year end. The retirement benefits scheme costs charged to the profit and loss account represent employer contributions paid and payable by the Group to the schemes and amounted to HK$3,040,000 (2003 – HK$2,985,000).

– 59 –

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

11. FINANCE COSTS

Interest on bank loans wholly repayable within five years	Group 2004 2003 HK$’000 HK$’000 4,873 4,700

The amount excludes interest expense incurred by a banking subsidiary of the Group.

12. TAX

Hong Kong: Underprovision in prior years Overseas: Charge for the year Underprovision in prior years Share of tax attributable to an associate: Hong Kong Total charge for the year	Group 2004 2003 HK$’000 HK$’000 2,059 3,464 1,095 1,329 381 – 1,476 1,329 1,208 389 4,743 5,182	Group 2004 2003 HK$’000 HK$’000 2,059 3,464 1,095 1,329 381 – 1,476 1,329 1,208 389 4,743 5,182
		1,329 –
		1,329
		389
		5,182

No provision for Hong Kong profits tax has been made as the Group has available tax losses brought forward from prior years to offset the estimated assessable profits generated during the year. Hong Kong profits tax for the prior year had been provided for at the rate of 17.5 per cent. on the estimated assessable profits arising in Hong Kong during that year. Overseas taxes have been calculated on the estimated assessable profits for the year at the tax rates prevailing in the countries in which the Group operates, based on existing legislation, interpretations and practices in respect thereof.

The Group has tax losses arising in Hong Kong of HK$120,726,000 (2003 – HK$123,012,000) that are available indefinitely for offsetting against future taxable profits of the companies in which the losses arose. Deferred tax assets have not been recognised in respect of these losses.

At 31st December, 2004, there was no significant unrecognised deferred tax liability (2003 – Nil) for taxes that would be payable on the unremitted earnings of certain of the Group’s subsidiaries, a jointly controlled entity or associates as the Group had no liability to additional tax should such amounts be remitted.

There are no income tax consequences attaching to the payment of dividends by the Company to its shareholders.

– 60 –

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

A reconciliation of the tax charge applicable to profit/(loss) before tax using the statutory rate for the country in which the Company and the majority of its subsidiaries, associates and a jointly controlled entity are domiciled to the tax charge is as follows:

Profit/(Loss) before tax
Tax at the statutory tax rate of 17.5 per cent.
(2003 – 17.5 per cent.)
Effect of different tax rates in other jurisdictions
Adjustments in respect of current tax of previous years
Income not subject to tax
Expenses not deductible for tax
Tax losses utilised from previous years
Tax losses not recognised
Tax charge at the Group’s effective rate of 7.7 per cent.
(2003 – 4.7 per cent.)

Group
2004
2003
HK$’000
HK$’000
(61,691)
110,473
(10,796)
19,333
1,118
3,726
2,441
3,464
(14,943)
(36,345)
15,738
2,041
(1,533)
–
12,718
12,963
4,743
5,182

For a company operated in Macau, corporate taxes have been calculated on the estimated assessable profits for the year at the rate of 15.75 per cent. (2003 – 15.75 per cent.).

13. NET PROFIT/(LOSS) FROM ORDINARY ACTIVITIES ATTRIBUTABLE TO SHAREHOLDERS

The net profit/(loss) from ordinary activities attributable to shareholders includes the loss for the year ended 31st December, 2004 dealt with in the financial statements of the Company amounting to HK$27,241,000 (2003 – net profit of HK$41,456,000) as set out in Note 27 to the financial statements.

14. EARNINGS/(LOSS) PER SHARE

(a) Basic earnings/(loss) per share

Basic earnings/(loss) per share is calculated based on (i) the net loss from ordinary activities attributable to shareholders of HK$64,957,000 (2003 – net profit of HK$106,067,000); and (ii) the weighted average number of 1,346,829,000 shares (2003 – 1,347,972,000 shares) in issue during the year.

(b) Diluted earnings/(loss) per share

No diluted earnings/(loss) per share is presented for the years ended 31st December, 2004 and 2003 as there were no dilutive potential ordinary shares during these years.

– 61 –

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

15. DISTRIBUTIONS

Interim, declared and paid, of HK1.5 cents (2003 – HK1.5 cents) per ordinary share Final, proposed, of HK3 cents (2003 – HK3 cents, paid) per ordinary share	Group and Company 2004 2003 HK$’000 HK$’000 20,202 20,202 40,405 40,405 60,607 60,607	Group and Company 2004 2003 HK$’000 HK$’000 20,202 20,202 40,405 40,405 60,607 60,607
		60,607

The proposed final distribution for the year is subject to the approval of the Company’s shareholders at the forthcoming annual general meeting.

16. GOODWILL

Group

Cost: At 1st January, 2004 Additions during the year At 31st December, 2004 Accumulated amortisation and impairment/ (Recognition as income): At 1st January, 2004 Amortisation provided/(Recognised as income) for the year At 31st December, 2004 Net book value: At 31st December, 2004 At 31st December, 2003	Goodwill HK$’000 69,935 1,049 70,984 9,042 4,245 13,287 57,697 60,893	Negative goodwill HK$’000 – (1,373
		(1,373
		– (229
		(229
		(1,144
		–

– 62 –

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

17. FIXED ASSETS

Group

		Leasehold
	improvements,
	furniture, fixtures,
	equipment and
	motor vehicles
		HK$’000
Cost:
At 1st January, 2004		49,027
Additions during the year		7,764
Acquisition of subsidiaries		1,317
Disposal of a subsidiary		(1,181)
Disposals during the year		(1,506)
Exchange adjustments		44
At 31st December, 2004		55,465
Accumulated depreciation:
At 1st January, 2004		44,023
Provided for the year		2,586
Acquisition of subsidiaries		333
Disposal of a subsidiary		(1,175)
Disposals during the year		(1,091)
Exchange adjustments		85
At 31st December, 2004		44,761
Net book value:
At 31st December, 2004		10,704
At 31st December, 2003		5,004
Company
	Furniture, fixtures,
	equipment and
	motor vehicles
		HK$’000
Cost:
At 1st January, 2004		2,378
Additions during the year		922
At 31st December, 2004		3,300
Accumulated depreciation:
At 1st January, 2004		752
Provided for the year		413
At 31st December, 2004		1,165
Net book value:
At 31st December, 2004		2,135
At 31st December, 2003		1,626

– 63 –

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

18. INVESTMENT PROPERTIES


	2004	2003
	HK$’000	HK$’000
Medium term leasehold land and buildings situated in Hong Kong:
Balance at beginning of year	9,700	–
Additions during the year	–	10,075
Surplus/(Deficit) on revaluation	5,100	(375)
Balance at end of year	14,800	9,700
Long term leasehold land and buildings situated in Hong Kong:
Additions during the year	71,682	–
Surplus on revaluation	2,161	–
Balance at end of year	73,843	–
Freehold land and buildings situated outside Hong Kong:
Balance at beginning of year	7,050	7,336
Surplus on revaluation	516	59
Exchange adjustments	(65)	(345)
Balance at end of year	7,501	7,050
Total	96,144	16,750

Based on professional valuations as at 31st December, 2004 made by Mr. Jonathan Miles Foxall, chartered surveyor and a director of certain subsidiaries of the Company, the investment properties in Hong Kong were valued on an open market, existing use basis at HK$88,643,000 (2003 – HK$9,700,000).

Based on a professional valuation as at 31st December, 2004 made by Professional Asset Valuers, Incorporated, property appraiser, the investment property situated outside Hong Kong was valued on an open market, existing use basis at HK$7,501,000 (2003 – HK$7,050,000).

19. PROPERTIES UNDER DEVELOPMENT

Land and buildings situated outside Hong Kong, at cost: Additions during the year Exchange adjustments Balance at end of year Land and buildings held under the following lease terms: Leasehold_(Note)_ Freehold	Group 2004 2003 HK$’000 HK$’000 97,193 – 2,574 – 99,767 – 62,367 – 37,400 – 99,767 –

Note: The lease terms of the properties under development situated outside Hong Kong are 99 years.

– 64 –

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

20. INTERESTS IN ASSOCIATES


	2004	2003
	HK$’000	HK$’000
Share of net assets in unlisted companies	33,169	41,518
Goodwill from acquisition less amortisation	2,596	10,440
Negative goodwill arising from acquisition less recognition	(291)	–
Due from associates	2,767	1,180
	38,241	53,138
Provisions for impairment losses	(11,075)	(4,594)
	27,166	48,544
Share of post-acquisition reserves at the balance sheet date	5,145	16,209

The share of post-acquisition reserves represents that portion attributable to the Group before minority interests therein. The balances with the associates are unsecured, interest-free and have no fixed terms of repayment.

The amounts of goodwill and negative goodwill arising from the acquisition of associates are as follows:

Group Cost: At 1st January, 2004 Additions during the year At 31st December, 2004 Accumulated amortisation and impairment/ (recognition as income): At 1st January, 2004 Amortisation provided/(Recognised as income) for the year Impairment provided for the year At 31st December, 2004 Net book value: At 31st December, 2004 At 31st December, 2003 Unlisted shares, at cost	Negative Goodwill goodwill HK$’000 HK$’000 15,445 – 5,178 (354) 20,623 (354) 5,005 – 6,132 (63) 6,890 – 18,027 (63) 2,596 (291) 10,440 – Company 2004 2003 HK$’000 HK$’000 – 28,435

Details of the principal associates are set out on page 85.

– 65 –

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

21. INTERESTS IN A JOINTLY CONTROLLED ENTITY


	2004	2003
	HK$’000	HK$’000
Due from a jointly controlled entity	7,313	–

The balance with the jointly controlled entity is unsecured, interest-free and has no fixed terms of repayment.

Details of the jointly controlled entity are set out on page 85.

22. INVESTMENT SECURITIES

Equity securities, at cost: Listed in Hong Kong Unlisted Provision for impairment loss for unlisted equity securities Unlisted debt securities, at cost Provision for impairment loss for unlisted debt securities Unlisted investment funds, at cost Market value of listed investments at the balance sheet date An analysis of the issuers of investment securities is as follows: Equity securities: Corporate entities Debt securities: Club debentures Corporate entities	Group 2004 2003 HK$’000 HK$’000 28,750 28,750 152,060 154,060 180,810 182,810 (20,000) (20,000) 160,810 162,810 7,680 5,413 (2,776) – 4,904 5,413 199,944 3,644 365,658 171,867 47,725 41,400 160,810 162,810 3,165 3,165 1,739 2,248 4,904 5,413	Company 2004 2003 HK$’000 HK$’000 28,750 28,750 – – 28,750 28,750 – – 28,750 28,750 3,165 3,165 – – 3,165 3,165 – – 31,915 31,915 47,725 41,400 28,750 28,750 3,165 3,165 – – 3,165 3,165	Company 2004 2003 HK$’000 HK$’000 28,750 28,750 – – 28,750 28,750 – – 28,750 28,750 3,165 3,165 – – 3,165 3,165 – – 31,915 31,915 47,725 41,400 28,750 28,750 3,165 3,165 – – 3,165 3,165
			28,750 –
			28,750
			3,165 –
			3,165
			–
			31,915
			41,400
			28,750
			3,165 –
			3,165

– 66 –

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

As at 31st December, 2004, particulars of the Group’s investments in equity securities which exceed 20 per cent. of the nominal value of the investee company’s issued shares disclosed pursuant to Section 129(1) of the Hong Kong Companies Ordinance is as follows:

				Percentage of
		Place of		issued share capital
Name	of company	incorporation	Class of shares	held by the Group
Vigor	Online Offshore Limited	British Virgin	Ordinary shares	32.3
		Islands

23. ASSETS LESS LIABILITIES ATTRIBUTABLE TO BANKING OPERATION

Due to the dissimilar nature of banking and non-banking operations, assets less liabilities attributable to banking operation are shown separately in the consolidated financial statements. The financial information in respect of banking operation shown below is based on the audited financial statements of MCB for the year ended 31st December, 2004.

