EMERGING MARKETS EQUITY PORTFOLIO
PORTFOLIO OF INVESTMENTS
October 31, 1997
(expressed in U.S. dollars)
Shares Value
------ -----
COMMON STOCKS & WARRANTS (74.0%)
ARGENTINA (7.9%)
ENERGY
8,060 YPF Sociedad Anonima........ $ 256,463
-----------
FINANCE
19,300 Banco Frances Del Rio De
La Plata SA............... 159,321
30,600 Banco De Galicia BA......... 185,854
-----------
345,17
-----------
SERVICES
6,300 Telecom Argentina SA ADR*... 159,469
-----------
TOTAL ARGENTINA ............ 761,107
-----------
BRAZIL (11.8%)
CONSUMER GOODS
15,500 Compania Cervejaria
Brahma ADR................ 199,562
-----------
ENERGY
10,000 Centrais Electricas
Brasileiras ADR*.......... 217,696
5,900 Companhia Energetica
De Minas ADR*............. 235,529
-----------
453,225
-----------
FINANCE
450,000 Itaubanco SA................ 181,641
-----------
SERVICES
3,000 Telecomunicacoes
Brasileiras SA ADR*....... 304,500
-----------
TOTAL BRAZIL ............... 1,138,928
-----------
CHILE (1.7%)
6,000 Chilgener SA ADR............ 163,500
-----------
TOTAL CHILE ................ 163,500
-----------
INDIA (9.0%)
CAPITAL EQUIPMENT
10,500 Reliance GDS*............... 219,188
-----------
CONSUMER GOODS
43,000 Ashok Leyland GDR........... 182,750
10,000 Ranbaxy Laboratories GDS.... 227,500
-----------
410,250
-----------
FINANCE
16,585 Industrial Credit &
Investment Corp........... 246,287
-----------
TOTAL INDIA ................ 875,725
-----------
INDONESIA (3.2%)
BANKING
315,000 Bank Dagang Nasional
Indonesia................. 43,689
-----------
CONSUMER GOODS
25,500 PT HM Sampoerna............. 44,386
120,000 PT Kalbe Farma.............. 73,232
-----------
117,618
-----------
MULTI-INDUSTRY
61,000 PT Astra International, Inc. 45,263
-----------
SERVICES
210,000 Citra Marga Nusaphale
Persada................... 59,709
43,500 PT Telekomunikasi Ser B..... 40,423
-----------
100,132
-----------
TOTAL INDONESIA ............ 306,702
-----------
MALAYSIA (5.7%)
FINANCE
125,000 Public Finance, Bhd*........ 61,497
-----------
MULTI-INDUSTRY
23,500 Genting Berhad.............. 66,267
27,000 Perusahaan Otomobil
Nasional*................. 64,797
104,000 Renong Berhad............... 95,467
73,000 Sime Darby Berhad. ......... 105,115
-----------
331,646
-----------
REAL ESTATE
39,000 Bolton Properties........... 16,262
31,500 IOI Properties Berhad....... 24,947
-----------
41,209
-----------
<PAGE>
EMERGING MARKETS EQUITY PORTFOLIO
PORTFOLIO OF INVESTMENTS
October 31, 1997 (continued)
(expressed in U.S. dollars)
Shares Value
------ -----
MALAYSIA (Continued)
SERVICES
46,000 Telekom Malaysia............ $ 119,364
-----------
TOTAL MALAYSIA ............. 553,716
-----------
MEXICO (9.0%)
CAPITAL EQUIPMENT
25,900 Fomento Economico
Mexicano SA DE CV......... 182,242
-----------
CONSUMER GOODS
42,000 Kimberly-Clark De Mexico.... 184,329
-----------
MULTI-INDUSTRY
40,000 Cemex SA .................. 175,552
70,700 Empresas ICA Sociedad
Contrladora SA* .......... 158,685
27,800 Grupo Carso ................ 176,050
-----------
510,287
-----------
TOTAL MEXICO ............... 876,858
-----------
POLAND (4.3%)
BANKING
24,000 Bank Handlowy W Warsza
Wie SA GDR*............... 328,800
-----------
MATERIALS
9,000 KGHM Polska SA GDR*......... 91,575
-----------
TOTAL POLAND ............... 420,375
-----------
ROMANIA (3.9%)
MULTI-INDUSTRY
51,200 Romania Growth Fund PLC..... 377,856
-----------
TOTAL ROMANIA .............. 377,856
-----------
RUSSIA (3.9%)
ENERGY
2,340 Lukoil Holding ADR*......... 195,390
5,850 Unified Energy
Systems GDR*.............. 185,737
-----------
TOTAL RUSSIA ............... 381,127
-----------
SOUTH AFRICA (5.1%)
CONSUMER GOODS
6,500 South African Breweries* ... 172,883
-----------
INSURANCE
7,000 Liberty Life Association
of Africa................. 174,545
-----------
MULTI-INDUSTRY
3,300 Anglo American Corp.
