<PAGE>
CVO GREATER CHINA FUND, INC.
SEMI-ANNUAL REPORT
APRIL 30, 1998
<PAGE>
- --------------------------------------------------------------------------------
AN UPDATE ON GREATER CHINA MARKETS
- --------------------------------------------------------------------------------
The Greater China stock markets (China, Hong Kong, Taiwan and Singapore) have
experienced a major decline in the second quarter of this year. After
strengthening in the first quarter, Greater China equities have fallen to the
lows of early January, with the Hong Kong stock markets reaching a new low in
June.
WEAK YEN PLACES ASIAN MARKETS UNDER PRESSURE
CVO GREATER CHINA FUND AND THE JAPANESE YEN -- AS OF JUNE 19, 1998
[GRAPH]
<TABLE>
<CAPTION>
CVO DAILY NAV JAPANESE YEN
<S> <C> <C>
31-Dec-97 8.02 130.2
2-Jan-98 7.98 132.07
5-Jan-98 7.87 133.13
6-Jan-98 7.59 133.42
7-Jan-98 7.24 132.48
8-Jan-98 6.81 133.31
9-Jan-98 6.50 131.35
12-Jan-98 5.94 132.18
13-Jan-98 6.17 131.66
14-Jan-98 6.46 130.9
15-Jan-98 6.25 130.68
16-Jan-98 6.28 128.63
20-Jan-98 6.59 129.3
21-Jan-98 6.58 127.53
22-Jan-98 6.39 126.69
23-Jan-98 6.33 126.26
26-Jan-98 6.31 126.08
27-Jan-98 6.41 126.3
28-Jan-98 6.41 125.6
29-Jan-98 6.40 125.29
30-Jan-98 6.40 127.33
2-Feb-98 7.22 126.63
3-Feb-98 7.36 125.98
4-Feb-98 7.31 124.6
5-Feb-98 7.40 122.89
6-Feb-98 7.58 124.22
9-Feb-98 7.84 124.62
10-Feb-98 7.84 123.44
11-Feb-98 7.92 123.89
12-Feb-98 7.81 122.75
13-Feb-98 7.59 125.28
17-Feb-98 7.53 125.75
18-Feb-98 7.66 126.26
19-Feb-98 7.74 126.12
20-Feb-98 7.81 127.39
23-Feb-98 7.82 128.8
24-Feb-98 7.88 127.85
25-Feb-98 7.98 127.49
26-Feb-98 8.12 127.65
27-Feb-98 8.25 126.18
2-Mar-98 8.22 125.19
3-Mar-98 8.16 125.9
4-Mar-98 8.11 125.98
5-Mar-98 7.80 127.27
6-Mar-98 7.81 127.25
9-Mar-98 7.81 128.12
10-Mar-98 7.86 127.61
11-Mar-98 7.92 129.33
12-Mar-98 7.92 129.41
13-Mar-98 7.98 128.15
16-Mar-98 7.99 129.61
17-Mar-98 8.06 129.63
18-Mar-98 8.06 130.23
19-Mar-98 8.20 129.73
20-Mar-98 8.21 130.17
23-Mar-98 8.21 130.59
24-Mar-98 8.24 130.21
25-Mar-98 8.36 130.1
26-Mar-98 8.36 128.7
27-Mar-98 8.34 129.35
30-Mar-98 8.20 131.79
31-Mar-98 8.12 132.94
1-Apr-98 8.02 133.36
2-Apr-98 7.93 133.7
3-Apr-98 7.86 135.06
6-Apr-98 7.87 134.64
7-Apr-98 7.91 133.6
8-Apr-98 7.99 133.05
9-Apr-98 8.04 133.2
13-Apr-98 8.04 129.48
14-Apr-98 8.02 129.91
15-Apr-98 8.03 129.88
16-Apr-98 7.99 131.38
17-Apr-98 7.93 131.47
20-Apr-98 7.97 132.25
21-Apr-98 7.91 131.35
22-Apr-98 7.88 130.65
23-Apr-98 7.85 130.4
24-Apr-98 7.88 129.72
27-Apr-98 7.78 132.37
28-Apr-98 7.75 131.85
29-Apr-98 7.71 132.3
30-Apr-98 7.70 132.12
1-May-98 7.74 133.3
4-May-98 7.71 133.2
5-May-98 7.59 132.39
6-May-98 7.45 132.61
7-May-98 7.36 132.82
8-May-98 7.38 132.55
11-May-98 7.41 132.38
12-May-98 7.35 133.18
13-May-98 7.14 134.18
14-May-98 7.14 134
15-May-98 7.20 134.08
18-May-98 7.13 135.59
19-May-98 7.08 135.86
20-May-98 7.12 136.04
21-May-98 7.19 135.07
22-May-98 7.13 135.7
26-May-98 7.10 137.7
27-May-98 6.90 137.46
28-May-98 6.78 138.44
29-May-98 6.74 138.57
1-Jun-98 6.57 139.45
2-Jun-98 6.50 138.89
3-Jun-98 6.56 137.82
4-Jun-98 6.50 138.36
5-Jun-98 6.44 139.19
8-Jun-98 6.37 140.34
9-Jun-98 6.26 139.92
10-Jun-98 6.08 140.9
11-Jun-98 5.97 141.51
12-Jun-98 5.98 144.56
15-Jun-98 5.83 146.14
16-Jun-98 5.7 143.17
17-Jun-98 5.77 136.75
18-Jun-98 6.06 137.85
19-Jun-98 6.04 137.02
</TABLE>
The recovery of Greater China in the first quarter resulted from improved
fundamentals in the Greater China economies and attractive valuations in many of
the listed companies of the Greater China region. This trend was supported by
improving sentiment in the Japanese markets; the Nikkei reached a high of 17,264
in early March and the yen, which strengthened early in the year, traded in the
range of 1.25-1.30 for most of the first quarter.
The recent sharp fall in the Greater China stock markets was precipitated
principally by the rapid weakening of the Japanese yen, the extent of which we
did not anticipate. The yen's decline is in response to the faltering Japanese
economy and continued blundering by Japanese political leadership which has
failed to implement a credible economic stimulus plan for its domestic economy.
