<PAGE>
Table of Contents
<TABLE>
<S> <C>
The Fund's Management 2
Letter to Shareholders 3
Report of the Investment Manager 5
Portfolio of Investments 9
Statement of Assets and Liabilities 13
Statement of Operations 14
Statement of Changes in Net Assets 15
Notes to Financial Statements 16
Financial Highlights 22
Report of Independent Accountants 24
Dividend Reinvestment Plan 25
Other Information 26
New Portfolio Manager 26
</TABLE>
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. 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. 51
West 52nd Street 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 Fund's Management
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
Sam Lau, Vice President
Julian F. Sluyters, Vice President
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.
51 West 52nd Street
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 LLP
1155 Avenue of the Americas
New York, New York 10036
<PAGE>
Letter to Shareholders
February 10, 2000
Dear Shareholder,
After two years of Asian crisis, during which your Fund's net asset value
suffered, I am delighted to report that 1999 was a very positive one. Against a
background of general economic improvement in Asia, the Greater China markets
enjoyed their best performance since 1994 and over the year the Fund's net asset
value rose from US$8.43 to US$11.47. The Fund's overall return for the year
(based on net asset value) was 36.1%, against an MSCI China Index return for the
same period of 13.3%. The Fund benefited from three major factors in 1999: a
gradual, export-led improvement in China's economy; increased confidence in a
telecommunications-led market recovery in Hong Kong; and successful strategy and
stock selection by the Investment Manager.
The speed of the economic recovery in Asia has surprised many almost as much as
the speed of its demise in 1997. North Asia has probably restructured fastest,
and the strength of the U.S. economy in absorbing a rapid increase of Asian
exports has been critical. China's balance of trade in 1999 was strongly
positive and this reduced speculation of Renminbi devaluation. Although domestic
consumption remained weak, infrastructure investment was expanded sharply.
Overall GDP growth (at about 7%) was historically the weakest year of the
decade, but is likely to increase during 2000. Recent macro statistics have
tended to be more positive than the market has expected, and there was surprise
at the speed of U.S./China agreement on the details of China's entry to the
World Trade Organisation (WTO). This should lead to China's accession to the WTO
during 2000, something we should all welcome.
For Chinese companies listed in Hong Kong, or Hong Kong-based companies doing
business in China, the better-than-expected macro developments were mirrored by
corporate results. As elsewhere in developed markets, technology and
telecommunications were the two most successful themes. China Telecom has now
overtaken HSBC as the largest stock (by market capitalization) listed in Hong
Kong, and Pacific Century has expanded rapidly into a major player in Hong
Kong's telecommunications market. Together with selected blue chips, these
stocks led the way to Hong Kong's 65% return in 1999. The Chinese markets,
though boosted by domestic government announcements in May (designed to
stimulate consumption), remained illiquid and to a large extent ignored by
foreign investors.
The Investment Manager's strategy was driven by an increase in exposure to
telecommunication and technology-related stocks (including Hutchison Whampoa), a
decrease in China 'H' shares (broadly industrial holdings), and an increase to
Taiwanese hi-tech exporters. This proved successful. Prospects for 2000 are
promising, although the Fund will have to face some difficult issues. At a time
of continued, if not accelerating, global growth, and without much sign of
inflation, emerging markets in general are likely to do well. In China's case
much will depend on both the quality of new listings and the impact in due
course of WTO. In Hong Kong the interest rate environment will probably be
negative for the market in the first half of the year, but should then recover.
Lastly, the structural improvements in China will make all the Greater China
markets more attractive, but there may be cross-Taiwan straits tensions in the
run up to the Taiwanese presidential elections in March. During 2000 it is
unlikely that sectoral returns will be as polarized as they
<PAGE>
were in 1999. The Fund will look closely at the quality of individual stocks
earnings and their realistic longer-term expectations, and continue to try and
deliver outperformance of its benchmark for the shareholders through good stock
selection.
