(“Medco”) Is a Company Incorporated in the Republic of Philippines with Limited Liability Whose Shares Are Listed on the Philippines Stock Exchange, Inc

Medco Holdings, Inc (“Medco”) is a company incorporated in the Republic of Philippines with limited liability whose shares are listed on The Philippines Stock Exchange, Inc. (“PSE”). Lippo China Resources Limited (“LCR”) is currently interested in approximately 70.7 per cent. of the issued share capital of Medco, making it a subsidiary of LCR. Lippo Limited (“Lippo”) owns shares representing approximately 71.1 per cent. of the issued share capital of LCR. Accordingly, each of LCR and Medco is a subsidiary of Lippo. Medco has submitted its Annual Report for the year ended 31st December, 2004 (the “Annual Report”) today to the PSE for release on its website. The following is a reproduction of the Annual Report for information purpose only. COVER SHEET

3965 2 SEC Registration Number

M E D C O H O L D I N G S , I N C . A N D S U B S I D I A

R Y

(Company’s Full Name)

3 1 s t F l o o r , R u f i n o P a c i f i c T o w e r ,

6 7 8 4 A y a l a A v e n u e , M a k a t i C i t y

(Business Address: No. Street City/Town/Province)

Dionisio E. Carpio, Jr. 811-0465 (Contact Person) (Company Telephone Number)

1 2 3 1 17- A Month Day (Form Type) Month Day (Fiscal Year) (Annual Meeting)

(Secondary License Type, If Applicable)

Dept. Requiring this Doc. Amended Articles Number/Section

Total Amount of Borrowings

Total No. of Stockholders Domestic Foreign

To be accomplished by SEC Personnel concerned

File Number LCU

Document ID Cashier

S T A M P S Remarks: Please use BLACK ink for scanning purposes.

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SECURITIES AND EXCHANGE COMMISSION Metro Manila, Philippines ______

FORM 17-A ANNUAL REPORT PURSUANT TO SECTION 17 OFTHE SECURITIES REGULATION CODE AND SECTION 141 OF THE CORPORATION CODE OF THE PHILIPPINES ______

1. For the year ended 31 December 2004

2. SEC Identification Number 39652 3. BIR Tax Identification No. 004-844-938

4. Medco Holdings, Inc. (“Medco”) (formerly Mindanao Exploration and Development Corp.) Exact name of registrant as specified in its charter

5. Metro Manila, Philippines 6. (SEC Use Only) Province, Country or other jurisdiction of Industry Classification Code: incorporation or organization

7. 31st Floor, Rufino Pacific Tower, 6784 Ayala Avenue, Makati City, Metro Manila, Philippines 1229 Address of principal office Postal Code

8. Registrant's telephone number, including area code: (632) 811-0465 to 67

9. Former name, former address, and former fiscal year, if changed since last report. Not applicable.

10. Securities registered pursuant to Sections 8 and 12 of the SRC, or Sec 4 and 8 of the RSA

Title of each class Number of shares of common stock outstanding and amount of debt outstanding

Common 700,000,000 shares (P1.00 par value per share)

11. Are any or all of these securities listed on a Stock Exchange. Yes [ / ] No [ ]

Philippine Stock Exchange (PSE) Common Name of Stock Exchange Class of securities listed therein

12. Check whether the registrant:

(a) has filed all reports required to be filed by Section 17 of the SRC and SRC Rule 17 thereunder or Section 11 of the RSA and RSA Rule 11(a)-1 thereunder and Sections 26 and 141 of The Corporation Code of the Philippines during the preceding 12 months (or for such shorter period that the registrant was required to file such reports). Yes [ / ] No [ ]

(b) has been subject to such filing requirements for the past 90 days. Yes [ / ] No [ ]

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13. As at 31 March 2005, the aggregate market value of the voting stock held by non-affiliates of the registrant was P 40,370,134 (based on the closing price of P0.30 per share of the same date which was the last recorded transaction for said shares on the Philippine Stock Exchange prior to the filing hereof.

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PART I - BUSINESS AND GENERAL INFORMATION Item 1. Business

(2). Business of Issuer

Medco is an investment holding company listed on the Philippine Stock Exchange (“PSE”). It was incorporated in the Philippines on 23 October 1969 as the Mindanao Exploration & Development Corporation and adopted its current name in 1995.

In May 1995, the Lippo Group through Citivest Asia Limited (“Citivest”) acquired approximately 67% of the outstanding capital stock of Medco. The Lippo Group is a major Asia Pacific business conglomerate principally involved in financial services and investment activities such as commercial banking, securities and futures broking, merchant and investment banking, insurance, and property investment and development. It has operating units and representative offices in major Asian countries and in the United States of America. Citivest is a corporation organized under the laws of the British Virgin Islands and is a wholly-owned subsidiary of Lippo China Resources Limited (formerly Hongkong China Limited) (“LCR”), an investment holding company listed on The Stock Exchange of Hong Kong Limited and an integral corporate investment vehicle of the Lippo Group. LCR’s subsidiaries are engaged in investment holding, property investment and development, estate management, and financial services including commercial banking and investment banking, securities underwriting and trading.

Prior to the Lippo Group’s acquisition of a majority interest in the Company, Medco was engaged in mineral exploration and development. With the entry of the Lippo Group in the middle of fiscal 1995, the Company embarked on a major corporate shift that resulted in its transformation into an investment holding company. In line with the change in its primary business purpose, the Company had previously sold all its rights, titles, interests including all liabilities and obligations in its mining lease contracts and operating agreements to South Seas Oil & Mineral Exploration Development Co., Inc.

Since then, the Company has been engaged in investment holding activities. It does not produce or sell any product, or render any service. At present, its investment portfolio is composed of holdings in companies involved in financial services (commercial and investment banking) and trade development (operation of exhibition halls and conference facilities).

Details of the principal subsidiary and affiliated companies and their activities as at 31 December 2004 are as follows:

Fully paid-up Percentage of Place of common equity ownership Principal Name incorporation share capital of Medco Activities

Medco Asia Philippines P269,250,000 64.54% Investment Investment banking Corp. ( Formerly Lippo Asia Investment Corp.)

Export & Philippines P2,753,249,000 17.49% Commercial Industry Bank, Inc banking

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Fully paid-up Percentage of Place of common equity ownership Principal Name incorporation share capital of Medco Activities

Manila Philippines P165,000,000 18.18% Exhibition Exposition hall Complex, Inc. operation

The Company’s revenues and income for 2004 were contributed mainly by its principal subsidiary, MAIC, and by Exportbank, in the form equity earnings from Exportbank (3%), interest income from MAIC ( 46%), foreign exchange gains and trading gains(21%), commission and fees (14%) and other income (16%). There was no substantial difference between the contribution to net income and the contribution to revenues of the above mentioned revenue components.

Medco Asia Investment Corp. (“MAIC”)- Formerly Lippo Asia Investment Corp.

In June 1996, Medco acquired an equity interest in MAIC( then named Lippo Asia Investment Corp.) a Philippine investment house. At present, MAIC has an authorized capital stock of P400 million and a paid-up capital of P269.25 million. Since its inception, MAIC has been duly licensed by the Securities and Exchange Commission (SEC) to engage in investment banking activities such as securities trading, debt and equity underwriting, private placements, structured finance and corporate financial advisory services.

Since 1998, with the uncertainties in the financial markets and the lack of good underwriting opportunities, MAIC has maintained a very high level of liquidity. The company sought to maximize its average investment yield by diversifying part of its portfolio into government securities and prime commercial papers.

On August 27, 1999, MAIC’s board of directors and stockholders approved the change in the company’s name from Lippo Asia Investment Corp. to Medco Asia Investment Corp. The change in corporate name was approved by the Securities and Exchange Commission on November 18, 1999.

On November 12, 1999, Medco remitted P 50.5 million to MAIC representing its deposit for an additional subscription of common shares of the company. This additional investment was made to enable the company to comply with the capital build-up program for investment houses. The approval of the SEC for the infusion of additional capital was granted on March 29,2000, thereby raising MEDCO’s equity stake in MAIC to 64.54%

In view of the still weak capital markets, MAIC remained focused in 2004 in investment in government securities and prime commercial papers, while looking into corporate finance and fee-based services related to financial advisory and merger and acquisition activities. MAIC will concentrate doing these activities in the succeeding years. MAIC has no plans of offering or rendering any new services aside from regular investment activities and investment banking services.

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Export & Industry Bank (“Exportbank”)

Another investment of the Company is Exportbank, a duly licensed commercial bank which was established in joint venture with the Philippine Exporters’ Confederation, Inc. (“Philexport”). As of December 31, 2001, the Company has maintained its 29.83% equity interest in Exportbank. Its joint venture partner, Philexport, is a private organization engaged in export promotion and development. Philexport’s membership basically comprises medium-sized Philippine exporters. Exportbank obtained its certificate of authority from BSP to establish and operate a commercial bank in the last quarter of 1996. Full banking operations formally started on January 17, 1997. The main thrust of Exportbank is to support Philippine exports and to promote regional trade. To do this, it aims to improve the competitiveness of local exporters by providing them direct access to trade finance, credit, foreign exchange and other export-related banking services.

In May 2001, Exportbank signed an agreement with the major stockholders of Urban Bank, Inc. (UBI) and Urbancorp Investments, Inc. (UII) for the UBI’s and UII’s rehabilitation through a merger with Exportbank. UBI is a commercial bank which was reopened as a result of the agreed merger with Exportbank. The salient provisions of the agreement include the following:

a.) the merger of Exportbank, UBI and UII, with UBI as the surviving entity, where upon the name of UBI shall immediately be changed to Export and Industry Bank, Inc.;

b.) the conversion into common shares of the merged bank of P1.2 billion, more or less, of deposits and similar liabilities of UBI and UII equivalent to an average of 10% of total deposits and placements, excluding deposits and placements of UBI’s three major depositors/creditors and bills payable to financial institutions; and

c.) repayment and servicing within three years of the balance of said deposits and similar liabilities of UBI and UII (excluding the deposits and placements of the thee major depositors/creditors and bills payable to financial institutions), after the aforementioned 10% conversion and after payment of the first P500,000, based on a net consolidated account basis, with interest at a fixed rate of 6% gross per annum on peso –denominated deposits and similar liabilities of UBI and UII, and 2% gross per annum on US dollar-denominated deposits payable quarterly.

The rehabilitation plan and proposed merger of Exportbank, UBI and UII, was approved by the Philippine Deposit Insurance Corporation and Bangko Sentral ng Pilipinas (BSP) on July 9, 2001 and July 12, 2001, respectively. The Plan of Merger and Articles of Merger of Exportbank and UBI/UII were approved by the BSP and Securities and Exchange Commission on January 30 and 31, 2002, respectively. The merger took effect on February 1, 2002, after which the Company’s interest in Exportbank has decreased from 29.83% to 17.49%.

Apart from the regular commercial banking services, Exportbank has no plans of offering any new ones.

Other Subsidiary

Manila Exposition Complex, Inc. is not a significant subsidiary of the Company.

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Percentage of Sales or Revenues and Net Income Contributed by Foreign Sales

Of its consolidated income in 2004, 2003, and 2002, 0.70%,1.28%, and 0.90%, respectively came from interest income from foreign time deposit placements in Hong Kong.

Distribution Methods of the Products or Services

The Company, does not produce or sell any product, or offer any service. On the other hand, its significant subsidiaries do not employ any third party distributors or agents to distribute their products and services.

Status of any publicly-announced new products or service

None

Competition

After the Asian crisis of 1997, the domestic as well as regional economic and business situation had become increasingly more difficult. The poor economic conditions resulted in an unprecented growth in loan defaults and decimated the ranks of credit worthy debtors. Those in the business sector who were well-positioned to survive had put off any plans for expansion or new investments. Consequently, loan demand from the prime clients declined while the outstanding loans of the adversely affected borrowers were not being paid on time, if at all.

From the viewpoint of the investment banking industry where MAIC belongs, the aforementioned unfavorable credit environment was aggravated by a steadily weakening stock market. Thus, the industry’s underwriting and merchant banking activities were adversely affected. The industry which was comprised of around forty investment houses of varying sizes and specializations, was operating in a market where business opportunities were becoming hard to find.

