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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, 2007
ITEM 1. REPORT(S) TO STOCKHOLDERS.
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[GRAPHIC]
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THE CHINA-U.S.
GROWTH FUND
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[GRAPHIC]
SEMI-ANNUAL
REPORT [LOGO]
April 30, 2007 ALGER
(Unaudited)
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DEAR SHAREHOLDERS, JUNE 8, 2007
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In our October 31, 2006 report, we likened the new global economy to a
"Brave New World." While we are usually loath to recycle a metaphor so quickly,
in this case, it seems fitting to continue to use it. Nothing that has happened
over the past six months alters our view that we are entering uncharted waters
for both the global economy and for the thousands of companies that are being
reshaped by it.
As with any sweeping change, there are those who embrace it and try to
anticipate the risks and rewards; there are those who deny that there is any
change; and finally those who simply wait to see what everyone else thinks. At
Alger, we fall into the first camp, and in fact believe that we are still in the
early stages of a radical shift in how the global economy functions, one that
has already produced new winners and losers, not just in terms of nations but of
companies that are seizing the opportunities and those that are unable to. While
the story of China and India is familiar, it is hardly limited to them and now
includes such disparate regions as Vietnam, Eastern Europe and Australia, to
name three, all of which are adding additional complexity and additional fuel to
the expanding global economy.
Here then is our six-month postcard from this Brave New World. The themes
include the greening of corporate America and the lessons gleaned from the swift
fall and startling sharp recovery of the equity markets on February 27. They
include the coming of age of private equity as a force that can move and shape
the markets, and the importance of free cash flow as a metric for measuring the
strength of corporate balance sheets. And of course, one other theme stands out
above all -- the surprising (at least to most on Wall Street) strength of
corporate earnings at the end of the first quarter.
THE CONVERGENCE OF BUSINESS AND GREEN
The beginning of 2007 saw one of the warmest Januaries on record, but
instead of snow, we were treated to a flurry of articles, announcements,
conferences, and high level public speeches that demanded action on the part of
countries, individuals and companies to address the issue of global warming.
Appearing simultaneously but independently, FORTUNE, THE ECONOMIST and
BUSINESS WEEK all ran lengthy cover stories describing the shift in corporate
America to embrace socially responsible business practices as a better -- and
potentially more profitable -- way of doing business. These articles were the
most noticeable in a few weeks' span, but they were hardly a comprehensive list
of the hundreds published about the greening of corporate America, not to
mention Europe, Asia, and the world. By late January, whether or not "greening"
was a mere zeitgeist was debatable. But on February 2, the Intergovernmental
Panel on Climate Change issued their Fourth Assessment Report indicating that
global warming was "unequivocal" -- a real and growing danger.
In response, many dynamic, innovative companies are stepping up and
looking for ways to solve the intractable issues of energy and the environment.
Case in point is private equity firms Kohlberg Kravis Roberts and Texas Pacific
Group, which
-1-
announced plans to acquire one of the largest public utility companies in the
United States, TXU. What made the TXU deal distinctive were the conditions
attached to its approval. Under the proposed terms, KKR and Texas Pacific agreed
to several substantial concessions to environmental groups including scaling
back plans to build new coal-fired power plants while aggressively working on
so-called "clean coal" technologies (i.e. coal gasification) that lower and
potentially eliminate emissions. They also agreed to increase R&D spending on
alternate energy by as much as half a billion dollars. Goldman Sachs, who
brokered the deal, pressured both sides to agree to the pro-environment change
in the initial plans. The result was a deal hailed by Wall Street and the green
lobby in equal measure.
The convergence of vast amounts of private equity cash and
environmentalism was a sign of the cultural, global shift taking place. Clearly,
a number of the major investment banks already saw the long-term value in their
companies "going green," and the rest of the financial world was swiftly joining
them.
THE RETURN OF VOLATILITY
On February 27th global stock markets saw their most dramatic sell-off in
years. Wall Street pundits were, as usual, divided. Some said it was a
long-awaited correction and a sign of a weakening economy, while others said it
was simply the return of volatility to what has been a fairly stable market.
That said, nothing actually happened to trigger the declines. No sudden
change in the economic forecasts. No critically bad economic or corporate news.
However, there were rumors in Shanghai and Beijing that a government squeeze on
credit and stock-speculation was imminent, and that alone was enough to send
investors fleeing. But even after the sell-off, the Shenzhen market --
Shanghai's smaller sibling -- was still up more than 30% year-to-date, and well
over 100% for the past 12 months. Hardly comforting if you bought on Monday
before the sell-off, but not bad for those who had been in those markets for
more than a couple of months.
What happened? In our view this was a market phenomenon, a brief reminder
of volatility after months of stability, and a bout of profit-taking and
stepping aside that had been long overdue. Within days, fears of a "global bear
market" dissipated as continued liquidity and private equity activity bolstered
markets both in the United States and around the world.
PRIVATE EQUITY AND FREE CASH FLOW
For the first half of the fiscal year, private equity activity was truly
impressive, with the purchase of troubled companies such as Chrysler that in
earlier years would have made unlikely buyout targets. While no major company
today -- public or private -- seems beyond private equity interests, there is
one theme that unites both private equity and mutual fund investors: free cash
flow.
At Alger, as bottom-up, fundamental investors, one of the key metrics we
use is the ability of companies to generate free cash flow. Why? Because free
cash flow can fund further growth at a company, pay dividends, and allow for the
buy-back of stock in order to return value to shareholders -- all of which,
properly done, can contribute to earnings growth and shareholder value. It is a
sign of both a strong
-2-
business model and disciplined financial management to be able to grow (at
impressive rates) and not require constant infusions of new capital. We think
that private equity firms buying public companies of all sizes and across many
industries is not irrational. It is seizing an opportunity to acquire solid
franchises that are generating strong cash flows at extraordinary valuations for
a long-term investor. And the amount of PE activity is another confirmation that
globalization, broadly speaking, benefits U.S. corporate profits.
THE EARNINGS SURPRISE
At the beginning of 2007, the overwhelming consensus was that after
several years of strong, double-digit earnings growth, the first quarter would
show the companies of the Standard & Poor's 500(i) slowing to an anemic 3-4%
growth rate. That assumption was based on several factors including the woes of
the U.S. housing market, the slowing of the U.S. industrial economy, and the
basic assumption that corporate earnings would have to "revert to the mean" of
their multi-decade average (about 7%) and hence dip significantly. All of these
assumptions proved to be wrong.
When all was said and done at the end of reporting seasons for the first
quarter of 2007, the S&P companies registered earnings growth of about 9%, and
nearly three-quarters of all companies have reported positive "surprises"
relative to expectations. Indeed, at the tail end of May, the S&P broke its own
record, reaching heights last seen seven years ago during the heady days of the
technology boom -- and this despite another minor overnight sell-off in China.
So what happened? It's a case of our friends back at the Old World struggling to
explain New World geography in terms they're familiar with -- even if those
terms don't quite fit anymore.
True, most top-down analysts were correct about their predictions of the
slowdown of the U.S. economy. In fact, first quarter GDP growth was even worse
than had been predicted, registering a paltry 0.6% growth on weak exports and
slower corporate capital expenditures. But the experts also continued to use the
United States and past economic patterns as a proxy for predicting earnings for
U.S.-listed companies. This made perfect sense for the last half of the 20th
century, when the United States was the dominant economic power globally and
U.S. corporations reflected that strength. But while the United States remains
far and away the largest economy, it is simply no longer the sole engine of
growth or the fastest. As such, the U.S. economy and economic data are no longer
a good proxy for how companies will do. Instead, they may well mislead investors
and analysts to underestimate the growth of U.S.-listed companies.
We have said for the past three years -- for most of this decade, in fact
- -- that the U.S. markets have been good markets for "stock pickers" in that they
have not been either notably frothy or notably flighty (occasional junctures
notwithstanding). What is now emerging, we believe, is a global "stock picker"
market, but many people are still playing markets rather than stocks. That
leaves some markets and many stocks, especially U.S.-listed ones and U.S.-listed
growth equities above all, undervalued and less loved than they should be. And
that, of course, represents an opportunity to pick and choose quality growth
companies while the rest of the investing community focuses their eyes
elsewhere.
