<PAGE>
[LOGO OF EATON VANCE APPEARS HERE] [PHOTO OF STATUE OF LIBERTY APPEARS HERE]
Investing
for the
21st
Century(R)
Annual Report October 31, 1998
[PHOTO OF WALL STREET SIGN APPEARS HERE]
SECOND
FIDUCIARY
EXCHANGE
FUND
Eaton Vance
Global Management-Global Distribution
[PHOTO OF 1120 CORP. FORMS & CALCULATOR APPEARS HERE]
<PAGE>
Second Fiduciary Exchange Fund as of October 31, 1998
Letter to Shareholders
[PHOTO OF JAMES B. HAWKES APPEARS HERE]
James B. Hawkes
President
During the year ended October 31, 1998, Eaton Vance Second Fiduciary Exchange
Fund had a total return of 16.9%./1/ This return resulted from an increase in
net asset value (NAV) to $288.60 per share on October 31, 1998 from $248.44 per
share on October 31, 1997, and the reinvestment of $1.85 per share in dividends.
This return compared very favorably to the average total return for mutual funds
in the Lipper Growth Funds Category, which was 9.6% during the same period.*
Continued stock price volatility in 1998 has resulted in an unusual mix of
confidence and uncertainty ...
In 1998, a number of factors have contributed to an investment environment
almost unprecedented in its volatility. The Dow Jones Industrial Average saw a
tremendous rally in the first four months of 1998, followed by a significant
decline in September that erased the year's gains, then a near-full recovery in
October. Investor confidence, bolstered by the Federal Reserve Board's interest
rate cuts, modest economic growth, and low inflation, kept stock valuations
relatively high. However, the dangers that precipitated the market's mid-year
plunge still lurk on the horizon: Asian economies, while stabilized, are still
not strong; corporate earnings have been lackluster; and ongoing currency crises
in Japan and Brazil continue to worry credit markets.
...While providing opportunities for the tax-conscious investor...
In such a turbulent environment, most actively managed mutual funds not focused
specifically on tax-efficiency typically have a high rate of turnover and,
subsequently, higher taxable distributions to shareholders. Exchange Fund,
however, aims to provide high after-tax returns, and its management employs a
style that is consistent with this objective. This is an especially important
consideration, given that after much debate, Congress approved no new tax cuts
in its most recent session.
Volatility in the stock market can be troubling, but Eaton Vance believes that,
as a normal and even healthy part of the investment process, it can also present
good opportunities for long-term investors. Beginning on the following page,
Portfolio Manager Duncan W. Richardson discusses the past 12 months and offers
his outlook for the year ahead.
Sincerely,
/s/ James B. Hawkes
James B. Hawkes,
President
December 8, 1998
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Fund Information
as of October 31, 1998
Performance/1/
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Average Annual Total Returns
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One Year 16.9%
Five Years 19.6
Ten Years 15.1
Life of Fund (6/5/67) 10.3
Ten Largest Equity Holdings/2/
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By total net assets
Automatic Data Processing, Inc. 2.0%
Lexmark International Group, Inc. 1.8
SunAmerica, Inc. 1.8
Xerox Corp. 1.8
Albertson's, Inc. 1.7
Unilever ADR 1.6
Johnson & Johnson Co. 1.6
Omnicom Group, Inc. 1.5
Marsh & McLennan Cos., Inc. 1.5
Home Depot, Inc. (The) 1.5
/1/ Returns are calculated by determining the percentage change in net asset
value with all distributions reinvested.
/2/ Ten largest holdings are as of 10/31/98 only and may not be representative
of the Portfolio's current or future investments. Holdings accounted for
16.8% of the Portfolio's investments, determined by dividing the total
market value of the holdings by the total net assets of the Portfolio.
* It is not possible to invest directly in a Lipper Category or an Index.
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.
- --------------------------------------------------------------------------------
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.
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2
<PAGE>
Second Fiduciary Exchange Fund as of October 31, 1998
Management Discussion
An interview with Duncan W. Richardson,
Vice President and Portfolio Manager of
Tax-Managed Growth Portfolio
[PHOTO OF DUNCAN W. RICHARDSON APPEARS HERE]
Duncan W. Richardson,
Portfolio Manager
Q: Duncan, what can you tell us about the extreme highs and lows of the stock
market over the past year?
A: The market volatility that began in 1997 was amplified in 1998. At this
time last year, we were talking about the concern that the Asian economies
would be collapsing. That fear turned out to be well-founded, but the U.S.
market rallied dramatically between January and April. An already high
valuation range for stocks was stretched to historic levels. With higher
valuation levels comes higher risk. In this environment, any external shock
can have an amplified effect on the market. We have seen overreactions to
political developments, the economic slowdowns overseas, the risk of
currency devaluations, and the deflationary threat. All have swung the
market wildly in the last several months.
Q: How did the Portfolio perform in this context?
A: Overall, we have continued to do quite well despite increasing volatility
in the marketplace. We significantly outperformed the Lipper Growth Fund
Category for the 12-month period ended October 31, 1998; Class A shares had
a 16.8% return, versus the average Lipper return of 9.6%. Year in and year
out, our goal is to be in the top quintile of pre-tax performance for all
growth funds, and the top decile for after-tax performance.
Our Fund "corrected" in line with the rest of the market. At this writing,
it continues to lag the S&P 500 Index for the year, but we've actually done
better than some of our more aggressive competitors whose portfolios are
more concentrated, that is, less diversified, than ours. Our style tends to
benefit from some volatility and we try to be no riskier than the S&P 500
benchmark, which I think has become increasingly risky in the past year.
Q: Is there one factor that drives the performance of this Portfolio?
A: I think it's important to understand that the performance of the Portfolio
can't be attributed to one particular stock or one particular sector. How
the Portfolio does depends more on our ability to correctly evaluate the
earnings potential of scores of quality growth companies. We have an
extremely well seasoned team of analysts, averaging 16 years of experience
in their areas of research. Strong research is central to Eaton Vance's
fundamental approach to growth stock investing.
As a growth fund, we look for companies with a history of strong earnings
and future growth potential. We are disciplined and don't want to overpay
for earnings that might not be delivered. The turbulent economic
environment around the world puts corporate earnings at risk. Companies
have been lowering their guidance for earnings, and as a result there have
been some dramatic devaluations of individual stocks and sectors. We have
used this near-term fear and uncertainty to our advantage, taking the
opportunity to invest when our favored stocks were "on sale."
We are patient in accumulating positions in companies that can grow their
earnings over a 5-year investment horizon. An "ideal" entry point is one
where we have the expectation of the stock doubling over a 5-year period. A
good example of this is Gillette Corporation, in which we have built a
position over the past several months. We've been able to buy it recently
at prices where we think it makes a good deal of long-term investment
sense.
Q: How do you decide when to sell a stock?
A: Our "selling discipline" is a key factor in producing high pre-tax and
after-tax returns. The most important part of our sell discipline is to
address any mistakes we may have made early. When a stock we hold
underperforms the market by 10% or more from our cost, we
3
<PAGE>
Second Fiduciary Exchange Fund as of October 31, 1998
Management Discussion CONT'D
will sell the stock and take a loss. This is a good investment practice to
preserve capital and it also makes sense with regard to taxes. Taking a
limited loss by selling stock allows us to offset gains taken elsewhere,
thereby limiting or eliminating any yearly capital gains distributions.
Selling an underperforming stock gives us a better perspective from which
to reevaluate both our original investment case and the company's current
fundamentals. Often, with emotion-driven volatility, we've had
opportunities to buy back a stock at a lower price than we sold it. We want
to own stocks for a minimum of five years, so we can easily sit out of an
investment for 30 days. Our selling discipline helps keep the Fund in the
right investments at the right prices and adds to the tax efficiency of our
results.
Q: What about a selling discipline for your "winners"?
A: I will generally lower the exposure of the Portfolio to an individual stock
when it reaches 3 - 4% of the Portfolio, or if there has been a change in
the company's fundamentals. We make every effort to ensure any gains taken
are from the most favorable tax lots.
Q: Earlier you referred to the Portfolio as more diversified than some of its
competitors. Would you elaborate?
A: Certainly. There are other funds that focus more on specific sectors and
have higher concentrations in individual stocks. However, we don't
radically overweight or underweight any particular sector, and our top
holdings tend to be 1 1/2 - 2% of the Portfolio, versus 3 - 4% positions
held in other funds. We view diversification as a partial shock absorber.
Equity investors must take some market risk in order to participate in the
higher returns equities can offer, but my mantra for this Fund is "No
unnecessary risks." We attempt to minimize our stock-specific and
sector-specific risks. Another factor distinguishes this Portfolio from
passively managed index funds and other "momentum"-style funds. A passive
fund "automatically" buys securities based on market capitalizations
without regard to fundamentals or prices. For example, we viewed the recent
dip in Gillette's stock price as a buying opportunity, while an index fund
was buying more Gillette than ever before at the 52-week high. Our active
management style allows us to take advantage of market volatility, rather
than become a victim of it.
Q: What can you tell us about the Portfolio's top holding, Automatic Data
Processing?
A: This is a great example of a growth stock. We believe that over the long
haul, stock prices follow earnings. ADP has one of the best track records
for double-digit earnings growth, and we believe that the earnings stream
will continue to grow. As a long-term investor, that's exactly what we're
looking for. In addition, as a tax-conscious investor, we love this company
because we can use a buy-and-hold forever strategy. As long as the
company's growth continues, we will remain as investors. While the stock
has done well, at less than 2% of the Portfolio, I'm not yet worried about
too much stock-specific risk in Automatic Data, especially since their
fundamentals remain on track.
Q: It seems there has been an increased awareness of tax-managed investing of
late. Why is that so?
A: Thinking about taxes is something people should do more than once or twice
a year. In many mutual funds, high equity returns over the past few years,
combined with an increase in momentum-driven, high-turnover portfolio
management, have produced enormous taxable distributions. Taxable investors
have seen huge tax bills drag down their actual mutual fund returns over
the past three or four years. This year could be even more interesting and
painful. It may be a lower-return year, but the market volatility had led
to a lot more turnover in many funds, which may kick out
4
<PAGE>
Second Fiduciary Exchange Fund as of October 31, 1998
Management Discussion CONT'D
high distributions despite modest returns.
New mutual fund rating organizations have realized that the tax efficiency
of funds is very important to investors with assets outside of qualified
plans. The after-tax performance difference between a fund that is tax-
efficient and one that is not can be more than 2% per year. This may not
sound like much, but, compounded over a long period of time, the difference
between losing 2% in taxes every year versus deferring those taxes and
allowing those returns to compound tax-free, can be substantial.
Q: What is Eaton Vance's background in tax-managed investing?
A: Eaton Vance has incorporated the principles of tax-managed investing for
private clients for decades. We have been managing mutual funds that focus
on after-tax returns for over 30 years. There are several other tax-managed
funds starting up, but none have Eaton Vance's depth of experience in using
an active management, research-driven approach. The Tax-Managed Growth
Portfolio is the largest pool of actively managed, tax-efficient mutual
fund assets in the industry. The principles of tax-efficient investing
guide our general investment approach for building wealth for our clients
over a long period of time: 1) having exposure to the equity market, which
historically has provided the highest inflation-adjusted returns; 2)
holding on to companies whose business and earnings can continue to grow;
and 3) taking losses early to preserve capital.