To ensure survival, MAIC has adopted a multi-pronged crisis management approach, involving:

1. a reduction in the overhead expenses 2. the adoption of a very conservative and selective stance in making credit and investment decisions, and 3. a determined effort to maintain the bulk of its asset portfolio liquid and of high quality.

In the commercial banking sector, Export Bank was not spared from the adverse effects of the loans market crunch. Nevertheless, having transformed itself into a medium –sized bank after its merger with the defunct Urban Bank, Inc., Export Bank had gained more financial muscle and was now better situated to compete more effectively with its peer banks. Furthermore, in view of the said merger, both the BSP and the Philippine Deposit Insurance Corp. (PDIC) gave their strong support to Export Bank. The BSP granted the bank the special concession of allowing it to spread out its loans loss provisioning over seven years. On the other hand, PDIC granted the bank a substantial credit facility to augment its funds sourcing.

Sources and Availability of Raw Materials and Names of Principal Suppliers.

The Company as well as its significant subsidiaries are not into manufacturing and have no need of raw materials for its businesses.

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Dependence on Single Customer

The Company’s significant subsidiaries have a widely dispersed customer base and are not dependent on any single customer or just a few customers.

Transactions with Related Parties

MAIC regularly places funds in Exportbank in the form of deposits or placements in its treasury or trust instruments. Apart from these, there are no other transactions with related parties.

Expiration of Patents, Trademarks, Copyrights, Licenses, Franchise ,Concessions and Royalty Agreements.

The Company as well as its significant subsidiaries have not entered into agreements related to patents, trademarks, copyrights, licenses, franchise, concessions and royalty.

Need for Government Approvals of Principal Products or Services.

MAIC is licensed by the SEC as an Investment House. Exportbank is licensed by the BSP as a commercial bank.

Effects of Existing or Probable Governmental Regulations

The Company is subject to the rules and regulations of the SEC and the Philippine Stock Exchange (PSE). Exportbank is regulated by the Bangko Sentral ng Pilipinas (BSP) and the SEC as well as the PSE, while MAIC is regulated by the SEC. The Company and its significant subsidiaries are complying with existing government regulations which have been beneficial to their businesses. The Company is not aware of any probable government regulation that could have any adverse effect on its business or those of its subsidiaries.

Cost on Development Activities

None.

Cost and Effects of Compliance with Environmental Laws

None.

Total Number of Employees and Number of Full –Time Employees.

As of 31 December, 2004, there were four (4) employees of the Parent Company. Two were clerical employees and two were administrative. The Company does not anticipate any increase in its employees within the ensuing twelve (12) months. There were no employees covered by a Collective Bargaining Agreement. There are no supplemental benefits or incentive arrangements. The Company’s employees are not on strike and have not gone on strike in the past three (3) years.

Item 2. Properties

As at the end of 2004, MEDCO did not own any real property. It has been sharing office space at the 31st Floor, Rufino Pacific Tower, 6784 Ayala Avenue, Makati City 1229, Metro Manila (the “Floor”) with three other members of the Lippo Group of Companies in the Philippines, namely, MAIC, Lippo Securities, Inc. (“LSI”), and Capital Place International Limited (“CPIL”). The Floor has 4 condominium units, two of which are occupied by the Lippo Group. The Floor is owned by CPIL which is a wholly-owned subsidiary of LSI.

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The following table identifies the significant properties presently leased by the companies in which MEDCO has equity investments: Estimated Annual Payment/ Expiration Company Location Area in Square Meters Date

Medco Asia Unit 31-C, Rufino Pacific 209.85 P741,183 Investment Corp. Tower, 6784 Ayala Avenue, May 31, 2005 Makati City (may be renewed for another one (1) year period upon mutual agreement of the parties)

Export & Industry G/F 169 H.V dela Costa St. 166 P2,403,878 Bank Salcedo Village, Makati City March 31, 2006 (no provision for pre-termination)

116 Gorordo Ave. 510 P1,638,000 Cebu City August 31, 2009 ( with pre-termination clause)

ACE Tower I Bldg., 211 135.06 P 1,044,839 Banawe St., Quezon City April 14, 2007 (no pre-termination clause)

Juan Luna cor Sta Elena Sts., 138.38 P2,319,132 Binondo, Manila August 31, 2009 (with pre-termination clause)

478 Rizal Ave. Ext. 171 P1,517,340 Kalookan City Dec.31,2006 (with pre-termination clause)

172 Alabang-Zapote Road 240 P1,219,680 Pamplona, Las Piñas City June 30, 2007 (with pre-termination clause)

14 Gov. Pascual Ave., 300 P2,338,461 Concepcion, Malabon Feb. 14, 2007 (with pre-termination clause)

G/F Beacon Plaza, 109.16 P848,828 Shaw Blvd., Mandaluyong Sept. 30, 2008 (no pre-termination clause)

8203 Dr. Santos Ave. 100 P435,600 Sucat, Parañaque May 15, 2005 ( with pre-termination clause)

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Export & Industry 155 Nuevo Avenue Bank Barangay Poblacion, P367,000 Imus, Cavite 120 January 1, 2010 (with pre-termination clause)

G/F Pacific Centre, San Miguel Ave., P1,704,938 Ortigas Complex, Pasig 152.40 Nov. 30,2007 (with pre-termination clause)

G/F Rufino Pacific Tower 150 P1,296,000 Ayala Ave., Makati City Feb. 28,2009 (with pre-termination clause)

G/F Gonzales Bldg. 377 Diversion Rd 110 P360,000 Maharlika H-way, Cabanatuan March 31, 2009 (with pre-termination clause)

Jofelmor Bldg., Mortola St., 162.50 P877,800 Cagayan de Oro City June 15, 2009 (with pre-termination clause)

Abarabar Bldg., Perez Blvd., 200 P693,000 Dagupan City April 30, 2009

G/F State Investment Bldg. 198 P600,000 C.M. Recto St., Davao City August 31, 2005 (with pre-termination clause)

Sta. Rosa Comm’l Complex 177 P 445,020 Balibago, Sta. Rosa Month-to-month ( with pre-termination clause)

343 Sto. Rosario St. 100 P606,936 Angeles City, Pampanga August 14, 2010 (with pre-termination clause)

LRT Monumento Level 2 Ever Gotesco Grand Central 30 P 2,103,031 Caloocan City May 31, 2009

Km 29, National Hi-way 144 P 580,800 San Antonio, San Pedro, Laguna July 31, 2007

G/F SJG Center 87 P 679,030 Kalayaan Ave., Makati City Month-to-month

MFC Building Lacson Cor 304 P 1,140,000 Henares St., Bacolod City Feb 28, 2009

M/F La Azotea Bldg. 51.45 P 433,627 108 Session Road Nov 30, 2005 Baguio City 10 *SGVMC106684*

Export & Industry G/F Level Downtown Center Bldg 300 P2,178,000 Bank 516 Quintin Paredes St., July 31, 2008 Binondo, Manila

G/F Pamilihan sa Parian Commercial 64 P307,200 Complex, So. National Highway Month-to-month Brgy. Parian, Calamba

Cebu Downtown Branch 28 P660,000 Elizabeth Mall Dec 5, 2006 Leon Kilat St. Cor. So. Expressway Cebu City

Cubao Farmers 39 P743,880 3/F New Farmers Plaza March 31, 2006 EDSA, Cubao, Q.C

Davao Gaisano Branch 20.16 P360,000 LG Level, Gaisano Mall Month-to-month J.P Laurel Avenue, Davao City

EDSA Taft Branch 120 P792,000 2810 Taft Ave., Extension, Pasay City Sept 30, 2008

G/F Mabini Mansion Hotel 53 P508,000 And Residential Suites Nov. 30, 2006 1011 A Mabini Street

G/F Lyones Office and 60 P483,840 Commercial Bldg. Jan 7, 2010 18 East Ave., cor. V. Luna Road Quezon City

315-A Natividad Building 223 P4,154,934 Escolta cor. T. Pinpin Manila August 31,2006

Upper Level Bldg., II 42.7 P253,638 Guadalupe Commercial Complex Nov 30, 2006 EDSA, Guadalupe, Makati City

Evekal Bldg., Arnaiz Ave., 228 P1,782,204 Makati City March 2006

G/F Intrepit Plaza 32 P262,080 E. Rodriguez Jr. Avenue Oct 23, 2009 Brgy. Bagumbayan, Q.C

111 McArthur Hi-way 130 P240,000 San Francisco Mabalacat Oct 31, 2009 Pampanga

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Export & Industry Level 1 ( L1-109) 41 P493,680 Bank Robinson’s Metro East Jan 29, 2006 Pasig City

G/F Liara’s Alabang Central Mall 30 P356,400 252 Montillano Street Month-to-month Alabang, Muntinlupa City

514 North Bay Blvd. 233 P415,192.08 Navotas, Metro Manila May 2009

G/F Pacific Star Bldg. 107.99 P816,404 Sen. Gil J. Puyat cor. Makati Ave. May 31,2009 Makati City

Pako Bldg.,cor. Pedro Gil 35.06 P360,000 Angel Linao and Gen. Luna Sts., Nov. 30, 2009 Paco, Manila

1300 Quezon Ave., Quezon City 250 P1,377,585 Aug 1, 2007

G/F Liana’s Supermarket 30 P291,060 537 Ernshaw Street, Month-to-month Sampaloc, Manila

2/F Tutuban Center Mall 48.63 P641,916 Claro M. Recto Ave., Manila Month-to-month

G/F Ellmac Bldg., 49.09 P466,993 McArthur Highway Nov. 14, 2009 Brgy Dalandanan, Valenzuela City

The above properties leased by the Bank are renewable upon mutual agreement of the parties.

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Item 3. Legal Proceedings

As at 31 December 2004 and as far as the management of the Company is aware, there are no pending material legal proceedings to which the Company or of its subsidiary, MAIC, is a party or of which any of its property is the subject.

Item 4. Submission of Matters to a Vote of Security Holders

Not applicable.

PART II - OPERATIONAL AND FINANCIAL INFORMATION

Item 5. Market for Issuer’s Common Equity and Related Stockholder Matters

Market Information

The Company’s common shares are listed and traded on the PSE.

The high and low prices for the 1st quarter of 2005 were as follows:

High Low P 0.30 P0.30

The high and low prices for each quarter of 2004 were as follows:

1st Quarter 2nd Quarter 3rd Quarter 4th Quarter High Low High Low High Low High Low P0.30 P0.18 P 0.29 P0.28 P0.33 P0.17 P0.33 P0.30

The high and low prices for each quarter of 2003 were as follows:

1st Quarter 2nd Quarter 3rd Quarter 4th Quarter High Low High Low High Low High Low P0.026 P0.026 P 0.028 P0.028 P0.085 P0.042 P0.25 P0.12

As at 31 March 2005, the closing price of P0. 30 per share was the last recorded transaction for said shares on the Philippine Stock Exchange prior to the filing hereof.

Recent Sales of Unregistered Securities. -- NONE

Holders, Dividends and Sale of Unregistered Securities

Based on the records of the Company’s stock transfer office, Philippine Stock Transfer, Inc., as at 31 March 2005, there were 702 holders of the common stock of the Company. The names of the top 20 shareholders and the number of shares and the percentage of total shares outstanding held by each stockholders are set forth on SEC Schedule A11(last page of this report).

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No cash dividends have been declared by the Company on its common stock for the last 9 years. The Corporation Code of the Philippines provides that dividends may only be declared out of unrestricted retained earnings. The directors will consider dividend payments after taking into account factors such as Company cash flow, future expansion plans and prevailing bank interest rates.

There were no sales of any unregistered securities of the Company within the past three years.

Top Five (5) Performance Indicators December 31, 2004, 2003 and 2002 Medco Holdings, Inc. Medco Asia Investment Corp (Consolidated) ( Major Subsidiary) 2004 2003 2002 2004 2003 2002

1. Revenue Growth Revenue Y1-Y0 Revenue Y0 -57.17% -74.63% 234.10% -33.73% 33.25% -28.52%

2. Net Income Growth Net Income Y1-Y0 Net Income Y0 -186.77% -86.46% 179.80% -108.67% 1127.16% -108.66%

3. Return on Equity Net Income -2.09% 2.35% 17.80% -0.23% 2.68% -0.27% Stockholders' Equity

4.Current Ratio Current Assets 4.84x 5.48x 14.50x 99.37x 12.83x 83.54x Current Liabilities

5. Debt-to-Equity- Ratio Total Liabilities 0.10x 0.08x 0.03x .025x 0.026x 0.026x Stockholders' Equity

Note: Y1= Current year Y0= Previous year

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Item 6. Management's Discussion and Analysis of Financial Condition and Results of Operations.

