SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the registrant <checked-box>
Filed by a party other than the registrant <square>
Check the appropriate box:
<checked-box> Preliminary proxy statement
<square> Confidential, For Use of the
Commission Only (as permitted
by Rule 14a-6(e)(2))
<square> Definitive proxy statement
<square> Definitive additional materials
<square> Soliciting material pursuant to Rule 14a-11(c) or Rule 14a-12
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The China Fund, Inc.
(Name of Registrant as Specified in Its Charter)
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The China Fund, Inc.
(Name of Person(s) Filing Proxy Statement)
Payment of filing fee (Check the appropriate box):
<checked-box> No Fee Required.
<square> Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and
0-11.
(1) Title of each class of securities to which transaction applies:
- --------------------------------------------------------------------------------
(2) Aggregate number of securities to which transactions applies:
- --------------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11:{1}
- --------------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
- --------------------------------------------------------------------------------
(5) Total fee paid:
- --------------------------------------------------------------------------------
<square> Fee paid previously with preliminary materials:
- --------------------------------------------------------------------------------
<square> Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the form or schedule and the date of its filing.
(1) Amount previously paid:
- --------------------------------------------------------------------------------
(2) Form, schedule or registration statement no.:
- --------------------------------------------------------------------------------
(3) Filing party:
- --------------------------------------------------------------------------------
(4) Date filed:
[FN]
- ------------------------
{1}Set forth the amount on which the filing fee is calculated and state how it
was determined.
</FN>
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THE CHINA FUND, INC.
c/o HSBC James Capel
140 Broadway, 5th Floor
New York, New York 10005
February , 1998
Dear Stockholders:
The Annual Meeting of Stockholders of The China Fund, Inc. (the "Fund")
will be held at 10:00 A.M. on Friday, March 13, 1998, at the offices of Rogers
& Wells, 50th Floor, 200 Park Avenue, New York, New York, 10166. A Notice and
Proxy Statement regarding the meeting, proxy card for your vote at the meeting,
and postage prepaid envelope in which to return your proxy are enclosed.
At the Annual Meeting, the stockholders will (i) elect a class of the
Fund's directors, (ii) consider the ratification of the selection of KPMG Peat
Marwick L.L.P. as independent auditors, and (iii) consider whether to approve
an amended Investment Advisory and Management Agreement between the Fund and
HSBC Asset Management Hong Kong Limited (formerly Wardley Investment Services
(Hong Kong) Limited. In addition, the stockholders present at the Annual
Meeting will hear a report on the Fund and will have an opportunity to discuss
matters of interest to them.
The Board has recommended that the stockholders vote in favor of each of
the foregoing matters.
Respectfully,
THOMAS R. CALLAHAN
SECRETARY
UNDER THE PROPOSED AMENDED INVESTMENT ADVISORY AND MANAGEMENT AGREEMENT, THE
INVESTMENT MANAGEMENT FEE WOULD BE REDUCED FROM AN ANNUAL RATE OF 1.50% TO
1.25% OF THE FUND'S WEEKLY NET ASSETS. ACCORDINGLY, STOCKHOLDERS ARE STRONGLY
URGED TO SIGN AND MAIL THE ENCLOSED PROXY IN THE ENCLOSED ENVELOPE TO INSURE A
QUORUM AT THE MEETING AND APPROVAL OF THE AMENDED AGREEMENT.
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THE CHINA FUND, INC.
NOTICE OF THE ANNUAL MEETING OF STOCKHOLDERS
MARCH 13, 1998
To the Stockholders of
The China Fund, Inc.:
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders of The
China Fund, Inc. (the "Fund") will be held at the offices of Rogers & Wells,
50th Floor, 200 Park Avenue, New York, New York, 10166, on Friday, March 13,
1998, at 10:00 A.M., local time, for the following purposes:
1. To elect four Class II directors to serve for a term expiring on
the date on which the annual meeting of stockholders is held in
2001.
2. To ratify or reject the selection of KPMG Peat Marwick L.L.P. as
independent auditors of the Fund for its fiscal year ending October
31, 1998.
3. To approve or disapprove an amended Investment Advisory and
Management Agreement between the Fund and HSBC Asset Management
Hong Kong Limited (formerly Wardley Investment Services (Hong Kong)
Limited).
4. To transact such other business as may properly come before the
meeting or any adjournments thereof.
The Board of Directors has fixed the close of business on January 30,
1998 as the record date for the determination of stockholders entitled to
notice of and to vote at the meeting or any adjournments thereof.
You are cordially invited to attend the meeting. Stockholders who do not
expect to attend the meeting in person are requested to complete, date and sign
the enclosed form of proxy and return it promptly in the envelope provided for
that purpose. You may nevertheless vote in person at the meeting if you choose
to attend. The enclosed proxy is being solicited by the Board of Directors of
the Fund.
