<PAGE>
[LOGO OF
EATON Investing
VANCE for the
APPEARS 21st
HERE] Century
Mutual Funds
[PHOTO OF EARTH APPEARS HERE]
Annual Report June 30, 1997
EV
[PHOTO OF MARATHON
STATUE
APPEARS EMERGING
HERE]
MARKETS FUND
Eaton Vance
Global Management-Global Distribution
[PHOTO OF PARADE APPEARS HERE]
<PAGE>
EV Marathon Emerging Markets Fund as of June 30, 1997
INVESTMENT UPDATE
[PHOTO OF KIERSTEN CHRISTENSEN APPEARS HERE]
Kiersten Christensen,
Portfolio Manager
Investment Environment
- --------------------------------------------------------------------------------
The Emerging Markets
. The emerging markets were characteristically volatile during the first six
months of 1997, featuring strong economic and earnings growth, but tempered
by continuing political uncertainties. Investment returns were strong, with
the Fund achieving a total return of 22.3% during the period, while the
Morgan Stanley Capital International Emerging Markets Index/1/ rose 17.1%.
. In East Asia, the Hong Kong market - especially "red chip" companies
controlled by mainland Chinese interests - rallied sharply as investors
anticipated the long-term economic benefits of the July 1 handover of Hong
Kong to Chinese jurisdiction.
. In Latin America, improving economic fundamentals and attractive valuations
drew additional investors to the region. Brazil was among the region's
pacesetters as investors voiced their approval of continued privatization and
the likely reelection of President Cardoso.
. In Eastern Europe, the Russian market rose sharply as investors reacted to
the improved health of President Yeltsin and the appointment of additional
reformist ministers to his cabinet. The Czech market, meanwhile, struggled
with renewed inflation.
The Fund
- --------------------------------------------------------------------------------
Investment Performance
. The Fund had a total return of 22.3% during the six months ended June 30,
1997./2/ That return was the result of a rise in net asset value per share
from $12.73 on December 31, 1996 to $15.57 on June 30, 1997.
. The Fund's six-month results outpaced the 21% average return of 128 Emerging
Market Funds, according to Lipper Analytical Services, Inc.,/3/ a mutual fund
ranking service.
Management Discussion
. The Portfolio increased its exposure in Latin America to 36.8%. The largest
focus was on Brazil, which has implemented further economic reforms.
Brazilian holdings included Bompreco, one of the country's largest
supermarket chains, and Eletricidade Sao Paulo, one of the largest
distributors of power to densely populated Sao Paulo. In Peru, which has
enjoyed an upturn in GDP, the Portfolio had an investment in Banco Credito
del Peru, a leading integrated financial services company, and Telefonica de
Peru, a telecom operator.
. The Portfolio's weighting of China region investments declined to 27% from
48% at December 31. Amid the euphoria of the Hong Kong handover, we have
found compelling values in other emerging markets. The area remained among
the Portfolio's largest regional concentration, however, with a focus on
large property and real estate companies such as New World Development.
. The Portfolio was highly selective in Eastern Europe, where economic progress
has been impressive but uneven. Investments focused on large-cap blue chips,
including JSC Surgutneftegaz, a Siberian oil company producing more than 11%
of Russia's crude oil output.
. The Portfolio also had some investments in the Middle East. In Israel,
investments included retailer Blue Square Israel, which operates 150 stores
and is pursuing an aggressive growth strategy. Another Middle East holding,
Lebanese builder Solidere, has gained the rights to rebuild Beirut's central
business district.
- --------------------------------------------------------------------------------
/1/It is not possible to invest directly in the Index.
/2/This return does not include contingent deferred sales charge (CDSC) incurred
by certain redeeming shareholders.
/3/It is not possible to invest directly in the Lipper category of Emerging
Market Funds.
/4/Returns are calculated by determining the percentage change in net asset
value with all distributions reinvested. SEC average annual returns reflect
applicable CDSC on the following schedule: 5% - 1st year; 5% - 2nd year;
4% - 3rd year; 3% - 4th year; 2% - 5th year; 1% - 6th year.
/5/Because the Fund is actively managed, regional and industry weightings are
subject to change. Five largest industry weightings represent 40.4% of the
Portfolio's investments.
Past performance is no guarantee of future results. The value of an
investment in the Fund 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.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Fund Information
as of June 30, 1997
Performance/4/
- --------------------------------------------------------------------------------
Average Annual Total Returns
- --------------------------------------------------------------------------------
One year 25.6%
Life of Fund (12/8/94) 19.4
SEC Average Annual Total Returns
- --------------------------------------------------------------------------------
One year 20.6%
Life of Fund (12/8/94) 18.2
Regional Weightings/5/
- --------------------------------------------------------------------------------
By total net assets
Cash 4.2%
Middle East 4.3%
Western Europe 4.6%
Eastern Europe 4.8%
South Asia 9.0%
Other 9.2%
East Asia 27.1%
Latin America 36.8%
Five Largest Industry Weightings/5/
- --------------------------------------------------------------------------------
By total net assets
Foods 12.7%
Investment Services 9.5%
Banks/Money Services 6.5%
Conglomerates 6.0%
Retail-Food & Drugs 5.7%
2
<PAGE>
EV Marathon Emerging Markets Fund as of June 30, 1997
FINANCIAL STATEMENTS (Unaudited)
Statement of Assets and Liabilities
<TABLE>
<CAPTION>
As of June 30, 1997
Assets
- --------------------------------------------------------------------------------
<S> <C>
Investment in Emerging Markets Portfolio, at value (Note 1A)
(identified cost, $9,190,749) $ 11,199,342
Receivable for Fund shares sold 22,227
Deferred organization expenses (Note 1E) 35,540
- --------------------------------------------------------------------------------
Total assets $ 11,257,109
- --------------------------------------------------------------------------------
Liabilities
- --------------------------------------------------------------------------------
Payable for Fund shares redeemed $ 1,100
Payable to affiliate for Trustees' fees (Note 3) 42
Accrued expenses 5,614
- --------------------------------------------------------------------------------
Total liabilities $ 6,756
- --------------------------------------------------------------------------------
Net Assets for 722,408 shares of beneficial interest outstanding $ 11,250,353
- --------------------------------------------------------------------------------
Sources of Net Assets
- --------------------------------------------------------------------------------
Paid-in capital $ 8,652,068
Accumulated net realized gain on investments
(computed on the basis of identified cost) 628,082
Accumulated net investment loss (38,390)
Net unrealized appreciation of investments (computed
on the basis of identified cost) 2,008,593
- --------------------------------------------------------------------------------
Total $ 11,250,353
- --------------------------------------------------------------------------------
Net Asset Value, Offering and Redemption
Price Per Share (Note 6)
- --------------------------------------------------------------------------------
($11,250,353 / 722,408 shares of beneficial interest outstanding) $ 15.57
- --------------------------------------------------------------------------------
</TABLE>
Statement of Operations
<TABLE>
<CAPTION>
For the Six Months Ended
June 30, 1997
Investment Income (Note 1B)
- --------------------------------------------------------------------------------
<S> <C>
Dividend income allocated from Portfolio
(net of foreign taxes, $2,262) $ 66,349
Interest income allocated from Portfolio 1,398
Expenses allocated from Portfolio (32,680)
- --------------------------------------------------------------------------------
Total investment income $ 35,067
- --------------------------------------------------------------------------------
Expenses
- --------------------------------------------------------------------------------
Management fee (Note 3) $ 10,950
Compensation of Trustees not members of the
Administrator's organization (Note 3) 81
