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Title	Regulations Governing Securities Investment Trust Funds CH
Date	2010.11.10 ( Amended )

Article Content

Article 1	These Regulations are adopted pursuant to Article 11, paragraph 4, Article 14, paragraph 1, Article 17, paragraph 3, Article 18, paragraph 1, Article 19, paragraph 2, Article 22, paragraph 4, Article 25, paragraph 2, and Article 46 of the Securities Investment Trust and Consulting Act.
Article 2	Except where the Executive Yuan Financial Supervisory Commission (FSC) provides otherwise, a securities investment trust agreement shall stipulate the following matters: 1. The name and address of the securities investment trust enterprise (SITE) and the custodian institution. 2. The name and duration of the securities investment trust fund (“the fund”). 3. The rights, obligations, and legal liability of the SITE. 4. The rights, obligations, and legal liability of the fund’s custodian institution. 5. The rights, obligations, and legal liability of the beneficiary. 6. The basic governing policies and the scope of utilization of the fund for securities investment and trading in securities-related products. 7. Fund income distribution. 8. Redemption of certificates of beneficial interest. 9. The fees borne by the fund. 10. The management or custodial fees of the SITE and the custodian institution. 11. Calculation of the net asset value of beneficiary units and the fund as a whole. 12. Termination of the securities investment fund agreement. 13. The reasons for convening beneficiaries’ meetings; the required quorum; the votes required for passage of a measure; and the means of adopting resolutions. A trust enterprise that concurrently operates securities investment trust business may itself keep custody of fund assets pursuant to FSC approval; where the trust enterprise also has a trust supervisor, the matters to be stipulated under subparagraph 4 of the preceding paragraph shall also include the rights, obligations, and legal liability of the trust supervisor. A template for the securities investment trust agreement shall be adopted by the Securities Investment Trust and Consulting Association of the R.O.C. (SITCA) in consultation with the Trust Association of the R.O.C. (“the Trust Association”) and submitted to the FSC for approval.
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Article 7	A SITE using a fund for overseas investment may authorize a company providing it with consulting services for overseas investment or a member of its own group that provides centralized market trading services to place a trading order on its behalf through a foreign securities firm. When SITE authorizes a company providing it with consulting services for overseas investment or a member of its own group that provides centralized market trading services to place a trading order on its behalf through a foreign securities firm, it shall adopt risk monitoring and management measures for such transactions as a part of its internal control system, as well as setting out the standards for selection of a company to provide consulting services for overseas investment; those measures and standards shall be submitted to the board of directors for approval. The term "member of its own group" as used in the preceding paragraph shall mean a holding company to which the SITE belongs which has shareholdings in the SITE in excess of 50 percent; a subsidiary in which the SITE has shareholdings in excess of 50 percent; or a subsidiary belonging to the same holding company in which the holding company has shareholdings in excess of 50 percent.