-3-
THE ECONOMY AND MARKETS IN CHINA
In China, the markets quickly recovered from February's sharp fall with
the A-share Shanghai Composite Index rising 20.67%, the H-share gaining 4.81%
and the Hang Seng Index up 2.78%. Taiwan was the laggard, falling by 11 basis
points. For the fourth time this year, China's central bank raised its reserve
ratio (to 11%) to curb excess liquidity and slow loan growth. Foreign exchange
reserves for the first quarter of 2007 increased by U.S. $136 billion, already
55% of that in 2006, underpinned by strong exports growth.
First quarter 2007 GDP growth in China held strong at 11%, while CPI
inflation in March was high at 3.3%. The State Council declared that China's
economy was not overheating, and that the government was happy about
accelerating consumption and household income growth. Stock accounts opened by
retail investors are approaching 300,000 per day. The only measure the
government has so far adopted is to increase equity supply. It has done this
through further initial public offerings, by allowing red chips and large Hong
Kong-listed Chinese enterprises to list on the A-share market, and by allowing
local institutions to invest in the overseas market through the qualified
domestic institutional investor program.
During the Nation People's Congress, the government reiterated its aim of
building a harmonious society and narrowing the gap between rich and poor,
approved tax unification and property rights law. Therefore, fiscal policy is
geared to increasing expenditure significantly on agriculture, education,
medical care, employment and social welfare. We remain positive on Chinese
markets, given sound fundamentals such as better-than-expected A-share corporate
earnings for 2006 and the first quarter of 2007.
PORTFOLIO MATTERS
For the six months ending April 30, 2007, the China-U.S. Growth Fund
gained 22.25%. During the same period the S&P 500 Index returned 8.60%, and the
MSCI Zhong Hua Index(ii) gained 22.21%.
In the Industrials and Materials sectors, the Fund performed well due to
continuous rising production. In the Industrials sector, the Fund, at an average
weight of 13.35% was overweight both benchmarks, but outperformed them both. In
this sector, the Fund saw strong performances from companies including Suntech
Power Holdings Co., Ltd., a manufacturer of photovoltaic cells, China
Infrastructure Machinery Holdings Ltd., the third largest wheel loader
manufacturer in the Pacific Rim, and China Lotsynergy Holdings Ltd., a provider
of online metal trading platforms. In the Materials sector, the Fund, at an
average weight of 7.74% was overweight compared to both the U.S. and China
benchmarks, but outperformed them. Solid contributors in the Materials sector,
included Schnitzer Steel Industries, Inc., one of the largest recyclers of
ferrous metals, Companhia Vale do Rio Doce ADR, a global diversified mining
company and the second largest mining company in the world, and China National
Building Material Co. Ltd., China's largest building materials manufacturer.
Asian markets saw heavy activity in the Financials sector and the Fund, at
an average weight of 14.48% was underweight both benchmarks and showed a mixed
performance, outperforming the S&P 500 and underperforming the Zhong Hua.
-4-
Several Fund holdings in this sector performed strongly including
Intercontinental Exchange Inc., operator of the leading global, electronic
marketplace for trading both futures and OTC energy contracts, and China
Insurance International Holdings, Company Ltd., a prominent underwriter of all
classes of non-life reinsurance. Detractors included Sun Hung Kai Properties
Ltd., a major properties developer in Hong Kong.
The Fund's next largest sector exposure was in Information Technology. At
an average weight of 21.89%, the Fund was overweight compared to both the U.S.
and China benchmarks, but outperformed them. Our holdings in this sector were
bolstered by performances from Memc Electronic Materials, Inc., a leading global
supplier of silicon wafers to the semiconductor industry, Atheros
Communications, Inc., a prominent developer of semiconductor systems, and
Qualcomm, Inc., a global provider of integrated wireless applications and
services. Strong performances in this sector compensated for some detractors
including ZTE Corp., China's largest telecommunications equipment provider, and
BEA Systems, Inc., a global provider of business software.
In the Consumer Discretionary sector, with an average weighting of 14.39%,
the Fund was overweight both benchmarks, and underperformed the Zhong Hua, while
outperforming the S&P 500. Stronger returns by companies including Peace Mark
Holdings, Ltd., a watch and clock manufacturer, were offset by weaker performers
including the global coffee franchise, Starbucks Corp., and the electronics
retailer, Circuit City Stores, Inc.
The Fund's Energy holdings, at an average weight of 7.02%, were
underweight to both benchmarks and outperformed both. Contributors included
National-Oilwell Varco Inc., a premier oil and gas drilling company,
Schlumberger Ltd., the world's leading supplier of technology, project
management and information solutions to the oil and gas industry, and Cameco
Corp., the world's largest publicly traded uranium company.
-5-
IN SUMMARY
Six months ago, we surmised that braving the waters of the new global
economy would provide both challenges and opportunities. Indeed, the first half
of the year bore this out and often rewarded the innovative, dynamic companies
and investors that embraced those changes. Going forward, we expect more of the
same as the global, economic landscape continues to expand and evolve. As the
first six months of this fiscal year come to a close, we would like to thank you
for continuing to journey with us and entrusting us with your investing needs.
Respectfully submitted,
/s/ Daniel C. Chung /s/ Zachary Karabell
Daniel C. Chung Zachary Karabell
CHIEF INVESTMENT OFFICER CHIEF ECONOMIST
- ----------
(i) Standard & Poor's 500 Index is an index of the 500 largest and most
profitable companies in the United States.
(ii) The MSCI Zhong Hua Index is an aggregate of the MSCI Hong Kong Index (a
capitalization-weighted index that monitors the performance of stocks from
Hong Kong) and the MSCI China Free Index (an unmanaged market
capitalization-weighted index of Chinese companies available to
non-domestic investors).
Investors can not invest directly in an index. Index performance does not
reflect the deduction for fees, expenses or taxes.
-6-
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
proceeded or accompanied by an effective prospectus for the Fund. Fund returns
represent the semi-annual period return of Class A shares prior to the deduction
of any sales charges. The performance data quoted represents past performance,
which is not an indication or guarantee of future results. The investment return
and principal value of an investment in a fund will fluctuate so that an
investor's shares when redeemed, may be worth more or less than their original
cost. Current performance may be lower or higher than the performance quoted.
For performance data current to the most recent month-end, visit us at
WWW.ALGER.COM, or call us at (800) 992-3863.
The views and opinions of the Fund's management in this report are as of
the date of the Shareholders letter and are subject to change at any time
subsequent to this date. There is no guarantee that any of the assumptions that
formed the basis for the opinions stated herein are accurate or that they will
materialize. Moreover, the information forming the basis for such assumptions is
from sources believed to be reliable, however, there is no guarantee that such
information is accurate. Any securities mentioned, whether owned in a fund or
otherwise, are considered in the context of the construction of an overall
portfolio of securities and therefore reference to them should not be construed
as a recommendation or offer to purchase or sell any such security. Inclusion of
such securities in a fund and transactions in such securities, if any, may be
for a variety of reasons, including without limitation, in response to cash
flows, inclusion in a benchmark and risk control. The reference to a specific
security should also be understood in such context and not viewed as a statement
that the security is a significant holding in a portfolio. Please refer to the
Schedule of Investments for each fund which is included in this report for a
complete list of fund holdings as of April 30, 2007.
A WORD ABOUT RISK
Growth stocks tend to be more volatile than other stocks as the price of
growth stocks tends to be higher in relation to their companies' earnings and
may be more sensitive to market, political and economic developments. Investing
in the stock market involves gains and losses and may not be suitable for all
investors. Stocks of small- and mid-sized companies are subject to greater risk
than stocks of larger, more established companies owing to such factors as
limited liquidity, inexperienced management, and limited financial resources.
Investing in foreign securities involves additional risk (including currency
risk, risks related to political, social or economic conditions, and risks
associated with the Chinese markets, such as increased volatility, limited
liquidity, less stringent regulatory and legal system, and lack of industry and
country diversification), and may not be suitable for all investors. For a more
detailed discussion of the risks associated with a Fund, please see the Fund's
Prospectus.
-7-
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.
Before investing, carefully consider the Fund's investment objective,
risks and charges and expenses. 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) 992-3863, or visiting our website at WWW.ALGER.COM,
or contacting the Fund's distributor, Fred Alger & Company, Incorporated, 111
Fifth Avenue, New York 10003. Member NYSE, SIPC. Read the prospectus carefully
before investing.
