Equity Oc - Meg 2006

Megaworld Corporation(incorporated under the laws of the Republic of the Philippines)

Primary and Secondary Offer of 3,923,166,000 Common Shares

Offer Price of P=1.38 per Offer Share

This International Offering Circular relates to the offer of 3,923,166,000 common shares (the ‘‘Firm Offer’’, and suchshares, the ‘‘Firm Shares’’) of common shares, par value P=1.00 per share (the ‘‘Shares’’) of Megaworld Corporation, acorporation organized under Philippine law (‘‘Megaworld’’ or the ‘‘Company’’). The Firm Shares will comprise (i)3,500,000,000 new Shares to be issued and offered by Megaworld by way of a primary offer (the ‘‘Primary Offer’’, and suchShares, the ‘‘Primary Offer Shares’’) as further described below and (ii) 423,166,000 existing Shares offered by Colony-CBRichard Ellis MW, L.P. (the ‘‘Selling Shareholder’’) pursuant to a secondary offer (the ‘‘Secondary Offer, and such Shares,the ‘‘Secondary Offer Shares’’). The Company will not receive any of the proceeds from the sale of the Firm Shares beingsold by the Selling Shareholder. The Firm Shares shall be offered at P=1.38 per Firm Share (the ‘‘Offer Price’’).

3,727,008,000 of the Firm Shares (the ‘‘International Offer Shares’’) are being offered and sold outside the Philippines andthe United States through the Lead Manager in reliance on Regulation S (‘‘Regulation S’’) under the United States SecuritiesAct of 1933, as amended (the ‘‘U.S. Securities Act’’) (the ‘‘International Offer’’).

196,158,000 of the Firm Shares (the ‘‘Domestic Offer Shares’’) are being offered by the Selling Shareholder at the OfferPrice to all of the trading participants of the PSE (the ‘‘PSE Brokers’’) in the Philippines (the ‘‘Domestic Offer’’). The SellingShareholder, a non-Philippine National, will sell and The Andresons Group, Inc. (‘‘TAGI’’), a Philippine National, willpurchase 300,000,000 Domestic Block Sale Shares (as defined herein) at the Offer Price on the Listing Date and on the sameterms and conditions as the Firm Shares. The Domestic Block Sale will provide leeway for the ownership of Shares by non-Philippine Nationals. The closings of the Domestic Offer, the Domestic Block Sale and the International Offer areconditional upon each other. The allocation of the Offer Shares between the Domestic Offer and the International Offer issubject to adjustment. In the event of an under-application in the International Offer and if there is a corresponding over-application in the Domestic Offer, International Offer Shares may (at the option of the Domestic Underwriter) bereallocated from the International Offer (with the consent of the Lead Manager) to the Domestic Offer.

The Firm Shares will be delivered in book-entry form against payment therefor to the Philippine Depository and TrustCorporation (‘‘PDTC’’) on or about April 24, 2006.

See ‘‘Risk Factors’’ on page 15 and ‘‘Additional Risk Factors’’ on page W-15 to read about factors investors shouldconsider before making an investment in the Offer Shares.

The Company has granted UBS AG, the Stabilizing Agent, an option exercisable in whole or in part within 30 days from thedate of listing and when trading of the Company’s Offer Shares commences on the PSE (the ‘‘Listing Date’’), to purchase upto an additional 588,475,000 Shares at the Offer Price (the ‘‘Optional Shares’’, and together with the Firm Shares, the‘‘Offer Shares’’), on the same terms and conditions as the Firm Shares as set forth in this International Offering Circular,solely to cover over-allotments, if any (the ‘‘Over-Allotment Option’’). The offer of the Firm Shares, including the OptionalShares, is referred to as the ‘‘Offer’’. The Optional Shares will be sold as part of the International Offer. See ‘‘Plan ofDistribution’’.

The Offer Shares have not been registered under the U.S. Securities Act and are being offered and sold within the UnitedStates only to persons outside the United States in reliance on Regulation S under the U.S. Securities Act. The Offer Sharesoffered hereby are not transferable except in accordance with the restrictions described under ‘‘International Plan ofDistribution’’ and ‘‘Transfer Restrictions’’.

Sole International Underwriter and Sole Book Runner

The date of this International Offering Circular is April 6, 2006.

STRICTLY CONFIDENTIAL

This International Offering Circular includes and incorporates the prospectus for the DomesticOffer of the Offer Shares in the Philippines (the ‘‘Philippine Prospectus’’) and references to theInternational Offering Circular are to this document together with the incorporated PhilippineProspectus. Investors should read the entire International Offering Circular, including theincorporated Philippine Prospectus, before making an investment decision with regard to theOffer Shares.

IMPORTANT

If investors are in any doubt about this International Offering Circular, they should consult theirstockbroker, bank manager, legal counsel, professional accountant or other professional advisor.

This International Offering Circular is confidential. Investors are authorized to use thisInternational Offering Circular solely for the purpose of considering the purchase of the OfferShares of the Company offered pursuant to this International Offering Circular. The Company hasprovided information contained in this International Offering Circular which also includesinformation from other identified sources which are believed to be reliable. This InternationalOffering Circular does not purport to be all-inclusive or to necessarily contain all the informationthat an investor may desire in investigating the Company or necessary to make an informedinvestment decision regarding the Offer. The Lead Manager makes no representation or warranty,express or implied, as to the accuracy or completeness of such information, and nothing containedin this International Offering Circular is, or should be relied upon as, a promise or representationby the Lead Manager. Investors may not reproduce or distribute this International OfferingCircular, in whole or in part, and may not disclose any contents of this International OfferingCircular or use any information herein for any purpose other than considering an investment in theOffer Shares offered hereby. Investors hereby agree to the foregoing by accepting delivery of thisInternational Offering Circular.

The Offer Shares have not been registered under the U.S. Securities Act for offer or sale as part oftheir distribution and may not be offered or sold in the United States. The Offer Shares are nottransferable except in accordance with the restrictions described herein. See ‘‘International Plan ofDistribution’’ and ‘‘Transfer Restrictions’’.

OFFERS AND SALES OF THE OFFER SHARES ARE SUBJECT TO RESTRICTIONS INRELATION TO THE EUROPEAN ECONOMIC AREA, THE UNITED KINGDOM,SINGAPORE, THE HONG KONG SPECIAL ADMINISTRATIVE REGION, AUSTRALIA,CANADA, FRANCE, JAPAN, ITALY, SWEDEN, IRELAND, BELGIUM, LUXEMBOURG,FINLAND, NORWAY, THE UNITED ARAB EMIRATES AND DENMARK. DETAILS OFSUCH RESTRICTIONS ARE SET FORTH IN THE SECTION OF THIS INTERNATIONALOFFERING CIRCULAR ENTITLED ‘‘INTERNATIONAL PLAN OF DISTRIBUTION’’. THEDISTRIBUTION OF THIS INTERNATIONAL OFFERING CIRCULAR AND THE OFFER OFTHE OFFER SHARES IN CERTAIN OTHER JURISDICTIONS MAY ALSO BE RESTRICTED BYLAW.

No person has been authorized to give any information or to make any representations other thanthose contained in this International Offering Circular and, if given or made, such information orrepresentations must not be relied upon as having been authorized. This International OfferingCircular does not constitute an offer to sell or the solicitation of an offer to buy any securitiesother than the securities to which it relates or an offer to sell or the solicitation of an offer to buysuch securities by any person in any circumstances in which such offer or solicitation is unlawful.Neither the delivery of this International Offering Circular nor any sale made hereunder shall,under any circumstances, create any implication that there has been no change in the affairs of theCompany since the date hereof or that the information contained herein is correct as of any timesubsequent to its date.

THE INTERNATIONAL OFFER IS BEING MADE ON THE BASIS OF THIS INTERNATIONALOFFERING CIRCULAR ONLY. ANY DECISION TO PURCHASE OFFER SHARES IN THEINTERNATIONAL OFFER MUST BE BASED ON THE INFORMATION CONTAINEDHEREIN.

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The distribution of this International Offering Circular and the offering and sale of the OfferShares in certain jurisdictions may be restricted by law. The Company and the Lead Managerrequire persons into whose possession this International Offering Circular comes to informthemselves about and observe any such restrictions. For a further description of certain restrictionson the International Offer and sale of the Offer Shares, see ‘‘International Plan of Distribution’’and ‘‘Transfer Restrictions’’ contained in this International Offering Circular.

Each subscriber of Offer Shares is deemed to instruct and authorize the Company and/or the LeadManager (or their respective agents or nominees) to execute any transfer forms, contract notes orother documents on its behalf and to do on its behalf all things necessary to effect the registrationof any Offer Shares allocated to it or the PDTC, as the case may be, as required by the Company’sArticles of Incorporation and otherwise to give effect to the arrangements described in thisInternational Offering Circular.

A registration statement relating to the Offer Shares has been filed with the Securities andExchange Commission of the Philippines (the ‘‘Philippine SEC’’) in accordance with the SecuritiesRegulation Code of the Philippines (Republic Act No. 8799) and such registration statement willbecome effective pursuant to an Order of Effectivity issued by the Philippine SEC. The issuance ofsuch Order of Effectivity is permissive only and does not constitute a recommendation orendorsement of the securities to be offered for sale. The Philippine SEC has not approved thesesecurities or determined if this International Offering Circular is accurate or complete. Anyrepresentation to the contrary is a criminal offense and should be immediately reported to thePhilippine SEC.

The listing of the Offer Shares is subject to the approval of the Board of Directors of the PSE andthe Philippine SEC. The approval of the Board of Directors of the PSE was granted, subject to thefulfillment of certain listing conditions, on March 22, 2006. Such approvals for listing arepermissive only and do not constitute a recommendation or endorsement by either the PSE or thePhilippine SEC of the Offer Shares to be offered.

In this International Offering Circular, unless otherwise specified or the context otherwiserequires, all references to the ‘‘Philippines’’ are references to the Republic of the Philippines. Allreferences to the ‘‘BSP’’ are references to Bangko Sentral ng Pilipinas, the central bank of thePhilippines. All references to the ‘‘Government’’ herein are references to the government of theRepublic of the Philippines. All references to ‘‘United States’’ or ‘‘U.S.’’ herein are to the UnitedStates of America. All references to ‘‘Pesos’’ and ‘‘P=’’ herein are to the lawful currency of thePhilippines, all references to ‘‘U.S. dollars’’ or ‘‘US$’’ herein are to the lawful currency of theUnited States and references to ‘‘Euro’’ or ‘‘ ’’ are to the lawful currency of the European Union.

For convenience, certain U.S. dollar amounts have been translated into peso amounts, based on theprevailing exchange rate on December 31, 2005 of P=53.067 = U.S.$1.00, being the average ofbuying and selling rates of exchange for peso against U.S. dollars quoted by the Philippine DealingSystem (the ‘‘PDS Rate’’), and published in the major Philippine financial press on that date. Suchtranslations should not be construed as representations that the Philippine peso or U.S. dollaramounts referred to could have been, or could be, converted into pesos or U.S. dollars, as the casemay be, at that or any other rate or at all. For further information regarding rates of exchangebetween the peso and the U.S. dollar, see ‘‘Exchange Rates’’. Figures in this Offering Circular havebeen subject to rounding adjustments. Accordingly, figures shown for the same item of informationmay vary and figures which are totals may not be an arithmetic aggregate of their components. OnApril 6, 2006, the PDS rate was P=50.997 = U.S.$1.00.

Punongbayan & Araullo, a member practice of Grant Thornton International, independentcertified public accountants, audited Megaworld’s financial statements without qualification as ofand for the years ended December 31, 2003, 2004 and 2005, included in this InternationalOffering Circular. The 2003, 2004 and 2005 financial information herein was prepared underPhilippine Financial Reporting Standards (‘‘PFRS’’). Such financial statements are included in thisInternational Offering Circular based on Punongbayan & Araullo’s authority as independent publicaccountants.

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Unless otherwise indicated, the description of Megaworld’s business activities in this InternationalOffering Circular is presented on a consolidated basis. For further information on Megaworld’scorporate structure, see ‘‘Subsidiaries and Affiliates’’.

IN CONNECTION WITH THE OFFER, UBS AG, THE STABILIZING AGENT, OR ANYPERSON ACTING FOR UBS AG MAY OVER-ALLOT OR EFFECT TRANSACTIONS WITH AVIEW TO SUPPORTING THE MARKET PRICE OF THE OFFER SHARES AT A LEVELHIGHER THAN THAT WHICH MIGHT OTHERWISE PREVAIL FOR A LIMITED PERIOD OFTIME AFTER THE TIME OF DELIVERY. HOWEVER, THERE MAY BE NO OBLIGATION ONUBS AG OR ANY AGENT OF UBS AG TO DO THIS. SUCH STABILIZING, IF COMMENCED,MAY BE DISCONTINUED AT ANY TIME AND MUST BE BROUGHT TO AN END AFTER ALIMITED PERIOD. SEE ‘‘INTERNATIONAL PLAN OF DISTRIBUTION’’.

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TABLE OF CONTENTS

Page

International Offering Circular

Enforceability of Civil Liabilities . . . . . . W-6

Forward-Looking Statements . . . . . . . . . . W-7

Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . W-8

Summary of the Offering . . . . . . . . . . . . . W-10

Selected Consolidated FinancialInformation . . . . . . . . . . . . . . . . . . . . . . . . W-12

Additional Risk Factors . . . . . . . . . . . . . . . W-15

Dividend Policy . . . . . . . . . . . . . . . . . . . . . . W-18

Exchange Rate Information . . . . . . . . . . W-19

Transfer Restrictions . . . . . . . . . . . . . . . . . W-20

International Plan of Distribution . . . . W-21

Selling Restrictions . . . . . . . . . . . . . . . . . . . W-24

Philippine Foreign Exchange Controls W-29

Legal Matters . . . . . . . . . . . . . . . . . . . . . . . . W-30

Independent Public Accountants . . . . . . W-31

Philippine Prospectus

Glossary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4

Risk Factors . . . . . . . . . . . . . . . . . . . . . . . . . . 15

Use of Proceeds . . . . . . . . . . . . . . . . . . . . . . 23

Dividends and Dividend Policy . . . . . . . . 24

Exchange Rates . . . . . . . . . . . . . . . . . . . . . . 25

Market Price Information . . . . . . . . . . . . . 26

Determination of Offer Price . . . . . . . . . . 27

Capitalization . . . . . . . . . . . . . . . . . . . . . . . . 28

Dilution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29

Selected Consolidated FinancialInformation . . . . . . . . . . . . . . . . . . . . . . . . 30

Management’s Discussion andAnalysis of Financial Condition andResults of Operations . . . . . . . . . . . . . . 33

Industry . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45

Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59

Regulatory and Environmental Matters 83

Subsidiaries and Affiliates . . . . . . . . . . . . 87

Board of Directors andSenior Management . . . . . . . . . . . . . . . . 89

Related Party Transactions . . . . . . . . . . . 96

Principal and Selling Shareholders . . . . 97

Description of the Shares . . . . . . . . . . . . 100

The Philippine Stock Market . . . . . . . . . 108

Philippine Foreign Exchange Controls 113

Philippine Taxation . . . . . . . . . . . . . . . . . . 114

Plan of Distribution . . . . . . . . . . . . . . . . . 118

Legal Matters . . . . . . . . . . . . . . . . . . . . . . . . 121

Independent Public Accountants . . . . . . 122

Consolidated Financial Statementsand Independent Auditors’ Reports . F-1

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ENFORCEABILITY OF CIVIL LIABILITIES

The Company is organized under laws of the Republic of the Philippines. All or a substantialportion of the Company’s assets are located in the Philippines. The Company has consented toservice of process in England. It may be difficult for investors to effect service of process outside ofthe Philippines upon the Company. Moreover, it may be difficult for investors to enforcejudgments against the Company outside the Philippines in any actions pertaining to the OfferShares. In addition, substantially all of the directors and the officers of the Company are residentsof the Philippines, and all or a substantial portion of the assets of such persons are or may belocated in the Philippines. As a result, it may be difficult for investors to effect service of processupon such persons, or to enforce against them judgments obtained in courts or arbitral tribunalsoutside the Philippines predicated upon the laws of jurisdictions other than the Philippines.

The Philippines is not a party to any international treaty in relation to the recognition orenforcement of foreign judgments but is a signatory to the United Nations Convention on theRecognition and Enforcement of Foreign Arbitral Awards. Judgments obtained against Megaworldin any foreign court may be recognized and enforced by the courts of the Philippines in anindependent action brought in accordance with the relevant procedures set forth in the Rules ofCourt of the Philippines to enforce such judgment. However, such foreign judgment or final ordermay be rejected in the following instances: such judgment was obtained by collusion or fraud, theforeign court rendering such judgment did not have jurisdiction, such order or judgment iscontrary to good customs, public order, or public policy of the Philippines, the Company did nothave notice of the proceedings before the foreign court or such judgment was based upon a clearmistake of law or fact.

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FORWARD-LOOKING STATEMENTS

This International Offering Circular contains forward-looking statements that are, by their nature,subject to significant risks and uncertainties. These forward-looking statements include, withoutlimitation, statements relating to:

. known and unknown risks;

. uncertainties and other factors which may cause Megaworld’s actual results, performance orachievements to be materially different from any future results; and

. performance or achievements expressed or implied by forward-looking statements.

Such forward-looking statements are based on numerous assumptions regarding the Company’spresent and future business strategies and the environment in which Megaworld will operate in thefuture. Among the important factors that could cause some or all of the assumptions not to occuror cause actual results, performance or achievements to differ materially from those in theforward-looking statements include, among other things:

. the Company’s ability to successfully implement its strategy;

. the condition and changes in the Philippine, Asian or global economies;

. future political instability in the Philippines;

. changes in interest rates, inflation rates and the value of the peso against other currencies;

. changes in Government regulations, including tax laws, or licensing in the Philippines; and

. competition in the property industry in the Philippines.

Additional factors that could cause Megaworld’s actual results, performance or achievements todiffer materially include, but are not limited to, those disclosed under ‘‘Risk Factors’’. Theseforward-looking statements speak only as of the date of this International Offering Circular. Eachof the Company, the Selling Shareholder and the Lead Manager expressly disclaims any obligationor undertaking to release, publicly or otherwise, any updates or revisions to any forward-lookingstatement contained herein to reflect any change in the Company’s expectations with regardthereto or any change in events, conditions, assumptions or circumstances on which any statementis based.

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SUMMARY

The following summary highlights information contained in, and is qualified in its entirety by, themore detailed information (including financial information and the notes thereto) appearingelsewhere in this International Offering Circular. For a discussion of certain matters that should beconsidered in evaluating an investment in the Offer Shares, see ‘‘Risk Factors’’ on page 15 and‘‘Additional Risk Factors’’ on page W-15. Capitalised terms not described in this summary aredefined in the Glossary of this International Offering Circular.

OVERVIEW

The Company is one of the leading property developers in the Philippines and is primarily engagedin the development in Metro Manila of large scale mixed-use planned communities, or communitytownships, that integrate residential, commercial, educational/training, leisure and entertainmentcomponents. Founded in 1989, the Company initially established a reputation for building highquality residential condominiums and commercial properties located in convenient urban locationswith easy access to offices as well as leisure and entertainment amenities in Metro Manila.Beginning in 1996, in response to demand for the lifestyle convenience of having quality residencesin close proximity to office and leisure facilities, the Company began to focus on the developmentof mixed-use communities, primarily for the middle-income market, by commencing thedevelopment of its Eastwood City project. In addition, the Company engages in other property-related activities such as project design, construction oversight and property management.

The Company’s real estate portfolio includes residential condominium units, subdivision lots andtownhouses as well as office projects and retail space. The Company has the following threeprimary business segments: (i) real estate sales of residential and office developments (ii) leasing ofoffice space, primarily to business process outsourcing (‘‘BPO’’) enterprises and retail space and(iii) management of hotel operations. The Company’s total gross revenues for the year endedDecember 31, 2005 were P=4,812.2 million compared to P=4,191.2 million for the year endedDecember 31, 2004. Real estate sales of residential developments accounted for 66% of theCompany’s revenues in 2005 and 57% in 2004. The Company’s net income (excluding minorityinterest) for the year ended December 31, 2005 was P=1,153.9 million compared to P=807.7 millionfor the year ended December 31, 2004.

The Company’s current portfolio of projects comprises the following:

. Eastwood City. Eastwood City is the Company’s first community township. Eastwood Cityis located on 15 hectares of land in Quezon City, Metro Manila;

. Forbes Town Center. The Company is developing Forbes Town Center, a communitytownship located on five hectares of land in Bonifacio Global City in Taguig, Metro Manila;

. McKinley Hill. The Company is developing McKinley Hill, a community township locatedon 50 hectares of land in Fort Bonifacio in Taguig, Metro Manila;

. Newport City. The Company is developing Newport City, a community township located on25 hectares of land in the Villamor Air Base, Pasay City, Metro Manila; and

. Araneta Center. In 2005, the Company introduced development plans for the Philippines’first major mass transit-oriented residential community, which is expected to consist of 17residential condominium buildings on a four hectare site at the Araneta Center in Cubao,Quezon City.

In aggregate, the Company owns or has development rights to approximately 116 hectares of landsituated primarily in Metro Manila for its current portfolio of five major projects. Most of theCompany’s development rights were acquired through joint development agreements with the landowners while the remainder relate to land which the Company has purchased or leased.

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STRENGTHS AND STRATEGIES

The Company believes its competitive strengths consist of the following:

. Established track record as a market innovator;

. Strategic landbank;

. Sound financials with a stable earnings base and low gearing;

. Well-established brand name and reputation; and

. Strong residential marketing network.

The Company’s objective is to increase its profitability and maintain its leading position as amajor property developer in the Philippines, specifically in the middle-income residentialcondominium market and the market for BPO-related office developments. Megaworld intendsto achieve its objective through the following principal strategies:

. Maximize earnings through integrated community township developments;

. Capitalize on brand and reputation;

. Maintain a strong financial position; and

. Sustain a diversified development portfolio.

The Company was voted among Asia’s Best Property Companies by the Euromoney Best AsianCompanies Awards for 2003, 2004 and 2005. The Company also received the following awards forexcellence from Euromoney: the Philippines’ Best in Corporate Governance in 2003; among Asia’sMost Improved Companies in 2005; and among Asian Companies with the Most Convincing andCoherent Strategy in 2005. In 2004, the Company received the Agora Awards for MarketingCompany of the Year; was voted among Asia’s Best Managed Companies and the Philippines’ Bestin Investor Relations by FinanceAsia Best-managed Asian Companies Awards; and was voted thePhilippines’ Best in Investor Relations, Best Website and the Philippines’ Best in ClearestCorporate Strategy by Asia Money Polls. In addition, the Company was voted among thePhilippines’ Superbrands in the Superbrands Awards 2004/2005.

COMPANY INFORMATION

Megaworld is a Philippine corporation with its registered office located at 28th Floor, The WorldCentre, 330 Sen. Gil J. Puyat Avenue, Makati City, Philippines 1227. Megaworld’s telephonenumber is +63-2-867-8826. Its corporate website is www.megaworldcorp.com. The information onthe website is not incorporated by reference into this Prospectus.

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SUMMARY OF THE OFFERING

Issuer . . . . . . . . . . . . Megaworld Corporation, a corporation organized under the laws of theRepublic of the Philippines.

Selling Shareholder . . . . Colony-CB Richard Ellis, MW, L.P.

The Offer . . . . . . . . . Offer of 3,923,166,000 Firm Shares, consisting of 3,500,000,000 newShares to be issued and offered by Megaworld and 423,166,000existing Shares to be offered by the Selling Shareholder. 3,727,008,000of the Firm Shares are being offered and sold outside the United Statesin reliance on Regulation S under the U.S. Securities Act as part of theInternational Offer and 196,158,000 of the Firm Shares are beingoffered and sold by the Selling Shareholder at the Offer Price to all ofthe PSE Brokers as part of the Domestic Offer in the Philippines. BDOCapital will act as the Domestic Underwriter. If the PSE Brokers do nottake up all of the Domestic Offer Shares in the Domestic Offer, theDomestic Underwriter shall distribute to its clients or the generalpublic the Domestic Offer Shares which have not been taken up.

Domestic Block Sale . . . The Selling Shareholder, a non-Philippine National, shall sell300,000,000 Domestic Block Sale Shares at the Offer Price to TAGI,a Philippine National, on the Listing Date, on the same terms andconditions as the Firm Shares as set out in this Prospectus. TheDomestic Block Sale will provide leeway for the ownership of Sharesby non-Philippine Nationals. The closings of the Domestic Block Saleand the Offer are conditional upon each other.

Domestic Offer Period . The Domestic Offer is expected to commence on April 10, 2006 andend on April 18, 2006, unless shortened or extended by agreementbetween the Company and the Lead Manager, subject to the approvalof the Philippine SEC and the PSE.

Reallocation . . . . . . . . The allocation of the Offer Shares between the Domestic Offer and theInternational Offer is subject to adjustment. In the event of an under-application in the International Offer and if there is a correspondingover-application in the Domestic Offer, International Offer Shares may(at the option of the Domestic Underwriter) be reallocated from theInternational Offer (with the consent of the Lead Manager) to theDomestic Offer.

Offer Price . . . . . . . . . The Offer Price is P=1.38 per Offer Share.

Over-allotment Option . The Company has granted the Stabilizing Agent an option, exercisablein whole or in part within 30 days from and including the Listing Date,to purchase up to 588,475,000 Optional Shares at the Offer Price, onthe same terms and conditions as the Firm Shares as set forth in thisInternational Offering Circular, solely to cover over-allotments, if any.See ‘‘International Plan of Distribution’’.

Transfer Restrictions. . . The Offer Shares are being offered and sold outside the United Statesin reliance on Regulation S. The Offer Shares have not been and willnot be registered under the U.S. Securities Act and may not be offeredor sold within the United States. See ‘‘Transfer Restrictions’’ and‘‘International Plan of Distribution’’.

Use of Proceeds . . . . . . See the section headed ‘‘Use of Proceeds’’ for details of how the totalnet proceeds from the Offer will be applied.

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Nationality Restrictions . The Company owns certain real estate and, as such, it is subject tonationality restrictions found under the Philippine Constitution andother laws, limiting land ownership to Philippine Nationals. The term‘‘Philippine National’’ includes a corporation organized under the lawsof the Philippines of which at least 60% of the capital stockoutstanding and entitled to vote is owned and held by citizens of thePhilippines or by corporations that are at least 60% owned by citizensof the Philippines. The Company is thus constrained to keep its foreignequity interest below the 40% threshold and any sale or transfer ofshares in excess of this threshold shall not be recorded in the stock andtransfer book of the Company.

Lock-up . . . . . . . . . . The Company, TAGI, New Town Land and Mr. Andrew Tan have eachagreed with the Lead Manager that, other than in connection with theOver-Allotment Option and the option granted to Mr. Benedicto V.Yujuico to purchase 147 million shares of the Company owned byTAGI (the ‘‘TAGI Option’’), for a period of 180 days after the FirstClosing Date, neither it nor any person acting on its behalf will,without the prior written consent of the Lead Manager issue, offer,sell, contract to sell, pledge or otherwise dispose of (or publiclyannounce any such issuance, offer, sale or disposal of) any Shares orsecurities convertible or exchangeable into or exercisable for Shares orwarrants or other rights to purchase Shares or any security or financialproduct whose value is determined directly or indirectly by reference tothe price of the underlying securities, including equity swaps, forwardsales and options.

Listing and Trading . . . The Shares, including the Offer Shares being sold by the SellingShareholder, are listed on the PSE under the symbol ‘‘MEG’’. Approvalhas been obtained to list the newly issued Offer Shares on the PSE. See‘‘Description of the Shares’’. The Offer Shares are expected to be listedon the PSE on April 24, 2006. Trading is expected to commence on thesame date.

Dividends . . . . . . . . . The Company intends to maintain an annual cash dividend paymentratio of 20% of its net income from the preceding year, subject to therequirements of applicable laws and regulations and the absence ofcircumstances that may restrict the payment of such dividends, such aswhere the Company undertakes major projects and developments.Megaworld’s Board may, at any time, modify its dividend payout ratiodepending upon the results of operations and future projects and plansof the Company. See ‘‘Dividends and Dividend Policy’’.

Foreign InvestmentRegistration . . . . . . . The BSP requires that investments in shares of stock funded by inward

remittance of foreign currency be registered with the BSP if the foreignexchange needed to service capital repatriation or dividend remittancewill be sourced from the domestic banking system. The registrationwith the BSP of all foreign investments in the Offer Shares shall be theresponsibility of the foreign investor. See ‘‘Philippine Foreign ExchangeControls’’.

Risk Factors . . . . . . . . Prospective investors should carefully consider certain risks connectedwith an investment in the Offer Shares, as discussed in the sectionsheaded ‘‘Risk Factors’’ on page 15 and ‘‘Additional Risk Factors’’ onpage W-15.

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SELECTED CONSOLIDATED FINANCIAL INFORMATION

The following tables present summary selected consolidated financial information for Megaworldand should be read in conjunction with the auditors’ reports and with Megaworld’s consolidatedfinancial statements and notes thereto contained in this Prospectus and the section entitled‘‘Management’s Discussion and Analysis of Financial Condition and Results of Operations’’. Thesummary financial information presented below for the years ended December 31, 2003, 2004 and2005 was derived from the consolidated financial statements of Megaworld, audited byPunongbayan & Araullo, a member practice of Grant Thornton International. The 2003, 2004and 2005 financial information included in this Prospectus has been prepared in accordance withPFRS. The information below is not necessarily indicative of the results of future operations. Forreaders’ convenience only, amounts in Pesos were converted to U.S. dollars using the PDS month-end closing rate as of December 31, 2005 of P=53.067 to US$1.00.

For the years ended December 31,

Income Statement Data 2003 2004 2005 2005P= P= P= US$(in millions, except per Share figures)

Realized gross profit from real estate sales:Real estate sales . . . . . . . . . . . . . . . . . . 2,371.8 2,396.7 3,151.2 59.4Cost of real estate sales . . . . . . . . . . . . . (1,652.6) (1,694.9) (2,158.2) (40.7)

Gross profit. . . . . . . . . . . . . . . . . . . . . 719.2 701.8 993.0 18.7Deferred gross profit . . . . . . . . . . . . . . . (294.4) (381.9) (367.3) (6.9)

Realized gross profit on current year’s sales 424.8 319.9 625.7 11.8Realized gross profit on prior years’ sales . . 153.9 265.3 506.4 9.5

Rental income. . . . . . . . . . . . . . . . . . . . . 241.4 454.7 547.8 10.3Hotel income — net . . . . . . . . . . . . . . . . . 73.8 88.7 101.1 1.9Other revenues(1) . . . . . . . . . . . . . . . . . . . 627.8 1,251.0 1,012.1 19.0

Revenue . . . . . . . . . . . . . . . . . . . . . . . . 1,521.7 2,379.6 2,793.1 52.5Operating expenses . . . . . . . . . . . . . . . . . 728.1 872.8 976.9 18.4

Operating profit . . . . . . . . . . . . . . . . . . . 793.6 1,506.8 1,816.2 34.1Other (charges) . . . . . . . . . . . . . . . . . . . . (386.7) (524.3) (390.3) (7.4)

Income before tax and minority interest . . . . 406.9 982.5 1,425.9 26.7Tax expense . . . . . . . . . . . . . . . . . . . . . . 146.9 180.3 259.0 4.9Net income attributable to minority interest . . (7.2) 5.5 (13.1) 0.2

Net income (after minority interest) . . . . . . . 252.8 807.7 1,153.8 21.6

Earnings per Share . . . . . . . . . . . . . . . . . . 0.02 0.08 0.11 —

Notes:(1) Other revenues consist of interest income, dividend income, foreign currency gain and miscellaneous items.

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As of December 31,

Balance Sheet Data 2003 2004 2005 2005P= P= P= US$

(in millions)

Cash and cash equivalents(1) . . . . . . . . . . . . 2,021.1 2,688.9 2,850.3 53.7Current portion of trade and other receivables 2,708.8 2,382.1 2,751.3 51.8Marketable securities . . . . . . . . . . . . . . . . 4,753.3 4,138.4 3,599.6 67.8Residential and condominium units for sale . . 3,636.1 4,051.5 3,552.3 66.9Property development costs . . . . . . . . . . . . 1,274.3 1,193.3 1,606.2 30.3Prepayments and other current assets — net . . 226.1 377.9 619.7 11.8

Total Current Assets . . . . . . . . . . . . . . . 14,619.7 14,832.1 14,979.4 282.3Trade and other receivables . . . . . . . . . . . . 2,673.4 1,618.7 1,868.9 35.2Advances to landowners and joint ventures . . 219.3 246.0 240.6 4.5Land for future development . . . . . . . . . . . 1,010.1 1,552.9 1,784.0 33.6Investment property . . . . . . . . . . . . . . . . . 3,954.8 4,119.6 4,858.6 91.6Property and equipment. . . . . . . . . . . . . . . 788.8 696.6 785.5 14.8Other assets(2). . . . . . . . . . . . . . . . . . . . . 8,386.1 9,452.6 8,265.9 155.8

Total assets . . . . . . . . . . . . . . . . . . . . . 31,652.2 32,518.5 32,782.9 617.8

Current liabilitiesReserve for property development . . . . . . . 451.0 593.0 641.4 12.1Other current liabilities(3) . . . . . . . . . . . . 3,172.5 4,025.2 5,754.0 108.4

Non-current liabilitiesReserve for property development . . . . . . . 1,032.2 1,278.5 1,243.2 23.4Other non-current liabilities(4) . . . . . . . . . 10,967.6 9,851.5 7,269.6 137.0

Total Liabilities. . . . . . . . . . . . . . . . . . . . 15,623.3 15,748.2 14,908.2 280.9

Equity:Equity attributable to parent company’s

shareholders . . . . . . . . . . . . . . . . . . . 15,318.4 16,065.3 17,141.6 323.1Minority Interest . . . . . . . . . . . . . . . . . . 710.5 705.0 733.1 13.8

16,028.9 16,770.3 17,874.7 336.9

Total Liabilities and Equity . . . . . . . . . . . 31,652.2 32,518.5 32,782.9 617.8

Notes:(1) Cash and cash equivalents consist of cash on hand and in banks and short-term investments.(2) Other non-current assets consist of long-term placements of the non-current portion of trade and other receivables,

investments in and advances to subsidiaries and other related parties, deferred tax assets, cash, guarantee deposits,goodwill and other items.

(3) Other current liabilities include interest-bearing loans and borrowings, trade and other payables, customers’ deposits,income tax payable and deferred income on real estate sales.

(4) Other non-current liabilities include interest-bearing loans and borrowings, customers’ deposits, deferred income onreal estate sales, advances from associates and other related parties and net deferred tax liabilities.

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Other Financial Data 2003 2004 2005 2005P= P= P= US$

(in millions, except percentages)

EBITDA(1) . . . . . . . . . . . . . . . . . . . . . . . 609.5 1,360.3 1,874.5 35.3Gross margin (%)(2) . . . . . . . . . . . . . . . . . 30 29 32Capital expenditures . . . . . . . . . . . . . . . . . 3,519.3 2,562.7 3,626.8 68.3Net cash from operating activities . . . . . . . . 2,154.5 2,526.4 810.3 15.3Net cash used in investing activities . . . . . . . (2,797.0) (1,694.3) (1,311.5) (24.7)Net cash from (used in) financing activities . . 400.3 (164.2) 662.6 12.5

Notes:(1) EBITDA as used in this prospectus consists of earnings before interest income, interest expense, income tax,

depreciation and amortization. EBITDA is presented to provide a better understanding of the Company’s consolidatedoperating results. EBITDA ratios and related computations involving net earnings and equity figures were computedusing the figures attributable only to the parent company’s shareholders. EBITDA is not a measure of financialperformance under generally accepted accounting standards, including PFRS and investors should not considerEBITDA in isolation or as an alternative to operating income or net income as an indicator of the Company’soperating performance or to cash flow from operating, investing and financing activities as a measure of liquidity, orany other measures of performance under PFRS. Because there are various EBITDA calculation methods, theCompany’s presentation of EBITDA may not be comparable to similarly titled measures used by other companies.

(2) Represents gross profit as a percentage of net sales.

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ADDITIONAL RISK FACTORS

This International Offer involves certain special risks associated with investing in the Company.Prospective investors should carefully consider, in addition to the risks set out below, the risks setout under ‘‘Risk Factors’’ beginning on page 15 before investing in the Offer Shares. Certain risksnot presently known to the Company may also affect the Company’s business operations.

RISKS RELATING TO THE PHILIPPINES

Corporate governance and disclosure standards in the Philippines may differ from those in

more developed countries.

While a principal objective of Philippine securities laws and PSE listing rules is to promote full andfair disclosure of material corporate information, there may be less publicly available informationabout Philippine public companies, such as the Company, than is regularly made available bypublic companies in the U.S. and other countries. In addition, the financial statements of theCompany have been prepared in accordance with PFRS, which differ in certain material respectsfrom International Financial Reporting Standards (‘‘IFRS’’). Furthermore, although the Companycomplies with the requirements of the Philippine SEC with respect to corporate governancestandards, these standards may differ from those applicable in other jurisdictions. For example, theSRC requires the Company to have at least two independent directors or such number ofindependent directors as is equal to 20% of the Board, whichever is the lower number. TheCompany currently has three independent directors. Many other jurisdictions may require moreindependent directors.

Investors may face difficulties enforcing judgments against the Company.

The Company is organized under laws of the Republic of the Philippines. A substantial portion ofthe Company’s assets are located in the Philippines. It may be difficult for investors to effectservice of process outside the Philippines upon the Company with respect to other claimspertaining to the Offer Shares. Moreover, it may be difficult for investors to enforce outside thePhilippines judgments against the Company obtained elsewhere in any actions pertaining to theOffer Shares. In addition, substantially all of the directors and the officers of the Company areresidents of the Philippines, and all or a substantial portion of the assets of such persons arelocated in the Philippines. As a result, it may be difficult for investors to effect service of processupon such persons, or to enforce against them judgments obtained in courts or arbitral tribunalsoutside the Philippines predicated upon the laws of jurisdictions other than the Philippines. ThePhilippines is a party to the United Nations Convention on the Enforcement and Recognition ofArbitral Awards but not to any international treaty relating to the recognition or enforcement offoreign judgments. The Philippine Rules of Civil Procedure provide that a judgment or final orderof a foreign court are enforceable in the Philippines, unless there is evidence of lack of jurisdictionof the foreign court, lack of notice to the party against whom enforcement is sought, collusion,fraud, clear mistake of law or fact.

Investors may face difficulties in protecting their interests as a shareholder because the

Company is subject to Philippine corporate rules and regulations which provide significantly

fewer shareholder protections than other jurisdictions.

The Company’s corporate affairs are governed by its Articles of Incorporation and By-Laws andthe Philippine corporation law, which differ from the legal principles that would apply if theCompany were incorporated in a jurisdiction outside the Philippines. In addition, investors’ rightsor the rights of holders of the Shares under the Philippine corporation law to protect their interestsrelative to actions by the Company’s Board of Directors may be fewer and less-defined than underthe laws of those other jurisdictions.

Although insider trading and price manipulation are crimes under Philippine law, the Philippinesecurities markets are not as highly regulated and supervised as markets in certain otherjurisdictions. In addition, rules and policies against self-dealing and regarding the preservation ofshareholder interests may be less well-defined and enforced in the Philippines than elsewhere,putting holders of the Shares at a potential disadvantage.

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Investors may find it more difficult than Philippine shareholders to exercise their voting

rights at the Company’s shareholders’ meetings.

There are no provisions under Philippine law or under the Company’s By-laws, as amended, thatlimit the exercise by foreign holders of their voting rights through the Common Shares. However,there are practical, geographic and logistical limitations upon the ability of foreign holders totimely receive notice of regular or special meetings of the Company’s shareholders. Allshareholders of record may attend the Company’s shareholder meetings in person or by proxy.Under the Company’s By-laws, as amended, notices of stockholder meetings must be sent to allshareholders of record at least one week prior to the date of the meeting. However, theImplementing Rules and Regulations of the Securities Regulation Code require the Company todistribute to all shareholders of record an information statement and proxy form (in case of proxysolicitation) relating to a shareholders’ meeting at least 15 business days before the shareholders’meeting. Notices of shareholder meetings may be sent by personal delivery, mail, telegraph orcable to a shareholder’s last known postal address, or by publication in a Philippine newspaper ofgeneral circulation.

RISKS RELATING TO THE OFFER SHARES

The Company’s shares are subject to Philippine foreign ownership limitations.

The Philippine Constitution and related statutes restrict land ownership to Philippine Nationals.The term ‘‘Philippine National’’ as defined under the Republic Act No. 7042, as amended, shallmean a citizen of the Philippines, or a domestic partnership or association wholly owned bycitizens of the Philippines, or a corporation organized under the laws of the Philippines of which atleast sixty percent (60%) of the capital stock outstanding and entitled to vote is owned and heldby citizens of the Philippines, or a corporation organized abroad and registered to do business inthe Philippines under the Corporation Code of the Philippines of which one hundred percent(100%) of the capital stock outstanding and entitled to vote is wholly owned by Filipinos or atrustee of funds for pension or other employee retirement or separation benefits, where the trusteeis a Philippine national and at least sixty percent (60%) of the fund will accrue to the benefit ofPhilippine Nationals. As of the date of this Offering Circular, the Company owns private land inthe Philippines.

Considering the foregoing, as long as the Company owns land, foreign ownership in the Companyis limited to a maximum of 40% of the Company’s issued and outstanding capital stock.Accordingly, the Company cannot allow the issuance or the transfer of shares to persons otherthan Philippine Nationals and cannot record transfers in the books of the Company if suchissuance or transfer would result in the Company ceasing to be a Philippine National for purposesof complying with the restrictions on foreign land ownership discussed above. These restrictionsmay adversely affect the liquidity and market price of the Shares to the extent internationalinvestors are not permitted to purchase Common Shares in normal secondary transactions.

Shareholders may be subject to limitations on minority shareholders rights.

The obligation under Philippine law of majority shareholders and directors with respect tominority shareholders may be more limited than those in certain other countries such as the UnitedStates or United Kingdom. Consequently, minority shareholders may not be able to protect theirinterests under current Philippine law to the same extent as in certain other countries.

The Philippine Corporation Code, however, provides for minimum minority shareholdersprotection in certain instances wherein a vote by the shareholders representing at least two-thirds of the Company’s outstanding capital stock is required. ‘‘See Description of the Shares —Fundamental Matters’’. The Philippine Corporation Code also grants shareholders an appraisalright allowing a dissenting shareholder to require the corporation to purchase his shares in certaininstances. ‘‘See Description of the Shares — Rights Relating to Shares — Appraisal Rights.’’

Derivative actions are rarely brought on behalf of companies in the Philippines. Accordingly, therecan be no assurance that legal rights or remedies of minority shareholders will be the same, or asextensive, as those available in other jurisdictions or sufficient to protect the interests of minorityshareholders.

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Overseas shareholders may not be able to participate in the Company’s future rights

offerings or certain other equity issues.

Shareholders of the Company are not entitled to pre-emptive rights, such rights having been deniedin the Company’s Articles of Incorporation. If the Company offers or causes to be offered toholders of the Common Shares rights to subscribe for additional Common Shares or any right ofany other nature, the Company will have discretion as to the procedure to be followed in makingsuch rights available to holders of the Common Shares or in disposing of such rights for the benefitof such holders and making the net proceeds available to such holders.

Repatriation of dividends denominated in currencies other than Philippine pesos may be

subject to certain restrictions.

Under BSP regulations, Philippine residents may, in general, freely dispose of their foreignexchange receipts and foreign exchange may be freely sold and purchased outside the Philippinebanking system. Restrictions exist on the sale and purchase of foreign exchange within thePhilippine banking system. In particular, a foreign investment must be registered with the BSP ifforeign exchange needed to service the repatriation of capital and the remittance of dividends,profits and earnings which accrue thereon shall be sourced from the Philippine banking system. See‘‘Philippine Foreign Exchange Controls’’.

The Government has, in the past, instituted restrictions on the conversion of pesos into foreigncurrencies. The Philippine Monetary Board, with the approval of the President of the Philippines,has statutory authority, during a foreign exchange crisis or in times of national emergency, tosuspend temporarily or restrict sales of foreign exchange, require licensing of foreign exchangetransactions or require delivery of foreign exchange to the BSP or its designee. Megaworld is notaware of any pending proposals by the Government regarding such restrictions. The Governmenthas from time to time made public pronouncements of a policy not to impose restrictions onforeign exchange. Any restrictions imposed in the future pursuant to such statutory authority couldadversely affect the ability of investors to repatriate foreign currency upon sale of the Shares ordividends or distributions relating to them.

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DIVIDEND POLICY

The payment of dividends, either in the form of cash or stock, will depend upon the Company’searnings, cash flow and financial condition, among other factors. The Company may declaredividends only out of its unrestricted retained earnings. These represent the net accumulatedearnings of the Company, with its capital unimpaired, which are not appropriated for any otherpurpose. The Company may pay dividends in cash, by the distribution of property, or by the issueof shares of stock. Dividends paid in cash are subject to the approval by the Board of Directors.Dividends paid in the form of additional shares are subject to approval by both the Board ofDirectors and at least two-thirds of the outstanding capital stock of the shareholders at ashareholders’ meeting called for such purpose. No cash dividends were declared on the Company’scommon shares for 2003, 2004 or 2005. On February 28, 2006, the Board approved a cashdividend of P=0.02 per Share, payable on April 10, 2006 to shareholders on record as of March 15,2006.

The Corporation Code prohibits stock corporations from retaining surplus profits in excess of100% of their paid-in capital stock, except when justified by definite corporate expansion projectsor programs approved by the Board of Directors, or when the corporation is prohibited under anyloan agreement with any financial institution or creditor from declaring dividends without itsconsent, and such consent has not yet been secured, or when it can be clearly shown that suchretention is necessary under special circumstances obtaining in the corporation.

Megaworld declares cash dividends to shareholders of record usually in the first half of each year.These dividends are paid from unrestricted retained earnings.

The Company intends to maintain an annual cash dividend payment ratio of 20% of its net incomefrom the preceding year, subject to the requirements of applicable laws and regulations and theabsence of circumstances that may restrict the payment of such dividends, such as where theCompany undertakes major projects and developments. Megaworld’s Board may, at any time,modify its dividend payout ratio depending upon the results of operations and future projects andplans of the Company.

For more information, see ‘‘Dividends and Dividend Policy’’ and ‘‘Description of the Shares —Rights Relating to Shares’’ elsewhere in this International Offering Circular.

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EXCHANGE RATE INFORMATION

Fluctuations in the exchange rates between the peso and the U.S. dollar and other foreigncurrencies will affect the equivalent in U.S. dollars or other foreign currencies of the peso price ofthe Shares on the PSE, of dividends distributed in pesos by Megaworld, if any, and of the pesoproceeds received by investors on a sale of the Shares on the PSE, if any. Fluctuations in suchexchange rates will also affect the peso value of Megaworld’s assets and liabilities which aredenominated in currencies other than pesos.

The PDS, a computer network supervised by the BSP, through which the members of BankersAssociation of the Philippines effect spot and forward currency exchange transactions, wasintroduced in 1992. The PDS was adopted by the BSP as a means to monitor foreign exchangerates. The PDS Rate is the closing spot rate for the purchase of U.S. dollars with pesos which isquoted by PDS and published in BSP’s Reference Exchange Rate Bulletin and the major Philippinefinancial press on the following business day. On December 31, 2005, the PDS Rate was P=53.067 =U.S.$1.00. On April 6, 2006, the PDS Rate was P=50.997 = U.S.$1.00.

The following table sets out certain information concerning the PDS Rate between the peso and theU.S. dollar for the periods and dates indicated, expressed in pesos per U.S.$1.00 :

peso/U.S. dollar exchange rate

Year Period end Average(1) High Low

2001 . . . . . . . . . . . . . . . . . . . . . . . . . . 51.404 50.993 55.013 47.5502002 . . . . . . . . . . . . . . . . . . . . . . . . . . 53.096 51.604 53.841 49.3362003 . . . . . . . . . . . . . . . . . . . . . . . . . . 55.569 54.203 55.767 52.0212004 . . . . . . . . . . . . . . . . . . . . . . . . . . 56.267 56.040 56.443 55.1422005 . . . . . . . . . . . . . . . . . . . . . . . . . . 53.067 55.085 56.355 52.9952006 (through April 5, 2006) . . . . . . . . . . . 50.997 51.684 53.062 50.963

Note:(1) The average of the monthly average exchange rates during the relevant period.

Source: Reference Exchange Rate Bulletin, Treasury Department of the BSP

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TRANSFER RESTRICTIONS

As a result of the following restrictions, investors are advised to consult legal counsel prior tomaking any offer, resale, pledge or other transfer of the Offer Shares offered hereby.

The Offer is being made in accordance with Regulation S under the U.S. Securities Act. The OfferShares have not been registered under the U.S. Securities Act or with a securities regulatoryauthority of any state or other jurisdiction outside the Philippines and, accordingly, may not beoffered, sold, pledged or otherwise transferred or delivered within the United States or to, or forthe account or benefit of, U.S. persons (as defined in Regulation S) except to persons outside theUnited States in accordance with Regulation S.

Terms used in these ‘‘Transfer Restrictions’’ that are defined in Regulation S under the U.S.Securities Act are used herein as defined therein.

OFFER SHARES OFFERED OUTSIDE THE UNITED STATES

The Offer Shares have not been registered under the U.S. Securities Act and may not be offered,sold or delivered in the United States or to, or for the account or benefit of, any U.S. person,unless the Offer Shares are registered under the U.S. Securities Act or an exemption from theregistration requirements of the U.S. Securities Act is available, in each case in accordance with allapplicable securities laws of the states of the United States.

Each purchaser of the Offer Shares offered outside the United States pursuant to Regulation Sunder the Securities Act (other than in connection with the Domestic Offer) will be deemed to haverepresented, agreed and acknowledged that:

(1) It is authorized to consummate the purchase of the Offer Shares in compliance with allapplicable laws and regulations.

(2) It acknowledges (or if it is a broker-dealer acting on behalf of a customer, its customer hasconfirmed to it that such customer acknowledges) that such Offer Shares have not been andwill not be registered under the Securities Act.

(3) It certifies that either (A) it is, or at the time the Offer Shares are purchased will be, thebeneficial owner of the Offer Shares and it is located outside the United States (within themeaning of Regulation S) or (B) it is a broker-dealer acting on behalf of its customer and itscustomer has confirmed to it that (i) such customer is, or at the time the Offer Shares arepurchased will be, the beneficial owner of the Offer Shares, and (ii) such customer is locatedoutside the United States (within the meaning of Regulation S).

(4) It agrees (or if it is a broker-dealer acting on behalf of a customer, its customer has confirmedto it that such customer agrees) that prior to the expiration of 40 days after the later of thecommencement of the Combined Offer and the latest closing date, it (or such customer) willnot offer, sell, pledge or otherwise transfer such Offer Shares except (A) (i) in an offshoretransaction complying with Regulation S, (ii) pursuant to any other available exemption fromregistration under the Securities Act or (iii) pursuant to an effective registration statementunder the Securities Act and (B) in accordance with all applicable securities laws of theUnited States and any other jurisdiction, including the Philippines.

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INTERNATIONAL PLAN OF DISTRIBUTION

3,727,008,000 of the Firm Shares are being offered by the Company and the Selling Shareholder aspart of the International Offer and 196,158,000 of the Firm Shares are being offered by the SellingShareholder at the Offer Price to the PSE Brokers. The Selling Shareholder, a non-PhilippineNational, will sell and TAGI, a Philippine National, will purchase 300,000,000 Domestic BlockSale Shares.

The Company, the Selling Shareholder and the Domestic Underwriter will enter into a domesticunderwriting agreement (the ‘‘Domestic Underwriting Agreement’’) with respect to the Offer Sharesbeing offered in the Domestic Offer.

The Lead Manager and the Domestic Underwriter will enter into an orderly marketing agreementproviding for the concurrent offer and sale of the Offer Shares in the International Offer and theDomestic Offer. The Lead Manager will enter into a share purchase agreement (the ‘‘SharePurchase Agreement’’) with the Selling Shareholder in connection with the Domestic Block Sale.The closings of the International Offer, the Domestic Offer and the Domestic Block Sale areconditional upon each other and will occur concurrently.

The allocation of the Offer Shares between the Domestic Offer and the International Offer issubject to adjustment. If there is an under-application in the International Offer and acorresponding over-application in the Domestic Offer, Offer Shares in the International OfferShares may (at the option of the Domestic Underwriter) be reallocated from the International Offer(with the consent of the Lead Manager) to the Domestic Offer.

THE INTERNATIONAL OFFER

The Company and the Selling Shareholder, through the Lead Manager, are offering 3,727,008,000Firm Shares (excluding the Over-Allotment Option described below) in the International Offeroutside the Philippines and the United States in reliance on Regulation S under the U.S. SecuritiesAct.

The underwriting agreement entered into between the Company, the Selling Shareholder and theLead Manager (the ‘‘International Underwriting Agreement’’) is subject to certain conditions andmay be subject to termination by the Lead Manager if certain circumstances, including forcemajeure, occur on or before the Offer Shares are listed on the PSE. Under the terms and conditionsof the International Underwriting Agreement, the Lead Manager is committed to purchase orprocure purchasers for all of the Offer Shares to be offered in the International Offer.

The Lead Manager and its affiliates have engaged in transactions with and performed variousinvestment banking, commercial banking and other services for Megaworld and its subsidiaries andaffiliates in the past and may do so from time to time in the future. However, all services providedby the Lead Manager, including in connection with the Offer, have been provided as anindependent contractor and not as a fiduciary to the Company or the Selling Shareholder.

The Lead Manager does not have any right to designate or nominate a member of the Company’sBoard. The Lead Manager has no direct relations with the Company in terms of share ownershipand other than as Lead Manager for the Offer, it does not have any material relationship with theCompany.

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The Lead Manager will receive from the Company and the Selling Shareholder a combinedtransaction fee of 3.50% of the gross proceeds of the International Offer. Investors in theInternational Offer (but not the Domestic Offer) will be required to pay, in addition to the OfferPrice, a brokerage fee of 1.0% of the Offer Price.

Approval has been obtained for the listing of the Primary Offer Shares on the PSE. The Offer Priceis P=1.38 per Offer Share. There can be no assurance that the Offer Shares will trade in the publicmarket subsequent to this Offer at or above the Offer Price.

Indemnity

The International Underwriting Agreement provides that the Company and the Selling Shareholderwill indemnify the Lead Manager against certain liabilities.

OVER-ALLOTMENT

In connection with the Offer, the Company has granted the Stabilizing Agent an Over-AllotmentOption, which is exercisable in whole or in part for 30 days from the commencement of thetrading of the Company’s Offer Shares on the PSE to purchase up to 588,475,000 Shares on thesame terms and conditions as the Firm Shares as set forth herein. In connection therewith, theStabilizing Agent has entered into a stock borrowing agreement with the Company to borrow up toan additional 588,475,000 Shares to cover over-allocations under the International Offer. AnyShares of the Company that may be borrowed by the Stabilizing Agent under the stock borrowingagreement will be returned to the Company either through the purchase of Shares in the openmarket by the Stabilizing Agent in the conduct of stabilization activities or through the exercise ofthe Over-Allotment Option by the Stabilizing Agent.

Up to 588,475,000 Optional Shares may be over-allotted and the Stabilizing Agent may effect pricestabilization transactions for a period which shall not exceed 30 days from the Listing Date. TheStabilizing Agent may purchase Shares in the open market only if the market price of the Sharesfalls below the Offer Price. Such activities may stabilize, maintain or otherwise affect the marketprice of the Shares which may have the effect of preventing a decline in the market price of theShares and may also cause the price of the Shares to be higher than the price that otherwise wouldexist in the open market in the absence of these transactions. If the Stabilizing Agent commencesany of these transactions, it may discontinue them at any time. Once the Over- Allotment Optionhas been exercised by the Stabilizing Agent, it will no longer be allowed to purchase Shares in theopen market for the conduct of stabilization activities.

DOMESTIC BLOCK SALE

The Selling Shareholder, a non-Philippine National, will sell to TAGI, a Philippine National300,000,000 Domestic Block Sale Shares on the Listing Date at the Offer Price and on the sameterms and conditions as the Firm Shares as set forth herein. The Domestic Block Sale will provideleeway for the ownership of Shares by non-Philippine Nationals.

The Share Purchase Agreement entered into between the Selling Shareholder, the Lead Managerand TAGI is subject to certain conditions and may be subject to termination by TAGI if certaincircumstances, including force majeure, occur on or before the Offer Shares are listed on the PSE.Under the terms and conditions of the Share Purchase Agreement, TAGI is committed to purchaseall of the Domestic Block Sale Shares.

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LOCK-UP

The Company, TAGI, New Town Land and Mr. Andrew Tan have each agreed with the LeadManager that, for a period of 180 days after the First Closing Date, other than in connection withthe Over-Allotment Option or the TAGI Option, neither it nor any person acting on its behalf will,without the prior written consent of the Lead Manager, issue, offer, sell, contract to sell, pledge orotherwise dispose of (or publicly announce any such issuance, offer, sale or disposal of) any Sharesor securities convertible or exchangeable into or exercisable for any Shares or warrants or otherrights to purchase Shares or any security or financial product whose value is determined directly orindirectly by reference to the price of the underlying securities, including equity swaps, forwardsales and options.

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SELLING RESTRICTIONS

UNITED STATES

The Offer Shares have not been and will not be registered under the U.S. Securities Act, and maynot be offered or sold within the United States except in transactions exempt from, or not subjectto, the registration requirements of the U.S. Securities Act. Terms used in this paragraph have themeanings given to them by Regulation S under the U.S. Securities Act.

In addition, until 40 days after the commencement of the Offer, an offer or sale of Offer Shareswithin the United States by a dealer that is not participating in the Offer may violate theregistration requirements of the U.S. Securities Act.

UNITED KINGDOM

The Lead Manager has represented, warranted and agreed that:

(1) it has only communicated or caused to be communicated and will only communicate or causeto be communicated an invitation or inducement to engage in investment activity (within themeaning of section 21 of the Financial Services and Markets Act 2000 (FSMA)) to personswho have professional experience in matters relating to investments falling within Article19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 or incircumstances in which section 21 of FSMA does not apply to Megaworld; and

(2) it has complied and will comply with all applicable provisions of FSMA with respect toanything done by it in relation to the Offer Shares in, from or otherwise involving the UnitedKingdom.

EUROPEAN ECONOMIC AREA

In relation to each Member State of the European Economic Area which has implemented theProspectus Directive (each, a ‘‘Relevant Member State’’) an offer to the public of any shares whichare the subject of the offering contemplated by this International Offering Circular (the ‘‘Shares’’)may not be made in that Relevant Member State except that an offer to the public in that RelevantMember State of any Shares may be made at any time under the following exemptions under theProspectus Directive, if they have been implemented in that Relevant Member State: (a) to legalentities which are authorised or regulated to operate in the financial markets or, if not soauthorised or regulated, whose corporate purpose is solely to invest in securities; (b) to any legalentity which has two or more of (1) an average of at least 250 employees during the last financialyear; (2) a total balance sheet of more than 43,000,000 and (3) an annual net turnover of morethan 50,000,000, as shown in its last annual or consolidated accounts; (c) by the Managers tofewer than 100 natural or legal persons (other than qualified investors as defined in the ProspectusDirective) subject to obtaining the prior consent of the Lead Manager for any such offer; or (d) inany other circumstances falling within Article 3(2) of the Prospectus Directive, provided that nosuch offer of Shares shall result in a requirement for the publication by Megaworld or anyManager of a prospectus pursuant to Article 3 of the Prospectus Directive. For the purposes of thisprovision, the expression an ‘‘offer to the public’’ in relation to any Shares in any RelevantMember State means the communication in any form and by any means of sufficient informationon the terms of the offer and any Shares to be offered so as to enable an investor to decide topurchase any Shares, as the same may be varied in that Member State by any measureimplementing the Prospectus Directive in that Member State and the expression ‘‘ProspectusDirective’’ means Directive 2003/71/EC and includes any relevant implementing measure in eachRelevant Member State.

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JAPAN

The Offer Shares have not been and will not be registered under the Securities and Exchange Lawof Japan. None of the Offer Shares may be offered or sold, directly or indirectly, in Japan or to, orfor the benefit of, any resident of Japan (which term means any person resident in Japan, includingany corporation or other entity organized under the laws of Japan), or to others for re-offering orresale, directly or indirectly, in Japan or to a resident of Japan, except pursuant to an exemptionfrom the registration requirements of, or otherwise in compliance with, the Securities andExchange Law of Japan and in compliance with any other applicable laws and regulations ofJapan.

SINGAPORE

The Lead Manager has acknowledged that this Offering Circular has not been registered as aOffering Circular with the Monetary Authority of Singapore. Accordingly, the Lead Manager hasrepresented, warranted and agreed that it has not offered or sold any Offer Shares or caused suchOffer Shares to be made the subject of an invitation for subscription or purchase and will not offeror sell such Offer Shares or cause such Offer Shares to be made the subject of an invitation forsubscription or purchase, and has not circulated or distributed, nor will it circulate or distribute,this Offering Circular or any other document or material in connection with the offer or sale, orinvitation for subscription or purchase, of such Offer Shares, whether directly or indirectly, topersons in Singapore other than (i) to an institutional investor specified in Section 274 of theSecurities and Futures Act, Chapter 289 of Singapore (the ‘‘SFA’’), (ii) to a relevant person, or anyperson pursuant to Section 275(1A), and in accordance with the conditions, specified in Section275 of the SFA or (iii) otherwise pursuant to, and in accordance with the conditions of, any otherapplicable provisions of the SFA.

The Lead Manager has further represented and agreed to notify and hereby notifies each of thefollowing relevant persons specified in Section 275 of the SFA which has subscribed or purchasedthe Offer Shares from or through the Lead Manager, namely a person which is:

(a) a corporation (which is not an accredited investor) the sole business of which is to holdinvestments and the entire share capital of which is owned by one or more individuals, eachof whom is an accredited investor; or

(b) a trust (where the trustee is not an accredited investor) whose sole purpose is to holdinvestments and each beneficiary is an accredited investor,

that shares, debentures and units of shares and debentures of that corporation or the beneficiaries’rights and interest in that trust shall not be transferable for six months after that corporation orthat trust has acquired the Offer Shares under Section 275 except:

(1) to an institutional investor or to a relevant person, or to any person pursuant to an offer thatis made on terms that such rights or interest are acquired at a consideration of not less thanS$200,000 (or its equivalent in a foreign currency) for each transaction, whether such amountis to be paid for in cash or by exchange of securities or other assets;

(2) where no consideration is given for the transfer; or

(3) by operation of law.

