PRC Securities Investment Fund Law

Article 2: This Law shall apply to raising, through public sale of shares of funds, of securities investment funds (hereafter, Funds) that are administered by Fund managers and held in custodianship by Fund custodians, and that engage in securities investments using a portfolio of assets for the interests of Fund shareholders within the People's Republic of China . When an eventuality is not provided for in this Law, the PRC Trust Law, the PRC Securities Law and other relevant laws and administrative regulations shall apply.

Article 3: The rights and obligations of Fund managers, Fund custodians and Fund shareholders shall be agreed upon in the Fund contract in accordance with the Law.

Fund managers and Fund custodians shall carry out their appointed duties in accordance with this Law and as stipulated in the Fund contract. Fund shareholders shall enjoy profits and bear risks in accordance with the shares of the Fund they hold.

Article 4: Securities investment fund activity shall abide by the principles of voluntariness, fairness and good faith. It shall not prejudice state or public interests.

Article 5: Fund contracts shall stipulate the Fund operating method. Fund operating methods may be closed-end, open-ended or otherwise.

Funds adopting closed-end operating methods (hereafter, Closed-end Funds) shall mean Funds in which the verified and approved total of shares shall be fixed during the term of the Fund contract, in which shares may be traded on legally established stock exchanges, but in which Fund shareholders may not apply for redemption.

Funds adopting open-ended operating methods (hereafter, "Open-ended Funds") shall mean Funds in which the total shares are not fixed and which shares in the Fund may be bought or redeemed within the term and in the forums stipulated in the Fund contract.

Procedures for sale, trading, purchase and redemption of Funds adopting other operating methods shall be stipulated separately by the State Council.

Article 6: Fund property shall be independent of the Fund managers' and Fund custodians' own property. Fund managers and Fund custodians shall not incorporate Fund property into their own property.

Property and proceeds acquired by Fund managers and Fund custodians through the management and use of Funds, or by other means related to the Fund, shall be incorporated into the Fund property.

If Fund managers or Fund custodians are liquidated because they are legally dissolved, shut down or declared bankrupt, etc., the property of the Fund shall not be included in their liquidated property.

Article 7: Claims arising from Fund property shall not be offset against debts arising from the Fund manager's or Fund custodian's own property. Claims and debts arising from property of different Funds shall not be offset against each other.

Article 8: Except for debts borne by Fund property itself, no enforcement measures may be taken against Fund property.

Article 9: When managing and using Fund property, Fund managers and Fund custodians shall be scrupulous in their duties and shall fulfil their obligations to be honest, trustworthy, prudent and diligent.

Fund personnel shall have obtained the qualifications for engagement in the Fund business in accordance with the law, shall abide by laws and administrative regulations, and shall scrupulously observe professional ethics and codes of conduct.

Article 10: Fund managers, Fund custodians and organizations selling shares of Funds may establish industrial associations to strengthen self-discipline of the industry, to coordinate relationships within the industry, to provide services for the industry, and to promote development of the industry.

Article 11: The State Council securities regulatory authority shall regulate the activities of securities investment funds according to law.

PART TWO: FUND MANAGERS

Article 12: The role of Fund managers shall be assumed by Fund management companies that have been established in accordance with the law.

Assumptions of the role of Fund managers shall be verified and approved by the State Council securities regulatory authority.

Article 13: The establishment of Fund management companies shall fulfil the following criteria and shall be approved by the State Council securities regulatory authority:

(1) they shall have articles in compliance with the Law and the PRC Company Law;

(2) they shall have registered capital of not less than Rmb100 million and such capital must be paid-in money capital;

(3) the principal shareholders shall have relatively good business performance in their engagement in the securities business, securities investment consultancy, management of assets held in trust or management of other financial assets, and shall have a good social reputation. They shall have no record of legal violation within the last three years and shall have registered capital of not less than Rmb300 million;

(4) the number of personnel with qualifications to engage in the Fund business shall have reached the statutory requirement;

(5) they shall have the required place of business, safety precaution facilities, and other facilities related to Fund management business;

(6) they shall have a sound internal audit and monitoring system and risk control system; and

(7) they shall fulfil other criteria stipulated in laws, administrative regulations and stipulations of the State Council securities regulatory authority approved by the State Council.

Article 14: The State Council securities regulatory authority shall examine applications for the establishment of Fund management companies within six months of their acceptance, in accordance with the provisions of Article 13 hereof and with the principle of prudential regulation, shall make a decision whether or not to approve the application, and shall inform the applicant. Where an application is not approved, the reasons therefor shall be explained.

The establishment of branches by Fund management companies, amendments of their articles, or changes in other major matters, shall be reported to the State Council securities regulatory authority for approval. The State Council securities regulatory authority shall decide within six months of acceptance of the application whether or not to approve the application, and shall inform the applicant. Where an application is not approved, the reasons therefor shall be explained.

