<PAGE>
[LOGO OF EATON VANCE MARATHON APPEARS HERE] [PHOTO OF EARTH APPEARS HERE]
Investing
for the
21st
Century
Annual Report August 31, 1997
[PHOTO OF SURGEONS IN SURGERY APPEARS HERE]
EV
MARATHON
WORLDWIDE
HEALTH
SCIENCES FUND
Eaton Vance
Global Management-Global Distribution
[PHOTO OF MOLECULES APPEARS HERE]
Marathon
<PAGE>
EV Marathon Worldwide Health Sciences Fund as of August 31, 1997
LETTER TO SHAREHOLDERS
[PHOTO OF JAMES HAWKES APPEARS HERE]
James B. Hawkes,
President
EV Marathon Worldwide Health Sciences Fund had a total return of 16.8% during
the period from its commencement of operations on September 23, 1996 through
August 31, 1997. That return was the result of a rise in net asset value per
share from $10.00 on September 23, 1996 to $11.68, and the reinvestment of
$0.0014 in capital gain distributions./1/ By comparison, the S&P500 Index - a
widely recognized, unmanaged index of U.S. common stocks - had a total return of
33.4% for the same period, while the Morgan Stanley Capital International
Europe, Australasia, and Far East Index - an index composed of global common
stocks - had a return of 6.5%./2/
1997 brought new revelations in the war against life-threatening disease...
In June, The New England Journal of Medicine (NEJM) reported the remarkable
results of a 12-year program in Taiwan to vaccinate people against hepatitis B.
A review of the program showed that, in addition to curbing the spread of the
infectious hepatitis disease, attacking the microbes had also proven to be an
effective deterrent to some forms of cancer.
A possible link of microbes to
non-infectious disease...
The results of the Taiwan study were significant because they suggested a
possible microbial link to noninfectious ailments. Microbes have long been
associated with diseases such as malaria, cholera, polio, and bubonic plague.
However, the Taiwan study suggested that the presence of parasites, viruses, or
bacteria may be a co-factor in the rise of heart disease, diabetes and cancer.
The link was even more compelling when combined with a suppressed immune system
or a genetic predisposition.
Biotech remains in the forefront of the search for treatments...
The NEJM findings are exciting because they point out another potential avenue
in the fight against disease. In addition, they illustrate the role of biotech
companies - the investment universe of the Portfolio - in advancing the cause of
genetic research and anti-viral therapy. We believe these companies offer unique
opportunities for investors. In the following pages, portfolio manager Samuel D.
Isaly looks at some recent biotech developments and comments on the fiscal year
just ended.
Sincerely,
/s/ James B. Hawkes
James B. Hawkes
President
October 9, 1997
- --------------------------------------------------------------------------------
Fund Information
as of August 31, 1997
<TABLE>
<CAPTION>
Performance/3/
- -----------------------------------------------------------
<S> <C>
Cumulative Total Return (at net asset value)
- -----------------------------------------------------------
Life of Fund (9/23/96) 16.8
Cumulative SEC Total Returns
(including applicable CDSC)
- -----------------------------------------------------------
Life of Fund (9/23/96) 11.8
</TABLE>
<TABLE>
<CAPTION>
Ten Largest Holdings/4/By total net assets
- -----------------------------------------------------------
<S> <C>
Centocor, Inc. 5.9%
Novartis 4.7%
Genzyme Corp. 4.6
Swiss Serum Institute 4.1
Ares-Serono 4.1
Vertex Pharmaceuticals, Inc. 4.0
Biogen, Inc. 3.9
Fujisawa Pharmaceutical 3.8
Agouron Pharmaceuticals, Inc. 3.8
Pharmacia & Upjohn, Inc. 3.4
</TABLE>
/1/This return does not reflect the Fund's applicable contingent deferred sales
charge.
/2/It is not possible to invest directly in the Indices. Return for the Morgan
Stanley Capital International EAFE Index is for the period from 9/30/96-8/31/97.
/3/Cumulative total returns are calculated by determining the percentage change
in net asset value with all distributions reinvested. SEC returns reflect
applicable CDSC on following schedule: 5% - 1st year; 5% - 2nd year; 4% - 3rd
year; 3% - 4th year; 2% - 5th year; 1% - 6th year.
/4/Ten largest holdings account for 42.3% of the Portfolio's investments,
determined by dividing the total market value of the holdings by the total net
assets of the Portfolio. Holdings are subject to change.
Past performance is no guarantee of future results. Investment returns and
principal value will fluctuate so that shares, when redeemed, may be worth more
or less than their original cost.
- --------------------------------------------------------------------------------
Mutual fund shares are not insured 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.
- --------------------------------------------------------------------------------
2
<PAGE>
EV Marathon Worldwide Health Sciences Fund as of August 31,1997
MANAGEMENT DISCUSSION
[PHOTO OF SAMUEL D. ISALY APPEARS HERE]
Samuel D. Isaly,
Portfolio Manager
An interview with Samuel D. Isaly, a partner of Mehta and Isaly Asset
Management, Inc., and portfolio manager of Worldwide Health Sciences Portfolio.
Q: Sam, how would you evaluate drug stock performance during the past year?
A: In the U.S., we saw a fair amount of sector rotation during the year, with
consumer stocks alternating market leadership with technology issues. While
drug and biotech stocks participated in the U.S. rally, they were not subject
to the euphoria that characterized the so-called "Nifty Fifty." In general,
the drug stocks' performance reflected their fundamentals, which are driven
by strong sales momentum and breakthroughs on the research front. Earnings of
drug companies remained strong, while biotech companies continued to inch
toward profitability. In the broader market, many large-cap stocks reached
overvalued status relative to their smaller cap counterparts. That dynamic
proved true in the drug and biotech sectors as well.
Q: Have you made many changes to the Portfolio in the past year?
A: Not major changes. Roughly half (53.8%) of the Portfolio remains invested in
North America, while 22% is invested in the Far East, and Europe accounts for
another 18%. We made a number of new purchases in U.S.-based specialty
companies with promising clinical trial results or research developments.
These included Gilead Sciences, Leukosite, Inc., and Ontogeny, Inc. We
eliminated our holding in Cambridge Neurosciences. Among large-cap issues, we
added U.S.-based Biogen, Inc.
Q: The Fund turned in a solid performance for the year - up 16.8%. What accounts
for the strong showing?