HONG KONG

The Lead Manager has represented and agreed that (i) it has not offered or sold and will not offeror sell in Hong Kong, by means of any document, any Offer Shares other than (a) to a‘‘professional investor’’ as defined in the Securities and Futures Ordinance (Cap. 571) of HongKong and any rules made under that Ordinance or (b) in other circumstances which do not resultin the document being a ‘‘Offering Circular’’ as defined in the Companies Ordinance (Cap. 32) ofHong Kong or which do not constitute an offer to the public within the meaning of that Ordinance

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and (ii) it has not issued or had in its possession for the purposes of issue, and will not issue orhave in its possession for the purposes of issue, whether in Hong Kong or elsewhere, anyadvertisement, invitation or document relating to the Offer Shares, which is directed at, or thecontents of which are likely to be accessed or read by, the public of Hong Kong (except ifpermitted to do so under the securities laws of Hong Kong) other than with respect to Offer Shareswhich are or are intended to be disposed of only to persons outside Hong Kong or only to‘‘professional investors’’ as defined in the Securities and Futures Ordinance (Cap. 571) of HongKong and any rules made under that Ordinance.

AUSTRALIA

No Offering Circular or other disclosure document (as defined in the Corporations Act 2001 ofAustralia) in relation to the Offer Shares has been lodged with the Australian Securities andInvestments Commission (‘‘ASIC’’). The Lead Manager has represented and agreed that it:

(a) has not offered or invited applications, and will not offer or invite applications, for the issue,sale or purchase of the Offer Shares in Australia (including an offer or invitation which isreceived by a person in Australia); and

(b) has not distributed or published, and will not distribute or publish, any draft, preliminary ordefinitive offering memorandum, advertisement or other offering material relating to theOffer Shares in Australia

unless (1) the aggregate consideration payable by each offeree or invitee is at least AUD 500,000(or its equivalent in other currencies, but disregarding moneys lent by the offeror or its associates)or the offer or invitation otherwise does not require disclosure to investors in accordance with Part6D.2 of the Corporations Act, (2) such action complies with all applicable laws, regulations anddirectives, and (3) does not require any document to be lodged with ASIC.

BELGIUM

This Offering Circular and related documents are not intended to constitute a public offer inBelgium and may not be distributed to the Belgian public. The Belgian Commission for Banking,Finance and Insurance has not reviewed nor approved this document or commented as to itsaccuracy or adequacy or recommended or endorsed the purchase of Offer Shares. The LeadManager has represented and agreed that it will not: (a) offer for sale, sell or market in Belgiumsuch Offer Shares by means of a public offer within the meaning of the Law of April 22, 2003 onthe public offer of securities; or (b) sell Offer Shares to any person qualifying as a consumer withinthe meaning of Article 1.7 of the Belgian law of July 14, 1991 on consumer protection and tradepractices unless such sale is made in compliance with this law and its implementing regulation.

CANADA

The Lead Manager has represented and agreed that it has not sold or offered to sell the OfferShares in Canada or to residents of Canada otherwise than in accordance with applicable Canadiansecurities laws (‘‘Canadian Securities Laws’’). Without limiting the foregoing, it will only offer andsell the Offer Shares in Canada or to residents of Canada (i) through an appropriately registeredsecurities dealer or in accordance with an available exemption from the applicable registeredsecurities dealer requirements under Canadian Securities Laws and (ii) pursuant to an exemptionfrom the Offering Circular requirements under Canadian Securities Laws.

DENMARK

This Offering Circular has not been filed with or approved by the Danish Securities Council or anyother regulatory authority or stock exchange in Denmark. The Offer Shares have not been offeredor sold and may not be offered, sold or delivered directly or indirectly in Denmark by way of apublic offering, unless in compliance with the Danish Securities Trading Act and the DanishExecutive Orders no. 306 and 307 of April 28, 2005 on Offering Circular in connection withpublic offers as amended from time to time.

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FINLAND

The Lead Manager has represented and agreed that it has not, directly or indirectly, offered or soldand will not, directly or indirectly, offer or sell in Finland any Offer Shares other than incircumstances which do not constitute an offer to the public within the meaning of the FinnishSecurities Market Act (26.5.1989/495), as amended.

FRANCE

The Lead Manager has severally represented, warranted and agreed that, in connection with itsinitial distribution (i) it has not offered or sold and will not offer or sell, directly or indirectly, anyOffer Shares to the public in the Republic of France, and (ii) offers and sales of Offer Shares willbe made in the Republic of France only to (A) portfolio managers providing the investment serviceof portfolio management for the account of their customers and (B) qualified investors acting fortheir own account as defined in and in accordance with Articles L.411-1, L.411-2 and D.411-1 ofthe French Code monetaire et financier; except that it may make an offer of Offer Shares to thepublic in France in the period beginning on the date of publication of a Offering Circular whichhas been approved by a Member State of the European Economic Area (other than France) whichhas implemented the EU Offering Circular Directive 2003/71/EC on the date of notification to theAutorite des marches financiers (‘‘AMF’’) in France, in accordance with Articles L.412-1 andL.621-8 of the French Code monetaire et financier and Article 212-3 of the Reglement general ofthe AMF and ending at the latest on the date which is 12 months after the date of suchpublication. In addition, neither this document nor any offering material relating to the Company’sOffer Shares has been distributed or caused to be distributed and will be distributed or caused tobe distributed in the Republic of France, other than to those investors to whom offers and sales ofthe Offer Shares may be made as described above. This document has thus not been submitted tothe AMF for prior approval and clearance procedure in accordance with Articles L.412-1 andL.621-8 et seq. of the French Code monetaire et financier.

ITALY

The offering of the Offer Shares has not been cleared by CONSOB (the Italian Securities ExchangeCommission) pursuant to Italian securities legislation and, accordingly, no Offer Shares may beoffered, sold or delivered, nor may copies of this document or of any other document relating tothe Offer Shares be distributed in the Republic of Italy except: (i) to professional investors(operatori qualificati), as defined in Article 31, second paragraph of CONSOB Regulation No.11522 of July 1, 1998, as amended; and (ii) in circumstances which are exempt from the rules onsolicitation of investments pursuant to Article 100 of Legislative Decree no. 58 of February 24,1998, as amended (the ‘‘Financial Services Act’’) and Article 33, first paragraph, of CONSOBRegulation No. 11971 of May 14, 1999, as amended. Any offer, sale or delivery of the OfferShares or distribution of copies of this document or any other document relating to the OfferShares in the Republic of Italy under (i) or (ii) above must be: (a) made by an investment firm,bank or financial intermediary permitted to conduct such activities in the Republic of Italy inaccordance with the Financial Services Act and Legislative Decree No. 385 of September 1, 1993,as amended; and (b) in compliance with any other applicable laws and regulations.

IRELAND

The Lead Manager has represented and agreed that:

(a) in respect of a local offer (within the meaning of section 38(1) of the Investment Funds,Companies and Miscellaneous Provisions Act 2005 of Ireland) of Offer Shares in Ireland, ithas complied and will comply with section 49 of the Investment Funds, Companies andMiscellaneous Provisions Act 2005 of Ireland;

(b) it has complied and will comply with all applicable provisions of the InvestmentIntermediaries Acts, 1995 to 2000 of Ireland (as amended) with respect to anything doneby it in relation to the Offer Shares or operating in, or otherwise involving, Ireland and, inthe case of a Manager acting under and within the terms of an authorization to do so for the

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purposes of EU Council Directive 93/22/EEC of May 10, 1993 (as amended or extended), ithas complied with any codes of conduct made under the Investment Intermediaries Acts, 1995to 2000 of Ireland (as amended) and, in the case of a Manager acting within the terms of anauthorization granted to it for the purposes of EU Council Directive 2000/12/EC of March20, 2000 (as amended or extended), it has complied with any codes of conduct or practicemade under Section 117(1) of the Central Bank Act, 1989 of Ireland (as amended); and

(c) in connection with offers or sales of Offer Shares, it has only issued or passed on, and willonly issue or pass on, in Ireland, any document received by it in connection with the issue ofsuch Offer Shares to persons who are persons to whom the documents may otherwise lawfullybe issued or passed on.

SWEDEN

This document is not a Offering Circular and has not been prepared in accordance with theOffering Circular requirements provided for in the Swedish Financial Instruments Trading Act(‘‘Lag (1991 : 980) om handel med finansiella instrument’’) nor any other Swedish enactment.Neither the Swedish Financial Supervisory Authority nor any other Swedish public body hasexamined, approved or registered this document.

SWITZERLAND

The Offer Shares may not be publicly offered or sold in or from Switzerland, and neither theOffering Circular nor any other offering material relating to the Offer Shares may be distributed orotherwise made available in connection with any such offering or sale. The Offer Shares may onlybe offered or sold and the Offering Circular may only be distributed, or otherwise made availablein Switzerland on a private placement basis to a limited number of investors without any publicoffering. The Offering Circular does not constitute a Offering Circular in the sense of Art. 1156 ofthe Swiss Federal Code of Obligations or Art. 32 et seq. of the Listing Rules of the SWX SwissExchange.

UNITED ARAB EMIRATES

This Offering Circular has not been approved by the United Arab Emirates (‘‘UAE’’) Central Bankand the Company has not received any authorization from the UAE Central Bank to market or sellthe Offer Shares within the UAE. No services relating to the Offering Circular will be rendered inthe UAE.

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PHILIPPINE FOREIGN EXCHANGE CONTROLS

Under current BSP regulations, an investment in listed Philippine securities (such as the Shares)must be registered with the BSP if the foreign exchange needed to service the repatriation ofcapital and the remittance of dividends, profits and earnings derived from such Shares is to besourced from the Philippine banking system. The application for registration may be done directlywith the BSP or through a custodian bank duly designated by the foreign investor. A custodianbank may be a commercial bank or an offshore banking unit registered with the BSP to act as suchand appointed by the investor to register the investment, hold shares for the investor, andrepresent the investor in all necessary actions in connection with his investments in the Philippines.Applications for registration must be accompanied by: (i) purchase invoice, subscription agreementand proof of listing on the PSE (either or both); (ii) credit advice or bank certificate showing theamount of foreign currency inwardly remitted and converted into pesos; and (iii) transferinstructions from the stockbroker or dealer, as the case may be.

Upon registration of the investment, proceeds of divestments, or dividends, of registeredinvestments are repatriable or remittable immediately and in full through the Philippinecommercial banking system, net of applicable tax, without need of BSP approval. Remittance ispermitted upon presentation of the BSP registration document, at the exchange rate applicable onthe date of actual remittance. Pending registration or reinvestment, divestment proceeds, as well asdividends of registered investments, may be lodged temporarily in interest-bearing depositaccounts. Interest earned thereon, net of taxes, may also be remitted in full. Remittance ofdivestment proceeds or dividends of registered investments may be reinvested in the Philippines ifthe investments are registered with the BSP or the investor’s custodian bank.

The foregoing is subject to the power of BSP, with the approval of the President of the Philippines,to restrict the availability of foreign exchange during an exchange crisis, when an exchange crisisis imminent or in times of national emergency.

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LEGAL MATTERS

Certain legal matters Philippine law relating to the Offer will be passed upon for the Company byPicazo Buyco Tan Fider & Santos Law Office, Manila, Philippines and for the Lead Manager byRomulo Mabanta Buenaventura Sayoc & de los Angeles, Manila, Philippines. Certain legal mattersas to English law and United States federal law will be passed upon for the Lead Manager by Allen& Overy.

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INDEPENDENT PUBLIC ACCOUNTANTS

Punongbayan & Araullo, a member practice of Grant Thornton International, independentcertified public accountants, audited Megaworld’s financial statements without qualification as ofand for the years ended December 31, 2003, 2004 and 2005, included in this InternationalOffering Circular. The 2003, 2004 and 2005 financial information included in this InternationalOffering Circular has been prepared under PFRS. Such financial statements are included in thisInternational Offering Circular based on Punongbayan & Araullo’s authority as independent publicaccountants. Punongbayan & Araullo gave its consent to the inclusion of its reports in thisInternational Offering Circular.

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Prospectus April 6, 2006

Megaworld Corporation

Primary and Secondary Offer of 3,923,166,000 Common SharesOffer Price of P=1.38 per Offer Share

Sole International Underwriter and Sole Book Runner

UBS Investment Bank

Sole Domestic Underwriter and Book Runner

BDO Capital & Investment Corporation

THE PHILIPPINE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVEDTHESE SECURITIES OR DETERMINED IF THIS PROSPECTUS IS ACCURATE ORCOMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSEAND SHOULD BE REPORTED IMMEDIATELY TO THE PHILIPPINE SECURITIES ANDEXCHANGE COMMISSION.

Megaworld Corporation28th Floor, The World Centre330 Sen. Gil J. Puyat AvenueMakati CityPhilippines 1227Telephone Number: (632) 867 8826

This Prospectus relates to the offer and sale of 3,923,166,000 common shares (the ‘‘Firm Offer’’,and such shares, the ‘‘Firm Shares’’), par value P=1.00 per share (the ‘‘Shares’’), of MegaworldCorporation, a corporation organized under Philippine law (‘‘Megaworld’’ or the ‘‘Company’’). TheFirm Shares will comprise (i) 3,500,000,000 new Shares to be issued and offered by Megaworld byway of a primary offer (the ‘‘Primary Offer’’, and such Shares, the ‘‘Primary Offer Shares’’) asfurther described below and (ii) 423,166,000 existing Shares offered by Colony-CB (the ‘‘SellingShareholder’’) pursuant to a secondary offer (the ‘‘Secondary Offer, and such Shares, the‘‘Secondary Offer Shares’’). The Company will not receive any of the proceeds from the sale ofthe Firm Shares being sold by the Selling Shareholder. The Firm Shares shall be offered at P=1.38per Firm Share (the ‘‘Offer Price’’). The determination of the Offer Price is further discussed onpage 27 of this Prospectus, which price has been set at P=1.38 per Offer Share based on the 10-dayvolume weighted average market price (‘‘VWAP’’) of the Shares on the Philippine Stock Exchange,Inc. (the ‘‘PSE’’) on April 6, 2006, subject to a discount of 9%. A total of 14,155,558,501 Sharesshall be outstanding after the Firm Offer. The Company estimates that the total proceeds to beraised by Megaworld and the Selling Shareholder from the sale of Firm Shares shall be5,413,969,080, of which the estimated net proceeds will be approximately P=5,172,450,139.Please see a more detailed discussion on proceeds from the Firm Offer and use of proceeds under‘‘Use of Proceeds’’ on page 23 of this Prospectus.

Each holder of Shares will be entitled to such dividends as may be declared by the Company’sBoard of Directors; provided that any stock dividends declaration requires the approval ofshareholders holding at least two-thirds of the Company’s total outstanding capital stock. ThePhilippine Corporation Code has defined ‘‘outstanding capital stock’’ as the total shares of stockissued, whether paid in full or not, except treasury shares. Dividends may be declared only fromthe Company’s unrestricted retained earnings. See ‘‘Dividends and Dividend Policy’’ on page 24 ofthis Prospectus.

Details regarding the commission to be received by UBS AG (the ‘‘Lead Manager’’) can be foundunder ‘‘Plan of Distribution’’ on page 118 of this Prospectus.

3,727,008,000 of the Firm Shares (the ‘‘International Offer Shares’’) are being offered and soldoutside the United States through the Lead Manager in reliance on Regulation S (‘‘Regulation S’’)under the United States Securities Act of 1933, as amended (the ‘‘U.S. Securities Act’’) (the‘‘International Offer’’).

196,158,000 of the Firm Shares (the ‘‘Domestic Offer Shares’’) are being offered by the SellingShareholder at the Offer Price to all of the trading participants of the PSE (the ‘‘PSE Brokers’’) inthe Philippines (the ‘‘Domestic Offer’’). The Selling Shareholder, a non-Philippine National, shallsell and The Andresons Group, Inc. (‘‘TAGI’’), a Philippine National, shall purchase 300,000,000Domestic Block Sale Shares (as defined herein) at the Offer Price on the Listing Date, on the sameterms and conditions as the Firm Shares. The Domestic Block Sale will provide leeway for theownership of Shares by non-Philippine Nationals. BDO Capital & Investment Corporation (‘‘BDOCapital’’) will act as the domestic underwriter of the Domestic Offer (the ‘‘DomesticUnderwriter’’). If the PSE Brokers do not purchase all of the Domestic Offer Shares in theDomestic Offer, the Domestic Underwriter shall distribute to its clients or the general public theDomestic Offer Shares which have not been taken up. The allocation of the Offer Shares betweenthe Domestic Offer and the International Offer is subject to adjustment. In the event of an under-application in the International Offer and if there is a corresponding over-application in theDomestic Offer, International Offer Shares may (at the option of the Domestic Underwriter) bereallocated from the International Offer (with the consent of the Lead Manager) to the DomesticOffer.

ii

The Shares being sold by the Selling Shareholder are listed on the PSE under the symbol ‘‘MEG’’.On April 6, 2006, the closing price of the Shares on the PSE was P=1.56 per Share. Approval hasbeen obtained to list the Primary Offer Shares on the PSE. Such an approval for listing ispermissive only and does not constitute a recommendation or endorsement by the PSE or thePhilippine Securities and Exchange Commission (the ‘‘Philippine SEC’’) of the new Shares.

The Company has granted UBS AG, the Stabilizing Agent, an option exercisable in whole or inpart within 30 days from the date of listing and when trading of the Company’s Offer Sharescommences on the PSE (the ‘‘Listing Date’’), to purchase up to an additional 588,475,000 Shares atthe Offer Price (the ‘‘Optional Shares’’, and together with the Firm Shares, the ‘‘Offer Shares’’), onthe same terms and conditions as the Firm Shares as set forth in this Prospectus, solely to coverover-allotments, if any (the ‘‘Over-Allotment Option’’). The offer of the Firm Shares, including theOptional Shares, is referred to as the ‘‘Offer’’. The Optional Shares will be sold as part of theInternational Offer. See ‘‘Plan of Distribution’’.

A registration statement relating to the Offer Shares has been filed with the Philippine SEC underthe provisions of the Securities Regulations Code of the Philippines (Republic Act No. 8799) (the‘‘SRC’’).

THE PHILIPPINE SEC HAS NOT APPROVED THE OFFER SHARES OR DETERMINED IFTHIS PROSPECTUS IS ACCURATE OR COMPLETE. ANY REPRESENTATION TO THECONTRARY IS A CRIMINAL OFFENSE AND SHOULD BE REPORTED IMMEDIATELY TOTHE PHILIPPINE SEC.

A REGISTRATION STATEMENT RELATING TO THE OFFER SHARES HAS BEEN FILEDWITH THE PHILIPPINE SEC BUT HAS NOT YET BEEN DECLARED EFFECTIVE. NO OFFERTO BUY THE OFFER SHARES CAN BE ACCEPTED AND NO PART OF THE PURCHASEPRICE CAN BE ACCEPTED OR RECEIVED UNTIL THE REGISTRATION STATEMENT HASBECOME EFFECTIVE, AND ANY SUCH OFFER MAY BE WITHDRAWN OR REVOKED,WITHOUT OBLIGATION OR COMMITMENT OF ANY KIND, AT ANY TIME PRIOR TONOTICE OF ITS ACCEPTANCE GIVEN AFTER THE EFFECTIVE DATE. AN INDICATION OFINTEREST IN RESPONSE HERETO INVOLVES NO OBLIGATION OR COMMITMENT OFANY KIND. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THESOLICITATION OF AN OFFER TO BUY ANY OFFER SHARES.

The Offer Shares are offered subject to receipt and acceptance of any order by it and subject to itsright to reject any order in whole or in part. It is expected that the Offer Shares will be deliveredin book-entry form against payment therefor to the Philippine Depository and Trust Corporation(the ‘‘PDTC’’) on or about April 24, 2006.

ALL REGISTRATION REQUIREMENTS HAVE BEEN MET AND ALL INFORMATIONCONTAINED HEREIN IS TRUE AND CORRECT.

Andrew L. TanChairman and President

iii

No representation or warranty, express or implied, is made by the Lead Manager as to theaccuracy or completeness of such information, and nothing contained in this Prospectus is, or shallbe relied upon as, a promise or representation by the Lead Manager. Any reproduction ordistribution of this Prospectus, in whole or in part, and any disclosure of its contents or use of anyinformation herein for any purpose other than considering an investment in the Offer Shares isprohibited. Each offeree of the Offer Shares, by accepting delivery of this Prospectus, agrees to theforegoing.

No person has been or is authorized to give any information or to make any representationconcerning Megaworld or its subsidiaries or its affiliates, the Selling Shareholder or the OfferShares not contained in this Prospectus and any information or representation not so containedherein must not be relied upon as having been authorized by Megaworld, the Selling Shareholderor the Lead Manager. Neither the delivery of this Prospectus nor any offer, sale or delivery madein connection with the Offer shall at any time or in any circumstances imply that the informationcontained herein is correct as at any time subsequent to its date or constitute a representation thatthere has been no change or development reasonably likely to involve a material adverse change inthe affairs of Megaworld since the date hereof.

Market data used throughout this Prospectus has been obtained from market research, publiclyavailable information and industry publications. Industry publications generally state that theinformation that they contain has been obtained from sources believed to be reliable but that theaccuracy and completeness of that information is not guaranteed. Similarly, industry forecasts andmarket research, while believed to be reliable, have not been independently verified, and none ofMegaworld, the Selling Shareholder nor the Lead Manager makes any representation as to theaccuracy of that information.

In connection with the Offer, the Stabilizing Agent may, in accordance with the Philippine SECapproval, effect price stabilization transactions for a period which shall not exceed 30 days fromthe Listing Date. The Stabilizing Agent may purchase Shares in the open market only if the marketprice of the Shares falls below the Offer Price. This may have the effect of preventing a decline inthe market price of the Shares and may also cause the price of the Shares to be higher than theprice that otherwise would exist in the open market in the absence of these transactions. If theStabilizing Agent commences any of these transactions, it may discontinue them at any time. TheStabilizing Agent is required by the Philippine SEC to disclose any of the foregoing pricestabilization transactions.

CONVENTIONS WHICH APPLY TO THIS PROSPECTUS

In this Prospectus, unless otherwise specified or the context otherwise requires, all references tothe ‘‘Philippines’’ are references to the Republic of the Philippines. All references to the‘‘Government’’ herein are references to the Government of the Philippines. All references to the‘‘BSP’’ are references to Bangko Sentral ng Pilipinas, the Central Bank of the Philippines. Allreferences to ‘‘United States’’ or ‘‘U.S.’’ herein are to the United States of America. All references to‘‘United Kingdom’’ herein are to the United Kingdom of Great Britain and Northern Ireland. Allreferences to ‘‘peso’’ and ‘‘herein are to the lawful currency of the Philippines, all references to‘‘U.S. dollars’’ or ‘‘U.S.$’’ herein are to the lawful currency of the United States and all referencesto ‘‘Euro’’ or are to the lawful currency of the European Union.

For convenience, certain U.S. dollar amounts have been translated into peso amounts, based on theprevailing exchange rate on December 31, 2005 of P=53.067 = U.S.$1.00, being the closing spotrate on that date for the purchase of U.S. dollars for pesos which is quoted by the PhilippineDealing System (the ‘‘PDS Rate’’). Such translations should not be construed as representations thatthe Philippine peso or U.S. dollar amounts referred to could have been, or could be, converted intopesos or U.S. dollars, as the case may be, at that or any other rate or at all. For furtherinformation regarding rates of exchange between the peso and the U.S. dollar, see ‘‘ExchangeRates’’. Figures in this Prospectus have been subject to rounding adjustments. Accordingly, figuresshown for the same item of information may vary and figures which are totals may not be anarithmetic aggregate of their components. On April 6, 2006, the PDS Rate was P=50.997 =U.S.$1.00.

iv

Unless otherwise stated, all financial information relating to Megaworld contained herein is statedon a consolidated basis in accordance with Philippine Financial Reporting Standards (‘‘PFRS’’).

Unless otherwise indicated, the description of Megaworld’s business activities in this Prospectus ispresented on a consolidated basis. For further information on Megaworld’s corporate structure, see‘‘Subsidiaries and Affiliates’’.

v

TABLE OF CONTENTS

Page

Glossary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4

Risk Factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15

Use of Proceeds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23

Dividends and Dividend Policy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24

Exchange Rates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25

Market Price Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26

Determination of Offer Price . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27

Capitalization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28

Dilution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29

Selected Consolidated Financial Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30

Management’s Discussion and Analysis of Financial Condition andResults of Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33

Industry . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45

Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59

Regulatory and Environmental Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 83

Subsidiaries and Affiliates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 87

Board of Directors and Senior Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 89

Related Party Transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 96

Principal and Selling Shareholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 97

Description of the Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100

The Philippine Stock Market . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 108

Philippine Foreign Exchange Controls . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 113

Philippine Taxation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 114

Plan of Distribution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 118

Legal Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 121

Independent Public Accountants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 122

Index to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-1

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GLOSSARY

In this Prospectus, unless the context otherwise requires, the following terms shall have themeanings set out below.

Alliance. . . . . . . . . . . Alliance Global Group, Inc.

Araneta . . . . . . . . . . . Araneta Center, Inc.

ASC . . . . . . . . . . . . . Philippine Accounting Standards Council

BCDA. . . . . . . . . . . . Bases Conversion Development Authority

Board . . . . . . . . . . . . the board of directors of Megaworld

BPO . . . . . . . . . . . . . Business Process Outsourcing

BSP . . . . . . . . . . . . . Bangko Sentral ng Pilipinas, the Philippine Central Bank

BWDC . . . . . . . . . . . Bonifacio West Development Corporation

CCSS . . . . . . . . . . . . Central Clearing and Settlement System

Colony-CB . . . . . . . . . Colony-CB Richard Ellis, MW, L.P.

Corporation Code . . . . Corporation Code of the Philippines, Batas Pambansa Blg. 68

Crossing Broker . . . . . a PSE licensed broker responsible for crossing the number of DomesticOffer Shares specified in the form to the appropriate PSE Broker on theclosing of the Domestic Offer

DAR . . . . . . . . . . . . Department of Agrarian Reform

DENR . . . . . . . . . . . Philippine Department of Environment and Natural Resources

Domestic Block SaleShares . . . . . . . . . .

the sale of 300,000,000 common shares of the Company by the SellingShareholder to TAGI

Domestic Offer . . . . . . the offer for sale of the Domestic Offer Shares to be made in thePhilippines by BDO Capital & Investment Corporation

Domestic Offer Shares . 196,158,000 of the Firm Shares being offered by BDO Capital &Investment Corporation pursuant to the Domestic Offer (not includingOptional Shares)

Domestic Underwriter . . BDO Capital & Investment Corporation

Firm Offer . . . . . . . . . the offering for sale of the Firm Shares on, and subject to, the termsand conditions stated herein

Firm Shares . . . . . . . . the Domestic Offer Shares and the International Offer Shares, and notincluding Optional Shares

First Closing Date . . . . delivery of the Firm Shares, which is expected to occur in Manila onApril 24, 2006 or such other date as the Lead Manager and theCompany shall agree in writing

GDP. . . . . . . . . . . . . Gross Domestic Product

GFA . . . . . . . . . . . . . Gross Floor Area

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GNP. . . . . . . . . . . . . Gross National Product

Government . . . . . . . . the Government of the Republic of the Philippines

Group. . . . . . . . . . . . Megaworld and its subsidiaries and affiliate

HLURB . . . . . . . . . . . Housing and Land Use Regulatory Board

IAS . . . . . . . . . . . . . International Accounting Standards

IT . . . . . . . . . . . . . . Information technology

International Offer . . . . the offer for sale of the International Offer Shares outside of the US inreliance on Regulation S

International OfferShares . . . . . . . . . .

3,727,008,000 of the Firm Shares being offered for sale pursuant to theInternational Offer (not including Optional Shares and further subjectto reallocation from Domestic Offer Shares)

ISO . . . . . . . . . . . . . International Organization for Standardization

Jumbo Certificate . . . . a new warrant or stock certificate covering all the warrants or shareslodged with the PDTC and issued in the name of the PCD Nominee

Lead Manager. . . . . . . UBS AG

Listing Date . . . . . . . . the date on which trading of the Offer Shares on the PSE begins,expected to be on or about April 24, 2006

Metro Manila . . . . . . . the metropolitan area comprising the cities of Kalookan, Las Pinas,Makati, Malabon, Mandaluyong, Manila, Marikina, Muntinlupa,Paranaque, Pasay, Pasig, Quezon and Valenzuela and the fourmunicipalities of Navotas, Pateros, San Juan and Taguig, whichtogether comprise the National Capital Region and are commonlyreferred to as Metropolitan Manila

Moody’s . . . . . . . . . . Moody’s Investors Services, Inc.

NAIA . . . . . . . . . . . . Ninoy Aquino International Airport

New Town Land . . . . . New Town Land Partners, Inc.

Offer . . . . . . . . . . . . the offering for sale of the Offer Shares pursuant to the Domestic Offerand the International Offer on, and subject to, the terms andconditions stated herein

Offer Price . . . . . . . . . P=1.38, the price per Offer Share at which the Offer Shares are to besubscribed pursuant to the Offer

Offer Shares . . . . . . . . the Firm Shares and Optional Shares

Optional Shares. . . . . . the Shares to be sold upon exercise of the Over-Allotment Option

Over-Allotment Option . the option to be granted by the Company to the Stabilizing Agentwithin 30 days after the date on which dealings in the Sharescommence on the PSE, to require the Company to sell up to anaggregate of up to 588,475,000 additional Shares

PAS . . . . . . . . . . . . . Philippine Accounting Standards

PCD . . . . . . . . . . . . . Philippine Central Depository

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PCD Nominee . . . . . . . PCD Nominee Corporation, a corporation wholly owned by the PDTC

PDS . . . . . . . . . . . . . the Philippine Dealing System

PDS Rate. . . . . . . . . . the average of buying and selling rates of exchange for peso againstU.S. dollars quoted by the Philippine Dealing System

PDTC . . . . . . . . . . . . the Philippine Depository and Trust Corp., the central securitiesdepositary of, among others, securities listed and traded on the PSE

PEZA . . . . . . . . . . . . Philippine Economic Zone Authority

PFRS . . . . . . . . . . . . Philippine Financial Reporting Standards

Philippine GAAP . . . . . Generally Accepted Accounting Principles in the Philippines

Philippine National . . . as defined under the Republic Act 7042

Philippine SEC . . . . . . the Philippine Securities and Exchange Commission

Primary Offer . . . . . . . 3,500,000,000 new Shares to be issued and offered by the Company

PSE . . . . . . . . . . . . . the Philippine Stock Exchange, Inc.

PSE Brokers . . . . . . . . trading participants of the PSE

Regulation S. . . . . . . . Regulation S under the U.S. Securities Act

S&P . . . . . . . . . . . . . Standard & Poor’s Rating Services

SCCP . . . . . . . . . . . . Securities Clearing Corporation of the Philippines

Secondary Offer . . . . . 423,166,000 existing Shares offered by the Selling Shareholder

Selling Shareholder . . . . Colony-CB

Settlement Date . . . . . . the date on which final allocation of the Offer Shares is to be made,expected to be on or about April 24, 2006

SFAS . . . . . . . . . . . . Statements of Financial Accounting Standards

Shares . . . . . . . . . . . . the common shares of par value P=1.00 each of Megaworld

SRC . . . . . . . . . . . . . Securities Regulations Code of the Philippines (Republic Act No. 8799)and its implementing rules, as amended

SRO . . . . . . . . . . . . . Self-Regulatory Organization

Stabilizing Agent . . . . . UBS, in its role as stabilization agent, whereby it may engage instabilization activities relating to any over-allotment of Shares from theCompany within a period of up to 30 calendar days from and includingthe Listing Date

TAGI . . . . . . . . . . . . The Andresons Group, Inc.

U.S. Securities Act . . . . the United States Securities Act of 1933, as amended

VAT. . . . . . . . . . . . . value-added tax

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SUMMARY

This summary highlights information contained elsewhere in this Prospectus. This summary isqualified in its entirety by more detailed information and financial statements, including notesthereto, appearing elsewhere in this Prospectus. For a discussion of certain matters that should beconsidered in evaluating an investment in the Offer Shares, see ‘‘Risk Factors.’’ Investors arerecommended to read this entire Prospectus carefully, including Megaworld’s consolidatedfinancial statements and related notes.

OVERVIEW


The Company’s real estate portfolio includes residential condominium units, subdivision lots andtownhouses as well as office projects and retail space. The Company has the following threeprimary business segments: (i) real estate sales of residential and office developments (ii) leasing ofoffice space, primarily to business process outsourcing (‘‘BPO’’) enterprises and retail space and(iii) management of hotel operations. The Company’s total gross revenues for the year endedDecember 31, 2005 were P=4,812.2 million compared to P=4,191.2 million for the year endedDecember 31, 2004. Real estate sales of residential developments accounted for 66% of theCompany’s revenues in 2005 and 57% in 2004. The Company’s net income (after minorityinterest) for the year ended December 31, 2005 was P=1,153.9 million compared to P=807.7 millionfor the year ended December 31, 2004.


. Eastwood City. Eastwood City is the Company’s first community township development.Eastwood City is located on 15 hectares of land in Quezon City, Metro Manila andcomprises: Eastwood City Cyberpark, the Philippines’ first IT-based special economic zone;an IT training center; leisure and entertainment centers; and 17 high-rise residentialdevelopments. Eastwood City Cyberpark contains offices that are capable of supporting IT-based operations such as high-speed telecommunications and 24-hour uninterrupted powersupply. Complementing the offices are leisure and entertainment hubs which includerestaurants and a cinema complex. Development of the community township has occurredin stages. One office tower and a number of high-rise residential towers, including a hotel,are currently under development.

. Forbes Town Center. The Company is developing Forbes Town Center, a mixed-usedevelopment located on five hectares of land in Bonifacio Global City in Taguig, MetroManila. Forbes Town Center is comprised of residential high-rise towers and retail andentertainment centers. The property is adjacent to the Manila Golf and Country Club, thePhilippines’ most exclusive golf club. The first residential tower was launched in the secondquarter of 2003 and construction of this tower is expected to be completed in the fourthquarter of 2006.

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. McKinley Hill. The Company is developing McKinley Hill, a community township locatedon 50 hectares of land in Fort Bonifacio in Taguig, Metro Manila. The community townshipis being designed to include the McKinley Hill Cyberpark which will be a PEZA-designated ITspecial economic zone, a low density residential subdivision for single detached homes, low-rise residential garden villas, a leisure and entertainment area and an institutional area whichis expected to include an embassy and educational institutions, including two internationalschools. This is the Company’s first community township incorporating educationalinstitutions into the live-work-play concept. The residential lots for single-detached homeswere officially launched in the fourth quarter of 2004 and approximately 70% of the lotswere sold as of December 31, 2005. The first office building commenced construction in thefourth quarter of 2005 and construction of this phase is expected to be completed in thefourth quarter of 2007.

. Newport City. The Company is developing Newport City, a community township located on25 hectares of land in the Villamor Air Base, Pasay City, across from the newly built NAIATerminal 3. The community township, which is adjacent to Villamor golf course, is expectedto include medium-rise residential towers, a five-star hotel to be managed by an internationalchain, retail and commercial areas, a business and technology park, and leisure and tourismcomponents. The first phase of residential condominiums was launched in the fourth quarterof 2005 and is expected to be completed by the end of 2008.

. Araneta Center. In 2005, the Company introduced development plans for the Philippines’first major mass transit-oriented residential community, with connections to the MRT-3 andLRT-2 mass transit lines and a land transportation hub, providing residents with access toamenities and offices throughout Metro Manila. The development is expected to consist of 17residential condominium buildings, comprising 6,000 units, on a four hectare site at theAraneta Center, a retail, business and entertainment complex in Cubao, Quezon City. Thefirst phase of the project is expected to be launched in the third quarter of 2006.

In aggregate, the Company owns or has development rights to approximately 116 hectares of landsituated primarily in Metro Manila, with its current portfolio of five major projects accounting forapproximately 80% of its landbank. Sixty-two hectares of land for which the Company hasdevelopment rights were acquired through joint development agreements with the land ownerswhile 38 hectares of land were purchased by the Company. The Company leases the balance of 16hectares on a long-term basis.

The Company’s objective is to increase its profitability and maintain its leading position as amajor property developer in the Philippines by continuing to capitalize on the Megaworld brandname and reputation, develop its key corporate and retail relationships, enhance its rental revenueand diversify its business mix.

The Company’s common stock was first listed on the PSE on June 15, 1994 and following theoffering and the Domestic Block Sale, assuming the Over-Allotment Option and the TAGI Option(as defined below) are not exercised, the Company’s principal shareholders, TAGI and New TownLand Partners, Inc. (‘‘New Town Land’’) will hold 27% and 16%, respectively, of the Company’sshare capital.

COMPETITIVE STRENGTHS


. Established track record as a market innovator. The Company believes it has anticipatedmarket trends faster than other companies in the Philippine property development industry.Although the Company initially focused on the high-end residential property market, it wasamong the first in the Philippines to identify the growing demand for community townshipdevelopments, particularly for middle-income purchasers, and to introduce flexible designoptions and payment plans. In 1996, the Company was also the first to develop offices withthe infrastructure capable of supporting expanding IT and BPO businesses. As a result, theCompany developed the Eastwood City CyberPark and was instrumental in working with the

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Government to obtain the first PEZA-designated economic zone specifically for technologyand BPO-based companies. The Company is currently the largest developer and owner ofoffice buildings targeting BPO enterprises in the Philippines in terms of leased space. Inconnection with Eastwood City, the Company was the first Philippine company to focus oncommunity township development. In 1996, the Company was the first Philippine propertydevelopment company to develop an international sales network targeting overseas Filipinosfor residential sales. According to Company estimates, in 2005 sales to overseas Filipinosconstituted approximately 20% of its residential sales. In 2005, the Company introduceddevelopment plans for the first major mass transit-oriented residential community in thePhilippines, with inter-connections to two main mass transit systems and a landtransportation hub, facilitating convenient access to offices and amenities throughout MetroManila. The Company believes that its identification of areas of growth in the propertymarket was instrumental to its continued financial success during the Asian financial crisiswhen most sectors of the property market contracted. The Company’s ability to anticipatemarket trends and understand the needs of real estate consumers continue to assist it in itsefforts to accurately predict trends in market demand, levels of supply and to plan and designits property developments accordingly.

. Strategic landbank. The Company either owns or has development rights to approximately116 hectares of land located primarily in strategic locations in Metro Manila. Where theCompany does not own or lease the land, it has entered into joint development agreementswith the land owners to develop their land in exchange for a percentage of the revenue fromsales or leases of the completed units. Joint development agreements are a cost effective wayfor the Company to acquire land development rights in desirable areas of Metro Manila at afixed cost. Although the Company continues to consider strategic landbanking either throughadditional joint development agreements or property purchases, the Company believes that itscurrent landbank is capable of sustaining the development of its current portfolio of projectsfor at least the next 15 years.

. Sound financials with a stable earnings base and low gearing. The Company believes it iscurrently in sound financial condition with a debt to equity ratio of 0.18 : 1 (after minorityinterest) as of December 31, 2005, and that its financial strength enhances its ability to investin new projects while continuing to develop existing projects. The Company’s propertyportfolio includes a balance between income from residential sales and recurring incomeearned from commercial and office developments. The Company’s diverse project portfolio isdesigned to both limit earnings volatility from potential property market fluctuations and toallow it to enjoy growth upside. The Company’s community township portfolio includes astable revenue base of long term leases from major international BPO tenants as well as retailtenants. With projected growth in the BPO business in the Philippines, the Company expectsto benefit from existing long-term BPO lease arrangements while attracting new BPO tenants.The proximity of BPO tenants to retail and entertainment properties within the communitytownship allows the Company to benefit from the complementary revenue stream from itsretail and commercial leases. As a result of stable earnings from rental investments in theBPO market and residential sales, the Company has been able to keep its debt to equity ratiolow, particularly during the Asian financial crisis, when a number of highly leveragedproperty development companies went bankrupt.

. Well-established brand name and reputation. The Company has completed a number ofhigh-quality residential condominium projects, townhouse projects, office projects and leisureand commercial developments throughout Metro Manila. As a result, the Company hasdeveloped a strong brand name and reputation as one of the Philippines’ leading propertydevelopers with the credibility of delivering high-quality developments. The Company hasbeen named by Superbrands, an independent organization which identifies and recognizes themost-highly acclaimed brands throughout the world, as one of the Philippines’ top brands.The Company has also received ISO 9001 : 2000 series certification, which covers all aspectsof the Company’s operations, including its planning, design, project management andcustomer service operations, for quality control and systems management. As with otherproperty developers in the Philippines, the Company finances a portion of projectdevelopment costs through pre-sales of units. Since pre-selling is an industry practice,

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buyers place great importance on the track record and reputation of developers to reduce thecompletion risk relating to their properties. As a result, the Company believes that itsreputation as a reliable property developer is particularly important in the Philippines to bothattract and maintain quality buyers, tenants and joint development partners.

. Strong residential marketing network. The Company maintains an in-house marketing andsales division staffed by a trained group of property consultants who sell residentialproperties exclusively for the Company. All property consultants undergo intensive trainingprior to embarking on any sales activity and the Company provides an on-the-job skillsenhancement program for its marketing and sales professionals to further develop their skills.In 1997, the Company was the first Philippine property company to create an internationalmarketing and sales division specifically targeted at overseas Filipinos, and sales to this grouphave increased each succeeding year. The Company’s international marketing and salesdivision is comprised of 23 offices worldwide. The Company’s extensive residential marketingnetwork enhances the Company’s brand recognition and its ability to pre-sell residentialunits.

STRATEGY


. Maximize earnings through integrated community township developments. The Companybelieves it is able to maximize earnings by integrating residential, business and retail propertycomponents in an integrated master-plan approach. This allows the Company to capitalize onthe live-work-play-learn concept to maximize its earnings from each sector. Thecomplementary nature of having retail, business and residential properties within proximityto each other enhances the attractiveness, saleability and lease potential of the residential,office and retail properties in the community township. The Company’s leadership position incrafting and delivering community township developments has strengthened over the yearsand continues to be its key strategy in bringing new projects to the market and in enteringinto new joint venture developments.

. Capitalize on brand and reputation. The Company believes that its strong brand name andreputation are key to its continued success. Since pre-selling is an industry practice in thePhilippines, buyers place great importance on the track record and reputation of developers toreduce the completion risk relating to their properties. The Company intends to continueusing its brand name and reputation to attract purchasers, tenants and joint developmentpartners. The Company continues to enhance its reputation by employing and training adedicated marketing staff and extensive sales network for its residential sales businesses whomarket the Megaworld brand. In addition, the Company is strategically involved in the after-sales market for the properties it develops by providing building management and other after-sales services such as interior design services.

. Maintain a strong financial position. The Company intends to maintain its strong financialposition by controlling costs and increasing its gearing ratio only when necessary. TheCompany’s gearing ratio is presently low. The Company is able to control development costsby generating a significant portion of its project financing from pre-sales of residential units.The Company typically does not begin construction of its residential buildings until it hassold approximately 70% of the units. Seventy percent of the Company’s residential units aretypically pre-sold within one year of project launch and over 90% are typically pre-sold priorto completion of construction. By securing post-dated checks and providing a variety offinancing options to buyers, the Company limits its cash outlays prior to obtaining projectfunds. The Company also controls development costs by entering into joint developmentagreements with landowners, which is a cost-effective means of obtaining rights to developland as initial costs are fixed and future payments are a fixed percentage of revenue fromsales and leasing activity.

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. Sustain a diversified development portfolio. An important part of the Company’s long-termbusiness strategy is to continue to maintain a diversified earnings base. Because theCompany’s community townships include a mix of BPO offices, retail, middle-incomeresidential, educational/training facilities, leisure and entertainment properties within closeproximity to each other, the Company is able to capitalize on the complementary nature ofsuch properties. In addition, the community township developments enable the Company togenerate profits from selling residential projects as well as invest in office and retail assetsretained by the Company to generate recurring income and long-term capital gains. TheCompany intends to continue to pursue revenue and property diversification as it developscommunity townships with the live-work-play-learn concept in various stages throughoutMetro Manila. The Company also intends to continue pursuing innovative product lines thatmay complement its existing developments, while maintaining a well-diversified earnings base.


COMPANY INFORMATION

Megaworld is a Philippine corporation with its registered office located at 28th Floor, The WorldCentre, 330 Sen. Gil J. Puyat Avenue, Makati City, Philippines 1227. Megaworld’s telephonenumber is +63-2-867-8826. Its corporate website is www.megaworldcorp.com. The information onthe website is not incorporated by reference into this Prospectus.

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SUMMARY OF THE OFFERING

Issuer . . . . . . . . . . . . Megaworld Corporation, a corporation organized under the laws of theRepublic of the Philippines.

Selling Shareholder . . . . Colony-CB Richard Ellis, MW, L.P.

The Offer . . . . . . . . . Offer of 3,923,166,000 Firm Shares, consisting of 3,500,000,000 newShares to be issued and offered by Megaworld and 423,166,000existing Shares to be offered by the Selling Shareholder. 3,727,008,000of the Firm Shares are being offered and sold outside the United Statesin reliance on Regulation S under the U.S. Securities Act as part of theInternational Offer and 196,158,000 of the Firm Shares are beingoffered and sold by the Selling Shareholder at the Offer Price to all ofthe PSE Brokers as part of the Domestic Offer in the Philippines. BDOCapital will act as the Domestic Underwriter. If the PSE Brokers do nottake up all of the Domestic Offer Shares in the Domestic Offer, theDomestic Underwriter shall distribute to its clients or the generalpublic the Domestic Offer Shares which have not been taken up.

Reallocation . . . . . . . . The allocation of the Offer Shares between the Domestic Offer and theInternational Offer is subject to adjustment. In the event of an under-application in the International Offer and if there is a correspondingover-application in the Domestic Offer, International Offer Shares may(at the option of the Domestic Underwriter) be reallocated from theInternational Offer (with the consent of the Lead Manager) to theDomestic Offer.

Offer Price . . . . . . . . . The Offer Price is P=1.38 per Offer Share.

Over-Allotment Option . The Company has granted the Stabilizing Agent an option, exercisablein whole or in part within 30 days from and including the Listing Date,to purchase up to 588,475,000 Optional Shares at the Offer Price, onthe same terms and conditions as the Firm Shares as set forth in thisProspectus, solely to cover over-allotments, if any. See ‘‘Plan ofDistribution’’.

Nationality Restrictions . The Company owns certain real estate and, as such, it is subject tonationality restrictions found under the Philippine Constitution andother laws limiting land ownership to Philippine Nationals. The term‘‘Philippine National’’ includes a corporation organized under the lawsof the Philippines of which at least 60% of the capital stockoutstanding and entitled to vote is owned and held by citizens of thePhilippines or by corporations that are at least 60% owned by citizensof the Philippines. The Company is thus constrained to keep its foreignequity interest below the 40% threshold and any sale or transfer ofshares in excess of this threshold shall not be recorded in the stock andtransfer book of the Company.

Domestic Block Sale . . . The Selling Shareholder, a non-Philippine National, shall sell300,000,000 Domestic Block Sale Shares at the Offer Price to TAGI,a Philippine National, on the Listing Date, on the same terms andconditions as the Firm Shares as set out in this Prospectus. TheDomestic Block Sale will provide leeway for the ownership of Sharesby Non-Philippine Nationals. The closings of the Domestic Block Saleand the Offer are conditional upon each other.

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Transfer Restrictions. . . The Offer Shares are initially being offered and sold outside the UnitedStates in reliance on Regulation S. The Offer Shares have not been andwill not be registered under the U.S. Securities Act and, subject tocertain exceptions, may not be offered or sold within the United States.See ‘‘Plan of Distribution’’.

Use of Proceeds . . . . . . See the section titled ‘‘Use of Proceeds’’ for details of how the total netproceeds from the Offer will be applied.

Lock-up . . . . . . . . . . The Company, TAGI, New Town Land and Mr. Andrew Tan have eachagreed with the Lead Manager that, other than in connection with theOver-Allotment Option and the option granted to Mr. Benedicto V.Yujuico to purchase 147 million shares of the Company owned byTAGI (the ‘‘TAGI Option’’), for a period of 180 days after the FirstClosing Date, neither it nor any person acting on its behalf will,without the prior written consent of the Lead Manager issue, offer,sell, contract to sell, pledge or otherwise dispose of (or publiclyannounce any such issuance, offer, sale or disposal of) any Shares orsecurities convertible or exchangeable into or exercisable for Shares orwarrants or other rights to purchase Shares or any security or financialproduct whose value is determined directly or indirectly by reference tothe price of the underlying securities, including equity swaps, forwardsales and options.

Listing and Trading . . . The Shares, including the Offer Shares being sold by the SellingShareholder, are listed on the PSE under the symbol ‘‘MEG’’. Approvalhas been obtained to list the newly issued Offer Shares on the PSE. See‘‘Description of the Shares’’. The Offer Shares are expected to be listedon the PSE on April 24, 2006. Trading is expected to commence on thesame date.

Dividends . . . . . . . . . The Company intends to maintain an annual cash dividend paymentratio of 20% of its net income from the preceding year, subject to therequirements of applicable laws and regulations and the absence ofcircumstances that may restrict the payment of such dividends, such aswhere the Company undertakes major projects and developments.Megaworld’s Board may, at any time, modify its dividend payout ratiodepending upon the results of operations and future projects and plansof the Company. See ‘‘Dividends and Dividend Policy’’.

Tax Considerations . . . See ‘‘Taxation’’ for further information on the tax consequences of thepurchase, ownership and disposition of the Offer Shares.

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Expected Timetable . . . The timetable of the Offer is expected to be as follows:

Pricing and allocation of the International OfferShares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . April 6, 2006

Start of Domestic Offer Period . . . . . . . . . . . . . . . April 10, 2006

End of Domestic Offer Period . . . . . . . . . . . . . . . . April 18, 2006

Settlement Date . . . . . . . . . . . . . . . . . . . . . . . . . April 24, 2006

Listing Date and Commencement of Trading onthe PSE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . April 24, 2006

although the dates included above are subject to market and otherconditions and may be changed.

Risks of Investing . . . . Before making any investment decision, investors should carefullyconsider the risks associated with an investment in the Offer Shares.These risks include:

. risks relating to the Company’s business;

. risks relating to the Philippines; and

. risks relating to the Offer.

Please refer to the section entitled ‘‘Risk Factors’’ beginning on page 15of this Prospectus, which, while not intended to be an exhaustiveenumeration of all risks, must be considered in connection with apurchase of the Offer Shares.

11

SUMMARY CONSOLIDATED FINANCIAL INFORMATION

The following tables present summary selected consolidated financial information for Megaworldand should be read in conjunction with the auditors’ reports and with Megaworld’s consolidatedfinancial statements and notes thereto contained in this Prospectus and the section entitled‘‘Management’s Discussion and Analysis of Financial Condition and Results of Operations’’. Thesummary financial information presented below for the years ended December 31, 2003, 2004 and2005 was derived from the consolidated financial statements of Megaworld, audited byPunongbayan & Araullo, a member practice of Grant Thornton International. The 2003, 2004and 2005 financial information included in this Prospectus has been prepared in accordance withPFRS. The information below is not necessarily indicative of the results of future operations. Forreaders’ convenience only, amounts in Pesos were converted to U.S. dollars using the PDS month-end closing rate as of December 31, 2005 of P=53.067 to US$1.00.


Income Statement Data 2003 2004 2005 2005P= P= P= US$(in millions, except per Share figures)










Note:(1) Other revenues consist of interest income, dividend income, foreign currency gain and miscellaneous items.

12

As of December 31,

Balance Sheet Data 2003 2004 2005 2005P= P= P= US$

(in millions)



Total assets . . . . . . . . . . . . . . . . . . . . . 31,652.2 32,518.5 32,782.9 617.8






16,028.9 16,770.3 17,874.7 336.9


Notes:(1) Cash and cash equivalents consist of cash on hand and in banks and short-term investments.(2) Other non-current assets consist of long-term placements of the non-current portion of trade and other receivables,




13








14

RISK FACTORS

An investment in the Offer Shares involves a number of risks. The price of securities can and doesfluctuate, and any individual security may experience upward or downward movements, and mayeven become valueless. There is an inherent risk that losses may be incurred rather than profitmade as a result of buying and selling securities. Past performance is not a guide to futureperformance, and there may be a large difference between the buying price and the selling price ofthese securities. Investors should carefully consider all the information contained in thisProspectus, including the risk factors described below, before deciding to invest in the OfferShares. The occurrence of any of the following events could have a material adverse effect onMegaworld’s business, financial condition and results of operations and cause the market price ofthe Offer Shares to decline. All or part of an investment in the Offer Shares could be lost.

The means by which Megaworld plans to address the risk factors discussed herein are principallypresented in this section and under the captions ‘‘Business — Competitive Strengths’’ on pages 61to 62 and ‘‘Business — Strategy’’ on page 63. This risk disclosure does not purport to disclose allof the risks and other significant aspects of investing in these securities. Investors should undertakeindependent research and study the trading of securities before commencing any trading activity.Investors should seek professional advice regarding any aspect of the securities such as the natureof risks involved in the trading of securities, and specifically those of high risk securities. Investorsmay request publicly available information on the Shares and the Company from the PhilippineSEC.

RISKS RELATED TO THE COMPANY’S BUSINESS

The Company’s properties are all in the Philippines and the Company is exposed to risks

inherent in the Philippine property market.

Megaworld derives substantially all of its revenue and operating profits from its propertyinvestment activities in the Philippines and is consequently dependent on the state of the Philippineproperty market. Historically, the Philippine property market has been cyclical and property valueshave been affected by supply and demand of comparable properties, the rate of economic growthin the Philippines and political developments.

The Philippine property market went through a downturn brought about by the effects of theAsian financial crisis and the slow economic recovery that followed. High-rise office andresidential condominium buildings rose at a brisk pace and construction of housing developmentswere undertaken simultaneously. The abrupt drop in demand following the Asian financial crisisresulted in a glut in the property market and depressed property prices.

In addition, the property market is susceptible to changes in interest rates. An increase in interestrates in the Philippines could reduce the demand for the residential properties the Company builds,particularly residential condominium and commercial properties. A reduction in demand couldmaterially adversely affect Megaworld’s profitability.

The Company is exposed to portfolio concentration risks.

Property located in Metro Manila, the premier commercial capital of the Philippines, accounts forsubstantially all of the appraised value of the Company’s assets. Further, the Company’s currentprojects are all located within a relatively short distance from the Makati City central businessdistrict or the Ortigas business district. Due to the concentration of the Company’s propertyportfolio in Metro Manila, a decrease in property values in Metro Manila would have a materialadverse effect on the business and results of operations of the Company.

The Company may be unable to acquire land for future development.

The Company’s business is dependent, in large part, on the availability of large tracts of landsuitable for development by the Company. As the Company and its competitors attempt to locatesites for development, it may become more difficult to locate parcels of suitable size in locations

15

and at prices acceptable to the Company. To the extent that the Company is unable to acquiresuch tracts of land at acceptable prices, its business and results of operations could be adverselyaffected.

The Company is exposed to risks associated with real estate development.

The Company is subject to risks inherent in property development. Such risks include, among otherthings, the risks that financing for development may not be available on favorable terms, thatconstruction may not be completed on schedule or within budget (for reasons including shortagesof equipment, material and labor, work stoppages, interruptions resulting from inclement weather,unforeseen engineering, environmental and geological problems and unanticipated cost increases),that development may be affected by governmental regulations (including changes in building andplanning regulations and delays or failure to obtain the requisite construction and occupancyapprovals), and that developed properties may not be leased or sold on profitable terms and therisk of purchaser and/or tenant defaults.

The Company is exposed to risks that it will be unable to lease its properties in a timely

manner or collect rent at profitable rates or at all.

The Company is subject to risk incidental to the ownership and operation of office and relatedretail properties including, among other things, competition for tenants, changes in market rents,inability to renew leases or re-let space as existing leases expire, inability to collect rent fromtenants due to bankruptcy or insolvency of tenants or otherwise, increased operating costs and theneed to renovate, repair and re-let space periodically and to pay the associated costs. In particular,the Company relies on the growth of the BPO business as a continued source of revenue from therental properties in its community township developments. If the BPO business does not grow asthe Company expects or if the Company is not able to continue to attract BPO-based tenants, itmay not be able to lease its office space or as a consequence, its retail space, in a timely manner orotherwise at satisfactory rents, which could have a material adverse effect on the Company’soperations and financial condition.

A downturn in economic conditions could adversely affect the Company’s business.

The Company’s ability to generate revenues is directly related to the real estate market in MetroManila, and to the Philippine economy in general. Considerable economic and politicaluncertainties currently exist that could have adverse effects on consumer buying habits,construction costs, availability of labor and materials and other factors affecting the Companyand the real estate industry in general.

Significant expenditures associated with investment in real estate, such as real estate taxes,maintenance costs and debt payments, cannot generally be reduced if changes in the Philippineproperty market or the Philippine economy cause a decrease in revenues from the Company’sproperties. In particular, if the growth rate for the Philippine economy declines or if a recession inthe Philippine economy occurs, the Company’s profitability could be materially adversely affected.

The Company’s joint venture partners may have interests that differ from Megaworld’s

interests and may take actions that adversely affect the Company.

The Company obtains a significant portion of its land bank through joint development agreementswith landowners and may initiate future joint development agreements as part of its overalldevelopment strategy. A joint venture involves special risks where Megaworld may not have fullcontrol over the joint venture or the property development plans; the venture partner at any timemay have economic or business interests or goals that are inconsistent with those of the Company;the venture partner may take actions contrary to the Company’s instructions or requests, orcontrary to the Company’s policies or objectives with respect to the real estate investments; or theventure partner could experience financial difficulties.

Significant competition in the Philippine real estate industry could have an adverse effect on

the Company’s business.

Megaworld operates in a highly competitive industry. A number of residential and commercialdevelopers and real estate services companies, some with greater financial and other resources andmore attractive locations, compete with Megaworld in seeking properties for acquisition, resourcesfor development and prospective purchasers and tenants. For example, land for the development of

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RISK FACTORS

business areas is being offered by the city governments of Quezon, Pasay and Manila, particularlyto the developers targeting the BPO industry and who may compete with the Company’s currentdevelopment projects. Competition from other real estate developers and real estate servicescompanies may adversely affect Megaworld’s ability to sell its properties or attract and retaintenants.

Services rendered by independent contractors may not always match the Company’s

requirements for quality or be available within its budget.

The Company engages independent contractors to provide various services, including construction,piling and foundation, building and property fitting-out works and installation of elevators. TheCompany selects independent contractors by conducting open tenders. Although the Companyinvites contractors to tender bids according to their reputation for quality and track record, andalthough once a contract is awarded the Company supervises the construction progress, there canbe no assurance that the services rendered by any of its independent contractors will always besatisfactory or match the Company’s requirements for quality. In addition, the Company may berequired to provide additional capital in excess of the contractor’s bid to complete a propertydevelopment. Further, the completion of certain property developments may be delayed, and theCompany may incur additional costs, due to a contractors’ financial or other difficulties. Any ofthese factors could have a material adverse effect on the Company’s business, financial conditionand results of operations.

Megaworld operates in a regulated environment and its businesses are affected by the

development and application of regulations in the Philippines.

The Company operates its businesses in a regulated environment. Presidential Decree No. 957, asamended, is the principal statute which regulates the development and sale of real property as partof a condominium project or subdivision. Presidential Decree No. 957 covers subdivision projectsfor residential, commercial, industrial or recreational purposes and condominium projects forresidential or commercial purposes. The HLURB is the administrative agency of the Government ofthe Philippines which, together with local government units, enforces this decree and hasjurisdiction to regulate the real estate trade and business. Regulations applicable to the Company’soperations include standards regarding the suitability of the site, road access, necessary communityfacilities, open spaces, water supply, sewage disposal systems, electricity supply, lot sizes, thelength of the housing blocks and house construction. All subdivision plans are required to be filedwith and approved by the local government unit concerned, while condominium project plans arerequired to be filed with and approved by the HLURB. Approval of such plans is conditioned on,among other things, completion of the acquisition of the project site and the developer’s financial,technical and administrative capabilities. Alterations of approved plans that affect significant areasof the project, such as infrastructure and public facilities, also require the prior approval of therelevant government unit. There can be no assurance that the Company, its subsidiaries orassociates or partners will be able to obtain governmental approvals for its projects or that whengiven, such approvals will not be revoked.

In addition, owners or dealers of real estate projects are required to obtain licenses to sell beforemaking sales or other disposition of lots or real estate projects. Project permits and any license tosell may be suspended, canceled or revoked by the HLURB by itself or upon complaint from aninterested party and there can be no assurance that Megaworld, its subsidiaries, associates orpartners will in all circumstances, receive the requisite approvals, permits or licenses or that suchpermits, approvals or licenses will not be cancelled or suspended.

The market value of Empire East Land Holdings, Inc., an associate of the Company, is

significantly lower than its book value as recorded in the Company’s financial statements.

The Company retains a 45.22% interest in Empire East Land Holdings, Inc. (EELH), an associateof the Company. As of December 31, 2005, the acquisition cost of the Company’s stake in EELHin the Company’s financial statements is P=3,670.4 million. However, the market value of theCompany’s stake in EELH based on EELH’s share price as of March 23, 2006 is P=1,791.8 million.Because the market value of the Company’s stake in EELH is lower than the value of EELHrecorded in the Company’s financial statements, a sale or disposition of the Company’s interest inEELH at its market value would be recorded as a loss in the Company’s income statement. There

17

RISK FACTORS

can be no assurance that the Company will retain its interest in EELH or that it will be able to sellEELH at a level higher than its current market value. A sale or disposition of EELH may adverselyimpact the Company’s financial condition and results of operations.

Environmental laws applicable to Megaworld’s business could have a material adverse effect

on its business, financial condition or results of operations.

In general, developers of residential subdivisions are required to submit project descriptions toregional offices of the DENR. In environmentally critical projects or at the discretion of theregional office of the DENR, a detailed Environmental Impact Assessment may be required and thedeveloper will be required to obtain an Environmental Compliance Certificate to certify that theproject will not cause an unacceptable environmental impact. There can be no assurance thatcurrent environmental laws and regulations applicable to the Company will not increase the costsof operating its facilities above currently projected levels or require future capital expenditures. Inaddition, Megaworld cannot predict what environmental legislation or regulations will be amendedor enacted in the future, how existing or future laws or regulations will be enforced, administeredor interpreted, or the amount of future expenditures that may be required to comply with theseenvironmental laws or regulations or to respond to environmental claims. See ‘‘Regulatory andEnvironmental Matters’’. The introduction or inconsistent application of, or changes in, laws andregulations applicable to Megaworld’s business could have a material adverse effect on itsbusiness, financial condition or results of operations.

The Company may suffer losses that are not covered by insurance.

The Company’s property developments and its business may be adversely affected due to theoccurrence of typhoons, severe storms, earthquakes, floods, fires or other natural disasters orsimilar events. Although the Company carries insurance on its property developments with respectto specified catastrophic events, of types and in amounts and with deductibles that the Companybelieves are in line with coverage customarily obtained by owners of similar properties in thePhilippines, there are losses for which the Company cannot obtain insurance at a reasonable costor at all. Should an uninsured loss or a loss in excess of insured limits occur, the Company couldlose all or a portion of the capital invested in a property, as well as the anticipated future turnoverfrom the property. Nevertheless, the Company might remain liable for any project constructioncosts or other financial obligations related to the property. Any material uninsured loss couldmaterially and adversely affect the Company’s business, financial condition and results ofoperations.

RISKS RELATING TO THE PHILIPPINES

Any political instability in the Philippines may adversely affect Megaworld.

