-----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, DRBPHazY5zDbZfyPMToUtP1Ov2vaXOF/JkhQdymR5IzMyppvyEmYi+JBE4gCdyis oEnvluVr12zyVODiMNuIsQ== 0000950109-95-004359.txt : 19951031 0000950109-95-004359.hdr.sgml : 19951031 ACCESSION NUMBER: 0000950109-95-004359 CONFORMED SUBMISSION TYPE: N-30D PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19950831 FILED AS OF DATE: 19951030 SROS: NASD 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: 95585559 BUSINESS ADDRESS: STREET 1: 24 FEDERAL ST CITY: BOSTON STATE: MA ZIP: 02110 BUSINESS PHONE: 6174828260 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 ANNUAL REPORT ================================================================================ EV MARATHON GREATER CHINA GROWTH FUND ANNUAL SHAREHOLDER REPORT AUGUST 31, 1995 [ARTWORK APPEARS HERE] SPONSOR AND MANAGER OF EV MARATHON 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 Management (Hong Kong) Limited 3408 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 24 Federal Street Boston, MA 02110 TRANSFER AGENT The Shareholder Services Group, Inc. BOS725 P.O. Box 1559 Boston, MA 02104 (800) 262-1122 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 MARATHON GREATER CHINA GROWTH FUND 24 FEDERAL STREET BOSTON, MA 02110 M-CGSRC ================================================================================ TO SHAREHOLDERS EV Marathon Greater China Growth Fund had a total return of -9.1% for the year ended August 31, 1995. That performance was the result of a decline in net asset value per share from $13.16 on August 31, 1994, to $11.89 on August 31, 1995, and the reinvestment of $0.065 in income dividends and $0.01 in capital gain distributions. It does not include the effect of the Fund's contingent deferred sales charge on certain redeeming shareholders. By comparison, the Peregrine Asia 100 - an unmanaged index of common stocks in the Greater China region - declined 13.5% during the same period. The China region markets were negatively affected by the Mexican peso crisis, which rocked all emerging markets. The region also suffered from China's trade tensions with the U.S. However, despite the fallout from Mexico and the trade difficulties, corporate earnings continued on a record setting pace. CHINA MAKES MAJOR INROADS ON INFLATION... The year brought significant progress in China's fight against inflation, with retail inflation falling for the tenth consecutive month in August. Prices for the year ended August 31 were just 12% higher than a year earlier. The downward trend is a major victory in the government's goal to keep inflation below 15% for 1995. As late as October 1994, the inflation rate was 25%, causing alarm for investors and economic planners alike. The government credits its success in fighting inflation to its efforts to impose credit restrictions and price controls over commodities. CHINA'S CURRENCY WILL SOON BE CONVERTIBLE TO OTHER CURRENCIES... The Bank of China recently indicated that China's currency, the yuan, will be fully convertible to foreign currency in 1997 or 1998. The recent progress against inflation, as well as financial and lending reforms, have created a more stable economic environment, which makes convertibility more likely in the near future. A convertible currency is a requisite for China's expected entry into the General Agreement on Tariffs and Trade (GATT), a key element in China's strategy to join the global economy. REMARKABLY, IN THE LAND OF MAO, CHINA LAUNCHES AN INVESTMENT BANK... In September, China launched its first investment bank, the China International Capital Corporation (CICC). CICC will play a large role in arranging mergers and acquisitions and underwriting stocks and bonds. This event demonstrates dramatically that China has come full circle, from doctrinaire communism to the embrace of the capital markets. More importantly, it suggests that the commitment to providing encouragement and capital investment for private enterprise is lasting and real, an encouraging sign for investors in the China region. [PHOTO OF Sincerely, JAMES B. HAWKES APPEARS HERE] /s/ James B. Hawkes James B. Hawkes, President October 20, 1995 1 ================================================================================ MANAGEMENT DISCUSSION: ROBERT LLOYD GEORGE An interview with the Hon. Robert Lloyd George, President of Lloyd George Management, and Investment Adviser to the Greater China Growth Portfolio. Q: ROBERT, WHAT WERE SOME OF THE FACTORS IN THE FUND'S PERFORMANCE? A: The Fund's performance for the fiscal year was dictated by an especially difficult first half. That period was marked by unusual volatility in the Greater China markets, and the Fund reflected that volatility. Rising U.S. interest rates provided a difficult climate for the Hong Kong market, which remains the Portfolio's largest country weighting. Trade tensions between China and the U.S. also weighed heavily on the region's markets. Finally, Mexico's currency crisis roiled most emerging markets in the first half. [PHOTO OF HON. ROBERT LLOYD GEORGE APPEARS HERE] HON. ROBERT LLOYD GEORGE Since February, however, the investment climate has improved significantly. U.S. interest rates have declined sharply - always a favorable development - while earnings for the region's companies have continued to show strong momentum. While some political tensions remain, investors have focused increasingly on fundamentals, which remain strongly positive. Q: WHICH GREATER CHINA MARKETS HAVE BEEN THE BEST PERFORMERS? A: Hong Kong, the China region's largest and most liquid market, fared best in the region, followed by Malaysia, which managed slight gains. These countries far outperformed smaller markets, such as Indonesia, the Philippines, Taiwan, and China's B share market. For example, Hong Kong's unmanaged Hang Seng Index rose 19% in the period from January 1 through August 31. The Colony's investor sentiment remains healthy, and the news out of China continues to improve. Recent economic statistics offer further evidence that an economic soft landing in China is underway. We believe that China's economic growth