A: Our overall strategy hasn't changed at all. We continued to employ a long-
term outlook, with a fairly concentrated investment approach: one that seeks
to focus our research where it will provide the greatest potential returns.
The Fund benefited as some of our large-cap holdings with successful existing
drugs have used their marketing muscle to gain market share. The stable
growth rates of the major pharmaceutical companies made them especially
attractive in an increasingly volatile market. Some biotech holdings,
meanwhile, had success on the regulatory front. While profitability in the
biotech sector remains selective, the earnings prospects have nonetheless
improved.
- --------------------------------------------------------------------------------
Sector Distribution/1/
- -----------------------------------------------------------
By total investments
<TABLE>
<S> <C>
Major Pharmaceutical Companies 50.3%
Specialty/Biotech Companies 49.7%
</TABLE>
Regional Distribution/1/
- -----------------------------------------------------------
By total investments
[PIE CHART APPEARS HERE]
<TABLE>
<S> <C>
North American Specialty 35.5%
N.A. Majors 21.7%
Far East Majors 16.4%
Europe Majors 12.2%
Europe Specialty 7.3%
Far East Specialty 6.9%
</TABLE>
/1/Because the Fund is actively managed, sector weightings and regional
distributions are subject to change.
3
<PAGE>
EV Marathon Worldwide Health Sciences Fund as of August 31,1997
MANAGEMENT DISCUSSION CONT'D
[PHOTO OF OPEN PILL BOTTLE AND PILLS APPEARS HERE]
- --------------------------------------------------------------------------------
Rising Drug Expenditures
In the U.S., the 75-and-over age group is the fastest-growing, soon to be
replaced by those 85-and-over. It's estimated that by the year 2050, America's
over-85 population will reach 18 million. Health care costs are expected to rise
commensurately.
Source: U.S. Census Bureau
- --------------------------------------------------------------------------------
Q: North American companies are your largest regional weighting. Could we look
at some U.S. holdings?
A: Certainly. Among larger cap issues, Genzyme Corp. has been a strong performer
in the past year. The company has been a leader in several forms of gene
therapy treatment, including that for Gaucher disease, a debilitating
disorder caused by defective genes. More recently, the company has benefited
from enthusiasm over its new Seprafilm product, a treatment used to reduce
post-surgery scarring.
Another large-cap holding, Warner-Lambert, has sold its generic drug
division. Much of its revenue base comes from over-the-counter drugs,
although it has recently licensed several new drug candidates that should
contribute to growth down the road. Given its 1% global market share and
considerable marketing prowess, Warner remains a leading acquisition
candidate.
Q: Could we turn to some smaller stocks in the U.S.?
A: Yes. Specialty and biotech companies continue to make inroads both in
research and in the regulatory approval process. Agouron Pharmaceuticals is a
good example. The California company is a pioneer in "rational drug design,"
a technique that first determines the three-dimensional structure of target
proteins and then designs drugs to interact with that structure. A product of
that technique, Agouron's Viracept is a protease inhibitor that received FDA
approval in March. Protease inhibitors have been very successful as part of
combination therapy for HIV patients.
Viracept appears to be equally as effective as its competitor drugs, easier
for patients to take, and has fewer side-effects. The drug has been licensed
through Roche Holdings and is expected to triple Agouron's sales in 1998. On
the strength of its Viracept success, Agouron is moving from losses to
profitability, while its stock has nearly doubled in price in the past year.
The company has recently started clinical trials on protease inhibitors aimed
at the rhinovirus family, the viruses that cause colds.
Q: You suggested that foreign drug companies represent better values than major
U.S. companies. Could you expand on that?
A: Yes. If we examine the prices accorded large-cap U.S. pharmaceutical stocks,
they sell at a significant premium to similar drug companies abroad. Swiss-
based Novartis and U.S. giant Merck provide an interesting comparison. For
the first half of 1997, the two companies enjoyed roughly the same level of
net profits. However, the market cap of Novartis, which has a cash horde of
$6 billion, is only $105 billion, while Merck, with just $2 billion in cash,
has a market cap of $125 billion. That represents a 20% premium and a
significant gap in valuations. That gap is quite common in Europe, but the
greatest discrepancy is, by far, with Japan. Japanese drug companies
currently have the lowest absolute and relative valuations measures in the
world.
Q: Has that value gap had an effect on the way you've positioned the Portfolio
in recent months?
A: In some respects, yes. Typically, when we analyze valuations of global
companies, we apply traditional measures such as price-earnings multiples and
cash flow multiples, as well as the companies' valuation relative to general
market levels. We will also make adjustments to account for unusually high
cash levels or
4
<PAGE>
EV Marathon Worldwide Health Sciences Fund as of August 31,1997
Management Discussion CONT'D
issues that might lead to dilution. With the sharp run-up in U.S. prices, we
find that global companies with equally compelling fundamentals are much more
attractive. Europe's powerhouse Novartis is the product of a merger between
Sandoz and Ciba-Geigy. With a 4.4% global market share, Novartis has continued
to realize further economies of scale following the merger. In the years ahead,
the company is sure to set new standards for the global pharmaceuticals sector.
Q:Could we take a brief look at one of those Japanese companies?
A:Certainly. Among larger foreign drug companies, Takeda Chemicals is one of
Japan's top distributors of pharmaceuticals. In addition to its large domestic
market share, the company boasts two large-selling drugs in the West: Lupron,
which is used to treat prostate cancer; and Takepron, which is a treatment for
ulcers. The company has pledged recently to trim costs by 25% over the next five
years, a move that has aided many U.S. drug companies in recent years.
Interestingly, the company is also attractive for its portfolio of financial
assets, the largest of any drug company in the world.
Q:And how about some examples of smaller Japanese companies?
A:Teikoku Hormone Manufacturing is a small-cap company specializing in peptide
chemistry and various hormones. The company is noted for the strength of its
research, and we remain alert to the possibility of a research breakthrough.
Teikoku has a large portfolio of financial assets that is equal to the company's
market value. The financial assets provide a huge cushion while waiting for new
developments to occur on the research front.
Q:There is increasing pressure being exerted on the FDA to speed the drug
approval process. Is that a positive development for your universe?
A:In a general sense, yes. While the public is obviously served by rigorous
drug testing, it's clear that the regulatory authorities in Europe and the U.S.
have increased the pace of approvals of new drugs in recent years. In the U.S.,
the FDA approved more drugs in 1996 alone than in all of 1994 and 1995. For
Agouron's Viracept, for instance, it took only 36 months from the time the drug
was first synthesized to the time of the company's application for accelerated
approval.