-8-
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THE CHINA-U.S. GROWTH FUND
FUND HIGHLIGHTS THROUGH APRIL 30, 2007 (UNAUDITED)
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HYPOTHETICAL $10,000 INVESTMENT
FROM 11/3/03 TO 4/30/07
Ending Value China-U.S. Growth: $20,084
Ending Value S&P 500 Index: $14,781
Ending Value MSCI Zhong Hau Index: $19,695
[LINE GRAPH]
China-U.S. S&P 500 MSCI Zhong
Growth Index Hau Index
11/3/2003 $ 9,475 $10,000 $10,000
10/31/2004 $10,470 $10,762 $10,742
10/31/2005 $12,308 $11,699 $12,098
10/31/2006 $16,428 $13,612 $16,116
4/30/2007 $20,084 $14,781 $19,695
The chart above illustrates the change in value of a hypothetical $10,000
investment made in The China-U.S. Growth Fund, with an initial 5.25% maximum
sales charge, the S&P 500 Index and the MSCI Zhong Hau Index (unmanaged indices
of common stocks) on November 3, 2003, the inception date of The China-U.S.
Growth Fund, through April 30, 2007. Figures for The China-U.S. Growth Fund, the
S&P 500 Index and the MSCI Zhong Hau Index include reinvestment of dividends.
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PERFORMANCE COMPARISON
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AVERAGE ANNUAL TOTAL RETURNS
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1 SINCE
YEAR INCEPTION
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AS OF 4/30/07
THE CHINA-U.S. GROWTH FUND (INCEPTION 11/3/03) 17.26% 22.11%
S&P 500 Index 15.25% 11.85%
MSCI Zhong Hau Index 29.11% 21.43%
AS OF 3/31/07
THE CHINA-U.S. GROWTH FUND (INCEPTION 11/3/03) 14.61% 21.13%
S&P 500 Index 11.83% 10.73%
MSCI Zhong Hau Index 31.74% 21.00%
THE PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE, WHICH IS NOT AN
INDICATION OR A GUARANTEE OF FUTURE RESULTS. THE FUND'S TOTAL RETURNS INCLUDE
CHANGES IN SHARE PRICE AND REINVESTMENT OF DIVIDENDS AND CAPITAL GAINS. THE
GRAPH AND TABLE ABOVE DO NOT REFLECT THE DEDUCTION OF TAXES THAT A SHAREHOLDER
WOULD HAVE PAID ON FUND DISTRIBUTIONS OR ON THE REDEMPTION OF FUND SHARES.
INVESTMENT RETURN AND PRINCIPAL WILL FLUCTUATE AND THE FUND'S SHARES, WHEN
REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. CURRENT
PERFORMANCE MAY BE HIGHER OR LOWER THAN THE PERFORMANCE QUOTED. FOR PERFORMANCE
CURRENT TO THE MOST RECENT MONTH END, VISIT US AT WW.ALGER.COM OR CALL US AT
(800) 992-3863.
PORTFOLIO SUMMARY+ (UNAUDITED)
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VALUE (%)
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United States 51.0%
China 12.3
Hong Kong 21.2
VALUE (%)
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Singapore 3.3%
Taiwan 9.3
Cash and Net Other Assets 2.9
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100.0%
================================================================================
+ BASED ON NET ASSETS.
-9-
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THE CHINA-U.S. GROWTH FUND
SCHEDULE OF INVESTMENTS (UNAUDITED) APRIL 30, 2007
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COMMON STOCKS--97.1% SHARES VALUE
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UNITED STATES--51.0%
AEROSPACE & DEFENSE--1.9%
BE Aerospace, Inc.* 20,850 $ 764,153
Boeing Company 12,350 1,148,550
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1,912,703
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AIR FREIGHT & LOGISTICS--1.0%
Expeditors International of Washington, Inc. 23,300 973,940
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BEVERAGES--2.1%
Anheuser-Busch Companies, Inc. 22,300 1,096,937
PepsiCo, Inc. 15,200 1,004,568
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2,101,505
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BIOTECHNOLOGY--1.5%
Amgen Inc. 24,505 1,571,751
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CAPITAL MARKETS--1.3%
Goldman Sachs Group, Inc. 6,100 1,333,521
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CHEMICALS--1.1%
Agrium Inc. 30,250 1,171,583
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COMMERCIAL BANKS--1.1%
Bank of America Corporation 22,750 1,157,975
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COMMUNICATION EQUIPMENT--3.5%
Cisco Systems, Inc.* 33,650 899,801
Corning Incorporated* 55,700 1,321,204
QUALCOMM Inc. 30,300 1,327,140
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3,548,145
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COMPUTERS & PERIPHERALS--2.6%
Autodesk, Inc. 31,500 1,300,005
Memc Electronic Materials, Inc.* 24,050 1,319,864
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2,619,869
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COMPUTER TECHNOLOGY--1.0%
Atheros Communications* 39,100 1,047,489
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DRUGS & PHARMACEUTICALS--1.4%
United Therapeutics Corporation* 25,100 1,403,341
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EDUCATION--1.2%
New Oriental Education-SP ADR# 28,000 1,225,000
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ENERGY--.9%
JA Solar Holdings Co. Ltd.* 38,650 942,673
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ENERGY EQUIPMENT & SERVICES--4.4%
National-Oilwell Varco Inc.* 16,600 1,408,510
Schlumberger Limited 18,350 1,354,780
Suntech Power Holdings Co., Ltd. ADR*# 46,450 1,685,206
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4,448,496
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-10-
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THE CHINA-U.S. GROWTH FUND
SCHEDULE OF INVESTMENTS (UNAUDITED) (CONTINUED) APRIL 30, 2007
- --------------------------------------------------------------------------------
COMMON STOCKS--(CONT.) SHARES VALUE
- --------------------------------------------------------------------------------
FINANCE--.6%
Intercontinental Exchange Inc.* 4,850 $ 615,950
- --------------------------------------------------------------------------------
FOOD & BEVERAGES--1.5%
Yum! Brands, Inc. 25,000 1,546,500
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FREIGHT & LOGISTICS--.9%
FedEx Corp. 9,200 970,048
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HOTELS, RESTAURANTS & LEISURE--2.2%
Home Inns & Hotels Management, Inc.* 25,400 870,458
Starbucks Corporation* 44,850 1,391,247
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2,261,705
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HOUSEHOLD PRODUCTS--1.5%
Procter & Gamble Company 24,350 1,565,948
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INSURANCE--.9%
American International Group, Inc. 12,550 877,371
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INTERNET & CATALOG RETAIL--1.0%
eBay Inc.* 29,250 992,745
- --------------------------------------------------------------------------------
INTERNET SOFTWARE & SERVICES--2.3%
Netease.com Inc. ADR*# 61,850 1,118,248
SINA Corp.* 37,150 1,280,932
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2,399,180
- --------------------------------------------------------------------------------
MACHINERY--1.8%
Joy Global Inc. 20,100 1,017,663
Manitowoc Company, Inc. 11,900 811,937
- --------------------------------------------------------------------------------
1,829,600
MEDIA--1.5%
Focus Media Holding Limited ADR*# 15,100 558,700
News Corporation Cl. A 43,900 982,921
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1,541,621
- --------------------------------------------------------------------------------
MEDICAL DEVICES--.5%
Mindray Medical International Limited* 23,656 544,325
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METALS & MINING--5.3%
Cameco Corporation 22,150 1,032,633
Companhia Vale do Rio Doce (CVRD) ADR# 35,050 1,423,380
Freeport-McMoRan Copper & Gold, Inc. Cl. B 11,772 790,608
Schnitzer Steel Industries, Inc. Cl. A 41,000 2,128,310
- --------------------------------------------------------------------------------
5,374,931
- --------------------------------------------------------------------------------
OIL & GAS--1.3%
Petroleo Brasileiro S. A. ADR# 12,700 1,285,621
- --------------------------------------------------------------------------------
PERSONAL PRODUCTS--1.0%
Avon Products, Inc. 26,200 1,042,760
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-11-
- --------------------------------------------------------------------------------
THE CHINA-U.S. GROWTH FUND
SCHEDULE OF INVESTMENTS (UNAUDITED) (CONTINUED) APRIL 30, 2007
- --------------------------------------------------------------------------------
COMMON STOCKS--(CONT.) SHARES VALUE
- --------------------------------------------------------------------------------
SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENT--1.6%
NVIDIA Corporation* 23,500 $ 772,915
Trident Microsystems, Inc.* 40,550 860,876
- --------------------------------------------------------------------------------
1,633,791
- --------------------------------------------------------------------------------
UTILITIES--2.1%
Veolia Environnement 25,450 2,099,370
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TOTAL UNITED STATES
(Cost $43,534,180) 52,039,457
- --------------------------------------------------------------------------------
CHINA--10.8%
BUILDING & CONSTRUCTION--.8%
Yangzijiang Shipbuilding Holdings Limited* 936,000 814,154
- --------------------------------------------------------------------------------
BUILDING PRODUCTS--.7%
Zhejiang Glass Company Limited 1,179,000 747,629
- --------------------------------------------------------------------------------
COMMUNICATION EQUIPMENT--.7%
ZTE Corporation Cl. H 152,000 712,210
- --------------------------------------------------------------------------------
CONSTRUCTION & ENGINEERING--1.6%
