================================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED
MANAGEMENT INVESTMENT COMPANIES
Investment Company Act file number: 811-05749
-----------------------------------------
THE CHINA FUND, INC.
--------------------------------------------------------------------------------
(Exact name of registrant as specified in charter)
C/O STATE STREET BANK AND TRUST COMPANY
2 AVENUE DE LAFAYETTE
P.O. BOX 5049
BOSTON, MA 02206-5049
--------------------------------------------------------------------------------
(Address of principal executive offices)(Zip code)
Copy to:
Elizabeth A. Watson Leonard B. Mackey, Jr., Esq.
Secretary Clifford Chance US LLP
The China Fund, Inc. 31 West 52nd Street
4 Copley Place, 5th Floor New York, New York 10019-6131
Boston, MA 02116
(Name and Address of Agent for Service)
Registrant's telephone number, including area code: (888) 246-2255
Date of fiscal year end: October 31
Date of reporting period: April 30, 2009
================================================================================
ITEM 1. REPORT TO STOCKHOLDERS.
2
THE CHINA FUND, INC.
SEMI-ANNUAL REPORT
APRIL 30, 2009
(UNAUDITED)
THE CHINA FUND, INC.
TABLE OF CONTENTS
PAGE
----
Key Highlights 1
Asset Allocation 2
Industry Allocation 3
Chairman's Statement 4
Investment Manager's Statement 5
About the Portfolio Manager 6
Schedule of Investments 7
Financial Statements 14
Notes to Financial Statements 19
Other Information 28
Dividends and Distributions;
Dividend Reinvestment
and Cash Purchase Plan 30
THE CHINA FUND, INC.
KEY HIGHLIGHTS (UNAUDITED)
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------------
FUND DATA
--------------------------------------------------------------------------------------
NYSE STOCK SYMBOL CHN
--------------------------------------------------------------------------------------
LISTING DATE JULY 10, 1992
--------------------------------------------------------------------------------------
SHARES OUTSTANDING 22,781,762
--------------------------------------------------------------------------------------
TOTAL NET ASSETS (04/30/09) US$437.1 MILLION
--------------------------------------------------------------------------------------
NET ASSET VALUE PER SHARE (04/30/09) $19.19
--------------------------------------------------------------------------------------
MARKET PRICE PER SHARE (04/30/09) $17.65
--------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------
TOTAL RETURN(1)
-----------------------------------------------------------------------------------------------
PERFORMANCE AS OF 04/30/09: NET ASSET VALUE MARKET PRICE
-----------------------------------------------------------------------------------------------
6-Months 20.54% 21.18%
-----------------------------------------------------------------------------------------------
3-Year Cumulative 29.92% 9.41%
-----------------------------------------------------------------------------------------------
3-Year Annualized 9.12% 3.04%
-----------------------------------------------------------------------------------------------
5-Year Cumulative 94.00% 69.89%
-----------------------------------------------------------------------------------------------
5-Year Annualized 14.17% 11.18%
-----------------------------------------------------------------------------------------------
10-Year Cumulative 356.70% 421.51%
-----------------------------------------------------------------------------------------------
10-Year Annualized 16.40% 17.96%
-----------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------
DIVIDEND HISTORY
-----------------------------------------------------------------------------------------------
RECORD DATE INCOME CAPITAL GAINS
-----------------------------------------------------------------------------------------------
12/24/08 $0.4813 $5.3361
-----------------------------------------------------------------------------------------------
12/21/07 $0.2800 $11.8400
-----------------------------------------------------------------------------------------------
12/21/06 $0.2996 $3.7121
-----------------------------------------------------------------------------------------------
12/21/05 $0.2172 $2.2947
-----------------------------------------------------------------------------------------------
12/22/04 $0.1963 $3.3738
-----------------------------------------------------------------------------------------------
12/31/03 $0.0700 $1.7100
-----------------------------------------------------------------------------------------------
12/26/02 $0.0640 $0.1504
-----------------------------------------------------------------------------------------------
12/31/01 $0.1321 --
-----------------------------------------------------------------------------------------------
12/31/00 -- --
-----------------------------------------------------------------------------------------------
12/31/99 $0.1110 --
-----------------------------------------------------------------------------------------------
12/31/98 $0.0780 --
-----------------------------------------------------------------------------------------------
12/31/97 -- $0.5003
-----------------------------------------------------------------------------------------------
12/31/96 $0.0834 --
-----------------------------------------------------------------------------------------------
12/29/95 $0.0910 --
-----------------------------------------------------------------------------------------------
12/30/94 $0.0093 $0.6006
-----------------------------------------------------------------------------------------------
12/31/93 $0.0853 $0.8250
-----------------------------------------------------------------------------------------------
12/31/92 $0.0434 $0.0116
-----------------------------------------------------------------------------------------------
(1) Total investment returns reflect changes in net asset value per share or
market price, as the case may be, during each period and assumes that dividends
and capital gains distributions, if any, were reinvested in accordance with the
dividend reinvestment plan. The net asset value per share percentages are not an
indication of the performance of a shareholder's investment in the Fund, which
is based on market price. Total investment returns do not reflect the deduction
of taxes that a stockholder would pay on Fund distributions or the sale of Fund
shares. Total investment returns are historical and do no guarantee future
results.
1
THE CHINA FUND, INC.
ASSET ALLOCATION AS OF APRIL 30, 2009 (UNAUDITED)
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
-------------------------------------------------------------------------------
TEN LARGEST LISTED EQUITY INVESTMENTS *
-------------------------------------------------------------------------------
1. Shandong Weigao Group Medical Polymer Co., Ltd. 3.89%
-------------------------------------------------------------------------------
2. Wumart Stores, Inc. 3.09%
-------------------------------------------------------------------------------
3. Far Eastern Department Stores, Ltd. 2.66%
-------------------------------------------------------------------------------
4. China Huiyuan Juice Group, Ltd. 2.21%
-------------------------------------------------------------------------------
Shenzhen Agricultural Products Co., Ltd. Access
5. Product 2.14%
-------------------------------------------------------------------------------
6. Ruentex Development Co., Ltd. 2.05%
-------------------------------------------------------------------------------
7. Uni-President Enterprises Corp. 2.01%
-------------------------------------------------------------------------------
8. Chaoda Modern Agricultural (Holdings), Ltd. 1.87%
-------------------------------------------------------------------------------
9. China Metal Products Co., Ltd. 1.64%
-------------------------------------------------------------------------------
10. Ports Design, Ltd. 1.64%
-------------------------------------------------------------------------------
--------------------------------------------------------------------------------
DIRECT INVESTMENTS *
--------------------------------------------------------------------------------
1. Queenbury Investments, Ltd., (Huiyan) 9.30%
--------------------------------------------------------------------------------
2. Ugent Holdings, Ltd. 5.22%
--------------------------------------------------------------------------------
3. HAND Enterprise Solutions, Ltd. 2.16%
--------------------------------------------------------------------------------
4. Qingdao Bright Moon 1.59%
--------------------------------------------------------------------------------
5. Highlight Tech Corp. 1.37%
--------------------------------------------------------------------------------
6. Wuxi PAIHO 0.84%
--------------------------------------------------------------------------------
7. China Silicon Corp., Series A Preferred 0.83%
--------------------------------------------------------------------------------
8. China Silicon Corp. Common Stock 0.00%
--------------------------------------------------------------------------------
9. teco Optronics Corp. 0.00%
--------------------------------------------------------------------------------
* Percentages based on net assets at April 30, 2009.
2
INDUSTRY ALLOCATION (UNAUDITED)
--------------------------------------------------------------------------------
(Pie Chart)
Telecommunications 1.10
Consumer Discretionary 23.40
Consumer Staples 18.80
Industrials 14.40
Financials 11.30
Health Care 11.00
Information Technology 9.20
Energy 4.80
Materials 3.20
Utilities 1.60
Others 1.20
Fund holdings are subject to change and percentages shown above are based on
total net assets as of April 30, 2009. A complete list holdings as of April 30,
2009 is contained in the Schedule of Investments included in this report. The
most current available data regarding portfolio holdings can be found on our
website, www.chinafundinc.com. You may also obtain holdings by calling 1-800-
246-2255.
3
THE CHINA FUND, INC.
CHAIRMAN'S STATEMENTS (UNAUDITED)
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Dear Stockholders,
The six months under review were a much brighter period for investors in the
Greater China region, with the A-share market the standout performer. How things
have turned around since October. Six months ago, I was reporting that the
Chinese markets were among the worst hit in a savage year for the world's
stockmarkets. Now, the region is among the world's strongest. Against this
backdrop, the Fund produced a positive return of 20.6%, lagging the benchmark
MSCI Golden Dragon index, which rose 24%. Over longer periods, however, your
portfolio is still comfortably ahead of its benchmark.
It took several months and a host of industry-specific stimulus measures but,
towards the end of the period, we finally saw underlying macroeconomic data
start to live up to the markets' bullish billing. While US GDP fell by 6.1% for
the first quarter of this year, China posted an eerily symmetrical GDP rise of
6.1%. And Taiwan -- whose stocks were up 46% since end-October -- was also able
to boast a 24% month-on-month rise in exports in March. As relations between
Taiwan and its giant neighbour continue to improve, your managers have
positioned the Fund to take advantage of increased cross-strait investment, with
a 19.3% weighting to the Taiwan market.
In my last statement, I wrote that the managers were expecting a rally in the A-
share market. I am pleased to report that the A-shares did indeed begin to
recover strongly very soon after, and that they have continued their upward
trajectory since. In line with their belief that the Chinese domestic market
will be driven up further by the ample levels of liquidity there, the managers
have accorded significant weighting (16.5%) to the A-share market.
In January of this year, the Fund distributed a dividend of US$5.82 per share.
While this is considerably lower than last year's record distribution (of
US$12.12), it represents a decent income, given the hugely challenging events of
2008.
With the ever-increasing array of government stimulus plans in both China and
Taiwan, and the beginning of cross-strait investment starting to have a real
effect on the underlying economics, your managers are expecting domestic
sentiment in particular to improve and are looking forward to the remainder of
the year with confidence.
Yours truly,
James Lightburn
Chairman
4
THE CHINA FUND, INC.
INVESTMENT MANAGERS' STATEMENTS (UNAUDITED)
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
REVIEW OF LISTED AND DIRECT INVESTMENTS
After all the gloom of the past year, the last six months have provided some
welcome relief in the Greater China region. The MSCI Golden Dragon rallied 24%
over the period. Although Hong Kong remains at the mercy of international asset-
allocation decisions, Chinese markets have, at long last, begun to show signs of
decoupling from the West. The raft of stimulus measures issuing from Beijing has
been well received by Chinese investors, as have signs of real resilience in the
economy (notably in fixed-asset investment and bank lending). There has been
particular strength in the A-share market, which has been rallying since
November. With foreign investors accounting for only a tiny fraction of the
market, A-shares are insulated from the vicissitudes of international capital
flows.
