KRIF INTERIM REPORT. Management fees MSIM is entitled to fees for acting as manager of KRIF.

Transcription

1 MACQUARIE SHINHAN INFRASTRUCTURE MANAGEMENT KOREAN ROAD INFRASTRUCTURE FUND INTERIM REPORT FOR THE PERIOD ENDED JUNE 30, 2004 Disclaimer MSIM is the manager of. MSIM is owned by a Macquarie Bank Limited subsidiary, Macquarie Internationale Holdings Ltd, Shinhan Bank and Shinhan Capital Co., Ltd ( Shinhan ). Investments in are not deposits with or liabilities of Macquarie Bank Limited, or any member in the Macquarie Bank Group ( Macquarie ) and are subject to investment risk, including possible delays in repayment and loss of income and capital invested. Neither MSIM, nor Macquarie guarantees the performance of, the repayment of capital or the payment of a particular rate of return on securities. This interim report is only for information purposes and will not override the various reports produced as required under legislation which should be the prevailing documents for legal reporting purposes. Advice warning This interim report is not an offer or invitation for subscription or purchase of or a recommendation of securities. It does not take into account the investment objectives, financial situation and particular needs of the investor. Before making an investment in, the investor or prospective investor should consider whether such an investment is appropriate to their particular investment needs, objectives and financial circumstances and consult an investment adviser if necessary. Management fees MSIM is entitled to fees for acting as manager of. Financial statements The financial statements have been prepared by Abrain Fund Services, s fund administrator, to enable to comply with its obligations under the Securities Investment Company Act and satisfy the requirements of Korean generally accepted accounting standards. This interim report includes the financial statements and audit report for for the period ended June 30, Directory Macquarie Shinhan Infrastructure Management Co., Ltd. 9th Floor, Hanwha Building 110 SokongDong, ChungKu Seoul, , Korea Telephone (Korea) Telephone (int l) Facsimile krif@macquarie.com Website: INTERIM REPORT 02 Representative Director s Report 04 Half Year In Review 06 New Acquisitions Portfolio Review Kwangju 2nd Beltway, Section 1 DaeguBusan Expressway 09 Incheon International Airport Expressway 10 Asset Locations 11 Portfolio Summary Asset Weightings Asset Profiles 12 Net Asset Value Analysis Net Asset Value Growth Net Asset Value Summary 13 Statutory Auditor Report / Financial Statements

2 Representative Director s Report The Korean Road Infrastructure Fund s In March, 2004, completed the The period also saw some strong payment schedule of current and future ( ) portfolio of toll road project financing documents for traffic increases at Incheon revenue guarantee payments owed. investments now includes interests in 6 toll roads, tunnels and bridges around South Korea. In the six months to June 30, 2004, s strategy has remained the same: to acquire, operate and develop toll road concessions. project and became the first financial investor to participate in a greenfield toll road project in Korea. s total investment in this project, through equity and subordinated debt funding, is KRW International Airport Expressway compared to the first half of acquired 25% of the shares of New Airport Hiway Co., Ltd. ( NAHC ), the concession holder of Incheon International Airport Expressway, in s initial traffic levels were significantly below original estimates due to the sharp increase in the toll rate upon commencement (from KRW 800 to KRW 2,000) Throughout this period, the staff of Macquarie Shinhan Infrastructure Management Co., Ltd ( MSIM ) have continued to evaluate new toll road opportunities and enhance the value of s portfolio of assets. This has included optimisation of s project financing structures, the overseeing of project development, construction programs and tolling operations, and the negotiation of agreements and contracts with Government bodies and other counterparties. In April, MSIM held a seminar and conference series for the shareholders of. These sessions informed shareholders about s acquisition program and asset management initiatives. These sessions also enabled shareholders to share their views on s current activities and future direction. Portfolio review experienced several key events during the past half year period: As at June 30, 2004, s total investment commitments including acquisition expenses stood at KRW 469 billion, representing 74 % of investors total capital commitments of KRW billion. This was an increase from KRW 241 billion of investment commitments (including acquisition expenses) as at December 31, billion to be injected/drawn down over the 50month construction period. Construction commenced in April 2004 and is currently on schedule. has completed two