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As filed with the Securities and Exchange Commission on December 29, 1995
File No. 811-7264
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT
UNDER
THE INVESTMENT COMPANY ACT OF 1940 X
AMENDMENT NO. 4 X
GREATER CHINA GROWTH PORTFOLIO
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(Exact Name of Registrant as Specified in Charter)
24 Federal Street
Boston, Massachusetts 02110
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(Address of Principal Executive Offices)
Registrant's Telephone number, including Area Code: (617) 482-8260
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Thomas Otis
24 Federal Street, Boston, Massachusetts 02110
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(Name and Address of Agent for Service)
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EXPLANATORY NOTE
This Registration Statement, as amended, has been filed by the
Registrant pursuant to Section 8(b) of the Investment Company Act of 1940,
as amended. However, interests in the Registrant have not been registered
under the Securities Act of 1933, as amended (the "1933 Act"), because
such interests will be issued solely in private placement transactions
that do not involve any "public offering" within the meaning of Section
4(2) of the 1933 Act. Investments in the Registrant may be made only by
investment companies, common or commingled trust funds, organizations or
trusts described in Section 401(a) or 501(a) of the Internal Revenue Code
of 1986, as amended, or similar organizations or entities that are
"accredited investors" within the meaning of Regulation D under the 1933
Act. This Registration Statement, as amended, does not constitute an
offer to sell, or the solicitation of an offer to buy, any interests in
the Registrant.
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PART A
Responses to Items 1 through 3 and 5A have been omitted pursuant
to Paragraph 4 of Instruction F of the General Instructions to Form N-1A.
Item 4. General Description of Registrant
Greater China Growth Portfolio (the "Portfolio") is a
diversified, open-end management investment company, is organized as a
trust under the laws of the State of New York, and is treated as a
partnership for federal tax purposes. Interests in the Portfolio are
issued solely in private placement transactions that do not involve any
"public offering" within the meaning of Section 4(2) of the Securities Act
of 1933, as amended (the "1933 Act"). Investments in the Portfolio may be
made only by U.S. and foreign investment companies, common and commingled
trust funds, organizations or trusts described in Sections 401(a) or
501(a) of the Internal Revenue Code of 1986, as amended (the "Code"), or
similar organizations or entities that are "accredited investors" within
the meaning of Regulation D under the 1933 Act. This Registration
Statement, as amended, does not constitute an offer to sell, or the
solicitation of an offer to buy, any "security" within the meaning of the
1933 Act.
The Portfolio's investment objective is to seek long-term capital
appreciation. The Portfolio seeks to achieve its objective by investing
primarily in equity securities of companies that, in the opinion of the
Portfolio's investment adviser, will benefit from the economic development
and growth of the People's Republic of China ("China"). A significant
percentage of the Portfolio's assets will be invested in the securities
markets of countries in the China region, consisting of Hong Kong, China,
Taiwan, South Korea, Singapore, Malaysia, Thailand, Indonesia and the
Philippines (collectively, the "China Region").
Additional information about the investment policies of the
Portfolio appears in Part B. The Portfolio is not intended to be a
complete investment program, and a prospective investor should take into
account its objectives and other investments when considering the purchase
of an interest in the Portfolio. The Portfolio's investment objective is
nonfundamental and may be changed when authorized by a vote of the
Trustees without obtaining the approval of the investors in the Portfolio.
The Portfolio cannot assure achievement of its investment objective. In
addition, investments in issuers of the China Region involve risks not
typically associated with issuers in the United States. See "Special
Investment Methods and Risk Factors" for further information.
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The Portfolio's Investment Opportunities in the China Region
The following is a general discussion of the economies and
securities markets in which the Portfolio may invest. There can be no
assurance that the Portfolio will be able to capitalize on the factors
described herein. Opinions expressed herein are the good faith opinions
of the Portfolio's investment adviser, Lloyd George Investment Management
(Bermuda) Limited (the "Adviser"). Unless otherwise indicated, all
amounts are expressed in United States dollars.
Over the past twenty years the performance of the major Asian
securities markets has generally been better than that of markets in
Europe and the United States. In the past five years, the newly emerging
securities markets of the China Region have demonstrated significant
growth in market capitalization, in numbers of listed securities and in
the volume of transactions. Over the same period, the underlying
economies of the region have grown against a background of the high
savings rates characteristic of many Asian societies and generally
moderate inflation. According to the Asian Development Bank forecasts,
the economies of Southeast Asia, excluding Japan, are forecast to grow by
7.4% in 1996.
The average growth in gross domestic product ("GDP") from 1990 to
1995 for the main countries in Southeast Asia, compared with the United
States, was as follows:
Thailand 8.92%
China 9.97%
Malaysia 8.65%
Singapore 8.22%
South Korea 6.04%
Indonesia 6.87%
Taiwan 6.50%
Hong Kong 5.18%
Philippines 2.50%
United States 2.12%
A particularly significant factor within the region over the last
13 years has been the increasing influence that China has had in the
determination of the economic development of certain countries. This
influence has been principally in providing manufacturing facilities and a
market for goods and services, and in creating a demand for export
outlets, both directly and indirectly.
The stages of China's economic development are discussed below.
The effect by 1992 was an increase in economic integration among the
countries in the China Region. The links between China and Hong Kong,
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between China and Taiwan and between China and other countries within the
region, where there is a significant Chinese element of the population,
have by now been strengthened to a degree which makes a reversal unlikely.
Moreover, although these links have been developed to a stage where
economic co-operation in trade operates smoothly, the full potential of
the market, both in terms of domestic consumption and of export growth,
has hardly begun to be realized. It is based upon this potential that the
Adviser perceives an investment opportunity that may be exploited by the
Portfolio.
China. China's population, estimated at 1.3 billion, is the
highest of any country in the world. China has had for many centuries a
well deserved reputation for being closed to foreigners, with trade with
the outside world being carried on under terms of extreme restriction and
under central control. Such conditions were maintained in the first
thirty years of the Communist regime, which began in 1949; however, there
have been several stages of evolution, from the institution of an
industrialization program in the 1950s to a modernization policy
commencing in 1978 that combined economic development with the beginnings
of opening the country.
The economic reform plan thus begun was designed to bring in
foreign investment capital and technological skills. The result has been
a move towards a more mixed economy away from the previous centrally
planned economy. The process of devolving responsibility for all aspects
of enterprise to local management and authorities continues, even though
the system of socialism with Chinese characteristics involves considerable
influence by the central government on production and marketing.
The economic plans covering the last decade of the century
include objectives to quadruple the country's 1980 industrial and
agricultural output by the year 2000, to increase the export element of
the economy and to continue to open the country with further development
of the designated special investment areas. Average annual GDP growth
rate between 1989 and 1994 was 9.2%. The current Five Year Plan
anticipates an annual growth rate of 6%, but some senior leaders have
called for this to be increased significantly.
In order to attract foreign investment China has since 1978
designated certain areas of the country where overseas investors can
receive special investment incentives and tax concessions. There are five
Special Economic Zones (Shenzhen, Shantou and Zhuhai in Guangdong
Province, Xiamen in Fujian Province and Hainan Island, which itself is a
province). Fourteen coastal cities have been designated as "open cities"
and certain Open Economic Zones have been established in coastal areas.
Shanghai has established the Pudong New Area. Twenty-seven High and New
Technology Industrial Development Zones have been approved where
preferential treatment is given to enterprises which are confirmed as
technology intensive.
As a result, foreign direct investment in China has increased
substantially in the last ten years. The contracted value of foreign
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investment in China was over $70.8 billion in 1994. Investment by Taiwan
in Fujian Province continues to grow. Most of Hong Kong's manufacturing
investment has been in Guangdong Province, and more than 2.5 million
workers are now employed in the Province working for Hong Kong companies.
Since the beginning of 1992, China has indicated a willingness to
speed up reform of the economy. GDP grew by 11.8% in 1994 with gross
industrial output rising by 21.4%. Most notably among the high echelons
of the Chinese leadership, Deng Xiaoping has made a number of vigorously
pro-reform statements since he visited Shenzhen in January 1992 to
demonstrate support for the way in which the province of Guangdong is
conducting its affairs. Other senior Chinese Leaders have reaffirmed the
principle of economic reform.
Exports continue to rise strongly, although China remains
vulnerable to United States economic conditions and possible trade
sanctions, unless it liberalizes current import restrictions and improves
its human rights record. However, imports are also expected to rise and
may outstrip exports in terms of growth rates.
1993 figures show the extent to which Southeast China, and
Guangdong Province in particular, is ahead of the rest of the country in
economic performance. Its industrial output grew by over 50.5% during
1993; exports increased by more than 11.8% during 1993 following a 34%
growth in 1992. In 1993 Guangdong Province accounted for some 40.7% of
total exports and for more than 10.3% of GDP although having only 5.5% of
the population.
There are currently two officially recognized securities
exchanges in China - The Shanghai Securities Exchange, which opened in
December 1990, and The Shenzhen Securities Exchange, which opened in July
1991. Shares traded on these Exchanges are of two types - "A" shares,
which can be traded only by Chinese investors, and "B" shares, which can
be traded only by individuals and corporations not resident in China. In
Shanghai, all "B" Shares are denominated in Chinese renminbi ("RMB"), but
all transactions in "B" Shares must be settled in U.S. dollars and all
distributions made on "B" Shares are payable in U.S. dollars, the exchange
rate being the weighted average exchange rate for the U.S. dollar as
published by the Shanghai Foreign Exchange Adjustment Centre. In
Shenzhen, the purchase and sale prices for "B" Shares are quoted in Hong
Kong dollars. Dividends and other lawful revenue derived from "B" Shares
are calculated in RMB but payable in Hong Kong dollars, the rate of
exchange being the average rate published by the Shenzhen Foreign Exchange
Adjustment Centre. There are no foreign exchange restrictions on the
repatriation of gains made on or income derived from "B" Shares, subject
to the payment of taxes imposed by China thereon.
Company law relating to companies limited by shares and
regulations regarding the issuing of shares by equity joint ventures have
not yet been developed on a national basis. The Shenzhen municipality
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issued regulations in 1992 relating to joint stock companies, and the
Shanghai municipality has a draft joint stock company law under review.
Regulations governing the trading of securities on both the Shenzhen and
the Shanghai stock exchanges have been issued by each municipality; there
is no national securities legislation as yet.
As of December 6, 1995, 184 companies had shares listed on The
Shanghai Securities Exchange, of which 36 also had "B" Shares listed. The
total market capitalization of the "B" Shares of these companies as at
that date (which includes equities and bonds) was approximately U.S. $1.52
billion. As of the same date, 125 companies had shares listed on The
Shenzhen Securities Exchange, of which 33 also had "B" Shares listed. The
total market capitalization of the "B" Shares as at that date was
approximately HK $6.41 billion (U.S. $625.6 billion).
Hong Kong. As a trade entrepot and finance center, Hong Kong's
viability has been inexorably linked to mainland China since the
establishment of the Colony in 1841. Hong Kong remains China's largest
trade partner and its leading foreign investor. In 1995, visible trade
between Hong Kong and China exceeded $33.4 billion.
In the last two decades there has been a structural change in
Hong Kong's economy, with growth in the services sector outpacing
manufacturing growth. With more and more labor intensive manufacturing
relocating to Southern China, Hong Kong has developed its services sector,
which in 1993 contributed 72.5% of Gross Domestic Product.
In recent years large numbers of Hong Kong based companies have
set up factories in the southern province of Guangdong, where it is
estimated that Hong Kong companies employ between 2.5 and 3 million
workers. The low cost of setting up a factory in China and low wage rates
have been the primary attractions. While few Hong Kong companies in the
service sector derive the majority of their sales from China, activity
there is increasing notably in the construction, utilities, communications
and tourism sectors. Examples include China Light and Power, Hong Kong
Telecom and Hopewell Holdings. Although less noticeable than Hong Kong's
investment in China, there has been considerable growth in Chinese
investment in Hong Kong over the last decade and particularly in the last
five years. In contrast to Japanese investment, Chinese investment in
Hong Kong typically involves the purchase of stakes in existing companies.
This has traditionally been in the banking and import/export sectors.
Recently, investment in property, manufacturing and infrastructure
projects has increased. The most active Chinese enterprise in Hong Kong,
the Bank of China Group, is the second largest banking group in Hong Kong.
Much as China has become the manufacturing capital for Hong Kong
companies, Hong Kong is the primary funding center for the development of
China through direct investment, syndicated loans, commercial paper and
share issues in Hong Kong by Chinese companies.
In view of the growing economic interaction between Hong Kong and
Southern China, it is increasingly meaningful to consider the concept of a
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Greater Hong Kong economy consisting of Hong Kong and Guangdong Province,
with a combined population of 72 million and average per capita GDP of
$2,130 in 1993. Given the human, financial and technological resources in
Hong Kong and the low wage rates and infrastructural requirements of
China, the economic rationale for further integration of the two economies
is considerable. In ensuring the role of Hong Kong in the economy of
Southern China, the challenge of policy makers in Hong Kong is to see that
the colony's infrastructure is capable of accommodating the sustained 15%
annual growth of the Guangdong economy, and with it increasing trade and
investment flows. Towards this end, the Hong Kong government in 1989
unveiled PADS, the Port and Airport Development Strategy. The project,
estimated to cost $21 billion, is designed to allow Hong Kong's cargo
handling capacity to increase by four times between 1988 and 2011 and its
air traffic handling capacity to increase from 15 million passengers in
1988 to 50 million in 2011. Representatives of the Hong Kong and Chinese
governments are currently discussing the future of the PADS project and
its financing.
In the past, political considerations have hindered closer
economic integration between Hong Kong and China. It was largely in
response to the United Nations embargo on trade with China in the 1950s
and 1960s that Hong Kong developed a significant manufacturing base. In
the last several years, however, there has been an improvement in
relations between China and Hong Kong. In September 1991, Hong Kong and
China concluded the Sino-British Memorandum of Understanding, providing a
framework for the PADS project. Of even greater importance, the Basic
Law, the outline for Hong Kong's government post 1997, calls for Hong
Kong's capitalist system to remain intact for an additional fifty years
after 1997 and sets out details for the integration of Hong Kong into
China after 1997.
Taiwan. Between 1960 and 1994, Taiwan's GNP grew from less than
$2 billion to over $240 billion. The economic growth has been accompanied
by a transformation of domestic production from labor intensive to capital
intensive industries in the 1970s and finally to higher technology
industries in the 1980s. With over $92 billion, Taiwan has the world's
largest foreign exchange reserves. Taiwan companies continue to be
attracted by China's low labor costs, inexpensive land and less rigid
environmental rules. It is estimated that accumulated Taiwanese
investment in China exceeds $3 billion. Taiwanese listed companies
included a number that invested indirectly in China, primarily in the
textiles, food and rubber industries. Given the proximity of Taiwan to
China, the cultural homogeneity and the compelling economic incentive for
further investment, the primary obstacle to greater investment flows has
been the prohibition by Taiwanese authorities of direct investment in
China. Based on discussions with Taiwanese companies and the trend toward
greater liberalization by the government of investment in China, the
Adviser believes that over the next several years the scope for investment
by Taiwanese companies in China will widen substantially and that many
more companies listed on The Taiwan Stock Exchange Corp. will have
significant interests in China.
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Other Countries. Given the proximity of Hong Kong and Taiwan to
China, and their ethnic and cultural ties, the Adviser believes there will
be an increase in the number and commitment of listed companies in those
two countries doing business in China. Although less visible to the
public, listed companies elsewhere in Asia are also becoming increasingly
active in China.
While Guangdong Province has been the leading recipient of
foreign investment in China, there has also been considerable foreign
investment by Japanese companies in the Northeastern Provinces of
Liaoning, Jilin, and Heilongiang. As the major trading partner of these
provinces, Japan is primarily manufacturing light industrial products for
re-export. Major Japanese projects have been set up in the electronics
and natural resources sectors in China.
While Thailand has been traditionally known as a recipient of
foreign investment, Chinese-managed listed companies in the banking,
textiles and packaging sectors have indicated their intention of expanding
into China. In Singapore, shipping, construction and hotel companies have
been the first sectors to do business in China while several Malaysian
companies in the manufacturing sector have invested in joint ventures in
China. The Adviser believes that growing China exposure will enhance the
earnings growth of such companies, making them attractive for investment.
See Appendix B to Part B for further information about the
economic characteristics of and risks associated with investing in China
Region countries.
How the Portfolio Invests its Assets
The Portfolio seeks to achieve its objective through investing in
a carefully selected and continuously managed portfolio consisting
primarily of equity securities of companies that, in the opinion of the
Adviser, will benefit from the economic development and growth of China
("China growth companies"). A significant percentage of the Portfolio's
assets will be invested in the securities markets of countries in the
China Region (or Greater China), consisting of Hong Kong, China, Taiwan,
South Korea, Singapore, Malaysia, Thailand, Indonesia and the Philippines.
The Portfolio will, under normal market conditions, invest at least 65% of
its total assets in equity securities of China growth companies ("Greater
China investments"). However, it is expected that substantially all of
the Portfolio's assets will normally be invested in equity securities,
warrants and equity options. China growth companies consist of companies
that (a) are located in or whose securities are principally traded in a
China Region country, (b)(i) have at least 50% of their assets in one or
more China Region countries or (ii) derive at least 50% of their gross
sales revenues or profits from providing goods or services to or from
within one or more China Region countries, and (c)(i) have at least 35% of
their assets in China or (ii) derive at least 35% of their gross sales
revenues or profits from providing goods or services to or from within
China or (iii) have manufacturing or other operations in China that are
significant to such companies. Greater China investments are typically
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listed on stock exchanges or traded in the over-the-counter markets in
countries in the China Region. The principal offices of these companies,
however, may be located outside these countries. The Portfolio may
invest 25% or more of its total assets in the securities of issuers
located in any one country in the China Region. The Portfolio has
invested more than 25% of its total assets in issuers located in Hong
Kong, but the Adviser currently expects that the Portfolio ordinarily will
not invest more than 10% of its total assets in any other country.
Equity securities, for purposes of the 65% policy, will be
limited to common and preferred stocks; equity interests in trusts,
partnerships, joint ventures and other unincorporated entities or
enterprises; special classes of shares available only to foreign investors
in markets that restrict the ownership by foreign investors to certain
classes of equity securities; convertible preferred stocks; and other
convertible investment grade debt instruments. A debt security is
investment grade if it is rated BBB or above by Standard & Poor's Ratings
Group ("S&P") or Baa or above by Moody's Investors Service, Inc.
("Moody's") or determined to be of comparable quality by the Adviser.
Debt securities rated BBB by S&P or Baa by Moody's have speculative
characteristics and changes in economic conditions or other circumstances
are more likely to lead to a weakened capacity to make principal and
interest payments than is the case with higher grade debt securities. The
Portfolio will promptly dispose of any convertible debt instrument that is
rated or determined by the Adviser to be below investment grade subsequent
to acquisition by the Portfolio. Direct investments in China growth
companies will not exceed 10% of the Portfolio's total assets. See
"Special Investment Methods and Risk Factors -- Direct Investments" for a
discussion of the risks associated with direct investments.
In addition to its investments in equity securities, the
Portfolio may invest up to 5% of its net assets in options on equity
securities and up to 5% of its net assets in warrants, including options
and warrants traded in over-the-counter markets. The Portfolio will not,
under normal market conditions, invest more than 35% of its total assets
in equity securities other than Greater China investments, warrants,
options on securities and indices, options on currency, futures contracts
and options on futures, forward foreign currency exchange contracts,
currency swaps and any other non-equity investments. See "Special
Investment Methods and Risk Factors" below and Part B for a description of
certain active management techniques available to the Portfolio. The
Portfolio will not invest in debt securities, other than investment grade
convertible debt instruments, except for temporary defensive purposes, as
described below. The Portfolio will not invest more than 10% of its
assets in the securities of issuers in any country outside the China
Region.
The Portfolio may, for temporary defensive purposes, invest some
or all of its total assets in debt securities of foreign and United States
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companies, foreign governments and the U.S. Government, and their
respective agencies, instrumentalities, political subdivisions and
authorities, as well as in high quality money market instruments
denominated in U.S. dollars or a foreign currency.
Special Investment Methods And Risk Factors
Investing in Foreign Securities. Investing in securities issued
by foreign companies and governments involves considerations and possible
risks not typically associated with investing in securities issued by the
U.S. Government and domestic corporations. The values of foreign
investments are affected by changes in currency rates or exchange control
regulations, application of foreign tax laws, including withholding taxes,
changes in governmental administration or economic or monetary policy (in
this country or abroad) or changed circumstances in dealings between
nations. Costs are incurred in connection with conversions between
various currencies. In addition, foreign brokerage commissions and other
costs of investing are generally higher than in the United States, and
foreign securities markets may be less liquid, more volatile and less
subject to governmental supervision than in the United States.
Investments in foreign issuers could be affected by other factors not
present in the United States, including expropriation, confiscatory
taxation, lack of uniform accounting and auditing standards and potential
difficulties in enforcing contractual obligations. Transactions in the
securities of foreign issuers could be subject to settlement delays.
More than 25% of the Portfolio's total assets, adjusted to
reflect currency transactions and positions, may be denominated in any
single currency. Concentration in a particular currency will increase the
Portfolio's exposure to adverse developments affecting the value of such
currency. An issuer of securities purchased by the Portfolio may be
domiciled in a country other than the country in whose currency the
securities are denominated.
Because the Portfolio will, under normal market conditions,
invest at least 65% of its total assets in Greater China investments, its
investment performance will be especially affected by events affecting
China Region companies. The value and liquidity of Greater China
investments may be affected favorably or unfavorably by political,
economic, fiscal, regulatory or other developments in the China Region or
neighboring regions. The extent of economic development, political
stability and market depth of different countries in the China Region
varies widely. Certain China Region countries, including China,
Indonesia, Malaysia, the Philippines and Thailand, are either
comparatively underdeveloped or in the process of becoming developed.
Greater China investments typically involve greater potential for gain or
loss than investments in securities of issuers in developed countries. In
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comparison to the United States and other developed countries, developing
countries may have relatively unstable governments and economies based on
only a few industries. Given the Portfolio's investments, the Portfolio
will likely be particularly sensitive to changes in China's economy as the
result of any reversals of economic liberalization, political unrest or
changes in China's trading status.
Securities Trading Markets. The securities markets in the China
Region are substantially smaller, less liquid and more volatile than the
major securities markets in the United States. A high proportion of the
shares of many issuers may be held by a limited number of persons and
financial institutions, which may limit the number of shares available for
investment by the Portfolio. The prices at which the Portfolio may
acquire investments may be affected by trading by persons with material
non-public information and by securities transactions by brokers in
anticipation of transactions by the Portfolio in particular securities.
Similarly, volume and liquidity in the bond markets in the China Region
are less than in the United States and, at times, price volatility can be
greater than in the United States. The limited liquidity of securities
markets in the China Region may also affect the Portfolio's ability to
acquire or dispose of securities at the price and time it wishes to do so.
Accordingly, during periods of rising securities prices in the more
illiquid China Region securities markets, the Portfolio's ability to
participate fully in such price increases may be limited by its investment
policy of investing not more than 15% of its net assets in illiquid
securities. Conversely, the Portfolio's inability to dispose fully and
promptly of positions in declining markets will cause the Portfolio's net
asset value to decline as the value of the unsold positions is marked to
lower prices. In addition, China Region securities markets are
susceptible to being influenced by large investors trading significant
blocks of securities.
The Chinese, Hong Kong and Taiwan stock markets are undergoing a
period of growth and change which may result in trading volatility and
difficulties in the settlement and recording of transactions, and in
interpreting and applying the relevant law and regulations. In
particular, the securities industry in China is not well developed. China
has no securities laws of nationwide applicability. The municipal
securities regulations adopted by Shanghai and Shenzhen municipalities are
very new, as are their respective securities exchanges and other
self-regulatory organizations. In addition, Chinese stockbrokers and
other intermediaries may not perform as efficiently as their counterparts
in the United States and other more developed securities markets.
The Portfolio will invest in China Region countries with emerging
economies or securities markets. Political and economic structures in
many of such countries may be undergoing significant evolution and rapid
development, and such countries may lack the social, political and
economic stability characteristic of the United States. Certain of such
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countries may have, in the past, failed to recognize private property
rights and have at times nationalized or expropriated the assets of
private companies. As a result, the risks described above, including the
risks of nationalization or expropriation of assets, may be heightened.
In addition, unanticipated political or social developments may affect the
values of the Portfolio's investments in those countries and the
availability to the Portfolio of additional investments in those
countries.
The exchanges on which the Portfolio may purchase securities in
the China Region, which are believed to provide sufficiently liquid
markets so that the securities acquired by the Portfolio on such markets
need not be considered illiquid securities, currently include: Hong Kong
-- The Stock Exchange of Hong Kong Limited; South Korea -- The Korea Stock
Exchange; Malaysia -- The Kuala Lumpur Stock Exchange; Singapore -- The
Stock Exchange of Singapore Limited; Taiwan -- The Taiwan Stock Exchange
Corp.; Thailand -- The Securities Exchange of Thailand; Indonesia -- The
Jakarta Stock Exchange; Philippines -- The Manila and Makati Stock
Exchange; China -- The Shanghai Securities Exchange and The Shenzhen Stock
Exchange.
Economies of countries in the China Region may differ favorably
or unfavorably from the U.S. economy in such respects as rate of growth of
gross national product, rate of inflation, capital reinvestment, resource
self-sufficiency and balance of payments position. As export-driven
economies, the economies of countries in the China Region are affected by
developments in the economies of their principal trading partners.
Revocation by the United States of China's "Most Favored Nation" trading
status, which the U.S. President and Congress reconsider annually, would
adversely affect the trade and economic development of China and Hong
Kong. Hong Kong and Taiwan have limited natural resources, resulting in
dependence on foreign sources for certain raw materials and economic
vulnerability to global fluctuations of price and supply.
China governmental actions can have a significant effect on the
economic conditions in the China Region, which could adversely affect the
value and liquidity of the Portfolio's investments. Although the Chinese
Government has recently begun to institute economic reform policies, there
can be no assurances that it will continue to pursue such policies or, if
it does, that such policies will succeed.
China does not have a comprehensive system of laws, although
substantial changes have occurred in this regard in recent years. The
corporate form of organization has only recently been permitted in China
and national regulations governing corporations were introduced only in
May 1992. Prior to the introduction of such regulations Shanghai had
adopted a set of corporate regulations applicable to corporations located
or listed in Shanghai, and the relationship between the two sets of
regulations is not clear. Consequently, until a firmer legal basis is
provided, even such fundamental corporate law tenets as the limited
liability status of Chinese issuers and their authority to issue shares
remain open to question. Laws regarding fiduciary duties of officers and
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directors and the protection of shareholders are not well developed.
China's judiciary is relatively inexperienced in enforcing the laws that
exist, leading to a higher than usual degree of uncertainty as to the
outcome of any litigation. Even where adequate law exists in China, it
may be impossible to obtain swift and equitable enforcement of such law,
or to obtain enforcement of the judgment by a court of another
jurisdiction. The bankruptcy laws pertaining to state enterprises have
rarely been used and are untried in regard to an enterprise with foreign
shareholders, and there can be no assurance that such shareholders,
including the Portfolio, would be able to realize the value of the assets
of the enterprise or receive payment in convertible currency. As the
Chinese legal system develops, the promulgation of new laws, changes to
existing laws and the preemption of local laws by national laws may
adversely affect foreign investors, including the Portfolio. The
uncertainties faced by foreign investors in China are exacerbated by the
fact that many laws, regulations and decrees of China are not publicly
available, but merely circulated internally.
Direct Investments. The Portfolio may invest up to 10% of its
total assets in direct investments in China growth companies. Direct
investments include (i) the private purchase from an enterprise of an
equity interest in the enterprise in the form of shares of common stock or
equity interests in trusts, partnerships, joint ventures or similar
enterprises, and (ii) the purchase of such an equity interest in an
enterprise from a principal investor in the enterprise. In each case, the
Portfolio will, at the time of making the investment, enter into a
shareholder or similar agreement with the enterprise and one or more other
holders of equity interests in the enterprise. The Adviser anticipates
that these agreements will, in appropriate circumstances, provide the
Portfolio with the ability to appoint a representative to the board of
directors or similar body of the enterprise and for eventual disposition
of the Portfolio's investment in the enterprise. Such a representative of
the Portfolio will be expected to provide the Portfolio with the ability
to monitor its investment and protect its rights in the investment and
will not be appointed for the purpose of exercising management or control
of the enterprise.
Certain of the Portfolio's direct investments, particularly in
China, will probably include investments in smaller, less seasoned
companies. These companies may have limited product lines, markets or
financial resources, or they may be dependent on a limited management
group. The Adviser does not anticipate making direct investments in
start-up operations, although it is expected that in some cases the
Portfolio's direct investments will fund new operations for an enterprise
which itself is engaged in similar operations or is affiliated with an
organization that is engaged in similar operations. Such direct
investments may be made in entities that are reasonably expected in the
foreseeable future to become China growth companies, either by expanding
current operations or establishing significant operations in China.
Direct investments may involve a high degree of business and
financial risk that can result in substantial losses. Because of the
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absence of any public trading market for these investments, the Portfolio
may take longer to liquidate these positions than would be the case for
publicly traded securities. Although these securities may be resold in
privately negotiated transactions, the prices on these sales could be less
than those originally paid by the Portfolio. Furthermore, issuers whose
securities are not publicly traded may not be subject to public disclosure
and other investor protection requirements applicable to publicly traded
securities. If such securities are required to be registered under the
securities laws of one or more jurisdictions before being resold, the
Portfolio may be required to bear the expenses of registration. In
addition, in the event the Portfolio sells unlisted securities, any
capital gains realized on such transactions may be subject to higher rates
of taxation than taxes payable on the sale of listed securities.
Other Investment Practices. The Portfolio may engage in the
following investment practices, some of which may derive their value from
another instrument, security or index. In addition, the Portfolio may
temporarily borrow up to 5% of the value of its total assets to satisfy
redemption requests or settle securities transactions.
Derivative Instruments. The Portfolio may purchase or sell
derivative instruments (which are instruments that derive their value from
another instrument, security, index or currency) to enhance return, to
hedge against fluctuations in securities prices, interest rates, or
currency exchange rates, or as a substitute for the purchase or sale of
securities or currencies. The Portfolio's transactions in derivative
instruments may be in the U.S. or abroad and may include the purchase or
sale of futures contracts on securities, securities indices, other
indices, other financial instruments or currencies; options on futures
contracts; exchange-traded and over-the-counter options on securities,
indices or currencies; and forward foreign currency exchange contracts.
The Portfolio's transactions in derivative instruments involve a risk of
loss or depreciation due to unanticipated adverse changes in securities
prices, interest rates, the other financial instruments' prices or
currency exchange rates, the inability to close out a position, or default
by the counterparty. The loss on derivative instruments (other than
purchased options) may exceed the Portfolio's initial investment in these
instruments. In addition, the Portfolio may lose the entire premium paid
for purchased options that expire before they can be profitably exercised
by the Portfolio. The Portfolio incurs transaction costs in opening and
closing positions in derivative instruments. There can be no assurance
that the Adviser's use of derivative instruments will be advantageous to
the Portfolio.
The Portfolio may purchase call and put options on any securities
in which the Portfolio may invest or options on any securities index
composed of securities in which the Portfolio may invest. The Portfolio
does not intend to write a covered option on any security if after such
transaction more than 15% of its net assets, as measured by the aggregate
value of the securities underlying all covered calls and puts written by
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the Portfolio, would be subject to such options. The Portfolio does not
intend to purchase an option on any security if, after such transaction,
more than 5% of its net assets, as measured by the aggregate of all
premium paid for all such options held by the Portfolio, would be so
invested.
To the extent that the Portfolio enters into futures contract,
options on futures contracts and options on foreign currencies traded on
an exchange regulated by the Commodity Futures Trading Commission
("CFTC"), in each case that are not for bona fide hedging purposes (as
defined by the CFTC), the aggregate initial margin and premiums required
to establish these positions (excluding the amount by which options are
"in-the-money") may not exceed 5% of the liquidation value of the
Portfolio's portfolio, after taking into account unrealized profits and
unrealized losses on any contracts the Portfolio has entered into.
Forward contracts are individually negotiated and privately
traded by currency traders and their customers. A forward contract
involves an obligation to purchase or sell a specific currency (or basket
of currencies) for an agreed price at a future date, which may be any
fixed number of days from the date of the contract. The Portfolio may
engage cross-hedging by using forward contracts in one currency (or basket
of currencies) to hedge against fluctuations in the value of securities
denominated in a different currency if the Adviser determines that there
is an established historical pattern of correlation between the two
currencies (or the basket of currencies and the underlying currency). Use
of a different foreign currency magnifies the Portfolio's exposure to
foreign currency exchange rate fluctuations. The Portfolio may also use
forward contracts to shift its exposure to foreign currency exchange rate
changes from one currency to another.
The Portfolio may enter into currency swaps for both hedging and
non-hedging purposes. Currency swaps involve the exchange of rights to
make or receive payments in specified currencies. Because currency swaps
are individually negotiated, the Portfolio expects to achieve an
acceptable degree of correlation between its portfolio investments and its
currency swap positions. Currency swaps usually involve the delivery of
the entire principal value of one designated currency in exchange for the
other designated currency. Therefore, the entire principal value of a
currency swap is subject to the risk that the other party to the swap will
default on its contractual delivery obligations. The use of currency
swaps is a highly specialized activity that involves special investment
techniques and risks. If the Adviser is incorrect in its forecasts of
market values and currency exchange rates, the Portfolio's performance
will be adversely affected.
Lending of Portfolio Securities. The Portfolio may seek to earn
additional income by lending portfolio securities to broker-dealers or
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other institutional borrowers. As with other extensions of credit there
are risks of delay in recovery or even loss of rights in the securities
loaned if the borrower of the securities fails financially. However, the
loans will be made only to organizations deemed by the Adviser to be
sufficiently creditworthy and when, in the judgment of the Adviser, the
consideration that can be earned from securities loans of this type
justifies the attendant risk.
Repurchase Agreements. The Portfolio may enter into repurchase
agreements with respect to its permitted investments, but currently
intends to do so only with member banks of the Federal Reserve System or
with primary dealers in U.S. Government securities. In the event of the
bankruptcy of the other party to a repurchase agreement, the Portfolio
might experience delays in recovering its cash. To the extent that, in
the meantime, the value of the securities the Portfolio purchased may have
decreased, the Portfolio could experience a loss. At no time will the
Portfolio commit more than 15% of its net assets to repurchase agreements
that mature in more than seven days and other illiquid securities.
Other Investment Companies. The Portfolio reserves the right to
invest up to 10% of its total assets, calculated at the time of purchase,
in the securities of other investment companies unaffiliated with the
Adviser or Eaton Vance Management ("Eaton Vance") that have the
characteristics of closed-end investment companies. The Portfolio may not
invest more than 5% of its total assets in the securities of any one
investment company or acquire more than 3% of the voting securities of any
other investment company. The Portfolio will indirectly bear its
proportionate share of any management fees paid by investment companies in
which it invests in addition to the advisory fee paid by the Portfolio.
The value of closed-end investment company securities, which are usually
traded on an exchange, is affected by the demand for the securities
themselves, independent of the demand for the underlying portfolio assets
and, accordingly, such securities can trade at a discount from their net
asset values.
Portfolio Turnover. While it is the policy of the Portfolio to
seek long-term capital appreciation, and generally not to engage in
trading for short-term gains, the Portfolio will effect portfolio
transactions without regard to its holding period if, in the judgment of
the Adviser, such transactions are advisable in light of a change in
circumstances of a particular company or within a particular industry, or
in light of general market, economic or political conditions.
Accordingly, the Portfolio may engage in short-term trading under such
circumstances. Portfolio expenses increase with turnover of securities.
It is anticipated that the annual portfolio turnover rate of the Portfolio
will be not more than 100%.
Certain Investment Policies. The Portfolio has adopted certain
fundamental investment restrictions and policies which are enumerated in
detail in Part B and which may not be changed unless authorized by an
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investor vote. Among these fundamental restrictions, the Portfolio may
not (1) borrow money except from banks or through reverse repurchase
agreements and in an amount not exceeding one-third of its total assets;
or (2) with respect to 75% of its total assets, invest more than 5% of its
total assets in the securities of any one issuer, other than U.S.
Government securities, or acquire more than 10% of the outstanding voting
securities of any one issuer. Except with respect to the Portfolio's
borrowing limitation, investment restrictions are considered at the time
of acquisition of assets; the sale of portfolio assets is not required in
the event of a subsequent change in circumstances. As a matter of
fundamental policy, the Portfolio will invest less than 25% of its total
assets in the securities, other than U.S. Government securities, of
issuers in any one industry. However, the Portfolio is permitted to
invest 25% or more of its total assets in (i) the securities of issuers
located in any one country in the China Region and (ii) assets denominated
in the currency of any one country.
Except for the fundamental investment restrictions and policies
specifically identified above and those enumerated in Part B, the
investment objective and policies of the Portfolio are not fundamental
policies and accordingly may be changed by the Trustees of the Portfolio
without obtaining the approval of the investors in the Portfolio. If any
changes are made, the Portfolio might have an investment objective
different from the objective that an investor considered appropriate at
the time of its initial investment.
As a matter of nonfundamental policy, the Portfolio (i) does not
intend to borrow for leverage purposes and may not purchase any securities
if, at the time of such purchase, permitted borrowings exceed 5% of the
value of the Portfolio's total assets, and (ii) is not permitted to invest
more than 15% of its net assets in unmarketable securities,
over-the-counter options, repurchase agreements maturing in more than
seven days and other illiquid securities.
Under the Investment Company Act of 1940 (the "1940 Act") and the
rules promulgated thereunder, the Portfolio's investments in the
securities of any company that, in its most recent fiscal year, derived
more than 15% of its gross revenues from securities-related activities is
limited to 5% of any class of the issuer's equity securities and 10% of
the outstanding principal amount of the issuer's debt securities, provided
that the Portfolio's aggregate investments in the securities of any such
issuer do not exceed 5% of the Portfolio's total assets. Some of the
companies available for investment in China and the China Region,
including enterprises being privatized by such countries, may be financial
services businesses that engage in securities-related activities. The
Portfolio's ability to invest in such enterprises may thus be limited.
Item 5. Management of the Portfolio
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The Portfolio is organized as a trust under the laws of the State
of New York. The Portfolio intends to comply with all applicable federal
and state securities laws.
Investment Adviser. The Portfolio has engaged Lloyd George
Management (Hong Kong) Limited ("LGM-HK") as its investment adviser.
Pursuant to a service agreement effective on January 1, 1996 between LGM-
HK and its affiliate, Lloyd George Investment Management (Bermuda) Limited
("LGIM-B"), LGIM-B, acting under the general supervision of the
Portfolio's Board of Trustees, manages the Portfolio's investments and
affairs. LGM-HK supervises LGIM-B's performance of this function and
retains its contractual obligations under its investment advisory
agreement with the Portfolio. LGM-HK and LGIM-B are referred to
collectively as the Advisers. The Portfolio is co-managed by Robert Lloyd
George and Scobie Dickinson Ward.
Each Adviser is registered as an investment adviser with the
Securities and Exchange Commission (the "Commission"). Each Adviser is a
subsidiary of Lloyd George Management (B.V.I.) Limited ("LGM"). LGM and
its subsidiaries act as investment adviser to various individual and
institutional clients with total assets under management of more than $1
billion. Eaton Vance's parent, Eaton Vance Corp., owns 24% of the Class A
shares issued by LGM.
LGM was established in 1991 to provide investment management
services with respect to equity securities of companies trading in Asian
securities markets, especially those of emerging markets. LGM currently
manages Pacific Basin and Asian portfolios for both private clients and
institutional investors seeking long-term capital growth. LGM's core
investment team consists of nine experienced investment professionals
based in Hong Kong who have worked together over a number of years
successfully managing client portfolios in Pacific Basin and Asian stock
markets. LGM also has offices in Bombay, India and in London, England.
The team has a unique knowledge of, and experience with, Pacific Basin and
Asian emerging markets. LGM is ultimately controlled by the Hon. Robert
J.D. Lloyd George, President and Trustee of the Portfolio and Chairman and
Chief Executive Officer of the Advisers. LGM's only activity is portfolio
management.
LGM and the Advisers have adopted a disciplined management style,
providing a blend of Asian and multinational expertise with the most
rigorous international standards of fundamental security analysis.
Although focused primarily in Asia, LGM and the Advisers maintain a
network of international contacts in order to monitor international
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economic and stock market trends and offer clients a global management
service.
The Honourable Robert Lloyd George. Chairman. Born in London in 1952 and
educated at Eton College, where he was a King's Scholar, and at Oxford
University. Prior to founding LGM, Mr. Lloyd George was Managing Director
of Indosuez Asia Investment Services Ltd. Previously, he spent four years
with the Fiduciary Trust Company of New York researching international
securities, in the United States and Europe, for the United Nations
Pension Fund. Mr. Lloyd George is the author of numerous published
articles and three books - "A Guide to Asian Stock Markets" (Longmans,
Hong Kong, 1989), "The East West Pendulum" (Woodhead - Faulkner,
Cambridge, 1991) and "North South -- an Emerging Markets Handbook (Probus,
England, 1994).
William Walter Raleigh Kerr. Finance Director and Chief Operating
Officer. Born in 1950 and educated at Ampleforth and Oxford. Mr. Kerr
qualified as a Chartered Accountant at Thomson McLintock & Co. before
joining The Oldham Estate Company plc as Financial Controller. Prior to
joining LGM, Mr. Kerr was a Director of Banque Indosuez's corporate
finance subsidiary, Financiere Indosuez Limited, in London. Prior to that
Mr. Kerr worked for First Chicago Limited.
Scobie Dickinson Ward. Director. Born in 1966 and a cum laude graduate
of both Phillips Academy Andover and Harvard College. Mr. Ward joined
Indosuez Asia Investment Services in 1989, where he managed the $100
million Himalayan Fund, and the Indosuez Tasman Fund, investing in
Australia and New Zealand. Messrs. Ward and Lloyd George manage Eaton
Vance's Emerging Markets Portfolio and South Asia Portfolio (which invests
in India and the Indian subcontinent).
M. F. Tang. Director. Born in 1946 and educated in Hong Kong. Mr. Tang
is a Fellow of the Chartered Association of Certified Accountants. Mr.
Tang joined LGM having worked for Australian Mutual Provident Society in
Sydney where he was a Portfolio Manager responsible for Asian Equities.
Prior thereto Mr. Tang worked for Barclays Australia Investment Services
Ltd. From 1978 to 1986 Mr. Tang worked for Barings International
Investment Management and prior to that he spent six years with Peat
Marwick Mitchell & Co. Mr. Tang is fluent in the Cantonese and Mandarin
dialects of the Chinese language.
Pamela Chan. Director. Born in Hong Kong in 1957 and graduated from
Mills College in Oakland, California. She was an investment executive for
Jardine Fleming from 1982-1984 before moving to Australia where she worked
as a Fund Manager for Rothschild and Aetna. She joined Sun Life Assurance
Society PLC in England in 1987 where she was the head of South East Asian
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Equities and a Director. She joined LGM in April 1994 where she is a
portfolio manager and a member of the Pension Management Committee.
Adaline Mang-Yee Ko. Director. Born in 1943 and educated at University
of Birmingham, England and at London Business School where she received
her MBA. Ms. Ko has over 13 years of experience working with Far East
Asian equities. From 1982-1988, she worked at Save & Prosper Group Ltd.
as an investment manager. In 1988, Ms. Ko transferred to Robert Fleming &
Co. Ltd. In 1990, she was promoted to Director of Fleming Investment
Management Ltd. In 1992, she was promoted to Head of the Pacific Region
Portfolios Group where she supervised a team of 5 with responsibility for
over $1.5 billion in assets under management. Ms. Ko joined LGM in 1995.
Effective January 1, 1996, LGM-HK will pay to LGIM-B the entire
amount of the advisory fee payable by the Portfolio under its investment
advisory agreement with LGM-HK. Under this agreement, LGM-HK is entitled
to receive a monthly advisory fee of 0.0625% (equivalent to 0.75%
annually) of the average daily net assets of the Portfolio up to $500
million, which fee declines at intervals above $500 million. As at August
31, 1995, the Portfolio had net assets of $590,417,058. For the fiscal
year ended August 31, 1995, the Portfolio paid LGM-HK advisory fees
equivalent to 0.74% of the Portfolio's average daily net assets for such
year.
LGIM-B also furnishes for the use of the Portfolio office space
and all necessary office facilities, equipment and personnel for servicing
the investments of the Portfolio. LGIM-B places the portfolio securities
transactions of the Portfolio with many broker-dealer firms and uses its
best efforts to obtain execution of such transactions at prices which are
advantageous to the Portfolio and at reasonably competitive commission
rates. Subject to the foregoing, LGIM-B may consider sales of shares of
other investment companies sponsored by Eaton Vance or Boston Management
and Research as a factor in the selection of broker-dealer firms to
execute portfolio transactions.
Administrator. Eaton Vance, its affiliates and its predecessor
companies have been managing assets of individuals and institutions since
1924 and managing investment companies since 1931. Eaton Vance acts as
investment adviser to investment companies and various individual and
institutional clients with assets under management of approximately $16
billion. Eaton Vance is a wholly-owned subsidiary of Eaton Vance Corp., a
publicly held holding company. Eaton Vance Corp., through its
subsidiaries and affiliates, engages in investment management and
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marketing activities, fiduciary and banking services, oil and gas
operations, real estate investment, consulting and management, and
development of precious metals properties. Eaton Vance Corp. also owns
24% of the Class A shares issued by LGM.
Acting under the general supervision of the Board of Trustees,
Eaton Vance administers the business affairs of the Portfolio. Eaton
Vance's services include monitoring and providing reports to the Trustees
concerning the investment performance achieved by the Adviser for the
Portfolio, recordkeeping, preparation and filing of documents required to
comply with federal and state securities laws, supervising the activities
of the custodian of the Portfolio, providing assistance in connection with
Trustees' and investors' meetings and other administrative services
necessary to conduct the business of the Portfolio. Eaton Vance does not
provide any investment management or advisory services to the Portfolio.
Eaton Vance also furnishes for the use of the Portfolio office space and
all necessary office facilities, equipment and personnel for administering
the business affairs of the Portfolio.
Under its administration agreement with the Portfolio, Eaton
Vance receives a monthly fee in the amount of 1/48 of 1% (equal to 0.25%
annually) of the average daily net assets of the Portfolio up to $500
million, which fee declines at intervals above $500 million. For the
fiscal year ended August 31, 1995, Eaton Vance earned administration fees
from the Portfolio equivalent to 0.24% of the Portfolio's average daily
net assets for such year. The combined advisory and administration fees
payable by the Portfolio are higher than similar fees charged by most
other investment companies.
The Portfolio will be responsible for all of its costs and
expenses not expressly stated to be payable by the Advisers under the
investment advisory agreement or by Eaton Vance under the administration
agreement.
Item 6. Capital Stock and Other Securities
The Portfolio is organized as a trust under the laws of the State
of New York and intends to be treated as a partnership for federal tax
purposes. Under the Declaration of Trust, the Trustees are authorized to
issue interests in the Portfolio. Each investor is entitled to a vote in
proportion to the amount of its investment in the Portfolio. Investments
in the Portfolio may not be transferred, but an investor may withdraw all
or any portion of its investment at any time at net asset value.
Investors in the Portfolio will each be liable for all obligations of the
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Portfolio. However, the risk of an investor in the Portfolio incurring
financial loss on account of such liability is limited to circumstances in
which both inadequate insurance exists and the Portfolio itself is unable
to meet its obligations.
The Declaration of Trust provides that the Portfolio will
terminate 120 days after the complete withdrawal of any investor in the
Portfolio unless either the remaining investors, by unanimous vote at a
meeting of such investors, or a majority of the Trustees of the Portfolio,
by written instrument consented to by all investors, agree to continue the
business of the Portfolio. This provision is consistent with treatment of
the Portfolio as a partnership for federal income tax purposes. The
Portfolio anticipates that the Trustees of the Portfolio and any other
investors would vote to continue the business of the Portfolio following
such a withdrawal. However, if such favorable vote did not occur, the
Portfolio would be required to cease operations within 120 days of such
event in accordance with its Declaration of Trust.
Investments in the Portfolio have no preemptive or conversion
rights and are fully paid and nonassessable by the Portfolio, except as
set forth above. The Portfolio is not required and has no current
intention to hold annual meetings of investors, but the Portfolio will
hold special meetings of investors when in the judgment of the Trustees it
is necessary or desirable to submit matters for an investor vote. Changes
in fundamental policies will be submitted to investors for approval.
Investors have under certain circumstances (e.g., upon application and
submission of certain specified documents to the Trustees by a specified
number of investors) the right to communicate with other investors in
connection with requesting a meeting of investors for the purpose of
removing one or more Trustees. Investors also have the right to remove
one or more Trustees without a meeting by a declaration in writing by a
specified number of investors. Upon liquidation of the Portfolio,
investors would be entitled to share pro rata in the net assets of the
Portfolio available for distribution to investors. The investment
objective and all nonfundamental investment policies of the Portfolio may
be changed by the Trustees of the Portfolio without obtaining the approval
of the investors in the Portfolio.
Information regarding pooled investment entities or funds which
invest in the Portfolio may be obtained by contacting Eaton Vance
Distributors, Inc. ("EVD"), 24 Federal Street, Boston, MA 02110 (617)
482-8260. Smaller investors in the Portfolio may be adversely affected by
the actions of a larger investor in the Portfolio. For example, if a
large investor withdraws from the Portfolio, the remaining investors may
experience higher pro rata operating expenses, thereby producing lower
returns. Additionally, the Portfolio may hold fewer securities, resulting
in increased portfolio risk, and experience decreasing economies of scale.
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However, this possibility exists as well for historically structured funds
which have large or institutional investors.
As of December 12, 1995, the controlling investors in the
Portfolio owned the following percentages of the Portfolio's outstanding
voting securities:
Investor Percentage
EV Marathon Greater China Growth Fund 55.5%
EV Traditional Greater China Growth Fund 40.8%
The net asset value of the Portfolio is determined each day on
which the New York Stock Exchange (the "Exchange") is open for trading
("Portfolio Business Day") and on such other days as are deemed necessary
in order to comply with Rule 22c-1 under the 1940 Act. This determination
is made each Portfolio Business Day as of the close of regular trading on
the Exchange (normally 4:00 p.m., New York time) (the "Portfolio Valuation
Time").
Each investor in the Portfolio may add to or reduce its
investment in the Portfolio on each Portfolio Business Day as of the
Portfolio Valuation Time. The value of each investor's interest in the
Portfolio will be determined by multiplying the net asset value of the
Portfolio by the percentage, determined on the prior Portfolio Business
Day, which represents that investor's share of the aggregate interests in
the Portfolio on such prior day. Any additions or withdrawals for the
current Portfolio Business Day will then be recorded. Each investor's
percentage of the aggregate interests in the Portfolio will then be
recomputed as the percentage equal to a fraction (i) the numerator of
which is the value of such investor's investment in the Portfolio as of
the Portfolio Valuation Time on the prior Portfolio Business Day plus or
minus, as the case may be, the amount of any additions to or withdrawals
from the investor's investment in the Portfolio on the current Portfolio
Business Day, and (ii) the denominator of which is the aggregate net asset
value of the Portfolio as of the Portfolio Valuation Time on the prior
Portfolio Business Day plus or minus, as the case may be, the amount of
the net additions to or withdrawals from the aggregate investments in the
Portfolio on the current Portfolio Business Day by all investors in the
Portfolio. The percentage so determined will then be applied to determine
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the value of the investor's interest in the Portfolio for the current
Portfolio Business Day.
The Portfolio will allocate at least annually among its investors
each investor's distributive share of the Portfolio's net investment
income, net realized capital gains, and any other items of income, gain,
loss, deduction or credit. The Portfolio will make distributions at
appropriate times and in sufficient amounts to enable investors to satisfy
the tax distribution requirements that apply to the investors and that
must be satisfied in order to avoid federal income and/or excise tax on
the investors. The Portfolio's net investment income consists of all
income accrued on the Portfolio's assets, less all actual and accrued
expenses of the Portfolio, determined in accordance with generally
accepted accounting principals.
Under the anticipated method of operation of the Portfolio, the
Portfolio will not be subject to any federal income tax. (See Part B,
Item 20.) However, each investor in the Portfolio will be taxable on its
allocable share (as determined in accordance with the governing
instruments of the Portfolio) of the Portfolio's ordinary income and
capital gain in determining its federal income tax liability. The
determination of each such share will be made in accordance with the
governing instruments of the Portfolio, which are intended to comply with
the requirements of the Code and regulations promulgated thereunder.
It is intended that the Portfolio's assets, income and
distributions will be managed in such a way that an investor in the
Portfolio which seeks to qualify as a regulated investment company under
the Code will be able to satisfy the requirements for such qualification.
Item 7. Purchase of Interests in the Portfolio
Interests in the Portfolio are issued solely in private placement
transactions that do not involve any "public offering" within the meaning
of Section 4(2) of the 1933 Act. See "General Description of Registrant"
above.
An investment in the Portfolio may be made without a sales load.
All investments received by the Portfolio will be effected as of the next
Portfolio Valuation Time. The net asset value of the Portfolio is
determined at the Portfolio Valuation Time on each Portfolio Business Day.
The Portfolio will be closed for business and will not determine its net
asset value on the following business holidays: New Year's Day,
Presidents' Day, Good Friday (a New York Stock Exchange holiday), Memorial
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Day, Independence Day, Labor Day, Thanksgiving Day and Christmas Day. The
Portfolio's net asset value is computed in accordance with procedures
established by the Portfolio's Trustees.
The Portfolio's net asset value is determined as of the close of
regular trading on the Exchange by Investors Bank & Trust Company (as
custodian and agent for the Portfolio), based on market or fair value in
the manner authorized by the Trustees, with special provisions for valuing
debt obligations, short-term investments, foreign securities, direct
investments, hedging instruments and assets not having readily available
market quotations, if any. The net asset value is computed by
subtracting the liabilities of the Portfolio from the value of its total
assets. For further information regarding the valuation of the
Portfolio's assets, see Part B.
There is no minimum initial or subsequent investment in the
Portfolio. The Portfolio reserves the right to cease accepting
investments at any time or to reject any investment order.
The placement agent for the Portfolio is EVD. The principal
business address of EVD is 24 Federal Street, Boston, Massachusetts 02210.
EVD receives no compensation for serving as the placement agent for the
Portfolio.
Item 8. Redemption or Decrease of Interest
An investor in the Portfolio may withdraw all of (redeem) or any
portion of (decrease) its interest in the Portfolio if a withdrawal
request in proper form is furnished by the investor to the Portfolio. All
withdrawals will be effected as of the next Portfolio Valuation Time. The
proceeds of a withdrawal will be paid by the Portfolio normally on the
Portfolio Business Day the withdrawal is effected, but in any event within
seven days. The Portfolio reserves the right to pay the proceeds of a
withdrawal (whether a redemption or decrease) by a distribution in kind of
portfolio securities (instead of cash). The securities so distributed
would be valued at the same amount as that assigned to them in calculating
the net asset value for the interest (whether complete or partial) being
withdrawn. If an investor received a distribution in kind upon such
withdrawal, the investor could incur brokerage and other charges in
converting the securities to cash. The Portfolio has filed with the
Commission a notification of election on Form N-18F-1 committing to pay in
cash all requests for withdrawals by any investor, limited in amount with
respect to such investor during any 90 day period to the lesser of (a)
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$250,000 or (b) 1% of the net asset value of the Portfolio at the
beginning of such period.
Investments in the Portfolio may not be transferred.
The right of any investor to receive payment with respect to any
withdrawal may be suspended or the payment of the withdrawal proceeds
postponed during any period in which the Exchange is closed (other than
weekends or holidays) or trading on the Exchange is restricted or, to the
extent otherwise permitted by the 1940 Act, if an emergency exists, or
during any other period permitted by order of the Commission for the
protection or investors.
Item 9. Pending Legal Proceedings
Not applicable.
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PART B
Item 10. Cover Page
Not applicable.
Item 11. Table of Contents Page
General Information and History . . . . . . . . . . . . . . B-1
Investment Objectives and Policies . . . . . . . . . . . . . B-1
Management of the Portfolio . . . . . . . . . . . . . . . . B-17
Control Persons and Principal Holder
of Securities . . . . . . . . . . . . . . . . . . . . . B-19
Investment Advisory and Other Services . . . . . . . . . . . B-20
Brokerage Allocation and Other Practices . . . . . . . . . . B-23
Capital Stock and Other Securities . . . . . . . . . . . . . B-26
Purchase, Redemption and Pricing of
Securities . . . . . . . . . . . . . . . . . . . . . . . B-27
Tax Status . . . . . . . . . . . . . . . . . . . . . . . . . B-28
Underwriters . . . . . . . . . . . . . . . . . . . . . . . . B-29
Calculations of Performance Data . . . . . . . . . . . . . . B-29
Financial Statements . . . . . . . . . . . . . . . . . . . . B-29
Item 12. General Information and History
Not applicable.
Item 13. Investment Objectives and Policies
Part A contains additional information about the investment
objective and policies of Greater China Growth Portfolio (the
"Portfolio"). This Part B should be read in conjunction with Part A.
Capitalized terms used in this Part B and not otherwise defined have the
meanings given them in Part A.
Foreign Investments
Investing in securities issued by companies whose principal
business activities are outside the United States may involve significant
risks not present in domestic investments. For example, there is
generally less publicly available information about foreign companies,
particularly those not subject to the disclosure and reporting
requirements of the U.S. securities laws. Foreign issuers are generally
not bound by uniform accounting, auditing, and financial reporting
requirements and standards of practice comparable to those applicable to
domestic issuers. Investments in foreign securities also involve the risk
of possible adverse changes in investment or exchange control regulations,
expropriation or confiscatory taxation, limitation on the removal of funds
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or other assets of the Portfolio, political or financial instability or
diplomatic and other developments which could affect such investments.
Further, economies of particular countries or areas of the world may
differ favorably or unfavorably from the economy of the United States. It
is anticipated that in most cases the best available market for foreign
securities will be on exchanges or in over-the-counter markets located
outside of the United States. Foreign stock markets, while growing in
volume and sophistication, are generally not as developed as those in the
United States, and securities of some foreign issuers (particularly those
located in developing countries) may be less liquid and more volatile than
securities of comparable U.S. companies. In addition, foreign brokerage
commissions are generally higher than commissions on securities traded in
the United States and may be non-negotiable. In general, there is less
overall governmental supervision and regulation of foreign securities
markets, broker-dealers, and issuers than in the United States.
Foreign Currency Transactions
Because investments in companies whose principal business
activities are located outside of the United States will frequently
involve currencies of foreign countries, and because assets of the
Portfolio may temporarily be held in bank deposits in foreign currencies
during the completion of investment programs, the value of the assets of
the Portfolio as measured in U.S. dollars may be affected favorably or
unfavorably by changes in foreign currency exchange rates and exchange
control regulations. Currency exchange rates can also be effected
unpredictably by intervention by U.S. or foreign governments or central
banks, or the failure to intervene, or by currency controls or political
developments in the U.S. or abroad. The Portfolio may conduct its foreign
currency exchange transactions on a spot (i.e., cash) basis at the spot
rate prevailing in the foreign currency exchange market or through
entering into swaps, forward contracts, options or futures on currencies.