Note Cash and short-term funds (a) Placements with banks and other financial institutions maturing between one and twelve months Other investments in securities (b) Advances and other accounts (c) Held-to-maturity securities (d) Fixed assets (e) Current, fixed, savings and other deposits of customers Other accounts and provisions Note: (a) Cash and short-term funds Cash and balances with banks and other financial institutions Treasury bills	2004 HK$’000 83,908 – 24,673 152,127 9,643 26,272 296,623 (117,641) (3,571) (121,212) 175,411 2004 HK$’000 60,143 23,765 83,908	2003 HK$’000 254,807 368,320 13,646 156,079 9,672 27,057
		829,581
		(666,290 (7,210
		(673,500
		156,081
		2003 HK$’000 219,402 35,405
		254,807

– 67 –

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

(b) Other investments in securities

Listed equity securities, at market value: Hong Kong Overseas Debt securities: Listed outside Hong Kong, at market value Unlisted, at fair value Unlisted investment funds, at fair value An analysis of the issuers of other investments in securities is as follows: Equity securities: Corporate entities Debt securities: Corporate entities Banks and other financial institutions (c) Advances and other accounts Advances to customers Other accounts Accrued interest Provisions for bad and doubtful debts	2004 HK$’000 3,128 759 3,887 9,190 7,769 16,959 3,827 24,673 3,887 9,190 7,769 16,959 2004 HK$’000 153,071 2,956 1,240 (5,140) 152,127	2003 HK$’000 – – – 13,646 – 13,646 – 13,646 – 13,646 – 13,646 2003 HK$’000 156,643 3,190 1,296 (5,050) 156,079

Non-performing loans, which represent the gross amount of advances, net of suspended interest, on which interest has been placed in suspense or on which interest accrual has ceased, are rescheduled as follows:

Rescheduled advances Market value of collateral held	2004 HK$’000 3,342 3,564	2003 HK$’000 3,464 3,627

– 68 –

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

(d) Held-to-maturity securities

Debt securities, at amortised cost: Listed outside Hong Kong Market value of listed debt securities An analysis of the issuers of held-to-maturity securities is as follows: Banks and other financial institutions	2004 HK$’000 9,643 10,877 9,643	2003 HK$’000 9,672 10,891 9,672

(e) Fixed assets

Cost: At 1st January, 2004 Disposals during the year At 31st December, 2004 Accumulated depreciation: At 1st January, 2004 Provided for the year Disposals during the year At 31st December, 2004 Net book value: At 31st December, 2004 At 31st December, 2003	Furniture, fixtures, Land and equipment and buildings motor vehicles HK$’000 HK$’000 25,047 5,267 – (2,780) 25,047 2,487 21 3,236 250 535 – (2,780) 271 991 24,776 1,496 25,026 2,031	Total HK$’000 30,314 (2,780) 27,534 3,257 785 (2,780) 1,262 26,272 27,057

– 69 –

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

24. OTHER INVESTMENTS IN SECURITIES

Listed equity securities, at market value: Hong Kong Overseas Debt securities: Listed, at market value: Hong Kong Overseas Unlisted, at fair value Investment funds: Listed overseas, at market value Unlisted, at fair value An analysis of the issuers of other investments in securities is as follows: Equity securities: Public sector entities Banks and other financial institutions Corporate entities Debt securities: Central governments and central banks Banks and other financial institutions Corporate entities Others	Group 2004 2003 HK$’000 HK$’000 248,326 274,979 40,092 10,503 288,418 285,482 – 8,441 225,245 287,614 157,605 211,800 382,850 507,855 229,252 240,553 243,728 – 472,980 240,553 1,144,248 1,033,890 493 8,862 6,341 123,220 281,584 153,400 288,418 285,482 13,869 16,948 105,239 199,957 214,609 275,702 49,133 15,248 382,850 507,855	Company 2004 2003 HK$’000 HK$’000 90,733 100,036 7,102 2,662 97,835 102,698 – – 4,601 4,988 50,033 86,995 54,634 91,983 176,671 – 7,893 – 184,564 – 337,033 194,681 – – 1,848 75,920 95,987 26,778 97,835 102,698 – – 23,213 79,289 31,421 12,694 – – 54,634 91,983

– 70 –

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

25. DEBTORS, PREPAYMENTS AND DEPOSITS

Included in the balances are trade debtors with an aged analysis as follows:

Outstanding balances with ages: Repayable on demand Within 30 days Between 31 and 60 days Between 61 and 90 days Between 91 and 180 days Over 180 days	Group 2004 2003 HK$’000 HK$’000 32,835 274,775 95,347 10,313 – 238 – 400 – 839 – 11,887 128,182 298,452	Group 2004 2003 HK$’000 HK$’000 32,835 274,775 95,347 10,313 – 238 – 400 – 839 – 11,887 128,182 298,452
		298,452

Trading terms with customers are either on cash basis or credit. For those customers who trade on credit, a credit period is allowed according to relevant business practice. Credit limits are set for customers. The Group seeks to maintain tight control over its outstanding receivables in order to minimise credit risk. Overdue balances are regularly reviewed by senior management.

In prior year, outstanding balances with ages over 180 days include claims receivable in respect of the Group’s insurance underwriting business which is broadly consistent with the claims payable included in the trade creditors of the Group. During the year, the Group disposed of such insurance underwriting business, which did not have significant impact on the net asset value or the profit and loss account of the Group.

26. SHARE CAPITAL

Authorised: 2,000,000,000 (2003 – 2,000,000,000) ordinary shares of HK$1.00 each Issued and fully paid: 1,346,829,094 (2003 – 1,346,829,094) ordinary shares of HK$1.00 each	Group and Company 2004 2003 HK$’000 HK$’000 2,000,000 2,000,000 1,346,829 1,346,829	Group and Company 2004 2003 HK$’000 HK$’000 2,000,000 2,000,000 1,346,829 1,346,829
		1,346,829

During the prior year, a total of 4,708,000 shares of HK$1.00 each were repurchased on The Stock Exchange of Hong Kong Limited and were cancelled by the Company. The discount of HK$1,743,000 arising from such repurchase has been credited to the distributable reserves and an amount of HK$4,708,000 was transferred from distributable reserves to the capital redemption reserve account as set out in Note 27 to the financial statements.

The repurchases of the Company’s shares during that year were effected by the Directors with a view to benefiting shareholders as a whole by enhancing the net asset value per share and earnings per share of the Group.

– 71 –

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

27. RESERVES

Group

At 1st January, 2003 Transfer of reserve Repurchase of shares Exchange differences on consolidation Profit for the year_(Note (b)) 2002 final distribution, declared and paid 2003 interim distribution, declared and paid At 31st December, 2003 and 1st January, 2004 Surplus on revaluation of investment properties Transfer of reserve Exchange differences on consolidation Loss for the year(Note (b))_ 2003 final distribution, declared and paid 2004 interim distribution, declared and paid At 31st December, 2004	Capital Share redemption premium reserve account (Note (d)) HK$’000 HK$’000 50,988 7,052 – – – 4,708 – – – – – – – – 50,988 11,760 – – – – – – – – – – – – 50,988 11,760	Investment Legal property Distributable Exchange reserve revaluation reserves equalisation (Note (e)) reserve (Note (c)) reserve HK$’000 HK$’000 HK$’000 HK$’000 – – 1,382,622 (12,402) 845 – (845) – – – (2,965) – – – – (969) – – 106,067 – – – (40,405) – – – (20,202) – 845 – 1,424,272 (13,371) – 7,461 – – 1,208 – (1,208) – – – – 3,114 – – (64,957) – – – (40,405) – – – (20,202) – 2,053 7,461 1,297,500 (10,257)	Total HK$’000 1,428,260 – 1,743 (969) 106,067 (40,405) (20,202) 1,474,494 7,461 – 3,114 (64,957) (40,405) (20,202) 1,359,505

Company

		Capital
	Share	redemption	Distributable
	premium	reserve	reserves
	account	(Note (d))	(Note (c))	Total
	HK$’000	HK$’000	HK$’000	HK$’000
At 1st January, 2003	50,988	7,052	1,352,973	1,411,013
Profit for the year_(Note 13)_	–	–	41,456	41,456
Repurchase of shares	–	4,708	(2,965)	1,743
2002 final distribution,
declared and paid	–	–	(40,405)	(40,405)
2003 interim distribution,
declared and paid	–	–	(20,202)	(20,202)
At 31st December, 2003
and 1st January, 2004	50,988	11,760	1,330,857	1,393,605
Loss for the year_(Note 13)_	–	–	(27,241)	(27,241)
2003 final distribution,
declared and paid	–	–	(40,405)	(40,405)
2004 interim distribution,
declared and paid	–	–	(20,202)	(20,202)
At 31st December, 2004	50,988	11,760	1,243,009	1,305,757

– 72 –

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

Note:

(a) Cancellation of the share premium account and transfer to distributable reserves:

Pursuant to a special resolution passed at a special general meeting of the Company on 2nd December, 1997, the entire amount standing to the credit of the share premium account of HK$3,630,765,000 was cancelled (the “Cancellation”). The credit arising from the Cancellation was transferred to distributable reserves. The balance of the reserves arising from the Cancellation could be applied towards any capitalisation issues of the Company in future, or for making distributions to shareholders of the Company.

(b) Consolidated profit/(loss) for the year attributable to shareholders is retained/ (accumulated) as follows:


	2004	2003
	HK$’000	HK$’000
The Company and its subsidiaries	(58,440)	112,944
Associates	(6,517)	(6,877)
	(64,957)	106,067

(c) Distributable reserves of the Group at 31st December, 2004 comprise accumulated losses of HK$69,772,000 (2003 – HK$3,607,000) and the remaining balance arising from the Cancellation of HK$1,367,272,000 (2003 – HK$1,427,879,000). Included in the distributable reserves of the Group at 31st December, 2004 was an amount of a proposed final distribution for the year then ended of HK$40,405,000 (2003 – HK$40,405,000) declared after the balance sheet date.

Distributable reserves of the Company at 31st December, 2004 comprise contributed surplus of HK$134,329,000 (2003 – HK$134,329,000), accumulated losses of HK$258,592,000 (2003 – HK$231,351,000) and the remaining balance arising from the Cancellation of HK$1,367,272,000 (2003 – HK$1,427,879,000). Included in the distributable reserves of the Company at 31st December, 2004 was an amount of proposed final distribution for the year then ended of HK$40,405,000 (2003 – HK$40,405,000) declared after the balance sheet date.

(d) The capital redemption reserve is not available for distribution to shareholders.
(e) The legal reserve represents the part of reserve generated by a banking subsidiary of the Company which may only be distributable in accordance with certain limited circumstances prescribed by the statute of the country in which the subsidiary operates.

28. BANK LOANS

Repayable within one year: Secured_(Note)_ Unsecured	Group 2004 2003 HK$’000 HK$’000 188,761 – 20,000 10,000 208,761 10,000	Group 2004 2003 HK$’000 HK$’000 188,761 – 20,000 10,000 208,761 10,000
		10,000

– 73 –

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

Repayable within one year: Secured_(Note)_	Company 2004 2003 HK$’000 HK$’000 108,761 – 108,761 –	Company 2004 2003 HK$’000 HK$’000 108,761 – 108,761 –
		–

Note: The bank loans as at 31st December, 2004 were secured by certain securities of the Group and certain securities owned by margin clients of the Group.

29. CREDITORS, ACCRUALS AND DEPOSITS RECEIVED

Included in the balances are trade creditors with an aged analysis as follows:

Outstanding balances with ages: Repayable on demand Within 30 days Between 31 and 60 days Between 61 and 90 days Between 91 and 180 days Over 180 days	Group 2004 2003 HK$’000 HK$’000 486,189 691,367 21,217 70,503 – 207 – 696 – 3,810 – 13,703 507,406 780,286	Group 2004 2003 HK$’000 HK$’000 486,189 691,367 21,217 70,503 – 207 – 696 – 3,810 – 13,703 507,406 780,286
		780,286

The outstanding balances that are repayable on demand include client payables relating to cash balances held on trust for the customers in respect of the Group’s securities broking business. As at 31st December, 2004, total client trust bank balances amounted to HK$389,123,000 (2003 – HK$430,558,000).

