UNIFIED EXCHANGE COMPENSATION FUND FINANCIAL STATEMENTS

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Unified Exchange Compensation Fund

Notes to the Financial Statements

For the year ended 31st March 1998 (Expressed in Hong Kong Dollars)

I	MONEY CONSTITUTING THE FUND
	The Fund is derived principally from monies paid to the Securities and Futures Commission (SFC) by The Stock Exchange of Hong Kong Limited (SEHK) by way of deposits in respect of its memberships, by way of excess transaction levy from the SEHK in accordance with an agreement between the SFC and the SEHK (see note 7), by way of money lawfully paid into the Fund pursuant to Section 101(1) of the Securities Ordinance (Chapter 333) ("the SO") and by way of appropriation from return or profit on the investment of surplus funds.
2	PURPOSE AND LIMITATION
	The purpose of the Fund is to meet claims, as determined and allowed by the SEHK, for pecuniary losses suffered by persons as a result of defaults on the part of members of the SEHK.
	The total amount of compensation including interest that may be paid to claimants consequent upon the default of any one member committed after 7th October 1992 is normally limited to $8,000,000 pursuant to the amendment made to Section 109(3) of the SO that came into operation on 7th October 1992. If the aggregate of the allowed claims in respect of a member exceeds the $8,000,000 limit, that amount shall be apportioned among claimants as determined to be equitable by the SEHK. In relation to any claims arising from any one member's default committed before 7th October 1992, the total amount of compensation including interest that may be paid shall not exceed $2,000,000. Should defaults at any given time on the part of members of the SEHK give rise to allowed and/or apportioned claims exceeding the net assets of the Fund, compensation payments to claimants would be apportioned in accordance with Section 120(1) of the SO, the unpaid amount of such allowed and /or apportioned claims being charged against further receipts by the Fund and paid out as and when money is available.
3	ACCOUNTING POLICIES
	These accounts have been prepared in accordance with Hong Kong Statements of Standard Accounting Practice and accounting principles generally accepted in Hong Kong. A summary of the significant accounting policies is set out below :

	a	Interest and investment income is recognized in the financial statements on an accruals basis.
	b	Premium or discount on the purchase of dated securities is amortised or accreted respectively to the income and expenditure account on a straight line basis over the holding periods to redemption.
	c	Other income, recovery of any payment out of the Fund in respect of any claim under subrogation pursuant to Section 118 of the SO, and replenishment from the SEHK pursuant to Section 107 of the SO, are recognized in the financial statements on a cash basis and taken directly to the Fund.
	d	Investments, representing dated securities which are intended to be held to maturity, are stated at cost adjusted for the amortisation of premiums and accretion of discounts on purchase over the holding periods to redemption, and less provisions where there has been a permanent diminution in value.
	e	Provision for compensation is made for known liabilities arising from claims for pecuniary losses suffered by persons as a result of defaults on the part of members of the SEHK which are determined up to the date on which the accounts are approved by the Committee. Such provisions are transferred directly from the Fund.
	f	The Fund is exempt from taxation pursuant to Section 87 of the Inland Revenue Ordinance, Chapter 112.

4	INVESTMENTS
		1998		1997

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	Dated securities
	maturing after one year
	-     listed in Hong Kong	$       33,065,311		$       35,088,375
	-     listed outside Hong Kong	--		10,024,129
	-     unlisted	352,646,059		182,222,140
		$     385,711,370		$     227,334,644
		........................		........................
	maturing within one year
	-    listed in Hong Kong	$        1,986,000		$                  --
	-    listed outside Hong Kong	27,061,195		--
	-    unlisted	55,018,605		222,006,359
		$       84,065,800		$     222,006,359
		........................		........................
		$     469,777,170		$     449,341,003
		===========		===========
	Market value at 31st March
	-    listed in Hong Kong	$       34,423,600		$       34,696,500
	-    listed outside Hong Kong	26,754,300		10,060,000
	-    unlisted	396,533,500		403,828,600
		$     457,711,400		$     448,585,100
		===========		===========

5	CONTRIBUTIONS FROM THE SEHK
	In accordance with Sections 104 and 106 of the SO, the SEHK is required to deposit with the SFC a sum of $50,000 in respect of each membership of the SEHK not later than one month after membership is taken up. In the absence of claims or other provisions as set out in Section 106 of the SO, the SFC is required to refund to the SEHK from the Fund such deposit within six months after membership ceases. The SEHK has advised the SFC of twenty seven (27) memberships having been taken up during the six (6) months to 31st March 1998. However, the SEHK had not at 31st March 1998 deposited with the SFC a sum of $50,000 in respect of each such membership. The liability of the SEHK to the Fund in this respect has not been taken up in these accounts. Any monetary liability of the SEHK that may have existed due to memberships taken up prior to six (6) months before 31st March 1998 would be extinguished by the requirement of the Fund to refund to the SEHK deposits of ceased memberships in accordance with Section 106(1) of the SO, as the number of new members equalled the number of members leaving the SEHK during the period.