EXECUTION COPY
INVESTMENT ADVISORY AND MANAGEMENT AGREEMENT
Advisory Agreement, dated as of January 1, 2019 (New York time) (the
"Agreement") between THE CHINA FUND, INC., a Maryland corporation (the
"Fund") and MATTHEWS INTERNATIONAL CAPITAL MANAGEMENT, LLC, a limited
liability company organized and existing under the laws of the State of
Delaware and registered as an investment adviser with the U.S. Securities
and Exchange Commission (the "Investment Manager").
WHEREAS, the Fund is a closed-end, non-diversified management investment
company registered under the Investment Company Act of 1940, as amended
(the "1940 Act"), shares of common stock of which are registered under the
Securities Act of 1933, as amended; and
WHEREAS, the Fund's investment objective is long-term capital appreciation
which it seeks to achieve by investing primarily in equity securities of
China companies (as that term is defined in the Prospectus, dated June 27,
2005 (the "Prospectus") contained in the Fund's Registration Statement on
Form N-2 (File No. 333-124392) (the "Registration Statement"));
WHEREAS, the Fund desires to retain the Investment Manager to render
investment management services to the Fund and the Investment Manager is
willing to render such services;
NOW, THEREFORE, in consideration of the mutual covenants hereafter
contained, it is hereby agreed by and between the parties hereto as
follows:
1. Appointment of Investment Manager.
(a) The Fund hereby employs the Investment Manager for the period and
on the terms and conditions set forth herein, subject at all times to
the supervision of the Board of Directors of the Fund, to:
i. Other than with respect to the portion of the Fund's assets invested
in "direct investments" (assets of the Fund that are invested in
securities that at the time of such investment are not (or approved for
listing) on a securities exchange), make all investment decisions for the
assets of the Fund (the "Assets") and to manage the investment and
reinvestment of the Assets in accordance with the investment objective
and policies of the Fund set forth in the Fund's Prospectus, and as such
investment objective and policies are amended from time to time by the
Fund's Board of Directors, and subject always to the restrictions of the
Fund's Articles of Incorporation and By-Laws, as amended or restated from
time to time, and the provisions of the 1940 Act. Should the Board of
Directors for the Fund at any time make any definite determination as to
investment policy and notify the Investment Manager thereof, the
Investment Manager shall be bound by such determination for the period, if
any, specified in such notice or until similarly notified that such
determination has been revoked. The Investment Manager shall vote the
Fund's proxies in connection with its Assets in accordance with the
Investment Manager's proxy voting policy as may be amended from time to
time, provided that the Board of Directors of the Fund receives at least
ten days advance notice of any such material amendment. The Investment
Manager shall make such reports to the Board concerning such proxy voting
as the Board may deem necessary or advisable. It is understood and
acknowledged that no assurance has been or can be provided that the
investment objective of the Fund can or will be achieved. The
Investment Manager shall take, on behalf of the Fund, all actions which
it deems necessary to implement the investment policies of the Fund
applicable to the Fund's Assets and, with respect to the Fund's Assets,
to place all orders for the purchase or sale of portfolio securities for
the Fund with brokers or dealers selected by the Investment Manager,
and in connection therewith, the Investment Manager is authorized as agent
of the Fund to give instructions to the custodians from time to time of
the Fund's Assets as to deliveries of securities and payments of cash for
the account of the Fund. In connection with the selection of such brokers
or dealers and the placing of such orders, the Investment Manager is
directed at all times to seek to use its reasonable efforts to obtain for
the Fund the most favorable net results available ("best execution"). In
using its reasonable efforts to obtain for the Fund best execution, the
Investment Manager shall consider all factors it deems relevant,
including, by way of illustration, price, the size of the transaction,
the nature of the market security, the amount of the commission, the
timing of the transaction taking into account market prices and trends,
the reputation, experience and financial stability of the broker or
dealer involved and the quality of service rendered by the broker or
dealer in other transaction. Subject to such policies as the Fund may
communicate to the Investment Manager in writing, the Investment Manager
shall not be deemed to have acted unlawfully or to have breached any duty
created by this Agreement solely by reason of its having caused the Fund
to pay a broker or dealer that provides brokerage and research services
to the Investment Manager or its affiliates an amount of commission for
effecting a portfolio investment transaction in excess of the amount of
commission another broker or dealer would have charged for effecting that
transaction, if the Investment Manager determines in good faith that such
amount of commission was reasonable. Subject to these requirements and the
provision of the 1940 Act, the U.S. Securities Exchange Act of 1934 and
any other applicable provisions of law, nothing shall prohibit the
Investment Manager from selecting brokers or dealers with which it or the
Fund is affiliated.
