Provisional Measures of the Administration of Securities Investment Funds, People's Republic of China

(approved by the State Council on November 15, 1997 and promulgated by
the Securities Committee of the State Council on November 14, 1997)

Chapter One:
General Provisions

Article 1
These Measures are formulated in order to strengthen the administration of securities investment funds, to protect the lawful rights of parties involved in fund related activities, and to promote a healthy and stable development of the securities market.

Article 2
The securities investment funds (hereinafter called "Funds") in these Measures refers to a collective method of investment in securities where all parties enjoy the benefits and share the risks. Through the issuing of Fund Units, capital is raised from investors, taken into custody by the custodian, administered and operated by the fund manager, to invest in financial tools such as stocks and bonds, etc.

Article 3
Fund assets shall be segregated from the assets of the custodian and fund manager.

Article 4
All natural persons, legal persons, and other organizations who, in the territories of the People's Repubic of China (PRC), are engaged in Funds activities or are relevant to such activities shall abide by these Measures.

Chapter Two:
Establishment, Generation, and Trading of Funds

Article 5
The establishment of Funds shall be examined and approved by the China Securities Regulatory Commission (hereinafter called "CSRC").

Article 6
A promoter may apply to establish an open-ended Fund or a close-ended Fund.

Article 7
The following conditions shall be met in order to apply for the establishment of Funds:

1) The principal promoter is a securities company, a trust investment company, or a fund management company established in accordance with the relevant stipulations of the PRC;

2) Each promoter has a paid-up capital of not less than RMB300,000,000 Yuan. The principal promoter has a minimum of three years of experience in securities investment and a record of making profit continuously. However, a fund management company is exempted from these requirements;

3) The promoter, the custodian, and the fund manager all have a well established organizational structure and administration system, a sound financial status, and a standardized operation;

4) The custodian and the fund manager possess business premises, secured facilities, and other relevant business facilities that comply with standards;

5) Any other conditions stipulated by the CSRC.

The establishment of an open-ended Fund also requires sufficient personnel and technical facilities to guarantee the announcement of the fund's net asset value, the subscription and redemption prices to the investors at least once per week.

Article 8
The fund promoter shall submit the following documents to the CSRC in order to apply for the establishment of Funds:

1) The application report

2) The name list of the promoters and their agreement

3) The funds contract and the custody agreement

4) The prospectus

5) In the case where the promoter is a securities company or a trust investment company, its financial reports for the past three years which have been audited by an audit firm

6) A legal advice issued by a legal firm

7) The fundraising plan

8) Any other documents requested by the CSRC.

The contents and format of the above-mentioned fund contract, custody agreement, and prospectus shall be stipulated by the CSRC.

Article 9
The fund units subscribed by the promoter may only be a percentage of the total fund amount stipulated by the CSRC, and the fund units held by the promoter during the "PURCHASE & REDEMPTION PERIOD" may only be a percentage of the total fund amount stipulated by the CSRC.

Article 10
A close-ended fund shall have a "PURCHASE & REDEMPTION PERIOD" of not less than five years, and a raised amount of not less than RMB200,000,000 Yuan.

Article 11
In order for a close-ended fund to generate extra funds or to extend its maturity period, the following conditions must be met, and the CSRC's examination and approval shall be obtained:

1) A rate of return which is higher than the averaged rate of return of Funds issued in China;

2) The custodian and the fund manager have not committed any serious illegal acts or violated regulations in the past three years;

3) The general meeting of the fund holders and the custodian consent to raising such extra funds or to extend the maturity period;

4) Any other conditions stipulated by the CSRC.

In order to raise extra funds or to extend its maturity period, relevant documents shall be furnished in accordance with the requirements of the CSRC.

Article 12
The promoter shall publish the prospectus in newspapers designated by the CSRC three days prior to the raising of fund.

Article 13
The fund raising period of a close-ended fund shall not exceed three months, calculated from the date on which the fund is approved. A close-ended fund may only be established when the fund raised within three months from the date of approval exceeds 80% of the approved capital value of the fund. An open-ended fund may only be established when the net sales amount exceeds RMB200,000,000 Yuan within three months from the date of approval.

A close-ended fund may not be established in case the amount generated at the time the fund raising period expires is less than 80% of the approved capital value of the fund. An open-ended fund may not be established in case the net sales amount is less than RMB200,000,000 Yuan within three months from the approval date. The promoter shall be responsible for the fundraising costs. The raised fund plus interest calculated according to bank's savings interest rate shall be returned to the fund subscribers within 30 days.

Article 14
An open-ended fund may only be subscribed and redeemed at premises which comply with state requirements.

