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ITEM 7.
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DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END MANAGEMENT INVESTMENT COMPANIES.
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Attached to
this Form N-CSR as exhibit 12(a)(4) are copies of the proxy voting policies and procedures of the Fund and J.P. Morgan Asset Management (“JPMAM”) (formerly JF Asset Management), parent company of the Fund’s advisor, JF International
Management Inc. (the “Advisor”).
J.P. MORGAN ASSET MANAGEMENT
(Voting policy and corporate governance guidelines)
Table of contents
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I. Principles
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3
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II. Policy and Procedures
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4
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III. Voting Guidelines
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6
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Reports & Accounts
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6
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Dividends
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6
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Auditors
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6
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Boards
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6
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Directors
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7
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Non-Executive Directors
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8
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Issue of Capital
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8
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Mergers/Acquisitions
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9
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Voting Rights
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9
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Share Options/L-TIPs
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10
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Others
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10
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IV. Activism
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12
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V. Sustainability
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13
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I. PRINCIPLES
J.P.
Morgan Asset Management
(“JPMAM”) is committed to delivering superior investment performance to its clients worldwide. We believe that one of the drivers of investment performance is an assessment of the corporate governance principles
and practices of the companies in which we invest our clients’ assets and we expect those companies to demonstrate high standards of governance in the management of their business.
We have set out below the principles which provide the framework for our corporate governance activity. Although the policies and guidelines set out in this
document apply to Hong Kong and therefore principally concern accounts managed from the Hong Kong office, our colleagues in London, New York and Tokyo have similar standards, consistent with law and best practice in these different locations.
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1.
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Fiduciary priority.
Our clients appoint us to manage their assets in order to maximise the likelihood of meeting or exceeding their investment objectives at acceptable risk levels. Every decision to buy, hold or
sell any security will be consistent with that overriding objective.
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2.
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Evaluation.
Our clients expect us, as their delegates, to monitor the governance of companies in which we have invested their assets.
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3.
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Engagement.
We encourage excellence in the management of companies through the considered application of our corporate governance policies and guidelines. We welcome consultation by companies with their leading
shareholders on corporate governance issues.
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4.
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Proxy voting.
Company management is accountable to the shareholders, our clients. It is our responsibility to ensure this is recognized through the considered use of our clients’ votes.
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5.
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Litigation and Joint Working Parties.
JPMAM will align itself with other shareholders, for example, by joining class action suits or working parties as local practice dictates, where we are convinced that this is
in the best interests of our clients.
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6.
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Disclosure.
JPMAM’s corporate governance guidelines and policies are available to clients and companies alike. We believe that they conform to best practice and we are prepared to discuss them openly with
other interested parties.
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7.
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Ongoing commitment.
JPMAM is committed to reviewing its corporate governance principles, policies and guidelines to ensure that they fully reflect our interpretation of best market practice.
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II. POLICY and PROCEDURES
J.P. Morgan Asset Management
(“JPMAM”) manages the voting rights of the shares entrusted to it as it would manage any other asset. It is the policy of JPMAM to vote in a prudent and diligent manner, based exclusively on our reasonable judgment of what will best serve
the financial interests of the beneficial owners of the security.
1. Proxy Committee
The JPMAM Proxy Committee has been established to oversee the proxy voting process in the Asia ex Japan region on an ongoing basis. It is composed of the Proxy
Administrator and senior officers from the Investment, Compliance and Risk Management Departments. The main functions of the Proxy Committee are to review the Proxy Voting Guidelines (“Guidelines”) to ensure they are aligned with best
practice; to determine the independence of any third-party vendor which it has delegated proxy voting responsibilities and to conclude that there are no conflicts of interest that would prevent such vendor from providing such proxy voting services
prior to delegating proxy responsibilities; and to provide advice and recommendations on general proxy voting matters as well as on specific voting issues as they occur. The Proxy Committee may delegate certain of its responsibilities to subgroups
composed of Proxy Committee members. It meets quarterly or more frequently as circumstances dictate and its minutes are circulated to senior management including the Asia Risk Committee to whom it reports.
