exv99



THE CHINA FUND, INC. (CHN)

IN BRIEF


Net asset value per share	US$	29.62
Market price	US$	28.70
Premium/(discount)		(3.11	%)
Fund size	US$	429.3m

Source: State Street Corporation



At 31 August 2006		US$ returns


	China Fund NAV		MSCI Golden Dragon*
	%		%
One month		0.6		3.2
Year to date		27.7		12.5
One year		32.8		18.6
Three years %pa		17.3		17.1

Past performance is not a guide to future returns.

Source: State Street Corporation. NAV-NAV performance.

*Source for index data: MSCI.

MANAGER’S COMMENTARY

Investors stopped worrying about inflation in August, and began to worry about growth. They are not yet overly anxious, as Chinese markets finished the month higher. However, data published during the month did indicate a modest deceleration in economic growth from its recent high levels. The Consumer Price Index (CPI) rose by only 1.0% in July (+1.5% in June), industrial output by 16.7% (+19.5% in June) and retail sales by 13.7% (+13.9% in June). Thanks to its weighting in Hong Kong property and banks, the Hang Seng Index was the best performer, ending the month near a six-year high. Property and banking sectors should both benefit from a turn in the US rate cycle. The H-share index, with its heavy weighting to commodities, and the export-heavy Taiwan index were more equivocal in their response to the Fed’s pause in tightening. The A-share market rallied as equity supply from new Initial Public Offerings (IPOs) moderated after the poor performance of Air China’s A-share offering. In contrast, overseas markets saw a recovery in speculative interest in smaller Chinese IPOs. For the fund, we have subscribed to Oriental Education’s Nasdaq listing. While remaining sceptical of the state-owned banks, we plan to switch our A-share holding in the best of them, China Merchants Bank, into its forthcoming (and discounted) Hong Kong listing.

The interim results announced by the portfolio’s holdings were generally good, particularly those of consumer- related companies such as sportswear chain Li Ning, Parkson department stores, fashion retailer Ports Design, food giant Uni-President and online games firm The9. Our disappointments were Biotreat, which suffered from a cost over-run on a build-operate-transfer water treatment project, China Fire Safety and digital camera parts maker Yorkey Optical, which were hit by project and order delays, respectively.

Chris Ruffle, Martin Currie Inc*

INVESTMENT STRATEGY

The Fund is currently 95.5% invested with holdings in 75 companies, of which two are unlisted.

Despite the August torpor, we were active in preparing the portfolio for the autumn. The key change was an increase in the weighting to Taiwan, which now accounts for 27% of the Fund. This will rise further. We bought Lite-on IT (now the world’s largest disk-drive maker), Wah Lee (a high-quality importer of technology components in Taiwan and China), Lien Hwa Industrial (an asset-rich conglomerate), Fubon Financial (a depressed banking-to-insurance group) and Chung Hwa Telecom (a newly privatised telecom monopolist yielding 8%). We thereby took advantage of the demonstrations organised by the chairman of the Democratic Progessive Party against President Chen — a member of his own party! This can only hasten the end of Chen’s ‘little Taiwan’ policies, which have held back the market. As that early contrarian Saint-Juste explained, ‘The present disorder will be the order of the future’.

In Hong Kong we took some profits in China Life Insurance and Zijin Mining, where valuations appear stretched. We used the money to add to laggards Fountain Set and Lenovo, which look ripe for recovery. We also added to China’s largest flavours and fragrances maker, Huabao, and to China International Insurance. These companies are just starting to receive broker coverage.

Chris Ruffle, Martin Currie Inc*

*Martin Currie Ltd and Heartland Capital Management Ltd (HCML) have established Martin Currie China Ltd (MCCL), as a joint venture company, to provide investment management or investment advisory services to the range of China investment products managed by Martin Currie.

MCCL has appointed Martin Currie Investment Management Ltd (MCIM), or its affiliates, as investment manager of Martin Currie’s China investment products.