Q: What do you see happening in the year ahead?
A: Well, I can simply repeat my comments from last year, when I predicted
somewhat lower equity returns in 1998 and more volatility in the stock
market. Historically high valuations and the dominance of many passive and
short-term investors in the market should ensure continued volatility. We
continue to anticipate a levelling off of equity market returns, back to
the historic average of 10% per year. It's important to remember that stock
prices will reflect the earnings power of individual companies, and
evaluating these earnings, not predicting markets, is our main focus.
We expect that downside earnings surprises will continue to play a role
through 1999, especially as companies spend an increasing amount to fix the
Year 2000 computer problem. There are a number of other potentially
negative influences on corporate earnings that will require constant
monitoring by our research staff. Overall, we will aim to keep the
Portfolio's volatility low, through its diversified structure and our buy
and sell disciplines.
Our entire research staff and I are grateful to our fellow shareholders,
new and old, for their continued participation in the Tax-Managed Growth
Portfolio. Those who purchased shares recently have had a bumpy few
quarters. As always, our goal is to make the best risk/reward investment
decisions in any market environment that we encounter. Long-term investing
success takes patience and persistence, and we are pleased that our
shareholders have placed their confidence in us to help them meet their
objectives.
5
<PAGE>
Second Fiduciary Exchange Fund as of October 31, 1998
FINANCIAL STATEMENTS
Statement of Assets and Liabilities
As of October 31, 1998
Assets
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Investment in Tax-Managed Growth Portfolio, at value
(identified cost, $18,812,262) $117,854,269
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Total assets $117,854,269
- --------------------------------------------------------------------------------
Liabilities
- --------------------------------------------------------------------------------
Payable for Fund shares redeemed $ 12,340
Payable to affiliate for Trustees' fees 32
Other accrued expenses 22,098
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Total liabilities $ 34,470
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Net Assets for 408,244 shares of beneficial interest outstanding $117,819,799
- --------------------------------------------------------------------------------
Sources of Net Assets
- --------------------------------------------------------------------------------
Accumulated undistributed net realized gain from Portfolio
(computed on the basis of identified cost), less the excess of
cost of Fund shares redeemed over proceeds from sales of Fund
shares (including shares issued to shareholders electing to
receive payment of distributions in Fund shares) $ 28,136,919
Accumulated undistributed net investment income 183,475
Federal tax on undistributed net realized long-term capital gain,
paid on behalf of shareholders (9,542,602)
Net unrealized appreciation from Portfolio
(computed on the basis of identified cost) 99,042,007
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Total $117,819,799
- --------------------------------------------------------------------------------
Net Asset Value and Redemption
Price Per Share
- --------------------------------------------------------------------------------
($117,819,799 / 408,244 shares of
beneficial interest outstanding) $ 288.60
- --------------------------------------------------------------------------------
Statement of Operations
For the Year Ended
October 31, 1998
Investment Income
- --------------------------------------------------------------------------------
Dividends allocated from Portfolio
(net of foreign taxes, $13,692) $ 1,310,802
Interest allocated from Portfolio 265,818
Expenses allocated from Portfolio (609,779)
- --------------------------------------------------------------------------------
Net investment income from Portfolio $ 966,841
- --------------------------------------------------------------------------------
Expenses
- --------------------------------------------------------------------------------
Trustees fees and expenses $ 3,419
Legal and accounting services 23,390
Transfer and dividend disbursing agent fees 23,275
Custodian fee 14,575
Printing and postage 14,105
Miscellaneous 100
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Total expenses $ 78,864
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Net investment income $ 887,977
- --------------------------------------------------------------------------------
Realized and Unrealized
Gain (Loss) from Portfolio
- --------------------------------------------------------------------------------
Net realized gain (loss) --
Investment transactions (identified cost basis) $ 7,113,786
- --------------------------------------------------------------------------------
Net realized gain $ 7,113,786
- --------------------------------------------------------------------------------
Change in unrealized appreciation (depreciation)--
Investments $ 10,096,567
- --------------------------------------------------------------------------------
Net change in unrealized appreciation (depreciation) $ 10,096,567
- --------------------------------------------------------------------------------
Net realized and unrealized gain $ 17,210,353
- --------------------------------------------------------------------------------
Net increase in net assets from operations $ 18,098,330
- --------------------------------------------------------------------------------
See notes to financial statements
6
<PAGE>
Second Fiduciary Exchange Fund as of October 31, 1998
FINANCIAL STATEMENTS CONT'D
Statements of Changes in Net Assets
Increase (Decrease) Year Ended Year Ended
in Net Assets October 31, 1998 October 31, 1997
- --------------------------------------------------------------------------------
From operations--
Net investment income $ 887,977 $ 801,950
Net realized gain 7,113,786 4,665,991
Net change in unrealized
appreciation (depreciation) 10,096,567 21,839,238
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Net increase in net assets
from operations $ 18,098,330 $ 27,307,179
- --------------------------------------------------------------------------------
Distributions to shareholders --
From net investment income $ (800,995) $ (699,744)
- --------------------------------------------------------------------------------
Total distributions to shareholders $ (800,995) $ (699,744)
- --------------------------------------------------------------------------------
Transactions in shares of beneficial
interest --
Net asset value of shares
issued to shareholders
in payment of
distributions declared $ 103,039 $ 95,704
Cost of shares redeemed (9,729,247) (5,758,621)
- --------------------------------------------------------------------------------
Net decrease in net assets
from Fund share
transactions $ (9,626,208) $ (5,662,917)
- --------------------------------------------------------------------------------
Net increase in net assets $ 7,671,127 $ 20,944,518
- --------------------------------------------------------------------------------
Net Assets
- --------------------------------------------------------------------------------
At beginning of year $ 110,148,672 $ 89,204,154
- --------------------------------------------------------------------------------
At end of year $ 117,819,799 $ 110,148,672
- --------------------------------------------------------------------------------
Accumulated undistributed net
investment income included in net assets
- --------------------------------------------------------------------------------
At end of year $ 183,475 $ 96,493
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See notes to financial statements
7
<PAGE>
Second Fiduciary Exchange Fund as of October 31, 1998
FINANCIAL STATEMENTS CONT'D
Financial Highlights
<TABLE>
<CAPTION>
Year Ended October 31, Year Ended December 31,
----------------------------------- -------------------------------------
1998 1997 1996(1) 1995 1994 1993
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value--Beginning of year $ 248.440 $ 189.770 $ 161.100 $ 125.590 $ 126.260 $ 121.950
- -----------------------------------------------------------------------------------------------------------------------------------
Income (loss) from operations
- -----------------------------------------------------------------------------------------------------------------------------------
Net investment income $ 2.082 $ 1.780 $ 1.394 $ 2.188 $ 2.103 $ 1.745
Net realized and unrealized gain (loss) 39.928 58.440 28.776 37.355 (0.224) 4.666
- -----------------------------------------------------------------------------------------------------------------------------------
Total income from operations $ 42.010 $ 60.220 $ 30.170 $ 39.543 $ 1.879 $ 6.411
- -----------------------------------------------------------------------------------------------------------------------------------
Less distributions
- -----------------------------------------------------------------------------------------------------------------------------------
From net investment income $ (1.850) $ (1.550) $ (1.488) $ (2.184) $ (2.050) $ (1.680)
In excess of net investment income -- -- (0.012) (0.066) -- --
From net realized gain -- -- -- (1.170) -- --
- -----------------------------------------------------------------------------------------------------------------------------------
Total distributions $ (1.850) $ (1.550) $ (1.500) $ (3.420) $ (2.050) $ (1.680)
- -----------------------------------------------------------------------------------------------------------------------------------
Provision for federal tax on undistributed
net realized long-term gain $ -- $ -- $ -- $ (0.613) $ (0.499) $ (0.421)
- -----------------------------------------------------------------------------------------------------------------------------------
Net asset value--End of year $ 288.600 $ 248.440 $ 189.770 $ 161.100 $ 125.590 $ 126.260
- -----------------------------------------------------------------------------------------------------------------------------------
Total Return (2) 16.93% 31.83% 18.95% 31.00% 1.09% 4.92%
- -----------------------------------------------------------------------------------------------------------------------------------
Ratios/Supplemental Data
- -----------------------------------------------------------------------------------------------------------------------------------
Net assets, end of year (000's omitted) $ 117,820 $ 110,149 $ 89,204 $ 77,159 $ 61,644 $ 65,720
Ratios (As a percentage of average daily net assets):
Expenses (3) 0.57% 0.65% 0.78%(4) 0.80% 0.82% 0.81%
Net investment income 0.73% 0.79% 0.95%(4) 1.50% 1.65% 1.40%
Portfolio Turnover (5) -- -- 3% 12% 12% 9%
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) For the ten-month period ended October 31, 1996.
(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 reinvested at the
net asset value on the reinvestment date. Total return is not computed on an
annualized basis.
(3) Includes the Fund's share of the Portfolio's allocated expenses for the
period the Fund was investing in the Portfolio.
(4) Annualized.
(5) Portfolio Turnover represents the rate of portfolio activity for the period
while the Fund was making investments directly in securities. The portfolio
turnover rate for the period since the Fund transferred all of its
investable assets to the Portfolio is shown in the Portfolio's financial
statements which are included elsewhere in this report.
See notes to financial statements
8
<PAGE>
Second Fiduciary Exchange Fund as of October 31, 1998
NOTES TO FINANCIAL STATEMENTS
1 Significant Accounting Policies
------------------------------------------------------------------------------
Second Fiduciary Exchange Fund (the Fund), formerly Second Fiduciary Exchange
Fund, Inc., is a diversified series of Eaton Vance Series 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 the Tax-Managed 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. (1.7% at October
31, 1998). 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 Valuation -- 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 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 net
realized short-term capital gain. Accordingly, no provision for federal income
or excise tax is necessary. At October 31, 1998, the Fund, for federal income
tax purposes, had a capital loss carryover of $2,135,847 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 October 31, 2006 ($1,253,604), October
31, 2005 ($738,301) and October 31, 2004 ($143,942). The Fund generally
designates as undistributed any taxable net realized long-term gain (but
reserves the right to distribute such gain in any year) and pays the federal
tax thereon on behalf of shareholders. Provision for such tax is recorded on
the Fund's records on the last business day of the Fund's fiscal year because
the Internal Revenue Code provides that such tax is allocated among
shareholders of record on that date.
D Other -- Investment transactions are accounted for on a trade-date basis.
Dividends to shareholders are recorded on the ex-dividend date.
E 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.
2 Distributions to Shareholders
------------------------------------------------------------------------------
The Fund's policy is to distribute all or substantially all of the net
investment income allocated to the Fund by the Portfolio (less the Fund's
direct expenses). Distributions are paid in the form of additional shares of
the Fund or, at the election of the shareholder, in cash. 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 only are
classified as distributions in excess of net investment income or accumulated
net realized gains.
9
<PAGE>
Second Fiduciary Exchange Fund as of October 31, 1998
NOTES TO FINANCIAL STATEMENTS CONT'D
3 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:
Year Ended October 31,
-----------------------------
1998 1997
------------------------------------------------------------------
Issued to shareholders electing to
receive payment of distributions
in Fund shares 368 431
Redemptions
(35,481) (27,142)
------------------------------------------------------------------
Net decrease (35,113) (26,711)
------------------------------------------------------------------
4 Investment Transactions
------------------------------------------------------------------------------
Decreases in the Fund's investment in the Portfolio aggregated $10,480,583,
for the year ended October 31, 1998. In addition, investments were distributed
in payment for Fund shares redeemed resulting in realized capital gains of
$7,998,854 for book purposes.