Political instability and continued economic disarray in Indonesia placed some
further pressure on Greater China markets, particularly Singapore, which has
closer trade and banking ties to Indonesia than other countries in the region.
<PAGE>
EFFECTS OF WEAK YEN ON GREATER CHINA
- - The sharp decline of the yen immediately raised fears that the Chinese
would devalue the renminbi and the Hong Kong dollar in order to maintain
export competitiveness and to support domestic economic growth. In Hong
Kong this pressure has resulted in higher interest rates and a sharp stock
market decline; this, in turn, has led to a further weakening of the Hong
Kong economy as higher interest rates dampen growth and falling asset
prices constrain consumption.
- - Exports to Japan, which represent 20% total of Chinese exports, are down
approximately 5%. Exports to Asia ex-Japan which represent 40% of total
exports are down substantially. In marked contrast, export growth to the
U.S. and Europe has increased significantly, 20% and 30% respectively
year-over-year. Overall growth in exports year-to-date is slightly under
10%, which is well below the growth rate of 20% in the previous year.
- - Chinese exports have little competitive overlap with Japanese, Korean and
other South East Asian exporters. The Chinese export mix is weighted
toward lower value-added consumer products for which the demand from Europe
and the U.S. remains strong. The combined economies of Europe and the U.S.
are more than 2.5 times the combined economies of Japan and the South East
Asian Four.
- - The Taiwan dollar and the Singapore dollar have declined by 5.7% and 7.8%
respectively since May, reflecting the contagion effect of the weak
Japanese economy and yen. The weak yen places the export sectors of
Singapore and Taiwan under pressure, slowing economic growth while
increasing imports. Singapore and Taiwan both have large exposure to the
electronic sector which has been particularly weak as a result of severe
price competition in this export sector. In addition, Taiwan's commodity
exports are under pressure from competing exports from Korea and Japan.
CHINESE ECONOMIC RESPONSE
- - China is the engine of growth for the Greater China region and the Chinese
response to the Asian financial crisis is a critical factor in shaping
future market direction not only in the Greater China region, but in Asia
ex-Japan as a whole.
- - Slower export growth in China is important because approximately 18% of the
Chinese GDP is related to the export sector. The Chinese response to
slower growth in exports has been to stimulate domestic demand,
particularly in fixed investments through infrastructure projects, which
are estimated to total US$250 billion per year. Fixed investment spending
is estimated to grow by 15% in 1998 and constitutes 35% of Chinese GDP.
- - The Chinese Government anticipated slower export growth in 1998 and began
further domestic stimulation programs in the first quarter, which included
lowering domestic interest rates, reducing bank reserve requirements and
initiating a major private housing reform program beginning July 1, 1998.
- - The effects of the stimulus programs on economic growth are expected to
take effect in the second half of 1998. Maintaining economic growth is a
critical factor in supporting economic reforms of the banking sector and
state owned enterprises (SOE's).
<PAGE>
- - China has protected itself from the imbalances which triggered previous
currency devaluations. It is a closed economy with a closed capital
account, a large current account surplus and low levels of external debt.
In addition, Hong Kong and China have combined reserves of US$236 billion,
the largest combined foreign reserves in the world. There are no external
pressures on the Chinese balance of payments which require currency
adjustment.
INVESTMENT OUTLOOK IN GREATER CHINA
- - We do not believe there is an economic or political incentive for the
Chinese to devalue the RMB or the Hong Kong dollar.
- - Any competitive advantages of currency devaluation by the Chinese would be
short-lived. Competitive devaluation by the Chinese would further
destabilize Asian markets and very likely produce another round of currency
devaluations in the region. Breaking the Hong Kong peg would severely
damage Hong Kong as a capital market and limit Chinese access to global
capital pools, which is an important condition of Chinese economic reform,
especially for SOE's.
- - The responsible foreign exchange policy of the Chinese is especially
significant in supporting China's efforts to become a member of the WTO.
Any significant change in this policy would set back this important
economic and foreign policy goal. Furthermore, by maintaining the current
foreign exchange policy China gains important credibility in world
financial markets, a critical factor in maintaining necessary foreign
direct investment. The current policy increases the attractiveness of
Chinese markets to external investors and clearly positions China as a
regional political and economic leader in the future.
- - As a consequence of slower growth throughout Asia, Chinese GDP growth is
likely to be below the Government estimate of 8%, in the range of 6 1/2 to
7 1/2%. However, the Chinese Government continues its strong commitment to
reform of the banking sector and SOE's.
PORTFOLIO POSITIONING AND CURRENCY EXPOSURE
- - Attachment A shows the current allocation of the portfolio. The portfolio
was repositioned in March and an already low exposure to Singapore property
and banking and Hong Kong property was reduced substantially. Several
companies which would be further affected by the Asian crisis were sold.
- - More significantly, we took advantage of a period of low interest rates in
Hong Kong to hedge 100% of the Hong Kong dollar currency exposure as well
as to hedge Singapore and Taiwan dollar exposures. The portfolio currently
has no currency exposure.
- - While any change in Chinese foreign exchange policy will negatively affect
equity values, a significant portion of the risk has been neutralized
through the currency hedging strategy. The effects of currency are best
illustrated by the Indonesian stock market, which on a year-to-date basis
is essentially flat in local currency terms but down 64% in US dollar
terms.
PORTFOLIO VALUATIONS
- - Despite the Asian crisis, earnings growth of the CVO Greater China
portfolio is currently estimated at a healthy 13% in 1998, although revised
downward from 18% in January. A soft
<PAGE>
estimate for 1999 earnings growth is somewhat higher than 13%. Currently
the P/E ratio is 9x 1998 earnings and less than 8x 1999 portfolio earnings.
- - The reason for the higher earnings growth of the CVO Greater China Fund
portfolio relative to broader Greater China markets is the investment
concentration on Chinese domestic demand, infrastructure and selected
export-oriented companies in our portfolio. Even if Chinese economic
growth does not meet government expectations, these companies are expected
to benefit from increasing Chinese economic expansion, more infrastructure
spending in China and continued strong demand for Chinese exports from OECD
countries.