HMCL has seconded both Chris Ruffle and Shifeng Ke to MCIM or its affiliates on a full time basis with the same roles and responsibilities as if they were full time employees.

DIRECT INVESTMENT MANAGER’S COMMENTARY

In August, the Chinese central government announced substantial legal reforms, with significant consequences for the development of private equity investments. After 10 years of debate, a new bankruptcy law is finally in place. This strengthens creditor rights and provides better protection of investors’ interests. The law should also facilitate a more effective debt restructuring process.

New legislation governing mergers and acquisitions and the creation of offshore holding structures comes into effect in September. In the short term, this creates additional approval requirements for foreign investors, including private equity investors, in investing in the Peoples Republic of China through offshore holding companies. Although the regulation may complicate closings of investments in the near term, we see this a positive step to develop a more mature investment environment and encourage more listings on the A share market as an exit route as the domestic capital market becomes more mature. Over time this will lead to better exits for private equity investments.

These changes create a wider range of exit options for private equity investments, including recapitalisations, secondary buyouts and trade sales. This will improve private equity returns, but deals will need to be appropriately structured to take advantage of such opportunities. We are ensuring that this is the case for our new investments.

Some of the deals we have been working on are reaching maturity. We will update shareholders when they close. We continue to look for opportunities to realise value from the existing direct investment portfolio.

KOH Kuek Chiang, Asian Direct Capital Management

31 AUGUST 2006

FUND DETAILS


Market cap		US$416.0m
Shares outstanding		14,496,220
Exchange listed		NYSE
Listing date		July 10, 1992
Investment adviser		Martin Currie Inc
Direct investment manager		Asian Direct Capital Management

Source: State Street Corporation.

ASSET ALLOCATION

Source: State Street Corporation

SECTOR ALLOCATION


	The China			MSCI Golden
	Fund, Inc			Dragon
Industrials		18.8	%		9.8	%
Information technology		14.7	%		25.2	%
Consumer discretionary		14.7	%		5.8	%
Financials		10.6	%		31.1	%
Energy		10.4	%		7.4	%
Consumer staples		6.3	%		1.0	%
Materials		5.9	%		6.1	%
Utilities		5.7	%		5.4	%
Healthcare		3.7	%		—
Telecommunications		3.3	%		8.2	%
Index fund		1.4	%		—
Other assets & liabilities		4.5	%		—

Total		100.0	%		100.0	%

Source: State Street Corporation. Source for index data: MSCI



PERFORMANCE		(US$ RETURNS)


	NAV		Market price
	%		%
One month		0.6		(1.6	)
Year to date		27.7		23.8
Three years %pa		17.3		11.0

Past performance is not a guide to future returns.

Source: State Street Corporation

DIRECT INVESTMENTS (2.7%)


CDW Holdings Ltd	Information technology	2.0	%
Captive Finance	Financials	0.7	%
teco Optronics	Information technology	—

15 LARGEST LISTED INVESTMENTS (38.1%)


Chaoda Modern Agriculture	Consumer staples	4.0	%
Shanghai Zhenhua Port Machinery	Industrials	3.6	%
Shanghai International Airport	Industrials	3.4	%
Merry Electronics	Consumer discretionary	2.7	%
Xinao Gas	Utilities	2.6	%
Cathay Financial	Financials	2.5	%
Lenovo	Information technology	2.5	%
TPV Technology	Industrials	2.5	%
China Petroleum & Chemical	Energy	2.2	%
Huaneng Power International	Energy	2.2	%
China Merchants Bank	Financials	2.1	%
Golden Meditech	Healthcare	2.0	%
Shangri-La Asia	Consumer discretionary	2.0	%
Anhui Expressway	Utilities	1.9	%
Advanced Semiconductor Engineering	Information technology	1.9	%

Source: State Street Corporation



FUND PERFORMANCE (BASED ON NET ASSET VALUE)		(US$ RETURNS)


	One		Three			Calendar		One		Three		Five		Since
	month		months			year to date		year		years		years		launch
	%		%			%		%		% pa		% pa		% pa
The China Fund, Inc.		0.6		(2.6	)		27.7		32.8		17.3		23.2		9.4
MSCI Golden Dragon		3.2		2.7			12.5		18.6		17.1		13.3		n/a
Hang Seng Chinese Enterprise		0.7		3.0			28.7		35.7		27.4		30.5		n/a
Shanghai Stock Exchange 180		3.3		(1.6	)		42.8		40.7		5.0		n/a		n/a

Past performance is not a guide to future returns.