After a close-ended fund is established, the fund manager and the custodian may apply to the CSRC and the stock exchange for the listing of the fund. Regulations regarding listing of funds shall be formulated by the stock exchange and approved by the CSRC.

Chapter Three:
Custodian and Fund Manager

Article 15
When the establishment of a fund is approved, a commercial bank should be appointed as the custodian to take the fund assets into custody, and a fund management company should be appointed as the fund manager to manage and operate the fund assets.

Article 16
A custodian must be qualified and approved by the CSRC and the People's Bank of China.

Article 17
The custodian and the fund manager shall be administratively and financially independent from each other, and one's senior manager shall not hold any position at the other company.

Article 18
A custodian shall meet the following conditions:

1) Establish a specialized custodian department;

2) A paid-up capital of not less than RMB800,000,000 Yuan;

3) Sufficient personnel who are experienced in custodian business to handle custody service exclusively;

4) The condition to safe-keep the entire assets of a fund;

5) The ability to safely and efficiently carry out clearing and settlement.

Article 19
A custodian shall carry out the following duties:

1) to safe-keep the entire assets of the fund;

2) to execute investment instructions from the fund manager, and to handle transfers of capital under the fund;

3) to supervise investment operations of the fund manager. When the fund manager is found giving investment instructions which are illegal or violating regulations, the custodian must not execute such instruction sand shall report to the CSRC;

4) to review and examine the net asset value of the fund and the fund price calculated by the fund manager;

5) to maintain the accounting books and records of the fund for a minimum of 15 years;

6) to issue business report of the fund, provide status of the custody, and report to the CSRC and the People's Bank of China;

7) any other duties stipulated in the fund contract and the custody agreement.

Article 20
The custodian must strictly separate its own assets from the fund assets under its custody. It should keep separate accounts for different funds, and manage such individual accounts separately.

Article 21
Upon the approval of the CSRC and the People's Bank of China, a custodian must resign for any one of the following conditions:

1) the custodian is dissolved, ordered to terminate by law, goes into receivership, or its assets are taken over by receiver;

2) the fund manager has sufficient reason to believe that the change of custodian is beneficial to the fund holders;

3) more than 50% of the fund holders who hold fund units request the resignation of the custodian;

4) the People's Bank of China has sufficient reason to believe that the custodian is not capable to continue to carry out its custody duties.

Article 22
The new custodian must be examined and approved by the CSRC and the People's Bank of China. The original custodian may resign only after such approval is made. In case no new custodian is available to take up the custody of the fund, the fund shall be terminated.

Article 23
The establishment of a fund management company shall be examined and approved by the CSRC.

Article 24
The following conditions shall be satisfied in order to establish a fund management company:

1) the principal promoter is a securities company or a trust company established in accordance with the relevant state stipulations;

2) the principal promoter has a sound operating status, and has been making profit continuously for the past three years;

3) each promoter has a paid-up capital of not less than RMB300,000,000 Yuan;

4) the fund management company to be established has a paid-up capital of not less than RMB10,000,000 Yuan;

5) a definite and feasible fund management plan has been worked out;

6) qualified fund management personnel are available;

7) any other conditions stipulated by the CSRC.

In order to apply for the establishment of a fund management company, relevant documents shall be furnished in accordance with the requirements set by the CSRC.

Article 25
Upon approval, a fund management company may engage in the following business:

1) fund management business;

2) initiate the establishment of funds.

Article 26
A fund manager shall carry out the following duties:

1) to operate the fund assets in making investments and manage the fund assets in accordance with the terms of the fund contract;

2) to pay the full profit of the fund to the fund holders in a timely manner;

3) to maintain the fund's accounting books and records for a minimum of 15 years;

4) to edit fund financial reports, to make public announcement of such reports in a timely manner, and to report to the CSRC;

5) to calculate the fund's net asset value and the net asset value of each fund unit, and to announce the results of these calculations;

6) any other duties stipulated by the fund contract.

The fund manager of an open-ended fund shall also, in accordance with the relevant state stipulations and the requirements of the fund contract, handle the fund's subscription and redemption accurately and in a timely manner.

Article 27
When any one of the following conditions arise, a fund manager shall resign upon the approval of the CSRC:

1) the fund manager is dissolved, ordered to terminate by law, goes into receivership, or its assets are taken over by receiver;

2) the fund manager has sufficient reasons to believe that the change of fund manager is beneficial to the fund holders;

3) more than 50% of the fund holders who hold fund units request the resignation of the fund manger;

4) the People's Bank of China has sufficient reasons to believe that the fund manager is not capable to continue to carry out its fund management duties.

Article 28
The new fund manager must be examined and approved by the CSRC and the People's Bank of China. The original fund manager may resign only after such approval is made. In case no new fund manager is available to take up the management of the fund, the fund shall be terminated.