Sincerely,
Richard B. Bradley
Chairman
Report of the Investment Manager
Overview
The stockmarkets of "Greater China" performed well in 1999 on the back of
economic recovery in the region and improved financial liquidity. Most of the
Asian economies reported encouraging growth led by strength in exports and
pick-up in domestic consumption. Excess liquidity created by current account
surpluses was also positive for interest rates and equity markets. Nevertheless,
volatility remained high, caused mainly by uncertainties over interest rates and
political events such as cross-strait relationship and China's WTO entry
negotiations. During the year, the Fund benefited from its overweight position
in Red-chips and other Hong Kong-listed companies, as they were among the
leading performers of stocks in "Greater China". In particular, the exposure to
telecommunication and technology-related companies, such as China Telecom and
Hutchison Whampoa, contributed positively to the performance of the Fund. The
table below portrays the net asset value performance of the Fund compared with
the relevant market indices:
<TABLE>
<CAPTION>
1999 1998 1997 1996
<S> <C> <C> <C> <C>
The Greater China Fund, Inc. +36.1% -31.3% -12.4% +35.1%
China - MSCI +13.3% -42.4% -26.4% +37.5%
Hong Kong - All Ordinary Index +65.2% -18.3% -19.3% +36.9%
Source: Datastream/BAM
Performance of Net Asset Value Per Share
</TABLE>
Note: This information represents the historical performance of The Greater
China Fund, Inc. and assumes the reinvestment of all dividends and
distributions.
Past performance is not predictive of future returns.
Asset Allocation
The major change in asset allocation decision during the year has been the
increase in weighting of telecom and technology-related stocks. They were bought
on the back of robust growth prospects and reasonable relative valuations. In
the second half of the year, weightings of manufacturing and consumption sectors
have been increased at the expense of some "H" share utility and infrastructure
stocks. As a result, the weighting of China "H" shares was reduced from 32% to
22%. In general, bottom-up stock selection remains the main determinant of
portfolio weightings.
Asset Allocation
<TABLE>
<CAPTION>
December 31, 1999 December 31, 1998
<S> <C> <C>
Other (Hong Kong) 35% 21%
Red Chips 29% 29%
China 'H' Shares 22% 32%
Taiwan 7% 2%
China 'N' and 'B' Shares 6% 11%
Cash 1% 5%
</TABLE>
China
Market Review
1999 was a volatile but fruitful year for China stocks. After a rough start
in the first quarter, share prices rose sharply in May as the Chinese Government
introduced a number of market-boosting measures with the objective of
stimulating the domestic economy. However, the rally failed to sustain and the
MSCI China Index ended the year with a modest gain of 13.3%. Nevertheless,
investment sentiment on China stocks improved on a series of positive
developments: the resolution of the GITIC issue, easing off of RMB devaluation
<PAGE>
concerns on the back of strong pick up of export, loosened economic policy and
the agreement with the U.S. on China's World Trade Organization (WTO) entry.
Prospects China recorded GDP growth of 7.1% in 1999, its slowest since 1991, as
the growth of government-induced fixed asset investments lost steam. Private
investment was lacklustre due to excess capacity in most of the basic
industries. Consumer spending was also weak as deflationary pressure in the
economy persisted. Nevertheless, there are encouraging signs of the economy
bottoming out on the back of strong external demand and expansionary fiscal and
monetary policies. Demand-side indicators like trade, retail sales and fixed
asset investment numbers have all shown improvements towards the end of 1999.
Recovery in 2000 is in the making.
Unlike the last two years in which GDP growth was mainly driven by public
spending on infrastructure, better quality of growth is expected in 2000. Demand
side factors such as exports and domestic consumption are likely to be the
determinants of growth. Lower inventory level and better capacity utilization
would have a positive impact on earnings of Chinese corporations.
