-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, LHsd3VQm3+n+2KNGKQ+akDl/1VYXiaKi1O6K217eCtavmZvz09NQ3GOkOXfemUDe xn0IuteA/yoSHwQql+KMew== 0000928816-96-000327.txt : 19961101 0000928816-96-000327.hdr.sgml : 19961101 ACCESSION NUMBER: 0000928816-96-000327 CONFORMED SUBMISSION TYPE: N-30D PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19960831 FILED AS OF DATE: 19961031 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: EATON VANCE GROWTH TRUST CENTRAL INDEX KEY: 0000102816 STANDARD INDUSTRIAL CLASSIFICATION: UNKNOWN SIC - 0000 [0000] IRS NUMBER: 042325690 STATE OF INCORPORATION: MA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: N-30D SEC ACT: 1940 Act SEC FILE NUMBER: 811-01241 FILM NUMBER: 96651207 BUSINESS ADDRESS: STREET 1: 24 FEDERAL ST CITY: BOSTON STATE: MA ZIP: 02110 BUSINESS PHONE: 6174828260 MAIL ADDRESS: STREET 1: 24 FEDERAL ST STREET 2: 11TH FLOOR CITY: BOSTON STATE: MA ZIP: 02210 FORMER COMPANY: FORMER CONFORMED NAME: EATON VANCE GROWTH FUND INC DATE OF NAME CHANGE: 19920703 FORMER COMPANY: FORMER CONFORMED NAME: VANCE SANDERS COMMON STOCK FUND INC DATE OF NAME CHANGE: 19820915 FORMER COMPANY: FORMER CONFORMED NAME: BOSTON STOCK FUND INC DATE OF NAME CHANGE: 19730619 N-30D 1 EV GROWTH TRUST [LOGO: HOUSE] [PHOTO OF CITY AND BAY OMITTED] EV Classic Greater China Growth Fund Annual Shareholder Report August 31, 1996 To Shareholders EV Classic Greater China Growth Fund had a total return of 4.2% for the year ended August 31, 1996. That performance was the result of a rise in net asset value per share from $8.12 on August 31, 1995 to $8.46 on August 31, 1996. It does not include the effect of the Fund's 1% contingent deferred sales charge on shareholders redeeming within the first year. By comparison, the Peregrine Asia 100* - an unmanaged index of common stocks in the Greater China region - rose 6.1% during the same period. The China markets were quite volatile during the year, influenced by trade tensions between the U.S. and China, as well as political tensions in Taiwan, Korea and Thailand. Nonetheless, the markets moved generally higher as investors were drawn to the region's strong corporate profit growth. China announces the convertibility of its currency... On July 1, 1996, China reached an important economic milestone: the convertibility of its currency, the yuan. Convertibility will allow foreign companies to easily buy and sell foreign currency in Chinese banks. The new procedure will be more liquid and convenient than the cumbersome "swap" markets of the past. This move by the Chinese government is significant because it now assures foreign companies investing in China that they can reliably send their profits back home. In addition, it adds a further degree of confidence for foreign companies operating in China. Finally, a convertible currency moves China one step closer to qualifying for membership in the World Trade Organization. * It is not possible to invest directly in the Index. The China region markets look forward to 1997... On July 1, 1997, political and legal jurisdiction over Hong Kong will officially pass from Great Britain to China. With that transfer of power, a new era for China and Hong Kong will begin. Hong Kong will gain unprecedented access to China's vast markets, while China will incorporate the valuable banking and financial infrastructure needed to do business in the modern global economy. The impact of Hong Kong's investment in China has already been felt in some areas. In Guangdong province, for example, where many Hong Kong manufacturers have already established plants, the monthly wage is twice that of the average China wage. While the future will bring many challenges and risks, the combination of Hong Kong and China is likely to result in an economic powerhouse. We are very enthusiastic about the growth prospects of the new China. We believe shareholders of EV Classic Greater China Growth Fund will share in that growth. Sincerely, /S/James B. Hawkes James B. Hawkes, President October 20, 1996 [PHOTO OF JAMES B. HAWKES OMITTED] Management Discussion: Adaline M. Ko An interview with Adaline M. Ko, Director of Lloyd George Management, Ltd., the Investment Adviser to the Greater China Growth Portfolio. Q: Adaline, what were some of the factors in the Fund's performance during its fiscal year? A: The Fund again managed a positive return during a period marked by continuing market volatility as well as the uncertainty that characterized the U.S. economy. The latter was especially evident in Hong Kong. By far the largest weighting in the Portfolio - Hong Kong rose about 20% from mid-November 1995 through mid-February of this year. However, soon thereafter, the Hong Kong market felt the impact of rising U.S. interest rates, as long-term U.S. Treasury yields, which stood at 5.95% in January, rose to the 7% level by the end of August. With interest rate concerns increasing investors' caution, the Hong Kong market fluctuated in a relatively narrow trading range for the balance of the fiscal period. Fund shares are not guaranteed by the FDIC and are not deposits or other obligations of, or guaranteed by, any depository institution. Shares are subject to investment risks, including possible loss of principal invested. Moreover, despite the political intrigue and market volatility, the strong economic story of the China region remains intact. While some political tensions remain, investors have focused increasingly on fundamentals, which are strongly positive. Q: How have the other Greater China markets performed in the past year? A: The other China region markets turned in a mixed showing. The strongest performer has been Taiwan, which rose more than 30% in the past year. That is especially noteworthy in light of Taiwan's difficult relationship with mainland China for much of that period. Taiwan got right back to business following its watershed presidential elections in June and the market responded very well. The Philippines was another strong performer, up 16%. Second quarter 1996 GDP growth reached 5.8%, the country's strongest economic performance since 1990, while inflation slowed in August for the fifth consecutive month. Elsewhere, Malaysia rose about 10% during the period, supported by solid earnings gains. Other China region markets fared less well during the year. Korea suffered from political scandals and the jolt to investor confidence stemming from the trials of the former presidents, while Thailand continued to battle high inflation and interest rate pressures [GRAPHIC VERTICAL BAR CHART OMITTED: 1996 Gross Domestic Product Growth*] Caption reads: Despite a tight monetary policy and a continuing, successful fight aganist inflation, China's economic growth continues to outpace that of many industrialized powers. [GRAPHICS OMITTED: each bar of the chart is topped with the flag of the Country represented] Germany +1.1% United Kingdom +1.8% United States +2.7% Japan +3.4% China +9.8% Footnote reads: *For 12 months ended June 30, 1996 Source: Bloomberg Financial Q: Have you made any major changes to the Portfolio? A: We made some small changes to the Portfolio, but continue to focus on countries and companies that are registering strong earnings growth. We've increased our weighting in Hong Kong to 46% of the Portfolio's holdings. Hong Kong remains our favored avenue to the China market. Hong Kong is highly leveraged to U.S. interest rates and therefore remains very sensitive to the ebb and flow of U.S. economic data. However, Hong Kong-based companies continue to post impressive earnings growth, making them attractive to the region's investors. Importantly, with the change in Hong Kong's jurisdiction from Britain to China less than a year away, investors are increasingly sanguine about the prospects for a peaceful and orderly turnover. We also increased our weightings slightly in Malaysia and Taiwan, while trimming our commitments to Thailand and Singapore. Q: How have the Fund's larger investments fared in the past year? A: The Fund's large core holdings continued to do well. Hutchison Whampoa, for example, saw