Distribution and service fees (Note 5) 40,482
Registration fees 8,026
Amortization of organization expenses (Note 1E) 7,294
Transfer and dividend disbursing agent fees 5,597
Legal and accounting services 4,840
Printing and postage 3,373
Custodian fee (Note 1C) 1,250
Miscellaneous 681
- --------------------------------------------------------------------------------
Total expenses $ 82,574
- --------------------------------------------------------------------------------
Deduct --
Preliminary reduction of management fee (Note 3) 10,950
- --------------------------------------------------------------------------------
Total expense reductions $ 10,950
- --------------------------------------------------------------------------------
Net expenses $ 71,624
- --------------------------------------------------------------------------------
Net investment loss $ (36,557)
- --------------------------------------------------------------------------------
Realized and Unrealized
Gain (Loss) from Portfolio
- --------------------------------------------------------------------------------
Net realized gain (loss) --
Investment transactions (identified cost basis) $ 759,699
Foreign currency transactions (20,274)
- --------------------------------------------------------------------------------
Net realized gain on investment transactions $ 739,425
- --------------------------------------------------------------------------------
Change in unrealized appreciation (depreciation) --
Investment transactions $ 1,032,499
Foreign currency transactions (2,178)
- --------------------------------------------------------------------------------
Net change in unrealized appreciation of investments $ 1,030,321
- --------------------------------------------------------------------------------
Net realized and unrealized gain on investments $ 1,769,746
- --------------------------------------------------------------------------------
Net increase in net assets resulting from operations $ 1,733,189
- --------------------------------------------------------------------------------
</TABLE>
See notes to financial statements
3
<PAGE>
EV Marathon Emerging Markets Fund as of June 30, 1997
FINANCIAL STATEMENTS CONT'D
Statements of Changes in Net Assets
<TABLE>
<CAPTION>
Six Months Ended
Increase (Decrease) June 30, 1997 Year Ended
in Net Assets (Unaudited) December 31, 1996
- --------------------------------------------------------------------------------
<S> <C> <C>
From operations --
Net investment loss $ (36,557) $ (75,814)
Net realized gain on investments 739,425 101,310
Net change in unrealized appreciation 1,030,321 858,544
- --------------------------------------------------------------------------------
Net increase in net assets
from operations $ 1,733,189 $ 884,040
- --------------------------------------------------------------------------------
Distributions to shareholders (Note 2) --
From net realized gain on investments $ -- $ (90,006)
- --------------------------------------------------------------------------------
Total distributions to shareholders $ -- $ (90,006)
- --------------------------------------------------------------------------------
Transactions in shares of beneficial
interest (Note 4) --
Proceeds from sale of shares $ 4,060,214 $ 6,036,226
Net asset value of shares issued to
shareholders in payment of
distributions declared -- 86,318
Cost of shares redeemed (1,267,683) (1,992,734
- --------------------------------------------------------------------------------
Net increase in net assets from
Fund share transactions $ 2,792,531 $ 4,129,810
- --------------------------------------------------------------------------------
Net increase in net assets $ 4,525,720 $ 4,923,844
- --------------------------------------------------------------------------------
Net Assets
- --------------------------------------------------------------------------------
At beginning of period $ 6,724,633 $ 1,800,789
- --------------------------------------------------------------------------------
At end of period $ 11,250,353 $ 6,724,633
- --------------------------------------------------------------------------------
Accumulated net investment loss
included in net assets
- --------------------------------------------------------------------------------
At end of period $ (38,390) $ (1,833)
- --------------------------------------------------------------------------------
</TABLE>
See notes to financial statements
4
<PAGE>
EV Marathon Emerging Markets Fund as of June 30, 1997
FINANCIAL STATEMENTS CONT'D
Financial Highlights
<TABLE>
<CAPTION>
Six Months Ended Year Ended December 31,
June 30, 1997 -----------------------------------------
(Unaudited) 1996 1995 1994*
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net asset value -- Beginning of period $12.720 $10.050 $ 9.960 $10.000
- ------------------------------------------------------------------------------------------------------------------------------
Income (loss) from operations
- ------------------------------------------------------------------------------------------------------------------------------
Net investment loss $(0.050) $(0.143) $(0.268) $(0.003)
Net realized and unrealized gain (loss) on investments 2.900 2.988 0.358 (0.037)
- ------------------------------------------------------------------------------------------------------------------------------
Total income (loss) from operations $ 2.850 $ 2.845 $ 0.090 $(0.040)
- ------------------------------------------------------------------------------------------------------------------------------
Less distributions
- ------------------------------------------------------------------------------------------------------------------------------
From net realized gain on investments $ -- $(0.175) $ -- $ --
- ------------------------------------------------------------------------------------------------------------------------------
Total distributions $ -- (0.175) $ -- --
- ------------------------------------------------------------------------------------------------------------------------------
Net asset value -- End of period $15.570 $12.720 $10.050 $ 9.960
- ------------------------------------------------------------------------------------------------------------------------------
Total Return/(1)/ 22.31% 28.49% 0.90% (0.40)%
- ------------------------------------------------------------------------------------------------------------------------------
Ratios/Supplemental Data++
- ------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (000 omitted) $11,250 $ 6,725 $ 1,801 $ 229
Ratio of net expenses to average daily net assets/(2)//(3)/ 2.59%+ 3.41% 6.19% 0.75%+
Ratio of net expenses to average daily net assets after
custodian fee reduction/(2)//(3)/ 2.37%+ 3.19% 6.19% --
Ratio of net investment loss to average daily net assets (0.83)%+ (1.76)% (4.64)% (0.75)%+
</TABLE>
++ The operating expenses of the Fund and the Portfolio may reflect a
reduction of the Investment Adviser fee, an allocation of expenses to the
Administrator, or both. Had such actions not been taken, the ratios and
net investment loss per share would have been as follows:
<TABLE>
<CAPTION>
Ratios (As a percentage of average daily net assets):
<S> <C> <C> <C> <C>
Expenses/(2)//(3)/ 3.67%+ 4.52% 11.35% 9.14%+
Expenses after custodian fee reduction/(2)//(3)/ 3.45%+ 4.30% 11.35% --
Net investment loss (1.91)%+ (2.87)% (9.80)% (9.14)%+
Net investment loss per share $(0.115) $(0.233) $(0.566) $(0.037)
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
+ Annualized.
* For the period from the start of business, November 30, 1994, to December
31, 1994.
/(1)/ Total return is calculated assuming a purchase at the net asset value on
the first day and a sale at the net asset value on the last day of each
period reported. Dividends and distributions, if any, are assumed to be
reinvested at the net asset value on the payable date. Total return is not
computed on an annualized basis.
/(2)/ Includes the Fund's share of its corresponding Portfolio's allocated
expenses.
/(3)/ The expense ratios for the six months ended June 30, 1997 and for the
years ended December 31, 1996 and 1995 have been adjusted to reflect a
change in reporting requirements. The new reporting guidelines require the
Fund to increase its expense ratio by the effect of any expense offset
arrangements with its service providers. The expense ratios for the period
ended December 31, 1994 have not been adjusted to reflect this change.