2. Voting
As these Guidelines represent what we consider
to be in the best financial interests of our clients, we would normally expect clients to allow us to use them as a template for voting. However, we recognise that in certain circumstances further analysis may be required.
In view our overriding fiduciary duty to act in the best interest of our clients, the Guidelines are an indication only of JPMAM’s voting policy. The
portfolio manager has discretion to override the policy should individual circumstances dictate.
Our Guidelines are primarily targeted at companies
listed on main stock exchanges. It is sometimes difficult for smaller companies to apply the same corporate governance standards and we would look at any issues for such companies on a case-by-case basis. We would, however, encourage them to apply
the highest possible standards of governance.
For markets in Asia ex Japan, we will generally abstain from voting at AGMs on the grounds that the matters
normally considered at such meetings are of a routine and non-contentious nature. To ensure we fulfil our fiduciary obligation to always act in our clients best interests, we will review each AGM notice to check whether there are any non-routine
matters such as company reorganisations/ restructurings, takeover/ merger and senior management compensation plans included therein. If any such matters are identified then we will consider each one individually so that our clients’ best
interests are served. The major routine matters in AGM are as follows:
1. Accept Financial Statement and Statutory Reports
2. Approve Dividend
3. Election
and re-election of directors
4. Fix remuneration of directors
5. Appoint auditors and fix remunerations
6. Approve issuance of Equity or Equity-Linked Securities without pre-emptive rights
7. Approve repurchase of shares (up to 20% of issued capital)
8. Authorise reissuance of repurchased shares
Also, certain markets require that shares are blocked from trading in order to be tendered for voting purposes. In these instances, it may be in our
clients’ best interests to abstain from voting in order to preserve the ability to trade. For these countries, a decision will be taken on a case-by-case basis by the research analyst in conjunction with the portfolio manager in order to
determine how our clients’ best interests are served.
To assist JPMAM investment professionals with public companies’ proxy voting proposals,
we have retained the services of an independent proxy voting service, Institutional Shareholder Services Inc. (ISS). ISS is assigned responsibility for various functions, which may include one or more of the following: coordinating with client
custodians to ensure that all proxy materials are processed in a timely fashion; providing JPMAM with a comprehensive analysis of each proxy proposal and providing JPMAM with recommendations on how to vote each proxy proposal based on the Guidelines
or, where no Guideline exists or where the Guidelines require a case-by-case analysis, on ISS’ analysis; and executing the voting of the proxies in accordance with Guidelines and its recommendation, except when a recommendation is overridden by
JPMAM, as described below. The Proxy Voting Committee has adopted procedures to recall shares on loan if a proposed major corporate event contemplates a shareholder vote to approve or to take other action. (The Proxy Voting Committee may determine:
(a) not to recall securities on loan if, in its judgment, the negative consequences to clients of recalling the loaned securities would outweigh the benefits of voting in the particular instance or (b) not to vote certain foreign
securities positions if, in its judgment, the expense and administrative inconvenience or other burdens outweigh the benefits to clients of voting the securities.)Situations can sometimes arise where more than one JPMAM client invests in the same
company or in which a single client may invest in the same company but in multiple accounts. In those situations, two or more clients, or one client with different accounts, may be invested in strategies having different investment objectives,
investment styles, or portfolio managers. As a result, JPMAM may cast different votes on behalf of different clients or on behalf of the same client with different accounts.
In the event a JPMAM investment professional makes a recommendation in connection with an override, the investment professional must provide the appropriate
Proxy Administrator with a written certification (“Certification”) which shall contain an analysis supporting his or her recommendation and a certification that he or she (A) received no communication in regard to the proxy that would
violate either the JPMorgan Chase (“JPMC”) Safeguard Policy or written policy on information barriers, or received any communication in connection with the proxy solicitation or otherwise that would suggest the existence of an actual or
potential conflict between JPMAM’s interests and that of its clients and (B) was not aware of any personal or other relationship that could present an actual or potential conflict of interest with the clients’ interests.
