INMATE STATISTICS SHOW THAT THE TOTAL PENAL POPULATION HAS DECLINED FOR THE SECOND YEAR IN SUCCESSION, DROPPING 12 PERCENT TO 7,191 PERSONS IN CUSTODY ON DECEMBER 31, 1977. (OF THESE 256 WERE WOMEN AND GIRLS.) THIS DECREASE HAS EASED CROWDED LIVING CONDITIONS, REDUCED COMPLAINTS, AND LED TO MORE EFFECTIVE STAFF SUPERVISION. STATISTICAL TABLES PRESENT DATA ON OFFENDER CHARACTERISTICS, TYPE OF OFFENSE, NUMBER OF RECIDIVISTS, AND POPULATIONS OF SPECIAL PROGRAMS. THE REPORT ALSO COVERS DISCIPLINE, VOCATIONAL TRAINING AND EDUCATION, HOME LEAVE, AND AFTERCARE PROGRAMS. SPECIAL PROGRAMS FOR JUVENILES, DRUG DEPENDENT PERSONS, AND FIRST OFFENDERS ARE DESCRIBED. A BRIEF SECTION REVIEWS HANDLING OF PRISONERS UNDER SENTENCE OF DEATH, THOSE SENTENCED TO CORPORAL PUNISHMENT, DEBTORS, DETAINEES, AND DEPORTEES. STAFF TRAINING AND VOLUNTEER SERVICES ARE SUMMARIZED ALSO. BUDGET FIGURES ARE INCLUDED, PRESENTED IN HONG KONG DOLLARS WITH A NOTE ABOUT EXCHANGE RATES. (GLR)