This discussion and analysis should be read in conjunction with Item 1 and the consolidated Financial Statements and related Notes to Financial Statements in Exhibit A of this Report.

Results of Operations

2004

Consolidated revenues decreased by 57% compared to the previous year’s figure. Its components are: interest income from placements (46%), gain from foreign exchange transactions (21%), commission and fees (14%), equity in net earnings of investee (3%), and other income (16%).

The decline in consolidated revenues was due mainly to the decrease in the equity in net earnings of Exportbank, whose net earnings declined in 2004.

During the year in review, the interest earnings of our consolidated subsidiary, MAIC, decreased by 36% versus 2003. This was the result of the lower prevailing interest yield from bank placements and foreign currency bank deposits, which unfortunately also experienced declining interest yields that moved downwards in tandem with the U.S federal funds rate.

The volatile peso was detrimental to many other companies as well as to the average Filipino consumer but it was beneficial to the Company and enabled it to earn foreign exchange gains of P5 million. This gain came from the restatement of the U.S. dollar placements, consisting of investments in prime marketable securities and bank placements, of the Company’s subsidiary, MAIC. Compared to last year’s gain of P8.5 million, the Company only earned P5 million this year. Whereas the peso exchange rate depreciated by 6.5% in 2003, it further deteriorated slightly in 2004 by only 1.3%. Based on the Philippine Dealing Sytem Weighted Average Rate (PDSWAR), the peso exchange rates vis-à-vis the US Dollar were P56.267, P55.569 and P53.096 for the year 2004, 2003 and 2002, respectively.

During the last quarter of 2004, the Company received a cash dividend amounting to P3 million from its subsidiary, Manila Exposition Complex, Inc., which is accounted for under the cost method of recording equity investment. This was included under the “other income” account which increased by approximately 297%.

On the expense side, consolidated expenses increased by 25% from the last year’s figure. The expense account is mainly composed of salaries & wages (29%), professional and management fees (19%), entertainment amusement and recreation (19%), interest and bank charges (15%), taxes & licenses (4%), occupancy (3%), and other expenses (11%).

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The increase in the expenses was mainly due to interest expense related to the loan obtained from a local bank on December 15, 2003. These funds were used to finance the Company’s working capital requirements and were used to pay-off its advances from affiliates. The loan bore an annual interest rates ranging from 10.25% to 11%. Last year’s interest expense only accounted for the period December 15 to 31, 2003, compared to this year’s interest expense which covered the 12-month period from January 1 to December 31, 2004.

Taxes & licenses also increased this year by approximately 413%. This account consists primarily of gross receipts tax (GRT), which was in effect until 2002, and documentary stamp tax. Effective January 1, 2003, MAIC was subject to value added tax instead of GRT. However, Republic Act (RA) No. 9238 reimposed GRT on banks and financial intermediaries effective January 1, 2004. This taxation scheme increased the taxes and licenses account because payment of GRT related to MAIC’s income is debited to this account.

Likewise, professional and management fees also increased by 15%. These were payments made to management consultants, lawyers and external auditors. There was no increase in the management consultants’ fees as well as the lawyers’ fees but the external auditors fee increased by 10%. Aside from this, the Company made an accrual in 2004 for the unpaid auditor’s fee in connection with the audit of the 2003 accounts, which expense was not booked in the 2003 financial statements.

Lastly, a 100% provision for probable loss was recognized, pertaining to the long-standing acount receivable. The Company is very confident that the amount can be collected in 2005.

In view of the aforementioned decline in revenues but increase in expenses, the Company incurred a net loss of P15.9 million in 2004.

2003

The consolidated revenues are mainly composed of equity in net earnings of investee company (EIB), interest income, foreign exchange gain (realized and unrealized), and commission and fees.

The total consolidated revenues significantly decreased by approximately 75% compare to the last year’s figure. This was mainly due to the recognition of the extraordinary “gain on deemed disposal” amounting to P51 million last year that was included in the account “equity in net earnings”. The amount was equivalent to the difference between the net asset value of Medco’s investment in Export Bank before the merger with the defunct Urban Bank, Inc. and the net asset value thereof after the merger. For the year 2003, the equity in net earnings only included the share of Medco in the net income earned by Export Bank for 2003, which was much lower than its net income in 2002.

Interest income earned by MAIC increased by 18%. In 2003, interest rates increased from the prior year’s low interest yields. The Company’s dollar placements were placed in a common trust fund that yielded a higher investment yield. Aside from the high yields from common trusts, time deposit placements also increased from the last year’s rates ranging from 6.5% to 7.00% to this year’s range from 7.5% to 8.25%, representing an average increase of around 17% on the market rates.

Because of the volatile peso, the Company earned consolidated foreign exchange gains of almost P8.5 million in 2003. This amount represented a substantial increase of 53% relative to the forex gains of 2002 and contributed 15% of consolidated revenues during the year in review. These gains came from the restatement of the U.S. dollar placements, consisting of investments in prime marketable securities and bank placements of the Company’s subsidiary, MAIC. The peso exchange rate vis-à-vis the US dollar depreciated by 4.7% from a rate of P53.096 on December 31, 2002 to P55.5690 on December 31, 2003.

Furthermore, the commission and fees account increased by 116%. This refers to the management fee for rendering consultancy services to its affiliates.

16 *SGVMC106684*

On the other hand, the taxes and licenses expense account decreased significantly by approximately 79%. MAIC used to pay Gross Receipts Tax (GRT) in the previous years, payment of which were debited to the taxes and licenses expense account. However, because of the implementation of the Value Added Tax (VAT) Law on banks and financial institution in 2003, MAIC shifted from GRT to VAT. Unlike GRT, payments of VAT were not debited to the taxes and licenses expense account. VAT is arrived at by comparing the output tax from revenues and input tax from purchase transactions, the difference is the amount remitted to the government.

The representation and entertainment account also decreased by 26% compare to the last year’s figure. The Company implemented some cost cutting measures to improve the Company’s net income figure, one of these is the reduction on its representation and entertainment expenses. Moreover, the Company is also aware of the Revenue Regulation 10-2002 issued by the Bureau of Internal Revenue last October 2002 which limited the amount of the representation expense to only one percent (1%) of the net revenue.

MAIC was also able to save on its occupancy costs. The monthly rental rate was reduced by almost 42%.

Although, there had been significant reductions in its major operating expenses, the “interest and bank charges” account increased by 45% for 2003. The Parent Company obtained an interest-bearing loan from a bank for its working capital requirement and to pay-off some of its advances from affiliates. The expense portion of the interest was recognized in 2003 from the prepaid interest deducted by the bank in advance.

2002

The total consolidated revenues significantly increased by approximately 289% compare to last year’s figure. Its components are revenues that came from the equity earnings in subsidiary and associate (90%), interest income (7%), and forex gain or loss (3%).

The equity earnings in subsidiary included the gain on deemed disposal amounting to P51 million. This was derived based on the analysis of the net asset value of Medco Holdings, Inc.’s (“Medco”) investment in Export Bank before the merger with the defunct Urban Bank, Inc. and the net asset value after the merger. The computation of the net asset value includes the 29.83% share in the adjustment in recognition of the provision for probable losses amounting to P673 million in 2001.

In 2001, Medco had fully recognized equity in the net loss of Export Bank amounting to P190.1 million. This figure represented the Company’s share in the net loss that Export Bank would have incurred had it recognized additional loan valuation provisions of P673 million in 2001. Based on the conservative accounting principles, Medco fully recognized its share although in actuality Export Bank was given a staggered basis of recognition over a period of seven years as approved by the Bangko Sentral ng Pilipinas. However, because of the merger that happened in 2002, the loan valuation provisions of P673 million was fully absorbed and covered. The amount no longer exist in the books of Export Bank. Thus, in the evaluation of the net asset value of the investment as of December 31, 2002, the 29.83% share in the amount of P673 million was also eliminated in the computation, and this accounted for the gain on deemed disposal.

Medco recognized its share in the net income of Export Bank for 2002. The bank posted a net income of P381 million for 2002. The equity in net earnings represents the new percentage of ownership (16.90%) in the proportionate income earned by Export Bank for 2002.

On the other hand, interest income from MAIC decreased by almost 38% versus 2001. This was the result of the still lower prevailing interest yields from trading account securities and foreign currency bank deposits that also experienced declining interest yields as what happened in 2001.

Compared to prior year, foreign exchange gains of MAIC in 2002 increased by P1million or almost 24%. The peso exchange rate vis-à-vis the US dollar depreciated by 2.5% from a rate of P51.7889 on December 31, 2001 to P53.096 on December 31, 2002. Furthermore, the commission and fees account increased by 100%. This refers to the management fee for rendering consultancy services to its affiliates.

17 *SGVMC106684*

The Company recognized a 100% loss allowance on its I-Mart investment. Due to the continuing economic crisis, I-Mart had just ceased its operations in January 2003. Medco is awaiting for the final liquidation report to determine the net asset value of its investment. Nevertheless, the Company had been conservative in recognizing a 100% provision because of the substantial losses incurred by I-Mart as of December 31, 2002.

The increase of 74% in the other expenses was due to certain contractual expenses related to consultancy and professional fees. The Company also granted representation expenses to its consultants as part of the contract of services performed by them. On the other hand, the occupancy account decreased by almost 18% due to the reduction of the monthly rental rate.

Furthermore, salaries and wages increased due to the retirement benefit provision booked in 2002. The Company, as required by the Retirement Act, started the accrual of its employees’ retirement benefits in 2002.

Financial Position

2004

There was no significant change in the total assets vis-à-vis the prior year. 62% of total assets was accounted for by equity investments, 34% by cash & cash equivalents account, and the remaining 4% by the loan and other assets accounts.

There was also no significant change in the asset components, but there was a reclassification to other assets account of the investment in a common trust fund with Exportbank amounting to P24 million. This placement was previously recorded under the trading account securities. There was also a 25% increase in the loans account due to the advances made during the last quarter of 2004 that were subsequently collected in full in January 2005.

On the liabilities side, accounts payable & accrued expenses decreased because of payments made for the advances from affiliates. On the other hand, loans payable increased by 36% because of the additional availments of loans for the Company’s working capital requirements.

As at December 31, 2004, the total shareholders’ fund of the Company amounted to P766.6 million

2003

In 2003, there was a 7% increase in the value of the total assets from the prior year’s figure and there were some changes in its components.

During the year under review, there was an increase in the cash and cash equivalent account, which was basically composed of bank deposits, time deposit placements, and commercial papers. There was a collection of advances and receivables, which was placed as a time deposit in a bank.

The other assets account decreased mainly because of the amortization of goodwill.

As mentioned in a previous section, Medco obtained a loan from a bank to pay-off some of its advances from affiliates and for its working capital requirement. This would account for the substantial increase of approximately 196% in the “accounts payable and accrued expenses” account.

As at December 31, 2003, the total shareholders’ fund of the Company amounted to P782.6 million.

18 *SGVMC106684*

2002

There was a 17% increase in the value of the Company’s asset in 2002. This was mainly due to 52% increase in the investment account. As mentioned above, there was an evaluation of the net asset value of Medco’s investment in Export Bank. The amount of the investment was adjusted to tie-up with its net asset value as of December 31, 2002.

A substantial portion of MAIC’s liquid assets were transferred from trading account securities to foreign currency bank deposits and some of its proceeds were used as its working capital.

A 79% decrease in the receivables account of MAIC was recognized. This was due to the full collection of certain debtor accounts by way of the foreclosure of the loan collaterals consisting of shares of stocks in Export Bank. The number of shares involved was only minimal. The transaction would not affect the percentage ownership of Medco in Export Bank on a consolidated basis.

A significant increase of 145% in the other assets was noted because of the inclusion of the “other investments” account which comprised of an investment in EIB Trust amounting to P25.8 million.

On the other hand, the increase of 45% in the accounts payable and accrued expenses were due to the additional advances from affiliates during the year and the accrual of the retirement benefit for the employees.