equity and subordinated debt injections as of June 30, Also in March 2004, acquired 99.2% of one of the strongest private toll road concessions in Korea, being that of in Busan, for KRW125.4 billion. The Tunnel has been operating above the concession s revenue support level from the government for a number of years. Traffic and revenue figures during the first half of 2004 continue to make the Tunnel one of the best performing toll road concessions in Korea. The project was acquired without the use of third party senior debt and produces particularly strong cash yields for. December 2003 for KRW 114 billion, with the transaction subject to final government approval. Traffic at Kwangju 2nd Beltway, Section 1 has been lower than expected during the first half of 2004 with adjacent construction works and macroeconomic influences such as rising oil prices thought to be having particular effect. Revenue levels are however guaranteed by Kwangju Metropolitan City ( KMC ) and shortfalls will be compensated in due course. As at June 30, 2004, the revenue guarantee payment for 2002 with respect to this project is still outstanding from KMC. However significant progress has been made in the negotiations with KMC and payment is expected in the next financial year. The agreement with KMC is expected to provide a tighter imposed by Seoul Metropolitan City ( SMC ). Together with the project s sellers, continues to negotiate new concession agreement terms with SMC, with a favourable outcome expected in the next financial year. will not complete this transaction until satisfactory terms have been negotiated. As at June 30, 2004 the net interest that has accrued on s converting bonds in DaeguBusan Expressway Co., Ltd. ( DBEC ) is KRW 2.14 billion. The project construction remains on schedule and the road is due to open in February Financial Highlights The company produced a net profit of KRW billion for the fiscal period ended June 30, During the June fiscal period, issued new shares to investors to raise an additional KRW 143 billion in capital. As at June 30, 2004, s share capital was KRW 333 billion with 65,290,905 shares issued. will be paying shareholders a dividend of KRW billion for the fiscal period ended June 30, At the Ordinary General Shareholders Meeting ( GSM ) to be held on September 10, 2004, shareholders will vote on the issuance of the dividend. The dividend will then be paid to shareholders within a month of being approved. MSIM Developments Mr Richard Timbs of Macquarie Bank in Sydney has been supporting MSIM as Head of Investments. Mr Timbs has worked in Macquarie Bank s infrastructure team since He brings a strong track record of having completed deals in Korea and globally. MSIM and are fortunate to have him committed to securing and executing more toll road investment transactions. Outlook In the period to December 31, 2004, will be particularly focussed on: Completing the fourth fund raising program scheduled to close in July. Completing new investments into additional PPI concessions in Korea to broaden and strengthen s existing portfolio. Ensuring the best possible operational and financial management of s existing interests. Enhancing revenue growth through review of traffic and implementation of technology upgrades; and Appointing a new Independent Director to to further enhance the culture of strong and independent corporate governance. The Boards of and MSIM are confident of s ability to maintain its strategy of growth in the Korean market and performance in relation to its existing portfolio of infrastructure assets. On behalf of the Board of Directors of, I would like to thank the shareholders for their continuing support. Yours faithfully, Nick van Gelder Representative Director Korean Road Infrastructure Fund 2 INTERIM REPORT 2004 MACQUARIE SHINHAN INFRASTRUCTURE MANAGEMENT MACQUARIE SHINHAN INFRASTRUCTURE MANAGEMENT INTERIM REPORT

3 Half Year in Review 2FEBRUARY 3MARCH 1 Kwangju Beltway Investment Co., Ltd ( ) completed and funded the remaining ancillary works on the Kwangju 2nd Beltway, Section 1 that started in the second half of Replacement of cables, improvements to CCTV camera coverage, slope stability works and improvements to outdoor structures were all undertaken and successfully completed. JANUARY Construction progress of the DaeguBusan Expressway reached the milestone of being 60% complete. The cost and construction programmes were both in line with the project s schedule. The Expressway is expected to be completed by February On February 28, signed an exclusive sale and purchase agreement for the acquisition of the CheonanNonsan Expressway, an 81 km toll road that has been operating since There are several outstanding conditions precedent to this transaction in s favour and s Investment Committee will be provided with full details of this investment in due course. On March 10, completed the acquisition of 