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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. Hal Liebes
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, 2006
ITEM 1. REPORT(S) TO STOCKHOLDERS.
THE CHINA-U.S.
GROWTH FUND
SEMI-ANNUAL REPORT
APRIL 30, 2006
(UNAUDITED)
[LOGO OMITTED]
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Dear Shareholders, June 8, 2006
In the six months ended April 30, 2006, the U.S. economy remained strong,
with inflation contained and overall Gross Domestic Product ("GDP") growth
increasing at an annual rate of 4.8% as of March 31, 2006, three percentage
points over the previous quarter's rate. And it wasn't simply that the economy
overall was solid. During this period, corporate profits exceeded expectations;
productivity stayed high; and growth companies in particular saw healthy stock
appreciation.
At the same time, the continued strength of the economy led to uncertainty
about interest rates and inflation, and that in turn, kept the markets from
breaking out of their trading range. At the Federal Open Market Committee (FOMC)
meeting on March 28th, the Fed once again raised the key interest rate from
4.50% to 4.75%--the 15th consecutive increase since June 2004. The Fed noted
that the current business climate is showing remarkable growth "but appears
likely to moderate to a more sustainable pace."(1)
After new Fed Chairman Ben Bernanke appeared before the U.S. Congress on
April 27th, it was widely believed that the Fed would stop raising rates before
the summer. Subsequent economic data clouded the picture yet again, and the
markets retreated. Nonetheless, rates remain low relative to historical levels,
and while the precise number of future increases is uncertain, it is our belief
that we are close to the peak of the current cycle.
Rising interest rates have been a headwind for the markets, but the
uncertainty over when the increases will stop has been even more of an
impediment. Even with that uncertainty hovering over the market, solid GDP
growth and robust corporate profit growth propelled equities higher during the
six months that ended on April 30th, and nearly every market sector posted
positive returns. And because corporate profits have increased at a faster rate
than the major indices, the market overall has continued to become less
expensive. For the six months ending April 30, 2006, the major indices ended up,
with the Dow Jones Industrials up 10.21%, the Standard & Poor's 500 Index up
15.27% and the NASDAQ up 9.55%.
Globally, foreign markets and emerging economies have been torrid. Asian
stock markets offered substantial gains in 2005, and by the end of December,
China had revised its official GDP figures upward by about $300 billion, more
accurately reflecting the size and scope of its economy and the growing power of
its consumers. Even those investors not directly exposed to those markets tended
to benefit. Many companies have global exposure, and their earnings growth
reflects the strong global economy.
Despite the continued rise in interest rates, we believe that the overall
low rates by historical standards and record levels of household net worth have
buoyed consumer spending, with U.S. consumers now sustaining higher levels of
debt than they have in years. In fact, in 2005 U.S. consumers defied
expectations by absorbing rising energy prices without substantial decreases in
spending. The first months of 2006 saw no significant change in these trends, as
both growth and productivity outpaced expectations.
Going forward, we believe that both the U.S. and the global economy will
continue to expand, and our outlook for corporate earnings for 2006 is positive.
U.S. markets may remain range-bound so long as the interest rate picture stays
uncertain, but by most measures, the markets are trading at reasonable
valuations backed by strong fundamentals.
- ------------
(1) As of this writing, the key interest rate experienced another quarter
percentage point hike on May 10, 2006 to 5.0%.
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 business and marketplaces of tomorrow, bringing growth opportunities to our
investors.
Respectfully submitted,
/s/ Daniel C. Chung /s/ Zachary Karabell
------------------- --------------------
Daniel C. Chung Zachary Karabell
Chief Investment Officer Co-Portfolio Manager
This report and the financial statements contained herein are submitted
for the general information of shareholders of the Fund. This report is not
authorized for distribution to prospective investors in the Fund unless preceded
or accompanied by an effective prospectus for the Fund.
The views of the Fund's management are as of June 8, 2006 and fund
holdings described in this document are as of April 30, 2006; these views and
the Fund holdings may have changed subsequent to these dates. Nothing in this
document should be construed as a recommendation to purchase or sell securities,
markets, or industries.