will slow to 10% by year-end and that the inflation rate will slow to the 15% level in 1995. Q: HAVE YOU MADE ANY MAJOR CHANGES TO THE PORTFOLIO? A: Not many major changes. We continue to focus on countries and companies we believe will post strong earnings growth. Hong Kong remains the largest country weighting in the Portfolio, at 37.7%. Hong Kong has been riding a rollercoaster in the past year along with other emerging markets. And, of course, the Hong Kong market has been very sensitive to the fluctuations in U.S. interest rates. Recent quarterly earnings reports were mixed, but a number of large conglomerates such as 2 ================================================================================ WITH A FAST-GROWING ECONOMY, THAILAND IS EMERGING AS A [MAP APPEARS HERE] GATEWAY FOR GLOBAL BUSINESS INTO GREATER CHINA. THAILAND: A PROFILE* GDP GROWTH:............8.6% INFLATION RATE:........5.0% EXPORT GROWTH:........19.0% THAI MARKET CAP:.....$132 B LARGEST TRADE PARTNER: U.S. *1995 estimates Source: Bank of Thailand - -------------------------------------------------------------------------------- Cheung Kong Holdings, Hutchison Whampoa, and HSBC - each a large investment of the Portfolio - reported profits well above expectations. That lifted the market and raised the spirits of investors. In addition, in recent months there have been signs that the property market - a key measure of the investment climate in Hong Kong - has strengthened. Very importantly, Hong Kong is the most liquid of the emerging Asian markets and is among the first places U.S. investors may look to recycle investments if the U.S. market slows from its torrid pace of the summer. Q: HONG KONG IS THE MARKET OF CHOICE FOR MANY U.S. INVESTORS. COULD YOU GIVE AN EXAMPLE OF ONE OF THE PORTFOLIO'S LARGE CORE HOLDINGS IN HONG KONG? A: One of the Portfolio's largest Hong Kong investments, and a long-term core holding, is HSBC, Hong Kong and Shanghai Bank. As a big lender to the property sector, the bank benefits from the ongoing building of infrastructure in the region. Property stocks directly account for roughly 30% of the Hang Seng index, while indirectly making up another 15% or so. Increasingly, there is anecdotal evidence - such as rising residential real estate prices and higher commercial rents - that the property market is showing signs of 3 ================================================================================ improvement. Historically, the property market has been an important barometer for the Hong Kong stock market. Although past trends don't necessarily predict the future, when the property market improves, the stock market usually follows over time. HSBC is the leader in the Hong Kong banking establishment, and, with assets of $270 billion, ranks among the ten largest banks in the world. Moreover, it is among the most active foreign bank doing business today in mainland China. With all of its strengths and growth prospects, the stock sells at a modest 8 times its expected 1996 earnings. Q: WHERE ELSE HAVE YOU BEEN INVESTING? A: Thailand was the second largest weighting of the Portfolio, at 12.2%. On pure fundamentals, the Thai market represents a very good value. Thailand is expected to post economic growth in the 9% range in 1995, making it one of the fastest growing economies in the world. It's expected that Thai corporate earnings growth could reach 20% in 1996, according to the Bank of Thailand. While generating fast growth, the country has done a good job of containing inflation, which is running at a 6.2% annual rate. While that is somewhat higher than the government's official target of 5.2%, it still represents impressive performance. The primary engine behind the Thai economy has been rapid export growth, which in turn has led to a sharp rise in the manufacturing sector. Manufacturing now Greater China Growth Portfolio: Asset Allocation Based on market value as of August 31, 1995. [PIE CHART APPEARS HERE] Hong Kong 37.7% Thailand 12.2% Singapore 9.9% Malaysia 9.6% Philippines 9.5% Republic of Korea 7.3% Taiwan 3.7% Indonesia 2.8% China 2.4% Other 0.6%
represents about 80% of Thailand's exports, according to the Bank of Thailand, and is attracting an increasing amount of foreign investment. The country has already developed a growing auto components industry and is focusing increasingly on the biotechnology and agribusiness sectors for development. Elsewhere, the country is a strong provider of financial services, with several large banks offering a wide variety of banking services to companies hoping to penetrate the China region. With the help of private investment and government tax incentives, the government hopes that Thailand will emerge as a gateway to Greater China. Q: AND WHAT KIND OF STOCKS HAVE YOU BEEN BUYING IN THAILAND? 4 ================================================================================ IN ITS PUSH FOR GROWTH, CHINA NEEDS INVESTMENT TO FUEL ITS INFRASTRUCTURE [MAP APPEARS HERE] EXPANSION. CHINA'S INFRASTRUCTURE INVESTMENT NEEDS: SECTOR INVESTMENT ESTIMATES: Power $200 billion Telecom $141 billion Transport $302 billion Water & Sewer $101 billion Source: World Bank - -------------------------------------------------------------------------------- A: Not surprisingly, the two major themes in Thailand have been banks and infrastructure. Infrastructure offers a good deal of potential to investors, with a special emphasis on telecommunications, power generation, and transportation facilities. Siam Cement is the largest building materials company in Southeast Asia and remains the Portfolio's largest holding. The company enjoys a growing business selling construction supplies and cement for projects in mainland China. In the banking sector, the Portfolio has two large investments, Bangkok Bank, the country's largest bank, and Siam Commercial Bank. Thailand's banking industry in recent years has averaged earnings growth of more than 25% annually. With the backing of the Bangkok International Banking Facility, the country's banking sector is taking steps to become global participants and serve as a