In spot transactions, foreign exchange dealers do not charge a fee for
conversion, but they do realize a profit based on the difference (the
"spread") between the prices at which they are buying and selling various
currencies. Thus, a dealer may offer to sell a foreign currency to the
Portfolio at one rate, while offering a lesser rate of exchange should the
Portfolio desire to resell that currency to the dealer.
Currency Swaps
Currency swaps require maintenance of a segregated account as
described under "Asset Coverage for Derivative Investments" below. The
Portfolio will not enter into any currency swap unless the credit quality
of the unsecured senior debt or the claims-paying ability of the other
party thereto is considered to be investment grade by Lloyd George
Investment Management (Bermuda) Limited ("LGIM-B" or an "Adviser") (LGIM-B
and Lloyd George Management (Hong Kong) Limited ("LGM-HK") are
collectively referred to as the "Advisers"). If there is a default by the
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other party to such a transaction, the Portfolio will have contractual
remedies pursuant to the agreements related to the transaction. The swap
market has grown substantially in recent years with a large number of
banks and investment banking firms acting both as principals and as agents
utilizing standardized swap documentation. As a result, the swap market
has become relatively liquid in comparison with the markets for other
similar instruments which are traded in the interbank market.
Forward Foreign Currency Exchange Transactions
The Portfolio may enter into forward foreign currency exchange
contracts in several circumstances. First, when the Portfolio enters into
a contract for the purchase or sale of a security denominated in a foreign
currency, or when the Portfolio anticipates the receipt in a foreign
currency of dividend or interest payments on such a security which it
holds, the Portfolio may desire to "lock in" the U.S. dollar price of the
security or the U.S. dollar equivalent of such dividend or interest
payment, as the case may be. By entering into a forward contract for the
purchase or sale, for a fixed amount of dollars, of the amount of foreign
currency involved in the underlying transactions, the Portfolio will
attempt to protect itself against an adverse change in the relationship
between the U.S. dollar and the subject foreign currency during the period
between the date on which the security is purchased or sold, or on which
the dividend or interest payment is declared, and the date on which such
payments are made or received.
Additionally, when management of the Portfolio believes that the
currency of a particular foreign country may suffer a substantial decline
against the U.S. dollar, it may enter into a forward contract to sell, for
a fixed amount of dollars, the amount of foreign currency approximating
the value of some or all of the securities held by the Portfolio
denominated in such foreign currency. The precise matching of the forward
contract amounts and the value of the securities involved will not
generally be possible because the future value of such securities in
foreign currencies will change as a consequence of market movements in the
value of those securities between the date on which the contract is
entered into and the date it matures. The precise projection of
short-term currency market movements is not possible, and short-term
hedging provides a means of fixing the dollar value of only a portion of
the Portfolio's foreign assets.
Special Risks Associated With Currency Transactions
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Transactions in forward contracts, as well as futures and options
on foreign currencies, are subject to the risk of governmental actions
affecting trading in or the prices of currencies underlying such
contracts, which could restrict or eliminate trading and could have a
substantial adverse effect on the value of positions held by the
Portfolio. In addition, the value of such positions could be adversely
affected by a number of other complex political and economic factors
applicable to the countries issuing the underlying currencies.
Furthermore, unlike trading in most other types of instruments,
there is no systematic reporting of last sale information with respect to
the foreign currencies underlying forward contracts, futures contracts and
options. As a result, the available information on which the Portfolio's
trading systems will be based may not be as complete as the comparable
data on which the Portfolio makes investment and trading decisions in
connection with securities and other transactions. Moreover, because the
foreign currency market is a global, twenty-four hour market, events could
occur on that market which will not be reflected in the forward, futures
or options markets until the following day, thereby preventing the
Portfolio from responding to such events in a timely manner.
Settlements of over-the-counter forward contracts or of the
exercise of foreign currency options generally must occur within the
country issuing the underlying currency, which in turn requires parties to
such contracts to accept or make delivery of such currencies in conformity
with any United States or foreign restrictions and regulations regarding
the maintenance of foreign banking relationships, fees, taxes or other
charges.
Unlike currency futures contracts and exchange-traded options,
options on foreign currencies and forward contracts are not traded on
contract markets regulated by the CFTC or (with the exception of certain
foreign currency options) the Securities and Exchange Commission (the
"SEC" or the "Commission"). To the contrary, such instruments are traded
through financial institutions acting as market-makers. (Foreign currency
options are also traded on the Philadelphia Stock Exchange subject to SEC
regulation). In an over-the-counter trading environment, many of the
protections associated with transactions on exchanges will not be
available. For example, there are no daily price fluctuation limits, and
adverse market movements could therefore continue to an unlimited extent
over a period of time. Although the purchaser of an option cannot lose
more than the amount of the premium plus related transaction costs, this
entire amount could be lost. Moreover, an option writer could lose
amounts substantially in excess of its initial investment due to the
margin and collateral requirements associated with such option positions.
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<PAGE>
Similarly, there is no limit on the amount of potential losses on forward
contracts to which the Portfolio is a party.
In addition, over-the-counter transactions can only be entered
into with a financial institution willing to take the opposite side, as
principal, of the Portfolio's position unless the institution acts as
broker and is able to find another counterparty willing to enter into the
transaction with the Portfolio. If no such counterparty is available, it
will not be possible to enter into a desired transaction. There also may
be no liquid secondary market in the trading of over-the-counter
contracts, and the Portfolio may be unable to close out options purchased
or written, or forward contracts entered into, until their exercise,
expiration or maturity. This in turn could limit the Portfolio's ability
to realize profits or to reduce losses on open positions and could result
in greater losses.
Furthermore, over-the-counter transactions are not backed by the
guarantee of an exchange's clearing corporation. The Portfolio will
therefore be subject to the risk of default by, or the bankruptcy of, the
financial institution serving as its counterparty. One or more of such
institutions also may decide to discontinue its role as market-maker in a
particular currency, thereby restricting the Portfolio's ability to enter
into desired hedging transactions. The Portfolio will enter into
over-the-counter transactions only with parties whose creditworthiness has
been reviewed and found satisfactory by the Adviser.
Over-the-counter options on foreign currencies, like
exchange-traded commodity futures contracts and commodity option
contracts, are within the exclusive regulatory jurisdiction of the CFTC.
The CFTC currently permits the trading of such options, but only subject
to a number of conditions regarding the commercial purpose of the
purchaser of such options. The Portfolio is not able to determine at this
time whether or to what extent the CFTC may impose additional restrictions
on the trading of over-the-counter options on foreign currencies at some
point in the future, or the effect that any such restrictions may have on
the hedging strategies to be implemented by the Portfolio.
CFTC regulations require that the Portfolio not enter into
non-hedging transactions in commodity futures contracts or commodity
option contracts for which the aggregate initial margin and premiums
exceed 5% of the fair market value of the Portfolio's net assets.
Premiums paid to purchase over-the-counter options on foreign currencies,
and initial margin deposited in connection with the writing of such
options, are required to be included in determining compliance with this
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<PAGE>
requirement. This could, depending upon the Portfolio's existing
positions in futures contracts and options on futures contracts, limit the
Portfolio's ability to purchase or write options on foreign currencies.
Conversely, the existence of open positions in options on foreign
currencies could limit the ability of the Portfolio to enter into desired
transactions in other options or futures contracts.
While forward contracts and currency swaps are not presently
subject to regulation by the CFTC, the CFTC may in the future assert or be
granted authority to regulate such instruments. In such event, the
Portfolio's ability to utilize forward contracts and currency swaps in the
manner set forth above and in Part A could be restricted.
Options on foreign currencies traded on a national securities
exchange are within the jurisdiction of the SEC, as are other securities
traded on such exchanges. As a result, many of the protections provided
to traders on organized exchanges will be available with respect to such
transactions. In particular, all foreign currency options positions
entered into on a national securities exchange are cleared and guaranteed
by the Options Clearing Corporation ("OCC"), thereby reducing the risk of
counterparty default. Further, a liquid secondary market in options
traded on a national securities exchange may be more readily available
than in the over-the-counter market, potentially permitting the Portfolio
to liquidate open positions at a profit prior to exercise or expiration,
or to limit losses in the event of adverse market movements.
The purchase and sale of exchange-traded foreign currency
options, however, are subject to the risks of the availability of a liquid
secondary market described above, as well as the risks regarding adverse
market movements, margining of options written, the nature of the foreign
currency market, possible intervention by governmental authorities and the
effect of other political and economic events. In addition,
exchange-traded options on foreign currencies involve certain risks not
presented by the over-the-counter market. For example, exercise and
settlement of such options must be made exclusively through the OCC, which
has established banking relationships in applicable foreign countries for
this purpose. As a result, the OCC may, if it determines that foreign
governmental restrictions or taxes would prevent the orderly settlement of
foreign currency option exercises, or would result in undue burdens on the
OCC or its clearing member, impose special procedures for exercise and
settlement, such as technical changes in the mechanics of delivery of
currency, the fixing of dollar settlement prices or prohibitions on
exercise.
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Repurchase Agreements
Under a repurchase agreement the Portfolio buys a security at one
price and simultaneously promises to sell that same security back to the
seller at a higher price. At no time will the Portfolio commit more than
5% of its net assets to repurchase agreements that mature in more than
seven days and other illiquid securities. The Portfolio's repurchase
agreements will provide that the value of the collateral underlying the
repurchase agreement will always be at least equal to the repurchase
price, including any accrued interest earned on the repurchase agreement,
and will be marked to market daily.
Reverse Repurchase Agreements
The Portfolio may enter into reverse repurchase agreements.
Under a reverse repurchase agreement, the Portfolio temporarily transfers
possession of a portfolio instrument to another party, such as a bank or
broker-dealer, in return for cash. At the same time, the Portfolio agrees
to repurchase the instrument at an agreed upon time (normally within seven
days) and price, which reflects an interest payment. The Portfolio
expects that it will enter into reverse repurchase agreements when it is
able to invest the cash so acquired at a rate higher than the cost of the
agreement, which would increase the income earned by the Portfolio. The
Portfolio could also enter into reverse repurchase agreements as a means
of raising cash to satisfy redemption requests without the necessity of
selling portfolio assets.
When the Portfolio enters into a reverse repurchase agreement,
any fluctuations in the market value of either the securities transferred
to another party or the securities in which the proceeds may be invested
would affect the market value of the Portfolio's assets. As a result,
such transactions may increase fluctuations in the market value of the
Portfolio's assets. While there is a risk that large fluctuations in the
market value of the Portfolio's assets could affect the Portfolio's net
asset value, this risk is not significantly increased by entering into
reverse repurchase agreements, in the opinion of the Adviser. Because
reverse repurchase agreements may be considered to be the practical
equivalent of borrowing funds, they constitute a form of leverage. If the
Portfolio reinvests the proceeds of a reverse repurchase agreement at a
rate lower than the cost of the agreement, entering into the agreement
will lower the Portfolio's yield.
At all times that a reverse repurchase agreement is outstanding,
the Portfolio will maintain cash or high grade liquid securities in a
segregated account at its custodian bank with a value at least equal to
its obligation under the agreement. Securities and other assets held in
the segregated account may not be sold while the reverse repurchase
agreement is outstanding, unless other suitable assets are substituted.
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While the Adviser does not consider reverse repurchase agreements to
involve a traditional borrowing of money, reverse repurchase agreements
will be included within the aggregate limitation on "borrowings" contained
in the Portfolio's investment restriction (1) set forth below.
Writing and Purchasing Call and Put Options
A call option written by the Portfolio obligates the Portfolio to
sell specified securities to the holder of the option at a specified price
at any time before the expiration date. The Portfolio will write a
covered call option on a security for the purpose of increasing its return
on such security and/or to partially hedge against a decline in the value
of the security. In particular, when the Portfolio writes an option which
expires unexercised or is closed out by the Portfolio at a profit, it will
retain the premium paid for the option, which will increase its gross
income and will offset in part the reduced value of the portfolio security
underlying the option, or the increased cost of acquiring the security for
its portfolio. However, if the price of the underlying security moves
adversely to the Portfolio's position, the option may be exercised and the
Portfolio will be required to purchase or sell the underlying security at
a disadvantageous price, which may only be partially offset by the amount
of the premium, if at all. The Portfolio does not intend to write a
covered option on any security if after such transaction more than 15% of
its net assets, as measured by the aggregate value of the securities
underlying all covered calls and puts written by the Portfolio, would be
subject to such options. The Portfolio will only write a put option on a
security which it intends to ultimately acquire for its portfolio. A put
option written by the Portfolio would obligate the Portfolio to purchase
specified securities from the option holder at a specified price upon
exercise of the option at any time before the expiration date.
The Portfolio may purchase put or call options on securities or
securities indices in anticipation of changes in the value of its existing
portfolio securities or in the prices of securities that the Portfolio
intends to purchase at a later date. In the event that the expected
changes occur, the Portfolio may be able to offset adverse changes in the
value of its portfolio, in whole or in part, through the options
purchased. The premium paid for a put or call option plus any transaction
costs will reduce the benefit, if any, realized by the Portfolio upon
exercise or liquidation of the option. Unless the price of the underlying
security changes sufficiently, the option may expire without value to the
Portfolio.
The Portfolio may terminate its obligations under a call or put
option by purchasing an option identical to the one it has written. Such
purchases are referred to as "closing purchase transactions."
The Portfolio would normally purchase call options in
anticipation of an increase in the market value of securities of the type
in which the Portfolio may invest. The purchase of a call option would
entitle the Portfolio, in return for the premium paid, to purchase
specified securities at a specified price during the option period. The
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Portfolio would ordinarily realize a gain if, during the option period,
the value of such securities exceeded the sum of the exercise price, the
premium paid and transaction costs; otherwise, the Portfolio would realize
a loss on the purchase of the call option.
The Portfolio would normally purchase put options in anticipation
of a decline in the market value of securities in its portfolio
("protective puts") or securities of the type in which it is permitted to
invest. The purchase of a put option would entitle the Portfolio, in
exchange for the premium paid, to sell specified securities at a specified
price during the option period. The purchase of protective puts is
designed merely to offset or hedge against a decline in the market value
of the securities held by the Portfolio. The Portfolio would ordinarily
realize a gain if, during the option period, the value of the underlying
securities decreased below the exercise price sufficiently to cover the
premium and transaction costs; otherwise, the Portfolio would realize a
loss on the purchase of the put option. Gains and losses on the purchase
of protective put options would tend to be offset by countervailing
changes in the value of underlying portfolio securities.
The Portfolio would also be able to enter into closing sale
transactions in order to realize gains or minimize losses on options
purchased by the Portfolio. The Portfolio does not intend to purchase any
options if after such transaction more than 5% of its net assets, as
measured by the aggregate of all premiums paid for all such options held
by the Portfolio, would be so invested.
The Portfolio would write and purchase put and call options on
securities indices for the same purposes as the writing and purchase of
options on securities. Options on securities indices are similar to
options on securities, except that the exercise of securities index
options requires cash payments and does not involve the actual purchase or
sale of securities. In addition, securities index options are designed to
reflect price fluctuations in a group of securities or segment of the
securities market rather than price fluctuations in a single security.
Special Risks Associated With Options on Securities
An options position may be closed out only on an options exchange
which provides a secondary market for an option of the same series.
Although the Portfolio will generally purchase or write only those options
for which there appears to be an active secondary market, there is no
assurance that a liquid secondary market on an exchange will exist for any
particular option, or at any particular time. For some options no
secondary market on an exchange may exist. In such event, it might not be
possible to effect closing transactions in particular options, with the
result that the Portfolio would have to exercise its options in order to
realize any profit and would incur transaction costs upon the sale of
underlying securities pursuant to the exercise of put options. If the
Portfolio as a covered call option writer is unable to effect a closing
purchase transaction in a secondary market, it will not be able to sell
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the underlying security until the option expires or it delivers the
underlying security upon exercise.
Reasons for the absence of a liquid secondary market on an
exchange include the following: (i) there may be insufficient trading
interest in certain options; (ii) restrictions may be imposed by an
exchange on opening transactions or closing transactions or both; (iii)
trading halts, suspensions or other restrictions may be imposed with
respect to particular classes or series of options or underlying
securities; (iv) unusual or unforeseen circumstances may interrupt normal
operations on an exchange; (v) the facilities of an exchange, the OCC or
another clearing organization may not at all times be adequate to handle
current trading volume; or (vi) one or more exchanges could, for economic
or other reasons, decide or be compelled at some future date to
discontinue the trading of options (or a particular class or series of
options), in which event the secondary market on that exchange (or in that
class or series of options) would cease to exist, although outstanding
options on that exchange that had been issued by the OCC or another
clearing organization as a result of trades on that exchange would
continue to be exercisable in accordance with their terms.
The Portfolio will pay brokerage commissions in connection with
writing options and effecting closing purchase transactions, as well as
for purchases and sales of underlying securities. The writing of options
could result in significant increases in the portfolio turnover rate of
the Portfolio, especially during periods when market prices of the
underlying securities appreciate.
There is no assurance that higher than anticipated trading
activity or other unforeseen events might not, at times, render certain of
the facilities of the OCC or other clearing organization inadequate, and
thereby result in the institution by an exchange of special procedures
which may interfere with the timely execution of customers' orders.
The amount of the premiums which the Portfolio may pay or receive
may be adversely affected as new or existing institutions, including other
investment companies, engage in or increase their option purchasing and
writing activities.
Futures Contracts
A change in the level of currency exchange rates or securities
prices may affect the value of the securities held by the Portfolio (or of
securities that the Portfolio expects to purchase). To hedge against
changes in rates or prices, the Portfolio may enter into (i) futures
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contracts for the purchase or sale of securities and currency, (ii)
futures contracts on securities indices and (iii) futures contracts on
other financial instruments and indices. In the United States futures
contracts are traded on exchanges or boards of trade that are licensed and
regulated by the CFTC and must be executed through a futures commission
merchant or brokerage firm which is a member of the relevant exchange.
The Portfolio may also enter into futures contracts traded on a foreign
exchange if it is determined by the Adviser that trading on such exchange
does not subject the Portfolio to risks, including credit and liquidity
risks, that are materially greater than the risks associated with trading
on United States exchanges.
The Portfolio will engage in futures and related options
transactions for bona fide hedging purposes as defined in or permitted by
CFTC regulations. The Portfolio will determine that the price
fluctuations in the futures contracts and options on futures used for
hedging purposes are substantially related to price fluctuations in
securities (or the currency in which they are denominated) held by the
Portfolio or which it expects to purchase. The Portfolio's futures
transactions will be entered into for traditional hedging purposes -- that
is, futures contracts will be sold to protect against a decline in the
price of securities that the Portfolio owns, or futures contracts will be
purchased to protect the Portfolio against an increase in the price of
securities it intends to purchase. As evidence of this hedging intent,
the Portfolio expects that on 75% or more of the occasions on which it
takes a long futures (or option) position (involving the purchase of
futures contracts), the Portfolio will have purchased, or will be in the
process of purchasing, equivalent amounts of related securities in the
cash market at the time when the futures (or option) position is closed
out. However, in particular cases, when it is economically advantageous
for the Portfolio to do so, a long futures position may be terminated (or
an option may expire) without the corresponding purchase of securities.
The Portfolio will engage in transactions in futures contracts and related
options only to the extent such transactions are consistent with the
requirements of the Internal Revenue Code of 1986, as amended (the
"Code"), for maintaining the qualification of an investor in the Portfolio
as a regulated investment company (a "RIC") for federal income tax
purposes (see "Item 20").
The Portfolio will be required, in connection with transactions
in futures contracts and the writing of options on futures, to make margin
deposits, which will be held by the Portfolio's custodian for the benefit
of the futures commission merchant through whom the Portfolio engages in
such futures and options transactions. Cash or high grade liquid debt
securities required to be segregated in connection with a "long" futures
position taken by the Portfolio will also be held by the custodian in a
segregated account and will be marked to market daily.
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Portfolio Turnover
The Portfolio cannot accurately predict its portfolio turnover
rate, but it is anticipated that the annual turnover rate will generally
not exceed 100% (excluding turnover of securities having a maturity of one
year or less). A 100% annual turnover rate would occur, for example, if
all the securities held in the portfolio were replaced once in a period of
one year. A high turnover rate (100% or more) necessarily involves
greater expenses to the Portfolio. The Portfolio engages in portfolio
trading (including short-term trading) if it believes that a transaction
including all costs will help in achieving its investment objective either
by increasing income or by enhancing the Portfolio's net asset value.
High portfolio turnover may result in the realization of substantial net
short-term capital gains.
Lending Portfolio Securities
If the Adviser decides to make securities loans, the Portfolio
may seek to increase its income by lending portfolio securities to
broker-dealers or other institutional borrowers. Under present regulatory
policies of the SEC, such loans are required to be secured continuously by
collateral in cash, cash equivalents or U.S. Government securities held by
the Portfolio's custodian and maintained on a current basis at an amount
at least equal to the market value of the securities loaned, which will be
marked to market daily. Cash equivalents include certificates of deposit,
commercial paper and other short-term money market instruments. The
financial condition of the borrower will be monitored by the Adviser on an
ongoing basis. The Portfolio would continue to receive the equivalent of
the interest or dividends paid by the issuer on the securities loaned and
would also receive a fee, or all or a portion of the interest on
investment of the collateral. The Portfolio would have the right to call
a loan and obtain the securities loaned at any time on up to five business
days' notice. The Portfolio would not have the right to vote any
securities having voting rights during the existence of a loan, but could
call the loan in anticipation of an important vote to be taken among
holders of the securities or the giving or holding of their consent on a
material matter affecting the investment. If the Adviser decides to make
securities loans, it is intended that the value of the securities loaned
would not exceed one-third of the Portfolio's total assets.
Investment Restrictions
Whenever an investment policy or investment restriction set
forth in Part A or this Part B states a maximum percentage of assets that
may be invested in any security or other asset or describes a policy
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regarding quality standards, such percentage limitation or standard shall
be determined immediately after and as a result of the Portfolio's
acquisition of such security or other asset. Accordingly, any later
increase or decrease resulting from a change in values, assets or other
circumstances, other than a subsequent rating change below investment
grade made by a rating service, will not compel the Portfolio to dispose
of such security or other asset.
The Portfolio has adopted the following investment restrictions
which may not be changed without the approval by the holders of a majority
of the outstanding voting securities of the Portfolio, which as used in
this Part B means the lesser of (a) 67% or more of the outstanding voting
securities of the Portfolio present or represented by proxy at a meeting
if the holders of more than 50% of the outstanding voting securities of
the Portfolio are present or represented at the meeting or (b) more than
50% of the outstanding voting securities of the Portfolio. The Portfolio
may not:
(1) issue senior securities (as defined in the Investment
Company Act of 1940 and rules thereunder) or borrow money, except that the
Portfolio may borrow:
(i) from banks to purchase or carry securities,
commodities, commodities contracts or other investments;
(ii) from banks for temporary or emergency purposes
not in excess of 10% of its gross assets taken at market value; or
(iii) by entering into reverse repurchase agreements,
if, immediately after any such borrowing, the value of the Portfolio's
total assets, including all borrowings then outstanding, is equal to at
least 300% of the aggregate amount of borrowings then outstanding. Any
such borrowings may be secured or unsecured. The Portfolio may issue
securities (including senior securities) appropriate to evidence such
indebtedness, including reverse repurchase agreements.
(2) Pledge its assets, except that the Portfolio may pledge
not more than one-third of its total assets (taken at current value) to
secure borrowings made in accordance with investment restriction (1)
above; for the purpose of this restriction the deposit of assets in a
segregated account with the Portfolio's custodian in connection with any
of the Portfolio's investment transactions is not considered to be a
pledge.
(3) Purchase securities on margin (but the Portfolio may
obtain such short-term credits as may be necessary for the clearance of
purchases and sales of securities).
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(4) Make short sales of securities or maintain a short
position, unless at all times when a short position is open the Portfolio
either owns an equal amount of such securities or owns securities
convertible into or exchangeable, without the payment of any additional
consideration, for securities of the same issue as, and equal in amount
to, the securities sold short.
(5) Purchase securities issued by any other open-end
investment company or investment portfolio, except as they may be acquired
as part of a merger, consolidation or acquisition of assets, and except as
otherwise permitted by the Investment Company Act of 1940.
(6) Purchase or retain in its portfolio any securities issued
by an issuer any of whose officers, directors, trustees or security
holders is an officer or Trustee of the Portfolio or is a member, officer,
director or trustee of any investment adviser of the Portfolio, if after
the purchase of the securities of such issuer by the Portfolio one or more
of such persons owns beneficially more than 1/2 of 1% of the shares or
securities or both (all taken at current value) of such issuer and such
persons owning more than 1/2 of 1% of such shares or securities together
own beneficially more than 5% of such shares or securities or both (all
taken at current value).
(7) Underwrite securities issued by other persons, except
insofar as the Portfolio may technically be deemed to be an underwriter
under the Securities Act of 1933 in selling or disposing of a portfolio
security.
(8) Make loans to other persons, except by (a) the
acquisition of money market instruments, debt securities and other
obligations in which the Portfolio is authorized to invest in accordance
with its investment objective and policies, (b) entering into repurchase
agreements and (c) lending portfolio securities.
(9) Purchase the securities of any one issuer (other than
obligations issued or guaranteed by the U.S. Government or any of its
agencies or instrumentalities) if, with respect to 75% of its total assets
and as a result of such purchase (a) more than 5% of the total assets of
the Portfolio (taken at current value) would be invested in the securities
of such issuer, or (b) the Portfolio would hold more than 10% of the
outstanding voting securities of that issuer.
(10) Purchase any security if, as a result of such purchase,
25% or more of the total assets of the Portfolio (taken at current value)
would be invested in the securities of issuers having their principal
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business activities in the same industry (the electric, gas and telephone
utility industries being treated as separate industries for the purpose of
this restriction); provided, that there is no limitation with respect to
obligations issued or guaranteed by the U.S. Government or any of its
agencies or instrumentalities.
(11) Invest for the purpose of gaining control of a company's
management.
(12) Purchase or sell real estate, although the Portfolio may
purchase and sell securities which are secured by interests in real
estate, securities of issuers which invest or deal in real estate and real
estate that is acquired as the result of the ownership of securities.
(13) Purchase or sell physical commodities (other than
currency) or contracts for the purchase or sale of physical commodities
(other than currency).
(14) Buy investment securities from or sell them to any of its
officers or Trustees or the investment adviser, as principal; provided,
however, that any such person or firm may be employed as a broker upon
customary terms.
(15) Purchase oil, gas or other mineral leases or purchase
partnership interests in oil, gas or other mineral exploration or
development programs.
For the purpose of investment restrictions (1), (2) and (3), the
arrangements (including escrow, margin and collateral arrangements) made
by the Portfolio with respect to transactions in all types of options,
futures contracts, options on futures contracts, forward contracts,
currencies, and commodities and options thereon shall not be considered to
be (i) a borrowing of money or the issuance of securities (including
senior securities) by the Portfolio, (ii) a pledge of its assets or (iii)
the purchase of a security on margin.
In order to permit the sale in certain states of shares of
certain open-end investment companies which are investors in the
Portfolio, the Portfolio may make commitments more restrictive than the
fundamental policies described above. Should the Portfolio determine that
any such commitment is no longer in the best interests of the Portfolio
and its investors, it will revoke such commitment.
The Portfolio has adopted the following investment policies which
may be changed without investor approval. The Portfolio may not invest
more than 15% of its net assets in investments which are not readily
marketable, including restricted securities and repurchase agreements with
a maturity longer than seven days. Restricted securities for the purposes
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of this limitation do not include securities eligible for resale pursuant
to Rule 144A under the Securities Act of 1933 and commercial paper issued
pursuant to Section 4(2) of said Act that the Board of Trustees of the
Portfolio, or its delegate, determines to be liquid . The Portfolio does
not intend to invest in Rule 144A securities or make short sales of
securities during the coming year. Except for obligations issued or
guaranteed by the U.S. Government or any of its agencies or
instrumentalities, the Portfolio will not knowingly purchase a security
issued by a company (including predecessors) with less than three years
operating history (unless such security is rated at least B or a
comparable rating at the time of purchase by at least one nationally
recognized statistical rating organization) if, as a result of such
purchase, more than 5% of the Portfolio's total assets (taken at current
value) would be invested in such securities. The Portfolio will not
purchase warrants if, as a result of such purchase, more than 5% of the
Portfolio's net assets (taken at current value) would be invested in
warrants, and the value of such warrants which are not listed on the New
York or American Stock Exchange may not exceed 2% of the Portfolio's net
assets; this policy does not apply to or restrict warrants acquired by the
Portfolio in units or attached to securities, inasmuch as such warrants
are deemed to be without value. The Portfolio will not purchase any
securities if at the time of such purchase, permitted borrowings under
investment restriction (1) above exceed 5% of the value of the Portfolio's
total assets.
Item 14. Management of the Portfolio
The Portfolio's Trustees and officers are listed below. Except
as indicated, each individual has held the office shown or other offices
in the same company for the last five years. The business address of the
Advisers is 3808 One Exchange Square, Central, Hong Kong. Those Trustees
who are "interested persons" of the Portfolio, the Advisers, Eaton Vance
Management ("Eaton Vance"), Boston Management and Research ("BMR"), Eaton
Vance Corp. ("EVC") or Eaton Vance, Inc. ("EV") as defined in the
Investment Company Act of 1940 (the "1940 Act") by virtue of their
affiliation with any one or more of the Portfolio, the Advisers, Eaton
Vance, BMR, EVC or EV, are indicated by an asterisk (*).
TRUSTEES OF THE PORTFOLIO
HON. ROBERT LLOYD GEORGE (42), President and Trustee.*
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Chairman and Chief Executive of Lloyd George Management (B.V.I.) Limited.
Chairman and Chief Executive Officer of the Advisers. Managing Director
of Indosuez Asia Investment Services, Ltd. from 1984 to 1991.
Address: 3808 One Exchange Square, Central, Hong Kong.
JAMES B. HAWKES (54), Vice President and Trustee.*
Executive Vice President of Eaton Vance, BMR, EVC and EV, and a Director
of EVC and EV. Director of Lloyd George Management (B.V.I.) Limited.
Director or Trustee and officer of various investment companies managed by
Eaton Vance or BMR.
Address: Eaton Vance Management, 24 Federal Street, Boston, Massachusetts
02110.
SAMUEL L. HAYES, III (60), Trustee.
Jacob H. Schiff Professor of Investment Banking, Harvard University
Graduate School of Business Administration. Director or Trustee of
various investment companies managed by Eaton Vance or BMR.
Address: Harvard University Graduate School of Business Administration,
Soldiers Field Road, Boston, Massachusetts 02134.
STUART HAMILTON LECKIE (49), Trustee.
Chairman--Asia Pacific Fidelity Investments Management (HK) Ltd.
Address: Citibank Tower, 3 Garden Road, Hong Kong.
HON. EDWARD K.Y. CHEN (50), Trustee.
President of Lingnan College in Hong Kong. Professor and Director of the
Centre of Asian Studies at the University of Hong Kong from 1979-1995.
Director of First Pacific Company and a Board Member of the Mass Transit
Railway Corporation. Member of the Executive Council of the Hong Kong
Government since 1992 and Chairman of the Consumer Council since 1991.
Address: President's Office, Lingnan College, Tuen Mun, Hong Kong.
OFFICERS OF THE PORTFOLIO
SCOBIE DICKINSON WARD (29), Vice President, Assistant Secretary and
Assistant Treasurer.
Director of Lloyd George Management (B.V.I.) Limited. Director of the
Advisers. Investment Manager of Indosuez Asia Investment Services, Ltd.
from 1990 to 1991.
Address: 3808 One Exchange Square, Central, Hong Kong.
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WILLIAM WALTER RALEIGH KERR (44), Vice President, Secretary and Assistant
Treasurer.
Director, Finance Director and Chief Operating Officer of the Advisers.
Director of Lloyd George Management (B.V.I.) Limited.
Address: 3808 One Exchange Square, Central, Hong Kong.
JAMES L. O'CONNOR (50), Vice President and Treasurer.
Vice President of Eaton Vance, BMR and EV. Officer of various investment
companies managed by Eaton Vance or BMR.
Address: Eaton Vance Management, 24 Federal Street, Boston, Massachusetts
02110.
THOMAS OTIS (63), Vice President and Assistant Secretary.
Vice President and Secretary of Eaton Vance, BMR, EVC and EV. Officer of
various investment companies managed by Eaton Vance or BMR.
Address: Eaton Vance Management, 24 Federal Street, Boston, Massachusetts
02110.
JANET E. SANDERS (60), Assistant Secretary.
Vice President of Eaton Vance, BMR and EV. Officer of various investment
companies managed by Eaton Vance or BMR.
Address: Eaton Vance Management, 24 Federal Street, Boston, Massachusetts
02110.
WILLIAM J. AUSTIN, JR. (44), Assistant Treasurer.
Assistant Vice President of BMR, Eaton Vance and EV. Officer of various
investment companies managed by Eaton Vance or BMR.
Address: Eaton Vance Management, 24 Federal Street, Boston, Massachusetts
02110
A. JOHN MURPHY (33), Assistant Secretary.
Assistant Vice President of BMR, Eaton Vance and EV since March 1, 1994;
employee of Eaton Vance since March 1993. State Regulations Supervisor,
The Boston Company (1991-1993) and Registration Specialist, Fidelity
Management & Research Co. (1986-1991). Officer of various investment
companies managed by Eaton Vance or BMR. Mr. Murphy was elected Assistant
Secretary of the Portfolio on March 27, 1995.
Address: Eaton Vance Management, 24 Federal Street, Boston, Massachusetts
02110
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<PAGE>
ERIC G. WOODBURY (38), Assistant Secretary.
Vice President of BMR, Eaton Vance and EV since February 1993; formerly,
associate attorney at Dechert, Price & Rhoads and Gaston & Snow. Officer
of various investment companies managed by Eaton Vance or BMR. Mr.
Woodbury was elected Assistant Secretary of the Portfolio on June 19,
1995.
Address: Eaton Vance Management, 24 Federal Street, Boston, Massachusetts
02110
The fees and expenses of those Trustees of the Portfolio who are
not members of the Eaton Vance organization (the noninterested Trustees)
are paid by the Portfolio. (The Trustees of the Portfolio who are members
of the Eaton Vance organization receive no compensation from the
Portfolio). During the fiscal year ended August 31, 1995, the
noninterested Trustees of the Portfolio earned the following compensation
in their capacities as Trustees of the Portfolio and, during the year
ended September 30, 1995, earned the following compensation in their
capacities as Trustees of the funds in the Eaton Vance fund complex(1):
Aggregate
Compensation Total Compensation
Name from Portfolio from Fund Complex
---- -------------- -----------------
Hon. Edward
K.Y. Chen $15,000 $15,000
Samuel L.
Hayes, III 5,000 150,000(2)
Stuart Hamilton
Leckie 15,000 15,000
(1) The Eaton Vance fund complex consists of 211 registered
investment companies or series thereof.
(2) Includes $33,750 of deferred compensation.
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<PAGE>
Trustees of the Portfolio (except Messrs. Chen and Leckie) who
are not affiliated with BMR may elect to defer receipt of all or a
percentage of their annual fees in accordance with the terms of a Trustees
Deferred Compensation Plan (the "Plan"). Under the Plan, an eligible
Trustee may elect to have his deferred fees invested by the Portfolio in
the shares of one or more funds in the Eaton Vance Family of Funds, and
the amount paid to the Trustees under the Plan will be determined based
upon the performance of such investments. Deferral of Trustees' fees in
accordance with the Plan will have a negligible effect on the Portfolio's
assets, liabilities, and net income per share, and will not obligate the
Portfolio to retain the services of any Trustee or obligate the Portfolio
to pay any particular level of compensation to the Trustee. The Portfolio
is not a participant in the Plan.
The Advisers are subsidiaries of Lloyd George Management (B.V.I.)
Limited ("LGM"), which is ultimately controlled by the Hon. Robert J.D.
Lloyd George, President and Trustee of the Portfolio and Chairman and
Chief Executive Officer of the Advisers. Mr. Hawkes is a Trustee and
officer of the Portfolio and Mr. Hayes is a Trustee of the Portfolio.
While the Portfolio is a New York trust, the Advisers, together
with Messrs. Lloyd George, Leckie, Chen, Ward and Kerr, are not residents
of the United States, and substantially all of their respective assets may
be located outside of the United States. It may be difficult for
investors to effect service of process within the United States upon the
individuals identified above, or to realize judgments of courts of the
United States predicated upon civil liabilities of the Advisers and such
individuals under the federal securities laws of the United States. The
Portfolio has been advised that there is substantial doubt as to the
enforceability in the countries in which the Advisers and such individuals
reside of such civil remedies and criminal penalties as are afforded by
the federal securities laws of the United States.
The Portfolio's Declaration of Trust provides that it will
indemnify its Trustees and officers against liabilities and expenses
incurred in connection with litigation in which they may be involved
because of their offices with the Portfolio, unless, as to liability to
the Portfolio or its investors, it is finally adjudicated that they
engaged in wilful misfeasance, bad faith, gross negligence or reckless
disregard of the duties involved in their offices, or unless with respect
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<PAGE>
to any other matter it is finally adjudicated that they did not act in
good faith in the reasonable belief that their actions were in the best
interests of the Portfolio. In the case of settlement, such
indemnification will not be provided unless it has been determined by a
court or other body approving the settlement or other disposition, or by a
reasonable determination, based upon a review of readily available facts,
by vote of a majority of disinterested Trustees or in a written opinion of
independent counsel, that such officers or Trustees have not engaged in
wilful misfeasance, bad faith, gross negligence or reckless disregard of
their duties.
Item 15. Control Persons and Principal Holder of Securities
As of December 12, 1995, EV Marathon Greater China Growth Fund
and EV Traditional Greater China Growth Fund (the "Funds"), both series of
Eaton Vance Growth Trust, were the controlling investors in the Portfolio
by virtue of owning the following percentages of the outstanding interests
in the Portfolio:
Investor Percentage
EV Marathon Greater China Growth Fund 55.5%
EV Traditional Greater China Growth Fund 40.8%
Each Fund has informed the Portfolio that whenever it is
requested to vote on matters pertaining to the fundamental policies of the
Portfolio, it will hold a meeting of shareholders and will cast its vote
as instructed by its shareholders. It is anticipated that any other
investor in the Portfolio which is an investment company registered under
the 1940 Act would follow the same or a similar practice.
Item 16. Investment Advisory and Other Services
Adviser. The Portfolio engages Lloyd George Management (Hong
Kong) Limited ("LGM-HK") as its investment adviser. Pursuant to a service
agreement effective on January 1, 1996 between LGM-HK and its affiliate,
Lloyd George Investment Management (Bermuda) Limited ("LGIM-B"), LGIM-B,
acting under the general supervision of the Portfolio's Board of Trustees,
is responsible for managing the Portfolio's investments. LGM-HK
supervises LGIM-B's performance of this function and retains its
contractual obligations under its investment advisory agreement with the
Portfolio. LGIM-B is responsible for effecting all security transactions
on behalf of the Portfolio, including the allocation of principal
transactions and portfolio brokerage and the negotiation of commissions.
See Item 17. Under the investment advisory agreement, LGM-HK is entitled
to receive a monthly advisory fee computed by applying the annual asset
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rate applicable to that portion of the average daily net assets of the
Portfolio throughout the month in each Category as indicated below:
Annual
Category Average Daily Net Assets Asset Rate
1 less than $500 million . . . . . . . . . . . . . 0.75%
2 $500 million but less than $1 billion . . . . . . 0.70
3 $1 billion but less than $1.5 billion . . . . . . 0.65
4 $1.5 billion but less than $2 billion . . . . . . 0.60
5 $2 billion but less than $3 billion . . . . . . . 0.55
6 $3 billion and over . . . . . . . . . . . . . . . 0.50
Effective January 1, 1996, LGM-HK will pay to LGIM-B the entire
amount of the advisory fee payable by the Portfolio under its investment
advisory agreement with LGM-HK.
As of August 31, 1995, the Portfolio had net assets of
$590,417,058. For the fiscal year ended August 31, 1995, LGM-HK earned
advisory fees of $4,763,655 (equivalent to 0.74% of the Portfolio's
average daily net assets for such year). For the fiscal year ended August
31, 1994, LGM-HK earned advisory fees of $4,100,334 (equivalent to 0.74%
of the Portfolio's average daily net assets for such year). For the
period from the start of business, October 28, 1992, to the fiscal year
ended August 31, 1993, LGM-HK earned advisory fees of $411,209 (equivalent
to 0.75% (annualized) of the Portfolio's average daily net assets for such
period).
The directors of LGM-HK are the Honorable Robert Lloyd George,
William Walter Raleigh Kerr, M.F. Tang and Scobie Dickinson Ward. The
Hon. Robert J.D. Lloyd George is Chairman and Chief Executive Officer of
each Adviser and Mr. Kerr is an officer of each Adviser. The directors of
LGIM-B are the Honorable Robert Lloyd George, William Walter Raleigh Kerr,
Scobie Dickinson Ward, M.F. Tang, Peter Bubenzer and Judith Collis. The
business address of these individuals is 3808 One Exchange Square,
Central, Hong Kong.
The Portfolio's investment advisory agreement with LGM-HK remains
in effect until February 28, 1996; it may be continued from year to year
after February 28, 1996 so long as such continuance is approved at least
annually (i) by the vote of a majority of the Trustees of the Portfolio
who are not interested persons of the Portfolio cast in person at a
meeting specifically called for the purpose of voting on such approval and
(ii) by the Board of Trustees of the Portfolio or by vote of a majority of
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<PAGE>
the outstanding voting securities of the Portfolio. The agreement may be
terminated at any time without penalty on sixty (60) days' written notice
by the Board of Trustees of either party or by vote of the majority of the
outstanding voting securities of the Portfolio, and the agreement will
terminate automatically in the event of its assignment. The agreement
provides that LGM-HK may render services to others. The agreement also
provides that, in the absence of willful misfeasance, bad faith, gross
negligence or reckless disregard of obligations or duties under the
agreement on the part of LGM-HK, LGM-HK shall not be liable to the
Portfolio or to any investor for any act or omission in the course of or
connected with rendering services or for any losses sustained in the
purchase, holding or sale of any security.
Administrator. See Part A for a description of the services
Eaton Vance performs as the administrator of the Portfolio. Under Eaton
Vance's administration agreement with the Portfolio, Eaton Vance receives
a monthly administration fee from the Portfolio. The fee is computed by
applying the annual asset rate applicable to that portion of the average
daily net assets of the Portfolio throughout the month in each Category as
indicated below:
Annual
Category Average Daily Net Assets Asset Rate
1 less than $500 million . . . . . . . . . . . . 0.25%
2 $500 million but less than $1 billion . . . . 0.23333
3 $1 billion but less than $1.5 billion . . . . 0.21667
4 $1.5 billion but less than $2 billion . . . . 0.20
5 $2 billion but less than $3 billion . . . . . 0.18333
6 $3 billion and over . . . . . . . . . . . . . 0.16667
As of August 31, 1995, the Portfolio had net assets of
$590,417,058. For the fiscal year ended August 31, 1995, Eaton Vance
earned administration fees of $1,571,184 (equivalent to 0.24% of the
Portfolio's average daily net assets for such year). For the fiscal year
ended August 31, 1994, Eaton Vance earned administration fees of
$1,383,471 (equivalent to 0.25% of the Portfolio's average daily net
assets for such year). For the period from the start of business, October
28, 1992, to the fiscal year ended August 31, 1993, Eaton Vance earned
administration fees of $137,070 (equivalent to 0.25% (annualized) of the
Portfolio's average daily net assets for such period).
Eaton Vance's administration agreement with the Portfolio remains
in effect until February 28, 1996; it may be continued from year to year
after February 28, 1996 so long as such continuance is approved annually
by the vote of a majority of the Trustees of the Portfolio. The agreement
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<PAGE>
may be terminated at any time without penalty on sixty (60) days' written
notice by the Board of Trustees of either party thereto, or by a vote of a
majority of the outstanding voting securities of the Portfolio. The
agreement will terminate automatically in the event of its assignment.
The agreement provides that, in the absence of Eaton Vance's willful
misfeasance, bad faith, gross negligence or reckless disregard of its
obligations or duties to the Portfolio under such contract or agreement,
Eaton Vance will not be liable to the Portfolio for any loss incurred.
The agreement was initially approved by the Trustees, including the
non-interested Trustees, of the Portfolio at a meeting held on October 8,
1992.
The Portfolio will be responsible for all of its costs and
expenses not expressly stated to be payable by Eaton Vance under the
administration agreement. Such costs and expenses to be borne by the
Portfolio include, without limitation, custody and transfer agency fees
and expenses, including those incurred for determining net asset value and
keeping accounting books and records, expenses of pricing and valuation
services; the cost of certificates evidencing ownership of interests in
the Portfolio; membership dues in investment company organizations;
brokerage commissions and fees; fees and expenses of registering under the
securities laws; expenses of reports to investors; proxy statements and
other expenses of investors' meetings; insurance premiums, printing and
mailing expenses; interest, taxes and corporate fees; legal and accounting
expenses; compensation and expenses of Trustees not affiliated with the
Advisers or Eaton Vance; and investment advisory fees. The Portfolio will
also bear expenses incurred in connection with litigation in which the
Portfolio is a party and any legal obligation to indemnify its officers
and Trustees with respect thereto.
Eaton Vance and EV are both wholly-owned subsidiaries of EVC.
BMR is a wholly-owned subsidiary of Eaton Vance. Eaton Vance and BMR are
both Massachusetts business trusts, and EV is the trustee of Eaton Vance
and BMR. The Directors of EV are Landon T. Clay, H. Day Brigham, Jr., M.
Dozier Gardner, James B. Hawkes and Benjamin A. Rowland, Jr. The
Directors of EVC consist of the same persons and John G.L. Cabot and Ralph
Z. Sorenson. Mr. Clay is chairman and Mr. Gardner is president and chief
executive officer of EVC, Eaton Vance, BMR and EV. All of the issued and
outstanding shares of Eaton Vance and of EV are owned by EVC. All of the
issued and outstanding shares of BMR are owned by Eaton Vance. All shares
of the outstanding Voting Common Stock of EVC are deposited in a Voting
Trust which expires December 31, 1996, the Voting Trustees of which are
Messrs. Brigham, Clay, Gardner, Hawkes and Rowland. The Voting Trustees
have unrestricted voting rights for the election of Directors of EVC. All
of the outstanding voting trust receipts issued under said Voting Trust
are owned by certain of the officers of Eaton Vance and BMR who are also
officers and Directors of EVC and EV. As of November 30, 1995, Messrs.
Clay, Gardner and Hawkes each owned 24% of such voting trust receipts and
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<PAGE>
Messrs. Rowland and Brigham owned 15% and 13%, respectively, of such
voting trust receipts. Messrs. Hawkes and Otis are officers or Trustees
of the Portfolio and are members of the EVC, Eaton Vance, BMR and EV
organizations. Messrs. Austin, Murphy, O'Connor and Woodbury and Ms.
Sanders are officers of the Portfolio and are members of the Eaton Vance,
BMR and EV organizations. Eaton Vance will receive the fees from, and its
wholly-owned subsidiary, Eaton Vance Distributors, Inc., will receive
compensation for the sale of shares of, one or more investors in the
Portfolio.
EVC and its affiliates and their officers and employees from time
to time have transactions with various banks, including the custodian of
the Portfolio, Investors Bank & Trust Company. It is Eaton Vance's
opinion that the terms and conditions of such transactions were not and
will not be influenced by existing or potential custodial or other
relationships between the Portfolio and such banks.
Eaton Vance owns all of the stock of Energex Energy Corporation,
which is engaged in oil and gas operations. In addition, Eaton Vance owns
all of the stock of Northeast Properties, Inc., which is engaged in real
estate investment, consulting and management. EVC owns all of the stock
of Fulcrum Management, Inc. and MinVen, Inc., which are engaged in the
development of precious metal properties. EVC also owns 24% of the Class
A shares issued by the parent of each Adviser. EVC, Eaton Vance, BMR and
EV may also enter into other businesses.
Custodian. Investors Bank & Trust Company ("IBT"), 89 South
Street, Boston, Massachusetts, acts as custodian for the Portfolio. IBT
has the custody of all cash and securities of the Portfolio purchased in
the United States, maintains the Portfolio's general ledger and computes
the daily net asset value of interests in the Portfolio. In such
capacities IBT attends to details in connection with the sale, exchange,
substitution, transfer or other dealings with the Portfolio's investments,
receives and disburses all funds, and performs various other ministerial
duties upon receipt of proper instructions from the Portfolio.
Portfolio securities, if any, purchased by the Portfolio in the
U.S. are maintained in the custody of IBT or of other domestic banks or
depositories. Portfolio securities purchased outside of the U.S. are
maintained in the custody of foreign banks and trust companies that are
members of IBT's Global Custody Network, or foreign depositories used by
such foreign banks and trust companies. Each of the domestic and foreign
custodial institutions holding portfolio securities has been approved by
the Board of Trustees of the Portfolio in accordance with regulations
under the 1940 Act.
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<PAGE>
IBT charges fees which are competitive within the industry.
These fees for the Portfolio relate to: (1) custody services based upon a
percentage of the market values of Portfolio securities; (2) bookkeeping
and valuation services provided at an annual rate; (3) activity charges,
primarily the result of the number of portfolio transactions; and (4)
reimbursement of out-of-pocket expenses. These fees are then reduced by a
credit for cash balances of the Portfolio at the custodian equal to 75% of
the 91-day U.S. Treasury Bill auction rate applied to the Portfolio's
average daily collected balances. Landon T. Clay, a Director of EVC and
an officer, Trustee or Director of other entities in the Eaton Vance
organization, owns approximately 13% of the voting stock of Investors
Financial Services Corp., the holding company parent of IBT. Management
believes that such ownership does not create an affiliated person
relationship between the Portfolio and IBT under the 1940 Act. For the
fiscal year ended August 31, 1995, the Portfolio paid IBT $661,381 for its
services as custodian.
Independent Certified Public Accountants. Deloitte & Touche LLP,
125 Summer Street, Boston, Massachusetts, are the independent certified
public accountants of the Portfolio, providing audit services, tax return
preparation, and assistance and consultation with respect to the
preparation of filings with the Commission.
Item 17. Brokerage Allocation and Other Practices
Decisions concerning the execution of portfolio security
transactions, including the selection of the market and the broker-dealer
firm, are made by the Adviser.
The Adviser places the portfolio security transactions of the
Portfolio and of certain other accounts managed by the Adviser for
execution with many firms. The Adviser uses its best efforts to obtain
execution of portfolio transactions at prices which are advantageous to
the Portfolio and (when a disclosed commission is being charged) at
reasonably competitive commission rates. In seeking such execution, the
Adviser will use its best judgment in evaluating the terms of a
transaction, and will give consideration to various relevant factors
including, without limitation, the size and type of the transaction, the
general execution and operational capabilities of the broker-dealer, the
nature and character of the market for the security, the confidentiality,
speed and certainty of effective execution required for the transaction,
the reputation, reliability, experience and financial condition of the
broker-dealer, the value and quality of the services rendered by the
broker-dealer in other transactions, and the reasonableness of the
commission, if any. Transactions on stock exchanges and other agency
transactions involve the payment by the Portfolio of negotiated brokerage
commissions. Such commissions vary among different broker-dealer firms,
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<PAGE>
and a particular broker-dealer may charge different commissions according
to such factors as the difficulty and size of the transaction and the
volume of business done with such broker-dealer. Transactions in foreign
securities usually involve the payment of fixed brokerage commissions,
which are generally higher than those in the United States. There is
generally no stated commission in the case of securities traded in the
over-the-counter markets, but the price paid or received by the Portfolio
usually includes an undisclosed dealer markup or markdown. In an
underwritten offering the price paid by the Portfolio includes a disclosed
fixed commission or discount retained by the underwriter or dealer.
Although commissions paid on portfolio transactions will, in the judgment
of the Adviser, be reasonable in relation to the value of the services
provided, commissions exceeding those which another firm might charge may
be paid to broker-dealers who were selected to execute transactions on
behalf of the Portfolio and the Adviser's other clients in part for
providing brokerage and research services to the Adviser.
As authorized in Section 28(e) of the Securities Exchange Act of
1934, a broker or dealer who executes a portfolio transaction on behalf of
the Portfolio may receive a commission which is in excess of the amount of
commission another broker or dealer would have charged for effecting that
transaction if the Adviser determines in good faith that such commission
was reasonable in relation to the value of the brokerage and research
services provided. This determination may be made on the basis of either
that particular transaction or on the basis of the overall
responsibilities which the Adviser and its affiliates have for accounts
over which they exercise investment discretion. In making any such
determination, the Adviser will not attempt to place a specific dollar
value on the brokerage and research services provided or to determine what
portion of the commission should be related to such services. Brokerage
and research services may include advice as to the value of securities,
the advisability of investing in, purchasing, or selling securities, and
the availability of securities or purchasers or sellers of securities;
furnishing analyses and reports concerning issuers, industries,
securities, economic factors and trends, portfolio strategy and the
performance of accounts; and effecting securities transactions and
performing functions incidental thereto (such as clearance and
settlement); and the "Research Services" referred to in the next
paragraph.
It is a common practice in the investment advisory industry for
the advisers of investment companies, institutions and other investors to
receive research, statistical and quotation services, data, information
and other services, products and materials which assist such advisers in
the performance of their investment responsibilities ("Research Services")
from broker-dealers which execute portfolio transactions for the clients
of such advisers and from third parties with which such broker-dealers
have arrangements. Consistent with this practice, the Adviser may receive
Research Services from broker-dealer firms with which the Adviser places
the portfolio transactions of the Portfolio and from third parties with
B-27
<PAGE>
which these broker-dealers have arrangements. These Research Services may
include such matters as general economic and market reviews, industry and
company reviews, evaluations of securities and portfolio strategies and
transactions and recommendations as to the purchase and sale of securities
and other portfolio transactions, financial, industry and trade
publications, news and information services, pricing and quotation
equipment and services, and research oriented computer hardware, software,
data bases and services. Any particular Research Service obtained through
a broker-dealer may be used by the Adviser in connection with client
accounts other than those accounts which pay commissions to such
broker-dealer. Any such Research Service may be broadly useful and of
value to the Adviser in rendering investment advisory services to all or a
significant portion of its clients, or may be relevant and useful for the
management of only one client's account or of a few clients' accounts, or
may be useful for the management of merely a segment of certain clients'
accounts, regardless of whether any such account or accounts paid
commissions to the broker-dealer through which such Research Service was
obtained. The advisory fee paid by the Portfolio is not reduced because
the Adviser receives such Research Services. The Adviser evaluates the
nature and quality of the various Research Services obtained through
broker-dealer firms and attempts to allocate sufficient commissions to
such firms to ensure the continued receipt of Research Services which the
Adviser believes are useful or of value to it in rendering investment
advisory services to its clients.
Subject to the requirement that the Adviser shall use its best
efforts to seek to execute portfolio security transactions of the
Portfolio at advantageous prices and at reasonably competitive commission
rates or spreads, the Adviser is authorized to consider as a factor in the
selection of any broker-dealer firm with whom portfolio orders may be
placed the fact that such firm has sold or is selling shares of any
investment company sponsored by Eaton Vance. This policy is not
inconsistent with a rule of the National Association of Securities
Dealers, Inc., which rule provides that no firm which is a member of the
Association shall favor or disfavor the distribution of shares of any
particular investment company or group of investment companies on the
basis of brokerage commissions received or expected by such firm from any
source.
Securities considered as investments for the Portfolio may also
be appropriate for other investment accounts managed by the Adviser or its
affiliates. The Adviser will attempt to allocate equitably portfolio
transactions among the Portfolio and the portfolios of its other
investment accounts whenever decisions are made to purchase or sell
securities by the Portfolio and one or more of such other accounts
simultaneously. In making such allocations, the main factors to be
considered are the respective investment objectives of the Portfolio and
such other accounts, the relative size of portfolio holdings of the same
or comparable securities, the availability of cash for investment by the
Portfolio and such accounts, the size of investment commitments generally
held by the Portfolio and such accounts and the opinions of the persons
B-28
<PAGE>
responsible for recommending investments to the Portfolio and such
accounts. While this procedure could have a detrimental effect on the
price or amount of the securities available to the Portfolio from time to
time, it is the opinion of the Trustees of the Portfolio that the benefits
available from the Adviser's organization outweigh any disadvantage that
may arise from exposure to simultaneous transactions.
For the fiscal year ended August 31, 1995, the Portfolio paid
brokerage commissions of $2,608,520 with respect to portfolio
transactions. Of this amount, approximately $2,341,272 was paid in
respect of portfolio security transactions aggregating approximately
$387,659,617 to firms that provided some Research Services to the
Adviser's organization. For the fiscal year ended August 31, 1994, the
Portfolio paid brokerage commissions of $4,177,780 with respect to
portfolio transactions. All of this amount was paid in respect of
portfolio security transactions aggregating approximately $814,062,509 to
firms that provided some Research Services to the Adviser's organization.
For the period from the start of business, October 28, 1992, to the fiscal
year ended August 31, 1993, the Portfolio paid brokerage commissions of
$1,224,597 with respect to portfolio transactions. Of this amount,
approximately $1,218,619 was paid in respect of portfolio security
transactions aggregating approximately $180,689,369 to firms that provided
some Research Services to the Adviser's organization. Many of such firms
may have been selected in any particular transaction primarily because of
their execution capabilities.
Item 18. Capital Stock and Other Securities
Under the Portfolio's Declaration of Trust, the Trustees are
authorized to issue interests in the Portfolio. Investors are entitled to
participate pro rata in distributions of taxable income, loss, gain and
credit of the Portfolio. Upon dissolution of the Portfolio, investors are
entitled to share pro rata in the Portfolio's net assets available for
distribution to its investors. Investments in the Portfolio have no
preference, preemptive, conversion or similar rights and are fully paid
and nonassessable, except as set forth below. Investments in the
Portfolio may not be transferred. Certificates representing an investor's
interest in the Portfolio are issued only upon the written request of an
investor.
Each investor is entitled to vote in proportion to the amount of
its investment in the Portfolio. Investors in the Portfolio do not have
cumulative voting rights, and investors holding more than 50% of the
aggregate interest in the Portfolio may elect all of the Trustees if they
choose to do so and in such event the other investors in the Portfolio
would not be able to elect any Trustee. The Portfolio is not required and
has no current intention to hold annual meetings of investors but the
Portfolio will hold special meetings of investors when in the judgment of
the Portfolio's Trustees it is necessary or desirable to submit matters
for an investor vote. No material amendment may be made to the
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<PAGE>
Portfolio's Declaration of Trust without the affirmative majority vote of
investors (with the vote of each being in proportion to the amount of its
investment).
The Portfolio may enter into a merger or consolidation, or sell
all or substantially all of its assets, if approved by the vote of
two-thirds of its investors (with the vote of each being in proportion to
its percentage of the interests in the Portfolio), except that if the
Trustees recommend such sale of assets, the approval by vote of a majority
of the investors (with the vote of each being in proportion to its
percentage of the interests of the Portfolio) will be sufficient. The
Portfolio may also be terminated (i) upon liquidation and distribution of
its assets if approved by the vote of two-thirds of its investors (with
the vote of each being in proportion to the amount of its investment) or
(ii) by the Trustees by written notice to its investors.