See notes to financial statements
5
<PAGE>
EV Marathon Emerging Markets Fund as of June 30, 1997
NOTES TO FINANCIAL STATEMENTS (Unaudited)
1 Significant Accounting Policies
------------------------------------------------------------------------------
EV Marathon Emerging Markets Fund (the Fund) is a mutual fund seeking long-
term capital appreciation through investment in a portfolio of equity
securities of companies in countries with emerging markets. The Fund is a
diversified series of Eaton Vance Special Investment 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 Emerging Markets 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 (51.3% at June 30, 1997). The
performance of the Fund is directly affected by the performance of the
Portfolio. The financial statements of the Portfolio, including the Portfolio
of investments, are included elsewhere in this report and should be read in
conjunction with the Fund's financial statements. The following is a summary
of significant accounting policies consistently followed by the Fund in the
preparation of its financial statements. The policies are in conformity with
generally accepted accounting principles.
A Investment Valuations -- Valuation of securities by the portfolio is
discussed in Note 1A of the Portfolio's Notes to Financial Statements which
are included elsewhere in this report.
B Income -- The Fund's net investment income consists of the Fund's pro rata
share of the net investment income of the Portfolio, less all actual and
accrued expenses of the Fund determined in accordance with generally accepted
accounting principles.
C Expense Reduction -- Investors Bank & Trust Company (IBT) serves as
custodian of the Fund. Pursuant to the custodian agreement, IBT receives a fee
reduced by credits which are determined based on the average daily cash
balances the Fund maintains with IBT. All significant credit balances used to
reduce the Fund's custodian fees are reported as a reduction of expenses on
the Statement of Operations.
D Federal Taxes -- The Fund's policy is to comply with the provisions of the
Internal Revenue Code applicable to regulated investment companies and to
distribute to shareholders each year all of its net investment income, and any
net realized capital gains. Accordingly, no provision for federal income or
excise tax is necessary.
E Deferred Organization Expenses -- Costs incurred by the Fund in connection
with its organization, including registration costs, are being amortized on
the straight-line basis over five years.
F Use of Estimates -- The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities at the date of the financial statements and the reported amounts
of income and expense during the reporting period. Actual results could differ
from those estimates.
G Interim Financial Information -- The interim financial statements relating
to June 30, 1997 and for the six-month period then ended have not been audited
by independent certified public accountants, but in the opinion of the Fund's
management, reflect all adjustments, consisting only of normal recurring
adjustments, necessary for the fair presentation of the financial statements.
2 Distributions to Shareholders
------------------------------------------------------------------------------
It is the present policy of the Fund to make at least one distribution
annually (normally in December) of all or substantially all of the investment
allocated to the Fund by the Portfolio, less the Fund's direct and allocated
expenses and at least one distribution annually of all or substantially all of
the net realized gains (reduced by any available capital loss carryforwards
from prior years) allocated by the Portfolio to the Fund, if any.
Shareholders may reinvest all distributions in shares of the Fund without a
sales charge at the per share net asset value as of the close of business on
the record date. The Fund distinguishes between distributions on a tax basis
and a financial reporting basis. Generally accepted accounting principles
require that only distributions in excess of tax basis earnings and profits be
reported in the financial statements as a return of capital. Differences in
the recognition or classification of income between the financial statements
and tax earnings and profits which result in temporary over distributions for
financial statement purposes are classified as distributions in excess of net
investment income or accumulated net realized gains. Permanent differences
between book and tax accounting are reclassified to paid-in capital.
6
<PAGE>
EV Marathon Emerging Markets Fund as of June 30, 1997
NOTES TO FINANCIAL STATEMENTS (Unaudited) CONT'D
3 Management Fee and Other Transactions with Affiliates
------------------------------------------------------------------------------
The management fee is earned by Eaton Vance Management (EVM) as compensation
for management and administration of the business affairs of the Fund. The Fee
is based on a percentage of average daily net assets. For the six-months ended
June 30, 1997, the fee was equivalent to 0.25% of the Fund's average net
assets for such period and amounted to $10,950. To enhance the net income of
the Fund, EVM made a preliminary waiver of its management fee in the amount of
$10,950. Except as to Trustees of the Fund who are not members of EVM's
organization, officers and Trustees receive remuneration for their services to
the Fund out of such investment advisory fee. Certain of the officers and
Trustees of the Fund and Portfolio are officers and directors/trustees of the
above organizations. In addition, investment adviser and administrative fees
are paid by the Portfolio to EVM and its affiliates. See Note 2 of the
Portfolio's Notes to Financial Statement, which are included elsewhere in this
report.
4 Shares of Beneficial Interest
------------------------------------------------------------------------------
The Declaration of Trust permits the Trustees to issue an unlimited number of
full and fractional shares of beneficial interest (without par value).
Transactions in Fund shares were as follows:
<TABLE>
<CAPTION>
Six Months Ended
June 30, 1997 Year Ended
(Unaudited) December 31, 1996
------------------------------------------------------------------------------
<S> <C> <C>
Sales 283,992 507,267
Issued to shareholders
electing to receive payment
of distributions in capital stock -- 7,110
Redemptions (90,174) (164,922)
------------------------------------------------------------------------------
Net increase 193,818 349,455
------------------------------------------------------------------------------
</TABLE>
5 Distribution Plan
------------------------------------------------------------------------------
The Fund has adopted a distribution plan (the Plan) pursuant to Rule 12b-1
under the Investment Company Act of 1940. The Plan requires the Fund to pay
the Principal Underwriter, Eaton Vance Distributors, Inc. (EVD) amounts equal
to 1/365 of 0.75% of the Fund's daily net assets, for providing ongoing
distribution services and facilities to the Fund. The Fund will automatically
discontinue payments to EVD during any period in which there are no
outstanding Uncovered Distribution Charges, which are equivalent to the sum of
(i) 5% of the aggregate amount received by the Fund for the shares sold plus,
(ii) distribution fees calculated by applying the rate of 1% over the
prevailing prime rate to the outstanding balance of Uncovered Distribution
Charges of EVD, reduced by the aggregate amount of the contingent deferred
sales charge (see Note 6) and daily amounts theretofore paid to EVD. The
amount payable to EVD with respect to each day is accrued on such day as a
liability of the Fund and, accordingly, reduces the Fund's net assets. The
Fund paid or accrued $32,850 to EVD for the six months ended June 30, 1997,
representing 0.74% (annualized) of average daily net assets. At June 30, 1997,
the amount of Uncovered Distribution Charges of EVD calculated under the Plan
was approximately $293,000.
In addition, the Plan authorized the Fund to make payments of service fees to
the Principal Underwriter, Authorized Firms and other persons in amounts not
exceeding 0.25% of the Fund's average daily net assets for each fiscal year.
The Trustees have initially implemented the Plan by authorizing the Fund to
make quarterly payments of service fees to the Principal Underwriter and
Authorized Firms in amounts not expected to exceed 0.25% per annum of the
Fund's average daily net assets based on the value of Fund shares sold by such
persons and remaining outstanding for at least one year. The Fund paid or
accrued service fees to EVD for the six months ended June 30, 1997 in the
amount of $7,632. Service fee payments will be made for personal services
and/or the maintenance of shareholder accounts. Service fees are separate and
distinct from the sales commissions and distribution fees payable by the Fund
to EVD, and as such, are not subject to automatic discontinuance when there
are no outstanding Uncovered Distribution Charges to EVD. Certain officers and
Trustees of the Fund are officers or directors of EVD.