The Philippines has from time to time experienced political and military instability. Politicalinstability in the Philippines occurred in the late 1980’s when Presidents Ferdinand Marcos andCorazon Aquino held office. In 2000, the then President of the Philippines, Joseph Estrada, wassubject to allegations of corruption, culminating in impeachment proceedings, mass public protestsin Manila, withdrawal of support of the military and his resignation from office. The VicePresident, Gloria Macapagal-Arroyo, was sworn in as President on January 20, 2001. On July 27,2003, a group of 70 officers and over 200 soldiers from the Philippine Army, Navy and Air Forceattempted a coup d’etat against the Macapagal-Arroyo administration which ended after 20 hoursof negotiation between the group and the Government. Certain individuals identified with theadministration of former President Estrada, including Senator Gregorio Honasan, have beenimplicated as supporters of the failed coup d’etat.

In May 2004, the Philippines held presidential elections as well as elections for the Senate and theHouse of Representatives. President Macapagal-Arroyo was elected for a second six-year term.However certain opposition candidates, including defeated presidential candidate Fernando Poe,Jr., questioned the election results, alleging fraud and disenfranchisement of voters. On July 23,2004, Mr. Poe petitioned the Philippine Supreme Court, acting in its capacity as the PresidentialElectoral Tribunal, to order a recount of approximately 60% of votes cast nationwide. In response,President Arroyo asked the tribunal to dismiss the petition for lack of merit. Mr. Poe died onDecember 14, 2004, after suffering a stroke. On March 28, 2005, the Supreme Court unanimouslydismissed the petition on the grounds that no real party in interest had filed a case to intervene or

18

RISK FACTORS

to be a substitute for Mr. Poe. Allegations of fraud committed during the May 2004 election haveintensified since early June 2005 in light of revelations that President Arroyo had spoken with anofficial from the Independent Commission on Elections during the counting of votes. PresidentArroyo has admitted to speaking with an election official, but insists that she did not participate infraud or induce the Commission on Elections to tamper with the election. As a result of thesecontroversies, several members of the Arroyo cabinet resigned from their posts.

On July 25, 2005, the impeachment complaints that were filed by several citizens and oppositionlawmakers in the House of Representatives against President Arroyo, based on the allegations ofculpable violation of the Constitution, graft and corruption and betrayal of the public trust, werereferred by the Speaker of the House to the Committee on Justice. On September 6, 2005, theHouse of Representatives voted to uphold a decision of the House Committee on Justice to rejectthe pending impeachment complaints against President Arroyo. The House vote was 158 for and51 against, with six abstentions. On August 31, 2005, the House Committee on Justice voted ineffect to dismiss all impeachment complaints previously filed; however, the impeachmentcomplaints could have still proceeded to the Senate for trial if at least 79 representatives fromthe 236-member House of Representatives voted against the House Committee’s decision. InSeptember 2005, President Arroyo issued Executive Order 464 which requires certain officials ofthe Government and the uniformed services to obtain the President’s clearance before appearingbefore the Senate or House of Representatives. A petition has been filed with the Supreme Courtquestioning the constitutionality of Executive Order 464. Members of the opposition, includingformer members of the military, continue to call for President Arroyo’s resignation.

There have also been recent media reports of military plots to remove President Arroyo fromoffice. On February 24, 2006, President Arroyo issued Proclamation 1017 which declared a stateof national emergency in response to reports of an attempted coup d’etat. In connection with theproclamation, several opposition members were arrested or threatened to be arrested including fiveparty list members of the House of Representatives. All public rallies, including planneddemonstrations to mark the twentieth anniversary of the EDSA people power revolution thatended the presidency of former President Marcos, were discouraged. On February 26, 2006,several members of the Philippine marines called on the people to protest the abrupt resignation ofthe head of the marine corps. After meeting for several hours, the marines disbanded peacefullyand reiterated their support for the chain of command of the Armed Forces of the Philippines.Several Constitutional challenges to President Arroyo’s Proclamation 1017 have since been filedwith the Philippine Supreme Court. On March 3, 2006, President Arroyo ended the state ofnational emergency. No assurance can be given that the political environment in the Philippineswill stabilize and any political instability in the future may have an adverse effect on Megaworld’sbusiness, results of operations and financial condition.

Furthermore, the Philippines has been subject to a number of terrorist attacks in the past threeyears. The Philippine army has been in conflict with the Abu Sayyaf organization which has beenidentified as being responsible for kidnapping and terrorist activities in the Philippines. There havebeen bombing incidents in the Philippines, mainly in the southern cities. Although no one hasclaimed responsibility for these attacks, it is believed that the attacks are the work of variousseparatist groups, including possibly the Abu Sayyaf organization, which has ties to the al-Qaedaterrorist network. There can be no assurance that the Philippines will not be subject to further actsof terrorism in the future.

The substantial majority of Megaworld’s income is derived from the Philippines and,

therefore, a slowdown in economic growth in the Philippines could adversely affect

Megaworld.

In 2005, Megaworld’s operations in the Philippines accounted for 100% of its net sales; 80% ofnet sales were derived from the Philippines and the remainder were from sales in the United States,Europe, the Middle East and Asia. Historically, results of operations have been influenced, andwill continue to be influenced, to a significant degree by the general state of the Philippineeconomy. Megaworld’s income and results of operations depend, to a significant extent, on theperformance of the Philippine economy. In the past, the Philippines has experienced periods ofslow or negative growth, high inflation, significant devaluation of the peso and the imposition ofexchange controls.

19

RISK FACTORS

From mid-1997 to 1999, the economic crisis in Asia adversely affected the Philippine economy,causing a significant depreciation of the peso, increases in interest rates, increased volatility andthe downgrading of the Philippine local currency rating and the ratings outlook for the Philippinebanking sector. These factors had a material adverse impact on the ability of many Philippinecompanies to meet their debt-servicing obligations. In particular, the significant depreciation of thepeso made it difficult for many Philippine companies with peso revenue streams and significantU.S. dollar or other foreign currency-denominated loans or costs to meet their repaymentobligations. While the Philippine economy registered positive economic growth in the period from1999 to 2001 as it recovered from the Asian economic crisis, it continues to face a significantbudget deficit, limited foreign currency reserves, a volatile peso exchange rate and a relativelyweak banking sector. High oil and consumer prices and weak external trade contributed to aslowdown in GDP growth in 2005. In the third quarter of 2005, GDP growth decelerated to 4.6%,compared to growth of 6.3% in the third quarter of 2004, and GNP growth decelerated to 5.4% inthe third quarter of 2005 from 6.5% in the third quarter of 2004. Prospects for future growththerefore remain uncertain and the Government may be required to increase borrowings in order tomeet its operational needs. Any deterioration in the economic conditions in the Philippines mayadversely affect consumer sentiment and lead to a reduction in demand for Megaworld’sproperties. There can be no assurance that current or future Governments will adopt economicpolicies conducive to sustaining economic growth.

The Company’s Shares are subject to Philippine foreign ownership limitations.

The Philippine Constitution and related statutes restrict land ownership to Philippine Nationals.The term ‘‘Philippine National’’ as defined under Republic Act No. 7042, as amended, means acitizen of the Philippines, or a domestic partnership or association wholly owned by citizens of thePhilippines, or a corporation organized under the laws of the Philippines of which at least 60% ofthe capital stock outstanding and entitled to vote is owned and held by citizens of the Philippines,or a corporation organized abroad and registered to do business in the Philippines under theCorporation Code of the Philippines of which 100% of the capital stock outstanding and entitledto vote is wholly owned by Filipinos or a trustee of funds for pension or other employee retirementor separation benefits, where the trustee is a Philippine national and at least 60% of the fund willaccrue to the benefit of Philippine Nationals. As of the date of this Prospectus, the Company ownsprivate land in the Philippines.

Considering the foregoing, as long as the Company owns land, foreign ownership in the Companyis limited to a maximum of 40% of the Company’s issued and outstanding capital stock.Accordingly, the Company cannot allow the issuance or the transfer of shares to persons otherthan Philippine Nationals and cannot record transfers in the books of the Company if suchissuance or transfer would result in the Company ceasing to be a Philippine National for purposesof complying with the restrictions on foreign land ownership discussed above. This restriction mayadversely affect the liquidity and market price of the Shares to the extent international investorsare not permitted to purchase Shares in normal secondary transactions.

The low credit ratings of the Government may adversely affect Megaworld’s business.

On January 17, 2005, Standard & Poor’s Ratings Services (‘‘S&P’’), lowered its long-term foreigncurrency sovereign credit rating for the Philippines to ‘‘BB-’’ from ‘‘BB,’’ and its long-term localcurrency sovereign credit rating for the Philippines to ‘‘BB+’’ from ‘‘BBB-.’’ S&P also lowered itsshort-term local currency sovereign credit rating on the Government to ‘‘B’’ from ‘‘A-3,’’ andaffirmed its short-term ‘‘B’’ foreign currency sovereign credit rating. S&P’s outlook is currentlystable. S&P noted that its downgrades reflected the Government’s inadequate response to its fiscalproblems, citing little progress on the Government’s attempts to raise tax revenue and theGovernment’s dependence on foreign debt. S&P’s outlook is currently ‘‘stable’’, after raising itsoutlook from ‘‘negative’’ on February 9, 2006. On January 27, 2005, Moody’s Investors Services,Inc., (‘‘Moody’s’’), lowered its long-term foreign currency sovereign credit rating for thePhilippines from Ba2 to B1. Moody’s outlook is currently ‘‘negative’’. On February 13, 2006,Fitch Ratings (‘‘Fitch’’) raised its outlook from ‘‘negative’’ to ‘‘stable’’. Fitch’s long term issuerdefault rating for the Government is ‘‘BB’’.

20

RISK FACTORS

The low sovereign ratings of the Government directly adversely affect companies resident in thePhilippines as international credit rating agencies issue credit ratings by reference to that of thesovereign. No assurance can be given that Moody’s, S&P, Fitch or any other international creditrating agency will not further downgrade the credit ratings of the Government and, therefore,affect Philippine companies, including Megaworld. Any such downgrade could have an adverseimpact on the liquidity in the Philippine financial markets, the ability of the Government andPhilippine companies, including Megaworld, to raise additional financing and the interest rates andother commercial terms at which such additional financing is available.

RISKS RELATING TO THE OFFER

The Company is effectively controlled by the Tan family and their interests may differ

significantly from interests of other shareholders.

As of December 31, 2005, the Tan family beneficially owned 99.99% of the issued share capital ofTAGI and a controlling interest in New Town Land. As of December 31, 2005, TAGI and NewTown Land, together beneficially owned 53% of the issued share capital of the Company. Throughits beneficial ownership of shares in TAGI and New Town Land in addition to approximately 7%of the issued share capital of the Company directly held by Andrew Tan, the Tan family effectivelycontrols the Company. Members of the Tan family, either individually or collectively havecontrolled the Company since its inception and have private interests in a number of companieseither alone or together with other family members. Mr. and Mrs. Andrew Tan also serve on theCompany’s Board and Mr. Tan is also the President and Chairman. The respective businesses oractivities of other Tan-related companies currently do not compete with Megaworld’s businesses oractivities, but they may do so in the future. In addition, certain Tan-controlled companies mayhave significant commercial transactions with the Company. See ‘‘Related Party Transactions’’.These transactions have generally been entered into on arm’s length commercial terms. Theinterests of the Tan family, TAGI and New Town Land, as Megaworld’s controlling shareholders,may differ significantly from Megaworld’s interests or the interests of other shareholders, andthere can be no assurance that the Tan family, TAGI and New Town Land will exercise influenceover the Company in a manner that is in the best interests of Megaworld’s other shareholders.

There can be no guarantee that the Offer Shares will be listed on the PSE.

Purchasers of Offer Shares will be required to pay for such Offer Shares on the Settlement Datewhich is expected to be on or about April 24, 2006. Although the PSE has approved Megaworld’sapplication to list the new Offer Shares, because the Listing Date is scheduled to occur after theSettlement Date, there can be no guarantee that listing will occur on the anticipated Listing Dateor at all. Delays in the admission and the commencement of trading in shares on the PSE haveoccurred in the past. If the PSE does not admit the Offer Shares onto the PSE, the market for theOffer Shares will be illiquid and shareholders may not be able to trade the Offer Shares. However,they would be able to sell their Shares by negotiated sale. This may materially and adversely affectthe value of the Offer Shares.

There has been a limited prior market for the Shares, so there may be no liquidity in the

market for the Offer Shares and the price of the Offer Shares may fall.

The Shares are listed on the PSE. Trading volumes on the PSE have historically been significantlysmaller than on major securities markets in more developed countries and have also been highlyvolatile. As there has been little historical liquidity in the Shares, there can be no assurance that anactive market for the Offer Shares will develop following the Offer or, if developed, that suchmarket will be sustained.

The Offer Price will be determined after taking into consideration a number of factors including,but not limited to, Megaworld’s prospects, the market prices for shares of companies engaged inrelated businesses similar to that of Megaworld and prevailing market conditions. The price atwhich the Shares will trade on the PSE at any point in time after the Offer may vary significantlyfrom the Offer Price.

21

RISK FACTORS

Future sales of Shares in the public market could adversely affect the prevailing market price

of the Shares and shareholders may experience dilution in their holdings.

The market price of the Shares could decline as a result of future sales of substantial amounts ofthe Shares in the public market or the issuance of new Shares, or the perception that such sales,transfers or issuances may occur. This could also materially and adversely affect the prevailingmarket price of the Shares or Megaworld’s ability to raise capital in the future at a time and at aprice it deems appropriate.

The Company, TAGI, Mr. Andrew Tan and New Town Land have each agreed with the LeadManager that, other than in connection with the Over-Allotment Option and the TAGI Option, fora period of 180 days after the First Closing Date, neither it nor any person acting on its behalf willissue, offer, sell, contract to sell, pledge or otherwise dispose of (or publicly announce any suchissuance, offer, sale or disposal of) any Shares or securities convertible or exchangeable into orexercisable for Shares or warrants or other rights to purchase Shares or any security or financialproduct whose value is determined directly or indirectly by reference to the price of the underlyingsecurities, including equity swaps, forwards, sales and options without, in each case, the priorwritten consent of the Lead Manager.

Except for such restrictions, there is no restriction on Megaworld’s ability to issue Shares or theability of any of its shareholders to dispose of, encumber or pledge, their Shares, and there can beno assurance that Megaworld will not issue Shares or that such shareholders will not dispose of,encumber or pledge, their Shares.

Future changes in the value of the Philippine peso against the U.S. dollar or other currencies

will affect the foreign currency equivalent of the value of the Shares and any dividends.

Fluctuations in the exchange rate between the Philippine peso and other currencies will affect theforeign currency equivalent of the peso price of the Shares on the PSE. Such fluctuations will alsoaffect the amount in foreign currency received upon conversion of cash dividends or otherdistributions paid in peso by Megaworld on, and the peso proceeds received from any sales of, theShares.

22

RISK FACTORS

USE OF PROCEEDS

Megaworld estimates that its net proceeds from the Primary Offer will be approximatelyP=4,619,211,375, after deducting the applicable underwriting discounts and commissions andexpenses for the Offer payable by Megaworld. Megaworld will not receive any proceeds from thesale of Offer Shares by the Selling Shareholder. Taxes, issue management, underwriting and sellingfees and other fees and expenses pertaining to the Secondary Offer will be paid by the SellingShareholder.

Megaworld intends to use its net proceeds from the Offer to finance its capital and projectexpenditures for 2006 and 2007 for the following projects:

. P=2,500 million for the development and construction of McKinley Hill Cyberpark andMcKinley Hill Town Center; and

. P=2,000 million for the 1800 and 1880 Eastwood offices (Phases I and II) and Eastwood Mall.

A portion of the net proceeds will also be used by Megaworld for general corporate purposes,including but not limited to working capital and investments.

The foregoing discussion represents an estimate of Megaworld’s net proceeds from the Offer basedon Megaworld’s current plans and anticipated expenditures. Actual allocation of net proceeds byMegaworld may vary from the foregoing discussion as management may find it necessary oradvisable to reallocate the net proceeds within the categories described above or to use such netproceeds for other corporate purposes.

Megaworld estimates the net proceeds to be received by the Selling Shareholder from the Offer willbe approximately P=553,238,764 after deducting the applicable underwriting discounts andcommissions and expenses for the Offer payable by the Selling Shareholder. The use of proceedscalculations are based on the Offer Price of P=1.38 per Offer Share.

Megaworld estimates that its total costs and expenses for the Offer (assuming no exercise of theOver-Allotment Option) will be approximately P=210,788,625, consisting of:

Underwriting and selling fees for Offer Shares being sold by Megaworld . . . . . . . . . . . 169,050,000Taxes to be paid by Megaworld . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17,500,000Philippine SEC filing and legal research fee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,983,211PSE listing and processing fee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,644,800Estimated professional fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11,584,055Estimated other expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,026,559

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . P=210,788,625

The costs and expenses to be incurred by the Selling Shareholder will be approximatelyP=30,730,316, consisting of:

Underwriting and selling fees for Offer Shares being sold by the Selling Shareholder. . . . 22,239,060Stock transaction tax to be paid by the Selling Shareholder . . . . . . . . . . . . . . . . . . . 2,919,845Philippine SEC filing and legal research fee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 350,789PSE Brokers’ commission and block sale costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,207,403Estimated professional fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,048,978Estimated other expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 964,241

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . P=30,730,316

Megaworld intends to pay the costs and expenses of the Offer other than the underwritingcommissions, discounts, taxes and other expenses applicable to the Offer Shares being sold by theSelling Shareholder.

23

DIVIDENDS AND DIVIDEND POLICY

The payment of dividends, either in the form of cash or stock, will depend upon the Company’searnings, cash flow and financial condition, among other factors. The Company may declaredividends only out of its unrestricted retained earnings. These represent the net accumulatedearnings of the Company, with its capital unimpaired, which are not appropriated for any otherpurpose. The Company may pay dividends in cash, by the distribution of property, or by the issueof shares of stock. Dividends paid in cash are subject to the approval by the Board of Directors.Dividends paid in the form of additional shares are subject to approval by both the Board ofDirectors and at least two-thirds of the outstanding capital stock of the shareholders at ashareholders’ meeting called for such purpose. No cash dividends were declared on the Company’scommon shares for 2003, 2004 or 2005. On February 28, 2006, the Board approved a cashdividend of P=0.02 per Share, payable on April 10, 2006 to shareholders on record as of March 15,2006.

The Corporation Code prohibits stock corporations from retaining surplus profits in excess of100% of their paid-in capital stock, except when justified by definite corporate expansion projectsor programs approved by the Board of Directors, or when the corporation is prohibited under anyloan agreement with any financial institution or creditor from declaring dividends without itsconsent, and such consent has not yet been secured, or when it can be clearly shown that suchretention is necessary under special circumstances obtaining in the corporation.

Megaworld declares cash dividends to shareholders of record usually in the first half of each year.These dividends are paid from unrestricted retained earnings.

The Company intends to maintain an annual cash dividend payment ratio of 20% of its net incomefrom the preceding year, subject to the requirements of applicable laws and regulations and theabsence of circumstances that may restrict the payment of such dividends, such as where theCompany undertakes major projects and developments. Megaworld’s Board may, at any time,modify its dividend payout ratio depending upon the results of operations and future projects andplans of the Company.

24

EXCHANGE RATES

Fluctuations in the exchange rates between the peso and the U.S. dollar and other foreigncurrencies will affect the equivalent in U.S. dollars or other foreign currencies of the peso price ofthe Shares on the PSE, of dividends distributed in pesos by Megaworld, if any, and of the pesoproceeds received by investors on a sale of the Shares on the PSE, if any. Fluctuations in suchexchange rates will also affect the peso value of Megaworld’s assets and liabilities which aredenominated in currencies other than pesos.

The PDS, a computer network supervised by the BSP, through which the members of BankersAssociation of the Philippines effect spot and forward currency exchange transactions, wasintroduced in 1992. The PDS was adopted by the BSP as a means to monitor foreign exchangerates. The PDS Rate is the closing spot rate for the purchase of U.S. dollars with pesos which isquoted by PDS and published in BSP’s Reference Exchange Rate Bulletin and the major Philippinefinancial press on the following business day. On December 31, 2005, the PDS Rate was P=53.067 =U.S.$1.00. On April 6, 2006, the PDS Rate was P=50.997 = U.S.$1.00.

The following table sets out certain information concerning the PDS Rate between the peso and theU.S. dollar for the periods and dates indicated, expressed in pesos per U.S.$1.00 :

peso/U.S. dollar exchange rate

Year Period end Average(1) High Low

2001 . . . . . . . . . . . . . . . . . . . . . . . . . . 51.404 50.993 55.013 47.5502002 . . . . . . . . . . . . . . . . . . . . . . . . . . 53.096 51.604 53.841 49.3362003 . . . . . . . . . . . . . . . . . . . . . . . . . . 55.569 54.203 55.767 52.0212004 . . . . . . . . . . . . . . . . . . . . . . . . . . 56.267 56.040 56.443 55.1422005 . . . . . . . . . . . . . . . . . . . . . . . . . . 53.067 55.085 56.355 52.9952006 (through April 6, 2006) . . . . . . . . . . . 50.997 51.679 53.062 50.963

Note:(1) The average of the monthly average PDS Rates during the relevant period.

Source: Reference Exchange Rate Bulletin, Treasury Department of the BSP

25

MARKET PRICE INFORMATION

The Shares are traded on the PSE under the symbol MEG. The Shares were listed on the PSE inJune 15, 1994. For a description of the PSE, see ‘‘The Philippine Stock Market’’.

The PSE composite index is composed of 34 company stocks representative of the financial sector,industrial sector, holding firms sector, property sector, services sector, and mining and oil sector ofthe PSE. The index had a base value of 2,922.21 as of December 31, 1994. Megaworld is currentlyincluded in the PSE composite index. The PSE announced that, effective April 1, 2006, it wouldreclassify its benchmark by using ‘‘free-float market capitalization’’ to compute the index, as wellas to determine which companies will compose the index.

The following table sets out, for the periods indicated:

. the high and low sales price for the Shares as reported on the PSE;

. the average daily trading volume of the Shares; and

. the high and lows of the PSE composite index.

Price per Share of the Shares

Averagedaily trading

volume ofthe Shares

PSE composite index

High Low High Lowin pesos

Year2001 . . . . . . . . . . . . . . . . . 0.88 0.47 4,156,185 1,712.06 979.342002 . . . . . . . . . . . . . . . . . 0.75 0.47 2,555,463 1,469.07 997.782003 . . . . . . . . . . . . . . . . . 0.92 0.46 3,564,729 1,450.70 999.462004 . . . . . . . . . . . . . . . . . 1.18 0.83 3,669,532 1,851.60 1,388.152005 . . . . . . . . . . . . . . . . . 1.60 0.92 6,357,224 2,166.10 1,813.042006 (through April 6, 2006) . . 1.58 1.22 10,124,145 2,220.37 2,060.92

Source: Bloomberg

In addition, the high and low sales prices for the Shares as reported on the PSE for each quarter in2005 and 2004 were as follows:

High Low

2005January 1, 2005 to March 31, 2005 . . . . . . . . . . . . . . . . . . . . . . . . . . 1.60 1.02April 1, 2005 to June 30, 2005 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.28 1.03July 1, 2005 to September 30, 2005 . . . . . . . . . . . . . . . . . . . . . . . . . . 1.22 0.92October 1, 2005 to December 31, 2005 . . . . . . . . . . . . . . . . . . . . . . . 1.34 1.12

2004January 1, 2004 to March 31, 2004 . . . . . . . . . . . . . . . . . . . . . . . . . . 1.36 0.99April 1, 2004 to June 30, 2004 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.22 1.00July 1, 2004 to September 30, 2004 . . . . . . . . . . . . . . . . . . . . . . . . . . 1.34 1.06October 1, 2004 to December 31, 2004 . . . . . . . . . . . . . . . . . . . . . . . 1.44 1.18

On April 6, 2006, the closing price of the Shares on the PSE was P=1.56 per Share and the closingPSE composite index was 2,220.37.

As of December 31, 2005, Megaworld had 3,742 shareholders of record worldwide.

Approval has been obtained to list the Primary Offer Shares on the PSE. These Shares are expectedto be listed on the PSE on April 24, 2006. Trading is expected to commence on the same date.

26

DETERMINATION OF OFFER PRICE

The Offer Price has been set at P=1.38 per Offer Share based on the 10-day volume weightedaverage market price (‘‘VWAP’’) of the Shares on the PSE on April 6, 2006, subject to a discountof 9%. The 10-day VWAP of the Shares on April 6, 2006 was P=1.5171 per Share. The Offer Pricefor the Offer Shares was determined through a book-building process and discussions between theCompany, the Selling Shareholder and the Lead Manager.

27

CAPITALIZATION

The following table sets out, in accordance with PFRS, Megaworld’s consolidated capitalization asof December 31, 2005 and as adjusted to reflect the sale of the new Offer Shares. The table shouldbe read in conjunction with Megaworld’s consolidated financial statements, including the notesthereto, included in this Prospectus. Other than as described below, there has been no materialchange in Megaworld’s capitalization since December 31, 2005.

As of December 31, 2005

Actual As Adjusted(in millions)

Short-term debt:Current portion of long-term debt . . . . . . . P=963.6 US$18.2(1) P=963.6 US$18.2(1)

Long-term debt:Long-term loans(2) — net of current portion . 2,132.4 40.2 2,132.4 40.2

Shareholders’ equityCommon shares . . . . . . . . . . . . . . . . . . . 10,655.6 200.8 14,744.0 277.8Additional paid-in capital . . . . . . . . . . . . 2,227.9 42.0 3,781.5 71.3Treasury shares . . . . . . . . . . . . . . . . . . . (295.6) (5.8) (295.6) (5.8)Accumulated translation adjustments. . . . . . (114.6) (2.6) (114.6) (2.6)Retained earnings . . . . . . . . . . . . . . . . . 4,668.3 88.0 4,668.3 88.0Equity before minority interests in

subsidiaries . . . . . . . . . . . . . . . . . . . . 17,141.6 323.0 22,783.6 428.7Minority interest . . . . . . . . . . . . . . . . . . 733.1 13.8 733.1 13.8

Total shareholders’ equity . . . . . . . . . . . . . 17,874.7 336.8 23,516.7 442.5

Total short-term debt and capitalization . . . . 20,970.7 395.2 26,612.7 500.9

Notes:(1) The translations from pesos to U.S. dollars have been made on the basis of the PDS Rate on December 31, 2005 of

P=53.067 = U.S.$1.00.(2) There has not been any material change in Megaworld’s indebtedness or contingent liabilities since December 31,

2005.

28

DILUTION

As of December 31, 2005, Megaworld’s net tangible book value per Share was P=1.57. Net tangiblebook value per Share represents tangible assets minus total liabilities divided by the total numberof Shares outstanding. After giving effect to the sale of the Offer Shares (at an Offer Price of P=1.38per Offer Share), after deducting estimated discounts, commissions, estimated fees and expenses ofthe Offer, the net tangible book value per Share would be P=1.52 per Offer Share. This representsan immediate decrease in net tangible book value of P=0.05 per Share to existing shareholders, andan immediate increase of P=0.14 per Offer Share to purchasers of Offer Shares at the Offer Price.

The following table illustrates dilution on a per Share basis based on the Offer Price of P=1.38 perOffer Share:

Offer Price per Offer Share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . P=1.38Net tangible book value per Share as of December 31, 2005 . . . . . . . . . . . . . . . . . . . P=1.57Decrease per Share attributable to the Offer Shares . . . . . . . . . . . . . . . . . . . . . . . . . P=0.05Pro forma net tangible book value per Share after the Offer. . . . . . . . . . . . . . . . . . . . P=1.52Increase per Share to investors in the Offer Shares . . . . . . . . . . . . . . . . . . . . . . . . . . P=0.14

The following table sets out the shareholdings, and percentage of Shares outstanding, of existingand new shareholders of the Company immediately after completion of the Offer (excluding theDomestic Block Sale and assuming no exercise of the Over-allotment Option):

Shares

Number Percent

Existing shareholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,232,392,501 72.3New investors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,923,166,000 27.7Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14,155,558,501 100

29


The following tables present summary selected consolidated financial information for Megaworldand should be read in conjunction with the auditors’ reports and with Megaworld’s consolidatedfinancial statements and notes thereto contained in this Prospectus and the section entitled‘‘Management’s Discussion and Analysis of Financial Condition and Results of Operations’’. Thesummary financial information presented below for the years ended December 31, 2003, 2004 and2005 was derived from the consolidated financial statements of Megaworld, audited byPunongbayan & Araullo, a member practice of Grant Thornton International. The 2003, 2004and 2005 financial information included in this Prospectus has been prepared in accordance withPFRS. The information below is not necessarily indicative of the results of future operations. Forreaders’ convenience only, amounts in Pesos were converted to U.S. dollars using the PhilippineDealing System month-end closing rate only as of December 31, 2005 of P=53.067 to US$1.00.


Income Statement Data 2003 2004 2005 2005P= P= P= US$(1)

(in millions, except per Share figures)










Note:(1) Other revenues consist of interest income, dividend income, foreign currency gain and miscellaneous items.

30

As of December 31,

Balance Sheet Data 2003 2004 2005 2005P= P= P= US$(1)

(in millions)



Total assets . . . . . . . . . . . . . . . . . . . . . 31,652.2 32,518.5 32,782.9 617.8






16,028.9 16,770.3 17,874.7 336.9


Notes:(1) For readers’ convenience, amounts in Pesos were converted to U.S. dollars using the Philippine Dealing System month

end closing rate as of December 31, 2005 of P=53.067 to US$1.00.(2) Cash and cash equivalents consist of cash on hand and in banks and short-term investments.(3) Other non-current assets consist of long-term placements of the non-current portion of trade and other receivables,




31









32


MANAGEMENT’S DISCUSSION AND ANALYSIS OFFINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following management’s discussion and analysis of Megaworld’s financial condition andresults of operations should be read in conjunction with Megaworld’s consolidated financialstatements, including the related notes, contained in this Prospectus. This Prospectus containsforward-looking statements that involve risks and uncertainties. Megaworld cautions investors thatits business and financial performance is subject to substantive risks and uncertainties.Megaworld’s actual results may differ materially from those discussed in the forward-lookingstatements as a result of various factors, including, without limitation, those set out in ‘‘RiskFactors’’. In evaluating Megaworld’s business, investors should carefully consider all of theinformation contained in ‘‘Risk Factors’’.

INTRODUCTION


The Company’s real estate portfolio includes residential condominium units, subdivision lots andtownhouses as well as office projects and retail space. The Company has the following threeprimary business segments: (i) real estate sales of residential and office developments (ii) leasing ofoffice space, primarily to BPO enterprises and retail space and (iii) management of hoteloperations.


. Eastwood City. Eastwood City is the Company’s first community township. Eastwood Cityis located on 15 hectares of land in Quezon City, Metro Manila;

. Forbes Town Center. The Company is developing Forbes Town Center, a communitytownship located on five hectares of land in Bonifacio Global City in Taguig, Metro Manila;

. McKinley Hill. The Company is developing McKinley Hill, a community township locatedon 50 hectares of land in Fort Bonifacio in Taguig, Metro Manila;

. Newport City. The Company is developing Newport City, a community township located on25 hectares of land in the Villamor Air Base, Pasay City, Metro Manila; and

. Araneta Center. In 2005, the Company introduced development plans for the Philippines’first major mass transit-oriented residential community, which is expected to consist of 17residential condominium buildings on a four hectare site at the Araneta Center in Cubao,Quezon City.

In aggregate, the Company owns or has development rights to approximately 116 hectares of landsituated primarily in Metro Manila for its current portfolio of five major projects. Most of theCompany’s development rights were acquired through joint development agreements with the landowners while the remainder relate to land which the Company has purchased or leased.

33

Revenue

The following table sets out a breakdown of the Group’s revenue by business segment for theperiods indicated.

Year ended December 31,

2003 2004 2005


Real Estate Sales . . . . . . . . . . . . . . . . . . P=2,371.8 72% P=2,396.7 57% 3,151.2 66%Rental Income. . . . . . . . . . . . . . . . . . . . 241.4 7 454.7 11 547.8 11Hotel Income . . . . . . . . . . . . . . . . . . . . 73.8 2 88.7 2 101.1 2Other1 . . . . . . . . . . . . . . . . . . . . . . . . 627.8 19 1,251.0 30 1,012.1 21

3,314.8 100 4,191.1 100 4,812.2 100

Note:(1) Other income comprises marketing services, general and corporate income and expense items.

Foreign sales contributed approximately 20% to the Company’s consolidated sales and revenuesfor the years 2003, 2004 and 2005. Approximately 8.63% of the Company’s total sales is derivedfrom sales in the United States, 4.78% is derived from Europe and 3.83% is from the Middle East.The Company derives 2.76% of its sales from Asia, excluding the Philippines.

Real Estate Sales

The table below sets out information on the revenue, GFA and average sale price from real estatesales in 2003, 2004 and 2005.


Property

2003 2004 2005

Revenue GFAAverage

Sale Price Revenue GFAAverage

Sale Price Revenue GFAAverage

Sale Price(millions) P=/sq.m. (millions) P=/sq.m. (millions) P=/sq.m.

Residential . . . . . P=2,275.6 41,282 55,124.0 P=2,324.7 42,625 56,111 P=3,052.5 49,955 58,270.0Office . . . . . . . . 96.2 1,767 54,410.0 72.0 1,323 54,410 98.7 1,813 54,410.0

Total . . . . . . . . 2,371.8 43,049 — 2,396.7 43,947 — 3,151.2 51,768 —

Rental Income

The table below sets out information on rental income received from the Company’s investmentproperties in 2003, 2004 and 2005.


Property 2003 2004 2005


Office . . . . . . . . . . . . . . . . . . . . P=38.4 16% P=275.0 60% P=344.6 63%Commercial/leisure . . . . . . . . . . . . 203.1 84 179.6 40 203.2 37

Total . . . . . . . . . . . . . . . . . . . . 241.5 100 454.6 100 547.8 100

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

34

The following discussion is required by the Philippine SEC.

Results of Operations

Review of 2005 versus 2004

For the year 2005, the consolidated net income (after minority interest) of the Company and itsSubsidiaries (the ‘‘Group’’) was P=1,153.9 million which is 43% higher than the previous year’s netincome of P=807.7 million. Total revenues were P=4,812.2 million in 2005 compared to P=4,191.2million in 2004, a 15% increase.

Among product groupings, P=3,151.2 million of revenues came from the sale of residential lots,condominium and office units in 2005 amounting to a 31% increase from P=2,396.7 million in theprevious year. The Group’s registered sales came from the following projects: Grand EastwoodPalazzo, Eastwood Excelsior, Olympic Heights, One Orchard Road, Eastwood CyberOne andEastwood Parkview in Eastwood City; Forbeswood Heights in Fort Bonifacio; and Paseo Parkview,Greenbelt Radissons and Greenbelt Parkplace in Makati City.

The other components of consolidated revenues were distributed among leasing and hoteloperations, and other revenue. Rental income for the year 2005 amounted to P=547.8 millioncompared to P=454.7 million in 2004, a 20% increase, due to the completion of additional rentalproperty. The Group’s hotel operations contributed P=101.1 million to revenues in 2005 from P=88.7million in 2004 or a 14% increase from 2004. Other revenues for 2005 amounted to P=1,012.1million which consist of interest income, dividend income, foreign exchange gain andmiscellaneous income. The 19% decrease from P=1,251.1 million in 2004 was due to a decline inmiscellaneous income.

Cost of sales as a percentage of real estate sales was 68% in 2005 compared to 71% in 2004,which amounted to P=2,158.2 million and P=1,694.9 million, respectively. Gross profit was P=993.0million for the year ended December 31, 2005 and P=701.8 million for the same period in 2004, or32% and 29% of real estate sales, respectively. Realization of gross profit is recognized under thepercentage of completion method wherein revenue is recognized by reference to the stage ofdevelopment of the properties. Realized gross profit on current year’s sales increased by 96% whilerealized gross profit on prior year’s sales increased by 91%. Gross margins may vary depending onproduct mix.

In general, the growth in operating expenses by 12% from P=872.8 million in 2004 to P=976.9million in 2005 was due mainly to the increase in marketing and selling expenses, particularlycommission expenses resulting from aggressive marketing activities as well as other administrativeand corporate overhead expenses. Operating expenses as a percentage of real estate sales was 31%and 36% in 2005 and 2004, respectively. Payment of interest expenses on bank loans increasedfinance cost by 37% from P=205.3 million in 2004 to P=280.8 million in 2005. The 60% decrease infair value (losses) of a subsidiary in 2005 and 2004 amounted to P=44.8 million from P=111.9million due to the decline in market value of the investment as of December 31, 2005. Equity innet losses of associates amounted to P=64.6 million and P=207.1 million in 2005 and 2004,respectively. The loss was due to lower income of an associate, while the 340% increase in netearnings applicable to minority interest, from a loss of P=5.5 million in 2004 to income of P=13.1million in 2005, was due to higher earnings earned by a subsidiary. Income tax expenses wereP=259.0 million in 2005 and P=180.3 million in 2004 due to higher taxable income, representing anincrease of approximately 44%.

For the year 2005, there were no seasonal aspects that had a material effect on the financialcondition or results of operations of the Group. Neither were there any trends, events oruncertainties that have had or that are reasonably expected to have a material impact on net salesor revenues or income from continuing operations. The Group is not aware of events that willcause a material change in the relationship between its costs and revenues.

There are no significant elements of income or loss that did not arise from the Group’s continuingoperations.


35

Financial Condition

Total assets as of December 31, 2005 were P=32,782.9 million compared to P=32,518.5 million as ofDecember 31, 2004, or a P=264.4 million increase.

Cash and cash equivalents increased by 6% from P=2,689.0 million in 2004 to P=2,850.3 million in2005 due to efficient collection systems. Current and non-current trade and other receivablesincreased by more 15% due to higher sales. As of December 31, 2005 and 2004, marketablesecurities, presented at fair values, amounted to P=3,599.6 million and P=4,138.4 million,respectively, representing a 13% decrease. Aggressive selling of various projects resulted in thedecrease in the number of residential and condominium units for sale by 12% from P=4,051.5million in 2004 to P=3,552.3 million in 2005 and the reclassification of a subsidiary to investmentproperty. Property development cost increased by 35% from P=1,193.2 million in 2004 to P=1,606.2million in 2005 due to the cost of new projects at Fort Bonifacio and Newport City. Prepaymentsand other current assets significantly increased by 64% from P=377.9 million as of December 31,2004 to P=619.7 million as of December 31, 2005 due to cost attributable to new projects fordevelopment and reclassification of account to property development cost in relation to thepurchase of land for development.

Land for future development increased by 15% to P=1,784.0 million as of December 31, 2005 fromP=1,552.9 million as of December 31, 2004 due to the acquisition of land for development.Deferred tax assets as of December 31, 2005 amounted to P=2.1 million and P=1.2 million as ofDecember 31, 2004 arising from the timing difference in recognizing depreciation of buildings bytheir components. Components of the Group’s buildings, such as elevators, that have useful livessignificantly different from the useful life of the building are identified as separate components anddepreciated separately in accordance with PFRS. Under previous Philippine GAAP, the Group didnot recognize a timing difference in the depreciation of buildings by their components. Theadoption of PFRS resulted in the recognition of additional depreciation expense. Other non-currentassets as of December 31, 2005 amounted to P=661.5 million compared to P=2,138.3 million as ofDecember 31, 2004, representing an 69% decrease due to a reclassification from non-current tocurrent. The 18% increase in net investment property from P=4,119.6 million in 2004 to P=4,858.6million in 2005 was due to reclassification of accounts from residential condominium units for saleof a subsidiary. Net property and equipment amounted to P=785.5 million and P=696.6 million as ofDecember 31, 2005 and 2004, respectively. The 13% increase was due to additional acquisitioncosts of fixed assets.

Trade and other payables amounted to P=1,691.3 million and P=1,486.6 million as of December 31,2005 and 2004, respectively. The increase of 14% was due to additional costs to be paid tocontractors and suppliers for new projects. Current customers’ deposits as of December 31, 2005amounted to P=1,791.2 million compared to P=1,224.8 million as of December 31, 2004. The 46%increase or P=566.8 million was due largely to aggressive marketing and pre-selling of variousprojects. The combined effect of current and non-current deferred income on real estate salesdecreased by 14% which amounted to P=844.3 million as of December 31, 2005 compared toP=983.7 million as of December 31, 2004.

Interest-bearing loans and borrowings current and non-current amounted to P=3,096.0 million andP=4,589.5 million as of December 31, 2005 and 2004, respectively, representing a 32% decrease.Other non-current liabilities amounted to P=941.6 million from P=740.1 million as of December 31,2005 and 2004, respectively. The increase of 27% was due to an increase in non trade-payables.

Total equity (including minority interest) increased to P=17,874.7 million as of December 31, 2005from P=16,770.3 million as of December 31, 2004 due to the Group’s continuous profitability.


36

Considered as the top five key performance indicators of the Group are shown below:

2005 2004

Current Ratio (1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.34 : 1 3.21 : 1Quick Ratio (2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.45 : 1 0.58 : 1Debt to Equity Ratio (3)(6) . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.18 : 1 0.29 : 1Return on Assets (4)(6) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.52% 2.48%Return on Equity (5)(6) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.73% 5.03%

Notes:(1) — Current Assets/Current Liabilities(2) — Cash and Cash Equivalents/Current Liabilities(3) — Bank Loans/Equity (If the ratio excludes the peso loan obtained against proceeds of the dollar loan, the ratio will be

P=0.07 : 1 in 2005 and P=0.06 : 1 in 2004)(4) — Net Income/Total Assets(5) — Net Income/Equity(6) — computed using figures attributable only to parent company shareholders

With its strong financial position, the Group will continue investing in and pursuing expansionactivities as it focuses on identifying new markets, maintaining established markets and tappingbusiness opportunities.

Sustaining a high level of development activity, the Group sufficiently met capital requirements forthe year in 2005. The Group has sufficient resources from internally generated funds and expectsan increase in earnings.

Certain accounts of the 2004 and 2003 financial statements were reclassified to conform to the2005 PFRS financial statements presentation.

Material Changes to the Group’s Balance Sheet as of December 31, 2005 compared to December31, 2004 (increase/decrease of 5% or more)

The Group’s cash and cash equivalents increased by 6% from P=2,689.0 million as of December 31,2004 to P=2,850.3 million as of December 31, 2005 mainly due to more efficient collection systems.

The Group’s current and non-current trade and other receivables increased by 15% from P=4,000.8million as of December 31, 2004 to P=4,620.2 million as of December 31, 2005 primarily due to anincrease in sales.

The Group’s marketable securities decreased by 13% from P=4,138.4 million as of December 31,2004 to P=3,599.6 million as of December 31, 2005 primarily due to maturity of certaininvestments.

The Group’s residential and condominium units for sale decreased by 12% from P=4,051.5 millionas of December 31, 2004 to P=3,552.3 million as of December 31, 2005 due to aggressive selling ofvarious projects.

The Group’s property development costs increased by 35% from P=1,193.2 million as of December31, 2004 to P=1,606.2 million as of December 31, 2005 mainly due to the cost for new developmentprojects.

The Group’s prepayments and other current assets increased by 64% from P=377.9 million as ofDecember 31, 2004 to P=619.7 million as of December 31, 2005 due to costs attributable to newdevelopment projects and reclassification of account to property development cost in relation tothe purchase of land for development.

The Group’s land for future development increased by 15% from P=1,552.9 million as of December31, 2004 to P=1,784.0 million as of December 31, 2005 mainly due to the acquisition of land fordevelopment.


37

The Group’s net investment property increased by 18% from P=4,119.6 million as of December 31,2004 to P=4,858.6 million as of December 31, 2005 primarily due to the reclassification of accountsfrom residential units for sales of a subsidiary.

The Group’s net property and equipment increased by 13% from P=696.6 million as of December31, 2004 to P=785.5 million as of December 31, 2005 due to the additional acquisition cost of fixedassets.

The Group’s deferred tax assets increased by 73% from P=1.2 million as of December 31, 2004 toP=2.1 million as of December 31, 2005 primarily due to net operating loss carried over (NOLCO)by subsidiaries.

The Group’s other non-current assets decreased by 69% from P=2,138.3 million as of December 31,2004 to P=661.5 as of December 31, 2005 largely due to the reclassification of accounts to currentfrom non-current.

The Group’s current and non-current interest-bearing loans and borrowings decreased by 32%from P=4,589.5 as of December 31, 2004 to P=3,096.0 as of December 31, 2005 due to subsidiaries’payments to certain banks.

The Group’s trade and other payables increased by 14% from P=1,486.6 million as of December 31,2004 to P=1,691.3 million as of December 31, 2005 mainly to additional costs to be paid tocontractors and suppliers for new projects.

The Group’s current and non-current customers’ deposits increased by 10% from P=3,837.7 millionas of December 31, 2004 to P=4,240.3 million as of December 31, 2005 mainly due to aggressivemarketing and pre-selling of various projects.

The Group’s current and non-current deferred income on real estate sales decreased by 14% fromP=983.7 million as of December 31, 2004 to P=844.3 million as of December 31, 2005 representsdecrease in unearned revenue.

The Group’s other non-current liabilities increased by 27% from P=740.1 million as of December31, 2004 to P=941.6 million as of December 31, 2005 mainly due to an increase in non trade-payables.

Material Changes to the Group’s Income Statement as of December, 2005 compared to December31, 2004 (increase/decrease of 5% or more)

The Group’s net revenue increased by 17% from P=2,379.6 million as of December 31, 2004 toP=2,793.1 million as of December 31, 2005 largely due to the combined increase in sales, rental,and hotel income.

The Group’s rental income increased by 20% from P=454.7 million as of December 31, 2004 toP=547.8 million as of December 31, 2005 primarily due to the completion of additional rentalproperty.

The Group’s hotel income increased by 14% from P=88.7 million as of December 31, 2004 toP=101.1 million as of December 31, 2005 mainly due to high occupancy rates.

The Group’s other revenues decreased by 19% from P=1,251.1 million as of December 31, 2004 toP=1,012.1 million as of December 31, 2005 due to a decrease in miscellaneous income and foreignexchange gain.

The Group’s finance cost increased by 37% from P=205.3 million as of December 31, 2004 toP=280.8 million as of December 31, 2005 largely due to payment of interest expenses to bank loansin 2005.


38

The Group’s equity in net losses of associates decreased by 69% from P=207.10 million as ofDecember 31, 2004 to P=64.6 million as of December 31, 2005 mainly due to the lower income ofan associate.

The Group’s income tax expense increased by 44% from P=180.3 million as of December 31, 2004to P=259.0 million as of December 31, 2005 largely due to higher taxable income.

The Group’s net fair value losses decreased by 60% from P=111.9 million as of December 31, 2004to P=44.8 million as of December 31, 2005 largely due to the increase in fair value of the Group’sinvestments classified as fair value through profit and loss.

The Group’s net earnings applicable to minority interest increased by 340% from a P=5.5 millionloss as of December 31, 2004 to an income of P=13.1 million as of December 31, 2005 as a resultof higher earnings incurred by a subsidiary.

There are no other material changes in the Group’s financial position (changes of 5% or more) andcondition that will warrant a more detailed discussion. Further, there are no material events anduncertainties known to management that would impact or change reported financial informationand condition on the Group.

There are no known trends or demands, commitments, events or uncertainties that will result in orthat are reasonably likely to result in increasing or decreasing the Group’s liquidity in any materialway The Group does not anticipate having any cash flow or liquidity problems. The Group is notin default or breach of any note, loan, lease or other indebtedness or financing arrangementrequiring it to make payments.

There are no events that will trigger direct or contingent financial obligation that is material to theGroup, including any default or acceleration of an obligation.

There are no material off-balance sheet transactions, arrangements, obligations (includingcontingent obligations), or other relationships of the Group with unconsolidated entities orother persons created during the reporting period.

There are no material commitments for capital expenditures, events or uncertainties that have hador that are reasonably expected to have a material impact on the continuing operations of theGroup.

There were no seasonal aspects that had a material effect on the financial condition or results ofoperations of the Group.

There are no explanatory comments on the seasonality of interim operations. There are no materialevents subsequent to the end of the interim period that have not been reflected in the financialstatements for the interim period.

There are no material amounts affecting assets, liabilities, equity, net income or cash flows that areunusual in nature; neither are there changes in estimates of amounts reported in a prior interimperiod of the current financial year.

Review of 2004 versus 2003

For the year 2004, the consolidated net income (after minority interest) of the Group was P=807.7million which is 220% higher than the previous year’s net income of P=252.8 million. Totalrevenues in 2004 were P=4,191.2 million compared to P=3,314.8 million in 2003, a 26% increase.

Among product groupings, P=2,396.7 million of generated revenues came from the sale ofresidential lots, condominium and office units in 2004, representing a 1.0% increase fromP=2,371.8 million in the previous year. The Group’s registered sales came from the following


39

projects: Grand Eastwood Palazzo, Eastwood Excelsior, Olympic Heights, One Orchard Road andEastwood CyberOne in Eastwood City; Forbeswood Heights in Fort Bonifacio; and PaseoParkview, Greenbelt Radissons and Greenbelt Parkplace in Makati City.

The other components of consolidated revenues were distributed among leasing and hoteloperations, and other revenue. Rental income for the year 2004 amounted to P=454.7 millioncompared to P=241.4 million in 2003, or an 88% increase. The Group’s hotel operations amountedto P=88.7 million in 2004 from P=73.8 million in 2003 or a 20% increase from the previous year.Other revenues for 2004 amount to P=1.3 billion or an 99% increase from the previous year due toan increase in interest income, foreign exchange gain and miscellaneous income.

Cost of sales as a percentage of real estate sales was 71% in 2004 compared to 70% in 2003,which amounted to P=1,694.9 million and P=1,652.6 million, respectively. Gross profit was P=701.8million for the year ended December 31, 2004 and P=719.2 million in 2003 or 29% and 30% ofreal estate sales, respectively. Realized gross profit as a percentage of real estate sales did notchange from the previous year’s recorded rate of 24%. Realization of gross profit is recognizedunder the percentage of completion method wherein revenue is recognized by reference to the stageof development of the properties. Realized gross profit from current year’s sales decreased by 25%.Gross margins may vary depending on product mix.

In general, the growth in operating expenses by 20%, from P=728.1 million in 2004 compared toP=872.8 million in 2003, was due mainly to the increase in marketing and selling expenses,particularly commission expenses resulting from aggressive marketing activities and otheradministrative and corporate overhead expenses. Operating expenses as a percentage of realestate sales was 36% and 31% in 2004 and 2003, respectively. Payment of interest expenses onbank loans resulted in an increase in finance costs by 151% from P=81.7 million in 2003 to P=205.3million in 2004. Unrealized loss from the decline in the value of investment by a subsidiary inbonds and other debt instruments decreased by 46.9% in 2004. The 167.9% increase in equity innet losses of associates, from P=77.3 million to P=207.1 million, was due to the higher losses of anassociate.

For the year 2004, there were no seasonal aspects that had a material effect on the financialcondition or results of operations of the Group. Neither were there any trends, events oruncertainties that have had or that are reasonably expected to have a material impact on net salesor revenues or income from continuing operations. The Group is not aware of events that willcause material change in the relationship between costs and revenues.

There are no significant elements of income or loss that did not arise from the Group’s continuingoperations.

Financial Condition

The Group maintains a prudent financial strategy due to economic instability and high inflationrates that the country is experiencing. Its balance sheet reflects stable financial growth. Totalassets as of December 31, 2004 were P=32,518.5 million compared to P=31,652.2 million as ofDecember 31, 2003, registering a 3% increase.

Cash and cash equivalents increased by 33% from P=2,021.1 million in 2003 to P=2,688.9 millionin 2004 due to efficient collection systems. Current and non-current trade and other receivablesdecreased by 12% and 39%, respectively, due to rigid collection of turned-over balance receivablesfrom various clients of a subsidiary and reclassification of some accounts. The reclassification ofaccounts from property development cost in projects such as Grand Eastwood Palazzo andForbeswood Heights and the accelerated completion of projects due for 2005 resulted in anincrease in the residential and condominium units for sale by 11% from P=3,636.1 million in 2003to P=4,051.5 million in 2004.

The 6% decrease in property development cost from P=1,274.3 million as of December 31, 2003 toP=1,193.2 million as of December 31, 2004 was due to reclassification of certain accounts.Prepayments and other current assets increased by 67% from P=226.1 million to P=377.9 million dueto payment for land purchased for development. Current and non-current trade and other


40

receivables decreased by 25% due to rigid collection of turned-over balance receivables fromvarious clients from P=5,382.2 million to P=4,000.8 million as of December 31, 2003 and December31, 2004, respectively.

The increase in advances to joint ventures by 12% from P=219.3 million to P=246.0 million as ofDecember 31, 2003 and 2004, respectively, was due to the grant of cash advances to be used forpre-development expenses such as relocation of existing occupants.

Land for future development increased by 54% to P=1,552.9 million as of December 31, 2004 fromP=1,010.1 million as of December 31, 2003 due to additional cost of land for development. Othernon-currents assets as of December 31, 2004 amounted to P=2,138.3 million compared to P=1,252.9million as of December 31, 2003, representing a 71% increase due to long-term investments. Thedecrease in deferred tax assets from P=9.6 million as of December 31, 2003 to P=1.2 million as ofDecember 31, 2004 was due to the application of net operating loss carried over of subsidiaries.

The decrease in property and equipment of approximately 12% from P=788.8 million to P=696.6million was due to gradual reduction of depreciation.

Trade and other payables amounted to P=1,486.6 million and P=1,251.5 million as of December 31,2004 and 2003, respectively. The increase of 19% was due to additional cost payable tocontractors and suppliers for new projects.

Customers’ deposits current as of December 31, 2004 amounted to P=1,224.8 million compared toP=744.3 million as of December 31, 2003. The 65% increase of P=480.5 million was due largely toaggressive marketing and pre-selling of various projects.

The effect of current and non-current deferred income on real estate sales increased by only 8%amounting to P=983.7 million as of December 31, 2004 as against P=910.0 million as of December31, 2003. Furthermore, reserve for current and non-current property development as of December31, 2004 amounted to P=1,871.4 million compared to P=1,483.2 million as of December 31, 2003.The increase of 26% or P=388.2 million was mainly due to uncompleted portion of cost attributableto various on-going projects.

Current and non-current interest bearing loans and borrowings amounted to P=4,589.5 million fromP=4,739.8 million as of December 31, 2004 and 2003. There was a 3% decrease due to partialsettlement of obligation of a subsidiary.

Total equity (including minority interest) increased to P=16,770.3 million as of December 31, 2004from P=16,028.9 million as of end of 2003 due to the Group’s continuous profitability.

Considered as the top five key performance indicators of the Group are shown below:

2004 2003

Current Ratio (1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.21 : 1 4.03 : 1Quick Ratio (2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.58 : 1 0.56 : 1Debt to Equity Ratio (3)(6) . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.29 : 1 0.31 : 1Return on Assets (4)(6) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.48% 0.80%Return on Equity (5)(6) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.03% 1.65%

Notes:(1) — Current Assets/Current Liabilities(2) — Cash and Cash Equivalents/Current Liabilities(3) — Bank Loans/Equity (If the ratio will exclude the peso loan obtained against proceeds of the dollar loan, the ratio will

be P=0.06 : 1 in 2004 and P=0.07 : 1 in 2003)(4) — Net Income/Total Assets(5) — Net Income/Equity(6) — Computed using figures attributable only to parent company shareholders


41

With its strong financial position, the Group will continue investing in and pursuing expansionactivities as it focuses on identifying new markets, maintaining established markets and tappingbusiness opportunities.

Sustaining a high level of development activity, the Group sufficiently met capital requirements forthe whole year of 2004. It has sufficient resources coming from internally generated funds andlooks forward to better business prospects and earnings for the coming years.

Certain accounts in the 2004 financial statements were reclassified to conform to the 2004financial statements presentation.

Material Changes in the Group’s Balance Sheet as of December 31, 2004 compared to December31, 2003 (increase/decrease of 5% or more)

The Group’s cash and cash equivalents increased by 33% from P=2,021.1 million as of December31, 2003 and P=2,688.9 million as of December 31, 2004 mainly due to efficient systems.

The Group’s current and non-current trade and other receivables decreased by 21% from P=4,000.8million as of December 31, 2004 and P=5,058.8 million as of December 31, 2003 primarily due torigid collection of turned-over balance receivables from various clients of a subsidiary and areclassification of some accounts.

The Group’s residential and condominium units increased 11% from P=4,051.5 million as ofDecember 31, 2004 and P=3,636.1 million as of December 31, 2003 mainly due to thereclassification of accounts from property development cost.

The Group’s property developments costs declined by 6% from P=1,193.2 million as of December31, 2004 and P=1,274.3 million as of December 31, 2003 primarily due to the reclassification ofsome accounts to residential and condominium units for sale.

The Group’s prepayments and other current assets increased by 67% from P=377.9 million as ofDecember 31, 2004 and P=226.1 million as of December 31, 2003 largely due to a payment inrelation to the purchase of land for development.

The Group’s investment in bonds and other debt instruments decreased by 13% from P=4,138.4million as of December 31, 2004 and P=4,753.2 million as of December 31, 2003 mainly due to adecline in the value of marketable securities of a subsidiary amounting to P=111.86 million and thetransfer of some investments to short-term placements.

The Group’s advances to joint ventures and landowners increased by 12% from P=246.0 million asof December 31, 2004 and P=219.3 million as of December 31, 2003 primarily due to granting cashadvances for pre-development expenses such as the relocation of existing occupants.

The Group’s land for future development increased by 54% from P=1,010.1 million as of December31, 2003 to P=1,522.9 million as of December 31, 2004 mainly due to the additional cost of landfor development.

The Group’s net property and equipment declined by 12% to P=696.6 million as of December 31,2004 from P=788.8 million as of December 31, 2003 primarily due to the gradual reduction ofdepreciation expenses.

The Group’s deferred tax assets declined by 87% from P=9,629.0 million as of December 31, 2003to P=1.2 million as of December 31, 2004 largely due to the application of net operating losscarried over subsidiaries.

The Group’s other non-current assets increased by 71% from P=1,252.9 million as of December 31,2003 to P=2,138.3 million as of December 31, 2004 largely due to long-term investments.


42

The Group’s trade and other payables increased by 19% from P=1,251.5 million as of December 31,2003 to P=1,486.6 million as of December 31, 2004 mainly due to additional costs to be paid tosuppliers for new projects.

The Group’s current customers’ deposits increased by 65% from P=744.3 million as of December31, 2003 to P=1,244.8 million as of December 31, 2004 largely due to aggressive marketing andpre-selling of various projects.

The Group’s income tax payable increased by 49% from P=9.9 million as of December 31, 2003 toP=14.7 million as of December 31, 2004 mainly due to additional income tax payable of asubsidiary in 2004.

The Group’s current and non-current interest bearing loans and borrowings decreased by 3% toP=4,589.5 million as of December 31, 2004 from P=4,739.8 million as of December 31, 2003 mainlydue to the partial settlement of an obligation of a subsidiary.

The Group’s current and non-current reserve for property development cost increased by 26% toP=1,871.4 million as of December 31, 2004 from P=1,483.2 million as of December 31, 2003primarily due to the uncompleted portion of costs attributable to various on-going projects.

The Group’s current and non-current deferred income on real estate sales increased by 8% fromP=910 million as of December 31, 2003 to P=1,871.4 million as of December 31, 2004 representingan increase in unearned revenue for the current sales.

The Group’s advances from associates and other related parties declined by 81% from P=862.4million as of December 31, 2003 to P=842.1 million as of December 31, 2004 mainly due to thesettlement of an obligation with an associate.

Material Changes in the Group’s Income Statement as of December 31, 2004 compared toDecember 31, 2003 (increase/decrease of 5% or more)

The Group’s total revenue increased by 26% from P=3,314.8 million as of December 31, 2003compared to P=4,191.2 million as of December 31, 2004 mainly due to the combined increase inrental and other revenue.

The Group’s rental income increased by 88% from P=241.4 million as of December 31, 2003compared to P=454.7 million as of December 31, 2004 primarily due to the high occupancy rates ofoffice spaces and commercial center.

The Group’s hotel income increased by 20% from P=73.8 million as of December 31, 2003compared to P=88.7 million as of December 31, 2004 mainly due to high occupancy rates.

The Group’s other revenues increased by 99% to P=1,251.1 million as of December 31, 2004compared to P=627.8 million as of December 31, 2003 largely due to higher income and effectivecash management and sound investments.

The Group’s operating expenses increased by 20% to P=872.8 million as of December 31, 2004compared to P=728.1 million as of December 31, 2003 primarily due to increases in marketing andselling expenses, unrealized foreign exchange losses of a subsidiary as well as other administrativeand corporate overhead expenses.

The Group’s finance cost increased by 151% to P=205.3 million as of December 31, 2004 comparedto P=81.7 million as of December 31, 2003 largely due to the payment of interest expenses on bankloans in 2004.

The Group’s equity in net losses of an associate increased by 168% from P=77.3 million as ofDecember 31, 2003 compared to P=207.1 million as of December 31, 2004 largely due to anincrease in losses incurred by an associate.


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The Group’s unrealized loss from the decline in value of investment in marketable securitiesdecreased by 46.9% primarily due to an increase in the value of marketable securities.

The Group’s income tax expense increased by 23% to P=180.3 million as of December 31, 2004compared to P=147.0 million as of December 31, 2003 mainly due to a higher taxable income.

The Group’s net earnings applicable to minority interest declined by 176% to negative P=5.5million as of December 31, 2004 compared to P=7.2 million as of December 31, 2003 largely due tolosses incurred by a subsidiary.

There are no other material changes in the Group’s financial position (changes of 5% or more) andcondition that warrant a more detailed discussion. Further, there are no material events anduncertainties known to management that would impact or change reported financial informationor the financial condition of the Group.

There are no known trends or demands, commitments, events or uncertainties that will result in orthat are reasonably likely to result in increasing or decreasing the Group’s liquidity in any materialway. The Group does not anticipate any cash flow or liquidity problems. The Group is not indefault or breach of any note, loan, lease or other indebtedness or financing arrangement requiringit to make payments.

There are no events that will trigger direct or contingent financial obligation that is material to theGroup, including any default or acceleration of an obligation.

There are no material off-balance sheet transactions, arrangements, obligations (includingcontingent obligations), and other relationships of the Group with unconsolidated entities orother persons created during the reporting period.

There are no material commitments for capital expenditures, events or uncertainties that have hador that are reasonably expected to have a material impact on the continuing operations of theGroup.

There were no seasonal aspects that had a material effect on the financial condition or results ofoperations of the Group.

There are no explanatory comments on the seasonality of interim operations. There are no materialevents subsequent to the end of the interim period that have not been reflected in the financialstatements for the interim period.

There are no material amounts affecting assets, liabilities, equity, net income or cash flows that areunusual in nature; neither are there changes in estimates of amounts reported in a prior interimperiod of the current financial year.