As at December 31, 2002, the total shareholders’ fund of the Company amounted to P764.1 million

Prospects for 2005

The year 2005 is turning out to be a more difficult year than 2004 for the Company in terms of revenue growth and profitability. Interest income will probably increase moderately due to higher average interest in 2005, but then the uptrend has so far been erratic. The month of April in fact witnessed a slight interest rate decline. On the other hand, in view of the recent appreciation of peso vis-à-vis the U.S. dollar, which improvement is expected to be sustained within a narrow range for the rest of the year, the prospects for realizing foreign exchange gains appears bleak this year.

With respect to MAIC’s underwriting and corporate finance business, much depends on the passage of pending, long-delayed tax legislation that will alleviate the country’s ballooning fiscal deficits. We are hopeful that the new tax measures will be in place soon, thereby probably revitalizing the local stock market and reviving the IPOs in the pipeline that had been temporarily stalled by said delay. In so far as the Company’s equity earnings from Exportbank, a slight improvement is anticipated.

The Company is not aware of any trends, events or uncertainties that would materially affect its liquidity and its operations as a whole. The Company does not also anticipate any liquidity problem within the next twelve (12) months. The Company has no default or breach of any note, loan, lease or other indebtedness or financing arrangement. There are also no past due trade payables.

The Company’s internal sources of short-term and long-term liquidity are its liquid assets and those of its subsidiaries, which as at December 31, 2004 consisted of P335 million of cash and cash equivalents and its external sources of liquidity would consist of advances from its affiliate companies or major shareholders.

Furthermore, there were no known trends, events or uncertainties that have had or that are reasonably expected to have a material favorable or unfavorable impact on net sales or revenues or income from continuing operations. Aside from those already mentioned above, the Company is also not aware of any events that will cause a material change in the relationship between the costs and revenues. 19 *SGVMC106684*

Item 7. Financial Statements

The consolidated Financial Statements and related Notes to Financial Statements of Medco for the past 3 years ended 31 December 2004 appear on Exhibit A of this Report.

Item 8. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure

NONE

PART III - CONTROL AND COMPENSATION INFORMATION

Item 9. Directors and Executive Officers of the Registrant

For information with respect to the directors and executive officers of MEDCO, this will be incorporated on SEC Form 17-IS or the Proxy Statement, which will be submitted on a later date before the annual stockholders meeting.

Significant Employee. None.

Family Relationship Two of the Independent directors, Vicente Ang and Caly Ang, are husband and wife.

Involvement in Certain Legal Proceedings None

Item 10. Executive Compensation

For information on the “Compensation of Directors and Executive Officers”, this will be incorporated on SEC 17-IS or the Proxy Statement, which will be submitted on a later date before the annual stockholders meeting.

Warrants and Options Outstanding: Repricing - Not Applicable

Item 11. Security Ownership of Certain Beneficial Owners and Management

Security Ownership of Certain Record and Beneficial Owners of more than 5% of the Company’s Outstanding Stock as of March 31, 2005:

Title of class Name and address of Amount and nature of Percent of record/beneficial owner record/beneficial class ownership (“r” or “b”) Common Citivest Asia Limited 494,814,874 (b) 70.69% 24/F Lippo Tower, Lippo Centre, 89 Queensway Hong Kong Common PCD Nominee Corp. 192,578,166(r) 27.51% Makati Stock Exchange Bldg., Ayala Avenue Makati City

20 *SGVMC106684*

Mr. Dionisio E. Carpio, Jr., or in his absence, Mr. Bobby Cheng Sai Chong is appointed as the representative of Citivest Asia to attend and vote at the stockholders’ meeting of the Company. Messrs. Dionisio E. Carpio, Jr, David Tai Chui Ng and Bobby Cheng Sai Chong have no relationship with Citivest Asia Limited , except that they have been the regular appointees of Citivest Asia for purposes of attending and voting on behalf of Citivest Asia at the stockholders’ meeting of the Company in accordance with its instructions.

The registered owners of more than 5% of the outstanding shares of PCD Nominee Corp. is as follows:

Title of class Name and address of owner Amount and nature of Percent of ownership (indicate class record and/or beneficial ownership) Common EIB Securities, Inc. 70,618,012 10.08% 11th Flr. Export BankPlaza, (record owner-foreign) Chino Roces Ave., Makati City

Common EIB Securities, Inc. 48,250,500 6.89% 11th Flr. Export BankPlaza, (record owner-filipino) Chino Roces Ave., Makati City

The shares held by EIB Securities, Inc. are in turn owned by the following record and/or beneficial owners:

Title of class Name and address of owner Amount and nature of Percent of ownership (indicate class record and/or beneficial ownership) Common Lippo Securities Limited (LSL) 70,618,012 10.08% Hongkong (record owner)

Common 5 clients of EIB Securities, Inc. 48,250,500 6.89% (beneficial owner)

All of the five (5) clients of EIB Securities, Inc. hold less than 5% of the outstanding shares of Medco.

21 *SGVMC106684*

Security Ownership of Management

To the extent known to the Board of Directors, there is no security ownership of Management , other than directors’ qualifying shares. The record ownership of shares of the Board of Directors is as follows:

Title of class Name and address of record Amount and nature of Percent of owner record ownership class Common Dionisio E. Carpio, Jr. 11 - No. 40 Columbia Street Loyola Grand Villas, Quezon City Held for: Citivest Asia Limited 24/F Lippo Tower, Lippo Centre, 89 Queensway Hong Kong Common The 7 directors own 1 7 - qualifying shares

All of the directors own one (1) qualifying share, except for Mr. Dionsio E. Carpio, Jr . who owns eleven (11) shares in the Company, which are held by him for and on behalf of Citivest Asia Limited; and Mrs. Edna Reyes who owns 50,000 shares for herself. This information should be read in conjunction with Item 1, Description of Business on pages 3 to 5 of this Report.

Voting Trust Holders of 5% or More- None

Changes in Control _ None

Item 12. Certain Relationships and Related Transactions ( See Note 10, page 14 of the Notes to the Financial Statements )

The Company and its subsidiary, in the ordinary course of business, grant to and obtain advances from certain affiliated companies at prevailing market rates. In addition, Medco Asia Investment Corp. also leases its office space from affiliate Capital Place International Limited for a period one year with an annual rental of P741,183.

The parent-subsidiary relationships of the Company are discussed in Item 1, “Description of Business” on pages 3 to 5 of this Report.

22 *SGVMC106684*

PART IV - EXHIBITS AND SCHEDULES

Item 13. Exhibits and Reports on SEC Form 17-C

(a) Exhibits Page/Incorporation by Reference

(1) Financial Statements Exhibit A of this Report Consolidated Balance Sheets Consolidated Statements of Income Consolidated Statements of Cash Flow Notes to Financial Statements (2) Plan of Acquisition not applicable

(3) Instruments Defining the Rights of Securities not applicable Holders

(4) Voting Trust Agreement not applicable

( 5) Annual Report to Security Holders not applicable

( 6) Change in Certifying Accountant not applicable

( 7) Report furnished to Security Holders not applicable

( 8) Subsidiaries of the Registrant 3

(9) Published Report Regarding Matter Submitted not applicable to Vote of Security Holders

(10) Consents of Experts and Independent Counsel not applicable

(11) Power of Attorney not applicable

23 *SGVMC106684*

SIGNATURES

Pursuant to the requirements of Section 17 of the Code and Section 141 of the Corporation Code, this Report is signed on behalf of the issuer by the undersigned, thereunto duly authorized, in the City of Makati on April 22, 2005.

Signature Capacity

Principal Executive Officer (President) John L. W. Lee

______Dionisio E. Carpio, Jr. Principal Operating Officer/ Principal Financial Officer (Treasurer)

______Ma. Lourdes B. Bathan Principal Acctg. Officer (Chief Accountant) Asst. Corporate Secretary

REPUBLIC OF THE PHILIPPINES) MAKATI CITY ) S.S.

SUBSCRIBED AND SWORN to before me this , affiants exhibiting to me their Passports/Comm. Tax Certificates, as follows:

NAMES COMM. TAX CERT. / DATE OF ISSUE PLACE OF ISSUE PASSPORT NO. Ma. Lourdes B. Bathan 02177919 January 10, 2005 Manila

Dionisio E. Carpio, Jr. 02174258 January 6, 2005 Manila

John L. W. Lee 761006550 March 19, 2002 Hong Kong

Notary Public

Doc. No. ; Page No. ; Book No. ; Series of 2005

24 *SGVMC106684* STATEMENT OF MANAGEMENT’S RESPONSIBILITY FOR FINANCIAL STATEMENTS

April 15, 2005

The management of Medco Holdings, Inc. (the “Company”) is responsible for all information and representations contained in the financial statements for the years ended December 31, 2004, 2003 and 2002. The financial statements have been prepared in conformity with generally accepted accounting principles and reflect amounts that are based on the best estimates and informed judgment of management with an appropriate consideration to materiality.

In this regard, management maintains a system of accounting and reporting which provides for the necessary internal controls to ensure that transactions are properly authorized and recorded, assets are safeguarded against unauthorized use or disposition and liabilities are recognized. The management likewise discloses to the Company’s audit committee and to its external auditor: (i) all significant deficiencies in the design or operation of internal controls that could adversely affect its ability to record, process, and report financial data; (ii) material weaknesses in the internal controls; and (iii) any fraud that involves management or other employees who exercise significant roles in internal controls.

The Board of Directors reviews the financial statements before such statements are approved and submitted to the stockholders of the Company.

Sycip, Gorres, Velayo & Co., CPAs, the independent auditors appointed by the stockholders have examined the financial statements of the Company in accordance with generally accepted auditing standards in the Philippines and have expressed their opinion on the fairness of presentation upon completion of such examination, in its report to the Board of Directors and stockholders. The Company has no disagreement with its independent public auditors.

JOHN L. W. LEE DIONISIO E. CARPIO, JR. Chief Executive Officer Chief Financial Officer (For himself and for the Chairman)

SUBSCRIBED AND SWORN to before me this _____day of______at______, affiant exhibiting to me their Community Tax Certificate/Passport as follow:

Dionisio E. Carpio, Jr. 02174258 January 6, 2005/Manila John Lee 761006550 March 19, 2002/Hongkong

Doc. No.______Page No.______Book No.______Series of 2005.

25 *SGVMC106684* COVER SHEET

3965 2 SEC Registration Number

M E D C O H O L D I N G S , I N C . A N D S U B S I D I A

R Y

(Company’s Full Name)

3 1 s t F l o o r , R u f i n o P a c i f i c T o w e r ,

6 7 8 4 A y a l a A v e n u e , M a k a t i C i t y

(Business Address: No. Street City/Town/Province)

Dionisio E. Carpio, Jr. 811-0465 (Contact Person) (Company Telephone Number)

1 2 3 1 AAFS Month Day (Form Type) Month Day (Fiscal Year) (Annual Meeting)

(Secondary License Type, If Applicable)

Dept. Requiring this Doc. Amended Articles Number/Section

Total Amount of Borrowings

Total No. of Stockholders Domestic Foreign

To be accomplished by SEC Personnel concerned

File Number LCU

Document ID Cashier

26 *SGVMC106684* S T A M P S Remarks: Please use BLACK ink for scanning purposes.

27 *SGVMC106684*

MEDCO HOLDINGS, INC. AND SUBSIDIARY

Financial Statements December 31, 2004 and 2003 and

Report of Independent Auditors

28 *SGVMC106684*

SyCip Gorres Velayo & Co. Phone: (632) 891-0307 SG V & CO 6760 Ayala Avenue Fax: (632) 819-0872 1226 Makati City www.sgv.com.ph Phi l i ppi nes BOA/PRC Reg. No. 0001 SEC Accreditation No. 0012-F

Report of Independent Auditors

The Stockholders and the Board of Directors Medco Holdings, Inc. and Subsidiary 31st Floor, Rufino Pacific Tower 6784 Ayala Avenue, Makati City

We have audited the accompanying balance sheets of Medco Holdings, Inc. and Subsidiary (the Group) and balance sheets of Medco Holdings, Inc. (the Parent Company) as of December 31, 2004 and 2003, and the related statements of income, changes in stockholders’ equity and cash flows for each of the three years in the period ended December 31, 2004. These financial statements are the responsibility of the Group’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted in the Philippines. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Group and of the Parent Company and the results of their operations and their cash flows for the years then ended in conformity with accounting principles generally accepted in the Philippines.