springboard to the China region for foreign investors. Q: THE PHILIPPINES HAS BOASTED ONE OF THE FASTEST GROWING MARKETS OVER THE PAST TWO YEARS. WHAT ARE YOU FOCUSING ON THERE? A: The Philippines has reduced inflation to an annual rate below 10%, while posting GDP growth over 5% for two years running, according to the World Bank. That suggests that the government is intent on keeping growth strong, but manageable. The country has traditionally suffered from an inefficient public sector, which has been reflected in a subpar infrastructure. Therefore, the Portfolio has focused much of its investment in the Philippines on companies that are participating in the infrastructure build-up. They include 5 ================================================================================ Philippines Long Distance Telephone, which is the country's dominant supplier of phone equipment. Long a core holding of the Portfolio, PLDT receives only about 25% of its revenues from local calls. With only 2 phones per 100 people, the growth potential for providers of phone services in the China region is staggering. Another large holding is Ayala Corp., the country's largest commercial and residential property developer. Property sales have risen sharply in the past year, as the strong economy and growing demand for space from China region companies have pushed commercial rents higher. Mean-while, a growing affluence has boosted demand for residential property. Together, that demand has increased the value of Ayala's land holdings, leaving the company with a large cash horde. Q: HAVE YOU CUT BACK IN ANY AREAS? A: Yes. We've slightly scaled back our investments in Taiwan. Taiwan has been the weakest performer in the region, declining nearly 10% in July alone. The most compelling reason for the poor Taiwan market was the continuing deterioration in relations between China and the U.S. following the visit by Taiwan's president to the U.S. in June. Although it is likely that relations between the parties will improve in coming months, the uncertainty created by the rift has been very negative for the Taiwan stock market. Therefore, we've been increasingly selective about our investments there, favoring large blue chips like China Steel and Nan Ya Plastic. Q: THE POWER GENERATION SECTOR HAS GROWN RAPIDLY IN GREATER CHINA. IS THAT SECTOR REPRESENTED IN THE PORTFOLIO? A: Absolutely. The power generation industry in Greater China is experiencing major growth. According to a new study by McGraw-Hill, the annual demand for power in China will rise to 1.9 billion tons of oil equivalent (TOE) by the year 2015 from just 750 million TOE in 1993. The cost of meeting this demand could reach $1 trillion, most of which will be spent on electric power generation. The Portfolio's investments in the power-generating sector are varied. In Hong Kong, the Portfolio has investments in Consolidated Electric Power Co. of Asia (CEPA). The company has been building an impressive portfolio of generating projects across the China region. Another Hong Kong investment, New World Development, is a diversified property company that is constructing a thermal power station in Zhujiang. In South Korea, the Portfolio owns shares in Korea Electric Power Corporation (KEPCO), the country's sole electricity generator. To meet surging demand, KEPCO plans to invest $6 billion annually over the next six years in new power generating equipment. Finally, Electricity Generating (EGCOMP) is a 6 ================================================================================ - -------------------------------------------------------------------------------- RECENT U.S. INVESTMENTS* IN CHINA: . LEVI STRAUSS - the U.S. jeans manufacturer opened its regional headquarters in Singapore in September. The company has distributorships in Singapore, Indonesia and Thailand, and expects its annual Greater China revenues to reach $1 billion in the near future. . MICROSOFT - the software giant signed an agreement with China in September to set language standards for the local version of Windows 95. The Chinese version of Windows goes on sale in December. . FORD MOTOR COMPANY - has agreed to acquire a 20% stake in Jiangling Motors, a leading Chinese auto maker. Plans are to build 60,000 light trucks in the first year of the joint venture. In coming years, the venture will target a mini-van for the China market. * These U.S. companies are not investments of the Portfolio. - -------------------------------------------------------------------------------- recently privatized holding company that will oversee the development of electricity generating plants in Thailand. Q: WHAT PROGRESS HAS CHINA MADE IN ITS ONGOING FIGHT AGAINST INFLATION? A: In the period since China implemented its austerity program in 1993, inflation has fallen to an annualized rate below 15%, but those gains remain relatively fragile. Inflationary pressures have been especially intense because of the large investment in fixed assets and the surge in consumer spending. While the government is happy with the progress made, the economy continues to eclipse its growth targets, making the inflation fight even more difficult. Recently, Dai Xianglong, the governor of China's central bank, urged a continuing tight money policy, a very encouraging sign for foreign investors. Q: ROBERT, WHAT IS YOUR CURRENT OUTLOOK FOR THE GREATER CHINA MARKETS? A: The Greater China markets have been volatile so far in 1995, which is to be expected in these emerging markets. Volatility is consistent with the rapid economic growth, inflationary patterns, and uncertain political trends. I believe investors can expect more volatility in the future, and that is a risk they should be prepared to face. However, having said that, I'm encouraged by the progress made against inflation and by the relatively calm discourse on the future of Hong Kong. In addition, China is addressing some of its internal questions, a sign that the current regime is facing the future with resolve. China continues to lure foreign investment and to open up industry to private hands. While future market trends are certainly not guaranteed, I believe the China market presents a unique opportunity for long-term patient investors. 7 ================================================================================ Comparison of Change in Value of a $10,000 Investment in EV Marathon Greater China Growth Fund and the Peregrine Asia 100 Index From June 30, 1993 through August 31, 1995
