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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT INVESTMENT COMPANIES
Investment Company Act file number 811-21308
The China-U.S. Growth Fund
(Exact name of registrant as specified in charter)
111 Fifth Avenue New York, New York 10003
(Address of principal executive offices) (Zip code)
Mr. Frederick A. Blum
Fred Alger Management, Inc.
111 Fifth Avenue
New York, New York 10003
(Name and address of agent for service)
Registrant's telephone number, including area code: 212-806-8800
Date of fiscal year end: October 31
Date of reporting period: April 30, 2005
ITEM 1. REPORT(S) TO STOCKHOLDERS.
THE CHINA-U.S. GROWTH FUND
SEMI-ANNUAL REPORT
APRIL 30, 2005
(UNAUDITED)
[ALGER LOGO]
Dear Shareholders, May 31, 2005
The more things change, the more they remain the same, or so it seemed for
the six months ended April 30, 2005. The U.S. markets rallied strongly at the
end of 2004 after the U.S. presidential election was decided, but they retreated
in the first weeks of 2005 as investors confronted uncertainties about the
direction of the economy, the pace of interest rate hikes, elections in Iraq,
and rising energy costs. Through the winter and into spring, the markets traded
in a narrow range and drifted down. While the broader economic data were
positive and corporate earnings were stronger in the first quarter of 2005 than
many had anticipated, general investor skepticism weighed on the markets.
During the six-month reporting period, the S&P 500 was up 3.28%, the Dow
was up 2.78% and the NASDAQ was down 2.38%.
Corporate earnings continued to beat Wall Street's expectations. Energy
companies thrived, as did innovative companies across sectors, especially those
that were able to increase productivity and tap into growing global markets. The
S&P 500's earnings grew by 13.6% in the first quarter of 2005, handily beating
analysts' January estimates of approximately 8%.
During this period, Asian equity markets fared better. The Hang Seng Index
for the six months ended April 30, 2005 was up 7.85%, while the Hang Seng China
Enterprise Index of mainland Chinese companies whose shares trade in Hong Kong
was up 4.62%. The Chinese economy continued to expand at an annual rate in
excess of 9%, and many Chinese companies saw improved earnings and stronger
balance sheets. Toward the end of the period, some Chinese companies, especially
in the industrial sector, pulled back based on concerns that rising energy and
raw material costs would erode earnings. Nonetheless, overall, valuations remain
quite attractive relative to other global markets, and companies operating in
China have been able to generate exceptionally strong growth in revenues and
sales.
We continue to believe that the strength of the U.S. economy and the
potential of the markets are being underestimated by both investors and
commentators. Both the U.S. and the global economy have been expanding at more
than a 4% annual rate, and many companies are generating double-digit earnings
growth. Growth stocks in particular are trading at very modest multiples
relative to the projected growth rates, and if past patterns hold, we believe it
is only a matter of time before such stocks begin to outperform.
We want you to know that we value the trust you have placed in Alger. We
will continue to look for dynamic, forward-looking companies that are creating
the businesses and marketplaces of tomorrow, bringing growth opportunities to
our investors.
Respectfully submitted,
/s/ Daniel C. Chung
Daniel C. Chung
Chief Investment Officer
THE CHINA-U.S. GROWTH FUND
SHAREHOLDER EXPENSE EXAMPLE (UNAUDITED)
As a shareholder of the Fund, you incur two types of costs: transaction
costs, if applicable, including sales charges (loads) and redemption fees; and
ongoing costs, including management fees and other fund expenses. This example
is intended to help you understand your ongoing costs (in dollars) of investing
in the Fund and to compare these costs with the ongoing costs of investing in
other mutual funds.
The example below is based on an investment of $1,000 invested at the
beginning of the six-month period starting November 1, 2004 and ending April 30,
2005.
ACTUAL EXPENSES
The first line in the table below provides information about actual account
values and actual expenses. You may use the information in this line, together
with the amount you invested, to estimate the expenses that you would have paid
over the period. Simply divide your account value by $1,000 (for example, an
$8,600 account value divided by $1,000 = 8.6), then multiply the result by the
number in the first line under the heading entitled "Expenses Paid During the
Period" to estimate the expenses you paid on your account during this period.
HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES
The second line in the table below provides information about hypothetical
account values and hypothetical expenses based on the Fund's actual expense
ratios and an assumed rate of return of 5% per year before expenses, which is
not the Fund's actual return. The hypothetical account values and expenses may
not be used to estimate the actual ending account balance or expenses you paid
for the period. You may use this information to compare the ongoing costs of
investing in the Fund and other funds. To do so, compare this 5% hypothetical
example with the 5% hypothetical examples that appear in the shareholder reports
of other funds.
Please note that the expenses shown in the table are meant to highlight
your ongoing costs only and do not reflect any transaction costs, such as sales
charges (loads) and redemption fees. Therefore, the second line in the table is
useful in comparing ongoing costs only, and will not help you determine the
relative total costs of owning different funds. In addition, if these
transactional costs were included, your costs would have been higher.
