Pacific Online Limited - M&A Activity 2007

THIS DOCUMENT IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION

If you are in any doubt as to any aspect about this document or as to the action to be taken, you should consult your licensed securities dealer, registered institution in securities, bank manager, solicitor, professional accountant or other professional advisers.

If you have sold or transferred all your shares in Prosperity Investment Holdings Limited (the “Company”) , you should at once hand this document, together with the enclosed Form of Acceptance (as defined herein) to the purchaser(s) or the transferee(s) or to the bank, licensed securities dealer, registered institution in securities or other agent through whom the sale or transfer was effected for transmission to the purchaser or the transferee.

The Stock Exchange of Hong Kong Limited and Hong Kong Securities Clearing Company Limited take no responsibility for the contents of this document, make no representation as to its accuracy or completeness and expressly disclaim any liability whatsoever for any loss howsoever arising from or in reliance upon the whole or any part of the contents of this document.

FAVOR HERO INVESTMENTS LIMITED

(Incorporated in the British Virgin Islands

with limited liability)

PROSPERITY INVESTMENT HOLDINGS LIMITED 嘉進投資國際有限公司 *

(Incorporated in Bermuda with limited liability)

(Stock Code : 310)

COMPOSITE OFFER AND RESPONSE DOCUMENT RELATING TO MANDATORY CONDITIONAL CASH OFFER BY

Ping An Securities Limited

ON BEHALF OF FAVOR HERO INVESTMENTS LIMITED TO ACQUIRE ALL THE ISSUED SHARES IN PROSPERITY INVESTMENT HOLDINGS LIMITED (OTHER THAN THOSE ALREADY OWNED BY FAVOR HERO INVESTMENTS LIMITED AND PARTIES ACTING IN CONCERT WITH IT)

Financial Adviser to the Company

Independent Financial Adviser to the Independent Board Committee

A letter from the board of directors of the Company is set out on pages 14 to 19 of this document.

A letter from Ping An Securities Limited containing, among other things, the details of the terms of the General Offer (as defined herein) is set out on pages 7 to 13 of this document.

A letter from the Independent Board Committee (as defined herein) to the Independent Shareholders (as defined herein) containing its recommendations in respect of the General Offer is set out on page 20 to 21 of this document.

A letter from Veda Capital Limited containing its advice to the Independent Board Committee in respect of the General Offer is set out on pages 22 to 41 of this document.

The procedures for acceptance and settlement of the General Offer are set out on pages 42 to 48 in Appendix I to this document and in the accompanying Form of Acceptance. Acceptances of the General Offer should be received by the branch share registrar of the Company in Hong Kong, Secretaries Limited at 26th Floor, Tesbury Centre, 28 Queen’s Road East, Wanchai, Hong Kong by no later than 4:00 p.m. on Thursday, 9 August 2007.

* For identification purpose only

19 July 2007

		Page
Definitions	. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	1
Expected timetable. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .		5
Letter from	Ping An Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	7
Letter from	the Board . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	14
Letter from	the Independent Board Committee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	20
Letter from	Veda Capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	22
Appendix I	— Further terms and procedures for
	acceptance of the General Offer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	42
Appendix II	— Financial information of the Group. . . . . . . . . . . . . . . . . . . . . . . . . . .	49
Appendix III— General information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .		95
*Accompanying: Form of Acceptance*

— i —

DEFINITIONS

In this document, unless the context otherwise requires, the following expressions shall have the following meanings:

“acting in concert”	has the meaning ascribed thereto under the Takeovers
	Code
“Announcement”	the announcement of the Company dated 14 May 2007
	in relation to, among others, the Open Offer and the
	General Offer
“Announcement Date”	14 May 2007, being the date of the Announcement
“associates”	has the meaning ascribed thereto under the Listing Rules
“Baron Capital”	Baron Capital Limited, a licensed corporation to carry
	on Type 1 (dealing in securities) and Type 6 (advising
	on corporate finance) regulated activities under the SFO,
	the financial adviser to the Company
“Board”	board of Directors
“Business Day(s)”	any day (other than Saturday, Sunday or public holiday)
	on which licensed banks in Hong Kong are generally
	open for business throughout their normal business hours
“Capital Builder”	Capital Builder Investments Limited, a company
	incorporated in the British Virgin Islands and is wholly
	owned by Ms. Mak Wai Chun, the wife of Mr. Wan
	Chuen Chung, Joseph, who is the beneficial owner of
	Baron Capital and indirectly holds approximately 50.10%
	of the issued share capital of Ping An Securities
“CCASS”	the Central Clearing and Settlement System established
	and operated by HKSCC
“Companies Act”	the Companies Act 1981 of Bermuda, as amended
“Companies Ordinance”	the Companies Ordinance, Chapter 32 of the Laws of
	Hong Kong (as amended from time to time)
“Company”	Prosperity Investment Holdings Limited, a company
	incorporated in Bermuda with limited liability, the issued
	Shares of which are listed on the main board of the
	Stock Exchange

— 1 —

DEFINITIONS

“Composite Offer Document”	this document jointly issued by the Offeror and the
	Company in accordance with the Takeovers Code
	containing, among others, terms and conditions of the
	General Offer, the advice of the Independent Board
	Committee to the Independent Shareholders in relation
	to the General Offer, the advice of Veda Capital to the
	Independent Board Committee to the Independent
	Shareholders in relation to the General Offer and the
	accompanying Form of Acceptance
“Controlling Shareholder”	has the meaning ascribed thereto under the Listing Rules
“Directors”	directors of the Company
“Executive”	the Executive Director of the Corporate Finance Division
	of the SFC or any delegate of the Executive Director
“Form(s) of Acceptance”	the accompanying form(s) of acceptance and transfer of
	Shares in respect of the General Offer
“General Offer”	the mandatory conditional cash offer made by Ping An
	Securities for and on behalf of the Offeror as an agent to
	acquire all the Shares not already owned or agreed to be
	acquired by the Offeror and parties acting in concert
	with it at a price of HK$0.135 per Offer Share in
	accordance with the Takeovers Code
“Group”	the Company and its subsidiaries
“HKSCC”	Hong Kong Securities Clearing Company Limited
“Hong Kong”	the Hong Kong Special Administrative Region of the
	PRC
“Independent Board Committee”	a committee of the Board, comprising Mr. Chan Siu
	Wing, Raymond, Mr. Yan Mou Keung, Ronald and Mr.
	Chan Fai Yue, Leo, all being the independent non-
	executive Directors, constituted to advise the Independent
	Shareholders in relation to the General Offer
“Independent Shareholders”	the Shareholders other than the Offeror, Mr. Lam, their
	respective associates and parties acting in concert with
	them (including International Securities)

— 2 —

DEFINITIONS

“International Securities”	International Securities Investments Limited, a company
	incorporated in Samoa with limited liability, which is a
	wholly owned subsidiary of Capital Builder
“Last Trading Day”	Tuesday, 9 May 2007, being the last trading day prior to
	the suspension of trading in Shares on 10 May 2007
	pending the issue of the Announcement
“Latest Practicable Date”	16 July 2007, being the latest practicable date for
	ascertaining certain information for inclusion in this
	Composite Offer Document
“Listing Rules”	the Rules Governing the Listing of Securities on the
	Stock Exchange
“Mr. Lam”	Mr. Lam Kwing Wai, Alvin, an executive Director and
	the sole director and sole owner of the Offeror
“Offer Price”	the offer price of HK$0.135 per Offer Share pursuant to
	the General Offer
“Offer Share(s)”	the Shares subject to the General Offer
“Offeror”	Favor Hero Investments Limited, a company incorporated
	in the British Virgin Islands with limited liability and a
	Controlling Shareholder of the Company holding
	approximately 40.59% of the issued share capital of the
	Company as at the Latest Practicable Date. Favor Hero
	Investments Limited is wholly and beneficially owned
	by Mr. Lam
“Open Offer”	the offer of the Open Offer Shares by the Company to
	the Qualifying Shareholders on the terms set out in the
	Prospectus and the application form(s) for use by the
	Qualifying Shareholders to apply for the Open Offer
	Shares issued in respect of the assured allotment of the
	Open Offer Shares
“Open Offer Shares”	215,976,000 new Shares offered to the Qualifying
	Shareholders for subscription pursuant to the Open Offer
“Ping An Securities”	Ping An Securities Limited, a licensed corporation to
	carry on Type 1 (dealing in securities), Type 4 (advising
	on securities), Type 6 (advising on corporate finance)
	and Type 9 (asset management) regulated activities under
	the SFO, and the agent of the Offeror to make the General
	Offer

— 3 —

DEFINITIONS

“PRC”	the People’s Republic of China (which, for the purpose
	of this Composite Offer Document excludes Hong Kong,
	the Macau Special Administrative Region of the PRC
	and Taiwan)
“Prospectus”	the prospectus dated 22 June 2007 issued by the Company
	in relation to the Open Offer
“Qualifying Shareholders”	the Shareholders appear on the register of members of
	the Company at the close of business on the Record
	Date
“Record Date”	21 June 2007, being the date by reference to which
	entitlements under the Open Offer were determined
“Registrar”	Secretaries Limited, the branch share registrar of the
	Company in Hong Kong
“SFC”	the Securities and Futures Commission
“SFO”	Securities and Futures Ordinance, Chapter 571 of the
	Laws of Hong Kong
“Share(s)”	ordinary share(s) of HK$0.01 each in the share capital
	of the Company
“Shareholder(s)”	holder(s) of Shares
“Stock Exchange”	the Stock Exchange of Hong Kong Limited
“Takeovers Code”	the Hong Kong Code on Takeovers and Mergers
“Underwriting Agreement”	the underwriting agreement dated 9 May 2007 entered
	into between the Offeror and the Company in relation to
	the underwriting of the Open Offer
“Veda Capital”	Veda Capital Limited, a licensed corporation to carry on
	Type 6 (advising on corporate finance) regulated activity
	under the SFO, and the independent financial adviser to
	the Independent Board Committee in respect of the
	General Offer
“HK$”	Hong Kong dollars, the lawful currency of Hong Kong
“%”	per cent.

— 4 —

EXPECTED TIMETABLE

2007

(Note 1)

General Offer commences . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Thursday, 19 July Latest time and date for acceptance of the General Offer

on the first closing date (Note 2) . . . . . . . . . . . . . . . . . . . . . 4:00 p.m. on Thursday, 9 August First closing date of the General Offer (Note 2) . . . . . . . . . . . . . . . . . . . . . . Thursday, 9 August

Announcement of the results of the General Offer

and the level of acceptances uploaded to the website of the Stock Exchange . . . . . . . . . . . . . . . . . . . . . . . 7:00 p.m. on Thursday, 9 August

Notification announcement appears on newspaper . . . . . . . . . . . . . . . . . . . . . . Friday, 10 August Posting of remittance to the Shareholders

in respect of valid acceptances of the General Offer lodged on or before the first closing date of 9 August 2007 (assuming the General Offer has then become unconditional) (Note 3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Friday, 17 August

Latest time and date for acceptance of the General Offer (assuming the General Offer becomes unconditional on the first closing date of

9 August 2007) (Note 4) . . . . . . . . . . . . . . . . . . . . . . . . . . . 4:00 p.m. on Thursday, 23 August

Closing date of the General Offer (assuming the General Offer becomes unconditional on the first closing date of 9 August 2007) (Note 5) . . . . . . . . . . . . . . . . . . . . . . . . Thursday, 23 August Latest date by which the General Offer can be declared

unconditional (Note 6) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Monday, 17 September

Notes:

All times and dates refer to Hong Kong local times and dates.
The General Offer will be subject to the Offeror having received acceptances in respect of the Shares, which together with the Shares already held by the Offeror and parties acting in concert with it hold more than 50% of the voting rights of the Company. In accordance with the Takeovers Code, the General Offer must initially be open for acceptance for at least 21 days following the date on which this Composite Offer Document was posted. Unless the General Offer has previously been declared unconditional or revised, the latest time and date for acceptance of the General Offer on the first closing date is 4:00 p.m. on Thursday, 9 August 2007.

— 5 —

EXPECTED TIMETABLE

Remittances in respect of the cash consideration (after deducting the seller’s ad valorem stamp duty) payable for the Shares tendered under the General Offer will be posted to the accepting Independent Shareholders by ordinary post at their own risk as soon as possible but in any event within 10 days of the later of (i) the date on which all the relevant documents are received by the Registrar to render the acceptance complete and valid or (ii) the date on which the General Offer becomes, or is declared, unconditional.
In accordance with the Takeovers Code, where the General Offer becomes or is declared unconditional, it should remain open for acceptance for not less than 14 days thereafter.
The Offeror reserves the rights to revise or extend the General Offer until such time and/or date as it may determine and in accordance with the Takeovers Code. If in the course of the General Offer, the Offeror revises its terms with the consent of the Executive, all Independent Shareholders, whether or not he/she/it has already accepted the General Offer, will be entitled to the revised terms. A revised General Offer must be kept open for acceptance for at least 14 days following the date on which the revised offer document is posted.
In accordance with the Takeovers Code, except with the consent of the Executive, the General Offer may not become or be declared unconditional as to acceptances after 7:00 p.m. on the 60th day after the date on which this Composite Offer Document has been posted. Accordingly, unless the General Offer has previously become or been declared unconditional as to acceptances, the General Offer shall not be kept open after Monday, 17 September 2007.
Dates or deadlines specified in this Composite Offer Document for events in the timetable for (or otherwise in relation to) the General Offer are indicative only and may be extended or varied by agreement between the Company and the Offeror and in accordance with the applicable rules and regulations and the Takeovers Code. Any consequential changes to the expected timetable will be announced as and when appropriate.

— 6 —

LETTER FROM PING AN SECURITIES

==> picture [218 x 53] intentionally omitted <==

Ping An Securities Limited

19 July 2007

To the Independent Shareholders

Dear Sir or Madam,

MANDATORY CONDITIONAL CASH OFFER BY PING AN SECURITIES LIMITED ON BEHALF OF FAVOR HERO INVESTMENTS LIMITED TO ACQUIRE ALL THE ISSUED SHARES IN PROSPERITY INVESTMENT HOLDINGS LIMITED (OTHER THAN THOSE ALREADY OWNED BY FAVOR HERO INVESTMENTS LIMITED AND PARTIES ACTING IN CONCERT WITH IT)

INTRODUCTION

On 13 July 2007, the board of directors of Prosperity Investment Holdings Limited (the “Company”) announced, among other things, that following the close of the open offer of the Company (the “Open Offer”), Favor Hero Investments Limited (the “Offeror”) had taken up 47,220,000 open offer shares to which it was entitled as a Qualifying Shareholder under the Open Offer and 121,324,656 open offer shares in the capacity of the underwriter of the Open Offer pursuant to the underwriting agreement dated 9 May 2007 entered into between the Offeror and the Company. As a result, the Offeror has acquired approximately 26.01% of the voting rights of the Company as enlarged by the issue of the open offer shares. In accordance with Rule 26 of the Takeovers Code, a mandatory conditional cash offer is being made by us on behalf of the Offeror to acquire all the issued shares of the Company (other than those already owned by the Offeror and parties acting in concert with it). Unless the context requires otherwise, terms defined in this document shall have the same meanings when used herein.

As at the Latest Practicable Date, the Offeror and parties acting in concert with it were interested in 301,245,672 Shares, or approximately 46.50% of the issued share capital of the Company. For details of the shareholding structure of the Company, please refer to the shareholding structure of the Company set out under the section headed “Letter from the Board” contained in this Composite Offer Document.

We have been appointed by the Offeror as its agent to make the General Offer for all the issued Shares not already owned by the Offeror and parties acting in concert with it on the basis and subject to the terms set out in this Composite Offer Document.

— 7 —

LETTER FROM PING AN SECURITIES

This letter, Appendix I to this Composite Offer Document and the accompanying Form of Acceptance together set out the terms of the General Offer and certain related information.

THE GENERAL OFFER

On behalf of the Offeror, we are making a mandatory conditional cash offer to the Shareholders to acquire all the Shares, other than those held by the Offeror and parties acting in concert with it in accordance with the Takeovers Code on the following basis:

Offer Price

For each Offer Share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . HK$0.135 in cash

As advised by the Company, as at the Latest Practicable Date, there were no outstanding options, warrants, derivatives or convertible securities which may confer any right to the holder thereof to subscribe for, convert or exchange into new Shares.

None of the Offeror, its ultimate beneficial owner or any person acting in concert with it had received any irrevocable commitment to accept the General Offer as at the Latest Practicable Date.

All the Shares acquired by the Offeror under the Open Offer and the General Offer will be transferred to Chong Hing Bank Limited to secure the banking facility granted by Chong Hing Bank Limited to the Offeror to meet part of the payment obligation of the Offeror under the General Offer. For details of the banking facility, please refer to item (h) under the paragraph headed “10. General” in Appendix III to this Composite Offer Document. In addition, if after completion of the General Offer, there are insufficient issued Shares held by the public, the Offeror will enter into certain arrangements to restore the public float of the Company. As at the Latest Practicable Date, no such arrangement had been entered into by the Offeror. Save as disclosed herein, the Offeror has no intention to transfer, charge or pledge any Shares acquired pursuant to the General Offer to any other persons.

Comparison of value

The Offer Price represents:

(i) a discount of approximately 55.74% to the closing price of HK$0.305 per Share (based on the closing price of Shares before the Shares went ex-entitlement on 14 June 2007) as quoted on the Stock Exchange on the Last Trading Date;
(ii) a discount of approximately 57.07% to the average closing prices of HK$0.314 per Share (based on the closing price of Shares before the Shares went ex-entitlement on 14 June 2007) as quoted on the Stock Exchange for the last five trading days up to and including the Last Trading Date;

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LETTER FROM PING AN SECURITIES

(iii) a discount of approximately 57.41% to the average closing price of HK$0.317 per Share (based on the closing price of Shares before the Shares went ex-entitlement on 14 June 2007) as quoted on the Stock Exchange on the last ten trading days up to and including the Last Trading Date;
(iv) a discount of approximately 67.07% to the closing price of HK$0.410 per Share as quoted on the Stock Exchange as at the Latest Practicable Date;
(v) a discount of approximately 76.72% to the audited consolidated net asset value of the Company of approximately HK$0.58 per Share as at 31 December 2006; and
(vi) a discount of approximately 68.60% to the unaudited adjusted consolidated net tangible assets of the Group of approximately HK$0.43 per Share upon completion of the Open Offer, details of which are set out in Appendix II to this Composite Offer Document.

The highest and lowest closing prices at which the Shares were traded on the Stock Exchange during the period commencing six months preceding the Announcement Date and up to the Latest Practicable Date were HK$0.660 per Share (based on the closing price of Shares as quoted on the Stock Exchange before the Shares went ex-entitlement on 14 June 2007) on 13 June 2007 and HK$0.120 per Share (based on the closing price of Shares as quoted on the Stock Exchange before the Shares went ex-entitlement on 14 June 2007) on 8 December 2006, respectively.

Total consideration

As at the Latest Practicable Date, the Company had 647,928,000 Shares in issue. Assuming that there is no change in the issued share capital of the Company prior to the close of the General Offer and based on the Offer Price of HK$0.135 per Share, the entire issued share capital of the Company is valued at approximately HK$87.47 million under the General Offer. On the basis that 346,682,328 Offer Shares held by Independent Shareholders pursuant to the General Offer and the Offer Price of HK$0.135 per Offer Share, the total consideration payable by the Offeror upon full acceptances of the General Offer will be approximately HK$46.80 million.

The Offeror has made available sufficient financial resources, including the financing from the personal resources of Mr. Lam and a banking facility of HK$45 million granted by a bank in Hong Kong, Chong Hing Bank Limited, to meet its payment obligations in full under the General Offer. The Offeror confirms that the payment of interest on, repayment of or security for any liability (contingent or otherwise) will not depend to any significant extent on the business of the Company. We are satisfied that there are sufficient financial resources available for the Offeror to meet its payment obligations in the event of full acceptances of the General Offer.

Condition of the General Offer

The General Offer will be subject to the Offeror having received acceptances in respect of the Shares which, together with the Shares already held by the Offeror and parties acting in concert with it, will result in the Offeror and parties acting in concert with it holding more than 50% of the voting rights of the Company.

— 9 —

LETTER FROM PING AN SECURITIES

Effect of accepting the General Offer

By accepting the General Offer, Independent Shareholders will sell to the Offeror their Offer Shares, and all rights attached to them, including the rights to receive all dividends and distribution declared, made or paid on or after the date of this Composite Offer Document.

Stamp duty

Seller’s ad valorem stamp duty arising in connection with acceptance of the General Offer amounting to 0.1% of the amount payable in respect of the relevant acceptance or if higher, the value of the Offer Shares as determined by the Collector of Stamp Revenue under the Stamp Duty Ordinance (Chapter 117 of the Laws of Hong Kong) will be deducted from the amount payable to the Independent Shareholders who accept the General Offer. The Offeror will bear its own portion of buyer’s ad valorem stamp duty under the General Offer at the rate of 0.1% of the amount payable in respect of relevant acceptances or if higher, the value of the Offer Shares as determined by the Collector of Stamp Revenue under the Stamp Duty Ordinance (Chapter 117 of the Laws of Hong Kong) and will be responsible to account to the Stamp Office of Hong Kong the stamp duty payable for the sale and purchase of the relevant Offer Shares pursuant to the acceptances of the General Offer.

Settlement of the consideration

The amounts due to the Shareholders who accept the General Offer will be posted by the Offeror at the risk of the Shareholders accepting the General Offer as soon as possible but in any event within 10 days of the latter of the date on which the General Offer becomes, or is declared, unconditional or the date of receipt of a duly completed acceptance in accordance with the Takeovers Code.

COMPULSORY ACQUISITION

The Offeror does not intend to exercise the power of compulsory acquisition under the provisions of Section 102 or 103 of the Companies Act to acquire compulsorily any Shares not tendered for acceptance under the General Offer.

INFORMATION ON THE OFFEROR

As at the Latest Practicable Date, the Offeror and the parties acting in concert with it held 301,245,672 Shares, representing approximately 46.50% of the existing issued share capital of the Company. For details of the dealings in Shares by the Offeror and parties acting in concert with it, please refer to Appendix III to this Composite Offer Document.

— 10 —

LETTER FROM PING AN SECURITIES

There is no arrangement (whether by way of option, indemnity or otherwise) in relation to the shares of the Offeror or the Company and which might be material to the General Offer as referred to in Note 8 to Rule 22 of the Takeovers Code.

There is no agreement or arrangement to which the Offeror is party which relates to the circumstances in which it may or may not invoke or seek to invoke a pre-condition or a condition to the General Offer.

INTENTIONS OF THE OFFEROR REGARDING THE COMPANY

The Offeror intends that the Group will continue with all its existing businesses. The Offeror does not intend to make any material change to the businesses and assets of the Group including any deployment of the fixed assets of the Company. The Offeror will conduct a review of the financial position and business operations of the Group for the purpose of formulating strategy for the Group and explore other business/investment opportunities for enhancing its future development and strengthening its revenue bases. The Offeror intends that there will be no material changes to the existing employees of the Group. However, the Offeror may recruit additional directors to the Board with relevant experience to the business of the Group and/or to replace the existing Directors, as and when it considers appropriate. Any appointment of new directors to the Board will be made in full compliance with the requirements of the Takeovers Code and the Listing Rules.

REASONS FOR THE GENERAL OFFER

The Offeror is the underwriter to the Open Offer pursuant to the Underwriting Agreement. As announced by the Company on 12 July 2007, the Open Offer was undersubscribed and, as a result, the Offeror was obliged to take up 121,324,656 unsubscribed Open Offer Shares. Accordingly, together with 47,220,000 Open Offer Shares to which it was entitled as a Qualifying Shareholder under the Open Offer, the Offeror and parties acting in concert with it have increased their shareholding interests in the Company from approximately 30.72% to approximately 46.50% and given their voting rights in the Company increased by more than 2% from their lowest percentage in the 12 month period, they are required to make a mandatory conditional cash offer for all the issued Shares not already owned by the Offeror and parties acting in concert with it under Rule 26.1 of the Takeovers Code.

MAINTAINING THE LISTING STATUS OF THE COMPANY

The Offeror intends to maintain the listing status of the Shares on the Stock Exchange. The sole director of the Offeror and the new directors to be appointed to the Board (if any) will take appropriate steps to ensure that not less than 25% of the issued Shares will be held by the public following the close of the General Offer.

— 11 —

LETTER FROM PING AN SECURITIES

The Stock Exchange has stated that if, upon closing of the General Offer, less than the minimum prescribed percentage applicable to the Company, being 25% of the issued Shares, are held by the public or if the Stock Exchange believes that:

(a) a false market exists or may exist in the Shares; or
(b) there are insufficient Shares in public hands to maintain an orderly market;

it will consider exercising its discretion to suspend trading in the Shares.