MUTUAL FUNDS ARE NOT INSURED BY THE FDIC, ARE NOT DEPOSITS OR OTHER
OBLIGATIONS OF, OR GUARANTEED BY BANKS, AND ARE SUBJECT TO INVESTMENT RISKS,
INCLUDING POSSIBLE LOSS OF PRINCIPAL AMOUNT INVESTED.
INVESTORS SHOULD CONSIDER THE FUND'S INVESTMENT OBJECTIVE, RISKS AND
CHARGES AND EXPENSES CAREFULLY BEFORE INVESTING. THE FUND'S PROSPECTUS CONTAINS
THIS AND OTHER INFORMATION ABOUT THE FUND, AND MAY BE OBTAINED BY ASKING YOUR
FINANCIAL ADVISOR, CALLING US AT (800) 254-3796, OR VISITING OUR WEBSITE AT
WWW.ALGER.COM, OR CONTACTING THE FUND'S DISTRIBUTOR, FRED ALGER & COMPANY,
INCORPORATED, 30 MONTGOMERY STREET, JERSEY CITY, NEW JERSEY 07302. READ THE
PROSPECTUS CAREFULLY BEFORE INVESTING.
2
THE CHINA-U.S. GROWTH FUND
SCHEDULE OF INVESTMENTS (UNAUDITED)
April 30, 2006
SHARES COMMON STOCKS--91.0% VALUE
-------- -------
UNITED STATES--47.9%
AEROSPACE & DEFENSE--1.1%
7,500 Boeing Company ................................. $ 625,875
------------
BEVERAGES--1.1%
15,000 Anheuser-Busch Companies, Inc. ................. 668,700
------------
BIOTECHNOLOGY--1.4%
11,905 Amgen Inc. ..................................... 805,969
------------
CAPITAL MARKETS--2.1%
3,700 Goldman Sachs Group, Inc. ...................... 593,073
8,650 Merrill Lynch & Co., Inc. ...................... 659,649
------------
1,252,722
------------
CHEMICALS--.5%
5,800 Rohm and Haas Company .......................... 293,480
------------
COMMUNICATION EQUIPMENT--3.3%
28,000 Corning Incorporated* .......................... 773,640
24,500 Motorola, Inc. ................................. 523,075
12,600 QUALCOMM Inc. .................................. 646,884
------------
1,943,599
------------
ELECTRONIC EQUIPMENT & INSTRUMENTS--2.0%
8,850 Emerson Electric Co. ........................... 751,808
78,900 International DisplayWorks Inc.* ............... 443,418
------------
1,195,226
------------
ENERGY EQUIPMENT & SERVICES--1.1%
9,100 Dril-Quip Inc. ................................. 655,018
------------
ENERGY EQUIPMENT & SERVICES--3.3%
9,700 Schlumberger Limited ........................... 670,658
19,000 Suntech Power Holdings Co., Ltd. ADR*# ......... 651,510
13,500 Tenaris S. A. ADR# ............................. 619,650
------------
1,941,818
------------
FOOD & STAPLES RETAILING--1.2%
16,400 Wal-Mart Stores, Inc. .......................... 738,492
------------
FOOD PRODUCTS--1.2%
20,150 Archer-Daniels-Midland Company ................. 732,251
------------
FREIGHT & LOGISTICS--1.3%
6,550 FedEx Corp. .................................... 754,102
------------
HOTELS, RESTAURANTS & LEISURE--2.2%
17,150 Starbucks Corporation* ......................... 639,181
8,450 Wynn Resorts, Limited* ......................... 643,130
------------
1,282,311
------------
HOUSEHOLD PRODUCTS--1.3%
13,300 Procter & Gamble Company ....................... 774,193
------------
INDUSTRIAL CONGLOMERATES--1.4%
25,150 General Electric Company ....................... 869,939
------------
INTERNET SOFTWARE & SERVICES--1.3%
35,950 Netease.com Inc. ADR*# ......................... 779,396
------------
MACHINERY--3.3%
10,475 Bucyrus International, Inc. Cl. A .............. 543,757
9,750 Caterpillar Inc. ............................... 738,465
14,100 Manitowoc Company, Inc. ........................ 699,219
------------
1,981,441
------------
3
THE CHINA-U.S. GROWTH FUND
SCHEDULE OF INVESTMENTS (UNAUDITED) (CONTINUED)
April 30, 2006
SHARES COMMON STOCKS (CONTINUED) VALUE
-------- -------
MEDIA--.5%
4,800 Focus Media Holding Limited ADR*# .............. $ 289,872
