<PAGE>
REPORT OF THE INVESTMENT ADVISOR TO SHAREHOLDERS OF
THE CVO GREATER CHINA FUND
FOR THE PERIOD ENDING OCTOBER 31, 1997
- --------------------------------------------------------------------------------
The Asian markets began on a strong note in 1997 before experiencing a moderate
decline at the end of the first quarter. A mid year recovery turned into a
collapse following the wave of currency devaluations that started with the Thai
baht on July 2. Despite strong economic fundamentals, the currency contagion of
the South East Asian markets affected the Greater China equity markets (the
People's Republic of China (PRC), Hong Kong, Singapore and Taiwan), which came
under attack toward the end of the third quarter.
The Greater China equity markets suffered a particularly severe sell-off in the
month of October, as the Hong Kong dollar came under speculative attack after
the Taiwan government reversed its policy and permitted the Taiwan dollar to
depreciate by almost 10%. However, unlike the South East Asian Central Banks
which were unable to defend their currencies because of significant
macroeconomic imbalances, the Hong Kong Monetary Authority (HKMA) has been
successful to date in defending its currency by aggressively raising interest
rates. However, the cost of higher interest rates necessary to defend the peg
has been a steep fall in the property and stock markets.
The comparative returns of the CVO Greater China Fund are shown in the table and
graph below.
<TABLE>
<CAPTION>
OCTOBER 97 YEAR-TO-DATE SINCE INCEPTION
9/30/97-10/31/97 12/31/96-10/31/97 11/19/96-10/31/97
<S> <C> <C> <C>
MSCI Pacific Free ex-Japan Index* -21.50% -31.85% -32.49%
.........................................................................................
Greater China Composite Index** -25.22% -23.98% -21.83%
.........................................................................................
Lipper China Region Median Fund+ -26.02% -20.22% -17.77%
.........................................................................................
CVO Greater China Fund++ -17.65% -13.69% -13.00%
</TABLE>
Returns represent US Dollar with dividends reinvested as
reported except where noted below. Past performance is no
guarantee of future results.
*Index returns do not reflect the deduction of any fees or
commissions. Returns reported with dividends reinvested for
all periods except 11/19/96 through 12/31/96 when dividend
information is unavailable but estimated based on historical
yields. Data Source: Morgan Stanley Capital International
(MSCI).(1)
**Market capitalization weighted composite index composed of
China Free, Singapore Free, and Hong Kong markets and 25% of
Taiwan market, in accordance with limitations on non-Taiwan
investors. Returns reported with dividends reinvested except
for the period 11/19/96 through 11/30/96 when dividend
information is unavailable. Index returns do not reflect the
deduction of any fees or commissions. Data Source: MSCI(1)
+Data Source: Lipper Analytical Services Inc.(1)
++CVO Greater China Fund performance is net of all fees and
expenses.
Further pressure was placed on the Asian equity markets in general and the
Greater China markets in particular as the financial crisis in Korea came to a
head in November and early December. An IMF rescue package of $57 billion was
finally announced, and the Government of Korea and its new President-elect have
stated their willingness to comply with IMF economic reform requirements. South
Korea's problems are, like those of Thailand, highly specific to its individual
circumstances, and it represents the final "tiger" to fall. The market pressure
was exacerbated by weak economic growth in Japan and concern over the Japanese
financial system.
- ---------------
(1)The performance of the Fund is compared to the Morgan Stanley Capital
International Pacific Free ex-Japan Index, which is one of the closest publicly
available matches to the markets in which the Fund invests. The Advisors have
also included the Greater China Composite Index, which is a market weighted
index comprised of the four MSCI indices for the markets in which the Fund
invests. In addition, the median Lipper China Region fund is included for
comparative purposes.
1
<PAGE>
- --------------------------------------------------------------------------------
Following the first peaceful transfer of leadership in China, the Chinese
Government must begin a major reform of state owned enterprises and the bank
sector if continued high economic growth is to be maintained. The Government has
committed itself to such a reform and the signaling of Zhu Rongji, the leader of
economic reform in China, as the next prime minister underlines this commitment.
In our view, the Hong Kong dollar will be defended by both the Hong Kong
Monetary Authority and the Government of China. Stability in Hong Kong is a
vital interest for China. The critical reform of state owned enterprises and the
Chinese banking sector require an effective stable capital market in Hong Kong
which would be severely disrupted by permitting the Hong Kong dollar peg to be
broken.
In this period of extreme volatility, the projected GDP growth rate for China,
which is the engine of growth for the region, is 8%. In this context, our
earnings forecast remains on track while the market has repriced equity
valuations. The current equity holdings of the CVO Greater China Fund have a
projected earnings growth rate of slightly under 20% with a projected P/E ratio
of approximately 11.