By order of the Board of Directors,
THOMAS R. CALLAHAN
SECRETARY
February , 1998
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THE CHINA FUND
C/O HSBC JAMES CAPEL
140 BROADWAY, 5TH FLOOR
NEW YORK, NEW YORK 10005
PROXY STATEMENT
INTRODUCTION
This Proxy Statement is furnished in connection with the solicitation of
proxies by the Board of Directors of THE CHINA FUND, INC. (the "Fund") for use
at the Annual Meeting of Stockholders, to be held at the offices of Rogers &
Wells, 50th Floor, 200 Park Avenue, New York, New York, 10166, on Friday, March
13, 1998, at 10:00 A.M., local time, and at any adjournments thereof.
This Proxy Statement and the form of proxy are being mailed to
stockholders on or about February , 1998. Any stockholder giving a proxy
has the power to revoke it by mail (addressed to the Secretary, The China Fund,
Inc., c/o HSBC James Capel, 140 Broadway, 5th Floor, New York, New York 10005)
or in person at the meeting, by executing a superseding proxy or by submitting
a notice of revocation to the Fund. All properly executed proxies received in
time for the meeting will be voted as specified in the proxy or, if no
specification is made, for each proposal referred to in this Proxy Statement.
Abstentions and broker non-votes are each included in the determination of the
number of shares present and voting at the meeting.
The Board of Directors has fixed the close of business on January 30,
1998 as the record date for the determination of stockholders entitled to
notice of and to vote at the meeting and at any adjournments thereof.
Stockholders on the record date will be entitled to one vote for each share
held, with no shares having cumulative voting rights. As of the record date,
the Fund had outstanding 10,844,937.459 shares of common stock. [To the
knowledge of the Fund's management, no person owned beneficially more than 5%
of the Fund's outstanding shares as of January 30, 1998.]
Management of the Fund knows of no business other than that mentioned in
Items 1 through 3 of the Notice of Meeting which will be presented for
consideration at the meeting. If any other matter is properly presented, it is
the intention of the persons named in the enclosed proxy to vote in accordance
with their best judgment.
THE FUND WILL FURNISH, WITHOUT CHARGE, A COPY OF ITS ANNUAL REPORT FOR
ITS FISCAL YEAR ENDED OCTOBER 31, 1997 TO ANY STOCKHOLDER REQUESTING SUCH
REPORT. REQUESTS FOR THE ANNUAL REPORT SHOULD BE MADE BY WRITING TO THE CHINA
FUND, INC., C/O DEWE ROGERSON INC., 850 THIRD AVENUE, NEW YORK, NEW YORK 10022,
ATTENTION: MARISSA L. MORETTI, OR BY CALLING (888) CHN-CALL.
The Board recommends that the stockholders vote in favor of each of the
matters mentioned in Items 1 through 3 of the Notice of Meeting.
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(1) ELECTION OF DIRECTORS
Persons named in the accompanying form of proxy intend in the absence of
contrary instructions to vote all proxies for the election of Mr. Michael F.
Holland, Mr. Burton Lewin, Mr. James J. Lightburn, and Mr. David F. J. Paterson
as Class II directors of the Fund, to serve for a term expiring on the date on
which the Annual Meeting of Stockholders is held in 2001, or until their
successors are elected and qualified. If any such nominee should be unable to
serve, an event not now anticipated, the proxies will be voted for such person,
if any, as shall be designated by the Board of Directors to replace any such
nominee. The election of each director will require the affirmative vote of a
majority of the votes cast at the meeting. For this purpose, abstentions and
broker non-votes will not be counted as votes cast at the meeting.
INFORMATION CONCERNING NOMINEES AND MEMBERS OF THE BOARD OF DIRECTORS
The following table sets forth information concerning each of the
nominees as a director of the Fund. Each of the nominees is currently a
director of the Fund.
NOMINEES
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION OR SHARES
EMPLOYMENT DURING PAST BENEFICIALLY
FIVE YEARS AND OWNED PERCENT
NAME (AGE) AND DIRECTORSHIPS IN DIRECTOR JANUARY OF
ADDRESS OF DIRECTOR PUBLICLY HELD COMPANIES SINCE 30, 1998(1) CLASS
<S> <C> <C> <C> <C>
Michael F. Holland (53) Chairman, Holland & Company L.L.C. 1992 1,011 less than
375 Park Avenue (1995-present); General Partner, The 1%
New York, New York 10152 Blackstone Group (1994-1995); Vice
Chairman, Oppenheimer & Co. Inc.