earnings rise 75% in the first half of 1996 alone. The company grew all of its core businesses, but benefited especially from strength in its retail and telecom holdings. Hutchison's A.S. Watson retail group enjoyed brisk profit growth despite a difficult retail climate for Hong Kong consumers. Meanwhile, the successful flotation of Orange, the company's telecom division, brought HK$4.1 billion into the company's coffers. Another large core holding, HSBC, the parent of Hang Seng Bank, saw profits rise more than 33% in the first half. The company enjoyed wider net interest margins - the difference between what the bank pays for deposits and what it earns from loans. The company's impressive results reflect its commanding position among banks in the Greater China economy. Q. You mentioned increasing your investments in Taiwan. In light of the recent saber-rattling between China and Taiwan, what is your outlook for the Taiwan market? A. The Taiwan market has done very well in 1996, although it's also been among the region's most volatile markets. That volatility was due in large part to Taiwan's precarious political relationship with mainland China, but was also influenced by slowing export demand, sluggish domestic demand, and falling prices for key products and commodities. Following the tensions with China early in the year, as Taiwan held its first democratic elections, the two countries have established an uneasy truce that should enable them to improve trade conditions. There are already some modest signs of progress. For example, Taiwan's indirect trade with China increased to $10.5 billion in the first half of 1996. Separately, the Taiwan Ministry of Trade recently approved $95 million in direct investment in China by Taiwan companies. [GRAPHIC PIE CHART OMITTED: Greater China Growth Portfolio: Asset Allocation] Caption reads: Based on market value as of August 31, 1996 Indonesia 2.0% Mainland China 0.6% Hong Kong 45.9% Malaysia 10.7% Thailand 9.6% Singapore 7.8% Korea 7.7% Philippines 6.6% Taiwan 6.3% Other 2.8% Economically, it now appears that Taiwan is back on track. Fourth quarter GDP is expected to rise to 6.5% from 4.9% a year ago, according to a study by Hong Kong & Shanghai Bank. And reflecting that growth, corporate earnings growth for Taiwanese companies in 1997 is expected to be in the 15%-to-20% range. That kind of earnings growth is likely to generate strong momentum in the stock market. [GRAPHIC OF COUNTRY OF CHINA WITH OIL RIG & OIL STORAGE TANK, COAL CAR FULL OF COAL AND UNIVERSAL NUCLEAR POWER SYMBOL OMITTED:] Captions reads: China's energy needs*: Soaring demand for all sectors. Oil & Natural Gas Exploration: 609 Mil. Tons Coal Production: 1,252 Mil. Tons Hydro/Nuclear: 79 Mil. Tons Footnote reads: *Estimated fuel needs by year 2015 Source: DRI/McGraw-Hill [GRAPHIC OMITTED: China's Energy Needs: A Twenty-Year, $1 Trillion Building Program.] China's Estimated Energy Expenditures by the year 2015: Fuel Energy Demand: Electric power $550 billion Oil 180 billion Coal 180 billion Natural Gas 90 billion Footnote reads: Source: DRI/McGraw-Hill Q. Where have you been investing in Taiwan? A. While Taiwan remains a fairly small portion of the Portfolio, at 6.3%, we have increased our commitments there since our last report. We have focused on companies like Nan Ya Plastic and Formosa Chemical Fiber, as these sectors, which have experienced weak pricing in a sluggish economic climate, should strengthen with an improving economy. Finally, the finance sector has offered some attractive opportunities. The government's loose monetary policy should boost business for financial companies such as Cathay Insurance. Q. You also indicated an increased interest in Malaysia. A. Yes. Early in the year, there were concerns that the Malaysian economy might be overheating. However, those fears have since proved unwarranted. The Malaysia market has recently consolidated gains made early in the year, but should be on firm footing for the rest of the year. Moreover, we remain positive on the Malaysian market, which is trading at a multiple of 18.8 times prospective 1997 earnings, close to its 6-year historic low of 18 times earnings. Corporate earnings have been much stronger than anticipated. Earnings reports, due out in the next few weeks, may add some support to the market, since expectations are quite positive for the half-year results. Q. Where have you invested in Malaysia? A. The Fund's largest Malaysian investment is Sime Darby. The company has interests across a wide range of industries throughout the China region. In addition to maintaining plantations throughout Malaysia, Sime Darby also has an exposure in manufacturing, property develop-ment, and the financial services industry. Interestingly, it also owns auto dealer franchises for BMW, Ford, Alfa Romeo, and Mitsubishi for certain parts of the China region. Q. You mentioned having trimmed your investments in Thailand. What occasioned that change? A. We've scaled back our investments in Thailand because of increasing concerns over high inflation. Market conditions have been further aggravated by disappointing first quarter earnings. Domestic interest rates are not likely to come down by the desired 1%-2% unless there is a significant reduction in the current account deficit, which is likely to remain a problem well into the fourth quarter. Given recent conditions, the Bank of Thailand has indicated a reluctance to ease its recent tight monetary policies. Finally, investors have been fixated on the stability of the present Thai government. So there have been ample reasons to exercise caution in Thailand. Q. What sort of Thai companies have you retained as investments? A. We've generally focused on blue chip companies that should maintain strong earnings momentum despite the questions over politics and the economy. The economy has continued to weaken due to a tight monetary policy, and it is less likely now that the economy will hit its economic targets for 1996. An interest rate decline could set the stage for an earnings recovery. But until we see confirmation of that, we are staying with reliable blue chips like Electricity Generating Company and Siam Commercial Bank. Electricity Generating is the holding company that is the among the key players in Thailand's efforts to privatize its electric utility industry, while Siam Commercial is among Thailand's leading financial services companies. Q. Turning to mainland China, how is the economy doing? A. The Chinese government recently announced a cut in interest rates, the second such reduction this year. The move was aimed at continuing strong economic growth. Importantly, the government took pains to emphasize that it was not abandoning its "appropriately tight monetary policies." Thus, China will keep a close watch on inflation, and that should be very reassuring to investors. Recent U.S. Investments* in China: (bullet) Revlon, Inc. - the U.S. cosmetics giant has formed a joint venture with Sunstar Group, a Beijing-based investment firm. The new company will be based in Shanghai and will represent Revlon's first manufacturing facility in China. (bullet) Wal-Mart - the Arkansas-based discount retailer has opened Supercenter and Sam's outlets in Shenzhen at a cost of $50 million. The company plans to open 35 stores in China by the year 2000. (bullet) Freightliner, Inc. - the U.S. truck manufac-turer is creating a joint venture with Chinese public sector authorities. The new company, Shanghai Freightliner Truck, is scheduled to start production in 1997 and is expected to assemble 4,000 vehicles annually. Footnote reads: * These U.S. companies are not investments of the Portfolio. China imposed a credit squeeze in mid-1993 to help curb inflation, and the results have been most impressive. The government expects that inflation will fall below its target of 10% for 1996, while economic growth is expected to be in the 9%-to-10% range. The Portfolio maintains a very modest exposure to mainland companies at present. As I indicated earlier, we continue to favor Hong Kong as the most liquid and