CVO Greater China Partners
2
<PAGE>
CVO GREATER CHINA FUND, INC.
- ---------------------------------------------------------------
The following graph represents the total return based on a $250,000 investment
made in the CVO Greater China Fund at the trading commencement date of November
19, 1996 and held through October 31, 1997 as well as the performance of the
MSCI Pacific Free ex-Japan Index over the same period. In addition, to provide a
comparison to the overall performance of the regions in which the Fund invests,
the graph below includes a market capitalization weighted composite of the
return of the four MSCI Indicies for the markets in which the Fund invests.
Certain fees on the Fund were waived during the period shown. Had they not been
waived, returns would have been lower.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
MSCI AC PACIFIC FREE EX-JAPAN INDEX GREATER CHINA COMPOSITE INDEX CVO GREATER CHINA FUND
<S> <C> <C> <C>
11/19/96 $250,000 $250,000 $250,000
12/31/96 247,606 257,089 252,000
3/31/97 239,273 239,380 245,750
6/30/97 253,513 276,764 275,500
9/30/97 215,015 261,322 264,000
10/31/97 168,786 195,416 217,500
</TABLE>
Past performance is not predictive of future performance
Investment return and principle value will fluctuate with market conditions.
When shares of the Fund are redeemed they may be worth more or less than their
original cost.
3
<PAGE>
CVO GREATER CHINA FUND
- ---------------------------------------------------------------
SCHEDULE OF PORTFOLIO INVESTMENTS
OCTOBER 31, 1997
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL MARKET
AMOUNT VALUE
- --------------------------------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS (82.9%)
APPLIANCES & HOUSEHOLD GOODS (2.0%)
CHINA (2.0%)
Guangdong Kelon Electrical Holdings Co.................................. 230,000 $ 291,610
Wuxi Little Swan Class B................................................ 134,700 153,355
-----------
444,965
-----------
AUTOMOTIVE (2.2%)
CHINA (2.2%)
Qingling Motors Co...................................................... 752,000 491,313
-----------
BANKING & FINANCIAL SERVICES (5.9%)
HONG KONG (1.6%)
Dao Heng Bank Group Ltd................................................. 60,000 138,172
JCG Holdings Ltd........................................................ 354,000 156,860
Manhattan Card Co., Ltd................................................. 244,000 54,927
-----------
349,959
-----------
SINGAPORE (3.1%)
Keppel Bank............................................................. 100,000 163,380
Oversea Chinese Banking Corp -- Foreign Shares.......................... 48,800 271,452
Overseas Union Bank Ltd. -- Foreign Shares.............................. 74,800 249,647
-----------
684,479
-----------
TAIWAN (1.2%)
Bank Sinopac*........................................................... 126,000 91,638
United World Chinese Commercial Bank.................................... 86,000 161,231
-----------
252,869
-----------
1,287,307
-----------
BEVERAGES (0.5%)
CHINA (0.5%)
Super Coffeemix Manufacturing Ltd....................................... 526,500 120,494
-----------
BUILDING MATERIALS (2.4%)
CHINA (0.8%)
Shenzhen Fangda Co., Ltd., Class B...................................... 138,520 185,482
-----------
TAIWAN (1.6%)
Chia Hsin Cement........................................................ 135,000 89,892
Pacific Construction Co................................................. 385,500 240,494
-----------
330,386
-----------
515,868
-----------
COMMERCIAL SERVICES (1.4%)
CHINA (1.4%)
Cosco Pacific Ltd....................................................... 262,000 305,065
-----------
COMPUTER SERVICES (0.8%)
SINGAPORE (0.8%)
Informatico Holdings.................................................... 440,000 181,816
-----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
4
<PAGE>
CVO GREATER CHINA FUND
- ---------------------------------------------------------------
SCHEDULE OF PORTFOLIO INVESTMENTS (CONTINUED)
OCTOBER 31, 1997
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL MARKET
AMOUNT VALUE
- --------------------------------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS (CONTINUED)
COMPUTERS (6.6%)
HONG KONG (3.8%)
ASM Pacific Technology Ltd.............................................. 302,000 $ 226,612
Founder Hong Kong Ltd................................................... 469,200 370,286
Wong's International Holdings Ltd....................................... 934,000 236,838
-----------
833,736
-----------
SINGAPORE (2.8%)
Acer Computer International Ltd......................................... 70,000 82,600
CSA Holding Ltd......................................................... 284,000 160,684
Elec & Eltek International Co., Ltd..................................... 43,000 309,601
Natsteel Electronics*................................................... 40,000 58,740
-----------
611,625
-----------
1,445,361
-----------
CONGLOMERATES (9.8%)
HONG KONG (9.8%)
China Overseas Land & Investment........................................ 686,000 237,409
Citic Pacific Ltd....................................................... 83,000 397,309
First Pacific Co., Ltd.................................................. 325,000 204,978
Guangdong Investment Co................................................. 439,000 279,717
Hutchison Whampoa Ltd................................................... 78,000 539,879
Jardine Matheson Holdings Ltd........................................... 36,000 230,400
Swire Pacific Ltd. -- A Shares.......................................... 49,000 261,815
-----------
2,151,507