A faster pace of approvals has several favorable consequences. First, and
perhaps most importantly, it gives hope to patients and may help improve the
quality of their lives. Second, it makes it somewhat easier for the biotech
sector to attract the massive investment necessary to fund research and
development. Viracept cost $100 million to develop, half of which came from a
Japanese company whose principal business activity is not in the drug industry.
And finally, it brings nearer the day when biotech companies will become
profitable. We believe that this trend is likely to continue.
Q:We saw an increase in merger activity in the past year in areas such as
telecom, media, and financial services. Do you foresee any such trend in the
pharmaceutical/biotech sectors?
A:We're likely to see mergers where they make financial and marketing sense.
In the past decade, there have been a number of major combinations, including
Pharmacia & Upjohn, Smithkline Beecham, and more recently, Sandoz/Ciba-Geigy. I
believe that merger activity will continue to take place in situations where
joint operations will produce substantial cost savings, gains in market share,
fill out a company's product line, or significantly expand a company's global
reach.
As an alternative to outright mergers, we've seen a modest trend toward
partnering, whereby biotech companies join forces with large pharmaceutical
companies to gain R&D funding as well as assistance in marketing approved
products. However, partnering comes at a cost to the biotech company because it
effectively dilutes the discovery value of new drugs. It's therefore less
attractive from the investment standpoint.
5
<PAGE>
EV Marathon Worldwide Health Sciences Fund as of August 31,1997
Management Discussion CONT'D
Q: What is your outlook for the pharmaceutical and biotech sectors in the year
ahead?
A: I'm optimistic about the prospects of the companies. As I indicated earlier,
drug companies have historically produced relatively stable earnings growth.
As for the biotech stocks, with the FDA likely to increase the pace of
approvals, we should see more drugs come to market. That should help the
companies along the road to profitability.
Apart from their attractive fundamentals, biotech and pharmaceutical stocks
are likely to get a closer look on a valuation basis. Many of the market
leaders in the past year - beverages, financial services, technology stocks -
have reached levels that are discounting earnings two years out or more. The
drug stocks, by contrast, have much more stable earnings and are not prone to
sometimes volatile product cycles as are the technology stocks. Naturally,
past performance is not a guarantee of future results. And, of course, these
stocks are subject to regulatory changes, foreign currency risk and intense
industry competition. But with aging populations around the globe, and
biotech breakthroughs changing the face of the drug industry, we believe the
future of these sectors is bright.
[GRAPH APPEARS HERE]
Comparison of Change in Value of a $10,000
Investment in the Fund vs. the S&P 500, and
Europe, Australasia & Far East Indexes*
From September 30, 1996 through August 31, 1997
<TABLE>
<CAPTION>
EV Marathon
Worldwide
Health
Sciences S&P 500 EAFE
Date Fund Fund/CDSC** Index Index
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
9/30/96 $10,000 $10,908 $10,000 $10,000
10/31/96 $9,766 $10,908 $10,261 $9,900
11/30/96 $9,775 $10,908 $11,014 $10,297
12/31/96 $10,205 $10,908 $10,832 $10,167
1/31/97 $10,654 $10,908 $11,496 $9,813
2/28/97 $10,879 $10,908 $11,565 $9,976
3/31/97 $10,518 $10,908 $11,125 $10,015
4/30/97 $10,107 $10,908 $11,774 $10,070
5/31/97 $11,211 $10,908 $12,464 $10,728
6/30/97 $11,416 $10,908 $13,062 $11,322
7/31/97 $11,875 $10,908 $14,083 $11,507
8/31/97 $11,408 $10,908 $13,274 $10,650
</TABLE>
<TABLE>
<CAPTION>
Performance+
- --------------------------------------------------------------------------------
<S> <C>
Cumulative Total Return (At Net Asset Value)
- --------------------------------------------------------------------------------
Life of Fund 16.8
Value at 8/31/97 $11,408
SEC Cumulative Total Return (Including Applicable CDSC )
- --------------------------------------------------------------------------------
Life of Fund 11.8
Value at 8/31/97 $10,908
</TABLE>
* Source: Towers Data Systems, Bethesda, MD. Investment operations commenced
9/23/96. 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. Past performance is no guarantee of future
results. Investment return and principal value will fluctuate so that shares,
when redeemed, may be worth more or less than their original cost.
The performance chart above compares the Fund's total return with that of a
broad-based securities market index. Returns are calculated by determining
the percentage change in net asset value (NAV) with all distributions
reinvested. The lines on the chart represent the total returns of $10,000
hypothetical investments in the Fund, the S&P 500 Index - a broad-based,
widely recognized index of 500 common stocks traded in the U.S. - and the
Morgan Stanley Capital International Europe, Australasia, and Far East Index
(EAFE) - a broad-based index of common stocks traded in foreign markets. The
Indices' total returns do not reflect any commissions or expenses that would
have been incurred if an investor individually purchased or sold the
securities represented in the Indices. It is not possible to invest directly
in an index.
** This figure represents the Fund's performance including the Fund's applicable
contingent deferred sales charge (CDSC) deducted at redemption as follows:
5% - 1st and 2nd years; 4% - 3rd year; 3% - 4th year; 2% - 5th year; and
1% - 6th year.
+ Returns are calculated by determining the percentage change in net asset
value (NAV) with all distributions reinvested. SEC returns reflect applicable
contingent deferred sales charge (CDSC).