Chapter Four:
The Rights and Obligations of Fund Holder

Article 29
A fund holder enjoys the following rights:

1) to attend or to send a representative to attend the fund holders general meeting;

2) to receive fund profits;

3) to supervise the operating status of the fund, and to receive information on the fund's business and financial status;

3) to subscribe, to redeem, or to transfer fund units;

4) to receive the remaining assets after the fund is cleared;

5) any other rights stipulated by the fund contract.

Article 30
The fund holders general meeting shall be called for any one of the following conditions:

1) the amendment of the fund contract;

2) the termination of the fund before its maturity;

3) the change of custodian;

4) the change of fund manager;

5) any other conditions stipulated by the CSRC.

After the fund holders general meeting has come up with a solution regarding the above mentioned matters, it shall obtain approval from the CSRC.

Article 31
A fund holder has the following obligations:

1) to abide by the fund contract;

2) to pay for fund subscription and other required fees;

3) to bear limited liabilities of the fund's loss or termination;

4) not to engage in activities which may damage the fund or the interest of other fund holders.

Chapter Five:
Investment Operation, Supervision, and Administration

Article 32
Before a fund is established, the subscription money collected from investors may only be deposited in a commercial bank and shall not be utilized.

Article 33
The investment portfolio of a fund shall comply with the following requirements:

1) a fund's investment in stocks and bonds shall not be less than 80% of the fund's total asset value;

2) a fund's holding of stock of any one company shall not exceed 10% of the fund's net asset value;

3) a fund manger's holding of stock of any one company with all the funds under is management shall not exceed 10% of the stock;

4) a fund's investment in government bond shall not be less than 20% o the fund's net asset value;

5) any other restrictions on holding rations stipulated by the CSRC.

Article 34
Any one of the following is prohibited:

1) cross investment between funds;

2) custodians and commercial banks to engage in fund investments;

3) a fund manager to trade securities under the fund's name by using capital not belonging to the fund;

4) a fund manager to underwrite securities in any way, or to engage in self-operating securities business other than government bonds;

5) a fund manager to engage in capital lending business;

6) to make fund investment using capital borrowed from banks;

7) a state-owned enterprise violates relevant stipulations and engage in speculation of funds;

8) to use fund assets for pledging, guarantees, capital lending, or loans;

9) to engage in securities credit trades;

10) to invest fund assets in properties;

11) to make investments which have the possibility of exposing the fund assets to unlimited liabilities;

12) to invest the fund assets in securities of companies in which the custodian or the fund manager maintain vested interest;

13) any other behavior that is prohibited by the CSRC.

Article 35
An open-ended fund shall maintain sufficient cash or government bond to pay for redemption.

Article 36
The custodian fee to be paid to the custodian, the remuneration to be paid to the fund manager, and other fees which may be deducted from the fund assets shall be charged in accordance with relevant state stipulations and be state in the fund contract and the custodian agreement.

Article 37
The custodian and the fund manager shall adopt the state financial accounting systems and pay taxes as according to laws.

Article 38
The allocation of fund profits shall be in the form of cash, and shall be carried out at least once per year. The allocation of fund profits shall not be less than 90% of the fund's net profit.

Article 39
The CSRC and the People's Bank of China shall examine and audit a fund's raising, trading, investments, and other relevant business activities as well as its financial accounting data according to their rights and duties respectively. The custodian, the fund manager, and all other relevant organizations and personnel shall provide relevant status and information, and shall not refuse or interfere with such examinations and audits.

Article 40
A fund shall be terminated when any of the following happens:

1) the fund is matured and renewal is not approved;

2) the fund is approved to be terminated before its maturity;

3) the fund commits serious violations against laws or regulations, and is ordered to be terminated by the CSRC.

Article 41
When a fund is terminated, a clearing team shall be set up for the clearing of fund's assets. The result of such clearing shall be reported to the CSRC for approval announced publicly.

The CSRC shall supervise a fund's clearing process.

Article 42
All the assets remained after a fund's clearing shall be allocated to fund holders according to the ratio of fund units to the fund assets held by each fund holder.

Chapter Six:
Penalties

Article 43
The CSRC shall take over a fund which is established, generated or raised without being authorized. All such generated capital and interest shall be refunded. In case profits were gained illegally, such profits will be confiscated, and a fine of more than the amount of such profits but less than 10 times the amount of such profits will be imposed. In case no profits were gained, a fine of less than RMB1,000,000 Yuan will be imposed.

Article 44
The CSRC shall order a fund which is listed and traded without authorization to stop its trading activities, and impose a fine of less than RMB1,000,000 Yuan.