99.2% of the equity in and subordinated debt of Ltd, the concessionaire of the, in Busan. KRW billion was invested by into this project with a mix of shareholder s loans (predominant) and equity. On March 10, held a GSM to approve the financial statements and the payment of dividends in relation to the fiscal period ended December 31, On March 12, signed the financing documents to provide 49% of the equity and all of the subordinated debt required to fund the development of the project. After receiving approval from shareholders at the GSM held in March, dividends amounting to KRW 3.2 billion in relation to the fiscal period ending December 31, 2003 were paid to shareholders on March 19, held its 2004 seminar in Miyazaki, Japan during APRIL the third and fourth weekends of April. Investors participated in discussion sessions and presentations along with MSIM staff. Investors provided important comments during the various sessions that will be applied in s future business endeavours. On April 15, MCB Co., Ltd. ( MCB ), the concessionaire of, officially commenced construction of the project. 6 JUNE The first drawdown from equity and debt providers was successfully completed on June 1, with MSIM working closely with MCB and the lenders to ensure that the conditions precedent were completed on time. On June 23, NAHC, the concessionaire of the Incheon International Airport Expressway, received a payment of KRW 105 billion from the Ministry of Construction and Transportation for the revenue shortfall experienced during INTERIM REPORT 2004 MACQUARIE SHINHAN INFRASTRUCTURE MANAGEMENT MACQUARIE SHINHAN INFRASTRUCTURE MANAGEMENT INTERIM REPORT

4 New Acquisitions Asset Data On March 10, 2004 purchased a 99.2 % interest in the equity and subordinated debt of Co., Ltd. ( BTL ), the owner of the concession right to the Baekyang Tunnel in Busan. Date Purchased by Asset Class, Location March 10, 2004 Toll tunnel, Busan cash compensation on terms to be agreed. BTL has also begun to review how it can make its tolling operations more efficient and more advanced. Transtoll Co., Ltd of Australia, an expert company in tolling technology, reviewed BTL s operations in April and has made several recommendations that are to be implemented. Electronic tolling is also being evaluated in consideration of Korea Highway Corporation s national roll out of its own system. Asset Data On March 12, 2004, signed the credit facilities agreement, which signalled the successful completion of financing for the project. is both an equity investor and a subordinated lender to MCB (the concessionaire) for KRW billion and KRW billion respectively. s investment into the project will be drawn down over the 50 month construction period. % equity owned by Investment cost (including transaction costs) Project Enterprise Value Investment (Equity & Subdebt) Toll Revenue (from January 1 June 30, 2004) Relevant Authority 99.2 % KRW billion KRW billion KRW billion KRW 8.28 billion Busan Metropolitan City Government Distributions As anticipated at the time of investment into BTL, distributions to have begun with interest payments in relation to s loan to BTL. As of June 30, 2004 has received KRW 4.07 billion in interest payments from BTL. Valuation The valuation of s investment in BTL on June 30, 2004 is KRW billion. The valuation is at cost, and does not reflect any revaluation or capitalised investment costs. Date of Investment Commitment by Asset Class, Location Nature of Investment Investment cost (total commitment up to completion and including sponsor takeout and investment costs) Project Enterprise Value (upon completion) Senior Debt (including standby facility) Subordinated Debt Equity (Sponsors 51%, 49%) Government subsidy March 12, 2004 Toll bridge, Masan Bay, Gyungsangnamdo Equity and Subordinated Debt KRW 58.2 billion KRW billion KRW billion KRW billion KRW billion KRW billion 2004 Performance Since being acquired by in March 2004, Baekyang Tunnel s operations have continued smoothly. Monthly revenue Outlook Traffic is expected to continue to grow throughout The Tunnel is heavily patronised by regular commuter traffic. Total Contract cost (incl. Construction, Design) 2004 Revenue Revelant Authority KRW billion Expected completion and commencement of operation in 2008 Gyungsangnamdo Provincial Government for 2004, up to June 30, has been steady and is slightly above the cumulative revenue collected during the first half of In accordance with the concession agreement, BTL is performing above the revenue guarantee level and is not expected to receive any government support. The Tunnel is one of the strongest performing private toll road assets in Korea. Given the relatively fixed nature of operating costs, traffic and revenue increases have resulted in a strong operating margin and based on future traffic growth, this should continue to improve. Looking forward, the Tunnel is