SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED
MANAGEMENT INVESTMENT COMPANIES
Investment Company Act file number: 811-6651
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THE CHINA FUND, INC.
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(Exact name of registrant as specified in charter)
225 FRANKLIN STREET
BOSTON, MA 02110
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(Address of principal executive offices)(Zip code)
(Name and Address of
Agent for Service) Copy to:
Mary Moran Zeven State Street Bank and Trust Company
Secretary Mary Moran Zeven, Esq.
The China Fund, Inc. One Federal Street, 9th Floor
225 Franklin Street Boston, Massachusetts 02110
Boston, MA 02110
and
Leonard B. Mackey, Esq.
Clifford Chance U.S. LLP
200 Park Avenue
New York, New York 10166 0153
Registrant's telephone number, including area code: (888) 246-2255
Date of fiscal year end: October 31, 2002
Date of reporting period: April 30, 2003
ITEM 1: SHAREHOLDER REPORT
ITEM 1
THE CHINA FUND, INC.
SEMI-ANNUAL REPORT
APRIL 30, 2003
(UNAUDITED)
THE CHINA FUND, INC.
TABLE OF CONTENTS
PAGE
----
Key Highlights 1
Asset Allocation 2
Chairman's Statement 3
Investment Managers' Statements 4
About the Portfolio Managers 7
Schedule of Investments 8
Financial Statements 13
Notes to Financial Statements 17
Other Information 22
Dividends and Distributions; 23
Dividend Reinvestment
and Cash Purchase Plan
THE CHINA FUND, INC.
KEY HIGHLIGHTS
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FUND DATA
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NYSE STOCK SYMBOL CHN
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LISTING DATE JULY 10, 1992
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SHARES OUTSTANDING 10,073,173
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TOTAL NET ASSETS (04/30/03) US$167.9 MILLION
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NET ASSET VALUE (04/30/03) $16.67
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MARKET PRICE (04/30/03) $15.95
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TOTAL RETURN
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PERFORMANCE AS OF
04/30/03: NET ASSET VALUE(1) MARKET PRICE
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6 MONTHS 13.32% 28.28%
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3-YEAR CUMULATIVE 34.39% 81.60%
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3-YEAR ANNUALIZED 10.36% 22.00%
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5-YEAR CUMULATIVE 35.28% 55.95%
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5-YEAR ANNUALIZED 6.23% 9.29%
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10-YEAR CUMULATIVE 29.86% 15.35%
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10-YEAR ANNUALIZED 2.65% 1.44%
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DIVIDEND HISTORY
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RECORD DATE INCOME CAPITAL GAINS
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12/26/02 $0.0640 $0.1504
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12/31/01 $0.1321 --
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12/31/99 $0.1110 --
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12/31/98 $0.0780 --
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12/31/97 -- $0.5003
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12/31/96 $0.0834 --
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12/29/95 $0.0910 --
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12/30/94 $0.0093 $0.6006
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12/31/93 $0.0853 $0.8250
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12/31/92 $0.0434 $0.0116
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(1) Total investment returns reflect changes in net asset value per share during
each period and assumes that dividends and capital gains distributions, if any,
were reinvested. The net asset value 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 are historical and do not guarantee future
results.
1
THE CHINA FUND, INC.
ASSET ALLOCATION AS OF APRIL 30, 2003
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TEN LARGEST LISTED EQUITY INVESTMENTS*
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1. Sohu.com Inc. 9.86%
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2. Fountain Set (Holdings), Ltd. 5.16%
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3. Chinadotcom, Corp. 4.13%
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4. TCL International Holdings, Ltd. 3.60%
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5. Yanzhou Coal Mining Co. 3.00%
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6. BYD Co., Ltd. 2.98%
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7. Sinotrans Limited 2.69%
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8. Shenzhen Expressway Co., Ltd. 2.63%
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9. Anhui Expressway Co., Ltd. 2.26%
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10. China Metal Products Co., Ltd. 2.17%
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THREE LARGEST DIRECT INVESTMENTS*
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1. A-S China Plumbing Products, Ltd. 1.91%
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2. Captive Finance, Ltd. 1.81%
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3. Tomoike Industrial (H.K.) Ltd. 1.40%
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* Percentages based on net assets at April 30, 2003.
2
THE CHINA FUND, INC.
CHAIRMAN'S STATEMENT
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Dear Shareholders,
I am happy to announce that the net asset value of The China Fund Inc. increased
by 13.3% in the first half of the current fiscal year. These gains were achieved
despite weak global stock markets, the war in Iraq and, most significantly for
China, severe acute respiratory syndrome ("SARS"). While the SARS virus is
undoubtedly negatively affecting short-term economic growth in China, the
managers of our Fund believe that the panic selling associated with SARS may
have created an unusual opportunity to purchase the best Chinese companies at
bargain prices.
During the last six months, the Fund's share price has risen by 28.3%. This has
resulted in the discount between share price and net asset value per share
narrowing to 4% as of April 30. The Fund briefly traded at a premium, the first
time it has done so since 1996, although the discount has reappeared as of this
writing.