6
<PAGE>
EV Marathon Worldwide Health Sciences Fund as of August 31, 1997
FINANCIAL STATEMENTS
Statement of Assets and Liabilities
<TABLE>
<CAPTION>
As of August 31, 1997
Assets
- --------------------------------------------------------------------------------
<S> <C>
Investment in Worldwide Health Sciences
Portfolio (Portfolio), at value
(Note 1A) (identified cost, $61,232,358) $64,583,584
Receivable for Fund shares sold 86,982
Other assets 11,298
Deferred organization expenses (Note 1E) 34,082
- --------------------------------------------------------------------------------
Total assets $64,715,946
- --------------------------------------------------------------------------------
Liabilities
- --------------------------------------------------------------------------------
Payable to affiliate for Trustees' fees (Note 3) $ 28
Accrued expenses 52,071
- --------------------------------------------------------------------------------
Total liabilities $ 52,099
- --------------------------------------------------------------------------------
Net Assets for 5,536,392 shares of
beneficial interest outstanding $64,663,847
- --------------------------------------------------------------------------------
Sources of Net Assets
- --------------------------------------------------------------------------------
Paid-in capital $61,312,621
Net unrealized appreciation
(depreciation) of investments from
Portfolio (computed on basis of
identified cost) 3,351,226
- --------------------------------------------------------------------------------
Total $64,663,847
- --------------------------------------------------------------------------------
Net Asset Value, Offering and Redemption
Price Per Share (Note 6)
- --------------------------------------------------------------------------------
($64,663,847 / 5,536,392 shares of
beneficial interest outstanding) $ 11.68
- --------------------------------------------------------------------------------
Statement of Operations
For the Period from the Start of Business,
September 23, 1996 to August 31, 1997
Investment Income
- --------------------------------------------------------------------------------
Dividend income allocated from Portfolio (net
of foreign taxes, $11,770) $ 106,333
Expenses allocated from Portfolio (284,769)
- --------------------------------------------------------------------------------
Net investment loss from Portfolio $(178,436)
- --------------------------------------------------------------------------------
Expenses
- --------------------------------------------------------------------------------
Management fee (Note 3) $ 61,691
Compensation of Trustees not members of the
Administrator's organization (Note 3) 243
Distribution fees (Note 5) 188,613
Transfer and dividend disbursing agent fees 32,343
Registration fees 31,921
Printing and postage 23,486
Legal and accounting services 13,720
Custodian fee (Note 1C) 8,491
Amortization of organization expenses (Note 1E) 5,918
Miscellaneous 12,020
- --------------------------------------------------------------------------------
Total expenses $ 378,446
- --------------------------------------------------------------------------------
Deduct --
Reduction of custodian fee (Note 1C) $ 3,167
- --------------------------------------------------------------------------------
Total expense reductions $ 3,167
- --------------------------------------------------------------------------------
Net expenses $ 375,279
- --------------------------------------------------------------------------------
Net investment loss $(553,715)
- --------------------------------------------------------------------------------
Realized and Unrealized
Gain (Loss) from Portfolio
- --------------------------------------------------------------------------------
Net realized gain (loss) --
Investment transactions (identified cost basis) $ (4,846)
Foreign currency transactions 11,270
- --------------------------------------------------------------------------------
Net realized gain on investments $ 6,424
- --------------------------------------------------------------------------------
Change in unrealized appreciation (depreciation)--
Investments $ 3,356,120
Foreign currency (4,894)
- --------------------------------------------------------------------------------
Net change in unrealized appreciation
(depreciation)of investments $ 3,351,226
- --------------------------------------------------------------------------------
Net realized and unrealized gain on investments $ 3,357,650
- --------------------------------------------------------------------------------
Net increase in net assets from operations $ 2,803,935
- --------------------------------------------------------------------------------
</TABLE>
See notes to financial statements
7
<PAGE>
EV Marathon Worldwide Health Sciences Fund as of August 31, 1997
FINANCIAL STATEMENTS CONT'D
Statements of Changes in Net Assets
<TABLE>
<CAPTION>
Increase (Decrease) Period Ended
in Net Assets August 31, 1997/*/
- --------------------------------------------------------------------------------
<S> <C>
From operations --
Net investment loss $ (553,715)
Net realized gain on investments 6,424
Net change in unrealized
appreciation (depreciation) 3,351,226
- --------------------------------------------------------------------------------
Net increase in net assets resulting
from operations $ 2,803,935
- --------------------------------------------------------------------------------
Distributions to shareholders (Note 2)--
From net realized gain $ (7,629)
- --------------------------------------------------------------------------------
Total distributions to shareholders $ (7,629)
- --------------------------------------------------------------------------------
Transactions in shares of beneficial interest (Note 4)--
Proceeds from sale of shares $ 64,460,395
Net asset value of shares issued to shareholders
in payment of distributions declared 7,178
Cost of shares redeemed (2,600,032)
- --------------------------------------------------------------------------------
Net increase in net assets from Fund share transactions $ 61,867,541
- --------------------------------------------------------------------------------
Net increase in net assets $ 64,663,847
- --------------------------------------------------------------------------------
Net Assets
- --------------------------------------------------------------------------------
At beginning of period $ --
- --------------------------------------------------------------------------------
At end of period $ 64,663,847
- --------------------------------------------------------------------------------
Accumulated net
investment loss
- --------------------------------------------------------------------------------
At end of year $ --
- --------------------------------------------------------------------------------
</TABLE>
/*/ For the period from the start of business, September 23, 1996 to August 31,
1997.
See notes to financial statements
8
<PAGE>
EV Marathon Worldwide Health Sciences Fund as of August 31, 1997
FINANCIAL STATEMENTS CONT'D
Financial Highlights
<TABLE>
<CAPTION> Period Ended
August 31, 1997 *
- ---------------------------------------------------------------------------------------------------
<S> <C>
Net asset value--Beginning of period $ 10.000
- ---------------------------------------------------------------------------------------------------
Income (loss) from operations
- ---------------------------------------------------------------------------------------------------
Net investment loss $ (0.100)
Net realized and unrealized gain on investments 1.781
- ---------------------------------------------------------------------------------------------------
Total income from operations $ 1.681
- ---------------------------------------------------------------------------------------------------
Less distributions
- ---------------------------------------------------------------------------------------------------
From net realized gain on investments $ (0.001)
- ---------------------------------------------------------------------------------------------------
Total distributions $ (0.001)
- ---------------------------------------------------------------------------------------------------
Net asset value -- End of period $ 11.680
- ---------------------------------------------------------------------------------------------------
Total Return/(1)/ 16.81%
- ---------------------------------------------------------------------------------------------------
Ratios/Supplemental Data
- ---------------------------------------------------------------------------------------------------
Net assets, end of period (000 omitted) $ 64,664
Ratio of net expenses to average daily net assets/(2)/ 2.70%+
Ratio of net expenses to average daily net assets after custodian fee
reduction/(2)/ 2.62%+
Ratio of net investment loss to average daily net assets (2.20)%+
- ---------------------------------------------------------------------------------------------------
</TABLE>
+ Annualized.
* For the period from the start of business, September 23, 1996 to
August 31, 1997.
/(1)/ 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 ex-dividend date. Total return is
not computed on an annualized basis.
/(2)/ The expense ratios for the Fund as well as its corresponding Portfolio
have been adjusted to reflect the effect of any expense offset
arrangements with its service providers.