------------
MEDICAL PRODUCTS--.6%
14,650 China Medical Technologies, Inc.* .............. 369,180
------------
METALS--1.1%
11,200 RTI International Metals, Inc.* ................ 673,568
------------
METALS & MINING--6.9%
17,150 Cameco Corporation ............................. 697,148
16,300 Companhia Vale do Rio Doce (CVRD) ADR*# ........ 839,776
13,150 Freeport-McMoRan Copper & Gold, Inc. Cl. B ..... 849,227
15,700 Inco Limited ................................... 886,579
9,650 Phelps Dodge Corporation ....................... 831,734
------------
4,104,464
------------
OIL & GAS--1.2%
7,400 Petroleo Brasileiro S. A. ADR# ................. 731,342
------------
PERSONAL PRODUCTS--1.3%
22,850 Avon Products, Inc. ............................ 745,139
------------
SEMICONDUCTORS & SEMICONDUCTOR
EQUIPMENT--4.9%
19,050 Broadcom Corporation Cl. A * ................... 783,146
30,300 Freescale Semiconductor Inc. Cl. A* ............ 958,086
20,850 NVIDIA Corporation* ............................ 609,237
75,100 Skyworks Solutions, Inc.* ...................... 536,965
------------
2,887,434
------------
TEXTILES, APPAREL & LUXURY GOODS--1.2%
8,450 NIKE, Inc. Cl. B ............................... 691,548
------------
WIRELESS TELECOMMUNICATION SERVICES--1.1%
40,200 China GrenTech Corporation Limited ADR*# ....... 643,200
------------
Total United States (Cost $23,921,902) ......... 28,430,279
------------
CHINA--29.9%
AIRLINES--1.0%
1,416,000 Air China ...................................... 589,000
------------
AUTOMOTIVE--1.4%
1,704,000 Dongfeng Motor Corporation* .................... 851,655
------------
COMMERCIAL BANKS--1.5%
1,464,000 Bank of Communications Ltd.* ................... 892,206
------------
COMMUNICATION EQUIPMENT--.7%
114,200 ZTE Corporation Cl. H .......................... 390,332
------------
COMPUTERS & PERIPHERALS--.8%
1,318,000 Lenovo Group Limited ........................... 492,987
------------
CONSTRUCTION & ENGINEERING--.5%
152,000 Anhui Conch Cement Company Limited Cl. H ....... 262,706
116,000 China National Building Material Company Ltd.*.. 47,877
------------
310,583
------------
DIVERSIFIED TELECOMMUNICATION SERVICES--1.5%
478,500 China Netcom Group Corporation
(Hong Kong) Limited ............................ 873,295
------------
FOOD & STAPLES RETAILING--.8%
602,000 China Yurun Food Group Limited* ................ 481,405
------------
4
THE CHINA-U.S. GROWTH FUND
SCHEDULE OF INVESTMENTS (UNAUDITED) (CONTINUED)
April 30, 2006
SHARES COMMON STOCKS (CONTINUED) VALUE
-------- -------
GAS UTILITIES--.1%
70,000 Xinao Gas Holdings Limited ..................... 64,554
------------
HOTELS, RESTAURANTS & LEISURE--.6%
485,100 Shanghai Jinjiang International Hotels
Development Co. Ltd. ........................... 412,335
------------
INDUSTRIAL CONGLOMERATES--.6%
166,000 China Resources Enterprise Limited ............. 355,417
------------
INSURANCE--1.9%
831,000 China International Life Insurance Co. Cl. H *.. 1,120,056
------------
INTERNET SOFTWARE & SERVICES--2.4%
27,264 SINA Corp.* .................................... 721,133
342,000 Tencent Holdings Limited ....................... 692,545
------------
1,413,678
------------
MACHINERY--.1%
86,000 Shanghai Prime Machinery Company Limited* 32,168
------------
METAL FABRICATING--1.9%
1,077,000 Jiangxi Copper Company Ltd. .................... 1,132,128
------------
METALS & MINING--2.0%
410,000 Aluminum Corporation of China Limited Cl. H .... 407,190
674,000 Angang New Steel Company Limited Cl. H ......... 586,795