-------------------------------------------------------------------- AVERAGE 1 Life Value of ANNUAL RETURNS Year of Fund* Investment at 8/31 -------------------------------------------------------------------- With CDSC -13.6% 6.8% $11,735 -------------------------------------------------------------------- Without CDSC -9.1% 8.4% $12,135 --------------------------------------------------------------------
[GRAPH APPEARS HERE]
Marathon China Peregrine Asia -------------- -------------- 06/93+ $10,000 $10,000 07/93 10,010 10,067 08/93 10,668 10,713 09/93 10,891 10,955 10/93 12,389 12,814 11/93 12,551 12,865 12/93 14,946 16,030 01/94 13,972 15,552 02/94 13,283 14,697 03/94 11,701 13,401 04/94 11,863 13,716 05/94 12,401 14,292 06/94 11,640 13,617 07/94 12,421 14,299 08/94 13,344 15,272 09/94 13,242 15,982 10/94 13,182 15,276 11/94 11,965 14,102 12/94 11,859 13,992 01/95 10,583 12,633 02/95 11,482 13,304 03/95 11,635 13,447 04/95 11,482 13,144 05/95 12,502 14,127 06/95 12,308 13,860 07/95 12,665 14,002 08/95 12,135 13,214
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 6/7/93. + 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 new 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 Marathon Greater China Growth Fund, and the unmanaged Peregrine Asia 100 Index. THE TOTAL RETURN FIGURES The 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 assumes the reinvestment of income dividends and capital gain distributions. The second dollar figure for the Fund reflects the Fund's maximum applicable deferred sales charge (CDSC), deducted at redemption as follows: 5% - 1st year; 5% - 2nd year; 4% - 3rd year; 3% - 4th year; 2% - 5th year; 1% - 6th year. The black line represents the performance of the Peregrine Asia 100 Index, a broad-based, widely recognized unmanaged index of 100 common stocks traded on the major markets of the China region. The Index is not strictly a China index and may be an imperfect benchmark for the Fund. 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. 8 ================================================================================ EV MARATHON GREATER CHINA GROWTH FUND FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- STATEMENT OF ASSETS AND LIABILITIES August 31, 1995 ASSETS: Investment in Greater China Growth Portfolio, at value (Note 1A) (identified cost, $301,527,345) $325,090,135 Receivable for Fund shares sold 150,017 Deferred organization expenses (Note 1D) 27,167 ------------ Total assets $325,267,319 LIABILITIES: Payable for Fund shares redeemed $ 844,642 Payable to affiliates - Trustees' fees 1,250 Custodian fee 1,144 Accrued expenses 162,512 ---------- Total liabilities 1,009,548 ------------ NET ASSETS for 27,276,927 shares of beneficial interest outstanding $324,257,771 ============ SOURCES OF NET ASSETS: Paid-in capital $334,564,189 Accumulated net realized loss on investment transactions from the Portfolio (31,372,291) Accumulated distributions in excess of net investment income (2,496,917) Unrealized appreciation of investments from Portfolio (computed on the basis of identified cost) 23,562,790 ------------ Total net assets $324,257,771 ============ NET ASSET VALUE, OFFERING, AND REDEMPTION PRICE (NOTE 6) PER SHARE ($324,257,771 / 27,276,927 shares of beneficial interest) $11.89 ======
SEE NOTES TO FINANCIAL STATEMENTS 9 FINANCIAL STATEMENTS (CONTINUED) - -------------------------------------------------------------------------------- STATEMENT OF OPERATIONS For the Year Ended August 31, 1995 INVESTMENT INCOME (Note 1B): Investment income allocated from Portfolio (net of foreign taxes of $596,805) $ 8,589,033 Expenses allocated from Portfolio (3,869,597) ------------- Net investment income from Portfolio $ 4,719,436 Expenses - Management fee (Note 3) $ 876,239 Compensation of Trustees not members of the Administrator's organization (Note 3) 2,523 Custodian fee (Note 3) 58,191 Distribution fees (Note 5) 3,090,984 Transfer and dividend disbursing agent fees 454,671 Printing and postage 162,556 Legal and accounting services 16,968 Amortization of organization expenses (Note 1D) 9,786 Miscellaneous 103,355 ------------- Total expenses 4,775,273 ------------- Net investment loss $ (55,837) ------------- REALIZED AND UNREALIZED LOSS FROM PORTFOLIO: Net realized loss from Portfolio (identified cost basis) - Investment transactions (net of foreign capital gains taxes of $620,600) $ (20,110,632) Foreign currency (417,268) ------------- Net realized loss $ (20,527,900) Change in unrealized appreciation of investments (16,595,613) ------------- Net realized and unrealized loss $ (37,123,513) ------------- Net decrease in net assets from operations $ (37,179,350) =============
SEE NOTES TO FINANCIAL STATEMENTS 10 - -------------------------------------------------------------------------------- Statements of Changes in Net Assets
For the year ended August 31, ---------------------------------- 1995 1994 -------------- -------------- INCREASE (DECREASE) IN NET ASSETS: From operations - Net investment loss $ (55,837) $ (1,540,352) Net realized loss from Portfolio (20,527,900) (11,727,498) Change in unrealized appreciation (depreciation) from Portfolio (16,595,613) 37,116,048 ------------- ------------- Net increase (decrease) in net assets from operations $ (37,179,350) $ 23,848,198 ------------- ------------- Distributions to shareholders - In excess of net investment income $ (1,966,526) $ -- In excess of realized gain on investment transactions (302,624) (456,955) ------------- ------------- Total distributions $ (2,269,150) $ (456,955) ------------- ------------- Transactions in shares of beneficial interest (Note 4) - Proceeds from sale of shares $ 65,409,471 $ 370,568,876 Net asset value of shares issued to shareholders in payment of distributions declared 1,996,823 405,243 Cost of shares redeemed (96,178,731) (65,558,628) ------------- ------------- Increase (decrease) in net assets from Fund share transactions $ (28,772,437) $ 305,415,491 ------------- ------------- Net increase (decrease) in net assets $ (68,220,937) $ 328,806,734 NET ASSETS: At beginning of year 392,478,708 63,671,974 ------------- ------------- At end of year (including undistributed (distributions in excess of) net investment income of ($2,496,917) and $463,526, respectively) $ 324,257,771 $ 392,478,708 ============= =============
