up.date Capital Market Activities in the 1st Half-Year 2005 Social Responsibility/Sustainability Conference News for Investors. July 2005.

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2 up.date News for Investors. July Capital Market Activities in the 1st Half-Year 2005 Social Responsibility/Sustainability Conference

3 Dear Readers, e.ditorial In the present issue of our investor magazine we have summed up the highlights of the first six months of the year 2005 and offer you a mid-year review. The first half of the year 2005 was very eventful! First, some details on our funding activities: as of June 30 we had launched more than 200 individual transactions worth almost EUR 30 billion in the capital markets. The Euro was able to assert its position as the dominant issuing currency, and structured bonds increasingly gained importance. In the first article of this edition we give you a detailed overview of our funding activities in the course of the first six months of the year. As part of our investor relations activities in the last few weeks we organised our first conference on the subject of Social Responsibility/Sustainability, which was targeted at investors and analysts interested in sustainable investments. During this oneday conference we presented a variety of measures introduced by KfW Bankengruppe across all business units to pursue the aim of sustainable development. This edition also contains an article providing further information on the conference. As usual, this update offers you "News from the Ticker, which will inform you about major events that occurred in the different business units of KfW Bankengruppe in the last few months. If you require any additional information on the various topics our investor relations team and myself will be glad to assist you. I hope you enjoy the reading! Dr. Frank Czichowski Treasurer of KfW Capital Market Activities in the 1st Half-Year 2005 In the first six months of the current year KfW borrowed longer-term funds of EUR 28.7 billion under 216 individual transactions in the international capital markets. KfW s funding activities are based on three stable pillars: Altogether, in the first half of 2005 almost 44% of the funds were raised under the first pillar, KfW s Euro and US dollar Benchmark Programmes, and 43% with other public bonds denominated in various currencies, which is the second pillar. Private placements, the third pillar, accounted for 11%, and creditlinked securities in connection with asset securitisation contributed 2% so far. In the conduct of its capital market activities KfW offers investors continuity and reliability. Since 2001 and 2002, respectively, the EUR and USD Benchmark Programmes have become a major source of refinancing for KfW. Under these two programmes KfW regularly issues bonds with benchmark maturities in global format. Specific features are the high volumes of the bonds issued and the liquid secondary market. This first pillar is the strategic key element of KfW s funding. In the first half of 2005 we were able to further supplement the yield curves of outstanding KfW bonds for both major currencies. KfW successfully placed a 5-year and a 10-year bond in the amount of EUR 4 billion each as well as a 3-year and a 5-year bond in the total amount of USD 5 billion. The second pillar of KfW s funding, which comprises other public funds outside of the benchmark programmes, accounted for a volume equivalent to EUR 12.2 billion or 43% in the first half of The total amount is composed of a large number of individual bonds with different currencies, volumes and structures. Such transactions make it possible for KfW to adjust to changing trends in the capital market, to meet special investor requirements and to address new investors. Due to the strong interest in the Euro we issued bonds in this currency which partly had new structures, for instance a 30-year bond in the amount of EUR 500 million, which is callable for the first time after seven years and thereafter can be called on a yearly basis. Accordingly, the Euro was able to expand its position as KfW s main funding currency. Together with the two EUR benchmark bonds securities issued in EUR amounted to approximately EUR 15.5 billion, thus accounting for more than half of total funding volume in the first six months of the year. Issues denominated in US dollars (USD) made up one fourth of the funding volume in the first half of Thus, their share declined