In accordance with the Declaration of Trust, there normally will
be no meetings of the investors for the purpose of electing Trustees
unless and until such time as less than a majority of the Trustees holding
office have been elected by investors. In such an event, the Trustees of
the Portfolio then in office will call an investors' meeting for the
election of Trustees. Except for the foregoing circumstances, and unless
removed by action of the investors in accordance with the Portfolio's
Declaration of Trust, the Trustees shall continue to hold office and may
appoint successor Trustees.
The Declaration of Trust provides that no person shall serve as a
Trustee if investors holding two-thirds of the outstanding interests have
removed him from that office either by a written declaration or by votes
cast at a meeting called for that purpose. The Declaration of Trust
further provides that under certain circumstances, the investors may call
a meeting to remove a Trustee and that the Portfolio is required to
provide assistance in communicating with investors about such a meeting.
The Portfolio is organized as a trust under the laws of the State
of New York. Investors in the Portfolio will be held personally liable
for its obligations and liabilities, subject, however, to indemnification
by the Portfolio in the event that there is imposed upon an investor a
greater portion of the liabilities and obligations of the Portfolio than
its proportionate interest in the Portfolio. The Portfolio intends to
maintain fidelity and errors and omissions insurance deemed adequate by
the Trustees. Thus, the risk of an investor incurring financial loss on
account of investor liability is limited to circumstances in which both
inadequate insurance exists and the Portfolio itself is unable to meet its
obligations.
B-30
<PAGE>
The Declaration of Trust further provides that obligations of the
Portfolio are not binding upon the Trustees individually but only upon the
property of the Portfolio and that the Trustees will not be liable for any
action or failure to act, but nothing in the Declaration of Trust protects
a Trustee against any liability to which he would otherwise be subject by
reason of wilful misfeasance, bad faith, gross negligence, or reckless
disregard of the duties involved in the conduct of his office.
Item 19. Purchase, Redemption and Pricing of Securities
Interests in the Portfolio are issued solely in private placement
transactions that do not involve any "public offering" within the meaning
of Section 4(2) of the 1933 Act. See "Purchase of Interests in the
Portfolio" and "Redemption or Decrease of Interest" in Part A.
The Trustees of the Portfolio have established the following
procedures for the fair valuation of the Portfolio's assets under normal
market conditions. Marketable securities listed on foreign or U.S.
securities exchanges or in the NASDAQ National Market System generally are
valued at closing sale prices or, if there were no sales, at the mean
between the closing bid and asked prices therefor on the exchange where
such securities are principally traded or on such National Market System
(such prices may not be used, however, where an active over-the-counter
market in an exchange listed security better reflects current market
value). Unlisted or listed securities for which closing sale prices are
not available are valued at the mean between the latest bid and asked
prices. An option is valued at the last sale price as quoted on the
principal exchange or board of trade on which such option or contract is
traded, or in the absence of a sale, at the mean between the last bid and
asked price. Futures positions on securities or currencies are generally
valued at closing settlement prices. All other securities are valued at
fair value as determined in good faith by or pursuant to procedures
established by the Trustees.
Short term debt securities with a remaining maturity of 60 days
or less are valued at amortized cost. If securities were acquired with a
remaining maturity of more than 60 days, their amortized cost value will
be based on their value on the sixty-first day prior to maturity. Other
fixed income and debt securities, including listed securities and
securities for which price quotations are available, will normally be
valued on the basis of valuations furnished by a pricing service.
Generally, trading in the foreign securities owned by the
Portfolio is substantially completed each day at various times prior to
the close of the Exchange. The values of these securities used in
determining the net asset value of the Portfolio's interests are computed
as of such times. Occasionally, events affecting the value of foreign
securities may occur between such times and the close of the Exchange
which will not be reflected in the computation of the Portfolio's net
B-31
<PAGE>
asset value (unless the Portfolio deems that such events would materially
affect its net asset value, in which case an adjustment would be made and
reflected in such computation). Foreign securities and currency held by
the Portfolio will be valued in U.S. dollars; such values will be computed
by the custodian based on foreign currency exchange rate quotations
supplied by Reuters Information Service.
Item 20. Tax Status
The Portfolio has been advised by tax counsel that, provided the
Portfolio is operated at all times during its existence in accordance with
certain organizational and operational documents, the Portfolio should be
classified as a partnership under the Code, and it should not be a
"publicly traded partnership" within the meaning of Section 7704 of the
Code. Consequently, the Portfolio does not expect that it will be
required to pay any federal income tax, and each investor in the Portfolio
will be required to take into account in determining its federal income
tax liability its share of the Portfolio's income, gains, losses,
deductions and tax preference items.
Under Subchapter K of the Code, a partnership is considered to be
either an aggregate of its members or a separate entity, depending upon
the factual and legal context in which the question arises. Under the
aggregate approach, each partner is treated as an owner of an undivided
interest in partnership assets and operations. Under the entity approach,
the partnership is treated as a separate entity in which partners have no
direct interest in partnership assets and operations. The Portfolio has
been advised by tax counsel that, in the case of an investor in the
Portfolio that seeks to qualify as a RIC under the Code, the aggregate
approach should apply, and each such investor should accordingly be deemed
to own a proportionate share of each of the assets of the Portfolio and to
be entitled to the gross income of the Portfolio attributable to that
share for purposes of all requirements of Sections 851(b) and 852(b)(5) of
the Code. Further, the Portfolio has been advised by tax counsel that
each investor in the Portfolio that seeks to qualify as a RIC should be
deemed to hold its proportionate share of the Portfolio's assets for the
period the Portfolio has held the assets or for the period the investor
has been a partner, for purposes of Subchapter K of the Code, in the
Portfolio, whichever is shorter. Investors should consult their tax
advisers regarding whether the entity or the aggregate approach applies to
their investment in the Portfolio in light of their particular tax status
and any special tax rules applicable to them.
In order to enable an investor in the Portfolio that is otherwise
eligible to qualify as a RIC, the Portfolio intends to satisfy the
requirements of Subchapter M of the Code relating to sources of income and
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<PAGE>
diversification of assets as if they were applicable to the Portfolio and
to distribute its net investment income and net realized capital gains in
a manner that will enable an investor that is a RIC to comply with those
requirements. The Portfolio will allocate at least annually among its
investors each investor's distributive share of the Portfolio's net
investment income, net realized capital gains, and any other items of
income, gain, loss, deduction or credit in accordance with the Code and
applicable Treasury regulations.
The Portfolio anticipates that it will be subject to foreign
taxes on its income (including, in some cases, capital gains) from foreign
securities. Tax conventions between certain countries and the U.S. may
reduce or eliminate such taxes.
Foreign exchange gains and losses realized by the Portfolio and
allocated to the investors in connection with the Portfolio's investments
in foreign securities and certain foreign currency options, futures or
forward contracts or foreign currency may be treated as ordinary income
and losses under special tax rules. Certain options, futures or forward
contracts of the Portfolio may be required to be marked to market (i.e.,
treated as if closed out) on the last day of each taxable year, and any
gain or loss realized with respect to these contracts may be required to
be treated as 60% long-term and 40% short-term gain or loss. Positions of
the Portfolio in foreign securities and offsetting options, futures or
forward contracts may be treated as "straddles" and be subject to other
special rules that may affect the amount, timing and character of the
Portfolio's income, gain or loss and its allocations among investors.
Certain uses of foreign currency and foreign currency derivatives such as
options, futures, forward contracts and swaps and investment by the
Portfolio in the stock of certain "passive foreign investment companies"
may be limited or a tax election may be made, if available, in order to
enable an investor that is a RIC to preserve its qualification as a RIC or
to avoid imposition of a tax on such an investor.
The foregoing discussion does not address the special tax rules
applicable to certain classes of investors, such as tax-exempt entities,
insurance companies and financial institutions. Investors should consult
their own tax advisers with respect to special tax rules that may apply in
their particular situations, as well as the state, local or foreign tax
consequences of investing in the Portfolio.
Item 21. Underwriters
The placement agent for the Portfolio is Eaton Vance
Distributors, Inc., which receives no compensation for serving in this
capacity. U.S. and foreign investment companies, common and commingled
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<PAGE>
trust funds and similar organizations and entities may continuously invest
in the Portfolio.
Item 22. Calculations of Performance Data
Not applicable.
Item 23. Financial Statements
The following audited financial statements of the Portfolio,
which are included in the Annual Report to Shareholders of EV Classic
Greater China Growth Fund for the fiscal year ended August 31, 1995, are
incorporated by reference into this Part B and have been so incorporated
in reliance upon the report of Deloitte and Touche LLP, independent
certified public accountants, as experts in accounting and auditing.
Portfolio of Investments as at August 31, 1995
Statement of Assets and Liabilities as at August 31, 1995
Statement of Operations for the year ended August 31, 1995
Statement of Changes in Net Assets for the year ended August 31,
1995, and for the year ended to August 31, 1994
Supplementary Data for the year ended August 31, 1995, for the
year ended August 31, 1994, and for the period from the start of
business, October 28, 1992, to August 31, 1993
Notes to Financial Statements
Independent Auditors' Report
For purposes of the EDGAR filing of this amendment to the
Portfolio's registration statement, the Portfolio incorporates by
reference the above audited financial statements of the Portfolio
contained in the Annual Report to Shareholders of EV Classic Greater China
Growth Fund for the fiscal year ended August 31, 1995, as previously filed
electronically with the Securities and Exchange Commission (Accession
Number 0000950109-95-004352).
B-34
<PAGE>
APPENDIX A
THE SECURITIES MARKETS IN CHINA AND HONG KONG
The information set forth in this Part B regarding China, its economy
and the Stock Exchange of Hong Kong Ltd. has been extracted from various
government and private publications. The Board of Trustees make no
representation as to the accuracy of such information, nor has the Board
of Trustees attempted to verify it.
In this Part B, unless otherwise specified, all references to "U.S.
dollars," "U.S.$" or "$" are to United States dollars, to "RMB" or
"renminbi" are to Chinese renminbi and to "H.K. dollars" or "H.K.$" are to
Hong Kong dollars. On December 6, 1995, the exchange rate as published in
The Asian Wall Street Journal was 8.310 renminbi = U.S. $1.00 and 7.737
H.K. dollars = U.S. $1.00 and, unless otherwise specified, all renminbi
and Hong Kong dollars have been so converted at such exchange rates. No
representation is made that the renminbi, H.K. dollar or U.S. dollar
amounts in this Part B could have been or could be converted into U.S.
dollars, renminbi or H.K. dollars, as the case may be, at any particular
rate or at all. See "Appendix B: People's Republic of China--Exchange
Rate" for information regarding historical rates of exchange between the
Chinese renminbi and the U.S. dollar.
HISTORY OF THE CHINESE SECURITIES MARKETS
The first securities exchange in China, the "Shanghai Gufen Gongsou"
(Shanghai Stock Confederation), was organized in the 1890s in Shanghai.
The first officially recognized exchange was established in 1914 in
Shanghai, which focused principally on the trading of government bonds.
Additional exchanges were opened in Beijing in 1918 and in Tianjin in
1921. By the period following World War II, Shanghai had become one of the
major financial centers in Asia. However, when the Chinese communist party
assumed power in 1949, China's securities markets were closed and all
securities were abolished.
The Beijing and Tianjin securities exchanges reopened in 1950 and
1949, respectively, but were closed again in 1952. Securities markets were
nonexistent in China until the early 1980s when they reemerged in various
cities following initiation of China's economic reform program in 1978.
There currently are two officially recognized exchanges in China, the
Shanghai Securities Exchange ("SHSE"), which commenced trading on December
19, 1990, and the Shenzhen Stock Exchange ("SZSE"), which commenced
trading on July 3, 1991. A number of organized securities markets exist in
other cities in China, but these are primarily over-the-counter markets.
Initially, shares on both exchanges were made available only to Chinese
investors and were traded only in RMB, thus avoiding the issues of
repatriation of profits and the remittance of foreign currency that would
arise with the participation of foreign investors in the market. Recently,
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<PAGE>
however, these issues have been addressed in legislation concerning a
special class of shares, commonly referred to as "B" shares, which are
denominated in RMB and are offered exclusively for investment by foreign
investors and such other investors as the authorities may approve. The
first issues of "B" shares were listed and traded on the SHSE on February
21, 1992, and on the SZSE on February 28, 1992.
REGULATION AND OPERATION OF THE CHINESE SECURITIES MARKETS
Prior to the establishment of the SHSE and SZSE, trading of
securities in China was conducted in over-the-counter ("OTC") markets in a
number of major cities, including Shanghai, Chongqing, Wuhan, Guangzhou
and Shenyang. The OTC markets have no fixed location for trading;
transactions are negotiated by telephone or similar means. The SHSE and
SZSE confine trading of listed shares to the two exchanges, while unlisted
stocks continue to be traded in the OTC markets. In addition to the two
exchanges and the OTC markets, a nationwide computer system for trading of
treasury bills and bonds, the Securities Trading Automated Quotations
System ("STAQ"), commenced operations on December 5, 1990 and currently
links 54 licensed trading corporations in 16 cities.
Currently, trading of treasury bills constitutes the majority of the
activity in the Chinese securities markets, while trading of equity
securities constitutes only a small portion of the trading activity. The
OTC markets trade only treasury bills and equity securities that are not
listed on the SHSE or the SZSE. The SHSE and the SZSE trade both treasury
bills and shares of listed companies. Shares are divided into four types
based on the type of entity holding them: (1) State shares held by
designated State entities on behalf of the State; (2) shares held by
Chinese corporations; (3) shares held by Chinese individuals; and (4)
shares held by foreign investors. The first three categories are generally
referred to as "A" shares. The fourth category is referred to as "B"
shares. State shares cannot be sold or transferred without the approval of
the State asset administrative departments. "A" shares are quoted and
traded in renminbi, while "B" shares are quoted in renminbi but traded in
foreign currencies (currently Hong Kong dollars and U.S. dollars).
China has not yet promulgated a national securities law. Although the
State Council has promulgated Interim Regulations for Administration of
Enterprise Bonds, these regulations apply only to bonds issued by
State-owned enterprises. At the local level, however, many cities and
provinces have promulgated securities rules and regulations.
The People's Bank of China (the "PBOC"), China's central bank, is
authorized to regulate stocks, bonds and other negotiable instruments and
administer China's financial markets, and it exercises this authority
through its local branches. The State Commission for Restructing the
Economic System has, in practice, assumed the principal role of
formulating policies for the development of the securities markets. In
addition, the Stock Exchange Executive Council, a nongovernmental
organization, plays an important advisory role in the formulation of a
regulatory framework for the national securities markets.
A-2
<PAGE>
CORPORATE LAW IN CHINA
There is no national legislative framework in China providing for
regulations governing joint stock companies. However, there have been in
force in Shenzhen since February 1992 the Provisional Rules for Joint
Stock Companies in Shenzhen (the "Shenzhen Provisional Rules"). The
Shenzhen Provisional Rules include provisions governing the formation in
Shenzhen of joint stock companies, issuance of shares and debentures,
ownership and dealings in shares, reduction of capital, shareholders'
rights and obligations, meetings and resolutions, directors, financial
accounting, distribution and liquidation. More recently, the Provisional
Regulations for Shanghai Municipality Joint Stock Limited Companies came
into force on June 1, 1992, covering broadly the same areas as the
Shenzhen Provisional Rules.
SHENZHEN STOCK EXCHANGE
The SZSE was established in April 1991, and officially opened in July
1991. As of December 6, 1995, 125 companies had shares listed on the SZSE,
of which 33 also had "B" shares listed. Prices of "A" shares were subject
to a price fluctuation limit, but all such limits have been removed except
for the Shenzhen Champaign Company. The Shenzhen authorities have
established a regulatory fund, funded from proceeds of new issues of "A"
shares, to buy and sell shares on the open market in an attempt to
minimize fluctuations of the prices of "A" shares. In the issuance of "A"
shares by Shenzhen Konka Electronics, the first case in which this
regulatory fund was introduced, an amount equal to 5% of the aggregate "A"
share premium was required to be paid into the fund. It is expected that a
similar percentage will be required for future new issues.
The following table provides selected information regarding "B" shares
of the companies listed on the SZSE as of December 6, 1995.
INVESTMENT STATISTICS FOR "B" SHARES OF COMPANIES LISTED ON
THE SHENZHEN STOCK EXCHANGE*
<TABLE>
<CAPTION>
"B" SHARES 12/6/95 MARKET 12/6/95
IN ISSUE PRICE CAPITALIZATION TURNOVER
STOCK NAME (MILLIONS) (HK$) (HK$ MILLIONS) (HK$ MILLIONS)
---------- ---------- ----- -------------- --------------
<S> <C> <C> <C> <C>
Benelux-B ...................... 26 1.41 36 0.00
China Bicycles-B ............... 243 1.27 308 0.12
China Merchant-B ............... 132 2.80 369 0.00
China Vanke-B .................. 64 2.80 180 0.00
Chiwan Base-B .................. 111 3.30 367 0.00
Chiwan Wharf-B ................. 66 3.00 199 0.00
Fangda-B ....................... 50 1.55 78 2.10
Fiyta Hold-B ................... 23 3.17 71 0.01
A-3
<PAGE>
Foshan Light-B ................. 50 5.40 270 0.00
Guangdong Power-B .............. 213 3.50 747 2.21
Hainan Pearl-B ................. 61 1.66 101 0.00
Health Mineral-B ............... 24 1.31 32 0.03
Huafa Elec-B ................... 77 1.25 96 0.00
Int Enterprise-B ............... 50 1.40 70 0.02
Intl Container-B ............... 63 5.50 347 0.08
Jiangling Motor-B .............. 174 1.45 252 0.02
Konka Elec-B ................... 118 4.00 473 0.28
Lionda Hold-B .................. 36 1.60 58 0.12
Lizhu Pharm-B .................. 79 2.90 230 0.00
Nanshan Power-B ................ 90 1.62 145 0.00
North Jianshe-B ................ 120 3.50 420 0.14
Petrochem Ind-B ................ 33 2.05 67 0.00
Pro & Res Dev-B ................ 56 1.55 87 0.01
Sez Real Estate-B .............. 120 1.76 211 0.00
Shenbao Ind-B .................. 22 1.20 26 0.00
Shenzhen Textile-B ............. 28 1.39 38 0.04
Shzh Gintian-B ................. 62 2.64 163 0.03
Shzh Tellus-B .................. 26 1.25 33 0.02
South Glass-B .................. 109 3.80 415 0.04
Tsann Kuen-B ................... 148 1.60 237 0.03
Victor on Text-B ............... 70 1.20 83 0.01
Weifu-B ........................ 68 2.50 170 0.00
Zhongchu-B ..................... 22 1.20 26 0.00
----- ----
TOTAL OF "B" SHARES ........................................... 6,405 5.31
===== ====
----------
Source: Lloyd George Management
</TABLE>
Market Index. The performance of the "B" shares on SZSE is measured
by the Shenzhen B Index. This Index stood at 86.7 on December 31, 1994 and
closed at 61.7 on December 6, 1995.
Membership. The SZSE operates on a membership system. Membership is
restricted to securities institutions approved by the PBOC. As of March
31, 1992, there were 15 members admitted to the SZSE, consisting of banks,
finance companies, securities companies, insurance companies and trust and
investment companies. All are either Shenzhen local companies or Shenzhen
branches of national companies. Securities institutions in Shenzhen may
join the Joint Meeting of Shenzhen Securities Institutions, whether or not
they are members of the SZSE. This self-governing organization was formed
in August of 1990 to facilitate communication among securities
institutions and to strengthen self- discipline among members.
Regulation. The SZSE is regulated by the PBOC, Shenzhen Special
Economic Zone Branch and the local government in Shenzhen. The Shenzhen
A-4
<PAGE>
Municipal People's Government promulgated the Provisional Measures of
Shenzhen Municipality for Administration of the Issue and Trading of
Shares (the "SZSE Measures"), which became effective on June 15, 1991 and
govern the establishment of the SZSE and the issuance and trading of
shares in Shenzhen. The issuance and trading of "B" shares in Shenzhen are
governed by the Provisional Measures of Shenzhen Municipality for
Administration of Special Renminbi-denominated Shares, which became
effective on December 16, 1991. These measures are supplemented by a set
of Detailed Implementing Rules which also became effective on December 16,
1991. In addition, Provisional Rules of Shenzhen Municipality for
Registration of Special Renminbi-denominated Shares were promulgated by
the Shenzhen Securities Registrars Co., Ltd. on January 29, 1992, and
Operating Rules of the Shenzhen Securities Exchange for Trading and
Clearing of "B" shares were promulgated by the SZSE on January 31, 1992.
These rules provide detailed regulations relating to the issuance,
trading, settlement and registration of "B" shares.
New Issues and Listing Criteria. Shares of local Shenzhen companies
may either be listed on the SZSE or traded on the OTC markets. In
accordance with the SZSE Measures and the Shenzhen Provisional Rules, an
issuer must meet the following requirements when making a public share
issue: (i) it must have obtained prior approval from the relevant
authorities to be and have been established as or converted into a joint
stock company; (ii) its production and operations must comply with
Shenzhen's industrial policies; (iii) it must have a good financial and
business record and net assets of at least RMB 10 million; (iv) for the
year prior to applying for authorization to issue shares, the value of its
net tangible assets must have accounted for no less than 25% of its gross
tangible assets; (v) its promoters must subscribe for at least RMB 5
million worth of shares, representing no less than 35% of its total share
capital; (vi) the number of shares to be issued to the public, i.e.,
investors other than specially designated individuals, must be equal to at
least 25% of its total share capital; (vii) it must have a minimum of 800
shareholders following the issue; (viii) within three years prior to the
proposed issue, neither the company nor its promoters may have any record
of illegal activities or activities counter to the public interest; and
(ix) the shares subscribed by the employees of the company cannot exceed
10% of the shares issued to the public and such shares are not assignable
for a period of one year; thereafter, assignment of such shares may not
exceed 10% of the shareholder's holding during any half year period.
All public share issues must be handled by securities distributors.
Issues of over RMB 30 million must be distributed by a syndicate made up
of at least three members. Issues of over RMB 50 million must be
distributed by a syndicate made up of at least five members.
In order to qualify for listing on the SZSE, companies must meet
additional requirements which are more stringent than those for public
share issues. Such additional requirements include: (i) the total par
value of shares of common stock actually issued must be more than RMB 20
million; (ii) there must have been a minimum return on capital of more
than 10% in the year preceding listing and more than 8% over the two years
A-5
<PAGE>
prior to the year preceding the listing; (iii) the number of registered
shareholders must exceed 1,000, and the total number of shares held by
shareholders holding less than 0.5% of the company's shares must account
for more than 25% of the total paid- up share capital; (iv) the company
must have a continuous record of making profits and must have a business
record of more than three years; and (v) for the year prior to applying
for listing, the value of the net tangible assets must have accounted for
more than 38% of its gross tangible assets and there must be no
accumulated losses.
Application for a public share issue must be made to the PBOC,
Shenzhen Special Economic Zone Branch. Application for listing on the SZSE
must be made to the PBOC, Shenzhen Special Economic Zone Branch and the
SZSE. A company's prospectus for initial share issue must be published in
a newspaper or other publication approved by the PBOC, Shenzhen Special
Economic Zone Branch, ten days prior to the scheduled issuance date, which
must include: (i) the name and domicile of the company; (ii) the scope of
the company's production and business; (iii) resumes of the promoters or
directors and the managers; (iv) the reason for and purpose of the share
issue; (v) the total amount, class(es) and number of shares to be issued,
and the par value and selling price of each share; (vi) the method of
issue; (vii) the investors to whom the issue is marketed; (viii) the
name(s) of the securities distributor(s), the total value of the shares to
be distributed and the method of distribution; (ix) details of the
company's history and conditions for future development, its main business
and financial situation, and the total amount and composition of its
assets and liabilities; and (x) a certified profit forecast.
A company applying for a further issue of shares must satisfy the
relevant authorities that the following conditions have been met: (i) its
business record since the time of the last issue must have been good, and
its utilization of capital must be above average in its line of business;
(ii) not less than one year must have elapsed since its last share issue;
(iii) the amount of shares it is applying to issue must not exceed the
amount of its existing shares; (iv) its application of the proceeds of the
issue must conform to the industrial policies of Shenzhen; and (v) the
issue will be beneficial to the healthy development of the Shenzhen
securities markets. Applications for approval to issue shares for the
purpose of attracting foreign investment are not bound by (ii) and (iii).
New Issues Criteria for "B" Shares in Shenzhen. A company wishing to
issue "B" shares in Shenzhen must comply with the following requirements:
(i) it must fulfill the issue requirements specified in the SZSE Measures;
(ii) it must obtain written consent from the relevant department of the
State to utilize foreign investment or to transform into a foreign
investment enterprise, and its use of proceeds from the "B" share issue
must conform to the laws and regulations of the State concerning the
administration of foreign investment; (iii) it must have a stable,
adequate source of foreign exchange revenue (sufficient to pay out the "B"
share dividends and bonuses for each year); (iv) the percentage of "B"
shares (including promoters' shareholdings) to the total shares of the
company must not exceed the upper limit set by the PBOC, Shenzhen Special
A-6
<PAGE>
Economic Zone Branch; and (v) the company must have a business record of
three years or more, or have received special permission from the PBOC,
Shenzhen Special Economic Zone Branch. (Companies in high technology
industries or other special industries are not bound by this restriction.)
Subscription for "B" shares is carried out through authorized
securities institutions within Shenzhen Municipality. These institutions
may arrange for the participation of overseas securities institutions
approved by the PBOC, Shenzhen Special Economic Zone Branch. The holding
by any foreign investor of "B" shares of a joint stock company accounting
for more than 5% of such company's total shares must be reported to the
PBOC, Shenzhen Special Economic Zone Branch. Domestic securities
institutions are not allowed to trade "B" shares for their own accounts
unless approved by the PBOC, Shenzhen Special Economic Zone Branch.
The issuance of "B" shares through a syndicate underwriting on behalf
of the issuer must be managed by at least one authorized domestic
securities institution. The issue price of "B" shares may not be lower
than the issue price of "A" shares of the same company. During the
distribution period, distributors must sell the shares at the same
predetermined price.
An issuer may request private placement of its "B" shares with
institutions outside China with which it has close business connections,
provided that such institutions are approved by the PBOC, Shenzhen Special
Economic Zone Branch and the number of shares privately placed with them
does not exceed 15% of the total number of "B" shares in such issue.
Reporting Requirements. Within 60 days following the end of each half
of the fiscal year, an issuer is required to submit an interim financial
report, reviewed and approved by an accounting firm, or its annual
financial report, audited by an accounting firm, to the PBOC, Shenzhen
Special Economic Zone Branch and to publish the same in a newspaper or
other publication approved by the PBOC, Shenzhen Special Economic Zone
Branch. Such financial reports must also be submitted to the SZSE if the
issuer's securities are already listed on the SZSE.
Insider Trading Restrictions. All persons are prohibited from using
insider information when engaging in the purchase or sale of securities.
THE SHANGHAI SECURITIES EXCHANGE
The SHSE was established on November 26, 1990 and officially opened on
December 19, 1990. Prior to the establishment of SHSE, an active OTC
market in local stocks and bonds existed in Shanghai.
As of December 6, 1995, 184 companies had shares listed on the SHSE of
which 36 also had "B" shares listed. Shares listed on the SHSE currently
are not subject to any limit on daily price fluctuations.
The following table provides selected information regarding the "B"
shares of the companies listed on the SHSE as of December 6, 1995.
A-7
<PAGE>
INVESTMENT STATISTICS FOR "B" SHARES OF COMPANIES LISTED ON
THE SHANGHAI SECURITIES EXCHANGE*
<TABLE>
<CAPTION>
"B" SHARES 12/6/95 MARKET 12/6/95
IN ISSUE PRICE CAPITALIZATION TURNOVER
COMPANY (MILLIONS) (US$) (US$ MILLIONS) (US$ MILLIONS)
------- ---------- ------- -------------- --------------
<S> <C> <C> <C> <C>
Autom Instrume-B ............... 77 0.188 14 0.00
Ch 1st Pencil-B ................ 66 0.332 22 0.01
Ch Text Mach-B ................. 109 0.152 17 0.02
China Travel-B ................. 60 0.340 20 0.00
Chlor Alkali-B ................. 336 0.262 88 0.01
Dajiang Group-B ................ 263 0.498 131 0.04
Dazhong Taxi-B ................. 78 0.778 61 0.00
Diesel Engine-B ................ 110 0.376 41 0.14
Erdos Cashmere-B ............... 110 0.436 48 0.02
Erfangji-B ..................... 193 0.170 33 0.01
Forever Bicycle-B .............. 60 0.140 8 0.01
Friendship-B ................... 48 0.470 23 0.05
Goods & Material-B ............. 55 0.168 9 0.02
Haixin-B ....................... 84 0.428 36 0.00
Hua Xin Cement-B ............... 87 0.282 25 0.04
Jinjiang Tower-B ............... 92 0.300 28 0.12
Jinqiao Export-B ............... 143 0.428 61 0.01
Jintai-B ....................... 80 0.236 19 0.00
Lianhua Fibre-B ................ 65 0.170 11 0.11
Lujiazui Devel-B ............... 200 0.598 120 0.06
Narcissus-B .................... 100 0.198 20 0.01
New Asia-B ..................... 100 0.500 50 0.01
P&T Equipment-B ................ 60 0.450 27 0.05
Phoenix-B ...................... 100 0.172 17 0.07
Rubber Belt-B .................. 33 0.170 6 0.00
Sanmao Textile-B ............... 33 0.256 8 0.00
Sewing Machine-B ............... 75 0.160 12 0.03
Sh Refrig Comp-B ............... 65 0.400 26 0.07
Shanghai Hero-B ................ 46 0.276 13 0.03
Shangling-B .................... 79 0.650 51 0.02
Steel Tube-B ................... 88 0.142 12 0.00
Tyre & Rubber-B ................ 221 0.236 52 0.02
Vacuum & Elec-B ................ 145 0.230 33 0.00
Wai Gaoqiao-B .................. 166 0.384 64 0.02
Wing Sung-B .................... 30 0.188 6 0.01
Yaohua Glass-B ................. 165 0.890 147 0.00
----- ----
TOTAL OF "B" SHARES ........................................... 1,359 1.02
===== ====
----------
Source: Lloyd George Management
A-8
<PAGE>
</TABLE>
Market Index. The performance of the "B" shares on the SHSE is
measured by the Shanghai Securities Exchange B Index. This Index stood at
62.8 on December 31, 1994 and closed at 50.4 on December 6, 1995.
Membership. The SHSE operates on a membership system. Membership is
restricted to securities institutions approved by the PBOC. As of March
31, 1992, there were 29 members admitted to the SHSE, 20 of which are
local institutions and 9 of which are from other provinces. The SHSE
members are comprised of securities companies, insurance companies, trust
and investment companies and open credit cooperatives. Members of the SHSE
must join the Securities Trade Association, which is a self-governing
trade organization whose articles of association specify such matters as
the purpose, nature, conditions for membership, rights and obligations of
members and accounting of the Association. The SHSE members may be
classified as (1) members who trade for others' accounts; (2) members who
trade for their own accounts only; or (3) members who trade both for their
clients and for their own accounts. No member may buy or sell any listed
securities outside the SHSE without permission.
Regulation. The SHSE is regulated by the local branch of the PBOC and
the local government in Shanghai. The Shanghai Municipal People's
Government adopted the Measures of Shanghai Municipality for
Administration of the Trading of Securities (the "SHSE Measures"), which
came into effect on December 1, 1990 and govern the establishment of the
SHSE and the issuance and trading of securities in Shanghai. In November
of 1991, special regulations contained in the Measures of Shanghai
Municipality for the Administration of Special Renminbi-denominated Shares
and their Detailed Implementing Rules were promulgated by the PBOC and the
Shanghai Municipal People's Government relating to the issue of "B" shares
in Shanghai. Special rules for the trading and settlement of "B" shares
were also enacted in February 1992.
New Issues and Listed Criteria. To issue new securities, an issuer
must file an application with the PBOC, Shanghai Branch, along with the
issuer's articles of association, a prospectus to be used in offering the
securities which meets the requirements of the SHSE Measures and other
related documents. Issues of shares, or bonds of a value of RMB 10 million
or more, must be distributed by a securities institution, unless otherwise
provided by the State or placed privately. Issues with a total
distribution value of RMB 30 million or more must be jointly distributed
by a distribution syndicate formed and led by a securities company.
Distribution of securities includes the underwriting of securities and the
placement of securities by an agent.
Under the SHSE Measures, an issuer which intends to issue its shares
must submit: (i) the consent from the relevant authorities as to the
establishment or restructuring of the enterprise as a joint stock company;
(ii) in the case of a newly-established joint stock company, an investment
certificate evidencing that its organizers have subscribed for not less
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<PAGE>
than 30% of the total amount of shares; (iii) in the case of State-owned
enterprise being restructured as a joint stock company, a confirmation of
asset valuation issued by the Administration for State Assets with a
report on the conclusions from the asset valuation issued by the relevant
asset valuation agency, or, in the case of a non-State-owned enterprise
being restructured as a joint stock company, a report on the conclusions
from the asset valuation issued by an accounting firm and a registered
accountant of that firm; (iv) in the case of an existing joint stock
company issuing shares in order to increase its capital, financial
statements of continuous profits during at least the preceding two years
and the preceding quarter of the current year, certified by an accounting
firm and a certified accountant of that firm, and a shareholders'
resolution authorizing the issue; and (v) an application for share issue
to the PBOC, Shanghai Branch, along with its articles of association, the
prospectus to be used for the share issue, a distribution contract entered
into with a securities distributor and, if the shares are to be issued to
raise funds for fixed asset investment, the approval document(s) from the
relevant administrative department(s). In addition, where the issuer also
intends to list shares on the SHSE, it must submit (i) an application for
the listing of and permission to deal in securities; (ii) a report on the
listing of the securities; (iii) consent from at least one securities
house to assist in the trading of the securities; and (iv) financial
statements of continuous profits for at least two years, certified by an
accounting firm and a registered accountant of that firm.
New Issues and Listing Criteria for "B" Shares on the SHSE. A company
wishing to issue "B" shares to be listed on the SHSE must comply with the
following requirements: (i) it must be an approved joint stock company
which has been registered with the relevant State authority or whose
establishment has been approved and has met all the listing requirements
set forth in the SHSE Measures; (ii) the proceeds from the issuance of the
"B" shares must be used in accordance with State policies and regulations
on the administration of foreign investment; (iii) it must have a stable,
adequate source of foreign exchange revenue (i.e., sufficient to pay out
the "B" share dividends); and (iv) the percentage of "B" shares among the
total shares of a former state- owned enterprise reorganized as a joint
stock company must not exceed the upper limit set by the PBOC, Shanghai
Branch.
Subscription for "B" shares is carried out through approved securities
institutions. Approved domestic securities institutions may arrange for
participation by foreign securities institutions approved by the PBOC,
Shanghai Branch. Approval by the Shanghai Branch of the PBOC is required
for the subscription by a single investor for "B" shares which exceed 5%
of the total issued share capital of a company. In addition, "B" share
trading must be carried out by approved securities institutions and be
processed through a domestic securities house which is in the business of
dealing in "B" shares. Every investor dealing in "B" shares must open a
"B" share securities account with the SHSE. Domestic securities dealing
organizations may open such "B" share securities accounts on behalf of
individuals and institutional investors outside of China. Domestic
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<PAGE>
securities institutions may not engage in "B" share business for their own
account.
The issuance of "B" shares in Shanghai may be through a public
offering or a private placement. A public offering must be conducted on
behalf of the issuer by an approved securities institution. The issuance
of "B" shares through a distribution syndicate must be managed by a
domestic securities institution. The prospectus for an issue of "B" shares
must be published in a newspaper or other publication approved by and on
dates designated by the PBOC, Shanghai Branch.
Reporting Requirements. Once securities are approved for listing on
the SHSE, the issuer must publish the report on the listing of the
securities and certified financial statements showing continuous profits
for at least two years preceding the listing. Issuers of listed securities
are required to submit interim financial reports to the PBOC, Shanghai
Branch in the middle of each fiscal year. Issuers of securities traded on
the OTC markets or the SHSE are required to submit certified financial
reports at the end of each fiscal year. Such reports are required to be
submitted within 45 days after the end of the relevant period.
Within 15 days after the occurrence of any of the following
situations, an issuer of securities must submit a status report to the
PBOC, Shanghai Branch, and the SHSE if the securities of such issuer are
listed on the SHSE: (i) the conclusion with another party of a contract or
agreement that will have a material effect on the assets or liabilities of
the enterprise or the rights and interests of its shareholders; (ii) a
major change in the business items or forms of business of the enterprise;
(iii) the making of a decision on a major or relatively long-term
investment; (iv) the incurring of major debts or losses; (v) major losses
of the assets of the enterprise; (vi) a major change in the production or
business environment; (vii) a change in the members of the board of
directors or senior management personnel; (viii) a change in the
shareholdings of shareholders who hold 5% or more of the total amount of
shares or a change in the shareholdings in the company of the members of
the board of directors or senior management personnel; (ix) involvement in
a major lawsuit; (x) the making of such major policy decisions as on
merger, consolidation, etc.; and (xi) commencement of liquidation or
bankruptcy reorganization.
The trading and registration of transfer of registered shares will be
suspended 10 days before each announced date for payment of dividends or
bonuses or the issuance of new shares. Under the SHSE Measures, if the
transfer registration procedures are not completed within the specified
time limits, the dividends, bonuses and newly issued shares will be issued
to the persons in whose name the securities were registered at the time of
such distribution or issuance.
Insider Trading Restrictions. Certain persons involved in the issuance
of shares, such as relevant personnel of the PBOC, Shanghai Branch, who
are involved in securities administration, management personnel of the
SHSE, personnel of a securities house who are directly connected with the
A-11
<PAGE>
issue and trading of shares and other insiders connected with the issue
and trading of shares are prohibited from trading, directly or indirectly,
for their own account.
TRADING AND REGULATION OF "B" SHARES
Trading of "B" Shares on the SZSE. Trading on the SZSE is conducted in
blocks of 2,000 shares. Trading in "B" shares may only be conducted
between non-Chinese investors. Investors outside China must trade "B"
Shares through approved foreign brokers who in turn instruct approved
Shenzhen brokers who actually effect trades on the SZSE. All trades must
be transacted on the trading floor; no off-market transactions are
allowed. Trading on the SZSE is carried out through a computerized
automatic matching system which effects each transaction based on price
and time priority. Investors subscribing for or buying "B" shares are
required to produce their individual or corporate identification
documents, while individual investors must also pay a deposit equal to 60%
of the market price of the shares to be bought.
Commissions for transactions in "B" shares are fixed at 0.6% of the
purchase price. A stamp duty of 0.3% of the purchase price is also
payable. In addition, the SZSE imposes a transaction levy of 0.1% of the
actual transaction amount. A share transfer registration fee of 0.3% of
the face value of the "B" shares transferred is also payable by the buyer
to the official registrar of the "B" shares. Certain other fees may also
be payable to the clearing and settlement bank and foreign brokers for
their services.
Any single investor holding "B" shares amounting to more than 5% of
the total share capital of an issuer must report such holding to the PBOC,
Shenzhen Special Economic Zone Branch. Short selling of "B" shares is
prohibited. Newly purchased "B" shares may not be sold before the
settlement and registration procedures for their purchase are completed.
Trading of "B" Shares on the SHSE. In Shanghai, "B" shares are traded
in blocks having a total face value of RMB 1,000. "B" shares may only be
traded between non-Chinese investors. Investors outside of China must
trade "B" shares through approved foreign brokers who instruct approved
Shanghai brokers who then actually effect trades on the SHSE. All trades
must be transacted on the trading floor; no off-market transactions are
allowed.
Brokerage commissions for "B" share transactions are fixed at 0.6% of
the total amount of the transaction, with reduced rates of 0.5%, for
transactions with a value of RMB 500,000 and 0.4% with a value exceeding
RMB 5,000,000. A stamp duty of 0.3% of the amount of the transaction is
also charged. The SHSE also levies a transaction fee on securities dealers
equal to 0.03% of the amount of the transaction. A transfer fee of 0.1% of
the face value of the shares transferred is also payable by the investor.
Certain other fees may also be payable to the banks appointed to
coordinate primary and secondary clearing and settlement and to foreign
brokers for their services. Fees are calculated in renminbi and payable in
U.S. dollars.
A-12
<PAGE>
Any single investor (individual or institutional) purchasing "B"
shares of an amount exceeding 5% of the issuer's total share capital must
obtain approval for such purchase from the PBOC. Newly purchased "B"
shares cannot be sold before the transfer procedures for their purchase
are completed.
Trading in "B" shares is in a scripless manner using the automatic
book- entry transfer system. Orders are matched automatically by computer
by price and time priority. Market and trading information is transmitted
through telecommunication links by an international information agency
from the SHSE to overseas countries on a real time basis.
Clearing and Settlement of "B" shares. In both Shenzhen and Shanghai,
clearing and settlement of "B" share transactions are effected on the
third day after the trade date. All clearing and settlement of "B" shares
are effected in a scripless manner, through a book-entry clearinghouse
system. No such certificates are issued to investors. Cash settlement is
effected on a broker to broker, transaction by transaction basis.
Clearing and settlement of "B" share transactions are conducted at two
levels. The Bank of Communications is responsible for coordinating the
primary settlement, for both shares and cash, between the Shanghai or
Shenzhen brokers and the exchanges, which is effected through a book-entry
system. Citibank, N.A. coordinates the secondary settlement, for cash
only, which takes place between the Shanghai or Shenzhen brokers and the
off-shore brokers. Clearing and settlement of "B" share transactions are
handled by three approved banks: Citibank N.A., Standard Chartered Bank
and HongkongBank.
All "B" share prices and all dividends, bonuses and other income on
"B" shares are calculated in RMB but paid in foreign currency (Hong Kong
dollars or U.S. dollars). RMB amounts are converted to Hong Kong dollars
or U.S. dollars at the weekly weighted average conversion rate as quoted
by the Shanghai Foreign Exchange Transaction Center or the Shenzhen
Foreign Exchange Adjustment Center (with the exception of share sale
prices in Shenzhen, which are converted at the prior working day's
conversion rate).
THE HONG KONG SECURITIES MARKET
Formal trading of investment securities was established in Hong Kong
in 1891 when the Association of Stockbrokers in Hong Kong was formed. It
was renamed the Hong Kong Stock Exchange in 1914. In 1969, the Far East
Exchange was formed, followed by the Kam Ngan Stock Exchange in 1971 and
the Kowloon Stock Exchange in 1972. These four exchanges merged to form
The Stock Exchange of Hong Kong Ltd. ("Hong Kong Stock Exchange" or
"HKSE"), which commenced trading on April 2, 1986. The HKSE, with a total
market capitalization as of October, 1994 of approximately H.K. $2,476
billion (approximately U.S. $320.3 billion), is now the second largest
stock market in Asia, measured by market capitalization, behind only that
of Japan. As of that date, 520 companies and 908 securities were listed on
A-13
<PAGE>
the Hong Kong Stock Exchange. The securities listed include ordinary
shares, warrants and other derivative instruments.
In addition to an active stock market, Hong Kong has an active foreign
exchange market, an interbank money market, a large gold bullion market
and a futures exchange. Hong Kong is also one of the major Asian centers
for venture capital businesses, many of such businesses having their Asian
head office in Hong Kong.
Primary Market. Hong Kong has an active new issue market for equity
securities. The following table summarizes the new issues on the Hong Kong
Stock Exchange since 1986.
NEW ISSUES ON THE HKSE
<TABLE>
<CAPTION>
VALUE OF VALUE OF
SHARE ISSUES RIGHTS ISSUES
------------------------ ----------------------
NUMBER (H.K. $ (U.S. $ (H.K. $ (U.S. $
YEAR OF ISSUES MILLION) MILLION) MILLION) MILLION)
---- --------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
1986 ......... 8 3,268 419 1,184 152
1987 ......... 14 2,402 308 5,591 717
1988 ......... 20 1,443 185 2,401 308
1989 ......... 7 1,732 222 1,836 335
1990 ......... 41 7,067 906 2,511 322
1991 ......... 49 5,592 717 9,648 1,237
1992 ......... 59 9,633 1,235 11,227 1,439
1993 ......... 68 28,884 3,751 9,266 1,193
1994 ......... 53 16,732 2,165 5,643 130
----------------
Source: HKSE.
</TABLE>
Secondary Market. The table below sets out selected data on the Hong
Kong Stock Exchange for each year since 1986, including the value of
securities traded during each year, and the number of companies and
securities listed and the total market capitalization as of December 31 of
each year.
SELECTED DATA ON THE HKSE
<TABLE>
<CAPTION>
A-14
<PAGE>
VALUE OF DECEMBER 31 MARKET
SECURITIES TRADED CAPITALIZATION
-------------------------------- ------------------------------
(H.K. $ (U.S. $ LISTED LISTED (H.K. $ (U.S. $
YEAR MILLION) MILLION) COMPANIES SECURITIES MILLION) MILLION)
---- -------- -------- --------- ---------- -------- -------
<S> <C> <C> <C> <C> <C> <C>
1986 ....... 123,128 15,786 253 335 419,281 53,754
1987 ....... 371,406 47,616 276 412 419,612 53,796
1988 ....... 199,481 25,574 304 479 580,378 74,446
1989 ....... 299,147 38,352 298 479 605,010 77,565
1990 ....... 288,715 37,015 299 520 650,410 83,386
1991 ....... 334,104 42,834 357 597 1,052,012 134,873
1992 ....... 700,577 90,569 413 749 1,332,184 172,221
1993 ....... 1,149,265 148,670 477 891 2,975,379 381,459
1994 ....... 1,082,460 140,034 529 1,006 2,085,182 269,752
Source: HKSE.
</TABLE>
Market Performance. The Hang Seng Index is the most widely followed
indicator of stock price performance in Hong Kong. The Hang Seng Index is
an arithmetic index based on the securities of 33 companies, weighted by
their respective market capitalizations, and is thus strongly influenced
by large capitalization stocks. The following table sets out high, low and
end of year close for the Hang Seng Index for each year since 1986.
<TABLE>
HANG SENG INDEX
<CAPTION>
% CHANGE
FROM PRIOR
YEAR HIGH LOW YEAR-END PERIOD-END
---- ---- --- -------- ----------
<S> <C> <C> <C> <C>
1986 ....................... 2,568.3 1,559.4 2,568.3 --
1987 ....................... 3,949.7 1,894.7 2,302.8 (10.3)
1988 ....................... 2,772.5 2,223.0 2,687.4 16.7
1989 ....................... 3,309.6 2,093.6 2,836.5 5.5
1990 ....................... 3,559.9 2,736.6 3,024.6 6.6
1991 ....................... 4,297.3 2,984.0 4,297.3 42.1
1992 ....................... 6,447.1 4,301.8 5,512.4 28.3
1993 ....................... 11,888.0 5,438.0 11,888.0 115.7
1994 ....................... 12,201.1 7,707.8 8,191.0 (31.1)
----------------
Source: HKSE.
</TABLE>
A-15
<PAGE>
The Hong Kong stock market can be volatile and is sensitive both to
developments in China and to the strength of other world markets. As an
example, in 1989, the Hang Seng Index rose to 3,310 in May from its
previous year-end level of 2,687, but fell to 2,094 in early June
following the events at Tiananmen Square. See "Appendix A: People's
Republic of China." The Hang Seng Index gradually climbed in subsequent
months, but fell by 181 points on October 13, 1989 (approximately 6.5%)
following a substantial fall in the U.S. stock market, and at the year end
closed at a level of 2,837.
Trading. Trading on the HKSE is conducted through a computerized
system to convey bid and asked prices for securities. Trades are then
effected on a matched trade basis directly between buyers and sellers. All
securities are traded in board lots. For most companies a board lot is
1,000 shares, although board lots can vary in size from 100 to 5,000
shares. Odd lots are traded separately, usually at a small discount to the
board lot prices. Share certificates in board lots, together with transfer
deed, must be delivered on the day following the transaction. Payment is
due against delivery. A brokerage commission of 0.25% (with a minimum of
H.K. $50) is standard. In addition, trades are subject to a transaction
levy of 0.025% payable equally to the HKSE and the Hong Kong Securities
and Futures Commission (the "SFC") and a special levy of 0.03%. Finally,
the Hong Kong government charges a stamp duty of H.K. $2.50 for every H.K.
$1,000 of the transaction price or any part thereof.
Regulation and Supervision. The SFC was established by the Hong Kong
government in May 1989 as an autonomous statutory body outside the civil
service which provides a general regulatory framework for the securities
and futures industries. The SFC administers certain elements of Hong Kong
securities law including those ordinances governing the protection of
investors, disclosure of interests and insider dealing.
The governing authority of the Hong Kong Stock Exchange is its
Council, which is comprised of 30 members. The Council is responsible for
formulating policies and oversees the operations of the HKSE through
standing committees. Eighteen Council members are representatives of the
brokerage firms in Hong Kong, nine are representatives of investment and
merchant banking firms and two are appointed by the Hong Kong government.
The chief executive officer of the HKSE serves on the Council on an
ex-officio basis. Of the 18 broker representatives on the Council, four
are elected by the top 14 major brokers which have the top third of market
share, five are elected by the 51 middle tier brokers having the middle
third of market share, and nine are elected by the entire brokerage
community.
The HKSE promulgates its own rules governing share trading and
disclosure of information to shareholders and investors. Companies listed
on the HKSE enter into a listing agreement with the exchange which
includes provisions requiring that listed companies send interim and
annual accounts to shareholders. In addition, the Hong Kong Code on
A-16
<PAGE>
Takeovers and Mergers (used by the SFC) provides guidelines for companies
and their advisers contemplating, or becoming involved in, takeovers and
mergers.
Foreign Investment Restrictions. There are no regulations governing
foreign investment in Hong Kong. There are no exchange control regulations
and investors have total flexibility in the movement of capital and the
repatriation of profits. Funds invested in Hong Kong can be repatriated at
will; dividends and interest are freely remittable.
DIRECT INVESTMENTS IN CHINA
Since 1978, foreign direct investments in China have increased and have
become an important element in China's economy. Hong Kong and Macao have
been the most important source of foreign direct investments in China,
accounting for 64.9% in 1993 and 59.9% in 1994 of total direct foreign
investments.
Direct foreign investments in China, by number of contracts and
contract value, during 1979 to 1993 were as follows:
DIRECT FOREIGN INVESTMENT
<TABLE>
<CAPTION>
1979-
1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994
---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Number of Contracts
(in thousands) ..................... 3.22 3.07 1.50 2.19 5.95 5.78 7.27 n.a. 48.0 83 48
Value of Contracts (in U.S. $
billion)
(pledged) .......................... 8.99 5.93 2.83 3.71 5.30 5.60 6.60 12.0 58.1 112.9 70.8
Actual Value of Contracts Utilized
(in U.S. $ billion) ................ 1.8 2.3 3.2 3.4 3.4 4.4 11.0 20.0 29.0
----------------
</TABLE>
Source: figures for 1979 to 1990, Ministry of Foreign Economic Relations
and Trade; figures for 1991, State Statistical Bureau of the People's
Republic of China.
FORM OF DIRECT FOREIGN INVESTMENTS
Direct foreign investments in China have taken a variety of forms,
A-17
<PAGE>
including:
(a) Equity Joint Ventures
Equity joint ventures are principally owned by The Law of the
People's Republic of China on Joint Ventures Using Foreign and Chinese
Investment, promulgated in 1979. This law is among the first principal
pieces of legislation relating to foreign direct investments in China. It
is supplemented by rules and regulations governing taxation, labor and
other matters relating to equity joint ventures. Equity joint ventures are
limited liability legal entities in which Chinese and foreign partners
hold equity stakes.
(b) Contractual or Cooperative Joint Ventures
Contractual or cooperative joint ventures are governed by The Law of
the People's Republic of China on Chinese-Foreign Cooperative Joint
Ventures of 1988. They are established by contracts between a Chinese
party and a foreign party. Unlike equity joint ventures, in which the
rights, liabilities, obligations and profit sharing arrangements between
the joint venture partners are usually defined by reference to their
respective equity interests in the joint venture, the rights, liabilities,
obligations and profit sharing arrangements between the parties in
contractual or cooperative joint ventures usually are specifically
negotiated and set out in the joint venture contract. This type of joint
venture is generally perceived to have a greater degree of flexibility
than equity joint ventures.
(c) Wholly Foreign-Owned Enterprises
Foreign companies are permitted to establish wholly-owned subsidiaries
in China. Such wholly foreign-owned enterprises are governed by The Law of
the People's Republic of China on Wholly Foreign-Owned Enterprises of
1986. These enterprises are required to utilize advanced technology and
equipment or to export 50% or more of their finished products.
(d) Processing and Assembly Agreements
In this form of investment, the Chinese party normally provides the
factory, power and other utilities, and labor, and the foreign party
supplies the raw materials. The foreign party pays a processing or
assembling fee to the Chinese party and has ownership of the finished
products.
(e) Compensation Trade
In this form of investment, the foreign party provides services,
equipment, training and/or technical know-how to the Chinese party and, in
exchange, receives compensation in the form of finished products produced
by the Chinese party.
A-18
<PAGE>
PRIORITY INVESTMENT AREAS
In order to help modernize the Chinese economy, China has established
zones in which foreign investment is encouraged.
(a) Special Economic Zones
In 1980, China established special economic zones to attract foreign
capital, technology, and expertise by offering investors in these zones
tax incentives and other preferential treatment. Four of the five special
economic zones in China are located in the Guangdong and Fujian Provinces,
Shenzhen, Shantou and Zhuhai in Guangdong Province and Xiamen in Fujian
Province.
(b) Open Coastal Cities
In April 1984, 14 areas were designated "open coastal cities" where,
like the special economic zones, preferential investment terms are offered
to investors. These cities are Qinhuangdao, Dalian, Tianjin, Yantai,
Qingdao, Lianyungang, Nantong, Shanghai, Ningbo, Wenzhou, Fuzhou,
Guangzhou, Beihai and Zhanjiang.
(c) Coastal Open Economic Zones
In the late 1980s, five areas were designated coastal open economic
zones: Liaodong Peninsula and Shangdong Peninsula in northeast China, the
Yangtze River Delta in the eastern Jiangsu Province, the Minnan Delta in
Fujian Province and the Pearl River Delta in southern Guangdong Province.
(d) Shanghai's Pudong District
In 1990, the Pudong area of Shanghai was also designated an open zone
for foreign investments with autonomy equivalent to that of a special
economic zone.
(e) High and New Technology Industrial Development Zones
High and new technology industrial development zones were first
introduced in 1988 to offer preferential treatment to enterprises which
have been confirmed as technology intensive in accordance with the
requirements formulated by the State Science and Technology Commission.
There are 27 high and new technology industrial development zones which
have been approved by the State Council. These zones presently exist in
Beijing, Changchun, Changsha, Chengdu, Chongqing, Dalian, Fuzhou,
Guangzhou, Guilin, Hainan, Hangzhou, Harbin, Hefei, Jinan, Lanzhou,
Nanjing, Shanghai, Shenyang, Shenzhen, Shijiazhuang, Tianjin, Weihai,
Wuhaxn, Xi'an, Xiamen, Zhengzhou and Zhongshan.
A-19
<PAGE>
APPENDIX B
CHINA REGION COUNTRIES
The information set forth in this Appendix has been extracted from
various government and private publications. The Board of Trustees make no
representation as to the accuracy of the information, nor has the Board of
Trustees attempted to verify it.
PEOPLE'S REPUBLIC OF CHINA
GENERAL INFORMATION
LOCATION AND GEOGRAPHY
China is the world's third largest country occupying a region of 9.6
million square kilometers. It borders Russia and Mongolia in the north and
joins the borders of Vietnam, Laos, Myanmar and Bhutan in the south. To
the west and northwest are states of Afghanistan, Pakistan, India and
Nepal and to the east is North Korea. The terrain in the west is dominated
by steppes, vast deserts and high mountain ranges. Mountain areas and
highlands account for about two-thirds of the Chinese territory. To the
east, China has two of the world's greatest rivers, Huang He (Yellow
River) and Chang Jiang (Yangtze River). Cultivation is concentrated in the
north eastern half of the country where flatter terrain and proximity to
the coast and major river basins compensate for lower rainfall.
The country is divided into 23 provinces, three municipalities
(Beijing, Shanghai and Tianjin) and five autonomous regions (Guangxi
Xhuang, Nei Mongol, Ningxia Hui, Xinjiang Uygur and Xizang (Tibet)). The
capital and political center of China is Beijing. Shanghai is the largest
city and is also the commercial and financial capital.
POPULATION
China is the world's most populous nation, consisting of more than
one- fifth of the human race. The estimated population was approximately
1.199 billion as of December 1994. According to the government census, the
figure represented an average annual increase of 1.48 percent over 1982.
China has engaged in a 20-year plan for restraining population growth as
part of its economic modernization program. Despite the plan, the
population is likely to exceed 1.300 billion by the year 2000. Over 80
percent of the population is concentrated in the eastern half of the
country as a result of systematic cultivation.
B-1
<PAGE>
The following table presents information regarding China's population
growth since 1950.
POPULATION
<TABLE>
<CAPTION>
TOTAL ANNUAL
POPULATION URBAN RURAL GROWTH RATE
YEAR (MILLION) % % (%)
---- ---------- ----- ----- -----------
<S> <C> <C> <C> <C>
1950 ............................................. 551.96 11.18 88.82 1.900
1955 ............................................. 614.65 13.48 86.52 2.032
1960 ............................................. 662.07 19.75 80.25 (.457)
1965 ............................................. 725.38 17.98 82.02 2.838
1970 ............................................. 829.92 17.38 82.62 2.583
1975 ............................................. 924.20 17.34 82.66 1.569
1980 ............................................. 987.05 19.39 80.61 1.187
1985 ............................................. 1,058.51 23.71 76.29 1.426
1990 ............................................. 1,143.33 26.41 73.59 1.439
1991 ............................................. 1,158.23 26.37 73.63 1.298
1992 ............................................. 1,171.71 27.63 72.37 1.160
1993 ............................................. 1,185.17 28.14 71.86 1.145
1994 ............................................. 1,198.50 28.62 71.38 1.121
</TABLE>
Notes: (i) Population figures for 1985 and 1990 were estimated based on
the Fourth (1987) National Population Census.
(ii) The 1985 growth rate was estimated based on the Third (1982)
and Fourth (1990) National Population Census. The 1990 growth
rate is from the National Sample Survey on Population Change in
1990. The earlier growth rates are from the Annual Report of the
Ministry of Public Security.
Source: China Statistical Yearbook 1995, State Statistical Bureau of the
People's Republic of China.
The population is homogeneous, composed of mostly the Han ethnic
group. The national language is Putonghua which is based on Mandarin and
was simplified in 1945. Over 93 percent of the population speaks one of
the five main Sino-Tibetan dialects which are Mandarin, Cantonese,
Fukienese, Hakka and Wu. Religion is not a major source of ethics for
Chinese and is not a divisive force among its population. Some 20 percent
of the population practice Confucianism and 8 percent are Buddhists.
POLITICAL HISTORY
The Chinese state has origins dating back to the second millennium BC.