expected to benefit from the opening of the DaeguBusan Expressway in early Progress The project commenced construction on April 15, As of June 30, 2004, two drawdowns have been completed with KRW 999 million in equity funding and KRW 1.35 billion in subordinated loans being provided. This represents approximately 2.95% of s equity and subordinated debt commitments throughout the construction period. On June 2, 2004 MCB made an underwriting fee payment to of KRW 3.5 billion in relation to the subordinated debt facility provided by for this project. Valuation The total valuation of the equity held by and subordinated debt extended to MCB on June 30, 2004 is KRW billion. The valuation is at cost, and does not reflect any revaluation. Operation and maintenance costs are fixed with a contract between BTL and Daewoo Engineering and Construction, which is backtoback subcontracted to Korea Road Management, a Daewoo subsidiary. Business Initiatives Management s focus since acquisition has been on developing key relationships, particularly with Busan Metropolitan City ( BMC ). Following joint discussions, BMC is expected to approve BTL s request to receive compensation payments for the applicable toll rates that have not been increased for the 2004 period. This is expected to take the form of BTL receiving and the senior lenders to the project have retained the services of an independent engineer to review the progress, work schedules, bills of quantities and quality of construction throughout the construction period of 50 months. Distributions During the construction period, MCB is scheduled to make payment of 50% of the interest bearing on the subordinated debt facility provided by. These interest payments are to be made in quarterly instalments. As of June 30, 2004, has not received any distributions from MCB. The first payment of subordinated debt interest is expected on September 1, Outlook Stage 1 of construction of the project progresses in line with expectations and project completion is expected by February Stage 2 design has been approved by the design supervisor and has been reviewed by the independent engineer. The design was submitted to the relevant authority, Gyungsangnamdo Provincial Government in July will look to increase its holding in MCB through further acquisitions of equity from current sponsors upon completion of construction. 6 INTERIM REPORT 2004 MACQUARIE SHINHAN INFRASTRUCTURE MANAGEMENT MACQUARIE SHINHAN INFRASTRUCTURE MANAGEMENT INTERIM REPORT

5 Portfolio Review Kwangju 2 nd Beltway, Section 1 Incheon International Airport Expressway 2004 started well with January revenue up 11% from 2003, however periodic inclement weekend weather (weekends are generally peak days) combined with ongoing construction work at the Hyoduk IC and macroeconomic influences dampened toll revenue during the first half of Toll revenue collected at the end of June 30 is at the same level as one year ago, with annual revenue guaranteed each year by the Kwangju City Government for the duration of the concession. The construction work at the Hyoduk IC, which is at the entrance to the feeding road to Section 1, continues to hamper traffic throughput. The construction relates to Section 3 of the Kwangju 2nd Beltway, which will link to Section 1. The completion of this connecting infrastructure is expected to increase traffic on Section 1. has been engaged in long negotiations with KMC in regards to the revenue support that is entitled to for the revenue shortfall of the 2002 fiscal year. Newly revised guidelines in regards to private participation in infrastructure in Korea have placed new discussion items in front of the parties, although substantial progress has recently been made. is very confident that negotiations will be completed in the next financial period and this will be accompanied with a clear structure and process for future revenue support payment mechanisms. The Ministry of Construction and Transportation ( MOCT ) is still processing the approval of the share transfer for s purchase of 25 % of the equity in NAHC, the concessionaire to the Incheon International Airport Expressway. On June 23, 2004, NAHC received a revenue guarantee payment of KRW 105 billion from MOCT for the revenue shortfall of the 2003 financial year. This was significantly higher than the amount forecasted at acquisition, due to conservative assumptions, and has improved the project s return profile for. For the period from January 1 to June 30, 2004, NAHC collected approximately KRW billion in toll revenue. At the end of April 2004, received KRW 1.8 billion for the first quarter interest payment on the subordinated debt facility extended to NAHC. Despite the MOCT having still not technically approved s purchase of NAHC shares from Korea Teachers Credit Union ( KTCU ), continues to enjoy the benefits of its shareholding through the conditions and terms as