China's long-awaited accession into the WTO is likely to take place in the
second half of 2000. WTO entry will be positive for China in the long term as it
accelerates the long-overdue SOE reform and attract foreign direct investments.
Its near-term impact, however, is expected to be quite mixed. Few domestic
sectors (e.g. textile and ports) will benefit while the impact on most sectors
will be either negative or neutral at best. With the gradual removal of import
tariff and deregulation of sectors like telecom and banking, China's WTO entry
will create more opportunities to foreign companies than to domestic companies.
Unemployment is likely to deteriorate further in the short term when weak
domestic players, which have long been protected, are phased out by foreign
competition.
RMB devaluation has become less of an issue as trade performance improves.
Sustained recovery of Asian demand, regional currency stability and buoyant OECD
(Organization for Economic Cooperation and Development) economies are key
factors supporting China's trade accounts.
Hong Kong
Market Review
The Hong Kong stockmarket staged a strong rally in 1999. Buoyant domestic
liquidity conditions, and enthusiasm about the bottoming-out of the economy sent
the market to its record high.
In terms of sectors, telecommunication and technology were the main focus.
Continuous strength in technology stocks overseas and the plan by the government
to develop high-tech sectors in the territory triggered interests in the sector.
On the other hand, property and utility counters underperformed due to
less-exciting growth prospects. Prospects
The Hong Kong economy remains on the recovery track. GDP growth is expected
to turn positive in 1999, after a contraction of 5.1% in 1998. The same trend is
also evident in trade performance and domestic consumption. Growth of exports
has been accelerating in 1999 while retail sales have also shown an encouraging
rebound in terms of volume. Looking forward, domestic consumption is expected to
post steady recovery in the light of gradual stabilization of unemployment and
the return of consumer confidence. This would be a favorable environment for
corporate earnings growth.
The potential rise in interest rates in the United States remains a risk to
the Hong Kong stockmarket, given that interest rate sensitive stocks still
constitute a significant part of the market. Nevertheless, liquidity appears to
be abundant in the banking system, as reflected by the keen competition among
the banks for new mortgages and the lowest level of loan to deposit ratios for
banks in ten years. Outlook
The positive factors driving the stockmarkets of "Greater China" last year
remain largely in place. Synchronized growth in OECD countries, recovery of
<PAGE>
regional economies and robust domestic liquidity due to strong current account
surpluses are underpinning a positive view for equity markets in 2000. Indeed,
the cyclical recovery and the structural improvement of the Chinese economy,
together with the relatively attractive valuation of Chinese equities, are
making an interesting investment case. Nevertheless, there are areas of concern
such as the trend of interest rates and the potential cross-strait political
conflicts. As such, a cautious and selective approach will continue to be
adopted with an emphasis put on sustainability of earnings growth and quality of
management.