A long history of feudalism existed before a single Chinese empire was
created. Gradually, an imperial system developed under the rule of
B-2
<PAGE>
successive Chinese and non-Chinese dynasties. The Manchu Dynasty, the last
ruling dynasty, came to an end in 1911 as a result of both an erosion of
power from unequal foreign treaties and a coup. Following the collapse of
the dynasty, a period of political instability and power struggle ensued
between the Kuomintang (Nationalist Party) and the Chinese Communist
Party. In 1945, with the Japanese surrender, the Communist Party under Mao
Zedong seized most of the formerly occupied China, defeating the
Nationalist Party forces in a civil war. With the victory by the
Communists, the Nationalists under the leadership of Chiang Kaishek fled
the mainland to Taiwan where they established a separate government. In
1949, The Communist Party established the People's Republic of China.
Since 1949, the Communist government engaged in numerous campaigns to
industrialize the country with programs such as the "Great Leap Forward",
which fell short of its goals to increase industrial production and gave
rise to famine. In 1966, the government launched the Cultural Revolution
seeking to purge many of its political dissidents in order to centralize
the political power within the Communist Party. The campaign failed to
significantly restore socialist ideals and the Party experienced a loss of
credibility with the masses. The failure of the Communist Party to achieve
substantive economic reform eventually led to political domination by the
army.
In the 1970's, the Chinese government, which had remained isolated
from the world, opened its doors. President Nixon's historic visit to
China in 1972 established diplomatic ties between China and the United
States. China also renewed diplomatic and trade relations with Western
Europe, Japan and other Asian nations such as Singapore, Indonesia and
South Korea. Following Mao Zedong's death in 1976, and the election of
Deng Xiaoping as China's paramount leader, China has continued to pursue
an "Open Door Policy" encouraging foreign investment and expertise inside
its borders. Deng's leadership has emphasized pragmatism rather than Party
ideology.
In 1989, a growing dissatisfaction with the Communist government led
to anti-government student protests culminating in what is known as the
Tiananmen Square incident. The government's use of the military to
suppress a peaceful demonstration resulted in world-wide criticism.
Currently, the leadership under Deng Xiaoping remains committed to basic
economic reforms but continues to reject liberalization from the
domination of the Communist Party in the political decision-making
process. The Chinese leadership still faces the challenge of maintaining
power under the Communist Party while fending off Western political
ideologies.
China currently has diplomatic ties with approximately 140 nations. It
is a charter member of the United Nations and a permanent member of the
United Nations Security Council. Currently, China is seeking admission to
the General Agreement on Tariffs and Trade.
GOVERNMENT
B-3
<PAGE>
China is currently governed under a new Constitution adopted on
December 4, 1982. The highest ranking organization in the state power
hierarchy is the National People's Congress (NPC) which is composed of
deputies elected by all the regions for a term of five years. The NPC has
2,970 members with extensive powers to amend the constitution and make
laws. However, many view the main purpose of this law-making body to be
solely to approve Party policy. When the NPC is not in session, the NPC
Standing Committee exercises its functions, including formulation of state
policy, enactment of laws, examination and approval of state plans and
budgets, and amending and enforcing the Constitution. The NPC elects the
head of state and the State Council. The State Council is the highest
executive body, composed of the Premier, Vice Premiers, State Councilors,
Ministers, the Auditor General and the Secretary General. The State
Council has the power to enact administrative rules and regulations, issue
orders, appoint, remove and train administrative officers, supervise the
ministries and local governments, coordinate the work of the ministries
and state commissions and declare martial law. The current Premier is Li
Peng and the current President is Yang Shangkun, a professional soldier
from the Deng faction.
The Chinese Communist Party was established in 1921 and has remained
the ruling party since 1949. The Party is hierarchically organized, with a
membership of over 48 million members. The Party's structure parallels
that of the Government with a National Party Congress, Central Committee
and Standing Committee. Because Party membership is a prerequisite for
holding influential government positions, a significant overlap between
the two structures exists which adds to administrative inefficiencies.
Furthermore, the Party's close alignment with the military is a great
source of political power as evidenced by the outcome of the Tiananmen
incident. Efforts to reduce the Communist Party's participation in
commercial and administrative decision-making have so far been largely
unsuccessful.
THE CHINESE ECONOMY
OVERVIEW AND RECENT DEVELOPMENTS
China has operated a centrally planned economy since 1949. The First
Five- Year Economic Plan was set forth in 1953 to stimulate economic
growth and development. Currently, China is in its second year of its
Eighth Five-Year Economic Plan. In 1978, China instituted an economic
reform program to shift from a completely centrally planned economy to a
more mixed economy. The program liberalized China's economy and opened it
to foreign investment. Currently, under a system called "socialism with
Chinese characteristics," these economic reforms appear to continue in a
more comprehensive manner. Managers of enterprises have been granted more
decision-making powers, including the planning of production, marketing,
use of funds and employment of staff. Goods which are controlled and
distributed by the state are still sold at planned prices. However, the
goods produced in excess of the state production plan may be sold at
floating prices, negotiated prices or free prices.
B-4
<PAGE>
Over the past decade, China has achieved annual growth in real gross
national product (GNP) averaging 10%. GNP in 1994 had increased to over
3.8 times the GNP in 1980 in real terms. However, growth has been
unsteady, with booms in 1984 and 1988 and downturns in 1981 and 1989. In
1988, the Chinese Government instituted an austerity program which slowed
the Chinese economy in the following year. However, growth increased after
1989, achieving growth rates of 9.5% in 1991, 14% in 1992, 13.3% in 1993
and 11.6% in 1994.
The economy in China consists of three sectors: state, cooperative,
and private. The state sector, though decreasing from 76% of GNP in 1980
to approximately 50% in 1991, continues to constitute the bulk of the
economy. In recent years, however, the economy has been significantly
restructured through the abolition of the commune system in rural areas
and the relaxing of government authority in the day to day operations in
both agricultural and industrial enterprises. As the government assumes
more of a regulatory and supervisory role and less of a direct management
role, market forces have been allowed to operate. This has resulted in
increased productivity and rising incomes.
China's economic policy is set out in two overlapping plans, the
20-Year Plan (1981-2000) and the Ninth Five-Year Economic Plan
(1996-2000). The 20- Year Plan calls for an average 7% growth in GNP over
the entire 20-year period; the initial decade was to be a period of
reorganization, with the second decade one of rapid economic progress. The
7% mark was exceeded in the initial decade, with growth rates averaging
9.4%. The second decade growth, thus far, is in step with the desired
growth of the 20-Year Plan. The Ninth Five-Year Economic Plan calls for 6%
annual growth, starting in 1995.
The following table sets forth selected data regarding the Chinese
economy.
MAJOR ECONOMIC INDICATORS
<TABLE>
<CAPTION>
1988 1989 1990 1991 1992 1993 1994
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Gross National Product
(% annual real growth) ............... 11.3 4.1 3.8 9.3 14.2 13.5 11.8
(nominal, RMB billion) ............... 1,492.8 1,690.9 1,853.1 2,161.8 2,663.5 3,451.5 4,500.6
(nominal, U.S. $ billion)* ........... 401.3 358.2 355.8 368.1 463.2 595.1 533.2
Per Capita GNP (U.S. $) ................ 364.2 320.1 313.0 346.8 397.9 504.5 435.9
17.9 6.8 6.0 14.2 20.4 23.6 21.7
Inflation (retail price index, % annual
growth) .............................. 18.6 17.8 2.1 3.0 6.2 13.2 21.8
20.7 18.7 28.9 27.6 29.5 23.6 34.4
Government Budget Surplus/Deficit
(U.S. $ billion)* .................... (2.1) (1.9) (2.7) (3.9) (7.8) (10.3)
B-5
<PAGE>
Exports (U.S. $ billion) ............... 47.6 52.5 62.1 71.9 85.1 91.7 121.0
(% annual growth) .................... 20.8 10.2 17.9 15.8 18.3 7.93 31.9
Imports (U.S. $ billion) ............... 55.3 59.1 53.3 63.8 80.8 103.9 115.7
(% annual growth) .................... 28.0 6.8 (9.8) 19.5 26.6 28.9 11.2
Trade Balance (U.S. $ billion) ......... (7.8) (6.6) 8.6 8.1 4.3 (12.2) 5.3
Exchange Rate (RMB/U.S. $) ............. 3.72 4.72 5.22 5.43 5.75 5.8 8.44
----------------
<FN>
*Translated at the respective exchange rate for each year shown in the table.
</TABLE>
Sources: China Statistical Yearbook, 1995 State Statistical Bureau
of the People's Republic of China, Baring Securities.
PRINCIPAL ECONOMIC SECTORS
Industry. In 1990, industry accounted for 45.8% of China's National
Income. In the first three decades under Communist rule, China placed
great emphasis on heavy industry. Since the reform program began in 1978,
a much greater emphasis has been placed on light industry. Considerable
industrial growth has come from industrial enterprises in rural townships
which are engaged in the processing and assembly of consumer goods. These
operations are concentrated in southern China, where a major light
industrial base has developed. Industrial output has grown rapidly and is
increasingly important to the Chinese economy.
China's current industrial policy also places emphasis on
high-technology industries supported by foreign technology, such as
micro-electronics and telecommunications. However, overstocking and poor
economic results continue to plague Chinese industry. Continued growth has
been hampered by problems of access to raw materials and energy supplies.
The following table sets forth the quantities and total value of
China's major industrial products for selected years.
INDUSTRIAL PRODUCTION
<TABLE>
<CAPTION>
ITEM 1952 1978 1980 1985 1989 1990 1994
---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Gross Output Value of Industry (RMB billions) ............... 34.9 423.7 515.4 971.6 2,201.7 2,392.4 7,690.9
Output of Major Industrial Products Cloth (meters billions) . 3.83 11.03 13.47 14.67 18.92 18.88 21.13
Machine-Made Paper and Paper boards (metric tons millions) 0.37 4.39 5.35 9.11 13.33 13.72 21.38
Sugar (metric tons millions) .............................. 0.45 2.27 2.57 4.51 5.01 5.82 5.92
Bicycles (metric tons millions) ........................... 0.08 8.54 13.02 32.28 36.77 31.42 43.65
Sewing Machines (thousands) ............................... 66 4,865 7,678 9,912 9,563 7,610 8,612
Wrist Watches (thousands) ................................. -- 13,511 22,155 54,311 72,756 83,526 453,945
Household Refrigerators (thousands) ....................... -- 28 49 1,448 6,708 4,631 7,681
B-6
<PAGE>
Television Sets (thousands) ............................... -- 517.3 2,492 16,676.6 27,665.1 26,847 32,833
Color Television Sets (thousands) ....................... -- 3.8 32 4,352,8 9,400.2 10,330.4 16,891.5
Household Washing Machines (thousands) .................... -- 0.4 245 8,872 8,254.3 6,626.8 10,942.4
Cassette Recorders (thousands) ............................ -- 47 743 13,931 23,490 30,235 83,956
Cameras (thousands) ....................................... -- 178.9 372.8 1,789.7 2,451.8 2,132.2 28,300.2
Coal (metric tons millions) ............................... 66 618 620 872 1,054 1,080 1,240
Crude Oil (metric tons millions) .......................... 0.44 104.05 105.95 124.90 137.64 138.31 146.08
Electricity (kilowatt hours billions) ..................... 7.3 256.6 300.6 410.7 584.8 621.2 928.1
Steel (metric tons millions) .............................. 1.35 31.78 37.12 46.79 61.59 66.35 92.61
Rolled Steel (final products) (metric tons millions) ...... 1.06 22.08 27.16 36.93 48.59 51.53 84.28
Cement (metric tons millions) ............................. 2.86 65.24 79.86 145.95 210.29 209.71 421.18
----------------
Source: China Statistical Yearbook, 1995, State Statistical Bureau of the
People's Republic of China.
</TABLE>
Agriculture. Although long term growth in agricultural production has
slowed, China remains one of the world's largest agricultural producers.
The government has emphasized diversification of production, and a
commitment to the maintenance of grain outputs. Other agricultural
products have also shown increases in production in recent years, with
cotton production at the forefront.
The following table sets forth the quantities and total value of
China's leading agricultural products for selected years.
AGRICULTURAL PRODUCTION
<TABLE>
<CAPTION>
ITEM 1952 1978 1980 1985 1989 1990 1994
---- ---- ---- ---- ---- ---- ---- ----
<S> C> <C> <C> <C> <C> <C> <C>
Gross Output Value (RMB billions) .......................... 46.1 139.7 192.3 361.9 653.5 766.2 1,595.0
Output of Major Farm Products Grain (metric tons millions) . 163.92 304.77 320.56 379.11 407.55 446.24 445.10
Cotton (metric tons thousands) ........................... 1,304 2,167 2,707 4,147 3,788 4,508 4,341
Oil-Bearing Crops (metric tons thousands) ................ 4,193 5,218 7,691 15,784 12,952 16,132 19,896
Sugar Cane (metric tons thousands) ....................... 7,116 21,116 22,807 51,549 48,795 57,620 60,927
Beet Roots (metric tons thousands) ....................... 479 2,702 6,305 8,919 9,253 14,525 12,526
Tea (metric tons thousands) .............................. 82 268 304 432 535 540 588
Fruits (metric tons thousands) ........................... 2,443 6,570 6,793 11,639 18,319 18,744 34,998
Pork, Beef and Mutton (metric tons thousands) ............ 3,385 8,563 12,054 17,607 23,262 25,135 36,927
Aquatic Products (metric tons millions) ................... 1.67 4.66 4.50 7.05 11.52 12.37 21.43
----------------
Source: China Statistical Yearbook, 1995, State Statistical Bureau of the People's Republic of China.
</TABLE>
The following table provides a breakdown of the value of China's
agricultural production for 1989, 1990 and 1994.
B-7
<PAGE>
VALUE OF AGRICULTURAL PRODUCTS(1)
<TABLE>
<CAPTION>
1989 1990 1994
(RMB MILLION) (RMB MILLION) (RMB MILLION)
------------- ------------- -------------
<S> <C> <C> <C>
Gross Output Value ........................................................ 653,473 766,209 1,575,047
Farming ................................................................... 367,446 448,174 916,922
Grain ................................................................. 219,551 270,492 462,407
Industrial Crops ...................................................... 64,661 83,842 396,112
Other Crops ........................................................... 83,234 93,840 349,993
Forestry .................................................................. 28,492 33,027 61,107
Animal Husbandry .......................................................... 179,741 196,407 467,199
Fishers ................................................................... 34,885 41,056 129,819
<FN>
----------------
(1) At current prices.
</TABLE>
Source: China Statistical Yearbook, 1995, State Statistical Bureau of the
People's Republic of China.
Energy. Although China has a vast potential for energy production,
this potential has been largely untapped. However, China is the world's
largest producer of coal and the world's fifth largest oil producer. Until
recently, China did not have the capacity to utilize its off-shore oil
fields due to the country's relatively low level of technology. Joint
ventures with foreign companies, however, have allowed China to use the
fields, and further growth in oil production, both off-shore and on-shore,
is expected. China also has significant potential for harnessing
hydroelectric power, but has utilized only a small portion of this
potential. China is planning to make hydroelectric power a major source of
energy in the years ahead.
The following table sets forth China's energy production and
consumption for the years 1980 to 1994, as well as the percentage
contributions of the key energy sources.
ENERGY PRODUCTION AND CONSUMPTION
<TABLE>
<CAPTION>
TOTAL TOTAL
PRODUCTION % OF TOTAL PRODUCTION CONSUMPTION
(MILLION ----------------------------------- (MILLION
METRIC TONS NATURAL HYDRO- METRIC TONS
YEAR OF SCE)(1) COAL OIL GAS ELECTRIC OF SCE)(1)
---- ---------- ---- --- ------- -------- ----------
B-8
<PAGE>
<S> <C> <C> <C> <C> <C> <C>
1980 ......... 637.35 69.4 23.8 3.0 3.8 602.75
1981 ......... 632.27 70.2 22.9 2.7 4.2 594.47
1982 ......... 667.78 71.3 21.8 2.4 4.5 620.67
1983 ......... 712.70 71.6 21.3 2.3 4.8 660.40
1984 ......... 778.55 72.4 21.0 2.1 4.5 709.04
1985 ......... 855.46 72.8 20.9 2.0 4.3 766.82
1986 ......... 881.24 72.4 21.2 2.1 4.3 808.50
1987 ......... 912.66 72.6 21.0 2.0 4.4 866.32
1988 ......... 958.01 73.1 20.4 2.0 4.5 929.97
1989 ......... 1,016.39 74.1 19.3 2.0 4.6 969.34
1990 ......... 1,039.22 74.2 19.0 2.0 4.8 987.03
1991 ......... 1,048.44 74.1 19.2 2.0 4.7 1,037.83
1992 ......... 1,072.56 74.3 18.9 2.0 4.8 1,091.70
1993 ......... 1,069.95 76.8 19.4 2.1 1.7 1,073.73
1994 ......... 1,140.09 77.1 18.3 2.0 2.0 1,180.95
----------------
(1) Excludes bio-energy, solar, geothermal and nuclear energy. All
fuels converted to Standard Coal Equivalent (SCE); 1 kg of
coal = 0.714 kg of SCE, 1 kg of oil = 14.6 kg of SCE, 1 cubic
meter of natural gas = 1.33 kg of SCE; Hydroelectric converted
to SCE based on coal required to produce equivalent thermal
external-electric power.
Source: China Statistical Yearbook, 1995, State Statistical Bureau of the
People's Republic of China.
</TABLE>
ECONOMIC PLANS
China's Eighth Five-Year Economic Plan for national economic and
social development was adopted by the Standing Committee of the National
People's Congress for 1991-95, along with a ten-year development program
which extends to the year 2000. Included in both of these plans is an
objective for China to quadruple its gross national output by the end of
this century. In addition, the proposals emphasize a policy of opening to
the outside world, expanded economic and technological exchanges with
other countries, and further development of the export-oriented economy
and the special investment areas. The basic guideline for China's economic
activities in 1992 is to continue on a path of economic reform while
following principles of socialism.
During 1980 to 1990, China had an average annual GNP growth rate of
approximately 9.0%, surpassing the 7.5% annual GNP growth rate target
under the Seventh Five-Year Economic Plan (1986-1990).
China's objective to quadruple the 1980 industrial and agricultural
output by the year 2000 requires the country's output to grow at an
average annual rate of growth of about 6% in the 1990's. To enable China
to accomplish this growth target under the prevailing economic
environment, China's economic policy aims to provide a stable and
non-inflationary environment to revive growth. Another prevailing goal is
to relieve the supply bottlenecks arising from imbalanced growth over the
B-9
<PAGE>
last 10 years with resources to be allocated to the priority areas of
agriculture, energy, transportation, telecommunications and basic
materials industries. Emphasis is also placed on export-oriented and
import-substitute production.
THE FINANCIAL SYSTEM
The Ministry of Finance is responsible for overseeing state finances
and the collection of revenue and taxation. The banking system is managed
by China's central bank, the People's Bank of China ("PBOC"). The PBOC,
like the Ministry of Finance, is a state administrative organ under the
leadership of the State Council. Its primary functions include: the
formation of national financial regulations and policies; the issuance of
currency and regulation of its circulation; the co-ordination and
implementation of credit plans; overseeing the establishment and operation
of financial institutions and financial markets, including stock
exchanges; administration of China's foreign exchange and gold reserves
and adjustment of exchange rates against foreign currencies; and
administration of China's securities markets.
There are currently five specialized banks, namely, the Industrial and
Commercial Bank of China, the China Investment Bank, the Agricultural Bank
of China, the People's Construction Bank of China, and the Bank of China
(the "BOC"). Trust and investment companies and credit cooperatives also
provide financial services in China. Major trust and investment
corporations include China International Trust and Investment Corporation
("CITIC"), Shanghai Investment and Trust Corporation ("SITCO"), and
Guangdong International Trust and Investment Corporation ("GITIC").
SAVINGS AND INVESTMENT
Historically, China has had a relatively high rate of national
savings. The following table sets out the value of savings deposit
balances for selected years.
SAVINGS DEPOSIT BALANCES
(RMB BILLION)
<TABLE>
<CAPTION>
YEAR-END TOTAL URBAN AREAS RURAL AREAS
-------- ----- ----------- -----------
<S> <C> <C> <C>
1955 .............................................................. 1.99 1.69 0.30
1960 .............................................................. 6.63 5.11 1.62
1965 .............................................................. 6.52 5.23 1.29
1970 .............................................................. 7.95 6.45 1.50
1975 .............................................................. 14.96 11.46 3.50
1980 .............................................................. 39.95 28.25 11.70
1985 .............................................................. 162.26 105.78 56.48
1990 .............................................................. 703.42 519.26 184.16
1994 .............................................................. 3,682.98 1,584.45
----------------
</TABLE>
B-10
<PAGE>
Source: China Statistical Yearbook, 1995, State Statistical Balances of
the People's Republic of China.
The following table provides a breakdown of total fixed investment in
China for the years 1985 to 1990 and 1994.
TOTAL FIXED INVESTMENT
(RMB MILLION)
<TABLE>
<CAPTION>
ITEM 1985 1986 1987 1988 1989(A) 1990(A) 1994
---- ---- ---- ---- ---- ------- ------- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Total Investment ..... 254,319 301,962 364,086 449,654 413,773 444,929(c) 1,637,033
Ownership
State-Owned Units .. 168,051 197,850 229,799 276,276 253,548 291,864(c) 932,249
Capital
Construction ......... 107,437 117,611 134,310 157,431 155,174 170,381 643,674
Technical Updating
and Transformation ... 44,914 61,921 75,859 98,055 78,878 83,019
Other Investment in
Fixed Assets(b) ...... 15,700 18,318 19,630 20,790 19,497 19,907
Collective -- Owned
Units ................ 32,746 39,174 54,701 71,171 56,999 52,948 266,470
Urban ............ 12,823 14,639 18,130 25,497 18,563 16,338
Rural ............ 19,923 24,535 36,571 45,674 38,436 36,610 198,857
Individual
Investment ....... 53,522 64,938 79,586 102,208 103,226 100,117 197,056
Urban ............ 5,679 7,456 10,051 15,685 14,023 12,470
Rural ............ 47,843 57,482 69,535 86,523 89,203 87,647 151,924
Source of Finance
State Appropriation 40,780 44,063 47,554 41,001 34,162 38,765 52,957
Domestic Loans ..... 51,027 63,831 83,594 92,668 71,636 87,088 370,311
Foreign Investment . 9,148 13,216 17,537 25,899 27,415 27,826 176,895
Self-Raised Funds .. 148,851 174,518 235,550 232,949 800,148
153,364 290,087
Others ............. 32,000 40,883 45,009 58,301 254,339
----------------
<FN>
Notes:
(a) 1989 and 1990 figures exclude projects with value of RMB
20-50 thousand.
(b) Includes investment in oilfield maintenance and development,
mine expansion projects, highway maintenance and bridge
construction, warehouse construction and projects valued RMB
20-50 thousand for fixed asset construction or equipment
purchase.
(c) Includes RMB 18.557 billion investment to purchase buildings.
Source: China Statistical Yearbook, 1995, State
Statistical Bureau of the People's Republic of China.
</TABLE>
INFLATION AND MONETARY POLICY
B-11
<PAGE>
Inflationary pressures are a major concern in the Chinese economy.
While the retail price index has been relatively stable in recent years,
this figure understates inflation, especially urban inflation. A more
informative measure is the cost of living index in 35 major cities, which
has generally risen at a higher rate. In light of the on-going reforms of
price subsidies and continued growth, relatively high inflation should be
expected.
The following table provides information regarding wage and price
inflation in China during the years 1980 to 1994.
WAGE AND PRICE INFLATION (%)
<TABLE>
<CAPTION>
GENERAL RETAIL COST OF NOMINAL
YEAR PRICES LIVING WAGES
---- -------------- ------- -------
<S> <C> <C> <C>
1980 .............................................................. 6.0 7.5 4.1
1981 .............................................................. 2.4 2.5 1.3
1982 .............................................................. 1.9 2.0 3.4
1983 .............................................................. 1.5 2.0 3.5
1984 .............................................................. 2.8 2.7 17.9
1985 .............................................................. 8.8 11.9 17.9
1986 .............................................................. 6.0 7.0 15.8
1987 .............................................................. 7.3 8.8 9.8
1988 .............................................................. 18.5 20.7 19.7
1989 .............................................................. 17.8 16.3 10.8
1990 .............................................................. 2.1 1.3 10.6
1991 .............................................................. 2.9 5.1 9.3
1992 .............................................................. 5.4 8.6 15.9
1993 .............................................................. 13.2 16.1 24.3
1994 .............................................................. 21.7 25.0 34.6
----------------
Source: China Statistical Yearbook, 1995, State Statistical Bureau of the
People's Republic of China.
</TABLE>
China's monetary policy has vacillated between expansionist and
contractionist. This varying monetary policy has contributed to a
fundamental cycle of the Chinese economy in recent years: reform and
expansion leading to overheating of the economy and tightening of control.
PUBLIC FINANCE
Persistent fiscal deficits have been a macroeconomic management
problem in China in recent years. Despite efforts by the government to
increase revenues and control spending, deficits continue to be a problem.
The following table illustrates the persistent budget deficits for the
years 1980 to 1994.
B-12
<PAGE>
GOVERNMENT BUDGET
<TABLE>
<CAPTION>
TOTAL
TOTAL REVENUE EXPENDITURE BALANCE
YEAR (RMB BILLION) (RMB BILLION) (RMB BILLION)
---- ------------- ------------- -------------
<S> <C> <C> <C>
1980 .............................................................. 108.52 121.27 (12.75)
1981 .............................................................. 108.95 111.50 (2.55)
1982 .............................................................. 112.40 115.33 (2.93)
1983 .............................................................. 124.90 129.25 (4.35)
1984 .............................................................. 150.19 154.64 (4.45)
1985 .............................................................. 186.64 184.48 2.16
1986 .............................................................. 226.03 233.08 (7.05)
1987 .............................................................. 236.89 244.85 (7.96)
1988 .............................................................. 262.80 270.66 (7.86)
1989 .............................................................. 294.79 304.02 (9.23)
1990 .............................................................. 331.26 345.22 (13.96)
1991 .............................................................. 361.09 381.36 (20.27)
1992 .............................................................. 415.31 438.97 (23.66)
1993 .............................................................. 508.82 538.74 (19.92)
1994 .............................................................. 521.81 579.26 (37.95)
----------------
Source: China Statistical Yearbook, 1995, State Statistical Bureau of the
People's Republic of China.
</TABLE>
The following table provides information regarding how China finances
its deficit.
<TABLE>
<CAPTION>
GOVERNMENT DEBT
(RMB MILLION)
DEBT ISSUED DEBT RETIRED AND INTEREST PAID
--------------------------------------- ---------------------------------------------------
DOMESTIC
BONDS AND PEOPLE'S
TREASURY FOREIGN DOMESTIC FOREIGN BANK
YEAR TOTAL BILLS DEBT TOTAL BONDS DEBTS LOANS
---- ----- -------- ------- ----- -------- ------- -----
<S> <C> <C> <C> <C> <C> <C> <C>
1980 .................. 4,301 -- 4,301 2,858 -- 2,440 418
1981 .................. 7,308 -- 7,308 6,289 -- 5,780 500
1982 .................. 8,386 4,383 4,003 5,552 -- 4,962 590
1983 .................. 7,941 4,158 3,783 4,247 -- 3,656 591
1984 .................. 7,734 4,253 3,481 2,891 -- 2,274 617
1985 .................. 8,985 6,061 2,924 3,956 -- 3,259 697
B-13
<PAGE>
1986 .................. 13,825 6,251 7,574 5,016 798 3,449 769
1987 .................. 16,955 6,307 10,648 7,983 2,318 5,196 469
1988 .................. 27,078 13,217 13,861 7,675 2,844 4,258 573
1989 .................. 28,297 13,891 14,406 7,236 1,930 4,583 723
1990 .................. 37,545 19,724 17,821 19,040 11,375 6,821 844
1991 .................. 46,140 28,127 18,013 24,680 8,022 989
1992 .................. 66,968 46,077 20,891 43,857 8,026 1,578
1993 .................. 73,922 38,132 35,790 33,622 8,922 2,270
1994 .................. 117,525 102,857 14,668 99,936 36,496 10,717 2,723
----------------
Source: China Statistical Yearbook, 1995, State Statistical Bureau of the
People's Republic of China.
</TABLE>
[/R]
FOREIGN TRADE
As a result of the economic reforms commenced in 1978, China's foreign
trade has grown considerably in value, range of products and number of
trading partners. A major goal of China's trade policy is to increase the
percentage of manufactured goods in the country's total exports. Gradual
progress has been made in recent years with the aid of the imported
foreign technology. Textiles and garments together form the single largest
export category, representing 25% of total export values.
China's trade balance has fluctuated over the last five years. In 1991
China's foreign trade yielded a foreign trade surplus of U.S. $8.1
billion. Exports reached U.S. $71.9 billion, an increase of 15.8% over
that of 1990, and imports reached U.S. $63.8 billion, an increase of 19.5%
over the 1990 figure. Total trade for the year was approximately U.S.
$135.7 billion, up 17.5% over 1990. In 1990, China experienced a trade
surplus of $8.7 billion. In contrast, the country experienced trade
deficits of $7.8 billion and $6.6 billion, respectively, in 1988 and 1989.
The following table provides information about China's total import
and export values for the years 1981 to 1994.
IMPORTS, EXPORTS AND TRADE BALANCE
(U.S. $ BILLION)
<TABLE>
<CAPTION>
TRADE
YEAR TOTAL TRADE EXPORTS IMPORTS BALANCE
---- ----------- ------- ------- -------
<S> <C> <C> <C> <C>
1981 ............................................. 44.02 22.01 22.02 (0.01)
1982 ............................................. 41.61 22.32 19.26 3.04
1983 ............................................. 43.62 22.23 21.39 0.84
1984 ............................................. 53.55 26.14 27.41 (1.27)
1985 ............................................. 69.61 27.35 42.25 (14.90)
B-14
<PAGE>
1986 ............................................. 73.85 30.94 42.90 (11.96)
1987 ............................................. 82.65 39.44 43.22 (3.78)
1988 ............................................. 102.78 47.52 55.27 (7.75)
1989 ............................................. 111.68 52.54 59.14 (6.60)
1990 ............................................. 115.41 62.06 53.35 8.71
1991 ............................................. 135.70 71.90 63.80 8.10
1992 ............................................. 165.53 84.94 80.57 4.35
1993 ............................................. 195.70 91.74 103.96 (12.22)
1994 ............................................. 236.73 121.04 115.69 5.35
----------------
Sources: China's Customs Statistics, General Administration of Customs of the People's Republic of China; China
Statistical Yearbook, 1995, State Statistical Bureau of the People's Republic of China.
</TABLE>
Hong Kong is the leading destination for Chinese exports, accounting
for over 40% of total export volume. Hong Kong is also a major re-export
center for Chinese goods. Other large export markets for China include
Japan, the United States, and Germany. Over the past few years, China's
imports have continued to expand and diversify. Hong Kong, Japan and the
United States are China's top three suppliers. Other major suppliers
include Germany and Italy.
The following table lists China's top-ten trading partners, along with
the U.S. dollar value of the trade between China and each country for the
years 1989, 1990, 1991 and 1994.
MAJOR TRADING PARTNERS
<TABLE>
<CAPTION>
(U.S. $ MILLION)
TOTAL TRADE EXPORTS FROM CHINA IMPORTS TO CHINA
----------------------------- ----------------------------- ---------------------------
1989 1990 1991 1994 1989 1990 1991 1994 1989 1990 1991 1994
---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Hong Kong ........... 34,456 40,907 49,600 41,821 21,915 26,650 32,137 32,365 12,540 14,257 17,146 94,566
Japan ............... 18,928 16,599 20,284 47,894 8,394 9,011 10,252 21,373 10,533 7,587 10,032 26,321
United States ....... 12,273 11,767 14,202 35,432 4,409 5,179 6,194 21,461 7,863 6,588 8,008 13,470
Germany ............. 4,987 4,971 5,405 11,898 1,608 2,034 2,356 4,762 3,379 2,936 3,049 7,137
U.S.S.R.
(Russia) .......... 3,995 4,379 3,904 5,077 1,849 2,239 1,823 1,581 2,146 2,139 2,081 3,496
Singapore ........... 3,190 2,882 3,077 5,040 1,692 1,974 2,014 2,558 1,498 857 1,063 2,482
Italy ............... 2,550 1,904 2,389 4,654 714 835 931 1,591 1,835 1,069 1,458 3,068
France .............. 1,948 2,308 2,306 3,363 528 645 734 1,424 1,420 1,663 1,572 1,939
Australia ........... 1,895 1,808 2,110 3,940 423 455 554 1,488 1,472 1,353 1,556 2,452
United Kingdom ...... 1,718 2,026 1,670 4,184 635 643 728 2,414 1,083 1,383 942 1,770
----------------
B-15
<PAGE>
Sources: China Statistical Yearbook, 1995, State Statistical Bureau of the
People's Republic of China; China's Customs Statistics, General
Administration of Customs of the People's Republic of China.
</TABLE>
EXTERNAL DEBT AND FOREIGN CAPITAL UTILIZATION
China has traditionally adopted a policy of self-reliance when
financing development; overseas borrowings have been minimal. The country
has remained a conservative borrower but, since the early 1980s, has been
making greater use of foreign capital and financing, including
government-assisted facilities and project and trade financing.
The primary sources of foreign capital for China, in order of
importance, are as follows:
1) International Monetary Fund and World Bank loans and credits;
2) government low interest loans and credits; and
3) commercial loans and credits.
The following table shows the sources and types of foreign capital
utilized by China.
FOREIGN CAPITAL UTILIZATION
(U.S. $ MILLION)
<TABLE>
<CAPTION>
ITEM 1985 1989 1990 1994
---- ---- ---- ---- ----
<S> <C> <C> <C> <C>
Total ....................................................... 9,867.42 11,478.78 12,085.69 3,756.10
Foreign Loans ............................................... 3,534.21 5,184.69 5,099.37 10,668.00
Loans from International Monetary Organizations ........... 1,131.51 855.80 1,893.00 4,409.00
Governmental Loans ........................................ 1,020.53 1,471.25 719.37 125.00
Other ..................................................... 1,382.17 2,857.64 2,487.00 5,009.00
Direct Investment by
Foreign Businesses ........................................ 5,931.10 5,599.76 6,596.11 82,679.77
Joint Venture ............................................. 2,029.70 2,659.02 2,703.95 40,193.52
Co-Operative Operation .................................... 3,496.15 1,083.22 1,254.10 20,300.93
Co-Operative Development .................................. 359.59 203.74 194.25 236.66
Foreign Enterprises(1) .................................... 45.66 1,653.78 2,443.81 219.48
Other Foreign Investments ................................... 402.11 694.33 390.21 408.33
Compensation Trade ........................................ 260.34 474.75 202.65 195.60
Processing and Assembly ................................... 141.77 147.60 136.48 195.63
International Rent ........................................ -- 71.98 51.08 17.10
----------------
<FN>
Note: (1) Includes equipment supplied by foreign businesses in transactions in
B-16
<PAGE>
compensation trade, processing and assembly and value of equipment
supplied in financial leasing transactions.
Source: China Statistical Yearbook, 1995, State Statistical Bureau of the
People's Republic of China.
</TABLE>
EXCHANGE RATE AND FOREIGN EXCHANGE CONTROL
There is centralized control and unified management of foreign
exchange in China. The State Administration of Exchange Control (the
"SAEC") is responsible for matters relating to foreign exchange
administration, while the Bank of China (the "BOC") is in charge of
foreign exchange operations. Cooperating closely with the BOC, the SAEC
fixes the official daily exchange rate of RMB against major foreign
currencies.
There are two types of monetary instruments in China today, the RMB
and Foreign Exchange Certificates ("FEC"). The RMB is the official
currency in China and is currently not convertible into foreign exchange
unless converted with express written authorization from the SAEC. The FEC
is a Chinese currency established for use by foreigners in lieu of RMB and
is convertible into hard currency. Both RMB and FEC are denominated in the
monetary unit of "yuan" and are officially at par with each other. It is
expected that FECs will be withdrawn from circulation in the near future.
While foreign investment enterprises are able to remit from China any
profits earned in foreign exchange, RMB earnings within China cannot be
freely converted into foreign exchange except at the foreign exchange
adjustment ("swap") centers established by the SAEC. In order to provide
some relief from the controls imposed by the earlier foreign exchange
legislation, the State Council promulgated on January 15, 1986 the
"Regulations Concerning the Balance of Foreign Exchange Income and
Expenditure of Chinese-Foreign Equity Joint Ventures," which provide for a
number of mechanisms to allow foreign investment enterprises to "balance"
their foreign exchange income and expenditure. These mechanisms include
the sale of joint venture products within China for foreign exchange, the
export of products purchased with RMB from Chinese enterprises to generate
foreign exchange, short-term loans and the "swapping" of RMB for foreign
exchange with other foreign investment enterprises and Chinese
enterprises, among others.
The exchange rate fluctuates from time to time and from swap center to
swap center depending on supply and demand. The renminbi has been devalued
progressively in recent years, depreciating by almost 70% against the U.S.
dollar between 1981 and 1990.
The following chart lists comparative average exchange rates for the
renminbi and other selected currencies since 1986.
<TABLE>
<CAPTION>
B-17
<PAGE>
EXCHANGE RATES
(CURRENCY UNITS PER U.S. $)
1986 1987 1988 1989 1990 1991 1992 1993 1994
---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Australia ............. 1.491 1.472 1.275 1.262 1.280 1.284 1.363 1.974 1.370
New Zealand ........... 1.872 1.613 1.563 1.693 1.675 1.774 1.881 1.806 1.560
China ................. 3.7221 3.7222 3.7221 4.7221 5.2221 5.4000 5.8400 5.800 8.621
Hong Kong ............. 7.8030 7.7980 7.8060 7.8000 7.7950 7.7780 7.7400 7.730 7.730
Singapore ............. 2.1750 1.9985 1.9462 1.8944 1.7445 1.6190 1.6400 1.610 1.527
Korea ................. 861.4000 792.3000 684.1000 679.6000 716.4000 756.3000 781.0800 808.100 803.620
Taiwan ................ 35.5000 28.5500 28.1700 26.1600 27.1100 25.7475 25.2000 26.700 26.360
Malaysia .............. 2.6030 2.4928 2.7153 2.7033 2.6980 2.7410 2.6700 2.700 2.620
Philippines ........... 20.5300 20.8000 21.3350 22.4400 28.0000 26.0500 23.6000 27.100 26.300
Thailand .............. 26.1300 25.0700 25.2400 25.6900 25.2900 25.2600 25.9900 25.300 25.100
Indonesia .............1641.0000 1650.0000 1731.0000 1793.0000 1901.0000 1994.5000 2064.0000 2111.250 2161.000
----------------
Source: Wardley Investment Services, Baring Securities.
</TABLE>
TAIWAN
Taiwan is the most invisible country on the planet, and Taiwan is
recognized by very few countries, mostly small island states like itself
in the South Pacific and the Caribbean. And yet it is an oriental paradox
-- it has a financial and diplomatic influence which is out of all
proportion to its small size. For historical and cultural reasons Taiwan
stands between China and Japan. (The slow pace of the Sino-Japanese
relationship since 1972 may be partly caused by this conundrum.)
Indeed, if Taiwan is now going to be brought back into the fold it is
also reasonable to expect the level of Japanese investment and trade in
China to accelerate. It is very probable that Japan will use Taiwan as a
"middle-man" for trade and investment in China.
Taiwan is dependent on its close relationship with the United States
and its very successful diplomacy and public relations campaign which,
ever since Madame Chiang Kai-Shek's days in the 1940s has sustained a high
level of sympathy in Washington for the Nationalist regime. Taiwan also
has close relations with South Africa, from which it buys essential raw
materials such as coal, and also with Israel, with whom it has had
military as well as trade links.
For all these reasons, much of the real Taiwan has been hidden for
many years. It is misunderstood by Westerners -- the country has been the
most difficult of all Asian countries to follow and understand. However,
since the lifting of martial law in 1987 much of this has changed. People
in Taipei are again willing to talk openly and it is possible to begin to
understand the sense in which Taiwan has become a repository of much of
the best of the old Chinese traditions. In Taiwan can be found many of the
old Chinese arts -- a strong family life, Confucianism, a flourishing
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<PAGE>
trade in traditional Chinese medicines, the martial arts, an excellent
standard of Chinese movies and television, and the tradition of Chinese
law.
Nevertheless, the basic geopolitical fact about Taiwan is that it sits
under the shadow of mainland China and under the threat of reunification,
whether peaceful or by military means. However in the last few years and
especially since June 1989, the leadership of the Communist Party in
Peking and in Taipei have begun, for the first time since 1949, to have
serious talks and regular communication. At the same time the flow of
investment from Taiwan into mainland China, especially into the
neighbouring province of Fujian, has grown dramatically and the two-way
trade is now approaching US $4 billion annually. In the early days of this
two-way business, the authorities in Taipei turned a blind eye to the many
small projects that Taiwanese businesspeople were embarking upon with PRC
partners. Also, there was an enormous increase in the number of annual
visitors from Taiwan into China. Along with the travel and tourism came
the investment and it is now estimated that there is over US $500 million
of direct Taiwanese capital in plants and small businesses in China. Many
of the most successful toy and electronics factories in Shenznen, across
the border from Hong Kong, are owned and managed by Taiwanese. Speaking
Mandarin or the Fujianese dialect, they have the same natural advantage in
dealing with mainland officials and businesspeople that the Hong Kong
Cantonese have with the inhabitants of Guangdong Province.
So the analysis of risk and reward in Taiwan must already take account
of this rapidly growing economic integration between Taiwan and China
which, has led to over 30 percent of Taiwan's trade being with the
mainland and that the total investment from Taiwan to China may approach
US $5 billion or even US $10 billion. As with Hong Kong, increasingly an
investment in Taiwan will be seen indirectly as a "play" or an investment
in China itself. Nevertheless, Taiwan remains a free capitalist enclave
with some very successful entrepreneurial and export-oriented companies.
The government's role in the economy is relatively small. It has pursued
consistently, since 1950, a laissez-faire policy which allows small family
run companies typically to change their product line every two or three
years to meet the demands of American or other international clients.
Statistics clearly indicate that the exports strengths, which have powered
the Taiwanese economic boom for thirty or forty years, remain intact
despite the shortage of skilled labour, the high cost of labour and the
strong New Taiwan dollar, which has impelled many Taiwanese businesspeople
to shift their production to Thailand, the Philippines, and Malaysia as
well as China. The best measure of Taiwan's economic success is in its US
$80 billion of foreign exchange reserves.
What then is the real risk to Taiwan? After Hong Kong is taken over in
1997 Taiwan will appear more isolated and it will have lost its neutral
meeting point with China which the British colony has represented. On the
other hand, by that time Taiwan and China may have grown sufficiently
close in economic, if not in political, terms that Hong Kong will have
become unnecessary. Direct trade and investment are already commencing.
Some form of political agreement allowing for Taiwan's autonomy, if not
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independence, may be worked out. The one country two systems formula
applied to Hong Kong and Macau was always designed by Peking with the
objective of regaining Taiwan in the long term. That long term may not be
as long as some observers have predicted. The passing away of the older
generation who fought in the bitter civil wars between the communists and
the KMT from 1927 to 1949 will remove much of the bitterness and open up
the way for a new dialogue between the younger leaders in the two Chinas.
The strongest argument for a political compromise and a formula for
coexistence is the natural complementarity of the two Chinese communities
on an economic basis. China has the labour, the land and the resources.
Taiwan has the capital, the technology and the trained entrepreneurs. A
formidable Chinese Economic Community could be a reality before the end of
the century. However, a more pessimistic view would be to see a return to
ideological extremism in Peking resulting in a renewed cold war across the
Taiwan Straits, a cut off of business and cultural links, and a potential
military conflict. Even in this very gloomy scenario Taiwan may be able to
defend itself and maintain its economic prosperity because it will still
have the economic support of both Japan and the United States.
The following table gives details of the overall economic performance
of Taiwan from 1987 to 1994.
<TABLE>
<CAPTION>
EXCHANGE GDP TRADE MARKET MARKET
RATE GROWTH SURPLUS YEAR-END CAPITAL
AV. US $ (%) CPI (US $BN) P/E CLOSING (US $BN)
--------- ------- ------ ---------- ---- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
1987 31.85 12.3 0.5 18.7 28.7 2,339.26 48.45
1988 28.57 7.3 1.3 10.9 68.9 5,119.11 120.1
1989 26.41 7.6 4.4 14.0 92.0 9,624.18 240.0
1990 26.39 6.9 4.1 14.9 33.0 4,530.16 112.4
1991 25.50 7.3 3.6 15.7 28.0 4,600.67 123.7
1992 25.20 6.1 4.5 12.5 30.1 3,377.06 100.1
1993 27.00 6.2 2.9 7.8 30.3 6,071.00 191.0
1994 26.36 6.5 4.1 7.8 22.6 7,125.00 242.1
1995* 27.30 6.6 3.4 -- 16.2 -- 186.7
*Estimate
</TABLE>
The risks for an investor in The Taiwan Stock Exchange Corp. are
specifically those of a highly priced and highly volatile securities
market with very weak regulations and poor accounting standards. It was
once estimated that, out of 140 listed companies in Taiwan, perhaps twenty
or thirty counters were those of companies which were technically
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<PAGE>
bankrupt. Investors take little account of security analysis or of the
investment fundamentals which might count more for long-term Western
investors. The speculative atmosphere of The Taiwan Stock Exchange Corp.
does, therefore, portray a high degree of risk. However, the New Taiwan
(NT) dollar is a very steady currency in relation to the U.S. dollar. The
economy of the island has shown a steady and non-inflationary growth rate
and savings are very high in relation to disposable income.
The most important risk to consider for a Western investor trying to
get into the Taiwanese market is the choice of a trustworthy and reliable
local partner. This is much more difficult to achieve in Taiwan than in,
say Hong Kong, where the British legal and commercial system and the
educational system are more familiar. Taiwan has a purely Chinese culture
and way of life even though most of the younger business people are
educated in the universities of the United States and many have PhDs.
Nevertheless, the way of doing business remains a traditional Chinese way.
Therefore, nothing can be achieved by means of legal contracts or
agreements in the accepted Western sense. Even more than in China, Taiwan
depends on the personal contact and trust between the two individuals
involved. Many Western banks have come to grief in their pursuit of the
elusive Taiwan millionaires in the private banking sector and in their
corporate loans to apparently sound Taiwanese companies, which either
cannot or will not repay. Recourse is very hard to enforce and the legal
system is undeveloped. These are the major risks in doing business in
Taiwan but the potential rewards should not be underestimated. Those who
have had a long-term commitment to the island republic, have had good
contacts with the government and have done business in the Chinese way
with a good local Chinese partner have been able to demonstrate very good
long-term returns on their investments. In addition, the links that Taiwan
business people have built around the globe, in the United States in
particular but also increasingly in Canada, where they have followed Hong
Kong investors into Bristish Columbia, in Australia, in the Philippines
and in Bangkok, are impressive.
KOREA
Political volatility has characterized the history of South Korea
(referred to as Korea throughout this section) during the past forty
years, while at the same time an extraordinary economic boom has occurred.
Rigid discipline has been characteristic of the military government under
President Park during the 1960s and 1970s, which were the most successful
decades in economic terms particularly in the growth of Korea's exports
and in the per capita income. It is important to remember how completely
the cities and transport system of the southern part of the Korean
peninsula had been destroyed in the civil war of the 1950s. The effort of
reconstruction was, therefore, enormous. Living standards in the 1960s
were extremely low. The threat from North Korea has exerted a continuous
military pressure on the South in the past forty years which is probably
unique to any country in the world, even including West Germany or Taiwan.
Seoul is only 30 kilometers from the demilitarized zone and, therefore,
lives in a continuous state of tension and fear of an imminent invasion.
This very real threat is also translated into a very high percentage of
military spending in the national budget. If Korea is compared with Japan,
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the Koreans have had to spend ten times more of their national income on
defense than the Japanese and yet have succeeded in recording higher rates
of economic growth.
The fierce political in-fighting, which has been a constant
characteristic of Korean history, was suppressed for a period in the 1970s
and 1980s, both before and after the assassination of President Park.
Since 1987 the opening up of the democratic process has been smoothly
handled despite the continuing student riots and disturbances. In fact,
stock market investors have generally ignored the television images of
riot police, tanks firing tear gas and students throwing petrol bombs, to
concentrate more on the continuous success of Korean companies in their
conquest of overseas export markets and their impressive earnings growth.
Nevertheless, the threat from the North and the fierceness of the Korean
political opposition do combine to give Korea a lower score for political
stability than its neighbours. We have the sense in Korea of a higher risk
but also a much greater potential should the rapprochement with the North
lead to a peaceful reunification.
The following table gives details of the overall economic performance
of South Korea from 1987 to 1994.
<TABLE>
<CAPTION>
------------------------------------------------------------------------------
TRADE
EXCHANGE GDP SURPLUS/ MARKET MARKET
RATE GROWTH (DEFICIT) YEAR-END CAPITAL
AV. US $ % CPI (US $BN) P/E CLOSING (US $BN)
--------- ------- ------ ---------- ---- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
1987 822.57 13.0 3.0 7.7 10.6 525.1 33.0
1988 731.47 12.4 7.1 11.4 13.6 907.2 94.3
1989 671.46 6.7 5.7 4.6 22.9 909.7 140.9
1990 707.76 9.3 8.6 (2.0) 18.5 696.1 110.2
1991 731.60 8.3 9.7 (7.0) 15.0 610.9 96.4
1992 781.08 4.7 6.2 (2.1) 15.0 678.4 107.4
1993 808.10 5.5 6.5 (1.6) 17.5 866.0 139.0
1994 803.62 8.4 6.3 (3.1) 18.0 1,027.0 190.0
1995* 768.40 9.0 5.2 0.7 15.1 -- 203.0
*Estimate
</TABLE>
South Korea has the highest overall score for economic growth in the
world over the past twenty years even when compared with the other Asian
tigers. The average growth over a twenty-year period has been close to 9
percent in real terms, at certain times reaching even 13-14 percent. This
means that the average Korean today has a per capita income of nearly U.S.
$6,000 per annum, an income which has grown nearly thirty times in thirty
years. There have been tremendous social changes resulting from this
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<PAGE>
economic boom, notably the shift of population from the countryside into
the cities and the shift in the economic structure from agriculture to
industry and, more recently, to the service sector. This has all occurred
in a shorter period of time than in almost any other advanced economy.
What took England one hundred years and Japan thirty years, has taken
Korea typically less than ten years. There has been some slowing during
the 1980s compared to the 1970s, but Korea still has among the highest
overall ratings for GNP growth. Its industrial workforce has not lost its
competitive edge and the average working week in Korea is still in excess
of fifty hours, the longest working week in the world. These are the
foundations of Korea's continued economic success. It is unlikely that
such characteristics, being social in origin, will disappoint us in the
next decade. Therefore it is reasonable to expect Korea's economy to
continue to be one of Asia's most succesful.
The flexibility of its large trading companies, the chaebol, has been
recently underlined again as they have shifted their emphasis from the
United States, Canada and Europe towards the new markets of China and the
Soviet Union. There is little doubt that Korean exporters will be leading
the Japanese in providing Russian consumers with basic consumer goods. The
readiness to take risks in new areas has continuously paid off for Korean
companies just as it did when they were able to grab the major
construction contracts in the Middle East during the oil boom of the
1970s. (These new trade links have also translated into new diplomatic
links with China, Hungary, Poland and the Soviet Union, thus further
isolating North Korea from its communist neighbours.)
Inflation in Korea has been higher than in Japan or Taiwan. In the
1970s, Korea experienced an annual average inflation rate of nearly 15
percent. Beginning in 1982, however, the tight monetary policy succeeded
in bringing this annual consumer price index down to single digits until
1990 when the rate jumped again to 8.6 percent. The Korean export boom has
led to a big inflow of foreign exchange accompanying Korea's trade
surpluses of the past five years. This, in turn, has led to a sharp
increase in money supply and a boom in real estate prices in Seoul. Thus
the rise of both the Korean share market and property market since 1985
has in a sense been a lagging indicator of the economic boom of earlier
years with its inevitable build up of national and personal wealth among
the Korean population. Nowhere has the number of investors grown faster
than in The Korea Stock Exchange during the 1980s. Thus rising prices have
reflected rising national wealth. This inflation problem has been, and can
again be, tamed by a strong central bank response and this is what would
be expected in the 1990s.
The exchange rate of the Korean won against the U.S. dollar has
reflected both the relative inflation rates of Korea and its international
trading partners and also the more recent success of Korea in repaying
much of its foreign debt and building up its reserves. The won was held
very steady during the 1970s and then allowed to devalue between 1980 and
1985 from 484 won to the dollar to its lowest level of 890 won to the
dollar. With the sharp improvement in Korea's overseas trade position the
won started to appreciate from 1986 onwards. With the subsequent relapse
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<PAGE>
of Korea into a new trade deficit in 1990 and the recovery of the dollar
in world exchange markets, the Korean won has again depreciated slightly.
However, there is a high degree of stability and the currency is managed
by the central bank. A devaluation of more than 5 percent per annum should
not be expected unless Korea's trade or inflation problems worsen
significantly.
It is likely that Korea's foreign trade position will improve again
thanks to the country's competitive position in export markets. In a more
liberated domestic economy with lower tariffs on foreign goods, however,
it will be more difficult to restrain the growth of imports as Korean
consumers demand a greater choice. Korea's main deficit is with Japan and
consists largely of capital goods. This is likely to continue as long as
Korean manufacturers wish to maintain their competitive edge in the most
modern plant and equipment.
THAILAND
Thailand is unique in South East Asia in that it has escaped the
colonial experience and maintained its freedom and independence. In
addition, the monarchy plays a key role in maintaining the country's
political stability and independence. It is, nevertheless, sobering to
realize that since the absolute monarchy was ended in 1932 there have been
no less than twenty-one coup d'etats, of which twelve have been
successful. The recent international perception of Thailand was very much
coloured by the experience of the past fifteen years as there had been no
successful coup d'etat since 1977. Thus the one that took place in
February 1991 was a surprise to many foreign observers and investors,
although it had broad popular support and the tacit blessing of King
Bhumibol himself. The army was felt to be acting not only to further its
own cause but to stamp out political corruption and restore, within a
period of six months, a democratically elected government. The Cabinet,
which was put in place immediately after this coup, contained fifteen PhDs
out of a total of twenty-three ministers, and the generals were in a small
minority compared to the businesspeople, diplomats and civil servants with
a record of disinterested public service. Thus it seems that Thailand in
the 1990s will remain democratic but that the King and the army will
continue to play a role which would be described in a Western democracy as
that of "checks and balances" on the excesses of elected politicians.
Political risk in Thailand needs to be seen in this cultural context.
Thailand has been given a higher rating for political stability because of
the existence of the monarchy first of all. King Bhumibol, who has been on
the throne since 1946, commands enormous personal respect and popular
reverence. It is impossible, therefore, for any government or military
group to gain power without his tacit approval. This factor mitigates much
of the instability which may be suggested by the record for the past sixty
years of attempted military coups. At the same time Thailand has differed
from its neighbours Burma and Vietnam in possessing a free and independent
peasant population which has, on the whole, enjoyed a higher standard of
living than their neighbours and, therefore, the communist movement has
never made much headway among the rural people. On the other hand again,
Thailand's extraordinary economic growth in the 1980s (averaging 10
percent per annum) has put great strains not only on the urban environment
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<PAGE>
because of traffic jams and pollution, but also on the social and family
system. Many rural families have been forced to send their teenage
children to the cities to find employment. The contrast of living
standards between Bangkok and the north east provinces (an estimated per
capital income would be perhaps US $2,500 per annum for the former and
less than US $500 per annum for the latter) must eventually create social
tensions and potential unrest. The laissez-faire policy of the Bangkok
government has thus far worked extremely well although the lack of
planning, in terms of the proliferation of factories around the capital,
leaves something to be desired.
The fact that Thailand is a majority Buddhist country may do much to
explain the non-violent changes of power and exchanges of politically
different views which characterizes its public life. So, along with the
monarchy, Buddhism must be counted as a major factor of political
stability. The army is the third element which can be considered, on
balance, to be a positive factor. During the 1970s when it seemed more
than probable that Thailand would bear out the Pentagon "domino theory" by
which each country in succession -- China in 1949, North Vietnam in 1954,
South Vietnam in 1975, Laos, Cambodia in 1975-7...Thailand, Malaysia,
Singapore -- would fall to the irresistible southward movement of the
communist militias. But Thailand was the point at which communism stumbled
and fell back. Much of this has to do with the professionalism of the army
and the basic resistance of the people to a foreign ideology. As Siam had
resisted British and French colonial pressure in the nineteenth century,
so Thailand in the twentieth century resisted the Marxist Leninist
dictatorship which engulfed its once prosperous neighbour, Vietnam.
Thailand is, finally, the most open country to foreigners and receives
almost 5 million tourists a year. The self-confidence and strong sense of
cultural identity of the Thai people is in no way diminished by the
superlative standards of service which characterize their hotels, tourist
resorts and airlines. Any independent observer or visitor to Thailand can,
therefore, assess the real nature of the underlying social stability of
the country which supports the high degree of political stability
predicted for the country.
The following table gives details of the overall economic performance
of Thailand from 1987 to 1994.
--------------------------------------------------------------------------
TRADE
EXCHANGE GDP SURPLUS/ MARKET MARKET
RATE GROWTH (DEFICIT) YEAR-END CAPITAL
AV. US $ % CPI (US $BN) P/E CLOSING (US $BN)
--------- ------- ------ ---------- ---- -------- --------
1987 25.72 9.5 2.5 (1.6) 9.3 284.99 5.4
1988 25.29 13.2 3.9 (3.9) 16.3 386.73 8.86
1989 25.70 12.2 5.4 (5.4) 26.4 879.19 25.67
1990 25.56 10.0 6.0 (9.9) 13.8 612.86 23.86
1991 25.05 8.2 5.7 (9.6) 15.6 711.40 35.7
1992 25.49 7.5 4.1 (8.5) 15.2 893.40 58.20
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<PAGE>
1993 25.50 7.8 4.8 (9.2) 27.6 1,183.00 130.0
1994 25.10 8.2 5.0 (9.5) 21.3 1,360.00 150.0
1995* 24.90 8.8 5.2 (11.9) 17.6 -- 140.0
*Estimate
Thailand's economy has been the fastest growing in the world for the
past three years. The take-off really began in 1986-7 with the flood of
new foreign investment into the country, largely from Japan and Taiwan.
The rapid appreciation of the Japanese yen against the dollar in 1985-6
forced many Japanese manufacturers to consider moving some of the low
technology, low labour cost activities, such as textiles, consumer
electronics and footwear, offshore. Thailand was a natural destination for
Japan's industrialists, made easier by the low degree of red tape and
bureaucratic delays. Hence as the figures published by the Board of
Investment between 1985 and 1992 show the rising tide of foreign capital
was a major cause of Thailand's economic boom. GDP growth reached over 12
percent in 1988 and 1989 and it seems likely that in the 1990s Thailand
can sustain a medium-term growth of nearly 7 percent annually in real
terms.