SEE NOTES TO FINANCIAL STATEMENTS 11 FINANCIAL STATEMENTS (CONTINUED) - -------------------------------------------------------------------------------- Financial Highlights
Year Ended August 31, ------------------------------------------------------ 1995 1994 1993* ------------ ------------ ------------ NET ASSET VALUE, beginning of year $ 13.160 $ 10.540 $ 10.000 --------- --------- --------- Income (loss) from Investment Operations - Net investment loss $ (0.038) $ (0.039) $ (0.015) Net realized and unrealized gain (loss) on investments (1.157) 2.684 0.555 --------- --------- --------- Total income (loss) from operations $ (1.195) $ 2.645 $ 0.540 --------- --------- --------- Less distributions - In excess of net investment income $ (0.065) $ -- $ -- In excess of net realized gain on investment transactions (0.010) (0.025) -- --------- --------- --------- Total distributions $ (0.075) $ (0.025) $ -- --------- --------- --------- NET ASSET VALUE, end of year $ 11.890 $ 13.160 $ 10.540 ========= ========= ========= TOTAL RETURN (2) (9.06%) 25.08% 5.40% RATIOS/SUPPLEMENTAL DATA: Net assets, end of period (000 omitted) $ 324,258 $ 392,479 $ 63,672 Ratio of net expenses to average daily net assets (1) 2.47% 2.38% 2.21%+ Ratio of net investment loss to average daily net assets (0.02%) (0.55%) (1.44%)+
+ Computed on an annualized basis. (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. * For the period from the start of business, June 7, 1993, to August 31, 1993. SEE NOTES TO FINANCIAL STATEMENTS 12 ================================================================================ NOTES TO FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- (1) SIGNIFICANT ACCOUNTING POLICIES EV Marathon 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 (55.1% at August 31, 1995). 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 1 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. 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, 1995 the Fund, for federal income tax purposes had a capital loss carryover of $13,887,568, 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. Such capital loss carryover will expire on August 31, 2003. Net capital losses of $15,499,068 attributable to security and currency transactions incurred after October 31, 1994, are treated as arising on the first day of the Fund's next taxable year. D. 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. E. DISTRIBUTION COSTS - For book purposes, commissions paid on the sale of Fund shares and other distribution costs are charged to operations. For tax purposes, commissions paid were charged to paid-in capital prior to November 16, 1994 and subsequently charged to operations. The change in the tax accounting practice was prompted by a recent Internal Revenue Service ruling and has no effect on either the Fund's current yield or total return (Note 5). - -------------------------------------------------------------------------------- (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 13 NOTES TO FINANCIAL STATEMENTS (CONTINUED) - -------------------------------------------------------------------------------- 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, 1995, $938,080 was reclassified from paid-in capital to accumulated distributions in excess of net investment income, and $1,642,112 was reclassified from accumulated net realized loss on investments to paid-in capital due to differences between book and tax accounting for distribution costs, currency gains and losses and foreign taxes being considered as permanent differences. Net investment income, net realized gains and net assets were not affected by this reclassification. - -------------------------------------------------------------------------------- (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, 1995 the fee was equivalent to 0.25% of the Fund's average net assets for such period and amounted to $876,239. 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. Investors Bank & Trust Company (IBT), an affiliate of EVM, serves as custodian of the Fund. Pursuant to the custodian agreement, IBT receives a fee reduced by credits which are determined based on the average daily cash balances the Fund maintains with IBT. Certain officers and Trustees of the Fund and the Portfolio are officers and directors/trustees of the above organizations. In addition, investment adviser, administrative fees, and custodian 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, 1995 August 31, 1994 --------------- --------------- Sales 5,441,956 28,933,950 Issued to shareholders electing to receive payments of distributions in Fund shares 173,957 29,118 Redemptions (8,172,241) (5,170,232) ---------- ---------- Net increase (decrease) (2,556,328) 23,792,836 ========== ==========
