<PAGE>
As filed with the Securities and Exchange Commission on April 17, 1996
Registration Nos. 33-83822
811-8760
- -------------------------------------------------------------------------
- -------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 /X/
Pre-Effective Amendment No. 2 /X/
---------
Post-Effective Amendment No. / /
---------
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 /X/
Amendment No. 2 /X/
---------
(Check appropriate box or boxes)
CVO GREATER CHINA FUND, INC.
(Exact name of Registrant as specified in charter)
237 Park Avenue, Suite 910
New York, NY 10017
(Address of Principal Executive Offices Zip Code)
Registrant's Telephone Number, including Area Code: (800) 618-9510
Wallace Mathai-Davis
Secretary and Treasurer
CVO Greater China Fund, Inc.
520 Madison Avenue
New York, NY 10022
(Name and Address of Agent for Service)
WITH A COPY TO:
Bartley C. Deamer
McCutchen, Doyle, Brown & Enersen
3 Embarcadero Center
San Francisco, California 94111
(415) 393-2168
----------------
Approximate Date of Proposed Public Offering: As soon as practicable after the
effective date of this Registration Statement.
It is proposed that this filing will become effective:
immediately upon filing pursuant to Rule 485(b)
------
on , 1996 pursuant to Rule 485(b)
------ ---------------
60 days after filing pursuant to Rule 485(a)
------
on , 1996 pursuant to Rule 485(a)
------ ---------------
----------------
Pursuant to Rule 24f-2 under the Investment Company Act of 1940, the Registrant
hereby elects to register an indefinite number of shares of Capital Stock, $.001
par value per share, of all series of the Registrant, now existing or hereafter
created. The amount of the registration fee required by Rule 24f-2 is $500.
----------------
The Registrant hereby amends this Registration Statement on such date or dates
as may be necessary to delay its effective date until the Registrant shall file
a further amendment which specifically states that this Registration Statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933, as amended, or until the Registration Statement shall
become effective on such date as the Commission, acting pursuant to said Section
8(a), may determine.
<PAGE>
CVO GREATER CHINA FUND, INC.
Registration Statement on Form N-1A
CROSS REFERENCE SHEET
Pursuant to Rule 495(a)
Under the Securities Act of 1933
N-1A Item No. Location
- ------------- --------
Part A Prospectus Caption
- ------ ------------------
Item 1. Cover Page . . . . . . . . . . . . . . . . Cover Page
Item 2. Synopsis . . . . . . . . . . . . . . . . . Shareholder and Fund
Expenses
Item 3. Condensed Financial
Information. . . . . . . . . . . . . . . . Not Applicable
Item 4. General Description of
Registrant . . . . . . . . . . . . . . . . Prospectus Summary;
The Fund's
Investment
Objectives and
Policies; The Fund's
Investments in the
Greater China
Region; Risks
Associated with the
Fund; Management of
the Fund; Additional
Information
Item 5. Management of the Fund . . . . . . . . . . Management of the
Fund
Item 5A. Management Discussion of Fund
Performance. . . . . . . . . . . . . . . . Not Applicable
Item 6. Capital Stock and Other Securities . . . . Redemption of
Shares; Shareholder
Services; Management
of the Fund;
Additional
Information
Item 7. Purchase of Securities
Being Offered. . . . . . . . . . . . . . . Management of the
Fund; Purchase of
Shares; Calculation
of Net Asset Value
Item 8. Redemption or Repurchase . . . . . . . . . Redemption of
Shares; Shareholder
Services
Item 9. Legal Proceedings. . . . . . . . . . . . . Not Applicable
Statement of
Additional
Part B Information Caption
- ------ -------------------
Item 10. Cover Page . . . . . . . . . . . . . . . . Cover Page
2
<PAGE>
Item 11. Table of Contents. . . . . . . . . . . . . Table of Contents
Item 12. General Information and
History. . . . . . . . . . . . . . . . . . Not Applicable
Item 13. Investment Objectives and
Policies . . . . . . . . . . . . . . . . . Additional
Information on
Portfolio
Instruments; Hedging
and Other Strategic
Transactions
Item 14. Management of the
Registrant . . . . . . . . . . . . . . . . Management of the
Fund
Item 15. Control Persons and Principal Holders
of Securities. . . . . . . . . . . . . . . Management of the
Fund; Additional
Information
Item 16. Investment Advisory and Other Services Management of the
Fund
Item 17. Brokerage Allocation . . . . . . . . . . . Not Applicable
Item 18. Capital Stock and Other Securities . . . . General Information
Item 19. Purchase, Redemption and Pricing of
Securities Being Offered . . . . . . . . . Management of the
Fund; Purchase of
Shares; Redemption
of Shares;
Shareholder Services
Item 20. Tax Status . . . . . . . . . . . . . . . . Additional
Information
Concerning Taxes
Item 21. Underwriters . . . . . . . . . . . . . . . Not Applicable
Item 22. Calculation of Performance Data . . . . . Performance
Calculations
Item 23. Financial Statements . . . . . . . . . . . Statement of Assets
and Liabilities
Part C
- ------
Information required to be included in Part C is set forth under the appropriate
Item, so numbered, in Part C to this Registration Statement.
3
<PAGE>
PART A
A-1
<PAGE>
PART B
B-1
<PAGE>
PART C
B-2
<PAGE>
PART C. OTHER INFORMATION
Item 24. Financial Statements and Exhibits.
(a) Financial Statements:
Financial Statements included in Part A of this Registration
Statement: None
Financial Statements included in Part B of this Registration
Statement:
1. Report of Independent Accountants
2. Statement of Assets and Liabilities as of , 1996
--------
3. Notes to Financial Statements as of , 1996
-------
(b) Exhibits
Exhibit Description
------- -----------
Number
------
1 -- Registrant's Articles of Amendment and Restatement.
2 -- Registrant's By-Laws.
3 -- None.
4(a) -- Form of Stock Certificate for shares of Class I Stock.
4(b) -- Form of Stock Certificate for shares of Class II Stock.
5 -- Form of Advisory Agreement between Registrant and CVO
Greater China Partners, L.P.
6 -- Form of Distribution Agreement between Registrant and
OFFIT Funds Distributor, Inc.
7 -- None.
8 -- Form of Custodian Agreement between Registrant and
Investors Bank & Trust Company.
9(a) -- Form of Administration Agreement between Registrant and
Furman Selz Incorporated.
9(b) -- Form of Transfer Agency Agreement between Registrant
and Furman Selz Incorporated.
C-1
<PAGE>
9(c) -- Form of Shareholder Servicing Agreement between
Registrant and Furman Selz Incorporated.
10 -- Opinion and Consent of Piper and Marbury.*
11(a) -- Consent of Price Waterhouse LLP.*
12 -- None.
13 -- Form of Share Purchase Agreement between Registrant and
OFFIT Funds Distributor, Inc.
14 -- None.
15 -- Form of Rule 12b-1 Plan of Distribution.
16 -- None.
17 -- None.
18 -- None.
- ------------------
* To be filed by amendment.
Item 25. PERSONS CONTROLLED BY OR UNDER
COMMON CONTROL WITH REGISTRANT.
Registrant is controlled by its Board of Directors.
Item 26. NUMBER OF HOLDERS OF SECURITIES.
Title of Class Number of Record
-------------- Holders at , 1996
----------
CVO Greater China Fund,
Inc. - Class I par value
$.001 per share . . . . . 1
CVO Greater China Fund,
Inc. - Class II, par value
$.001 per share . . . . . 1
Item 27. INDEMNIFICATION.
Reference is made to Article VI of Registrant's Articles of Amendment
and Restatement (Exhibit 1 hereto), Article IV of Registrant's By-laws
(Exhibit 2 hereto) and Section 4 of the Form of Distribution Agreement
between Registrant and OFFIT Funds Distributor, Inc. (Exhibit 6 hereto).
C-2
<PAGE>
Insofar as indemnification for liabilities arising under the Securities
Act of 1933, as amended (the "Securities Act"), may be permitted to
directors, officers and controlling persons of the Registrant pursuant to the
foregoing provisions, or otherwise, Registrant understands that in the
opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by Registrant of expenses incurred or
paid by a director, officer or controlling person of Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities
being registered, the Registrant will, unless in the opinion of its counsel
the matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act and will be governed
by the final adjudication of such issue.
Item 28. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER.
The Adviser provides asset management services solely to the Fund. The
general partners of the Adviser provide investment management services to
individuals, institutions and retirement benefits plans.
To the knowledge of Registrant, none of the directors or executive
officers of the general partners of the Adviser except those described below,
are or have been, at any time during the past two years, engaged in any other
business, profession, vocation or employment of a substantial nature.
<TABLE>
<CAPTION>
Position with
OFFITBANK Greater Principal Occupation or Other Employment
Name China, Inc. of a Substantial Nature During the Past Two Years
- ---- ----------- -------------------------------------------------
<S> <C> <C>
Morris W. Offit President and Chairman President and Director, OFFITBANK
of the Board (1983 - present)
Wallace Mathai-Davis Secretary, Treasurer Managing Director, OFFITBANK
and Director (1986 - present)
<CAPTION>
Position with ChinaVest Principal Occupation or Other Employment
Name Public Equities, LLC of a Substantial Nature During the Past Two Years
- ---- --------------------- -------------------------------------------------
<S> <C> <C>
Edward C. Collins Manager Attorney, McCutchen, Doyle, Brown & Enersen
(1988 - January 1995): Managing Director,
ChinaVest, Inc., a California corporation (January
1995 - present)
Jenny H. Theleen Manager Managing Director, ChinaVest Ltd. (1985 - present);
Secretary-Treasurer, ChinaVest, Inc. (January 1995 -
present)
</TABLE>
Item 29. PRINCIPAL UNDERWRITER.
C-3
<PAGE>
(a) In addition to the Registrant, OFFIT Funds Distributor, Inc. (a
wholly-owned subsidiary of Furman Selz Holding Corporation) currently acts as
distributor to CVO Greater China Fund, Inc. OFFIT Funds Distributor, Inc. is
registered with the Securities and Exchange Commission as a broker-dealer and is
a member of the National Association of Securities Dealers, Inc.
(b) The information required by this Item 29(b) with respect to each
director, officer or partner of OFFIT Funds Distributor, Inc. is incorporated by
reference to Schedule A of Form BD filed by OFFIT Funds Distributor, Inc.
pursuant to the Securities and Exchange Act of 1934, as amended
(SEC File No. 801-12425).
(c) Not applicable.
Item 30. LOCATION OF ACCOUNTS AND RECORDS.
All accounts, books and other records relating to the Fund that are
required to be maintained by Section 31(a) of the Investment Company Act of
1940, as amended (the "1940 Act"), and the rules thereunder will be maintained
at the offices of the Fund's administrator, Furman Selz LLC, 230 Park Avenue,
New York, NY 10169.
Item 31. MANAGEMENT SERVICES.
Not applicable.
Item 32. UNDERTAKINGS.
(a) Registrant undertakes to file a post-effective amendment containing
reasonably current financial statements, which need not be certified, within
four to six months from the effective date of this Registration statement under
the Securities Act of 1933, as amended.
(b) Registrant hereby undertakes to call a meeting of shareholders for the
purpose of voting upon the question of removal of one or more of Registrant's
directors when requested in writing to do so by the holders of at least 10% of
Registrant's outstanding shares of common stock and, in connection with such
meeting, to assist in communications with other shareholders in this regard, as
provided under Section 16(c) of the 1940 Act.
C-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
and the Investment Company Act of 1940, as amended, Registrant has duly caused
this Registration Statement to be signed on its behalf by the undersigned
thereunto duly authorized, in the City of New York and State of New York on the
16th day of April, 1996.
CVO GREATER CHINA FUND, INC.
By:
--------------------------------
Morris W. Offit, President
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed below by the following persons in
the capacities indicated on the 16th day of April, 1996.
Signature Title
--------- -----
President, Chief Executive Officer and
- ---------------------------- Director (Principal Executive Officer)
Morris W. Offit
Director
- ----------------------------
Robert A. Theleen
Director
- ----------------------------
Edward J. Landau
Director
- ----------------------------
The Very Reverend James Parks Morton
Director
- ----------------------------
John W. Glynn, Jr.
Secretary and Treasurer (Principal
- ---------------------------- Financial and Accounting Officer)
Wallace Mathai-Davis
C-5
<PAGE>
CVO GREATER CHINA FUND, INC.
INDEX TO EXHIBITS
1 -- Registrant's Articles of Incorporation.
2 -- Registrant's By-Laws.
4(a) -- Form of Stock Certificate for shares of Class I Stock.
4(b) -- Form of Stock Certificate for shares of Class II Stock.
5 -- Form of Advisory Agreement between Registrant and CVO Greater
China Partners, L.P.
6 -- Form of Distribution Agreement between Registrant and OFFIT
Funds Distributor, Inc.
8 -- Form of Custodian Agreement between Registrant and Investors Bank
& Trust Company.
9(a) -- Form of Fund Administration Agreement between Registrant and
Furman Selz Incorporated.
9(b) -- Form of Transfer Agency Agreement between Registrant and
Furman Selz Incorporated.
9(c) -- Form of Shareholder Servicing Agreement between Registrant
and Furman Selz Incorporated.
10 -- Opinion and Consent of Piper and Marbury.*
11(a) -- Consent of Price Waterhouse LLP.*
13 -- Form of Share Purchase Agreement between Registrant and OFFIT
Funds Distributor, Inc.
15 -- Form of Rule 12b-1 Plan of Distribution.
-----------------
* To be filed by amendment.
C-6
<PAGE>
SUBJECT TO COMPLETION, DATED APRIL 17, 1996
CVO GREATER CHINA FUND, INC.
CLASS I AND CLASS II SHARES
THIS PROSPECTUS DESCRIBES THE CLASS I AND CLASS II SHARES OF CVO GREATER
CHINA FUND, INC. (THE "FUND"), A MUTUAL FUND SEEKING CAPITAL APPRECIATION
THROUGH INVESTMENT IN PUBLICLY-TRADED EQUITY SECURITIES OF COMPANIES WHICH,
IN THE OPINION OF THE INVESTMENT ADVISER, WILL BENEFIT FROM THE ECONOMIC
DEVELOPMENT AND GROWTH OF THE PEOPLE'S REPUBLIC OF CHINA, HONG KONG, TAIWAN
AND SINGAPORE (THE "GREATER CHINA REGION"). The Fund is a non-diversified,
no-load, open-end, management investment company. Under normal market
conditions and subject to temporary defensive investments, at least 65% of
the Fund's total assets will be invested in equity securities (i) traded in
securities markets located in the Greater China Region, or (ii) issued by
companies whose business significantly relates to the Greater China Region
(as measured by assets, revenues or profit). Initially, it is anticipated
that a majority of the Fund's portfolio will be listed in Hong Kong and
Singapore. The Fund's investments are considered speculative and subject to
certain risks. (See "The Fund's Investment Objectives and Policies" and
"Risks Associated with the Fund" for further details.) There can be no
assurance that the Fund's investment objectives will be achieved.
CVO Greater China Partners, L.P., a Delaware limited partnership, serves as the
Fund's investment adviser (the "Adviser"). The general partners of the Adviser
are OFFITBANK Greater China, Inc. ("OGC") and ChinaVest Public Equities, LLC.
OGC is a New York corporation organized by OFFITBANK, a New York State chartered
trust company which currently manages in excess of $6 billion in assets.
INVESTORS ARE ADVISED THAT SHARES OF THE FUND ARE NOT DEPOSITS OR OBLIGATIONS
OF, OR GUARANTEED OR ENDORSED BY, ANY BANK, AND ARE NOT FEDERALLY INSURED BY THE
FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER
GOVERNMENT AGENCY. ChinaVest Public Equities, LLC is a California limited
liability corporation organized by the ChinaVest investment management group of
Hong Kong which specializes in the management of investments in the People's
Republic of China and other areas of the Greater China Region and currently
manages in excess of $225 million in assets. The address of the Fund is 237
Park Avenue, Suite 910, New York, New York, 10017. See "Management of the Fund"
for further details.
This Prospectus is designed to provide you with information you should know
before investing in the Fund. Please read and retain this document for future
reference. A Statement of Additional Information dated ______________, 1996, as
supplemented from time to time, for the Fund has been filed with the Securities
and Exchange Commission and is incorporated entirely by reference into this
Prospectus. The Statement of Additional Information is available without charge
by calling 1-800-618-9510.
- --------------------------------------------------------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE
COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
- --------------------------------------------------------------------------------
PROSPECTUS DATED ____________, 1996
1
<PAGE>
Table of Contents Page
- ----------------- ----
Shareholder and Fund Expenses 3
The Fund's Investment Objectives
and Policies 4
The Fund's Investments in the Greater
China Region 8
Risks Associated with the Fund 15
Special Investment Techniques 24
Management of the Fund 30
Dividends and Distributions 33
Purchase of Shares 33
Redemption of Shares 35
Shareholder Services 37
Calculation of Net Asset Values 37
Tax Information 38
Backup Withholding 41
Performance Information 42
Additional Information 43
Reports to Shareholders 43
Account Application Form 44
PROSPECTUS SUMMARY
THE FUND. CVO Greater China Fund, Inc. (the "Fund") is a Maryland corporation
organized as a non-diversified, no-load, open-end, management investment
company. The Fund offers two classes of shares: Class I Shares, which are
offered to institutional investors, and Class II Shares, which are offered to
non-institutional investors. Class I and Class II Shares are collectively
referred to as "Shares" in this Prospectus. The Shares represent interests in
the same investment portfolio and differ only in the allocation of certain
expenses. Class II Shares are expected to bear higher expenses than Class I
Shares that will, when applicable, result in lower dividends for Class II
Shares. See "Shareholder and Fund Expenses" and "Additional Information."
INVESTMENT OBJECTIVE. The Fund's investment objective is to achieve capital
appreciation from investment in publicly-traded equity securities of
companies which, in the opinion of the Adviser, will benefit from the
economic development and growth of the People's Republic of China, Hong Kong,
Taiwan and Singapore (collectively, the "Greater China Region"). More
specifically, under normal market conditions and subject to temporary
defensive investments, at least 65% of the Fund's assets will be invested in
equity securities (i) traded in securities markets located in the Greater
China Region, or (ii) issued by companies whose business significantly
relates to the Greater China Region (as measured by assets, revenues or
profit). See "The Fund's Investment Objectives and Policies."
RISK FACTORS. The Fund's investments are considered speculative and are subject
to certain risks, including investment risks associated with making investments
in countries operating in the Greater China Region. The Fund may engage in
currency hedging transactions which are subject to risks that are different from
risks related to other portfolio transactions. See "Risks Associated with the
Fund."
THE INVESTMENT ADVISER. CVO Greater China Partners, L.P. (the "Adviser") serves
as the Fund's investment adviser pursuant to an Investment Advisory Agreement
which generally provides for the Adviser to supervise all aspects of the Fund's
operations. The Adviser receives a fee based on the Fund's average daily net
assets. See "Management of the Fund."
PURCHASING SHARES. Shares of the Fund are offered at net asset value. See
"Purchase of Shares." The minimum initial investment for Class I Shares is
$1,000,000 and for Class II Shares, $250,000. The Fund may reduce or waive the
minimum initial investment amount in its sole discretion. Additional
investments must be in an amount of at least $10,000. The distributor of the
Shares is OFFIT Funds Distributor, Inc., a wholly-owned subsidiary of Furman
Selz LLC.
2
<PAGE>
REDEEMING SHARES. Shareholders may redeem all or a portion of their Shares at
net asset value at any time and without charge, except that an early redemption
charge will be levied on investors who hold shares for less than 9 months. The
early redemption charge will be 2% of the net asset value, at the redemption
date, of shares redeemed within 9 months of their acquisition. See "Redemption
of Shares."
DIVIDENDS AND DISTRIBUTIONS. The Fund intends to declare and pay dividends from
net investment income, if any, on an annual basis. In addition, the Fund may
make distributions of realized capital gains, if any, on an annual basis.
Dividends and distributions of the Fund may be paid directly to investors by
check, or reinvested in additional Shares of the Fund. See "Dividends and
Distributions."
SHAREHOLDER AND FUND EXPENSES
______________________________________________________________________________
<TABLE>
<CAPTION>
SHAREHOLDER TRANSACTION EXPENSES (1) CLASS I CLASS II
------- --------
<S> <C> <C>
Maximum Sales Charge Imposed on Purchases None None
Sales Charges Imposed on Reinvested Dividends None None
Redemption Fees (2) None None
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets, after fee waivers)
Advisory Fees 1.25% 1.25%
Rule 12b-1 Fees (3) 0 0
Other Expenses (estimated, after waivers) (4) 0.75% 1.00%
Total Operating Expenses (after waivers) (4) 2.00% 2.25%
<CAPTION>
EXAMPLE 1 YEAR 3 YEARS
- ------- ------ -------
<S> <C> <C>
You would pay the following expenses on a $1,000
investment, assuming (a) 5% annual return and
(b) redemption at the end of each time period: (1)
Class I Shares $20 $63
Class II Shares $23 $70
</TABLE>
- ---------------
(1) The purpose of the table and example is to assist investors in
understanding the various costs and expenses that investors in the Fund
will bear directly or indirectly. See "Management of the Fund," "Purchase
of Shares" and "Redemptions of Shares." The advisory fee is higher than
that paid by most other investment companies, but is consistent with
advisory fees paid by most funds investing in the Greater China Region.
THE FOREGOING SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES OR RATE OF RETURN, AND ACTUAL EXPENSES MAY BE GREATER OR LESSER
THAN THOSE SHOWN AND THE ANNUAL RATE OF RETURN MAY BE MORE OR LESS THAN 5%.
(2) An early redemption fee of 2% will be charged if shares are redeemed within
9 months of purchase.
(3) The Fund is authorized to spend up to 0.25% of its net assets annually in
accordance with its Plan of Distribution to compensate its distributor for
activities primarily intended to result in the sale of Class II Shares, but
will not do so for a period of at least one year following the commencement
of operations of
3
<PAGE>
the Fund and thereafter, until further action is taken by the Board of
Directors. See "Management of the Fund -- Distributor."
(4) As of the date of this Prospectus, the Fund had not commenced investment
operations. The amounts set forth for "Other Expenses" are therefore
based on estimates for the current fiscal year, after giving effect to
voluntary waivers of administration fees, which will be in effect for a
period of at least one year from the date of this Prospectus. Without
the waiver of administrative fees, "Other Expenses" would be 0.825% for
Class I Shares, and 1.075% for Class II Shares and "Total Operating
Expenses" would be 2.325% for Class I Shares and 2.575% for Class II
Shares (which does not include the Rule 12b-1 fee applicable to Class II
Shares which will not be in effect for at least one year from the date
of this Prospectus). "Other Expenses" will include (i) a 0.25%
shareholder servicing fee based on the Fund's assets attributable to
Class II Shares (which will be paid by Class II Shares only), (ii) a
0.075% administrative fee based on the average daily net assets of the
Fund (which includes a partial waiver of such fee), and (iii) audit,
accounting, custody, legal, registration, transfer agency and
miscellaneous other charges. See "Management of the Fund" for further
details.
The foregoing table has not been audited by the Fund's independent
accountants. Long-term shareholders may pay more than the economic equivalent
of the maximum front-end sales charge permitted by rules of the National
Association of Securities Dealers, Inc.
THE FUND'S INVESTMENT OBJECTIVES AND POLICIES
______________________________________________________________________________
CVO GREATER CHINA FUND, INC. (THE "FUND") IS A NON-DIVERSIFIED, NO-LOAD,
OPEN-END, MANAGEMENT INVESTMENT COMPANY. THE FUND'S INVESTMENT OBJECTIVE IS
TO ACHIEVE CAPITAL APPRECIATION FROM INVESTMENT IN PUBLICLY-TRADED EQUITY
SECURITIES OF COMPANIES WHICH, IN THE OPINION OF THE ADVISER, WILL BENEFIT
FROM THE ECONOMIC DEVELOPMENT AND GROWTH OF THE PEOPLE'S REPUBLIC OF CHINA,
HONG KONG, TAIWAN AND SINGAPORE (COLLECTIVELY, THE "GREATER CHINA REGION").
More specifically, under normal market conditions and subject to temporary
defensive investments (as defined below), at least 65% of the Fund's assets
will be invested in equity securities (i) traded in securities markets
located in the Greater China Region, or (ii) issued by companies whose
business significantly relates to the Greater China Region (as measured by
assets, revenues or profit). The securities issued by such companies may be
listed on stock markets in countries outside the Greater China Region. The
investment objective of the Fund is fundamental and may not be changed
without the affirmative vote of a majority of the Shares of the Fund. See
"Management of the Fund" for further information. In addition, investments in
issuers doing business in the Greater China Region involve possible risks not
typically associated with issuers in the United States. See "Risks
Associated with the Fund" for further information. There is no assurance
that the investment objective of the Fund will be achieved.
The Fund seeks to achieve its investment objective through investing in a
selected and managed portfolio consisting primarily of publicly-traded equity
securities of companies that operate in the Greater China Region. The decisions
of the Adviser as to which specific publicly-traded securities will be acquired
by the Fund will be based on a general strategy of selecting those issuers which
it believes will show a high rate of capital appreciation in future years. See
"Risks Associated with the Fund."
The Fund will, under normal market conditions and subject to temporary
defensive investments (as defined below), invest at least 65% of its total
assets in publicly-traded equity securities issued by companies (a) whose
securities are principally traded in a Greater China Region country, or (b)
having at least 30% of their assets in one or more Greater China Region
countries or (c) that have derived at least 30% of their gross revenues or
profits from providing goods or services to or from within one or more
Greater China Region countries. Such securities are referred to in this
Prospectus as "Greater China Investments." Greater China Investments are
typically, but not necessarily, listed on stock exchanges or traded in the
over-the-counter market in countries in the Greater China Region. The
principal offices of the issuers of
4
<PAGE>
Greater China Investments may be located outside the Greater China Region. The
Fund may invest up to 90% of its total assets in the securities of issuers whose
equity securities are either (i) traded in securities markets located in a
single country in the Greater China Region, or (ii) issued by companies whose
business principally relates to, a single country in the Greater China Region.
During the first six months of the Fund's operations, the Fund may not achieve
its investment objective. The Fund expects during the first 18 months of its
operations to invest more than 50% of its total assets in issuers whose equity
securities are listed in Hong Kong and Singapore, but has not identified any
other market in which it currently intends to invest to this extent. After the
Fund's initial investments in the Greater China Region are established, the Fund
will not invest more than 10% of its total assets in any country outside the
Greater China Region, except for temporary defensive investment purposes and
investments in obligations issued or guaranteed by the U.S. Government or any of
its agencies or instrumentalities. The Fund expects to achieve its 65%
investment objective within six months after the Fund commences operations.
Equity securities, for purposes of the 65% policy, will be limited to
common and preferred stocks; direct equity interests in trusts, partnerships,
joint ventures and other unincorporated entities or enterprises; special classes
of shares available only to foreign persons in such markets as restrict the
ownership of certain classes of equity to nationals or residents of the country;
convertible preferred stocks; depository receipts for any of the foregoing;
listed country funds, i.e., investment funds investing in publicly-traded stock,
where the investment fund is either open-ended or itself trades in public
markets; stock options and warrants to purchase stock; stock index futures; and
convertible debt instruments.
Equity securities will be considered "publicly-traded" for purposes of the
65% policy if the exchanges or over-the-counter markets on which the Fund may
purchase securities in the Greater China Region provide sufficiently liquid
markets so that the securities acquired by the Fund on such markets need not be
considered illiquid securities. Such exchanges currently include: People's
Republic of China - The Shanghai Securities Exchange and The Shenzhen Stock
Exchange; Hong Kong - The Stock Exchange of Hong Kong Limited; Taiwan - The
Taiwan Stock Exchange Corp.; and Singapore - The Singapore Stock Exchange, Stock
Exchange of Singapore Dealing and Automated Quotations Board ("SESDAQ") and
Central Limit Order Board International ("CLOB"). As of the date of this
Prospectus, the People's Republic of China is planning to establish a new stock
exchange in Beijing.
In addition to its investments in equity securities, the Portfolio may
invest up to 35% of its net assets in other types of transactions described
below under "Special Investment Techniques." These types of transactions will
be used for hedging and other secondary and supplemental investment objectives,
including income generation and speculative gain. See "Special Investment
Techniques."
In general, the Fund's board of directors have established as a
nonfundamental policy that the Fund may not 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, as a result of such purchase
(a) more than 25% of the total assets of the Fund (taken at current value) would
be invested in the securities of such issuer, or (b) the Fund would hold more
than 10% of the outstanding voting securities of such issuer. It is a
fundamental policy that the Fund may not purchase any security if, as a result
of such purchase, 25% or more of the total assets of the Fund (taken at current
value) would be invested in the securities of issuers having their principal
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.
It is a fundamental policy of the Fund that it will not invest more than 5%
of its total assets in any listed country fund, nor more than 10% of its total
assets in all listed country funds taken together; and that the Fund's
investment in any listed country fund will not exceed 3% of that fund's total
assets. Listed country funds are intended to be used primarily for Taiwan-
related investments, until Taiwanese foreign investment restrictions
5
<PAGE>
are liberalized. The Fund's investments in listed country funds will be subject
to advisory and other fees set by its sponsor, in addition to the advisory and
other fees payable by the Fund.
It is a fundamental policy of the Fund that it will not invest more than 5%
of its total assets in convertible debt securities which are less than
investment grade. A security is investment grade if it is rated BBB or above by
Standard & Poor's Corporation or Baa or above by Moody's Investors Service, Inc.
or determined to be of comparable quality in the sole discretion of the Adviser.
Securities rated BBB or Baa may have speculative characteristics. The Fund will
dispose of any security or instrument that, subsequent to its acquisition by the
Fund, is rated (or determined by the Adviser to be of comparable quality to)
below investment grade in an orderly manner, if the Fund's total holdings in
below investment grade debt would otherwise exceed 5% of its total assets. The
Fund's primary purpose in investing in convertible debt, whether or not
investment grade, will be to participate in the value of the equity security
underlying the conversion right.
Other fundamental and nonfundamental investment limitation policies of the
Fund are described in "Investment Limitations" in the Statement of Additional
Information.
DEPOSITORY RECEIPTS
In achieving the 65% investment policy, the Fund may hold equity securities
of foreign issuers in the form of sponsored or unsponsored American Depository
Receipts ("ADRs"), American Depository Shares ("ADSs") and Global Depository
Receipts ("GDRs"), or other securities convertible into securities of eligible
issuers. ADRs and ADSs typically are issued by an American bank or trust
company which evidences ownership of underlying securities issued by a foreign
corporation. Unsponsored depository receipts may not present material
information to potential investors because such information is unavailable.
GDRs are receipts issued by foreign banks and trust companies that evidence
ownership of either foreign or U.S. securities. Generally, ADRs and ADSs in
registered form are designed for use in U.S. securities markets and GDRs in
bearer form are designed for use in securities markets outside the U.S.
Depository receipts may not necessarily be denominated in the same currency
as the underlying securities into which they may be converted. The value of an
ADR, ADS and GDR will fluctuate with the value of the underlying security and
changes in exchange rates, and involve risks associated with investing in
foreign securities. There may be less information available about foreign
issuers of an unsponsored ADR, ADS or GDR.
For purposes of the Fund's investment policies, the Fund's investments in
ADRs, ADSs, and GDRs will be deemed to be investments in the underlying equity
securities representing securities of foreign issuers into which they may be
converted.
CONVERTIBLE DEBT INSTRUMENTS
The 65% investment policy also includes debt instruments convertible into
equity securities. Although the Fund will purchase such convertible debt
securities primarily on account of the underlying equity securities, the value
of the Fund's holding could also be significantly affected by changes in market
interest rates and the issuer's credit standing. A significant portion of any
convertible debt holdings are expected to consist of instruments originally
issued in the Euroconvertible market. Euroconvertibles may be denominated in
U.S. dollars, but may also be denominated in European or other currencies. If a
Euroconvertible is denominated in a non-U.S. currency, the value of the Fund's
holding, expressed in U.S. dollars, could also be significantly affected by
changes in currency conversion rates.
6
<PAGE>
ILLIQUID INVESTMENTS
The Fund will not invest more than 15% of the value of its net assets in
illiquid investments. Illiquid investments are assets which may not be sold or
disposed of by the Fund in the ordinary course of business within seven days at
approximately the value that the Fund has valued the investment. See "Risks
Associated with the Fund -- Special Risks of Certain Fund Investments."
Securities that can be sold within seven days of their acquisition are generally
not deemed illiquid for purposes of this limitation, irrespective of any legal
or contractual restrictions on resale. See "Risks Associated with the Fund --
Special Risks of Certain Fund Investments -- Illiquid and Restricted
Securities."
REPURCHASE AGREEMENTS
Under a repurchase agreement, the Fund buys a security from a bank or
broker-dealer at one price and simultaneously promises to sell that same
security back to the seller at a higher price. The repurchase date is usually
within seven days of the original purchase date. The Fund may enter into
repurchase agreements with respect to its permitted investments with
counterparties that it deems creditworthy. The seller under a repurchase
agreement will be required to maintain the value of the securities subject to
the agreement at not less than the repurchase price. Default by the seller
would expose the Fund to possible loss because of adverse market action or delay
in connection with the disposition of the underlying obligations. For purposes
of the 15% limitation that applies to illiquid investments, repurchase
agreements which mature in more than seven days will be considered illiquid
securities. Repurchase agreements are deemed to be loans under the Investment
Company Act of 1940, as amended (the "1940 Act").
TEMPORARY DEFENSIVE INVESTMENTS
The Fund's policy is that it may, for temporary defensive purposes and
during the initial structuring of the Fund's portfolio, invest up to 100% of its
total assets in debt securities of foreign companies (including companies that
are not operating in the Greater China Region), United States companies, foreign
governments and the U.S. Government (and their respective agencies,
instrumentalities, political subdivisions and authorities), as well as in money
market instruments denominated in U.S. dollars or a foreign currency. These
money market instruments include, but are not limited to, negotiable or short-
term deposits with domestic or foreign banks with net worth of at least $50
million; high quality commercial paper; and repurchase agreements maturing
within seven days with domestic or foreign dealers, banks and other financial
institutions deemed to be creditworthy under guidelines approved by the Board of
Directors of the Fund. The commercial paper in which the Fund may invest will,
at the time of purchase, be rated P-1 or better by Moody's or A-1 or better by
S&P or, if unrated, will be of comparable high quality as determined by the
Adviser.
OTHER INVESTMENTS
For descriptions about other types of investments that the Fund may invest
in and the risks related to those investments, see "Special Investment
Techniques," "Risks Associated with the Fund -- Special Risks of Certain Fund
Investments" and "Additional Information on Portfolio Instruments" in the
Statement of Additional Information.
PORTFOLIO TURNOVER
It is the policy of the Fund to seek capital appreciation. The Fund will
effect portfolio transactions without regard to its holding period if, in the
judgment of the Adviser, such transactions are advisable. It is anticipated
that the turnover rate will be under 300% during the first fiscal year which
will reflect initial structuring of the Fund's portfolio and that, thereafter,
the annual rate for Greater China Investments and other investments is generally
expected to be under 100%, consistent with the turnover rates of similar funds.
In the
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<PAGE>
event that the turnover rate exceeds 100%, there is an increased
likelihood of short term capital gains and losses and increased transaction
costs for the Fund.
THE FUND'S INVESTMENTS IN THE GREATER CHINA REGION
_____________________________________________________________________________
THE FOLLOWING IS A GENERAL DISCUSSION OF THE ECONOMICS AND SECURITIES
MARKETS IN WHICH THE FUND WILL PRINCIPALLY INVEST. There can be no assurance
that the Fund will be able to capitalize on the factors described herein.
Securities markets in the Greater China Region are smaller and offer fewer
investment alternatives than the equity securities markets in Europe and the
United States. Opinions expressed herein are the good faith opinions of the
Adviser. Unless otherwise indicated, all amounts are expressed in United States
dollars.
PEOPLE'S REPUBLIC OF CHINA
_____________________________________________________________________________
For many centuries, China's economy was largely closed, by geography as
well as by government policy, to the outside world. (As used in this section,
"China" refers to the People's Republic of China.) Large-scale foreign
involvement in China's economy began during the middle of the 19th century and
was curtailed after 1949 when the Communist government barred foreign
investment. China's trade with foreign nations began to develop rapidly again
after 1978 when Deng Xiaoping launched the process of economic reform and
modernization. By 1995, total foreign capital committed to investments in China
reached US$91 billion and China's total trade approached $281 billion, making
China one of the world's largest trading economies.
Economic reform in China, designed to replace Communist-style central
planning with the market mechanism, has proceeded largely by trial and error
aimed at achieving the fastest possible change with the minimum social
dislocation. Two forces drive these policy initiatives. The first is the need
to create jobs for a workforce that is expanding by 30-50 million a year,
according to some estimates. The second is the need to restructure money-losing
state industries and to pump capital into those enterprises that have the
potential to be internationally competitive.
The reform process has not always been even. The general direction,
however, has tended to be towards greater openness and increased
decentralization of economic decision-making. As a result, according to some
estimates, as much as two-thirds of the economy is now outside direct state
ownership and control, which compares favorably with a number of western
European economies.
China's broad economic policy is currently set out, more in terms of
ambition than of prescription, in two overlapping plans, the 20-Year Plan (1981-
2000) and the current Five-Year Economic Plan (1996-2000). The 20-Year Plan
calls for an average 7% growth in GNP over the entire 20-year period. In the
1980's, China's growth rates averaged 9.4%. The previous Five-Year Economic
Plan envisaged 6% annual growth starting in 1991; this, however, was surpassed
with 10.5% growth being achieved between 1991 and 1995. China's GDP grew by
13.2% in 1992, 13.4% in 1993, 11.8% in 1994 and 10.2% in 1995. By contrast, in
Hong Kong and Taiwan real GDP grew by 4.6% and 6.3%, respectively, in 1995.) To
put this into perspective, in 1993 the World Bank projected that given these
growth rates for China, on a purchasing power parity basis China would overtake
the United States as the world's largest economy early in the next century.
China's program of economic reforms has evolved under the leadership of
Deng Xiaoping and his political allies. While there is a broad base of support
for these reforms within the country's political elite, China lacks a tested
institutionalized framework for political succession and, thus, the possibility
exists that the
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political transition upon Deng's death could bring significant changes in
economic, trade and investment policies.
FOREIGN INVESTMENT IN CHINA
To attract foreign investment, China set up four Special Economic Zones in
1978 (Shenzhen, Shantou and Zhuhai in Guangdong Province, and Xiamen in Fujian
Province). Hainan Island, which itself is a province, became the fifth Special
Economic Zone in 1988. Each zone was created to provide special investment
incentives and tax concessions to foreign investors. Other areas of China near
coastal cities and border zones have been designated as eligible for investment
incentives. These policies reflect a consensus in China's government that China
should continue to open its economy to the world economy.
The contracted value of foreign investment in China was approximately US$91
billion in 1995, an increase of 10% from 1994. Hong Kong, which invested $68
billion by the end of June 1995, accounted for around 60% of this total.
Exports from China continue to rise strongly, although, like other developing
countries, China's economy remains vulnerable to global economic conditions as
well as the potential for trade friction over market access, protection of
intellectual property and human rights. Imports into China are also expected to
rise. See "Risks Associated with the Fund -- Foreign Investment Restrictions."
SECURITIES MARKETS
Two stock exchanges are officially recognized in China - The Shanghai
Securities Exchange which opened in December 1990 and The Shenzhen Stock
Exchange which opened in July 1991. Two types of shares are traded on both
exchanges: 'A' shares which can be traded only by resident Chinese and 'B'
shares which can be traded only by individuals and corporations not resident in
China. As of the date of this Prospectus, a new Beijing stock exchange was
being planned by the Chinese government, although there is no assurance that
such an exchange will ever be established.
On the Shanghai exchange, 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).
On the Shenzhen exchange, 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 and are payable in Hong Kong dollars, the rate
of exchange being the average rate published by the Shenzhen Foreign Exchange
Adjustment Centre.
Although the Chinese authorities have stated that full convertibility of
the RMB will occur by the year 2000, RMB are not freely convertible now. The
exchange rate of RMB against foreign currencies is regulated and published daily
by the State Administration of Exchange Control ("SAEC"). Over the last decade,
the RMB has been steadily revalued downward relative to the U.S. dollar, with
major adjustments made in the past few years including a devaluation of more
than 30% to RMB8.7 to US$1.0 in January 1994. In 1986, to address the foreign
exchange problems of foreign investors, China began establishing Foreign
Exchange Adjustment Centres, also referred to as "swap centers." These swap
centers provide an official forum where foreign investment enterprises may
engage in mutual adjustment of their foreign exchange surpluses and shortfalls
under the supervision and control of SAEC. Trading of RMB and foreign
currencies at the swap centers is conducted at a rate determined by supply and
demand rather than at an official exchange rate. Such market exchange rates can
be highly volatile and are subject to sharp fluctuations depending on market
conditions.
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<PAGE>
No exchange control approval is required for the Fund to acquire "B" shares
listed on stock exchanges. Dividends and capital gains from the sale of
securities purchased by the Fund in listed companies in China's securities
markets may be remitted outside China, subject to payment of any relevant taxes.
See "Tax Information" for more details.
Laws 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, although a provisional code of regulations was promulgated by
the national government in April 1993. The Shenzhen municipality issued
regulations in April 1993 relating to joint stock companies, and since then the
Shanghai municipality has also issued similar regulations. Regulations
governing the trading of securities on both the Shenzhen and the Shanghai stock
exchanges have been issued by each municipality. The China Securities
Regulatory Commission, a national agency, also participates in the regulatory
development process. Future national legislation, including a proposed
permanent securities law to replace the provisional code of regulations, may
materially affect trade policy and the operation of China's securities markets.
As of February 29, 1996, there were 188 companies listed on The Shanghai
Securities Exchange, of which 36 were "B" Shares. The total market
capitalization of the "B" Shares at that date (which includes equities and
bonds) was approximately US$1,474 million.
As of February 29, 1996, there were 130 companies listed on The Shenzhen
Stock Exchange, of which 34 were "B" Shares. The total market capitalization of
the "B" Shares at that date was approximately US$869 million.
Certain market and market capitalization risks related to investments in
the stock exchanges in China are described in "Risks Associated with the Fund."
See Appendix A for more information about economic performance results and the
historical performance of stock markets in China.
HONG KONG
______________________________________________________________________________
Hong Kong's economy has been linked to China's since the establishment of
the colony in 1841. Hong Kong is China's largest trade partner. In the first
eight months of 1995, visible trade between Hong Kong and China amounted to
HK$640 billion, an 18% increase from 1994.
The structure of Hong Kong's economy has changed significantly over the
last two decades as the service sector outpaced manufacturing. During the 1980s
this process gained momentum. With land and labor costs rising, Hong Kong
manufacturers began shifting production out of the Territory into southern China
such that by the early 1990s, according to some estimates, more than 90% of
manufacturing companies had China operations. As a result, roughly half of the
jobs in the Hong Kong manufacturing sector were lost, with the slack being taken
up by the burgeoning service sector. Estimates now put the number employed in
China by Hong Kong manufacturers at more than 3 million. A second consequence
of this transition was the growth in scale and sophistication of Hong Kong
manufacturers as compared to the 1970s or early 1980s.
CHINA'S INVESTMENTS IN HONG KONG
There has been considerable growth in investment from China into Hong Kong
during the last five years. 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, but investment in property, manufacturing
and infrastructure projects has also increased. 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 issuances in Hong Kong by Chinese companies.
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CHINA'S RESUMPTION OF SOVEREIGNTY
The United Kingdom and China signed the Joint Declaration in 1984 which
provides that sovereignty over Hong Kong will be transferred from the United
Kingdom to China on June 30, 1997, at which time Hong Kong will become a Special
Administrative Region ("SAR") of China. Under the Joint Declaration and the
China law implementing certain commitments (the "Basic Law"), the current social
and economic systems in Hong Kong are to remain unchanged for at least 50 years,
and Hong Kong is to enjoy a high degree of autonomy except in foreign and
defense affairs. The SAR will be vested with executive, legislative and
judicial power. Laws currently in force, as amended by the SAR Legislature, are
to remain in force except to the extent they contravene the Basic Law or China
constitutional law. China may not levy taxes on the SAR, the Hong Kong dollar
is to remain fully convertible, and Hong Kong is to remain a free port. Under
the Basic Law, Hong Kong's current social freedoms, including freedoms of
speech, press, assembly, travel and religion, are not to be affected. It cannot
be predicted how future developments in Hong Kong and China may affect the
implementation of the Basic Law after the transfer of sovereignty in 1997.
Relations between the United Kingdom and China over Hong Kong have been
uneven over the past five years and this pattern is likely to continue through
1997. Fundamental differences exist in the perception of priorities. Where the
British have been inclined to see a need for political change, the Chinese
emphasize continuity and stability. Relations deteriorated after October 1992
when the Hong Kong Governor proposed wide-ranging electoral changes for Hong
Kong's Legislature. The Chinese understood these proposals to be a violation of
previous British agreements. Cooperation slowed on economic issues relating to
the transition in government on June 30, 1997, to which Chinese consent is
deemed essential, including approval of the financing package for the
Territory's proposed new airport. Although the Governor's proposals were
eventually enacted in mid-1994, the Chinese moved to improve cooperation in
order to reach key decisions on major infrastructure projects. The Legislative
Council ("Legco") election in September 1995 was won by the Democratic Party and
its allies, which have been campaigning for a more democratic Hong Kong. This
victory was not regarded favorably by the Chinese leadership and in response,
the Chinese leadership reiterated their determination to abolish the elected
Legco after the handover of Hong Kong in June 1997.
SECURITIES MARKETS
The Stock Exchange of Hong Kong Ltd. ("HKSE") was formed by merging four
existing Hong Kong stock exchanges and commenced trading in April 1986. The
HKSE is now the second largest stock market in Asia as measured by market
capitalization. As of January 31, 1996, 543 companies and 1,010 securities were
listed on the HKSE. Market capitalization as of the same date was approximately
HK$2,677,394 million, an increase of approximately 14% from December 31, 1995.
The HKSE is regulated by the Hong Kong Securities and Futures Commission
("HKSFC"), which was established in May 1989 as an autonomous statutory body
external to the civil service. The HKSFC administers securities laws and
ordinances governing the protection of investors, disclosure of interests and
insider transactions. In addition, the HKSE promulgates its own rules governing
share trading and disclosure of information to shareholders and investors.
Companies listed on the HKSE must enter into an agreement with the exchange to
provide interim and annual accountings to their shareholders.
The total number of listed companies on the HKSE as of January 31, 1996 was
543, compared to 529 at the beginning of 1995. Average daily turnover on the
HKSE for January 1996 was HK$7,086 million compared with HK$3,424 million from
July 1995 to December 1995, and HK$3,268 million from January 1995 to June 1995.
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Hong Kong has no regulations governing foreign investment or exchange
control within its borders. Investors in Hong Kong markets therefore have great
flexibility in the repatriation of profits and deployment of capital.
Certain market and market capitalization risks related to investments in
the Hong Kong stock market are described in "Risks Associated with the Fund."
See Appendix A for more information about economic performance results and
historical performance of stock markets in Hong Kong.
TAIWAN
______________________________________________________________________________
Taiwan has one of the world's largest foreign exchange reserves with $90
billion as at February 29, 1996. Between 1960 and 1995, Taiwan's GNP grew from
less than $2 billion to $264 billion. This economic growth has been accompanied
by a transformation of domestic production from labor intensive to capital
intensive industries during the past two decades. As was the case with Hong
Kong, rising land and labor costs during the 1980s gradually compelled more
Taiwan manufacturers to look abroad for resources. The effective relaxation at
the end of the decade of the barriers to doing business in China brought a
dramatic increase in investment flows, and in 1995, official Taiwanese
government figures showed direct investment in China of $1.09 billion, while
unofficial investment is estimated to be five times higher. Taiwanese
companies should continue to be attracted to invest in China because of the
links of language and culture, the comparatively low costs of land and labor and
the less rigid environmental rules.
Although relations between China and Taiwan began improving during the
1980s, significant problems persist and are likely to continue to prove
disruptive. Taiwan has nonetheless become a significant investor in China and
trade between China and Taiwan totaled $21 billion in 1995. The Taiwan
government has announced that it will have proposals for direct cross-straits
communications prepared in one year. The primary obstacle to greater investment
between the two countries has been the prohibition by the Taiwanese authorities
of direct investment in China.
Relations between China and Taiwan deteriorated beginning in 1995, as a
result of increasing political sentiment among Taiwan voters in favor of
renouncing any claim to the mainland and declaring Taiwan a fully independent
nation, and as a result of the United States' decision to grant the President of
Taiwan, Lee Teng-Hsui, a visa to visit the United States. Chinese missile tests
and other military exercises near Taiwan during Taiwan's Presidential election
in early 1996 reflect the increased level of tensions between Taiwan and China.
SECURITIES MARKETS
The Taiwan Stock Exchange (the "TSE"), the sole stock exchange in Taiwan,
is owned by government-controlled enterprises and private banks. Many listed
companies on the TSE invest indirectly in China, primarily in the textiles, food
and rubber industries. Currently, a company cannot apply for listing on the TSE
unless it has conducted business in Taiwan for a minimum of five years.
In 1968, the Securities and Exchange Law was enacted and the TSE has been
regulated since that time by the Taiwan Securities and Exchange Commission (the
"TSEC") which is supervised by the Ministry of Finance. The Central Bank of
China is also responsible for supervising certain aspects of the Taiwan
securities market. Certain risks related to market volatility in Taiwan and
market capitalization in Taiwan are described in "Risks Associated with the
Fund."
After falling 79.5% from 12,450 to 2,750 between February and October,
1990, the TSE Index then stabilized between 3,000 and 6,000 for the next two
years, before rising from 3,130 to 7,184 over the course of the two years ending
on December 31, 1994. Since then, the Index has fallen back to approximately
4,500,
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primarily due to the effect of increased tension between Taiwan and China on
investor confidence. The effect of this sharp fall and the strong growth in the
earnings of export-related companies, particularly electronics and
petrochemicals, has been to reduce the valuation of the market from over 35
times earnings in 1991-92 to a forecast 11.5 times for 1996. This is the lowest
valuation that the TSE Index has reached since 1988.
FOREIGN INVESTMENT RESTRICTIONS
Foreign investors were not permitted to invest directly in securities
listed on the TSE until 1990. Currently, qualified foreign institutional
investors (QFIIs) must meet certain guidelines promulgated by the TSEC and must
be approved by the TSEC, the Ministry of Finance and the Central Bank of China
to be permitted to invest in TSE listed securities. QFIIs must meet the
following conditions (among others):
a) Banks must be ranked amongst the top 1,000 banks in the free world (in
terms of total assets);
b) Insurance companies must have been in business for last least three
years with total funds under management of at least $300 million;
c) Fund management companies must also have been in business for at least
three years with at least $200 million under management;
d) Securities firms must have a net worth of over $100 million and be
experienced in international securities.
At present, the Fund will not make direct investments in companies listed
on the TSE, but the Managers are taking action to enable the Fund to invest
directly in TSE listed companies, either as a QFII or as a non-QFII using a
registered securities brokerage house. The Fund, at present, intends to make
Taiwan-related investments in global depository receipts ("GDRs"), Euro-
Convertible Bonds ("ECBs") and listed beneficiary certificates ("LBCs") that
represent, or are convertible into, shares of Taiwan-based corporations. GDRs
are generally described under "The Fund's Investment Objectives and Policies--
Depository Receipts." Since 1992, fifteen TSE-listed companies have offered
their shares in the form of GDRs to foreign investors. Euro-Convertible Bonds
and Preferred Shares are described under "The Fund's Investment Objectives--
Euro-Convertible Bonds." Since 1989, thirty-three TSE-listed companies have
issued ECBs, which have been convertible into underlying shares since July 1995.
The TSEC has also agreed to permit the listing on the TSE of Taiwan Depository
Receipts which will represent the shares of foreign issuers. There are no
Taiwan registration requirements that apply to foreign investors who seek to
make direct investments in GDRs or ECBs offered by TSE-listed companies.
LBCs are certificates which represent the shares of closed-end funds which,
subject to TSEC and TSE approval, may be listed on the TSE. LBCs are issued
only by 15 securities investment trust companies in Taiwan for purposes of
investing in securities listed on the TSE. LBCs are traded on the TSE in the
same manner as other TSE-listed securities. As of September 30, 1994, there
were 21 closed-end funds for which LBCs are traded. Each closed-end fund may
invest in the securities of issuers who are engaged in various types of
businesses or industries in Taiwan. Certain registration requirements apply
before foreign investors may invest in LBCs. The Fund is currently pursuing
registration in Taiwan to qualify for trading in LBCs that are listed on the
TSE. If the Fund qualifies for trading in LBCs, such trading would be included
within the Fund's 65% investment policy. See "The Fund's Investment Objectives
and Policies." The Fund's purchase of LBCs will result in the duplication of
management fees and certain other expenses.
On February 29, 1996, the Taiwan government's cabinet approved a stock
market liberalization measure allowing foreign individual investors to
participate in the Taiwanese domestic stock market, effective March 8,
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1996. The maximum investment by all foreign investors in any listed firm would
be increased to 20% of the firm's total listed shares from the existing 15%.
Over time, the restrictions on investment in Taiwan may ease further to
permit greater and more flexible investment in securities listed on the TSE. At
such time, the Fund may invest directly in companies listed on the TSE. Certain
market and market capitalization risks related to investments in the TSE are
described in "Risks Associated with the Fund." See Appendix A for more
information about economic performance results of Taiwan and the historical
performance of the TSE.
SINGAPORE
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Singapore became an island colony of Great Britain in the early 1800s and
achieved independence in 1960. Its population of 3 million is comprised of
77.5% Chinese, 14.2% Malay and 8.3% Indian and other groups. With foreign
exchange reserves of $66.8 billion (September 1995), Singapore has the highest
level of foreign exchange reserves per capita in the world. As the regional
trading center for the South East Asian region, Singapore has enjoyed a period
of strong growth over the last five years, averaging 8.6% annual compound growth
in gross domestic product (GDP), with the result that GDP per capita is
estimated to have exceeded $27,000 at the end of 1995, classifying Singapore as
an "advanced developing nation" under the OECD classification scheme.
Singapore has used its large foreign exchange reserves to invest in various
regional projects, including a number in China, where its $2 billion in pledged
investment in 1995 made it the fifth largest foreign investor. Its Suzhou
industrial township near Shanghai has already attracted $1.4 billion of
investment.
SECURITIES MARKETS
Formal trading of investment securities began in the late nineteenth
century and the Singapore Stockbrokers' Association was incorporated in 1930.