3. Engagement
We regard regular, systematic and direct
contact with senior company management, both executive and non-executive, as crucially important. We consider that these dialogues have been useful and plan to expand this approach.
4. Conflicts of Interest
In order to maintain the
integrity and independence of JPMAM’s proxy-voting decisions, JPMorgan Chase (including JPMAM) has established formal barriers designed to restrict the flow of information between JPMC’s securities, lending, investment banking and other
divisions to JPMAM investment professionals. Where a potential material conflict of interest has been identified, the Proxy Administrator, in consultation with the Proxy Committee, evaluates the potential conflict and determines whether an actual
conflict exists. In the event that this is the case, they make a recommendation on how to vote the proxy. A record of such decisions is available to clients on request. Finally, it should be pointed out that this document is intended as an overview
only. Specific issues should always be directed to your account administrator or portfolio manager.
III. VOTING GUIDELINES
1. REPORTS & ACCOUNTS
1a. Annual Report
Reports and accounts should be both detailed and transparent, and should be submitted to shareholders for approval. They should meet accepted
reporting standards, and company accounts should employ Generally Accepted Accounting Practices (GAAP). Reports should meet with the spirit as well as the letter of reporting standards, including the most recent recommendations of the International
Accounting Standards Board (IASB).
The annual report should include a statement of compliance with relevant codes of best practice, in markets where they
exist.
Legal disclosure varies from market to market. If, in our opinion, a company’s standards of disclosure (whilst meeting minimum legal
requirements) are insufficient in any particular area, we will inform company management of our concerns. Depending on the circumstances, we will either abstain or vote against the resolution concerned. Similar consideration would relate to the use
of inappropriate accounting methods.
2. DIVIDENDS
Proposals for the payment of dividends should be presented to shareholders for approval, and should be fully disclosed in advance of the meeting. We will vote
against dividend proposals if we feel that payment of the proposed dividend would prejudice the solvency or future prospects of the company.
3.
AUDITORS
3a. Auditor Independence
Auditors must
provide an independent and objective check on the way in which the financial statements have been prepared and presented. JPMAM will vote against the appointment or re-appointment of auditors who are not perceived as being independent.
3b. Auditor Remuneration
Companies should be encouraged
to distinguish clearly between audit and non-audit fees. Audit fees should never be excessive.
4. BOARDS
4a. Chairman & CEO
JPMAM believes that it is
best practice for the roles of Chairman and Chief Executive Officer to be separate.
4b. Board Structure
JPMAM is in favour of unitary boards of the type found in Hong Kong, as opposed to tiered board structures.
4c. Board Size
Boards with more than 20 directors are
considered to be excessively large.
4d. Board Independence
JPMAM believes that a strong independent element to a board is essential to the effective running of a company. The calibre and number of non-executive
directors on a board should be such that their views will carry significant weight in the board’s decisions.
We believe that as a minimum, all
boards should have at least three non-executive directors, unless the company is of such a size that sustaining such a number would be an excessive burden.
JPMAM will use its voting powers to encourage appropriate levels of board independence, taking into account local market practice.
4e. Board Committees
Where appropriate, boards should
delegate key oversight functions to independent committees. The Chairman and members of any Committee should be clearly identified in the annual report.
5. DIRECTORS
5a. Executive Director’s
Remuneration
Executive remuneration is and will remain a contentious issue, particularly the overall quantum of remuneration.
JPMAM will generally vote against shareholder proposals to restrict arbitrarily the compensation of executives or other employees.
5b. Director’s Liability
In certain markets, this
proposal asks shareholders to give blanket discharge from responsibility for all decisions made during the previous financial year. Depending on the market, this resolution may or may not be legally binding, and may not release the board from its
legal responsibility.
JPMAM will usually vote against discharging the board from responsibility in cases of pending litigation, or if there is evidence
of wrongdoing for which the board must be held accountable.