Article 15: The following persons shall not be employed as Fund personnel of Fund managers:

(1) those who have committed the crimes of bribery, neglect of duty, embezzlement of property or of damaging the order of the socialist market economy, and on whom a sentence was imposed;

(2) directors, supervisors, factory heads, managers and other senior management personnel who have been personally responsible through poor management for the bankruptcy and liquidation or through violation of laws for revocation of the business licence of a company or enterprise and it is less than five years since the date the company's or the enterprise's bankruptcy liquidation was concluded or the business licence revoked;

(3) those with relatively large personal debts who have not repaid them on time;

(4) personnel of Fund managers, Fund custodians, stock exchanges, securities companies, securities registration and settlement organizations, futures exchanges, futures brokerages and other organizations and employees of state authorities who have been dismissed for violations of the law;

(5) lawyers, certified accountants, personnel of asset valuation institutions or verification organizations and investment consultants who have had their business licence or qualifications revoked because of violations of the law; and

(6) other persons whom the laws and administrative regulations stipulate shall not be engaged in Fund business.

Article 16: The managers and other senior management personnel of Fund managers shall be familiar with the laws and administrative regulations regarding securities investment. They shall possess the qualifications to engage in the Fund industry and have three or more years' work experience related to their posts.

Article 17: The appointment of and personnel changes in the managers and senior management personnel of Fund managers shall be reported to the State Council securities regulatory authority for examination and verification in accordance with the qualification criteria stipulated in this Law and in other relevant laws and administrative regulations.

Article 18: The directors, supervisors, managers and other personnel of Fund managers shall not assume the post of Fund custodian or any post in other Fund managers. They shall not engage in securities transactions or other activities that prejudice Fund property or the interests of Fund shareholders.

Article 19: Fund managers shall carry out the following duties:

(1) they shall raise Funds in accordance with the law, and shall handle or appoint other agents recognized by the State Council securities regulatory authority to handle the sale, purchase, redemption or registration of shares of Funds;

(2) they shall carry out procedures for record filing of Funds;

(3) they shall separately manage and keep separate accounts for the different Fund property they manage, and carry out securities investment;

(4) they shall formulate a plan for distribution of Fund earnings in accordance with the Fund contract, and shall distribute such earnings to Fund shareholders in a timely manner;

(5) they shall carry out accounting of Funds and compile Fund financial accounts reports;

(6) they shall compile interim and annual Fund reports;

(7) they shall calculate and announce the net asset value of the Fund, and determine the prices for purchase and redemption of shares of Funds;

(8) they shall carry out information disclosure concerning Fund property management activities;

(9) they shall convene Fund shareholders' general meetings;

(10) they shall keep records, account books, statements and other relevant material of Fund property management activities;

(11) they shall in the name of the Fund manager represent the interests of Fund shareholders in exercising Fund shareholders' right of action or in performing other legal acts; and

(12) they shall fulfil other duties stipulated by the State Council securities regulatory authority.

Article 20: Fund managers shall not engage in the following acts:

(1) they shall not mix their own property or the property of others with Fund property in carrying out securities investment;

(2) they shall not treat unequally the different Fund property they manage;

(3) they shall not use Fund property to benefit a third party other than a Fund shareholder;

(4) they shall not promise profits to, or bearing of losses for, Fund shareholders against provisions; and

(5) other acts prohibited by the State Council securities regulatory authority in accordance with relevant provisions of laws and administrative regulations.

Article 21: The State Council securities regulatory authority shall in the case of any of the following circumstances regarding Fund managers order rectification within the limits of their authority, or revoke the Fund manager's qualifications:

(1) a major violation of the law or of regulations;

(2) failure to fulfil the criteria stipulated in Article 13 hereof; or

(3) other circumstances stipulated in laws or administrative regulations.

Article 22: In any of the following circumstances a Fund manager's duties shall be terminated:

(1) its Fund manager's qualifications have been revoked in accordance with the law;

(2) it is dismissed by the Fund shareholders' general meeting;

(3) it is legally dissolved, shut down or declared bankrupt; or

(4) other circumstances stipulated in the Fund contract.

Article 23: If a Fund manager's duties are terminated, the Fund shareholders' general meeting shall, within six months, select a new Fund manager. Prior to the new Fund manager being selected the State Council securities regulatory authority shall designate a temporary Fund manager.

If a Fund manager's duties are terminated they shall properly keep material related to management of the Fund and shall carry out the procedures for handover of the management of the Fund in a timely manner. The new Fund manager or temporary Fund manager shall take over in a timely manner.

Article 24: If a Fund manager's duties are terminated they shall in accordance with provisions appoint an accounting firm to audit the Fund property. They shall publicize the results of the audit, which shall be filed with the State Council securities regulatory authority for the record.

PART THREE: FUND CUSTODIANS

Article 25: The role of Fund custodian shall be assumed by a commercial bank that has been established in accordance with the law and that has obtained Fund custodianship qualification.

Article 26: Those applying for Fund custodianship qualification shall fulfil the following criteria and shall be verified and approved by the State Council securities regulatory authority and the State Council banking regulatory authority:

(1) they shall have net assets and a capital adequacy ratio in compliance with relevant provisions;

(2) they shall have established a special Fund custodianship department;

(3) they shall have the statutory number of skilled personnel who have obtained the qualifications for engagement in the Fund business;

(4) they shall have the conditions to take Fund property into safe custody;

(5) they shall have secure and efficient clearing and settlement systems;

(6) they shall have the required place of business, safety precaution facilities, and other facilities related to Fund custodianship business;

(7) they shall have a sound internal audit and monitoring system and risk control system; and

(8) they shall fulfil other criteria stipulated in laws, administrative regulations and stipulations of the State Council securities regulatory authority and the State Council banking regulatory authority approved by the State Council.