There has been a large shift away from agriculture towards
manufacturing. As recently as 1980, 50 percent of Thailand's exports
consisted of rice and tapioca and other agricultural products. By 1990, 75
percent of the total volume of exports were manufactured goods, mainly
from the newly established assembly plants in Bangkok and the south. This
has resulted in large changes in employment and moves of populations.
Nevertheless, the profound change in the structure of Thailand's economy
has been well absorbed and sets the stage for a move into higher value
added products in the years up to 2000.
It is surprising, considering the very high rate of economic growth
that the economy has experienced, that prices, as measured by the consumer
price index, have been kept under control. The last serious bout of
inflation in Thailand occurred during the two oil crises, first in 1973-4
when the CPI touched 24 percent and then again in 1980-1 when there was a
resurgence of inflation to nearly 20 percent. In the later 1980s, and
thanks largely to a more stable oil price, inflation has been held in
single digits and has not exceeded 6 percent. Nevertheless, the boom of
the past three years, particularly in Bangkok, has led to a rapid
escalation of real estate values and rents. It is likely that the slowdown
in the economy in 1991 will result in a lower inflation rate and,
therefore, it is expected that Thailand's inflation will be held at 5
percent or below in the next few years.
Once again the record is one of extraordinary stability. The Thai baht
has been carefully managed by the Bank of Thailand against a basket of
currencies which is thought to be around 80 percent dollars and 20 percent
yen. When measured against the U.S. dollar it has resulted in a very small
annual variation of less than 3 or 4 percent. In fact, during the last six
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years there has been virtually no change in the value of the baht compared
with the dollar. Clearly, the weaker dollar of the 1985-90 period has
favoured Thailand's exports. (The same effect is observable with the Hong
Kong dollar which is also pegged to the American unit.) Therefore, it is
expected that Thailand's currency will remain extremely stable in dollar
terms in the future.
MALAYSIA
The central dilemma in assessing Malaysia's political risk is the
perennial question of relations between the Malay and Chinese communities
representing as they do about 60 percent and 30 percent of the population
respectively. Since the 1969 anti-Chinese riots in Kuala Lumpur the
country has been unruffled by any serious inter-racial violence and during
this period a great deal has been accomplished in transforming the economy
and in transferring the wealth of the country from foreign and Chinese
hands into the hands of the bumiputra (or the sons of the soil), which is
the dominant Malay majority. The success of this New Economic Policy is
unquestioned and has given a great deal of legitimacy to the continued run
of the United Malay National Organisation (UMNO) under its successive
prime ministers and most recently under Dr. Mahathir Mohammed who has now
held power for a decade. This economic success has also done much to
defuse the threat from the Islamic fundamentalists who have tended to get
co-opted into the ruling party. The Chinese community has also done well
in economic terms although the political disunity in the Malay Chinese
Association (MCA) has left them somewhat leaderless in the political
sphere.
Politics in Malaysia continues to be a question to revolve around its
leading personalities. It should also be noted, however, that Malaysia
shares one characteristic with Thailand, which is a strong monarchical
system. In Malaysia's case it is less visible because the kingship is
shared on a five- year revolving basis among the sultans of the various
states of the federation. This clear distinction of the British model
between the head of state, or monarch, and the prime minister, or
political leader, is important to Malaysia's overall stability.
The geographical divide between peninsular Malaysia and East Malaysia,
consisting of the states of Sabah and Sarawak, also underlines the need
for a great deal of political decentralization. Sabah and Sarawak have
very different histories from the other Malaysian states and can be
examined for their political make-up on a separate basis including the
question of the Christian minority in Sabah. Overall, however, it must be
judged that Malaysia's economic success has led to a far greater degree of
political stability than was expected following independence in 1963.
Malaysia's relations with its neighbours on the whole are excellent
and, in particular, the relationship with Singapore, which remains the
largest investor in the country, is a key one. The Singapore government is
obviously enthusiastic to diversify its industrial base across the
causeway into Johore and further north into peninsular Malaysia. This is
good news for Malaysia's economic and political stability.
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<PAGE>
The following table gives details of the overall economic performance
of Malaysia from 1987 to 1994.
--------------------------------------------------------------------------
TRADE
EXCHANGE GDP SURPLUS/ MARKET MARKET
RATE GROWTH (DEFICIT) YEAR-END CAPITAL
AV. US $ % CPI (US $BN) P/E CLOSING (US $BN)
--------- ------- ------ ---------- ---- -------- --------
1987 2.52 5.4 0.8 5.9 78.0 261.19 18.49
1988 2.61 8.9 2.5 5.6 36.0 357.38 29.05
1989 2.70 9.2 2.8 3.9 28.7 562.28 39.73
1990 2.70 9.8 3.1 1.9 39.8 505.9 48.81
1991 2.75 8.8 4.3 (6.4) 29.3 556.2 57.49
1992 2.62 8.0 4.7 2.8 21.0 644.0 92.20
1993 2.70 8.5 3.6 3.8 34.3 1,275.0 241.00
1994 2.62 9.2 3.7 (2.2) 23.2 971.0 275.00
1995* 2.55 9.2 3.7 (6.7) 20.4 -- 204.00
*Estimate
Malaysia, along with Singapore, experienced a sharp recession in
1985-6 owing to an excessive tight monetary policy in both countries.
Since 1987 Malaysia has, however, returned to the path of high growth and
low inflation. Nevertheless, over a twenty year period Malaysia ranks
behind Singapore, Thailand and Hong Kong, although ahead of Indonesia in
past overall economic growth. The change in the past five years has also
been accompanied by an accelerated shift into manufacturing and away from
the old dependence on the plantation sector. This manufacturing growth has
been led by investment from Japan and Taiwan and notable national projects
such as the Proton car. Malaysia is attempting to move up market into the
new product areas such as electronics, car assembly and consumer goods. It
is likely to be successful in doing so owing to its literate and trainable
workforce. Therefore, one can be fairly confident that Malaysia's economic
record will continue to be bright.
The exchange rate of the Malaysian ringgit has been closely tied to
that of the Singapore dollar which itself has been very stable if not
strong against other world currencies, expecially the US dollar.
Therefore, the ringgit has had a very stable record against the dollar and
is likely to maintain this stability. Malaysia's foreign trade has
generally been in surplus, although between 1990 and 1991 this figure fell
sharply partly owing to fall-off in Malaysia's energy exports. As
manufactured goods assume a larger importance in the composition of
exports compared with crude oil, rubber and palm oil, Malaysia's trade
position should gradually become steadier. For an investor Malaysia
remains attractive although vulnerable to external shocks either in terms
of commodity prices or in a fall in export demand in its principal
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markets. The infrastructure, high literacy rate and relative political
stability in recent years are all bonus points for the country's overall
image.
SINGAPORE
"The silent success", in the words of a Singapore government minister,
of this region is based on a high literacy rate and a well-educated and
trainable workforce. The investment in human capital has proven to be more
important to a lasting economic growth success story than the availability
of finance or technology. The demise of communism is also promoting
greater confidence and political stability in the Association of South
East Asian Nations (ASEAN) region, of which Singapore is the de facto
financial centre.
Essentially Singapore's aim in the 1990s will be to emulate what Hong
Kong has done in Guangdong Province and the hinterland of southern China.
But in Singapore's case its export of jobs and lower value added
industries will be mainly to neighbouring Malaysia and, to a lesser
extent, to Indonesia. The plantations in the southern part of the
Malaysian peninsula depend almost entirely on the large annual in-take of
illegal workers from Indonesia. With 100 million people in Java alone,
Indonesia needs to provide employment for 2- 3 million a year. Thus
mobility of labour within ASEAN is as important, if not more so, than
mobility of capital.
Singapore is aiming its investment at Johore in Malaysia and Batam
Island in Indonesia. This is the so-called growth triangle. There is a
political aspect to this. Singapore is a small Chinese island surrounded
by a sea of Muslims. It needs to ensure political stability among its
neighbours. One of the best ways of doing this (as Hong Kong has found in
southern China) is to invest and create jobs and raise per capita incomes
from their present low level.
The other aspect of political risk when considering Singapore is, of
course, the handover of political power from one generation to another.
Although Lee Kwan Yew stepped down as Prime Minister in 1990, he continues
to wield a large influence and power behind the scenes. Nowhere in the
world could it be truer to say that the state is the creation of one man,
thus his succession poses a very real problem. His son, Lee Hsien Loong
may not take up the post of Prime Minister for three to five years. In any
case, the question of dynastic succession in a parliamentary democracy,
even within a limited Confucian Chinese democracy, is, to say the least, a
questionable one. Many of the elder Lee's policies, such as imposing the
Mandarin Chinese language on the Singapore educational system, have
aroused fierce opposition among the older, anti-communist generation of
Singapore Chinese. The tight control of the media and the suppression of
all political opposition or criticism of the government, the People's
Action Party or the Prime Minister himself, has also aroused criticism
both at home and internationally.
But, on balance the enormous success of Lee Kwan Yew's achievement in
creating modern Singapore cannot be doubted. It is clean, efficient and
B-29
<PAGE>
notably lacking in corruption compared to other Asian cities. The Central
Provident Fund, which takes 35 percent of every person's income as a
compulsory savings scheme, has built up an enormous reservoir of capital
for future use in Singapore. Notable public works such as Changi Airport
or the transport system have been the result. Long-term planning has not
been as successful anywhere else, with the possible exception of Japan.
The paternalistic attitude of the Singapore government towards its
citizens is unlikely to change in the immediate future especially since
the younger generation of Singaporeans have been thoroughly versed in the
disciplined Confucian thinking and authoritarianism which characterizes
the school system as well as government. Singapore also has a well run and
modern citizens' army based, like the Swiss model, on an annual call-up of
every able-bodied man aged between 18 and 50. The city state is thus well
equipped to defend itself against any aggressor. Singapore will also
benefit from the inflow of human and financial capital from Hong Kong as
1997 approaches. In this sense it does not need to change but merely to
retain its present stability and attractive lifestyle in order to continue
to prosper. Thus, the conclusion to be drawn is that Singapore scores an
equally high rating in terms of very low political risk and a high degree
of stability as Japan.
The following table gives details of the overall economic performance
of Singapore from 1987 to 1994.
--------------------------------------------------------------------------
TRADE
EXCHANGE GDP SURPLUS/ MARKET MARKET
RATE GROWTH (DEFICIT) YEAR-END CAPITAL
AV. US $ (%) CPI US $BN) P/E CLOSING (US $BN)
--------- ------- ------ ---------- ---- -------- --------
1987 2.10 9.4 0.5 (5.2) 17.8 270.34 17.86
1988 2.01 11.1 1.5 (4.7) 18.5 1,038.6 24.00
1989 1.95 9.2 2.4 (4.8) 18.3 1,481.3 35.95
1990 1.74 8.3 3.4 (5.3) 13.1 1,159.5 34.26
1991 1.62 6.7 3.4 (4.6) 18.5 1,490.7 51.20
1992 1.64 5.8 2.3 (4.9) 19.6 1,524.4 52.20
1993 1.61 9.9 2.4 (0.8) 36.0 2,426.0 132.05
1994 1.53 10.1 3.1 (5.9) 22.5 2,239.5 170.00
1995* 1.43 7.3 2.1 (4.9) 20.6 -- 160.00
[/R]
*Estimate
Note: Market capital figures for Singapore for incorporated companies
only.
The Singapore economy has been characterized by the highest degree of
government involvement and intervention outside of the socialist world.
Nevertheless, the growth rate has been quite impressive, averaging around
7-8 percent, except during the 1985-6 recession, and even more impressive
has been the tight control of inflation which, along with that of Japan,
has remained extremely low at below 3 percent for the past decade. The
B-30
<PAGE>
economic stability of Singapore, therefore, scores high on a comparative
basis although being a small island state it is very sensitive to
developments in its two main neighbours, Indonesia and Malaysia, with
their large commodity-based economies. Thus, Singapore runs a regular
trade deficit of around US $5 billion per annum which is easily covered by
its current account surplus on invisibles. Singapore's foreign reserves
held by the Monetary Authority of Singapore (MAS) and the Government
Investment Corporation of Singapore (GICS) are estimated to be in excess
of US $50 billion which would give this tiny Asian city state the third
highest foreign exchange reserves after Japan and Taiwan.
Thus, the overall management of "Singapore Inc." is extremely
conservative, with a very high degree of self-reliance, a high savings
rate and an ample cushion for unexpected global events. This financial
conservatism has been reflected in the strong performance of the Singapore
dollar which has advanced steadily against the US dollar during the past
five years with an average appreciation of 5 percent per annum. It is
reasonable to expect these trends -- high economic growth, high savings
rate, low inflation and steady currency appreciation -- to continue during
the 1990s.
INDONESIA
It can at least be argued that Indonesia has had fewer changes in its
political system than its Asian neighbours. In fact, there have been only
two rulers of Indonesia since independence was gained from the Dutch in
1948 -- Sukarno and Suharto. But equally it should not be forgotten that
the two major turning points in the country's modern history --
independence and the 1965 revolution -- were unusually violent episodes in
the life of any country. The stability which Indonesia has enjoyed during
the past twenty-five years under Suharto should, therefore, be placed
against this background.
In many ways the same three pillars of stability which are found in
Thailand -- the army, the king and the national religion -- are present in
Indonesia except that the President, Suharto, stands in the place of the
monarchy and the national religion is Islam rather than Buddhism. The
question of monarchical or presidential succession remains perhaps the
major political risk confronted by the foreign investor as so many aspects
of the business life of the country relate directly to Suharto or his
immediate family. The role of the army in Indonesia is a great deal more
clear cut and predictable than in either Thailand or in the Philippines.
In effect, there have been no attempted military coups since 1966. The
army remains wholly in support of Suharto. It has been suggested, in fact,
that anyone who might be considered as a candidate to succeed Suharto must
be Javanese and must be a general.
The role of Islam in the national life of Indonesia is a more complex
subject. The Mohammedan religion first reached the shores of western
Sumatra through the coming of the Arab traders around 1400. The
western-most state of Aceh has remained a stronghold of Islamic
fundamentalist belief ever since. Sumatra in general has remained restive
and unwilling to bend to the yoke of a tight central control from Java. In
B-31
<PAGE>
fact, this is also true of many other island provinces of the huge
Indonesian archipelago which will have, by the year 2000, a population of
over 200 million. Following the 1958 uprising in Sumatra and Celebes (or
Sulawesi) the Javanese policy was to plant more settlers in these outlying
islands from Java (where 80 percent of the population lives). Political
and religious factors, therefore, cannot be disentangled in the future
horoscope of Indonesian political life.
Fundamentalism is on the rise, as also in Malaysia, and politicians
with fundamentalist Islamic beliefs and supporters are likely to take a
more active role. However, the situation cannot be compared with Iran or
Saudi Arabia. In neither Indonesia nor Malaysia has Islam taken over all
aspects of every day life with its rules about the role of women or the
consumption of alcohol or the exaction of interest or usury on capital. In
all these respects Indonesian life is relatively "modern." There is a more
easy-going Asian approach to matters of religious belief.
However, the social question, which one cannot ignore, concerns the
role of the minority and non-Muslim peoples in Indonesia, in particular
the Chinese community in Java. Although the total Chinese population is
less than 5 million, or around 3 percent of the total, 80 percent of the
commerce and much of the capital wealth remains in the hands of this small
but tight-knit Chinese community. In 1966 there were violent anti-Chinese
riots and killings in Jakarta, Surabaya and other Javanese cities. Many
thousands of Chinese fled to Hong Kong and to China but this is a spectre
which has been banished from the life of the nation since Suharto came to
power. He is well known to have close links with the leading members of
the Chinese business community.
The role of Chinese business people in Indonesia has been brought into
much greater focus by the explosion of the Jakarta stock market in the
late 1980's. Much of the wealth which was rumoured to exist in the hands
of the great Chinese families is now visibly calculated on a daily basis
in the large listed capitalization of the Indonesian-Chinese industrial
groups such as Indo-Cement and Astra. There is, of course, a two-way flow
of capital involved in this process of the rapid evolution of the capital
market in Jakarta, by which up to U.S. $5 billion of foreign capital has
entered the country in the form of equity investment, largely from foreign
fund managers, and a substantial amount of Chinese capital has been able
to leave the country in the opposite direction.
The enormous economic potential of Indonesia, its vast natural
resources and its large labour force being two principal attractions,
cannot be doubted. However, the main element of political risk is the
possibility of a further violent episode in the political life of the
country when the next transfer of power occurs at the top.
The following table gives details of the overall economic performance
of Indonesia from 1987 to 1994.
B-32
<PAGE>
--------------------------------------------------------------------------
TRADE
EXCHANGE GDP SURPLUS/ MARKET MARKET
RATE GROWTH (DEFICIT) YEAR-END CAPITAL
AV. US $ (%) CPI (US $BN) P/E CLOSING (US $BN)
--------- ------- ------ ---------- ---- -------- --------
1987 1,720 3.6 9.0 4.6 83.0 0.07
1988 1,735 5.6 7.4 4.9 41.2 305.0 0.26
1989 1,784 7.4 6.0 5.8 24.7 399.0 2.42
1990 1,889 7.4 9.6 3.9 19.9 418.0 6.2
1991 1,984 6.5 9.5 5.5 17.1 247.0 8.1
1992 2,064 6.0 4.9 6.9 14.4 274.0 12.1
1993 2,110 6.5 7.0 9.0 27.4 589.0 43.0
1994 2,160 7.3 9.2 7.8 18.8 470.0 52.0
1995* 2,316 7.2 9.6 7.0 14.5 -- 55.0
*Estimate
Indonesia began the 1980s principally as an oil exporter. During the
1970s it had a high rate of inflation but also a very rapid economic
growth on the back of the oil boom. The fall in oil prices in the early
1980s, which became precipitate in the spring of 1986, therefore, forced a
review of their priorities. Reducing inflation, diversifying the economy
away from oil and maintaining a stable growth in the economy to provide as
full employment as possible for the large young population, were selected
as the main objectives. It is remarkable to see the extent to which these
aims have been achieved during 1985-90. Inflation has been brought from 20
percent, at the beginning of the decade, to around 6 percent in 1989-90.
Economic growth, having fallen to 2.5 percent in 1985 regained the level
of 7.4 percent by 1990. The rupiah, which had undergone a 30 percent
once-and-for-all evaluation in the autumn of 1985, had stabilized on a
"crawling peg" system with an annual devaluation of around 5 percent. The
trade surplus continued at a healthy US $4-5 billion annually and the
inflow of foreign capital more than offset Indonesia's foreign debt
position. Therefore, it is possible to conclude that the good
macroeconomic management, which was achieved by the small group of
technocrats employed by Suharto to direct the economy, had been very
successful in reducing the economic risk of the country. The future path
of the Indonesian economy will, therefore, depend as much on the
development of low wage manufacturing and the inflow of Japanese capital,
on the liberalization of the banking system and the capital market, as on
the price of basic commodities. This gives a much greater degree of
stability to the Indonesian economy as a whole.
THE PHILIPPINES
The Philippines is a special case in Asia. Culturally and politically
it has a very distinct national personality. The Roman Catholic Church
plays a leading role in its national life, not least in recent political
changes. The fact that the Philippines was the only American colony in
Asia also gave it a very different tradition from Indonesia or Malaysia,
which had similar languages but very different cultural traditions. The
B-33
<PAGE>
Spanish occupation of the previous four hundred years also left some
deeper traces than the Dutch did in Indonesia.
When speaking of political risk, however, the real problem in the
Philippines has been the lack of legitimacy which has plagued successive
governments and has led to the constant pendulum between dictatorship and
weak democratic governments.
The U.S. tutelage has left a lasting imprint on the country. The
charismatic leadership of Magsaysay in the 1950s also left a vivid example
to his successors. The attempts, in the 1960s, to solve the enormous
economic problems of the Philippines, especially the rural poverty and the
rapid growth of population, were not successful when pursued in a
socialist direction. Marcos arrived in power in 1965 and inherited a
country which still had higher living standards than most other Asian
countries such as Hong Kong, Korea, Taiwan and Singapore. Therefore,
judgment on his twenty year rule must be very negative as a result, if
only judged as an economic failure.
The question most investors, therefore, raise is whether the
Philippines is capable of responsible government and economic planning
which would give it a GNP growth rate approaching that of its Asian tiger
neighbours. Many observers dismiss this prospect out of hand citing the
endemic problems of corruption, political in-fighting and the lack of
Confucian work ethic present in North Asia. However, there is no doubt
that the Philippines possesses enormous natural advantages and it would be
wrong to generalize about the whole archipelago of 7,000 islands from the
political life of Manila alone. The island of Cebu, for example, has seen
a successful economic transformation in the past twenty years.
Manufacturing investment has grown and has begun to replace agriculture as
a principal source of employment. The Philippines has a very high rate of
literacy and the work ethic cannot be doubted by anyone who has employed
Filipino domestic workers overseas. Their earnings are an important source
of remittance back to the Philippines each year. The Filipino population
in the United States is now the largest Asian ethnic group in that country
approaching 2 million, mainly in California. Both natural resources,
therefore, and an intelligent, hardworking population favour the country.
Unfortunately, the political system has never been able to maintain
the long-term stability for its promise to be fulfilled. The years of the
Aquino government, during which democratic procedures were restored to
Philippine political life, have also been disappointing in that many of
the features of Washington political life have been reproduced in Manila
-- continuous discord between Congress, Senate and the President, making
important national decisions extremely difficult to reach. On top of that,
of course, there have been the continuing attempts by the military to
unseat the elected government. Although all of these have failed they
have, nevertheless, done much to undermine the confidence of international
investors in the political stability of the country. In particular, the
failed attempt of December 1989 led to a slump in the economy and the
stock market and scared away much needed foreign capital.
B-34
<PAGE>
There are signs that Japanese and Taiwanese investors and banks are
coming back to the Philippines. Nevertheless, it can only be concluded
that democracy is a fragile plant in the Philippines which may be damaged
in the future as it has been in the past. There is continued rivalry for
political and business influence among a small group of leading Filipino
families. The press, although perhaps the freest in Asia, is considered to
be irresponsible and corrupt and does much to undermine the legitimacy of
the ruling government. Political risk, therefore, is judged to be higher
here than in other Asian countries.
The following table gives details of the overall economic performance
of the Philippines from 1987 to 1994.
--------------------------------------------------------------------------
TRADE
EXCHANGE GDP SURPLUS/ MARKET MARKET
RATE GROWTH (DEFICIT) YEAR-END CAPITAL
AV. US $ (%) CPI (US $BN) P/E CLOSING (US $BN)
--------- ------- ------ ---------- ---- -------- --------
1987 20.5 4.8 3.8 (1.0) 15.9 642.72 2.97
1988 21.0 6.3 8.8 (1.1) 19.6 841.65 4.20
1989 21.7 5.0 10.6 (2.6) 16.8 1,145.45 11.82
1990 27.2 2.1 12.7 (4.0) 14.3 651.78 5.73
1991 26.2 (1.0) 17.7 (3.2) 12.7 1,152.00 11.10
1992 23.6 0.0 8.9 (4.7) 13.5 1,256.00 16.00
1993 27.1 1.7 9.8 (6.4) 29.4 3,196.00 39.00
1994 26.3 4.3 9.1 (7.8) 24.5 2,786.00 56.00
1995* 25.8 5.4 7.7 (9.3) 19.2 -- 56.00
*Estimate
The GDP growth, which had been running at 5.5 percent average for the
previous three years, fell to only 2 percent in 1990 and inflation rose to
12 percent. The peso was rather weak and the trade deficit doubled to
nearly US $4 billion. The stock market tumbled by over 50 percent, from a
high of 1,145 to less than 600, and the overall value of listed Philippine
shares fell from US $12 billion to less than US $6 billion. Such is the
real economic risk for investors of this fragile political system.
Nevertheless, the recovery of confidence in early 1991 is testament to the
long-term value that investors see in the country. Even if relative to its
Asian neighbours the Philippines continues to have economic problems (and
notably its high foreign debt), it will benefit from regional trends and
it will present, from time to time, very interesting buying opportunities.
The educated and literate labour force is a major resource of wages and
relatively low taxes.
At the worst point of the last years of the Marcos regime inflation in
the Philippines reached 50 percent, the highest recorded in Asia during
the past decade. With the strong support of the central bank under
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<PAGE>
Governor Jobo Fernandez, the money supply was reined in, the peso was
stabilized and inflation came down to single digits between 1986 and 1988.
The tight monetary policy has been maintained and interest rates have been
as high as 35 percent to control the supply of credit. Therefore, with
good macroeconomic management the inflation problems in the Philippines
can be contained.
The same rule can be applied to the value of the peso which has had a
poor long-term record and, despite the efforts of a strong and independent
central bank, has again slid in value against the dollar in the past two
years. With the benefit of strict International Monetary Fund
prescriptions it is hoped that the Philippines will now be able to
reschedule its foreign debt particularly with the help of the Japanese
banks, stabilize the currency and maintain a reasonable growth in its
export trade.
B-36
<PAGE>
PART C
Item 24. Financial Statements and Exhibits
(a) Financial Statements
The financial statements called for by this Item are
incorporated by reference in Part B and listed in Item 23
hereof.
(b) Exhibits
1. (a) Declaration of Trust dated September 1,
1992 filed herewith.
(b) Amendment to Declaration of Trust dated
October 6, 1992 filed herewith.
2. By-Laws of the Registrant as adopted September 1,
1992 and revised October 6, 1992 filed herewith.
5. Investment Advisory Agreement between the
Registrant and Lloyd George Management (Hong
Kong) Limited dated October 27, 1992 filed
herewith.
6. Placement Agent Agreement with Eaton Vance
Distributors, Inc. dated October 27, 1992 filed
herewith.
8. (a) Custodian Agreement with Investors Bank
& Trust Company dated October 27, 1992
filed herewith.
(b) Amendment to Custodian Agreement dated
February 7, 1994 filed herewith.
C-1
<PAGE>
(c) Amendment to Custodian Agreement dated
November 13, 1995 filed herewith.
9. (a) Administration Agreement between the
Registrant and Eaton Vance Management
dated October 27, 1992 filed herewith.
(b) Form of Letter Agreement relating to
Investment Advisory Agreement filed
herewith.
13. Investment representation letter of Eaton Vance
Management dated October 7, 1992 filed herewith.
Item 25. Persons Controlled by or under Common Control with
Registrant
Not applicable.
Item 26. Number of Holders of Securities
(1) (2)
Title of Class As of December 12, 1995
Beneficial Interests Number of Record Holders
5
Item 27. Indemnification
Reference is hereby made to Article V of the Registrant's
Declaration of Trust, filed as Exhibit 1(a) hereto.
The Trustees and officers of the Registrant and the personnel of
the Registrant's administrator are insured under an errors and omissions
liability insurance policy. The Registrant and its officers are also
insured under the fidelity bond required by Rule 17g-1 under the
Investment Company Act of 1940.
C-2
<PAGE>
Item 28. Business and Other Connections of Investment Adviser
Lloyd George Management (Hong Kong) Limited ("Lloyd George")
serves as investment adviser to the Portfolio. Lloyd George, a
corporation organized under the laws of Hong Kong, is a wholly owned
subsidiary of Lloyd George Management (B.V.I.) Limited ("LGM"). LGM and
its subsidiaries act as investment adviser to various individual and
institutional clients.
To the knowledge of the Portfolio, none of the directors or
officers of Lloyd George, except as set forth on its Form ADV as filed
with the Securities and Exchange Commission, is engaged in any other
business, profession, vocation or employment of a substantial nature,
except that certain directors and officers also hold various positions
with and engage in business for LGM.
Item 29. Principal Underwriters
Not applicable.
Item 30. Location of Accounts and Records
The accounts and records of the Registrant are located, in whole
or in part, at the office of the Registrant and at the following
locations:
Name Address
Eaton Vance Distributors, Inc. 24 Federal Street
(placement agent) Boston, MA 02110
Lloyd George Management 3808 One Exchange Square
(Hong Kong) Limited Central, Hong Kong
(investment adviser)
Eaton Vance Management 24 Federal Street
(administrator) Boston, MA 02110
Investors Bank and Trust Company 89 South Street
(custodian) Boston, MA 02110
Item 31. Management Services
Not applicable.
C-3
<PAGE>
Item 32. Undertakings
Not applicable.
C-4
<PAGE>
SIGNATURE
Pursuant to the requirements of the Investment Company Act of
1940, the Registrant has duly caused this amendment to this Registration
Statement on Form N-1A to be signed on its behalf by the undersigned,
thereunto duly authorized in the City of Boston and the Commonwealth of
Massachusetts on the 28th day of December, 1995.
GREATER CHINA GROWTH PORTFOLIO
By: /s/ James B. Hawkes
-------------------
James B. Hawkes
Vice President
C-5
<PAGE>
INDEX TO EXHIBITS
Exhibit No. Description of Exhibit
----------- ----------------------
1. (a) Declaration of Trust dated September 1, 1992
(b) Amendment to Declaration of Trust dated October 6, 1992
2. By-Laws of the Registrant as adopted September 1, 1992 and
revised October 6, 1992
5. Investment Advisory Agreement between the Registrant and Lloyd
George Management (Hong Kong) Limited dated October 27, 1992
6. Placement Agent Agreement with Eaton Vance Distributors, Inc.
dated October 27, 1992
8. (a) Custodian Agreement with Investors Bank & Trust Company
dated October 27, 1992
(b) Amendment to Custodian Agreement dated February 7, 1994
(c) Amendment to Custodian Agreement dated November 13, 1995
9. (a) Administration Agreement between the Registrant and Eaton
Vance Management dated October 27, 1992
(b) Form of Letter Agreement relating to Investment Advisory
Agreement
C-6
<PAGE>
13. Investment representation letter of Eaton Vance Management dated
October 7, 1992
C-7
<PAGE>
<PAGE>
CHINA GROWTH PORTFOLIO
-----------------------
DECLARATION OF TRUST
Dated as of September 1, 1992
<PAGE>
TABLE OF CONTENTS
PAGE
ARTICLE I--The Trust . . . . . . . . . . . . . . . . . . . . . . . . . 1
Section 1.1 Name . . . . . . . . . . . . . . . . . . . . 1
Section 1.2 Definitions . . . . . . . . . . . . . . . . . 1
ARTICLE II--Trustees . . . . . . . . . . . . . . . . . . . . . . . . . 3
Section 2.1 Number and Qualification . . . . . . . . . . 3
Section 2.2 Term and Election . . . . . . . . . . . . . . 3
Section 2.3 Resignation, Removal and Retirement . 3
Section 2.4 Vacancies . . . . . . . . . . . . . . . . . . 4
Section 2.5 Meetings . . . . . . . . . . . . . . . . . . 4
Section 2.6 Officers; Chairman of the Board . . . . . . . 5
Section 2.7 By-Laws . . . . . . . . . . . . . . . . . . . 5
ARTICLE III--Powers of Trustees . . . . . . . . . . . . . . . . . . . . 5
Section 3.1 General . . . . . . . . . . . . . . . . . . . 5
Section 3.2 Investments . . . . . . . . . . . . . . . . . 6
Section 3.3 Legal Title . . . . . . . . . . . . . . . . . 6
Section 3.4 Sale and Increases of Interests . . . . . . . 7
Section 3.5 Decreases and Redemptions of Interests . . . 7
Section 3.6 Borrow Money . . . . . . . . . . . . . . . . 7
Section 3.7 Delegation; Committees . . . . . . . . . . . 7
Section 3.8 Collection and Payment . . . . . . . . . . . 7
Section 3.9 Expenses . . . . . . . . . . . . . . . . . . 7
Section 3.10 Miscellaneous Powers . . . . . . . . . . . . 8
Section 3.11 Further Powers . . . . . . . . . . . . . . . 8
ARTICLE IV--Investment Advisory, Administration and Placement Agent
Arrangements . . . . . . . . . . . . . . . . . . . 8
Section 4.1 Investment Advisory, Administration and
Other Arrangements . . . . . . . . . . . . . 8
Section 4.2 Parties to Contract . . . . . . . . . . . . . 9
ARTICLE V -- Liability of Holders; Limitations of Liability of
Trustees, Officers, etc. . . . . . . . . . . . . . . . 9
Section 5.1 Liability of Holders; Indemnification . . . . 9
Section 5.2 Limitations of Liability of Trustees,
Officers, Employees, Agents, Independent
Contractors to Third Parties . . . . . . . . 10
Section 5.3 Limitations of Liability of Trustees,
Officers, Employees, Agents, Independent
Contractors to Trust, Holders, etc. . . . . 10
Section 5.4 Mandatory Indemnification . . . . . . . . . . 10
Section 5.5 No Bond Required of Trustees . . . . . . . . 11
i
<PAGE>
PAGE
Section 5.6 No Duty of Investigation; Notice in
Trust Instruments, etc. . . . . . . . . . . . 11
Section 5.7 Reliance on Experts, etc. . . . . . . . . . . 11
ARTICLE VI--Interests . . . . . . . . . . . . . . . . . . . . . . . . . 12
Section 6.1 Interests . . . . . . . . . . . . . . . . . . 12
Section 6.2 Non-Transferability . . . . . . . . . . . . . 12
Section 6.3 Register of Interests . . . . . . . . . . . . 12
ARTICLE VII--Increases, Decreases And Redemptions of Interests . . . . 12
ARTICLE VIII--Determination of Book Capital Account Balances,
and Distributions . . . . . . . . . . . . . . . . . . 13
Section 8.1 Book Capital Account Balances . . . . . . . . 13
Section 8.2 Allocations and Distributions to Holders . . 13
Section 8.3 Power to Modify Foregoing Procedures . . . . 13
ARTICLE IX--Holders . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Section 9.1 Rights of Holders . . . . . . . . . . . . . . 13
Section 9.2 Meetings of Holders . . . . . . . . . . . . . 13
Section 9.3 Notice of Meetings . . . . . . . . . . . . . 14
Section 9.4 Record Date for Meetings, Distributions,
etc. . . . . . . . . . . . . . . . . . . . 14
Section 9.5 Proxies, etc. . . . . . . . . . . . . . . . . 14
Section 9.6 Reports . . . . . . . . . . . . . . . . . . . 15
Section 9.7 Inspection of Records . . . . . . . . . . . . 15
Section 9.8 Holder Action by Written Consent . . . . . . 15
Section 9.9 Notices . . . . . . . . . . . . . . . . . . 15
ARTICLE X--Duration; Termination; Amendment; Mergers; Etc . . . . . . . 16
Section 10.1 Duration . . . . . . . . . . . . . . . . . . 16
Section 10.2 Termination . . . . . . . . . . . . . . . . 17
Section 10.3 Dissolution . . . . . . . . . . . . . . . . 17
Section 10.4 Amendment Procedure . . . . . . . . . . . . 18
Section 10.5 Merger, Consolidation and Sale of Assets . . 19
Section 10.6 Incorporation . . . . . . . . . . . . . . . . 19
ARTICLE XI--Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . 19
Section 11.1 Certificate of Designation; Agent for
Service of Process . . . . . . . . . . . . . 19
Section 11.2 Governing Law . . . . . . . . . . . . . . . 19
Section 11.3 Counterparts . . . . . . . . . . . . . . . . 19
Section 11.4 Reliance by Third Parties . . . . . . . . . 20
Section 11.5 Provisions in Conflict With Law or
Regulations . . . . . . . . . . . . . . . . . 20
ii
<PAGE>
DECLARATION OF TRUST
OF
CHINA GROWTH PORTFOLIO
----------------------
This DECLARATION OF TRUST of China Growth Portfolio is
made as of the 1st day of September, 1992 by the parties signatory hereto,
as Trustees (as defined in Section 1.2 hereof).
W I T N E S S E T H:
- - - - - - -
WHEREAS, the Trustees desire to form a trust fund under
the law of the State of New York for the investment and reinvestment of
its assets; and
WHEREAS, it is proposed that the trust assets be composed
of money and property contributed thereto by the holders of interests in
the trust entitled to ownership rights in the trust;
NOW, THEREFORE, the Trustees hereby declare that they
will hold in trust all money and property contributed to the trust fund
and will manage and dispose of the same for the benefit of the holders of
interests in the Trust and subject to the provisions hereof, to wit:
ARTICLE I
The Trust
---------
1.1. Name. The name of the trust created hereby (the
"Trust") shall be China Growth Portfolio and so far as may be practicable
the Trustees shall conduct the Trust's activities, execute all documents
and sue or be sued under that name, which name (and the word "Trust"
wherever hereinafter used) shall refer to the Trustees as Trustees, and
not individually, and shall not refer to the officers, employees, agents
or independent contractors of the Trust or holders of interests in the
Trust.
1.2. Definitions. As used in this Declaration, the
following terms shall have the following meanings:
"Administrator" shall mean any party furnishing services
to the Trust pursuant to any administration contract described in Section
4.1 hereof.
"Book Capital Account" shall mean, for any Holder at any
time, the Book Capital Account of the Holder for such day, determined in
accordance with Section 8.1 hereof.
<PAGE>
"Code" shall mean the U.S. Internal Revenue Code of 1986,
as amended from time to time, as well as any non-superseded provisions of
the U.S. Internal Revenue Code of 1954, as amended (or any corresponding
provision or provisions of succeeding law).
"Commission" shall mean the U.S. Securities and Exchange
Commission.
"Declaration" shall mean this Declaration of Trust as
amended from time to time. References in this Declaration to
"DECLARATION", "HEREOF", "HEREIN" and "HEREUNDER" shall be deemed to refer
to this Declaration rather than the article or section in which any such
word appears.
"Fiscal Year" shall mean an annual period determined by
the Trustees which ends on August 31 of each year or on such other day as
is permitted or required by the Code.
"Holders" shall mean as of any particular time all
holders of record of Interests in the Trust.
"Institutional Investor(s)" shall mean any regulated
investment company, segregated asset account, foreign investment company,
common trust fund, group trust or other investment arrangement, whether
organized within or without the United States of America, other than an
individual, S corporation, partnership or grantor trust beneficially owned
by any individual, S corporation or partnership.
"Interest(s)" shall mean the interest of a Holder in the
Trust, including all rights, powers and privileges accorded to Holders by
this Declaration, which interest may be expressed as a percentage,
determined by calculating, at such times and on such basis as the Trustees
shall from time to time determine, the ratio of each Holder's Book Capital
Account balance to the total of all Holders' Book Capital Account
balances. Reference herein to a specified percentage of, or fraction of,
Interests, means Holders whose combined Book Capital Account balances
represent such specified percentage or fraction of the combined Book
Capital Account balances of all, or a specified group of, Holders.
"Interested Person" shall have the meaning given it in
the 1940 Act.
"Investment Adviser" shall mean any party furnishing
services to the Trust pursuant to any investment advisory contract
described in Section 4.1 hereof.
"Majority Interests Vote" shall mean the vote, at a
meeting of Holders, of (A) 67% or more of the Interests present or
represented at such meeting, if Holders of more than 50% of all Interests
are present or represented by proxy, or (B) more than 50% of all
Interests, whichever is less.
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<PAGE>
"Person" shall mean and include individuals,
corporations, partnerships, trusts, associations, joint ventures and other
entities, whether or not legal entities, and governments and agencies and
political subdivisions thereof.
"Redemption" shall mean the complete withdrawal of an
Interest of a Holder the result of which is to reduce the Book Capital
Account balance of that Holder to zero, and the term "REDEEM" shall mean
to effect a Redemption.
"Trustees" shall mean each signatory to this Declaration,
so long as such signatory shall continue in office in accordance with the
terms hereof, and all other individuals who at the time in question have
been duly elected or appointed and have qualified as Trustees in
accordance with the provisions hereof and are then in office, and
reference in this Declaration to a Trustee or Trustees shall refer to such
individual or individuals in their capacity as Trustees hereunder.
"Trust Property" shall mean as of any particular time any
and all property, real or personal, tangible or intangible, which at such
time is owned or held by or for the account of the Trust or the Trustees.
The "1940 Act" shall mean the U.S. Investment Company Act
of 1940, as amended from time to time, and the rules and regulations
thereunder.
ARTICLE II
Trustees
--------
2.1. Number and Qualification. The number of Trustees
shall be fixed from time to time by action of the Trustees taken as
provided in Section 2.5 hereof; provided, however, that the number of
Trustees so fixed shall in no event be less than three or more than 15.
Any vacancy created by an increase in the number of Trustees may be filled
by the appointment of an individual having the qualifications described in
this Section 2.1 made by action of the Trustees taken as provided in
Section 2.5 hereof. Any such appointment shall not become effective,
however, until the individual named in the written instrument of
appointment shall have accepted in writing such appointment and agreed in
writing to be bound by the terms of this Declaration. No reduction in the
number of Trustees shall have the effect of removing any Trustee from
office. Whenever a vacancy occurs, until such vacancy is filled as
provided in Section 2.4 hereof, the Trustees continuing in office,
regardless of their number, shall have all the powers granted to the
Trustees and shall discharge all the duties imposed upon the Trustees by
this Declaration. A Trustee shall be an individual at least 21 years of
age who is not under legal disability.
2.2. Term and Election. Each Trustee named herein, or
elected or appointed prior to the first meeting of Holders, shall (except
3
<PAGE>
in the event of resignations, retirements, removals or vacancies pursuant
to Section 2.3 or Section 2.4 hereof) hold office until a successor to
such Trustee has been elected at such meeting and has qualified to serve
as Trustee, as required under the 1940 Act. Subject to the provisions of
Section 16(a) of the 1940 Act and except as provided in Section 2.3
hereof, each Trustee shall hold office during the lifetime of the Trust
and until its termination as hereinafter provided.
2.3. Resignation, Removal and Retirement. Any Trustee
may resign his or her trust (without need for prior or subsequent
accounting) by an instrument in writing executed by such Trustee and
delivered or mailed to the Chairman, if any, the President or the
Secretary of the Trust and such resignation shall be effective upon such
delivery, or at a later date according to the terms of the instrument.
Any Trustee may be removed by the affirmative vote of Holders of two-
thirds of the Interests or (provided the aggregate number of Trustees,
after such removal and after giving effect to any appointment made to fill
the vacancy created by such removal, shall not be less than the number
required by Section 2.1 hereof) with cause, by the action of two-thirds of
the remaining Trustees. Removal with cause includes, but is not limited
to, the removal of a Trustee due to physical or mental incapacity or
failure to comply with such written policies as from time to time may be
adopted by at least two-thirds of the Trustees with respect to the conduct
of the Trustees and attendance at meetings. Any Trustee who has attained
a mandatory retirement age, if any, established pursuant to any written
policy adopted from time to time by at least two-thirds of the Trustees
shall, automatically and without action by such Trustee or the remaining
Trustees, be deemed to have retired in accordance with the terms of such
policy, effective as of the date determined in accordance with such
policy. Any Trustee who has become incapacitated by illness or injury as
determined by a majority of the other Trustees, may be retired by written
instrument executed by a majority of the other Trustees, specifying the
date of such Trustee's retirement. Upon the resignation, retirement or
removal of a Trustee, or a Trustee otherwise ceasing to be a Trustee, such
resigning, retired, removed or former Trustee shall execute and deliver
such documents as the remaining Trustees shall require for the purpose of
conveying to the Trust or the remaining Trustees any Trust Property held
in the name of such resigning, retired, removed or former Trustee. Upon
the death of any Trustee or upon removal, retirement or resignation due to
any Trustee's incapacity to serve as Trustee, the legal representative of
such deceased, removed, retired or resigning Trustee shall execute and
deliver on behalf of such deceased, removed, retired or resigning Trustee
such documents as the remaining Trustees shall require for the purpose set
forth in the preceding sentence.
2.4. Vacancies. The term of office of a Trustee shall
terminate and a vacancy shall occur in the event of the death,
resignation, retirement, adjudicated incompetence or other incapacity to
perform the duties of the office, or removal, of a Trustee. No such
vacancy shall operate to annul this Declaration or to revoke any existing
agency created pursuant to the terms of this Declaration. In the case of
a vacancy, Holders of at least a majority of the Interests entitled to
4
<PAGE>
vote, acting at any meeting of Holders held in accordance with Section 9.2
hereof, or, to the extent permitted by the 1940 Act, a majority vote of
the Trustees continuing in office acting by written instrument or
instruments, may fill such vacancy, and any Trustee so elected by the
Trustees or the Holders shall hold office as provided in this Declaration.
2.5. Meetings. Meetings of the Trustees shall be held
from time to time upon the call of the Chairman, if any, the President,
the Secretary, an Assistant Secretary or any two Trustees, at such time,
on such day and at such place, as shall be designated in the notice of the
meeting. The Trustees shall hold an annual meeting for the election of
officers and the transaction of other business which may come before such
meeting. Regular meetings of the Trustees may be held without call or
notice at a time and place fixed by the By-Laws or by resolution of the
Trustees. Notice of any other meeting shall be given by mail, by telegram
(which term shall include a cablegram), by telecopier or delivered
personally (which term shall include by telephone). If notice is given by
mail, it shall be mailed not later than 48 hours preceding the meeting and
if given by telegram, telecopier or personally, such notice shall be sent
or delivery made not later than 24 hours preceding the meeting. Notice of
a meeting of Trustees may be waived before or after any meeting by signed
written waiver. Neither the business to be transacted at, nor the purpose
of, any meeting of the Trustees need be stated in the notice or waiver of
notice of such meeting. The attendance of a Trustee at a meeting shall
constitute a waiver of notice of such meeting except in the situation in
which a Trustee attends a meeting for the express purpose of objecting, at
the commencement of such meeting, to the transaction of any business on
the ground that the meeting was not lawfully called or convened. The
Trustees may act with or without a meeting, but no notice need be given of
action proposed to be taken by written consent. A quorum for all meetings
of the Trustees shall be a majority of the Trustees. Unless provided
otherwise in this Declaration, any action of the Trustees may be taken at
a meeting by vote of a majority of the Trustees present (a quorum being
present) or without a meeting by written consent of a majority of the
Trustees.
Any committee of the Trustees, including an executive
committee, if any, may act with or without a meeting. A quorum for all
meetings of any such committee shall be a majority of the members thereof.
Unless provided otherwise in this Declaration, any action of any such
committee may be taken at a meeting by vote of a majority of the members
present (a quorum being present) or without a meeting by written consent
of a majority of the members.
With respect to actions of the Trustees and any committee
of the Trustees, Trustees who are Interested Persons of the Trust or
otherwise interested in any action to be taken may be counted for quorum
purposes under this Section 2.5 and shall be entitled to vote to the
extent permitted by the 1940 Act.
All or any one or more Trustees may participate in a
meeting of the Trustees or any committee thereof by means of a conference
5
<PAGE>
telephone or similar communications equipment by means of which all
individuals participating in the meeting can hear each other and
participation in a meeting by means of such communications equipment shall
constitute presence in person at such meeting.
2.6. Officers; Chairman of the Board. The Trustees
shall, from time to time, elect a President, a Secretary and a Treasurer.
The Trustees may elect or appoint, from time to time, a Chairman of the
Board who shall preside at all meetings of the Trustees and carry out such
other duties as the Trustees may designate. The Trustees may elect or
appoint or authorize the President to appoint such other officers, agents
or independent contractors with such powers as the Trustees may deem to be
advisable. The Chairman, if any, shall be and each other officer may, but
need not, be a Trustee.
2.7. By-Laws. The Trustees may adopt and, from time
to time, amend or repeal By-Laws for the conduct of the business of the
Trust.
ARTICLE III
Powers of Trustees
------------------
3.1. General. The Trustees shall have exclusive and
absolute control over the Trust Property and over the business of the
Trust to the same extent as if the Trustees were the sole owners of the
Trust Property and such business in their own right, but with such powers
of delegation as may be permitted by this Declaration. The Trustees may
perform such acts as in their sole discretion they deem proper for
conducting the business of the Trust. The enumeration of or failure to
mention any specific power herein shall not be construed as limiting such
exclusive and absolute control. The powers of the Trustees may be
exercised without order of or resort to any court.
3.2. Investments. The Trustees shall have power to:
(a) conduct, operate and carry on the
business of an investment company;
(b) subscribe for, invest in, reinvest in,
purchase or otherwise acquire, hold, pledge, sell, assign, transfer,
exchange, distribute or otherwise deal in or dispose of U.S. and foreign
currencies and related instruments including forward contracts, and
securities, including common and preferred stock, warrants, bonds,
debentures, time notes and all other evidences of indebtedness, negotiable
or non-negotiable instruments, obligations, certificates of deposit or
indebtedness, commercial paper, repurchase agreements, reverse repurchase
agreements, convertible securities, forward contracts, options, futures
contracts, and other securities, including, without limitation, those
issued, guaranteed or sponsored by any state, territory or possession of
the United States and the District of Columbia and their political
subdivisions, agencies and instrumentalities, or by the U.S. Government,
6
<PAGE>
any foreign government, or any agency, instrumentality or political
subdivision of the U.S. Government or any foreign government, or any
international instrumentality, or by any bank, savings institution,
corporation or other business entity organized under the laws of the
United States or under any foreign laws; and to exercise any and all
rights, powers and privileges of ownership or interest in respect of any
and all such investments of any kind and description, including, without
limitation, the right to consent and otherwise act with respect thereto,
with power to designate one or more Persons to exercise any of such
rights, powers and privileges in respect of any of such investments; and
the Trustees shall be deemed to have the foregoing powers with respect to
any additional instruments in which the Trustees may determine to invest.
The Trustees shall not be limited to investing in
obligations maturing before the possible termination of the Trust, nor
shall the Trustees be limited by any law limiting the investments which
may be made by fiduciaries.
3.3. Legal Title. Legal title to all Trust Property
shall be vested in the Trustees as joint tenants except that the Trustees
shall have the power to cause legal title to any Trust Property to be held
by or in the name of one or more of the Trustees, or in the name of the
Trust, or in the name or nominee name of any other Person on behalf of the
Trust, on such terms as the Trustees may determine.
The right, title and interest of the Trustees in the
Trust Property shall vest automatically in each individual who may
hereafter become a Trustee upon his due election and qualification. Upon
the resignation, removal or death of a Trustee, such resigning, removed or
deceased Trustee shall automatically cease to have any right, title or
interest in any Trust Property, and the right, title and interest of such
resigning, removed or deceased Trustee in the Trust Property shall vest
automatically in the remaining Trustees. Such vesting and cessation of
title shall be effective whether or not conveyancing documents have been
executed and delivered.
3.4. Sale and Increases of Interests. The Trustees,
in their discretion, may, from time to time, without a vote of the
Holders, permit any Institutional Investor to purchase an Interest, or
increase its Interest, for such type of consideration, including cash or
property, at such time or times (including, without limitation, each
business day), and on such terms as the Trustees may deem best, and may in
such manner acquire other assets (including the acquisition of assets
subject to, and in connection with the assumption of, liabilities) and
businesses. Individuals, S corporations, partnerships and grantor trusts
that are beneficially owned by any individual, S corporation or
partnership may not purchase Interests. A Holder which has redeemed its
Interest may not be permitted to purchase an Interest until the later of
60 calendar days after the date of such Redemption or the first day of the
Fiscal Year next succeeding the Fiscal Year during which such Redemption
occurred.
7
<PAGE>
3.5 Decreases and Redemptions of Interests. Subject
to Article VII hereof, the Trustees, in their discretion, may, from time
to time, without a vote of the Holders, permit a Holder to redeem its
Interest, or decrease its Interest, for either cash or property, at such
time or times (including, without limitation, each business day), and on
such terms as the Trustees may deem best.
3.6. Borrow Money. The Trustees shall have power to
borrow money or otherwise obtain credit and to secure the same by
mortgaging, pledging or otherwise subjecting as security the assets of the
Trust, including the lending of portfolio securities, and to endorse,
guarantee, or undertake the performance of any obligation, contract or
engagement of any other Person.
3.7. Delegation; Committees. The Trustees shall have
power, consistent with their continuing exclusive and absolute control
over the Trust Property and over the business of the Trust, to delegate
from time to time to such of their number or to officers, employees,
agents or independent contractors of the Trust the doing of such things
and the execution of such instruments in either the name of the Trust or
the names of the Trustees or otherwise as the Trustees may deem expedient.
3.8. Collection and Payment. The Trustees shall have
power to collect all property due to the Trust; and to pay all claims,
including taxes, against the Trust Property; to prosecute, defend,
compromise or abandon any claims relating to the Trust or the Trust
Property; to foreclose any security interest securing any obligation, by
virtue of which any property is owed to the Trust; and to enter into
releases, agreements and other instruments.
3.9. Expenses. The Trustees shall have power to incur
and pay any expenses which in the opinion of the Trustees are necessary or
incidental to carry out any of the purposes of this Declaration, and to
pay reasonable compensation from the Trust Property to themselves as
Trustees. The Trustees shall fix the compensation of all officers,
employees and Trustees. The Trustees may pay themselves such compensation
for special services, including legal and brokerage services, as they in
good faith may deem reasonable, and reimbursement for expenses reasonably
incurred by themselves on behalf of the Trust.
3.10. Miscellaneous Powers. The Trustees shall have
power to: (a) employ or contract with such Persons as the Trustees may
deem appropriate for the transaction of the business of the Trust and
terminate such employees or contractual relationships as they consider
appropriate; (b) enter into joint ventures, partnerships and any other
combinations or associations; (c) purchase, and pay for out of Trust
Property, insurance policies insuring the Investment Adviser,
Administrator, placement agent, Holders, Trustees, officers, employees,
agents or independent contractors of the Trust against all claims arising
by reason of holding any such position or by reason of any action taken or
omitted by any such Person in such capacity, whether or not the Trust
would have the power to indemnify such Person against such liability; (d)
8
<PAGE>
establish pension, profit-sharing and other retirement, incentive and
benefit plans for the Trustees, officers, employees or agents of the
Trust; (e) make donations, irrespective of benefit to the Trust, for
charitable, religious, educational, scientific, civic or similar purposes;
(f) to the extent permitted by law, indemnify any Person with whom the
Trust has dealings, including the Investment Adviser, Administrator,
placement agent, Holders, Trustees, officers, employees, agents or
independent contractors of the Trust, to such extent as the Trustees shall
determine; (g) guarantee indebtedness or contractual obligations of
others; (h) determine and change the Fiscal Year and the method by which
the accounts of the Trust shall be kept; and (i) adopt a seal for the
Trust, but the absence of such a seal shall not impair the validity of any
instrument executed on behalf of the Trust.
3.11. Further Powers. The Trustees shall have power to
conduct the business of the Trust and carry on its operations in any and
all of its branches and maintain offices, whether within or without the
State of New York, in any and all states of the United States of America,
in the District of Columbia, and in any and all commonwealths,
territories, dependencies, colonies, possessions, agencies or
instrumentalities of the United States of America and of foreign
governments, and to do all such other things and execute all such
instruments as they deem necessary, proper, appropriate or desirable in
order to promote the interests of the Trust although such things are not
herein specifically mentioned. Any determination as to what is in the
interests of the Trust which is made by the Trustees in good faith shall
be conclusive. In construing the provisions of this Declaration, the
presumption shall be in favor of a grant of power to the Trustees. The
Trustees shall not be required to obtain any court order in order to deal
with Trust Property.
9
<PAGE>
ARTICLE IV
Investment Advisory, Administration
and Placement Agent Arrangements
-----------------------------------
4.1. Investment Advisory, Administration and Other
Arrangements. The Trustees may in their discretion, from time to time,
enter into investment advisory contracts, administration contracts or
placement agent agreements whereby the other party to such contract or
agreement shall undertake to furnish the Trustees such investment
advisory, administration, placement agent and/or other services as the
Trustees shall, from time to time, consider appropriate or desirable and
all upon such terms and conditions as the Trustees may in their sole
discretion determine. Notwithstanding any provision of this Declaration,
the Trustees may authorize any Investment Adviser (subject to such general
or specific instructions as the Trustees may, from time to time, adopt) to
effect purchases, sales, loans or exchanges of Trust Property on behalf of
the Trustees or may authorize any officer, employee or Trustee to effect
such purchases, sales, loans or exchanges pursuant to recommendations of
any such Investment Adviser (all without any further action by the
Trustees). Any such purchase, sale, loan or exchange shall be deemed to
have been authorized by the Trustees.
4.2. Parties to Contract. Any contract of the
character described in Section 4.1 hereof or in the By-Laws of the Trust
may be entered into with any corporation, firm, trust or association,
although one or more of the Trustees or officers of the Trust may be an
officer, director, Trustee, shareholder or member of such other party to
the contract, and no such contract shall be invalidated or rendered
voidable by reason of the existence of any such relationship, nor shall
any individual holding such relationship be liable merely by reason of
such relationship for any loss or expense to the Trust under or by reason
of any such contract or accountable for any profit realized directly or
indirectly therefrom, provided that the contract when entered into was
reasonable and fair and not inconsistent with the provisions of this
Article IV or the By-Laws of the Trust. The same Person may be the other
party to one or more contracts entered into pursuant to Section 4.1 hereof
or the By-Laws of the Trust, and any individual may be financially
interested or otherwise affiliated with Persons who are parties to any or
all of the contracts mentioned in this Section 4.2 or in the By-Laws of
the Trust.
ARTICLE V
Liability of Holders; Limitations of
Liability of Trustees, Officers, etc.
-------------------------------------
5.1. Liability of Holders; Indemnification. Each
Holder shall be jointly and severally liable (with rights of contribution
inter se in proportion to their respective Interests in the Trust) for the
liabilities and obligations of the Trust in the event that the Trust fails
10
<PAGE>
to satisfy such liabilities and obligations; provided, however, that, to
the extent assets are available in the Trust, the Trust shall indemnify
and hold each Holder harmless from and against any claim or liability to
which such Holder may become subject by reason of being or having been a
Holder to the extent that such claim or liability imposes on the Holder an
obligation or liability which, when compared to the obligations and
liabilities imposed on other Holders, is greater than such Holder's
Interest (proportionate share), and shall reimburse such Holder for all
legal and other expenses reasonably incurred by such Holder in connection
with any such claim or liability. The rights accruing to a Holder under
this Section 5.1 shall not exclude any other right to which such Holder
may be lawfully entitled, nor shall anything contained herein restrict the
right of the Trust to indemnify or reimburse a Holder in any appropriate
situation even though not specifically provided herein. Notwithstanding
the indemnification procedure described above, it is intended that each
Holder shall remain jointly and severally liable to the Trust's creditors
as a legal matter.
5.2. Limitations of Liability of Trustees, Officers,
Employees, Agents, Independent Contractors to Third Parties. No Trustee,
officer, employee, agent or independent contractor (except in the case of
an agent or independent contractor to the extent expressly provided by
written contract) of the Trust shall be subject to any personal liability
whatsoever to any Person, other than the Trust or the Holders, in
connection with Trust Property or the affairs of the Trust; and all such
Persons shall look solely to the Trust Property for satisfaction of claims
of any nature against a Trustee, officer, employee, agent or independent
contractor (except in the case of an agent or independent contractor to
the extent expressly provided by written contract) of the Trust arising in
connection with the affairs of the Trust.
5.3. Limitations of Liability of Trustees, Officers,
Employees, Agents, Independent Contractors to Trust, Holders, etc. No
Trustee, officer, employee, agent or independent contractor (except in the
case of an agent or independent contractor to the extent expressly
provided by written contract) of the Trust shall be liable to the Trust or
the Holders for any action or failure to act (including, without
limitation, the failure to compel in any way any former or acting Trustee
to redress any breach of trust) except for such Person's own bad faith,
willful misfeasance, gross negligence or reckless disregard of such
Person's duties.
