Administration of Money Market Funds Tentative Provisions

(Promulgated by the China Securities Regulatory Commission and the People's Bank of China on, and effective as of, August 16 2004.)

Zheng Jian Fa [2004] No.78

Article 1: These Provisions have been formulated pursuant to such relevant provisions as the Securities Investment Funds Law, the Administration of Securities Investment Fund Operations Procedures and the Administration of the Access of Fund Management Companies to the Interbank Market Provisions, in order to promote the development of securities investment funds (Funds), regulate the offering, operation and related activities of money market Funds and protect the lawful rights and interests of investors and relevant concerned parties.

Article 2: For the purposes of these Provisions, the term "money market Fund" means a Fund that invests solely in money market instruments.

Funds that have such words as "money", "cash", "liquid", "ready money", "short-term bond", etc. in their names shall comply with the relevant requirements hereof.

Article 3: Money market Funds shall invest in the following types of financial instruments:

(1) cash;

(2) bank term deposits and certificates of deposit with a term of one year or less;

(3) bonds with a remaining term of 397 days or less;

(4) bond repurchases with a term of one year or less;

(5) central bank bills with a term of one year or less; and

(6) other highly liquid money market instruments approved by the China Securities Regulatory Commission and the People's Bank of China.

Article 4: Money market Funds may not invest in the following financial instruments:

(1) stocks;

(2) convertible bonds;

(3) bonds with a remaining term of more than 397 days;

(4) corporate bonds with a credit rating of lower than AAA; and

(5) other financial instruments the investment in which is prohibited by the China Securities Regulatory Commission and the People's Bank of China.

Article 5: The portfolio of a money market Fund shall comply with the following provisions:

(1) the percentage invested in the short term corporate bonds issued by one company may not exceed 10% of the net asset value of the Fund;

(2) the amount deposited with one commercial bank that has Fund custodianship qualifications may not exceed 30% of the net asset value of the Fund; the amount deposited with one commercial bank that does not have Fund custodianship qualifications may not exceed 5% of the net asset value of the Fund;

(3) the balance of funds in bond repos on the national interbank bond market may not exceed 40% of the net asset value of the Fund; and

(4) other percentage limits imposed by the China Securities Regulatory Commission and the People's Bank of China.

Article 6: The average remaining term of the portfolio of a money market Fund may not exceed 180 days.

Article 7: With the exception of the circumstances set forth below, the remaining term of a bond in a portfolio means the number of days remaining between the calculation date and the date of maturity of the bond:

(1) the remaining term of variable rate and floating rate bonds that are benchmarked to the market rate and of bonds whose rate adjustment frequency is less than one year is the time remaining between the calculation date and the next rate adjustment date;

(2) the remaining term of repos is the time remaining between the calculation date and the date of trading of the underlying bonds as specified in the agreement; and

(3) other circumstances for which the China Securities Regulatory Commission has separate provisions.

Article 8: Money market Funds shall disclose the average remaining term of their portfolios in the investment portfolio report section of their annual reports, interim reports and quarterly reports.

Article 9: Money market Funds that issue their quotes based on their face value on a daily basis may specify in the Fund contract that the earning distribution method shall be accomplished through the reinvestment of dividends, and shall distribute earnings on a daily basis.

Article 10: Money market Funds that do not charge a purchase or redemption fee may allocate a certain fee from the Fund assets, which is not to exceed 0.25%, to be used solely for the sale of the Fund and for services to Fund shareholders. A special explanation of how the said fee is disbursed shall be included in the Fund's annual report.

Article 11: The Fund management company shall state in the prospectus and the publicity and promotional materials for a money market Fund that an investor's purchasing into a money market Fund is not the same as depositing the Funds as a deposit with a bank or a deposit-taking financial institution and that the Fund management company does not guarantee that the Fund will be profitable and does not guarantee minimum returns.

Article 12: Money market Funds shall adopt conservative and appropriate accounting and value assessment methods so as to ensure that the net asset value of the Fund fairly reflects the value of the Fund. The adopted accounting method shall be specified in the Fund contract, and the prospectus shall disclose the effect that the adopted method might have on the fluctuation in the net value of the Fund.

If the method of assessing the value of the Fund as specified in the preceding paragraph is unable to fairly reflect the value of the Fund under certain specific circumstances, the money market Fund may adopt another assessment method. The said specific circumstances and the said assessment method shall be specified in the Fund contract.

If the circumstance described in the preceding paragraph arises, the money market Fund shall disclose the same in the financial accounting report section of its annual report and interim report.

Article 13: In addition to complying with these Provisions, such activities of money market Funds as offering, purchase, redemption, investment, information disclosure, publicity and promotion shall comply with such relevant provisions as the Securities Investment Funds Law, the Administration of Securities Investment Fund Operations Procedures, the Administration of the Sale of Securities Investment Funds Procedures, the Administration of Information Disclosure of Securities Investment Funds Procedures and the Administration of the Access of Fund Management Companies to the Interbank Market Provisions.

Article 14: The trading and settlement activities of money market Funds on the national interbank market shall comply with the provisions of the People's Bank of China on the administration of the national interbank market and shall be subject to the regulation and dynamic inspection of the People's Bank of China.

Article 15: The China Securities Regulatory Commission and the People's Bank of China are in charge of interpreting these Provisions.

Article 16: These Provisions shall be implemented as of the date of promulgation.