5 Transactions with Affiliates
------------------------------------------------------------------------------
Eaton Vance Management (EVM) serves as the administrator of the Fund but
receives no compensation. The Portfolio has engaged Boston Management and
Research (BMR), a subsidiary of EVM, to render investment advisory services.
See Note 2 of the Portfolio's Notes to Financial Statements which are included
elsewhere in this report. Except for trustees of the Fund who are not members
of EVM's or BMR's organization, officers and trustees receive remuneration for
their services to the Fund out of the investment adviser fee earned by BMR.
Certain of the officers and trustees of the Fund are officers and
directors/trustees of the above organizations.
6 Subsequent Event
------------------------------------------------------------------------------
On October 19, 1998, the Board of Trustees of the Trust approved a merger plan
whose terms provide that Capital Exchange Fund acquire substantially all of
the assets and liabilities of the Fund, Depositors Fund of Boston,
Diversification Fund, Fiduciary Exchange Fund, The Exchange Fund of Boston and
Vance Sanders Exchange Fund (the Acquired Funds). 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 Funds
a number of full and fractional shares of beneficial interest of Capital
Exchange Fund which will be equal in value to the net asset value per share of
the Acquired Funds multiplied by the number of full and fractional shares of
the Acquired Funds then outstanding. The transaction will occur after the
close of business December 18, 1998.
10
<PAGE>
Second Fiduciary Exchange Fund as of October 31, 1998
INDEPENDENT AUDITORS' REPORT
To the Trustees and Shareholders of Eaton Vance
Series Trust:
- --------------------------------------------------------------------------------
We have audited the accompanying statement of assets and liabilities of Second
Fiduciary Exchange Fund (the Fund) (one of the series constituting the Eaton
Vance Series Trust) as of October 31, 1998, the related statement of operations
for the year then ended, the statements of changes in net assets for each of the
years in the two-year period ended October 31, 1998, and the financial
highlights for each of the years in the two-year period ended October 31, 1998,
the ten-month period ended October 31, 1996, and for each of years in the
three-year period ended December 31, 1995. 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 audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such financial statements and financial highlights present
fairly, in all material respects, the financial position of Second Fiduciary
Exchange Fund as of October 31, 1998, 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
December 4, 1998
11
<PAGE>
Tax-Managed Growth Portfolio as of October 31, 1998
PORTFOLIO OF INVESTMENTS
Common Stocks -- 93.1%
Security Shares Value
- --------------------------------------------------------------------------------
Advertising and Marketing Services -- 2.5%
- --------------------------------------------------------------------------------
ACNielsen Corp.(1) 45,668 $ 1,221,619
Advo, Inc.(1) 170,000 4,324,375
Harte-Hanks Communications, Inc. 144,604 3,515,685
Interpublic Group of Companies, Inc. 540,138 31,598,073
Interpublic Group of Companies, Inc.(2) 42,000 2,457,000
Omnicom Group, Inc. 2,164,018 106,983,639
R.H. Donelley Corp. 8,153 114,142
Snyder Communications, Inc.(1)(2) 442,500 15,781,191
Snyder Communications, Inc.(1)(2) 40,000 1,425,716
TMP Worldwide, Inc.(1) 43,000 1,290,000
True North Communications, Inc. 93,000 2,197,125
WPP Group PLC 488,000 2,427,263
Young and Rubicam, Inc.(1) 186,000 4,859,250
- --------------------------------------------------------------------------------
$ 178,195,078
- --------------------------------------------------------------------------------
Aerospace and Defense -- 0.3%
- --------------------------------------------------------------------------------
Allied Signal, Inc. 25,000 $ 973,438
Boeing Company (The) 228,127 8,554,763
Raytheon Co., Class B 213,564 12,400,060
- --------------------------------------------------------------------------------
$ 21,928,261
- --------------------------------------------------------------------------------
Apparel & Textiles -- 0.0%
- --------------------------------------------------------------------------------
Unifi, Inc. 50,000 $ 843,750
- --------------------------------------------------------------------------------
$ 843,750
- --------------------------------------------------------------------------------
Auto and Parts -- 1.0%
- --------------------------------------------------------------------------------
Aftermarket Technology Corp.(1)(2) 46,000 $ 286,925
Borg-Warner Automotive, Inc. 225,000 10,546,875
Chrysler Corp. 32,000 1,540,000
Ford Motor Co. 32,000 1,736,000
General Motors Corp. 5,396 340,285
Genuine Parts Co. 147,059 4,632,359
Harley-Davidson, Inc. 1,000 38,750
Magna International, Inc., Class A 775,000 48,098,438
Meritor Automotive, Inc. 61,133 1,142,423
SPX Corp.(1) 47,862 2,605,500
TRW, Inc. 2,000 113,875
- --------------------------------------------------------------------------------
$ 71,081,430
- --------------------------------------------------------------------------------
Banks - Money Center -- 0.2%
- --------------------------------------------------------------------------------
Bank of Montreal 36,650 $ 1,498,069
Chase Manhattan Corp. 78,706 4,471,485
Morgan (J.P.) & Co., Inc. 1,000 94,250
National Westminster Bank PLC 8,753 875,847
Wells Fargo & Co. 11,542 4,270,540
- --------------------------------------------------------------------------------
$ 11,210,191
- --------------------------------------------------------------------------------
Banks - Regional -- 4.8%
- --------------------------------------------------------------------------------
AmSouth Bancorporation 27,492 $ 1,101,398
Bank of Granite Corp. 22,500 753,750
Bank of New York Co., Inc. (The) 156,344 4,934,608
Bank One Corp. 779,787 38,112,090
Bank United Corp. 2,000 79,688
BankAmerica Corp. 611,570 35,127,036
BankBoston Corp. 202,160 7,442,015
BB&T Corp. 66,470 2,372,148
City National Corp. 100,000 3,418,750
Colonial Bancgroup, Inc. (The) 310,822 4,060,112
Comerica, Inc. 100,000 6,450,000
Community First Bancshares, Inc. 296,000 5,883,000
Community First Bancshares, Inc.(2) 72,000 1,428,615
Compass Bancshares, Inc. 171,112 6,299,061
Crestar Financial Corp. 28,348 1,867,425
Fifth Third Bancorp. 112,500 7,453,125
First Citizens BancShares, Inc. 35,300 3,150,525
First Tennessee National Corp. 33,488 1,061,151
First Union Corp. 974,826 56,539,907
Fleet Financial Group, Inc. 114,972 4,591,694
Golden West Financial Corp. 7,000 634,813
Keycorp 163,689 4,961,823
Marshall and Ilsley Corp. 20,000 975,000
Mellon Bank Corp. 16,000 962,000
Mercantile Bancorporation, Inc. 58,722 2,682,861
National City Corp. 61,553 3,958,627
National Commerce Bancorporation(2) 159,632 2,831,579
Northern Trust Corp. 181,898 13,414,978
Norwest Corp. 2,154,655 80,126,232
PNC Bank Corp. 62,502 3,125,100
Regions Financial Corp. 49,300 1,824,100
Southwest Bancorporation of Texas, Inc.(1) 7,688 117,723
Sovereign Bancorp., Inc. 366,000 4,803,750
Summit Bancorp. 21,642 821,043
See notes to financial statements
12
<PAGE>
Tax-Managed Growth Portfolio as of October 31, 1998
PORTFOLIO OF INVESTMENTS CONT'D
Security Shares Value
- --------------------------------------------------------------------------------
Banks - Regional (continued)
- --------------------------------------------------------------------------------
SunTrust Banks, Inc. 480 $ 33,450
U.S. Bancorp. 136,000 4,964,000
Union Planters Corp. 14,875 690,758
Valley National Bancorp. 230,863 6,233,301
Wachovia Corp. 37,199 3,380,459
Washington Mutual, Inc. 143,506 5,372,506
Westamerica Bancorporation 82,596 2,746,317
Zions Bancorporation 20,000 1,061,250
- --------------------------------------------------------------------------------
$ 337,847,768
- --------------------------------------------------------------------------------
Beverages -- 1.4%
- --------------------------------------------------------------------------------
Anheuser-Busch Cos., Inc. 261,465 $ 15,540,826
Coca-Cola Company (The) 582,666 39,402,788
PepsiCo, Inc. 1,251,241 42,229,384
- --------------------------------------------------------------------------------
$ 97,172,998
- --------------------------------------------------------------------------------
Broadcasting and Cable -- 0.9%
- --------------------------------------------------------------------------------
Clear Channel Communications, Inc.(1) 108,600 $ 4,948,088
Comcast Corp., Class A 62,500 3,085,938
Cox Communications, Inc., Class A(1) 93,319 5,120,880
Liberty Media Group, Class A(1) 91,828 3,495,203
MediaOne Group, Inc.(1) 258,524 10,938,797
Tele-Communications, Inc., Series A(1) 490,073 20,644,325
Univision Communications, Inc.(1) 200,649 5,919,146
Univision Communications, Inc.(1)(2) 183,556 5,405,877
- --------------------------------------------------------------------------------
$ 59,558,254
- --------------------------------------------------------------------------------
Building Materials and Tools -- 0.6%
- --------------------------------------------------------------------------------
American Standard Companies, Inc.(1) 172,899 $ 5,521,962
CRH PLC 257,105 3,745,994
Interface, Inc. 323,608 3,984,424
Masco Corp. 228,662 6,445,410
Sherwin-Williams Co. (The) 44,670 1,125,126
Snap-On, Inc.(2) 44,444 1,574,984
Valspar Corp. 620,000 17,398,750
Walter Industries, Inc.(1) 1,000 14,000
- --------------------------------------------------------------------------------
$ 39,810,650
- --------------------------------------------------------------------------------
Business Services - Miscellaneous-- 0.7%
- --------------------------------------------------------------------------------
Cintas Corp. 39,604 $ 2,118,814
Corrections Corporation of America(1) 97,310 1,873,218
Fair, Issac and Co., Inc. 88,828 3,564,224
Fair, Issac and Co., Inc.(2) 150,000 6,011,227
Half (Robert) International, Inc.(1) 1,800 72,225
Manpower, Inc. 110,000 2,653,750
Metzler Group, Inc. (The)(1) 314,880 13,224,960
Navigant International, Inc.(1) 59,631 342,878
Romac International, Inc.(1)(2) 45,546 796,524
Service Master Co. 68,343 1,443,746
Staff Leasing, Inc.(1) 78,125 966,797
Staff Leasing, Inc.(1)(2) 78,125 964,863
Sylvan Learning Systems, Inc.(1) 509,469 15,729,855
Viad Corp. 40,314 1,106,115
- --------------------------------------------------------------------------------
$ 50,869,196
- --------------------------------------------------------------------------------
Chemicals -- 0.6%
- --------------------------------------------------------------------------------
Bayer AG ADR 40,000 $ 1,625,428
Dow Chemical Co. (The) 21,318 1,995,898
DuPont (E.I.) de Nemours & Co. 224,967 12,935,603
Eastman Chemical Co. 123 7,226
Monsanto Co. 492,240 19,997,250
Octel Corp.(1) 8,322 120,149
Olin Corp. 1,037 28,712
Solutia, Inc. 200,336 4,394,871
- --------------------------------------------------------------------------------
$ 41,105,137
- --------------------------------------------------------------------------------
Communications Equipment -- 1.5%
- --------------------------------------------------------------------------------
Dialogic Corp.(1) 80,000 $ 1,800,000
General Cable Corp. 3,000 59,250