400,000 Hunan Non-Ferrous Metal Corporation Limited* ... 166,384
------------
1,160,369
------------
OIL & GAS--5.7%
1,256,000 China Petroleum & Chemical Corp. (Sinopec) ..... 797,844
1,112,000 CNOOC Limited .................................. 896,411
1,532,000 PetroChina Company Limited Cl. H ............... 1,689,457
------------
3,383,712
------------
REAL ESTATE--2.3%
1,052,000 Agile Property Holdings Limited* ............... 814,122
108,200 Guangzhou R&F Properties Company Limited* ...... 559,621
------------
1,373,743
------------
SPECIALTY RETAIL--1.5%
2,636,000 Xinyu Hengdeli Holdings Limited* ............... 883,977
------------
TRANSPORTATION--1.0%
248,000 Cosco Pacific Limited .......................... 590,161
------------
WIRELESS TELECOMMUNICATION SERVICES--1.6%
161,000 China Mobile (Hong Kong) Limited ............... 936,537
------------
Total China (Cost $14,400,501) ................. 17,740,298
------------
HONG KONG--12.3%
BIOTECHNOLOGY--.9%
2,692,000 Sino Biopharmaceutical Limited ................. 548,598
------------
INDUSTRIAL CONGLOMERATES--.8%
48,000 Hutchinson Whampoa Limited ..................... 471,138
------------
MEDIA--.5%
3,358,000 One Media Group Limited* ....................... 272,862
------------
5
THE CHINA-U.S. GROWTH FUND
SCHEDULE OF INVESTMENTS (UNAUDITED) (CONTINUED)
April 30, 2006
SHARES COMMON STOCKS (CONTINUED) VALUE
-------- -------
REAL ESTATE--7.9%
87,000 Cheung Kong (Holdings) Limited ................. $ 980,177
1,030,000 Far East Consortium International Limited ...... 458,330
163,000 Hongkong Land Holdings Limited ................. 638,960
118,216 Hysan Development Company Limited .............. 340,019
870,000 Neo-China Group (Holdings) Limited ............. 120,067
1,117,200 New World China Land Limited ................... 536,759
95,000 Swire Pacific Limited .......................... 971,671
351,000 Wheelock and Company Limited ................... 651,917
------------
4,697,900
------------
RETAIL--1.0%
366,500 Lifestyle International Holdings Limited ....... 616,901
------------
SPECIALTY RETAIL--.1%
35,500 Ports Design Limited ........................... 56,090
------------
SPECIALTY RETAIL--.6%
570,000 Giordano International Limited ................. 336,348
------------
TRANSPORTATION--.5%
678,000 Pacific Basin Shipping Limited ................. 301,697
------------
Total Hong Kong (Cost $6,787,464) .............. 7,301,534
------------
TAIWAN--.9%
DIVERSIFIED TELECOMMUNICATION SERVICES--.9%
271,000 Foxconn International Holdings Ltd.*
Total Taiwan (Cost $417,942) ................... 583,725
------------
Total Common Stocks (Cost $45,527,809) ......... 54,055,836
------------
PRINCIPAL
AMOUNT
---------
U.S. GOVERNMENT & AGENCY OBLIGATIONS--8.9%
$ 5,290,000 Federal Home Loan Banks, 4.52%, 5/1/06
(Cost $5,288,671) ............................ 5,288,671
------------
Total Investments
(Cost $50,816,480)(a) .............................. 99.9% 59,344,507
Other Assets in Excess of Liabilities ................ 0.1 54,579
----- ------------
Net Assets ........................................... 100.0% $ 59,399,086
===== ============
- ------------
* Non-income producing secuity.
# American Depositary Receipts.
(a) At April 30, 2006, the net unrealized appreciation of investments, based on
cost for federal income tax purposes of $51,056,010, amounted to $8,288,497
which consisted of aggregate gross unrealized appreciation of $9,130,626 and
aggregate gross unrealized depreciation of $842,129.