Meanwhile, Taiwan -- the region's perennial laggard -- rose some 46% over the
period. Last year's succession of promising developments (Kuomintang victories
in the legislative and presidential elections, direct cross-strait flights, the
arrival of Chinese tourists), previously obscured by the global financial
crisis, are now having a belated -- but extremely positive -- impact. A further
boost has come in the removal of investment restrictions on either side of the
Formosa Strait. China Mobile's proposed purchase of a 12% stake in Taiwanese
mobile operator Far EasTone heralds an open season of Chinese companies
purchasing Taiwanese assets.
With a positive return of 20.6% for the six months, the fund has lagged the
recent rally, but remains comfortably ahead of benchmark over one year and
longer periods. The main negative was CHINA HUIYUAN JUICE. This was one of our
best-performing stocks over the past year, but sold off after the Chinese
government vetoed Coca-Cola's takeover bid. We retain our holding, secure in the
knowledge that the group's independence will last only as long as it takes for
the first politically acceptable bid to materialise. In Taiwan, tech stocks
POWERTECH and TRIPOD TECHNOLOGY both detracted from returns, as did WAH LEE
INDUSTRIAL and CATHAY FINANCIAL. Other detractors included CHINA SILICON, CHAODA
MODERN AGRICULTURE and online gaming group THE9 LTD.
Our top performer over the year was SHANDONG WEIGAO, which makes medical
consumables. Healthcare remains a key theme in the portfolio; we believe that
this area is set to do well regardless of the global economic outlook -- all the
more so given the emphasis placed on it in the recent stimulus packages.
Meanwhile, with the Chinese government looking to increase its gold reserves,
ZIJIN MINING made a robust contribution to returns. In Hong Kong, ANTA SPORTS
was the standout, after stellar results. Among our Taiwanese holdings, RUENTEX
DEVELOPMENT, YUANTA FINANCIAL and FAR EASTERN DEPARTMENT STORE all performed
well.
OUTLOOK
We expect increased levels of liquidity to drive Chinese markets up further in
the near future. Further governmental stimulus packages should also help
sentiment. That said, we will be scrutinising companies' first-quarter results,
which will provide a better indication of the health of corporate fundamentals
and the likely direction of the market in the longer term.
The fund is 98.8% invested with holdings in 69 companies. With both the A-share
market and Taiwan driven by domestic, rather than international, sentiment, we
are bullish on prospects here. The fund's weightings to these markets (16.5% and
19.3%, respectively) reflect this. The proportion of the portfolio in direct
investments is now 21.4%. In the short term, this will tend to hold the fund
back as markets rally, but it should contribute significantly once IPO and
corporate activity resume.
5
THE CHINA FUND, INC.
ABOUT THE PORTFOLIO MANAGER (UNAUDITED)
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
LISTED AND DIRECT INVESTMENT MANAGER
Mr. Chris Ruffle serves as the portfolio manager for the Fund's portfolio of
listed and direct securities. Mr. Ruffle joined Martin Currie in 1994. He is a
Chinese and Taiwanese equity specialist with over 15 years investment experience
in Asia. Fluent in Mandarin and Japanese, Mr. Ruffle has worked in the Far East
since 1983. He worked originally in Beijing and Shanghai and then in Australia
for a metal trading company. He then moved to Warburg Securities in 1987 as an
analyst in Tokyo, before establishing Warburg's office in Taiwan. Mr. Ruffle
also manages The Martin Currie China Hedge Fund and the China "A" Share Fund.
Mr. Shifeng Ke serves as the portfolio manager for the Fund's portfolio of
listed and direct securities. Mr. Ke joined Martin Currie's Asia team in 1997
and, until 2002, co-managed the China Heartland Fund, which at that time was the
only offshore fund to access China's A-share market. In 2006, Martin Currie,
Chris Ruffle and Shifeng established MC China Limited: a joint venture dedicated
to running our range of specialist China strategies. He is co-manager of the
China Fund Inc, Martin Currie's A-share products, Martin Currie's China hedge
fund and the micro-cap China Development Capital Partnership. Shifeng practiced
law before moving to China's ministry of labour and social security in 1990,
where he worked to develop an investment policy for pension funds.
6
THE CHINA FUND, INC.
SCHEDULE OF INVESTMENTS
APRIL 30, 2009 (UNAUDITED)
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
NAME OF ISSUER AND TITLE OF ISSUE SHARES VALUE (NOTE A)
--------------------------------- ------ --------------
COMMON STOCK AND OTHER EQUITY INTERESTS
CHINA
FINANCIALS -- (0.9%)
Ping An Insurance Group Co. of China Ltd........ 614,500 $ 3,837,627
------------
TOTAL CHINA -- (Cost $2,947,647)........... 0.9% 3,837,627
----- ------------
HONG KONG
CONSUMER DISCRETIONARY -- (7.6%)
Anta Sports Products, Ltd. ..................... 5,313,000 4,552,012
FU JI Food & Catering Services(1)............... 8,689,000 4,630,366
Huabao International Holdings, Ltd. ............ 4,255,000 3,019,658
Intime Department Store Group Co., Ltd. ........ 12,568,629 4,524,677
Ports Design, Ltd. ............................. 4,549,500 7,161,748
Shangri-La Asia, Ltd. .......................... 4,755,555 7,044,312
Yorkey Optical International Cayman, Ltd.#...... 15,476,926 2,396,412
------------
33,329,185
------------
CONSUMER STAPLES -- (4.1%)
Chaoda Modern Agriculture (Holdings), Ltd. ..... 14,263,357 8,171,470
China Huiyuan Juice Group, Ltd.(1).............. 14,055,000 9,666,151
------------
17,837,621
------------
ENERGY -- (2.3%)
China Rare Earth Holdings, Ltd. ................ 17,436,000 2,272,290
Fushan International Energy Group, Ltd.*........ 16,044,000 4,492,291
Honghua Group, Ltd. ............................ 20,650,000 3,490,493
------------
10,255,074
------------
FINANCIALS -- (0.5%)
SPG Land (Holdings), Ltd. ...................... 11,037,000 1,979,527
------------
HEALTH CARE -- (3.6%)
China Shineway Pharmaceutical Group, Ltd.#...... 11,184,000 6,840,234
Golden Meditech Co., Ltd.*#..................... 35,040,000 4,792,537
Natural Beauty Bio-Technology, Ltd.#............ 32,780,000 4,145,057
------------
15,777,828
------------
INDUSTRIALS -- (0.7%)
TPV Technology, Ltd. ........................... 9,552,000 3,179,871
------------
INFORMATION TECHNOLOGY -- (1.4%)
Chinasoft International, Ltd.*#................. 19,230,000 1,488,765
Sina Corp.*(1).................................. 162,700 4,557,227
------------
6,045,992
------------
See notes to financial statements and notes to schedule of investments.
7
THE CHINA FUND, INC.
SCHEDULE OF INVESTMENTS (CONTINUED)
APRIL 30, 2009 (UNAUDITED)
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
NAME OF ISSUER AND TITLE OF ISSUE SHARES VALUE (NOTE A)
--------------------------------- ------ --------------
COMMON STOCK AND OTHER EQUITY INTERESTS (CONTINUED)
MATERIALS -- (0.8%)
Sinofert Hong Kong Holdings, Ltd.(1)............ 7,216,000 $ 3,361,238
------------
UTILITIES -- (1.6%)
Xinao Gas Holdings, Ltd. ....................... 5,084,000 7,006,035
------------
TOTAL HONG KONG -- (Cost $106,226,735)..... 22.6% 98,772,371
----- ------------
HONG KONG -- "H" SHARES
CONSUMER STAPLES -- (3.1%)
Wumart Stores, Inc.#............................ 15,126,000 13,505,967
------------
HEALTH CARE -- (3.9%)
Shandong Weigao Group Medical Polymer Co.,
Ltd.#......................................... 9,004,000 17,008,737
------------
INDUSTRIALS -- (0.0%)
Sichuan Expressway Co., Ltd. ................... 422,000 106,724
------------
MATERIALS -- (0.8%)
Zijin Mining Group Co., Ltd. ................... 4,670,000 3,609,435
------------
TELECOMMUNICATIONS -- (1.1%)
ZTE Corp.(1).................................... 1,461,926 4,961,085
------------
TOTAL HONG KONG -- "H" SHARES -- (Cost
$33,593,690) 8.9% 39,191,948
----- ------------
TOTAL HONG KONG (INCLUDING "H" SHARES) --
(Cost $139,820,425) 31.5% 137,964,319
----- ------------
SINGAPORE
CONSUMER STAPLES -- (3.6%)
China Fishery Group, Ltd.#...................... 12,050,000 6,157,738
China Milk Products Group, Ltd.#................ 11,607,000 3,024,600
Hsu Fu Chi International, Ltd.#................. 9,484,000 6,740,126
------------
15,922,464
------------
FINANCIALS -- (0.6%)
Financial One Corp.#............................ 12,030,000 2,442,722
------------
INFORMATION TECHNOLOGY -- (0.6%)
CDW Holding, Ltd.#+............................. 59,708,000 2,525,805
------------
TOTAL SINGAPORE -- (Cost $27,049,147) 4.8% 20,890,991
----- ------------
See notes to financial statements and notes to schedule of investments.
8
THE CHINA FUND, INC.