44

INDUSTRY

PHILIPPINES OFFICE AND RESIDENTIAL PROPERTY MARKETS

The Company commissioned Colliers International Philippines, Inc. (‘‘Colliers’’), an independentproperty consultant, to prepare a report on the office and residential property markets in thePhilippines. The information in this section has been extracted from the Collier’s report and hasnot been independently verified by the Company or the Lead Manager or any of their respectiveaffiliates or advisors. The publications have been prepared based on discussions with the Companyand relevant market findings. The information in this section is based upon estimates, assumptionsand other information developed from market research and knowledge of the industry. Theestimates are subject to variations that may arise as circumstances and future operationsmaterialize. As such, the estimates provided in this section may not be representative of thefinal result.

Philippines Economic Overview

Over the past six years, from 2000 to 2005, full year GDP growth in the Philippines has averaged4.6%. This followed the regional economic and currency crisis of 1997 and the effects of an ElNino-induced drought which caused the agricultural sector (20% of GDP) to contract by 6.3% in1998. A partial recovery in full year GDP growth of 3.4% in 1999 and 4.0% in 2000 reflected alow base in agriculture, manufacturing and exports.

While the resignation of President Estrada temporarily bolstered confidence, the Arroyoadministration inherited an economy threatened by a burgeoning budget deficit and acceleratinginflation. Indeed, GDP growth softened to 3.6% in 2001. By 2002, the GDP expansion of 4.6%slightly surpassed the Government’s target of 4.5%. However, growth was not broad-based with aparticular focus on private consumption. Growth in 2003 was still at a low-level equilibrium at4.5%.

By 2004, the domestic economy started strongly in the first half, posting a 6.5% rise. However,soaring global oil prices led to higher local gas prices, power rates, transport fare and productioncosts. By the end of the year, the economy resisted the price shocks and the 15-year high GDPregistered at 6.0%, fueled by the robust performance of the three major sectors including a modestincrease in the compensation income of overseas Filipinos remitting income to the Philippines.

The Philippine domestic economy grew by 5.1% in 2005 compared to the previous year, whichwas lower than the 6.0% achieved in 2004 but above analysts’ consensus. In the last quarter alone,GDP increased by 6.1% compared to 4.5% growth in the previous quarter. It appears that theslowdown in the third quarter of 2005 was due to both political noise, which faded in the fourthquarter, and escalating oil prices in the third quarter, which eased in the last quarter of 2005.

While growth was led by the services sector, which increased by 6.3% in 2005 and the industrialsector, which increased at 5.3% in 2005 on the production side, private consumption, whichincreased at 4.9%, continues to be the core growth driver. The share of private consumption in thedomestic economy is significant at approximately 70%.

The Government is expecting GDP growth to reach from 5.7% to 6.3% in 2006. The Governmentis focused on increased revenues from the expanded value-added tax, coupled with a rebound inexports and new investments to offset risks from higher oil prices and inflation.

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Historical National Income Accounts (January to November 2005)

The following table sets out the performance of certain of the principal economic indicators for thePhilippines.

2000 2001 2002 2003 2004 2005

(growth rates, except where otherwise indicated)

GNP. . . . . . . . . . . . . . . . . . . . . . 4.5% 4.8% 4.3% 5.6% 6.2% 5.7%GDP. . . . . . . . . . . . . . . . . . . . . . 4.0% 3.7% 4.3% 4.7% 6.0% 5.1%Personal Consumption Expenditure. . . 3.5% 3.6% 4.1% 5.3% 5.8% 4.9%Government Expenditure . . . . . . . . . 0.2% 1.7% (3.7%) 0.5% 0.0% 2.7%Investments . . . . . . . . . . . . . . . . . 2.0% 12.4% (5.0%) 0.1% 9.5% (4.3%)Exports . . . . . . . . . . . . . . . . . . . . 17.7% (4.0%) 3.6% 4.4% 14.1% 2.3%Imports . . . . . . . . . . . . . . . . . . . . 4.0% 3.8% 4.7% 10.2% 5.9% 1.8%Agriculture . . . . . . . . . . . . . . . . . . 3.3% 4.7% 3.8% 3.8% 4.9% 2.0%Industry . . . . . . . . . . . . . . . . . . . 3.9% 2.3% 3.6% 3.8% 5.2% 5.3%Services . . . . . . . . . . . . . . . . . . . . 4.4% 4.3% 5.1% 5.9% 7.1% 6.3%Inflation . . . . . . . . . . . . . . . . . . . 4.3% 6.1% 3.1% 2.9% 5.5% 7.6%Average Prime Lending Rate (actual) . 13.9% 14.2% 9.3% 9.5% 10.4% 9.5%P=:US$ (average) . . . . . . . . . . . . . . . P=44.26 P=50.97 P=51.61 P=53.96 P=56.04 P=55.03Average 91-Day T-Bill Rate (actual) . . 9.9% 9.7% 5.5% 5.9% 7.3% 6.0%Budget Deficit (billion) . . . . . . . . . . P=136 P=147 P=213 P=199 P=187 P=123

Source: National Statistical Coordination Board, BSP

Philippine Residential Property Market Overview

The Philippine residential property market is segmented into four distinct categories, largely basedon pricing.

Philippine Residential Market Segmentation

Characteristics Socialized Low Cost Middle Income High End

Price per Unit . . . . Not more thanP=225,000

P=225,001 toP=750,000

P=750,001 toP=5,000,000

Above P=5,000,000

Source of MortgageFinancing . . . . .

Funding agenciessuch as HDMF,SSS, GSIS

Funding agenciessuch as HDMF,SSS, GSIS;Governmentfinancialinstitutions likeLBP, DBP, PNB; afew private banks

Private financialinstitutions,particularly banks;in-house financingfrom developers

Private financialinstitutions,particularly banks; in-house financing fromdevelopers

Mortgage Terms:Max Loan Amount

Mortgage RateMax Loan Term .

P=225,000

9%–10%30 years

P=675,000

Market rates30 years

P=3,500,000

Market rates15 to 20 years

70% of appraisedvalueMarket rates15 to 20 years

Loan: AppraisalValue. . . . . . . .

100% 90% 70%–80% 60%–70%

Typical Size andType of Housing.

Row houses; min.lot area of 32sq.m., min floorarea of 18 sq.m.

Duplexes; singledetached units;min. lot area of 36sq.m., min floorarea of 22 sq.m.

Lots; singledetached units;townhouses;condominiums;ave. floor area of120 sq.m.

Subdivided lotsusually 500 sq.m. andabove; luxurycondominiums withfloor area of over 300sq.m.

Source: Colliers International Research

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The Government estimates that 3.8 million houses are needed from 2005 to 2010 or 626,012houses each year. This includes 2.6 million houses to address the growth in households and 1.2million in backlog and replacement. In Metro Manila, the six-year housing demand is estimated at496,928 units, of which 350,472 units are from pure household formation.

The 2000 census revealed a total of 2,132,989 households in Metro Manila. Since 1995, thenumber of households in Metro Manila has expanded by 1.6% per annum. From 1996 to 2005, itis estimated that an average of 33,262 households have been created per year.

If the residential demand from household formation in Metro Manila is to be segmented byaffordability, low cost housing has the highest demand at 57% of new households. This is followedby the mid-income segment at 36%. There is an average of 33,262 households created since 1996.The housing segment that offered the most significant potential is low cost with an average need of19,034 units per annum, followed by mid-income at 12,092 units per year.

Demand from Overseas Filipinos

A major source of buyers, most importantly for the mid-income residential segment, is overseasforeign workers that hold high-paying jobs and Filipino immigrants abroad. There are an estimated8.1 million Filipinos abroad.

The Government estimates that overseas Filipinos’ remittances increased by 27% in 2005 toUS$10.9 billion from US$8.5 billion in 2004. Including inflows from informal channels,remittances in 2005 are estimated to have reached US$12.3 billion.

Discussions with developers revealed that overseas Filipinos’ remittances have a significant impacton the residential segment. Demand estimates from this segment are set out below:

Distribution of Overseas Filipino Housing Demand in Metro Manila

Year

Metro ManilaDemand(units)

Low Cost(10%)

Mid Income(80%)

High End(10%)

1996 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,899 290 2,319 2901997 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,230 423 3,384 4231998 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,035 503 4,028 5031999 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,640 664 5,312 6642000 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,695 669 5,356 6692001 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,685 769 6,148 7692002 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,276 928 7,421 9282003 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,306 1,031 8,245 1,0312004 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11,971 1,197 9,577 1,1972005 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14,927 1,493 11,942 1,493


The demand for housing in Metro Manila is derived from adding the pure demand from householdformation and those from overseas Filipinos. While the low cost segment still presents the highestdemand, the impact of the overseas Filipino is the enhancement in the demand for mid incomeunits. In the last ten years, it is estimated that the average demand has been 18,466 mid incomehousing units per year.

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Annual Demand in Metro Manila from Household Formation and Overseas Filipino-Related

Demand

Year HouseholdsCan notAfford Socialized Low Cost Mid Income High-End

1996 . . . . . . . . . . . . . . 33,878 108 630 18,017 13,581 1,5411997 . . . . . . . . . . . . . . 35,696 110 640 18,429 14,824 1,6941998 . . . . . . . . . . . . . . 36,995 112 650 18,792 15,647 1,7941999 . . . . . . . . . . . . . . 39,101 113 660 19,240 17,113 1,9752000 . . . . . . . . . . . . . . 39,666 115 670 19,537 17,342 2,0012001 . . . . . . . . . . . . . . 41,174 117 681 19,932 18,323 2,1212002 . . . . . . . . . . . . . . 43,291 119 691 20,392 19,787 2,3022003 . . . . . . . . . . . . . . 44,855 121 702 20,800 20,805 2,4262004 . . . . . . . . . . . . . . 47,062 123 713 21,277 22,334 2,6152005 . . . . . . . . . . . . . . 50,569 125 725 21,888 24,899 2,932Total . . . . . . . . . . . . . . 412,286 1,163 6,762 198,304 184,656 21,402Average . . . . . . . . . . . . 41,229 116 676 19,830 18,466 2,140

Source: National Statistics Office, Colliers International Research

In terms of demand, pure demand from household growth and overseas Filipinos’ remittancesextends to a total of 411,123 housing units in the last ten years. In light of the primary supplyfrom developers (as measured by issued HLURB licenses to sell), there is a deficit of 137,254 units.

Total Demand vs. Total HLURB License to Sell (1996–2005)(1)

1996–05 Total Socialized Low Cost Mid Income High End

Demand . . . . . . . . . . . . . . . . . . . . . . 411,123 6,762 198,304 184,656 21,402HLURB License . . . . . . . . . . . . . . . . . . 273,869 43,193 23,934 176,587 30,155(Deficit)/Surplus . . . . . . . . . . . . . . . . . (137,254) 36,431 (174,370) (8,069) 8,753


Note:(1) excluding housing demand that could not afford socialized housing

The most significant demand is in the low cost segment with 174,370 units of unmet bydevelopers. The mid-income segment’s unmet demand from the primary market in the last tenyears is at 8,069 units.

This represents demand from pure household formation and the impact of demand from overseasFilipinos. If the Government’s estimates for backlog (to account for replacement and obsolescence)are included, the deficit significantly increases. The Government estimates an annual backlog of58,412 units in Metro Manila. It is further estimated that the Metro Manila backlog for themiddle income is 233,648 units from 1996 to 2005. If this is added to the 184,656 units computedin the table above, the aggregate demand increases to 418,304 units. This is a deficit of 241,717units compared to the number of HLURB licenses to sell that have been issued.

Philippines Residential Condominium Market

Beginning in the 1990’s, residential condominium living in the Philippines has gained ground dueto increased market acceptance. Popularity is attributed to: 1) infrastructure constraints in MetroManila have dictated a preference to be close to employment centers, 2) while landed propertyremains the preferred format, there is a budgetary constraint coupled with the need to be inproximity to the city center, 3) lower maintenance costs for condominium living and 4) thegrowing trend of children moving out of their parents’ homes earlier.

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Residential condominiums used to be exclusive to the financial districts of the Makati CentralBusiness District (‘‘CBD’’) and Ortigas. In fact, it was nearly a monopoly of these locations untilthe late 1990’s.

Until the late 1990’s, the Makati CBD was the main location for condominium living in MetroManila with nearly three-quarters of the stock in this location. However, efficiency issues,infrastructure constraints and lack of amenities gave birth to alternative locations such asRockwell, Fort Bonifacio and Eastwood. As of the end of 2005, the Makati CBD only accounts forapproximately 50% of condominium stock.

As of end-2005, the number of residential condominium units in the five prominent condominiumdistricts stood at nearly 20,000 units. The stock has grown by a compounded average of about12% per annum since 1990. On average, 1,076 units have been added annually to the aggregatestock since 1990.

Year-End Residential Condominium Stock

The following table shows the year-end stock of residential condominiums units:

Year Makati CBD Ortigas Fort Bonifacio Rockwell Eastwood City Total

1990 . . . . . . . . . . . . . . 2,562 1,173 — — — 3,7351991 . . . . . . . . . . . . . . 4,121 1,233 — — — 5,3541992 . . . . . . . . . . . . . . 4,123 1,474 — — — 5,5971993 . . . . . . . . . . . . . . 4,119 1,626 — — — 5,7451994 . . . . . . . . . . . . . . 4,352 1,626 — — — 5,9781995 . . . . . . . . . . . . . . 4,749 1,998 — — — 6,7471996 . . . . . . . . . . . . . . 5,891 2,238 — — — 8,1291997 . . . . . . . . . . . . . . 6,432 2,459 — — — 8,8911998 . . . . . . . . . . . . . . 7,125 2,459 — — — 9,5841999 . . . . . . . . . . . . . . 7,844 3,278 — 391 — 11,5132000 . . . . . . . . . . . . . . 8,104 4,175 236 797 — 13,3122001 . . . . . . . . . . . . . . 8,387 4,175 640 797 584 14,5832002 . . . . . . . . . . . . . . 8,669 4,175 640 797 584 14,8652003 . . . . . . . . . . . . . . 9,268 4,175 744 797 1,012 15,9962004 . . . . . . . . . . . . . . 9,530 4,175 1,441 797 1,348 17,2912005 . . . . . . . . . . . . . . 10,354 4,624 1,441 1,440 2,012 19,871Percentage in 2005 . . . . . 52% 23% 7% 7% 10% 100%

Source: Colliers International Philippines

New Residential Communities in the Philippines

Infrastructure constraints dictate that satellite communities offering an alternative to the CBD andOrtigas are still located at the periphery of the financial districts. Close to the Makati CBD areRockwell and Fort Bonifacio while Eastwood City, Pioneer and the Greenfield re-development arenearly adjacent to Ortigas.

Market acceptance for new locations has been boosted by deficiencies in amenities and the age ofresidential accommodation in traditional areas. In the Makati CBD, approximately 46% ofresidential units have been in existence for more than 10 years. In Ortigas, nearly a quarter of theresidential units were built before 1995.

Among the locations for condominium living in Metro Manila, Eastwood City has exhibited thefastest growth. In the last five years alone, it has grown by a compounded rate of 36% per annum.In fact, its current stock of 2,012 condominium units is comparable to the combined supply in FortBonifacio and Rockwell at 2,881 units. It is more interesting if one considers that Eastwood City isonly 15 hectares while Fort Bonifacio and Rockwell have developable areas of 214 and 15hectares, respectively.

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Future Supply of Residential Condominiums

The following table shows the future supply of residential condominiums in units:

Year Makati CBD Ortigas* Fort Bonifacio Rockwell* Eastwood City Total

2006 . . . . . . . . . . . . . 532 546 767 — 1,344 3,1892007 . . . . . . . . . . . . . 284 450 2,244 1,642 720 5,3402008 . . . . . . . . . . . . . 845 1,258 2,188 — 1,060 5,3512009 . . . . . . . . . . . . . 390 3,108 838 575 364 5,2752010 . . . . . . . . . . . . . 383 — — — 269 652Total . . . . . . . . . . . . . 2,434 5,362 6,037 2,217 3,757 19,807Percentage . . . . . . . . . 12% 27% 30% 11% 19% 100%


* includes fringe projects

A total of 19,807 units are slated to be completed from 2006 to 2010. By location, Fort Bonifacioaccounts for the majority or 30% of the future supply. This is followed by Ortigas having 5,362 ofthe units or 27% of total. This development trend is due to: (1) Makati is seen as a maturedevelopment with land values at a premium compared to other locations, (2) Fort Bonifacio is seenas relatively cheaper in terms of land value. However, it has proven that it can attract the samemarket as the Makati CBD due to its proximity, and (3) Rockwell is seen as a niche development.

Shift in Condominium Configurations

There has been a major shift in unit configuration. From 1997 to 2005, the distribution accordingto configuration has been fairly equal. However, units slated to complete until 2010 exhibit amajor shift towards the smaller unit configuration. Studio and one bedroom units account for 72%of the aggregate future stock.

Affordability concerns have led to this shift. Developers offered smaller configurations to make thetotal contract price more affordable. It is interesting to note that while configurations are smaller,developers have managed to increase the selling price per square meter.

Residential Sales Growth

After falling by as much as 45% to its trough after the Asian financial crisis in 1997, lease rateshave rebounded. In 2005 alone, rents escalated by as much as 25% compared to 2004 as demandstarted to strengthen.

Until the slowdown in Philippine real estate in 1997, prime residential condominiums had beenenjoying high pre-sales performance. Sold ratios for various developments starting the thirdquarter of 1997 have slackened.

We believe that the property market is in a new development cycle. There are niches ofopportunities such as the middle income residential condominiums where intense marketing efforthas been exerted to result in sales movement. Admirable are projects in Rockwell and FortBonifacio, which have adopted creative marketing strategies like the use of well-designed modelunits to attract interest.

New locations are now emerging such as Newport City, San Lazaro, Araneta Center re-development, the Bay Area and McKinley Hill.

We have identified 39 comparable mid-income residential condominium projects within fivepertinent locations. Analyzed by location, Fort Bonifacio accounts for 32% of the comparableunits, followed by Ortigas and environs (includes Greenfield re-development and Pioneer area) at31%, Eastwood (24%), the Makati CBD (10%) and Rockwell (2%).

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Leading Residential Condominium Developers

In terms of market share, Megaworld is the leading developer in the mid-income residentialcondominium segment with nearly 40% of the units in the sampled comparable projects. This isfollowed by Robinsons Land with 18% of the comparable units. Ayala Land, the biggest real estatedeveloper in the country, is a relative newcomer in this segment.

Megaworld was established in 1989 by founder and major shareholder Andrew Tan. It started as adeveloper of high-rise residential and commercial properties in Makati and Ortigas. Its currentstrategy is the creation of community township developments in Eastwood, Fort Bonifacio,Newport City and Araneta Center.

Robinsons Land Corporation is the real estate arm of the Gokongwei-controlled JG SummitHoldings Inc. The company is primarily a retail player through its Robinsons chain of malls. Otherreal estate segments that it is exposed to are high-rise residential/commercial projects andresidential subdivision development.

Ayala Land is the largest listed property company in the country and was spun off as AyalaCorp.’s real estate subsidiary in 1988. Ayala Land’s interest consists of land, office andcommercial leasing, middle-income housing, resort development, hotel and theater operations. Itis a relative newcomer in the middle income high rise segment with its subsidiary CommunityInnovations.

Developer Market Share in Comparable Developments Sampled

Developer Units Percentage

Megaworld. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,965 38%Robinson’s Land . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,855 18%Cityland Development . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,264 8%Kuok Properties. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,264 8%Meridien Development . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,246 8%Philippine Township . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 961 6%Ayala Land . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 958 6%G&W Architects and Planners. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 384 2%Antel Land Holdings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 356 2%Xcell Property Ventures. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 302 2%


Strong Condominium Sales

Addressing the issue of affordability, 77% of the projects being pre-sold are configured as studiosand one-bedrooms. Further addressing prohibitive total contract prices, unit sizes are following amodule of about 45 square meters per bedroom. This compares to the 50- to 60-square meter perbedroom module before the financial crisis. In fact, there is a development offering a studio unitbelow 20 square meters.

The average total contract price of our pre-selling developments is P=3,724,293 per unit or P=70,453per square meter. We have observed that more than the total contract price, buyers are lookinginto the payment scheme. As such, developers have devised payments terms that target a monthlyamortization of P=15,000 to P=20,000.

The pre-selling market continues to be strong market given that a total of 11,206 residential units,or 72% of total supply within surveyed projects has been sold to the market. The average take-upper residential condominium in the survey is 21 units per month.

While projects in Eastwood City and Fort Bonifacio (particularly Megaworld developments) areregistering absorption below 20 units per month, this is due to the near sold-out sales ratio. At theheight of its marketing campaign, take-up of approximately 40 units per month was usuallyachieved. Projects launched in the last quarter of 2005, such as Columns Legaspi, East of Galleriaand St. Francis Residences, have exhibited strong market acceptance.

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Sales Performance of Comparable Condominium Projects

Project Developer TotalPercentage

SoldMonthsSelling

AverageMonthly

Sales

Makati CBD and EnvironsThe Columns Tower 2 . . . . . . . Community Innovations 284 93% 27 10The A. Venue Makati Tower 1 . . Antel Land Holdings, Inc 356 70% 16 15The Columns Tower 3 . . . . . . . Community Innovations 284 94% 26 10Rada Regency . . . . . . . . . . . . . Cityland Development

Corp.312 41% 9 14

Columns Legaspi Tower 1 . . . . . Community Innovations 390 20% 1 88AVERAGE . . . . . . . . . . . . . . 325 61% 16 27

Ortigas and EnvironsOne Gateway Place . . . . . . . . . Robinsons Land Corp. 450 88% 31 13Corinthian Executive Regency . . . Cityland Development 952 51% 7 70Gateway Garden Ridge . . . . . . . Robinsons Land Corp. 306 92% 15 19East of Galleria . . . . . . . . . . . . Robinsons Land Corp. 632 19% 2 60St Francis Residences . . . . . . . . Kuok Properties 1,264 13% 2 89Soho Central Tower 1. . . . . . . . Meridien Development 504 93% 21 22Soho Central Tower 2. . . . . . . . Meridien Development 286 88% 7 36Gateway Garden Heights . . . . . . Robinsons Land

Corporation422 43% 7 26

AVERAGE . . . . . . . . . . . . . . 602 49% 12 42

Fort BonifacioKensington Place . . . . . . . . . . . G&W Architects and

Planners201 100% 23 9

Forbeswood Agoho. . . . . . . . . . Bonifacio West/Megaworld 172 98% 45 4Forbeswood Bauhinia . . . . . . . . Bonifacio West/Megaworld 197 97% 45 4Forbeswood Cambridge . . . . . . . Bonifacio West/Megaworld 197 93% 45 4Hamptons Place . . . . . . . . . . . G&W Architects and

Planners183 95% 10 17

South of Market Tower 1 . . . . . Meridien Development 228 97% 22 10Fairways Tower. . . . . . . . . . . . Philippine Townships Inc. 611 83% 24 21Forbeswood Dorchester . . . . . . . Bonifacio West/Megaworld 230 96% 45 5Forbeswood Evergreen . . . . . . . Bonifacio West/Megaworld 161 88% 45 3Forbeswood Florida . . . . . . . . . Bonifacio West/Megaworld 245 96% 45 5Fifth Avenue Place . . . . . . . . . . Robinsons Land

Corporation688 93% 20 32

The Bellagio 1 . . . . . . . . . . . . Bonifacio West/Megaworld 364 91% 20 17The Bellagio 2 . . . . . . . . . . . . Bonifacio West/Megaworld 389 81% 20 16The Icon Tower 1 . . . . . . . . . . Xcell Property Ventures

Inc.302 85% 10 26

McKinley Park Residences . . . . . Robinsons Land Corp. 357 71% 8 31South of Market Tower 2 . . . . . Meridien Development 228 14% 4 8Forbeswood Parklane 1 . . . . . . . Bonifacio West/Megaworld 253 38% 5 19

AVERAGE . . . . . . . . . . . . . . 294 83% 26 14

Rockwell and EnvironsMetropolitan Tower . . . . . . . . . Philippine Townships 350 40% 24 6

AVERAGE . . . . . . . . . . . . . . 350 40% 24 6

EastwoodOne Orchard Road 1 . . . . . . . . Megaworld Corp. 448 89% 53 8One Orchard Road 2 . . . . . . . . Megaworld Corp. 448 93% 56 7One Orchard Road 3 . . . . . . . . Megaworld Corp. 448 95% 58 7Grand Eastwood Palazzo 1 & 2 . Megaworld Corp. 720 98% 46 15Eastwood Parkview T1 . . . . . . . Megaworld Corp. 530 96% 40 13Eastwood Parkview T2 . . . . . . . Megaworld Corp. 530 97% 31 17One Central Park . . . . . . . . . . Megaworld Corp. 344 91% 16 21Eastwood Parklane . . . . . . . . . . Megaworld Corp. 269 90% 10 24

AVERAGE . . . . . . . . . . . . . . 470 94% 39 14OVERALL. . . . . . . . . . . . . . . 399 72% 24 21


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Aside from local buyers, Filipino immigrants are one of the most significant client bases for mid-income residential projects. A prominent feature of the current market is the overseas market thatis being tapped. Usually marketed in areas where Filipinos have migrated and are holding white-collar employment, roadshows are done to promote real estate developments. It is not unusual fordevelopers to achieve 30% to 40% of their sales from buyers abroad.

Given that our sampled developments have sold an estimated 11,206 units, a penetration rate of30% of the market abroad would yield an estimated 3,362 units.

Estimated Sales from Abroad

Location Total Units Sales Rate Total Sold Local Sales Sales Abroad*

Makati CBD and Environs . . . . . . . . . 1,626 61% 986 690 296Ortigas and Environs . . . . . . . . . . . . 4,816 49% 2,360 1,652 708Fort Bonifacio. . . . . . . . . . . . . . . . . 5,006 83% 4,171 2,920 1,251Rockwell and Environs . . . . . . . . . . . 350 40% 140 98 42Eastwood. . . . . . . . . . . . . . . . . . . . 3,757 94% 3,549 2,484 1,065OVERALL AVERAGE . . . . . . . . . . . . . 15,555 72% 11,206 7,844 3,362


* assuming 30% of total sales

Philippines Office Property Market Overview

The stock of office accommodation in Metro Manila currently extends to approximately fourmillion square meters of leasable space. The Makati Central Business District (‘‘CBD’’) accountsfor 60% of current stock, followed by the alternative business district of Ortigas at 24%.

The strong recovery in office take-up was recorded beginning in 2002. During this period, the mostevident demand characteristics were:

. flight to quality as the availability of new Premium quality space affords tenants theopportunity to up-grade.

. demand from call centers and business process outsourcing units have pushed Premium andGrade A vacancy to the current single-digit levels.

Other office locations have similarly recorded strong absorption. As at the end of 2005, vacancieswere recorded at 5.7% in Ortigas, 0% in Fort Bonifacio and 3.5% in Eastwood City.

The office segment, together with the mid-income residential condominium segment, are the mostactive sectors in the market. Demand for office occupation is driven by the requirements of theBusiness Processing Outsourcing (‘‘BPO’’) industry. Consequently, the residential segment has alsobenefited from rising tenancy.

Makati CBD Overview

The Makati CBD is considered Metro Manila’s traditional office location. Extending to a totalarea of 200 hectares, most major Philippine corporations are headquartered in Makati. It is alsothe preferred location for most multinationals. Fort Bonifacio Global City is considered anexpansion area for the existing CBD rather than a competitive alternative. The office stock in theCBD comprises 2.647 million square meters.

Premium and Grade A quality buildings comprise 31% of all office space in the Makati CBD. Therelatively poor quality of office stock in Metro Manila is partly a function of its age.Approximately 65% of the existing office stock is over 10 years old and not of the qualityusually demanded by multinational companies.

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During the mid 1990s, companies seeking expansion space had few relocation options and no roomfor negotiation on the lease terms demanded by landlords. While the ‘‘landlord’s market’’ of themid 1990s did encourage a level of over-development which would have cooled an overheatedmarket, this was compounded by the 1997 downturn which led to a collapse in demand.

Take-up in the Makati CBD has recovered since 2002 at an average of approximately 75,000square meters per year. The vacancy rate at the end of 2005 was recorded at 7% and is projectedto decline further to 3% by 2007.

Market rents for the better quality buildings in the Makati CBD decreased by approximately 50%to 55% to in mid-2003. Rents have since rebounded by 25% to 35% in better quality buildings inthe Makati CBD. By the end of 2005 alone, lease rates have escalated by 15% to 21% year-on-year.

Ortigas CBD Overview

Extending approximately 50 hectares, Ortigas is the alternative to Makati and has been successfulin attracting cost-conscious occupants, particularly during periods of low vacancy and rapidlyrising accommodation costs. The total supply of office space is currently 941,832 square meters.

On average, take-up has recovered since 2002 at an average of approximately 49,000 squaremeters. per year. Expectations are for vacancies to ease to below the 5% mark by the end of 2006.It appears that demand is coming from:

. call centers wanting redundant operations in Metro Manila.

. call centers and business process outsourcing units considering Ortigas due to increasing costsin the Makati CBD as lease rates begin to escalate.

. Ortigas serving its original function to traditional tenants as an alternative business district asthe cost of space in the CBD remains at a premium.

Fort Bonifacio Overview

Fort Bonifacio, a former military base, has a total area of 214 hectares. There are only two officedevelopments in Fort Bonifacio with an aggregate net space of 34,843 square meters. Compared tothe Makati CBD, Grade A rents in Fort Bonifacio are trading at an 18% premium. A plausiblereason could be the newer office buildings (as older buildings in the CBD tend to bring down theGrade A average) and the limited supply of office space (Grade A space in Fort Bonifacio is only3% of comparable space in the CBD).

Eastwood City Overview

Eastwood City is a 15-hectare project located along the C-5 highway in Libis, Quezon City. Afterits PEZA approval in mid 1999, Eastwood City Cyberpark has been heavily marketed as a self-contained area designed to meet the high-tech and environmental requirements of a community ofIT companies. The project also the benefits from being the first PEZA-approved IT zone and beingable to offer space for immediate occupancy. There are currently seven office developments inexistence with an aggregate of 139,844 square meters.

Unlike Fort Bonifacio, where offices were not developing as quickly as residential units, EastwoodCity’s office component significantly expanded from 1999 to 2003. Within that period, 117,144square meters were built, which is approximately 36% of what was delivered in the Makati CBDin the same period. This rate becomes more significant considering that Eastwood is less than 10%of Makati CBD’s land area.

BPO Workforce Growth Driving Office Demand

The Business Processing Association Philippines estimates that at the end of 2005, there are over160,000 full-time jobs within the BPO industry. BPO hiring has grown at an average of 20% in thelast six years or 17,583 new hires per year.

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Historical BPO Workforce Estimates

YearBPO

Workforce % IncreaseAnnual

Increase Seats1Accommodation

(sq.m.)2Increase(sq.m.)

1999 . . . . . . . . . . . . . . . 56,750 25,795 154,7732000 . . . . . . . . . . . . . . . 60,700 7% 3,950 27,591 165,545 10,7732001 . . . . . . . . . . . . . . . 64,900 7% 4,200 29,500 177,000 11,4552002 . . . . . . . . . . . . . . . 69,700 7% 4,800 31,682 190,091 13,0912003 . . . . . . . . . . . . . . . 91,500 31% 21,800 41,591 249,545 59,4552004 . . . . . . . . . . . . . . . 120,000 31% 28,500 54,545 327,273 77,7272005 . . . . . . . . . . . . . . . 162,250 35% 42,250 73,750 442,500 115,227

Source: Business Process Association Philippines, Colliers International Research

Notes:(1) assumes that each seat is occupied by 2.2 employees(2) assumes six square meters per seat

Given the current estimate of 162,250 full-time jobs, in terms of real estate accommodation, thistranslates to nearly 445,000 square meters being occupied by the industry.

The industry association’s bullish estimates point to a steady increase of nearly 40% per annum inthe next four years after 2006, when it plans to hire an additional 50%. This means that by 2010,the BPO industry estimates that it would have hired 920,000 people to work full-time. Thisamounts to an additional occupancy of 2,068,675 square meters in the next five years.

If one utilizes a more moderate growth rate estimate of 20%, which is the average growth ratesince 1999, the space requirement until 2010 is nearly 660,000 square meters.

Projected BPO Real Estate RequirementYear 15% 20% 25% 30% 35%

2006 . . . . . . . . . . . . . . . . . . . . . 66,375 88,500 110,625 132,750 154,8752007 . . . . . . . . . . . . . . . . . . . . . 76,331 106,200 138,281 172,575 209,0812008 . . . . . . . . . . . . . . . . . . . . . 87,781 127,440 172,852 224,348 282,2602009 . . . . . . . . . . . . . . . . . . . . . 100,948 152,928 216,064 291,652 381,0512010 . . . . . . . . . . . . . . . . . . . . . 116,090 183,514 270,081 379,147 514,418Additional Space . . . . . . . . . . . . . . 447,526 658,582 907,903 1,200,472 1,541,685


In the next five years, supply is estimated at 541,400 square meters. 272,800 square meters arecurrently under construction. The remaining 268,600 square meters are planned. Forthcomingsupply is significantly less than even the most conservative forecast of BPO real estaterequirements.

Key Developers in the BPO Office Market

Megaworld was established in 1989 by founder and major shareholder Andrew Tan. It started as adeveloper of high-rise residential and commercial properties in Makati and Ortigas. It was the firstPEZA-approved IT park in the country. Township developments with a BPO demand componentare Eastwood City, McKinley Hill in Fort Bonifacio and Newport City. Based on projects underconstruction, Megaworld is the leading developer with 28% of BPO-related office supply.

Robinsons Land Corporation is the real estate arm of the Gokongwei-controlled JG SummitHoldings Inc. The company is primarily a retail player through its Robinsons chain of malls. Otherreal estate segments that it is exposed to are high-rise residential/commercial projects andresidential subdivision development. Its BPO-related office developments are concentrated in its re-development of its Pioneer property in Mandaluyong.

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Ayala Land is the largest listed property company in the country and was spun off as AyalaCorp.’s real estate subsidiary in 1988. Ayala Land’s interest consists of land, office andcommercial leasing, middle-income housing, resort development, hotel and theater operations. Arecent player in the BPO-related office development, it has done built-to-suit premises forConvergys and People Support.

Filinvest Land is the residential property arm of the Gotianun-led conglomerate FilinvestDevelopment Corporation. The company’s biggest move is his winning bid for the government’s244-hectare Alabang Stock Farm in 1991. FDC has formed a subsidiary, Filinvest Alabang Inc.(FAI), to undertake the masterplanned development dubbed as Filinvest Corporate City. Withinthis development is Northgate Cyberzone with an aggregate of 91,147 square meters of officespace.

SM Prime is a retail-focussed developer in the Philippine property market. Its BPO-related officedevelopment in the reclamation area serves as a complementary project to its most ambitious retaildevelopment, the Mall of Asia.

Developer Market Share in BPO-Related Office Developments Under Construction

Developer Sq.m. Percentage

Megaworld. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70,000 28.8SM Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67,000 26.518-2 Property Holdings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26,200 10.5Mar-Nol Realty . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24,500 9.8Robinson’s Land . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22,000 8.8Filinvest Alabang . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21,600 8.6Ayala Land . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18,800 7.5


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Future Supply of BPO Office Buildings

The following table lists the future supply of BPO buildings by expected year of handover.

Building Developer CompletionGross Leasable

Area (sq.m.)

Makati CBDAyala Center Office Building 2* . . . . . . . . . . . Ayala Land 2008 30,000Dela Rosa eServices Building* . . . . . . . . . . . . . Ayala Land 2008 30,000Security Bank Tower* . . . . . . . . . . . . . . . . . . Security Bank 2010 36,000

Eastwood City1800 Eastwood Avenue . . . . . . . . . . . . . . . . . Megaworld 2006 35,0001880 Eastwood Avenue* . . . . . . . . . . . . . . . . Megaworld 2009 35,000Quezon CityUP S&T Park . . . . . . . . . . . . . . . . . . . . . . . Ayala Land 2007 10,000

Filinvest Corporate CityNorthgate Plaza A . . . . . . . . . . . . . . . . . . . . Filinvest Alabang 2006 10,800Northgate Plaza D . . . . . . . . . . . . . . . . . . . . Filinvest Alabang 2007 10,800Northgate Plaza E* . . . . . . . . . . . . . . . . . . . Filinvest Alabang 2007 15,000

Fort BonifacioNet Square. . . . . . . . . . . . . . . . . . . . . . . . . 18-2 Prop. Hldgs 2006 26,200Net Cubed* . . . . . . . . . . . . . . . . . . . . . . . . 18-2 Prop Hldgs 2007 28,000Global City Promenade . . . . . . . . . . . . . . . . . Ayala Land 2007 6,500HSBC BPO Building 2 . . . . . . . . . . . . . . . . . Ayala Land 2007 12,300Ayala 31st Street* . . . . . . . . . . . . . . . . . . . . Ayala Land 2007 12,30026th Street Office Building. . . . . . . . . . . . . . . Mar-Nol Realty 2008 24,500McKinley Hill Corporate Plaza . . . . . . . . . . . . Megaworld 2008 35,000Ayala 30th Street* . . . . . . . . . . . . . . . . . . . . Ayala Land 2008 27,000SunLife Office Tower* . . . . . . . . . . . . . . . . . Sun Life 2008 20,000British Embassy Complex* . . . . . . . . . . . . . . . British Embassy 2008 4,000Singapore Embassy Complex* . . . . . . . . . . . . . Singaporean Embassy 2008 4,000

OrtigasEDSA Central IT Building* . . . . . . . . . . . . . . Greenfield 2007 15,000MandaluyongRobinsons Cybergate 2 . . . . . . . . . . . . . . . . . Robinsons Land 2007 22,000

Bay AreaOne e-Com Center . . . . . . . . . . . . . . . . . . . . SM Investments 2007 67,000

Pasay CityNewport Corporate Plaza* . . . . . . . . . . . . . . . Megaworld 2008 25,000


Note: Asterisk indicates planned

Makati and Eastwood, the main areas of interest to BPOs, are virtually full. No office building isbeing constructed within the CBD, with the next buildings due to be completed by Ayala Land in2008. Until those two buildings with a total leasable area of 60,000 square meters are completed,large scale expansion in Makati is expected to be at a standstill. There are possibilities for theoccupancy of refurbished buildings; however, refurbishments may prove to be costly and capitalcost concerns will most likely eliminate this option.

The lack of viable supply has resulted in the emergence of alternative sites such as FilinvestAlabang, the Bay Area reclamation, Fort Bonifacio, McKinley Hill and Robinsons Pioneer area.

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Given the tight supply in traditional locations, a significant amount of the space taken was fromnon-traditional sources — warehouses, malls, and purpose-built facilities. As expansion continuesinto 2010, continued growth in demand for non-traditional space is expected due to:

. The need to find, hire and train an adequate number of employees.

. The need to stay away from competitors that poach employees, resulting in higher wage levelsand duplicative training costs.

. Traditional areas are running out of space, with traditional developers wary of constructingnew, multi-tenanted premises for fear of repeating 1998.

. Established BPOs are expanding while business center rental levels are increasing continuedoccupancy of expensive centers.

It is likely that some BPOs may shrink operations in Makati, the most expensive location so far,and expand elsewhere, essentially saving in the long term without the need to increase headcount.Given these however, we expect that BPOs seeking to establish initial operations in the Philippineswill likely prefer to be in the original BPO areas of BPO Makati and Eastwood City.

There are a handful of developers who presently have the capability to construct a true BPObuilding. Even fewer are inclined to risk development. To date, the most aggressive developers areMegaworld (1800 and 1880 Eastwood Avenue, McKinley Hill Corporate Plaza and NewportCorporate Plaza), Robinsons Land (Cybergate 1 and 2), 18-2 Realty (Net Square) and Filinvest(Northgate A and D).

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BUSINESS

OVERVIEW


The Company’s real estate portfolio includes residential condominium units, subdivision lots andtownhouses as well as office projects and retail space. The Company has the following threeprimary business segments: (i) real estate sales of residential and office developments (ii) leasing ofoffice space, primarily to BPO enterprises and retail space and (iii) management of hoteloperations. The Company’s total gross revenues for the year ended December 31, 2005 wereP=4,812.2 million compared to P=4,191.2 million for the year ended December 31, 2004. Real estatesales of residential developments accounted for 66% of the Company’s revenues in 2005 and 57%in 2004. Rental income from leasing operations accounted for approximately 11% of theCompany’s revenues in 2004 and 2005. The Company’s net income (after minority interest) for theyear ended December 31, 2005 was P=1,153.9 million compared to P=807.7 million for the yearended December 31, 2004. Foreign sales contributed approximately 20% to the Company’sconsolidated sales and revenues for the years 2003, 2004 and 2005.


. Eastwood City. Eastwood City is the Company’s first community township development.Eastwood City is located on 15 hectares of land in Quezon City, Metro Manila andcomprises: Eastwood City Cyberpark, the Philippines’ first IT-based special economic zone;an IT training center; leisure and entertainment centers; and 17 high-rise residentialdevelopments. Eastwood City Cyberpark contains offices that are capable of supporting IT-based operations such as high-speed telecommunications and 24-hour uninterrupted powersupply. Complementing the offices are leisure and entertainment hubs which includerestaurants and a cinema complex. Development of the community township has occurredin stages. One office tower and a number of high-rise residential towers, including a hotel,are currently under development.

. Forbes Town Center. The Company is developing Forbes Town Center, a mixed-usedevelopment located on five hectares of land in Bonifacio Global City in Taguig, MetroManila. Forbes Town Center is comprised of residential high-rise towers and retail andentertainment centers. The property is adjacent to the Manila Golf and Country Club, thePhilippines’ most exclusive golf club. The first residential tower was launched in the secondquarter of 2003 and construction of this tower is expected to be completed in the fourthquarter of 2006.

. McKinley Hill. The Company is developing McKinley Hill, a community township locatedon 50 hectares of land in Fort Bonifacio in Taguig, Metro Manila. The community townshipis being designed to include the McKinley Hill Cyberpark which will be a PEZA-designated ITspecial economic zone, a low density residential subdivision for single detached homes, low-rise residential garden villas, a leisure and entertainment area and an institutional area whichis expected to include an embassy and educational institutions, including two internationalschools. This is the Company’s first community township incorporating educational

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institutions into the live-work-play concept. The residential lots for single-attached homeswere officially launched in the fourth quarter of 2004 and approximately 70% of the lotswere sold as of December 31, 2005. The first office building commenced construction in thefourth quarter of 2005 and construction of this phase is expected to be completed in thefourth quarter of 2007.

. Newport City. The Company is developing Newport City, a community township located on25 hectares of land in the Villamor Air Base, Pasay City, across from the newly built NAIATerminal 3. The community township, which is adjacent to Villamor golf course, is expectedto include medium-rise residential towers, a five-star hotel to be managed by an internationalchain, retail and commercial areas, a business and technology park, and leisure and tourismcomponents. The property is adjacent to the Villamor golf course. The first phase ofresidential condominiums was launched in the fourth quarter of 2005 and is expected to becompleted by the end of 2008.

. Araneta Center. In 2005, the Company introduced development plans for the Philippines’first major mass transit-oriented residential community, with connections to the MRT-3 andLRT-2 mass transit lines and a land transportation hub, providing residents with access toamenities and offices throughout Metro Manila. The development is expected to consist of 17residential condominium buildings, comprising 6,000 units on a four hectare site at theAraneta Center, a retail, business and entertainment complex in Cubao, Quezon City. Thefirst phase of the project is expected to be launched in the third quarter of 2006.

In aggregate, the Company owns or has development rights to approximately 116 hectares of landprimarily in Metro Manila, with its current portfolio of five major projects accounting forapproximately 80% of its landbank. Sixty-two hectares of land for which the Company hasdevelopment rights were acquired through joint development agreements with the land ownerswhile 38 hectares of land were purchased by the Company. The Company leases the balance of 16hectares on a long-term basis.

The Company’s objective is to increase its profitability and maintain its leading position as amajor property developer in the Philippines by continuing to capitalize on the Megaworld brandname and reputation, develop its key corporate and retail relationships and enhance its rentalrevenue and diversify its business mix.

The Company’s common stock was first listed on the PSE on June 15, 1994 and following theoffering and the Domestic Block Sale, assuming the Over-Allotment Option and the TAGI Optionis not exercised, the Company’s principal shareholders, TAGI and New Town Land will hold 27%and 16%, respectively of the Company’s share capital.


COMPANY HISTORY

The Company was founded by Andrew Tan and incorporated under Philippine law on August 24,1989 under the name of Megaworld Properties & Holdings, Inc. The Company was primarilyorganized to engage in real estate development, leasing and marketing. In 1994, the Company spunoff Empire East Land Holdings, Inc. which focused on the middle income market. On August 19,1999, the Company changed its name to Megaworld Corporation to coincide with the Company’sconversion from a purely real estate company into a holding company, although the Companycontinues to focus on its core competence in real estate development.

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From 1989 to 1996, the Company garnered a reputation for building high-end residentialcondominiums and office buildings on a stand alone basis throughout Metro Manila. In 1996, theCompany shifted its focus to providing office buildings to support BPO businesses when it begandevelopment of the Eastwood City community township. In 1999, Eastwood City Cyberparkbecame the first IT park in the Philippines to be designated a PEZA special economic zone.

From 1996 to 2005, the Company and its affiliates have launched approximately 200 residentialbuildings, office buildings and a hotel consisting in aggregate of more than 2,000,000 squaremeters. The following are some of the major residential and office projects completed by theCompany:

Residential

The Salcedo Park (Makati City) Golf Hill Terraces Phase 3 (Quezon City)One Beverly Place (San Juan) Golf Hill Terraces Townhouses (Quezon City)One and Two Lafayette Square (Makati City) Golf Hill Terraces Garden Villas (Quezon City)Paseo Parkview Towers 1 and 2 (Makati City) Marina Square Suites (Manila)Wack-Wack Heights (Mandaluyong City) Corinthian Hills (Quezon City)8 Wack Wack Road (Mandaluyong City) Sherwood Heights (Paranaque)The Manhattan Square (Makati City) Brentwood Heights(Paranaque)Greenbelt Radissons (Makati City) Kentwood Heights (Quezon City)El Jardin del Presidente (Quezon City) Narra Heights (Quezon City)Greenbelt Parkplace (Makati City) Eastwood Lafayette Square 1, 2, 3 (Quezon City)

Office

Petron Megaplaza (Makati) IBM Plaza (Quezon City)The World Centre (Makati) Landbank Plaza (Malate)Citibank Square (Quezon City) Richmonde Plaza (Pasig City)CyberOne (Quezon City) Eastwood Corporate Plaza (Quezon City)

COMPETITIVE STRENGTHS


. Established track record as a market innovator. The Company believes it has anticipatedmarket trends faster than other companies in the Philippine property development industry.Although the Company initially focused on the high-end residential property market, it wasamong the first in the Philippines to identify the growing demand for community townshipdevelopments, particularly for middle-income purchasers, and to introduce flexible designoptions and payment plans. In 1996, the Company was also the first to develop offices withthe infrastructure capable of supporting expanding IT and BPO businesses. As a result, theCompany developed the Eastwood City CyberPark and was instrumental in working with theGovernment to obtain the first PEZA-designated economic zone specifically for technologyand BPO-based companies. The Company is currently the largest developer and owner ofoffice buildings targeting BPO enterprises in the Philippines in terms of leased space. Inconnection with Eastwood City, the Company was the first Philippine company to focus oncommunity township development. In 1996, the Company was the first Philippine propertydevelopment company to develop an international sales network targeting overseas Filipinosfor residential sales. According to Company estimates, in 2005 sales to overseas Filipinosconstituted approximately 20% of its residential sales. In 2005, the Company introduceddevelopment plans for the first major mass transit-oriented residential community in thePhilippines, with inter-connections to two main mass transit systems and a landtransportation hub, facilitating convenient access to offices and amenities throughout MetroManila. The Company believes that its identification of areas of growth in the propertymarket was instrumental to its continued financial success during the Asian financial crisiswhen most sectors of the property market contracted. The Company’s ability to anticipatemarket trends and understand the needs of real estate consumers continue to assist it in itsefforts to accurately predict trends in market demand, levels of supply and to plan and designits property developments accordingly.

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. Strategic landbank. The Company either owns or has development rights to approximately116 hectares of land located primarily in strategic locations in Metro Manila. Where theCompany does not own or lease the land, it has entered into joint development agreementswith the land owners to develop their land in exchange for a percentage of the revenue fromsales or leases of the completed units. Joint development agreements are a cost effective wayfor the Company to acquire land development rights in desirable areas of Metro Manila at afixed cost. Although the Company continues to consider strategic landbanking either throughadditional joint development agreements or property purchases, the Company believes that itscurrent landbank is capable of sustaining the development of its current portfolio of projectsfor at least the next 15 years.

. Sound financials with a stable earnings base and low gearing. The Company believes it iscurrently in sound financial condition with a debt to equity ratio of 0.18 : 1 (after minorityinterest) as of December 31, 2005, and that its financial strength enhances its ability to investin new projects while continuing to develop existing projects. The Company’s propertyportfolio includes a balance between income from residential sales and recurring incomeearned from commercial and office developments. The Company’s diverse project portfolio isdesigned to both limit earnings volatility from potential property market fluctuations and toallow it to enjoy growth upside. The Company’s community township portfolio includes astable revenue base of long term leases from major international BPO tenants as well as retailtenants. With projected growth in the BPO business in the Philippines, the Company expectsto benefit from existing long-term BPO lease arrangements while attracting new BPO tenants.The proximity of BPO tenants to retail and entertainment properties within the communitytownship allows the Company to benefit from the complementary revenue stream from itsretail and commercial leases. As a result of stable earnings from rental investments in theBPO market and residential sales, the Company has been able to keep its debt to equity ratiolow, particularly during the Asian financial crisis, when a number of highly leveragedproperty development companies went bankrupt.

. Well-established brand name and reputation. The Company has completed a number ofhigh quality residential condominium projects, townhouse projects, office projects and leisureand commercial developments throughout Metro Manila. As a result, the Company hasdeveloped a strong brand name and reputation as one of the Philippines’ leading propertydevelopers with the credibility of delivering high-quality developments. The Company hasbeen named by Superbrands, an independent organization which identifies and recognizes themost-highly acclaimed brands throughout the world, as one of the Philippines’ top brands.The Company has also received ISO 9001 : 2000 series certification, which covers all aspectsof the Company’s operations, including its planning, design, project management andcustomer service operations, for quality control and systems management. As with otherproperty developers in the Philippines, the Company finances a portion of projectdevelopment costs through pre-sales of units. Since pre-selling is an industry practice,buyers place great importance on the track record and reputation of developers to reduce thecompletion risk relating to their properties. As a result, the Company believes that itsreputation as a reliable property developer is particularly important in the Philippines to bothattract and maintain quality buyers, tenants and joint development partners.

. Strong residential marketing network. The Company maintains an in-house marketing andsales division staffed by a trained group of property consultants who sell residentialproperties exclusively for the Company. All property consultants undergo intensive trainingprior to embarking on any sales activity and the Company provides an on-the-job skillsenhancement program for its marketing and sales professionals to further develop their skills.In 1997, the Company was the first Philippine property company to create an internationalmarketing and sales division specifically targeted at overseas Filipinos, and sales to this grouphave increased each succeeding year. The Company’s international marketing and salesdivision is comprised of 23 offices worldwide. The Company’s extensive residential marketingnetwork enhances the Company’s brand recognition and its ability to pre-sell residentialunits.

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STRATEGY


. Maximize earnings through integrated community township developments. The Companybelieves it is able to maximize earnings by integrating residential, business and retail propertycomponents in an integrated master-plan approach. This allows the Company to capitalize onthe live-work-play-learn concept to maximize its earnings from each sector. Thecomplementary nature of having retail, business and residential properties within proximityto each other enhances the attractiveness, saleability and lease potential of the residential,office and retail properties in the community township. The Company’s leadership position incrafting and delivering community township developments has strengthened over the yearsand continues to be its key strategy in bringing new projects to the market and in enteringinto new joint venture developments.

. Capitalize on brand and reputation. The Company believes that its strong brand name andreputation are key to its continued success. Since pre-selling is an industry practice in thePhilippines, buyers place great importance on the track record and reputation of developers toreduce the completion risk relating to their properties. The Company intends to continueusing its brand name and reputation to attract purchasers, tenants and joint developmentpartners. The Company continues to enhance its reputation by employing and training adedicated marketing staff and extensive sales network for its residential sales businesses whomarket the Megaworld brand. In addition, the Company is strategically involved in the after-sales market for the properties it develops by providing building management and other after-sales services such as interior design services.

. Maintain a strong financial position. The Company intends to maintain its strong financialposition by controlling costs and increasing its gearing ratio only when necessary. TheCompany’s gearing ratio is presently low. The Company is able to control development costsby generating a significant portion of its project financing from pre-sales of residential units.The Company typically does not begin construction of its residential buildings until it hassold approximately 70% of the units. Seventy percent of the Company’s residential units aretypically pre-sold within one year of project launch and over 90% are typically pre-sold priorto completion of construction. By securing post-dated checks and providing a variety offinancing options to buyers, the Company limits its cash outlays prior to obtaining projectfunds. The Company also controls development costs by entering into joint developmentagreements with landowners, which is a cost-effective means of obtaining rights to developland as initial costs are fixed and future payments are a fixed percentage of revenue fromsales and leasing activity.

. Sustain a diversified development portfolio. An important part of the Company’s long-termbusiness strategy is to continue to maintain a diversified earnings base. Because theCompany’s community townships include a mix of BPO offices, retail, middle-incomeresidential, educational/training facilities, leisure and entertainment properties within closeproximity to each other, the Company is able to capitalize on the complementary nature ofsuch properties. In addition, the community township developments enable the Company togenerate profits from selling residential projects as well as invest in office and retail assetsretained by the Company to generate recurring income and long-term capital gains. TheCompany intends to continue to pursue revenue and property diversification as it developscommunity townships with the live-work-play-learn concept in various stages throughoutMetro Manila. The Company also intends to continue pursuing innovative product lines thatmay complement its existing developments, while maintaining a well-diversified earnings base.

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PROPERTY DEVELOPMENT PROJECTS

The Company’s property development projects consist of mixed-use residential and commercialdevelopments located throughout Metro Manila in addition to residential units to be developed atthe Araneta Center in Quezon City. The objective of each of the mixed-use developments is toprovide an integrated community with high quality live-work-play amenities within close proximityto each other. For each development, the Company intends to lease all commercial and retailproperties and sell all residential units. Where the Company is unable to sell all residential units inadvance of completion, it intends to lease the residence for rental income. The location of each ofthe Company’s projects is set out in the following map and each project is described in detailbelow.

Eastwood City

Description

Eastwood City is a mixed-use project in Quezon City, Metro Manila that integrates corporate,residential, education/training, leisure and entertainment components. In response to growingdemand for office space with infrastructure capable of supporting IT-based operations such ashigh-speed telecommunications facilities, 24-hour uninterruptible power supply and computersecurity, the Company introduced the Eastwood City Cyberpark within Eastwood City, thePhilippines’ first IT park. The Eastwood City Cyberpark includes the headquarters of IBMPhilippines and Citibank’s credit card and data center operations as anchor tenants. In connectionwith development of the cyberpark, the Company was instrumental in working with theGovernment to obtain the first PEZA-designated special economic zone status for IT parks. APEZA special economic zone designation confers certain tax incentives such as an income taxholiday of four to six years and other tax exemptions upon businesses that are located within thezone. The planning of Eastwood City adopts an integrated approach to urban planning, with anemphasis on the development of the Eastwood City Cyberpark to provide offices with theinfrastructure to support BPO and other technology-driven businesses, and to provide education/training, restaurants, leisure and retail facilities and residences to complement Eastwood CityCyberpark.

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Set out below is a model of the Eastwood City development, which may not necessarily representthe eventual state of the actual property development.

Eastwood City Model

The Company purchased a substantial portion of the land from General Textiles Inc. in 1995. TheEastwood City Cyberpark was designated a PEZA special economic zone in 1999.

The following shows the mix of residential, office and leisure and entertainment properties that theCompany expects when the project is completed.

Aggregate GFA(square meters) %

Residential . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 299,346(1) 60Corporate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 149,500(2) 30Leisure and Entertainment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49,560 10

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 498,396 100

Notes:(1) Saleable floor area.(2) Leasable floor area.

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Residential zone

The residential zone is expected to consist of eight projects with 17 high-rise towers. As ofDecember 31, 2005, eight towers comprising 1,895 units have been completed.

Set out below is a photo of the Eastwood City Residential Zone as it is expected to appear uponcompletion, which may not necessarily represent the eventual state of the actual propertydevelopment.

Eastwood City Residential Zone

Set out below is a photo of Eastwood Excelsior and artistic renditions of some of the towers asthey are expected to appear upon completion, which may not necessarily represent the eventualstate of the actual property development.

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Set out in the table below are details of each residential project as of December 31, 2005.

No. offloors(1)

No. ofunits

AggregateGFA(2)

(sq. meters)Actual/Expectedcompletion date

Units sold(%)

Olympic Heights Tower 1 . . . . . . . 30 224 17,472 3rd quarter 2003 96Olympic Heights Tower 2 . . . . . . . 30 224 17,094 4th quarter 2001 100Olympic Heights Tower 3 . . . . . . . 30 224 17,248 3rd quarter 2003 100Eastwood Lafayette 1 . . . . . . . . . . 16 180 6,630 4th quarter 2001 100Eastwood Lafayette 2 . . . . . . . . . . 19 180 7,886 4th quarter 2001 100Eastwood Lafayette 3 . . . . . . . . . . 25 199 9,679 2nd quarter 2003 100Eastwood Excelsior 1 . . . . . . . . . . 30 260 10,525 3rd quarter 2005 100Eastwood Excelsior 2 . . . . . . . . . . 34 404 15,810 3rd quarter 2005 100One Orchard Road Tower1 . . . . . . 43 448 21,392 3rd quarter 2006 90One Orchard Road Tower 2 . . . . . . 38 448 21,392 3rd quarter 2006 93One Orchard Road Tower 3 . . . . . . 35 448 21,392 3rd quarter 2006 94Grand Eastwood Palazzo Tower 1 . . 38 368 20,323 3rd quarter 2007 99Grand Eastwood Palazzo Tower 2 . . 38 352 14,507 3rd quarter 2007 98Eastwood Parkview 1 . . . . . . . . . . 40 530 30,461 3rd quarter 2008 96Eastwood Parkview 2 . . . . . . . . . . 40 530 30,461 4th quarter 2008 97One Central Park . . . . . . . . . . . . 37 364 21,751 4th quarter 2009 91Eastwood Park Hotel & Residential

Suite . . . . . . . . . . . . . . . . . . . 37 269 15,323 4th quarter 2010 90

Total . . . . . . . . . . . . . . . . . . . . 5,652 299,346

Notes:(1) Includes basement.(2) Saleable floor area.

Each tower is designed according to a specific theme and style. Typical building amenities include24-hour security, high-speed elevators, parking, a pool and other recreational facilities. Each towercontains units that range from studios to two bedrooms. Purchasers may combine units.

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Corporate zone

Below are photos of some of the office properties in the Eastwood City Cyberpark, which may notnecessarily represent the eventual state of the actual properties.

The office properties consist of seven Grade A office buildings as of December 31, 2005. Tenantsin the cyberpark include major multinational corporations, largely comprised of softwaredevelopers, data encoding and conversion centers, call centers, system integrations, IT andcomputer system support. The tenants are entitled to various tax incentives in conjunction with thePEZA special economic zone status conferred upon the Eastwood City Cyberpark.

Set out in the table below are details of each corporate development as of December 31, 2005.

Total GFA(1)Aggregate GFA(2)

(square meters)Actual/Expectedcompletion date

Occupancyrate (%)

Citibank Square . . . . . . . . . . . . . 26,125.00 5,500 3rd quarter 1999 100IBM Plaza . . . . . . . . . . . . . . . . . 45,000.00 24,000 1st quarter 2000 95Eastwood Incubation Center . . . . . . 6,800.00 6,800 1st quarter 2001 100TechnoPlaza One . . . . . . . . . . . . . 19,400.00 15,000 2nd quarter 2001 100International Centre for Information

Technology Education (ICITE) . . . 3,200.00 3,200 2nd quarter 2001 100Eastwood Corporate Plaza . . . . . . . 14,000.00 10,000 2nd quarter 2002 100CyberOne . . . . . . . . . . . . . . . . . 40,150.00 15,000 2nd quarter 2004 901800 Eastwood . . . . . . . . . . . . . . 35,000.00 35,000 4th quarter 2006 01880 Eastwood . . . . . . . . . . . . . . 35,000.00 35,000 2nd quarter 2009 0

Total . . . . . . . . . . . . . . . . . . . . 224,475 149,500

Note:

(1) Includes office space that has been sold.(2) Leasable floor area attributable to rental income.

Each of the buildings listed above is fully equipped with 24-hour IT infrastructure support. Eachbuilding comprises office space that typically has a column-free layout to provide flexibility inspace planning and access to 24-hour dining facilities. Citibank Square is the headquarters of

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Citibank’s credit card and data center operations in the Philippines. IBM Plaza houses IBMPhilippines as its anchor tenant. 1800 Eastwood Avenue is currently under construction and asecond block, to be identical to the first block and named 1880 Eastwood Avenue, will commenceconstruction immediately thereafter. In addition, the corporate zone contains an IT training center.

Leisure and Entertainment zone

The leisure and entertainment zone consists of Eastwood Citywalk 1, a dining and entertainmenthub, and Eastwood Citywalk 2, an amusement center with a state-of-the-art digital complex, abilliard and bowling center, restaurants and speciality shops. This zone also includes FashionSquare, a beauty and lifestyle center and Home Center, a one stop home improvement hub.Eastwood Citywalk I and II, Fashion Square and Home Center are designed to complement theoffice and residential buildings in the community township. The Company leases the properties inthe leisure and entertainment zone to 189 commercial tenants.

Set out below are photos of some of the retail properties comprising the leisure and entertainmentzone, which may not necessarily represent the condition of the actual properties.

Set out below are the details of each development in the leisure and entertainment zone as ofDecember 31, 2005.

Aggregate GFA(1)

(square meters)Actual/Expectedcompletion date

Occupancyrate (%)

Citywalk 1 . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,100 3rd quarter 1999 94Citywalk 2 . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,560 1st quarter 2000 95Home & Life Center . . . . . . . . . . . . . . . . . . . . 800 2nd quarter 2004 100Eastwood Fashion . . . . . . . . . . . . . . . . . . . . . . 300 2nd quarter 2002 100Eastwood Lafayette 1 & 2 (commercial) . . . . . . . . 400 2nd quarter 2001 100Cybermall . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,400 2nd quarter 2004 92Eastwood Central Mall . . . . . . . . . . . . . . . . . . . 25,000 4th quarter 2008 —

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49,560

Note:(1) Leasable floor area.

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Forbes Town Center

Description

The Forbes Town Center project is located on five hectares of land in Bonifacio Global City,Taguig, Metro Manila adjacent to the Manila Golf Club, the Manila Polo Club and the prestigiousForbes Park residential subdivision. Forbes Town Center is expected to consist of residential, retailand entertainment properties when completed.

Set out below are models of the Forbes Town Center development, which may not necessarilyrepresent the eventual state of the actual property development.

