[EATON VANCE LOGO]
EV
TRADITIONAL
EMERGING
GROWTH
FUND
Eaton Vance
Global Management-Global Distribution
Annual Report December 31, 1997
EV Traditional Emerging Growth Fund as of December 31, 1997
Letter to Shareholders
Photo with caption "James B, Hawkes, President"
I am pleased to report that EV Traditional Emerging Growth Fund had a total
return of 19.3% in its first year of operation.1 That return was the result
of a rise in net asset value per share from $10.00 on January 2, 1997 to
$10.83 on December 31, 1997, and the reinvestment of $1.058 in capital gains
distributions. The S&P Small Cap 600 Index - a widely recognized unmanaged
index of small capitalization stocks - had a total return of 23.5% during the
same period.2
Investors maintained a
strong appetite for equities in 1997...
In a year dominated again by large blue chip stocks, the equity markets were
unusually volatile, as U.S. investors feared the potential impact of foreign
financial crises. However, the market proved very resilient, and pullbacks
provided some good buying opportunities. Despite the volatility, investors
retained their appetite for stocks, pouring a record amount of assets into
the equity markets. According to Dow Jones, 45 million households owned
equity mutual funds at year-end, worth more than $2.5 trillion. An increasing
percentage of those investments have been directed into emerging growth
companies. According to CommScan Inc., a market research company, $39 billion
came to market through initial public offerings alone.
Emerging growth companies are
helping drive economic growth...
Smaller companies have become responsible in recent years for an increasing
share of our nation's economic growth. From Internet-related companies to
breakthroughs in health care, industries unheard of a decade ago are now
firmly in the mainstream of our nation's culture and commerce. Their success
has had profound implications for investors. Emerging growth companies
typically enjoy earnings growth rates well above those of the broader market,
and as informed investors know, stock prices tend to follow earnings. Thus,
emerging growth companies have the potential to provide well above-average,
long-term returns.
Moderate growth and low inflation
should promote further growth...
An economy characterized by moderate growth and low inflation should form an
ideal climate for today's entrepreneurs. We believe that emerging companies
will continue to provide good opportunities for growth-minded investors. In
the pages that follow, portfolio manager Edward "Jack" Smiley reviews the
past year and offers an over-view of EV Traditional Emerging Growth
Portfolio.
Sincerely,
/s/ James B. Hawkes
James B. Hawkes
President
February 9, 1998
- --------------------------------------------------------------
Fund Information
as of December 31, 1997
Performance3
- --------------------------------------------------------------
Total Return (at net asset value)
- --------------------------------------------------------------
Life of fund (1/2/97) 19.3%
SEC Total Return (including 5.75% sales charge)
- --------------------------------------------------------------
Life of fund (1/2/97) 12.4%
Ten Largest Holdings4
- --------------------------------------------------------------
PeopleSoft, Inc. 1.9%
Outdoor Systems, Inc. 1.9
Centura Banks, Inc. 1.8
Pacific Gateway Exchange, Inc. 1.8
Paychex, Inc. 1.7
National Surgery Centers, Inc. 1.6
Sungard Data Systems, Inc. 1.5
Emmis Broadcasting Corp., Class. A 1.5
Strayer Education, Inc. 1.5
Davox Corp. 1.4
1 This return does not reflect the Fund's maximum 5.75% sales charge.
2 It is not possible to invest directly in an average or Index.
3 Returns are calculated by determining the percentage change in net asset
value with all distributions reinvested. SEC returns reflect maximum 5.75%
sales charge.
4 Ten largest holdings account for 16.6% of the Portfolio's investments,
determined by dividing the total market value of the holdings by the total
net assets of the Portfolio. Holdings are subject to change.
Past performance is no guarantee of future results. Investment return and
principal value will fluctuate so that shares, when redeemed, may be worth
more or less than their original cost.
EV Traditional Emerging Growth Fund as of December 31, 1997
MANAGEMENT DISCUSSION
Photo with caption "Edward Smiley, Portfolio Manager"
An interview with Jack Smiley,
portfolio manager of EV Traditional
Emerging Growth Fund.
Q: Jack, how have you structured the Fund in its initial year of operation?
A: I've emphasized small-cap and mid-cap companies that we view as the likely
industry leaders of tomorrow. I've targeted a universe of companies with a
revenue base below $1.5 billion, and the ability to generate rapid sales
growth.
I prefer companies with profit margins in excess of 15% and the ability to
post superior earnings growth relative to their industry competitors.
Typically, these companies are entrepreneurially-minded and nimble
enough to take advantage of changing business conditions.