SCHEDULE OF INVESTMENTS (CONTINUED)
APRIL 30, 2009 (UNAUDITED)
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
NAME OF ISSUER AND TITLE OF ISSUE SHARES VALUE (NOTE A)
--------------------------------- ------ --------------
COMMON STOCK AND OTHER EQUITY INTERESTS (CONTINUED)
TAIWAN
CONSUMER DISCRETIONARY -- (5.7%)
FamilyMart Co., Ltd.#........................... 3,777,652 $ 6,053,655
Far Eastern Department Stores, Ltd. ............ 18,511,584 11,613,992
Merry Electronics Co., Ltd. .................... 3,584,340 3,522,187
Synnex Technology International Corp. .......... 2,553,855 3,706,443
------------
24,896,277
------------
CONSUMER STAPLES -- (3.6%)
Lien Hwa Industrial Corp. ...................... 15,919,692 6,786,934
Uni-President Enterprises Corp. ................ 8,728,581 8,775,162
------------
15,562,096
------------
FINANCIALS -- (4.2%)
KGI Securities Co. Ltd.......................... 8,800,000 3,179,585
Ruentex Development Co., Ltd. .................. 12,694,000 8,981,196
Yuanta Financial Holdings Co., Ltd. ............ 10,520,593 6,171,089
------------
18,331,870
------------
INFORMATION TECHNOLOGY -- (4.2%)
HTC Corp. ...................................... 438,000 5,932,968
Taiwan Secom Co., Ltd.#......................... 4,738,000 7,155,671
WPG Holdings Co., Ltd........................... 6,320,000 5,245,408
------------
18,334,047
------------
MATERIALS -- (1.6%)
China Metal Products Co., Ltd. ................. 9,019,881 7,172,596
------------
TOTAL TAIWAN -- (Cost $76,232,944) 19.3% 84,296,886
----- ------------
UNITED KINGDOM
HEALTH CARE -- (1.5%)
China Medical System Holdings, Ltd.#+........... 3,623,188 6,675,638
------------
TOTAL UNITED KINGDOM -- (Cost $9,940,990) 1.5% 6,675,638
----- ------------
UNITED STATES
CONSUMER DISCRETIONARY -- (0.8%)
The9, Ltd., ADR(1).............................. 352,300 3,297,528
------------
See notes to financial statements and notes to schedule of investments.
9
THE CHINA FUND, INC.
SCHEDULE OF INVESTMENTS (CONTINUED)
APRIL 30, 2009 (UNAUDITED)
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
NAME OF ISSUER AND TITLE OF ISSUE SHARES VALUE (NOTE A)
--------------------------------- ------ --------------
COMMON STOCK AND OTHER EQUITY INTERESTS (CONTINUED)
UNITED STATES (CONTINUED)
ENERGY -- (1.1%)
Far East Energy Corp.*#+........................ 13,250,059 $ 4,902,522
------------
HEALTH CARE -- (1.9%)
Mindray Medical International, Ltd., ADR(1)..... 191,700 4,374,594
WuXi PharmaTech Cayman, Inc., ADR*#............. 696,990 4,021,632
------------
8,396,226
------------
TOTAL UNITED STATES -- (Cost $31,123,169) 3.8% 16,596,276
----- ------------
TOTAL COMMON STOCK AND OTHER EQUITY
INTERESTS -- (Cost $287,114,322) 61.8% 270,261,737
----- ------------
EQUITY LINKED SECURITIES
CONSUMER STAPLES -- (4.4%)
Dalian Zhangzidao Fishery Group Co., Ltd. Access
Product (expiration 01/17/12) 144A*(3)........ 1,100,565 3,219,153
Shenzhen Agricultural Products Co., Ltd. Access
Product (expiration 01/17/12) 144A*(3)........ 4,000,000 9,368,312
Wuliangye Yibin Co., Ltd. Access Product
(expiration 01/20/10) 144A,*(3)............... 2,857,007 6,936,813
------------
19,524,278
------------
ENERGY -- (1.4%)
China Yangtze Power Co., Ltd. Access Product
(expiration 10/26/10) 144A,(2)(4)............. 4,169,077 6,018,671
------------
FINANCIALS -- (5.2%)
Citic Securities Co., Ltd. China (expiration
01/20/10)*(3)................................. 1,416,200 5,033,394
Citic Securities Co., Ltd. China (expiration
09/23/13)*(4)................................. 1,750,000 6,219,771
Financial Products, Ltd. (expiration 03/26/14)
144A,(4)...................................... 216,820,000 5,945,630
Zhejiang Guyuelongshan Access Product
(expiration 10/07/13) 144A,(4)................ 5,373,000 5,417,886
------------
22,616,681
------------
INDUSTRIALS -- (4.6%)
Daqin Railway Co., Ltd. Access Product
(expiration 11/02/11) 144A,*(4)............... 3,807,000 5,311,835
Shanghai International Airport Co., Ltd. Access
Product (expiration 01/20/10) 144A,*(3)....... 1,816,700 3,651,567
Shanghai Zhenhua Port Machinery Co., Ltd. Access
Product (expiration 10/26/10) 144A,(4)........ 2,833,192 4,982,896
See notes to financial statements and notes to schedule of investments.
10
THE CHINA FUND, INC.
SCHEDULE OF INVESTMENTS (CONTINUED)
APRIL 30, 2009 (UNAUDITED)
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
NAME OF ISSUER AND TITLE OF ISSUE SHARES VALUE (NOTE A)
--------------------------------- ------ --------------
EQUITY LINKED SECURITIES (CONTINUED)
Suning Appliance Co., Ltd. Access Product
(expiration 01/20/10) 144A,*(3)............... 2,874,013 $ 6,282,592
------------
20,228,890
------------
TOTAL EQUITY LINKED SECURITIES -- (Cost
$57,825,905) 15.6% 68,388,520
----- ------------
DIRECT INVESTMENTS
CONSUMER DISCRETIONARY -- (9.3%)
Queenbury Investments, Ltd., (Huiyan) (acquired
05/06/08)*#+(2)(5)............................ 450 40,655,250
------------
INDUSTRIALS -- (3.8%)
Highlight Tech Corp., (acquired
09/11/07)*#+(2)(5)(6)......................... 3,366,893 5,999,999
Qingdao Bright Moon, (acquired
02/28/08)*#+(2)(5)(6)......................... 31,827,172 6,937,719
Wuxi PAIHO, (acquired 09/17/07)*#(2)(5)(6)...... 11,734,701 3,680,002
------------
16,617,720
------------
INFORMATION TECHNOLOGY -- (3.0%)
China Silicon Corp. Common Stock, (acquired
09/23/08)*#+(2)(5)............................ 293,068 --
China Silicon Corp. Warrants (expiration
11/30/10), (acquired 11/30/07)*#+(2)(5)....... 685,450 --
China Silicon Corp., Series A Preferred
(acquired 11/30/07)#+(2)(5)................... 27,418 3,646,594
HAND Enterprise Solutions, Ltd., (acquired
05/02/07)*#+(2)(5)............................ 500,000 9,430,000
teco Optronics Corp., (acquired
04/26/04)*#(2)(5)............................. 1,861,710 --
------------
13,076,594
------------
FACE
AMOUNT
------
INDUSTRIALS -- (5.2%)
Ugent Holdings, Ltd., 12.0% 06/04/12 (acquired
04/06/09)*#+(2)(5)............................ 177,000,000 22,838,562
------------
TOTAL DIRECT INVESTMENTS -- (Cost
$89,222,893) 21.3% 93,188,126
----- ------------
SHARES
------
COLLATERAL FOR SECURITIES ON LOAN -- (2.1%)
State Street Navigator Prime Portfolio.......... 8,974,739 8,974,739
------------
TOTAL COLLATERAL FOR SECURITIES ON
LOAN -- (Cost $8,974,739) 2.1% 8,974,739
----- ------------
See notes to financial statements and notes to schedule of investments.
11
THE CHINA FUND, INC.
SCHEDULE OF INVESTMENTS (CONTINUED)
APRIL 30, 2009 (UNAUDITED)
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
PRINCIPAL
NAME OF ISSUER AND TITLE OF ISSUE AMOUNT VALUE (NOTE A)
--------------------------------- --------- --------------
SHORT TERM INVESTMENTS -- (1.7%)
UNITED STATES
Repurchase Agreement with State Street Bank and
Trust,
0.01%, 05/01/09(7)............................ 7,448,000 $ 7,448,000
------------
TOTAL UNITED STATES -- (Cost $7,448,000) 1.7% 7,448,000
----- ------------
TOTAL INVESTMENTS -- (Cost $450,585,859)** 102.5% 448,261,122
----- ------------
OTHER ASSETS AND LIABILITIES (2.5)% (11,136,178)
----- ------------
NET ASSETS 100.0% $437,124,944
===== ============
Notes to Schedule of Investments
* Denotes non-income producing security.
# Illiquid security.
+ Affiliated issuer (see Note F).
(1) A portion or all of the security was held on loan. As of April 30, 2009, the
market value of the securities loaned was $8,384,095.
(2) Security valued at fair value using methods determined in good faith by or
at the direction of the Board of Directors.
(3) Equity linked securities issued by Citigroup Global Markets Holdings.
(4) Equity linked securities issued by Credit Lyonnais (CLSA).
(5) Direct investments are generally restricted as to resale and do not have a
readily available resale market. On the date of acquisition of each direct
investment, there were no market quotations on similar securities, and such
investments were therefore valued in good faith by the Board of Directors at
fair market value.
(6) The Fund holds a put option which allows the Fund to sell the investment for
a value at least equal to the purchase price under certain circumstances.
(7) Repurchase agreement, dated 04/30/2009, due 05/1/2009 with repurchase
proceeds of $7,448,002 is collateralized by U.S. Treasury Bill, 0.01% due
10/1/2009 with a market value of $7,598,156.
144A Securities restricted for resale to Qualified Institutional Buyers.
ADR American Depositary Receipt.
** At April 30, 2009, the cost of investment securities for tax purposes was
$450,585,859. Net unrealized depreciation of investment securities for tax
purposes was $2,324,737, consisting of unrealized gains of $65,143,357 on
securities that had risen in value since their purchase and $67,468,094 in
unrealized losses on securities that had fallen in value since their
purchase.
See notes to financial statements and notes to schedule of investments.
12
THE CHINA FUND, INC.
SCHEDULE OF INVESTMENTS (CONTINUED)
APRIL 30, 2009 (UNAUDITED)
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
FORWARD FOREIGN CURRENCY CONTRACTS:
As of April 30, 2009, the Fund had the following open forward foreign currency
contracts:
UNREALIZED
SETTLEMENT APPRECIATION/
CURRENCY DATE LOCAL AMOUNT BASE AMOUNT MARKET VALUE (DEPRECIATION)
------------------ ------------------ ------------------ ------------------ ------------------ ------------------
CNY (Sell) 11/30/2009 122,079,803 $17,540,202 $18,048,666 $ 508,464
CNY (Buy) 11/30/2009 122,079,803 17,382,150 18,048,666 (666,516)
TWD (Sell) 11/30/2009 572,709,241 18,055,146 17,734,117 (321,029)
TWD (Buy) 11/30/2009 572,709,241 17,382,150 17,734,117 (351,967)
---------
$(831,048)
=========
CNY - Chinese Yen
TWD - Taiwan Dollar
See notes to financial statements and notes to schedule of investments.
13
THE CHINA FUND, INC.
