<PAGE>
THE GREATER CHINA FUND, INC.
- -------------------------------------------------------------------------
- -------------------------------------------------------------------------
REPORT OF THE INVESTMENT MANAGER
PERFORMANCE
The Greater China Fund's (the "Fund") net asset value appreciated $3.21 during
the six months ended June 30, 1999, increasing from $8.43 to $11.64.
MARKET REVIEW
The period under review saw a continuation of the strength in China stock
prices. Renewed optimism on Asian stocks in general, amidst lower interest rates
and stable currencies, and no further deterioration to the GITIC debt problem
have contributed to the rally.
Chinese Premier Zhu Rongji's positive approach to World Trade Organization
("WTO") entry and economic reform in general during his visit to the USA boosted
foreign sentiment towards equity investment in China. This coincided with a
global rally in cyclical and undervalued stocks of which Chinese industrial
stocks were obvious beneficiaries. However, the bombing of the Chinese Embassy
in Belgrade provided a temporary negative political background which put WTO
talks on hold. The market reaction to this event was calm. The market
consolidated until the government introduced a number of market boosting
measures. These included substantial interest rate cuts, market supporting
statements by the leaders and various measures to reduce the cost of dealing.
These policies fuelled a liquidity driven market rally towards the end of the
period under review.
The main beneficiaries of the change in global equity market liquidity were
China stocks listed in Hong Kong ("H" shares). Signs of a stabilization of
industrial commodities prices, such as PVC and plastic products, seem likely to
lead to an improved profit outlook for certain manufacturing companies. The
prolonged deflation in product prices in these companies has depressed profit
margins to a level where only the most efficient players can make a profit.
While prices are not expected to rise, the arresting of a falling price trend
will give the efficient companies a better profit picture. The cost-cutting
measures put in place during the difficult times should feed straight to the
bottom line. The Fund has added to companies such as Yizheng Chemical, Yanzhou
Coal and Shanghai Petrochemical.
PROSPECTS
China's economy is slowing. The preliminary real GDP growth of China averaged
7.6% for the first half of 1999, implying a deceleration of GDP growth from 8.3%
in 1Q99 to 7.1% in 2Q99. Exports fell 4.3% year-on-year, while imports surged
16.8% for the first half of 1999. As a result, the trade surplus fell 65% year-
on-year to US$8.0 billion in the first half of 1999. On the other hand, growth
continued to be supported by fixed asset investment and the fiscal spending,
especially in the second half of 1999.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
THE GREATER CHINA FUND, INC.
- -------------------------------------------------------------------------
- -------------------------------------------------------------------------
REPORT OF THE INVESTMENT MANAGER
CONTINUED
On the political front, the cross-strait relationship between Mainland China and
Taiwan deteriorated sharply in July. President Lee Teng Hui of Taiwan commented
that this relationship was a special state-to-state one. This suggests that
Taiwan might abandon its "one-China" policy but Japan and the US were quick to
reaffirm their commitment to this previously agreed position. China is likely to
apply considerable pressure on Taiwan before the presidential elections next
year in response to this policy shift by Taiwan. Markets have fallen
substantially in Hong Kong, Shanghai and Taipei as an immediate result of this
unanticipated new tension in the cross Taiwan straits relationship. Your manager
will continue to watch developments closely.
In the international arena, the WTO entry and the bombing in Belgrade have
created uncertainty in trade development and capital flow. The timing of WTO
entry appears to have been delayed. If the entry is further delayed into year
2000, and the Sino-US relationship cannot make immediate progress as a result of
the bombing, foreign direct investment (FDI) could be impaired. As the trade
picture continues to worsen, a decline in capital inflow (FDI weakness) could
jeopardize the currency. However, this remains a low probability scenario. Your
Manager continues to forecast a mild and orderly devaluation between the fourth
quarter of 1999 and mid 2000.
The commitment to State Enterprise reform has been confirmed by Zhu's visit to
the US. The implication is a continuous quest for survival of the fittest among
enterprises. This process will take time and weak enterprises will eventually be
merged, taken over or closed down. The Fund will continue to adopt a very
selective approach and focus on the most efficient companies that are likely to
be the survivors and prosper. Overall it has been a rewarding period for
shareholders, and the next six months are likely to continue to be positive,
although the deterioration of the political environment is likely to set markets
back in the short term.
Finally, The Board of Directors and Baring Asset Management (Asia) Limited mourn
the passing of director Don Hoff and are grateful for his valuable insight and
contributions to the Fund since its inception.