February 10, 2000
Portfolio of Investments
December 31, 1999
<TABLE>
<CAPTION>
Shares Description Value
<S> <C> <C>
(Note(1))Equities - 98.4%
CHINA - 27.5%
Building Materials - 0.4%
6,882,000 Anhui Conch Cement $ 548,896
- -----------------------------------------------------------------------------------------------
Consumption - 2.6%
6,480,000 Guangzhou Pharmaceutical "H" 675,217
10,000,000 Tsingtao Brewery Co. Ltd. "H"* 3,055,252
- -----------------------------------------------------------------------------------------------
3,730,469
- -----------------------------------------------------------------------------------------------
Electrical & Electronics - 2.2%
4,290,000 Guangdong Kelon Electrical Holdings "H" 3,256,062
- -----------------------------------------------------------------------------------------------
Infrastructure - 3.0%
13,780,000 Anhui Expressway "H" 1,294,063
5,944,000 Jiangsu Expressway "H" 971,104
13,392,000 Zhejiang Expressway "H" 2,032,876
- -----------------------------------------------------------------------------------------------
4,298,043
- -----------------------------------------------------------------------------------------------
Machinery & Engineering - 2.5%
3,674,618 China International Marine Containers "B" 2,458,097
4,330,700 Shanghai Zhenhua Port Machinery "B" 1,186,612
- -----------------------------------------------------------------------------------------------
3,644,709
- -----------------------------------------------------------------------------------------------
Petrochemical - 6.2%
22,340,000 Shanghai Petrochemical "H"3,506,117
11,918,000 Yizheng Chemical Fibre "H"* 3,334,618
12,404,000 Zhenhai Refining & Chemical "H" 2,202,035
- -----------------------------------------------------------------------------------------------
9,042,770
- -----------------------------------------------------------------------------------------------
Services - 1.2%
4,013,160 Shanghai Dazhong Taxi "B"* 1,316,316
2,000,000 China Shipping Development "H"* 396,218
- -----------------------------------------------------------------------------------------------
1,712,534
- -----------------------------------------------------------------------------------------------
Utilities - 5.7%
12,198,000 Beijing Datang Power "H" $ 2,024,239
12,832,000 Huaneng Power International "H" 3,053,862
13,000,000 Zhejiang Southeast Electric Power "B" 3,120,000
- -----------------------------------------------------------------------------------------------
8,198,101
- -----------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
Miscellaneous - 3.7%
19,390,000 Yanzhou Coal Mining "H" 5,362,900
- -----------------------------------------------------------------------------------------------
Total China 39,794,484
HONG KONG - 64.4%
Automobiles - 1.7%
- -----------------------------------------------------------------------------------------------
473,000 Brilliance China Auto Holdings Ltd. 1,655,059
10,000,000 Denway Investments Ltd. 849,038
- -----------------------------------------------------------------------------------------------
2,504,097
- -----------------------------------------------------------------------------------------------
Banking - 2.9%
1,222,400 Bank of East Asia 3,404,510
2,900,000 HKCB Bank Holding Co. Ltd.* 820,737
- -----------------------------------------------------------------------------------------------
4,225,247
- -----------------------------------------------------------------------------------------------
Conglomerates - 17.3%
294,000 Beijing Enterprises "H"+ 463,305
3,160,000 China Resources Enterprise+ 5,061,041
450,000 Citic Pacific Ltd. 1,690,358
1,224,000 Hutchison Whampoa 17,792,757
- -----------------------------------------------------------------------------------------------
25,007,461
- -----------------------------------------------------------------------------------------------
Consumption - 3.7%
1,000,000 Giordano International Ltd. 1,029,137
2,850,000 Hengan International Group 779,089
6,740,000 NG Fung Hong 3,468,193
- -----------------------------------------------------------------------------------------------
5,276,419
- -----------------------------------------------------------------------------------------------
Electrical & Electronics - 3.8%
290,000 Johnson Electric Holdings $ 1,861,581
3,342,000 Kingboard Chemical Holdings Ltd. 1,483,232
900,000 Varitronix International 2,060,848
- -----------------------------------------------------------------------------------------------
5,405,661
- -----------------------------------------------------------------------------------------------
Infrastructure - 1.6%
1,846,774 New World Infrastructure* 2,363,852
Real Estate Development - 2.5%
183,000 Cheung Kong Holdings 2,318,840
12,000,000 Far East Hotels & Entertainment* 1,296,713
- -----------------------------------------------------------------------------------------------
3,615,553
- -----------------------------------------------------------------------------------------------
Telecommunication - 20.2%
1,500,000 Cable & Wireless HKT Ltd. 4,332,025
3,481,000 China Telecom* 21,718,467
649,000 Smartone Telecommunications Holdings 3,130,829
- -----------------------------------------------------------------------------------------------
29,181,321
- -----------------------------------------------------------------------------------------------
Miscellaneous - 10.7%
3,990,000 China Everbright Ltd.+ 3,259,343
7,324,000 China Merchants Holdings International+ 6,029,922
500,000 Li & Fung Ltd. 1,254,261