Source: State Street Corporation. Launch date 10 July 1992. Three year, five year and since launch returns are all annualised.

Source for index data: MSCI for the MSCI Golden Dragon and Copyright 2006 Bloomberg LP for the Hang Seng Chinese Enterprise and the Shanghai Stock Exchange 180. For a full description of each Index please see the final page of this document.

PERFORMANCE IN PERSPECTIVE

Past performance is not a guide to future returns
Source: Martin Currie Inc as at 31 August 2006.

THE CHINA FUND INC. PREMIUM/DISCOUNT

Past performance is not a guide to future returns
Source: Martin Currie Inc as at 31 August 2006.

DIVIDEND HISTORY CHART


Total	0.91	0.61	0.09	0.08	0.50	0.08	0.11	0.00	0.13	0.21	1.78	3.58	2.51
Income	0.09	0.01	0.09	0.08	0.50	0.08	0.11	0.00	0.13	0.06	0.07	0.20	0.22
Long-term capital	0.04	0.24	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.67	3.27	2.29
Short-term capital	0.79	0.36	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.15	1.04	0.11	0.00

Past performance is not a guide to future returns
Source: State Street Corporation.


THE PORTFOLIO —IN FULL		AT 31 AUGUST 2006


Sector	Company (BBG ticker)		Price		Holding		Value $		% of portfolio
Hong Kong										35.3	%
Chaoda Modern Agriculture	682 HK		HK$3.9			34,089,900		17,183,139		4.0	%
Xinao Gas	2688 HK		HK$7.4			11,560,000		10,999,685		2.6	%
Lenovo	992 HK		HK$3.3			25,646,000		10,717,505		2.5	%
TPV Technology	903 HK		HK$8.3			9,968,000		10,638,412		2.5	%
Shangri-La Asia	0069 HK		HK$15.4			4,318,000		8,550,550		2.0	%
Golden Meditech	8180 HK		HK$1.9			35,040,000		8,425,514		2.0	%
Zhejiang Expressway	576 HK		HK$5.0			10,304,000		6,624,705		1.5	%
China Insurance International	966 HK		HK$6.2			6,974,000		5,559,866		1.3	%
Zijin Mining	2899 HK		HK$3.7			11,194,000		5,296,925		1.2	%
China Fire Safety	8201 HK		HK$0.8			50,380,000		5,052,932		1.2	%
China Shineway Pharmaceutical	2877 HK		HK$5.1			7,615,000		4,993,796		1.2	%
Comba Telecom Systems	2342 HK		HK$2.3			16,118,000		4,808,281		1.1	%
China Travel	0308 HK		HK$1.9			18,148,000		4,433,769		1.0	%
Huabao International	336 HK		HK$2.7			12,790,000		4,358,200		1.0	%
Solomon Systech	2878 HK		HK$1.7			19,892,000		4,220,395		1.0	%
Ports Design	589 HK		HK$12.0			2,678,500		4,139,871		1.0	%
Li Ning	2331 HK		HK$8.5			3,726,000		4,077,210		0.9	%
China Ting	3398 HK		HK$1.7			17,366,000		3,840,776		0.9	%
Digital China	861 HK		HK$2.7			10,692,000		3,725,795		0.9	%
Parkson Retail	3368 HK		HK$26.0			1,111,500		3,715,981		0.9	%
Fountain Set	420 HK		HK$2.0			13,026,000		3,266,152		0.8	%
China Rare Earth	769 HK		HK$1.6			15,254,000		3,099,071		0.7	%
Shimao Property	813 HK		HK$7.4			3,346,000		3,188,121		0.7	%
Natural Beauty Bio-Technology		157 HK	HK$0.6			32,780,000		2,655,462		0.6	%
Yorkey Optical International	2788 HK		HK$2.8			7,128,000		2,566,353		0.6	%
Sinochem Hong Kong	297 HK		HK$2.9			5,000,000		1,832,338		0.4	%
Beiren Printing Machinery	187 HK		HK$1.6			7,000,000		1,413,151		0.3	%
Asia Zirconium	395 HK		HK$0.7			12,916,000		1,129,347		0.3	%
Ocean Grand Chemicals	2882 HK		HK$0.3			17,379,000		692,751		0.1	%
Arcontech	8097 HK		HK$0.1			18,386,000		236,416		0.1	%

