Discretionary Investment Management Contract
This Discretionary Investment Management Contract (this Contract) dated as
of April 3, 2009 is made by and between The Taiwan Fund, Inc., a corporation
organized under the Delaware laws of the United States with a registered
office at c/o State Street Bank and Trust Company, X.X. Xxx 0000, 0 Xxxxxx
Xxxxx, 0xx Xxxxx, Boston, MA 02116-5049 (the Fund) and HSBC Global Asset
Management (Taiwan) Limited, a corporation organized under the laws of the
Republic of China (R.O.C.) with a registered office at 24 Floor, No. 99,
Sec. 0, Xxx Xxx X. Xx., Xxxxxx 000, Xxxxxx (HSBC Taiwan).
Each of the parties named above shall be referred to collectively as the
Parties and individually as a Party.
WITNESSETH:
WHEREAS, the Fund is a diversified, closed-end investment management company
registered under the U.S. Investment Company Act of 1940 (the 1940 Act);
WHEREAS, HSBC Taiwan is a licensed securities investment trust enterprise
registered and validly existing under the laws of the R.O.C. which has been
approved by the Financial Supervisory Commission, Executive Yuan of the
R.O.C. (the FSC) to carry out securities discretionary investment business
(Business License Number: 2102255), and is also an investment adviser
registered under the U.S. Investment Advisers Act of 1940 (the Advisers Act);
WHEREAS, the Fund, HSBC Taiwan and the International Commercial Bank of China
(the name of which has been changed to Mega International Commercial Bank
Co., Ltd.) have entered into a Securities Investment Trust-Investment
Management and Custodian Contract dated August 22, 2001 (the Management
Contract) providing for management by HSBC Taiwan of assets of the Fund held
in the R.O.C. under a trust fund structure (the Trust);
WHEREAS, the Fund and HSBC Taiwan have also entered into an Investment
Advisory and Management Agreement dated August 22, 2001 (Advisory Agreement)
to retain HSBC Taiwan to furnish investment advisory and management services
for the Funds assets which may be held in the United States, either pending
remittance to the R.O.C. of the net proceeds of any offering of the Common
Stock of the Fund, or after distribution to the Fund under the Management
Contract, or upon borrowing by the Fund from a bank in the United States
for temporary or emergency purposes, or otherwise as permitted under
applicable R.O.C. law and regulations (such assets of the Fund being referred
to herein as the U.S. Assets); and
WHEREAS, the Fund and HSBC Taiwan have entered into a Discretionary
Investment Management Contract, dated April 3, 2009 (the Interim DIM
Contract) to provide for management of the Funds assets held in the R.O.C.
(the R.O.C. Assets) in accordance with the Advisory Agreement by setting
forth therein provisions, in addition to the provisions in the Advisory
Agreement, necessary to comply with the R.O.C. laws and relevant regulations
regarding discretionary investment management to permit HSBC Taiwan to
provide investment advisory and management services for the Funds R.O.C.
Assets under a discretionary and non-trust-fund structure in accordance with
the R.O.C. laws and other applicable laws; and
WHEREAS, the Fund is redeeming its units in the Trust and anticipates the
termination of the Trust upon the redemption of all of its units in the
Trust, at which time the Management Contract will also terminate; and
WHEREAS, the Fund desires to provide for the management of all of its assets
by HSBC Taiwan under one agreement upon termination of the Trust and the
Management Contract, and the Fund and HSBC Taiwan desire to enter into this
contract for that purpose.
NOW THEREFORE, in consideration of the premises and mutual covenants herein
contained, the Parties hereby agree as follows:
Article 1 (Procedure Prior to, and affect of, the Execution of this
Contract)
1.1 Pursuant to the Securities Investment Trust and Consulting Act (the SITC
Act), HSBC Taiwan has already interpreted and delivered to the Fund the terms
and conditions of this Contract and the Discretionary Investment Prospectus
and Risk Disclosure Statement attached hereto as Appendix I seven (7) days
prior to the execution of this Contract.
1.2 HSBC Taiwan has thoroughly understood the financial capability,
investment experiences, objectives and requirements of the Fund and informed
the Fund of the trading characteristics of securities-related products,
possible risks or legal restrictions associated with it. Taking the above
matters into consideration, HSBC Taiwan has also consulted with the Fund
and deliberated on the amount or price of DIM Assets (as defined in Article
3.1) as well as basic guidelines for investment or trading and the scope
of investment or trading with the Fund prudently.
1.3 Upon execution of this Contract, each of the Management Contract,
Advisory Agreement and Interim DIM Contract shall terminate. This Contract
shall be deemed as a continuation of the Advisory Agreement and the Interim
DIM Contract and shall supersede the Advisory Agreement and the Interim DIM
Contract.
Article 2 (Retaining of Discretionary Investment Services)
The Fund has read and confirmed the contents of this Contract and hereby
agrees to retain HSBC Taiwan to conduct securities investment and
securities-related products trading for the Funds R.O.C. Assets and
non-R.O.C. Assets (together, the Fund Assets) and HSBC Taiwan agrees to
provide such services, based on its professional investment judgment and
within the scope of authorization provided by this Contract, under a
non-trust-fund structure and on a discretionary basis, in accordance with
this Contract, relevant R.O.C. laws and regulations and rules stipulated
by the Securities Investment Trust and Consulting Association of the R.O.C.
(the SITCA).
Article 3 (The Content, Amount or Price of Discretionary Investment
Assets)
3.1 The Parties agree that the assets delivered to the R.O.C. Custodian (as
defined in Article 7.1) for discretionary investment management by HSBC
Taiwan under this Contract (DIM Assets) shall be in the form of cash or
securities upon delivery and the initial amount of the DIM Assets accepted
by HSBC Taiwan is stated in Appendix II, which shall be delivered upon
execution of this Contract by both parties in an amount of no less than NTD
five million or any other amount required under the R.O.C. laws (Minimum
DIM Amount). The Parties agree that the Fund may, at any time as it deems
necessary and appropriate, increase or decrease the DIM Assets by sending
a prior written notice to HSBC Taiwan and the R.O.C. Custodian and delivering
to or returning from the R.O.C. Custodian the relevant amount of DIM Assets,
provided that the amount of DIM Assets upon the time of such increase and
decrease of the DIM Assets shall not be less than the Minimum DIM Amount.
Such written notice of increasing or decreasing the DIM Assets shall be
incorporated hereto as part of this Contract at the time when the following
two conditions have been met: (i) the Fund serves such written notice on
HSBC Taiwan and the R.O.C. Custodian, and (ii) the Fund delivers to or is
returned from the R.O.C. Custodian the increased or decreased portion of
DIM Assets.
3.2 The DIM Assets referred to in Article 3.1 hereof shall include the assets
delivered by the Fund (Delivered Assets) and any proceed and profit derived
from the Delivered Assets and the management of them during the term of this
Contract.
Article 4 (Agreement of Basic Guidelines and Scope of Investment or Trading
and the Amendment thereof)
4.1 HSBC Taiwan shall conduct the investment, trading and management of Fund
Assets with full discretion in accordance with the basic guidelines and scope
of investment or trading and management of idle funds as stipulated in the
Appendix III.
4.2 During the term of this Contract, the basic guidelines and scope of
investment or trading and management of idle funds referred to in Article
4.1 may be amended by the Fund by written notice to HSBC Taiwan in accordance
with Article 23 hereof and such amendment shall be incorporated hereto as
part of this Contract.
Article 5 (Authorization of Right of Investment or Trading Decision-making
and Right of Instruction on Assets Management and the Restriction thereof)
Unless otherwise provided in this Contract or relevant laws and regulations,
subject to the basic guidelines and scope of investment or trading specified
in the preceding Article, the Fund authorizes HSBC Taiwan the right to make
the investment or trading decision-making, to conduct trading of securities
or securities-related products, to instruct the appropriate Custodian (as
defined below) to conduct required settlement of funds and certificates or
payment of margins and premiums, account-opening, disposition of the Fund
Assets and any rights required for assets management of the Fund Assets,
with full authority and discretion. A separate consent or authorization from
the Fund is not required.
Article 6 (Designation and Change of Investment Manager)
6.1 Before the execution of this Contract, HSBC Taiwan has prepared
information related to the education background and experience of each
investment manager for the Fund and delivered such information to the Fund
for review. The Parties agree to designate the persons listed in the
Appendix IV as the investment manager and his deputy of the discretionary
investment management under this Contract. During the term of this Contract,
HSBC Taiwan may notify the Fund in writing of a change in the investment
manager and re-designate a person acceptable to both Parties as the new
investment manager.
6.2 If the investment manager leaves office or for some reasons cannot
perform his/her duties, HSBC Taiwan shall notify the Fund immediately and
the designated deputy shall perform the duties of the investment manager
before the new investment manager is designated according to Article 6.1.