5.4. Mandatory Indemnification. The Trust shall
indemnify, to the fullest extent permitted by law (including the 1940
Act), each Trustee, officer, employee, agent or independent contractor
(except in the case of an agent or independent contractor to the extent
expressly provided by written contract) of the Trust (including any Person
who serves at the Trust's request as a director, officer or trustee of
another organization in which the Trust has any interest as a shareholder,
creditor or otherwise) against all liabilities and expenses (including
amounts paid in satisfaction of judgments, in compromise, as fines and
penalties, and as counsel fees) reasonably incurred by such Person in
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<PAGE>
connection with the defense or disposition of any action, suit or other
proceeding, whether civil or criminal, in which such Person may be
involved or with which such Person may be threatened, while in office or
thereafter, by reason of such Person being or having been such a Trustee,
officer, employee, agent or independent contractor, except with respect to
any matter as to which such Person shall have been adjudicated to have
acted in bad faith, willful misfeasance, gross negligence or reckless
disregard of such Person's duties; provided, however, that as to any
matter disposed of by a compromise payment by such Person, pursuant to a
consent decree or otherwise, no indemnification either for such payment or
for any other expenses shall be provided unless there has been a
determination that such Person did not engage in willful misfeasance, bad
faith, gross negligence or reckless disregard of the duties involved in
the conduct of such Person's office by the court or other body approving
the settlement or other disposition or by a reasonable determination,
based upon a review of readily available facts (as opposed to a full
trial-type inquiry), that such Person did not engage in such conduct by
written opinion from independent legal counsel approved by the Trustees.
The rights accruing to any Person under these provisions shall not exclude
any other right to which such Person may be lawfully entitled; provided
that no Person may satisfy any right of indemnity or reimbursement granted
in this Section 5.4 or in Section 5.2 hereof or to which such Person may
be otherwise entitled except out of the Trust Property. The Trustees may
make advance payments in connection with indemnification under this
Section 5.4, provided that the indemnified Person shall have given a
written undertaking to reimburse the Trust in the event it is subsequently
determined that such Person is not entitled to such indemnification.
5.5. No Bond Required of Trustees. No Trustee shall,
as such, be obligated to give any bond or surety or other security for the
performance of any of such Trustee's duties hereunder.
5.6. No Duty of Investigation; Notice in Trust
Instruments, etc. No purchaser, lender or other Person dealing with any
Trustee, officer, employee, agent or independent contractor of the Trust
shall be bound to make any inquiry concerning the validity of any
transaction purporting to be made by such Trustee, officer, employee,
agent or independent contractor or be liable for the application of money
or property paid, loaned or delivered to or on the order of such Trustee,
officer, employee, agent or independent contractor. Every obligation,
contract, instrument, certificate or other interest or undertaking of the
Trust, and every other act or thing whatsoever executed in connection with
the Trust shall be conclusively taken to have been executed or done by the
executors thereof only in their capacity as Trustees, officers, employees,
agents or independent contractors of the Trust. Every written obligation,
contract, instrument, certificate or other interest or undertaking of the
Trust made or sold by any Trustee, officer, employee, agent or independent
contractor of the Trust, in such capacity, shall contain an appropriate
recital to the effect that the Trustee, officer, employee, agent or
independent contractor of the Trust shall not personally be bound by or
liable thereunder, nor shall resort be had to their private property for
the satisfaction of any obligation or claim thereunder, and appropriate
12
<PAGE>
references shall be made therein to the Declaration, and may contain any
further recital which they may deem appropriate, but the omission of such
recital shall not operate to impose personal liability on any Trustee,
officer, employee, agent or independent contractor of the Trust. Subject
to the provisions of the 1940 Act, the Trust may maintain insurance for
the protection of the Trust Property, the Holders, and the Trustees,
officers, employees, agents and independent contractors of the Trust in
such amount as the Trustees shall deem adequate to cover possible tort
liability, and such other insurance as the Trustees in their sole judgment
shall deem advisable.
5.7. Reliance on Experts, etc. Each Trustee, officer,
employee, agent or independent contractor of the Trust shall, in the
performance of such Person's duties, be fully and completely justified and
protected with regard to any act or any failure to act resulting from
reliance in good faith upon the books of account or other records of the
Trust (whether or not the Trust would have the power to indemnify such
Persons against such liability), upon an opinion of counsel, or upon
reports made to the Trust by any of its officers or employees or by any
Investment Adviser or Administrator, accountant, appraiser or other
experts or consultants selected with reasonable care by the Trustees,
officers or employees of the Trust, regardless of whether such counsel or
expert may also be a Trustee.
ARTICLE VI
Interests
---------
6.1. Interests. The beneficial interest in the Trust
Property shall consist of non-transferable Interests. The Interests shall
be personal property giving only the rights in this Declaration
specifically set forth. The value of an Interest shall be equal to the
Book Capital Account balance of the Holder of the Interest.
6.2. Non-Transferability. A Holder may not transfer,
sell or exchange its Interest.
6.3. Register of Interests. A register shall be kept
at the Trust under the direction of the Trustees which shall contain the
name, address and Book Capital Account balance of each Holder. Such
register shall be conclusive as to the identity of the Holders, and the
Trust shall not be bound to recognize any equitable or legal claim to or
interest in an Interest which is not contained in such register. No
Holder shall be entitled to receive payment of any distribution, nor to
have notice given to it as herein provided, until it has given its address
to such officer or agent of the Trust as is keeping such register for
entry thereon.
13
<PAGE>
ARTICLE VII
Increases, Decreases And Redemptions of Interests
-------------------------------------------------
Subject to applicable law, to the provisions of this
Declaration and to such restrictions as may from time to time be adopted
by the Trustees, each Holder shall have the right to vary its investment
in the Trust at any time without limitation by increasing (through a
capital contribution) or decreasing (through a capital withdrawal) or by a
Redemption of its Interest. An increase in the investment of a Holder in
the Trust shall be reflected as an increase in the Book Capital Account
balance of that Holder and a decrease in the investment of a Holder in the
Trust or the Redemption of the Interest of a Holder shall be reflected as
a decrease in the Book Capital Account balance of that Holder. The Trust
shall, upon appropriate and adequate notice from any Holder increase,
decrease or redeem such Holder's Interest for an amount determined by the
application of a formula adopted for such purpose by resolution of the
Trustees; provided that (a) the amount received by the Holder upon any
such decrease or Redemption shall not exceed the decrease in the Holder's
Book Capital Account balance effected by such decrease or Redemption of
its Interest, and (b) if so authorized by the Trustees, the Trust may, at
any time and from time to time, charge fees for effecting any such
decrease or Redemption, at such rates as the Trustees may establish, and
may, at any time and from time to time, suspend such right of decrease or
Redemption. The procedures for effecting decreases or Redemptions shall
be as determined by the Trustees from time to time.
ARTICLE VIII
Determination of Book Capital Account
Balances and Distributions
-------------------------------------
8.1. Book Capital Account Balances. The Book Capital
Account balance of each Holder shall be determined on such days and at
such time or times as the Trustees may determine. The Trustees shall
adopt resolutions setting forth the method of determining the Book Capital
Account balance of each Holder. The power and duty to make calculations
pursuant to such resolutions may be delegated by the Trustees to the
Investment Adviser, Administrator, custodian, or such other Person as the
Trustees may determine. Upon the Redemption of an Interest, the Holder of
that Interest shall be entitled to receive the balance of its Book Capital
Account. A Holder may not transfer, sell or exchange its Book Capital
Account balance.
8.2. Allocations and Distributions to Holders. The
Trustees shall, in compliance with the Code, the 1940 Act and generally
accepted accounting principles, establish the procedures by which the
Trust shall make (i) the allocation of unrealized gains and losses,
taxable income and tax loss, and profit and loss, or any item or items
thereof, to each Holder, (ii) the payment of distributions, if any, to
Holders, and (iii) upon liquidation, the final distribution of items of
14
<PAGE>
taxable income and expense. Such procedures shall be set forth in writing
and be furnished to the Trust's accountants. The Trustees may amend the
procedures adopted pursuant to this Section 8.2 from time to time. The
Trustees may retain from the net profits such amount as they may deem
necessary to pay the liabilities and expenses of the Trust, to meet
obligations of the Trust, and as they may deem desirable to use in the
conduct of the affairs of the Trust or to retain for future requirements
or extensions of the business.
8.3. Power to Modify Foregoing Procedures.
Notwithstanding any of the foregoing provisions of this Article VIII, the
Trustees may prescribe, in their absolute discretion, such other bases and
times for determining the net income of the Trust, the allocation of
income of the Trust, the Book Capital Account balance of each Holder, or
the payment of distributions to the Holders as they may deem necessary or
desirable to enable the Trust to comply with any provision of the 1940 Act
or any order of exemption issued by the Commission or with the Code.
ARTICLE IX
Holders
-------
9.1. Rights of Holders. The ownership of the Trust
Property and the right to conduct any business described herein are vested
exclusively in the Trustees, and the Holders shall have no right or title
therein other than the beneficial interest conferred by their Interests
and they shall have no power or right to call for any partition or
division of any Trust Property.
9.2. Meetings of Holders. Meetings of Holders may be
called at any time by a majority of the Trustees and shall be called by
any Trustee upon written request of Holders holding, in the aggregate, not
less than 10% of the Interests, such request specifying the purpose or
purposes for which such meeting is to be called. Any such meeting shall
be held within or without the State of New York and within or without the
United States of America on such day and at such time as the Trustees
shall designate. Holders of one-third of the Interests, present in person
or by proxy, shall constitute a quorum for the transaction of any
business, except as may otherwise be required by the 1940 Act, other
applicable law, this Declaration or the By-Laws of the Trust. If a quorum
is present at a meeting, an affirmative vote of the Holders present, in
person or by proxy, holding more than 50% of the total Interests of the
Holders present, either in person or by proxy, at such meeting constitutes
the action of the Holders, unless a greater number of affirmative votes is
required by the 1940 Act, other applicable law, this Declaration or the
By-Laws of the Trust. All or any one of more Holders may participate in a
meeting of Holders by means of a conference telephone or similar
communications equipment by means of which all persons participating in
the meeting can hear each other and participation in a meeting by means of
such communications equipment shall constitute presence in person at such
meeting.
15
<PAGE>
9.3. Notice of Meetings. Notice of each meeting of
Holders, stating the time, place and purposes of the meeting, shall be
given by the Trustees by mail to each Holder, at its registered address,
mailed at least 10 days and not more than 60 days before the meeting.
Notice of any meeting may be waived in writing by any Holder either before
or after such meeting. The attendance of a Holder at a meeting shall
constitute a waiver of notice of such meeting except in the situation in
which a Holder attends a meeting for the express purpose of objecting to
the transaction of any business on the ground that the meeting was not
lawfully called or convened. At any meeting, any business properly before
the meeting may be considered whether or not stated in the notice of the
meeting. Any adjourned meeting may be held as adjourned without further
notice.
9.4. Record Date for Meetings, Distributions, etc.
For the purpose of determining the Holders who are entitled to notice of
and to vote or act at any meeting, including any adjournment thereof, or
to participate in any distribution, or for the purpose of any other
action, the Trustees may from time to time fix a date, not more than 90
days prior to the date of any meeting of Holders or the payment of any
distribution or the taking of any other action, as the case may be, as a
record date for the determination of the Persons to be treated as Holders
for such purpose. If the Trustees do not, prior to any meeting of the
Holders, so fix a record date, then the date of mailing notice of the
meeting shall be the record date.
9.5. Proxies, etc. At any meeting of Holders, any
Holder entitled to vote thereat may vote by proxy, provided that no proxy
shall be voted at any meeting unless it shall have been placed on file
with the Secretary, or with such other officer or agent of the Trust as
the Secretary may direct, for verification prior to the time at which such
vote is to be taken. A proxy may be revoked by a Holder at any time
before it has been exercised by placing on file with the Secretary, or
with such other officer or agent of the Trust as the Secretary may direct,
a later dated proxy or written revocation. Pursuant to a resolution of a
majority of the Trustees, proxies may be solicited in the name of the
Trust or of one or more Trustees or of one or more officers of the Trust.
Only Holders on the record date shall be entitled to vote. Each such
Holder shall be entitled to a vote proportionate to its Interest. When an
Interest is held jointly by several Persons, any one of them may vote at
any meeting in person or by proxy in respect of such Interest, but if more
than one of them is present at such meeting in person or by proxy, and
such joint owners or their proxies so present disagree as to any vote to
be cast, such vote shall not be received in respect of such Interest. A
proxy purporting to be executed by or on behalf of a Holder shall be
deemed valid unless challenged at or prior to its exercise, and the burden
of proving invalidity shall rest on the challenger. No proxy shall be
valid after one year from the date of execution, unless a longer period is
expressly stated in such proxy. The Trust may also permit a Holder to
authorize and empower individuals named as proxies on any form of proxy
solicited by the Trustees to vote that Holder's Interest on any matter by
recording his voting instructions on any recording device maintained for
16
<PAGE>
that purpose by the Trust or its agent, provided the Holder complies with
such procedures as the Trustees may designate to be necessary or
appropriate to determine the authenticity of the voting instructions so
recorded; such instructions shall be deemed to constitute a written proxy
signed by the Holder and delivered to the Trust and shall be deemed to be
dated as of the date such instructions were transmitted, and the Holder
shall be deemed to have approved and ratified all actions taken by such
proxies in accordance with the voting instructions so recorded.
9.6. Reports. The Trustees shall cause to be prepared
and furnished to each Holder, at least annually as of the end of each
Fiscal Year, a report of operations containing a balance sheet and a
statement of income of the Trust prepared in conformity with generally
accepted accounting principles and an opinion of an independent public
accountant on such financial statements. The Trustees shall, in addition,
furnish to each Holder at least semi-annually interim reports of
operations containing an unaudited balance sheet as of the end of such
period and an unaudited statement of income for the period from the
beginning of the then-current Fiscal Year to the end of such period.
9.7. Inspection of Records. The books and records of
the Trust shall be open to inspection by Holders during normal business
hours for any purpose not harmful to the Trust.
9.8. Holder Action by Written Consent. Any action
which may be taken by Holders may be taken without a meeting if Holders
holding more than 50% of all Interests entitled to vote (or such larger
proportion thereof as shall be required by any express provision of this
Declaration) consent to the action in writing and the written consents are
filed with the records of the meetings of Holders. Such consents shall be
treated for all purposes as a vote taken at a meeting of Holders. Each
such written consent shall be executed by or on behalf of the Holder
delivering such consent and shall bear the date of such execution. No
such written consent shall be effective to take the action referred to
therein unless, within one year of the earliest dated consent, written
consents executed by a sufficient number of Holders to take such action
are filed with the records of the meetings of Holders.
9.9. Notices. Any and all communications, including
any and all notices to which any Holder may be entitled, shall be deemed
duly served or given if mailed, postage prepaid, addressed to a Holder at
its last known address as recorded on the register of the Trust.
ARTICLE X
Duration; Termination;
Amendment; Mergers; Etc.
------------------------
10.1. Duration. Subject to possible termination or
dissolution in accordance with the provisions of Section 10.2 and Section
10.3 hereof, respectively, the Trust created hereby shall continue until
17
<PAGE>
the expiration of 20 years after the death of the last survivor of the
initial Trustees named herein and the following named persons:
<TABLE>
<CAPTION>
Name Address Date of Birth
---- ------- -------------
<S> <C> <C>
Cassius Marcellus Cornelius Clay 742 Old Dublin Road November 9, 1990
Hancock, NH 03449
Sara Briggs Sullivan 1308 Rhodes Street ASeptember 17, 1990
Dubois, WY 82513
Myles Bailey Rawson Winhall Hollow Road May 13, 1990
R.R. #1, Box 178B
Bondville, VT 05340
Zeben Curtis Kopchak Box 1126 October 31, 1989
Cordova, AK 99574
Landon Harris Clay 742 Old Dublin Road February 15, 1989
Hancock, NH 03449
Kelsey Ann Sullivan 1308 Rhodes Street May 1, 1988
Dubois, WY 82513
Carter Allen Rawson Winhall Hollow Road January 28, 1988
R.R. #1, Box 178B
Bondville, VT 05340
Obadiah Barclay Kopchak Box 1126 August 29, 1987
Cordova, AK 99574
Richard Tubman Clay 742 Old Dublin Road April 12, 1987
Hancock, NH 03449
Thomas Moragne Clay 742 Old Dublin Road April 11, 1985
Hancock, NH 03449
Zachariah Bishop Kopchak Box 1126 January 11, 1985
Cordova, AK 99574
Sager Anna Kopchak Box 1126 May 22, 1983
Cordova, AK 99574
</TABLE>
10.2. Termination.
-----------
(a) The Trust may be terminated (i) by the
affirmative vote of Holders of not less than two-thirds of all Interests
at any meeting of Holders or by an instrument in writing without a
18
<PAGE>
meeting, executed by a majority of the Trustees and consented to by
Holders of not less than two-thirds of all Interests, or (ii) by the
Trustees by written notice to the Holders. Upon any such termination,
(i) the Trust shall carry on no business except
for the purpose of winding up its affairs;
(ii) the Trustees shall proceed to wind up the
affairs of the Trust and all of the powers of the Trustees under
this Declaration shall continue until the affairs of the Trust have
been wound up, including the power to fulfill or discharge the
contracts of the Trust, collect the assets of the Trust, sell,
convey, assign, exchange or otherwise dispose of all or any part of
the Trust Property to one or more Persons at public or private sale
for consideration which may consist in whole or in part of cash,
securities or other property of any kind, discharge or pay the
liabilities of the Trust, and do all other acts appropriate to
liquidate the business of the Trust; provided that any sale,
conveyance, assignment, exchange or other disposition of all or
substantially all the Trust Property shall require approval of the
principal terms of the transaction and the nature and amount of the
consideration by the vote of Holders holding more than 50% of all
Interests; and
(iii) after paying or adequately providing for the
payment of all liabilities, and upon receipt of such releases,
indemnities and refunding agreements as they deem necessary for
their protection, the Trustees shall distribute the remaining Trust
Property, in cash or in kind or partly each, among the Holders
according to their respective rights as set forth in the procedures
established pursuant to Section 8.2 hereof.
(b) Upon termination of the Trust and
distribution to the Holders as herein provided, a majority of the Trustees
shall execute and file with the records of the Trust an instrument in
writing setting forth the fact of such termination and distribution. Upon
termination of the Trust, the Trustees shall thereupon be discharged from
all further liabilities and duties hereunder, and the rights and interests
of all Holders shall thereupon cease.
10.3. Dissolution. Upon the bankruptcy of any Holder, or
upon the Redemption of any Interest, the Trust shall be dissolved
effective 120 days after the event. However, the Holders (other than such
bankrupt or redeeming Holder) may, by a unanimous affirmative vote at any
meeting of such Holders or by an instrument in writing without a meeting
executed by a majority of the Trustees and consented to by all such
Holders, agree to continue the business of the Trust even if there has
been such a dissolution.
19
<PAGE>
10.4. Amendment Procedure.
-------------------
(a) This Declaration may be amended by the vote
of Holders of more than 50% of all Interests at any meeting of Holders or
by an instrument in writing without a meeting, executed by a majority of
the Trustees and consented to by the Holders of more than 50% of all
Interests. Notwithstanding any other provision hereof, this Declaration
may be amended by an instrument in writing executed by a majority of the
Trustees, and without the vote or consent of Holders, for any one or more
of the following purposes: (i) to change the name of the Trust, (ii) to
supply any omission, or to cure, correct or supplement any ambiguous,
defective or inconsistent provision hereof, (iii) to conform this
Declaration to the requirements of applicable federal law or regulations
or the requirements of the applicable provisions of the Code, (iv) to
change the state or other jurisdiction designated herein as the state or
other jurisdiction whose law shall be the governing law hereof, (v) to
effect such changes herein as the Trustees find to be necessary or
appropriate (A) to permit the filing of this Declaration under the law of
such state or other jurisdiction applicable to trusts or voluntary
associations, (B) to permit the Trust to elect to be treated as a
"regulated investment company" under the applicable provisions of the
Code, or (C) to permit the transfer of Interests (or to permit the
transfer of any other beneficial interest in or share of the Trust,
however denominated), (vi) in conjunction with any amendment contemplated
by the foregoing clause (iv) or the foregoing clause (v) to make any and
all such further changes or modifications to this Declaration as the
Trustees find to be necessary or appropriate, any finding of the Trustees
referred to in the foregoing clause (v) or the foregoing clause (vi) to be
conclusively evidenced by the execution of any such amendment by a
majority of the Trustees, and (vii) change, modify or rescind any
provision of this Declaration provided such change, modification or
rescission is found by the Trustees to be necessary or appropriate and to
not have a materially adverse effect on the financial interests of the
Holders, any such finding to be conclusively evidenced by the execution of
any such amendment by a majority of the Trustees; provided, however, that
unless effected in compliance with the provisions of Section 10.4(b)
hereof, no amendment otherwise authorized by this sentence may be made
which would reduce the amount payable with respect to any Interest upon
liquidation of the Trust and; provided, further, that the Trustees shall
not be liable for failing to make any amendment permitted by this Section
10.4(a).
(b) No amendment may be made under
Section 10.4(a) hereof which would change any rights with respect to any
Interest by reducing the amount payable thereon upon liquidation of the
Trust, except with the vote or consent of Holders of two-thirds of all
Interests.
(c) A certification in recordable form executed
by a majority of the Trustees setting forth an amendment and reciting that
it was duly adopted by the Holders or by the Trustees as aforesaid or a
20
<PAGE>
copy of the Declaration, as amended, in recordable form, and executed by a
majority of the Trustees, shall be conclusive evidence of such amendment
when filed with the records of the Trust.
Notwithstanding any other provision hereof, until such time as
Interests are first sold, this Declaration may be terminated or amended in
any respect by the affirmative vote of a majority of the Trustees at any
meeting of Trustees or by an instrument executed by a majority of the
Trustees.
10.5. Merger, Consolidation and Sale of Assets. The Trust
may merge or consolidate with any other corporation, association, trust or
other organization or may sell, lease or exchange all or substantially all
of the Trust Property, including good will, upon such terms and conditions
and for such consideration when and as authorized at any meeting of
Holders called for such purpose by a Majority Interests Vote, and any such
merger, consolidation, sale, lease or exchange shall be deemed for all
purposes to have been accomplished under and pursuant to the statutes of
the State of New York.
10.6. Incorporation. Upon a Majority Interests Vote, the
Trustees may cause to be organized or assist in organizing a corporation
or corporations under the law of any jurisdiction or a trust, partnership,
association or other organization to take over the Trust Property or to
carry on any business in which the Trust directly or indirectly has any
interest, and to sell, convey and transfer the Trust Property to any such
corporation, trust, partnership, association or other organization in
exchange for the equity interests thereof or otherwise, and to lend money
to, subscribe for the equity interests of, and enter into any contract
with any such corporation, trust, partnership, association or other
organization, or any corporation, trust, partnership, association or other
organization in which the Trust holds or is about to acquire equity
interests. The Trustees may also cause a merger or consolidation between
the Trust or any successor thereto and any such corporation, trust,
partnership, association or other organization if and to the extent
permitted by law. Nothing contained herein shall be construed as
requiring approval of the Holders for the Trustees to organize or assist
in organizing one or more corporations, trusts, partnerships, associations
or other organizations and selling, conveying or transferring a portion of
the Trust Property to one or more of such organizations or entities.
ARTICLE XI
Miscellaneous
-------------
11.1. Certificate of Designation; Agent for Service of
Process. The Trust shall file, with the Department of State of the State
of New York, a certificate, in the name of the Trust and executed by an
officer of the Trust, designating the Secretary of State of the State of
New York as an agent upon whom process in any action or proceeding against
the Trust may be served.
21
<PAGE>
11.2. Governing Law. This Declaration is executed by the
Trustees and delivered in the State of New York and with reference to the
law thereof, and the rights of all parties and the validity and
construction of every provision hereof shall be subject to and construed
in accordance with the law of the State of New York and reference shall be
specifically made to the trust law of the State of New York as to the
construction of matters not specifically covered herein or as to which an
ambiguity exists.
11.3. Counterparts. This Declaration may be simultaneously
executed in several counterparts, each of which shall be deemed to be an
original, and such counterparts, together, shall constitute one and the
same instrument, which shall be sufficiently evidenced by any one such
original counterpart.
11.4. Reliance by Third Parties. Any certificate executed
by an individual who, according to the records of the Trust or of any
recording office in which this Declaration may be recorded, appears to be
a Trustee hereunder, certifying to: (a) the number or identity of
Trustees or Holders, (b) the due authorization of the execution of any
instrument or writing, (c) the form of any vote passed at a meeting of
Trustees or Holders, (d) the fact that the number of Trustees or Holders
present at any meeting or executing any written instrument satisfies the
requirements of this Declaration, (e) the form of any By-Laws adopted by
or the identity of any officer elected by the Trustees, or (f) the
existence of any fact or facts which in any manner relate to the affairs
of the Trust, shall be conclusive evidence as to the matters so certified
in favor of any Person dealing with the Trustees.
11.5. Provisions in Conflict With Law or Regulations.
----------------------------------------------
(a) The provisions of this Declaration are
severable, and if the Trustees shall determine, with the advice of
counsel, that any of such provisions is in conflict with the 1940 Act, or
with other applicable law and regulations, the conflicting provision shall
be deemed never to have constituted a part of this Declaration; provided,
however, that such determination shall not affect any of the remaining
provisions of this Declaration or render invalid or improper any action
taken or omitted prior to such determination.
(b) If any provision of this Declaration shall be
held invalid or unenforceable in any jurisdiction, such invalidity or
unenforceability shall attach only to such provision in such jurisdiction
and shall not in any manner affect such provision in any other
jurisdiction or any other provision of this Declaration in any
jurisdiction.
22
<PAGE>
IN WITNESS WHEREOF, the undersigned have executed this
instrument as of the day and year first above written.
/s/James B. Craver
-------------------------------
James B. Craver, as Trustee and
not individually
/s/James B. Hawkes
--------------------------------
James B. Hawkes, as Trustee and
not individually
/s/Samuel L. Hayes, III
----------------------------------
Samuel L. Hayes III, as Trustee and
not individually
/s/Christopher W. Tomecek
----------------------------------
Christopher W. Tomecek, as Trustee and
not individually
23
<PAGE>
<PAGE>
GREATER CHINA GROWTH PORTFOLIO
(formerly called China Growth Portfolio)
AMENDMENT TO DECLARATION OF TRUST
October 6, 1992
AMENDMENT, made October 6, 1992, to the Declaration of Trust made
September 1, 1992 (hereinafter called the "Declaration") of Greater China
Growth Portfolio, a New York trust (hereinafter called the "Trust") by the
undersigned, being at least a majority of the Trustees of the Trust in
office on October 6, 1992.
WHEREAS, Section 10.4 of Article X of the Declaration empowers a
majority of the Trustees of the Trust to amend the Declaration without the
vote or consent of Holders to change the name of the Trust;
NOW, THEREFORE, the undersigned Trustees do hereby amend the
Declaration in the following manner:
1. The caption at the head of the Declaration is hereby
amended to read as follow:
GREATER CHINA GROWTH PORTFOLIO
2. Section 1.1 of Article I of the Declaration is hereby
amended to read as follows:
ARTICLE I
NAME
1.1 NAME. The name of the trust created hereby (the
"Trust") shall be Greater China Growth Portfolio and so far as may be
practicable the Trustees shall conduct the Trust's activities, execute all
documents and sue or be sued under that name, which name (and the word
"Trust" wherever hereinafter used) shall refer to the Trustees as
Trustees, and not individually, and shall not refer to the officers,
employees, agents or independent contractors of the Trust or holders of
interests in the Trust.
IN WITNESS WHEREOF, the undersigned Trustees have executed this
instrument this 6th day of October, 1992.
/s/Robert Lloyd George /s/Samuel L. Hayes, III
------------------------------ --------------------------
Robert Lloyd George Samuel L. Hayes, III
/s/James B. Hawkes
------------------------------
James B. Hawkes
<PAGE>
<PAGE>
GREATER CHINA GROWTH PORTFOLIO
-------------------------------
BY-LAWS
As Adopted September 1, 1992
and Revised October 6, 1992
<PAGE>
TABLE OF CONTENTS
PAGE
----
ARTICLE I -- Meetings of Holders . . . . . . . . . . . . . . . . . . . 1
Section 1.1 Records at Holder Meetings . . . . . . . . . 1
Section 1.2 Inspectors of Election . . . . . . . . . . . 1
ARTICLE II -- Officers . . . . . . . . . . . . . . . . . . . . . . . . 2
Section 2.1 Officers of the Trust . . . . . . . . . . . . 2
Section 2.2 Election and Tenure . . . . . . . . . . . . . 2
Section 2.3 Removal of Officers . . . . . . . . . . . . . 2
Section 2.4 Bonds and Surety . . . . . . . . . . . . . . 2
Section 2.5 Chairman, President and Vice President . . . 2
Section 2.6 Secretary . . . . . . . . . . . . . . . . . . 3
Section 2.7 Treasurer . . . . . . . . . . . . . . . . . . 3
Section 2.8 Other Officers and Duties . . . . . . . . . . 3
ARTICLE III -- Miscellaneous . . . . . . . . . . . . . . . . . . . . . 4
Section 3.1 Depositories . . . . . . . . . . . . . . . . 4
Section 3.2 Signatures . . . . . . . . . . . . . . . . . 4
Section 3.3 Seal . . . . . . . . . . . . . . . . . . . . 4
Section 3.4 Indemnification . . . . . . . . . . . . . . . 4
Section 3.5 Distribution Disbursing Agents and the
Like . . . . . . . . . . . . . . . . . . . . 4
ARTICLE IV -- Regulations; Amendment of By-Laws . . . . . . . . . . . . 5
Section 4.1 Regulations . . . . . . . . . . . . . . . . . 5
Section 4.2 Amendment and Repeal of By-Laws . . . . . . . 5
i
<PAGE>
BY-LAWS
OF
GREATER CHINA GROWTH PORTFOLIO
------------------------------
These By-Laws are made and adopted pursuant to Section
2.7 of the Declaration of Trust establishing GREATER CHINA GROWTH
PORTFOLIO (the "Trust"), dated as of September 1, 1992, as from time to
time amended (the "Declaration"). All words and terms capitalized in
these By-Laws shall have the meaning or meanings set forth for such words
or terms in the Declaration.
ARTICLE I
Meetings of Holders
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Section 1.1. Records at Holder Meetings. At each
meeting of the Holders there shall be open for inspection the minutes of
the last previous meeting of Holders of the Trust and a list of the
Holders of the Trust, certified to be true and correct by the Secretary or
other proper agent of the Trust, as of the record date of the meeting.
Such list of Holders shall contain the name of each Holder in alphabetical
order and the address and Interest owned by such Holder on such record
date.
Section 1.2. Inspectors of Election. In advance of any
meeting of the Holders, the Trustees may appoint Inspectors of Election to
act at the meeting or any adjournment thereof. If Inspectors of Election
are not so appointed, the chairman, if any, of any meeting of the Holders
may, and on the request of any Holder or his proxy shall, appoint
Inspectors of Election. The number of Inspectors of Election shall be
either one or three. If appointed at the meeting on the request of one or
more Holders or proxies, a Majority Interests Vote shall determine whether
one or three Inspectors of Election are to be appointed, but failure to
allow such determination by the Holders shall not affect the validity of
the appointment of Inspectors of Election. In case any individual
appointed as an Inspector of Election fails to appear or fails or refuses
to so act, the vacancy may be filled by appointment made by the Trustees
in advance of the convening of the meeting or at the meeting by the
individual acting as chairman of the meeting. The Inspectors of Election
shall determine the Interest owned by each Holder, the Interests
represented at the meeting, the existence of a quorum, the authenticity,
validity and effect of proxies, shall receive votes, ballots or consents,
shall hear and determine all challenges and questions in any way arising
in connection with the right to vote, shall count and tabulate all votes
or consents, shall determine the results, and shall do such other acts as
may be proper to conduct the election or vote with fairness to all
Holders. If there are three Inspectors of Election, the decision, act or
certificate of a majority is effective in all respects as the decision,
act or certificate of all. On request of the chairman, if any, of the
meeting, or of any Holder or its proxy, the Inspectors of Election shall
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make a report in writing of any challenge or question or matter determined
by them and shall execute a certificate of any facts found by them.
ARTICLE II
Officers
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Section 2.1. Officers of the Trust. The officers of the
Trust shall consist of a Chairman, if any, a President, a Secretary, a
Treasurer and such other officers or assistant officers, including Vice
Presidents, as may be elected by the Trustees. Any two or more of the
offices may be held by the same individual. The Trustees may designate a
Vice President as an Executive Vice President and may designate the order
in which the other Vice Presidents may act. The Chairman shall be a
Trustee, but no other officer of the Trust, including the President, need
be a Trustee.
Section 2.2. Election and Tenure. At the initial
organization meeting and thereafter at each annual meeting of the
Trustees, the Trustees shall elect the Chairman, if any, the President,
the Secretary, the Treasurer and such other officers as the Trustees shall
deem necessary or appropriate in order to carry out the business of the
Trust. Such officers shall hold office until the next annual meeting of
the Trustees and until their successors have been duly elected and
qualified. The Trustees may fill any vacancy in office or add any
additional officer at any time.
Section 2.3. Removal of Officers. Any officer may be
removed at any time, with or without cause, by action of a majority of the
Trustees. This provision shall not prevent the making of a contract of
employment for a definite term with any officer and shall have no effect
upon any cause of action which any officer may have as a result of removal
in breach of a contract of employment. Any officer may resign at any time
by notice in writing signed by such officer and delivered or mailed to the
Chairman, if any, the President or the Secretary, and such resignation
shall take effect immediately, or at a later date according to the terms
of such notice in writing.
Section 2.4. Bonds and Surety. Any officer may be
required by the Trustees to be bonded for the faithful performance of his
duties in such amount and with such sureties as the Trustees may
determine.
Section 2.5. Chairman, President and Vice Presidents.
The Chairman, if any, shall, if present, preside at all meetings of the
Holders and of the Trustees and shall exercise and perform such other
powers and duties as may be from time to time assigned to him by the
Trustees. Subject to such supervisory powers, if any, as may be given by
the Trustees to the Chairman, if any, the President shall be the chief
executive officer of the Trust and, subject to the control of the
Trustees, shall have general supervision, direction and control of the
business of the Trust and of its employees and shall exercise such general
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powers of management as are usually vested in the office of President of a
corporation. In the absence of the Chairman, if any, the President shall
preside at all meetings of the Holders and, in the absence of the
Chairman, the President shall preside at all meetings of the Trustees.
The President shall be, ex officio, a member of all standing committees of
Trustees. Subject to the direction of the Trustees, the President shall
have the power, in the name and on behalf of the Trust, to execute any and
all loan documents, contracts, agreements, deeds, mortgages and other
instruments in writing, and to employ and discharge employees and agents
of the Trust. Unless otherwise directed by the Trustees, the President
shall have full authority and power to attend, to act and to vote, on
behalf of the Trust, at any meeting of any business organization in which
the Trust holds an interest, or to confer such powers upon any other
person, by executing any proxies duly authorizing such person. The
President shall have such further authorities and duties as the Trustees
shall from time to time determine. In the absence or disability of the
President, the Vice Presidents in order of their rank or the Vice
President designated by the Trustees, shall perform all of the duties of
the President, and when so acting shall have all the powers of and be
subject to all of the restrictions upon the President. Subject to the
direction of the President, each Vice President shall have the power in
the name and on behalf of the Trust to execute any and all loan documents,
contracts, agreements, deeds, mortgages and other instruments in writing,
and, in addition, shall have such other duties and powers as shall be
designated from time to time by the Trustees or by the President.
Section 2.6. Secretary. The Secretary shall keep the
minutes of all meetings of, and record all votes of, Holders, Trustees and
the Executive Committee, if any. The results of all actions taken at a
meeting of the Trustees, or by written consent of the Trustees, shall be
recorded by the Secretary. The Secretary shall be custodian of the seal
of the Trust, if any, and (and any other person so authorized by the
Trustees) shall affix the seal or, if permitted, a facsimile thereof, to
any instrument executed by the Trust which would be sealed by a New York
corporation executing the same or a similar instrument and shall attest
the seal and the signature or signatures of the officer or officers
executing such instrument on behalf of the Trust. The Secretary shall
also perform any other duties commonly incident to such office in a New
York corporation, and shall have such other authorities and duties as the
Trustees shall from time to time determine.
Section 2.7. Treasurer. Except as otherwise directed by
the Trustees, the Treasurer shall have the general supervision of the
monies, funds, securities, notes receivable and other valuable papers and
documents of the Trust, and shall have and exercise under the supervision
of the Trustees and of the President all powers and duties normally
incident to his office. The Treasurer may endorse for deposit or
collection all notes, checks and other instruments payable to the Trust or
to its order and shall deposit all funds of the Trust as may be ordered by
the Trustees or the President. The Treasurer shall keep accurate account
of the books of the Trust's transactions which shall be the property of
the Trust, and which together with all other property of the Trust in his
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possession, shall be subject at all times to the inspection and control of
the Trustees. Unless the Trustees shall otherwise determine, the
Treasurer shall be the principal accounting officer of the Trust and shall
also be the principal financial officer of the Trust. The Treasurer shall
have such other duties and authorities as the Trustees shall from time to
time determine. Notwithstanding anything to the contrary herein
contained, the Trustees may authorize the Investment Adviser or the
Administrator to maintain bank accounts and deposit and disburse funds on
behalf of the Trust.
Section 2.8. Other Officers and Duties. The Trustees
may elect such other officers and assistant officers as they shall from
time to time determine to be necessary or desirable in order to conduct
the business of the Trust. Assistant officers shall act generally in the
absence of the officer whom they assist and shall assist that officer in
the duties of his office. Each officer, employee and agent of the Trust
shall have such other duties and authorities as may be conferred upon him
by the Trustees or delegated to him by the President.
ARTICLE III
Miscellaneous
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Section 3.1. Depositories. The funds of the Trust shall
be deposited in such depositories as the Trustees shall designate and
shall be drawn out on checks, drafts or other orders signed by such
officer, officers, agent or agents (including the Investment Adviser or
the Administrator) as the Trustees may from time to time authorize.
Section 3.2. Signatures. All contracts and other
instruments shall be executed on behalf of the Trust by such officer,
officers, agent or agents as provided in these By-Laws or as the Trustees
may from time to time by resolution provide.
Section 3.3. Seal. The seal of the Trust, if any, may
be affixed to any document, and the seal and its attestation may be
lithographed, engraved or otherwise printed on any document with the same
force and effect as if it had been imprinted and attested manually in the
same manner and with the same effect as if done by a New York corporation.
Section 3.4. Indemnification. Insofar as the
conditional advancing of indemnification monies under Section 5.4 of the
Declaration for actions based upon the 1940 Act may be concerned, such
payments will be made only on the following conditions: (i) the advances
must be limited to amounts used, or to be used, for the preparation or
presentation of a defense to the action, including costs connected with
the preparation of a settlement; (ii) advances may be made only upon
receipt of a written promise by, or on behalf of, the recipient to repay
the amount of the advance which exceeds the amount to which it is
ultimately determined that he is entitled to receive from the Trust by
reason of indemnification; and (iii) (a) such promise must be secured by a
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surety bond, other suitable insurance or an equivalent form of security
which assures that any repayment may be obtained by the Trust without
delay or litigation, which bond, insurance or other form of security must
be provided by the recipient of the advance, or (b) a majority of a quorum
of the Trust's disinterested, non-party Trustees, or an independent legal
counsel in a written opinion, shall determine, based upon a review of
readily available facts, that the recipient of the advance ultimately will
be found entitled to indemnification.
Section 3.5. Distribution Disbursing Agents and the
Like. The Trustees shall have the power to employ and compensate such
distribution disbursing agents, warrant agents and agents for the
reinvestment of distributions as they shall deem necessary or desirable.
Any of such agents shall have such power and authority as is delegated to
any of them by the Trustees.
ARTICLE IV
Regulations; Amendment of By-Laws
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Section 4.1. Regulations. The Trustees may make such
additional rules and regulations, not inconsistent with these By-Laws, as
they may deem expedient concerning the sale and purchase of Interests of
the Trust.
Section 4.2. Amendment and Repeal of By-Laws. In
accordance with Section 2.7 of the Declaration, the Trustees shall have
the power to alter, amend or repeal the By-Laws or adopt new By-Laws at
any time. Action by the Trustees with respect to the By-Laws shall be
taken by an affirmative vote of a majority of the Trustees. The Trustees
shall in no event adopt By-Laws which are in conflict with the
Declaration.
The Declaration refers to the Trustees as Trustees, but
not as individuals or personally; and no Trustee, officer, employee or
agent of the Trust shall be held to any personal liability, nor shall
resort be had to their private property for the satisfaction of any
obligation or claim or otherwise in connection with the affairs of the
Trust.
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GREATER CHINA GROWTH PORTFOLIO
INVESTMENT ADVISORY AGREEMENT
AGREEMENT made this 27th day of October, 1992 between Greater
China Growth Portfolio, a New York trust (the "Trust"), and Lloyd George
Management (Hong Kong) Limited, a Hong Kong corporation (the "Adviser").
1. Duties of the Adviser. The Trust hereby employs the
Adviser to act as investment adviser for and to manage the investment and
reinvestment of the assets of the Trust, subject to the supervision of the
Trustees of the Trust, for the period and on the terms set forth in this
Agreement.
The Adviser hereby accepts such employment, and undertakes to
afford to the Trust the advice and assistance of the Adviser's
organization in the choice of investments and in the purchase and sale of
securities for the Trust and to furnish for the use of the Trust office
space and all necessary office facilities, equipment and personnel for
servicing the investments of the Trust and to pay the salaries and fees of
all officers and Trustees of the Trust who are members of the Adviser's
organization and all personnel of the Adviser performing services relating
to research and investment activities. The Adviser shall for all purposes
herein be deemed to be an independent contractor and shall, except as
otherwise expressly provided or authorized, have no authority to act for
or represent the Trust in any way or otherwise be deemed an agent of the
Trust.
The Adviser shall provide the Trust with such investment
management and supervision as the Trust may from time to time consider
necessary for the proper supervision of the Trust's investments. As
investment adviser to the Trust, the Adviser shall furnish continuously an
investment program and shall determine from time to time what securities
shall be purchased, sold or exchanged and what portion of the Trust's
assets shall be held uninvested, subject always to the applicable
restrictions of the Declaration of Trust, By-Laws and registration
statement of the Trust under the Investment Company Act of 1940, all as
from time to time amended. Should the Trustees of the Trust at any time,
however, make any specific determination as to investment policy for the
Trust and notify the Adviser thereof in writing, the Adviser 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 Adviser shall take, on behalf of the Trust, all actions
which it deems necessary or desirable to implement the investment policies
of the Trust.
The Adviser shall place all orders for the purchase or sale of
portfolio securities for the account of the Trust with brokers or dealers
or banks or firms or other persons selected by the Adviser, and to that
end the Adviser is authorized as the agent of the Trust to give
instructions to the custodian of the Trust as to deliveries of securities
and payment of cash for the account of the Trust. In connection with the
selection of such brokers or dealers or banks or firms or other persons
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and the placing of such orders, the Adviser shall use its best efforts to
seek to execute security transactions at prices which are advantageous to
the Trust and (when a disclosed commission is being charged) at reasonably
competitive commission rates. In selecting brokers or dealers qualified
to execute a particular transaction, brokers or dealers may be selected
who also provide brokerage and research services (as those terms are
defined in Section 28(e) of the Securities Exchange Act of 1934) to the
Adviser and the Adviser is expressly authorized to pay any broker or
dealer who provides such brokerage and research services a commission for
executing a security transaction which is in excess of the amount of
commission another broker or dealer would have charged for effecting that
transaction if the Adviser determines in good faith that such amount of
commission is reasonable in relation to the value of the brokerage and
research services provided by such broker or dealer, viewed in terms of
either that particular transaction or the overall responsibilities which
the Adviser and its affiliates have with respect to accounts over which
they exercise investment discretion. Subject to the requirement set forth
in the second sentence of this paragraph, the Adviser is authorized to
consider, as a factor in the selection of any broker or dealer with whom
purchase or sale orders may be placed, the fact that such broker or dealer
has sold or is selling shares of Eaton Vance Greater China Growth Fund or
any other investment company or series thereof that invests substantially
all of its assets in the Trust.
The Adviser shall not be responsible for providing certain
special administrative services to the Trust under this Agreement. Eaton
Vance Management, in its capacity as Administrator of the Trust, shall be
responsible for providing such services to the Trust under the Trust's
separate Administration Agreement with the Administrator.
2. Compensation of the Adviser. For the services, payments
and facilities to be furnished hereunder by the Adviser, the Adviser shall
be entitled to receive from the Trust, a monthly advisory fee computed by
applying the annual asset rate applicable to that portion of the average
daily net assets of the Trust throughout the month in each Category as
indicated below:
Category Average Daily Net Assets Annual Asset Rate
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1 less than $500 million 0.75%
2 $500 million but less than $1 billion 0.70%
3 $1 billion but less than $1.5 billion 0.65%
4 $1.5 billion but less than $2 billion 0.60%
5 $2 billion but less than $3 billion 0.55%
6 $3 billion and over 0.50%
Such advisory fee shall be paid monthly in arrears on the last
business day of each month. The Trust's net asset value shall be computed
in accordance with the Declaration of Trust of the Trust and any
applicable votes and determinations of the Trustees of the Trust. In case
of initiation or termination of the Agreement during any month, the fee
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for that month shall be based on the number of calendar days during which
it is in effect.
The Adviser may, from time to time, waive all or a part of the
above compensation.
3. Allocation of Charges and Expenses. It is understood
that the Trust will pay all its expenses other than those expressly stated
to be payable by the Adviser hereunder, which expenses payable by the
Trust shall include, without implied limitation, (i) expenses of
maintaining the Trust and continuing its existence, (ii) registration of
the Trust under the Investment Company Act of 1940, (iii) commissions,
fees and other expenses connected with the acquisition, holding and
disposition of securities and other investments, (iv) auditing, accounting
and legal expenses, (v) taxes and interest, (vi) governmental fees, (vii)
expenses of issue, sale and redemption of Interests in the Trust, (viii)
expenses of registering and qualifying the Trust and Interests in the
Trust under federal and state securities laws and of preparing and
printing registration statements or other offering documents or memoranda
for such purposes and for distributing the same to Holders and investors,
and fees and expenses of registering and maintaining registrations of the
Trust and of the Trust's placement agent as broker-dealer or agent under
state securities laws, (ix) expenses of reports and notices to Holders and
of meetings of Holders and proxy solicitations therefor, (x) expenses of
reports to governmental officers and commissions, (xi) insurance expenses,
(xii) association membership dues, (xiii) fees, expenses and disbursements
of custodians and subcustodians for all services to the Trust (including
without limitation safekeeping of funds, securities and other investments,
keeping of books, accounts and records, and determination of net asset
values, book capital account balances and tax capital account balances),
(xiv) fees, expenses and disbursements of transfer agents, dividend
disbursing agents, Holder servicing agents and registrars for all services
to the Trust, (xv) expenses for servicing the accounts of Holders, (xvi)
any direct charges to Holders approved by the Trustees of the Trust,
(xvii) compensation and expenses of Trustees of the Trust who are not
members of the Adviser's organization, (xviii) the administration fees
payable by the Trust under any administration or similar agreement to
which the Trust is a party, and (xvix) such non-recurring items as may
arise, including expenses incurred in connection with litigation,
proceedings and claims and the obligation of the Trust to indemnify its
Trustees, officers and Holders with respect thereto.
4. Other Interests. It is understood that Trustees and
officers of the Trust and Holders of Interests in the Trust are or may be
or become interested in the Adviser as directors, officers, employees,
shareholders or otherwise and that directors, officers, employees and
shareholders of the Adviser are or may be or become similarly interested
in the Trust, and that the Adviser may be or become interested in the
Trust as a shareholder or otherwise. It is also understood that
directors, officers, employees and shareholders of the Adviser may be or
become interested (as directors, trustees, officers, employees,
shareholders or otherwise) in other companies or entities (including,
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without limitation, other investment companies) which the Adviser may
organize, sponsor or acquire, or with which it may merge or consolidate,
and that the Adviser or its subsidiaries or affiliates may enter into
advisory or management agreements or other contracts or relationships with
such other companies or entities.
5. Limitation of Liability of the Adviser. The services of
the Adviser to the Trust are not to be deemed to be exclusive, the Adviser
being free to render services to others and engage in other business
activities. In the absence of willful misfeasance, bad faith, gross
negligence or reckless disregard of obligations or duties hereunder on the
part of the Adviser, the Adviser shall not be subject to liability to the
Trust or to any Holder for any act or omission in the course of, or
connected with, rendering services hereunder or for any losses which may
be sustained in the acquisition, holding or disposition of any security or
other investment.
6. Duration and Termination of this Agreement. This
Agreement shall become effective upon the date of its execution, and,
unless terminated as herein provided, shall remain in full force and
effect through and including February 28, 1994 and shall continue in full
force and effect indefinitely thereafter, but only so long as such
continuance after February 28, 1994 is specifically approved at least
annually (i) by the Board of Trustees of the Trust or by vote of a
majority of the outstanding voting securities of the Trust and (ii) by the
vote of a majority of those Trustees of the Trust who are not interested
persons of the Adviser or the Trust cast in person at a meeting called for
the purpose of voting on such approval.
Either party hereto may, at any time on sixty (60) days' prior
written notice to the other, terminate this Agreement without the payment
of any penalty, by action of the Trustees of the Trust or the directors of
the Adviser, as the case may be, and the Trust may, at any time upon such
written notice to the Adviser, terminate this Agreement by vote of a
majority of the outstanding voting securities of the Trust. This
Agreement shall terminate automatically in the event of its assignment.
7. Amendments of the Agreement. This Agreement may be
amended by a writing signed by both parties hereto, provided that no
amendment to this Agreement shall be effective until approved (i) by the
vote of a majority of those Trustees of the Trust who are not interested
persons of the Adviser or the Trust cast in person at a meeting called for
the purpose of voting on such approval, and (ii) by vote of a majority of
the outstanding voting securities of the Trust.
8. Limitation of Liability. The Adviser expressly
acknowledges the provision in the Declaration of Trust of the Trust
(Sections 5.2 and 5.6) limiting the personal liability of the Trustees and
officers of the Trust, and the Adviser hereby agrees that it shall have
recourse to the Trust for payment of claims or obligations as between the
Trust and the Adviser arising out of this Agreement and shall not seek
satisfaction from any Trustee or officer of the Trust.
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9. Certain Definitions. The terms "assignment" and
"interested persons" when used herein shall have the respective meanings
specified in the Investment Company Act of 1940 as now in effect or as
hereafter amended subject, however, to such exemptions as may be granted
by the Securities and Exchange Commission by any rule, regulation or
order. The term "vote of a majority of the outstanding voting securities"
shall mean the vote, at a meeting of Holders, of the lesser of (a) 67 per
centum or more of the Interests in the Trust present or represented by
proxy at the meeting if the Holders of more than 50 per centum of the
outstanding Interests in the Trust are present or represented by proxy at
the meeting, or (b) more than 50 per centum of the outstanding Interests
in the Trust. The terms "Holders" and "Interests" when used herein shall
have the respective meanings specified in the Declaration of Trust of the
Trust.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement
to be executed on the day and year first above written.
GREATER CHINA GROWTH LLOYD GEORGE MANAGEMENT
PORTFOLIO (HONG KONG) LIMITED
By:/s/James B. Hawkes By:/s/Robert Lloyd George
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Vice President President
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PLACEMENT AGENT AGREEMENT
October 27, 1992
Eaton Vance Distributors, Inc.
24 Federal Street
Boston, Massachusetts 02110
Gentlemen:
This is to confirm that, in consideration of the agreements
hereinafter contained, the undersigned, Greater China Growth Portfolio
(the "Trust"), an open-end diversified management investment company
registered under the Investment Company Act of 1940, as amended (the "1940
Act"), organized as a New York trust, has agreed that Eaton Vance
Distributors, Inc. ("EVD") shall be the placement agent (the "Placement
Agent") of Interests in the Trust ("Trust Interests").
1. Services as Placement Agent.
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1.1 EVD will act as Placement Agent of the Trust Interests
covered by the Trust's registration statement then in effect under the
1940 Act. In acting as Placement Agent under this Placement Agent
Agreement, neither EVD nor its employees or any agents thereof shall make
any offer or sale of Trust Interests in a manner which would require the
Trust Interests to be registered under the Securities Act of 1933, as
amended (the "1933 Act").
1.2 All activities by EVD and its agents and employees as
Placement Agent of Trust Interests shall comply with all applicable laws,
rules and regulations, including, without limitation, all rules and
regulations adopted pursuant to the 1940 Act by the Securities and
Exchange Commission (the "Commission").
1.3 Nothing herein shall be construed to require the Trust to
accept any offer to purchase any Trust Interests, all of which shall be
subject to approval by the Board of Trustees.
1.4 The Portfolio shall furnish from time to time for use in
connection with the sale of Trust Interests such information with respect
to the Trust and Trust Interests as EVD may reasonably request. The Trust
shall also furnish EVD upon request with: (a) unaudited semiannual
statements of the Trust's books and accounts prepared by the Trust, and
(b) from time to time such additional information regarding the Trust's
financial or regulatory condition as EVD may reasonably request.
1.5 The Trust represents to EVD that all registration statements
filed by the Trust with the Commission under the 1940 Act with respect to
Trust Interests have been prepared in conformity with the requirements of
such statute and the rules and regulations of the Commission thereunder.
As used in this Agreement the term "registration statement" shall mean any
registration statement filed with the Commission as modified by any
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amendments thereto that at any time shall have been filed with the
Commission by or on behalf of the Trust. The Trust represents and
warrants to EVD that any registration statement will contain all
statements required to be stated therein in conformity with both such
statute and the rules and regulations of the Commission; that all
statements of fact contained in any registration statement will be true
and correct in all material respects at the time of filing of such
registration statement or amendment thereto; and that no registration
statement will include an untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary to make
the statements therein not misleading to a purchaser of Trust Interests.
The Trust may but shall not be obligated to propose from time to time such
amendment to any registration statement as in the light of future
developments may, in the opinion of the Trust's counsel, be necessary or
advisable. If the Trust shall not propose such amendment and/or
supplement within fifteen days after receipt by the Trust of a written
request from EVD to do so, EVD may, at its option, terminate this
Agreement. The Trust shall not file any amendment to any registration
statement without giving EVD reasonable notice thereof in advance;
provided, however, that nothing contained in this Agreement shall in any
way limit the Trust's right to file at any time such amendment to any
registration statement as the Trust may deem advisable, such right being
in all respects absolute and unconditional.
1.6 The Trust agrees to indemnify, defend and hold EVD, its
several officers and directors, and any person who controls EVD within the
meaning of Section 15 of the 1933 Act or Section 20 of the Securities and
Exchange Act of 1934 (the "1934 Act") (for purposes of this paragraph 1.6,
collectively, "Covered Persons") free and harmless from and against any
and all claims, demands, liabilities and expenses (including the cost of
investigating or defending such claims, demands or liabilities and any
counsel fees incurred in connection therewith) which any Covered Person
may incur under the 1933 Act, the 1934 Act, common law or otherwise,
arising out of or based on any untrue statement of a material fact
contained in any registration statement, private placement memorandum or
other offering material ("Offering Material") or arising out of or based
on any omission to state a material fact required to be stated in any
Offering Material or necessary to make the statements in any Offering
Material not misleading; provided, however, that the Trust's agreement to
indemnify Covered Persons shall not be deemed to cover any claims,
demands, liabilities or expenses arising out of any financial and other
statements as are furnished in writing to the Trust by EVD in its capacity
as Placement Agent for use in the answers to any items of any registration
statement or in any statements made in any Offering Material, or arising
out of or based on any omission or alleged omission to state a material
fact in connection with the giving of such information required to be
stated in such answers or necessary to make the answers not misleading;
and further provided that the Trust's agreement to indemnify EVD and the
Trust's representations and warranties hereinbefore set forth in this
paragraph 1.6 shall not be deemed to cover any liability to the Trust or
its investors to which a Covered Person would otherwise be subject by
reason of willful misfeasance, bad faith or gross negligence in the
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performance of its duties, or by reason of a Covered Person's reckless
disregard of its obligations and duties under this Agreement. The Trust
should be notified of any action brought against a Covered Person, such
notification to be given by a writing addressed to the Trust, 3408 One
Exchange Square, Central, Hong Kong, with a copy to the Administrator
of the Portfolio, Eaton Vance Management, 24 Federal Street, Boston,
Massachusetts 02110, promptly after the summons or other first legal
process shall have been duly and completely served upon such Covered
Person. The failure to so notify the Trust of any such action shall
not relieve the Trust from any liability except to the extent the Trust
shall have been prejudiced by such failure, or from any liability
that the Trust may have to the Covered Person against whom such
action is brought by reason of any such untrue statement or omission,
otherwise than on account of the Trust's indemnity agreement contained in
this paragraph. The Trust will be entitled to assume the defense of any
suit brought to enforce any such claim, demand or liability, but in
such case such defense shall be conducted by counsel of good standing
chosen by the Trust and approved by EVD, which approval shall not be
unreasonably withheld. In the event the Trust elects to assume the defense
of any such suit and retain counsel of good standing approved by EVD, the
defendant or defendants in such suit shall bear the fees and expenses of
any additional counsel retained by any of them; but in case the Trust does
not elect to assume the defense of any such suit or in case EVD reasonably
does not approve of counsel chosen by the Trust, the Trust will reimburse
the Covered Person named as defendant in such suit, for the fees and
expenses of any counsel retained by EVD or it. The Trust's indemnification
agreement contained in this paragraph and the Trust's representations and
warranties in this Agreement shall remain operative and in full force
and effect regardless of any investigation made by or on behalf of Covered
Persons, and shall survive the delivery of any Trust Interests. This
agreement of indemnity will inure exclusively to Covered Persons and their
successors. The Trust agrees to notify EVD promptly of the commencement
of any litigation or proceedings against the Trust or any of its officers
or Trustees in connection with the issue and sale of any Trust Interests.
1.7 EVD agrees to indemnify, defend and hold the Trust, its
several officers and trustees, and any person who controls the Trust
within the meaning of Section 15 of the 1933 Act or Section 20 of the 1934
Act (for purposes of this paragraph 1.7, collectively, "Covered Persons")
free and harmless from and against any and all claims, demands,
liabilities and expenses (including the costs of investigating or
defending such claims, demands, liabilities and any counsel fees incurred
in connection therewith) that Covered Persons may incur under the 1933
Act, the 1934 Act or common law or otherwise, but only to the extent that
such liability or expense incurred by a Covered Person resulting from such
claims or demands shall arise out of or be based on any untrue statement
of a material fact contained in information furnished in writing by EVD in
its capacity as Placement Agent to the Trust for use in the answers to any
of the items of any registration statement or in any statements in any
other Offering Material or shall arise out of or be based on any omission
to state a material fact in connection with such information furnished in
writing by EVD to the Trust required to be stated in such answers or
<PAGE>
-4-
necessary to make such information not misleading. EVD shall be notified
of any action brought against a Covered Person, such notification to be
given by a writing addressed to EVD at 24 Federal Street, Boston,
Massachusetts 02110, promptly after the summons or other first legal
process shall have been duly and completely served upon such Covered
Person. EVD shall have the right of first control of the defense of the
action with counsel of its own choosing satisfactory to the Trust if such
action is based solely on such alleged misstatement or omission on EVD's
part, and in any other event each Covered Person shall have the right to
participate in the defense or preparation of the defense of any such
action. The failure to so notify EVD of any such action shall not relieve
EVD from any liability except to the extent the Trust shall have been
prejudiced by such failure, or from any liability that EVD may have to
Covered Persons by reason of any such untrue or alleged untrue statement,
or omission or alleged omission, otherwise than on account of EVD's
indemnity agreement contained in this paragraph.