(1992-1994); Chairman and Chief
Executive Officer, Salomon Brothers
Asset Management, Inc. (1989-1992);
Managing Director, Salomon Brothers
Inc. (1989-1992); Director, The
Holland Balanced Fund, Inc.;
Director,
Municipal Partner's Fund, Inc.;
Director, Municipal Partners Fund
II, Inc.; Director, Municipal
Advantage Fund, Inc.
Burton Levin (67) Visiting Professor Carleton College 1992 498 less than
c/o Political Science Dept. (1995-present); Director, The Asia 1%
Carleton College Society (1990-1995); U.S. Ambassador
Northfield, MN 55057 to Burma (1987-1990); Director,
Yaohan Food.
James J. Lightburn (54) Attorney, member of Hughes Hubbard & 1992 500 less than
47, Avenue Georges Mandel Reed (1993-present); member of 1%
Paris, France 75116 Jones, Day, Reavis & Pogue (1986-
1993).
</TABLE>
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<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION OR SHARES
EMPLOYMENT DURING PAST BENEFICIALLY
FIVE YEARS AND OWNED PERCENT
NAME (AGE) AND DIRECTORSHIPS IN DIRECTOR JANUARY OF
ADDRESS OF DIRECTOR PUBLICLY HELD COMPANIES SINCE 30, 1998(1) CLASS
<S> <C> <C> <C> <C>
*David F.J. Paterson (53) Managing Director, HSBC Private 1992 1,000 less than
c/o HSBC Private Equity Equity Management Hong Kong Limited 1%
Management Hong (1992-present); Managing Director,
Kong Limited HSBC Private Equity Management
10/F Citibank Tower Limited; Director, The HSBC China
3 Garden Road, Hong Kong Fund Limited; Adviser, Wardley China
Investment Trust.
OTHER CURRENT DIRECTORS
John W. English (64) Chairman of the Board of the Fund; 1992 4,234 less than
50-H New England Avenue Vice President and Chief Investment 1%
Summit, New Jersey Officer, The Ford Foundation (1981-
07902-0640 1992); Director, The Northern Trust
Company Benchmark Funds; Director,
Great Western Financial Sierra
Funds.
*Bernard H. Asher (61) President of the Fund; Executive 1996 None --
c/o HSBC Investment Director of HSBC Holdings plc;
Bank plc, 2/F, Director, Midland Bank plc;
10 Lower Thames Street Director, Remy Cointreau; Governor
London, EC3R 6AE of The London School of Economics
United Kingdom and St. George's NHS Hospital Trust.
Sir Alan Donald (66) British Ambassador to the People's 1992 250 less than
Chiddingstone Causeway Republic of China (1988-1991); 1%
Nr. Tonbridge Director, HSBC China Fund Limited;
Kent, TN11 8JH Director, Fleming Far Eastern
United Kingdom Investment Trust; Adviser, Rolls
Royce plc.
Joe O. Rogers (49) President, Rogers International, 1992 375 less than
c/o Rogers International, Inc. (1986-present); Partner, PHH 1%
Inc. Fantus Consulting (1993-1996);
1 North Park Drive Partner, Alcalde, Rousselot & Fay
Suite 102 (1992-1993); Director, The Taiwan
Hunt Valley, MD Fund, Inc.
21030
Alan Tremain (62) Chairman, Hotels of Distinction 1992 2,200 less than
380 South Country Road Ventures, Inc. (1989-present); 1%
Suite 200 Chairman, Hotels of Distinction,
Palm Beach, Florida 33480 Inc. (1974-present).
Nigel S. Tulloch (51) Chief Executive, HSBC Asset 1992 2,000 less than
7 Circle, Dalkeith Perth, Management Bahamas Limited (1986- 1%
Western Australia 6009 1992); Director, The HSBC China Fund
Limited.
</TABLE>
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[FN]
(1) The information as to beneficial ownership is based on statements
furnished to the Fund by the nominees and other current directors.
* Directors considered to be "interested persons" (as defined in the
Investment Company Act of 1940, as amended) of the Fund or of the Fund's
investment advisers. Mr. Asher is an interested person because of his
affiliation with HSBC Asset Management, the parent of HSBC Asset
Management Hong Kong Limited, the Fund's Investment Manager. Mr.
Paterson is an interested person because of his affiliation with HSBC
Private Equity Management Hong Kong Limited, the Fund's Direct Investment
Manager.