BARING ASSET MANAGEMENT (ASIA) LIMITED
Hong Kong
July 16, 1999
- --------------------------------------------------------------------------------
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2
<PAGE>
THE GREATER CHINA FUND, INC.
- -------------------------------------------------------------------------
- -------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
June 30, 1999
(Unaudited)
<TABLE>
<CAPTION>
Value
Shares Description (Note 1)
<C> <S> <C>
EQUITIES -- 97.3%
CHINA -- 46.9%
BUILDING MATERIALS -- 0.9%
7,882,000 Anhui Conch Cement...................... $ 1,340,994
------------
CONSUMPTION -- 0.9%
8,480,000 Guangzhou Pharmaceutical "H"............ 1,355,296
------------
INFRASTRUCTURE -- 6.1%
25,980,000 Anhui Expressway "H".................... 3,549,455
9,244,000 Jiangsu Expressway "H".................. 2,001,639
16,892,000 Zhejiang Expressway "H"................. 3,352,883
------------
8,903,977
------------
MANUFACTURING -- 19.6%
3,674,618 China International Marine Containers
"B"................................... 3,362,693
12,756,000 First Tractor "H"....................... 3,781,455
4,290,000 Guangdong Kelon Electronic Holdings
"H"................................... 4,976,413
22,340,000 Shanghai Petrochemical+................. 5,240,482
3,937,000 Shanghai Zhenhai Port Machinery "B"..... 2,047,240
3,770,000 Wafangdian Bearing "B".................. 1,156,471
2,687,199 Weifu Fuel Injection "B"................ 1,350,769
11,918,000 Yizheng Chemical Fibre "H".............. 3,072,204
12,404,000 Zhenhai Refining & Chemical "H"......... 3,757,044
------------
28,744,771
------------
SERVICES -- 1.9%
4,013,160 Shanghai Dazhong Taxi "B"............... 2,728,949
------------
UTILITIES -- 12.3%
9,198,000 Beijing Datang Power "H"................ 2,963,808
14,832,000 Huaneng Power International "H"+........ 6,165,184
<CAPTION>
Value
Shares Description (Note 1)
<C> <S> <C>
180,800 Huaneng Power International ADR "N"..... $ 3,096,200
13,000,000 Zhejiang Southeast Electric Power "B"... 5,746,000
------------
17,971,192
------------
MISCELLANEOUS -- 5.2%
4,037,300 Inner Mongolia Yitai "B"................ 662,117
19,390,000 Yanzhou Coal Mining "H"................. 6,997,654
------------
7,659,771
------------
Total China............................. 68,704,950
------------
HONG KONG -- 46.7%
BANKING -- 1.3%
622,400 Bank of East Asia....................... 1,572,325
900,000 HKCB Bank Holding Co. Ltd............... 307,401
------------
1,879,726
------------
CONGLOMERATES -- 15.4%
194,000 Beijing Enterprises "H"................. 606,295
4,960,000 China Resources Enterprise+............. 8,790,246
1,224,000 Hutchison Whampoa....................... 11,082,670
2,798,000 Tianjin Development Holdings............ 2,109,698
------------
22,588,909
------------
CONSUMPTION -- 4.8%
2,850,000 Hengan International Group*............. 1,450,970
6,740,000 NG Fung Hong............................ 5,603,202
------------
7,054,172
------------
</TABLE>
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3
<PAGE>
THE GREATER CHINA FUND, INC.