-----------
DISTRIBUTION (5.2%)
CHINA (4.0%)
China Hong Kong Photo Products Holding, Ltd............................. 868,000 218,979
Four Seas Mercantile Holdings Ltd....................................... 708,000 375,548
Li & Fung Ltd........................................................... 276,000 276,732
-----------
871,259
-----------
SINGAPORE (1.2%)
Thakral Corporation Ltd................................................. 445,000 267,000
-----------
1,138,259
-----------
ELECTRIC EQUIPMENT (3.1%)
CHINA (3.1%)
Clipsal Industries Ltd.................................................. 126,000 326,340
GP Batteries International Ltd.......................................... 121,000 353,841
-----------
680,181
-----------
ELECTRONICS (2.4%)
HONG KONG (2.4%)
Techtronic.............................................................. 346,000 63,564
Varitronix International Ltd............................................ 128,000 211,967
VTech Holdings Ltd...................................................... 123,000 240,288
-----------
515,819
-----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
5
<PAGE>
CVO GREATER CHINA FUND
- ---------------------------------------------------------------
SCHEDULE OF PORTFOLIO INVESTMENTS (CONTINUED)
OCTOBER 31, 1997
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL MARKET
AMOUNT VALUE
- --------------------------------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS (CONTINUED)
FOOD (7.1%)
HONG KONG (3.7%)
Guangnan Holdings Ltd................................................... 391,713 $ 359,812
Ng Fung Hong............................................................ 164,000 153,826
Tingyi (Cayman Islands) Holdings Co..................................... 1,790,000 301,054
-----------
814,692
-----------
SINGAPORE (2.4%)
Delifrance Asia Ltd..................................................... 224,000 247,778
Want Want Holdings Ltd.*................................................ 137,000 274,000
-----------
521,778
-----------
TAIWAN (1.0%)
President Enterprises Corp.............................................. 184,400 211,598
-----------
1,548,068
-----------
HOME FURNISHINGS (2.4%)
HONG KONG (1.6%)
Ta Fu................................................................... 1,568,000 355,004
-----------
SINGAPORE (0.8%)
Roly International Holdings Ltd......................................... 561,000 179,520
-----------
534,524
-----------
IRON/STEEL (1.4%)
TAIWAN (1.4%)
China Steel............................................................. 156,000 119,508
China Steel Corp ADR (144A)*............................................ 7,000 102,725
Yieh Phui Enterprise.................................................... 149,750 83,740
-----------
305,973
-----------
MACHINERY & EQUIPMENT (1.2%)
CHINA (1.2%)
Shanghai Zhenhua Port Machinery Co., Ltd., Class B*..................... 254,000 172,720
Wafangdian Bearing Group Co., Ltd., Class B*............................ 184,000 94,029
-----------
266,749
-----------
MEDICAL SUPPLIES (0.8%)
CHINA (0.8%)
China Pharmaceutical Enterprises & Investment Corp...................... 1,085,000 174,060
-----------
PACKAGING/CONTAINERS (1.3%)
HONG KONG (1.3%)
Sinocan Holdings Ltd.................................................... 818,000 288,382
-----------
PAPER PRODUCTS (0.5%)
HONG KONG (0.5%)
Climax International Co................................................. 900,000 107,122
-----------
PLASTICS (1.9%)
TAIWAN (1.9%)
China Synthetic Rubber Co............................................... 184,750 182,737
Formosa Plastic Corp.................................................... 142,690 226,924
-----------
409,661
-----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
6
<PAGE>
CVO GREATER CHINA FUND
- ---------------------------------------------------------------
SCHEDULE OF PORTFOLIO INVESTMENTS (CONTINUED)
OCTOBER 31, 1997
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL MARKET
AMOUNT VALUE
- --------------------------------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS (CONTINUED)
POWER ELECTRIC & UTILITIES (2.8%)
CHINA (0.5%)
Shandong Huaneng Power Co., Ltd. ADR.................................... 14,000 $ 104,125
-----------
HONG KONG (2.3%)
Beijing Datang*......................................................... 366,000 184,669
Hong Kong & China Gas Co., Ltd.......................................... 171,400 323,752
-----------
508,421
-----------
612,546
-----------
REAL ESTATE (7.2%)
HONG KONG (5.8%)
Cheung Kong (Holdings) Ltd.............................................. 57,000 396,371
China Resources Enterprises Ltd......................................... 158,000 433,353
Hongkong Land Holdings Ltd.............................................. 60,000 136,800
New World Development Co., Ltd.......................................... 84,000 295,595
-----------
1,262,119
-----------
SINGAPORE (1.4%)
City Developments Ltd................................................... 50,000 209,787
Keppel Land Ltd......................................................... 75,000 104,894
-----------
314,681
-----------
1,576,800
-----------
RETAIL (7.6%)
CHINA (0.7%)
Inner Mongolia Erdos Cashmere Products Co., Ltd......................... 266,000 152,684
-----------
HONG KONG (4.9%)
Esprit Asia Holdings Ltd................................................ 744,000 264,700
Glorious Sun Enterprises................................................ 1,346,000 348,276
Jusco Stores (HK) Co.................................................... 1,102,000 225,262
Sa Sa International Holdings Ltd........................................ 1,366,000 243,881
