EXHIBIT 11(a)(4)
THE CHINA FUND, INC.
PROXY VOTING POLICY AND PROCEDURES
The Board of Directors of The China Fund, Inc. (the "Fund") hereby adopts the
following policy and procedures with respect to voting proxies relating to Fund
securities managed by Martin Currie Inc. and Asian Direct Capital Management
(the "Listed Investment Manager" and the "Direct Investment Manager",
respectively and the "Investment Managers", collectively).
I. POLICY
It is the policy of the Board of Directors of the Fund (the "Board") to delegate
the responsibility for voting proxies relating to securities held by the Fund to
the Investment Managers as a part of the Managers' general management of the
Fund's assets, subject to the Board's continuing oversight. The Board of
Directors of the Fund hereby delegates such responsibility to the Investment
Managers, and directs each Investment Manager to vote proxies relating to Fund
portfolio securities managed by the Investment Manager consistent with the
duties and procedures set forth below. The Investment Managers may retain one or
more vendors to review, monitor and recommend how to vote proxies in a manner
consistent with the duties and procedures set forth below, to ensure such
proxies are voted on a timely basis and to provide reporting and/or record
retention services in connection with proxy voting for the Fund.
II. FIDUCIARY DUTY
The right to vote a proxy with respect to securities held by the Fund is an
asset of the Fund. Each Investment Manager, to which authority to vote on behalf
of the Fund is delegated, acts as a fiduciary of the Fund and must vote proxies
in a manner consistent with the best interest of the Fund and its shareholders.
In discharging this fiduciary duty, each Investment Manager must maintain and
adhere to its policies and procedures for addressing conflicts of interest and
must vote in a manner substantially consistent with its policies, procedures and
guidelines, as presented to the Board.
III. PROCEDURES
The following are the procedures adopted by the Board for the administration of
this policy:
A. Review of Investment Managers' Proxy Voting Procedures. The Investment
Managers shall present to the Board their policies, procedures and other
guidelines for voting proxies at least annually, and must notify the Board
promptly of material changes to any of these documents, including changes
to policies addressing conflicts of interest.
B. Voting Record Reporting. Each Investment Manager shall provide the
voting record information necessary for the completion and filing of
Form-NPX to the Fund at least annually. Such voting record information
shall be in a form acceptable to the Fund and shall be provided at such
time(s) as are required for the timely filing of Form-NPX and at such
additional time(s) as the Fund and the Investment Manager may agree from
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time to time. With respect to those proxies that an Investment Manager has
identified as involving a conflict of interest(1), the Investment Manager
shall submit a separate report indicating the nature of the conflict of
interest and how that conflict was resolved with respect to the voting of
the proxy.
C. Record Retention. The each Investment Manager shall maintain such
records with respect to the voting of proxies as may be required by the
Investment Advisers Act of 1940 and the rules promulgated thereunder or by
the Investment Company Act of 1940 and the rules promulgated thereunder.
D. Conflicts of Interest. Any actual or potential conflicts of interest
between or an Investment Manager and the Fund's shareholders arising from
the proxy voting process will be addressed by the relevant Investment
Manager and the Investment Manager's application of its proxy voting
procedures pursuant to the delegation of proxy voting responsibilities to
the Investment Manager. In the event that the Investment Manager notifies
the officer(s) of the Fund that a conflict of interest cannot be resolved
under the Investment Manager's Proxy Voting Procedures, such officer(s)
are responsible for notifying the Chairman of the Board of the Fund of the
irreconcilable conflict of interest and assisting the Chairman with any
actions he determines are necessary.
IV. REVOCATION
The delegation by the Board of the authority to vote proxies relating to
securities of the Fund is entirely voluntary and may be revoked by the Board, in
whole or in part, at any time.
V. ANNUAL FILING
The Fund shall file an annual report of each proxy voted with respect to
securities of the Fund during the twelve-month period ended June 30 on Form N-PX
not later than August 31 of each year. (2)
VI. DISCLOSURES
A. The Fund shall include in its annual report filed on Form N-CSR:
1. a description of this policy and of the policies and procedures
used by the Fund and the Investment Managers to determine how to
vote proxies relating to portfolio securities or copies of such
policies and procedures; and
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(1) As it is used in this document, the term "conflict of interest" refers to a
situation in which the Investment Managers or affiliated persons of the
Investment Managers have a financial interest in a matter presented by a proxy
other than the obligation they incur as Investment Managers to the Fund which
could potentially compromise the Investment Managers' independence of judgment
and action with respect to the voting of the proxy.