Forbes Town Center Model

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Forbeswood Heights Model

The Company acquired development rights to Forbes Town Center by entering into a jointdevelopment agreement with landowner, Bonifacio West Development Corporation (the ‘‘BWDC’’)in March 2002. The BWDC is 30% owned by Megaworld, who also has three seats on theBWDC’s 11-member board of directors. Under the terms of the joint development agreement withthe BWDC, the BWDC provides the Company with land to be developed for mixed-use projects.The Company is responsible for designing, planning and marketing the development as well aspaying all expenses. The BWDC must approve the development plans. The first building wasrequired to be, and was, launched by July 2002 and all development must be completed by 2014.In addition, the second building can not be launched until 70% of the first building is sold. TheBWDC will share a certain percentage of the developed units and such same percentage fromrevenues earned from leased property. In the event that the Company fails to meet the conditionsset out in the agreement, the BWDC may terminate the agreement and retain its land use rightsover the unconstructed portions of the property. Title to the units will be allocated to the partiesin accordance with their sharing arrangement. Upon completion and payment, Megaworld and theBWDC transfer the title of their respective units to the purchaser. In respect of title to the landunderlying the residential units, title passes in escrow from the BWDC to the condominiumassociation for each building upon completion of construction.

The following shows the mix of residential and leisure and entertainment properties that theCompany expects when the project is completed.


Residential . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 240,000 92Leisure and Entertainment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20,000 8

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 260,000 100

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Residential zone

The residential zone upon completion is expected to consist of 13 towers. Set out in the tablebelow are details of each residential project as of December 31, 2005.

Set out below are artistic renditions of some of the towers as they are expected to appear uponcompletion, which may not necessarily represent the eventual state of the actual propertydevelopment.

Forbeswood Heights Forbeswood Parklane

Bellagio 1 Bellagio 2

No. offloors(1)

No. ofunits

AggregateGFA(2)

(sq. meters)Expected

completion dateUnits sold

(%)

Forbeswood Heights — Agoho . . . . 19 173 7,634 4th quarter 2006 98Forbeswood Heights — Bauhinia . . . 21 197 8,692 4th quarter 2006 97Forbeswood Heights — Cambridge . . 21 197 8,692 4th quarter 2006 93Forbeswood Heights — Dorchester . . 21 230 9,919 4th quarter 2007 96Forbeswood Heights — Evergreen . . 18 161 7,105 4th quarter 2007 88Forbeswood Heights — Florida . . . . 25 245 10,808 4th quarter 2007 96Bellagio 1 . . . . . . . . . . . . . . . . . 41 324 26,078 4th quarter 2008 90Bellagio 2 . . . . . . . . . . . . . . . . . 43 386 27,182 4th quarter 2008 81Forbeswood Parklane North Side . . . 32 253 11,247 4th quarter 2009 38Forbeswood Parklane South Side . . . 39 341 14,337 4th quarter 2009 0Bellagio 3, 4, 5 . . . . . . . . . . . . . . — — — 2009 to 2011 0

Total . . . . . . . . . . . . . . . . . . . . 2,507 131,694

Notes:(1) Includes basement.(2) Saleable floor area.

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The leisure and entertainment zone is expected to consist of 20,000 square meters devoted to bars,restaurants, specialty shops and cinemas, which are designed to complement the office andresidential buildings in this development as well as the surrounding office areas in BonifacioGlobal City.

Set out below is an artist’s rendition of the view of the leisure and entertainment zone at ForbesTown Center, which may not necessarily represent the eventual state of the actual propertydevelopment.

View of Forbes Town Center

McKinley Hill

Description

The McKinley Hill project is located in Fort Bonifacio, Taguig, Metro Manila. McKinley Hill isexpected to consist of office, residential, retail, educational, entertainment and recreationalproperties.

Set out below is a model map of the proposed McKinley Hill development, which may notnecessarily represent the eventual state of the actual property development upon completion.

Model of McKinley Hill Site

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Approximately twenty-five hectares of the land in McKinley Hill are owned by the BCDA, aGovernment agency organized to arrange for the disposal of Government-owned land occupied bymilitary bases. Through a bidding process, the BCDA entered into a joint venture agreement withAlliance Global Group, Inc. (‘‘Alliance’’) in September 2003 for mixed-use development. The jointventure agreement provides that the BCDA and Alliance share all developed lots/units and rentalrevenues obtained from the development. Alliance is responsible for advancing P=927.8 million incash to the BCDA which has been paid. In addition, Alliance is required to guarantee payment ofapproximately P=118.2 million to the BCDA each year for 15 years in case revenues from sales andrentals should fail to meet that minimum amount. The Company acquired development rights toMcKinley Hill by entering into a joint development agreement with Alliance in July 2003. Thedevelopment plans upon which Alliance’s bid was based are mirrored in the joint developmentagreement. In addition, Megaworld has posted a surety bond to cover Alliance’s guaranteed annualpayment to the BCDA. As a condition under the joint venture arrangement, Megaworld has alsoposted a performance bond to secure Alliance’s compliance with its investment and othercontractual commitments. Terms of the joint development agreement include completion of thedevelopment and a minimum investment of P=2,060 million by 2013. Pursuant to the agreement,there is a management and development committee and a monitoring and audit committee, each ofwhich have six members. There are no termination provisions in the joint development agreementbetween Alliance and Megaworld. The only termination provisions are contained in the jointventure agreement between the BCDA and Alliance which provide for termination in the eventthat, among other occurrences, the BCDA does not receive its required payments. Title to the landhas been transferred in trust by the BCDA to the Company. Title to rental properties passes to theCompany upon their completion.

Ten hectares of land in McKinley Hill were sold to the Company from BCDA in February 2004.The deed of sale of this land has been completed and delivery is pending. The Company is requiredto make instalment payments of up to P=394.0 million with payment to be fully paid by January2008.

In 2004, the Company leased sixteen additional hectares of land in McKinley Hill from the City ofTaguig for 25 years with renewal rights. The leased property is zoned for exclusive use by schools,sporting facilities and other institutional uses.

A portion of McKinley Hill constituting a 35.06 hectare corporate zone received PEZA specialeconomic zone status on August 12, 2005 subject to receipt of local government approval. TheCompany is also responsible for, and has completed, horizontal development of McKinley Hillwhich is the development of raw land into residential lots by constructing roads, undergroundwater supply systems, drainage and sewer lines and related facilities.

The following shows the mix of residential, corporate and leisure and entertainment propertiesthat the Company expects when the project is completed.


Residential . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 587,000 65Corporate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 200,000 22Leisure and Entertainment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78,500 9Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40,000 4

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 905,500 100

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Residential zone

The residential zone is expected to consist of a low density single-detached homes and low riseresidential garden villas. Construction began in 2005. The Company has pre-sold 70% of thesubdivision lots. The first villa is complete and a second villa is expected to be launched in thethird quarter of 2006. Set out below are artistic renditions of the subdivision model homes and thegarden villas as they are expected to appear upon completion, which may not necessarily representthe eventual state of the actual properties.

Lisbon-inspired Contemporary Mansion

South California-style Estate House

Cadiz-inspired Spanish Mediterranean Casa Paris-style Neo-classic Chateau

Modern Maison in the Lyons tradition

Seville-style Patrician Casa

McKinley Hill Village Model Houses

McKinley Hill Garden Villas

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The subdivision is comprised of lots for the development of single-detached houses. Thesubdivision includes a clubhouse and communal swimming pool for residents. Buyers have theoption to purchase an empty lot or to choose among model houses to be built on the lot.

The residential zone is also comprised of garden villas. Tenants for two of the villas include theKorean International School, which is also building a campus in the McKinley Hill communitytownship, as well as one other international school. The two schools are expected to use villas forstaff housing.

Corporate zone

The office properties in McKinley Hill are expected to consist of Grade A office buildings. Tenantsin the cyberpark are expected to include major multinational corporations, largely comprised ofsoftware developers, data encoding and conversion centers, call centers, system integrations, ITand computer system support and are entitled to various tax incentives in conjunction with thePEZA special economic zone status conferred upon the McKinley Hill Cyberpark. The totalaggregate GFA in the cyberpark is approximately 200,000 square meters. The first office buildingin the cyberpark is expected to be completed by the end of 2007.

Set out below is an artist’s rendition of a McKinley Hill office building as it is expected to appearupon completion, which may not necessarily represent the eventual state of the actual propertydevelopment.

McKinley Hill Corporate Plaza


The leisure and entertainment zone is expected to consist of bars, restaurants, specialty shops,cinemas and sports complex, which are expected to complement the office and residential buildingsin the community township. The leisure and entertainment zone is expected to have a total GFA ofapproximately 78,500 square meters and construction is expected to commence in early 2007.

Other

Two international schools, the Korean International School and Enderun Colleges, have enteredinto agreements with the Company to build campuses in McKinley Hill. The residential housingfor the schools will be constructed pursuant to joint development agreements where the Companycontributes land and other parties are responsible for the design and construction of the residences.

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Newport City

DescriptionNewport City is a 25 hectare mixed-use project in Pasay City, Metro Manila in the Villamor AirBase and across the street from NAIA Terminal 3, integrating corporate, residential, leisure andentertainment components. The property is adjacent to the Villamor golf course. The planning ofNewport City adopts a similar integrated approach to urban planning as Eastwood City with theexception that Newport City is targeted towards tenants and buyers where proximity to NAIATerminal 3 is an advantage. The Company intends to enter into an agreement with a majorinternational hotel management company to operate a five-star hotel on the premises. NewportCity is expected to include medium-rise residential buildings and tourist-oriented retaildevelopments.

Set out below is a model of the Newport City development, which may not necessarily representthe eventual state of the actual property development.

Model of Newport City

The Company acquired development rights to Newport City by entering into a joint developmentagreement with the BCDA in October 2003 for 17.5 hectares of land and purchased an additionalseven hectares from the BCDA. Terms of the joint development agreement include the requirementthat the Company organize and pay the costs associated with replicating existing structures toanother location within the base and provide an advance payment of P=62.0 million to the BCDA.The Company is required to invest a minimum of P=200.0 million and complete the developmentwithin 12 years of the completion of clearing the existing structures. The BCDA is entitled to apercentage of the developed lots/units and revenue from leased properties. The joint developmentagreement may be terminated if the project completion timeline is not met or if the Company doesnot replicate the original structures. Title to the land subject to the joint development agreementwill be held in trust by Megaworld to be transferred to the condominium association for eachbuilding upon project completion and receipt of sale proceeds. The Company intends to apply toPEZA for special economic zone status.

The following shows the mix of residential, office and leisure and entertainment properties that theCompany expects when the project is completed.


Residential . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 180,000 25Corporate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 450,000 64Leisure and Entertainment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47,000 7Hotel . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31,500 4

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 708,500 100

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Residential zone

The residential zone upon completion is expected to consist of 16 eight to nine storey medium-risedevelopments. The first cluster of residential towers were launched in 2005. The Company has sold20% of the units as of December 31, 2005.

Set out below is an illustration of the residential towers, which may not necessary represent theireventual state upon completion.

Phase 1 of the Newport City Residential Resort

Corporate zone

The office properties are currently expected to include Grade A office buildings. Tenants in thecyberpark are expected to include major multinational corporations, largely comprised of BPObusinesses, cargo logistics services and airline-related businesses who consider close proximity tothe airport to be an advantage. Similar to its other mixed-use communities, the Company expectsto establish a PEZA special economic zone cyberpark at Newport City.


The leisure and entertainment zone is expected to consist of bars, restaurants, retail and tourist-oriented shops, which are designed to complement the office and residential buildings in thecommunity township. The Company plans to lease the leisure and entertainment zone area.

Hotel zone

The five-star hotel managed by an international company is expected to comprise 350 rooms andapproximately eight to nine floors. Construction of the hotel is expected to commence in 2007.

Relocation of original structures

The Villamor Air Base is still partly occupied by its original residents, army barracks, schools andother structures. The Company and the BCDA have agreed to relocate the structures to other areaswithin the base as determined by the BCDA. The relocation process is ongoing.

Araneta Center

Description

The project at the Araneta Center is a residential development to consist of 17 residential towers,comprising 6,000 condominium units, on a four hectare property at the Araneta Center in QuezonCity. The Araneta Center project is based on integrating a residential community with a majortransportation hub, including a direct link to two major transport lines, the MRT-3 and the LRT-2. All key areas along the transportation lines within Metro Manila will be easily accessible from

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the development. In addition, the Araneta Center includes leisure amenities such as a recentlycompleted mall with a leasable GFA of 80,000, which was designed by US-based architects, RTKLInternational. The mall hosts a state-of-the-art cineplex with 10 theaters.

The Company acquired development rights to four hectares at the Araneta Center by entering intoa joint development agreement with its landowner, Araneta Center, Inc. (‘‘Araneta’’), in August2005. The agreement requires Araneta to provide only the land, and the Company is required todevelop a minimum of 274,917 square meters of net residential saleable area. The agreement alsoprovides that the base of the residential towers must contain retail space of at least 20,080 squaremeters in aggregate, which will belong to Araneta. Development is to occur in four phases andAraneta is required to approve each phase. The development must be completed within 11 years.Araneta and the Company will share in the developed units and parking slots. All titles to land andto the units are deposited in escrow during construction. Title to the units are secured uponsubstantial completion of each phase of the project. Title to the land passes to a condominiumassociation, which is established upon completion of each phase of the project. Launch of theresidences is expected to begin in the third quarter of 2006.

CONSTRUCTION ACTIVITIES

The Company has its own architectural and engineering teams comprised of approximately 150personnel and also engages independent groups to carry out the design of its high profiledevelopment projects. The Company has a team of project managers who work closely withoutside contractors in supervising the construction phase of each project. The Company also hasestablished relationships with a number of architectural firms in the Philippines such asRecio+Casas Architects and W.V. Coscolluella & Associates, and internationally such asSkidmore, Owings & Merrill in New York and Klages, Carter, Vail in California. TheCompany’s top five contractors listed in order of total payments under construction contracts in2005 were Steel Asia Mfg Corp, Omnico Consortium, Inc., JD Bernardo Engineering &Construction Inc., Universal Steel Melting Co. Inc. and Millenium Erectors Corp.

The Company’s contracts with its construction companies typically contain warranties for qualityand requirements for timely completion of the construction process. In the event of delay or poorquality of work, the relevant contractor or supplier may be required to pay a penalty. In the past,the Company has not had any material disputes with any of its contractors or suppliers. TheCompany’s principal raw materials are steel and cement which are commodities and are readilyavailable in the market from a number of sources. The Company uses a standard form fixed-pricecontract for both its general and specialty construction contractors. The contracts typically includethe following key terms: a downpayment of 10% is required from the contractor and is usuallyobtained in the form of a performance bond; progressive billing occurs on a monthly basis; and a10% retention and warranty provision for workmanship is included and is typically covered by aguarantee bond.

For the years ended December 31, 2003, 2004 and 2005, payments to the Company’s single largestconstruction contractor accounted for approximately 5%, 6% and 7%, respectively of theCompany’s total payments under its construction contracts. For the same periods, payments to theCompany’s five largest construction contractors accounted for approximately 15%, 22% and 23%,respectively of the Company’s total payments under its construction contracts. The Company has abroad base of construction contractors and suppliers and is not dependent on any one contractoror supplier.

PRE-SALES, SALES AND MARKETING

The Company conducts pre-sales of its property units prior to project completion and often, priorto construction. The Company’s pre-selling process provides buyers with a variety of paymentschemes, with down-payment plans ranging from 50% to no money down. A typical paymentscheme includes progressive payments over the period in advance of property construction,including a balloon payment to coincide with buyers’ expected cash flows. The Company collectspost-dated checks and confirms payment with buyers six months prior to project completion atwhich point the buyer may choose to replace its post-dated check with bank financing. Transfer of

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title to the property occurs only once all payments have been received. The payment structures aredesigned to appeal to middle class buyers. In each of the last three years, the Company hasbenefited from pre-sales of an average of 70% of its units a year from launch and an average of90% unit pre-sales prior to completion.

The Company maintains an in-house marketing and sales division for each of its projects which iscomprised of 250 full-time sales agents. The marketing and sales division is staffed by a select andtrained group of property consultants who exclusively market the Company’s projects. All propertyconsultants are trained prior to selling and the Company also provides a skills enhancementprogram intended to further develop the sales and marketing staff into high-caliber marketingprofessionals. Property consultants are recruited via newspaper advertising and required to meetthe criteria set by the Company. The Company also works with outside agents who competedirectly with the Company’s in-house personnel. Both internal and external agents work on acommission basis, but in-house personnel also receive a small allowance.

The Company also employs a marketing services staff of 25 employees whose job is to provideauxiliary services required by the marketing division for its sales and promotional activities. Thegroup is also responsible for monitoring the latest developments in the economy and the real estateproperty markets as well as conducting market research studies for the marketing division.

In addition, the Company has an international marketing division comprised of 10 employeesbased in Manila who oversee a global network of 23 sales offices which market the projects of theCompany and its affiliates to overseas Filipino professionals and retirees throughout Asia, Europe,North America, the Middle East and Australia. The Company enters into marketing agreementswith various brokers based in the different overseas markets, which will then market theCompany’s projects overseas through their respective marketing networks.

PROPERTY MANAGEMENT AND AFTER-SALES SERVICES

The Company remains involved in the properties it develops and sells through its propertymanagement group which provides property management and after-sales services. Services includebuilding maintenance and interior design services. The property management group is a resourcefor the Company to obtain feedback from its purchasers and rental tenants in order to providesolutions to their property needs, maintain the property and develop long-term relationships withits tenants and purchasers. The property management group contributes to enhancing theCompany’s brand and reputation in the after-sales market.

TENANTS AND LEASES

The Company typically sells all of its residential property developments and maintains ownershipof its commercial developments, renting these out to tenants. Where the Company is not able tosell 100% of its residential units upon completion, it rents these units out on a lease-to-own basisor lease with an option to buy. The Company’s sells its residential properties primarily directly toend users and is not dependent on any single purchaser or purchasers.

The Company’s commercial leases are generally for terms of three to five years (with annual rentalescalation and review provisions) and typically require three months security deposits and threemonths advance rent. For land leases and office tenants which require development of a specificbuilding structure, the Company enters into long-term leases of 10 to 15 years.

The lease payments the Company receives under its leases with retail tenants are based on aparticipation in the turnover of the tenant’s businesses. Rents are typically based upon a turnovercomponent of 3% to 5% of revenues net of taxes and service charges in addition to a minimumrent charge. Kiosk retailers are charged a flat rent fee and theatres are co-owned with theCompany. The Company’s tenants are generally charged a monthly management fee assessed persquare meter, which covers building maintenance expenses. Tenants are also required to pay theirutility charges. The Company regularly monitors the performance of the tenants in its retail

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properties. The Company may elect not to renew the leases of retail tenants whose performance islagging in order to improve its rental income. The Company’s lease agreements typically have nopre-termination options.

The percentage of revenues attributable to the Company’s five largest office tenants combined forthe years ended December 31, 2003, 2004 and 2005 were 39%, 31% and 29%, respectively. TheCompany has a broad tenant base and is not dependent on a single tenant or tenants.

COMPETITION

The Company competes with other property investment, development, leasing and propertyholding companies to attract purchasers and well as tenants for its properties in Metro Manila.The principal bases of competition in the real estate development business are location, product,price, financing, execution, completion, brand and service. The Company believes it has severalcompetitive advantages in each of these categories due to the prime locations of its properties,innovative projects, a reputation for high quality designs, affordable pre-sales financing, after-salesservice and a consistent track record of completion.

With respect to community township developments, the Company considers Ayala Land, Inc.(‘‘Ayala’’) to potentially be its only significant competitor. However, in the majority of locationswhere the Company’s community townships are located, Ayala is not present.

With respect to its office and retail leasing business, the Company believes that there are manycompanies in the industry. Additional land is scheduled to be released by local city governments inMetro Manila and a number of developers have expressed an interest in developing such land inresponse to growing demands in the BPO market. However, Megaworld has not identified anydirect competitor. The Company believes this is largely because its projects differ from those ofother companies in the industry in terms of location, the availability of landbank and the conceptof community township development to attract purchasers as well as tenants.

INTELLECTUAL PROPERTY

The Company believes that its operations and the operations of its subsidiaries are not dependenton any patent, trademark, copyright, license, franchise, concession or royalty agreement.

INSURANCE

The Company believes that its properties are covered by adequate fire, flood, riot, strike, maliciousdamage, typhoon, property and terrorist insurance provided by reputable companies withcommercially reasonable deductibles and limits. The Company maintains earthquake insurancewith respect to the buildings and commercial centers that it owns. It is not customary in thePhilippines to maintain, and the Company does not maintain, title insurance with respect to itsproperties.

RESEARCH AND DEVELOPMENT

The Company incurs minimal amounts for research and development activities which do notamount to a significant percentage of revenues.

LEGAL PROCEEDINGS

Neither the Company nor any of its subsidiaries, its associate or joint development partners or anyof its or their properties is involved in or the subject of any legal proceedings which would have amaterial adverse effect on the business or financial position of the Company or any of itssubsidiaries, its associate or joint ventures or any of its or their properties.

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EMPLOYEES

As of December 31, 2005, the Company and its subsidiaries had 355 employees. 102 of theseemployees performed clerical functions. 101 employees were involved in operations and 122performed administrative functions. The Company intends to hire additional employees if thepresent workforce becomes inadequate to handle the Company’s operations. The Companyanticipates that it will be hiring approximately 35 employees within the ensuing 12 months. TheCompany has no collective bargaining agreements with employees and no organized labororganizations in the Company. The Company complies with the minimum compensation andbenefits standards pursuant to Philippine law. The Company provides for estimated retirementbenefits in accordance Philippine retirement law pursuant to Republic Act 7641. The Company hasnot experienced any disruptive labor disputes, strikes or threats of strikes and the Companybelieves that its relationship with its employees in general is satisfactory.

The principal properties that the Company owns, their location, condition and limitations onownership, if any, are listed below:

Project Location ConditionLimitations onOwnership

Condominium Units and Subdivision Lots

8 Wack Wack Road . . . . . . . . . . . . . Mandaluyong City Completed Joint VentureGolf Hills Terraces . . . . . . . . . . . . . . Quezon City Completed Joint VentureMarina Square Suites . . . . . . . . . . . . . Manila Completed NoneCorinthian Hills . . . . . . . . . . . . . . . . Quezon City Completed NonePaseo Parkview Suites . . . . . . . . . . . . . Makati City Completed Joint VentureEastwood Excelsior . . . . . . . . . . . . . . Quezon City Under development NoneCyberOne . . . . . . . . . . . . . . . . . . . . Quezon City Completed NoneOne Orchard Road . . . . . . . . . . . . . . Quezon City Under development NoneGreenbelt Radissons . . . . . . . . . . . . . Makati City Completed NoneGreenbelt Parkplace . . . . . . . . . . . . . Makati City Under development Joint VentureGrand Eastwood Palazzo . . . . . . . . . . . Quezon City Under development NoneEastwood Parkview . . . . . . . . . . . . . . Quezon City Under development NoneForbeswood Heights . . . . . . . . . . . . . . Taguig City Under development Joint VentureThe Bellagio . . . . . . . . . . . . . . . . . . . Taguig City Under development Joint Venture

Rental Properties(1)

Eastwood City Walk 1 and 2 . . . . . . . . Quezon City Completed NonePaseo Center . . . . . . . . . . . . . . . . . . Makati City Completed NoneForbes Town Center . . . . . . . . . . . . . . Taguig City Completed Joint VentureICITE . . . . . . . . . . . . . . . . . . . . . . . Quezon City Completed NoneEastwood Incubation Center . . . . . . . . . Quezon City Completed NoneCyberOne . . . . . . . . . . . . . . . . . . . . Quezon City Completed NoneCyberMall . . . . . . . . . . . . . . . . . . . . Quezon City Completed None

Hotels(2)

Richmonde Hotel . . . . . . . . . . . . . . . . Pasig City Completed None

Footnotes:(1) Lease terms and rental rates vary depending on the property and the lessee. See ‘‘— Tenants and Leases’’.(2) The Richmonde Hotel is operated by subsidiary of the Company.

The Company’s principal corporate headquarters are located on the 20th and 28th floors of TheWorld Centre at Sen. Gil J. Puyat Avenue, Makati City. The Company owns both of the floors thatit occupies.

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REGULATORY AND ENVIRONMENTAL MATTERS

Presidential Decree No. 957 as amended, is the principal statute which regulates the developmentand sale of real property as part of a condominium project or subdivision. Presidential Decree No.957 covers subdivision projects and all areas included therein for residential, commercial,industrial and recreational purposes, and condominium projects for residential or commercialpurposes. The HLURB is the administrative agency of the Government which, together with localgovernment units, enforces this decree and has jurisdiction to regulate the real estate trade andbusiness.

All subdivision and condominium plans for residential, commercial, industrial and otherdevelopment projects are subject to approval by the pertinent local government unit in whichthe project is situated. The development of subdivision and condominium projects can commenceonly after the local government unit has issued the development permit.

The issuance of a development permit is dependent on, among others (i) compliance with requiredproject standards and technical requirements which may differ depending on the nature of theproject, and (ii) issuance of the barangay clearance, the HLURB locational clearance, and DENRpermits, as discussed below. A bond equivalent to 10% of the total project cost is required to beposted by the project developer to ensure commencement of the project within one year from theissuance of the development permit.

Further, all subdivision plans and condominium project plans are required to be filed with andapproved by the HLURB. Approval of such plans is conditional on, among other things, thedeveloper’s financial, technical and administrative capabilities. Alterations of approved planswhich affect significant areas of the project, such as infrastructure and public facilities, alsorequire the prior approval of the relevant local government unit. Owners of or dealers in realestate projects are required to obtain licenses to sell before making sales or other dispositions oflots or real estate projects. Dealers, brokers and salesmen are also required to register with theHLURB. Project permits and licenses to sell may be suspended, cancelled or revoked by theHLURB by itself or upon complaint from an interested party.

Subdivision or condominium units may be sold or offered for sale only after a license to sell hasbeen issued by the HLURB. The license to sell may be issued only against a performance bondposted to guarantee the completion of the construction of the subdivision or condominium projectand compliance with applicable laws and regulations.

There are essentially two different types of residential subdivision developments, which aredistinguished by different development standards issued by the HLURB. The first type ofsubdivision, aimed at low-cost housing, must comply with Batas Pambansa Blg. 220, which allowsfor a higher density of building and relaxes some construction standards. Other subdivisions mustcomply with Presidential Decree 957, which set out standards for lower density developments.Both types of development must comply with standards regarding the suitability of the site, roadaccess, necessary community facilities, open spaces, water supply, the sewage disposal system,electrical supply, lot sizes, the length of the housing blocks and house construction.

Under current regulations, a developer of a residential subdivision is required to reserve at least30% of the gross land area of such subdivision for open space for common uses, which includeroads and recreational facilities. A developer of a commercial subdivision is required to reserve atleast 3.5% of the gross project area for parking and pedestrian malls.

Further, Republic Act No. 7279 requires developers of proposed subdivision projects to develop anarea for socialized housing equivalent to at least 20% of the total subdivision area or totalsubdivision project cost, at the option of the developer, within the same city or municipality,whenever feasible, and in accordance with the standards set by the HLURB.

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ZONING AND LAND USE

Under the agrarian reform law currently in effect in the Philippines and the regulations issuedthereunder by the Department of Agrarian Reform (‘‘DAR’’), land classified for agriculturalpurposes as of or after 15 June 1988, cannot be converted to non-agricultural use without theprior approval of DAR.

Land use may be also limited by zoning ordinances enacted by local government units. Onceenacted, land use may be restricted in accordance with a comprehensive land use plan approved bythe relevant local government unit. Lands may be classified under zoning ordinances ascommercial, industrial, residential or agricultural. While a procedure for change of allowed landuse is available, this process may be lengthy and cumbersome.

Special Economic Zone

PEZA is a Government corporation that operates, administers and manages designated specialeconomic zones (‘‘Ecozones’’) around the country. Ecozones, which are generally created byproclamation of the President of the Philippines, are areas earmarked by the Government fordevelopment into balanced agricultural, industrial, commercial, and tourist/recreational regions.

An Ecozone may contain any or all of the following: industrial estates, export processing zones,free trade zones, and tourist/recreational centers. PEZA registered enterprises locating in anEcozone are entitled to fiscal and non-fiscal incentives such as income tax holidays and duty freeimportation of equipment, machinery and raw materials.

IT enterprises offering IT services (such as call centers, and business process outsourcing usingelectronic commerce) are entitled to fiscal and non-fiscal incentives if they are PEZA-registeredlocators in a PEZA-registered IT Park, IT Building, or Ecozone. An IT Park is an area which hasbeen developed into a complex capable of providing infrastructures and other support facilitiesrequired by IT enterprises, as well as amenities required by professionals and workers involved inIT enterprises, or easy access to such amenities. An IT Building is an edifice, a portion or thewhole of which, provides such infrastructure, facilities and amenities.

PEZA requirements for the registration of an IT Park or IT Building differ depending on whether itis located in Metro Manila. Metro Manila is the area that covers the 12 cities of Manila,Caloocan, Las Pinas, Makati, Mandaluyong, Marikina, Muntinlupa, Paranaque, Pasay, Pasig,Quezon and Valenzuela and the five municipalities of Malabon, Navotas, Pateros, San Juan andTaguig. These PEZA requirements include clearances or certifications issued by the city ormunicipal legislative council, the DAR, the National Water Resources Board, and the DENR.

The Company routinely secures the required governmental approvals for its projects during theplanning and construction and marketing stages of project development. The Company is notaware of any pending legislation or governmental regulation that is expected to materially affect isbusiness. The Company believes that it has obtained the required government approvals relevantfor each project at its current state of development.

ENVIRONMENTAL LAWS

Development projects that are classified by law as environmentally critical or projects withinstatutorily defined environmentally critical areas are required to obtain an EnvironmentalCompliance Certificate (‘‘ECC’’) prior to commencement. The DENR through its regional officesor through the Environmental Management Bureau (‘‘EMB’’), determines whether a project isenvironmentally critical or located in an environmentally critical area. As a requisite for theissuance of an ECC, an environmentally critical project is required to submit an EnvironmentalImpact Statement (‘‘EIS’’) to the EMB while a project in an environmentally critical area aregenerally required to submit an Initial Environmental Examination (‘‘IEE’’) to the proper DENRregional office. In case of an environmentally critical project within an environmentally criticalarea, an EIS is required. The construction of major roads and bridges are consideredenvironmentally critical projects for which EISs and ECCs are mandated.


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The EIS refers to both the document and the study of a project’s environmental impact, including adiscussion of the direct and indirect consequences to human welfare and ecological as well asenvironmental integrity. The IEE refers to the document and the study describing theenvironmental impact, including mitigation and enhancement measures, for projects inenvironmentally critical areas.

While the EIS or an IEE may vary from project to project, as a minimum, it contains all relevantinformation regarding the projects environmental effects. The entire process of organization,administration and assessment of the effects of any project on the quality of the physical,biological and socio-economic environment as well as the design of appropriate preventive,mitigating and enhancement measures is known as the EIS System. The EIS System successfullyculminates in the issuance of an ECC. The issuance of an ECC is a Government certification, thatthe proposed project or undertaking will not cause a significant negative environmental impact;that the proponent has complied with all the requirements of the EIS System and that theproponent is committed to implement its approved Environmental Management Plan in the EIS or,if an IEE was required, that it shall comply with the mitigation measures provided therein.

Project proponents that prepare an EIS are required to establish an Environmental Guarantee Fund(‘‘EGF’’) when the ECC is issued to projects determined by the DENR to pose a significant publicrisk to life, health, property and the environment. The EGF is intended to answer for damagescaused by such a project as well as any rehabilitation and restoration measures. Project proponentsthat prepare an EIS are mandated to include a commitment to establish an EnvironmentalMonitoring Fund (‘‘EMF’’) when an ECC is eventually issued. The EMF shall be used to supportthe activities of a multi-partite monitoring team which will be organized to monitor compliancewith the ECC and applicable laws, rules and regulations.

All development projects, installations and activities that discharge liquid waste into and pose athreat to the environment of the Laguna de Bay Region are also required to obtain a dischargepermit from the Laguna Lake Development Authority.

The Company incurs expenses for the purposes of complying with environmental laws that consistprimarily of payments for Government regulatory fees. Such fees are standard in the industry andare minimal.

PROPERTY REGISTRATION AND NATIONALITY RESTRICTIONS

The Philippines has adopted a system of land registration which conclusively confirms landownership which is binding on all persons, including the Government. Once registered, title toregistered land can no longer be challenged except with respect to claims noted on the certificateof title. Title to registered lands cannot be lost through adverse possession or prescription.Presidential Decree No. 1529, as amended, codified the laws relative to land registration and isbased on the generally accepted principles underlying the Torrens System.

After proper surveying, application, publication and service of notice and hearing, unregisteredland may be brought under the system by virtue of judicial or administrative proceedings. In ajudicial proceeding, the Regional Trial Court within whose jurisdiction the land is situatedconfirms title to the land. Persons opposing the registration may appeal the judgment within 15days to the Court of Appeals or the Supreme Court. After the lapse of the period of appeal, theRegister of Deeds may issue an Original Certificate of Title. The decree of registration may beannulled on the ground of actual fraud within one year from the date of entry of the decree ofregistration. Similarly, in an administrative proceeding, the land is granted to the applicant by theDENR by issuance of a patent and the patent becomes the basis for issuance of the OriginalCertificate of Title by the Register of Deeds. All land patents such as homestead, sales and freepatents, must be registered with the appropriate registry of deeds since the conveyance of the titleto the land covered thereby takes effect only upon such registration.


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Any subsequent transfer of encumbrance of the land must be registered in the system in order tobind third persons. Subsequent registration and a new Transfer Certificate of Title in the name ofthe transferee will be granted upon presentation of certain documents and payment of fees andtaxes.

All documents evidencing conveyances of subdivision and condominium units should also beregistered with the Register of Deeds. Title to the subdivision or condominium unit must bedelivered to the purchaser upon full payment of the purchase price. Any mortgage existing thereonmust be released within six months from the delivery of title. To evidence ownership ofcondominium units, a Condominium Certificate of Title is issued by the Register of Deeds.

While the Philippine Constitution prescribes nationality restrictions on land ownership, there isgenerally no prohibition against foreigners owning building and other permanent structures.However, with respect to condominium developments, the foreign ownership of units in suchdevelopments is limited to 40%.

PROPERTY TAXATION

Real property taxes are payable annually based on the property’s assessed value. The assessedvalue of property and improvements vary depending on the location; use and the nature of theproperty. Land is ordinarily assessed at 20% to 50% of its fair market value; buildings may beassessed at up to 80% of their fair market value; and machinery may be assessed at 40% to 80%of its fair market value. Real property taxes may not exceed 2% of the assessed value inmunicipalities and cities within Metro Manila or in other chartered cities and 1% in all otherareas. An additional special education fund tax of 1% of the assessed value of the property is alsolevied annually.


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SUBSIDIARIES AND AFFILIATES

As of December 31, 2005, the Company holds interests in the following subsidiaries andassociates:

Subsidiaries and Associates Date of IncorporationPercentageOwnership

SubsidiariesMegaworld Land, Inc. . . . . . . . . . . . . . . . . . . . . . . May 26, 1994 100%Prestige Hotels and Resorts, Inc. . . . . . . . . . . . . . . . February 16, 1999 100%Mactan Oceanview Properties and Holdings, Inc. . . . . . August 16, 1996 100%Megaworld Cayman Islands, Inc. . . . . . . . . . . . . . . . August 14, 1997 100%Richmonde Hotel Group International . . . . . . . . . . . . June 24, 2002 100%Eastwood CyberOne Corporation . . . . . . . . . . . . . . . October 21, 1999 100%Forbes Town Properties and Holdings, Inc. . . . . . . . . February 6, 2002 100%Megaworld Newport Property Holdings, Inc. . . . . . . . October 6, 2003 100%Megaworld-Daewoo Corporation . . . . . . . . . . . . . . . August 26, 1996 60%Megaworld Central Properties, Inc. . . . . . . . . . . . . . September 15, 2005 60%Megaworld Globus Asia, Inc. . . . . . . . . . . . . . . . . . March 17, 1995 50%

AssociatesEmpire East Land Holdings, Inc. . . . . . . . . . . . . . . . July 15, 1994 45.22%Fairmont Holdings, Inc.. . . . . . . . . . . . . . . . . . . . . January 18,1956(1) 35.29%Palm Tree Holdings and Development Corporation. . . . August 15, 2005 40%

Note:(1) Fairmont was originally incorporated under the name Ramie Textiles, Inc. It adopted its present name on October 3,

2001.

The Company has, in certain circumstances, spun off certain of its business operations as arequirement of certain financing or statutory requirements to incorporate a separate company for aparticular project or business operation. Set out below is a description of each subsidiary orassociate company and its main activities.

Megaworld Land, Inc. wholly owns Prestige Hotels & Resorts, Inc. It sells, leases and marketsoffice space in the CyberPark to prospective locators.

Prestige Hotels & Resorts, Inc. operates the Company’s Richmonde Hotel in Ortigas Center.

Mactan Oceanview Properties & Holdings, Inc. was organized to develop a resort property inCebu into a first class, mixed-use residential and commercial condominium facility.

Megaworld Cayman Islands, Inc. was incorporated in the Cayman Islands to act as a promoter andentrepreneur, carry on the business as a financier, broker, dealer, agent, and importer and toundertake all kinds of investments, financial, trading and other operations.

Richmonde Hotel Group International Ltd. was incorporated in the British Virgin Islands toundertake all kinds of investments and engage in trading, hotel and restaurant and relatedbusinesses. The Company started commercial operations on October 30, 2002.

Eastwood CyberOne Corporation is the developer of the CyberOne office condominium projectlocated in the Eastwood City Cyberpark, Quezon City.

Forbes Town Properties and Holdings, Inc. was organized primarily to act as a principal agent orbroker, on commission basis or otherwise, and to acquire by purchase or lease, construct, manageor sell real estate properties. It has not started commercial operations as of December 31, 2005.

Megaworld Newport Property Holdings, Inc. has not commenced commercial operations as ofDecember 31, 2005.

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Megaworld-Daewoo Corporation has completed the development of Tower 2 of the OlympicHeights project, a 3-tower residential condominium project in Eastwood City, Quezon City.

Megaworld Central Properties, Inc. has not commenced commercial operations as of December 31,2005.

Megaworld Globus Asia, Inc. has completed the development of The Salcedo Park, a twin-towerresidential condominium project located along Sen. Gil J. Puyat Avenue, Makati City.

Empire East Land Holdings, Inc. is engaged in the development and marketing of affordablehousing projects either in the form of condominium communities or house-and-lot packages, andto a limited extent, commercial and office space and mixed-use complexes.

Fairmont Holdings, Inc. was previously incorporated under the name Ramie Textiles, Inc. onJanuary 18, 1956. It adopted its present name on October 3, 2001.

Palm Tree Holdings and Development Corporation has not commenced commercial operations asof December 31, 2005.

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BOARD OF DIRECTORS AND SENIOR MANAGEMENT

BOARD OF DIRECTORS AND EXECUTIVE OFFICERS

The overall management and supervision of Megaworld is undertaken by the Board. Megaworld’sexecutive officers and management team cooperate with Megaworld’s Board by preparingappropriate information and documents concerning Megaworld’s business operations, financialcondition and results of operations for its review. Currently, the Board consists of seven members,of which two are independent directors. All of the directors were elected at the Company’s annualstockholders meeting on June 17, 2005 and will hold office until their successors have been dulyelected and qualified.

The table sets forth each member of Megaworld’s Board as of February 28, 2006.

Name Age Citizenship Position

Andrew L. Tan . . . . . . . . . . 56 Filipino Director, Chairman and PresidentGeorge T. Yang . . . . . . . . . 66 Filipino DirectorKatherine L. Tan . . . . . . . . . 54 Filipino DirectorCirilo L. Manlangit . . . . . . . 52 Filipino DirectorThomas J. Barrack, Jr. . . . . . 58 United States of America DirectorGerardo C. Garcia . . . . . . . . 64 Filipino Independent DirectorRoberto Guevara . . . . . . . . . 54 Filipino Independent Director

The table below sets forth Megaworld’s executive officers in addition to its executive directorslisted above as of February 28, 2006.

Name Age Citizenship Position

Kingson Sian . . . . . . . . . 44 Filipino Executive DirectorAntonio Tan. . . . . . . . . . 44 Filipino First Vice President for OperationsLourdes Clemente . . . . . . 42 Filipino First Vice President for Finance and

AdministrationFrancisco Canuto . . . . . . . 48 Filipino TreasurerEnrique Santos L. Sy . . . . 56 Filipino Vice President for Corporate

CommunicationsNoli Hernandez . . . . . . . . 36 Filipino Vice President for MarketingMa. Victoria M. Acosta . . 44 Filipino Managing Director for International SalesEdwin B. Maquinto . . . . . 44 Filipino Corporate SecretaryLuke T. Tan. . . . . . . . . . 35 Filipino Assistant Corporate Secretary

Andrew L. Tan is the founder of the Company. He has served as Chairman of the Board andPresident of the Company since its incorporation in 1989. He concurrently serves as Chairman ofthe Board of Empire East Land Holdings, Inc. and Vice Chairman of Alliance Global Group, Inc.Mr Tan serves in the boards of subsidiaries, Eastwood CyberOne Corporation, Megaworld Land,Inc. and Megaworld Globus Asia, Inc. He is also Chairman of the Board of MegaworldFoundation, Inc. He also sits in the boards of Gilmore Property Marketing Associates, Inc., TheAndresons Group, Inc., Raffles & Co., Consolidated Distillers of the Far East, Inc., AndresonsGlobal Inc. and The Manila Banking Corporation. Mr. Tan graduated Magna Cum Laude from theUniversity of the East with the degree of Bachelor of Science in Business Administration. Inrecognition of Mr. Tan’s role in spurring economic and societal development of the City of Taguigthrough the investments and development projects of the Company, the City of Taguig in April2005 conferred on him the Forward Taguig Award in the Field of Business an Entrepreneurship. In2004, the Quezon City government named Mr. Tan ‘‘Businessman of the Year’’ in recognition ofhis ‘‘visionary leadership’’ in transforming Eastwood City into a ‘‘magnet for investments’’ and the‘‘most dynamic growth center in Quezon City’’. In 2003, he was also named Most OutstandingAlumnus of the University of the East.

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George T. Yang has served as Vice Chairman of the Company’s Board of Directors since 1994.Mr. Yang has extensive experience in real estate development, the fast food chain business andmarketing of consumer products. He is Chairman of the Board of Alliance Global Group, Inc. anddirector of Empire East Land Holding, Inc. He is also President and Chairman of the boards ofGolden Arches Development Corporation (McDonald’s Philippines), HAVI Food ServicesPhilippines, Inc., First Georgetown Ventures, Inc., Fun Characters, Inc., Fun CharactersInternational Pte. Ltd. (Marketing Licensee for Walt Disney Company for Asean countries) andKristin Management & Development Corporation. He also serves as Chairman of the Board ofRonald McDonald House Charities (Philippines), Trojan Computer Forms, Inc., MC HomeBuilders’ Depot, Construction Strategies & Management Corporation and GEC Land DevelopmentCorporation. He is also a member of the Board of Directors of Prime Gaming ManagementCorporation and a Member of the Board of Governors of The Philippine National Red Cross andThe Tower Club. Mr. Yang graduated Cum Laude from the De La Salle College, Manila, with thedegree of Bachelor of Science in Business Administration and holds a Masters Degree in BusinessAdministration from the Wharton School, University of Pennsylvania, USA.

Katherine L. Tan has served as a member of the Company’s Board of Directors since 1989. Sheserved as Treasurer of the Company from 1989 to 1994. She is concurrently Director and Presidentof The Andresons Group, Inc., Consolidated Distillers of the Far East, Inc., Andresons Global Inc.and Raffles & Co., Inc. Ms. Tan graduated from St. Scholastica’s College with a degree inNutrition.

Cirilo L. Manlangit has served as a member of the Company’s Board of Directors since 1994. He isconcurrently Executive Vice President of the Company. He also serves in the boards ofsubsidiaries, Megaworld Land, Inc., Eastwood CyberOne Corporation, Prestige Hotels &Resorts, Inc., Megaworld Daewoo Corporation and Megaworld Globus Asia, Inc. He isPresident of Megaworld Foundation, Inc. Mr. Manlangit also serves in the boards of EmpireEast Land Holdings, Inc., Eastwood Property Holdings, Inc., Fairmont Holdings Inc., and GilmoreProperty Marketing Associates, Inc. Before joining the Company, he was head of the legaldepartment and served as Corporate Secretary of Gateway Enterprises International Corporation.He was also Legal Officer and Corporate Secretary of Integrated Resources Corporation, LegalOfficer of the Marina Properties Corporation and Associate Attorney of Dizon Paculdo JuradoVitug & Associates Law Offices. Mr. Manlangit graduated from the University of the Philippinesamong the top ten of his class, with the degree of Bachelor of laws.

Thomas J. Barrack, Jr. was elected as a director of the Company on May 19, 2004. He previouslyserved as a member of the Company’s Board of Directors from August 1999 until June 2002. Mr.Barrack is the Founder, Chairman and Chief Executive Officer of Colony Capital, LLC, which isone of the more prominent real estate opportunity funds in America having acquired assets inexcess of US$13.9 billion. Prior to the formation of Colony, Mr. Barrack was a principal with theRobert M. Bass Group (‘‘RMBG’’), the principal investment vehicle of the Fort Worth, Texasinvestor Robert M. Bass. Prior to joining RMBG, Mr. Barrack served as President of OxfordDevelopment Ventures, Inc., a $3 billion Canadian-based development company, and as a SeniorVice President of E.F. Hutton & Co. in New York. Mr. Barrack also served in the ReaganAdministration as Deputy Undersecretary of the Department of the Interior. In 1976, Mr. Barrackbegan his real estate development career as President of Dunn International Corporation, where heoversaw the construction, operation and management of over seven million square feet ofindustrial, office, and multi-family properties in six states. He practiced international finance lawuntil 1976. Mr. Barrack received a B.A. in 1969 from the University of Southern California. Heattended Law School at the University of San Diego and the University of Southern California,where he was an editor of the Law Review and received a J.D. in 1972. Mr. Barrack serves on theBoard of Directors of such publicly-traded companies as Continental Airlines, Inc. and FirstRepublic Bank.

Gerardo C. Garcia is an independent director of the Company. Mr. Garcia has served in theCompany’s Board of Directors since 1994. He concurrently serves in the boards of MegaworldLand, Inc., and Eastwood Property Holdings, Inc. as independent director. He is also a director ofPhilippine Tech. & Development Ventures, Inc. Prior to joining the Group, Mr. Garcia served as


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Executive Vice President of UBP Capital Corporation. He holds a bachelor’s degree in ChemicalEngineering and a Masters Degree in Business Administration from the University of thePhilippines.

Roberto S. Guevara is an independent director of the Company. He has been a member of theCompany’s Board of Directors since June 20, 2001. Mr. Guevara is Chairman of the Board ofDirectors of Seed Capital Ventures, Inc., a company engaged in financial, management advisoryservices. He is also President of Seed Capital Corporation and RFC (HK) Limited. He serves on theboard of other companies, such as Export & Industry Bank, G & S Transport Corporation, whichis a licensee of Avis Car Rentals, Guevent Industrial Development Corporation and RadiowealthFinance Corporation.

Kingson U. Sian joined the Group in September 1995 as Senior Vice President and is currentlyExecutive Director of the Company. Mr. Sian graduated from the University of the Philippineswith the degree of Bachelor of Science in Business Economics. He obtained his Masters Degree inBusiness Administration for Finance and Business Policy from the University of Chicago. He isconcurrently Director and President of Prestige Hotels & Resorts, Inc. and President and ChiefOperating Officer of Megaworld Land, Inc. Mr. Sian was formerly a Vice President of FPB AsiaLtd/First Pacific Bank in Hong Kong from 1990 to 1995. Prior to that, he was connected withCiticorp Real Estate, Inc. in the United States from 1988 to 1990.

Antonio T. Tan joined the Company in July 1994 and is currently the Company’s First VicePresident for Operations. Mr. Tan graduated with honors from the Mapua Institute of Technologywith the degree of Bachelor of Science in Civil Engineering. He topped the Professional LicensureExaminations for Civil Engineering in 1983. He also has a Masters Degree in Civil Engineeringfrom the University of the Philippines. He is concurrently President of First Oceanic PropertyManagement, Inc. and Director of Megaworld Land, Inc., Eastwood CyberOne Corporation,Megaworld Daewoo Corporation and Prestige Hotels & Resorts, Inc. He is a trustee of MegaworldFoundation, Inc. Before joining the Company, he worked as Group Head of Engineering inConsolidated Energy & Power Asia, Ltd., a Hopewell Holdings, Ltd. Company, and SeniorEngineering of Basic Technology and Management Corporation in association with PacificConsultants International of Japan.

Lourdes G. Clemente joined the Company in 1990. Ms. Clemente is a Certified Public Accountantand is the Company’s First Vice President for Finance and Administration. Ms. Clementegraduated Cum Laude from the Far Eastern University with the degree of Bachelor of Sciencemajor in Accounting. She is currently a director of Megaworld Land, Inc., Eastwood CyberOneCorporation, Prestige Hotels & Resorts, Inc. and Fairmont Holdings Inc. Prior to joining theCompany, she was Audit Manager of Philippine Aluminum Wheels, Inc. and Senior Auditor inCabanero Katigbak Clemente & Associates and RubberWorld Philippines.

Francisco C. Canuto joined the Company in 1995. Mr. Canuto is a Certified Public Accountantand currently serves as Treasurer of the Company and Senior Assistant to the Chairman. Hegraduated from the Polytechnic University of the Philippines with the degree of Bachelor of Sciencein Commerce major in Accounting. Mr. Canuto has a Masters Degree in Business Administrationfrom the Ateneo Graduate School of Business. He is concurrently a director of Eastwood PropertyHoldings, Inc., Megaworld Daewoo Corporation, Eastwood CyberOne Corporation, PrestigeHotels & Resorts, Inc. and Gilmore Property Marketing Associates, Inc. He is a trustee ofMegaworld Foundation, Inc. Before joining the Company, he worked as Audit Manager of SGV &Company and Controller of Federal Express Corporation. In 2004, Mr. Canuto was namedOutstanding Alumnus in Financial Management by the Polytechnic University of the Philippinesduring its centennial year.

Enrique Santos L. Sy joined the Company in August 1989. Mr. Sy is Vice President for CorporateCommunications. He is concurrently Corporate Secretary of Empire East Land Holdings, Inc. anda member of its Board of Directors. He also serves in the boards of Andresons Global, Inc. andFirst Oceanic Property Management Inc. Mr. Sy previously worked as Advertising Manager ofConsolidated Distillers of the Far East, Inc., Creative Director of AdCentrum Advertising, Inc.,


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Copy Chief of Admakers, Inc. and Peace Advertising Corporation, and Creative Associate ofAdformatix, Inc. Mr. Sy graduated with honors from the Ateneo de Manila University with thedegree of Bachelor of Arts in Communication Arts.

Noli Hernandez began his career with the Company as a property consultant in February 1994 andwas appointed Vice President for Marketing on February 20, 2003. Mr. Hernandez rose from theranks in the Company, starting out as a property consultant then becoming Sales Manager,Assistant Vice President, Senior Assistant Vice President, and finally to Vice President forMarketing.

Ma. Victoria M. Acosta is Managing Director for International Sales and has held this positionsince September 1999. Prior to her appointment, Ms. Acosta had twenty years of marketingexperience in real estate and consumer products with other companies. Ms. Acosta was ExecutiveVice President and Chief Operating Officer of Empire East Land Holdings, Inc. from 1997 to 1998and was Executive Director for Marketing from 1996 to 1997. Earlier, she also served as SeniorVice President and General Manager of Raffles & Co., Inc. Ms. Acosta graduated from theUniversity of the Philippines with the degree of Bachelor of Science in Business Administrationmajor in Marketing & Finance.

Edwin B. Maquinto is the Corporate Secretary of the Company and has held this position since1997. Mr. Maquinto graduated from the University of the Philippines, with degrees in law andeconomics. He served as Special Assistant to the Legal and Corporate Manager of the PhilippineCoconut Authority, Chief Legal Counsel of the FORZA group of companies, Legal Officer of theOffice of Legal Affairs and Hearing Officer of the Garments and Textiles Export Board, both ofthe Department of Trade and Industry.

Luke T. Tan serves as Assistant Corporate Secretary of the Company and has held this positionsince 1997. Mr. Tan graduated from the University of the Philippines with the degree of Bachelorof Science in Economics. He has a Masters Degree in Business Administration from the Ateneo deManila University.

The members of Megaworld’s Board and its executive officers can be reached at the address of theprincipal office of Megaworld which is at the 28/F The World Centre, 330 Sen. Gil J. PuyatAvenue, Makati City, Philippines 1227.

INVOLVEMENT IN CERTAIN LEGAL PROCEEDINGS OF DIRECTORS AND EXECUTIVEOFFICERS

None of the members of Megaworld’s Board nor its executive officers are involved in any criminal,bankruptcy or insolvency investigations or proceedings for the past five years and up to the date ofthis Prospectus.

FAMILY RELATIONSHIPS

Mr. Andrew L. Tan and Ms. Katherine L. Tan, both directors of the Company, are spouses.

COMMITTEES OF THE BOARD

Pursuant to Megaworld’s corporate governance manual adopted in 2002, its Board created each ofthe following committees and appointed board members thereto.

AUDIT COMMITTEE

Megaworld’s Audit Committee is responsible for ensuring that all financial reports comply withinternal financial management and accounting standards, performing oversight financialmanagement functions, pre-approving all audit plans, scope and frequency and performing directinterface functions with internal and external auditors. Megaworld’s Audit Committee has threevoting members and two independent directors, one of whom services as the head of thecommittee.


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COMPENSATION AND REMUNERATION COMMITTEE

Megaworld’s Remuneration and Compensation Committee is responsible for establishing a formaland transparent procedure for developing a policy on executive remuneration and for fixing theremuneration packages of corporate officers and directors, as well as providing oversight overremuneration of senior management and other key personnel ensuring that compensation isconsistent with the Company’s culture, strategy and control environment. Megaworld’sRemuneration and Compensation Committee consists of three voting members, including at leastone independent director.

NOMINATION COMMITTEE

Megaworld’s Nomination Committee pre- screens and shortlists all candidates nominated tobecome a member of the Board in accordance with qualifications prescribed by Philippine law andthe Company’s manual on corporate governance. Megaworld’s Nomination Committee has threevoting members, including at least one independent director.

EXECUTIVE COMPENSATION

Summary Compensation Table

The following tables identify Megaworld’s Chief Executive Officer and the four most highlycompensated executive officers and summarize their aggregate compensation in 2003, 2004, 2005and 2006 :

Annual Compensation

Name Position Year Salary Bonus Others

A. CEO and five most highly

compensated executive officers . .

2006 15,865,285 1,056,850 2,511,345

1. Andrew L. Tan . . . . . . . . . . . . President

2. Cirilo L. Manlangit . . . . . . . . . Executive Vice President

3. Lourdes G. Clemente . . . . . . . . First Vice President forFinance and

Administration

4. Antonio T. Tan . . . . . . . . . . . . First Vice President for

Operations5. Kingson U. Sian. . . . . . . . . . . . Executive Director

6. Francisco C. Canuto . . . . . . . . . Treasurer

B. All other officers and directors as

a group unnamed . . . . . . . . . . .20,488,285 1,401,850 2,856,345

Annual Compensation




2005 13,795,900 919,000 2,183,779



3. Lourdes G. Clemente . . . . . . . . First Vice President forFinance and

Administration


Operations5. Kingson U. Sian. . . . . . . . . . . . Executive Director



a group unnamed . . . . . . . . . . .17,815,900 1,219,000 2,483,779


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Name Position Salary Bonus Others



2004 5,931,715 750,000 2,050,000

1. Andrew L. Tan . . . . . . . . . . . . President2. Cirilo L. Manlangit . . . . . . . . . Executive Vice President

3. Lourdes G. Clemente . . . . . . . . First Vice President for

Finance andAdministration


Operations

5. Enrique Santos L. Sy . . . . . . . . Vice President forCorporate

Communications



a group unnamed . . . . . . . . . . .

6,984,765 1,050,000 2,350,000




2003 5,392,468 658,000 1,520,000



3. Lourdes G. Clemente . . . . . . . . First Vice President for

Finance andAdministration


Operations5. Enrique Santos L. Sy . . . . . . . . Vice President for

Corporate

Communications



a group unnamed . . . . . . . . . . .

6,349,786 858,000 1,820,000

STANDARD ARRANGEMENTS

The members of the Board receive a standard per diem for attendance in Board meetings. In 2004,the Company paid a total of P=180,000 for directors per diem. For 2005, the Company hasallocated P=420,000 for the directors’ per diem. Other than payment of the per diem, there are nostandard arrangements pursuant to which directors of the Company are compensated, or are to becompensated, directly or indirectly, for any services provided as a director for the years endedDecember 31, 2004 and 2005.

OTHER ARRANGEMENTS

There are no arrangements pursuant to which any director of the Company was compensated, or isto be compensated, directly or indirectly, during the years ended December 31, 2004 and 2005, forany service provided as a director. There are no compensatory plans or arrangements with respectto any named executive officer.

EMPLOYMENT CONTRACTS AND TERMINATION OF EMPLOYMENT AND CHANGE-IN-CONTROL ARRANGEMENT

Executive officers are appointed by the Board to their respective offices. The Company does notenter into employment contracts with its executive officers. There is no compensatory plan orarrangement with respect to an executive officer which results or will result from the resignation,retirement or any other termination of such executive officer’s employment with the Company andits subsidiaries, or from a change-in-control of the Company, or a change in an executive officer’sresponsibilities following a change-in-control of the Company.


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WARRANTS AND OPTIONS OUTSTANDING

There are no outstanding warrants or options held by the Company’s President, the namedexecutive officers, and all officers and directors as a group.

DISCLOSURE ON COMPLIANCE WITH LEADING PRACTICES ON CORPORATEGOVERNANCE

In 2002, the Company adopted a Manual on Corporate Governance in order to institutionalize theprinciples of good corporate governance in the entire organization. Among measures undertaken bythe Company in order to fully comply with the provisions of the Corporate Governance Manualare periodic monitoring and evaluation of the internal control system for corporate governance.No sanctions have been imposed on any director, officer or employee on account of non-compliance. The Company is committed to good corporate governance and continues to improveand enhance its evaluation system for purposes of determining the level of compliance by theCompany with the Manual on Corporate Governance.


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RELATED PARTY TRANSACTIONS

Transactions with related parties include investments in and advances granted to or obtained fromsubsidiaries, an associate and other related parties. Other related parties include joint venturepartners (see Note 9 to Financial Statements, Advances to Landowners and Joint Ventures) andinvestees which investments are accounted for at cost and other entities which are owned andmanaged by investors/owners of the Company (see Note 10 to Financial Statements, Related PartyTransactions). Advances granted to joint venture partners are in the nature of cash advances madeto landowners under agreements covering the development of parcels of land, which are to be usedfor pre-development expenses such as relocation of existing occupants. Repayment of theseadvances shall be made upon completion of the project development either in the form of thedeveloped lots corresponding to the landowner’s share in saleable lots or in the form of cash to bederived from sales of the landowner’s share in the saleable lots and residential and condominiumunits. The commitment for cash advances under the agreements has been fully granted by theCompany. In 2003, the Company entered into a Memorandum of Understanding with AllianceGlobal Group, Inc. for the development of the Lawton Parkway project. Total amount advancedby the Company for the project is recorded as part of the Property Development Costs account inthe balance sheets.

Advances granted to and obtained from subsidiaries, an associate and other related parties are forpurposes of working capital requirements. For more information, see Note 9 to the FinancialStatements included with this Prospectus.

The Company avails of marketing services of Eastwood Properties and Holdings, Inc. (EPHI), awholly-owned subsidiary of EELHI, and Megaworld Land, Inc. (MLI), which acts as a managerand leasing agent for the commercial properties of the Company. (See Note 19, Other RelatedParty Transactions). As consideration for said marketing services, the Company pays commissionbased on contracted terms. Commission expenses charged by EPHI and MLI are based onprevailing market rates.

Certain subsidiaries and related parties enter into real estate transactions with the Company.Amounts due to or from these entities arising from these transactions are shown as part of Tradeand Other Receivables (See Note 7 to Financial Statements) and Trade and Other Payablesaccounts in the balance sheets.

In 2002, the Company transferred certain trade receivables, real estate properties and relateddeferred credits to ECOC, in exchange for additional shares of stock of the subsidiary under a tax-free exchange. The excess of the values assigned to the shares over the cost of the transferredproperties was taken up in the parent company’s books as unrealized gain on intercompanytransfers of properties deducted from the investments account. The Company’s remaining advancesto ECOC were settled by the subsidiary using part of the proceeds of its new loan (See Note 14 tothe Financial Statements) and by the issuance of additional shares of its capital stock.

In 2003, the Republic of the Philippines bonds owned by a subsidiary were used as collateral for aloan obtained by the Company from a local bank (See Note 8 and 14 to the Financial Statements).

Other than those disclosed in the audited Financial Statements included in this Prospectus,including the notes thereto, the Company has not entered into any other related party transactions.

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PRINCIPAL AND SELLING SHAREHOLDERS

PRINCIPAL SHAREHOLDERS

The following table sets forth the twenty largest shareholders of Megaworld as of December 31,2005.

Name of ShareholderNumber of

Shares Held

Percent of TotalOutstanding

Shares

The Andresons Group, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . 3,372,886,164 31.6538%New Town Land Partners, Inc. . . . . . . . . . . . . . . . . . . . . . . . . 2,283,813,000 21.4331%PCD Nominee Corporation (Filipino) . . . . . . . . . . . . . . . . . . . . 1,588,655,171 14.9092%PCD Nominee Corporation (Non-Filipino) . . . . . . . . . . . . . . . . . 945,503,798 8.8733%Colony-CB Richard Ellis MW, L.P. . . . . . . . . . . . . . . . . . . . . . 723,166,452 6.7868%Andrew L. Tan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 608,735,919 5.7128%Richmonde Hotel Group International Limited . . . . . . . . . . . . . . 474,000,000 4.4484%Gilmore Property Marketing Associates, Incorporated . . . . . . . . . . 221,547,825 2.0792%First Centro, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69,636,000 0.6535%George T. Yang . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33,617,449 0.3155%Ramon Eng Chuan Chua . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30,000,000 0.2815%Valentin T. Khoe . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,156,360 0.0859%Simon Lee Sui Hee. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,845,200 0.0830%Eagle Equities, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,550,000 0.0802%Evangeline Abdullah . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,400,000 0.0507%Jasper Karl Tanchan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,370,300 0.0504%OCBC Securities Phils., Inc. Fao: Santiago J. Tanchan Jr. . . . . . . . 5,265,000 0.0494%Guevent Industrial Dev. Corp. . . . . . . . . . . . . . . . . . . . . . . . . 5,220,000 0.0490%Winston Co . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,180,760 0.0486%Chua Lee Keng . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,206,734 0.0395%

SELLING SHAREHOLDER

The table below shows the number of Shares held by the Selling Shareholder before the Offer, thenumber of Shares to be sold in the Offer, and the number of Shares the Selling Shareholder willown immediately after the Offer and after the Domestic Block Sale to be executed in parallel withthe Offer.