It is also understood that it is desirable for the Fund that the
Investment Manager have access to investment and market research and
securities and economic analyses provided by brokers and others. It is
also understood that brokers providing such services may execute brokerage
transactions at a higher cost to the Fund than might result from the
allocation of brokerage to other brokers on the basis of seeking the most
favorable price and efficient execution. Therefore, the purchase and sale
of securities for the Fund may be made with brokers who provide such
research and analysis, subject to review by the Fund's Board of Directors
from time to time with respect to the extent and continuation of this
practice to determine whether the Fund benefits, directly or indirectly,
from such practice. It is understood by both parties that the Investment
Manager may select broker-dealers for the execution of the Fund's
portfolio transactions who provide research and analysis as the Investment
Manager may lawfully and appropriately use in its investment management
and advisory capacities, whether or not such research and analysis may
also be useful to the Investment Manager in connection with its services
to other clients.
On occasions when the Investment Manager deems the purchase or sale of a
security to be in the best interest of the Fund as well as of other
clients, the Investment Manager, to the extent permitted by applicable
laws and regulations, may aggregate the securities to be purchased or
sold in order to obtain the most favorable price or lower brokerage
commissions and the most efficient execution. In such event, allocation
of the securities so purchased or sold, as well as the expenses incurred
in the transaction, will be made by the Investment Manager in the
manner it considers to be the most equitable and consistent with its
fiduciary obligations to the Fund and to such other clients;
ii. Prepare and make available to the Fund as reasonably requested by the
Board of Directors pertinent research and statistical data and
iii. Maintain or cause to be maintained for the Fund all books and
records required under the 1940 Act, to the extent that such books and
records are not maintained or furnished by administrators, custodians or
other agents of the Fund.
(b) The Investment Manager accepts such appointment and agrees during
the term of this Agreement (i) to render such services, (ii) to permit
one of its or its affiliate's directors, officers or employees to
serve without compensation as an officer of the Fund if elected to
such positions and to assume the obligations herein for the
compensation herein provided, (iii) to manage the hosting and updating
of the Fund's website, (iv) to produce the Fund's monthly investor
update, (v) to assist the Fund's marketing efforts, (vi) to assist
the Fund's Treasurer in identifying passive foreign investment
companies (PFICs) in the Fund's portfolio, (vii) to provide
sub-certifications regarding the Investment Manager to support
certifications made by officers of the Fund in documents filed by the
Fund with the SEC, (viii) to identify securities in the Fund's
portfolio that constitute holdings of 5% or more voting shares of a
portfolio company,(ix) to assist in identifying securities that are
restricted or illiquid securities, (x) to provide the Fund with
information on brokerage commissions incurred by the Fund, and (xi) to
provide such other services as may be agreed between the Fund and the
Investment Manager from time to time. The Investment Manager shall for
all purposes herein provided be deemed to be an independent
contractor, and unless otherwise expressly provided or authorized,
shall have no authority to act for or represent the Fund in any way or
otherwise be deemed an agent of the Fund.
(c) The Investment Manager hereby acknowledges the Fund has informed
it that the Fund may allocate a portion of its assets to "direct
investments" (assets of the Fund that are invested in securities that
at the time of such investment are not listed (or approved for
listing) on a securities exchange). The portion, if any, of the Fund's
Assets is actually invested in direct investments shall be managed by
such entity as may be appointed by the Fund to manage the assets of
the Fund other than the Assets (the "Direct Investment Manager")
in accordance with the terms of a separate investment management and
advisory services agreement entered into by and between the Fund and
the Direct Investment Manager (the "Direct Investment Management
Agreement"). Whenever the Direct Investment Manager shall
recommend the investment of Fund assets in a direct investment, the
Fund shall instruct the Investment Manager in writing as to the
amount of Fund assets sought to be invested in such direct investment,
and the Investment Manager shall, within ten business days thereafter
(or such other period of time as the Fund may direct in writing, but
such period may not be less than 10 business days), liquidate
sufficient portfolio securities to realize such amount and make the
net proceeds thereof available for investment in such direct
investment. Upon the sale of a direct investment, the Direct Investment
Manager shall make the net proceeds thereof available as soon as
reasonably practicable for investment pursuant to this Agreement by
the Investment Manager.