Article 27: The provisions of Articles 15 and 18 hereof shall apply to the personnel of the special Fund custodianship department of Fund custodians.

The provisions of Articles 16 and 17 hereof shall apply to the managers and other senior management personnel of the special Fund custodianship department of Fund custodians.

Article 28: A Fund custodian and a Fund manager shall not be the same party, and shall not make capital contributions to, or hold shares of, each other.

Article 29: Fund custodians shall carry out the following duties:

(1) they shall take Fund property into safe custody;

(2) they shall open capital and securities accounts for Fund property in accordance with provisions;

(3) they shall set up separate accounts for the property of separate Funds that they hold in custody, and shall ensure the integrity and separateness of such Fund property;

(4) they shall keep records, account books, statements and other relevant material of Fund custodianship activities;

(5) they shall carry out clearing and settlement in a timely manner according to the Fund manager's investment instructions and in accordance with stipulations of the Fund contract;

(6) they shall carry out information disclosure concerning Fund custodianship activities;

(7) they shall give opinions on Fund financial accounts reports and on interim and annual Fund reports;

(8) they shall check and examine the net asset value of the Fund, and the prices of purchase and redemption of shares in the Fund, as calculated by the Fund manager;

(9) they shall convene Fund shareholders' general meetings in accordance with provisions;

(10) they shall oversee the investment activity of the Fund manager in accordance with provisions; and

(11) they shall carry out other duties as stipulated by the State Council securities regulatory authority.

Article 30: If Fund custodians discover that the investment instructions of the Fund manager are in violation of laws, administrative regulations or other provisions, or are in violation of the Fund contract, they shall refuse to implement them. They shall notify the Fund manager immediately and shall report the same to the State Council securities regulatory authority in a timely manner.

If Fund custodians discover that investment instructions of the Fund manager that have become effective according to the trading procedures are in violation of laws, administrative regulations or other provisions, or are in violation of the Fund contract, they shall notify the Fund manager immediately and shall report the same to the State Council securities regulatory authority in a timely manner.

Article 31: The provisions of Article 20 hereof shall apply to Fund custodians.

Article 32: The State Council securities and banking regulatory authorities shall in any of the following circumstances regarding Fund custodians order rectification within the limits of their authority, or shall revoke the Fund custodian's qualifications:

(1) major violations of laws or regulations;

(2) no longer fulfilling the criteria stipulated in Article 13 hereof; or

(3) other circumstances stipulated in laws and administrative regulations.

Article 33: In any of the following circumstances a Fund custodian's duties shall be terminated:

(1) its Fund custodian's qualifications have been revoked in accordance with the law;

(2) it is dismissed by the Fund shareholders' general meeting;

(2) it is legally dissolved, shut down or declared bankrupt; or

(4) other circumstances stipulated in the Fund contract.

Article 34: If a Fund custodian's duties are terminated, the Fund shareholders' general meeting shall, within six months, select a new Fund custodian. Prior to the new Fund custodian being selected the State Council securities regulatory authority shall designate a temporary Fund custodian.

If a Fund custodian's duties are terminated, the Fund property and material related to custodianship of the Fundshall properly shall be taken custody of and the procedures for handover of the Fund property and custodianship of the Fund shall be carried out in a timely manner. The new Fund custodian or temporary Fund custodian shall take over in a timely manner.

Article 35: If a Fund custodian's duties are terminated, an accounting firm shall be appointed to audit the Fund property in accordance with provisions. The results of the audit shall be publicized and filed with the State Council securities regulatory authority for the record.

PART FOUR: RAISING OF FUNDS

Article 36: Fund managers shall sell shares of Funds and raise Funds in accordance with this Law. They shall submit the following documents to the State Council securities regulatory authority for approval:

(1) application;

(2) draft Fund contract;

(3) draft Fund custodianship agreement;

(4) draft prospectus;

(5) proof of qualifications of the Fund manager and the Fund custodian;

(6) financial accounts reports of the Fund manager and the Fund custodian, audited by an accounting firm, for the previous three years or from the date of establishment;

(7) legal opinion from a law firm; and

(8) other documentation stipulated by the State Council securities regulatory authority.

Article 37: The Fund contract shall include the following:

(1) object of the Fund raising and name of the Fund;

(2) name and domicile of the Fund manager and the Fund custodian;

(3) method of operation of the Fund;

(4) total of shares of the Fund and term of the Fund contract for Closed-end Funds, or minimum total of shares of the Fund being raised for Open-ended funds;

(5) principles to be used to decide the date of sale of shares of the Fund, their price and the cost;

(6) rights and obligations of Fund shareholders, the Fund manager and the Fund custodian;

(7) procedures and rules to be used for convening Fund shareholders' general meetings, and for the deliberation and voting therein;

(8) procedures, time, place and costing method for sale, trading, purchase and redemption of shares of the Fund, and time and method of payment for redemption of shares;

(9) principles for and method of implementation of distribution of Fund earnings;

(10) method of collection or payment of, as well as percentage of, management and custodianship fees to be paid as remuneration to the Fund manager and the Fund custodian;

(11) method of collection or payment of other costs related to the management and use of the Fund;

(12) the direction and limits on investment of the Fund property;

(13) method of calculating and publicizing the net asset value of the Fund property;

(14) method of handling if the amount of Funds raised does not meet the statutory requirements;

(15) reasons and procedure for dissolving or terminating the Fund contract, and method of settlement of the Fund property;

(16) method of resolving disputes; and

(17) other matters agreed by the parties involved.