30. INTERESTS IN SUBSIDIARIES

Unlisted shares, at cost Due from subsidiaries Due to subsidiaries Provisions for impairment losses	Company 2004 2003 HK$’000 HK$’000 44,953 1 2,201,677 1,987,239 (137,067) (89,912 2,109,563 1,897,328 (103,569) (103,569 2,005,994 1,793,759	Company 2004 2003 HK$’000 HK$’000 44,953 1 2,201,677 1,987,239 (137,067) (89,912 2,109,563 1,897,328 (103,569) (103,569 2,005,994 1,793,759
		1,897,328 (103,569
		1,793,759

The balances with subsidiaries are unsecured and have no fixed terms of repayment. Certain balances bear interest at rates reflecting the respective costs of funds within the Group.

Details of the principal subsidiaries are set out on pages 81 to 84.

– 74 –

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

31. NOTES TO THE CONSOLIDATED CASH FLOW STATEMENT

(a) Reconciliation of profit/(loss) before tax to cash from/(used in) operations


		2004	2003
	Note	HK$’000	HK$’000
Profit/(Loss) before tax		(61,691)	110,473
Adjustments for:
Share of results of associates		5,309	6,488
Loss/(Gain) on disposal of:
Fixed assets	7	415	–
Investment securities	7	(340)	–
A subsidiary		140	–
Provisions for impairment losses:
Investment securities	7	2,776	20,000
An associate		16,603	–
Net unrealised loss/(gain) on transfer of
investment securities and held-to-maturity
securities to other investments in securities	6	7,856	(20,483)
Write-back of provision for loss on guaranteed
return arrangement for fund management		–	(10,868)
Deficit/(Write-back of deficit) on revaluation
of investment properties	7	(316)	316
Interest expenses	11	4,873	4,700
Interest income		(33,418)	(51,461)
Dividend income	7	(16,930)	(4,745)
Depreciation	7	2,586	1,610
Amortisation of goodwill arising from
acquisition of subsidiaries	7	4,245	3,618
Negative goodwill recognised as income	7	(229)	–
Operating profit/(loss) before working
capital changes		(68,121)	59,648
Increase in other investments in securities		(99,195)	(473,662)
Increase in property held for sale		(10,140)	–
Decrease/(Increase) in loans and advances		(83,710)	23,372
Decrease/(Increase) in debtors, prepayments
and deposits		119,363	(73,115)
Increase/(Decrease) in creditors, accruals
and deposits received		(246,235)	307,868
Decrease in bank deposits with original
maturity over three months		–	309,221
Decrease in certificates of deposit held		–	1,000,000
Decrease/(Increase) in client trust bank balances		41,435	(176,628)
Decrease in provision for loss on guaranteed
return arrangement for fund management		–	(117,985)
		(346,603)	858,719
Profit attributable to banking operation		(7,246)	(8,439)
Cash from/(used in) operations		(353,849)	850,280

– 75 –

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

(b) Disposal of a subsidiary

Net assets disposed of: Fixed assets Cash and bank balances Debtors, prepayments and deposits Creditors and accruals Release of exchange reserve Minority interests Loss on disposal of a subsidiary Cash consideration received	Group 2004 2003 HK$’000 HK$’000 6 – 1,964 – 40,069 – (40,400) – 4 – (803) – 840 – (140) – 700 –	Group 2004 2003 HK$’000 HK$’000 6 – 1,964 – 40,069 – (40,400) – 4 – (803) – 840 – (140) – 700 –
		– –
		–

An analysis of net outflow of cash and cash equivalents in respect of the disposal of a subsidiary is as follows:


	2004	2003
	HK$’000	HK$’000
Cash consideration received	700	–
Cash and bank balances disposed of	(1,964)	–
Net outflow of cash and cash equivalents in respect
of the disposal of a subsidiary	(1,264)	–

(c) Acquisition of subsidiaries


	2004	2003
	HK$’000	HK$’000
Net assets acquired:
Fixed assets	984	–
Cash and bank balances	40,500	–
Debtors, prepayments and deposits	1,163	–
Creditors and accruals	(2,428)	–
Minority interests	(2,174)	–
	38,045	–
Reclassification from interest in an associate	(17,891)	–
	20,154	–
Negative goodwill arising from acquisition	(878)	–
Cash consideration paid	19,276	–

– 76 –

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

An analysis of net inflow of cash and cash equivalents in respect of the acquisition of subsidiaries is as follows:

Cash consideration paid Cash and bank balances acquired Net inflow of cash and cash equivalents in respect of the acquisition of subsidiaries	Group 2004 2003 HK$’000 HK$’000 (19,276) – 40,500 – 21,224 –

(d) Major non-cash transaction

32. MATURITY PROFILE OF ASSETS AND LIABILITIES

An analysis of the maturity profile of assets and liabilities of the Group analysed by the remaining period at the balance sheet date to the contractual maturity date is as follows:

Repayable on demand HK$’000 At 31st December, 2004 Assets Debt securities: Investment securities – Other investments in securities – Loans and advances 165,614 Client trust bank balances 43,244 Cash and bank balances 87,912 Assets less liabilities attributable to banking operation: Cash and short-term funds 44,475 Debt securities: Held-to-maturity securities – Other investments in securities – Advances to customers 28,598 369,843 Liabilities Bank loans – Assets less liabilities attributable to banking operation: Current, fixed, savings and other deposits of customers 19,912 19,912	1 year or 5 years or 3 months less but over less but over or less 3 months 1 year HK$’000 HK$’000 HK$’000 – – 1,739 – 28,722 234,815 – – 9,984 345,879 – – 674,361 – – 39,433 – – – – – – – 7,769 61,854 21,573 23,326 1,121,527 50,295 277,633 193,213 15,548 – 88,576 9,153 – 281,789 24,701 –	After 5 years HK$’000 – 70,180 – – – – 9,643 – 12,580 92,403 – – –	Undated HK$’000 3,165 49,133 – – – – – 9,190 – 61,488 – – –	Total HK$’000 4,904 382,850 175,598 389,123 762,273 83,908 9,643 16,959 147,931
				1,973,189

				208,761 117,641
				326,402

– 77 –

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

Repayable on demand HK$’000 At 31st December, 2003 Assets Debt securities: Investment securities – Other investments in securities 5,486 Loans and advances 91,888 Client trust bank balances 207,923 Cash and bank balances 148,965 Assets less liabilities attributable to banking operation: Cash and short-term funds 219,402 Placements with banks and other financial institutions maturing between one and twelve months – Debt securities: Held-to-maturity securities – Other investments in securities – Advances to customers 25,312 698,976 Liabilities Bank loans – Assets less liabilities attributable to banking operation: Current, fixed, savings and other deposits of customers 566,394 566,394	1 year or 5 years or 3 months less but over less but over or less 3 months 1 year HK$’000 HK$’000 HK$’000 – – 2,248 52,694 23,610 346,732 – – – 222,635 – – 1,186,151 – – 35,405 – – 368,320 – – – – – – – – 99,037 10,418 3,240 1,964,242 34,028 352,220 10,000 – – 92,381 7,515 – 102,381 7,515 –	After 5 years HK$’000 – 79,333 – – – – – 9,672 4,735 13,586 107,326 – – –	Undated HK$’000 3,165 – – – – – – – 8,911 – 12,076 – – –	Total HK$’000 5,413 507,855 91,888 430,558 1,335,116 254,807 368,320 9,672 13,646 151,593
				3,168,868

				10,000 666,290
				676,290

33. CONTINGENT LIABILITIES

Group

As at 31st December, 2004, the Group had contingent liabilities relating to its banking subsidiary of HK$29,245,000 (2003 – HK$40,073,000), comprising guarantees and other endorsements of HK$15,528,000 (2003 – HK$11,337,000) and liabilities under letters of credit on behalf of customers of HK$13,717,000 (2003 – HK$28,736,000).

Company

As at 31st December, 2004, guarantees provided by the Company in respect of banking facilities granted to its subsidiaries amounted to HK$257,500,000 (2003 – HK$245,000,000).

– 78 –

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

34. OPERATING LEASE ARRANGEMENTS

(a) As lessor

The Group leases its investment properties under operating lease arrangements with leases negotiated for terms of two years. At 31st December, 2004, the Group had total future minimum lease receivables under non-cancellable operating leases with its tenants falling due as follows:

Within one year In the second to fifth years, inclusive	Group 2004 2003 HK$’000 HK$’000 2,900 708 16 13 2,916 721	Group 2004 2003 HK$’000 HK$’000 2,900 708 16 13 2,916 721
		721

(b) As lessee

The Group leases certain properties under operating lease agreements which are noncancellable. The leases expire on various dates until 30th November, 2008 and the leases for properties contain provision for rental adjustments. As as 31st December, 2004, the Group had total future minimum lease payments under non-cancellable operating leases in respect of land and buildings falling due as follows:

Within one year In the second to fifth years, inclusive	Group 2004 2003 HK$’000 HK$’000 6,529 5,168 7,877 209 14,406 5,377	Company 2004 2003 HK$’000 HK$’000 1,434 516 1,016 – 2,450 516	Company 2004 2003 HK$’000 HK$’000 1,434 516 1,016 – 2,450 516
			516

35. CAPITAL COMMITMENTS

The Group had the following commitments at the balance sheet date:


	2004	2003
	HK$’000	HK$’000
Other capital commitments:
Contracted, but not provided for	160,118	66,582

The Company did not have any material commitments at the balance sheet date (2003 – Nil).

– 79 –

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

36. CONNECTED AND RELATED PARTY TRANSACTIONS

Listed below are connected transactions disclosed in accordance with the Rules Governing the Listing of Securities (the “Listing Rules”) on The Stock Exchange of Hong Kong Limited and related party transactions disclosed in accordance with the Statement of Standard Accounting Practice 20 “Related party disclosures”.

(a) During the year, Lippo Securities Holdings Limited (“LSHL”), being a wholly-owned subsidiary of the Company, paid rental expenses of HK$2,311,000 (2003 – HK$2,416,000) to Prime Power Investment Limited, being a fellow subsidiary of the Company, in respect of office premises occupied by LSHL, and the Company and ImPac Asset Management (HK) Limited (“ImPac”), being a wholly-owned subsidiary of the Company, paid rental expenses of HK$934,000 (2003 – HK$728,000) and HK$142,000 (2003 – HK$232,000) to Porbandar Limited, being a fellow subsidiary of the Company, in respect of office premises occupied by the Company and ImPac, respectively. The above rentals were determined by reference to open market rentals.

Details of the tenancy agreements between group companies in respect of the letting of office premises are disclosed in the section headed “Directors’ and controlling shareholders’ interests in contracts” in the Report of the Directors.

(b) During the year, LSHL and its subsidiaries (the “LSHL Group”) received commission income for dealing in listed securities in the market from The Hong Kong Building and Loan Agency Limited, being a fellow subsidiary of the Company, for itself and its subsidiaries, amounted to HK$803,000 (2003 – HK$441,000), Lippo China Resources Limited, being an indirect controlling shareholder of the Company, for itself and its subsidiaries, amounted to HK$805,000 (2003 – HK$75,000), Lippo Limited, being an indirect controlling shareholder of the Company, for itself and its subsidiaries, amounted to HK$65,000 (2003 – HK$2,000) and Lippo Cayman Limited, being an indirect controlling shareholder of the Company, for itself and its subsidiaries, amounted to HK$25,000 (2003 – HK$20,000). The commissions were in line with those offered by the LSHL Group to its customers.
(c) At the balance sheet date, an overseas affiliate of the Company had the following balances with MCB:


	2004	2003
	HK$’000	HK$’000
Included under the following item as referred to
in Note 23 to the financial statements:
Current, fixed, savings and other deposits
of customers	–	(195,313)

The Directors are of the opinion that these transactions were undertaken on terms similar to those offered to unrelated customers in the ordinary course of business of the relevant companies.