-----------
1,082,119
-----------
TAIWAN (2.0%)
Far Eastern Department Stores........................................... 272,386 261,494
Mercuries & Associates.................................................. 114,000 172,454
-----------
433,948
-----------
1,668,751
-----------
TELECOMMUNICATIONS (0.7%)
HONG KONG (0.7%)
China Telecom*.......................................................... 100,000 159,777
-----------
TRANSPORTATION (5.7%)
CHINA (3.7%)
Guangshen Railway Co., Ltd.............................................. 666,000 206,792
Jiangsu Express Co., Ltd.*.............................................. 972,000 223,839
Shenzhen Expressway Co.*................................................ 1,816,000 390,007
-----------
820,638
-----------
HONG KONG (1.7%)
New World Infrastructure Ltd............................................ 183,000 362,236
-----------
TAIWAN (0.3%)
Yang Ming Marine Transport.............................................. 96,000 64,854
-----------
1,247,728
-----------
TOTAL COMMON STOCKS (COST $21,951,351)............................ 18,178,096
-----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
7
<PAGE>
CVO GREATER CHINA FUND
- ---------------------------------------------------------------
SCHEDULE OF PORTFOLIO INVESTMENTS (CONTINUED)
OCTOBER 31, 1997
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL MARKET
AMOUNT VALUE
- --------------------------------------------------------------------------------------------------------
<S> <C> <C>
CORPORATE BONDS (0.2%)
TRANSPORTATION (0.2%)
HONG KONG (0.2%)
New World Infrastructure, 5%, 7/15/01, (144A)........................... $ 50,000 $ 47,125
-----------
TOTAL CORPORATE BONDS (COST $62,875).............................. 47,125
-----------
TOTAL INVESTMENTS (COST $22,014,226) (a) (83.1%).................. 18,225,221
CASH AND OTHER ASSETS IN EXCESS OF LIABILITIES (16.9%)............ 3,703,639
-----------
TOTAL NET ASSETS (100.0%)......................................... $21,928,860
-----------
-----------
</TABLE>
- ---------------
* Denotes non-income producing security.
(a) Represents cost for federal income tax purposes and differs from value by
net unrealized depreciation of securities as follows:
<TABLE>
<S> <C>
Unrealized depreciation....................................................... $(4,495,058)
Unrealized appreciation....................................................... 706,053
-----------
Net unrealized depreciation................................................... $(3,789,005)
</TABLE>
(144A) Security restricted as to resale to qualified institutional buyers under
Rule 144A of the Securities Act of 1933.
ADR -- American Depository Receipt.
The accompanying notes are an integral part of the financial statements.
8
<PAGE>
CVO GREATER CHINA FUND, INC.
STATEMENT OF ASSETS AND LIABILITIES
OCTOBER 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
ASSETS:
Investments, at market value (cost $22,014,226)........................... $ 18,225,221
Cash...................................................................... 4,664,259
Foreign currency (cost $81,889)........................................... 76,364
Interest and dividend receivable.......................................... 39,199
Unamortized organization expense.......................................... 164,467
Other assets.............................................................. 8,358
------------
Total Assets............................................................ $ 23,177,868
LIABILITIES:
Payable for investment securities purchased............................... 1,195,319
Audit fees payable........................................................ 19,987
Custody fees payable...................................................... 6,400
Other payables and accrued expenses....................................... 27,302
------------
Total Liabilities....................................................... 1,249,008
------------
NET ASSETS.................................................................. $ 21,928,860
------------
------------
NET ASSETS CONSIST OF:
Shares of capital stock, $0.001 par value per share, 2,519,829 issued and
outstanding (Note 5)..................................................... $ 2,520
Additional paid-in capital................................................ 25,700,044
Accumulated undistributed net investment income........................... 7,557
Accumulated net realized gain on investments and foreign currency
transactions............................................................. 13,269
Net unrealized depreciation of investments and foreign currency
translations............................................................. (3,794,530)
------------
NET ASSETS.................................................................. $ 21,928,860
------------
------------
CLASS I SHARES:
NET ASSETS................................................................ $ 21,885,405
------------
------------
SHARES OF CAPITAL STOCK OUTSTANDING....................................... 2,514,829
------------
------------
NET ASSET VALUE PER SHARE (OFFERING AND REDEMPTION PRICE PER SHARE)....... $8.70
------------
------------
CLASS II SHARES:
NET ASSETS................................................................ $43,455
------------
------------
SHARES OF CAPITAL STOCK OUTSTANDING....................................... 5,000
------------
------------
NET ASSET VALUE PER SHARE (OFFERING AND REDEMPTION PRICE PER SHARE)....... $8.69
------------
------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
9
<PAGE>
CVO GREATER CHINA FUND, INC.