PORTFOLIO SUMMARY+ (UNAUDITED)
- -------------------------------------------------------------------------------
Value (%) Value (%)
- ----------------------------------- ---------------------------------------
United States 47.9% Hong Kong 12.3%
China 29.9 Taiwan .9
Cash and Net Other Assets 9.0
-----
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, 2006
ASSETS:
Investments in securities, at value (cost $50,816,480), see
accompanying schedule of investments .......................... $59,344,507
Cash ............................................................ 3,601
Receivable for shares of beneficial interest sold ............... 831,323
Dividends receivable ............................................ 96,718
Receivable from Investment Manager--Note 3(a) ................... 390
Prepaid expenses ................................................ 11,743
-----------
Total Assets ................................................ 60,288,282
LIABILITIES:
Payable for investment securities purchased .......... $530,102
Payable for shares of beneficial interest redeemed ... 197,488
Investment advisory fees payable ..................... 65,470
Shareholder servicing fees payable ................... 10,912
Trustees' fees payable ............................... 4,488
Accrued expenses ..................................... 80,736
--------
Total Liabilities ........................................... 889,196
-----------
NET ASSETS ......................................................... $59,399,086
===========
NET ASSETS CONSIST OF:
Paid-in capital ................................................. $45,494,769
Undistributed net investment income (accumulated loss) .......... (185,517)
Undistributed net realized gain ................................. 5,561,807
Net unrealized appreciation (depreciation) of investments ....... 8,528,027
-----------
NET ASSETS ...................................................... $59,399,086
===========
Net Asset Value Per Share ....................................... $ 15.38
===========
Offering Price Per Share ........................................ $ 16.23
===========
Shares of beneficial interest outstanding--Note 6 .................. 3,860,895
===========
See Notes to Financial Statements.
7
THE CHINA-U.S. GROWTH FUND
STATEMENT OF OPERATIONS (UNAUDITED)
For the six months ended April 30, 2006
INVESTMENT INCOME:
Income:
Dividends (net of foreign witholding taxes of $574) ............ $ 259,432
Interest ....................................................... 46,719
-----------
Total Income ................................................. 306,151
-----------
Expenses:
Investment advisory fees--Note 3(a) ................ $335,176
Custodian fees ..................................... 40,304
Shareholder servicing fees--Note 3(f) .............. 55,863
Trustees' fees ..................................... 11,769
Professional fees .................................. 32,076
Printing ........................................... 13,505
Transfer agent fees--Note 3(b) ..................... 44,473
Registration fees .................................. 12,618
Miscellaneous ...................................... 7,211
----------
552,995
Less expense reimbursement--Note 3(a) .............. (61,327)
----------
Total Expenses ............................................... 491,668
-----------
NET INVESTMENT LOSS ................................................. (185,517)
REALIZED AND UNREALIZED GAIN (LOSS)ON
INVESTMENTS AND FOREIGN CURRENCY:
Net realized gain on investments ........................ 5,803,522
Net realized loss on foreign currency transactions ...... (1,844)
Net change in unrealized appreciation (depreciation)
on investments and foreign currency translations .... 6,720,678
----------
Net realized and unrealized gain on investments
and foreign currency ....................................... 12,522,356
-----------
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS ....................................................... $12,336,839
===========
See Notes to Financial Statements.
8
THE CHINA-U.S. GROWTH FUND
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE SIX MONTHS FOR THE YEAR
ENDED ENDED
APRIL 30, 2006(i) OCTOBER 31, 2005
------------------ ----------------
Net investment loss ............................ $ (185,517) $ (176,426)
Net realized gain on investments
and foreign currency transactions ........... 5,801,678 4,182,434
Net change in unrealized appreciation
(depreciation) on investments
and foreign currency translations ........... 6,720,678 779,610
------------ ------------
Net increase in net assets resulting
from operations ......................... 12,336,839 4,785,618
Distributions to Shareholders from:
Net realized gains .......................... (4,057,743) --
Net increase from shares of beneficial interest
transactions--Note 6 ........................ 14,489,503 5,554,861
------------ ------------
Total increase in net assets ............. 22,768,599 10,340,479
------------ ------------
Net assets:
Beginning of period .......................... 36,630,487 26,290,008
------------ ------------
End of period ................................ $ 59,399,086 $ 36,630,487
============ ============
- -----------
(i) Unaudited.