(d) As of the date of this Agreement, the Fund has no intention to
make any direct investment for the foreseeable future. The Fund
hereby agrees that the Investment Manager shall be entitled to
delegate all or any of its functions, powers, discretions, duties and
obligations, to any person or persons, including one or more
investment advisers or participating affiliates that control, are
controlled by or are under common control with the Investment
Manager, and any such delegation may be on such terms and conditions
as the Investment Manager thinks fit provided that any such
delegation shall not relieve the Investment Manager of its
obligations under this Agreement; provided, however, that no
delegation of investment management powers and functions may occur
unless approved in advance by the Board of Directors of the Fund
and, if required by the 1940 Act, by the Fund's stockholders; and
provided further that no delegation of any other powers or functions
may occur unless the Investment Manager has given the Board of
Directors of the Fund at least 30 days prior notice of such
delegation.
2. Compensation. For the services and facilities described in Section 1,
the Fund agrees to pay in United States dollars to the Investment Manager,
a fee in accordance with the schedule set forth as Exhibit A hereto. For
the month and year in which this Agreement becomes effective or
terminates, there shall be an appropriate proration on the basis of the
number of days that this Agreement is in effect during such month and
year, respectively. For the avoidance of doubt, the amounts paid as
compensation under this Section 2 are separate from, and in addition to,
any amounts paid by the Fund as expenses or otherwise under Section 6 of
this Agreement.
3. Investment in Fund Stock. The Investment Manager agrees that it will
not make a short sale of any capital stock of the Fund, or purchase any
share of the capital stock of the Fund.
4. Non-Exclusivity of Services. Nothing herein shall be construed as
prohibiting the Investment Manager or any of its affiliates from providing
investment advisory services to, or entering into investment advisory
agreements with, any other clients (including other registered investment
companies), including clients which may invest in Chinese equity
securities, so long as the Investment Manager's services to the Fund
pursuant to this Agreement are not materially impaired thereby. The
Investment Manager is not obligated to purchase or sell for the Fund any
security which the Investment Manager or its affiliates may purchase or
sell for their own accounts or other clients.
5. Standard of Care; Indemnification. The Investment Manager may rely on
information reasonably believed by it to be accurate and reliable. Neither
the Investment Manager nor its officers, directors, employees agents or
controlling persons (as defined in the 1940 Act) shall be subject to any
liability for any act or omission, error of judgment or mistake of law, or
for any loss suffered by the Fund, in the course of, connected with or
arising out of any services to be rendered hereunder, except by reason of
willful misfeasance, bad faith or gross negligence on the part of the
Investment Manager in the performance of its duties or by reason of
reckless disregard on the part of the Investment Manager of its
obligations and duties under this Agreement. Any person, even though also
employed by the Investment Manager, who may be or become an employee of
the Fund shall be deemed, when acting within the scope of his employment
by the Fund, to be acting in such employment solely for the Fund and not
as an employee or agent of the Investment Manager. In no event will the
Investment Manager have any responsibility for any portion of the Fund
other than the Assets or for the acts or omissions of any Direct
Investment Manager or any other adviser of the Fund. In particular, the
Investment Manager shall have no responsibility for the Fund's being in
violation of any applicable law or regulation or investment policy or
restriction or instruction applicable to the Fund as a whole or for the
Fund's failing to qualify as a regulated investment company under the
Internal Revenue Code of 1986, as amended (the "Code"), if the Fund's
holding of the Assets is such that the Assets would not be in such
violation or if the Fund would not fail to qualify if the Assets were
deemed a separate series of the Fund or a separate "regulated investment
company" under the Code.