7
<PAGE>
EV Marathon Emerging Markets Fund as of June 30, 1997
NOTES TO FINANCIAL STATEMENTS (Unaudited) CONT'D
6 Contingent Deferred Sales Charge
------------------------------------------------------------------------------
A contingent deferred sales charge (CDSC) is imposed on any redemption of Fund
shares made within six years of purchase. Generally, the CDSC is based upon
the lower of the net asset value at date of redemption or date of purchase. No
charge is levied on shares acquired by reinvestment of dividends or capital
gain distributions. The CDSC is imposed at declining rates that begin at 5% in
the first and second year of redemption after purchase, declining one
percentage point each year thereafter. No CDSC is levied on shares which have
been sold to EVD or its affiliates or to their respective employees or
clients. CDSC charges are paid to EVD to reduce the amount of Uncovered
Distribution Charges calculated under the Fund's Distribution Plan. CDSC
charges received when no Uncovered Distribution Charges exist will be retained
by the Fund. EVD received $5,000 of CDSC paid by shareholders for the six
months ended June 30, 1997.
7 Investment Transactions
------------------------------------------------------------------------------
Increases and decreases in each Fund's investment in the Portfolio aggregated
$3,875,606 and $1,153,401, respectively.
8
<PAGE>
Emerging Markets Portfolio as of June 30, 1997
PORTFOLIO OF INVESTMENTS (Unaudited)
(Expressed in United States Dollars)
Common Stocks -- 92.5%
<TABLE>
<CAPTION>
Security Shares Value
- --------------------------------------------------------------------------------
<S> <C> <C>
Banks and Money Services -- 6.5%
- --------------------------------------------------------------------------------
Banco Credito del Peru 25,000 $ 550,000
Peru's largest banking conglomerate
Far East Bank and Trust Co. Ltd. (Rights)* 3,125 1,090
Fifth largest bank in the Phillippines
Far East Bank and Trust Co., Ltd. 3,125 7,820
Banking
State Bank of India GDR 20,000 530,000
India's largest commercial bank
Zagrebacka Banka GDR 10,000 323,750
Banking
- --------------------------------------------------------------------------------
$1,412,660
- --------------------------------------------------------------------------------
Beverages -- 4.8%
- --------------------------------------------------------------------------------
Pan American Beverages, Inc. ADR 17,000 $ 558,875
Coca Cola francisher
Vina Concha y Toro ADR 16,000 495,000
Wine producer/exporter
- --------------------------------------------------------------------------------
$1,053,875
- --------------------------------------------------------------------------------
Broadcasting and Cable -- 3.3%
- --------------------------------------------------------------------------------
Benpres Holdings GDR 50,000 $ 357,500
Philippine broadcasting conglomerate
Grupo Radio ADR 30,000 352,500
Mexican radio broadcasting company
- --------------------------------------------------------------------------------
$ 710,000
- --------------------------------------------------------------------------------
Chemicals -- 0.8%
- --------------------------------------------------------------------------------
Lautan Laus 150,000 $ 181,986
Indonasian speciality chemical manufacturer
and distributor
- --------------------------------------------------------------------------------
$ 181,986
- --------------------------------------------------------------------------------
Communications Equipment -- 3.6%
- --------------------------------------------------------------------------------
ECI Telecommunications 6,100 $ 176,900
Producer of equipment to enhance the
capacity of existing telecoms networks
Grupo Televisa GDR 20,000 607,500
Largest media company in the Spanish-speaking world
- --------------------------------------------------------------------------------
$ 784,400
- --------------------------------------------------------------------------------
Communications Services -- 0.2%
- --------------------------------------------------------------------------------
Korea Mobile Telecom Corp. 61 $ 46,619
Mobile telecommunications operator
- --------------------------------------------------------------------------------
$ 46,619
- --------------------------------------------------------------------------------
Conglomerates -- 9.1%
- --------------------------------------------------------------------------------
Belle Corp. 1,200,000 $ 350,318
Tourism/gaming/property
Cheung Kong Holdings Ltd. 33,000 325,826
Property/infrastructure
Hutchison Whampoa 80,000 688,530
Hong Kong computer and
telecommunications conglomerate
John Keells Holdings GDR 1,633 15,105
Tourism/trading/agriculture
Min Xin Holdings 600,000 425,916
Energy/transportation/telecommunications
/electrical engineering/industry/
finance/property
Quinenco SA ADR 10,000 185,000
A large diversified company engaged in
industrial and financial services
- --------------------------------------------------------------------------------
$1,990,695
- --------------------------------------------------------------------------------
Construction -- 5.9%
- --------------------------------------------------------------------------------
Budimex 45,000 $ 410,803
Largest construction company in Poland
Soares De Costa 29,300 275,078
Portugal's largest building and
construction contractor
Solidere GDR 34,000 604,350
Lebanese property developer
- --------------------------------------------------------------------------------
$1,290,231
- --------------------------------------------------------------------------------
Consumer Products -- 0.5%
- --------------------------------------------------------------------------------
Lever Brothers Pakistan Ltd. 5,300 $ 106,211
The largest and oldest consumer
non-durables company in Pakistan
- --------------------------------------------------------------------------------
$ 106,211
- --------------------------------------------------------------------------------
Drugs -- 2.6%
- --------------------------------------------------------------------------------
Agis Industries Ltd. 30,000 $ 314,371
Israeli pharmaceutical products manufacturer
Yung Shin Pharmaceutical Ind. 86,000 242,842
Taiwan based pharmaceutical company
- --------------------------------------------------------------------------------
$ 557,213
- --------------------------------------------------------------------------------
</TABLE>
See notes to financial statements
9
<PAGE>
Emerging Markets Portfolio as of June 30, 1997
PORTFOLIO OF INVESTMENTS (Unaudited) CONT'D
(Expressed in United States Dollars)
<TABLE>
<CAPTION>
Security Shares Value
- --------------------------------------------------------------------------------
Electric Utilities -- 2.1%
- --------------------------------------------------------------------------------
<S> <C> <C>
Hub Power Company Ltd. GDR 18,500 $ 455,655
Pakistan's first independent power producer
- --------------------------------------------------------------------------------
$ 455,655
- --------------------------------------------------------------------------------
Foods -- 12.7%
- --------------------------------------------------------------------------------
Carulla SA ADR 120,000 $ 405,000
Columbian grocery and supermarket chain
Grupo Minsa SA ADR 45,000 582,836
Mexican corn flour and tortilla producer
Perdigao Preferred 109,000,000 258,186
Brazilian processed meats manufacturer
PT Indofood Sukses Makmur 200,000 460,621
(Foreign)
Indonesian instant noodle producer
PT Mayora Indah (Foreign) 600,000 339,297
Indonisian food manufacturer
Standard Foods (Taiwan) GDR 50,000 478,750
Taiwanese baby food, oatmeal and edible
oil manufacturer
Universal Robina Corp. 700,000 254,777
Large Phillipines food company
- --------------------------------------------------------------------------------
$ 2,779,467
- --------------------------------------------------------------------------------
Investment Services -- 9.5%
- --------------------------------------------------------------------------------
Arab-Malaysian Merchant Bank 85,000 $ 529,922
Multi service bank
Banco Totta and Acores 13,700 229,256
Portuguese bank specializing in
retail banking and mortgages
Grupo Financieri Banamex 151,000 387,350
Accivl, Series B
Large Mexican bank
HSBC Holdings PLC 11,200 336,810
International bank and financial
services company
Kwong Yik Bank 57,000 193,037
Malysian retail bank
Smith Ltd. 71,000 396,578