convenient investment vehicle into China. Q. Adaline, what do you anticipate in the year ahead for Hong Kong and China? A. Happily, there is an increasing sense of calm regarding the transfer of Hong Kong to China's jurisdiction, now less than a year away. I believe that China clearly recognizes what a valuable asset it will have in Hong Kong. And, for their part, the Hong Kong business establishment is committed to making the most of this great opportunity. Of course there will be the usual political gamesmanship, which is to be expected. As I have reminded share- holders in the past, political change is among the risks of investing in a foreign country. But in the final analysis, the potential benefits for Hong Kong and China, following the transfer, are too vast to ignore. China has made tremendous progress in fighting inflation and is gradually spreading economic liberalism to the interior of the country. Hong Kong will bring needed expertise and many decades of professional management. It should prove to be an exciting partnership. [GRAPHIC WORM CHART OMITTED: Comparison of change in Value of a $10,000 Investment in EV Classic Greater China Growth Fund and the Peregrine Asia 100 Index] Caption reads: From December 31, 1993 through August 31, 1996 Inset box info reads: - ---------------------------------------------------------------- AVERAGE Value of ANNUAL 1 Life Investment at RETURNS Year of Fund* 8/31 - ---------------------------------------------------------------- With CDSC 3.2% -6.09% $8,481 - ---------------------------------------------------------------- Without CDSC 4.2% -6.09% $8,481 - ---------------------------------------------------------------- Data from worm chart reads: Date Fund Index -------- ------- ------- 12/31/93 $10,000 $10,000 1/31/94 $9,440 $9,702 2/28/94 $9,000 $9,169 3/31/94 $7,940 $8,360 4/30/94 $8,040 $8,556 5/31/94 $8,400 $8,916 6/30/94 $7,900 $8,495 7/31/94 $8,410 $8,920 8/31/94 $9,030 $9,527 9/30/94 $8,960 $9,970 10/31/94 $8,910 $9,529 11/30/94 $8,080 $8,798 12/31/94 $8,000 $8,729 1/31/95 $7,118 $7,881 2/28/95 $7,720 $8,299 3/31/95 $7,820 $8,389 4/30/95 $7,710 $8,200 5/31/95 $8,401 $8,813 6/30/95 $8,261 $8,646 7/31/95 $8,502 $8,735 8/31/95 $8,141 $8,243 9/30/95 $8,261 $8,343 10/31/95 $8,070 $8,193 11/30/95 $7,880 $7,962 12/31/95 $8,191 $8,282 1/31/96 $8,983 $8,668 2/28/96 $8,832 $8,751 3/31/96 $8,722 $8,866 4/30/96 $8,913 $9,401 5/31/96 $8,983 $9,235 6/30/96 $8,742 $9,186 7/31/96 $8,191 $8,486 8/31/96 $8,481 $8,746 Footnote reads: Past performance is not indicative of future results. Investment returns and principal value will fluctuate so that an investor's shares, when redeemed, may be worth more or less than their original cost. Source: Towers Data Systems, Bethesda, MD. * Investment operations commenced on 12/28/93 + Index information is available only at month-end; therefore, the line comparison begins at the next month-end following the commencement of the Fund's investment operations. Fund Performance In accordance with guidelines issued by the Securities and Exchange Commission, we are including a performance chart that compares your Fund's total return with that of a broad-based investment index. The lines on the chart represent the total returns of $10,000 hypothetical investments in EV Classic Greater China Growth Fund, and the unmanaged Peregrine Asia 100 Index. The Total Return Figures The solid blue line on the chart represents the Fund's performance at net asset value. The Fund's total return figure reflects Fund expenses and transaction costs, and the reinvestment of dividends and capital gains. The black line represents the performance of the Peregrine Asia 100 Index, a broad-based, widely recognized unmanaged index of 100 common stocks traded in the China region. The Index's total return does not reflect any commissions or expenses that would be incurred if an investor individually purchased or sold the securities represented in the Index. It is not possible to invest directly in the Index. EV Classic Greater China Growth Fund Financial Statements
Statement of Assets and Liabilities August 31, 1996 Assets: Investment in Greater China Growth Portfolio, at value (Note 1A) (identified cost, $17,115,339) $ 18,800,618 Receivable for Fund shares sold 57,588 Deferred organization expenses (Note 1E) 23,360 ------------- Total assets $ 18,881,566 Liabilities: Payable for Fund shares redeemed $ 64,687 Payable to affiliate -- Trustees' fees (Note 3) 30 Accrued expenses 14,455 ------------- Total liabilities 79,172 ------------- Net Assets for 2,222,320 shares of beneficial interest outstanding $ 18,802,394 ============= Sources of Net Assets: Paid-in capital $ 21,069,525 Accumulated net realized loss on investment transactions from the Portfolio (3,568,146) Accumulated distributions in excess of net investment income (384,264) Unrealized appreciation of investments from Portfolio (computed on the basis of identified cost) 1,685,279 ------------- Total $ 18,802,394 ============= Net Asset Value, Offering Price, and Redemption Price Per Share (Note 7) ($18,802,394 (divided by) 2,222,320 shares of beneficial interest outstanding) $ 8.46 ======= See notes to financial statements
Statement of Operations For the Year Ended August 31, 1996 Investment Income (Note 1B): Investment income allocated from Portfolio (net of foreign taxes of $37,625) $ 420,054 Expenses allocated from Portfolio (228,941) ------------- Net investment income from Portfolio $ 191,113 Expenses -- Management fee (Note 3) $ 50,917 Compensation of Trustees not members of the Administrator's organization (Note 3) 611 Custodian fee (Note 1C) 2,618 Distribution fees (Note 6) 203,664 Transfer and dividend disbursing agent fees 28,150 Printing and postage 33,885 Legal and accounting services 10,090 Registration fees 29,735 Amortization of organization expenses (Note 1E) 10,028 Miscellaneous 6,103 ------------- Total expenses 375,801 ------------- Net investment loss $ (184,688) ------------- Realized and Unrealized Gain (Loss) from Portfolio: Net realized gain (loss) from Portfolio (identified cost basis) -- Investment transactions (net of foreign capital gains taxes of $65,567) $ (168,619) Foreign currency and forward foreign currency exchange contract (46,622) ------------- Net realized loss $ (215,241) Change in unrealized appreciation 1,317,029 ------------- Net realized and unrealized gain $ 1,101,788 ------------- Net increase in net assets from operations $ 917,100 ============= See notes to financial statements
Statements of Changes in Net Assets Year Ended August 31, ------------------------------------ 1996 1995 -------------- -------------- Increase (Decrease) in Net Assets: From operations -- Net investment loss $ (184,688) $ (135,671) Net realized loss (215,241) (2,187,569) Change in unrealized appreciation (depreciation) from Portfolio (1,317,029) (194,248) ------------- ------------- Net increase (decrease) in net assets from operations $ 917,100 $ (2,517,488) ------------- ------------- Distributions to shareholders -- (Note 2) In excess of net investment income $ -- $ (59,285) ------------- ------------- Transactions in shares of beneficial interest (Note 4) -- Proceeds from sale of shares $ 13,070,195 $ 15,194,416 Net asset value of shares issued to shareholders in payment of distributions declared -- 54,632 Cost of shares redeemed (16,392,547) (17,894,214) ------------- ------------- Decrease in net assets from Fund share transactions $ (3,322,352) $ (2,645,166) ------------- ------------- Net decrease in net assets $ (2,405,252) $ (5,221,939) Net Assets: At beginning of year 21,207,646 26,429,585 ------------- ------------- At end of year (including distributions in excess of net investment income of $384,264 and $139,381, respectively) $ 18,802,394 $ 21,207,646 ============= ============= See notes to financial statements