Q: Where have you been focusing your investments?
A: While the Fund is very well diversified across many industry sectors, we
have found some areas that provide unusual opportunities for smaller,
emerging companies. Health care, information services, computer software, oil
and gas, and business products constituted the largest sector weightings in
the Fund. Smaller companies have managed to carve out highly profitable
niches in areas like health care and information services, industries in
which small companies can offer a high degree of value-added. Elsewhere,
computer software has long been a sector that has awarded aggressive new
approaches. Finally, in the energy area, energy service and supply companies
as well as selected, smaller exploration companies have managed to do well in
a period of weak oil prices.
Q: Health care was the Fund's largest sector concentration. What have you
found attractive in that area?
A: The Fund had some exposure to a number of major health care trends,
including the graying of America and the search for more cost-effective
health care treatments. We also had some investments in the drug and biotech
sector.
In the continuing care area, the Fund had an investment in Sunrise Assisted
Living, Inc. a developer of projects nationwide that provide housing and
assisted living facilities for elderly citizens. Many seniors are able to
live independently but may require modest, periodic medical attention. These
facilities have become increasingly popular as a housing and health care
alternative for an aging population.
Five Largest Sector Weightings1
- --------------------------------------------------------------
By total net assets
Health Services 13.3%
Information Services 11.8%
Computer Software 10.3%
Oil & Gas Exploration & Production 7.9%
Business Products & Services 7.5%
1 Because the Portfolio is actively managed, sector weightings are subject to
change.
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.
EV Traditional Emerging Growth Fund as of December 31, 1997
MANAGEMENT DISCUSSION CONT'D
In health services, we have an investment in National Surgery Centers, Inc.
The company is the nation's largest independent operator of ambulatory
surgery centers, focusing predominantly on secondary markets where it can
have an immediate impact. National has increased earnings in the past year
due to a sharp rise in the number of procedures performed as well as an
aggressive acquisition strategy.
In the drug sector, the Fund owned Genzyme Corp. Genzyme has pioneered
several forms of gene therapy treatment, including that for Gaucher disease,
a debilitating disorder caused by defective genes.
Q: Computer software is another large weighting.Could you discuss some of
the Fund's software holdings?
A: Yes. Software is a rapidly growing sector, with many opportunities among
emerging companies. The Fund's largest holding is PeopleSoft, Inc., which
operates in a software niche called enterprise resource planning (ERP).
PeopleSoft and a smaller holding, Baan Company, NV use ERP to link the
diverse parts of an enterprise to a common technology platform. That has
become increasingly necessary in recent years as different departments within
companies have begun using a wider array of technology equipment. In using
this ERP software, a company can integrate the various components of its
business: in effect, making certain that manufacturing, human resources,
vendors, inventory, and finance are all talking to one another.
Q: Oil and gas exploration companies were also among the Fund's largest
weightings. What have you found attractive about that sector?
A: Some energy companies have been able to generate impressive earnings
growth, even as oil prices have been in decline. Apache Corporation, for
example, reported record earnings in 1997. As a large independent company
with global operations, Apache has been able to exploit its ties to emerging
foreign markets. In addition to its operations in North America, Apache has
operations in China, Eastern Europe, and Africa. Another energy holding,
Anadarko Petroleum, also posted record earnings in 1997, offsetting the
decline in crude oil prices with record output. The company expects that
output will rise by 20% in 1998. These companies are ideally
positioned to benefit from the growing energy demands of emerging markets.
Q: Does the smaller size of the companies in your universe represent a
competitive advantage in some instances?
A: Yes. Because of their size and versatility, smaller, emerging companies
can sometimes fill a market niche or adapt to changing industry trends more
quickly than larger companies. For example, Strayer Education, Inc. and
Sylvan Learning Systems, Inc. are two companies that have taken advantage
of a changing educational environment. Strayer operates schools in the
Washington, D.C. area, with a focus on technical fields such as computer
programming. Students emerge from Strayer with associate degrees, better
prepared for the job market.
In another educational niche, Sylvan Learning Systems, Inc. provides
supplemental and remedial educational services in addition to administering
professional tests. Like Strayer, Sylvan has identified an area of the
educational market where it can provide much needed services, and has been
able to add incrementally over time to the breadth and quality of those
services. Both of these companies have benefited from the ability to respond
quickly to changes within a fairly large industry.
Q: Why should investors consider emerging growth companies at this time?