(d) As at 31st December, 2004, the Group had balances with its associates and jointly controlled entity as set out in Note 20 and Note 21 respectively to the financial statements.

The transactions in respect of items (a) and (b) above are continuing connected transactions as defined in Chapter 14A of the Listing Rules. Further details of the transactions are disclosed in the section headed “Directors’ and controlling shareholders’ interests in contracts” in the Report of the Directors.

– 80 –

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

37. SUBSEQUENT EVENTS

(a) On 21st January, 2005, the Group entered into agreement to purchase a property in Macau for a consideration of HK$238,000,000 for residential redevelopment. The acquisition is expected to be completed on or before 28th April, 2005.
(b) On 18th February, 2005, the Group accepted offer to acquire a property in Singapore for an aggregate consideration of S$43,620,000 (equivalent to approximately HK$207,614,000) for residential redevelopment. The acquisition is expected to be completed on or before 18th May, 2005.

38. APPROVAL OF THE FINANCIAL STATEMENTS

The financial statements were approved and authorised for issue by the Board of Directors on 20th April, 2005.

Particulars of Principal Subsidiaries

Particulars of principal subsidiaries as at 31st December, 2004 are as set out below.

			Percentage of equity	Percentage of equity
	Place of	Nominal value of	attributable to the
	incorporation/	issued and fully	Company/Group
	registration	paid ordinary		(unless
Name of company	and operations	share capital	otherwise stated)#		Principal activities
Allwin Asia Inc.	British Virgin Islands/	US$1	–	100	Investment holding
	Hong Kong
Capital Place International	British Virgin Islands/	US$1	–	100	Property investment
Limited**	Republic of the
	Philippines
Conrich Inc.	British Virgin Islands	US$1	–	100	Investment holding
Cony Ltd.	British Virgin Islands/	US$1	–	100	Investments
	Hong Kong
Corecity Ltd.	British Virgin Islands	US$1	100	100	Investments
Dynamic View Limited	British Virgin Islands	US$1	–	100	Investments
Everbest Pacific Ltd.	British Virgin Islands	US$1	–	100	Investments
Everwin Pacific Ltd.	British Virgin Islands	US$1	–	100	Property investment
Golden Rain Limited	British Virgin Islands/	US$1	–	100	Property investment
	Hong Kong

– 81 –

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

			Percentage of equity	Percentage of equity
	Place of	Nominal value of	attributable to the
	incorporation/	issued and fully	Company/Group
	registration	paid ordinary		(unless
Name of company	and operations	share capital	otherwise stated)#		Principal activities
Goldlux Holdings Limited	British Virgin Islands	US$1	–	100	Investments
Goldsney Investment Limited	Hong Kong	HK$2	–	100	Securities investment
Grand Fortune Asia Limited	British Virgin Islands	US$1	–	100	Investment holding
HKC Property Investment	British Virgin Islands	US$1	100	100	Investment holding
Holdings Limited
HKCL Investments Limited	British Virgin Islands	US$1	100	100	Investment holding
Hong Kong Housing Loan	Hong Kong	HK$40,000,000	–	100	Money lending
Limited
ImPac Asset Management	Hong Kong	HK$8,500,000	–	100	Asset management
(HK) Limited
ImPac Asset Management	British Virgin Islands	US$2,000,100	–	100	Investment holding
(Holdings) Ltd.
ImPac Fund Managers	British Virgin Islands	US$13,000	–	100	Fund management
(BVI) Ltd.
Kenda Limited	British Virgin Islands/	US$1	–	100	Property investment
(carry on business in	Hong Kong
Hong Kong as Kenda
Property Holding Limited)
Lippo Asia Limited	Hong Kong	HK$120,000,000	–	100	Investment holding
Lippo Asset Management	Hong Kong	HK$400,000	–	100	Fund management
(HK) Limited
Lippo Futures Limited	Hong Kong	US$2,000,000	–	100	Commodities brokerage
Lippo Investments	Hong Kong	HK$15,000,000	–	100	Fund management
Management Limited
Lippo Securities Holdings	Hong Kong	US$23,000,000	–	100	Investment holding
Limited

– 82 –

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

			Percentage of equity	Percentage of equity
	Place of	Nominal value of	attributable to the
	incorporation/	issued and fully	Company/Group
	registration	paid ordinary		(unless
Name of company	and operations	share capital	otherwise stated)#		Principal activities
Lippo Securities, Inc.**	Republic of the	Pesos 69,500,000	–	100	Investment holding
	Philippines
Lippo Securities Limited	Hong Kong	HK$220,000,000	–	100	Securities brokerage
Lippo (S) Pte Ltd**	Republic of Singapore	S$2,000,000	–	100	Property investment
L.S. Finance Limited	Hong Kong	HK$5,000,000	–	100	Money lending
Miltac Limited	British Virgin Islands/	US$1	–	100	Investment holding
	Hong Kong
Norfyork International	Hong Kong	HK$25,000,000	–	100	Investment holding
Limited
Okio Ltd.	British Virgin Islands/	US$1	–	100	Investment holding
	Hong Kong
Redsun Ltd.	British Virgin Islands/	US$1	–	100	Property investment
	Hong Kong
Sinogain Asia Limited	British Virgin Islands	US$1	–	100	Property investment
Sinorite Limited	British Virgin Islands/	US$1	100	100	Investments
	Hong Kong
Skyblue International	British Virgin Islands	US$1	–	100	Investments
Limited
Stargala Limited	British Virgin Islands	US$1	–	100	Property investment
Topbest Asia Inc.	British Virgin Islands/	US$1	–	100	Investments
	Hong Kong
Uchida Limited	British Virgin Islands	US$1	–	100	Property investment
Verybest Holdings Limited	British Virgin Islands/	US$1	–	100	Property investment
	Hong Kong

– 83 –

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

			Percentage of equity	Percentage of equity
	Place of	Nominal value of	attributable to the
	incorporation/	issued and fully	Company/Group
	registration	paid ordinary		(unless
Name of company	and operations	share capital	otherwise stated)#		Principal activities
Winluck Asia Limited	British Virgin Islands	US$1	–	100	Property investment
Winluck Pacific Limited	British Virgin Islands	US$1	–	100	Property investment
Winus Holdings Limited	British Virgin Islands	US$1	–	100	Investment holding
Wonder Plan Holdings	British Virgin Islands	US$1	–	100	Securities investment
Limited
TechnoSolve Limited	Hong Kong	HK$20,000,000	–	91.5	Development of
					computer hardware
					and software
Goldfix Pacific Ltd.	British Virgin Islands	US$6,926.54	–	86.62	Investment holding
Akarie Resources Limited	Republic of Bulgaria	BGN505,000	–	85.77	Operation of serviced
OOD**					offices centers
The Macau Chinese Bank	Macau	MOP180,000,000	–	85	Banking
Limited**
Four Prosperity Holdings	British Virgin Islands	US$40,816	–	51	Investment holding
Limited
Medical Dermalive Institute	Hong Kong	HK$10,000	–	51	Skin care
Limited**

# represents the effective holding of the Group after minority interests therein ** audited by certified public accountants other than Ernst & Young, Hong Kong

Note:

BGN – Bulgarian leva MOP – Macau patacas Pesos – Philippines pesos S$ – Singapore dollars US$ – United States dollars

The above table includes the subsidiaries of the Company which, in the opinion of the Directors, principally affected the results for the year or formed a substantial portion of the net assets of the Group. To give details of all subsidiaries would, in the opinion of the Directors, result in particulars of excessive length.

– 84 –

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

Particulars of Principal Associates

Particulars of principal associates as at 31st December, 2004 are as set out below.

			Nominal value of	Percentage
	Form of	Place of	issued and fully	of equity
	business	incorporation	paid ordinary	attributable
Name of company	structure	and operations	share capital	to the Group#	Principal activities
Convoy Financial Services	Corporate	Hong Kong	HK$1,000,000	34.34	Provision of financial
Limited					planning services
Consistent Capital, LLC	Corporate	United States	US$10,000*	46	Investment Advisor
		of America
Vending Technologies	Corporate	British Virgin	US$100	30	Food vending
Limited		Islands			technology

# represents the effective holding of the Group after minority interests therein

represents paid up membership units

Note:

US$ – United States dollars

The above table includes the associates of the Company which, in the opinion of the Directors, principally affected the results for the year or formed a substantial portion of the net assets of the Group. To give details of all associates would, in the opinion of the Directors, result in particulars of excessive length.

Particulars of Principal Jointly Controlled Entity

Particulars of a jointly controlled entity as at 31st December, 2004 are as set out below.

			Nominal value of	Percentage
	Form of	Place of	issued and fully	of equity
	business	incorporation	paid ordinary	attributable
Name of company	structure	and operations	share capital	to the Group	Principal activities
Yamoo Bay	Corporate	British Virgin	US$2	50	Investment holding
Project Limited		Islands
Note:
US$ –	United States dollars

– 85 –

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

3. INDEBTEDNESS

As at 31st May, 2005, being the latest practicable date for the purpose of this indebtedness statement prior to the printing of this circular, the Group (other than The Macau Chinese Bank Limited (“MCB”), a banking subsidiary of the Company) had outstanding indebtedness of approximately HK$151 million, comprising secured bank loans of approximately HK$146 million and unsecured bank loans of approximately HK$5 million. The bank loans were secured by certain securities owned by the Group (other than MCB) and securities owned by margin clients of the Group.

Save as aforesaid and apart from intra-group liabilities, the Group (other than MCB) did not, as at 31st May, 2005, have any outstanding debt securities, whether issued and outstanding, authorised or otherwise created but unissued, term loans, whether guaranteed, unguaranteed, secured (whether the security is provided by the issuer or by third parties) or unsecured, other borrowings or indebtedness in the nature of borrowing including bank overdrafts and liabilities under acceptances (other than normal trade bills) or acceptance credits or hire purchase commitments, whether guaranteed, unguaranteed, secured or unsecured borrowings or debt, mortgages, charges, guarantees or other material contingent liabilities.

As at 31st May, 2005, MCB accepts deposits from customers, banks and other financial institutions of approximately HK$114 million in the normal course of their banking business. MCB also had contingent liabilities of approximately HK$22 million, comprising guarantees and other endorsements of approximately HK$13 million and liabilities under letters of credit on behalf of customers of approximately HK$9 million, as at 31st May, 2005.

Save as aforesaid, MCB did not, as at 31st May, 2005, have any outstanding debt securities, whether issued and outstanding, authorised or otherwise created but unissued, term loans, whether guaranteed, unguaranteed, secured (whether the security is provided by the issuer or by third parties) or unsecured, other borrowings or indebtedness in the nature of borrowing including bank overdrafts and liabilities under acceptances (other than normal trade bills) or acceptance credits or hire purchase commitments, whether guaranteed, unguaranteed, secured or unsecured borrowings or debt, mortgages, charges, guarantees or other material contingent liabilities.

4. WORKING CAPITAL

The Directors are of the opinion that taking into account the internal financial resources, the present available banking facilities and the injection of HK$1,450 million into LAAP, the Group will have sufficient working capital for its normal business for the next 12 months from the date of this circular.

– 86 –

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

5. MATERIAL CHANGE

Save as disclosed herein, the Directors are not aware, as at the Latest Practicable Date, of any material adverse change in the financial or trading position or prospect of the Group since 31st December, 2004, the date to which the latest published audited financial statements of the Group were made up.

6. MANAGEMENT DISCUSSION AND ANALYSIS OF THE OPERATING RESULTS OF THE GROUP FOR THE YEAR ENDED 31ST DECEMBER, 2004

Hong Kong achieved a strong economic growth in 2004 and the global economy expanded by 4 per cent., the best since 2000. The United States, the PRC and Japan were the main contributors to the world economic growth. Amid the remarkable recovery in market conditions last year, the Group registered an almost two-fold increase in turnover to HK$1,178 million (2003 – HK$617 million).