4 KfW s Funding Instruments Plan 2005: EUR billion Benchmark Programmes (EUR & USD) Large-volume bonds in global format (SEC - registered) Benchmark maturities scheduled issue volumes - EUR: 3-5 billion - USD: 2-3 billion (for maturities > 5 Ys at least USD 1 billion) Public bonds (without Benchmarks) Bonds in global format (SEC- registered) Public bonds under the KfW-Note and KfW-Kangaroo-Programmes Private placements Bonds under the KfW-Note-Programme As of June 30, 2005: EUR 12.7 billion EUR 12.2 billion Share at June 30, 2005: 44% 43% Annual share (planned): 35% - 40% 45% - 50% EUR 3.2 billion 11% 10% - 20% compared with However, the relative decline is partly due to the EUR-USD exchange rate, which rose against the previous year. With a share of approx. 11% in the total funding volume the pound Sterling (GBP) remained in third place as an issue currency, in front of the Japanese yen (JPY), which accounted for just over 2% of the funding volume. The demand for KfW bonds denominated in Australian dollars (AUD), Canadian dollars (CAD) and New Zealand dollars (NZD) was also high in the last few months. For instance, in February KfW was able for the first time to place a socalled Kiwi Global with a volume of NZD 300 million in the market very successfully. KfW is also active in emerging currency areas. In January, for instance, KfW for the first time issued a bond denominated in Turkish lira (TRY), which has been increased eight times and now has a total volume of TRY 300 million. Altogether by the end of June, these currencies not belonging to the four main funding currencies accounted for 7% of the funding of KfW. In the interest of investors, we now issue many bonds that belong to the second pillar of our funding instruments through a syndicate of banks, which means that at least two lead managers take over responsibility. Since such bonds have larger volumes and several banks are involved, a higher liquidity in the secondary market is ensured. This further increases the attractiveness of the bonds issued outside of our benchmark programmes. Often investors need tailor-made bonds for their portfolios. We offer highly structured bonds and notes in different currencies in the form of private placements for these investors. These private placements are the third pillar of KfW s funding. In comparison with previous years the volume of bonds issued under this third pillar in the first half of 2005 is relatively low, accounting for 11% of the total funding volume. The main reason is that due to the changing market situation call options for bonds issued in the past have not been exercised and in consequence investors did not have any need for followup investments. Accordingly, the focus in the first six months of the year 2005 shifted more towards public bonds issued outside of the benchmark programmes. Funding Outlook The 3-pillar model has proved very valuable in the last few years and offers KfW the flexibility at any time to respond actively to a changing market environment and in this way to master the challenges in the funding area in the second half of The first half of the year was marked by subdued demand for promotional loans due to the weak cyclical activity and by the abovementioned decline in the exercise of call options under bonds. Against this background KfW will reduce its funding target for 2005 to EUR 45 to 50 billion. KfW s funding by currency (as of June 30, 2005) Currency in EUR billion in % EUR USD GBP JPY 7 other currencies Total

5 Social Responsibility/Sustainability Conference On June 16, 2005 KfW Bankengruppe for the first time held a conference for investors and analysts on the subject of Social Responsibility/Sustainability. Recently KfW has noticed that socially responsible investors (SRI) show an increasing interest in its bonds. When buying securities these investors do not only pay attention to economic aspects, such as the return, but also want to be sure that the funds that they invest are used in an ecologically and socially compatible manner. They put their money in so-called sustainable investments. Besides the investors, rating agencies that grant sustainability ratings have already had a closer look at KfW and assigned a positive rating to KfW bonds. Studies on the development of the market for sustainable investments unanimously come to the result that the demand for sustainable investments has been growing in recent years and that this trend will continue in the future. In an analysis the European Business School identified 105 European funds (38 pension funds and 67 mixed funds) with a total investment volume of EUR 13 billion, which had made sustainable investments. 20 of these funds hold KfW bonds. This makes KfW one of the most popular sustainable investments in Europe. In the long-term we expect this segment of the capital market to grow further, not least because legislators in many countries want to support the idea of sustainability. This was reason enough for KfW to present its activities in the field of sustainability at a one-day conference in mid-june, to which investors and analysts from German-speaking countries who deal with sustainable investments had been invited. Experts from KfW Bankengruppe presented their notions on the subject of social responsibility/sustainability and the measures adopted Dr. Frank Czichowski welcomes conference participants in the different areas of business. The main focus of the conference was on the presentation of the environmental management system and the environmental guidelines of KfW Bankengruppe as well as the resulting environmental and social guidelines of KfW Entwicklungsbank (KfW development bank) and KfW IPEX-Bank. The guidelines were illustrated with concrete examples. The presentation of the domestic promotional programmes of KfW Bankengruppe was particularly impressive. Some examples: 8% of all loan commitments made by KfW in domestic investment finance in 2005 were for investments in renewable energies". In 2004, one in three wind power plants in Germany was financed by KfW. The concepts of the KfW 40 house and the KfW 60 house set standards for the construction of low-energy houses and KfW Bankengruppe made a significant contribution to the development of the market for photovoltaic systems. Another topic dealt with during the meeting was the support given by the KfW Carbon Fund to implement the Kyoto Protocol. Soft topics, for instance human resources policy, occupation and family, social sponsoring and in-house environmental protection were also discussed. With the Conference on Social Responsibility/Sustainability KfW Bankengruppe for the first time tried to draw a comprehensive picture of the ecological and social activities of the group. It was already widely known that KfW has a lot to offer in this area. Still, many participants were deeply impressed by the extent of the activities conducted in all subsidiaries and areas of KfW Bankengruppe and by the prominent position which KfW Bankengruppe holds in Germany in this area. Further information on this topic is available in the Internet under -> Socially Responsible Investors. If you have questions, please contact Dr. Solveig Pape (solveig.pape@kfw.de) from our investor relations team.