(2) The Fund must file its first report on Form N-PX not later than August 31,
2004, for the twelve-month period beginning July 1, 2003, and ending June 30,
2004.
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2. a statement disclosing that a description of the policies and
procedures used by or on behalf of the Fund to determine how to vote
proxies relating to securities of the Fund is available without
charge, upon request, by calling the Fund's toll-free telephone
number; through a specified Internet address, if applicable; and on
the SEC's website; and
3. a statement disclosing that information regarding how the Fund
voted proxies relating to Fund securities during the most recent
12-month period ended June 30 is available without charge, upon
request, by calling the Fund's toll-free telephone number; or
through a specified Internet address; or both; and on the SEC's
website.
VII. REVIEW OF POLICY
The Board shall review from time to time this policy to determine its
sufficiency and shall make and approve any changes that it deems necessary from
time to time.
Adopted: September 12, 2003
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PROXY VOTING POLICY
ASIAN DIRECT CAPITAL MANAGEMENT
INTRODUCTION
Asian Direct Capital Management ("ADCM") seeks to vote proxies in the best
interests of its clients. In the ordinary course, this entails voting proxies in
a way which ADCM believes will maximize the monetary value of each portfolio's
holdings. ADCM takes the view that this will benefit our direct clients (e.g.
investment funds) and, indirectly, the ultimate owners and beneficiaries of
those clients (e.g. fund shareholders).
Oversight of the proxy voting process is the responsibility of the ADCM
Investment Committee. ADCM's Compliance Officer is responsible for implementing
processes and procedures to ensure the objectives of this policy are properly
carried out. In addition to voting proxies, ADCM:
1) describes its proxy voting procedures to its clients in Part II of
its Form ADV;
2) provides the client with this written proxy policy, upon request;
3) discloses to its clients how they may obtain information on how ADCM
voted the client's proxies;
4) matches proxies received with holdings as of record date;
5) reconciles holdings as of record date and rectifies any
discrepancies;
6) generally applies its proxy voting policy consistently and keeps
records of votes for each client;
7) documents the reason(s) for voting for all non-routine items; and
8) keeps records of such proxy voting available for inspection by the
client or governmental agencies.
PROCESS
All proxies received on behalf of ADCM clients are voted according to our
guidelines listed below, as long as there are no special circumstances relating
to that company or proxy request.
However, from time to time, proxy votes will be solicited which (i) involve
special circumstances and require additional research and discussion or (ii) are
not directly addressed by our policies. These proxies are identified through a
number of methods, including but not limited to concerns of clients, review by
internal proxy specialists, and questions from consultants.
In instances of special circumstances or issues not directly addressed by our
policies, the Investment Team is consulted for a determination of the proxy
vote. The first determination is whether there is a material conflict of
interest between the interests of our client and those of ADCM. If the
Investment Team determines that there is a material conflict, the process
detailed below under "Potential Conflicts" is followed. If there is no material
conflict, we examine each of the issuer's proposals in detail in seeking to
determine what vote would be in the best interests of our clients. At this
point, the Investment Committee makes a voting decision based on maximizing the
monetary value of each portfolios' holdings. However, the Investment Committee
may determine that a proxy involves the consideration of particularly
significant issues and may seek additional guidance from ADCM's Compliance
Officer, and SSgA Compliance personnel.
ADCM also endeavors to show sensitivity to local market practices when voting
proxies of non-U.S. issuers.
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VOTING
For most issues and in most circumstances, we abide by the following general
guidelines. However, as discussed above, in certain circumstances, we may
determine that it would be in the best interests of our clients to deviate from
these guidelines.
Management Proposals
I. ADCM votes in support of management on the following ballot items, which
are fairly common management sponsored initiatives.