- -------------------------------------------------------------------------
- -------------------------------------------------------------------------
<TABLE>
<CAPTION>
Value
Shares Description (Note 1)
<C> <S> <C>
HONG KONG -- (continued)
INFRASTRUCTURE -- 5.6%
5,770,000 Cosco Pacific Ltd.+..................... $ 4,759,622
1,846,774 New World Infrastructure*+.............. 3,475,228
------------
8,234,850
------------
MANUFACTURING -- 1.8%
290,000 Johnson Electrical Holdings............. 1,188,616
8,000,000 Stone Electronic Technology Ltd......... 1,473,462
------------
2,662,078
------------
REAL ESTATE DEVELOPMENT -- 3.8%
383,000 Cheung Kong Holdings.................... 3,406,156
12,000,000 Far East Hotels & Entertainment*........ 1,685,871
7,910,000 Sinolink Worldwide Holdings*............ 509,757
------------
5,601,784
------------
SERVICES -- 8.2%
3,481,000 China Telecom*+......................... 9,668,697
649,000 Smartone Telecommunications Holdings.... 2,308,715
------------
11,977,412
------------
MISCELLANEOUS -- 5.8%
1,990,000 China Everbright Ltd.+.................. 1,987,794
7,324,000 China Merchants Holdings
International+........................ 6,419,096
------------
8,406,890
------------
Total Hong Kong......................... 68,405,821
------------
TAIWAN -- 3.7%
<CAPTION>
Value
Shares Description (Note 1)
<C> <S> <C>
MANUFACTURING -- 3.7%
605,000 Hon Hai Precision Industry*............. $ 5,469,350
------------
Total Equities
(cost $138,899,093)................... 142,580,121
------------
<CAPTION>
Principal
Amount
(000)
<C> <S> <C>
FIXED INCOME -- 0.5%
CHINA -- 0.5%
MANUFACTURING -- 0.5%
$2,000 Qingling Motors, 3.50% due 1/22/02
(cost $903,431)....................... 785,000
------------
TIME DEPOSITS -- 1.4%
2,044 Brown Brothers Harriman & Co., Grand
Cayman, 4.25%**, 7/1/99
(cost $2,044,000)..................... 2,044,000
------------
Total Investments -- 99.2%
(cost $141,846,524)................... 145,409,121
------------
Other assets in excess of liabilities --
0.8%.................................. 1,159,446
------------
NET ASSETS -- 100.0%.................... $146,568,567
------------
------------
</TABLE>
- ----------
* Non-income producing security.
+ Security, or a portion thereof, was on loan at June 30, 1999.
** Variable rate account -- rate resets on a monthly basis; amount available
upon 48 hours' notice.
ADR-American Depositary Receipt
See Notes to Financial Statements.
- --------------------------------------------------------------------------------
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4
<PAGE>
THE GREATER CHINA FUND, INC.
- -------------------------------------------------------------------------
- -------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
June 30, 1999
(Unaudited)
<TABLE>
<S> <C>
ASSETS
Investments, at value (cost $141,846,524) $145,409,121
Investments of collateral received for securities
on loan, at value (cost $22,468,668) 22,468,668
Cash (including foreign currency with a cost of
$2,387,620 and a value of $2,387,433) 2,388,355
Dividends & Interest Receivable 747,795
Prepaid Expenses 14,224
------------
Total assets 171,028,163
------------
LIABILITIES
Collateral for securities on loan 22,468,668
Payable for foreign currency purchased 1,445,568
Investment management fee payable 127,479
Administration fee payable 21,629
Accrued expenses 396,252
------------
Total liabilities 24,459,596
------------
NET ASSETS $146,568,567
------------
------------
COMPOSITION OF NET ASSETS
Common stock, $0.001 par value; 12,593,049 shares
issued and outstanding (100,000,000 shares
authorized) $ 12,593
Paid-in capital in excess of par 168,504,749
Undistributed net investment income 704,000
Accumulated net realized loss on investments (26,214,794)
Net unrealized appreciation of investments and
other assets and liabilities denominated in
foreign currency 3,562,019
------------
NET ASSETS $146,568,567
------------
------------
Shares Outstanding 12,593,049
------------
NET ASSET VALUE PER SHARE $11.64
------------
------------
</TABLE>
See Notes to Financial Statements.
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5
<PAGE>
THE GREATER CHINA FUND, INC.
- -------------------------------------------------------------------------
- -------------------------------------------------------------------------
STATEMENT OF OPERATIONS
For the Six Months Ended June 30, 1999
(Unaudited)
<TABLE>
<S> <C>
INVESTMENT INCOME
Dividends $ 1,630,447
Interest 348,505
------------
Total investment income 1,978,952
------------
EXPENSES
Investment management fees 649,259
Directors' fees and expenses 203,050
Custodian and accounting fees 156,372
Administration fees 111,306
Shareholder reports 58,273
Legal fees 41,623
Audit fees 23,530
New York Stock Exchange listing fee 10,036
Transfer agent fees and expenses 7,149
Miscellaneous expenses 14,354
------------
Total expenses 1,274,952
------------
Net investment income 704,000
------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
AND FOREIGN CURRENCY TRANSACTIONS
Net realized loss on:
Investments (4,543,537)
Foreign currency transactions (2,818)
------------
(4,546,355)
------------
Net change in unrealized appreciation/depreciation
of:
Investments 44,228,540
Other assets and liabilities denominated in
foreign currencies (596)
------------
44,227,944
------------
Net realized and unrealized gain on investments
and foreign currency transactions 39,681,589
------------
NET INCREASE IN NET ASSETS FROM INVESTMENT
OPERATIONS $ 40,385,589
------------
------------
</TABLE>
See Notes to Financial Statements.