See notes to financial statements
9
<PAGE>
EV Marathon Worldwide Health Sciences Fund as of August 31, 1997
NOTES TO FINANCIAL STATEMENTS
1 Significant Accounting Policies
------------------------------------------------------------------------------
EV Marathon Worldwide Health Sciences 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 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 the Worldwide Health Sciences 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 (42.3% at August 31, 1997). 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.
On June 23, 1997, the Board of Trustees approved a Plan of Reorganization (the
"Plan") for the Trust. Under the terms of the Plan, the EV Traditional
Worldwide Health Sciences Fund, Inc. (the Successor Fund) would acquire
substantially all of the assets and liabilities of the Fund (the Acquired
Fund). The transaction will be structured for tax purposes to qualify as a
tax-free reorganization under the Internal Revenue Code. The Trust will
issue and deliver to the Acquired Fund a number of full and fractional shares
of beneficial interest of a separate class of the Successor Fund (Class B
Shares), which will be equal in value to the net asset value per share of the
Acquired Fund multiplied by the number of full and fractional shares of the
Acquired Fund then outstanding. Such transaction will occur after the close of
business, August 31, 1997.
The following is a summary of the 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 -- Investors Bank & Trust Company (IBT) serves as
custodian to the Fund and the Portfolio. Pursuant to the respective custodian
agreements, IBT receives a fee reduced by credits which are determined based
on the average daily cash balances the Fund or the Portfolio maintains with
IBT. All significant credit balances used to reduce the Fund's custodian fees
are reported as a reduction of expenses on the statement of operations.
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, if any,
and any net realized capital gains. Accordingly, no provision for federal
income or excise tax is necessary. Pursuant to Section 852 of the Internal
Revenue Code, the Fund designates $7,629 as a long term capital gain
distribution for its taxable year ended August 31, 1997.
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 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 ex-
dividend date.
10
<PAGE>
EV Marathon Worldwide Health Sciences Fund as of August 31, 1997
NOTES TO FINANCIAL STATEMENTS CONT'D
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 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.
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 period from the
start of business, September 23, 1996, to August 31, 1997, the fee was
equivalent to 0.25% (annualized) of the Fund's average net assets for such
period and amounted to $61,691. 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, administrative fees are paid by the
Portfolio to EVM. 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 for the period from the start of business,
September 23, 1996, to August 31, 1997 were as follows:
<TABLE>
<CAPTION>
Period Ended
August 31, 1997
------------------------------------------------------------------------------
<S> <C>
Shares sold 5,770,000
Shares issued to
shareholders in
reinvestment of
distributions 607
Shares redeemed (234,215)
------------------------------------------------------------------------------
Net Increase 5,536,392
------------------------------------------------------------------------------
</TABLE>
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 paid or
accrued $188,613 to or payable to EVD for the period from the start of
business, September 23, 1996, to August 31, 1997, representing 0.75%
(annualized) of average daily assets. At August 31, 1997, the amount of
Uncovered Distributions Charges of EVD calculated under the Plan was
approximately $2,871,000.
In addition, the Plan authorized 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 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 are 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 period from the start of business,
September 23, 1996, to August 31, 1997 amounted to $1,266.
Certain of the Trustees of the Fund are officers or directors of EVD.
11
<PAGE>
EV Marathon Worldwide Health Sciences Fund as of August 31, 1997
NOTES TO FINANCIAL STATEMENTS CONT'D
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, 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 $38,000 of CDSC paid by shareholders
for the period from the start of business, September 23, 1996, to August 31,
1997.
7 Investment Transactions
- --------------------------------------------------------------------------------
Increases and decreases in the Fund's investment in the Portfolio aggregated
$64,400,639 and $2,984,971, respectively.
12
<PAGE>
EV Marathon Worldwide Health Sciences Fund as of August 31, 1997
INDEPENDENT ACCOUNTANTS' REPORT
To the Trustees and Shareholders
of EV Marathon Worldwide Health Sciences Fund:
- --------------------------------------------------------------------------------
We have audited the accompanying statement of assets and liabilities, of EV
Marathon Worldwide Health Sciences Fund as of August 31, 1997, and the related
statement of operations, the statement of changes in net assets and the
financial highlights for the period from the start of business, September 23,
1996, to August 31, 1997. These financial statements and financial highlights
are the responsibility of the Fund's management. Our responsibility is to
express an opinion on these financial statements and financial highlights based
on our audit.
We conducted our audit 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 audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements and financial highlights present
fairly, in all material respects, the financial position of EV Marathon
Worldwide Health Sciences Fund at August 31, 1997, and the results of its
operations, the changes in its net assets and financial highlights for the
period from the start of business, September 23, 1996, to August 31, 1997, in
conformity with generally accepted accounting principles.
COOPERS & LYBRAND L.L.P.