</FN>
The Fund's Board of Directors has an Audit Committee which is responsible
for reviewing financial and accounting matters. The current members of the
Audit Committee are Messrs. Donald, English, Holland, Levin, Lightburn, Rogers,
Tremain and Tulloch. The Audit Committee met four times during the fiscal year
ended October 31, 1997. The Fund's Board has a Nominating Committee, comprised
of the current members of the Audit Committee, which is responsible for
nominating candidates to fill any vacancies on the Board. The Nominating
Committee does not consider nominees recommended by security holders. The
Nominating Committee did not meet during the fiscal year ended October 31,
1997. The Fund's Board of Directors held four regular meetings and one special
meeting during the fiscal year ended October 31, 1997. Each director attended
at least seventy-five percent of the aggregate number of meetings of the Board
and any committee on which he served.
Section 16(a) of the Securities Exchange Act of 1934 requires the Fund's
officers and directors, and persons who own more than ten percent of a
registered class of the Fund's equity securities, to file reports of ownership
and changes in ownership with the Securities and Exchange Commission and the
New York Stock Exchange, Inc. The Fund believes that its officers and
directors have complied with all applicable filing requirements for the fiscal
year ended October 31, 1997 except that the Form 4 - Statement of Charges of
Beneficial Ownership of Securities for Sir Alan Donald was inadvertently filed
late by the management of the Fund, which had undertaken to file the form on
his behalf. Section 30(f) of the Investment Company Act of 1940 extends the
reporting requirements under Section 16(a) of the Securities Exchange Act of
1934 to the investment advisers of the Fund and the officers and directors of
such investment advisers. The Fund believes that its investment advisers and
the officers and directors of such investment advisers have complied with all
applicable filing requirements for the fiscal year ended October 31, 1997.
OFFICERS OF THE FUND
Mr. Thomas R. Callahan (age 51) has been Secretary and Treasurer of the
Fund since July 1992 and Vice President of the Fund since June 1993. Since
April 1991, he has been a Managing Director of HSBC Securities, Inc. (formerly
James Capel Incorporated) and previously was a Managing Director of Wardley
Incorporated.
FUND MANAGEMENT AND ADMINISTRATION
HSBC Asset Management Hong Kong Limited acts as Investment Manager for
the portion of the Fund's assets allocated for investment in listed securities
pursuant to an Investment Advisory and Management Agreement between the
Investment Manager and the Fund. The principal business address of the
Investment Manager is 10/F Citibank Tower, 3 Garden Road, Hong Kong.
HSBC Private Equity Management Hong Kong Limited acts as Direct
Investment Manager for the portion of the Fund's assets allocated for
investment in direct investments pursuant to a Direct Investment Management
Agreement among the Direct Investment Manager, the Investment Manager and the
Fund. The principal business address of the Direct Investment Manager is 10/F
Citibank Tower, 3 Garden Road, Hong Kong.
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State Street Bank and Trust Company acts as Administrator to the Fund
pursuant to an Administration Agreement between the Administrator and the Fund.
The principal business address of the Administrator is P.O. Box 1713, Boston,
Massachusetts 02105.
TRANSACTIONS WITH AND REMUNERATION OF OFFICERS AND DIRECTORS
The aggregate remuneration for directors not affiliated with the
Investment Manager or the Direct Investment Manager was US$143,000 during the
year ended October 31, 1997 and, for that period, the aggregate amount of
expenses reimbursed by the Fund for directors' attendance at directors'
meetings, including affiliated directors, was US$107,880. Each non-affiliated
director currently receives fees, paid by the Fund, of US$2,000 for each
directors' meeting and committee meeting attended and an annual fee of
US$10,000. The Chairman of the Fund receives an additional annual fee of
US$2,500.
The Direct Investment Manager pays the compensation and certain expenses
of the personnel of the Direct Investment Manager who serve as directors and
officers of the Fund and receives from the Investment Manager a portion of the
investment advisory fee paid by the Fund to the Investment Manager. Mr.
Paterson also serves as the Managing Director, and is a 25% owner, of the
Direct Investment Manager and may participate in the fees paid to that firm,
although the Fund will make no direct payments to him.
The following table sets forth the aggregate compensation from the Fund
paid to each director during the fiscal year ended October 31, 1997. The
Investment Manager and its affiliates do not advise any other U.S. registered
investment companies of which any of the directors of the Fund are directors or
trustees.
NAME OF DIRECTOR AGGREGATE
COMPENSATION
FROM FUND(1)
John W. English. . . . . . . . . . . . . . $20,500
Bernard H. Asher* . . . . . . . . . . . . . ---
Sir Alan Donald . . . . . . . . . . . . . . $16,500
Michael F. Holland . . . . . . . . . . . . $17,500
Burton Levin . . . . . . . . . . . . . . . $16,500
James J. Lightburn . . . . . . . . . . . . $17,500
David F.J. Paterson* . . . . . . . . . . . ---
Joe O. Rogers . . . . . . . . . . . . . . . $18,500
Alan Tremain . . . . . . . . . . . . . . . $17,500
Nigel S. Tulloch . . . . . . . . . . . . . $18,500
(1) Includes compensation paid to directors by the Fund. The Fund's
directors did not receive any pension or retirement benefits as
compensation for their service as directors of the Fund.