- --------------------------------------------------------------------------------
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6
<PAGE>
THE GREATER CHINA FUND, INC.
- -------------------------------------------------------------------------
- -------------------------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
For the
Six Months
Ended For the Year
June 30, 1999 Ended
(unuadited) December 31, 1998
------------------ ---------------------
<S> <C> <C>
INCOME (LOSS) FROM INVESTMENT OPERATIONS
Net investment income (loss) $ 704,000 $ (72,003)
Net realized loss on investments and
foreign currency transactions (4,546,355) (21,723,040)
Net change in unrealized appreciation/
depreciation of investments and other
assets and liabilities denominated in
foreign currencies 44,227,944 (29,954,080)
------------------ ---------------------
Total income (loss) from investment
operations 40,385,589 (51,749,123)
------------------ ---------------------
DIVIDENDS AND DISTRIBUTIONS
TO SHAREHOLDERS
From net realized gain on investments -- (11,585,605)
------------------ ---------------------
Net increase (decrease) in net assets 40,385,589 (63,334,728)
NET ASSETS
Beginning of period 106,182,978 169,517,706
------------------ ---------------------
End of period $ 146,568,567 $106,182,978
------------------ ---------------------
------------------ ---------------------
</TABLE>
See Notes to Financial Statements.
- --------------------------------------------------------------------------------
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7
<PAGE>
THE GREATER CHINA FUND, INC.
- -------------------------------------------------------------------------
- -------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
June 30, 1999 (Unaudited)
NOTE 1 ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
The Greater China Fund (the "Fund") was incorporated in Maryland on May 11,
1992, as a non-diversified, closed-end management investment company. The Fund's
investment objective is to seek long-term capital appreciation by investing
substantially all of its assets in listed equity securities of companies which
derive or are expected to derive a significant portion of their revenues from
goods produced or sold, investments made, or services performed in China. The
Fund had no operations until July 7, 1992, when it sold 7,200 shares of common
stock for $100,440 to Baring International Investment (Far East) Limited
(formerly the Investment Manager), an indirect wholly-owned subsidiary of ING
Groep NV. Investment operations commenced on July 23, 1992.
The preparation of financial statements in accordance with generally accepted
accounting principles requires Fund management to make estimates and assumptions
that affect the reported amounts and disclosures in the financial statements.
Actual results could differ from those estimates.
The following is a summary of significant accounting policies followed by the
Fund.
VALUATION OF INVESTMENTS
All securities for which market quotations are readily available are valued at
the last sales price on the day of valuation or, if there was no sale on such
day, the last bid price quoted on such day. Short-term debt securities having a
maturity of 60 days or less are valued at amortized cost, or by amortizing their
value on the 61st day prior to maturity if their term to maturity from the date
of purchase was greater than 60 days, unless the Fund's Board of Directors
determines that such value does not represent the fair value of such securities.
Securities and assets for which market quotations are not readily available
(including investments which are subject to limitations as to their sale) are
valued at fair value as determined in good faith by or under the direction of
the Board of Directors.
INVESTMENT TRANSACTIONS AND INVESTMENT INCOME
Investment transactions are recorded on the trade date (the date on which the
buy or sell order is executed). Realized gains and losses on investments and
foreign currency transactions are calculated on the identified cost basis.
Interest income is recorded on an accrual basis. Dividend income and other
distributions are recorded on the ex-dividend date, except for certain dividends
which are recorded as soon after the ex-dividend date as the Fund, using
reasonable diligence, becomes aware of such dividends.
FOREIGN CURRENCY TRANSLATION
The books and records of the Fund are maintained in U.S. dollars. Foreign
currency amounts are translated into U.S. dollars on the following basis:
(i) the foreign currency market value of investments and other assets and
liabilities denominated in foreign currency are translated at the closing
rate of exchange on the valuation date; and
(ii) purchases and sales of investments, income and expenses are translated at
the rate of exchange prevailing on the respective dates of such
transactions.
The resulting net foreign currency gain or loss is included in the Statement of
Operations.
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8
<PAGE>
THE GREATER CHINA FUND, INC.
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- -------------------------------------------------------------------------
The Fund does not generally isolate that portion of the results of operations
arising as a result of changes in the foreign currency exchange rates from the
fluctuations arising from changes in the market prices of securities.