Financial Highlights Year Ended August 31, -------------------------------------------- 1996 1995 1994* -------- -------- -------- Net Asset Value, beginning of year $ 8.120 $ 9.030 $ 10.000 -------- -------- -------- Income (Loss) from operations: Net investment loss $ (0.092) $ (0.037) $ (0.033) Net realized and unrealized gain (loss) on investments 0.432 (0.853) (0.937) -------- -------- -------- Total income (loss) from operations $ 0.340 $ (0.890) $ (0.970) -------- -------- -------- Less distributions: In excess of net investment income $ -- $ (0.020) $ -- -------- -------- -------- Net Asset Value, end of year $ 8.460 $ 8.120 $ 9.030 ======== ======== ======== Total Return (2) 4.19% (9.85%) (9.70%) Ratios/Supplemental Data: Net assets, end of year (000 omitted) $ 18,802 $ 21,208 $ 26,430 Ratio of net expenses to average daily net assets (1)(3) 3.03% 3.04% 2.75%+ Ratio of net expenses to average daily net assets after custodian fee reduction (1)(3) 2.97% -- -- Ratio of net investment loss to average daily net assets (0.91%) (0.59%) (0.74%)+ + Computed on an annualized basis. * For the period from December 28, 1993 (start of business) to August 31, 1994. (1) Includes the Fund's share of Greater China Growth Portfolio's allocated expenses. (2) Total return is calculated assuming a purchase at the net asset value on the first day and a sale at the net asset value on the last day of each period reported. Dividends and distributions, if any, are assumed to be reinvested at the net asset value on the record date. Total return is computed on a non-annualized basis. (3) The expense ratios for the year ended August 31, 1996 have been adjusted to reflect a change in reporting requirements. The new reporting guidelines require each Fund, as well as its corresponding Portfolio, to increase its expense ratio by the effect of any expense offset arrangements with its service providers. The expense ratios for each of the periods ended on or before August 31, 1995 have not been adjusted to reflect this change. See notes to financial statements
Notes to Financial Statements (1) Significant Accounting Policies EV Classic Greater China Growth Fund (the Fund) is a diversified series of Eaton Vance Growth Trust (the Trust). The Trust is an entity of the type commonly known as a Massachusetts business trust and is registered under the Investment Company Act of 1940, as amended, as an open-end, management investment company. The Fund invests all of its investable assets in interests in Greater China Growth Portfolio (the Portfolio), a New York Trust, having the same investment objective as the Fund. The value of the Fund's investment in the Portfolio reflects the Fund's proportionate interest in the net assets of the Portfolio (3.7% at August 31, 1996). The performance of the Fund is directly affected by the performance of the Portfolio. The financial statements of the Portfolio, including the portfolio of investments, are included elsewhere in this report and should be read in conjunction with the Fund's financial statements. The following is a summary of significant accounting policies consistently followed by the Fund in the preparation of its financial statements. The policies are in conformity with generally accepted accounting principles. A. Investment Valuations - Valuation of securities by the Portfolio is discussed in Note 1A of the Portfolio's Notes to Financial Statements which are included elsewhere in this report. B. Income - The Fund's net investment income consists of the Fund's pro rata share of the net investment income of the Portfolio, less all actual and accrued expenses of the Fund determined in accordance with generally accepted accounting principles. C. Expense Reduction - The Fund has entered into an arrangement with its custodian agent whereby interest earned on uninvested cash balances are used to offset custodian fees. All significant reductions are reported as a reduction of expenses in the statement of operations. Prior to November 10, 1995, Investors Bank & Trust Company (the custodian) was an affiliate of Eaton Vance Management. D. Federal Taxes - The Fund's policy is to comply with the provisions of the Internal Revenue Code applicable to regulated investment companies and to distribute to shareholders each year all of its net investment income, and any net realized capital gains. Accordingly, no provision for federal income or excise tax is necessary. At August 31, 1996, the Fund, for federal income tax purposes, had capital loss carryovers which will reduce the taxable income arising from future net realized gain on investments, if any, to the extent permitted by the Internal Revenue Code and thus will reduce the amount of distributions to shareholders which would otherwise be necessary to relieve the Fund of any liability for federal income or excise tax. The amounts and expiration dates of the capital loss carryovers are as follows: Amounts Expires ---------------- ---------------- $1,396,831 8/31/04 337,254 8/31/03 834,707 8/31/02 Additionally, net capital losses of $38,736 attributable to security and currency transactions included after October 31, 1995, are treated as arising on the first day of the Fund's next taxable year. E. Deferred Organization Expenses - Costs incurred by the Fund in connection with its organization, including registration costs, are being amortized on the straight-line basis over five years. F. Use of Estimates - The preparation of the financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenue and expense during the reporting period. Actual results could differ from those estimates. G. Other - Investment transactions are accounted for on a trade-date basis. (2) Distributions to Shareholders It is the present policy of the Fund to make at least one distribution annually (normally in December) of all or substantially all of the investment income allocated to the Fund by the Portfolio, less the Fund's direct and allocated expenses and at least one distribution annually of all or substantially all of the net realized capital gains (reduced by any available capital loss carryforwards from prior years) allocated by the Portfolio to the Fund, if any. Shareholders may reinvest all distributions in shares of the Fund at the per share net asset value as of the close of business on the record date. The Fund distinguishes between distributions on a tax basis and a financial reporting basis. Generally accepted accounting principles require that only distributions in excess of tax basis earnings and profits be reported in the financial statements as a return of capital. Differences in the recognition or classification of income between the financial statements and tax earnings and profits which result in temporary over distributions for financial statement purposes are classified as distributions in excess of net investment income or accumulated net realized gains. Permanent differences between book and tax accounting relating to distributions are reclassified to paid-in capital. During the year ended August 31, 1996, $95,378 was reclassified from accumulated net investment loss to accumulated distributions in excess of net investment income ($60,195) and paid-in capital ($35,180), due to permanent differences between book and tax accounting for currency gains and losses, foreign taxes and net operating loss. Net investment income, net realized losses and net assets were not affected by those reclassifications. (3) Management Fee and Other Transactions with Affiliates The management fee is earned by Eaton Vance Management (EVM) as compensation for management and administration of the business affairs of the Fund. The fee is based on a percentage of average daily net assets. For the year ended August 31, 1996 the fee was equivalent to .25% of the Fund's average daily net assets for such period and amounted to $50,917. Except as to Trustees of the Fund who are not members of EVM's organization, officers and Trustees receive remuneration for their services to the Fund out of such management fee. Certain officers and Trustees of the Fund and the Portfolio are officers and directors/trustees of the above organizations. In addition, investment adviser and administrative fees are paid by the Portfolio to EVM and its affiliates. See Note 2 of the Portfolio's Notes to Financial Statements which are