* Messrs. Asher and Paterson, who are "interested persons" of the Fund, did
not receive any compensation from the Fund for their services as
directors during the fiscal year ended October 31, 1997.
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(2) RATIFICATION OR REJECTION OF SELECTION
OF INDEPENDENT AUDITORS
At a meeting held on December 12, 1997, the Board of Directors of the
Fund, including a majority of the directors who are not "interested persons" of
the Fund (as defined in the Investment Company Act of 1940, as amended),
selected KPMG Peat Marwick L.L.P. to act as independent auditors for the Fund
for the fiscal year ending October 31, 1998. The Fund knows of no direct
financial or material indirect financial interest of such firm in the Fund.
One or more representatives of KPMG Peat Marwick L.L.P. are expected to be
present at the meeting and will have an opportunity to make a statement if they
so desire. Such representatives are expected to be available to respond to
appropriate questions from stockholders.
The Fund's financial statements for the fiscal year ended October 31,
1997 were examined by KPMG Peat Marwick L.L.P. In connection with its audit
services, KPMG Peat Marwick L.L.P. audited the financial statements included in
the Fund's annual report for the period ended October 31, 1997 and reviewed the
Fund's filings with the Securities and Exchange Commission.
The selection of independent auditors is subject to the ratification or
rejection of the stockholders of the Fund at the meeting. Ratification of the
selection of the independent auditors will require the affirmative vote of a
majority of the votes cast at the meeting. For this purpose, abstentions and
broker non-votes will not be counted as votes cast at the meeting.
(3) APPROVAL OR DISAPPROVAL OF THE AMENDED INVESTMENT ADVISORY AND MANAGEMENT
AGREEMENT
HSBC Asset Management Hong Kong Limited (formerly Wardley Investment
Services (Hong Kong) Limited), 10/F Citibank Tower, 3 Garden Road, Hong Kong,
acts as Investment Manager for the portion of the Fund's assets allocated to be
invested in listed securities pursuant to an Investment Advisory and Management
Agreement dated July 9, 1992 between the Investment Manager and the Fund (the
"Existing Management Agreement"). The Existing Management Agreement was last
approved by the stockholders of the Fund on March 10, 1995 and was last
approved by the Board of Directors of the Fund, including a majority of the
directors who are not "interested persons" (as defined in the Investment
Company Act of 1940) of any party thereto, at a meeting of the Board of
Directors held on June 13, 1997, and, unless superseded by the proposed Amended
Investment Advisory and Management Agreement described below, will continue in
effect until July 9, 1998, and from year to year thereafter if it is approved
annually by a vote of a majority of the Fund's directors who are not
"interested persons" of any party thereto, cast in person at a meeting called
for that purpose, and by either (i) a vote of a majority of the Board of
Directors of the Fund or (ii) a vote of a majority of the outstanding shares of
the Fund, which as used in this Proxy Statement means the lesser of (1) the
holders of more than 50% of the Fund's outstanding shares or (2) the holders of
67% or more of the shares present if more than 50% of the shares are present at
a meeting in person or by proxy.
On June 13, 1997 the Board of Directors of the Fund, including a majority
of the directors who are not "interested persons" of any party thereto,
approved an amended Investment Advisory and Management Agreement (the "Amended
Management Agreement"). The proposed Amended Management Agreement is identical
in all respects to the Existing Management Agreement except that the investment
management fees payable under the Amended Management Agreement would be reduced
from an annual rate of 1.50% of the Fund's weekly net assets under the Existing
Management Agreement to 1.25% of the Fund's weekly net assets. Other terms of
the proposed Amended Management Agreement are discussed below under "The
Amended Management Agreement." The Amended Management Agreement will take
effect if and when it is approved by a vote of a majority of the outstanding
shares of the Fund, as defined above. Until the Amended Management Agreement
is approved, the Investment Manager has agreed to waive that portion of the
investment management fees payable under the Existing Management Agreement that
exceed an annual rate of 1.25% of the Fund's weekly net assets. The Board of
6
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Directors of the Fund is submitting the proposed Amended Management Agreement
to the Fund's stockholders for approval.
REQUIRED VOTE
Approval of the proposed Amended Management Agreement requires the
affirmative vote of a majority of the Fund's outstanding shares, as defined
above. For this purpose, both abstentions and broker non-votes will have the
effect of a vote to disapprove the Amended Management Agreement. If the
Amended Management Agreement is not approved by the Fund's shareholders, the
Existing Management Agreement will remain in effect. In that event, the
Investment Manager will be continuing to waive the portion of the Investment
Management Fees that exceed an annual rate of 1.25% of the Fund's weekly net
assets. In addition, if an affirmative vote of stockholders is not obtained,
the Existing Management Agreement will continue in effect for the time being,
pending consideration by the directors of such further action as they may deem
to be in the best interests of the Fund's stockholders.