5c. Directors over 70
JPMAM considers that a similar standard of care should be applied to the selection of a director over 70 as would be applied to that of any other director,
although we would expect to see such a director offer him or herself for re-election each year.
5d. Directors’ Contract
Generally, we encourage contracts of one year or less and vote accordingly.
6. NON-EXECUTIVE DIRECTORS
6a. Role of Non-Executive Directors
As stated earlier in
these guidelines, JPMAM believes that a strong independent element to a board is important to the effective running of a company.
In determining our
vote, we will always consider independence issues on a case-by-case basis, taking into account any exceptional individual circumstances, together with local markets’ differing attitudes to director independence.
In order to help assess their contribution to the company, the time spent by each non-executive director should be disclosed to shareholders, as well as their
attendance at board and committee meetings.
Audit and Remuneration Committees should be composed exclusively of independent directors.
6b. Director Independence
We consider that a director
will generally be deemed to be independent if he or she has no significant financial, familial or other ties with the company which might pose a conflict, and has not been employed in an executive capacity by the company for at least the previous
ten years.
6c. Multiple Directorships
In order to
be able to devote sufficient time to his or her duties, we would not normally expect a non-executive to hold more than five significant directorships at any one time. For executives, only one additional non-executive post would normally be
considered appropriate without further explanation.
6d. Non-Executive Director Remuneration
Non-executive directors should be paid but should not be awarded options.
6e. Bonuses for Retiring Directors and Internal Statutory Auditors
JPMAM will generally vote Against proposals for retirement bonuses which will be paid to retirees including one or more directors or statutory auditors
designated by companies as an outsider.
7. ISSUE OF CAPITAL
7a. Issue of Equity
In most countries, company law
requires that shareholder approval be obtained in order to increase the authorised share capital of the company. Proposals for equity issues will also specify whether pre-emptive rights are to be retained or suppressed or partially suppressed for
the issue. As a general rule, JPMAM believes that any new issue of equity should first be offered to existing shareholders on a pre-emptive basis.
JPMAM
will vote in favour of increases in capital which enhance a company’s long-term prospects.
7b. Issue of Debt
Reasons for increased bank borrowing powers are many and varied, including allowing normal growth of the company, the financing of acquisitions, and allowing
increased financial leverage. Management may also attempt to borrow as part of a takeover defence.
JPMAM will vote in favour of proposals which will
enhance a company’s long-term prospects. We will vote against an increase in bank borrowing powers which would result in the company reaching an unacceptable level of financial leverage, where such borrowing is expressly intended as part of a
takeover defence, or where there is a material reduction in shareholder value.
7c. Share Repurchase Programmes
Boards may instigate share repurchase or stock buy-back programs for a number of reasons. JPMAM will vote in favour of such programmes where the repurchase
would be in the best interests of shareholders, and where the company is not thought to be able to use the cash in a more useful way.
We will vote
against such programmes when shareholders’ interests could be better served by deployment of the cash for alternative uses, or where the repurchase is a defensive manoeuvre or an attempt to entrench management.
8. MERGERS / ACQUISITIONS
Mergers and acquisitions are
always reviewed on a case-by-case basis by the investment analyst in conjunction with portfolio managers and, in exceptional circumstances, the Proxy Committee. Individual circumstances will always apply. However, as a general rule, JPMAM will
favour mergers and acquisitions where the proposed acquisition price represents fair value, where shareholders cannot realise greater value through other means, and where all shareholders receive fair and equal treatment under the merger/acquisition
terms.
9. VOTING RIGHTS
JPMAM believes in the
fundamental principle of “one share, one vote”. Accordingly, we will vote to phase out dual voting rights or classes of share with restricted voting rights, and will oppose attempts to introduce new ones. We are opposed to mechanisms that
skew voting rights, such as cumulative voting; directors should represent all shareholders equally, and voting rights should accrue in accordance with the shareholder’s equity capital commitment to the company.