of South Africa*......... 142,629
-----------
TOTAL SOUTH AFRICA ......... 490,057
-----------
TURKEY (8.5%)
BANKING
3,890,000 Akbank T.A.S. .............. 264,871
-----------
CONSUMER GOODS
2,780,000 Arcelik AS.................. 310,437
149,000 Otomobil Sanayii AS*........ 129,862
-----------
440,299
-----------
MATERIALS
1,440,000 Turk Sise Ve Cam
Fabrikalari*.............. 123,543
-----------
TOTAL TURKEY ............... 828,713
-----------
TOTAL INVESTMENTS (identified
$8,940,252) (a) ......... 74.0% $7,174,664
CASH AND OTHER ASSETS IN
EXCESS OF LIABILITIES ... 26.0 2,519,484
----- ----------
NET ASSETS ................ 100.0% $9,694,148
===== ==========
- ---------------
* non-income producing security
(a) The aggregate cost for federal income tax purposes is $8,940,252, the
aggregate gross unrealized appreciation is $182,097 and the aggregate gross
unrealized depreciation is $1,947,685 resulting in net unrealized
depreciation of $1,765,588.
See Notes to Financial Statements.
<PAGE>
EMERGING MARKETS PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES
October 31, 1997
(expressed in U.S. dollars)
ASSETS:
Investments in securities, at value (identified
cost $8,940,252) (Note 1) ............................ $ 7,174,664
Cash (including $14,374 in foreign currency) ........... 1,428,510
Receivables for:
Investments sold ..................................... 985,313
Contributions ........................................ 100,000
Forward foreign currency exchange contracts sold ..... 11,101
Dividends ............................................ 6,868
------------
Total Assets ...................................... 9,706,456
------------
LIABILITIES:
Payables for:
Investment advisory fee (Note 2) ..................... 8,222
Administrative fee (Note 2) .......................... 320
Expense reimbursement fee ............................ 2,897
Foreign withholding taxes ............................ 869
------------
Total Liabilities ................................. 12,308
------------
NET ASSETS ................................................... $ 9,694,148
============
Net Assets Consist of:
Paid-in capital ......................................... $ 11,454,506
Net unrealized depreciation ............................. (1,760,358)
------------
Net Assets ................................................... $ 9,694,148
============
See Notes to Financial Statements.
<PAGE>
EMERGING MARKETS PORTFOLIO
STATEMENT OF OPERATIONS
For the period from June 6, 1997 (commencement of operations)
to October 31, 1997 (expressed in U.S. dollars)
INVESTMENT INCOME:
Income:
Dividends (net of foreign withholding tax of $4,503) ... $ 38,204
-----------
Expenses:
Investment advisory fee (Note 2) ....................... 28,028
Expense reimbursement fee (Note 2) ..................... 10,861
Administrative fee (Note 2) ............................ 1,090
-----------
Total Expenses ......................................... 39,979
-----------
Net Investment Loss ................................ (1,775)
-----------
NET REALIZED AND UNREALIZED GAIN (LOSS) (Notes 1 and 3):
Net realized gain (loss) on:
Investments ............................................ 2,604
Foreign exchange transactions .......................... (278,881)
-----------
(276,277)
-----------
Net change in unrealized appreciation (depreciation) on:
Investments ............................................ (1,765,588)
Foreign currency translations .......................... 5,230
-----------
(1,760,358)
-----------
Net Realized and Unrealized Loss ..................... (2,036,635)
-----------
Net Decrease in Net Assets Resulting from Operations ...... $(2,038,410)
===========
See Notes to Financial Statements.
<PAGE>
EMERGING MARKETS PORTFOLIO
STATEMENT OF CHANGES IN NET ASSETS
(expressed in U.S. dollars)
For the period from
June 6, 1997
(commencement of
operations) to
October 31, 1997
-------------------
INCREASE (DECREASE) IN NET ASSETS:
Operations:
Net investment loss ......................................... $ (1,775)
Net realized loss on investments and foreign exchange
transactions .............................................. (276,277)
Net change in unrealized depreciation on
investments and foreign currency translations ............. (1,760,358)
-----------
Net decrease in net assets resulting from operations .... (2,038,410)
-----------
Capital transactions:
Proceeds from contributions ................................. 11,739,217
Value of withdrawals ........................................ (6,659)
-----------
Net increase in net assets resulting from capital
transactions .......................................... 11,732,558
-----------
Total increase in net assets ............................ 9,694,148
NET ASSETS:
Beginning of period ......................................... 0
-----------
End of period ............................................... $ 9,694,148
===========
See Notes to Financial Statements.