STATEMENT OF ASSETS AND LIABILITIES
APRIL 30, 2009 (UNAUDITED)
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
ASSETS
Investments in securities, at value (cost $334,690,017) (Note A).. $335,674,294
Investments in affiliated investments, at value (cost
$106,921,103) (Notes A and F).................................. 103,612,089
Collateral for securities loaned.................................. 8,974,739
Cash.............................................................. 350
Foreign currency, at value (cost $127,673)........................ 129,841
Receivable for investments sold................................... 171,154
Receivable for securities lending income.......................... 5,571
Dividends and interest receivable................................. 376,914
Unrealized appreciation for open forward currency contracts....... 508,464
Prepaid expenses and other assets................................. 22,832
------------
TOTAL ASSETS........................................................ $449,476,248
------------
LIABILITIES
Payable for investments purchased................................. 360,073
Payable upon return of collateral for securities loaned........... 8,974,739
Unrealized depreciation for open forward currency contracts....... 1,339,512
Investment management fee payable (Note B)........................ 587,038
Administration and custodian fees payable (Note B)................ 144,243
Directors fee payable (Note B).................................... 41,066
Contingent liability (Note A)..................................... 717,795
Accrued expenses and other liabilities............................ 186,838
------------
TOTAL LIABILITIES................................................... 12,351,304
------------
TOTAL NET ASSETS.................................................... $437,124,944
============
COMPOSITION OF NET ASSETS:
Paid in capital (Note C).......................................... 454,105,881
Distributions in excess of net investment loss.................... (650,178)
Accumulated net realized loss on investments and foreign currency
transactions................................................... (13,177,487)
Net unrealized depreciation on investment and foreign currency
translations................................................... (3,153,272)
------------
TOTAL NET ASSETS.................................................... $437,124,944
============
NET ASSETS VALUE PER SHARE
($437,124,944/22,781,762 shares of common stock outstanding)...... $19.19
======
See notes to financial statements.
14
THE CHINA FUND, INC.
STATEMENT OF OPERATIONS
FOR SIX MONTHS ENDED APRIL 30, 2009 (UNAUDITED)
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
INVESTMENT INCOME:
Dividend income -- (including dividends of $261,019 from non-
controlled affiliates, net of tax withheld of $45,816)
(Note F)....................................................... $ 1,871,255
Interest income................................................... 173,297
Securities lending income......................................... 127,902
------------
TOTAL INVESTMENT INCOME........................................ 2,172,454
------------
EXPENSES
Investment Management fees (Note B)............................... 1,702,321
Custodian fees (Note B)........................................... 320,638
Administration fees (Note B)...................................... 193,326
Directors' fees and expenses (Note B)............................. 196,644
Legal fees........................................................ 93,696
Printing and postage.............................................. 56,717
Shareholder service fees.......................................... 107,586
Insurance......................................................... 24,094
Audit and tax service fees........................................ 58,967
Stock exchange listing fee........................................ 15,803
Transfer agent fees............................................... 15,718
Chief Compliance Officer fee...................................... 25,067
Miscellaneous expenses............................................ 11,346
------------
TOTAL EXPENSES................................................. 2,821,923
------------
NET INVESTMENT LOSS................................................. (649,469)
------------
REALIZED AND UNREALIZED GAIN/(LOSS) ON INVESTMENTS
AND FOREIGN CURRENCY
Net realized loss on investment transactions...................... (11,103,024)
Net realized gain on non-controlled affiliate transactions
(Note F)....................................................... 1,495
Net realized loss on foreign currency transactions................ (197,247)
------------
(11,298,776)
------------
Net change in unrealized appreciation on investments.............. 87,244,867
Net change in unrealized depreciation on foreign currency
transactions................................................... (831,048)
------------
86,413,819
------------
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS AND FOREIGN CURRENCY
TRANSACTIONS...................................................... 75,115,043
------------
NET INCREASE IN NET ASSETS FROM OPERATIONS.......................... $ 74,465,574
============
See notes to financial statements.
15
THE CHINA FUND, INC.
STATEMENTS OF CHANGES IN NET ASSETS
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
SIX MONTHS ENDED YEAR ENDED
APRIL 30, 2009 OCTOBER 31, 2008
---------------- ----------------
(UNAUDITED)
INCREASE/(DECREASE) IN NET ASSETS FROM OPERATIONS
Net investment income gain/(loss).................... $ (649,469) $ 8,481,100
Net realized gain/(loss)............................. (11,298,776) 95,324,572
Net increase/(decrease) in unrealized
appreciation/(depreciation) on investments and
foreign currency transactions..................... 86,413,819 (538,291,891)
------------- -------------
Net increase/(decrease) in net assets from
operations........................................ 74,465,574 (434,486,219)
------------- -------------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income................................ (8,737,395) (4,080,764)
Capital gains........................................ (96,870,178) (172,579,378)
------------- -------------
Total dividends and distributions to shareholders.... (105,607,573) (176,660,142)
------------- -------------
CAPITAL SHARE TRANSACTIONS:
Fund shares sold (Note C)............................ -- --
Reinvestment of dividends and distributions
(4,628,021 and
3,577,780 shares, respectively)................... 73,909,496 123,648,061
------------- -------------
Net increase in net assets from capital share
transactions...................................... 73,909,496 123,648,061
------------- -------------
INCREASE (DECREASE) IN NET ASSETS...................... 42,767,497 (487,498,300)
NET ASSETS:
Beginning of year.................................... 394,357,447 881,855,747
------------- -------------
End of period........................................ $ 437,124,944 $ 394,357,447
============= =============
Distribution in excess of net investment loss and
undistributed net investment income, end of period... $ (650,178) $ 8,736,686
============= =============
See notes to financial statements.
16
THE CHINA FUND, INC.
STATEMENT OF CASH FLOWS
FOR THE PERIOD ENDED APRIL 30, 2009 (UNAUDITED)
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
INCREASE (DECREASE) IN CASH -
-----------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net increase in net assets resulting from operations.............. $ 74,465,574
Adjustments to reconcile net increase in net assets from
operations
to net cash provided from operating activities:
Purchases of investment securities............................. (81,186,752)
Proceeds from disposition of investment securities............. 108,846,688
Net purchases of short-term investments........................ (7,448,000)
Proceeds from cash transactions................................ (253,222)
Increase in collateral for securities loaned................... 32,740,982
Decrease in dividends and interest receivable.................. 552,575
Decrease in receivable for securities lending income........... 99,738
Increase in receivable for investments sold.................... (171,786)
Decrease in prepaid expenses and miscellaneous assets.......... 25,648
Increase in payable for securities purchased................... 81,360
Decrease in payable upon return of collateral for securities (32,740,982)
loaned.......................................................
Increase in accrued expenses and other liabilities............. 154,920
Unrealized appreciation on forward currency contracts.......... 831,048
Unrealized depreciation on investments......................... (86,413,819)
Net realized gain/(loss) from investments and currencies....... 11,298,776
------------
Net cash provided by operating activities.................... 20,882,748
------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Cash distributions paid........................................ (31,698,077)
------------
Net cash used for financing activities....................... (31,698,077)
------------
NET DECREASE IN CASH................................................ (10,815,329)
CASH AT BEGINNING OF PERIOD......................................... 10,945,520
------------
CASH AT END OF PERIOD............................................... $ 130,191
============
Non-cash finanicing activites not included herein consist of:
Reinvestment of distributions.................................. $ 73,909,496
17
THE CHINA FUND, INC.
FINANCIAL HIGHLIGHTS
SELECTED DATA FOR A SHARE OF COMMON STOCK OUTSTANDING FOR THE PERIODS INDICATED
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
SIX
MONTHS YEAR ENDED OCTOBER 31,
ENDED ----------------------------------------------------
APRIL 30, 2009 2008 2007 2006 2005 2004*
-------------- -------- -------- -------- -------- --------
(UNAUDITED)
PER SHARE OPERATION PERFORMANCE
Net asset value, beginning of
period.......................... $ 21.72 $ 60.50 $ 31.40 $ 23.25 $ 26.27 $ 26.93
-------- -------- -------- -------- -------- --------
Net investment income/(loss)...... (0.03) 0.49 0.28 0.30 0.21 0.21
Net realized and unrealized gain
(loss) on investments and
foreign currency transactions... 3.51 (25.66) 32.83 10.36 0.34 0.91
-------- -------- -------- -------- -------- --------
Total income (loss) from
investment operations........... 3.48 (25.17) 33.11 10.66 0.55 1.12
-------- -------- -------- -------- -------- --------
Less dividends and distributions:
Dividend from net investment
income.......................... (0.48) (0.28) (0.30) (0.22) (0.20) (0.07)
Distributions from net realized
capital gains................... (5.34) (11.84) (3.71) (2.29) (3.37) (1.71)
-------- -------- -------- -------- -------- --------
Total dividends and
distributions................... (5.82) (12.12) (4.01) (2.51) (3.57) (1.78)
-------- -------- -------- -------- -------- --------
Capital Share Transactions:
(Dilution) to net asset value,
resulting from issuance of
shares in stock dividend..... (0.19) (1.49) 0.00 0.00 0.00 0.00
======== ======== ======== ======== ======== ========
Net asset value, end of period.... $ 19.19 $ 21.72 $ 60.50 $ 31.40 $ 23.25 $ 26.27
======== ======== ======== ======== ======== ========
Per share market price, end of
period.......................... $ 17.65 $ 19.87 $ 51.67 $ 30.40 $ 24.55 $ 29.15
======== ======== ======== ======== ======== ========
TOTAL INVESTMENT RETURN
(BASED ON MARKET PRICE)......... 21.18%(1) (48.06)% 90.97% 37.20% (5.50)% (12.16)%
======== ======== ======== ======== ======== ========
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period
(000's)......................... $437,125 $394,357 $881,856 $455,206 $334,496 $264,886
Ratio of net expenses to average
net assets...................... 1.51%(2) 1.20% 1.08% 1.26% 1.44% 1.41%
Ratio of gross expenses to average
net assets...................... 1.51%(2) 1.23% 1.08% 1.26% 1.44% 1.41%
Ratio of net expenses to average
net assets, excluding stock
dividend tax expense............ 1.51%(2) 1.11% 1.04% 1.23% 1.38% 1.34%
Ratio of net investment
income/(loss) to average net
assets.......................... (0.35)%(2) 1.28% 0.67% 1.09% 1.04% 0.78%
Portfolio turnover rate........... 21%(1) 49% 46% 50% 26% 40%
* Financial highlights were audited by a previous audit firm.
(1) Not annualized.
(2) Annualized.
See notes to financial statements.
18
THE CHINA FUND, INC.