10. SHARE OPTIONS / LONG-TERM INCENTIVE PLANS (L-TIPs)
10a. Share Options
Best practice requires that share
options be fully expensed, so that shareholders can assess their true cost to the company. The assumptions and methodology behind the expensing calculation should also be explained to shareholders.
We will generally vote against the cancellation and re-issue, re-pricing, of underwater options.
10b. Long-Term Incentive Plans (L-TIPs)
A Long-Term
Incentive Plan (“L-TIP”) can be defined as any arrangement, other than deferred bonuses and retirement benefit plans, which require one or more conditions in respect of service and/or performance to be satisfied over more than one
financial year.
JPMAM normally will vote in favour of schemes with keen incentives and challenging performance criteria, which are fully disclosed to
shareholders in advance, and vote against payments which are excessive or performance criteria which are undemanding.
11. OTHERS
11a. Charitable Issues
Charitable donations are generally
acceptable, provided they are within reasonable limits and fully disclosed to shareholders.
11b. Political Issues
JPMAM does not normally support the use of shareholder funds for political donations, and would require the fullest explanation as to why this would be
beneficial to shareholders.
11c. Poison Pills
Poison pills, or shareholder rights plans, are designed to give shareholders of a target company the right to purchase shares of the acquiring company, the
target company, or both at a substantial discount from market value. These rights are exercisable once a pre-defined “triggering event” occurs, generally a hostile takeover offer or an outsider’s acquisition of a certain percentage of
stock. Corporations may or may not be able to adopt poison pills without shareholder approval, depending on the market.
In reaching its voting position,
the Committee has reviewed and continues to review current takeover events. However, it has concluded that there is no clear evidence that poison pills deter takeover offers or defeat takeover attempts and are, in fact, sometimes used as tools to
entrench management.
JPMAM will generally vote against anti-takeover devices and support proposals aimed at revoking existing plans. Where anti-takeover
devices exist, they should be fully disclosed to shareholders and shareholders should be given the opportunity to review them periodically.
11d.
Composite Resolutions
Agenda items at shareholder meetings should be presented in such a way that they can be voted upon clearly, distinctly and
unambiguously. We normally oppose deliberately vague, composite or “bundled” resolutions, depending on the context.
11e. Amendments to
company articles
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i.
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Limitation on Directors’ Liability – review on a case by case basis
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ii.
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Changes in business activities/ Expansion of business line – generally vote For
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iii.
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Relaxation of Quorum Requirement—generally vote Against
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iv.
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Shares Repurchase at discretion of the Board of Directors – review on a case by case basis
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v.
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Changes of shareholders record date at discretion of the Board of Directors – generally vote Against
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IV. ACTIVISM
Activism Policy
1. Discharge of Responsibilities
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a)
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Our primary responsibility is to protect our clients’ interests and, as active managers, we therefore absolutely reserve the right to dispose of an investment where a company fails to meet our expectations.
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b)
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Our investment managers and analysts have explicit responsibilities for monitoring the companies in the universe of stocks from which clients’ portfolios are constructed. Whilst we attach considerable importance to
meetings with management (and several hundred take place in Asia ex Japan each year), we also emphasise the benefits of fundamental research into companies in our investment processes. Industry research, balance sheet analysis and company news flow
all have a role to varying degrees in our company monitoring.
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c)
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Our approach to dealing with conflicts of interest is described fully in our Corporate Governance Policies and Procedures. We seek to minimise conflicts by controlling information flows between different parts of
JPMorgan Chase. Where a material conflict does arise we require investors who make the voting decision to certify that they have acted solely in the clients’ best interests.
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2. Monitor Performance
Monitoring of company performance
is a key part of our investment processes. We maintain a record of all private meetings held with companies. We regard these meetings as confidential and will not comment on them outside JPMAM.
3. Evaluating and Reporting
We are convinced that a
strong governance culture leads ultimately to a better business and a better stock market rating. As investors we scrutinise companies’ governance policies as a part of our investment research and take comfort from good governance.