1.8 No Trust Interests shall be offered by either EVD or the
Trust under any of the provisions of this Agreement and no orders for the
purchase or sale of Trust Interests hereunder shall be accepted by the
Trust if and so long as the effectiveness of the registration statement or
any necessary amendments thereto shall be suspended under any of the
provisions of the 1933 Act or the 1940 Act; provided, however, that
nothing contained in this paragraph shall in any way restrict or have an
application to or bearing on the Trust's obligation to redeem Trust
Interests from any investor in accordance with the provisions of the
Trust's registration statement or Declaration of Trust, as amended from
time to time.
1.9 The Trust agrees to advise EVD as soon as reasonably
practical by a notice in writing delivered to EVD or its counsel:
(a) of any request by the Commission for amendments to the
registration statement then in effect or for additional information;
(b) in the event of the issuance by the Commission of any stop
order suspending the effectiveness of the registration statement then in
effect or the initiation by service of process on the Trust of any
proceeding for that purpose;
(c) of the happening of any event that makes untrue any
statement of a material fact made in the registration statement then in
effect or that requires the making of a change in such registration
statement in order to make the statements therein not misleading; and
(d) of all action of the Commission with respect to any
amendment to any registration statement that may from time to time be
filed with the Commission.
For purposes of this paragraph 1.9, informal requests by or acts
of the Staff of the Commission shall not be deemed actions of or requests
by the Commission.
<PAGE>
-5-
1.10 EVD agrees on behalf of itself and its employees to treat
confidentially and as proprietary information of the Trust all records and
other information not otherwise publicly available relative to the Trust
and its prior, present or potential investors and not to use such records
and information for any purpose other than performance of its
responsibilities and duties hereunder, except after prior notification to
and approval in writing by the Trust, which approval shall not be
unreasonably withheld and may not be withheld where EVD may be exposed to
civil or criminal contempt proceedings for failure to comply, when
requested to divulge such information by duly constituted authorities, or
when so requested by the Trust.
2. Duration and Termination of this Agreement.
------------------------------------------
This Agreement shall become effective upon the date of its
execution, and, unless terminated as herein provided, shall remain in full
force and effect through and including February 28, 1994 and shall
continue in full force and effect indefinitely thereafter, but only so
long as such continuance after February 28, 1994 is specifically approved
at least annually (i) by the Board of Trustees of the Trust or by vote of
a majority of the outstanding voting securities of the Trust and (ii) by
the vote of a majority of those Trustees of the Trust who are not
interested persons of EVD or the Trust cast in person at a meeting called
for the purpose of voting on such approval.
Either party hereto may, at any time on sixty (60) days' prior
written notice to the other, terminate this agreement without the payment
of any penalty, by action of Trustees of the Trust or the Directors of
EVD, as the case may be, and the Trust may, at any time upon such written
notice to EVD, terminate this Agreement by vote of a majority of the
outstanding voting securities of the Trust. This Agreement shall
terminate automatically in the event of its assignment.
3. Representations and Warranties.
------------------------------
EVD and the Trust each hereby represents and warrants to the
other that it has all requisite authority to enter into, execute, deliver
and perform its obligations under this Agreement and that, with respect to
it, this Agreement is legal, valid and binding, and enforceable in
accordance with its terms.
4. Limitation of Liability.
-----------------------
EVD expressly acknowledges the provision in the Declaration of
Trust of the Trust (Sections 5.2 and 5.6) limiting the personal liability
of the Trustees and officers of the Trust, and EVD hereby agrees that it
shall have recourse to the Trust for payment of claims or obligations as
between the Trust and EVD arising out of this Agreement and shall not seek
satisfaction from any Trustee or officer of the Trust.
5. Certain Definitions.
-------------------
<PAGE>
-6-
The terms "assignment" and "interested persons" when used herein
shall have the respective meanings specified in the Investment Company Act
of 1940 as now in effect or as hereafter amended subject, however, to such
exemptions as may be granted by the Securities and Exchange Commission by
any rule, regulation or order. The term "vote of a majority of the
outstanding voting securities" shall mean the vote, at a meeting of
Holders, of the lesser of (a) 67 per centum or more of the Interests in
the Trust present or represented by proxy at the meeting if the Holders of
more than 50 per centum of the outstanding Interests in the Trust are
present or represented by proxy at the meeting, or (b) more than 50 per
centum of the outstanding Interests in the Trust. The terms "Holders" and
"Interests" when used herein shall have the respective meanings specified
in the Declaration of Trust of the Trust.
6. Concerning Applicable Provisions of Law, etc.
--------------------------------------------
This Agreement shall be subject to all applicable provisions of
law, including the applicable provisions of the 1940 Act and to the extent
that any provisions herein contained conflict with any such applicable
provisions of law, the latter shall control.
The laws of the Commonwealth of Massachusetts shall, except to
the extent that any applicable provisions of federal law shall be
controlling, govern the construction, validity and effect of this
Agreement, without reference to principles of conflicts of law.
If the contract set forth herein is acceptable to you, please so
indicate by executing the enclosed copy of this Agreement and returning
the same to the undersigned, whereupon this Agreement shall constitute a
binding contract between the parties hereto effective at the closing of
business on the date hereof.
Yours very truly,
GREATER CHINA GROWTH PORTFOLIO
By: /s/James B. Hawkes
---------------------------------
James B. Hawkes
President
Accepted:
EATON VANCE DISTRIBUTORS, INC.
By: /s/Wharton P. Whitaker
---------------------------
Wharton P. Whitaker
President
<PAGE>
<PAGE>
CUSTODIAN AGREEMENT
between
GREATER CHINA GROWTH PORTFOLIO
and
INVESTORS BANK & TRUST COMPANY
<PAGE>
TABLE OF CONTENTS
-----------------
1. Definitions . . . . . . . . . . . . . . . . . . . . . . . . 1-3
2. Employment of Custodian and Property to be Held by it . . . . 3
3. Duties of the Custodian with Respect to Property of the
Trust . . . . . . . . . . . . . . . . . . . . . . . . . . . 3-4
A. Safekeeping and Holding of Property . . . . . . . . . . 3-4
B. Delivery of Securities . . . . . . . . . . . . . . . . . 4-6
C. Registration of Securities . . . . . . . . . . . . . . . 6-7
D. Bank Accounts . . . . . . . . . . . . . . . . . . . . . . 7
E. Payments for Interests, or Increases in Interests,
in the Trust . . . . . . . . . . . . . . . . . . . . . . . 7
F. Investment and Availability of Federal Funds . . . . . . . 7
G. Collections . . . . . . . . . . . . . . . . . . . . . . 7-8
H. Payment of Trust Monies . . . . . . . . . . . . . . . . 8-10
I. Liability for Payment in Advance of Receipt of
Securities Purchased . . . . . . . . . . . . . . . . . . . 10
J. Payments for Reductions or Redemptions of
Interests of the Trust . . . . . . . . . . . . . . . . . . 10
K. Appointment of Agents by the Custodian . . . . . . . . 10-11
L. Deposit of Trust Portfolio Securities in
Securities Systems . . . . . . . . . . . . . . . . . . 11-13
M. Deposit of Trust Commercial Paper in an Approved
Book-Entry System for Commercial Paper . . . . . . . . 13-15
N. Segregated Account . . . . . . . . . . . . . . . . . . . . 15
O. Ownership Certificates for Tax Purposes . . . . . . . . . 15
P. Proxies . . . . . . . . . . . . . . . . . . . . . . . . . 16
Q. Communications Relating to Trust Portfolio Securities . . 16
-i-
<PAGE>
R. Exercise of Rights; Tender Offers . . . . . . . . . . 16-17
S. Depository Receipts . . . . . . . . . . . . . . . . . . . 17
T. Interest Bearing Call or Time Deposits . . . . . . . . . . 17
U. Options, Futures Contracts and Foreign Currency
Transactions . . . . . . . . . . . . . . . . . . . . . 18-19
V. Actions Permitted Without Express Authority . . . . . 19-20
4. Duties of Bank with Respect to Books of Account and
Calculations of Net Asset Value . . . . . . . . . . . . . . . 20
5. Records and Miscellaneous Duties . . . . . . . . . . . . . . . 21
6. Opinion of Trust's Independent Public Accountants . . . . . . 21
7. Compensation and Expenses of Bank . . . . . . . . . . . . . . 21
8. Responsibility of Bank . . . . . . . . . . . . . . . . . . . . 22
9. Persons Having Access to Assets of the Trust 22-23
10. Effective Period, Termination and Amendment; Successor
Custodian . . . . . . . . . . . . . . . . . . . . . . . . 23-24
11. Interpretive and Additional Provisions . . . . . . . . . . . . 24
12. Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
13. Massachusetts Law to Apply . . . . . . . . . . . . . . . . . . 24
-ii-
<PAGE>
CUSTODIAN AGREEMENT
This Agreement is made between Greater China Growth Portfolio
(hereinafter called "Trust"), a New York trust having its principal place
of business in Hong Kong, and Investors Bank & Trust Company (hereinafter
called "Bank", "Custodian" and "Agent"), a trust company established under
the laws of Massachusetts with a principal place of business in Boston,
Massachusetts.
Whereas, the Trust is registered under the Investment Company Act
of 1940 and has appointed the Bank to act as Custodian of its property and
to perform certain duties as its Agent, as more fully hereinafter set
forth; and
Whereas, the Bank is willing and able to act as the Trust's
Custodian and Agent, subject to and in accordance with the provisions
hereof;
Now, therefore, in consideration of the premises and of the
mutual covenants and agreements herein contained, the Trust and the Bank
agree as follows:
1. Definitions
-----------
Whenever used in this Agreement, the following words and phrases,
unless the context otherwise requires, shall have the following meanings:
(a) "Board" shall mean the board of trustees of the Trust.
(b) "The Depository Trust Company", a clearing agency registered
with the Securities and Exchange Commission under Section 17A of the
Securities Exchange Act of 1934 which acts as a securities depository and
which has been specifically approved as a securities depository for the
Trust by the Board.
(c) "Participants Trust Company", a clearing agency registered
with the Securities and Exchange Commission under Section 17A of the
Securities Exchange Act of 1934 which acts as a securities depository and
which has been specifically approved as a securities depository for the
Trust by the Board.
(d) "Approved Clearing Agency" shall mean any other domestic
clearing agency registered with the Securities and Exchange Commission
under Section 17A of the Securities Exchange Act of 1934 which acts as a
securities depository BUT ONLY if the Custodian has received a certified
copy of a resolution of the Board approving such clearing agency as a
securities depository for the Trust.
(e) "Federal Book-Entry System" shall mean the book-entry
system referred to in Rule 17f-4(b) under the Investment Company Act of
1940 for United States and federal agency securities (i.e., as provided in
Subpart O of Treasury Circular No. 300, 31 CFR 306, Subpart B of 31 CFR
<PAGE>
Part 350, and the book-entry regulations of federal agencies substantially
in the form of Subpart O).
(f) "Approved Foreign Securities Depository" shall mean a
foreign securities depository or clearing agency referred to in Rule 17f-4
under the Investment Company Act of 1940 for foreign securities BUT ONLY
if the Custodian has received a certified copy of a resolution of the
Board approving such depository or clearing agency as a foreign securities
depository for the Trust.
(g) "Approved Book-Entry System for Commercial Paper" shall mean
a system maintained by the Custodian or by a subcustodian employed
pursuant to Section 2 hereof for the holding of commercial paper in
book-entry form BUT ONLY if the Custodian has received a certified copy of
a resolution of the Board approving the participation by the Trust in such
system.
(h) The Custodian shall be deemed to have received "proper
instructions" in respect of any of the matters referred to in this
Agreement upon receipt of written or facsimile instructions signed by such
one or more person or persons as the Board shall have from time to time
authorized to give the particular class of instructions in question.
Different persons may be authorized to give instructions for different
purposes. A certified copy of a resolution of the Board may be received
and accepted by the Custodian as conclusive evidence of the authority of
any such person to act and may be considered as in full force and effect
until receipt of written notice to the contrary. Such instructions may be
general or specific in terms and, where appropriate, may be standing
instructions. Unless the resolution delegating authority to any person or
persons to give a particular class of instructions specifically requires
that the approval of any person, persons or committee shall first have
been obtained before the Custodian may act on instructions of that class,
the Custodian shall be under no obligation to question the right of the
person or persons giving such instructions in so doing. Oral instructions
will be considered proper instructions if the Custodian reasonably
believes them to have been given by a person authorized to give such
instructions with respect to the transaction involved. The Trust shall
cause all oral instructions to be confirmed in writing. The Trust
authorizes the Custodian to tape record any and all telephonic or other
oral instructions given to the Custodian. Upon receipt of a certificate
signed by two officers of the Trust as to the authorization by the
President and the Treasurer of the Trust accompanied by a detailed
description of the communication procedures approved by the President and
the Treasurer of the Trust, "proper instructions" may also include
communications effected directly between electromechanical or electronic
devices provided that the President and Treasurer of the Trust and the
Custodian are satisfied that such procedures afford adequate safeguards
for the Trust's assets. In performing its duties generally, and more
particularly in connection with the purchase, sale and exchange of
securities made by or for the Trust, the Custodian may take cognizance of
the provisions of the governing documents and registration statement of
the Trust as the same may from time to time be in effect (and resolutions
- 2 -
<PAGE>
or proceedings of the holders of interests in the Trust or the Board),
but, nevertheless, except as otherwise expressly provided herein, the
Custodian may assume unless and until notified in writing to the contrary
that so-called proper instructions received by it are not in conflict with
or in any way contrary to any provisions of such governing documents and
registration statement, or resolutions or proceedings of the holders of
interests in the Trust or the Board.
(i) The term "Vote" when used with respect to the Board or the
Holders of Interests in the Trust shall include a vote, resolution,
consent, proceeding and other action taken by the Board or Holders in
accordance with the Declaration of Trust or By-Laws of the Trust.
2. Employment of Custodian and Property to be Held by It
-----------------------------------------------------
The Trust hereby appoints and employs the Bank as its Custodian
and Agent in accordance with and subject to the provisions hereof, and the
Bank hereby accepts such appointment and employment. The Trust agrees to
deliver to the Custodian all securities, participation interests, cash and
other assets owned by it, and all payments of income, payments of
principal and capital distributions and adjustments received by it with
respect to all securities and participation interests owned by the Trust
from time to time, and the cash consideration received by it from time to
time in exchange for an interest in the Trust or for an increase in such
an interest. The Custodian shall not be responsible for any property of
the Trust held by the Trust and not delivered by the Trust to the
Custodian. The Trust will also deliver to the Bank from time to time
copies of its currently effective declaration of trust, by-laws,
registration statement and placement agent agreement with its placement
agent, together with such resolutions, and other proceedings of the Trust
as may be necessary for or convenient to the Bank in the performance of
its duties hereunder.
The Custodian may from time to time employ one or more
subcustodians to perform such acts and services upon such terms and
conditions as shall be approved from time to time by the Board. Any such
subcustodian so employed by the Custodian shall be deemed to be the agent
of the Custodian, and the Custodian shall remain primarily responsible for
the securities, participation interests, moneys and other property of the
Trust held by such subcustodian. Any foreign subcustodian shall be a bank
or trust company which is an eligible foreign custodian within the meaning
of Rule 17f-5 under the Investment Company Act of 1940, and the foreign
custody arrangements shall be approved by the Board and shall be in
accordance with and subject to the provisions of said Rule. For the
purposes of this Agreement, any property of the Trust held by any such
subcustodian (domestic or foreign) shall be deemed to be held by the
Custodian under the terms of this Agreement.
3. Duties of the Custodian with Respect to Property of the Trust
-------------------------------------------------------------
A. Safekeeping and Holding of Property The Custodian shall keep
safely all property of the Trust and on behalf of the Trust
- 3 -
<PAGE>
shall from time to time receive delivery of Trust property for
safekeeping. The Custodian shall hold, earmark and segregate
on its books and records for the account of the Trust all
property of the Trust, including all securities, participation
interests and other assets of the Trust (1) physically held by
the Custodian, (2) held by any subcustodian referred to in
Section 2 hereof or by any agent referred to in Paragraph K
hereof, (3) held by or maintained in The Depository Trust
Company or in Participants Trust Company or in an Approved
Clearing Agency or in the Federal Book-Entry System or in an
Approved Foreign Securities Depository, each of which from
time to time is referred to herein as a "Securities System",
and (4) held by the Custodian or by any subcustodian referred
to in Section 2 hereof and maintained in any Approved
Book-Entry System for Commercial Paper.
B. Delivery of Securities. The Custodian shall release and
deliver securities or participation interests owned by the
Trust held (or deemed to be held) by the Custodian or
maintained in a Securities System account or in an Approved
Book-Entry System for Commercial Paper account only upon
receipt of proper instructions, which may be continuing
instructions when deemed appropriate by the parties, and only
in the following cases:
1) Upon sale of such securities or participation interests
for the account of the Trust, BUT ONLY against receipt of
payment therefor; if delivery is made in Boston or New
York City, payment therefor shall be made in accordance
with generally accepted clearing house procedures or by
use of Federal Reserve Wire System procedures; if
delivery is made elsewhere payment therefor shall be in
accordance with the then current "street delivery" custom
or in accordance with such procedures agreed to in
writing from time to time by the parties hereto; if the
sale is effected through a Securities System, delivery
and payment therefor shall be made in accordance with the
provisions of Paragraph L hereof; if the sale of
commercial paper is to be effected through an Approved
Book-Entry System for Commercial Paper, delivery and
payment therefor shall be made in accordance with the
provisions of Paragraph M hereof; if the securities are
to be sold outside the United States, delivery may be
made in accordance with procedures agreed to in writing
from time to time by the parties hereto; for the purposes
of this subparagraph, the term "sale" shall include the
disposition of a portfolio security (i) upon the exercise
of an option written by the Trust and (ii) upon the
failure by the Trust to make a successful bid with
respect to a portfolio security, the continued holding of
which is contingent upon the making of such a bid;
- 4 -
<PAGE>
2) Upon the receipt of payment in connection with any
repurchase agreement or reverse repurchase agreement
relating to such securities and entered into by the
Trust;
3) To the depository agent in connection with tender or
other similar offers for portfolio securities of the
Trust;
4) To the issuer thereof or its agent when such securities
or participation interests are called, redeemed, retired
or otherwise become payable; PROVIDED that, in any such
case, the cash or other consideration is to be delivered
to the Custodian or any subcustodian employed pursuant to
Section 2 hereof;
5) To the issuer thereof, or its agent, for transfer into
the name of the Trust or into the name of any nominee of
the Custodian or into the name or nominee name of any
agent appointed pursuant to Paragraph K hereof or into
the name or nominee name of any subcustodian employed
pursuant to Section 2 hereof; or for exchange for a
different number of bonds, certificates or other evidence
representing the same aggregate face amount or number of
units; PROVIDED that, in any such case, the new
securities or participation interests are to be delivered
to the Custodian or any subcustodian employed pursuant to
Section 2 hereof;
6) To the broker selling the same for examination in
accordance with the "street delivery" custom; PROVIDED
that the Custodian shall adopt such procedures as the
Trust from time to time shall approve to ensure their
prompt return to the Custodian by the broker in the event
the broker elects not to accept them;
7) For exchange or conversion pursuant to any plan of
merger, consolidation, recapitalization, reorganization
or readjustment of the securities of the issuer of such
securities, or pursuant to provisions for conversion of
such securities, or pursuant to any deposit agreement;
PROVIDED that, in any such case, the new securities and
cash, if any, are to be delivered to the Custodian or any
subcustodian employed pursuant to Section 2 hereof;
8) In the case of warrants, rights or similar securities,
the surrender thereof in connection with the exercise of
such warrants, rights or similar securities, or the
surrender of interim receipts or temporary securities for
definitive securities; PROVIDED that, in any such case,
the new securities and cash, if any, are to be delivered
- 5 -
<PAGE>
to the Custodian or any subcustodian employed pursuant to
Section 2 hereof;
9) For delivery in connection with any loans of securities
made by the Trust (such loans to be made pursuant to the
terms of the Trust's current registration statement), BUT
ONLY against receipt of adequate collateral as agreed
upon from time to time by the Custodian and the Trust,
which may be in the form of cash or obligations issued by
the United States government, its agencies or
instrumentalities; except that in connection with any
securities loans for which collateral is to be credited
to the Custodian's account in the book-entry system
authorized by the U.S. Department of Treasury, the
Custodian will not be held liable or responsible for the
delivery of securities loaned by the Trust prior to the
receipt of such collateral;
10) For delivery as security in connection with any
borrowings by the Trust requiring a pledge or
hypothecation of assets by the Trust (if then permitted
under circumstances described in the current registration
statement of the Trust), provided, that the securities
shall be released only upon payment to the Custodian of
the monies borrowed, except that in cases where
additional collateral is required to secure a borrowing
already made, further securities may be released for that
purpose; upon receipt of proper instructions, the
Custodian may pay any such loan upon redelivery to it of
the securities pledged or hypothecated therefor and upon
surrender of the note or notes evidencing the loan;
11) When required for delivery in connection with any
reduction of or redemption of an interest in the
Trust in accordance with the provisions of
Paragraph J hereof;
12) For delivery in accordance with the provisions of
any agreement between the Custodian (or a
subcustodian employed pursuant to Section 2
hereof) and a broker-dealer registered under the
Securities Exchange Act of 1934 and, if
necessary, the Trust, relating to compliance with
the rules of The Options Clearing Corporation or
of any registered national securities exchange,
or of any similar organization or organizations,
regarding deposit or escrow or other arrangements
in connection with options transactions by the
Trust;
13) For delivery in accordance with the provisions of
any agreement among the Trust, the Custodian (or
- 6 -
<PAGE>
a subcustodian employed pursuant to Section 2
hereof), and a futures commissions merchant,
relating to compliance with the rules of the
Commodity Futures Trading Commission and/or of
any contract market or commodities exchange or
similar organization, regarding futures margin
account deposits or payments in connection with
futures transactions by the Trust;
14) For any other proper corporate purpose, BUT ONLY
upon receipt of, in addition to proper
instructions, a certified copy of a resolution of
the Board specifying the securities to be
delivered, setting forth the purpose for which
such delivery is to be made, declaring such
purpose to be proper corporate purpose, and
naming the person or persons to whom delivery of
such securities shall be made.
C. Registration of Securities. Securities held by the Custodian
(other than bearer securities) for the account of the Trust
shall be registered in the name of the Trust or in the name of
any nominee of the Trust or of any nominee of the Custodian,
or in the name or nominee name of any agent appointed pursuant
to Paragraph K hereof, or in the name or nominee name of any
subcustodian employed pursuant to Section 2 hereof, or in the
name or nominee name of The Depository Trust Company or
Participants Trust Company or Approved Clearing Agency or
Federal Book-Entry System or Approved Book-Entry System for
Commercial Paper; provided, that securities are held in an
account of the Custodian or of such agent or of such
subcustodian containing only assets of the Trust or only
assets held by the Custodian or such agent or such
subcustodian as a custodian or subcustodian or in a fiduciary
capacity for customers. All certificates for securities
accepted by the Custodian or any such agent or subcustodian on
behalf of the Trust shall be in "street" or other good
delivery form or shall be returned to the selling broker or
dealer who shall be advised of the reason thereof.
D. Bank Accounts. The Custodian shall open and maintain a
separate bank account or accounts in the name of the Trust,
subject only to draft or order by the Custodian acting
pursuant to the terms of this Agreement, and shall hold in
such account or accounts, subject to the provisions hereof,
all cash received by it from or for the account of the Trust
other than cash maintained by the Trust in a bank account
established and used in accordance with Rule 17f-3 under the
Investment Company Act of 1940. Funds held by the Custodian
for the Trust may be deposited by it to its credit as
Custodian in the Banking Department of the Custodian or in
such other banks or trust companies as the Custodian may in
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its discretion deem necessary or desirable; PROVIDED, however,
that every such bank or trust company shall be qualified to
act as a custodian under the Investment Company Act of 1940
and that each such bank or trust company and the funds to be
deposited with each such bank or trust company shall be
approved in writing by two officers of the Trust. Such funds
shall be deposited by the Custodian in its capacity as
Custodian and shall be subject to withdrawal only by the
Custodian in that capacity.
E. Payment for Interests, or Increases in Interests, in the
Trust. The Custodian shall make appropriate arrangements with
the Transfer Agent of the Trust to enable the Custodian to
make certain it promptly receives the cash or other
consideration due to the Trust for payment of interests in the
Trust, or increases in such interests, in accordance with the
governing documents and registration statement of the Trust.
The Custodian will provide prompt notification to the Trust of
any receipt by it of such payments.
F. Investment and Availability of Federal Funds. Upon agreement
between the Trust and the Custodian, the Custodian shall, upon
the receipt of proper instructions, which may be continuing
instructions when deemed appropriate by the parties, invest in
such securities and instruments as may be set forth in such
instructions on the same day as received all federal funds
received after a time agreed upon between the Custodian and
the Trust.
G. Collections. The Custodian shall promptly collect all income
and other payments with respect to registered securities held
hereunder to which the Trust shall be entitled either by law
or pursuant to custom in the securities business, and shall
promptly collect all income and other payments with respect to
bearer securities if, on the date of payment by the issuer,
such securities are held by the Custodian or agent thereof and
shall credit such income, as collected, to the Trust's
custodian account. The Custodian shall do all things
necessary and proper in connection with such prompt
collections and, without limiting the generality of the
foregoing, the Custodian shall
1) Present for payment all coupons and other income items
requiring presentations;
2) Present for payment all securities which may mature or be
called, redeemed, retired or otherwise become payable;
3) Endorse and deposit for collection, in the name of the
Trust, checks, drafts or other negotiable instruments;
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4) Credit income from securities maintained in a Securities
System or in an Approved Book-Entry System for Commercial
Paper at the time funds become available to the
Custodian; in the case of securities maintained in The
Depository Trust Company funds shall be deemed available
to the Trust not later than the opening of business on
the first business day after receipt of such funds by the
Custodian.
The Custodian shall notify the Trust as soon as
reasonably practicable whenever income due on any
security is not promptly collected. In any case in which
the Custodian does not receive any due and unpaid income
after it has made demand for the same, it shall
immediately so notify the Trust in writing, enclosing
copies of any demand letter, any written response
thereto, and memoranda of all oral responses thereto and
to telephonic demands, and await instructions from the
Trust; the Custodian shall in no case have any liability
for any nonpayment of such income provided the Custodian
meets the standard of care set forth in Section 8 hereof.
The Custodian shall not be obligated to take legal action
for collection unless and until reasonably indemnified to
its satisfaction.
The Custodian shall also receive and collect all stock
dividends, rights and other items of like nature, and
deal with the same pursuant to proper instructions
relative thereto.
H. Payment of Trust Monies. Upon receipt of proper instructions,
which may be continuing instructions when deemed appropriate
by the parties, the Custodian shall pay out monies of the
Trust in the following cases only:
1) Upon the purchase of securities, participation interests,
options, futures contracts, forward contracts and options
on futures contracts purchased for the account of the
Trust but only (a) against the receipt of
(i) such securities registered as provided in Paragraph
C hereof or in proper form for transfer or
(ii) detailed instructions signed by an officer of the
Trust regarding the participation interests to be
purchased or
(iii) written confirmation of the purchase by the Trust
of the options, futures contracts, forward contracts or
options on futures contracts by the Custodian (or by a
subcustodian employed pursuant to Section 2 hereof or by
a clearing corporation of a national securities exchange
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of which the Custodian is a member or by any bank,
banking institution or trust company doing business in
the United States or abroad which is qualified under the
Investment Company Act of 1940 to act as a custodian and
which has been designated by the Custodian as its agent
for this purpose or by the agent specifically designated
in such instructions as representing the purchasers of a
new issue of privately placed securities); (b) in the
case of a purchase effected through a Securities System,
upon receipt of the securities by the Securities System
in accordance with the conditions set forth in Paragraph
L hereof; (c) in the case of a purchase of commercial
paper effected through an Approved Book-Entry System for
Commercial Paper, upon receipt of the paper by the
Custodian or subcustodian in accordance with the
conditions set forth in Paragraph M hereof; (d) in the
case of repurchase agreements entered into between the
Trust and another bank or a broker-dealer, against
receipt by the Custodian of the securities underlying the
repurchase agreement either in certificate form or
through an entry crediting the Custodian's segregated,
non-proprietary account at the Federal Reserve Bank of
Boston with such securities along with written evidence
of the agreement by the bank or broker-dealer to
repurchase such securities from the Trust; or (e) with
respect to securities purchased outside of the United
States, in accordance with written procedures agreed to
from time to time in writing by the parties hereto;
2) When required in connection with the conversion,
exchange or surrender of securities owned by the
Trust as set forth in Paragraph B hereof;
3) When required for the reduction or redemption of
an interest in the Trust in accordance with the
provisions of Paragraph J hereof;
4) For the payment of any expense or liability
incurred by the Trust, including but not limited
to the following payments for the account of the
Trust: advisory fees, interest, taxes,
management compensation and expenses, accounting,
transfer agent and legal fees, and other
operating expenses of the Trust whether or not
such expenses are to be in whole or part
capitalized or treated as deferred expenses; and
5) For distributions or payments to Holders of
Interest of the Trust.
6) For any other proper corporate purpose, BUT ONLY
upon receipt of, in addition to proper
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instructions, a certified copy of a resolution of
the Board, specifying the amount of such payment,
setting forth the purpose for which such payment
is to be made, declaring such purpose to be a
proper corporate purpose, and naming the person
or persons to whom such payment is to be made.
I. Liability for Payment in Advance of Receipt of Securities
Purchased In any and every case where payment for purchase of
securities for the account of the Trust is made by the
Custodian in advance of receipt of the securities purchased in
the absence of specific written instructions signed by two
officers of the Trust to so pay in advance, the Custodian
shall be absolutely liable to the Trust for such securities to
the same extent as if the securities had been received by the
Custodian; EXCEPT that in the case of a repurchase agreement
entered into by the Trust with a bank which is a member of the
Federal Reserve System, the Custodian may transfer funds to
the account of such bank prior to the receipt of (i) the
securities in certificate form subject to such repurchase
agreement or (ii) written evidence that the securities subject
to such repurchase agreement have been transferred by
book-entry into a segregated non-proprietary account of the
Custodian maintained with the Federal Reserve Bank of Boston
or (iii) the safekeeping receipt, PROVIDED that such
securities have in fact been so TRANSFERED by book-entry and
the written repurchase agreement is received by the Custodian
in due course; AND EXCEPT that if the securities are to be
purchased outside the United States, payment may be made in
accordance with procedures agreed to in writing from time to
time by the parties hereto.
J. Payments for Reductions or Redemptions of Interests in the
Trust. From such funds as may be available for the purpose,
but subject to any applicable resolutions of the Board and the
current procedures of the Trust, the Custodian shall, upon
receipt of written instructions from the Trust or from the
Trust's transfer agent make funds and/or portfolio securities
available for payment to holders of interest in the Trust
which have caused the amount of their interests to be reduced,
or for their interest to be redeemed.
K. Appointment of Agents by the Custodian. The Custodian may at
any time or times in its discretion appoint (and may at any
time remove) any other bank or trust company (PROVIDED such
bank or trust company is itself qualified under the Investment
Company Act of 1940 to act as a custodian or is itself an
eligible foreign custodian within the meaning of Rule 17f-5
under said Act) as the agent of the Custodian to carry out
such of the duties and functions of the Custodian described in
this Section 3 as the Custodian may from time to time direct;
PROVIDED, however, that the appointment of any such agent
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shall not relieve the Custodian of any of its responsibilities
or liabilities hereunder, and as between the Trust and the
Custodian the Custodian shall be fully responsible for the
acts and omissions of any such agent. For the purposes of
this Agreement, any property of the Trust held by any such
agent shall be deemed to be held by the Custodian hereunder.
L. Deposit of Trust Portfolio Securities in Securities Systems.
The Custodian may deposit and/or maintain securities owned by
the Trust
(1) in The Depository Trust Company;
(2) in Participants Trust Company;
(3) in any other Approved Clearing Agency;
(4) in the Federal Book-Entry System; or
(5) in an Approved Foreign Securities Depository
in each case only in accordance with applicable Federal
Reserve Board and Securities and Exchange Commission rules and
regulations, and at all times subject to the following
provisions:
(a) The Custodian may (either directly or through one or
more subcustodians employed pursuant to Section 2 keep
securities of the Trust in a Securities System provided that
such securities are maintained in a non-proprietary account
("Account") of the Custodian or such subcustodian in the
Securities System which shall not include any assets of the
Custodian or such subcustodian or any other person other than
assets held by the Custodian or such subcustodian as a
fiduciary, custodian, or otherwise for its customers.
(b) The records of the Custodian with respect to
securities of the Trust which are maintained in a Securities
System shall identify by book-entry those securities belonging
to the Trust, and the Custodian shall be fully and completely
responsible for maintaining a recordkeeping system capable of
accurately and currently stating the Trust's holdings
maintained in each such Securities System.
(c) The Custodian shall pay for securities purchased in
book-entry form for the account of the Trust only upon (i)
receipt of notice or advice from the Securities System that
such securities have been transferred to the Account, and (ii)
the making of any entry on the records of the Custodian to
reflect such payment and transfer for the account of the
Trust. The Custodian shall transfer securities sold for the
account of the Trust only upon (i) receipt of notice or advice
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from the Securities System that payment for such securities
has been transferred to the Account, and (ii) the making of an
entry on the records of the Custodian to reflect such transfer
and payment for the account of the Trust. Copies of all
notices or advices from the Securities System of transfers of
securities for the account of the Trust shall identify the
Trust, be maintained for the Trust by the Custodian and be
promptly provided to the Trust at its request. The Custodian
shall promptly send to the Trust confirmation of each transfer
to or from the account of the Trust in the form of a written
advice or notice of each such transaction, and shall furnish
to the Trust copies of daily transaction sheets reflecting
each day's transactions in the Securities System for the
account of the Trust on the next business day.
(d) The Custodian shall promptly send to the Trust any
report or other communication received or obtained by the
Custodian relating to the Securities System's accounting
system, system of internal accounting controls or procedures
for safeguarding securities deposited in the Securities
System; the Custodian shall promptly send to the Trust any
report or other communication relating to the Custodian's
internal accounting controls and procedures for safeguarding
securities deposited in any Securities System; and the
Custodian shall ensure that any agent appointed pursuant to
Paragraph K hereof or any subcustodian employed pursuant to
Section 2 hereof shall promptly send to the Trust and to the
Custodian any report or other communication relating to such
agent's or subcustodian's internal accounting controls and
procedures for safeguarding securities deposited in any
Securities System. The Custodian's books and records relating
to the Trust's participation in each Securities System will at
all times during regular business hours be open to the
inspection of the Trust's authorized officers, employees or
agents.
(e) The Custodian shall not act under this Paragraph L
in the absence of receipt of a certificate of an officer of
the Trust that the Board has approved the use of a particular
Securities System; the Custodian shall also obtain appropriate
assurance from the officers of the Trust that the Board has
annually reviewed the continued use by the Trust of each
Securities System, and the Trust shall promptly notify the
Custodian if the use of a Securities System is to be
discontinued; at the request of the Trust, the Custodian will
terminate the use of any such Securities System as promptly as
practicable.
(f) Anything to the contrary in this Agreement
notwithstanding, the Custodian shall be liable to the Trust
for any loss or damage to the Trust resulting from use of the
Securities System by reason of any negligence, misfeasance or
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misconduct of the Custodian or any of its agents or
subcustodians or of any of its or their employees or from any
failure of the Custodian or any such agent or subcustodian to
enforce effectively such rights as it may have against the
Securities System or any other person; at the election of the
Trust, it shall be entitled to be subrogated to the rights of
the Custodian with respect to any claim against the Securities
System or any other person which the Custodian may have as a
consequence of any such loss or damage if and to the extent
that the Trust has not been made whole for any such loss or
damage.
M. Deposit of Trust Commercial Paper in an Approved Book-Entry
System for Commercial Paper. Upon receipt of proper
instructions with respect to each issue of direct issue
commercial paper purchased by the Trust, the Custodian may
deposit and/or maintain direct issue commercial paper owned by
the Trust in any Approved Book-Entry System for Commercial
Paper, in each case only in accordance with applicable
Securities and Exchange Commission rules, regulations, and
no-action correspondence, and at all times subject to the
following provisions:
(a) The Custodian may (either directly or through one or
more subcustodians employed pursuant to Section 2) keep
commercial paper of the Trust in an Approved Book-Entry System
for Commercial Paper, provided that such paper is issued in
book entry form by the Custodian or subcustodian on behalf of
an issuer with which the Custodian or subcustodian has entered
into a book-entry agreement and provided further that such
paper is maintained in a non-proprietary account ("Account")
of the Custodian or such subcustodian in an Approved
Book-Entry System for Commercial Paper which shall not include
any assets of the Custodian or such subcustodian or any other
person other than assets held by the Custodian or such
subcustodian as a fiduciary, custodian, or otherwise for its
customers.
(b) The records of the Custodian with respect to
commercial paper of the Trust which is maintained in an
Approved Book-Entry System for Commercial Paper shall identify
by book-entry each specific issue of commercial paper
purchased by the Trust which is included in the System and
shall at all times during regular business hours be open for
inspection by authorized officers, employees or agents of the
Trust. The Custodian shall be fully and completely
responsible for maintaining a recordkeeping system capable of
accurately and currently stating the Trust's holdings of
commercial paper maintained in each such System.
(c) The Custodian shall pay for commercial paper
purchased in book-entry form for the account of the Trust only
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upon contemporaneous (i) receipt of notice or advice from the
issuer that such paper has been issued, sold and transferred
to the Account, and (ii) the making of an entry on the records
of the Custodian to reflect such purchase, payment and
transfer for the account of the Trust. The Custodian shall
transfer such commercial paper which is sold or cancel such
commercial paper which is redeemed for the account of the
Trust only upon contemporaneous (i) receipt of notice or
advice that payment for such paper has been transferred to the
Account, and (ii) the making of an entry on the records of the
Custodian to reflect such transfer or redemption and payment
for the account of the Trust. Copies of all notices, advices
and confirmations of transfers of commercial paper for the
account of the Trust shall identify the Trust, be maintained
for the Trust by the Custodian and be promptly provided to the
Trust at its request. The Custodian shall promptly send to
the Trust confirmation of each transfer to or from the account
of the Trust in the form of a written advice or notice of each
such transaction, and shall furnish to the Trust copies of
daily transaction sheets reflecting each day's transactions in
the System for the account of the Trust on the next business
day.
(d) The Custodian shall promptly send to the Trust any
report or other communication received or obtained by the
Custodian relating to each System's accounting system, system
of internal accounting controls or procedures for safeguarding
commercial paper deposited in the System; the Custodian shall
promptly send to the Trust any report or other communication
relating to the Custodian's internal accounting controls and
procedures for safeguarding commercial paper deposited in any
Approved Book-Entry System for Commercial Paper; and the
Custodian shall ensure that any agent appointed pursuant to
Paragraph K hereof or any subcustodian employed pursuant to
Section 2 hereof shall promptly send to the Trust and to the
Custodian any report or other communication relating to such
agent's or subcustodian's internal accounting controls and
procedures for safeguarding securities deposited in any
Approved Book-Entry System for Commercial Paper.
(e) The Custodian shall not act under this Paragraph M
in the absence of receipt of a certificate of an officer of
the Trust that the Board has approved the use of a particular
Approved Book-Entry System for Commercial Paper; the Custodian
shall also obtain appropriate assurance from the officers of
the Trust that the Board has annually reviewed the continued
use by the Trust of each Approved Book-Entry System for
Commercial Paper, and the Trust shall promptly notify the
Custodian if the use of an Approved Book-Entry System for
Commercial Paper is to be discontinued; at the request of the
Trust, the Custodian will terminate the use of any such System
as promptly as practicable.
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<PAGE>
(f) The Custodian (or subcustodian, if the Approved
Book-Entry System for Commercial Paper is maintained by the
subcustodian) shall issue physical commercial paper or
promissory notes whenever requested to do so by the Trust or
in the event of an electronic system failure which impedes
issuance, transfer or custody of direct issue commercial paper
by book-entry.
(g) Anything to the contrary in this Agreement
notwithstanding, the Custodian shall be liable to the Trust
for any loss or damage to the Trust resulting from use of any
Approved Book-Entry System for Commercial Paper by reason of
any negligence, misfeasance or misconduct of the Custodian or
any of its agents or subcustodians or of any of its or their
employees or from any failure of the Custodian or any such
agent or subcustodian to enforce effectively such rights as it
may have against the System, the issuer of the commercial
paper or any other person; at the election of the Trust, it
shall be entitled to be subrogated to the rights of the
Custodian with respect to any claim against the System, the
issuer of the commercial paper or any other person which the
Custodian may have as a consequence of any such loss or damage
if and to the extent that the Trust has not been made whole
for any such loss or damage.
N. Segregated Account. The Custodian shall upon receipt of
proper instructions establish and maintain a segregated
account or accounts for and on behalf of the Trust, into which
account or accounts may be transferred cash and/or securities,
including securities maintained in an account by the Custodian
pursuant to Paragraph L hereof, (i) in accordance with the
provisions of any agreement among the Trust, the Custodian and
any registered broker-dealer (or any futures commission
merchant), relating to compliance with the rules of the
Options Clearing Corporation and of any registered national
securities exchange (or of the Commodity Futures Trading
Commission or of any contract market or commodities exchange),
or of any similar organization or organizations, regarding
escrow or deposit or other arrangements in connection with
transactions by the Trust, (ii) for purposes of segregating
cash or U.S. Government securities in connection with options
purchased, sold or written by the Trust or futures contracts
or options thereon purchased or sold by the Trust, (iii) for
the purposes of compliance by the Trust with the procedures
required by Investment Company Act Release No. 10666, or any
subsequent release or releases of the Securities and Exchange
Commission relating to the maintenance of segregated accounts
by registered investment companies and (iv) for other proper
purposes, BUT ONLY, in the case of clause (iv), upon receipt
of, in addition to proper instructions, a certificate signed
by two officers of the Trust, setting forth the purpose such
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segregated account and declaring such purpose to be a proper
purpose.
O. Ownership Certificates for Tax Purposes. The Custodian
shall execute ownership and other certificates and
affidavits for all federal and state tax purposes in
connection with receipt of income or other payments with
respect to securities of the Trust held by it and in
connection with transfers of securities.
P. Proxies. The Custodian shall, with respect to the
securities held by it hereunder, cause to be promptly
delivered to the Trust all forms of proxies and all
notices of meetings and any other notices or
announcements or other written information affecting or
relating to the securities, and upon receipt of proper
instructions shall execute and deliver or cause its
nominee to execute and deliver such proxies or other
authorizations as may be required. Neither the Custodian
nor its nominee shall vote upon any of the securities or
execute any proxy to vote thereon or give any consent or
take any other action with respect thereto (except as
otherwise herein provided) unless ordered to do so by
proper instructions.
Q. Communications Relating to Trust Portfolio Securities. The
Custodian shall deliver promptly to the Trust all written
information (including, without limitation, pendency of call
and maturities of securities and participation interests and
expirations of rights in connection therewith and notices of
exercise of call and put options written by the Trust and the
maturity of futures contracts purchased or sold by the Trust)
received by the Custodian from issuers and other persons
relating to the securities and participation interests being
held for the Trust. With respect to tender or exchange
offers, the Custodian shall deliver promptly to the Trust all
written information received by the Custodian from issuers and
other persons relating to the securities and participation
interests whose tender or exchange is sought and from the
party (or his agents) making the tender or exchange offer.
R. Exercise of Rights; Tender Offers. In the case of tender
offers, similar offers to purchase or exercise rights
(including, without limitation, pendency of calls and
maturities of securities and participation interests and
expirations of rights in connection therewith and notices of
exercise of call and put options and the maturity of futures
contracts) affecting or relating to securities and
participation interests held by the Custodian under this
Agreement, the Custodian shall have responsibility for
promptly notifying the Trust of all such offers in accordance
with the standard of reasonable care set forth in Section 8
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hereof. For all such offers for which the Custodian is
responsible as provided in this Paragraph R, the Trust shall
have responsibility for providing the Custodian with all
necessary instructions in timely fashion. Upon receipt of
proper instructions, the Custodian shall timely deliver to the
issuer or trustee thereof, or to the agent of either,
warrants, puts, calls, rights or similar securities for the
purpose of being exercised or sold upon proper receipt
therefor and upon receipt of assurances satisfactory to the
Custodian that the new securities and cash, if any, acquired
by such action are to be delivered to the Custodian or any
subcustodian employed pursuant to Section 2 hereof. Upon
receipt of proper instructions, the Custodian shall timely
deposit securities upon invitations for tenders of securities
upon proper receipt therefor and upon receipt of assurances
satisfactory to the Custodian that the consideration to be
paid or delivered or the tendered securities are to be
returned to the Custodian or subcustodian employed pursuant to
Section 2 hereof. Notwithstanding any provision of this
Agreement to the contrary, the Custodian shall take all
necessary action, unless otherwise directed to the contrary by
proper instructions, to comply with the terms of all mandatory
or compulsory exchanges, calls, tenders, redemptions, or
similar rights of security ownership, and shall thereafter
promptly notify the Trust in writing of such action.
S. Depository Receipts. The Custodian shall, upon receipt
of proper instructions, surrender or cause to be
surrendered foreign securities to the depository used by
an issuer of American Depository Receipts or
International Depository Receipts (hereinafter
collectively referred to as "ADRs") for such securities,
against a written receipt therefor adequately describing
such securities and written evidence satisfactory to the
Custodian that the depository has acknowledged receipt of
instructions to issue with respect to such securities
ADRs in the name of a nominee of the Custodian or in the
name or nominee name of any subcustodian employed
pursuant to Section 2 hereof, for delivery to the
Custodian or such subcustodian at such place as the
Custodian or such subcustodian may from time to time
designate. The Custodian shall, upon receipt of proper
instructions, surrender ADRs to the issuer thereof
against a written receipt therefor adequately describing
the ADRs surrendered and written evidence satisfactory to
the Custodian that the issuer of the ADRs has
acknowledged receipt of instructions to cause its
depository to deliver the securities underlying such ADRs
to the Custodian or to a subcustodian employed pursuant
to Section 2 hereof.
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T. Interest Bearing Call or Time Deposits. The Custodian shall,
upon receipt of proper instructions, place interest bearing
fixed term and call deposits with the banking department of
such banking institution (other than the Custodian) and in
such amounts as the Trust may designate. Deposits may be
denominated in U.S. Dollars or other currencies. The
Custodian shall include in its records with respect to the
assets of the Trust appropriate notation as to the amount and
currency of each such deposit, the accepting banking
institution and other appropriate details and shall retain
such forms of advice or receipt evidencing the deposit, if
any, as may be forwarded to the Custodian by the banking
institution. Such deposits shall be deemed portfolio
securities of the Trust for the purposes of this Agreement,
and the Custodian shall be responsible for the collection of
income from such accounts and the transmission of cash to and
from such accounts.
U. Options, Futures Contracts and Foreign Currency Transactions
------------------------------------------------------------
1. Options. The Custodian shall, upon receipt of proper
instructions and in accordance with the provisions of any
agreement between the Custodian, any registered
broker-dealer and, if necessary, the Trust, relating to
compliance with the rules of the Options Clearing
Corporation or of any registered national securities
exchange or similar organization or organizations,
receive and retain confirmations or other documents, if
any, evidencing the purchase or writing of an option on a
security or securities index or other financial
instrument or index by the Trust; deposit and maintain in
a segregated account for the Trust, either physically or
by book-entry in a Securities System, securities subject
to a covered call option written by the Trust; and
release and/or transfer such securities or other assets
only in accordance with a notice or other communication
evidencing the expiration, termination or exercise of
such covered option furnished by the Options Clearing
Corporation, the securities or options exchange on which
such covered option is traded or such other organization
as may be responsible for handling such options
transactions. The Custodian and the broker-dealer shall
be responsible for the sufficiency of assets held in the
Trust's segregated account in compliance with applicable
margin maintenance requirements.
2. Futures Contracts. The Custodian shall, upon
receipt of proper instructions, receive and retain
confirmations and other documents, if any, evidencing the
purchase or sale of a futures contract or an option on a
futures contract by the Trust; deposit and maintain in a
segregated account, for the benefit of any futures
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commission merchant, assets designated by the Trust as
initial, maintenance or variation "margin" deposits
(including mark-to-market payments) intended to secure
the Trust's performance of its obligations under any
futures contracts purchased or sold or any options on
futures contracts written by the Trust, in accordance
with the provisions of any agreement or agreements among
the Trust, the Custodian and such futures commission
merchant, designed to comply with the rules of the
Commodity Futures Trading Commission and/or of any
contract market or commodities exchange or similar
organization regarding such margin deposits or payments;
and release and/or transfer assets in such margin
accounts only in accordance with any such agreements or
rules. The Custodian and the futures commission merchant
shall be responsible for the sufficiency of assets held
in the segregated account in compliance with the
applicable margin maintenance and mark-to-market payment
requirements.
3. Foreign Exchange Transactions. The Custodian shall,
pursuant to proper instructions, enter into or cause a
subcustodian to enter into foreign exchange contracts or
options to purchase and sell foreign currencies for spot
and future delivery on behalf and for the account of the
Trust. Such transactions may be undertaken by the
Custodian or subcustodian with such banking or financial
institutions or other currency brokers, as set forth in
proper instructions. Foreign exchange contracts and
options shall be deemed to be portfolio securities of the
Trust; and accordingly, the responsibility of the
Custodian therefor shall be the same as and no greater
than the Custodian's responsibility in respect of other
portfolio securities of the Trust. The Custodian shall
be responsible for the transmittal to and receipt of cash
from the currency broker or banking or financial
institution with which the contract or option is made,
the maintenance of proper records with respect to the
transaction and the maintenance of any segregated account
required in connection with the transaction. The
Custodian shall have no duty with respect to the
selection of the currency brokers or banking or financial
institutions with which the Trust deals or for their
failure to comply with the terms of any contract or
option. Without limiting the foregoing, it is agreed
that upon receipt of proper instructions and insofar as
funds are made available to the Custodian for the
purpose, the Custodian may (if determined necessary by
the Custodian to consummate a particular transaction on
behalf and for the account of the Trust) make free
outgoing payments of cash in the form of U.S. dollars or
foreign currency before receiving confirmation of a
- 20 -
<PAGE>
foreign exchange contract or confirmation that the
countervalue currency completing the foreign exchange
contract has been delivered or received. The Custodian
shall not be responsible for any costs and interest
charges which may be incurred by the Trust or the
Custodian as a result of the failure or delay of third
parties to deliver foreign exchange; provided that the
Custodian shall nevertheless be held to the standard of
care set forth in, and shall be liable to the Trust in
accordance with, the provisions of Section 8.
V. Actions Permitted Without Express Authority. The Custodian
may in its discretion, without express authority from the
Trust:
1) make payments to itself or others for minor
expenses of handling securities or other similar
items relating to its duties under this
Agreement, PROVIDED, that all such payments shall
be accounted for by the Custodian to the
Treasurer of the Trust;
2) surrender securities in temporary form for
securities in definitive form;
3) endorse for collection, in the name of the Trust,
checks, drafts and other negotiable instruments;
and
4) in general, attend to all nondiscretionary
details in connection with the sale, exchange,
substitution, purchase, transfer and other
dealings with the securities and property of the
Trust except as otherwise directed by the Trust.
4. Duties of Bank with Respect to Books of Account and Calculations
of Net Asset Value
---------------------------------------------------------------
Inasmuch as the Trust is treated as a partnership for federal
income tax purposes, the Bank shall as Agent (or as Custodian, as the case
may be) keep and maintain the books and records of the Trust in accordance
with the Procedures for Allocations and Distributions adopted by the
Trustees of the Trust, as such Procedures may be in effect from time to
time. A copy of the current Procedures is attached to this Agreement, and
the Trust agrees promptly to furnish all revisions to or restatements of
such Procedures to the Bank.
The Bank shall as Agent (or as Custodian, as the case may be)
keep such books of account (including records showing the adjusted tax
costs of the Trust's portfolio securities) and render as at the close of
business on each day a detailed statement of the amounts received or paid
out and of securities received or delivered for the account of the Trust
- 21 -
<PAGE>
during said day and such other statements, including a daily trial balance
and inventory of the Trust's portfolio securities; and shall furnish such
other financial information and data as from time to time requested by the
Treasurer or any executive officer of the Trust; and shall compute and
determine, as of the close of business of the New York Stock Exchange, or
at such other time or times as the Board may determine, the net asset
value of the Trust and the net asset value of each interest in the Trust,
such computations and determinations to be made in accordance with the
governing documents of the Trust and the votes and instructions of the
Board and of the investment adviser at the time in force and applicable,
and promptly notify the Trust and its investment adviser and such other
persons as the Trust may request of the result of such computation and
determination. In computing the net asset value the Custodian may rely
upon security quotations received by telephone or otherwise from sources
or pricing services designated by the Trust by proper instructions, and
may further rely upon information furnished to it by any authorized
officer of the Trust relative (a) to liabilities of the Trust not
appearing on its books of account, (b) to the existence, status and proper
treatment of any reserve or reserves, (c) to any procedures or policies
established by the Board regarding the valuation of portfolio securities
or other assets, and (d) to the value to be assigned to any bond, note,
debenture, Treasury bill, repurchase agreement, subscription right,
security, participation interests or other asset or property for which
market quotations are not readily available. The Custodian shall also
compute and determine at such time or times as the Trust may designate the
portion of each item which has significance for a holder of an interest in
the Trust in computing and determining its federal income tax liability
including, but not limited to, each item of income, expense and realized
and unrealized gain or loss of the Trust which is attributable for Federal
income tax purposes to each such holder.
5. Records and Miscellaneous Duties
--------------------------------
The Bank shall create, maintain and preserve all records relating
to its activities and obligations under this Agreement in such manner as
will meet the obligations of the Trust under the Investment Company Act of
1940, with particular attention to Section 31 thereof and Rules 31a-1 and
31a-2 thereunder, applicable federal and state tax laws and any other law
or administrative rules or procedures which may be applicable to the
Trust. All books of account and records maintained by the Bank in
connection with the performance of its duties under this Agreement shall
be the property of the Trust, shall at all times during the regular
business hours of the Bank be open for inspection by authorized officers,
employees or agents of the Trust, and in the event of termination of this
Agreement shall be delivered to the Trust or to such other person or
persons as shall be designated by the Trust. Disposition of any account
or record after any required period of preservation shall be only in
accordance with specific instructions received from the Trust. The Bank
shall assist generally in the preparation of reports to holders of
interest in the Trust, to the Securities and Exchange Commission,
including Form N-SAR, and to others, audits of accounts, and other
ministerial matters of like nature; and, upon request, shall furnish the
- 22 -
<PAGE>
Trust's auditors with an attested inventory of securities held with
appropriate information as to securities in transit or in the process of
purchase or sale and with such other information as said auditors may from
time to time request. The Custodian shall also maintain records of all
receipts, deliveries and locations of such securities, together with a
current inventory thereof, and shall conduct periodic verifications
(including sampling counts at the Custodian) of certificates representing
bonds and other securities for which it is responsible under this
Agreement in such manner as the Custodian shall determine from time to
time to be advisable in order to verify the accuracy of such inventory.
The Bank shall not disclose or use any books or records it has prepared or
maintained by reason of this Agreement in any manner except as expressly
authorized herein or directed by the Trust, and the Bank shall keep
confidential any information obtained by reason of this Agreement.
6. Opinion of Trust's Independent Public Accountants
-------------------------------------------------
The Custodian shall take all reasonable action, as the Trust may
from time to time request, to enable the Trust to obtain from year to
year favorable opinions from the Trust's independent public accountants
with respect to its activities hereunder in connection with the
preparation of the Trust's registration statement and Form N-SAR or other
periodic reports to the Securities and Exchange Commission and with
respect to any other requirements of such Commission.
7. Compensation and Expenses of Bank
---------------------------------
The Bank shall be entitled to reasonable compensation for its
services as Custodian and Agent, as agreed upon from time to time between
the Trust and the Bank. The Bank shall be entitled to receive from the
Trust on demand reimbursement for its cash disbursements, expenses and
charges, including counsel fees, in connection with its duties as
Custodian and Agent hereunder, but excluding salaries and usual overhead
expenses.
8. Responsibility of Bank
----------------------
So long as and to the extent that it is in the exercise of
reasonable care, the Bank as Custodian and Agent shall be held harmless in
acting upon any notice, request, consent, certificate or other instrument
reasonably believed by it to be genuine and to be signed by the proper
party or parties.
The Bank as Custodian and Agent shall be entitled to rely on and
may act upon advice of counsel (who may be counsel for the Trust) on all
matters, and shall be without liability for any action reasonably taken or
omitted pursuant to such advice.
The Bank as Custodian and Agent shall be held to the exercise of
reasonable care in carrying out the provisions of this Agreement but shall
be liable only for its own negligent or bad faith acts or failures to act.
Notwithstanding the foregoing, nothing contained in this paragraph is
- 23 -
<PAGE>
intended to nor shall it be construed to modify the standards of care and
responsibility set forth in Section 2 hereof with respect to subcustodians
and in subparagraph f of Paragraph L of Section 3 hereof with respect to
Securities Systems and in subparagraph g of Paragraph M of Section 3
hereof with respect to an Approved Book-Entry System for Commercial Paper.
The Custodian shall be liable for the acts or omissions of a
foreign banking institution to the same extent as set forth with respect
to subcustodians generally in Section 2 hereof, provided that, regardless
of whether assets are maintained in the custody of a foreign banking
institution, a foreign securities depository or a branch of a U.S. bank,
the Custodian shall not be liable for any loss, damage, cost, expense,
liability or claim resulting from, or caused by, the direction of or
authorization by the Trust to maintain custody of any securities or cash
of the Trust in a foreign country including, but not limited to, losses
resulting from governmental actions and restrictions, nationalization,
expropriation, currency restrictions, acts of war, civil war or terrorism,
insurrection, revolution, military or usurped powers, nuclear fission,
fusion or radiation, earthquake, storm or other disturbance of nature or
acts of God.
If the Trust requires the Bank in any capacity to take any action
with respect to securities, which action involves the payment of money or
which action may, in the opinion of the Bank, result in the Bank or its
nominee assigned to the Trust being liable for the payment of money or
incurring liability of some other form, the Trust, as a prerequisite to
requiring the Custodian to take such action, shall provide indemnity to
the Custodian in an amount and form satisfactory to it.
9. Persons Having Access to Assets of the Trust
--------------------------------------------
(i) No trustee, officer, employee or agent of the Trust shall
have physical access to the assets of the Trust held by the Custodian or
be authorized or permitted to withdraw any investments of the Trust, nor
shall the Custodian deliver any assets of the Trust to any such person.
