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In order to protect the legitimate rights and interests of fund investors, standardize the operation of fund investment warrants, and ensure the safety of fund assets, Huafu Fund Management Co., Ltd. (hereinafter referred to as the "Fund Manager"), in accordance with the Securities Investment Fund Law of the People's Republic of China (hereinafter referred to as the "Fund Law")《 Administrative Measures for the Operation of Securities Investment Funds 》(hereinafter referred to as "Operation Measures")《 Administrative Measures for Information Disclosure of Securities Investment Funds 》(hereinafter referred to as the Information Disclosure Measures)《 Circular of The State Council of The People's Republic of China on Relevant Issues concerning The Investment Warrants of Securities Investment Funds in The Share trading Reform 》(hereinafter referred to as the "Notice") and other relevant laws and regulations, earnestly perform the obligations of honesty, credit, prudence and diligence, and formulate the management of Huafu Fund according to its own investment philosophy, investment experience and risk management technology
For the warrant investment plan of the limited company, the fund manager will strictly abide by the relevant provisions of this plan when investing in warrants.
1、 Proportion limit of investment warrants
（1） The total amount of warrants purchased by any securities investment fund managed by the Fund Manager on any trading day shall not exceed 0.5% of the net asset value of the fund on the previous trading day;
（2） The market value of all warrants held by any securities investment fund managed by the fund manager shall not exceed 3% of the net asset value of the fund;
（3） All securities investment funds managed by the fund manager shall hold the same warrant, which shall not exceed 10% of the warrant;
（4） If the CSRC has other provisions, it shall not be subject to the proportion specified in Items (1), (2) and (3) of Article 1;
（5） If the investment proportion of the Fund does not meet the requirements of Items (2) and (3) of Article 1 due to factors other than the Fund Manager, such as fluctuations in the securities market, changes in the size of the Fund, and payment of consideration in the split share structure reform, the Fund Manager shall complete the adjustment within ten trading days;
（6） Other relevant provisions of the CSRC.
2、 Investment strategy
The Fund Manager will act as a value finder based on the concept of value investment and scientific, in-depth and detailed research. For stock warrants, the fund manager will follow the following investment strategies when investing in warrants:
（1） Analyze the value and growth of the underlying securities, and use the existing stock investment strategies of the fund manager to conduct a comprehensive evaluation of the company's value and growth from the three aspects of the business cycle, fundamentals and valuation of the company's industry. Under the premise of considering the growth of the company, the undervaluation of the company is a necessary condition for the investment of call warrants, and accordingly, the overvaluation of the company is a necessary condition for the investment of put warrants;
（2） It is a necessary condition for warrant investment to conduct value analysis on warrants, use the warrant valuation technology established by the fund manager itself, and conduct scientific and rigorous value evaluation on the intrinsic value of warrants.
The fund manager will invest in warrants strictly according to the above two necessary conditions. When both conditions are met, it is the best time to invest. At this time, the investment risk is the smallest, and the expected investment return is relatively large.
3、 Information disclosure method
The Fund Manager will, in strict accordance with the provisions of the Fund Law, the Information Disclosure Measures and other relevant laws and regulations, include warrant investment into the scope of information disclosure, and disclose information about fund investment warrants in the Fund's regular reports, including the market value of fund investment warrants and their proportion in the net asset value of the Fund.
4、 Risk management measures
The Fund Manager has established a scientific and rigorous warrant valuation technology to monitor the warrants held in real time, so as to understand the value of the invested warrants and the deviation degree of the price in real time. When the downward deviation of the price reaches the early warning range, the Fund Manager will take reasonable measures to adjust the investment proportion; In addition, the Fund Manager also incorporates warrants as an asset into the existing risk monitoring system of the Fund Manager, regards them as one of the risk sources of the entire fund portfolio, and measures and controls risks within the portfolio.
The warrant valuation technology established by fund management is to use a variety of warrant pricing methods for valuation to obtain a valuation range of the intrinsic value of warrants. The main pricing methods are the BS pricing model invented by FischerBlack and Myron Scholes and the Monte Carlo The warrant pricing method of simulation technology. Although the BS model is a classic warrant pricing model widely used at home and abroad, due to its own limitations capital market BS model can only give the approximate pricing level of warrants in China's capital market. In order to more accurately price the warrants in China's capital market and fully consider the differences of warrants in China's capital market, the fund manager has adopted the Monte Carlo simulation technology that can flexibly reflect the differences to price the warrants. This technology can simulate thousands of paths for the price of underlying securities subject to specific environment and conditions. Warrant valuation based on these paths can effectively overcome the limitations of BS model, and at the same time consider the particularity of warrants in China's capital market. Through the above two methods, a reasonable range of warrant valuation can be obtained. Therefore, scientific and reasonable valuation of warrants is a powerful guarantee for risk management of warrant investment.
5、 Investment risk disclosure
Due to the leverage of warrant investment, the fluctuation of warrant price should be significantly greater than that of underlying securities. Therefore, the fluctuation of market value of warrant assets in the fund portfolio should be significantly greater than that of other assets, which will also increase the fluctuation of the net value of the fund portfolio to a certain extent, The above restrictions on the proportion of warrant investment can control this impact; In addition, due to the characteristics of the warrant itself, there is a situation of not exercising the rights granted by the warrant. In this case, the value of the warrant will drop to zero, that is, the yield of the warrant investment will reach - 100%. Therefore, it is necessary to conduct strict and scientific risk monitoring on the warrant investment to avoid holding the warrant in this situation to the maximum extent.
6、 Other matters
When the fund manager uses the fund property to invest in warrants, it shall not obtain improper interests through insider information, manipulate the price of warrants or underlying securities, or use warrant investment to transfer interests.
The Fund Management will strictly abide by the existing and future laws, regulations and rules on warrant investment, as well as any effective amendments and supplements thereto.
Huafu Fund Management Co., Ltd
August 19, 2005
Sina statement: The content of this article is purely the author's personal view, only for investors' reference, and does not constitute investment advice. Investors operate accordingly at their own risk.
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