NOTES TO FINANCIAL STATEMENTS
APRIL 30, 2009 (UNAUDITED)
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
NOTE A -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The China Fund, Inc. (the "Fund") was incorporated under the laws of the State
of Maryland on April 28, 1992, and is a non-diversified, closed-end management
investment company registered under the Investment Company Act of 1940, as
amended (the "1940 Act"). The Fund's investment objective is long-term capital
appreciation through investments in the equity securities of companies engaged
in a substantial amount of business in the People's Republic of China. The
following is a summary of significant accounting policies followed by the Fund
in the preparation of its financial statements.
USE OF ESTIMATES: The preparation of financial statements requires management
to make estimates and assumptions that affect the reported amounts of assets and
liabilities at the date of the financial statements and the reported amounts of
income and expenses for the period. Actual results could differ from these
estimates. The significant estimates made as of, and for the six months ended,
April 30, 2009 relate to Direct Investments and to the contingent liability
resulting from the sale of Captive Finance in March 2007. A reserve of 10% of
the net sale proceeds was established to cover any potential liabilities from
the representation and warranties provided by the Fund in the transaction.
SECURITY VALUATION: Portfolio securities listed on recognized United States or
foreign securities exchanges are valued at the last quoted sales price in the
principal market where they are traded. Listed securities with no such sales
price and unlisted securities are valued at the mean between the current bid and
asked prices, if any, of two brokers. Short-term investments having maturities
of sixty days or less are valued at amortized cost (original purchase cost as
adjusted for amortization of premium or accretion of discount) which when
combined with accrued interest approximates market value. Securities for which
market quotations are not readily available are valued at fair value using
methods determined in good faith by or at the direction of the Board of
Directors considering relevant factors, data and information including, if
relevant, the market value of freely tradable securities of the same class in
the principal market on which such securities are normally traded. Direct
Investments not traded on an exchange are valued at fair value as determined by
or at the direction of the Board of Directors based on financial and other
information supplied by the Direct Investment Manager regarding each Direct
Investment. Forward currency contracts are valued at the current cost of
offsetting the contract.
REPURCHASE AGREEMENTS: In connection with transactions in repurchase
agreements, it is the Fund's policy that its custodian take possession of the
underlying collateral securities, the fair value of which exceeds the principal
amount of the repurchase transaction, including accrued interest, at all times.
If the seller defaults, and the fair value of the collateral declines,
realization of the collateral by the Fund may be delayed or limited.
SECURITIES LENDING: The Fund may lend any of its securities held by State
Street Bank and Trust Company ("State Street") as custodian to certain qualified
brokers, except those securities which the Fund or the Investment Manager
specifically identifies as not being available. Effective March 26, 2009, the
Board approved the increase in the amount of securities that the Fund could lend
from 25% to 33 1/3% of the Fund's total assets. By lending its investment
securities, the Fund attempts to increase its net investment income through the
receipt of interest on the loan. Any gain or loss in the market price of the
securities loaned that might occur and any interest or dividends declared during
the term of the loan would accrue to the account of the Fund. Risks of delay in
recovery of the securities or even loss of rights in the
19
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
collateral may occur should the borrower of the securities fail financially.
Risks may also arise to the extent that the value of the collateral decreases
below the value of the securities loaned. Upon entering into a securities
lending transaction, the Fund receives cash or other securities as collateral in
an amount equal to or exceeding 100% of the current market value of the loaned
securities with respect to securities of the U.S. government or its agencies,
102% of the current market value of the loaned securities with respect to U.S.
securities and 105% of the current market value of the loaned securities with
respect to foreign securities. Any cash received as collateral is generally
invested by State Street, acting in its capacity as securities lending agent
(the "Agent"), in the State Street Navigator Prime Portfolio. Prior to April 7,
2009, the Fund invested in Securities Lending Quality Trust. A portion of the
dividends received on the collateral is rebated to the borrower of the
securities and the remainder is split between the Agent and the Fund.
As of April 30, 2009, the Fund had loaned securities which were collateralized
by cash and short term investments. The value of the securities on loan and the
value of the related collateral were as follows:
VALUE OF VALUE OF
VALUE OF CASH NON-CASH TOTAL
SECURITIES COLLATERAL COLLATERAL* COLLATERAL
---------- ---------- ----------- ----------
$8,384,095 $8,974,739 $-- $8,974,739
* The Fund cannot repledge or resell this collateral. The non-cash collateral is
comprised of U.S. government securities.
FOREIGN CURRENCY TRANSLATIONS: The records of the Fund are maintained in U.S.
dollars. Foreign currencies, investments and other assets and liabilities are
translated into U.S. dollars at the current exchange rates. Purchases and sales
of investment securities and income and expenses are translated on the
respective dates of such transactions. Net realized gains and losses on foreign
currency transactions represent net gains and losses from the disposition of
foreign currencies, currency gains and losses realized between the trade dates
and settlement dates of security transactions, and the difference between the
amount of net investment income accrued and the U.S. dollar amount actually
received. The effects of changes in foreign currency exchange rates on
investments in securities are not segregated in the Statement of Operations from
the effects of changes in market prices of those securities, but are included in
realized and unrealized gain or loss on investments. Net unrealized foreign
currency gains and losses arise from changes in the value of assets and
liabilities, other than investments in securities, as a result of changes in
exchange rates.
FORWARD FOREIGN CURRENCY CONTRACTS: A forward currency contract is an agreement
between two parties to buy or sell currency at a set price on a future date.
Upon entering into these contracts, risks may arise from the potential inability
of counterparties to meet the terms of their contracts and from unanticipated
movements in the value of the foreign currency relative to the U.S. dollar. The
U.S. dollar value of forward currency contracts is determined using forward
exchange rates provided by quotation services. Daily fluctuations in the value
of such contracts are recorded as unrealized gain or loss. When the contract is
closed, the Fund records a realized gain or loss equal to the difference between
the value at the time it was opened and the value at the time it was closed.
Such gain or loss is disclosed in the realized and unrealized gain or loss on
foreign currency in the Fund's accompanying Statement of Operations.
OPTION CONTRACTS: The Fund may purchase and write (sell) call options and put
options provided the transactions are for hedging purposes and the initial
margin and premiums do not exceed 5% of total assets. Option contracts are
20
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
valued daily and unrealized gains or losses are recorded based upon the last
sales price on the principal exchange on which the options are traded. The Fund
will realize a gain or loss upon the expiration or closing of the option
contract. When an option is exercised, the proceeds on sales of the underlying
security for a written call option, the purchase cost of the security for a
written put option, or the cost of the security for a purchased put or call
option is adjusted by the amount of premium received or paid.
The risk in writing a call option is that the Fund gives up the opportunity for
profit if the market price of the security increases and the option is
exercised. The risk in writing a put option is that the Fund may incur a loss if
the market price of the security decreases and the option is exercised. The risk
in buying an option is that the Fund pays a premium whether or not the option is
exercised. Risks may also arise from an illiquid secondary market or from the
inability of counter parties to meet the terms of the contract.
EQUITY LINKED SECURITIES: The Fund may invest in equity-linked securities such
as linked participation notes, equity swaps and zero-strike options and
securities warrants. Equity-linked securities currently held by the Fund,
identified as "Access Products" in the Schedule of Investments are privately
issued securities whose investment results are designed to correspond generally
to the performance of a specified stock index or "basket" of stocks, or a single
stock. Access Products may be used by the Fund to gain exposure to countries
that place restrictions on investments by foreigners. To the extent that the
Fund invests in Access Products whose return corresponds to the performance of a
foreign securities index or one or more foreign stocks, investing in Access
Products will involve risks similar to the risks of investing in foreign
securities. In addition, the Fund bears the risk that the issuer of an Access
Product may default on its obligation under the terms of the arrangement with
the counterparty. Access Products are often used for many of the same purposes
as, and share many of the same risks with, derivative instruments. In addition,
Access Products may be considered illiquid.
At April 30, 2009, the Fund held equity-linked Access Product warrants through
Credit Lyonnais ("CLSA") and Citigroup Global Markets Holdings, the issuers.
Under the terms of the agreements, each warrant entitles the Fund to receive
from the issuers an amount in U.S. dollars linked to the performance of specific
equity shares.
21
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
DIRECT INVESTMENTS: The Fund may invest up to 25% of the net proceeds from its
offering of its oustanding common stock in direct investments. Direct
investments are generally restricted and do not have a readily available resale
market. The value of these securities at April 30, 2009 was $93,188,126 or 21.3%
of the Fund's net asset value. The table below details the acquisition date,
cost, and value of the Fund's direct investments as determined by the Board of
Director's of the Fund. The Fund does not have the right to demand that such
securities be registered.
SECURITY ACQUISITION DATE COST VALUE
-------- ---------------- ----------- -----------
China Silicon Corp., Series A Preferred*........ 11/30/2007 $ 6,552,874 $ 3,646,594
China Silicon Corp. Common Stock................ 09/23/2008 697,502 --
HAND Enterprise Solutions, Ltd. ................ 05/02/2007 3,164,274 9,430,000
Highlight Tech. Corp. .......................... 09/11/2007 6,025,894 5,999,999
Qingdao Bright Moon............................. 02/28/2008 7,116,942 6,937,719
Queenbury Investments, Ltd. (Huiyan)............ 05/06/2008 38,515,190 40,655,250
teco Optronics Corp. ........................... 04/26/2004 567,320 --
Ugent Holdings, Ltd. ........................... 04/06/2009 22,838,490 22,838,562
Wuxi PAIHO...................................... 09/17/2007 3,744,407 3,680,002
----------- -----------
$89,222,893 $93,188,126
=========== ===========
* The purchase of China Silicon Corp., Series A Preferred resulted in the
Fund receiving 685,450 shares of China Silicon Corp. common stock warrants.
Each warrant entitles the Fund to purchase twenty five shares of common
stock at an exercise price of USD$2.98 per share, subject to adjustment.
INDEMNIFICATION OBLIGATIONS: Under the Fund's organizational documents, its
Officers and Directors are indemnified against certain liabilities arising out
of the performance of their duties to the Fund. In addition, in the normal
course of business the Fund enters into contracts that provide general
indemnifications to other parties. The Fund's maximum exposure under these
arragements is unknown as this would involve future claims that may be made
against the Fund that have not yet occurred.
SECURITY TRANSACTIONS AND INVESTMENT INCOME: Security transactions are recorded
as of the trade date. Realized gains and losses from securities sold are
recorded on the identified cost basis. Dividend income is recorded on the ex-
dividend date, or, in the case of dividend income on foreign securities, on the
ex-dividend date or when the Fund becomes aware of its declaration. Interest
income is recorded on the accrual basis. All premiums and discounts are
amortized/accreted for both financial reporting and federal income tax purposes.