Article 45
The CSRC shall take over a fund management company which has established authorization or any unauthorized practice of fund management activities. In case profits were gained illegally, such profits will be confiscated and a fine of more than the amount of such profits but less than 10 times the amount of such profits will be imposed. In case no profits were gained, a fine of less than RMB1,000,000 Yuan will be imposed.

Article 46
The CSRC shall order any unauthorized practice of custodian activities to stop such activities. All illegal profits thus gained will be confiscated, and a fine of less than RMB500,000 Yuan will be imposed.

In case a custodian has not separated its own assets from the fund assets under its custody in accordance with stipulation, or no individual accounting books has been maintained for separate assets, the CSRC shall order corrective actions be carried. All illegal profits thus gained will be confiscated, and a fine of more than the amount of such profits but less than 5 times the amount of such profits will be imposed.

Article 47
A fund manager who violates the stipulations of Article 32 of these Measures shall be ordered to carry out corrective actions. In case profits were gained illegally, such profits will be confiscated and a fine of more than the amount of such profits but less than 5 times the amount of such profits will be imposed. In case no profits were gained, a fine of less than RMB500,000 Yuan will be imposed.

Article 48
When a fund manager who violates the stipulations of Article 33 of these Measures, the CSRC shall order it to carry out corrective actions. In case profits were gained illegally, such profits will be confiscated and a fine of more than the amount of such profits but less than 3 times the amount of such profits will be imposed. In case no profits were gained, a fine of less than RMB500,000 Yuan will be imposed.

Article 49
When any of Article 34 of these Measures arises, corrective actions shall be carried out. In case profits were gained illegally, such profits will be confiscated and a fine of more than the amount of such profits but less than 5 times the amount of such profits will be imposed. In case no profits were gained, a fine of less than RMB500,000 Yuan will be imposed.

Article 50
In case fund manager or a custodian cheats for its own benefits, violates regulations in its operations, does not carry out its duties as a fund manager or a custodian, or commits serious negligence, and thus fails to provide a sound management to a fund or causes major losses, penalties shall be imposed in accordance with laws. In addition, its qualification as a fund manager or a custodian shall be suspended or canceled.

Article 51
When a fund manager or custodian violates the stipulations of Article 39 of these Measures and does not provide or delays in providing relevant status and information, or refuses or interferes lawful inspections or check-ups, corrective actions shall be ordered to be carried out, a warning will be given, and a fine of less than RMB50,000 will be imposed.

Article 52
The penalties of Articles 46,47, 48, 49, 50 and 51 shall be determined by the CSRC or the People's Bank of China in accordance with each of their own authority. However, a same violation shall not be penalized more than twice.

Article 53
The CSRC shall impose penalties according to laws for any fraudulent behaviors in securities business such as manipulation of market prices, insider trades, and providing false information, etc.

Article 54
Administrative penalties shall be imposed to any violation of these Measures. In addition, the business qualification of the directly in-charge manager and other directly in-charge personnel shall be suspended or canceled.

Any violation of these Measures which cause losses of other persons shall bear civil liabilities of compensation.

Any violation of these Measures which constitutes crimes shall be prosecuted according to criminal liabilities.

Chapter Seven:
Supplementary Provisions

Article 55
The definitions of the following terms used in these Measures are:

1) a "trust unit" is a proof issued by a fund's promoter to general investors, certifying that the holder shall have the rights to enjoy the ownership of the fund's assets, to receive allocation of profits, to enjoy other relevant benefits, and to bear relative obligations;

2) an "open-ended fund" is a fund with an unfixed total issuing amount and its total number of fund units which can be changed at any time. The investor of an open-ended fund can subscribe or redeem such fund units at a trading premises designated by the state according to the quoted price of the fund;

3) a "close-ended fund" is a fund with a pre-determined total issuing amount, and its total number of fund unit does not change during the "PURCHASE & REDEMPTION PERIOD" period. After the fund is listed, investors may transfer or trade its fund units through the securities market;

4) a "fund's total asset value" is the sum of the value of all kinds of securities purchased by a fund, its bank savings plus interest, and the value of all other investment made by the fund;

5) A "fund's net asset value" is a fund's total assets value minus the expenses that can be deducted from the fund's assets in accordance with relevant state stipulations;

6) a "fund's net asset value per unit" is a fund's net asset value on the date of calculation divided by the number of fund units on that date;

7) a "fund's profit" includes all bonuses, dividends, bond interest, price differences from securities trading, saving interest, and other income gained from a fund's investment;

8) a "fund's net profit" is a fund's profit minus the expenses that can be deducted from the fund's profit in accordance with relevant state stipulations.

Article 56
These Measures shall be implemented by the CSRC.

Article 57
These Measures shall be implemented from the date of promulgation.

Source: Shanghai Securities Journal, 15th November, 1997.