Article 38: The Fund prospectus shall include the following:

(1) the name of the approval document for the application to raise Funds, and the date approval was given;

(2) the basic particulars of the Fund manager and the Fund custodian;

(3) an outline of the Fund contract and the Fund custodian agreement;

(4) the date, price, cost and period of sales of shares of the Fund;

(5) the method of selling shares of the Fund and the name of the sales organization and the registration organization;

(6) the names and domiciles of the law firm that issues the legal opinion and the accounting firm that audits the Fund property;

(7) method of collection or payment of, as well as proportion of, remuneration to the Fund manager and the Fund custodian, and other costs;

(8) content of risk warning; and

(9) other content as stipulated by the State Council securities regulatory authority.

Article 39: The State Council securities regulatory authority shall examine the applications to raise Funds within six months of the date of acceptance of the application in accordance with laws, administrative regulations, provisions of the State Council securities regulatory authority and principle of prudential regulation, shall decide whether or not to approve the applications and shall inform the applicant. Where an application is not approved, the reasons therefor shall be explained.

Article 40: Shares of the Fund shall only be sold after an application to raise Funds has been approved.

Article 41: Sale of shares of Funds shall be handled by Fund managers. Fund managers may appoint another organization recognized by the State Council securities regulatory authority to handle it.

Article 42: Fund managers shall publicize the prospectus, Fund contract and other relevant documents three days prior to the sale of shares of the Funds.

The documents stipulated in the preceding paragraph shall be true, accurate and complete.

The promotional activities of Fund raising shall be in accord with relevant laws and administrative regulations. Acts listed under Article 64 hereof shall be prohibited.

Article 43: Fund managers shall start Fund raising within six months of their receipt of the approval document. If Fund raising starts more than six months after receipt of the approval document, and there have been no substantial changes to the matters approved, such shall be reported to the State Council securities regulatory authority for the record. If there have been substantial changes, a new application shall be made to the State Council securities regulatory authority.

Raising of Funds may not exceed the time limit set by the State Council securities regulatory authority. The time limit shall be calculated from the date that shares of the Fund are offered.

Article 44: When the time limit for Fund raising expires, if the total shares of the Fund raised for a Closed-end Fund has reached 80% of the approved size or the total shares of the Fund raised for an Open-ended Fund has exceeded the approved minimum total shares of the Fund being raised, and the number of Fund shareholders is in accord with the stipulations of the State Council securities regulatory authority, the Fund manager shall employ an official capital verification institution to conduct capital verification within 10 days after the time limit for Fund raising expires. They shall submit the capital verification report to the State Council securities regulatory authority within 10 days of their receipt of the report, carry out the procedure for record filing of the Fund, and publicize the same.

Article 45: The capital raised during the Fund raising period shall be deposited in a special account. No person shall draw on such capital until the Fund raising is completed.

Article 46: When investors pay for the shares of the Fund they have subscribed to, the Fund contract shall be established. The Fund manager shall carry out the procedures for record filing with the State Council securities regulatory authority in accordance with Article 44 hereof and the Fund contract shall come into effect.

If the time limit for raising Funds has expired and the conditions provided for in Article 44 hereof cannot be satisfied, the Fund manager shall be responsible for the following:

(1) bearing debts and costs arising from the Fund raising with its own property; and

(2) repayment within 30 days of the expiry of the Fund raising period of sums paid in by investors including interest at the bank deposit interest rate for that period.

PART FIVE: TRADING OF SHARES OF FUNDS

Article 47: Shares of Closed-end Funds may be listed and traded on a stock exchange on the application of the Fund manager and with the verification and approval of the State Council securities regulatory authority.

The State Council securities regulatory authority may authorize a stock exchange to verify and approve listing and trading of shares of a Fund in accordance with the statutory conditions and procedures.

Article 48: Listing and trading of shares of Funds shall fulfil the following criteria:

(1) the raising of the Fund shall have been in accordance with this Law;

(2) the term of the Fund contract shall be of five years or above;

(3) the amount of the Fund raised shall be not less than Rmb200 million;

(4) the number of Fund shareholders shall be not less than 1,000 persons; and

(5) other criteria stipulated in rules on listing and trading of shares of Funds.

Article 49: Rules on listing and trading of shares of Funds shall be formulated by stock exchanges and submitted to the State Council securities regulatory authority for verification and approval.