<PAGE>
EMERGING MARKETS PORTFOLIO
FINANCIAL HIGHLIGHTS
Selected ratios and supplemental data throughout the period
(expressed in U.S. dollars)
For the period
June 6, 1997
(commencement of
operations) to
October 31, 1997
----------------
Ratio/Supplemental Data:
Net assets, end of period (000's omitted) .................. $ 9,694
Expenese as a percentage of average net assets ............. 1.25%*
Ratio of net investment loss to average net assets ......... (0.05%)*
Portfolio turnover rate..................................... 60%
Average commission rate paid per share...................... $0.0036
- ----------
* Annualized
See Notes to Financial Statements.
<PAGE>
EMERGING MARKETS PORTFOLIO
NOTES TO FINANCIAL STATEMENTS
(expressed in U.S. dollars)
1. Organization and Significant Accounting Policies. Emerging Markets
Portfolio (the "Portfolio") is registered under the Investment Company Act of
1940, as amended, as an open-end management investment company which was
organized as a trust under the laws of the State of New York on August 15, 1994.
The Portfolio commenced operations on June 6, 1997. The Declaration of Trust
permits the Trustees to create an unlimited number of beneficial interests in
the Portfolio.
The Portfolio's financial statements are prepared in accordance with
accounting principles generally accepted in the United States of America, which
require management to make certain estimates and assumptions at the date of the
financial statements and are based, in part, on the following accounting
policies. Actual results could differ from those estimates.
A. Valuation of Investments. (1) The value of investments listed on
either a domestic or foreign securities exchange is based on the last sale
price on that exchange prior to the time when assets are valued, or in the
absence of recorded sales, at the average of readily available closing bid
and asked prices on such exchange; (2) unlisted securities are valued at
the average of the quoted bid and asked prices in the over-the-counter
market; (3) securities or other assets for which market quotations are not
readily available are valued at fair value in accordance with procedures
established by and under the general supervision and responsibility of the
Portfolio's Trustees. Such procedures include the use of independent
pricing services, which use prices based upon yields or prices of
securities of comparable quality, coupon, maturity and type; indications
as to the value from dealers; and general market conditions; (4) all
assets and liabilities initially expressed in foreign currencies will be
converted into U.S. dollars at the prevailing rates of exchange available
at the time of valuation; and (5) trading in securities on most foreign
exchanges and over-the-counter markets is normally completed before the
close of the New York Stock Exchange and may also take place on days on
which the New York Stock Exchange is closed. If events materially
affecting the value of foreign securities occur between the time when the
exchange on which they are traded closes and the time when the Portfolio's
net assets are calculated, such securities will be valued at fair value in
accordance with procedures established by and under the general
supervision of the Portfolio's Trustees.
B. Foreign Currency Translations. The accounting records of the
Portfolio are maintained in U.S. dollars. Foreign currency amounts are
translated into U.S. dollars at the current rate of exchange of such
currency against the U.S. dollar to determine the value of investments,
assets and liabilities. Purchases and sales of securities, and income and
expenses are translated at the prevailing rate of exchange on the
respective dates of such transactions. Upon the purchase or sale of a
security denominated in foreign currency, the Portfolio may enter into
forward foreign currency exchange contracts for the purchase or sale, for
a fixed amount of U.S. dollars of the amount of foreign currency involved
in the underlying security transaction. The Portfolio isolates that
portion of realized gain or loss on investments resulting from changes in
foreign exchange rates on investments from the fluctuations arising from
changes in market prices of such investments. Reported net realized and
unrealized gains and losses arise from the sales of portfolio securities,
sales of foreign currencies, currency gains or losses realized between the
trade and settlement dates on securities transactions, and the difference
between the amounts of dividends, interest and foreign withholding taxes
recorded on the Portfolio's books and the U.S. dollar equivalent of the
amounts actually received or paid. Net unrealized appreciation or
depreciation on foreign currency translations arise from changes in the
value of the assets and liabilities, excluding investments in securities,
at fiscal year end, arising from changes in the exchange rate.
C. Forward Foreign Currency Exchange Contracts. The Portfolio may
enter into forward foreign currency exchange contracts ("contracts") in
connection with planned purchases or sales of securities, to
<PAGE>
EMERGING MARKETS PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (continued)
(expressed in U.S. dollars)
hedge the U.S. dollar value of portfolio securities denominated in a
particular currency, or to increase or shift its exposure to a currency
other than U.S. dollars. The Portfolio has no specific limitation on the
percentage of assets which may be committed to these types of contracts.
The Portfolio could be exposed to risks if the counterparties to the
contracts are unable to meet the terms of their contracts or if the value
of the foreign currency changes unfavorably. The U.S. dollar values of
foreign currency underlying all contractual commitments held by the
Portfolio are determined using forward currency exchange rates supplied by
a quotation service.