Dividend and interest income generated in Taiwan is subject to a 20% withholding
tax. Stock dividends received (except those which have resulted from
Capitalization of capital surplus) are taxable at 20% of the par value of the
stock dividends received. The Fund records the taxes paid on stock dividends as
an operating expense.
22
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
DIVIDENDS AND DISTRIBUTIONS: The Fund intends to distribute to its
shareholders, at least annually, substantially all of its net investment income
and any net realized capital gains. Income and capital gains distributions are
determined in accordance with U.S. income tax regulations, which may differ from
generally accepted accounting principles. These differences are primarily due to
differing book and tax treatments for foreign currency transactions.
The Fund made distribution of $8,737,395 from Ordinary Income and $96,870,178
from Long-Term Capital Gains during the six months ended April 30, 2009. For the
year ended October 31, 2008 the Fund made distributions of $45,470,844 from
Ordinary Income and $131,189,298 from Long-Term Capital Gains.
FEDERAL INCOME TAXES: The Fund has qualified and intends to qualify in the
future as a regulated investment company by complying with the provisions of
Subchapter M of the Internal Revenue Code available to certain investment
companies, including making distributions of taxable income and capital gains
sufficient to relieve it from all, or substantially all, federal income and
excise taxes.
NOTE B -- ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
Martin Currie Inc. is the investment manager for the Fund's listed assets (the
"Listed Assets"). Martin Currie Inc. receives a fee, computed weekly and payable
monthly, at the following annual rates: 0.70% of the first US$315 million of the
Fund's average weekly net assets invested in Listed Assets; and 0.50% of the
Fund's average weekly net assets invested in Listed Assets in excess of US$315
million. Martin Currie Inc. is also the investment manager for the Fund's direct
investments. Martin Currie Inc. receives a fee computed weekly and payable
monthly, at an annual rate of 2.00% of the average weekly value of the Fund's
assets invested in direct investments.
No director, officer or employee of the Investment Manager or Direct Investment
Manager or any affiliates of those entities will receive any compensation from
the Fund for serving as an officer or director of the Fund. Effective January 1,
2009, the Fund pays the Chairman of the Board and each of the directors (who is
not a director, officer or employee of the Investment Manager or Direct
Investment Manager or any affiliate thereof) an annual fee of $35,000 and
$15,000 respectively, plus $3,000 for each Board of Directors' meeting or Audit
and Nominating Committee meeting attended, $2,000 for each telephonic meeting
attended and $2,000 for each Valuation Committee teleconference. In addition,
the Fund will reimburse each of the directors for travel and out-of-pocket
expenses incurred in connection with attending Board of Directors' meetings.
Prior to January 1, 2009, the Fund paid the Chairman of the Board an annual fee
of $27,500, plus the Fund paid the Chairman of the Board and each of the
directors $1,000 for each Valuation Committee teleconference.
State Street provides, or arranges for the provision of certain administrative
services for the Fund, including preparing certain reports and other documents
required by federal and/or state laws and regulations. The Fund pays State
Street a fee at an annual rate of 0.13% of the Fund's average daily net assets
up to $150 million, 0.11% of the next $150 million and 0.06% of the next $400
million and 0.05% of those in excess of $400 million subject to certain minimum
requirements for fund administration services. The Fund also pays State Street
$100,000 per year for certain legal administration services, including corporate
secretarial services and preparing regulatory filings.
23
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
The Fund has also contracted with State Street to provide custody and fund
accounting services to the Fund. For these services, the Fund pays State Street
asset-based fees that vary according to the number of positions and transactions
plus out-of-pocket expenses.
NOTE C -- CAPITAL STOCK
The Board of Directors of the Fund has approved a share repurchase plan. Under
the program, the Fund will repurchase shares at management's discretion at times
when it considers the repurchase to be consistent with the objectives of the
program. For the six months ended April 30, 2009, the Fund did not participate
in this program. At April 30, 2009, 100,000,000 shares of $0.01 par value common
stock were authorized.
NOTE D -- INVESTMENT TRANSACTIONS
For the six months ended April 30, 2009, the Fund's cost of purchases and
proceeds from sales of investment securities, other than short-term securities,
were $80,925,733 and $109,560,920, respectively. At April 30, 2009, the cost of
investments for federal income tax purposes was $450,585,859. Gross unrealized
appreciation of investments was $65,143,357, while gross unrealized depreciation
of investments was $67,468,094, resulting in net unrealized depreciation of
investments of $2,324,737.
NOTE E -- INVESTMENTS IN CHINA
The Fund's investments in China companies involve certain risks not typically
associated with investments in securities of U.S. companies or the U.S.
Government, including risks relating to (1) social, economic and political
uncertainty; (2) price volatility, lesser liquidity and smaller market
capitalization of securities markets in which securities of China companies
trade; (3) currency exchange fluctuations, currency blockage and higher rates of
inflation; (4) controls on foreign investment and limitations on repatriation of
invested capital and on the Fund's ability to exchange local currencies for U.S.
dollars; (5) governmental involvement in and control over the economy; (6) risk
of nationalization or expropriation of assets; (7) the nature of the smaller,
less seasoned and newly organized China companies, particularly in China; and
(8) the absence of uniform accounting, auditing and financial reporting
standards, practices and disclosure requirements and less government supervision
and regulation.
24
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
NOTE F -- INVESTMENTS IN NON-CONTROLLED AFFILIATES*:
GAIN
DIVIDENDS REALIZED
INCLUDED IN ON SALE OF
BALANCE OF GROSS GROSS BALANCE OF DIVIDEND SHARES
SHARES HELD PURCHASES SALES SHARES HELD VALUE INCOME AS OF
OCTOBER 31, AND AND APRIL 30, APRIL 30, NON-CONTROLLED APRIL 30,
NAME OF ISSUER 2008 ADDITIONS REDUCTIONS 2009 2009 AFFILIATES 2009
---------------------- ----------- ----------- ---------- ----------- ----------- -------------- ----------
CDW Holding, Ltd. .... 60,000,000 -- 292,000 59,708,000 $ 2,525,805 $ -- $1,495
China Medical System
Holdings, Ltd. ..... 3,623,188 -- -- 3,623,188 6,675,638 -- --
China Silicon Corp.
Common Stock........ 183,396 109,672 -- 293,068 -- -- --
China Silicon Corp.,
Series A Preferred.. 27,418 -- -- 27,418 3,646,594 261,019 --
China Silicon Corp.
Warrants............ 685,450 -- -- 685,450 -- -- --
Far East Energy
Corp. .............. 10,478,634 2,771,425 -- 13,250,059 4,902,522 -- --
HAND Enterprise
Solutions, Ltd. .... 500,000 -- -- 500,000 9,430,000 -- --
Highlight Tech.
Corp. .............. 3,366,893 -- -- 3,366,893 5,999,999 -- --
Qingdao Bright Moon... 31,827,172 -- -- 31,827,172 6,937,719 -- --
Queenbury Investments,
Ltd. (Huiyan)....... 450 -- -- 450 40,655,250 -- --
Ugent Holdings,
Ltd. ............... -- 177,000,000 -- 177,000,000 22,838,562 -- --
Teco Optronics
Corp**.............. 1,861,710 -- -- 1,861,710 -- -- --
Wexi PAIHO**.......... 11,734,701 -- -- 11,734,701 3,680,002 -- --
* Affiliated issuers, as defined in the 1940 Act as amended, include
issuers in which the Fund held 5% or more of the outstanding voting
securities.
** Securities are no longer considered affiliated as of April 30, 2009.
NOTE G -- NEW ACCOUNTING PRONOUNCEMENTS
In June 2006, the Financial Accounting Standards Board ("FASB") released FASB
Interpretation No. 48 ("FIN 48") "Accounting for Uncertainty in Income Taxes".
FIN 48 provides guidance for how uncertain tax positions should be
25
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
recognized, measured, presented and disclosed in the financial statements. FIN
48 requires the evaluation of tax positions taken in the course of preparing the
Fund's tax return to determine whether the tax positions are "more-likely-than-
not" of being sustained by the applicable tax authority. Tax benefits of
positions not deemed to meet the more-likely-than-not threshold would be booked
as a tax expense in the current year and recognized as: a liability for
unrecognized tax benefits; a reduction of an income tax refund receivable; a
reduction of deferred tax asset; an increase in deferred tax liability; or a
combination thereof. The Fund adopted the provisions of FIN 48 on November 1,
2007 and the adoption did not have a material effect on the net asset value,
financial condition or results of operations of the Fund. As of April 30, 2009,
the Fund had no uncertain tax positions that would require financial statement
recognition or disclosure. The Fund's federal tax returns filed for the fiscal
years ended October 31 2006, October 31, 2007 and October 31, 2008 remain
subject to examination by the Internal Revenue Service.
In addition, in March 2008, FASB issued Statement of Financial Accounting
Standards No. 161, "Disclosures about Derivative Instruments and Hedging
Activities" ("SFAS 161"). SFAS 161 is effective for fiscal years and interim
periods beginning after November 15, 2008. SFAS 161 requires enhanced
disclosures about funds' derivative and hedging activities. Management is
currently evaluating the impact the adoption of SFAS 161 will have on the Funds'
financial statement disclosures.
In April 2009, FASB issued FASB Staff Position No. 157-4, "Determining Fair
Value When the Volume and Level of Activity for the Asset or Liability Have
Significantly Decreased and Identifying Transactions That Are Not Orderly" ("FSP
157-4"). FSP 157-4 provides additional guidance for estimating fair value in
accordance with FASB Statement of Financial Accounting Standards No. 157, "Fair
Value Measurements" ("FAS 157"), when the volume and level of activity for the
asset or liability have significantly decreased as well as guidance on
identifying circumstances that indicate a transaction is not orderly. FSP 157-4
is effective for fiscal years and interim periods ending after June 15, 2009.
Management is currently evaluating the impact the adoption of FSP 157-4 will
have on the Fund's financial statement disclosures.
NOTE H -- FAIR VALUE MEASUREMENT
The Fund adopted Financial Accounting Standards Board Statement of Financial
Accounting Standards No. 157, Fair Value Measurements ("FAS 157"), effective
November 1, 2008. In accordance with FAS 157, fair value is defined as the price
that the Fund would receive upon selling an investment in a timely transaction
to an independent buyer in the principal or most advantageous market of the
investment. FAS 157 established a three-tier hierarchy to maximize the use of
observable market data and minimize the use of unobservable inputs and to
establish classification of fair value measurements for disclosure purposes.