CONCLUSION
The following chart shows the comparative performance of the CVO Greater China
Fund and related benchmarks. Clearly this is a difficult market in Asia;
however, we believe this is a time to remain invested on the basis of
fundamental earnings growth. Continued volatility of the yen may cause
near-term pressure in the equity markets of Greater China. However, the
portfolio is well-positioned in companies with healthy balance sheets, strong
management and good market positions.
<TABLE>
<CAPTION>
PERFORMANCE HISTORY
QTD YTD SINCE INCEPTION
3/31/98 - 6/19/98 1ST QTR 1998 12/31/97 - 6/19/98 1997 11/19/96-6/19/98
----------------- ------------ ------------------ ---- ----------------
<S> <C> <C> <C> <C> <C>
CVO GREATER
CHINA FUND(1) -25.62% 1.12% -24.78% -20.23% -39.52%
GREATER CHINA
COMPOSITE INDEX(2) -25.85% 2.71% -23.84% -24.32% -40.73%
MSCI PACIFIC FREE
EX JAPAN(3) -24.01% 9.23% -17.00% -37.00% -48.21%
</TABLE>
(1) The total return for the CVO Greater China Fund for the year ended March
31, 1998 was -12.8%.
Performance data quoted represents past performance and is not predictive
of future performance. Investment return and principal value will
fluctuate so that an investor's shares, when redeemed, may be worth more or
less than their original cost. Indices are shown for comparative purposes
only, and are not available for investment.
The total return may reflect the waiver of a portion of the Fund's advisory
or administrative fees for certain periods since its inception date. In
such instances, and without waiver of fees, total return would have been
lower.
The prospectus containing more complete information regarding the Fund's
investment strategy as well as risk factors is available upon request from
the Fund's distributor, Offit Funds Distributor, Inc., and should be read
carefully before investing.
(2) Market capitalization-weighted index composed of the market values of China
Free, Singapore Free, and Hong Kong markets, and 30% of the Taiwan market
from Nov. 1, 1997 forward (25% from July 1, 1997 through October 31, 1997;
20% from inception through June 30, 1997), in accordance with investment
limitations on non-Taiwanese investors. Index returns do not reflect any
fees or commissions.
(3) Market capitalization-weighted index composed of the market values of China
Free, Singapore Free, Hong Kong, Indonesia Free, Malaysia Free, Philippines
Free, Thailand Free, 50% of the Korean market and 50% of the Taiwan market.
Index returns do not reflect any fees or commissions.
<PAGE>
CVO GREATER CHINA FUND
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS (UNAUDITED)
JUNE 19, 1998
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
------ -----
<S> <C> <C>
COMMON STOCKS (CONTINUED)
POWER ELECTRIC & UTILITIES (2.7%)
HONG KONG (2.7%)
Beijing Datang 366,000 $ 126,496
Hong Kong & China Gas Co., Ltd. 208,340 242,262
-------
368,758
-------
REAL ESTATE (4.4%)
HONG KONG (3.3%)
Cheung Kong (Holdings) Ltd. 52,000 259,335
New World Development Co., Ltd. 90,000 192,447
-------
451,782
-------
SINGAPORE (1.1%)
City Developments Ltd. 50,000 144,501
-------
596,283
-------
RETAIL (9.7%)
HONG KONG (5.7%)
Esprit Asia Holdings Ltd. 744,000 211,478
Glorious Sun Enterprises 976,000 181,586
Jusco Stores (HK) Co. 1,212,000 164,425
Sa Sa International Holdings Ltd. 1,366,000 220,613
-------
778,102
-------
TAIWAN (4.0%)
Far Eastern Department Stores 272,386 217,349
Mercuries & Associates 114,000 118,055
President Chain Store Corp. 68,000 208,463
-------
543,867
-------
1,321,969
---------
TELECOMMUNICATIONS (1.2%)
HONG KONG (1.2%)
China Telecom* 100,000 170,547
-------
TRANSPORTATION (6.7%)
CHINA (5.3%)
Guangshen Railway Co., Ltd. 996,000 135,120
Jiangsu Express Co., Ltd.* 1,192,000 232,554
Shenzhen Expressway Co.* 1,816,000 356,640
-------
724,314
-------
HONG KONG (1.4%)
New World Infrastructure Ltd. 139,000 $ 193,959
-------
918,273
-------
TOTAL COMMON STOCKS (COST $19,276,229) 11,657,878
----------
</TABLE>
<PAGE>
CVO GREATER CHINA FUND
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS (UNAUDITED)
JUNE 19, 1998
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
------ -----
<S> <C> <C>
COMMON STOCKS (CONTINUED)
ELECTRICAL & ELECTRONICS (CONTINUED)
TAIWAN (1.5%)
Yageo Corp. 107,741 $ 202,286
-------
939,566
-------
FOOD (3.5%)
HONG KONG (2.5%)
Guangnan Holdings Ltd. 445,713 187,158
Ng Fung Hong 202,000 153,983
-------
341,141
-------
SINGAPORE (1.0%)
Want Want Holdings Ltd. 205,200 133,380
-------
474,521
-------
HOME FURNISHINGS (0.3%)
SINGAPORE (0.3%)
Roly International Holdings Ltd. 446,000 40,140
-------
INDUSTRIAL (1.2%)
HONG KONG (1.2%)
Lung Lee (Bermuda) Holdings 788,000 163,916