STATEMENT OF OPERATIONS
FOR THE PERIOD FROM NOVEMBER 19, 1996* THROUGH OCTOBER 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
INVESTMENT INCOME:
Interest.................................................................. $ 96,242
Dividends (net of foreign tax withholding of $11,125)..................... 171,920
----------
$ 268,162
EXPENSES:
Advisory (Note 3)......................................................... 123,914
Administration (Note 3)................................................... 14,870
Fund accounting (Note 3).................................................. 34,907
Transfer Agent (Note 3)................................................... 4,021
Shareholder servicing (Note 3)............................................ 123
Custodian................................................................. 48,524
Registration and filing fees.............................................. 36,336
Amortization of organization expenses..................................... 38,950
Audit..................................................................... 19,987
Directors................................................................. 17,048
Insurance................................................................. 12,938
Miscellaneous............................................................. 18,908
----------
Total expenses before waivers/reimbursements............................ 370,526
Less expenses waived/reimbursed (Note 3)................................ (173,080)
------------
Net expenses............................................................ 197,446
------------
NET INVESTMENT INCOME....................................................... 70,716
------------
REALIZED AND UNREALIZED GAINS ON INVESTMENTS:
Net realized gains on investment transactions............................. 13,269
Net realized loss on foreign currency transactions........................ (63,159)
Net change in unrealized depreciation on investments...................... (3,789,005)
Net change in unrealized depreciation on foreign currency translations.... (5,525)
----------
Net realized and unrealized losses on investments and foreign currency
transactions............................................................. (3,844,420)
------------
DECREASE IN NET ASSETS RESULTING FROM OPERATIONS............................ $ (3,773,704)
------------
------------
</TABLE>
- ---------------
* Commencement of operations.
The accompanying notes are an integral part of the financial statements.
10
<PAGE>
CVO GREATER CHINA FUND, INC.
STATEMENT OF CHANGES IN NET ASSETS
FOR THE PERIOD FROM NOVEMBER 19, 1996* THROUGH OCTOBER 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
INVESTMENT ACTIVITIES:
OPERATIONS:
Net investment income..................................................... $ 70,716
Net realized loss on investments and foreign currency transactions........ (49,890)
Net unrealized depreciation of investments and foreign currency
translations............................................................. (3,794,530)
------------
Net decrease in net assets resulting from operations...................... (3,773,704)
------------
CAPITAL SHARE TRANSACTIONS (NOTE 5):
Proceeds from shares issued............................................... 26,880,923
Cost of shares redeemed................................................... (1,278,389)
------------
Net increase in net assets from capital share transactions................ 25,602,534
------------
Total increase in net assets.............................................. 21,828,830
NET ASSETS
Beginning of period....................................................... 100,030
------------
End of period (including $7,557 of undistributed net investment income)... $ 21,928,860
------------
------------
</TABLE>
- ---------------
* Commencement of operations.
The accompanying notes are an integral part of the financial statements.
11
<PAGE>
CVO GREATER CHINA FUND, INC.