Hong Kong ‘H’ shares										7.3	%
Anhui Expressway	995 HK		HK$5.2			12,406,000		8,199,467		1.9	%
China Shenhua Energy		1088 HK	HK$13.8			4,536,500		8,026,571		1.9	%
China Oilfield Services	2883 HK		HK$4.4			12,650,000		7,091,983		1.6	%
BYD	1211 HK		HK17.6			2,635,500		5,964,395		1.4	%
Lianhua Supermarket	980 HK		HK$7.8			2,130,000		2,133,574		0.5	%

Taiwan										26.2	%
Merry Electronics	2439 TT		NT$117.0			3,260,507		11,595,469		2.7	%
Cathay Financal	2882 TT		NT$62.9			5,708,370		10,913,902		2.5	%
Advanced Semiconductor Engineering	2311 TT		NT$33.8			7,838,000		8,052,658		1.9	%
Tripod Technology	3044 TT		NT$101.0			2,608,845		8,009,160		1.9	%
Fubon Financial	2881 TT		NT$24.5			10,387,000		7,735,235		1.8	%
Chunghwa Telecom	2412 TT		NT$54.0			4,490,880		7,371,273		1.7	%
Yuanta Core Pacific Securities	6004 TT		NT$22.6			8,983,000		6,170,881		1.4	%
China Metal Products		1532 TT	NT$48.0			3,720,123		5,422,046		1.3	%
Uni-President Enterprises		1216 TT	NT$25.1			6,729,000		5,133,831		1.2	%
Novatek Microelectronics	3034 TT		NT$162.0			1,021,095		5,028,037		1.2	%
Powertech Technology	6239 TT		NT$92.0			1,522,000		4,256,178		1.0	%
Synnex Technology	2347 TT		NT$29.2			4,633,000		4,112,088		1.0	%
Cheng Shin Rubber	2105 TT		NT$27.7			4,418,544		3,713,570		0.9	%
ShenMao Technology	3305 TT		NT$115.5			1 ,042,800		3,661,005		0.9	%
Taiwan Green Point	3007 TT		NT$85.5			1,348,524		3,504,629		0.8	%
Data Systems Consulting	2447 TT		NT$23.6			4,566,813		3,275,990		0.8	%
Yieh United Steel	9957 TT		NT$11.0			9,483,000		3,170,704		0.7	%
Wah Lee Industrial	3010 TT		NT$65.4			1,591,000		3,162,753		0.7	%
Taiwan FamilyMart	5903 TT		NT$50.7			1,787,895		2,755,290		0.6	%
Formosa Petrochemical	6505 TT		NT$65.0			1,211,000		2,392,626		0.6	%
Lite-On IT	8008 TT		NT$36.4			2,118,000		2,340,171		0.5	%
Lien Hwa		1229 TT	NT$13.8			1,408,616		590,866		0.1	%

Singapore										1.2	%
Bio-Treat Technology	BIOT SP		SG$0.8			9,799,000		5,262,922		1.2	%