No officer or director, employee or agent of the Custodian who holds any
similar position with the Trust or the investment adviser or the
administrator of the Trust shall have access to the assets of the Trust.
(ii) Access to assets of the Trust held hereunder shall only be
available to duly authorized officers, employees, representatives or
agents of the Custodian or other persons or entities for whose actions the
Custodian shall be responsible to the extent permitted hereunder, or to
the Trust's independent public accountants in connection with their
auditing duties performed on behalf of the Trust.
(iii) Nothing in this Section 9 shall prohibit any officer,
employee or agent of the Trust or of the investment adviser of the Trust
from giving instructions to the Custodian or executing a certificate so
long as it does not result in delivery of or access to assets of the Trust
prohibited by paragraph (i) of this Section 9.
- 24 -
<PAGE>
10. Effective Period, Termination and Amendment; Successor Custodian
----------------------------------------------------------------
This Agreement shall become effective as of its execution, shall
continue in full force and effect until terminated as hereinafter
provided, may be amended at any time by mutual agreement of the parties
hereto and may be terminated by either party by an instrument in writing
delivered or mailed, postage prepaid to the other party, such termination
to take effect not sooner than sixty (60) days after the date of such
delivery or mailing; PROVIDED, that the Trust may at any time by action of
its Board, (i) substitute another bank or trust company for the Custodian
by giving notice as described above to the Custodian, or (ii) immediately
terminate this Agreement in the event of the appointment of a conservator
or receiver for the Custodian by the Federal Deposit Insurance Corporation
or by the Banking Commissioner of The Commonwealth of Massachusetts or
upon the happening of a like event at the direction of an appropriate
regulatory agency or court of competent jurisdiction. Upon termination of
the Agreement, the Trust shall pay to the Custodian such compensation as
may be due as of the date of such termination and shall likewise reimburse
the Custodian for its costs, expenses and disbursements.
Unless the holders of a majority of the outstanding "voting
securities" of the Trust (as defined in the Investment Company Act of
1940) vote to have the securities, funds and other properties held
hereunder delivered and paid over to some other bank or trust company,
specified in the vote, having not less than $2,000,000 of aggregate
capital, surplus and undivided profits, as shown by its last published
report, and meeting such other qualifications for custodians set forth in
the Investment Company Act of 1940, the Board shall, forthwith, upon
giving or receiving notice of termination of this Agreement, appoint as
successor custodian, a bank or trust company having such qualifications.
The Bank, as Custodian, Agent or otherwise, shall, upon termination of the
Agreement, deliver to such successor custodian, all securities then held
hereunder and all funds or other properties of the Trust deposited with or
held by the Bank hereunder and all books of account and records kept by
the Bank pursuant to this Agreement, and all documents held by the Bank
relative thereto. In the event that no such vote has been adopted by the
shareholders and that no written order designating a successor custodian
shall have been delivered to the Bank on or before the date when such
termination shall become effective, then the Bank shall not deliver the
securities, funds and other properties of the Trust to the Trust but shall
have the right to deliver to a bank or trust company doing business in
Boston, Massachusetts of its own selection, having an aggregate capital,
surplus and undivided profits, as shown by its last published report, of
not less than $2,000,000, all funds, securities and properties of the
Trust held by or deposited with the Bank, and all books of account and
records kept by the Bank pursuant to this Agreement, and all documents
held by the Bank relative thereto. Thereafter such bank or trust company
shall be the successor of the Custodian under this Agreement.
- 25 -
<PAGE>
11. Interpretive and Additional Provisions
--------------------------------------
In connection with the operation of this Agreement, the Custodian
and the Trust may from time to time agree on such provisions interpretive
of or in addition to the provisions of this Agreement as may in their
joint opinion be consistent with the general tenor of this Agreement. Any
such interpretive or additional provisions shall be in a writing signed by
both parties and shall be annexed hereto, PROVIDED that no such
interpretive or additional provisions shall contravene any applicable
federal or state regulations or any provision of the governing instruments
of the Trust. No interpretive or additional provisions made as provided
in the preceding sentence shall be deemed to be an amendment of this
Agreement.
12. Notices
-------
Notices and other writings delivered or mailed postage prepaid to
the Trust addressed to 3408 One Exchange Square, Central Hong Kong, or to
such other address as the Trust may have designated to the Bank, in
writing with a copy to Eaton Vance Management at 24 Federal Street,
Boston, Massachusetts 02110, or to Investors Bank & Trust Company, 24
Federal Street, Boston, Massachusetts 02110 with a copy to Eaton Vance
Management at 24 Federal Street, Boston, Massachusetts 02110, shall be
deemed to have been properly delivered or given hereunder to the
respective addressees.
13. Massachusetts Law to Apply
--------------------------
This Agreement shall be construed and the provisions thereof
interpreted under and in accordance with the laws of The Commonwealth of
Massachusetts.
The Custodian expressly acknowledges the provision in the
Declaration of Trust of the Trust (Section 5.2 and 5.6) limiting the
personal liability of the Trustees and officers of the Trust, and the
Custodian hereby agrees that it shall have recourse to the Trust for
payment of claims or obligations as between the Trust and the Custodian
arising out of this Agreement and shall not seek satisfaction from any
Trustee or officer of the Trust.
- 26 -
<PAGE>
IN WITNESS WHEREOF, the parties hereto have entered into this
Agreement on October 27, 1992.
GREATER CHINA GROWTH PORTFOLIO
By: /s/James B. Hawkes
--------------------------
James B. Hawkes
Vice President
INVESTORS BANK & TRUST COMPANY
By: /s/Kevin Sheehan
----------------------------
Kevin Sheehan
President
- 27 -
<PAGE>
GREATER CHINA GROWTH PORTFOLIO
--------------------------------
PROCEDURES FOR ALLOCATIONS
AND DISTRIBUTIONS
September 1, 1992
<PAGE>
TABLE OF CONTENTS
PAGE
----
ARTICLE I--Introduction . . . . . . . . . . . . . . . . . . . . . . . 1
ARTICLE II--Definitions . . . . . . . . . . . . . . . . . . . . . . . 1
ARTICLE III--Capital Accounts
Section 3.1 Capital Accounts of Holders . . . . . . . . 4
Section 3.2 Book Capital Accounts . . . . . . . . . . . 4
Section 3.3 Tax Capital Accounts . . . . . . . . . . . . 4
Section 3.4 Compliance with Treasury Regulations . . . . 5
ARTICLE IV--Distributions of Cash and Assets
Section 4.1 Distributions of Distributable Cash . . . . 5
Section 4.2 Division Among Holders . . . . . . . . . . . 5
Section 4.3 Distributions Upon Liquidation of a
Holder's Interest in the Trust . . . . . . . 5
Section 4.4 Amounts Withheld . . . . . . . . . . . . . . 5
ARTICLE V--Allocations
Section 5.1 Allocation of Items to Book Capital
Accounts . . . . . . . . . . . . . . . . . . 6
Section 5.2 Allocation of Taxable Income and Tax
Loss to Tax Capital Accounts . . . . . . . . 6
Section 5.3 Special Allocations to Book and Tax
Capital Accounts . . . . . . . . . . . . . . 7
Section 5.4 Other Adjustments to Book and Tax
Capital Accounts . . . . . . . . . . . . . . 7
Section 5.5 Timing of Tax Allocations to Book and
Tax Capital Accounts . . . . . . . . . . . . 8
Section 5.6 Redemptions During the Fiscal Year . . . . . 8
ARTICLE VI--Withdrawals
Section 6.1 Partial Withdrawals . . . . . . . . . . . . 8
Section 6.2 Redemptions . . . . . . . . . . . . . . . . 8
Section 6.3 Distribution in Kind . . . . . . . . . . . . 8
ARTICLE VII--Liquidation
Section 7.1 Liquidation Procedure . . . . . . . . . . . 8
Section 7.2 Alternative Liquidation Procedure . . . . . 9
Section 7.3 Cash Distributions Upon Liquidation . . . . 9
Section 7.4 Treatment of Negative Book Capital
Account Balance . . . . . . . . . . . . . . 9
i
<PAGE>
PROCEDURES FOR
ALLOCATIONS AND DISTRIBUTIONS
OF
GREATER CHINA GROWTH PORTFOLIO
(the "Trust")
-----------------------------
ARTICLE I
Introduction
------------
The Trust is treated as a partnership for federal income tax
purposes. These procedures have been adopted by the Trustees of the Trust
and will be furnished to the Trust's accountants for the purpose of
allocating Trust gains, income or loss and distributing Trust assets. The
Trust will maintain its books and records, for both book and tax purposes,
using the accrual method of accounting.
ARTICLE II
Definitions
-----------
Except as otherwise provided herein, a term referred to herein
shall have the same meaning as that ascribed to it in the Declaration.
References in this document to "HEREOF", "HEREIN" and "HEREUNDER" shall be
deemed to refer to this document in its entirety rather than the article
or section in which any such word appears.
"Book Capital Account" shall mean, for any Holder at any time in
any Fiscal Year, the Book Capital Account balance of the Holder on the
first day of the Fiscal Year, as adjusted each day pursuant to the
provisions of Section 3.2 hereof.
"Capital Contribution" shall mean, with respect to any Holder,
the amount of money and the Fair Market Value of any assets actually
contributed from time to time to the Trust with respect to the Interest
held by such Holder.
"Code" shall mean the U.S. Internal Revenue Code of 1986, as
amended from time to time, as well as any non-superseded provisions of the
Internal Revenue Code of 1954, as amended (or any corresponding provision
or provisions of succeeding law).
"Declaration" shall mean the Trust's Declaration of Trust, dated
September 1, 1992, as amended from time to time.
"Designated Expenses" shall mean extraordinary Trust expenses
attributable to a particular Holder that are to be borne by such Holder.
<PAGE>
"Distributable Cash" for any Fiscal Year shall mean the gross
cash proceeds from Trust activities, less the portion thereof used to pay
or establish Reserves, plus such portion of the Reserves as the Trustees,
in their sole discretion, no longer deem necessary to be held as Reserves.
Distributable Cash shall not be reduced by depreciation, amortization,
cost recovery deductions, or similar allowances.
"Fair Market Value" of a security, instrument or other asset on
any particular day shall mean the fair value thereof as determined in good
faith by or on behalf of the Trustees in the manner set forth in the
Registration Statement.
"Fiscal Year" shall mean an annual period determined by the
Trustees which ends on such day as is permitted by the Code.
"Holders" shall mean as of any particular time all holders of
record of Interests in the Trust.
"Interest(s)" shall mean the interest of a Holder in the Trust,
including all rights, powers and privileges accorded to Holders by the
Declaration, which interest may be expressed as a percentage, determined
by calculating, at such times and on such bases as the Trustees shall from
time to time determine, the ratio of each Holder's Book Capital Account
balance to the total of all Holders' Book Capital Account balances.
"Investments" shall mean all securities, instruments or other
assets of the Trust of any nature whatsoever, including, but not limited
to, all equity and debt securities, futures contracts, and all property of
the Trust obtained by virtue of holding such assets.
"Matched Income or Loss" shall mean Taxable Income, Tax-Exempt
Income or Tax Loss of the Trust comprising interest, original issue
discount and dividends and all other types of income or loss to the extent
the Taxable Income, Tax-Exempt Income, Tax Loss or Loss items not included
in Tax Loss arising from such items are recognized for tax purposes at the
same time that Profit or Loss are accrued for book purposes by the Trust.
"Net Unrealized Gain" shall mean the excess, if any, of the
aggregate Fair Market Value of all Investments over the aggregate adjusted
bases, for federal income tax purposes, of all Investments.
"Net Unrealized Loss" shall mean the excess, if any, of the
aggregate adjusted bases, for federal income tax purposes, of all
Investments over the aggregate Fair Market Value of all Investments.
"Profit" and "Loss" shall mean, for each Fiscal Year or other
period, an amount equal to the Taxable Income or Tax Loss for such Fiscal
Year or period with the following adjustments:
(i) Any Tax-Exempt Income shall be added to such
Taxable Income or subtracted from such Tax Loss; and
2
<PAGE>
(ii) Any expenditures of the Trust for such
year or period described in Section 705(a)(2)(B) of the
Code or treated as expenditures under
Section 705(a)(2)(B) of the Code pursuant to Treasury
Regulations Section 1.704-1(b)(2)(iv)(i), and not
otherwise taken into account in computing Profit or Loss
or specially allocated shall be subtracted from such
Taxable Income or added to such Tax Loss.
"Redemption" shall mean the complete withdrawal of an Interest of
a Holder the result of which is to reduce the Book Capital Account balance
of that Holder to zero.
"Registration Statement" shall mean the Registration Statement of
the Trust on Form N-1A as filed with the U.S. Securities and Exchange
Commission under the 1940 Act, as the same may be amended from time to
time.
"Reserves" shall mean, with respect to any Fiscal Year, funds set
aside or amounts allocated during such period to reserves which shall be
maintained in amounts deemed sufficient by the Trustees for working
capital and to pay taxes, insurance, debt service, renewals, or other
costs or expenses, incident to the ownership of the Investments or to its
operations.
"Tax Capital Account" shall mean, for any Holder at any time in
any Fiscal Year, the Tax Capital Account balance of the Holder on the
first day of the Fiscal Year, as adjusted each day pursuant to the
provisions of Section 3.3 hereof.
"Tax-Exempt Income" shall mean income of the Trust for such
Fiscal Year or period that is exempt from federal income tax and not
otherwise taken into account in computing Profit or Loss.
"Tax Lot" shall mean securities or other property which are both
purchased or acquired, and sold or otherwise disposed of, as a unit.
"Taxable Income" or "Tax Loss" shall mean the taxable income or
tax loss of the Trust, determined in accordance with Section 703(a) of the
Code, for each Fiscal Year as determined for federal income tax purposes,
together with each of the Trust's items of income, gain, loss or deduction
which is separately stated or otherwise not included in computing taxable
income and tax loss.
"Treasury Regulations" shall mean the Income Tax Regulations
promulgated under the Code, as such regulations may be amended from time
to time (including corresponding provisions of succeeding regulations).
"Trust" shall mean Greater China Growth Portfolio, a trust fund
formed under the law of the State of New York by the Declaration.
3
<PAGE>
"Trustees" shall mean each signatory to the Declaration, so long
as such signatory shall continue in office in accordance with the terms
thereof, and all other individuals who at the time in question have been
duly elected or appointed and have qualified as Trustees in accordance
with the provisions thereof and are then in office.
The "1940 Act" shall mean the U.S. Investment Company Act of
1940, as amended from time to time, and the rules and regulations
thereunder.
ARTICLE III
Capital Accounts
----------------
3.1. Capital Accounts of Holders. A separate Book Capital
Account and a separate Tax Capital Account shall be maintained for each
Holder pursuant to Section 3.2 and Section 3.3. hereof, respectively. In
the event the Trustees shall determine that it is prudent to modify the
manner in which the Book Capital Accounts or Tax Capital Accounts, or any
debits or credits thereto, are computed in order to comply with the
Treasury Regulations, the Trustees may make such modification, provided
that it is not likely to have a material effect on the amounts
distributable to any Holder pursuant to Article VII hereof upon the
dissolution of the Trust.
3.2. Book Capital Accounts. The Book Capital Account balance
of each Holder shall be adjusted each day by the following amounts:
(a) increased by any increase in Net Unrealized Gains or
decrease in Net Unrealized Losses allocated to such Holder pursuant to
Section 5.1(a) hereof;
(b) decreased by any decrease in Net Unrealized Gains or
increase in Net Unrealized Losses allocated to such Holder pursuant to
Section 5.1(b) hereof;
(c) increased or decreased, as the case may be, by the amount
of Profit or Loss, respectively, allocated to such Holder pursuant to
Section 5.1(c) hereof;
(d) increased by any Capital Contribution made by such
Holder; and,
(e) decreased by any distribution, including any distribution
to effect a withdrawal or Redemption, made to such Holder by the Trust.
Any adjustment pursuant to Section 3.2 (a), (b) or (c) above
shall be prorated for increases in each Holder's Book Capital Account
balance resulting from Capital Contributions, or distributions or
withdrawals from the Trust or Redemptions by the Trust occurring, during
such Fiscal Year as of the day after the Capital Contribution,
4
<PAGE>
distribution, withdrawal or Redemption is accepted, made or effected by
the Trust.
3.3. Tax Capital Accounts. The Tax Capital Account balance of
each Holder shall be adjusted at the following times by the following
amounts:
(a) increased daily by the adjusted tax bases of any Capital
Contribution made by such Holder to the Trust;
(b) increased daily by the amount of Taxable Income and Tax-
Exempt Income allocated to such Holder pursuant to Section 5.2 hereof at
such times as the allocations are made under Section 5.2 hereof;
(c) decreased daily by the amount of cash distributed to the
Holder pursuant to any of these procedures including any distribution made
to effect a withdrawal or Redemption; and
(d) decreased by the amount of Tax Loss allocated to such
Holder pursuant to Section 5.2 hereof at such times as the allocations are
made under Section 5.2 hereof.
3.4. Compliance with Treasury Regulations. The foregoing
provisions and other provisions contained herein relating to the
maintenance of Book Capital Accounts and Tax Capital Accounts are intended
to comply with Treasury Regulations Section 1.704-1(b), and shall be
interpreted and applied in a manner consistent with such Treasury
Regulations.
The Trustees shall make any appropriate modifications in the
event unanticipated events might otherwise cause these procedures not to
comply with Treasury Regulations Section 1.704-1(b), including the
requirements described in Treasury Regulations Section 1.704-
1(b)(2)(ii)(b)(1) and Treasury Regulations Section 1.704-1(b)(2)(iv).
Such modifications are hereby incorporated into these procedures by this
reference as though fully set forth herein.
ARTICLE IV
Distributions of Cash and Assets
--------------------------------
4.1. Distributions of Distributable Cash. Except as otherwise
provided in Article VII hereof, Distributable Cash for each Fiscal Year
may be distributed to the Holders at such times, if any, and in such
amounts as shall be determined in the sole discretion of the Trustees. In
exercising such discretion, the Trustees shall distribute such
Distributable Cash so that Holders that are regulated investment companies
can comply with the distribution requirements set forth in Code
Section 852 and avoid the excise tax imposed by Code Section 4982.
4.2. Division Among Holders. All distributions to the Holders
with respect to any Fiscal Year pursuant to Section 4.1 hereof shall be
5
<PAGE>
made to the Holders in proportion to the Taxable Income, Tax-Exempt Income
or Tax Loss allocated to the Holders with respect to such Fiscal Year
pursuant to the terms of these procedures.
4.3. Distributions Upon Liquidation of a Holder's Interest in
the Trust. Upon liquidation of a Holder's interest in the Trust, the
proceeds will be distributed to the Holder as provided in Section 5.6,
Article VI, and Article VII hereof. If such Holder has a negative book
capital account balance, the provisions of Section 7.4 will apply.
4.4. Amounts Withheld. All amounts withheld pursuant to the
Code or any provision of any state or local tax law with respect to any
payment or distribution to the Trust or the Holders shall be treated as
amounts distributed to such Holders pursuant to this Article IV for all
purposes under these procedures. The Trustees may allocate any such
amount among the Holders in any manner that is in accordance with
applicable law.
ARTICLE V
Allocations
-----------
5.1. Allocation of Items to Book Capital Accounts.
--------------------------------------------
(a) Increase in Net Unrealized Gains or Decrease in Net
Unrealized Losses. Any decrease in Net Unrealized Loss due to realization
of items shall be allocated to the Holder receiving the allocation of
Loss, in the same amount, under Section 5.1(c) hereof. Subject to Section
5.1(d) hereof, any increase in Net Unrealized Gains or decrease in Net
Unrealized Loss on any day during the Fiscal Year shall be allocated to
the Holders' Book Capital Accounts at the end of such day, in proportion
to the Holders' respective Book Capital Account balances at the
commencement of such day.
(b) Decrease in Net Unrealized Gains or Increase in Net
Unrealized Losses. Any decrease in Net Unrealized Gains due to
realization of items shall be allocated to the Holder receiving the
allocation of Profit, in the same amount, under Section 5.1(c) hereof.
Subject to Section 5.1(d) hereof, any decrease in Net Unrealized Gains or
increase in Net Unrealized Loss on any day during the Fiscal Year shall be
allocated to the Holders' Book Capital Accounts at the end of such day, in
proportion to the Holders' respective Book Capital Account balances at the
commencement of such day.
(c) Profit and Loss. Subject to Section 5.1(d) hereof,
Profit and Loss occurring on any day during the Fiscal Year shall be
allocated to the Holders' Book Capital Accounts at the end of such day in
proportion to the Holders' respective Book Capital Account balances at the
commencement of such day.
6
<PAGE>
(d) Other Book Capital Account Adjustments.
(i) Any allocation pursuant to Section 5.1(a), (b)
or (c) above shall be prorated for increases in each
Holder's Book Capital Account resulting from Capital
Contributions, or distributions or withdrawals from the
Trust or Redemptions by the Trust occurring, during such
Fiscal Year as of the day after the Capital Contribution,
distribution, withdrawal or Redemption is accepted, made
or effected by the Trust.
(ii) For purposes of determining the Profit, Loss,
and Net Unrealized Gain or Net Unrealized Loss or any
other item allocable to any Fiscal Year, Profit, Loss,
and Net Unrealized Gain or Net Unrealized Loss and any
such other item shall be determined by or on behalf of
the Trustees using any reasonable method under Code
Section 706 and the Treasury Regulations thereunder.
5.2. Allocation of Taxable Income and Tax Loss to Tax Capital
Accounts.
--------------------------------------------------------
(a) Taxable Income and Tax Loss. Subject to Section 5.2(b)
and Section 5.3 hereof, which shall take precedence over this Section
5.2(a), Taxable Income or Tax Loss for any Fiscal Year shall be allocated
at least annually to the Holders' Tax Capital Accounts as follows:
(i) First, Taxable Income and Tax Loss, whether
constituting ordinary income (or loss) or capital gain
(or loss), derived from the sale or other disposition of
a Tax Lot of securities or other property shall be
allocated as of the date such income, gain or loss is
recognized for federal income tax purposes solely in
proportion to the amount of unrealized appreciation (in
the case of such income or capital gain, but not in the
case of any such loss) or depreciation (in the case of
any such loss, but not in the case of any such income or
capital gain) from that Tax Lot which was allocated to
the Holders' Book Capital Accounts each day that such
securities or other property was held by the Trust
pursuant to Section 5.1(a) and (b) hereof; and
(ii) Second, any remaining amounts at the end
of the Fiscal Year, to the Holders in proportion to their
respective daily average Book Capital Account balances
determined for the Fiscal Year of the allocation.
(b) Matched Income or Loss. Notwithstanding the provisions
of Section 5.2(a) hereof, Taxable Income, Tax-Exempt Income or Tax Loss
accruing on any day during the Fiscal Year constituting Matched Income or
Loss, shall be allocated daily to the Holders' Tax Capital Accounts solely
in proportion to and to the extent of corresponding allocations of Profit
7
<PAGE>
or Loss to the Holders' Book Capital Accounts pursuant to the first
sentence of Section 5.1(c) hereof.
5.3. Special Allocations to Book and Tax Capital Accounts.
---------------------------------------------------
(a) The Designated Expenses computed for each Holder shall be
allocated separately (not included in the allocations of Matched Income or
Loss, Loss or Tax Loss) to the Book Capital Account and Tax Capital
Account of each Holder.
(b) If the Trust incurs any nonrecourse indebtedness, then
allocations of items attributable to nonrecourse indebtedness shall be
made to the Tax Capital Account of each Holder in accordance with the
requirements of Treasury Regulations Section 1.704-1(b)(4)(iv)(d).
(c) In accordance with Code Section 704(c) and the Treasury
Regulations thereunder, Taxable Income and Tax Loss with respect to any
property contributed to the capital of the Trust shall be allocated to the
Tax Capital Account of each Holder so as to take into account any
variation between the adjusted tax basis of such property to the Trust for
federal income tax purposes and such property's Fair Market Value at the
time of contribution to the Trust.
5.4. Other Adjustments to Book and Tax Capital Accounts.
--------------------------------------------------
(a) Any election or other decision relating to such
allocations shall be made by the Trustees in any manner that reasonably
reflects the purpose and intention of these procedures.
(b) Each Holder will report its share of Trust income and
loss for federal income tax purposes in accordance with the allocations
effected pursuant to Section 5.2 hereof.
5.5. Timing of Tax Allocations to Book and Tax Capital
Accounts. Allocation of Taxable Income, Tax-Exempt Income and Tax Loss
pursuant to Section 5.2 hereof for any Fiscal Year, unless specified above
to the contrary, shall be made only after corresponding adjustments have
been made to the Book Capital Accounts of the Holders for the Fiscal Year
as provided pursuant to Section 5.1 hereof.
5.6. Redemptions During the Fiscal Year. If a Redemption
occurs prior to the end of a Fiscal Year, the Trust will treat the Fiscal
Year as ended for the purposes of computing the redeeming Holder's
distributive share of Trust items and allocations of all items to such
Holder will be made as though each Holder were receiving its allocable
share of Trust items at such time. All items so allocated to the
redeeming Holder will be subtracted from the items to be allocated among
the other non-redeeming Holders at the actual end of the Fiscal Year. All
items allocated among the redeeming and non-redeeming Holders will be made
subject to the rules of Code Sections 702, 704, 706 and 708 and the
Treasury Regulations promulgated thereunder.
8
<PAGE>
ARTICLE VI
Withdrawals
-----------
6.1. Partial Withdrawals. At any time any Holder shall be
entitled to request a withdrawal of such portion of the Interest held by
such Holder as such Holder shall request.
6.2. Redemptions. At any time a Holder shall be entitled to
request a Redemption of all of its Interest. A Holder's Interest may be
redeemed at any time during the Fiscal Year as provided in Section 6.3
hereof by a cash distribution or, at the option of a Holder, by a
distribution of a proportionate amount except for fractional shares of
each Trust asset at the option of the Trust. However, the Holder may be
redeemed by a distribution of a proportionate amount of the Trust's assets
only at the end of a Fiscal Year. However, if the Holder has contributed
any property to the Trust other than cash, if such property remains in the
Trust at the time the Holder requests withdrawal, then such property will
be sold by the Trust prior to the time at which the Holder withdraws from
the Trust.
6.3. Distribution in Kind. If a withdrawing Holder receives a
distribution in kind of its proportionate part of Trust property, then
unrealized income, gain, loss or deduction attributable to such property
shall be allocated among the Holders as if there had been a disposition of
the property on the date of distribution in compliance with the
requirements of Treasury Regulations Section 1.704-1(b)(2)(iv)(e).
ARTICLE VII
Liquidation
-----------
7.1. Liquidation Procedure. Subject to Section 7.4 hereof,
upon dissolution of the Trust, the Trustees shall liquidate the assets of
the Trust, apply and distribute the proceeds thereof as follows:
(a) first to the payment of all debts and obligations of the
Trust to third parties, including without limitation the retirement of
outstanding debt, including any debt owed to Holders or their affiliates,
and the expenses of liquidation, and to the setting up of any Reserves for
contingencies which may be necessary; and
(b) then in accordance with the Holders' positive Book
Capital Account balances after adjusting Book Capital Accounts for
allocations provided in Article V hereof and in accordance with the
requirements described in Treasury Regulations Section 1.704-1(b)(2)
(ii)(b)(2).
7.2. Alternative Liquidation Procedure. Notwithstanding the
foregoing, if the Trustees shall determine that an immediate sale of part
or all of the Trust assets would cause undue loss to the Holders, the
Trustees, in order to avoid such loss, may, after having given
9
<PAGE>
notification to all the Holders, to the extent not then prohibited by the
law of any jurisdiction in which the Trust is then formed or qualified and
applicable in the circumstances, either defer liquidation of and withhold
from distribution for a reasonable time any assets of the Trust except
those necessary to satisfy the Trust's debts and obligations or distribute
the Trust's assets to the Holders in liquidation.
7.3. Cash Distributions Upon Liquidation. Except as provided
in Section 7.2 hereof, amounts distributed in liquidation of the Trust
shall be paid solely in cash.
7.4. Treatment of Negative Book Capital Account Balance. If a
Holder has a negative balance in its Book Capital Account following the
liquidation of its Interest, as determined after taking into account all
capital account adjustments for the Fiscal Year during which the
liquidation occurs, then such Holder shall restore the amount of such
negative balance to the Trust by the later of the end of the Fiscal Year
or 90 days after the date of such liquidation so as to comply with the
requirements of Treasury Regulations Section 1.704-1(b)(2)(ii)(b)(3).
Such amount shall, upon liquidation, be paid to creditors of the Trust or
distributed to other Holders in accordance with their positive Book
Capital Account balances.
10
<PAGE>
<PAGE>
FIRST AMENDMENT
TO
CUSTODIAN AGREEMENT
This Amendment to the Custodian Agreement entered into as of the
7th day of February, 1994 between Greater China Growth Portfolio
(hereinafter called the "Trust"), a New York trust having its principal
place of business in Hong Kong, and Investors Bank & Trust Company
(hereinafter called the "Bank", "Custodian" and "Agent"), a trust company
established under the laws of the Commonwealth of Massachusetts with a
principal place of business in Boston, Massachusetts.
WHEREAS, the Trust and the Bank have entered into a Custodian
Agreement dated October 27, 1992 (the "Agreement") under which the Trust
has appointed the Bank to act as Custodian of its property and to perform
certain duties as its Agent, as more fully described therein; and
WHEREAS, the Trust and the Bank have agreed to modify certain
terms of the Agreement as herein set forth;
NOW THEREFORE, in consideration of the premises and other good
and valuable consideration, the parties hereby agree that the Agreement is
hereby amended as follows:
1. Unless otherwise defined herein, terms which are defined
in the Agreement and used herein are so used as so defined.
2. Section 3(B)(1) of the Agreement is hereby amended to
read as follows:
"1) Upon sale of such securities or participation
interests for the account of the Trust, BUT ONLY
against receipt of payment therefor; if delivery
is made in Boston or New York City, payment
therefor shall be made in accordance with
generally accepted clearing house procedures or
by use of Federal Reserve Wire System procedures;
if delivery is made elsewhere payment therefor
shall be in accordance with the then current
"street delivery" custom or in accordance with
such procedures agreed to in writing from time to
time by the parties hereto; if the sale is
effected through a Securities System, delivery
and payment therefor shall be made in accordance
with the provisions of Paragraph L hereof; if the
sale of commercial paper is to be effected
through an Approved Book-Entry System for
Commercial Paper, delivery and payment therefor
shall be made in accordance with the provisions
of Paragraph M hereof; if the securities are to
be sold outside the United States, delivery of
the securities for the account of the Trust may
be made either (a) in advance of receipt of
<PAGE>
payment therefor in the absence of specific
instructions to do so provided such actions are
consistent with local settlement practices and
customs, subject to the Custodian's standard of
care, or (b) in accordance with procedures agreed
to in writing from time to time by the parties
hereto; for the purposes of this subparagraph,
the term "sale" shall include the disposition of
a portfolio security (i) upon the exercise of an
option written by the Trust and (ii) upon the
failure by the Trust to make a successful bid
with respect to a portfolio security, the
continued holding of which is contingent upon the
making of such a bid;"
3. Clause (e) of Section 3(H)(1) of the Agreement is hereby
amended to read as follows:
"(e) in the case of securities purchased outside the
United States, the Custodian may make payment therefor
either (i) in advance of receipt of such securities in
the absence of specific instructions to do so provided
such actions are consistent with local settlement
practices and customs, subject to the Custodian's
standard of care, or (ii) in accordance with procedures
agreed to in writing from time to time by the parties
hereto;"
4. Section 3(I) of the Agreement is hereby amended by adding
the following sentence to the end of said Section:
"Notwithstanding any other provision in this Agreement to
the contrary, where securities are purchased or sold
outside the United States, delivery of securities for the
account of the Trust may be made by the Custodian in
advance of receipt of payment for the securities sold,
and the Custodian may pay for securities in advance of
receipt of the securities purchased for the account of
the Trust, in the absence of specific instructions to do
so provided such actions are consistent with local
settlement practices and customs, subject to the
Custodian's standard of care."
5. Section 3(L)(c) of the Agreement is hereby amended to
read as follows:
"(c) The Custodian shall pay for securities
purchased in book-entry form for the account of the Trust
only upon (i) receipt of notice or advice from the
Securities System that such securities have been
- 2 -
<PAGE>
transferred to the Account, and (ii) the making of an
entry on the records of the Custodian to reflect such
payment and transfer for the account of the Trust; except
that when such securities are purchased outside the
United States, payment therefor may be made by the
Custodian in advance of receipt of such notice or advice
and the making of such entry in the absence of specific
instructions to do so provided such actions are
consistent with local settlement practices and customs,
subject to the Custodian's standard of care. The
Custodian shall transfer securities sold for the account
of the Trust only upon (i) receipt of notice or advice
from the Securities System that payment for such
securities has been transferred to the Account, and (ii)
the making of an entry on the records of the Custodian to
reflect such transfer and payment for the account of the
Trust; except that when such securities are sold outside
the United States, transfer thereof may be made by the
Custodian in advance of receipt of such notice or advice
and the making of such entry in the absence of specific
instructions to do so provided such actions are
consistent with local settlement practices and customs,
subject to the Custodian's standard of care. Copies of
all notices or advices from the Securities System of
transfers of securities for the account of the Trust
shall identify the Trust, be maintained for the Trust by
the Custodian and be promptly provided to the Trust at
its request. The Custodian shall promptly send to the
Trust confirmation of each transfer to or from the
account of the Trust in the form of a written advice or
notice of each such transaction, and shall furnish to the
Trust copies of daily transaction sheets reflecting each
day's transactions in the Securities System for the
account of the Trust on the next business day."
6. Except as expressly provided herein, the Agreement shall
remain unchanged and in full force and effect.
- 3 -
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this
Amendment as of the date first written above.
GREATER CHINA GROWTH PORTFOLIO
By /s/James B. Hawkes
----------------------------------
James B. Hawkes
Vice President
INVESTORS BANK & TRUST COMPANY
By /s/Michael Rogers
----------------------------------
Michael Rogers
Senior Vice President
- 4 -
<PAGE>
<PAGE>
AMENDMENT TO
CUSTODIAN AGREEMENT
between
GREATER CHINA GROWTH PORTFOLIO
and
INVESTORS BANK & TRUST COMPANY
This Amendment, dated as of November 13, 1995, is made to the
CUSTODIAN AGREEMENT (the "Agreement") dated October 27, 1992, as amended,
between Greater China Growth Portfolio (the "Trust") and Investors Bank &
Trust Company (the "Custodian") pursuant to Section 10 of the Agreement.
The Trust and the Custodian agree that Section 10 of the
Agreement shall, as of November 13, 1995, be amended to read as follows:
Unless otherwise defined herein, terms which are defined in the
Agreement and used herein are so used as so defined.
10. Effective Period, Termination and Amendment; Successor Custodian
------------------------------------------------------
This Agreement shall become effective as of its execution, shall
continue in full force and effect until terminated by either party after
August 31, 2000 by an instrument in writing delivered or mailed, postage
prepaid to the other party, such termination to take effect not sooner
than sixty (60) days after the date of such delivery or mailing; PROVIDED,
that the Trust may at any time by action of its Board, (i) substitute
another bank or trust company for the Custodian by giving notice as
described above to the Custodian in the event the Custodian assigns this
Agreement to another party without consent of the noninterested Trustees
of the Trust, or (ii) immediately terminate this Agreement in the event of
the appointment of a conservator or receiver for the Custodian by the
Federal Deposit Insurance Corporation or by the Banking Commissioner of
The Commonwealth of Massachusetts or upon the happening of a like event at
the direction of an appropriate regulatory agency or court of competent
jurisdiction. Upon termination of the Agreement, the Trust shall pay to
the Custodian such compensation as may be due as of the date of such
termination (and shall likewise reimburse the Custodian for its costs,
expenses and disbursements).
This Agreement may be amended at any time by the written
agreement of the parties hereto. If a majority of the non-interested
trustees of any of the Trusts determines that the performance of the
Custodian has been unsatisfactory or adverse to the interests of Trust
holders of any Trust or Trusts or that the terms of the Agreement are no
longer consistent with publicly available industry standards, then the
Trust or Trusts shall give written notice to the Custodian of such
determination and the Custodian shall have 60 days to (1) correct such
performance to the satisfaction of the non-interested trustees or (2)
renegotiate terms which are satisfactory to the non-interested trustees of
the Trusts. If the conditions of the preceding sentence are not met then
the Trust or Trusts may terminate this Agreement on sixty (60) days
written notice.
<PAGE>
The Board of the Trust shall, forthwith, upon giving or receiving
notice of termination of this Agreement, appoint as successor custodian, a
bank or trust company having the qualifications required by the Investment
Company Act of 1940 and the Rules thereunder. The Bank, as Custodian,
Agent or otherwise, shall, upon termination of the Agreement, deliver to
such successor custodian, all securities then held hereunder and all funds
or other properties of the Trust deposited with or held by the Bank
hereunder and all books of account and records kept by the Bank pursuant
to this Agreement, and all documents held by the Bank relative thereto.
In the event that no written order designating a successor custodian shall
have been delivered to the Bank on or before the date when such
termination shall become effective, then the Bank shall not deliver the
securities, funds and other properties of the Trust to the Trust but shall
have the right to deliver to a bank or trust company doing business in
Boston, Massachusetts of its own selection meeting the above required
qualifications, all funds, securities and properties of the Trust held by
or deposited with the Bank, and all books of account and records kept by
the Bank pursuant to this Agreement, and all documents held by the Bank
relative thereto. Thereafter such bank or trust company shall be the
successor of the Custodian under this Agreement.
Except as expressly provided herein, the Agreement shall remain
unchanged and in full force and effect.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment
to be executed by their duly authorized officers, as of the day and year
first above written.
GREATER CHINA GROWTH PORTFOLIO
By: /s/James L. O'Connor
--------------------------
James L. O'Connor
Treasurer
INVESTORS BANK & TRUST COMPANY
By: /s/Michael Rogers
---------------------------
Michael Rogers
-2-
<PAGE>
<PAGE>
GREATER CHINA GROWTH PORTFOLIO
ADMINISTRATION AGREEMENT
AGREEMENT made this 27th day of October, 1992 between Greater
China Growth Portfolio, a New York trust (the "Trust"), and Eaton Vance
Management, a Massachusetts business trust (the ``Administrator''):
1. Duties of the Administrator. The Trust hereby employs
the Administrator to act as administrator for and to manage and administer
the affairs of the Trust, subject to the supervision of the Trustees of
the Trust, for the period and on the terms set forth in this Agreement.
The Administrator hereby accepts such employment, and agrees to
manage and administer the Trust's business affairs and, in connection
therewith, to furnish for the use of the Trust office space and all
necessary office facilities, equipment and personnel for administering the
affairs of the Trust.
The Administrator's services include monitoring and providing
reports to the Trustees of the Trust concerning the investment performance
achieved by the Adviser for the Trust, recordkeeping, preparation and
filing of documents required to comply with Federal and state securities
laws, supervising the activities of the custodian of the Trust, providing
assistance in connection with meetings of the Trustees and of Holders of
Interests in the Trust and other management and administrative services
necessary to conduct the business of the Trust.
The Administrator shall not be responsible for providing
investment management or advisory services to the Trust under this
Agreement. Lloyd George Management (Hong Kong) Limited in its capacity of
investment adviser to the Trust, shall be responsible for managing the
investment and reinvestment of the assets of the Trust under the Trust's
separate Investment Advisory Agreement with the investment adviser.
2. Compensation of the Administrator. For the services,
payments and facilities to be furnished hereunder by the Administrator,
the Trust shall pay to the Administrator on the last day of such month a
fee computed by applying the annual asset rate applicable to that portion
of the average daily net assets of the Trust throughout the month in each
Category as indicated below:
Annual
Category Average Daily Net Assets Asset Rate
-------- ------------------------ ----------
1 less than $500 million 0.25000%
2 $500 million but less than $1 billion 0.23333%
3 $1 billion but less than $1.5 billion 0.21667%
4 $1.5 billion but less than $2 billion 0.20000%
5 $2 billion but less than $3 billion 0.18333%
6 $3 billion and over 0.16667%
<PAGE>
2
The average daily net assets of the Trust will be computed in accordance
with the Declaration of Trust, and any applicable votes and determinations
of the Trustees of the Trust. In case of initiation or termination of
this Agreement during any month, the fee for that month shall be reduced
proportionately on the basis of the number of calendar days during which
it is in effect and the fee shall be computed upon the average net assets
for the business days it is so in effect for that month.
The Administrator may, from time to time, waive all or a part of
the above compensation.
3. Allocation of Charges and Expenses. It is understood
that the Trust will pay all its expenses other than those expressly stated
to be payable by the Administrator hereunder, which expenses payable by
the Trust shall include, without implied limitation, (i) expenses of
maintaining the Trust and continuing its existence, (ii) registration of
the Trust under the Investment Company Act of 1940, (iii) commissions,
fees and other expenses connected with the acquisition, holding and
disposition of securities and other investments, (iv) auditing, accounting
and legal expenses, (v) taxes and interest, (vi) governmental fees, (vii)
expenses of issue, sale and redemption of Interests in the Trust, (viii)
expenses of registering and qualifying the Trust and Interests in the
Trust under federal and state securities laws and of preparing and
printing registration statements or other offering documents or memoranda
for such purposes and for distributing the same to Holders and investors,
and fees and expenses of registering and maintaining registrations of the
Trust and of the Trust's placement agent as broker-dealer or agent under
state securities laws, (ix) expenses of reports and notices to Holders and
of meetings of Holders and proxy solicitations therefor, (x) expenses of
reports to governmental officers and commissions, (xi) insurance expenses,
(xii) association membership dues, (xiii) fees, expenses and other
disbursements, if any, of custodians and sub-custodians for all services
to the Trust (including without limitation safekeeping of funds,
securities and other investments, keeping of books, accounts and records,
and determination of net asset values, book capital account balances and
tax capital account balances), (xiv) fees, expenses and disbursements of
transfer agents, dividend disbursing agents, Holder servicing agents and
registrars for all services to the Trust, (xv) expenses of servicing the
accounts of Holders, (xvi) any direct charges to Holders approved by the
Trustees of the Trust, (xvii) compensation and expenses of Trustees of the
Trust who are not members of the Administrator's organization, (xviii) the
advisory fees payable under any advisory agreement to which the Trust is a
party and (xix) such non-recurring items as may arise, including expenses
incurred in connection with litigation, proceedings and claims and the
obligation of the Trust to indemnify its Trustees, officers and Holders
with respect thereto.
4. Other Interests. It is understood that Trustees,
officers and Holders of Interest in the Trust are or may be or become
interested in the Administrator as Trustees, officers, or employees, or
otherwise and that Trustees, officers and employees of the Administrator
are or may be or become similarly interested in the Trust, and that the
<PAGE>
3
Administrator may be or become interested in the Trust as a shareholder or
otherwise. It is also understood that Trustees, officers and employees of
the Administrator may be or become interested (as directors, trustees,
officers, employees, shareholders or otherwise) in other companies or
entities (including, without limitation, other investment companies) which
the Administrator may organize, sponsor or acquire, or with which it may
merge or consolidate, and that the Administrator or its subsidiaries or
affiliates may enter into advisory or management agreements or other
contracts or relationships with such other companies or entities.
5. Limitation of Liability of the Administrator. The
services of the Administrator of the Trust are not to be deemed to be
exclusive, the Administrator being free to render services to others and
engage in other business activities. In the absence of willful
misfeasance, bad faith, gross negligence or reckless disregard of
obligations or duties hereunder on the part of the Administrator, the
Administrator shall not be subject to liability to the Trust or to any
Holder of the Trust for any act or omission in the course of, or connected
with, rendering services hereunder or for any losses which may be
sustained in the acquisition, holding or disposition of any security or
other investment.
6. Duration and Termination of the Agreement. This
Agreement shall become effective upon the date of its execution, and,
unless terminated as herein provided, shall remain in full force and
effect to and including February 28, 1994 and shall continue in full force
and effect indefinitely thereafter, but only so long as such continuance
after February 28, 1994 is specifically approved at least annually by the
Trustees of the Trust.
Either party hereto may, at any time on sixty (60) days' prior
written notice to the other, terminate this Agreement, without the payment
of any penalty, by action of its Trustees, and the Trust may, at any time
upon such written notice to the Administrator, terminate this Agreement by
vote of a majority of the outstanding voting securities of the Trust. This
Agreement shall terminate automatically in the event of its assignment.
7. Amendment of the Agreement. This Agreement may be
amended by a writing signed by both parties hereto, provided that no
amendment to this Agreement shall be effective until approved by the vote
of a majority of the Trustees of the Trust.
8. Limitation of Liability. The Administrator expressly
acknowledges the provision in the Declaration of Trust of the Trust
(Sections 5.2 and 5.6) limiting the personal liability of the Trustees and
officers of the Trust, and the Administrator hereby agrees that it shall
have recourse to the Trust for payment of claims or obligations as between
the Trust and the Administrator arising out of this Agreement and shall
not seek satisfaction from any Trustee or officer of the Trust.
9. Certain Definitions. The term "assignment" when used
herein shall have the meaning specified in the Investment Company Act of
<PAGE>
4
1940 as now in effect or as hereafter amended subject, however, to such
exemptions as may be granted by the Securities and Exchange Commission by
any rule, regulation or order. The terms "Holders" and "Interests" when
used herein shall have the respective meanings specified in the
Declaration of Trust of the Trust.
GREATER CHINA GROWTH PORTFOLIO EATON VANCE MANAGEMENT
By /s/James B. Hawkes By /s/Curtis H. Jones
------------------------ -----------------------
James B. Hawkes Curtis H. Jones
Vice President Vice President,
and not individually
<PAGE>
<PAGE>
Lloyd George Management (Hong Kong) Limited
3808 One Exchange Square
Central, Hong Kong
January 1, 1996
Lloyd George Investment Management (Bermuda) Limited
Cedar House,
41 Cedar Avenue
Hamilton, HM12, Bermuda
Re: Service Agreement
Ladies and Gentlemen:
Lloyd George Management (Hong Kong) Limited ("LGM-HK") is the
investment adviser to Greater China Growth Portfolio (the "Portfolio")
under an Investment Advisory Agreement dated October 27, 1992 between
LGM-HK and the Portfolio (the "Investment Advisory Agreement"). Subject
to the approval of the Board of Trustees of the Portfolio, LGM-HK has
selected Lloyd George Investment Management (Bermuda) Limited ("LGIM-B"),
a company under common control with LGM-HK, to provide portfolio
management services for the Portfolio. You agree that you are willing to
provide such services for the Portfolio and, accordingly, LGM-HK and you
agree as follows:
1. Portfolio Management Duties of LGIM-B. LGM-HK hereby
employs LGIM-B to provide continuing and suitable portfolio management
services to the Portfolio and to manage the investment and reinvestment of
the assets of the Portfolio, subject to the supervision of LGM-HK and the
Trustees of the Portfolio, for the period and on the terms set forth in
this Agreement.
LGIM-B hereby accepts such employment, and undertakes to afford
to the Portfolio the advice and assistance of LGIM-B's organization in the
choice of investments and in the purchase and sale of securities for the
Portfolio and to furnish for the use of the Portfolio office space and all
necessary office facilities, equipment and personnel for servicing the
investments of the Portfolio and to pay the salaries and fees of all
officers and Trustees of the Portfolio who are members of LGIM-B's
organization and all personnel of LGIM-B performing services relating to
research and investment activities. LGIM-B shall for all purposes herein
be deemed to be an independent contractor and shall, except as otherwise
expressly provided or authorized, have no authority to act for or
represent the Portfolio in any way or otherwise be deemed an agent of the
Portfolio.
<PAGE>
Lloyd George Investment Management
(Bermuda) Limited
January 1, 1996
Page 2
LGIM-B shall provide the Portfolio with such portfolio management
services and supervision as LGM-HK may from time to time consider
necessary for the proper supervision of the Portfolio's investments.
LGIM-B shall furnish continuously an investment program and shall
determine from time to time what securities shall be purchased, sold or
exchanged and what portion of the Portfolio's assets shall be held
uninvested, subject always to the applicable restrictions of the
Declaration of Trust, By-Laws and registration statement of the Portfolio
under the Investment Company Act of 1940, all as from time to time
amended. Should the Trustees of the Portfolio at any time, however, make
any specific determination as to investment policy for the Portfolio and
notify LGIM-B thereof in writing, LGIM-B shall be bound by such determi-
nation for the period, if any, specified in such notice or until similarly
notified that such determination has been revoked. LGIM-B shall take, on
behalf of the Portfolio, all actions which it deems necessary or desirable
to implement the investment policies of the Portfolio.
LGIM-B shall place all orders for the purchase or sale of
portfolio securities for the account of the Portfolio with brokers or
dealers or banks or firms or other persons selected by LGIM-B, and to that
end LGIM-B is authorized as the agent of LGM-HK and the Portfolio to give
instructions to the custodian of the Portfolio as to deliveries of
securities and payment of cash for the account of the Portfolio. In
connection with the selection of such brokers or dealers or banks or firms
or other persons and the placing of such orders, LGIM-B shall use its best
efforts to seek to execute security transactions at prices which are
advantageous to the Portfolio and (when a disclosed commission is being
charged) at reasonably competitive commission rates. In selecting brokers
or dealers qualified to execute a particular transaction, brokers or
dealers may be selected who also provide brokerage and research services
(as those terms are defined in Section 28(e) of the Securities Exchange
Act of 1934) to LGIM-B and LGIM-B is expressly authorized to pay any
broker or dealer who provides such brokerage and research services a
commission for executing a security transaction which is in excess of the
amount of commission another broker or dealer would have charged for
effecting that transaction if LGIM-B determines in good faith that such
amount of commission is reasonable in relation to the value of the
brokerage and research services provided by such broker or dealer, viewed
in terms of either that particular transaction or the overall re-
sponsibilities which LGIM-B and its affiliates have with respect to
accounts over which they exercise investment discretion. Subject to the
requirement set forth in the second sentence of this paragraph, LGIM-B is
authorized to consider, as a factor in the selection of any broker or
dealer with whom purchase or sale orders may be placed, the fact that such
broker or dealer has sold or is selling shares of EV Classic Greater China
Growth Fund, EV Marathon Greater China Growth Fund, EV Traditional Greater
<PAGE>
Lloyd George Investment Management
(Bermuda) Limited
January 1, 1996
Page 3
China Growth Fund, or any other investment company or series thereof that
invests substantially all of its assets in the Portfolio.
LGIM-B shall not be responsible for providing certain special
administrative services to the Portfolio under this Agreement. Eaton
Vance Management, in its capacity as Administrator of the Portfolio, shall
be responsible for providing such services to the Portfolio under the
Portfolio's separate Administration Agreement with the Administrator.
2. Compensation. For all services to be rendered and ex-
penses paid or assumed by you as herein provided, LGM-HK will cause the
Portfolio to pay you monthly in arrears on the last business day of each
month the entire amount of the advisory fee that LGM-HK is entitled to
receive from the Portfolio.
3. Allocation of Charges and Expenses. It is understood
that the Portfolio will pay all its expenses other than those expressly
stated to be payable by LGIM-B hereunder, which expenses payable by the
Portfolio shall include, without implied limitation, (i) expenses of
maintaining the Portfolio and continuing its existence, (ii) registration
for the Portfolio under the Investment Company Act of 1940, (iii)
commissions, fees and other expenses connected with the acquisition,
holding and disposition of securities and other investments, (iv)
auditing, accounting and legal expenses, (v) taxes and interest, (vi)
governmental fees, (vii) expenses of issue, sale and redemption of
Interests in the Portfolio, (viii) expenses of registering and qualifying
the Portfolio and Interests in the Portfolio under federal and state
securities laws and of preparing and printing registration statement or
other offering documents or memoranda for such purposes and for
distributing the same to Holders and investors, and fees and expenses of
registering and maintaining registrations of the Portfolio and of the
Portfolio's placement agent as broker-dealer or agent under state
securities laws, (ix) expenses of reports and notices to Holders and of
meetings of Holders and proxy solicitations therefor, (x) expenses of
reports to governmental officers and commissions, (xi) insurance
expenses, (xii) association membership dues, (xiii) fees, expenses and
disbursements of custodians and subcustodians for all services to the
Portfolio (including without limitation safekeeping of funds, securities
and other investments, keeping of books, accounts and records, and
determination of net asset values, book capital account balances and tax
capital account balances), (xiv) fees, expenses and disbursements of
transfer agents, dividend disbursing agents, Holder servicing agents and
registrars for all services to the Portfolio, (xv) expenses for servicing
the accounts of Holders, (xvi) any direct charges to Holders approved by
the Trustees of the Portfolio, (xvii) compensation and expenses of
Trustees of the Portfolio who are not members of LGIM-B's organization,
(xviii) the administration fees payable by the Portfolio under any
<PAGE>
Lloyd George Investment Management
(Bermuda) Limited
January 1, 1996
Page 4
administration or similar agreement to which the Portfolio is a party, and
(xvix) such non-recurring items as may arise, including expenses incurred
in connection with litigation, proceedings and claims and the obligation
of the Portfolio to indemnify its Trustees, officers and Holders with
respect thereto.
4. Other Interests. It is understood that Trustees and
officers of the Portfolio and Holders of Interests in the Portfolio are or
may be or become interested in LGIM-B as directors, officers, employees,
shareholders or otherwise and that directors, officers, employees and
shareholders of LGIM-B are or may be or become similarly interested in the
Portfolio, and that LGIM-B may be or become interested in the Portfolio as
a shareholder or otherwise. It is also understood that directors,
officers, employees and shareholders of LGIM-B may be or become interested
(as directors, trustees, officers, employees, shareholders or otherwise)
in other companies or entities (including, without limitation, other
investment companies) which LGIM-B may organize, sponsor or acquire, or
with which it may merge or consolidate, and that LGIM-B or its
subsidiaries or affiliates may enter into advisory or management
agreements or other contracts or relationships with such other companies
or entities.
5. Limitation of Liability of LGIM-B. The services of
LGIM-B to LGM-HK and the Portfolio are not deemed to be exclusive, LGIM-B
being free to render services to others and engage in other business
activities. In the absence of willful misfeasance, bad faith, gross
negligence or reckless disregard of obligations or duties hereunder on the
part of LGIM-B, LGIM-B shall not be subject to liability to LGM-HK, the
Portfolio or to any Holder for any act or omission in the course of, or
connected with, rendering services hereunder or for any losses which may
be sustained in the acquisition, holding or disposition of any security or
other investment.
6. Duration and Termination of this Agreement. This
Agreement shall become effective on January 1, 1995 and, unless terminated
as herein provided, shall remain in full force and effect through and
including February 29, 1996 and shall continue in full force and effect
indefinitely thereafter, but only so long as such continuance after
February 29, 1996 is specifically approved at least annually (i) by the
Board of Trustees of the Portfolio or by vote of a majority of the
outstanding voting securities of the Portfolio and (ii) by the vote of a
majority of those Trustees of the Portfolio who are not interested persons
of LGM-HK, LGIM-B or the Portfolio cast in person at a meeting called for
the purpose of voting on such approval.
The Portfolio or either party hereto may, at any time on sixty
(60) days' prior written notice to the other, terminate this Agreement
<PAGE>
Lloyd George Investment Management
(Bermuda) Limited
January 1, 1996
Page 5
without the payment of any penalty, by action of the Trustees of the
Portfolio or the directors of LGM-HK or LGIM-B, as the case may be, and
the Portfolio may, at any time upon such written notice to LGM-HK or
LGIM-B, terminate this Agreement by vote of a majority of the outstanding
voting securities of the Portfolio. This Agreement shall terminate
automatically in the event of its assignment or the assignment or
termination of the Investment Advisory Agreement.
7. Amendments of the Agreement. This Agreement may be
amended by a writing signed by both parties hereto, provided that no
amendment to this Agreement shall be effective until approved (i) by the
vote of a majority of those Trustees of the Portfolio who are not
interested persons of LGM-HK, LGIM-B or the Portfolio cast in person at a
meeting called for the purpose of voting on such approval, and (ii) by
vote of a majority of the outstanding voting securities of the Portfolio.
8. Limitation of Liability. LGIM-B expressly acknowledges
the provision in the Declaration of Trust of the Portfolio (Sections 5.2
and 5.6) limiting the personal liability of the Trustees and officers of
the Portfolio, and LGIM-B hereby agrees that it shall not have recourse to
or seek satisfaction from any Trustee or officer of the Portfolio for
payment of claims or obligations as between the Portfolio and LGIM-B.
9. Certain Definitions. The terms "assignment" and "in-
terested persons" when used herein shall have the respective meanings
specified in the Investment Company Act of 1940 as now in effect or as
hereafter amended subject, however, to such exemptions as may be granted
by the Securities and Exchange Commission by any rule, regulation or
order. The term "vote of a majority of the outstanding voting securities"
shall mean the vote, at a meeting of Holders, of the lesser of (a) 67 per
centum or more of the Interests in the Portfolio present or represented by
proxy at the meeting if the Holders of more than 50 per centum of the out-
standing Interests in the Portfolio are present or represented by proxy at
the meeting, or (b) more than 50 per centum of the outstanding Interests
in the Portfolio. The terms "Holders" and "Interests" when used herein
shall have the respective meaning, specified in the Declaration of Trust
of the Portfolio.
10. Responsibility of LGM-HK. Notwithstanding this Agree-
ment, LGM-HK shall remain ultimately responsible for all of its
obligations under the Investment Advisory Agreement.
11. Miscellaneous. The captions in this Agreement are in-
cluded for convenience of reference only and in no way define or limit any
of the provisions hereof or otherwise affect their construction or effect.
This Agreement may be executed simultaneously in two or more counterparts,
<PAGE>
Lloyd George Investment Management
(Bermuda) Limited
January 1, 1996
Page 6
each of which shall be deemed an original, but all of which together shall
constitute one and the same instrument.
Very truly yours,
LLOYD GEORGE MANAGEMENT (HONG
KONG) LIMITED
By:___________________________
The foregoing Agreement is hereby
agreed to as of the date hereof.
LLOYD GEORGE INVESTMENT
MANAGEMENT (BERMUDA) LIMITED
By:___________________________
<PAGE>
<PAGE>
Eaton Vance Management
24 Federal Street, Boston, MA 02110
(617) 482-8260 (800) 225-6265
October 7, 1992
Greater China Growth Portfolio
24 Federal Street
Boston, MA 02110
Ladies and Gentlemen:
With respect to our purchase from you, at the purchase price of
$100,000, of a beneficial interest (an "Initial Interest") in Greater
China Growth Portfolio (the "Portfolio"), we hereby advise you that we are
purchasing such Initial Interest for investment purposes without any
present intention of redeeming or reselling.
The amount paid by the Portfolio on any withdrawal by us of any
portion of such Initial Interest will be reduced by a portion of any
unamortized organization expenses, determined by the proportion of the
amount of such Initial Interest withdrawn to the aggregate Initial
Interests of all holders of similar Initial Interests then outstanding
after taking into account any prior withdrawals of any such Initial
Interest.
Very truly yours,
EATON VANCE MANAGEMENT
By /s/Curtis H. Jones
----------------------
Curtis H. Jones
Vice President
<PAGE>
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