1. Retail Exchange Fund Notes Programme Eddie Yue Executive Director Monetary Management and Infrastructure Department Hong Kong Monetary Authority 3 May 2005

2. Outline I. What are Exchange Fund Notes (EFNs) II. Benefits of investing in EFNs III. Terms of Upcoming issue IV. Timetable

3. I. What are Exchange Fund Notes? Fixed-income debt securities issued by the HKSAR Government for the account of the Exchange Fund Bear fixed rate of interest (coupon rate), calculated on an actual/365 day basis and payable semi-annually Tenor: 2, 3, 5, 7, 10 years Minimum Denomination : $50,000 First issued in 1993, it has been actively traded among financial institutions

4. EFN is a major segment in HK dollar debt market

5. II. Benefits of investing in EFNs 1. High credit quality – Issued by HKSAR Government Exchange Fund 2. Highly liquid secondary market – Retail EFN Distributors are committed to make quotes to buy back the EFNs from their customers 3. Steady stream of income – The coupon on EFN is higher than HK dollar savings and time deposits

6. Background of Retail Exchange Fund Notes Programme HKMA first launched a 1-year pilot scheme in August 2003, with HK$ 330 million sold to retail investors New features to improve the attractiveness of EFN to retail investors: 1. favourable allotment price (lowest accepted price instead of average accepted price) 2.more distributor banks (increased to 7 from 3; with more than 700 branches) 3.flexible selection of issues (consult distributors, re-opened issues not used)

7. III. Details of Upcoming issue Issue number : 2705 Tenor: 2 years Tender date: 13 May 2005 Issue date: 17 May 2005 Issue amount: HK$ 300 million for non-competitive tenders (Total issue size HK$ 1,200 million) Coupon rate: 2.6% Denomination: HK$ 50,000, or higher amount in integral multiples thereof

8. IV. Timetable 4 MayApplication commences at 9:00 a.m. 11 MayApplication closes at 2:00 p.m. 12 MayBanks to submit applications to HKMA 13 MayTender date. Allotment price announced 17 MayIssue date. Banks to notify subscription result to customers