Boston, Massachusetts
October 3, 1997
13
<PAGE>
Worldwide Health Sciences Portfolio as of August 31, 1997
PORTFOLIO OF INVESTMENTS
Common Stocks and Warrants -- 94.02%
<TABLE>
<CAPTION>
Percentage of
Security Shares Value Net Assets
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Major Capitalization - Europe -- 11.45%
- --------------------------------------------------------------------------------
Altana 55,000 $ 4,123,477 2.70%
Ares-Serono 4,000 6,233,417 4.08%
Novartis 5,000 7,122,586 4.67%
- --------------------------------------------------------------------------------
$ 17,479,480 11.45%
- --------------------------------------------------------------------------------
Major Capitalization - Far East -- 15.39%
- --------------------------------------------------------------------------------
Banyu Pharmaceutical Co. 300,000 $ 5,011,371 3.28%
Eisai Co., Ltd. 250,000 4,734,339 3.10%
Fujisawa Pharmaceutical 600,000 5,805,251 3.80%
Sankyo Co., Ltd. 140,000 4,237,337 2.78%
Takeda Chemical Industries 140,000 3,716,353 2.43%
- --------------------------------------------------------------------------------
$ 23,504,651 15.39%
- --------------------------------------------------------------------------------
Major Capitalization - North America -- 20.36%
- --------------------------------------------------------------------------------
Biogen, Inc./(a)/ 150,000 $ 5,906,250 3.87%
Centocor, Inc./(a)/ 200,000 8,975,000 5.88%
Genzyme Corp.(a) 250,000 7,031,250 4.60%
Pharmacia & Upjohn, Inc./(a)/ 150,000 5,109,375 3.35%
Warner-Lambert Co. 32,000 4,066,000 2.66%
- --------------------------------------------------------------------------------
$ 31,087,875 20.36%
- --------------------------------------------------------------------------------
Specialty Capitalization - Europe -- 6.83%
- --------------------------------------------------------------------------------
Cambridge Antibody
Technology, Ltd. 307,040 $ 2,414,647 1.58%
Cambridge Antibody
Technology, Ltd. - Warrants/(a)/ 15,500 44,185 0.03%
Celltech Group, PLC/(a)/ 225,000 1,003,303 0.66%
Ethical Holdings ADR/(a)/ 150,000 712,500 0.46%
Swiss Serum Institute/(a)/ 420 6,262,972 4.10%
- --------------------------------------------------------------------------------
$ 10,437,607 6.83%
- --------------------------------------------------------------------------------
Specialty Capitalization - Far East -- 6.53%
- --------------------------------------------------------------------------------
Amrad Corp., Ltd./(a)/ 1,110,658 $ 2,081,792 1.36%
Biota Holdings, Ltd./(a)/ 644,640 2,037,523 1.33%
Biota Holdings, Ltd. -
Warrants/(a)/ 78,738 163,443 0.11%
Rohto Pharmaceutical 300,000 2,853,008 1.87%
Teikoku Hormone
Manufacturing 350,000 2,836,469 1.86%
- --------------------------------------------------------------------------------
$ 9,972,235 6.53%
- --------------------------------------------------------------------------------
Specialty Capitalization - North America-- 33.46%
- --------------------------------------------------------------------------------
Agouron Pharmaceuticals, Inc./(a)/ 130,000 $ 5,720,000 3.75%
Alexion Pharmaceuticals, Inc./(a)/ 270,000 2,970,000 1.94%
Arris Pharmaceutical Corp./(a)/ 250,000 3,406,250 2.23%
Aviron 125,000 3,125,000 2.05%
CytoTherapeutics, Inc./(a)/ 120,000 645,000 0.42%
Gilead Sciences, Inc./(a)/ 80,000 2,590,000 1.70%
Immunex Corp./(a)/ 100,000 4,375,000 2.86%
Incyte Pharmaceuticals, Inc./(a)/ 60,000 3,630,000 2.38%
Isis Pharmaceuticals, Inc./(a)/ 150,000 2,259,375 1.48%
Leukosite, Inc./(a)/ 175,000 1,060,938 0.69%
Millennium Pharmaceuticals/(a)/ 225,000 3,037,500 1.99%
Neurocrine BioScience, Inc. 130,000 1,056,250 0.69%
Ontogeny, Inc./(b)/ 600,000 1,500,000 0.98%
Pharmacopeia, Inc./(a)/ 215,000 3,386,250 2.22%
Premier Research Worldwide 235,000 1,953,438 1.28%
SangStat Medical Corp./(a)/ 125,000 2,875,000 1.88%
Sequana Therapeutics, Inc./(a)/ 50,000 543,750 0.36%
Tularik, Inc./(b)//(a)/ 80,000 800,000 0.52%
Vertex Pharmaceuticals, Inc./(a)/ 180,000 6,165,000 4.04%
- --------------------------------------------------------------------------------
$ 51,098,751 33.46%
- --------------------------------------------------------------------------------
Total Common Stocks and Warrants
(identified cost $121,559,390) $143,580,599
- --------------------------------------------------------------------------------
Total Investments
(identified cost $121,559,390) $143,580,599 94.02%
- --------------------------------------------------------------------------------
Other Assets, Less Liabilities $ 9,136,389 5.98%
- --------------------------------------------------------------------------------
Net Assets $152,716,988 100.00%
- --------------------------------------------------------------------------------
</TABLE>
(a) Non-income producing security.
(b) Restricted Security (Note 7)
See notes to financial statements
14
<PAGE>
Worldwide Health Sciences Portfolio as of August 31, 1997
FINANCIAL STATEMENTS
Statement of Assets and Liabilities
<TABLE>
<CAPTION>
As of August 31, 1997
Assets
- --------------------------------------------------------------------------------
<S> <C>
Investments, at value (Note 1A)
(identified cost basis $121,559,390) $143,580,599
Cash 9,142,727
Dividends receivable 12,160
Deferred organization expenses (Note 1E) 10,641
- --------------------------------------------------------------------------------
Total assets $152,746,127
- --------------------------------------------------------------------------------
Liabilities
- --------------------------------------------------------------------------------
Payable to affiliate for Trustees' fees (Note 2) $ 2,842
Accrued expenses 26,297
- --------------------------------------------------------------------------------
Total liabilities $ 29,139
- --------------------------------------------------------------------------------
Net Assets applicable to investors' interest in Portfolio $152,716,988
- --------------------------------------------------------------------------------
Sources of Net Assets
- --------------------------------------------------------------------------------
Net proceeds from capital contributions and withdrawals $130,695,779
Net unrealized appreciation of investments (computed
on the basis of identified cost) 22,021,209
- --------------------------------------------------------------------------------
Total $152,716,988
- --------------------------------------------------------------------------------
Statement of Operations
<CAPTION>
For the Year Ended
August 31, 1997
Investment Income
- --------------------------------------------------------------------------------
<S> <C>
Dividends (net of foreign taxes, $77,443) $ 339,253
- --------------------------------------------------------------------------------
Total income $ 339,253
- --------------------------------------------------------------------------------
Expenses
- --------------------------------------------------------------------------------
Investment adviser fee (Note 2) $ 800,167
Administration fee (Note 2) 231,722
Compensation of Trustees not members of the
Administrator's organization (Note 2) 8,019
Custodian fee (Note 1D) 66,262
Legal and accounting services 39,057
Registration fees 10,465
Amortization of organization expenses (Note 1E) 2,590
Miscellaneous 2,553
- --------------------------------------------------------------------------------
Total expenses $ 1,160,835
- --------------------------------------------------------------------------------
Deduct --
Reduction of custodian fee (Note 1D) $ 64,632
- --------------------------------------------------------------------------------
Total expense reductions $ 64,632
- --------------------------------------------------------------------------------
Net expenses $ 1,096,203
- --------------------------------------------------------------------------------
Net investment loss $ (756,950)
- --------------------------------------------------------------------------------
Realized and Unrealized
Gain (Loss) on Investments