In 2004, the Group focused on consolidating its core businesses. Additionally, the Group made several new investments in line with its long term growth strategy, including well over HK$200 million in various property projects mainly in Hong Kong, Singapore and Japan.

However, the Group’s performance was affected by volatile securities market conditions during the year. The investments held by the Group suffered an unrealised holding loss of HK$61.3 million (2003 – gain of HK$54.9 million). As a result, the Group reported a net loss attributable to shareholders of HK$64.9 million, against a profit of HK$106 million for 2003.

Results for the year

Turnover for the year 2004 increased significantly to HK$1,178 million, which was 91 per cent. higher than the HK$617 million recorded in 2003. Turnover attributable to treasury and securities investments rose by 112 per cent. and that from corporate finance and securities broking businesses increased by 14 per cent.

Treasury and securities investments

In 2004, the Group took advantage of the improving equity market conditions to actively realise the investments, resulting in a realised gain of HK$25 million (2003 – HK$41 million). Of this, over 54 per cent. (2003 – Nil) was earned from Japanese equity market which showed the strongest performance over the year. Also, in anticipation of likely rises in interest rates, the Group took steps to adjust its investment portfolio by realising certain bonds and investment funds to a total of HK$433 million (2003 – HK$218 million). However, due to volatile market conditions, the Group recorded an unrealised holding loss on other investments in securities of HK$61.3 million (2003 – gain of HK$54.9 million) at year end, representing 5.1 per cent. (2003 – 5.6 per cent.) of the total portfolio. Notwithstanding the volatility of the investment markets, the bond portfolio continued to contribute high and stable interest income to the Group.

– 87 –

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

Corporate finance and securities broking businesses

Robust local stock market continued into 2004. This benefited the Group’s securities broking business. Turnover increased by 14 per cent. to HK$65 million (2003 – HK$57 million) and a profit of HK$4.1 million (2003 – HK$4.8 million) was recorded.

Banking business

The Group’s banking business continued to generate stable income to the Group. The relative contribution of interest income and non-interest income remained broadly unchanged and accounted for approximately 58 per cent. and 42 per cent. of its turnover respectively. Non-interest income was derived mainly from banking fees and commissions, income from investments and commissions from trade bills. Banking business recorded a profit of HK$4 million (2003 – HK$4.8 million).

Property investment

In order to enhance the recurrent income source, the Group acquired certain properties for rental purpose and participated in well located property development projects in Macau, the PRC, Singapore and Japan. During the year, the Group invested over HK$200 million in property investment.

Financial position

As at 31st December, 2004, total assets reduced by 5 per cent. to HK$3.5 billion (2003 – HK$3.7 billion). To enhance investment yield, the Group increased its investment portfolio to HK$1.5 billion (2003 – HK$1.2 billion), comprising debt securities of HK$0.38 billion (2003 – HK$0.51 billion), equity securities of HK$0.45 billion (2003 – HK$0.45 billion) and investment funds of HK$0.67 billion (2003 – HK$0.24 billion). At the same time, it increased property assets to HK$234 million (2003 – HK$17 million).

The Group continued to maintain a prudent and strong financial balance sheet in 2004. At the balance sheet date, total borrowings of the Group amounted to HK$209 million (2003 – HK$10 million), comprising an unsecured bank loan of HK$20 million (2003 – HK$10 million) and secured bank loans of HK$189 million (2003 – Nil), which were all denominated in Hong Kong dollars or United States dollars, repayable within one year and carried interest at floating rates. The bank loans were secured by the securities owned by the Group and its margin clients. The gearing ratio stood at a low level of 7.7 per cent. (2003 – 0.4 per cent.). Liquidity ratio measured as current assets to current liabilities remained high at approximately 3.5 to 1 (2003 – 3.9 to 1).

Taking into account the 2003 final and 2004 interim distributions made to the shareholders in a total of HK$61 million (equivalent to HK4.5 cents per share) and the net loss for the year, the net asset value of the Group slightly decreased to HK$2.7 billion (2003 – HK$2.8 billion), equivalent to HK$2.01 (2003 – HK$2.09) per share. The distributions made for the year were the same as those for 2003.

– 88 –

APPENDIX I FINANCIAL INFORMATION OF THE GROUP

The Group monitors the relative foreign exchange position of its assets and liabilities and allocates accordingly to minimise foreign exchange risk. When appropriate, hedging instruments including forward contracts, swap and currency loans would be used to manage the foreign exchange exposure.

Save as aforesaid, there were no charges on the Group’s assets at the end of the year (2003 – Nil). Other than those relating to the banking operation, the Group had no material contingent liabilities outstanding (2003 – Nil).

Staff and remuneration

The Group had 161 (2003 – 142) employees as at 31st December, 2004. Total staff costs amounted to HK$57 million which was slightly lower than the HK$58 million recorded in 2003. The Group offers competitive remuneration packages to its employees. Currently, there is no share option scheme for employees.

– 89 –

APPENDIX II

PRO FORMA FINANCIAL INFORMATION OF THE GROUP

The following is the unaudited pro forma financial information of the Group. The unaudited pro forma financial information of the Group are prepared based on the audited consolidated financial statements of the Company as at 31st December, 2004, extracted from its annual report for the year ended 31st December, 2004 as set out in Appendix I and adjusted to reflect the effect of the LAAP Investment.

The accompanying unaudited pro forma statement of assets and liabilities as at 31st December, 2004 gives effect to the transaction described above as if it had been consummated on 31st December, 2004.

The unaudited pro forma financial information was prepared for the purpose of illustrating how the LAAP Investment might have affected the assets and liabilities position of the Group. As it is prepared for illustrative purpose only, and because of its nature, it may not purport to represent what the assets and liabilities position of the Group are on the completion of the LAAP Investment.

Unaudited Pro Forma Statement of Assets and Liabilities

(A) (B) Proforma (As at adjustments 31st December, relating to the 2004) subscription Audited of the LAAP Balance Investment HK$’000 HK$’000 Note Non-current assets Goodwill 56,553 Fixed assets 10,704 Investment properties 96,144 Properties under development 99,767 Interests in associates 27,166 1,450,000 a Interests in a jointly controlled entity 7,313 Investment securities 365,658 Assets less liabilities attributable to banking operation 175,411 838,716 Current assets Property held for sale 10,140 Other investments in securities 1,144,248 (1,000,000) a Loans and advances 175,598 Debtors, prepayments and deposits 167,496 Client trust bank balances 389,123 Cash and bank balances 762,273 (450,000) a 2,648,878 TOTAL ASSETS 3,487,594	(C) = (A)+(B) Adjusted Balance HK$’000 56,553 10,704 96,144 99,767 1,477,166 7,313 365,658 175,411
	2,288,716
	10,140 144,248 175,598 167,496 389,123 312,273
	1,198,878
	3,487,594

– 90 –

APPENDIX II

PRO FORMA FINANCIAL INFORMATION OF THE GROUP

(A) (B) Proforma (As at adjustments 31st December, relating to the 2004) subscription Audited of the LAAP Balance Investment HK$’000 HK$’000 Note Current liabilities Bank loans 208,761 Creditors, accruals and deposits received 539,260 Tax payable 3,035 751,056 TOTAL LIABILITIES 751,056 NET ASSETS 2,736,538	(C) = (A)+(B) Adjusted Balance HK$’000 208,761 539,260 3,035
	751,056
	751,056

	2,736,538

Notes to pro forma adjustments:

a. The LAAP investment will be financed by internal resources by utilizing the Group’s other investments in securities and bank and cash. The Directors estimate that approximately HK$450 million cash resources and approximately HK$1,000 million sales proceeds from the securities investments realisation will be used for funding the LAAP Investment. Since the Group’s actual balance of other investments in securities and bank and cash will change from time to time, the actual outlays from each category might be different from the figures as shown in this statement.
b. The above pro forma adjustments have not taken into account the consideration payable of HK$238,000,000 for the acquisition of a property located in Macau, details of which are set out in the announcement of the Company dated 27th January, 2005.
c. The Hong Kong Institute of Certified Public Accountants has issued a number of new and revised Hong Kong Financial Reporting Standards and Hong Kong Accounting Standards (“new HKFRSs”) which are effective for accounting periods beginning on or after 1st January, 2005. These new HKFRSs have not been early adopted in the audited financial statements of the Group for the year ended 31st December, 2004 or in the preparation of the unaudited pro forma financial information for the year ended 31st December, 2004. The Directors are in the process of making an assessment of the impact of these new HKFRSs and have so far concluded that the more significant differences between new HKFRSs and current accounting policies that are expected to affect the Group are as follows:

Goodwill

Under HKFRS 3 ‘Business Combinations’, goodwill will no longer be amortised but instead will be subject to rigorous annual impairment testing. This will result in a change to the Group’s current accounting policy under which goodwill is amortised over its useful life of not exceeding 20 years and assessed for an indication of impairment at each balance sheet date. Under the new policy, amortisation will no longer be charged, but goodwill will be tested annually for impairment, as well as when there are indications of impairment. This new policy will be applied prospectively from 1st January, 2005. Reliable estimation of the future financial effects of this change in accounting policy is not practical because the conditions under which impairment will be assessed are not yet known.

– 91 –

APPENDIX II

PRO FORMA FINANCIAL INFORMATION OF THE GROUP

Investment property

Under HKAS 40 ‘Investment Property’, the change in fair value of the investment properties will be recognised in the profit and loss account. This treatment will increase the volatility of the Group’s results as revaluation surplus on a portfolio basis has been accounted for in the equity under the current accounting policy. Reliable estimation of the future financial effects of this change in accounting policy is not practical as the details of future change in fair value of the investment properties are not yet known.

Financial instruments and investment securities

Under HKAS 39 ‘Financial Instruments: Recognition and Measurement’, financial instruments will be carried at either cost, amortised cost or fair value, depending on their classification. Depending on the classification of the financial instruments, movements in fair value will be either charged to net profit or loss or taken to equity in accordance with the standard. In addition, all derivatives, including those embedded in non-derivatives host contracts will be recognised in the balance sheet at fair value.

This will result in a change to the Group’s current accounting policy in respect of classification, measurement and recognition of certain investments. This new accounting policy will be applied prospectively from 1st January, 2005 and requires the available for sales investments (currently shown as investment securities) to be accounted for at fair value through equity. Reliable estimation of the future financial effects of this change in accounting policy is not practical because the fair value of such investments at next balance sheet date is not currently available.

This new accounting standards will also result in a change to the Group’s current accounting policies in respect of classification, measurement and recognition of derivative financial instruments. This will be applied prospectively from 1st January, 2005. The future financial effect of this change in accounting policy is not yet known as the classification and measurement process has not been completed. However, the requirements to recognise derivatives and certain other financial instruments with changes in fair value being reflected in the profit and loss account or the equity reserve may result in increased volatility in the Group’s profit and net assets.

Derecognition of financial assets and liabilities

HKAS 39 ‘Financial Instruments: Recognition and Measurement’ gives a clear guidance on derecognition of financial assets and liabilities. This new accounting policy will be applied prospectively from 1st January, 2005.

The Group will be continuing with the assessment of the impact of the other new HKFRSs and other significant changes may be identified as a result.

– 92 –

APPENDIX II

PRO FORMA FINANCIAL INFORMATION OF THE GROUP

The following is the full text of a letter received from Ernst & Young for the purpose of incorporation in this circular.

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18th Floor Two International Finance Centre 8 Finance Street, Central Hong Kong

28th July, 2005

The Board of Directors Hongkong Chinese Limited 24th Floor, Tower One Lippo Centre 89 Queensway Hong Kong

Dear Sirs

Hongkong Chinese Limited (the “Company”) and its subsidiaries (the “Group”)

We report on the unaudited pro forma financial information of the Group set out on pages 90 to 92 in Appendix II “Pro Forma Financial Information of the Group” to the circular of the Company dated 28th July, 2005, which has been prepared by the directors of the Company, solely for illustrative purposes, to provide information about how the subscription of interest in a limited partnership, Lippo ASM Asia Property LP, (the “Subscription”) might have affected the historical financial information in respect of the Group.