D. Accounting for Investments. Security transactions are accounted
for on the trade date. Realized gains and losses on security transactions
are determined on the identified cost method. Dividend income and other
distributions from portfolio securities are recorded on the ex-dividend
date. Dividend income is recorded net of foreign taxes withheld where
recovery of such taxes is not assured. Interest income is accrued daily.
E. Federal Income Taxes. The Portfolio will be treated as a
partnership for federal income tax purposes. As such, each investor in the
Portfolio will be subject to taxation on its share of the Portfolio's
ordinary income and capital gains. It is intended that the Portfolio's
assets will be managed in such a way that an investor in the Portfolio
will be able to comply with the provisions of the Internal Revenue Code
applicable to regulated investment companies. Accordingly, no provision
for federal income taxes is necessary.
2. Transactions with Affiliates.
Investment Advisory Fee. The Portfolio has an investment advisory
agreement with Brown Brothers Harriman & Co. (the "Adviser") for which it pays
the Adviser a fee calculated daily and paid monthly at an annual rate equivalent
to 0.90% of the Portfolio's average daily net assets. For the period ended
October 31, 1997, the Portfolio incurred $28,028 for advisory services.
Administrative Fee. The Portfolio has an administrative agreement with
Brown Brothers Harriman Trust Company (Cayman) Limited (the "Administrator") for
which it pays the Administrator a fee calculated daily and paid monthly at an
annual rate equivalent to 0.035% of the Portfolio's average daily net assets.
The Administrator has a subadministration agreement with Signature Financial
Group (Cayman) Ltd. for which Signature Financial Group (Cayman) Ltd. receives
such compensation as is from time to time agreed upon. For the year ended
October 31, 1997, the Portfolio incurred $1,090 for administrative services.
Expense Reimbursement Fee. Brown Brothers Harriman Trust Company (Cayman)
Limited pays certain expenses of the Portfolio and receives a fee from the
Portfolio, computed and paid monthly, such that after such fee the aggregate
expenses will not exceed 1.25% of the Portfolio's average daily net assets. For
the period ended October 31, 1997, Brown Brothers Harriman Trust Company
(Cayman) Limited incurred $30,241 in expenses on behalf of the Portfolio. The
expense reimbursement agreement will terminate when the aggregate amount of fees
received by Brown Brothers Harriman Trust Co. (Cayman) Limited thereunder equals
the aggregate amount of expenses paid by Brown Brother Harriman Trust Company
(Cayman) Limited thereunder.
3. Investment Transactions. For the year ended October 31, 1997, the cost
of purchases and the proceeds of sales of investment securities other than
short-term investments were $12,815,951 and $3,686,538, respectively. There were
no purchases or sales of U.S. government obligations during the period.
<PAGE>
EMERGING MARKETS PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (continued)
(expressed in U.S. dollars)
4. Financial Instruments with Off-Balance Sheet Risk. At October 31, 1997
the Emerging Markets Portfolio had outstanding forward foreign currency exchange
contracts as a hedge to protect against possible changes in foreign currency
exchange rates that would adversely affect a portfolio position or an
anticipated portfolio position. Forward contracts involve elements of market
risk in excess of the amount reflected in the Statement of Assets and
Liabilities. The Portfolio bears the risk of an unfavorable change in the
foreign exchange rate underlying the forward contracts.
Forward foreign currency exchange contracts open at October 31, 1997:
Contracts In Exchage Deliver Unrealized
to deliver For Date Appreciation
---------- ---------- ------- ------------
JPY 178,368,000 $1,500,000 12/02/97 $11,101
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors and Shareholders
Emerging Markets Portfolio:
We have audited the accompanying statement of assets and liabilities,
including the portfolio of investments, of Emerging Markets Portfolio as of
October 31, 1997, and the related statement of operations and the statement of
changes in net assets and the financial highlights for the period from June 6,
1997 (commencement of operations) to October 31, 1997 (all expressed in U.S.
dollars). These financial statements and financial highlights are the
responsibility of the Portfolio's management. Our responsibility is to express
an opinion on these financial statements and financial highlights based on our
audit.
We conducted our audit in accordance with auditing standards generally
accepted in the United States of America. 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. Our procedures included confirmation of
securities owned at October 31, 1997 by correspondence with the custodian. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, such financial statements and financial highlights present
fairly, in all material respects, the financial position of Emerging Markets
Portfolio at October 31, 1997, the results of its operations, the changes in its
net assets, and its financial highlights for the period from June 6, 1997
(commencement of operations) to October 31, 1997 in conformity with accounting
principles generally accepted in the United States of America.
DELOITTE & TOUCHE
Grand Cayman, Cayman Islands
December 12, 1997