6.3 The investment manager and the deputy referred to in Articles 6.1 and
6.2 shall be responsible for conducting, for and on behalf of HSBC Taiwan,
the investment or trading analysis, judgment, decision making and other
obligations of HSBC Taiwan related to the DIM Assets in accordance with the
basic guidelines and scope of investment or trading stipulated in Appendix
III and based on his professional knowledge and exercising due care of a
prudent person.
Article 7 (Designation and Change of Custodian)
7.1 The Fund has designated Mega International Commercial Bank Co., Ltd,
a financial institution organized under the laws of the R.O.C. with its
principal place of business at 00 Xxxxx, Xx. 000, Xxx Xxx Xx., Xxxxxx,
Xxxxxx, as the custodian to take custody of the DIM Assets (R.O.C. Custodian)
and has entered into, or been the beneficiary of, a custody contract (R.O.C.
Custody Contract) with the R.O.C. Custodian under which the DIM Assets shall
be placed with the R.O.C. Custodian for custody and R.O.C. Custodian shall
carry out the account-opening for securities investment or
securities-related products trading, custody of funds and certificates,
payment of margins and premiums, trading settlement, handling custody account
matters and any other relevant matters in accordance with the R.O.C. Custody
Contract and relevant R.O.C. laws and regulations. The Fund has also
designated State Street Bank and Trust Company, a financial institution
organized under the laws of the State of Massachusetts as custodian of the
Fund Assets (the Fund Custodian and, together with the R.O.C. Custodian,
the Custodians).
7.2 The Fund, HSBC Taiwan and the R.O.C. Custodian has entered into a
Tripartite Agreement of Discretionary Investment. The above-mentioned
R.O.C. Custody Contract and the Tripartite Agreement of Discretionary
Investment, which have been a part of the Interim DIM Contract, shall
constitute a part of this Contract upon the execution of this Contract.
7.3 In the event that the R.O.C. Custodian is unable to perform the
obligations under the R.O.C. Custody Contract due to certain reasons or
unable to continuously providing custody services due to the cancellation
or termination of the R.O.C. Custody Contract, the Fund shall notify or cause
the R.O.C. Custodian to notify HSBC Taiwan immediately. It shall be the
responsibilities of the R.O.C. Custodian to conduct, in accordance with
R.O.C. Custody Contract, the clearance and settlement, payment and collection
of margins and premiums in connection with the trading or transactions of
the DIM Assets concluded prior to HSBC Taiwans receipt of the notice of the
Fund or the R.O.C. Custodian under this paragraph. HSBC Taiwan shall not
be liable for any loss incurred due to the R.O.C. Custodians failure to
conduct such clearance, settlement, payment or collection of margins or
premiums.
7.4 During the term of this Contract, the Fund may change a Custodian
provided that the Fund shall notify HSBC Taiwan in writing and, if the R.O.C.
Custodian is changed, the execution of the new R.O.C. Custody Contract shall
be handled in accordance with Article 7.1 and Article 19 of this Contract.
The transfer of DIM Assets from the original R.O.C. Custodian to the newly
appointed R.O.C. Custodian, and relevant settlement, clearance, disposition
or any other relevant matter required to be handled by the R.O.C. Custodian
in connection with the DIM Assets during the transition period shall be
negotiated and jointly determined by the Fund, HSBC Taiwan, the original
R.O.C. Custodian and the newly- appointed R.O.C. Custodian.
Article 8 (Method of Custody of the DIM Assets)
The custody of the DIM Assets shall be made by the R.O.C. Custodian in
accordance with the R.O.C. Custody Contract and the SITC Act and the relevant
R.O.C. laws and regulations.
HSBC Taiwan or any of its representatives, employees or agents may not keep,
or have any third party other than the R.O.C. Custodian keep, custody of
the DIM Assets.
Article 9 (Opening of Accounts)
9.1 After entering into the Tripartite Agreement of Discretionary Investment
with the Fund and the R.O.C. Custodian, HSBC Taiwan shall instruct the R.O.C.
Custodian to enter into relevant account-opening and brokerage agreements
or other contracts, if necessary, with the securities firm(s), futures
commission merchant(s) or any other transaction counterparty (the Trading
Counterparty) on behalf of the Fund, and to open the relevant investment
trading accounts, futures trading accounts, a centralized securities
depository account, bank deposit accounts, the custody account and any other
accounts necessary for executions of transaction of DIM Assets.
9.2 HSBC Taiwan shall cooperate with the R.O.C. Custodian in the account
opening, execution of contracts and other related procedures referred to
in Article 9.1 in accordance with the Operation Rules for the Conduct of
Discretionary Investment Business by Securities Investment Trust Enterprises
and Securities Investment Consulting Enterprises of Securities Investment
Trust and Consulting Association of the R.O.C. (the Operation Rules). The
account opening and brokerage agreement referred to in Article 9.1 shall
stipulate clearly the responsibility of HSBC Taiwan in the Ultra Xxxxx
Transactions as referred to in Article 12 of this Contract.
9.3 The opening of the discretionary investment account (DIM Account) shall
comply with the provisions of the Operation Rules and this Contract. HSBC
Taiwan may not start the discretionarily investment or trading until the
execution of all of the contracts and the completion of procedures for
account-opening prescribed in Article 9.1.
9.4 During the term of this Contract, the Fund may not use the investment
trading account and futures trading account referred to in Article 9.1 for
purposes other than those under this Contract.
9.5 The Fund agrees that HSBC Taiwan may place an order via the omnibus
account at the securities firm when engaging the securities firm to trade
securities on behalf of the Fund. The Fund shall issue a power of attorney
to the securities firm for recordation.
Article 10 (Designation or Change of Trading Counterparty)
10.1 The Fund hereby authorizes HSBC Taiwan to designate the Trading
Counterparty. For such designation, HSBC Taiwan shall assess the financial,
business and credit conditions of the designee and give due attention to
appropriate diversification to avoid over-concentration, and shall notify
the R.O.C. Custodian immediately after the designation. If HSBC Taiwan and
the designated Trading Counterparty or securities firm have mutual investment
or control and subordination relationship with each other, HSBC Taiwan shall
notify the Fund of such fact promptly.
10.2 During the term of this Contract, the Fund may request HSBC Taiwan to
change the Trading Counterparty, by sending a written notice to HSBC Taiwan
10 days prior to said change. The designation of the new Trading
Counterparty shall be handled in accordance with Article 10.1, provided that
the change shall not affect the transactions already conducted prior to HSBC
Taiwans receipt of the Funds such notice.
Article 11 (Instruction on Collection and Payment)
11.1 After confirming the content of transaction with respect to the DIM
Assets with the securities brokerage firm or other Trading Counterparty on
the transaction date or any other applicable date, HSBC Taiwan shall
immediately issue to the R.O.C. Custodian a settlement instruction letter
that specifies the information of Trading Counterparty, object, transaction
date, settlement date, method and terms of settlement, and the price and
volume of securities to be settled.
11.2 If HSBC Taiwan engages in securities-related products transaction with
respect to the DIM Assets for which it is required to deposit or withdraw
margins or payment or collection of any funds, HSBC Taiwan shall issue an
instruction letter of collection or payment to the R.O.C. Custodian.
Depending on the nature of the amount to be collected or paid, the
instruction letter shall specify the number and title of the futures trading
account, account number of clients margins account, the Trading Counterparty,
collection or payment date, amount receivable or payable etc.
11.3 The Fund shall specify in the R.O.C. Custody Contract the procedures
to handle the disputes over the Ultra Xxxxx Transaction (as defined in
Article 12.1) instructed by HSBC Taiwan in its instruction letters issued in
accordance with in Articles 11.1 and 11.2 hereof. Such procedure shall
comply with the Operation Rules.
Article 12 (Handling of Ultra Xxxxx Transactions)
12.1 In the event of an ultra xxxxx transaction (Ultra Xxxxx Transaction)
made by HSBC Taiwan in connection with the investment of DIM assets in
securities or in other financial instruments approved by the FSC or in
engaging in securities-related products trading, HSBC Taiwan shall be liable
for the performance of the obligation arising from such Ultra Xxxxx
Transaction, and shall deposit necessary funds, certificates or amount to
be paid for the Ultra Xxxxx Transaction to the relevant custody account
before the settlement date for the R.O.C. Custodian to handle clearance and
the settlement of the transaction or payment of margins.
12.2 With respect to the funds and certificates or securities-related
products purchased or sold in an Ultra Xxxxx Transaction, HSBC Taiwan shall
handle in accordance with Article 60 of the Operation Rules and any amendment
thereof, if any.