set out in the sale and purchase agreement with KTCU. DaeguBusan Expressway DaeguBusan Expressway is still under construction. Progress continues in line with work schedules and completion is still expected by February Construction was 65.37% complete as of June 7, The net interest accrued on s converting bonds as of June 30, 2004 is KRW 2.14 billion. plans to schedule a site visit and review by an independent engineer in the next financial period. Parsons Brinckerhoff conducted the original physical due diligence when acquired the converting bonds in DBEC and they will revisit the various work sites along the alignment to review construction completion and check work and cost schedules. The transaction is still under escrow as final concession agreement terms are yet to be finalised between SMC and the sellers. Prior to opening, SMC increased the toll rate to KRW 2,000 for all vehicles which has caused traffic to drop considerably below original base case expectations. continues to participate in and monitor the concession agreement negotiations. s acquisition of Woomyunsan Development Company (the concessionaire) shares from sellers will be completed upon being satisfied with the revised terms, which is anticipated to be reached early in the next financial period. 8 INTERIM REPORT 2004 MACQUARIE SHINHAN INFRASTRUCTURE MANAGEMENT MACQUARIE SHINHAN INFRASTRUCTURE MANAGEMENT INTERIM REPORT

6 Asset Locations Portfolio Summary Incheon International Airport International Airport Expressway Expressway Airport International Incheon Kimpo Incheon KyonginExpressway Seoul Beltway 2nd Kyongin Expressway Incheon International Airport Expressway Kangbyon Highway 88 Olympic Expressway Buch'on Anyang 88 Olympic Expressway Seoul National University Kangbyon Highway Express Bus Terminal Kyongbu Expressway Seoul Nat'l Univ. Education Express Bus Terminal Yangjae IC Asset Weightings as at June 30, % 34% Kwangju 2nd Beltway, Section 1 DaeguBusan Expressway Chonju Namwon Kwanak Mountain Kwach'on Anyang 6% 9% 9% 10% 1% Incheon International Airport Expressway Cash and Other Honam Expressway Kakwa Bridge IC Section 5 Kwangju Airport Kwangju World Cup Stadium Mokpo Section 3 Kwangju Kwangju 2nd Beltway, Section 1 Section 1 Sunch'on Kimch'on Daegu Chinju Kuma Expressway Masan NamhaeExpressway Chungang Ex pressway Milyang Kyongbu Expressway DaeguBusan Expressway Pohang Ulsan Kimhae Busan Asset Profiles Asset Kwangju 2 nd Beltway, Section 1 DaeguBusan Expressway Location Kwangju, Chollanamdo DaeguBusan, Gyeongsangnam do Seoul Description Operating toll road Under construction Operating toll tunnel Enterprise value (KRW billion) 191 1, Notes s stake 100% 6.5%* 36% Incheon International Airport Expressway SeoulIncheon Operating toll road 1, % Kaya Naeso ChangWon Busan Operating toll tunnel % Masan Bay, Gyungsangnamdo Under construction %** Kwangnyosan Mountain Masan Chinhae Notes 1. Enterprise value forecast following capital injection to finance payment of 2nd instalment (March 2005). 2. Enterprise value forecast upon expected construction completion (February 2006). 3. Enterprise value on date of prepayment. Acquisition subject to government approvals and satisfaction of purchase terms and conditions precedent. 4. Enterprise value on date of prepayment. Acquisition subject to government approvals. 5. Enterprise value forecast upon expected construction completion (June 2008). * currently holds converting bonds which will, subject to the satisfaction of conditions precedent, convert into equity in 2008, representing a 6.5% stake in DBEC. **As at June 30, Equity stake to be increased throughout construction period to 49% upon completion. 10 INTERIM REPORT 2004 MACQUARIE SHINHAN INFRASTRUCTURE MANAGEMENT MACQUARIE SHINHAN INFRASTRUCTURE MANAGEMENT INTERIM REPORT

7 KOREAN ROAD INFRASTRUCTURE FUND Net Asset Value Analysis Net Asset Value Growth * Korean Road Infrastructure Fund Statutory Auditor Report and Financial Statements 4th fiscal period: From January 1, 2004 to June 30, rd fiscal period: From July 1, 2003 to December 31, 2003 CONTENTS PAGE Statutory Auditor Report 14 Financial Statements *Net asset value per share calculated as at the end date of each fiscal period Balance Sheet 15 Profit and Loss Statement 16 Distribution Statement 16 Supplementary Schedules 17 Notes to the Financial Statements 18 Net Asset Value Summary January 1, 2004 to June 30, 2004 Opening Net Asset Value Acquisition and Related Costs Increase in Cash Balance Accrued Income Increase in Borrowings & Other Liabilities Distribution Closing Net Asset Value KRW 193,742,580, ,348,123,449 19,698,122,282 7,523,763,091 (3,819,359,237) (3,221,838,762) 347,271,391,711 Macquarie Shinhan Infrastructure Management Co., Ltd. is the manager of Korean Road Infrastructure Fund (the Fund ). No member of the Macquarie Bank Group guarantees the performance of the Fund, the repayment of capital or the