EXPENSES PAID
BEGINNING ENDING DURING THE PERIOD
ACCOUNT VALUE ACCOUNT VALUE NOVEMBER 1, 2004 TO
NOVEMBER 1, 2004 APRIL 30, 2005 APRIL 30, 2005(b)
---------------- ----------------- --------------------
Actual ............ $1,000.00 $1,054.30 $11.87
Hypothetical(a) ... 1,000.00 1,013.24 11.63
- ----------
(a) 5% annual return before expenses.
(b) Expenses are equal to the Fund's annualized expense ratio of 2.33%,
multiplied by the average account value over the period, multiplied by
181/365 (to reflect the one-half year period).
2
THE CHINA-U.S. GROWTH FUND
SCHEDULE OF INVESTMENTS (UNAUDITED)
April 30, 2005
SHARES COMMON STOCKS--92.4% VALUE
--------- --------
UNITED STATES--44.5%
AEROSPACE & DEFENSE--2.1%
6,200 United Technologies Corporation ...................... $ 630,664
-----------
BIOTECHNOLOGY--1.7%
8,905 Amgen Inc.* .......................................... 518,360
-----------
CHEMICALS--3.3%
10,200 Dow Chemical Company (The) ........................... 468,486
4,900 Eastman Chemical Company ............................. 264,600
6,000 Rohm and Haas Company ................................ 261,960
-----------
995,046
-----------
COMMUNICATION EQUIPMENT--1.1%
21,200 Motorola, Inc. ....................................... 325,208
-----------
COMPUTERS & PERIPHERALS--4.5%
18,400 Applied Films Corporation* ........................... 439,944
29,700 Memc Electronic Materials, Inc.* ..................... 348,381
8,400 SanDisk Corporation* ................................. 199,080
38,200 Silicon Image, Inc.* ................................. 384,674
-----------
1,372,079
-----------
ENERGY EQUIPMENT & SERVICES--2.7%
6,100 Lone Star Technologies, Inc.* ........................ 237,534
6,400 National-Oilwell Varco Inc.* ......................... 254,336
4,700 Schlumberger Limited ................................. 321,527
-----------
813,397
-----------
FOOD & BEVERAGES--2.6%
16,550 Yum! Brands, Inc. .................................... 777,188
-----------
FOOD PRODUCTS--.8%
14,300 Archer-Daniels-Midland Company ....................... 257,257
-----------
FREIGHT & LOGISTICS--1.4%
4,800 FedEx Corp. .......................................... 407,760
-----------
HOTELS, RESTAURANTS & LEISURE--1.0%
5,400 Kerzner International Limited* ....................... 297,486
-----------
INTERNET & CATALOG RETAIL--1.9%
17,700 eBay Inc.* ........................................... 561,621
-----------
INTERNET SOFTWARE & SERVICES--2.2%
13,700 Netease.com Inc. ADR*# ............................... 676,643
-----------
MACHINERY--2.7%
6,600 Caterpillar Inc. ..................................... 581,130
7,250 Joy Global Inc. ...................................... 245,558
-----------
826,688
-----------
MEDICAL TECHNOLOGY--.9%
9,800 Syneron Medical Ltd.* ................................ 284,200
-----------
METALS & MINING--5.1%
9,800 Cameco Corporation ................................... 381,024
18,900 Companhia Vale do Rio Doce (CVRD) ADR*# .............. 509,355
5,100 Phelps Dodge Corporation ............................. 437,835
9,300 Schnitzer Steel Industries, Inc. Cl. A ............... 229,059
-----------
1,557,273
-----------
3
THE CHINA-U.S. GROWTH FUND
SCHEDULE OF INVESTMENTS (UNAUDITED) (CONTINUED)
April 30, 2005
SHARES COMMON STOCKS (CONTINUED) VALUE
--------- --------
OIL & GAS--1.2%
7,200 Canadian Natural Resources Ltd. ...................... $ 356,688
-----------
PERSONAL PRODUCTS--1.6%
12,600 Avon Products, Inc. .................................. 505,008
-----------
RETAIL--1.1%
8,700 Estee Lauder Companies Inc. Cl. A .................... 334,167
-----------
SEMICONDUCTORS & SEMICONDUCTOR
EQUIPMENT--1.2%
23,800 ATI Technologies Inc.* ............................... 352,240
-----------
SOFTWARE--1.7%
9,400 Electronic Arts Inc.* ................................ 501,866
-----------
TEXTILES, APPAREL & LUXURY GOODS--3.2%
16,700 Fossil, Inc.* ........................................ 388,441
7,500 NIKE, Inc. Cl. B ..................................... 576,075
-----------
964,516
-----------
WIRELESS TELECOMMUNICATION SERVICES--.5%
5,910 China Netcom Group Corporation (Hong Kong)
Limited ADR*# ...................................... 158,093
-----------
Total United States (Cost $13,721,261) ............... 13,473,448
-----------
CHINA--29.7%
ADVERTISING--2.2%
3,114,000 HC International, Inc. ............................... 679,147
-----------
AUTO COMPONENTS--.9%
27,243 China Yuchai International Limited* .................. 284,144
-----------
COMMUNICATION EQUIPMENT--1.9%
201,400 ZTE Corporation Cl. H ................................ 577,475
-----------
DIVERSIFIED TELECOMMUNICATION SERVICES--1.0%