The Fund agrees to indemnify and hold harmless the Investment Manager, its
officers, directors, employees, agents, shareholders, controlling persons
or other affiliates (each an "Indemnified Party"), for any losses, taxes,
costs, charges assessments, claims and liabilities (including, without
limitation, liabilities arising under the Securities Act of 1933, as
amended ("1933 Act"), the Securities and Exchange Act of 1934, as amended
(the "1934 Act"), the 1940 Act, and any state and foreign securities laws,
all as amended from time to time) and expenses, including (without
limitation) reasonable attorneys' fees and disbursements incurred or
suffered by any Indemnified Party arising from any action, proceeding or
claims which may be brought against such Indemnified Party in connection
with the performance or non-performance in good faith of its functions
under this Agreement, including taking or omitting to take any action at
the request or on the direction of or in reliance on the advice of the
Fund, except to the extent resulting from willful misfeasance, bad faith
or gross negligence in the performance of such Indemnified Party's duties
or from reckless disregard on the part of such Indemnified Party of such
Indemnified Party's obligations and duties under this Agreement.
6. Allocation of Charges and Expenses.
(a) The Investment Manager shall assume and pay for maintaining
its staff and personnel, and shall at its own expense provide the
equipment, office space and facilities, necessary to perform its
obligations hereunder. The Investment Manager shall pay the
salaries and expenses of such officer of the Fund and any fees
and expenses of such Directors of the Fund who, as contemplated by
Section l(b) hereof, is a director, officer or employee of the
Investment Manager or any of its affiliates, provided, however, that
the Fund, and not the Investment Manager, shall bear travel expenses
or an appropriate fraction thereof of (i)any Director and/or officer
of the Fund who is a director, officer or employee of the Investment
Manager and (ii) the portfolio manager at the Investment Manager who
is primarily responsible for Fund (or any other member of the
investment team attending in lieu of that portfolio manager or, if at
the invitation of the Board of Directors, in addition to the
portfolio manager) to the extent that such expenses relate to
attendance at meetings of the Board of Directors of the Fund or any
committee thereof and provided, further, that such expenses are
incurred in accordance with the Fund's travel policy.
(b) In addition to the fee of the Investment Manager, the Fund shall
assume and pay the following expenses: fees of any Direct Investment
Manager; legal fees and expenses of counsel to the Fund; auditing and
accounting expenses; taxes and governmental fees; New York Stock
Exchange listing fees; dues and expenses incurred in connection with
membership in investment company organizations; fees and expenses of
the Fund's custodian, sub-custodian, transfer agents, registrars and
other service providers; fees and expenses with respect to
administration, except as may be herein expressly provided otherwise;
expenses for portfolio pricing services by a pricing agent, if any;
expenses of preparing share certificates and other expenses in
connection with the issuance, offering and underwriting of shares
issued by the Fund; interest charges and other expenses on any
borrowings or transactions that may be considered to involve leverage;
insurance premiums on property or personnel of the Fund which inure
primarily to the Fund's benefit, including liability and fidelity bond
insurance; third-party expenses relating to the development, hosting
and maintenance of the Fund's website; third-party expenses relating
to investor and public relations and marketing; expenses of
registering or qualifying securities of the Fund for public sale;
freight, insurance and other charges in connection with the shipment
of the Fund's portfolio securities; brokerage commissions or other
costs of acquiring or disposing of any portfolio holding of the Fund;
expenses of preparation and distribution of reports, notices and
dividends to stockholders; expenses of the Fund's dividend
reinvestment and cash purchase plan; costs related to licenses for the
Fund to use, distribution and/or publish data for any indexes used by
the Fund; costs of stationery; any litigation expenses; costs of
stockholder's and other meetings; and all other charges and costs of
the Fund's operation plus any extraordinary and non-recurring
expenses, except as herein otherwise prescribed.
(c) To the extent the Investment Manager incurs any costs by assuming
expenses which are an obligation of the Fund as set forth herein, the
Fund shall promptly reimburse the Investment Manager for such costs
and expenses, except to the extent the Investment Manager has
otherwise agreed to bear such expenses. To the extent the services,
other than those services set forth in Section 1(b) hereof, for which
the Fund is obligated to pay are performed by the Investment Manager,
the Investment Manager shall be entitled to recover from the Fund to
the extent of the Investment Manager's actual costs for providing such
services.