12.3 If the Fund, HSBC Taiwan or the R.O.C. Custodian has a dispute over
an Ultra Xxxxx Transaction, the parties shall handle in accordance with
Article 59 of the Operation Rules and any amendment thereof, if any.
12.4 If HSBC Taiwan fails to handle the Ultra Xxxxx Transaction in accordance
Article 12.3 hereof, which results in the failure of the R.O.C. Custodian
to complete the settlement, follow-up payment of margins or clearance and
settlement, any liability arising therefrom shall be borne by HSBC Taiwan
to Trading Counterparties. The Fund shall bear no responsibility thereof.
Article 13 (Handling of Refunded Service Fee)
13.1 The service fee refunded from or other interests paid by the Trading
Counterparties due to the management of DIM Assets by HSBC Taiwan shall be
used to set off the Funds transaction cost. Unless the Fund and the Trading
Counterparties have otherwise negotiated the service fee rate, HSBC Taiwan
shall negotiate the service fee rate with Trading Counterparties on behalf
of the Fund based on the principle of fairness and faithfulness. The Fund
shall cause the R.O.C. Custodian to stipulate the refunding method of the
service fee in the account-opening agreement to be entered into with the
Trading Counterparties.
13.2 HSBC Taiwan shall disclose in the reports or financial statements of
DIM Assets the amount of service fee refunded from or other interests paid
by the Trading Counterparties to the Funds DIM Account with an individual
account title.
Article 14 (Ownership of Proceeds and Profits of DIM Assets and Exercise
of Shareholders Voting Rights)
14.1 During the term of this Contract, the proceeds and profits derived from
the DIM Assets shall be collected by the R.O.C. Custodian, who shall notify
HSBC Taiwan in writing of such proceeds and profits and the collection
thereof. The aforementioned proceeds and profits, during the term of this
Contract, shall belong to the DIM Assets.
14.2 Proceeds, share interest, dividends, bonus share or other interests
derived from the securities of DIM Assets shall be distributed to each
discretionary investment account of the Fund by the issuer or the centralized
securities depository enterprise in accordance with the applicable laws and
regulations. The Fund agrees that the right to subscribe securities with
consideration or the right to convert securities, which are derived from
DIM Assets, shall be exercised by HSBC Taiwan in accordance with the content
of Appendix V. However, if relevant laws and regulations provide otherwise,
such laws and regulations shall apply.
14.3 Unless otherwise provided by the R.O.C. laws, regulations or government
rulings, the right to attend shareholders meeting and the voting right of
the stocks held in the investment accounts of the DIM Assets shall be
exercised by the R.O.C. Custodian in accordance with the instruction of HSBC
Taiwan who is herein authorized by the Fund to make such instruction in
accordance with policies established by the Fund from time to time.
14.4 Relevant procedures with regard to title transfer and exercise of right
of the securities held by the DIM Account shall be carried out by the R.O.C.
Custodian according to the R.O.C. Custody Contract, relevant securities laws
and regulations and rules governing the operation of the centralized
securities depository institution of the place where the investment is made.
Article 15 (Due care of a Prudent Person and Confidentiality Obligations)
15.1 In conducting discretionary investment business of this Contract, HSBC
Taiwan shall act in accordance with the principle of good faith and comply
with relevant laws and regulations, and faithfully perform the obligations
hereunder with due care of a prudent person.
15.2 HSBC Taiwan and its directors, supervisors, officers, employees and
agents shall keep strictly confidential with regard to the Fund, DIM Assets
and other relevant information learned from the execution and performance
of this Contract, except for inquiry conducted in accordance with the laws
of the R.O.C. or U.S.A. or the Operation Rules or by a Partys group internal
audit rules for internal auditing purpose. However, aforementioned
confidentiality rules shall not apply if the Fund provides a separate written
consent to HSBC Taiwan each time for the latter to publicly disclose or use
the above information, in which the scope, method and circumstances of the
agreed use shall be specified.
Article 16 (Accounts, Statements and Reporting Obligations)
16.1 HSBC Taiwan shall maintain in its principal office in Taipei sufficient
accounts and records to enable a complete and accurate view to be formed
of the assets and liabilities and the income and expenditure and all
transactions of the DIM Accounts.
16.2 HSBC Taiwan shall prepare a monthly report and an annual report
containing trading record and current status of the DIM Assets. The monthly
report shall be delivered to the Fund within 7 business days after the end
of every month; the annual report shall be delivered to the Fund within 15
business days after the end of every year during the term of this Contract.
16.3 HSBC Taiwan shall comply with Article 47 of the Operation Rules and
any amendment thereof, if any, for report to the Fund of the decrease of
net assets value of the DIM Assets.
16.4 The service of the reports referred to in this Articles 16 on the Fund
shall be made by mail, facsimile and any other methods as agreed by both
Parties.
16.5 The Fund may request in writing or other manner agreed by the Parties
for HSBC Taiwans providing with trading status, the volume and amount of
the DIM Assets in stock and the open position of securities-related products
of the DIM Account, and HSBC Taiwan may not refuse it.
16.6 When receiving the request stated in Article 16.7, HSBC Taiwan shall
firstly confirm that the request is made by the Fund or its authorized
representative before providing the requested information. HSBC Taiwan
shall also fill out a request record for recordation.
Article 17 (Calculation, Method and Time of Payment of Remuneration of HSBC
Taiwan and Expenses)
17.1 The remuneration of HSBC Taiwan for services provided under this
Contract shall be paid by the Fund Custodian from the Fund Assets in
accordance with the calculation, method and time of payment specified in
Appendix VI of this Contract after receiving a notice from HSBC Taiwan.
17.2 The transaction fee, taxes, and the other relevant expenses (but not
including any expenses associated with HSBC Taiwans obligations under
Article 16) incurred from the discretionarily investment shall all be borne
by the Fund and shall be paid from the Fund Assets. The Fund shall also be
responsible to make up any deficiency.
Article 18 (The Effective Date and the Term of the Contract)
18.1 This Contract shall take effect upon the execution of it by both of
the Fund and HSBC Taiwan. However, HSBC Taiwan may exercise right of
investment decision-making, and assets management, and the remuneration of
HSBC referred to in Article 17.1 shall start to calculate, only after the
R.O.C. Custody Contract and the Tripartite Agreement of Discretionary
Investment referred to in Article 7.2 are valid and effective, and are able
to be actually performed.
18.2 This Contract shall continue in effect until[ , 2010]. If not
sooner terminated, this Contract shall continue in effect for successive
periods of 12 months each thereafter, provided that each such continuance
shall be specifically approved annually by the vote of a majority of the
Funds Board of Directors who are not parties to this Contract or interested
persons (as such term is defined in the U.S. Investment Company Act of 1940)
of any such party, cast in person at a meeting called for the purpose of
voting on such approval and (a) either the vote of a majority of the
outstanding voting securities of the Fund, or (b) a majority of the Funds
Board of Directors as a whole. As used herein the phrase majority of
the outstanding voting securities shall have the meaning set forth in the
U.S. Investment Company Act of 1940.
Article 19 (Amendment to the Contract)
Unless otherwise provided by applicable laws, the content of this Contract
and its appendices may be amended by the written consent of both Parties
and Article 18.1 shall apply mutatis mutandis.
Article 20 (Termination of Contract)
20.1 This Contract may be terminated at any time by the Fund, without the
payment of any penalty, upon a vote of a majority of the Funds Board of
Directors or a majority of the outstanding voting securities of the Fund,
or by HSBC Taiwan, on sixty (60) days written notice to the other Party.
This Contract shall automatically terminate in the event of its assignment
(as such term is defined in the U.S. Investment Company Act of 1940). In
addition, this Contract shall automatically terminate if HSBC Taiwan is
removed by the order of the FSC in accordance with the relevant R.O.C. laws.
20.2 If either Party breaches the provision of this Contract, and fails to
rectify within the period prescribed by the other Party in writing, the
other Party may terminate this Contract before the expiration of this
Contract.
20.3 In the event HSBC Taiwan is unable to continue conducting the
discretionary investment business due to dissolution, revocation or
abolishment of permission of conducting discretionary investment business,
HSBC Taiwan shall inform the Fund, the R.O.C. Custodian and the Trading
Counterparties immediately. This Contract will be terminated automatically
upon HSBC Taiwans incapability to conduct the discretionary investment
business.
Article 21 (Obligations to Settle Pending Affairs after Termination of this
Contract)
21.1 If this Contract is terminated due to expiration of this Contract
without renewal or according to provisions of Article 20, HSBC Taiwan shall
settle the pending affairs immediately, make a final report for current
status of the DIM Assets and the loss or profit of investment of the DIM
Account and deliver it to the Fund.