Article 50: If any of the following circumstances arises after the listing and trading of shares of a Fund, the stock exchange shall terminate the listing and trading, and shall report the same to the State Council securities regulatory authority for the record:

(1) the criteria on listing and trading stipulated in Article 48 hereof are no longer fulfilled;

(2) the term of the Fund contract expires;

(3) the Fund shareholders' general meeting has decided to prematurely terminate the listing and trading; or

(4) other circumstances where the Fund contract, or provisions on listing and trading of shares of Funds, stipulate that listing and trading shall be terminated.

PART SIX: PURCHASE AND REDEMPTION OF SHARES OF FUNDS

Article 51: The purchase, redemption and registration of shares of Open-ended Funds shall be handled by Fund managers. Fund managers may appoint another organization recognized by the State Council securities regulatory authority to handle it.

Article 52: Fund managers shall handle purchase and redemption of shares of Funds every working day, unless the Fund contract stipulates otherwise.

Article 53: Fund managers shall pay the redemption money on time unless one of the following circumstances applies:

(1) force majeure means that the Fund manager is unable to pay the redemption money;

(2) the stock exchange has decided in accordance with the law to cease trading so that the Fund manager is unable to calculate the net asset value of the Fund on that day; or

(3) other unusual circumstances stipulated in the Fund contract.

Where any of the above arises, the Fund manager shall report the same to the State Council securities regulatory authority on the same day for the record.

The Fund manager shall pay the redemption money in a timely manner once the circumstance in Item (1) above disappears.

Article 54: Open-ended Funds shall maintain sufficient cash or government bonds to prepare for the payment of the redemption money to Fund shareholders. The actual proportion of Fund property to be held in cash or government bonds shall be decided by the State Council securities regulatory authority.

Article 55: The prices for purchase and redemption of shares of Funds shall be calculated on the basis of the net value of shares of the Fund on the day of purchase or redemption, plus or minus the relevant costs.

Article 56: If an error is made in the pricing based on the net value of shares of the Fund, the Fund manager shall immediately correct the error and shall take reasonable measures to prevent the damage from spreading. If the error in pricing is as much as 0.5% of the net value of the shares of the Fund, the Fund manager shall publicize the same and shall report the same to the State Council securities regulatory authority for the record.

If a Fund shareholder incurs losses as a result of an error in the pricing based on the net value of shares of the Fund, the shareholder has the right to request compensation from the Fund manager and the Fund custodian.

PART SEVEN: OPERATION AND INFORMATION DISCLOSURE OF FUNDS

Article 57: Fund managers shall adopt asset portfolio methods when using Fund property to carry out securities investment.

The specific format and investment proportion of a portfolio of assets shall be set out in the Fund contract in accordance with this Law and provisions of the State Council securities regulatory authority.

Article 58: Fund property shall be used for investment in:

(1) listed stocks and securities; and

(2) other types of securities specified by the State Council securities regulatory authority.

Article 59: Fund property shall not be invested in or used for the following:

(1) securities distribution;

(2) loans or security to another party;

(3) unlimited liability investments;

(4) buying or selling shares of other Funds, except where the State Council provides otherwise;

(5) capital contributions to the Fund manager or Fund custodian, or buying or selling shares or bonds issued by the Fund manager or Fund custodian;

(6) buying or selling securities issued by, or securities distributed during the distribution period by, a shareholder that has a controlling shareholding relationship with, or a company that has other material interests in, the Fund manager or Fund custodian;

(7) insider trading, manipulation of securities trading prices or other improper securities trading activities; and

(8) other activities prohibited by the State Council securities regulatory authority in accordance with relevant provisions of laws and administrative regulations.

Article 60: Fund managers, Fund custodians and other persons with an obligation to disclose Fund information shall disclose Fund information in accordance with the law. They shall ensure the truthfulness, accuracy and completeness of the information they disclose.

Article 61: Persons with an obligation to disclose Fund information shall ensure that Fund information that shall be disclosed is disclosed within the time limit stipulated by the State Council securities regulatory authority. They shall ensure that investors are able to review or duplicate publicly disclosed information within the period and in the ways stipulated in the Fund contract.

Article 62: Public disclosure of Fund information shall include:

(1) the Fund prospectus, the Fund contract and the Fund custodianship agreement;

(2) details on Fund raising;

(3) listing announcement of shares of the Fund;

(4) net asset value of the Fund and net value of shares of the Fund;

(5) purchase and redemption prices of shares of the Fund;

(6) quarterly reports, financial accounts reports, and interim and annual Fund reports on the asset portfolio of the Fund property;

(7) ad hoc reports;

(8) resolutions by Fund shareholders' general meetings;

(9) major personnel changes in the Fund manager and in the special Fund custodianship department of the Fund custodian;

(10) litigation involving the Fund manager, the Fund property or the Fund custodianship; and

(11) other information that the State Council securities regulatory authority stipulates shall be disclosed in accordance with relevant provisions of laws and administrative regulations.

Article 63: Accounting firms and law firms issuing audit reports and legal opinions on publicly disclosed Fund information shall ensure that the documentation they issue is truthful, accurate and complete.

Article 64: The following acts are prohibited in the public disclosure of Fund information:

(1) recording falsehoods, making misleading statements or having major omissions;

(2) predictions on the results of securities investments;

(3) promises of profits or of bearing of losses against provisions;

(4) defamation of other Fund managers, custodians or share sales organizations; and

(5) other acts prohibited by the State Council securities regulatory authority in accordance with relevant provisions of laws and administrative regulations.