FINANCIAL HIGHLIGHTS
FOR THE PERIOD FROM NOVEMBER 19, 1996* THROUGH OCTOBER 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
CLASS I SHARES:
NET ASSET VALUE, BEGINNING OF PERIOD $ 10.00
---------
Net investment income.................................................................... 0.03
Net realized and unrealized loss......................................................... (1.33)
---------
Total from investment operations......................................................... (1.30)
---------
NET ASSET VALUE, END OF PERIOD............................................................. $ 8.70
---------
---------
TOTAL RETURN............................................................................... (13.00)%(a)
RATIOS/ SUPPLEMENTAL DATA:
Net assets, end of period (in thousands)................................................. $ 21,885
Ratios to average net assets:
Expenses**............................................................................... 2.00%(b)
Net investment income.................................................................... 0.71%(b)
PORTFOLIO TURNOVER RATE(c)................................................................. 8%
AVERAGE COMMISSION RATE(d)................................................................. $ 0.00457
CLASS II SHARES
NET ASSET VALUE, BEGINNING OF PERIOD....................................................... $ 10.00
---------
Net investment income.................................................................... 0.05
Net realized and unrealized loss......................................................... (1.36)
---------
Total from investment operations......................................................... (1.31)
---------
NET ASSET VALUE, END OF PERIOD............................................................. $ 8.69
---------
---------
TOTAL RETURN............................................................................... (13.10)%(a)
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in thousands)................................................. $ 43
Ratios to average net assets:
Expenses**............................................................................... 2.00%(b)
Net investment income.................................................................... 0.55%(b)
PORTFOLIO TURNOVER RATE(c)................................................................. 8%
AVERAGE COMMISSION RATE(d)................................................................. $ 0.00457
</TABLE>
- ---------------
* Commencement of operations.
** During the period, certain fees were voluntarily reduced and/ or reimbursed.
If such voluntary fee reductions and/ or reimbursements had not occurred,
the ratios would have been 3.73% and 3.75%, annualized for Class I and Class
II Shares, respectively.
(a) Not annualized.
(b) Annualized.
(c) Portfolio turnover is calculated on the basis of the Fund as a whole without
distinguishing between the classes of shares issued.
(d) Represents the dollar amount of commissions paid on portfolio transactions
divided by the total number of portfolio shares purchased and sold for which
commissions were charged and is calculated on the basis of the Fund as a
whole without distinguishing between the classes of shares issued.
The accompanying notes are an integral part of the financial statements.
12
<PAGE>
CVO GREATER CHINA FUND, INC.
NOTES TO FINANCIAL STATEMENTS
- -----------------------------------------------------------------------------
NOTE 1 -- ORGANIZATION
CVO Greater China Fund, Inc. (the "Fund") was incorporated in Maryland on
September 2, 1994. Its operations through November 19, 1996 were limited to the
organization, registration, and the issuance of 5,003 shares of Class I and
5,000 shares of Class II to the Fund's administrator. The Fund is registered
under the Investment Company Act of 1940, as amended (the "1940 Act"). The Fund
operates as a non-diversified, no-load, open-end, management investment company
and 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. Each class of shares outstanding bears the same
voting, dividend, liquidation and other rights and conditions, except that Class
II Shares are expected to bear additional shareholder servicing expenses.
The Fund seeks to provide investors with capital appreciation and income
generation 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").
CVO Greater China Partners, L.P. (the "Adviser") serves as the Fund's investment
adviser. BISYS Fund Services Limited Partnership ("BISYS"), serves as the Fund's
administrator. OFFIT Funds Distributor, Inc. (the "Distributor"), serves as the
distributor of the Fund's shares. BISYS Fund Services, Inc. serves as fund
accountant and transfer agent of the Fund. BISYS, the Distributor, and BISYS
Fund Services, Inc. are each a wholly-owned subsidiary of The BISYS Group, Inc.
NOTE 2 -- SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies followed by the
Fund in the preparation of its financial statements. The policies are in
conformity with generally accepted accounting principles. The preparation of
financial statements requires management to make estimates and assumptions that
affect the reported amounts and disclosures. Actual results could differ from
those estimates.
PORTFOLIO VALUATIONS
Equity securities for which the primary market is outside the U.S. are valued
using the closing price or the last sale price. Equity securities for which the
primary market is the U.S. are valued using the closing price or the last sale
price. Short-term obligations having maturities of 60 days or less are valued at
amortized cost as reflecting fair value, and if applicable, adjusted for foreign
exchange translation. Securities 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. Securities quoted in foreign
currencies initially are valued in the currency in which they are denominated
and then are translated into U.S. dollars at the prevailing foreign exchange
rate. 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.
SECURITIES TRANSACTIONS AND RELATED INCOME
The Fund records securities transactions on a trade date basis. Interest income,
including accretion of discount and amortization of premium is accrued daily.
Dividend income is recognized on the ex- dividend date. Realized gains and
losses from securities transactions are recorded on the identified cost basis.
MULTIPLE CLASS ALLOCATIONS
The investment income and expenses of the Fund (other than class specific
expenses) and realized and unrealized gains and losses on investments of the
Fund are allocated to each class of shares based upon their relative net asset
value on the date income is earned or expenses are realized and unrealized gains
and losses are incurred.
ORGANIZATION COSTS
Costs incurred in connection with the organization and initial registration of
the Fund have been deferred and are being amortized over a sixty-month period,
beginning with the Fund's commencement of operations.