21.2 This Contract shall be deemed to be valid and effective within the
period of settlement of the pending affairs by HSBC Taiwan referred to in
Article 21.1.
Article 22 (Provisions for Handling Breach of Contract)
Either Party who breaches provisions of this Contract and fails to rectify
it within the period prescribed by the other Party in writing shall
compensate the other Party for the damages and losses suffered by such other
Party therefrom.
Article 23 (Notice of Change of Important Matters and the Method thereof)
In the event there is any change in the basic information provided by the
Fund, the Fund shall inform HSBC Taiwan of such change promptly. Unless
otherwise provided by this Contract, any notification by either Party
pursuant to this Contract shall be made in writing and delivered to addresses
of parties set forth in this Contract or in such other manner agreed by both
Parties.
Article 24 (Prohibition of Re-commission and Assignment)
Unless otherwise provided by laws and regulations, HSBC Taiwan may not, in
entirety or in part, designate any third party to perform its obligations
under this Contract, or assign its right hereof to any third party.
Article 25 (Dispute Settlement and Jurisdiction of Litigation)
Subject to any contrary requirement of the U.S. Investment Company Act of
1940 or the rules thereunder, both Parties agree that any dispute arising
out of or in connection with this Contract shall be first resolved in
accordance with the regulations governing disputes mediation procedures
stipulated by SITCA. If such mediation fails, both Parties agree that the
dispute shall be subject to the non-exclusive jurisdiction of the Taiwan
Taipei District Court.
Article 26 (The Governing Law and Supplementary Provisions)
26.1 This Contract shall be governed and construed in accordance with the
laws of the R.O.C., but subject to any contrary requirement of the U.S.
Investment Company Act of 1940 or the rules thereunder.
26.2 In the event there is any amendment to laws related to securities
investment trust or consulting, futures-related laws, articles of
incorporation of SITCA or other relevant rules or regulations after
execution of this Contract, unless otherwise provided by this Contract, the
rights and obligations between the Parties hereto shall be subject to the
provisions of the amended laws.
26.3 Matters not provided herein shall be subject to the provisions of the
SITC Act, Futures Trading Act, the Management Regulations, the Operation
Rules, articles of incorporation of SITCA, and other related laws and
regulations of the R.O.C.; in the absence of such provision in the
above-mentioned regulations, the matters shall be subject to the negotiation
between Parties of this Contract in accordance with the principle of good
faith.
IN WITNESS WHEREOF, this contract has been duly executed by both Parties.
The Taiwan Fund, Inc.
By /s/ Xxxxxxx N.Y. Xxxxx
Name: Xxxxxxx N. Y. Xxxxx
Title: Secretary and Treasurer
Date: April 3, 2009
HSBC Global Asset Management (Taiwan) Limited
By /s/ Xxxxxx X.X. Xxxx
Name: Xxxxxx X. X. Xxxx
Title: Chief Executive Officer
Date: April 3, 2009
Appendix I: Discretionary Investment Prospectus and Risk Disclosure Statement
The legal relations of the nature, scope, principle of operation, billing of
service charge, prohibitions, client (principal), trustee (agent), custodian
agent of discretionary investment management and the mode of operation.
(I) The nature
HSBC Global Asset Management (Taiwan) Ltd. (the Company) may undertake
discretionary investment management business only upon regulatory approval:
According to the Regulations Governing the Conduct of Discretionary
Investment Business by Securities Investment Trust Enterprises and Securities
Investment Consulting Enterprises (hereinafter, the Regulation) and
Securities Investment Trust and Consulting Association (SITCA)s Operation
Guidelines Governing the Discretionary Investment Business by Securities
Investment Trust Enterprises and Securities Investment Consulting Enterprises
(hereinafter, the Operation Guidelines) promulgated by the Securities and
Futures Bureau of the Financial Supervisory Commission, Executive Yuan
(formerly the Ministry of Finance of the Securities and Futures Commission,
or known hereinafter as FSC), the Company shall satisfy certain
qualification requirements and shall be subject to the approval of FSC in
order to be eligible to apply the undertaking of discretionary investment
management business. (The FSC has approved the Company to undertake the
aforesaid business).
The client fully empowers the professional investment institution for
discretionary investment management.
The client fully empowers the Company to manage its entrusted assets for
investments based on its discretion on the professional standing of the
Company in investment. The Company shall, within the scope of empowerment,
make decisions in discretionary investment management. The Company shall act
as a prudent person under due diligence for the best interests of the client.
Make investment decisions according to the purpose of investment as
instructed by the client:
The client may consider their capacity, experience, and purpose of investment
as well as applicable regulations to request the Company to customize the
related investment policy and the scope of investment. The Company shall
utilize the assets for discretionary investment under due diligence.
The entrusted assets for discretionary investment management ( DIM Assets)
are subject to the custody of the custodian agent:
Applicable domestic regulations require that the client shall place the DIM
Assets and the return on investment into the custody of the custodian agent
approved by the Ministry of Finance to conduct business and rated by credit
rating institutions recognized by the FSC as financial institutions at
specific rating (hereinafter, the Custodian Agent). The Company shall not,
for whatever reasons, take custody of the capital, securities or other assets
of the client.
Where the Company may be affiliated with the custodian agent as stated in
Article 11-3 of The Regulation, the Company shall inform the client before
entering into agreement. The client shall then appoint the custodian agent on
their discretion.
As a matter of principle, the client and the custodian agent shall enter into
an agreement on custody of assets whereby the custodian agent shall safe keep
the assets for the client.
(II) Scope:
1. The client shall fully empower the Company as an agent to make investment
decisions and utilize the DIM Assets whereby the Company shall take full
discretion in making investment in the name of and on behalf of the client
with full power of attorney without further authorization to take action in
particular investment.
2. The scope of investment shall be governed by Article 14 of the Regulation,
Investment in securities not stated in Article 6 of the Securities and
Exchange Law is prohibited.
Transactions other than securities related products are prohibited.
The DIM Assets shall not be available for loans.
No transaction with funds, common trust funds, other discretionary
investments or futures trading account, own capital account, client-operate
securities trade account or future merchant accounts or securities related
products managed by the agent with the exception of transaction conducted
at centralized market or OTC market unless under willful arrangement of
trade for square up purpose. No investment in the stocks, corporate bonds,
or debentures issued by the Company.
The following acts are prohibited unless otherwise consented by the client
in writing or permitted by special clauses in the agreement:
Investment in the subscription (sale) warrants issued by the Company.
Investment in the stocks, corporate bonds, or debentures issued by a company
in stakeholder relation to the Company.
Investment in securities underwritten by securities dealer in stakeholder
relation to the Company.
Margin trading of securities.
Lending and borrowing of securities.
No investment in the securities underwritten by the Company unless otherwise
the client are explicitly informed of a possible conflict of interest and the
control measures and at the consent of the client in writing of each occasion
with the specification of the quantity of securities for investment.
Investment in offshore securities shall be duly in compliance with the types
and scope of securities permitted by FSC.
No violation of applicable regulations or the prohibition orders of the FSC.
Article 17 of the Regulation prohibits the followings when allocating the
assets of discretionary account in investment:
(1) The investment from particular discretionary account in the stocks,
corporate bonds or debentures and subscription warrants issued by any issuer
shall not exceed 20percent of the net asset value of such discretionary
account. The investment from particular discretionary account in the
corporate bonds or debentures issued by particular issuer shall not exceed
10percent of the net asset value of such discretionary account. Where the
agent may place discretionary orders for the investment in depository
receipts and may also invest in the stocks by the same issuer, the total
value or quantity of both the stocks in holding and the total value or
quantity of stocks denominated by the depository receipts shall be accounted
for in calculating the upper limit. Where the agent may also place
discretionary orders for investment in subscription warrant, the quantity of
shares so represented and the quantity of stocks issued by the same issuer
in holding shall both be accounted for in calculating the upper limit of
investment.
(2) The total value of investment from all discretionary accounts managed by
the Company in the stocks issued by particular issuer shall not exceed
10percent of the outstanding stocks issued by such issuer.
(3) The investment from particular discretionary account in the beneficiary
security issued by any issuer for solicitation of fund or private placement
for raising funds, REIT and REAT, any special purpose company raising fund
through offering or private placement by issuing ABS, shall not exceed
20percent of the net asset value of such discretionary account.
(4) The provisions of (1) and (3) may be waived if the client of the
discretionary account and the discretionary account investment agreement
specified otherwise.
3. Further to the aforementioned regulations, the client may consult with
the Company to discuss their capacity, experience, purpose of investment and
legal rules applicable to related investment to determine the investment
policy and scope and explicitly stated such terms and conditions in the
agreement on discretionary investment.