FURTHER TERMS OF THE GENERAL OFFER

Further terms and conditions of the General Offer (including the further procedures for acceptance, the acceptance period, revisions of the General Offer and the stamp duty payable by the Independent Shareholders who accept the General Offer) are set out in Appendix I to this Composite Offer Document and the accompanying Form of Acceptance.

GENERAL

To ensure equality of treatment of all Shareholders, those registered Shareholders who hold Shares as nominee for more than one beneficial owner should, as far as practicable, treat the holding of each beneficial owner separately. It is essential for the beneficial owners of the Shares whose investments are registered in the names of nominees to provide instructions to their nominees of their intentions with regard to the General Offer.

The attention of Shareholders who are not residents of Hong Kong is drawn to item (h) under the paragraph headed “8. General” in Appendix I to this Composite Offer Document.

All documents and remittance sent to Shareholders by post will be sent to them by ordinary post at their own risk. Such documents and remittances will be sent to the Shareholders at their respective addresses as they appear in the register of members of the Company or, in the case of joint Shareholders, to the Shareholder whose name appears first in the register of members of the Company, as applicable. None of the Company, the Offeror, Ping An Securities, nor any of their respective directors or any persons involved in the General Offer will be responsible for any loss or delay in transmission or any other liabilities that may arise as a result thereof.

— 12 —

LETTER FROM PING AN SECURITIES

RECOMMENDATION

Your attention is drawn to the sections headed “Letter from the Board” on pages 14 to 19, “Letter from the Independent Board Committee” on pages 20 to 21, “Letter from Veda Capital”, to the Independent Board Committee on pages 22 to 41, all of which are contained in this Composite Offer Document, in relation to their recommendations regarding the General Offer.

Yours faithfully, For and on behalf of Ping An Securities Limited Sze Tsai Ping, Michael Managing Director

— 13 —

LETTER FROM THE BOARD

PROSPERITY INVESTMENT HOLDINGS LIMITED 嘉進投資國際有限公司 **[*]**

(Incorporated in Bermuda with limited liability)

(Stock Code : 310)

Executive Directors: Mr. Cheuk Yuk Lung Miss Tsui Yee Ni Mr. Lam Kwing Wai, Alvin

Registered office:

Clarendon House 2 Church Street Hamilton HM 11 Bermuda

Independent non-executive Directors:

Mr. Chan Siu Wing, Raymond Mr. Yan Mou Keung, Ronald Mr. Chan Fai Yue, Leo

Head office and principal place of of business in Hong Kong: Room A, 11th Floor Fortune House 61 Connaught Road Central Central Hong Kong

19 July 2007

To the Independent Shareholders

Dear Sir or Madam,

MANDATORY CONDITIONAL CASH OFFER BY PING AN SECURITIES LIMITED ON BEHALF OF FAVOR HERO INVESTMENTS LIMITED TO ACQUIRE ALL THE ISSUED SHARES IN PROSPERITY INVESTMENT HOLDINGS LIMITED (OTHER THAN THOSE ALREADY OWNED BY FAVOR HERO INVESTMENTS LIMITED AND PARTIES ACTING IN CONCERT WITH IT)

INTRODUCTION

On 14 May 2007, the Company announced that it proposed to raise approximately HK$29.16 million, before expenses, by issuing 215,976,000 Open Offer Shares at a price of HK$0.135 per Open Offer Share by way of the Open Offer on the basis of one Open Offer Share for every two Shares held by the Qualifying Shareholders on the Record Date. At the special general meeting of the Company held on Thursday, 21 June 2007, the relevant resolution to

* For identification purpose only

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LETTER FROM THE BOARD

approve the Open Offer, the Underwriting Agreement and the transactions contemplated thereby and the absence of arrangements for excess application for the Open Offer Shares was duly approved by the Independent Shareholders. The Offeror and International Securities did not vote in the special general meeting. The Open Offer was fully underwritten by the Offeror.

At the Announcement Date and before completion of the Open Offer, the Offeror and parties acting in concert with it were interested in 132,701,016 Shares, representing approximately 30.72% of the then issued share capital of the Company and was a Controlling Shareholder of the Company. Upon completion of the Open Offer and as a result of taking up 47,220,000 Open Offer Shares to which it was entitled as a Qualifying Shareholder under the Open Offer and the underwritten of 121,324,656 Open Offer Shares by the Offeror pursuant to the Underwriting Agreement, the Offeror and parties acting in concert with it in aggregate own 301,245,672 Shares, representing approximately 46.50% of the entire issued share capital of the Company as at the Latest Practicable Date. As their voting rights in the Company increased by more than 2% from their lowest percentage in the 12 month period, the Offeror and parties acting in concert with it are required to make a mandatory conditional cash offer in accordance with Rule 26 of the Takeovers Code.

Ping An Securities, as an agent for and on behalf of the Offeror, is making the General Offer for all the issued Shares not already owned by the Offeror and parties acting in concert with it on the basis and subject to the terms set out under the section headed “Letter from Ping An Securities” on pages 7 to 13 of this Composite Offer Document and in Appendix I to this Composite Offer Document and in the Form of Acceptance.

In compliance with Rule 2.1 of the Takeovers Code, Mr. Chan Siu Wing, Raymond, Mr. Yan Mou Keung, Ronald and Mr. Chan Fai Yue, Leo, who are the independent non-executive Directors and have no direct or indirect interest in the General Offer, have been appointed as members of the Independent Board Committee to advise and make recommendations to the Independent Shareholders in respect of the General Offer. Veda Capital has been appointed as the independent financial adviser to the Independent Board Committee in respect of the General Offer, whose appointment has been approved by the Independent Board Committee.

The purpose of this Composite Offer Document is to provide you with, among other matters, information relating to the Group and the General Offer as well as setting out the “Letter from the Independent Board Committee” containing its recommendation and advice to the Independent Shareholders in respect of the General Offer and the “Letter from Veda Capital” containing its advice to the Independent Board Committee in respect of the General Offer.

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LETTER FROM THE BOARD

THE GENERAL OFFER

Ping An Securities, as an agent for and on behalf of the Offeror is making a mandatory conditional cash offer to the Shareholders to acquire all the Shares, other than those held by the Offeror and parties acting in concert with it, on terms set out in this Composite Offer Document and in the Form of Acceptance on the following basis:

Offer Price

For each Offer Share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . HK$0.135 in cash

Comparison of value

The Offer Price represents:

(i) a discount of approximately 55.74% to the closing price of HK$0.305 per Share (based on the closing price of Shares before the Shares went ex-entitlement on 14 June 2007) as quoted on the Stock Exchange on the Last Trading Date;
(ii) a discount of approximately 57.07% to the average closing prices of HK$0.314 per Share (based on the closing price of Shares before the Shares went ex-entitlement on 14 June 2007) as quoted on the Stock Exchange for the last five trading days up to and including the Last Trading Date;
(iii) a discount of approximately 57.41% to the average closing price of HK$0.317 per Share (based on the closing price of Shares before the Shares went ex-entitlement on 14 June 2007) as quoted on the Stock Exchange on the last ten trading days up to and including the Last Trading Date;
(iv) a discount of approximately 67.07% to the closing price of HK$0.410 per Share as quoted on the Stock Exchange as at the Latest Practicable Date;
(v) a discount of approximately 76.72% to the audited consolidated net asset value of the Company of approximately HK$0.58 per Share as at 31 December 2006; and
(vi) a discount of approximately 68.60% to the unaudited adjusted consolidated net tangible assets of the Group of approximately HK$0.43 per Share upon completion of the Open Offer, details of which are set out in Appendix II to this Composite Offer Document.

As at the Latest Practicable Date, there were no outstanding options, warrants, derivatives or convertible securities which may confer any right to the holder thereof to subscribe for, convert or exchange into new Shares.

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LETTER FROM THE BOARD

As at the Latest Practicable Date, none of the Offeror, its ultimate beneficial owner or any person acting in concert with it had received any irrevocable commitment to accept the General Offer.

Total consideration

As at the Latest Practicable Date, the Company had 647,928,000 Shares in issue. On the basis of the Offer Price of HK$0.135 per Offer Share, the entire issued share capital of the Company is valued at approximately HK$87.47 million under the General Offer. Immediately following the completion of the Open Offer and as a result of taking up 47,220,000 Open Offer Shares to which it was entitled as a Qualifying Shareholder under the Open Offer and the underwritten of 121,324,656 Open Offer Shares by the Offeror pursuant to the Underwriting Agreement, the Offeror and parties acting in concert with it in aggregate own 301,245,672 Shares, representing approximately 46.50% of the entire issued share capital of the Company as at the Latest Practicable Date. Based on a total of 346,682,328 Offer Shares held by the Independent Shareholders as at the Latest Practicable Date and the Offer Price of HK$0.135 per Offer Share, the total consideration payable by the Offeror upon full acceptance of the General Offer will be approximately HK$46.80 million.

The Offeror has made available sufficient financial resources, including the financing from the personal resources of Mr. Lam and a banking facility of HK$45 millon granted by a bank in Hong Kong, Chong Hing Bank Limited, to meet its payment obligations in full under the General Offer.

Ping An Securities, as an agent for and on behalf of the Offeror for the General Offer, is satisfied that there are sufficient financial resources available for the Offeror to meet its payment obligations in the event of full acceptances of the General Offer.

INFORMATION ON THE GROUP

The Company recorded a consolidated profit attributable to Shareholders of approximately HK$9.67 million for the year ended 31 December 2006. As at 31 December 2006, the audited consolidated net asset value of the Group was approximately HK$249.09 million.

INFORMATION ON THE OFFEROR

The Offeror is a company incorporated in the British Virgin Islands with limited liability, the entire issued share capital of which is wholly and beneficially owned by the sole director of the Offeror, Mr. Lam, who is an executive Director. Please refer to the paragraph headed “Information on the Offeror” under the section headed “Letter from Ping An Securities” for further information of the Offeror.

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LETTER FROM THE BOARD

INTENTIONS OF THE OFFEROR REGARDING THE COMPANY

Please refer to the paragraph headed “Intentions of the Offeror regarding the Company” under the section headed “Letter from Ping An Securities” for further information on the Offeror’s intention in relation to the Company.

SHAREHOLDING STRUCTURE OF THE COMPANY

The shareholding structure of the Company as at the Latest Practicable Date is set out below:

Offeror and parties acting in concert with it_(Note 1) — Offeror — International Securities(Note 2)_ Subtotal Independent Shareholders Total	As at the Latest Practicable Date Shares % (approx.) 262,984,656 40.59 38,261,016 5.91 ----------------- ----------------- 301,245,672 46.50 346,682,328 53.50 647,928,000 100.00	As at the Latest Practicable Date Shares % (approx.) 262,984,656 40.59 38,261,016 5.91 ----------------- ----------------- 301,245,672 46.50 346,682,328 53.50 647,928,000 100.00
		100.00

Notes:

The Executive takes the view that International Securities is presumed to be a party acting in concert with the Offeror under the Takeovers Code since International Securities is wholly owned by Ms. Mak Wai Chun, the wife of Mr. Wan Chuen Chung, Joseph, who indirectly holds approximately 50.10% of the issued share capital of Ping An Securities, the agent to the Offeror in respect of the General Offer. Accordingly, the General Offer will not be extended to International Securities.
International Securities is a wholly owned subsidiary of Capital Builder. Capital Builder was incorporated in the British Virgin Islands and is wholly owned by Ms. Mak Wai Chun, the wife of Mr. Wan Chuen Chung, Joseph, who is the beneficial owner of Baron Capital and indirectly holds approximately 50.10% of the issued share capital of Ping An Securities. Accordingly, Capital Builder, Ms. Mak Wai Chun and Mr. Wan Chuen Chung, Joseph are all deemed to be interested in the 38,261,016 Shares held by International Securities.

MAINTAINING THE LISTING STATUS OF THE COMPANY

The Offeror does not intend to exercise the power of compulsory acquisition under the provisions of Section 102 or 103 of the Companies Act. It intends to maintain the listing status of the Shares on the Stock Exchange. The sole director of the Offeror and the new directors to be appointed to the Board (if any) will take appropriate steps to ensure that not less than 25% of the issued Shares will be held by the public following the close of the General Offer.

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LETTER FROM THE BOARD

(a) a false market exists or may exist in the Shares; or
(b) there are insufficient Shares in public hands to maintain an orderly market;

it will consider exercising its discretion to suspend trading in the Shares.

FURTHER INFORMATION

In considering what action to take in connection with the General Offer, the Independent Shareholders should consider their own tax position and, if they are in any doubt, they should consult their professional advisers.

RECOMMENDATION

Your attention is drawn to the section headed “Letter from the Independent Board Committee” set out on pages 20 to 21 of this Composite Offer Document which contains its recommendation to the Independent Shareholders as to whether the terms of the General Offer are fair and reasonable and whether the Independent Shareholders should accept the General Offer and the section headed “Letter from Veda Capital” which contains its advice to the Independent Board Committee, and the principal factors and reasons it has considered before arriving at its advice. You are also advised to read the section headed “Letter from Ping An Securities” set out on pages 7 to 13 of this Composite Offer Document, further terms and procedures for accepting of the General Offer set out in Appendix I to this Composite Offer Document and the accompanying Form of Acceptance.

By order of the Board Cheuk Yuk Lung Chairman

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LETTER FROM THE INDEPENDENT BOARD COMMITTEE

PROSPERITY INVESTMENT HOLDINGS LIMITED 嘉進投資國際有限公司[*]

(Incorporated in Bermuda with limited liability)

(Stock Code : 310)

19 July 2007

To the Independent Shareholders

Dear Sir or Madam,

MANDATORY CONDITIONAL CASH OFFER BY PING AN SECURITIES LIMITED ON BEHALF OF FAVOR HERO INVESTMENTS LIMITED TO ACQUIRE ALL THE ISSUED SHARES IN PROSPERITY INVESTMENT HOLDINGS LIMITED (OTHER THAN THOSE ALREADY OWNED BY FAVOR HERO INVESTMENTS LIMITED AND PARTIES ACTING IN CONCERT WITH IT)

We refer to the composite offer document dated 19 July 2007 (the “Composite Offer Document”) issued jointly by Favor Hero Investments Limited and Prosperity Investment Holdings Limited of which this letter forms part. Terms defined in the Composite Offer Document shall have the same meanings in this letter unless the context otherwise requires.

We have been appointed by the Board to form the Independent Board Committee to consider the terms of the General Offer and to make recommendations to the Independent Shareholders in connection with the General Offer. We have considered whether the terms of the General Offer are fair and reasonable so far as the Independent Shareholders are concerned. Veda Capital Limited has been appointed as the independent financial adviser to advise us in respect of the terms of the General Offer.

We wish to draw your attention to the section headed “Letter from Ping An Securities”, “Letter from the Board”, “Letter from Veda Capital” and the additional information set out in the appendices to the Composite Offer Document.

RECOMMENDATION

Having considered the principal factors and reasons considered by, and the advice of Veda Capital as set out in its letter of advice, we consider that the terms of the General Offer are

* For identification purpose only

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LETTER FROM THE INDEPENDENT BOARD COMMITTEE

not fair and reasonable so far as the Independent Shareholders are concerned. Accordingly, we recommend the Independent Shareholders not to accept the General Offer.

Yours faithfully,

The Independent Board Committee of

PROSPERITY INVESTMENT HOLDINGS LIMITED

Mr. Chan Siu Wing, Raymond Mr. Yan Mou Keung, Ronald Mr. Chan Fai Yue, Leo Independent Non-executive Independent Non-executive Independent Non-executive Director Director Director

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LETTER FROM VEDA CAPITAL

The following is the full text of a letter of advice from Veda Capital to the Independent Board Committee in relation to the General Offer, which has been prepared for the purpose of inclusion in this Composite Offer Document.

VEDA CAPITAL LIMITED

Suite 11-12, 13/F, Nam Fung Tower 173 Des Voeux Road Central, Hong Kong

19 July 2007

To the Independent Board Committee of Prosperity Investment Holdings Limited

Dear Sirs,

MANDATORY CONDITIONAL GENERAL OFFER BY PING AN SECURITIES LIMITED

ON BEHALF OF FAVOR HERO INVESTMENTS LIMITED TO ACQUIRE ALL THE ISSUED SHARES IN PROSPERITY INVESTMENT HOLDINGS LIMITED (OTHER THAN THOSE SHARES ALREADY OWNED BY FAVOR HERO INVESTMENTS LIMITED AND PARTIES ACTING IN CONCERT WITH IT)

INTRODUCTION

We refer to our appointment as the independent financial adviser to the Independent Board Committee in relation to the General Offer, details of which are set out in the “Letter from the Board” and the “Letter from Ping An Securities” contained in the Composite Offer Document dated 19 July 2007 to the Independent Shareholders, of which this letter forms part. Capitalised terms used in this letter shall have the same meanings as defined in the Composite Offer Document unless the context requires otherwise.

On 14 May 2007, the Company announced that it proposed to raise approximately HK$29.16 million, before expenses, by issuing 215,976,000 Open Offer Shares at a price of HK$0.135 per Open Offer Share by way of the Open Offer on the basis of one Open Offer Share for every two Shares held by the Qualifying Shareholders on the Record Date. The Open Offer was fully underwritten by the Offeror.

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LETTER FROM VEDA CAPITAL

As at the Announcement Date and prior to completion of the Open Offer, the Offeror and parties acting in concert with it were interested in 132,701,016 Shares, representing approximately 30.72% of the then issued share capital of the Company. Immediately following the completion of the Open Offer and as a result of taking up 121,324,656 Open Offer Shares not taken up by the Qualifying Shareholders and 47,220,000 Open Offer Shares to which the Offeror was entitled as a Qualifying Shareholder under the Open Offer pursuant to the Underwriting Agreement, the Offeror and parties acting in concert with it in aggregate own 301,245,672 Shares, representing approximately 46.50% of the entire issued share capital of the Company as at the Latest Practicable Date. As their voting rights in the Company increased by more than 2% from their lowest percentage within a 12-month period, the Offeror and parties acting in concert with it is obliged under Rule 26 of the Takeovers Code to make a mandatory conditional cash offer to acquire all the issued Shares (other than those already owned by the Offeror and parties acting in concert with it).

Ping An Securities, on behalf of the Offeror, is making a mandatory conditional cash offer for all the issued Shares (other than those already owned by the Offeror and parties acting in concert with it) pursuant to Rule 26 of the Takeovers Code. Detailed terms and conditions of the General Offer, including the procedures for acceptance, are set out in the Composite Offer Document, in particular in the “Letter from the Board”, the “Letter from Ping An Securities” and Appendix I to the Composite Offer Document.

The Independent Board Committee (comprising three independent non-executive Directors namely Mr. Chan Siu Wing, Raymond, Mr. Yan Mou Keung, Ronald and Mr. Chan Fai Yue, Leo) has been formed to advise the Independent Shareholders on the terms of the General Offer. We have been appointed by the Company as the independent financial adviser to advise the Independent Board Committee in respect of the General Offer and such appointment has been approved by the Independent Board Committee.

BASIS OF OUR ADVICE

In formulating our opinion and recommendation, we have relied on the accuracy of the information, opinions and representations contained or referred to in the Composite Offer Document and provided to us by the Company, the Directors and the management of the Company. We have assumed that all information, opinions and representations contained or referred to in the Composite Offer Document were true and accurate at the time when they were made and continued to be true and accurate at the date of the Composite Offer Document. We have also assumed that all statements of belief, opinion and intention made by the Directors and the Offeror in the Composite Offer Document were reasonably made after due enquiries and considerations. We have no reasons to doubt that any relevant information has been withheld, nor are we aware of any fact or circumstance which would render the information

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LETTER FROM VEDA CAPITAL

provided and representations and opinions made to us untrue, inaccurate or misleading. We consider that we have reviewed sufficient information to enable us to reach an informed view and to justify reliance on the accuracy of the information contained in the Composite Offer Document to provide a reasonable basis for our opinions and recommendations. Having made all reasonable enquiries, the Directors have confirmed that, to the best of their knowledge, there are no other facts or representations the omission of which would make any statement in the Composite Offer Document, including this letter, misleading. We have not, however, carried out any independent verification of the information provided by the Company, the Directors and the management of the Company, nor have we conducted an independent investigation into the business and affairs, financial condition and future prospects of the Group and/or the Offeror.

In formulating our opinion, we have not considered the taxation implications on the Independent Shareholders arising from acceptances or non-acceptances of the General Offer as these are particular to their individual circumstances. It is emphasized that we will not accept responsibility for any tax effect on or liability of any person resulting from his or her acceptance or non-acceptance of the General Offer. In particular, the Independent Shareholders who are overseas residents or are subject to overseas taxation or Hong Kong taxation on securities dealings should consult their own tax positions, and if in any doubt, should consult their own professional advisers.

In formulating our opinions, we have made reference to the Investment Comparables (as defined hereafter) and the subject companies of the Comparable Offers (as defined hereafter), which are listed on the Stock Exchange for analysis purpose and we have assumed the truthfulness and accuracy of the information available to us regarding the Investment Comparables and the Comparable Offers. We have not, however, carried out any independent verification of the information available to us regarding the Investment Comparables and the subject companies of the Comparable Offers, nor have we conducted an independent investigation into the business and affairs, financial condition and future prospects of the subject companies of the Comparables Offers. Our opinions are necessarily based upon the financial, economic, market, regulatory and other conditions as they existed on, and the facts, information, representations, and opinions made available to us as of the Latest Practicable Date. We disclaim any undertaking or obligation to advise any person of any change in any fact or matter affecting the opinion expressed herein which may come or be brought to our attention until the close of the General Offer.

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LETTER FROM VEDA CAPITAL

PRINCIPAL FACTORS AND REASONS CONSIDERED

In assessing the General Offer and in giving our recommendation to the Independent Shareholders, we have taken into account the following principal factors and reasons:

Financial and business highlights of the Group

The Company is an investment holding company and its principal subsidiaries are engaged in the holding of equity or equity-related investments and the provision of management services to the investee companies. The Company is an investment company listed on the main board of the Stock Exchange pursuant to chapter 21 of the Listing Rules.

For the year ended 31 December 2005, the Group was mainly engaged in investment projects relating to production and distribution of dairy products, development of funeral services, development of internet education services and investment of land development. The Group recorded a turnover of approximately HK$2.48 million for the year ended 31 December 2005, representing a decrease of approximately 7.5% from the turnover of the previous year of approximately HK$2.68 million. The Group reported loss from operations of approximately HK$6.35 million, representing an improvement of 34.1% from that of the previous year of loss from operations of approximately HK$9.64 million. Loss attributable to the Shareholders were approximately HK$ 7.92 million for the year ended 31 December 2005, representing a widening of the loss of approximately 109.42% from approximately HK$3.78 million for the year ended 31 December 2004.

For the year ended 31 December 2006, the Group was mainly engaged in investment projects relating to investment in land development, investment in travel industry and development of internet education services. The Group recorded a turnover of approximately HK$138.11 million for the year ended 31 December 2006, representing a significant increase of approximately 168.88% from the turnover of the previous year of approximately HK$51.37 million (The consolidated income statement of the Company for the year ended 31 December 2005 was restated in the annual report of the Company for the year ended 31 December 2006 (the “2006 Annual Report”) and details of which were set out at Note 5 to the financial statements in the 2006 Annual Report). The Group reported a profit from operations of approximately HK$15.41 million for the year ended 31 December 2006 whereas the Group recorded a loss from operations of approximately HK$6.13 million for the year ended 31 December 2005. As stated in the 2006 Annual Report, the Group recorded a gain on disposal of an investment of approximately HK$20.16 million for the year ended 31 December 2006. Profit attributable to the Shareholders was approximately HK$9.67 million for the year ended 31 December 2006 whereas the Group reported a loss attributable to the Shareholders of approximately HK$7.92 million for the previous financial year.

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LETTER FROM VEDA CAPITAL

The Company was successful in turning around from loss making positions for the two years ended 31 December 2004 and 2005 to a profit making position for the year ended 31 December 2006. The amount of turnover also increased during the year ended 31 December 2006. We consider that, although the business environment of the Company still remains challenging and highly competitive, the Group is able to identify and pursue investment opportunities and manage the existing investments to achieve capital appreciation and growth in business.