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Article 9	When a SITE utilizes a fund for trading in securities-related products, the scope of trading shall conform with the following provisions: 1. Authorized trading that futures commission merchants ("FCM") are allowed to handle per FSC announcement in accordance with Article 5 of the Futures Trading Act, and trading in securities-related futures contracts, option contracts, and futures option contracts. The SITE shall authorize an FCM to execute the trades. 2. FSC approved off-exchange trading in futures, options or other financial products which are currency-derived, securities-derived, interest-rate derived, or index-derived. The method of calculating the ratios of and risk exposures for the types of trading listed in the preceding paragraph and related regulatory measures shall be announced by the FSC. When a SITE has received FSC approval for concurrent operation of a futures trust enterprise, it may apply to the FSC for exemption from the restriction of the preceding paragraph regarding trading ratios when utilizing a fund of the enterprise for trading in securities-related products. Risk exposure, however, may not exceed 100 percent of the net asset value of the given fund. A SITE that utilizes a fund for trading in securities-related products shall draft measures for accounting, risk monitoring, and management for those types of trades as part of its internal control system, and submit the measures to the board of directors for passage.
Article 10	A SITE offering a trust fund shall utilize the fund's assets in accordance with these Regulations and the provisions of the trust agreement, and except where otherwise provided by the FSC, shall comply with the following provisions: 1. The SITE may not invest in non-listed or non-OTC-listed stocks or privately-placed securities. 2. The SITE may not make loans or provide security. 3. The SITE may not engage in securities margin transactions. 4. The SITE may not engage in trading of securities or securities-related products between the various other funds, collective trust funds, discretionary accounts, or accounts for trading of securities with self-owned funds under the common management of the SITE, provided that this shall not apply in the case of cross-trades unintentionally occurring on a centralized securities exchange market or on Over-the-Counter Markets. 5. The SITE may not invest in its own securities or in securities issued by any company that is an interested company relative to the SITE. 6. The SITE may not use a fund to purchase the certificates of beneficial interest of that same fund, provided that this restriction shall not apply in the case of beneficiaries' requests for redemption of certificates of beneficial interest, or when certificates of beneficial interest are redeemed because of the discontinuance of all or some part of the fund. 7. The SITE may not invest in structured interest rate products, provided that this restriction shall not apply when such products are a fund's principal investment vehicle and are so designated by the fund's name. 8. The total amount invested by any fund in the stocks, corporate bonds, or financial bonds of any single listed or OTC-listed company may not exceed ten percent of the net asset value of the fund. 9. The total amount invested by any fund in the shares of any single listed or OTC-listed company may not exceed ten percent of the total issued and outstanding shares of that company; the total amount invested by all funds under the common management of a SITE in the shares of any one listed or OTC-listed company may also not exceed ten percent of the total issued and outstanding shares of that company. 10. The total amount invested by any fund in an underwriting of shares of any single listed or OTC-listed company may not exceed one percent of the total shares underwritten; the total amount invested by all funds under the common management of a SITE in any single underwriting may not exceed three percent of the total of underwritten shares being. 11. The total amount invested by a fund in the certificates of beneficial interest of other funds may not exceed 10 percent of the first fund's total asset value, provided that this restriction shall not apply in the case of a fund of funds or exchange-traded funds under Article 37, paragraph 4. 12. The total number of beneficial units of any single fund, with the exception of exchange-trade funds under Article 37, paragraph 4, that may be invested in by all funds under the common management of a SITE may not exceed ten percent of the issued beneficial units of the fund being invested in. 13. The total amount invested by a fund in the unsecured corporate bonds of any single company may not exceed ten percent of the unsecured corporate bonds issued by that company. 14. The securities held by a fund may not be loaned to another person, provided that this restriction shall not apply given compliance with Article 14. 15. Proxy forms for shareholders' meetings of an issuing company whose shares are purchased by a fund may not be sold or transferred. 16. No fund may authorize stock trades by any one securities firm that exceed 30 percent of the total monetary value of the fund's stock trades in the given month. This provision shall not apply, however, to funds that have been established for less than one full fiscal year. 17. The total amount any fund may invest in short-term bills issued, guaranteed, or endorsed by any single company may not exceed ten percent of the fund's total asset value, and may also not exceed NT$500 million. 18. The total amount invested by a fund in the international financial institution bonds issued by any single international financial institution with FSC approval to issue such bonds within Taiwan may not exceed ten percent of the fund's net asset value, and may not exceed ten percent of the international financial institution bonds issued within Taiwan by the given international financial institution. 19. The SITE may not engage in any improper trading activity and thereby affect the net asset value of a fund under its management. 20. The SITE may not engage in any other act prohibited by the FSC. The term "various funds" in subparagraph 4 of the preceding paragraph and the term "all funds under the common management of a SITE" in subparagraphs 9, 10, and 12 include securities investment trust funds and futures trust funds publicly or privately offered by a SITE. The ceiling on the ratio of a SITE's use of a fund for investment in an underwritten stock shall be calculated by combining the amount of that investment with the shares of listed and OTC-listed companies of a similar type held to arrive at the total number of shares or total monetary amount; the amount of investment in depositary receipts shall be combined with the shares held in the issuing company of the depositary receipts, and the ceiling on the ratio of investment in that company similarly based on the combined figures for either monetary values or numbers of shares. "Corporate bonds" as referred to in paragraph 1, subparagraphs 8-13 shall include common corporate bonds, convertible corporate bonds, exchangeable corporate bonds, and corporate bonds with warrants.
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Article 14	Lending of securities by a SITE-managed fund shall be handled in accordance with the applicable rules of the Taiwan Securities Exchange Corporation (TWSE) and the GreTai Securities Market (GTSM), and shall conform with the following conditions: 1. A fund may not loan any single security in an amount exceeding 50 percent of the total of that security held by the fund, provided that this shall not apply where the trust agreement of a privately offered fund provides otherwise. 2. The lending period for securities loans shall extend for at most six months from the date of the lending transaction. 3. When a loan of securities takes the form of a negotiated securities lending transaction, the types of collateral provided by the borrower shall be limited to cash, government bonds, and exchange listed or OTC listed securities that are eligible subjects of margin trades or short sales, provided that when the borrower's collateral is in the form of said bonds or securities, the SITE may provide such a securities loan only after reporting its risk monitoring and control measures for collateral management to the FSC for approval. The provisions of subparagraph 3 of the preceding paragraph regarding collateral shall be applied with reference to TWSE and GTSM regulations applicable to fixed-price trading and auction trading. A SITE that loans securities held by one of its managed funds shall draft measures for the monitoring and management of risk in securities lending as a part of its internal control system and submit those measures to the board of directors for passage.
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Article 27	Except where law and regulation provide otherwise, bond funds may not invest in the following investment instruments: 1. Stocks. 2. Convertible corporate bonds, corporate bonds with warrants, or other types of equity securities. 3. Structured interest rate products. When a SITE invests a bond fund in a manner not conforming with the provisions of the preceding paragraph, then from the date of promulgation of these Regulations it may make no further increases in the fund.
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Article 30