The Stock Exchange of Singapore (SES) was incorporated in 1973. The SES is now
the seventh largest stock market in Asia, after Japan, Hong Kong, Malaysia,
Thailand, Korea and Taiwan, with a market capitalization at January 31, 1996, of
S$226.3 billion, an increase of approximately 10% from the previous year. From
January 1, 1995 to December 31, 1995, there were 20 new listings of companies on
the SES. Average monthly turnover on the SES for 1995 was S$83,866 million,
compared with S$123,520 million in 1994. As of December 31, 1995, 248 companies
were listed on the SES (212 Singaporean and 36 foreign), and a total of 495
securities. Another 46 were listed on the second market, known as the Stock
Exchange of Singapore Dealing and Automated Quotations Board (SESDAQ), which had
a market capitalization of S$4.18 billion at December 31, 1995.
There is also the Central Limit Order Board International (CLOB), an
electronic over-the-counter order matching system which was established after
the separation of the Singapore and Kuala Lumpur Stock Exchanges on 2nd January,
1990, primarily to enable Malaysian shares to continue to be traded freely in
Singapore. As of December 31, 1995, there were 10 Hong Kong, 112 Malaysian and
7 other international stocks traded on CLOB.
Foreign investors in Singapore are restricted by ministerial limitations
from owning more than 49% of any strategic Singaporean company, or more than 40%
of any Singaporean bank. This has led to a two tier share holding structure,
with domestic and foreign registered shares, trading at different prices, with a
premium for foreign registered shares. There are no restrictions on investment
and remittances and no foreign exchange controls, although 27% corporate tax is
deducted from the gross dividends payable.
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HISTORY
Singapore was a British colony until it obtained internal self-government
in 1959. In 1963, it joined the federation of Malaya, Sabah and Sarawak to form
Malaysia. It became a fully independent and sovereign state on August 9, 1965
when it separated from Malaysia.
The post World War II history of Singapore until independence in 1965 was
marked by a growing anticolonial movement, struggles between the communists and
non-communists within this movement to shape the future of the island's merger
with Malaysia, and the political and communal problems which were associated
with it and the confrontation with Indonesia (1963-66).
The non-communists in the People's Action Party (PAP), led by Lee Kuan Yew,
were able to prevail over the communists and their supporters by 1963, and the
government was able to focus on the tasks of economic and social development and
nation-building.
Singapore's racially mixed population reflects its key strategic location
in the Straits of Johore, which provided the base flow of traffic for
Singapore's initial shipping and entrepot businesses. Today's modern service-
based and high-technology economy can be traced back to the vision of Lee Kuan
Yew, who as Prime Minister (1959-91) and Senior Minister (1991 onwards)
implemented a process of encouraging inbound investment and upgrading the skills
base of the population, which has resulted in Singapore achieving "advanced
developing nation" status.
RISKS ASSOCIATED WITH THE FUND
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THE FUND IS INTENDED FOR LONG-TERM INVESTORS WHO CAN ACCEPT THE RISKS
ASSOCIATED WITH INVESTING PRIMARILY IN GREATER CHINA INVESTMENTS AS WELL AS THE
SPECULATIVE RISKS ASSOCIATED WITH INVESTMENTS DENOMINATED IN FOREIGN CURRENCIES.
The Fund's net asset value will fluctuate as the market value of its portfolio
positions and its net currency exposure changes. In addition, certain of the
Fund's potential investment and management techniques entail special risks.
These techniques include Hedging and Other Strategic Transactions and other
investments which are described below in "Special Investment Techniques" and
"Additional Information on Portfolio Instruments" and "Hedging and Other
Strategic Transactions" in the Statement of Additional Information. There is no
assurance that the Fund will achieve any of its investment objectives.
1. CURRENCY FLUCTUATION.
Since the Fund will invest a substantial portion of its assets in the
securities of foreign issuers which are denominated in foreign currencies or the
currency of a single foreign country, the strength or weakness of the U.S.
dollar against such foreign currencies will account for part of the Fund's
investment performance. More than 50% of the Fund's total assets, adjusted to
reflect currency transactions and positions, may be denominated in any single
currency. A decline in the value of a particular foreign currency against the
U.S. dollar will cause a decline in the U.S. dollar value of the Fund's holding
of securities denominated in such currency and may cause an overall decline in
the Fund's net asset value and any net investment income and capital gains to be
distributed in U.S. dollars to shareholders of the Fund.
The rate of exchange between the U.S. dollar and other currencies is
determined by many factors including the supply and demand for particular
currencies, central bank efforts to support currencies, the movement of interest
rates and other economic and financial conditions affecting the world economy.
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Although the Fund values its assets daily in terms of U.S. dollars, the
Fund does not intend to convert its holdings of foreign currencies into U.S.
dollars on a daily basis. The Fund may do so from time to time, and investors
should be aware of the costs of currency conversion. Although foreign exchange
dealers do not charge a fee for conversion, they do realize a profit based on
the difference ("spread") between the prices at which they purchase and sell
various currencies. Thus, a dealer may offer to sell a foreign currency to the
Fund at one rate, while offering a lesser rate of exchange should the Fund
desire to sell the same currency to the same dealer.
2. FOREIGN SECURITIES.
The Fund will invest in securities of foreign issuers. Investing in
securities issued by foreign companies involves considerations and possible
risks not typically associated with investing in securities issued by U.S.
companies. 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 for
funds holding foreign securities, the custodial fees are generally higher than
for funds holding domestic securities, 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, currency blockage, lack of uniform accounting and auditing standards,
less publicly available information about the foreign issuer and potential
difficulties in enforcing contractual obligations and judgments. Transactions
in foreign securities markets (including Greater China Region markets) are
subject to settlement and delivery risks and delays that are greater than those
in U.S. markets. The failure by a counterparty in a foreign securities market
(including Greater China Region markets) to pay for or deliver securities
purchased or sold by the Fund in a timely manner may result in financial loss to
the Fund. See "People's Republic of China - Securities Markets," "Hong Kong -
Securities Markets," "Taiwan - Securities Markets" and "Singapore - Securities
Markets" under the previous section entitled "The Fund's Investments in the
Greater China Region."
3. SECURITIES MARKETS IN THE GREATER CHINA REGION ARE VOLATILE.
Since the Fund will invest at least 65% of its total assets in Greater
China Investments, its investment performance will be especially affected by
events affecting companies that issue Greater China Investments. The value and
liquidity of Greater China Investments may be affected favorably or unfavorably
by political, economic, fiscal, regulatory or other developments in the Greater
China Region or neighboring regions. The extent of economic development,
political stability and market depth of different countries in the Greater China
Region varies widely. In general, fewer securities are available for trading
and the trading volume on stock exchanges in the Greater China Region are
lighter than for stock exchanges in the U.S. and the market capitalization of
individual issuers and the market as a whole is smaller. Moreover, foreigners
investing in Greater China Region securities markets, such as the Fund, may be
subject to investment restrictions that restrict the availability of securities
to foreigners in such markets, which can lead to higher investment costs for
foreigners.
China is comparatively underdeveloped when compared to other countries in
the Greater China Region. Greater China Investments typically involve greater
potential for gain or loss than investments in securities of issuers in
developed countries. In 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 Fund's investments, the
Fund will likely be particularly sensitive to changes in China's economy as
the result of a reversal of economic liberalization, political unrest or
changes in China's trading status.
The securities markets in the Greater 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
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may be held by a limited number of persons and financial institutions, which may
limit the number of shares available for investment by the Fund. A limited
number of issuers in the Greater China Region securities markets may represent a
disproportionately large percentage of market capitalization and trading value
compared to United States securities markets. The limited liquidity of
securities markets in the Greater China Region may also affect the Fund'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 Greater China Regions securities markets, the Fund's ability to
participate fully in such price increases may be limited because the Fund cannot
invest more than 15% of its net assets in illiquid securities. Conversely, the
Fund's inability to dispose fully and promptly of positions in declining markets
may cause the Fund's net asset value to decline as the value of the unsold
positions is marked to lower prices. In addition, Greater China Region
securities markets are susceptible to being influenced by large investors
trading significant blocks of securities.
The Chinese, Hong Kong, Taiwan and Singapore 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 national applicability. The existing national code of regulations is
new, and provisional only. The municipal securities regulations adopted by
Shanghai and Shenzhen municipalities are also new, as are their respective
securities exchanges. The regulatory roles of the China Securities Regulatory
Commission and the two municipal governments are not well-established. Given
the still-developing nature of China's securities markets, changes in regulatory
policy can materially affect securities prices. In addition, Chinese
stockbrokers and other intermediaries may not perform as well as their
counterparts in the United States and other more developed securities markets.
The prices at which the Fund 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 Fund in particular securities.
At this time, moreover, the Fund is not able to acquire possession of
securities listed on stock exchanges in China directly because it is not
possible to arrange for physical custody of such securities with the Fund's
custodian outside China.
4. THE GREATER CHINA REGION IS EXPERIENCING IMPORTANT ECONOMIC AND
POLITICAL EVOLUTION.
The Fund will invest in Greater China Region countries with emerging
economies and 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 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 Fund's investments in those countries
and the availability to the Fund of additional investments in those countries.
ECONOMIES OF COUNTRIES IN THE GREATER 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 Greater 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 have reconsidered annually, would adversely affect the trade and
economic development of China and Hong Kong. In addition, Hong Kong, Taiwan and
Singapore have limited natural resources, resulting in dependence on foreign
sources for certain raw materials and economic vulnerability to global
fluctuations of price and supply.
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5. CHINA'S LEGAL SYSTEM IS NOT WELL DEVELOPED.
Governmental actions in China can have a significant effect on the economic
conditions in the Greater China Region, which could adversely affect the value
and liquidity of the Fund'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
principles 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 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 Fund, 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 Fund. 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.
The Communist Party in China has in the past refused to recognize private
property rights and has nationalized or expropriated the assets of private
companies. However, during the 1990's the Chinese government has increasingly
encouraged private ownership of property and has recognized foreign ownership of
certain property located in China. In addition, although China does not
currently place limitations on repatriation of profits or currency with respect
to the acquisition or sale of "B" shares listed on its stock exchanges (subject
to the payment of any relevant taxes), any such limitations on repatriation may
result in a downward market trend in China that could adversely effect the
Fund's portfolio.
6. FOREIGN INVESTMENT RESTRICTIONS
Securities markets in the Greater China Region are smaller and offer fewer
investment alternatives than the equity securities markets in Europe and the
United States. Certain countries in the Greater China Region prohibit or impose
substantial restrictions on investments in their capital markets, particularly
their equity markets, by foreign entities such as the Fund. For example,
certain countries require governmental approval prior to investments by foreign
persons, or limit the amount of investment by foreign persons in a particular
company, or limit the investment by foreign persons to only a specific class of
securities of a company that may have less advantageous terms than securities of
the company available for purchase by nationals.
Taiwan restricts foreign ownership of the shares of publicly-listed
companies to 10% and also requires that foreign investment institutions have
conducted business for at least 3 years and have under its management at least
$300 million in assets prior to being eligible to acquire ownership of TSE-
traded shares. See "The Fund's Investments in the Greater China Region --
Taiwan -- Foreign Investment Restrictions." Taiwan has limited repatriation of
profits by private companies. For example, ROC companies are allowed to
repatriate up to $3 billion raised abroad from issues of GDRs and overseas
corporate bonds. Moreover, the national policies of Taiwan may restrict
investment opportunities in issuers or industries deemed sensitive to national
interests.
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Taiwan requires governmental approval for the repatriation of investment
income, capital or the proceeds of securities sales by foreign investors. The
Fund could be adversely affected by delays in, or a refusal to grant, any
required governmental approval for repatriation, as well as by the application
to it of other restrictions on investments.
7. NON-UNIFORM CORPORATE DISCLOSURE STANDARDS AND GOVERNMENTAL REGULATION
Foreign companies are subject to accounting, auditing and financial
standards and requirements that differ, in some cases significantly, from those
applicable to U.S. companies. In particular, the assets, liabilities and
profits appearing on the financial statements of such a company may not reflect
its financial position or results of operations in the way they would be
reflected had such financial statements been prepared in accordance with U.S.
generally accepted accounting principles. Most of the securities held by the
Fund will not be registered with the Securities and Exchange Commission ("SEC"),
nor will the issuers thereof be subject to the SEC's reporting requirements.
Thus, there will be less available information concerning foreign issuers of
securities held by the Fund than is available concerning U.S. issuers. In
addition, where public information is available, it may be less reliable than
such information regarding U.S. issuers. In instances where the financial
statements of an issuer are not deemed to reflect accurately the financial
situation of the issuer, the Adviser will take appropriate steps to evaluate the
proposed investment, which may include interviews with its management and
consultations with accountants, bankers and other specialists.
8. TAX ISSUES
The Fund's investment income from foreign issuers may be subject to non-
U.S. withholding taxes, thereby reducing the Fund's net investment income. See
"Tax Information" and "Additional Information Concerning Taxes" in the Statement
of Additional Information.
Under Section 988 ("Section 988") of the Internal Revenue Code of 1986, as
amended (the "Code"), special rules are provided for certain transactions in a
foreign currency other than the taxpayer's functional currency (i.e., unless
certain special rules apply, currencies other than the U.S. dollar). In
general, foreign currency gains or losses from forward contracts, from futures
contracts that are not "regulated futures contracts" and from unlisted options
will be treated as ordinary income or loss under Section 988. Also, certain
foreign exchange gains or losses derived with respect to foreign fixed-income
securities are also subject to Section 988 treatment. In general, therefore,
Section 988 gains or losses will increase or decrease the amount of the Fund's
investment company taxable income available to be distributed to shareholders as
ordinary income, rather than increasing or decreasing the amount of the Fund's
net capital gain. Additionally, if Section 988 losses exceed other investment
company taxable income during a taxable year, the Fund may not be able to make
any ordinary dividend distributions and distributions paid during the year may
be characterized for tax purposes as a return of capital.
The Fund's transactions, if any, in foreign currencies, forward contracts,
options and futures contracts (including options and futures contracts on
foreign currencies) may be subject to special provisions of the Code that, among
other things, may affect the character of gains and losses realized by the Fund
(i.e., may affect whether gains or losses are ordinary or capital), accelerated
recognition of income to the Fund and defer Fund losses. These Code rules could
therefore affect the character, amount and timing of distributions to
shareholders. These rules also (a) could require the Fund to mark to market
certain types of positions in its portfolio (i.e., treat them as they were
closed out), and (b) may cause the Fund to recognize income without receiving
cash with which to pay dividends or make distributions in amounts necessary to
satisfy the distribution requirements for avoiding income and excise taxes.
The Fund may make investments which, for federal income tax purposes,
constitute investments in shares of foreign corporations. If the Fund purchases
shares in certain foreign passive investment entities
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described in the Code as passive foreign investment companies ("PFIC"), the Fund
will be subject to U.S. federal income tax on a portion of any "excess
distribution" (the Fund's ratable share of distributions in any year that
exceeds 125% of the average annual distribution received by the Fund in the
three preceding years or the Fund's holding period, if shorter, and any gain
from the disposition of such shares), even if such income is distributed as a
taxable dividend by the Fund to its shareholders. Additional charges in the
nature of interest may be imposed on the Fund for deferred taxes arising from
such "excess distributions." If the Fund were to invest in a PFIC and elect to
treat the PFIC as a "qualified electing fund" under the Code (and if the PFIC
were to comply with certain reporting requirements), in lieu of the foregoing
requirements the Fund would be required to include in income each year its pro
rata share of the PFIC's ordinary earnings and net realized capital gains,
whether or not such amounts were actually distributed to the Fund. Such amount
would be subject to the 90% and calendar year distribution requirements
described above.
For more information about tax risks related to the Fund, see "Tax
Considerations" and "Additional Information Concerning Dividends, Distributions
and Taxes" in the Statement of Additional Information.
9. PORTFOLIO TURNOVER
The Fund will not trade in securities with the intention of generating
short-term profits, but may effect portfolio transactions without regard to the
length of time a security is held 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 general market, economic or
political conditions. Accordingly, the Fund may engage in short-term trading
under such circumstances. After the initial structuring of the Fund is
completed, it is anticipated that the annual portfolio turnover rate will be
under 100%. (An annual turnover rate of 100% occurs, for example, when all of
such securities held by the Fund are replaced in a period of one year.) A high
rate of portfolio turnover (100% or more) involves correspondingly greater
expenses than a lower rate, which expenses must be borne directly by the Fund,
and indirectly by the Fund and its shareholders. However, short-term trading
may cause the portfolio turnover rate to exceed the 100% target. High portfolio
turnover also may result in the realization of substantial net short-term
capital gains. To the extent net capital gains are realized, any distributions
derived from such gains on securities held for less than one year are taxable at
ordinary income rates for federal income tax purposes. See "Distributions and
Taxes." In order for the Fund to continue to qualify as a regulated investment
company for Federal tax purposes, no more than 30% of the annual gross income of
the Fund may be derived from the sale of securities (including its share of
gains from the sale of securities held by the Fund) held for less than three
months.
10. CERTAIN INVESTMENT POLICIES
The Fund has adopted certain fundamental investment restrictions and
policies which are explained in "The Fund's Investment Objective and Policies"
and "Investment Limitations" in the Statement of Additional Information which,
as described more fully in those sections, may not be changed unless authorized
by a shareholder vote and as permitted by law. These investment restrictions
may prevent the Fund from broadening its portfolio to include other types of
investments in the Greater China Region that may generate greater total returns.
Among these fundamental restrictions, the Fund may not (1) borrow money except
from banks or through reverse repurchase agreements and in an amount not
exceeding 10% of its total assets; or (2) invest more than 25% of its total
assets in the securities of any one issuer, other than U.S. Government
securities or, in the case of the Fund, interests in the Fund's portfolio, or
acquire more than 10% of the outstanding voting securities of any one issuer.
Except with respect to the Fund'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 Fund 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 Fund is permitted to invest 50% or more of its
total assets in (i) the securities of
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issuers located in any single country in the Greater China Region, and
(ii) assets denominated in the currency of any one country.
Except for the nonfundamental investment restrictions and policies
identified above and in the Statement of Additional Information, the investment
objectives and policies of the Fund are fundamental and accordingly may not be
changed by the Board of Directors of the Fund without obtaining the majority
approval of the shareholders of the Fund. See "Management of the Fund" for
further information. If any such changes were made, the Fund might have
investment objectives different from the objectives which an investor considered
appropriate at the time the investor became a shareholder in the Fund. As a
matter of fundamental policy, the Fund will not (i) borrow for leverage purposes
or purchase any securities if, at the time of such purchase, permitted borrowing
exceed 10% of the value of the Fund's total assets, as the case may be,
(ii) invest more than 15% of its net assets in unmarketable securities, over-
the-counter options (and the segregated assets required to cover such options
are illiquid while such options are owned by the Fund), repurchase agreements
maturing in more than seven days and other illiquid securities, or (iii) enter
into a futures contract or option thereon for purposes other than bona fide
hedging if, immediately thereafter, the sum of the amount of its initial margin
and premiums required to maintain permissible speculative positions in futures
contracts or options thereon would exceed 5% of the liquidation value of the
Fund's net assets; however, in the case of an option that is in-the-money at the
time of the purchase, the in-the-money amount may be excluded in calculating the
5% limitation. See "Special Investment Techniques" for more information about
futures contracts and options.
11. SPECIAL RISKS OF CERTAIN FUND INVESTMENTS
LENDING OF FUND SECURITIES
The Fund may seek to earn income by lending portfolio securities to broker-
dealers or other institutional borrowers. Such loans will be against collateral
consisting of cash or securities which is equal at all times to at least 100% of
the value of the securities loaned. During the existence of a loan, the Fund
will continue to receive the equivalent of the interest or dividends paid by the
issuer on the securities loaned and will also receive a fee, on all or a portion
of the interest on investment of the collateral, if any. However, the Fund may
at the same time pay a transaction fee to such borrowers. Opportunities to
engage in the lending of equity securities listed in Greater China Region
securities markets are restricted. For example, Hong Kong permits such lending
subject to a 14 day limit on the lending period. 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 of good
standing and when, in the judgment of the Adviser, the consideration which can
be earned from securities loans of this type justifies the attendant risk. The
financial condition of the borrower will be monitored by the Adviser on an
ongoing basis. 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 Fund's
total assets.
ILLIQUID AND RESTRICTED SECURITIES
The Fund may invest up to 15% of its net assets in illiquid securities,
including repurchase agreements with maturities in excess of seven days. See
"The Fund's Investment Objectives and Policies." Generally, the Fund's Board of
Directors has the ultimate responsibility for determining whether specific
securities (including, without limitation, Rule 144A securities as described
below) are liquid or illiquid. The Board has delegated the function of making
day to day determinations of liquidity to the Adviser, pursuant to guidelines
reviewed by the Board. The Board's guidelines take into account a number of
factors in reaching liquidity decisions, including, but not limited to: (i) the
frequency of trading in the security; (ii) the number of dealers who make quotes
for the security; (iii) the number of dealers who have undertaken to make a
market in the security, (iv) the number of other potential purchasers; and
(v) the nature of the security and how trading is effected (e.g., the time
needed to sell the security, how offers are solicited and the mechanics of
transfer). The Adviser will monitor the
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liquidity of securities in each Fund's portfolio and report periodically on such
decisions to the Board of Directors.
As one of many potential types of illiquid investments, the Fund may
purchase securities that are not registered under the Securities Act of 1933, as
amended (the "Act"), which can be sold to qualified institutional buyers in
accordance with Rule 144A under the Act ("Rule 144A securities"). Investing in
Rule 144A securities could have the effect of increasing the Fund's illiquidity
to the extent that qualified institutional buyers become, for a time,
uninterested in purchasing these securities. If a particular investment in Rule
144A securities is not determined to have a readily available trading market,
such investment will be included within the 15% limitation on investment in
illiquid securities. The maximum percentage of Fund assets that may be invested
in liquid Rule 144A securities (i.e., those not included within the 15%
limitation) at any time is 20%.
The sale of restricted securities generally requires more time and may
result in higher brokerage charges or dealer discounts and other selling
expenses than the sale of securities eligible for trading on securities
exchanges or in the over-the-counter markets. Restricted securities often sell
at a price lower than similar securities that are not subject to restrictions on
resale.
HEDGING AND OTHER STRATEGIC TRANSACTIONS
Within the Greater China Region as well as domestic and other foreign
markets, the Fund may be authorized to use a variety of Hedging and Other
Strategic Transactions as described in "Special Investment Techniques" and
"Hedging and Other Strategic Transactions" in the Statement of Additional
Information. These investment strategies are used by the Fund to hedge various
market risks (such as currency exchange rates, interest rates, and broad or
specific market movements) to seek to reduce the volatility of the Fund's
portfolio or to seek to increase the Fund's income or speculative gain. No more
than 35% of the Fund's net assets (taking into account the Fund's net position
in a specific investment) may be used in connection with these types of
transactions.
Subject to the limitations described above, the Fund may purchase and sell
(or write) Hedging and Other Strategic Transactions in its attempts to protect
against possible changes in the market value of securities held or to be
purchased by the Fund resulting from securities markets or currency exchange
rate fluctuations, or to protect the Fund's unrealized gains in the value of its
securities. The Fund may use any or all types of Hedging and Other Strategic
Transactions which it is authorized to use at any time, and such use will based
on many variables, including market conditions. Such transactions are subject
to political, economic and legal risks similar to those applicable to investment
in foreign securities described under "Foreign Securities" above.
The ability of the Fund to use Hedging and Other Strategic Transactions
successfully will depend on, in addition to the factors described above, the
Adviser's ability to predict pertinent market movements, and the accuracy of
such predictions cannot be assured. The skills needed to accurately predict
such market movements are different from those needed to select the Fund's
securities. Moreover, the use of options and futures by the Fund may fail as
hedging techniques in cases where the price movements of the securities
underlying the options and futures do not follow the price movements of the
portfolio securities subject to the hedge. Other risks associated with Hedging
and Other Strategic Transactions are described in "Hedging and Other Strategic
Transactions" in the Statement of Additional Information.
Hedging and Other Strategic Transactions have special risks associated with
them which are different from the risks associated with investments in
securities, including possible default by the counterparty to the transaction,
illiquidity and, to the extent the Adviser's view as to certain market movements
is incorrect, the risk that the use of the Hedging and Other Strategic
Transactions could result in losses greater than if they had not been used.
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Currency hedging transactions can result in losses to the Fund if the
currency being hedged fluctuates in value to a degree or in a direction that is
not anticipated. Further, the risk exists that the perceived linkage between
various currencies may not be present or may not be present during the
particular time that the Fund is engaging in proxy hedging. Currency
transactions are also subject to risks different from those of other portfolio
transactions. Because currency control is of great importance to the issuing
governments and influences economic planning and policy, purchases and sales of
currency and related instruments can be adversely affected by government
exchange controls, limitations or restrictions on repatriation of currency, and
manipulations or exchange restrictions imposed by governments. These forms of
governmental actions can result in losses to the Fund if it is unable to deliver
or receive currency or monies in settlement of obligations and could also cause
hedges it has entered into to be rendered without value, resulting in full
currency exposure as well as incurring transaction costs. Buyers and sellers of
currency futures contracts are subject to the same risks that apply to the use
of futures contracts generally. Further, settlement of a currency futures
contract for the purchase of most currencies must occur at a bank based in the
issuing nation. Trading options on currency futures contracts is relatively
new, and the ability to establish and close out positions on these options is
subject to the maintenance of a liquid market that may not always be available.
Currency exchange rates may fluctuate based on factors extrinsic to that
country's economy.
The use of futures and options transactions entails certain special risks.
In particular, the variable degree of correlation between price movements of
futures contracts and price movements in the related securities position of the
Fund could create the possibility that losses on the hedging instrument are
greater than gains in the value of the Fund's position. In general, these
transactions involve: (1) liquidity risk that contractual positions cannot be
easily closed out in the event of market changes, (2) correlation risk that
changes in the value of hedging positions may not match the securities market
and foreign currency fluctuations intended to be hedged, (3) market risk that an
incorrect prediction of securities prices or exchange rates may cause the Fund
to perform less well than if such positions had not been entered into, and
(4) skills different from those needed to select Fund securities. The Fund's
use of put and call options could result in losses to the Fund, force the sale
of purchase of portfolio securities at inopportune times or for prices higher
than (in the case of put options) or lower than (in the case of call options)
current market values, or cause the Fund to hold a security it might otherwise
sell.
Futures and options markets could be illiquid in some circumstances and
certain over-the-counter options could have no markets. As a result, in certain
markets, the Fund might not be able to close out a transaction without incurring
substantial losses. Although the Fund's use of futures and options transactions
for hedging should tend to minimize the risk of loss due to a decline in the
value of the hedged position, at the same time it will tend to limit any
potential gain to the Fund that might result from an increase in value of the
position. Finally, the daily variation margin requirements for futures
contracts create a greater ongoing potential financial risk than would purchases
of options, in which case the exposure is limited to the cost of the initial
premium.
Losses resulting from the use of Hedging and Other Strategic Transactions
will reduce the Fund's net asset value, and possibly income, and the losses can
be greater than if Hedging and Other Strategic Transactions had not been used.
RISKS OF HEDGING AND OTHER STRATEGIC TRANSACTIONS OUTSIDE THE UNITED STATES
When conducted outside the United States, Hedging and Other Strategic
Transactions may not be regulated as rigorously as in the United States, may not
involve a clearing mechanism and related guarantees, and will be subject to the
risk of governmental actions affecting trading in, or the prices of, foreign
securities, currencies and other instruments. In China, the use of Hedging and
Other Strategic Transactions is in the early stages of development and these
transactions are not well regulated, exposing investors to greater risk of loss
than other types of securities investments in China. The value of positions
taken as part of non-U.S. Hedging
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and Other Strategic Transactions also could be adversely affected by: (1) other
complex foreign political, legal and economic factors, (2) lesser availability
of data on which to make trading decisions than in the United States, (3) delays
in the Fund's ability to act upon economic events occurring in foreign markets
during non-business hours in the United States, (4) the imposition of different
exercise and settlement terms and procedures and margin requirements than in the
United States and (5) lower trading volume and liquidity.
See "Additional Information on Portfolio Instruments" in the Statement of
Additional Information for a discussion of risks associated with other
investments of the Fund.
SPECIAL INVESTMENT TECHNIQUES
______________________________________________________________________________
IN ADDITION TO ITS INVESTMENTS IN EQUITY SECURITIES, THE FUND INTENDS TO
USE ACTIVE MANAGEMENT TECHNIQUES IN SELECTING OTHER FORMS OF INVESTMENTS. The
Fund will be authorized to use a variety of investment strategies within the
U.S. and the Greater China Region for hedging and other purposes, including
income generation and speculative gain. These investment strategies include the
writing and the purchase and sale of options on securities and indices, futures
contracts and options on futures, warrants, forward foreign currency exchange
contracts, short sales, options on currency, and currency swaps (collectively,
these transactions are referred to herein as "Hedging and Other Strategic
Transactions"). The Fund may invest up to 35% of its total assets in Hedging
and Other Strategic Transactions and no more than 35% of the Fund's total assets
will be at risk with respect to such transactions. This limit is not a
fundamental policy of the Fund and may be changed by the Fund's Board of
Directors without shareholder approval. When Hedging and Other Strategic
Transactions are conducted outside the U.S., these transactions will operate in
a similar manner as in U.S. securities markets but with greater risk. See
"Risks Associated with the Fund -- Risks of Hedging and Other Strategic
Transactions Outside the United States." For general information about risks
associated with Hedging and Other Strategic Transactions, see "Risks Associated
with the Fund -- Special Risks of Certain Fund Investments" above and "Hedging
and Other Strategic Transactions" in the Statement of Additional Information.
CURRENCY TRANSACTIONS
The Fund may engage in currency transactions with counterparties to hedge
the value of portfolio securities denominated in particular currencies against
fluctuations in relative value. Currency transactions include currency forward
contracts, exchange-listed currency futures contracts and options thereon,
exchange-listed options on currencies, and currency swaps. A forward currency
contract involves a privately negotiated obligation to purchase or sell (with
delivery generally required) a specific currency at a future date, which may be
any fixed number of days from the date of the contract agreed upon by the
parties, at a price set at the time of the contract. A currency swap is an
agreement to exchange cash flows based on the notional difference among two or
more currencies. The Fund may enter into currency transactions only with
counterparties that are deemed creditworthy by the Adviser.
Generally, the Fund's dealings in forward currency contracts and other
currency transactions such as futures contracts, options, options on futures
contracts and swaps will be limited to hedging and other non-speculative
purposes, including transaction hedging and position hedging. Transaction
hedging is entering into a currency transaction with respect to specific assets
or liabilities of the Fund, which will generally arise in connection with the
purchase or sale of the Fund's portfolio securities or the receipt of income
from them. Position hedging is entering into a currency transaction with
respect to portfolio securities positions denominated or generally quoted in
that currency. The Fund will not enter into a transaction to hedge currency
exposure to an extent greater, after netting all transactions intended wholly or
partially to offset other transactions, than the aggregate market value (at the
time of entering into the transaction) of the securities held
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by the Fund that are denominated or generally quoted in or currently convertible
into the currency, other than with respect to proxy hedging as described below.
The Fund may cross-hedge currencies by entering into transactions to
purchase or sell one or more currencies that are expected to increase or decline
in value relative to other currencies to which the Fund has or in which the Fund
expects to have exposure. To reduce the effect of currency fluctuations on the
value of existing or anticipated holdings of its securities, the Fund may also
engage in proxy hedging (i.e. using a hedging vehicle relating to a currency
whose fluctuations are tied closely to the currency to be hedged).
Currency transactions are subject to risks different from other portfolio
transactions, as discussed below under "Risks Associated with the Fund --
Special Risks of Certain Fund Investments." If the Fund enters into a currency
hedging transaction, the Fund will comply with the asset segregation
requirements described below under "Special Investment Techniques --Use of
Segregated and Other Special Accounts." See "Hedging and Other Strategic
Transactions" in the Statement of Additional Information for information about
other types of currency transactions that the Fund may engage in.
WHEN-ISSUED AND DELAYED DELIVERY SECURITIES
The Fund may purchase up to 10% of its net assets in securities on a when-
issued or delayed delivery basis. Securities purchased on a when-issued or
delayed delivery basis are purchased for delivery beyond the normal settlement
date at a stated price and yield. No income accrues to the purchaser of a
security on a when-issued or delayed delivery basis prior to delivery. Such
securities are recorded as an asset and are subject to changes in value based
upon changes in the value of the security prior to delivery. Purchasing a
security on a when-issued or delayed delivery basis may involve the risk that
the market price at the time of delivery may be lower than the agreed upon
purchase price, in which case there could be an unrealized loss at the time of
delivery. The Fund will only make commitments to purchase securities on a when-
issued or delayed delivery basis with the intention of actually acquiring the
securities, but may sell them before the settlement date if it is deemed
advisable. The Fund will establish a segregated account in which it will
maintain liquid assets in an amount at least equal in value to the Fund's
commitments to purchase securities on a when-issued or delayed delivery basis.
If the value of these assets declines, the Fund will place additional liquid
assets in the account on a daily basis so that the value of the assets in the
account is equal to the amount of such commitments.
OPTIONS ON SECURITIES AND SECURITIES INDICES
The Fund may purchase and sell options that are traded on United States and
foreign markets. The ability to terminate over-the-counter options is more
limited than with exchange-traded options and may involve the risk that broker-
dealers participating in such transactions will not fulfill their obligations.
The Fund will treat purchased over-the-counter options and assets used to cover
written over-the-counter options as illiquid securities until such time as the
staff of the Securities and Exchange Commission changes its current position on
such treatment.
The writing and purchase of options is a highly specialized activity which
involves investment techniques and risks different from those associated with
ordinary portfolio securities transactions. In the event of unanticipated
changes in securities prices, the Fund may recognize a loss of the premium on an
option it has purchased to the extent that the option cannot be profitably
exercised before its expiration. The successful use of options for hedging
purposes depends in part on the ability of the Adviser to predict future price
fluctuations and the degree of correlation between the options and securities
markets. The Fund pays brokerage commissions or spreads in connection with its
options transactions. The writing of options could significantly increase the
Fund's portfolio turnover rate.
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There is no assurance that a liquid secondary market on an options exchange
will exist for any particular exchange-traded option or at any particular time.
If the Fund is unable to effect a closing purchase transaction with respect to
covered options it has written, the Fund will not be able to sell the underlying
securities or dispose of assets held in a segregated account until the options
expire or are exercised. Similarly, if the Fund is unable to effect a closing
sale transaction with respect to options it has purchased, it would have to
exercise the options in order to realize any profit and will incur transaction
costs upon the purchase or sale of underlying securities.
GENERAL CHARACTERISTICS OF OPTIONS
Put options and call options typically have similar structural
characteristics and operational mechanics regardless of the underlying
instrument on which they are purchased or sold. Thus, the following general
discussion relates to each of the particular types of options discussed in
greater detail below. In addition, many transactions involving options require
segregation of Fund assets in special accounts, as described below under "Use of
Segregated and Other Special Accounts." The maximum percentage of Fund assets
that may be invested in futures and/or options at any time is 10%.
A put option gives the purchaser of the Option, upon payment of a premium,
the right to sell, and the writer the obligation to buy, the underlying
security, commodity, currency or other instrument at the exercise price. The
Fund's purchase of a put option on a security, for example, might be designed to
protect its holdings in the underlying instrument (or, in some cases, a similar
instrument) against a substantial decline in the market value of such instrument
by giving the Fund the right to sell the instrument at the option exercise
price. A call option, upon payment of a premium, gives the purchaser of the
option the right to buy, and the seller the obligation to sell, the underlying
instrument at the exercise price. The Fund's purchase of a call option on a
security, financial futures contract, currency or other instrument might be
intended to protect the Fund against an increase in the price of the underlying
instrument that it intends to purchase in the future by fixing the price at
which it may purchase the instrument. An "American" type put or call option may
be exercised at any time during the option period, whereas a "European" style
put or call option may be exercised only upon expiration or during a fixed
period prior to expiration.
Exchange-listed options are typically issued by a regulated intermediary.
Exchange-listed options, with certain exceptions, generally settle by physical
delivery of the underlying security or currency. In the future, cash settlement
may become available. Frequently, rather than taking or making delivery of the
underlying instrument through the process of exercising the option, listed
options are closed by entering into offsetting purchase or sale transactions
that do not result in ownership of the new option.
The Fund's inability to close out its position as a purchaser or seller of
an exchange-listed put or call option is dependent, in part, upon the liquidity
of the particular option market. Among the possible reasons for the absence of a
liquid option market on an exchange are: (1) insufficient trading interest on
certain options, (2) restrictions on transactions imposed by the exchange, (3)
trading halts, suspensions or other restrictions imposed with respect to
particular classes or series of options or underlying securities, including
reaching daily price limits, (4) interruption of the normal operations of the
exchange, (5) inadequacy of the facilities of an exchange to handle current
trading volume, or (6) a decision by one or more exchanges to discontinue the
trading of options (or a particular class or series of options), in which event
the relevant market for that option on that exchange would cease to exist,
although any such outstanding options on that exchange would continue to be
exercisable in accordance with their terms.
The hours of trading for listed options may not coincide with the hours
during which the underlying financial instruments are traded. To the extent that
the option markets close before the markets for the underlying financial
instruments, significant price and rate movements can take place in the
underlying markets that would not be reflected in the corresponding option
markets.
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If the Fund sells a call option, the premium that it receives may serve as
a partial hedge, to the extent of the option premium, against a decrease in the
value of the underlying securities or instruments held by the Fund or will
increase the Fund's income. Similarly, the sale of put options can also provide
Fund gains. The Fund may purchase and sell call options on securities that are
traded on U.S. and foreign securities exchanges, and on securities indices,
currencies and futures contracts. All call options sold by the Fund must be
"covered," that is, the Fund must own the securities subject to the call, must
own an offsetting option on a futures position, or must otherwise meet the asset
segregation requirements described below for so long as the call is outstanding.
Even though the Fund will receive the option premium to help protect it against
a loss, a call sold by the Fund will expose the Fund during the term of the
option to possible loss of opportunity to realize appreciation in the market
price of the underlying security or instrument and may require the Fund to hold
a security or instrument that it might otherwise have sold.
The Fund reserves the right to purchase or sell options on instruments and
indices which may be developed in the future to the extent consistent with
applicable law, the Fund's investment objective and the restrictions set forth
herein.
The Fund may purchase and sell put options on securities (whether or not it
holds the securities in its portfolio), securities indices, currencies and
futures contracts. In selling put options, the Fund faces the risk that it may
be required to buy the underlying security at a disadvantageous price above the
market price.
GENERAL CHARACTERISTICS OF FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS
The Fund may trade financial futures contracts or purchase or sell put and
call options on those contracts as a hedge against anticipated interest rate,
currency or market changes, for duration management and for permissible
non-hedging purposes. Futures contracts are generally bought and sold on the
commodities exchanges on which they are listed with payment of initial and
variation margin as described below. The sale of a futures contract creates a
firm obligation by the Fund, as seller, to deliver to the buyer the specific
type of financial instrument called for in the contract at a specific future
time for a specified price (or, with respect to certain instruments, the net
cash amount). Options on futures contracts are similar to options on securities
except that an option on a futures contract gives the purchaser the right, in
return for the premium paid, to assume a position in a futures contract and
obligates the seller to deliver that position.
The Fund's use of financial futures contracts and options thereon will in
all cases be consistent with applicable regulatory requirements and in
particular the rules and regulations of the CFTC and generally will be entered
into only for BONA FIDE hedging, risk management (including duration management)
or other permissible non-hedging purposes. Maintaining a futures contract or
selling an option on a futures contract will typically require the Fund to
deposit with a financial intermediary, as security for its obligations, an
amount of cash or other specified assets ("initial margin") that initially is
from 1% to 10% of the face amount of the contract (but may be higher in some
circumstances). Additional cash or assets ("variation margin") may be required
to be deposited thereafter daily as the mark-to-market value of the futures
contract fluctuates. The purchase of an option on a financial futures contract
involves payment of a premium for the option without any further obligation on
the part of the Fund. If the Fund exercises an option on a futures contract it
will be obligated to post initial margin (and potentially variation margin) for
the resulting futures position just as it would for any futures position.
Futures contracts and options thereon are generally settled by entering into an
offsetting transaction, but no assurance can be given that a position can be
offset prior to settlement or that delivery will occur.
The Fund will not enter into a futures contract or option thereon for
purposes other than bona fide hedging if, immediately thereafter, the sum of the
amount of its initial margin and premiums required to maintain permissible
non-hedging positions in futures contract and options thereon would exceed 5% of
the liquidation value of the Fund's net assets; however, in the case of an
option that is in-the-money at the time of the purchase, the in-the-money amount
may be excluded in calculating the 5% limitation. The segregation
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requirements with respect to futures contracts and options thereon are described
below under "Use of Segregated and Other Special Accounts."
COMBINED TRANSACTIONS
The Fund may enter into multiple transactions, including multiple options
transactions, multiple futures transactions, multiple currency transactions
(including forward currency contracts), multiple interest rate transactions and
any combination of futures, options, currency and interest rate transactions
when, in the judgment of the Adviser, it is in the best interests of the Fund to
do so. A combined transaction will usually contain elements of risk that are
present in each of its component transactions. Although combined transactions
will normally be entered into by the Fund based on the Adviser's judgment that
the combined strategies will reduce risk or otherwise more effectively achieve
the desired portfolio management goal, it is possible that the combination will
instead increase the risks or hinder achievement of the portfolio management
objective.
SHORT SALES "AGAINST THE BOX"
The Fund may from time to time sell securities short "against the box." If
the Fund enters into a short sale against the box, it will be required to set
aside securities equivalent in kind and amount to the securities sold short (or
securities convertible or exchangeable into such securities if the conversion or
exchange occurs without the payment of any additional consideration) and will be
required to hold such securities while the short sale is outstanding. The Fund
will incur transaction costs, including interest expense, in connection with
opening, maintaining and closing short sales against the box. If the Fund
engages in any short sales against the box, it will incur the risk that the
security sold short will appreciate in value after the sale, with the result
that the Fund will lose the benefit of any such appreciation.
SHORT SALES
The Fund may enter into short sales with respect to stocks underlying its
security holdings. For example, if the Adviser anticipates a decline in the
price of the stock underlying a security that the Fund holds, it may sell the
stock short. If the stock price subsequently declines, the proceeds of the
short sale could be expected to offset all or a portion of the effect of the
stock's decline in value.
The Fund's obligation to replace the securities borrowed in connection with
a short sale will be secured by collateral deposited with the broker that
consists of up to 10% of the Fund's net asset value in cash, U.S. government
securities or other liquid high grade debt obligations. In addition, the Fund
will place up to 10% of the Fund's net asset value in a segregated account with
its custodian, or designated subcustodian, an amount of cash, U.S. government
securities or other liquid high grade debt obligations equal to the difference,
if any, between (a) the market value of the securities sold at the time that
they were sold short, and (b) any cash, U.S. government securities or other
liquid high grade debt obligations deposited as collateral with the broker in
connection with such short sale (not including the proceeds of the short sale).
Until it replaces the borrowed securities, the Fund will maintain the segregated
account daily at a level so that (i) the amount deposited in the account plus
the amount deposited with the broker (not including the proceeds of the short
sale) will equal 100% of the current market value of the securities sold short,
and (ii) the amount deposited in the account plus the amount deposited with the
broker (not including the proceeds from the short sale) will not be less than
the market value of the securities at the time that they were sold short. A
lesser amount of assets may be set aside by the Fund if it owns certain types of
instruments, such as a call option, on the securities sold short that would
effectively cover the short sale.
Short sales by the Fund involve certain special risk consideration from
purchase of a security because losses from short sales may be unlimited, whereas
losses from purchases are limited to the total amount invested.
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USE OF SEGREGATED AND OTHER SPECIAL ACCOUNTS
The use of many Hedging and Other Strategic Transactions by the Fund will
require, among other things, that the Fund segregate cash, liquid high grade
debt obligations or other assets with its custodian, or a designated sub-
custodian, to the extent the Fund's obligations are not otherwise "covered"
through ownership of the underlying security, financial instrument or currency.
In general, the full amount of any obligation by the Fund to pay or deliver
securities or assets must be covered at all times by the securities, instruments
or currency required to be delivered, or, subject to any regulatory
restrictions, an amount of cash or liquid high grade debt obligations at least
equal to the entire amount the Fund has at risk must be segregated with the
custodian or sub-custodian. The segregated assets cannot be sold or transferred
unless equivalent assets are substituted in their place or it is no longer
necessary to segregate them. A call option on securities written by the Fund,
for example, will require the Fund to hold the securities subject to the call
(or securities convertible into the needed securities without additional
consideration) or to segregate liquid high grade debt obligations sufficient to
purchase and deliver the securities if the call is exercised. A put option on a
security written by the Fund will require the Fund to segregate liquid high
grade debt obligations equal to the exercise price. Except when the Fund enters
into a forward contract in connection with the purchase or sale of a security
denominated in a foreign currency or for other non-speculative purposes, which
requires no segregation, a currency contract that obligates the Fund to buy or
sell a foreign currency will generally require the Fund to hold an amount of
that currency, liquid securities denominated in that currency equal to the
Fund's obligations or to segregate liquid high grade debt obligations equal to
the amount of the Fund's obligations.
In the case of a futures contract or an option on a futures contract, the
Fund must deposit initial margin and, in some instances, daily variation margin
in addition to segregating assets sufficient to meet its obligations to purchase
or provide securities or currencies, or to pay the amount owed at the expiration
of an index-based futures contract. These assets may consist of cash, cash
equivalents, liquid high grade debt or equity securities or other acceptable
assets. The Fund will only enter into swaps on a gross basis, unless the swap
contract provides otherwise. The Fund will accrue the net amount of the excess,
if any, of its obligations relating to swaps over its entitlements with respect
to each swap on a daily basis and will segregate with its custodian, or
designated sub-custodian, an amount of cash or liquid high grade debt
obligations having an aggregate value equal to at least the accrued excess.
Hedging and Other Strategic Transactions may be covered by means other than
those described above when consistent with applicable regulatory policies. The
Fund may also enter into offsetting transactions so that its combined position,
coupled with any segregated assets, equals its net outstanding obligation in
related options and Hedging and Other Strategic Transactions. The Fund could
purchase a put option, for example, if the strike price of that option is the
same or higher than the strike price of a put option sold by the Fund.
Moreover, instead of segregating assets if it holds a futures contract or
forward contract, the Fund could purchase a put option on the same futures
contract or forward contract with a strike price as high or higher than the
price of the contract held. Other Hedging and Other Strategic Transactions may
also be offset in combinations. If the offsetting transaction terminates at the
time of or after the primary transaction, no segregation is required, but if it
terminates prior to that time, assets equal to any remaining obligation would
need to be segregated.
The Fund will engage in transactions in futures contracts and options only
to the extent such transactions are consistent with the requirements of the
Internal Revenue Code of 1986, as amended, for maintaining the qualification of
the Fund as a regulated investment company for Federal income tax purposes.
WARRANTS OR RIGHTS
Warrants or rights may be acquired by the Fund in connection with other
securities or separately, and provide the Fund with the right to purchase at a
later date other securities of the issuer. Unless they become
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detached and traded, warrants or rights acquired by the Fund in units or
attached to securities will be deemed to be without value for purposes of the
35% restriction on the Fund's investments in Hedging and Other Strategic
Transactions.
MANAGEMENT OF THE FUND
The business and affairs of the Fund are managed under the general
direction and supervision of the Fund's Board of Directors. The Fund's
directors are elected annually by shareholders of the Fund. The Fund's day-to-
day operations are handled by the Fund's officers. See "Management of the Fund"
in the Statement of Additional Information for more information about the
directors and officers of the Fund.
INVESTMENT ADVISER
CVO Greater China Partners, L.P. (the "Adviser") provides day-to-day
management of the Fund's portfolio and renders investment advisory services to
the Fund pursuant to an Advisory Agreement with the Fund (the "Advisory
Agreement"). Subject to such policies as the Fund's Board of Directors may
determine, the Adviser makes investment decisions for the Fund. The Fund does
not have an operating history, and the Adviser has not had any prior experience
advising an investment company. The Advisory Agreement provides that, as
compensation for services, the Adviser is entitled to receive from the Fund a
monthly fee at the annual rate of 1.25% of the average daily net assets of the
Fund.
The Adviser is a Delaware limited partnership formed in September 1994 to
serve as the investment adviser to the Fund. The Adviser's key investment team
consists of experienced investment professionals based in San Francisco. The
Adviser's principal business is the rendering of discretionary investment
management services to the Fund. The Adviser's principal business address is
520 Madison Avenue, New York, NY 10022.
CONTROL OF THE ADVISER. The Adviser is controlled by its two general
partners: OFFITBANK Greater China, Inc., a New York corporation established in
August 1994 as a wholly-owned subsidiary of OFFITBANK, a New York State
chartered trust company ("OFFITBANK"), and ChinaVest Public Equities, LLC, a
California limited liability corporation established in January 1995 as a
wholly-owned subsidiary of ChinaVest Financial Services, Ltd., a Cayman Islands
corporation ("ChinaVest Ltd.").
Under its charter, OFFITBANK may neither accept deposits nor make loans
except for deposits or loans arising directly from its exercise of the
fiduciary powers granted it under the New York Banking Law. OFFITBANK's
principal business is the rendering of discretionary investment management
services to high net worth individuals and family groups, foundations,
endowments and corporations. OFFITBANK specializes in global asset
management and offers its clients a complete range of investments in capital
markets throughout the world. OFFITBANK currently manages in excess of $6.5
billion in assets and serves as investment adviser to sixteen registered
investment companies (or portfolios thereof). The principal business address
of OFFITBANK is 520 Madison Avenue, New York, New York 10022.
The ChinaVest investment management group based in Hong Kong (the
"ChinaVest Group") was organized in 1985. The ChinaVest Group has ten years of
experience in managing private equity investments and shares certain common
control persons with ChinaVest Public Equities, LLC. The ChinaVest Group
currently manages in excess of $225 million in assets. The ChinaVest Group and
ChinaVest Public Equities, LLC have no previous experience as investment adviser
to a registered investment company. The ChinaVest Group is represented by
ChinaVest, Inc., whose principal business address is 160 Sansome Street, 18th
Floor, San Francisco, California 94104.
See "Management of the Fund" in the Statement of Additional Information
for more information about the directors and officers of the general partners of
the Adviser.
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ADMINISTRATOR, SHAREHOLDER SERVICING AGENT, TRANSFER AGENT AND CUSTODIAN
Furman Selz LLC ("FSI") serves as the Fund's administrator and
shareholder servicing agent and generally assists the Fund in all aspects of its
administration and operation, including providing dividend disbursing and
transfer services. FSI has also entered into an agreement with the Fund for the
provision of such transfer agency and dividend disbursing services for the Fund.
The fees paid to FSI as administrator of the Fund are based on the Fund's
assets and include the reimbursement of out-of-pocket expenses. FSI receives
(i) a monthly administrator's fee computed at an annual rate of 0.15% of the
average daily net assets of the Fund, and (ii) an annual fund accounting fee of
$30,000. The principal business address of FSI is 230 Park Avenue, New York,
New York 10169.
The fees paid to FSI as shareholder servicing agent are based on the
Fund's net assets attributable to the Class II Shares, reflecting the higher
cost of servicing the holders of said shares. FSI receives a monthly
shareholder servicing fee computed at an annual rate of 0.25% of the average
daily net assets of the Fund attributable to the Class II Shares. This fee is
allocated to Class II Shares only, as payment for answering inquiries and
requests for Fund information by Class II shareholders.
Investors Bank & Trust Company serves as custodian of the assets of the
Fund. The principal business address of the custodian is 89 South Street,
Boston, MA 02111.
Except for the shareholder servicing fee, all of the foregoing fees and
expenses are allocated to both classes of Shares on a pro rata basis.
A further discussion of the terms of the Fund's administrative,
shareholder servicing, custody and transfer agency arrangements is contained in
the Statement of Additional Information.
DISTRIBUTOR
Class I Shares of the Fund are sold to institutional investors and Class
II Shares are sold to non-institutional investors. Such sales will be made on a
continuous basis by the Fund's distributor, OFFIT Funds Distributor, Inc. (the
"Distributor"), is a wholly-owned subsidiary of Furman Selz Holding Corporation.
The Distributor's principal offices are located at 230 Park Avenue, New York,
New York 10169.
The Fund has adopted a Plan of Distribution under the 1940 Act (the
"Plan") pursuant to which the Fund is authorized to spend up to 0.25% of the
aggregate average daily net assets of the Fund solely attributable to Class II
Shares for the purpose of compensating the Distributor for activities primarily
intended to result in the sales of Class II Shares. Payments under the Plan
will bear no relationship to expenses actually incurred by the Fund and such
payments may exceed actual expenses incurred by the Fund for such activities.
The Fund will not finance any amounts under the Plan for a period of at least
one year following the commencement of operations of the Fund. In the future,
the Board of Directors of the Fund may put the Plan into effect if the
distribution costs associated with Class II Shares exceed certain levels.
The Advisor will finance from of its own resources all distribution and
sales related expenses, which may include the development and implementation of
direct mail promotions and advertising for the Fund and the preparation,
printing and distribution of prospectuses for the Fund to recipients other than
existing shareholders. The Advisor will also make payments to qualifying
broker-dealers and financial institutions that provide such services. Any
salesperson or any other person entitled to receive compensation for selling or
distributing the Fund shares may receive different compensation with respect to
one class of shares over the other class of shares in the Fund.
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The Plan, together with a distribution agreement between the Fund and
FSI, will both continue in effect with respect to the Fund from year to year
(although the Fund may continue not to make any payments under the Plan) if such
continuance is approved at least annually by the Fund's Board of Directors and
by a majority of the Directors who have no direct or indirect financial interest
in the operation of the Plan or in any agreement related to the Plan ("Qualified
Directors") and who are not "interested persons" (as defined in the 1940 Act) of
any party by votes cast in person at a meeting called for such purpose. In
approving the continuance of the Plan and the Distribution Agreement, the
Directors must determine that the Plan is in the best interest of the
shareholders of the Fund.
Rule 12b-1 also requires that the selection and nomination of Directors
who are not "interested persons" of the Company be made by such Qualified
Directors.
REGULATORY MATTERS
One of the general partners of the Investment Adviser, OFFITBANK Greater
China, Inc., ("OGC") is a wholly-owned subsidiary of OFFITBANK, a New York State
chartered trust company ("OFFITBANK"). As the subsidiary of a trust company
chartered under the New York Banking Law, OGC will be supervised and examined
thereunder by the New York Banking Department. OFFITBANK is prohibited by its
charter from accepting deposits or loans other than deposits or loans arising
directly from its exercise of the fiduciary powers granted under the New York
Banking Law. Neither OFFITBANK nor OGC is an insured depository institution for
purposes of the Federal Deposit Insurance Act or any other banking law or
regulation.