General Motors Corp., Class H 300,000 11,475,000
L.M. Ericsson Telephone Co., ADR 452,000 10,226,500
Lucent Technologies, Inc. 4,205 337,188
Nokia Corp., Class A ADR 659,380 61,363,550
Northern Telecom Ltd. 111,740 4,783,869
PairGain Technologies, Inc.(1) 350,581 2,881,355
Salient 3 Communications, Inc., Class A 78,125 546,875
Tellabs, Inc.(1) 151,623 8,339,265
- --------------------------------------------------------------------------------
$ 101,812,852
- --------------------------------------------------------------------------------
See notes to financial statements
13
<PAGE>
Tax-Managed Growth Portfolio as of October 31, 1998
PORTFOLIO OF INVESTMENTS CONT'D
Security Shares Value
- --------------------------------------------------------------------------------
Communications Services -- 1.4%
- --------------------------------------------------------------------------------
Airtouch Communications, Inc.(1) 1,865 $ 104,440
Aliant Communications, Inc. 36,322 1,024,963
Alltel Corp. 54,746 2,562,817
American Tower Corp., Class A(1) 149,451 3,269,241
Ameritech Corp. 28,362 1,529,775
AT&T Corp. 36,767 2,288,746
Bell Atlantic Corp. 8,166 433,819
BellSouth Corp. 6,980 557,091
Citizens Utilities Corp., Class B(1) 44,975 404,773
Excel Communications, Inc.(1) 100,000 2,406,250
GTE Corp. 3,789 222,367
GTE Corp.(2) 17,500 1,025,747
Intermedia Communications, Inc.(1) 113,637 2,102,285
MCI Worldcom, Inc.(1) 1,158,374 64,000,163
McLeodUSA, Inc.(1) 57,143 2,089,291
McLeodUSA, Inc.(1)(2) 36,000 1,315,373
Nextel Communications, Inc., Class
A(1) 75,830 1,374,419
Premiere Technologies, Inc.(1) 28,000 154,000
SBC Communications, Inc. 9,342 432,651
Sprint Corp. 1,600 122,800
Tel-Save Holdings, Inc.(1) 247,376 2,218,666
Telecom Corp. of New Zealand Ltd. ADR 8,000 264,000
Telephone & Data Systems, Inc. 131,756 5,253,771
US West, Inc. 8,339 478,450
- --------------------------------------------------------------------------------
$ 95,635,898
- --------------------------------------------------------------------------------
Computer Software -- 2.6%
- --------------------------------------------------------------------------------
Baan Co., NV ADR(1) 223,926 $ 2,463,186
BMC Software, Inc.(1) 8,000 384,500
Boole and Babbage, Inc.(1) 40,000 1,065,000
Cadence Design Systems, Inc.(1) 506,000 10,815,750
Computer Associates International,
Inc. 854,684 33,653,183
Compuware Corp.(1) 1,400 75,863
CSG Systems International, Inc.(1) 20,558 1,120,411
HNC Software, Inc.(1) 254,814 8,568,121
HNC Software, Inc.(1)(2) 147,980 4,971,681
Intuit, Inc.(1) 286,227 14,454,464
Microsoft Corp.(1) 235,255 24,907,623
Oracle Corp.(1) 1,262,500 37,322,656
Parametric Technology Corp.(1) 94,600 1,572,725
PeopleSoft, Inc.(1) 354,174 7,504,062
Platinum Technology, Inc.(1) 155,000 2,547,813
Sapient Corp.(1) 323,876 14,594,662
Security Dynamics Technologies,
Inc.(1) 40,000 410,000
Siebel Systems, Inc.(1) 118,000 2,411,625
Sterling Commerce, Inc.(1) 2,388 84,177
Structural Dynamics Research Corp.(1) 675,000 9,703,125
Wind River Systems, Inc.(1)(2) 13,000 569,183
- --------------------------------------------------------------------------------
$ 179,199,810
- --------------------------------------------------------------------------------
Computers and Business Equipment -- 7.1%
- --------------------------------------------------------------------------------
Cabletron Systems, Inc.(1) 33,715 $ 383,508
Cisco Systems, Inc.(1) 965,884 60,850,691
Compaq Computer Corp. 38,714 1,224,330
Dell Computer Corp.(1) 3,800 248,900
Dell Computer Corp.(1)(2) 1,500,000 98,184,499
Dell Computer Corp.(1)(2) 150,512 9,842,105
EMC Corp.(1) 5,800 373,375
Fore Systems, Inc.(1) 52,250 816,406
Fore Systems, Inc.(1)(2) 38,466 600,030
Gateway 2000, Inc.(1)(2) 200,000 11,143,896
Hewlett-Packard Co. 588,680 35,431,178
International Business Machines
Corp. 154,293 22,902,867
Lexmark International Group,
Inc.(1) 1,841,746 128,807,110
Sun Microsystems, Inc.(1) 3,500 203,875
Xerox Corp. 1,314,000 127,293,749
- --------------------------------------------------------------------------------
$ 498,306,519
- --------------------------------------------------------------------------------
Conglomerates -- 1.3%
- --------------------------------------------------------------------------------
General Electric Co. 974,391 $ 85,259,212
United Technologies Corp. 86,242 8,214,551
- --------------------------------------------------------------------------------
$ 93,473,763
- --------------------------------------------------------------------------------
Consumer Services -- 0.3%
- --------------------------------------------------------------------------------
Block (H&R), Inc. 366,177 $ 16,409,307
Cendant Corp.(1) 187,999 2,150,239
Service Corp. International 3,000 106,875
Stewart Enterprises, Inc. 153,992 3,551,441
- --------------------------------------------------------------------------------
$ 22,217,862
- --------------------------------------------------------------------------------
Containers and Packaging -- 0.2%
- --------------------------------------------------------------------------------
Sealed Air Corp.(1) 325,000 $ 11,517,188
Sonoco Products Co. 78,571 2,229,452
- --------------------------------------------------------------------------------
$ 13,746,640
- --------------------------------------------------------------------------------
See notes to financial statements
14
<PAGE>
Tax-Managed Growth Portfolio as of October 31, 1998
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS CONT'D
Security Shares Value
- --------------------------------------------------------------------------------
Distribution Services -- 1.7%
- --------------------------------------------------------------------------------
Airgas, Inc.(1) 61,000 $ 701,500
Airgas, Inc.(1)(2) 205,555 2,363,883
Cardinal Health, Inc. 379,200 35,858,100
School Specialty, Inc.(1) 66,257 1,043,541
Supervalu, Inc. 26,723 641,352
Sysco Corp. 1,763,972 47,516,996
U.S. Foodservice, Inc.(1) 505,489 24,010,728
U.S. Foodservice, Inc.(1)(2) 66,438 3,151,860
US Office Products Co.(1) 149,077 1,146,031
Wilmar Industries, Inc.(1) 50,000 1,237,500
- --------------------------------------------------------------------------------
$ 117,671,491
- --------------------------------------------------------------------------------
Drugs -- 9.8%
- --------------------------------------------------------------------------------
Abbott Laboratories 888,180 $ 41,688,949
Agouron Pharmaceuticals, Inc.(1) 242,400 9,393,000
American Home Products Corp. 4,600 224,250
Amgen, Inc.(1) 405,532 31,859,608
Astra AB, Class A 1,074,400 17,387,015
Astra AB, Class B ADR 160,000 2,550,000
Bristol-Myers Squibb Co. 363,531 40,192,896
Covance, Inc.(1) 81,250 2,264,844
Elan Corp., PLC ADR(1) 361,360 25,317,785
Genentech, Inc.(1) 80,000 5,730,000
Genzyme Corp.(1) 12,150 41,006
Genzyme Corp., Class A(1) 1,490,000 62,673,124
Incyte Pharmaceuticals, Inc.(1)(2) 577,571 17,605,933
Incyte Pharmaceuticals, Inc.(1)(2) 150,856 4,599,114
Lilly (Eli) & Co. 812,448 65,757,509
Merck & Co., Inc. 587,004 79,392,290
Parexel International Corp.(1)(2) 35,000 771,705
Pfizer, Inc. 852,858 91,522,323
Quintiles Transnational Corp.(1) 195,420 8,842,755
Schering-Plough Corp. 321,892 33,114,640
Sepracor, Inc.(1) 440,000 30,195,000
SmithKline Beecham PLC ADR 225,440 14,371,800
Teva Pharmaceutical Industries
Ltd. ADR(2) 100,000 3,938,097
Vertex Pharmaceuticals, Inc.(1) 35,000 923,125
Warner-Lambert Co. 716,032 56,119,007
Watson Pharmaceuticals, Inc.(1) 599,550 33,349,969
Watson Pharmaceuticals, Inc.(1)(2) 122,888 6,827,100
- --------------------------------------------------------------------------------
$ 686,652,844
- --------------------------------------------------------------------------------
Electric Utilities -- 0.2%
- --------------------------------------------------------------------------------
Central and South West Corp. 1,600 $ 44,500
Dominion Resources, Inc. 28,938 1,336,574
Duke Energy Corp. 1,800 116,438
New England Electric System 2,700 109,856
Teco Energy, Inc. 40,000 1,105,000
Texas Utilities Co. 250,196 10,946,075
- --------------------------------------------------------------------------------
$ 13,658,443
- --------------------------------------------------------------------------------
Electrical Equipment -- 0.6%
- --------------------------------------------------------------------------------
American Power Conversion Corp.(1) 200,000 $ 8,487,500
AMP, Inc. 112,340 4,612,961
Emerson Electric Co. 151,648 10,008,768
Molex, Inc., Class A 90,066 2,944,032
Rockwell International Corp. 183,700 7,543,181
Sanmina Corp.(1)(2) 150,000 6,139,750
Thomas and Betts Corp. 22,963 1,026,159
- --------------------------------------------------------------------------------
$ 40,762,351
- --------------------------------------------------------------------------------
Electronics - Instruments -- 0.2%
- --------------------------------------------------------------------------------
Dionex Corp.(1) 362,140 $ 9,641,978
Waters Corp.(1) 29,580 2,174,130
X-Rite, Inc. 310,000 2,208,750
X-Rite, Inc.(2) 118,000 840,190
- --------------------------------------------------------------------------------
$ 14,865,048
- --------------------------------------------------------------------------------
Electronics - Semiconductors -- 2.2%
- --------------------------------------------------------------------------------
Altera Corp.(1) 3,600 $ 149,850
Analog Devices, Inc.(1) 1,630,000 32,396,250
Burr-Brown Corp.(1) 600,000 11,137,500
Intel Corp. 729,379 65,051,489
KLA-Tencor Corp.(1) 36,000 1,327,500
Lam Research Corp.(1) 106,000 1,530,375
Linear Technologies Corp. 66,000 3,935,250
Maxim Intergrated Products Co.(1) 40,000 1,427,500
Motorola, Inc. 112,768 5,863,936
National Semiconductor Corp.(1) 79,368 1,006,982
See notes to financial statements
15
<PAGE>
Tax-Managed Growth Portfolio as of October 31, 1998
PORTFOLIO OF INVESTMENTS CONT'D
Security Shares Value
- --------------------------------------------------------------------------------
Electronics - Semiconductors (continued)
- --------------------------------------------------------------------------------
Smart Modular Technologies,
Inc.(1) 60,000 $ 1,260,000
Speedfam International, Inc.(1) 221,000 3,563,625
Texas Instruments, Inc. 337,948 21,607,550
Ultratech Stepper, Inc.(1) 245,129 4,412,322
Uniphase Corp.(1)(2) 25,932 1,282,778
- --------------------------------------------------------------------------------
$ 155,952,907
- --------------------------------------------------------------------------------
Engineering and Construction -- 0.1%
- --------------------------------------------------------------------------------
Jacobs Engineering Group, Inc.(1) 162,455 $ 5,300,094
- --------------------------------------------------------------------------------
$ 5,300,094
- --------------------------------------------------------------------------------
Entertainment -- 0.5%
- --------------------------------------------------------------------------------
Callaway Golf Co.(2) 35,715 $ 388,090
Disney (Walt) Co. 80,700 2,173,856
Mattel, Inc. 20,995 753,196
Time Warner Inc. 250,684 23,266,609
Time Warner Inc., Series J 31,209 2,890,792
Viacom Inc., Class B(1) 35,399 2,119,515
- --------------------------------------------------------------------------------
$ 31,592,058
- --------------------------------------------------------------------------------
Environmental Services -- 0.6%