THE INVESTMENT MANAGER
The Investment Manager is a company incorporated in 1973 under the
Companies Ordinance of Hong Kong, and is a wholly owned subsidiary of HSBC
Holdings plc ("HSBC"), 99 Bishopgate, London, England EC2P 2LA, the parent of
The Hong Kong and Shanghai Banking Corporation Limited ("HongkongBank"), the
largest banking organization in Hong Kong. HongkongBank was founded in 1866
and has maintained a branch office in Shanghai throughout its history.
HongkongBank also maintains branch offices in Xiamen and Shenzhen and
representative offices in Beijing, Dalian, Tianjin, Wuhan, Guangzhou and
Qingdao. The Investment Manager's principal address is 10/F Citibank Tower, 3
Garden Road, Hong Kong, and its affiliates maintain offices in Tokyo, Singapore
and Melbourne.
The Investment Manager is a registered investment adviser under the
Investment Advisers Act of 1940 and provides portfolio management and named
fiduciary services to taxable and nontaxable institutions, international
organizations and individuals investing in United States and international
equity and fixed income securities. The Investment Manager is party of a group
of companies owned by HSBC which includes the James Capel Group and the Wardley
Group. As of December 31, 1997, the investment advisers in the HSBC group,
including the Investment Manger, had assets under management (including assets
under fiduciary advisory control) totaling approximately $____ Billion, of
which approximately $ <circle> billion were under the management of the
Investment Manager. Funds managed by the Investment Manager in the Asia
Pacific region (excluding Japan) currently amount to approximately $___
billion. The Investment Manager is involved in the management of the following
additional funds:
<TABLE>
<CAPTION>
ADVISORY FEE (ANNUAL RATE OF
INVESTMENT MANAGER'S
NET ASSETS AT COMPENSATION) AS PERCENTAGE OF
FUND DECEMBER 31, 1997 AVERAGE DAILY NET ASSETS
<S> <C> <C>
The HSBC China Fund Limited US$ <circle> million 1.30%
(formerly The Wardley China Fund Limited)
The HSBC Global Investment Fund US$ <circle> million 0.75%
(Formerly the WGS Asian Fund)
</TABLE>
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<TABLE>
<CAPTION>
ADVISORY FEE (ANNUAL RATE OF
INVESTMENT MANAGER'S
NET ASSETS AT COMPENSATION) AS PERCENTAGE OF
FUND DECEMBER 31, 1994 AVERAGE DAILY NET ASSETS
<S> <C> <C>
The ASEAN Fund (Listed Portion) US$ <circle> million 0.70% of the first
US$100 million
0.50% of the excess
over US$100 million
The Java Fund US$ <circle> million 0.55%
The Asian Convertible and Income Fund US$ <circle> million 0.4275%
</TABLE>
The funds listed above are not registered under the Investment Company Act of
1940, and the Investment Manager has not served as an investment adviser to any
investment company registered under the Investment Company Act of 1940 other
than the Fund.
As an investment adviser, the Investment Manager emphasizes a global
investment strategy and benefits from research coverage of a broad spectrum of
equity investment opportunities worldwide. The Investment Manager draws upon
the capabilities of its asset management specialists located in its various
offices throughout the world. It also draws upon the research capabilities of
its affiliates in the HSBC group of companies, as well as the research and
investment ideas of other companies whose brokerage services the Investment
Manager utilizes.
The following table sets forth the name and principal occupation of the
principal executive officers and of each director of the Investment Manager.
The business address of each person listed below is: 10/F Citibank Tower, 3
Garden Road, Hong Kong.
<TABLE>
<CAPTION>
POSITION WITH THE
NAME INVESTMENT MANAGER PRINCIPAL OCCUPATION
<S> <C> <C>
</TABLE>
Since December 1, 1993, Ms. Stella S.M.Yiu has served as the portfolio
manager for the Fund's portfolio of listed securities. Ms. Yiu holds a
Bachelor of Arts degree in economics from Saint Catharine's College, Cambridge
University. She is currently a director of HSBC Asset Management Hong Kong
Limited (formerly Wardley Investment Services (Hong Kong) Limited) responsible
for managing investments and formulating strategies for the Asia-Pacific equity
markets. She has had over ten years of experience in portfolio management in
Asia. Prior to joining HSBC Asset Management Hong Kong Limited, Ms. Yiu held a
senior investment position at GT Management with responsibilities for Asian
regional equity funds and dedicated country portfolios.