In addition, New York banking laws and regulations, as currently
interpreted by the New York Banking Department, prohibit New York State
chartered trust companies and their subsidiaries from controlling, or
distributing the shares of, a registered, open-end investment company
continuously engaged in the issuance of its shares, and prohibit such trust
companies and their subsidiaries generally from issuing, underwriting, selling
or distributing securities, but do not prohibit such trust companies or their
subsidiaries from acting as investment adviser, administrator, transfer agent or
custodian to such an investment company or from purchasing shares of such a
company as agent for and upon the order of a customer. OGC believes that it may
perform the services described in this Prospectus with respect to the Fund
without violation of such laws or regulations. Neither OFFITBANK nor OGC is a
member of the Federal Reserve System or subject to the Glass-Steagall Act, the
Bank Holding Company Act of 1956 or any other federal banking law or regulation
that might affect OGC's ability to perform such services.
OTHER INFORMATION CONCERNING FEES AND EXPENSES
All or part of the fees payable by the Fund to the organizations retained
to provide services for the Fund may be waived from time to time in order to
increase the Fund's net investment income available for distribution to
shareholders.
Except as noted below, the Advisor and the Administrator bear all
expenses in connection with the performance of their advisory and administrative
services. Organization costs of the Fund are not expected to exceed $185,000
for the Fund's first fiscal year and will be deferred and amortized by the Fund
on a straight-line basis over a 60-month period from the date the Fund commences
operations. Organization expenses, including fees for counsel and independent
accountants, fees payable to the Securities and Exchange Commission ("SEC"),
state securities qualification fees, and costs of preparing and printing
prospectuses for regulatory purposes, are not expected to exceed $185,000.
The Fund will bear the expenses incurred in its operations, including: taxes;
interest; fees (including fees paid to its directors and Investment Advisory
Board members); fees payable to the SEC; state securities qualification fees;
costs of preparing and printing prospectuses for regulatory purposes and for
distribution to existing shareholders;
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advisory and administration fees; charges of its custodian and transfer agent;
certain insurance costs; expenses of independent accountants and attorneys; fees
of independent pricing services; costs of shareholder reports and shareholder
meetings; and any extraordinary expenses. The Fund also pays for brokerage fees
and commissions, if any, in connection with the purchase of portfolio
securities.
The Fund is not currently financing any distribution expenses in
connection with the solicitation of new investors in Class I or Class II Shares.
The Advisor will finance all such expenses out of its own resources. See
"Management of the Fund -- Distributor."
DIVIDENDS AND DISTRIBUTIONS
The Fund will declare and pay dividends of substantially all of its net
income annually. The Fund intends to distribute all of its net investment
income and net capital gains, if any, at least once per year. The Fund may,
however, determine either to distribute or retain all or part of any net long-
term capital gains in any year for reinvestment, to the extent such retention
will not cause tax disqualification. The Fund will inform shareholders of the
amount and nature of all such income or gains.
All dividends and any capital gains distributions will be paid in
additional shares of the Fund and automatically credited to the shareholder's
account without issuance of a share certificate, unless the shareholder of
record has elected in writing prior to the date of distribution that all
dividends be paid in cash. Such election, or any revocation thereof, must be
made in writing to the Fund's transfer agent and will become effective with
respect to dividends paid after its receipt. Dividends that are otherwise
taxable are taxable to investors whether received in cash or in additional
shares of the Fund.
Any dividend or distribution paid by the Fund has the effect of reducing
the net asset value per share on the ex-dividend date by the amount of the
dividend or distribution. Therefore, a dividend or distribution declared
shortly after a purchase of shares by an investor would represent, in substance,
a return of capital to the shareholder with respect to such shares even though
it would be subject to income taxes. See "Additional Information Concerning
Dividends, Distributions and Taxes" in the Statement of Additional Information.
The ability of the Fund to distribute net investment income or the
proceeds from the sale of its investments to its shareholders may be restricted
or limited due to changes in the exchange control regulations in any or all of
the Greater China Region countries. Any such restriction or limitation could
impact the Fund's ability to meet the distribution requirements described above
and therefore its qualification as a registered investment company under the
Internal Revenue Code of 1986, as amended.
PURCHASE OF SHARES
THE INITIAL MINIMUM INVESTMENT IS $1,000,000 FOR CLASS I SHARES AND
$250,000 FOR CLASS II SHARES. The Fund reserves the right, in its sole
discretion, to accept initial investments in the Fund from institutional
investors of less than $1,000,000. SHAREHOLDERS MAY MAKE ADDITIONAL INVESTMENTS
AT ANY TIME FOR AS LITTLE AS $10,000. Shares of the Fund may be purchased at
the net asset value per share next determined after the later of receipt of
payment or receipt of a completed account information form from a potential
purchaser. See "Calculation of Net Asset Value" below for details about the
valuation of the Fund's shares.
INITIAL INVESTMENT BY WIRE
Subject to acceptance by the Fund, shares of the Fund may be
purchased by wiring Federal Funds to the Fund's custodian bank, Investors Bank &
Trust Company, 89 South Street, Boston, MA 02111 (see instructions below). A
completed Account Registration Form should be forwarded to the Fund at the
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address noted below under "Initial Investments by Mail" in advance of the wire.
Notification must be given to the Fund at 1-800-618-9510 prior to
4:15 p.m., New York time, of the wire date. (Prior notification must also be
received from investors with existing accounts.) Funds should be wired through
the Federal Reserve Bank of New York as follows:
Investors Fiduciary Trust Co.
127 West 10th Street
Kansas City, MO 64105
ABA #1010-0362-1
F/B/O CVO Greater China Fund, Inc.
A/C #_____________________________
Federal Funds purchases will be accepted only on a day on which the Fund
and the custodian bank are open for business.
INITIAL INVESTMENTS BY MAIL
Subject to acceptance by the Fund, an account may be opened by
completing and signing an account information form (provided at the end of the
Prospectus), and mailing it to the Fund at the address noted below,
together with a check payable to CVO Greater China Fund, Inc.:
CVO Greater China Fund, Inc.
P.O Box 4490
New York, NY 10163
Subject to acceptance by the Fund, payment for the purchase of
shares received by mail will be credited to your account at the net asset value
per share of the Fund next determined after the later of receipt of payment or
receipt of the Account Registration Form. Such payment need not be converted
into Federal Funds (monies credited to the Fund's custodian bank by a Federal
Reserve Bank) before acceptance by the Fund. If payment is received by
the Fund without a completed Account Registration Form, such funds will be
returned promptly to the investor. Please note that purchases made by check in
the Fund are not permitted to be redeemed until payment of the purchase has been
collected, which may take up to eight business days after purchase.
ADDITIONAL INVESTMENTS
Additional investments may be made at any time (minimum investment
$10,000) by purchasing shares of the Fund at net asset value by mailing a check
to the Fund at the address noted under "Initial Investments by Mail"
(payable to CVO Greater China Fund, Inc.), or by wiring monies to the custodian
bank as outlined above. Notification must be given to the Fund at
1-800-618-9510 prior to 4:15 p.m., New York time, of the wire date.
OTHER PURCHASE INFORMATION
The Fund reserves the right, in its sole discretion, to suspend the
offering of Shares of the Fund or to reject purchase orders when, in the
judgment of management, such suspension or rejection is in the best interests of
the Fund.
Purchases of Shares will be made in full and fractional shares of the
relevant class of the Fund calculated to three decimal places. In the interest
of economy and convenience, certificates for shares will not be issued except at
the written request of the shareholder. Certificates for fractional shares,
however, will not be issued.
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Shares in the Fund may also be sold to corporations or other institutions
such as trusts, foundations or broker-dealers purchasing for the accounts of
others ("Shareholder Organizations"). Investors purchasing and redeeming shares
of the Fund through a Shareholder Organization may be charged a transaction-
based fee or other fee by the Shareholder Organization for its services. Each
Shareholder Organization is responsible for transmitting to its customers a
schedule of any such fees and information regarding any additional or different
conditions regarding purchases and redemptions. Customers of Shareholder
Organizations should read this Prospectus in light of the terms governing
accounts with their organization. The Fund does not pay to or receive
compensation from Shareholder Organizations for the sale of Fund shares. The
Fund's officers are authorized to waive the minimum initial and subsequent
investment requirements.
After an investor makes an initial purchase of Fund shares, the Fund's
Transfer Agent, FSI, will set up an account for the investor on the Fund's
records. This account will contain a complete record of all transactions
between the investor and the Fund and will show the balance of shares owned by
such investor. The Fund will not issue share certificates except upon request.
Each time a transaction occurs in a shareholders' account, the shareholder will
receive a statement showing details of the transaction.
REDEMPTION OF SHARES
Shares of the Fund may be redeemed by mail, or, if authorized, by
telephone. No charge is made for redemptions, except for the early redemption
charge described below. The value of shares redeemed may be more or less than
the purchase price, depending on the market value of the investment securities
held by the Fund. An early redemption charge will be levied on investors who
hold Fund shares for less than nine months. The charge will be equal to two
percent (2%) of the net asset value, at the redemption date, of shares redeemed
within nine months of their purchase. (For this purpose, investors will be
deemed to redeem their earliest-purchased shares unless the investor specifies
otherwise.)
SYSTEMATIC WITHDRAWAL PLAN
A holder of $100,000 or more of Class I Shares or $10,000 or more of
Class II Shares may elect to have periodic redemptions from such holder's
account paid on a monthly, quarterly or annual basis. The minimum periodic
payment is $100. A sufficient number of shares to make the scheduled redemption
will normally be redeemed on the date selected by the shareholder. Depending on
the size of the payment requested and fluctuation in the net asset value, if
any, of the shares redeemed, redemptions for the purpose of making such payments
may reduce or even exhaust the account. A shareholder may request that these
payments be sent to a predesignated bank or other designated party.
BY MAIL
Each Fund will redeem its shares at the net asset value next determined
after the request is received in "good order". The net asset values per share
of the Fund are determined as of 4:15 p.m., New York time, on each day that the
New York Stock Exchange, Inc. (the "NYSE") and the Fund are open for
business. See "Calculation of Net Asset Value" below for details about the
valuation of the Fund's shares. Requests should be addressed to CVO Greater
China Fund, Inc. at 237 Park Avenue, Suite 910, New York, New York 10017.
Requests in "good order" must include the following documentation:
(a) the share certificates, if issued;
(b) a letter of instruction, if required, or a stock assignment
specifying the number of shares or dollar amount to be redeemed,
signed by all registered owners of the shares in the exact names in
which they are registered or their duly authorized agents;
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<PAGE>
(c) any required signature guarantees (see "Signature
Guarantees" below); and
(d) other supporting legal documents, if required, in the case
of estates, trusts, guardianships, custodianships, corporations,
pension and profit sharing plans and other organizations.
SIGNATURE GUARANTEES
To protect shareholder accounts, the Fund and the Administrator
from fraud, signature guarantees are required to enable the Fund to
verify the identity of the person who has authorized a redemption from an
account. Signature guarantees are required for (1) redemptions where the
proceeds are to be sent to someone other than the registered shareholder(s) and
the registered address, and (2) share transfer requests. Shareholders may
contact the Fund at 1-800-618-9510 for further details.
BY TELEPHONE
Provided the Telephone Redemption Option has been authorized, a redemption
of shares may be requested by calling the Fund at 1-800-618-9510 and
requesting that the redemption proceeds be mailed to the primary registration
address or wired per the authorized instructions. Shares cannot be redeemed by
telephone if share certificates are held for those shares. The Company and its
transfer agent may act on telephone instructions from any person representing
himself or herself to be a shareholder and believed by the Company or its
transfer agent to be genuine. The Fund will use reasonable procedures to
confirm that instructions communicated by telephone are genuine, and may be
liable for any losses due to unauthorized instructions to the extent such
procedures are not followed. The procedures employed by the Company in
connection with transactions initiated by telephone include tape recording of
telephone instructions and requiring some form of personal identification prior
to acting upon instructions received by telephone.
FURTHER REDEMPTION INFORMATION
Redemption proceeds for shares of the Fund recently purchased by check may
not be distributed until payment for the purchase has been collected, which may
take up to eight business days. Such funds are invested during this holding
period. Redemption proceeds may only be delayed for up to 15 days from the
purchase date when a check has not cleared. Such proceeds must be released upon
the earlier of the expiration of the 15-day period or clearance of the check.
Shareholders can avoid this delay by utilizing the wire purchase option.
Payment of the redemption proceeds, reduced by the amount of any
applicable Federal income tax required to be withheld, will ordinarily be made
within seven business days after tender is completed for a request for
redemption.
The Fund may suspend the right of redemption or postpone the date at times
when the NYSE is closed or under any emergency circumstances as determined by
the SEC.
If the Board of Directors determines that it would be detrimental to the
best interests of the remaining shareholders of the Fund to make payment wholly
or partly in cash, the Fund may pay the redemption proceeds in whole or in part
by a distribution in kind of readily marketable securities held by a Fund in
lieu of cash in conformity with applicable rules of the SEC. The Fund does not
intend to make distributions in kind at this time. Investors generally will
incur brokerage charges on the sale of portfolio securities so received in
payment of redemptions.
Due to the high cost of maintaining small accounts, the Fund reserves the
right to redeem (i) Class I Share accounts with balances less than $10,000, and
(ii) Class II Share accounts with balances less than $1,000.
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<PAGE>
Prior to such redemption, the shareholder will be notified in writing and will
be allowed 60 days to make additional purchases to bring the account up to such
amount. However, no such redemption would be required by the Fund if the cause
of the low account balance was a reduction in the net asset value of Fund
shares.
Redemptions of Fund shares are taxable events on which you may realize a
gain or a loss. Such gain or loss will be long-term capital gain or loss if the
shares are a capital asset in the hands of the investor and have been held for
tax purposes for more than one year. See "Tax Information" for more information
about tax consequences resulting from investment in the Fund.
SHAREHOLDER SERVICES
The Fund offers the following additional services to investors:
ACCOUNT INFORMATION. Each Investor will be provided with account
information upon written request at any time to the Fund.
TRANSFER OF REGISTRATION. The registration of Fund shares may be
transferred by writing to Furman Selz LLC, 230 Park Avenue, New York,
New York 10169. As in the case of redemptions, the written request
must be received in "good order" as defined above. See "Shareholder Services"
in the Statement of Additional Information for more details.
Any inquiries regarding the Fund should be addressed to the Administrator,
230 Park Avenue, New York, New York 10169 (800-845-8406).
CALCULATION OF NET ASSET VALUE
Net asset value will be determined by dividing the value of the net assets
attributable to each class of the Fund (the value of its assets less its
liabilities) by the total number of shares of each class of common stock
outstanding. Fund securities will be valued by various methods depending on the
primary market or exchange on which they trade.
Equity securities for which the primary market is outside the U.S. will be
valued using the closing price or the last sale price in the principal market
where they are traded. If the last sale price on the local exchange is
unavailable, the last available quote or last bid price normally will be used.
Securities and other assets for which market quotations are not readily
available are valued at fair value determined in good faith by or under the
direction of the Fund's Board of Directors, as delegated to the Pricing
Committee of the Board.
Foreign security prices are typically furnished by independent brokers or
quotation services which express the value of securities in their local
currency. Securities quoted in foreign currencies initially will be valued in
the currency in which they are denominated and then will be translated into U.S.
dollars at the foreign exchange rate in effect on each date that net asset value
is calculated. Securities may be valued by independent pricing services which
use prices provided by market-makers or estimates of market values obtained from
yield data relating to instruments or securities with similar characteristics.
Forward contracts and related instruments will be valued on a daily basis by a
pricing service that utilizes (i) dealer-supplied valuations for such
obligations that mature in less than 30 days, and (ii) electronic data
processing pricing techniques for all other obligations. Any changes in the
value of forward contracts due to exchange rate fluctuations and days to
maturity are included in the calculation of net asset value. If an
extraordinary event that is expected to materially affect the value of a Fund
security occurs after the close of an exchange on which that security is traded,
then the security will be valued as determined in good faith by or under the
direction of the Fund's Board of Directors. Otherwise, the closing price of a
security on such exchange will be used.
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<PAGE>
Short-term obligations which have maturities of 60 days or less are valued
at amortized cost as reflecting fair value, and if applicable, adjusted for
foreign exchange translation.
Equity securities for which the primary market is the U.S. will be valued
at the last sale price quoted on the relevant securities exchange, or if no such
price is available, at the closing bid price. The use of other pricing services
will be determined by the Board of Directors.
The valuation of the Fund's equity securities will be completed by the
Administrator each day no later than 4:15 p.m., New York time. The values of
any such securities held by the Fund are determined as of such time for the
purpose of computing the Fund's net asset value. The net asset value per share
of the Fund is calculated once daily, Monday through Friday, except on days on
which the New York Stock Exchange ("NYSE") is closed. The NYSE currently is
scheduled to be closed on New Year's Day, Presidents' Day, Good Friday,
Memorial Day, Independence Day, Labor Day, Thanksgiving and Christmas and on
the preceding Friday or subsequent Monday when one of these holidays falls on
a Saturday or Sunday, respectively.
TAX INFORMATION
TAXATION OF THE FUND
The Fund intends to qualify for taxation as a "regulated investment
company" under Subchapter M of the Internal Revenue Code of 1986, as amended
(the "Code"). If so qualified, the Fund will not be subject to federal income
taxes with respect to net investment income and net realized long-term capital
gains, if any, that are distributed to its shareholders. It is the Fund's
policy to distribute to shareholders all of its investment income (net of
expenses) and any capital gains (net of capital losses) in accordance with the
timing requirements imposed by the Code, so that the Fund will satisfy the
distribution requirement of Subchapter M and not be subject to Federal income
taxes or the 4% excise tax under the Code.
THE U.S. FEDERAL INCOME TAX DISCUSSION SET FORTH IN THIS PROSPECTUS IS A
SUMMARY INCLUDED FOR GENERAL INFORMATION PURPOSES ONLY. IN VIEW OF THE
INDIVIDUAL NATURE OF TAX CONSEQUENCES, EACH SHAREHOLDER IS ADVISED TO CONSULT
ITS OWN TAX ADVISER WITH RESPECT TO THE SPECIFIC TAX CONSEQUENCES APPLICABLE TO
ITS PARTICIPATION IN THE FUND, INCLUDING THE EFFECT AND APPLICABILITY OF
FEDERAL, STATE, FOREIGN AND OTHER TAX LAWS AND THE POSSIBLE EFFECT OF CHANGES IN
SUCH LAWS.
SHAREHOLDER TAXATION IN THE UNITED STATES
Because the Fund intends to distribute all of its net investment income
and net short-term capital gains to shareholders and otherwise continue to
qualify as a regulated investment company under Subchapter M of the Code, it is
not expected that the Fund will be required to pay any federal income tax on any
such income and capital gains, other than any tax resulting from investing in
passive foreign investment companies as described below.
The Fund intends to declare and pay dividends and capital gains
distributions so as to avoid imposition of a non-deductible 4% federal excise
tax. To do so, the Fund intends to distribute an amount at least equal to
(i) 98% of its calendar year ordinary income, (ii) 98% of its capital gains net
income (the excess of short and long-term capital gain over short and long-term
capital loss) for the one-year period ending October 31, and (iii) 100% of any
undistributed ordinary or capital gain net income from the prior calendar year.
Shareholders of the Fund will normally have to pay federal income taxes,
and any state and local income taxes, on the dividends and distributions they
receive from the Fund. Distributions by the Fund which
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<PAGE>
are derived from net short-term capital gains and certain foreign exchange gains
are taxable to shareholders as ordinary income, whether received in cash or
reinvested in additional shares of the Fund. Dividends, received either in
cash or reinvested in shares, paid by a Fund from net investment income will
also be taxable to shareholders as ordinary income.
Whether paid in cash or additional shares of the Fund, and regardless of
the length of time the shares in the Fund have been owned by the shareholder,
distributions from long-term capital gains are taxable to shareholders as such.
Exchanges and redemptions of shares in the Fund are generally taxable
events for federal income tax purposes. Individual shareholders may also be
subject to state and local taxes on such exchanges and redemptions. The Fund's
distributions will generally not qualify for the dividends-received deduction
for corporate shareholders. Capital gains distributions are not eligible for
the corporate dividends received deduction. The amount, timing and character of
the Fund's distributions to shareholders may be affected by special tax rules
governing the Fund's activities in options, futures and forward foreign currency
exchange transactions or certain other investments.
To avoid being subject to a 31% federal backup withholding tax on taxable
dividends, capital gains distributions and the proceeds of redemptions and
repurchases, each shareholder must furnish to the Fund and certify as to
accuracy his, her or its taxpayer identification number.
Shareholders will receive annually one or more Forms 1099 to assist in
reporting on their Federal and state income tax returns the prior calendar
year's distributions, proceeds from the redemption or exchange of Fund shares,
and Federal income tax, if any, withheld by the Fund's Transfer Agent.
Capital gains on the sale of holdings in passive foreign investment
companies may be deemed to be ordinary income regardless of how long the Fund
holds its investment. In addition, the Fund may be subject to income tax and an
interest charge on certain dividends and capital gains earned from these
investments, regardless of whether such income and gains were distributed to
shareholders. For more information, see "Additional Information Concerning
Dividends, Distributions and Taxes -- Passive Foreign Investment Companies" in
the Statement of Additional Information.
FOREIGN TAX CREDITS
Dividends, interest and gains received by the Fund from foreign sources
may give rise to withholding and other taxes imposed by foreign countries. If
the Fund qualifies as a regulated investment company, if certain distribution
requirements are satisfied and if more than 50% of the value of the Fund's total
assets at the close of any taxable year consists of stocks or securities of
foreign corporations, the Fund may make an election for U.S. Federal income tax
purposes, to treat any Chinese or other foreign country's income or withholding
taxes paid by the Fund that can be treated as taxes on income under U.S. income
tax principles, as paid by its shareholders. In the absence of such an
election, the Fund would deduct such foreign taxes in computing the amount of
its distributable income. The Fund intends to make such election for the fiscal
year ended October 31, 1996.
The amount of Chinese or other foreign taxes that may be credited against a
shareholder's U.S. Federal income tax liability generally will be limited to an
amount equal to the shareholder's U.S. Federal income tax rate multiplied by its
foreign source taxable income. For this purpose, the Fund expects that the
capital gains it distributes, whether as dividend or capital gains
distributions, will not be treated as foreign source taxable income. In
addition, this limitation must be applied separately to certain categories of
foreign source income, one of which is foreign source "passive income," which
includes dividends, interest, capital gains and certain foreign currency gains.
As a result, certain shareholders may not be able to claim a foreign tax credit
for the full
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<PAGE>
amount of their proportionate share of foreign taxes paid by the Fund. The Fund
will report annually to its shareholders the amount per share of taxes that will
enable shareholders to claim U.S. foreign tax credits or deductions with respect
to such taxes.
TAXES IMPOSED BY CHINA
INCOME TAXES. Under the Income Tax Law of the People's Republic of China
Concerning Foreign Investment Enterprises and Foreign Enterprises, which took
effect on July 1, 1991, the Fund's income from dividends and profit
distributions of companies in China will be subject to a 20% income tax.
Pursuant to regulations issued by the State Council in 1984, the income tax rate
is reduced to 10% on income received from sources in Shanghai, Shenzhen, Zhuhai,
Xiamen, Shantou and the 14 special coastal port cities. Accordingly, if the "B"
shares listed on the Shanghai or Shenzhen stock exchanges are issued by
companies established in Shanghai, Shenzhen, Zhuhai, Xiamen, Shantou or the 14
special coastal port cities, the income tax levied on income earned by overseas
investors (who have not set up offices in China) from such sources will be
reduced to 10%. Effective August 1, 1993, dividends from "B" shares of
companies are temporarily exempt from income tax.
Any gains (whether of a capital or trading nature) realized by the Fund
from the sale of any "B" shares are temporarily not subject to any income tax in
China based on tax regulations issued in August 1993.
TRANSFER TAXES AND FEES. The acquisition or sale by the Fund of "B"
shares in a Chinese company listed on the Shenzhen Stock Exchange is subject to
a 0.3% stamp tax and up to a 0.7% broker's commission on both the buyer and
seller. The 0.7% broker's commission will be reduced to 0.5% and 0.4%,
respectively, if the transaction value exceeds RMB 500,000 and RMB 5,000,000,
respectively. For the Shenzhen Stock Exchange, a purchaser of "B" shares is
also subject to a transfer registration fee levied at 0.3% of the transaction
amount of the "B" shares traded. For the Shanghai Stock Exchange, a transaction
fee of 0.1% of the actual transaction amount is levied. Clearing fees are
handled in accordance with the relevant regulations of the clearing bank based
upon the actual amount cleared. As of August 1, 1994, bank clearance charges
were approximately US$42 in Shanghai, and ranged from HK$185 to HK$625 in
Shenzhen.
TAXES IMPOSED BY HONG KONG
TAXATION OF THE FUND. The Fund will be subject to Hong Kong profits tax
if (i) it carries on business in Hong Kong, and (ii) its profits are derived
from a Hong Kong source. Profits or capital gains derived from the sale of
shares or other securities of, or dividends received from, companies listed on
stock exchanges outside Hong Kong are not subject to Hong Kong profits tax.
Transfers of shares of Hong Kong companies require the payment of a stamp
duty of 0.3% on the amount of the transfer, comprised of a 0.15% stamp duty on
the purchaser and a 0.15% stamp duty on the seller.
TAXATION OF SHAREHOLDERS. There is no tax in Hong Kong on capital gains
arising from the sale by an investor of shares of the Fund. However, for
certain investors (principally share traders, financial institutions and
insurance companies carrying on business in Hong Kong), such gains may be
considered to be part of the investor's normal business profits and in such
circumstances will be subject to Hong Kong profits tax at the rate of 16.5% for
corporations and 15% for individuals as of August 1, 1994.
Dividends which the Fund pays to its shareholders are not taxable in Hong
Kong (whether through withholding or otherwise) under current legislation and
practice.
40
<PAGE>
TAXES IMPOSED BY TAIWAN
Under the Income Tax Law of Taiwan, dividend and interest income received
by the Fund from sources within Taiwan will be subject to income withholding
tax. The rate of withholding tax applicable to interest payments to a non-
Taiwan resident recipient is 20%. The rates of withholding tax applicable to
dividend payments to a non-Taiwan individual and a non-Taiwan corporate entity
are 35% and 25%, respectively. However, the rate of withholding tax applicable
to dividend payments to a qualified foreign institutional investor approved by
the TSEC or a non-resident investor approved by the Investment Commission of the
Ministry of Economic Affairs is 20%. Stock dividends are subject to an income
tax which is payable on receipt or, in certain cases, on disposal of the stock
dividends. Securities received as stock dividends will be treated for the
purposes of the capital gains income tax described below in the same way as
other securities held. Transactions in securities are not currently subject to
any capital gains tax, but there can be no assurance that a capital gains tax
will not be imposed in the future or that the Fund will continue to be exempt
from such tax.
Profits on sales of Fund shares effected by non-resident foreigners wholly
outside Taiwan will not be subject to Taiwan income tax. However, on any sale
of stock effected in Taiwan, a securities transaction tax is payable by the
seller of such stock at the rate of 0.3% of the transaction stock price.
TAXES IMPOSED BY SINGAPORE
The corporate income tax rate in Singapore is currently 26%. Under the
Income Tax Law of Singapore, dividends received by the Fund from sources in
Singapore are not subject to withholding tax, but interest received by the Fund
will be subject to a 15% withholding tax.
There is no tax on capital gains. Where there is a series of
transactions, the tax authorities may take the view that a business is being
carried on and may attempt to assess the gains as trading profits of the
corporation. However, the government of Singapore has incentives for securities
companies, trust companies and fund managers, which include tax exemptions or
concessionary tax rates of 10% for qualifying income.
OTHER TAXATION
Distributions from the Fund may be subject to additional state, local and
foreign taxes depending on each shareholder's particular circumstances.
See "Additional Information Concerning Dividends, Distributions and Taxes"
in the Statement of Additional Information for more details about tax
consequences related to investment in the Fund.
BACKUP WITHHOLDING
PROCEEDS OF DISTRIBUTIONS SUBJECT TO WITHHOLDING
It is required under Federal income tax laws that taxable distributions and
proceeds of redemptions and exchanges be reported to the Internal Revenue
Service ("IRS"). It is also required that 31% of taxable distributions and
certain proceeds of redemption requests received directly from shareholders and
of redemptions under any exchange privilege be withheld if (i) a correct and
certified Taxpayer Identification Number (TIN) is not provided for your account,
(ii) you fail to certify that you have not been notified by the IRS that you
underreported taxable interest or dividend payments, or (iii) the Fund is
notified by the IRS (or a broker) that the TIN provided is incorrect or you are
otherwise subject to backup withholding. Amounts withheld and forwarded to the
IRS can be credited as a payment of tax when completing your Federal income tax
return.
41
<PAGE>
For most individual taxpayers, the TIN is their social security number. An
investor may furnish the Transfer Agent with such number and the required
certifications by completing and sending to the Transfer Agent either the Fund's
Account Application Form at the back of this Prospectus or IRS Form W-9.
Special rules apply for certain accounts. For example, for an account
established under the Uniform Gift to Minors Act, the TIN of the minor should be
furnished.
TO APPLY FOR A TIN
If you do not have a TIN or do not know your number, you may apply for one
by submitting Form SS-5, "Application for a Social Security Card" or Form SS-4,
"Application for Employer Identification Number" to the Administrator or the
IRS. We will forward a certification form to you which you should use to notify
us of your number. Withholding may apply to payments made to your account
before we receive your certified number.
EXEMPT RECIPIENTS AND FOREIGN PAYEES
Exempt recipients should provide their TIN and underline 2(a) in the TIN
section of the application to avoid possible erroneous withholding. A partial
listing of exempt classes of investors follows: corporations, financial
institutions, IRAs, the U.S. Government, a state or possession of the U.S., a
foreign government, international organizations, and 501(a) exempt entities
such as colleges, churches and charitable organizations. If you are a
nonresident alien, check the appropriate box on the application. Nonresident
aliens and foreign entities may be subject to nonresident alien withholding of
up to 30% (instead of backup withholding of 31%) on certain distributions
received from the Fund and will be required to provide certain certifications on
IRS Form W-8 to avoid 31% backup withholding with respect to other payments.
For further information, see Code Sections 1441, 1442 and 3406 and consult your
tax adviser.
PERFORMANCE INFORMATION
As discussed in this Prospectus, from time to time the Fund may quote its
"total return" in advertisements and sales literature. The Fund may present
standardized and non-standardized total return by class in advertisements or
other written material. Standardized total return is calculated in accordance
with the SEC's formula, by multiplying a hypothetical initial purchase order of
$1,000 by the average annual total return for the stated period and annualizing
the result. The Fund's "average annual total return" represents an
annualization of the Fund's total return over a particular period and is
computed by finding the annual percentage rate which will result in the ending
redeemable value of a hypothetical $1,000 investment made at the beginning of a
one, five or ten year period, or for the period from the date of commencement of
the Fund's operations, if shorter than any of the foregoing periods. For the
purpose of this calculation, it is assumed that all dividends and distributions
are reinvested. The formula for computing the average annual total return
involves a percentage obtained by dividing the ending redeemable value by the
amount of the initial investment, taking a root of the quotient (where the root
is equivalent to the number of years in the period) and subtracting 1 from the
result. See "Performance Calculations -- Total Return" in the Statement of
Additional Information for a more detailed discussion of the formula.
Nonstandardized total return differs from the standardized total return
only in that it may be related to a nonstandard period or is presented in the
form of aggregate, average, year-by-year or other types of total return figures
rather than as an annual average. The Fund may advertise the growth of
hypothetical investments of $10,000, $50,000 and $100,000 in shares of either
class or both classes of the Fund by adding 1 to the Fund's total aggregate
total return to date (expressed as a decimal) and multiplying by $10,000,
$50,000 or $100,000 as the case may be.
42
<PAGE>
In addition, the Fund may compute its aggregate total return for specified
periods by determining the aggregate percentage rate which will result in the
ending value of a hypothetical $1,000 investment made at the beginning of the
period. For the purpose of this calculation, it is assumed that all dividends
and distributions are reinvested. The formula for computing aggregate total
return involves a percentage obtained by dividing the ending value by the
initial $1,000 investment and subtracting 1 from the result.
The Fund from time to time may also advertise its performance relative to
certain performance rankings and indices compiled by independent services and
organizations.
THE FUND'S PERFORMANCE INFORMATION IS HISTORICAL, WILL FLUCTUATE OVER TIME
AND SHOULD NOT BE CONSIDERED AS REPRESENTATIVE OF FUTURE RESULTS IN ANY FUTURE
PERIOD. The SEC's formulas for calculating performance are described under
"Performance Calculations" in the Statement of Additional Information.
ADDITIONAL INFORMATION
ORGANIZATION AND CAPITAL STOCK
The Fund was incorporated under the laws of the State of Maryland on
September 2, 1994. The Fund operates as an open-end investment company and is
not authorized to engage in the business of banking. The authorized capital
stock of the Fund consists of 10,000,000,000 shares having a par value of $.001
per share. The Fund's Articles of Amendment and Restatement currently authorize
the issuance of two classes of shares, Class I and Class II. The Fund's Board
of Directors may, in the future, authorize the issuance of additional classes of
capital stock representing interests in the Fund or in other portfolios held by
the Fund.
Holders of the Fund's shares will vote in the aggregate on all matters and
will vote in the aggregate with shareholders of the Fund's other current and
future portfolios except where otherwise required by law or where the matter
involved affects only that class or portfolio. Under the corporate law of
Maryland and the Fund's By-Laws (except as required under the 1940 Act), the
Fund is not required and does not currently intend to hold meetings of
shareholders for the election of directors. Shareholders, however, do have the
right to call for a meeting to consider the removal of one or more of the Fund's
directors if such a request is made, in writing, by the holders of at least 10%
of the Fund's outstanding voting securities. A more complete statement of the
voting rights of shareholders is contained in the Statement of Additional
Information.
All shares of the Fund, when issued, will be fully paid and nonassessable.
COUNSEL
McCutchen, Doyle Brown & Enersen, San Francisco, California, serves as
counsel to the Fund.
INDEPENDENT ACCOUNTANTS
Price Waterhouse LLP, 1177 Avenue of the Americas, New York, New York
10036, serves as the independent accountants for the Fund.
REPORTS TO SHAREHOLDERS
The Fund will send to shareholders a semi-annual report which will include
listings of investment securities held by the Fund at the end of the period
covered. An annual report containing financial statements audited by
independent accountants will be sent to shareholders each year.
43
<PAGE>
CVO GREATER CHINA FUND, INC.
APPENDIX A TO PROSPECTUS - GREATER CHINA REGION COUNTRIES
This Appendix describes certain economic and political developments related
to the operation of the securities markets in the People's Republic of China
("China") Hong Kong, Taiwan and Singapore. The information set forth in this
Appendix has been extracted from various government and private publications.
The Fund and the Fund's Board of Directors make no representation as to the
accuracy of the information, nor has the Fund or the Fund's Board of Directors
attempted to verify any of it.
PEOPLE'S REPUBLIC OF CHINA
DEMOGRAPHICS AND GOVERNMENT
China's population, estimated at 1.2 billion, is the highest of any country
in the world and represents one-fifth of the human race. The most populated
sections of China are located in the north eastern half of the country where
flatter terrain and proximity to the coast and major river basins provide more
abundant resources for the cultivation of the land. The country is divided in
23 provinces, three municipalities (Beijing, Shanghai and Tianjin) and five
autonomous regions. The capital and political center of China is Beijing.
Shanghai is the largest city and is also the main commercial and financial hub.
The Chinese state originated as far back as the second millennium B.C.
Although initially quasi-feudal in nature, gradually a highly centralized,
bureaucratic system evolved, which came to characterize the Chinese political
structure and which still influences the nature and style of administration
today. In the traditional Chinese polity, the emperor was the font of authority
and sovereignty. A succession of indigenous and invader dynasties reigned until
1911 when the last dynasty collapsed. A period of political instability and
civil war ensued as the Kuomintang (Nationalist Party) first attempted to wrest
control over the country from regional warlords, then battled the emerging
Chinese Communist Party. Although this conflict eased in the face of Japanese
invasion in the 1930s, the Chinese Community Party was better able to move into
the vacuum created by Japan's surrender in 1945. Over the next four years the
Communists defeated the Kuomintang forces, who subsequently fled to Taiwan. The
Communist Party established the People's Republic of China in 1949.
For much of the next three decades the Communist government tended to veer
back and forth from rather pragmatic state socialist plans of the Russian style
to grandiose crash programs, such as the "Great Leap Forward,' which not only
fell far short of its goal of jump-starting the economy into modernity but cost
millions of lives in the resulting famine. In 1966 the "Cultural Revolution"
began as a limited campaign within the party leadership but soon mushroomed out
of control, at times disrupting the economy and occasionally breaking into
virtual civil war. Quite apart from the economic damage and human suffering,
the Cultural Revolution undermined the prestige and, therefore, the authority of
the Communist Party, which has had an impact on the formulation and authority of
policy ever since.
Two years after the official end of the Cultural Revolution in 1976, the
surviving members of the Party establishment led by Deng Xiaoping, launched the
country on the path to economic reform. Although the resulting economic
transition has not always been even or free of social dislocations --as evidence
by the student demonstrations in 1986 and 1989 -- reform has begun to deliver
rising living standards and a better quality of life to large parts of the
country. Despite the forceful suppression of
<PAGE>
political dissent in 1989 at Tiananmen Square, the government has not backed
away from continued economic reform, but instead has steadily expanded the
horizon to include the establishment of securities markets, privatization of
state enterprises, reform of the banking sector and a progressive opening of the
economy to foreign investment.
China currently has diplomatic ties with approximately 140 nations. It is
a charter member of the United Nations and is seeking admission to the World
Trade Organization.
THE CHINESE ECONOMY
China established a centrally planned economy in 1949. In 1978 the
government implemented an economic reform program to create a more mixed economy
by opening it to limited foreign investment. Currently these economic reforms
allow managers of enterprises in China more autonomy in carrying on business,
including the planning of production, marketing, use of funds and employment of
staff.
The current 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 largest share 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. Although there has been a progressive
lifting of price controls, the government still sets the prices for a number of
essential goods which it controls and distributes; but any goods produced by
suppliers of government-controlled goods above the quotas that are set by the
state may be sold at floating prices, negotiated prices or free prices. 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.
Over the past decade, China has achieved annual growth in real gross
national product (GNP) averaging 9%. GNP in 1991 had increased to over 2.5
times the GNP in 1980. However, as is to be expected in such a high growth
environment, there have been wide swings in the annual growth rates, with major
booms in 1984 and 1988, for example; and "growth recessions" in 1981 and 1989.
In 1988, the Chinese Government instituted an austerity program which slowed the
Chinese economy in the following year. However, growth rates increased after
1989, achieving 5.2% in 1990 and 7% in 1991, as compared to only 3.9% in 1989.
China's economic policy is set out in two overlapping plans, the 20-Year
Plan (1981-2000) and the current Five-Year Economic Plan (1996-2000). China's
first Five-Year Economic Plan was set forth in 1953 to stimulate economic growth
and development. Currently, China is in its third year of its eighth Five-Year
Economic Plan.
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 previous
Five-Year Economic Plan called for 6% annual growth, starting in 1991; this
however, was surpassed with 10.5% growth being achieved between 1991 and 1995.
The following table sets forth selected data regarding the Chinese economy.
2
<PAGE>
MAJOR ECONOMIC INDICATORS
<TABLE>
<CAPTION>
1989 1990 1991 1992 1993 1994 1995
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Gross Domestic Product (% annual real growth). . . . . . 4.3 3.9 8.0 13.6 13.4 11.8 10.2
Per Capita GNP (U.S. $). . . . . . . . . . . . . . . . . 300.0 298.0 312.0 379.0 N/A 447 534
Industrial Production (% annual growth). . . . . . . . . 6.8 6.0 14.2 20.4 23.6 17.5 14
Inflation (retail price index, % annual growth). . . . . 17.8 2.1 3.0 6.2 13.4 21.7 14.8
Money Supply (M2, % annual growth) . . . . . . . . . . . 18.7 28.9 27.6 29.5 N/A 34.4 29.5
Government Budget Surplus/Deficit (U.S. $ billion) . . . (1.9) (2.7) (3.9) (7.8) (2.37) (66.9) (66.8)
Exports (U.S. $ billion) . . . . . . . . . . . . . . . . 52.5 62.1 71.9 85.1 92.0 121 148.8
(% annual growth). . . . . . . . . . . . . . . . . . . 10.2 17.9 15.8 18.3 8.0 31.9 23.1
Imports (U.S. $ billion) . . . . . . . . . . . . . . . . 59.1 53.3 68.8 80.8 104.0 115.7 132.1
(% annual growth). . . . . . . . . . . . . . . . . . . 6.8 (9.8) 191.5 26.6 29.0 11.3 14.2
Trade Balance (U.S. $ billion) . . . . . . . . . . . . . (6.6) 8.6 8.1 4.3 (12.0) 5.3 16.7
Exchange Rate (RMB/U.S. $) . . . . . . . . . . . . . . . 4.72 5.22 5.43 9.84 8.59 8.8 8.3
</TABLE>
__________
* Translated at the respective exchange rate for each year shown in the table.
N/A -- Not Available
Sources: China Statistical Yearbook, State Statistical Bureau of the People's
Republic of China, Baring Securities.
FINANCIAL REGULATION
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 body under the leadership of the
State Council. Its primary functions include the formulation of national
financial regulations and policies; the issuance of currency and regulation of
its circulation; the coordination 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.
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. China's
trade balance has fluctuated over the last five years. In 1995 China's foreign
trade yielded a foreign trade surplus of U.S. $16.7 billion, with exports of
U.S. $148.8 billion in 1995 representing an increase of 22.9% over 1994.
Exports were U.S. $121.0 billion in 1994, an increase of 31.9% over that of
1993. Imports reached U.S. $132.1 billion by the end of 1995, representing a
14.2% increase over 1994. For 1994, imports stood at U.S. $115.7 billion, an
increase of 11.2% over the 1993 figure.
Total trade for 1995 was approximately U.S. $280.9 billion, representing an
18.6% increase over 1994. In 1994 total trade stood at U.S. $236.7 billion, up
20.9% over 1995. From 1990 through 1992 and 1994 to 1995, China experienced
trade surpluses. In contrast, the country experienced trade deficits of $7.8
billion and $6.6 billion, respectively, in 1988 and 1989.
3
<PAGE>
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
1992, 1993 and 1994.
MAJOR TRADING PARTNERS
(U.S. $ MILLION)
<TABLE>
<CAPTION>
TOTAL TRADE EXPORTS FROM CHINA IMPORTS TO CHINA
------------------------- -------------------------- -------------------------
1992 1993 1994 1992 1993 1994 1992 1993 1994
---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Hong Kong. . . . . 58,050 32,496 41,821 37,512 22,050 32,364 20,538 10,446 9,457
Japan. . . . . . . 25,380 39,065 47,894 11,699 15,777 21,573 13,681 23,289 26,321
United States. . . 17,494 27,652 35,432 8,594 16,965 21,461 8,900 10,687 13,970
Germany. . . . . . 6,471 10,008 11,898 2,448 3,968 4,762 4,023 6,041 7,137
U.S.S.R/Russia . . 5,862 7,673 5,077 2,336 2,692 1,581 3,526 4,981 3,496
Singapore. . . . . 3,267 4,891 5,040 2,031 2,245 2,558 1,236 2,646 2,482
Italy. . . . . . . 2,843 4,042 4,659 1,095 1,305 1,591 1,748 2,738 3,068
France . . . . . . 2,260 2,931 3,363 764 1,290 1,424 1,496 1,641 1,939
Australia. . . . . 2,332 3,010 3,940 661 1,061 1,488 1,671 1,949 2,452
United Kingdom . . 1,936 3,588 4,184 923 1,924 2,414 1,014 1,664 1,770
</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 is only one type of monetary instrument in China today, the RMB. In
the past, a second type of instrument, called a Foreign Exchange Certificate
("FE") was also used, but has been withdrawn from circulation by the government.
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.
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
4
<PAGE>
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 RMB has been devalued progressively
in recent years, depreciating by almost 70% against the U.S. dollar between 1981
and 1990. During the 1990s, this general trend of depreciation has continued.
SECURITIES MARKETS
Prior to 1949, China had established rudimentary forms of securities
exchanges in Beijing, Shanghai and Tianjin. When the Chinese communist party
assumed power in 1949, China's securities markets were closed and all securities
were abolished. The Beijing, Shanghai and Tianjin securities exchanges reopened
briefly 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, 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
5
<PAGE>
transferred without the approval of the State asset administrative departments.
"A" shares are quoted and traded in RMB, while "B" shares are quoted in RMB 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 Restructuring 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.
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 of Shenzhen 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 February 29, 1996, 130 companies had shares listed on the SZSE, of which
34 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 the first company to 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.
MARKET INDEX. The performance of the "B" shares on SZSE is measured by the
Shenzhen Stock Exchange B Index. This Index stood at 111.87 on December 31,
1992, and at 141.44 on December 31, 1993. Since December 31, 1993, the Index
has declined to 86.66 on December 31, 1994, and 59.48 on December 31, 1995.
This fluctuation reflects the volatility of the market accentuated by the credit
tightening policy in China and the illiquidity of the market.
MEMBERSHIP. The SZSE operates on a membership system. Membership is
restricted to securities institutions approved by PBOC. As of February 29,
1996, there were 554 members admitted to SZSE and on December 31, 1994 there
were 550 members, consisting of banks, finance companies,
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<PAGE>
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 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 to 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 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
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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).
For a discussion of recent developments in the securities markets in China,
see "The Fund's Investments in the Greater China Region -- People's Republic of
China -- Securities Markets" in the Prospectus.
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' share holdings) to the
total shares of the company must not exceed the upper limit set by the PBOC,
Shenzhen Special 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.
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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 pre-determined 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.
SHANGHAI SECURITIES EXCHANGE
The SHSE was established on November 26, 1990 and officially opened on
December 19, 1990. Trading began on the SHSE during the later part of 1991.
Prior to the establishment of SHSE, an active OTC market in local stocks and
bonds existed in Shanghai.
MARKET INDEX. The performance of the "B" shares on the SHSE is measured by
the Shanghai Stock Exchange B Index. This Index stood at 66.22 on December 31,
1992, and at 103.15 on December 31, 1993, before falling to 62.80 on December
31, 1994 and 47.69 on December 31, 1995. This fall reflects volatility of the
market accentuated by the credit tightening policy in China and the illiquidity
of the market.
MEMBERSHIP. The SHSE operates on a membership system. Membership is
restricted to securities institutions approved by the PBOC. As of February 29,
1996, there were 553 members admitted to the SHSE, 60 of which are foreign
institutions. 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
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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 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.
For a discussion of recent developments in the securities markets in China,
see "The Fund's Investments in the Greater China Region -- People's Republic of
China -- Securities Markets" in the Prospectus.
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.
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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 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 share
holdings of shareholders who hold 5% or more of the total amount of shares or a
change in the share holdings 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 issue and
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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 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 01% 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 rep on 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.
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 executed using an 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.
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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 scrip less 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.
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.A. 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).
HONG KONG
Hong Kong became an island colony of Great Britain in 1841. Since that
time, Hong Kong remains China's largest trade partner and its leading foreign
investor. In 1995, the value of trade between Hong Kong and China exceeded
HK$1,239 billion, representing a 15% increase over 1994. In 1994, visible trade
between Hong Kong and China exceeded HK$1,077 billion, representing a 15%
increase over 1993.
The structure of Hong Kong's economy has changed significantly over the
last two decades as the services sector outpaced manufacturing. Large numbers
of Hong Kong based companies have set up factories in the southern province of
China, where it is estimated that Hong Kong companies employ up to 3 million
resident Chinese workers.
CHINA'S INVESTMENTS IN HONG KONG
There has been considerable growth in Chinese investment in Hong Kong in
the last five years. Chinese investment in Hong Kong typically involves the
purchase of stakes in existing companies. Most of Hong Kong's manufacturing
investment has been in Guangdong Province, and more than 3 million workers are
now estimated to be employed in the Province by Hong Kong companies. 1992
figures reflect 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 32% during 1994; exports increased by more than
73% during 1994 following a 46% growth in 1993. In 1994 Guangdong Province
accounted for some 39% of total exports and for more than 9.4% of GDP although
having only 5.5% of the population.
In an effort to accommodate the colony's infrastructure to the sustained
15% annual trade growth with southern China, the Hong Kong government in 1989
unveiled PADS, the Port and Airport Development Strategy. The project,
initially 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. In September 1991, Hong Kong and China concluded the Sino-
British Memorandum of Understanding, providing a framework for the PADS project.
The project is currently scheduled to be completed by 1999.
FOREIGN INVESTMENT RESTRICTIONS
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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.
HONG KONG SECURITIES MARKETS
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 is now the second largest stock market in Asia, behind only that
of Japan. As of December 31, 1995, 542 companies and 1,033 securities
(including warrants and other derivative instruments) were listed on the HKSE.
Market capitalization as of the same date was approximately HK$2,348,310
million, an increase of approximately 13% from the previous year. Average daily
turnover on the HKSE for January 1996 was HK$7,086 million compared with
HK$3,424 million from July 1995 to December 1995, and HK$3,268 million from
January 1995 to June 1995.
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 to venture
capital businesses, many of such businesses having their Asian head office in
Hong Kong.
The table below sets out selected data on the Hong Kong Stock Exchange to
each year since 1986, including the value to 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.
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<TABLE>
<CAPTION>
SELECTED DATA ON THE HKSE
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 . . . . . . . . . . . . . 1,222,675 156,753 477 891 2,975,379 381,459
1994 . . . . . . . . . . . . . 1,137,414 145,822 529 1,006 2,085,182 267,331
1995 . . . . . . . . . . . . . 826,801 106,000 542 1,033 2,348,310 301,065
</TABLE>
- ------------------------
Source: HKSE.
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>
<CAPTION>
HANG SENG INDEX
% 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 . . . . . . . . . . . . . 11,888.4 5,437.0 11,888.4 115.7
1994 . . . . . . . . . . . . . 12,201.1 7,702.8 8,191.0 (31.1)
1995 . . . . . . . . . . . . . 10,073.4 6,967.9 10,073.4 23.0
</TABLE>
- -------------------------
Source: HKSE.
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. 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. The Hang Seng Index rose by 116% in 1993 amidst the bull market run
in Asia that year, but declined by 31% in 1994.
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. The HKSE utilizes the Central Clearing Automated
Settlement System for 90% of the settlement of its executed trades. The
remaining 10% of trade settlement is settled by the delivery of physical stock
certificates. 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. As of June 1995, a brokerage
commission of not less than 0.25% (with a minimum of H.K. $50) is standard, and
trades are subject to a transaction levy of 0.013% payable equally to the HKSE
and the Hong Kong Securities and Futures Commission (the "SFC") and a special
levy of 0.03%. The Hong Kong government charges (i) an ad valorum stamp duty of
H.K. $1.50 per HK $1,000 value of transaction, and (ii) a transfer deed stamp
duty of HK$5, payable by the seller on each new transfer deed issued in
connection with securities sold. A transfer fee of HK$2 per board lot of shares
is payable by the purchaser of securities for each new certificate issued.
Finally, effective July 1, 1994, a trade tariff of HK$0.50 is levied on each
HKSE transaction.
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.
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 Takeovers and Mergers (used by
the SFC) provides guidelines for companies and their advisers contemplating, or
becoming involved in, takeovers and mergers.
16
<PAGE>
TAIWAN
DEMOGRAPHICS AND GOVERNMENT.
Taiwan is located approximately 90 miles east of the People's Republic of China
(for purposes of this section only, the "PRC"), 340 miles northeast of Hong
Kong. The island encompasses an area of approximately 13,900 square miles with
a total population estimated at 20.9 million as of December 31, 1993. With an
average of approximately 1,498 people per square mile, Taiwan is among the most
densely populated countries in the world. The largest cities are Taipei, in the
north, with over 2.7 million people, and Kaohsiung, in the south, with over 1.37
million people. Mandarin is the official language.
The Republic of China ("ROC") was established in 1912 by the Kuomintang
(Nationalist Party) (the "KMT") in mainland China and remained there until 1949
when General Chiang Kai-Shek, the elected president at that time, moved the ROC
administration to Taiwan. Since that time, the ROC has maintained that it is
the sole legitimate government of all of mainland China, Taiwan and Mongolia,
while the PRC has also asserted the same claim.
The KMT is currently headed by Lee Teng-Hui, who was elected President and
Chairman in 1988. He was reelected in March 1990 and again in March 1996 for
another term as President. Taiwan maintains formal diplomatic relations with 30
countries. Taiwan is not a member of the United Nations and various other
international organizations, but is a member of the Asian Development Bank.
Taiwan has applied to rejoin the General Agreement of Tariffs and Trade
("GATT"), from which it withdrew in 1950. Taiwan joined the Asia-Pacific
Economic Cooperation group ("APEC") in November 1991. In August 1993,
disaffected members of the KMT created a new political party called the Chinese
New Party which seeks to return Taiwan to full membership in the international
community. Opposing political parties whose platforms are consistent with the
ROC constitution are officially recognized in Taiwan.
The United States Congress passed the Taiwan Relations Act in 1979 to
establish a new framework for U.S./Taiwan relations and since that time the U.S.
remains Taiwan's largest trading partner. Taiwan enjoyed a cumulative trade
surplus of US $7.9 billion and US $6.3 billion with the U.S. in 1993 and 1994,
respectively.
ECONOMIC DEVELOPMENT. Taiwan's economic growth has been strong from 1984
to 1994, never falling below 5% during that period. In the 1990's, GNP growth
rates were 7.2%, 6.2%, 6.0%, 6.1% and 5.9% in 1991, 1992, 1993, 1994 and 1995,
respectively. Domestic demand has increased in recent years, although Taiwan's
exports also continue to grow, reaching 10.3% in 1993 and 8.6% in 1994.
The following table provides details of the overall economic performance of
Taiwan from 1987 to 1995.
17
<PAGE>
<TABLE>
<CAPTION>
EXCHANGE GDP TRADE TSE TSE MARKET
RATE AV. GROWTH SURPLUS YEAR-END CAPITAL
US $ % CPI (US $ BILL.) P/E CLOSING (US $ BILL.)
------ ------ --- ------------ --- ------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
1987 31.85 12.7 0.5 18.7 28.7 2,339 48.45
1988 28.57 7.8 1.3 11.0 68.9 5,119 120.1
1989 26.41 8.2 4.4 14.0 92.0 9,624 240.0
1990 26.39 5.4 4.1 12.5 33.0 4,530 112.4
1991 25.50 7.6 3.6 13.3 28.0 4,601 123.7
1992 25.20 6.8 4.5 9.5 30.1 3,377 100.1
1993 26.50 6.3 2.9 7.9 39.7 6,071 194.1
1994 26.45 6.5 4.1 11.9 33.5 7,125 247.0
1995 26.44 6.1 3.7 11.0 19.5 5,159 192.0
</TABLE>
The major sources of Gross Domestic Product ("GDP") have been
manufacturing, commerce, finance, insurance, real estate and business services
and government services, which together accounted for roughly 76% of GDP in
1994. During the past decade, the most significant trends in the composition of
GDP have been (1) the decline in the agricultural and construction sectors as
percentages of the total economy, and (2) the growth until 1989 in the relative
importance of manufacturing and services.