- --------------------------------------------------------------------------------
Browning-Ferris Industries, Inc. 391,647 $ 13,878,991
U.S. Filter Corp.(1) 100,412 2,127,479
Waste Management, Inc. 552,975 24,952,997
- --------------------------------------------------------------------------------
$ 40,959,467
- --------------------------------------------------------------------------------
Financial Services - Miscellaneous -- 3.6%
- --------------------------------------------------------------------------------
American Express Co. 616,648 $ 54,496,267
Associates First Capital Corp. 200,000 14,100,000
Capital One Financial Corp. 73,411 7,469,569
Citigroup 1,395,391 65,670,588
Fannie Mae 945,355 66,942,950
FirstPlus Financial Group,
Inc.(1)(2) 120,000 532,500
Freddie Mac 352,500 20,268,750
Household International, Inc. 199,293 7,286,650
Providian Financial Corp. 166,107 13,184,743
- --------------------------------------------------------------------------------
$ 249,952,017
- --------------------------------------------------------------------------------
Foods -- 3.7%
- --------------------------------------------------------------------------------
Archer-Daniels-Midland Co. 143,775 $ 2,399,245
Bestfoods 22,400 1,220,800
Conagra, Inc. 294,949 8,977,510
Flowers Industries, Inc. 393,000 8,056,500
General Mills, Inc. 24,850 1,826,475
Kellogg Co. 69,714 2,300,562
McCormick & Co., Inc. 629,298 19,547,569
Nabisco Holdings Corp., Class A 100,000 3,775,000
Pioneer Hi-Bred International,
Inc. 952,171 26,660,788
Quaker Oats Co. (The) 39,942 2,359,074
Riviana Foods, Inc. 150,000 2,939,070
Riviana Foods, Inc.(2) 100,000 1,956,109
Sara Lee Corp. 577,972 34,497,704
Tyson Food, Inc. 870,276 20,016,348
Unilever ADR 1,502,000 113,025,499
Wrigley (Wm.) Jr. Co. 113,180 9,160,506
- --------------------------------------------------------------------------------
$ 258,718,759
- --------------------------------------------------------------------------------
Furniture and Appliances -- 0.5%
- --------------------------------------------------------------------------------
HON Industries, Inc. 1,135,488 $ 24,058,152
HON Industries, Inc.(2) 134,930 2,856,923
Leggett & Platt, Inc. 298,328 6,973,417
Miller (Herman), Inc. 120,000 2,647,500
- --------------------------------------------------------------------------------
$ 36,535,992
- --------------------------------------------------------------------------------
Health Services -- 0.7%
- --------------------------------------------------------------------------------
Aetna, Inc. 59,821 $ 4,464,142
Beverly Enterprises, Inc.(1) 357,143 2,410,715
FPA Medical Management, Inc.(1)(3) 315,000 3,150
Genesis Health Ventures, Inc.(1) 4,000 54,000
Health Management Associates, Inc.,
Class A(1) 61,170 1,089,591
HealthSouth Corp.(1) 146,000 1,770,250
Integrated Health Services, Inc. 50,000 809,375
Magellan Health Services, Inc.(1) 50,000 453,125
MedPartners, Inc.(1) 17,696 63,042
Omnicare, Inc. 25,650 886,528
Orthodontic Centers of America,
Inc.(1) 100,000 1,893,750
Pacificare Health Systems, Inc.,
Class B(1) 19,500 1,535,625
PhyCor, Inc.(1) 312,500 2,265,625
Quest Diagnostics, Inc.(1) 15,625 259,766
Quorum Health Group, Inc.(1) 55,733 808,129
See notes to financial statements
16
<PAGE>
Tax-Managed Growth Portfolio as of October 31, 1998
PORTFOLIO OF INVESTMENTS CONT'D
Security Shares Value
- --------------------------------------------------------------------------------
Health Services (continued)
- --------------------------------------------------------------------------------
Renal Care Group, Inc.(1) 175,282 $ 5,105,088
Renal Care Group, Inc.(1)(2) 196,225 5,703,623
Response Oncology, Inc.(1) 44,761 223,805
Sunrise Assisted Living, Inc.(1) 210,000 9,043,125
Sunrise Assisted Living, Inc.(1)(2) 140,000 6,023,324
United HealthCare Corp. 20,000 871,250
Vencor, Inc.(1) 25,600 118,400
- --------------------------------------------------------------------------------
$ 45,855,428
- --------------------------------------------------------------------------------
Household Products -- 2.4%
- --------------------------------------------------------------------------------
Avon Products, Inc. 8,400 $ 333,375
Blyth Industries, Inc.(1) 522,000 14,420,250
Blyth Industries, Inc.(1)(2) 40,000 1,104,263
Blyth Industries, Inc.(1)(2) 20,000 551,395
Colgate-Palmolive Co. 54,337 4,802,032
Fortune Brands, Inc. 1,500 49,594
Gillette Co. 1,605,200 72,133,674
Helen of Troy Ltd.(1) 65,000 966,875
Kimberly-Clark Corp. 551,928 26,630,526
Procter & Gamble Co. 389,741 34,638,231
Rubbermaid, Inc. 463,920 15,396,345
- --------------------------------------------------------------------------------
$ 171,026,560
- --------------------------------------------------------------------------------
Industrial Equipment -- 0.8%
- --------------------------------------------------------------------------------
Dover Corp. 355,445 $ 11,285,379
DT Industries, Inc. 37,728 679,104
Federal Signal Corp. 283,471 6,821,021
Illinois Tool Works, Inc. 169,010 10,837,766
Parker-Hannifin Corp. 150,898 5,394,604
Regal Beloit Corp. 265,000 5,581,563
Tecumseh Products Co., Class A 156,420 8,133,840
Tyco International Ltd. 83,462 5,169,428
- --------------------------------------------------------------------------------
$ 53,902,705
- --------------------------------------------------------------------------------
Information Services -- 4.5%
- --------------------------------------------------------------------------------
Acxiom Corp.(1) 210,527 $ 5,289,491
America Online, Inc.(1) 10,800 1,372,275
At Home Corp., Series A(1)(2) 20,291 875,609
Automatic Data Processing, Inc. 1,756,243 136,657,657
Aztec Technology Partners(1) 119,262 648,486
Bell and Howell Co.(1) 115,000 3,047,500
BISYS Group, Inc. (The)(1) 53,873 2,356,944
Ceridian Corp.(1) 90,500 5,192,438
Computer Sciences Corp. 450,202 23,748,156
Dun and Bradstreet Corp. (The) 40,768 1,156,792
Electronic Data Systems Corp. 155,000 6,306,563
Equifax, Inc. 40,000 1,547,500
First Data Corp. 282,761 7,493,167
HBO and Co. 27,599 724,474
IDX Systems Corp.(1)(2) 35,000 1,481,271
IMS Health, Inc. 249,006 16,558,899
Lason, Inc.(1)(2) 165,000 9,027,728
Lason, Inc.(1)(2) 190,000 10,381,695
National Data Corp. 81,333 2,755,155
Nielsen Media Research 83,002 1,177,591
Paychex, Inc. 87,976 4,376,806
Reuters Holdings PLC ADR 273,945 16,607,916
Saville Systems PLC(1) 320,000 5,400,000
Saville Systems PLC ADR(1)(2) 99,197 1,670,601
Saville Systems PLC ADR(1)(2) 297 5,004
SunGard Data Systems, Inc.(1) 1,382,319 46,653,266
USCS International, Inc.(1)(2) 150,000 4,456,922
- --------------------------------------------------------------------------------
$ 316,969,906
- --------------------------------------------------------------------------------
Insurance -- 8.3%
- --------------------------------------------------------------------------------
20th Century Industries 70,700 $ 1,736,569
Aegon, N.V. ADR 86,504 7,558,287
Allmerica Financial Corp. 1,500 75,000
Allstate Corp. (The) 1,046,416 45,061,289
American General Corp. 91,153 6,243,981
American International Group, Inc. 595,816 50,793,314
AON Corp. 85,385 5,293,870
Berkshire Hathaway, Inc., Class A(1)(2) 80 5,160,000
Berkshire Hathaway, Inc., Class B(1) 21 45,108
Chubb Corp. 101,050 6,214,575
Conseco, Inc.(2) 100,000 3,461,813
Delphi Financial Group, Inc.(1) 40,000 1,865,000
General RE Corp. 409,481 89,957,856
Jefferson-Pilot Corp. 38,267 2,324,720
Kansas City Life Insurance Co. 35,400 2,955,900
Lab Holdings, Inc. 35,960 627,053
Marsh & McLennan Cos., Inc. 1,916,666 106,374,962
Mercury General Corp. 2,000 85,000
See notes to financial statements
17
<PAGE>
Tax-Managed Growth Portfolio as of October 31, 1998
PORTFOLIO OF INVESTMENTS CONT'D
Security Shares Value
- --------------------------------------------------------------------------------
Insurance (continued)
- --------------------------------------------------------------------------------
Mutual Risk Management Ltd. 1,043,500 $ 35,283,344
Progressive Corp. 285,085 41,978,766
Protective Life Corp. 64,346 2,384,824
Safeco Corp. 12,122 525,034
St. Paul Cos., Inc. (The) 269,024 8,911,420
SunAmerica, Inc. 1,810,644 127,650,401
Torchmark Corp. 222,850 9,749,688
UICI(1) 57,257 844,541
UICI(1)(2) 180,000 2,653,892
UNUM Corp. 251,200 11,162,700
- --------------------------------------------------------------------------------
$ 576,978,907
- --------------------------------------------------------------------------------
Investment Services -- 0.7%
- --------------------------------------------------------------------------------
E*Trade Group, Inc.(1)(2) 100,000 $ 1,766,250
Merrill Lynch & Co., Inc. 349,756 20,723,043
Morgan Stanley Dean Witter & Co. 232,519 15,055,605
Morgan Stanley Dean Witter & Co.(2) 52,000 3,361,388
Price (T. Rowe) Associates, Inc. 86,716 3,083,838
Schwab (Charles) and Co., Inc. 44,500 2,133,219
- --------------------------------------------------------------------------------
$ 46,123,343
- --------------------------------------------------------------------------------
Lodging and Gaming -- 0.2%
- --------------------------------------------------------------------------------
Royal Caribbean Cruises Ltd.(2) 500,000 $ 13,870,600
Sunterra Corp.(1)(2) 50,000 473,971
- --------------------------------------------------------------------------------
$ 14,344,571
- --------------------------------------------------------------------------------
Medical Products -- 5.8%
- --------------------------------------------------------------------------------
Allegiance Corp. 45,322 $ 1,685,412
Ballard Medical Products 251,058 5,334,983
Bausch & Lomb, Inc. 123,919 5,165,873
Baxter International, Inc. 1,166,028 69,888,802
Becton, Dickinson and Co. 7,020 295,718
Becton, Dickinson and Co.(2) 28,980 1,219,806
Boston Scientific Corp.(1) 539,850 29,388,084
Dentsply International, Inc. 42,000 1,081,500
ESC Medical Systems Ltd.(1) 30,000 243,750
ESC Medical Systems Ltd.(1)(2) 150,000 1,214,180
Guidant Corp. 100,000 7,650,000
Heartport, Inc.(1) 41,026 174,361
Hillenbrand Industries, Inc. 647,898 38,347,463
Johnson & Johnson Co. 1,350,723 110,083,924
Marquette Medical Systems, Inc.(1) 55,000 2,450,938
Medtronics, Inc. 1,103,098 71,701,369
Schein (Henry), Corp.(1) 555,700 21,498,644
Schein (Henry), Corp.(1)(2) 17,000 656,372
Schein (Henry), Corp.(1)(2) 281,000 10,853,069
Sofamor Danek Group, Inc.(1) 223,000 22,662,375
St. Jude Medical, Inc.(1) 42,144 1,190,568
Steris Corp.(1) 78,394 1,803,062
- --------------------------------------------------------------------------------
$ 404,590,253
- --------------------------------------------------------------------------------
Metals - Gold -- 0.0%
- --------------------------------------------------------------------------------
Freeport-McMoran Copper & Gold, Inc. 6,000 $ 73,875
- --------------------------------------------------------------------------------
$ 73,875
- --------------------------------------------------------------------------------
Metals - Industrial -- 0.0%
- --------------------------------------------------------------------------------
Cyprus Amax Minerals Co. 20,950 $ 260,566
Nucor Corp.(2) 22,648 1,025,553
- --------------------------------------------------------------------------------
$ 1,286,119
- --------------------------------------------------------------------------------
Minerals and Fertilizer -- 0.1%
- --------------------------------------------------------------------------------