Investment holding company
- --------------------------------------------------------------------------------
$ 2,072,953
- --------------------------------------------------------------------------------
Lodging and Gaming -- 1.1%
- --------------------------------------------------------------------------------
Asian Hotel Corp. 1,100,000 $ 237,434
Hotel company
- --------------------------------------------------------------------------------
$ 237,434
- --------------------------------------------------------------------------------
Manufacturing -- 3.4%
- --------------------------------------------------------------------------------
First Tractor Co. (Hampshire) 190,000 $ 125,065
China's second largest tractor producer
Tata Engineering & Locomotion GDR 9,720 149,202
Tata Engineering & Locomotion GDR, 30,000 460,500
Class A
India's largest auto producer and distributor
- --------------------------------------------------------------------------------
$ 734,767
- --------------------------------------------------------------------------------
Metals - Industrial -- 2.1%
- --------------------------------------------------------------------------------
Noble Group Ltd. 600,000 $ 468,000
Producer and distributor of raw materials
- --------------------------------------------------------------------------------
$ 468,000
- --------------------------------------------------------------------------------
Natural Gas Utilities -- 1.4%
- --------------------------------------------------------------------------------
Mosenergo 144A ADR 7,000 $ 304,500
Gas power utilities
- --------------------------------------------------------------------------------
$ 304,500
- --------------------------------------------------------------------------------
Oil and Gas - Equipment and Services -- 5.1%
- --------------------------------------------------------------------------------
JSC Surgutneftegaz ADR 12,000 $ 643,500
Russia's largest oil producer
YPF Sociedad Anonima ADR 15,200 467,400
Exploration, development, and
production of oil and natural gas
- --------------------------------------------------------------------------------
$1,110,900
- --------------------------------------------------------------------------------
Publishing -- 1.5%
- --------------------------------------------------------------------------------
Star Publications 76,000 $ 325,114
Malaysian newspaper and magazine publisher
- --------------------------------------------------------------------------------
$ 325,114
- --------------------------------------------------------------------------------
REITS -- 2.2%
- --------------------------------------------------------------------------------
New World Development 80,000 $ 475,534
Property developer
- --------------------------------------------------------------------------------
$ 475,534
- --------------------------------------------------------------------------------
Retail - Food and Drug -- 7.7%
- --------------------------------------------------------------------------------
Blue Square Stores 45,000 $ 436,701
Supermarket and specialty store chain
Bompreco Supermercado GDR 26,500 709,007
Brazilian supermarket chain
- --------------------------------------------------------------------------------
</TABLE>
See notes to financial statements
10
<PAGE>
Emerging Markets Portfolio as of June 30, 1997
PORTFOLIO OF INVESTMENTS (Unaudited) CONT'D
(Expressed in United States Dollars)
<TABLE>
<CAPTION>
Security Shares Value
- --------------------------------------------------------------------------------
<S> <C> <C>
Retail - Food and Drug -- continued
- --------------------------------------------------------------------------------
Compania Brasileira de Distrib GDR 14,000 $ 318,500
Supermarket chain
KFC Holdings (Malaysia) BHD 60,000 225,774
Fast food chain
- --------------------------------------------------------------------------------
$ 1,689,982
- --------------------------------------------------------------------------------
Sanitation -- 2.6%
- --------------------------------------------------------------------------------
Saneamento Basico (Sabesp) 1,885,000 $ 574,316
Brazil's largest water and sanitation utility
- --------------------------------------------------------------------------------
$ 574,316
- --------------------------------------------------------------------------------
Telephone Utilities -- 3.8%
- --------------------------------------------------------------------------------
Telecomunicacoes Brasileiras ADR 2,750 $ 417,313
Telecommunications holding company
Telefonica del Peru ADR 16,000 419,000
Is Peru's primary operator of the public
telephone system
- --------------------------------------------------------------------------------
$ 836,313
- --------------------------------------------------------------------------------
Total Common Stocks
(identified cost $16,962,956) $20,198,825
- --------------------------------------------------------------------------------
<CAPTION>
Preferred Stocks -- 6.6%
Security Shares Value
- --------------------------------------------------------------------------------
<S> <C> <C>
Electrical Equipment -- 2.8%
- --------------------------------------------------------------------------------
Eletricidade Sao Paulo 2,100,000 $ 614,443
Electricity distributor in Brazil
- --------------------------------------------------------------------------------
$ 614,443
- --------------------------------------------------------------------------------
Financial - Miscellaneous -- 2.4%
- --------------------------------------------------------------------------------
Banco Bradesco SA 51,258,993 $ 516,613
Brazilian international bank
- --------------------------------------------------------------------------------
$ 516,613
- --------------------------------------------------------------------------------
Telephone Utilities -- 1.4%
- --------------------------------------------------------------------------------
Telec de Minas Gerias 1,800,000 $ 318,517
Third largest telecommunications system by
access lines in state of Minas
Gerias (Brazil)
- --------------------------------------------------------------------------------
$ 318,517
- --------------------------------------------------------------------------------
Total Preferred Stocks
(identified cost $1,069,690) $ 1,449,573
- --------------------------------------------------------------------------------
<CAPTION>
Warrants -- 0.1%
- --------------------------------------------------------------------------------
Security Shares Value
- --------------------------------------------------------------------------------
<S> <C> <C>
Lodging and Gaming -- 0.0%
- --------------------------------------------------------------------------------
Lai Sun Hotels International Ltd. (Warrants)* 30,106 $ 2,642
Company with investments in property, hotels
and broadcasting
- --------------------------------------------------------------------------------
$ 2,642
- --------------------------------------------------------------------------------
Retail - Food and Drug -- 0.1%
- --------------------------------------------------------------------------------
KFC Holdings BHD (Warrants)* 8,000 $ 9,443
Fast food chain
- --------------------------------------------------------------------------------
$ 9,443
- --------------------------------------------------------------------------------
Total Warrants
(identified cost $1,984) $ 12,085
- --------------------------------------------------------------------------------
<CAPTION>
Convertible Bonds -- 0.8%
Principal
Amount
Security (000 Omitted) Value
- --------------------------------------------------------------------------------
<S> <C> <C>
Compal Electronics, 1.00%, 11/21/03 $ 105 $ 177,450
- --------------------------------------------------------------------------------
Total Convertible Bonds
(identified cost $148,575) $ 177,450
- --------------------------------------------------------------------------------
Total Investments -- 100.0%
(identified cost $18,183,205) $21,837,933
- --------------------------------------------------------------------------------
Other Assets, Less Liabilities -- 0.0% $ 5,962
- --------------------------------------------------------------------------------
Net Assets -- 100% $21,843,895
- --------------------------------------------------------------------------------
</TABLE>
ADR -- American Depository Receipt
GDR -- Global Depository Receipt
* Non-income producing security.