The New Taiwan Dollar ("NT") is the official currency in China. Taiwan's
favorable trade balance and increased foreign exchange reserves since 1984 have
caused appreciation of the NT. In 1987, the NT appreciated approximately 24.4%
against the U.S. Dollar, and further appreciated by 8.1% between 1988 and 1994.
Taiwan's exports to the U.S. have continued at high levels during this period,
in part because the appreciation of the NT has been at relatively lower levels
than the appreciation of the Japanese yen against the U.S. Dollar.
Unemployment in Taiwan remained low in the 1990's, with an average rate of
approximately 1.5%, 1.6% and 1.8% in 1992, 1993 and 1994 respectively.
In 1994, the Taiwan government began exerting all efforts toward the
development of the "Ten Emerging industries": telecommunications, information,
consumer electronics, semiconductors, precision machinery and automation,
aerospace, advanced materials, fine chemicals and pharmaceutical, health care,
and pollution control. The production value of these 10 industries in projected
to rise from US $27.3 billion in 1992 to US $94.2 billion in 2000. These 10
industries accounted for 15.5% of all industrial production in 1992 and are
projected to reach 29.4% in 2000.
In 1995, the Taiwan government offered a blueprint for Asia-Pacific
Regional Operations Center. Development plans have been set for six specific
operations centers, including manufacturing center, sea transportation center,
air transportation center, financial center, telecommunications center and media
center. The key areas of macroeconomic adjustments to reach these goals
include: (1) liberalizing trade and investment to lower tariffs, remove non-
tariff trade barriers, and open up the service industry; (2) reducing entry and
exit restrictions on personnel to allow foreign professionals and specialists to
engage in short-term stay and work in Taiwan; (3) easing restrictions on capital
movement to liberalize foreign exchange control in stages; and (4) establishing
a modern legal environment for the information society. This includes allowing
free circulation of information and the use of government information,
protecting intellectual property rights, and preventing computer crimes.
18
<PAGE>
TAIWAN'S INVESTMENTS IN MAINLAND CHINA AND HONG KONG
Indirect trade between Taiwan and mainland China has increased
significantly during the 1990s, despite Taiwan's policy of no official contact
with the PRC. In 1991, trade between Taiwan and PRC (primarily through Hong
Kong) increased 44% from the previous year, to US $14.4 billion. In 1992, there
was a 19.4% increase over the 1991 figure, and in 1993, trade increased 14.8% to
approximately US $20.2 billion. In 1994, trade increased 15.2% over the 1993
figure. In 1991, Taiwan established new procedures pursuant to which Taiwan
investors may register proposed investments in the mainland with the Ministry of
Economic Affairs, thereby making such Taiwan investments legally recognized in
China.
TAIWAN SECURITIES MARKETS
The TSE, Taiwan's only stock exchange, is a corporation owned 61% by
private banks and enterprises and 39% by government-operated banks and
enterprises. Selection of the TSE's top management is influenced by Taiwan
Securities and Exchange Commission ("Taiwan SEC"), which also monitors the TSE's
operations. The TSE commenced operations in 1962 with 18 listed companies. At
December 31, 1993, the aggregate market value of listed equity securities was
approximately US $223.2 billion with 313 listed companies. Debt securities are
traded in the TSE but remain small in terms of trading volume. Currently, there
are no foreign companies listed on the TSE.
Under current regulations applicable to foreign investment funds, the Fund
is not permitted to invest directly in any securities listed on the TSE. The
Fund intends to invest in Taiwan corporations by obtaining ownership interests
in global depository receipts and listed beneficiary certificates representing
shares in such corporations.
NEW SECURITIES INSTRUMENTS. The instruments traded on the Taiwan
securities market have primarily been limited to common stock and bonds.
However, recent legislative revisions and the present attitude of the Taiwan SEC
regarding liberalization of the securities regulations have encouraged some
innovation. For example, in February 1988, a TSE-listed company issued bonds
exchangeable into shares of another TSE-listed company in which it owned common
shares. This was the first offering of a convertible security by a company
listed on the TSE. The same company has made an offering of preferred shares
which are convertible into common shares. As of June 30, 1995, 28 additional
TSE-listed companies have issued similar convertible Eurobonds. The Taiwan SEC
is revising the relevant laws to expedite the process for converting Eurodollar
bonds into common shares of the issuer in the future. Sixteen TSE-listed
companies have issued domestic convertible bonds and the government is now
considering revising the relevant laws to expedite the process for converting
Eurodollar bonds into shares of the issuer. Another example of innovation is
the use of Global Depository Receipts ("GDRs") in raising capital. (For a
general discussion of GDRs, see "The Fund's Investment Objectives and Policies-
Depository Receipts" in the Prospectus.) The Taiwan SEC has also agreed to
permit the listing on the TSE of depositary receipts which would represent
shares of foreign issuers. Nine TSE-listed companies had issued GDRs before
1994. Thirteen TSE-listed companies are scheduling to issue GDRs in 1995. In
addition, the Taiwan SEC established a domestic futures market in 1994, but the
trading volume is relatively small now.
LISTED BENEFICIARY CERTIFICATES. Listed Beneficiary Certificates ("LBCs")
are certificates which represent the shares of closed-end funds which, subject
to Taiwan SEC and TSE approval, may be listed on the TSE. LBCs are issued only
by 15 securities investment trust companies in Taiwan for purposes of investing
in securities listed on the TSE. Two new securities investment trust companies
had been approved by the Taiwan SEC in 1995, and two other new securities
investment trust companies are
19
<PAGE>
applying for approval by the Taiwan SEC now. LBCs are traded on the TSE in the
same manner as other TSE-listed securities. As of August 31, 1995, there were
18 closed-end funds for which LBCs are traded. Almost all of the domestic
closed-end funds are currently trading at discounts. As of August 31, 1995, 56
open-end funds were issued by the 15 securities investment trust companies.
OVER-THE-COUNTER MARKET. The Taiwan SEC helped to establish an over-the-
counter market in Taiwan in September 1982. The Fund does not intend to invest
in this market.
MECHANICS OF TRADING ON THE TSE
PRICE AND VOLUME LIMITS. In order to reduce market volatility, the TSE has
placed limits on large volume transactions and on the range of daily price
movements. Complex restrictions are imposed on transactions which include 500
trading lots or more. These restrictions are not expected to have a substantial
impact on the Fund. Currently, fluctuations in price are restricted to 7% above
and below the previous day's closing price in the case of stocks and 5% in the
case of bonds. Over the last few years, the restriction on stock price
movements has fluctuated, moving from 5% to 3% following the 1987 market crash,
then back to 5% and finally, in September 1989, from 5% to the current level of
7%. Authorities have mentioned that the limits on stock price movements may be
further relaxed or abolished entirely.
Delivery and settlement are handled by the computerized TSE Clearing
Department. Sales of stock by brokers and traders are offset by purchases of
the same issue on the same day so that only net balances of stock are delivered
and only net balances of cash are computed and paid. The TSE has introduced a
certificate depositary system, operated by Taiwan Central Depositary Co., Ltd.,
which was established in November 1989.
COMMISSIONS AND TRANSACTION TAX. On July 1, 1990, brokerage commissions
for stocks were reduced by 0.0075% to 0.1425%. The TSE takes 5% of the
commissions earned by brokerage firms on stock transactions. Commissions on
bond transactions remain at 0.1%. A securities transaction tax of 0.3% of the
transaction price for stocks an 0.1% for bonds and LBCs is levied on the seller.
REGULATORY ENVIRONMENT
In 1983, the first fund permitting foreigners to invest in Taiwan
securities was approved. In 1986, approval was granted to three additional
foreign funds which raised a total of approximately US $75 million. At August
31, 1995, there were also 18 closed-end and 56 open-end domestic funds in
Taiwan, six of which are dedicated to investment outside Taiwan.
A major amendment (the "Amendment") of the Securities and Exchange Law was
enacted in January 1988 and resulted in significant changes to practices in the
securities industry. The Amendment was part of a government effort to make
securities supervision in Taiwan similar to that of advanced financial markets
and to modernize the securities markets to meet the growing need of investors.
The securities transactions tax was lowered on February 1, 1993 and
securities transactions are now taxed at a rate of 0.3% for stocks and 0.1% for
bonds and listed mutual fund shares, in both cases payable by the seller. The
Ministry of Finance announced in December 1993 that it was considering the
possibility of reimposing the capital gains tax but has not changed its position
as of August 31, 1995. Any reimposition is subject to legislative approval and
it cannot be predicted when or whether the Legislature will grant such approval.
20
<PAGE>
On December 28, 1990, the Executive Yuan of Taiwan approved guidelines
drafted by the Taiwan SEC which allow direct investment in Taiwan securities by
certain qualified foreign institutional investors, subject to certain
restrictions. For a discussion of these guidelines, see "The Fund's Investments
in the Greater China Region -- Taiwan -- Foreign Investment Restrictions." At
August 31, 1995, QFII had bought over NT$100 billion of Taiwan SEC listed
securities.
In April 1992, the Taiwan SEC promulgated regulations permitting Taiwan
listed companies, upon approval by the Taiwan SEC, to sponsor the issue and sale
to foreigners of depositary receipts evidencing shares of such companies. The
approval by the Taiwan SEC will be granted in respect of a fixed number of
depositary receipts which, except in connection with stock dividends and
distributions and the exercise of pre-emptive rights by existing depositary
receipt holders in the event of capital increases for cash, may not be increased
without separate Taiwan SEC approval. The Taiwan SEC has also agreed to permit
the listing on the TSE of Taiwan depositary receipts which would represent
shares of foreign issuers. No TDR is listed in any Taiwan security market as of
August 30, 1995.
FINANCIAL REPORTING
Since 1983, the Taiwan SEC, which administers the financial reporting
system, and the TSE have taken steps to improve the quality of financial
reporting and of internal financial controls in Taiwan-based companies.
The Securities and Exchange Law imposes criminal liability on accountants
who are knowingly involved in the preparation of fraudulent financial reports.
The Taiwan SEC promulgated regulations in July 1983 requiring that financial
reports of listed companies be audited by accounting firms consisting of at
least three certified public accountants and be signed by at least two certified
public accountants, and establishing standards for audit and budget systems of
listed companies.
The Amendment, in an effort to improve further financial reporting
standards, established a new financial reporting system for corporate issuers.
Under this system, issuers are subject to more extensive disclosure requirements
than they have been in the past. For example, companies listed on the TSE are
required to submit audited semi-annual and annual financial reports and first
and third quarter financial reports that have significant impact on the
financial condition of the issuer.
SINGAPORE
Singapore had a population of only a few hundred Malays in 1819 when Sir
Thomas Stamford Raffles obtained a grant of land from the local Malay chief to
establish a new port. In 1826, Singapore was joined with Penang and Malacca to
form the Straits Settlements, which were ruled as a part of British India until
1867, when they became a separate colony. The city grew in importance and
prosperity and was chosen as the main stronghold of British power in the Far
East in 1922. A large naval base was built on the north side of the island,
partly to protect Malaya. However, the Japanese invasion of Malaya in 1941 came
overland and the surrender of Singapore to the Japanese in February, 1942 was
one of the greatest defeats of allied arms during the Second World War.
Singapore was occupied by the Japanese until August, 1945.
Singapore became an island colony of Great Britain in the early 1800s and
achieved independence in 1960. Its population of 3 million is comprised of
77.5% Chinese, 14.2% Malay and 8.3% Indian and other groups. With foreign
exchange reserves of $66.8 billion (September 1995), Singapore has the highest
level of foreign exchange reserves per capita in the world. As the regional
21
<PAGE>
trading center for the South East Asian region, Singapore has enjoyed a period
of strong growth over the last five years, averaging 8.6% annual compound growth
in gross domestic product (GDP), with the result that GDP per capita is
estimated to have exceeded $27,000 at the end of 1995, classifying Singapore as
an "advanced developing nation" under the OECD classification scheme.
Singapore has used its large foreign exchange reserves to invest in various
regional projects, including a number in China, where its $2 billion in pledged
investment in 1995 made it the fifth largest foreign investor. Its Suzhou
industrial township near Shanghai has already attracted $1.4 billion of
investment.
SECURITIES MARKETS
Formal trading of investment securities began in the late nineteenth
century and the Singapore Stockbrokers' Association was incorporated in 1930.
The Stock Exchange of Singapore (SES) was incorporated in 1973. The SES is now
the seventh largest stock market in Asia, after Japan, Hong Kong, Malaysia,
Thailand, Korea and Taiwan, with a market capitalization at January 31, 1996, of
S$226.3 billion, an increase of approximately 10% from the previous year. From
January 1, 1995 to December 31, 1995, there were 20 new listings of companies on
the SES. Average monthly turnover on the SES for 1995 was S$83,866 million,
compared with S$123,520 million in 1994. As of December 31, 1995, 248 companies
were listed on the SES (212 Singaporean and 36 foreign), and a total of 495
securities. Another 46 were listed on the second market, known as the Stock
Exchange of Singapore Dealing and Automated Quotations Board (SESDAQ), which had
a market capitalization of S$4.18 billion at December 31, 1995.
There is also the Central Limit Order Board International (CLOB), an
electronic over-the-counter order matching system which was established after
the separation of the Singapore and Kuala Lumpur Stock Exchanges on 2nd January,
1990, primarily to enable Malaysian shares to continue to be traded freely in
Singapore. As of December 31, 1995, there were 10 Hong Kong, 112 Malaysian and
7 other international stocks traded on CLOB.
FOREIGN INVESTMENT RESTRICTIONS
Foreign investors in Singapore are restricted by ministerial limitations
from owning more than 49% of any strategic Singaporean company, or more than 40%
of any Singaporean bank. This has led to a two tier share holding structure,
with domestic and foreign registered shares, trading at different prices, with a
premium for foreign registered shares. There are no restrictions on investment
and remittances and no foreign exchange controls, although 27% corporate tax is
deducted from the gross dividends payable.
SINGAPORE SECURITIES MARKET
Formal trading of investment securities began in the late nineteenth
century and the Singapore Stockbrokers' Association was incorporated in 1930.
The Stock Exchange of Singapore (SES) was incorporated on the 24th May, 1973.
The SES is now the seventh largest stock market in Asia, after Japan, Hong Kong,
Malaysia, Thailand, Korea and Taiwan, with a market capitalization at the 31st
January, 1996, of S$226.3 billion, an increase of approximately 10% from the
previous year. From January 1st, 1995 to December 31st, 1995, there were 20 new
listings of companies on the SES. Average monthly turnover on the SES for 1995
was S$83,866 million, compared with S$123,520 million in 1994. As of 31st
December, 1995, 248 companies were listed on the SSE (212 Singaporean and 36
foreign),
22
<PAGE>
and a total of 495 securities, and another 46 on the second market, known as the
Stock Exchange of Singapore Dealing and Automated Quotations Board (SESDAQ),
which had a market capitalization of S$4.18 billion at 31st December, 1995.
There is also the Central Limit Order Board International (CLOB), an
electronic over the counter order matching system which was established after
the separation of the Singapore and Kuala Lumpur Stock Exchanges on 2nd January,
1990, primarily to enable Malaysian shares to continue to be traded freely in
Singapore. As at 31st December, 1995, there were 10 Hong Kong, 112 Malaysian
and 7 other international stocks traded on CLOB.
The table below sets out selected data on the Singapore Stock Exchange in
each year since 1990, including the value of securities traded during each year,
and the number of companies listed and the total market capitalization as of
December 31st each year and January 31, 1996.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
SELECT STATISTICS
- -----------------------------------------------------------------------------------------------------------------------------------
1990 1991 1992 1993 1994 1995 1996
<S> <C> <C> <C> <C> <C> <C> <C>
NO. OF COMPANIES LISTED 172 183 188 205 238 248 248
Market Capitalization 59.8 77.7 80.3 213.4 195.5 209.4 226.3
(S$bn)
Turnover Volume (m) 18,487 15,557 13,904 66,398 45,540 33,919 5,286
Value (S$m) 36,756 30,549 29,444 127,797 123,520 83,866 12,867
EPS Growth (OCBC) (5.7) 1.2 3.8 21.9 14.8 13.1 16.5
- ------------
SESDAQ Market Cap (S$m) 409.2 528.8 1,032.4 3,833.0 3,228.3 4,178.9 1,167.6
SES Turnover Volume (m) 116.9 167.9 526.1 2,304.7 1,704.0 5,323.3 388.8
Value (S$m) 209.4 157.5 359.9 2,405.4 2,145.0 4,763.6 365.3
</TABLE>
MARKET PERFORMANCE
The Straits Times Index (STI) is the most widely followed indicator of
stock price performance in Singapore. The STI is an arithmetic index based on
30 companies, weighted by their respective market capitalizations, and is thus
strongly influenced by large capitalization stocks.
23
<PAGE>
The movements of the STI and other indices over the last six years
(December 31 for all years through 1995, January 31 for 1996) are as follows:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
MARKET PERFORMANCE
- ----------------------------------------------------------------------------------------------------------------------
1990 1991 1992 1993 1994 1995 1996
<S> <C> <C> <C> <C> <C> <C> <C>
STI Index
High 1,607.12 1,565.58 1,545.92 2,426.85 2,471.90 2,287.58 2,449.15
Low 1,101.77 1,149.08 1,310.95 1,531.11 2,036.80 1,903.80 2,255.82
Close 1,154.48 1,490.70 1,524.40 2,425.68 2,239.56 2,266.54 2,449.15
OCBC 30 362.48 464.37 452.56 638.53 552.07 585.17 635.76
DBS 50 343.40 432.22 420.26 623.22 534.25 560.98 607.22
SESDAQ Index 69.36 61.74 53.17 154.15 80.30 100.26 99.99
</TABLE>
TRADING
Trading on the SES is conducted through a computerized book based system to
convey bid and offer prices for securities affected by changes in book entries
in securities accounts that shareholders maintain with the Central Depositary
Pte Ltd., the SES' automated electronic central depositary. Trades are then
effected on a matched basis between buyers and sellers. Payment is against
delivery, and must be settled within 5 business days of the transaction.
Brokerage commission is on a sliding scale, starting at 1.00% for bargains of
less than $250,000, and falling gradually to 0.30% for those above S$1,500,000.
Brokerage on the CLOB International is negotiable subject to a minimum of 0.5%.
In addition, trades are subject to a transaction levy of 0.5% payable to the
SES, subject to a maximum of S$100. Finally, the Singaporean government charges
a stamp duty of .05% of the transaction price, and there is a Goods and Services
Tax (GST) of 3% on brokerage and clearing fees.
The SES is regulated by the Securities Industry Act of 1986 and supervised
through a set of rules and regulations enforced by the 9-member Stock Exchange
Committee.
24
<PAGE>
SUBJECT TO COMPLETION, DATED APRIL 17, 1996
STATEMENT OF ADDITIONAL INFORMATION
CVO GREATER CHINA FUND, INC.
237 PARK AVENUE, SUITE 910
NEW YORK, NEW YORK 10017
____________, 1996
CVO Greater China Fund, Inc. (the "Fund") is a non-diversified, no-load,
open-end, management investment company that has issued two classes of shares:
Class I and Class II. Class I Shares are offered to institutional investors and
Class II Shares are offered to non-institutional investors. Under normal market
conditions and subject to temporary defensive investments, 65% of the Fund's
assets will be invested in equity securities (i) traded in securities markets
located in the Greater China Region, or (ii) issued by companies whose business
significantly relates to the Greater China Region (as measured by assets,
revenues or profits). This Statement of Additional Information sets forth
information about the Fund.
This Statement of Additional Information is not a prospectus and is only
authorized for distribution when preceded or accompanied by the Fund's
Prospectus dated __________, 1996 (the "Prospectus"). This Statement of
Additional Information contains additional information to that set forth in the
Prospectus and should be read in conjunction with the Prospectus, additional
copies of which may be obtained without charge by writing or calling the Fund at
the address and telephone number set forth above.
<PAGE>
________________________________________________________________________________
TABLE OF CONTENTS
Page
Additional Information on Portfolio Instruments. . . . . . . . . . . . . . 2
Hedging and Other Strategic
Transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Investment Limitations . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Management of the Fund . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Distributor. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Administration, Shareholder Servicing,
Custody and Transfer Agency Services . . . . . . . . . . . . . . . . . . 12
Portfolio Transactions . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Purchase of Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Redemption of Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Performance Calculations . . . . . . . . . . . . . . . . . . . . . . . . . 15
Additional Information Concerning Dividends, Distributions and Taxes . . . 16
Shareholder Services . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
General Information. . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Report of Independent Accountants. . . . . . . . . . . . . . . . . . . . . 24
Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
________________________________________________________________________________
ADDITIONAL INFORMATION ON PORTFOLIO INSTRUMENTS
REVERSE REPURCHASE AGREEMENTS
The Fund may for temporary financing and investment purposes invest up to
5% of its net assets in reverse repurchase agreements. A reverse repurchase
agreement is a borrowing transaction in which the Fund transfers possession of a
security to another party, such as a bank or broker/dealer, in return for cash,
and agrees to repurchase the security in the future at an agreed upon price,
which includes an interest component. A reverse repurchase agreement involves
the risk that the market value of the portfolio securities sold by the Fund may
decline below the price of the securities the Fund is obligated to repurchase,
which price is fixed at the time that the Fund enters into such agreement.
Whenever the Fund enters into reverse repurchase agreements as described in the
Prospectus, it will place in a segregated custodian account liquid assets having
a value equal to the repurchase price (including accrued interest) and will
subsequently monitor the account to ensure such equivalent value is maintained.
Reverse repurchase agreements are considered to be borrowings by the Fund under
the Investment Company Act of 1940 (the "1940 Act").
2
<PAGE>
LENDING OF PORTFOLIO SECURITIES
For the purposes of realizing income, the Fund may make secured loans of
portfolio securities amounting to not more than one-third of its total assets.
Securities loans are made to broker/dealers or institutional investors pursuant
to agreements requiring that the loans continuously be secured by collateral at
least equal at all times to the value of the securities lent plus any accrued
interest, "marked to market" on a daily basis. The collateral received will
consist of cash, U.S. short-term government securities, bank letters of credit
or such other collateral as may be permitted under the Fund's investment program
and by regulatory agencies and approved by the Fund's Board of Directors. Any
cash or other liquid collateral will be invested only in similar types of liquid
securities. While the securities loan is outstanding, the Fund will continue to
receive the equivalent of the interest or dividends paid by the issuer on the
securities, as well as interest on the investment of the collateral or a fee
from the borrower. The Fund has a right to call each loan and obtain the
securities on five business days' notice. To the extent applicable, the Fund
will not have the right to vote equity securities while they are being lent, but
it will call in a loan in anticipation of any important vote. The risks in
lending portfolio securities, as with other extensions of secured credit,
consist of possible delay in receiving additional collateral or in the recovery
of the securities or possible loss of rights in the collateral should the
borrower fail financially. Loans only will be made to firms deemed by the
Adviser to be of good standing and will not be made unless, in the judgment of
the Adviser, the consideration to be earned from such loans would justify the
risk.
UNITED STATES GOVERNMENT OBLIGATIONS
Securities issued or guaranteed by the U.S. government or by its agencies
or instrumentalities include obligations of several kinds. Such securities in
general include a wide variety of U.S. Treasury obligations consisting of bills,
notes and bonds, which principally differ only in their interest rates,
maturities and times of issuance. Securities issued or guaranteed by U.S.
government agencies and instrumentalities are debt securities issued by agencies
or instrumentalities established or sponsored by the U.S. government.
In addition to the U.S. Treasury obligations described above, the Fund may
invest in other types of securities issued or guaranteed by the U.S. Treasury.
Securities issued or guaranteed by U.S. government agencies and
instrumentalities include obligations that are supported by (a) the full faith,
and credit of the U.S. Treasury (e.g., direct pass-through certificates of the
Government National Mortgage Association); (b) the limited authority of the
issuer or guarantor to borrow from the U.S. Treasury (e.g., obligations of
Federal Home Loan Banks); or (c) only the credit of the issuer or guarantor
(e.g., obligations of the Federal Home Loan Mortgage Corporation). In the case
of obligations not backed by the full faith and credit of the U.S. Treasury, the
agency issuing or guaranteeing the obligation is principally responsible for
ultimate repayment.
Agencies and instrumentalities that issue or guarantee debt securities and
that have been established or sponsored by the U.S. government include, in
addition to those identified above, the Bank for Cooperatives, the Export-Import
Bank, the Federal Farm Credit System, the Federal Intermediate Credit Banks, the
Federal Land Banks, the Federal National Mortgage Association and the Student
Loan Marketing Association.
BANK OBLIGATIONS
Subject to the investment limitations described under "Investment
Limitations," bank obligations that may be purchased by the Fund include
certificates of deposit, bankers' acceptances and fixed time
3
<PAGE>
deposits. A certificate of deposit is a short-term negotiable certificate issued
by a commercial bank against funds deposited in the bank and is either
interest-bearing or purchased on a discount basis. A banker's acceptance is a
short-term draft drawn on a commercial bank by a borrower, usually in connection
with an international commercial transaction. The borrower is liable for payment
as is the bank, which unconditionally guarantees to pay the draft at its face
amount on the maturity date. Fixed time deposits are obligations of branches of
U.S. banks or foreign banks which are payable at a stated maturity date and bear
a fixed rate of interest. Although fixed time deposits do not have a market,
there are no contractual restrictions on the right to transfer a beneficial
interest in the deposit to a third party.
Banks are subject to extensive governmental regulations that may limit both
the amounts and types of loans and other financial commitments that may be made
and the interest rates and fees that may be charged. The profitability of this
industry is largely dependent upon the availability and cost of capital funds
for the purpose of financing lending operations under prevailing money market
conditions. Also, general economic conditions play an important part in the
operations of this industry and exposure to credit losses arising from possible
financial difficulties of borrowers might affect a bank's ability to meet its
obligations. Bank obligations may be general obligations of the parent bank or
may be limited to the issuing branch by the terms of the specific obligations or
by government regulations.
Investors should also be aware that securities of foreign banks and foreign
branches of U.S. banks may involve investment risks in addition to those
relating to domestic bank obligations. Such investment risks include future
political and economic developments, the possible imposition of foreign
withholding taxes on interest income payable on such securities held by the
Fund, the possible seizure or nationalization of foreign assets and the possible
establishment of exchange controls or other foreign governmental laws or
restrictions which might affect adversely the payment of the principal of and
interest on such securities held by the Fund. In addition, there may be less
publicly-available information about a foreign issuer than about a U.S. issuer,
and foreign issuers may not be subject to the same accounting, auditing and
financial record-keeping standards and requirements as U.S. issuers.
The Fund will not purchase such bank securities which the Adviser believes,
at the time of purchase, will be subject to exchange controls or foreign
withholding taxes; however, there can be no assurance that such laws may not
become applicable to certain of the Fund's investments. In the event unforeseen
exchange controls or foreign withholding taxes are imposed with respect to the
Fund's investments, the effect may be to reduce the income received by the Fund
on such investments.
BORROWING
The Fund is authorized to borrow money from banks for temporary or
emergency purposes, denominated in any currency in an amount of up to 10% of its
total assets (including the amount borrowed).
EURODOLLAR OBLIGATIONS
The Fund may make investments in Eurodollar instruments, which are
typically U.S. dollar-denominated futures contracts or options on those
contracts, that are linked to the London Interbank Offered Rate ("LIBOR"),
although foreign currency denominated Eurodollar instruments may be available
from time to time. Eurodollar futures contracts enable purchasers to obtain a
fixed rate for the lending of funds and allow sellers to obtain a fixed rate for
borrowings. The Fund may also use Eurodollar futures contracts and options
thereon to hedge against changes in LIBOR, to which many interest rate swaps and
fixed income instruments are linked.
4
<PAGE>
HEDGING AND OTHER STRATEGIC TRANSACTIONS
As described in the Prospectus under "Special Investment Techniques," the
Fund may be authorized to use a variety of investment strategies to hedge
various market risks (such as currency exchange rates, interest rates, and broad
or specific market movements) to seek to reduce the volatility of the Fund's
portfolio or to seek to increase the Fund's income or gain (such investment
strategies and transactions are referred to herein as "Hedging and Other
Strategic Transactions"). The description in the Prospectus and "Additional
Information on Portfolio Instruments" indicates which, if any, of these types of
transactions may be used by the Fund.
As a supplement to the discussion in the Prospectus under "Special
Investment Techniques," certain types of Hedging and Other Strategic
Transactions are described below. The Fund will not be obligated, however, to
pursue any of such strategies and the Fund makes no representation as to the
availability of these techniques at this time or at any time in the future. In
addition, the Fund's ability to pursue certain of these strategies may be
limited by the Commodity Exchange Act, as amended, applicable rules and
regulations of the Commodity Futures Trading Commission ("CFTC") thereunder and
the federal income tax requirements applicable to regulated investment companies
which are not operated as commodity pools. See "Additional Information
Concerning Dividends, Distributions and Taxes" below. See "Risks Associated
with the Fund -- Special Risks of Certain Fund Investments" in the Prospectus
for a discussion of the risks related to Hedging and Other Strategic
Transactions.
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS
The Fund may enter into forward foreign currency exchange contracts. A
forward foreign currency exchange contract is a contract individually negotiated
and privately traded by currency traders and their customers. A forward
contract is an obligation to purchase or sell a specific currency for an agreed
price at a future date which is individually negotiated and privately traded by
currency traders and their customers. The Fund may enter into a forward
contract, for example, when it enters into a contract for the purchase or sale
of a security denominated in a foreign currency in order to lock in the U.S.
dollar price of the security ("transaction hedge"). The Fund may engage in
"cross-hedging" by using forward contracts in one currency 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. The purpose of entering into these
contracts is to minimize the risk to the Fund from adverse changes in the
relationship between the U.S. dollar and foreign currencies. In addition, the
Fund may purchase forward contracts for nonhedging purposes when the Fund
anticipates that the foreign currency will appreciate in value, but securities
denominated in that foreign currency do not present attractive investment
opportunities. However, forward contracts may limit potential gain from a
positive change in the relationship between the U.S. dollar and foreign
currencies. Unanticipated changes in currency prices may result in poorer
overall performance for the Fund than if it had not entered into forward foreign
currency exchange contracts.
CURRENCY SWAPS
The Fund may enter into currency swaps on a gross basis, unless the swap
contract provides otherwise, for hedging and other purposes (including income
generation and speculative gain). Currency swaps involve the exchange of rights
to make or receive payments in specified currencies. Since currency swaps are
individually negotiated, the Fund expects to achieve an acceptable degree of
correlation between its Fund 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 net gain of a currency swap is subject to the risk that the other party to
the swap will default on its contractual delivery obligations.
5
<PAGE>
The use of currency swaps is a highly specialized activity which involves
investment techniques and risks different from those associated with ordinary
portfolio securities transactions. If the Adviser is incorrect in its forecasts
of market values and currency exchange rates, the investment performance of the
Fund would be less favorable than it would have been if this investment
technique were not used.
OPTIONS ON CURRENCIES
The Fund may purchase and sell (write) put and call options on foreign
currencies for the purpose of protecting against declines in the U.S. dollar
value of foreign portfolio securities and anticipated dividends on such
securities and against increases in the U.S. dollar cost of foreign securities
to be acquired. The Fund may use options on currency to cross-hedge, which
involves writing or purchasing options on one currency to hedge against changes
in exchange rates for a different currency, if there is a pattern of correlation
between the two currencies. As with other kinds of option transactions,
however, the writing of an option on foreign currency will constitute only a
partial hedge, up to the amount of the premium received. The Fund could be
required to purchase or sell foreign currencies at disadvantageous exchange
rates, thereby incurring losses on the hedge. The purchase of an option on
foreign currency may constitute an effective hedge against exchange rate
fluctuations; however, in the event of exchange rate movements adverse to the
Fund's hedge position, the Fund may lose the entire amount of the premium plus
related transaction costs. In addition, the Fund may purchase call or put
options on currency for speculative purposes when the Adviser anticipates that
the currency will appreciate or depreciate in value, but the securities
denominated in that currency do not present attractive investment opportunities.
Options on foreign currencies to be written or purchased by the Fund will be
traded on U.S. and foreign exchanges or over-the-counter. See "Risks Associated
with the Fund -- Hedging and Other Strategic Transactions" in the Prospectus for
a discussion of the liquidity and other risks associated with options
transactions.
INVESTMENT LIMITATIONS
In addition to the restrictions described under "The Fund's Investment
Objectives and Policies" in the Prospectus, the Fund may not:
(1) Purchase or sell commodities or commodity contracts, except that the
Fund may purchase and sell financial and currency futures contracts
and options thereon, and may purchase and sell currency forward
contracts, options on foreign currencies and may otherwise engage in
transactions in foreign currencies;
(2) Make loans, except that the Fund may (a)(i) purchase and hold debt
instruments (including bonds, debentures or other obligations and
certificates of deposit and bankers' acceptances) and (ii) invest in
loans and participations, both in accordance with its investment
objectives and policies, (b) make loans of portfolio securities and
(c) enter into repurchase agreements with respect to portfolio
securities;
(3) Underwrite the securities of other issuers, except to the extent that
the purchase of investments directly from the issuer thereof and later
disposition of such securities in accordance with the Fund's
investment program may be deemed to be an underwriting;
(4) Purchase real estate or real estate limited partnership interests
(other than securities secured by real estate or interests therein or
securities issued by companies that invest in real estate or interests
therein);
6
<PAGE>
(5) Make short sales of securities or maintain a short position, unless at
all times when a short position is open, the Fund 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;
(6) Purchase securities on margin (except for delayed delivery or when-
issued transactions or such short-term credits as are necessary for
the clearance of transactions, and except for initial and variation
margin payments in connection with the use of options, futures
contracts, options thereon or forward currency contracts; the Fund may
also make deposits of margin in connection with futures and forward
contracts and options thereon);
(7) Issue senior securities (as defined in the 1940 Act);
(8) Borrow money, except that the Fund may borrow (i) from banks for
temporary or emergency purposes, or (ii) by entering into reverse
repurchase agreements; provided that, immediately after any such
borrowing, the aggregate amount of all borrowings is not to exceed 10%
of its gross assets taken at market value. In the event that asset
valuations of the Fund cause all borrowings of the Fund to exceed such
10%, the Fund will not enter into any purchases of securities until
the aggregate amount of all borrowings is reduced below 5%. Any such
borrowings may be secured or unsecured. The Fund may issue securities
(including senior securities) appropriate to evidence such
indebtedness, including reverse repurchase agreements;
(9) Purchase more than 3% of the stock of another investment company, or
purchase stock of other investment companies equal to more than 5% of
the Fund's net assets in the case of any one other investment company
and 10% of such net assets in the case of all other investment
companies in the aggregate. Such purchases shall be made in the open
market, with no commission or profit to a sponsor or dealer other than
the customary broker's commission. This restriction shall not apply
to investment company securities received or acquired by the Fund
pursuant to a merger or plan of reorganization, and in the event of
such merger or reorganization, when applicable, the Fund will comply
with the NASAA Guidelines for Registration of Master Fund/Feeder
Funds;
(10) Invest for the purpose of exercising control over management of any
company, except investment in investment company securities received
or acquired by the Fund pursuant to a merger or plan of
reorganization;
(11) Invest directly in interests in oil, gas or other mineral exploration
development programs or mineral leases, or purchase partnership
interests in any such programs or leases;
(12) Pledge, hypothecate, mortgage or otherwise encumber its assets, except
to secure permitted borrowings in accordance with investment
restriction (8) above;
(13) Invest in Hedging and Other Strategic Transactions (as defined in
"Special Investment Techniques" in the Prospectus) and warrants
(valued at the lower of cost or market) if, as a result of such
purchases, more than 35% of the Fund's net assets (taken at current
value) would be invested in such instruments. The value of such
warrants may not exceed 2% of the Fund's net assets. This restriction
does not apply to warrants acquired by the Fund in units or attached
to securities, inasmuch as such warrants are deemed to be without
value.
7
<PAGE>
Included within the 35% limitation, but not to exceed 2% of the value
of the Fund's net assets, may be warrants that are not publicly
traded;
(14) Invest more than 10% of the Fund's net assets (taken at current value)
in stock option transactions (including, without limitation, puts,
call, straddles or spreads and any combination thereof);
(15) Purchase or retain securities of an issuer if those officers or
Directors of the Fund or its investment adviser owning more than 1/2
of 1% of such securities together own more than 5% of such securities;
and
(16) Invest more than 5% of its total assets in securities of issuers
(other than securities issued or guaranteed by U.S. or foreign
governments or political subdivisions thereof) which have (with
predecessors) a record of less than three years' continuous operation.
Percentage restrictions on investment or use of assets as set forth above
are at the time a transaction is effected; later changes in percentages
(excluding the borrowing limitations) resulting from changing values will not be
considered a violation.
Investment restrictions (1) through (8) described above are fundamental
policies of the Fund which may be changed only when permitted by law and
approved by the holders of a majority of the Fund's Shares. Restrictions (9)
through (16) are nonfundamental policies of the Fund, and may be changed by a
vote of the Fund's Board of Directors.
In connection with investment restrictions (6), (7) and (8), arrangements
made by the Fund with respect to its transactions in all types of Hedging and
Other Strategic Transactions shall not be considered to be (i) a borrowing of
money, (ii) the issuance of securities by the Fund, (iii) a pledge of assets or
(iv) the purchase of a security on margin.
8
<PAGE>
MANAGEMENT OF THE FUND
DIRECTORS AND OFFICERS
The principal occupations of the directors and executive officers of the
Fund (and any positions held with affiliated persons of the Fund) for the past
five years are listed below.
<TABLE>
<CAPTION>
Position(s) Held Principal Occupation(s)
Name and Address With the Fund Past 5 Years
- ---------------- ------------- ----------------------
<S> <C> <C>
Morris W. Offit* President, Chief Executive President and Director, OFFITBANK (1983-present)
OFFITBANK Officer and Director
520 Madison Avenue
New York, NY 10022
Robert A. Theleen* Director Group Chairman, ChinaVest Partnerships (1980-
ChinaVest Limited present); Director, China Vest Management Ltd.,Wah
19/F, 11 Duddell Street Ming Hong Holdings Ltd., ZIC Holdings and Tait
Central, Hong Kong Holdings Ltd.; Former Director, Luks Industrial Co.
Ltd..
John W. Glynn, Jr. Director President, Glynn Capital Management (1983-present)
Glynn Capital Management
Building 4, Suite 235
3000 Sand Hill Road
Menlo Park, CA 94025
Edward J. Landau Director Member, Lowenthal, Landau, Fischer & Bring, P.C.
Lowenthal, Landau, Fischer (1960-present); Director, Revlon Group Inc., Revlon
& Bring, P.C. Consumer Products Inc., Pittsburgh Annealing Box and
250 Park Avenue Clad Metals Inc.
New York, NY 10177
The Very Reverend James Parks Morton Director Dean of Cathedral of St. John the Divine
Cathedral of St. John the Divine (1972 - present).
1047 Amsterdam Avenue
New York, NY 10025
_______________
* "Interested person" as defined in the 1940 Act.
9
<PAGE>
Wallace Mathai-Davis* Secretary and Treasurer Managing Director, OFFITBANK (1986 - present)
OFFITBANK
520 Madison Avenue
New York, NY 10022
John J. Pileggi Assistant Treasurer Senior Managing Director, Furman Selz LLC
Furman Selz LLC (1984 - present).
230 Park Avenue
New York, NY 10169
Joan V. Fiore Assistant Secretary Managing Director and Counsel, Furman Selz
Furman Selz LLC LLC (1991 -present); Attorney, Securities
230 Park Avenue and Exchange Commission (1986 - 1991).
New York, NY 10169
Gordon M. Forrester Assistant Treasurer Director - Fund Services, Furman Selz LLC
Furman Selz LLC (1987-present)
230 Park Avenue
New York, NY 10169
</TABLE>
________________
* "Interested person" as defined in the 1940 Act.
The following table contains information regarding the estimated aggregate
remuneration to be paid during the fiscal year ended October 31, 1996 to each
of the three most highly compensated officers and all directors of the Fund:
COMPENSATION TABLE
<TABLE>
<CAPTION>
AGGREGATE
COMPENSATION
NAME OF PERSON, POSITION FROM THE FUND
-------------------------- ---------------
<S> <C>
Morris W. Offit, President, Chief Executive Officer and Director $0
Robert A. Theleen, Director $0
John W. Glynn, Jr., Director $4,000
Edward J. Landau, Director $4,000
The Very Reverend James Parks Morton, Director $4,000
Wallace Mathai-Davis, Secretary and Treasurer $0
John J. Pileggi, Assistant Treasurer $0
</TABLE>
(1) To date, the Fund has yet to pay any remuneration to any of its officers
or directors. The figures in the above table are estimates based upon the
assumption that the Fund begins operations in June 1996 and that the Board
of Directors meets twice prior to October 31, 1996.
10
<PAGE>
The Fund has no pension or retirement plan and pays no pension or
retirement benefits to its officers or directors.
The Fund pays each Director who is not also an officer or affiliated person
an annual fee of $3,000 and a fee of $500 for each Board of Directors and Board
committee meeting attended and Directors are reimbursed for all out-of-pocket
expenses relating to attendance at meetings. Directors who are affiliated with
the Adviser do not receive compensation from the Fund but are reimbursed for all
out-of-pocket expenses relating to attendance at meetings.
INVESTMENT ADVISER
The Fund has retained CVO Greater China Partners, L.P., a Delaware limited
partnership, to act as its investment adviser (the "Adviser"). The Adviser has
two general partners, OFFITBANK Greater China, Inc., a New York corporation
established in August 1994 as a wholly-owned subsidiary of OFFITBANK, a New York
State chartered trust company, and ChinaVest Public Equities, LLC, a California
limited liability corporation established in January 1995 as a wholly-owned
subsidiary of ChinaVest Financial Services, Ltd., a Cayman Islands corporation.
See "Management of the Fund" in the Prospectus.
The advisory agreement (the "Advisory Agreement") between the Adviser and
the Fund provides that the Adviser shall manage the operations of the Fund,
subject to policy established by the Board of Directors of the Fund. Pursuant
to the Advisory Agreement, the Adviser manages the Fund's investment portfolios,
directs purchases and sales of the portfolio securities and reports thereon to
the Fund's officers and directors regularly. The Adviser also furnishes office
space and certain facilities reasonably necessary for the performance of its
services under the Advisory Agreement, and provides the office space,
facilities, equipment and personnel necessary to perform the following services
for the Fund: Securities and Exchange Commission ("Commission") compliance,
including record keeping, reporting requirements and registration statements and
proxies; supervision of Fund operations, including custodian, accountants and
counsel and other parties performing services or operational functions for the
Fund. In addition, the Adviser pays the compensation of the Fund's officers,
employees and directors affiliated with the Adviser. The Fund bears all other
costs of its operations, including the compensation of its directors not
affiliated with the Adviser.
For its services under the Advisory Agreement, the Adviser receives from
the Fund an advisory fee. The fee is payable monthly at an annual rate of 1.25%
of the Fund's average daily net assets. The Adviser may waive all or part of
its fee from time to time in order to increase the Fund's net investment income
available for distribution to shareholders. The Fund will not be required to
reimburse the Adviser for any advisory fees waived.
The Advisory Agreement was approved by the Fund's Board of Directors on
October 27, 1994 and by the Fund's initial shareholder, FSI, on June 1, 1995.
Unless sooner terminated, the Advisory Agreement will continue in effect with
respect to the Fund until June 1, 1997, and from year to year thereafter if such
continuance is approved at least annually by the Fund's Board of Directors or by
a vote of majority (as defined under "General Information -- Capital Stock") of
the outstanding Shares of the Fund, and, in either case, by a majority of the
directors who are not parties to the contract or "interested persons" (as
defined in the 1940 Act) of any party by votes cast in person at a meeting
called for such purpose. The Advisory Agreement may be terminated by the Fund
or the Adviser on 60 days' written notice, and will terminate immediately in the
event of its assignment.
11
<PAGE>
DISTRIBUTOR
OFFIT Funds Distributor, Inc. (the "Distributor"), a wholly-owned
subsidiary of Furman Selz Holding Corporation, with its principal office at 230
Park Avenue, New York, New York 10169, distributes the Shares of the Fund.
Under a distribution agreement with the Fund (the "Distribution Agreement"),
the Distributor, as agent of the Fund, acts as sole distributor of the Fund's
Shares. The distribution expenses incurred by the Distributor in activities
primarily intended to result in sales of Class I and Class II Shares will be
paid by the Adviser out of its own resources.
Solely for the purpose of reimbursing the Distributor for its expenses
incurred in certain activities primarily intended to result in the sale of
Class II Shares, the Fund has adopted a Plan of Distribution (the "Plan") under
Section 12(b) of the 1940 Act and Rule 12b-1 thereunder. Under the Plan and
Distribution Agreement, the Fund is authorized to spend for the account of Class
II Shares up to 0.25% of its average daily net assets attributable to Class II
Shares annually, to reimburse the Distributor for its activities primarily
intended to result in the sale of Class II Shares. The Fund will not reimburse
the Distributor for such distribution activities for a period of at least one
year following the commencement of the Fund's operations, and thereafter until
the Board of Directors of the Fund takes further action. During such period,
the Adviser will finance from its own resources all distribution activities in
connection with the solicitation of new investors in Class I and Class II
Shares. Other provisions of the Plan and the Distribution Agreement are
summarized in "Management of the Fund -- Distributor" in the Prospectus.
The Plan, together with the Distribution Agreement, will continue in effect
with respect to a particular Fund from year to year if such continuance is
approved at least annually by the Fund's Board of Directors and separately
approved by a majority of the Directors who have no direct or indirect financial
interest in the operation of the Plan or in any agreement related to the Plan
("Qualified Directors") and who are not an "interested person" (as defined in
the 1940 Act) of any party by votes cast in person at a meeting called for such
purpose. In approving the continuance of the Plan and the Distribution
Agreement, the Directors (and the Qualified Directors voting separately) must
determine that the Plan is in the best interest of the shareholders of the Fund.
The Plan requires that, at least quarterly, the Board of Directors must
review a written report enumerating the amounts expended and purposes therefor
under the Plan. Rule 12b-1 also requires that the selection and nomination of
Directors who are not "interested persons" of the Fund be made by such Qualified
Directors.
The Plan was approved by the Fund's Board of Directors on October 27, 1994.
ADMINISTRATION, SHAREHOLDER SERVICING, CUSTODY AND
TRANSFER AGENCY SERVICES
Furman Selz LLC ("FSI") is the sole shareholder of the Fund and provides
the Fund with administrative, fund accounting, dividend disbursing and
transfer agency services pursuant to a Fund Administration Agreement dated as
of December 31, 1994 (the "Administration Agreement"). The services provided
by and the fees payable to FSI for such services are described in the
Prospectus. The Administration Agreement continues in effect until December
31, 1995 and from year to year thereafter if such continuance is approved at
least annually by the Fund's Board of Directors and by a majority of the
Directors who are not parties to such Agreement or "interested persons" (as
defined in the 1940 Act).
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Pursuant to the Administration Agreement, FSI performs certain
administrative and clerical services, including certain accounting services.
FSI serves as the Fund's Transfer Agent and Dividend Disbursing Agent
pursuant to a transfer agency agreement (the "Transfer Agency Agreement") with
the Fund. Under the Transfer Agency Agreement, FSI has agreed, among other
things, to: (i) issue and redeem Shares of the Fund; (ii) transmit all
communications by the Fund to its shareholders of record, including reports to
shareholders, dividend and distribution notices and proxy materials for meetings
of shareholders; (iii) respond to correspondence by security brokers and others
relating to its duties; (iv) maintain shareholder accounts; and (v) make
periodic reports to the Board of Directors concerning the Fund's operations.
Under the Transfer Agency Agreement, FSI is entitled to a fee of $15 per
account. The Transfer Agency Agreement continues in effect for an indefinite
term and may be terminated by either party on 60 days' written notice.
The fees paid to FSI as shareholder servicing agent are based on the Fund's
net assets attributable to the Class II Shares, reflecting the higher cost of
servicing the holders of said shares. FSI receives a monthly shareholder
servicing fee computed at an annual rate of 0.25% of the average daily net
assets of the Fund attributable to the Class II Shares. This fee is allocated
to Class II Shares only.
Investors Bank & Trust Company (the "Custodian") serves as the Fund's
custodian pursuant to a custodian agreement (the "Custodian Agreement") with the
Fund. The Custodian is located at 89 South Street, Boston, Massachusetts
02111. Under the Custodian Agreement, the Custodian has agreed to (i) maintain
a separate account or accounts in the name of the Fund; (ii) hold and disburse
portfolio securities on account of the Fund; (iii) collect and receive all
income and other payments and distributions on account of the Fund's portfolio
securities; (iv) respond to correspondence by security brokers and others
relating to its duties; and (v) make periodic reports to the Fund's Board of
Directors concerning the Fund's operations. The Custodian is authorized under
the Custodian Agreement to select one or more banks or trust companies to serve
as sub-custodian on behalf of the Fund, provided that the Custodian remains
responsible for the performance of all of its duties under the Custodian
Agreement. The Custodian is entitled to receive a fee under the Custodian
Agreement of 0.164% of the aggregate average daily net assets of the Fund.
The Custodian Agreement continues in effect until June 1, 1997 and from
year to year thereafter if such continuance is approved at least annually by the
Fund's Board of Directors and by a majority of the Directors who are not parties
to such Agreement or "interested persons" (as defined in the 1940 Act) of any
party, and such Agreement may be terminated by either party on 60 days' written
notice.
Except for the shareholders servicing fee, all of the foregoing fees and
expenses are allocated to both classes of Shares on a pro rata basis.
PORTFOLIO TRANSACTIONS
The Fund has no obligation to deal with any dealer or group of dealers in
the execution of transactions in portfolio securities. Subject to policy
established by the Fund's Board of Directors, the Adviser is primarily
responsible for the Fund's portfolio decisions and the placing of the Fund's
portfolio transactions.
Purchases and sales of securities on a stock exchange are effected through
brokers who charge a commission. In the over-the-counter market, securities are
generally traded on a "net" basis with dealers acting as principal for their own
accounts without a stated commission, although the price of the security
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usually includes a profit to the dealer. In placing orders, it is the policy
of the Fund to obtain the best results taking into account the dealer's
general execution and operational facilities, the type of transactions
involved and other factors such as the dealer's risk in positioning the
securities involved. While the Adviser generally seeks the best price in
placing the orders, the Fund may not necessarily be paying the lowest price
available.
Under the 1940 Act, persons affiliated with the Fund are prohibited from
dealing with the Fund as a principal in the purchase and sale of securities
unless an exemptive order allowing such transactions is obtained from the
Commission. Affiliated persons of the Fund, or affiliated persons of such
persons, may from time to time be selected to execute portfolio transactions
for the Fund as agent. Subject to the considerations discussed above and in
accordance with procedures expected to be adopted by the Board of Directors,
in order for such an affiliated person to be permitted to effect any portfolio
transactions for the Fund, the commissions, fees or other remuneration
received by such affiliated person must be reasonable and fair compared to the
commissions, fees or other remuneration received by other brokers in
connection with comparable transactions. This standard would allow such an
affiliated person to receive no more than the remuneration which would be
expected to be received by an unaffiliated broker in a commensurate
arm's-length agency transaction.
PURCHASE OF SHARES
For information pertaining to the manner in which Shares are offered
to the public, see "Purchase of Shares" in the Prospectus. The Fund reserves
the right, in its sole discretion, to (i) suspend the offering of Shares, and
(ii) reject purchase orders when, in the judgment of management, such suspension
or rejection is in the best interest of the Fund. THE OFFICERS OF THE FUND IN
THEIR SOLE DISCRETION MAY, FROM TIME TO TIME, WAIVE THE MINIMUM INITIAL AND
SUBSEQUENT INVESTMENT REQUIREMENTS.
REDEMPTION OF SHARES
The Fund may suspend redemption privileges or postpone the date of
payment (i) during any period that the New York Stock Exchange (the "NYSE") or
the bond market is closed, or trading on the NYSE is restricted as determined
by the Commission, (ii) during any period when an emergency exists as defined
by the rules of the Commission as a result of which it is not reasonably
practicable for the Fund to dispose of securities owned by it, or fairly to
determine the value of its assets, and (iii) for such other periods as the
Commission may permit.
Furthermore, if the Board of Directors determines that it is in the best
interests of the remaining shareholders of the Fund, the Fund may pay the
redemption price, in whole or in part, by a distribution in kind.
The Fund has made an election with the Commission to pay in cash all
redemptions requested by any shareholder of record limited in amount during any
90-day period to the lesser of $250,000 or 1% of the net assets of the Fund at
the beginning of such period. Such commitment is irrevocable without the prior
approval of the Commission. Redemptions in excess of the above limits may be
paid in whole or in part in investment securities or in cash, as the Board of
Directors may deem advisable; however, payment will be made wholly in cash
unless the Board of Directors believes that economic or market conditions exist
which would make such a practice detrimental to the best interests of the Fund.
If redemptions are paid in investment securities, such securities will be valued
as set forth in the Fund's Prospectus under "Calculation of Net Asset Value" and
redeeming shareholders would normally incur brokerage expense if they converted
these securities to cash.
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No charge is made by the Fund for redemptions, except for the early
redemption charge as set forth in the Fund's Prospectus under "Redemption of
Shares." Redemption proceeds may be more or less than the shareholder's
cost depending on the market value of the securities held by the Fund.
PERFORMANCE CALCULATIONS
The Fund may from time to time quote various performance figures which will
be calculated separately for Class I and Class II Shares to illustrate the past
performance of the Fund. Performance quotations by investment companies are
subject to rules adopted by the Commission, which require the use of
standardized performance quotations or, alternatively, that every non-
standardized performance quotation furnished by the Fund be accompanied by
certain standardized performance information computed as required by the
Commission. An explanation of the Commission methods for computing performance
follows.
TOTAL RETURN
The Fund's average annual total return is determined by finding the average
annual compounded rates of return over 1, 5 and 10 year periods (or, if shorter,
the period since inception of the Fund) that would equate an initial
hypothetical $1,000 investment in Class I or Class II Shares to its ending
redeemable value. The calculation assumes that all dividends and distributions
are reinvested when paid. The quotation assumes the invested amount was
completely redeemed at the end of each 1, 5 and 10 year period (or, if shorter,
the period since inception of the Fund) and the deduction of all applicable Fund
expenses on an annual basis. Average annual total return is calculated
according to the following formula:
n
P (1+T) = ERV
Where: P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value of a hypothetical $1,000 payment
made at the beginning of the stated period
The Fund may also calculate total return on an aggregate basis which
reflects the cumulative percentage change in value over the measuring period.