A: Given the outperformance of the large-cap, blue chip stocks in recent
years, a good case can be made that smaller companies have some catching-up
to do. Interestingly, that is true not only of traditional growth areas like
technology and biotech, but of a wide range of industries across the economy.
EV Traditional Emerging Growth Fund as of December 31, 1997
MANAGEMENT DISCUSSION CONT'D
The Dow Jones Industrial Average, for instance, just completed its third
consecutive year of 20%-plus returns. That is unprecedented and suggests that
the blue chip returns could soon revert to their historical norm, in the 10%
range. In that scenario, emerging growth companies would likely receive
increasing attention from investors for their continued strong earnings
growth.
Q: Jack, what is your outlook for the coming year?
A: In the wake of the Asian currency crisis, there are some economic
uncertainties on the horizon for large U.S. companies. Many multinational
companies with foreign exposure have suffered some recent earnings shortfalls
and the near-term outlook is clouded by the Asian difficulties.
Smaller, emerging companies, however, should be able to continue their
earnings momentum. Because their market niches are narrowly targeted, they
are less likely to be adversely affected by the Asia problems. In addition,
demand for many of the products and services of these companies is driven by
efforts to improve productivity. As we have seen in recent years,
productivity gains have contributed mightily to corporate profit growth.
Thus, even if the broad economy slows somewhat, the demand for products that
increase productivity is likely to remain strong.
With our bottom-up, company-by-company approach, we continue to look for
those companies that we believe will be the leaders of tomorrow. I believe
that the Fund is well-positioned to take advantage of compelling
opportunities in emerging growth companies in the year ahead.
Comparison of Change in Value of a $10,000 Investment
in EV Traditional Emerging Growth Fund vs.
the Standard & Poor's Small Cap 600 Index
From January 2, 1997, through December 31, 1997
EV Traditional EV Traditional
Emerging Growth Fund Emerging Growth Fund S&P Small Cap
without sales charge with sales charge 600 Index
Jan-97* $10,000 $ 9,427 $10,000
Feb-97 9,324 8,789 9,793
Mar-97 8,725 8,226 9,291
Apr-97 8,745 8,244 9,405
May-97 10,029 9,455 10,510
Jun-97 10,549 9,945 10,975
Jul-97 11,088 10,453 11,665
Aug-97 11,245 10,601 11,959
Sep-97 11,853 11,174 12,749
Oct-97 11,412 10,758 12,198
Nov-97 11,275 10,628 12,109
Dec-97 11,692 11,022 12,354
Performance+
- ---------------------------------------------------------------
Average Annual Total Returns (at net asset value)
- ---------------------------------------------------------------
Life of fund (1/2/97) 19.3%
SEC Average Annual Total Returns (including 5.75% sales charge)
- ---------------------------------------------------------------
Life of fund (1/2/97) 12.4%
* Past performance is no guarantee of future results. Investment return and
principal value will fluctuate so that shares, when redeemed, are worth
more or less their original cost. Source: Towers Data Systems, Bethesda,
MD. Investment operations began 1/2/97. Index information is available only
at month-end; therefore, the line comparison begins at the next month-end
following the commencement of the Fund's investment operations. It is not
possible to invest directly in an index.
The performance chart above compares the Fund's total return with that of a
broad-based securities market index. The lines on the chart represent the
total returns of $10,000 hypothetical investments in the Fund and the S&P
Small Cap 600 Index, a broad-based, widely recognized, unmanaged index of
600 small capitalization companies. The Index's total return does not
reflect any commissions or expenses that would have been incurred if an
investor individually purchased or sold the securities represented in the
Index.
**This figure reflects the Fund's maximum 5.75% sales charge.
+ Returns are calculated by determining the percentage change in net asset
value (NAV) with all distributions reinvested. SEC average annual returns
reflect maximum sales charge as noted.