-------
MACHINERY & EQUIPMENT (2.3%)
CHINA (2.3%)
Shanghai Zhenhua Port Machinery Co., Ltd., Class B* 406,000 170,520
Wafangdian Bearing Group Co., Ltd., Class B* 497,600 141,440
-------
311,960
-------
MEDICAL SUPPLIES (1.0%)
CHINA (1.0%)
China Pharmaceutical Enterprises & Investment Corp. 1,489,000 138,515
-------
PACKAGING/CONTAINERS (0.6%)
HONG KONG (0.6%)
Sinocan Holdings Ltd. 1,594,000 76,201
-------
PAPER PRODUCTS (1.8%)
HONG KONG (1.8%)
Climax International Co. 792,000 26,605
Hung Hing Printing Group 576,000 215,820
-------
242,425
-------
</TABLE>
<PAGE>
CVO GREATER CHINA FUND
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS (UNAUDITED)
JUNE 19, 1998
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
------ -----
<S> <C> <C>
COMMON STOCKS (CONTINUED)
COMPUTERS (9.1%)
HONG KONG (5.3%)
ASM Pacific Technology Ltd. 322,000 $ 160,172
Founder Hong Kong Ltd. 714,240 346,055
Wong's International Holdings Ltd. 1,134,000 221,238
-------
727,465
-------
SINGAPORE (3.8%)
Elec & Eltek International Co., Ltd. 46,500 172,050
Natsteel Electronics* 196,000 341,567
-------
513,617
-------
1,241,082
---------
CONGLOMERATES (6.7%)
HONG KONG (6.7%)
China Overseas Land & Investment 836,000 123,135
China Resources Enterprises Ltd. 158,000 185,767
Citic Pacific Ltd. 78,000 151,671
Hutchison Whampoa Ltd. 62,000 314,013
Jardine Matheson Holdings Ltd. 52,000 148,720
-------
923,306
-------
DISTRIBUTION (7.6%)
CHINA (5.8%)
China Hong Kong Photo Products Holding, Ltd. 1,338,000 183,245
Four Seas Mercantile Holdings Ltd. 764,000 310,938
Li & Fung Ltd. 220,000 304,142
-------
798,325
-------
SINGAPORE (1.8%)
Thakral Corporation Ltd. 570,000 245,100
-------
1,043,425
---------
ELECTRIC EQUIPMENT (3.0%)
CHINA (1.1%)
Clipsal Industries Ltd. 154,000 152,460
-------
SINGAPORE (1.9%)
GP Batteries International Ltd. 138,000 260,176
-------
412,636
-------
ELECTRICAL & ELECTRONICS (6.9%)
HONG KONG (5.4%)
Techtronic 996,000 205,897
Varitronix International Ltd. 128,000 259,645
VTech Holdings Ltd. 88,000 271,738
-------
737,280
-------
</TABLE>
<PAGE>
CVO GREATER CHINA FUND
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS (UNAUDITED)
JUNE 19, 1998
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
------ -----
<S> <C> <C>
COMMON STOCKS (85.2%)
APPLIANCES & HOUSEHOLD GOODS (3.9%)
CHINA (3.9%)
Guangdong Kelon Electrical Holdings Co. 320,000 $ 274,942
Wuxi Little Swan Class B 275,700 254,691
-------
529,633
AUTOMOTIVE (1.9%)
CHINA (1.9%)
Qingling Motors Co. 844,000 264,438
-------
BANKING & FINANCIAL SERVICES (5.6%)
HONG KONG (1.9%)
Dao Heng Bank Group Ltd. 60,000 103,491
JCG Holdings Ltd. 512,000 157,110
-------
260,601
-------
SINGAPORE (1.8%)
Overseas Chinese Banking Corp - Foreign Shares 33,800 123,675
Overseas Union Bank Ltd. - Foreign Shares 52,800 127,706
-------
251,381
-------
TAIWAN (1.9%)
Bank Sinopac* 256,000 134,430
United World Chinese Commercial Bank 103,200 123,522
-------
257,952
-------
769,934
-------
BUILDING MATERIALS (3.5%)
CHINA (1.1%)
Shenzhen Fangda Co., Ltd., Class B 208,720 154,522
-------
TAIWAN (2.4%)
Chia Hsin Cement 218,000 136,220
Pacific Construction Co.* 385,500 194,517
-------
330,737
-------
485,258
-------
COMMERCIAL SERVICES (1.0%)
CHINA (1.0%)
Cosco Pacific Ltd. 312,000 135,042
-------
COMPUTER SERVICES (0.6%)
SINGAPORE (0.6%)
Informatics Holdings 440,000 90,049
-------
</TABLE>
<PAGE>
CVO GREATER CHINA FUND
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS (UNAUDITED)
JUNE 19, 1998
<TABLE>
<CAPTION>
SHARES MARKET
WARRANTS-FOREIGN SECURITIES (0.0%) PAR VALUE
--- -----
<S> <C> <C>
INDUSTRIAL (0.0%)
HONG KONG (0.0%)
Hong Kong & China Gas 9,470 $ 771
---
TOTAL WARRANTS-FOREIGN SECURITIES (COST $0) 771
---
REPURCHASE AGREEMENTS (12.5%)
U.S. Treasury Repurchase Agreement, 5.375%,
06/22/98 (dated 06/19/98; proceeds $1,107,364,
collateralized by $1,695,000 U.S. Treasury Notes,
6.250%, due 10/31/01) $ 1,706,600 1,706,600
---------
TOTAL REPURCHASE AGREEMENTS (COST $1,706,600) 1,706,600
---------
MONEY MARKET FUNDS (0.0%)
Bank of New York Cash Reserve MM Fund 77 77
--
TOTAL MONEY MARKET FUNDS (COST $77) 77
--
TOTAL INVESTMENTS (COST $20,982,906) (+) - 97.7% 13,365,326
OTHER ASSETS IN EXCESS OF LIABILITIES 2.3% 318,769
-------
TOTAL NET ASSETS - 100.0% $13,684,095
-----------
-----------
</TABLE>
- -------------------------
+ Represents cost for federal income tax purposes and differs from value by
net unrealized appreciation of securities as follows:
<TABLE>
<CAPTION>
<S> <C>
Unrealized appreciation $ 337,720
Unrealized depreciation (7,955,300)
----------
Net unrealized depreciation $ (7,617,580)
------------
------------
</TABLE>
* Denotes non-income producing security.