854,000 China Telecom Corporation Limited Cl. H .............. 287,596
-----------
ELECTRICAL EQUIPMENT--.6%
1,962,000 IRICO Group Electronics Company Cl. H* ............... 171,161
-----------
ELECTRONIC EQUIPMENT & INSTRUMENTS--1.6%
494,000 Dongfang Electrical Machinery Company Limited Cl. H .. 465,812
-----------
HOTELS AND OTHER LODGING PLACES--4.2%
29,111 Ctrip.com International Ltd.* ........................ 1,277,391
-----------
INDUSTRIAL CONGLOMERATES--2.3%
492,000 China Resources Enterprise Limited ................... 691,155
-----------
INTERNET SOFTWARE & SERVICES--1.8%
793,000 Tencent Holdings Limited ............................. 549,368
-----------
MACHINERY--3.4%
261,900 Hangzhou Steam Turbine Co., Ltd. ..................... 412,937
187,700 Shanghai Zhenhua Port Machinery Co. Ltd. ............. 217,732
110,000 Weichai Power Co., Ltd. .............................. 381,024
-----------
1,011,693
-----------
METALS & MINING--1.8%
466,000 Inner Mongolia Yitai Coal Co., Ltd. .................. 550,812
-----------
4
THE CHINA-U.S. GROWTH FUND
SCHEDULE OF INVESTMENTS (UNAUDITED) (CONTINUED)
April 30, 2005
SHARES COMMON STOCKS (CONTINUED) VALUE
--------- --------
OIL & GAS--.6%
492,000 China Petroleum & Chemical Corp. (Sinopec) ........... $ 192,513
-----------
PHARMACEUTICALS--1.1%
591,034 Livzon Pharmaceutical Group Inc. Cl B ................ 339,693
-----------
REAL ESTATE--.7%
1,040,000 China Overseas Land Investment Limited ............... 214,810
-----------
ROAD & RAIL--1.1%
922,000 Guangshen Railway Company Limited .................... 316,411
-----------
TRANSPORTATION--1.0%
848,000 Shenzhen Expressway Company Limited .................. 310,054
-----------
WIRELESS TELECOMMUNICATION SERVICES--3.5%
220,500 China Mobile (Hong Kong) Limited ..................... 763,780
372,000 China Unicom Limited ................................. 300,663
-----------
1,064,443
-----------
Total China (Cost $8,861,427) ........................ 8,983,678
-----------
HONG KONG--16.7%
BIOTECHNOLOGY--.4%
368,000 Sino Biopharmaceutical Limited ....................... 129,831
-----------
BUILDING PRODUCTS--.5%
1,145,000 Paul Y. Engineering Group Limited .................... 146,893
-----------
COMPUTERS & PERIPHERALS--.7%
354,000 TPV Technology ....................................... 221,398
-----------
DIVERSIFIED FINANCIAL SERVICES--.9%
2,748,000 ITC Corporation Limited .............................. 278,510
-----------
DIVERSIFIED TELECOMMUNICATION SERVICES--1.4%
6,028,000 ZZNode Holdings Co., Ltd. ............................ 425,336
-----------
ELECTRONIC EQUIPMENT & INSTRUMENTS--1.2%
390,000 Varitronix International Limited ..................... 350,234
-----------
HOUSEHOLD DURABLES--.3%
742,000 Skyworth Digital Holdings Limited .................... 97,096
-----------
REAL ESTATE--5.2%
60,000 Cheung Kong (Holdings) Limited ....................... 565,763
163,000 Hongkong Land Holdings Limited ....................... 471,070
251,216 Hysan Development Company Limited .................... 520,494
-----------
1,557,327
-----------
RETAIL--1.2%
232,500 Lifestyle International Holdings Limited ............. 363,897
-----------
SEMICONDUCTORS & SEMICONDUCTOR
EQUIPMENT--1.5%
1,422,000 Nam Tai Electronic & Electrical Products Limited ..... 446,953
-----------
SPECIALTY RETAIL--1.4%
622,000 Giordano International Limited ....................... 430,904
-----------
TEXTILES & APPAREL--2.0%
682,000 Symphony Holdings Limited ............................ 144,366
3,154,000 Texhong Textile Group Limited* ....................... 461,278
-----------
605,644
-----------
Total Hong Kong (Cost $5,194,822) .................... 5,054,023
-----------
5
THE CHINA-U.S. GROWTH FUND
SCHEDULE OF INVESTMENTS (UNAUDITED) (CONTINUED)
April 30, 2005
SHARES COMMON STOCKS (CONTINUED) VALUE
--------- --------
SINGAPORE--1.5%
COMMERCIAL SERVICES & SUPPLIES
1,049,000 Raffles Education Corp Ltd ........................... $ 445,962
-----------
Total Singapore (Cost $435,751) ...................... 445,962
-----------
Total Common Stocks
(Cost $28,213,261) ................................. 27,957,111
-----------
PRINCIPAL
AMOUNT
---------
SHORT-TERM INVESTMENTS--8.7%
U.S. AGENCY OBLIGATIONS
$2,643,000 Federal Home Loan Banks, 2.61%, 5/2/05
(Cost $2,642,617) ................................. 2,642,617
-----------
Total Investments
(Cost $30,855,878) (a) ................................. 101.1% 30,599,728
Liabilities in Excess of Other Assets .................... (1.1) (321,668)
------ ------------
Net Assets ............................................... 100.0% $30,278,060
====== ============
- ----------
* Non-income producing security.