included elsewhere in this report. (4) Shares of Beneficial Interest The Declaration of Trust permits the Trustees to issue an unlimited number of full and fractional shares of beneficial interest (without par value). Transactions in Fund shares were as follows: For the Year Ended -------------------------------------- August 31, 1996 August 31, 1995 -------------------------------------- Sales 1,541,301 1,851,528 Issued to shareholders electing to receive payments of distributions in Fund shares -- 6,929 Redemptions (1,930,989) (2,173,165) ---------- ---------- Net decrease (389,688) (314,708) ========== ========== (5) Investment Transactions Increases and decreases in the Fund's investment in the Portfolio aggregated $13,027,315 and $16,842,938, respectively. (6) Distribution Plan The Fund has adopted a distribution plan (the "Plan") pursuant to Rule 12b-1 under the Investment Company Act of 1940. The Plan requires the Fund to pay the Principal Underwriter, Eaton Vance Distributors, Inc. (EVD) amounts equal to 1/365 of 0.75% of the Fund's daily net assets, for providing ongoing distribution services and facilities to the Fund. The Fund will automatically discontinue payments to EVD during any period in which there are no outstanding Uncovered Distribution Charges, which are equivalent to the sum of (i) 6.25% of the aggregate amount received by the Fund for shares sold plus, (ii) distribution fees calculated by applying the rate of 1% over the prevailing prime rate to the outstanding balance of Uncovered Distribution Charges of EVD reduced by amounts theretofore paid to EVD. The amount payable to EVD with respect to each day is accrued on such day as a liability of the Fund and, accordingly, reduces the Fund's net assets. The Fund paid or accrued $152,748 to or payable to EVD for the year ended August 31, 1996, representing 0.75% of average daily net assets. At August 31, 1996 the amount of Uncovered Distribution Charges of EVD calculated under the Plan was approximately $2,909,659. In addition, the Plan permits the Fund to make monthly payments of service fees to the Principal Underwriter in amounts not expected to exceed 0.25% of the Fund's average daily net assets for any fiscal year. The Fund paid or accrued service fees to or payable to EVD for the year ended August 31, 1996 in the amount of $50,916. During the first year after a purchase of Fund shares, EVD will retain the service fee as reimbursement for the service fee payment made to the Authorized Firm at the time of sale. EVD made monthly service fee payments to Authorized Firms in amounts anticipated to be equivalent to 0.25%, annualized, of the assets maintained in the Fund by their customers. EVD currently expects to pay to an Authorized Firm a service fee at the time of sale equal to 0.25% of the purchase price of the shares sold by such Firm and monthly payments of service fees in amounts not expecting to exceed 0.25% per annum of the Funds' average daily net assets based on a value of Fund shares sold by such Firm and remaining outstanding for at least one year. During the first year after a purchase of Fund shares, EVD will retain the service fee as reimbursement for the service fee payment made to an Authorized Firm at the time of sale. Service fee payments are made for personal services and/or the maintenance of shareholder accounts. Service fees paid to EVD and Authorized Firms are separate and distinct from the sales commissions and distribution fees payable by the Fund to EVD, and as such are not subject to automatic discontinuance when there are no outstanding Uncovered Distribution Charges of EVD. Certain officers and Trustees of the Fund are officers or directors of EVD. (7) Contingent Deferred Sales Charge Shares purchased on or after January 30, 1995 and redeemed during the first year after purchase (except shares acquired through the reinvestment of distributions) generally will be subject to a contingent deferred sales charge (CDSC) at a rate of one percent of redemption proceeds, exclusive of all reinvestments and capital appreciation in the account. No contingent deferred sales charge is imposed on exchanges for shares of other funds in the Eaton Vance Classic Group of Funds or Eaton Vance Money Market Fund which are distributed with a contingent deferred sales charge. EVD received approximately $2,512 of CDSC for the year ended August 31, 1996. Independent Auditors' Report To the Trustees and Shareholders of Eaton Vance Growth Trust: We have audited the accompanying statement of assets and liabilities of EV Classic Greater China Growth Fund (one of the series constituting Eaton Vance Growth Trust) as of August 31, 1996, and the related statement of operations for the year ended, the statements of changes in net assets for the years ended August 31, 1996 and 1995, and the financial highlights for the years ended August 31, 1996 and 1995 and for the period from the start of business, December 28, 1993, to August 31, 1994. These financial statements and financial highlights are the responsibility of the Trust's management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, such financial statements and financial highlights present fairly, in all material respects, the financial position of the EV Classic Greater China Growth Fund series of the Eaton Vance Growth Trust at August 31, 1996, the results of its operations, the changes in its net assets and its financial highlights for the respective stated periods in conformity with generally accepted accounting principles. DELOITTE & TOUCHE LLP Boston, Massachusetts October 4, 1996
Portfolio of Investments August 31, 1996 STOCKS AND WARRANTS -- 97.8% - --------------------------------------------------------------------------------------- Shares Value - --------------------------------------------------------------------------------------- China -- 0.6% Shanghai Yaohua Pilkington 5,683,563 $2,841,782 ------------ Hong Kong -- 45.9% Chen Hsong Holdings 10,820,000 $6,227,076 Cheung Kong Holdings Ltd. 3,650,000 25,608,818 Cheung Kong Infrastructure 1,482,000 2,424,575 China Merchants Hai Hong Holdings 8,000,000 2,741,781 China Overseas Land & Investment 20,000,000 6,272,471 China Resources Enterprises 7,672,000 6,895,890 China Travel International 8,322,000 2,394,720 China Travel International Warrants * 2,064,400 170,872 CIM Company Ltd. (1) 1,800,000 3,026,306 Cosco Pacific Ltd. 7,000,000 5,386,565 Giordano Holdings Ltd. 1,500,000 1,241,561 Guangnan Holdings Ltd. 8,980,000 5,516,541 Hang Seng Bank 760,000 7,789,504 Hong Kong Land Holdings Ltd. 2,020,000 4,585,400 Hong Kong Telecommunications Ltd. 2,773,000 4,644,260 HSBC Holdings PLC 1,500,000 25,898,192 Hutchison Whampoa 4,400,000 26,631,489 Jardine Matheson Holdings 590,800 3,722,040 Li & Fung Ltd. 7,184,000 6,503,712 National Mutual Ltd. 14,694,000 12,257,352 New World Development 4,000,000 19,399,395 Ng Fung Hong Ltd. 8,752,000 4,244,588 Oriental Press Group Ltd. 8,200,000 4,215,488 CP Pokphand Co. Ltd. 17,338,000 5,886,067 San Miguel Brewery Ltd. 3,170,000 1,240,171 Siu Fung Ceramics Holdings 28,284,000 4,389,540 Sun Hung Kai Properties Ltd. 1,427,000 13,933,745 Tingyi (Cayman Island) Holding Co. 8,696,000 2,035,612 Varitronix International Ltd. 3,282,000 6,197,098 VTECH Holdings Ltd. 3,000,000 5,528,828 Wharf Holdings Ltd. 1,581,200 5,971,268 Zhenhai Refining & Chemical Co. 3,158,000 959,793 ------------ $233,940,718 ------------ Indonesia -- 2.0% PT HM Sampoerna (Foreign) 571,500 $ 5,502,701 PT Lippo Bank (Foreign) (2) 3,200,000 4,918,873 ------------ $10,421,574 ------------ Republic of Korea -- 7.7% Haitai Electronics Co. 188,750 3,432,865 Hansol Paperboard Co. Ltd. 8 70 Korea Electric Power Corp. 301,200 10,830,424 Korea Exchange Bank 999,499 12,218,812 Korea Mobile Telecom Corp. 230 255,740 Pohang Iron & Steel Co. Ltd. 52,630 4,089,090 Samsung Electronics (New) 18,996 1,412,092 Samsung Electronics (Ord) 38,146 2,970,662 Samsung Fire & Marine Insurance 4,510 2,698,576 Samsung Fire & Marine Insurance Pfd. 3,920 1,123,438 ------------ $39,031,769 ------------ Malaysia -- 10.7% Berjaya Sports Toto Bhd 