The table below indicates the Fund's outstanding forward currency contract
positions at June 19, 1998:
<TABLE>
<CAPTION>
VALUE ON VALUE AT UNREALIZED
CONTRACT MATURITY ORIGINATION JUNE 15, APPRECIATION
CURRENCY AMOUNTS DATE DATE 1998 (DEPRECIATION)
------------- ------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Sell HKD (68,070,694) 11/23/98 $(8,660,000) $(8,632,935) $ 27,065
Sell SGD (2,395,200) 10/22/98 (1,500,000) (1,471,253) 28,747
Sell TWD (69,930,000) 10/22/98 (2,100,000) (2,026,957) 73,043
Buy TWD 10,977,033 10/22/98 319,564 318,175 (1,389)
---------
Net unrealized appreciation on forward positions $ 127,466
---------
---------
</TABLE>
<PAGE>
CVO GREATER CHINA FUND
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS (UNAUDITED)
APRIL 30, 1998
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
------ -----
<S> <C> <C>
COMMON STOCKS (90.1%)
APPLIANCES & HOUSEHOLD GOODS (3.5%)
CHINA (3.5%)
Guangdong Kelon Electrical Holdings Co. 320,000 $ 328,425
Wuxi Little Swan Class B 275,700 303,603
-------
632,028
-------
AUTOMOTIVE (2.0%)
CHINA (2.0%)
Qingling Motors Co. 844,000 365,012
-------
BANKING & FINANCIAL SERVICES (6.3%)
HONG KONG (2.4%)
Dao Heng Bank Group Ltd. 60,000 177,381
JCG Holdings Ltd. 512,000 234,648
-------
412,029
-------
SINGAPORE (2.1%)
Overseas Chinese Banking Corp - Foreign Shares 33,800 178,233
Overseas Union Bank Ltd. - Foreign Shares 52,800 200,064
-------
378,297
-------
TAIWAN (1.8%)
Bank Sinopac* 256,000 186,326
United World Chinese Commercial Bank 103,200 142,401
-------
328,727
-------
1,119,053
---------
BUILDING MATERIALS (3.3%)
CHINA (1.2%)
Shenzhen Fangda Co., Ltd., Class B 208,720 213,138
-------
TAIWAN (2.1%)
Chia Hsin Cement 218,000 156,685
Pacific Construction Co.* 385,500 218,618
-------
375,303
-------
588,441
-------
COMMERCIAL SERVICES (1.2%)
CHINA (1.2%)
Cosco Pacific Ltd. 312,000 211,463
-------
COMPUTER SERVICES (1.0%)
SINGAPORE (1.0%)
Informatics Holdings 440,000 172,277
-------
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE>
CVO GREATER CHINA FUND
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS (UNAUDITED)
APRIL 30, 1998
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
------ -----
<S> <C> <C>
COMMON STOCKS (CONTINUED)
COMPUTERS (9.8%)
HONG KONG (6.1%)
ASM Pacific Technology Ltd. 322,000 $ 249,417
Founder Hong Kong Ltd. 595,200 495,613
Wong's International Holdings Ltd. 1,134,000 347,693
-------
1,092,723
---------
SINGAPORE (3.7%)
Elec & Eltek International Co., Ltd. 46,500 269,700
Natsteel Electronics* 196,000 383,709
-------
653,409
-------
1,746,132
---------
CONGLOMERATES (7.3%)
HONG KONG (7.3%)
China Overseas Land & Investment 836,000 192,108
China Resources Enterprises Ltd. 158,000 271,287
Citic Pacific Ltd. 78,000 239,658
Hutchison Whampoa Ltd. 62,000 383,395
Jardine Matheson Holdings Ltd. 52,000 219,440
-------
1,305,888
---------
DISTRIBUTION (7.0%)
CHINA (5.6%)
China Hong Kong Photo Products Holding, Ltd. 1,338,000 288,464
Four Seas Mercantile Holdings Ltd. 764,000 340,277
Li & Fung Ltd. 220,000 369,220
-------
997,961
-------
SINGAPORE (1.4%)
Thakral Corporation Ltd. 570,000 253,650
-------
1,251,611
---------
ELECTRIC EQUIPMENT (3.4%)
CHINA (1.2%)
Clipsal Industries Ltd. 154,000 221,760
-------
SINGAPORE (2.2%)
GP Batteries International Ltd. 138,000 381,713
-------
603,473
-------
ELECTRICAL & ELECTRONICS (6.2%)
HONG KONG (4.9%)
Techtronic 996,000 295,738
Varitronix International Ltd. 128,000 257,783
VTech Holdings Ltd. 88,000 309,008
-------
862,529
-------
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE>
CVO GREATER CHINA FUND
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS (UNAUDITED)
APRIL 30, 1998
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
------ -----
<S> <C> <C>
COMMON STOCKS (CONTINUED)
ELECTRICAL & ELECTRONICS (CONTINUED)
TAIWAN (1.3%)
Yageo Corp. 100,000 $ 238,063
-------
1,100,592
---------
FOOD (3.8%)
HONG KONG (2.6%)
Guangnan Holdings Ltd. 445,713 287,703
Ng Fung Hong 202,000 182,545
-------
470,248
-------
SINGAPORE (1.2%)
Want Want Holdings Ltd. 171,000 205,200
-------
675,448
-------
HOME FURNISHINGS (1.5%)
HONG KONG (0.9%)
Ta Fu 2,360,000 170,616
-------
SINGAPORE (0.6%)
Roly International Holdings Ltd. 579,000 101,325
-------
271,941
-------
INDUSTRIAL (1.1%)
HONG KONG (1.1%)
Lung Lee (Bermuda) Holdings 678,000 190,374
-------
MACHINERY & EQUIPMENT (2.3%)
CHINA (2.3%)
Shanghai Zhenhua Port Machinery Co., Ltd., Class B* 406,000 280,140
Wafangdian Bearing Group Co., Ltd., Class B* 497,600 138,114
-------
418,254
-------
MEDICAL SUPPLIES (1.1%)
CHINA (1.1%)
China Pharmaceutical Enterprises & Investment Corp. 1,489,000 201,838
-------
PACKAGING/CONTAINERS (1.5%)
HONG KONG (1.5%)
Sinocan Holdings Ltd. 1,594,000 267,517
-------
PAPER PRODUCTS (1.4%)
HONG KONG (1.4%)
Climax International Co. 792,000 31,696
Hung Hing Printing Group 576,000 223,082
-------
254,778
-------
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE>
CVO GREATER CHINA FUND
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS (UNAUDITED)
APRIL 30, 1998