# American Depositary Receipts.
(a) At April 30, 2005, the net unrealized depreciation on investments, based on
cost for federal income tax purposes of $30,855,878 amounted to $256,150
which consisted of aggregate gross unrealized depreciation of $1,417,081and
aggregate gross unrealized appreciation of $1,160,931.
PORTFOLIO SUMMARY+ (UNAUDITED)
- --------------------------------------------------------------------------------
Value (%) Value (%)
- -------------------------------------- ---------------------------------------
United States 44.5% Singapore 1.5%
China 29.7 Cash and Net Other Assets 7.6
Hong Kong 16.7 -------
100.0%
+ Based on net assets.
- --------------------------------------------------------------------------------
See Notes to Financial Statements.
6
THE CHINA-U.S. GROWTH FUND
STATEMENT OF ASSETS AND LIABILITIES (UNAUDITED)
April 30, 2005
ASSETS:
Investments in securities, at value (cost $30,855,878,
see accompanying schedule of investments ........... $30,599,728
Cash ................................................. 886
Foreign currency, at value (cost $4,614) ............. 4,842
Receivable for investment securities sold ............ 817,776
Receivable for shares of beneficial interest sold .... 970,847
Dividends receivable ................................. 77,656
Receivable from Investment Manager--Note 3(a) ........ 35,095
Prepaid expenses ..................................... 13,809
-----------
Total Assets 32,520,639
LIABILITIES:
Payable for investment securities purchased .......... $1,160,077
Payable for shares of beneficial interest redeemed ... 985,575
Investment advisory fees payable ..................... 36,536
Shareholder servicing fees payable ................... 5,614
Transfer agent fees .................................. 4,521
Trustees' fees payable ............................... 4,555
Accrued expenses ..................................... 45,701
----------
Total Liabilities ................................ 2,242,579
-----------
NET ASSETS ............................................. $30,278,060
===========
NET ASSETS CONSIST OF:
Paid-in capital ..................................... $28,069,522
Undistributed net investment income
(accumulated loss) ................................ (178,057)
Undistributed net realized gain
(accumulated loss) ................................ 2,642,745
Net unrealized appreciation (depreciation)
of investments .................................... (256,150)
-----------
NET ASSETS ............................................. $30,278,060
===========
Net Asset Value Per Share ........................... $ 11.65
===========
Offering Price Per Share ............................ $ 12.30
Shares of beneficial interest outstanding--Note 6 ...... 2,598,535
===========
See Notes to Financial Statements.
7
THE CHINA-U.S. GROWTH FUND
STATEMENT OF OPERATIONS (UNAUDITED)
For the six months ended April 30, 2005
INVESTMENT INCOME:
Income:
Dividends (net of foreign witholding
taxes of $91) ................................... $ 140,038
Interest .......................................... 21,546
-----------
Total Income .................................... 161,584
-----------
Expenses:
Investment advisory fees--Note 3(a) ............... $ 218,642
Custodian fees .................................... 59,883
Shareholder servicing fees--Note 3(f) ............. 36,440
Trustees' fees .................................... 13,786
Professional fees ................................. 25,228
Printing .......................................... 20,500
Transfer agent fees--Note 3(b) .................... 10,863
Registration fees ................................. 8,512
Miscellaneous ..................................... 15,935
---------
409,789
Less expense reimbursement--Note 3(a) ............. (70,148)
---------
Total Expenses .................................. 339,641
-----------
NET INVESTMENT LOSS .................................... (178,057)
REALIZED AND UNREALIZED GAIN (LOSS)ON
INVESTMENTS AND FOREIGN CURRENCY TRANSACTIONS:
Net realized gain on investments ....................... 2,834,493
Net realized loss on foreign currency transactions ..... (3,612)
Net change in unrealized appreciation (depreciation)
on investments and foreign currency translations .... (1,283,889)
---------
Net realized and unrealized gain on investments
and foreign currency .......................... 1,546,992
-----------
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS .......................................... $1,368,935
===========
See Notes to Financial Statements.
8
THE CHINA-U.S. GROWTH FUND
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE SIX MONTHS NOVEMBER 3, 2003(i)
ENDED APRIL 30, 2005 TO
(UNAUDITED) OCTOBER 31, 2004
-------------------- ------------------
Net investment loss ............................ $ (178,057) $ (153,711)
Net realized gain (loss) on investments
and foreign currency transactions ........... 2,830,881 (114,742)
Net change in unrealized appreciation
(depreciation) on investments
and foreign currency translations ........... (1,283,889) 1,027,739
------------ ------------
Net increase in net assets resulting
from operations ......................... 1,368,935 759,286
Net increase from shares of beneficial interest
transactions--Note 6 ........................ 2,619,117 25,430,722
------------ ------------
Total increase in net assets ............ 3,988,052 26,190,008
------------ ------------
Net assets:
Beginning of period .......................... 26,290,008 100,000
------------ ------------
End of period ................................ $ 30,278,060 $ 26,290,008
============ ============
- ----------
(i) Commencement of operations.