United States ‘N’ shares										1.8	%
The9	NCTY US		US$	26.6		184,861		4,917,303		1.1	%
China Techfaith Wireless	CNFT US		US$	8.0		290,316		2,322,528		0.5	%
Chindex International	CHDX US		US$	9.2		69,987		644,580		0.2	%


Sector	Company (BBG ticker)	Price		Holding		Value $		% of portfolio
’A’ share access products									21.0	%
Shanghai Zhenhua Port Machinery			US$1.2		13,219,652		15,638,849		3.6	%
Shanghai International Airport			US$1.7		8,624,267		14,615,871		3.4	%
China Petroleum & Chemical			US$0.8		12,555,997		9,593,528		2.2	%
Huaneng Power International			US$0.6		16,819,531		9,321,743		2.2	%
China Merchants Bank			US$1.1		8,254,855		8,882,224		2.1	%
Xinjiang Tebian Electric			US$1.5		4,676,642		6,907,400		1.6	%
iShares Asia Trust-FTSE/Xinhua			HK$60.0		780,000		6,017,783		1.4	%
Youngor			US$0.7		7,562,730		5,407,352		1.3	%
China Yangtze Power			US$0.8		6,441,077		5,101,333		1.2	%
Baoding Tianwei Baobian Electric			US$2.5		1,761,193		4,346,027		1.0	%
Qinghai Salt Lake Potash			US$2.4		1,725,209		4,121,524		1.0	%

Direct									2.7	%
CDW Holdings Ltd					60,000,000		8,580,690		2.0	%
Captive Finance					2,000,000		3,045,000		0.7	%
teco Optronics					1,861,710		150,000		—

Other assets & liabilities							19,205,433		4.5	%

OBJECTIVE

The investment objective of the Fund is to achieve long term capital appreciation through investment in companies and other entities with significant assets, investments, production activities, trading or other business interests in China or which derive a significant part of their revenue from China.

The Board of Directors of the Fund has adopted an operating policy of the Fund, effective June 30, 2001, that the Fund will invest at least 80% of its assets in China companies. For this purpose, “China companies” are (i) companies for which the principal securities trading market is in China; (ii) companies for which the principal securities trading market is outside of China or in companies organised outside of China, that in both cases derive at least 50% of their revenues from goods or services sold or produced, or have a least 50% of their assets in China; or (iii) companies organised in China. Under the policy, China will mean the People’s Republic of China, including Hong Kong, and Taiwan. The Fund will provide its stockholders with at least 60 days’ prior notice of any change to the policy described above.

The fundamental policy, which applies to not less than 65% of the Fund’s assets as set out in the Fund’s prospectus dated July 10, 1992, remains in place. The fundamental policy is the same as the operating policy set out above, except that China only includes the People’s Republic of China.

The Fund is subject to the Investment Company Act of 1940 which limits the means in which it can access the ‘A’ share market. The Fund will continue to seek the most efficient way in which to increase its ‘A’ share exposure ensuring ongoing compliance with its legal and regulatory obligations.

CONTACTS

The China Fund, Inc.
c/o State Street Bank and Trust Company
2 Avenue de Lafayette, 6th Floor
PO Box 5049
Boston, MA 02206-5049
Tel: (1) 888 CHN-CALL (246 2255)
www.chinafundinc.com

MSCI Golden Dragon Index

The MSCI Golden Dragon is a free float-adjusted market capitalisation index that is designed to measure equity market performance in the China region. As of May 2005 the MSCI Golden Dragon Index consisted of the following country indices: China, Hong Kong and Taiwan.

Hang Seng China Enterprise Index

The Hang Seng China Enterprise Index is a capitalisation-weighted index comprised of state-owned Chinese companies (H-shares) listed on the Hong Kong Stock Exchange and included in HSMLCI index.

Shanghai Stock Exchange 180 Index

The Shanghai Stock Exchange 180 ‘A’ Share Index is a capitalisation-weighted index. The index tracks the daily price performance of the 180 most representative ‘A’ share stocks listed on the Shanghai Stock Exchange.