- --------------------------------------------------------------------------------
Net realized gain (loss) --
Investment transactions (identified cost basis) $ 1,764,064
Foreign currency transactions 42,629
- --------------------------------------------------------------------------------
Net realized gain on investments $ 1,806,693
- --------------------------------------------------------------------------------
Change in unrealized appreciation (depreciation) --
Investments (identified cost basis) $ 22,021,209
- --------------------------------------------------------------------------------
Net change in unrealized appreciation (depreciation)
of investments $ 22,021,209
- --------------------------------------------------------------------------------
Net realized and unrealized gain on investments $ 23,827,902
- --------------------------------------------------------------------------------
Net increase in net assets from operations $ 23,070,952
- --------------------------------------------------------------------------------
</TABLE>
See notes to financial statements
15
<PAGE>
Worldwide Health Sciences Portfolio as of August 31, 1997
FINANCIAL STATEMENTS CONT'D
Statements of Changes in Net Assets
<TABLE>
<CAPTION>
Increase (Decrease) Year Ended
in Net Assets August 31, 1997
- --------------------------------------------------------------------------------
<S> <C>
From operations --
Net investment loss $ (756,950)
Net realized gain on investments 1,806,693
Net change in unrealized appreciation (depreciation) 22,021,209
- --------------------------------------------------------------------------------
Net increase in net assets resulting from operations $ 23,070,952
- --------------------------------------------------------------------------------
Capital transactions --
Contributions $160,659,674
Withdrawals (31,113,638)
- --------------------------------------------------------------------------------
Net increase in net assets resulting from
capital transactions $129,546,036
- --------------------------------------------------------------------------------
Net increase in net assets $152,616,988
- --------------------------------------------------------------------------------
Net Assets
- --------------------------------------------------------------------------------
At beginning of year $ 100,000
- --------------------------------------------------------------------------------
At end of year $152,716,988
- --------------------------------------------------------------------------------
</TABLE>
See notes to financial statements
16
<PAGE>
Worldwide Health Sciences Portfolio as of August 31, 1997
FINANCIAL STATEMENTS CONT'D
Supplementary Data
<TABLE>
<CAPTION>
Year Ended
August 31,
1997
- --------------------------------------------------------------------------------
Ratios to average daily net assets
<S> <C>
- --------------------------------------------------------------------------------
Expenses 1.25%
Net expenses, after custodian fee reduction 1.18%
Net investment loss (0.81)%
Portfolio Turnover 14%
- --------------------------------------------------------------------------------
Average commission rate (per share) /(1)/ $ 0.0438
- --------------------------------------------------------------------------------
Net assets, end of year (000s omitted) $152,717
- --------------------------------------------------------------------------------
</TABLE>
/(1)/ 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.
See notes to financial statements
17
<PAGE>
Worldwide Health Sciences Portfolio as of August 31, 1997
NOTES TO FINANCIAL STATEMENTS
1 Significant Accounting Policies
------------------------------------------------------------------------------
Worldwide Health Sciences Portfolio (the Portfolio) is registered under the
Investment Company Act of 1940 as a diversified, open-end management
investment company which was organized as a trust under the laws of the State
of New York on March 26, 1996. The Declaration of the Trust permits the
Trustees to issue interests in the Portfolio. Investment operations began on
September 1, 1996, with the acquisition of securities with a value of
$51,528,696, including unrealized appreciation of $9,053,201, in exchange for
an interest in the Portfolio by one of the Portfolio's investors. 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 -- Securities listed on a recognized stock exchange,
whether U.S. or foreign, are valued at the last reported sale price on that
exchange prior to the time when assets are valued or prior to the close of
trading on the New York Stock exchange. In the event that there are no sales,
the last available sale price will be used. If a security is traded on more
than one exchange, the security is valued at the last sale price on the
exchange where the stock is primarily traded. Securities for which market
quotations are not readily available and other assets are valued on a
consistent basis at fair value as determined in good faith by or under the
supervision of the Portfolio's officers in a manner specifically authorized by
the Board of Trustees.
B Income -- Dividend income is recorded on the ex-dividend date, except that
certain dividends from foreign securities are recorded on the ex-dividend date
or as soon thereafter as the Portfolio is informed of the dividend.
C 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 ultimately responsible for the payment of any taxes. 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 must satisfy the applicable source of income and diversification
requirement, (under the Code) in order for its investors to satisfy them. The
Portfolio will allocate at least annually among its investors each investors'
distributive share of the Portfolio's net investment income, net realized
capital gains, and any other items of income, gain, loss, deduction or credit.
D Expense Reduction -- Investors Bank & Trust Company (IBT) serves as
custodian of the Portfolio. Pursuant to the custodian agreement, IBT receives
a fee reduced by the credits which are determined based on the average daily
cash balances the Portfolio maintains with IBT. All significant credit
balances used to reduce the Portfolio's custodian fees are reflected as a
reduction of operating expense on the Statement of Operations.
E Deferred Organization Expenses -- Costs incurred by the Portfolio in
connection with its organization are being amortized on the straight-line
basis over five years.
F Use of Estimates -- The preparation of 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 nonhedging purposes. The
forward foreign currency exchange contracts are adjusted by the daily exchange
rate of the underlying currency and any gains and losses are recorded for
financial statement purposes as unrealized until such time as the contracts
have been closed.
18
<PAGE>
Worldwide Health Sciences Portfolio as of August 31, 1997
NOTES TO FINANCIAL STATEMENTS CONT'D
I Other -- Investment transactions are accounted for on a trade date basis.
2 Investment Advisory Fees, Administrator's Fees and Other Transactions with
Affiliates
------------------------------------------------------------------------------
Pursuant to the Advisory Agreement, Mehta and Isaly Asset Management, Inc.
("M&I") serve as the Investment Adviser of the Portfolio. Under this agreement
M&I received a monthly fee at the annual rate of 1% of the Portfolio's first
$30 million in average net assets, 0.90% of the next $20 million in average
net assets, and 0.75% of average net assets in excess of $50 million. The fee
rate declines for net assets of $500 million and greater. Beginning September
1, 1997, M&I may receive a performance based adjustment of up to 0.25% of the
average daily net assets of the Portfolio based upon the investment
performance of the Portfolio compared to the Standard & Poor's Index of 500
Common Stocks over specified periods. For the year ended August 31, 1997, the
fee was equivalent to 0.86% of the Portfolio's average daily net assets and
amounted to $800,167.