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS
Dividends from the Fund's net investment income, if any, are declared and paid
at least annually. Net realized gains on portfolio securities, if any, are
distributed at least annually by the Fund. However, to the extent net realized
gains can be offset by capital loss carryovers, such gains will not be
distributed. Dividends and distributions are recorded by the Fund on the
ex-dividend date.
The amount of dividends from net investment income and distributions from net
realized gains are determined in accordance with federal income tax regulations
which may differ from generally accepted accounting principles. These "book/tax"
differences are either considered temporary or permanent in nature. To the
extent these differences are permanent in nature, such amounts are reclassified
within the composition of net assets based on their federal tax-basis treatment;
temporary differences
13
<PAGE>
CVO GREATER CHINA FUND, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- -----------------------------------------------------------------------------
do not require a reclassification. Dividends and distributions which exceed net
investment income and net realized capital gains for financial reporting
purposes but not for tax purposes are reported as dividends in excess of net
investment income or distributions in excess of net realized gains. To the
extent they exceed net investment income and net realized capital gains for tax
purposes, they are reported as distributions of capital.
As of October 31, 1997, the following reclassifications have been made to
increase (decrease) such accounts:
<TABLE>
<CAPTION>
ACCUMULATED NET REALIZED
ACCUMULATED UNDISTRIBUTED GAIN/(LOSS) ON
NET INVESTMENT INCOME INVESTMENTS
------------------------- -------------------------
<S> <C> <C>
$ (63,159) $ 63,159
</TABLE>
FEDERAL INCOME TAXES
It is the Fund's policy to comply with the requirements of the Internal Revenue
Code applicable to regulated investment companies and to distribute timely, all
of its net investment company taxable income and net capital gains to
shareholders. Therefore, no federal income tax provision is required.
FOREIGN CURRENCY TRANSLATION
The accounting records of the Fund are maintained in U.S. dollars. Foreign
currency amounts are translated into U.S. dollars at the current rate of
exchange to determine the value of investments, assets and liabilities.
Purchases and sales of securities, and income and expenses are translated at the
prevailing rate of exchange on the respective dates of such transactions. The
Fund does not isolate that portion of the results of operations resulting from
changes in foreign exchange rates on investments from the fluctuations arising
from changes in market prices of securities held. Such fluctuations are included
with the net realized and unrealized gains or losses from investments.
Reported net realized foreign exchange gains or losses arise from sales and
maturities of short-term securities and forward currency contracts, sales of
foreign currencies, currency gains or losses realized between the trade and
settlement dates on securities transactions, and the difference between the
amounts of dividends, interest and foreign withholding amounts actually received
or paid. Net unrealized foreign exchange gains and losses arise from changes in
the value of assets and liabilities, other than investments in securities,
resulting from changes in the exchange rate.
REPURCHASE AGREEMENTS
The Fund may purchase instruments from financial institutions, such as banks and
broker-dealers, subject to the seller's agreement to repurchase them at an
agreed upon time and price ("repurchase agreements"). The seller under a
repurchase agreement is required to maintain the value of the securities subject
to the agreement at not less than the repurchase price. Default by the seller
would, however, expose the relevant Fund to possible loss because of adverse
market action or delay in connection with the disposition of the underlying
obligations.
NOTE 3 -- AGREEMENTS AND OTHER TRANSACTIONS WITH AFFILIATES
The Fund has entered into an investment advisory agreement (the "Investment
Advisory Agreement") with the Adviser. Pursuant to the terms of the Investment
Advisory Agreement, the Adviser is entitled to a fee that is calculated daily
and paid monthly on the average daily net assets of the Fund at the annual rate
of 1.25%. For the period ended October 31, 1997, the Adviser earned and waived
fees of $123,914.
Prior to January 1, 1997, Furman Selz LLC ("Furman Selz") provided the Fund with
administrative, fund accounting, shareholder servicing, dividend disbursing and
transfer agency services pursuant to an administration agreement (the
"Administration Agreement"). The services under the Administration Agreement
were subject to the supervision of the Fund's Board of Directors and officers
and included the 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 arrangements 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 paid Furman Selz a monthly
fee for its services which on an annualized basis did not exceed 0.15% of the
average daily net assets of the Fund. From November 19, 1996 to December 31,
1996, Furman Selz earned and waived fees of $798.
As Administrator, Furman Selz provided the Fund with fund accounting and related
services. For these services, Furman Selz was paid a fee of $2,500 per month.
From November 19, 1996 to December 31, 1996, Furman Selz earned fees, including
reimbursement of out of pocket expenses, of $3,939.
Furman Selz served as Shareholder Servicing Agent for the Fund. The fees paid to
Furman Selz were based on the Fund's net assets attributable to the Class II
Shares, reflecting the higher cost of servicing the holders of said shares.