Important information: This document is issued and approved by Martin Currie Inc (MC Inc), as investment adviser of the listed equity portfolio of the China Fund Inc (the Fund). MC Inc is authorised and regulated by the Financial Services Authority (FSA) and incorporated under limited liability in New York, USA. Registered in Scotland (No BR2575), registered address Saltire Court, 20 Castle Terrace, Edinburgh, EH1 2ES. Information herein is believed to be reliable but has not been verified by MC Inc. MC Inc makes no representation or warranty and does not accept any responsibility in relation to such information or for opinion or conclusion which the reader may draw from the newsletter. It explicitly does not accept responsibility for the views and opinions expressed by Asia Direct Capital Management.

Martin Currie Ltd and Heartland Capital Management Ltd (HCML) have established Martin Currie China Ltd (MCCL), as a joint venture company, to provide investment management or investment advisory services to our China product. MCCL has appointed Martin Currie Investment Management Ltd (MCIM), or its affiliates, as investment manager of our China funds. HMCL has seconded both Chris Ruffle and Shifeng Ke to MCIM or its affiliates on a full time basis with the same roles and responsibilities as if they were full time employees.

The Fund is classified as a ‘non-diversified’ investment company under the US Investment Company Act of 1940. It meets the criteria of a closed ended US mutual fund and its shares are listed on the New York Stock Exchange. MC Inc has been appointed investment adviser to the listed equity portfolio of the Fund. Asian Direct Capital Management is the direct investment manager to the Fund.

Investors are advised that they will not generally benefit from the rules and regulations of the United Kingdom Financial Services and Markets Act 2000 and the FSA for the protection of investors, nor benefit from the United Kingdom Financial Services Compensation Scheme, nor have access to the Financial Services Ombudsman in the event of a dispute. Investors will also have no rights of cancellation under the FSA’s Conduct of Business Sourcebook of the United Kingdom.

This newsletter does not constitute an offer of shares. MC Inc, its ultimate and intermediate holding companies, subsidiaries, affiliates, clients, directors or staff may, at any time, have a position in the market referred to herein, and may buy or sell securities, currencies, or any other financial instruments in such markets. The information or opinion expressed in this newsletter should not be construed to be a recommendation to buy or sell the securities, commodities, currencies or financial instruments referred to herein.

The information provided in this report should not be considered a recommendation to purchase or sell any particular security. There is no assurance that any securities discussed herein will remain in an account’s portfolio at the time you receive this report or that securities sold have not been repurchased.

It should not be assumed that any of the securities transactions or holdings discussed here were or will prove to be profitable, or that the investment recommendations or decisions we make in the future will be profitable or will equal the investment performance of the securities discussed herein.

Investing in the Fund involves certain considerations in addition to the risks normally associated with making investments in securities. The value of the shares issued by the Fund, and the income from them, may go down as well as up and there can be no assurance that upon sale, or otherwise, investors will receive back the amount originally invested. There can be no assurance that you will receive comparable performance returns, or that investments will reflect the performance of the stock examples contained in this document. Movements in foreign exchange rates may have a separate effect, unfavorable as well as favorable, on the gain or loss otherwise experienced on an investment. Past performance is not a guide to future returns. Accordingly, the Fund is only suitable for investment by investors who are able and willing to withstand the total loss of their investment. In particular, prospective investors should consider the following risks:

à		The companies quoted on Greater Chinese stock exchanges are exposed to the risks of political, social and religious instability, expropriation of assets or nationalisation, rapid rates of inflation, high interest rates, currency depreciation and fluctuations and changes in taxation, which may affect income and the value of investments.

à		At present, the securities market and the regulatory framework for the securities industry in China is at an early stage of development. The CSRC is responsible for supervising the national securities markets and producing relevant regulations. The Investment Regulations, under which the Fund invests in the People’s Republic of China (‘PRC’) and which regulate repatriation and currency conversion, are new. The Investment Regulations give CSRC and SAFE wide discretions and there is no precedent or certainty as to how these discretions might be exercised, either now or in the future. The Fund may, from time to time, obtain access to the securities markets in China via Access Products. Such products carry additional risk and may be less liquid than the underlying securities which they represent.

