1. PURPOSE & CONSTITUTION

　　The Association stands on a mutual basis and is to uphold prestige and safeguard the interests of its Members, for which the Association affords insurance cover and offers professional services. The liability of the Members is limited to the calls and supplementary calls set by the directors and in the event of its liquidation, any net assets of the Association are to be returned equitably to those Members.

2. ACCOUNTING PRINCIPLE

(1) The figures under items as incorporated in the Financial Statements are up to February 20th, 2003.

(2) The Association adopts accrual basis in accounting. The values of all assets except the equity investments of China MinSheng Bank CORP. which is stated at its market value at the balance sheet date are to be recorded at historical costs at the time of acquisition.

(3) The United States Dollar is the bookkeeping base currency of the Association. The Association adopts the principle of separate-accounting for similar accounts. Balances of RMB accounts at the end of year shall be translated into the US Dollar at the official exchange rate prevailing on February 20th. The difference arising from the translation are stated as gains or losses in INCOME AND EXPENDITURE ACCOUNT other than stated in BALANCE SHEET.

(4) Cash in hand, bank deposits and other monetary assets are listed separately for their different keeping place and certain purpose in the bookkeeping. Their total amount in the name of cash balance is showed as a current asset in the Balance Sheet.

(5) The equity method is used when the Association have significant influence, control or co-control over the operation of the invested company, the adjusting amount is credited directly into the Association reserves at every balance sheet date. On the other hand the cost method is used for other long-term investments.

(6) Fixed assets refer to the assets whose useful life is over one year, unit value is above RMB 2000.00 and where original physical form remains during the process of utilization. The straight-line method is used in fixed assets depreciation.

(7) The Association carries out the principle of three-year settlement of income and expenditure. Calls and premiums, reinsurance premiums, claims and claim recoverable from reinsurers or third parties are allocated to the years to which they apply.

(8) The liabilities of the Association are reinsured above certain levels with other association abroad. The reinsured recoveries and the claims recoveries from the third party are both as the anti-items to the claims paid and credited in Income and Expenditure Account. Accordingly the reinsurance recoveries receivable is listed as an asset in Balance Sheet.

(9) Calls and premiums less returns and reinsurance premiums are credited to the Income and Expenditure Account.

(10) Liabilities provisions of open policy years are drawn according to the balances allocated to years to which they relate and charged to the Income and Expenditure Account to prepare for the claims belong to the aforesaid policy years. Estimated liabilities provision of closed policy year is drawn on closure of a policy year.

(11) The reserves are the net assets of the Association and available to meet any deterioration in the open and closed policy years and to contribute to overspill claims or other certain purposes.

3. NOTES TO ITEMS OF STATEMENTS

(1) SHORT-TERM INVESTMENTS
　　By the end of last accounting year, the Association sold all the bonds in hand. The balance stated is the interest left in bond special account.

(2) GUARANTEE
　　The amount of Guarantee is cash balance which was held by Bank of China (Head Office) for several letters of guarantee issued by the Bank.

(3) CALLS AND PREMIUMS RECEIVABLE
　　It refers to the accumulated amount of calls and premiums receivable due from members.

(4) REINSURANCE RECOVERIES RECEIVABLE
　　The figures of this item relate to recoveries receivable from foreign associations on claims incurred during the year.

(5) SUNDRY DEBITORS
　　It refers to all money receivable of the third party due to the Association.

(6) LONG-TERM INVESTMENTS
　　Please see the attached figure 1 and the last part of this Notes for reference.

(7) SHORT-TERM LOAN
　　A short-term loan in amount of RMB200million (USD24,161,884.63)was made from China Everbright Bank which matures on OCT.8.2004.

(8) LIABILITIES PROVISION
　　Please see the attached figure 12.

(9) SUNDRY CREDITORS
　　It includes the unconfirmed accounts, the transactions from/ to MH Accounts and the transactions between the head office and the three branches of the Association.

(10) GUARANTEE PAYABLE
　　It relates to the amount of counter-guarantee received by the Association connected with the MV "HYUNDAI" and "ACTINOR".

(11) CALLS AND PREMIUMS
　　It refers to the calls and premiums collected in this accounting year which allocated to 2000、2001 and 2002 policy year separately. See the attached charter 2,3 and 4.

(12) THE CLAIMS
　　Please see the attached charter 5,6,7and 8.

(13) BROKERAGE
　　It refers to the amount which were paid to brokers. The balance is USD242,325.99.

(14) OPERATING EXPENSES
　　The operating expenses of 2002/2003 has been drawn on the rate of 6 percent in accordance with the board of director's instruction, which includes the costs of providing offices, salary of staff and administration cost.

(15) INVESTMENT INCOME
　　Please see the attached charter 9 and 10.

(16) TRANSFERS TO LIABILITIES PROVISION
　　Please see the attached figure 11.

(17) RESERVES
　　The reserves of the Association are assorted to Reserve of Management, claims and FDD risks, which are USD1,187,854.36, USD53,921,613.86 and USD93,500.44 in value separately.

4. NOTES TO OTHER IMPORTANT ACCOUNTING EVENTS

(1) Up to 20th February.2003, the Association, as the fourth biggest shareholder of China MingSheng Bank Corp.(hereinafter called as the Bank), invested totally USD15,057,275.75 in the Bank and holds her 164.45Million shares and owned 6.36% interest of the Bank. As one of director of the Bank, the Association, have significant influences on the managing operations of the Bank and used equity method in this investment from 2001/2002 accounting year. Up to 31th.Del.2002 the total shareholder's equity of the Bank is RMB6,003,810,000.00 and net value per share is RMB2.32. The Association adjusted the book value of the Bank which increased to USD46,091,694.35 at the Balance Sheet date.

(2) Since the policy year of 1998 developed the new cover of Hull and Machinery risks, it's income has been involved the whole investments of the Association. Ensuring to share equitable the full benefits of investments of the Association for the Members of P&I risks or/and Hull and Machinery risks. The Association distributes the amount of long-term investments together with their benefits according to the actual running condition of funds for years.

(3) In 2002 policy year, the Association developed the new cover of FD&D risks. Due to small income and the same fiscal period with P&I risks, the figures for this risks were listed together with the P&I risks in P&I financial statements.