6 STICKER FROM THE NEWSTICKER FROM THE NEWSTICKER FRO SUCCESSFUL PLACEMENT OF DEUTSCHE POST AG SHARES. In June KfW successfully placed million Deutsche Post AG shares worth a total of approx. EUR 2.4 billion from its holdings at a price of EUR per share with institutional investors. The lead managers for the transaction were Deutsche Bank AG, Goldman Sachs International and UBS Limited. As a result of the share placement and the complete exercise of the greenshoe option, the number of Deutsche Post shares held by KfW decreased from million shares to million shares. This represents approximately 37.4% of the capital stock of Deutsche Post AG. Due to the transaction the percentage of shares in private ownership rose to over 55%. PRIVATISATION OF DEUTSCHE TELEKOM AG: EXERCISE OF WARRANTS. In the second quarter of 2005 KfW s share holding in Deutsche Telekom AG decreased by about 22.5 million shares to million shares through the exercise of the first tranche of warrants issued in October As a result, KfW now holds approximately 14.8% of the capital stock of Deutsche Telekom AG. KFW IPEX-BANK FINANCES LARGEST POWER STATION OF THE UNITED ARAB EMIRATES. In the United Arab Emirates KfW IPEX-Bank signed the financing agreements for the construction of the largest power plant complex ever in the country s history at the end of April. The total project volume amounts to over USD 3 billion. The debt financing of USD 2.1 billion for the project was arranged and structured by KfW IPEX- Bank together with three other international banks. The remaining financing share will be provided by a group of investors under the lead of the Japanese Marubeni Corporation together with the state-owned Abu Dhabi Water and Electricity Company (ADWEC). The gas-fired power plant known as Taweelah B has a total capacity of 2,000 megawatt and will be built by Siemens AG. The Taweelah B project is already the third power plant project since 2001, that has been implemented in Abu Dhabi with the active involvement of KfW IPEX-Bank. KFW ENTWICKLUNGSBANK IN THE UNITED NATIONS YEAR OF MICROCREDIT. Together with several international partner institutions KfW Entwicklungsbank (KfW development bank) held a conference entitled "New Partnerships for Innovation in Microfinance" in Frankfurt am Main on June 23 and 24, The conference is part of the European contribution to the UN Year of Microcredit. At the conference discussions were held, among others, on how to open up new paths and opportunities in the areas of refinancing and equity endowment of microfinance institutions. The conference was the first event of its kind worldwide to present and discuss experience gained in the securitisation of micro-loans. Due to its long-standing experience KfW Entwicklungsbank is one of the leading banks worldwide supporting microfinance institutions and cooperates with 84 partners in 37 countries in the field of microfinance. CKER FROM THE NEWSTICKER FROM THE NEWSTICKER FROM T

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