Shares before Offer as ofDecember 31, 2005

% of Sharesoutstanding

Shares to besold in Offer

Shares to besold pursuant toexercise of Over-Allotment Option

Sharesheld after Offer

and DomesticBlock Sale %

723,166,452 6.7% 423,166,000 0 0 0

Colony-CB beneficially owned 723,166,452 Shares, or approximately 6.7% of the Company’soutstanding Shares. Colony-CB is represented on the Board of Megaworld through its nominee,Thomas J. Barrack, Jr. While retaining utmost confidence in Megaworld’s growth strategy andmanagement team, Colony Investors III, L.P., the managing member of the Selling Shareholder’sgeneral partner and an affiliate of Colony Capital, LLC which invested in Megaworld in 1998,decided to sell its entire shareholding in Megaworld given that the hold period for this investmentis now approaching the time period limitations which are imposed under the applicable limitedpartnership agreement.

The Company, TAGI, New Town Land and Mr. Andrew Tan have each agreed with the LeadManager that, other than in connection with the Over-Allotment Option or the TAGI Option, fora period of 180 days after the First Closing Date, neither it nor any person acting on its behalf willissue, offer, sell, contract to sell, pledge or otherwise dispose of (or publicly announce any suchissuance, offer, sale or disposal of), directly or indirectly, any Shares or securities convertible or

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exchangeable into or exercisable for Shares, including equity swaps, forwards, sales or options orwarrants or other rights to purchase Shares or any security or financial product whose value isdetermined directly or indirectly by reference to the price of the underlying securities without, ineach case, the prior written consent of the Lead Manager.

SECURITY OWNERSHIP OF CERTAIN RECORD AND BENEFICIAL OWNERS ANDMANAGEMENT

Security Ownership of Certain Record and Beneficial Owners of more than 5% of the

Company’s Shares of Common Stock as of February 28, 2006

Title of Class

Name and address ofrecord owner andrelationship with theCompany

Name ofbeneficial ownerand relationshipwith recordowner Citizenship No. of Shares Held % of Class

Common . . . . . . . . . The Andresons Group,Inc. (TAGI)1

20/F IBM Plaza,

Eastwood City,

Quezon City

The AndresonsGroup, Inc.2

Filipino 3,379,036,164 31.7114%

Common . . . . . . . . . New Town Land

Partners, Inc. (NTLPI)3,

30/F The World Centre,Sen, Gil Puyat,

Ave, Makati

New Town Land

Partners, Inc.4Filipino 2,283,813,000 21.4331%

Common . . . . . . . . . PCD Nominee

Corporation (Filipino)5,

G/F MKSE Bldg.,

6767 Ayala Ave.,Makati

Participants of the

PCD composed

of custodian

banks andbrokers

Filipino 1,540,357,492 14.4559%

Common . . . . . . . . . PCD Nominee

Corporation (non-Filipino)6,

G/F MKSE Bldg.,

6767 Ayala Ave.,

Makati

Participants of the

PCD composedof custodian

banks and

brokers

Non-

Filipino

945,503,798 8.8733%

Common . . . . . . . . . Social Security System

(SSS)

Social Security

System (SSS)7Filipino 760,928,400 7.1411%

Common . . . . . . . . . Colony-CB Richard Ellis,

MW, L.P.

Colony-CB

Richard Ellis,

M.W., L.P.8

U.S.A. 723,166,452 6.7868%

Common . . . . . . . . . Andrew L. Tan Filipino 604,235,919 5.67061%

Common . . . . . . . . . PCD NomineeCorporation (Filipino),

G/F MKSE Building,

6767 Ayala Ave.,Makati

Andrew L. Tan9 Filipino 4,500,000 0.04233%

Notes:(1) The Chairman of the Board of TAGI, Mr. Andrew L. Tan, is also Chairman of the Board and President of the

Company.(2) The Board of Directors of TAGI has voting and investment power over TAGI’s shares of stock in the Company.

TAGI has in the past designated its Chairman of the Board, Mr. Andrew L. Tan, to vote TAGI’s shares of stock inthe Company.

(3) Mr. Andrew L. Tan who exercises voting and investment power over NTLPI’s shares of stock in the Company, isconcurrently Chairman of the Board of Directors and President of the Company.

(4) Mr. Andrew L. Tan exercises voting and investment power over NTLPI’s shares of stock in the Company.(5) The PCD is not related to the Company.(6) The PCD is not related to the Company.


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(7) SSS is a participant of the PCD. The 760,928,400 shares beneficially owned by SSS form part of the shares registeredin the name of the PCD (Filipino). The Board of Directors of the SSS exercises voting and investment power over theSSS shares of stock in the Company.

(8) Colony MW Genpar, LLC, a Delaware limited liability company exercises voting and investment power over Colony-CB’s shares of stock in the Company, as the sole member of Colony-CB.

(9) Andrew L. Tan is a client of a participant of PCD Nominee Corporation (Non-Filipino)

Security Ownership of Management as of February 28, 2006

Title of Class Name of Beneficial Owner

Amount &nature ofbeneficialownership Citizenship % of Class

DirectorsCommon . . Andrew L. Tan 608,735,919 Filipino 5.71284822Common . . Gerardo C. Garcia 350,774 Filipino 00329193Common . . George T. Yang 33,617,449 Filipino 31549211Common . . Cirilo L. Manlangit 780,007 Filipino 00732019Common . . Katherine L. Tan 1,351,166 Filipino 01268038Common . . Thomas Barrack, Jr. 1 U.S.A. 0.000Common . . Roberto S. Guevara 1 Filipino 0.000

CEO and Five Most Highly Compensated Executive OfficersCommon . . Andrew L. Tan 608,735,919 Filipino 5.71284822Common . . Cirilo L. Manlangit 780,007 Filipino 00732019Common . . Lourdes G. Clemente 479,924 Filipino 00450398Common . . Antonio T. Tan 533,250 Filipino 00500443Common . . Kingson U. Sian 350,000 Filipino 00328467Common . . Francisco C. Canuto 181,800 Filipino 00170615

Other Executive OfficersCommon . . Enrique Santos L. Sy 80,553 Filipino 00075597Common . . Noli Hernandez 0 Filipino n/aCommon . . Ma. Victoria M. Acosta 0 Filipino n/aCommon . . Edwin B. Maquinto 0 Filipino n/aCommon . . Luke T. Tan 107,406 Filipino 00100798Common . . All directors and executive officers as a group 646,568,2501 6.06789

CHANGES IN CONTROL

There has been no change in the control of the Company since it was incorporated in 1989.

Note:1 No director or executive officer has the right to acquire additional shares of the Company within 30 days from

options, warrants, rights, conversion privileges or similar obligations or otherwise.


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DESCRIPTION OF THE SHARES

HISTORICAL SHARE CAPITAL INFORMATION

On October 12, 2005, the Securities and Exchange Commission approved the increase inauthorized capital stock of the Company from P=13,200,000 divided into 9,200,000 common sharesand 4,000,000 preferred shares with par value of P=1.00 per share, to P=20,200,000 divided into16,200,000 common shares and 4,000,000 preferred shares with par value of P=1.00 per share. Theincrease was approved by majority of the Board of Directors of the Company on May 10, 2005and ratified by stockholders of the Company owning at least two-thirds of the outstanding capitalstock of the Company on June 17, 2005.

The number of Megaworld’s issued share capital was 10,655,559,106 as of December 31, 2005.Between 1994 when the Shares were listed and December 31, 2005, Megaworld had five stockdividend declarations. On February 28, 2006, the Board approved its first cash dividend of P=0.02per Share, payable on April 10, 2006 to shareholders on record as of March 15, 2006.

OBJECTS AND PURPOSES

The Articles of Incorporation of Megaworld state that its primary purpose and secondary purposeis to engage in the following business activities:

. To invest in, purchase, or otherwise acquire and own, hold, use, sell, assign, transfer,mortgage, pledge, hypothecate, exchange, or otherwise dispose of real and personal propertyof every kind and description, including shares of stock, bonds, debentures, notes, evidence ofindebtedness, and other securities or obligations of any corporation or corporations,association or associations, domestic or foreign, for whatever lawful purpose or purposesthe same may have been organized and to pay therefore in money or by exchanging thereforestocks, bonds, or other evidence of indebtedness or securities, and while the owner or holderof any such real or personal property, stocks, bonds, debentures, contracts, or obligations, toreceive, collect, and dispose of the interest, dividends, and income arising from such property,and to possess and exercise in respect thereof all the rights, powers, and privileges ofownership, including all voting powers of any stock so owned;

. To acquire by purchase, lease, donation of otherwise and to own, use, improve, develop,subdivided, sell, mortgage, exchange, lease, develop and hold for investment or otherwise,real estate of all kinds, and to construct, improve, manage or otherwise dispose of buildings,condominiums and other structures of whatever kind, together with their appurtenances; and,to perform all and everything necessary and proper for the attainment of or in furtherance ofthis purpose, either alone or in association with other corporations or individuals;

. To conduct, maintain, engage in, and carry on the business of acquiring, constructing,developing and/or operating hotels, inns, lodges, motels, resorts, leisure parks, gaming andother tourist-oriented projects; to conduct, maintain, engage in, or carry on the business ofacquiring, constructing, developing, and/or operating restaurants, cafes, bars, clubs, gardens,shops, stalls, boutiques, parlors, gyms, and other allied or similar establishments ascomplimentary or support services therefore; and, to acquire, operate and/or maintaintransportation, shuttle, and/or ferry facilities and/or services, either by land, water or air,likewise as complimentary or support services therefore, either alone or in conjunction withothers;

. To engage in the research, development, manufacture, marketing and distribution oftechnology and all technology-related or derived products and/or services;

. To carry out a general and commercial business of importing and exporting, manufacturing,processing, buying, acquiring, holding, selling, trading, distributing, or otherwise disposing ofand dealing in any and all kinds of industrial, agricultural, engineering, construction,

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transport, kitchenwares, ovenwares, and utensils, household or office goods, materials,supplies, machineries, equipment, appliances, implements, devices, wearing apparel, clothingmaterials, food or grocery items, food and beverage flavours, essences, industrial oils,aromatics, fragrances, liquors, beverages, ophthalmic instruments and products, cosmetic anddermatological applications, and products of all classes and description which are within thecommerce of man, as well as those similar and allied to them, at wholesale, either asprincipals, distributors, factors, agents or commission merchants, and to do every other thingcommonly done by those conducting a similar business;

. To promote, establish, operate, manage, own or invest in any and all kinds of businessenterprises or assist or participate in the organization, merger or consolidation thereof, and inconnection with such activities, to subscribe to, purchase or otherwise acquire shares of stockor other evidence of equity participation in any business enterprise, or purchase or otherwiseacquire all or part of assets, franchises, concessions or goodwill of any firm, corporation orestablishment as may be allowed by law; and

. To borrow money, to make and issue notes, and other evidences of indebtedness of all kindsand to secure the same by mortgage, pledge or otherwise, in amounts as the business of theCompany may require.

Under Philippine law, a corporation may invest its funds in any other corporation or business orfor any purpose other than the primary purpose for which it was organized when approved by amajority of the board of directors and ratified by the stockholders representing at least two-thirdsof the outstanding capital stock, at a stockholders’ meeting duly called for the purpose; provided,however, that where the investment by the corporation is reasonably necessary to accomplish itsprimary purpose, the approval of the stockholders shall not be necessary.

SHARE CAPITAL

A Philippine corporation may issue common or preferred shares, or such other classes of shareswith such rights, privileges or restrictions as may be provided for in the articles of incorporationand the by-laws of the corporation. Megaworld has both preferred and common shares.

The shares of stock of a corporation may either be with or without a par value. All ofMegaworld’s shares, both preferred and common, currently issued or authorized to be issued havea par value of P=1.00 per share. In the case of par value shares, where a corporation issues shares ata price above par, whether for cash or otherwise, the amount by which the subscription priceexceeds the par value is credited to an account designated as paid-in surplus. The Philippine SECruled in September 2005 that such premium may not be distributed as cash or stock dividends.

Subject to approval by the Philippine SEC, a corporation may increase or decrease it authorizedcapital stock, provided that the change is approved by a majority of the board of directors and byshareholders representing at least two-thirds of the issued and outstanding capital stock of thecorporation voting at a shareholders’ meeting duly called for the purpose.

A corporation is empowered to acquire its own shares for a legitimate corporate purpose, providedthat the corporation has unrestricted retained earnings or surplus profits sufficient to pay for theshares to be acquired. Examples of instances in which the corporation is allowed to purchase itsown shares are: elimination of fractional shares arising out of stock dividends, the purchase ofshares of dissenting shareholders exercising their appraisal right as referred to below and thecollection or compromise of an indebtedness arising out of an unpaid subscription. When acorporation repurchases its own shares, the shares become treasury shares, which may be resold ata reasonable price fixed by the board of directors.

LIMITATIONS OF FOREIGN OWNERSHIP

Megaworld owns certain real estate and as such, it is subject to nationality restrictions foundunder the Philippine Constitution and other laws, limiting land ownership to Philippine Nationals.The term ‘‘Philippine National’’ as defined under the Republic Act No. 7042, as amended, shall


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mean a citizen of the Philippines, or a domestic partnership or association wholly owned bycitizens of the Philippines, or a corporation organized under the laws of the Philippines of which atleast 60% of the capital stock outstanding and entitled to vote is owned and held by citizens of thePhilippines or a corporation organized abroad and registered to do business in the Philippinesunder the Corporation Code of the Philippines of which 100% of the capital stock outstanding andentitled to vote is wholly owned by Filipinos or trustee of funds for pension or other employeeretirement or separation benefits, where the trustee is a Philippine national and at least 60% of thefund will accrue to the benefit of Philippine Nationals. Megaworld is thus constrained to keep itforeign equity interest below the 40% threshold and any sale or transfer of shares in excess of thisthreshold shall not be recorded in the stock and transfer book of the Company.

RIGHTS RELATING TO SHARES

Voting Rights

Megaworld’s Shares have full voting rights.

As a general rule, the holders of preferred shares are not to be voted as directors of the Companynor are they entitled to vote. Philippine law, however, provides for the following instances inwhich non-voting shares (such as the preferred shares) are given statutory voting rights:

. Amendment of the articles of incorporation;

. Adoption and amendment of by-laws;

. Sale, lease, exchange, mortgage, pledge or other disposition of all or substantially all of thecorporate property;

. Incurring, creating or increasing bonded indebtedness;

. Increase or decrease of capital stock;

. Merger or consolidation of the corporation with another corporation;

. Investment of corporate funds in another corporation or business; and

. Dissolution of the corporation.

Pre-emptive Rights

The Corporation Code confers pre-emptive rights on shareholders of a Philippine corporationentitling such shareholders to subscribe for all issues or other dispositions of equity relatedsecurities by the corporation in proportion to their respective shareholdings, regardless of whetherthe equity related securities proposed to be issued or otherwise disposed of are identical to theshares held. A Philippine corporation may provide for the denial of these pre-emptive rights in itsarticles of incorporation. The Articles of Incorporation of Megaworld currently contain such adenial of pre-emptive rights on all classes of shares issued by the Company and therefore furtherissues of shares (including treasury shares) can be made without offering such shares on a pre-emptive basis to the existing shareholders.

Derivative Rights

Philippine law recognizes the right of a shareholder to institute proceedings on behalf of thecorporation in a derivative action in circumstances where the corporation itself is unable orunwilling to institute the necessary proceedings to redress wrongs committed against thecorporation or to vindicate corporate rights as, for example, where the directors themselves arethe malefactors.

Appraisal Rights

The Corporation Code grants a shareholder a right of appraisal in certain circumstances where hehas dissented and voted against a proposed corporate action, including:


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an amendment of the articles of incorporation which has the effect of adversely affecting the rightsattached to his shares or of authorizing preferences in any respect superior to those of outstandingshares of any class or of extending or shortening the term of corporate existence;

the sale, lease, exchange, transfer, mortgage, pledge or other disposal of all or substantially all theassets of the corporation; and

a merger or consolidation.

In these circumstances, the dissenting shareholder may require the corporation to purchase itsshares at a fair value, which in default of agreement is determined by three disinterested persons,one of whom shall be named by the shareholder, one by the corporation, and the third by the twothus chosen. The Philippine SEC will, in the event of a dispute, determine any question aboutwhether a dissenting shareholder is entitled to this right of appraisal. The remedy will only beavailable if the corporation has unrestricted retained earnings sufficient to support the purchase ofthe shares of the dissenting shareholders. From the time the shareholder makes a demand forpayment until the corporation purchases such shares, all rights accruing on the shares, includingvoting and dividend rights, shall be suspended, except the right of the shareholder to receive thefair value of the share.

BOARD OF DIRECTORS

Unless otherwise provided by law or the Articles of Incorporation, the corporate powers of theCompany are exercised, its business conducted, and its property controlled by the Board. TheCompany has seven directors, two of which are independent directors within the meaning set forthin Section 38 of the SRC. The election of directors may only be held at a meeting convened forthat purpose at which shareholders representing at least a majority of the issued and outstandingcapital stock are present, either in person or by proxy. Under Philippine law, representation offoreign ownership on the Board is limited to the proportion of the foreign shareholding.

Directors may only act collectively; individual directors have no power as such. Four directors,which is a majority of the total Megaworld directors, constitute a quorum for the transaction ofcorporate business. Except for certain corporate actions such as the election of officers, whichshall require the vote of a majority of all the members of the board of directors, every decision ofa majority of the quorum duly assembled as a board is valid as a corporate act.

Any matter that may be limited by law or by the board of directors by the majority vote of itsmembers

Any vacancy created by the death, resignation or removal of a director prior to expiration of suchdirectors term may be filled by a vote of at least a majority of the remaining members of theBoard, if still constituting a quorum, otherwise, the vacancy must be filled by the shareholders at ameeting duly called for the purpose. Any director elected in this manner by the Board shall serveonly for the unexpired term of the director whom such director replaces.

SHAREHOLDERS’ MEETINGS

Annual Shareholders’ Meetings

The Corporation Code requires all Philippine corporations to hold an annual meeting ofshareholders for corporate purposes including the election of directors. The Company’s by-lawsprovide for annual meetings on the third Friday of June of each year at the Company’s principaloffice or at some other place in Metro Manila as may be designated in the notice. If the date of theannual meeting falls on a legal holiday, the annual meeting shall be held on the next succeedingbusiness day, which is not a legal holiday, at such hour as may be specified in the notice of saidmeeting. If the election of directors shall not be held on the day designated for the annual meetingor at any adjournment of such meeting, the board of directors shall cause the election to be held ata special meeting as soon thereafter as the same may conveniently be held. At such special meeting,the shareholders may elect the directors and transact other business as stated in the notice of the


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meeting with the same force and effect as at an annual meeting duly called and held. Note that theboard of directors may, by majority vote and for good cause, reset the annual meeting to anotherdate.

Except as otherwise provided by law, written or printed notice of all annual meetings ofshareholders, stating the date, place and time of the meeting and, if necessary, the general natureof the business to be considered, shall be transmitted by personal delivery, mail, telegraph,facsimile or cable to each shareholder of record entitled to vote thereat at such Shareholder’saddress last known to the Corporate Secretary, at least one week before the date of the meeting.Except where expressly required by Philippine law, no publication of any notice of annual meetingof shareholders shall be required. If any shareholder shall, in person or by proxy, or by telegraph,cable, or facsimile, waive notice of any meeting, whether before or after the holding of suchmeeting, notice thereof need not be given to the shareholder. The requirement for notice of themeeting shall be deemed waived if the stockholder, in person or proxy, shall be present thereat.Notice of any adjourned meeting of the shareholders shall not be required to be given except whenexpressly required by law.

Special Shareholders’ Meeting

Under the Company’s by-laws, special meetings of the shareholders may be called by the President,or by the majority of the Board, whenever he or they shall deem it necessary.

Whenever shareholders are required or permitted to take any action at a meeting, a written noticeof the meeting shall be given which shall state the place, date, and time of the meeting, thepurpose and purposes for which said meeting is called. Under the Company’s by-laws, as amended,notices of shareholders’ meeting must be sent to all shareholders of record at least one week priorto the date of the meeting. Notwithstanding such notice requirements under the Company’s by-laws, the Company is required under the SRC to send to its shareholders of record at least 15business days prior to the date of the annual or special meeting, an information statement andproxy form (in case of proxy solicitation) relating to such shareholders’ meeting. Notices ofshareholders’ meeting may be sent by personal delivery, mail, telegraph or cable to a shareholder’slast known postal address, or by publication in a Philippine newspaper of general circulation.Notices shall be sent by the Secretary by personal delivery, facsimile, telegraph, cable or bymailing the notice to each stockholder of record at his last known address or by publishing thenotice in a newspaper of national circulation at least ten days prior to the date of the meeting. Ifmailed, such notice shall be deemed to be given when deposited in the Philippines mail, postageprepaid, directed to the stockholder of record at his last known postal address. Only matters statedin the notice can be the subject of motion or discussions at the meeting. Notice of special meetingsmay be waived in writing by any shareholder, in person or by proxy, before or after the meeting.Such notice shall be deemed waived, if such shareholder is present at the special meeting, in personor by proxy. Notice of any adjourned meeting of the stockholders shall not be required to begiven, expect when expressly required by law.

QUORUM

Except in instances where the assent of shareholders representing two-thirds of the outstandingcapital stock is required by the Philippine Corporation Code to approve a corporate act (usuallyinvolving fundamental corporate changes), a majority of the subscribed and outstanding capital,present in person or represented by proxy, shall be sufficient at a shareholders’ meeting toconstitute a quorum for the election of directors and for the transaction of any businesswhatsoever.

In the absence of a quorum, any officer entitled to preside or act as Secretary of the meeting, shallhave the power to adjourn the meeting from time to time, until stockholders holding the requisitenumber of shares shall be present or represented. At any such adjourned meeting at which aquorum may be present, any business may be transacted which might have been transacted at themeeting as originally called.


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VOTING

At each meeting of the shareholders, every stockholder who has voting power upon the matter inquestion shall be entitled to vote in person or by proxy, for each share of stock held by suchshareholder. The votes for the election of directors, and, except upon demand by any shareholder,the votes upon any question before the meeting, except with respect to procedural questionsdetermined by the Chairman of the meeting, shall be by show of hands.

FIXING RECORD DATES

The Philippine SEC may, from time to time, promulgate rules for listed companies such asMegaworld relating to the fixing of such record dates. Under existing Philippine SEC rules, cashdividends declared by corporations whose shares are listed on the PSE shall have a record datewhich shall not be less than 10 nor more than 30 days from the date of declaration. With respectto stock dividends, the record date shall not be less than 10 nor more than 30 days from the dateof shareholder approval, provided however, that the record date set shall not be less than 10trading days from receipt by the PSE of the notice of declaration of stock dividend. In the eventthat a stock dividend is declared in connection with an increase in authorized capital stock, thecorresponding record date shall be fixed by the Philippine SEC.

MATTERS PERTAINING TO PROXIES

Shareholders may vote at all meetings the number of shares registered in their respective names,either in person or by proxy duly given in writing and duly given in writing and duly presented toand received by the Corporate Secretary for inspection and recording not later than five workingdays before the time set for the meeting, except such period shall be reduced to one working dayfor meeting that are adjourned due to lack of the necessary quorum. No proxy bearing thesignature that is not legally acknowledged by the Corporate Secretary shall be honored at themeetings. Proxies shall be valid and effective for five years unless the proxy provides for a shorterperiod and shall be suspended for any meeting wherein the shareholder appears in person.

Proxies executed abroad shall be duly authenticated by the Philippine Embassy or Consular Office.

No member of the PSE and no broker/dealer shall give any proxy, consent or authorization, inrespect of any securities carried for the account of a customer to a person other than the customer,without the express written authorization of such customer. The proxy executed by the brokershall be accompanied by a certification under oath stating that before the proxy was given to thebroker, he had duly obtained the written consent of the persons in whose account the shares areheld.

There shall be a presumption of regularity in the execution of proxies and shall be accepted if theyhave the appearance of prima facie authenticity in the absence of a timely and valid challenge.

In the validation of proxies, a special committee of inspectors shall be designated or appointed bythe board of directors which shall be empowered to pass on the validity of proxies. Any disputethat may arise pertaining thereto, shall be resolved by the Philippine SEC upon formal complaintfiled by the aggrieved party, or by the Philippine SEC officer supervising the proxy validationprocess.

Proxies should comply with the relevant provisions of the Philippine Corporation Code, the SRC,and Philippine SEC Memorandum Circular No. 5 (series of 1996) issued by the Philippine SEC.

DIVIDENDS

Under Philippine law, a corporation can only declare dividends to the extent that it hasunrestricted retained earnings that representing the undistributed earnings of the corporationwhich have not been allocated for any managerial, contractual or legal purposes and which arefree for distribution to the shareholders as dividends. A corporation may pay dividends in cash, bythe distribution of property or by the issuance of shares. Stock dividends may only be declared and


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paid with the approval of shareholders representing at least two-thirds of the issued andoutstanding capital stock of the corporation voting at a shareholders’ meeting duly called for thepurpose.

The Corporation Code generally requires a Philippine corporation with retained earnings in excessof 100% of its paid-in capital to declare and distribute as dividends the amount of such surplus.Notwithstanding this general requirement, a Philippine corporation may retain all or any portionof such surplus in the following cases: (i) when justified by definite expansion plans approved bythe board of directors of the corporation; (ii) when the required consent of any financinginstitution or creditor to such distribution has not been secured; (iii) when retention is necessaryunder special circumstances, such as when there is a need for special reserves for probablecontingencies; or (iv) when the non-distribution of dividends is consistent with the policy orrequirement of a government office. Philippine corporations whose securities are listed on anystock exchange are required to maintain and distribute an equitable balance of cash and stockdividends, consistent with the needs of shareholders and the demands for growth or expansion ofthe business.

TRANSFER OF SHARES AND SHARE REGISTER

All transfers of Shares on the PSE shall be effected by means of a book-entry system. Under thebook-entry system of trading and settlement, a registered stockholder shall transfer legal title overthe Shares to such nominee, but retains beneficial ownership over the Shares. The transfer of legaltitle is done by surrendering the stock certificate representing the Shares to participants of thePDTC System (i.e., brokers and custodian banks) (‘‘PDTC Participant’’) that, in turn, lodges thesame with the PCD Nominee Corporation. A stockholder may request upliftment of the Sharesfrom the PDTC in which case a certificate of stock will be issued to the stockholder and the Sharesregistered in the stockholder’s name in the books of the Company. See ‘‘The Philippine StockMarket’’.

Philippine law does not require transfers of the Company’s Shares to be effected on the PSE, butany off-exchange transfers will subject the transferor to a capital gains tax that may besignificantly greater than the stock transfer tax applicable to transfers effected on an exchange. See‘‘Philippine Taxation’’. All transfers of Shares on the PSE must be effected through a licensed stockbroker in the Philippines.

ISSUES OF SHARES

Subject to otherwise applicable limitations, the Company may issue additional Shares to anyperson for consideration deemed fair by the Board, provided that such consideration shall not beless than the par value of the issued Shares. No share certificates shall be issued to a subscriberuntil the full amount of the subscription together with interest and expenses (in case of delinquentshares) has been paid and proof of payment of the applicable taxes shall have been submitted tothe Company’s Corporate Secretary.

SHARE CERTIFICATES

Certificates representing the Shares will be issued in such denominations as shareholders mayrequest, except that certificates will not be issued for fractional shares. Shareholders wishing tosplit their certificates may do so upon application to the Company’s stock transfer agent. Sharesmay also be lodged and maintained under the book-entry system of the PDTC. See ‘‘The PhilippineStock Market’’.

MANDATORY TENDER OFFERS

Under the SRC which took effect on August 8, 2000 and its implementing rules and regulations, itis mandatory for any person or group of persons acting in concert intending to acquire at least (a)35% of (i) any class of any equity security of a corporation listed in the Philippines or (ii) anyclass of any equity security of a Philippine corporation with assets of at least 50 million andhaving 200 or more shareholders with at least 100 shares each; (b) 35% of such equity over a


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period of 12 months, to make a tender offer to all the shareholders of the target corporation onthe same terms; or (c) less than 35% of such equity that would result in ownership of over 51% ofthe total outstanding equity. In the event that the securities tendered pursuant to such an offerexceed that which the acquiring person or group of persons is willing to take up, the securitiesshall be purchased from each tendering shareholder on a pro-rata basis.

FUNDAMENTAL MATTERS

The Corporation Code provides that certain significant acts may only be implemented withshareholders’ approval. The following require the approval of shareholders representing at leasttwo-thirds of the issued and outstanding capital stock of the corporation in a meeting duly calledfor the purpose:

. amendment of the articles of incorporation;

. removal of directors;

. sale, lease, exchange, mortgage, pledge or other disposition of all or a substantial part of theassets of the corporation;

. investment of corporate funds in any other corporation or business or for any purpose otherthan the primary purpose for which the corporation was organized;

. issuance of stock dividends;

. delegation to the board of directors of the power to amend or repeal by-laws or adopt newby-laws;

. merger or consolidation;

. an increase or decrease in capital stock;

. extension or shortening of the corporate term;

. creation or increase of bonded indebtedness; and

. declaration of stock dividends.

ACCOUNTING AND AUDITING REQUIREMENTS

Philippine stock corporations are required to file copies of their annual financial statements withthe Philippine SEC. Corporations whose shares are listed on the PSE are also required to filequarterly financial statements (for the first three quarters) with the Philippine SEC and the PSE.Shareholders are entitled to request copies of the most recent financial statements of thecorporation which include a balance sheet as at the end of the most recent tax year and a profitand loss statement for that year. Shareholders are also entitled to inspect and examine the booksand records that the corporation is required by law to maintain.

The Board is required to present to shareholders at every annual meeting a financial report of theoperations of the Company for the preceding year. This report is required to include auditedfinancial statements.


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THE PHILIPPINE STOCK MARKET

The information presented in this section has been extracted from publicly available documentswhich have not been prepared or independently verified by the Company or the Lead Manager orany of their respective affiliates or advisors in connection with sale of the Offer Shares.

BRIEF HISTORY

The Philippines initially had two stock exchanges, the Manila Stock Exchange, which wasorganized in 1927, and the Makati Stock Exchange, which began operations in 1963. Eachexchange was self-regulating, governed by its respective Board of Governors elected annually by itsmembers.

Several steps initiated by the Government have resulted in the unification of the two bourses intothe PSE. The PSE was incorporated in 1992 by officers of both the Makati and the Manila StockExchanges. In March 1994, the licenses of the two exchanges were revoked. While the PSEmaintains two trading floors, one in Makati City and the other in Pasig City, these floors arelinked by an automated trading system which integrates all bid and ask quotations from thebourses.

In June 1998, the Philippine SEC granted the PSE a Self-Regulatory Organization (‘‘SRO’’) status,allowing it to impose rules as well as implement penalties on erring trading participants and listedcompanies. On August 8, 2001, PSE completed its demutualization, converting from a non-stockmember-governed institution into a stock corporation in compliance with the requirements of theSRC. The PSE has an authorized capital stock of 36.8 million, of which 15.3 million is subscribedand fully paid-up. Each of the 184 member-brokers was granted 50,000 shares of the new PSE at apar value of P=1.00 per share. In addition, a trading right evidenced by a ‘‘Trading ParticipantCertificate’’ was immediately conferred on each member broker allowing the use of the PSE’strading facilities. As a result of the demutualization, the composition of the PSE Board ofGovernors was changed, requiring the inclusion of seven brokers and eight non-brokers, one ofwhom is the President. On December 15, 2003, the PSE listed its shares by way of introduction atits own bourse as part of a series of reforms aimed at strengthening the Philippine securitiesindustry.

A listing committee comprised of representatives elected by the board of directors of the PSEdeliberates on all applications for listing and, if the listing application is endorsed by thecommittee, forwards the application to the PSE board of directors for approval.

Classified into financial, industrial, holding firms, property, services, mining and oil sectors,companies are listed either on the Exchange’s First Board, Second Board or the newly createdSmall and Medium Enterprises Board. Each index represents the numerical average of the prices ofcomponent stocks. The PSE has an index, referred to as the PHISIX, which as at the date hereofreflects the price movements of 34 selected stocks listed on the PSE, based on traded prices ofstocks from the various sectors. The PSE will shift from full market capitalization to free floatmarket capitalization effective April 3, 2006 simultaneous with the migration to the free floatindex and the naming of the PHISIX to PSEI. The new PSEI includes 30 selected stocks listed onthe PSE.

With the increasing calls for good corporate governance, PSE has adopted an online dailydisclosure system to improve the transparency of listed companies and to protect the investingpublic.

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The table below sets forth movements in the composite index from 1995 to 2005, and shows thenumber of listed companies, market capitalization, and value of shares traded for the same period:

SELECTED STOCK EXCHANGE DATA

Composite Indexat Closing

Number of ListedCompanies

AggregateMarket

CapitalizationCombined Value

of Turnover(in billions) (in billions)

Year1995 . . . . . . . . . . . . . . . . 2,594.2 205 1,545.7 379.01996 . . . . . . . . . . . . . . . . 3,170.6 216 2,121.1 668.91997 . . . . . . . . . . . . . . . . 1,869.2 221 1,261.3 588.01998 . . . . . . . . . . . . . . . . 1,968.8 221 1,373.7 408.71999 . . . . . . . . . . . . . . . . 2,142.9 226 1,938.6 713.92000 . . . . . . . . . . . . . . . . 1,494.5 230 2,577.6 357.62001 . . . . . . . . . . . . . . . . 1,168.1 232 2,142.6 159.52002 . . . . . . . . . . . . . . . . 1,018.4 234 2,083.2 159.72003 . . . . . . . . . . . . . . . . 1,442.4 236 2,973.8 145.42004 . . . . . . . . . . . . . . . . 1,822.8 236 4,766.2 206.62005 . . . . . . . . . . . . . . . . 2,096.0 237 5,948.4 383.5

Source: Philippine Stock Exchange, Inc.

TRADING

The PSE is a double auction market. Buyers and sellers are each represented by stock brokers. Totrade, bids or ask prices are posted on the PSE’s electronic trading system. A buy (or sell) orderthat matches the lowest asked (or highest bid) price is automatically executed. Buy and sell ordersreceived by one broker at the same price are crossed at the PSE at the indicated price. Transactionsare generally invoiced through a confirmation slip sent to customers on the trade date (or thefollowing trading date). Payment of purchases of listed securities must be made by the buyer on orbefore the third trading day (the settlement date) after the trade. For Small-Denominated TreasuryBonds, settlement is on the day the trade was made.

Trading on the PSE starts at 9 : 30 am and ends at 12 : 00 pm with a 10-minute extension duringwhich transactions may be conducted, provided that they are executed at the last traded price andare only for the purpose of completing unfinished orders. Trading days are Monday to Friday,except legal and special holidays.

Minimum trading lots range from 10 to 5,000,000 shares depending on the price range and natureof the security traded. Odd-sized lots are traded by brokers on a board specifically designed forodd-lot trading.

To maintain stability in the stock market, daily price swings are monitored and regulated. Undercurrent PSE regulations, when the price of a listed security moves up by 50.0% or down by 40.0%in one day (based on the previous closing price or last posted bid price, whichever is higher), theprice of that security is automatically frozen by the PSE, unless there is an official statement fromthe relevant company or a government agency justifying such price fluctuation, in which case theaffected security can still be traded but only at the frozen price. If the issuer fails to submit suchexplanation, a trading halt is imposed by the PSE on the listed security the following day.Resumption of trading shall be allowed only when the disclosure of the issuer is disseminated,subject again to the trading band.

SETTLEMENT

The Securities Clearing Corporation of the Philippines, or (‘‘SCCP’’), is the central clearinghousefor all transactions executed on the PSE. The SCCP received its permanent license to operate onJanuary 17, 2002. It is responsible for (i) establishing liabilities between PSE Brokers, (ii)


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synchronizing the settlement of funds and the transfer of securities, (iii) guaranteeing thesettlement of trades in the event of default by a PSE Broker and (iv) administering the appropriaterisk management function in order to ensure settlement. SCCP assumes the role of guarantor fortransactions by PSE Brokers in the PSE and maintains and administers a trade guarantee fundcalled the Clearing and Trade Guaranty Fund.

All transactions are settled through the SCCP. Brokers must comply with all requirements for thetransfer of shares and must deliver the corresponding stock certificates and all requisite documentsto the relevant clearing house within three business days from the trade date of the relevanttransaction. Settlement occurs on the third business day after the trade date. The SCCP is thenrequired to deliver the stock certificates and documents to the transfer agent of the relevantcompany in order to effect the transfer in the company’s books and to deliver the new certificatesback to the clearing house.

SCRIPLESS TRADING

In 1995, the Philippine Depository & Trust Corporation (formerly the Philippine CentralDepository, Inc.), was organized to establish a central depository in the Philippines andintroduce scripless or book-entry trading in the Philippines. On December 16, 1996, the PDTCwas granted a provisional license by the Philippine SEC to act as a central securities depository.All listed securities at the PSE have been converted into book-entry settlement in the PDTC. Thedepository service of the PDTC provides the infrastructure for lodgment (deposit) and upliftment(withdrawal) of securities, pledge of securities, securities lending and borrowing and corporateactions including shareholders’ meetings, dividend declarations and rights offerings. The PDTCalso provides depository and settlement services for non-PSE trades of listed equity securities. Fortransactions on the PSE, the security element of the trade will be settled through the book-entrysystem, while the cash element will be settled through the current settlement banks, RizalCommercial Banking Corporation and Equitable PCI Bank, Inc.

In order to benefit from the book-entry system, securities must be immobilized into the PDTCsystem through a process called lodgment. Lodgment is the process by which shareholders transferlegal title (but not beneficial title) over their shares of stock in favor of PCD Nominee Corporation(‘‘PCD Nominee’’), a corporation wholly owned by the PDTC whose sole purpose is to act asnominee and legal title holder of all shares of stock lodged into the PDTC. ‘‘Immobilization’’ is theprocess by which the warrant or share certificates of lodging holders are canceled by the transferagent and a new warrant or stock certificate covering all the warrants or shares lodged (‘‘JumboCertificate’’) is issued in the name of PCD Nominee. This trust arrangement between theparticipants and PDTC through PCD Nominee is established by and explained in the PDTC Rulesand Operating Procedures approved by the Philippine SEC. No consideration is paid for thetransfer of legal title to PCD Nominee. Once lodged, transfers of beneficial title of the securitiesare accomplished via book-entry settlement.

Under the current the PDTC system, only participants (e.g. brokers and custodians) will berecognized by the PDTC as the beneficial owners of the lodged equity securities. Thus, eachbeneficial owner of shares through his participant, will be the beneficial owner to the extent of thenumber of shares held by such participant in the records of the PCD Nominee. All lodgments,trades and uplifts on these shares will have to be coursed through a participant. Ownership andtransfers of beneficial interests in the shares will be reflected, with respect to the participant’saggregate holdings, in the PDTC system, and with respect to each beneficial owner’s holdings, inthe records of the participants. Beneficial owners are thus advised that in order to exercise theirrights as beneficial owners of the lodged shares, they must rely on their participant-brokers and/orparticipant-custodians.

Any beneficial owner of shares who wishes to trade his interests in the shares must course thetrade through a participant. The participant can execute PSE trades and non-PSE trades of lodgedequity securities through the PDTC system. All matched transactions in the PSE trading system willbe fed through the SCCP, and into the PDTC system. Once it is determined on the settlement date(trading date plus three trading days) that there are adequate securities in the securities settlementaccount of the participant-seller and adequate cash or an appropriate bank limit in the system cash


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account of the participant-buyer, the PSE trades are automatically settled in the PDTC system, inaccordance with the PDTC Rules and Operating Procedures. Once settled, the beneficial ownershipof the securities is transferred from the participant-seller to the participant-buyer without thephysical transfer of stock certificates covering the traded securities.

If a stockholder wishes to withdraw his stockholdings from the PDTC System, the PDTC has aprocedure of upliftment under which PCD Nominee will transfer back to the stockholder the legaltitle to the shares lodged by surrendering the jumbo certificate of PCD Nominee to a transfer agentwhich then issues a new stock certificate in the name of the shareholder and a new jumbocertificate of PCD Nominee for the balance of the lodged shares. The expenses for upliftment arefor the account of the uplifting shareholder.

The SCCP expects to launch its Central Clearing and Settlement System (‘‘CCSS’’) in the first halfof 2006. Under this system, the current securities infrastructure in the Philippines is composed of adepositary and a registry system wherein listed shares are traded and settled as book-entry shares.The difference between the depositary and the registry would be on the recording of ownership ofthe shares in the issuing corporations’ books.

In the depository set-up, shares are simply immobilized, wherein customers’ certificates arecanceled and a new jumbo certificate is issued in the name of PCD Nominee Corp. Transfersamong/between broker and/or custodian accounts, as the case may be, will only be made withinthe book-entry system of PDTC. However, as far as the issuing corporation is concerned, theunderlying certificates are in the nominee’s name. In the registry set-up, settlement and recordingof ownership of traded securities will already be directly made in the corresponding issuingcompany’s transfer agents’ books or system. Likewise, recording will already be at the beneficiarylevel (whether it be a client or a registered custodian holding securities for its clients), therebyremoving from the broker its current ‘‘de facto’’ custodianship role.

The option of whether a listed security should be ‘‘housed’’ in the depositary or registry is at theissuer’s discretion. The migration from the depositary to the registry model aims to eliminate thelegal and operational risks brought about by a depositary infrastructure. Likewise, the migration isexpected to strengthen measures to protect public investors/shareholders and decrease transactioncosts resulting from additional layers in the settlement process. The move will also prepare aninfrastructure for a complete name-on registry system.

The PSE and the SCCP expect a natural migration to the registry model, with system and costefficiency as the catalyst, and the market itself initiating the move. Once the CCSS is in place,custodians holding Philippine listed equity securities will have the following options:

Stay with the depositary for all its securities, whereby PDTC acts as their implied ‘‘Custodian’’. Forshares under the PDTC, custodians are direct PDTC account holders, however, with the shares stillrecorded in the PCD Nominee name as far as the corporation/transfer agent is concerned; forshares under the registry, the custodian appears to be a ‘‘client’’ under ‘‘PCD’’, such that shares arerecognized or recorded with PCD as the master/controlling account.

Be a system participant of the SCCP wherein the CCSS would offer to the custodians the interfaceto both the depositary and registry systems. In this option, for shares under the PDTC, custodianswill still have the option to maintain their own accounts in the PDTC or have an omnibus accounttogether with the broker accounts in the PDTC as shares are accounted for or segregated peraccountholder in the CCSS. This simplifies the custodian’s interface into only one connectivity forboth the depositary and the registry systems; for shares under the registry system, the custodianwill have its own master account, having the control over its own account. In the registry scenario,custodians are already recognized as the beneficiary holder of the securities on behalf of its clients.The custodian effectively is given a direct relationship with the issuing company wherein it receivesthe annual reports, dividends, and other communications and information directly. Prospectively,when the custodian is accredited as an indirect clearing member of the SCCP, straight-throughprocessing of trades or settlement can already be done directly with the custodian or with itsclient.


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Issuance of Certificated Shares

On or after the listing of the shares on the PSE, any beneficial owner of the shares may apply toPDTC through his broker or custodian-participant for a withdrawal from the book-entry systemand return to the conventional paper-based settlement. If a stockholder wishes to withdraw hisstockholdings from the PDTC System, the PDTC has a procedure of upliftment under which PCDNominee will transfer back to the stockholder the legal title to the shares lodged by surrenderingthe Jumbo Certificate of PCD Nominee to a transfer agent which then issues a new stockcertificate in the name of the uplifting shareholder and a new Jumbo Certificate to PCD Nomineefor the balance of the lodged shares. The expenses for upliftment are on the account of theuplifting shareholder.

Upon the issuance of certificated shares in the name of the person applying for upliftment, suchshares shall be deemed to be withdrawn from the PDTC book-entry settlement system, and tradingon such shares will follow the normal process for settlement of certificated securities. The expensesfor upliftment of beneficial ownership in the shares to certificated securities will be charged to theperson applying for upliftment. Pending completion of the upliftment process, the beneficialinterest in the shares covered by the application for upliftment is frozen and no trading and book-entry settlement will be permitted until certificated shares shall have been issued by the relevantcompany’s transfer agent. Philippine Foreign Exchange Controls.


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PHILIPPINE FOREIGN EXCHANGE CONTROLS

Under current BSP regulations, an investment in Philippine securities (such as the Shares) must beregistered with the BSP if the foreign exchange needed to service the repatriation of capital and theremittance of dividends, profits and earnings derived from such Shares is to be sourced from thePhilippine banking system. The application for registration may be done directly with the BSP orthrough a custodian bank duly designated by the foreign investor. A custodian bank may be acommercial bank or an offshore banking unit registered with the BSP to act as such and appointedby the investor to register the investment, hold shares for the investor, and represent the investorin all necessary actions in connection with his investments in the Philippines. Applications forregistration must be accompanied by: (i) purchase invoice, subscription agreement and proof oflisting on the PSE (either or both); (ii) credit advice or bank certificate showing the amount offoreign currency inwardly remitted and converted into pesos; and (iii) transfer instructions fromthe stockbroker or dealer, as the case may be.

Upon registration of the investment, proceeds of divestments or dividends of registered investmentsmay be converted into foreign currency sourced from the Philippine banking system and arerepatriable or remittable immediately and in full through the Philippine commercial bankingsystem, net of applicable tax, without need of BSP approval. Remittance is permitted uponpresentation of the BSP registration document, at the exchange rate applicable on the date ofactual remittance. Pending registration or reinvestment, divestment proceeds, as well as dividendsof registered investments, may be lodged temporarily in interest-bearing deposit accounts. Interestearned thereon, net of taxes, may also be remitted in full. Remittance of divestment proceeds ordividends of registered investments may be reinvested in the Philippines if the investments areregistered with the BSP or the investor’s custodian bank.

The foregoing is subject to the power of BSP, with the approval of the President of the Philippines,to restrict the availability of foreign exchange during an exchange crisis, when an exchange crisisis imminent or in times of national emergency.

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PHILIPPINE TAXATION

The statements made regarding taxation in the Philippines are based on the laws in force at thedate hereof and are subject to any changes in law occurring after such date. The followingsummary does not purport to be a comprehensive description of all of the tax considerations thatmay be relevant to a decision to invest in the Shares and does not purport to deal with the taxconsequences applicable to all categories of investors, some of which (such as dealers in securities)may be subject to special rates. Prospective purchasers of the Shares are advised to consult theirown tax advisers concerning the tax consequences of their investment in the Shares.

As used in this section, the term ‘‘resident alien’’ refers to an individual whose residence is withinthe Philippines and who is not a citizen thereof; a ‘‘non-resident alien’’ is an individual whoseresidence is not within the Philippines and who is not a citizen of the Philippines; a non-residentalien who is actually within the Philippines for an aggregate period of more than 180 days duringany calendar year is considered a ‘‘non-resident alien engaged in trade or business in thePhilippines;’’ otherwise, such non-resident alien who is actually within the Philippines for anaggregate period of 180 days or less during any calendar year is considered a ‘‘non-resident aliennot engaged in trade or business in the Philippines.’’ A ‘‘resident foreign corporation’’ is a foreigncorporation engaged in trade or business within the Philippines; and a ‘‘non-resident foreigncorporation’’ is a non-Philippine corporation not engaged in trade or business within thePhilippines.

TAX ON DIVIDENDS

Cash and property dividends received from a domestic corporation by individual shareholders whoare either citizens or residents of the Philippines are subject to a final withholding tax at the rateof 10.0%. Cash and property dividends received by non-resident alien individuals engaged in tradeor business in the Philippines are subject to a 20.0% tax on the gross amount thereof, while cashand property dividends received by non-resident alien individuals not engaged in trade or businessin the Philippines are subject to tax at 25.0% of the gross amount, subject, however, to theapplicable preferential tax rates under tax treaties executed between the Philippines and thecountry of residence or domicile of such non-resident foreign individuals.

Cash and property dividends received from a domestic corporation by another domesticcorporation or by resident foreign corporations are not subject to tax while those received bynon-resident foreign corporations are subject to tax at the rate of 35.0%.

The 35.0% rate for dividends paid to a non-resident foreign corporation may be reduced to alower rate. It may be reduced to 15.0% if (i) the country in which the non-resident foreigncorporation is domiciled imposes no tax on foreign sourced dividends or (ii) if the country ofdomicile of the non-resident foreign corporation allows a credit equivalent to 20.0% for taxesdeemed to have been paid in the Philippines.

Philippine tax authorities have prescribed certain procedures for availment of tax treaty relief.Subject to the approval by Philippine Bureau of Internal Revenue, or BIR, of Megaworld’sapplication for tax treaty relief, Megaworld shall withhold taxes at a reduced rate on dividends tobe paid to a non-resident holder, if such non-resident holder provides Megaworld with proof ofresidence and if applicable, individual or corporate status. Proof of residence for an individualconsists of certification from his embassy, consulate, or other equivalent certifications issued bythe proper government authority, or any other official document proving residence. If the regulartax rate is withheld by Megaworld instead of the reduced rates applicable under a treaty, the non-resident holder of the shares may file a claim for refund from the BIR. However, because therefund process in the Philippines requires the filing of an administrative claim and the submissionof supporting information, and may also involve the filing of a judicial appeal, it may beimpractical to pursue such a refund.

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Stock dividends distributed pro-rata to any holder of shares of stock are not subject to Philippineincome tax. However, the sale, exchange or disposition of shares received as stock dividends by theholder is subject to the capital gains or stock transaction tax.

Tax Treaties

The following table lists some of the countries with which the Philippines has tax treaties and thetax rates currently applicable to non-resident holders who are residents of those countries:

Dividends

Stock transactiontax on sale ordisposition effectedthrough the PSE

Capital Gains taxdue on dispositionof Shares outsidethe PSE

% % %

Canada . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25(1) Exempt(8) Exempt(8)

France . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25(2) Exempt(8) Exempt(8)

Germany . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15(3) 0.5 5/10(9)

Japan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25(4) Exempt(8) Exempt(8)

Singapore. . . . . . . . . . . . . . . . . . . . . . . . . . . . 25(5) Exempt(8) Exempt(8)

United Kingdom . . . . . . . . . . . . . . . . . . . . . . . 25(6) Exempt(10) Exempt(10)

United States . . . . . . . . . . . . . . . . . . . . . . . . . 25(7) Exempt(8) Exempt(8)

Notes:(1) 15% if recipient company controls at least 10% of the voting power of the company paying the dividends.(2) 15% if the recipient company holds directly at least 15% of the voting shares of the company paying the dividends.(3) 10% if the recipient company owns directly at least 25% of the capital of the company paying the dividends.(4) 10% if the recipient company holds directly at least 25% of either the voting shares of the company paying the

dividends or of the total shares issued by that company during the period of 6 months immediately preceding the dateof payment of the dividends.

(5) 15% if during the part of the paying company’s taxable year which precedes the date of payment of dividends andduring the whole of its prior taxable year at least 15% of the outstanding shares of the voting stock of the payingcompany was owned by the recipient company.

(6) 15% if the recipient company is a company which controls directly or indirectly at least 10% of the voting power ofthe company paying the dividends.

(7) 20% if during the part of the paying corporation’s taxable year which precedes the date of payment of dividends andduring the whole of its prior taxable year at least 10% of the outstanding shares of the voting stock of the payingcorporation was owned by the recipient corporation.

(8) Capital gains are taxable only in the country where the seller is a resident, provided the shares are not those of acorporation, the assets of which consist principally of real property situated in the Philippines, In which case the saleis subject to Philippine taxes.

(9) Under the RP-Germany Tax Treaty, capital gains from the alienation of shares of a Philippine corporation may betaxed in the Philippines irrespective of the nature of the assets of the Philippine corporation. Tax rates are 5% on thenet capital gains realized during the taxable year not in excess of P=100,000 and 10% on the net capital gains realizedduring the taxable year in excess of P=100,000.

(10) Under the RP-UK Tax Treaty, capital gains on the sale of the stock of Philippine corporations are subject to tax onlyin the country where the seller is a resident, irrespective of the nature of the assets of the Philippine corporation.

SALE, EXCHANGE OR DISPOSITION OF SHARES

Capital Gains Tax, if sale was made outside the PSE

Net capital gains realized by a resident or non-resident other than a dealer in securities duringeach taxable year from the sale, exchange or disposition of shares of stock outside the facilities ofthe PSE, unless an applicable treaty exempts such gains from tax or provides for preferential rates,are subject to tax as follows: 5.0% on gains not exceeding P=100,000 and 10.0% on gains overP=100,000. An application for tax treaty relief must be filed (and approved) by the Philippine taxauthorities in order to obtain an exemption under a tax treaty.

Taxes on Transfer of Shares Listed and Traded at the Philippine Stock Exchange

A sale or other disposition of shares of stock through the facilities of the PSE by a resident or anon-resident holder, other than a dealer in securities, is subject to a stock transaction tax at therate of 0.5% of the gross selling price or gross value in money of the shares of stock sold orotherwise disposed, unless an applicable treaty exempts such sale from said tax. This tax isrequired to be collected by and paid to the Philippine Government by the selling stockbroker on

PHILIPPINE TAXATION

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behalf of his client. The stock transaction tax is classified as a percentage tax in lieu of a capitalgains tax. Under certain tax treaties, the exemptions from capital gains tax discussed herein maynot be applicable to the stock transaction tax.

In addition, a VAT of 12.0% is imposed on the commission earned by the PSE-registered broker,and is generally passed on to the client.

DOCUMENTARY STAMP TAX

The original issue of shares of stock is subject to documentary stamp tax of P=1.00 for eachP=200.00 par value or a fraction thereof, of the shares of stock issued. The transfer of shares ofstock is subject to a documentary stamp tax of P=0.75 for each P=200.00 par value or a fractionalpart thereof of the share of stock transferred.

However, for a period of five years from March 20, 2004, the sale, barter or exchange of shares ofstock listed and traded at the PSE shall be exempt from documentary stamp tax.

In addition, the borrowing and lending of securities executed under the Securities Borrowing andLending Program of a registered exchange, or in accordance with regulations prescribed by theappropriate regulatory authority, are likewise exempt from documentary stamp tax. However, thesecurities borrowing and lending agreement should be duly covered by a master securitiesborrowing and lending agreement acceptable to the appropriate regulatory authority, and shouldbe duly registered and approved by the BIR.

ESTATE AND GIFT TAXES

The transfer of shares of stock upon the death of an individual holder to his heirs by way ofsuccession, whether such holder was a citizen of the Philippines or an alien, regardless ofresidence, is subject to Philippine taxes at progressive rates ranging from 5.0% to 20.0%, if the netestate is over P=200,000. Individual and corporate holders, whether or not citizens or residents ofthe Philippines, who transfer shares of stock by way of gift or donation are liable to pay Philippinedonors’ tax on such transfer of shares ranging from 2.0% to 15.0% of the net gifts during the yearexceeding P=100,000. The rate of tax with respect to net gifts made to a stranger (i.e., one who isnot a brother, sister, spouse, ancestor, lineal descendant or relative by consanguinity within thefourth degree of relationship) is a flat rate of 30.0%.

Estate and donors’ taxes, however, shall not be collected in respect of intangible personal property,such as shares of stock: (a) if the decedent at the time of his death or the donor at the time of thedonation was a citizen and resident of a foreign country which at the time of his death or donationdid not impose a transfer tax of any character, in respect of intangible personal property ofcitizens of the Philippines not residing in that foreign country, or (b) if the laws of the foreigncountry of which the decedent or donor was a citizen and resident at the time of his death ordonation allows a similar exemption from transfer or death taxes of every character or descriptionin respect of intangible personal property owned by citizens of the Philippines not residing in thatforeign country.

TAXATION OUTSIDE THE PHILIPPINES

Shares of stock in a domestic corporation are considered under Philippine law as situated in thePhilippines and the gain derived from their sale is entirely from Philippine sources; hence such gainis subject to Philippine income tax and the transfer of such shares by gift (donation) or successionis subject to the donors’ or estate taxes stated above.

The tax treatment of a non-resident holder of shares of stock in jurisdictions outside thePhilippines may vary depending on the tax laws applicable to such holder by reason of domicile orbusiness activities and such holder’s particular situation. This Prospectus does not discuss the taxconsiderations on non-resident holders of shares of stock under laws other than those of thePhilippines.

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EACH PROSPECTIVE HOLDER SHOULD CONSULT WITH HIS OWN TAX ADVISER AS TOTHE PARTICULAR TAX CONSEQUENCES TO SUCH HOLDER OF PURCHASING, OWNINGAND DISPOSING OF THE OFFER SHARES, INCLUDING THE APPLICABILITY AND EFFECTOF ANY STATE, LOCAL AND NATIONAL TAX LAWS.

PHILIPPINE TAXATION

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PLAN OF DISTRIBUTION

Of the Offer Shares, 3,727,008,000 Offer Shares are being offered by the Company and the SellingShareholder in the Offer outside of the Philippines and 196,158,000 Offer Shares are being offeredby the Selling Shareholder in the Philippines to the PSE Brokers. The allocation of the Offer Sharesbetween the Domestic Offer and the International Offer is subject to adjustment. In the event of anunder-application in the International Offer and if there is a corresponding over-application in theDomestic Offer, International Offer Shares may (at the option of the Domestic Underwriter) bereallocated from the International Offer (with the consent of the Lead Manager) to the DomesticOffer. The reallocation shall not apply in the event of over-application in both the Domestic Offerand the International Offer. There is no assurance that such reallocation will be exercised by theDomestic Underwriter or at all.

THE DOMESTIC OFFER

Domestic Offer Shares shall be offered by the Selling Shareholder exclusively to the PSE Brokersduring the Domestic Offer. The PSE shall allocate the Domestic Offer Shares among the PSEBrokers. Each PSE Broker shall initially be allocated 1,486,000 Offer Shares (computed by dividingthe Domestic Offer Shares by 132 PSE Brokers), as a maximum, but no less than 1,000 OfferShares, as a minimum, and subject to reallocation as may be determined by the PSE. Prior to theclosing of the Domestic Offer, any allocation of Offer Shares not taken up in full by the PSEBrokers shall be distributed by the Domestic Underwriter to its clients or the general public.

To facilitate the Domestic Offer, the Selling Shareholder has appointed BDO Capital to act as theDomestic Underwriter. The Domestic Underwriter shall receive the Commitment to Purchase forms(as defined below) and the corresponding payments of each PSE Broker, and procure the services ofa PSE licensed broker (the ‘‘Crossing Broker’’) responsible for crossing the number of DomesticOffer Shares specified in the form to the appropriate PSE Broker on the Listing Date, subject to theterms and conditions of the Domestic Offer. The Crossing Broker engaged by BDO Capital shallconduct block trades of the Domestic Offer Shares in settlement of the Domestic Offer. As shall bediscussed below, the Domestic Underwriter shall receive from the Selling Shareholder a feeequivalent to the higher of one million pesos, or 3.5% of the total proceeds of the Domestic OfferShares sold in the Domestic Offer. PSE Brokers who take up Domestic Offer Shares shall beentitled to a selling fee of 1.0% of Domestic Offer Shares taken up and purchased by the relevantPSE Brokers. The selling fee, less the PCD EQ Trade fee, will be paid to the PSE Brokers within 10Banking Days after the Listing Date.

All of the Domestic Offer Shares shall be transferred to the PSE Brokers in scripless form througha block trade executed by the Domestic Underwriter. PSE Brokers may maintain the DomesticOffer Shares in scripless form or opt to have the stock certificates issued to them by requesting anupliftment of the relevant Domestic Offer Shares from PDTC’s electronic system after the closingof the Domestic Offer.

THE INTERNATIONAL OFFER

The Company and the Selling Shareholder, through the Lead Manager, are offering 3,727,008,000Firm Shares (excluding the Over-Allotment Option described below) in the International Offeroutside the Philippines and the United States in reliance on Regulation S under the U.S. SecuritiesAct.

The Underwriting Agreement entered into between the Company, the Selling Shareholder and theLead Manager (the ‘‘International Underwriting Agreement’’) is subject to certain conditions andmay be subject to termination by the Lead Manager if certain circumstances, including forcemajeure, occur on or before the Offer Shares are listed on the PSE. Under the terms and conditionsof the International Underwriting Agreement, the Lead Manager is committed to purchase or

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procure purchasers for all of the Offer Shares to be offered in the International Offer. The closingof the Domestic Offer is conditional on the closing of the International Offer. The closing of theDomestic Offer and the International Offer are expected to occur concurrently.

The Lead Manager and its affiliates have engaged in transactions with and performed variousinvestment banking, commercial banking and other services for Megaworld and its subsidiaries andaffiliates in the past and may do so from time to time in the future. However, all services providedby the Lead Manager, including in connection with the Offer, have been provided as anindependent contractor and not as a fiduciary to the Company or the Selling Shareholder.

The Lead Manager does not have any right to designate or nominate a member of the board ofdirectors of the Company. The Lead Manager has no direct relations with the Company in termsof share ownership and other than as Lead Manager for the Offer, it does not have any materialrelationship with the Company.

The Over-Allotment Option

In connection with the Offer, the Company has granted the Stabilizing Agent an Over-AllotmentOption, which is exercisable in whole or in part for 30 days from the commencement of thetrading of the Company’s Offer Shares on the PSE to purchase up to 15% of the total number ofFirm Shares on the same terms and conditions as the Firm Shares as set forth herein.

Up to 588,475,000 Optional Shares may be over-allotted and the Stabilizing Agent may effect pricestabilization transactions for a period which shall not exceed 30 days from the Listing Date. TheStabilizing Agent may purchase Shares in the open market only if the market price of the Sharesfalls below the Offer Price. Such activities may stabilize, maintain or otherwise affect the marketprice of the Shares which may have the effect of preventing a decline in the market price of theShares and may also cause the price of the Shares to be higher than the price that otherwise wouldexist in the open market in the absence of these transactions. If the Stabilizing Agent commencesany of these transactions, it may discontinue them at any time. Once the Over-Allotment Optionhas been exercised by the Stabilizing Agent, it will no longer be allowed to purchase Shares in theopen market for the conduct of stabilization activities.

Domestic Block Sale

The Selling Shareholder, a non-Philippine National, will sell to TAGI, a Philippine National300,000,000 Domestic Block Sale Shares on the Listing Date at the Offer Price and on the sameterms and conditions as the Firm Shares as set forth herein. The Domestic Block Sale will provideleeway for the ownership of Shares by non-Philippine Nationals.

The Share Purchase Agreement entered into between the Selling Shareholder, the Lead Managerand TAGI (the ‘‘Share Purchase Agreement’’) is subject to certain conditions and may be subject totermination by TAGI if certain circumstances, including force majeure, occur on or before theOffer Shares are listed on the PSE. Under the terms and conditions of the Share PurchaseAgreement, TAGI is committed to purchase all of the Domestic Block Sale Shares. The closings ofthe Domestic Block Sale and the Offer are conditional upon each other.