China National Building Material Company Ltd.* 1,528,000 1,644,849
- --------------------------------------------------------------------------------
CONTAINERS & PACKAGING--1.1%
China Shipping Container Lines Company Limited* 2,407,000 1,169,365
- --------------------------------------------------------------------------------
ELECTRIC UTILITIES--.9%
Huaneng Power International Class H 892,000 907,755
- --------------------------------------------------------------------------------
INSURANCE--.6%
China Intl Life Insurance Co. Cl. H* 185,000 578,284
- --------------------------------------------------------------------------------
MACHINERY--.6%
Shanghai Zhenhua Port Machinery Co. Ltd. 374,900 634,331
- --------------------------------------------------------------------------------
METALS & MINING--1.1%
Yanzhou Coal Company Ltd. 1,106,617 1,130,406
- --------------------------------------------------------------------------------
OIL & GAS--1.2%
China Petroleum & Chemical Corp. (Sinopec) 1,328,000 1,168,092
- --------------------------------------------------------------------------------
OIL INDUSTRIALS--.1%
Sany Heavy Industry Co., Ltd. 34,010 136,375
- --------------------------------------------------------------------------------
SOFTWARE--.4%
AGTech Holdings Limited* 1,800,000 400,417
- --------------------------------------------------------------------------------
UTILITIES--1.0%
Guangdong Investment Limited 1,928,000 1,045,113
- --------------------------------------------------------------------------------
TOTAL CHINA
(Cost $8,952,651) 11,088,980
- --------------------------------------------------------------------------------
-12-
- --------------------------------------------------------------------------------
THE CHINA-U.S. GROWTH FUND
SCHEDULE OF INVESTMENTS (UNAUDITED) (CONTINUED) APRIL 30, 2007
- --------------------------------------------------------------------------------
COMMON STOCKS--(CONT.) SHARES VALUE
- --------------------------------------------------------------------------------
HONG KONG--21.2%
AGRICULTURE--1.3%
Century Sunshine Ecological Technology Holdings
Limited 5,465,000 $ 1,362,433
- --------------------------------------------------------------------------------
BUILDING PRODUCTS--.4%
China Grand Forestry Resources Group Ltd. 3,662,000 402,631
- --------------------------------------------------------------------------------
BUILDING & CONSTRUCTION--1.4%
China Communications Construction Company Ltd.* 1,105,000 1,449,440
- --------------------------------------------------------------------------------
COMMERCIAL BANKS--1.4%
The Bank of East Asia, Ltd. 223,200 1,381,116
- --------------------------------------------------------------------------------
CONSUMER PRODUCTS--.8%
Minth Group Ltd. 754,000 838,651
- --------------------------------------------------------------------------------
FINANCIAL SERVICES--2.5%
China Insurance International Holdings Company
Limited 802,000 999,700
China Merchants Bank Co., Ltd. 345,500 850,736
Industrial and Commercial Bank Of China* 1,349,000 739,877
- --------------------------------------------------------------------------------
2,590,313
- --------------------------------------------------------------------------------
FOOD & BEVERAGES--1.2%
FU JI Food & Catering Services 414,000 1,267,641
- --------------------------------------------------------------------------------
INDUSTRIAL CONGLOMERATES--1.4%
Peace Mark (Holdings) Limited 1,290,000 1,451,319
- --------------------------------------------------------------------------------
MACHINERY--1.6%
China Infrastructure Machinery Holdings Limited* 838,000 1,600,609
- --------------------------------------------------------------------------------
MEDICAL PRODUCTS--1.3%
Shandong Weigao Group Medical Polymer Company
Limited 728,000 1,282,541
- --------------------------------------------------------------------------------
METALS--.1%
China Molybdenum Co.* 64,000 102,114
- --------------------------------------------------------------------------------
REAL ESTATE--1.7%
Cheung Kong (Holdings) Limited 60,000 782,424
Hang Lung Properties Limited 316,847 945,860
- --------------------------------------------------------------------------------
1,728,284
- --------------------------------------------------------------------------------
SOFTWARE--1.2%
China Lotsynergy Holdings* 3,379,956 1,227,213
- --------------------------------------------------------------------------------
TRANSPORTATION--.8%
China Shipping Development Company Limited Cl. H 446,000 848,454
- --------------------------------------------------------------------------------
UTILITIES--.5%
Hong Kong and China Gas Company Limited 206,000 491,439
- --------------------------------------------------------------------------------
WIRELESS TELECOMMUNICATION SERVICES--3.6%
China Mobile (Hong Kong) Limited 396,000 3,617,328
- --------------------------------------------------------------------------------
TOTAL HONG KONG
(Cost $17,525,558) 21,641,526
- --------------------------------------------------------------------------------
-13-
- --------------------------------------------------------------------------------
THE CHINA-U.S. GROWTH FUND
SCHEDULE OF INVESTMENTS (UNAUDITED) (CONTINUED) APRIL 30, 2007
- --------------------------------------------------------------------------------
COMMON STOCKS--(CONT.) SHARES VALUE
- --------------------------------------------------------------------------------
SINGAPORE--3.3%
APPAREL--1.3%
Hongguo International Holdings Limited 1,678,000 $ 1,371,105
- --------------------------------------------------------------------------------
MISCELLANEOUS--.8%
Sino-Environment Technology Group Ltd.* 350,000 797,997
- --------------------------------------------------------------------------------
REAL ESTATE--1.2%
CapitaRetail China Trust* 639,971 1,193,449
- --------------------------------------------------------------------------------
TOTAL SINGAPORE
(Cost $2,527,399) 3,362,551
- --------------------------------------------------------------------------------
TAIWAN--9.3%
COMMERCIAL BANKS--.6%
Ta Chong Bank Ltd. 2,143,000 653,786
- --------------------------------------------------------------------------------
COMPUTERS & PERIPHERALS--.9%
Foxconn Technology Co. Ltd. 97,000 919,853
- --------------------------------------------------------------------------------
CONSUMER PRODUCTS--1.1%
Uni-President Enterprises Corp. 1,107,000 1,094,689
- --------------------------------------------------------------------------------
INDUSTRIAL CONGLOMERATES--1.3%
Epistar Corporation 288,000 952,209
Tripod Technology Corp. 116,000 435,828
- --------------------------------------------------------------------------------
1,388,037
- --------------------------------------------------------------------------------
IT SERVICES--4.0%
Hon Hai Precision Industry Co., Ltd. 310,000 2,063,871
MediaTek Incorporation 89,000 1,118,184
Simplo Technology Co., Ltd. 188,000 856,086
- --------------------------------------------------------------------------------
4,038,141
- --------------------------------------------------------------------------------
MACHINERY - OIL WELL EQUIPMENT & SERVICES--.7%
Awea Mechantronic Co., Ltd. 315,000 747,024
- --------------------------------------------------------------------------------
SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENT--.7%
Holtek Semiconductor Inc. 361,000 685,759
- --------------------------------------------------------------------------------
TOTAL TAIWAN
(Cost $8,983,917) 9,527,289
- --------------------------------------------------------------------------------
TOTAL COMMON STOCKS
(Cost $81,523,705) 97,659,803
- --------------------------------------------------------------------------------
-14-
- --------------------------------------------------------------------------------
THE CHINA-U.S. GROWTH FUND
SCHEDULE OF INVESTMENTS (UNAUDITED) (CONTINUED) APRIL 30, 2007
- --------------------------------------------------------------------------------
PARTICIPATION NOTES--1.5% SHARES VALUE
- --------------------------------------------------------------------------------
CHINA
AGRICULTURE--.8%
Heilongjiang Agriculture-A P-Note 634,300 $ 794,365
- --------------------------------------------------------------------------------
ENGINEERING--.2%
Jinxi Axle Company Limited P-Note 77,800 241,666
- --------------------------------------------------------------------------------
TRANSPORTATION--.5%
Daqin Railway Co., Ltd P-Note* 264,900 504,833
- --------------------------------------------------------------------------------
TOTAL PARTICIPATION NOTES
(Cost $1,289,859) 1,540,864
- --------------------------------------------------------------------------------
PRINCIPAL
SHORT-TERM INVESTMENTS--2.1% AMOUNT
- --------------------------------------------------------------------------------
U.S. AGENCY OBLIGATIONS
Federal Home Loan Banks, 4.93%, 5/1/07
(Cost $2,096,000) $ 2,096,000 2,096,000
- --------------------------------------------------------------------------------
================================================================================
Total Investments
(Cost $84,909,564) (a) 99.2% 101,296,667
- --------------------------------------------------------------------------------
Other Assets in Excess of Liabilities 0.8 843,537
- --------------------------------------------------------------------------------
NET ASSETS 100.0% $ 102,140,204
================================================================================
* NON-INCOME PRODUCING SECURITY.