Accordingly, such foreign currency gain (loss) is included in net realized and
unrealized gain (loss) on investments. However, the Fund does isolate the effect
of fluctuations in foreign currency exchange rates when determining the gain or
loss upon the sale or maturity of foreign currency denominated debt obligations
pursuant to U.S. federal income tax regulations; such amount is categorized as
foreign currency gain or loss for both financial reporting and income tax
reporting purposes.
Net foreign currency gain (loss) from valuing foreign currency denominated
assets and liabilities at period end exchange rates is reflected as a component
of net unrealized depreciation of investments and other assets and liabilities
denominated in foreign currency. Net realized foreign currency gain (loss) is
treated as ordinary income for income tax reporting purposes.
SECURITY LENDING
The Fund may lend up to 30% of its total assets to qualified institutions. When
the Fund lends its securities, it continues to earn dividends and other income
on such securities. Under the terms of the securities lending agreement, the
securities on loan are to be secured at all times by cash or liquid securities
in an amount at least equal to 105% of the market value of the securities on
loan that are foreign securities, which are marked to market daily. The Fund
bears the risk of delay in recovery of, or even loss of rights in, the
securities on loan should the borrower fail financially. The Fund's lending
agent is PaineWebber Incorporated ("PaineWebber") who administers the Fund's
lending program. PaineWebber is authorized to invest the cash collateral
received in short-term securities, including investments in affiliated mutual
funds. Any income from investments of cash collateral in excess of agency fees
and of a predetermined rebate to the borrowers is retained by the Fund and is
included in interest income. For non-cash collateral, the Fund earns a net fee,
after payment of lending agents' fees paid by the borrowers. For the six months
ended June 30, 1999, net earnings to the Fund from securities lending was
$62,375, after deducting PaineWebber fees of $33,351 of which $6,822 was payable
to PaineWebber at June 30, 1999. At June 30, 1999, the market value of the
securities on loan and the cash collateral received with respect to such loans
were $19,949,846 and $22,468,668, respectively. The table below shows the
investments of the cash collateral.
<TABLE>
<CAPTION>
Shares Money Market Funds
- ------------ -------------------------------------------------------
<C> <S> <C>
524 Provident Institutional Temporary Investment Fund...... $ 524
22,468,144 Mitchell Hutchins Private Money Market Fund............ 22,468,144
--------------
$ 22,468,668
--------------
--------------
</TABLE>
DIVIDENDS AND DISTRIBUTIONS
Dividends and distributions are recorded on the ex-dividend date. Dividends and
distributions from net investment
income and net realized capital gains are determined in accordance with federal
income tax regulations, which may differ from generally accepted accounting
principles. These book/tax differences are considered either
- --------------------------------------------------------------------------------
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9
<PAGE>
THE GREATER CHINA FUND, INC.
- -------------------------------------------------------------------------
- -------------------------------------------------------------------------
temporary or permanent in nature. To the extent these differences are permanent
in nature, such amounts are reclassified within the capital accounts based on
their federal tax-basis treatment; temporary differences do not require
reclassification.
TAX STATUS
UNITED STATES
The Fund generally intends to distribute all or substantially all of its taxable
income and to comply with the other requirements of the U.S. Internal Revenue
Code applicable to regulated investment companies. Accordingly, no provision for
U.S. federal income tax is required. The Fund's Board of Directors, under
certain circumstances, may determine to retain a portion of the Fund's taxable
income, if such retention is in the best interest of the Fund and its
shareholders.
At December 31, 1998, the Fund had a capital loss carry forward of $20,169,196
available as a reduction, to the extent provided in the regulation, of any
future net realized capital gains realized before the end of fiscal year 2006.
To the extent that these losses are used to offset future realized capital
gains, such gains will not be distributed.
CHINA
Presently, as a result of a ruling issued in July 1993 (the "July Ruling"), The
People's Republic of China ("PRC") State Tax Bureau determined that dividends
paid on B shares and dividends received from a PRC company, the shares of which
are listed on non-PRC securities exchanges, including dividends paid with
respect to H shares, will not for the time being be subject to PRC withholding
tax. However, there is no assurance that the July Ruling will remain in effect
for the entire period that such shares are held by the Fund, as it is a
temporary provision. Based on the July Ruling, capital gains from the sale of B
shares and shares of a PRC company listed on a non-PRC securities exchange,
including H shares, will not for the time being be subject to 20% withholding
tax.
Capital gains with respect to debt securities of PRC companies are not covered
by the July Ruling and may be subject to 20% withholding tax.