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
------ -----
<S> <C> <C>
COMMON STOCKS (CONTINUED)
PLASTICS (1.2%)
TAIWAN (1.2%)
China Synthetic Rubber Co. 184,750 $ 208,425
-------
POWER ELECTRIC & UTILITIES (2.4%)
HONG KONG (2.4%)
Beijing Datang 366,000 148,837
Hong Kong & China Gas Co., Ltd. 208,340 283,756
-------
432,593
-------
REAL ESTATE (4.6%)
HONG KONG (3.4%)
Cheung Kong (Holdings) Ltd. 52,000 345,725
New World Development Co., Ltd. 90,000 256,195
-------
601,920
-------
SINGAPORE (1.2%)
City Developments Ltd. 50,000 216,294
-------
818,214
-------
RETAIL (9.7%)
CHINA (0.9%)
Inner Mongolia Erdos Cashmere Products Co., Ltd.,
B Shares 556,000 163,464
-------
HONG KONG (5.6%)
Esprit Asia Holdings Ltd. 744,000 295,350
Glorious Sun Enterprises 976,000 238,139
Jusco Stores (HK) Co. 1,212,000 219,054
Sa Sa International Holdings Ltd. 1,366,000 255,704
-------
1,008,247
---------
TAIWAN (3.2%)
Far Eastern Department Stores 272,386 246,990
Mercuries & Associates 114,000 128,608
President Chain Store Corp. 68,000 190,753
-------
566,351
-------
1,738,062
---------
TELECOMMUNICATIONS (1.1%)
HONG KONG (1.1%)
China Telecom* 100,000 189,774
-------
TRANSPORTATION (7.4%)
CHINA (5.7%)
Guangshen Railway Co., Ltd. 996,000 186,443
Jiangsu Express Co., Ltd.* 1,192,000 342,394
Shenzhen Expressway Co.* 1,816,000 498,189
-------
1,027,026
---------
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE>
CVO GREATER CHINA FUND
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS (UNAUDITED)
APRIL 30, 1998
<TABLE>
<CAPTION>
SHARES
OR
PRINCIPAL MARKET
AMOUNT VALUE
------ -----
<S> <C> <C>
COMMON STOCKS (CONTINUED)
TRANSPORTATION (CONTINUED)
HONG KONG (1.7%)
New World Infrastructure Ltd. 139,000 $ 298,778
-------
1,325,804
---------
TOTAL COMMON STOCKS (COST $20,344,698) 16,088,992
----------
RIGHTS-FOREIGN SECURITIES (0.0%)
ELECTRIC EQUIPMENT (0.0%)
TAIWAN (0.0%)
Yageo Corp. 7,700 0
-
TOTAL RIGHTS-FOREIGN SECURITIES (COST $0) 0
-
WARRANTS-FOREIGN SECURITIES (0.0%)
INDUSTRIAL (0.0%)
HONG KONG (0.0%)
Hong Kong & China Gas 9,470 0
-
TOTAL WARRANTS-FOREIGN SECURITIES (COST $0) 0
-
REPURCHASE AGREEMENTS (9.2%)
Bank of New York Repurchase Agreement, 5.30%,
05/01/98 (dated 04/30/98; proceeds $1,634,041,
collateralized by $1,660,000 U.S. Treasury Notes,
4.75%, due 08/31/98) $ 1,633,800 1,633,800
---------
TOTAL REPURCHASE AGREEMENTS (COST $1,633,800) 1,633,800
---------
MONEY MARKET FUNDS (0.0%)
Bank of New York Cash Reserve MM Fund 26 26
--
TOTAL MONEY MARKET FUNDS (COST $26) 26
--
TOTAL INVESTMENTS (COST $21,978,524) (+) - 99.3% 17,722,818
OTHER ASSETS IN EXCESS OF LIABILITIES 0.7% 119,208
-------
TOTAL NET ASSETS - 100.0% $17,842,026
----------
----------
</TABLE>
- ----------------------
+ Represents cost for federal income tax purposes and differs from value by
net unrealized appreciation of securities as follows:
<TABLE>
<CAPTION>
<S> <C>
Unrealized appreciation $865,460
Unrealized depreciation (5,121,166)
-----------
Net unrealized depreciation $(4,255,706)
-----------
-----------
</TABLE>
* Denotes non-income producing security.
The accompanying notes are an integral part of the financial statements.
<PAGE>
CVO GREATER CHINA FUND, INC.
STATEMENT OF ASSETS AND LIABILITIES (UNAUDITED)
APRIL 30, 1998
<TABLE>
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS:
Investments, at value (cost $21,978,524) $ 17,722,818
Foreign currency (cost $77,915) 77,552
Receivable for investment securities sold 146,240
Interest and dividends receivable 42,548
Deferred organization expense 144,408
Prepaid expenses and other assets 10,665
-------------
Total Assets $ 18,144,231
LIABILITIES:
Payable for investment securities purchased 203,601
Payable for forward currency contracts 49,518
Unrealized depreciation on open forward currency contracts 6,104
Investment advisory fees payable 3,594
Fund accounting fees payable 2,786
Other payables and accrued expenses 36,602
-------------
Total Liabilities 302,205
-------------
NET ASSETS $ 17,842,026
-------------
-------------
NET ASSETS CONSIST OF:
Shares of capital stock, $0.001 par value per share, 2,317,121 issued
and outstanding $ 2,317
Additional paid-in capital 24,195,381
Distributions in excess of net investment income (13,438)
Accumulated net realized loss on investments and foreign currency transactions (2,080,087)
Net unrealized depreciation of investments and foreign currency transactions (4,262,147)
-------------
NET ASSETS $ 17,842,026
-------------
-------------
CLASS I SHARES:
NET ASSETS $ 17,803,523
-------------
-------------
SHARES OF CAPITAL STOCK OUTSTANDING 2,312,114
-------------
-------------
NET ASSET VALUE PER SHARE (OFFERING AND REDEMPTION PRICE PER SHARE) $ 7.70
-------------
-------------
CLASS II SHARES:
NET ASSETS $ 38,503
-------------
-------------
SHARES OF CAPITAL STOCK OUTSTANDING 5,007
-------------
-------------
NET ASSET VALUE PER SHARE (OFFERING AND REDEMPTION PRICE PER SHARE) $ 7.69
-------------
-------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE>
CVO GREATER CHINA FUND, INC.