See notes to financial statements
11
<PAGE>
Emerging Markets Portfolio as of June 30, 1997
PORTFOLIO OF INVESTMENTS (Unaudited)
Country Concentration of Portfolio
<TABLE>
<CAPTION>
Percentage
Country of Net Assets Value
- ----------------------------------------------------------------------------
<S> <C> <C>
Argentina 2.1% 467,400
Brazil 17.0% 3,726,895
Colombia 1.9% 405,000
Croatia 1.5% 323,750
Hong Kong 7.8% 1,714,194
India 5.3% 1,154,807
Indonesia 4.5% 981,904
Israel 4.3% 927,972
Malaysia 4.7% 1,033,209
Mexico 11.4% 2,489,060
Pakistan 2.6% 561,866
Peru 4.4% 969,000
Poland 1.9% 410,803
Portugal 4.6% 999,334
Republic of Korea 0.2% 46,619
Russia 1.4% 304,500
Singapore 2.1% 468,000
South Africa 1.8% 396,578
Sri Lanka 1.1% 237,434
Taiwan 3.3% 721,592
The Philippines 4.5% 971,505
United States 7.4% 1,610,300
</TABLE>
See notes to financial statements
12
<PAGE>
Emerging Markets Portfolio as of June 30, 1997
FINANCIAL STATEMENTS (Unaudited)
Statement of Assets and Liabilities
<TABLE>
<CAPTION>
As of June 30, 1997
(Expressed in United States Dollars)
Assets
- --------------------------------------------------------------------------------
<S> <C>
Investments, at value (Note 1A)
(identified cost, $18,183,205) $21,837,933
Cash 462,697
Foreign currency, at value
(identified cost, $304,521) 301,322
Receivable for investments sold 802,431
Interest and dividends receivable 43,082
Tax reclaim receivable 236
Deferred organization expenses (Note 1D) 9,210
- --------------------------------------------------------------------------------
Total assets $23,456,911
- --------------------------------------------------------------------------------
Liabilities
- --------------------------------------------------------------------------------
Payable for investments purchased $ 1,608,274
Payable for open forward foreign currency contracts (Note 6) 953
Payable to affiliate -
Trustees' fees (Note 2) 1,250
Accrued expenses 2,539
- --------------------------------------------------------------------------------
Total liabilities $ 1,613,016
- --------------------------------------------------------------------------------
Net Assets applicable to investors' interest in Portfolio $21,843,895
- --------------------------------------------------------------------------------
Sources of Net Assets
- --------------------------------------------------------------------------------
Net proceeds from capital contributions and withdrawals $18,193,342
Net unrealized appreciation of investments (computed on the
basis of identified cost) 3,650,553
- --------------------------------------------------------------------------------
Total $21,843,895
- --------------------------------------------------------------------------------
</TABLE>
Statement of Operations
<TABLE>
<CAPTION>
For the Six Months Ended
June 30, 1997
(Expressed in United States Dollars)
Investment Income (Note 1H)
- --------------------------------------------------------------------------------
<S> <C>
Dividends (net of foreign taxes, $4,664) $ 129,688
Interest income 2,720
- --------------------------------------------------------------------------------
Total income $ 132,408
- --------------------------------------------------------------------------------
Expenses
- --------------------------------------------------------------------------------
Investment adviser fee (Note 2) $ 61,702
Administration fee 20,567
Compensation of Trustees not members of the
Investment Adviser's organization (Note 2) 3,087
Custodian fee (Note 1C) 43,748
Legal and accounting services 13,633
Amortization of organization expenses (Note 1D) 1,892
Miscellaneous 3,767
- --------------------------------------------------------------------------------
Total expenses $ 148,396
- --------------------------------------------------------------------------------
Deduct --
Preliminary reduction of investment
adviser fee (Note 2) $ 51,117
Preliminary reduction of custodian fee
(Note 1C) 18,249
Preliminary waiver of administration fee
(Note 2) 17,039
- --------------------------------------------------------------------------------
Total expense reductions $ 86,405
- --------------------------------------------------------------------------------
Net expenses $ 61,991
- --------------------------------------------------------------------------------
Net investment income $ 70,417
- --------------------------------------------------------------------------------
Realized and Unrealized
Gain (Loss) on Investments
- --------------------------------------------------------------------------------
Net realized gain (loss) --
Investment transactions (identified cost basis) $ 1,417,306
Foreign currency transactions (38,795)
- --------------------------------------------------------------------------------
Net realized gain on investments $ 1,378,511
- --------------------------------------------------------------------------------
Change in unrealized appreciation (depreciation) --
Investments (identified cost basis) $ 1,818,479
Foreign currency (4,039)
- --------------------------------------------------------------------------------
Net change in unrealized appreciation $ 1,814,440
- --------------------------------------------------------------------------------
Net realized and unrealized gain on investments $ 3,192,951
- --------------------------------------------------------------------------------
Net increase in net assets resulting from operations $ 3,263,368
- --------------------------------------------------------------------------------
</TABLE>
See notes to financial statements
13
<PAGE>
Emerging Markets Portfolio as of June 30, 1997
FINANCIAL STATEMENTS CONT'D
Statements of Changes in Net Assets (Expressed in United States Dollars)
<TABLE>
<CAPTION>
Six Months Ended
Increase (Decrease) June 30, 1997 Year Ended
in Net Assets (Unaudited) December 31, 1996
- -----------------------------------------------------------------------------
<S> <C> <C>
From operations --
Net investment income $ 70,417 $ 11,410
Net realized gain on investments 1,378,511 139,702
Net change in unrealized appreciation 1,814,440 1,561,355
- -----------------------------------------------------------------------------
Net increase in net assets
from operations $ 3,263,368 $ 1,712,467
- -----------------------------------------------------------------------------
Capital transactions --
Contributions $ 18,169,148 $11,229,400
Withdrawals (10,247,148) (5,870,609)
- -----------------------------------------------------------------------------
Net increase in net assets from
capital transactions $ 7,922,000 $ 5,358,791
- -----------------------------------------------------------------------------
Net increase in net assets $ 11,185,368 $ 7,071,258
- -----------------------------------------------------------------------------
Net Assets
- -----------------------------------------------------------------------------
At beginning of period $ 10,658,527 $ 3,587,269
- -----------------------------------------------------------------------------
At end of period $ 21,843,895 $10,658,527
- -----------------------------------------------------------------------------
</TABLE>
See notes to financial statements
14
<PAGE>
Emerging Markets Portfolio as of June 30, 1997
FINANCIAL STATEMENTS CONT'D
Supplementary Data (Expressed in United States Dollars)
<TABLE>
<CAPTION>
Six Months Ended Year Ended December 31,
June 30, 1997 ---------------------------------------
(Unaudited) 1996 1995 1994*
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Ratios to average daily net assets++
- ------------------------------------------------------------------------------------------------------------------------------------
Expenses/(1)/ 0.97%+ 1.54% 2.58% 0.00%
Net expenses, after custodian fee reduction 0.75%+ 1.32% 2.58% --
Net investment income (loss) 0.85%+ 0.14% (1.00)% 0.00%
Portfolio Turnover 60% 125% 98% 0%
- ------------------------------------------------------------------------------------------------------------------------------------
Average commission rate (per share)/(2)/ $0.0007 $0.0029 -- --
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (000s omitted) $21,844 $10,659 $3,587 $1,195
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
++The operating expenses of the Portfolio reflect an allocation of expenses to
the Administrator and a waiver of investment adviser fees. Had such actions
not been taken, the ratios would have been as follows:
<TABLE>
<S> <C> <C> <C> <C>
Expenses /(1)/ 1.80%+ 2.24% 5.24% 2.21%+
Expenses after custodian fee reduction 1.58%+ 2.02% 5.24% --
Net investment income (loss) 0.03%+ (0.56)% (3.66)% (2.21)%+
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
+ Annualized.