4. Intervening when necessary
We do not normally
intervene directly in the management of companies . However where a company has failed to meet our expectations and it is not clear what action is being taken to remedy the situation , but we believe the potential of the company still justifies
retention in our clients’ portfolios , we will arrange to meet senior management in order to express our concerns. Intervention at companies is never publicised. In the small capitalisation end of the market , more aggressive intervention is
more common , but still infrequent , as we may hold a significant percentage of a company’s equity.
V. Sustainability
Where JPMAM engages with companies on broader social, environmental and sustainability issues, we have adopted a positive engagement approach. Thus, specific
assets or types of assets are not excluded on purely social, environmental or ethical criteria (unless specifically requested by clients). Rather, analysts take such issues into account as part of the mainstream analytical process. Where
appropriate, JPMAM will also engage with company management on specific issues at company one-to-one meetings. This engagement activity can then be reported to clients as required.
Where social or environmental issues are the subject of a proxy vote, JPMAM will consider the issue on a case-by-case basis, keeping in mind at all times the
best financial interests of our clients.
It is anticipated that our sustainability program will continue to expand both in terms of scope and market
coverage as client demand and availability of suitable resources dictate.
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ITEM 8.
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PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES.
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(a)(1) The day-to-day management of the
Fund’s portfolio is handled by the Greater China investment team of JPMAM. The Greater China Investment Team is based in Hong Kong. The head of this team is Howard Wang and Emerson Yip, Lillian Leung and Song Shen are portfolio managers.
Mr. Wang joined JPMAM in Hong Kong in 2005. Prior to his appointment, Mr. Wang spent eight years with Goldman Sachs, where in 2004, he was appointed
Managing Director, Equities and General Manager of the Taipei branch office.
Mr. Yip joined JPMAM in Hong Kong in 2006. Prior to his appointment,
Mr. Yip was a director of Newbridge Capital where, since 1998, he held various positions of responsibility.
Ms. Leung joined JPMAM in Hong Kong
in 2010. Prior to her appointment, Ms. Leung worked as the Associate Director of China Research and later the Chief Representative of Shanghai Representative Office with Alliance Bernstein.
Mr. Shen joined JPMAM in Hong Kong in 2010. Prior to his appointment, Mr. Shen worked as a research analyst in China commodities in Goldman Sachs
from 1994.
The chart below shows the number, type and market value as of December 31, 2013 of the accounts other than the Fund that are managed by
each of the Fund’s portfolio managers. The potential for conflicts of interest exists when a portfolio manager manages other accounts with similar or different investment objectives and strategies as the Fund (“Other Accounts”).
Potential conflicts may include, for example, conflicts between investment strategies and conflicts in the allocation of investment opportunities.
(a) (2)
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Howard Wang
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(a)(2)(ii)
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Registered Investment companies
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Other Pooled Investment Vehicles
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Other Accounts
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Number of
accounts
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Total Assets
(USD)
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Number of
accounts
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Total Assets
(USD)
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Number of
accounts
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Total Assets
(USD)
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1
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677m
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6
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4,182m
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Nil
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Nil
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(a)(2)(iii)—Performance fee
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Registered Investment companies
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Other Pooled Investment Vehicles
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Other Accounts
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Number of
accounts
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Total Assets
(USD)
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Number of
accounts
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Total Assets
(USD)
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Number of
accounts
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Total Assets
(USD)
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|
Nil
|
|
Nil
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Nil
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Nil
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Nil
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Nil
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Emerson Yip
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(a)(2)(ii)
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|
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Registered Investment companies
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Other Pooled Investment Vehicles
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Other Accounts
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|
Number of
accounts
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|
Total Assets
(USD)