payment of a particular rate of return on the shares of the Fund. This report is not an offer or invitation for subscription or purchase, or a recommendation of securities. It does not take into account the investment objectives, financial situation and particular needs of the investor. Before making an investment in the Fund, the investor or prospective investor should consider whether such an investment is appropriate to their particular investment needs, objectives and financial circumstances and consult an investment adviser if necessary. Macquarie Shinhan Infrastructure Management Co., Ltd., as manager of the Fund, is entitled to fees for so acting. Macquarie Bank Limited and its related corporations, together with their officers and directors, may hold shares in the Fund from time to time. This report is an English translated version of the original audited financial statements prepared in Korean by Abrain Fund Services, s fund administrator, to assist the reader in their review and is prepared in accordance with auditing standards generally accepted in the Republic of Korea. Accordingly, the following audit report and the accompanying financial statements are for use by readers who are knowledgeable of Korean accounting principles or auditing standards and their application in practice. 12 INTERIM REPORT 2004 MACQUARIE SHINHAN INFRASTRUCTURE MANAGEMENT MACQUARIE SHINHAN INFRASTRUCTURE MANAGEMENT INTERIM REPORT

8 KOREAN ROAD INFRASTRUCTURE FUND KOREAN ROAD INFRASTRUCTURE FUND Statutory Auditor Report To the shareholders and Directors of the Korean Road Infrastructure Fund ( ). As the statutory auditor of, I have audited the financial statements for the 4th fiscal year from January 1, 2004 to June 30, 2004 in compliance with the Securities Investment Company Act, Article 52 and applicable Presidential Decree Article Summary of Audit Procedures The audit procedures included examination of accounting records and related documents, financial statements and supplementary schedules to the financial statements. Generally accepted auditing procedures were adopted, including comparison, investigation and enquiry as was deemed necessary. To audit the management of the business, appropriate procedures were performed by reviewing and conducting a detailed examination of the Board of Directors Meeting Minutes and documents in relation to significant business issues. Note that in the course of conducting this audit no limitations or impediments were encountered whilst performing the necessary audit procedures of comparison, investigation and enquiry to the accounting records. 2. Accounting Records The entries in the accounting records are presented fairly and in conformity with applicable regulations and the Articles of Incorporation. Furthermore, the balance sheet and profit and loss are in agreement with the accounting book entries. Accounts Assets Ⅰ. Invested assets 1. Cash & cash equivalents 2. Loan 3. Stocks 4. Bonds Ⅱ. Others 1. Interest receivable 2. Receivables 3. Prepayments 4. Prepaid expenses Balance Sheet 4th Fiscal Period: as at June 30, rd Fiscal Period: as at December 31, th Fiscal Period 3rd Fiscal Period 263,552,251,079 65,544,334,517 16,706,877, ,593, ,625,742,000 33,263,741,000 2,219,632,042 50,000,000 32,000,000,000 32,000,000, ,763,773, ,423,519,863 5,243,259,103 1,004,003,215 8,658,554,418 5,374,047,215 84,909,870, ,780,478,058 6,952,089,196 2,264,991, Financial Statements There were no changes to accounting policies adopted in preparing the current fiscal period financial statements. The financial statements correctly represent s asset position and profit and loss position in accordance with applicable regulations and the Articles of Incorporation. 4. Directors Duties No irregular practices were identified in relation to the Board of Directors performing their duties, during the audit of the management of the business. Total Assets Liabilities 1. Borrowings 2. Payables 3. Deposits 4. Custodian fee payable (Note 3) 5. Sales agent fee payable (Note 3) 6. Manager fee payable (Note 3) 7. Administrator fee payable (Note 3) 8. Other expenses payable 9. Interest payable 369,316,024, ,967,854,380 13,241,632,395 12,671,521,095 6,680,342,931 5,189,793, ,804,535 3,118 38,354,388 9,050,109 7,982,064 1,736,390 1,213,092, ,669,578 39,702,378 10,055, ,373,746 15,389,560 5,347,895 14,054,540 Total Liabilities 22,044,632,729 18,225,273,492 August 20, 2004 Korean Road Infrastructure Fund Byung Ik Kim, Statutory Auditor Shareholders Equity 1. Issued capital (Note 1) (No. of shares as at the end of the 4th fiscal period: 65,290,905 ) 2. Accumulated profit before disposal Net profit for 4th Fiscal Period: KRW 13,754,746,935 Net profit for 3rd Fiscal Period: KRW 3,528,366,068 Total Shareholders Equity Total Liabilities & Shareholders Equity 333,383,837, ,520,742,126 13,887,554,207 3,221,838, ,271,391, ,742,580, ,316,024, ,967,854,380 The accompanying notes form part of these financial statements. 14 INTERIM REPORT 2004 MACQUARIE SHINHAN INFRASTRUCTURE MANAGEMENT MACQUARIE SHINHAN INFRASTRUCTURE MANAGEMENT INTERIM REPORT