2,080,000 Pacific Century Cyberworks* 4,829,742
- -----------------------------------------------------------------------------------------------
15,373,268
Total Hong Kong 92,952,879
TAIWAN - 6.5%
- -----------------------------------------------------------------------------------------------
Electrical & Electronics - 6.5%
568,000 Compeq Manufacturing Co. Ltd.* $3,094,727
847,000 Hon Hai Precision Industry* 6,315,055
- -----------------------------------------------------------------------------------------------
9,409,782
- -----------------------------------------------------------------------------------------------
Total Equities
(cost $129,895,936) 142,157,145
- -----------------------------------------------------------------------------------------------
Principal Amount
CONVERTIBLE BOND - 0.4%
(000)
CHINA - 0.4%
Automobiles - 0.4%
$2,000
Qingling Motors, 3.50% due 1/22/02
(cost $1,118,997) 538,400
- -----------------------------------------------------------------------------------------------
Time Deposit - 1.5%
2,231 Brown Brothers Harriman & Co.,
Grand Cayman, 4.50%**, 1/3/00
(cost $2,231,000) 2,231,000
- -----------------------------------------------------------------------------------------------
Total Investments - 100.3% (cost $133,245,933) 144,926,545
Liabilities in excess of other assets - (0.3%) (477,086)
Net Assets - 100.0% $144,449,459
- -----------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------
</TABLE>
* Non-income producing security.
+ Security, or a portion thereof, was on loan at December 31, 1999.
** Variable rate account - rate resets on a monthly basis; amount available
upon 48 hours' notice. The rate shown is the rate in effect on December 31,
1999.
<PAGE>
<TABLE>
<CAPTION>
Statement of Assets and Liabilities
December 31, 1999
Assets
<S> <C> <C>
Investments, at value (cost $133,245,933) $144,926,545
Investments of collateral received for
securities on loan, at value (cost $8,145,202) 8,145,202
Cash (including foreign currency with
a cost of $7,248 and a value of $7,356) 19,150
Dividends & interest receivable 114,763
- -----------------------------------------------------------------------------------------------
Total assets 153,205,660
- -----------------------------------------------------------------------------------------------
Liabilities
Collateral for securities on loan 8,145,202
Investment management fee payable 144,923
Administration fee payable 24,462
Accrued expenses 441,614
- -----------------------------------------------------------------------------------------------
Total liabilities 8,756,201
- -----------------------------------------------------------------------------------------------
Net Assets $144,449,459
- -----------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------
Composition of Net Assets
<S> <C>
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 423,416
Accumulated net realized loss on investments (36,171,933)
Net unrealized appreciation of investments
and other assets and liabilities
denominated in foreign currency 11,680,634
- -----------------------------------------------------------------------------------------------
Net Assets $144,449,459
- -----------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------
Shares Outstanding 12,593,049
- -----------------------------------------------------------------------------------------------
Net Asset Value Per Share $11.47
- -----------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------
See Notes to Financial Statements.
Statement of Operations
For the Year Ended December 31, 1999
Investment Income
Dividends (net of foreign withholding taxes of $15,220) $ 2,362,235
Interest 728,097
- -----------------------------------------------------------------------------------------------
Total investment income 3,090,332
- -----------------------------------------------------------------------------------------------
Expenses
Investment management fees 1,491,637
Directors' fees and expenses 323,275
Custodian and accounting fees 305,478
Administration fees 253,662
Shareholder reports 105,192
Legal fees 77,163
Audit fees 45,530
New York Stock Exchange listing fee 24,260
Transfer agent fees and expenses 11,751
Miscellaneous expenses 26,942
- -----------------------------------------------------------------------------------------------
Total expenses 2,664,890
- -----------------------------------------------------------------------------------------------
Net investment income 425,442
- -----------------------------------------------------------------------------------------------
Realized and Unrealized Gain (Loss) on
Investments and Foreign Currency Transactions
Net realized loss on:
Investments (14,503,494)
Foreign currency transactions (2,026)
- -----------------------------------------------------------------------------------------------
(14,505,520)
- -----------------------------------------------------------------------------------------------
Net change in unrealized appreciation/depreciation of
investments and other assets and liabilities denominated in
foreign currencies 52,346,559
- -----------------------------------------------------------------------------------------------
Net realized and unrealized gain on investments
and foreign currency transactions 37,841,039
- -----------------------------------------------------------------------------------------------
Net Increase in Net Assets
From Investment Operations $ 38,266,481
- -----------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
See Notes to Financial Statements.