# AMERICAN DEPOSITARY RECEIPTS.
(a) AT APRIL 30, 2007, THE NET UNREALIZED APPRECIATION OF INVESTMENTS, BASED
ON COST FOR FEDERAL INCOME TAX PURPOSES OF $85,468,062 AMOUNTED TO
$15,828,605 WHICH CONSISTED OF AGGREGATE GROSS UNREALIZED APPRECIATION OF
$17,004,142 AND AGGREGATE GROSS UNREALIZED DEPRECIATION OF $1,175,537.
SEE NOTES TO FINANCIAL STATEMENTS. -15-
- --------------------------------------------------------------------------------
THE CHINA-U.S. GROWTH FUND
STATEMENT OF ASSETS AND LIABILITIES (UNAUDITED) APRIL 30, 2007
- --------------------------------------------------------------------------------
ASSETS:
Investments in securities, at value (cost $84,909,564),
see accompanying schedule of investments $ 101,296,667
Cash 209,632
Receivable for investment securities sold 357,279
Receivable for shares of beneficial interest sold 789,189
Dividends receivable 99,090
Prepaid Expenses 19,386
- --------------------------------------------------------------------------------
Total Assets 102,771,243
- --------------------------------------------------------------------------------
LIABILITIES:
Payable for investment securities purchased 118,833
Payable for shares of beneficial interest redeemed 312,366
Investment advisory fees payable 101,953
Trustees' fees payable 2,540
Accrued expenses 95,347
- --------------------------------------------------------------------------------
Total Liabilities 631,039
- --------------------------------------------------------------------------------
NET ASSETS $ 102,140,204
================================================================================
NET ASSETS CONSIST OF:
Paid in capital $ 79,786,225
Undistributed net investment income (accumulated loss) (526,968)
Undistributed net realized gain (accumulated loss) 6,493,844
Net unrealized appreciation (depreciation) of investments 16,387,103
- --------------------------------------------------------------------------------
NET ASSETS $ 102,140,204
================================================================================
Net Asset Value Per Share $ 16.76
================================================================================
Offering Price Per Share $ 17.69
================================================================================
SHARES OF BENEFICIAL INTEREST OUTSTANDING--NOTE 6 6,095,454
================================================================================
SEE NOTES TO FINANCIAL STATEMENTS. -16-
- --------------------------------------------------------------------------------
THE CHINA-U.S. GROWTH FUND
STATEMENT OF OPERATIONS (UNAUDITED) FOR THE SIX MONTHS ENDED APRIL 30, 2007
- --------------------------------------------------------------------------------
INVESTMENT INCOME:
Income:
Dividends (net of $2,620 of foreign withholding tax) $ 286,228
Interest and other income 86,456
- --------------------------------------------------------------------------------
Total Income 372,684
- --------------------------------------------------------------------------------
EXPENSES:
Investment advisory fees--Note 3(a) 657,872
Administrative fee--Note 3(a) 17,442
Custodian Fees 50,454
Shareholder servicing fees--Note 3(f) 53,706
Distribution fees--Note 3(f) 58,847
Trustees fees 4,226
Professional Fees 25,162
Printing fees 37,990
Transfer agent fees and expenses--Note 3(b) 58,596
Registration Fees 14,607
Miscellaneous 21,354
- --------------------------------------------------------------------------------
Total Expenses 1,000,256
- --------------------------------------------------------------------------------
Less fees waiver--Note 3(a) (100,604)
- --------------------------------------------------------------------------------
Net Expenses 899,652
- --------------------------------------------------------------------------------
NET INVESTMENT LOSS (526,968)
================================================================================
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
AND FOREIGN CURRENCY TRANSACTIONS:
Net realized gain on investments 6,769,892
Net realized gain on foreign currency transactions 3,576
Net change in unrealized appreciation (depreciation)
on investments and foreign currency translations 11,259,819
- --------------------------------------------------------------------------------
Net realized and unrealized gain on investments
and foreign currency 18,033,287
- --------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 17,506,319
================================================================================
SEE NOTES TO FINANCIAL STATEMENTS. -17-
- --------------------------------------------------------------------------------
THE CHINA-U.S. GROWTH FUND
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
For the For the
six months ended year ended
April 30, October 31,
2007 2006
(unaudited)
- -----------------------------------------------------------------------------------------------------
Net investment loss $ (526,968) $ (167,343)
Net realized gain on investments and foreign currency transactions 6,773,468 10,205,900
Net change in unrealized appreciation (depreciation)
on investments, foreign currency translations 11,259,819 3,319,935
- -----------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 17,506,319 13,358,492
- -----------------------------------------------------------------------------------------------------
Distributions to Shareholders from:
Net realized gains (10,078,310) (4,057,743)
- -----------------------------------------------------------------------------------------------------
Net increase from shares of beneficial interest
transactions--Note 6 21,565,043 27,215,916
- -----------------------------------------------------------------------------------------------------
Total increase in net assets 28,993,052 36,516,665
Net assets:
Beginning of year 73,147,152 36,630,487
- -----------------------------------------------------------------------------------------------------
END OF YEAR $ 102,140,204 $ 73,147,152
=====================================================================================================
SEE NOTES TO FINANCIAL STATEMENTS. -18-
- --------------------------------------------------------------------------------
THE CHINA-U.S. GROWTH FUND
FINANCIAL HIGHLIGHTS FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD
- --------------------------------------------------------------------------------
For the For the For the November 3,
six months ended year ended year ended 2003(i) to
April 30, 2007 October 31, October 31, October 31,
(unaudited)(ii) 2006 2005 2004(ii)
- --------------------------------------------------------------------------------------------------------------
Net asset value, beginning
of period $ 15.57 $ 12.99 $ 11.05 $ 10.00
Net investment loss(iii) (0.09) (0.04) (0.07) (0.08)
Net realized and unrealized
gain on investments and
foreign currency 3.30 4.03 2.01 1.13
- --------------------------------------------------------------------------------------------------------------
Total from investment operations 3.21 3.99 1.94 1.05
- --------------------------------------------------------------------------------------------------------------
Distributions from net
realized gains (2.02) (1.41) -- --
- --------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 16.76 $ 15.57 $ 12.99 $ 11.05
==============================================================================================================
Total return(iv) 22.25% 33.48% 17.56% 10.50%
RATIOS AND SUPPLEMENTAL DATA:
Net assets, end of period
(000's omitted) $ 102,140 $ 73,147 $ 36,630 $ 26,290
==============================================================================================================
Ratio of expenses to average
net assets 2.00%(viii) 2.20%(vii) 2.26%(v) 2.44%(vi)
==============================================================================================================
Ratio of net investment loss to
average net assets (1.17)% (0.30)% (0.56)% (0.81)%
==============================================================================================================
Portfolio turnover rate 67.00% 192.21% 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 0.16% DUE TO EXPENSE REIMBURSEMENTS.
(viii) AMOUNT HAS BEEN REDUCED BY 0.22% DUE TO EXPENSE REIMBURSEMENTS.
SEE NOTES TO FINANCIAL STATEMENTS. -19-
- --------------------------------------------------------------------------------
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.
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). Securities for which such information is readily
available are valued at the last reported sales price or official closing price
as reported by an independent pricing service on the primary market or exchange
on which they are traded. In the absence of reported sales, securities are
valued at a price within 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 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. Developments that occur between the close of the foreign
markets and the close of the NYSE (normally 4:00 p.m. Eastern time) may result
in adjustments to the closing prices to reflect what the investment adviser,
pursuant to policies established by 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.
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.