The General Offer

Pursuant to Rule 26 of the Takeovers Code, Ping An Securities, on behalf of the Offeror, is making the General Offer on the following basis:

For each Offer Share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . HK$0.135 in cash

The Offer Price of HK$0.135 for each Offer Share is the same as the subscription price of HK$0.135 per Open Offer Share for the Open Offer. The Offer Price represents:

(a) a discount of approximately 55.74% to the closing price of HK$0.305 per Share (based on the closing price of the Shares before the Shares went ex-entitlement on 14 June 2007) as quoted on the Stock Exchange on the Last Trading Day;
(b) a discount of approximately 57.07% to the average of the closing prices of approximately HK$0.314 per Share (based on the closing price of the Shares before the Shares went ex-entitlement on 14 June 2007) as quoted on the Stock Exchange for the last five trading days up to and including the Last Trading Day;
(c) a discount of approximately 57.41% to the average of the closing prices of approximately HK$0.317 per Share (based on the closing price of the Shares before the Shares went ex-entitlement on 14 June 2007) as quoted on the Stock Exchange for the last ten trading days up to and including the Last Trading Day;
(d) a discount of approximately 67.07% to the closing price of HK$0.41 per Share as quoted by the Stock Exchange on the Latest Practicable Date;
(e) a discount of approximately 76.72% to the audited consolidated net asset value of approximately HK$0.58 per Share as at 31 December 2006; and
(f) a discount of approximately 68.60% to the unaudited adjusted consolidated net tangible asset value of approximately HK$0.43 per Share upon completion of the Open Offer, details of which are set out in Appendix II to the Composite Offer Document.

Independent Shareholders should note that the General Offer is conditional upon the Offeror having received acceptances of the General Offer which, together with the Shares already

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LETTER FROM VEDA CAPITAL

owned by the Offeror or parties acting in concert with it before or during the offer period, will result in the Offeror and any person acting in concert with it holding more than 50% of the voting rights of the Company.

Further terms and conditions of the General Offer, including the procedures for acceptance, are set out in the “Letter from Ping An Securities” and Appendix I to the Composite Offer Document.

Historical Share price performance

The graph below illustrates the closing price level of the Shares during the period from 10 May 2006 to 16 July 2007 (being the 12 calendar months period prior to the Last Trading Day and thereafter up to and including the Latest Practicable Date) (the “Review Period”).

==> picture [384 x 239] intentionally omitted <==

----- Start of picture text -----

0.8
0.7
0.6
0.5
0.4 Offer Price = HK$0.135 per Share
0.3
0.2
0.1
0
Closing price (HK$)
10-May-06 24-May-06 7-Jun-06 21-Jun-06 5-Jul-06 19-Jul-06 2-Aug-06 16-Aug-06 30-Aug-06 13-Sep-06 27-Sep-06 11-Oct-06 25-Oct-06 8-Nov-06 22-Nov-06 6-Dec-06 20-Dec-06 3-Jan-07 17-Jan-07 31-Jan-07 14-Feb-07 28-Feb-07 14-Mar-07 28-Mar-07 11-Apr-07 25-Apr-07 9-May-07 23-May-07 6-Jun-07 20-Jun-07 4-Jul-07
----- End of picture text -----

Note: Trading of the Shares was suspended between 23 and 26 February 2007 and 10, 11 and 14 May 2007.

During the Review Period, the closing price of the Shares ranged from the lowest of HK$0.123 per Share (recorded between 10 May and 1 June 2006) to the highest of HK$0.7 (recorded on 5 July 2007). The Shares were traded within the range of HK$0.013 above and below the Offer Price from the beginning of the Review Period until 12 February 2007 and from that onwards, the Shares were traded well above the Offer Price for the rest of the Review Period. The Offer Price of HK$0.135 per Offer Share represents a discount of approximately 30.33% to the average closing price of approximately HK$0.194 per Share during the Review Period. The Offer Price also represents a discount of approximately 67.07% to the closing price of HK$0.41 per Share on the Latest Practicable Date.

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LETTER FROM VEDA CAPITAL

We would like to remind the Independent Shareholders that although the Offer Price is below the closing price of the Shares for most of the days during the Review Period, in particular, since 13 February 2007, and represents a discount to the daily average closing price of the Shares for the Review Period as well as the closing price of the Shares on the Latest Practicable Date, there is no guarantee that the trading price of the Shares will sustain and be higher than the General Offer Price during and after the offer period. The Independent Shareholders, in particular those who may wish to realize their investments in the Shares, are thus reminded to closely monitor the market price of the Shares during the offer period.

Liquidity of the Shares

The graph and table below set out (i) the daily trading volume of the Shares; (ii) the average daily number of Shares traded per month; and (iii) the respective percentages of monthly trading volume compared to the issued share capital and the number of issued Shares held by the Independent Shareholders respectively during the Review Period.

==> picture [418 x 214] intentionally omitted <==

----- Start of picture text -----

35,000,000
30,000,000
25,000,000
20,000,000
15,000,000
10,000,000
5,000,000
0
Trading Volume (Shares)
10-May-06 24-May-06 7-Jun-06 21-Jun-06 5-Jul-06 19-Jul-06 2-Aug-06 16-Aug-06 30-Aug-06 13-Sep-06 27-Sep-06 11-Oct-06 25-Oct-06 8-Nov-06 22-Nov-06 6-Dec-06 20-Dec-06 3-Jan-07 17-Jan-07 31-Jan-07 14-Feb-07 28-Feb-07 14-Mar-07 28-Mar-07 11-Apr-07 25-Apr-07 9-May-07 23-May-07 6-Jun-07 20-Jun-07 4-Jul-07
----- End of picture text -----

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LETTER FROM VEDA CAPITAL

			Percentage
			to the number of
		Percentage to	issued Shares held
	Average	the total number	by the Independent
	daily trading	of issued Shares	Shareholders
	volume	(Note 1)	(Note 2)
	(Shares)	(%)	(%)
2006
May (from 10 May onwards)	41,667	0.0064	0.0120
June	956,364	0.1476	0.2759
July	123,810	0.0191	0.0357
August	25,217	0.0039	0.0073
September	1,669,524	0.2577	0.4816
October	45,250	0.0070	0.0131
November	16,455	0.0025	0.0047
December	64,737	0.0100	0.0187
2007
January	87,364	0.0135	0.0252
February	408,889	0.0631	0.1179
March	119,545	0.0185	0.0345
April	165,278	0.0255	0.0477
May (up to the Last Trading Day)	53,333	0.0082	0.0154
May (since resumption of trading
of the Shares on 15 May 2007)	1,606,167	0.2479	0.4633
June	622,775	0.0961	0.1796
July (up to the Latest Practicable Date)	9,005,808	1.3899	2.5977

Notes:

Based on 647,928,000 Shares in issue as at the Latest Practicable Date.
Based on 346,682,328 issued Shares held by the Independent Shareholders as at the Latest Practicable Date.
Trading of the Shares was suspended between 23 and 26 February 2007 and 10, 11 and 14 May 2007.

Source: website of the Stock Exchange (www.hkex.com.hk)

As illustrated in the table above, the trading volume of the Shares during the Review Period had been thin. During the period from 10 May 2006 up to the Last Trading Day, the highest daily average trading monthly volume amounted to approximately 1,669,524 Shares during the month of September 2006, representing approximately 0.2577% of the total number of issued Shares and approximately 0.4816% of the number of Shares held by the Independent Shareholders respectively. We also note that the trading volume of the Shares revived after

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LETTER FROM VEDA CAPITAL

the release of the Announcement. The average daily trading volume of Shares since resumption of trading of the Shares on 15 May 2007 until the Latest Practicable Date amounted to approximately 2,899,704 Shares, representing approximately 0.4475% of the total number of issued Shares and approximately 0.8364% of the number of Shares held by the Independent Shareholders respectively. If we look at the average trading of the Shares by month since resumption of trading of the Shares, we notice that:

(i) the average daily trading volume of Shares in May (since resumption of trading of the Shares on 15 May 2007) amounted to approximately 1,606,167 Shares, representing approximately 0.2479% of the total number of issued Shares and approximately 0.4633% of the number of Shares held by the Independent Shareholders respectively;
(ii) the average daily trading volume of Shares dropped in June and amounted to approximately 622,775 Shares, representing approximately 0.0961% of the total number of issued Shares and approximately 0.1796% of the number of Shares held by the Independent Shareholders respectively; and
(iii) the average daily trading volume of Shares increased in July (up to the Latest Practicable Date) and amounted to approximately 9,005,808 Shares, representing approximately 1.3899% of the total number of issued Shares and approximately 2.5977% of the number of Shares held by the Independent Shareholders respectively.

Trading volume of the Shares on the Latest Practicable Date amounted to 3,250,000 Shares, representing 0.5016% of the total number of issued Shares and approximately 0.9375% of the number of Shares held by the Independent Shareholders respectively. We noted that average trading volume of the Shares have been increasing since resumption of trading of the Shares on 15 May 2007 and was particularly high during the month of July (up to the Latest Practicable Date), which was due to the sharp rise in trading of the Shares during the 2 days of 5 and 6 July 2007 and the average trading volume of these two days amounted to approximately 29,863,000 Shares, representing approximately 4.61% of the total number of issued Shares and approximately 8.61% of the number of Shares held by the Independent Shareholders respectively. (The Company made an announcement on 5 July 2007 relating to the increase in price of the Shares and trading volume of the Shares and confirmed that there were no negotiations or agreements relating to intended acquisitions or realizations which are discloseable under Rule 13.23 of the Listing Rules, neither is the Board aware of any matter discloseable under the general obligation imposed by Rule 13.09 of the Listing Rules, which is or may be of a price-sensitive nature). However, we consider that the overall liquidity of the Shares was still low during the Review Period.

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LETTER FROM VEDA CAPITAL

Given the low liquidity of the Shares, we consider that despite the Offer Price represents a discount to the prevailing market price of the Shares as detailed in the section headed “Historical Share price performance” above, the Independent Shareholders who may wish to realize their investment in the Company, especially those with relatively sizeable shareholdings, might not be able to do so without having an adverse impact on the market price level of the Shares. Therefore, we consider that the General Offer provides an alternative for the Independent Shareholders who would like to realize their investment in the Shares. Nevertheless, Independent Shareholders who intend to dispose part or all of their Shares are reminded to closely monitor the market price and the liquidity of the Shares during the offer period and consider selling their Shares in the open market, instead of accepting the General Offer, if the net proceeds from the disposal of such Shares in the open market would exceed that receivable under the General Offer.

Net assets

We consider that it is common to value an investment company principally engaged in investment and trading of securities in listed and unlisted companies by reference to its net asset value. For comparison purpose, we have identified 23 companies listed on the main board of the Stock Exchange pursuant to chapter 21 of the Listing Rules (the “Investment Comparables”) and we have reviewed and tabulated below the premium/(discounts) of the closing share prices of the Investment Comparables as at the Latest Practicable Date over/(to) their respective latest published net asset value per share prior to the Latest Practicable Date, i.e. 30 June 2007. To the best of our knowledge, the table below would represent an exhaustive list of all the investment companies (after inclusion of the Company) listed on the main board of the Stock Exchange.

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LETTER FROM VEDA CAPITAL

							Premium/
							(discount)
							of the
							closing share
							price on the
							Latest
							Practicable Date
						Latest	over/(to)
						published net	published net
		Closing share				asset/(liability)	asset/(liability)
		price as at the				value per share	value per share
		Latest				prior to the	prior to the
Company		Practicable	Market	Price-earnings	Dividend	Latest	Latest
name	Stock Code	Date	Capitalisation	multiple	yield	Practicable Date	Practicable Date
		(HK$)	(HK$ million)	(times)	(%)	(HK$)	(%)
Apex Capital Limited	905	0.72	172.8	n/a	0.0	0.014	5,043
China Assets (Holdings) Limited	170	8.23	627.4	22.03	0.0	17.41	(53)
China Financial Industry
Investment Fund Limited	1227	2.22	159.8	n/a	0.0	0.115	1,830
China Investment Fund Company Limited	612	0.66	475.2	23.24	0.0	0.16	313
China Merchants China Direct
Investments Limited	133	29.5	4,399.8	4.49	0.0	30.83	(4)
China Treasure (Greater China)
Investments Limited	810	1.68	207.6	19.83	0.0	0.804	109
Concepta Investments Limited	1140	1.11	111.0	14.09	0.0	0.67	66
Earnest Investments Holdings Limited	339	0.99	80.2	n/a	0.0	1.0517	(6)
Everest International Investments Limited	204	1.92	40.4	n/a	0.0	1.04	85
Garron International Limited	1226	2.03	57.0	47.76	0.0	0.586	246
Golden 21 Investment Holdings Limited	2312	3.7	390.1	n/a	0.0	0.35	957
Grand Investment International Limited	1160	1.9	164.2	44.6	0.0	0.92	107
Harmony Asset Limited	428	5.47	207.8	14.96	2.7	6.48	(16)
Incutech Investments Limited	356	1.6	115.2	15.41	0.0	1.067	50
New Capital International Investment Limited	1062	0.37	78.9	1.46	5.4	0.2891	28
Prime Investments Holdings Limited	721	0.62	29.8	n/a	0.0	0.15	313
Radford Capital Investment Limited	901	0.103	208.1	n/a	0.0	0.162	(36)
Shanghai International Shanghai Growth
Investment Limited	770	2.75	24.5	2.82	141.8	22.78	(88)
Sino Katalytics Investment Corporation	2324	0.33	299.2	11.88	0.0	0.347	(5)
Sino Technology Investments
Company Limited	1217	0.71	212.9	n/a	0.0	0.0959	640
UBA Investments Limited	768	0.355	376.2	107.58	0.0	0.168	111
Unity Investments Holdings Limited	913	0.236	310.2	0.92	0.0	0.31	(24)
Yu Ming Investments Limited	666	0.65	1,099.3	n/a	0.0	0.46	41
			Maximum	107.58	141.8		5,043
			Minimum	0.92	0.0		(88)
			Mean	23.65	6.5		663 (premium)
							(29) (discount)
			Median	23.24	0.0		66
General Offer with the
Offer Price of
HK$0.135 per Share		0.135	87.5	8.18	0.0	0.81	(83)

The premium/(discount) of the closing share price on the Latest Practicable Date over/(to) the net asset value per share of the Investment Comparables ranged from a premium of approximately 5,043% to a discount of 88%. We observed that the range of premium to discount represented by the closing price of the Investment Comparables on the Latest Practicable Date to the latest published net asset value per share of the Investment Comparables was extremely wide. We found that the median for such range of premium to discount to be a premium of 66%. Out of all the 23 Investment Comparables, only one Investment Comparable had deeper discount (represented by the closing price on the Latest Practicable Date to the latest published net asset value per share) than the discount of the Offer Price to the net asset value per Share as at 30 June 2007 (being the date for the latest published net asset value per Share prior to the Latest Practicable Date) of approximately 83%.

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LETTER FROM VEDA CAPITAL

Based on the above and from the perspective of assessment of the Offer Price with respect to the net asset value with reference to the Investment Comparables, we consider that the Offer Price is not fair and reasonable so far as the Independent Shareholders are concerned.

Price-earnings multiple

Price-earnings multiple is one of the most commonly used benchmarks, taking into account the nature of business, for valuing a company. 14 companies out of all the 23 Investment Comparables recorded profits for their respective latest financial year. The historical priceearnings multiples of these 14 Investment Comparables ranged from approximately 0.92 times to approximately 107.58 times. The price-earnings multiple of the Offer Price of approximately 8.18 times lies within the range of price-earnings multiple comparison of the Investment Comparables but falls below both the mean of approximately 23.65 times and the median of approximately 23.24 times.

Dividend yield

We note that only three companies out of all 23 Investment Comparables paid out dividends for their respective latest financial year. The dividend yields of these three Investment Comparables ranged from approximately 2.7% to approximately 141.8%. However, the Group has not paid out any dividend for the year ended 31 December 2006. Accordingly, it would not be meaningful to assess the Offer Price using the dividend yield approach.

Precedent case of general offer in respect of investment company listed on the main board of the Stock Exchange pursuant to the Chapter 21 of the Listing Rules

For illustration purposes, we have identified one precedent case of general offer in respect of investment company listed on the main board of the Stock Exchange pursuant to chapter 21 of the Listing Rules during the Review Period, details of such precedent case are set out below:

									Premium/
								Premium/	(discount) of
								(discount) of	offer price
				Closing				offer price	over/(to) the
Date of				price as	Net	Price		over/(to) closing	latest published
the offer			Offer	at the last	asset value	earnings	Dividend	price as at the	net asset value
document	Company	Stock Code	price	trading day	per share	multiple	yield	last trading day	per share
			HK$	HK$	HK$	Times	%	%	%
21 Nov 06	Apex Capital Limited	905	0.0695	0.074	0.046	N/A	0.0	(6.08)	51.09
	The Company	310	0.135	0.305	0.58	8.2	0.0	(55.74)	(76.72)

We notice that both comparisons of the Offer Price to the closing price as at the Last Trading Day of a discount of approximately 55.74% and the latest published net asset value per Share of a discount of approximately 76.72% are less favourable to the comparisons of the offer price of Apex Capital Limited to the closing price as at the last trading day of a discount of

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LETTER FROM VEDA CAPITAL

approximately 6.08% and the latest published net asset value per share of a premium of approximately 51.09%. Since only one precedent general offer Investment Comparable is identified, we consider it not meaningful to draw a conclusion on the fairness and reasonableness of the General Offer based on such precedent case. In order to have a sizable number of comparisons to assess the fairness and reasonableness of the General Offer, we compared it with all announced general cash offers (the “Comparable Offers”) of companies listed on the main board of the Stock Exchange during the Review Period. Our findings on the Comparable Offers are summarized below:

									Premium/
									(discount)	Premium/
									of Offer price	(discount) of
									over/(to)	Offer price
			Market		Closing				closing	over/(to)
			capitalization		price as	Net			price as	the latest
Date of the			as at the		at the	asset	Price		at the	published
offer		Principal	Latest	Offer	last trading	value	earnings	Dividend	last trading	net asset
document	Company	business	Practicable Date	price	day	per share	multiple	yield	day	value per share
			(HK$ million)	(HK$)	(HK$)	(HK$)	(times)	(%)	(%)	(%)
5 Jul 07	Gay Giano	Manufacture, retail	786.5	0.8334	0.265	0.241	77.9	0.0	214.49	220.5
(Note 1)	International	and wholesale of
	Group Limited	fashion apparel and
	(Stock Code: 686)	complementary
		accessories, property
		investment and
		management
		services business.
28 Jun 07	China	Manufacture and	4,845.1	1.6715	1.74	1.71	163.9	0.0	(3.936 )	(2.3 )
(Note 1)	Pharmaceutical	sale of
	Group Limited	pharmaceutical
	(Stock Code: 1093)	products
29 Jun 07	Taifook Securities	Broking and	2,453.3	2.43	2.46	1.925	8.2	5.8	(1.219 )	26.2
	Group Limited	trading in
	(Stock Code: 665)	securities,
		futures & bullion
		contracts and FX,
		provision of margin
		and other financing,
		corporate advisory,
		placing and underwriting,
		nominee and custodian,
		fund management and
		financial planning services
18 Jun 07	The Hong Kong	Investment	1,012.5	1.478	2.3	1.03	29.5	0.0	(35.9 )	26.2
	Building and	holdings,
	Loan Agency Limited	provision of
	(Stock Code: 145)	mortgage finance
		and other related
		services and
		treasury investments
13 Jun 07	Artfield Group	Manufacturing and	456.7	0.55	1.47	0.2	N/A	0.0	(62.6 )	(175 )
	Limited	marketing of clocks
	(Stock Code: 1229)	and lighting products,
		the trading of metals
		and the provision
		of electroplating services

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LETTER FROM VEDA CAPITAL

									Premium/
									(discount)	Premium/
									of Offer price	(discount) of
									over/(to)	Offer price
			Market		Closing				closing	over/(to)
			capitalization		price as	Net			price as	the latest
Date of the			as at the		at the	asset	Price		at the	published
offer		Principal	Latest	Offer	last trading	value	earnings	Dividend	last trading	net asset
document	Company	business Practicable Date		price	day	per share	multiple	yield	day	value per share
			(HK$ million)	(HK$)	(HK$)	(HK$)	(times)	(%)	(%)	(%)
11 Jun 07	RBI Holdings Limited	Manufacture,	589.6	1.39	1.22	1.52	15.2	3.6	13.93	(8.6 )
	(Stock Code:566)	design and sale of
		children’s toys
11 Jun 07	World Trade	Importing and selling	1,925.2	1.85	3.15	1.41	7.5	3.2	(41.3 )	31.2
	Bun Kee Limited	of a comprehensive
	(Stock Code: 380)	range of pipes,
		fittings and other
		related accessories
		of different materials,
		applications and
		brandnames in
		Hong Kong.
		Also engaged in
		warehouse business
		for a variety of products
4 Jun 07	Techtronic Industries	Manufacture & trading	15,050.5	3.6	11.48	3.75	4.9	5.3	(68.64 )	(4.0 )
	Co. Ltd.	of rechargeable
	(Stock Code: 669)	power tools, floor
		care equipment,
		solar powered &
		electronic products,
		personal & health care
		products, kitchenware
		products
25 May 07	Asia Satellite	Operation, maintenance	6,645.5	16.0	16.5	11.33	13.8	2.2	(3.03 )	41.22
	Telecommunications	and provision of satellite
	Holdings Limited	telecommunication
	(Stock Code: 1135)	systems for broadcasting
		and telecommunications
21 May 07	Pacific Century	Provision of a range of	6,851,716.8	8.18	5.17	3.37	21.7	0.4	58.2	142.7
	Insurance Holdings	whole life, endowment
	Limited	and unit-linked insurance
	(Stock Code: 65)	products to individuals	in
		Hong Kong as well as
		provision of asset
		management services
14 May 07	Carico Holdings Limited	Manufacturing and	768.1	0.265	0.215	0.078	N/A	0.0	23.3	242.8
	(Stock Code: 729)	trading of automotive
		components, automotive
		telemetics and the trading
		of electronics components
30 Mar 07	Linmark Group Limited	Sales of merchandise	670.9	1.05	0.93	0.91	8.5	5.3	12.9	15.4
	(Stock Code: 915)	(garment, labels and
		consumer electronic
		products) and provision
		of service (procurement
		service, value-added
		services relating to the
		procurement agency
		business)

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LETTER FROM VEDA CAPITAL

											Premium/
											(discount)	Premium/
											of Offer price	(discount) of
											over/(to)	Offer price
					Market		Closing				closing	over/(to)
			capitalization				price as	Net			price as	the latest
Date of the					as at the		at the	asset	Price		at the	published
offer		Principal			Latest	Offer	last trading	value	earnings	Dividend	last trading	net asset
document	Company	business Practicable Date				price	day	per share	multiple	yield	day	value per share
				(HK$ million)		(HK$)	(HK$)	(HK$)	(times)	(%)	(%)	(%)
22 Mar 07	Climax International	Manufacturing,			201.8	0.10	0.25	0.36	N/A	0.0	(20 )	(72.2 )
	Company Limited	marketing and
	(Stock Code: 439)	distribution of
		paper products,
		the original equipment
		manufacturing business,
		whereby the Group buys
		materials and manufactures
		paper products for wholesalers
		and retail chain stores	worldwide
6 Mar 07	Zhongtian	Provision of			276.0	0.10	0.175	0.372	N/A	0.0	(42.86 )	(73.12 )
	International Limited	system integration
	(Stock Code 2379)	services, development
		of customized software
		products, sale of
		software and hardware
		products and provision
		of maintenance and
		other services
12 Jan 07	Nority International	Manufacture and export			8,212.2	0.412	0.47	0.342	N/A	50.2	(12.34 )	20.5
	Group Limited	of athletic and
	(Stock Code: 660)	athletic-style leisure
		footwear, as well as
		the manufacture of
		working shoes, safety
		shoes, golf shoes and
		other functional shoes
11 Jan 07	New World Mobile	Technology-related			620.2	0.65	0.43	1.03	0.1	184.6	51.2	(36.9 )
	Holdings Limited	business and holdings
	(Stock Code: 862)	of 23.6% interest
		in the issued share
		capital of CSL
		New World
		Mobility Limited
11 Dec 06	Fulbond Holdings	Manufacture of wooden			1,793.6	0.0078	0.02	0.0106	N/A	0.0	(61.0 )	(26.2 )
	Limited	products for blockboard,
	(Stock Code: 1041)	particle board,
		furniture and
		plywood-based products
		and provision of
		integrated circuit
		design services
6 Dec 06	Cosmopolitan	Securities trading			1,181.3	0.05	0.086	0.139	5.3	0.0	(41.86 )	(64.03 )
	International	in equity securities
	Holdings Limited	listed on global
	(Stock Code: 120)	stock markets, property
		investment in residential
		units and office space
		for rental income, provides
		information technology
		system and service
		wireless Internet access.