THE AMENDED MANAGEMENT AGREEMENT
Under the terms of the Amended Management Agreement, the Investment
Manager will make all investment decisions regarding the assets of the Fund
(other than with respect to the portion of the Fund's assets allocated to be
invested in direct investments), prepare and makes available research and
statistical data, and supervise the purchase and sale of securities on behalf
of the Fund, including the selection of brokers and dealers to carry out the
transactions, all in accordance with the Fund's investment objective and
policies and under the direction and control of the Fund's Board of Directors.
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The Investment Manager will also be responsible for maintaining records and
furnishing or causing to be furnished all required records or other information
of the Fund to the extent such records, reports and other information are not
maintained or furnished by the Fund's administrators, custodians or other
agents.
Under the Amended Management Agreement, the Investment Manager will be
permitted to provide investment advisory services to other clients, including
clients who may invest in securities of China companies. Conversely,
information furnished by others to the Investment Manager in the course of
providing services to clients other than the Fund may be useful to the
Investment Manager in providing services to the Fund.
The Amended Management Agreement provides that the Investment Manager
will not be liable for any act or omission, error of judgment or mistake of
law, or for any loss suffered by the Fund in connection with matters to which
the Amended Management Agreement relates, except for a loss resulting from
willful misfeasance, bad faith or gross negligence on the part of the
Investment Manager in the performance of its duties, or from reckless disregard
by it of its obligations and duties under the Amended Management Agreement.
For its services under the Management Agreement, the Investment Manager
will receive a fee (the "Investment Management Fee"), computed weekly and
payable monthly, at an annual rate of 1.25% of the Fund's average weekly net
assets. This fee is higher than those paid by most other U.S. investment
companies, primarily because of the additional time and expense required in
pursuing the Fund's objective of investing in equity securities of China
companies, including direct investments in China companies. For services
rendered by the Direct Investment Manager under the Direct Investment
Management Agreement, the Investment Manager pays a portion of its fee to the
Direct Investment Manager.
For the fiscal year ended October 31, 1997, the Fund incurred commissions
on the purchase and sale of securities of US$512,855 of which US$1,819 (0.35%)
was paid to affiliates of the Investment Manager and the Direct Investment
Manager.
The Amended Management Agreement may be terminated at any time, without
payment of any penalty, by the Fund or by the Investment Manager upon sixty
days' written notice or by vote of the stockholders of the Fund. The
Management Agreement will automatically terminate in the event of its
assignment, as defined in the Investment Company Act of 1940.
For the fiscal year ended October 31, 1997, the Investment Manager earned
a fee of US$3,023,863, which was paid or payable by the Fund. From this fee,
the Direct Investment Manager earned a fee of US$ <circle> , which was paid or
payable by the Investment Manager.
Pending shareholder approval of the Investment Manager's proposal to
amend the Management Agreement to reduce its annual fee, it has waived 0.25% of
the Investment Management Fee for the period from [July 1], 1997 through
October 31, 1997. As a result, the total amount of fees waived by the
Investment Manager was US$201,165. If the Investment Management Fee had been
reduced to 1.25% of the Fund's weekly net assets for the Fund's past fiscal
year, the Investment Manager would have earned a fee of US$ <circle> ,
approximately 17% less than it is entitled to under the Existing Investment
Management Agreement.
MISCELLANEOUS
Proxies will be solicited by mail and may be solicited in person or by
telephone or telegraph by officers of the Fund or personnel of the
Administrator. The Fund has retained Corporate Investor Communications, Inc.
to assist in the proxy solicitation. The cost of their services is estimated
at US$4,500. The expenses connected with the solicitation of these proxies and
with any further proxies which may be solicited by the Fund's officers or
9
<PAGE>
PRELIMINARY COPY
agents in person, by telephone or by telegraph will be borne by the Fund. The
Fund will reimburse banks, brokers, and other persons holding the Fund's shares
registered in their names or in the names of their nominees for their expenses
incurred in sending proxy material to and obtaining proxies from the beneficial
owners of such shares.
In the event that sufficient votes in favor of any proposal set forth in
the Notice of this meeting are not received by March 13, 1998, the persons
named as attorneys in the enclosed proxy may propose one or more adjournments
of the meeting to permit further solicitation of proxies. Any such adjournment
will require the affirmative vote of the holders of a majority of the shares
present in person or by proxy at the session of the meeting to be adjourned.
The persons named as proxies in the enclosed proxy will vote in favor of such
adjournment those proxies which they are entitled to vote in favor of the
proposal for which further solicitation of proxies is to be made. They will
vote against any such adjournment those proxies required to be voted against
such proposal. The costs of any such additional solicitation and of any
adjourned session will be borne by the Fund.