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
For the Year For the Year
Ended Ended
December 31, 1999 December 31, 1998
----------------- -----------------
<S> <C> <C>
Income (Loss) from Investment
Operations
Net investment income (loss) $ 425,442 $ (72,003)
Net realized loss on investments and
foreign currency transactions (14,505,520) (21,723,040)
Net change in unrealized
appreciation/depreciation of
investments and other assets and
liabilities denominated in
foreign currencies 52,346,559 (29,954,080)
----------------- -----------------
Total income (loss) from
investment operations 38,266,481 (51,749,123)
----------------- -----------------
Dividends and Distributions
to Shareholders
From net realized gain on investments - (11,585,605)
----------------- -----------------
Net increase (decrease) in net assets 38,266,481 (63,334,728)
Net Assets
Beginning of year 106,182,978 169,517,706
----------------- -----------------
End of year (including undistributed
net investment income of $423,416
at December 31, 1999) $144,449,459 $106,182,978
----------------- -----------------
----------------- -----------------
</TABLE>
See Notes to Financial
Notes to Financial Statements
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. 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,
<PAGE>
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. 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. 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 or loss
for income tax reporting purposes. SECURITY LENDING The Fund may lend up to
27.5% 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 foreign securities on loan, 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 agent 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 year ended December 31, 1999, net earnings to the Fund from
securities lending was $156,357, after deducting the borrowers' rebate of
$550,694 and PaineWebber fees of $83,925, of which $7,088 was payable to
PaineWebber at December 31, 1999. The market value of the securities on loan and
the cash collateral received with respect to such loans at December 31, 1999
were $7,404,301 and $8,145,202, respectively.
At December 31,1999, The Fund's investments from cash collected for
securities on loan are as follows:
<TABLE>
<CAPTION>
Shares Money Market Funds Value
<S> <C> <C>
53,842 Aim Liquid Assets Fund $ 53,842
233,900 Aim Prime Fund 233,900
1,971,260 Mitchell Hutchins Private
Money Market Fund LLC 1,971,260
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
5,886,200 Scudder Money Market Series
- Institutional 5,886,200
---------
$8,145,202
---------
---------
</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 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. As a result of permanent book/tax
differences primarily attributable to realized loss on foreign currency
transactions, $2,026 has been reclassified from accumulated net realized loss on
investments to undistributed net investment income. Net assets were not affected
by these reclassifications.
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.
CHINA Presently, as a result of a ruling issued in July 1993 (the "July
Ruling"), The People's Republic of China ("PRC") State Administration of
Taxation 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.
Note 2. Investment Management and Administration Agreements The Fund has an
investment management agreement ("Investment Management
<PAGE>
Agreement") with Baring Asset Management (Asia) Limited (the "Investment
Manager"), an indirect wholly-owned subsidiary of ING Group N.V. 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-owned subsidiary of 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 year ended December 31,
1999, $119,331 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 December 31, 1999 was $133,938,199. Accordingly, net
unrealized appreciation of $10,988,346 was composed of gross appreciation of
$39,347,236 for those securities having an excess of value over cost and gross
depreciation of $28,358,890 for those securities having an excess of cost over
value. For the year ended December 31, 1999, aggregate purchases and sales of
portfolio securities, excluding short-term securities, were $45,874,454 and
$42,460,244, respectively. At December 31, 1999, the Fund had a capital loss
carryforward of $35,479,667, of which $19,199,019 and $16,280,648 is available
as a reduction, to the extent provided in the regulations, of any future net
realized capital gains realized before the end of fiscal year 2006 and 2007,
respectively. To the extent that these losses are used to offset future realized
capital gains, such gains will not be distributed.