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 FOR THE YEAR NOVEMBER 3, 2003 (i)
ENDED ENDED TO
APRIL 30, 2006 (ii)(viii) OCTOBER 31, 2005 OCTOBER 31, 2004 (ii)
------------------------- ---------------- ---------------------
Net asset value,
beginning of period ............... $ 12.99 $ 11.05 $ 10.00
Net investment loss (iii) ........... (0.06) (0.07) (0.08)
Net realized and unrealized
gain on investments
and foreign currency ............. 3.86 2.01 1.13
------- ------- -------
Total from investment
operations ..................... 3.80 1.94 1.05
------- ------- -------
Distributions from
net realized gains ............... (1.41) -- --
------- ------- -------
Net asset value,
end of period .................. $ 15.38 $ 12.99 $ 11.05
======= ======= =======
Total return (iv) ................... 31.85% 17.56% 10.50%
======= ======= =======
RATIOS AND
SUPPLEMENTAL DATA:
Net assets, end of period
(000's omitted) ................ $59,399 $36,630 $26,290
======= ======= =======
Ratio of expenses to
average net assets ............. 2.20%(vii) 2.26%(v) 2.44%(vi)
======= ======= =======
Ratio of net investment loss
to average net assets .......... (0.83)% (0.56)% (0.81)%
======= ======= =======
Portfolio turnover rate .......... 75.75% 288.53% 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.
(v) Amount has been reduced by 0.51% due to expense reimbursements.
(vi) Amount has been reduced by 0.43% due to expense reimbursements.
(vii) Amount has been reduced by 0.27% due to expense reimbursements.
(viii) Unaudited.
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 readily
available 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 investment adviser,
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.
Effective February 28, 2006, 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 2.20%
of average daily net assets. For the six months ended April 30, 2006, Alger
Management reimbursed the Fund $61,327. Alger Management has contractually
agreed to extend the expense cap through February 28, 2007.
(B) SHAREHOLDER SERVICING FEES--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
Boston Financial Data Services, Inc. ("BFDS") and other related services. During
the six months ended April 30, 2006, the Fund incurred fees of $4,195 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, 2006, the initial sales
charges retained by Fred Alger & Company (the "Distributor"), were approximately
$3,781. Sales charges do not represent expenses of the Fund.
(D) BROKERAGE COMMISSIONS--During the six months ended April 30, 2006, the Fund
paid Fred Alger & Company, Incorporated ("Alger Inc."), an affiliate of Alger
Management, $20,333 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.
13
THE CHINA-U.S. GROWTH FUND
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
(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. At April 30, 2006, Alger Management and its affiliates owned 1,113,592
shares of the Fund.
NOTE 4--SECURITIES TRANSACTIONS:
During the six months ended April 30, 2006, purchases and sales of investment
securities, excluding short-term securities, aggregated $40,221,861 and
$33,157,573, 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 participates in a committed line of credit with other mutual funds
managed by Alger Management. 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, 2006, 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, 2006 OCTOBER 31, 2005
------------------------- ------------------------
SHARES AMOUNT SHARES AMOUNT
--------- ------------ -------- ------------
Shares sold ........ 904,018 $ 12,998,177 916,179 $ 11,342,864
Dividends reinvested 281,093 3,482,743 -- --
Shares redeemed .... (144,417) (1,991,417) (475,571) (5,788,003)
--------- ------------ ------- ------------
Net increase ....... 1,040,694 $ 14,489,503 440,608 $ 5,554,861
========= ============ ======= ============
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, 2006 and the
year ended October 31, 2005, redemption fees were $4,573 and $15,404,
respectively.