The outbreak of SARS has had some adverse impact on the economy in the second
quarter, but the effect should soon work through. The worst fears that SARS
could damage China's attractiveness as a manufacturing and investment center
should prove unfound. The fundamental attractiveness of the China private equity
market remains in place. The recent reorganization of government structure
intended to increase government efficiency in China is making the market more
attractive for financial investors and capital market reform is expected to
increase the range of exit options for private equity investors. The Direct
Investment Manager continues to identify and invest in new opportunities. In
February 2003, the Fund invested US$2.3 million in Tomoike Industrial (HK) Ltd.,
a growing electronic components manufacturer with facilities in Shanghai,
Suzhou, and Hong Kong. After taking account of dividends received from its
shares in Kowloon Development Company Ltd, the Direct Investment Manager sold
76% of its shares in the company at a small profit. The Direct Investment
Manager is also active in adding value and realizing returns from the previous
Manager's Direct Investment portfolio.
There has been an accompanying improvement, albeit modest, in stock market
liquidity. The response from U.S. and European institutional and individual
investors has been encouraging. We welcome new investors and hope that they find
the Fund to be the most cost-effective way to benefit from China's growth.
We regard clear communication of the Fund's investment strategy as a priority.
We invite you to consult the monthly update on our website
(www.chinafundinc.com), which lists all of the Fund's holdings, or call (toll-
free) 1-888-CHN-CALL (245-2255).
Sincerely,
/s/ Alan Tremain
Alan Tremain
Chairman of the Board
3
THE CHINA FUND, INC.
INVESTMENT MANAGERS' STATEMENTS
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REVIEW OF LISTED INVESTMENTS
Over the first six months of the fiscal year 2003, the net asset value of our
Fund increased by 13.3%.
Working in favor of the Fund was China's continued strong economic growth. GDP
growth peaked in 2003 Q1 at a heady 9.9% year over year, supported by increasing
domestic consumption and fixed asset investment. Industrial output grew at a
record 17.2% year over year in the first quarter of calendar year 2003. We made
no substantial changes to the structure of the portfolio -- differences in the
list of top ten holdings can be explained more by relative performance than any
stock trading. Some of our largest holdings, such as the internet company, SOHU,
the textile manufacturer, FOUNTAIN SET, and tire maker, CHENG SHIN RUBBER,
performed strongly on major improvements in results. Overall, the portfolio
continues to focus on those companies where management owns equity, avoiding
state-owned companies, and preferring companies catering to domestic demand
rather than exporters.
One factor which was a drag on the Fund was the continued poor performance of
small, private sector companies ("P chips"). Investors have been scared away
from this asset class by a few examples of what often amounts to no more than
poor PR by management, failing to meet over-ambitious targets, issuing new stock
too readily or, occasionally, adopting questionable accounting practices. There
is now extraordinary value in this area because growing companies with little or
no debt are trading on low single digit multiples of earnings and high yields.
As befits a closed-end fund, we are in a position to take a longer-term view,
and continue to accumulate a spread of investments in this area at bargain
prices. The main effect of the Iraq war for China was to cause a rare trade
deficit in 2003 Q1 as, caught with low reserves, China was forced to import oil
hurriedly at high prices. It could also be argued that the U.S.'s need for
China's help with regard to Iraq, North Korea and terrorism in general,
temporarily prevents the U.S. co-operating with Japan to press for Renminbi
appreciation.
More damaging for China than the Iraq war is the SARS epidemic. This has had an
immediate impact on those industries linked to travel or entertainment, but the
effect is now spreading to consumption, investment and even exports, as foreign
investors and buyers cancel trips. The SARS scare has caused panic selling of
Chinese equities. As of the time of this writing, the number of infections seems
to have peaked in Hong Kong but is still increasing in China. But now that the
Chinese authorities have, belatedly, taken action to control the virus, we are
acting on the expectation that the epidemic will come under control within two
to three months, and that pent-up economic activity will then rebound. We
believe, therefore, that the panic may have provided an unusual opportunity to
pick up shares of attractive companies at depressed prices.
4
THE CHINA FUND, INC.
INVESTMENT MANAGERS' STATEMENTS (CONTINUED)
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REVIEW OF DIRECT INVESTMENTS
The Chinese government has undergone more reorganization with the aim of further
streamlining administration, increasing government efficiency and simplifying
approval process for foreign investments. The new Ministry of Commerce was
formed to replace the Ministry of Foreign Trade and Economic Cooperation
(MOFTEC) and some internal trade ministries. It will oversee all trade related
issues (foreign and domestic) and should facilitate new inward investment.
Establishment of the State Owned Assets Commission is expected to accelerate
reform of the state owned enterprises (SOE's). The Commission is also expected
to take more steps to dispose of SOE's, which could create investment
opportunities for foreign investors.
Despite positive developments in politics and the economy in the first quarter,
the epidemic of SARS has raised some concerns among investors. It is widely
believed that GDP growth in the second quarter of 2003 will be lower than the
9.9% rate in the first quarter. We are closely monitoring the economic impact of
SARS on retail sales, exports and industrial output, to determine if an
adjustment to our investment strategy is necessary. However, it should be noted
that SARS ought to have a short-term effect on the economy and the long-term
outlook of the Chinese market is still very attractive.
During the last six months, the Fund added one new investment to its Direct
Investments portfolio Tomoike Industrial (HK) Ltd. ("Tomoike"). Tomoike is a
manufacturer of components for the backlight units of mobile phones and sheet
material components for office equipment and household appliances.
A number of developments are reported below in our description of the Fund's
Direct Investment portfolio as of April 30, 2003:
NEW WORLD SUN CITY LIMITED ("NWSC")
NWSC was established to develop Dongguan New World Gardens in Dongguan,
Guangdong Province. Subsequent to the signing of the Share Transfer Agreement on
October 26, 2002 to sell the entire share capital of NWSC, approximately US$1.3
million has been received in relation to the installment sale.