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|
Number of
accounts
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Total Assets
(USD)
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Number of
accounts
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Total Assets
(USD)
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1
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|
112m
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4
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|
830m
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3
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894m
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(a)(2)(iii)—Performance fee
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|
|
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Registered Investment companies
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Other Pooled Investment Vehicles
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Other Accounts
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|
Number of
accounts
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|
Total Assets
(USD)
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Number of
accounts
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|
Total Assets
(USD)
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|
Number of
accounts
|
|
Total Assets
(USD)
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|
Nil
|
|
Nil
|
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Nil
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Nil
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Nil
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Nil
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|
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Lillian Leung
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|
|
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(a)(2)(ii)
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|
|
|
|
|
|
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|
Registered Investment companies
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|
Other Pooled Investment Vehicles
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|
Other Accounts
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|
Number of
accounts
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|
Total Assets
(USD)
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|
Number of
accounts
|
|
Total Assets
(USD)
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|
Number of
accounts
|
|
Total Assets
(USD)
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|
Nil
|
|
Nil
|
|
2
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1,006m
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|
1
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|
21m
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(a)(2)(iii)—Performance fee
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|
|
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Registered Investment companies
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|
Other Pooled Investment Vehicles
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|
Other Accounts
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|
Number of
accounts
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|
Total Assets
(USD)
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|
Number of
accounts
|
|
Total Assets
(USD)
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|
Number of
accounts
|
|
Total Assets
(USD)
|
|
Nil
|
|
Nil
|
|
Nil
|
|
Nil
|
|
Nil
|
|
Nil
|
|
|
|
|
|
|
|
|
Song Shen
|
|
|
|
|
|
|
|
|
|
|
|
(a)(2)(ii)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Registered Investment companies
|
|
Other Pooled Investment Vehicles
|
|
Other Accounts
|
|
Number of
accounts
|
|
Total Assets
(USD)
|
|
Number of
accounts
|
|
Total Assets
(USD)
|
|
Number of
accounts
|
|
Total Assets
(USD)
|
|
Nil
|
|
Nil
|
|
5
|
|
307m
|
|
Nil
|
|
Nil
|
|
|
|
(a)(2)(iii)—Performance fee
|
|
|
|
|
|
Registered Investment companies
|
|
Other Pooled Investment Vehicles
|
|
Other Accounts
|
|
Number of
accounts
|
|
Total Assets
(USD)
|
|
Number of
accounts
|
|
Total Assets
(USD)
|
|
Number of
accounts
|
|
Total Assets
(USD)
|
|
Nil
|
|
Nil
|
|
Nil
|
|
Nil
|
|
Nil
|
|
Nil
|
(a)(4) Ownership of Securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Portfolio Manager
|
|
None
|
|
$
|
1-$10,000
|
|
|
$
|
10,000-$50,000
|
|
|
|
|
|
|
Howard Wang
|
|
x
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Emerson Yip
|
|
x
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lilian Leung
|
|
x
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Song Shen
|
|
x
|
|
|
|
|
|
|
|
|
|
|
|
|
Responsibility for managing the client portfolios of the Advisor and the Advisor’s participating affiliates is organized
according to the mandates of each account. The Fund’s portfolio managers manage other accounts with similar objectives, approach and philosophy to the Fund. The portfolio holdings, relative position sizes and industry and sector exposures tend
to be similar across these similar portfolios, which minimizes the potential for conflicts of interest. For Howard Wang, these similar portfolios include two registered investment company and four of the five other pooled investment vehicles as
described under ITEM 8 (a)(2)(ii) above that invest in the Greater China/China/Hong Kong markets and only take long positions in securities.
For
Emerson Yip, the similar portfolios include two registered investment companies, six other pooled investment vehicles and three other accounts as described under ITEM 8 (a)(2)(ii) above that invest in Greater China/Hong Kong markets and only
take long positions in securities.
For Lilian Leung, these similar portfolios include one pooled investment vehicle as described under ITEM 8
(a)(2)(ii) above that invest in China/Hong Kong markets and only take long positions in securities.
For Song Shen, these similar portfolios include five
pooled investment vehicle as described under ITEM 8 (a)(2)(ii) above that invest in China/Hong Kong markets and only take long positions in securities.