(III) Principles of Operation
The Company undertaking discretionary investment service shall duly abide
applicable regulation. In addition, the Company shall also duly observe
Article III of the Self-Discipline Regulations for SITCA Members whereby all
members of SITCA shall uphold the 7 principles in operation and materialize
the spirit of these principles into management practice:
1. Law Abiding: understand all applicable legal rules and no violation or
assisting a third party in the violation of laws.
2. Honesty and Trust: properly understand the capacity, experience and
purpose of investment of each client as the basis for providing relevant
services. Seek the best interest of the client. Do not mislead, cheat,
engage in any conflict of interest or insider trade.
3. Prudent person in management: exercise due care as a prudent person and
help the client to appropriately diversify risks and provide the best service
in securities investment.
4. Disclosure: provide necessary and sufficient information for the client,
and inform the client of the risks inherent to the investments and related
information in the investment decision-making process or transaction process.
Disclose to the client the latest information rapidly.
5. Professionalism: Supervise all employees in continuing education in their
respective areas of specialization, and fully use their expertise in the
analysis of securities investment. Nurture the corporate culture of
professional investment management.
6. Confidentiality: Keep strictly confidential with regard to the information
of the client. Do not disclose such information or use the information.
7. Fair Competition: Avoid causing damage to the reputation, mutual interest,
or undue competition among the members of SITCA.
(IV) Billing
1. The client shall be responsible for the expenses incurred as follows
unless otherwise specified in related agreements: discretionary account
management fee, custodian fee for the custodian agent, commission for
securities trade, securities transaction tax and other applicable taxes.
2. The Company shall calculate the remunerations under the principle of fair
competition with reference to industry level and enter into agreement with
the client. Generally, the calculation is made at specific percentage of the
amount of fund entrusted, the value of the DIM Assets or as regulated by law
and shall be deducted from the discretionary account assets on a regular
basis. However, such calculation and deduction of fees shall not violate the
Regulation under the principle that agreement with the client on sharing the
return on investment or loss from investment is prohibited unless otherwise
specified by FSC on remunerations from performance. The aforementioned method
for the calculation of remunerations, method and timing of payment shall be
explicitly stated in the Discretionary Investment Management Contract (the
DIM Contract).
3. The custodian fee charged to the account of the client is mandatory
whereby the assets in the discretionary account shall be subject to the
custody of the custodian agent and a service charge will be applicable to the
client. The calculation, method and timing of payment shall be agreed upon
by and between the client and the custodian agent and shall be explicitly
stated in the Discretionary Investment Custody Contract (the Custody
Contract).
4. The commissions for securities trade and securities transaction tax are
expenses or cost incurred from the investment from the discretionary account
in securities by the Company in favor of and in the name of the client, and
shall be deemed the direct cost of the client in conducting securities trade.
The calculation, method and timing of payment shall be regulated by domestic
law or practice in the market.
5. Other related expenses, cost, or taxes shall be applicable depending on
the circumstance, or agreed upon by and between the client and the Company or
between the client and the custodian agent.
(V) Prohibitions
Prohibitions dictated by the Regulation and the Operation Guidelines in
undertaking discretionary account investment by the Company are explained as
follows:
1. Discretionary investment may be made only upon regulatory approval:
According to Article 3 of The Regulation, no party may undertake
discretionary account investment business in any regard in their operation
except under the approval of FSC.
2. The asset value or amount to be entrusted by particular client shall not
be lower than certain level: According to Article 12 of The Regulation, the
lower limit of the assets value or amount for each client in discretionary
investment is NTUSD5 million.
3. The Company shall not take custody of discretionary account assets:
According to Article 11 of The Regulation and Article 23 of the Operation
Guideline, the Company is not permitted to take custody of the capital and
allocate the capital for procurement of assets for whatever reasons.
4. The Company shall not accept joint appointment: according to Article 22 of
The Regulation and Article 18 of the Operation Guideline, the Company shall
enter into the agreement on discretionary investment with individual clients,
not joint appointment.
5. According to Article 27 of the Operation Guideline: In appointing an agent
with full power of attorney for managing the discretionary account for
investment, each client shall appoint only one custodian agent.
6. Prohibitions of the person in charge of the Company and the employees:
According to Article 36 of The Regulation, the directors, supervisors,
managers and sales personnel of the Company shall not violate any of the
prohibitions in undertaking discretionary investment.
7. The scope of investment and the use of funds shall be referred to in the
inscription in (II)-2.
8. The Company may solicit business of discretionary investment and launch
promotional events in accordance with Article 7 of the Operation Guideline,
but shall not:
I Take the approval by FSC in undertaking discretionary account investment
business as propaganda for application or guaranty of the value of the
discretionary account assets in investment.
II Mislead the investors to believe that the principal or profit is
guaranteed.
III Making representations that the Company will bear the losses.
IV Offer gifts or other interests for solicitation of business or promotion.
V Exaggerate the performance of past operation as propaganda or place
advertisement for attacking others in the industry.
VI Untrue, fraudulent or misleading behaviors.
VII Misstatement, the use of false information, or supply information only
favorable to the Company to exaggerate the performance of the securities,
securities related products it provided, or other investments, trade or
service approved by FSC .
VIII The content is in violation of laws or the content of the agreement on
discretionary investment.
IX Any other unlawful act.
(VI) The legal relations among the client, the Company, and the custodian
agent and the mode of operation
The legal relations among the parties concerned in discretionary investment
(the client, the Company, and the custodian agent) are explained as follows:
1. The relation between the client (principal) and the Company
The client and the Company are bound by principal-agent relation through the
DIM Contract whereby the client empowers to determine the use of the DIM
Assets for investment. The policy and scope of investment shall be determined
by the parties therein and the details shall be stated in the DIM Contract
and its appendix to the agreement. Any other rights and responsibilities
binding the parties shall also be stated in the DIM Contract.
2. The relation between the client and the custodian agent
The relation between the client and the custodian agent shall be explicitly
stated in the Custody Contract whereby the custodian agent shall duly observe
the rules of FSC and The Regulation.
3. The legal relation binding the client, the agent, and the custodian agent
The parties hereto shall enter into a tripartite agreement defining the
rights and responsibilities of the contracting parties. In the agreement, it
shall be specified that the agent may make decisions on investment and to
allocate the assets of the discretionary accounts only as defined in the
agreement on discretionary investment in full discretion as empowered. The
custodian agent shall effect delivery as instructed by the agent and shall
review to ensure such instructions are fully in compliance with applicable
regulations and the restrictions and scope of investment as stated in
agreement on discretionary investment. In addition, the custodian agent
shall also be responsible for assisting the client in opening new account
for securities investment, the custody of money and securities, the delivery
after trade, bookkeeping, and share registration. Furthermore, the rights
and responsibilities binding the three contracting parties shall be
explicitly stated in the said tripartite agreement.
4. Mode of operation:
With reference to the aforementioned relations, the mode of operation shall
be: the Company accepted the appointment of the client and exercise full
discretion over the assets held under the custody of the custodian agent in
making decisions and effecting investment within the scope of authorization
under DIM Contract. Upon the confirmation of transactions with respective
securities dealer or other counter parties, the Company shall instruct the
custodian agent to effect payment for the delivery of the investment. The
custodian agent shall then review if the procedure is in compliance with
applicable legal rules and the restrictions and scope specified in the DIM
Contract. If so, the custodian agent shall proceed to delivery and related
bookkeeping and share registration. The custodian agent shall be responsible
for the opening of securities account for investment, the custody of the
proceeds and related matters.
At any time impairment of the net asset value of a customers discretionary
investment assets equals 20 percent or more of the value of the original
discretionary investment assets, the Company shall produce a transaction
record of the assets and a status report and deliver them to the client
within two business days from the date of the event. The same shall apply in
each subsequent case of impairment equaling 10 percent or more of the net
asset value stated in a previous report. Also according to Article 46 of the
Operation Guideline, the client may inquire the status of transactions of
the assets in the discretionary account, the quantity of assets for
discretionary investment in inventory, the amount and the exposed position
of securities related products and related information, in writing or in the
means as mutually agreed at any time
II. The analysis methods, sources of information, and investment strategies
adopted by the Company in making discretionary investment
The Company takes into consideration the good track of record of investment
performance in the past, achievement of the expected goal entrusted by the
client, and earning the trust of the client to entirety in using the assets
in the discretionary accounts for investment. With years of experience in
investment analysis, the Company has developed a viable and effective system
for such purpose, which is a set of analysis methods, sources of information
and investment strategies insensible in the investment decision-making
process. Such system is elaborated as follows:
(I) The methods of analysis
Generally, the analyses are conducted by designated research and analysis
professionals from a macroeconomic perspective, industry, financial
information on individual companies, products and markets, stock price
fluctuation, and the trend of the companies in development as the foundation
for making investment.