1,200,000 $4,451,574 Ekran Bhd 830,000 3,528,374 Hong Leong Industries Bhd 312,000 1,438,941 Konsortium Perkapalan Bhd 375,000 2,361,139 Kumpulan Guthrie Bhd (2) 2,350,000 3,769,801 Land & General Bhd 3,580,000 6,546,942 Magnum Corp. Bhd 1,700,000 2,754,361 Malayan Banking Bhd 400,000 3,801,885 MBF Capital Bhd 3,800,000 5,425,306 RJ Reynolds Bhd 1,000,000 2,887,508 Sime Darby Bhd 3,300,000 11,183,076 Tan Chong Motor Holdings Bhd 3,494,000 6,193,495 ------------ $54,342,402 ------------ The Philippines -- 6.6% Bacnotan Consolidated Industries 544,272 $2,659,546 Belle Corp. 30,591,000 8,174,728 Fortune Cement Corp. 7,000,000 3,607,559 Philippine Long Distance Telephone ADR ** 144,700 8,663,913 Pilipino Telephone 7,200,000 9,482,726 San Miguel Corp. Class B 23,199 75,721 SM Prime Holdings 4,598,280 1,105,904 ------------ $33,770,097 ------------ Singapore -- 7.8% Cerebos Pacific Ltd. 1,129,000 $9,388,273 Clipsal Industries Holdings Ltd. 2,400,000 6,696,000 Clipsal Industries Holdings Ltd. Warrants 234,000 181,350 Overseas Union Bank (Foreign) 1,640,000 11,422,886 Sembawang Maritime 1,799,000 4,628,557 Straits Steamship Land 2,000,000 6,851,457 Straits Steamship Land Warrants * 613,125 797,455 ------------ $39,965,978 ------------ Taiwan -- 6.3% Cathay Life Insurance 1,049,950 $6,421,829 China Motor Co. Ltd. 1,688,200 2,194,184 China Steel 7,935,000 7,742,168 Formosa Chemical Fiber 1,573,578 1,901,985 Formosa Plastics 964,590 2,036,815 Grand Pacific Petrochemical 1,736,500 1,681,656 Nan Ya Plastic 3,813,076 7,218,711 Standard Foods Taiwan Ltd. 1,024,000 2,180,905 Wan Hai Lines Ltd. 428,750 991,194 ------------ $32,369,447 ------------ Thailand -- 9.6% Bangkok Bank Co. Ltd. (Foreign) 291,200 $3,682,434 Bangkok Bank Co. Ltd. (Public) (2) 250,000 2,153,725 Dhana Siam Finance 1,205,800 5,765,730 Electricity Generating (Foreign) 3,965,970 11,754,505 Krung Thai Bank Ltd. (Foreign) 1,548,000 6,667,931 Saha Union Corp. Ltd. (Local) (2) 1,555,300 2,089,713 Siam Cement (Local) (2) 163,210 6,011,133 Siam Commercial Bank 850,000 10,681,683 Thailand Military Bank (Foreign) 99,000 367,753 ------------ $49,174,607 ------------ United States -- 0.6% AES China Generating Co. Ltd. 210,000 $1,837,500 Pacific Basin Bulk Shipping 84,500 1,309,750 Pacific Basin Bulk Shipping Warrants * 84,500 79,219 ------------ $3,226,469 ------------ Total Stocks and Warrants (Identified cost, $425,476,900) $499,084,843 Other Assets Less Liabilities -- 2.2% 11,212,716 ------------ Net Assets -- 100.0% $510,297,559 ============ * Non-income producing security ** ADR -- American Depository Receipt (1) Security valued at fair value using methods determined in good faith by or at the direction of the Trustees. (2) The above securities held by the Portfolio on August 31, 1996, are unrestricted securities valued at market prices. Because of the length of the registration process, the Portfolio would temporarily be unable to sell these securities. At August 31, 1996, the aggregate value of these securities amounted to $18,943,245 representing 3.7% of the net assests (Note 5). See notes to financial statements
Statement of Assets and Liabilities August 31, 1996 Assets: Investments, at value (Note 1A) (Identified cost, $425,476,900) $ 499,084,843 Cash denominated in foreign currencies (cost, $3,755,508) 3,740,380 Cash 7,041,766 Receivable for investments sold 273,004 Dividends and interest receivable 1,369,810 Deferred organization expenses (Note 1D) 34,515 ------------ Total assets $511,544,318 Liabilities: Payable for investments purchased $608,312 Payable for foreign capital gains tax 507,411 Payable for forward foreign currency exchange contracts 400 Payable to affiliate -- Trustees' fees (Note 2) 2,500 Accrued expenses 128,136 -------- Total liabilities 1,246,759 ------------ Net Assets applicable to investors' interest in Portfolio $510,297,559 ============ Sources of Net Assets: Net proceeds from capital contributions and withdrawals $436,707,543 Net unrealized appreciation of investments 73,590,016 (computed on the basis of identified cost ------------ Total $510,297,559 ============ See notes to financial statements
Statement of Operations For the Year Ended August 31, 1996 Investment Income: Income -- Dividends (net of foreign taxes of $1,044,675) $11,539,535 Interest 116,558 ----------- Total income $11,656,093 Expenses -- Investment adviser fee (Note 2) $ 4,211,398 Administration fee (Note 2) 1,404,681 Compensation of Trustees not members of the Investment Adviser's or Administrator's organizations (Note 2) 20,833 Custodian fee (Note 1C) 962,477 Legal and audit fees 43,767 Amortization of organization expenses (Note 1D) 28,716 Miscellaneous 29,564 ----------- Total expenses $ 6,701,436 Deduct reduction of custodian fee (Note 1C) 346,868 ----------- Net expenses 6,354,568 ----------- Net investment income $ 5,301,525 ----------- Realized and Unrealized Gain (Loss) on Investments: Net realized gain (loss) -- Investment transactions computed (net of foreign capital gains taxes of $1,805,874) $15,071,040 Foreign currency (1,283,543) ----------- Net realized gain $13,787,497 Change in unrealized appreciation -- Investments (identified cost basis) $15,902,819 Foreign currency 738,472 ----------- Increase in unrealized appreciation 16,641,291 ----------- Net realized and unrealized gain on investments $30,428,788 ----------- Net increase in net assets from operations $35,730,313 =========== See notes to financial statements
Statements of Changes in Net Assets For the Year Ended August 31, ------------------------------------ 1996 1995 ---------------- --------------- Increase (Decrease) in Net Assets: From operations -- Net investment income $ 5,301,525 $ 8,672,881 Net realized gain (loss) on investment transactions 13,787,497 (29,095,245) Change in unrealized appreciation (depreciation) of investments and foreign currency 16,641,291 (40,394,548) ------------- ------------- Increase (decrease) in net assets from operations $ 35,730,313 $ (60,816,912) ------------- ------------- Capital transactions -- Contributions $ 135,099,898 $ 129,870,307 Withdrawals (250,949,710) (211,249,014) ------------- ------------- Decrease in net assets resulting from capital transactions $(115,849,812) $ (81,378,707) ------------- ------------- Total decrease in net assets $ (80,119,499) $(142,195,619) Net Assets: At beginning of year 590,417,058 732,612,677 ------------- ------------- At end of year $ 510,297,559 $ 590,417,058 ============= ============= See notes to financial statements
Supplementary Data - ------------------------------------------------------------------------------------------------------------ Year Ended August 31, -------------------------------------------------------- 1996 1995 1994 1993* ---------- ---------- ---------- ---------- Ratios (As a percentage of average net assets): Expenses (1) 1.19% 1.10% 1.15% 1.38%+ Expenses after custodian fee reduction 1.12% -- -- -- Net investment income 0.94% 1.35% 0.73% 0.38%+ Portfolio Turnover 42% 32% 36% 18% Average Commission Rate Paid ** $0.0070 -- -- -- Net Assets, end of period (000 omitted) $510,298 $590,417 $732,613 $208,043 + Computed on an annualized basis. * For the period from the start of business, October 28, 1992, to August 31, 1993. ** Average commission rate paid is computed by dividing the total dollar amount of commissions paid during the fiscal year by the total number of shares purchased and sold during the fiscal year for which commissions were charged. For fiscal years beginning on or after September 1, 1995, a Fund is required to disclose its average commission rate per share for security trades on which commissions are charged. (1) The expense ratios for the year ended August 31, 1996 have been adjusted to reflect a change in reporting requirements. The new reporting guidelines require each Portfolio to increase its expense ratio by the effect of any offset arrangements with its service providers. The expense ratios for each of the three periods ended on or before August 31, 1995 have not been adjusted to reflect this change. See notes to financial statements