7. Potential Conflicts of Interest
(a) Subject to applicable statutes and regulations, it is understood
that directors, officers or agents of the Fund are or may be
interested in the Investment Manager as directors, officers,
employees, agents, shareholders or otherwise, and that the directors,
officers, employees, agents or shareholders of the Investment Manager
may be interested in the Fund as a director, officer, agent or
otherwise.
(b) If the Investment Manager considers the purchase or sale of
securities for the Fund and other advisory clients of the Investment
Manager at or about the same time, transactions in such securities
will be made for the Fund and such other clients in accordance with
the Investment Manager's trade allocation procedures, as may be
amended from time to time, provided that the Board of Directors of the
Fund receives at least ten days advance notice of any such amendment.
8. Duration and Termination.
(a) This Agreement shall be effective for a period of two years from
the date of this Agreement and will continue in effect from year to
year thereafter, provided that such continuance is specifically
approved at least annually by (i) a majority of the members of the
Fund's Board of Directors who are neither parties to this Agreement
nor interested persons of the Fund or of the Investment Manager or of
any entity regularly furnishing investment advisory services with
respect to the Fund pursuant to an agreement with the Investment
Manager, cast in person at a meeting called for the purpose of voting
on such approval, and (ii) separately by the Fund's Board of Directors
(all Directors voting) or by vote of a majority of the Fund's
outstanding voting securities.
(b) This Agreement may nevertheless be terminated at any time, without
payment of penalty, by the Investment Manager or by the Fund acting
pursuant to a vote of its Board of Directors or by vote of a majority
of the Fund's outstanding securities upon sixty (60) days' written
notice. This Agreement shall automatically be terminated in the event
of its assignment, provided, however, that a transaction which does
not, in accordance with the 1940 Act, result in a change of actual
control or management of the Investment Manager's business shall not
be deemed to be an assignment for the purposes of this Agreement. This
agreement shall also be automatically terminated if the Investment
Manager ceases to be registered as an investment adviser with the U.S.
Securities and Exchange Commission.
(c) Termination of this Agreement shall not (i) affect the right of
the Investment Manager to receive payments of any unpaid balance of
the compensation described in Section 2 earned prior to such
termination, or (ii) extinguish the Investment Manager's right of
indemnification under Section 5. As used herein, the terms "interested
person," "assignment," and "vote of a majority of the outstanding
voting securities" shall have the meanings set forth in the 1940 Act.
9. Amendment. This Agreement may be amended by mutual agreement if
required by the 1940 Act or other applicable law, provided, that, any such
amendment shall only become effective after the affirmative vote of (i)
the holders of a majority of the outstanding voting securities of the
Fund, and (ii) a majority of the members of the Fund's Board of Directors
who are not interested persons of the Fund or of the Investment Manager,
cast in person at a meeting called for the purpose of voting on such
approval.
10. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of New York, provided, however, that
nothing herein shall be construed in a manner inconsistent with the 1940
Act.
11. Notices. Any communication hereunder must be in writing and must be
made by letter, telex or facsimile. Any communication or document to be
made or delivered by one person to another pursuant to this Agreement
shall (unless that other person has by fifteen (15) days' notice to the
other specified another address) be made or delivered to that other
person at the following relevant address:
If to the Investment Manager:
Matthews International Capital Management, LLC
Four Embarcadero Center, Suite 550
San Francisco, CA 94111
Attention: Global Head of Distribution
Telephone No: 415-954-4552
With copies to:
Matthews International Capital Management, LLC
Four Embarcadero Center, Suite 550
San Francisco, CA 94111
Attention: General Counsel
Telephone No: 415-954-4555
If to the Fund:
The China Fund, Inc.
c/o State Street Bank and Trust Company
100 Summer Street, Mailstop: SUM0703, Boston, MA 02110
Attention: Brian F. Link
Telephone No.: 617-662-1504
With copies to:
Clifford Chance US LLP
31 West 52nd Street
New York, New York 10019-6131
Attention; Leonard Mackey, Esq.