14 - -------------------------------------------------------------------------------- (5) 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) 5% of the aggregate amount received by the Fund for the 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 the aggregate amount of contingent deferred sales charges (see Note 6) and daily 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 accrued $2,628,719 as payable to EVD for the year ended August 31, 1995, representing 0.75% of average daily net assets. At August 31, 1995, the amount of Uncovered Distribution Charges of EVD calculated under the Plan was approximately $2,898,000. In addition, the Plan authorizes the Fund to make payments of service fees to the Principal Underwriter, Authorized Firms and other persons in amounts not exceeding 0.25% of the Fund's average daily net assets for each fiscal year. The Trustees have initially implemented the Plan by authorizing the Fund to make quarterly payments of service fees to the Principal Underwriter and Authorized Firms in amounts not expected to exceed 0.25% per annum of the Fund's average daily net assets based on the value of Fund shares sold by such persons and remaining outstanding for at least one year. Service fee payments will be made for personal services and/or the maintenance of shareholder accounts. Service fees 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 where there are no outstanding Uncovered Distribution Charges of EVD. Service fee payments for the year ended August 31, 1995 amounted to $462,265. Certain officers and Trustees of the Fund are officers or directors of EVD. - -------------------------------------------------------------------------------- (6) CONTINGENT DEFERRED SALES CHARGE A contingent deferred sales charge (CDSC) is imposed on any redemption of Fund shares made within six years of purchase. Generally, the CDSC is based upon the lower of the net asset value at date of redemption or date of purchase. No charge is levied on shares acquired by reinvestment of dividends or capital gain distributions. The CDSC is imposed at declining rates that begin at 5% in the first and second year of redemption after purchase, (6% and 5% respectively for shares purchased prior to August 1, 1994) declining one percentage point each year thereafter. No CDSC is levied on shares which have been sold to EVM or its affiliates or to their respective employees or clients. CDSC charges are paid to EVD to reduce the amount of Uncovered Distribution Charges calculated under the Fund's Distribution Plan. CDSC charges received when no Uncovered Distribution Charges exist will be retained by the Fund. EVD received approximately $2,374,000 of CDSC paid by shareholders for the year ended August 31, 1995. - -------------------------------------------------------------------------------- (7) INVESTMENT TRANSACTIONS Increases and decreases in the Fund's investment in the Portfolio aggregated $68,185,959 and $101,505,200, respectively. 15 - -------------------------------------------------------------------------------- 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 Marathon Greater China Growth Fund (one of the series constituting Eaton Vance Growth Trust) as of August 31, 1995, and the related statement of operations for the year then ended, the statements of changes in net assets for the years ended August 31, 1995 and 1994, and the financial highlights for the years ended August 31, 1995 and 1994, and for the period from the start of business, June 7, 1993 to August 31, 1993. 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 audit. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audits 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 Marathon Greater China Growth Fund series of the Eaton Vance Growth Trust at August 31, 1995, 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 6, 1995 16 ================================================================================ GREATER CHINA GROWTH PORTFOLIO PORTFOLIO OF INVESTMENTS August 31, 1995
- -------------------------------------------------------------------------------- COMMON STOCKS AND WARRANTS - 95.7% - -------------------------------------------------------------------------------- Shares Value - -------------------------------------------------------------------------------- CHINA, 2.4% Dazhong Taxi 1,106,105 $ 929,128 Shanghai Diesel Engineering 1,960,000 1,270,080 Shanghai Erfangji Co. Ltd. 6,154,676 1,070,914 Shanghai Phoenix Bicycle Co. 2,615,000 549,150 Shanghai Tyre and Rubber 5,717,600 1,989,724 Shanghai Yaohua Pilkington 4,770,500 5,152,140 Shenzhen China Bicycles Co. 8,745,000 3,050,256 ------------- $ 14,011,392 ------------- HONG KONG, 37.7% Chen Hsong Holdings 10,820,000 $ 7,687,610 Cheung Kong Holdings Ltd. 4,130,000 20,488,104 China - HK Photo Product Hld. 5,758,000 2,547,915 CIM Company Ltd. (1) 1,800,000 3,022,983 Consolidated Electric Power Asia 2,938,180 6,054,120 Giordano Holdings Ltd. 2,500,000 2,050,750 Hong Kong Electric Co. 2,605,000 9,035,964 Hong Kong Land Holdings Ltd. 3,020,000 5,496,400 Hong Kong Telecommunications Ltd. 6,273,000 11,345,348 HSBC Holdings PLC 1,632,600 21,934,798 Hutchison Whampoa 4,573,000 22,035,915 Jardine Matheson Holdings 790,800 5,693,760 Johnson Electric Holdings 1,401,500 2,788,285 Li & Fung Ltd. 7,184,000 5,336,275 Maanshan Iron & Steel Co. 3,620,000 603,454 Ming Pao Enterprises 10,048,000 4,088,531 National Mutual Ltd. 16,544,000 11,862,048 New World Development 4,498,000 16,386,664 CP Pokphand Co. Ltd. 22,586,000 8,898,884 San Miguel Brewery Ltd. 3,170,000 1,842,721 Shanghai Haixing Shipping 10,230,000 1,123,254 Shanghai Petrochemical 27,284,000 8,900,040 Siu Fung Ceramics Holdings 31,284,000 6,869,966 Sun Hung Kai Properties Ltd. 1,654,000 12,019,287 Swire Pacific Ltd. (A Shares) 1,121,000 8,399,541 Tem Fat Hing Fung 8,818,000 808,610 Varitronix International Ltd. 3,782,000 7,011,072 VTECH Holdings Ltd. 1,996,000 2,088,614
17 PORTFOLIO OF INVESTMENTS (CONTINUED) - --------------------------------------------------------------------------------
- -------------------------------------------------------------------------------- Shares Value - -------------------------------------------------------------------------------- HONG KONG - (continued) Wharf Holdings 941,200 $ 2,705,385 Yizheng Chemical Fibre Co. 8,116,000 2,411,264 Zhenhai Refining & Chemical Co. 4,722,000 1,201,749 ------------- $ 222,739,311 ------------- INDONESIA, 2.8% PT HM Sampoerna (Foreign) 821,000 $ 7,788,007 PT Indah Kiat Pulp & Paper. 6,434,400 8,871,750 ------------- $ 16,659,757 ------------- REPUBLIC OF KOREA, 7.3% Daewoo Corp.* 100 $ 1,409 Daewoo Heavy Industries 3,904 47,462 Dong Chang Paper Mfg.* 80,008 1,076,155 Korea Electric Power Corp. 411,200 15,839,588 Korea Exchange Bank 865,999 10,248,145 Pohang Iron & Steel Co. Ltd. 52,630 5,088,236 Samsung Electronics (New)* 8,290 1,479,590 Samsung Electronics 41,893 8,710,526 Samsung Fire & Marine Insurance 3,920 537,678 ------------- $ 43,028,789 ------------- MALAYSIA, 9.6% DCB Holdings Berhad 816,000 $ 2,421,398 Land & General Berhard 4,943,000 15,857,146 Genting Berhad 1,029,000 9,118,998 Hong Leong Industries Berhad 1,667,000 8,957,291 Kim Hin Industry Berhad 1,305,000 4,552,753 Kim Hin Industry Berhad Warrants* 221,000 195,850 Leader Universal Holdings Ltd. 717,666 2,374,182 Perlis Plantations Berhad 770,000 2,531,914 Sime Darby Berhad 4,180,000 10,643,534 ------------- $ 56,653,066 ------------- THE PHILIPPINES, 9.5% Ayala Corp. Class B* 2,236,404 $ 2,782,379 Bacnotan Consolidated Industries 602,201 4,205,169