14
THE CHINA-U.S. GROWTH FUND
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
NOTE 7--TAX CHARACTER OF DISTRIBUTIONS TO SHAREHOLDERS:
The tax character of distributions paid during the six months ended April 30,
2006 and the year ended October 31, 2005 were as follows:
SIX MONTHS ENDED YEAR ENDED
APRIL 30, 2006 OCTOBER 31, 2005
---------------- ----------------
Distributions paid from:
Ordinary Income ...................... $3,828,244 $ --
Long-term capital gain ............... 229,499 --
---------- -------
Total distributions paid ............. $4,057,743 $ --
========== =======
As of October 31, 2005, the components of distributable earnings on a tax basis
were as follows:
Undistributed ordinary income ...................................... $3,828,018
Undistributed long-term gain ....................................... 229,384
Unrealized appreciation ............................................ 1,567,819
The difference between book basis and tax basis unrealized appreciation is
determined annually and is attributable primarily to the tax deferral of losses
on wash sales. Tax basis unrealized appreciation as of April 30, 2006 does not
reflect any potential tax adjustments subsequent to October 31, 2005.
NOTE 8--LITIGATION:
Alger Management has responded 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, the
Attorney General of New Jersey, and the West Virginia Securities Commissioner,
in connection with their investigations of practices in the mutual fund industry
identified as "market timing" and "late trading."
On December 16, 2005, Alger Management received from the staff of the SEC a
"Wells Notice" which indicated that the staff intends to recommend that the
Commission bring civil enforcement action for possible violations of the federal
securities laws. "Wells Notices" also have been sent to certain companies
affiliated with Alger Management, as well as certain present and former members
of its senior management. The Wells Notices arose out of the SEC's staff ongoing
investigation of market timing and late trading practices in the mutual fund
industry. Alger Management and the other recipients have the opportunity to
respond to the staff before the staff makes a formal recommendation. Alger
Management submitted a response in January 2006.
On June 7, 2006, Alger Management, its parent, Alger Inc., and their affiliated
companies reached an agreement in principle with the staff of the New York
Regional Office of the SEC and with the staff of the New York State Attorney
General's office ("NYAG") resolving all issues with the SEC and the NYAG related
to the allegations of mutual fund market timing and late trading that were the
subject of the December 2005 Wells Notice. Alger
15
THE CHINA-U.S. GROWTH FUND
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
Management and Alger Inc. are working with the staff of the SEC and the NYAG to
finalize the agreement. The agreement is subject to the approval of the SEC and
the NYAG. In the proposed settlement agreement, without admitting or denying
liability, the firm will consent to the payment of $30 million dollars to
reimburse fund shareholders; a fine of $10 million; and certain other remedial
measures including a reduction in management fees of $1 million per year for
five years. The entire $40 million and fee reduction will be available for the
benefit of investors. Alger Management has advised the Fund that the proposed
settlement payment is not expected to adversely affect the operations of the
Manager, Alger Inc. or their affilates, or adversely affect their ability to
continue to provide services to the Fund.
On August 31, 2005, the West Virginia Securities Commissioner in an ex parte
Summary Order to Cease and Desist and Notice of Right to Hearing concluded that
Alger Management and Alger Inc. had violated the West Virginia Uniform
Securities Act, and ordered Alger Management and Alger Inc. to cease and desist
from further violations of the Act by engaging in the market-timing related
conduct described in the order. The ex parte order provided notice of their
right to a hearing with respect to the violations of law asserted by the
Commissioner. Other firms unaffiliated with Alger Management were served with
similar orders. Alger Management and Alger Inc. intend to request a hearing for
the purpose of seeking to vacate or modify the order.
In addition, in 2003 and 2004 several purported class actions and shareholder
derivative suits were filed against various parties in the mutual fund industry,
including Alger Management, certain mutual funds managed by Alger Management
(the "Alger Mutual Funds"), and certain current and former Alger Mutual Fund
trustees and officers, alleging wrongful conduct related to market-timing and
late-trading by mutual fund shareholders. These cases were transferred to the
U.S. District Court of Maryland by the Judicial Panel on Multidistrict
Litigation for consolidated pre-trial proceedings. In September 2004,
consolidated amended complaints involving these cases (not yet including the
West Virginia action) -- a Consolidated Amended Fund Derivative Complaint (the
"Derivative Complaint") and two substantially identical Consolidated Amended
Class Action Complaints (together, the "Class Action Complaint") -- were filed
in the Maryland federal district court under the caption number 1:04-MD-15863
(JFM). In April 2005, a civil lawsuit involving similar allegations was filed by
the West Virginia Attorney General and also transferred to the Maryland District
Court.