<TABLE>
<CAPTION>
EV Traditional Emerging Growth Fund as of December 31, 1997
PORTFOLIO OF INVESTMENTS
Common Stocks - 98.4%
Security Shares Value
- ------------------------------------------------------------------------------
<S> <C> <C>
Advertising - 2.5%
- ------------------------------------------------------------------------------
Catalina Marketing Corp. * 40 $ 1,850
Outdoor Systems, Inc. * 150 5,756
- ------------------------------------------------------------------------------
$ 7,606
- ------------------------------------------------------------------------------
Banks - Regional - 0.9%
- ------------------------------------------------------------------------------
Colonial Bancgroup, Inc. 80 $ 2,755
- ------------------------------------------------------------------------------
$ 2,755
- ------------------------------------------------------------------------------
Banks and Money Services - 0.8%
- ------------------------------------------------------------------------------
Bank United Corp. Class A 50 $ 2,446
- ------------------------------------------------------------------------------
$ 2,446
- ------------------------------------------------------------------------------
Broadcasting and Cable - 3.5%
- ------------------------------------------------------------------------------
Emmis Broadcasting Corp. Class A * 100 $ 4,563
Jacor Communications, Inc. * 75 3,984
Sinclair Broadcast Group Class A * 50 2,331
- ------------------------------------------------------------------------------
$10,878
- ------------------------------------------------------------------------------
Building Materials - 0.4%
- ------------------------------------------------------------------------------
Texas Industries, Inc. 25 $ 1,125
- ------------------------------------------------------------------------------
$ 1,125
- ------------------------------------------------------------------------------
Business Products & Services - 7.5%
- ------------------------------------------------------------------------------
Abacus Direct Corp. * 50 $ 2,050
CN Maximus, Inc. * 50 1,209
Gulf South Medical Supply, Inc. * 50 1,863
Learning Tree International * 60 1,733
Netscape Communications Corp. * 50 1,219
Personal Group of America, Inc. * 50 1,650
Sanmina Corp. * 50 3,388
Saville Systems Ireland ADR * 50 2,075
Sylvan Learning Systems, Inc. 50 1,950
United Rentals, Inc. * 200 3,863
Vantive Corp. * 75 1,894
- ------------------------------------------------------------------------------
$22,894
- ------------------------------------------------------------------------------
Communications Equipment - 3.6%
- ------------------------------------------------------------------------------
Davox Corp. * 135 $ 4,404
Security Dynamics Technology, Inc. * 60 2,145
SunGard Data Systems, Inc. * 150 4,650
- ------------------------------------------------------------------------------
$11,199
- ------------------------------------------------------------------------------
Communications Services - 0.2%
- ------------------------------------------------------------------------------
Nextel Communications, Inc. Class A * 30 $ 780
- ------------------------------------------------------------------------------
$ 780
- ------------------------------------------------------------------------------
Computer Software - 10.3%
- ------------------------------------------------------------------------------
Baan Company NV * 100 $ 3,300
CBT Group PLC ADR * 25 2,053
Documentum Inc. * 50 2,106
J.D. Edwards & Co. * 75 2,213
Health Management Associates * 150 3,788
HNC Software, Inc. * 50 2,150
Manugistics Group, Inc. * 60 2,678
Pegasystems Inc. * 100 2,019
Peoplesoft, Inc. * 30 5,850
Symantec * 70 1,536
Veritas Software Corp. * 75 3,825
- ------------------------------------------------------------------------------
$31,518
- ------------------------------------------------------------------------------
Consumer Services - 1.4%
- ------------------------------------------------------------------------------
Strayer Education, Inc. 135 4,455
- ------------------------------------------------------------------------------
4,455
- ------------------------------------------------------------------------------
Drugs - 5.1%
- ------------------------------------------------------------------------------
Curative Health Services, Inc. * 70 $ 2,126
Elan Corp. PLC ADR * 75 3,839
Genzyme Corp. - General Division * 150 4,163
Genzyme Corp. - Tissue Repair * 282 1,939
Parexel International Corp. * 100 3,700
- ------------------------------------------------------------------------------
$15,767
- ------------------------------------------------------------------------------
Electrical Equipment - 1.6%
- ------------------------------------------------------------------------------
Level One Communications, Inc. * 90 $ 2,543
Linear Technology Corp. * 40 2,305
- ------------------------------------------------------------------------------
$ 4,848
- ------------------------------------------------------------------------------
Electronics - Semiconductors - 2.9%
- ------------------------------------------------------------------------------
Microchip Technology, Inc. * 50 $ 1,500
Qlogic Corp. * 50 1,475
Teradyne, Inc. * 100 3,200
Vitesse Semiconductor Corp. * 70 2,643
- ------------------------------------------------------------------------------
$ 8,818
- ------------------------------------------------------------------------------
Entertainment - 0.8%
- ------------------------------------------------------------------------------
MGM Grand, Inc. * 65 $ 2,344
- ------------------------------------------------------------------------------
$ 2,344
- ------------------------------------------------------------------------------