See Notes to Financial Statements.
9
THE CHINA-U.S. GROWTH FUND
FINANCIAL HIGHLIGHTS
FOR A SHARE OUTSTANDING
THROUGHOUT THE PERIOD
FOR THE SIX MONTHS NOVEMBER 3, 2003 (i)
ENDED APRIL 30, 2005 TO
(UNAUDITED)(ii) OCTOBER 31, 2004 (ii)
-------------------- -------------------
Net asset value, beginning of period ........... $ 11.05 $ 10.00
Net investment loss (iii) ...................... (0.07) (0.08)
Net realized and unrealized gain
on investments .............................. 0.67 1.13
------------ ------------
Total from investment operations ............... 0.60 1.05
------------ ------------
Net assets value, end of period ................ $ 11.65 $ 11.05
============ ============
Total return (iv) .............................. 5.43% 10.50%
============ ============
RATIOS AND SUPPLEMENTAL DATA:
Net assets, end of period (000's omitted) ... $ 30,278 $ 26,290
------------ ------------
Ratio of expenses to average net assets ..... 2.33% 2.44%
============ ============
Ratio of net investment income (loss)
to average net assets ..................... (1.22)% (0.81)%
============ ============
Decrease reflected in above ratios due
to expense reimbursement--Note 3(a) ....... 0.48% 0.43%
============ ============
Portfolio turnover rate ..................... 155.73% 267.42%
============ ============
- ---------
(i) Commencement of operations.
(ii) Ratios have been annualized; total return has not been annualized.
(iii) Amount was computed based on average shares outstanding during the
period.
(iv) Does not reflect the effect of any sales charges.
See Notes to Financial Statements.
10
THE CHINA-U.S. GROWTH FUND
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
NOTE 1--GENERAL:
The China-U.S. Growth Fund (the "Fund") is a diversified open-end registered
investment company organized as a business trust under the laws of the
Commonwealth of Massachusetts. The Fund's investment objective is long-term
capital appreciation. It seeks to achieve its objective by normally investing in
equity securities which are publicly traded in the United States, China, Hong
Kong and Taiwan markets. The Fund commenced operations on November 3, 2003 with
the issuance of 10,000 shares at $10.00 per share to Fred Alger Management, Inc.
("Alger Management"), the Fund's investment manager. The Fund's single share
class was re-designated as Class A shares effective January 24, 2005, and are
generally subject to an initial sales charge. The Fund's fiscal year ends on
October 31.
NOTE 2--SIGNIFICANT ACCOUNTING POLICIES:
(a) INVESTMENT VALUATION--Investments of the Fund are valued on each day the New
York Stock Exchange (the "NYSE") is open as of the close of the NYSE (normally
4:00 p.m. Eastern time). Listed securities for which such information is
regularly reported are valued at the last reported sales price or, in the
absence of reported sales, at the mean between the bid and asked price or, in
the absence of a recent bid or asked price, the equivalent as obtained from one
or more of the major market makers for the securities to be valued. Securities
listed on foreign exchanges are valued at the last reported sales price or, in
the absence of reported sales, at the mean between the bid and asked price.
Securities included within the Nasdaq market shall be valued at the Nasdaq
official closing price ("NOCP") on the day of valuation, or if there be no NOCP
issued, at the last sale price on such day. Securities included within the
Nasdaq market for which there is no NOCP and no last sale price on the day of
valuation shall be valued at the mean between the last bid and asked prices on
such day.
Securities for which market quotations are not readily available are valued at
fair value, as determined in good faith pursuant to procedures established by
the Board of Trustees.
Securities in which the Fund invests may be traded in markets that close before
the close of the NYSE. Normally, developments that occur between the close of
the foreign markets and the close of the NYSE (normally 4:00 p.m. Eastern time)
will not be reflected in the Fund's net asset value. However, if it be
determined that such developments are so significant that they will materially
affect the value of the Fund's securities, the Fund may adjust the previous
closing prices to reflect what the Valuation Committee, under the direction of
the Board of Trustees, believes to be the fair value of these securities as of
the close of the NYSE. The Fund may also fair value securities in other
situations, for example, when a particular foreign market is closed but the Fund
is open.
11
THE CHINA-U.S. GROWTH FUND
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
Short-term securities having a remaining maturity of sixty days or less are
valued at amortized cost which approximates market value. Shares of mutual funds
are valued at the net asset value of the underlying mutual fund.
(b) SECURITIES TRANSACTIONS AND INVESTMENT INCOME--Securities transactions are
recorded on a trade date basis. Realized gains and losses from securities
transactions are recorded on the basis of identified cost. Dividend income is
recognized on the ex-dividend date and interest income is recognized on the
accrual basis. Occasionally, dividends are recorded as soon after the
ex-dividend date as the Fund, using reasonable diligence, becomes aware of such
dividends.