9 KOREAN ROAD INFRASTRUCTURE FUND KOREAN ROAD INFRASTRUCTURE FUND Ⅰ. Revenue 1. Interest income 2. Other income Profit and Loss Statement Accounts Ⅱ. Expenses 1. Manager fee (Note 3) 2. Custodian fee (Note 3) 3. Sales agent fee (Note 3) 4. Administrator fee (Note 3) 5. Other expenses (Note 4) 6. Interest on borrowings 4th Fiscal Period: January 1, 2004 to June 30, rd Fiscal Period: July 1, 2003 to December 31, th Fiscal Period 3rd Fiscal Period 17,163,941,183 4,372,446,387 13,663,941,181 4,371,852,387 3,500,000, ,000 3,409,194, ,080,319 2,003,546, ,687,944 65,549,250 14,799,351 13,579,568 2,759,394 68,767,103 16,443, ,347, ,923, ,404, ,466,046 Ⅵ. Net Profit/(Loss) (Profit per share: KRW243.86) (Note 6) 13,754,746,935 3,528,366,068 The accompanying notes form part of these financial statements. 4th Fiscal Period: January 1, 2004 to June 30, 2004 Resolution date (GSM): September 10, 2004 Accounts Ⅰ. Accumulated Profit before disposal 1. Profit/(Loss) carried forward from previous periods 2. Discount on new shares issued carried forward from previous period (Note 1) 3. Net Profit Ⅱ. Disposition 1. Distribution Ⅲ. Profit/(Loss) carried forward Distribution Statement 3rd Fiscal Period: July 1, 2003 to December 31, 2003 Resolution date (GSM): March 10, th Fiscal Period The accompanying notes form part of these financial statements. 3rd Fiscal Period 13,887,554,207 3,221,838,762 (306,527,306) 132,807,272 13,754,746,935 3,528,366,068 13,887,554,207 3,221,838,762 13,887,554,207 3,221,838, Asset Holdings Supplementary Schedules 4th Fiscal Period: as at June 30, 2004 Accounts Holdings Remarks Cash & cash equivalents Loans Stocks Bonds Interest receivable Prepayments Prepaid expenses Receivables Total Assets MMDA (Shinhan Bank ) Subtotal Subordinated Loan Working Capital Facility Incheon Expressway Subordinated Loan Subordinated Loan Subordinated Loan Subtotal Subtotal DaeguBusan Convertible Bond Subtotal MMDA Loans Loans Loans Loans Convertible Bond Interest deferred Subtotal Woomyunsan share purchase Incheon share purchase CheonanNonsan Expressway Subtotal Shinhan Bank arrangement fee Scott Wilson Nairn traffic forecasting fee Parsons Brinckerhoff engineering consulting fee PwC tax advisory service fee PwC financial model review fee SMFA advisory service fee Shin & Kim legal advisory fee Transfield Services asset management consulting fee acquisition related costs acquisition related costs Subtotal Interest on loan Guarantee fee Subtotal 16,706,877,037 16,706,877,037 31,950,000,000 1,313,741,000 53,600,001, ,408,000,000 1,354,000, ,625,742,000 50,000,000 1,018,539,175 1,151,092,867 2,219,632,042 32,000,000,000 32,000,000,000 16,675,676 18,046,742 1,265,547, ,503,671 22,257,534 2,140,586, ,641,301 5,243,259,103 21,788,943,974 62,957,194, ,732,640 84,909,870, ,214,997 43,135,128 83,685,238 11,085,840 9,749,882 1,543,012, ,949,004 8,671,024 1,283,699,406 3,277,886,268 6,952,089,196 8,258,554, ,000,000 8,658,554, ,316,024,440 Incheon Baekyang Machang Shinhan Bank Incheon Baekyang Machang DaeguBusan DaeguBusan DaeguBusan DaeguBusan DaeguBusan DaeguBusan DaeguBusan DaeguBusan DaeguBusan Machang Baekyang 16 INTERIM REPORT 2004 MACQUARIE SHINHAN INFRASTRUCTURE MANAGEMENT MACQUARIE SHINHAN INFRASTRUCTURE MANAGEMENT INTERIM REPORT

10 KOREAN ROAD INFRASTRUCTURE FUND KOREAN ROAD INFRASTRUCTURE FUND 2. Liability Holdings 3. Fees Borrowings Payables Deposits Notes to the Financial Statements 4th Fiscal Period: January 1, 2004 to June 30, 2004 Accounts Holdings Remarks Fees payable Other expenses payable Interest payable Total Liabilities Shinhan Bank Loan Subtotal acquisition costs Woomyunsan share purchase costs Incheon Expressway share purchase costs Fund closing costs Other Subtotal Subscription refund Arrangement fee Subtotal Custodian Sales Agent Manager Fund Administrator Subtotal Salary VAT on manager fees Subtotal Interest payable (Shinhan Bank) Subtotal 13,241,632,395 13,241,632,395 3,334,767, ,962,176 2,388,754,500 2,890,000 1,968,819 6,680,342,931 4, ,800, ,804,535 38,354,388 7,982,064 1,213,092,397 39,702,378 1,299,131,227 64, ,309, ,373,746 5,347,895 5,347,895 22,044,632,729 Macquarie Internationale Holdings Ltd. Incheon Expressway 1. General (1) was incorporated on December 12, 2002 under the Securities Investment Company Act ( SICA ). As at June 30, 2004 the share capital is KRW 333,384 million and the total number of shares issued is 65,290,905 (2) Changes to Share Capital during the current period Classification Dates No. of new shares issued Issue price per share Increase/ (Decrease) Share Capital after change 3rd Fiscal Period Closing 37,696, ,520,742,126 Discount on new shares issued from 2nd Fiscal Period (Note) Share issuance Share issuance Share issuance ,010,990 3,186,216 21,397,378 5, , , (132,807,272) 15,498,950,584 16,496,983, ,999,968, ,387,934, ,886,885, ,383,869, ,383,837,504 (Note): Share capital in the 2nd fiscal period was reported at the original issue price rather than the net asset value( NAV ). As a result, this overstatement in share capital caused a decrease in retained earnings by the amount of discount on new shares. This period an adjustment is made to share capital so that it is reported at the NAV and retained earnings reflects the actual accumulated retained earnings for the period. 