The formula for calculating aggregate total return can be expressed as follows:
ERV
Aggregate Total Return = --- - 1
P
In addition to total return, the Fund may quote performance in terms of a
30-day yield. The yield figures provided will be calculated according to a
formula prescribed by the Commission and can be expressed as follows:
6
Yield = 2 [(a - b + 1) - 1]
-----
cd
Where:
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a = dividends and interest earned during the period.
b = expenses accrued for the period (net of reimbursements).
c = the average daily number of Shares outstanding
during the period that were entitled to receive dividends.
d = the maximum offering price per share on the last day of the
period.
For the purpose of determining the interest earned (variable "a" in the
formula) on debt obligations that were purchased by the Fund at a discount or
premium, the formula generally calls for amortizations of the discount or
premium; the amortization schedule will be adjusted monthly to reflect changes
in the market value of the debt obligations.
The performance of the Fund may be compared to data prepared by independent
services which monitor the performance of investment companies, and may be
quoted in advertising in terms of their rankings in each applicable universe.
In addition, the Fund may use performance data reported in independent financial
and industry publications.
ADDITIONAL INFORMATION CONCERNING
DIVIDENDS, DISTRIBUTIONS AND TAXES
The following discussion is only a brief summary of certain additional
dividend, distribution and tax considerations effecting the Fund, the Fund and
its shareholders. No attempt is made to present a detailed explanation of all
federal, state and local tax concerns, and the discussion set forth here and in
the Prospectus is not intended as a substitute for careful tax planning.
Investors are urged to consult their own tax advisers with specific questions
relating to federal, state or local taxes.
TAXATION OF DIVIDENDS AND DISTRIBUTIONS
Shareholders in the Fund will normally be required to pay federal and
state income taxes on the dividends and distributions they receive from the
Fund. Such dividends and distributions, to the extent derived from net
investment income or short-term capital gains, are taxable to the shareholder
as ordinary income regardless of whether the shareholder receives such
payments in additional Shares or in cash. Any dividends declared in the last
quarter of any year which are paid in the following year prior to February 1
will be deemed received by the shareholder in the prior year.
As discussed in the Prospectus under "Dividend and Distributions," the Fund
will determine either to distribute or to retain all or part of any net long-
term capital gains in any year for reinvestment. If any such gains are
retained, the Fund will pay federal income tax thereon, and the shareholders (i)
will include such undistributed gains in determining their taxable income, (ii)
will be able to claim their share of the tax paid by the Fund as a credit
against their individual federal income tax, and (iii) will be entitled to a
basis adjustment of 65% of the amount of the gain allocated to the Shares.
Any dividend or capital gains distribution received by a shareholder from
any investment company will have the effect of reducing the net asset value of
the shareholder's stock in that company by the exact amount of the dividend or
capital gains distribution. Furthermore, capital gains distributions and
dividends are subject to federal income taxes. If the net asset value of the
Shares should be reduced below a shareholder's cost as a result of the payment
of dividends or the distribution of realized long-term capital gains, such
payment or distribution would be in part a return of the shareholder's
investment
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<PAGE>
to the extent of such reduction below the shareholder's cost, but
nonetheless would be fully taxable. Therefore, an investor should consider the
tax implications of purchasing Shares immediately prior to a distribution record
date. Although the price of Shares purchased at that time may reflect the
amount of the forthcoming distribution, those purchasing just prior to a
distribution will receive a distribution which will nevertheless be taxable to
them.
Gain or loss, if any, on the shareholder's sale or other disposition of
Shares will generally result in capital gain or loss to shareholders.
Generally, a shareholder's gain or loss will be a long-term gain or loss if the
Shares have been held by the shareholder for more than one year. However,
distributions of net long-term capital gains by the Fund, if any, are taxable to
shareholders as long-term capital gains regardless of how long a shareholder has
held the Shares and regardless of whether the distribution is received in
additional Shares or in cash. In all other sales or dispositions of Shares, if
a shareholder sells or otherwise disposes of a share of the Fund before holding
it for more than six months, any loss on the sale or other disposition of such
share shall be treated as a long-term capital loss to the extent of any capital
gain dividends received by the shareholder with respect to such share.
Currently, the maximum federal income tax rate imposed on individuals with
respect to net realized long-term capital gains is limited to 28%, whereas the
maximum federal income tax rate imposed on individuals with respect to net
realized short-term capital gains (which are taxed at the same rates as ordinary
income) is 39.6%.
Distributions in excess of the Fund's current and accumulated earnings and
profits will, as to each shareholder, be treated as a tax-free return of
capital, to the extent of a shareholder's basis in his Shares, and as a capital
gain thereafter (if the shareholder held his or her Shares as capital assets).
Shareholders receiving dividends or distributions in the form of additional
Shares should be treated for U.S. federal income tax purposes as receiving a
distribution in an amount equal to the amount of money that the shareholders
receiving cash dividends or distributions will receive and should have a cost
basis in the Shares received equal to such amount.
Any loss realized on the redemption by a shareholder of his Shares will
be disallowed to the extent the Shares disposed of are replaced, including
replacement through the reinvesting of dividends and capital gains
distributions in the Fund, within a period (of 61 days) beginning 30 days
before and ending 30 days after the disposition of the Shares. In such a
case, the basis of the Shares acquired will be increased to reflect the
disallowed loss. Any loss realized by a shareholder on the sale of a fund
share held by the shareholder for six months or less will be treated for
United States income tax purposes as a long-term capital loss to the extent of
any distributions or deemed distributions of long-term capital gains received
by the shareholder with respect to such share.
QUALIFICATION AS A REGULATED INVESTMENT COMPANY
The Fund intends to qualify as a regulated investment company (a "RIC")
under Subchapter M of the Internal Revenue Code (the "Code") and to continue to
so qualify. If so qualified, the Fund will not be subject to federal income tax
on its net investment income and net short-term capital gains, if any, realized
during any fiscal year to the extent that it distributes such income and capital
gains to its shareholders, other than any tax resulting from investing in
passive foreign investment companies, as discussed below. In addition, the Fund
intends to distribute to its shareholders each calendar year a sufficient amount
of ordinary income and capital gains to avoid the imposition of a 4% excise tax.
Qualification as a RIC requires, among other things, that the Fund: (a)
derive at least 90% of its gross income in each taxable year from dividends,
interest, payments with respect to securities loans and gains from the sale or
other disposition of stock, securities or foreign currencies, or other income
(including gains from options, futures or forward contracts) derived with
respect to its business of
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<PAGE>
investing in such stocks or securities, (b) derive less than 30% of its gross
income in each taxable year from the sale or other disposition of any of the
following held for less than three months: (i) stock or securities, (ii)
options, futures, or forward contracts, or (iii) foreign currencies (or
foreign currency options, futures or forward contracts) that are not directly
related to its principal business of investing in stock or securities (or
options and futures with respect to stocks or securities) (the "30%
limitation"); and (c) diversify its holdings so that, at the end of each
quarter of each taxable year, (i) at least 50% of the market value of the
Fund's assets is represented by cash, cash items, U.S. government securities,
securities of other regulated investment companies and other securities with
such other securities limited, in respect of any issuer, to an amount not
greater than 5% of the value of the Fund's assets and 10% of the outstanding
voting securities of such issuer, and (ii) not more than 25% of the value of
its assets is invested in the securities (other than U.S. government
securities or the securities of other regulated investment companies) of any
one issuer.
CERTAIN SPECIAL INVESTMENT TECHNIQUES
The Fund's investments in options, futures contracts and forward contracts,
options on futures contracts and stock indices and certain other securities,
including transactions involving actual or deemed short sales or foreign
exchange gains or losses are subject to many complex and special tax rules. For
example, over-the-counter options on debt securities and equity options,
including options on stock and on narrow-based stock indexes, will be subject to
tax under Section 1234 of the Code, generally producing a long-term or short-
term capital gain or loss upon exercise, lapse or closing out of the option or
sale of the underlying stock or security. By contrast, the Fund's treatment of
certain other options, futures and forward contracts entered into by the Fund is
generally governed by Section 1256 of the Code. These "Section 1256" positions
generally include listed options on debt securities, options on broad-based
stock indexes, options on securities indexes, options on futures contracts,
regulated futures contracts and certain foreign currency contracts and options
thereon.
Absent a tax election to the contrary, each such Section 1256 position held
by the Fund will be marked-to-market (i.e., treated as if it were sold for fair
market value) on the last business day of the Portfolio's fiscal year, and all
gain or loss associated with fiscal year transactions and mark-to-market
positions at fiscal year end (except certain currency gain or loss covered by
Section 988 of the Code) will generally be treated as 60% long-term capital gain
or loss and 40% short-term capital gain or loss. The effect of Section 1256
mark-to-market rules may be to accelerate income or to convert what otherwise
would have been long-term capital gains into short-term capital gains or short-
term capital losses into long-term capital losses within the Fund. The
acceleration of income on Section 1256 positions may require the Fund to accrue
taxable income without the corresponding receipt of cash. In order to generate
cash to satisfy the distribution requirements of the Code, the Fund may be
required to dispose of portfolio securities that they otherwise would have
continued to hold or to use cash flows from other sources such as the sale of
Fund Shares. In these ways, any or all of these rules may affect the amount,
character and timing of income earned and in turn distributed to shareholders by
the Fund.
When the Fund holds options or contracts which substantially diminish their
risk of loss with respect to other positions (as might occur in some hedging
transactions), this combination of positions could be treated as a "straddle"
for tax purposes, resulting in possible deferral of losses, adjustments in the
holding periods of Fund securities and conversion of short-term capital losses
into long-term capital losses. Certain tax elections exist for mixed straddles
i.e., straddles comprised of at least one Section 1256 position and at least one
non-Section 1256 position which may reduce or eliminate the operation of these
straddle rules.
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<PAGE>
As a regulated investment company, the Fund is also subject to the
requirement that less than 30% of its annual gross income be derived from the
sale or other disposition of securities and certain other investments held for
less than three months ("short-short income"). This requirement may limit the
Fund's ability to engage in options, spreads, straddles, hedging transactions,
forward or futures contracts or options on any of these positions because these
transactions are often consummated in less than three months, may require the
sale of portfolio securities held less than three months and may, as in the case
of short sales of portfolio securities reduce the holding periods of certain
securities within the Fund, resulting in additional short-short income for the
Fund.
The Fund will monitor its transactions in such options and contracts and
may make certain other tax elections in order to mitigate the effect of the
above rules and to prevent disqualification of the Fund as a regulated
investment company under Subchapter M of the Code.
The tax treatment of certain securities in which the Fund may invest is not
free from doubt and it is possible that an Internal Revenue Service ("IRS")
examination of the issuers of such securities or of the Fund could result in
adjustments to the income of the Fund. An upward adjustment by the IRS to the
income of the Fund may result in the failure of the Fund to satisfy the 90%
distribution requirement described in the Prospectus necessary for the Fund to
maintain its status as a regulated investment company under the Code. In such
event, the Fund may be able to make a "deficiency dividend" distribution to its
shareholders with respect to the year under examination to satisfy this
requirement. Such distribution will be taxable as a dividend to the
shareholders receiving the distribution (whether or not the Fund has sufficient
current or accumulated earnings and profits for the year in which such
distribution is made). A downward adjustment by the IRS to the income of the
Fund may cause a portion of the previously made distribution with respect to the
year under examination not to be treated as a dividend. In such event, the
portion of distributions to each shareholder not treated as a dividend would be
recharacterized as a return of capital and reduce the shareholder's basis in the
Shares held at the time of the previously made distributions. Accordingly, this
reduction in basis could cause a shareholder to recognize additional gain upon
the sale of such shareholder's Shares.
FOREIGN CURRENCY TRANSACTIONS
In general, gains from foreign currencies and from foreign currency
options, foreign currency futures and forward foreign exchange contracts
relating to investments in stock, securities or foreign currencies are
currently considered to be qualifying income for purposes of determining
whether the Fund qualifies as a regulated investment company. It is currently
unclear, however, who will be treated as the issuer of certain foreign
currency instruments or how foreign currency options, futures, or forward
foreign currency contracts will be valued for purposes of the regulated
investment company diversification requirements applicable to the Fund. The
Fund may request a private letter ruling from the Internal Revenue Service on
some or all of these issues.
Under Code Section 988, special rules are provided for certain
transactions in a foreign currency other than the taxpayer's functional
currency (i.e., unless certain special rules apply, currencies other than the
U.S. dollar). In general, foreign currency gains or losses from forward
contracts, from futures contracts that are not "regulated futures contracts,"
and from unlisted options will be treated as ordinary income or loss under
Code Section 988. Also, certain foreign exchange gains or losses derived with
respect to foreign fixed-income securities are also subject to Section 988
treatment. In general, therefore, Code Section 988 gains or losses will
increase or decrease the amount of the Fund's investment company taxable
income available to be distributed to shareholders as ordinary income, rather
than increasing or decreasing the amount of the Fund's net capital gain.
Additionally, if Code Section 988 losses exceed other investment company
taxable income during a taxable year, the Fund may not be able
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<PAGE>
to make any ordinary dividend distributions and distributions paid
during the year may be characterized for tax purposes as a return of capital.
Exchange control regulations may restrict repatriations of investment
income and capital or the proceeds of securities sales by foreign investors such
as the Fund and may limit the Fund's ability to pay sufficient dividends and to
make sufficient distributions to satisfy the 90% and excise tax distribution
requirements.
The Fund's transactions, if any, in foreign currencies, forward contracts,
options and futures contracts (including options and futures contracts on
foreign currencies) may be subject to special provisions of the Code that, among
other things, may affect the character of gains and losses realized by the Fund
(i.e., may affect whether gains or losses are ordinary or capital), accelerated
recognition of income to the Fund and defer Fund losses. These rules could
therefore affect the character, amount and timing of distributions to
shareholders. These rules also (a) could require the Fund to mark to market
certain types of the positions in its portfolio (i.e., treat them as they were
closed out) and (b) may cause the Fund to recognize income without receiving
cash with which to pay dividends or make distributions in amounts necessary to
satisfy the distribution requirements for avoiding income and excise taxes.
INVESTMENT IN PASSIVE FOREIGN INVESTMENT COMPANIES
Certain of the Fund's investments may, for federal income tax purposes,
constitute investments in Shares of foreign corporations. In the event the Fund
purchases Shares in certain foreign investment entities, called "passive foreign
investment companies" ("PFICs"), the Fund may be subject to U.S. federal income
tax on a portion of any "excess distribution" or gain from the disposition of
the Shares even if the income is distributed as a taxable dividend by the Fund
to its shareholders. Additional charges in the nature of interest may be
imposed on either the Fund or its shareholders with respect to deferred taxes
arising from the distributions or gains. If the Fund were to invest in a PFIC
and (if the Fund received the necessary information available from the PFIC,
which may be difficult to obtain) elected to treat the PFIC as a "qualified
electing fund" under the Code, in lieu of the foregoing requirements, the Fund
might be required to include in income each year a portion of the ordinary
earnings and net capital gains of the PFIC, even if not distributed to the Fund,
and the amounts would be subject to the 90% and calendar year distribution
requirements described above.
On March 31, 1992, the IRS released proposed regulations providing a mark-
to-market election for regulated investment companies that would allow
investment companies investing in PFICS to avoid most, if not all, of the
difficulties posed by the PFIC rules. If approved, these regulations would be
effective for taxable years ending after promulgation of the regulations as
final regulations. The Fund may elect to mark to market stock in PFICs under
proposed regulations by the IRS. The Fund will attempt to minimize its holdings
in PFICs.
FOREIGN TAXES
The Fund may be subject to withholding and other taxes imposed by foreign
countries with respect to dividends, capital gains and interest income. Tax
conventions between certain countries and the United States may reduce or
eliminate such taxes. Shareholders may be entitled to claim U.S. foreign tax
credits with respect to such taxes, subject to certain provisions and
limitations contained in the Code.
If the Fund qualifies as a regulated investment company, if certain
distribution requirements are satisfied and if more than 50% in value of the
Fund's total assets at the close of any taxable year consists of stocks or
securities of foreign corporations, which for this purpose should include
obligations issued by foreign governmental issuers, the Fund may file with the
IRS an election pursuant to which
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<PAGE>
shareholders of the Fund will be required to (i) include in their respective
pro rata portions of such withholding taxes in their U.S. income tax returns
as gross income, (ii) treat such respective pro rata portions as taxes paid by
them, and (iii) deduct such respective pro rata portions in computing their
taxable incomes or alternatively use them as foreign tax credits against their
U.S. income taxes. The Fund expects to make this election in the near future.
Shortly after any year for which it makes such an election, the Fund will
report to its shareholders, in writing, the amount per share of such foreign
income taxes that must be included in each shareholder's gross income and the
amount that will be available for deductions or credit.
In general, a shareholder may elect each year whether to claim deductions
or credits for foreign taxes. No deductions for foreign taxes may be claimed,
however, by non-corporate shareholders (including certain foreign shareholders
as described below) who do not itemize deductions. If a shareholder elects to
credit foreign taxes, the amount of credit that may be claimed in any year may
not exceed the same proportion of the U.S. tax against which such credit is
taken that the shareholder's taxable income from foreign sources (but not in
excess of the shareholder's entire taxable income) bears to his entire taxable
income. If the Fund makes this election, a shareholder will be treated as
receiving foreign source income in an amount equal to the sum of his
proportionate share of foreign income taxes paid by the Fund and the portion
of dividends paid by the Fund representing income earned from foreign sources.
This limitation may be applied separately to certain categories of income and
the related foreign taxes.
BACKUP WITHHOLDING
The Fund may be required to withhold federal income tax at a rate of 31%
("backup withholding") from dividends and redemption proceeds paid to non-
corporate shareholders. This tax may be withheld from dividends if (i) the
payee fails to furnish the Fund with the payee's correct taxpayer identification
number, (ii) the Internal Revenue Service notifies the Fund that the payee has
failed to report properly certain interest and dividend income to the Internal
Revenue Service and to respond to notices to that effect, or (iii) when required
to do so, the payee fails to certify that he or she is not subject to backup
withholding.
INVESTORS SHOULD CONSULT THEIR OWN TAX ADVISERS REGARDING SPECIFIC
QUESTIONS AS TO THE FEDERAL, STATE, LOCAL AND FOREIGN TAX CONSEQUENCES OF
OWNERSHIP OF SHARES IN ANY OF THE FUND.
SHAREHOLDER SERVICES
The following supplements the shareholder services set forth in the
Fund's Prospectus:
TRANSFER OF SHARES
Shareholders may transfer Shares of the Fund to another person by written
request to the Fund at the address noted above. The request should clearly
identify the account and number of Shares to be transferred and include the
signature of all registered owners and all share certificates, if any, which are
subject to the transfer. The signature on the letter of request, the share
certificate or any stock power must be guaranteed in the same manner as
described under "Redemption of Shares" in the Prospectus. As in the case of
redemptions, the written request must be received in good order before any
transfer can be made.
21
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GENERAL INFORMATION
CAPITAL STOCK
All Shares of the Fund have equal voting rights and will be voted in the
aggregate, and not by class, except where voting by class is required by law.
Class I and Class II Shares of the Fund will vote separately in approving the
Fund's distribution plan and any shareholder servicing plan.
As used in this Statement of Additional Information, the term "majority",
when referring to the approvals to be obtained from all shareholders of the Fund
in connection with general matters affecting the Fund, means the vote of the
lesser of (i) 67% of the Fund's Shares represented at a meeting if the holders
of more than 50% of the outstanding Shares are present in person or by proxy or
(ii) more than 50% of the Fund's outstanding Shares. The term "majority," when
referring to the approvals to be obtained from shareholders in connection with
matters affecting the Fund or any other single Fund (e.g., approval of Advisory
Agreements), means the vote of the lesser of (i) 67% of the Shares of the Fund
represented at a meeting if the holders of more than 50% of the outstanding
Shares of the Fund are present in person or by proxy or (ii) more than 50% of
the outstanding Shares of the Fund. Shareholders are entitled to one vote for
each full share held and fractional votes for fractional Shares held.
Class I Shares of the Fund are entitled to such dividends and distributions
out of the income earned on the assets attributable to Class I Shares as are
declared in the discretion of the Fund's Board of Directors. Class II Shares of
the Fund are entitled to such dividends and distributions out of the income
earned on the assets attributable to Class II Shares as are declared in the
discretion of the Fund's Board of Directors. In the event of the liquidation or
dissolution of the Fund, each class of Shares of the Fund is entitled to receive
the assets allocable to such class of Shares which are available for
distribution. Dividends declared by the Fund for each class of Shares will be
the same, except that dividends to Class II Shares will be less than dividends
to Class I Shares due to the effect of higher fees and expenses that will be
assessed to Class II Shares.
Shareholders of the Fund are not entitled to any preemptive rights. All
Shares, when issued, will be fully paid, non-assessable, fully transferable and
redeemable at the option of the holder.
As of the date of this Statement of Additional Information, FSI was the
sole record and beneficial owner of all of the outstanding classes of Shares
of the Fund's common stock and thus was deemed to "control" the Fund as that
term is defined in the 1940 Act. The Shares held by FSI are intended to
enable the Fund to meet an initial capitalization requirement imposed under
the 1940 Act. FSI has undertaken that the Shares were purchased for investment
purposes only and that they will be sold only pursuant to a registration
statement under the Securities Act of 1933, as amended, or an applicable
exemption from the registration requirements thereof.
INDEPENDENT ACCOUNTANTS
Price Waterhouse LLP, 1177 Avenue of the Americas, New York, New York
10036, serves as the independent accountants for the Fund. The independent
accountants are responsible for auditing the annual financial statements of the
Fund.
REPORTS TO SHAREHOLDERS
The Fund will send to shareholders, at least semi-annually, reports showing
the Fund's portfolio and other information. An annual report containing
financial statements audited by independent accountants will be sent to
shareholders each year.
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The Fund's fiscal year ends on the last day of October. The financial
statements of the Fund must be audited at least once a year by independent
accountants whose selection is made annually by the Fund's Board of Directors.
COUNSEL
McCutchen, Doyle, Brown & Enersen, 3 Embarcadero Center, San Francisco,
California 94111, serves as counsel to the Fund.
EXPERTS
The Statement of Assets and Liabilities of the Fund included in this
Statement of Additional Information and incorporated by reference in the
Prospectus has been so included and incorporated by reference in reliance on the
report of Price Waterhouse LLP, independent accountants, given on the authority
of said firm as experts in auditing and accounting.
OTHER INFORMATION
The Prospectus and this Statement of Additional Information do not contain
all of the information included in the Registration Statement filed with the
Commission under the Securities Act of 1933, as amended, with respect to the
securities offered by the Prospectus. Certain portions of the Registration
Statement have been omitted from the Prospectus and this Statement of Additional
Information pursuant to the rules and regulations of the Commission. The
Registration Statement including the exhibits filed therewith may be examined at
the office of the Commission in Washington, D.C.
Statements contained in the Prospectus or in this Statement of Additional
Information as to the contents of any contract or other document referred to are
not necessarily complete, and, in each instance, reference is made to the copy
of such contract or other document filed as an exhibit to the Registration
Statement of which the Prospectus and this Statement of Additional Information
form a part, each such statement being qualified in all respects by such
reference.
The Fund was established in September 1994 and does not yet have any
operating history. Shareholders will be provided with Annual and Semi-Annual
Reports as they become available.
23
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REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholder and Board of Directors of CVO Greater China Fund, Inc.
In our opinion, the accompanying statement of assets and liabilities presents
fairly, in all material respects, the financial position of CVO Greater China
Fund, Inc. (the "Fund") at ______________, 1996 in conformity with generally
accepted accounting principles. This financial statement is the responsibility
of the Fund's management; our responsibility is to express an opinion on this
financial statement based on our audit. We conducted our audit of this
financial statement in accordance with generally accepted auditing standards
which require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statement is free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statement, assessing the accounting principles used
and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for the opinion expressed above.
PRICE WATERHOUSE LLP
1177 Avenue of the Americas
New York, New York 10036
_________________, 1996
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CVO GREATER CHINA FUND, INC.
STATEMENT OF ASSETS AND LIABILITIES
__________, 1996
ASSETS:
Cash..................................................
Deferred organizational expenses
(Note 1).........................................
Total Assets.............................................
LIABILITIES:
Organizational expenses payable to
Adviser (Note 1).................................
NET ASSETS:
CVO Greater China Fund, Inc. - Class I,
par value $.001 per share; 5 billion
shares authorized......................................$50,000
CVO Greater China Fund, Inc. - Class II,
par value $.001 per share; 5 billion
shares authorized...................................... 50,000
Net Asset Value Per Share (Class I and Class II)............
NOTES TO FINANCIAL STATEMENT
NOTE 1
CVO Greater China Fund, Inc. (the "Fund") was incorporated in Maryland on
September 2, 1994. The Fund has had no operations other than those relating to
organizational matters and the issuance of 5,000 Class I and 5,000 Class II
Common Shares to Furman Selz LLC ("FSI"). The Fund is registered under
the Investment Company Act of 1940, as amended (the "1940 Act") and consists of
two classes of Shares, Class I and Class II. The Fund operates as a non-
diversified, open-end, management investment company. In the event that, at any
time during the five year period beginning with the effective date of the
Registration Statement, the initial shares acquired by FSI prior to such date
are redeemed by any holder thereof, the redemption proceeds payable in respect
of such shares will be reduced by the pro rata share (based on the proportionate
share of the initial shares redeemed to the total number of initial shares
outstanding at the time of such redemption ) of the then unamortized
organizational expenses as of the date of such redemption. In the event that
the Fund liquidates before the deferred organizational expenses are fully
amortized, FSI shall bear such unamortized deferred organizational expenses.
25
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NOTE 2
The Fund has entered into an investment advisory agreement (the "Investment
Advisory Agreement") with CVO Greater China Partners, L.P., a Delaware limited
partnership (the "Adviser"). The Investment Advisory Agreement provides for the
Fund to pay the Adviser an investment advisory fee calculated and accrued daily
and paid quarterly at the annual rate of 1.25% of the Fund's average daily net
assets. The Adviser will provide portfolio management and certain
administrative, clerical and bookkeeping services for the Fund.
The Fund has entered into a fund administration agreement (the
"Administration Agreement") with FSI in order to provide the Fund with
administrative, fund accounting, dividend disbursing and transfer agency
services. The services under the Administration Agreement are subject to the
supervision of the Fund's Board of Directors and officers and include day-to-day
administration of matters related to the corporate existence of the Fund,
maintenance of its records, preparation of reports, supervision of the Fund's
arrangement with its custodian and assistance in the preparation of the Fund's
Registration Statements under federal and state laws. Pursuant to the
Administration Agreement, the Fund will pay FSI the following fees for its
services: (i) a monthly administrator's fee computed at an annual rate of
0.15% of the average daily net assets of the Fund, (ii) an annual fund
accounting fee of $30,000, and (iii) a 0.25% shareholder servicing fee based on
the Fund's assets attributable to Class II Shares. The shareholder servicing
fee will be paid by Class II shareholders only. Certain officers and/or
directors of the Fund are officers and/or directors of the Administrator. The
Fund has retained the Administrator to manage the Fund's business affairs,
supervise the overall day-to-day operations of the Fund (other than rendering
investment advice) and provide all administrative services to the Fund. Under
the terms of the Fund Administration Agreement, the Administrator also maintains
certain of the Fund's books and furnishes, at its own expense, such office
space, facilities, equipment, supplies, clerical help and bookkeeping and legal
services as the Fund may reasonably require in the operation of its business.
The Fund has entered into a distribution agreement (the "Distribution
Agreement") with OFFIT Funds Distributor, Inc. (the "Distributor"), a wholly-
owned subsidiary of Furman Selz Holding Corporation. Under the Distribution
Agreement, the Distributor, as agent of the Fund, has agreed to use its best
efforts as sole distributor of the Fund's Shares.
The Distribution Agreement provides that the Fund will bear the costs of
the registration of its Shares with the Securities and Exchange Commission and
various states and the printing of its prospectuses, statements of additional
information and reports to shareholders.
NOTE 3
The Fund's Articles of Amendment and Restatement authorize the
issuance of two classes of common Shares. The Fund's Board of Directors may, in
the future, authorize the issuance of additional classes of capital stock
representing Shares in the same or additional investment portfolios.
26
<PAGE>
AMENDED AND RESTATED
ARTICLES OF INCORPORATION
OF
CVO GREATER CHINA FUND, INC.
ARTICLE I
NAME
The name of the corporation is CVO Greater China Fund, Inc.
ARTICLE II
CORPORATE PURPOSES
The purpose for which the Corporation is formed is to engage in the
business of an investment company.
The Corporation may engage in any other business and shall have all
powers conferred upon corporations by the Maryland General Corporation Law now
or hereafter in force
ARTICLE III
PRINCIPAL OFFICE AND RESIDENT AGENT
The post office address of the principal office of the Corporation in
Maryland is c/o The Prentice-Hall Corporation System, Maryland, 11 East Chase
Street, Baltimore, Maryland 21202. The name of the resident agent of the
Corporation in Maryland is The Prentice-Hall Corporation System, Maryland, and
the post office address of the resident agent is 11 East Chase Street,
Baltimore, Maryland 21202.
ARTICLE IV
CAPITAL STOCK
SECTION 1. AUTHORIZED SHARES. The aggregate number of shares of
capital stock which the Corporation is authorized to issue is Ten Billion
(10,000,000,000). These shares shall have a par value of $.001 per share and
shall have an aggregate par value of Ten Million Dollars ($10,000,000). All of
such shares are initially classified as "Common Stock."
Subject to the following paragraph, the authorized shares are
classified as follows: "Class I Shares," 5,000,000,000 shares, and "Class II
Shares," 5,000,000,000 shares.
The Board of Directors is authorized to classify or to reclassify,
from time to time, any unissued shares of stock of the Corporation, whether now
or hereafter authorized, by setting, changing or eliminating the preferences,
conversion or other rights, voting powers, restrictions,
<PAGE>
limitations as to dividends, qualifications, or terms and conditions of or
rights to require redemption of the stock. The authority to classify and
reclassify the Common Stock, or any class or portfolio thereof however
designated, shall include the authority to classify, reclassify, or divide a
class or portfolio into one or more subclasses of such class or portfolio.
Unless specified to the contrary herein or in Articles Supplementary hereafter
filed by the Corporation, all such sub-classes of a class or portfolio shall
represent the same interest in the Corporation and have the same preferences,
conversion or other rights, voting powers, restrictions, limitations as to
dividends, qualifications, and terms and conditions of redemption as the other
shares of Common Stock of that class or portfolio; provided, however, that
notwithstanding anything contained in the charter of the Corporation, the Board
of Directors may, without stockholder approval, provide for the issuance of
additional sub-classes of Common Stock of a particular class or portfolio which
shall have such preferences, conversion or other rights, voting powers,
restrictions, limitations as to dividends, qualifications, and terms and
conditions of redemption, including without limitation such front-end sales
loads, such 12b-1, service, administrative or distribution fees, such contingent
deferred sales charges, such conversion rights, and exchange privileges, as
shall be determined by resolution of the Board of Directors and shall be
included in Articles Supplementary filed for record with the State Department of
Assessments and Taxation of Maryland prior to the issuance of such shares.
The provisions of this Charter, including those in this Section shall
apply to each class of stock unless otherwise provided by the Board of Directors
prior to issuance of any shares of that class:
(a) As more fully set forth hereafter, the assets and
liabilities and the income and expenses of each class of the
Corporation's stock shall be determined separately and, accordingly,
the net asset value, the dividends payable to holders, and the amounts
distributable in the event of dissolution of the Corporation to
holders, of shares of the Corporation's stock may vary from class to
class.
(b) All consideration received by the Corporation for the
issue or sale of shares of a class of the Corporation's stock,
together with all funds derived from any investment and reinvestment
thereof, shall irrevocably belong to that class for all purposes,
subject only to the rights of creditors, and shall be so recorded upon
the books of account of the Corporation. Such consideration and any
funds derived from any investment and reinvestment are herein referred
to as "assets belonging to" that class.
(c) The assets belonging to a class of the Corporation's
stock shall be charged with the liabilities of the Corporation with
respect to that class and with that class' share of the liabilities of
the Corporation not attributable to any particular class, in the
latter case in the proportion that the net asset value of that class
(determined without regard to such liabilities) bears to the net asset
value of all classes of the Corporation's stock (determined without
regard to such liabilities). The determination of the Board of
Directors shall be conclusive as to the allocation of liabilities,
including accrued expenses and reserves, and assets to a particular
class or classes.
(d) Shares of each class of stock shall be entitled to such
dividends or distributions, in stock, property, cash or in any
combination thereof, as may be declared from time to time
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<PAGE>
by the Board of Directors with respect to such class. Dividends or
distributions shall be paid on shares of a class of stock only out of
lawfully available assets belonging to that class.
(e) On each matter submitted to a vote of the stockholders,
each holder of a share shall be entitled to one vote for each share
standing in his name on the books of the Corporation, irrespective of
the class thereof, and all shares of all classes shall vote as a
single class ("Single Class Voting"); provided, however, that (a) as
to any matter with respect to which a separate vote of any class is
required by the Investment Company Act of 1940, as amended from time
to time (the "1940 Act"), or by the Maryland General Corporation Law,
such requirement as to a separate vote by that class shall apply in
lieu of Single Class Voting as described above; (b) in the event that
the separate vote requirements referred to in (a) above apply with
respect to one or more classes, then, subject to (c) below, the shares
of all other classes shall vote as a single class and (c) as to any
matter which does not affect the interest of a particular class, only
the holders of shares of the one or more affected classes shall be
entitled to vote.
(f) In the event of the liquidation or dissolution of the
Corporation, the stockholders of a class of the Corporation's stock
shall be entitled to receive, as a class, out of the assets of the
Corporation available for distribution to stockholders, the assets
belonging to that class less the liabilities allocated to that class.
The assets so distributable to the stockholders of a class shall be
distributed among such stockholders in proportion to the number of
shares of that class held by them and recorded on the books of the
Corporation. In the event that there are any assets available for
distribution that are not attributable to any particular class of
stock, such assets shall be allocated to all classes in proportion to
the net asset value of the shares of that class held by the respective
holders. The liquidation of a particular class may be accomplished,
in whole or in part, by the transfer of assets of such class to
another class or by the exchange of shares of such class for the
shares of another class.
SECTION 2. FRACTIONAL SHARES. The Corporation may issue fractional
shares. Any fractional share of capital stock of the Corporation shall carry
proportionately all the rights of a whole share, excepting any right to receive
a certificate evidencing such fractional share, but including, without
limitation, the right to vote and the right to receive dividends.
SECTION 3. QUORUM REQUIREMENTS AND VOTING RIGHTS. The presence in
person or by proxy of the holders of one-third of the issued and outstanding
shares of stock of the Corporation entitled to vote (without regard to class)
shall constitute a quorum at any meeting of the stockholders, except with
respect to any matter which by law requires the approval of one or more classes
of stock, in which case the presence in person or by proxy of the holders of
one-third of the issued and outstanding shares of stock of each class entitled
to vote on the matter shall constitute a quorum. Notwithstanding any provision
of the laws of the State of Maryland requiring any action to be taken or
authorized by the affirmative vote of the holders of more than a majority of the
outstanding shares of capital stock of the Corporation, that action shall,
except to the extent otherwise required by the 1940 Act, be effective and valid
if taken or authorized by the affirmative vote of the holders of the majority of
the total number of votes entitled to be cast thereon.
SECTION 4. NO PREEMPTIVE RIGHTS. No holder of shares of capital
stock of the Corporation shall, as such holder, have any right to purchase or
subscribe for any shares of the capital stock of the
3
<PAGE>
Corporation which the Corporation may issue or sell (whether consisting of
shares of capital stock authorized by this Charter, or shares of capital stock
of the Corporation acquired by it after the issue thereof, or other shares)
other than any right which the Board of Directors of the Corporation, in its
discretion, may determine.
SECTION 5. REDEMPTION AND REPURCHASE OF SHARES OF CAPITAL STOCK.
(a) CIRCUMSTANCES UNDER WHICH SHARES OF CAPITAL STOCK MAY BE REDEEMED
OR REPURCHASED. The Corporation shall under some circumstances redeem, and may
under other circumstances repurchase or redeem, shares of its capital stock as
follows:
(i) Each holder of shares of its capital stock shall be
entitled at the holder's option to require the Corporation to redeem
all or any part of the shares of its capital stock owned by that
holder, upon request to the Corporation or its designated agent in a
form approved by the Board of Directors by the Corporation,
accompanied by surrender of the certificate or certificates for those
shares, if any, or any other evidence of ownership specified by the
Corporation's Board of Directors, at the net asset value of those
shares determined as provided in Section 6 of this Article IV, subject
to and in accordance with the provisions of paragraph (b) of this
Section 5, less such redemption charge as shall be established by the
Board of Directors in accordance with the 1940 Act and any applicable
rules of the National Association of Securities Dealers, Inc. and
shall be disclosed in the Corporation's current prospectus applicable
to the shares. Notwithstanding the foregoing, the Board of Directors
of the Corporation may suspend the right of the holders of the capital
stock of the Corporation to require the Corporation to redeem such
capital stock when permitted or required to do so by applicable law.
(ii) The Board of Directors of the Corporation may also,
from time to time in its discretion, authorize the Corporation to
require the redemption of all or part of the outstanding shares of its
capital stock for the net asset value of those shares determined as
provided in Section 6 of this Article IV, subject to and in accordance
with the provisions of paragraph (b) of this Section 5, upon the
sending of written or telegraphic notice of redemption to each holder
whose shares are so redeemed and upon such terms and conditions as the
Board of Directors of the Corporation shall deem advisable.
(iii) The Board of Directors of the Corporation may
also, from time to time in its discretion, authorize the Corporation
to repurchase outstanding shares of its capital stock, either directly
or through an agent, subject to and in accordance with the provisions
of paragraph (b) of this Section 5. The price to be paid by the
Corporation upon any such repurchase shall be determined, in the
discretion of its Board of Directors, in accordance with any
applicable provision of the laws of the State of Maryland and the 1940
Act or any rule or regulation thereunder, including any rule or
regulation made or adopted pursuant to Section 22 of the 1940 Act by
the Securities and Exchange Commission or any securities association
registered under the Securities Exchange Act of 1934.
(b) PROCEDURE FOR REDEMPTION AND REPURCHASE OF SHARES OF CAPITAL
STOCK. With respect to redemptions and repurchases of shares of capital stock
of the Corporation pursuant to paragraph (a) of this Section 5:
4
<PAGE>
(i) The net asset value applicable to a redemption or
repurchase pursuant to paragraphs (a)(i) and (a)(ii) of this Section 5
shall be computed as of the specific time or times during the day
determined by the Board of Directors of the Corporation.
(ii) Any certificates for shares of capital stock of the
Corporation to be redeemed or repurchased shall be surrendered in
proper form for transfer, together with any proof of the authenticity
of signatures required by the Board of Directors or transfer agent of
the Corporation.
(iii) Payment of the redemption or repurchase price by
the Corporation or its designated agent shall be made within seven
days after the time for the determination of the redemption or
repurchase price, but in no event prior to delivery to the Corporation
or its designated agent of the certificate or certificates, if any,
for the shares of capital stock redeemed or repurchased or any other
evidence of ownership specified by the Corporation's Board of
Directors. Payment of the redemption or repurchase price may be
postponed when permitted or required by applicable law.
(iv) The right of a holder of shares of capital stock
redeemed or repurchased by the Corporation as provided in this Article
IV to receive dividends thereon and all other rights of that holder
with respect to those shares shall forthwith cease and terminate at
the time as of which the redemption or repurchase price of those
shares has been determined, except the rights of that holder to
receive (A) the redemption or repurchase price of those shares from
the Corporation or its designated agent in cash, securities or other
assets of the Corporation and (B) any dividend or distribution to
which that holder had become entitled as the record holder of those
shares on the record date for that dividend.
SECTION 6. DETERMINATION OF NET ASSET VALUE. For purposes of this
Article IV, the net asset value of shares of capital stock of the Corporation
shall be determined at such time or times on any day pursuant to the direction
of the Board of Directors and in accordance with the following provisions:
(a) The net asset value of each share of capital stock
shall be the quotient obtained by dividing the "net value of the
assets" of the Corporation (as defined below) by the total number of
shares of capital stock deemed to be outstanding at the time
(including shares sold, whether or not paid for and issued, and
excluding shares redeemed or repurchased on the basis of previously
determined values, whether or not paid for, received and held in
treasury).
(b) The "net value of the assets" of the Corporation shall
be the "gross value of the assets" of the Corporation (as defined
below) after deducting the amount of all expenses incurred, accrued
and unpaid, reserves that may be set up to cover taxes and other
liabilities and other deductions.
(c) The "gross value of the assets" of the Corporation
shall be the amount of all cash and receivables and the market value
of all securities and other assets held by the Corporation at the time
as of which the determination is made. Securities held shall be
valued in accordance with methods approved by the Board of Directors
and applicable statutes and regulations.
5
<PAGE>
(d) When the Corporation has more than one class of shares
of its capital stock outstanding having separate assets and
liabilities, the net asset value of shares of capital stock of the
Corporation as provided for in this Section 6 shall be determined as
if each class of shares were the Corporation as referred to in such
computation, but with its assets limited to the assets belonging to
that class, its liabilities limited to the liabilities belonging to
that class and the total number of shares of capital stock deemed to
be outstanding limited to the outstanding shares of that class.
SECTION 7. DETERMINATIONS MADE BY THE BOARD OF DIRECTORS. Any
determination made in good faith by or pursuant to the direction of the Board of
Directors, as to the amount of the assets, debts, obligations or liabilities of
the Corporation, as to the amount of any reserves or charges set up and the
propriety thereof, as to the time of or purpose for creating such reserves or
charges, as to the use, alteration or cancellation of any reserves or charges
(whether or not any debt, obligation or liability for which such reserves or
charges shall have been created shall have been paid or discharged or shall be
then or thereafter required to be paid or discharged), as to the value of or the
method of valuing any investment or other asset owned or held by the
Corporation, as to the allocation of any asset or liability of the Corporation
to a particular class or classes of the Corporation's stock, as to the number of
shares of any class of stock outstanding, as to the estimated expense to the
Corporation in connection with purchases of its shares, as to the ability to
liquidate investments in orderly fashion, or as to any other matters relating to
the issue, sale, purchase or other acquisition or disposition of investments or
shares of the Corporation, shall be final and conclusive and shall be binding
upon the Corporation and all holders of its shares, past, present and future,
and shares of the Corporation are issued and sold on the condition and
understanding that any and all such determinations shall be binding as
aforesaid.
SECTION 8. ALL SHARES OF CAPITAL STOCK SUBJECT TO CHARTER. All
persons who shall acquire shares of capital stock of the Corporation shall
acquire those shares subject to the provisions of this Charter.
SECTION 9. CONVERSION OR EXCHANGE RIGHTS. Subject to compliance with
the requirements of the 1940 Act, the Board of Directors shall have the
authority to provide that holders of shares of any class have the right to
convert or exchange said shares into shares of one or more other classes of
shares in accordance with such requirements and procedures as may be established
by the Board of Directors.
ARTICLE V
DIRECTORS
SECTION 1. NUMBER OF DIRECTORS. The authorized number of directors
of the Corporation shall be five. The number of Directors in office may be
changed from time to time in the manner specified in the By-Laws of the
Corporation, but this number shall never be less than the minimum number
required under the Maryland General Corporation Law nor greater than fifteen
(15). The names of the five directors of the Corporation are as follows:
Morris W. Offit, John W. Glynn, Jr., Edward J. Landau, The Very Reverend James
Park Morton and Robert A. Theleen.
SECTION 2. CERTAIN POWERS OF BOARD OF DIRECTORS. In addition to its
other powers explicitly or implicitly granted under this Charter, by law or
otherwise, the Board of Directors of the Corporation (a) is expressly authorized
to make, alter, amend or repeal the By-Laws of the
6
<PAGE>
Corporation, (b) may from time to time determine whether, to what extent, at
what times and places, and under what conditions and regulations the accounts
and books of the Corporation, or any of them, shall be open to the inspection of
the stockholders, and no stockholders shall have any right to inspect any
account, book or document of the Corporation except as conferred by statute or
as authorized by the Board of Directors of the Corporation, and (c) is
empowered, without stockholder approval, to increase or decrease the number of
shares of capital stock of any class that the Corporation has authority to
issue.
ARTICLE VI
LIABILITY AND INDEMNIFICATION
To the fullest extent that limitations on the liability of directors
and officers are permitted by the Maryland General Corporation Law, no director
or officer of the Corporation shall have any personal liability to the
Corporation or its stockholders for monetary damages. This limitation on
liability applies to events occurring at the time a person serves as director or
officer of the Corporation whether or not such person is a director or officer
at the time of any proceeding in which liability is asserted.
The Corporation shall indemnify and advance expenses to its currently
acting and its former directors to the fullest extent that indemnification of
directors is permitted by the Maryland General Corporation Law. The Corporation
shall indemnify and advance expenses to its officers to the same extent as its
directors and may do so to such further extent as is consistent with law. The
Board of Directors may by law, resolution or agreement make further provision
for indemnification of directors, officers, employees and agents to the fullest
extent permitted by the Maryland General Corporation Law. This indemnification
applies to events occurring at the time a person serves as a director or officer
of the Corporation whether or not such person is a director or officer at the
time of any proceeding in which liability is asserted.
No provision of this Charter shall be effective to protect or purport
to protect any director or officer of the Corporation against any liability to
the Corporation or its security holders to which he would otherwise be subject
by reason of willful misfeasance, bad faith, gross negligence or reckless
disregard of the duties involved in the conduct of his office.
References to the Maryland General Corporation Law in this Article VI
are to that law as from time to time amended. No amendment to the Corporation's
Charter shall affect any right of any person under this Article VI based on any
event, omission or proceeding prior to such amendment.
ARTICLE VII
AMENDMENTS
The Corporation reserves the right from time to time to make any
amendment of this Charter now or hereafter authorized by law, including any
amendment which alters the contract rights, as expressly set forth in this
Charter, of any outstanding capital stock.
ARTICLE VIII
PERPETUAL EXISTENCE
The duration of the Corporation shall be perpetual.
7
<PAGE>
Exhibit 2
BY-LAWS
OF
CVO GREATER CHINA FUND, INC.
ARTICLE I
STOCKHOLDERS
SECTION 1. PLACE OF MEETING. Meetings of stockholders shall be held
at such place within or without the State of Maryland as the Board of Directors
may determine.
SECTION 2. ANNUAL MEETINGS. The Corporation shall not be required
to hold an annual meeting of its stockholders in any year in which the election
of directors is not required to be acted upon under the Investment Company Act
of 1940. In the event that the Corporation shall hold an annual meeting of
stockholders, such meeting shall be held at a date and time set by the Board of
Directors, PROVIDED, HOWEVER, that if the purpose of the meeting is to elect
directors or to approve an investment advisory agreement or distribution
agreement, then the date and time of such meeting shall be set in accordance
with the Investment Company Act of 1940. Any stockholders' meeting held in
accordance with the preceding sentence may constitute the annual meeting of
stockholders for the fiscal year of the Corporation in which the meeting is
held.
SECTION 3. SPECIAL MEETINGS. Special meetings of the stockholders
for any purpose or purposes may be called by the Chairman of the Board of
Directors, if any, or by the President or by the Board of Directors. In
addition, such special meetings shall be called by the Secretary upon receipt
of the request in writing signed by stockholders entitled to cast at least 10%
of all votes entitled to be cast at the meeting stating the purpose of the
meeting and the matters proposed to be acted on and upon payment by such
stockholders of the estimated costs of preparing and mailing a notice of the
meeting. Unless requested by stockholders entitled to cast a majority of all
the votes entitled to be cast at the meeting, a special meeting need not be
called to consider any matter which is substantially the same as a matter voted
on at a special meeting of the stockholders held during the preceding 12
months.
SECTION 4. RECORD DATES. The Board of Directors may fix, in advance,
a date as the record date for the purpose of determining stockholders entitled
to notice of, or to vote at, any meeting of stockholders, or stockholders
entitled to receive payment of any dividend or the allotment of any other
rights, or in order to make a determination of stockholders for any other
proper purpose. Such date in any case shall be not more than 90 days, and in
case of a meeting of stockholders, not less than 10 days, prior to the date on
which the particular action, requiring such determination of stockholders, is
to be taken.
SECTION 5. NOTICE OF MEETING. Not less than 10 and not more than 90
days before each meeting of stockholders, the Secretary shall give to each
stockholder entitled to vote at the meeting and to each other stockholder
entitled to notice of such meeting, written notice of
1
<PAGE>
the time, date, place, and, in the case of a special meeting or when otherwise
required by the laws of the State of Maryland, the purpose or purposes of the
meeting.
SECTION 6. ADJOURNMENT. A meeting of stockholders convened on the
date for which it was called may be adjourned from time to time without further
notice, other than as announced at the meeting, to a date not more than 120
days after the original record date. At any such adjourned meeting at which a
quorum shall be present, any action may be taken that could have been taken at
the meeting originally called.
SECTION 7. QUORUM AND VOTING. The presence in person or by proxy of
the holders of one-third of the shares of stock of the Corporation entitled to
vote (without regard to class) shall constitute a quorum at any meeting of the
stockholders, except with respect to any matter which by law requires the
approval of one or more classes of stock, in which case the presence in person
or by proxy of the holders of one-third of the shares of stock of each class
entitled to vote on the matter shall constitute a quorum. Except as otherwise
provided by law, a majority of the votes cast at a meeting of stockholders, at
which a quorum is present, shall be sufficient to take or authorize action upon
any matter which may properly come before the meeting.
SECTION 8. CONDUCT OF MEETINGS. Each meeting of stockholders shall
be presided over by the Chairman of the Board or, if he is not present, by the
Vice Chairman of the Board or, if neither of them is present, by a chairman to
be elected at the meeting. The Secretary shall act as secretary of the meeting
or, if he is not present, an Assistant Secretary shall so act. If neither the
Secretary nor an Assistant Secretary is present, the chairman of the meeting
shall appoint a secretary.
ARTICLE II
BOARD OF DIRECTORS
SECTION 1. POWERS. The business and affairs of the Corporation shall
be managed by or under the direction of the Board of Directors, which may
exercise all powers of the Corporation and do all lawful acts and things that
are not by law, the Articles of Incorporation of the Corporation or these By-
Laws directed or required to be done by the stockholders.
SECTION 2. NUMBER AND TENURE. The number of Directors fixed by the
Articles of Incorporation of the Corporation as the number which shall
constitute the whole Board may be increased or decreased by a vote of a
majority of the entire Board of Directors from time to time, provided that this
number shall not be more than 15. Each Director shall hold office until his
successor is elected and qualifies or until his earlier resignation or removal.
SECTION 3. VACANCIES. Vacancies in the Board of Directors for any
cause, including an increase in the authorized number of Directors, may,
subject to the Investment Company Act of 1940, be filled by a majority of the
Directors then in office, although less than a
2
<PAGE>
quorum, or by a sole remaining Director. A Director elected by the Board of
Directors to fill a vacancy serves until his successor is elected and qualifies
or until his earlier resignation or removal.
SECTION 4. REMOVAL OF DIRECTORS. At any meeting of stockholders, the
stockholders may remove any Director from office, either with or without
cause, by the affirmative vote of a majority of the votes entitled to be cast
for the election of directors and may elect a successor to fill any resulting
vacancy for the unexpired term of the removed Director.
SECTION 5. PLACE OF MEETING. Meetings of the Board of Directors,
regular or special, may be held at any place within or without the State of
Maryland as the Board of Directors may determine.
SECTION 6. CONDUCT OF MEETING. The Board of Directors shall name
from its membership a Chairman of the Board and may name a Vice Chairman of the
Board. The Chairman of the Board or in his absence the Vice Chairman of the
Board, shall preside at meetings of the Board of Directors. In the absence of
both the Chairman of the Board and the Vice Chairman of the Board, the
Directors present shall select a Director to preside. The Chairman of the
Board and the Vice Chairman of the Board shall hold their titles at the
pleasure of the Board of Directors and will cease to hold their titles at any
time with or without cause upon action by the Board of Directors.
SECTION 7. REGULAR MEETINGS. Regular meetings of the Board of
Directors shall be held at the conclusion of each annual meeting of
stockholders and at any other time fixed by the Board of Directors. No
notice of regular meetings shall be required.
SECTION 8. SPECIAL MEETINGS. Special meetings of the Board of
Directors may be called at any time by the Chairman of the Board, the President
or a majority of the Directors. Written notice of the time and place of any
special meeting shall be delivered or telecopied to each Director not less than
one day before the meeting or mailed to each Director not less than three days
before the meeting.
SECTION 9. TELEPHONE MEETINGS. Members of the Board of Directors or
any committee thereof may participate in a meeting by means of conference
telephone or similar communications equipment if all persons participating in
the meeting can hear each other at the same time; provided that telephone
meetings shall not be convened for the purpose of approving or amending
provisions of the Corporation's Investment Advisory Agreement or the
Corporation's Plan of Distribution under Rule 12b-1 under the Investment
Company Act of 1940.
SECTION 10. QUORUM. One-third of the total number of Directors shall
constitute a quorum for the transaction of business, provided that a quorum
shall be no less than two Directors, except where the Board consists of only
one Director, a quorum shall be one Director. If at any meeting of the Board
of Directors there shall be less than a quorum present, a majority of those
present may adjourn the meeting until a quorum shall have been obtained.
Except as otherwise provided by law, the Articles of Incorporation of the
Corporation, these By-Laws or any contract or agreement to which the
Corporation is a party, the act of a majority of
3
<PAGE>
the Directors present at any meeting at which there is a quorum shall be the
act of the Board of Directors.
SECTION 11. COMMITTEES. The Board of Directors may designate an
executive committee and other committees composed of two or more Directors, and
the members thereof, and each committee shall have the powers, authority and
duties specified in the resolution creating the same and permitted by law. If
a member of a committee is absent or disqualified, the members present at a
meeting, whether or not constituting a quorum, may appoint another member of
the Board of Directors to act at the meeting in place of the absent or
disqualified member.
SECTION 12. COMPENSATION OF DIRECTORS. The Board of Directors may
authorize reasonable compensation to Directors for their services as Directors
and as members of committees of the Board of Directors and may authorize the
reimbursement of reasonable expenses incurred by Directors in connection with
rendering those services.
ARTICLE III
OFFICERS
SECTION 1. ELECTION AND REMOVAL. The Board of Directors shall elect
a President, a Secretary and a Treasurer. The Board of Directors may also in
its discretion elect one or more Vice Presidents, Assistant Secretaries,
Assistant Treasurers and other officers, agents and employees. Any two or more
offices, except those of President and Vice President, may be held by the same
person. The Board of Directors may fill any vacancy which may occur in any
office. All officers shall hold office at the pleasure of the Board of
Directors, and any officer may be removed from office at any time with or
without cause by the Board of Directors whenever, in the judgment of the Board
of Directors, the best interests of the Corporation will be served thereby.