In the future, were the July Ruling to be reversed, dividends received and
capital gains derived with respect to investments in securities of PRC companies
would be subject to withholding tax at a maximum rate of 20%.
HONG KONG
Under current Hong Kong law, no income tax is charged on dividends or other
distributions received by any person with respect to investments in Hong Kong
securities. Additionally, there is no tax in Hong Kong on capital gains realized
from the disposition of such securities. However, income received and gains
realized by any person in the course of a trade, profession or business carried
on in Hong Kong may be subject to Hong Kong profits tax. It is the intention of
the Fund to conduct its affairs in such a manner that it will not be subject to
such profits tax. To the extent that the Fund were to derive any profit from
such a trade, profession or business, its profit from the trading of securities
(including interest, dividends and capital gains) would be subject to profits
tax, which is currently a flat rate of 16% for corporations.
OTHER FOREIGN COUNTRIES
The Fund may be subject to certain taxes on dividends, capital gains and other
income imposed by the other foreign countries in which it invests.
- --------------------------------------------------------------------------------
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10
<PAGE>
THE GREATER CHINA FUND, INC.
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- -------------------------------------------------------------------------
NOTE 2 INVESTMENT MANAGEMENT AND ADMINISTRATION AGREEMENTS
The Fund has an investment management agreement ("Investment Management
Agreement") with Baring Asset Management (Asia) Limited (the "Investment
Manager"). The Investment Management Agreement was transferred to the Investment
Manager as of June 15, 1999 by Baring International Investment (Far East)
Limited (the former Investment Manager and a wholly subsidiary of the Investment
Manager). Under the terms of the Investment Management Agreement, the Investment
Manager manages the Fund's investments in accordance with the Fund's investment
objectives, policies and restrictions, and makes investment decisions on behalf
of the Fund, including the selection of and the placing of orders with brokers
and dealers to execute portfolio transactions on behalf of the Fund. As
compensation for its services, the Investment Manager receives a monthly fee,
computed weekly, at an annual rate of 1.25% of the Fund's average weekly net
assets.
Mitchell Hutchins Asset Management Inc. (the "Administrator"), a wholly-owned
subsidiary of PaineWebber Incorporated, has an administration agreement
("Administration Agreement") with the Fund. Under the terms of the
Administration Agreement, the Administrator provides certain administrative
services to the Fund. As compensation for its services, the Administrator
receives a monthly fee, computed weekly, at an annual rate of 0.22% of the
Fund's average weekly net assets up to $75 million and 0.20% of such net assets
in excess of $75 million, subject to a minimum annual fee of $150,000.
- --------------------------------------------------------------------------------
NOTE 3 TRANSACTIONS WITH AFFILIATES
The Investment Manager, out of its own assets, pays PaineWebber a quarterly fee
at an annual rate of 0.10% of the Fund's average weekly net assets in
consideration for certain consulting and shareholder support services (not
including advice or recommendations regarding the purchase or sale of investment
securities). For the six months ended June 30, 1999, $51,941 was paid or accrued
by the Investment Manager to PaineWebber Incorporated for such services.
- --------------------------------------------------------------------------------
NOTE 4 PORTFOLIO SECURITIES
For U.S. federal income tax purposes, the cost of securities owned at June 30,
1999 was substantially the same as the cost of securities for financial
statement purposes. Accordingly, net unrealized appreciation of $3,562,597 was
composed of gross appreciation of $14,634,569 for those securities having an
excess of value over cost and gross depreciation of $11,071,972 for those
securities having an excess of cost over value.
For the six months ended June 30, 1999, aggregate purchases and sales of
portfolio securities, excluding short-term securities, were $15,938,558 and
$15,639,844, respectively.
- --------------------------------------------------------------------------------
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11
<PAGE>
THE GREATER CHINA FUND, INC.
- -------------------------------------------------------------------------
- -------------------------------------------------------------------------
NOTE 5 CAPITAL STOCK
There were no transaction in shares of common stock for the six months ended
June 30, 1999 and for the year ended December 31, 1998.
- --------------------------------------------------------------------------------
NOTE 6 CONCENTRATION OF RISK
The Fund may have elements of risk, not typically associated with investments in
the U.S., due to concentrated investments in specific industries or investments
in foreign issuers located in a specific country or region. Such concentrations
may subject the Fund to additional risks resulting from future political or
economic conditions in such country or region and the possible imposition of
adverse governmental laws of currency exchange restrictions affecting such
country or region, which could cause the securities and their markets to be less
liquid and prices more volatile than those of comparable U.S. companies.