Renato J. Galve Partner CPA Certificate No. 37759 SEC Accreditation No. 0081-A Tax Identification No. 102-087-055 PTR No. 9404006, January 3, 2005, Makati City

April 15, 2005

SGV & Co is a member practice of Ernst & Young Global 29 *SGVMC106684*

Report of Independent Auditors

The Stockholders and the Board of Directors Medco Holdings, Inc. and Subsidiary

Renato J. Galve Partner CPA Certificate No. 37759 SEC Accreditation No. 0081-A Tax Identification No. 102-087-055 PTR No. 9404006, January 3, 2005, Makati City

April 15, 2005

30 *SGVMC106684* MEDCO HOLDINGS, INC. AND SUBSIDIARY BALANCE SHEETS

December 31 Group Parent Company 2004 2003 2004 2003

ASSETS Cash and cash equivalents (Note 3) P=335,345,768 =337,584,242P P=260,357 =1,854,219P Loans - net (Notes 4 and 9) 1,511,773 1,208,260 303,513 – Equity investments - net (Note 5) 608,400,841 607,764,426 834,927,213 835,609,338 Property and equipment - net (Note 6) 35,446 – – – Other assets (Notes 6, 9 and 10) 32,154,290 33,079,836 2,029,988 1,717,723 P=977,448,118 =979,636,764P P=837,521,071 =839,181,280P

LIABILITIES AND STOCKHOLDERS’ EQUITY

Liabilities Loans payable (Notes 8 and 9) P=61,581,717 =45,393,030P P=61,581,717 =45,393,030P Accounts payable and accrued expenses (Notes 9, 10 and 11) 18,620,700 20,708,542 9,364,489 11,228,695 80,202,417 66,101,572 70,946,206 56,621,725

Minority Interest in Consolidated Subsidiary 130,670,836 130,975,637 – –

Stockholders’ Equity Capital stock 700,000,000 700,000,000 700,000,000 700,000,000 Additional paid-in capital 25,498,912 25,498,912 25,498,912 25,498,912 Retained earnings 41,075,953 57,060,643 41,075,953 57,060,643 766,574,865 782,559,555 766,574,865 782,559,555 P=977,448,118 =979,636,764P P=837,521,071 =839,181,280P

See accompanying Notes to Financial Statements.

31 *SGVMC106684* MEDCO HOLDINGS, INC. AND SUBSIDIARY STATEMENTS OF INCOME

Group Parent Company 2004 2003 2002 2004 2003 2002 INCOME (LOSS) Interest income (Note 10) P=10,821,780 P=16,789,056 =14,261,328P P=2,670 P=18,369 =2,821P Foreign exchange gain (loss) - net 5,078,894 8,502,033 5,546,843 (5,863) 72,640 76,000 Commissions and fees 3,441,503 3,227,418 1,495,491 – – – Equity in net earnings (losses) of investees (Note 5) 636,415 26,063,893 196,807,292 (682,125) 31,701,225 195,420,432 Others 3,808,717 959,482 795,958 3,709,091 45,000 – 23,787,309 55,541,882 218,906,912 3,023,773 31,837,234 195,499,253 EXPENSES Salaries and wages (Note 12) 11,763,636 13,400,262 14,465,875 2,593,469 2,726,738 2,593,195 Professional and management fees 7,741,412 6,757,287 6,690,689 5,765,669 5,189,335 4,810,310 Entertainment, amusement and recreation (Note 11) 7,486,672 6,613,032 8,897,237 2,676,660 3,676,797 3,635,096 Interest and bank charges 6,216,675 451,188 311,876 6,216,675 451,188 311,876 Taxes and licenses (Note 11) 1,643,639 320,399 1,526,031 313,926 134,220 60,753 Occupancy and equipment-related expenses (Notes 7 and 10) 1,066,104 1,181,748 2,022,913 312,000 312,000 312,000 Provision for probable losses 469,381 – – – – – Provision for decline in value of equity investments (Note 5) – – 45,000,000 – – 45,000,000 Others 4,059,113 3,506,468 3,974,713 1,153,309 902,804 1,137,729 40,446,632 32,230,384 82,889,334 19,031,708 13,393,082 57,860,959 INCOME (LOSS) BEFORE INCOME TAX (16,659,323) 23,311,498 136,017,578 (16,007,935) 18,444,152 137,638,294 PROVISION FOR (BENEFIT FROM) INCOME TAX (Note 11) Current 695,727 176,266 76,642 – – – Deferred (1,065,559) 1,198,051 257,534 (23,245) 23,245 1,612,561 (369,832) 1,374,317 334,176 (23,245) 23,245 1,612,561 INCOME (LOSS) BEFORE MINORITY INTEREST IN LOSS (INCOME) OF A SUBSIDIARY (16,289,491) 21,937,181 135,683,402 (15,984,690) 18,420,907 136,025,733 MINORITY INTEREST IN LOSS (INCOME) OF A SUBSIDIARY 304,801 (3,516,274) 342,331 – – – NET INCOME (LOSS) (P=15,984,690) P=18,420,907 =136,025,733P (P=15,894,690) P=18,420,907 =136,025,733P Earnings (Loss) Per Share (Note 14) (P=0.02) P=0.03 =0.19P (P=0.02) P=0.03 =0.19P

See accompanying Notes to Financial Statements

32 *SGVMC106684* MEDCO HOLDINGS, INC. AND SUBSIDIARY STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

2004 2003 2002

CAPITAL STOCK - =1P par value Authorized, issued and outstanding - 700,000,000 shares P=700,000,000 P=700,000,000 =700,000,000P

ADDITIONAL PAID-IN CAPITAL 25,498,912 25,498,912 25,498,912

RETAINED EARNINGS Balance at beginning of year 57,060,643 38,639,736 (97,385,997) Net income (loss) (15,984,690) 18,420,907 136,025,733 Balance at end of year 41,075,953 57,060,643 38,639,736 P=766,574,865 P=782,559,555 =764,138,648P

See accompanying Notes to Financial Statements.

33 *SGVMC106684* MEDCO HOLDINGS, INC. AND SUBSIDIARY STATEMENTS OF CASH FLOWS

Group Parent Company 2004 2003 2002 2004 2003 2002 CASH FLOWS FROM OPERATING ACTIVITIES Income (loss) before income tax and minority interest (P=16,659,323) P=23,311,498 =136,017,578P (P=16,007,935) P=18,444,152 =137,638,294P Adjustments for: Amortization of goodwill (Note 6) 763,682 763,682 763,682 – – – Equity in net (earnings) losses of investees (Note 5) (636,415) (26,063,893) (196,807,292) 682,125 (31,701,225) (195,420,432) Depreciation and amortization (Note 6) 12,921 9,778 89,598 – – – Unrealized gain on trading account securities – (547,924) – – – – Provision for decline in value of equity investments (Note 5) – – 45,000,000 – – 45,000,000 Provision for probable losses on receivables 469,381 – – – – – Decrease (increase) in the amounts of: Trading account securities (784,639) 3,062,148 56,849,661 – – – Loans – 291,740 12,300,000 – – – Other assets (522,118) (2,257,622) 5,252,247 (592,533) (1,268,544) 2,468,428 Increase (decrease) in the amounts of accounts payable and accrued expenses (1,022,283) (2,984,941) 8,582,478 (1,864,206) (30,669,512) 14,186,759 Net cash generated from (used in) operations (18,378,794) (4,415,534) 68,047,952 (17,782,549) (45,195,129) 3,873,049 Income taxes paid – – (1,946,737) – – (1,612,561) Net cash provided by (used in) operating activities (18,378,794) (4,415,534) 66,101,215 (17,782,549) (45,195,129) 2,260,488 CASH FLOWS FROM INVESTING ACTIVITY Acquisition of property and equipment (48,367) – – – – – Acquisition of equity investments – – (15,888,074) – – (2,494,384) CASH FLOWS FROM FINANCING ACTIVITY Proceeds from loan 16,188,687 45,393,030 12,300,000 16,188,687 45,393,030 – NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (2,238,474) 40,977,496 50,213,141 (1,593,862) 197,901 (P=233,896) CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 337,584,242 296,606,746 246,393,605 1,854,219 1,656,318 1,890,214 CASH AND CASH EQUIVALENTS AT END OF YEAR (Note 3) P=335,345,768 P=337,584,242 =296,606,746P P=260,357 P=1,854,219 =1,656,318P

See accompanying Notes to Financial Statements.

34 *SGVMC106684* MEDCO HOLDINGS, INC. AND SUBSIDIARY NOTES TO FINANCIAL STATEMENTS

1. General Information

Medco Holdings, Inc. (the Parent Company) was originally registered with the Philippine Securities and Exchange Commission (SEC) as Mindanao Exploration and Development Corporation. The change in name of the Parent Company was approved by the stockholders on February 10, 1995 and by the SEC on April 11, 1995. Its primary purpose was also changed from that of being a mining company to that of a holding company.

The Parent Company holds a 64.54% interest in Medco Asia Investment Corporation (MAIC) and a 17.49% interest in Export and Industry Bank, Inc. (EIB). MAIC was registered with the SEC on April 7, 1995 primarily to conduct business as an investment house.

The registered office of the Parent Company is located at the 31st Floor, Rufino Pacific Tower, 6784 Ayala Avenue, Makati City. As of December 31, 2004 and 2003, the Group had 13 employees (4 for the Parent Company) and 14 employees (4 for the Parent Company), respectively.

The comparative financial statements of the Group and of the Parent Company were authorized for issue by the board of directors on April 15, 2005.

2. Summary of Significant Accounting Policies

Basis of Financial Statement Preparation and Consolidation The Group’s financial statements have been prepared in accordance with the accounting principles generally accepted in the Philippines (Philippine GAAP).

The Group’s consolidated financial statements include the accounts of the Parent Company and its subsidiary. All significant intercompany balances and transactions have been eliminated in consolidation.

The investments in a subsidiary and an associate in the balance sheets are accounted for under the equity method. A subsidiary is an entity in which the Parent Company, directly or indirectly, holds more than 50% of the issued share capital, or controls more than 50% of the voting power, or exercises control over the operation and management of the entity. An associate is an entity in which the Group or Parent Company exercises significant influence (presumed when the ownership is 20% or more) and which is neither a subsidiary nor a joint venture. Under the equity method, investments are carried in the balance sheets at cost plus post-acquisition changes in the share in the net assets of the subsidiary or associate less any impairment in value, if any. Post-acquisition changes include the share in (a) the subsidiary’s and associate’s net income or losses and (b) increase or decrease in the net assets of the subsidiary or associate arising from capital-related transactions. These changes are included as part of equity in net earnings or losses which is credited to or charged against current operations. *SGVMC106684*

The Group accounts for its 17.49% equity interest in EIB using the equity method since it continues to exercise significant influence over the management and operations of EIB.

The excess of the Parent Company’s cost of investment over the underlying share in net assets of the subsidiary at the date of acquisition (included as part of the carrying value of Equity Investments in the Parent Company balance sheets and shown as Goodwill under Other Assets in the Group balance sheets) is being amortized over a period of 10 years.

Other equity investments where the Group has no significant influence are carried at cost less allowance for decline in value. Dividends on these investments are credited to current operations upon declaration. The allowance for decline in value, if any, is set up by a charge against current operations.

The preparation of the financial statements in accordance with Philippine GAAP requires the Group to make estimates and assumptions that affect the reported amounts of assets, liabilities, income and expenses, and disclosures of contingent assets and contingent liabilities. Future events may occur which will cause the assumptions used in arriving at the estimates to change. The effects of any changes in estimates are reflected in the financial statements as they become reasonably determinable.

Changes in Accounting Policies On January 1, 2004, the following new accounting standards became effective and were adopted by the Group:

• Statement of Financial Accounting Standards (SFAS) 12/International Accounting Standard (IAS) 12, Income Taxes, requires deferred income taxes to be determined using the balance sheet liability method of accounting for deferred income taxes.

• SFAS 17/IAS 17, Leases, prescribes the accounting policies and disclosures applicable to finance and operating leases.

The adoption of the foregoing standards in 2004 has no material impact on the financial statements. Additional disclosures required by the new standards were included in the financial statements, where applicable.