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LETTER FROM VEDA CAPITAL

											Premium/
											(discount)	Premium/
											of Offer price	(discount) of
											over/(to)	Offer price
					Market		Closing				closing	over/(to)
				capitalization			price as	Net			price as	the latest
Date of the					as at the		at the	asset	Price		at the	published
offer		Principal			Latest	Offer	last trading	value	earnings	Dividend	last trading	net asset
document	Company	business	Practicable Date			price	day	per share	multiple	yield	day	value per share
				(HK$ million)		(HK$)	(HK$)	(HK$)	(times)	(%)	(%)	(%)
27 Nov 06	Hanny Holdings	Trading of securities,			1,468.6	3.8	3.76	7.88	1055.6	2.6	1.06	(51.78 )
	Limited	property investment
	(Stock Code: 275)	and trading, holding
		of vessels for sand
		mining and other
		strategic investments
22 Nov 06	Asia Commercial	Trading and retailing			290.3	0.68	0.91	0.51	42	0.0	(25.3 )	33.3
	Holdings Limited	of watches and
	(Stock Code: 104)	property holding
21 Nov 06	Apex Capital Limited	Investment in listed			172.8	0.0695	0.074	0.046	N/A	0.0	(6.08 )	51.09
	(Stock Code: 905)	and unlisted
		companies in
		Hong Kong and
		in the PRC
9 Nov 06	Quality Healthcare	Health administration,			874.5	3.25	3.9	0.769	9.9	7.7	(16.67 )	322.63
	Asia Limited	medical scheme
	(Stock Code: 593)	administration,
		and provision
		of healthcare services
31 Oct 06	AV Concept	Marketing and distribution			200.5	0.53	0.49	1.03	20.4	3.8	8.2	(48.5 )
	Holdings Limited	of semiconductors,
	(Stock Code: 595)	and electronic components,
		and design and manufacturing
		of electronic products
		and internet appliances
26 Oct 06	Cash Retail Management	Operation of department			687.0	0.36	0.405	0.22	N/A	0.0	(11.11 )	63.64
	Group Limited	store and provision
	(Stock Code: 996)	of store management
		services in the PRC
23 Oct 06	China Motion Telecom	Provision of international			1,292.8	0.055	0.11	0.1002	1.0	0.0	(50.0)	(45.11 )
	International Limited	telecommunication
	(Stock Code: 989)	services, mobile
		communications services
		and distribution and
		retail chain
1 Sep 06	Senyuan International	Manufacture of vacuum			N/a	1.49	1.43	0.64	9.2	3.7	4.20	132.81
	Holdings Limited	circuit breakers and	other
	(Stock Code: 3333)	components of switchgears
		in the PRC
29 Aug 06	China Paradise Electronics	Operation of household			N/a	2.2354	2.05	1.014	12.92	7.1	9.04	120.45
	Retail Limited	appliances retail chain
	(Stock Code: 503)	in China
22 Aug 06	Golden Resorts	Operation of hotels,			4,206.7	1.94	2.0	1.99	19.6	1.5	(3.0 )	(2.5 )
	Group Limited	gaming and
	(Stock Code: 1031)	entertainment business

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LETTER FROM VEDA CAPITAL

										Premium/
										(discount)	Premium/
										of Offer price	(discount) of
										over/(to)	Offer price
				Market		Closing				closing	over/(to)
				capitalization		price as	Net			price as	the latest
Date of the				as at the		at the	asset	Price		at the	published
offer		Principal		Latest	Offer	last trading	value	earnings	Dividend	last trading	net asset
document	Company	business	Practicable Date		price	day	per share	multiple	yield	day	value per share
				(HK$ million)	(HK$)	(HK$)	(HK$)	(times)	(%)	(%)	(%)
21 Aug 06	Asia Financial	Provision of insurance		4,579.4	3.50	4.24	5.88	1.2	4.6	(17.5 )	(40.5 )
	Holdings Limited	and investment services
	(Stock Code: 662)
15 Jun 06	CSMC Technologies	Own and operate the		1,773.1	0.42	0.4	0.457	22.4	0	5	(8.1 )
	Corporation	open semi-conductor
	(Stock Code: 597)	foundries in China
12 Jun 06	Shun Cheong	Provision of building		150.0	0.30	0.37	0.461	0.8	10	(18.9 )	(34.9 )
	Holdings Limited	related maintenance
	(Stock Code: 65)	services
							Maximun	1,055.6	184.6	214.49	322.63
							Minimum	0.1	0	(68.64 )
							Mean	67.5	9.7	36.5	99.38
										(Premium )	(Premium )
										(27.16 )	(43.36 )
										(Discount )	(Discount )
							Median	20.4	1.5	(6.08 )	(2.3 )
	The Company	Holding of equity		246.21	0.135	0.305	0.58	8.2	0.0	(55.74 )	(76.72 )
		or equity-related
		investments and
		the provision of
		management services
		to these investee companies.

Note 1: As at the Latest Practicable Date, since offer documents of the relevant general offers had not yet been despatched, date of the announcements of the general offers were used instead.

Source: website of the Stock Exchange (www.hkex.com.hk)

We are mindful of the fact that pricing of a cash offer may vary under different factors, including but not limited to stock market conditions, industry, nature of business, size of companies, liquidity of the shares, as well as among companies with different financial standings and business performance (including loss making companies and profit making companies). Nevertheless, we consider that a broader comparison of cash offers announced recently during the Review Period would provide a more general reference for the reasonableness of the pricing of the General Offer.

The table above shows that majority, i.e. 20 out of 31, of the Comparable Offers had the offer prices set at discounts to their respective closing prices as quoted on the last trading day prior to the date of the relevant announcement. The comparison ranges from a discount of approximately 68.64% to a premium of approximately 214.49% with the mean of the discount rate of approximately 27.16% (for Comparable Offers with discounted offer price to closing price as at the last trading day) while the median is a discount of approximately 6.08. The Offer Price of HK$0.135 represents a discount of 55.74% to the closing price of the Shares as

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LETTER FROM VEDA CAPITAL

at the Last Trading Day, which although falls within the range of discounts and premium represented by 31 Comparable Offers, offers one of the deepest discounts to the closing price on the last trading day prior to the announcement of the respective general offers. Out of all the 31 Comparable Offers, only three Comparable Offers had deeper discounts (represented by the discount of the offer price to the closing price on the last trading day) than the discount of the Offer Price to the closing price of the Shares of the Last Trading Day of approximately 55.74%.

16 out of 31 Comparable Offers had the offer price set at discounts to the latest published net asset value prior to the publication of the announcements in relation to the offers whereas 15 Comparable Offers had the offer prices set at premiums over their respective latest published net asset value prior to the publication of the announcements in relation to the offers ranging from a discount of approximately 175% to a premium of approximately 322.6% and with a mean represented by a discount of approximately 43.36% (for the Comparable Offer with discounted offer price to latest published net asset value per share) whereas the median is a discount of approximately 2.3%. The Offer Price of HK$0.135 represents a discount of 76.72% to the audited consolidated net asset value of approximately HK$0.58 per Share as at 31 December 2006, which although falls within the range of discounts and premium represented by 31 Comparable Offers, offers much deeper discount than the median of a discount of approximately 2.4%. Out of all the 31 Comparable Offers, only one Comparable Offer had deeper discount (represented by discount of the offer price to the latest published net asset value per share) than the discount of the Offer Price to the audited consolidated net asset value of approximately HK$0.58 per Share as at 31 December 2006 of approximately 76.72%.

Based on the above analysis on the Offer Price by comparison with those under the cash offers made for companies that are listed on the main board of the Stock Exchange during the Review Period, we are of the view that the Offer Price is not fair and reasonable so far as the Independent Shareholders are concerned.

Intention of the Offeror

As stated in the “Letter from Ping An Securities”, it is the intention of the Offeror that the existing principal activities of the Group will remain unchanged and the Offeror has currently no intention to make any material changes to the employees or management of the Group or to dispose of any material assets or businesses of the Group other than in its ordinary course of business and has currently no intention to inject any material assets or businesses into the Group as at the Latest Practicable Date. However, the Offeror may nominate new director(s) to the Board and/or to replace the existing Directors as and when it considers appropriate and in accordance with the Takeovers Code and the Listing Rules. The Offeror will conduct a review of business operation and financial position of the Group for the purpose of formulating business plans and strategies for streamlining the existing business operation and improve the financial position of the Group and for the future business development of the Group. Given there may be a potential change in the composition of the Board and currently there is no

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LETTER FROM VEDA CAPITAL

available information on the experience and expertise of the new Directors who might be nominated to the Board, we are not in the position to opine whether there will be any different value incurred on the future development and management of the Group.

RECOMMENDATION

Taking into consideration of the above mentioned principal factors and reasons, being:

(i) the Company was successful in turning around from loss making positions for the two years ended 31 December 2004 and 2005 to a profit making position for the year ended 31 December 2006;
(ii) the Offer Price is below the closing price of the Shares for most of the days during the Review Period;
(iii) the Offer Price has deeper discount to the latest published net asset value per Share than most of the Investment Comparables;
(iv) the price-earnings multiple of the Offer Price of approximately 8.18 times falls below both the mean of approximately 23.65 times and median of approximately 23.24 times of the price-earnings multiples of the Investment Comparables;
(v) the Offer Price represents a discount of 55.74% to the closing price of the Shares as at the Last Trading Day, which falls at the lower end range of discounts represented by 20 out of 31 Comparable Offers; and
(vi) the Offer Price represents a discount of 76.72% to the audited consolidated net asset value of approximately HK$0.58 per Share as at 31 December 2006, which falls at the lower end range of discounts represented by 16 out of 31 Comparable Offers,

we are of the opinion that the Offer Price is not fair and reasonable so far as the Independent Shareholders are concerned. Accordingly, we recommend the Independent Board Committee to advise the Independent Shareholders not to accept the General Offer.

Nevertheless, for those Independent Shareholders who wish to retain part or all of their investments in the Shares, they should carefully consider the future intentions of the Offeror regarding the Group and the future prospects of the Group, details of which are set out in the “Letter from Ping An Securities” contained in the Composite Offer Document. We consider the price is still the main factor for the consideration of the Independent Shareholders. We also wish to emphasize that there is no certainty that the Shares will continue to trade in excess of the Offer Price during and after the offer period.

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LETTER FROM VEDA CAPITAL

On the other hand, given the low liquidity of the Shares, we consider that despite the Offer Price represents a discount to the prevailing market price of the Shares, the Independent Shareholders who may wish to realize their investment in the Company, especially those with relatively sizeable shareholdings, might not be able to do so without having an adverse impact on the market price level of the Shares. Therefore, we consider that the General Offer provides an alternative for the Independent Shareholders who would like to realize their investment in the Shares. Nevertheless, Independent Shareholders who intend to dispose part or all of their Shares are reminded to closely monitor the market price and the liquidity of the Shares during the offer period and consider selling their Shares in the open market, instead of accepting the General Offer, if the net proceeds from the disposal of such Shares in the open market would exceed that receivable under the General Offer.

The Independent Shareholders should read carefully the procedures for accepting the General Offer detailed in Appendix I to the Composite Offer Document.

Yours faithfully, For and on behalf of Veda Capital Limited

Hans Wong Julisa Fong Managing Director Director

— 41 —

FURTHER TERMS AND PROCEDURES FOR ACCEPTANCE OF THE GENERAL OFFER

APPENDIX I

1. FURTHER PROCEDURES FOR ACCEPTANCE OF THE GENERAL OFFER

(a) If the share certificate(s) and/or transfer receipt(s) and/or any other document(s) of title (and/or any satisfactory indemnity or indemnities in respect thereof) in respect of your Shares is/are in your name, and you wish to accept the General Offer, you must send the duly completed Form of Acceptance together with the relevant share certificate(s) and/or transfer receipt(s) and/or other document(s) of title (and/or any satisfactory indemnity or indemnities in respect thereof) by post or by hand to the Registrar in any event not later than 4:00 p.m. on Thursday, 9 August 2007 or such other time and/or date as the Offeror may determine and announce with the consent of the Executive.
(b) If the share certificate(s) and/or transfer receipt(s) and/or any other document(s) of title (and/or any satisfactory indemnity or indemnities in respect thereof) in respect of your Shares is/are in the name of a nominee company or a name other than your own, and you wish to accept the General Offer in respect of your Shares, you must either:
(i) lodge your share certificate(s) and/or transfer receipts and/or any other document(s) of title (and/or any satisfactory indemnity or indemnities in respect thereof) with the nominee company, or other nominee, with instructions authorising it to accept the General Offer on your behalf and requesting it to deliver the Form of Acceptance duly completed together with the relevant share certificate(s) and/or transfer receipt(s) and/or any other document(s) of title (and/or any satisfactory indemnity or indemnities in respect thereof) to the Registrar; or
(ii) arrange for the Shares to be registered in your name by the Company through the Registrar, and send the Form of Acceptance duly completed together with the relevant share certificate(s) and/or transfer receipt(s) and/ or any other document(s) of title (and/or any satisfactory indemnify or indemnities in respect thereof) to the Registrar; or
(iii) if your Shares have been lodged with your broker/custodian bank through CCASS, instruct your broker/custodian bank to authorise HKSCC Nominees Limited to accept the General Offer on your behalf on or before the deadline set out by HKSCC Nominees Limited, in this case, on Wednesday, 8 August 2007 which is one Business Day before the latest date on which acceptances of the General Offer must be received by the Registrar. In order to meet the deadline set by HKSCC Nominees Limited, you should check with your broker/custodian bank for the timing on the processing of your instruction, and submit your instruction to your broker/custodian bank as required by them; or

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FURTHER TERMS AND PROCEDURES FOR ACCEPTANCE OF THE GENERAL OFFER

APPENDIX I

(iv) if your Shares have been lodged with your Investor Participant Account with CCASS, authorise your instruction via the CCASS Phone System or CCASS Internet System, in this case, on Wednesday, 8 August 2007 which is one Business Day before the latest date on which acceptances of the General Offer must be received by the Registrar.
(c) If the share certificate(s) and/or transfer receipts and/or other document(s) of title (and/or any satisfactory indemnity or indemnities in respect thereof) in respect of your Shares is/are not readily available and/or is/are lost and you wish to accept the General Offer in respect of your Shares, the Form of Acceptance should nevertheless be completed and delivered to the Registrar together with a letter stating that you have lost one or more of your share certificate(s) and/or transfer receipts and/or other document(s) of title (and/or any satisfactory indemnity or indemnities in respect thereof) or that it/they is/are not readily available. If you find such document(s) or if it/they become(s) available, the relevant share certificate(s) and/or transfer receipt(s) and/or any other document(s) of title (and/ or any satisfactory indemnity or indemnities in respect thereof) should be forwarded to the Registrar as soon as possible thereafter. If you have lost your share certificate(s), you should also write to the Registrar for a letter of indemnity which, when completed in accordance with the instructions given, should be returned to the Registrar.
(d) If you have lodged transfer(s) of any of your Shares for registration in your name and have not yet received your share certificate(s), and you wish to accept the General Offer in respect of your Shares, you should nevertheless complete the Form of Acceptance and deliver it to the Registrar together with the transfer receipt(s) duly signed by yourself. Such action will be deemed to be an authority to Ping An Securities and/or the Offeror or their respective agent(s) to collect from the Company or the Registrar on your behalf the relevant share certificate(s) when issued and to deliver such certificate(s) to the Registrar as if it was/they were delivered to the Registrar with the Form of Acceptance.
(e) Acceptance of the General Offer by the Shareholders will be treated as valid only if the completed Form of Acceptance are received by the Registrar by not later than 4:00 p.m. on Thursday, 9 August 2007 or such other time and/or date as the Offeror may determine and announce with the consent of the Executive, and is:
(i) accompanied by the relevant share certificate(s) and/or transfer receipt(s) and/or other document(s) of title (and/or any satisfactory indemnity or indemnities in respect thereof) and, if those share certificate(s) is/are not in your name, such other documents (e.g. a duly stamped transfer of the relevant Shares in blank or in favour of the Offeror executed by the registered

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FURTHER TERMS AND PROCEDURES FOR ACCEPTANCE OF THE GENERAL OFFER

APPENDIX I

holder) in order to establish your right to become the registered holder of the relevant Shares; or

(ii) from a registered Shareholder or his personal representative (but only up to the amount of the registered holding and only to the extent that the acceptance relates to Shares which are not taken into account under another sub-paragraph of this paragraph (e)); or
(iii) certified by the Registrar or the Stock Exchange.

If the Form of Acceptance is executed by a person other than the registered Shareholder, appropriate documentary evidence of authority (e.g. grant of probate or certified copy of a power of attorney) to the satisfaction of the Registrar must be produced.

(f) No acknowledgement of receipt of any Form(s) of Acceptance, share certificate(s) and/or transfer receipt(s) and/or any other document(s) of title (and/or any satisfactory indemnity or indemnities in respect thereof) will be given.
(g) The address of the Registrar is at 26th Floor, Tesbury Centre, 28 Queen’s Road East, Wanchai, Hong Kong.

2. SETTLEMENT OF THE GENERAL OFFER

Provided that the Form(s) of Acceptance and share certificate(s) and/or transfer receipt(s) and/or any other document(s) of title (and/or any satisfactory indemnity or indemnities in respect thereof) are in complete and good order and have been received by the Registrar by not later than the latest time and date for acceptance of the General Offer, a cheque for the amount due to each of the accepting Shareholders less seller’s ad valorem stamp duty in respect of the Shares tendered by them under the General Offer will be despatched to each of them as soon as possible but in any event within 10 days of the later of (i) the date on which all the relevant documents are received by the Registrar mentioned above to render such acceptance complete and valid or (ii) the date on which the General Offer becomes, or is declared, unconditional. The Offeror will then pay the stamp duty to the stamp office.

The settlement of the consideration to which any accepting Shareholder(s) is/are entitled under the General Offer will be satisfied in full in accordance with the terms of the General Offer without regard to any lien, right of set-off, counterclaim or other analogous right to which the Offeror may otherwise be, or claim to be, entitled against such accepting Shareholder(s).

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FURTHER TERMS AND PROCEDURES FOR ACCEPTANCE OF THE GENERAL OFFER

APPENDIX I

If the General Offer cannot become unconditional and lapses, the Offeror must, as soon as possible but in any event within 10 days thereof, despatch the share certificate(s) lodged with the Form(s) of Acceptance to, or make such share certificate(s) available for collection by, those Shareholders who accepted the General Offer.

3. ACCEPTANCE PERIOD AND REVISIONS

Unless the General Offer has previously been revised or extended with the consent of the Executive, or has previously become or been declared unconditional, the latest time and date for acceptance of the General Offer will be 4:00 p.m. on Thursday, 9 August 2007. The General Offer are conditional upon the Offeror receiving acceptance in respect of Shares, which together with Shares already held by it, rendering the Offeror and parties acting in concert with it holding more than 50% of the voting rights of the Company. The Offeror will make an announcement as and when the General Offer becomes unconditional.

The Offeror reserves the rights to revise or extend the General Offer until such time and/or date as it may determine and in accordance with the Takeovers Code. If in the course of the General Offer, the Offeror revises its terms with the consent of the Executive, all Independent Shareholders, whether or not they have already accepted the General Offer, will be entitled to the revised terms. A revised General Offer must be kept open for acceptance for at least 14 days following the date on which the revised offer document is posted.

In accordance with the Takeovers Code, except with the consent of the Executive, the General Offer may not become or be declared unconditional as to acceptances after 7:00 p.m. on the 60th day after the date on which this Composite Offer Document has been posted. Accordingly, unless the General Offer has previously become or been declared unconditional as to acceptances, the General Offer shall not be kept open after Monday, 17 September 2007.

4. ANNOUNCEMENTS

(a) By 6:00 p.m. (or such later time and/or date as the Executive agrees) on Thursday, 9 August 2007 which is the closing date of the General Offer, the Offeror must inform the Executive and the Stock Exchange of the results of the General Offer and/or its intention to revise or extend the General Offer. The Offeror must publish an announcement on the Stock Exchange’s website by 7:00 p.m. on the first closing date of the General Offer stating the results of the General Offer and whether it has been revised or extended, has expired or has become or been declared unconditional. Such announcement must be republished in accordance with the requirements set out below on the next business day.

— 45 —

FURTHER TERMS AND PROCEDURES FOR ACCEPTANCE OF THE GENERAL OFFER

APPENDIX I

The announcement must state the following:

(i) the total number of Shares and rights over Shares for which acceptances of the General Offer have been received;
(ii) the total number of Shares and rights over Shares held, controlled or directed by the Offeror or parties acting in concert with it before the offer period;
(iii) the total number of Shares and rights over Shares acquired or agreed to be acquired during the offer period by the Offeror or parties acting in concert with it.

The announcement must also specify the percentages of the issued share capital of the Company and the percentages of the voting rights of the Company represented by these numbers of Shares.

(b) As required under the Takeovers Code and the Listing Rules, any announcement in relation to the General Offer, in respect of which the Executive and the Stock Exchange have confirmed that they have no further comments thereon, must be published in the websites of the Stock Exchange and the Company.

5. RIGHT OF WITHDRAWAL

(a) Acceptance of the General Offer tendered by the Shareholders, as the case may be, shall be irrevocable and cannot be withdrawn, except in the circumstances set out in (b) below or in compliance with Rule 17 of the Takeovers Code which provides that as acceptor of the General Offer shall be entitled to withdraw his/ her/its acceptance after 21 days from the first closing date if the General Offer has not by then become unconditional as to acceptances.
(b) If the Offeror is unable to comply with the requirements set out in the paragraph headed “4. Announcements” in this Appendix, the Executive may require that the Independent Shareholders who have tendered acceptances to the General Offer be granted a right of withdrawal on terms that are acceptable to the Executive until the requirements set out in that paragraph are met.

6. STAMP DUTY

— 46 —

FURTHER TERMS AND PROCEDURES FOR ACCEPTANCE OF THE GENERAL OFFER

APPENDIX I

General Offer. The Offeror will bear its own portion of buyer’s ad valorem stamp duty under the General Offer at the rate of 0.1% of the amount payable in respect of relevant acceptances or if higher the value of the Offer Shares as determined by the Collector of Stamp Revenue under the Stamp Duty Ordinance (Chapter 117 of the Laws of Hong Kong) and will be responsible to account to the Stamp Office of Hong Kong the stamp duty payable for the sale and purchase of the relevant Offer Shares pursuant to the acceptances of the General Offer.

7. TAXATION

Shareholders are recommended to consult their own professional advisors if they are in any doubt as to the taxation implications of their accepting the General Offer. None of the Offeror or Ping An Securities or any of their respective directors or any persons involved in the General Offer accepts responsibility for any taxation effects on, or liabilities of, any person or persons as a result of their acceptance of the General Offer.

8. GENERAL

(a) All communications, notices, Forms of Acceptance, certificates of Shares (if any), transfer receipts, other documents of title or indemnity and remittances to be delivered by or sent to or from the Shareholders will be delivered by or sent to or from them, or their designated agents, through post at their own risk, and none of the Company, the Offeror, Ping An Securities, the Registrar nor other parties involved in the General Offer or any of this respective agents accepts any liability for any loss in postage or any other liabilities that may arise as a result.
(b) The provisions set out in the Form of Acceptance form part of the terms of the General Offer.
(c) The accidental omission to despatch this Composite Offer Document and/or Form of Acceptance or any of them to any person to whom the General Offer is made will not invalidate the General Offer in any way.
(d) The General Offer and all acceptances will be governed by and construed in accordance with the laws of Hong Kong.
(e) Due execution of a Form of Acceptance will constitute an authority to any Director or such person or persons as the Offeror may direct to complete, amend and execute any document on behalf of the person accepting the General Offer and to do any other act that may be necessary or expedient for the purposes of vesting in the Offeror or such person or persons as it may direct the Offer Shares in respect of which such person has accepted the General Offer.

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FURTHER TERMS AND PROCEDURES FOR ACCEPTANCE OF THE GENERAL OFFER

APPENDIX I

(f) Acceptance of the General Offer by any person or persons will be deemed to constitute a warranty by such person or persons to the Offeror and Ping An Securities that the Offer Shares to be acquired under the General Offer are sold by any such person or persons free from all third party rights, liens, claims, charges, equities and encumbrances and together with all rights attaching and accruing thereto including the rights to receive all dividends or other distributions declared, made or paid on or after the date of this Composite Offer Document.
(g) The Offeror does not intend to exercise any right which may be available to it under the Companies Act to acquire compulsorily any Offer Shares not acquired under the General Offer after the General Offer has closed.
(h) The making of the General Offer to persons with a registered address in jurisdiction outside Hong Kong may be affected by the laws of the relevant jurisdictions. Shareholders who are citizens or residents or nationals of jurisdictions outside Hong Kong should inform themselves about and observe any applicable legal requirements. It is the responsibility of any such person who wishes to accept the General Offer to satisfy himself as to the full observance of the laws of the relevant jurisdiction in connection therewith, including the obtaining of any governmental or other consent which may be required or the compliance with other necessary formalities and the payment of any transfer or other taxes due in respect of such jurisdiction.
(i) References to the General Offer in this Composite Offer Document and in the Form of Acceptance shall include any revision and/or extension thereof.
(j) The English text of this Composite Offer Document and the Form of Acceptance shall prevail over the Chinese text in case of inconsistencies.