A-S CHINA PLUMBING PRODUCTS LIMITED ("ASPPL")
ASPPL was established in 1994 to produce and distribute a complete line of
sanitary ware products in China. The company is a subsidiary of American
Standard Inc. ("ASI"), a U.S. based international manufacturer of plumbing
products, air conditioners, automobile and medical systems products. ASI has
granted to ASPPL the exclusive right to license trademarks owned by ASI for
plumbing products in China. The company is seeking a listing on the second board
(Growing Enterprises Market) of the Hong Kong Exchange.
5
THE CHINA FUND, INC.
INVESTMENT MANAGERS' STATEMENTS (CONTINUED)
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REVIEW OF DIRECT INVESTMENTS (CONTINUED)
MOULIN INTERNATIONAL HOLDINGS LIMITED ("MOULIN")
Moulin is engaged in the manufacturing, distribution and retailing of optical
frames. The company is listed on the Hong Kong Exchange. It is one of the
largest optical frame manufacturers and distributors in the world. Customers of
Moulin are primarily authorized licensees of designer brands, leading
distributors and retail chains. In recent years, the company has acquired a
number of optical frame distributors in Europe in order to increase and
strengthen its distribution business.
KOWLOON DEVELOPMENT COMPANY LIMITED ("KDCL")
KDCL engages principally in property development and investment in Hong Kong.
The company is listed on the Hong Kong Exchange. KDCL continues to acquire more
land and rental properties through private negotiations and public bidding. The
Fund has partially divested its investment in KDCL. In late March and early
April, the Fund sold 4,990,000 shares of KDCL in the open market. The Fund still
holds 1,530,000 shares.
CAPTIVE FINANCE LIMITED ("CAPTIVE")
Captive is engaged in providing operating and financial lease services of
technology products (PC, servers, telecom equipment, etc.). It has operations in
Greater China, Singapore, Malaysia and Europe. In order to capture the market
potential emerging in Greater China and South East Asia for leasing services,
the company has been building a solid platform for further expansion.
TOMOIKE INDUSTRIAL (HK) LIMITED ("TOMOIKE")
Tomoike is a fast growing components manufacturer with facilities in Shanghai,
Suzhou, and Hong Kong. Tomoike manufactures a wide range of sheet materials such
as labels, speaker cushions, and cushion materials for office equipment and
household appliances. Its fastest growing business segment is the assembly of
backlight unit components for the mobile phone industry. For more than a decade,
Tomoike has been supplying parts and accessories for office and consumer
equipment of major Japanese brands. Its business is experiencing strong growth
as a result of robust demand for its products, especially the backlight units.
6
THE CHINA FUND, INC.
ABOUT THE PORTFOLIO MANAGERS
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LISTED INVESTMENT MANAGER
Mr. Chris Ruffle serves as the portfolio manager for the Fund's portfolio of
listed securities. Mr. Ruffle joined Martin Currie in 1994. He is a Chinese and
Taiwanese equity specialist with over 13 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 Taiwan Opportunities Fund.
DIRECT INVESTMENT MANAGER
Mr. KOH Kuek Chiang is the Executive Director of Asian Direct Capital Management
("ADCM") and is the portfolio manager of the Fund's portfolio of direct
securities. Mr. Koh joined ADCM in 1998. Mr. Koh has over ten years of private
equity investment experience in the U.S., Europe and Asia working for the
Government of Singapore, Union Bank of Switzerland and private interests. His
investment experience covers a wide range of industries, including
telecommunications equipment, biotechnology, media, financial services and basic
materials. Mr. Koh graduated with an engineering degree from the University of
Western Australia and has a post-graduate Diploma in Business Administration
from the National University of Singapore. He is a Chartered Financial Analyst
and is fluent in English and Mandarin.
7
THE CHINA FUND, INC.
SCHEDULE OF INVESTMENTS
APRIL 30, 2003 (UNAUDITED)
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NAME OF ISSUER AND TITLE OF ISSUE SHARES VALUE (NOTE A)
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COMMON STOCK
CHINA -- SHANGHAI "B" SHARES
CONSUMER STAPLES -- (1.8%)
Shanghai Friendship Group Co., Inc.*................... 4,003,437 $ 3,090,653
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TOTAL CHINA -- SHANGHAI "B" SHARES -- (Cost
$3,405,016) 1.8% 3,090,653
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CHINA -- SHENZHEN "B" SHARES
INDUSTRIALS -- (1.1%)
Luthai Textile Co., Ltd. .............................. 2,599,829 1,883,439
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TOTAL CHINA -- SHENZHEN "B" SHARES -- (Cost
$2,024,407) 1.1% 1,883,439
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TOTAL CHINA -- (Cost $5,429,423) 2.9% 4,974,092
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HONG KONG
CONSUMER DISCRETIONARY -- (3.3%)
Brilliance China Automotive Holdings, Ltd. ............ 8,000,000 1,863,769
Leefung-Asco Printers Holdings, Ltd. .................. 3,602,000 766,673
Xinao Gas Holdings, Ltd.*.............................. 11,376,000 2,858,933
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5,489,375
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CONSUMER STAPLES -- (4.7%)
Chaoda Modern Agriculture (Holdings) Ltd. ............. 31,042,000 2,746,357
Mainland Headwear Holding, Ltd......................... 3,992,000 1,138,882
Sino Golf Holdings, Ltd. .............................. 10,691,000 1,302,268
Tack Fat Group International, Ltd. .................... 37,296,000 2,725,809
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7,913,316
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HEALTH CARE -- (2.9%)
Essex Bio-Technology, Ltd.*............................ 24,278,166 272,384
Golden Meditech Co., Ltd.*............................. 10,538,000 1,648,452
LifeTec Group, Ltd.*+.................................. 112,328,000 1,771,542
Natural Beauty Bio-Technology, Ltd. ................... 18,320,000 1,151,012
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4,843,390
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See notes to financial statements and notes to schedule of investments.