(c) FOREIGN CURRENCY TRANSLATIONS--The books and records of the Fund are
maintained in U.S. dollars. Foreign currencies, investments and other assets and
liabilities are translated into U.S. dollars at the prevailing rates of exchange
on the valuation date. Purchases and sales of investment securities and income
and expenses are translated into U.S. dollars at the prevailing exchange rates
on the respective dates of such transactions.
Net realized gains and losses on foreign currency transactions represent net
gains and losses from the disposition of foreign currencies, currency gains and
losses realized between the trade dates and settlement dates of security
transactions, and the difference between the amount of net investment income
accrued and the U.S. dollar amount actually received. The effects of changes in
foreign currency exchange rates on investments in securities are included in
realized and unrealized gain or loss on investments in the Statement of
Operations.
(d) DIVIDENDS TO SHAREHOLDERS--Dividends and distributions payable to
shareholders are recorded by the Fund on the ex-dividend date. Dividends from
net investment income and distributions from net realized gains are declared and
paid annually after the end of the fiscal year in which earned.
The characterization of distributions to shareholders for financial statement
purposes is determined in accordance with federal income tax rules. Therefore,
the source of the Fund's distributions may be shown in the accompanying
financial statements as either from, or in excess of net investment income, net
realized gain on investment transactions or return of capital, depending on the
type of book/tax differences that may exist. Capital accounts within the
financial statements are adjusted for permanent book/tax differences.
Reclassifications result primarily from the differences in tax treatment of net
operating losses and foreign currency transactions. The reclassification had no
impact on the net asset value of the Fund and is designed to present the Fund's
capital accounts on a tax basis.
(e) FEDERAL INCOME TAXES--It is the Fund's policy to comply with the
requirements of the Internal Revenue Code applicable to regulated investment
12
THE CHINA-U.S. GROWTH FUND
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
companies and to distribute all of its investment company taxable income to its
shareholders. Provided the Fund maintains such compliance, no federal income tax
provision is required.
(f) INDEMNIFICATION--The Fund enters into contracts that
contain a variety of indemnification provisions. The Fund's maximum exposure
under these arrangements is unknown. The Fund does not anticipate recognizing
any loss related to these arrangements.
(g) OTHER--These financial statements have been prepared using estimates and
assumptions that affect the reported amounts therein. Actual results may differ
from those estimates.
NOTE 3--INVESTMENT ADVISORY FEES AND OTHER TRANSACTIONS WITH AFFILIATES:
(a) INVESTMENT ADVISORY FEES--The Fund pays Alger Management a monthly fee at an
annual rate of 1.50% based on the value of the Fund's average daily net assets.
JF International Management Inc. ("JFIM"), a registered investment adviser, acts
as sub-adviser to the Fund under a written sub-advisory agreement with Alger
Management. JFIM's fees and compensation are paid by Alger Management.
From December 23, 2003 to February 17, 2005, Alger Management established an
expense cap for the Fund, whereby it reimbursed the Fund if annualized operating
expenses (excluding interest, taxes, brokerage, and extraordinary expenses)
exceed 2.40% of average daily net assets. Effective February 17, 2005, Alger
Management reduced the expense cap to 2.20%. For the period ended April 30,
2005, Alger Management reimbursed the Fund $70,148. Alger Management has
contractually agreed to extend the expense cap through February 28, 2006.
(b) TRANSFER AGENT FEES--Alger Shareholder Services, Inc. ("Alger Services"), an
affiliate of Alger Management, served as transfer agent for the Fund. During the
six months ended April 30, 2005, the Fund incurred fees of $940 for services
provided by Alger Services. Effective November 22, 2004, State Street Bank and
Trust Company replaced Alger Services as the Fund's transfer agent. Transfer
agent services are provided by State Street Bank and Trust Company's affiliate,
Boston Financial Data Services, Inc. ("BFDS"). Effective February 28, 2005, the
Fund has entered into a shareholder administrative services agreement with Alger
Services to compensate Alger Services on a per account basis for its liaison and
administrative oversight of BFDS and related services. During the six months
ended April 30, 2005, the Fund incurred fees of $967 for these services provided
by Alger Services.
(c) SALES CHARGES--Purchases of shares of the Fund may be subject to initial
sales charges. For the six months ended April 30, 2005, the initial sales
13
THE CHINA-U.S. GROWTH FUND
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
charges retained by Fred Alger & Company (the "Distributor"), were approximately
$2,471. Sales charges do not represent expenses of the Fund.
(d) BROKERAGE COMMISSIONS--During the period ended April 30, 2005, the Fund paid
Fred Alger & Company, Incorporated ("Alger Inc."), an affiliate of Alger
Management, $20,031 in connection with securities transactions.
(e) TRUSTEES' FEES--Certain trustees and officers of the Fund are directors and
officers of Alger Management, Alger Inc. and Alger Services. The Fund pays each
trustee who is not affiliated with Alger Management or its affiliates an annual
fee of $8,000.