— 48 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

1. FINANCIAL SUMMARY

A summary of the published results, assets and liabilities of the Group as extracted from the respective annual reports of the Company is set out below:

(i) Results

Turnover
Profit/(Loss) before taxation
Income tax expense
Net profit/(loss) for the year
Attributable to:
Equity holders of the Company
Earnings/(Loss) per share
Assets and liabilities
Total assets
Total liabilities
Net assets
Capital and reserves attributable
to the Company’s equity
holders
Minority interests

Year ended 31 December
2006
2005
2004
(audited)
(audited)
(audited)
HK$
HK$
HK$
(restated)
138,114,855
51,367,296
2,679,393
11,011,908
(7,769,405)
(2,978,709)
(1,338,120)
(155,354)
(805,385)
9,673,788
(7,924,759)
(3,784,094)
9,673,788
(7,924,759)
(3,784,094)
2.24 cents
(1.83)cents
(0.88)cents
Year ended 31 December
2006
2005
2004
(audited)
(audited)
(audited)
HK$
HK$
HK$
(restated)
264,270,410
258,551,037
253,991,023
(15,175,715)
(24,188,899)
(19,375,837)
249,094,695
234,362,138
234,615,186
249,094,695
234,362,138
234,615,186
—
—
—
249,094,695
234,362,138
234,615,186

(ii) Assets and liabilities

Notes:

For each of the three years ended 31 December 2006, the auditors’ reports are unqualified.
There were neither extraordinary nor exceptional items during each of the three years ended 31 December 2006.
No dividend has been paid or declared by the Company for each of the three years ended 31 December 2006.

— 49 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

2. AUDITED CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2006

The financial information set out below is an extract from pages 23 to 73 of the annual report 2006 of the Company. All information in this paragraph should be read in conjunction with the audited financial statements of the Company for the year ended 31 December 2006 which are included in the annual report 2006 of the Company. H. H. Liu & Co. is the auditors of the Company.

Consolidated income statement

For the year ended 31 December 2006

Note Turnover 5 Cost of sales Gross profit Other revenue 5 Investment management fees Staff costs Other operating expenses Profit/(Loss) from operations 6 Finance costs 7 Gain on disposal of an investment 8 Provision for impairment loss Impairment loss of goodwill on acquisition of a subsidiary Share of profits of jointly controlled entities Loss on disposal of a subsidiary Profit/(Loss) before taxation Income tax expense 10 Profit/(Loss) attributable to shareholders 25 Earnings/(Loss) per share 12	2006 HK$ 138,114,855 (124,106,377) 14,008,478 7,441,306 (2,337,513) (986,003) (2,714,982) 15,411,286 (8,079) 20,162,090 (23,553,701) (999,688) — — 11,011,908 (1,338,120) 9,673,788 2.24 cents	2005 HK$ (restated) 51,367,296 (45,716,923) 5,650,373 3,425,699 (3,584,185) (395,965) (11,224,158) (6,128,236) (48,965) — (223,670) — 575,386 (1,943,920) (7,769,405) (155,354) (7,924,759) (1.83)cents

— 50 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

Consolidated balance sheet

At 31 December 2006 Note Non-current assets Interests in associates 14 Interests in a jointly controlled entity 15 Available-for-sale financial assets 18 Other asset 19 Current assets Available-for-sale financial assets 18 Financial assets at fair value through profit or loss 17 Other receivables 20 Cash with brokers Cash and bank balances Non-current assets held for sale 16 Less: Current liabilities Other payables 21 Due to Sinox Fund Management Limited 22 Deposit received Provision for taxation Net current assets NET ASSETS Capital and reserves Share capital 24 Reserves 25 SHAREHOLDERS’ FUNDS Net asset value per share 28	2006 HK$ 24,032,496 — 112,237,267 150,000 136,419,763 19,766,204 7,928,054 21,050,850 7,206,335 69,125,776 125,077,219 2,773,428 127,850,647 314,509 143,145 — 14,718,061 15,175,715 112,674,932 249,094,695 4,319,520 244,775,175 249,094,695 58 cents	2005 HK$ (restated) 19,085,091 2,773,428 73,459,817 150,000
		95,468,336
		3,698,235 26,359,349 67,528,942 1,279,521 64,216,654
		163,082,701 —
		163,082,701
		452,409 346,437 10,000,000 13,390,053
		24,188,899
		138,893,802
		234,362,138

		43,195,200 191,166,938
		234,362,138

		54 cents

— 51 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

Balance sheet of the Company

At 31 December 2006 Note Non-current assets Interests in subsidiaries 13 Available-for-sale financial assets 18 Current assets Other receivables 20 Bank balances _Less:_Current liabilities Other payables 21 Due to Sinox Fund Management Limited 22 Due to a subsidiary 23 Net current assets NET ASSETS Capital and reserves Share capital 24 Reserves 25 SHAREHOLDERS’ FUNDS	2006 HK$ 90,006,380 17,891,412 107,897,792 379,891 58,615,664 58,995,555 307,163 143,145 56,771,541 57,221,849 1,773,706 109,671,498 4,319,520 105,351,978 109,671,498	2005 HK$ 90,002,090 10,027,635
		100,029,725
		217,891 36,935,766
		37,153,657
		331,997 346,437 30,284,428
		30,962,862
		6,190,795
		106,220,520

		43,195,200 63,025,320
		106,220,520

— 52 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

Consolidated statement of changes in equity

For the year ended 31 December 2006

Share capital Note HK$ At 31 December 2004 43,195,200 Effect for the adoption of HKFRS 3 — Effect for the adoption of HKAS 39 — At 1 January 2005, as restated 43,195,200 Realisation of exchange fluctuation reserve on disposal of a subsidiary — Increase in fair value of available-for-sale financial assets — Loss for the year — At 31 December 2005 43,195,200 Prior year adjustments 25 — At 1 January 2006, as restated 43,195,200 Increase in fair value of available-for-sale financial assets — Credit arised on capital reduction set off against accumulated losses of the Company and remaining balance transferred to contributed surplus account (38,875,680 ) Profit for the year — At 31 December 2006 4,319,520	Share premium HK$ 169,564,710 — — 169,564,710 — — — 169,564,710 — 169,564,710 — — — 169,564,710			Reserves	Reserves			Total HK$ 234,615,186 — 2,875,205 237,490,391 1,887,093 1,364,105 (7,924,759) 232,816,830 1,545,308 234,362,138 5,058,769 — 9,673,788 249,094,695
			Capital reserve on consolidation HK$ 468,163 (468,163 ) — — — — — — — — — — — —	Contributed surplus HK$ 86,752,510 — — 86,752,510 — — — 86,752,510 — 86,752,510 — 13,630,807 — 100,383,317	Exchange fluctuation reserve HK$ (1,755,174) — — (1,755,174) 1,887,093 — — 131,919 — 131,919 — — — 131,919	Changes in fair value of available- for-sale financial assets HK$ — — 2,280,083 2,280,083 — 1,364,105 — 3,644,188 — 3,644,188 5,058,769 — — 8,702,957	Accumulated losses HK$ (63,610,223) 468,163 595,122 (62,546,938) — — (7,924,759) (70,471,697) 1,545,308 (68,926,389) — 25,244,873 9,673,788 (34,007,728)

— 53 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

Consolidated cash flow statement

For the year ended 31 December 2006

Note CASH FLOWS FROM OPERATING ACTIVITIES Profit/(loss) before taxation Adjustments for: Finance costs Interest on bank deposits Dividend income from investment securities and other investments/ financial assets, listed Loss on disposal of derivatives Unrealized gain of financial assets Gain on disposal of an investment 8 Impairment loss of goodwill on acquisition of a subsidiary Provision for impairment loss Share of profits of jointly controlled entities Loss on disposal of a subsidiary OPERATING CASH FLOWS BEFORE MOVEMENTS IN WORKING CAPITAL Increase in amount due from associated companies Decrease in financial assets at fair value through profit or loss Decrease in other receivables Decrease in amount due from Sinox Fund Management Limited (Decrease)/Increase in other payables (Decrease)/Increase in amount due to Sinox Fund Management Limited CASH GENERATED FROM OPERATIONS Hong Kong profits tax refund NET CASH INFLOWS FROM OPERATING ACTIVITIES	2006 HK$ 11,011,908 — (4,282,230) (2,373,336) — — (20,162,090) 999,688 23,553,701 — — 8,747,641 (9,830,215) 18,431,295 46,465,743 — (10,137,900) (203,292) 53,473,272 2,237 53,475,509	2005 HK$ (7,769,405) 33,854 (1,648,651) (2,360,289) 8,360,670 (920,902) — — 223,671 (575,386) 1,943,920 (2,712,518) — — 19,505,020 885,724 1,420,381 346,437 19,445,044 — 19,445,044

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

Note CASH FLOWS FROM INVESTING ACTIVITIES Interest paid Dividends received from investment securities and other investments/ financial assets, listed Interest on bank deposits Acquisition of debt Acquisition of financial assets at fair value through profit or loss Acquisition of available-for-sale financial assets Acquisition of an associated company Acquisition of a subsidiary Proceeds from disposal of an investment 8 Proceed from sale of financial assets at fair value through profit or loss Proceed from redemption of financial assets at fair value through profit or loss Disposal of a subsidiary Deposits received from sale of available-for-sale financial assets Deposits paid for acquisition of available-for-sale financial assets NET CASH OUTFLOWS FROM INVESTING ACTIVITIES CASH FLOWS FROM FINANCING ACTIVITIES Repayments of other borrowings NET CASH OUTFLOWS FROM FINANCING ACTIVITIES	2006 HK$ — 2,373,336 4,282,230 — — (69,954,043) (2,201,422) (1,000,000) 23,860,326 — — — — — (42,639,573) — —	2005 HK$ (33,854) 2,360,289 1,648,651 (5,500,000) (70,163,340) (17,459,156) — — — 13,390,123 39,441,890 23,696,917 10,000,000 (13,500,000) (16,118,480) (5,460,000) (5,460,000)

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

Note NET INCREASE/(DECREASE) IN CASH AND CASH EQUIVALENTS CASH AND CASH EQUIVALENTS AT THE BEGINNING OF THE YEAR CASH AND CASH EQUIVALENTS AT THE END OF THE YEAR ANALYSIS OF BALANCES OF CASH AND CASH EQUIVALENTS Cash with brokers Cash and bank balances	2006 HK$ 10,835,936 65,496,175 76,332,111 7,206,335 69,125,776 76,332,111	2005 HK$ (2,133,436) 67,629,611 65,496,175 1,279,521 64,216,654 65,496,175

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

Notes to the financial statements

For the year ended 31 December 2006

1. General Information

Prosperity Investment Holdings Limited (the “Company”) was incorporated in Bermuda with limited liability on 15 June 2001 as an exempted company under the Companies Act (1981) of Bermuda. The addresses of the registered office and principal place of business of the Company are disclosed in the corporation information of the annual report.

The principal activity of the Company is investment holding. The principal activities of its subsidiaries are the holding of equity or equity-related investments and the provision of management services to the investee companies.

2. Basis of Preparation of Financial Statements

The financial statements have been prepared in accordance with Hong Kong Financial Reporting Standards (the “HKFRSs”) (which also include Hong Kong Accounting Standards (“HKASs”) and Interpretations) issued by the Hong Kong Institute of Certified Public Accountants (the “HKICPA”) and generally accepted accounting principles in Hong Kong. In addition, the financial statements include applicable disclosures required by the Rules Governing the Listing of Securities on the Stock Exchange of Hong Kong Limited and the Hong Kong Companies Ordinance.

The financial statements are prepared under the historical cost convention as modified by the revaluation of financial assets at fair value through profit or loss and certain available-for-sale financial assets as further explained in note 3(h).

Impact of New and Revised Hong Kong Financial Reporting Standards

In the current year, the Group has applied, for the first time, a number of new standard, amendments and interpretations (“new HKFRSs”) issued by the HKICPA, which are either effective for accounting period beginning on or after 1 January 2006. The adoption of the new HKFRSs below did not result in substantial changes to the Group’s accounting policies and had no material effect on how the results for the current or prior accounting periods have been prepared and presented. Accordingly, no prior period adjustment has been required.

HKAS 21 Amendment Net investment in a Foreign Operation HKAS 39 & HKFRS 4 Amendments Financial Guarantee Contracts HKAS 39 Amendment Cash Flow Hedge Accounting of Forecast Intragroup Transactions HKAS 39 Amendment The Fair Value Option HKFRS-Int4 Determining whether an Arrangement contains a Lease

The principal changes in accounting policies are as follows:

(a) HKAS 21 Amendment The Effects of Changes in Foreign Exchange Rates — Net Investment in a Foreign Operation

Upon the adoption of the HKAS 21 Amendment regarding a net investment in a foreign operation, all exchange differences arising from a monetary item that forms part of the Group’s net investment in a foreign operation are recognised in a separate component of equity in the consolidated financial statements irrespective of the currency in which the monetary item is denominated. This change has had no material impact on these financial statements as at 31 December 2006.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

(b) HKAS 39 & HKFRS 4 Amendments Financial Instruments: Recognition and Measurement and Insurance Contracts — Financial Guarantee Contracts

This amendment has revised the scope of HKAS 39 to require financial guarantee contracts issued that are not considered insurance contracts, to be recognised initially at fair value and to be remeasured at the higher of the amount determined in accordance with HKAS 37 Provisions, Contingent Liabilities and Contingent Assets and the amount initially recognised less, when appropriate, cumulative amortisation recognised in accordance with HKAS 18 Revenue. The adoption of this amendment has had no material impact on these financial statements.

(c) HKAS 39 Amendment — Cash Flow Hedge Accounting of Forecast Intragroup Transactions

This amendment has revised HKAS39 to permit the foreign currency risk of a highly probable intragroup forecast transaction to qualify as a hedged item in a cash flow hedge, provided that the transaction is denominated in a currency other than the functional currency of the entity entering into that transaction and that the foreign currency risk will affect the consolidated income statement. As the Group currently has no such transactions, the amendment has had no effect on these financial statements.

(d) HKAS 39 Amendment — The Fair Value Option

This amendment has changed the definition of a financial instrument classified as fair value through profit or loss and has restricted the use of the option to designate any financial asset or any financial liability to be measured at fair value through the income statement. The Group had not previously used this option, and hence the amendment has had no effect on the financial statements.

(e) HKFRS-Int4 — Determining whether an Arrangement contains a Lease

HKFRS-Int4 Determining whether an arrangement contains a lease, which is effective for annual period beginning on or after 1 January 2006, requires the Group to determine whether arrangements which do not take the legal form of a lease, but convey the right to use an asset in return for a series of payments are in substance leases by assessing whether:

the fulfilment of the arrangement is dependent on the use of a specific asset or assets; and
the arrangement conveys a right to use the asset.

Once an arrangement is determined to be a lease in accordance with this interpretation, the requirements of HKAS 17 are applied in classifying the arrangement as a finance lease or as an operating lease. As the Group has no such transaction during the year ended 2005 and 2006. This interpretation has had no effect on these financial statements.

The Group has not early applied the following new standard, amendment or interpretations that have been issued but not yet effective. The directors of the Company anticipate that the application of these standard, amendment or interpretations will have no material impact on the results and the financial position of the Group.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

HKAS 1 (Amendment) Capital Disclosures[1] HKFRS 7 Financial Instruments: Disclosures[1] HK (IFRIC) — Int 7 Applying the Restatement Approach under HKAS 29 Financial Reporting in Hyperinflationary Economies[2] HK (IFRIC) — Int 8 Scope of HKFRS 2[3] HK (IFRIC) — Int 9 Reassessment of Embedded Derivatives[4] HK (IFRIC) — Int 10 Interim Financial Reporting and Impairment[5]

1 Effective for annual periods beginning on or after 1 January 2007

2 Effective for annual periods beginning on or after 1 March 2006

3 Effective for annual periods beginning on or after 1 May 2006

4 Effective for annual periods beginning on or after 1 June 2006

5 Effective for annual periods beginning on or after 1 November 2006

3. Principal Accounting Policies

(a) Revenue recognition

Provided it is probable that the economic benefits will flow to the Group and the revenue and costs, if applicable, can be measured reliably, revenue is recognised in profit or loss as follows:

Sales of goods are recognised when goods are delivered and title has passed.

Management fee income is recognised when service is rendered.

Dividend income is recognised when the right to receive payment is established.

Interest income is recognised on a time proportion basis, taking into account the principal amounts outstanding and the interest rates applicable.

(b) Basis of consolidation

The consolidated financial statements incorporate the financial statements of the Company and its subsidiaries made up to 31 December. Subsidiaries are included in the consolidated financial statements from the date that control commences until the date that control ceases.

All significant intercompany transactions and balances within the Group are eliminated on consolidation.

(c) Subsidiaries

A subsidiary is an entity 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 income statement to the extent of dividends received and receivable. The Company’s interests in subsidiaries, that are not classified as held for sale in accordance with HKFRS 5, are stated at cost less any impairment losses.

(d) Associates

An associate is an entity in which the Group or Company has significant influence, but not control or joint control, over its management, including participation in the financial and operating policy decisions.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

The results and assets and liabilities of associates are incorporated in these consolidated financial statements using the equity method of accounting, except when the investment is classified as held for sale (in which case it is accounted for under HKFRS 5 Non-current Assets Held for Sale and Discontinued Operations) or when the investment is designated as at fair value through profit or loss upon initial recognition or is classified as held for trading (in which case it is accounted for under HKAS 39 Financial Instruments: Recognition and Measurement). Under the equity method, investments in associates are carried in the consolidated balance sheet at cost as adjusted for post-acquisition changes in the Group’s share of the profit or loss and of changes in equity of the associate, less any identified impairment loss. When the Group’s share of losses of an associate equals or exceeds its interest in that associate (which includes any long-term interests that, in substance, form part of the Group’s net investment in the associate), the Group discontinues recognising its share of further losses. An additional share of losses is provided for and a liability is recognised only to the extent that the Group has incurred legal or constructive obligations or made payments on behalf of that associate.

(e) Non-current assets held for sale

Non-current assets and disposal groups are classified as held for sale if their carrying amount will be recovered principally through a sale transaction rather than through continuing use. This condition is regarded as met only when the sale is highly probable and the asset (or disposal group) is available for immediate sale in its present condition.

Non-current assets (and disposal groups) classified as held for sale are measured at the lower of the assets (“disposal groups”) previous carrying amount and fair value less costs to sell.

(f) Jointly controlled entities

A joint venture is a contractual arrangement whereby the Group and other parties undertake an economic activity which is subject to joint control and over which none of the participating parties has unilateral control.

A jointly controlled entity is a corporation, partnership, or other entity in which two or more venturers have an interest, under a contractual arrangement that establishes joint control over the entity. The Group’s interests in jointly controlled entities are accounted for by the equity method. The Group’s interests in jointly controlled entities include the Group’s share of the net assets of the jointly controlled entities. The Group’s share of post-acquisition profits or losses of jointly controlled entities is included in the consolidated income statement.

Unrealised profits and losses resulting from transactions between the Group and its jointly controlled entities are eliminated to the extent of the Group’s interest in the jointly controlled entity, except where unrealised losses provide evidence of an impairment of the asset transferred, in which case they are recognised in the consolidated income statement.

(g) Goodwill

Goodwill represents the excess of the cost of a business combination or an investment in an associate or a jointly controlled entity over the Group’s interest in the net fair value of the acquiree’s identifiable assets, liabilities and contingent liabilities.

Goodwill is stated at cost less accumulated impairment losses. Goodwill is allocated to cash-generating units and is tested annually for impairment (see note 3(k)). In respect of associates or jointly controlled entities, the carrying amount of goodwill is included in the carrying amount of the interest in the associate or jointly controlled entity.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

Any excess of the Group’s interest in the net fair value of the acquiree’s identifiable assets, liabilities and contingent liabilities over the cost of a business combination or an investment in an associate or a jointly controlled entity is recognised immediately in profit or loss.

On disposal of a cash generating unit, an associate or a jointly controlled entity during the year, any attributable amount of purchased goodwill is included in the calculation of the profit or loss on disposal.

(h) Investments

The Group classifies its investments in the following categories: financial assets at fair value through profit or loss, loans and receivables, held-to-maturity investments, and available-for-sale financial assets. The classification depends on the purpose for which the investments were acquired. Management determines the classification of its investments at initial recognition and re-evaluates this designation at every reporting date.

(i) Financial assets at fair value through profit or loss

This category has two sub-categories: financial assets held for trading, and those designated at fair value through profit or loss at inception. A financial asset is classified in this category if acquired principally for the purpose of selling in the short term or if so designated by management. Derivatives are also categorized as held for trading unless they are designated as hedges. Assets in this category are classified as current assets if they are either held for trading or are expected to be realised within 12 months of the balance sheet date.

(ii) Loans and receivables

Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They arise when the Group provides money, goods or services directly to a debtor with no intention of trading the receivable. They are included in current assets, except for maturities greater than 12 months after the balance sheet date. These are classified as non-current assets. Loans and receivables are included in other receivables in the consolidated balance sheet (Note 20) .

(iii) Held-to-maturity investments

Held-to-maturity investments are non-derivative financial assets with fixed or determinable payments and fixed maturities that the Group’s management has the positive intention and ability to hold to maturity.

(iv) Available-for-sale financial assets

Available-for-sale financial assets are non-derivatives that are either designated in this category or not classified in any of the other categories. They are included in non-current assets unless management intends to dispose of the investment within 12 months of the balance sheet date, or without specific plan and schedule of disposal.

Purchases and sales of investments are recognised on settlement date — the date that an asset is delivered to or by the Group. Investments are initially recognised at fair value plus transaction costs for all financial assets not carried at fair value through profit or loss. Investments are derecognised when the rights to receive cash flows from the investments have expired or have been transferred and the Group has transferred substantially all risks

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

and rewards of ownership. Available-for-sale financial assets with reliably measured fair value and financial assets at fair value through profit or loss are subsequently carried at fair value. Loans and receivables and held-to-maturity investments are carried at amortised cost using the effective interest method. Available-for-sale financial assets which are unquoted equity securities are stated at cost. Realised and unrealised gains and losses arising from changes in the fair value of the “financial assets at fair value through profit or loss” category are included in the consolidated income statement in the period in which they arise. Unrealised gains and losses arising from changes in the fair value of quoted securities classified as available-for-sale are recognised in equity. When securities classified as available-for-sale are sold or impaired, the accumulated fair value adjustments are included in the consolidated income statement as gains or losses from investments securities.

The fair values of quoted investments are based on published closing prices at balance sheet dates. The fair value of embedded derivatives are based on the prices reported by the counter party who issued the embedded derivatives.

The Group assesses at each balance sheet date whether there is objective evidence that a financial asset or a group of financial assets is impaired. In the case of equity securities classified as available-for-sale, a significant or prolonged decline in the fair value of the security below its cost is considered in determining whether the securities are impaired. If any such evidence exists for available-for-sale financial assets, the cumulative loss — measured as the difference between the acquisition cost and the current fair value, less any impairment loss on that financial asset previously recognised in the consolidated income statement — is removed from equity and recognised in the consolidated income statement. Impairment losses recognised in the consolidated income statement on equity instruments are not reversed through the consolidated income statement.

(i) Golf club membership

Golf club membership is stated at cost less impairment losses, if any. The carrying amount of individual golf club membership is reviewed at each balance sheet date to assess whether the fair value has declined below the carrying amount. When a decline other than temporary has occurred, the carrying amount of such golf club membership is reduced to its fair value. The amount of the reduction is recognised as an expense in the consolidated income statement.

(j) Cash and cash equivalents

Cash and cash equivalents represent cash at bank and on hand, demand deposits with banks and other financial institutions, and short-term highly liquid investments which are readily convertible into known amounts of cash and subject to an insignificant risk of change in value, having been within three months of maturity, at acquisition. For the purpose of the consolidated cash flow statement, bank overdrafts, if any, which are repayable on demand and form an integral part of an enterprise’s cash management are also included as a component of cash and cash equivalents.