New accounting standards based on IAS and International Financial Reporting Standards referred to as Philippine Accounting Standards (PAS) and Philippine Financial Reporting Standards, respectively, will become effective in 2005. The Group will adopt the following new accounting standards, to the extent that they are applicable, effective January 1, 2005.

• PAS 19, Employee Benefits, provides for the accounting for long-term and other employee benefits. The standard requires the projected unit credit method in determining the retirement benefits of the employees and a change in the manner of computing benefit expense relating to past service cost and actuarial gains and losses. It requires the Group to determine the present value of defined benefit obligations and the fair value of any plan assets with sufficient regularity that the amounts recognized in the financial statements do not differ materially from the amounts that would be determined at the balance sheet date. The Group has not yet determined the effect of adoption of this

36 standard in 2005 as the Group is yet to obtain an actuarial estimate of its retirement obligations.

• PAS 21, The Effects of Changes in Foreign Exchange Rates, provides restrictive conditions for the capitalization of foreign exchange losses. The standard also addresses the accounting for transactions in foreign currency and translating the financial statements of foreign operations that are included in those of the reporting enterprise by consolidation, proportionate consolidation and equity method. The adoption of this standard will have no material impact in the financial statements.

• PAS 30, Disclosures in the Financial Statements of Banks and Similar Financial Institutions, provides for the required disclosure and presentation in respect of the accounts of banks and similar financial institutions. It also provides that provision for general banking risks is treated as appropriation of surplus and should not be included in the determination of net income for the period. The adoption of this standard will have no material impact on the financial statements. The required disclosures will be included in the financial statements.

• PAS 32, Financial Instruments: Disclosure and Presentation, covers the disclosure and presentation of all financial instruments. The standard requires more comprehensive disclosures about the Group’s financial instruments, whether recognized or unrecognized in the financial statements. New disclosure requirements include terms and conditions of financial instruments used by the Group, types of risks associated with both recognized and unrecognized financial instruments (market risk, price risk, credit risk, liquidity risk, and cash flow risk), fair value information of both recognized and unrecognized financial assets and financial liabilities, and the Group’s financial risk management policies and objectives. The standard also requires financial instruments to be classified as liabilities or equity in accordance with their substance and not their legal form. The required new disclosure will be included in the financial statements.

• PAS 39, Financial Instruments: Recognition and Measurement, establishes the accounting and reporting standards for recognizing and measuring information about the Group’s financial assets and financial liabilities. The standard requires a financial asset or financial liability to be recognized initially at fair value. Subsequent to initial recognition, the Group should continue to measure financial assets at their fair values, except for loans and receivables and held-to-maturity investments, which are measured at cost or amortized cost using the effective interest rate method. Financial liabilities are subsequently measured at cost or amortized cost, except for liabilities classified as “at fair value through profit and loss” and derivatives, which are subsequently measured at fair value.

The adoption of PAS 32 and PAS 39 will not result in a restatement of prior year’s financial statements. The disclosures required by these standards will be reflected in the financial statements, where applicable, upon their adoption in 2005.

• PAS 40, Investment Property, prescribes the accounting treatment for investment property and related disclosure requirements. This standard permits the Group to choose either the fair value model or cost model in accounting for investment property. Fair value model requires an investment property to be measured at fair value with fair value changes recognized directly in the statements of income. Cost model requires that an investment property should be measured at depreciated cost less any accumulated impairment losses. Upon effectivity of PAS 40, the Group will adopt the cost model and will continue to carry its investment property at depreciated cost less any accumulated impairment losses. Therefore, the adoption of this standard will not have a material impact on the financial statements.

• PFRS 3, Business Combination, which will result in the cessation of the amortization of goodwill and a requirement for an annual test for goodwill impairment. Any resulting negative goodwill after performing reassessment will be credited to income. Moreover, pooling of interests in accounting for business combination will no longer be permitted. The effect of adopting this standard will not result in retroactive adjustment of prior years’ financial statements but will affect prospective financial statements as a result of nonamortization of goodwill.

The Group will also adopt in 2005 the following revised standards as applicable:

• PAS 1, Presentation of Financial Statements, provides a framework within which an entity assesses how to present fairly the effects of transactions and other events; provides the base criteria for classifying liabilities as current or noncurrent; prohibits the presentation of income from operating activities and extraordinary items as separate line items in statements of income; and specifies the disclosures about key sources of estimation uncertainty and judgments that management has made in the process of applying the entity’s accounting policies. It also requires changes in the presentation of minority interest in the balance sheets and statements of income.

• PAS 8, Accounting Policies, Changes in Accounting Estimates and Errors, removes the concept of fundamental error and the allowed alternative to retrospective application of voluntary changes in accounting policies and retrospective restatement to correct prior period errors. It defines material omissions or misstatements, and describes how to apply the concept of materiality when applying accounting policies and correcting errors.

• PAS 10, Events After the Balance Sheet Date, provides a limited clarification of the accounting for dividends declared after the balance sheet date.

• PAS 16, Property, Plant and Equipment, provides additional guidance and clarification on recognition and measurement of items of property, plant and equipment. It also provides that each part of an item of property, plant and equipment with a cost that is significant in relation to the total cost of the item shall be depreciated separately.

• PAS 17, Leases, provides a limited revision to clarify the classification of a lease of land and buildings and prohibits expensing of initial direct costs in the financial statements of lessors.

• PAS 24, Related Party Disclosures, provides additional guidance and clarity in the scope of the standard, the definitions and the disclosures for related parties. It also requires disclosure of the compensation of key management personnel by benefit type.

• PAS 27, Consolidated and Separate Financial Statements, reduces alternatives in accounting for subsidiaries in consolidated financial statements and in accounting for investments in the separate financial statements of a parent, venturer or investor. Investments in subsidiaries will be accounted for either at cost or in accordance with PAS 39 in the separate financial statements. Equity method of accounting will no longer be allowed in the separate financial statements. This standard also requires strict compliance with the adoption of uniform accounting policies and requires the parent to make appropriate adjustments to the subsidiary’s financial statements to conform them to the parent’s accounting policies for reporting like transactions and other events in similar circumstances.

• PAS 28, Investments in Associates, reduces alternatives in accounting for associates in consolidated financial statements and in accounting for investments in the separate financial statements of an investor. Investments in associates will be accounted for either at cost or in accordance with PAS 39 in the separate financial statements. Equity method of accounting will no longer be allowed in the separate financial statements. This standard also requires strict compliance with the adoption of uniform accounting policies and requires the investor to make appropriate adjustments to the associate’s financial statements to conform them to the investor’s accounting policies for reporting like transactions and other events in similar circumstances.

• PAS 31, Interests in Joint Ventures, reduces the alternatives in accounting for interests in joint ventures in consolidated financial statements and in accounting for investments in the separate financial statements of a venturer. Interests in joint ventures will be accounted for either at cost or in accordance with PAS 39 in the separate financial statements. Equity method of accounting will no longer be allowed in the separate financial statements.

• PAS 33, Earnings Per Share, prescribes principles for the determination and presentation of earnings per share for entities with publicly traded shares, entities in the process of issuing ordinary shares to the public, and any entities that calculate and disclose earnings per share. The standard also provides additional guidance in computing earnings per share including the effects of mandatorily convertible instruments and contingently issuable shares, among others.

• PAS 36, Impairment of Assets, establishes frequency of impairment testing for certain intangibles and provides additional guidance on the measurement of an asset’s value in use.

• PAS 38, Intangible Assets, provides additional clarification on the definition and recognition of certain intangibles. Moreover, this revised standard requires that an intangible asset with an indefinite useful life should not be amortized but will be tested for impairment by comparing its recoverable amount with its carrying amount annually and whenever there is an indication that the intangible asset may be impaired. The effect of the adoption of this standard will not result in retroactive adjustment of prior year financial statements but will affect prospective financial statements as a result of the nonamortization of Goodwill.

The Group does not expect any significant impact on the financial statements of the adoption of the foregoing revised standards, except for the impact of adopting the cost method in accounting for its investments in subsidiaries, associates and joint ventures in the separate (parent company) financial statements, which is expected to reduce both the carrying amounts of investments and total capital funds by =143.0P million equivalent to the undeclared undistributed retained earnings of said investees and other equity adjustments as of December 31, 2004. The disclosures required by these revised PAS will be reflected in the 2005 financial statements, where applicable.

Cash Equivalents For purposes of reporting cash flows, the Group considers as cash equivalents all highly liquid debt instruments purchased with original maturities of three months or less from dates of acquisition and that are subject to insignificant risk of changes in value.

Investment in Common Trust Fund (CTF) Investment in CTF is carried at face amount plus or minus unrealized gains or losses arising from the difference between the face amount and the net asset value.

Loans and Other Receivables Loans and other receivables are stated at the outstanding balance, reduced by allowance for probable losses. Loans and other receivables are classified as past due when in the opinion of management, collection of interest or principal is doubtful. These receivables are not reclassified as current until interest and principal payments are brought current or the receivable is restructured and future payments appear assured.

Income Recognition Income is recognized to the extent that it is probable that the economic benefits will flow to the Group and the income can be reliably measured. The following specific recognition criteria must also be met before income is recognized:

Interest Income Income on interest-bearing placements is recognized as the interest accrues taking into consideration the yield on the assets.

Dividends Dividend income is recognized when the shareholders’ right to receive the payment is established.

Allowance for Probable Losses The allowance for probable losses is the estimated amount of losses in the Group’s receivable and investments portfolio, based on management’s evaluation of the collectibility or recoverability and prior loss experience.

The allowance for probable losses is established through provisions charged to current operations. Receivables and investments are written off against the allowance for probable losses when management believes that the collectibility or recoverability is unlikely.

Property and Equipment Property and equipment is stated at cost less accumulated depreciation and amortization and any impairment in value. The initial cost of property and equipment consists of the purchase price and directly attributable costs of bringing the asset to its working condition and location for its intended use. Expenditures incurred after the property and equipment have been put into operation, such as repairs and maintenance, are normally charged against operations in the year in which the costs are incurred. In situations where it can be clearly demonstrated that the expenditures have resulted in an increase in the future economic benefits expected to be obtained from the use of an item of property and equipment beyond its originally assessed standard of performance, the expenditures are capitalized as additional costs of property and equipment. When assets are retired or otherwise disposed of, the cost and the related accumulated depreciation and amortization are removed from the accounts and any resulting gain or loss is credited to or charged against current operations.

Depreciation and amortization is computed using the straight-line method over the estimated useful lives of the properties and equipment ranging from two to five years.

The useful life and the depreciation and amortization method are reviewed periodically to ensure that the period and the method of depreciation and amortization are consistent with the expected pattern of economic benefits from items of property and equipment.

Impairment of Assets An assessment is made at each balance sheet date to determine whether there is any indication of impairment of any long-lived asset, or whether there is any indication that an impairment loss previously recognized for an asset in prior years may no longer exist or may have decreased. If any such indication exists, the asset’s recoverable amount is estimated. An asset’s recoverable amount is computed at the higher of the asset’s value in use or its net selling price.

An impairment loss is recognized by a charge against current operations for the excess of the carrying amount of an asset over its recoverable amount. An impairment loss is charged against operations in the year in which it arises.

A previously recognized impairment loss is reversed by a credit to current operations to the extent that it does not restate the asset to an amount higher than the carrying amount that would have been determined (net of any accumulated depreciation) had no impairment loss been recognized for the asset in prior years.

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

Deferred income tax liabilities are recognized for all taxable temporary differences. Deferred income tax are recognized for all deductible temporary differences, carryforward of unused tax credits from excess minimum corporate income tax (MCIT) over regular corporate income tax and the net operating loss carryover (NOLCO) to the extent that it is probable that the tax profit will be available against which the deductible temporary differences and carryforward of unused MCIT and NOLCO can be utilized.

Goodwill The excess of the acquisition cost over the Parent Company’s interest in the fair market value of the net identifiable assets acquired as of the date of the exchange transaction is recorded as goodwill and recognized as an asset in the balance sheet. Goodwill is carried at cost less accumulated amortization. Goodwill was previously amortized on a straight-line basis over forty (40) years until December 31, 2001. Starting January 1, 2002, goodwill is being amortized over the remaining term based on a 20-year period. Effective January 1, 2005, in accordance with PFRS 3, goodwill will no longer be amortized. Goodwill is reviewed for impairment when events or changes in circumstances indicate that the carrying value may not be recoverable.