Telephone No.: 212-878-8000
Facsimile No.: 212-878-8375
and shall, if made by letter, be deemed to have been received when
delivered by hand or if sent by mail within two days if the letter is sent
by prepaid airmail, and shall if made by telex be deemed to have been
received when acknowledged by the addressee's correct answer back code,
and shall, if sent by facsimile, be deemed to have been received upon
production of a transmission report by the machine from which the
facsimile was sent which indicates that the facsimile was sent in its
entirety to the facsimile number of the recipient, and shall, if sent by
email or similar means of electronic transmission, shall be deemed
received upon transmission to the email address specified above; and
provided that a hard copy of the notice so served by telex, facsimile or
email was posted that same day as the notice was served by electronic
means.
12. Jurisdiction. Each party hereto irrevocably agrees that any suit,
action or proceeding against either of the Investment Manager or the Fund
arising out of or relating to this Agreement shall be subject
non-exclusively to the jurisdiction of the United States District Court
for the Southern District of New York or the Supreme Court of the State of
New York, New York County, and each party hereto irrevocably submits
non-exclusively to the jurisdiction of each such court in connection with
any such suit, action or proceeding. Each party hereto waives any
objection to the laying of venue of any such suit, action or proceeding
in either such court, and waives any claim that such suit, action or
proceeding has been brought in an inconvenient forum. Each party hereto
irrevocably consents to service of process in connection with any such
suit, action or proceeding by mailing a copy thereof in English by
registered or certified mail, postage prepaid, to their respective
addresses as set forth in the Agreement.
13. Representations and Warranties of the Investment Manager. The
Investment Manager represents and warrants that it is duly registered as
an investment adviser under the U.S. Investment Advisers Act of 1940, as
amended, and that it will use its reasonable efforts to maintain effective
such registration during the term of this Agreement.
14. Representation and Warranty of the Fund. The Fund represents and
warrants that it has full legal right to enter into this Agreement and to
perform the obligations hereunder and that it has obtained all necessary
consents and approvals to enter into this Agreement.
15. Provision of Certain Information by the Fund. The Fund shall furnish
the Investment Manager with copies of the Fund's Articles of
Incorporation, By-laws and Registration Statement on Form N-2, as amended
or restated from time to time, any press releases made by the Fund and any
reports made by the Fund to its stockholders, as soon as practicable after
such documents become available. The Investment Manager shall not be bound
by the terms of these documents until delivered to the Investment Manager
in accordance with Section 11 herein. The Fund shall furnish the
Investment Manager with any further documents, materials or information
that the Investment Manager may reasonably request to enable it to perform
its duties pursuant to this Agreement.
16. Press Releases, Reports, Other Disclosures. Any reports press
releases or other disclosures made by the Fund which contain statements
about the management of assets by the Investment Manager shall be subject
to the prior approval of the Investment Manager. Any disclosure of Fund
holdings and information derived therefrom, such as Fund holdings
characteristics, must comply with the Investment Manager' s disclosure
policy and procedures, as amended from time to time and informed to the
Board of Directors of the Fund.
17. Name of Investment Manager. The parties agree that the Investment
Manager has a proprietary interest in the name "Matthews. " The Fund shall
not use the name "Matthews" in the name of the Fund unless and only to the
extent the Investment Manager provides prior, written approval
specifically referencing this Article 17 of this Agreement. Thereafter,
the Fund agrees to promptly take such action as may be necessary to delete
from the name of the Fund any reference to the name of the Investment
Manager or the name "Matthews," promptly after receipt from the Investment
Manager of a written request therefor.
18. Severability. If any provision of the Agreement is determined by a
court of competent jurisdiction to be invalid or unenforceable, such
finding shall not affect the validity or enforceability of the remaining
portions of this Agreement.
19. Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
20. Captions. The captions in this Agreement are included for convenience
of reference only and in no way define any of the provisions hereof or
otherwise affect their construction or effect.
IN WITNESS WHEREOF, the parties have executed this Agreement by their
officers thereunto duly authorized as of the day and year first written
above.
THE CHINA FUND, INC.
By: Gary L. French
/s/ Gary L. French
Title: Chairman
MATTHEWS INTERNATIONAL
CAPITAL MANAGEMENT, LLC
By: William J. Hackett
/s/ William J. Hackett
Title: Chief Executive Officer