The characteristics are summarized as follows:
1. Macroeconomic and microeconomic levels are taken into account:
(1) Macro economic analysis: keep track on the changes in domestic and
international political and economic environment with in depth analysis. The
key of analysis will be: major monetary and economic policies of major
countries, indicators for economic growth and performance, government budget,
public construction spending, changes in economic structure, supply and
demand of capital, trends of long and short-term interest rates, consumer
price level, unemployment rate, import and export trade, industrial policy,
the stage of development of the capital market and the layers, and other
factors that may affect macroeconomic development.
(2) Industry Analysis: the research staff make continuous efforts to address
to the following issues for keeping up with the changes in the industry:
economic outlook of the industry, changes in the supply and demand or prices
of products and raw materials, the association between different industries
in performance, the level of technologies, sufficiency of human resources,
RandD budget, government policies on financing the industry and taxation.
(3) The analysis of individual companies: the research staff gather and
analyze the information on financial performance and operation released by
the companies regularly in order to detect every opportunity for making the
first move in investment. In addition, the staff also explore the
composition and possible effect of the changes in the members of the
management teams of these companies for analyzing their product features
and competitiveness, technological innovations, RandD level, market
development, marketing capacity, operation plan in the future, and financial
forecasting and attainment of the financial goals of these companies.
2. The research team holds regular meeting for collective wisdom
The research team of the Company holds daily, weekly, and monthly meetings
for discussion on the variables inherent to the aforementioned topics. The
research
staff will present the investment analysis report for discussion in order to
achieve collective wisdom. In case of major incident, all of them will
propose analysis report on possible impact. The said analysis reports will be
presented to the investment managers as the reference for making investment
decisions.
3. Quantitative Analysis for Trend Forecasting
(1) Proper use of data analysis: the Company demands that all research staff
to present all related factors in quantitative terms as far as possible in
the analysis, and apply scientific methods for assessing the value of the
investment objects and possible risks. All research staff shall not conduct
analysis in empty thinking, basing on rumors and unsubstantiated facts.
(2) Trend Forecasting: the ultimate goal of analysis is the control of the
trend as early as possible. The research team of the Company applied the
aforementioned methods to make timely forecasting on all investments.
(II) Sources of information
The primary sources of information vital for the investment analyses include
the following:
1. Professional publications: statistical reports compiled and released by
domestic and foreign governments on a regular basis, industry journals or
analysis reports, research reports released by securities dealers or other
professional institutions.
2. Online information from professional information companies: examples are
Reuters, Bloomberg, Fortek, C Money, and financial information published by
Taiwan Economic Daily News.
3. Written information from companies listed in the exchanges or OTC markets:
examples are their monthly, quarterly, interim, and annual reports, financial
reports, prospectus, financial forecasting, and plan for issuing new shares
for capital.
4. Visit companies, scholars and experts: examples are visits to companies or
factories, interview the persons in charge, key personnel or the experts.
5. Attend symposiums or conferences: examples are the conference for
announcement of performance or symposiums of particular industry.
(III) Investment Strategies
1. Basic principle
(1) The Company maps out the investment strategies and executed the
investment plans in accordance with the investment policy, scope and
restrictions specified in the DIM Contract.
(2) Take appropriate actions to control risk and protect the assets, and seek
reasonable growth of ROI for the best interest of the client.
(3) Protect the interests of all clients fairly and avoid the conflict of
interest.
2. Investment Decision-Making Process
The investment decision-making process of the Company contains four steps.
Each step shall be taken cautiously and is explained as follows:
(1) Investment analysis: the Company holds morning meeting on discussion of
the latest development of the political, economic, industrial situations and
the performance of individual stocks and other unusual situations on a daily
basis. The Company also holds weekly meeting on industrial research, and will
discuss the analysis of economic trend, industry outlook, performance of
individuals stocks as specified in the investment analysis reports presented
by the research team for recommendation in investment. The main purpose of
investment analysis will be served as primary source of reference for the
investment managers in making investment decisions. This is the demonstration
of the professional standing of the research team of the Company.
(2) Investment decision: the investment manager shall, in accordance with the
investment analysis reports compiled by the research staff, the outcomes from
the industry research meetings, the discussion result of the morning analysis
meeting, and the variance analysis report of trade conducted the day before,
the conditions for investment as instructed by the client, make objective and
fair decisions in writing as per the needs and requests of individual
clients, then instruct the dealers to proceed to trade. The decisions of the
objects of investment of the day shall be subject to the approval of
competent authority of the Company for ensuring such decisions are lawful,
and congruent with the needs of the client in investment, and make sure that
the terms and conditions contained in the DIM Contract were fully supported
by objective investment analysis and the assets entrusted by each client
were fairly allocated without any form of the conflict of interest.
(3) Execution of the investment decision: the investment manager shall
present the investment decision in writing to the dealers for transactions,
and shall not give instruction just verbally to avoid misinterpretation from
speaking and no hard evidence for proof of transactions. Investment manger
shall prepare written instruction of investment decision for each client
respectively to the dealers for proper execution. The objects, types,
quantity, price and time of investment shall be explicitly stated in the
investment record sheet and the reasons for variation shall be specified.
For ensuring the fairness to each discretionary account, investment
instruction shall be made under each discretionary account individually. No
trade is allowed for matching the investment of one account with another.
After the transactions of the day, cautiously check the confirmation slips
sent by the securities dealers and other counter parties for accuracy, and
forward the information for relevant personnel for bookkeeping. The dealers
shall analyze the result of transactions properly and find out if there is
variation from the original investment decisions, and give reason if there
is any. All information after this stage shall be submitted to the investment
managers as reference and as reference for investment decisions to be made
the next day and beyond.
(4) Review of investment: the Company shall hold review meeting on the
investments at least once a month. Competent authority of the Company shall
preside over the meeting. Each investment manager shall present review report
on investments covering the process of investment decision-making, the
content of decision, and investment performance, and shall take corrective
action and adjust the investment direction accordingly.
(IV) The characteristics of the objects of investment or transactions,
possible risk, and applicable legal rules
1. Investment Objective
The investment objective of the Fund is to seek long-term capital
appreciation through investment primarily in equity securities listed on the
TSE.
2. Market Volatility
The growth in the ROC securities market over the past decade has been
accompanied during certain periods by a high degree of stock price volatility
resulting in very large short-term swings in the TSE Index.
During periods when the market has declined rapidly, such as financial crisis
in 2008, the combination of reduced demand and TSE rules confining daily
movements in individual company stock prices to fixed limits (currently
7percent)
around the previous days closing price has greatly diminished market
liquidity. This has made it extremely difficult during declining periods to
protect previously unrealized capital gains as the Fund cannot always sell
the portfolio securities at a time the Advisor considers to be in the Funds
interest. The Advisor believes that short-term trading strategies, without
regard to fundamental investment analysis, currently are factors determining
day-to-day price fluctuations. The Fund has a long-term trading strategy
based on fundamental investment analysis and therefore short-term volatility
in the ROC securities market will affect the net asset value of the Funds
shares which could cause the Funds shares to trade at larger discounts and
premiums than are usually experienced by closed-end investment companies.
3. Currency Fluctuations
The Funds assets are invested primarily in ROC securities and substantially
all income is received in NT Dollars. However, the Fund will compute and
distribute its income in U.S. Dollars. Therefore, if the value of the foreign
currencies in which the Fund receive its income falls relative to the U.S.
Dollar between receipt of the income and the making of Fund distributions,
the Fund will be required to liquidate securities in order to make
distributions if the Fund has insufficient cash in U.S. Dollars to meet
distribution requirements. Since the Fund invests in ROC securities
denominated in NT Dollars, changes in the exchange rates of the NT Dollar
may affect the value of securities in the Funds portfolio and the unrealized
appreciation or depreciation of investments insofar as U.S. investors are
concerned. Further, the Fund may incur costs in connection with conversions
between currencies, Changes in the exchange rate of the NT Dollar will
affect the Funds net asset value regardless of the performance of the
underlying investments of the Fund.
Relative currency values will be taken into account by the Advisor in
selecting industries and companies for investment.
III. The education and experience of the persons in charge of investments and
the sales personnel are shown in Annex I.
IV. Income Statement of the Company covering the last two years and the
Balance Sheet of the Company to date are shown in Annex II.
V. Law suits or non-contentious matters to the Company respecting investment
consulting, discretionary investment or securities investment trust funds:
Nil.
VI. Disciplinary actions by Financial Supervisory Commission, Executive Yuan
on the Company or the person in charge in the last 2 years, specify the time,
the details, and the status of corrective action.