Note 5. Capital Stock There were no transactions in shares of common stock
for the years ended December 31, 1999 and 1998, respectively.
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.
<PAGE>
Financial Highlights
Selected data for a share of common stock outstanding throughout each year is
presented below:
<TABLE>
<CAPTION>
For the Years Ended For the Year Ended
December 31, December 31,
1999 1998 1997 1996 1995
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 8.43 $ 13.46 $ 19.49 $ 14.52 $ 14.29
------- ------- ------- ------- -------
Income (Loss) From Investment Operations
Net investment income (loss) 0.03 (0.01) (0.09) 0.10* 0.20
Net realized and unrealized gain (loss) on
investments and foreign currency transactions 3.01 (4.10) (2.32) 5.93* 0.29
------- ------- ------- ------- -------
Total from investment operations 3.04 (4.11) (2.41) 6.03 0.49
------- ------- ------- ------- -------
Dividends and Distributions to Shareholders
From net investment income - - - (0.09) (0.20)
In excess of net investment income - - (0.13) (0.03) -
From net realized gain on investments - (0.92) (3.49) - (0.01)
In excess of net realized gain on investments - - - - (0.05)
------- ------- ------- ------- -------
Total dividends and distributions to shareholders - (0.92) (3.62) (0.12) (0.26)
------- ------- ------- ------- -------
Fund Share Transactions
Dilutive effect of rights offering - - - (0.89) -
Offering costs charged to paid-in capital
in excess of par - - - (0.05) -
------- ------- ------- ------- -------
Total Fund share transactions - - - (0.94) -
------- ------- ------- ------- -------
Net asset value, end of year $ 11.47 $ 8.43 $ 13.46 $ 19.49 $ 14.52
------- ------- ------- ------- -------
------- ------- ------- ------- -------
Market value, end of year $ 8.38 $ 6.13 $ 10.88 $ 15.63 $ 14.13
------- ------- ------- ------- -------
------- ------- ------- ------- -------
Total Investment Return (1) 36.73% (36.35)% (7.29)% 15.53% 18.48%
------- ------- ------- ------- -------
------- ------- ------- ------- -------
Ratios/Supplemental Data
Net assets, end of period (000 omitted) $ 144,449 $ 106,183 $ 169,518 $ 245,383 $ 139,246
Ratio of expenses to average net assets 2.23% 2.59%(2) 1.88% 2.07% 2.36%
Ratio of net investment income (loss)
to average net assets 0.36% (0.06)% (0.41)% 0.65% 1.39%
Portfolio turnover 36% 41% 82% 37% 32%
</TABLE>
* Based on average shares outstanding.
(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 year, and a sale at the current market
price on the last day of each year reported. Dividends and distributions,
<PAGE>
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. (2) The ratio of
expenses to average net assets excluding excise taxes was 2.29%.
Report of Independent Accountants
To the Shareholders and Board of Directors of
The Greater China Fund, Inc.
In our opinion, the accompanying statement of assets and liabilities, including
the portfolio of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of The Greater China Fund, Inc. (the
"Fund") at December 31, 1999, the results of its operations for the year then
ended, the changes in its net assets for each of the two years in the period
then ended and the financial highlights for each of the five years in the period
then ended, in comformity with accounting principles generally accepted in the
United States. These financial statements and financial highlights (hereafter
referred to as "financial statements") are the responsibility of the Fund's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these financial
statements in accordance with auditing standards generally accepted in the
United States, which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of securities at December 31, 1999 by
correspondence with the custodian, provide a reasonable basis for the opinion
expressed above.