SECTION 2. POWERS AND DUTIES. The officers of the Corporation shall
have such powers and duties as generally pertain to their respective offices as
well as such powers and duties as may from time to time be conferred by
resolution of the Board of Directors.
ARTICLE IV
INDEMNIFICATION
The Corporation shall indemnify each individual who is a present or
former Director or officer of the Corporation or who, while a Director or
officer of the Corporation, is or was serving at the request of the
Corporation, as a director, officer, partner, trustee, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise, and
may indemnify each individual who is a present or former employee or agent of
the Corporation (collectively, the "Indemnitees"), who, by reason of his
position was, is, or is threatened to be made a party to any threatened,
pending or completed action, suit or proceeding, whether civil,
4
<PAGE>
criminal, administrative or investigative (hereinafter collectively referred to
as a "Proceeding"), to the fullest extent permitted under the laws of the State
of Maryland, the Investment Company Act of 1940 and any other applicable law
now or hereafter in effect, including the advance of related expenses;
provided, however, that such indemnity shall not protect any Indemnitee from
any liability arising out of willful misfeasance, bad faith, gross negligence
or reckless disregard of the duties involved in the conduct of his office
("Disabling Conduct").
Notwithstanding the foregoing, no indemnification shall be made by
the Corporation to any Indemnitee unless:
(a) the court or other body before whom the Proceeding to which
the Indemnitee is a party was brought (i) dismisses the Proceeding for
insufficiency of evidence of any Disabling Conduct or (ii) reaches a final
decision on the merits that the Indemnitee was not liable by reason of
Disabling Conduct; or
(b) in the absence of such a decision, there is a reasonable
determination, based upon a review of the facts, that the Indemnitee was
not liable by reason of Disabling Conduct, which determination shall be
made by:
(i) the vote of a majority of a quorum of the Directors
who are neither "interested persons" of the Corporation as defined in
the Investment Company Act of 1940 nor parties to the Proceeding; or
(ii) an independent legal counsel in a written opinion.
Anything in this Article IV to the contrary notwithstanding, any advance
of expenses by the Corporation to an Indemnitee shall be made only upon the
receipt of a written undertaking by the Indemnitee to repay the advance if it
shall ultimately be determined that the applicable standard of conduct has not
been met and a written affirmation by the Indemnitee of the Indemnitee's good
faith belief that the standard of conduct necessary for indemnification by the
Corporation has been met.
ARTICLE V
GENERAL PROVISIONS
SECTION 1. ANNUAL STATEMENT. The Chairman of the Board, the Vice
Chairman of the Board or the Treasurer shall prepare or cause to be prepared
annually a full and correct statement of the affairs of the Corporation,
including a balance sheet and a financial statement of operations for the
preceding fiscal year. The statement of affairs shall be submitted at the
annual meeting of the stockholders, if any, and, within 20 days after the
meeting (or, in the absence of an annual meeting within 120 days after the end
of the fiscal year), placed on file at the Corporation's principal office in
the State of Maryland.
SECTION 2. STOCK LEDGER. The Corporation shall maintain at the
office of its transfer agent an original or duplicate stock ledger containing
the names and addresses of all
5
<PAGE>
stockholders and the number of shares of each class held by each stockholder.
Such stock ledger may be in written form or any other form capable of being
converted into written form within a reasonable time for visual inspection.
SECTION 3. AMENDMENT OF BY-LAWS. These By-Laws may be altered,
amended, added to or repealed by the Board of Directors.
SECTION 4. SHARE CERTIFICATES. The Corporation shall not be
obligated to issue certificates representing shares of any or all of its classes
of capital stock. At the time of issue or transfer of shares without
certificates, the Corporation shall provide the stockholder with such
information as may be required under the Maryland General Corporation Law.
SECTION 5. LOST CERTIFICATES. The Board of Directors may direct a
new certificate or certificates to be issued in place of any certificate or
certificates theretofore issued by the corporation alleged to have been stolen,
lost or destroyed, upon the making of an affidavit of that fact by the person
claiming the certificate of stock to be stolen, lost or destroyed. The Board
of Directors may in its sole discretion attach such conditions to issuance of
replacement certificates as it may determine from time, including without
limitation, the posting of a bond or other security to indemnify it against any
loss or claim which may arise by reason of the issuance of a new certificate.
_____________________________
ADOPTED:_____________________, 1994
6
<PAGE>
Exhibit 4(a)
CVO GREATER CHINA FUND, INC.
INCORPORATED UNDER THE LAWS OF THE STATE OF MARYLAND
CUSIP
ACCOUNT NO.
- --------------- THIS CERTIFIES THAT ----------------
NUMBER SHARES
- --------------- ----------------
IS THE OWNER OF SEE REVERSE FOR
CERTAIN DEFINITIONS
FULLY PAID AND NON-ASSESSABLE SHARES OF CLASS I
CAPITAL STOCK OF THE PAR VALUE OF $0.001 EACH OF
CVO GREATER CHINA FUND, INC.
TRANSFERABLE ONLY ON THE BOOKS OF THE CORPORATION BY THE HOLDER
HEREOF IN PERSON OR BY DULY AUTHORIZED ATTORNEY, UPON SURRENDER
OF THIS CERTIFICATE PROPERLY ENDORSED. THIS CERTIFICATE IS NOT
VALID UNTIL COUNTERSIGNED BY THE TRANSFER AGENT.
WITNESS THE FACSIMILE SEAL OF THE CORPORATION AND THE
FACSIMILE SIGNATURES OF ITS DULY AUTHORIZED OFFICERS.
THE CORPORATION WILL FURNISH TO ANY STOCKHOLDER ON REQUEST AND WITHOUT CHARGE
A FULL STATEMENT OF THE DESIGNATIONS AND ANY PREFERENCES, CONVERSION AND
OTHER RIGHTS, VOTING POWERS, RESTRICTIONS, LIMITATIONS AS TO DIVIDENDS,
QUALIFICATIONS AND TERMS AND CONDITIONS OF REDEMPTION OF THE STOCK OF EACH
CLASS WHICH THE CORPORATION IS AUTHORIZED TO ISSUE OR THE DIFFERENCES IN THE
RELATIVE RIGHTS AND PREFERENCES BETWEEN THE SHARES OF EACH SERIES OF A
PREFERRED OR SPECIAL CLASS IN SERIES WHICH THE CORPORATION IS AUTHORIZED TO
ISSUE TO THE EXTENT THEY HAVE BEEN SET AND OF THE AUTHORITY OF THE BOARD OF
DIRECTORS TO SET THE RELATIVE RIGHTS AND PREFERENCES OF SUBSEQUENT SERIES OF
A PREFERRED OR SPECIAL CLASS OF STOCK
DATED:
SECRETARY PRESIDENT
COUNTERSIGNED TRANSFER AGENT
BY AUTHORIZED SIGNATURE
<PAGE>
The following abbreviations, when used in the inscription on the face of
the certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM -- as tenants in common UNIF GIFT MIN ACT -- _____Custodian_____
TEN ENT -- as tenants by the entireties (Cust) (Minor)
JT TEN -- as joint tenants with right under Uniform Gifts to Minors
of survivorship and not as Act________________
tenants in common (State)
Additional abbreviations may also be used though not in the above list.
FOR VALUE RECEIVED, ________________ hereby sell, assign and transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
- --------------------------------------
- --------------------------------------
- --------------------------------------------------------------------------------
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS OF ASSIGNEE)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- ------------------------------------------------------------------------- Shares
of the capital stock represented by the within Certificate, and do hereby
irrevocably constitute and appoint
- ------------------------------------------------------------------------Attorney
to transfer the said stock on the books of the within named Corporation with
full power of substitution in the premises.
Dated
---------------------------------
-----------------------------------------
Notice: The signature must correspond with the name of the registered owner as
it appears on the face of the certificate in every particular, without
alteration or enlargement or any change whatever.
<PAGE>
Exhibit 4(b)
CVO GREATER CHINA FUND, INC.
INCORPORATED UNDER THE LAWS OF THE STATE OF MARYLAND
CUSIP
ACCOUNT NO.
- --------------- THIS CERTIFIES THAT ----------------
NUMBER SHARES
- --------------- ----------------
IS THE OWNER OF SEE REVERSE FOR
CERTAIN DEFINITIONS
FULLY PAID AND NON-ASSESSABLE SHARES OF CLASS II
CAPITAL STOCK OF THE PAR VALUE OF $0.001 EACH OF
CVO GREATER CHINA FUND, INC.
TRANSFERABLE ONLY ON THE BOOKS OF THE CORPORATION BY THE HOLDER
HEREOF IN PERSON OR BY DULY AUTHORIZED ATTORNEY, UPON SURRENDER
OF THIS CERTIFICATE PROPERLY ENDORSED. THIS CERTIFICATE IS NOT
VALID UNTIL COUNTERSIGNED BY THE TRANSFER AGENT.
WITNESS THE FACSIMILE SEAL OF THE CORPORATION AND THE
FACSIMILE SIGNATURES OF ITS DULY AUTHORIZED OFFICERS.
THE CORPORATION WILL FURNISH TO ANY STOCKHOLDER ON REQUEST AND WITHOUT CHARGE
A FULL STATEMENT OF THE DESIGNATIONS AND ANY PREFERENCES, CONVERSION AND
OTHER RIGHTS, VOTING POWERS, RESTRICTIONS, LIMITATIONS AS TO DIVIDENDS,
QUALIFICATIONS AND TERMS AND CONDITIONS OF REDEMPTION OF THE STOCK OF EACH
CLASS WHICH THE CORPORATION IS AUTHORIZED TO ISSUE OR THE DIFFERENCES IN THE
RELATIVE RIGHTS AND PREFERENCES BETWEEN THE SHARES OF EACH SERIES OF A
PREFERRED OR SPECIAL CLASS IN SERIES WHICH THE CORPORATION IS AUTHORIZED TO
ISSUE TO THE EXTENT THEY HAVE BEEN SET AND OF THE AUTHORITY OF THE BOARD OF
DIRECTORS TO SET THE RELATIVE RIGHTS AND PREFERENCES OF SUBSEQUENT SERIES OF
A PREFERRED OR SPECIAL CLASS OF STOCK
DATED:
SECRETARY PRESIDENT
COUNTERSIGNED TRANSFER AGENT
BY AUTHORIZED SIGNATURE
<PAGE>
The following abbreviations, when used in the inscription on the face of
the certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM -- as tenants in common UNIF GIFT MIN ACT -- _____Custodian_____
TEN ENT -- as tenants by the entireties (Cust) (Minor)
JT TEN -- as joint tenants with right under Uniform Gifts to Minors
of survivorship and not as Act________________
tenants in common (State)
Additional abbreviations may also be used though not in the above list.
FOR VALUE RECEIVED, ________________ hereby sell, assign and transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
- --------------------------------------
- --------------------------------------
- --------------------------------------------------------------------------------
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS OF ASSIGNEE)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- ------------------------------------------------------------------------- Shares
of the capital stock represented by the within Certificate, and do hereby
irrevocably constitute and appoint
- ------------------------------------------------------------------------Attorney
to transfer the said stock on the books of the within named Corporation with
full power of substitution in the premises.
Dated
---------------------------------
-----------------------------------------
Notice: The signature must correspond with the name of the registered owner as
it appears on the face of the certificate in every particular, without
alteration or enlargement or any change whatever.
<PAGE>
INVESTMENT ADVISORY AGREEMENT
CVO GREATER CHINA FUND, INC.
237 PARK AVENUE, SUITE 910
NEW YORK, NY 10017
February 1, 1995
CVO Greater China Partners, L.P.
c/o McCutchen, Doyle, Brown & Enersen
Three Embarcadero Center, Suite 1800
San Francisco, CA 94111
Dear Sir or Madam:
This will confirm the agreement between the undersigned (the
"Company") and you (the "Investment Adviser") as follows:
1. The Company is an open-end investment company which currently has
one investment portfolio: CVO Greater China Fund (the "Fund"). The Company
proposes to engage in the business of investing and reinvesting the assets of
the Fund in the manner and in accordance with the investment objectives and
limitations specified in the Company's Articles of Amendment and Restatement
(the "Articles") and the currently effective prospectus, including the documents
incorporated by reference therein (the "Prospectus"), relating to the Company
and the Fund, included in the Company's Registration Statement, as amended from
time to time (the "Registration Statement"), filed by the Company under the
Investment Company Act of 1940, as amended (the "1940 Act"), and the Securities
Act of 1933, as amended. Copies of the documents referred to in the preceding
sentence have been furnished to the Investment Adviser. Any amendments to these
documents shall be furnished to the Investment Adviser.
2. The Company employs the Investment Adviser to (a) make investment
strategy decisions for the Fund, (b) manage the investing and reinvesting of the
Fund's assets as specified in paragraph 1, (c) place purchase and sale orders on
behalf of the Fund and (d) provide continuous supervision of the Fund's
investment portfolio.
3. (a) The Investment Adviser shall, at its expense, provide the
Fund with office space, furnishings and equipment and personnel required by it
to perform the services to be provided by the Investment Adviser pursuant to
this agreement. The Fund has agreed to pay the Company's organizational
expense.
<PAGE>
(b) Except as provided in subparagraph (a), the Company shall be
responsible for all of the Fund's expenses and liabilities, including taxes;
interest; fees (including fees paid to its directors who are not affiliated with
the Investment Adviser or any of its affiliates); fees payable to the Securities
and Exchange Commission; state securities qualification fees; costs of preparing
and printing prospectuses for regulatory purposes and for distribution to
existing shareholders; advisory and administration fees; charges of the
custodian and transfer agent; insurance premiums; auditing and legal expenses;
costs of shareholders' reports and shareholders' meetings; any extraordinary
expenses; and brokerage fees and commission, if any, in connection with the
purchase or sale of portfolio securities for the Fund.
4. As manager of the Fund's assets, the Investment Adviser shall
make investments for the Fund's account in accordance with the investment
objectives and limitations set forth in the Articles, the Prospectus, the 1940
Act, the provisions of the Internal Revenue Code of 1986, as amended, relating
to regulated investment companies, applicable banking laws and regulations, and
policy decisions adopted by the Company's Board of Directors from time to time.
The Investment Adviser shall advise the Company's officers and Board of
Directors, at such times as the Company's Board of Directors may specify, of
investments made for the Fund's accounts and shall, when requested by the
Company's officers or Board of Directors, supply the reasons for making such
investments.
5. The Investment Adviser is authorized on behalf of the Company,
from time to time when deemed to be in the best interests of the Company and to
the extent permitted by applicable law, to purchase and/or sell securities which
the Investment Adviser or any of its affiliates underwrites, deals in and/or
makes a market and/or may perform or seek to perform investment banking services
for issuers of such securities. The Investment Adviser is further authorized,
to the extent permitted by applicable law, to select brokers for the execution
of trades for the Company, which broker may be an affiliate of the Investment
Adviser, provided that the best competitive execution price is obtained at the
time of the trade execution.
6. In consideration of the Investment Adviser's undertaking to
render the services described in this agreement, the Company agrees that the
Investment Adviser shall not be liable under this agreement for any error of
judgment or mistake of law or for any loss suffered by the Company in connection
with the performance of this agreement, provided that nothing in this agreement
shall be deemed to protect or purport to protect the Investment Adviser against
any liability to the Company or its stockholders to which the Investment Adviser
would otherwise be subject by reason of willful misfeasance, bad faith or gross
negligence in the performance of the Investment Adviser's duties under this
agreement or by reason of the Investment Adviser's reckless disregard of its
obligations and duties hereunder.
7. In consideration of the services to be rendered by the Investment
Adviser under this agreement, the Company shall pay the Investment Adviser
monthly fees on the first business day of each month based upon the average
daily net assets of the Company during the preceding month (as determined on the
days and at the time set forth in the Prospectus for determining net asset value
per share) at the annual rate of 1.25% of the average daily net assets of the
Company. If the fees payable to the Investment Adviser pursuant to this
paragraph 7
2
<PAGE>
begins to accrue before the end of any month or if this agreement terminates
before the end of any month, the fees for the period from such date
to the end of such month or from the beginning of such month to the date of
termination, as the case may be, shall be prorated according to the proportion
which such period bears to the full month in which such effectiveness or
termination occurs. For purposes of calculating each such monthly fee, the
value of the Fund's net assets shall be computed in the manner specified in the
Prospectus and the Articles for the computation of the value of the Fund's net
assets in connection with the determination of the net asset value of Class I
and Class II Shares of the Fund's capital stock.
8. If the aggregate expenses incurred by, or allocated to, the Fund
in any fiscal year shall exceed the expense limitations applicable to the Fund
imposed by state securities laws or regulations thereunder, as such limitations
may be raised or lowered from time to time, the Investment Adviser shall
reimburse the Fund for such excess. The Investment Adviser's reimbursement
obligation will be limited to the amount of fees it received under this
agreement during the period in which such expense limitations were exceeded,
unless otherwise required by applicable laws or regulations. With respect to
portions of a fiscal year in which this agreement shall be in effect, the
foregoing limitations shall be prorated according to the proportion which that
portion of the fiscal year bears to the full fiscal year. Any payments required
to be made by this paragraph 8 shall be made once a year promptly after the end
of the Company's fiscal year.
9. This agreement shall continue in effect until two years from the
date hereof and thereafter with respect to the Fund for successive annual
periods, provided that such continuance is specifically approved at least
annually (a) by the vote of a majority of the Fund's outstanding voting
securities (as defined in the 1940 Act) or by the Company's Board of Directors
and (b) by the vote, cast in person at a meeting called for the purpose, of a
majority of the Company's directors who are not parties to this agreement or
"interested persons" (as defined in the 1940 Act) of any party to this
agreement. This agreement may be terminated by the Fund at any time, without
the payment of any penalty, by a vote of a majority of the Fund's outstanding
voting securities (as defined in the 1940 Act) or by a vote of a majority of the
Company's entire Board of Directors on 60 days' written notice to the Investment
Adviser or by the Investment Adviser on 60 day's written notice to the Company.
This agreement shall terminate automatically in the event of its assignment (as
defined in the 1940 Act).
10. Upon expiration or earlier termination of this agreement, the
Company shall, if reference to "CVO GREATER CHINA" is made in the corporate name
of the Company or the name of the Fund and if the Investment Adviser requests in
writing, as promptly as practicable, change its corporate name and the name of
the Fund so as to eliminate all reference to "CVO GREATER CHINA," and thereafter
the Company and the Fund shall cease transacting business in any corporate name
using the words "CVO GREATER CHINA" or any other reference to the Investment
Adviser or "CVO GREATER CHINA." The foregoing rights of the Investment Adviser
and obligations of the Company shall not deprive the Investment Adviser, or any
affiliate thereof which has "CVO GREATER CHINA" in its name, of, but shall be in
addition to, any other rights or remedies to which the Investment Adviser and
any such affiliate may be entitled in law or equity by reason of any breach of
this agreement by the Company, and the failure or omission of the Investment
Adviser to request a change of the Company's or the
3
<PAGE>
Fund's name or a cessation of the use of the name of "CVO GREATER CHINA" as
described in this paragraph 10 shall not under any circumstances be deemed a
waiver of the right to require such change or cessation at any time
thereafter for the same or any subsequent breach.
11. Except to the extent necessary to perform the Investment
Adviser's obligations under this agreement, nothing herein shall be deemed to
limit or restrict the right of the Investment Adviser, or any affiliate of the
Investment Adviser, or any employee of the Investment Adviser, to engage in any
other business or to devote time and attention to the management or other
aspects of any other business, whether of a similar or dissimilar nature, or to
render services of any kind to any other corporation, firm, individual or
association.
12. This agreement shall be governed by the laws of the State of
Maryland.
If the foregoing correctly sets forth the agreement between the
Company and the Investment Adviser, please so indicate by signing and returning
to the Company the enclosed copy hereof.
Very truly yours,
CVO GREATER CHINA FUND, INC.
By
--------------------------------
Morris W. Offit
President
ACCEPTED BY:
CVO GREATER CHINA PARTNERS, L.P.
By: OFFITBANK GREATER CHINA, INC.,
Its General Partner
By:
------------------------------
Title:
---------------------------
By: CHINAVEST PUBLIC EQUITIES, LLC,
Its General Partner
By:
------------------------------
Edward B. Collins, Manager
4
<PAGE>
DISTRIBUTION AGREEMENT
WHEREAS, The CVO Greater China Fund, Inc. (the "Company"), a
Maryland corporation, has adopted a Plan of Distribution (the "Plan")
pursuant to Rule 12b-1 under the Investment Company Act of 1940, as amended
(the "1940 Act") which Plan authorizes the Company to enter into agreements
regarding the distribution of Class II Shares (the "Shares") of the Company's
investment portfolio, CVO Greater China Fund (the "Fund"); and
WHEREAS, the Company has agreed that OFFIT Funds Distributor, Inc.
(the "Distributor"), a Delaware corporation, shall act as the distributor of
the Shares;
WHEREAS, the Distributor agrees to act as distributor of the Shares
for the period of this Distribution Agreement (the "Agreement");
NOW, THEREFORE, in consideration of the agreement hereinafter
contained, it is agreed as follows:
1. SERVICES AS DISTRIBUTOR.
1.1 The Distributor agrees to use appropriate efforts to
promote the Company and to solicit orders for the purchase of Shares and will
undertake such advertising and promotion as it believes reasonable in
connection with such solicitation of each class of Shares. In the event that
the Company establishes additional portfolios with respect to which it
desires to retain the Distributor to act as distributor hereunder, it shall
promptly notify the Distributor in writing. If the Distributor is willing to
render such services it shall notify the Company in writing whereupon such
portfolio shall become a Fund and its shares of capital stock shall become
Shares hereunder.
1.2 All activities by the Distributor and its agents and
employees as the distributor of Shares shall comply with all applicable laws,
rules and regulations, including, without limitation, all rules and
regulations made or adopted pursuant to the 1940 Act, by the Securities and
Exchange Commission (the "Commission") or any securities association
registered under the Securities Exchange Act of 1934, as amended.
1.3 The Distributor will transmit any orders received by
it for the purchase or redemption of Shares to the Company's transfer agent
and custodian.
1.4 Whenever in their judgment such action is warranted
by unusual market, economic or political conditions, or by abnormal
circumstances of any kind, the Company's officers may decline to accept any
orders for, or make any sales of Shares until such time as those officers
deem it advisable to accept such orders and to make such sales.
<PAGE>
1.5 The Distributor will act only on its own behalf as
principal if it chooses to enter into selling agreements with selected
dealers or others.
2. DUTIES OF THE COMPANY.
2.1 The Company agrees at its own expense to execute any
and all documents and to furnish, at its own expense, any and all information
and otherwise to take all actions that may be reasonably necessary in
connection with the qualification of Shares for sale in such states as the
Company and the Distributor may designate.
2.2 The Company shall furnish from time to time, for use
in connection with the sale of the Shares such information with respect to
the Company and the Shares as the Distributor may reasonably request; and the
Company warrants that any such information shall be true and correct. Upon
request, the Company shall also provide or cause to be provided to the
Distributor; (a) unaudited semi-annual statements of the Fund's books and
accounts, (b) quarterly earnings statements of the Fund, (c) a monthly
itemized list of the securities in the Fund, (d) monthly balance sheets as
soon as practicable after the end of each month, and (e) from time to time
such additional information regarding the Fund's financial condition as the
Distributor may reasonably request.
3. REPRESENTATIONS OF THE COMPANY.
3.1 The Company represents to the Distributor that any
registration statement, prospectus, and statement of additional information
filed with the Commission and any amendments and supplements thereto (the
"Registration Statement") with respect to the Shares have been prepared in
conformity with the requirements of the Securities Act of 1933, as amended
(the "Securities Act"), the 1940 Act and the rules and regulations of the
Commission thereunder. The Company represents and warrants to the
Distributor that any Registration Statement, when such becomes effective,
will contain all statements required to be stated therein in conformity with
the Securities Act, the 1940 Act and the rules and regulations of Commission;
that all statements of fact contained in such Registration Statement will be
true and correct when such becomes effective; and that no Registration
Statement, when such becomes effective, 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
Shares.
4. INDEMNIFICATION.
4.1 The Company shall indemnify and hold harmless the
Distributor and each person, if any, who controls the Distributor within the
meaning of Section 15 of the Securities Act against any loss, liability,
claim, damage or expense (including the reasonable cost of investigating or
defending any alleged loss, liability, claim, damage or expense and
reasonable counsel fees incurred in connection therewith), arising by reason
of any person acquiring any shares, which may be based upon the Securities
Act, or on any other statute or at common law, on the ground that the
Registration Statement, as from time to time amended and supplemented, or an
annual or interim report to shareholders of the Company, includes an untrue
statement of a material fact or omits to state a material fact required to be
stated therein or necessary in order to make the statements therein, in the
light of the circumstances under which they were made, not misleading, unless
such statement or omission was made in reliance upon, and in conformity with,
information furnished to the Company in connection therewith by or on behalf
of the Distributor; provided, however, that in
2
<PAGE>
no case (i) is the indemnity of the Company in favor of the Distributor and
any such controlling person to be deemed to protect such Distributor or any
such controlling person thereof against any liability to the Company or its
security holders to which the Distributor or any such controlling person
would otherwise be subject by reason of willful misfeasance, bad faith or
gross negligence in the performance of their duties or by reason of the
reckless disregard of their obligations and duties under this Agreement; or
(ii) is the Company to be liable under its indemnity agreement contained in
this paragraph with respect to any claim made against the Distributor or any
such controlling person, unless the Distributor or such controlling person,
as the case may be, shall have notified the Company in writing within a
reasonable time after the summons or other first legal process giving
information of the nature of the claim shall have been served upon the
Distributor or such controlling person (or after the Distributor or such
controlling person shall have received notice of such service on any
designated agent), but failure to notify the Company of any such claim shall
not relieve it from any liability which it may have to the person against
whom such action is brought otherwise than on account of its indemnity
agreement contained in this paragraph. The Company will be entitled to
participate at its own expense in the defense, or, if it so elects, to assume
the defense of any suit brought to enforce any such liability, but if the
Company elects to assume the defense, such defense shall be conducted by
counsel chosen by it and satisfactory to the Distributor or such controlling
person or persons, defendant or defendants in the suit. In the event the
Company elects to assume the defense of any such suit and retain such
counsel, the Distributor or such controlling person or persons, defendant or
defendants in the suit, shall bear the fees and expenses of any additional
counsel retained by them, but, in case the Company does not elect to assume
the defense of any such suit, it will reimburse the Distributor or such
controlling person or persons, defendant or defendants in the suit, for the
reasonable fees and expenses of any counsel retained by them. The Company
shall promptly notify the Distributor of the commencement of any litigation
or proceed against it or any of its officers or directors in connection with
the issuance or sale of any of the shares.
4.2 The Distributor shall indemnify and hold harmless
the Company and each of its directors and officers and each person, if any,
who controls the Company against any loss, liability, claim, damage or
expense described in the foregoing indemnity contained in paragraph 4.1, but
only with respect to statements or omissions made in reliance upon, and in
conformity with, information furnished to the Company in writing by or on
behalf of the Distributor for use in connection with the Registration
Statement, as from time to time amended, or the annual or interim reports to
shareholders. In case any action shall be brought against the Company or any
persons so indemnified, in respect of which indemnity may be sought against
the Distributor, the Distributor shall have the rights and duties given to
the Company, and the Company and each person so indemnified shall have the
rights and duties given to the Distributor by the provisions of paragraph 4.1.
5. OFFERING OF SHARES.
5.1 None of the Shares shall be offered by either the
Distributor or the Company under any of the provisions of this Agreement, and
no orders for the purchase or sale of Shares under this Agreement shall be
accepted by the Company, if and so long as the effectiveness of the
registration statement then in effect or any necessary amendments thereto
shall be suspended under any of the provisions of the Securities Act or if
and so long as a current prospectus and statement of additional information
as required by Section 10(b)(2) of the Securities Act, as amended, is not on
3
<PAGE>
file with the Commission; provided, however, that nothing contained in this
paragraph 5.1 shall in any way restrict or have any application to or bearing
upon the Company's obligation to repurchase Shares from any shareholder in
accordance with the provisions of the Company's prospectus or Articles of
Incorporation.
6. AMENDMENTS TO REGISTRATION STATEMENT AND OTHER MATERIAL EVENTS.
6.1 The Company agrees to advise the Distributor as soon
as reasonably practical by a notice in writing delivered to the Distributor.
(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
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 which 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 which may
from time to time be filed with the Commission.
For purposes of this section, information requested by or acts of
the staff of the Commission shall not be deemed actions of or requests by the
Commission.
7. REIMBURSEMENT OF DISTRIBUTOR.
7.1 (a) As promptly as possible after the first
Business Day (as defined in the Prospectus) of each month this Agreement is
in effect, the Company shall reimburse the Distributor for its distribution
expenditures under the Agreement incurred during the previous month but not
prior to the Commencement Date); provided that payment shall be made in any
month only to the extent that such payment, together with any other payments
made by the Company pursuant to its Plan shall not exceed 0.25% of the
average daily net assets of the Fund attributable to Class II Shares of the
Fund, for such month. The reimbursement by the Company of the distribution
expenditures incurred by the Distributor is authorized pursuant to the Plan
adopted by the Company under Rule 12b-1 under the 1940 Act.
(b) For purposes of this Agreement, "distribution
expenditures" of the Distributor shall mean all expenditures borne by the
Distributor or by any other person with which the Distributor has an
agreement approved by the Company, which expenditures represent payment for
activities primarily intended to result in the sale of Shares, including, but
not limited to, the following: (i) payments to securities dealers and others
engaged in the sale of Shares; (ii) expenditures for support services such as
telephone facilities and expenses and shareholder services as the Company may
reasonably request; (iii) formulation and implementation of marketing and
promotional activities, including, but not limited to, direct mail promotions
and television, radio,
4
<PAGE>
newspaper, magazine and other mass media advertising; (iv) preparation,
printing and distribution of sales literature; (v) preparation, printing and
distribution of prospectuses of the Company and reports for recipients other
than existing shareholders of the Company; and (vi) provision to the Company
of such information, analyses and opinion, with respect to marketing and
promotional activities as the Company may, from time to time, reasonably
request; except that distribution expenditures shall not include any
expenditures in connection with services which the Distributor, any of its
affiliates, or any other person have agreed to bear without reimbursement.
(c) Each written request for reimbursement under this
section shall be directed to the Treasurer of the Company and shall show in
reasonable detail the expenditures incurred by the Distributor and the
purposes therefor.
(d) The Distributor shall prepare and deliver reports to
the Treasurer of the Company on a regular, at least monthly, basis, showing
the distribution expenditures incurred pursuant to this Agreement and the
Plan and the purposes therefor, as well as any supplemental reports as the
Directors, from time to time, may reasonably request.
8. CONFIDENTIALITY/NON-EXCLUSIVE AGENCY.
8.1 The Distributor agrees on behalf of itself and its
employees to treat confidentially and as proprietary information of the
Company all records and other information relative to the Fund and its prior,
present or potential shareholders, and not to use such records and
information for any purpose other than performance of its responsibilities
and to obtain approval in writing by the Company, which approval shall not be
unreasonably withheld and may not be withheld where the Distributor 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 Company.
8.2 Nothing contained in this Agreement shall prevent
the Distributor, or any affiliated person of the Distributor, from performing
services similar to those to be performed under this Agreement for any other
person, firm, or corporation or for its or their own accounts or for the
accounts of others.
9. TERM.
9.1 This Agreement shall continue until one year from
the date hereof and thereafter for successive annual periods, provided such
continuance is specifically approved at least annually by (i) a vote of the
majority of the directors of the Company and (ii) a vote of the majority of
those directors of the Company who are not interested persons of the Company
and who have no direct or indirect financial interest in the operation of the
Plan in this Agreement or any agreement related to the Plan (the "Qualified
Directors") by vote cast in person at a meeting called for the purpose of
voting on such approval. This Agreement is terminable at any time, with
respect to the Company or the Fund, as the case may be, without penalty, (a)
on not less than 60 days' written notice by vote of a majority of the
Qualified Directors, or by vote of the holders of a majority of the
outstanding voting securities of the Company or the Fund, or (b) upon not
less than 60 days' written notice by the Distributor. This Agreement may
remain in effect with respect to the Fund even if it has been terminated in
accordance with this paragraph with respect to one or more other Fund(s) of
the Company. This Agreement will also terminate automatically in the event
of its assignment. (As
5
<PAGE>
used in this Agreement, the terms "majority of the outstanding voting
securities", "interested persons" and "assignment" shall have the same
meaning as such terms have in the 1940 Act.
10. MISCELLANEOUS.
10.1 This Agreement shall be governed by the laws of the
State of New York.
10.2 The captions in this Agreement are included for
convenience of reference only and in no way define or delimit any of the
provisions hereof or otherwise affect their constructions or effect.
IN WITNESS WHEREOF, the parties hereto have caused this
instrument to be executed by their officers designated below as the 30th day
of December, 1994.
CVO GREATER CHINA FUND, INC.
By:_____________________________________________
Title:
OFFIT FUNDS DISTRIBUTOR, INC.
By:_____________________________________________
Title:
<PAGE>
Exhibit 8
CUSTODIAN AGREEMENT
BETWEEN
CVO GREATER CHINA FUND
AND
INVESTORS BANK & TRUST COMPANY
<PAGE>
TABLE OF CONTENTS
Page
----
1. Bank Appointed Custodian. . . . . . . . . . . . . . . . . . . . . . 1
2. Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . 1
2.1 Authorized Person . . . . . . . . . . . . . . . . . 1
2.2 Security . . . . . . . . . . . . . . . . . . . . . . 1
2.3 Portfolio. . . . . . . . . . . . . . . . . . . . . . 1
2.4 Officers' Certificate. . . . . . . . . . . . . . . . 1
2.5 Book-Entry System. . . . . . . . . . . . . . . . . . 2
2.6 Depository . . . . . . . . . . . . . . . . . . . . . 2
2.7 Proper Instructions. . . . . . . . . . . . . . . . . 2
3. Separate Accounts . . . . . . . . . . . . . . . . . . . . . . . . . 2
4. Certification as to Authorized Persons. . . . . . . . . . . . . . . 2
5. Custody of Cash . . . . . . . . . . . . . . . . . . . . . . . . . . 3
5.1 Purchase of Securities . . . . . . . . . . . . . . . 3
5.2 Redemptions. . . . . . . . . . . . . . . . . . . . . 3
5.3 Distributions and Expenses of Fund . . . . . . . . . 3
5.4 Payment in Respect of Securities . . . . . . . . . . 3
5.5 Repayment of Loans . . . . . . . . . . . . . . . . . 3
5.6 Repayment of Cash. . . . . . . . . . . . . . . . . . 4
5.7 Foreign Exchange Transactions. . . . . . . . . . . . 4
5.8 Other Authorized Payments. . . . . . . . . . . . . . 4
5.9 Termination. . . . . . . . . . . . . . . . . . . . . 4
6. Securities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
6.1 Segregation and Registration . . . . . . . . . . . . 4
6.2 Voting and Proxies . . . . . . . . . . . . . . . . . 5
6.3 Book-Entry System. . . . . . . . . . . . . . . . . . 5
6.4 Use of a Depository. . . . . . . . . . . . . . . . . 6
6.5 Use of Book-Entry System for Commercial Paper. . . . 7
6.6 Use of Immobilization Programs . . . . . . . . . . . 8
6.7 Eurodollar CDs . . . . . . . . . . . . . . . . . . . 8
6.8 Options and Futures Transactions . . . . . . . . . . 8
(a) Puts and Calls Traded on Securities Exchanges,
NASDAQ or Over-the-Counter . . . . . . . . . . 8
<PAGE>
Page
----
(b) Puts, Calls, and Futures Traded
on Commodities Exchanges. . . . . . . . . . . 9
6.9 Segregated Account . . . . . . . . . . . . . . . . . 9
6.10 Interest Bearing Call or Time Deposits . . . . . . . 10
6.11 Transfer of Securities . . . . . . . . . . . . . . . 11
7. Redemptions . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
8. Merger, Dissolution, etc. of Fund . . . . . . . . . . . . . . . . . 12
9. Actions of Bank Without Prior Authorization . . . . . . . . . . . . 13
10. Collections and Defaults. . . . . . . . . . . . . . . . . . . . . . 13
11. Maintenance of Records and Accounting Services. . . . . . . . . . . 14
12. Concerning the Bank . . . . . . . . . . . . . . . . . . . . . . . . 14
12.1 Performance of Duties and Standard of Care . . . . . 14
12.2 Agents and Subcustodians with Respect to Property
of the Fund Held in the United States. . . . . . . 15
12.3 Duties of the Bank with Respect to Property of the
Fund Held Outside of the United States . . . . . . 15
12.4 Insurance. . . . . . . . . . . . . . . . . . . . . . 18
12.5 Fees and Expenses of Bank. . . . . . . . . . . . . . 19
12.6 Advances by Bank . . . . . . . . . . . . . . . . . . 19
13. Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
14. Confidentiality . . . . . . . . . . . . . . . . . . . . . . . . . . 20
15. Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
16. Amendments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
17. Parties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
18. Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
19. Counterparts. . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
<PAGE>
CUSTODIAN AGREEMENT
AGREEMENT made as of this [ ] day of [ ], 1994, between CVO GREATER CHINA
FUND, a Maryland corporation (the "Fund") and INVESTORS BANK & TRUST COMPANY
(the "Bank").
The Fund, an open-end management investment company, desires to place and
maintain all of its portfolio securities and cash in the custody of the Bank.
The Bank has at least the minimum qualifications required by Section 17(f)(1) of
the Investment Company Act of 1940 (the "1940 Act") to act as custodian of the
portfolio securities and cash of the Fund, and has indicated its willingness to
so act, subject to the terms and conditions of this Agreement.
NOW, THEREFORE, in consideration of the premises and of the mutual
agreements contained herein, the parties hereto agree as follows:
1. BANK APPOINTED CUSTODIAN. The Fund hereby appoints the Bank as
custodian of its portfolio securities and cash delivered to the Bank as
hereinafter described and the Bank agrees to act as such upon the terms and
conditions hereinafter set forth.
2. DEFINITIONS. Whenever used herein, the terms listed below will have
the following meaning:
2.1 AUTHORIZED PERSON. Authorized Person will mean any of the
persons duly authorized to give Proper Instructions or otherwise act on behalf
of the Fund by appropriate resolution of its Board of Directors (the "Board"),
and set forth in a certificate as required by Section 4 hereof.
2.2 SECURITY. The term security as used herein will have the same
meaning as when such term is used in the Securities Act of 1933, as amended,
including, without limitation, any note, stock, treasury stock, bond, debenture,
evidence of indebtedness, certificate of interest or participation in any profit
sharing agreement, collateral-trust certificate, preorganization certificate or
subscription, transferable share, investment contract, voting-trust certificate,
certificate of deposit for a security, fractional undivided interest in oil,
gas, or other mineral rights, any put, call, straddle, option, or privilege on
any security, certificate of deposit, or group or index of securities (including
any interest therein or based on the value thereof), or any put, call, straddle,
option, or privilege entered into on a national securities exchange relating to
a foreign currency, or, in general, any interest or instrument commonly known as
a "security", or any certificate of interest or participation in, temporary or
interim certificate for, receipt for, guarantee of, or warrant or right to
subscribe to, or option contract to purchase or sell any of the foregoing, and
futures, forward contracts and options thereon.
2.3 PORTFOLIO SECURITY. Portfolio Security will mean any security
owned by the Fund.
2.4 OFFICERS' CERTIFICATE. Officers' Certificate will mean, unless
otherwise indicated, any request, direction, instruction, or certification in
writing signed by any two Authorized Persons of the Fund.
<PAGE>
2
2.5 BOOK-ENTRY SYSTEM. Book-Entry System shall mean the Federal
Reserve-Treasury Department Book Entry System for United States government,
instrumentality and agency securities operated by the Federal Reserve Bank, its
successor or successors and its nominee or nominees.
2.6 DEPOSITORY. Depository shall mean The Depository Trust Company
("DTC"), a clearing agency registered with the Securities and Exchange
Commission under Section 17A of the Securities Exchange Act of 1934 ("Exchange
Act"), its successor or successors and its nominee or nominees. The term
"Depository" shall further mean and include any other person authorized to act
as a depository under the 1940 Act, its successor or successors and its nominee
or nominees, specifically identified in a certified copy of a resolution of the
Board.
2.7 PROPER INSTRUCTIONS. Proper Instructions shall mean (i)
instructions regarding the purchase or sale of Portfolio Securities, and
payments and deliveries in connection therewith, given by an Authorized
Person as shall have been designated in an Officers' Certificate, such
instructions to be given in such form and manner as the Bank and the Fund
shall agree upon from time to time, and (ii) instructions (which may be
continuing instructions) regarding other matters signed or initialed by such
one or more persons from time to time designated in an Officers' Certificate
as having been authorized by the Board. Oral instructions will be considered
Proper Instructions if the Bank reasonably believes them to have been given
by a person authorized to give such instructions with respect to the
transaction involved. The Fund shall cause all oral instructions to be
promptly confirmed in writing. The Bank shall act upon and comply with any
subsequent Proper Instruction which modifies a prior instruction and the sole
obligation of the Bank with respect to any follow-up or confirmatory
instruction shall be to make reasonable efforts to detect any discrepancy
between the original instruction and such confirmation and to report such
discrepancy to the Fund. The Fund shall be responsible, at the Fund's
expense, for taking any action, including any reprocessing, necessary to
correct any such discrepancy or error, and to the extent such action requires
the Bank to act the Fund shall give the Bank specific Proper Instructions as
to the action required. Upon receipt of an Officers' Certificate as to the
authorization by the Board accompanied by a detailed description of
procedures approved by the Fund, Proper Instructions may include
communication effected directly between electro-mechanical or electronic
devices provided that the Board and the Bank are satisfied that such
procedures afford adequate safeguards for the Fund's assets.
3. SEPARATE ACCOUNTS. If the Fund has more than one series or portfolio,
the Bank will segregate the assets of each series or portfolio to which this
Agreement relates into a separate account for each such series or portfolio
containing the assets of such series or portfolio (and all investment earnings
thereon).
4. CERTIFICATION AS TO AUTHORIZED PERSONS. The Secretary or Assistant
Secretary of the Fund will at all times maintain on file with the Bank his or
her certification to the Bank, in such form as may be acceptable to the Bank, of
(i) the names and signatures of the Authorized Persons and (ii) the names of the
Board, it being understood that upon the occurrence of any change in the
information set forth in the most recent certification on file (including
without limitation any person named in the most recent certification who is no
longer an Authorized Person as designated therein), the Secretary or Assistant
Secretary of the Fund, will sign a new or amended certification setting forth
the change and the new, additional or omitted
<PAGE>
3
names or signatures. The Bank will be entitled to rely and act upon any
Officers' Certificate given to it by the Fund which has been signed by
Authorized Persons named in the most recent certification.
5. CUSTODY OF CASH. As custodian for the Fund, the Bank will open and
maintain a separate account or accounts in the name of the Fund or in the name
of the Bank, as Custodian of the Fund, and will deposit to the account of the
Fund all of the cash of the Fund, except for cash held by a subcustodian
appointed pursuant to Section 12.2 hereof, including borrowed funds, delivered
to the Bank, subject only to draft or order by the Bank acting pursuant to the
terms of this Agreement. Upon receipt by the Bank of Proper Instructions (which
may be continuing instructions) or in the case of payments for redemptions and
repurchases of outstanding shares of common stock of the Fund, notification from
the Fund's transfer agent as provided in Section 7, requesting such payment,
designating the payee or the account or accounts to which the Bank will release
funds for deposit, and stating that it is for a purpose permitted under the
terms of this Section 5, specifying the applicable subsection, the Bank will
make payments of cash held for the accounts of the Fund, insofar as funds are
available for that purpose, only as permitted in subsections 5.1-5.9 below.
5.1 PURCHASE OF SECURITIES. Upon the purchase of securities for the
Fund, against contemporaneous receipt of such securities by the Bank or, against
delivery of such securities to the Bank in accordance with generally accepted
settlement practices and customs in the jurisdiction or market in which the
transaction occurs, registered in the name of the Fund or in the name of, or
properly endorsed and in form for transfer to, the Bank, or a nominee of the
Bank, or receipt for the account of the Bank pursuant to the provisions of
Section 6 below, each such payment to be made at the purchase price shown on a
broker's confirmation (or transaction report in the case of Book Entry Paper) of
purchase of the securities received by the Bank before such payment is made, as
confirmed in the Proper Instructions received by the Bank before such payment is
made.
5.2 REDEMPTIONS. In such amount as may be necessary for the
repurchase or redemption of common shares of the Fund offered for repurchase or
redemption in accordance with Section 7 of this Agreement.
5.3 DISTRIBUTIONS AND EXPENSES OF FUND. For the payment on the
account of the Fund of dividends or other distributions to shareholders as may
from time to time be declared by the Board, interest, taxes, management or
supervisory fees, distribution fees, fees of the Bank for its services hereunder
and reimbursement of the expenses and liabilities of the Bank as provided
hereunder, fees of any transfer agent, fees for legal, accounting, and auditing
services, or other operating expenses of the Fund.
5.4 PAYMENT IN RESPECT OF SECURITIES. For payments in connection
with the conversion, exchange or surrender of Portfolio Securities or securities
subscribed to by the Fund held by or to be delivered to the Bank.
5.5 REPAYMENT OF LOANS. To repay loans of money made to the Fund,
but, in the case of final payment, only upon redelivery to the Bank of any
Portfolio Securities pledged or hypothecated therefor and upon surrender of
documents evidencing the loan,
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4
5.6 REPAYMENT OF CASH. To repay the cash delivered to the Fund for
the purpose of collateralizing the obligation to return to the Fund certificates
borrowed from the Fund representing Portfolio Securities, but only upon
redelivery to the Bank of such borrowed certificates.
5.7 FOREIGN EXCHANGE TRANSACTIONS. For payments in connection with
foreign exchange contracts or options to purchase and sell foreign currencies
for spot and future delivery which may be entered into by the Bank on behalf of
the Fund upon the receipt of Proper Instructions, such Proper Instructions to
specify the currency broker or banking institution (which may be the Bank, or
any other subcustodian or agent hereunder, acting as principal) with which the
contract or option is made, and the Bank shall have no duty with respect to the
selection of such currency brokers or banking institutions with which the Fund
deals or for their failure to comply with the terms of any contract or option.
5.8 OTHER AUTHORIZED PAYMENTS. For other authorized transactions of
the Fund, or other obligations of the Fund incurred for proper Fund purposes;
provided that before making any such payment the Bank will also receive a
certified copy of a resolution of the Board signed by an Authorized Person
(other than the Person certifying such resolution) and certified by its
Secretary or Assistant Secretary, naming the person or persons to whom such
payment is to be made, and either describing the transaction for which payment
is to be made and declaring it to be an authorized transaction of the Fund, or
specifying the amount of the obligation for which payment is to be made, setting
forth the purpose for which such obligation was incurred and declaring such
purpose to be a proper corporate purpose.
5.9 TERMINATION: upon the termination of this Agreement as
hereinafter set forth pursuant to Section 8 and Section 13 of this Agreement.
6. SECURITIES.
6.1 SEGREGATION AND REGISTRATION. Except as otherwise provided
herein, and except for securities to be delivered to any subcustodian appointed
pursuant to Section 12.2 hereof, the Bank as custodian, will receive and hold
pursuant to the provisions hereof, in a separate account or accounts and
physically segregated at all times from those of other persons, any and all
Portfolio Securities which may now or hereafter be delivered to it by or for the
account of the Fund. All such Portfolio Securities will be held or disposed of
by the Bank for, and subject at all times to, the instructions of the Fund
pursuant to the terms of this Agreement. Subject to the specific provisions
herein relating to Portfolio Securities that are not physically held by the
Bank, the Bank will register all Portfolio Securities (unless otherwise directed
by Proper Instructions or an Officers' Certificate), in the name of a registered
nominee of the Bank as defined in the Internal Revenue Code and any Regulations
of the Treasury Department issued thereunder, and will execute and deliver all
such certificates in connection therewith as may be required by such laws or
regulations or under the laws of any state.
The Fund will from time to time furnish to the Bank appropriate
instruments to enable it to hold or deliver in proper form for transfer, or to
register in the name of its registered nominee, any Portfolio Securities which
may from time to time be registered in the name of the Fund.
<PAGE>
5
6.2 VOTING AND PROXIES. Neither the Bank nor any nominee of the Bank
will vote any of the Portfolio Securities held hereunder, except in accordance
with Proper Instructions or an Officers' Certificate. The Bank will execute and
deliver, or cause to be executed and delivered, to the Fund all notices, proxies
and proxy soliciting materials with respect to such Securities, such proxies to
be executed by the registered holder of such Securities (if registered otherwise
than in the name of the Fund), but without indicating the manner in which such
proxies are to be voted.
6.3 BOOK-ENTRY SYSTEM. Provided (i) the Bank has received a
certified copy of a resolution of the Board specifically approving deposits of
Fund assets in the Book-Entry System, and (ii) for any subsequent changes to
such arrangements following such approval, the Board has reviewed and approved
the arrangement and has not delivered an Officer's Certificate to the Bank
indicating that the Board has withdrawn its approval:
(a) The Bank may keep Portfolio Securities in the Book-Entry
System provided that such Portfolio Securities are represented in an account
("Account") of the Bank (or its agent) in such System which shall not include
any assets of the Bank (or such agent) other than assets held as a fiduciary,
custodian, or otherwise for customers;
(b) The records of the Bank (and any such agent) with respect
to the Fund's participation in the Book-Entry System through the Bank (or any
such agent) will identify by book entry Portfolio Securities which are included
with other securities deposited in the Account and shall at all times during the
regular business hours of the Bank (or such agent) be open for inspection by
duly authorized officers, employees or agents of the Fund. Where securities are
transferred to the Fund's account, the Bank shall also, by book entry or
otherwise, identify as belonging to the Fund a quantity of securities in
fungible bulk of securities (i) registered in the name of the Bank or its
nominee, or (ii) shown on the Bank's account on the books of the Federal Reserve
Bank;
(c) The Bank (or its agent) shall pay for securities purchased
for the account of the Fund or shall pay cash collateral against the return of
Portfolio Securities loaned by the Fund upon (i) receipt of advice from the
Book-Entry System that such Securities have been transferred to the Account, and
(ii) the making of an entry on the records of the Bank (or its agent) to reflect
such payment and transfer for the account of the Fund. The Bank (or its agent)
shall transfer securities sold or loaned for the account of the Fund upon
(i) receipt of advice from the Book-Entry System that
payment for securities sold or payment of the initial cash collateral against
the delivery of securities loaned by the Fund has been transferred to the
Account; and
(ii) the making of an entry on the records of the Bank (or
its agent) to reflect such transfer and payment for the account of the Fund.
Copies of all advices from the Book-Entry System of transfers of securities for
the account of the Fund shall identify the Fund, be maintained for the Fund by
the Bank and shall be provided to the Fund at its request. The Bank shall send
the Fund a confirmation, as defined by Rule l7f-4 of the 1940 Act, of any
transfers to or from the account of the Fund;
<PAGE>
6
(d) The Bank will promptly provide the Fund with any report
obtained by the Bank or its agent on the Book-Entry System's accounting system,
internal accounting control and procedures for safeguarding securities deposited
in the Book-Entry System;
(e) The Bank shall be liable to the Fund for any loss or damage
to the Fund resulting from use of the Book-Entry System by reason of any gross
negligence, willful misfeasance or bad faith of the Bank or any of its agents or
of any of its or their employees or from any reckless disregard by the Bank or
any such agent of its duty to use its best efforts to enforce such rights as it
may have against the Book-Entry System; at the election of the Fund, it shall be
entitled to be subrogated for the Bank in any claim against the Book-Entry
System or any other person which the Bank or its agent may have as a consequence
of any such loss or damage if and to the extent that the Fund has not been made
whole for any loss or damage;
6.4 USE OF A DEPOSITORY. Provided (i) the Bank has received a
certified copy of a resolution of the Board specifically approving deposits in
DTC or other such Depository and (ii) for any subsequent changes to such
arrangements following such approval, the Board has reviewed and approved the
arrangement and has not delivered an Officer's Certificate to the Bank
indicating that the Board has withdrawn its approval:
(a) The Bank may use a Depository to hold, receive, exchange,
release, lend, deliver and otherwise deal with Portfolio Securities including
stock dividends, rights and other items of like nature, and to receive and remit
to the Bank on behalf of the Fund all income and other payments thereon and to
take all steps necessary and proper in connection with the collection thereof;
(b) Registration of Portfolio Securities may be made in the name
of any nominee or nominees used by such Depository;
(c) Payment for securities purchased and sold may be made
through the clearing medium employed by such Depository for transactions of
participants acting through it. Upon any purchase of Portfolio Securities,
payment will be made only upon delivery of the securities to or for the account
of the Fund and the Fund shall pay cash collateral against the return of
Portfolio Securities loaned by the Fund only upon delivery of the Securities to
or for the account of the Fund; and upon any sale of Portfolio Securities,
delivery of the Securities will be made only against payment thereof or, in the
event Portfolio Securities are loaned, delivery of Securities will be made only
against receipt of the initial cash collateral to or for the account of the
Fund; and
(d) The Bank shall be liable to the Fund for any loss or damage
to the Fund resulting from use of a Depository by reason of any gross
negligence, willful misfeasance or bad faith of the Bank or its employees or
from any reckless disregard by the Bank of its duty to use its best efforts to
enforce such rights as it may have against a Depository. In this connection,
the Bank shall use its best efforts to ensure that:
(i) The Depository obtains replacement of any certificated
Portfolio Security deposited with it in the event such Security is lost,
destroyed, wrongfully taken or otherwise not available to be returned to the
Bank upon its request;
<PAGE>
7
(ii) Any proxy materials received by a Depository with
respect to Portfolio Securities deposited with such Depository are forwarded
immediately to the Bank for prompt transmittal to the Fund;
(iii) Such Depository immediately forwards to the Bank
confirmation of any purchase or sale of Portfolio Securities and of the
appropriate book entry made by such Depository to the Fund's account;
(iv) Such Depository prepares and delivers to the Bank such
records with respect to the performance of the Bank's obligations and duties
hereunder as may be necessary for the Fund to comply with the recordkeeping
requirements of Section 31(a) of the 1940 Act and Rule 31(a) thereunder; and
(v) Such Depository delivers to the Bank and the Fund all
internal accounting control reports, whether or not audited by an independent
public accountant, as well as such other reports as the Fund may reasonably
request in order to verity the Portfolio Securities held by such Depository.