The historical financial information is derived from the audited historical financial information of the Group. The basis of preparation of the unaudited pro forma financial information is set out in the accompanying introduction and notes to the unaudited pro forma financial information of the Group.

Responsibilities

It is the responsibility of the directors of the Company to prepare the unaudited pro forma financial information in accordance with Rule 4.29 of the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited (the “Listing Rules”).

It is our responsibility to form an opinion, as required by the Listing Rules, on the unaudited pro forma financial information and to report our opinion to you. We do not accept any responsibility for any reports previously given by us on any financial information used in the compilation of the unaudited pro forma financial information beyond that owed to those to whom those reports were addressed by us at the dates of their issue.

– 93 –

APPENDIX II

PRO FORMA FINANCIAL INFORMATION OF THE GROUP

Basis of opinion

We conducted our work in accordance with the Statements of Investment Circular Reporting Standards and Bulletin 1998/8 “Reporting on pro forma financial information pursuant to the Listing Rules” issued by the Auditing Practices Board in the United Kingdom, where applicable. Our work, which involved no independent examination of any of the underlying financial information, consisted primarily of comparing the unadjusted financial information with the source documents, considering the evidence supporting the adjustments and discussing the unaudited pro forma financial information with the directors of the Company.

Our work did not constitute an audit or review made in accordance with Statements of Auditing Standards issued by the Hong Kong Institute of Certified Public Accountants, and accordingly, we do not express any such audit or review assurance on the unaudited pro forma financial information.

The unaudited pro forma financial information is for illustrative purposes only, based on the judgements and assumptions of the directors of the Company set out on pages 90 to 92 in Appendix II, and because of its nature, it does not provide any assurance or indication that any event will take place in the future and may not be indicative of the financial position or results of the Group had the Subscription actually occurred as at the dates indicated therein or at any other future date.

Opinion

In our opinion:

(a) the unaudited pro forma financial information has been properly compiled by the directors of the Company on the basis stated;
(b) such basis is consistent with the accounting policies of the Group; and
(c) the adjustments are appropriate for the purposes of the unaudited pro forma financial information as disclosed pursuant to Rule 4.29(1) of the Listing Rules.

Yours faithfully Ernst & Young Certified Public Accountants Hong Kong

– 94 –

APPENDIX III

GENERAL INFORMATION

1. RESPONSIBILITY STATEMENT

This circular includes particulars given in compliance with the Listing Rules for the purpose of giving information with regard to the Company. The Directors collectively and individually accept full responsibility for the accuracy of the information contained in this circular and confirm, having made all reasonable enquiries, that to the best of their knowledge and belief, there are no other facts, the omission of which would make any statement in this circular misleading.

2. DISCLOSURE OF INTERESTS

As at the Latest Practicable Date, the interests or short positions of the Directors and chief executive of the Company in the shares, underlying shares and debentures of the Company or any of its associated corporations (within the meaning of Part XV of the SFO) which were notified to the Company and the Stock Exchange pursuant to Divisions 7 and 8 of Part XV of the SFO (including interests and short positions which they were taken or deemed to have under such provisions of the SFO), or which were required, pursuant to Section 352 of the SFO, to be entered in the register referred to therein, or which were required, pursuant to the Model Code, to be notified to the Company and the Stock Exchange, were as follows:

Directors’ and Chief Executive’s interests and short positions in shares and underlying shares of the Company and associated corporations

(a) Interests in shares of the Company and associated corporations

	Personal				Approximate
	interests	Family			percentage of
	(held as	interests			total interests
	beneficial	(interest of	Other	Total	in the issued
Name of Director	owner)	spouse)	interests	interests	share capital
Number of ordinary	Shares
in the Company
Mochtar Riady	–	–	973,240,440	973,240,440	72.26
			(Note 1)
Stephen Riady	–	–	973,240,440	973,240,440	72.26
			(Note 1)
John Luen Wai Lee	200	200	–	400	0.00
King Fai Tsui	–	50,000	–	50,000	0.00

– 95 –

APPENDIX III

GENERAL INFORMATION

	Personal				Approximate
	interests	Family			percentage of
	(held as	interests			total interests
	beneficial	(interest of	Other	Total	in the issued
Name of Director	owner)	spouse)	interests	interests	share capital
Number of ordinary shares
of HK$0.10 each in Lippo
Mochtar Riady	–	–	248,697,776	248,697,776	57.34
			(Notes 1 & 2)
Stephen Riady	–	–	248,697,776	248,697,776	57.34
			(Notes 1 & 2)
John Luen Wai Lee	825,000	–	–	825,000	0.19
Number of ordinary shares
of HK$0.10 each in LCR
Mochtar Riady	–	–	6,544,696,389	6,544,696,389	71.13
			(Notes 1, 2 & 3)
Stephen Riady	–	–	6,544,696,389	6,544,696,389	71.13
			(Notes 1, 2 & 3)

Note:

As at the Latest Practicable Date, Lippo Cayman Limited (“Lippo Cayman”), an associated corporation (within the meaning of Part XV of the SFO) of the Company, was indirectly interested in 973,240,440 ordinary Shares in, representing approximately 72.26 per cent. of, the issued share capital of the Company. Lanius Limited (“Lanius”), an associated corporation (within the meaning of Part XV of the SFO) of the Company, was the registered shareholder of 10,000,000 ordinary shares of US$1.00 each in, representing 100 per cent. of, the issued share capital of Lippo Cayman. Lanius was the trustee of a discretionary trust, of which Dr. Mochtar Riady is the founder and in accordance with whose instructions Lanius was accustomed to act. Dr. Mochtar Riady did not have any interests in the share capital of Lanius. The beneficiaries of the trust include Dr. Mochtar Riady, Mr. Stephen Riady and their respective family members including, inter alia, the minor children of Mr. Stephen Riady. Dr. Mochtar Riady as the founder and beneficiary of the trust and Mr. Stephen Riady (together with his minor children) as beneficiaries of the trust were taken to be interested in Lippo Cayman under the SFO.
As at the Latest Practicable Date, Lippo Cayman, and through its wholly-owned subsidiaries, Lippo Capital Limited, J & S Company Limited and Huge Returns Limited, was directly and indirectly interested in an aggregate of 248,697,776 ordinary shares of HK$0.10 each in, representing approximately 57.34 per cent. of, the issued share capital of Lippo.
As at the Latest Practicable Date, Lippo was indirectly interested in 6,544,696,389 ordinary shares of HK$0.10 each in, representing approximately 71.13 per cent. of, the issued share capital of LCR.

– 96 –

APPENDIX III

GENERAL INFORMATION

As at the Latest Practicable Date, Dr. Mochtar Riady, as founder and beneficiary of the aforesaid discretionary trust, and Mr. Stephen Riady (together with his minor children), as beneficiaries of the aforesaid discretionary trust, through their interests in Lippo Cayman as mentioned in Note 1 above, were also taken to be interested in the share capital of the following associated corporations (within the meaning of Part XV of the SFO) of the Company:

			Approximate
			percentage
		Number of	of interest
Name of		shares	in the issued
associated corporation	Class of shares	interested	share capital
Abital Trading Pte. Limited	Ordinary shares	2	100
AcrossAsia Limited	Ordinary shares	3,669,576,788	72.45
		(Note a)
Actfield Limited	Ordinary shares	1	100
Boudry Limited	Ordinary shares	1,000	100
Congrad Holdings Limited	Ordinary shares	1	100
Cyport Limited	Ordinary shares	1	100
East Winds Food Pte Ltd.	Ordinary shares	400,000	88.88
		(Note b)
First Bond Holdings Limited	Ordinary shares	1	100
First Tower Corporation	Ordinary shares	1	100
		(Note c)
Glory Power Worldwide	Ordinary shares	1	100
Limited
Grandhill Asia Limited	Ordinary shares	1	100
Grand Peak Investment	Ordinary shares	2	100
Limited
Greenroot Limited	Ordinary shares	1	100
		(Note d)
HKCL Holdings Limited	Ordinary shares	50,000	100
		(Note e)
Honix Holdings Limited	Ordinary shares	1	100
Huge Returns Limited	Ordinary shares	1	100
J & S Company Limited	Ordinary shares	1	100
Lippo Assets (International)	Ordinary shares	1,000,000	100
Limited	Non-voting	15,000,000	100
	deferred shares
Lippo Capital Limited	Ordinary shares	705,690,000	100
Lippo Energy Company N.V.	Ordinary shares	6,000	100
Lippo Finance Limited	Ordinary shares	6,176,470	82.35
Lippo Holding America Inc.	Ordinary shares	1	100
Lippo Holding Company	Ordinary shares	2,500,000	100
Limited	Non-voting	7,500,000	100
	deferred shares

– 97 –

APPENDIX III

GENERAL INFORMATION

			Approximate
			percentage
		Number of	of interest
Name of		shares	in the issued
associated corporation	Class of shares	interested	share capital
Lippo Investments Limited	Ordinary shares	2	100
Lippo Leisure Holdings	Ordinary shares	2	100
Limited
Lippo Realty Limited	Ordinary shares	2	100
Multi-World Builders &	Ordinary shares	4,080	51
Development Corporation
Nelton Limited	Ordinary shares	10,000	100
Pointbest Limited	Ordinary shares	1	100
SCR Ltd.	Ordinary shares	1	100
Sinotrend Global Holdings	Ordinary shares	1	100
Limited
Skyscraper Realty Limited	Ordinary shares	10	100
		(Note f)
The HCB General Investment	Ordinary shares	70,000	70
(Singapore) Pte Ltd.
(“HCB General”)
The Hong Kong Building and	Ordinary shares	168,313,038	74.80
Loan Agency Limited		(Note e)
(“HKBLA”)
Valencia Development Limited	Ordinary shares	800,000	100
	Non-voting	200,000	100
	deferred shares
Welux Limited	Ordinary shares	1	100

Note:

a. The interests included 219,600,000 ordinary shares held by Mideast Pacific Strategic Holdings Limited in which Lippo Cayman controlled a 30 per cent. interest.
b. The interests were held by HCB General, a 70 per cent. owned subsidiary of Lippo Cayman.
c. The interest was held by Lippo, a 57.34 per cent. owned subsidiary of Lippo Cayman.
d. The interest was held by LCR, a 71.13 per cent. owned subsidiary of Lippo which in turn was a 57.34 per cent. owned subsidiary of Lippo Cayman.
e. The interests were held through LCR, a 71.13 per cent. owned subsidiary of Lippo which in turn was a 57.34 per cent. owned subsidiary of Lippo Cayman. On 18th June, 2005, a conditional sale and purchase agreement was entered into by, inter alia, a wholly-owned subsidiary of LCR and LCR for the disposal of the entire interest in the shares of HKBLA.
f. The interests were held through Lippo, a 57.34 per cent. owned subsidiary of Lippo Cayman.

– 98 –

APPENDIX III

GENERAL INFORMATION

As at the Latest Practicable Date, Mr. Stephen Riady, as beneficial owner and through his nominee, was interested in 5 ordinary shares of HK$1.00 each in, representing 25 per cent. of, the issued share capital of Lanius which was the registered shareholder of 10,000,000 ordinary shares of US$1.00 each in, representing 100 per cent. of, the issued share capital of Lippo Cayman. Lanius was the trustee of a discretionary trust, of which Dr. Mochtar Riady is the founder and beneficiary. The beneficiaries of the trust also include, inter alia, Mr. Stephen Riady and his minor children. Dr. Mochtar Riady did not have any interests in the share capital of Lanius but the shareholders of Lanius were accustomed to act in accordance with his instructions.

As at the Latest Practicable Date, Mr. John Luen Wai Lee, as beneficial owner, was also interested in 230,000 ordinary shares of HK$0.10 each in, representing approximately 0.0045 per cent. of, the issued share capital of AcrossAsia Limited, an associated corporation (within the meaning of Part XV of the SFO) of the Company.