The Fund invests in fixed income securities issued by banks and other
corporations, the market values of which may change in response to interest rate
changes. The ability of the issuers of such fixed income securities to meet
their obligations may be affected by changing business and economic conditions
in a specific state, industry or region.
- --------------------------------------------------------------------------------
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12
<PAGE>
THE GREATER CHINA FUND, INC.
- -------------------------------------------------------------------------
- -------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
Selected data for a share of common stock outstanding throughout each period is
presented below:
<TABLE>
<CAPTION>
For the
Six Months For the Year Ended
Period December 31,
June 30, 1999 ------------------------------------------------------------------------
(Unaudited) 1998 1997 1996 1995 1994
----------------- ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $ 8.43 $ 13.46 $ 19.49 $ 14.52 $ 14.29 $ 23.79
----------------- ------------ ------------ ------------ ------------ ------------
INCOME (LOSS) FROM
INVESTMENT OPERATIONS
Net investment income
(loss) 0.06 (0.01) (0.09) 0.10* 0.20 0.12*
Net realized and
unrealized gain (loss)
on investments and
foreign currency
transactions 3.15 (4.10) (2.32) 5.93* 0.29 (8.92)*
----------------- ------------ ------------ ------------ ------------ ------------
Total from investment
operations 3.21 (4.11) (2.41) 6.03 0.49 (8.80)
----------------- ------------ ------------ ------------ ------------ ------------
DIVIDENDS AND
DISTRIBUTIONS TO
SHAREHOLDERS
From net investment
income -- -- -- (0.09) (0.20) (0.09)
In excess of net
investment income -- -- (0.13) (0.03) -- --
From net realized gain on
investments -- (0.92) (3.49) -- (0.01) (0.06)
In excess of net realized
gain on investments -- -- -- -- (0.05) --
----------------- ------------ ------------ ------------ ------------ ------------
Total dividends and
distributions to
shareholders 0.00 (0.92) (3.62) (0.12) (0.26) (0.15)
----------------- ------------ ------------ ------------ ------------ ------------
FUND SHARE TRANSACTIONS
Dilutive effect of rights
offering -- -- -- (0.89) -- (0.46)
Offering costs charged to
paid-in capital in
excess of par -- -- -- (0.05) -- (0.09)
----------------- ------------ ------------ ------------ ------------ ------------
Total Fund share
transactions -- -- -- (0.94) -- (0.55)
----------------- ------------ ------------ ------------ ------------ ------------
Net asset value, end of
period $ 11.64 $ 8.43 $ 13.46 $ 19.49 $ 14.52 $ 14.29
----------------- ------------ ------------ ------------ ------------ ------------
----------------- ------------ ------------ ------------ ------------ ------------
Market value, end of
period $ 9.69 $ 6.13 $ 10.88 $ 15.63 $ 14.13 $ 12.13
----------------- ------------ ------------ ------------ ------------ ------------
----------------- ------------ ------------ ------------ ------------ ------------
TOTAL INVESTMENT
RETURN(1) 58.08% (36.35)% (7.29)% 15.53% 18.48% (52.01)%
----------------- ------------ ------------ ------------ ------------ ------------
----------------- ------------ ------------ ------------ ------------ ------------
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period
(000 omitted) $146,569 $ 106,183 $ 169,518 $ 245,383 $ 139,246 $ 136,994
Ratio of expenses to
average net assets 2.45%** 2.59%(2) 1.88% 2.07% 2.36% 2.08%
Ratio of net investment
income (loss) to
average net assets 1.36%** (0.06)% (0.41)% 0.65% 1.39% 0.63%
Portfolio turnover 15% 41% 82% 37% 32% 22%
</TABLE>
- ------------
* Based on average shares outstanding.
** Annualized
(1) Total investment return is calculated assuming a purchase of common stock
at the current market price on the first day, the purchase of common stock
pursuant to any rights offering occurring in the period, and a sale at the
current market price on the last day of each period reported. Dividends and
distributions, if any, are assumed, for purposes of this calculation, to be
reinvested at prices obtained under the Fund's dividend reinvestment plan.
Total investment return does not reflect sales charges or brokerage
commissions. Total investment return for period of less than one year has
not been annualized.
(2) The ratio of expenses to average net assets excluding excise taxes was
2.29%
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
13
<PAGE>
THE GREATER CHINA FUND, INC.