* For the period from the start of business, November 30, 1994, to December
31, 1994.
/(1)/ The expense ratios for the six months ended June 30, 1997 and for the
years ended December 31, 1996 and 1995 have been adjusted to reflect a
change in reporting requirements. The new reporting guidelines require the
Fund to increase its expense ratio by the effect of any expense offset
arrangements with its service providers. The expense ratios for the period
ended December 31, 1994 have not been adjusted to reflect this change.
/(2)/ Average commission rate paid is computed by dividing the total dollar
amount of commissions paid during the fiscal year by the total number of
shares purchased and sold during the fiscal year for which commissions
were charged. For fiscal years beginning on or after September 1, 1995, a
Fund is required to disclose its average commission rate per share for
security trades on which commissions were charged.
See notes to financial statements
15
<PAGE>
Emerging Markets Portfolio as of June 30, 1997
NOTES TO FINANCIAL STATEMENTS (Unaudited)
(Expressed in United States Dollars)
1 Significant Accounting Policies
------------------------------------------------------------------------------
Emerging Markets Portfolio (the Portfolio) is registered under the Investment
Company Act of 1940 as a diversified, open-end investment company which was
organized as a trust under the laws of the State of New York. The Declaration
of Trust permits the Trustees to issue interests in the Portfolio. The
following is a summary of significant accounting policies of the Portfolio.
The policies are in conformity with generally accepted accounting principles.
A Investment Valuation -- 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. Future positions on securities or
currencies are generally valued at closing settlement prices. Unlisted or
listed securities for which closing sales prices are not available are valued
at the mean between the latest bid and asked prices. Short term debt
securities with a remaining maturity of 60 days or less are valued at
amortized cost. Other fixed income and debt securities, including listed
securities and securities for which price quotations are available, will
normally be valued on the basis of valuations furnished by a pricing service.
Investments for which valuations or market quotations are unavailable are
valued at fair value using methods determined in good faith by or at the
direction of the Trustees.
B Federal Taxes -- The Portfolio has elected to be treated as a partnership
for Federal tax purposes. No provision is made by the Portfolio for federal or
state taxes on any taxable income of the Portfolio because each investor in
the Portfolio is individually responsible for the payment of any taxes on its
share of such income. Since some of the Portfolio's investors are regulated
investment companies that invest all or substantially all of their assets in
the Portfolio, the Portfolio normally must satisfy the applicable source of
income and diversification requirements (under the Internal Revenue Code) in
order for its investors to satisfy them. The Portfolio will allocate, at least
annually among its investors, each investor's distributive share of the
Portfolio's net investment income, net realized capital gains, and any other
items of income, gain, loss, deduction or credit. Withholding taxes on foreign
dividends and capital gains have been provided for in accordance with the
Portfolio's understanding of the applicable countries' tax rules and rates.
C Expense Reduction -- Investors Bank & Trust Company serves as custodian of
the Portfolio. Pursuant to the custodian agreement, IBT receives a fee reduced
by credits which are determined based on the average daily cash balances the
Portfolio maintains with IBT. All significant credit balances used to reduce
the Portfolio's custodian fees are reported as a reduction of expenses on the
Statement of Operations.
D Deferred Organization Expenses -- Costs incurred by the Portfolio in
connection with its organization, including registration costs, are being
amortized on the straight-line basis over five years.
E Futures Contracts -- Upon the entering of a financial futures contract, the
Portfolio is required to deposit (initial margin) either of cash or securities
an amount equal to a certain percentage of the purchase price indicated in the
financial futures contract. Subsequent payments are made or received by the
Portfolio (margin maintenance) each day, dependent on the daily fluctuations
in the value of the underlying security, and are recorded for book purposes as
unrealized gains or losses by the Portfolio. The Portfolio's investment in
financial futures contracts is designed only to hedge against anticipated
future changes in interest or currency exchange rates. Should interest or
currency exchange rates move unexpectedly, the Portfolio may not achieve the
anticipated benefits of the financial futures contracts and may realize a
loss. If the Portfolio enters into a closing transaction, the Portfolio will
realize, for book purposes, a gain or loss equal to the difference between the
value of the financial futures contract to sell and financial futures contract
to buy.
F Foreign Currency Translation -- Investment valuations, other assets, and
liabilities initially expressed in foreign currencies are converted each
business day into U.S. dollars based upon current exchange rates. Purchases
and sales of foreign investment securities and income and expenses are
converted into U.S. dollars based upon currency exchange rates prevailing on
the respective dates of such transactions. Recognized gains or losses on
investment transactions attributable to foreign currency rates are recorded
for financial statement purposes as net realized gains and losses on
investments. That portion of unrealized gains and losses on investments that
result from fluctuation in foreign currency exchange rates are not separately
disclosed.
16
<PAGE>
Emerging Markets Portfolio as of June 30, 1997
NOTES TO FINANCIAL STATEMENTS (Unaudited) CONT'D
(Expressed in United States Dollars)
G Forward Foreign Currency Exchange Contracts -- The Portfolio may enter into
forward foreign currency exchange contracts for the purchase or sale of a
specific foreign currency at a fixed price on a future date. Risk may arise
upon entering these contracts from the potential inability of counterparties
to meet the terms of their contracts and from movements in the value of a
foreign currency relative to the U.S. dollar. The Portfolio will enter into
forward contracts for hedging purposes as well as non-hedging purposes. The
forward foreign currency exchange contracts are adjusted by the daily exchange
rate of the underlying currency and any gains or losses are recorded for
financial statement purposes as unrealized until such time as the contracts
have been closed or offset.
H 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 securities are recorded as the Portfolio is informed of the ex-dividends
date. Interest income is recorded on the accrual basis.
I 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 income and expense during the reporting period. Actual results could differ
from those estimated.
J Interim Financial Information -- The interim financial statements relating
to June 30, 1997 and for the six-month period then ended have not been audited
by independent certified public accountants, but in the opinion of the Fund's
management, reflect all adjustments, consisting only of normal recurring
adjustments, necessary for the fair presentation of the financial statements.
2 Investment Adviser Fee and Other Transactions with Affiliates
------------------------------------------------------------------------------
The investment adviser fee is earned by Lloyd George Management (Bermuda)
Limited (the Adviser) as compensation for management and investment advisory
services rendered to the Portfolio. Under the advisory agreement, the Adviser
receives a monthly fee of 0.0625% (0.75% annually) of the average daily net
assets of the Portfolio up to $500,000,000, and at reduced rates as daily net
assets exceed that level. For the six months ended June 30, 1997, the adviser
fee was 0.75% of average net assets. To enhance the net income of the
Portfolio the Adviser made a waiver of $51,117 of investment adviser fees. In
addition, an administrative fee is earned by Eaton Vance Management (EVM) for
managing and administrating the business affairs of the Portfolio. Under the
administration agreement, EVM earns a monthly fee in the amount of 1/48th of
1% (equal to 0.25% annually) of the average daily net assets of the Portfolio
up to $500,000,000, and at reduced rates as daily net assets exceed that
level. For the six months ended June 30, 1997, the administration fee was
0.25% of average net assets. To enhance the net income of the Portfolio, the
administrator was allocated expenses in the amount of $17,039. Except as to
Trustees of the Portfolio who are not members of the Adviser or EVM's
organization, officers and Trustees receive remuneration for their services to
the Portfolio out of such investment adviser and administrative fee. Certain
of the officers and Trustees of the Portfolio are officers and
directors/trustees of the above organizations.