10
<PAGE>
PRELIMINARY COPY
STOCKHOLDER PROPOSALS
Any proposal by a stockholder of the Fund intended to be presented at the
Annual Meeting of Stockholders of the Fund to be held in March 1999 must be
received by the Fund, c/o HSBC James Capel, 140 Broadway, 5th Floor, New York,
New York 10005, not later than November , 1998.
By order of the Board of Directors,
THOMAS R. CALLAHAN
SECRETARY
- -------------------
New York, New York
February , 1998
11
<PAGE>
THE CHINA FUND, INC.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
ANNUAL MEETING OF STOCKHOLDERS - MARCH 13, 1998
The undersigned stockholder of The China Fund, Inc. (the "Fund") hereby
appoints Thomas R. Callahan and Glenn Francis, or either of them, proxies of
the undersigned, with full power of substitution to vote and to act for and in
the name and stead of the undersigned at the Annual Meeting of Stockholders of
the Fund, to be held at the offices of Rogers & Wells, 50th Floor, 200 Park
Avenue, New York, New York 10166 at 10:00 a.m., local time, and at any and all
adjournments thereof, according to the number of votes the undersigned would be
entitled to cast if personally present.
THE SHARES REPRESENTED BY THIS PROXY WILL BE VOTED IN ACCORDANCE WITH
INSTRUCTIONS GIVEN BY THE STOCKHOLDERS, BUT IF NO INSTRUCTIONS ARE GIVEN, THIS
PROXY WILL BE VOTED IN FAVOR OF PROPOSALS 1, 2 AND 3 SET FORTH IN THIS PROXY.
THE UNDERSIGNED HEREBY REVOKES ANY AND ALL PROXIES WITH RESPECT TO SUCH SHARES
HERETOFORE GIVEN BY THE UNDERSIGNED. THE UNDERSIGNED ACKNOWLEDGES RECEIPT OF
THE PROXY STATEMENT DATED FEBRUARY __, 1998.
<TABLE>
<CAPTION>
<S> <C>
PLEASE VOTE, DATE, AND SIGN ON REVERSE AND RETURN PROMPTLY USING THE ENCLOSED ENVELOPE.
Please sign this proxy exactly as your name(s) appear(s) on the books of the Fund. Joint owners should each sign personally.
Trustees and other fiduciaries should indicated the capacity in which they sign, and where more than one name appears, a majority
must sign. If a corporation, the signature should be that of an authorized officer who should state his or her title.
HAS YOUR ADDRESS CHANGED? DO YOU HAVE ANY COMMENTS?
- ---------------------------------- ----------------------------------
- ---------------------------------- ----------------------------------
- ---------------------------------- ----------------------------------
</TABLE>
<PAGE>
<checked-box> PLEASE MARK VOTES
AS IN THIS EXAMPLE
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
THE CHINA FUND, INC.
1. The election of Class II Directors to serve a term
expiring on the date on which the annual meeting is
held in 2001.
With- For All
For hold Except
MR. MICHAEL F. HOLLAND
MR. BURTON LEWIN <square> <square> <square>
MR. JAMES J. LIGHTBURN
MR. DAVID F.J. PATERSON
If you do not want your shares voted "For" a particular nominee, mark the
"For All Except" box and strike a line through that particular nominee's
name. Your shares will be voted for the remaining nominee(s).
RECORD DATE SHARES:
For Against Abstain
2. The ratification of the selection of KPMG
Peat Marwick L.L.P. as independent auditors <square> <square> <square>
of the Fund for its fiscal year ending
October 31, 1998.
For Against Abstain
3. The approval of the Amended Investment
Advisory and Management Agreement between <square> <square> <square>
the Fund and HSBC Asset Management Hong
Kong Limited.
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C>
Please be sure to sign and Date
date this Proxy.
Mark box at right if an address change or comment has been noted on
the reverse side of this card. <square>
Stockholder sign here Co-owner sign here
DETACH CARD DETACH CARD
</TABLE>
THE CHINA FUND, INC.
Dear Shareholder,
Please take note of the important information enclosed with this proxy card.
There are a number of issues related to the management and operations of your
Fund that require your immediate attention and approval. These are discussed
in detail in the enclosed proxy materials.
Your vote counts, and you are strongly encouraged to exercise your right to
vote your stock.
Please mark the boxed on this proxy card to indicate how your stock will be
voted. Then sign the card, detach it and return it in the enclosed postage
paid envelope.
Your vote must be received prior to the Annual Meeting of Stockholders, which
is scheduled to be held on March 13, 1998.
Thank you in advance for your prompt consideration of these matters.
Sincerely,
The China Fund
<PAGE>