- Elections of directors who do not appear to have been remiss in the
performance of their oversight responsibilities
- Approval of auditors
- Directors' and auditors' compensation
- Directors' liability and indemnification
- Discharge of board members and auditors
- Financial statements and allocation of income
- Dividend payouts that are greater than or equal to country and
industry standards
- Authorization of share repurchase programs
- General updating of or corrective amendments to charter
- Change in Corporation Name
- Elimination of cumulative voting
II. ADCM votes in support of management on the following items, which have
potentially substantial financial or best-interest impact:
- Capitalization changes which eliminate other classes of stock and
voting rights
- Changes in capitalization authorization for stock splits, stock
dividends, and other specified needs which are no more than 50% of
the existing authorization for U.S. companies and no more than 100%
of existing authorization for non-U.S. companies
- Elimination of pre-emptive rights for share issuance of less than a
given percentage (country specific - ranging from 5% to 20%) of the
outstanding shares
- Elimination of "poison pill" rights
- Stock purchase plans with an exercise price of not less that 85% of
fair market value
- Stock option plans which are incentive based and not excessive
- Other stock-based plans which are appropriately structured
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- Reductions in super-majority vote requirements
- Adoption of anti-"greenmail" provisions
III. ADCM votes against management on the following items, which have
potentially substantial financial or best interest impact:
- Capitalization changes that add "blank check" classes of stock or
classes that dilute the voting interests of existing shareholders
- Changes in capitalization authorization where management does not
offer an appropriate rationale or which are contrary to the best
interest of existing shareholders
- Anti-takeover and related provisions that serve to prevent the
majority of shareholders from exercising their rights or effectively
deter appropriate tender offers and other offers
- Amendments to bylaws which would require super-majority shareholder
votes to pass or repeal certain provisions
- Elimination of Shareholders' Right to Call Special Meetings
- Establishment of classified boards of directors
- Reincorporation in a state which has more stringent anti-takeover
and related provisions
- Shareholder rights plans that allow the board of directors to block
appropriate offers to shareholders or which trigger provisions
preventing legitimate offers from proceeding
- Excessive compensation
- Change-in-control provisions in non-salary compensation plans,
employment contracts, and severance agreements which benefit
management and would be costly to shareholders if triggered
- Adjournment of Meeting to Solicit Additional Votes
- "Other business as properly comes before the meeting" proposals
which extend "blank check" powers to those acting as proxy
- Proposals requesting re-election of insiders or affiliated directors
who serve on audit, compensation, and nominating committees.
IV. ADCM evaluates Mergers and Acquisitions on a case-by-case basis.
Consistent with our proxy policy, we support management in seeking to achieve
their objectives for shareholders. However, in all cases, ADCM uses its
discretion in order to maximize shareholder value. ADCM, generally votes, as
follows:
- Against offers with potentially damaging consequences for minority
shareholders because of illiquid stock, especially in some non-US
markets
- For offers that concur with index calculators treatment and our
ability to meet our clients return objectives for passive funds
- Against offers when there are prospects for an enhanced bid or other
bidders
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- For proposals to restructure or liquidate closed end investment
funds in which the secondary market price is substantially lower
than the net asset value
SHAREHOLDER PROPOSALS
Traditionally, shareholder proposals have been used to encourage management and
other shareholders to address socio-political issues. ADCM believes that it is
inappropriate to use client assets to attempt to affect such issues. Thus, we
examine shareholder proposals primarily to determine their economic impact on
shareholders.