6.5 USE OF BOOK-ENTRY SYSTEM FOR COMMERCIAL PAPER. Provided (i) the
Bank has received a certified copy of a resolution of the Board specifically
approving participation in a system maintained by the Bank for the holding of
commercial paper in book-entry form ("Book-Entry Paper") and (ii) for each year
following such approval the Board has received and approved the arrangements,
upon receipt of Proper Instructions and upon receipt of confirmation from an
Issuer (as defined below) that the Fund has purchased such Issuer's Book-entry
Paper, the Bank shall issue and hold in book-entry form, on behalf of the Fund,
commercial paper issued by issuers with whom the Bank has entered into a book-
entry agreement (the "Issuers"). In maintaining its Book-entry Paper System,
the Bank agrees that:
(a) the Bank will maintain all Book-Entry Paper held by the Fund
in an account of the Bank that includes only assets held by it for customers;
(b) the records of the Bank with respect to the Fund's purchase
of Book-entry Paper through the Bank will identify, by book-entry, Commercial
Paper belonging to the Fund which is included in the Book-entry Paper System and
shall at all times during the regular business hours of the Bank be open for
inspection by duly authorized officers, employees or agents of the Fund;
(c) the Bank shall pay for Book-Entry Paper purchased for the
account of the Fund upon contemporaneous (i) receipt of advice from the Issuer
that such sale of Book-Entry Paper has been effected, and (ii) the making of an
entry on the records of the Bank to reflect such payment and transfer for the
account of the Fund;
(d) the Bank shall cancel such Book-Entry Paper obligation upon
the maturity thereof upon contemporaneous (i) receipt of advice that payment for
such Book-Entry Paper has been transferred to the Fund, and (ii) the making of
an entry on the records of the Bank to reflect such payment for the account of
the Fund,
<PAGE>
8
(e) the Bank shall transmit to the Fund a transaction Journal
confirming each transaction in Book-Entry Paper for the account of the Fund on
the next business day following the transaction; and
(f) the Bank will send to the Fund such reports on its system of
internal accounting control with respect to the Book-Entry Paper System as the
Fund may reasonably request from time to time.
6.6 USE OF IMMOBILIZATION PROGRAMS. Provided (i) the Bank has
received a certified copy of a resolution of the Board specifically approving
the maintenance of Portfolio Securities in an immobilization program operated by
a bank which meets the requirements of Section 26(a)(1) of the 1940 Act, and
(ii) for each year following such approval the Board has reviewed and approved
the arrangement and has not delivered an Officer's Certificate to the Bank
indicating that the Board has withdrawn its approval, the Bank shall enter into
such immobilization program with such bank acting as a subcustodian hereunder.
6.7 EURODOLLAR CDS. Any Portfolio Securities which are Eurodollar
CDs may be physically held by the European branch of the U.S. banking
institution that is the issuer of such Eurodollar CD (a "European Branch"),
provided that such Securities are identified on the books of the Bank as
belonging to the Fund and that the books of the Bank identify the European
Branch holding such Securities. Notwithstanding any other provision of this
Agreement to the contrary, except as stated in the first sentence of this
subsection 6.7, the Bank shall be under no other duty with respect to such
Eurodollar CDs belonging to the Fund, and shall have no liability to the Fund
or its shareholders with respect to the actions, inactions, whether negligent
or otherwise of such European Branch in connection with such Eurodollar CDs,
except for any loss or damage to the Fund resulting from the Bank's own gross
negligence, willful misfeasance or bad faith in the performance of its duties
hereunder
6.8 OPTIONS AND FUTURES TRANSACTIONS.
(a) Puts and Calls Traded on Securities Exchanges, NASDAQ or
Over-the-Counter.
1. The Bank shall take action as to put options ("puts") and
call options ("calls") purchased or sold (written) by the Fund regarding escrow
or other arrangements (i) in accordance with the provisions of any agreement
entered into upon receipt of Proper Instructions between the Bank, any broker-
dealer registered under the Exchange Act and a member of the National
Association of Securities Dealers, Inc. (the "NASD"), and, if necessary, the
Fund relating to the compliance with the rules of the Options Clearing
Corporation and of any registered national securities exchange, or of any
similar organization or organizations.
2. Unless another agreement requires it to do so, the Bank
shall be under no duty or obligation to see that the Fund has deposited or is
maintaining adequate margin, if required, with any broker in connection with any
option, nor shall the Bank be under duty or obligation to present such option to
the broker for exercise unless it receives Proper Instructions from the Fund.
The Bank shall have no responsibility for the legality of any put or call
purchased or sold on behalf of the Fund, the propriety of any such purchase or
sale, or the
<PAGE>
9
adequacy of any collateral delivered to a broker in connection with an option or
deposited to or withdrawn from a Segregated Account (as defined in subsection
6.9 below) The Bank specifically, but not by way of limitation, shall not be
under any duty or obligation to: (i) periodically check or notify the Fund that
the amount of such collateral held by a broker or held in a Segregated Account
is sufficient to protect such broker of the Fund against any loss; (ii) effect
the return of any collateral delivered to a broker; or (iii) advise the Fund
that any option it holds, has or is about to expire. Such duties or obligations
shall be the sole responsibility of the Fund
(b) Puts, Calls and Futures Traded on Commodities Exchanges
1. The Bank shall take action as to puts, calls and
futures contracts ("Futures") purchased or sold by the Fund in accordance with
the provisions of any agreement among the Fund, the Bank and a Futures
Commission Merchant registered under the Commodity Exchange Act, relating to
compliance with the rules of the Commodity Futures Trading Commission and/or any
Contract Market, or any similar organization or organizations, regarding account
deposits in connection with transactions by the Fund
2. The responsibilities and liabilities of the Bank as to
futures, puts and calls traded on commodities exchanges, any Futures Commission
Merchant account and the Segregated Account shall be limited as set forth in
subparagraph (a)(2) of this Section 6.8 as if such subparagraph referred to
Futures Commission Merchants rather than brokers, and Futures and puts and calls
thereon instead of options.
6.9 SEGREGATED ACCOUNT. The Bank shall upon receipt of Proper
Instructions establish and maintain a Segregated Account or Accounts for and on
behalf of the Fund, into which Account or Accounts may be transferred upon
receipt of Proper Instructions cash and/or Portfolio Securities:
(a) in accordance with the provisions of any agreement among the
Fund, the Bank and a broker-dealer registered under the Exchange Act and a
member of the NASD or any Futures Commission Merchant registered under the
Commodity Exchange Act, relating to compliance with the rules of the Options
Clearing Corporation and of any registered national securities exchange or the
Commodity Futures Trading Commission or any registered Contract Market, or of
any similar organizations regarding escrow or other arrangements in connection
with transactions by the Fund;
(b) for the purpose of segregating cash or securities in
connection with options purchased or written by the Fund or commodity futures
purchased or written by the Fund;
(c) for the deposit of liquid assets, such as cash, U.S.
Government securities or other high grade debt obligations, having a market
value (marked to market on a daily basis) at all times equal to not less than
the aggregate purchase price due on the settlement dates of all the Fund's then
outstanding forward commitment or "when-issued" agreements relating to the
purchase of Portfolio Securities and all the Fund's then outstanding commitments
under reverse repurchase agreements entered into with broker-dealer firms;
<PAGE>
10
(d) for the deposit of any Portfolio Securities which the Fund
has agreed to sell on a forward commitment basis, all in accordance with
Investment Company Act Release No. 10666;
(e) for the purposes of compliance by the Fund 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;
(f) for other proper corporate purposes, BUT ONLY, in the case
of this clause (f) upon receipt of, in addition to Proper Instructions, a
certified copy of a resolution of the Board, or of the Executive Committee
signed by an officer of the Fund and certified by the Secretary or an
Assistant Secretary, setting forth the purpose or purposes of such Segregated
Account and declaring such purposes to be proper corporate purposes.
(g) Assets may be withdrawn from the Segregated Account pursuant
to Proper Instructions only
(i) in accordance with the provisions of any agreements
referenced in (a) or (b) above;
(ii) for sale or delivery to meet the Fund's obligations
under outstanding firm commitment or when-issued agreements for
the purchase of Portfolio Securities and under reverse
repurchase agreements;
(iii) for exchange for other liquid assets of equal or
greater value deposited in the Segregated Account;
(iv) to the extent that the Fund's outstanding forward
commitment or when-issued agreements for the purchase of
portfolio securities or reverse repurchase agreements are sold
to other parties or the Fund's obligations thereunder are met
from assets of the Fund other than those in the Segregated
Account; or
(v) for delivery upon settlement of a forward commitment
agreement for the sale of Portfolio Securities.
6.10 INTEREST BEARING CALL OR TIME DEPOSITS. The Bank shall, upon
receipt of Proper Instructions relating to the purchase by the Fund of interest-
bearing fixed-term and call deposits, transfer cash, by wire or otherwise, in
such amounts and to such bank or banks as shall be indicated in such Proper
Instructions. The Bank shall include in its records with respect to the assets
of the Fund appropriate notation as to the amount of each such deposit, the
banking institution with which such deposit is made (the "Deposit Bank"), and
shall retain such forms of advice or receipt evidencing the deposit, if any, as
may be forwarded to the Bank by the Deposit Bank. Such deposits shall be deemed
Portfolio Securities of the Fund and the responsibility of the Bank therefore
shall be the same as and no greater than the Bank's responsibility in respect of
other Portfolio Securities of the Fund.
<PAGE>
11
6.11 TRANSFER OF SECURITIES. The Bank will transfer, exchange,
deliver or release Portfolio Securities held by it hereunder, insofar as such
Securities are available for such purpose, provided that before making any
transfer, exchange, delivery or release under this Section the Bank will receive
Proper Instructions requesting such transfer, exchange or delivery stating that
it is for a purpose permitted under the terms of this Section 6.11, specifying
the applicable subsection, or describing the purpose of the transaction with
sufficient particularity to permit the Bank to ascertain the applicable
subsection, only
(a) upon sales of Portfolio Securities for the account of the
Fund, against contemporaneous receipt by the Bank of payment therefor in full,
or, against payment to the Bank in accordance with generally accepted settlement
practices and customs in the jurisdiction or market in which the transaction
occurs, each such payment to be in the amount of the sale price shown in a
broker's confirmation of sale of the Portfolio Securities received by the Bank
before such payment is made, as confirmed in the Proper Instructions received by
the Bank before such payment is made;
(b) in exchange for or upon conversion into other securities
alone or other securities and cash pursuant to any plan of merger,
consolidation, reorganization, share split-up, change in par value,
recapitalization or readjustment or otherwise, upon exercise of subscription,
purchase or sale or other similar rights represented by such Portfolio
Securities, or for the purpose of tendering shares in the event of a tender
offer therefor, provided however that in the event of an offer of exchange,
tender offer, or other exercise of rights requiring the physical tender or
delivery of Portfolio Securities, the Bank shall have no liability for failure
to so tender in a timely manner unless such Proper Instructions are received by
the Bank at least two business days prior to the date required for tender, and
unless the Bank (or its agent or subcustodian hereunder) has actual possession
of such Security at least two business days prior to the date of tender;
(c) upon conversion of Portfolio Securities pursuant to their
terms into other securities;
(d) for the purpose of redeeming in kind shares of the Fund upon
authorization from the Fund;
(e) in the case of option contracts owned by the Fund, for
presentation to the endorsing broker;
(f) when such Portfolio Securities are called, redeemed or
retired or otherwise become payable;
(g) for the purpose of effectuating the pledge of Portfolio
Securities held by the Bank in order to collateralize loans made to the Fund by
any bank, including the Bank, provided, however, that such Portfolio Securities
will be released only upon payment to the Bank for the account of the Fund of
the moneys borrowed, except that in cases where additional collateral is
required to secure a borrowing already made, and such fact is made to appear in
the Proper Instructions, further Portfolio Securities may be released for that
purpose without any such payment. In the event that any such pledged Portfolio
Securities are held by the Bank, they will be so held for the account of the
lender, and after notice to the Fund from
<PAGE>
12
the lender in accordance with the normal procedures of the lender, that an event
of deficiency or default on the loan has occurred, the Bank may deliver such
pledged Portfolio Securities to or for the account of the lender;
(h) for the purpose of releasing certificates representing
Portfolio Securities, against contemporaneous receipt by the Bank of the fair
market value of such security, as set forth in the Proper Instructions received
by the Bank before such payment is made;
(i) for the purpose of delivering securities lent by the Fund to
a bank or broker dealer, but only against receipt in accordance with street
delivery custom except as otherwise provided herein, of adequate collateral as
agreed upon from time to time by the Fund and the Bank, and upon receipt of
payment in connection with any repurchase agreement relating to such securities
entered into by the Fund;
(j) for other authorized transactions of the Fund or for other
proper corporate purposes; provided that before making such transfer, the Bank
will also receive a certified copy of resolutions of the Board, signed by an
authorized officer of the Fund (other than the officer certifying such
resolution) and certified by its Secretary or Assistant Secretary, specifying
the Portfolio Securities to be delivered, setting forth the transaction in or
purpose for which such delivery is to be made, declaring such transaction to be
an authorized transaction of the Fund or such purpose to be a proper corporate
purpose, and naming the person or persons to whom delivery of such securities
shall be made; and
(k) upon termination of this Agreement as hereinafter set forth
pursuant to Section 8 and Section 13 of this Agreement.
As to any deliveries made by the Bank pursuant to subsections (a), (b),
(c), (e), (f), (g), (h) and (i) securities or cash receivable in exchange
therefor shall be delivered to the Bank.
7. REDEMPTIONS. In the case of payment of assets of the Fund held
by the Bank in connection with redemptions and repurchases by the Fund of
outstanding common shares, the Bank will rely on notification by the Fund's
transfer agent of receipt of a request for redemption and certificates, if
issued, in proper form for redemption before such payment is made. Payment
shall be made in accordance with the Articles and By-laws of the Fund, from
assets available for said purpose.
8. MERGER, DISSOLUTION, ETC. OF FUND. In the case of the
following transactions, not in the ordinary course of business, namely, the
merger of the Fund into or the consolidation of the Fund with another
investment company, the sale by the Fund of all, or substantially all, of its
assets to another investment company, or the liquidation or dissolution of
the Fund and distribution of its assets, the Bank will deliver the Portfolio
Securities held by it under this Agreement and disburse cash only upon the
order of the Fund set forth in an Officers' Certificate, accompanied by a
certified copy of a resolution of the Board authorizing any of the foregoing
transactions. Upon completion of such delivery and disbursement and the
payment of the fees, disbursements and expenses of the Bank, this Agreement
will terminate.
13
<PAGE>
9. ACTIONS OF BANK WITHOUT PRIOR AUTHORIZATION. Notwithstanding
anything herein to the contrary, unless and until the Bank receives an
Officers' Certificate to the contrary, it will without prior authorization or
instruction of the Fund or the transfer agent:
9.1 Endorse for collection and collect on behalf of and in the name
of the Fund all checks, drafts, or other negotiable or transferable instruments
or other orders for the payment of money received by it for the account of the
Fund and hold for the account of the Fund all income, dividends, interest and
other payments or distribution of cash with respect to the Portfolio Securities
held thereunder;
9.2 Present for payment all coupons and other income items held by it
for the account of the Fund which call for payment upon presentation and hold
the cash received by it upon such payment for the account of the Fund;
9.3 Receive and hold for the account of the Fund all securities
received as a distribution on Portfolio Securities as a result of a stock
dividend, share split-up, reorganization, recapitalization, merger,
consolidation, readjustment, distribution of rights and similar securities
issued with respect to any Portfolio Securities held by it hereunder.
9.4 Execute as agent on behalf of the Fund all necessary ownership
and other certificates and affidavits required by the Internal Revenue Code
or the regulations of the Treasury Department issued thereunder, or by the
laws of any state, now or hereafter in effect, inserting the Fund's name on
such certificates as the owner of the securities covered thereby, to the
extent it may lawfully do so and as may be required to obtain payment in
respect thereof. The Bank will execute and deliver such certificates in
connection with Portfolio Securities delivered to it or by it under this
Agreement as may be required under the provisions of the Internal Revenue
Code and any Regulations of the Treasury Department issued thereunder, or
under the laws of any State;
9.5 Present for payment all Portfolio Securities which are called,
redeemed, retired or otherwise become payable, and hold cash received by it upon
payment for the account of the Fund; and
9.6 Exchange interim receipts or temporary securities for definitive
securities.
10. COLLECTIONS AND DEFAULTS. The Bank will use all reasonable efforts to
collect any funds which may to its knowledge become collectible arising from
Portfolio Securities, including dividends, interest and other income, and to
transmit to the Fund notice actually received by it of any call for redemption,
offer of exchange, right of subscription, reorganization or other proceedings
affecting such Securities. If Portfolio Securities upon which such income is
payable are in default or payment is refused after due demand or presentation,
the Bank will notify the Fund in writing of any default or refusal to pay within
two business days from the day on which it receives knowledge of such default or
refusal. In addition, the Bank will send the Fund a written report once each
month showing any income on any Portfolio Security held by it which is more than
ten days overdue on the date of such report and which has not previously been
reported.
<PAGE>
14
11. MAINTENANCE OF RECORDS AND ACCOUNTING SERVICES. The Bank will
maintain records with respect to transactions for which the Bank is responsible
pursuant to the terms and conditions of this Agreement, and in compliance with
the applicable rules and regulations of the 1940 Act and will furnish the Fund
daily with a statement of condition of the Fund. The Bank will furnish to the
Fund at the end of every month, and at the close of each quarter of the Fund's
fiscal year, a list of the Portfolio Securities and the aggregate amount of cash
held by it for the Fund. The books and records of the Bank pertaining to its
actions under this Agreement and reports by the Bank or its independent
accountants concerning its accounting system, procedures for safeguarding
securities and internal accounting controls will be open to inspection and audit
at reasonable times by officers of or auditors employed by the Fund and will be
preserved by the Bank in the manner and in accordance with the applicable rules
and regulations under the 1940 Act.
The Bank shall keep the books of account and render statements or copies
from time to time as reasonably requested by the Treasurer or any executive
officer of the Fund.
The Bank shall assist generally in the preparation of reports to
shareholders and others, audits of accounts, and other ministerial matters of
like nature.
12. CONCERNING THE BANK.
12.1 PERFORMANCE OF DUTIES AND STANDARD OF CARE.
In performing its duties hereunder and any other duties listed on any
Schedule hereto, if any, the Bank will be entitled to receive and act upon the
advice of independent counsel of its own selection, which may be counsel for the
Fund, and will be without liability for any action taken or thing done or
omitted to be done in accordance with this Agreement in good faith in conformity
with such advice. In the performance of its duties hereunder, the Bank will be
protected and not be liable, and will be indemnified and held harmless for any
action taken or omitted to be taken by it in good faith reliance upon the terms
of this Agreement, any Officers' Certificate, Proper Instructions, resolution of
the Board, telegram, notice, request, certificate or other instrument reasonably
believed by the Bank to be genuine and for any other loss to the Fund except in
the case of its gross negligence, willful misfeasance or bad faith in the
performance of its duties or reckless disregard of its obligations and duties
hereunder.
The Bank will be under no duty or obligation to inquire into and will not
be liable for:
(a) the validity of the issue of any Portfolio Securities
purchased by or for the Fund, the legality of the purchases thereof or the
propriety of the price incurred therefor;
(b) the legality of any sale of any Portfolio Securities by or
for the Fund or the propriety of the amount for which the same are sold;
(c) the legality of an issue or sale of any common shares of the
Fund or the sufficiency of the amount to be received therefor;
(d) the legality of the repurchase of any common shares of the
Fund or the propriety of the amount to be paid therefor;
<PAGE>
15
(e) the legality of the declaration of any dividend by the Fund
or the legality of the distribution of any Portfolio Securities as payment in
kind of such dividend; and
(f) any property or moneys of the Fund unless and until received
by it, and any such property or moneys delivered or paid by it pursuant to the
terms hereof.
Moreover, the Bank will not be under any duty or obligation to ascertain
whether any Portfolio Securities at any time delivered to or held by it for the
account of the Fund are such as may properly be held by the Fund under the
provisions of its Articles, By-laws, any federal or state statutes or any rule
or regulation of any governmental agency.
Notwithstanding anything in this Agreement to the contrary, in no event
shall the Bank be liable hereunder or to any third party:
(a) for any losses or damages of any kind resulting from acts of
God, earthquakes, fires, floods, storms or other disturbances of nature,
epidemics, strikes, riots, nationalization, expropriation, currency
restrictions, acts of war, civil war or terrorism, insurrection, nuclear fusion,
fission or radiation, the interruption, loss or malfunction of utilities,
transportation, or computers (hardware or software) and computer facilities, the
unavailability of energy sources and other similar happenings or events except
as results from the Bank's own gross negligence; or
(b) for special, punitive or consequential damages arising from
the provision of services hereunder, even if the Bank has been advised of the
possibility of such damages.
12.2 AGENTS AND SUBCUSTODIANS WITH RESPECT TO PROPERTY OF THE FUND
HELD IN THE UNITED STATES. The Bank may employ agents and subcustodians in the
performance of its duties hereunder and shall be responsible for the acts and
omissions of such agents as if performed by the Bank hereunder.
Upon receipt of Proper Instructions, the Bank may employ subcustodians,
provided that any such subcustodian meets at least the minimum qualifications
required by Section 17(f)(1) of the 1940 Act to act as a custodian of the Fund's
assets with respect to property of the Fund held in the United States. The Bank
shall have no liability to the Fund or any other person by reason of any act or
omission of such subcustodian employed pursuant to Proper Instructions and the
Fund shall indemnify the Bank and hold it harmless from and against any and all
actions, suits and claims, arising directly or indirectly out of the performance
of such subcustodian. Upon request of the Bank, the Fund shall assume the
entire defense of any action, suit, or claim subject to the foregoing
indemnity. The Fund shall pay all fees and expenses of any subcustodian.
12.3 DUTIES OF THE BANK WITH RESPECT TO PROPERTY OF THE FUND HELD
OUTSIDE OF THE UNITED STATES.
(a) APPOINTMENT OF FOREIGN SUB-CUSTODIANS. The Fund hereby
authorizes and instructs the Bank to employ as sub-custodians for the Fund's
Portfolio Securities and other assets maintained outside the United States the
foreign banking institutions and foreign securities depositories designated on
the Schedule attached hereto (each a "Selected Foreign
<PAGE>
16
Sub-Custodian"). Upon receipt of Proper Instructions, together with a certified
resolution of the Fund's Board of Trustees, the Bank and the Fund may agree to
designate additional foreign banking institutions and foreign securities
depositories to act as Selected Foreign Sub-Custodians hereunder. Upon receipt
of Proper Instructions, the Fund may instruct the Bank to cease the employment
of any one or more such Selected Foreign Sub-Custodians for maintaining custody
of the Fund's assets, and the Bank shall so cease to employ such sub-custodian
as soon as alternate custodial arrangements have been implemented
(b) FOREIGN SECURITIES DEPOSITORIES. Except as may otherwise be
agreed upon in writing by the Bank and the Fund, assets of the Fund shall be
maintained in foreign securities depositories only through arrangements
implemented by the foreign banking institutions serving as Selected Foreign Sub-
Custodians pursuant to the terms hereof. Where possible, such arrangements
shall include entry into agreements containing the provisions set forth in
subparagraph (d) hereof. Notwithstanding the foregoing, except as may otherwise
be agreed upon in writing by the Bank and the Fund, the Fund authorizes the
deposit in Euro-clear, the securities clearance and depository facilities
operated by Morgan Guaranty Trust Company of New York in Brussels, Belgium, of
Foreign Portfolio Securities eligible for deposit therein and to utilize such
securities depository in connection with settlements of purchases and sales of
securities and deliveries and returns of securities, until notified to the
contrary pursuant to subparagraph (a) hereunder.
(c) SEGREGATION OF SECURITIES. The Bank shall identify on its
books as belonging to the Fund the Foreign Portfolio Securities held by each
Selected Foreign Sub-Custodian. Each agreement pursuant to which the Bank
employs a foreign banking institution shall require that such institution
establish a custody account for the Bank and hold in that account, Foreign
Portfolio Securities and other assets of the Fund, and, in the event that such
institution deposits Foreign Portfolio Securities in a foreign securities
depository, that it shall identify on its books as belonging to the Bank the
securities so deposited.
(d) AGREEMENTS WITH FOREIGN BANKING INSTITUTIONS. Each of
the agreements pursuant to which a foreign banking institution holds assets
of the Fund (each, a "Foreign Sub-Custodian Agreement") shall be
substantially in the form previously made available to the Fund and shall
provide that: (a) the Fund's assets will not be subject to any right, charge,
security interest, lien or claim of any kind in favor of the foreign banking
institution or its creditors or agent, except a claim of payment for their
safe custody or administration (including, without limitation, any fees or
taxes payable upon transfers or reregistration of securities); (b) beneficial
ownership of the Fund's assets will be freely transferable without the
payment of money or value other than for custody or administration
(including, without limitation, any fees or taxes payable upon transfers or
reregistration of securities); (c) adequate records will be maintained
identifying the assets as belonging to Bank; (d) officers of or auditors
employed by, or other representatives of the Bank; including to the extent
permitted under applicable law, the independent public accountants for the
Fund, will be given access to the books and records of the foreign banking
institution relating to its actions under its agreement with the Bank; and
(e) assets of the Fund held by the Selected Foreign Sub-Custodian will be
subject only to the instructions of the Bank or its agents.
<PAGE>
17
(e) ACCESS OF INDEPENDENT ACCOUNTANTS OF THE FUND. Upon request
of the Fund, the Bank will use its best efforts to arrange for the independent
accountants of the Fund to be afforded access to the books and records of any
foreign banking institution employed as a Selected Foreign Sub-Custodian insofar
as such books and records relate to the performance of such foreign banking
institution under its Foreign Sub-Custodian Agreement.
(f) REPORTS BY BANK. The Bank will supply to the Fund from time
to time, as mutually agreed upon, statements in respect of the securities and
other assets of the Fund held by Selected Foreign Sub-Custodians, including but
not limited to an identification of entities having possession of the Foreign
Portfolio Securities and other assets of the Fund.
(g) TRANSACTIONS IN FOREIGN CUSTODY ACCOUNT. Transactions with
respect to the assets of the Fund held by a Selected Foreign Sub-Custodian shall
be effected pursuant to Proper Instructions from the Fund to the Bank and shall
be effected in accordance with the applicable Foreign Sub-Custodian Agreement.
If at any time any Foreign Portfolio Securities shall be registered in the name
of the nominee of the Selected Foreign Sub-Custodian, the Fund agrees to hold
any such nominee harmless from any liability by reason of the registration of
such securities in the name of such nominee.
Notwithstanding any provision of this Agreement to the contrary,
settlement and payment for Foreign Portfolio Securities received for the account
of the Fund and delivery of Foreign Portfolio Securities maintained for the
account of the Fund may be effected in accordance with the customary established
securities trading or securities processing practices and procedures in the
jurisdiction or market in which the transaction occurs, including, without
limitation, delivering securities to the purchaser thereof or to a dealer
therefor (or an agent for such purchaser or dealer) against a receipt with the
expectation of receiving later payment for such securities from such purchaser
or dealer.
In connection with any action to be taken with respect to the
Foreign Portfolio Securities held hereunder, including, without limitation, the
exercise of any voting rights, subscription rights, redemption rights, exchange
rights, conversion rights or tender rights, or any other action in connection
with any other right, interest or privilege with respect to such Securities
(collectively, the "Rights"), the Bank shall promptly transmit to the Fund such
information in connection therewith as is made available to the Bank by the
Foreign Sub-Custodian, and shall promptly forward to the applicable Foreign Sub-
Custodian any instructions, forms or certifications with respect to such Rights,
and any instructions relating to the actions to be taken in connection
therewith, as the Bank shall receive from the Fund pursuant to Proper
Instructions. Notwithstanding the foregoing, the Bank shall have no further
duty or obligation with respect to such Rights, including, without
limitation, the determination of whether the Fund is entitled to participate
in such Rights under applicable U.S. and foreign laws, or the determination
of whether any action proposed to be taken with respect to such Rights by the
Fund or by the applicable Foreign Sub-Custodian will comply with all
applicable terms and conditions of any such Rights or any applicable laws or
regulations, or market practices within the market in which such action is to
be taken or omitted.
<PAGE>
18
(h) LIABILITY OF SELECTED FOREIGN SUB-CUSTODIANS. Each Foreign
Sub-Custodian Agreement with a foreign banking institution shall require the
institution to exercise reasonable care in the performance of its duties and to
indemnify, and hold harmless, the Bank and each Fund from and against certain
losses, damages, costs, expenses, liabilities or claims arising out of or in
connection with the institution's performance of such obligations, all as set
forth in the applicable Foreign Sub-Custodian Agreement. The Fund acknowledges
that the Bank, as a participant in Euro-clear, is subject to the Terms and
Conditions Governing the Euro-Clear System, a copy of which has been made
available to the Fund. The Fund acknowledges that pursuant to such Terms and
Conditions, Morgan Guaranty Brussels shall have the sole right to exercise or
assert any and all rights or claims in respect of actions or omissions of, or
the bankruptcy or insolvency of, any other depository, clearance system or
custodian utilized by Euro-clear in connection with the Fund's securities and
other assets.
(i) LIABILITY OF BANK. The Bank shall have no more or less
responsibility or liability on account of the acts or omissions of any Selected
Foreign Sub-Custodian employed hereunder than any such Selected Foreign Sub-
Custodian has to the Bank and, without limiting the foregoing, the Bank shall
not be liable for any loss, damage, cost, expense, liability or claim resulting
from nationalization, expropriation, currency restrictions, or acts of war or
terrorism, political risk (including, but not limited to, exchange control
restrictions, confiscation, insurrection, civil strife or armed hostilities)
other losses due to Acts of God, nuclear incident or any loss where the Selected
Foreign Sub-Custodian has otherwise exercised reasonable care.
(j) MONITORING RESPONSIBILITIES. The Bank shall furnish
annually to the Fund, information concerning the Selected Foreign Sub-Custodians
employed hereunder for use by the Fund in evaluating such Selected Foreign Sub-
Custodians to ensure compliance with the requirements of Rule l7f-5 of the Act.
In addition, the Bank will promptly inform the Fund in the event that the Bank
is notified by a Selected Foreign Sub-Custodian that there appears to be a
substantial likelihood that its shareholders' equity will decline below $200
million (U.S. dollars or the equivalent thereof) or that its shareholders'
equity has declined below $200 million (in each case computed in accordance with
generally accepted U.S. accounting principles) or any other capital adequacy
test applicable to it by exemptive order, or if the Bank has actual knowledge of
any material loss of the assets of the Fund held by a Foreign Sub-Custodian.
(k) TAX LAW. The Bank shall have no responsibility or
liability for any obligations now or hereafter imposed on the Fund or the
Bank as custodian of the Fund by the tax laws of any jurisdiction, and it
shall be the responsibility of the Fund to notify the Bank of the obligations
imposed on the Fund or the Bank as the custodian of the Fund by the tax law
of any non-U.S. jurisdiction, including responsibility for withholding and
other taxes, assessments or other governmental charges, certifications and
governmental reporting. The sole responsibility of the Custodian with regard
to such tax law shall be to use reasonable efforts to assist the Fund with
respect to any claim for exemption or refund under the tax law of
jurisdictions for which the Fund has provided such information.
12.4 INSURANCE. The Bank shall use the same care with respect to the
safekeeping of Portfolio Securities and cash of the Fund held by it as it uses
in respect of its own similar property but it need not maintain any special
insurance for the benefit of the Fund.
<PAGE>
19
12.5 FEES AND EXPENSES OF BANK. The Fund will pay or reimburse the
Bank from time to time for any transfer taxes payable upon transfer of Portfolio
Securities made hereunder, and for all necessary proper disbursements, expenses
and charges made or incurred by the Bank in the performance of this Agreement
(including any duties listed on any Schedule hereto, if any) including any
indemnities for any loss, liabilities or expense to the Bank as provided above.
For the services rendered by the Bank hereunder, the Fund will pay to the
Bank such compensation or fees at such rate and at such times as shall be agreed
upon in writing by the parties from time to time. The Bank will also be
entitled to reimbursement by the Fund for all reasonable expenses incurred in
conjunction with termination of this Agreement by the Fund.
12.6 ADVANCES BY BANK. The Bank may, in its sole discretion, advance
funds on behalf of the Fund to make any payment permitted by this Agreement upon
receipt of any proper authorization required by this Agreement for such payments
by the Fund. Should such a payment or payments, with advanced funds, result in
an overdraft (due to insufficiencies of the Fund's account with the Bank, or for
any other reason) this Agreement deems any such overdraft or related
indebtedness, a loan made by the Bank to the Fund payable on demand and bearing
interest at the current rate charged by the Bank for such loans unless the Fund
shall provide the Bank with agreed upon compensating balances. The Fund agrees
that the Bank shall have a continuing lien and security interest to the extent
of any overdraft or indebtedness, in and to any property at any time held by it
for the Fund's benefit or in which the Fund has an interest and which is then in
the Bank's possession or control (or in the possession or control of any third
party acting on the Bank's behalf). The Fund authorizes the Bank, in its sole
discretion, at any time to charge any overdraft or indebtedness, together with
interest due thereon against any balance of account standing to the credit of
the Fund on the Bank's books.
13. TERMINATION.
13.1 This Agreement may be terminated at any time without penalty upon
sixty days written notice delivered by either party to the other by means of
registered mail, and upon the expiration of such sixty days this Agreement will
terminate; provided, however, that the effective date of such termination may be
postponed to a date not more than ninety days from the date of delivery of such
notice (i) by the Bank in order to prepare for the transfer by the Bank of all
of the assets of the Fund held hereunder, and (ii) by the Fund in order to give
the Fund an opportunity to make suitable arrangements for a successor custodian.
At any time after the termination of this Agreement, the Fund will, at its
request, have access to the records of the Bank relating to the performance of
its duties as custodian.
13.2 In the event of the termination of this Agreement, the Bank will
immediately upon receipt or transmittal, as the case may be, of notice of
termination, commence and prosecute diligently to completion the transfer of all
cash and the delivery of all Portfolio Securities duly endorsed and all records
maintained under Section 11 to the successor custodian when appointed by the
Fund. The obligation of the Bank to deliver and transfer over the assets of the
Fund held by it directly to such successor custodian will commence as soon as
such successor is appointed and will continue until completed as aforesaid. If
the Fund does not select a successor custodian within ninety (90) days from the
date of delivery of notice of termination the Bank may, subject to the
provisions of subsection
<PAGE>
20
(13.3), deliver the Portfolio Securities and cash of the Fund held by the Bank
to a bank or trust company of its own selection which meets the requirements of
Section 17(f)(1) of the 1940 Act and has a reported capital, surplus and
undivided profits aggregating not less than $2,000,000, to be held as the
property of the Fund under terms similar to those on which they were held by the
Bank, whereupon such bank or trust company so selected by the Bank will become
the successor custodian of such assets of the Fund with the same effect as
though selected by the Board.
13.3 Prior to the expiration of ninety (90) days after notice of
termination has been given, the Fund may furnish the Bank with an order of the
Fund advising that a successor custodian cannot be found willing and able to act
upon reasonable and customary terms and that there has been submitted to the
shareholders of the Fund the question of whether the Fund will be liquidated or
will function without a custodian for the assets of the Fund held by the Bank.
In that event the Bank will deliver the Portfolio Securities and cash of the
Fund held by it, subject as aforesaid, in accordance with one of such
alternatives which may be approved by the requisite vote of shareholders, upon
receipt by the Bank of a copy of the minutes of the meeting of shareholders at
which action was taken, certified by the Fund's Secretary and an opinion of
counsel to the Fund in form and content satisfactory to the Bank.
14. CONFIDENTIALITY. Both parties hereto agree than any non-public
information obtained hereunder concerning the other party is confidential and
may not be disclosed to any other person without the consent of the other party,
except as may be required by applicable law or at the request of a governmental
agency. The parties further agree that a breach of this provision would
irreparably damage the other party and accordingly agree that each of them is
entitled, without bond or other security, to an injunction or injunctions to
prevent breaches of this provision.
15. NOTICES. Any notice or other instrument in writing authorized or
required by this Agreement to be given to either party hereto will be
sufficiently given if addressed to such party and mailed or delivered to it
at its office at the address set forth below; namely;
(a) In the case of notices sent to the Fund to:
Attention:
(b) In the case of notices sent to the Bank to:
Investors Bank & Trust Company
89 South Street
Boston, Massachusetts 02111
Attention:
or at such other place as such party may from time to time designate in
writing.
16. AMENDMENTS. This Agreement may not be altered or amended, except by
an instrument in writing, executed by both parties, and in the case of the
Fund, such alteration or amendment will be authorized and approved by its Board.
<PAGE>
21
17. PARTIES. This Agreement will be binding upon and shall inure to the
benefit of the parties hereto and their respective successors and assigns;
provided, however, that this Agreement will not be assignable by the Fund
without the written consent of the Bank or by the Bank without the written
consent of the Fund, authorized and approved by its Board; and provided further
that termination proceedings pursuant to Section 13 hereof will not be deemed to
be an assignment within the meaning of this provision.
18. GOVERNING LAW. This Agreement and all performance hereunder will be
governed by the laws of the Commonwealth of Massachusetts.
19. COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original, but such
counterparts shall, together, constitute only one instrument.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their respective officers thereunto duly authorized as of the day
and year first written above.
CVO Greater China Fund
By:
-------------------------------
Name:
Title:
ATTEST:
- -----------------------------------
Investors Bank & Trust Company
By:
-------------------------------
Name:
Title:
ATTEST:
- -----------------------------------
DATE:
------------------------------
<PAGE>
FUND ADMINISTRATION AGREEMENT
THIS AGREEMENT is made as of the 30th day of December, 1994 by and between
CVO GREATER CHINA FUND, INC., a Maryland corporation (the "Company"), and FURMAN
SELZ INCORPORATED, a Delaware corporation ("Furman Selz").
WITNESSETH:
WHEREAS, the Company is registered as an open-end management investment
company under the Investment Company Act of 1940, as amended (the "1940 Act");
and
WHEREAS, the Company wishes to retain Furman Selz to provide certain
administration and accounting services with respect to Class I and Class II
shares of the Company's investment portfolio, CVO Greater China Fund (the
"Fund"), and Furman Selz is willing to furnish such services;
NOW, THEREFORE, in consideration of the premises and mutual covenants
herein contained, it is agreed between the parties hereto as follows:
1. APPOINTMENT. The Company hereby appoints Furman Selz to provide
certain administration and accounting services to the Company for the period and
on the terms set forth in this Agreement. Furman Selz agrees to comply with all
relevant provisions of the 1940 Act and applicable rules and regulations
thereunder. In the event that the Company establishes one or more portfolios
with respect to which the Company decides to retain Furman Selz to act as
administrator and accounting services provider, the Company shall so notify the
Furman Selz in writing. If Furman Selz is willing to render such services,
Furman Selz shall promptly notify the Company in writing whereupon such
portfolio shall be deemed to be a Fund hereunder.
2. DELIVERY OF DOCUMENTS. The Company has furnished Furman Selz with
copies properly certified or authenticated of each of the following:
(a) Resolutions of the Company's Board of Directors authorizing the
appointment of Furman Selz to provide certain administration and accounting
services to the Company and approving this Agreement;
(b) Appendix A. identifying and containing the signatures of the
Company's officers and other persons authorized to issue Oral Instructions and
to sign Written Instructions, as hereinafter defined, on behalf of the Company;
<PAGE>
(c) The Company's Articles of Amendment and Restatement filed with
the Maryland Department of Assessments and Taxation on December 28, 1994 and all
amendments thereto (the "Articles");
(d) The Company's By-Laws and all amendments thereto (the "By-Laws");
(e) The Advisory Agreement between CVO Greater China Partners, L.P.
("CVO Partners") and the Company;
(f) The Distribution Agreement between OFFIT Funds Distributor, Inc.
and the Company dated as of December 30, 1994;
(g) The Custodian Agreement between Investors Bank & Trust Company
and the Company dated as of December 30, 1994;
(h) The Transfer Agency Agreement between Furman Selz (in its
capacity as transfer agent, the "Transfer Agent") and the Company dated as of
December 30, 1994;
(i) The Company's most recent Registration Statement on Form N-1A
under the Securities Act of 1933 (the "1933 Act") and under the 1940 Act (File
Nos. 33-83822 and 811-8760) as filed with the SEC relating to Class I Shares of
the Company's Capital Stock, $.001 par value and Class II Shares of the
Company's Capital Stock, $.001 par value (collectively, the "Shares"), and all
amendments thereto;
(j) The Company's most recent prospectus and statement of additional
information and all amendments and supplements thereto (the "Prospectus"); and
(k) Before the Company engages in any transaction regulated by the
Commodity Futures Trading Commission ("CFTC"), a copy of either (i) a filed
notice of eligibility to claim the exclusion from the definition of "commodity
pool operator" contained in Section 2(a)(1)(A) of the Commodity Exchange Act
("CEA") that is provided in Rule 4.5 under the CEA, together with all
supplements as are required by the CFTC, or (ii) a letter which has been granted
the Company by the CFTC which states that the Company will not be treated as a
"pool" as defined in Section 4.10(d) of the CFTC's General Regulations, or
(iii) a letter which has been granted the Company by the CFTC which states that
the CFTC will not take any enforcement action if the Company does not register
as a "commodity pool operator."
The Company will furnish Furman Selz from time to time with copies,
properly certified or authenticated, of all amendments of or supplements to the
foregoing, if any.
3. DEFINITIONS.
(a) "AUTHORIZED PERSON". As used in this Agreement, the term
"Authorized Person" means any officer of the Company and any other person,
whether or not any such person is an officer or employee of the Company, duly
authorized by the Board of Directors of the Company to give Oral and Written
Instructions on behalf of the Company and listed on Appendix A listing
2
<PAGE>
persons duly authorized to give Oral and Written Instructions on behalf of the
Company as may be received by Furman Selz from time to time.
(b) "ORAL INSTRUCTIONS". As used in this Agreement, the term "Oral
Instructions" means oral instructions actually received by Furman Selz from an
Authorized Person or from a person reasonably believed by Furman Selz to be an
Authorized Person. The Company agrees to deliver to Furman Selz, at the time
and in the manner specified in Paragraph 4(b) of this Agreement, Written
Instructions confirming Oral Instructions.
(c) "WRITTEN INSTRUCTIONS". As used in this Agreement the term
"Written Instructions" means written instructions delivered by hand, mail,
tested telegram, cable, telex or facsimile sending device, including buy or sell
tickets and computer transmissions and received by Furman Selz, signed by two
Authorized Persons.
4. INSTRUCTIONS CONSISTENT WITH ARTICLES, ETC.
(a) Unless otherwise provided in this Agreement, Furman Selz shall
act only upon Oral and Written Instructions. Although Furman Selz may know of
the provisions of the Articles and By-Laws of the Company, Furman Selz may
assume that any Oral or Written Instructions received hereunder are not in any
way inconsistent with any provisions of such Articles or By-Laws or any vote,
resolution or proceeding of the Shareholders, or of the Board of Directors, or
of any committee thereof.
(b) Furman Selz shall be entitled to rely upon any Oral Instructions
and any Written Instructions actually received by Furman Selz pursuant to this
Agreement. The Company agrees to forward to Furman Selz' Written Instructions
confirming Oral Instructions in such manner that the Written Instructions are
received by Furman Selz, whether by hand delivery, telex, facsimile sending
device or otherwise, by the close of business on the same day that such Oral
Instructions are given to Furman Selz. The Company agrees that the fact that
such confirming Written Instructions are not received by Furman Selz shall in no
way affect the validity of the transactions or enforceability of the
transactions authorized by the Company by giving Oral Instructions . The Company
agrees that Furman Selz shall incur no liability to the Company in acting upon
Oral Instructions given to Furman Selz hereunder concerning such transactions,
provided such instructions reasonably appear to have been received from an
Authorized Person.
5. SERVICES ON A CONTINUING BASIS.
(a) Subject to the supervision and control of the Company's Board of
Directors, Furman Selz, as administrator, will assist in supervising various
aspects of the Company's administrative operations, and undertakes to do the
following specific services:
(1) Maintaining office facilities (which may be in the offices
of Furman Selz or its corporate affiliate, but shall be in such location as the
Company shall reasonably determine);
3
<PAGE>
(2) Furnishing statistical and research data, clerical, and
stationery and office supplies.
(3) Preparing and filing with the SEC Post-Effective Amendments
to the Company's Registration Statement, Notices of Annual or Special Meetings
of Share holders and Proxy materials relating to such meetings; accumulating
information for and, subject to the approval by the Company's Treasurer,
preparing reports to the Company's shareholders of record and the SEC
including, but not necessarily limited to: Semi-Annual Reports on Form N-SAR
and the preparation and filing of Notices pursuant to Rule 24f-2;
(4) Preparing and filing various reports or other documents
required by federal, state and other applicable laws and regulations other than
those required to be filed by Furman Selz as the Company's accounting services
provider, or by the Company's Custodian or Transfer Agent;
(5) Reviewing and providing advice and counsel on all sales
literature (E.G., advertisements, brochures and shareholder communications) with
respect to the Company;
(6) Performing corporate secretarial duties which will include,
among other things, maintaining the necessary corporate records and the good
standing status of the Company in all states in which it is qualified to do
business, preparation of all agendas, notices and minutes for meetings of the
Company's Board of Directors and shareholders, preparation of all resolutions
to be voted upon by the Board of Directors, and preparation and/or
consideration of supporting information for such meetings;
(7) Assist in monitoring and assist in developing compliance
procedures for the Fund which will include, among other matters, procedures to
monitor compliance with the Fund's investment objective, policies, restrictions,
tax mattress and applicable laws and regulations;
(8) Monitoring the Company's arrangements with respect to
services provided by financial institutions which are, or wish to become,
shareholder servicing agents for the Company ("Shareholder Servicing Agents").
With respect to Shareholding Servicing Agents, Furman Selz shall specifically
monitor and review the services rendered by the Shareholder Servicing Agents to
their customers, who are the beneficial owners of Class I or Class II Shares,
pursuant to agreements between the Company and such Shareholder Servicing Agents
("Shareholder Servicing Agreements"), including among other things, reviewing
the qualifications of financial institutions wishing to be Shareholder Servicing
Agents, assisting in the execution and delivery of Shareholder Servicing
Agreements, reporting to the Board of Directors with respect to the amounts paid
or payable by the Company from time to time under the Shareholder Servicing
Agreements and the nature of the services provided by Shareholder Servicing
Agents, and maintaining appropriate records in connection with its monitoring
duties;
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(9) Determining the jurisdictions in which the Shares shall be
registered or qualified for sale and, in connection therewith, shall be
responsible for the maintenance of the registration or qualification of the
Shares for sale under the securities laws of any state. Payment of Share
registration fees and any fees for qualifying or continuing the qualification of
the Company as a dealer or broker shall be made by the Company;
(10) Providing the services of certain persons who may be
appointed as officers of the Company by the Company's Board of Directors;
(11) Preserving for the periods prescribed by Rule 31a-2 under
the 1940 Act the records required to be maintained by Rule 31a-1 under said Act.
Furman Selz further agrees that all such records which it maintains for the
Company are the property of the Company and further agrees to surrender promptly
to the Company any of such records upon the Company's request; and
(12) Providing legal advice and counsel to the Company with
respect to regulatory matters including: monitoring regulatory and legislative
developments which may affect the Company and assisting in the strategic
response to such developments, counseling and assisting the Company in routine
regulatory examinations or investigations of the Company, and working closely
with outside counsel to the Company in response to any litigation or non-routine
regulatory matters.
In performing its duties as administrator of the Company, Furman Selz
(a) will act in accordance with the Articles, By-Laws, Prospectus and with the
instructions and directions of the Board of Directors of the Company and will
conform to and comply with the requirements of the 1940 Act and all other
applicable federal or state laws and regulations and (b) will consult with
legal counsel to the Company, as necessary and appropriate.
(b) As of the date of this Agreement, Furman Selz will perform the
following accounting functions on an ongoing basis:
(1) Journalize the Company's investment, capital share, income
and expense activities;
(2) Verify investment buy/sell trade tickets when received from
CVO Partners and transmit trades to the Company's Custodian for proper
settlement;
(3) Maintain individual ledgers for investment securities;
(4) Maintain historical tax lots for each security;
(5) Maintain financial records in accordance with the 1940 Act
and Rules and Regulations thereunder;
(6) Reconcile, on a daily basis, cash and investment balances of
the Company with the Custodian, and provide CVO Partners with the beginning cash
balance available each day for investment purposes;
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(7) Update the cash availability throughout the day as required
by CVO Partners;
(8) Post to and prepare the Company's Statement of Assets and
Liabilities and the Statement of Operations;
(9) Calculate various contractual expenses (e.g., advisory and
custody fees);
(10) Monitor the expense accruals and notify Company management
of any proposed adjustments
(11) Control all disbursements from the Company and authorize
such disbursements upon Written Instructions.
(12) Calculate capital gains and losses, if applicable;
(13) Determine the Company's net income;
(14) Obtain security market quotes from services approved by CVO
Partners, or if such quotes are unavailable, then obtain such prices from CVO
Partners, and in either case calculate the market value of the Company's
investments;
(15) Transmit or mail a copy of the daily portfolio valuation to
CVO Partners;
(16) Compute the net asset value of the Company;
(17) Compute the Company's yields and portfolio average dollar-
weighted maturity daily, and as needed, total return, expense ratios and
portfolio turnover rate;
(18) Mark securities to market based upon quotes furnished by CVO
Partners or an independent pricing agent;
(19) Assist in monitoring compliance and assist in the
development of compliance procedures for the Fund which will include, among
other matters, to monitor compliance with the Fund's investment objective,
policies, restrictions, tax matters and applicable laws and regulations; and
(20) As appropriate, transmit to the Custodian Written or Oral
Instructions received from CVO Partners.
(c) In addition to the accounting services described in the foregoing
Paragraph 5(b); Furman Selz will, commencing on the date of this Agreement:
(1) Prepare monthly financial statements which will include, but
will not be limited to, the following items:
Schedule of Investments
Statement of Assets and Liabilities
Statement of Operations
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Statement of Changes in Net Assets
Cash Statement
Schedule of Capital Gains and Losses;
(2) Prepare monthly broker security summaries;
(3) Prepare monthly security transaction listings;
(4) Supply various Company statistical data as requested on an
ongoing basis;
(5) Assist in the preparation of support schedules necessary
for completion of Federal, state and excise tax returns;
(6) Assist in the preparation of the Company's Semi-Annual
Reports with the SEC on Form N-SAR;
(7) Assist in the preparation of the Company's annual,
semi-annual, and quarterly shareholder reports;
(8) Assist with the preparation of registration statements on
Form N-1A and other filings relating to the registration of the Shares; and
(9) Assist in monitoring the Company's status as a regulated
investment company under Sub-chapter M of the Internal Revenue Code of 1986,
as amended.
6. RECORDS. Commencing with the date of this Agreement, Furman Selz
shall keep the following redords:
(a) all books and records with respect to the Company's books of
account; and
(b) records of the Company's securities transactions, portfolio
valuations and securities positions.
The books and records pertaining to the Company which are in the
possession of Furman Selz shall be the property of the Company. If this
Agreement is terminated pursuant to paragraph 15 hereunder, Furman Selz
shall deliver all such books and records to the Company, or such party as
the Company may designate. Such books and records shall be prepared and
maintained as required by the 1940 Act and other applicable securities laws
and rules and regulations. The Company, or the Company's authorized
representatives, shall have access to such books and records at all times
during Furman Selz' normal business hours. Upon the reasonable request of the
Company, copies of any such books and records shall be provided by Furman Selz
to the Company or the Company's authorized representative at the Company's
expense.
7. LIAISON WITH ACCOUNTANTS. Commencing with the date of this
Agreement, Furman Selz shall act as liaison with the Company's independent
public accountants and shall provide account analyses, fiscal year summaries,
and other audit related schedules. Furman Selz shall take all reasonable
action in the performance of its obligations under this Agreement to assure
that
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the necessary information is made available to such accountants for the
expression of their opinion, as such may be required by the Company from time
to time.
8. CONFIDENTIALITY. Furman Selz agrees on behalf of itself and its
employees to treat confidentially all records and other information relative
to the Company and its prior, present or potential Shareholders and relative
to CVO Partners and its prior, present or potential customers, except, after
prior notification to and approval in writing by the Company, CVO Partners,
which approval shall not be unreasonably withheld and may not be withheld
where Furman Selz 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 Company or CVO Partners
as appropriate.
9. EQUIPMENT FAILURES. In the event of equipment failures beyond
Furman Selz' control, Furman Selz shall, at no additional expense to the
Company, take reasonable steps to minimize service interruptions but shall
have no liability with respect thereto. Furman Selz shall enter into and
shall maintain in effect with appropriate parties one or more agreements
making reasonable provision for emergency use of electronic data processing
equipment to the extent appropriate equipment is available.
10. RIGHT TO RECEIVE ADVICE. (a) ADVICE OF COMPANY. If Furman Selz
shall be in doubt as to any action to be taken or omitted by it, it may
request, and shall receive, from the Company directions or advice, including
Oral or Written Instructions where appropriate.
(b) ADVICE OF COUNSEL. If Furman Selz shall be in doubt as to any
question of law involved in any action to be taken or omitted by Furman Selz,
it may request advice at its own cost from counsel of its own choosing (who
may be counsel for CVO Partners, the Company or Furman Selz, at the option of
Furman Selz).
(c) CONFLICTING ADVICE. In case of conflict between directions,
advice or Oral or Written Instructions received by Furman Selz pursuant to
subsection (a) of this paragraph and advice received by Furman Selz pursuant
to subsection (b) of this paragraph, Furman Selz shall be entitled to rely on
and follow the advice received pursuant to the latter provision alone.
(d) PROTECTION OF FURMAN SELZ. Furman Selz shall be protected in
any action or inaction which it takes in reliance on any directions, advice
or Oral or Written Instructions received pursuant to subsections (a) or (b)
of this paragraph which Furman Selz, after receipt of any such directions,
advice or Oral or Written Instructions, in good faith believes to be
consistent with such directions, advice or Oral or Written Instructions, as
the case may be. However, nothing in this paragraph shall be construed as
imposing upon Furman Selz any obligation (i) to seek such directions, advice
or Oral or Written Instructions, or (ii) to act in accordance with such
directions, advice or Oral or Written Instructions when received, unless,
under the terms of another provision of this Agreement, the same is a
condition to Furman Selz' properly taking or omitting to take such
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action. Nothing in this subsection shall excuse Furman Selz when an action
or omission on the part of Furman Selz constitutes willful misfeasance, bad
faith, gross negligen ce or reckless disregard by Furman Selz of its duties
under this Agreement.
11. COMPLIANCE WITH GOVERNMENTAL RULES AND REGULATIONS. Furman Selz
undertakes to comply with all applicable requirements of the 1933 Act, the
Securities Exchange Act of 1934, as amended (the "1934 Act"), the 1940 Act,
the CEA, and any laws, rules and regulations of governmental authorities
having jurisdiction.
12. COMPENSATION. For the services provided and the expenses assumed
by Furman Selz under this Agreement, the Company will pay to Furman Selz a
monthly fee at an annual rate of 0.15% of the average daily net assets of the
Company, plus an annual fee of $30,000.