Lock-Up

The Company, TAGI, New Town Land and Mr. Andrew Tan have each agreed with the LeadManager that, for a period of 180 days after the First Closing Date, other than in connection withthe Over-Allotment Option or the TAGI Option, neither it nor any person acting on its behalf will,without the prior written consent of the Lead Manager, issue, offer, sell, contract to sell, pledge orotherwise dispose of (or publicly announce any such issuance, offer, sale or disposal of) any Sharesor securities convertible or exchangeable into or exercisable for any Shares or warrants or otherrights to purchase Shares or any security or financial product whose value is determined directly orindirectly by reference to the price of the underlying securities, including equity swaps, forwardsales and options.


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Selling Restriction

Philippines

No securities, except of a class exempt under Section 9 of the Philippine Securities RegulationCode or unless sold in any transaction exempt under Section 10 thereof, shall be sold ordistributed by any person within the Philippines unless such securities shall have been registeredwith the Philippine SEC on SEC Form 12–1 and the registration statement has been declaredeffective by the said Commission.


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LEGAL MATTERS

Certain legal matters Philippine law relating to the Offer will be passed upon for the Company byPicazo Buyco Tan Fider & Santos Law Office, Manila, Philippines and for the Lead Manager byRomulo Mabanta Buenaventura Sayoc & de los Angeles, Manila, Philippines. Certain legal mattersas to English law and United States federal law will be passed upon for the Lead Manager by Allen& Overy.

None of Picazo Buyco Tan Fider & Santos Law Office, Romulo Mabanta Buenaventura Sayoc &de los Angeles or Allen & Overy will receive any direct or indirect interest in the Company or inany securities thereof (including options, warrants or rights thereto) pursuant to, or in connectionwith the Offer. None of Picazo Buyco Tan Fider & Santos Law Office, Romulo MabantaBuenaventura Sayoc & de los Angeles or Allen & Overy has acted or will act as promoter,underwriter, voting trustee, officer or employee of the Company.

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INDEPENDENT PUBLIC ACCOUNTANTS

Punongbayan & Araullo, a member practice of Grant Thornton International, independentcertified public accountants, audited Megaworld’s financial statements without qualification as ofand for the years ended December 31, 2003, 2004 and 2005, included in this Prospectus. The2003, 2004 and 2005 financial information included in this Prospectus has been prepared underPFRS. Such financial statements are included in this Prospectus based on Punongbayan & Araullo’sauthority as independent public accountants. Punongbayan & Araullo gave its consent to theinclusion of its reports in this Prospectus.

Punongbayan & Araullo has acted as the Company’s external auditors since 1994. Gregorio S.Navarro is the current audit partner for the Company, has served as such since 2004. TheCompany has not had any disagreements on accounting and financial disclosures with its currentexternal auditors for the same periods or any subsequent interim period. Punongbayan & Araullohas neither shareholdings in the Company nor any right, whether legally enforceable or not, tonominate persons or to subscribe for the securities in the Company. Punongbayan & Araullo willnot receive any direct or indirect interest in the Company or in any securities thereof (includingoptions, warrants or rights thereto) pursuant to or in connection with the Offer. The foregoing isin accordance with the Code of Ethics for Professional Accountants in the Philippines set by theBoard of Accountancy and approved by the Professional Regulation Commission.

Audit and Audit-Related Fees

The aggregate fees for professional services rendered by Punongbayan & Araullo, for the audit ofthe Company’s annual financial statements and services normally provided by the external auditorin connection with statutory and regulatory filings or engagements for 2005 and 2004, excludingout-of-pocket expenses and fees directly related to the Offer, were P=1,150,000 and P=880,000,respectively. Apart from the foregoing, no other services were rendered or fees billed by theCompany’s external auditors for 2005.

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INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

Page

Report of Independent Auditors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-2

Audited Consolidated Balance Sheets as of December 31, 2005 and 2004 . . . . . . . . . . . . . . . . F-3

Audited Consolidated Statements of Income for theyears ended December 31, 2005, 2004 and 2003 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-4

Audited Consolidated Statements of Changes in Stockholders’ Equityfor the years ended December 31, 2005, 2004 and 2003 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-5

Audited Consolidated Statements of Cash Flows for theyears ended December 31, 2005, 2004 and 2003 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-6

Notes to Audited Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-8

F-1

REPORT OF INDEPENDENT AUDITORS

The Board of Directors and StockholdersMegaworld Corporation and Subsidiaries

We have audited the accompanying consolidated balance sheets of Megaworld Corporation andsubsidiaries as of December 31, 2005, 2004 and 2003, and the related statements of income,changes in equity and cash flows for the years then ended. These financial statements are theresponsibility of the Company’s management. Our responsibility is to express an opinion on thesefinancial statements based on our audits.

We conducted our audits in accordance with generally accepted auditing standards in thePhilippines. Those standards require that we plan and perform the audit to obtain reasonableassurance about whether the financial statements are free of material misstatement. An auditincludes examining, on a test basis, evidence supporting the amounts and disclosures in thefinancial statements. An audit also includes assessing the accounting principles used and significantestimates 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 consolidated financial position of Megaworld Corporation and subsidiaries as of December 31,2005, 2004 and 2003, and the results of their operations and their cash flows for the years thenended, in accordance with generally accepted accounting principles in the Philippines.

PUNONGBAYAN & ARAULLO

By: Gregorio S. NavarroPartnerCPA Reg. No. 0033571TIN 109-228-435PTR No. 4182116, January 4, 2006, Makati CityPartner SEC Accreditation No. 0013-AR-1BIR AN 08-002511-2-2005 (Dec. 27, 2005 to 2008)

February 27, 2006

F-2

MEGAWORLD CORPORATION AND SUBSIDIARIESCONSOLIDATED BALANCE SHEETSDECEMBER 31, 2005, 2004 AND 2003(Amounts in Philippine Pesos)

Notes 2005 2004 2003

ASSETSCURRENT ASSETS

Cash and cash equivalents . . . . . . . 6 P= 2,850,312,456 P= 2,688,988,568 P= 2,021,097,635

Trade and other receivables — net . . 7 2,751,268,212 2,382,098,258 2,708,829,668

Marketable securities . . . . . . . . . . 8 3,599,631,526 4,138,353,661 4,753,234,744Residential and condominium units for

sale. . . . . . . . . . . . . . . . . . . . 3,552,320,332 4,051,490,108 3,636,126,111

Property development costs . . . . . . 1,606,180,565 1,193,231,724 1,274,321,908

Prepayments and other current assets— net . . . . . . . . . . . . . . . . . . 619,652,920 377,939,607 226,115,945

Total Current Assets. . . . . . . . . . 14,979,366,011 14,832,101,926 14,619,726,011

NON-CURRENT ASSETSTrade and other receivables . . . . . . 7 1,868,934,869 1,618,719,128 2,673,404,936

Advances to landowners and joint

ventures . . . . . . . . . . . . . . . . . 9 240,640,641 245,982,837 219,277,773

Land for future development . . . . . 1,784,032,410 1,552,858,507 1,010,104,220Investments in and advances to

associates and other related parties

— net . . . . . . . . . . . . . . . . . . 10 7,602,178,419 7,313,078,629 7,123,537,610Investment property — net . . . . . . . 11 4,858,620,655 4,119,613,955 3,954,767,590

Property and equipment — net . . . . 12 785,532,005 696,618,850 788,843,306

Deferred tax assets . . . . . . . . . . . . 18 2,123,480 1,226,427 9,629,070

Other non-current assets — net . . . . 13 661,463,325 2,138,266,540 1,252,872,454

Total Non-current Assets . . . . . . . 17,803,525,804 17,686,364,873 17,032,436,959

TOTAL ASSETS . . . . . . . . . . . . . . . . P=32,782,891,815 P=32,518,466,799 P=31,652,162,970

LIABILITIES AND EQUITYCURRENT LIABILITIES

Interest-bearing loans and borrowings 14 P= 963,577,614 P= 314,290,947 P= 228,918,669

Trade and other payables. . . . . . . . 15 1,691,285,280 1,486,567,695 1,251,473,883

Customers’ deposits . . . . . . . . . . . 1,791,570,197 1,224,782,674 744,328,795Income tax payable . . . . . . . . . . . 2,275,330 14,651,258 9,865,426

Reserve for property development . . 641,435,860 592,965,140 450,962,773

Deferred income on real estate sales . 556,779,154 200,652,672 227,987,059

Other current liabilities . . . . . . . . . 748,491,097 784,301,205 709,932,811

Total Current Liabilities . . . . . . . 6,395,414,532 4,618,211,591 3,623,469,416

NON-CURRENT LIABILITIESInterest-bearing loans and borrowings 14 2,132,386,146 4,275,221,611 4,510,879,093Customers’ deposit . . . . . . . . . . . . 2,448,761,300 2,612,953,197 2,639,638,844

Reserve for property development . . 1,243,213,018 1,278,483,516 1,032,194,116

Deferred income on real estate sales . 287,525,097 783,080,617 682,012,177Advances from other related parties . 19 169,190,310 166,768,253 862,390,863

Deferred tax liabilities — net . . . . . 18 1,290,056,253 1,273,374,893 1,306,718,777

Other non-current liabilities . . . . . . 941,643,520 740,061,940 965,979,437

Total Non-current Liabilities . . . . 8,512,775,644 11,129,944,027 11,999,813,307

Total Liabilities . . . . . . . . . . . . . 14,908,190,176 15,748,155,618 15,623,282,723

EQUITYEquity attributable to parent

company’s shareholders . . . . . . . 17,141,588,052 16,065,271,202 15,318,363,548

Minority interest . . . . . . . . . . . . . 733,113,587 705,039,979 710,516,699

Total equity . . . . . . . . . . . . . . . 17,874,701,639 16,770,311,181 16,028,880,247

TOTAL LIABILITIES AND EQUITY . . . . P=32,782,891,815 P=32,518,466,799 P=31,652,162,970

See Notes to Financial Statements.

F-3


MEGAWORLD CORPORATION AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF INCOMEFOR THE YEARS ENDED DECEMBER 31, 2005, 2004 AND 2003(Amounts in Philippine Pesos)

Notes 2005 2004 2003

REVENUESRealized gross profit from real estate

sales:

Real estate sales . . . . . . . . . . . . P= 3,151,214,282 P= 2,396,727,787 P= 2,371,799,323

Cost of real estate sales. . . . . . . . (2,158,202,768) (1,694,917,117) (1,652,586,374)

Gross profit . . . . . . . . . . . . . . . 993,011,514 701,810,670 719,212,949

Deferred gross profit . . . . . . . . . (367,358,696) (381,934,355) (294,354,651)

Realized gross profit on currentyear’s sales . . . . . . . . . . . . . . 625,652,818 319,876,315 424,858,298

Realized gross profit on prior years’

sales . . . . . . . . . . . . . . . . . . 506,439,183 265,279,550 153,890,612

1,132,092,001 585,155,865 578,748,910

Rental income. . . . . . . . . . . . . . . 547,822,254 454,653,065 241,430,939

Hotel income — net . . . . . . . . . . . 101,057,099 88,720,411 73,780,796

Other revenues . . . . . . . . . . . . . . 16 1,012,147,201 1,251,061,979 627,766,680

2,793,118,555 2,379,591,320 1,521,727,325

OPERATING EXPENSESCommissions . . . . . . . . . . . . . . . 252,804,538 230,652,378 179,587,717Depreciation and amortization . . . . 190,179,814 172,326,852 133,405,182

Taxes and licenses . . . . . . . . . . . . 124,999,535 47,492,684 65,941,854

Employee benefits . . . . . . . . . . . . 17 116,859,836 122,245,504 112,993,341Advertising and promotions . . . . . . 32,471,639 31,870,665 27,016,732

Impairment losses . . . . . . . . . . . . 3,496,464 61,856,416 —

Foreign currency losses . . . . . . . . . 1,103,304 14,100,264 50,749,908

Amortization of preoperating expensesand deferred foreign currency losses — — 12,550,628

Other operating expenses . . . . . . . . 16 254,966,482 192,221,998 145,838,676

976,881,612 872,766,761 728,084,038

OPERATING PROFIT . . . . . . . . . . . . . 1,816,236,943 1,506,824,559 793,643,287

OTHER CHARGESFinance costs . . . . . . . . . . . . . . . 7, 14 280,835,810 205,271,197 81,668,979Equity in net losses of associates . . . 10 64,638,874 207,138,433 77,318,475

Fair value losses — net . . . . . . . . . 8 44,785,138 111,857,690 210,657,087

Cumulative effect of a change in

accounting policy . . . . . . . . . . . — — 17,080,062

390,259,822 524,267,320 386,724,603

INCOME BEFORE TAX . . . . . . . . . . . 1,425,977,121 982,557,239 406,918,684TAX EXPENSE. . . . . . . . . . . . . . . . . 18 258,993,163 180,343,471 146,939,403

NET INCOME . . . . . . . . . . . . . . . . . P= 1,166,983,958 P= 802,213,768 P= 259,979,281

Attributable to:Minority interest . . . . . . . . . . . . . P= 13,121,607 P= (5,476,720) P= 7,234,274

Parent company’s shareholders . . . . 1,153,862,351 807,690,488 252,745,007

P= 1,166,983,958 P= 802,213,768 P= 259,979,281

Earnings Per Share . . . . . . . . . . . . . 21 P= 0.11 P= 0.08 P= 0.02


F-4


MEGAWORLD CORPORATION AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF CHANGES IN EQUITYFOR THE YEARS ENDED DECEMBER 31, 2005, 2004 AND 2003(Amounts in Philippine Pesos)

Notes 2005 2004 2003

CAPITAL STOCK . . . . . . . . . . . . . . . 20 P=10,655,559,106 P= 8,879,632,590 P= 8,879,632,590

ADDITIONAL PAID-IN CAPITAL . . . . . . 2,227,892,300 2,227,892,295 2,227,892,295

TREASURY SHARES, representing parent

company’s common shares held bysubsidiaries

Balance at beginning of year. . . . . . (363,575,945) (363,575,945) (42,778,712)

Disposals during the year. . . . . . . . 68,009,769 — (320,797,233)

Balance at end of year — 250 millionshares in 2005 and 350 million

shares in both 2004 and 2003 . . . (295,566,176) (363,575,945) (363,575,945)

ACCUMULATED TRANSLATIONADJUSTMENTSBalance at beginning of year

As previously reported . . . . . . . . 57,494,655 91,752,859 —

Effects of transition to PFRS, net oftaxes . . . . . . . . . . . . . . . . . . 2 (26,540,291) (15,660) —

As restated. . . . . . . . . . . . . . . . 30,954,364 91,737,199 —

Currency translation differences duringthe year, net of tax. . . . . . . . . . (145,555,275) (60,782,835) 91,737,199

Balance at end of year . . . . . . . . . (114,600,911) 30,954,364 91,737,199

RETAINED EARNINGSBalance at beginning of year

As previously reported . . . . . . . . . 5,875,583,534 5,115,862,622 4,541,647,844

Effects of transition to PFRS, net oftaxes . . . . . . . . . . . . . . . . . . 2 (585,215,636) (633,185,212) (311,715,442)

As restated. . . . . . . . . . . . . . . . 5,290,367,898 4,482,677,410 4,229,932,402

Net income . . . . . . . . . . . . . . . . 1,153,862,351 807,690,488 252,745,007Stock dividends . . . . . . . . . . . . . . 20 (1,775,926,516) — —

Balance at end of year . . . . . . . . . 4,668,303,733 5,290,367,898 4,482,677,409

MINORITY INTEREST . . . . . . . . . . . . 733,113,587 705,039,979 710,516,699

TOTAL EQUITY . . . . . . . . . . . . . . . . P=17,874,701,639 P=16,770,311,181 P=16,028,880,247

Net Gain (Loss) Recognized Directly toEquity . . . . . . . . . . . . . . . . . . . . P= (145,555,275) P= (60,782,835) P= 91,737,199


F-5


MEGAWORLD CORPORATION AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF CASH FLOWSFOR THE YEARS ENDED DECEMBER 31, 2005, 2004 AND 2003(Amounts in Philippine Pesos)

2005 2004 2003

CASH FLOWS FROM OPERATING ACTIVITIESIncome before tax . . . . . . . . . . . . . . . . . . . . . . . . P=1,425,977,121 P= 982,557,239 P= 406,918,684Adjustments for:

Depreciation and amortization . . . . . . . . . . . . . . . 190,179,814 172,326,852 133,405,182

Cumulative effect of a change in accounting policy . . — — 17,080,062Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . 280,835,810 205,271,197 81,668,979

Fair value losses on marketable securities. . . . . . . . . 44,785,138 111,857,690 210,657,087

Interest income . . . . . . . . . . . . . . . . . . . . . . . . . (715,435,491) (571,123,393) (507,102,154)

Dividend income . . . . . . . . . . . . . . . . . . . . . . . . (28,791,600) (27,975,650) (32,590,274)Gain on sale of investments . . . . . . . . . . . . . . . . . (45,163,750) — —

Probable losses . . . . . . . . . . . . . . . . . . . . . . . . . 3,496,464 61,856,416 —

Equity in net losses of subsidiaries and an associate . . 64,638,874 207,138,433 77,318,475

Amortization of pre-operating expenses . . . . . . . . . . — — 12,550,628Amortization of deferred charges . . . . . . . . . . . . . . 1,103,304 13,960,410 50,749,908

Operating income before working capital changes . . . . 1,221,625,684 1,155,869,194 450,656,577

Decrease (increase) in trade and other receivables . . . (229,336,178) 845,082,620 (321,546,677)Decrease (increase) in residential and condominium

units for sale . . . . . . . . . . . . . . . . . . . . . . . . . 499,169,776 (358,904,954) 615,305,453

Decrease (increase) in property development costs . . . (489,758,441) 70,174,819 (628,034,566)

Increase in prepayments and other current assets . . . . (48,687,520) (267,443,556) (49,909,434)Decrease (increase) in advances to landowners andjoint

ventures

5,342,196 (26,705,064) 756,018Increase in trade and other payables . . . . . . . . . . . . 61,722,929 24,053,188 268,134,613

Increase in customers’ deposits . . . . . . . . . . . . . . . 402,595,625 453,768,233 1,378,644,052

Increase (decrease) in deferred income on real estate

sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (139,429,038) 73,734,053 140,464,298Increase (decrease) in other current liabilities . . . . . . (35,810,108) 406,418,141 223,348,766

Increase in reserve for property development. . . . . . . 13,200,222 388,291,767 349,797,528

Increase (decrease) in other non-current liabilities . . . 201,581,580 80,091,929 (72,202,741)

Cash generated from operations. . . . . . . . . . . . . . . . 1,462,216,727 2,844,430,370 2,355,413,887

Interest paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . (280,835,810) (205,591,795) (125,220,235)

Cash paid for income taxes . . . . . . . . . . . . . . . . . . (371,094,617) (112,424,844) (75,657,699)

Net Cash From Operating Activities . . . . . . . . . . . . . 810,286,300 2,526,413,731 2,154,535,953

F-6


MEGAWORLD CORPORATION AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)FOR THE YEARS ENDED DECEMBER 31, 2005, 2004 AND 2003(Amounts in Philippine Pesos)

2005 2004 2003

CASH FLOWS FROM INVESTING ACTIVITIESAdditions to:

Investment property . . . . . . . . . . . . . . . . . . . . . . (841,646,195) (382,473,955) (95,720,433)

Land for future development . . . . . . . . . . . . . . . . (42,123,813) (115,996,375) (296,760,402)

Property and equipment. . . . . . . . . . . . . . . . . . . . (180,262,482) (9,693,965) (19,168,620)Proceeds from disposals of property and equipment . . . 1,391,857 8,631,939 17,449,178

Net increase in investments in and advances to associates

and other related parties . . . . . . . . . . . . . . . . . . (613,020,623) (874,893,731) (1,452,034,186)

Net increase in other non-current assets . . . . . . . . . . (506,389,546) (1,374,703,467) 496,412,628Disposals (acquisition) of investments during the year . . 493,936,997 461,396,297 (1,986,858,091)

Interest received . . . . . . . . . . . . . . . . . . . . . . . . . 347,803,636 565,480,423 507,102,154

Dividends received . . . . . . . . . . . . . . . . . . . . . . . . 28,791,600 27,975,650 32,590,274

Net Cash Used in Investing Activities . . . . . . . . . . . . (1,311,518,569) (1,694,277,184) (2,796,987,498)

CASH FLOWS FROM FINANCING ACTIVITIESPayments of long-term liabilities and other non-current

liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . (450,115,471) (164,245,614) (228,918,668)Acquisition of shares of parent company by subsidiaries — — (320,797,233)

Proceeds from long-term liabilities . . . . . . . . . . . . . . 1,112,671,628 — 950,000,000

Net Cash From (Used in) Financing Activities . . . . . . . 662,556,157 (164,245,614) 400,284,099

NET INCREASE (DECREASE) IN CASH AND CASHEQUIVALENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . 161,323,888 667,890,933 (242,167,446)

CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 2,688,988,568 2,021,097,635 2,263,265,081

CASH AND CASH EQUIVALENTS AT END OF YEAR . . . . P=2,850,312,456 P=2,688,988,568 P=2,021,097,635

Supplemental Information for Non-cash Investing and Financing Activities:

In the normal course of business, the Company enters into non-cash transactions such as exchange or

purchase on account of real estate and other assets, transfers property from Land for Future Development

Costs to Investment Property as the property goes through its various stages of development. These non-cash

activities are not reflected in the cash flows statements (see Notes 9, 11 and 12).


F-7


MEGAWORLD CORPORATION AND SUBSIDIARIESNOTES TO FINANCIAL STATEMENTSDECEMBER 31, 2005, 2004 AND 2003(Amounts In Philippine Pesos)

1. CORPORATE INFORMATION

Megaworld Corporation (the ‘‘Company’’ or ‘‘parent company’’) holds interests in the followingsubsidiaries and associates:

Subsidiaries/AssociatesExplanatory

Notes

Percentage of Ownership

2005 2004 2003

Subsidiaries:Megaworld Land, Inc. (MLI) . . . . . . . . . . . 100% 100% 100%Prestige Hotels and Resorts, Inc. (PHRI) . . . . (a) 100% 100% 100%Mactan Oceanview Properties and Holdings, Inc.

(MOPHI) . . . . . . . . . . . . . . . . . . . . . . 100% 100% 100%Megaworld Cayman Islands, Inc. (MCII) . . . . 100% 100% 100%Richmonde Hotel Group International (RHGI) 100% 100% 100%Eastwood CyberOne Corporation (ECOC) . . . 100% 100% 100%Forbes Town Properties and Holdings, Inc.

(FTPHI) . . . . . . . . . . . . . . . . . . . . . . . 100% 100% 100%Megaworld Newport Property Holdings, Inc.

(MNPHI) . . . . . . . . . . . . . . . . . . . . . . (b) 100% — —Megaworld-Daewoo Corporation (MDC) . . . . 60% 60% 60%Megaworld Central Properties, Inc. (MCPI) . . (c) 60% — —Megaworld Globus Asia, Inc. (MGAI) . . . . . . 50% 50% 50%

Associates:Empire East Land Holdings, Inc. (EELHI) . . . 45.22% 43% 43%Fairmont Holdings, Inc.. . . . . . . . . . . . . . . 35.29% 36.32% 36.32%Palm Tree Holdings and Development

Corporation (PTHDC) . . . . . . . . . . . . . . (c) 40% — —

(a) Wholly owned subsidiary of MLI

(b) Subsidiary acquired in 2005

(c) Subsidiary incorporated in 2005, not yet in commercial operations as of December 31, 2005

Except for MCII and RHGI, the subsidiaries and associates were incorporated in the Philippinesand operate within the country. MCII was incorporated and operates in the Cayman Islands. RHGIwas incorporated and operates in the British Virgin Islands.

The Company and its subsidiaries (the ‘‘Group’’), except for MCPI and PTHDC which are not yetin commercial operations as of December 31, 2005, are presently engaged in the real estatebusiness, hotel operations and marketing services.

The registered office of the Company is located at 28th Floor, The World Centre Building, Sen. GilPuyat Avenue, Makati City.

The financial statements of the Group for the year ended December 31, 2005 (including thecomparatives for the years ended December 31, 2004 and 2003) were authorized for issue by theCompany’s Board of Directors on February 27, 2006.

F-8

CONSOLIDATED FINANCIAL STATEMENTSFOR THE YEARS ENDED DECEMBER 2003, 2004 AND 2005

2. TRANSITIONING TO PHILIPPINE FINANCIAL REPORTING STANDARDS

The Accounting Standards Council (ASC), the accounting standards-setting body in the Philippines,started a program in 1997 to move fully to the International Accounting Standards (IASs) issuedby the then International Accounting Standards Committee (IASC). In April 2001, IASC wassucceeded by the International Accounting Standards Board (IASB) which since then has issuedrevised IASs and new International Financial Reporting Standards (IFRSs).

To correspond better with the issuances of the IASB, the ASC renamed the Standards it issues asPhilippine Financial Reporting Standards or PFRSs (previously referred to as Statements ofFinancial Accounting Standards or SFASs). PFRSs consist of:

a. PFRSs (corresponding to IFRSs);

b. PASs (corresponding to IASs); and,

c. Interpretations (corresponding to IFRICs and SICs).

In compliance with the pronouncements of ASC and the regulations of Securities and ExchangeCommission (SEC), the Group has adopted all the relevant PFRS for the first time in its financialstatements for the year ended December 31, 2005 with January 1, 2003 as its transition date. Thetransition from previous generally accepted accounting principles (GAAP) in the Philippines toPFRS has been made in accordance with PFRS 1, First-time Adoption of Philippine FinancialReporting Standards.

Due to the transition to PFRS, the 2004 and 2003 comparatives contained in these financialstatements differ from those previously presented in the financial statements for the years endedDecember 31, 2004 and 2003.

The following reconciliations and explanatory notes thereto describe the effects of the transitionon the Group’s opening PFRS balance sheet as of January 1, 2003 and for the years endedDecember 31, 2003 and 2004. All explanations should be read in conjunction with the PFRSaccounting policies of the Group as disclosed in Note 3.

No adjustments to capital stock, additional paid-in capital and treasury stock were necessary in theopening PFRS balance sheet as of January 1, 2003 and the comparatives prepared for the yearended December 31, 2003 and 2004.

F-9


2.1 Reconciliations

a. The reconciliation of the Group’s equity reported under previous Philippine GAAP to itsequity under PFRS are summarized as follows:

Notes Dec. 31 2004 Dec. 31 2003 Jan. 1 2003

Accumulated Translationadjustments under previousGAAP . . . . . . . . . . . . . . . . . P= 57,494,655 P= 91,752,859 P= —

Restatement of foreign subsidiaries’financial statements . . . . . . . . . 2.11 (26,540,291) (15,660) —

Accumulated Translationadjustments under PFRS . . . . . 30,954,364 91,737,199 —

Retained Earnings under previousGAAP . . . . . . . . . . . . . . . . . 5,875,583,534 5,115,862,622 4,541,647,844

Reversal of goodwill amortization . 2.3 25,988,101 — —Remeasurement of trade receivables

at amortized cost . . . . . . . . . . 2.4 (237,736,238) (314,607,193) (246,740,237)Remeasurement of security deposits

at amortized cost . . . . . . . . . . 2.5 31,485,381 29,053,760 13,336,569Fair value adjustment of marketable

securities . . . . . . . . . . . . . . . 2.6 24,404,458 (170,661,355) (12,736,849)Recognition of transitional liability

and defined benefit expense . . . . 2.7 (28,396,613) (22,472,830) (17,030,252)Depreciation of investment property

by component . . . . . . . . . . . . 2.8 (62,008,613) (42,162,539) (23,466,719)Recognition of equity share in net

loss of an associate . . . . . . . . . 2.12 (367,926,581) (133,047,814) (38,036,985)Deferred tax adjustments . . . . . . . 2.10 28,974,469 20,712,759 12,959,031

Total adjustment to retainedearnings . . . . . . . . . . . . . . . . (585,215,636) (633,185,212) (311,715,442)

Retained Earnings under PFRS . . 5,290,367,898 4,482,677,410 4,229,932,402

Total adjustments to Equity . . . . . (611,755,927) (633,200,872) (311,715,442)Equity under previous GAAP . . . 16,677,027,129 15,951,564,420 15,606,394,018

Equity under PFRS . . . . . . . . . . P=16,065,271,202 P=15,318,363,548 P=15,294,678,576

F-10


b. The remeasurements of balance sheet items at the opening PFRS balance sheets as of January1, 2003 and comparative financial years as of December 31, 2003 and 2004 are summarizedas follows:

Notes Previous GAAPEffects ofTransition PFRS

January 1, 2003Changes in assets:

Investments in marketablesecurities . . . . . . . . . . . . . 2.2, 2.6 P= — P= (12,736,849) P= (12,736,849)

Non-current trade and otherreceivables . . . . . . . . . . . . 2.2, 2.4 2,321,990,967 (246,740,238) 2,075,250,729

Investments in and advances toassociates and other relatedparties . . . . . . . . . . . . . . . 2.2, 2.12 7,584,487,598 (38,036,984) 7,546,450,614

Investment property . . . . . . . . 2.2, 2.8 904,934,259 (171,181,023) 733,753,236Property, plant and equipments . 2.2 493,210,842 147,714,304 640,925,146

11,304,623,666 (320,980,790) 10,983,642,876

Changes in liabilities:Trade and other payables. . . . . 2.7 998,617,822 17,030,252 1,015,648,074Deferred tax liabilities — net . . 2.10 1,073,818,428 (12,959,031) 1,060,859,397Other non-current liabilities . . . 2.5 761,226,512 (13,336,569) 747,889,943

2,833,662,762 (9,265,348) 2,824,397,414

Total adjustment to equity . . P= 8,470,960,904 P=(311,715,442) P=8,159,245,462

December 31, 2003Changes in assets:

Current trade and otherreceivables . . . . . . . . . . . . 2.2 P= 2,376,779,921 P= 332,049,747 P= 2,708,829,668

Investments in marketablesecurities . . . . . . . . . . . . . 2.2, 2.6 2,880,987,696 1,872,247,048 4,753,234,744


Investments in and advances toassociates and other relatedparties . . . . . . . . . . . . . . . 2.2, 2.12 7,261,955,425 (138,417,815) 7,123,537,610

Investment property . . . . . . . . 2.2, 2.8 4,343,177,352 (388,409,762) 3,954,767,590Property and equipment — net . 442,596,083 346,247,223 788,843,306Other non-current assets . . . . . 1,247,502,454 5,370,000 1,252,872,454

Total change in assets . . . . . . P=21,235,001,633 P=2,020,488,675 P=23,255,490,308

Changes in liabilities:Trade and other payables. . . . . 2.7 P=1,229,001,053 P=22,472,830 P=1,251,473,883Other current liabilities . . . . . . 2.2 377,883,064 332,049,747 709,932,811Non-current portion of long-

term liabilities . . . . . . . . . . 2.2 2,467,947,660 2,042,931,433 4,510,879,093Deferred tax liabilities — net . . 2.10 1,327,438,905 (20,720,128) 1,306,718,777Other non-current liabilities . . . 2.2, 2.5 689,023,772 276,955,665 965,979,437

6,091,294,454 2,653,689,547 8,744,984,001

Translation adjustment . . . . . . . 91,752,859 (15,660) 91,737,199

Total adjustment to equity . . . P=15,051,954,320 P= (633,185,212) P=14,418,769,108

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December 31, 2004Changes in assets:

Current trade and otherReceivables . . . . . . . . . . . . 2.2 P= 1,940,191,753 P= 441,906,505 P= 2,382,098,258

Investments in marketablesecurities . . . . . . . . . . . . . 2.2, 2.6 2,110,047,610 2,028,306,051 4,138,353,661


Investment in and advances toassociates and other relatedparties . . . . . . . . . . . . . . . 2.2, 2.12 7,681,005,211 (367,926,582) 7,313,078,629

Investment property . . . . . . . . 2.2, 2.8 4,481,487,466 (361,873,511) 4,119,613,955Property and equipment — net . 2.2 396,753,952 299,864,898 696,618,850Other non-current assets . . . . . 2.3 2,112,278,439 25,988,101 2,138,266,540

20,531,616,532 (1,875,132,489) 22,406,749,021

Changes in liabilities:Trade and other payables. . . . . 2.7 1,458,171,082 28,396,612 1,486,567,694Other current liabilities . . . . . . 2.10 342,394,700 441,906,505 784,301,205Non-current portion of long-

term liabilities . . . . . . . . . . 2.2 2,232,290,178 2,042,931,433 4,275,221,611Deferred tax liabilities . . . . . . 2.7 1,314,838,910 (41,464,017) 1,273,374,893Other non-current liabilities . . . 2.2, 2.5 724,944,057 15,117,883 740,061,940

6,072,638,927 2,486,888,416 8,559,527,343

Translation Adjustments . . . . . 57,494,655 (26,540,291) 30,954,364

Total adjustment to equity . . P=14,401,482,950 P= (585,215,636) P=13,816,267,314

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c. Profit and loss reported under previous GAAP for the year ended December 31, 2003 andDecember 31, 2004 is reconciled to profit and loss under PFRS as follows:


December 31, 2003 :Realized gross profit on real

estate sales . . . . . . . . . . . . . 2.4 P= 761,054,530 P=(182,305,620) P= 578,748,910Other revenues . . . . . . . . . . . . . 2.4 755,889,853 187,088,562 942,978,415

1,516,944,383 4,782,942 1,521,727,325Operating expenses . . . . . . . . . . 2.7 (703,945,641) (24,138,397) (728,084,038)

Operating profit . . . . . . . . . . . 812,998,742 (19,355,455) 793,643,287

Other income (charges)Finance cost . . . . . . . . . . . . . . . 2.5 (77,468,854) (4,200,125) (81,668,979)Equity share in net earnings . . . . . 2.12 17,692,356 (95,010,831) (77,318,475)Cumulative effect of change in

accounting policy . . . . . . . . . . (17,080,062) — (17,080,062)Fair value gains (losses). . . . . . . . 2.6 — (210,657,087) (210,657,087)

(76,856,560) (309,868,043) (386,724,603)

Income before tax and minorityinterest . . . . . . . . . . . . . . . . 736,142,182 (329,223,498) 406,918,684

Tax expense . . . . . . . . . . . . . . . 2.10 (154,693,131) 7,753,728 (146,939,403)

Net earnings applicable to minorityinterest. . . . . . . . . . . . . . . . . (7,234,274) — (7,234,274)

Net Income . . . . . . . . . . . . . . . P=574,214,777 P=(321,469,770) P= 252,745,007

December 31, 2004 :Realized gross profit on real

estate sales . . . . . . . . . . . . . 2.4 P=759,072,979 P=(173,917,114) P=585,155,865Other revenues . . . . . . . . . . . . . 2.4 1,346,470,550 447,964,905 1,794,435,455

2,105,543,529 274,047,791 2,379,591,320Operating expenses . . . . . . . . . . 2.7, 2.8 (872,985,005) 218,244 (872,766,761)

Operating profit . . . . . . . . . . . 1,232,558,524 274,266,035 1,506,824,559

Other income (charges)Finance cost . . . . . . . . . . . . . . 2.5 (205,591,795) 320,598 (205,271,197)Equity share in net earnings

(losses) . . . . . . . . . . . . . . . . 2.12 27,740,334 (234,878,767) (207,138,433)Fair value losses . . . . . . . . . . . 2.2, 2.6 (111,857,690) — (111,857,690)

(289,709,151) (234,558,169) (524,267,320)

Income before tax and minorityinterest . . . . . . . . . . . . . . . . 942,849,373 39,707,866 982,557,239

Tax expense . . . . . . . . . . . . . . . 2.10 (188,605,181) 8,261,710 (180,343,471)

Net losses applicable to minorityinterest. . . . . . . . . . . . . . . . . 5,476,720 — 5,476,720

Net Income . . . . . . . . . . . . . . . P= 759,720,912 P= 47,969,576 P= 807,690,488

2.2 Revised Structure of Balance Sheet and Statement of Income

The Company has modified its previous balance sheet and income statement structure on transitionto PFRS. The main changes are summarized as follows:

a. Under the previous GAAP, trade receivables sold with recourse are derecognized from thecarrying amount of trade receivables account. These sold trade receivables did not qualify forderecognition criteria under PFRS since related risks and rewards were not transferred fromthe Group to the buyer of the receivables. Accordingly, the amounts of trade receivables soldas of January 1, 2003 and December 31, 2003 and 2004 amounting to P=658,198,970,

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P=638,059,173 and P=488,509,770, respectively, were reversed and the related liability wasrecognized for the proceeds received by the Group. This resulted in the increase in the Tradeand Other receivables and Other current and non-current liabilities accounts in the openingPFRS balance sheet as of January 1, 2003 and the comparatives as of December 31, 2003 and2004;

b. Investments in bonds and other debt instruments previously presented separately in the face ofthe balance sheets and classified as long-term are now presented as part of MarketableSecurities, which represent financial assets at fair value through profit and loss.

c. Investments in preferred stock classified as part of the Investments in and Advances toAssociates and Other Related Parties under previous GAAP are now included in MarketableSecurities which represent financial assets at fair value through profit and loss.

d. Investments in shares of stocks wherein the Company has no significant influence measured atcost previously included in Investments in and advances to associates and other related partiesunder previous GAAP are now presented as part of Other Non-current Assets classified asavailable for sale financial assets.

e. Real estate held for lease under the previous GAAP is now presented as Investment Propertyand Property and Equipment.

In addition, some balance sheet items that previously were classified as non-current in accordancewith previous GAAP requirements are now presented as current under PFRS.

Individual notes to the balance sheet items and the accounting policies provide further details onthese changes.

2.3 Cessation of Amortization of Goodwill

Under PFRS, Goodwill, representing the excess of acquisition costs over the equity in underlyingnet assets of the subsidiaries or associates at date of acquisition, is not amortized. Instead,Goodwill is tested for impairment annually or more frequently if events or changes incircumstances indicate that it might be impaired.

As required by PFRS 1, Goodwill presented as part of the Other non-current asset recognizedunder previous GAAP has been tested for impairment at the date of transition to PFRS. Based onthe test, no impairment loss was required to be recognized. Also, in accordance with PFRS 1, theunamortized amount as of January 1, 2004 has been considered as the carrying amount ofGoodwill in the opening PFRS balance sheet.

For the year ended December 31, 2004, Goodwill was not amortized, in accordance with PFRS. Asa result, the amortization amounting to P=25,988,101 for 2004 recorded under the previous GAAPwere reversed in the reconciliation from previous GAAP figures to PFRS figures with correspondingreduction in Other operating expenses in that year.

2.4 Remeasurement of Trade Receivables at Amortized Cost

Trade receivables, presented as part of Trade and Other Receivables amount in the Balance Sheets,are non interest-bearing receivables. These were measured under the previous GAAP at realizablevalue. Under PFRS, the trade receivables are considered as loans and receivable financial assetsmeasured at amortized cost using the effective interest rate method. The discount rate used of 10%was determined by reference to the market interest rate at the time of the recognition of sale. Thisresulted in the recognition of day-one loss amounting to P=428,853,325 and interest income ofP=182,113,088 in retained earnings as of January 1, 2003. The related day-one loss, adjusted to theRealized Gross Profit from Real Estate Sales, and interest income, included in Other Revenues,recognized in 2003 and 2004 amounted to P=182,305,620 and P=114,438,664, and P=173,917,114and P=250,788,069, respectively. This resulted in a net decrease of P=67,866,956 and net increase ofP=76,870,955 in net income for 2003 and 2004, respectively. The net adjustments resulted in thedecrease of the beginning retained earnings as of December 31, 2003 and 2004 by P=314,607,193and P=237,736,238, respectively.

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2.5 Measurement of Security Deposits at Amortized Cost

Security deposits, presented as part of Other non-current liabilities, arising from the lease ofinvestment property were measured under the previous GAAP at the amount of consideration givenby the lessees which amounted to P=39.75 million as of January 1, 2003 and P=97.25 million as ofDecember 31, 2003. Under PFRS, refundable guarantee deposits are considered as loans andreceivable financial assets measured at amortized cost using the effective interest rate method. Thediscount rate used of 10% was determined by reference to the market interest rate of comparablefinancial instrument at the date of the inception of the lease. This resulted in the recognition ofday-one gain amounting to P=14,149,158 and interest expense of P=812,589 in retained earnings asof January 1, 2003. The Group recognized an additional day-one gain pertaining to lease contractsacquired in 2003 and 2004 amounting to P=19,917,317 and P=10,265,067, respectively. Interestexpense amounting to P=4,200,125 and P=7,833,445 for 2003 and 2004 is recognized representingthe cost of money paid in advance by the Group’s tenants. The net adjustment to the beginningretained earnings as of December 31, 2003 and 2004 amounted to P=29,053,760 and P=31,485,381,respectively.

2.6 Fair Value Measurement of Financial Assets

Certain investments in bonds classified as Investments in bonds and other debt securities under theprevious GAAP were measured at cost less amortization of discounts and premiums. Under PFRS,these financial assets, which quoted market price, were classified as financial asset at fair valuethrough profit and loss, and presented as Marketable Securities in a separate line item in thebalance sheets. This resulted to the recognition of fair value loss of P=12,736,849 as of January 1,2003, adjusted to retained earnings as of that date. The Group also recognized fair value loss ofP=157,924,506 in 2003 and fair value gain of P=195,065,813 in 2004. The fair value gain or loss isrecorded in the 2003 and 2004 statements of income of the Group.

2.7 Full Recognition of Defined Benefit Obligation

Under PFRS, the Company’s obligation under post-employment defined benefit plan should beactuarially determined using the projected unit credit method. The adoption of the related newstandard resulted in the recognition of transitional liability amounting to P=17,030,252 as ofJanuary 1, 2003. This transitional liability was fully recognized retrospectively in the Company’sopening PFRS balance sheet. This also resulted in the recognition of additional defined benefitexpense in 2003 and 2004 amounting to P=5,442,578 and P=5,923,783, respectively. The totaladjustments to retained earnings as of December 31, 2003 and December 31, 2004 amounted toP=22,472,830 and P=28,396,613, respectively.

2.8 Depreciation of Buildings by Component

Significant component parts of the buildings of the Group, such as elevators, that have useful livessignificantly different from the useful life of the building are identified as separate components andare depreciated separately. Under previous GAAP, this requirement is not clearly set out. Theadoption of this new standard resulted in the recognition of additional depreciation expenseamounting to P=23,466,719 as of January 1, 2003, adjusted as a reduction to the retained earningsof that date. The additional depreciation expense recognized in 2003 and 2004 amounted toP=18,695,820 and P=19,846,074, respectively which resulted to decrease in consolidated net incomefor that years. The resulting decrease in retained earnings as of December 31, 2003 and 2004amounted to P=42,162,539 and P=62,008,613, respectively.

2.9 Classification and Measurement of Investment Property

Under the previous GAAP, the Group’s investment property previously classified as real propertiesheld for lease was measured using the cost model. Under PFRS, investment property should bemeasured using the cost model or fair value model. The Group elected to measure its investmentproperty using the cost model. When the cost model is used, an additional disclosure shall be madeon the assets’ fair market value as of the comparative balance sheets dates. The Group uses thediscounted cash flow valuation model in determining the assets’ fair market value. Projectedannual cash inflow less the projected annual cash outflow specifically attributed to the asset isdiscounted using the cost of capital of the Group.

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2.10 Deferred Tax Adjustments

The deferred tax expense recognized by the Company which relates to the temporary differencesarising from PFRS adjustments amounted to P=12,959,031 in January 31, 2003, P=20,712,759 inDecember 31, 2003, and P=28,974,469 in December 31, 2004.

2.11 Accumulated Translation Adjustments

This represents translation adjustments resulting from the conversion of MCII and RHGI’s foreign currency

denominated financial statements into the Group’s presentation currency using the closing rate at balance

sheet date following the provision of PFRS. Restatement of foreign subsidiaries under PFRS resulted to a

decrease in Accumulated translation adjustment of P=15,660 and P=26,540,291 as of December 31, 2003 and

December 31, 2004, respectively.

2.12 Recognition of Equity Share in Net Loss of an Associate

During the year, the Company has gained significant influence in an associate previously accountedfor at cost. As such, adjustments were made to take-up the Company’s share in net losses of theassociate in 2003 and 2004 amounting to P=133,047,814 and P=367,926,581, respectively.

3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The significant accounting policies that have been used in the preparation of these consolidatedfinancial statements are summarized below. The policies have been consistently applied to all yearspresented, unless otherwise stated.

3.1 Basis of Preparation

The consolidated financial statements of Megaworld Corporation and subsidiaries have beenprepared in accordance with generally accepted accounting principles in the Philippines as set forthin PFRSs.

The financial statements have been prepared on the historical cost basis, except for the revaluationof certain financial assets. The measurement bases are more fully described in the accountingpolicies below.

Accounting estimates and assumptions are used in preparing the financial statements. Althoughthese estimates are based on management’s best knowledge of current events and actions, actualresults may ultimately differ from those estimates.

The consolidated financial statements are presented in Philippine pesos, the Group’s functionalcurrency, and all values represent absolute amounts except when otherwise indicated.

3.2 Impact of New and Revised Accounting Standards Effective Subsequent to 2005

There are new and revised accounting standards, amendments and interpretations to existingstandards that have been published by IASB and adopted by the ASC which are mandatory foraccounting periods beginning on or after January 1, 2006. Of the new ASC pronouncements, thefollowing standards are relevant to the Group, which the Group has not opted to adopt early:

2006

PAS 19 (Amendment): . . . . . . . . . . . . Employee BenefitsPAS 39 (Amendment): . . . . . . . . . . . . The Fair Value Option

2007

PAS 1 (Amendment): . . . . . . . . . . . . Presentation of Financial Statements

PFRS 7 : . . . . . . . . . . . . . . . . . . . . Financial Instruments: Disclosures

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The Group will apply the relevant new accounting standards in 2006 and 2007 in accordance withtheir transitional provisions. It is currently evaluating the impact of those standards on itsconsolidated financial statements and has initially determined that the following new standardsmay have significant effects on the financial statements for 2006, as well as for prior and futureperiods:

. PAS 19 (Amended), Employee Benefits. This amendment introduces the option of analternative recognition approach for actuarial gains and losses. It imposes additionalrecognition requirements for multi-employer plans where insufficient information isavailable to apply defined benefit accounting. It also adds new disclosure requirements. Asthe Group does not intend to change the accounting policy adopted for recognition ofactuarial gains and losses and does not participate in any multi-employer plans, adoption ofthis amendment will only impact the format and extent of disclosures presented in theaccounts. The Group will apply this amendment for annual periods beginning January 1,2006.

. PAS 39 (Amended), The Fair Value Option. This amendment changes the definition offinancial instruments classified at fair value through profit or loss and restricts the ability todesignate financial instruments as part of this category. The Group believes that thisamendment will not have a significant impact on the classification of financial instruments, asthe Group would be able to comply with the amended criteria for the designation of financialinstruments at fair value through profit and loss. The Group will apply this amendment forannual periods beginning January 1, 2006.

. PFRS 7, Financial Instruments: Disclosures and complementary amendment to PAS 1. PFRS 7introduces new disclosures to improve the information about financial instruments. It requiresthe disclosure of qualitative and quantitative information about exposure to risks arising fromfinancial instruments, including specified minimum disclosures about credit risk, liquidity riskand market risk, including sensitivity analysis to market risk. It replaces PAS 30, Disclosuresin the Financial Statements of Banks and Similar Financial Institutions, and disclosurerequirements in PAS 32, Financial Instruments: Disclosure and Presentation. It is applicable toall entities that report under PFRS. The amendment to PAS 1 introduces disclosures about thelevel of an entity’s capital and how it manages capital. The Group has assessed the impact ofPFRS 7 and the amendment to PAS 1 and concluded that the main additional disclosures willbe the sensitivity analysis to market risk and the capital disclosures required by theamendment of PAS 1. The Group will apply PFRS 7 and the amendment to PAS 1 for annualperiods beginning January 1, 2007.

As for the other new accounting standards, the Group has initially assessed that they will notresult in significant changes to the amounts or disclosures in its financial statements.

3.3 Consolidation, Investment in Associates and Interest in Joint Venture

The consolidated financial statements comprise the financial statements of the Company and itssubsidiaries as of December 31, 2005, 2004 and 2003 and for the three years in the period endedDecember 31, 2005. The financial statements of subsidiaries are prepared for the same reportingyear as the parent company, using consistent accounting policies. Adjustments are made to bringinto line any dissimilar accounting policies that may exist.

The Company accounts for its investments in subsidiaries and associates, and minority interest asfollows:

. Investments in Subsidiaries. Subsidiaries are all entities over which the Group has the powerto control the financial and operating policies. The Company obtains and exercises controlthrough voting rights.

In addition, acquired subsidiaries are subject to application of the purchase method. Thisinvolves the revaluation at fair value of all identifiable assets and liabilities, includingcontingent liabilities of the subsidiary, at the acquisition date, regardless of whether or notthey were recorded in the financial statements of the subsidiary prior to acquisition. On

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initial recognition, the assets and liabilities of the subsidiary are included in the consolidatedbalance sheet at their revalued amounts, which are also used as the bases for subsequentmeasurement in accordance with the Group accounting policies. Goodwill represents theexcess of acquisition cost over the fair value of the Group’s share of the identifiable net assetsof the acquired subsidiary at the date of acquisition.

All intercompany balances and transactions with subsidiaries, including unrealized profitsarising from intra-group transactions, have been eliminated in full. Unrealized losses areeliminated unless costs cannot be recovered.

. Transactions with Minority Interests. The Group applies a policy of treating transactions withminority interests as transactions with parties external to the Group. Disposals to minorityinterests result in gains and losses for the Group that are recorded in the statement of income.Purchases from minority interests result in goodwill, being the difference between anyconsideration paid and the relevant share acquired of the carrying value of net assets of thesubsidiary.

. Investments in Associates. Associates are those entities over which the Group is able to exertsignificant influence but which are neither subsidiaries nor interests in a joint venture.Investments in associates are initially recognized at cost and subsequently accounted for usingthe equity method.

Acquired investments in associates are also subject to purchase accounting. However, anygoodwill or fair value adjustment attributable to the share in the associate is included in theamount recognized as investment in associates. All subsequent changes to the share of interestin the equity of the associate are recognized in the Group’s carrying amount of theinvestment. Changes resulting from the profit or loss generated by the associate are chargedagainst Equity in Net Earnings (Losses) in Group’s consolidated statements of income andtherefore affect net results of the Group. These changes include subsequent depreciation,amortization or impairment of the fair value adjustments of assets and liabilities. Items thathave been directly recognized in the associate’s equity, for example, resulting from theassociate’s accounting for available-for-sale financial assets, are recognized in consolidatedequity of the Group. Any non-income related equity movements of the associate that arise, forexample, from the distribution of dividends or other transactions with the associate’sshareholders, are charged against the proceeds received or granted. No effect on the Group’snet result or equity is recognized in the course of these transactions. However, when theGroup’s share of losses in an associate equals or exceeds its interest in the associate, includingany other unsecured receivables, the Group does not recognize further losses, unless it hasincurred obligations or made payments on behalf of the associate.

Unrealized gains on transactions between the Group and its associates are eliminated to theextent of the Group’s interest in the associates. Unrealized losses are also eliminated unlessthe transaction provides evidence of an impairment of the asset transferred. Accountingpolicies of associates have been changed where necessary to ensure consistency with thepolicies adopted by the Group.

. Interests in Joint Ventures. For interests in jointly controlled operations, the Grouprecognized in its financial statements the assets that it controls and the liabilities, theexpenses that it incurs and its share in the income from the sale of goods of goods or servicesby the joint venture. No adjustment or other consolidation procedures are required since theassets, liabilities, income and expenses of the joint venture are recognized in the financialstatements of the venturer.

3.4 Cash and Cash Equivalents

Cash and cash equivalents are defined as cash on hand, demand deposits and short-term, highlyliquid investments readily convertible to known amounts of cash and which are subject toinsignificant risk of changes in value.

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3.5 Financial Assets

Financial assets include cash and financial instruments. Financial assets, other than hedginginstruments, are classified into the following categories: marketable securities which representfinancial assets at fair value through profit or loss, loans and receivables, held-to-maturityinvestments and available-for-sale financial assets. Financial assets are assigned to the differentcategories by management on initial recognition, depending on the purpose for which theinvestments were acquired. The designation of financial assets is re-evaluated at every reportingdate at which date a choice of classification or accounting treatment is available, subject tocompliance with specific provisions of applicable accounting standards.

All financial assets are recognized on their trade date. All financial assets that are not classified asat fair value through profit or loss are initially recognized at fair value, plus transaction costs.

The Group’s financial instruments are currently lodged in the following classifications:

. Financial Assets at Fair Value Through Profit or Loss/Marketable Securities. This categoryincludes financial assets that are either classified as held for trading or are designated by theentity to be carried at fair value through profit or loss upon initial recognition. A financialasset is classified in this category if acquired principally for the purpose of selling in the shortterm or if so designated by management. Derivatives are also categorized as ‘held for trading’unless such are designated as hedges. Assets in this category are classified as current assets ifthey are either held for trading or are expected to be realized within 12 months of the balancesheet date.

Subsequent to initial recognition, the financial assets included in this category are measuredat fair value with changes in fair value recognized in profit or loss. Financial assets originallydesignated as financial assets at fair value through profit or loss may not subsequently bereclassified into another category, hence, it must remain in such category until it is disposedof or derecognized.

. Loans and Receivables. Loans and receivables are non-derivative financial assets with fixed ordeterminable payments that are not quoted in an active market. These arise when the Groupprovides money, goods or services directly to a debtor with no intention of trading thereceivables. These are included in current assets, except for maturities greater than 12 monthsafter the balance sheet date which are classified as non-current assets.

Loans and receivables are subsequently measured at amortized cost using the effective interestmethod, less impairment losses. Any change in their value is recognized in profit or loss.

Loans and receivables are presented as Trade and Other Receivables in the balance sheets.

Trade receivables, which generally have one to five-year terms, are non-interest bearinginstruments recognized initially at fair value and subsequently stated at amortized cost usingthe effective interest method, less accumulated impairment losses, if any. An impairment lossis provided when there is objective evidence that the Group will not be able to collect allamounts due according to the original terms of receivables. Significant financial difficulties ofthe debtor, probability that the debtor will enter bankruptcy or financial reorganization, anddefault or delinquency in payments are considered indicators that the trade receivable isimpaired. The amount of the impairment loss is measured as the difference between theasset’s carrying amount and the present value of estimated future cash flows, discounted atthe effective interest rate. The amount of the impairment loss is recognized in the profit orloss. This receivable represents buyers’ unpaid balances arising from sale of real estateproperties. The title to the real estate properties remains with the Group until such time thatthe Group fully collects its receivable from the buyers.

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. Available-for-sale Financial Assets. This include non-derivative financial assets that are eitherdesignated to this category or do not qualify for inclusion in any of the other categories offinancial assets. They are included in non-current assets under the Other Non-current Assetsaccount in the balance sheets unless management intends to dispose of the investment within12 months of the balance sheet date.

All financial assets within this category are subsequently measured at fair value, unlessotherwise disclosed, with changes in value recognized in equity, net of any effects arisingfrom income taxes. Gains and losses arising from securities classified as available-for-sale arerecognized in the statement of income when they are sold or when the investment is impaired.

In the case of impairment, any loss previously recognized in equity is transferred to theincome statement. Losses recognized in the statement of income on equity investments are notreversed through the statement of income. Losses recognized in prior period incomestatements resulting from the impairment of debt instruments are reversed through thestatement of income.

For investments that are actively traded in organized financial markets, fair value is determined byreference to stock exchange quoted market bid prices at the close of business on the balance sheetdate. For investments where there is no quoted market price, fair value is determined by referenceto the current market value of another instrument which is substantially the same or is calculatedbased on the expected cash flows of the underlying net asset base of the investment.

Non-compounding interest and other cash flows resulting from holding financial assets arerecognized in profit or loss when received, regardless of how the related carrying amount offinancial assets is measured.

Derecognition of financial assets occurs when the rights to receive cash flows from the financialinstruments expire or are transferred and substantially all of the risks and rewards of ownershiphave been transferred.

3.6 Real Estate Transactions

Acquisition costs of raw land intended for future development, including other costs and expensesincurred to effect the transfer of title of the property to the Group, are charged to the Land forFuture Development account. These costs are reclassified to the Property Development Costsaccount when the development of the property starts. Related property development costs are thenaccumulated in this account. Borrowing costs on certain loans incurred during the development ofthe real estate properties are also capitalized by the Group as part of the Property DevelopmentCosts account.

When portions of the property being developed are sold prior to the completion of thedevelopment, the accumulated costs of the project are transferred to the Residential andCondominium Units for Sale account. Cost of real estate property sold before completion of thedevelopment is determined based on the actual costs incurred to date plus estimated costs tocomplete the development of the property. The estimated expenditures for the development of soldreal estate property, as determined by the project engineers, are charged to the cost of residentialand condominium units sold with a corresponding credit to the Reserve for Property Developmentaccount.

Residential and condominium units are valued at the lower of cost and net realizable value. Netrealizable value is the estimated selling price in the ordinary course of business, less estimatedcosts of completion and the estimated costs necessary to make the sale. Considering the Group’spricing policy for real estate units for sale, cost is considerably lower than the net realizable value.

The Group recognizes the effect of revisions in the total project cost estimates in the year in whichthese changes become known. Any impairment loss from a real estate project is charged tooperations during the period in which the loss is determined.

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3.7 Investment Property

Properties held for lease under operating lease agreements, which comprise mainly of land,buildings and condominium units, are classified as Investment Property and carried at cost net ofaccumulated depreciation and any impairment in value (see Note 3.15). Depreciation is computedusing the straight-line method over the estimated useful lives of the assets ranging from 5 to 25years.

3.8 Property and Equipment

Buildings and improvements, a hotel building, hotel improvements, office furniture, fixtures andother equipment and transportation equipment are carried at acquisition or construction cost lesssubsequent depreciation and any impairment losses.

The cost of an asset comprises its purchase price and directly attributable costs of bringing theasset to working condition for its intended use. Expenditures for additions, major improvementsand renewals are capitalized; expenditures for repairs and maintenance are charged to income asincurred. When assets are sold, retired or otherwise disposed of, their cost and related accumulateddepreciation and amortization and impairment losses are removed from the accounts and anyresulting gain or loss is reflected in income for the period.

Depreciation is computed on the straight-line basis over the estimated useful lives of the assets.Amortization of leasehold and office improvements is recognized over the estimated useful life ofimprovements or the term of the lease, whichever is shorter. The depreciation and amortizationperiods for property and equipment, based on the above policies, are as follows:

Condominium units . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10–25 yearsOffice and land improvements. . . . . . . . . . . . . . . . . . . . . . . . . . . . 5–20 yearsOffice furniture, fixtures and equipment . . . . . . . . . . . . . . . . . . . . . 3–5 yearsTransportation equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 years

An asset’s carrying amount is written down immediately to its recoverable amount if the asset’scarrying amount is greater than its estimated recoverable amount (see Note 3.15).

The residual values and estimated useful lives of property and equipment are reviewed, andadjusted if appropriate, at each balance sheet date.

An item of property and equipment is derecognized upon disposal or when no future economicbenefits are expected to arise from the continued use of the asset. Any gain or loss arising onderecognition of the asset (calculated as the difference between the net disposal proceeds and thecarrying amount of the item) is included in the statement of income in the year the item isderecognized.

3.9 Goodwill

Goodwill represents the excess of the cost of an acquisition over the fair value of the Group’sshare of the net identifiable assets of the acquired subsidiary or associate at the date of acquisition.Goodwill on acquisitions of subsidiaries is presented under Other Non-current Assets. Goodwill onacquisitions of associates is included in the carrying value of investments in associates. Goodwill istested annually for impairment. Gains and losses on the disposal of an entity include the carryingamount of goodwill relating to the entity sold.

Goodwill is allocated to cash-generating units for the purpose of impairment testing. Theallocation is made to those cash-generating units or groups of cash-generating units that areexpected to benefit from the business combination in which the goodwill arises.

3.10 Financial Liabilities

Financial liabilities include bank loans and trade and other payables.

Financial liabilities are recognized when the Group becomes a party to the contractual agreementsof the instrument. All interest related charges are recognized as an expense in the statements ofincome under Finance Costs.

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Bank loans are raised for support of long-term funding of operations. These are recognized atproceeds received, net of direct issue costs. Finance charges, including premiums payable onsettlement or redemption and direct issue costs, are charged to profit or loss on an accrual basisusing the effective interest method and are added to the carrying amount of the instrument to theextent that these are not settled in the period in which they arise.

Trade payables are recognized initially at their nominal value and subsequently measured atamortized cost less settlement payments.

Dividend distributions to shareholders are recognized as financial liabilities when the dividends areapproved by the shareholders.

Financial liabilities are derecognized from the balance sheet only when the obligations areextinguished either through discharge, cancellation or expiration.

3.11 Provisions

Provisions are recognized when present obligations will probably lead to an outflow of economicresources and they can be estimated reliably even if the timing or amount of the outflow may stillbe uncertain. A present obligation arises from the presence of a legal or constructive commitmentthat has resulted from past events, for example, legal disputes or onerous contracts.

Provisions are measured at the estimated expenditure required to settle the present obligation,based on the most reliable evidence available at the balance sheet date, including the risks anduncertainties associated with the present obligation. Any reimbursement expected to be received inthe course of settlement of the present obligation is recognized, if virtually certain as a separateasset, not exceeding the amount of the related provision. Where there are a number of similarobligations, the likelihood that an outflow will be required in settlement is determined byconsidering the class of obligations as a whole. In addition, long-term provisions are discounted totheir present values, where time value of money is material.

Provisions are reviewed at each balance sheet date and adjusted to reflect the current best estimate.

In those cases where the possible outflow of economic resource as a result of present obligations isconsidered improbable or remote, or the amount to be provided for cannot be measured reliably,no liability is recognized in the financial statements.

Probable inflows of economic benefits that do not yet meet the recognition criteria of an asset areconsidered contingent assets, hence, are not recognized in the financial statements.

3.12 Revenue and Cost Recognition

Revenue is recognized to the extent that it is probable that the economic benefits will flow to theGroup and the revenue can be reliably measured. The following specific recognition criteria mustalso be met before revenue is recognized:

. Sale of residential and condominium units — For financial reporting purposes, revenues fromtransactions covering sales of residential and condominium units are recognized under thepercentage of completion method. Under this method, realization of gross profit is recognizedby reference to the stage of development of the properties, i.e., revenue is recognized in theperiod in which the work is performed. Advances made to contractors and suppliers aretreated as actual cost incurred in determining the stage of development of the properties. Fortax reporting purposes, a modified basis of computing the taxable income for the year basedon collections from sales is used by the Company, MGAI, ECOC and EELHI, while MDCreport revenues based on the percentage of completion method.

. Sale of undeveloped land — Revenues on sales of undeveloped land are recognized using thefull accrual method. Under the full accrual method, revenue is recognized when the risks andrewards of ownership of the undeveloped land has passed to the buyer and the amount ofrevenue can be measured reliably.

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. Rental and hotel income — Revenue is recognized when the performance of contractuallyagreed tasks has been substantially rendered.

. Interest — Revenue is recognized as the interest accrues (taking into account the effectiveyield on the asset).