I. ADCM votes in support of shareholders on the following ballot items, which
are fairly common shareholder-sponsored initiatives:
- Requirements that auditors attend the annual meeting of shareholders
- Establishment of an annual election of the board of directors
- Mandates requiring a majority of independent directors on the Board
of Directors and the audit, nominating, and compensation committees
- Mandates that amendments to bylaws or charters have shareholder
approval
- Mandates that shareholder-rights plans be put to a vote or repealed
- Establishment of confidential voting
- Expansions to reporting of financial or compensation-related
information, within reason
- Repeals of various anti-takeover related provisions
- Reduction or elimination of super-majority vote requirements
- Repeals or prohibitions of "greenmail" provisions
- "Opting-out" of business combination provisions
- Proposals requiring the disclosure of executive retirement benefits
if the issuer does not have an independent compensation committee
II. In light of recent events surrounding corporate auditors and taking into
account corporate governance provisions released by the SEC, NYSE, and NASDAQ,
ADCM votes in support of shareholders on the following ballot items, which are
fairly common shareholder-sponsored initiatives:
- Disclosure of Auditor and Consulting relationships when the same or
related entities are conducting both activities
- Establishment of selection committee responsible for the final
approval of significant management consultant contract awards where
existing firms are already acting in an auditing function
- Mandates that Audit, Compensation and Nominating Committee members
should all be independent directors
- Mandates giving the Audit Committee the sole responsibility for the
selection and dismissal of the auditing firm and any subsequent
result of audits are reported to the audit committee
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III. ADCM votes against shareholders on the following initiatives, which are
fairly common shareholder-sponsored initiatives:
- Limits to tenure of directors
- Requirements that candidates for directorships own large amounts of
stock before being eligible to be elected
- Restoration of cumulative voting in the election of directors
- Requirements that the company provide costly, duplicative, or
redundant reports; or reports of a non-business nature
- Restrictions related to social, political, or special interest
issues which affect the ability of the company to do business or be
competitive and which have significant financial or best-interest
impact
- Proposals which require inappropriate endorsements or corporate
actions
- Requiring the company to expense stock options unless already
mandated by FASB (or similar body) under regulations that supply a
common valuation model.
- Proposal asking companies to adopt full tenure holding periods for
their executives.
- Proposals requiring the disclosure of executive retirement benefits
if the issuer has an independent compensation committee
SHAREHOLDER ACTIVISM
We at ADCM agree entirely with the United States Department of Labor's position
that "where proxy voting decisions may have an effect on the economic value of
the plan's underlying investment, plan fiduciaries should make proxy voting
decisions with a view to enhancing the value of the shares of stock" (IB 94-2).
Our proxy voting policy and procedures are designed to ensure that our clients
receive the best possible returns on their investments.
POTENTIAL CONFLICTS
As discussed above under Process, from time to time, the Investment Committee
will review a proxy which presents a potential material conflict. For example,
ADCM or its affiliates may provide services to a company whose management is
soliciting proxies, or to another entity which is a proponent of a particular
proxy proposal. Another example could arise when ADCM has business or other
relationships with participants involved in proxy contests, such as a candidate
for a corporate directorship.
As a fiduciary to its clients, ADCM takes these potential conflicts very
seriously. While ADCM's only goal in addressing any such potential conflict is
to ensure that proxy votes are cast in the clients' best interests and are not
affected by ADCM's potential conflict, there are a number of courses ADCM may
take. The final decision as to which course to follow shall be made by the
Investment Committee.
When the matter falls clearly within one of the proposals enumerated above,
casting a vote which simply follows ADCM's pre-determined policy would eliminate
ADCM's discretion on the particular issue and hence avoid the conflict.
In other cases, where the matter presents a potential material conflict and is
not clearly within one of the enumerated proposals, or is of such a nature that
ADCM believes more active involvement is necessary, the Investment Committee
will follow one of two courses of action. First, ADCM may employ the services
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of a third party, wholly independent of ADCM, its affiliates and those parties
involved in the proxy issue, to determine the appropriate vote.
Second, in certain situations the Investment Committee may determine that the
employment of a third party is unfeasible, impractical or unnecessary. In such
situations, the Investment Committee shall make a decision as to the voting of
the proxy. The basis for the voting decision, including the basis for the
determination that the decision is in the best interests of ADCM's clients,
shall be formalized in writing as a part of the minutes to the ADCM Investment
Committee. As stated above, which action is appropriate in any given scenario
would be the decision of the Investment Committee in carrying out its duty to
ensure that the proxies are voted in the clients', and not ADCM's, best
interests.
RECORDKEEPING
In accordance with applicable law, ADCM shall retain the following documents for
not less than five years from the end of the year in which the proxies were
voted, the first two years in ADCM's office:
1) ADCM's Proxy Voting Policy and any additional procedures created
pursuant to such Policy;
2) a copy of each proxy statement ADCM receives regarding securities
held by its clients (note: this requirement may be satisfied by a
third party who has agreed in writing to do so or by obtaining a
copy of the proxy statement from the EDGAR database);
3) a record of each vote cast by ADCM (note: this requirement may be
satisfied by a third party who has agreed in writing to do so);
4) a copy of any document created by ADCM that was material in making
its voting decision or that memorializes the basis for such
decision; and
5) a copy of each written request from a client, and response to the
client, for information on how ADCM voted the client's proxies.