Finance - Miscellaneous - 1.6%
- ------------------------------------------------------------------------------
Capital One Financial Corp. * 50 $ 2,709
E Trade Group Inc. * 100 2,300
- ------------------------------------------------------------------------------
$ 5,009
- ------------------------------------------------------------------------------
Furniture & Appliances - 1.3%
- ------------------------------------------------------------------------------
Bed Bath & Beyond, Inc. * 100 $ 3,850
- ------------------------------------------------------------------------------
$ 3,850
- ------------------------------------------------------------------------------
Health Services - 13.3%
- ------------------------------------------------------------------------------
American Retirement Corp. * 150 $ 3,000
Bioreliance Corp. * 150 3,450
Concentra Managed Care Inc. * 89 3,004
Express Scripts, Inc. Class A * 50 3,000
Guidant Corp. 50 3,113
Medicis Pharmaceutical Class A * 30 1,534
MiniMed, Inc. * 50 1,944
Monarch Dental Corp. * 200 2,650
National Surgery Centers, Inc. * 187 4,909
Omnicare Inc. 100 3,100
Pediatrix Medical Group, Inc. * 50 2,138
PhyCor Inc. * 40 1,080
Renal Care Group, Inc. * 100 3,200
Sola International * 30 975
Sunrise Assisted Living, Inc. * 50 2,156
Vertex Pharmaceuticals, Inc. * 50 1,650
- ------------------------------------------------------------------------------
$40,903
- ------------------------------------------------------------------------------
Information Services - 11.8%
- ------------------------------------------------------------------------------
Acxiom Corp. * 100 $ 1,925
Affiliated Computer Services, Inc. * 150 3,946
Aspen Technologies, Inc. * 100 3,425
BISYS Group, Inc. * 85 2,826
Cambridge Technologies, Inc. * 100 4,163
CCC Information Services Group * 200 3,950
Cognos Inc. * 50 1,150
FIserv Inc. * 50 2,456
National Data Corp. * 100 3,613
Nova Corp. Georgia * 150 3,750
Paychex Inc. * 100 5,063
- ------------------------------------------------------------------------------
$36,267
- ------------------------------------------------------------------------------
Insurance - 1.3%
- ------------------------------------------------------------------------------
Mercury General Corp. 70 $ 3,868
- ------------------------------------------------------------------------------
$ 3,868
- ------------------------------------------------------------------------------
Investment Services - 3.9%
- ------------------------------------------------------------------------------
Centura Banks, Inc. 80 $ 5,520
Sovereign Bancorp, Inc. 150 3,113
PMI Group, Inc. 45 3,254
- ------------------------------------------------------------------------------
$11,887
- ------------------------------------------------------------------------------
Machinery - 1.0%
- ------------------------------------------------------------------------------
Camco International, Inc. 50 $ 3,184
- ------------------------------------------------------------------------------
$ 3,184
- ------------------------------------------------------------------------------
Medical Products - 2.0%
- ------------------------------------------------------------------------------
Heartstream, Inc. * 150 $ 1,603
Invacare Corp. 55 1,196
Sofamor Danek Group, Inc. * 50 3,253
- ------------------------------------------------------------------------------
$ 6,052
- ------------------------------------------------------------------------------
Oil and Gas - Exploration and Production - 7.9%
- ------------------------------------------------------------------------------
Anadarko Petroleum Corp. 30 $ 1,820
Apache Corp. 100 3,506
Cross Timbers Oil Co. 100 2,494
Encal Energy Ltd. * 500 1,625
Louis Dreyfus Natural Gas Corp. * 172 3,214
Meridian Resource Corp. * 259 2,478
Newfield Exploration Co. * 60 1,398
Noble Affiliates 105 3,701
Petsec Energy Ltd. * 60 825
Triton Energy Ltd. * 60 1,751
Vintage Petroleum, Inc. 75 1,425
- ------------------------------------------------------------------------------
$24,237
- ------------------------------------------------------------------------------
Publishing - 3.1%
- ------------------------------------------------------------------------------
A.H. Belo Corp. 70 $ 3,928
Franklin Covey Co. 80 1,760
Gartner Group, Inc. Class A * 100 3,725
- ------------------------------------------------------------------------------
$ 9,413
- ------------------------------------------------------------------------------
REITs - 1.8%
- ------------------------------------------------------------------------------
Crescent Real Estate Equity Co. 60 $ 2,363
Equity Office Properties 100 3,156
- ------------------------------------------------------------------------------
$ 5,519
- ------------------------------------------------------------------------------
Retail - Food and Drug - 2.4%
- ------------------------------------------------------------------------------
Papa John's International, Inc. * 120 $ 4,185
Starbucks Corp. * 80 3,070
- ------------------------------------------------------------------------------
$ 7,255
Retail - Specialty and Apparel - 1.2%
- ------------------------------------------------------------------------------
Tommy Hilfiger Corp * 30 $ 1,053
The Men's Wearhouse, Inc. * 75 2,606
- ------------------------------------------------------------------------------
$ 3,659
- ------------------------------------------------------------------------------
Telephone Utilities - 3.0%
- ------------------------------------------------------------------------------
ACC Corp. * 25 $ 1,262
ECI Telecommunications 100 2,550
Pacific Gateway Exchange, Inc. * 100 5,381
- ------------------------------------------------------------------------------
$ 9,193