Mississippi Chemical Corp. 272,180 $ 3,929,599
Potash Corp. of Saskatchewan 105 7,284
- --------------------------------------------------------------------------------
$ 3,936,883
- --------------------------------------------------------------------------------
Natural Gas Distribution -- 0.1%
- --------------------------------------------------------------------------------
Columbia Energy Group 1,121 $ 64,849
Dynegy, Inc. 290,000 4,350,000
KN Energy, Inc. 20,000 993,750
National Fuel Gas Co. 2,000 94,500
Sonat, Inc. 107,200 3,249,500
- --------------------------------------------------------------------------------
$ 8,752,599
- --------------------------------------------------------------------------------
Oil and Gas - Equipment and Services -- 0.9%
- --------------------------------------------------------------------------------
Baker Hughes, Inc. 739,234 $ 16,309,350
Halliburton Co. 401,675 14,435,195
National-Oilwell, Inc.(1) 50,000 793,750
National-Oilwell, Inc.(1)(2) 416,400 6,597,129
Newpark Resources, Inc.(1) 110,000 1,038,125
Noble Drilling, Inc.(1) 170,000 2,921,875
See notes to financial statements
18
<PAGE>
Tax-Managed Growth Portfolio as of October 31, 1998
PORTFOLIO OF INVESTMENTS CONT'D
Security Shares Value
- --------------------------------------------------------------------------------
Oil and Gas - Equipment and Services (continued)
- --------------------------------------------------------------------------------
Patterson Energy, Inc.(1) 200,000 $ 1,237,500
Schlumberger Ltd. 367,470 19,292,175
Syntroleum Corp.(1) 2,735 26,153
Weatherford International(1) 56,750 1,542,891
- --------------------------------------------------------------------------------
$ 64,194,143
- --------------------------------------------------------------------------------
Oil and Gas - Exploration and Production -- 1.0%
- --------------------------------------------------------------------------------
Anadarko Petroleum Corp. 1,654,000 $ 56,029,249
Apache Corp. 127,003 3,595,772
Burlington Resources, Inc. 119,335 4,915,110
Oryx Energy Co.(1) 369,103 5,167,442
Triton Energy, Ltd.(1) 700 7,613
Union Pacific Resources Group, Inc. 79,795 1,037,335
USX-Marathon Group 50,895 1,663,630
- --------------------------------------------------------------------------------
$ 72,416,151
- --------------------------------------------------------------------------------
Oil and Gas - Integrated -- 1.0%
- --------------------------------------------------------------------------------
Amoco Corp. 282,730 $ 15,868,221
Atlantic Richfield Co. 42,450 2,923,744
British Petroleum Co. PLC 508 44,926
Chevron Corp. 55,600 4,531,400
Exxon Corp. 215,675 15,366,844
Mobil Corp. 200,645 15,186,318
Murphy Oil Corp. 29,700 1,226,981
Phillips Petroleum Co. 979 42,342
Quaker State Corp. 90,758 1,281,957
Royal Dutch Petroleum Co. 26,361 1,298,279
Texaco, Inc. 1,914 113,524
Tosco Corp. 300 8,419
Tosco Corp.(2) 314,619 8,823,110
- --------------------------------------------------------------------------------
$ 66,716,065
- --------------------------------------------------------------------------------
Paper and Forest Products -- 0.6%
- --------------------------------------------------------------------------------
Caraustar Industries, Inc. 224,961 $ 5,342,824
Champion International Corp. 52,192 1,666,882
Fort James Corp. 56,401 2,273,665
Georgia-Pacific Corp. - G-P Group 305,098 15,788,822
Georgia-Pacific Corp. - G-P Group(2) 14,133 730,469
Georgia-Pacific Corp. - Timber Group 305,098 6,769,362
Louisiana Pacific Corp. 55,364 982,711
Mead Corporation (The) 38,768 1,226,038
Union Camp Corp. 80,309 3,453,287
Weyerhaeuser Co. 61,755 2,890,906
Willamette Industries, Inc. 53,000 1,643,000
- --------------------------------------------------------------------------------
$ 42,767,966
- --------------------------------------------------------------------------------
Photography -- 0.1%
- --------------------------------------------------------------------------------
Eastman Kodak Co. 47,200 $ 3,658,000
- --------------------------------------------------------------------------------
$ 3,658,000
- --------------------------------------------------------------------------------
Printing and Business Products -- 0.7%
- --------------------------------------------------------------------------------
American Business Products, Inc. 261,355 $ 4,851,402
Avery Dennison Corp. 803,004 33,274,478
Bowne & Co., Inc. 172,640 2,319,850
Consolidated Graphics, Inc.(1) 35,064 1,663,349
Corporate Express, Inc.(1) 92,486 1,080,930
Danka Business Systems, PLC 1,000 5,563
Deluxe Corp. 80,675 2,611,853
Donnelley (R.R.) & Sons Co. 32,896 1,418,640
Harland (John H.) Co. 51,540 747,330
Ikon Office Solutions, Inc. 115,500 1,090,031
Workflow Management, Inc.(1) 79,508 457,170
- --------------------------------------------------------------------------------
$ 49,520,596
- --------------------------------------------------------------------------------
Publishing -- 1.9%
- --------------------------------------------------------------------------------
Belo (A.H.) Corp. 110,220 $ 2,004,626
Dow Jones & Co., Inc. 1,111,000 50,897,688
Gannett Co., Inc. 280,900 17,380,688
Houghton Mifflin Co. 97,400 3,798,600
McGraw-Hill Companies, Inc. (The) 455,608 40,976,245
Meredith Corp. 190,000 7,030,000
The MacClatchy Co., Class A 48,066 1,631,240
Times Mirror Co., Class A 151,670 8,408,206
- --------------------------------------------------------------------------------
$ 132,127,293
- --------------------------------------------------------------------------------
Real Estate -- 0.5%
- --------------------------------------------------------------------------------
Avalonbay Communities, Inc. 55,000 $ 1,766,875
Catellus Development Corp.(1) 290,000 3,987,500
Equity Office Properties Trust 2,812 67,488
Grubb and Ellis Co.(1)(2) 100,000 973,375
See notes to financial statements
19
<PAGE>
Tax-Managed Growth Portfolio as of October 31, 1998
PORTFOLIO OF INVESTMENTS CONT'D
Security Shares Value
- --------------------------------------------------------------------------------
Real Estate (continued)
- --------------------------------------------------------------------------------
LaSalle Partners, Inc.(1)(2) 213,193 $ 6,231,738
Patriot America Hospitality, Inc. 132,212 1,173,382
Redwood Trust, Inc. 71,710 986,013
Rouse Co. (The) 127,700 3,583,581
Trammell Crow Co.(1)(2) 876,098 18,914,043
Ventas, Inc.(1) 25,600 292,800
- --------------------------------------------------------------------------------
$ 37,976,795
- --------------------------------------------------------------------------------
Restaurants -- 1.1%
- --------------------------------------------------------------------------------
Bob Evans Farms, Inc. 48,193 $ 948,800
Boston Chicken, Inc.(1)(3) 38,500 385
Brinker International, Inc.(1) 446,376 10,796,720
CKE Restaurants, Inc.(2) 100,000 2,629,496
CKE Restaurants, Inc.(2) 10,000 262,599
Lone Star Steakhouse and Saloon,
Inc.(1) 145,981 1,167,848
Lone Star Steakhouse and Saloon,
Inc.(1)(2) 200,000 1,597,333
McDonald's Corp. 263,100 17,594,813
Outback Steakhouse, Inc.(1) 77,101 2,669,622
Outback Steakhouse, Inc.(1)(2) 130,181 4,498,502
Outback Steakhouse, Inc.(1)(2) 250,000 8,641,823
Papa John's International, Inc.(1) 25,807 979,861
Papa John's International, Inc.(1)(2) 51,744 1,961,381
Sonic Corp.(1)(2) 47,338 897,923
Starbucks Corp.(1) 342,000 14,834,250
Tricon Global Restaurants, Inc.(1) 175,767 7,645,865
- --------------------------------------------------------------------------------
$ 77,127,221
- --------------------------------------------------------------------------------
Retail - Food and Drug -- 4.3%
- --------------------------------------------------------------------------------
Albertson's, Inc. 2,090,219 $ 116,137,792
CVS Corp. 1,980,000 90,461,249
General Nutrition Companies, Inc.(1) 44,460 647,449
Hannaford Brothers Co. 30,849 1,351,572
Kroger Co. (The)(1) 22,800 1,265,400
Rite Aid Corp. 6,000 238,125
Safeway, Inc.(1) 1,677,501 80,205,516
Walgreen Co. 13,750 669,453
Whole Foods Market, Inc.(1) 90,000 3,605,625
Winn-Dixie Stores, Inc. 220,221 7,473,750
- --------------------------------------------------------------------------------
$ 302,055,931
- --------------------------------------------------------------------------------
Retail - General -- 2.0%
- --------------------------------------------------------------------------------
99(cent) Only Stores(1)(2) 342,670 $ 15,836,337
Casey's General Stores, Inc.(2) 75,000 1,048,688
Dayton Hudson Corp. 270 11,441
Department 56, Inc.(1) 190,000 5,925,625
Dollar General Corp. 25,625 611,797
Dollar Tree Stores, Inc.(1) 292,500 11,279,531
Dollar Tree Stores, Inc.(1)(2) 247,792 9,549,109
Harcourt General, Inc. 216,416 10,536,754
May Department Stores Co. (The) 104,008 6,344,488
Nordstrom, Inc. 27,610 754,098
Penney (J.C.) Company, Inc. 1,101,673 52,329,468
Wal-Mart Stores, Inc. 396,890 27,385,410
- --------------------------------------------------------------------------------
$ 141,612,746
- --------------------------------------------------------------------------------
Retail - Specialty and Apparel -- 2.3%
- --------------------------------------------------------------------------------
Abercrombie and Fitch Co., Class A(1) 2,802 $ 111,204
Burlington Coat Factory Warehouse
Corp. 543,600 8,154,000
CompUSA, Inc.(1) 1,000 13,875
Home Depot, Inc. (The) 2,374,361 103,284,703
Limited, Inc. (The) 205,000 5,253,125
Lowe's Companies, Inc. 60,000 2,021,250
Office Depot, Inc.(1) 140,000 3,500,000
OfficeMax, Inc.(1) 300,000 2,737,500
Pep Boys - Manny, Moe & Jack (The) 35,476 554,313
Pep Boys - Manny, Moe & Jack (The)(2) 62,500 975,911
Pier 1 Imports, Inc.(2) 150,000 1,385,766
Pier 1 Imports, Inc.(2) 75,000 692,594
Republic Industries, Inc.(1) 1,748,523 28,085,651
Staples, Inc.(1) 50,000 1,631,250
Tiffany and Co. 22,000 710,875
TJX Companies, Inc. (The) 500 9,469
Toys "R" Us, Inc.(1) 73,255 1,433,051
- --------------------------------------------------------------------------------
$ 160,554,537
- --------------------------------------------------------------------------------
Specialty Chemicals and Materials -- 1.4%
- --------------------------------------------------------------------------------
Corning, Inc. 130,000 $ 4,720,625
Dexter Corp. (The) 36,139 1,057,066
Ecolab, Inc. 2,088,536 62,395,012
International Flavors &
Fragrances, Inc. 148,101 5,544,531
International Specialty Products,
Inc.(1) 59,000 792,813
MacDermid, Inc. 30,000 1,098,750
Millipore Corp. 261,340 6,435,498
- --------------------------------------------------------------------------------
See notes to financial statements
20
<PAGE>
Tax-Managed Growth Portfolio as of October 31, 1998
PORTFOLIO OF INVESTMENTS CONT'D
Security Shares Value
- --------------------------------------------------------------------------------
Specialty Chemicals and Materials (continued)
- --------------------------------------------------------------------------------
Minnesota Mining & Manufacturing Co. 37,685 $ 3,014,800
Morton International, Inc. 34,000 845,750
Nalco Chemical Co. 224,852 6,956,359
Pall Corp. 216,000 5,454,000
- --------------------------------------------------------------------------------
$ 98,315,204
- --------------------------------------------------------------------------------
Tobacco -- 0.2%
- --------------------------------------------------------------------------------
Philip Morris Cos., Inc. 215,494 $ 11,017,131