3 Investment Transaction
------------------------------------------------------------------------------
Purchases and sales of investments, other than short-term obligations,
aggregated $18,126,745 and $9,496,227, respectively.
4 Federal Income Tax Basis of Investments
------------------------------------------------------------------------------
The cost and unrealized appreciation (depreciation) in value of the
investments owned at June 30, 1997, as computed on a federal income tax basis,
are as follows:
<TABLE>
<CAPTION>
Aggregate cost $18,183,205
------------------------------------------------------------------------------
<S> <C>
Gross unrealized appreciation $3,981,551
Gross unrealized depreciation (326,823)
------------------------------------------------------------------------------
Net unrealized appreciation $3,654,728
------------------------------------------------------------------------------
</TABLE>
17
<PAGE>
Emerging Markets Portfolio as of June 30, 1997
NOTES TO FINANCIAL STATEMENTS (Unaudited) CONT'D
(Expressed in United States Dollars)
5 Risks Associated with Foreign Investments
------------------------------------------------------------------------------
Investing in securities issued by companies whose principal business
activities are outside the United States may involve significant risks not
present in domestic investments. For example, there is generally less
publically available information about foreign companies, particularly those
not subject to the disclosure and reporting requirements of the U.S.
securities laws. Foreign issuers are generally not bound by uniform
accounting, auditing, and financial reporting requirements and standards of
practice comparable to those applicable to domestic issuers. Investment in
foreign securities also involves the risk of possible adverse changes in
investment or exchange control regulations, expropriation or confiscatory
taxation, limitation on the removal of funds or other assets of the Portfolio,
political or financial instability or diplomatic and other developments which
could affect such investments. Foreign stock markets, while growing in volume
and sophistication, are generally not as developed as those in the United
States, and securities of some foreign issuers (particularly those located in
developing countries) may be less liquid and more volatile than securities of
comparable U.S. companies. In general, there is less overall governmental
supervision and regulation of foreign securities markets, broker-dealers, and
issuers than in the United States.
6 Financial Instruments
------------------------------------------------------------------------------
The Portfolio regularly trades in financial instruments with off-balance sheet
risk in the normal course of its investing activities to assist in managing
exposure to various market risks. These financial instruments include written
options, forward foreign currency exchange contracts and financial futures
contracts and may involve, to a varying degree, elements of risk in excess of
the amounts recognized for financial statement purposes. The notional or
contractual amounts of these instruments represent the investment the
Portfolio has in particular classes of financial instruments and does not
necessarily represent the amounts potentially subject to risk. The measurement
of the risks associated with these instruments is meaningful only when all
related and offsetting transactions are considered.
A summary of obligations under these financial instruments at June 30, 1997 is
as follows:
Forward Foreign Currency Exchange Contracts
<TABLE>
<CAPTION>
Sales
------------------------------------------------------------------------------
Net Unrealized
Settlement In Exchange For Appreciation
Date Deliver (in U.S. dollars) (Depreciation)
------------------------------------------------------------------------------
<S> <C> <C> <C>
7/2/97 Indonesian Rupiah $396,768 $(653)
------------------------------------------------------------------------------
$396,768 $(653)
------------------------------------------------------------------------------
<CAPTION>
Purchases
------------------------------------------------------------------------------
Net Unrealized
Settlement Deliver Appreciation
Date In Exchange For (in U.S. dollars) (Depreciation)
------------------------------------------------------------------------------
<S> <C> <C> <C>
7/08/97 Pakistan Rupee $108,504 $(300)
------------------------------------------------------------------------------
$108,504 $(300)
------------------------------------------------------------------------------
</TABLE>
At June 30, 1997, the Portfolio had sufficient cash and/or securities to cover
potential obligations arising from open forward contracts.
7 Line of Credit
------------------------------------------------------------------------------
The Portfolio participates with other portfolios and funds managed by BMR and
EVM and its affiliates in a committed $120 million 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 based on its
borrowings at an amount above either the bank's adjusted certificate of
deposit rate, eurodollar rate or federal funds rate. In addition, a fee
computed at an annual rate of 0.15% 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 six months ended June 30, 1997.
18
<PAGE>
EV Marathon Emerging Markets Fund as of June 30, 1997
INVESTMENT MANAGEMENT
EV Marathon Emerging Markets Fund
Officers Trustees
James B. Hawkes M. Dozier Gardner
President and Trustee Vice Chairman, Eaton Vance
Management
Edward E. Smiley, Jr
Vice President Donald R. Dwight
President, Dwight Partners, Inc.
James L. O'Connor Chairman, Newspapers of New England, Inc.
Treasurer
Samuel L. Hayes, III
Alan R. Dynner Jacob H. Schiff Professor of Investment
Secretary Banking, Harvard University Graduate School of
Business Administration
Norton H. Reamer
President and Director, United Asset
Management Corporation
John L. Thorndike
Formerly Director, Fiduciary Company Incorporated
Jack L. Treynor
Investment Adviser and Consultant
Emerging Markets Portfolio
Officers Trustees
Hon. Robert Lloyd George Hon. Edward K. Y. Chen
President, Trustee Professor and Director, Center for
Asian Studies, University of Hong Kong
James B. Hawkes
Vice President, Trustee Donald R. Dwight
President, Dwight Partners, Inc.
Scobie Dickinson Ward Chairman, Newspapers of New England, Inc.
Vice President, Assistant
Secretary and Samuel L. Hayes, III
Assistant Treasurer Jacob H. Schiff Professor of Investment
Banking, Harvard University Graduate School of
William Walter Raleigh Kerr Business Administration
Vice President,
Assistant Treasurer Norton H. Reamer
President and Director, United Asset
James L. O'Connor Management Corporation
Vice President, Treasurer
Alan R. Dynner
Vice President, Secretary
19
<PAGE>
Investment Advisor of
Emerging Markets Portfolio
Lloyd George Management
(Bermuda) Limited
3808 One Exchange Square
Central, Hong Kong
Sponsor and Administrator of
EV Marathon Emerging Markets Fund
and Administrator of Emerging Markets Portfolio
Eaton Vance Management
24 Federal Street
Boston, MA 02110
Principal Underwriter
Eaton Vance Distributors, Inc.
24 Federal Street
Boston, MA 02110
(617) 482-8260
Custodian
Investors Bank & Trust Company
200 Clarendon Street, 16th Floor
Boston, MA 02116
Transfer Agent
First Data Investor Services Group
Attention: Eaton Vance Funds
P.O. Box 5123
Westborough, MA 01581-5123
EV Marathon
Emerging Markets 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, including its sales
charges and expenses. Please read the prospectus carefully before
you invest or send money.
- --------------------------------------------------------------------------------
M-EMSRC-8/97