PART EIGHT: CHANGES TO AND TERMINATION OF FUND CONTRACTS, AND LIQUIDATION OF FUND PROPERTY

Article 65: Fund operating methods may be changed in accordance with the stipulations of the Fund contract or a resolution by the Fund shareholders' general meeting and with the approval of the State Council securities regulatory authority.

Article 66: Further raising of Closed-end Funds, or extension of the term of the Fund contract, shall fulfil the following criteria and be approved by the State Council securities regulatory authority:

(1) the Fund is performing well;

(2) the Fund manager has not received administrative or criminal punishment for violations of laws or regulations within the previous two years;

(3) the resolution has been passed by the Fund shareholders' general meeting; and

(4) other criteria stipulated in this Law.

Article 67: In any one of the following circumstances a Fund contract shall be terminated:

(1) the term of the Fund contract has expired and has not been extended;

(2) the Fund shareholders' general meeting resolves to terminate the contract;

(3) the Fund manager's or Fund custodian's duties have been terminated but a new Fund manager or Fund custodian has not taken over within six months; or

(4) other circumstances as stipulated in the Fund contract.

Article 68: When a Fund contract is terminated, the Fund manager shall organize a liquidation committee to carry out liquidation of the Fund property.

The liquidation committee shall be composed of the Fund manager, the Fund custodian and the relevant intermediary services organizations.

The liquidation committee's liquidation report shall be submitted to the State Council securities regulatory authority for the record, and shall be publicized, after it has been audited by an accounting firm and a legal opinion has been given by a law firm.

Article 69: The residual Fund property after liquidation shall be distributed among the Fund shareholders in proportion to the shares they hold.

PART NINE: THE RIGHTS OF FUND SHAREHOLDERS, AND THE EXERCISE THEREOF

Article 70: Fund shareholders shall enjoy the following rights:

(1) to share earnings from Fund property;

(2) to participate in the distribution of residual Fund property after liquidation;

(3) to transfer, or to apply to redeem, shares of Funds held by them, in accordance with the law;

(4) to request the convening of a Fund shareholders' general meeting in accordance with provisions;

(5) to exercise the voting right on matters being deliberated by a Fund shareholders' general meeting;

(6) to review or to duplicate publicly disclosed Fund information;

(7) to bring lawsuits according to law against acts by the Fund manager, the Fund custodian or the Fund share sales organization that have prejudiced the shareholder's lawful rights and interests; and

(8) other rights as stipulated in the Fund contract.

Article 71: The following matters shall be decided by the Fund shareholders' general meeting:

(1) early termination of the Fund contract;

(2) further raising of Funds, or extension of the term of the Fund contract;

(3) change of the Fund operating method;

(4) raising the remuneration standard of the Fund manager or Fund custodian;

(5) change of the Fund manager or the Fund custodian; and

(6) other matters as stipulated in the Fund contract.

Article 72: A Fund shareholders' general meeting shall be convened by the Fund manager. If the Fund manager fails to convene a meeting in accordance with provisions, or is unable to convene a meeting, then the Fund custodian shall do so.

If Fund shareholders representing 10% or more of shares of the Fund request that a Fund shareholders' general meeting be convened on a common matter, and neither the Fund manager nor the Fund custodian convenes such a meeting, then Fund shareholders representing 10% or more of shares of the Fund have the right to convene the meeting themselves and shall report the same to the State Council securities regulatory authority for the record.

Article 73: To convene a Fund shareholders' general meeting the convener shall announce the time, format, agenda, rule of procedure and method of voting, etc. of the meeting not less than 30 days before the meeting.

A Fund shareholders' general meeting shall not vote on matters that have not been previously announced.

Article 74: A shareholders' general meeting may be held in person or through communications.

Each share of the Fund has one vote. A Fund shareholder may commission a proxy to attend the shareholders' general meeting and exercise the voting right.

Article 75: A shareholders' general meeting shall only be held if holders representing at least 50% of shares of the Fund attend. Decisions on matters deliberated at the meeting shall be adopted by at least 50% of the voting rights held by the Fund shareholders attending the meeting. However change of the Fund operating method, of the Fund manager or the Fund custodian, or early termination of the Fund contract, shall be adopted by at least two-thirds of the voting rights held by the Fund shareholders attending the meeting.

Matters decided at a Fund shareholders' general meeting shall, in accordance with the law, be reported to the State Council securities regulatory authority for verification and approval or for the record, and shall be publicized.

PART TEN: REGULATION

Article 76: The State Council securities regulatory authority shall perform the following duties in accordance with the law:

(1) formulate rules and codes for regulation of securities investment fund activities in accordance with the law, and exercise the right to examine and approve or to verify and approve such rules and codes according to law;

(2) handle record filings for Funds;

(3) regulate securities investment fund activities engaged in by Fund managers, Fund custodians and other organizations, investigate and handle illegal acts, and publicize these;

(4) formulate qualification standards and code of conduct for Fund personnel and monitor the implementation;

(5) monitor and examine Fund information disclosure;

(6) guide and monitor Fund industrial associations; and

(7) other duties as stipulated by laws and administrative regulations.