(f) SHAREHOLDER SERVICING FEES--The Fund has entered into a shareholder
servicing agreement with Alger Inc. whereby Alger Inc. provides the Fund with
ongoing servicing of shareholder accounts. As compensation for such services,
the Fund pays Alger Inc. a monthly fee at an annual rate equal to .25% of the
value of the Fund's average daily net assets.
(g) OTHER TRANSACTIONS WITH AFFILIATES--Certain directors and officers of the
Fund are directors and officers of Alger Management, the Distributor and Alger
Services.
NOTE 4--SECURITIES TRANSACTIONS:
During the six months ended April 30, 2005, purchases and sales of investment
securities, excluding short-term securities, aggregated $44,907,559 and
$42,745,689, respectively.
Transactions in foreign securities may involve certain considerations and risks
not typically associated with those of U.S. companies because of, among other
factors, the level of governmental supervision and regulation of foreign
security markets, and the possibility of political or economic instability.
NOTE 5--LINE OF CREDIT:
The Fund has a committed line of credit with a bank. All borrowings have
variable interest rates and are payable on demand. The Fund may borrow under
such line of credit exclusively for temporary or emergency purposes. For the six
months ended April 30, 2005, the Fund had no borrowings.
NOTE 6--SHARE CAPITAL:
The Fund has an unlimited number of authorized shares of beneficial interest of
$.001 par value. Transactions of shares of beneficial interest were as follows:
FOR THE SIX MONTHS ENDED FOR THE YEAR ENDED
APRIL 30, 2005 OCTOBER 31, 2004
--------------------------- ---------------------------
SHARES AMOUNT SHARES AMOUNT
----------- ------------ ----------- ------------
Shares sold ........ 411,258 $ 4,908,861 2,538,362 $27,197,643
Shares redeemed ..... (192,317) (2,289,744) (168,768) (1,766,921)
--------- ----------- --------- -----------
Net increase ........ 218,941 $ 2,619,117 2,369,594 $25,430,722
========= =========== ========= ===========
14
THE CHINA-U.S. GROWTH FUND
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
The Fund may impose a 2.00% redemption fee on Fund shares redeemed (including
shares redeemed by exchange) less than one year after such shares were acquired.
The fees retained by the Fund are included as paid-in capital on the Statement
of Assets and Liabilities. During the six months ended April 30, 2005 and the
year ended October 31, 2004, redemption fees were $33,878 and $29,528,
respectively.
NOTE 7--DISTRIBUTIONS TO SHAREHOLDERS:
During the six months ended April 30, 2005 and the year ended October 31, 2004,
no distributions were paid.
As of October 31, 2004, the components of distributable earnings on a tax basis
were as follows:
Undistributed ordinary income ..................................... --
Undistributed long-term gain ...................................... --
Unrealized appreciation ........................................... $839,600
The difference between book basis and tax basis unrealized appreciation is
attributable primarily to the tax deferral of losses on wash sales.
NOTE 8--REGULATORY MATTERS:
Alger Management has been responding to inquiries, document requests and/or
subpoenas from regulatory authorities, including the United States Securities
and Exchange Commission ("SEC"), the Office of the New York State Attorney
General, and the Attorney General of New Jersey, in connection with their
investigation of practices in the mutual fund industry identified as "market
timing" and "late trading."
Certain civil actions have developed out of the regulatory investigations.
Several purported class actions and shareholder derivative suits have been filed
against various parties, including, depending on the lawsuit, Alger Management,
certain of the mutual funds managed by Alger Management (the "Alger Mutual
Funds"), and certain current and former Alger Mutual Fund trustees and officers,
alleging wrongful market-timing and late-trading activities. These cases have
been transferred to the U.S. District Court of Maryland by the Judicial Panel on
Multidistrict Litigation for consolidated pre-trial proceedings. On September
29, 2004, consolidated amended complaints involving these cases were filed in
the Maryland federal district court under the caption number 1:04-MD-15863
(JFM).
On or about April 12, 2005, the Attorney General of the State of West Virginia
filed a complaint in the Circuit Court of Marshall County, West Virginia against
a number of mutual fund investment advisers, distributors and others, including
Alger Management and its parent Fred Alger & Company, Incorporated, the Alger
Mutual Funds' Distributor, alleging violations of the West Virginia Consumer
Credit and Protection Act and other wrongful conduct. Insofar as the factual
allegations in the complaint relate to Alger Management and the
15
THE CHINA-U.S. GROWTH FUND
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
Distributor, they ascribe improper conduct to these entities relating to "market
timing" in one or more of the Alger Mutual Funds. The complaint seeks injunctive
relief, civil monetary penalties, costs and attorney fees, and other relief.
Alger Management continues to cooperate with the SEC and state investigations,
which have not, as of the present date, been resolved. Although Alger Management
does not believe that the Alger Mutual Funds are themselves targets of these
regulators' investigations as potential enforcement defendants, the actions of
Alger Management and certain of its affiliates and their senior executives and
Alger Mutual Fund senior personnel are of interest to the investigators.