13. INDEMNIFICATION. The Company agrees to indemnify and hold harmless
Furman Selz and its nominees from all taxes, charges, expenses, assessments,
claims and liabilities (including, without limitation, liabilities arising
under the 1933 Act, the 1934 Act, the 1940 Act, the CEA, and any state and
foreign securities and blue sky laws, all as or to be amended from time to
time) and expenses, including attorneys' fees and disbursements (as long as
such attorney has been retained with the consent of the Company, which
consent shall not be unreasonably withheld), arising directly or indirectly
from any action or thing which Furman Selz takes or does or omits to take or
do (i) at the request or on the direction of or in reliance on the advice of
the Company or (ii) upon Oral or Written Instructions, PROVIDED, that neither
Furman Selz nor any of its nominees shall be indemnified against any
liability to the Company or to its Shareholders (or any expenses incident to
such liability) arising out of Furman Selz' own willful misfeasance, bad
faith, gross negligence or reckless disregard of its duties and obligations
under this Agreement. In order that the indemnification provision contained
in this Paragraph 13 shall apply, it is understood that if in any case the
Company may be asked to indemnify or save Furman Selz harmless, the Company
shall be fully and promptly advised of all pertinent facts concerning the
situation in question, and it is further understood that Furman Selz will use
all reasonable care to identify and notify the Company promptly concerning
any situation which presents or appears likely to present the probability of
such a claim for indemnification against the Company. The Company shall have
the option to defend Furman Selz against any claim which may be the subject
of this indemnification and, in the event that the Company so elects, it will
so notify Furman Selz and thereupon the Company shall take over complete
defense for the claim, and Furman Selz shall in such situation incur no
further legal or other expenses for which it shall seek indemnification under
this Paragraph 13. Furman Selz shall in no case confess any claim or make
any compromise or settlement in any case in which the Company will be asked
to indemnify Furman Selz, except with the Company's prior written consent.
14. RESPONSIBILITY OF FURMAN SELZ. Furman Selz shall be under no duty
to take any action on behalf of the Company except as specifically set forth
herein or as may be specifically
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agreed to by Furman Selz in writing. In the performance of its duties
hereunder, Furman Selz shall be obligated to exercise care and diligence and
to act in good faith and to use its best efforts within reasonable limits in
performing services provided for under this Agreement but Furman Selz shall
not be liable for any act or omission which does not constitute willful
misfeasance, bad faith or gross negligence on the part of Furman Selz or
reckless disregard by Furman Selz of its duties under this Agreement. Furman
Selz shall be responsible for and shall hold the Company harmless from all
loss, cost, damage and expense, including reasonable attorney fees (as long
as such attorney has been retained with the consent of Furman Selz, which
consent shall not be unreasonably withheld), incurred by it resulting from
any claim, demand, action or suit arising out of Furman Selz' own grossly
negligent failure to perform its duties under this Agreement. In order that
the indemnification provision contained in this Paragraph 14 shall apply, it
is understood that if in any case Furman Selz may be asked to indemnify or
save the Company harmless, Furman Selz shall be fully and promptly advised of
all pertinent facts concerning the situation in question, and it is further
understood that the Company will use all reasonable care to identify and
notify Furman Selz promptly concerning any situation which presents or
appears likely to present the probability of such a claim for indemnification
against Furman Selz. Furman Selz shall have the option to defend the Company
against any claim which may be the subject of this indemnification and, in
the event that Furman Selz so elects, it will so notify the Company and
thereupon Furman Selz shall take over complete defense for the claim, and the
Company shall in such situation incur no further legal or other expenses for
which it shall seek indemnification under this Paragraph 14. The Company
shall in no case confess any claim or make any compromise or settlement in
any case in which Furman Selz will be asked to indemnify the Company, except
with Furman Selz' prior written consent.
Without limiting the generality of the foregoing or of any other
provision of this Agreement, Furman Selz in connection with its duties under
this Agreement shall not be under any duty or obligation to inquire into and
shall not be liable for or in respect of (a) the validity or invalidity or
authority or lack thereof of any Oral or Written Instruction, notice or other
instrument which conforms to the applicable requirements of this Agreement,
and which Furman Selz reasonably believes to be genuine; or (b) delays or
errors or loss of data occurring by reason of circumstances beyond Furman
Selz' control, including acts of civil or military authority, national
emergencies, labor difficulties, fire, mechanical breakdown (except as
provided in Paragraph 9), flood or catastrophe, acts of God, insurrection,
war, riots or failure of the mails, transportation, communication or power
supply. Notwithstanding the foregoing, Furman Selz shall use its best
efforts to mitigate the effects of the events in clause (b) above, although
such efforts shall not impute any liability thereto. Furman Selz expressly
disclaims all responsibility for consequential damages, including but not
limited to any that may result from performance or non-performance of any
duty or
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obligation whether express or implied in this Agreement, and also expressly
disclaims any express or implied warranty of products or services provided in
connection with this Agreement.
Any person, even though also an officer, Director, partner, employee or
agent of Furman Selz, shall be deemed, when rendering services to the Company
or acting on any business of the Company (other than services or business in
connection with Furman Selz' duties as administrator or accounting services
provider hereunder), to be acting solely for the Company and not as an
officer, Director, partner, employee or agent or one under the control or
discretion of Furman Selz even though paid by it.
15. DURATION AND TERMINATION. This Agreement shall continue in effect
until two years from the date hereof and thereafter for successive annual
periods, provided that such continuance is specifically approved at least
annually (a) by the Company's Board of Directors and (b) by the vote, cast in
person at a meeting called for the purpose, of a majority of the Company's
Directors who are not parties to this Agreement or "interested persons" (as
defined in the 1940 Act) of any such party. This Agreement may be terminated
at any time, without the payment of any penalty, by a vote of a majority of
the Company's outstanding voting securities (as defined in the 1940 Act) or
by a vote of majority of the Company's entire Board of Directors on 60 days'
written notice to Furman Selz, or by Furman Selz on 60 days' written notice
to the Company.
16. NOTICES. All notices and other communications, including Written
Instructions (collectively referred to as "Notice" or "Notices" in this
Paragraph), hereunder shall be in writing or by confirming telegram, cable,
telex or facsimile sending device. Notices shall be addressed (a) if to
Furman Selz at Furman Selz' address, 237 Park Avenue, Suite 910, New York,
New York 10017, Attention John J. Pileggi; (b) if to the Company, at the
address of the Company; or (c) if neither of the foregoing, at such other
address as shall have been notified to the sender of any such Notice or other
communication. A Notice may be mailed, in which case it shall be deemed to
have been given three days after it is sent, or if sent by facsimile sending
device, it shall be deemed to have been given immediately, or if sent by
messenger, it shall be deemed to have been given on the day it is delivered,
or if sent by confirming telegram, cable, telex and facsimile sending device
it shall be deemed to have been given immediately. All postage, cable,
telex, or facsimile sending device charges arising from the sending of a
Notice hereunder shall be paid by the sender.
17. FURTHER ACTIONS. Each party agrees to perform such further acts
and execute such further documents as are necessary to effectuate the
purposes hereof.
18. AMENDMENTS. This Agreement or any part hereof may be changed or
waived only by an instrument in writing signed by the party against which
enforcement of such change or waiver is sought.
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19. COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
20. MISCELLANEOUS. This Agreement embodies the entire agreement and
understanding between the parties thereto, and supersedes all prior
agreements and understandings, relating to the subject matter hereof,
provided that the parties hereto may embody in one or more separate documents
their agreement, if any, with respect to delegated and/or Oral Instructions.
The captions in this Agreement are included for convenience of reference only
and in no way define or delimit any of the provisions hereof or otherwise
affect their construction or effect. If any provision of this Agreement
shall be held or made invalid by a court decision, statute, rule or
otherwise, the remainder of this Agreement shall not be affected thereby.
This Agreement shall be binding and shall inure to the benefit of the parties
hereto and their respective successors.
21. GOVERNING LAW. This Agreement shall be governed by the laws of the
State of New York.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their officers designated below on the day and year first above
written.
CVO GREATER CHINA FUND, INC.
By:
------------------------------
Title:
FURMAN SELZ INCORPORATED
By:
-------------------------------
Title:
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TRANSFER AGENCY AGREEMENT
THIS AGREEMENT is made as of the 30th day of December, 1994 between CVO
GREATER CHINA FUND, INC., a Maryland corporation (the "Company"), and FURMAN
SELZ INCORPORATED, a Delaware corporation (the "Transfer Agent").
R E C I T A L S
WHEREAS, the Company is registered as an open-end management investment
company under the Investment Company Act of 1940, as amended (the "1940 Act");
and
WHEREAS, the Company desires to retain the Transfer Agent to serve as the
Company's transfer agent, registrar, and dividend disbursing agent, and the
Transfer Agent is willing to furnish such services;
NOW, THEREFORE, in consideration of the premises and mutual covenants
herein contained, it is agreed between the parties hereto as follows:
1. APPOINTMENT. The Company hereby appoints the Transfer Agent to serve
as transfer agent, registrar and dividend disbursing agent for the Company with
respect to the Class I and Class II Shares (collectively, the "Shares") of the
Company's investment portfolio, CVO Greater China Fund (the "Fund"), for the
period and on the terms set forth in this Agreement. In the event that the
Company establishes one or more portfolios with respect to which the Company
decides to retain the Transfer Agent to act as transfer agent hereunder, the
Company shall so notify the Transfer Agent in writing. If the Transfer Agent is
willing to render such services, the Transfer Agent shall promptly notify the
Company in writing whereupon such portfolio shall be deemed to be a Fund
hereunder.
2. DELIVERY OF DOCUMENTS. The Company has furnished the Transfer Agent
with copies properly certified or authenticated of each of the following:
<PAGE>
(a) Resolutions of the Company's Board of Directors authorizing the
appointment of the Transfer Agent as transfer agent and registrar and dividend
disbursing agent for the Company and approving this Agreement;
(b) Appendix A identifying and containing the signatures of the
Company's officers and other persons authorized to issue Oral Instructions
and to sign Written Instructions, as hereinafter defined, on behalf of the
Companyand to execute stock certificates representing Shares;
(c) the Company's Articles of Amendment and Restatement filed with
the Department of Assessments and Taxation of the State of Maryland on December
28, 1994 and all amendments thereto (the "Articles");
(d) The Company's By-laws and all amendments thereto (the "By-Laws");
(e) The Investment Advisory Agreement between CVO Greater China
Partners, L.P. and the Company;
(f) The Custodian Agreement between Investors Bank & Trust Company
and the Company dated as of December 30, 1994 (Investors Bank & Trust Company
being referred to herein as the "Custodian" for the period during which the
agreement between the Company and such entity is in effect);
(g) The Fund Administration Agreement between Furman Selz
Incorporated (the "Administrator") and the Company dated as of December 30,
1994;
(h) The Distribution Agreement between OFFIT Funds Distributor, Inc.
(the "Distributor") and the Company dated as of December 30, 1994;
(i) The Company's most recent Registration Statement on Form N-1A
under the Securities Act of 1933 (the "1933 Act") and under the 1940 Act as
filed with the SEC relating to the Shares, each class of Shares being $.001 par
value, and all amendments thereto;
(j) The Company's most recent prospectus and statement of additional
information and all amendments and supplements thereto (the "Prospectus"); and
(k) Before the Company engages in any transaction regulated by the
Commodity Futures Trading Commission ("CFTC"), a copy of either (i) a filed
notice of eligibility to claim the
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exclusion from the definition of "commodity pool operator" contained in
paragraph 2(a)(1)(A) of the Commodity Exchange Act ("CEA") that is provided
in Rule 4.5 under the CEA, together with all supplements as are required by
the CFTC, or (ii) a letter which has been granted the Company by the CFTC
which states that the Company will not be treated as a "pool" as defined in
paragraph 4.10(d) of the CFTC's General Regulations, or (iii) a letter which
has been granted the Company by the CFTC which states that the CFTC will not
take any enforcement action if the Company does not register as a "commodity
pool operator."
The Company will furnish the Transfer Agent from time to time with
copies, properly certified or authenticated, of all amendments of or supplements
to the foregoing, if any.
3. DEFINITIONS.
(a) "AUTHORIZED PERSON". As used in this Agreement, the term
"Authorized Person" means any officer of the Company and any other person,
whether or not any such person is an officer or employee of the Company, duly
authorized by the Board of Directors of the Company to give Oral and Written
Instructions on behalf of the Company and listed on the Certificate annexed
hereto as Appendix A or any amendment thereto as may be received by the
Transfer Agent from time to time.
(b) "ORAL INSTRUCTIONS". As used in this Agreement, the term
"Oral Instructions" means oral instructions actually received by the Transfer
Agent from an Authorized Person or from a person reasonably believed by the
Transfer Agent to be an Authorized Person. The Company agrees to deliver to
the Transfer Agent, at the time and in the manner specified in paragraph 4(b)
of this Agreement, Written Instructions confirming Oral Instructions.
(c) "WRITTEN INSTRUCTIONS". As used in this Agreement, the term
"Written Instructions" means written instructions delivered by hand, mail,
tested telegram, cable, telex or facsimile sending device including buy or sell
tickets, computer transmissions, and received by the Transfer Agent and signed
by an Authorized Person.
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4. INSTRUCTIONS CONSISTENT WITH ARTICLES, ETC.
(a) Unless otherwise provided in this Agreement, the Transfer Agent
shall act only upon Oral or Written Instructions. Although the Transfer Agent
may know of the provisions of the Articles and By-Laws of the Company, the
Transfer Agent may assume that any Oral or Written Instructions received under
this Agreement are not in any way inconsistent with any provisions of such
Articles or By-Laws or any vote, resolution or proceeding of the holders of
Shares of the Company (collectively, the "Shareholders"), or of the Board of
Directors, or of any committee thereof.
(b) The Transfer Agent shall be entitled to rely upon any Oral
Instructions and any Written Instructions actually received by the Transfer
Agent pursuant to this Agreement. The Company agrees to forward to the Transfer
Agent Written Instructions confirming Oral Instructions in such manner that the
Written Instructions are received by the Transfer Agent by the close of business
of the same day that such Oral Instructions are given to the Transfer Agent.
The Company agrees that the fact that such confirming Written Instructions are
not received by the Transfer Agent shall in no way affect the validity of the
transactions or enforceability of the transactions authorized by the Company by
giving Oral Instructions. The Company agrees that the Transfer Agent shall
incur no liability to the Company in acting upon Oral Instructions given to the
Transfer Agent under this Agreement concerning such transactions, provided such
Oral Instructions reasonably appear to have been received from an Authorized
Person.
5. TRANSACTIONS NOT REQUIRING INSTRUCTIONS. In the absence of contrary
Written Instructions, the Transfer Agent is authorized to take the following
actions:
(a) ISSUANCE OF SHARES. Upon receipt of a purchase order from the
Distributor for the purchase of Class I or Class II Shares and sufficient
information to enable the Transfer Agent to establish a Shareholder account, and
after confirmation of receipt or crediting of Federal funds for such order from
the Custodian, the Transfer Agent shall issue and credit the account of the
investor or other record holder with Shares in the manner described in the
Prospectus.
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(b) TRANSFER OF SHARES; UNCERTIFICATED SECURITIES. Where a
Shareholder does not hold a certificate representing the number of Class I or
Class II Shares in his or her account and does provide the Transfer Agent
with instructions for the transfer of such Shares which include appropriate
documentation to permit a transfer, then the Transfer Agent shall register
such Shares and shall deliver them pursuant to instructions received from the
transferor, pursuant to the rules and regulations of the SEC, and the law of
the State of Maryland relating to the transfer of shares of common stock.
(c) STOCK CERTIFICATES. If at any time the Company issues stock
certificates, the following provisions will apply:
(i) The Company will supply the Transfer Agent with a sufficient
supply of stock certificates representing Class I and Class II Shares, in
the form approved from time to time by the Board of Directors of the
Company, and, from time to time, shall replenish such supply upon request
of the Transfer Agent. Such stock certificates shall be properly signed,
manually or by facsimile signature, by the duly authorized officers of the
Company, whose names and positions shall be set forth on Appendix A, and
shall bear the corporate seal or facsimile thereof of the Company, and
notwithstanding the death, resignation or removal of any officer of the
Company, such executed certificates bearing the manual or facsimile
signature of such officer shall remain valid and may be issued to
Shareholders until the Transfer Agent is otherwise directed by Written
Instructions.
(ii) In the case of the loss or destruction of any certificate
representing Class I or Class II Shares, as the case may be, no new
certificate shall be issued in lieu thereof, unless there shall first have
been furnished an appropriate bond of indemnity issued by the surety
company approved by the Transfer Agent.
(iii) Upon receipt of signed stock certificates, which shall
be in proper form for transfer, and upon cancellation or destruction
thereof, the Transfer Agent shall countersign, register and issue new
certificates for the same number of Class I or Class II Shares, as the case
may be, and shall deliver them pursuant to instructions received from the
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transferor, the rules and regulations of the SEC, and the law of the State
of Maryland relating to the transfer of shares of common stock.
(iv) Upon receipt of written instructions from a Shareholder of
uncertificated securities for a certificate in the number of shares in his
account, the Transfer Agent will issue such stock certificates and deliver
them to the Shareholder.
(d) REDEMPTION OF SHARES. Upon receipt of a redemption order from
the Distributor, the Transfer Agent shall redeem the number of Shares indicated
thereon from the redeeming Shareholder's account and receive from the Custodian
and disburse to the redeeming Shareholder the redemption proceeds therefor, or
arrange for direct payment of redemption proceeds to such Shareholders by the
Custodian, in accordance with such procedures and controls as are mutually
agreed upon from time to time by and among the Company, the Transfer Agent and
the Custodian. Authority to perform the above shall be suspended when the
Company suspends the Shareholders' right of redemption, provided that the
Company delivers notice of such suspension to the Transfer Agent.
6. AUTHORIZED SHARES. The Company's authorized capital stock consists
of 5,000,000,000 (five billion) shares of Class I Common Stock par value
$.001 per Share, and 5,000,000,000 (five billion) shares of Class II Common
Stock par value $.001 per Share. All capital stock of the Company invests
solely in the Fund. The Transfer Agent shall record issues of all Shares and
shall notify the Company in case any proposed issuance of Class I or Class II
Shares by the Company for the Fund shall result in an over-issue of such
class for the Fund as defined by paragraph 8-104(2) of Article 8 of the
Maryland Uniform Commercial Code. In case any such issuance of Shares would
result in such an over-issue, the Transfer Agent shall refuse to issue said
Shares and shall not countersign and issue certificates for such Shares. The
Company agrees to notify the Transfer Agent promptly of any change in the
number of authorized Class I or Class II Shares or their classification and
of any change in the number of Class I or Class II Shares registered under
the 1933 Act.
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7. DIVIDENDS AND DISTRIBUTIONS.
(a) The Company shall furnish the Transfer Agent with appropriate
evidence of actions by the Company's Board of Directors authorizing the
declaration and payment of dividends and distributions as described in the
Prospectus. After deducting any amount required to be withheld by any
applicable tax laws, rules and regulations or other applicable laws, rules and
regulations, the Transfer Agent shall in accordance with the instructions in
proper form from a Shareholder and the provisions of the Company's Articles and
Prospectus, issue and credit the account of the Shareholder with Class I or
Class II Shares, as the case may be, or if the Shareholder so elects, pay such
Class I or Class II dividends to the Shareholder in the manner described in the
Prospectus. In lieu of receiving from the Custodian and paying to Shareholders
cash dividends or distributions, the Transfer Agent may arrange for the direct
payment of cash dividends and distributions to Shareholders by the Custodian, in
accordance with such procedures and controls as are mutually agreed upon from
time to time by and among the Company, the Transfer Agent and the Custodian.
(b) The Transfer Agent shall prepare, file with the Internal Revenue
Service and other appropriate taxing authorities, and address and mail to
Shareholders such returns and information relating to dividends and
distributions paid by the Company as are required to be so prepared, filed and
mailed by applicable laws, rules and regulations, or such substitute form of
notice as may from time to time be permitted or required by the Internal Revenue
Service. On behalf of the Company, the Transfer Agent shall mail certain
requests for Shareholders' certifications under penalties of perjury and pay on
a timely basis to the appropriate Federal authorities any taxes to be withheld
on dividends and distributions paid by the Company, all as required by
applicable Federal tax laws and regulations.
In accordance with the Prospectus and such procedures and controls as
are mutually agreed upon from time to time by and among the Company, the
Transfer Agent and the Custodian, the Transfer Agent shall (a) arrange for
issuance of Shares obtained through (1) transfers of funds from Shareholders'
accounts at financial institutions, (2) a pre-authorized check plan, if any, and
(3) a right of accumulation, if any; (b) arrange for the exchange of Class I or
Class II Shares for
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shares of such other funds designated by the Company from time to time; and
(c) arrange for systematic withdrawals from the account of a Shareholder
participating in the Systematic Withdrawal Plan, if any.
8. COMMUNICATIONS WITH SHAREHOLDERS.
(a) COMMUNICATIONS TO SHAREHOLDERS. The Transfer Agent will
address and mail all communications by the Company to its Shareholders,
including reports to Shareholders, confirmations of purchases and sales of
Class I and Class II Shares, monthly statements, dividend and distribution
notices and proxy material for its meetings of Shareholders. The Transfer
Agent will receive and tabulate the proxy cards for the meetings of the
Shareholders.
(b) CORRESPONDENCE. The Transfer Agent will answer such
correspondence from Shareholders, securities brokers and others relating to
its duties under this Agreement and such other correspondence as may from
time to time be mutually agreed upon between the Transfer Agent and the
Company.
9. RECORDS. The Transfer Agent shall maintain records of the accounts
for each Shareholder showing the following information:
(a) name, address and United States Tax Identification or Social
Security number;
(b) number and class of Class I and Class II Shares held and number
and class of both classes of Shares for which certificates, if any, have been
issued, including certificate numbers and denominations;
(c) historical information regarding the account of each
Shareholder, including dividends and distributions paid and the date and
price for all transactions on a Shareholder's account;
(d) any stop or restraining order placed against a Shareholder's
account;
(e) any correspondence relating to the current maintenance of a
Shareholder's account;
(f) information with respect to withholdings; and
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(g) any information required in order for the Transfer Agent to
perform any calculations contemplated or required by this Agreement.
The books and records pertaining to the Company which are in the
possession of the Transfer Agent shall be the property of the Company. Such
books and records shall be prepared and maintained as required by the 1940
Act and other applicable securities laws and rules and regulations. The
Company and the Company's authorized representatives shall have access to
such books and records at all times during the Transfer Agent's normal
business hours. Upon the reasonable request of the Company, copies of any
such books and records shall be provided by the Transfer Agent to the Company
or the Company's authorized representative at the Company's expense.
10. ONGOING FUNCTIONS. The Transfer Agent will perform the following
functions on an ongoing basis:
(a) furnish state-by-state registration and sales reports to the
Administrator;
(b) calculate Account Executive load or compensation payment and
provide such information to the Company, if any;
(c) calculate dealer commissions for the Company, if any;
(d) provide toll-free lines for direct Shareholder use, plus customer
liaison staff with on-line inquiry capacity;
(e) mail duplicate confirmations to dealers of their clients'
activity, whether executed through the dealer or directly with the Transfer
Agent, if any;
(f) provide detail for underwriter or broker confirmations and other
participating dealer Shareholder accounting, in accordance with such procedures
as may be agreed upon between the Company and the Transfer Agent, if any;
(g) provide Shareholder lists and statistical information concerning
accounts to the Company; and
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(h) provide timely notification of Company activity and such other
information as may be agreed upon from time to time between the Transfer
Agent and the Custodian, to the Company or the Custodian.
11. COOPERATION WITH ACCOUNTANTS. The Transfer Agent shall cooperate
with the Company's independent public accountants and shall take all
reasonable action in the performance of its obligations under this Agreement
to assure that the necessary information is made available to such
accountants for the expression of their opinion as such may be required by
the Company from time to time.
12. CONFIDENTIALITY. The Transfer Agent agrees on behalf of itself and
its employees to treat confidentially all records and other information
relative to the Company and its prior, present or potential Shareholders and
relative to CVO Greater China Partners, L.P. ("CVO Partners") and its prior,
present or potential customers, except, after prior notification to and
approval in writing by the Company and CVO Partners, which approval shall not
be unreasonably withheld and may not be withheld where the Transfer Agent 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 Company or CVO Partners, as appropriate.
13. EQUIPMENT FAILURES. In the event of equipment failures beyond the
Transfer Agent's control, the Transfer Agent shall, at no additional expense
to the Company, take reasonable steps to minimize service interruptions but
shall have no liability with respect thereto. The foregoing obligation shall
not extend to computer terminals located outside of premises maintained by
the Transfer Agent. The Transfer Agent shall enter into and shall maintain
in effect with appropriate parties one or more agreements making reasonable
provision for emergency use of electronic data processing equipment to the
extent appropriate equipment is available.
14. RIGHT TO RECEIVE ADVICE.
(a) ADVICE OF COMPANY. If the Transfer Agent shall be in doubt as
to any action to be taken or omitted by it, it may request, and shall
receive, from the Company directions or advice, including Oral or Written
Instructions where appropriate.
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(b) ADVICE OF COUNSEL. If the Transfer Agent shall be in doubt as
to any question of law involved in any action to be taken or omitted by the
Transfer Agent, it may request advice at its own cost from counsel of its own
choosing (who may be counsel for CVO Partners, the Company or the Transfer
Agent at the option of the Transfer Agent).
(c) CONFLICTING ADVICE. In case of conflict between directions,
advice or Oral or Written Instructions received by the Transfer Agent pursuant
to subparagraph (a) of this paragraph and advice received by the Transfer Agent
pursuant to subparagraph (b) of this paragraph, the Transfer Agent shall be
entitled to rely on and follow the advice received pursuant to the latter
provision alone.
(d) PROTECTION OF THE TRANSFER AGENT. The Transfer Agent shall be
protected in any action or inaction which it takes in reliance on any
directions, advice or Oral or Written Instructions received pursuant to
subparagraphs (a) or (b) of this paragraph which the Transfer Agent, after
receipt of any such directions, advice or Oral or Written Instructions, in good
faith believes to be consistent with such directions, advice or Oral or Written
Instructions, as the case may be. However, nothing in this paragraph shall be
construed as imposing upon the Transfer Agent any obligation (i) to seek such
directions, advice or Oral or Written Instructions, or (ii) to act in accordance
with such directions, advice or Oral or Written Instructions when received,
unless, under the terms of another provision of this Agreement, the same is a
condition to the Transfer Agent's properly taking or omitting to take such
action. Nothing in this subparagraph shall excuse the Transfer Agent when an
action or omission on the part of the Transfer Agent constitutes willful
misfeasance, bad faith, gross negligence or reckless disregard by the Transfer
Agent of its duties and obligations under this Agreement.
15. COMPLIANCE WITH GOVERNMENTAL RULES AND REGULATIONS. The Transfer
Agent undertakes to comply with all applicable requirements of the 1933 Act, the
Securities Exchange Act of 1934, as amended (the "1934 Act"), the 1940 Act, the
CEA, and any laws, rules and regulations of governmental authorities having
jurisdiction.
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16. COMPENSATION. As compensation for the services rendered by the
Transfer Agent during the term of this Agreement, the Company will pay to the
Transfer Agent monthly fees plus certain of the Transfer Agent's expenses
relating to such services, as shall be agreed to from time to time by the
Company and the Transfer Agent. The Company and the Transfer Agent have
initially agreed to the compensation set forth on Exhibit A attached hereto.
17. INDEMNIFICATION. The Company agrees to indemnify and hold harmless
the Transfer Agent and its nominees and sub-contractors from all taxes, charges,
expenses, assessments, claims and liabilities (including, without limitation,
liabilities arising under the 1933 Act, the 1934 Act, the 1940 Act, the CEA, and
any state and foreign securities and blue sky laws, all as or to be amended from
time to time) and expenses, including attorneys' fees and disbursements (as long
as such attorney has been retained with the consent of the Company, which
consent shall not be unreasonably withheld), arising directly or indirectly from
any action or thing which the Transfer Agent takes or does or omits to take or
do (i) at the request or on the direction of or in reliance on the advice of the
Company or (ii) upon Oral or Written Instructions, PROVIDED, that neither the
Transfer Agent nor any of its nominees or sub-contractors shall be indemnified
against any liability to the Company or its Shareholders (or any expenses
incident to such liability) arising out of the Transfer Agent's or such
nominee's or such sub-contractor's own willful misfeasance, bad faith or
negligence or reckless disregard of its duties and obligations specifically
described in this Agreement. In order that the indemnification provision
contained in this paragraph 17 shall apply, it is understood that if in any case
the Company may be asked to indemnify or save the Transfer Agent harmless, the
Company shall be fully and promptly advised of all pertinent facts concerning
the situation in question, and it is further understood that the Transfer Agent
will use all reasonable care to identify and notify the Company promptly
concerning any situation which presents or appears likely to present the
probability of such a claim for indemnification against the Company. The
Company shall have the option to defend the Transfer Agent against any claim
which may be the subject of this indemnification and, in the event that the
Company so elects, it will so notify the Transfer Agent and thereupon the
Company shall take over complete defense for the claim, and the Transfer Agent
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shall in such situation incur no further legal or other expenses for which it
shall seek indemnification under this paragraph 17. The Transfer Agent shall
in no case confess any claim or make any compromise or settlement in any case
in which the Company will be asked to indemnify the Transfer Agent, except
with the Company's prior written consent.
18. RESPONSIBILITY OF THE TRANSFER AGENT. The Transfer Agent shall be
under no duty to take any action on behalf of the Company except as
specifically set forth herein or as may be specifically agreed to by the
Transfer Agent in writing. In the performance of its duties under this
Agreement, the Transfer Agent shall be obligated to exercise care and
diligence and to act in good faith and to use its best efforts within
reasonable limits to insure the accuracy and completeness of all services
performed under this Agreement. The Transfer Agent shall be responsible for
and shall hold the Company harmless from all loss, cost, damage and expense,
including reasonable attorney fees (as long as such attorney has been
retained with the consent of the Transfer Agent, which consent shall not be
unreasonably withheld), incurred by it resulting from any claim, demand,
action or suit arising out of the Transfer Agent's own negligent failure to
perform its duties under this Agreement. In order that the indemnification
provision contained in this paragraph 18 shall apply, it is understood that
if in any case the Transfer Agent may be asked to indemnify or save the
Company harmless, the Transfer Agent shall be fully and promptly advised of
all pertinent facts concerning the situation in question, and it is further
understood that the Company will use all reasonable care to indemnify and
notify the Transfer Agent promptly concerning any situation which presents or
appears likely to present the probability of such a claim for indemnification
against the Transfer Agent. The Transfer Agent shall have the option to
defend the Company against any claim which may be subject to this
indemnification and, in the event that the Transfer Agent so elects, it will
so notify the Company and thereupon the Transfer Agent shall take over
complete defense for the claim, and the Company shall in such situation incur
no further legal or other expenses for which it shall seek indemnification
under this paragraph 18. The Company shall in no case confess any claim or
make any compromise or settlement in any case in which the Transfer Agent
will be asked to indemnify the Company except with the Transfer Agent's prior
written consent.
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To the extent that duties, obligations and responsibilities are not
expressly set forth in this Agreement, however, the Transfer Agent shall not
be liable for any act or omission which does not constitute willful
misfeasance, bad faith or gross negligence on the part of the Transfer Agent
or reckless disregard of such duties, obligations and responsibilities.
Without limiting the generality of the foregoing or of any other provision of
this Agreement, the Transfer Agent in connection with its duties under this
Agreement shall not be under any duty or obligation to inquire into and shall
not be liable for or in respect of (a) the validity or invalidity or
authority or lack thereof of any Oral or Written Instruction, notice or other
instrument which conforms to the applicable requirements of this Agreement,
if any, and which the Transfer Agent reasonably believes to be genuine, or
(b) delays or errors or loss of data occurring by reason of circumstances
beyond the Transfer Agent's control, including acts of civil or military
authority, national emergencies, labor difficulties, fire, mechanical
breakdown (except as provided in paragraph 13), flood or catastrophe, acts of
God, insurrection, war, riots or failure of the mails, transportation,
communication or power supply. Notwithstanding the foregoing, the Transfer
Agent shall use its best efforts to mitigate the effects of the events set
forth in clause (b) above, although such efforts shall not impute any
liability thereto. The Transfer Agent expressly disclaims all responsibility
for consequential damages, including but not limited to any that may result
from performance or non-performance of any duty or obligation whether express
or implied in this Agreement, and also expressly disclaims any express or
implied warranty of products or services provided in connection with this
Agreement.
19. DURATION AND TERMINATION. This Agreement shall continue in effect
until two years from the date thereof and thereafter for successive annual
periods, provided that such continuance is specifically approved at least
annually (a) by the Company's Board of Directors and (b) by the vote, cast in
person at a meeting called for the purpose, of the majority of the Company's
Directors who are not parties to this Agreement or "interested persons" (as
defined in the 1940 Act) of any such party. This Agreement may be terminated
at any time, without the payment of any penalty, by a vote of a majority of
the Company's outstanding voting securities (as defined in the 1940 Act) or by
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a vote of a majority of the Company's entire Board of Directors on 60 days'
written notice to the Transfer Agent or by the Transfer Agent on 60 days'
written notice to the Company.
20. REGISTRATION AS A TRANSFER AGENT. The Transfer Agent represents
that it is currently registered with the appropriate federal agency for the
registration of transfer agents, and that it will remain so registered for
the duration of this Agreement. The Transfer Agent agrees that it will
promptly notify the Company in the event of any material change in its status
as a registered transfer agent. Should the Transfer Agent fail to be
registered with the appropriate federal agency as a transfer agent at any
time during this Agreement, the Company may, on written notice to the
Transfer Agent, immediately terminate this Agreement.
21. NOTICES. All notices and other communications, including Written
Instructions (collectively referred to as "Notice" or "Notices" in this
paragraph), under this Agreement shall be in writing or by confirming
telegram, cable, telex or facsimile sending device. Notices shall be
addressed (a) if to the Transfer Agent at Furman Selz Incorporated, 237 Park
Avenue, Suite 910, New York, New York 10017, Attention: John J. Pileggi; (b)
if to the Company, at the address of the Company; or (c) if to neither of the
foregoing, at such other address as shall have been notified to the sender of
any such Notice or other communication. A Notice may be sent by first-class
mail, in which case it shall be deemed to have been given five days after it
is sent, or if sent by messenger, it shall be deemed to have been given on
the day it is delivered, or if sent by confirming telegram, cable, telex or
facsimile sending device, it shall be deemed to have been given immediately.
All postage, cable, telegram, telex and facsimile sending device charges
arising from the sending of a Notice under this Agreement shall be paid by
the sender.
22. FURTHER ACTIONS. Each party agrees to perform such further acts
and execute such further documents as are necessary to effectuate the
purposes hereof.
23. AMENDMENTS. This Agreement or any part hereof may be changed or
waived only by an instrument in writing signed by the party against which
enforcement of such change or waiver is sought.
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24. COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
25. MISCELLANEOUS. This Agreement embodies the entire agreement and
understanding between the parties hereto, and supersedes all prior agreements
and understandings relating to the subject matter hereof, PROVIDED that the
parties hereto may embody in one or more separate documents their agreement,
if any, with respect to Oral Instructions. The captions in this Agreement
are included for convenience of reference only and in no way define or limit
any of the provisions hereof or otherwise affect their construction or
effect. If any provision of this Agreement shall be held or made invalid by
a court decision, statute, rule or otherwise, the remainder of this Agreement
shall not be affected thereby. This Agreement shall be binding and shall
inure to the benefit of the parties hereto and their respective successors.
26. GOVERNING LAW. This Agreement shall be governed by the laws of the
State of New York.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed by their officers designated below on the day and year first above
written.
CVO GREATER CHINA FUND, INC.
By:
------------------------------------------------
Title:
FURMAN SELZ INCORPORATED
By:
------------------------------------------------
Title:
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APPENDIX A
CVO GREATER CHINA FUND, INC.
NAMES AND SIGNATURES OF OFFICERS AND OTHER PERSONS AUTHORIZED
TO ISSUE ORAL INSTRUCTIONS, SIGN WIRTTEN INSTRUCTIONS AND EXECUTE STOCK
CERTIFICATES REPRESENTING CLASS I AND CLASS II SHARES
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EXHIBIT A
TRANSFER AGENCY AGREEMENT
COMPENSATION
The Transfer Agent shall receive an account maintenance fee of $15 per year
for each account which is in existence at any time during the month for which
payment is made, such fee to be paid in equal monthly installments, plus
out-of-pocket expenses. The Transfer Agent shall be entitled to this account
maintenance fee on all accounts maintained in its records during the year,
including those accounts which have a zero balance during any portion of the
year.
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EXHIBIT 9(C)
SHAREHOLDER SERVICES AGREEMENT
SHAREHOLDER SERVICES AGREEMENT (the "Agreement"), dated as of
December 30, 1994, by and between CVO Greater China Fund, Inc., a Maryland
corporation (the "Company"), and Furman Selz Incorporated, a Delaware
corporation (the "Agent"), as the shareholder servicing agent hereunder
relating to transactions in Class II Shares of capital stock, $.001 par value
(the "Shares"), of the Company. In the event that the Company establishes
one or more portfolios with respect to which it decides to retain the Agent
hereunder, the Company shall promptly notify the Agent in writing. If the
Agent is willing to render such services, it shall notify the Company in
writing whereupon such portfolio shall be administered in accordance with the
terms of this Agreement..
The Company and the Agent hereby agree as follows:
1. APPOINTMENT. The Agent, hereby agrees to perform certain
services for Class II shareholders of the Company (collectively, the
"Customers") as hereinafter set forth. The Agent's appointment hereunder is
non-exclusive, and the parties recognize and agree that, from time to time,
the Company may enter into other shareholder servicing agreements, in
writing, with other financial institutions.
2. SERVICES TO BE PERFORMED. The Agent, as agent for the
Customers, shall be responsible for performing shareholder administrative
support services, which will include the following: (i) answering Customer
inquiries regarding account status and history, the manner in which
purchases, exchanges and redemptions of Class II Shares of the Company (as
the case may be) may be effected and certain other matters pertaining to the
Company; (ii) assisting Customers in designating and changing dividend
options, account designations and addresses; (iii) providing necessary
personnel and facilities to establish and maintain Customers' accounts and
records; (iv) assisting in aggregating and processing purchase, exchange and
redemption transactions; (v) placing net purchase and redemption orders with
the Company's distributor; (vi) arranging for wiring of funds; (vii)
transmitting and receiving funds in connection with Customer orders to
purchase or redeem shares; (viii) processing dividend payments; (ix)
verifying and guaranteeing Customer signatures in connection with redemption
orders and transfers and changes in Customer-designated accounts, as
necessary; (x) providing periodic statements showing a customer's account
balance and, to the extent practicable, integrating such information with
other customer transactions otherwise effected through or with the Agent;
(xi) furnishing (either separately or on an integrated basis with other
reports sent to a Customer by a shareholder servicing agent) monthly and
year-end statements and confirmations of purchases, exchanges and
redemptions; (xii) transmitting on behalf of the Company proxy statements,
annual reports and updating prospectuses and other communications from the
Company to the Customers; (xiii) receiving, tabulating and transmitting to
the Company proxies executed by Customers with respect to meetings of
shareholders of the Company; and (xiv) providing such other related services
as the Company or a Customer may request.
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The Agent shall provide all personnel and facilities necessary in
order for it to perform the functions described in this paragraph with
respect to its Customers.
3. FEES.
3.1 FEES FROM THE COMPANY. In consideration for the services
described in Section 2 hereof and the incurring of expenses in connection
therewith, the Agent shall receive a fee, computed daily and payable monthly,
at the annual rate of 0.25% of the average daily net asset value attributable
to Class II Shares of the Company. Fees with respect to Class II Shares of
the Company will be paid exclusively from the assets attributable to Class II
Shares of the Company. For purposes of determining the fees payable to the
Agent hereunder, the value of the Company's net assets shall be computed in
the manner specified in the Company's then-current prospectus and statement
of additional information (the "Prospectus") for computation of the net asset
value of the Company's Shares.
3.2 FEES FROM CUSTOMERS. It is agreed that the Agent may impose
certain conditions on Customers, in addition to or different from those
imposed by the Company, such as requiring a minimum initial investment or
imposing limitations on the amounts of transactions. It is also understood
that the Agent may directly credit or charge fees to Customers in connection
with an investment in the Company. The Agent shall credit or bill Customers
directly for such credits or fees. In the event the Agent charges Customers
such fees, it shall make appropriate prior written disclosure (such
disclosure to be in accordance with all applicable laws) to Customers both of
any direct fees charged to the Customer and of the fees received or to be
received by it from the Company pursuant to Section 3.1 of this Agreement.
It is understood however, that in no event shall the Agent have recourse or
access as Agent or otherwise to the account of any shareholder of the Company
except to the extent expressly authorized by law or by such shareholder, or
to any assets of the Company, for payment of any direct fees referred to in
this Section 3.2.
4. APPROVAL OF MATERIALS TO BE CIRCULATED. Advance copies or
proofs of all materials which are to be generally circulated or disseminated
by the Agent to Customers or prospective Customers which identify or describe
the Company shall be provided to the Company at least 10 days prior to such
circulation or dissemination (unless the Company consents in writing to a
shorter period), and such materials shall not be circulated or disseminated
or further circulated or disseminated at any time after the Company shall
have given written notice to the Agent of any objection thereto.
Nothing in this Section 4 shall be construed to make the Company
liable for the use of any information about the Company which is disseminated
by the Agent.
5. COMPLIANCE WITH LAWS, ETC. The Agent shall comply with all
applicable federal and state laws and regulations in the performance of its
duties under this Agreement, including securities laws.
6. LIMITATION OF AGENT'S LIABILITY. In consideration of the Agent's
undertaking to render the services described in this Agreement, the Company
agrees that
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the Agent shall not be liable under this Agreement for any error of judgment
or mistake of law or for any loss suffered by the Company in connection with
the performance of this Agreement, provided that nothing in this Agreement
shall be deemed to protect or purport to protect the Agent against any
liability to the Company or its stockholders to which the Agent would
otherwise be subject by reason of willful misfeasance, bad faith or gross
negligence in the performance of the Agent's duties under this Agreement or
by reason of the Agent's reckless disregard of its obligations and duties
hereunder.
7. INDEMNIFICATION. The Company agrees to indemnify and hold
harmless the Agent from all taxes, charges, expenses, assessments, claims and
liabilities (including, without limitation, liabilities arising under the
Securities Act of 1933, as amended, the Securities Exchange Act of 1934, as
amended, the Investment Company Act of 1940, as amended, and any state and
foreign securities and blue sky laws, all as or to be amended from time to
time) and expenses, including attorneys' fees and disbursements arising
directly or indirectly from (i) any misstatements or omissions in the
Company's Prospectus, or (ii) any action or thing which the Agent takes or
does or omits to take or do reasonably believed by the Agent to be at the
request or direction or in reliance on the advice or instructions, whether
oral or written, of the Company, provided that the Agent shall not be
indemnified against any liability to the Company or to its shareholders (or
any expenses incident to such liability) arising out of the Agent's own
willful misfeasance, bad faith or gross negligence in the performance of its
duties hereunder or by reason of its reckless disregard of its obligations
and duties hereunder. In order that the indemnification provision contained
in this paragraph shall apply, it is understood that if in any case the
Company may be asked to indemnify or save the Agent harmless, the Company
shall be fully and promptly advised of all pertinent facts concerning the
situation in question, and it is further understood that the Agent will use
all reasonable care to identify and notify the Company promptly concerning
any situation which presents or appears likely to present the probability of
such a claim for indemnification against the Company. The Company shall have
the option to defend the Agent against any claim which may be the subject of
this indemnification and, in the event that the Company so elects, it will so
notify the Agent and thereupon the Company shall take over complete defense
for the claim, and the Agent shall in such situation incur no further legal
or other expenses for which it shall seek indemnification under this
paragraph. The Agent shall in no case confess any claim or make any
compromise or settlement in any case in which the Company will be asked to
indemnify the Agent, except with the Company's prior written consent.
8. LIMITATION OF SHAREHOLDER LIABILITY, ETC. The Agent hereby
agrees that obligations assumed by the Company pursuant to this Agreement
shall be limited in all cases to the Company and its assets and that the
Agent shall not seek satisfaction of any such obligation from the
shareholders or any shareholder of the Company. It is further agreed that the
Agent shall not seek satisfaction of any such obligations from the Board of
Directors or any individual Director of the Company.
9. NOTICES. All notices or other communications hereunder to either
party shall be in writing or by confirming telegram, cable, telex or facsimile
sending device. Notices shall be addressed (a) if to the Company, at the
address of the Company, or (b) if to the Agent,
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Furman Selz Incorporated, 237 Park Avenue, New York, New York 10017,
Attention: John J. Pileggi.
10. FURTHER ASSURANCES. Each party agrees to perform such further
acts and execute such further documents as are necessary to effectuate the
purposes hereof.
11. TERMINATION. This Agreement will continue in effect until two
years from the date hereof and thereafter for successive annual periods,
provided that such continuance is specifically approved at least annually (a)
by the Company's Board of Directors and (b) by the vote, cast in person at a
meeting called for the purpose, of a majority of the Company's directors who
are not parties to this Agreement or "interested persons" (as defined in the
1940 Act) of any such party. This Agreement may be terminated at any time,
without the payment of any penalty, by a vote of a majority of the Company's
outstanding voting securities (as defined in the 1940 Act) or by a vote of a
majority of the Company's entire Board of Directors on 60 days' written
notice to the Agent or by the Agent on (60) days' written notice to the
Company. Notice of termination of the Shareholder Servicing Plan by the
Board of Directors, pursuant to which this Agreement has been entered, shall
constitute a notice of termination of this Agreement.
12. CHANGES; AMENDMENTS. This Agreement may be changed or amended
only by written instrument signed by both parties.
13. REPORTS. The Agent will provide the Company or its designees
such information as the Company or its designees may reasonably request
(including, without limitation, periodic certifications confirming the
provision to Customers of the services described herein), and will otherwise
cooperate with the Company and its designees (including, without limitation,
any auditors designated by the Company), in connection with the preparation
of reports to its Board of Directors concerning this Agreement and the monies
paid or payable under this Agreement, as well as any other reports or filings
that may be required by law.
14. SUBCONTRACTING BY AGENT. The Agent may subcontract for the
performance of the Agent's obligations hereunder with any one or more
persons, including but not limited to any one or more persons which is an
affiliate of the Agent; PROVIDED, HOWEVER, that the Agent shall be as fully
responsible to the Company for the acts and omissions of any subcontractor as
it would be for its own acts or omissions. The Agent shall notify the
Company of any such arrangements no later than the next meeting of the
Company's Board of Directors following the entry by the Agent into such
arrangements. Notwithstanding this paragraph or paragraph 11 of this
Agreement, the Company reserves the right to terminate this Agreement
immediately or upon such notice as the Company, in its sole discretion,
determines to give, and without payment of any penalty, if the Company
notifies the Agent that any subcontractor of the Agent is unacceptable to the
Company for any reason and the Agent does not terminate its arrangements with
such subcontractor as promptly as reasonably practicable.
15. GOVERNING LAW. This Agreement shall be governed by the laws
of the State of New York.
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<PAGE>
16. MISCELLANEOUS. The captions in this Agreement are included
for convenience of reference only and in no way define or limit any of the
provisions hereof or otherwise affect their construction or effect.
CVO GREATER CHINA FUND, INC.
By:
------------------------------------------
Title:
FURMAN SELZ INCORPORATED
By:
------------------------------------------
Title:
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<PAGE>
Exhibit 13
PURCHASE AGREEMENT
CVO Greater China Fund, Inc., a Maryland corporation (the "Company"), and
OFFIT Funds Distributor, Inc., a Delaware corporation (the "Distributor"),
hereby agree as follows:
1. The Company hereby offers the Distributor and the Distributor hereby
purchases 5,000 shares of Class I (par value $.001 per share) of the Company
and 5,000 shares of Class II (par value $.001 per share) of the Company, at
$10.00 per share, (the "Shares"). The Distributor hereby acknowledges receipt
of a purchase confirmation reflecting the purchase of the Shares, and the
Company hereby acknowledges receipt from the Distributor of funds in the amount
of $100,000 in full payment of the Shares.
2. The Distributor represents and warrants to the Company that the Shares
are being acquired for investment purposes and not with a view to the
distribution thereof.
3. The Distributor agrees that if it or any direct or indirect transferee
of the Shares redeems the Shares prior to the fifth anniversary of the date the
Funds begins its investment activities, the Distributor will pay to the Company
an amount equal to the number resulting from multiplying each Fund's total
unamortized organizational expenses by a fraction, the numerator of which is
equal to the number of Shares redeemed by the Distributor or such transferee and
the denominator of which is equal to the number of shares of each Fund
outstanding as of the date of such redemption, as long as the administrative
position of the staff of the Securities and Exchange Commission requires such
reimbursement.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the 27th day of October, 1994.
CVO GREATER CHINA FUND, INC.
Attest:
By:
- ---------------------------- -------------------------
Name: Name:
Title: Secretary and Treasurer
Attest: OFFIT FUNDS DISTRIBUTOR, INC.
By:
- ---------------------------- -------------------------
Name: Name:
Title:
<PAGE>
PLAN OF DISTRIBUTION
October 27, 1994
This Plan of Distribution (the "Plan") is adopted in accordance with
Rule 12b-1 (the "Rule") under the Investment Company Act of 1940, as amended
(the "1940 Act"), by CVO Greater China Fund, Inc., a Maryland corporation
(the "Company") with respect to the Class II Shares (the "Shares") of the
Company's investment portfolio, CVO Greater China Fund (the "Fund"), subject
to the following terms and conditions.
Section 1. ANNUAL FEE
The Company will reimburse the distributor of its Shares, OFFIT Funds
Distributor, Inc., a Delaware corporation (the "Distributor"), or any entity
that may in the future act as a distributor for the Company, for certain
expenses incurred by the Distributor in connection with the offering and sale
of the Company's Shares, provided that payment shall be made in any month
only to the extent that such payment, together with any other such payments
made by the Company, shall not exceed .25%(. % on an annualized basis) of
the average daily net assets of the Fund attributable to Class II Shares of
the Company, for the prior month. The expense reimbursement to the
Distributor will be calculated and paid on a monthly basis. Distribution
expenses which benefit only one class of Shares of the Fund will be borne
solely by that class. Distribution expenses which benefit more than one class
of Shares of the Company will be allocated in accordance with the aggregate
average daily net assets of the Company attributable such class of Shares.
Section 2. EXPENSES COVERED BY PLAN
Reimbursable distribution expenses incurred by the Distributor under
Section 1 of this Plan shall be all expenditures borne by the Distributor or
by any other person with which the Distributor has an agreement approved by
the Company, which expenditures represent payment
<PAGE>
for activities primarily intended to result in the sale of Shares, including,
but not limited to, the following: (i) payments to securities dealers and
others engaged in the sale of Shares; (ii) expenditures for support services
such as telephone facilities and expenses and shareholder services as the
Company may reasonably request,; (iii) formulation and implementation of
marketing and promotional activities, including but not limited to direct mail
promotions and television, radio, newspaper, magazine and other mass media
advertising; (iv) preparation, printing and distribution of sales literature;
(v) preparation, printing and distribution of Prospectuses of the Company and
reports for recipients other than existing shareholders of the Company; and
(vi) provision to the Company of such information, analyses and opinions with
respect to marketing and promotional activities as the Company may, from time
to time, reasonably request; except that distribution expenditures shall not
include overhead costs of the Distributor or any expenditures in connection
with services which the Distributor, any of its affiliates, or any other
person have agreed to bear without reimbursement.
Section 3. APPROVAL BY SHAREHOLDER
The Plan will not take effect, and no fee will be payable in accordance
with Section 1 of the Plan, until the Plan has been approved by a vote of at
least a majority of the outstanding voting securities of each class of Shares
of the Fund. The Plan will be deemed to have been approved with respect to a
particular class of Shares of the Fund so long as a majority of the
outstanding voting securities of such class votes for the approval of the
Plan, notwithstanding that: (a)the Plan has not been approved by a majority
of the outstanding voting securities of any other class of Shares of the
Fund, or (b) the Plan has not been approved by a majority of the total
outstanding voting securities of the Company.
Section 4. APPROVAL BY DIRECTORS
Neither the plan nor any related agreements will take effect until
approved by a majority vote of both (a) the full Board of Directors of the
Company, and (b) those directors who are not interested persons of the
Company and who have no direct or indirect financial interest in
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<PAGE>
the operation of the Plan or in any agreements related to it (the "Qualified
Directors"), cast in person at a meeting called for the purpose of voting on
the Plan and the related agreements.
Section 5. CONTINUANCE OF THE PLAN
The Plan will continue in effect for so long as its continuance is
specifically approved at least annually by the Company's Board of Directors
in the manner described in Section 4 above.
In the event that the Company establishes additional investment
portfolios, this Plan shall be effective with respect to such portfolios,
provided that the Plan has previously been approved for continuation and the
requisite Shareholder and director approval has been obtained in accordance
with Sections 3 and 4 of this Agreement.
Section 6. TERMINATION
The Plan may be determined at any time with respect to the Company by a
majority vote of the Qualified Directors or by vote of a majority of each
class of Shares of the Fund.
Section 7. AMENDMENTS
The Plan may not be amended with respect to the Fund so as to increase
materially the amount of the fee described in Section 1 above with respect to
the Fund, unless the amendment is approved by a vote of at least a majority
of the outstanding voting securities of each class of Shares of the Fund
affected by such fee. In addition, no material amendment to the Plan may be
made unless approved by the Company's Board of Directors in the manner
described in Section 4 above.
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<PAGE>
Section 8. SELECTION OF CERTAIN DIRECTORS
While the Plan is in effect, the selection and nomination of the
Company's directors who are not interested persons of the Company will be
committed to the discretion of the directors then in office who are not
interested persons of the Company.
Section 9. WRITTEN REPORTS
In each year during which the Plan remains in effect, any person
authorized to direct the disposition of monies paid or payable by the Company
pursuant to the Plan or any related agreement will prepare and furnish to the
Company's Board of Directors, and the Board will review, at least quarterly,
written reports, complying with the requirements of the Rule, which set out
the amounts expended under the Plan and the purposes for which those
expenditures were made.
Section 10. PRESERVATION OF MATERIALS
The Company will preserve copies of the Plan, any agreement relating to
the Plan and any report made pursuant to Section 9 above, for a period of not
less than six years (the first two years in an easily accessible place) from
the date of the Plan, agreement or report.
Section 11. MEANINGS OF CERTAIN TERMS
As used in the Plan, the terms "interested person" and "majority of the
outstanding voting securities" will be deemed to have the same meaning that
those terms have under the Act and the rules and regulations under the Act,
subject to any exemption that may be granted to the Company under the Act by
the Securities and Exchange Commission.
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