18
- -------------------------------------------------------------------------------- Shares Value - -------------------------------------------------------------------------------- Belle Corp. Class B* 61,650,000 $ 11,651,850 Filipino Telephone 8,000,000 7,716,000 Philippine Long Distance Telephone 231,700 14,568,137 San Miguel Corporation 2,337,140 8,160,126 SM Prime Holdings* 22,389,900 7,169,245 ------------- $ 56,252,906 ------------- SINGAPORE, 9.9% Cerebos Pacific Ltd. 1,129,000 $ 6,404,817 City Developments 924,000 5,567,469 Clipsal Industries Holdings Ltd. 2,400,000 6,000,000 Clipsal Industries Warrants* 234,000 173,160 Development Bank of Singapore 470,000 5,365,755 Overseas Union Bank 1,716,000 10,641,945 Sembawang Maritime 2,266,000 7,856,675 Singapore Airlines Ltd. 1,125,000 9,513,787 Straits Steamship Land 2,452,500 6,947,932 United Overseas Bank 800 6,937 ------------- $ 58,478,477 ------------- TAIWAN, 3.7% China Steel 5,862,000 $ 4,476,809 CIS Technology Inc.* 1,018,000 1,474,379 Formosa Chemical 1,477,538 1,386,374 Formosa Plastics 876,900 1,425,488 Fuh HWA Secs 994,480 1,287,453 Nan Ya Plastic 3,419,799 5,782,881 Taiwan Polpropylene 814,800 1,054,840 Taiwan Semiconductor* 723,600 2,776,167 Victor Taichung Machinery 1,091,584 1,441,000 Yang Ming Marine Transport 985,000 1,028,044 ------------- $ 22,133,435 ------------- THAILAND, 12.2% Bangkok Bank 518,200 $ 5,794,564 Electricity Generating (Foreign)* 4,241,700 13,297,729 Electricity Generating (Foreign) (Rights)* 424,170 821,575 Krung Thai Bank Ltd. (Foreign) 1,298,000 5,028,192
19 PORTFOLIO OF INVESTMENTS (CONTINUED) - --------------------------------------------------------------------------------
- -------------------------------------------------------------------------------- Shares Value - -------------------------------------------------------------------------------- THAILAND (Continued) Saha Union Corp. Ltd. (Local) 2,314,500 $ 2,819,292 Siam Cement (Local) 234,400 13,629,660 Siam Cement (Foreign) 139,900 9,542,704 Siam Commercial Bank 1,591,300 17,158,510 Thailand Military Bank (Foreign) 967,000 4,016,338 ------------- $ 72,108,564 ============= UNITED STATES, 0.6% AES China Generating Co. Ltd. 210,000 $ 1,890,000 Pacific Basin Bulk Shipping 84,500 1,214,687 Pacific Basin Bulk Shipping (Warrants)* 84,500 63,375 ------------- $ 3,168,062 ------------- Total Common Stocks and Warrants (Identified cost, $507,528,635) $ 565,233,759 Other Assets - 4.3% 25,183,299 ------------- Net Assets - 100.0% $ 590,417,058 =============
* Non-income producing security. (1) Security valued at fair value using methods determined in good faith by or at the direction of the Trustees. SEE NOTES TO FINANCIAL STATEMENTS 20 ================================================================================ FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- STATEMENT OF ASSETS AND LIABILITIES August 31, 1995 ASSETS: Investments, at value (Note 1A) (Identified cost, $507,528,635) $ 565,233,759 Cash denominated in foreign currencies (cost, $10,504,108) 9,755,251 Cash 15,529,283 Receivable for investments sold 361,620 Dividends and interest receivable 937,884 Deferred organization expenses (Note 1C) 63,231 ------------- Total assets $ 591,881,028 LIABILITIES: Payable for investments purchased $ 1,436,747 Payable to affiliate - Custodian fee 20,258 Accrued expenses 6,965 ----------- Total liabilities 1,463,970 ------------- NET ASSETS applicable to investors' interest in Portfolio $ 590,417,058 ============= SOURCES OF NET ASSETS: Net proceeds from capital contributions and withdrawals $ 533,468,333 Net unrealized appreciation of investments (computed on the basis of identified cost) 57,705,124 Net unrealized depreciation of foreign currencies (756,399) ------------- TOTAL $ 590,417,058 =============
SEE NOTES TO FINANCIAL STATEMENTS 21 FINANCIAL STATEMENTS (CONTINUED) - -------------------------------------------------------------------------------- STATEMENT OF OPERATIONS For the Year Ended August 31, 1995 INVESTMENT INCOME: Income -- Dividends (net of foreign taxes of $1,097,188) $ 15,724,962 Interest 58,676 ------------- Total income $ 15,783,638 Expenses -- Investment adviser fee (Note 2) $ 4,763,655 Administration fee (Note 2) 1,571,184 Compensation of Trustees not members of the Investment Adviser's organization (Note 2) 13,750 Custodian fee (Note 2) 661,381 Legal & audit fees 50,438 Amortization of organization expense (Note 1C) 28,638 Miscellaneous 21,711 ------------- Total expenses 7,110,757 ------------- Net investment income $ 8,672,881 ------------- REALIZED AND UNREALIZED LOSS ON INVESTMENTS: Net realized loss -- Investment transactions computed (net of foreign capital gains taxes of $1,140,389) $ (28,329,489) Foreign currency (765,756) ------------- Net realized loss $ (29,095,245) Change in unrealized appreciation -- Investments (identified cost basis) $ (39,634,897) Foreign currency (759,651) ------------- Decrease in net unrealized appreciation (40,394,548) ------------- Net realized and unrealized loss on investments $ (69,489,793) ------------- Net decrease in net assets from operations $ (60,816,912) =============
SEE NOTES TO FINANCIAL STATEMENTS 22 - -------------------------------------------------------------------------------- STATEMENTS OF CHANGES IN NET ASSETS