à		During the past 15 years, the PRC government has been reforming the economic and political systems of the PRC, and these reforms are expected to continue, as evidenced by the recently announced changes. The fund’s operations and financial results could be adversely affected by adjustments in the PRC’s state plans, political, economic and social conditions, changes in the policies of the PRC government such as changes in laws and regulations (or the interpretation thereof), measures which may be introduced to control inflation, changes in the rate or method of taxation, imposition of additional restrictions on currency conversion and the imposition of additional import restrictions.

à		PRC’s disclosure and regulatory standards are in many respects less stringent than standards in certain OECD countries, and there may be less publicly available or less reliable information about PRC companies than is regularly published by or about companies from OECD countries.

à		The Shanghai Stock Exchange and Shenzhen Stock Exchange have lower trading volumes than most OECD exchanges and the market capitalisations of listed companies are small compared to those on more developed exchanges in developed markets. The listed equity securities of many companies in the PRC are accordingly materially less liquid, subject to greater dealing spreads and experience materially greater volatility than those of OECD countries. These factors could negatively affect the Fund’s NAV.

à		The Fund invests primarily in securities denominated in other currencies but its NAV will be quoted in US dollars. Accordingly, a change in the value of such securities against US dollars will result in a corresponding change in the US dollar NAV.

à		The marketability of quoted shares may be limited due to foreign investment restrictions, wide dealing spreads, exchange controls, foreign ownership restrictions, the restricted opening of stock exchanges and a narrow range of investors. Trading volume may be lower than on more developed stockmarkets, and equities are less liquid. Volatility of prices can also be greater than in more developed stockmarkets. The infrastructure for clearing, settlement and registration on the primary and secondary markets may be underdeveloped. Under certain circumstances, there may be delays in settling transactions in some of the markets.

à		The value of the fund’s investment in any Quota will be affected by taxation levied against the relevant QFIIs or in respect of investments held in the relevant Quotas. The PRC taxation regime that will apply to QFIIs and investments made in or through QFII quotas is not clear. The Investment Regulations are new and do not currently expressly contemplate the treatment of QFIIs and investment made through QFII Quotas.

à		It should be noted that the position with regard to PRC taxation of the Company and its gains and profits remains unclear. Until such time as the PRC taxation position of the Company is clarified, the Company will process all subscription and redemption requests based upon provisional Net Asset Value calculations, determined without making any provision for PRC capital gains taxation, but with a provision for withholding tax of 10% on all dividend income received. The number of Ordinary shares allotted to any investor, and the final redemption price per share, will be recalculated upon the taxation position being clarified. The Company will require an indemnity in respect of such amount of any redemption proceeds as they consider prudent to allow for potential PRC taxation liabilities that may be included in the final Net Asset Value calculation.

		In practice this means that, should any tax be payable retrospectively, the Company’s Net Asset Value will be adjusted to the extent that existing shareholders are liable. All shareholders will be required to sign an indemnity prior to being permitted to redeem all or part of their shareholding to protect the Company and the existing shareholders. Any change to the withholding tax rate which is applied to the Company on an retrospective basis will result in an adjustment of the Net Asset Value of the Company for the benefit of, or if charged at a higher rate than the existing provision, detriment of existing shareholders.

Martin Currie Inc, registered in Scotland (no BR2575)
Registered office: Saltire Court, 20 Castle Terrace, Edinburgh EH11 2ES Tel: (44) 131 229 5252 Fax: (44) 131 222 2532 www.martincurrie.com/china
North American office: 1350 Avenue of the Americas, Suite 3010, New York, NY 10019, USA Tel: (1) 212 258 1900 Fax: (1) 212 258 1919

Authorised and registered by the Financial Services Authority and incorporated with limited liability in New York, USA.