The Advisor and the Advisor’s participating affiliates receive more compensation with respect to certain Other Accounts than that received with respect
to the Fund and receive compensation based in part on the performance of one of the Other Accounts as described under ITEM 8 (a)(2)(iii). This may create a potential conflict of interest for the Advisor or the Fund’s portfolio managers by
providing an incentive to favor these Other Accounts when, for example, placing securities transactions. The conflicts of interest may arise with both the aggregation and allocation of securities transactions and allocation of limited investment
opportunities. Allocations of aggregated trades, particularly trade orders that were only partially completed due to limited availability, and allocation of investment opportunities generally, could raise a potential conflict of interest, as the
Advisor or the portfolio managers may have an incentive to allocate securities that are expected to increase in value to favored accounts. Initial public offerings, in particular, are frequently of very limited availability. The portfolio managers
may be perceived as causing accounts they manage to participate in an offering to increase the Advisor’s overall allocation of securities in that offering. A potential conflict of interest also may be perceived to arise if transactions in one
account closely follow related transactions in a different account, such as when a purchase increases the value of securities previously purchased by another account, or when a sale in one account lowers the sale price received in a sale by a second
account.
The Advisor has policies and procedures designed to manage these conflicts described above such as allocation of investment opportunities to
achieve fair and equitable allocation of investment opportunities among its clients over time. For example, orders for the same equity security are aggregated on a continual basis throughout each trading day consistent with the Advisor’s duty
of best execution for its clients. If aggregated trades are fully executed, accounts participating in the trade will be allocated their pro rata share on an average price basis. Partially completed orders generally will be allocated among the
participating accounts on a pro-rata average price basis, subject to certain limited exceptions. For example, accounts that would receive a de minimis allocation relative to their size may be excluded from the allocation. Another exception may occur
when thin markets or price volatility require that an aggregated order be completed in multiple executions over several days. If partial completion of the order would result in an uneconomic allocation to an account due to fixed transaction or
custody costs, the dealer may have the discretion to complete and exclude the small orders.
Purchases of money market instruments and fixed income
securities cannot always be allocated pro-rata across the accounts with the same investment strategy and objective. However, the Advisor attempts to mitigate any potential unfairness by basing non-pro rata allocations upon an objective predetermined
criteria for the selection of investments and a disciplined process for allocating securities with similar duration, credit quality and liquidity in the good faith judgment of the Advisor so that fair and equitable allocation will occur over time.
(a)(3) Portfolio Managers Compensation
The Fund’s portfolio managers participate in a competitive compensation program that is designed to attract and retain outstanding people and closely link
their performance to client investment objectives. The total compensation program includes a base salary fixed from year to year and a variable performance bonus consisting of cash incentives and restricted stock and, in some cases, mandatory
deferred compensation. These elements reflect individual performance and the performance of the Advisor’s business as a whole.
Each portfolio
manager’s performance is formally evaluated annually based on a variety of factors including the aggregate size and blended performance of the portfolios that he manages. Individual contribution relative to client goals carries the highest
impact. The compensation is primarily driven by meeting or exceeding clients’ risk and return objectives, relative performance to competitors or competitive indices and compliance with firm policies and regulatory requirements. In evaluating
the portfolio manager’s performance with respect to the mutual funds (including the Fund) he manages, the funds’ pre-tax performance is compared to the appropriate market peer group and to each fund’s benchmark index listed in the
fund’s prospectus over one, three and five year periods (or such shorter time as the portfolio manager has managed the fund). Investment performance is generally more heavily weighted to the long-term.
Stock awards are granted as the annual performance bonus and comprise from 0% to 35% of each portfolio manager’s total award. As the level of incentive
compensation increases, the percentage of compensation awarded in restricted stock also increases.
|
ITEM 9.
|
PURCHASE OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT COMPANY AND AFFILIATED PURCHASERS.
|
Not
applicable to the Fund.
|
ITEM 10.
|
SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
|
There have been no material changes to the procedures by
which the shareholders may recommend nominees to the Fund’s board of directors since the Fund filed its last form NCSR