(I) Time: FSC of the Executive Yuan issued an executive order under FSC
Letter Xxxx-Xxxx-Xxxxx (IV) No. 09600000966 dated January 11, 2007 demanding
corrective action by the Company.
The cause: The personnel of the Company adjusted the clock and changed the
transactions of discretionary account to fund account without authorization.
(II) Time: FSC of the Executive Yuan issued an executive order under FSC
Letter Xxxx-Xxxx-Xxxxx (IV) No. 0960033734 dated July 6, 2007 demanding
corrective action by the Company.
The cause: FSC of Executive Yuan conducted a general examination of the
Company in the period of April 18 --27, 2007, and discovered the violations
specified as follows:
1. The investment decision made by the fund managed by the Company failed to
follow the recommended price in the research report, and the actual price
significantly varied from market price.
2. The application for subscription of money market funds by the client and
the proceeds for investment were not delivered by the subscription deadline.
VII. Investment Risk Disclosure
Discretionary investment is not risk-free. Management performance of the
Company in the past does not guarantee minimum return on the investment fund
in the discretionary accounts. The Company shall act as prudent person under
due diligence, but disclaim any responsibility on investment loss or
guarantee minimum return on investment. The client is advised to read the
Discretionary Investment Management Prospectus and Risk Disclosure Statement
thoroughly before entering into agreement with the Company.
(II) The Company and the person-in-charge of the Company whose
signature/seals were affixed unto this Discretionary Investment Management
Prospectus and Risk Disclosure Statement shall be legally liable to any
false account or concealment contained therein.
Annex One Education and Work Experience - Department Head, Portfolio
Manager, and Sales Team for Discretionary Investment Management Services
Title - Vice President
Name - Xxxxxxx Xxx
Education - National Chengchi University,Dept. of Business Administration
Work Experience - Department Head of Segregated Account Management, HSBC
Global Asset Management (Taiwan) Ltd. (1998/11-- ) Portfolio Manager, HSBC
Safe and Rich Fund, (2000/12--2006/12) Portfolio Manager, HSBC Trinity
Balanced Fund, (2006/03--2006/06) Manager, Polaris Securities,
(1995/03--1998/10)
Title - Vice President
Name - Xxxxxxx Xxxx
Education - University of Illinois, MBA
Work Experience - Portfolio Manager, HSBC Global Asset Management (Taiwan)
Ltd. (2006/03--) Head of Global Equity, Grand Cathay Securities Investment
Trust Co., Limited, Taiwan (2001/08--2006/03) Assistant Manager, Industrial
Bank of Taiwan Securities Consultant Co., Limited, Taiwan (2001/01--2001/07)
Title - Assistant Vice President
Name - May Kao
Education - National Chengchi University,Dept. of Economics
Work Experience - Portfolio Manager, HSBC Global Asset Management (Taiwan)
Ltd. (2006/12--) Investment Manager, XX Xxxxxx Asset Management
(2003/08--2006/08) Investment Manager, Franklin Xxxxxxxxx First Taiwan
(2002/07--2003/08)
Title - Assistant Vice President
Name - Xxxxxxx Mu
Education - University of Illinois at Urbana - Champaign, MS in Finance
National Taiwan University, MS
Work Experience - Department Head of Institutional Business Development,
HSBC Global Asset Management (Taiwan) Ltd. (2005/08-- ) Product Specialist,
Allianz Global Investors (2004/05--2005/08) Product Specialist, Fu Hwa
Investment Trust, (2003/10--2004/05)
Title - Deputy Manager
Name - Xxxx Xxxx
Education - Washington University in St. Louis, LL.M.
Work Experience - Account Officer, HSBC Global Asset Management (Taiwan) Ltd.
(2007/06-- ) Assistance Manager, Cathay United Bank (2005/08--2007/06)
Associate, PricewaterhouseCoopers, (2004/12--2005/06)
Title - Specialist
Name - Xxx Xxxx
Education - National Taiwan University, MS
Work Experience - Specialist, HSBC Global Asset Management (Taiwan) Ltd.
(2007/05-- )
Annex Two: Balance Sheet and Income Statement (2006--2007)
HSBC INVESTMENT (TAIWAN) LIMITED
Balance Sheets
December 31, 2007 and 2006
(Expressed in thousands of New Taiwan Dollars, except for par value)
2007 2006
Assets
Current assets:
Cash and cash in bank (note 4 and 5) 905,355 742,876
Account receivable (note 4) 173,503 95,215
Other receivable (note 4) 4,288 6,111
Prepayments and other current assets (note 8) 13,535 9,984
1,096,681 854,186
Bond investments in non-active markets (note 6) 935 8,855
Fixed assets, net (note 7):
Cost:
Land 180,765 180,765
Building and building improvements 311,756 306,574
Office equipment 83,025 71,831
Leasehold improvements 13,895 13,797
589,441 572,967
Less: accumulated depreciation (161,213) (146,902)
Less: accumulated impairment (104,246) (104,246)
Prepayments for equipment 12,790 7,011
336,772 328,830
Other assets:
Refundable deposits (note 4 and 11) 101,821 89,532
Pledged assets 7,000 -
Deferred tax assets-noncurrent (note 9) 14,002 14,317
Other assets-other 29 87
122,852 103,936
Total assets 1,557,240 1,295,807
2007 2006
Liabilities and Stockholders Equity
Current liabilities:
Accrued expenses (note 12) 155,145 75,843
Payable to related parties (note 4) 98,604 80,611
Income tax payable (note 9) 89,929 75,637
Other current liabilities 11,068 5,745
Total liabilities 354,746 237,836
Stockholders equity (note 9 and 10):
Common stock, 10 par value,authorized and issued
78,847,782 shares for both 2007 and 2006 788,478 788,478
Capital surplus-additional paid-in capital from issuance of
common stock for cash 17,913 17,913
Retain earnings:
Legal reserve 35,511 11,504
Unappropriated earnings 360,592 240,076
396,103 251,580
Total stockholders equity 1,202,494 1,057,971
Commitment and contingencies (note 4 and 12)
Total liabilities and stockholders equit
1,557,240 1,295,807
HSBC INVESTMENTS (TAIWAN)LIMITED
Statements of Income
For the years ended December 31,2007 and 2006
(expressed in thousands of New Taiwan dollars, except for earnings per share)
2007 2006
Operating revenues:
Management fees(note 4) 1,185,032 844,432
Commissions 154,760 86,227
Consulting income(note 4) 96,619 17,594
1,436,411 948,253
Operating expenses:
Personnel costs(note 8) 385,644 254,207
Depreciation and amortization 14,423 13,259
Other operating expenses(note 4) 570,654 356,691
970,721 624,157
465,690 324,096
Net operating profit
Other income and losses:
Interest income(note 4) 13,049 8,540
Other income, net(note 4) 1,690 1,883
Loss on disposal of fixed assets, net (11) (261)
Compensation loss(note 4) (311) (10,405)
14,417 (243)
Income before income taxes 480,107 323,853
Income tax expenses(note 9) 119,515 83,777
Net income(note 3) 360,592 240,076
Basic earnings per share before income
tax expenses(note 10) 6.09 4.11
Basic earnings per share after income
tax expense(note 10) 4.57 3.04
Appendix II: Initial Amount of the Discretionary Investment Management Assets
Cash: NTUSD 0
The value of the Securities: 497,827,300 (NUMBER2330
TSMC=9,500,426 shares)
The value of the DIM Assets shall be calculated in accordance with the Funds
prospectus.
Appendix III: Basic Guidelines and Scope of Discretionary Investment or
Trading and Management of Idle Funds
The investment objective is to seek long-term capital appreciation through
investment primarily in equity securities of Republic of China companies
listed on the Taiwan Stock Exchange. Investment may also be made in debt
securities listed on the Taiwan Stock Exchange and in debt securities traded
on the over-the-counter market.
The DIM Assets after having been remitted into the Republic of China and
delivered to the Custodian, shall be invested only in securities and money
market instruments denominated in NT Dollars and in NT Dollars cash and
banking and similar accounts, except to the extent otherwise permitted by
Republic of China law and regulations.