8
THE CHINA FUND, INC.
SCHEDULE OF INVESTMENTS (CONTINUED)
APRIL 30, 2003 (UNAUDITED)
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NAME OF ISSUER AND TITLE OF ISSUE SHARES VALUE (NOTE A)
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COMMON STOCK (CONTINUED)
HONG KONG (CONTINUED)
INDUSTRIALS -- (1.1%)
Wanyou Fire Safety..................................... 53,565,000 $ 1,854,399
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INFORMATION TECHNOLOGY -- (6.4%)
Arcontech, Corp. ...................................... 18,386,000 318,258
Proview International Holdings Ltd. ................... 16,644,000 1,942,037
TCL International Holdings, Ltd. ...................... 32,318,000 6,050,003
TPV Technology, Ltd. .................................. 9,968,000 2,505,085
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10,815,383
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MATERIALS -- (6.4%)
Asia Zirconium Ltd.*................................... 8,632,000 1,084,665
China Rare Earth Holdings, Ltd. ....................... 15,284,000 979,863
Fountain Set (Holdings), Ltd. ......................... 12,750,000 8,664,517
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10,729,045
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UTILITIES -- (1.8%)
Wah Sang Gas Holdings, Ltd. ........................... 27,778,000 3,027,459
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TOTAL HONG KONG -- (Cost $46,095,024) 26.6% 44,672,367
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HONG KONG -- "H" SHARES
ENERGY -- (3.0%)
Yanzhou Coal Mining Co. ............................... 13,786,000 5,037,806
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INDUSTRIALS -- (7.3%)
Beijing Capital International Airport Co., Ltd. ....... 7,520,000 1,619,890
BYD Co., Ltd. ......................................... 2,525,000 5,002,051
Jingwei Textile Machinery Co., Ltd. ................... 4,852,000 1,026,510
Sinotrans Limited*..................................... 18,265,000 4,519,967
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12,168,418
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MATERIALS -- (2.1%)
Anhui Conch Cement Co., Ltd. .......................... 7,726,000 3,566,280
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See notes to financial statements and notes to schedule of investments.
9
THE CHINA FUND, INC.
SCHEDULE OF INVESTMENTS (CONTINUED)
APRIL 30, 2003 (UNAUDITED)
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NAME OF ISSUER AND TITLE OF ISSUE SHARES VALUE (NOTE A)
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COMMON STOCK (CONTINUED)
HONG KONG -- "H" SHARES (CONTINUED)
UTILITIES -- (4.9%)
Anhui Expressway Co., Ltd. ............................ 16,778,000 $ 3,786,266
Shenzhen Expressway Co., Ltd. ......................... 21,494,000 4,409,563
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8,195,829
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TOTAL HONG KONG -- "H" SHARES -- (Cost
$27,023,183) 17.3% 28,968,333
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TOTAL HONG KONG (INCLUDING "H" SHARES) -- (Cost
$73,118,207) 43.9% 73,640,700
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SINGAPORE
CONSUMER STAPLES -- (1.3%)
People's Food Holdings, Ltd. .......................... 4,400,000 2,182,577
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TOTAL SINGAPORE -- (Cost $2,221,015) 1.3% 2,182,577
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TAIWAN
CONSUMER DISCRETIONARY -- (7.2%)
Merry Electronics Co., Ltd. ........................... 2,690,400 2,923,171
Synnex Technologies International, Corp. .............. 2,682,400 3,161,207
Tainan Enterprises Co., Ltd. .......................... 1,546,000 1,724,196
Taiwan FamilyMart Co., Ltd. ........................... 1,369,000 1,396,939
Taiwan Hon Chuan Enterprise Co., Ltd. ................. 2,136,000 2,848,819
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12,054,332
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FINANCIALS -- (4.5%)
Fubon Financial Holdings Co., Ltd. .................... 3,953,952 2,704,917
Polaris Securities Co., Ltd.*.......................... 7,740,164 2,736,534
Sinopac Holdings Co. .................................. 6,746,754 2,104,118
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7,545,569
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HEALTH CARE -- (0.9%)
Microlife Corp. ....................................... 758,000 1,448,893
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See notes to financial statements and notes to schedule of investments.
10
THE CHINA FUND, INC.