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDED FOR THE PERIOD FROM
APRIL 30, 1998 NOVEMBER 19, 1996*
(UNAUDITED) THROUGH OCTOBER 31, 1997
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
INVESTMENT ACTIVITIES:
OPERATIONS:
Net investment loss $ (6,409) $ 70,716
Net realized losses on investment and foreign currency
transactions (2,080,100) (49,890)
Net change in unrealized depreciation of investments and foreign
currency transactions (467,617) (3,794,530)
------------- -------------
Net decrease in net assets resulting from operations (2,554,126) (3,773,704)
------------- -------------
------------- -------------
DISTRIBUTION TO SHAREHOLDERS FROM:
Excess of net investment income (14,586) -
Net realized gains (13,256) -
------------- -------------
Total distributions to shareholders (27,842) -
------------- -------------
CAPITAL SHARE TRANSACTIONS:
Proceeds from shares issued 2,326,337 26,880,923
Dividends reinvested 25,162 -
Cost of shares redeemed (3,856,365) (1,278,389)
------------- -------------
Net increase/ (decrease) in net assets from capital share transactions (1,504,866) 25,602,534
------------- -------------
Total increase/ (decrease) in net assets (4,086,834) 21,828,830
NET ASSETS
Beginning of period 21,928,860 100,030
------------- -------------
End of period (Including distributions in excess of net investment income of
$13,438 and undistributed net investment income of $7,557, respectively.) $ 17,842,026 $ 21,928,860
------------- -------------
------------- -------------
</TABLE>
* Commencement of operations.
The accompanying notes are an integral part of the financial statements.
<PAGE>
CVO GREATER CHINA FUND, INC.
STATEMENT OF OPERATIONS (UNAUDITED)
FOR THE SIX MONTHS ENDED APRIL 30, 1998
<TABLE>
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
INVESTMENT INCOME:
Interest $ 54,621
Dividends (net of foreign tax withholding of $1,668) 127,866
-------------
Total income $ 182,487
EXPENSES:
Advisory 115,859
Administration 13,903
Fund accounting 19,311
Transfer agent and shareholder servicing 1,475
Custody 40,807
Amortization of organization expenses 20,059
Registration and filing 17,599
Professional 22,667
Printing 11,167
Miscellaneous 14,403
-------------
Total expenses before waivers/reimbursements 277,250
Less expenses waived/reimbursed (88,354)
-------------
Net expenses 188,896
-------------
NET INVESTMENT LOSS (6,409)
REALIZED AND UNREALIZED GAINS ON INVESTMENTS:
Net realized loss on investment transactions (2,161,853)
Net realized gains on foreign currency transactions 81,753
Net change in unrealized depreciation of investments (466,701)
Net change in unrealized depreciation of foreign currency transactions (916)
-------------
Net realized and unrealized losses on investments and foreign currency transactions (2,547,717)
-------------
DECREASE IN NET ASSETS RESULTING FROM OPERATIONS $ (2,554,126)
-------------
-------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE>
CVO GREATER CHINA FUND, INC.
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
FOR THE SIX MONTHS FOR THE PERIOD FROM
ENDED APRIL 30, 1998 NOVEMBER 19, 1996*
(UNAUDITED) THROUGH OCTOBER 31, 1997
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C>
CLASS I SHARES:
NET ASSET VALUE, BEGINNING OF PERIOD $ 8.70 $ 10.00
---------- ----------
Net investment income/ (loss) - 0.03
Net realized and unrealized loss (0.98) (1.33)
---------- ----------
Total from investment operations (0.98) (1.30)
---------- ----------
LESS DIVIDENDS FROM:
Excess of net investment income (0.01) -
Net realized gains (0.01) -
---------- ----------
Total distributions (0.02) -
---------- ----------
Net change in net asset value per share (1.00) (1.30)
---------- ----------
NET ASSET VALUE, END OF PERIOD $ 7.70 $ 8.70
---------- ----------
---------- ----------
TOTAL RETURN (11.37%)(a) (13.00%)(a)
RATIOS/ SUPPLEMENTAL DATA:
Net assets, end of period (in thousands) $ 17,804 $ 21,885
Ratios to average net assets:
Expenses** 2.00%(b) 2.00%(b)
Net investment income (0.07%)(b) 0.71%(b)
PORTFOLIO TURNOVER RATE (c) 27% 8%
CLASS II SHARES:
NET ASSET VALUE, BEGINNING OF PERIOD $ 8.69 $ 10.00
---------- ----------
Net investment income/ (loss) - 0.05
Net realized and unrealized loss (0.98) (1.36)
---------- ----------
Total from investment operations (0.98) (1.31)
---------- ----------
LESS DIVIDENDS FROM:
Excess of net investment income (0.01) -
Net realized gains (0.01) -
---------- ----------
Total distributions (0.02) -
---------- ----------
Net change in net asset value per share (1.00) (1.31)
---------- ----------
NET ASSET VALUE, END OF PERIOD $ 7.69 $ 8.69
---------- ----------
---------- ----------
TOTAL RETURN (11.38%)(a) (13.10%)(a)
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in thousands) $ 39 $ 43
Ratios to average net assets:
Expenses** 2.06%(b) 2.00%(b)
Net investment income (0.07%)(b) 0.55%(b)
PORTFOLIO TURNOVER RATE (c) 27% 8%
</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 higher.