PricewaterhouseCoopers llp
1177 Avenue of the Americas
New York, New York
February 14, 2000
Dividend Reinvestment Plan
Pursuant to the Fund's Dividend Reinvestment Plan (the "Plan"), each shareholder
will be deemed to have elected, unless PNC Bank, National Association (the "Plan
Agent") is otherwise instructed by the shareholder in writing, to have all
distributions, net of any applicable U.S. withholding tax, automatically
reinvested in additional shares of the Fund by the Plan Agent. Shareholders who
do not participate in the Plan will receive all dividends and distributions in
cash, net of any applicable U.S. withholding tax, paid in dollars by check
mailed directly to the shareholder by the plan agent, as dividend-paying agent.
Shareholders who do not wish to have dividends and distributions automatically
reinvested should notify the Plan Agent. Dividends and distributions with
respect to shares registered in the name of a broker-dealer or other nominee (in
"street name") will be reinvested under the Plan unless such service is not
provided by the broker or nominee or the shareholder elects to receive dividends
and distributions in cash. A shareholder whose shares are held by a broker or
nominee that does not provide a dividend reinvestment program may be required to
have his shares registered in his own name to participate in the Plan. The Plan
Agent serves as agent for the shareholders in administering the Plan. If the
Fund declares an income dividend or a capital gain 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
<PAGE>
date equals or exceeds net asset value per share on that date, the
Fund will issue new shares to participants valued at net asset value, or if the
net asset value is less than 95% of the market price on the valuation date, then
valued at 95% of the market price. If net asset value per share on the valuation
date exceeds the market price per share on that date, the Plan Agent, as agent
for the participants, will buy shares of Common Stock on the open market. The
Plan Agent maintains all shareholder accounts in the Plan and furnishes written
confirmations of all transactions in the account, including information needed
by shareholders for personal and tax records. Shares in the account of each Plan
participant will be held by the Plan Agent in non-certificated form in the name
of the participant, and each shareholder's proxy will include those shares
purchased pursuant to the Plan.
There is no charge to participants for reinvesting dividends or capital gain
distributions. There will be no brokerage charge with respect to shares issued
directly by the Fund as a result of dividends or capital gain distributions
payable either in shares or in cash. However, each participant will pay a pro
rata share of brokerage commissions incurred with respect to the Plan Agent's
open market purchases in connection with the reinvestment of dividends and
distributions. The automatic reinvestment of dividends and distributions will
not relieve participants of any U.S. income tax that may be payable on such
dividends or distributions.
Experience under the Plan may indicate that changes are desirable. Accordingly,
the Fund and the Plan Agent reserve the right to terminate the Plan as applied
to any dividend or distribution paid subsequent to notice of the termination
sent to the members of the Plan at least 30 days before the record date for
dividends or distributions. The Plan also may be amended by the Fund or the Plan
Agent, but (except when necessary or appropriate to comply with applicable law,
rules or policies of a regulatory authority) only by at least 30 days' written
notice to members of the Plan. All correspondence concerning the Plan should be
directed to the Plan Agent c/o PNC Bank, National Association, 400 Bellevue
Parkway, Wilmington, Delaware 19809.
Other Information
Since December 31, 1998, there have been no (i) material changes in the Fund's
investment objectives or policies, (ii) changes to the Fund's charter or by-laws
and (iii) material changes in the principal risk factors associated with
investment in the Fund.
New Portfolio Manager
Mr. Sam Lau was appointed Vice President and Portfolio Manager effective July 1,
1999. Mr. Lau serves as the manager of the Fund and is primarily responsible for
the day-to-day management of the Fund's portfolio. He has nine years investment
experience, including six years at Baring Asset Management (Asia). Since 1993 he
has specialized in the Hong Kong and China equity markets.