- --------------------------------------------------------------------------------
$ 11,017,131
- --------------------------------------------------------------------------------
Transportation -- 0.4%
- --------------------------------------------------------------------------------
Arnold Industries, Inc. 148,543 $ 1,893,923
Burlington Northern Santa Fe Corp. 188,799 5,829,169
Coach USA, Inc.(1) 168,889 4,528,336
Coach USA, Inc.(1)(2) 185,676 4,975,451
FDX Corp.(1) 93,723 4,926,315
Heartland Express, Inc.(1) 250,000 4,500,000
Union Pacific Corp. 92,081 4,385,358
- --------------------------------------------------------------------------------
$ 31,038,552
- --------------------------------------------------------------------------------
Trucks and Parts -- 0.0%
- --------------------------------------------------------------------------------
Paccar, Inc. 46,602 $ 2,033,012
- --------------------------------------------------------------------------------
$ 2,033,012
- --------------------------------------------------------------------------------
Total Common Stocks
(identified cost $4,918,536,928) $6,503,610,020
- --------------------------------------------------------------------------------
Put Options Purchased -- 0.1%
Security Shares Value
- --------------------------------------------------------------------------------
Computers and Business Equipment -- 0.1%
- --------------------------------------------------------------------------------
Dell Computer, Expires 1/16/99,
Strike Price 45 250,000 $ 468,750
Dell Computer, Expires 1/16/99,
Strike Price 50 250,000 718,750
Dell Computer, Expires 2/20/99,
Strike Price 50 250,000 906,250
Dell Computer, Expires 2/20/99,
Strike Price 55 500,000 2,500,000
- --------------------------------------------------------------------------------
$ 4,593,750
- --------------------------------------------------------------------------------
Total Put Options Purchased
(identified cost $5,771,939) $ 4,593,750
- --------------------------------------------------------------------------------
Convertible Preferred Stocks -- 0.3%
Security Shares Value
- --------------------------------------------------------------------------------
Entertainment -- 0.3%
- --------------------------------------------------------------------------------
Time Warner Inc., Series J(3) 100,187 $ 19,992,930
Time Warner Inc., Series J(3) 21,410 4,263,952
- --------------------------------------------------------------------------------
$ 24,256,882
- --------------------------------------------------------------------------------
Financial - Miscellaneous -- 0.0%
- --------------------------------------------------------------------------------
American General Corp., Series D 21,474 $ 1,256,229
- --------------------------------------------------------------------------------
$ 1,256,229
- --------------------------------------------------------------------------------
Insurance -- 0.0%
- --------------------------------------------------------------------------------
Aetna, Inc., Series C 449 $ 32,104
- --------------------------------------------------------------------------------
$ 32,104
- --------------------------------------------------------------------------------
Total Convertible Preferred Stocks
(identified cost $14,428,021) $ 25,545,215
- --------------------------------------------------------------------------------
Commercial Paper -- 7.0%
Face Amount
Name of Company (000's omitted) Value
- --------------------------------------------------------------------------------
Corporate Asset Funding, Inc.,
5.55%, 11/2/98 $ 12,813 $ 12,811,025
Corporate Receivables Corp.,
5.65%, 11/2/98 85,000 84,986,660
CXC, Inc., 5.65%, 11/2/98 95,000 94,985,090
Ford Motor Credit Co., 4.98%, 11/2/98 20,733 20,730,132
Ford Motor Credit Co., 5.13%, 11/4/98 93,075 93,035,210
General Electric Capital Co.,
5.69%, 11/2/98 95,000 94,984,985
Panasonic Finance, 5.64%, 11/2/98 8,313 8,311,698
Prudential Funding Corp., 4.95%,
11/3/98 75,000 74,979,375
- --------------------------------------------------------------------------------
Total Commercial Paper
(identified cost $484,824,175) $ 484,824,175
- --------------------------------------------------------------------------------
Total Investments -- 100.5%
(identified cost $5,423,561,063) $7,018,573,160
- --------------------------------------------------------------------------------
Other Assets, Less Liabilities -- (0.5)% $ (32,894,676)
- --------------------------------------------------------------------------------
Net Assets -- 100.0% $6,985,678,484
- --------------------------------------------------------------------------------
ADR-American Depositary Receipt
(1) Non-income producing security.
(2) Security restricted from resale for a period not exceeding two years. These
securities may be distributed to investors in payment for capital
withdrawals. At October 31, 1998, the value of these securities amounted to
$404,092,153 or 5.8% of net assets.
(3) Security valued at fair value using methods determined in good faith by or
at the direction of the Trustees.
See notes to financial statements
21
<PAGE>
Tax-Managed Growth Portfolio as of October 31, 1998
FINANCIAL STATEMENTS
Statement of Assets and Liabilities
As of October 31, 1998
Assets
- --------------------------------------------------------------------------------
Investments, at value
(identified cost $5,423,561,063) $7,018,573,160
Cash 140,335
Receivable for investments sold 30,029,857
Dividends and interest receivable 4,969,250
Tax reclaim receivable 27,580
Other assets 15,734
Prepaid expenses 375,518
Deferred organization expenses 4,528
- --------------------------------------------------------------------------------
Total assets $7,054,135,962
- --------------------------------------------------------------------------------
Liabilities
- --------------------------------------------------------------------------------
Payable for investments purchased $ 68,280,650
Payable to affiliate for Trustees' fees 190
Other accrued expenses 176,638
- --------------------------------------------------------------------------------
Total liabilities $ 68,457,478
- --------------------------------------------------------------------------------
Net Assets applicable to investors' interest in
Portfolio $6,985,678,484
- --------------------------------------------------------------------------------
Sources of Net Assets
- --------------------------------------------------------------------------------
Net proceeds from capital contributions and
withdrawals $5,390,665,865
Net unrealized appreciation (computed on the basis
of identified cost) 1,595,012,619
- --------------------------------------------------------------------------------
Total $6,985,678,484
- --------------------------------------------------------------------------------
Statement of Operations
For the Year Ended
October 31, 1998
Investment Income
- --------------------------------------------------------------------------------
Dividends (net of foreign taxes, $555,644) $ 54,405,581
Interest 11,564,060
- --------------------------------------------------------------------------------
Total investment income $ 65,969,641
- --------------------------------------------------------------------------------
Expenses
- --------------------------------------------------------------------------------
Investment adviser fee $ 24,370,514
Trustees fees and expenses 30,273
Custodian fee 729,631
Legal and accounting services 129,922
Amortization of organization expenses 2,176
Miscellaneous 384,423
- --------------------------------------------------------------------------------
Total expenses $ 25,646,939
- --------------------------------------------------------------------------------
Net investment income $ 40,322,702
- --------------------------------------------------------------------------------
Realized and Unrealized Gain (Loss)
- --------------------------------------------------------------------------------
Net realized gain (loss) --
Investment transactions (identified cost basis) $ (88,268,073)
- --------------------------------------------------------------------------------
Net realized loss $ (88,268,073)
- --------------------------------------------------------------------------------
Change in unrealized appreciation (depreciation) --
Investments (identified cost basis) $ 540,179,532
- --------------------------------------------------------------------------------
Net change in unrealized appreciation (depreciation) $ 540,179,532
- --------------------------------------------------------------------------------
Net realized and unrealized gain $ 451,911,459
- --------------------------------------------------------------------------------
Net increase in net assets from operations $ 492,234,161
- --------------------------------------------------------------------------------
See notes to financial statements
22
<PAGE>
Tax-Managed Growth Portfolio as of October 31, 1998
FINANCIAL STATEMENTS CONT'D
Statements of Changes in Net Assets
Increase (Decrease) Year Ended Year Ended
in Net Assets October 31, 1998 October 31, 1997
- --------------------------------------------------------------------------------
From operations--
Net investment income $ 40,322,702 $ 14,399,615
Net realized gain (loss) (88,268,073) 52,637,579
Net change in
unrealized appreciation
(depreciation) 540,179,532 375,109,348
- --------------------------------------------------------------------------------
Net increase in net assets
from operations $ 492,234,161 $ 442,146,542
- --------------------------------------------------------------------------------
Capital transactions --
Contributions $4,084,235,841 $1,907,707,281
Withdrawals (462,237,336) (415,207,575)
- --------------------------------------------------------------------------------
Net increase in net assets
from capital transactions $3,621,998,505 $1,492,499,706
- --------------------------------------------------------------------------------
Net increase in net assets $4,114,232,666 $1,934,646,248
- --------------------------------------------------------------------------------
Net Assets
- --------------------------------------------------------------------------------
At beginning of year $2,871,445,818 $ 936,799,570
- --------------------------------------------------------------------------------
At end of year $6,985,678,484 $2,871,445,818
- --------------------------------------------------------------------------------
See notes to financial statements
23
<PAGE>
Tax-Managed Growth Portfolio as of October 31, 1998
FINANCIAL STATEMENTS CONT'D
Supplementary Data
<TABLE>
<CAPTION>
Year Ended October 31,
---------------------------------------------------------------------
1998 1997 1996(1)
- ---------------------------------------------------------------------------------------------------------------------------
Ratios to average daily net assets
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Expenses 0.50 % 0.56% 0.66%(2)
Net investment income 0.78 % 0.81% 0.91%(2)
Portfolio Turnover 12 % 14% 6%
- ---------------------------------------------------------------------------------------------------------------------------
Net assets, end of year (000's omitted) $6,985,678 $2,871,446 $ 936,800
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) For the period from the start of business, December 1, 1995, to October 31,
1996.