Foreign Currency Translation and Transactions Assets and liabilities denominated in foreign currencies are translated to Philippine pesos at the prevailing Philippine Dealing System weighted average rate (PDSWAR) at the balance sheet date. Income and expense items are translated at rates at transaction dates. Foreign exchange differentials arising from foreign currency transactions and restatement of foreign currency- denominated assets and liabilities are credited to or charged against current operations.

Retirement Cost The Group determines retirement expense under Republic Act (RA) No. 7641 to qualified employees. The expense is computed as a certain percentage of basic monthly salary for every year of service.

Earnings (Loss) Per Share Basic earnings (loss) per share is computed by dividing net income (loss) for the year by the weighted average number of common shares outstanding during the year giving retroactive effect to stock dividends declared, stock rights exercised and stock splits made during the year, if any.

Provisions and Contingencies Provisions are recognized when the Group has a present obligation (legal or constructive) where, as a result of a past event, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation. If the effect of the time value of money is material, provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects current market assessment of the time value of money and, where appropriate, the

42 risks specific to the liability. Where discounting is used, the increase in the provision due to the passage of time is recognized as an interest expense.

Contingent liabilities are not recognized in the financial statements. They are disclosed unless the possibility of an outflow of resources embodying economic benefits is remote. Contingent assets are not recognized but are disclosed in the financial statements when an inflow of economic benefits is probable.

Subsequent Events Post year-end events that provide additional information about the Group’s position at the balance sheet date (adjusting events) are reflected in the financial statements. Post year-end events that are not adjusting events are disclosed in the notes to the financial statements when material.

3. Cash and Cash Equivalents

This account consists of:

Group Parent Company 2004 2003 2004 2003 Petty cash fund P=5,000 =5,000P P=– =–P Cash in banks 259,498,573 70,391,566 260,357 271,667 Short-term investments 75,842,195 267,187,676 – 1,582,552 P=335,345,768 =337,584,242P P=260,357 =1,854,219P

Cash in banks and short-term investments include Hong Kong and US dollar-denominated (USD) placements in local and offshore banks with a peso equivalent of P=313,163,318 as of December 31, 2004 and =184,776,435P as of December 31, 2003.

Included among the USD placements were placements with Export and Industry Bank, Inc. (EIB), an affiliate, amounting to =195,668,492P as of December 31, 2004. These placements, bearing an interest of 5.75% , will mature in January 2005.

4. Loans

This account consists of:

Group Parent Company 2004 2003 2004 2003 Loans (see Note 9) P=41,824,773 =41,521,260P P=40,616,513 =40,313,000P Allowance for probable losses (40,313,000) (40,313,000) (40,313,000) (40,313,000) P=1,511,773 =1,208,260P P=303,513 =–P

5. Equity Investments

The details of equity investments follow:

Group Parent Company 2004 2003 2004 2003 At equity: Acquisition cost: EIB (17.49% owned) P=493,778,465 =493,778,465P P=478,380,851 =478,380,851P MAIC (64.54% owned) – – 182,248,980 182,248,980 493,778,465 493,778,465 660,629,831 660,629,831 Accumulated equity in net earnings: Balance at beginning of year 82,717,211 56,653,318 143,710,757 112,009,532 Equity in net earnings (losses) (see Note 10) 636,415 26,063,893 (682,125) 31,701,225 Balance at end of year 83,353,626 82,717,211 143,028,632 143,710,757 577,132,091 576,495,676 803,658,463 804,340,588 At cost: I-Mart Corporation (10% owned) 45,000,000 45,000,000 45,000,000 45,000,000 Manila Exposition Complex, Inc. (18.18% owned) 31,268,750 31,268,750 31,268,750 31,268,750 76,268,750 76,268,750 76,268,750 76,268,750 Allowance for probable losses (45,000,000) (45,000,000) (45,000,000) (45,000,000) 31,268,750 31,268,750 31,268,750 31,268,750 P=608,400,841 =607,764,426P P=834,927,213 =835,609,338P

Equity Investment in EIB The Parent Company’s interest in EIB decreased to 16.90% in 2002 from 29.83% in 2001 as a result of the merger of EIB with Urban Bank, Inc. (UBI) and UBI’s associated company Urbancorp Investment, Inc. (UII) and the conversion of certain deposits of UBI into common shares pursuant to UBI’s and UII’s rehabilitation plan discussed below. The Group’s effective ownership in EIB is at 17.49% as a result of the intention of the subsidiary of holding on to its investment in EIB shares of stock for strategic purposes.

Merger and Rehabilitation Information of EIB In May 2001, EIB signed an agreement with the major stockholders of UBI and UII for UBI’s and UII’s rehabilitation through a merger with EIB. The salient provisions of the agreement include the following:

a) The merger of EIB, UBI and UII, with UBI as the surviving entity, where the name of UBI shall be changed into EIB;

b) The conversion into common shares of the merged bank of =1.1P billion, more or less, of deposits and similar liabilities of UBI and UII equivalent to an average of 10% of total deposits and placements, excluding deposits and placements of UBI’s three major depositors/creditors and bills payable to financial institutions; and

44 c) Repayment and servicing within three years of the balance of said deposits and similar liabilities of UBI and UII (excluding the deposits and placements of the three major depositors/creditors and bills payable to financial institutions which are covered by a separate repayment agreement), after the aforementioned 10% conversion with interest at a fixed rate of 6% gross per annum on peso-denominated deposits and similar liabilities and 2% gross per annum on US dollar-denominated deposits payable quarterly.

The rehabilitation plan including the proposed merger of EIB, UBI and UII, was approved by the Philippine Deposit Insurance Corporation and the Bangko Sentral ng Pilipinas (BSP) on July 9, 2001 and July 12, 2001, respectively. The plan of merger and articles of merger of EIB, UBI and UII were approved by BSP and SEC on January 30 and 31, 2002, respectively.

Upon merger, the Parent Company recognized a gain on capital transaction (included as part of Accumulated Equity in Net Earnings) amounting to =51,041,653P from its equity investment in EIB resulting from the reduction of its equity interest from 29.83% to 17.49% and with a corresponding increase in its share of the net assets of EIB, resulting from conversion of various deposits and similar liabilities of UBI and UII, as mentioned above, into EIB common shares.

Financial Information Financial information of EIB follows (amounts in thousands):

2004 2003 Assets P=29,399,773 =26,470,339P Liabilities 26,144,696 22,010,959 Net income for the year 6,228 130,138

Others In 2002, the Parent Company’s management provided a 100% allowance amounting to P=45.0 million on its investment in I-Mart Corporation as a result of the latter’s cessation of business.

6. Property and Equipment and Other Assets

Changes in the Group’s property and equipment account are as follows:

2004 Furniture, Fixtures TRANSPORTATION Leasehold and Office EQUIPMENT Improvements Equipment Total 2003 Cost Balance at beginning of year P=493,000 P=1,810,131 P=2,359,987 P=4,663,118 =4,663,118P Additions – – 48,36748,367 – Balance at end of year 493,000 1,810,131 2,408,354 4,711,485 4,663,118 Accumulated depreciation and amortization Balance at beginning of year 493,000 1,810,131 2,359,987 4,663,118 4,653,340 Depreciation and amortization – – 12,92112,921 9,778 Balance at end of year 493,000 1,810,131 2,372,908 4,676,039 4,663,118 Net book value at end of year P=– P=– P=35,446 P=35,446 =–P

Depreciation and amortization charged to operations (included in Occupancy and Equipment- Related Expenses in the statements of income) amounted to =12,921P and =9,778P in 2004 and 2003, respectively.

Other assets account consists of:

Group Parent Company 2004 2003 2004 2003 Other investments (see Notes 10 and 15) P=24,121,411 =23,316,789P P=– =–P Goodwill - net 4,051,174 4,814,856 – – Accrued interest 915,655 1,712,793 – – Accounts receivable 2,000 2,000 2,000 2,000 Miscellaneous 3,533,431 3,233,398 2,027,988 1,715,723 32,623,671 33,079,836 2,029,988 1,717,723 Allowance for probable losses (469,381) – – – P=32,154,290 =33,079,836P P=2,029,988 =1,717,723P

The Group’s other investments include investment in common trust fund with EIB amounting to =24,078,628P and =23,274,005P as of December 31, 2004 and December 31, 2003, respectively. It also include investment in shares of stocks amounting to =19,983P as of December 31, 2004 and 2003.

Goodwill arose from the additional investment made by the Parent Company to its subsidiary in 2000. Annual amortization amounts to P=763,682 over a period of 10 years.

The following table shows the movements in the Group’s goodwill:

2004 2003 Balance at beginning of year P=4,814,856 P=5,578,538 Amortization for the year 763,682 763,682 Balance at end of year P=4,051,174 P=4,814,856

7. Lease Agreement

The Group leases its office space from Capital Place International Limited - Philippine Branch (CPIL), an affiliate, for a period of two years until May 31, 2004, renewable for another year upon mutual agreement of the parties. In 2004, the lease agreement was subsequently renewed for one year until May 31, 2005.

The lease agreement requires an annual rental of =1,053,183P in 2004 for the Group (P=312,000 for the Parent Company) and P=996,169 in 2003 for the Group (P=312,000 for the Parent Company) and security deposits and advance rental totaling =610,042P (shown under Other Assets in the balance sheets) for both years.

8. Loans Payable

This account represents short-term loans obtained from a local bank with annual interest rate ranging from 10.25% to 11%. Such loans will mature in 2005.

9. Maturity Profile of Financial Assets and Financial Liabilities

The following table presents the financial assets and liabilities by contractual maturity and settlement dates as of December 31, 2004 and 2003:

Group 2003 Due Within Due Beyond Due Within Due Beyond One Year One Year One Year One Year Financial Assets: Loans - at gross P=41,824,773 P=– P=41,824,773 P=41,521,260 =–P =41,521,260P Other assets 26,783,725 5,105,538 31,889,263 27,190,807 5,889,029 33,079,836 P=68,608,498 P=5,105,538 P=73,714,036 P=68,712,067 =5,889,029P =74,601,096P Financial Liabilities: Loans payable P=61,581,717 P=– P=61,581,717 P=45,393,030 =–P =45,393,030P Accounts payable and accrued expenses 12,969,578 – 12,969,578 20,708,542 – 20,708,542 P=74,551,295 P=– P=74,551,295 P=66,101,572 =–P =66,101,572P

Parent Company 2003 Due Within Due Beyond Due Within Due Beyond One Year One Year One Year One Year Financial Assets: Loans - at gross P=40,616,513 P=– P=40,616,513 P=40,313,000 =–P =40,313,000P Other assets 1,585,666 444,322 2,029,988 1,360,515 357,208 1,717,723 P=42,202,179 P=444,322 P=42,646,501 P=41,673,515 =357,208P =42,030,723P Financial Liabilities: Loans payable P=61,581,717 P= – P=61,581,717 P=45,393,030 =–P =45,393,030P Accounts payable and accrued expenses 9,364,489 – 9,364,489 11,228,695 – 11,228,695 P=70,946,206 P=– P=70,946,206 P=56,621,725 =–P =56,621,725P

10. Related Party Transactions

In the ordinary course of business, the Parent Company has transactions with its subsidiary and associate and other related parties consisting of advances and banking transactions.

The significant intercompany transactions and outstanding balances of the Group were eliminated in consolidation.

The following table shows the related party transactions included in the consolidated financial statements:

Elements of Transactions Balance Sheet Amount Income Statement Amount Related Party Relationship Nature of Transaction 2004 2003 2004 2003 EIB Associate Short-term investment 195,668,492 80,000,000 – – Investment in trust 24,078,628 23,274,005 – – Interest income – – 7,744,018 6,731,546 Lippo Securities Affiliate Advances 2,416,056 4,913,033 – – CPIL Affiliate Advances 4,623,335 5,348,246 – – Interest expense – – 1,049,410 – Rent expense – – 312,000 327,600

11. Income and Other Taxes

Under Philippine tax laws, the Group is subject to percentage and other taxes (presented as Taxes and Licenses in the statements of income) as well as income taxes. The Subsidiary’s percentage and other taxes consist principally of gross receipts tax (GRT) (GRT was in effect until 2002) and documentary stamp taxes. Effective January 1, 2003, the Subsidiary is subject to the value-added tax instead of GRT. However, Republic Act (RA) No. 9238 reimposed GRT on banks and financial intermediaries effective January 1, 2004.