In September 2006, the Financial Accounting Standards Board (FASB) issued
STATEMENT ON FINANCIAL ACCOUNTING STANDARDS NO. 157, "FAIR VALUE MEASUREMENTS"
(FAS 157). This standard clarifies the definition of fair value for financial
reporting, establishes a framework for measuring fair value and requires
additional disclosures about the use of fair value measurements. FAS 157 is
effective for financial statements issued for fiscal years beginning after
November 15, 2007 and interim periods within those fiscal years. As of April 30,
2007 the Fund does not believe the adoption of FAS 157 will impact the amounts
reported in the financial statements, however, additional disclosures will be
required about the inputs used to develop the measurements of fair
-20-
- --------------------------------------------------------------------------------
THE CHINA-U.S. GROWTH FUND | NOTES TO FINANCIAL STATEMENTS
(UNAUDITED) (CONTINUED)
- --------------------------------------------------------------------------------
value and the effect of certain of the measurements reported in the statement of
operations for a fiscal period.
(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 reclassifications have
no impact on the net asset value of the Fund and are 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
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.
On July 13, 2006, the Financial Accounting Standards Board (FASB) released FASB
Interpretation No. 48 "Accounting for Uncertainty in Income Taxes" (FIN 48). FIN
48 provides guidance for how uncertain tax positions should be recognized,
measured, presented and disclosed in the financial statements. FIN 48 requires
the evaluation of tax positions taken or expected to be taken in the course of
preparing the Funds' tax returns to determine whether the tax positions are
"more-likely-than-not" of being
-21-
- --------------------------------------------------------------------------------
THE CHINA-U.S. GROWTH FUND | NOTES TO FINANCIAL STATEMENTS
(UNAUDITED) (CONTINUED)
- --------------------------------------------------------------------------------
sustained by the applicable tax authority. Tax positions not deemed to meet the
more-likely-than-not threshold would be recorded as a tax benefit or expense in
the current year. Adoption of FIN 48 is required for fiscal years beginning
after December 15, 2006 and is to be applied to all open tax years as of the
effective date. At this time, management is evaluating the implications of FIN
48 and its impact in the financial statements has not yet been determined.
(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 and Administration Fees--Fees incurred by the Fund,
pursuant to the provisions of its Investment Advisory Agreement and
Administration Agreement with Fred Alger Management Inc. (Alger Management) are
payable monthly and computed based on the value of the average daily net assets
of the Fund, at the following rates:
Advisory fee 1.46%
Administration fee 0.04
Prior to September 12, 2006, Alger Management provided both advisory services
and administrative services to the Fund pursuant to an investment advisory
agreement with the Fund.
Through September 12, 2006, JF International Management, Inc. ("JFIM"), a
registered investment adviser, acted as sub-advisor to the Fund under a written
sub-advisory agreement with Alger Management. Effective September 20, 2006,
Martin Currie, Inc., a registered investment advisor, replaced JFIM as
sub-advisor to the Fund under a written sub-advisory agreement with 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. Alger Management has contractually agreed to extend the
expense cap through February 28, 2007. As part of the settlement with the New
York State Attorney General (see Note 8--Litigation) Alger Management has agreed
to reduce its advisory fee to 1.20% for the period from December 1, 2006 through
November 30, 2011. For the six months ended April 30, 2007, Alger Management
reimbursed/waived fees of the Fund totaling $100,604.
(b) Shareholder Administrative 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., the transfer agent for the
Fund ("BFDS") and other related services. During the six months ended April 30,
2007, the Fund incurred fees of $7,773 for these services provided by Alger
Services.
-22-
- --------------------------------------------------------------------------------
THE CHINA-U.S. GROWTH FUND | NOTES TO FINANCIAL STATEMENTS
(UNAUDITED) (CONTINUED)
- --------------------------------------------------------------------------------
(c) Sales Charges--Purchases of shares of the Fund may be subject to initial
sales charges. For the six months ended April 30, 2007, the initial sales
charges retained by Fred Alger & Company (the "Distributor"), were approximately
$5,890. Sales charges do not represent expenses of the Fund.
(d) Brokerage Commissions--During the six months ended April 30, 2007, the Fund
paid Fred Alger & Company, Incorporated ("Alger Inc."), an affiliate of Alger
Management, $24,637 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 $2,000. The chairman of the Board of Trustees receives an additional
annual fee of $10,000 which is paid, pro rata, by all funds managed by Alger
Management. Additionally, each member of the audit committee receives an
additional annual fee of $500 from the Fund.
(f) Distribution/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. The shareholder servicing
agreement was terminated on February 28, 2007. On March 1, 2007, the Fund
adopted a distribution plan pursuant to which the Fund pays Alger Inc. a fee at
the annual rate of .25% of the average daily net assets of the Fund to
compensate Alger Inc. for its activities and expenses incurred in distributing
the Fund's shares. Fees charged may be more or less than the expenses incurred
by Alger Inc.
(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, 2007, Alger Management and its affiliates owned 730,833
shares of the Fund.
NOTE 4--SECURITIES TRANSACTIONS:
- --------------------------------------------------------------------------------
During the six months ended April 30, 2007, purchases and sales of investment
securities, excluding short-term securities, aggregated $63,653,912 and
$57,782,308, 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, 2007, the
Fund had average borrowings of $17,210, with a weighted average interest rate of
5.77%.
-23-
- --------------------------------------------------------------------------------
THE CHINA-U.S. GROWTH FUND | NOTES TO FINANCIAL STATEMENTS
(UNAUDITED) (CONTINUED)
- --------------------------------------------------------------------------------
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, 2007 OCTOBER 31, 2006
- --------------------------------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT
- --------------------------------------------------------------------------------
Shares sold 2,011,483 $ 31,823,720 2,119,274 $ 31,308,238
Dividends reinvested 551,695 8,192,670 281,093 3,482,743
Shares redeemed (1,166,937) (18,451,347) (521,355) (7,575,065)
- --------------------------------------------------------------------------------
NET INCREASE 1,396,241 $ 21,565,043 1,879,012 $ 27,215,916
================================================================================
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, 2007 and the
year ended October 31, 2006, redemption fees were $33,322 and $29,634,
respectively.
NOTE 7--TAX CHARACTER OF DISTRIBUTIONS TO SHAREHOLDERS:
- --------------------------------------------------------------------------------
The tax character of distributions paid during the six months ended April 30,
2007 and the year ended October 31, 2006 were as follows:
SIX MONTHS ENDED YEAR ENDED
APRIL 30, 2007 OCTOBER 31, 2006
- --------------------------------------------------------------------------------
DISTRIBUTIONS PAID FROM:
- --------------------------------------------------------------------------------
Ordinary Income $ 8,336,911 $ 3,828,244
Long-term capital gain 1,741,399 229,499
- --------------------------------------------------------------------------------
Total distributions paid $ 10,078,310 $ 4,057,743
================================================================================
As of October 31, 2006, the components of distributable earnings on a tax basis
were as follows:
- --------------------------------------------------------------------------------
Undistributed ordinary income $ 8,336,709
- --------------------------------------------------------------------------------
Undistributed long-term gain 1,741,226
- --------------------------------------------------------------------------------
Unrealized appreciation $ 4,848,132
- --------------------------------------------------------------------------------
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.
NOTE 8--LITIGATION:
- --------------------------------------------------------------------------------
Alger Management has responded to inquiries, document requests and/or subpoenas
from various regulatory authorities, in connection with their investigations of
practices in the mutual fund industry identified as "market timing" and "late
trading." On October 11, 2006, Alger Management, Alger Inc. and Alger
Shareholder Services, Inc. executed an Assurance of Discontinuance with the
Office of the New York State Attorney General ("NYAG"). On January 18, 2007 the
Securities and Exchange
-24-
- --------------------------------------------------------------------------------
THE CHINA-U.S. GROWTH FUND | NOTES TO FINANCIAL STATEMENTS
(UNAUDITED) (CONTINUED)
- --------------------------------------------------------------------------------
Commission issued an order implementing settlements reached with Alger
Management and Alger Inc. As part of the settlements with the Commission and the
NYAG, without admitting or denying liability, the firms paid $30 million to
reimburse fund shareholders and a fine of $10 million; and agreed to 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 Funds
that the settlement has not adversely affected the operations of Alger
Management, Alger Inc. or their affiliates, or adversely affected their ability
to continue to provide services to the Funds.
On August 31, 2005, the West Virginia Securities Commissioner (the "WVSC") 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 (the "WVUSA"), and ordered Alger Management and Alger
Inc. to cease and desist from further violations of the WVUSA 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 WVSC. 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 -- 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, but such lawsuit has since been
withdrawn.
