up.date News for Investors. March 2004.

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2 up.date News for Investors. March KfW s Capital Market Activities in 2004

3 e.ditorial Dear Readers, In the year 2003 the KfW Banking Group was marked by internal structural changes in consequence of the amendment of the KfW Law. The lending business of the former Deutsche Ausgleichsbank (DtA) was successfully integrated into KfW. We saw the spinning off of KfW s export and project finance business into the new KfW IPEX-Bank, which was launched as a bank-in-the-bank. On January 1, 2004 the kick-off was given for a four-year transition period at the end of which the bank will be a legally independent subsidiary (January 1, 2008). In the year 2004 the repositioned KfW Banking Group will focus on the development of its lending and promotional programmes. We expect a funding volume of about EUR 50 to 55 billion. Given a funding volume of EUR 48.6 billion plus EUR 2.1 billion in credit-linked notes issued under our synthetic securitisation programmes, the year 2003 was again concluded very successfully. We started off the year 2004 with two 5-year benchmark bonds in euros and US-dollars and have issued a number of other public bonds and bond increases. In this edition of up.date we have compiled some facts and figures on our long-term funding and on our plans for the year Since the end of January we have begun to issue KfW ParNotes, which are a product specifically designed for European retail investors. The notes are issued on a weekly basis at current market conditions and are easy to assess for the investor. A detailed description will be given below. At the end of January, as in every year, the KfW Banking Group presented first figures on the business development in the year You will find some extracts in the News Ticker. In conclusion, I would like to inform you of our new newsletter service. In the future we will be able to inform you swiftly about important news and developments by sending a short . You may register with our newsletter service on our homepage under Investor Relations / Newsletter. KEY FIGURES FOR THE KFW BANKING GROUP (in EUR billion) I. KfW Mittelstandsbank (KfW SME Bank) 10,8 9,1 9,1 Loan financing 9,6 8,4 7,8 of which Unternehmerkredit 2 7,8 5,7 4,7 Global loans within Germany/trade industry 1,3 2,0 Mezzanine financing 0,4 0,3 1,0 Equity financing 0,8 0,4 0,3 II. KfW Förderbank (KfW Promotional Bank) 17,6 20,4 27,7 Housing investments 8,4 10,3 15,4 ofwhich Global loans within Germany/housing industry 1,4 3,8 Education 0,2 0,7 0,8 Municipal infrastructure 3,2 3,0 4,5 Environmental investments 4,2 3,7 4,0 Global loans outside Germany 1,5 1,1 1,4 Global credit lines to special state credit institutions 1,6 1,5 (Landesförderinstitute) III.KfW IPEX-Bank 12,5 10,4 11,5 IV.KfW Entwicklungsbank (KfW Development Bank) 1,6 3 1,3 1,6 V. DEG 0,4 0,5 0,5 Differences in the totals are due to rounding. 1 For the purpose of comparison, the figures of DtA for the years 2001 and 2002 have been added ex post facto. 2 As Sptember 1, 2003, the KfW SME Programme and the DtA Start-up Programme were combined to create a new product - the Unternehmerkredit, or entrepreneurial loan - including the variants Leasing, Abroad, Working Capital, and GuW Loans (start-up and growth financing). 3 Excluding loan to the Poverty Reduction and Growth Facility of the IMF (2001: EUR 1,430 million). 4 Included in the total financing volume as comprehensive support by the KfW Bankengruppe (KfW Banking Group). 5 Preliminary balance-sheet total before certification by the auditor Securitizations 5,2 20,1 21,9 of which Promise 2,7 7,8 3,5 Provide 2,5 12,3 18,4 Investment finance in Germany and Europe 33,7 49,6 58,6 Industry, telekommunications, raw materials 3,6 4,3 3,7 Energy, environmental technology 2,4 1,5 1,9 Transport and transport infrastructure 6,3 4,6 5,9 Total financing volume 48,3 3 61,7 72,3 Environmental and climate protection 4 6,9 6,1 7,4 Funds raised 38,6 53,9 50,7 Group balance-sheet total Enjoy the reading! Gerhard Lewark Treasurer der KfW