As of December 31, 2004, the Group did not set up deferred tax assets on the following:

Group Parent Company 2004 2003 2004 2003 Temporary differences arising from: Allowance for probable loss P=40,313,000 =40,313,000P P=40,313,000 =40,313,000P NOLCO 28,634,035 20,838,741 28,634,035 18,261,691 MCIT – 252,908 – – Others 335,127 297,178 335,127 211,838

The Group believes that it is not reasonably probable that these temporary differences will be realized in the future.

As of December 31, 2004 the net deferred tax liability (included in Accounts Payable and Accrued Expenses in the Group balance sheets) of the Subsidiary consists of the following:

2004 2003 Tax effects of: Unrealized foreign exchange gain (P=5,566,918) (P=7,611,073) Unrealized gain on investment in CTF (533,805) (175,336) Accrued retirement expense 311,298 27,308 Allowance for probable losses 150,202 – NOLCO – 824,656 MCIT – 252,908 (P=5,639,223) (P=6,681,537)

A reconciliation of the statutory income tax to the provision for (benefit from) income tax follows:

Group Parent Company 2004 2003 2004 2003 Statutory income tax (P=5,330,983) =7,459,679P (P=5,122,539) =5,902,129P Additions (reductions) resulting from: Unrecognized deferred tax assets 4,987,262 3,797,860 4,987,262 3,825,168 Nondeductible expenses 2,575,964 2,268,453 854,606 1,178,373 Tax-paid and tax-exempt income (2,398,422) (3,079,074) (960,854) (5,878) Equity in net losses (earnings) of investee (203,653) (8,340,446) 218,280 (10,144,392) Applied NOLCO – (732,155) – (732,155) Provision for (benefit from) income tax (P=369,832) =1,374,317P (P=23,245) =23,245P

As of December 31, 2004, the details of NOLCO and MCIT are as follows:

Group NOLCO

Inception Year Amount Applied/Expired BalanceExpiry Year 2001 =5,089,567P (P=5,089,567) =–P 2004 2002 8,557,432 (4,865,036) 3,692,3962005 2003 9,479,728 – 9,479,7282006 2004 15,461,911 – 15,461,9112007 =33,499,071P (P=4,865,036)=28,634,035 P

The Group’s MCIT amounting to P=252,908 was applied against regular income tax due for the year.

Parent Company NOLCO

Inception Year Amount Applied/Expired Balance Expiry Year 2001 =5,089,567P (P=5,089,567) =–P 2004 2002 3,692,396 – 3,692,396 2005 2003 9,479,728 – 9,479,728 2006 2004 15,461,911 – 15,461,911 2007 =33,723,602P (P=5,089,567) 28,634,035

Revenue Regulations No. 10-2002 defines expenses to be classified as entertainment, amusement and recreation (EAR) expenses and sets a limit for the amount that is deductible for tax purposes. EAR expenses are limited to 1% of net revenue for sellers of services. EAR expenses of the Parent Company amounted to P=2,676,660 in 2004 and =3,676,797P in 2003.

12. Retirement

RA No. 7641 requires the recognition of a minimum retirement pay liability to qualified private sector employees equivalent to at least one half month salary including certain benefits for every year of service. Pending the implementation of a formal retirement plan, the Group has provided for estimated retirement contribution amounting to P=450,358 in 2004 and =426,564P in 2003. Such provision is included in Salaries and Wages in the statements of income of the Group and the Parent Company.

The cost of defined retirement benefits should be determined using the accrued benefit valuation or the projected benefit valuation methods. Both methods require an actuarial valuation which the Company has not undertaken. Management believes, however, that the effect of the difference between the retirement expense determined under the current method by the Company and an acceptable actuarial valuation method is not material to the financial statements.

13. Segment Information

The Group’s operating businesses are recognized and managed separately according to the nature of services provided and the different markets served, with each segment representing a strategic business unit.

The Group’s business segments are as follows:

• Investment banking - principally engaged in activities such as debt and equity underwriting, money market placements, structured financing and corporate financial advisory services.

• Others - consists mainly of investment holding activities of the Parent Company.

The business segment information of the Group as of and for the year ended December 31, 2004 and 2003 follows:

2004 Investment Banking Others Total Income: Interest income =10,819,110 P =2,670 P =10,821,780P Equity in net earnings of an associate – 636,415 636,415 Other income 8,625,886 3,703,228 12,329,114 Gross income 19,444,996 4,342,313 23,787,309 Expenses 20,651,242 19,795,390 40,446,632 Income (loss) before income tax (P=1,206,246) (P=15,453,077) (16,659,323) Provision for income tax (369,832) Operating loss (16,289,491) Minority interest in income of a subsidiary 304,801 Net loss (P=15,984,690) Segment assets =377,799,859 P =595,597,085 P =973,396,944 P Goodwill 4,051,174 Total assets =977,448,118 P Segment liabilities =3,316,988 P =70,946,206 P =74,563,194 P Deferred tax liability 5,639,223 Total liabilities =80,202,417 P

2003 Investment Banking Others Total Income: Equity in net earnings of an associate= P– =26,063,893P =26,063,893 P Interest income 16,770,687 18,369 16,789,056 Other income 12,571,293 117,640 12,688,933 Gross income 29,341,980 26,199,902 55,541,882 Expenses 18,073,620 14,156,764 32,230,384 Income (loss) before income tax =11,268,360 P =12,043,138 P 23,311,498 Provision for income tax 1,374,317 Operating income 21,937,181 Minority interest in income of a subsidiary 3,516,274 Net income =18,420,907 P Segment assets =378,883,154 P =600,753,610 P =979,636,764 P Goodwill 4,814,856 Total assets =984,451,620 P Segment liabilities =49,940,188 P =9,456,602 P =59,396,790 P Deferred tax liability 6,704,782 Total liabilities =66,101,572 P

14. Earnings (Loss) per Share

The following table presents information used to calculate basic earnings (loss) per share (EPS): 2004 2003 2002 a. Net income (loss) (P=15,984,690) =18,420,907P =136,025,733 P b. Weighted average number of outstanding common shares 700,000,000 700,000,000 700,000,000 c. Basic EPS (a/b) (P=0.02) =0.03P =0.19P

15. Reclassification of Accounts

The following Group accounts in 2003 were reclassified to conform to the 2004 presentation which takes into account the fundamental nature of the said accounts:

a. Due from A. Trinidad (under Accounts Receivable - Others) amounting to P=469,381 as of December 31, 2004 and 2003, which was reflected as prepaid expense in 2003, was reclassified as accounts receivable in 2004.

b. Investment in CTF - Expert Green Fund amounting to =24,078,628P and =23,274,205P as of December 31, 2004 and 2003, respectively, which was classified as trading account securities in 2003, was reclassified as Investment in CTF since the Group does not have any intention of trading this investment.

52 c. Investment in trading account securities, which amounted to =19,983P as of December 31, 2004 and December 31, 2003, was reclassified as Other Investments under Other Assets account.

MEDCO HOLDINGS, INC. AND SUBSIDIARY

TABLE OF CONTENTS

Supplementary Schedules Required By the Securities and Exchange Commission As at December 31, 2004 and for the Year Then Ended

Page

Cost of Goods Manufactured and Sold NA

A- Marketable Securities ( Current Mrketable Equity A6 Securities and other Short-term Cash Investments)

B- Amounts Receivable from Directors, Officers, NA Employees and principal Stockholders ( Other than Affiliates)

C- Long-term Investment In Securitites ( Investments A8 In Stocks, Banks and Other Debt Securities)

D- Advances to Unconsolidated Subsidiaries NA and Affiliates

E- Property, Plant and Equipment NA

F- Accumulated Depreciation NA

G- Intangible Assets- Other Assets NA

H- Long-Term Debt NA

I- Indebtedness to Affiliates A9

J- Guarnatees of Securities of Other Issuers NA

K- Capital Stock A10

L- List of Top 20 Stockholders of Record A11

MEDCO HOLDINGS, INC. AND SUBSIDIARY SCHEDULE A - MARKETABLE SECURITIES (Current Marketable Equity Securities and Other Short-Term Cash Investments) December 31, 2004

Number of Valued Based Name of Issuing Entity and Shares or Amount on Market Income Association of Each Issue Principal Shown in the Quotations at Received Amount of Bonds Balance Sheet Balance Sheet and Accrued and Notes Date

Short-term investments - 75,842,195 - 4,258,958 75,842,195 - 4,258,958

MEDCO HOLDINGS, INC. AND SUBSIDIARY SCHEDULE A - MARKETABLE SECURITIES (Investments in Stocks, Bonds and Other Debt Securities) As of and for the Year then Ended December 31, 2004

Beginning Balance Additions Deductions Ending Balance Number of Number of Name of Issuing Entity and Shares or Amount Investment Distribution of Shares or Amount Description of Investment Income Principal in Pesos (Losses) Other Earnings by Other Principal in Pesos Amount of Amount of Bonds for the Period Investees Bonds

and Notes and Notes

Investment in Shares of Stock at Equity:

490,592,500share 490,592,500s Export and Industry Bank s 576,495,676 636,415 - - - hares 577,132,091

Investment in Shares of Stock at Cost: 450,000 I-Mart Corporation 450,000 shares 45,000,000 - - - - shares 45,000,000 300,000 Manila Exposition Complex, Inc. 300,000 shares 31,268,750 - - - - shares 31,268,750

Allowance for Probable Losses:

I-Mart Corporation - - (45,000,000) - - (45,000,000)

652,764,426 636,415 (45,000,000) - - 608,400,841

MEDCO HOLDINGS, INC. AND SUBSIDIARY

SCHEDULE I- INDEBTEDNESS TO AFFILIATES (LONG-TERM LOANS FROM AFFILIATED COMPANIES) DECEMBER 31, 2004

Name of Affiliate Beginning Balance Ending Balance

Lippo Securities, Inc. 4,913,033 2,416,056 Capital Place International Limited 5,348,246 4,623,335

MEDCO HOLDINGS, INC.

SCHEDULE K- CAPITAL STOCK DECEMBER 31, 2004

Number of Number of Shares Number of Shares Held By Number of Shares Issued Reserved for Shares and Options, Warrants, Affiliates Directors, Others Title of Issue Authorized Outstanding Conversions and Officers and Other Rights Employees

Common Stock 700,000,000 700,000,000

MEDCO HOLDINGS, INC. LIST OF TOP 20 STOCKHOLDERS As of MARCH 31, 2005

NUMBER PERCENTAGE RANK NAME Nationality OF SHARES OF OWNERSHIP

1 Citivest Asia Limited Foreign 494,814,874 70.69% 2 PCD Nominee Corporation-Filipino Filipino 103,136,154 14.73% 3 PCD Nominee Corporation-Non-Filipino Foreign 89,442,012 12.78% 4 Rodrigo, Raul Filipino 2,280,000 0.33% 5 Cheng, Pablo and/or Cheng Huan King Tan Filipino 1,887,000 0.27% 6 Lippo Sec., Inc. FAO Shen Kuo Hsu Foreign 1,600,000 0.23% 7 Rexlon Gatchalian Filipino 1,000,000 0.14% 8 Lee, Kwok Fai Davy Foreign 672,000 0.10% 9 Ng, Ka Kit Foreign 662,990 0.09% 10 Tan Bi Tin Filipino 420,000 0.06% 11 Chua, Andy &/or Gemma Filipino 420,000 0.06% 12 Lo, Eduardo Filipino 394,000 0.06% 13 Cheng, William Filipino 365,000 0.05% 14 Cordova, Lawrence Filipino 350,000 0.05% 15 Belson Sec., Inc. A/C #196-358 Filipino 300,000 0.04% 16 Luk, Millie Foreign 236,000 0.03% 17 Dante C.Simbulan Jr. Filipino 200,000 0.03% 18 Pan-Asia Sec. Corp. Filipino 120,000 0.02% 19 Terndline Sec. Corp Filipino 100,000 0.01% 20 Marita Ibardolaza Filipino 100,000 0.01%

Total Number of shares issued and outstanding = 700,000,000