- ------------------------------------------------------------------------------
Transportation - 1.3%
- ------------------------------------------------------------------------------
Comair Holdings, Inc. 165 $ 3,980
- ------------------------------------------------------------------------------
$ 3,980
- ------------------------------------------------------------------------------
Total Common Stocks
(identified cost, $281,495) $301,709
- ------------------------------------------------------------------------------
Other assets, less liabilities - 1.6% $ 4,902
- ------------------------------------------------------------------------------
Total Net Assets - 100% $306,611
- ------------------------------------------------------------------------------
ADR - American Depository Receipt
* Non income producing security
</TABLE>
EV Traditional Emerging Growth Fund as of December 31, 1997
FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Statement of Assets and Liabilities
As of December 31, 1997
Assets
- ------------------------------------------------------------------------------
<S> <C>
Assets
Investments, at value (Note 1A)
(identified cost, $281,495) $301,709
Cash 811
Receivable for investments sold 7,370
Receivable for fund shares sold 657
Dividends receivable 19
Receivable from investment adviser (Note 4) 24,157
Deferred organization expense 3,996
- ------------------------------------------------------------------------------
Total assets $338,719
- ------------------------------------------------------------------------------
Liabilities
- ------------------------------------------------------------------------------
Payable for investments purchased $ 1,598
Accrued organization expense 5,000
Other payables and accrued expenses 25,510
- ------------------------------------------------------------------------------
Total liabilities $32,108
- ------------------------------------------------------------------------------
Net Assets for 28,312 shares of
beneficial interest outstanding $306,611
- ------------------------------------------------------------------------------
Sources of Net Assets
- ------------------------------------------------------------------------------
Paid-in capital $288,729
Accumulated net realized loss on investments
(computed on the basis of identified cost) (2,439)
Unrealized appreciation of investments
(computed on the basis of identified cost) 20,214
Undistributed net investment income 107
- ------------------------------------------------------------------------------
Total net assets $306,611
- ------------------------------------------------------------------------------
Net Asset Value and
Redemption Price Per Share
- ------------------------------------------------------------------------------
($306,611 [divided by] 28,312 shares of
beneficial interest outstanding) $ 10.83
- ------------------------------------------------------------------------------
Computation of Offering Price
- ------------------------------------------------------------------------------
Offering price per share (100 [divided by] 94.25 of $10.83) $ 11.49
- ------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Statement of Operations
For the Year Ended
December 31, 1997
Investment Income
- ------------------------------------------------------------------------------
<S> <C>
Income -
Dividends $ 475
- ------------------------------------------------------------------------------
Total income $ 475
- ------------------------------------------------------------------------------
Expenses -
Investment adviser fee (Note 4) $ 1,896
Custodian fees 11,169
Amortization of organization expense 1,004
Transfer and dividend disbursing agent fees 301
Printing and postage 1,738
Legal and accounting services 8,400
Miscellaneous 1,545
- ------------------------------------------------------------------------------
Total expenses $26,053
- ------------------------------------------------------------------------------
Deduct -
Reduction of investment adviser fee (Note 4) $ 1,896
Preliminary allocation of expenses to the investment adviser
(Note 4) 24,157
- ------------------------------------------------------------------------------
Net expenses 0
- ------------------------------------------------------------------------------
Net investment income $ 475
- ------------------------------------------------------------------------------
Realized and Unrealized Gain on Investments
- ------------------------------------------------------------------------------
Net realized gain on investments (identified cost basis) - $26,340
- ------------------------------------------------------------------------------
Net Unrealized appreciation of investments $20,214
- ------------------------------------------------------------------------------
Net realized and unrealized gain on investments $46,554
- ------------------------------------------------------------------------------
Net increase in net assets resulting from operations $47,029
- ------------------------------------------------------------------------------
</TABLE>
See notes to financial statements
EV Traditional Emerging Growth Fund as of December 31, 1997
FINANCIAL STATEMENTS CONT'D
<TABLE>
<CAPTION>
Statement of Changes in Net Assets
Increase (Decrease) For the Year Ended
in Net Assets December 31, 1997
- ------------------------------------------------------------------------------
<S> <C>
From operations -
Net investment income $ 475
Net realized gain on investments 26,340
Unrealized appreciation of investments 20,214
- ------------------------------------------------------------------------------
Net increase in net assets from operations $ 47,029
- ------------------------------------------------------------------------------