Although no regulatory enforcement action has yet been commenced against Alger
Management, board members or personnel in connection with the matters being
investigated (other than the actions resolved in the fall of 2003 against James
P. Connelly, Jr., former Vice Chairman of the Distributor), it is possible that
the SEC and the states may pursue actions in the future. The potential timing of
any such action or the relief or remedies that may be sought are not known at
this time. Alger Management is not yet able to predict whether or on what terms
matters might be resolved with the SEC or the states. The SEC and, in some
cases, state government authorities have a variety of administrative and civil
enforcement powers, including injunctive powers, authority to assess substantial
fines and penalties and order restitution, authority to limit the activities of
a person or company (including license and registration revocations, injunctive
authority and prohibition from engaging in the investment or securities
businesses) and other enforcement powers, that may be exercised administratively
or by going into court.
Under Section 9(a) of the Investment Company Act, if any of the various
regulatory investigations or lawsuits were to result in a court injunction
against Alger Management or the Distributor, both companies would, in the
absence of exemptive relief granted by the SEC, be barred from serving as
investment adviser/sub-adviser or principal underwriter for any registered
investment company, including the Fund. There is no assurance that such
exemptive relief would be granted if sought. In addition, it is possible that
these matters and/or other developments resulting from these matters could
result in increased Fund redemptions, loss of Alger Management personnel,
diversion of time and attention of Alger Management personnel, diminishment of
financial resources of Alger Management, or other consequences potentially
adverse to the Fund. Alger Management cannot predict the potential effect of
such actions upon Alger Management or the Fund. There can be no assurance that
the effect, if any, would not be material.
16
THE CHINA-U.S. GROWTH FUND
111 Fifth Avenue
New York, NY 10003
(800) 254-3796
www.chinausgrowthfund.com
INVESTMENT MANAGER
Fred Alger Management, Inc.
111 Fifth Avenue
New York, NY 10003
TRANSFER AGENT AND DIVIDEND DISBURSING AGENT
Boston Financial Data Services, Inc.
P.O. Box 8480
Boston, MA 02266
This report is submitted for the general information of the shareholders of The
China-U.S. Growth Fund. It is not authorized for distribution to prospective
investors unless accompanied by an effective Prospectus for the Fund, which
contains information concerning the Fund's investment policies, fees and
expenses as well as other pertinent information.
PROXY VOTING POLICIES
A description of the policies and procedures the Fund uses to determine how to
vote proxies relating to portfolio securities and the proxy voting record is
available, without charge, by calling (800) 254-3796 or online on the Fund's
website at http://www.chinausgrowthfund.com or on the EDGAR Database on the
SEC's web site (http://www.sec.gov).
QUARTERLY FUND HOLDINGS
The Fund files its complete schedule of portfolio holdings with the SEC for the
first and third quarter of each fiscal year on Form N-Q. Forms N-Q are available
online on the Fund's website at http://www.chinausgrowthfund.com or on the SEC's
website at http://www.sec.gov. The Fund's Forms N-Q may be reviewed and copied
at the SEC's Public Reference Room in Washington, D.C. Information regarding the
operation of the SEC's Public Reference Room may be obtained by calling
1-800-SEC-0330. A copy of the most recent quarterly holdings may also be
obtained from the Funds by calling (800) 254-3796.
[ALGER LOGO]
The China-U.S. Growth Fund
Boston Financial Data Services, Inc.
P.O. Box 8480 Boston, MA 02266
CSAR 43005 L2
ITEM 2. CODE OF ETHICS.
Not applicable.
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.
Not applicable.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
Not applicable.
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS.
Not applicable.
ITEM 6. SCHEDULE OF INVESTMENTS.
Not applicable.
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED END
MANAGEMENT INVESTMENT COMPANIES. Not applicable.
ITEM 8. PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES.
Not applicable.
ITEM 9. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT
COMPANY AND AFFILIATED PURCHASERS. Not applicable.
ITEM 10. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not applicable.
ITEM 11. CONTROLS AND PROCEDURES.
(a) The registrant's principal executive officer and principal financial officer
have concluded that the registrant's disclosure controls and procedures (as
defined in Rule 30a-3(c) under the Investment Company Act of 1940, as amended)
are effective based on their evaluation of the disclosure controls and
procedures as of a date within 90 days of the filing date of this document.
(b) No changes in the registrant's internal control over financial reporting
occurred during the registrant's second fiscal quarter of the period covered by
this report that materially affected, or are reasonably likely to materially
affect, the registrant's internal control over financial reporting.
ITEM 12. EXHIBITS.
(a) (1) Not applicable
(a) (2) Certifications of principal executive officer and principal financial
officer as required by rule 30a-2(a) under the Investment Company Act of 1940
are attached as Exhibit 99.CERT
(b) Certifications of principal executive officer and principal financial
officer as required by rule 30a-2(b) under the Investment Company Act of 1940
are attached as Exhibit 99.906CERT
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
The China-U.S. Growth Fund
By: /s/Dan C. Chung
Dan C. Chung
President
Date: June 28, 2005
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
By: /s/Dan C. Chung
Dan C. Chung
President
Date: June 28, 2005
By: /s/Frederick A. Blum
Frederick A. Blum
Treasurer
Date: June 28, 2005