DISCLOSURE OF CLIENT VOTING INFORMATION
Any client who wishes to receive information on how its proxies were voted
should contact ADCM's Compliance Officer.
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MARTIN CURRIE, INC.
STATEMENT OF POLICIES AND PROCEDURES
PROXY VOTING
Martin Currie, Inc. ("Martin Currie") has adopted a Statement of Policies and
Procedures for Voting Proxies (the "Policies and Procedures") designed to ensure
that it votes proxies in the best interests of its Clients in accordance with
its fiduciary duties, Rule 206(4)-6 under the Investment Advisers Act of 1940
and other applicable law. The Policies and Procedures do not apply to any Client
who has retained authority and discretion to vote its own proxies or delegated
such authority and discretion to a third party.
PROXY VOTING POLICIES
Martin Currie recognizes the importance of good corporate governance in ensuring
that management and boards of directors fulfil their obligations to
shareholders. As part of its investment process, it takes into account the
attitudes of management and boards of directors on corporate governance issues
when deciding whether to invest in a company. As set out in the Policies and
Procedures, it is Martin Currie's general policy to support management of the
companies in which it invests and it will generally cast votes in accordance
with management's proposals. However, it reserves the right to depart from this
policy in order to avoid voting decisions that it believes may be contrary to
its Clients' best interests.
The Policies and Procedures also contain proxy voting policies relating to
specific issues, such as: the election of directors; the appointment of
auditors; changes to a company's charter, articles of incorporation or bylaws;
corporate restructurings, mergers and acquisitions; transparency and
accountability in corporate governance; proposals regarding social, political
and environmental issues; and executive compensation. Martin Currie applies
these proxy-voting policies flexibly and reserves the right to vote contrary to
the policies when it believes they may be contrary to its Clients' best
interests.
Martin Currie is a global investment manager, and it invests significantly in
emerging markets. It should be noted that protection for shareholders may vary
significantly from jurisdiction to jurisdiction, and in some cases may be
substantially less than in the U.S. or developed countries.
PROXY VOTING PROCEDURES
Martin Currie's Market Data Team is responsible for the coordination of proxy
voting and liaises with Product Managers and/or the Proxy Voting Committee. The
Product Managers are responsible for evaluating proxies and determining voting
decisions in accordance with the general principles of the Policies and
Procedures.
The Proxy Voting Committee, which comprises senior investment personnel and
representatives of the Legal & Compliance Department, regularly reviews the
proxy policies and considers specific proxy voting matters in certain
situations.
CONFLICTS OF INTEREST
Martin Currie recognizes that there is a potential conflict of interest when it
votes a proxy solicited by an issuer with whom it has a material business or
personal relationship that may
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affect how it votes on the issuer's proxy. Martin Currie believes that oversight
by the Committee ensures that proxies are voted with only its Clients' best
interests in mind. In order to avoid any perceived conflict of interests,
procedures have been established for use when proxy votes are issued by existing
Clients or where Martin Currie holds a significant voting percentage of the
company.
PROXIES OF CERTAIN NON-U.S. ISSUERS
Proxy voting in certain countries requires "share blocking." That is,
shareholders wishing to vote their proxies must deposit their shares shortly
before the date of the meeting (usually one week) with a designated depositary.
During this blocking period, shares that will be voted at the meeting cannot be
sold until the meeting has taken place and the shares are returned to the
Clients' custodian banks. Martin Currie may determine that the value of
exercising the vote does not outweigh the detriment of not being able to
transact in the shares during this period. In such cases, Martin Currie may
abstain from voting the affected shares.
AVAILABILITY OF POLICIES AND PROCEDURES AND PROXY VOTING RECORD
Clients may obtain a copy of the Policies and Procedures and information on how
Martin Currie voted with respect to their proxies by contacting the Client
Services Team at Martin Currie, Inc., Saltire Court, 20 Castle Terrace,
Edinburgh, Scotland, EH1 2ES, tel. 011-44-131-229-5252, fax 011-44-131-222-2527
or email Clientservices@martincurrie.com.
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