Distributions to shareholders -
From net realized gain $(26,340)
In excess of net realized gain (2,807)
- ------------------------------------------------------------------------------
Total distributions to shareholders $(29,147)
- ------------------------------------------------------------------------------
Transactions in shares of beneficial
interest (Note 3) -
Proceeds from sale of shares $203,611
Net asset value of shares issued to
shareholders in payment of
distributions declared 7,986
Cost of shares redeemed (22,868)
- ------------------------------------------------------------------------------
Increase in net assets from
Fund share transactions $188,729
- ------------------------------------------------------------------------------
Net increase in net assets $206,611
- ------------------------------------------------------------------------------
Net Assets
- ------------------------------------------------------------------------------
At beginning of period $100,000
- ------------------------------------------------------------------------------
At end of period (including undistributed
net investment income of $107) $306,611
- ------------------------------------------------------------------------------
</TABLE>
See notes to financial statements
EV Traditional Emerging Growth Fund as of December 31, 1997
FINANCIAL STATEMENTS CONT'D
<TABLE>
<CAPTION>
Financial Highlights
Year Ended
December 31, 1997
- ------------------------------------------------------------------------------
<S> <C>
Net asset value - Beginning of period $10.000
- ------------------------------------------------------------------------------
Income from operations
Net investment income $ 0.017
Net realized and unrealized gain on investments 1.871
- ------------------------------------------------------------------------------
Total income from operations $ 1.888
- ------------------------------------------------------------------------------
Less distributions
- ------------------------------------------------------------------------------
From net realized gain on investments $(0.956)
In excess of net realized gain on investments (0.102)
- ------------------------------------------------------------------------------
Total distributions $(1.058)
- ------------------------------------------------------------------------------
Net asset value - End of period $10.830
- ------------------------------------------------------------------------------
Total Return(1) 19.26%
- ------------------------------------------------------------------------------
Ratios/Supplemental Data *
- ------------------------------------------------------------------------------
Net assets, end of year (000 omitted) $ 307
Ratio of net expenses to average net assets 0.00%
Ratio of net investment income to average net assets 0.18%
Portfolio Turnover 2.15%
- ------------------------------------------------------------------------------
Average Commission Rate Paid** $0.0588
- ------------------------------------------------------------------------------
* For the year ended December 31, 1997, the operating expenses of the Fund
reflect a waiver of the investment adviser fee and an allocation of
expenses to the Investment Adviser. Had such actions not been taken, net
investment loss per share and the ratios would have been as follows:
Net investment loss per share $ (0.90)
- ------------------------------------------------------------------------------
Ratios (As a percentage of average net assets):
Expenses 10.13%
Net investment loss (9.95)%
** 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.
(1) Total return is calculated assuming a purchase at the net asset value on
the first day and a sale at the net asset value on the last day of each
period reported. Dividends and distributions, if any, are assumed to be
reinvested at the net asset value on the ex-dividend date. Total return
is notcomputed on an annualized basis.
</TABLE>
See notes to financial statements
EV Traditional Emerging Growth Fund as of December 31, 1997
NOTES TO FINANCIAL STATEMENTS
1 Significant Accounting Policies
- ------------------------------------------------------------------------------
EV Traditional Emerging Growth Fund (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 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 - Securities listed on foreign or U.S. securities
exchanges or in the NASDAQ National Market System generally are valued at
closing sale prices or, if there were no sales, at the mean between the
closing bid and asked prices therefor on the exchange where such securities
are principally traded or on such National Market System. Unlisted or listed
securities for which closing sale prices are not available are valued at the
mean between the latest bid and asked prices on the principal market where
the security was traded. An option is valued at the last sale price as quoted
on the principal exchange or board of trade on which such option or contract
is traded or, in the absence of a sale, at the mean between the last bid and
asked prices. Futures positions on securities or currencies are generally
valued at closing settlement 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. All other securities are
valued at fair value as determined in good faith by or at the direction of
the Trustees.
B Income - Interest income is determined on the basis of interest accrued,
adjusted for amortization of premium or discount when required for federal
income tax purposes. Dividend income is recorded on the ex-dividend date for
dividends received in cash and/or securities. However, if the ex-dividend
date has passed, certain dividends from foreign securities are recorded as
the Fund is informed of the ex-dividend date.