SCHEDULE OF INVESTMENTS (CONTINUED)
APRIL 30, 2003 (UNAUDITED)
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NAME OF ISSUER AND TITLE OF ISSUE SHARES VALUE (NOTE A)
--------------------------------- ------ --------------
COMMON STOCK (CONTINUED)
TAIWAN (CONTINUED)
INDUSTRIALS -- (3.7%)
Cheng Shin Rubber Industry Co., Ltd. .................. 2,330,000 $ 2,658,839
Eva Airways Corp.*..................................... 5,555,150 1,708,540
Taiwan Green Point Enterprises Co., Ltd.*.............. 1,435,000 1,909,758
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6,277,137
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INFORMATION TECHNOLOGY -- (5.9%)
Advantech Co., Ltd. ................................... 1,529,920 2,704,515
Chicony Electronics Co., Ltd.*......................... 2,156,000 2,726,761
Data Systems Consulting Co., Ltd. ..................... 3,498,000 2,191,906
Lite-On Technology Corp. .............................. 2,450,000 2,183,099
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9,806,281
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MATERIALS -- (4.2%)
China Metal Products Co., Ltd. ........................ 4,686,000 3,636,735
Ho Tung Chemical, Corp. ............................... 8,620,904 3,481,566
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7,118,301
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TELECOMMUNICATIONS -- (3.5%)
Ability Enterprise Co., Ltd. .......................... 3,642,000 2,763,691
Chunghwa Telecom Co., Ltd. ............................ 2,146,000 3,176,746
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5,940,437
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TOTAL TAIWAN -- (Cost $51,074,860) 29.9% 50,190,950
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UNITED STATES -- "N" SHARES
INFORMATION TECHNOLOGY -- (14.0%)
Chinadotcom, Corp.*.................................... 1,473,654 6,926,174
Sohu.com Inc.*......................................... 1,071,586 16,556,004
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23,482,178
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TOTAL UNITED STATES -- "N" SHARES -- (Cost
$6,879,823) 14.0% 23,482,178
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TOTAL COMMON STOCK -- (Cost $138,723,328) 92.0% 154,470,497
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See notes to financial statements and notes to schedule of investments.
11
THE CHINA FUND, INC.
SCHEDULE OF INVESTMENTS (CONTINUED)
APRIL 30, 2003 (UNAUDITED)
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NAME OF ISSUER AND TITLE OF ISSUE SHARES VALUE (NOTE A)
--------------------------------- ------ --------------
DIRECT INVESTMENTS
FINANCIALS -- (1.8%)
Captive Finance, Ltd., (acquired 5/24/02)(1)*+......... 2,000,000 $ 3,045,000
------------
INDUSTRIALS -- (3.3%)
A-S China Plumbing Products, Ltd. (acquired
4/14/94)(1)*......................................... 450 3,199,999
Tomoike Industrial (H.K.) Ltd., (acquired
2/21/03)(1)+......................................... 825,000 2,350,780
------------
5,550,779
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REAL ESTATE -- (0.4%)
Kowloon Development Co., Ltd. (acquired 3/1/02)........ 1,530,000 662,100
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PRINCIPAL
AMOUNT
---------
CONSUMER DISCRETIONARY -- (1.2%)
Moulin International Holding, Ltd., convertible bond at
5.0% (acquired 8/17/99)(1)........................... $2,000,000 2,003,922
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TOTAL DIRECT INVESTMENTS -- (Cost $12,280,394) 6.7% 11,261,801
--- ------------
TOTAL INVESTMENTS -- (Cost $151,003,722) (Note E) 98.7% 165,732,298
---- ------------
OTHER ASSETS AND LIABILITIES 1.3% 2,156,458
--- ------------
NET ASSETS 100.0% $167,888,756
===== ============
Notes to Schedule of Investments
* Denotes non-income producing security
(1) 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 indicated, there were no market quotations on similar securities,
and such investments were therefore valued at acquisition cost. These direct
investments are valued at fair value as determined by the Board of Directors
as discussed in Note A and B to the Financial Statements.
+ Affiliated issuer (see Note G)
See notes to financial statements and notes to schedule of investments.
12
THE CHINA FUND, INC.
STATEMENTS OF ASSETS AND LIABILITIES
APRIL 30, 2003 (UNAUDITED)
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ASSETS
Investments in listed investments, at value (cost
$138,723,328) (Note A)................................. $154,470,497
Investments in direct investments, at value (cost
$12,280,394) (Notes A and B)........................... 11,261,801
Cash...................................................... 2,422,313
Foreign currency, at value (cost $1,387,346).............. 1,387,351
Receivable for investments sold........................... 2,263,374
Dividends and interest receivable......................... 640,294
Prepaid expenses.......................................... 56,547
------------
TOTAL ASSETS................................................ 172,502,177
============
LIABILITIES
Payable for investments purchased......................... 4,313,365
Investment management fee payable (Note C)................ 110,917
Administration and custodian fees payable................. 79,899
Accrued expenses and other liabilities.................... 109,240
------------
TOTAL LIABILITIES........................................... 4,613,421
------------
TOTAL NET ASSETS............................................ $167,888,756
============
COMPOSITION OF NET ASSETS:
Common stock, at par value (Note D)....................... $ 100,732
Capital paid in excess of par (Note D).................... 139,058,478
Distributions in excess of net investment income.......... (478,066)
Accumulated net realized gain on investments and foreign
currency transactions.................................. 14,479,024
Net unrealized appreciation on investments and foreign
currency transactions.................................. 14,728,588
------------
TOTAL NET ASSETS............................................ $167,888,756
============
NET ASSETS VALUE PER SHARE.................................. $16.67
======
($167,888,756/10,073,173 shares of common stock
outstanding)
See notes to financial statements and notes to schedule of investments.
13
THE CHINA FUND, INC.