Article 77: The State Council securities regulatory authority shall, when performing their duties in accordance with the law, have the right to take the following measures:

(1) enter the place where illegal acts take place to investigate and collect evidence;

(2) question the parties involved and work units and individuals related to the issue being investigated, and require them to explain points relating to the issue under investigation;

(3) review and duplicate the securities transactions records, registration records of transfer of ownership, financial accounts and other relevant documents and material of the parties involved and of work units and individuals related to the issue being investigated, and seal documents and material that may be moved or concealed;

(4) make enquires about the capital accounts, securities accounts and Fund accounts of the parties involved and of work units and individuals related to the issue being investigated. They may request the judicial authorities to freeze illegal funds or securities where there is proof that there are signs that such may be transferred or concealed; and

(5) other measures as stipulated in the laws and regulations.

Article 78: When conducting investigations or inspections in their performance of duties in accordance with the law, at least two persons of the State Council securities regulatory authority personnel shall be present and they shall show legal identity certificates. They shall have an obligation to maintain the confidentiality of commercial secrets that they learn in the course of their investigations or inspections.

Article 79: Personnel of the State Council securities regulatory authority shall be faithful in performing their duties, shall act in accordance with the law, shall be impartial and honest, shall accept being monitored, and shall not make use of their position for private gain.

Article 80: When the State Council securities regulatory authority performs its duties in accordance with the law, work units and individuals being investigated or inspected shall cooperate. They shall provide accurate documents and material and shall not refuse to cooperate, obstruct the investigation or inspection, or conceal things.

Article 81: If the State Council securities regulatory authority, in the course of performing their duties in accordance with the law, discover suspicious criminal activity they shall transfer the case to the judicial authorities.

Article 82: Personnel of the State Council securities regulatory authority shall not simultaneously hold posts in an organization being monitored.

PART ELEVEN: LEGAL LIABILITY

Article 83: If Fund managers or Fund custodians in the course of performing their respective duties violate the provisions hereof or of the Fund contract, causing harm to the Fund property or to the Fund shareholders, they shall each bear legal liability for compensation for their respective actions. If the action is joint and causes harm to the Fund property or to the Fund shareholders, they shall be jointly and severally liable for compensation.

Article 84: If capital raised is drawn on in violation of Article 45 hereof such capital shall be ordered to be returned and any illegal income shall be confiscated. If the illegal income is Rmb500,000 or above, a fine of between one and five times the illegal income shall be imposed. If there is no illegal income, or if it is less than Rmb500,000, a fine of between Rmb50,000 and Rmb500,000 shall be imposed. Those in charge who are directly responsible and other directly responsible persons shall be given a warning and shall be fined between Rmb30,000 and Rmb300,000. They shall be legally liable for compensation for losses incurred by investors. If the act constitutes a crime, criminal liability shall be pursued in accordance with the law.

Article 85: Those raising Funds without the approval of the State Council securities regulatory authority shall be ordered to desist and to return the capital raised plus interest calculated on bank deposit interest for the same period. Their illegal income shall be confiscated and they shall be fined between 1% and 5% of the capital raised. If the act constitutes a crime, criminal liability shall be pursued in accordance with the law.

Article 86: Those who, in violation of provisions hereof, set up Fund management companies without approval shall be banned by the securities regulatory authority and shall be fined between Rmb50,000 and Rmb500,000. If the act constitutes a crime criminal liability shall be pursued in accordance with the law.

Article 87: Those engaging in Fund management or Fund custodianship without the approval of the State Council securities regulatory authority shall be ordered to desist and their illegal income shall be confiscated. If the illegal income is Rmb1 million or above, a fine of between one and five times the illegal income shall be imposed. If there is no illegal income, or if it is less than Rmb1 million, a fine of between Rmb100,000 and Rmb1 million. If harm has been caused to the Fund property or the Fund shareholders, they shall be legally liable for compensation. Those in charge who are directly responsible and other directly responsible personnel shall be given a warning and shall be fined between Rmb30,000 and Rmb300,000. If the act constitutes a crime, criminal liability shall be pursued in accordance with the law.

Article 88: Fund managers or Fund custodians who in violation of provisions hereof fail to manage property of different Funds separately, or do not keep separate accounts for property of different Funds, or who misappropriate Fund property, shall be ordered to rectify this and shall be fined between Rmb50,000 and Rmb500,000. If harm has been caused to the Fund property or to the Fund shareholders they shall be legally liable for compensation. Those in charge who are directly responsible and other directly responsible persons shall be given a warning. They shall have their Fund business qualifications temporarily suspended or revoked, and shall be fined between Rmb30,000 and Rmb300,000. If the act constitutes a crime, criminal liability shall be pursued in accordance with the law.

Property and proceeds acquired by Fund managers or Fund custodians through the misappropriation of Fund property shall be incorporated into the Fund property, except where laws or administrative regulations provide otherwise.