"Balanced fund" refers to a fund invested in stocks, bonds, and other fixed-income securities in an amount equal to 70 percent or more of the net asset value of the fund, and in which stock investments account for not more than 70 percent and not less than 30 percent of the fund's net asset value. The FSC may adjust the investment ratios of the preceding paragraph based on conditions in domestic and foreign securities markets and the development of securities investment trust enterprises.

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Article 35	To achieve conformity with an index's composition, a SITE investing an index fund may invest in securities without regard for the restrictions of Article 10, paragraph 1, subparagraphs 5 or 8. Where a SITE utilizes an index fund’s assets, the ratio of the total investment amount in any one of the component securities to the net asset value of the fund may not exceed the weighting of that component security in the index. However, this restriction shall not apply in cases where necessitated by adjustment of the index's composition or by index replication strategy measures, and provided that the conditions set out by the FSC are met.
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Article 39	Given compliance with the following provisions, a SITE investing an ETF may borrow securities and provide fund assets as collateral without regard for the restrictions of Article 10, paragraph 1, subparagraph 2 herein: 1. Only when the purpose of borrowing securities, as set forth in the ETF trust agreement, is to meet an insufficiency in the fund shareholdings needed for physical delivery in redemptions. 2. The total value of securities borrowed by an ETF may not exceed ten percent of the net asset value of the fund. A SITE borrowing securities against fund assets shall do so in accordance with the applicable TWSE and GTSM regulations.
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Article 55	The provisions of Articles 1-7, Article 9 paragraph 1, paragraph 2 in regard to methods of calculating risk exposure, and paragraph 4, Articles 14, 19, 20, 22, 57, 59 to 64, 66 to 77, and 79 to 89 shall apply to privately placed funds. Except where otherwise provided in the trust agreement for a privately placed fund, Articles 23, 25 to 34, 42 to 50, and 65 shall also apply.
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Article 83	When a SITE-managed open-ended fund meets the following conditions, the SITE may apply for FSC approval to merge the fund with another open-ended fund also under its management: 1. The merged funds shall both be either publicly offered or privately placed funds. 2. The merged funds shall both be the same type of fund. 3. The merged funds shall both be invested in the same region or country. 4. The merger shall have been approved by the beneficiaries' meeting, provided that this restriction shall not apply when the fund had an average net asset value below NT$300 million over the preceding 30 business days and the trust agreement of the surviving fund was not amended.
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Article 85	After application for a merger of funds receives FSC approval, the SITE shall immediately make a public announcement of the following matters and notify the beneficiaries of the surviving and non-surviving funds: 1. The date and reference number of the FSC letter of approval. 2. The name of the surviving fund, the fund's manager, and the fund's investment strategy. 3. The name of the non-surviving fund. 4. The purpose of the merger and expected benefits. 5. The record date of the merger. 6. The method of calculating the number of beneficiary certificate units of the non-surviving fund exchanged for those of the surviving fund. 7. A declaration that, from the date of announcement until two days prior to the record date of merger, beneficiaries not consenting to the merger may apply to the SITE for redemption of certificates of beneficial interest. 8. A declaration that, from the day before the record date of merger until the date on which the entire assets of the non-surviving fund have been transferred to the surviving fund, the SITE will cease accepting subscriptions to or redemptions of the non-surviving fund's certificates of beneficial interest. 9. The period, method, and locations for the issuance of new certificates of beneficial interest. 10. Other matters prescribed by FSC regulations. The period between the announcement and the record date of merger as referred to in the preceding paragraph may not be less than 15 business days. The provisions of paragraph 2 regarding announcement do not apply to privately offered funds.
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Article 88	The SITE shall itself bear fees incurred in connection with a merger of funds.
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Article 90	The definition of "a credit rating at or above a prescribed level by an FSC-approved or recognized credit-rating institution" as used in Article 15, paragraph 1, subparagraph 4, Article 16, paragraph 1, subparagraph 6, Article 17, subparagraph 3, Article 45, Article 46, Article 48, paragraph 1, subparagraphs 1 and 4, shall be announced by the FSC.
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