The Derivative Complaint alleged (i) violations, by Alger Management and,
depending on the specific offense alleged, by Alger Inc. and/or the fund trustee
defendants, of Sections 36(a), 36(b), 47, and 48 of the Investment Company Act
of 1940, as amended, (the "Investment Company Act") and of Sections 206 and 215
of the Investment Advisers Act of 1940, as amended, breach of fiduciary duty,
and breach of contract, (ii) various offenses by other third-party defendants,
and (iii) unjust enrichment by all the named defendants. The Class Action
Complaint alleged, in addition to the offenses listed above, (i) violations, by
Alger Management, Alger Inc., their affiliates, the funds named as defendants,
including the Funds, and the current and former fund trustees and officers, of
Sections 11, 12(a)(2), and 15 of the Securities Act of 1933, as amended,
Sections 10(b) (and Rule 10b-5 thereunder) and 20(a) of the Securities Exchange
Act of 1934, as amended, (the "1934 Act"), and Section 34(b)
-25-
- --------------------------------------------------------------------------------
THE CHINA-U.S. GROWTH FUND | NOTES TO FINANCIAL STATEMENTS
(UNAUDITED) (CONTINUED)
- --------------------------------------------------------------------------------
of the Investment Company Act, (ii) breach of contract by the funds named as
defendants, and (iii) unjust enrichment of the defendants.
Motions to dismiss the Class Action Complaint and the Derivative Complaint were
subsequently filed.
As a result of a series of court orders, all claims in the Class Action
Complaint and the Derivative Complaint have been dismissed, other than claims
under the 1934 Act against Alger Management, Alger Inc., Alger Associates, Inc.
and Alger Shareholder Services, Inc., and certain present and former members of
the senior management of Alger Management and/or Alger Inc., and claims under
Section 36(b) of the Investment Company Act against Alger Management, Alger
Inc., Alger Associates, Inc. and Alger Shareholder Services, Inc.
-26-
- --------------------------------------------------------------------------------
THE CHINA-U.S. GROWTH FUND
ADDITIONAL INFORMATION
- --------------------------------------------------------------------------------
SHAREHOLDER EXPENSE EXAMPLE
- --------------------------------------------------------------------------------
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, 2006 and ending April 30, 2007.
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, 2006 TO
NOVEMBER 1, 2006 APRIL 30, 2007 APRIL 30, 2007 (b)
- --------------------------------------------------------------------------------
Actual $ 1,000.00 $ 1,222.50 $ 11.02
Hypothetical(a) 1,000.00 1,014.88 9.99
- --------------------------------------------------------------------------------
(a) 5% ANNUAL RETURN BEFORE EXPENSES.
(b) EXPENSES ARE EQUAL TO THE FUND'S ANNUALIZED EXPENSE RATIO OF 2.00%,
MULTIPLIED BY THE AVERAGE ACCOUNT VALUE OVER THE PERIOD, MULTIPLIED BY
181/365 (TO REFLECT THE ONE-HALF YEAR PERIOD).
-27-
- --------------------------------------------------------------------------------
THE CHINA-U.S. GROWTH FUND
ADDITIONAL INFORMATION (UNAUDITED) (CONTINUED)
- --------------------------------------------------------------------------------
PROXY VOTING RESULTS
- --------------------------------------------------------------------------------
Special meetings of the funds' shareholders were held on January 17, 2007 and
February 14, 2007. The results of votes taken among shareholders on the proposal
before them are reported below. Each vote reported represents one share held on
the record date for the meeting.
PROPOSAL 1 - TO ELECT SIX TRUSTEES OF THE FUND.
HILARY M. ALGER # OF VOTES % OF VOTES
- --------------------------------------------------------------------------------
For 3,528,966 99.1%
- --------------------------------------------------------------------------------
Withheld 33,042 .9%
- --------------------------------------------------------------------------------
Total 3,562,008 100.0%
================================================================================
CHARLES F. BAIRD, JR. # OF VOTES % OF VOTES
- --------------------------------------------------------------------------------
For 3,529,114 99.1%
- --------------------------------------------------------------------------------
Withheld 32,894 .9%
- --------------------------------------------------------------------------------
Total 3,562,008 100.0%
================================================================================
ROGER P. CHEEVER # OF VOTES % OF VOTES
- --------------------------------------------------------------------------------
For 3,529,114 99.1%
- --------------------------------------------------------------------------------
Withheld 32,894 .9%
- --------------------------------------------------------------------------------
Total 3,562,008 100.0%
================================================================================
LESTER L. COLBERT, JR. # OF VOTES % OF VOTES
- --------------------------------------------------------------------------------
For 3,529,114 99.1%
- --------------------------------------------------------------------------------
Withheld 32,894 .9%
- --------------------------------------------------------------------------------
Total 3,562,008 100.0%
================================================================================
STEPHEN E. O'NEIL # OF VOTES % OF VOTES
- --------------------------------------------------------------------------------
For 3,528,966 99.1%
- --------------------------------------------------------------------------------
Withheld 33,042 .9%
- --------------------------------------------------------------------------------
Total 3,562,008 100.0%
================================================================================
NATHAN E. SAINT-AMAND # OF VOTES % OF VOTES
- --------------------------------------------------------------------------------
For 3,528,433 99.1%
- --------------------------------------------------------------------------------
Withheld 33,575 .9%
- --------------------------------------------------------------------------------
Total 3,562,008 100.0%
================================================================================
-28-
- --------------------------------------------------------------------------------
THE CHINA-U.S. GROWTH FUND
ADDITIONAL INFORMATION (UNAUDITED) (CONTINUED)
- --------------------------------------------------------------------------------
PROPOSAL 2 - TO APPROVE AN INVESTMENT ADVISORY AGREEMENT WITH FRED ALGER
MANAGEMENT, INC.
# OF VOTES % OF VOTES
- --------------------------------------------------------------------------------
For 2,436,378 68.4%
- --------------------------------------------------------------------------------
Against 35,905 1.0%
- --------------------------------------------------------------------------------
Abstain/Broker No Votes 1,089,726 30.6%
- --------------------------------------------------------------------------------
Total 3,562,009 100.0%
================================================================================
PROPOSAL 3 - TO APPROVE A NEW INVESTMENT SUB-ADVISORY AGREEMENT WITH
MARTIN CURRIE INC.
# OF VOTES % OF VOTES
- --------------------------------------------------------------------------------
For 2,422,717 68.0%
- --------------------------------------------------------------------------------
Against 46,024 1.3%
- --------------------------------------------------------------------------------
Abstain/Broker No Votes 1,093,268 30.7%
- --------------------------------------------------------------------------------
Total 3,562,009 100.0%
================================================================================
PROPOSAL 4 - TO APPROVE REVISIONS TO THE FUNDAMENTAL INVESTMENT POLICIES OF THE
FUND.
