NOTES TO THE FINANCIAL STATEMENTS OF P&I RISKS
FEBRUARY 20 2008

Note 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 principal activities of the Association are the insurance against Protecting and Indemnity risks to the Members. The liability of the Members is to pay Calls and premiums to the Association. In the event of the termination of the Association, any net assets of the Association are to be returned equitably to the Members insured by it in the policy year during which the Association is terminated in accordance with the Bye-Laws.

Note 2-Accounting Principle

a Accounting Convention
　　

　　These Financial Statements have been prepared in accordance with the material Accounting Principles based on applicable Chinese accounting standards and Generally Accepted Accounting Principles.

b Accounting Year

　　The figures under items as incorporated in the Financial Statements are up to February 20 2008.

c Annual Accounting and Policy Year Accounting

　　The Income and Expenditure Account is prepared on an annual accounting basis and includes all the Calls and premiums levied in the accounting year and the cost of claims and co-insurance for the current year and any adjustments relating to previous years together with operating expenses, financial expenses and investment income. All revenue transactions appear in the Income and Expenditure Account are allocated to the relevant policy years or to a reserve.

　　Calls and premiums, co-insurance premiums, claims and claim recoverable from co-insurers or third parties are allocated to the policy years to which they relate. Both the realised and unrealised investment income and operating expenses are allocated to the current policy year.

d Valuation basis

　　The Association adopts accrual basis in accounting unless otherwise stipulated. The values of all assets, except the equity investment of listed company which is stated at lower of its market value and the net asset value per share at the balance sheet date, are to be recorded at historical costs at the time of acquisition.

e Bookkeeping base currency

　　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 the year shall be translated into the US Dollar at the official exchange rate prevailing on February 20 2008. The differences arising from the translation are stated as gains or losses in the Income and Expenditure Account.

f Cash Balance

　　Cash in hand, bank deposits and other monetary assets which include cash in other cities, cashier’s check，bank draft，cash for investment and advisory funds are listed separately for their different keeping place and certain purpose in bookkeeping. Their total amount in the name of cash balance is showed as a current asset in the Balance Sheet.

g Calls and Premiums Receivable

　　It refers to the accumulated amount of Calls and premiums receivable due from Members. The Association conducts the direct write-off method and the bad debts are charged to the reserves directly under the Board decision when the Calls and premiums are discovered to be uncollectible.

h Guarantee

　　It refers to cash balance held by domestic or overseas Banks for issuing letters of guarantee.

i Investments

　　The equity method is used when the Association has significant influence, control or co-control over the operation of the invested listed company. In the equity method, the initial or supplementary investment is firstly recorded at cost but later is adjusted each year for changes in the equity in the invested company. The Association recognizes the balance from the changes of the equity in the invested company as an investment income or loss. The cost method is used for other long-term investments.

　　The investment income includes all the gains and losses. The investment income (or loss) less the investment management cost is stated in the Income and Expenditure Account.

　　Since the policy year of 1998 when the Association afforded the new cover against Hull and Machinery risks, its income has been involved in the whole investments of the Association. Ensuring to share equally and separately the full benefits of investments of the Association for the Members of P&I cover and Hull and Machinery cover, the Association distributes the amount of long-term investments together with their benefits according to the actual running condition of the funds for years.

j Fixed Assets

　　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.

k Short-term Loans

　　Short-term loans are the loans which mature within 12 months.

l Liabilities Provision

　　Liabilities provisions and co-insurance recoveries receivable for open and closed policy years are drawn based on the best estimates of the Managers and consent of the chief underwriter to prepare for the claims incurred in the relevant policy years and their difference is charged to the Income and Expenditure Account. They are also stated in the Balance Sheet separately.?

m Reserves

　　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, actual or potential investment losses or other certain purposes.

n Calls and Premiums

　　Calls and premiums include Advance Calls, Supplementary Calls, Release Calls and Fixed premiums, less return Calls and premiums. These Calls and premiums are the total receivables for the whole period of cover provided by the contracts incepting during the accounting period together with any premium adjustments relating to prior accounting periods. The amount of Calls and premiums less co-insurance premiums is credited to the Income and Expenditure Account.

o Co-insurance Premiums

　　The liabilities of the Association are co-insured above certain levels with some International Group Clubs. This item shows the amount of the co-insurance premiums the Association paid to these Clubs.

p Claims

　　The claims include all claims paid during the year. The recoveries from co-insurers and the recoveries from the third parties are both as the anti-items to the claims paid and credited into the Income and Expenditure Account.

q Claims Recoveries From the Third Party

　　It refers to the amount recovered from the third party, which is credited into the Income and Expenditure Account as the deduction of claims.

r Co-insured Recoveries
　　

　　The liabilities of the Association are co-insured above certain levels with some International Group Clubs. It is the anti-item to the claims paid and credited in the Income and Expenditure Account. Accordingly the co-insurance recoveries receivable are listed as assets in the Balance Sheet.

s Operating Expenses

　　Operating expenses include management costs and costs of the Board. The management costs include the cost of the offices, staff, communications, travel and administration. The costs of the Board include the cost of annual General Meetings of Members and Board meetings, travels and other costs. It has been drawn on the ratio in accordance with the Board’s instruction and is listed in the Income and Expenditure Account.

t Taxation

　　The Association enforces the relevant tax policies of the People’s Republic of China.

u Related Party Disclosures

　　The Association has no share capital and is controlled by the Members who are also the insureds. The subsequent insurance transactions are consequently deemed to be the transactions between the related parties, but they are the only transactions between the Association and the Members.

Note 3-Sundry debtors/creditors

　　*The Association purchased the office building “Future Business Center” in November 2006.? The payment and decoration cost at the amount of 29.56 million is stated as sundry debtors in the Balance Sheet for the reason that the building hadn’t been put into use till February 20 2008.?

Note 4-Investments （see Note 2.i）

　　Up to February 20 2008, the Association, as the sixth biggest shareholder of China?Minsheng Bank Corp.(hereinafter called as the Bank), invested totally USD17,813,845.53 in the Bank and holds her 580.62 million shares and owned 4.01% interest of the Bank.? Up to December 31 2007, the net value per share of the Bank is RMB3.47. Together stated with “free-float right”, the Association adjusted the book value of the Bank which increased to USD300,380,287.01 at the Balance Sheet date.? The market price per share of the Bank is RMB13.33 on February 20 2008.

Note 5-Calls & Premiums （see note 2n/o）

Net Calls & Premiums

Calls & Premiums

Co-insurance Premiums

Note 6-Claims （see note 2p/q/r）

Net Claims

Recoveries From 3rd Party

Recoveries From Other P&I Association

Claims

Note 7-Investment income （see note 2i）

Note 8-Liabilities Provision & Liabilities Provision Transfer （see note 2l）
Liabilities Provision Transfer

Liabilities Provision

Note 9-Reserves （see note 2m）