Inputs refer broadly to the assumptions that market participants would use in
pricing the asset or liability, including assumptions about risk, for example,
the risk inherent in a particular valuation technique used to measure fair value
including such a pricing model and/or the risk inherent in the inputs to the
valuation technique. Inputs may be observable or unobservable. Observable inputs
are inputs that reflect the assumptions market participants would use in pricing
the asset or liability developed based on market data obtained from sources
independent of the reporting entity. Unobservable inputs are inputs that reflect
the reporting entity's own
26
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
assumptions about the assumptions market participants would use in pricing the
asset or liability developed based on the best information available in the
circumstances.
The three-tier hierarchy of inputs is summarized in the three broad Levels
listed below.
- Level 1 - quoted prices in active markets for identical investments
- Level 2 - other significant observable inputs (including quoted prices for
similar investments, interest rates, prepayment speeds, credit risk, etc.)
- Level 3 - significant unobservable inputs (including the Fund's own
assumptions in determining the fair value of investments)
The valuation techniques used by the Fund to measure fair value during the six
months ended April 30, 2009 maximized the use of observable inputs and minimized
the use of unobservable inputs. The Fund utilized the following fair value
techniques: a multi-dimensional relational pricing model, option adjusted spread
pricing and estimations of the price that would have prevailed in a liquid
market for an international equity given information available at the time of
evaluation.
The following is a summary of the inputs used as of April 30, 2009 in valuing
the Fund's investments carried at value:
THE CHINA FUND
INVESTMENTS IN OTHER FINANCIAL
VALUATION INPUTS SECURITIES INSTRUMENTS*
---------------- -------------- ---------------
Level 1 - Quoted Prices............................. $332,631,586 $(831,048)
Level 2 - Other Significant Observable Inputs....... 16,422,739 --
Level 3 - Significant Unobservable Inputs........... 99,206,797 --
TOTAL............................................. $448,261,122 $(831,048)
* Other financial instruments include forwards.
The following is a reconciliation of the fair valuations using significant
unobservable inputs (Level 3) for the fund during the period ending April 30,
2009:
MARKET MARKET
VALUE PURCHASES CHANGE IN VALUE
BEGINNING AT COST/ AMORTIZATION REALIZED UNREALIZED ENDING
BALANCE SALES DISCOUNT/ GAIN/ GAIN/ BALANCE
FUND 10/31/2008 (PROCEEDS) (PREMIUM) (LOSS) (LOSS) 04/30/2009
---- ----------- ----------- ------------ -------- ---------- -----------
The China Fund, Investments in
Inc. Securities $69,190,949 $22,943,013 $ -- $(31,412) $7,104,247 $99,206,797
27
THE CHINA FUND, INC.
OTHER INFORMATION (UNAUDITED)
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
RESULTS OF ANNUAL STOCKHOLDER MEETING HELD ON MARCH 26, 2009
1.) Election of Directors -- The stockholders of the Fund elected James J.
Lightburn and Joe O. Rogers as Class I directors to serve for a term
expiring on the date on which the annual meeting of stockholders is held in
2012.
FOR WITHHELD
---------- ---------
James J. Lightburn.................................... 14,623,974 2,436,406
Joe O. Rogers......................................... 14,642,799 2,417,581
PRIVACY POLICY
PRIVACY NOTICE
The China Fund, Inc. collects nonpublic personal information about its
shareholders from the following sources:
[ ] Information it receives from shareholders on applications or other
forms; and
[ ] Information about shareholder transactions with the Fund.
THE FUND'S POLICY IS TO NOT DISCLOSE NONPUBLIC PERSONAL INFORMATION ABOUT ITS
SHAREHOLDERS TO NONAFFILIATED THIRD PARTIES (other than disclosures permitted by
law).
The Fund restricts access to nonpublic personal information about its
shareholders to those agents of the Fund who need to know that information to
provide products or services to shareholders. The Fund maintains physical,
electronic and procedural safeguards that comply with federal standards to guard
its shareholders' nonpublic personal information.
28
THE CHINA FUND, INC.
OTHER INFORMATION (UNAUDITED) (CONTINUED)
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
PROXY VOTING POLICIES AND PROCEDURES
A description of the policies and procedures that are used by the Fund's
investment advisers to vote proxies relating to the Fund's portfolio securities
is available (1) without charge, upon request, by calling 1-888-CHN-CALL (246-
2255); and (2) as an exhibit to the Fund's annual report on Form N-CSR which is
available on the website of the Securities and Exchange Commission (the
"Commission") at http://www.sec.gov. Information regarding how the investment
advisers vote these proxies is now available by calling the same number and on
the Commission's website. The Fund has filed its report on Form N-PX covering
the Fund's proxy voting record for the 12 month period ending June 30, 2008.
QUARTERLY PORTFOLIO OF INVESTMENTS
A Portfolio of Investments will be filed as of the end of the first and third
quarter of each fiscal year on Form N-Q and will be available on the Securities
and Exchange Commission's website at http://www.sec.gov. Form N-Q has been filed
as of January 31, 2009 for the first quarter of this fiscal year and is
available on the Securities and Exchange Commission's website at
http://www.sec.gov. Additionally, the Portfolio of Investments may be reviewed
and copied at the Commission's Public Reference Room in Washington, DC.
Information on the operation of the Public Reference Room may be obtained by
calling 1-800-SEC-0330. The quarterly Portfolio of Investments will be made
available with out charge, upon request, by calling 1-888-246-2255.
CERTIFICATIONS
The Fund's chief executive officer has certified to the New York Stock Exchange
that, as of April 27, 2009, he was not aware of any violation by the Fund of
applicable New York Stock Exchange corporate governance listing standards. The
Fund also has included the certifications of the Fund's chief executive officer
and chief financial officer required by Section 302 and Section 906 of the
Sarbanes-Oxley Act of 2002 in the Fund's Form N-CSR filed with the Securities
and Exchange Commission, for the period of this report.
29
DIVIDENDS AND DISTRIBUTIONS;
DIVIDEND REINVESTMENT AND CASH PURCHASE PLAN
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
The Fund will distribute to shareholders, at least annually, substantially all
of its net investment income from dividends and interest earnings and expects to
distribute any net realized capital gains annually. Pursuant to the Dividend
Reinvestment and Cash Purchase Plan (the "Plan"), adopted by the Fund, each
shareholder will be deemed to have elected, unless Computershare Trust Company,
N.A., the Plan Administrator, is otherwise instructed by the stockholder in
writing, to have all distributions automatically reinvested by the Plan
Administrator in Fund shares pursuant to the Plan. The Plan has been amended to
clarify the situations in which the Plan operates by adding the following
sentence to the Plan: "The Plan will operate whenever a dividend or distribution
is declared payable only in cash or in cash or shares of the Fund's common
stock, but it will not operate with respect to a dividend or distribution
declared payable only in shares of the Fund's common stock (including such a
declaration that provides an option to receive cash)." Shareholders who do not
participate in the Plan will receive all distributions in cash paid by check in
U.S. dollars mailed directly to the stockholder by Computershare Trust Company,
N.A., as paying agent. Shareholders who do not wish to have distributions
automatically reinvested should notify the Fund by contacting Computershare c/o
The China Fund, Inc. at P.O. Box 43010, Providence, Rhode Island 02940-3011.
Phone: 1-800-426-5523.
Computershare Trust Company, N.A. and Computershare Shareholder Services, Inc.
(collectively, "Computershare" or the "Plan Administrator"), acts as Plan
Administrator and Service Agent. If the Directors of the Fund declare an income
dividend or a capital gains distribution payable either in the Fund's Common
Stock or in cash, as shareholders may have elected, non-participants in the Plan
will receive cash and participants in the Plan will receive Common Stock, to be
issued by the Fund. If the market price per share on the valuation date equals
or exceeds net asset value per share on that date, the Fund will issue new
shares to participants at net asset value or, if the net asset value is less
than 95% of the market price on the valuation date, then at 95% of the market
price. The valuation date will be the dividend or distribution payment date or,
if that date is not a trading day on the exchange on which the Fund's shares are
then listed, the next preceding trading day. If net asset value exceeds the
market price of Fund shares at such time, participants in the Plan will be
deemed to have elected to receive shares of stock from the Fund, valued at
market price on the valuation date. If the Fund should declare a dividend or
capital gains distribution payable only in cash, the Plan Administrator will, as
administrator for the participants, buy Fund shares in the open market, on the
New York Stock Exchange or elsewhere, with the cash in respect of such dividend
or distribution, for the participant's account on, or shortly after, the payment
date.
Participants in the Plan have the option of making additional payments to the
Plan Administrator annually, in any amount from $100 to $3,000 for investment in
the Fund's Common Stock. The Plan Administrator will use all funds received from
participants (as well as any dividends and capital gains distributions received
in cash) to purchase Fund shares in the open market on or about January 15 of
each year. Any voluntary cash payments received more than thirty days prior to
such date will be returned by the Plan Administrator, and interest will not be
paid on any uninvested cash payments. To avoid unnecessary cash accumulations,
and also to allow ample time for receipt and processing by the Plan
Administrator, it is suggested that participants send in voluntary cash payments
to be received by the Plan Administrator approximately ten days before January
15. A participant may withdraw a voluntary cash payment by written notice, if
the notice is received by the Plan Agent not less than 48 hours before such
payment is to be invested.
The Plan Administrator maintains all stockholder accounts in the Plan and
furnishes written confirmations of all transactions in the account, including
information needed by shareholders for personal and tax records. Shares in the
30
DIVIDENDS AND DISTRIBUTIONS;
DIVIDEND REINVESTMENT AND CASH PURCHASE PLAN (CONTINUED)
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
account of each Plan participant will be held by the Plan Administrator in non-
certificated form in the name of the participant, and each stockholder's proxy
will include those shares purchased pursuant to the Plan.
In the case of shareholders, such as banks, brokers or nominees, which hold
shares for others who are the beneficial owners, the Plan Administrator will
administer the Plan on the basis of the number of shares certified from time to
time by the stockholder as representing the total amount registered in the
stockholder's name and held for the account of beneficial owners who are
participating in the Plan.
There is no charge to participants for reinvesting dividends or capital gains
distributions. The Plan Administrator's fees for the handling of the
reinvestment of dividends and distributions will be paid by the Fund. However,
each participant's account will be charged a pro rata share of brokerage
commissions incurred with respect to the Plan Administrator's open market
purchases in connection with the reinvestment of dividends or capital gains
distributions. A participant will also pay brokerage commissions incurred in
purchases from voluntary cash payments made by the participant. Brokerage
charges for purchasing small amounts of stock for individual accounts through
the Plan are expected to be less than the usual brokerage charges for such
transactions, because the Plan Administrator will be purchasing stock for all
participants in blocks and prorating the lower commission thus attainable.