STATEMENTS OF OPERATIONS
FOR SIX MONTHS ENDED APRIL 30, 2003 (UNAUDITED)
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
INVESTMENT INCOME
Dividend income -- listed investments..................... $ 942,817
Interest income -- direct investments (net of foreign tax
withholding $469)...................................... 44,351
-----------
TOTAL INVESTMENT INCOME................................ 987,168
-----------
EXPENSES
Investment Management fees (Note C)....................... 661,207
Custodian fees............................................ 290,419
Directors' fees and expenses (Note C)..................... 174,302
Administration fees....................................... 146,792
Legal fees................................................ 57,149
Insurance................................................. 43,871
Audit and tax service fees................................ 28,876
Printing and postage...................................... 24,469
Stock Exchange Listing Fee................................ 17,649
Transfer Agent fees....................................... 11,555
Shareholder service fees.................................. 8,530
Miscellaneous expenses.................................... 280
Stock Dividend Tax Expense (Note A)....................... 135
-----------
TOTAL EXPENSES......................................... 1,465,234
-----------
NET INVESTMENT INCOME....................................... (478,066)
-----------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS AND
FOREIGN CURRENCY
Net realized gain on listed investment transactions....... 14,529,982
Net realized gain on direct investment transactions....... 1,641,276
Net realized gain on foreign currency transactions........ 4,957
-----------
16,176,215
-----------
Net change in unrealized appreciation on listed
investments and foreign currency translations.......... 4,045,654
Net change in unrealized depreciation on direct
investments............................................ (15,108)
-----------
4,030,546
-----------
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS AND FOREIGN
CURRENCY TRANSACTIONS..................................... 20,206,761
-----------
NET INCREASE IN NET ASSETS FROM OPERATIONS.................. $19,728,695
===========
See notes to financial statements and notes to schedule of investments.
14
THE CHINA FUND, INC.
STATEMENTS OF CHANGES IN NET ASSETS
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
SIX MONTHS ENDED YEAR ENDED
APRIL 30, 2003 OCTOBER 31, 2002
---------------- ----------------
(UNAUDITED)
INCREASE IN NET ASSETS FROM OPERATIONS:
Net investment gain/(loss)................................ $ (478,066) $ 1,132,163
Net realized gain/(loss) on investments and foreign
currency transactions.................................. 16,176,215 (7,425,274)
Net change in unrealized appreciation on investments and
foreign currency translations.......................... 4,030,546 25,031,092
------------ ------------
Net increase in net assets from operations................ 19,728,695 18,737,981
------------ ------------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income..................................... (644,376) (1,330,135)
Capital gains............................................. (1,514,948) --
------------ ------------
Total dividends and distributions to shareholders......... (2,159,324) (1,330,135)
------------ ------------
NET INCREASE IN NET ASSETS.................................. 17,569,371 17,407,846
------------ ------------
NET ASSETS:
Beginning of period......................................... 150,319,385 132,911,539
------------ ------------
End of period, including undistributed net investment income
of $(478,066) and $644,376 respectively................... $167,888,756 $150,319,385
============ ============
See notes to financial statements and notes to schedule of investments.
15
THE CHINA FUND, INC.
FINANCIAL HIGHLIGHTS
SELECTED DATA FOR A SHARE OF COMMON STOCK OUTSTANDING FOR THE PERIOD(S)
INDICATED
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
SIX MONTHS
ENDED YEAR ENDED OCTOBER 31,
APRIL 30, ----------------------------------------------------
2003 2002 2001 2000 1999 1998
----------- -------- -------- -------- -------- --------
(UNAUDITED)
PER SHARE OPERATION PERFORMANCE(1)
Net asset value, beginning of
period............................ $ 14.92 $ 13.19 $ 12.37 $ 12.74 $ 10.84 $ 16.97
Net investment income (loss)...... (0.05) 0.11 0.14 (0.03) 0.12 0.08(2)
Net realized and unrealized gain
(loss) on investment and foreign
currency transactions........... 2.01 1.75 0.68 (0.23) 1.86 (5.71)
-------- -------- -------- -------- -------- --------
Total income (loss) from investment
operations........................ 1.96 1.86 0.82 (0.26) 1.98 (5.63)
-------- -------- -------- -------- -------- --------
Less distributions:
Dividend from net investment
income.......................... (0.06) (0.13) 0.00 (0.11) (0.08) 0.00
Distributions from net realized
capital gains................... (0.15) 0.00 0.00 0.00 0.00 (0.50)
-------- -------- -------- -------- -------- --------
Total distributions................. (0.21) (0.13) 0.00 (0.11) (0.08) (0.50)
-------- -------- -------- -------- -------- --------
Net asset value, end of period...... $ 16.67 $ 14.92 $ 13.19 $ 12.37 $ 12.74 $ 10.84
======== ======== ======== ======== ======== ========
Per share market value, end of
period............................ $ 15.95 $ 12.61 $ 10.74 $ 8.94 $ 9.94 $ 8.75
======== ======== ======== ======== ======== ========
TOTAL INVESTMENT RETURN (BASED ON
MARKET VALUE)..................... 28.28% 18.63% 20.13% (9.14)% 14.65% (31.98)%
======== ======== ======== ======== ======== ========
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (000's)... $167,889 $150,319 $132,912 $124,619 $128,303 $116,891
Ratio of expenses to average net
assets............................ 1.77%(3) 1.97% 2.39% 2.12% 2.28% 2.22%(2)
Ratio of expenses to average net
assets, excluding stock dividend
tax expense....................... 1.77%(3) 1.85% 2.31% 2.12% 2.28% 2.22%
Ratio of net investment income
(loss) to average net assets...... (0.58)%(3) 0.72% 1.09% (0.21)% 0.95% 0.68%
Portfolio turnover rate............. 37% 68% 115% 108% 75% 24%
(1) Based on average shares outstanding during the period.
(2) The ratios of expenses to average net assets and the net investment income
(loss) per share is after the waiver of a portion of the fee by HSBC
Management (Note C). Had HSBC Management not waived these fees, the ratio of
expenses to average net assets and the net investment income (loss) per
share would have been 2.33% and $0.07 respectively.