Under an Administration Agreement between the Portfolio and its Administrator,
Eaton Vance Management (EVM) , EVM manages and administers the affairs of the
Portfolio. 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, 1997, the administration fee was 0.25% 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 officers and Trustees of the Portfolio are also officers or
directors/trustees of the above organizations. Trustees of the Portfolio that
are not affiliated with the Investment Adviser may elect to defer receipt of
all or a portion of their annual fees in accordance with the terms of the
Trustee Deferred Compensation Plan. For the year ended August 31, 1997, no
significant amounts have been deferred.
3 Investments
------------------------------------------------------------------------------
Purchases and sales of investments other than U.S. Government securities and
short-term obligations aggregated $89,798,719 and $12,478,888, respectively.
4 Federal Income Tax Basis of Investments
------------------------------------------------------------------------------
The cost and unrealized appreciation/depreciation in value of the investments
owned at August 31, 1997, as computed on a federal income tax basis, were as
follows:
<TABLE>
<S> <C>
Aggregate cost $121,559,390
------------------------------------------------------------------------------
Gross unrealized appreciation $ 28,413,965
Gross unrealized depreciation (6,392,756)
------------------------------------------------------------------------------
Net unrealized appreciation $ 22,021,209
------------------------------------------------------------------------------
</TABLE>
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 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.
19
<PAGE>
Worldwide Health Sciences Portfolio as of August 31, 1997
NOTES TO FINANCIAL STATEMENTS CONT'D
6 Line of Credit
- --------------------------------------------------------------------------------
The Portfolio participates with other portfolios and funds managed by EVM
and its affiliates in a committed $120 million unsecured line of credit
agreement with a group of banks. Borrowings will be made by the Portfolios
and funds solely to facilitate the handling of unusual and/or unanticipated
short-term cash requirements. Interest is charged to each portfolio or fund
based on its borrowings at the bank's base rate or at an amount above either
the bank's adjusted certificate of deposit rate, Eurodollar rate or federal
funds effective rate. In addition, a fee computed at an annual rate of 0.15%
on the daily unused portion of the facility is allocated among the
participating portfolios and funds at the end of each quarter. The Portfolio
did not have any significant borrowings or allocated fees during the year
ended August 31, 1997.
7 Restricted Securities
- --------------------------------------------------------------------------------
At August 31, 1997, the Portfolio owned the following securities
(representing 1.51% of net assets) which were restricted as to public resale
and not registered under the Securities Act of 1933. The Portfolio has
various registration rights (exercisable under a variety of circumstances)
with respect to these securities. The fair value of these securities is
determined based on valuations provided by brokers when available, or if not
available, they are valued at fair value using methods determined in good
faith by or at the direction of the Trustees.
<TABLE>
<CAPTION>
Date of
Description Acquisition Shares/Face Cost Fair Value
----------------------------------------------------------------------------
Common Stocks
----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Ontogeny, Inc. 3/13/97 600,000 $1,500,000 $1,500,000
Tularik, Inc. 10/14/96 80,000 800,000 800,000
----------------------------------------------------------------------------
$2,300,000 $2,300,000
----------------------------------------------------------------------------
</TABLE>
20
<PAGE>
Worldwide Health Sciences Portfolio as of August 31, 1997
INDEPENDENT ACCOUNTANTS' REPORT
We have audited the accompanying statement of assets and liabilities, including
the portfolio of investments, of Worldwide Health Sciences Portfolio as of
August 31, 1997, and the related statement of operations, the statement of
changes in net assets and the supplementary data for the year ended August 31,
1997. 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 on our audit.
We conducted our audit 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, 1997 by
correspondence with the custodian and brokers. 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 audit provides 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 Worldwide Health Sciences
Portfolio at August 31, 1997, the results of its operations, the changes in its
net assets and supplementary data for the year then ended, in conformity with
generally accepted accounting principles.
COOPERS & LYBRAND
Chartered Accountants
Toronto, Ontario
October 3, 1997
21
<PAGE>
EV Marathon Worldwide Health Sciences Fund as of August 31, 1997
INVESTMENT MANAGEMENT
EV Marathon Worldwide Health Sciences Fund
Officers Independent Trustees
James B. Hawkes Donald R. Dwight
President and Trustee President, Dwight Partners, Inc.
Chairman, Newspapers of New England, Inc.
M. Dozier Gardner
Vice President Samuel L. Hayes, III
Jacob H. Schiff Professor of Investment
James L. O'Connor Banking, Harvard University Graduate
Treasurer School of Business Administration
Alan R. Dynner Norton H. Reamer
Secretary President and Director, United Asset
Management Corporation
John L. Thorndike
Formerly Director, Fiduciary Company
Incorporated
Jack L. Treynor
Investment Adviser and Consultant
Worldwide Health Sciences Portfolio
Officers Independent Trustees
James B. Hawkes Donald R. Dwight
President and Trustee President, Dwight Partners, Inc.
Chairman, Newspapers of New England, Inc.
Samuel D. Isaly
Vice President and Samuel L. Hayes, III
Portfolio Manager Jacob H. Schiff Professor of Investment
Banking, Harvard University Graduate
James L. O'Connor School of Business Administration
Treasurer
Norton H. Reamer
Alan R. Dynner President and Director, United Asset
Secretary Management Corporation
Viren Mehta John L. Thorndike
Vice President Formerly Director, Fiduciary Company
Incorporated
William Chisholm Jack L. Treynor
Vice President Investment Adviser and Consultant
Raymond O'Neill
Vice President
Michel Normandeau
Vice President
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Sponsor and Manager of
EV Marathon Worldwide Health Sciences Fund &
Administrator of Worldwide Health Sciences Portfolio
Eaton Vance Management
24 Federal Street
Boston, MA02110
Advisor of Worldwide Health Sciences Portfolio
Mehta and Isaly Asset Management, Inc.
41 Madison Avenue
New York, NY 10010-2202
Principal Underwriter
Eaton Vance Distributors, Inc.
24 Federal Street
Boston, MA 02110
(617)482-8260
Custodian
Investors Bank & Trust Company
200 Clarendon Street, 16th Floor
Boston, MA 02116
Transfer Agent
First Data Investor Services Group
Attention: Eaton Vance Funds
P.O. Box 5123
Westborough, MA 01581-5123
(800) 262-1122
EV Marathon Worldwide Health Sciences Fund
24 Federal Street
Boston, MA 02110
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This report must be preceded or accompanied by a current prospectus which
contains more complete information on the Fund,including its sales charges and
expenses. Please read the prospectus carefully before you invest or send money.
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