As at the Latest Practicable Date, Mr. Kee Yee Kor, through the interest of his spouse, was taken to be interested in 2,244,000 ordinary shares of HK$1.00 each in, representing approximately 9.997 per cent. of, the issued share capital of TechnoSolve Limited, an associated corporation (within the meaning of Part XV of the SFO) of the Company.

(b) Interests in underlying shares of the Company’s associated corporation

As at the Latest Practicable Date, Mr. John Luen Wai Lee, as beneficial owner, held 1,500,000 options granted to him on 23rd June, 1997 at a consideration of HK$1.00 under the Share Option Scheme for Employees adopted by LCR (the “LCR Share Option Scheme”). Such options vested after two months from the date when the options were deemed to be granted and accepted and are exercisable from 23rd August, 1997 to 23rd June, 2007 in accordance with the rules of the LCR Share Option Scheme to subscribe for ordinary shares in LCR at an initial exercise price of HK$5.30 per share (subject to adjustment). Pursuant to the bonus issue of new shares in the ratio of one for one in October 1997, the rights issue of new shares in July 1999 on the basis of one rights share for every one share held and the rights issue of new shares in November 2000 on the basis of one rights share for every two shares held, the holder of each option is entitled to subscribe for six ordinary shares of HK$0.10 each in LCR at an exercise price of HK$0.883 per share (subject to adjustment). Accordingly, Mr. John Luen Wai Lee is entitled to subscribe for 9,000,000 ordinary shares in, representing approximately 0.09 per cent. of, the issued share capital of LCR. None of the options were exercised by Mr. John Luen Wai Lee since they were granted and the quantity of options held by him as at the Latest Practicable Date remained unchanged.

The above interest in the underlying shares of LCR was held pursuant to unlisted physically settled equity derivatives. As at the Latest Practicable Date, none of the Directors or chief executive of the Company had any interests in the underlying shares in respect of cash settled or other equity derivatives of the Company or any of its associated corporations (within the meaning of Part XV of the SFO).

– 99 –

APPENDIX III

GENERAL INFORMATION

All the interests stated above represent long positions. Save as disclosed herein, as at the Latest Practicable Date, to the knowledge of the Company:

(1) none of the Directors or chief executive of the Company had or was deemed to have any interests or short positions in the shares, underlying shares and debentures of the Company or any of its associated corporations (within the meaning of Part XV of the SFO) (a) which were required to be notified to the Company and the Stock Exchange pursuant to Divisions 7 and 8 of Part XV of the SFO (including interests and short positions which the Directors and the chief executive were taken or deemed to have under such provisions of the SFO); or (b) which were required to be entered in the register kept by the Company under Section 352 of the SFO; or (c) which were required to be notified to the Company and the Stock Exchange pursuant to the Model Code; and
(2) none of the Directors or chief executive of the Company nor their spouses or minor children (natural or adopted) were granted or had exercised any rights to subscribe for any equity or debt securities of the Company or any of its associated corporations (within the meaning of Part XV of the SFO).

Dr. Mochtar Riady is also a director of Lippo Cayman and LCR. Mr. Stephen Riady is also a director of Lanius, Lippo Cayman, Lippo, LCR and HKCL Holdings Limited (“HKCL Holdings”). Save as disclosed herein, none of the Directors holds any directorship or employment in a company which has an interest or short position in the Shares and underlying Shares which would fall to be disclosed to the Company under the provisions of Divisions 2 and 3 of Part XV of the SFO.

3. INTERESTS AND SHORT POSITIONS OF SHAREHOLDERS

So far as is known to the Directors or chief executive of the Company, as at the Latest Practicable Date, the persons (other than the Directors or chief executive of the Company) who had interests or short positions in the Shares and underlying Shares which would fall to be disclosed to the Company under the provisions of Divisions 2 and 3 of Part XV of the SFO or who were, directly or indirectly, interested in 10 per cent. or more of the nominal value of any class of share capital carrying rights to vote in all circumstances at general meetings of any other member of the Group are as follows:

(i) The Company

	No. of	Approximate
Name	ordinary Shares	percentage
HKCL Holdings	806,656,440	59.89
LCR	973,240,440	72.26
Lippo	973,240,440	72.26
Lippo Cayman	973,240,440	72.26
Lanius	973,240,440	72.26
Madam Lidya Suryawaty	973,240,440	72.26

– 100 –

APPENDIX III

GENERAL INFORMATION

Note:

HKCL Holdings, the immediate holding company of the Company, as beneficial owner, held 806,656,440 ordinary Shares in the Company.
LCR’s interests in the Shares of the Company included the interest of HKCL Holdings which was held by LCR through Greenroot Limited, a wholly-owned subsidiary of LCR. LCR, as beneficial owner, directly held 166,584,000 ordinary Shares in, representing approximately 12.37 per cent. of, the issued share capital of the Company.
Lippo was an intermediate holding company of LCR which was held by Skyscraper Realty Limited as to approximately 71.13 per cent., which in turn was wholly owned by First Tower Corporation, a wholly-owned subsidiary of Lippo.
Lippo Cayman was the holding company of Lippo through direct holding and through wholly-owned subsidiaries, one of which was Lippo Capital Limited which controlled an approximate 50.47 per cent. interest in Lippo.
Lanius was the registered shareholder of the entire issued share capital of Lippo Cayman and was the trustee of a discretionary trust, of which Dr. Mochtar Riady is the founder and in accordance with whose instructions Lanius was accustomed to act. The beneficiaries of the trust include Dr. Mochtar Riady and his family members. Madam Lidya Suryawaty is the spouse of Dr. Mochtar Riady. Dr. Mochtar Riady was not the registered holder of any shares in the issued share capital of Lanius.
LCR’s interests in the shares of the Company were recorded as the interests of Lippo, Lippo Cayman, Lanius and Madam Lidya Suryawaty. The above 973,240,440 ordinary Shares in the Company related to the same block of shares that Dr. Mochtar Riady and Mr. Stephen Riady were interested, details of which were disclosed in the above section headed “Directors’ and chief executive’s interests and short positions in shares, underlying shares and debentures of the Company and associated corporations”.

(ii) Four Prosperity Holdings Limited

	No. of ordinary shares
Name	of US$1.00 each	Percentage
Tiger Square Ltd. (“Tiger Square”)	10,408 “A” shares	51
	10,408 “B” shares	51

Note: Tiger Square is a wholly-owned subsidiary of the Company. See also (i) above in respect of the substantial shareholders of the Company.

(iii) Goldfix Pacific Ltd. (“Goldfix”)

	No. of ordinary shares	Approximate
Name	of US$0.01 each	percentage
Sinopro Limited (“Sinopro”)	600,000	80.89

Note: Sinopro is a wholly-owned subsidiary of the Company. See also (i) above in respect of the substantial shareholders of the Company.

– 101 –

APPENDIX III

GENERAL INFORMATION

(iv) Rossinis Restaurant Pte. Ltd.

	No. of ordinary shares	Approximate
Name	of S$1.00 each	percentage
Brilliant Leader Limited (“Brilliant”)	349,999	87.5
Lim Siew Fei	50,000	12.5

Note: Brilliant is a wholly-owned subsidiary of the Company. See also (i) above in respect of the substantial shareholders of the Company.

(v) TechnoSolve Limited

	No. of ordinary shares	Approximate
Name	of HK$1.00 each	percentage
HKCL Investments Limited
(“HKCL Investments”)	18,053,500	80.43

Note: HKCL Investments is a wholly-owned subsidiary of the Company. See also (i) above in respect of the substantial shareholders of the Company.

(vi) The Macau Chinese Bank Limited

	of ordinary shares
Name	of MOP100 each	Percentage
Winwise Holdings Limited (“Winwise”)	1,530,000	85
Wong Kon Kei	270,000	15

Note: Winwise is a wholly-owned subsidiary of the Company. See also (i) above in respect of the substantial shareholders of the Company.

All the interests stated above represent long positions. Save as disclosed herein, as at the Latest Practicable Date, none of the substantial shareholders (as defined under the Listing Rules) or other persons (other than the Directors or chief executive of the Company) had any interests or short positions in the Shares and underlying Shares as recorded in the register required to be kept by the Company under Section 336 of the SFO.

Save as disclosed above, as at the Latest Practicable Date, so far as was known to the Directors or chief executive of the Company, there was no person, other than a Director or chief executive of the Company, who had an interest or short position in the Shares and underlying Shares which would fall to be disclosed to the Company under the provisions of Divisions 2 and 3 of Part XV of the SFO, or, who were, directly or indirectly, interested in 10 per cent. or more of the nominal value of any class of share capital carrying rights to vote in all circumstances at general meetings of any other member of the Group.

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APPENDIX III

GENERAL INFORMATION

4. DIRECTORS’ SERVICE CONTRACTS

As at the Latest Practicable Date, none of the Directors had entered or was proposing to enter into any service contract with the Company or any other member of the Group (excluding contracts expiring or determinable by the employer within one year without payment of compensation (other than statutory compensation)).

5. COMPETING INTERESTS OF DIRECTORS AND ASSOCIATES

As at the Latest Practicable Date, none of the Directors and their respective associates were considered to have interest in any business which competes or is likely to compete, either directly or indirectly, with the business of the Group or have any other conflicts of interest with the Group pursuant to the Listing Rules.

6. DIRECTORS’ INTERESTS IN ASSETS/CONTRACTS AND OTHER INTERESTS

None of the Directors is materially interested in any contract or arrangement entered into by any member of the Group subsisting at the date of this circular which is significant in relation to the business of the Group.

As at the Latest Practicable Date, the following were particulars of assets acquired or disposed of by, or leased to, members of the Group since 31st December, 2004, being the date to which the latest published audited consolidated financial statements of the Group were made up, in which any Director had a direct or indirect interest:

(a) It was announced on 16th December, 2002 that a tenancy agreement dated 16th December, 2002 was entered into between Lippo Securities Holdings Limited (“LSHL”), a wholly-owned subsidiary of the Company, and Prime Power Investment Limited (“Prime Power”), a fellow subsidiary of the Company, pursuant to which Prime Power agreed to let to LSHL of Rooms 2302-2306, 23rd Floor, Tower One, Lippo Centre, 89 Queensway, Hong Kong with a gross floor area of 12,038 square feet for a term of two years from 18th January, 2003 to 17th January, 2005, both days inclusive, at a monthly rental of HK$192,608, exclusive of rates, service charges and all other outgoings. Such transaction constituted a connected transaction of the Group under the Listing Rules.
(b) It was announced on 21st September, 2004 that a tenancy agreement dated 16th September, 2004 was entered into between the Company and Porbandar Limited (“Porbandar”), a fellow subsidiary of the Company, pursuant to which Porbandar agreed to let to the Company of Room 4301, 43rd Floor, Tower One, Lippo Centre, 89 Queensway, Hong Kong with a gross floor area of approximately 4,879 square feet for a term of two years from 16th September, 2004 to 15th September, 2006, both days inclusive, at a monthly rental of HK$119,500, exclusive of rates, service charges and all other outgoings. Such transaction constituted a continuing connected transaction of the Group under the Listing Rules.

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APPENDIX III

GENERAL INFORMATION

(c) It was announced on 10th January, 2005 that a tenancy agreement dated 10th January, 2005 was entered into between LSHL and Prime Power pursuant to which Prime Power agreed to let to LSHL of Rooms 2302-2306, 23rd Floor, Tower One, Lippo Centre, 89 Queensway, Hong Kong with a gross floor area of approximately 12,038 square feet for a term of two years from 18th January, 2005 to 17th January, 2007, both days inclusive, at a monthly rental of HK$263,600, exclusive of rates, service charges and all other outgoings. Such transaction constituted a continuing connected transaction of the Group under the Listing Rules.
(d) It was announced on 22nd June, 2005 that:
(1) a sale and purchase agreement dated 17th June, 2005 (the “S&P Agreement”) was entered into between HKCL Investments Limited (“HKCL Investments”), a wholly-owned subsidiary of the Company, as vendor and Timemore Limited (“Timemore”), a fellow subsidiary of the Company, as purchaser pursuant to which HKCL Investments had agreed to sell and Timemore had agreed to purchase an aggregate of 1,000,000 ordinary shares of S$1.00 each (the “Sale Shares”) in, representing the entire issued share capital of, HKCL Investments Pte. Ltd. (“HKCL Pte”) and, by way of assignment, the related shareholder’s loan in the aggregate amount of S$1,404,549.11 (equivalent to approximately HK$6,495,000) owing by HKCL Pte to HKCL Investments (the “Shareholder’s Loan”) for a total consideration of S$2,400,000 (equivalent to approximately HK$11,098,000); and
(2) a deed of novation dated 17th June, 2005 (the “Deed”) was entered into amongst HKCL Investments, Timemore and Auric Property Pte. Ltd. (“Auric Property”), a fellow subsidiary of the Company, pursuant to which HKCL Investments had agreed to novate in favour of Timemore all its rights, benefits and liabilities as vendor under the conditional sale and purchase agreement dated 20th May, 2005 between HKCL Investments as vendor and Auric Property as purchaser in relation to the sale and purchase of the Sale Shares and the assignment of the Shareholder’s Loan.