(3) Annualized.
See notes to financial statements and notes to schedule of investments.
16
THE CHINA FUND, INC.
NOTES TO FINANCIAL STATEMENTS
APRIL 30, 2003 (UNAUDITED)
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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 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 six months ended, April
30, 2003 relate to the valuation of the Fund's Direct Investments, as further
discussed below and in Note B.
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 in good faith at fair
value using methods determined by the Board of Directors. Direct Investments not
traded on an exchange are valued at fair value as determined by the Board of
Directors based on advice from the Direct Investment Manager. The Direct
Investment's original cost is considered to be fair value unless the Board of
Directors, based on such advice, concludes there has been a material change of a
long-term nature and sufficient reliable information is available to revalue
these investments.
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.
OPTIONS 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
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
17
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
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.
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.
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 income tax regulations, which may differ from
generally accepted accounting principles. These differences are primarily due to
differing treatments of foreign currency transactions, losses deferred due to
wash sales and holdings in passive foreign investment companies.
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 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 -- VALUATION OF DIRECT INVESTMENTS
At April 30, 2003, Direct Investments amounting to $10,599,701 (6.3% of net
assets) have been valued at fair value as determined by the Board of Directors
in the absence of readily ascertainable market values. The remaining Direct
Investments are being valued at readily available market prices (See Note
A -- Security Valuation). The procedures applied by the Board of Directors in
arriving at its estimate of value of securities without readily available market
values comply with the Fund's policies for valuing Direct Investments at
original cost unless the Board of Directors, based on advice from the Direct
Investment Manager, concludes that there has been a material change of a
long-term nature and sufficient reliable information is available to revalue
these investments. Determination of fair values involves subjective judgment
and, because of the inherent uncertainty
18
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
of valuation, the Board of Directors' estimated values may differ significantly
from the values that would have been used had a ready market for the securities
existed, and the differences could be material.
NOTE C -- ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
Effective June 30, 2001, Martin Currie assumed its role as manager of the Fund's
listed assets (the "Listed Assets") and is paid a fee, computed weekly and
payable monthly, at the following annual rates: 1.00% of the first US$25 million
of the Fund's average weekly net assets invested in Listed Assets; 0.90% of the
next US$25 million of the Fund's average weekly net assets invested in Listed
Assets; 0.70% of the next US$25 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$75 million. Prior to June 30, 2001,
HSBC Management served as the Investment Manager for the Fund's Listed Assets
and was paid an annual fee at the rate of 1.10% of the Fund's average weekly net
assets.
On June 15, 2001, the Fund's stockholders approved Asian Direct Capital
Management ("ADCM") as the new investment manager for the Fund's assets
allocated to direct investments. For the period from June 15, 2001 to June 30,
2001, ADCM received a fee for its services under the New Direct Investment
Management Agreement, computed weekly and payable monthly at an annual rate
equal to 1.10% of the average weekly value of the assets of the Fund invested in
direct investments. Effective June 30, 2001, ADCM receives a fee, computed
weekly and payable monthly at an annual rate equal to the greater of $300,000 or
2.2% of the average weekly value of the net assets of the Fund invested in
direct investments. Prior to June 15, 2001, HSBC Private Equity served as the
manager of the Fund's assets allocated to direct investments. HSBC Private
Equity was paid a fee by HSBC Management out of its fee.
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. 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 $27,500 and $10,000, respectively, plus
$2,000 for each Board of Directors' meeting or Audit Committee meeting attended.
In addition, the Fund reimburses each of the directors for travel and
out-of-pocket expenses incurred in connection with attending Board of Directors'
meetings.
NOTE D -- 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, 2003, the Fund did not participate
in this program.
NOTE E -- INVESTMENT TRANSACTIONS
For the six months ended April 30, 2003, the Fund's cost of purchases and
proceeds from sales of investment securities, other than short-term securities,
were $59,049,992 and $60,699,731, respectively. At April 30, 2003,
19
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
the cost of investments for federal income tax purposes was $151,003,722. Gross
unrealized appreciation of investments was $31,177,291, while gross unrealized
depreciation of investments was $16,448,715, resulting in net unrealized
appreciation of investments of $14,728,576.
NOTE F -- 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.
NOTE G -- INVESTMENTS IN NON-CONTROLLED AFFILIATES*:
DIVIDENDS
INCLUDED IN
BALANCE OF DIVIDEND
SHARES HELD GROSS GROSS BALANCE OF INCOME --
OCTOBER 31, PURCHASES SALES AND SHARES HELD VALUE NON-CONTROLLED
NAME OF ISSUER 2002 AND ADDITIONS REDUCTION APRIL 30, 2003 APRIL 30, 2003 AFFILIATES
-------------- ----------- ------------- ---------- -------------- -------------- --------------
Captive Finance....... 2,000,000 -- -- 2,000,000 $3,045,000 $ --
LifeTec Group Ltd..... 78,708,000 33,620,000 -- 112,328,000 1,771,542 --
Tomoike Industrial.... -- 825,000 -- 825,000 2,350,780 --
New World Sun City.... 83 -- 83 -- -- --
INTEREST
INCLUDED IN
INTEREST
INCOME --
NON-CONTROLLED PRINCIPAL
NAME OF ISSUER AFFILIATES PAYMENTS
-------------- -------------- ---------
Captive Finance....... $ -- $ --
LifeTec Group Ltd..... -- --
Tomoike Industrial.... -- --
New World Sun City.... -- --
* Affiliated issuers, as defined in the 1940 Act, include issuers in which the
Fund held 5% or more of the outstanding voting securities.