(k) Impairment of assets

Assets that have an indefinite useful life are not subject to amortisation and are tested annually for impairment. Assets that are subject to amortisation are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. If any such indication exists, the recoverable amount of the asset is estimated and where relevant, an impairment loss is recognised to reduce the asset to its recoverable amount. Such impairment losses are recognised in the consolidated income statement.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

At each balance sheet date, the Group reviews the carrying amounts of its tangible and intangible assets to determine whether there is any indication that those assets have suffered an impairment loss. If the recoverable amount of an asset is estimated to be less than its carrying amount, the carrying amount of the asset is reduced to its recoverable amount. An impairment loss is recognised as an expense immediately.

Where an impairment loss subsequently reverses, the carrying amount of the asset is increased to the revised estimate of its recoverable amount, but so that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognised for the asset in prior years. A reversal of an impairment loss is recognised as income immediately.

In determining the estimated impairment of trade receivable, there is objective evidence of impairment loss. The Group takes into consideration the estimation of future cash flows. The amount of the impairment loss is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows (excluding future credit losses that have not been incurred) discounted at the financial asset’s original effective interest rate (i.e. the effective interest rate computed at initial recognition). Where the actual future cash flows are less than expected, a material impairment loss may arise.

(l) Leasing

Leases are classified as finance leases whenever the terms of the lease transfer substantially all the risks and rewards of ownership to the lessee. All other leases are classified as operating leases.

The Group as lessee

Assets held under finance leases are recognised as assets of the Group at their fair value at the inception of the lease or, if lower, at the present value of the minimum lease payments. The corresponding liability to the lessor is included in the balance sheet as a finance lease obligation. Lease payments are apportioned between finance charges and reduction of the lease obligation so as to achieve a constant rate of interest on the remaining balance of the liability. Finance charges are charged directly to profit or loss, unless they are directly attributable to qualifying assets, in which case they are capitalized in accordance with the Group’s general policy on borrowing costs.

Rentals payable under operating leases are charged to profit or loss on a straight-line basis over the term of the relevant lease. Benefits received and receivable as an incentive to enter into an operating lease are recognised as a reduction of rental expense over the lease term on a straight-line basis.

(m) Foreign currency translation

(i) Functional and presentation currency

Items included in the financial statements of each of the Group’s entities are measured using the currency of the primary economic environment in which the entity operates (“the functional currency”). The consolidated financial statements are presented in Hong Kong dollars, which is the Company’s functional and presentation currency.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

(ii) Transactions and balances

Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at year-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in the consolidated income statement.

Translation differences on non-monetary items, such as equity instruments held at fair value through profit or loss, are reported as part of the fair value gain or loss. Translation difference on non-monetary items, such as equity instruments classified as available-for-sale financial assets, are included as reserve in equity.

(iii) Group companies

The results and financial position of all the Group entities (none of which has the currency of a hyperinflationary economy) that have a functional currency different from the presentation currency are translated into the presentation currency as follows:

assets and liabilities for each balance sheet presented are translated at the closing rate at the date of that balance sheet;
income and expenses for each consolidated income statement are translated at average exchange rates (unless this average is not a reasonable approximation of the cumulative effect of the rates prevailing on the transaction dates, in which case income and expenses are translated at the dates of the transactions); and
all resulting exchange differences are recognised as a separate component of equity.

On consolidation, exchange differences arising from the translation of the net investment in foreign entities, and of borrowings and other currency instruments designated as hedges of such investments, are taken to shareholders’ equity. When a foreign operation is sold, such exchange differences are recognised in the consolidated income statement as part of the gain or loss on sale.

Goodwill and fair value adjustments arising on the acquisition of a foreign entity are treated as assets and liabilities of the foreign entity and translated at the closing rate.

(n) Employee benefits

Obligations for contributions to defined contribution retirement plans, including contributions payable under the Hong Kong Mandatory Provident Fund Schemes Ordinance, are recognised as expenses in the consolidated income statement as incurred.

(o) Provisions and contingent liabilities

Provisions are recognised for liabilities of uncertain timing or amount when the Group has a present legal or constructive obligation arising as a result of a past event, it is probable that an outflow of economic benefits will be required to settle the obligation and a reliable estimate can be made. Where the time value of money is material, provisions are stated at the present value of the expenditures expected to settle the obligation.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

Where it is not probable that an outflow of economic benefits will be required, or the amount cannot be estimated reliably, the obligation is disclosed as a contingent liability, unless the probability of outflow is remote. Possible obligations, whose existence will only be confirmed by the occurrence or non-occurrence of one or more future events are also disclosed as contingent liabilities unless the probability of outflow is remote.

(p) Taxation

The charge for taxation is based on the results for the year as adjusted for items which are non-assessable or disallowable. Hong Kong profits tax is provided at the rate prevailing for the year based on the assessable profit for the year less allowable losses, if any, brought forward.

Deferred taxation is provided in full, using the balance sheet liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the consolidated financial statements. Taxation rates enacted or substantively enacted by the balance sheet date are used to determine deferred taxation. Deferred tax assets are recognised to the extent that it is probable that future taxable profit will be available against which the temporary differences can be utilized.

Deferred taxation is provided on temporary differences arising on investments in subsidiaries, associates and jointly controlled entities, except where the timing of the reversal of the temporary difference can be controlled and it is probable that the temporary difference will not reverse in the foreseeable future.

Deferred taxation is charged or credited to the consolidated income statement, except when it relates to items charged or credited directly to equity, in which case the deferred taxation is also dealt with in equity.

(q) Borrowing costs

All borrowing costs are charged to the consolidated income statement in the year in which they are incurred.

(r) Events after the balance sheet date

Post-year-end events that provide additional information about the Group’s position at the balance sheet date or those that indicate the going concern assumption is not appropriate are adjusting events and are reflected in the consolidated financial statements. Post-year-end events that are not adjusting events are disclosed in the notes when material.

(s) Segment reporting

A business segment is a group of assets and operations engaged in providing products or services that are subject to risks and returns that are different from those of other business segments. A geographical segment is engaged in providing products or services within a particular economic environment that are subject to risks and returns that are different from those of segments operating in other economic environments.

(t) Financial guarantees issued

Financial guarantees are contracts that require the issuer (i.e. the guarantor) to make specified payments to reimburse the beneficiary of the guarantee (the “holder”) for a loss the holder incurs because a specified debtor fails to make payment when due in accordance with the terms of a debt instrument.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

Where the Group issues a financial guarantee, the fair value of the guarantee (being the transaction price, unless the fair value can otherwise be reliably estimated) is initially recognised as deferred income within trade and other payables. Where consideration is received or receivable for the issuance of the guarantee, the consideration is recognised in accordance with the Group’s policies applicable to that category of asset. Where no such consideration is received or receivable, an immediate expense is recognised in profit or loss on initial recognition of any deferred income.

(u) Related parties

A party is considered to be related to the Group if:

(i) directly, or indirectly through one or more intermediaries, the party:
controls, is controlled by, or is under common control with, the Group;
has an interest in the Group that gives it significant influence over the Group; or
has joint control over the Group;
(ii) the party is a member of key management personnel of the Company or its parent company;
(iii) the party is a close member of the family of any individual referred to in (i) and (ii);
(iv) the party is an entity that is controlled, jointly-controlled or significantly influenced by or for which significant voting power in such entity resides with, directly or indirectly, the individual referred to in (ii) or (iii); and
(v) the party is a post-employment benefit plan for the benefit of employees of the Group, or of any entity that is a related party of the Group.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

4. Segmental Information

In accordance with the Group’s financial reporting, the Group has determined that the business segments be presented as the primary reporting format and geographical segments as the secondary reporting format.

An analysis of the Group’s turnover and profit/(loss) from operations by business segment and turnover by geographical segment for the year is as follows:

By business segment: Management fees from jointly controlled entities Dividend income from investment securities and other investments/ financial assets, listed Proceeds from sale of investment securities and disposal of equity-linked notes Finance costs Share of profits of jointly controlled entities Loss on disposal of a subsidiary Provision for impairment loss Impairment loss of goodwill on acquisition of a subsidiary Gain on disposal of an investment Profit/(Loss) before taxation Total assets (unallocated) Total liabilities (unallocated)	Turnover 2006 2005 HK$ HK$ (restated) — 117,924 2,373,336 2,360,289 135,741,519 48,889,083 138,114,855 51,367,296	Profit/(loss) from operations 2006 2005 HK$ HK$ (restated) — 117,924 2,373,336 2,360,289 13,037,950 (8,606,449) 15,411,286 (6,128,236) (8,079) (48,965) — 575,386 — (1,943,920) (23,553,701) (223,670) (999,688) — 20,162,090 — 11,011,908 (7,769,405) 264,270,410 258,551,037 15,175,715 24,188,899

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

By geographical segment: Hong Kong The PRC	Turnover 2006 2005 HK$ HK$ (restated) 138,114,855 51,249,372 — 117,924 138,114,855 51,367,296

Given the nature of the Group’s operations is investment holding, segment assets and segment liabilities are unallocated. In addition, it is not considered meaningful to provide geographical analysis of profit/(loss) from operations and segment assets.

5. Turnover

Turnover Management fees from jointly controlled entities Dividend income from investment securities and other investments/financial assets, listed Proceeds from sale of investment securities Proceeds from disposal of equity-linked notes Other revenue Interest on bank deposits Unrealized gain of financial assets Other income	Group 2006 2005 HK$ HK$ (restated) — 117,924 2,373,336 2,360,289 37,397,019 7,915,083 98,344,500 40,974,000 138,114,855 51,367,296 4,282,230 1,648,651 2,657,030 — 502,046 1,777,048 7,441,306 3,425,699

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

The Group is principally engaged in the trading of securities and other financial assets investment. The directors of the Group are in the opinions that reclassification of turnover, other revenue, cost of sales and other operating expenses for the year ended 31 December 2005 would reflect better presentation of the financial results for the Group. The cumulative effect on the restatement is summarized below:

Effect on income statement
2005
Reclassification
HK$
HK$
(as previously reported)
Turnover
Management fees from jointly
controlled entities
117,924
—
Dividend income from
investment securities and
other investments/financial
assets, listed
2,360,289
—
Proceeds from sale of
investment securities
—
7,915,083
Proceeds from disposal of
equity-linked notes
—
40,974,000
2,478,213
Other revenue
Interest on bank deposits
1,648,651
—
Investment income from
financial assets, unlisted
1,585,893
(1,585,893)
Other income
1,723,265
53,783
4,957,809
Cost of sales
Investment income from
financial assets, unlisted
—
(45,716,923)
Other operating expenses
Provision for Impairment loss
(223,670)
223,670
Loss on disposal of
investment securities
(6,944,910)
6,944,910
Loss on disposal of derivatives
—
(8,584,960)
Other operating expenses
(2,639,198)
—
(9,807,778)
Provision for impairment loss
—
(223,670)
—

2005
HK$
(as restated)
117,924
2,360,289
7,915,083
40,974,000
51,367,296
1,648,651
—
1,777,048
3,425,699
(45,716,923)
—
—
(8,584,960)
(2,639,198)
(11,224,158)
(223,670)

Note: The restatement as described above has no effect on the result for the year.

— 69 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

6. Profit/(Loss) from Operations

Profit/(Loss) from operations is stated after charging/(crediting) the following:

Auditors’ remuneration Provision for impairment loss Operating lease payments on land and buildings Retirement benefit costs Interest on bank deposits Exchange gains, net Loss on disposal of derivatives Unrealized (gain)/loss of financial assets	Group 2006 2005 HK$ HK$ (restated) 130,000 180,000 23,553,701 223,670 3,638 3,900 38,874 23,983 (4,282,230) (1,648,651) (47,501) (45,603) — 8,360,670 (2,657,030) 494,858

7. Finance Costs

Bank charges Interest on other borrowing wholly repayable within five years	Group 2006 2005 HK$ HK$ 8,079 15,111 — 33,854 8,079 48,965	Group 2006 2005 HK$ HK$ 8,079 15,111 — 33,854 8,079 48,965
		48,965

8. Gain on Disposal of an Investment

It represents the gain arising from the Group’s disposal of its 18% equity interest in Dragon Fortune Limited which was indirectly holding Palm Island Golf Club and Resort at Huizhou in the People’s Republic of China.

— 70 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

9. Directors’ and Senior Management’s Emoluments

(a) Directors’ emoluments

The aggregate amounts of fees payable to directors of the Company during the year are as follows:

Fees: Executive directors Non-executive directors Other emoluments Retirement benefits scheme contributions: Executive directors Non-executive directors	2006 HK$ 141,167 160,000 — 7,058 — 308,225	2005 HK$ 123,710 160,000 — 6,000 —
		289,710

Emoluments breakdown of each of the directors for the year ended 31 December 2006:

Executive directors Cheuk Yuk Lung Tsui Yee Ni Lam Kwing Wai, Alvin Lam Wo Wong Kwok Bui, George Non-executive directors Yan Mou Keung, Ronald Chan Siu Wing, Raymond Chan Fai Yue, Leo	Directors’ fees HK$ 60,000 33,667 12,500 5,000 30,000 141,167 60,000 60,000 40,000 160,000 301,167	Retirement benefits scheme contributions HK$ 3,000 1,683 625 250 1,500 7,058 — — — — 7,058	Total HK$ 63,000 35,350 13,125 5,250 31,500
			148,225
			60,000 60,000 40,000
			160,000
			308,225

— 71 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

Emoluments breakdown of each of the directors for the year ended 31 December 2005:

Executive directors Lam Wo Cheuk Yuk Lung Wong Kwok Bui, George Non-executive directors Yan Mou Keung, Ronald Chan Siu Wing, Raymond Chan Fai Yue, Leo	Directors’ fees HK$ 60,000 60,000 3,710 123,710 60,000 60,000 40,000 160,000 283,710	Retirement benefits scheme contributions HK$ 3,000 3,000 — 6,000 — — — — 6,000	Total HK$ 63,000 63,000 3,710
			129,710
			60,000 60,000 40,000
			160,000
			289,710

There was no arrangement under which a director of the Company waived or agreed to waive any emoluments during the year.

During the year, no share option was granted to the directors.

(b) Five highest paid individuals

The five individuals with the highest emoluments in the Group for the year include:

2006 Number of directors 3 Number of employees 2 Details of the directors’ emoluments are presented above.	2005 4 1

The aggregate of the emoluments in respect of the remaining highest paid non-director individuals are as follows:

Fees, basic salaries and other benefits in kind Retirement benefits scheme contributions	2006 HK$ 746,766 34,270 781,036	2005 HK$ 49,530 —
		49,530

— 72 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

The emoluments paid to each highest paid non-director individual during the year fall within the band of HK$Nil — HK$1,000,000.

During the year, no emoluments were paid by the Group to the directors of the Company or any of the five highest paid individuals as an inducement to join or upon joining the Group or as compensation for loss of office.

10. Income Tax Expense

Company and subsidiaries — Hong Kong profits tax Share of taxation attributable to jointly controlled entities	Group 2006 2005 HK$ HK$ 1,338,120 — — 155,354 1,338,120 155,354	Group 2006 2005 HK$ HK$ 1,338,120 — — 155,354 1,338,120 155,354
		155,354

Hong Kong profits tax has been provided as the individual companies comprising the Group has assessable profit arising in Hong Kong for the year.

Taxation for other jurisdiction is calculated at the rates prevailing in the relevant jurisdictions.

Reconciliation between taxation and tax at the applicable rate:

Profit/(Loss) before taxation Tax at the applicable tax rate Tax effect of income that is not taxable in determining taxable profit Tax effect of expenses that are not deductible in determining taxable profit Tax effect of utilisation of tax losses not previously recognised Tax effect of temporary differences not recognised Tax effect of unused tax losses not recognised Under provision of tax payable Effect of tax rate of jointly controlled entity operating in other jurisdiction Taxation charge	Group 2006 2005 HK$ HK$ 11,011,908 (7,769,405) 1,927,084 (1,359,646) (1,781,782) (999,732) 759,105 2,471,196 — (11,125) (500) — 333,864 — 100,349 — — 54,661 1,338,120 155,354	Group 2006 2005 HK$ HK$ 11,011,908 (7,769,405) 1,927,084 (1,359,646) (1,781,782) (999,732) 759,105 2,471,196 — (11,125) (500) — 333,864 — 100,349 — — 54,661 1,338,120 155,354
		155,354

The applicable tax rate represents the weighted average of the rates of taxation prevailing in the relevant jurisdictions in which the Group operates.

— 73 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

11. Profit/(Loss) Attributable to Shareholders

The profit attributable to shareholders for the year ended 31 December 2006 is dealt with in the financial statements of the Company to the extent of HK$864,904 (2005: Loss HK$10,430,192).

12. Earnings/(Loss) Per Share

The calculation of earnings/(loss) per share is based on:

Profit/(loss) attributable to shareholders Weighted average number of ordinary shares	Group 2006 2005 HK$ HK$ 9,673,788 (7,924,759) 431,952,000 431,952,000	Group 2006 2005 HK$ HK$ 9,673,788 (7,924,759) 431,952,000 431,952,000
		431,952,000

13. Interests in Subsidiaries

Unlisted shares, at cost Due from a subsidiary	Company 2006 2005 HK$ HK$ 780 780 90,005,600 90,001,310 90,006,380 90,002,090	Company 2006 2005 HK$ HK$ 780 780 90,005,600 90,001,310 90,006,380 90,002,090
		90,002,090

The amount due from a subsidiary is unsecured, interest free and not repayable within the next twelve months.

Details of the principal subsidiaries as at 31 December 2006 are as follows:

		Particulars of	Percentage of
		issued share	issued share
	Place of	capital/	capital/
	incorporation/	registered	registered	Principal
Name	operation	capital	capital held	activities
Directly held by the Company:
Accufocus Investments	British Virgin Islands	100 shares of	100%	Investment
Limited	(“BVI”)/Hong Kong	US$1 each		holding
Indirectly held by the Company:
Attentive Investments	BVI/Hong Kong	1 share of	100%	Investment
Limited		US$1 each		holding
B2C E-Commerce Group	BVI/Hong Kong	1 share of	100%	Investment
Limited		US$1 each		holding
Best Policy Management	BVI/Hong Kong	1 share of	100%	Investment
Limited		US$1 each		holding

— 74 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

		Particulars of	Percentage of
		issued share	issued share
	Place of	capital/	capital/
	incorporation/	registered	registered	Principal
Name	operation	capital	capital held	activities
Chief Success Management	BVI/Hong Kong	1 share of	100%	Investment
Limited		US$1 each		holding
Ever Honest Investments	BVI/Hong Kong	1 share of	100%	Investment
Limited		US$1 each		holding
Founder China Industrial	Hong Kong	2 ordinary shares of	100%	Investment
Investments Company		HK$1 each		holding
Limited
Linkson Investment Limited	Hong Kong	2 ordinary shares of	100%	Dormant
		HK$1 each
Founder Industrial	Hong Kong	10,000,000 ordinary	100%	Investment
Investments (Holdings)		shares of HK$1 each		holding
Company Limited
Genius Choice Investments	BVI/Hong Kong	1 share of	100%	Investment
Limited		US$1 each		holding
GR Investment Holdings	Hong Kong	899,900,000 ordinary	100%	Investment
Limited		shares of HK$0.1 each		holding
Glorious Bright Limited	Hong Kong	2 ordinary shares of	100%	Money
		HK$1 each		lending
Home Growth Assets	BVI/Hong Kong	1 share of US$1 each	100%	Investment
Limited				holding
GR Investment International	Hong Kong	2 ordinary shares of	100%	Dormant
Limited		HK$1 each
Rich Concept Investments	BVI/Hong Kong	1 share of US$1 each	100%	Investment
Limited				holding
Rich Profits International	BVI/Hong Kong	1 share of US$1 each	100%	Investment
Limited				holding
Market Court Resources	BVI/Hong Kong	1 share of US$1 each	100%	Investment
Limited				holding
Target Plus Holdings Limited	BVI/Hong Kong	1 share of US$1 each	100%	Investment
				holding
Contessa Assets Limited	BVI/Hong Kong	1 share of US$1 each	100%	Investment
				holding

— 75 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

14. Interests in Associates

Unlisted shares at cost Post-acquisition profit Share of associates’ results _Less:_Provision for impairment loss Amounts due from associates _Less:_Provision for impairment loss	Group 2006 2005 HK$ HK$ (restated) 4,189,781 1,988,046 — — 4,189,781 1,988,046 (1,890,000) — 2,299,781 1,988,046 26,927,260 17,097,045 (5,194,545) — 21,732,715 17,097,045 24,032,496 19,085,091

During the year ended 2006, the Group’s share of losses in associates exceeds its interest in the associates, therefore, the Group’s interest is reduced to nil and recognition of further losses is discontinued.

The amounts due from associates are unsecured, interest free and not repayable within the next twelve months.

Details of the principal associates, all of which are unlisted, as at 31 December 2006 are as follows:

		Particulars	Proportion
	Place of	of issued	of associates’	Principal
Name	incorporation	share capital	capital owned	activities
Luck Point Investments	BVI	200 shares of	35%	Investment
Limited		US$1 each		holding
Happy Online Group	BVI	14,000 shares of	33.75%	Investment
Limited		US$1 each		holding
Bright Honest Limited	BVI	50,000 shares of	25%	Investment
		US$1 each		holding
Halway Development	Hong Kong	10 ordinary shares of	30%	Investment
Limited		HK$1 each		holding
Skyplane Enterprises	BVI	130 shares of	30.77%	Investment
Limited		US$1 each		holding

— 76 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

The summarised financial information of the Group’s share of assets, liabilities, income and results of the associates based on the unaudited management accounts of the associates are as follows:

Assets Liabilities Income Loss	2006 HK$ 125,308,631 (131,012,056) 66,500 (1,367,660)	2005 HK$ 16,701,517 (17,090,378) — (2,223)

15. Interests in a Jointly Controlled Entity

(a) The balances represent:

Share of net assets other than goodwill _Less:_Impairment loss	2006 HK$ — — —	Group 2005 HK$ 5,097,099 (2,323,671) 2,773,428

The jointly controlled entity representing 25% equity interest for the Group held in an unlisted company, Shanghai Yong An Dairy Company Limited, which was established in PRC. Pursuant to an agreement dated 29 December 2004, the Group has committed to dispose its entire equity interest of the Company and consequently the amount was classified as non-current assets held for sale and disclosed in note 16.

(b) The following amounts represent the Group’s share of the assets and liabilities, and sales and results of the joint venture:

Assets: Non-current assets Current assets Liabilities: Long-term liabilities Current liabilities Net assets Income Expenses Profit after income tax	2006 HK$ — — — — — — — — — —	2005 HK$ 4,108,427 4,563,760 8,672,187 119,909 3,106,868 3,226,777 5,445,410 6,601,785 (6,181,753) 420,032

— 77 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

16. Non-Current Assets Held For Sale

Interests in a jointly controlled entity held for sale Share of net assets other than goodwill _Less:_Impairment loss	Group 2006 2005 HK$ HK$ 5,097,099 — (2,323,671) — 2,773,428 —	Group 2006 2005 HK$ HK$ 5,097,099 — (2,323,671) — 2,773,428 —
		—

The Group has committed to dispose its 25% equity interest in Shanghai Yong An Dairy Company Limited to a third party for a consideration of RMB2.8 million (approximately HK$2.7 million). The transaction was completed on 12 February 2007 as described in note 15. It gives rise to immaterial financial effect in the income statement for the year ended 2007.

17. Financial Assets at Fair Value through Profit or Loss

Held for trading: Equity securities, at fair value — listed in Hong Kong — listed outside Hong Kong_(Note a)_ Embedded derivatives, at fair value	Group 2006 2005 HK$ HK$ 5,680,000 3,375,000 2,248,054 5,616,051 7,928,054 8,991,051 — 17,368,298 7,928,054 26,359,349	Group 2006 2005 HK$ HK$ 5,680,000 3,375,000 2,248,054 5,616,051 7,928,054 8,991,051 — 17,368,298 7,928,054 26,359,349
		8,991,051 17,368,298
		26,359,349

Note:

(a) The equity securities listed outside Hong Kong are denominated in US dollars.

Changes in fair values of financial assets at fair value through profit or loss are recognised as unrealized gains of financial assets in the consolidated income statement.