Notes to Financial Statements (1) Significant Accounting Policies Greater China Growth Portfolio (the "Portfolio") is registered under the Investment Company Act of 1940 as a diversified, open-end investment company which was organized as a trust under the laws of the State of New York on September 1, 1992. The Declaration of Trust permits the Trustees to issue interests in the Portfolio. The following is a summary of the significant accounting policies of the Portfolio. The policies are in conformity with generally accepted accounting principles. A. Investment Valuations -- Marketable securities, including options, that are listed on foreign or U.S. securities exchanges or in the NASDAQ National Market System are valued at closing sale prices, on the exchange where such securities are principally traded. Futures positions on securities or currencies are generally valued at closing settlement prices. Unlisted or listed securities for which closing sale prices are not available are valued at the mean between the latest bid and asked prices. Short-term debt securities with a remaining maturity of 60 days or less are valued at amortized cost. Other fixed income and debt securities, including listed securities and securities for which price quotations are available, will normally be valued on the basis of valuations furnished by a pricing service. Investments for which valuations or market quotations are unavailable are valued at fair value using methods determined in good faith by or at the direction of the Trustees. B. Federal Taxes -- The Portfolio has elected to be treated as a partnership for Federal tax purposes. No provision is made by the Portfolio for federal or state taxes on any taxable income of the Portfolio because each investor in the Portfolio is individually responsible for the payment of any taxes on its share of such income. Since some of the Portfolio's investors are regulated investment companies that invest all or substantially all of their assets in the Portfolio, the Portfolio normally must satisfy the applicable source of income and diversification requirements, (under the Internal Revenue Code), in order for its investors to satisfy them. The Portfolio will allocate, at least annually among its investors, each investor's distributive share of the Portfolio's net investment income, net realized capital gains, and any other items of income, gain, loss, deduction or credit. Withholding taxes on foreign dividends and capital gains have been provided for in accordance with the Portfolio's understanding of the applicable countries' tax rules and rates. C. Expense Reduction - The Portfolio has entered into an arrangement with its custodian agent whereby interest earned on uninvested cash balances are used to offset custodian fees. All significant reductions are reported as a reduction of expenses in the statement of operations. Prior to November 10, 1995, Investors Bank & Trust Company (the custodian) was an affiliate of Eaton Vance Management. D. Deferred Organization Expenses -- Costs incurred by the Portfolio in connection with its organization, including registration costs, are being amortized on the straight-line basis over five years. E. Futures Contracts -- Upon the entering of a financial futures contract, the Portfolio is required to deposit ("initial margin") either in cash or securities an amount equal to a certain percentage of the purchase price indicated in the financial futures contract. Subsequent payments are made or received by the Portfolio ("margin maintenance") each day, dependent on daily fluctuations in the value of the underlying security, and are recorded for book purposes as unrealized gains or losses by the Portfolio. The Portfolio's investment in financial futures contracts is designed only to hedge against anticipated future changes in interest or currency exchange rates. Should interest or currency exchange rates move unexpectedly, the Portfolio may not achieve the anticipated benefits of the financial futures contracts and may realize a loss. If the Portfolio enters into a closing transaction, the Portfolio will realize, for book purposes, a gain or loss equal to the difference between the value of the financial futures contract to sell and financial futures contract to buy. F. Use of Estimates - The preparation of the financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenue and expense during the reporting period. Actual results could differ from those estimates. G. Foreign Currency Translation -- Investment valuations, other assets, and liabilities initially expressed in foreign currencies are converted each business day into U.S. dollars based upon current exchange rates. Purchases and sales of foreign investment securities and income and expenses are converted into U.S. dollars based upon currency exchange rates prevailing on the respective dates of such transactions. Recognized gains or losses on investment transactions attributable to foreign currency rates are recorded for financial statement purposes as net realized gains and losses on investments. That portion of unrealized gains and losses on investments that result from fluctuations in foreign currency exchange rates are not separately disclosed. H. Forward Foreign Currency Exchange Contracts -- The Portfolio may enter into forward foreign currency exchange contracts for the purchase or sale of a specific foreign currency at a fixed price on a future date. Risks may arise upon entering these contracts from the potential inability of counterparties to meet the terms of their contracts and from movements in the value of a foreign currency relative to the U.S. dollar. The Portfolio will enter into forward contracts for hedging purposes as well as non-hedging purposes. The forward foreign currency exchange contracts are adjusted by the daily exchange rate of the underlying currency and any gains or losses are recorded for financial statement purposes as unrealized until such time as the contracts have been closed or offset. I. Other -- Investment transactions are accounted for on the date the investments are purchased or sold. Dividend income is recorded on the ex-dividend date. However, if the ex-dividend date has passed, certain dividends from foreign securities are recorded as the Portfolio is informed of the ex-dividend date. Interest income is recorded on the accrual basis. (2) Investment Adviser Fee and Other Transactions with Affiliates The investment adviser fee is earned by Lloyd George Management (Bermuda) Limited (the Adviser), an affiliate of Eaton Vance, as compensation for management and investment advisory services rendered to the Portfolio. Under the advisory agreement, the Adviser receives a monthly fee of 0.0625% (0.75% annually) of the average daily net assets of the Portfolio up to $500,000,000, and at reduced rates as daily net assets exceed that level. For the year ended August 31, 1996 the adviser fee was.74% of average net assets. In addition, an administrative fee is earned by Eaton Vance Management (EVM) for managing and administering the business affairs of the Portfolio. Under the administration agreement, EVM earns a monthly fee in the amount of 1/48th of 1% (equal to 0.25% annually) of the average daily net assets of the Portfolio up to $500,000,000, and at reduced rates as daily net assets exceed that level. For the year ended August 31, 1996, the administration fee was .25% of average net assets. Except as to Trustees of the Portfolio who are not members of the Adviser or EVM's organization, officers and Trustees receive remuneration for their services to the Portfolio out of such investment adviser and administrative fees. Certain of the officers and Trustees of the Portfolio are officers or directors/trustees of the above organizations. (3) Investment Transactions Purchases and sales of investments, other than short-term obligations, aggregated $232,081,781 and $331,006,372, respectively. (4) Federal Income Tax Basis of Investments The cost and unrealized appreciation (depreciation) in value of the investments owned at August 31, 1996, as computed