For the year ended August 31, ------------------------------------------------- 1995 1994 ---------------- ---------------- INCREASE (DECREASE) IN NET ASSETS: From operations - Net investment income $ 8,672,881 $ 4,024,714 Net realized loss on investment transactions (29,095,245) (11,068,453) Change in unrealized appreciation (depreciation) of investments and foreign currency (40,394,548) 79,236,629 ---------------- ---------------- Increase (decrease) in net assets from operations $ (60,816,912) $ 72,192,890 ---------------- ---------------- Capital transactions: Contributions $ 129,870,307 $ 636,873,995 Withdrawals (211,249,014) (184,497,094) ---------------- ---------------- Increase (decrease) in net assets resulting from capital transactions $ (81,378,707) $ 452,376,901 ---------------- ---------------- Total increase (decrease) in net assets $ (142,195,619) $ 524,569,791 NET ASSETS: At beginning of year 732,612,677 208,042,886 ---------------- ---------------- At end of year $ 590,417,058 $ 732,612,677 ================ ================
SEE NOTES TO FINANCIAL STATEMENTS 23 FINANCIAL STATEMENTS (CONTINUED) - -------------------------------------------------------------------------------- SUPPLEMENTARY DATA
Year Ended August 31, -------------------------------------- 1995 1994 1993* -------- -------- -------- RATIOS (As a percentage of average net assets): Expenses 1.10% 1.15% 1.38%+ Net investment income 1.35% 0.73% 0.38%+ PORTFOLIO TURNOVER 32% 36% 18% NET ASSETS, end of period (000 omitted) $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. SEE NOTES TO FINANCIAL STATEMENTS 24 ================================================================================ 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 Trust's understanding of the applicable countries' tax rules and rates. C. 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. D. 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. 25 NOTES TO FINANCIAL STATEMENTS (CONTINUED) - -------------------------------------------------------------------------------- E. 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. F. 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. G. 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 (Hong Kong) 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, 1995 the adviser fee was 0.74% 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, 1995, the administration fee was 0.24% 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. Investors Bank & Trust Company (IBT), an affiliate of EVM, serves as custodian of the Portfolio. Pursuant to the custodian agreement, IBT receives a fee reduced by credits which are determined based on the average daily cash balances the Portfolio maintains with IBT. Certain of the officers and Trustees of the Portfolio are officers or directors/trustees of the above organizations. 26 - -------------------------------------------------------------------------------- (3) INVESTMENT TRANSACTIONS Purchases and sales of investments, other than short-term obligations, aggregated $200,189,314 and $293,436,289, respectively. - -------------------------------------------------------------------------------- (4) FEDERAL INCOME TAX BASIS OF INVESTMENTS The cost and unrealized appreciation (depreciation) in value of the investments owned at August 31, 1995, as computed on a federal income tax basis, are as follows: Aggregate cost $ 507,528,635 ============= Gross unrealized appreciation $ 99,177,974 Gross unrealized depreciation 41,472,850 ------------- Net unrealized appreciation $ 57,705,124 =============
- -------------------------------------------------------------------------------- (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. 27 NOTES TO FINANCIAL STATEMENTS (CONTINUED) - -------------------------------------------------------------------------------- (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. - -------------------------------------------------------------------------------- (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 period. 28 - -------------------------------------------------------------------------------- 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, 1995, and the related statement of operations for the year then ended, the statements of changes in net assets for the years ended August 31, 1995 and 1994, and the supplementary data for the years ended August 31, 1995 and 1994, and for the period from the start of business, October 28, 1992 to August 31, 1993. These financial statements and supplementary data are the responsibility of the Portfolio's management. Our responsibility is to express an opinion on these financial statements and supplementary data based upon 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, 1995, 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, such financial statements and supplementary data present fairly, in all material respects, the financial position of Greater China Growth Portfolio at August 31, 1995, 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 6, 1995 29 THIS PAGE INTENTIONALLY LEFT BLANK. ================================================================================ EV MARATHON GREATER CHINA GROWTH FUND OFFICERS - ------------------------------ JAMES B. HAWKES President, Trustee LANDON T. CLAY Vice 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 Company 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 Portfolio Co-Manager JAMES B. HAWKES Vice President and Trustee SCOBIE DICKINSON WARD Vice President, Assistant Secretary, Assistant Treasurer and Portfolio Co-Manager WILLIAM WALTER RALEIGH KERR Vice President, Secretary and Assistant Treasurer JAMES L. O'CONNOR Vice President and Treasurer THOMAS OTIS Vice President and Assistant Secretary INDEPENDENT TRUSTEES - ------------------------------ SAMUEL L. HAYES, III Jacob H. Schiff Professor of Investment Banking, Harvard University Graduate School of Business Administration STUART HAMILTON LECKIE Managing Director and Actuary, Wyatt Company, Hong Kong HON. EDWARD K.Y. CHEN Professor and Director, Center for Asian Studies, University of Hong Kong 31 -----END PRIVACY-ENHANCED MESSAGE-----