— 78 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

18. Available-For-Sale Financial Assets

Non-current assets Hong Kong unlisted equity securities, at cost Overseas unlisted equity securities, at cost _Less:_Impairment loss Hong Kong listed equity securities, at fair value Overseas unlisted equity securities, at fair value Current assets Overseas unlisted equity securities, at cost Overseas unlisted equity securities, at fair value	Group 2006 2005 HK$ HK$ (restated) 17,070,000 — 25,626,167 25,626,167 (25,626,167) (9,157,010) 17,070,000 16,469,157 79,892,527 56,990,660 15,274,740 — 112,237,267 73,459,817 — 3,698,235 19,766,204 — 19,766,204 3,698,235	Company 2006 2005 HK$ HK$ — — — — — — — — 17,891,412 10,027,635 — — 17,891,412 10,027,635 — — — — — —	Company 2006 2005 HK$ HK$ — — — — — — — — 17,891,412 10,027,635 — — 17,891,412 10,027,635 — — — — — —
			— 10,027,635 —
			10,027,635

			— —
			—

The fair value of the unlisted equity securities cannot be measured reliably as there is no active market for the trading of the securities at arm’s length.

— 79 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

As at 31 December 2006, the carrying amounts of interests in the following available-for-sale financial assets exceeded 5% of total assets of the Group and the Company:

				Proportion	Proportion			Dividend
					of		Directors’	income		Net assets	Unrealised		Principal
				investee’s		Cost and	valuation/	received		attributable	gain taken		activities/
		Place of		capital		advances	market	during	Dividend	to the		in the	place of
	Name	incorporation		owned		thereto	value	the year	cover	investment		accounts	operation
						HK$	HK$	HK$		HK$		HK$
						million	million	million		million		million
	Golden	Bermuda		5.28%		22	23	1.72	76%	46		0.90	Investment
	Resources												holding/
	Development												Hong Kong
	International
	Limited
	Cosmopolitan	Cayman		9.92%		17	18	—	—	7		0.87	Investment
	International		Islands										holding/
	Holdings												Hong Kong
	Limited
	Sun Hung Kai	Hong Kong		0.16%		12	14	0.18	99%	10		2.22	Investment
	& Co.												holding/
	Limited												Hong Kong
	Golden Chain	Hong Kong		15%		12	12	—	—	5		—	Investment
	Development												holding/
	Limited												Hong Kong
19.	Other Asset
											Group
										2006			2005
										HK$			HK$
	Golf club	membership,		at cost						150,000			150,000

20.	Other Receivables

Prepayments and deposits Loan to an investee company_(Note a) Other loan(Note a)_ Others	Group 2006 2005 HK$ HK$ 15,250,850 13,889,268 — 48,139,674 150,000 — 5,650,000 5,500,000 21,050,850 67,528,942	Group 2006 2005 HK$ HK$ 15,250,850 13,889,268 — 48,139,674 150,000 — 5,650,000 5,500,000 21,050,850 67,528,942	Company 2006 2005 HK$ HK$ 229,891 217,891 — — — — 150,000 — 379,891 217,891	Company 2006 2005 HK$ HK$ 229,891 217,891 — — — — 150,000 — 379,891 217,891
	21,050,850	67,528,942	379,891	217,891

— 80 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

Note:

(a) The ageing analysis of the receivables other than the prepayments and deposits and others is as follows:

Within 3 months 3 to 6 months 6 to 12 months Over 1 year	Group 2006 2005 HK$ HK$ — — 150,000 — — — — 48,139,674 150,000 48,139,674	Group 2006 2005 HK$ HK$ — — 150,000 — — — — 48,139,674 150,000 48,139,674	Company 2006 2005 HK$ HK$ — — — — — — — — — —	Company 2006 2005 HK$ HK$ — — — — — — — — — —
	150,000	48,139,674	—	—

The other loan amounted to HK$150,000 is secured, interest bearing at 6% per annum and will be repaid on 28 May 2007.

21. Other Payables

Accruals	Group 2006 2005 HK$ HK$ 314,509 452,409	Company 2006 2005 HK$ HK$ 307,163 331,997

22. Due to Sinox Fund Management Limited

The amount due to SINOX represents investment management fees payable at the year end. The amount due is unsecured, interest free and repayable on demand.

SINOX is the Investment Manager of the Group and provides administrative and investment management services to the Group in relation to the investment of the Group’s assets.

23. Due to a Subsidiary

The amount due to a subsidiary is unsecured, interest free and repayable on demand.

— 81 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

24. Share Capital

Notes Ordinary shares of HK$0.01 each (2005: HK$0.10 each) Authorised: At beginning of the year Capital Reduction (a) At end of the year Issued and fully paid: At beginning of the year Capital Reduction (a) At end of the year	Number of shares 2006 2005 3,000,000,000 3,000,000,000 — — 3,000,000,000 3,000,000,000 431,952,000 431,952,000 — — 431,952,000 431,952,000	Share capital 2006 2005 HK$ HK$ 300,000,000 300,000,000 (270,000,000) — 30,000,000 300,000,000 43,195,200 43,195,200 (38,875,680) — 4,319,520 43,195,200	Share capital 2006 2005 HK$ HK$ 300,000,000 300,000,000 (270,000,000) — 30,000,000 300,000,000 43,195,200 43,195,200 (38,875,680) — 4,319,520 43,195,200
			300,000,000

			43,195,200 —
			43,195,200

Note :

(a) Pursuant to a special resolution passed at the special general meeting held on 20 June 2006, the nominal value of each authorized but unissued or issued share of the Company was reduced from HK$0.10 to HK$0.01.

The Company adopted an Employee Share Option Scheme under which the Board may grant to eligible employees, including the executive directors, the officers and the full or part-time employees of the Company or its subsidiaries, options to subscribe for shares in the Company.

The exercise price is set at not less than the highest of:

(i) the closing prices of the shares as stated in the daily quotations sheet of the Stock Exchange on the date of grant;
(ii) the average of the closing prices of the shares as stated in the daily quotations sheet of the Stock Exchange for the 5 business days immediately preceding the date of grant; and
(iii) the nominal value of a share.

The Share Option Scheme has been expired on 10 December 2006. No option was granted, exercised, lapsed or cancelled during the year or remained outstanding as at 31 December 2006.

— 82 —

APPENDIX II

FINANCIAL INFORMATION OF THE GROUP

25. Reserves

Group At 31 December 2004 — As originally stated — Effect for the adoption of HKFRS 3 — Effect for the adoption of HKAS 39 At 1 January 2005, as restated Realisation of exchange fluctuation reserve on disposal of a subsidiary Increase in fair value of available-for-sale financial assets Loss for the year At 31 December 2005 At 31 December 2005 — As originally stated — Prior year adjustments (see Notes below) At 1 January 2006, as restated Increase in fair value of available-for-sale financial assets Credit arised on capital reduction set off against accumulated losses of the Company and remaining balance transferred to contributed surplus account Profit for the year At 31 December 2006 Retained by: Company and subsidiaries Associates Jointly controlled entities	Share premium HK$ 169,564,710 — — 169,564,710 — — — 169,564,710 169,564,710 — 169,564,710 — — — 169,564,710 169,564,710 — — 169,564,710	Capital reserve on consolidation HK$ 468,163 (468,163) — — — — — — — — — — — — — — — — —	Contributed surplus HK$ 86,752,510 — — 86,752,510 — — — 86,752,510 86,752,510 — 86,752,510 — 13,630,807 — 100,383,317 100,383,317 — — 100,383,317	Changes in fair value of (Accumulated Exchange available-for- losses)/ fluctuation sale financial Retained reserve assets profits HK$ HK$ HK$ (1,755,174) — (63,610,223) — — 468,163 — 2,280,083 595,122 (1,755,174) 2,280,083 (62,546,938) 1,887,093 — — — 1,364,105 — — — (7,924,759) 131,919 3,644,188 (70,471,697) 131,919 3,644,188 (70,471,697) — — 1,545,308 131,919 3,644,188 (68,926,389) — 5,058,769 — — — 25,244,873 — — 9,673,788 131,919 8,702,957 (34,007,728) 131,919 8,702,957 (33,958,644) — — (182,826) — — 133,742 131,919 8,702,957 (34,007,728)	Total HK$ 191,419,986 — 2,875,205 194,295,191 1,887,093 1,364,105 (7,924,759) 189,621,630 189,621,630 1,545,308 191,166,938 5,058,769 38,875,680 9,673,788 244,775,175 244,824,259 (182,826) 133,742 244,775,175

— 83 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

Share premium HK$ Company At 31 December 2004 — As originally stated 3,237,490 — Effect for the adoption of HKAS 39 — At 1 January 2005, as restated 3,237,490 Decrease in fair value of available-for-sale financial assets — Loss for the year — At 31 December 2005 3,237,490 At 1 January 2006 — As brought forward 3,237,490 Increase in fair value of available-for-sale financial assets — Credit arised on capital reduction set off against accumulated losses of the Company and remaining balance transferred to contributed surplus account — Profit for the year — At 31 December 2006 3,237,490	Capital reserve on consolidation HK$ — — — — — — — — — — —	Contributed surplus HK$ 86,752,510 — 86,752,510 — — 86,752,510 86,752,510 — 13,630,807 — 100,383,317	Changes in fair value of (Accumulated Exchange available-for- losses)/ fluctuation sale financial Retained reserve assets profits HK$ HK$ HK$ — — (15,684,681) — (664,267) 870,000 — (664,267) (14,814,681) — (1,055,540) — — — (10,430,192) — (1,719,807) (25,244,873) — (1,719,807) (25,244,873) — 2,586,074 — — — 25,244,873 — — 864,904 — 866,267 864,904	Total HK$ 74,305,319 205,733 74,511,052 (1,055,540) (10,430,192) 63,025,320 63,025,320 2,586,074 38,875,680 864,904 105,351,978

The contributed surplus of the Group and the Company represents the difference between the nominal value of the shares of the subsidiaries acquired pursuant to the Group’s reorganisation scheme completed on 12 December 2001 over the nominal value of the Company’s shares issued in exchange.

Under the Companies Act (1981) of Bermuda (as amended), the contributed surplus is distributable to the shareholders, provided that the Company is, after the payment of dividends out of the contributed surplus, able to pay its liabilities as they become due; or the realisable value of the Company’s assets would thereby not be less than the aggregate of its liabilities, issued share capital and reserves.

— 84 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

Prior year adjustments represent the following:

The effects of the prior year adjustments in the consolidated balance sheet and other significant related disclosure items as previously reported for the balances at 1 January 2005 are summarized below:

2005 HK$ (as previously reported) Consolidated balance sheet items Interests in associates 17,562,305 Available-for-sale financial assets 73,437,295 Net asset value 232,816,830 Net asset value per share 54 cents		Adjustment 1,522,786 22,522 1,545,308	2005 HK$ (as restated) 19,085,091 73,459,817

			234,362,138 54 cents

Notes:

(1) In previous years, the Group had mistakenly recognised, in the interests in associates, a share of the loss of its associate, namely Luck Point Investments Limited, by the amount of HK$1,522,786. The correction of this error has resulted in an increase in retained profits and increase in the interests in associates at 1 January 2005 by that amount.
(2) In addition, the impairment loss for the disposed financial assets amounted to HK$22,522 was not yet reversed at the year when it was sold. The reversal of the impairment loss has increased the retained profits and the available-for-sale financial assets at 1 January 2005 for the amount.

26. Disposal of a Subsidiary

Net assets disposed of: Interests in jointly controlled entities Property, plant and equipment Cash and bank balances Other receivables Other payables Realisation of exchange fluctuation reserve Sales proceeds Loss on disposal	Group 2006 2005 HK$ HK$ — 25,079,151 — 57,399 — 41,426,454 — 110,950 — (1,493,756) — 65,180,198 — 1,887,093 — 67,067,291 — (65,123,371) — 1,943,920	Group 2006 2005 HK$ HK$ — 25,079,151 — 57,399 — 41,426,454 — 110,950 — (1,493,756) — 65,180,198 — 1,887,093 — 67,067,291 — (65,123,371) — 1,943,920
		65,180,198 1,887,093
		67,067,291 (65,123,371)
		1,943,920

— 85 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

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

Sales proceeds Cash and bank balances of the disposed subsidiary Net inflow of cash and cash equivalents in respect of disposal of the subsidiary	Group 2006 2005 HK$ HK$ — 65,123,371 — (41,426,454) — 23,696,917	Group 2006 2005 HK$ HK$ — 65,123,371 — (41,426,454) — 23,696,917
		23,696,917

27. Acquisition of a Subsidiary

The Group had acquired 100% of the issued share capital of Contessa Assets Limited. Contessa Assets Limited is engaged in investment holding. The purchase consideration for the acquisition was in the form of cash, with HK$1,000,000 paid at the acquisition date.

The fair values of the identifiable assets and liabilities of Contessa Assets Limited as at the date of acquisition and the corresponding carrying amounts immediately before the acquisition were as follows:

Investment in an associate Amount due from an associate Goodwill Satisfied by cash	2006 Fair value recognized on acquisition HK$ 312 — 312 999,688 1,000,000	Carrying amount HK$ 312 10,851,203
		10,851,515

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

Cash consideration Net outflow of cash and cash equivalents in respect of the acquisition of a subsidiary	2006 HK$ 1,000,000

	1,000,000

The goodwill arising on acquisition was reviewed and subsequently an impairment loss of this goodwill has been recognised in the consolidated income statement for the year ended 31 December 2006.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

28. Net Asset Value Per Share

Net asset value per share is computed based on:

Net assets Number of ordinary shares	Group 2006 2005 HK$ HK$ (restated) 249,094,695 234,362,138 431,952,000 431,952,000	Group 2006 2005 HK$ HK$ (restated) 249,094,695 234,362,138 431,952,000 431,952,000

		431,952,000

29. Deferred Taxation

No provision for deferred taxation has been made in the financial statements as the tax effect of temporary differences is immaterial to the Group.

30. Operating Lease Commitments

At the balance sheet date, the total future minimum lease payments under non-cancellable operating leases are payable as follows:

Within one year In the second to fifth year inclusive	Group 2006 2005 HK$ HK$ 122,440 — 40,800 — 163,240 —	Group 2006 2005 HK$ HK$ 122,440 — 40,800 — 163,240 —
		—

31. Related Party Transactions

Apart from the transactions with related parties disclosed elsewhere in the financial statements, the following transactions were entered into by the Group with the related parties negotiated on terms mutually agreed with these related parties:

(a) Group

Management fees received from jointly controlled entities	2006 HK$ —	2005 HK$ 117,924

(b) Details of guarantees issued by the Company in favour of banks to a direct subsidiary of an associate are set out in note 32.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

32. Contingent liabilities

There were contingent liabilities in respect of letters of guarantee issued by the Company, as guarantor, in favour of a bank in respect of banking facilities granted by the bank to the indirect subsidiaries of an investee company and the direct subsidiary of an associate. The banking facilities granted to the investee company’s indirect subsidiaries are also secured by the mortgage of the investment properties of the investee company’s indirect subsidiaries. The banking facilities granted to the associate’s direct subsidiary is also secured by the mortgage of the investment properties of the associate’s direct subsidiaries.

Indirect subsidiaries of an investee company: — Fortune Leader Overseas Chinese (Daiyawan) Real Estate Development Company Limited — Fortune Leader Overseas Chinese (Daiyawan) Investment Company Limited Direct subsidiary of an associate: — Great Fidelity Limited	Group 2006 2005 HK$ HK$ — 13,573,000 — 9,855,000 17,250,000 7,250,000 17,250,000 30,678,000	Group 2006 2005 HK$ HK$ — 13,573,000 — 9,855,000 17,250,000 7,250,000 17,250,000 30,678,000
		30,678,000

33. Financial Risk Management

(A) Financial Risk Factors

The Group’s activities expose it to a variety of financial risks: market risk (including foreign exchange risk and price risk), credit risk, liquidity risk and cash flow and interestrate risk. The Group’s overall risk management programme focuses on the unpredictability of financial markets and seeks to minimise potential adverse effects on the Group’s financial performance.

(a) Market risk

(i) Foreign exchange risk

The Group is exposed to foreign exchange risk arising from various currency exposures, primarily with respect to the HK dollar, US dollar and RMB. Foreign exchange risk arises from future commercial transactions, recognised assets and liabilities and net investments in foreign operations.

Since the exchange rate of RMB is subject to exchange control and HK dollar is pegged to US dollar, the directors consider that the Group’s foreign exchange risk is not significant.

(ii) Price risk

The Group is exposed to price risk of equity securities, derivatives and embedded derivatives which are classified on the consolidated balance sheet either as available-for-sale financial assets or as financial assets at fair value through profit or loss. The Group is not exposed to commodity price risk.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

(b) Credit risk

The Group has no significant concentrations of credit risk. Derivative counterparties and cash transactions are limited to high-credit-quality financial institutions. The Group has policies that limit the amount of credit exposure to any financial institution. The Group regards the maximum credit risk exposure limited to held-to-maturity debt securities, loans to an investee company, investment securities, other investments, available-for-sale financial assets, financial assets at fair value through profit or loss, other receivables, due from SINOX and cash with brokers.

(c) Liquidity risk

Management of the Group aims to maintain sufficient cash and cash equivalents or have available funding through an adequate amount of committed credit facilities to meet its investment commitments.

(d) Cash flow and interest rate risk

As the Group has no significant interest-bearing assets, the Group’s income and operating cash flows are substantially independent of changes in market interest rates.

(B) Fair value estimation

The fair value of financial instruments traded in active market is based on quoted market prices at the balance sheet date. The quoted market price used for financial assets held by the Group is the current bid price.

Fair value of financial assets and liabilities for disclosure purposes is estimated by discounting the future contractual cash flows at the current market interest rate that is available to the Group for similar financial instruments.

34. Critical Accounting Estimates and Judgement

Estimates are continually evaluated and are based on historical experience and other factor, including expectations of future events that are believed to be reasonable under the circumstances.

The Group makes estimates and assumptions concerning the future. The resulting accounting estimates will, by definition, seldom equal the related actual results. The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are mainly impairment of financial assets. Note 3(h) contains information on the assumptions on impairment of unlisted securities.

35. Event After the Balance Sheet Date

During the year 2000, the Group disposed of its 26.8% equity interest in an associated company, Shanghai White Cat Company Limited (“White Cat”), for a consideration of RMB108 million (approximately HK$100 million). This gave rise to a gain on disposal of approximately HK$17 million (net of taxation of approximately HK$14 million which comprised enterprise tax and business tax in the PRC). RMB33 million out of the consideration was not received since then and a provision for non-recovery of receivable had also been made in the year 2003. Subsequent to the balance sheet date, the Group has finalised all necessary procedures for the disposal of White Cat with the purchaser and obtaining all necessary approvals from the PRC government authorities by receiving a final payment of approximately HKD22 million, after expenses, which will be recognized in the financial statements for the year ended 31 December 2007.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

36. Cash and Cash Equivalents

Cash and Cash Equivalents
Cash at bank and in hand Cash with brokers Short term bank deposits	Group 2006 2005 HK$ HK$ 10,679,787 6,478,981 7,206,335 1,279,521 58,445,989 57,737,673 76,332,111 65,496,175		Company 2006 2005 HK$ HK$ 169,675 179,072 — — 58,445,989 36,756,694 58,615,664 36,935,766
	76,332,111	65,496,175	58,615,664	36,935,766

The average interest rate on short term bank deposits was approximately 4.2% (2005: approximately 2.16%); these deposits have an average maturity of 4 days.

37. Approval of Financial Statements

The financial statements on page 23 to 73 were approved and authorized for issue by the board of directors on 14 March 2007.

3. PRO FORMA FINANCIAL INFORMATION

Set out below is an extract from page 64 and 65 in Appendix II to the Prospectus for illustration purpose only.

Unaudited Pro Forma Statement of Adjusted Consolidated Net Tangible Assets of the Group

The unaudited pro forma statement of adjusted consolidated net tangible assets of the Group prepared in accordance with Rule 4.29 of the Listing Rules is set out below to illustrate the effect of the Open Offer on the consolidated net tangible assets of the Group as if the Open Offer had taken place on 31 December 2006.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

The unaudited pro forma statement of adjusted consolidated net tangible assets of the Group has been prepared for illustrative purposes only, and because of its nature, it may not give a true picture of the financial position of the Group following the Open Offer.

The following unaudited pro forma statement of adjusted consolidated net tangible assets of the Group is based on the audited consolidated net tangible assets of the Group as at 31 December 2006 and adjusted to reflect the effect of the Open Offer:

Before completion of Open Offer After completion of Open Offer	Unaudited Audited pro forma adjusted consolidated net consolidated net tangible assets tangible assets of the of the Group as Estimated net Group attributable at 31 December proceeds from to the Shareholders 2006 the Open Offer after the Open Offer HK$’000 HK$’000 HK$’000 (Note 1) (Note 2) 249,095 249,095 249,095 27,947 277,042	Unaudited pro forma adjusted consolidated net tangible assets of the Group per Share HK$0.58 per Share_(Note 3)_

		HK$0.43 per Share_(Note 4)_

Notes:

(1) The consolidated net tangible assets of the Group as at 31 December 2006 have been extracted from the audited consolidated financial statements of the Group as at 31 December 2006.
(2) The estimated net proceeds from the Open Offer are calculated based on 215,976,000 Open Offer Shares to be issued at the Subscription Price of HK$0.135 per Open Offer Share after deducting estimated expenses of approximately HK$1.21 million.
(3) The number of Shares used for the calculation of this amount is 431,952,000 which was the number of Shares in issue as at the Latest Practicable Date.
(4) The number of Shares used for the calculation of this amount is 647,928,000 and which will be the total number of Shares expected to be in issue after the completion of the Open Offer representing the aggregate of the existing 431,952,000 Shares as at the Latest Practicable Date and 215,976,000 Open Offer Shares to be issued pursuant to the Open Offer.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

==> picture [195 x 47] intentionally omitted <==

Rooms 1801-02, 18/F, China Insurance Group Bldg., 141, Des Voeux Road Central, Central, Hong Kong.

22 June 2007

The Directors

Prosperity Investment Holdings Limited

Room A, 11/F, Fortune House 61 Connaught Road Central Central Hong Kong

Dear Sirs,

We report on the unaudited pro forma statement of adjusted consolidated net tangible assets (the “Unaudited Pro Forma Consolidated Net Tangible Assets”) of Prosperity Investment Holdings Limited (the “Company”) and its subsidiaries (hereinafter collectively referred to as the “Group”), which has been prepared by the directors of the Company for illustrative purposes only, to provide information about how the open offer of 215,976,000 open offer shares at HK$0.135 per open offer share on the basis of one open offer share for every two shares of the Company payable in full on application (the “Open Offer”) might have affected the financial information presented, for inclusion in Section 1 of Appendix II to the prospectus dated 22 June 2007 (the “Prospectus”). The basis of preparation of the Unaudited Pro Forma Consolidated Net Tangible Assets is set out on pages 64 and 65 to the Prospectus.

Respective responsibilities of directors of the Company and reporting accountants

It is the responsibility solely of the directors of the Company to prepare the Unaudited Pro Forma Consolidated Net Tangible Assets 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”) and with reference to Accounting Guideline 7 “Preparation of Pro Forma Financial Information for Inclusion in Investment Circulars” issued by the Hong Kong Institute of Certified Public Accountants.

It is our responsibility to form an opinion, as required by paragraph 4.29(7) of the Listing Rules, on the Unaudited Pro Forma Consolidated Net Tangible Assets 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 Consolidated Net Tangible Assets beyond that owed to whom those reports were addressed by us at the dates of their issue.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

Basis of opinion

We conducted our engagement in accordance with the Hong Kong Standard on Investment Circular Reporting Engagements (“HKSIR”) 300 “Accountants’ Reports on Pro Forma Financial Information in Investment Circulars” issued by the Hong Kong Institute of Certified Public Accountants. Our work consisted primarily of comparing the unadjusted financial information with source documents, considering the evidence supporting the adjustments and discussing the Unaudited Pro Forma Consolidated Net Tangible Assets with the directors of the Company. This engagement did not involve independent examination of any of the underlying financial information.

We planned and performed our work so as to obtain the information and explanations we considered necessary in order to provide us with sufficient evidence to give reasonable assurance that the Unaudited Pro Forma Consolidated Net Tangible Assets has been properly complied by the directors of the Company on the basis stated, that such basis is consistent with the accounting policies of the Group and that the adjustments are appropriate for the purposes of the Unaudited Pro Forma Consolidated Net Tangible Assets as disclosed pursuant to paragraph 4.29(1) of the Listing Rules.

The Unaudited Pro Forma Consolidated Net Tangible Assets that has been prepared on the basis set out on pages 64 to 65 under the heading of “1. Unaudited pro forma statement of adjusted consolidated net tangible assets of the Group” in Appendix II of the Prospectus is for illustrative purposes only and based on the judgements and assumptions of the directors of the Company, and, because of its hypothetical 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 of the Group as at 31 December 2006 had the Open Offer actually been completed on that date or at any future date.