Completion of the S&P Agreement and the Deed took place simultaneously on 17th June, 2005. Such transaction constituted a connected transaction of the Group under the Listing Rules.

Save as disclosed above, as at the Latest Practicable Date, none of the Directors had any direct or indirect interest in any assets which had been acquired or disposed of by or leased to any member of the Group or were proposed to be acquired or disposed of by or leased to any member of the Group since 31st December, 2004, being the date to which the latest published audited consolidated financial statements of the Group were made up.

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APPENDIX III

GENERAL INFORMATION

7. EXPERT

(a) The qualification of the expert who has given opinion or advice which is contained in this circular is as follows:

Name

Qualification

Ernst & Young

Certified Public Accountants

(b) As at the Latest Practicable Date, Ernst & Young did not have any shareholding in the Group or any right (whether legally enforceable or not) to subscribe for or to nominate persons to subscribe for securities in the Group, nor did it have any interest, direct or indirect, in any assets which had, since 31st December, 2004, being the date to which the latest published audited financial statements of the Group were made up, been acquired or disposed of by or leased to the Group, or were proposed to be acquired or disposed of by or leased to the Group.
(c) Ernst & Young has given and has not withdrawn its written consent to the issue of this circular with the inclusion herein of its letter and references to its name in the form and context in which they appear.

8. LITIGATION

As at the Latest Practicable Date, so far as was known to the Directors, there was no litigation or claim of material importance pending or threatened against any member of the Group.

9. MATERIAL CONTRACTS

The following contracts (not being contracts entered into in the ordinary course of business) have been entered into by the Company or its subsidiaries within two years preceding the date of this circular and which are or may be material:

(a) a Chinese-foreign cooperative joint venture contract dated 8th June, 2004 (“CJV Contract”) entered into between 北京經濟技術投資開發總公司 (Beijing Economic & Technological Investment Development Corp.), Uchida Limited (“Uchida”), a wholly-owned subsidiary of the Company, and 中國技術創新有限公司 (China Technology Innovation Corporation) relating to the development of the land situated at Lot no. 4C1 in 北京經濟技術開發區 (Beijing EconomicTechnological Development Area) and the capital commitment of Uchida under the CJV Contract is US$19.2 million;
(b) a discretionary management agreement and an supplemental agreement both dated 19th October, 2004 entered into between Ferrell Asset Management Limited (“Ferrell Management”) and Everbest Pacific Ltd. (“Everbest”), a wholly-owned subsidiary of the Company, pursuant to which Ferrell

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APPENDIX III

GENERAL INFORMATION

Management, as a discretionary investment manager of Everbest in respect of certain funds, invested S$42 million to subscribe for an interest in Ferrell Real Estate Investment Fund for and on behalf of Everbest;

(c) a tender to purchase the entire 7th Floor, Tower One, Lippo Centre, 89 Queensway, Hong Kong (“Lippo Centre Property”) for a sum of HK$68,336,268 from International Bank of Asia Limited (“IBA”, now known as Fubon Bank (Hong Kong) Limited) as mortgagee in possession of the Lippo Centre Property submitted by Verybest Holdings Limited, a wholly-owned subsidiary of the Company, was accepted by IBA on 25th October, 2004;
(d) a sale and purchase agreement dated 21st January, 2005 entered into between Allyield Limited (“Allyield”), a wholly-owned subsidiary of the Company, as purchaser and Kuoc Hou – Fomento Predial Limitada as seller relating to the acquisition by Allyield of the land located at 83 Estrada de Cacilhas, Macau together with the buildings constructed thereon for a consideration of HK$238,000,000;
(e) letters of offer from 30 proprietors (namely (1) Ling Kong Chui, (2) Toi Mui Keow, (3) Ling Chia Tien, Ho Yeng and Goh Miah Kiang Oswald, (4) Huang Tuan Li-Erh, (5) Tan Koh Gin and Low Siew Choo, (6) Florence Goh Bee Eng and Tan Hong Pew, (7) Fumiko Nobuhata @ Fumiko Davis, (8) Ng Kheng Lian Lilian, (9) Jeffrey Tsang Chi Mun, (10) Tan Lay Ching, (11) Soh Peck Lay and Jen Kwong Nam, (12) Suppiah a/1 Pakrisamy, (13) Ng Sun Eng, (14) Tan Hun Tong, (15) Wong Law Sein @ Maung Hla Thein and Koe Kyin Hoon @ Khin Khin Yee, (16) Nah Kok Joo and Khaw Pheck Choo Judy, (17) Lam Larry Chi Keung and Lam Lily Chung, (18) Tan Swee Lee and Chan Chan Wah, (19) Tan Wai Fong Gracy, (20) Chai Woon Fook, Chong Kwei Kee and Choy Sai Chak, (21) Cheung Chi Yuen and Tsun Yuet Chun, (22) Michelle Quek Guan Lian, (23) Leow Yoon Fook and Tan Peng San, (24) Tan Han Thiam and Yip Sook San, (25)Wang Kai Peng Patrick and Liaw Yen Lin, (26) Hsu Wei Ching and Lian Keng Heong, (27) Chang Cheung Oi Lin @ Tseung Irene and Chang Tin Yu Terry, (28) Neo Beng Choo, (29) Yeo Hong Ping and Tan Boon Kee (Chen Wenqi) and (30) Hat Holdings Pte Ltd) who collectively owned all of the apartment units and the common areas comprised in the property known as Newton Heights at 1 Newton Road, Singapore (the “Singapore Property”) as vendors to sell the Singapore Property to HKCL Investments Pte. Ltd. (“HKCL”), a then wholly-owned subsidiary of the Company, for a total consideration of S$43,620,000 were accepted by HKCL on 18th February, 2005; and
(f) the Term Sheet.

10. MISCELLANEOUS

(a) The Secretary of the Company is Mr. Andrew Tat Kwong Hau, a fellow member of both the Institute of Chartered Secretaries and Administrators and the Hong Kong Institute of Company Secretaries.

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APPENDIX III

GENERAL INFORMATION

(b) The qualified accountant of the Company is Mr. Alex Shiu Leung Au, an associate member of both the Institute of Chartered Accountants in England and Wales and the Hong Kong Institute of Certified Public Accountants.
(c) The registered office of the Company is situated at Clarendon House, Church Street, Hamilton HM 11, Bermuda and the principal place of business of the Company is situated at 24th Floor, Tower One, Lippo Centre, 89 Queensway, Hong Kong.
(d) The principal transfer office of the Company is situated at the office of its principal share registrars, Butterfield Fund Services (Bermuda) Limited, at Rosebank Centre, 11 Bermudiana Road, Hamilton, Bermuda and the Hong Kong branch transfer office of the Company is situated at the office of its Hong Kong branch share registrars, Tengis Limited at G/F., Bank of East Asia Harbour View Centre, 56 Gloucester Road, Wanchai, Hong Kong.
(e) In case of inconsistency, the English text of this circular shall prevail over the Chinese text.

11. DOCUMENTS AVAILABLE FOR INSPECTION

Copies of the following documents will be available for inspection during normal business hours at the office of Richards Butler situated at 20th Floor, Alexandra House, 16-20 Chater Road, Central, Hong Kong, for a period of 14 days from the date of this circular:

(a) the Memorandum of Association and Bye-laws of the Company;
(b) the published audited consolidated financial statements of the Company for each of the two financial years ended 31st December, 2004;
(c) the circulars issued by the Company pursuant to the requirements set out in Chapter 14 of the Listing Rules since 31st December, 2004;
(d) the comfort letter from Ernst & Young on the pro forma statement of assets and liabilities of the Group set out in Appendix II of this circular;
(e) the written consent from Ernst & Young as referred to in the section headed “Expert” in this Appendix;
(f) the contracts referred to in this circular including the material contracts referred to in the section headed “Material Contracts” in this Appendix; and
(g) the final drafts of the Limited Partnership Agreement, the Management Agreement, the Subscription Agreement, the Shareholders’ Agreement and the Investment Advisor Agreement.

– 107 –

AI assistant

3SBio Inc. — Proxy Solicitation & Information Statement 2005

49981_rns_2005-07-28_0838fb07-badb-4885-b40e-dbcf8a9c4478.pdf

HONGKONG CHINESE LIMITED 香港華人有限公司[*]

MAJOR TRANSACTION

DEFINITIONS

DEFINITIONS

DEFINITIONS

HONGKONG CHINESE LIMITED 香港華人有限公司[*]

MAJOR TRANSACTION

SUBSCRIPTION OF INTEREST IN LIMITED PARTNERSHIP

INTRODUCTION

LAAP INVESTMENT

INVESTMENT OBJECTIVES AND KEY INVESTMENT POLICIES OF LAAP

ADMISSION OF ADDITIONAL LIMITED PARTNERS AND MAXIMUM TARGETED FUND SIZE

KEY FEATURES OF CONSTITUTION AND MANAGEMENT

Overview

Power of Management

Drawdown of Capital Commitments

Distribution of Proceeds of Portfolio Investments and Income

Rights of First Refusal

Term

General Partner

Mr. Kin Chan

Mr. V-Nee Yeh

Ms. Angie Yick Yee Li

ASM

Advisory Council

Investment Manager

Investment Advisor

INVESTMENT MANAGEMENT FEES

STATUS OF THE TRANSACTION

THE AGREEMENTS

Limited Partnership Agreement

Management Agreement

Subscription Agreement

Shareholders’ Agreement

Investment Advisor Agreement

Parties: ImPac Asset Management (HK) Limited Investment Manager

CONDITIONS

REASONS FOR AND BENEFITS OF INVESTING IN LAAP

FINANCIAL EFFECTS

RISK FACTORS

Illiquidity of real estate investment

Property investment risks

Reliance on the General Partner and the Investment Manager

LISTING RULES IMPLICATIONS

INFORMATION ON THE COMPANY

FINANCIAL AND TRADING PROSPECTS OF THE GROUP

FURTHER INFORMATION

1. THREE-YEAR FINANCIAL SUMMARY

(a) Consolidated Profit and Loss Account

(b) Consolidated Balance Sheet

2. AUDITED FINANCIAL STATEMENTS

Consolidated Profit and Loss Account

Consolidated Balance Sheet

Consolidated Summary Statement of Changes In Equity

Balance Sheet

Consolidated Cash Flow Statement

Notes to the Financial Statements

1. CORPORATE INFORMATION

2. IMPACT OF RECENTLY ISSUED HONG KONG FINANCIAL REPORTING STANDARDS (“HKFRS”)

3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

(a) Basis of preparation

(b) Basis of consolidation

(c) Subsidiaries

(d) Joint venture companies

(e) Jointly controlled entity

(f) Associates

(g) Goodwill

(h) Negative goodwill

(i) Impairment of assets

(j) Fixed assets and depreciation

(k) Investment properties

(l) Properties under development

(m) Investment securities

(n) Other investments in securities

(o) Property held for sale

(p) Revenue recognition

(q) Income tax

3SBio Inc. Proxy Solicitation & Information Statement 2005