on a federal income tax basis, are as follows: Aggregate cost $425,476,900 ============ Gross unrealized appreciation $101,645,054 Gross unrealized depreciation 28,037,111 ------------ Net unrealized appreciation $73,607,943 ============ (5) Risks Associated with Foreign Investments Investing in securities issued by companies whose principal business activities are outside the United States may involve significant risks not present in domestic investments. For example, there is generally less publicly available information about foreign companies, particularly those not subject to the disclosure and reporting requirements of the U.S. securities laws. Foreign issuers are generally not bound by uniform accounting, auditing, and financial reporting requirements and standards of practice comparable to those applicable to domestic issuers. Investments in foreign securities also involve the risk of possible adverse changes in investment or exchange control regulations, expropriation or confiscatory taxation, limitation on the removal of funds or other assets of the Portfolio, political or financial instability or diplomatic and other developments which could affect such investments. Foreign stock markets, while growing in volume and sophistication, are generally not as developed as those in the United States, and securities of some foreign issuers (particularly those located in developing countries) may be less liquid and more volatile than securities of comparable U.S. companies. In general, there is less overall governmental supervision and regulation of foreign securities markets, broker-dealers, and issuers than in the United States. (6) Financial Instruments The Portfolio regularly trades in financial instruments with off- balance sheet risk in the normal course of its investing activities to assist in managing exposure to various market risks. These financial instruments include written options, forward foreign currency exchange contracts and financial futures contracts and may involve, to a varying degree, elements of risk in excess of the amounts recognized for financial statement purposes. The notional or contractual amounts of these instruments represent the investment the Portfolio has in particular classes of financial instruments and does not necessarily represent the amounts potentially subject to risk. The measurement of the risks associated with these instruments is meaningful only when all related and offsetting transactions are considered. A summary of obligations under these financial instruments at August 31, 1996 is as follows: Forward Foreign Currency Exchange Contracts Purchases - ------------------------------------------- Deliver Settlement (in United Net Unrealized Date In Exchange for States Dollars) Appreciation - ---------- ------------------ ---------------- ---------------- 9/3/96 Malaysian Ringgit $415,865 $400 (7) Line of Credit The Portfolio participates with other portfolios and funds managed by EVM and its affiliates in a $120 million unsecured line of credit agreement with a bank. The line of credit consists of a $20 million committed facility and a $100 million discretionary facility. Borrowings will be made by the Portfolio solely to facilitate the handling of unusual and/or unanticipated short-term cash requirements. Interest is charged to each portfolio based on its borrowings at an amount above either the bank's adjusted certificate of deposit rate, a variable adjusted certificate of deposit rate, or a federal funds effective rate. In addition, a fee computed at an annual rate of 1/4 of 1% on the $20 million committed facility and on the daily unused portion of the $100 million discretionary facility is allocated among the participating funds and portfolios at the end of each quarter. The Portfolio did not have any significant borrowings or allocated fees during the year. Independent Auditors' Report To the Trustees and Investors of Greater China Growth Portfolio: We have audited the accompanying statement of assets and liabilities, including the portfolio of investments, of Greater China Growth Portfolio as of August 31, 1996, and the related statement of operations for the year then ended, and the statements of changes in net assets for the years ended August 31, 1996 and 1995, and the supplementary data for each of the years in the three year period ended August 31, 1996, and for the period from the start of business, October 28, 1992 to August 31, 1993. These financial statements and financial highlights are the responsibility of the Portfolio's management. Our responsibility is to express an opinion on these financial statements and supplementary data based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and supplementary data are free of material misstatement. An audit includes examining on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of the securities owned at August 31, 1996, by correspondence with the custodian and brokers; where replies were not received from brokers, we performed other auditing procedures. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements and supplementary data present fairly, in all material respects, the financial position of Greater China Growth Portfolio at August 31, 1996, the results of its operations, the changes in its net assets and its supplementary data for the respective stated periods, in conformity with generally accepted accounting principles. DELOITTE & TOUCHE LLP Boston, Massachusetts October 4, 1996 EV Classic Greater China Growth Fund Officers Officers - -------------------- James B. Hawkes President, Trustee M. Dozier Gardner Vice President William D. Burt Vice President Barclay Tittmann Vice President James L. O'Connor Treasurer Thomas Otis Secretary Independent Trustees - -------------------- Donald R. Dwight President, Dwight Partners, Inc. Chairman, Newspapers of New England, Inc. Samuel L. Hayes, III Jacob H. Schiff Professor of Investment Banking, Harvard University Graduate School of Business Administration Norton H. Reamer President and Director, United Asset Management Corporation John L. Thorndike Director, Fiduciary Company Incorporated Jack L. Treynor Investment Adviser and Consultant Greater China Growth Portfolio Officers - -------------------- Hon. Robert Lloyd George President, Trustee and Co-Portfolio Manager James B. Hawkes Vice President and Trustee Scobie Dickinson Ward Vice President, Assistant Secretary, Assistant Treasurer and Co-Portfolio Manager William Walter Raleigh Kerr Vice President and Assistant Treasurer James L. O'Connor Vice President and Treasurer Thomas Otis Vice President and Secretary Independent Trustees - -------------------- Hon. Edward K.Y. Chen Professor and Director, Center for Asian Studies, University of Hong Kong Donald R. Dwight President, Dwight Partners, Inc. Chairman, Newspapers of New England, Inc. Samuel L. Hayes, III Jacob H. Schiff Professor of Investment Banking, Harvard University Graduate School of Business Administration Norton H. Reamer President and Director, United Asset Management Corporation Sponsor and Manager of EV Classic Greater China Growth Fund & Administrator of Greater China Growth Portfolio Eaton Vance Management 24 Federal Street Boston, MA 02110 Adviser of Greater China Growth Portfolio Lloyd George Investment Management (Bermuda) Limited 3808 One Exchange Square Central, Hong Kong Principal Underwriter Eaton Vance Distributors, Inc. 24 Federal Street Boston, MA 02110 (617) 482-8260 Custodian Investors Bank & Trust Company 89 South Street P.O. Box 1537 Boston, MA 02205-1537 Transfer Agent First Data Investor Services Group P.O. Box 5123 Westborough, MA 01581-5123 Independent Auditors Deloitte & Touche LLP 125 Summer Street Boston, MA 02110 This report must be preceded or accompanied by a current prospectus which contains more complete information on the Fund, including its distribution plan, sales charges and expenses. Please read the prospectus carefully before you invest or send money. EV Classic Greater China Growth Fund 24 Federal Street Boston, MA 02110 C-CGSRC-10/96 -----END PRIVACY-ENHANCED MESSAGE-----