Opinion

In our opinion:

a. the Unaudited Pro Forma Consolidated Net Tangible Assets 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 Consolidated Net Tangible Assets as disclosed pursuant to paragraph 4.29(1) of the Listing Rules.

Yours faithfully,

H. H. Liu & Co.,

Certified Public Accountants

Hong Kong

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

4. INDEBTEDNESS AND CONTINGENT LIABILITIES

As at the close of business on 31 May 2007, being the latest practicable date for the purpose of this indebtedness statement, the Company had contingent liabilities in respect of letters of guarantee issued by the Company, as guarantor, in favour of a bank in respect of banking facilities granted by the bank to Great Fidelity Limited (a direct subsidiary of an associate) for an amount of HK$17,250,000. The banking facilities granted to Great Fidelity Limited are also secured by the mortgage of the investment properties of Great Fidelity Limited.

Save as disclosed above and apart from intra-group liabilities, the Group did not have, at the close of business on 31 May 2007, any outstanding mortgages, charges, debentures, bank loans and overdrafts, debt securities or loan notes or other similar indebtedness, loan capital issued or outstanding or agreed to be issued, finance leases, liabilities under acceptances or acceptance credits or any finance leases commitments, or any guarantees or other material contingent liabilities.

5. MATERIAL CHANGE

As at the Latest Practicable Date, the Directors were not aware of any material changes in the financial or trading position or outlook of the Group since 31 December 2006, the date to which the latest published audited consolidated financial statements of the Group were made up.

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GENERAL INFORMATION

APPENDIX III

1. RESPONSIBILITY STATEMENT

This Composite Offer Document includes particulars given in compliance with the Takeovers Code for the purpose of giving information with regard to the Group and the General Offer.

The information contained in this Composite Offer Document (other than those relating to the General Offer, the Offeror and parties acting in concert with it) has been supplied by the Directors who jointly and severally accept full responsibility for the accuracy of the information contained in this Composite Offer Document (other than those relating to the General Offer, the Offeror and parties acting in concert with it). The Directors confirm, having made all reasonable enquiries, that to the best of their knowledge, opinions expressed in this Composite Offer Document (other than those relating to the General Offer, the Offeror and parties acting in concert with it) have been arrived at after due and careful consideration and there are no other facts not contained in this Composite Offer Document (other than those relating to the General Offer, the Offeror and parties acting in concert with it), the omission of which would make any statements contained in this Composite Offer Document (other than those relating to the General Offer, the Offeror and parties acting in concert with it), misleading. The issue of this Composite Offer Document was approved by the Board.

The information contained in this Composite Offer Document relating to the General Offer, the Offeror and parties acting in concert with it has been supplied by the sole director of the Offeror. The sole director and sole owner of the Offeror accepts full responsibility for the accuracy of the information contained in this Composite Offer Document (other than those relating to the Group) and confirms, having made all reasonable enquiries, that to the best of his knowledge, opinions expressed in this Composite Offer Document (other than those relating to the Group) have been arrived at after due and careful consideration and there are no other facts not contained in this Composite Offer Document (other than those relating to the Group) the omission of which would make any statements contained in this Composite Offer Document (other than those relating to the Group) misleading.

2. SHARE CAPITAL

The authorised and issued share capital of the Company as at the Latest Practicable Date were as follows:

HK$ 3,000,000,000 Shares 30,000,000

Authorized:

Issued and fully paid up: 647,928,000 Shares 6,479,280

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GENERAL INFORMATION

APPENDIX III

All the Shares in issue rank pari passu in all respects with each other including as regards to capital, dividends and voting rights. Save for the issue of 215,976,000 new Shares pursuant to the Open Offer, there has been no change to the authorised and issued share capital of the Company since 31 December 2006, the date to which the latest published audited consolidated accounts of the Group were made up.

3. DISCLOSURE OF INTERESTS OF THE COMPANY

(a) Interests and short positions of the Directors in shares, underlying shares or debentures of the Company and its associated corporations

Saved as disclosed below, as at the Latest Practicable Date, none of the Directors and chief executive of the Company had, or was deemed to have, any interests and short positions in the Shares, underlying shares and debentures of the Company or any associated corporation (within the meaning of Part XV of the SFO) which (a) 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 they are taken or deemed to have under such provisions of the SFO); or (b) were required pursuant to section 352 of the SFO to be entered into the register referred to therein; or (c) were required pursuant to the Model Code for Securities Transactions by Directors of Listed Companies to be notified to the Company and the Stock Exchange; or (d) to be disclosed in this Composite Offer Document pursuant to the requirements of the Takeover Code.

Long position in Shares

			Approximate % of the
	Capacity and	Number of	issued share capital
Name of Director	nature of interest	Shares	of the Company
Mr. Lam_(Note)_	Interest held through
	controlled corporation	262,984,656	40.59%

Note: The above Shares are held through the Offeror, which is wholly owned by Mr. Lam. On 9 May 2007, the Offeror entered into the Underwriting Agreement with the Company, pursuant to which the Offeror agreed to underwrite 168,756,000 Open Offer Shares. The Offeror is interested in the above 262,984,656 Shares, which comprise of 94,440,000 Shares held by the Offeror before the Open Offer, 121,324,656 underwritten Open Offer Shares, and 47,220,000 Open Offer Shares took up by the Offeror as a Qualifying Shareholder under the Open Offer.

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GENERAL INFORMATION

APPENDIX III

(b) Interests and short positions of substantial shareholders in Shares

Saved as disclosed below, as at the Latest Practicable Date, so far as is known to any Director or chief executive of the Company, no other person (not being a Director or chief executive of the Company) had an interest or short position in the Shares and underlying shares of the Company 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% 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 or had an option in respect of such capital:

Long position in Shares

			Approximate % of the
Name of	Capacity and	Number	issued share capital
Shareholders	nature of interest	of Shares	of the Company
The Offeror_(Note)_	Beneficial owner	262,984,656	40.59%

Note: The Offeror is wholly-owned by Mr. Lam.

(c) Interests in the Offeror

As at the Latest Practicable Date, the entire issued share capital of the Offeror was ultimately and beneficially owned by the sole director of the Offeror, Mr. Lam, who is an executive Director.

Save as disclosed above, none of the Company and the Directors were interested in or owned or controlled any shares, convertible securities, warrants, options or derivatives of the Offeror as at the Latest Practicable Date.

(d) Other interests in the Company

As at the Latest Practicable Date,

(i) the Offeror was interested in 262,984,656 Shares, representing approximately 40.59% of the issued share capital of the Company. Mr. Lam, an executive Director, the sole director and the sole owner of the Offeror, is deemed to be interested in the Shares held by the Offeror. Together with International Securities (a company holding 38,261,016 Shares), the Offeror and parties acting in concert with it were interested in 301,245,672 Shares, representing approximately 46.50% of the issued share capital of the Company. Save as disclosed above, none of the Offeror, the sole director and the sole owner of the Offeror or parties acting in concert with any of them, and the Directors were interested in or owned or controlled any Shares, convertible securities, warrants, options or derivatives of the Company;

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GENERAL INFORMATION

APPENDIX III

(ii) there was no agreement or arrangement between any Director and any other person which was conditional on or dependent upon the outcome of the General Offer or otherwise connected with the General Offer;
(iii) no agreement, arrangement or understanding (including any compensation arrangement) existed between the Offeror or any person acting in concert with it and any Director, recent Directors, Shareholders or recent Shareholders having any connection with or dependence upon the General Offer;
(iv) none of the subsidiaries of the Company and pension fund of the Company or any of its subsidiaries owned or controlled any Shares, convertible securities, warrants, options or derivatives of the Company;
(v) no person had any arrangement of the kind referred to in Note 8 to Rule 22 of the Takeovers Code with the Company or with any person who was an associate of the Company by virtue of classes (1), (2), (3) or (4) of the definition of associate under the Takeovers Code or with the Offeror or any person acting in concert with it;
(vi) no Shares, convertible securities, warrants, options or derivatives of the Company was managed on a discretionary basis by fund managers connected with the Company;
(vii) International Securities, whom the Executive takes the view that is presumed to be a party acting in concert with the Offeror under the Takeovers Code, held 38,261,016 Shares. Save as disclosed herein, none of the parties acting in concert with the Offeror held any Shares as at the Latest Practicable Date;
(viii) Baron Capital, the financial adviser to the Company, did not have any shareholding interests in the Company. However, the beneficial owner of Baron Capital, Mr. Wan, was deemed to be interested in 38,261,016 Shares held by International Securities as at the Latest Practicable Date. Save as disclosed herein, none of the advisers to the Company as specified in class (2) of the definition of associate under the Takeovers Code (excluding exempt principal traders) owned or controlled any Shares, convertible securities, warrants, options or derivatives of the Company;
(ix) no person prior to the posting of this Composite Offer Document had irrevocably committed himself or herself to accept or reject the General Offer; and

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GENERAL INFORMATION

APPENDIX III

(x) Save for Mr. Lam who was deemed to be interested in 262,984,656 Shares held by the Offeror, no Director intended, in respect of their own beneficial interest in the Shares, if any, to accept or to reject the General Offer as no other Director held any Shares.

4. DEALINGS IN SECURITIES

(a) The following table sets out the dealings in the Shares by the Offeror and parties acting in concert with it during the period beginning six months prior to the Announcement Date and ending on the Latest Practicable Date:

			Number of
Party	Date	Share price	Shares acquired
		(HK$)
The Offeror/Mr. Lam	14 December 2006	0.131	380,000
The Offeror/Mr. Lam	16 July 2007	0.135	168,544,656
	(Note 1)		(Note 2)

Notes:

Date of allotment of the Open Offer Shares, being 16 July 2007, was taken to be the relevant acquisition date.
121,324,656 Shares were acquired by the Offeror as the underwriter to the Open Offer under the Underwriting Agreement and 47,220,000 Shares were acquired by the Offeror as a Qualifying Shareholder under the Open Offer.

On 26 March 2007, the entire issued share capital of International Securities, a company held 38,261,016 Shares at that time, was transferred from Baron Capital at a consideration of HK$1 to Capital Builder.

Saved as disclosed herein, none of the Offeror, the sole director and the sole owner of the Offeror and parties acting in concert with the Offeror had dealt for value in any Shares, convertible securities, warrants, options or derivatives of the Company during the period beginning six months prior to the Announcement Date and ending on the Latest Practicable Date.

(b) None of the Company or the Director had dealt for value in any shares, convertible securities, warrants, options or derivatives of the Offeror during the period beginning six months prior to the Announcement Date and ending on the Latest Practicable Date.

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GENERAL INFORMATION

APPENDIX III

(c) None of fund managers who were connected with the Company had dealt for value in any Shares, convertible securities, warrants, options or derivatives of the Company which were managed on a discretionary basis during the period beginning six months prior to the Announcement Date and ending on the Latest Practicable Date.
(d) On 26 March 2007, the entire issued share capital of International Securities, a company holding 38,261,016 Shares at that time, was transferred from Baron Capital at a consideration of HK$1 to Capital Builder. Save as disclose above, none of the advisers to the Company as specified in class (2) of the definition of associate under the Takeovers Code (excluding exempt principal traders) had dealt for value in any Shares, convertible securities, warrants, options or derivatives of the Company during the period beginning six months prior to the Announcement Date and ending on the Latest Practicable Date.
(e) None of the subsidiaries of the Company and pension fund of the Company or any of its subsidiaries had dealt for value in any Shares, convertible securities, warrants, options or derivatives of the Company during the period beginning six months prior to the Announcement Date and ending on the Latest Practicable Date.
(f) There was no agreement or arrangement to which the Offeror or any of its ultimate beneficial owners is a party which relates to the circumstances in which the Offeror may or may not invoke or seek to invoke a condition to the General Offer.

5. MARKET PRICES

(a) The highest and lowest closing prices at which the Shares were traded on the Stock Exchange during the period commencing six months preceding the Announcement Date and ending on the Latest Practicable Date were HK$0.660 per Share (based on the closing price of Shares as quoted on the Stock Exchange before the Shares went ex-entitlement on 14 June 2007) on 13 June 2007 and HK$0.120 per Share (based on the closing price of Shares as quoted on the Stock Exchange before the Shares went ex-entitlement on 14 June 2007) on 8 December 2006, respectively.

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GENERAL INFORMATION

APPENDIX III

(b) The table below sets out the closing prices per Share as quoted on the website of the Stock Exchange on (i) the last Business Day of each of the calendar months during the period commencing six months preceding the Announcement Date and ending on the Latest Practicable Date on which trading of the Shares took place; (ii) the Last Trading Date; and (iii) the Latest Practicable Date:

Date	Closing price per Share
	HK$
30 November 2006	0.134A
29 December 2006	0.133A
31 January 2007	0.145A
28 February 2007	0.272A
30 March 2007	0.225A
30 April 2007	0.258A
9 May 2007 (being the Last Trading Date)	0.248A
31 May 2007	0.378A
29 June 2007	0.395
16 July 2007 (being the Latest Practicable Date)	0.410

Source: the website of the Stock Exchange (www.hkex.com.hk)

Note: The prices of the Shares marked with “A” above have been adjusted to take into account of the effect of the Open Offer.

6. DIRECTORS’ SERVICE CONTRACTS AND OTHER INTERESTS

None of the Directors had any service contracts with the Company or any of its subsidiaries or associated companies in force which (i) (including both continuous and fixed term contracts) have been entered into or amended within 6 months before the Announcement Date; (ii) are continuous contracts with a notice period of 12 months or more; or (iii) are fixed term contracts with more than 12 months to run irrespective of the notice period.

No benefit has been or will be given to any Director as compensation for loss of office or otherwise in connection with the General Offer.

Save for the Underwriting Agreement in which Mr. Lam is deemed to be interested and the banking facility letter dated 30 April 2007 entered into among Chong Hing Bank Limited (as lender), the Offeror (as borrower) and Mr. Lam (an guarantor) in relation to the banking facility granted to the Offeror for the acquisition of all the Shares not already owned by the Offeror under the General Offer, there was no material contract entered into by the Offeror in which any Director had a material personal interest as at the Latest Practicable Date.

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GENERAL INFORMATION

APPENDIX III

7. LITIGATION

As at the Latest Practicable Date, no member of the Group was engaged in any litigation or arbitration of material importance and no litigation, arbitration or claim of material importance was known to the Directors to be pending or threatened by or against any member of the Group or to which the Company or any of its subsidiaries was, or might become, a party.

8. MATERIAL CONTRACTS

The following contracts, not being contracts entered into in the ordinary course of business, have been entered into by the Group after the date two years immediately preceding the Announcement Date and up to the Latest Practicable Date:

the conditional sale and purchase agreement dated 28 November 2005 entered into between Rich Profits Int’l Limited (“Rich Profits”), an indirect wholly-owned subsidiary of the Company and City Court Properties Limited in respect of the sale and purchase of 10,421 shares of US$1.00 each in the issued share capital of Dragon Fortune Ltd. (“Dragon Fortune”) and the sum of HK$48,139,674.25 due and owed by Dragon Fortune to Rich Profits at a total consideration of HK$72,000,000. The disposal was completed in 2006; and
the Underwriting Agreement.

9. EXPERTS AND CONSENTS

The following are the qualifications of the experts who have given opinions in this Composite Offer Document:

Name

Qualification

Ping An Securities a licensed corporation to carry on Type 1 (dealing in securities), Type 4 (advising on securities), Type 6 (advising on corporate finance) and Type 9 (asset management) regulated activities under the SFO

Veda Capital

a licensed corporation to carry on Type 6 (advising on corporate finance) regulated activity under the SFO

Each of Ping An Securities and Veda Capital has given and has not withdrawn its written consent to the issue of this Composite Offer Document with the inclusion herein of its opinion or letter (as the case may be) and references to its name, in the form and context in which it is included.

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GENERAL INFORMATION

APPENDIX III

10. GENERAL

(a) The registered office of the Company is Clarendon House, 2 Church Street, Hamilton HM 11, Bermuda and its head office and principal place of business in Hong Kong is Room A, 11th Floor, Fortune House, 61 Connaught Road Central, Central, Hong Kong.
(b) The Offeror is a company incorporated in the British Virgin Islands with limited liability, which is wholly and beneficially owned by Mr. Lam, an executive Director and the sole director of the Offeror.
(c) The registered office of the Offeror is at P.O. Box 957, Offshore Incorporations Centre, Road Town, Tortola, British Virgin Islands. The correspondence address of the Offeror is at Suite A, 63/F., Bank of China Tower, No.1, Garden Road, Central, Hong Kong.
(d) The registered office of Veda Capital, the independent financial adviser to the Independent Board Committee, is at Flat 11-12, 13/F, Nam Fung Tower, 173 Des Voeux Road Central, Central, Hong Kong.
(e) The registered office of Ping An Securities, the agent for making the General Offer for and on behalf of the Offeror, is at 4th Floor, Aon China Building, 29 Queen’s Road Central, Hong Kong.
(f) The registered office of Baron Capital, the financial adviser to the Company, is at 4th Floor, Aon China Building, 29 Queen’s Road Central, Hong Kong.
(g) The registered office of International Securities is at Level 2, Lotemau Centre Aaea Street, Apia Samoa.
(h) On 30 April 2007, a facility letter was entered into among Chong Hing Bank Limited (the “Bank”), the Offeror, as borrower, and Mr. Lam, as guarantor, in relation to the grant of a term loan of HK$45,000,000 by the Bank to the Offeror for the acquisition of all the Shares not already owned by the Offeror under the General Offer. The availability of the facility is conditional upon, among others, completion and delivery of the following documentation within 6 weeks from the date of the facility letter:
(a) the Bank’s standard form all monies over securities duly executed by the Offeror in respect of 94,424,707 Shares held by the Offeror and other Shares that are to be obtained/acquired/underwritten from the Open Offer and are to be tendered under the General Offer; and
(b) the Bank’s standard form guarantee and indemnity for HK$45,000,000 duly executed by Mr. Lam.

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GENERAL INFORMATION

APPENDIX III

As at the Latest Practicable Date, all of the above conditions and documents have been completed and delievered respectively.

Save as disclosed above, no securities that are to be acquired pursuant to the General Offer will be transferred, charged or pledged to any other persons. There is no other agreement, arrangement or understanding and any related charges or pledges which may result in the transfer of voting rights.

(i) As at the Latest Practicable Date, none of the Offeror, its ultimate beneficial owners or any persons acting in concert with any of them or any of their respective agents for the purpose of the General Offer had received any irrevocable commitment to accept or reject the General Offer.
(j) The Company’s Hong Kong branch share registrar is Secretaries Limited at 26th Floor, Tesbury Centre, 28 Queen’s Road East, Wanchai, Hong Kong.
(k) All time references contained in this Composite Offer Document refer to Hong Kong time.
(l) The English text of this Composite Offer Document and the accompanying Form of Acceptance shall prevail over the Chinese text in case of inconsistencies.

11. DOCUMENTS AVAILABLE FOR INSPECTION

Copies of the following documents are available for inspection (i) during 9:00 a.m. to 5:00 p.m. (Saturdays and public holidays excepted) at the principal place of business of the Company in Hong Kong at Room A, 11th Floor, Fortune House, 61 Connaught Road Central, Hong Kong; (ii) at the Company’s subscribed website (www.irasia.com/ listco/hk/prosperityinv/comoffdoc.htm); and (iii) the website of the SFC (www.sfc.hk) while the General Offer remains open for acceptance.

(a) the memorandum and bye-laws of the Company;
(b) the memorandum and articles of association of the Offeror;
(c) the annual reports of the Company for the two years ended 31 December 2006;
(d) the letter from Ping An Securities, the text of which is set out on pages 7 to 13 of this Composite Offer Document;
(e) the letter from Independent Board Committee, the text of which is set out on pages 20 to 21 of this Composite Offer Document;

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GENERAL INFORMATION

APPENDIX III

(f) the letter from Veda Capital, the text of which is set out on pages 22 to 41 of this Composite Offer Document;
(g) the material contracts referred to under the paragraph headed “Material contracts” in this appendix;
(h) the banking facility letter entered into between Chong Hing Bank Limited, the Offeror and Mr. Lam dated 30 April 2007;
(i) the letter of consent from each of Ping An Securities and Veda Capital referred to in the paragraph headed “Expert and consents” in this appendix;
(j) the circular of the Company dated 1 June 2007 in relation to the Open Offer and possible General Offer;
(k) the Prospectus; and
(l) this Composite Offer Document.

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AI assistant

Pacific Online Limited — M&A Activity 2007

49284_rns_2007-07-19_f4f56e53-6ffd-45b8-81cf-26e4109ea056.pdf

FAVOR HERO INVESTMENTS LIMITED

PROSPERITY INVESTMENT HOLDINGS LIMITED 嘉進投資國際有限公司 *

COMPOSITE OFFER AND RESPONSE DOCUMENT RELATING TO MANDATORY CONDITIONAL CASH OFFER BY

CONTENTS

DEFINITIONS

DEFINITIONS

DEFINITIONS

DEFINITIONS

Notes:

EXPECTED TIMETABLE

LETTER FROM PING AN SECURITIES

Ping An Securities Limited

MANDATORY CONDITIONAL CASH OFFER BY PING AN SECURITIES LIMITED ON BEHALF OF FAVOR HERO INVESTMENTS LIMITED TO ACQUIRE ALL THE ISSUED SHARES IN PROSPERITY INVESTMENT HOLDINGS LIMITED (OTHER THAN THOSE ALREADY OWNED BY FAVOR HERO INVESTMENTS LIMITED AND PARTIES ACTING IN CONCERT WITH IT)

INTRODUCTION

THE GENERAL OFFER

Offer Price

Comparison of value

Total consideration

Condition of the General Offer

Effect of accepting the General Offer

Stamp duty

Settlement of the consideration

COMPULSORY ACQUISITION

INFORMATION ON THE OFFEROR

INTENTIONS OF THE OFFEROR REGARDING THE COMPANY

REASONS FOR THE GENERAL OFFER

MAINTAINING THE LISTING STATUS OF THE COMPANY

FURTHER TERMS OF THE GENERAL OFFER

GENERAL

RECOMMENDATION

PROSPERITY INVESTMENT HOLDINGS LIMITED 嘉進投資國際有限公司 [*]

(Stock Code : 310)

INTRODUCTION

LETTER FROM THE BOARD

THE GENERAL OFFER

Offer Price

Comparison of value

Total consideration

INFORMATION ON THE GROUP

INFORMATION ON THE OFFEROR

INTENTIONS OF THE OFFEROR REGARDING THE COMPANY

SHAREHOLDING STRUCTURE OF THE COMPANY

MAINTAINING THE LISTING STATUS OF THE COMPANY

FURTHER INFORMATION

RECOMMENDATION

PROSPERITY INVESTMENT HOLDINGS LIMITED 嘉進投資國際有限公司[*]

MANDATORY CONDITIONAL CASH OFFER BY PING AN SECURITIES LIMITED ON BEHALF OF FAVOR HERO INVESTMENTS LIMITED TO ACQUIRE ALL THE ISSUED SHARES IN PROSPERITY INVESTMENT HOLDINGS LIMITED (OTHER THAN THOSE ALREADY OWNED BY FAVOR HERO INVESTMENTS LIMITED AND PARTIES ACTING IN CONCERT WITH IT)

RECOMMENDATION

Yours faithfully,

PROSPERITY INVESTMENT HOLDINGS LIMITED

VEDA CAPITAL LIMITED

INTRODUCTION

LETTER FROM VEDA CAPITAL

BASIS OF OUR ADVICE

LETTER FROM VEDA CAPITAL

PRINCIPAL FACTORS AND REASONS CONSIDERED

Financial and business highlights of the Group

LETTER FROM VEDA CAPITAL

The General Offer

Historical Share price performance

LETTER FROM VEDA CAPITAL

Liquidity of the Shares

LETTER FROM VEDA CAPITAL

LETTER FROM VEDA CAPITAL

Net assets

Price-earnings multiple

Dividend yield

Precedent case of general offer in respect of investment company listed on the main board of the Stock Exchange pursuant to the Chapter 21 of the Listing Rules

LETTER FROM VEDA CAPITAL

LETTER FROM VEDA CAPITAL

Intention of the Offeror

RECOMMENDATION

LETTER FROM VEDA CAPITAL

1. FURTHER PROCEDURES FOR ACCEPTANCE OF THE GENERAL OFFER

2. SETTLEMENT OF THE GENERAL OFFER

3. ACCEPTANCE PERIOD AND REVISIONS

4. ANNOUNCEMENTS

Pacific Online Limited M&A Activity 2007

PROSPERITY INVESTMENT HOLDINGS LIMITED 嘉進投資國際有限公司 **[*]**