CONVERT THE FUND'S INVESTMENT OBJECTIVE
FROM FUNDAMENTAL TO NON-FUNDAMENTAL # OF VOTES % OF VOTES
- --------------------------------------------------------------------------------
For 2,380,234 66.8%
- --------------------------------------------------------------------------------
Against 85,430 2.4%
- --------------------------------------------------------------------------------
Abstain/Broker No Votes 1,096,345 30.8%
- --------------------------------------------------------------------------------
Total 3,562,009 100.0%
================================================================================
REVISE THE FUNDAMENTAL POLICY RELATING
TO BORROWING MONEY # OF VOTES % OF VOTES
- --------------------------------------------------------------------------------
For 2,379,998 66.8%
- --------------------------------------------------------------------------------
Against 84,013 2.4%
- --------------------------------------------------------------------------------
Abstain/Broker No Votes 1,097,998 30.8%
- --------------------------------------------------------------------------------
Total 3,562,009 100.0%
================================================================================
REVISE THE FUNDAMENTAL POLICY RELATING
TO UNDERWRITING # OF VOTES % OF VOTES
- --------------------------------------------------------------------------------
For 2,394,907 67.2%
- --------------------------------------------------------------------------------
Against 62,760 1.8%
- --------------------------------------------------------------------------------
Abstain/Broker No Votes 1,104,342 31.0%
- --------------------------------------------------------------------------------
Total 3,562,009 100.0%
================================================================================
-29-
- --------------------------------------------------------------------------------
THE CHINA-U.S. GROWTH FUND
ADDITIONAL INFORMATION (UNAUDITED) (CONTINUED)
- --------------------------------------------------------------------------------
REVISE THE FUNDAMENTAL POLICY RELATING
TO LENDING # OF VOTES % OF VOTES
- --------------------------------------------------------------------------------
For 2,378,359 66.8%
- --------------------------------------------------------------------------------
Against 81,410 2.3%
- --------------------------------------------------------------------------------
Abstain/Broker No Votes 1,102,240 30.9%
- --------------------------------------------------------------------------------
Total 3,562,009 100.0%
================================================================================
REVISE THE FUNDAMENTAL POLICY RELATING
TO ISSUING SENIOR SECURITIES # OF VOTES % OF VOTES
- --------------------------------------------------------------------------------
For 2,374,434 66.7%
- --------------------------------------------------------------------------------
Against 82,815 2.3%
- --------------------------------------------------------------------------------
Abstain/Broker No Votes 1,104,760 31.0%
- --------------------------------------------------------------------------------
Total 3,562,009 100.0%
================================================================================
REVISE THE FUNDAMENTAL POLICY RELATING
TO REAL ESTATE # OF VOTES % OF VOTES
- --------------------------------------------------------------------------------
For 2,389,762 67.1%
- --------------------------------------------------------------------------------
Against 75,442 2.1%
- --------------------------------------------------------------------------------
Abstain/Broker No Votes 1,096,805 30.8%
- --------------------------------------------------------------------------------
Total 3,562,009 100.0%
================================================================================
REVISE THE FUNDAMENTAL POLICY RELATING
TO COMMODITIES # OF VOTES % OF VOTES
- --------------------------------------------------------------------------------
For 2,397,774 67.3%
- --------------------------------------------------------------------------------
Against 70,158 2.0%
- --------------------------------------------------------------------------------
Abstain/Broker No Votes 1,094,077 30.7%
- --------------------------------------------------------------------------------
Total 3,562,009 100.0%
================================================================================
REVISE THE FUNDAMENTAL POLICY RELATING
TO CONCENTRATION # OF VOTES % OF VOTES
- --------------------------------------------------------------------------------
For 2,398,955 67.4%
- --------------------------------------------------------------------------------
Against 68,951 1.9%
- --------------------------------------------------------------------------------
Abstain/Broker No Votes 1,094,103 30.7%
- --------------------------------------------------------------------------------
Total 3,562,009 100.0%
================================================================================
REMOVE THE FUNDAMENTAL POLICY RELATING
TO BOTH PURCHASING SECURITIES ON MARGIN
AND ENGAGING IN SHORT SALES # OF VOTES % OF VOTES
- --------------------------------------------------------------------------------
For 2,374,884 66.7%
- --------------------------------------------------------------------------------
Against 87,037 2.4%
- --------------------------------------------------------------------------------
Abstain/Broker No Votes 1,100,088 30.9%
- --------------------------------------------------------------------------------
Total 3,562,009 100.0%
================================================================================
-30-
- --------------------------------------------------------------------------------
THE CHINA-U.S. GROWTH FUND
ADDITIONAL INFORMATION (UNAUDITED) (CONTINUED)
- --------------------------------------------------------------------------------
REMOVE THE FUNDAMENTAL POLICY RELATING
TO PLEDGING ASSETS # OF VOTES % OF VOTES
- --------------------------------------------------------------------------------
For 2,383,969 67.0%
- --------------------------------------------------------------------------------
Against 82,285 2.3%
- --------------------------------------------------------------------------------
Abstain/Broker No Votes 1,095,755 30.7%
- --------------------------------------------------------------------------------
Total 3,562,009 100.0%
================================================================================
REMOVE THE FUNDAMENTAL POLICY RELATING
TO INVESTMENTS IN OIL, GAS OR OTHER MINERAL
EXPLORATION OR DEVELOPMENT PROGRAMS # OF VOTES % OF VOTES
- --------------------------------------------------------------------------------
For 2,395,899 67.3%
- --------------------------------------------------------------------------------
Against 70,237 2.0%
- --------------------------------------------------------------------------------
Abstain/Broker No Votes 1,095,873 30.7%
- --------------------------------------------------------------------------------
Total 3,562,009 100.0%
================================================================================
REMOVE THE FUNDAMENTAL POLICY RELATING
TO RELATED TO WRITING OR SELLING STRADDLES
OR SPREADS # OF VOTES % OF VOTES
- --------------------------------------------------------------------------------
For 2,378,935 66.8%
- --------------------------------------------------------------------------------
Against 86,040 2.4%
- --------------------------------------------------------------------------------
Abstain/Broker No Votes 1,097,034 30.8%
- --------------------------------------------------------------------------------
Total 3,562,009 100.0%
================================================================================
PROPOSAL 5 - TO APPROVE A NEW DISTRIBUTION PLAN UNDER RULE 12b-1.
# OF VOTES % OF VOTES
- --------------------------------------------------------------------------------
For 2,385,671 67.8%
- --------------------------------------------------------------------------------
Against 69,466 1.2%
- --------------------------------------------------------------------------------
Abstain/Broker No Votes 1,106,872 31.0%
- --------------------------------------------------------------------------------
Total 3,562,009 100.0%
================================================================================
PROPOSAL 6 - TO APPROVE AMENDMENTS TO THE FUND'S AGREEMENT AND DECLARATION OF
TRUST.
ELIMINATE THE REQUIREMENT THAT
SHAREHOLDERS APPROVE THE
TERMINATION OF THE FUND # OF VOTES % OF VOTES
- --------------------------------------------------------------------------------
For 2,361,527 66.3%
- --------------------------------------------------------------------------------
Against 109,997 3.1%
- --------------------------------------------------------------------------------
Abstain/Broker No Votes 1,090,485 30.6%
- --------------------------------------------------------------------------------
Total 3,562,009 100.0%
================================================================================
-31-
- --------------------------------------------------------------------------------
THE CHINA-U.S. GROWTH FUND
ADDITIONAL INFORMATION (UNAUDITED) (CONTINUED)
- --------------------------------------------------------------------------------
ELIMINATE THE REQUIREMENT THAT SHAREHOLDERS
APPROVE THE LIQUIDATION OF A SERIES OF THE FUND
OR A CLASS OF SHARES OF A SERIES OF THE FUND # OF VOTES % OF VOTES
- --------------------------------------------------------------------------------
For 2,369,522 66.5%
- --------------------------------------------------------------------------------
Against 100,745 2.8%
- --------------------------------------------------------------------------------
Abstain/Broker No Votes 1,091,742 30.7%
- --------------------------------------------------------------------------------
Total 3,562,009 100.0%
================================================================================
ELIMINATE (SUBJECT TO QUALIFICATION) THE
REQUIREMENT THAT SHAREHOLDERS APPROVE
THE REORGANIZATION OF THE FUND OR A SERIES
OF THE FUND # OF VOTES % OF VOTES
- --------------------------------------------------------------------------------
For 2,359,283 66.2%
- --------------------------------------------------------------------------------
Against 104,215 2.9%
- --------------------------------------------------------------------------------
Abstain/Broker No Votes 1,098,511 30.9%
- --------------------------------------------------------------------------------
Total 3,562,009 100.0%
================================================================================
ADD A DEMAND REQUIREMENT FOR SHAREHOLDER
DERIVATIVE SUITS # OF VOTES % OF VOTES
- --------------------------------------------------------------------------------
For 2,375,035 66.7%
- --------------------------------------------------------------------------------
Against 82,660 2.3%
- --------------------------------------------------------------------------------
Abstain/Broker No Votes 1,104,314 31.0%
- --------------------------------------------------------------------------------
Total 3,562,009 100.0%
================================================================================
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.alger.com or on the EDGAR Database on the SEC's website
(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
web-site 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.
-32-
THE CHINA-U.S. GROWTH FUND
- --------------------------------------------------------------------------------
111 Fifth Avenue
New York, NY 10003
(800) 254-3796
www.alger.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.
GO PAPERLESS WITH ALGER ELECTRONIC DELIVERY SERVICE
Alger is pleased to provide you with the ability to access regulatory materials
online. When documents such as prospectuses and annual and semi-annual reports
are available, we'll send you an e-mail notification with a convenient link that
will take you directly to the fund information on our website. To sign up for
this free service, simply enroll at WWW.ICSDELIVERY.COM/ALGER.
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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
(a) (3) Not applicable
(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 18, 2007
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 18, 2007
By: /s/Michael D. Martins
Michael D. Martins
Treasurer
Date: June 18, 2007