(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.
The accompanying notes are an integral part of the financial statements.
<PAGE>
CVO GREATER CHINA FUND, INC.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
- --------------------------------------------------------------------------------
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.
<PAGE>
CVO GREATER CHINA FUND, INC.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
- --------------------------------------------------------------------------------
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 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.
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.
<PAGE>
CVO GREATER CHINA FUND, INC.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
- --------------------------------------------------------------------------------
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.
DERIVATIVE INSTRUMENTS:
The Fund may invest in various financial instruments including positions in
forward currency contracts, enter into currency swaps and purchase foreign
currency options. The Fund enters into such contracts for the purposes of
hedging exposure to changes in foreign currency exchange rates on portfolio
holdings.
A forward foreign exchange contract is a commitment to sell or buy a foreign
currency at a future date at a negotiated exchange rate. A Fund bears the
market risk which arises from possible changes in foreign exchange values.
Risks may arise from the potential inability of counterparties to meet the terms
of their contracts and from unanticipated movements in the value of the foreign
currency relative to the U.S. dollar. Forward foreign exchange contracts may
involve market or credit risk in excess of the related amounts reflected on the
Fund's statement of assets and liabilities. The gain or loss from the
difference between the cost of original contracts and the amount realized upon
the closing of such contracts is included in net realized gain on foreign
currency transactions. Fluctuations in the value of forward contracts held at
April 30, 1998 are recorded for financial reporting purposes as unrealized gain
or loss by the Fund.
The table below indicates the Fund's outstanding forward currency contract
positions at April 30, 1998:
<TABLE>
<CAPTION>
VALUE ON VALUE AT
CONTRACT MATURITY ORIGINATION APRIL 30, UNREALIZED
CURRENCY AMOUNTS DATE DATE 1998 DEPRECIATION
-------- ------------ -------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Sell SGD (2,395,200) 10/22/98 $ (1,500,000) $(1,503,578) $ (3,578)
Sell TWD (69,930,000) 10/22/98 (2,100,000) (2,102,526) (2,526)
------------
Net unrealized depreciation on forward positions $ (6,104)
------------
------------
</TABLE>
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 April 30, 1998, the Adviser earned fees of
$115,859 and waived fees of $74,372.
BISYS provides the Fund with administrative services pursuant to an
administration agreement (the "Administration Agreement"). The services under
the Administration Agreement are subject to the supervision of the Fund's Board
of Directors and officers and include 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 pays BISYS a monthly fee for its services which on an
annualized basis will not exceed 0.15% of the average daily net assets of the
Fund. For the period ended April 30, 1998, BISYS earned and waived fees of
$13,903.
<PAGE>
CVO GREATER CHINA FUND, INC.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
- --------------------------------------------------------------------------------
BISYS Fund Services, Inc., provides the Fund with fund accounting and related
services pursuant to a fund accounting agreement with the Company. For these
services BISYS was paid a fee of $2,500 per month. For the period ended April
30, 1998, BISYS earned fees, including reimbursement of out of pocket expenses,
of $19,311.
BISYS Fund Services, Inc. serves as Shareholder Servicing Agent for the Fund.
The fees paid to BISYS 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. BISYS 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 was allocated to Class II Shares only, as payment
for answering inquiries and requests for Fund information by Class II
shareholders. For the period ended April 30, 1998, BISYS earned and waived fees
of $49.
BISYS Fund Services, Inc. also serves as transfer agent for the Fund and
receives reimbursement of certain expenses plus a per account fee of $15 per
year. For the period ended April 30, 1998, BISYS earned fees of $1,426.
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 April 30, 1998, 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 a portion of its
advisory fee and has agreed to reimburse the Fund $30.
NOTE 4 -- SECURITIES TRANSACTIONS
For the period ended April 30, 1998, the cost of purchases and the proceeds from
sales of the Fund's portfolio securities (excluding short-term investments),
amounted to $5,349,197 and $4,710,547, 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). Prior to the period ended April 30, 1998, the Class II
Shares 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 the six
months ended April 30, 1998 and the period ended October 31, 1997, were as
follows:
<TABLE>
<CAPTION>
CLASS I SHARES
--------------------------------------------------------------
SIX MONTHS ENDED PERIOD ENDED
APRIL 30, 1998 OCTOBER 31, 1997
------------------------- -----------------------------
SHARES AMOUNT SHARES AMOUNT
--------- ----------- --------- -----------
<S> <C> <C> <C> <C>
Shares issued. . . . . . . . . . . 281,269 $ 2,326,337 2,625,247 $26,880,923
Shares reinvested. . . . . . . . . 3,194 25,104 - -
Shares redeemed. . . . . . . . . . (487,178) (3,856,365) (115,421) (1,278,389)
--------- ----------- --------- -----------
Net increase/(decrease). . . . . . (202,715) $(1,504,924) 2,509,826 $25,602,534
--------- ----------- --------- -----------
--------- ----------- --------- -----------
</TABLE>
<PAGE>
CVO GREATER CHINA FUND, INC.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CLASS II SHARES
--------------------
SIX MONTHS ENDED
APRIL 30, 1998
--------------------
SHARES AMOUNT
------ ------
<S> <C> <C>
Shares reinvested. . . . . . . . . . . . 7 $ 58
------ ------
Net increase . . . . . . . . . . . . . . 7 $ 58
------ ------
------ ------
</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, application of foreign tax laws, foreign
investment restrictions, 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.
<PAGE>
This report is submitted for the information of the shareholders of the CVO
Greater China Fund, Inc. The financial information included herein is taken
from the records of the Fund without audit by the Funds' independent
accountants, who do not express an opinion thereon. It is not authorized for
distribution to prospective investors in the Fund unless preceded or accompanied
by an effective prospectus which includes information regarding the Funds'
objectives and policies, charges, expenses and other data. Please read the
prospectus carefully before you invest or send money.
CVO GREATER CHINA FUND, INC.
125 WEST 55TH STREET, NEW YORK, NY 10019
(212) 758 - 9600