- -------------------------------------------------------------------------
- -------------------------------------------------------------------------
OTHER INFORMATION
YEAR 2000 PROCESSING ISSUE
Many computer programs employed throughout the world use two digits rather than
four to identify the year. These programs, if not adapted, may not correctly
handle the change from "99" to "00" on January 1, 2000, and may not be able to
perform necessary functions. The year 2000 issue effects virtually all companies
and organizations.
The Investment Manager has advised the Fund that it is implementing steps
intended to ensure that its computer systems are capable of Year 2000
processing. In addition, the Fund is inquiring with third parties to assess the
adequacy of their Year 2000 compliance efforts. The Fund intends to develop
contingency plans intended to ensure that third-party noncompliance will not
materially affect the Fund's operations. The Fund does not currently anticipate
that the Year 200 issure will have an adverse effect on the Investment Manager's
ability to continue to provide the services currently provided to the Fund.
Companies in which the Fund invests could be adversely affected by the Year 2000
issue, but the Fund cannot predict the consequential effect on its investment
return. To the extent the impact on a portfolio holding is negative, the Fund's
investment return could be adversely affected.
ANNUAL SHAREHOLDERS' MEETING
The Fund's annual meeting of shareholders was held on April 22, 1999.
Shareholders voted to re-elect Richard B. Bradley and Don G. Hoff as Directors,
and to ratify the appointment of PriceWaterhouseCoopers LLP as the Fund's
independent accountants for the fiscal year ending December 31, 1999. The
resulting vote count for each proposal is indicated below:
<TABLE>
<CAPTION>
For Against Withheld Authority
--------- ------- ------------------
<S> <C> <C> <C>
1. Election of Directors:
Richard B. Bradley 9,267,607 0 164,259
Don G. Hoff 9,273,286 0 158,579
</TABLE>
In addition to the above re-elected Directors, Edward Baker, John A. Bult,
Richard Graham, John A. Hawkins, Jonathan K. Taylor, and Tak Lung Tsim continue
to serve as Directors of the Fund.
<TABLE>
<CAPTION>
For Against Withheld Authority
--------- ------- ------------------
<S> <C> <C> <C>
2. Ratification of the appointment
of PriceWaterhouseCoopers LLP as
the Fund's independent accountant 9,355,621 42,351 33,894
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
14
<PAGE>
DIRECTORS
Richard B. Bradley, CHAIRMAN
Edward Y. Baker
John A. Bult
Richard Graham
John A. Hawkins
Jonathan J.K. Taylor
Tak Lung Tsim
EXECUTIVE OFFICERS
Ronald G.M. Watt, PRESIDENT
Peter Cairns, SECRETARY
Henry Ho, VICE PRESIDENT RESIGNED EFFECTIVE JULY 1, 1999
Julian F. Sluyters, VICE PRESIDENT
Sam Lau, VICE PRESIDENT APPOINTED, EFFECTIVE JULY 1, 1999
Paul H. Schubert, TREASURER & ASSISTANT SECRETARY
INVESTMENT MANAGER
Baring Asset Management (Asia) Ltd.
19th Floor
Edinburgh Tower
15 Queen's Road Central
Hong Kong
ADMINISTRATOR
Mitchell Hutchins Asset Management Inc.
1285 Avenue of the Americas
New York, New York 10019
CUSTODIAN
Brown Brothers Harriman & Co.
40 Water Street
Boston, Massachusetts 02109
SHAREHOLDER SERVICING AGENT
PNC Bank, National Association
400 Bellevue Parkway
Wilmington, Delaware 19809
INDEPENDENT ACCOUNTANTS
PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, New York 10036
LEGAL COUNSEL
White & Case
1155 Avenue of the Americas
New York, New York 10036
This report, including the financial statements herein, is sent to the
shareholders of The Greater China Fund, Inc. for their information. It is not a
prospectus, circular or representation intended for use in the purchase or sale
of shares of the Fund or any securities mentioned in this report.
The financial information included herein is taken from the records of the Fund
without examination by independent accountants, who did not express an opinion
hereon.
Notice is hereby given in accordance with Section 23(c) of the Investment
Company Act of 1940, as amended, that from time to time the Fund may purchase at
market prices shares of its common stock in the open market.
The Greater China Fund, Inc.
1285 Avenue of the Americas
New York, New York 10019
For information call (212) 713-2848
Additional information (including updated net asset value and market price) may
be obtained through the Fund's dedicated toll-free number, 800-655-2599.
The Greater China
Fund, Inc.
Semi-Annual Report
June 30, 1999
[MH/PW GREATER CHINA LOGO]