Furman Selz received 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 was allocated to Class II Shares
14
<PAGE>
CVO GREATER CHINA FUND, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- -----------------------------------------------------------------------------
only, as payment for answering inquiries and requests for Fund information by
Class II shareholders. From November 19, 1996 to December 31, 1996, no
shareholder servicing fees were incurred.
Furman Selz acted as transfer agent for the Fund and received reimbursement of
certain expenses plus a per account fee of $15 per year. From November 19, 1996
to December 31, 1996, Furman Selz earned fees of $2,146.
On October 1, 1996, the Fund entered into agreements with BISYS pursuant to
which BISYS performs the administration services described above and BISYS Fund
Services, Inc. performs the accounting, shareholder servicing and transfer
agency services described above on substantially similar terms. BISYS also
acquired from Furman Selz its interest in the Distributor. The agreements became
effective on January 1, 1997.
From January 1, 1997 to October 31, 1997, BISYS earned administration fees of
$14,072. During the same period, BISYS Fund Services, Inc. earned fund
accounting, transfer agent, and shareholder servicing fees amounting to $30,968,
$1,875, and $123, respectively. During the same period, BISYS waived all
administration and shareholder servicing fees for the Fund.
The Fund has entered into a distribution agreement (the "Distribution
Agreement") with the Distributor. Under the Distribution Agreement, the
Distributor, as agent of the Fund, agrees to use its best efforts as sole
distributor of the Fund's shares. Under the Plan of Distribution, the Fund is
authorized to spend up to 0.25% of its 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. The Plan of Distribution provides that the Fund will bear the costs of
the registration of its shares with the Commission and various states and the
printing of its prospectuses, statements of additional information and reports
to shareholders. For the period ended October 31, 1997, no distribution costs
were incurred.
The Adviser has voluntarily agreed to limit the expense ratio for the Fund at
2.00%. In order to maintain this ratio, the Adviser has waived its advisory fee
and has agreed to reimburse the Fund $34,173.
NOTE 4 -- SECURITIES TRANSACTIONS
For the period ended October 31, 1997, the cost of purchases and the proceeds
from sales of the Fund's portfolio securities (excluding short-term
investments), amounted to $22,678,888 and $679,150, respectively for the Fund.
The cost of securities is substantially the same for Federal income tax purposes
as it is for financial reporting purposes.
NOTE 5 -- CAPITAL STOCK TRANSACTIONS
The Fund's Articles of Incorporation permit the Fund to issue ten billion shares
(par value $0.001). The Class II Shares have had no operations other than those
actions relating to organizational matters. Prior to commencement of operations,
5,000 shares had been issued to the Fund's administrator. Transactions in shares
of common stock for Class I Shares for the period ended October 31, 1997, were
as follows:
<TABLE>
<CAPTION>
CLASS I SHARES
------------------------
SHARES AMOUNT
----------- -----------
<S> <C> <C>
Shares issued....................................... 2,625,247 $26,880,923
Shares redeemed..................................... (115,421) (1,278,389)
----------- -----------
Net increase........................................ 2,509,826 $25,602,534
----------- -----------
----------- -----------
</TABLE>
NOTE 6 -- OTHER MATTERS
The Fund invests primarily in the Greater China Region. Investments are made in
obligations of foreign entities and securities denominated in foreign currencies
that involve risk not typically involved in domestic investments. Such risks
include fluctuations in the foreign exchange rates, potential inability to
convert proceeds into U.S. dollars, less publicly available information about
foreign financial instruments, less liquidity resulting from substantially less
trading volume, more volatile prices and generally less government supervision
of foreign markets and issuers.
15
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<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
- ---------------------------------------------------------------
To the Shareholders
and Board of Directors of
CVO Greater China Fund, Inc.
In our opinion, the accompanying statement of assets and liabilities, including
the schedule of portfolio investments, and the related statements of operations
and of changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of CVO Greater China Fund, Inc. (the
"Fund") at October 31, 1997, and the results of its operations, the changes in
its net assets and the financial highlights for the period November 19, 1996
(commencement of operations) through October 31, 1997, in conformity with
generally accepted accounting principles. These financial statements and
financial highlights (hereafter referred to as "financial statements") are the
responsibility of the Fund's management; our responsibility is to express an
opinion on these financial statements based on our audit. We conducted our audit
of these financial statements in accordance with generally accepted auditing
standards which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audit, which included confirmation of securities at October 31, 1997 by
correspondence with the custodians and brokers and the application of
alternative auditing procedures where confirmations from brokers were not
received, provides a reasonable basis for the opinion expressed above.
PRICE WATERHOUSE LLP
1177 Avenue of the Americas
New York, New York 10036
December 11, 1997
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