2. Significant Accounting Policies s financial statements are prepared in accordance with SICA and Korean Generally Accepted Accounting Principles. The following significant accounting policies have been adopted in the preparation of the financial statements: (1) Securities: As at the end of this fiscal period, all shares held are unlisted shares and are valued at acquisition price plus any related transaction costs. (2) Bond: As at the end of this fiscal period, bonds held are convertible bonds in DaeguBusan Expressway Co., Ltd and are valued at acquisition price. (3) Prepaid Expenses: Transaction costs related to asset acquisitions are classified as prepaid expenses and are amortised proportionally over the expected life of the asset. (4) Interest Income: s interest income is recognised on an accrual basis. (5) Dividend: Dividend amount is paid upon shareholders approving the issuance of the dividend at the General Shareholders Meeting. Before the approval of the dividend payment, the amount is reflected in retained earnings. Pursuant to relevant service provider agreements, pays custodian fees, management fees, fund administrator fees and sales agent fees. The details are as follows. (1) Management Fee: Manager receives 1.30% per annum (net of VAT) of invested capital (comprising funds invested in company assets or firmly committed to be invested in company assets in relation to infrastructure business) less service provider fees, inflation adjusted from the date of acquisition or commitment of each company asset and paid quarterly in arrears. Current fiscal period movements in invested capital are shown below. (Unit: KRW 000s) (2) Custodian: 0.045% per annum of the average balance of the Net Asset Value is paid in arrears on a quarterly basis. (3) Fund administrator: 0.03% ~ 0.05% p.a. of the average balance of the Net Asset Value. Paid quarterly in arrears. (4) Sales agent fee: 0.01% p.a. of the average balance of the Net Asset Value attributable to its sales ratio. Paid quarterly in arrears. 4. Other expenses (1) Details of other expenses of KRW 846,347,020 accrued for the 4th fiscal period are as follows. (Unit: KRW 000s) Items Sub Total Remarks VAT on Management Fee Amortized prepaid expenses DaeguBusan Expressway Legal advisory fee Tax advisory fee Entertainment Salary Advertisement Other administration expenses Total 5. Related Party Transactions Current period related party transaction details and relevant closing liabilities are shown below. (Unit: KRW 000s) SMFA SMFA SMFA MSIM Goodmorning Shinhan Securities Shinhan Bank Shinhan Bank 6. Earnings per Share (1) Number of ordinary shares issued Calculation Methodology: Weighted average number of shares = Total accumulated shares/number of days = 10,256,511,204 shares/182 days = 56,403, shares (2) Net Profit: KRW 13,754,746,935 (3) Earnings Per Share: KRW 13,754,746,935/56,403, shares = KRW Macquarie Shinhan Infrastructure Management Acquisition related costs Acquisition related costs Acquisition related costs Shin & Kim, Kim & Chang PwC seminar Includes investment Committee transportation fee Publication of fiscal year end report, public notice of financial statement in newspaper, etc Miscellaneous expenses 18 INTERIM REPORT 2004 MACQUARIE SHINHAN INFRASTRUCTURE MANAGEMENT MACQUARIE SHINHAN INFRASTRUCTURE MANAGEMENT INTERIM REPORT Items Shares Loan to (1st) Commitment to DaeguBusan Convertible Bonds Loan to (2nd) Incheon International Airport Expressway Total Counterparties No. of shares 270,587 54,964 5,527 applicable to current period management fee calculation Assets purchased Commitments Sum Transaction 50,000 31,950,000 32,000,000 1,313,741 20,301, ,977, ,390,000 10,000 2,353, ,345, , , ,295 13,640 31,362 11,916 8,135 5, ,347 Advisory fee () Advisory fee (Incheon Expressway) Advisory fee () Management fee (VAT included) Sales agent fee Custodian fee Interest on borrowings Opening 37,696,321 Increase 27,594,584 13,000,000 17,235,967 98,482, ,718,847 incurred this period 3,032,722 2,203,901 13,580 65, ,405 50,000 31,950,000 13,000,000 49,235,967 1,313,741 20,301, ,977, ,390,000 10, ,835, ,064,208 Closing Liabilities Expenses payable Fees payable Decrease 951,962 2,388,754 3,032,722 5,348 Start date of fee calculation 2003/01/ /03/ /03/ /09/ /12/ /12/ /12/ /03/ /03/ /05/28 Closing 65,290,905 1,334,402 7,982 38,354