The automatic reinvestment of dividends and distributions will not relieve
participants of any income tax which may be payable on such dividends and
distributions.
Experience under the Plan may indicate that changes are desirable. Accordingly,
the Fund reserves the right to amend or terminate the Plan as applied to any
voluntary cash payment made and any dividend or distribution paid subsequent to
notice of the change sent to all shareholders at least 90 days before the record
date for such dividend or distribution. The Plan also may be amended or
terminated by the Plan Administrator by at least 90 days' written notice to all
shareholders. All correspondence concerning the Plan should be directed to
Computershare c/o The China Fund, Inc. at P.O. Box 43010, Providence, Rhode
Island 02940-3011. Phone: 1-800-426-5523.
The Plan will not apply to any dividend or capital gain distribution declared
payable in the Fund's common stock, as was the case with the Fund's declaration
of dividends and distributions in December 2007 and December 2008.
31
DIRECTORS AND OFFICERS (UNAUDITED)
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
The following table provides information concerning each of the Directors of the
Fund. The Board of Directors is comprised of Directors who are not interested
persons of the Fund, as that term is defined in Section 2(a)(19) of the
Investment Company Act of 1940, as amended. The Directors are divided into three
classes, designated as Class I, Class II and Class III. The Directors in each
such class are elected for a term of three years to succeed the Directors whose
term of office expires. Each Director shall hold office until the expiration of
his term and until his successor shall have been elected and qualified. The Fund
Complex consists of one series.
PRESENT PRINCIPAL OCCUPATION OR EMPLOYMENT
OFFICE DURING PAST FIVE YEARS AND DIRECTOR/
NAME (AGE) AND WITH THE DIRECTORSHIPS IN PUBLICLY HELD OFFICER
ADDRESS OF DIRECTOR FUND COMPANIES SINCE
------------------- ----------- ------------------------------------- ---------
James J. Lightburn Chairman of Attorney, Nomos, (2004-present); 1992
(65).............. the Board Attorney, member of Hughes Hubbard &
13, Rue Alphonse and Reed (1993-2004).
de Neuville Director
75017 Paris,
France
Michael F. Holland Director Chairman, Holland & Company L.L.C. 1992
(64).............. (1995- present); Director, The
375 Park Avenue Holland Balanced Fund, Inc., Reaves
New York, New York Utility Income Fund and Scottish
10152 Widows Investment Partnership Trust
and Taiwan Fund, Inc.; Trustee, State
Street Master Funds and State Street
Institutional Investment Trust.
William Kirby (59).. Director Director, John K. Fairbank Center for 2007
Harvard University Chinese Studies Harvard University
CGIS Building (2006-present); Chairman, Harvard
1730 Cambridge China Fund (2006-present); Harvard
Street University Distinguished Service
Cambridge, MA Professor (2006- present); Visiting
02138 Professor of Business Administration
Harvard Business School (2006-
present); Dean of the Faculty of Arts
and Sciences Harvard University
(2002-2006).
Joe O. Rogers (60).. Director The Rogers Team LLC, organizing 1992
2477 Foxwood Drive member (July 2001-present); Manager,
Chapel Hill, NC The J-Squared Team LLC (April 2003-
27514 May 2004); Director, The Taiwan
Fund, Inc. (1986-present).
Nigel S. Tulloch Director Chief Executive, HSBC Asset 1992
(63).............. Management Bahamas Limited (1986-
7, Circe Circle 1992); Director, The HSBC China Fund
Dalkeith Limited (1992-2005).
WA6009
Australia
Paul Hahesy (37).... Chief Compliance Manager, Foreside 2007
Foreside Compliance Compliance Services, LLC. (2005-
Compliance Officer present); Compliance Consultant,
Services, LLC. Metlife (2002-2005).
Three Canal Plaza,
Suite 100
Portland, ME 04101
Gary L. French President Senior Vice President, State Street 2003
(57).............. Bank and Trust Company (2002 -
2 Avenue de present); Managing Director, Deutsche
Lafayette Asset Management, Inc. and Zurich
Boston, MA 02111 Scudder Investments (acquired by
Deutsche Bank in 2002) (2001-2002).
32
PRESENT PRINCIPAL OCCUPATION OR EMPLOYMENT
OFFICE DURING PAST FIVE YEARS AND DIRECTOR/
NAME (AGE) AND WITH THE DIRECTORSHIPS IN PUBLICLY HELD OFFICER
ADDRESS OF DIRECTOR FUND COMPANIES SINCE
------------------- ----------- ------------------------------------- ---------
Chris Ruffle (50)... Vice Director, MC China Limited (2006- 2008
Martin Currie President present); Director Heartland Capital
Investment Management Limited, (2006-present);
Advisers Director, Martin Currie Investment
Saltire Court Management Limited (1995-2006).
20 Castle Terrace
Edinburgh, EH12ES
Scotland
Shifeng Ke (43)..... Vice Director, MC China Limited (2006- 2008
Martin Currie President present); Director Heartland Capital
Investment Management Limited, (2006-present);
Advisers Director, Martin Currie Investment
Saltire Court Management Limited (2004-2006).
20 Castle Terrace
Edinburgh, EH12ES
Scotland
Laura Healy (45).... Treasurer Vice President, State Street Bank and 2008
2 Avenue de Trust Company (July 2007-present);
Lafayette Senior Director, Investors Bank &
Boston, MA 02111 Trust Company (January 2002-July
2007).
Brian O'Sullivan Assistant Vice President, State Street Bank and 2009
(34).............. Treasurer Trust Company (December 2006-
801 Pennsylvania present); Assistant Vice President,
Ave State Street Bank and Trust Company
Kansas City, MO (March 2004-December 2006).
64105
Elizabeth A. Watson Secretary Vice President and Managing Counsel, 2008
(54).............. State Street Bank and Trust Company
4 Copley Place (August-present); Vice President and
Boston, MA 02116 General Counsel (May 2004-July 2007)
and Chief Compliance Officer (July
2004-October 2006), Quantitative
Investment Advisors, Inc.; Clerk
(July 2004-July 2007), Chief Legal
Officer January 2007-July 2007).,
Chief Compliance Officer (July 2004-
December 2005), Quantitative Group of
Funds; President and General Counsel,
U.S. Boston Capital Corporation (May
2004-July 2007); Principal, Watson
and Associates (2002-2004).
Francine S. Hayes Assistant Vice President and Senior Counsel, 2005
(41).............. Secretary State Street Bank and Trust Company
4 Copley Place (2004-present); Assistant Vice
Boston, MA 02116 President And Counsel, State Street
Bank and Trust Company (2001-2004).
33
THE CHINA FUND, INC.
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
UNITED STATES ADDRESS
The China Fund, Inc.
c/o State Street Bank and Trust Company
2 Avenue de Lafayette
P.O. Box 5049
Boston, MA 02206-5049
1-888-CHN-CALL (246-2255)
DIRECTORS AND OFFICERS
James J. Lightburn, Chairman of the Board and Director
Michael F. Holland, Director
William Kirby, Director
Joe O. Rogers, Director
Nigel S. Tulloch, Director
Paul Hahesy, Chief Compliance Officer of the Fund
Gary L. French, President
Chris Ruffle, Vice President
Shifeng Ke, Vice President
Laura F. Healy, Treasurer
Elizabeth A. Watson, Secretary
Brian O'Sullivan, Assistant Treasurer
Francine Hayes, Assistant Secretary
INVESTMENT MANAGER
Martin Currie Inc.
SHAREHOLDER SERVICING AGENT
The Altman Group
ADMINISTRATOR AND CUSTODIAN
State Street Bank and Trust Company
TRANSFER AGENT, DIVIDEND PAYING AGENT AND REGISTRAR
Computershare Trust Company, N.A.
INDEPENDENT AUDITORS
Deloitte & Touche, LLP
LEGAL COUNSEL
Clifford Chance US LLP
ITEM 2. CODE OF ETHICS.
Not required for this filing.
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.
Not required for this filing.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
Not required for this filing.
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS.
Not required for this filing.
ITEM 6. SCHEDULE OF INVESTMENTS.
Schedule of Investments is included as part of Item 1 of the Form N-CSR.
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END
INVESTMENT COMPANIES.
Not required for this filing.
ITEM 8. PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES.
Not applicable.
ITEM 9. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT
COMPANY AND AFFILIATED PURCHASERS.
Not applicable.
ITEM 10. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
There have been no material changes to the procedures by which shareholders may
recommend nominees to the registrant's Board of Directors during the period
covered by this Form N-CSR filing.
ITEM 11. CONTROLS AND PROCEDURES.
(a) The registrant's principal executive and principal financial officers have
concluded that the registrant's disclosure controls and procedures (as
defined in Rule 30a-3(c) under the Investment Company Act of 1940, as
amended (the "1940 Act") (17 CFR 270.30a-3(c))) are effective, as of a
date within 90 days of the filing date of this Form N-CSR based on their
evaluation of these controls and procedures required by Rule 30a-3(b)
under the 1940 Act (17 CFR 270.30a-3(b)) and Rules 13a-15(b) or 15d-15(b)
under the 1934 Act (17 CFR 240.13a-15(b) or 240.15d-15(b)).
(b) There were no changes in the registrant's internal control over financial
reporting (as defined in Rule 30a-3(d) under the 1940 Act (17 CFR
270.30a-3(d))) that occurred during the registrant's second fiscal quarter
that has materially affected, or is reasonably likely to materially
affect, the registrant's internal control over financial reporting.
3
ITEM 12. EXHIBITS.
(a)(1) Not required for this filing.
(a)(2) The certifications required by Rule 30a-2 of the Investment Company Act
of 1940, as amended (the "1940 Act") are attached hereto.
(a)(3) Not required for this filing.
(b) The certifications required by Rule 30a-2(b) of the 1940 Act and Section
906 of the Sarbanes-Oxley Act of 2002 are attached hereto.
4
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
THE CHINA FUND, INC.
By: /s/ Gary L. French
Gary L. French
President of The China Fund, Inc.
Date: June 24, 2009
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
By: /s/ Gary L. French
Gary L. French
President of The China Fund, Inc.
Date: June 24, 2009
By: /s/ Laura F. Healy
Laura F. Healy
Treasurer of The China Fund, Inc.
Date: June 24, 2009
5