4 Successful Course Pursued in the Capital Market in 2003 and Continuity in 2004! In the year 2003, too, the Euro and US-dollar benchmark programmes were a major pillar of KfW s capital market activities accounting for approximately 40% of the funding volume. Since their launch in 2001 they have developed into a real surrogate for sovereign bonds and as evidenced by the start of the year 2004 can be placed any time also in a volatile environment. Under the benchmark programmes a total volume in the equivalent of EUR 20.5 billion was issued in The Euro Benchmark Programme accounted for EUR 15 billion of this amount and the US $ Program for USD 6 billion. KfW s funding in 2003 by currencies Currency in EUR bn in % Euro US dollar Japanese yen Pound sterling Other Total Roughly one third of KfW s funding requirement was covered by other public bonds. The most prominent issues were the first largevolume callable bond for EUR 1 billion, the broadly noticed EUR 5 billion KfW bonds exchangeable into shares of Deutsche Telekom AG and the EUR 1.15 billion KfW bonds exchangeable into shares of Deutsche Post AG (value date in January, 2004). Not so much the center of focus, but just as important for KfW, are the tailor-made private placements. In this segment we raised funds in the equivalent of around EUR 11 billion in These private placements are a combination of highest credit quality and fast reaction to market trends and as such meet with growing interest from investors. With these three main pillars KfW has been able to achieve a first-class standing and for this reason the year 2004 will be marked, above all, by continuity. For the current year we expect a continued high funding requirement of altogether EUR 50 to 55 billion. As in 2003, KfW intends to issue bonds worth at least EUR 20 billion under the two benchmark programmes. We are planning again to launch three Euro benchmark bonds, one of which with a 5-year term and one with a 10-year term. The minimum issue amounts will be EUR 5 billion for maturities of up to 5 years and EUR 3 billion for longer maturities. Increases, if any, will amount to at least EUR 1 billion per transaction. This slight modification allows us to adjust our bond offers to demand from investors. KfW s funding in 2003 by instruments As for our US$ Programme, as in the past, the bonds issued will have a minimum amount of USD 3 billion for maturities of up to 5 years and a minimum of USD 2 billion for longer maturities. Increases will also have a volume of at least USD 1 billion. As regards the different currencies in which we issue, we will continue the very balanced tapping of the international capital markets of the last years. As far as we can say today, we intend to raise 40 % to 50 % in Euro, 35 % to 45 % in US dollar and 10 % to 15 % in other in EUR bn in % Bonds and notes of which: benchmark bonds of which: other public bonds of which: bonds exchangeable into shares of Dt. Telekom AG of which: private placements Loans of which: credit-linked notes of which: other Total currencies. But depending on variable factors, such as exchange rates, these plans might be altered in the course of the year.

5 KfW expands its range of instruments: Since January 2004 KfW ParNotes are issued on a weekly basis Under this new programme KfW will offer retail investors at least one issue of notes at current market conditions every week. KfW ParNotes are issued every Monday and may be subscribed in a denomination of EUR 1,000 until Friday noon of that week. The respective issue prices and yields fixed on Monday stay constant over the week, which means sufficient scope for decision-making and high planning reliability for investors. The weekly issue volume of the ParNotes depends on the subscription orders received so that every investor is allocated the full number and amount of KfW ParNotes requested. Payment date for the subscribed notes is Wednesday of the following week. this group of investors a direct and permanent access to the primary market. In addition, they meet the demands of retail investors because they are transparent and easy to assess. As all other bonds and notes issued by KfW, the ParNotes are also guaranteed by the Federal Republic of Germany and, thus, offer private investors highest security. The weekly issue of KfW ParNotes is implemented via the internet platform COINS of Deutsche Bank AG. Besides Deutsche Bank AG, DZ Bank in the cooperative sector and WestLB in the savings bank sector have been commissioned KW ParNotes are an experiment in two respects: First, KfW enters new territory by issuing notes exclusively for retail investors and, second, the ParNotes are a new product in the European capital market. Thus, for the time being it is difficult to make any statement about the volumes of KfW ParNotes to be issued. However, we can definitely say that in the future as well the lion s share of KfW s funding volume will be raised in the capital market with the instruments we have used up to now. Further information is available under in the Investor Relations section. KfW ParNotes: Weekly Procedure Monday Tuesday Wednesday Thursday Friday MONDAY- FRIDAY Subscription orders are colleted via the COINS trading platform MONDAY KfW determines the details of the current issue of KfW ParNotes The subscription period starts WEDNESDAY Payment date for ParNotes issued in the previous week (T+3) FRIDAY The subscription period ends at noon The volume of the issue is determined on the basis of the final number of orders placed With its ParNotes KfW ventures into new territory. So far, KfW bonds were not specifically directed at European retail investors. The participation of private investors in KfW benchmark issues and other public placements was rather moderate. In general, public issues were mostly placed with institutional investors and private investors had to buy notes in the secondary market. Against this background and in view of the expectation that private investors will increasingly demand fixed-income securities in the next few years, KfW ParNotes offer with selling KfW ParNotes. At the European level KfW has so far cooperated with ABN Amro, Barclays, CSFB and UBS. Customers of other credit institutions also have the opportunity to buy KfW ParNotes since every bank may register with the COINS platform and, thus, may directly order ParNotes for its customers. Any interested retail investors should contact the client advisers of the banks and savings banks for further information. It is not possible for retail investors to order KfW ParNotes directly from the COINS platform or from the KfW Banking Group.