. Dividends — Revenue is recorded when the stockholders’ right to receive the payment isestablished.

Costs of residential and condominium units sold before completion of the projects include theacquisition cost of the land, development costs incurred to date and estimated costs to completethe project, determined based on firm construction contracts and on estimates made by the projectengineers (see Note 3.6).

3.13 Leases

. Group as lessee — Leases which do not transfer to the Group substantially all the risks andbenefits of ownership of the asset are classified as operating leases. Operating lease paymentsare recognized as expense in the statement of income on a straight-line basis over the leaseterm. Associated costs, such as maintenance and insurance, are expensed as incurred.

. Group as lessor — Leases which do not transfer substantially all the risks and benefits ofownership of the asset are classified as operating leases. Operating lease payments arerecognized as income in the statement of income on a straight-line basis over the lease term.

3.14 Functional Currency and Foreign Currency Transactions

. Functional and Presentation CurrencyExcept for MCII and RHGI which use the U.S. dollars as its functional currency, the accountingrecords of the Group are maintained in Philippine pesos. Items included in the financial statementsof the Group are measured using the currency of the primary economic environment in which theentity operates (the ‘‘functional currency’’). The financial statements are presented in Philippinepesos.

. Transaction and BalancesForeign currency transactions during the year are translated into the functional currency atexchange rates which approximate those prevailing on transaction dates.

Foreign exchange gains and losses resulting from the settlement of such transactions and from thetranslation at year-end exchange rates of monetary assets and liabilities denominated in foreigncurrencies are recognized in the consolidated statement of income.

. Translation of Financial Statements of Foreign SubsidiariesThe results and financial position of all the group entities (none of which has the currency of ahyperinflationary economy) that have a functional currency different from the presentationcurrency are translated into the presentation currency as follows:

. Assets and liabilities for each balance sheet presented are translated at the closing rate atthe date of that balance sheet;

. Income and expenses for each income statement are translated at average exchange rates(unless this average is not a reasonable approximation of the cumulative effect of therates prevailing on the transaction dates, in which case income and expenses aretranslated at the dates of the transactions); and,

. All resulting exchange differences are recognized as a separate component of equity.

On consolidation, exchange differences arising from the translation of the net investment inforeign entities are taken to equity. When a foreign operation is sold, such exchange differencesare recognized in the consolidated statement of income as part of the gain or loss on sale.

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Goodwill arising on the acquisition of a foreign entity are treated as assets of the foreign entityand translated at the closing rate.

3.15 Impairment of Non-financial Assets

The Group’s investment in associates, goodwill, investment property, land for future development,and property and equipment are subject to impairment testing. For the purposes of assessingimpairment, assets are grouped at the lowest levels for which there are separately identifiable cashflows (cash-generating units). As a result, some assets are tested individually for impairment andsome are tested at cash-generating unit level. Goodwill is allocated to those cash-generating unitsthat are expected to benefit from synergies of the related business combination and represent thelowest level within the Group at which management controls the related cash flows. Note 3.9provides further details on initial recognition of goodwill.

Individual assets or cash-generating units that include goodwill and other intangible assets with anindefinite useful life or those not yet available for use are tested for impairment at least annually.All other individual assets or cash-generating units are tested for impairment whenever events orchanges in circumstances indicate that the carrying amount may not be recoverable.

An impairment loss is recognized for the amount by which the asset’s or cash-generating unit’scarrying amount exceeds its recoverable amount. The recoverable amount is the higher of fairvalue, reflecting market conditions less costs to sell and value in use, based on an internaldiscounted cash flow evaluation. Impairment losses recognized for cash-generating units, to whichgoodwill has been allocated, are credited initially to the carrying amount of goodwill. Anyremaining impairment loss is charged pro rata to the other assets in the cash generating unit. Withthe exception of goodwill, all assets are subsequently reassessed for indications that an impairmentloss previously recognized may no longer exist.

3.16 Employee Benefits

. Retirement Benefit ObligationsPension benefits are provided to employees through a defined benefit plan.

A defined benefit plan is a pension plan that defines an amount of pension benefit that anemployee will receive on retirement, usually dependent on one or more factors such as age, yearsof service and salary. The legal obligation for any benefits from this kind of pension plan remainswith the Group, even if plan assets for funding the defined benefit plan have been acquired. Planassets may include assets specifically designated to a long-term benefit fund, as well as qualifyinginsurance policies. The Group’s defined benefit pension plan covers all regular full-time employees.The pension plan is tax-qualified, noncontributory and administered by a trustee.

The liability recognized in the balance sheet for defined benefit pension plans is the present valueof the defined benefit obligation (DBO) at the balance sheet date less the fair value of plan assets,together with adjustments for unrecognized actuarial gains or losses and past service costs. TheDBO is calculated annually by independent actuaries using the projected unit credit method. Thepresent value of the DBO is determined by discounting the estimated future cash outflows usinginterest rates of high quality corporate bonds that are denominated in the currency in which thebenefits will be paid and that have terms to maturity approximating to the terms of the relatedpension liability.

Actuarial gains and losses are not recognized as an expense unless the total unrecognized gain orloss exceeds 10% of the greater of the obligation and related plan assets. The amount exceedingthis 10% corridor is charged or credited to profit or loss over the employees’ expected averageremaining working lives. Actuarial gains and losses within the 10% corridor is disclosedseparately. Past-service costs are recognized immediately in the income statement, unless thechanges to the pension plan are conditional on the employees remaining in service for a specifiedperiod of time (the vesting period). In this case, the past service costs are amortized on a straight-line basis over the vesting period.

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. Compensated AbsencesCompensated absences are recognized for the number of paid leave days (including holidayentitlement) remaining at the balance sheet date. They are included in Trade and Other Payables atthe undiscounted amount that the Group expects to pay as a result of the unused entitlement.

3.17 Borrowing Costs

For financial reporting purposes, borrowing costs are recognized as expenses in the period inwhich they are incurred, except to the extent that they are capitalized. Borrowing costs that areattributable to the acquisition, construction or production of a qualifying asset (i.e., an asset thattakes a substantial period of time to get ready for its intended use or sale) are capitalized as partof cost of such asset. The capitalization of borrowing costs commences when expenditures for theasset are being incurred, borrowing costs are being incurred and activities that are necessary toprepare the asset for its intended use or sale are in progress. Capitalization ceases whensubstantially all such activities are complete. For income tax purposes, interest and otherborrowing costs are charged to expense when incurred.

3.18 Income Taxes

Current income tax assets or liabilities comprise those claims from, or obligations to, fiscalauthorities relating to the current or prior reporting period, that are uncollected or unpaid at thebalance sheet date. They are calculated according to the tax rates and tax laws applicable to thefiscal periods to which they relate, based on the taxable profit for the year. All changes to currenttax assets or liabilities are recognized as a component of tax expense in the consolidated statementof income.

Deferred tax is provided, using the balance sheet liability method on temporary differences at thebalance sheet date between the tax base of assets and liabilities and their carrying amounts forfinancial reporting purposes.

Under the balance sheet liability method, with certain exceptions, deferred tax liabilities arerecognized for all taxable temporary differences and deferred tax assets are recognized for alldeductible temporary differences and the carryforward of unused tax losses and unused tax creditsto the extent that it is probable that taxable profit will be available against which the deferredincome tax asset to be utilized.

The carrying amount of deferred tax assets is reviewed at each balance sheet date and reduced tothe extent that it is probable that sufficient taxable profit will be available to allow all or part ofthe deferred income tax asset to be utilized.

Deferred tax assets and liabilities are measured at the tax rates that are expected to apply to theperiod when the asset is realized or the liability is settled, based on tax rates and tax laws thathave been enacted or substantively enacted at the balance sheet date.

Most changes in deferred tax assets or liabilities are recognized as a component of tax expense inthe consolidated statement of income. Only changes in deferred tax assets or liabilities that relateto a change in value of assets or liabilities that is charged directly to equity are charged or crediteddirectly to equity.

3.19 Equity

Capital stock is determined using the nominal value of shares that have been issued.

Additional paid-in capital includes any premiums received on the initial issuing of capital stock.Any transaction costs associated with the issuing of shares are deducted from additional paid-incapital, net of any related income tax benefits.

Treasury shares are stated at the cost of re-acquiring such shares.

Retained earnings include all current and prior period results as disclosed in the income statement.

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4. CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS

Estimates and judgments are continually evaluated and are based on historical experience asadjusted for current market conditions and other factors.

4.1 Critical accounting estimates and assumptions

The Group makes estimates and assumptions concerning the future. The resulting accountingestimates will, by definition, seldom equal the related actual results. The estimates andassumptions that have a significant risk of causing a material adjustment to the carryingamounts of assets and liabilities within the next financial year are discussed below:

(a) Revenue recognitionThe Group uses the percentage-of-completion method in accounting for its realized gross profit onsales of real estate. The use of the percentage-of-completion method requires the Group to estimatethe portion completed to date as a proportion of the total budgeted cost of the project. Were theproportion of the percentage of completed projects to differ by 10% from management’s estimates,the amount of revenue recognized in 2005 would be increased by about P=94,484,932 if theproportion of the completed projects were increased, or would be decreased by P=104,715,025 ifthe proportion of the completed projects were decreased.

(b) Principal assumptions for management’s estimation of fair valueInvestment property is measured using the cost model. The fair value disclosed in the financialstatements is determined by the Group using discounted cash flows valuation technique since theinformation on current or recent prices of assumptions underlying the discounted cash flowapproach of investment property is not available. The Group uses assumptions that are mainlybased on market conditions existing at each balance sheet date.

The principal assumptions underlying management’s estimation of fair value are those related to:the receipt of contractual rentals; expected future market rentals; void periods; maintenancerequirements; and appropriate discount rates. These valuations are regularly compared to actual tomarket yield data, and actual transactions by the Group and those reported by the market.

The expected future market rentals are determined in the basis of current market rentals forsimilar properties in the same location and condition.

4.2 Critical judgments in applying the Group’s accounting policies

(a) Impairment of available-for sale financial assetsThe Group follows the guidance of PAS 39, Financial Instruments: Recognition and Measurement,on determining when an investment is other-than-temporarily impaired. This determinationrequires significant judgment. In making this judgment, the Group evaluates, among otherfactors, the duration and extent to which the fair value of an investment is less than its cost; andthe financial health of and near-term business outlook for the investee, including factors such asindustry and sector performance, changes in technology and operational and financing cash flow.

(b) Distinction between investment properties and owner-occupied propertiesThe Group determines whether a property qualifies as investment property. In making itsjudgment, the Group considers whether the property generates cash flows largely independently ofthe other assets held by an entity. Owner-occupied properties generate cash flows that areattributable not only to property but also to other assets used in the production or supply process.

5. SEGMENT INFORMATION

The Group’s operating businesses are organized and managed separately according to the nature ofproducts and services provided, with each segment representing a strategic business unit that offersdifferent products and serves different markets. The Group is engaged in the development ofresidential and office developments including urban centers integrating office, residential andcommercial components. The Real Estate Sales segment pertains to the development and sale ofresidential and office developments. The Rental segment includes leasing of office and commercial

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spaces. The Hotel segment relates to the management of hotel business operations. The Corporateand Others segment includes marketing services, general and corporate income and expense items.Segment accounting policies are the same as the policies described in Note 3. The Group generallyaccounts for intersegment sales and transfers as if the sales or transfers were to third parties atcurrent market prices.

The following tables present revenue and profit information regarding industry segments for theyears ended December 31, 2005, 2004 and 2003 and certain asset and liability informationregarding segments at December 31, 2005, 2004 and 2003.

2005

Real Estate Sales Rental Hotel IncomeCorporate and

Others Elimination Consolidated

TOTAL REVENUESSales to external

customers. . . . . . . . . P=3,151,214,282 P= 547,822,254 P=214,301,100 P= 572,768,955 P= — P= 4,486,106,591Intersegment sales . . . . . — 60,000,000 — — (60,000,000) —

Total revenues . . . . . . . P=3,151,214,282 P= 607,822,254 P=214,301,100 P= 572,768,955 P= (60,000,000) P= 4,486,106,591

RESULTSSegment results . . . . . . . P= 627,324,724 P= 385,291,553 P= (25,015,279) P= 515,197,375 P= 22,392,385 P= 1,525,190,758

Unallocated expenses . . . (143,755,859)

Income from operations. . 1,381,434,899Finance costs . . . . . . . . (280,835,810) (280,835,810)Interest income . . . . . . . 406,010,444 406,010,444Dividend income . . . . . . 28,791,600 28,791,600Equity in net loss of an

associate . . . . . . . . . (64,638,874) (64,638,874)Fair value losses — net . . (44,785,138) (44,785,138)

Income before tax . . . . . 1,425,977,121Tax expense . . . . . . . . . (258,993,163)

Income before minorityinterest . . . . . . . . . . 1,166,983,958

Minority interest — sharein net income . . . . . . (13,121,607)

Net income . . . . . . . . . P= 1,153,862,351

ASSETS AND LIABILITIESSegment assets . . . . . . . . P=17,057,619,766 P=4,829,388,985 P=198,742,215 P=3,930,578,725 P= —P=26,016,329,691Investment in associate

accounted under theequity method . . . . . . . 5,734,232,701 5,734,232,701

Unallocated assets . . . . . . 1,032,329,421 1,032,329,421

Total assets . . . . . . . . . . P=32,782,891,813

Segment liabilities . . . . . . P=13,933,868,833 P= 229,951,083 P= — P=744,370,260 P= — P=14,908,190,176

OTHER SEGMENTINFORMATION

Project and capitalexpenditures . . . . . . . . P= 2,661,088,580 P= 841,646,195 P= 4,375,784 P=119,688,713 P= — P= 3,626,799,272

Depreciation andamortization . . . . . . . . 6,537,324 112,059,735 45,100,601 26,482,154 — 190,179,814

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2004




customers. . . . . . . . . P= 2,396,727,787 P=454,653,065 P=185,145,120 P= 665,618,048 P= — P= 3,702,144,020Intersegment sales . . . . . — 54,047,619 — — (54,047,619) —

Total revenues . . . . . . . P= 2,396,727,787 P=508,700,684 P=185,145,120 P= 665,618,048 P= (54,047,619) P= 3,702,144,020

RESULTSSegment results . . . . . . . P= 211,146,204 P=361,661,185 P=(11,991,630) P= 595,587,476 P= (99,248) P= 1,156,303,987


Income from operations. . 1,098,860,257Finance costs . . . . . . . . (205,271,197) (205,271,197)Interest income . . . . . . . 379,988,652 379,988,652Dividend income . . . . . . 27,975,650 27,975,650Equity in net income of

an associate . . . . . . . (207,138,433) (207,138,433)Fair value losses — net . . (111,857,690)

Income before tax . . . . . 982,557,239Tax expense . . . . . . . . . (180,343,471)

Income before minorityinterest . . . . . . . . . . 802,213,768

Minority interest — sharein net losses . . . . . . . 5,476,720

Net income . . . . . . . . . P= 807,690,488

ASSETS AND LIABILITIESSegment assets . . . . . . . . P=17,642,602,782 P=4,181,324,640 P=222,247,530 P=4,136,297,589 P= — P=26,182,472,541Investment in associate


Unallocated assets . . . . . . 710,954,767 710,954,767

Total assets . . . . . . . . . . P=32,518,466,799

Segment liabilities . . . . . . P=13,358,976,575 P= 251,215,099 P= — P=2,137,963,944 P= — P=15,748,155,618


Project and capitalexpenditures . . . . . . . . P= 2,170,715,046 P= 382,473,955 P=896,600 P=8,566,422 P= — P= 2,562,652,023


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2003




customers. . . . . . . . . P= 2,371,799,323 P=241,430,939 P=157,378,131 P= 31,742,899 P= — P=2,802,351,292Intersegment sales . . . . . — 31,904,762 — — (31,904,762) —

Total revenues . . . . . . . P= 2,371,799,323 P=273,335,701 P=157,378,131 P= 31,742,899 P= (31,904,762) P=2,802,351,292

RESULTSSegment results . . . . . . . P= 314,718,672 P=152,614,460 P=(12,257,059) P= (22,016,199) P= 25,379,149 P= 458,439,023


Income from operations. . 201,141,256Finance costs . . . . . . . . (81,668,979) (81,668,979)Interest income . . . . . . . 372,632,757 372,632,757Dividend income . . . . . . 32,590,274 32,590,274Equity in net income of

an associate . . . . . . . (77,318,475) (77,318,475)Fair value losses — net . . (210,657,087)Cumulative effect of

change in accountingpolicy . . . . . . . . . . . (17,080,062)

Income before tax . . . . . 406,918,684Tax expense . . . . . . . . . (146,939,403)

Income before minorityinterest . . . . . . . . . . 259,979,281

Minority interest — sharein net earnings . . . . . (7,234,274)

Net income . . . . . . . . . P=252,745,007

ASSETS AND LIABILITIESSegment assets . . . . . . . . P=14,702,995,594 P=3,918,876,051 P=240,831,435 P=6,019,104,274 P= — P=24,881,807,354Investment in associate


Unallocated assets . . . . . . 853,908,973 853,908,973

Total assets . . . . . . . . . . P=31,652,162,970

Segment liabilities . . . . . . P=13,283,246,608 P= 151,827,700 P= — P=2,188,208,415 P= — P=15,623,282,723


Project and capitalexpenditures . . . . . . . . P= 2,997,103,325 P= 503,005,226 P=5,681,203 P=13,487,417 P= — P=3,519,277,171


6. CASH AND CASH EQUIVALENTS

Cash and cash equivalents include the following components as of December 31 :

2005 2004 2003

Cash on hand and in banks . . . . . . . . . . P= 750,157,939 P= 287,598,997 P= 578,127,086Short-term placements . . . . . . . . . . . . . . 2,100,154,517 2,401,389,571 1,442,970,549

P=2,850,312,456 P=2,688,988,568 P=2,021,097,635

Cash accounts with the banks generally earn interest at rates based on daily bank deposit rates.Short-term placements are made for varying periods of between 15 to 30 days and earn effectiveinterest ranging from 4.5% to 8.8% in 2005, 4.2% to 9.4% in 2004, and 3.3% to 8.5% in 2003.

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7. TRADE AND OTHER RECEIVABLES

This account is composed of the following:

Notes 2005 2004 2003

Current:Trade receivables 19 P=1,804,791,025 P=1,627,561,106 P=2,267,010,642

Allowance for impairment (2,609,450) (4,430,832) (14,095,829)

1,802,181,575 1,623,130,274 2,252,914,813Advances to contractors and suppliers 19 12,922,360 150,171,577 139,330,221

Others 936,164,277 608,796,407 316,584,634

P=2,751,268,212 P=2,382,098,258 P=2,708,829,668

Non-current:Trade receivables P=1,864,533,221 P=1,613,823,412 P=2,668,327,247

Others 4,401,648 4,895,716 5,077,689

P=1,868,934,869 P=1,618,719,128 P=2,673,404,936

Certain receivables from trade customers are covered by postdated checks. The installment periodof sales contracts ranges from one to five years. Trade receivables are non — interest bearing andare remeasured at amortized cost using the effective interest rate of 10%. Interest incomerecognized amounted to P=232,187,418 in 2005, P=250,788,069 in 2004 and P=114,438,664 in 2003presented as part of Other revenues in the consolidated statement of income.

All trade receivables are subject to credit risk exposure. However, the Group does not identifyspecific concentrations of credit risk with regard to trade and other receivables, as the amountsrecognized resemble a large number of receivables from various customers.

The fair value of other short-term trade and other receivables is not individually determined as thecarrying amount is a reasonable approximation of fair value.

The Company partially finances its real estate projects and other business undertakings throughdiscounting of its trade receivables on a with recourse basis with certain local banks. The proceedsof trade receivable discounted are presented as part of other non-current liabilities. Total financecost attributable to this transaction amounted to P=30,257,518, P=43,287,047 and P=25,597,133 in2005, 2004 and 2003, respectively, presented as part of Finance cost in the consolidated statementof income.

In 2004, certain subsidiary credited P=106 million of its advances to contractors (net of unpaidbillings) against the estimated amount of unbilled work done by the said contractors.Subsequently, Advances to Contractors shown under Trade and Other Receivables wasreclassified to Residential and Condominium Units for Sale for the same amount.

8. MARKETABLE SECURITIES

This account represents financial assets at fair value through profit and loss. As of December 31,2005, 2004 and 2003, investments consist of investments in bonds and other debt instruments, andmarketable equity securities which are presented at fair values as of those dates. Investments inbonds and other debt instruments earn interest based on coupon rate ranging from 4.50% to9.38%. Interest income from bonds amounted to US$5,001,702, US$6,361,534 and US$4,599,227in 2005, 2004 and 2003, respectively. The outstanding interest receivable amounted toUS$1,072,703 in 2005, US$1,173,964 in 2004 and US$1,520,338 in 2003.

All amounts presented have been determined directly by reference to published prices quoted in anactive market.

The changes in fair value of Marketable securities are presented as Fair Value Gains or Losses inthe statements of income.

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9. ADVANCES TO LANDOWNERS AND JOINT VENTURES

The Group grants cash advances to a number of landowners and joint ventures under agreementsthey entered into with landowners covering the development of certain parcels of land. Under theterms of the agreements, the Group, in addition to providing specified portion of total projectdevelopment costs, also commits to advance mutually agreed-upon amounts to the landowners tobe used for pre-development expenses such as relocation of existing occupants. Repayment of theseadvances shall be made upon completion of the project development either in the form of thedeveloped lots corresponding to the owner’s share in saleable lots or in the form of cash to bederived from sales of the landowner’s share in the saleable lots and residential and condominiumunits.

The commitment for cash advances under the joint venture agreements has been fully granted bythe Group. The net commitment for construction expenditures amounted to:

2005 2004 2003

Total commitment . . . . . . . . . . . P= 2,354,090,993 P=1,694,891,460 P=1,349,237,134Expenditures incurred . . . . . . . . . (1,023,168,456) (466,162,760) (454,340,751)

Net Commitment . . . . . . . . . . . . P= 1,330,922,537 P=1,228,728,700 P= 894,896,383

The Group enters into numerous joint venture agreements for the joint development of variousprojects. Total amount advances made by the Group for these projects are recorded under PropertyDevelopment Costs account in the balance sheets.

In 2004, the Group signed a joint venture agreement with Bases Conversion DevelopmentAuthority for the development of Villamor Gateway Center.

In 2003, the Company entered into a Memorandum of Understanding (MOU) with Alliance GlobalGroup, Inc., (AGGI) for the joint development of the Lawton Parkway Project (the ‘‘Project’’).Total amount advanced by the Company for the Project is recorded as part of PropertyDevelopment Costs account in the balance sheets.

F-31


10. INVESTMENTS IN AND ADVANCES TO ASSOCIATES AND OTHER RELATED PARTIES

The details of investments in and advances to associates and other related parties are as follows:

% Interest Held 2005 2004 2003

Investments in associates —at equity:Acquisition costs:

EELHI . . . . . . . . . . . 45.22% P=3,670,389,344 P=3,619,057,260 P=3,619,057,260FHI . . . . . . . . . . . . . 35.29% 875,445,000 812,945,000 812,945,000PTHDC. . . . . . . . . . . 40.00% 60,000,000 — —

4,605,834,344 4,432,002,260 4,432,002,260

Share in additional paid-incapital of an associate . 602,583,719 602,583,179 602,583,179

Equity in net earnings:Balance at beginning of

year . . . . . . . . . . . 1,188,854,440 1,387,225,627 1,451,406,699Effects of transition to

PFRS . . . . . . . . . . . 4,182,791 12,950,037 26,087,440

As restated. . . . . . . . . 1,193,037,231 1,400,175,664 1,477,494,139Equity in net losses . . . (64,638,874) (207,138,433) (77,318,475)

Balance at end of year . 1,128,398,357 1,193,037,231 1,400,175,664

6,336,816,420 6,227,622,670 6,434,761,103

Advances to Associates:EELHI . . . . . . . . . . . . 768,849,618 373,660,164 350,625,567FHI . . . . . . . . . . . . . . 6,866,489 2,768,065 —

775,716,107 376,428,229 350,625,567Advances to other related

parties . . . . . . . . . . . 489,645,892 709,027,730 338,150,940

1,265,361,999 1,085,455,959 688,776,507

Total Investments in andAdvances to associatesand other related parties— net . . . . . . . . . . . . . P=7,602,178,419 P=7,313,078,629 P=7,123,537,610

All of the above associates are incorporated in the Philippines. The associates except for PTHDCare listed in the stock exchange. The total fair value of investment in the listed associatesamounted to P=2,034,369,941, P=1,713,850,893 and P=1,543,889,795 in 2005, 2004 and 2003,respectively.

The Group subscribed an additional 250 million shares of common stock of FHI at par value or atotal subscription price of P=250 million. As of December 31, 2005, the Group has paid P=62.5million recorded as subscription deposit included as part of the acquisition cost of associatesaccount above.

On August 15, 2005, PTHDC was incorporated. The parent company made an investment in theshares of the investee amounting to P=60,000,000, which represents ownership interest in theinvestee of 40%.

The balance of the equity in net earnings of P=1,128,398,357, P=1,193,037,231 and P=1,387,037,231as of December 31, 2005, 2004 and 2003, respectively, which is lodged in the Group’s retainedearnings as of those dates is not available for declaration as dividends.

F-32


The Group’s share in the assets and liabilities of the associates are as follows:

Assets Liabilities Revenues

2005 :EELHI . . . . . . . . . . . . . . . . . P=10,872,946,638 P=4,494,670,633 P=672,982,374FHI . . . . . . . . . . . . . . . . . . . 1,034,123,412 751,160,605 53,611,646PTHD. . . . . . . . . . . . . . . . . . 38,224,836 — —

P=11,945,294,886 P=5,245,831,238 P=726,594,020

2004 :EELHI . . . . . . . . . . . . . . . . . P= 9,996,433,757 P=3,281,765,872 P=877,419,432FHI . . . . . . . . . . . . . . . . . . . 1,147,816,160 787,014,348 46,862,793

P=11,144,249,917 P=4,068,780,220 P=924,282,225

2003 :EELHI . . . . . . . . . . . . . . . . . P= 9,787,846,161 P=3,158,844,460 P=341,561,125FHI . . . . . . . . . . . . . . . . . . . 1,141,397,533 555,695,312 44,731,756

P=10,929,243,694 P=3,714,539,772 P=386,292,881

The Group’s equity in losses, net of earnings, of associates amounted to P=64.6 million, P=207.1million and P=77.3 million in 2005, 2004 and 2003, respectively.

F-33


11. INVESTMENT PROPERTY

A reconciliation of the carrying amounts at the beginning and end of the periods and the grosscarrying amounts and the accumulated depreciation of Investment property are shown below:

Land BuildingCondominium

Units Total

2005Balance at January 1, 2005,

net of Accumulateddepreciation. . . . . . . . . . P=2,997,103,325 P= 383,339,092 P=739,171,538 P=4,119,613,955

Additions. . . . . . . . . . . . . — 813,452,455 28,193,740 841,646,195Depreciation charge for the

year . . . . . . . . . . . . . . — (65,701,514) (36,937,981) (102,639,495)

Balance at December 31,2005, net of accumulateddepreciation. . . . . . . . . . P=2,997,103,325 P=1,131,090,033 P=730,427,297 P=4,858,620,655

December 31, 2005Cost . . . . . . . . . . . . . . P=2,997,103,325 P=1,264,142,103 P=811,037,166 P=5,072,282,594Accumulated Depreciation — (133,052,070) (80,609,869) (213,661,939)

Net Carrying Amount . . . . . P=2,997,103,325 P=1,131,090,033 P=730,427,297 P=4,858,620,655


net of accumulateddepreciation. . . . . . . . . . P=2,997,103,325 P= 395,228,955 P=562,435,310 P=3,954,767,590

Additions. . . . . . . . . . . . . — 176,251,630 206,222,325 382,473,955Disposal . . . . . . . . . . . . . — (138,769,038) — (138,769,038)Depreciation charge for the

year . . . . . . . . . . . . . . — (49,372,455) (29,486,097) (78,858,552)

Balance at December 31,2004, net of accumulateddepreciation. . . . . . . . . . P=2,997,103,325 P= 383,339,092 P=739,171,538 P=4,119,613,955

December 31, 2004Cost . . . . . . . . . . . . . . P=2,997,103,325 P= 450,689,648 P=782,843,426 P=4,230,636,399Accumulated depreciation — (67,350,556) (43,671,888) (111,022,444)

Net Carrying Amount . . . . . P=2,997,103,325 P= 383,339,092 P=739,171,538 P=4,119,613,955


net of accumulateddepreciation . . . . . . . . . P= — P= 133.438,058 P=368,511,379 P= 501,949,437

Additions. . . . . . . . . . . . . — — 95,720,433 95,720,433Reclassifications . . . . . . . . 2,997,103,325 299,399,500 107,885,289 3,404,388,114Depreciation charge for the

year . . . . . . . . . . . . . . — (37,608,603) (9,681,791) (47,290,394)

Balance at December 31,2003, net of accumulateddepreciation. . . . . . . . . . P=2,997,103,325 P= 395,228,955 P=562,435,310 P=3,954,767,590

Balance atDecember 31, 2003Cost . . . . . . . . . . . . . . P=2,997,103,325 P= 439,195,155 P=576,621,101 P=4,012,919,581Accumulated depreciation — (43,966,200) (14,185,791) (58,151,991)

Net carrying amount . . . . . P=2,997,103,325 P= 395,228,955 P=562,435,310 P=3,954,767,590

F-34


In 2005, a certain subsidiary reclassified from Residential and Condominium Units for Sale toInvestment property with carrying value of P=911 million.

In 2003, the Company and a certain subsidiary reclassified Land Held for Future Developmentwith carrying values of P=272.0 million and P=2.7 billion, respectively, to Investment property sincesuch properties will be leased out to other parties.

Certain properties held for lease with net book value of P=2 billion as of December 31, 2005 and2004, were used as collateral for ECOC’s interest-bearing loan (see Note 14).

The fair market values of these properties are P=10.27 billion, P=9.91 billion and P=9.57 billion in2005, 2004 and 2003, respectively.

12. PROPERTY AND EQUIPMENT

A reconciliation of the carrying amounts at the beginning and end of the periods and the grosscarrying amounts and the accumulated depreciation of property and equipment are shown below:

Condominium

Units

OfficeFurniture,

Fixtures and

Equipment

Hotel Buildingand

Improvements

Transportation

Equipment

Land andOffice

Improvements

Construction

in Progress Total

2005

Balance at January 1,

2005, net of

accumulated

depreciation . . . . P= 260,566,748 P= 109,968,779 P= 195,085,513 P= 6,021,802 P=124,976,008 P= — P= 696,618,850

Additions. . . . . . . . 780,806 110,374,462 4,375,784 6,887,024 3,768,379 54,076,027 180,262,482

Disposals . . . . . . . . (1,097,248) (2,478,834) — (232,926) — — (3,809,008)

Depreciation charge

for the year . . . . (29,903,134) (35,694,396) (14,979,755) (2,847,764) (4,115,270) — (87,540,319)

Balance at December

31, 2005, net of

accumulated

depreciation . . . . P= 230,347,172 P= 182,170,011 P= 184,481,542 P= 9,828,136 P=124,629,117 P=54,076,027 P= 785,532,005

December 31, 2005

Cost . . . . . . . . . . . P=407,820,860 P=321,824,737 P=351,152,446 P=29,626,877 P=160,605,614 P=54,076,027 P=1,325,106,561

Accumulated

depreciation . . . . (177,473,688) (139,654,726) (166,670,904) (19,798,741) (35,976,497) — (539,574,556)

Net carrying amount P= 230,347,172 P= 182,170,011 P= 184,481,542 P= 9,828,136 P=124,629,117 P= 54,076,027 P= 785,532,005

2004


2004, net of

accumulated


Additions. . . . . . . . 230,943 4,887,061 896,600 630,000 3,049,361 — 9,693,965

Disposals . . . . . . . . (8,378,798) (2,000) — (69,323) — — (8,450,121)

Depreciation charge

for the year . . . . (31,633,997) (27,055,603) (27,593,354) (2,773,278) (4,412,068) — (93,468,300)

Balance at December

31, 2004, net of

accumulated


December 31, 2004

Cost . . . . . . . . . . . P= 408,137,301 P= 212,558,975 P= 346,776,662 P= 25,605,634 P=156,837,235 P= — P=1,149,915,807

Accumulated

depreciation . . . . (147,570,553) (102,590,196) (151,691,149) (19,583,832) (31,861,227) (—) (453,296,957)

Net carrying amount P= 260,566,748 P= 109,968,779 P= 195,085,513 P= 6,021,802 P=124,976,008 P= — P= 696,618,850

F-35


Condominium

Units

OfficeFurniture,

Fixtures and

Equipment

Hotel Buildingand

Improvements

Transportation

Equipment

Land andOffice

Improvements

Construction

in Progress Total

2003


2003, net of

accumulated

depreciation . . . . P= 327,268,592 P= 145,832,499 P= 255,824,046 P= 8,916,984 P=129,538,911 P= 14,484,408 P= 881,865,440

Additions. . . . . . . . — 9,424,482 5,681,203 2,410,908 1,652,027 — 19,168,620

Disposals . . . . . . . . (2,099,259) (9,492,299) — — — (14,484,408) (26,075,966)

Depreciation charge

for the year . . . . (24,820,733) (13,625,361) (39,722,982) (3,093,489) (4,852,223) — (86,114,788)

Balance at December

31, 2003, net of

accumulated


December 31, 2003

Cost . . . . . . . . . . . P= 422,023,797 P= 207,727,523 P= 345,880,062 P= 27,060,872 P=153,787,875 — P=1,156,480,129

Accumulated

depreciation . . . . (121,675,197) (75,588,202) (124,097,795) (18,826,469) (27,449,160) — (367,636,823)

Net carrying amount P= 300,348,600 P= 132,139,321 P= 221,782,267 P= 8,234,403 P=126,338,715 — P= 788,843,306

13. OTHER NON-CURRENT ASSETS — NET

This account consists of:

2005 2004 2003

Goodwill — net . . . . . . . . . . . . P=264,768,344 P= 264,768,344 P= 264,768,344Guarantee deposits . . . . . . . . . . . 18,594,270 378,091,702 446,160,340Available-for-sale financial assets . . 5,370,000 1,139,104,494 5,370,000Others . . . . . . . . . . . . . . . . . . 372,730,711 356,302,000 536,573,770

P=661,463,325 P=2,138,266,540 P=1,252,872,454

13.1 Available-for-sale financial assets

Equity security investments where the Group held no significant influence are accounted for atcost. The shares of these companies are not listed in the stock exchange and, hence, the fair marketvalue of their shares cannot be determined reliably. In 2004, the Group acquired equity securityinvestments amounting to P=1,133 million which were sold in full in 2005.

In 2004, the parent company held long-term placements of cash in a local bank used as collateralfor the Group’s long-term loan with the same bank (see Note 14).

14. INTEREST-BEARING LOANS AND BORROWINGS

The aggregate balance of this account as of December 31, 2005, 2004 and 2003 amounting to P=3.1billion, P=4.6 billion and P=4.7 billion, respectively, represents the remaining amount payable tocertain landowners relating to the acquisition of real estate properties and the balance of theGroup’s long-term loan from a local bank. The liabilities are payable within a period of three tofive years and are either collateralized by a real estate mortgage on certain Group properties. Thecurrent portion amounted to P=963.6 million, P=314.3 million and P=228.9 million as of December31, 2005, 2004 and 2003, respectively.

In 2003, the Group obtained a long-term loan from a local bank amounting to P=950.0 million. Theloan shall be payable for a term of ten years, inclusive of a three-year grace period on principalpayments. Interest is payable every quarter based on 91-day treasury bill plus certain spread.Collateral for the loan consists of the ROP bonds owned by a subsidiary in 2003 and long-term

F-36


cash placements in 2004 (see Note 13.1). The Group obtained an additional loan amounting toP=347.0 million and P=40.0 million, in 2005 and 2004, respectively from the same local bank subjectto the same terms and conditions.

In 2002, ECOC was granted a long-term loan facility amounting to US$25 million (approximatelyP=1.3 billion) by a foreign financial institution. The proceeds of the loan were used in theconstruction of several information technology buildings at the Eastwood City Cyber Park. Thedrawdown from the loan facility amounting to US$20 million (P=1.06 billion) was made on October15, 2002. The loan is payable in 10 years, inclusive of a two-and-a-half year grace period onprincipal payment. Interest is payable every six months at LIBOR rate plus certain spread.Collaterals for the loan consisted of a first ranking mortgage over ECOC’s certain investmentproperty with a total carrying value of P=2 billion as of December 31, 2005, 2004 and 2003 (seeNote 11), and a full guarantee from the parent company.

ECOC and the parent company are required to comply with certain loan covenants, includingmaintenance of certain financial ratios at the end of every financial year.

Total finance cost attributable to these amounted to P=250,578,293, P=162,304,748 andP=56,071,846 as of 2005, 2004 and 2003, respectively.

15. TRADE AND OTHER PAYABLES

This account consists of:

Note 2005 2004 2003

Trade payables . . . . . . . . . 19 P=1,579,857,979 P=1,047,479,887 P= 954,437,673Accrued expenses . . . . . . . . 68,716,744 59,863,347 81,725,354Others . . . . . . . . . . . . . . 42,710,557 379,224,461 215,310,856

P=1,691,285,280 P=1,486,567,695 P=1,251,473,883

The fair values of trade and other payables have not been disclosed as, due to their short duration,management considers the carrying amounts recognized in the balance sheet to be a reasonableapproximation of their fair values.

16. OTHER REVENUES AND OPERATING EXPENSES

Presented below are the details of these accounts:

2005 2004 2003

Other Revenues:Interest income . . . . . . . . . . . . P= 715,435,491 P= 571,123,393 P=392,663,490Dividend income . . . . . . . . . . . 28,791,600 27,975,650 32,590,274Foreign currency gain — net. . . . 11,636,706 93,692,073 —Miscellaneous . . . . . . . . . . . . . 256,283,404 558,270,863 202,512,916

P=1,012,147,201 P=1,251,061,979 P=627,766,680

Other Operating Expenses:Association dues . . . . . . . . . . . P= 41,111,509 P= 21,268,999 P= 10,679,229Transportation and travel . . . . . 22,269,669 10,466,093 9,569,732Utilities . . . . . . . . . . . . . . . . . 19,224,330 18,669,805 28,031,026Rental. . . . . . . . . . . . . . . . . . 12,078,738 17,955,092 8,446,905Repairs and maintenance . . . . . . 10,659,036 10,474,909 16,419,981Probable losses . . . . . . . . . . . . — 49,039,307 —Miscellaneous . . . . . . . . . . . . . 149,623,200 64,347,793 72,691,803

P= 254,966,482 P= 192,221,998 P=145,838,676

F-37


Put Options

In 2005 and 2004, RHGI entered into option contracts wherein the subsidiary sold put options on securities.

In consideration of these, the subsidiary received premiums which are recognized as part of fair value gains

included in the Other Revenues in 2005 and 2004 statements of income.

17. EMPLOYEE BENEFITS

Expenses recognized for employee benefits are presented below:

2005 2004 2003

Salaries and wages . . . . . . . . . . . P= 77,309,097 P= 71,464,884 P= 71,926,776Retirement — defined benefit plan . 5,989,340 7,313,761 4,461,22113th month and other employee

benefits . . . . . . . . . . . . . . . . 33,561,399 43,466,859 36,605,344

P=116,859,836 P=122,245,504 P=112,993,341

The Group maintains a tax-qualified, noncontributory defined benefit retirement plan that is beingadministered by a trustee covering all regular full-time employees.

The Group obtained an updated actuarial valuation as of January 1, 2003 to ascertain itstransitional liability as of that date in accordance with PAS 19, Employee Benefits. The Group’stransition to PAS 19 is discussed in Note 2. Actuarial valuations are made every two years toupdate the retirement benefit costs and the amount of contributions.

The amounts of retirement benefit obligation presented under Trade and other payables accountrecognized in the balance sheets are determined as follows:

2005 2004 2003

Present value of the obligation . . . P=41,396,695 P=22,900,388 P=27,032,285Fair value of plan assets . . . . . . . (—) (—) (—)

41,396,695 22,900,388 27,032,285Unrecognized actuarial gains. . . . . (1,061,309) 11,445,658 —

Retirement benefit obligation . . . . P=40,335,386 P=34,346,046 P=27,032,285

The amounts of retirement benefits recognized in the statements of income are as follows:

2005 2004 2003

Current service costs . . . . . . . . . P=2,991,365 P=3,980,680 P=1,958,148Interest costs . . . . . . . . . . . . . . 3,313,686 3,333,081 2,503,073Net actuarial losses recognized

during the year . . . . . . . . . . . (315,711) — —

Retirement benefits . . . . . . . . . . P=5,989,340 P=7,313,761 P=4,461,221

The movements in the retirement benefit obligation recognized in the books are as follows:

2005 2004 2003

Balance at beginning of year. . . . . P=34,346,046 P=27,032,285 P=22,571,064Expense recognized . . . . . . . . . . 5,989,340 7,313,761 4,461,221

Balance at end of year . . . . . . . . P=40,335,386 P=34,346,046 P=27,032,285

F-38


For determination of the retirement benefit obligation, the following actuarial assumptions wereused:

2005 2004 2003

Discount rates. . . . . . . . . . . . . . 12% 14% 14%Expected rate of return on plan

assets . . . . . . . . . . . . . . . . . . 0.4% 0.4% 0%Expected rate of salary increases . 10% 10% 8%

18. TAXES

The major components of tax expense for the years ended December 31 are as follows:

18.1 Current and Deferred Taxes

2005 2004 2003

Statements of income:Current tax expense:

Regular corporate income tax(RCIT) — at 35% and 32% P=183,223,585 P=146,395,917 P= 87,676,608

Final tax at 20% and 7.5% . . 22,498,927 26,451,239 14,973,200Minimum Corporate Income

Tax (MCIT) — at 2% . . . . 77,202 — —

205,799,714 172,847,156 102,649,808

Deferred tax expense:Deferred tax relating to

origination and reversal oftemporary difference . . . . . 45,115,743 7,496,315 44,289,595

Deferred tax relating to changein tax rates . . . . . . . . . . . 8,077,706 — —

53,193,449 7,496,315 44,289,595

Tax expense reported in statementsof income . . . . . . . . . . . . . . . P=258,993,163 P=180,343,471 P=146,939,403

Statements of changes in equity:Deferred tax relating to

origination and reversal oftemporary difference . . . . . . . P= 61,400,131 P= 6,051,032 P= —

F-39


The reconciliation of tax on pretax income computed at the applicable statutory rates to taxexpense attributable to continuing operations is as follows:

2005 2004 2003

Tax on pretax incomeRCIT (at 35% and 32%) . . . . . . P= 532,166,222 P= 351,701,270 P=227,811,771Adjustment for income subjected

to lower income tax rates . . . . (43,226,441) (11,581,689) (5,824,531)Tax effects of:

Non-deductible interest expense . . 14,831,189 11,529,648 7,719,908Increase in deductible temporary

differences due to change in taxrate . . . . . . . . . . . . . . . . . . 8,077,706 — —

Unrecognized deferred tax assets . 193,048 — —Equity earnings in investment in

associates . . . . . . . . . . . . . . (142,917,109) (155,782,648) (77,318,475)Non — taxable income . . . . . . . (97,324,626) — —Dividend income . . . . . . . . . . . (9,357,270) (8,952,208) (7,952,365)Benefits from previously

unrecognized deferred taxliabilities . . . . . . . . . . . . . . (2,978,005) (1,853,227) 2,551,538

Nondeductible expenses . . . . . . . (975,000) 2,631,895 12,245,986Net loss carry over . . . . . . . . . (165,711) — —Unrecognized MCIT for the year . — 6,592,190 —Change in valuation allowance . . — 3,913,171 —Rental income under PEZA . . . . — (19,394,570) (6,382,533)Miscellaneous . . . . . . . . . . . . . 669,160 1,539,639 (5,911,896)

Tax expense reported in statementsof income . . . . . . . . . . . . . . . P= 258,993,163 P= 180,343,471 P=146,939,403

F-40


The deferred tax assets and liabilities as of December 31 relate to the following:

Balance Sheets

2005 2004 2003

Deferred tax assets:NOLCO . . . . . . . . . . . . . . . . P= 2,123,480 P= — P= 6,995,190Unamortized preoperating

expenses . . . . . . . . . . . . . . . — 453,165 1,323,214Allowance for doubtful accounts . — 773,262 1,310,666

Total Deferred Tax Assets . . . . . P= 2,123,480 P= 1,226,427 P= 9,629,070

Deferred tax liabilities:Uncollected gross profit . . . . . . . P=1,163,608,509 P=1,189,146,399 P=1,196,769,794Capitalized interest . . . . . . . . . 142,712,911 139,290,585 121,988,032Difference between the tax

reporting base and financialreporting base of leased assets . 25,875,205 22,139,840 5,066,536

Difference between the taxreporting base and financialreporting base of depreciationexpense . . . . . . . . . . . . . . . (18,093,473) 19,842,756 13,492,012

Unrealized foreign currency losses 668,313 (20,671,912) (16,239,971)Amortization of pre-operating

expenses . . . . . . . . . . . . . . . (410,564) (722,937) (1,070,501)Accrued retirement cost . . . . . . . (14,117,385) (9,131,713) (7,220,746)Translation Adjustment . . . . . . . (55,349,099) 6,051,032 26,006,412Net operating loss carry over

(NOLCO) . . . . . . . . . . . . . . (54,004) 1,140,046 (57,739)Provision for probable loss. . . . . — (18,892,578) —Allowance for impairment losses

on receivables . . . . . . . . . . . — (259,922) (3,200,000)Others . . . . . . . . . . . . . . . . . 45,215,840 (54,556,703) (28,815,052)

Net Deferred Tax Liabilities . . . . . P=1,290,056,253 P=1,273,374,893 P=1,306,718,777

Statements of Income Statements of Equity

2005 2004 2003 2005 2004 2003

Deferred tax assets:

NOLCO and Depreciation —

timing difference . . . . . . . P= — P= — P= 5,176,644 P= — P= — P=—

Unamortized preoperatingexpenses. . . . . . . . . . . . . . . 54,730 8,402,643 (1,323,214) — — —

Allowance for impairment losses

on receivables . . . . . . . . . . . — — (54,731) — — —

Total Deferred Tax Assets . . . . . P= 54,730 P= 8,402,643 P= 3,798,699 P= — P= — P=—

Deferred tax liabilities:

Uncollected gross profit . . . . . P= 2,570,258 P= (7,623,395) P=53,471,719 P= — P= — P=—

Unrealized foreign currency

losses . . . . . . . . . . . . . . 21,375,615 (4,431,941) (16,319,472) — — —Amortization of pre-operating

expenses . . . . . . . . . . . . . 312,373 347,564 (521,346) — — —

Capitalized interest . . . . . . . 3,422,327 17,302,553 4,427,411 — — —Accrued retirement cost . . . . . (3,126,650) (2,468,951) (1,910,967) — — —

Depreciation expense . . . . . . (6,942,562) (6,350,744) (5,982,662) — — —

Translation adjustment . . . . . — — — 61,400,131 6,051,032 —

NOLCO . . . . . . . . . . . . . . — 1,197,785 1,316,547 — — —Provision for probable loss . . . — (18,892,578) — — — —

Uncollected rental income . . . 37,557,701 17,073,301 6,009,666 — — —

Allowance for doubtful

accounts . . . . . . . . . . . . . — 2,940,078 — — — —Others . . . . . . . . . . . . . . . (2,030,343) — — — — —

Deferred Tax Expense . . . . . . . P=53,193,449 P= 7,496,315 P=44,289,595 P=61,400,131 P=6,051,032 P=—

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No deferred tax liability has been recognized on the accumulated equity in net earnings ofsubsidiaries. The Group has no liability for tax should the amounts be declared as dividends sincedividend income received from domestic corporation is not subject to income tax.

The details of MCIT paid by certain subsidiaries, which can be applied as deduction from theirrespective future regular income tax payable within three years from the year the MCIT was paid,are shown below:

Subsidiary Year incurred Amount Expiration Year

MGAI . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2004 P= 68,502 2007MLI . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2003 66,854 2006PHRI . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2004

2003794,040782,830

20072006

MOPHI . . . . . . . . . . . . . . . . . . . . . . . . . . . 2003 812 2006

The details of NOLCO incurred by certain subsidiaries, which can be claimed as deduction fromtheir respective future taxable income within three years from the year the loss was incurred, areshown below:

Subsidiary Year incurred Amount Expiration Year

MGAI . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2004 P= 7,197,887 2007MLI . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2003 14,329,787 2006MOPHI . . . . . . . . . . . . . . . . . . . . . . . . . . . 2004

2003408,646

4,234,86420072006

FTPHI . . . . . . . . . . . . . . . . . . . . . . . . . . . 20042003

766,387488,491

20072006

The entities in the Group are subject to the minimum corporate income tax (MCIT) which iscomputed at 2% of gross income, as defined under the tax regulations. No MCIT was reported in2005 as the regular corporate income tax (RCIT) was higher than MCIT in both years. In 2004,certain subsidiaries paid MCIT (see below).

The management of the above subsidiaries believes that the amount of deferred tax assets on thesubsidiaries’ MCIT and NOLCO could not be recovered within the availment period, hence, thedeferred tax assets as of December 31, 2003 were derecognized and no deferred tax assets wererecognized on MCIT and NOLCO that arose in 2004.

18.1 New Tax Regulation

On May 24, 2005, Republic Act No. 9337 (RA 9337), amending certain sections of the NationalInternal Revenue Code of 1997, was signed into law and become effective beginning November 1,2005. The following are the major changes brought about by RA 9337 that are relevant to theGroup:

a. RCIT rate is increased from 32% to 35% starting November 1, 2005 until December 31,2008 and will be reduced to 30% beginning January 1, 2009;

b. 10% VAT rate remains unchanged, with the President of the Philippines having a stand-byauthority effective January 1, 2006 to increase the VAT rate to 12% under certain conditions(the rate was increased to 12% effective February 1, 2006);

c. 10% VAT rate is now be imposed on certain goods and services that were previously zero-rated or subject to percentage tax;

d. Input tax on capital goods shall be claimed on a staggered basis over 60 months or the usefullife of the related assets, whichever is shorter; and,

e. Creditable input VAT is capped by a maximum of 70% of output VAT per quarter.

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19. RELATED PARTY TRANSACTIONS

The parent company’s related parties include wholly owned subsidiaries, associates, the Group’skey management and others as described below.

The following are the transactions with related parties:

19.1 Sale of Real Estate, Services and Rental

Amount of Transactions Outstanding Balances

2005 2004 2003 2005 2004 2003

Sale of Real Estate:Associates . . . . . . . . . . P= 60,000,000 P= — P= — P= — P=— P=—

Rendering of Services and

Rental:

Subsidiaries . . . . . . . . . 56,161,284 54,047,619 31,904,762Associates . . . . . . . . . . 479,107,796 371,408 261,800 477,747,818 — —

Other related parties . . . 9,199,126 8,178,965 389,957 — — —

Total . . . . . . . . . . . . . . P=604,468,206 P=62,597,992 P=32,556,519 P=477,747,818 P=— P=—

Real estates are sold on the basis of the price lists in force with non-related parties. Servicesrendered are usually on a cost-plus basis, allowing a margin ranging from 20% to 30%.

The outstanding receivables from sales of goods and services from associates are presented asTrade Receivables under the current Trade and Other Receivables account in the balance sheets(see Note 7).

19.2 Purchases of Real Estate, Services and Rental

Amount of Transactions Outstanding Balances

2005 2004 2003 2005 2004 2003

Purchases of Real Estate:

Associates . . . . . . . . . . P= 18,363,068 P= — P= — P=18,363,068 P= — P= —Rendering of Services and

Rental:

Subsidiaries . . . . . . . . . 6,302,123 2,252,600 4,212,818 2,886,131

Associates . . . . . . . . . . 2,721,683 7,784,419 5,317,251 — — —Other related parties . . . 126,724,525 98,454,581 60,045,300 51,270,977 67,395,472 47,974,759

Total . . . . . . . . . . . . . . P=154,111,399 P=108,491,600 P=69,575,369 P=72,520,176 P=67,395,472 P=47,974,759

Real estates are bought on the basis of the price lists in force with non-related parties. The relatedoutstanding payables for goods purchased in 2005, 2004 and 2003 to associates are presented asTrade Payables under the Trade and Other Payable account in the balance sheets (see Note 15).

Services rendered are usually on a cost-plus basis, allowing a margin ranging from 20% to 30%.The related outstanding payables for services obtained from associates in 2005, 2004 and 2003 arepresented in the Advances from associates and related parties account in the balance sheets.

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19.3 Advances to Related Parties

Entities within the Group obtain advances from the parent company and other entities in theGroup and associate for working capital purposes. The outstanding balances of advances to relatedparties are as follows:

2005 2004 2003

Advances to Associates:EELHI . . . . . . . . . . . . . . . . . P= 768,849,618 P= 373,660,164 P=350,625,567FHI . . . . . . . . . . . . . . . . . . . 6,866,489 2,768,065 —

775,716,107 376,428,229 350,625,567Advances to other related parties . . 489,645,892 709,027,730 338,150,940

Total . . . . . . . . . . . . . . . . . . . P=1,265,361,999 P=1,085,455,959 P=688,776,507

In 2005, the Company provided a consultancy services to an associate, EELHI, and recorded theconsultancy fee as part of the miscellaneous income.

19.4 Advances from Related Parties

Entities within the Group advance to the parent company and other entities in the Group andassociate for working capital purposes. The balance of advances to related parties is as follows:

2005 2004 2003

Advances from other related parties P=169,190,310 P=166,768,253 P=862,390,863

19.5 Key Management Personnel Compensation

The group’s key management personnel compensation includes the following expenses:

2005 2004 2003

Short-term benefits . . . . . . . . . . . P=22,898,679 P=15,089,056 P=11,180,927Post-employment benefits . . . . . . . 2,516,410 1,065,572 974,093

P=25,415,089 P=16,154,628 P=12,155,020

20. EQUITY

Capital stock consists of:

Shares Amount

2005 2004 2003 2005 2004 2003

Common shares — P=1 par

value

Authorized . . . . . . . . . 16,200,000,000 9,200,000,000 9,200,000,000 P=16,200,000,000 P=9,200,000,000 P=9,200,000,000

Issued and outstanding:

Balance at beginning

of year . . . . . . . 8,879,632,590 8,879,632,590 8,879,632,590 P= 8,879,632,590 P=8,879,632,590 P=8,879,632,590

Stock dividends . . . . 1,775,926,516 — — 1,775,926,516 — —

Balance at end of year 10,655,559,106 8,879,632,590 8,879,632,590 P=10,655,559,106 P=8,879,632,590 P=8,879,632,590

In 2005, the parent company increased its authorized capital stock by P=7 billion divided into 7billion common shares with a par value of P=1.00 per share. On May 5, 2005, the Companydeclared a 20% stock dividend out of the increase in authorized capital stock. On December 6,2005, the Company issued 1,775,926,516 common shares as stock dividend paid out from theunrestricted retained earnings of the Company.

The parent company’s preferred stock, none of which is outstanding, consists of Series A andSeries B shares, the authorized number of shares of which is 1.0 billion shares and 3.0 billionshares, respectively. The Series A preferred shares shall be nonparticipating, convertible into

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common shares and nonvoting. They shall be convertible into common shares at par value. TheSeries A preferred shares shall not be entitled to dividends and shall have no preemptive right tosubscribe or purchase any shares of any class. Surrendered Series A preferred shares uponconversion may again be issued or disposed of by the associate.

The Series B preferred shares can be converted within 60 days from the expiration of two yearsfrom the date of expiration of the subscription agreement. Conversion price shall be fixed at adiscount of 10% of the average price of the closing prices of the common shares of the associateduring the last 10 trading days prior to the execution of the subscription agreement.

21. EARNINGS PER SHARE

Earnings per share amounts were computed as follows:

2005 2004 2003

Income available to common shares P= 1,153,862,351 P= 807,690,488 P= 252,745,007Divided by number of outstanding

common shares. . . . . . . . . . . . 10,655,559,106 10,655,559,106* 10,655,559,106*

Earnings per share . . . . . . . . . . . P= 0.11 P= 0.08 P= 0.02

* After retroactive restatement to give effect to the 20% stock dividend declared in 2005 (see Note 20).

There were no outstanding convertible preferred shares and other stock equivalents as of December31, 2005, 2004 and 2003, hence, no information on diluted earnings per share is presented.

22. COMMITMENTS AND CONTINGENCIES

22.1 Operating Lease Commitments — Group as Lessor

The Group is a lessor under several operating leases covering real estate properties for commercialuse. The leases have terms ranging from 3 to 20 years, with renewal options, and include annualescalation rates of 5% to 10%. The average annual rental covering these agreements amounts toabout P=547.8 million for the consolidated balances.

2005 2004 2003

Within one year . . . . . . . . . . . . P= 629,732,065 P= 553,607,877 P= 485,121,239After one year but not more than five

years . . . . . . . . . . . . . . . . . . 2,652,407,398 2,049,328,867 1,904,639,114More than five years . . . . . . . . . 1,584,997,462 1,529,324,029 1,248,705,176

P=4,867,136,925 P=4,132,260,773 P=3,638,465,529

22.2 Others

There are commitments, guarantees and contingent liabilities that arise in the normal course of theoperations of the Group which are not reflected in the accompanying financial statements. Themanagement of the Group is of the opinion that losses, if any, from these items will not have anymaterial effect on their financial statements.

23. RISK MANAGEMENT OBJECTIVES AND POLICIES

The Group is exposed to a variety of financial risks which result from both its operating andinvesting activities. The Group’s risk management is coordinated with its parent company, in closecooperation with the Board of Directors, and focuses on actively securing the Group’s short tomedium term cash flows by minimizing the exposure to financial markets. Long-term financialinvestments are managed to generate lasting returns.

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The Group does not actively engage in the trading of financial assets for speculative purposes nordoes it write options. The most significant financial risks to which the Group is exposed to aredescribed below.

23.1 Foreign currency risk

The Group has interest-bearing loans denominated in U.S. dollars. Its exposure in foreign currencyfluctuation is brought about by the fluctuation in U.S. dollars denominated investments in debtsecurities, which is part of financial assets at FVTPL presented as Marketable Securities in thebalance sheets.

23.2 Credit risk

Generally, the maximum credit risk exposure of financial assets is the carrying amount of thefinancial assets as shown on the face of the consolidated balance sheet (or in the detailed analysisprovided in the notes to the consolidated financial statements). Credit risk, therefore, is onlydisclosed in circumstances where the maximum potential loss differs significantly from thefinancial asset’s carrying amount.

The Group has no significant concentrations of credit risk. The Group’s trade and otherreceivables are actively monitored to avoid significant concentrations of credit risk. In addition,for a significant proportion of sales, advance payments are received to mitigate credit risk. TheGroup has adopted a no-business policy with customers lacking an appropriate credit historywhere credit records are available.

Also, it has policies in place to ensure that rental contracts are made with customers with anappropriate credit history.

23.3 Liquidity risk

Prudent liquidity risk management implies maintaining sufficient cash and marketable securities,the availability of funding through an adequate amount of committed credit facilities. The Groupaims to maintain flexibility in funding by keeping committed credit lines available.

23.4 Cash flow and fair value interest rate risk

The Group’s interest rate risk arises from short-term and long-term borrowings (Note 14).Borrowings issued at variable rates expose the Group to cash flow interest rate risk.

The Group takes on exposure to the effects of fluctuations in the prevailing levels of marketinterest rates on its financial position and cash flows. Interest costs may increase as a result ofsuch changes. They may reduce or create losses in the event that unexpected movements arise.

24. OTHER MATTERS

24.1 Registration with Philippine Economic Zone Authority (PEZA)

ECOC, as operator of the Eastwood City Cyber Park, is registered with PEZA pursuant toPresidential Proclamation No. 191, dated October 6, 1999. As PEZA registered entity, it is entitledto preferential tax rate of 5% on gross income earned from its PEZA registered activities, in lieu ofall local and national taxes, and to other tax privileges.

24.2 ISO Certification

The parent company was awarded a Certificate of Registration ISO 9001 : 1994 effective November26, 1999 by Certification International Philippines, Inc. Effective November 21, 2002, the parentcompany has upgraded its Certification to ISO 9001 : 2000 series. The scope of the certificationcovers all areas of the parent company’s operations, which include planning, design, projectmanagement and customer service for its real estate business. Among others, the parent company isrequired to undergo surveillance audits every six months.

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24.3 Recent Awards

In November 2004, the Philippine Marketing Association at its 25th Agora Awards rites honouredthe Company among others as Marketing Company of the Year. Also in 2004, the Company wascited as one of Asia’s best-managed companies in Finance Asia’s 2005 survey. The Company wasvoted among the best in investor relations.

Long-term brand building has led the Company to acquire a ‘‘Superbrand’’ status in December2003. At present, the Company joins the line up of individual brands in Asia that have earnedSuperbrand’s stamp of approval.

The Company has been recognized as the top Philippine company in a corporate governance surveyfor emerging markets in 2003 as conducted by Euromoney magazine, one of the most authoritativesources of information regarding developments and trends in international banking and capitalmarkets. The Company ranked first among local companies in corporate governance practices, andplaced seventh overall in Euromoney’s poll of 132 companies from 25 countries. All the companieswere rated according to ownership transparency and rights, financial transparency, board structureand process, stakeholder relations and managerial interests.

In December 2003, Euromoney magazine again ranked the parent company as ‘‘one of the best-managed companies in Asia.’’ It was ranked high on market strength, profitability, growthpotential and quality of management and earnings. Euromoney noted that its standing as thecountry’s foremost residential developer is built on a strong platform of professional managementanchored on innovation, market focus and financial discipline.

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REGISTERED HEAD OFFICE OF THE COMPANY

Megaworld Corporation

28th Floor

The World Centre

330 Sen. Gil J. Puyat Avenue

Makati City

Philippines

SOLE INTERNATIONAL UNDERWRITER AND SOLE BOOK RUNNER

UBS AG, acting through its business group UBS Investment Bank

52/F Two International Finance Centre

8 Finance Street

Central

Hong Kong

SOLE DOMESTIC UNDERWRITER AND SOLE BOOK RUNNER

BDO Capital & Investment Corporation

11th Floor, The JMT Corporation Condominim

27 ADB Avenue, Ortigas Center

Pasig City, Philippines 1600

LEGAL ADVISERS

To the Company as to Philippine law

Picazo Buyco Tan Fider & Santos Law Office

Liberty Center

104 H.V. de la Costa Street

Salcedo Village

Makati City

Philippines

To the Lead Manager

as to English law and United States federal law as to Philippine law

Allen & Overy

9/F, Three Exchange Square

Central

Hong Kong

Romulo Mabanta Buenaventura Sayoc &

de los Angeles

30/F, Citibank Tower

8741 Paseo de Roxas

Makati City

Philippines

INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

Punongbayan & Araullo

20th Floor, Tower 1

The Enterprise Centre

66 Ayala Avenue

1200 Makati City

Philippines

Equity Oc - Meg 2006

Documents

batas pambansa

de los angeles

british virgin

real estate

major mass

highly acclaimed

cb richard

grand eastwood