Notice on Issues Related to Investment Warrants of Securities Investment Funds in Share Reform (2006-06-02)

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

Issued by: China Securities Regulatory Commission

Document No.: Zheng Jian Ji Jin Zi [2005] No. 138

All fund management companies and fund custody banks:

Since the start of the pilot work of the split share structure reform of listed companies, some listed companies have launched a scheme to distribute warrants. As a kind of securities, warrants have their own operational characteristics. The issue of securities investment funds (hereinafter referred to as "funds") investing in warrants shall be gradually carried out on the basis of pilot projects, and further regulations shall be made according to market conditions after certain experience is accumulated. At present, in order to standardize the investment operation of the Fund and protect the legitimate rights and interests of fund share holders, in accordance with the Securities Investment Fund Law, the Measures for the Administration of the Operation of Securities Investment Funds and other relevant provisions, we hereby notify the Fund Manager of the issues related to the pilot application of fund property investment warrants in the share trading reform as follows:

1、 Funds can be held in

2、 The Fund can actively invest in warrants issued in the reform of non tradable shares.

3、 If the Fund Manager intends to use the Fund property investment warrants in accordance with the provisions of Article 2 of this Circular, it shall comply with relevant laws and regulations, comply with the relevant provisions of the Fund Contract, and report the warrant investment plan to China

4、 The Fund Manager shall not use the Fund assets to invest in warrants under any of the following circumstances:

（1） The total amount of warrants purchased by a fund on any trading day exceeds 0.5% of the net asset value of the fund on the previous trading day.

（2） The market value of all warrants held by a fund exceeds 3% of the net asset value of the fund.

（3） All funds managed by the same fund manager hold more than 10% of the same warrant.

If the CSRC has other provisions, it shall not be subject to the proportion restrictions specified in Items (1), (2) and (3) of the preceding paragraph.

5、 The Fund Manager shall, in accordance with the Fund's investment strategy and risk return characteristics, formulate a practical warrant investment plan, and may agree on the specific proportion of the Fund's investment in warrants within the proportion allowed in Article 4 of this Circular.

6、 If the investment of the Fund does not conform to the investment proportion specified in Items (2) and (3) of Article 4 of this Circular and the fund contract or the fund warrant investment plan 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.

7、 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.

8、 The Fund Manager and the Fund Custodian shall earnestly perform their obligations of honesty, credit, prudence and diligence, establish and improve the management system of warrant investment, and formulate effective risk control measures specifically for warrant investment to effectively protect the legitimate rights and interests of fund share holders.

August 15, 2005