The Derivative Complaint alleged (i) violations, by Alger Management and,
depending on the specific offense alleged, by its immediate parent, Alger Inc.,
which is the Distributor of the Alger Mutual Funds, and/or the fund trustee
defendants, of Sections 36(a), 36(b), 47, and 48 of the Investment Company Act
of 1940 (the "Investment Company Act") and of Sections 206 and 215 of the
Investment Advisers Act of 1940, breach of fiduciary duty, and breach of
contract, (ii) various offenses by other third-party defendants, and (iii)
unjust
16
THE CHINA-U.S. GROWTH FUND
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
enrichment by all the named defendants. The Class Action Complaintalleged,
in addition to the offenses listed above, (i) violations, by Alger Management,
Alger Inc., their affiliates, the funds named as defendants, and the current and
former fund trustees and officers, of Sections 11, 12(a)(2), and 15 of the
Securities Act of 1933, Sections 10(b) (and Rule 10b-5 thereunder) and 20(a)
of the Securities Exchange Act of 1934 (the "1934 Act"), and Section 34(b) of
the Investment Company Act of 1940, (ii) breach of contract by the funds
named as defendants, and (iii) unjust enrichment of the defendants. The West
Virginia attorney general action also alleges violations of the West Virginia
Consumer Credit and Protection Act and other wrongful conduct.
Motions to dismiss the Class Action Complaint and the Derivative Complaint were
subsequently filed. On November 3, 2005, the district court issued letter
rulings dismissing both complaints in their entirety with respect to the Alger
Mutual Funds and dismissing all claims against the other Alger defendants, other
than the claims under the 1934 Act and Section 36(b) of the Investment Company
Act (as to which the court deferred ruling with respect to the Alger Mutual Fund
Trustees), with leave to the class action plaintiffs to file amended complaints
against those defendants with respect to claims under state law. Orders
implementing the letter rulings are being entered. On January 11, 2006, the
Alger defendants filed a motion for partial reconsideration of the district
courts' ruling with respect to the Section 10(b), Rule 10b-5 and Section 36(b)
claims against them; the district court denied the motion on February 9, 2006.
Alger Management does not believe that the Alger Mutual Funds are themselves
targets of the regulatory investigations as potential enforcement defendants.
The SEC and, in some cases, state government authorities have a variety of
administrative and civil enforcement powers, including injunctive powers,
authority to assess fines and penalties and order restitution, authority to
limit the activities of a person or company and other enforcement powers, that
may be exercised administratively or through the courts.
Under Section 9(a) of the Investment Company Act, if any of the various
regulatory proceedings or lawsuits were to result in a court injunction against
Alger Management or Alger Inc., Alger Management would, in the absence of
exemptive relief granted by the SEC, be barred from serving as investment
adviser/sub-adviser for any registered investment company, including the Fund.
While exemptive relief from Section 9(a) has been granted in certain other
cases, 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 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.
17
THE CHINA-U.S. GROWTH FUND
ADDITIONAL INFORMATION (UNAUDITED)
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, 2005 and ending April 30,
2006.
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, 2005 TO
NOVEMBER 1, 2005 APRIL 30, 2006 APRIL 30, 2006(b)
---------------- -------------- -------------------
Actual ..................... $1,000.00 $1,318.50 $12.65
Hypothetical(a) ............ 1,000.00 1,013.88 10.99
- ------------
(a) 5% annual return before expenses.
(b) Expenses are equal to the Fund's annualized expense ratio of 2.20%,
multiplied by the average account value over the period, multiplied by
181/365 (to reflect the one-half year period).
18
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 EDGARDatabase 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 Fund by calling (800) 254-3796.
19
NOTES:
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.
[LOGO OMITTED] The China-U.S. Growth Fund
Boston Financial Data Services, Inc.
P.O. Box 8480
Boston, MA 02266
CSAR 43006
[LOGO OMITTED]
CSAR 43006
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 22, 2006
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 22, 2006
By: /s/ Frederick A. Blum
Frederick A. Blum
Treasurer
Date: June 22, 2006