The HSBC Taiwan agrees that it will not, using the Fund Assets:
purchase any security (other than obligations of the U.S. Government, its
agencies or instrumentalities), if as a result: (i) as to 75percent of the
Fund Assets, more than 5percent of the total Fund Assets (taken at their
current value) would then be invested in securities of a single issuer, (ii)
as to the remaining 25percent of the Fund Assets, more than 10percent of the
total Fund Assets (taken at their current value) would then be invested in
the securities of a single issuer (except that the HSBC Taiwan may invest not
more than 25percent of the Fund Assets in obligations of the Republic of
China Government or its agencies or instrumentalities), (iii) more than
10percent of the voting equity securities (at the time of such purchase) of
any one issuer would be held in the Fund Assets, and (iv) more than
25percent of the total Fund Assets (taken at their current value) would be
invested in a single industry; or purchase any equity securities which, at
the time the purchase is made, are not (i) listed and traded on the Taiwan
Stock Exchange, (ii) purchased in initial public offerings and secondary
public offerings but only if such securities will be listed on the Taiwan
Stock Exchange immediately following such offering, or (iii) traded in the
over-the-counter market in Taiwan; or
purchase partnership interests; or
borrow money or pledge the DIM Assets; or
purchase securities on margin, except for short-term credits as may be
necessary for clearance of transactions; or
make short sale of securities or maintain a short position; or
buy or sell commodities or commodity contracts or real estate or interests in
real estate, except that it may enter into foreign currency exchange
contracts, foreign currency futures contracts, and options on foreign
currencies and foreign currency futures contracts for bona fide hedging
purposes; or
act as an underwriter of securities of other issuers; or
make loans, including loans of cash or portfolio securities, to any person;
for purposes of this investment restriction, the term loans does not include
distributed bonds, debentures of other securities; or
purchase securities issued by any issuer which owns, whether directly or
indirectly or in concert with another person, more than 5percent of the
equity securities (whether voting or non-voting) of HSBC Taiwan or which
takes a significant role in the management of HSBC Taiwan; or
issue senior securities; or
purchase beneficiary certificates representing interests in a ROC securities
investment trust fund or effect any transaction in securities with a ROC
securities investment trust fund managed by HSBC Taiwan.
Nothing in Point 3 above shall require the sale or disposition of any
relevant DIM Assets where any of the restrictions there set out is breached
as a result of any event outside the control of HSBC Taiwan and occurring
after the investment in the relevant assets is made (including not limited
to any reorganization or amalgamation of any company and the suspension of
any listing), but no further relevant assets shall be acquired until the
relevant limitation can again be complied with, except pursuant to the
exercise of subscription rights to purchase securities of an ROC issuer at a
time when the Funds holding of securities of that issuers (or that issuers
industry) would otherwise exceed the limits set forth in clause (i), (ii),
(iii) or (iv) of Point 3(a) above, where prior to such exercise and after
the announcement of such rights, HSBC Taiwan sells at least the number of
securities which it subsequently purchases through the exercise of the rights.
To not less than the extent (if any) from time to time required by the FSC a
proportion of the DIM Assets shall be retained at all times in liquid form in
assets of a type specified by the FSC.
HSBC Taiwan shall not hold or have an interest in securities issued by the
Fund or securities issued by any investment fund investing in Republic of
China securities in the management of which HSBC Taiwan participates or has
an interest.
To the maximum possible extent all transactions in discretionary investment
assets shall be carried out through stock exchanges and other officially
designated markets. Subject to any limitations which may be imposed under
the U.S. Investment Company Act of 1940 and any rules and regulations adopted
thereunder, such transactions may be carried out through a broker who is a
connected person of HSBC Taiwan to such extent as HSBC Taiwan may think fit
provided that the cost thereof is not greater than it would have been had the
transactions been carried out through a broker who was not a connected person.
Appendix IV: Information of Designated Investment Manager and His Deputy
Agreed by Both Parties
Name of the Investment Manager: Xxxxxxx Xxxx
Year of Birth: 1974
Education: University of Illinois at Chicago, MBA
Experience: 8 years of Portfolio Management
Name of the Deputy: May Kao
Year of Birth: 1965
Education: National Chengchi University, Dept. of Economics
Experience: 9 Years of Portfolio Management
Appendix V: Exercise of Rights on Subscription for Securities with
Consideration or Conversion of Securities
HSBC Taiwan has full discretion to exercise the rights on subscription with
consideration for securities or conversion of securities managed by it under
this Contract in the best interest of Fund and subject to the Basic
Guidelines and Scope of Discretionary Investment or Trading and Management
of Idle Funds as specified in Appendix III of this Contract.
Appendix VI: Calculation, Method and Time of Payment of Remuneration of HSBC
Taiwan and Expenses
As compensation for the discretionary investment management services and
expenses borne by HSBC Taiwan pursuant to this Contract, HSBC Taiwan shall be
entitled to receive out of the Fund Assets a monthly fee payable in NT
Dollars. Such fee shall consist of a basic fee (the Basic Fee) and
performance adjustments (the Performance Adjustments), which may serve
either to increase or decrease the Basic Fee.
(a) The Basic Fee shall be computed promptly after the end of each month by
multiplying (i) the average daily Net Value (as defined below) for such month
by (ii) an annual rate of 1percent. For any period of less than a full month
during which this Contract is in effect, the Basic Fee shall be calculated by
multiplying (i) the average daily Net Fund Value for such period prorated
according to the proportion that the number of business days in such period
bears to the number of business days in such month times (ii) an annual rate
of 1percent. As used herein, Net Value shall mean the value of the net
assets of the Fund (including the discretionary investment assets) calculated
as described under Net Asset Value in the Prospectus of the Fund.
(b) The Basic Fee shall be subject to upward or downward Performance
Adjustments on the basis of investment performance, as follows:
The Performance Adjustment shall be made by multiplying (x) the Applicable
Performance Adjustment Rate times (y) the average Net Value over the
performance period. The resulting Performance Adjustments shall then be
added to or subtracted from the Basic Fee. The Performance periods and the
Applicable Performance Adjustment Rates shall be calculated as follows:
(1) First, the performance period shall commence with the first business day
of the first full month following the date upon which 75percent or more of
the assets constituting the Net Value are invested in equity securities.
During the first eleven (11) months thereafter there shall be no Performance
Adjustment.
Starting with the twelfth month of operation, the Performance Adjustment
shall be take effect. Following the twelfth month a new month shall be
added to the performance period until the performance period equals 36
months. Thereafter the performance period shall consist of the current month
plus the previous 35 months. Notwithstanding the provisions of Point 1
(b)(1), Performance Adjustments under this Contract shall be made as if this
Contract were a continuation of the Management Contract, rather than a new
Investment Contract.
In addition, the termination of the Management Contract shall not, for
purpose of the last paragraph of Point 9.1 (b) of the Management Contract be
deemed a termination thereof and thereby result in any prorated fee
calculation.
(2) Second, compute the percentage difference between (a) the opening Net
Value of the Fund on the first business day of the performance period and
(b) the sum of (1) the closing Net Value on the last business day of such
period plus (ii) the value of the Funds cash distributions made during the
performance period plus (iii) the value of capital gains taxes paid or
payable by or on behalf of the Fund on undistributed realized long-term
capital gains during the performance period.
(3) Third, compute the percentage change in Taiwan Stock Exchange Index (the
Index) during such period. In making such computation the value of cash
distributions made during the performance period by companies whose
securities comprise the Index shall be accumulated to the end of such period
and added to the closing value of the Index, with cash distributions of the
securities comprising the Index being treated as reinvested in the Index as
of the end of each calendar quarter following the payment of the cash
distribution. (In both such computations of percentages, the percentage
rate shall be rounded to the nearest full basis point (0.01percent)
(rounding up if a computation produces a result of exactly one-half basis
point (0.005percent))).
(4) Fourth, the Applicable Performance Adjustment Rate shall be the
Applicable Adjustment Percentage (as defined in (5) below) times the number
(whether positive or negative) obtained by subtracting the percentage change
in the Index during the performance period from the percentage change in the
Net Value of during that period, provided that if the number thus obtained
is greater than ten (either positive of negative) the Applicable Performance
Adjustment Rate shall be the Applicable Performance Adjustment Percentage
times ten (positive or negative, as appropriate).
(5) The Applicable Adjustment Percentage shall be an annual rate of
0.03percent.
In computing the investment performance of the Net Value and the investment
record of the Index, distributions of realized capital gains, dividends paid
out of investment income, the value of capital gains taxes per share paid or
payable on undistributed realized long-term capital gains, and all cash
distributions of the companies whose stocks comprise the Index shall be
treated as reinvested in accordance with Rule 205-1 or any other applicable
rules under the United Sated Investment Advisers Act of 1940.
In the case of termination of this Contract, the transfer of the
discretionary investment assets to another securities investment trust
enterprise, the fee for that month shall be reduced proportionately on the
basis of the number of business days during which this Contract is in effect
during that month. The Basic Fee rate in that month shall be computed on
the basis of and applied to the Net Value, averaged over that month and
ending on the last business day on which this Contract is in effect. The
amount of the performance Adjustment (or Adjustments) shall be computed on
the basis of and applied to the Net Value, averaged over the 36-month period
ending on the last business day on which this Contract is in effect,
provided that if this Contract has been in effect for last than 36 months,
the computation shall be made on the basis of the period
of time during which this Contract has been in effect.
