XN000022-1995-03-29 — Page 13

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2.

3.

ASSETS

(a)

(b)

(c)

INVESTMENTS

The Fund is invested in interest-bearing deposits with banks in Hong Kong and overseas and in a variety of financial instruments, including boods, notes, treasury bills and US equities.

FOREIGN CURRENCY ASSETS DISTRIBUTION

A large proportion of the Fund's foreign currency assets are held in US dollars. Apart from the US dollar, the Fund also holds assets denominated in other major foreign currencies, such as the Australian dollar, Belgian franc, Canadian dollar, Danish krone, Deutschemark, Dutch guilder, the ECU, French franc, Japanese yen, pound sterling, Swiss franc, etc.

LOCATION OF ASSETS

The assets are beld in deposit, trustee and safe-keeping accounts with banks, central banks and custodial organisations situated in Hong Kong and other major financial centres.

CERTIFICATES OF INDEBTEDNESS

As backing for their bank note issues, the three note-issuing banks are required to bold non-interest bearing Certificates of Indebtedness issued by the Exchange Fund. Issuance and redemption of these Certificates are made against payments in US dollars at a fixed rate of US$1 = HK$7.80.

4.

FISCAL RESERVES ACCOUNT

This comprises the fiscal reserves which have been transferred from the General Revenue Account, Capital Investment Fund, Loan Fund and Capital Works Reserve Fund of the Hong Kong Government to the Exchange Fund on an interest earning basis.

5.

BALANCE OF BANKING SYSTEM

in accordance with the Accounting Arrangements introduced in July 1988, The Hongkong and Shanghai Banking Corporation Limited, as the Management Bank of the Clearing House of HKAB, is required to maintain a Clearing Account with the Exchange Fund. The balance in the Account, which represents the level of liquidity in the interbank market, is determined by the Monetary Authority. The Accounting Arrangements enable the Monetary Authority to maintain exchange rate stability more effectively by influencing the level of interbank liquidity through money market operations.

6.

OTHER LIABILITIES

Other liabilities comprise expenses accrued at the year end, in the main interest due on transfers from fiscal reserves, other borrowings, provision for contingency related to Overseas Trust Bank Limited and the difference between the market value and the face amount of the Fiscal Reserves Account (see Note 1).

End/Wednesday, March 29, 1995