NOTE H -- BENEFICIAL INTEREST
As of April 30, 2003, the Fund had 1 investor shareholder owning beneficially or
of record 9.51% shares of the Fund.
NOTE I -- RESULTS OF ANNUAL STOCKHOLDER MEETING
ELECTION OF CLASS I DIRECTOR -- At the Fund's Annual Meeting of Stockholders
held on March 6, 2003, the stockholders of the Fund elected James J. Lightburn
to the Board of Directors to hold office until the Annual Meeting of
Stockholders held in 2006.
SHARES SHARES
VOTED FOR ABSTAINED
------------- -----------
Election of James J. Lightburn.............................. 7,317,874.049 276,632.665
20
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
NOTE J -- INSTALLMENT SALE
On October 26, 2002, the Fund entered into agreement to sell its direct
investment in New World Sun City Ltd. on an installment basis over a 14 month
period. Under the terms of the agreement, the Fund has received proceeds and
interest totaling HK$10,247,674 (US$1,314,027) through April 30, 2003. The Fund
is scheduled to receive the remaining proceeds of the sale of HK$5,349,938 by
December 2003. Utilizing the HKD to USD exchange rate on April 30, 2003, the
remaining proceeds from the sale equate to US$685,973, which the Fund recognized
as a gain.
NOTE K -- SUBSEQUENT EVENTS
On May 30, 2003 the Fund sold its entire position of Moulin International
Holding, Ltd. and realized a $540,070 gain. In addition, on June 12, 2003, the
Fund reduced the market value of its investment in A-S China Plumbing Products,
Ltd. by 35%.
21
THE CHINA FUND, INC.
OTHER INFORMATION
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
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 needs 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.
22
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 Equiserve 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. 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 Equiserve Trust Company,
N.A., as paying agent. Shareholders who do not wish to have distributions
automatically reinvested should notify the Fund by contacting Equiserve, c/o The
China Fund, Inc. at P.O. Box 43011, Providence, Rhode Island 02940-3011. Phone:
1-800-426-5523.
Equiserve Trust Company, N.A. ("Equiserve" or the "Plan Administrator"), a
federally chartered trust institution, acts as Plan Administrator. Equiserve
Inc., an affiliate of Equiserve and a transfer agent registered with the
Securities and Exchange Commission, acts as Service Agent for Equiserve. 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 Administrator 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
23
DIVIDENDS AND DISTRIBUTIONS;
DIVIDEND REINVESTMENT AND CASH PURCHASE PLAN (CONTINUED)
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
the 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
Equiserve, c/o The China Fund, Inc. at P.O. Box 43011, Providence, Rhode Island
02940-3011. Phone: 1-800-426-5523.
24
THE CHINA FUND, INC.
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
UNITED STATES ADDRESS
The China Fund, Inc.
225 Franklin Street
Boston, Ma 02111
1-888-CHN-CALL (246-2255)
www.chinafundinc.com
DIRECTORS AND OFFICERS*
Alan Tremain, O.B.E., Director and Chairman of the Board
Kathleen C. Cuocolo, Director and President
Michael F. Holland, Director
Burton Levin, Director
James J. Lightburn, Director
Joe O. Rogers, Director
Nigel S. Tulloch, Director
Ann M. Casey, Treasurer
Mary Moran Zeven, Secretary
Julie A. Tedesco, Assistant Secretary
Leonard B. Mackey, Jr., Assistant Secretary
* Sir Alan Donald KCMG retired as a Director of the Fund on March 6, 2003
pursuant to the Fund's retirement policy.
INVESTMENT MANAGER
Martin Currie Inc.
DIRECT INVESTMENT MANAGER
Asian Direct Capital Management
SHAREHOLDER SERVICING AGENT
Georgeson Shareholder
ADMINISTRATOR, ACCOUNTING AGENT AND CUSTODIAN
State Street Bank and Trust Company
TRANSFER AGENT, DIVIDEND PAYING AGENT AND REGISTRAR
Equiserve Trust Company, N.A.
INDEPENDENT AUDITORS
KPMG LLP
LEGAL COUNSEL
Clifford Chance US LLP
ITEM 9. CONTROLS AND PROCEDURES.
(a) Within 90 days of the filing date of this Form N-CSR, Kathleen C. Cuocolo,
the registrant's President, and Ann M. Casey, the registrant's Treasurer,
reviewed the registrant's disclosure controls and procedures (the "Procedures")
and evaluated their effectiveness. Based on their review, Ms. Cuocolo and Ms.
Casey determined that the Procedures adequately ensure that information required
to be disclosed by the registrant in its periodic reports is recorded,
processed, summarized and reported within the time periods required by the
Securities and Exchange Commission's rules and regulations.
(b) There were no significant changes in the registrant's internal controls or
in other factors that could significantly affect these controls subsequent to
the date of their evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.
ITEM 10. EXHIBITS
(a) n/a
(b) The certifications required by Rule 30a-2 of the Investment Company Act of
1940, as amended and Sections 906 of the Sarbanes-Oxley Act of 2002 are
attached hereto.
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/Kathleen C. Cuocolo
---------------------------------
Kathleen C. Cuocolo
President of The China Fund, Inc.
Date: June 27, 2003
By: /s/Ann M. Casey
---------------------------------
Ann M. Casey
Treasurer of The China Fund, Inc.
Date: June 27, 2003