Article 89: Fund managers or Fund custodians committing an act as specified in Article 20 hereof shall be ordered to rectify matters and their illegal income shall be confiscated. If the illegal income is Rmb1 million or above, a fine of between one and five times the illegal income shall be imposed. If there is no illegal income, or if it is less than Rmb1million, a fine of between Rmb100,000 and Rmb1 million. If harm has been caused to the Fund property or the Fund shareholders, they shall be legally liable for compensation. Those in charge who are directly responsible and other directly responsible persons shall be given a warning. They shall have their Fund business qualifications temporarily suspended or revoked, and shall be fined between Rmb30,000 and Rmb300,000. If the act constitutes a crime, criminal liability shall be pursued in accordance with the law.

Article 90: Fund managers or Fund custodians who commit one of the acts specified in Items (1) to (6) and Item (8) of Article 59 hereof shall be ordered to rectify matters and shall be fined between Rmb100,000 and Rmb1 million. If harm has been caused to the Fund property or the Fund shareholders, they shall be legally liable for compensation. Those in charge who are directly responsible and other directly responsible personnel shall be given a warning. They shall have their Fund business qualifications temporarily suspended or revoked, and shall be fined between Rmb30,000 and Rmb300,000. If the act constitutes a crime, criminal liability shall be pursued in accordance with the law.

Property and proceeds acquired by Fund managers or Fund custodians through the use of Fund property by an act as specified in the preceding paragraph shall be incorporated into the Fund property, except where laws or administrative regulations provide otherwise.

Article 91: If Fund managers or Fund custodians commit an act as specified in Item (7) of Article 5 hereof shall, in addition to being penalized as stipulated in relevant provisions of the PRC Securities Law, those in charge directly responsible and other directly responsible personnel shall be given a warning. They shall have their Fund business qualifications temporarily suspended or revoked, and shall be fined between Rmb30,000 and Rmb300,000. If harm has been caused to the Fund property or the Fund shareholders, they shall be legally liable for compensation.

Article 92: Fund managers or Fund custodians who, in violation of provisions hereof, make capital contributions to or hold shares of each other, shall be ordered to rectify matters and may be fined up to Rmb100,000.

Article 93: Those with an obligation to disclose Fund information who fail to do so in accordance with the law, or who disclose false records, make misleading statements or major omissions, shall be ordered to rectify matters. Their illegal income shall be confiscated and they shall be fined between Rmb100,000 and Rmb1 million. If harm has been caused to the Fund property or the Fund shareholders, they shall be legally liable for compensation. Those in charge who are directly responsible and other directly responsible personnel shall be given a warning. They shall have their Fund business qualifications temporarily suspended or revoked, and shall be fined between Rmb30,000 and Rmb300,000. If the act constitutes a crime, criminal liability shall be pursued in accordance with the law.

Article 94: Professional organizations issuing documents such as audit reports and legal opinions on Fund information to be publicly disclosed by those with an obligation to disclose Fund information falsify the information for which they are responsible shall be ordered to rectify matters. Their illegal income shall be confiscated and they shall be fined between one and five times the illegal income. If the circumstances are serious they shall be ordered to stop conducting business, and the relevant qualifications of those in charge who are directly responsible shall be temporarily suspended or revoked. If harm has been caused to the Fund shareholders, they shall be legally liable for compensation. If the act constitutes a crime, criminal liability shall be pursued in accordance with the law.

Article 95: If Fund managers or Fund custodians fail to convene Fund shareholders' general meetings in accordance with provisions, they shall be ordered to rectify matters and may be fined up to Rmb50,000. Those in charge who are directly responsible and other directly responsible persons shall be given a warning and shall have their Fund business qualifications temporarily suspended or revoked.

Article 96: Fund managers and Fund custodians in serious violation of provisions hereof shall have their Fund management or Fund custodianship qualifications revoked in accordance with the law.

Article 97: Personnel of Fund managers and special Fund custodianship departments of Fund custodians who violate Article 18 hereof and cause harm to the Fund property or to the Fund shareholders shall be legally liable for compensation. Where the circumstances are serious, they shall have their Fund business qualifications revoked. If the act constitutes a crime, criminal liability shall be pursued in accordance with the law.

Article 98: Personnel of the securities regulatory authority who are derelict in their duties, abuse their powers, practise graft, or use their position to ask for or receive others' property, shall receive administrative penalties in accordance with the law. If the act constitutes a crime, criminal liability shall be pursued in accordance with the law.

Article 99: Those in violation of provisions hereof who shall bear civil liability for compensation and shall pay fines or penal sums, and whose property are insufficient to pay both at the same time, shall first bear the civil liability for compensation.

Article 100: Fund managers and Fund custodians in violation of provisions hereof who shall bear civil liability for compensation and shall pay fines or penal sums shall pay these out of their own property.

Fines and penal sums collected and illegal income confiscated in accordance with the law shall be turned over to the state treasury.

PART TWELVE: SUPPLEMENTARY PROVISIONS

Article 101: Specific procedures governing the raising of capital from designated investors or keeping in trust property of designated investors to engage in securities investment activities shall be separately formulated by the State Council in accordance with this Law.

Article 102: Procedures governing raising of capital by public issue of shares to establish securities investment companies to engage in such activities as securities investment shall be separately formulated by the State Council.

Article 103: This Law shall be effective as of June 1 2004.