(2) Annualized.
See notes to financial statements
24
<PAGE>
Tax-Managed Growth Portfolio as of October 31, 1998
NOTES TO FINANCIAL STATEMENTS
1 Significant Accounting Policies
----------------------------------------------------------------------------
Tax-Managed Growth Portfolio (the Portfolio) is registered under the
Investment Company Act of 1940, as amended, as a diversified, open-end
management investment company. The Portfolio, which is organized as a trust
under the laws of the State of New York on December 1, 1995, seeks to
provide long-term after-tax returns by investing in a diversified portfolio
of equity securities. The Declaration of Trust permits the Trustees to issue
interests in the Portfolio. The following is a summary of significant
accounting policies consistently followed by the Portfolio in the
preparation of its financial statements. 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, which approximates value. 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. Over-the-counter options are normally valued
at the mean between the latest bid and asked price. 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 Income Taxes -- The Portfolio is 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 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.
C Deferred Organization Expenses -- Costs incurred by the Portfolio in
connection with its organization, 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 either
in cash or securities an amount ("initial margin") 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 to hedge against anticipated future changes in price
of current or anticipated portfolio positions. Should prices move
unexpectedly, the Portfolio may not achieve the anticipated benefits of the
financial futures contracts and may realize a loss.
E Put Options -- Upon the purchase of a put option
by the Portfolio, the premium paid is recorded as an investment, the value
of which is marked-to-market daily. When a purchased option expires, the
Portfolio will realize a loss in the amount of the cost of the option. When
the Portfolio enters into a closing sale transaction, the Portfolio will
realize a gain or loss depending on whether the sales proceeds from the
closing sale transaction are greater or less than the cost of the option.
When the Portfolio exercises a put option, settlement is made in cash. The
risk associated with purchasing options is limited to the premium originally
paid.
F Securities Sold Short -- The Portfolio may sell securities it does not own
in anticipation of a decline in the market price of the securities or in
order to hedge portfolio positions. The Portfolio will generally borrow the
security sold in order to make delivery to the buyer. Upon executing the
transaction, the Portfolio records the proceeds as deposits with brokers in
the Statement of Assets and Liabilities and establishes an offsetting
payable for securities sold short for the securities due on settlement. The
proceeds are retained by the broker as collateral for the short position.
The liability is marked to market and the Portfolio is required to pay the
lending broker any dividend or interest income earned while the short
position is open. A gain or loss is recorded when the security is delivered
to the broker. The Portfolio may recognize a loss on the transaction if the
market value of the securities sold increases before the securities are
delivered.
25
<PAGE>
Tax-Managed Growth Portfolio as of October 31, 1998
NOTES TO FINANCIAL STATEMENTS CONT'D
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.
H 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.
2 Investment Adviser Fee and Other Transactions with Affiliates
----------------------------------------------------------------------------
The investment adviser fee is earned by Boston Management and Research
(BMR), a wholly-owned subsidiary of Eaton Vance Management (EVM), as
compensation for management and investment advisory services rendered to the
Portfolio. Under the advisory agreement, BMR receives a monthly advisory fee
of 5/96 of 1% (0.625% 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 October 31, 1998, the adviser fee was
0.47% of the Portfolio's average net assets. Except for Trustees of the
Portfolio who are not members of EVM's or BMR's organization, officers and
Trustees receive remuneration for their services to the Portfolio out of
such investment adviser fee. Trustees of the Portfolio that are not
affiliated with the Investment Adviser may elect to defer receipt of all or
a percentage of their annual fees in accordance with the terms of the
Trustees Deferred Compensation Plan. For the year ended October 31, 1998, no
significant amounts have been deferred. Certain of the officers and Trustees
of the Portfolio are officers or directors/trustees of the above
organizations.
3 Investment Transactions
----------------------------------------------------------------------------
Purchases and sales of investments, other than short-term obligations,
aggregated $2,151,267,687 and $608,237,096, respectively. In addition,
investments having an aggregate market value of $136,368,120 at dates of
withdrawal were distributed in payment for capital withdrawals resulting in
capital gains for book purposes of $125,868,954. During the year ended
October 31, 1998, investors contributed securities with a value of
$1,855,101,919.
4 Federal Income Tax Basis of Investment
----------------------------------------------------------------------------
The cost and unrealized appreciation (depreciation) in value of the
investments owned at October 31, 1998, as computed on a federal income tax
basis, are as follows:
Aggregate cost $2,952,967,635
----------------------------------------------------------------------------
Gross unrealized appreciation $4,098,117,808
Gross unrealized depreciation (32,512,283)
----------------------------------------------------------------------------
Net unrealized appreciation $4,065,605,525
----------------------------------------------------------------------------
5 Financial Instruments
----------------------------------------------------------------------------
The Portfolio may trade 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.
The Portfolio did not have any open obligations under these financial
instruments at October 31, 1998.
6 Line of Credit
----------------------------------------------------------------------------
The Portfolio participates with other portfolios and funds managed by BMR
and EVM and its affiliates in a $80 million ($130 million effective November
12, 1998) unsecured line of credit agreement with a group of banks. The
Portfolio may temporarily borrow from the line of credit to satisfy
redemption requests or settle investment transactions. Interest is charged
to each portfolio or fund
26
<PAGE>
Tax-Managed Growth Portfolio as of October 31, 1998
NOTES TO FINANCIAL STATEMENTS CONT'D
based on its borrowings at the Eurodollar rate or federal funds rate. In
addition, a fee computed at an annual rate of 0.10% on the daily unused
portion of the line of credit 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 October
31, 1998.
7 Subsequent Event
----------------------------------------------------------------------------
Effective November 1, 1998, the Portfolio changed its fiscal year-end to
December 31.
27
<PAGE>
Tax-Managed Growth Portfolio as of October 31, 1998
INDEPENDENT AUDITORS' REPORT
To the Trustees and Investors
of Tax-Managed Growth Portfolio:
- --------------------------------------------------------------------------------
We have audited the accompanying statement of assets and liabilities, including
the portfolio of investments, of Tax-Managed Growth Portfolio (the Portfolio) as
of October 31, 1998, the related statement of operations for the year then
ended, the statements of changes in net assets for the years ended October 31,
1998 and 1997, and the supplementary data for the years ended October 31, 1998
and 1997 and for the period from the start of business, December 1, 1995 to
October 31, 1996. 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
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 securities owned as of
October 31, 1998, 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 referred to
above present fairly, in all material respects, the financial position of the
Portfolio as of October 31, 1998, 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
December 4, 1998
28
<PAGE>
Second Fiduciary Exchange Fund as of October 31, 1998
INVESTMENT MANAGEMENT
Second Fiduciary Exchange Fund
Officers Independent Trustees
James B. Hawkes Jessica M. Bibliowicz
President and Trustee President and Chief Operating Officer,
John A. Levin & Co.
Thomas E. Faust, Jr. Director, Baker, Fentress & Company
Vice President
Donald R. Dwight
James L. O'Connor President, Dwight Partners, Inc.
Treasurer
Samuel L. Hayes, III
Alan R. Dynner Jacob H. Schiff Professor of Investment
Secretary Banking, Emeritus, Harvard University Graduate School
of Business Administration
Norton H. Reamer
Chairman and Chief Executive Officer,
United Asset Management Corporation
John L. Thorndike
Formerly Director, Fiduciary Company Incorporated
Jack L. Treynor
Investment Adviser and Consultant
Tax-Managed Growth Portfolio
Officers Independent Trustees
James B. Hawkes Jessica M. Bibliowicz
President and Trustee President and Chief Operating Officer,
John A. Levin & Co.
Duncan W. Richardson Director, Baker, Fentress & Company
Vice President and
Portfolio Manager Donald R. Dwight
President, Dwight Partners, Inc.
James L. O'Connor
Treasurer Samuel L. Hayes, III
Jacob H. Schiff Professor of Investment
Alan R. Dynner Banking, Emeritus, Harvard University Graduate School
Secretary of Business Administration
Norton H. Reamer
Chairman and Chief Executive Officer,
United Asset Management Corporation
John L. Thorndike
Formerly Director, Fiduciary Company Incorporated
Jack L. Treynor
Investment Adviser and Consultant
29
<PAGE>
Investment Advisor of Tax-Managed Growth Portfolio
Boston Management and Research
24 Federal Street
Boston, MA 02110
Administrator of Second Fiduciary Exchange Fund
Eaton Vance Management
24 Federal Street
Boston, MA 02110
Custodian
Investors Bank & Trust Company
200 Clarendon Street, 16th Floor
Boston, MA 02116
Transfer and Dividend Disbursing Agent
First Data Investor Services Group
Attention: Eaton Vance Funds
P.O. Box 5123
Westborough, MA 01581-5123
Independent Auditors
Deloitte & Touche LLP
125 Summer Street
Boston, MA 02110
Second Fiduciary Exchange Fund
24 Federal Street
Boston, MA 02110
- --------------------------------------------------------------------------------
This report must be preceded or accompanied by a current prospectus which
contains more complete information on the Fund.
- --------------------------------------------------------------------------------
SFESRC-12/98