6 WSTICKER FROM THE NEWSTICKER FROM THE NEWSTICKER FR DYNAMIC DEVELOPMENT OF PROMOTIONAL LOANS IN GERMANY The volume of commitments in the field of investment finance in Germany and Europe reached a total of EUR 58.6 billion in the year 2003, marking an increase over the prior year of just under one-fifth. Above all promotional lending in Germany saw a significant rise. Compared to the commitment figures of KfW and DtA in 2002, lending increased by 26.2% to EUR 33.8 billion. The area of housing finance was the main contributing factor to this positive development. KFW IPEX-BANK KfW IPEX-Bank combines the business areas of project and corporate finance in Germany and international export and project finance. Since the beginning of 2004 KfW IPEX-Bank has started to operate as a legally dependent bank within the bank. As from the year 2008 it will be a legally independent subsidiary of the KfW Banking Group and will be subject to the German Banking Act (KWG) and to banking supervisory laws. At the end of 2003 new commitments made by KfW IPEX-Bank amounted to EUR 11.5 billion, EUR 6.1 billion of which were for project and corporate financings in Germany and EUR 5.4 billion for projects in other countries. Following the issue of KfW's EUR 5 billion bonds exchangeable into shares of Deutsche Telekom, which won the IFR Award 2003 for the best European Equity-Linked Issue of the Year, this is yet another innovative step in the area of privatisation. In November 2003 KfW again acquired large packages of Deutsche Post and Deutsche Telekom shares for a purchase price of EUR 5.5 billion from the German government. TRUE SALE INITIATIVE In December 2003 the True Sale Initiative (TSI), which is a joint undertaking by cooperative banks, commercial banks, the Sparkassen- Finanzgruppe and the KfW Banking Group, laid down the structure of the planned platform, under which true sale securitisations can be carried out under German law in the future. Currently TSI works on the swift implementation of this business model. SYNTHETIC SECURITIZATION In 2003 commercial loans of EUR 3.5 billion were securitised under the PROMISE securitisation platform (2002: EUR 7.7 billion). In addition, housing loans with a total volume of EUR 18.4 billion were securitised under the PROVIDE securitisation programme (2002: EUR 12.3 billion). SUCCESSFUL CONTINUATION OF THE PRIVATISATION OF GOVERNMENT HOLDINGS In December KfW continued the privatisation of Deutsche Post AG by bringing a combination of a share placement and an exchangeable bond placement onto the capital market. The transaction with a total volume of EUR 2.15 billion was directed at institutional investors and generated high demand. For the first time, KfW used the socalled accelerated bookbuilding method for the sale of the shares, which it had acquired from the German government under a holding arrangement. 5.7% of the share capital of Deutsche Post AG worth EUR 1 billion was placed on the market. The bonds exchangeable into Deutsche Post shares had a volume of EUR 1.15 billion and a term of 3 years. KER FROM THE NEWSTICKER FROM THE NEWSTICKER FROM

7 OM THE KfW Bankengruppe Palmengartenstraße 5-9, Frankfurt am Main Phone , Fax Investor Relations Horst Seissinger Phone , Fax Press Office Capital Markets: Nathalie Drücke Phone , Fax WHAT OUR BONDS STAND FOR. Transparency Liquidity Performance März Quality E