C Federal Taxes - The Fund's policy is to comply with the provisions of the
Internal Revenue Code applicable to regulated investment companies and to
distribute to shareholders each year all of its taxable income, including any
net realized gain on investments. Accordingly, no provision for federal
income or excise tax is necessary.
D 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.
E Deferred Organization Expenses - Costs incurred by the Fund in connection
with its organization are being amortized on the straight-line basis over
five years.
F Use of Estimates - The preparation of the financial statements in
conformity with generally accepted accounting principles requires management
to make estimates and assumptions that affect the reported amounts of assets
and liabilities at the date of the financial statements and the reported
amounts of revenue and expense during the reporting period. Actual results
could differ from those estimates.
2 Distributions to Shareholders
- ------------------------------------------------------------------------------
It is the present policy of the Fund to make (A) at least one distribution
annually (normally in December) of substantially all of the investment income
earned by the Fund, less its expenses and (B) at least one distribution
annually of substantially all of the capital gains realized by the Fund, if
any. Distributions are paid in the form of additional shares of the Fund or,
at the election of the shareholder, in cash. 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
overdistributions only for financial statement purposes are classified as
distributions in excess of net investment income or accumulated net realized
gains. Permanent differences between book and tax accounting relating to
distributions are reclassified to paid-in capital.
3 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>
Year Ended
December 31, 1997
- ------------------------------------------------------------------------------
<S> <C>
Sales 29,657
Issued to shareholders electing to receive
payment of distribution in Fund shares 763
Redemptions (2,108)
- ------------------------------------------------------------------------------
Net increase 28,312
- ------------------------------------------------------------------------------
</TABLE>
4 Investment Adviser Fee and
Other Transactions with Affiliates
- ------------------------------------------------------------------------------
Eaton Vance Management (EVM) earns an investment adviser fee as compensation
for management and investment advisory services rendered to the Fund. The fee
is computed at the monthly rate of 0.0625% (0.75% per annum) of the Fund's
average daily net assets up to $500 million and at reduced rates as daily net
assets exceed that level. For the year ended December 31, 1997, the effective
annual rate, based on average daily net assets, was 0.75%. EVM voluntarily
waived the entire investment adviser fee for the period and also assumed
$24,157 of additional Fund expenses.
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 adviser fee. Certain of the officers and Trustees of the
Fund are officers and directors/trustees of the above organization.
Trustees of the Fund that are not affiliated with the Investment Advisor may
elect to defer receipt of all or a percentage of their annual fees in
accordance with the terms of the Trustees Deferred Compensation Plan. For the
year ended December 31, 1997, no fees have been deferred.
5 Service Plan
- ------------------------------------------------------------------------------
The Trustees of the Fund adopted a Service Plan designed to meet the
requirement of Rule 12b-1 under the Investment Company Act of 1940 and
service fee requirements of the sales charge rule of the National Association
of Securities Dealers Inc. The Service Plan provides that the Fund may make
service fee payments for personal services and/or the maintenance of
shareholder accounts to the Principal Underwriter, Eaton Vance Distributors,
Inc. (EVD), a subsidiary of Eaton Vance Management, Authorized Firms, and
other persons in amounts not exceeding .25% of the Fund's average daily net
assets for any fiscal year. The Trustees of the Trust have initially
implemented the Plan by authorizing the Fund to make quarterly service fee
payments to the Principal Underwriter and Authorized Firms in amounts not
expected to exceed .25% of the Fund's average daily net assets for any fiscal
year based on the value of Fund shares sold by such persons and remaining
outstanding for at least twelve months. The Fund expects to begin making
service fee payments during the quarter ending March 31,1998.
6 Investment Transactions
- ------------------------------------------------------------------------------
Purchases and sales of investments, other than U.S. Government Securities and
short-term obligations, aggregated $767,955 and $512,799 respectively.
7 Federal Income Tax Basis of Investments
- ------------------------------------------------------------------------------
The cost and unrealized appreciation/depreciation in value of the investment
securities owned at December 31, 1997, as computed on a federal income tax
basis, are as follows:
<TABLE>
<S> <C>
Aggregate cost $ 281,998
- ------------------------------------------------------------------------------
Gross unrealized appreciation $ 34,121
Gross unrealized depreciation (14,410)
- ------------------------------------------------------------------------------
Net unrealized appreciation $ 19,711
- ------------------------------------------------------------------------------
</TABLE>
EV Traditional Emerging Growth Fund as of December 31, 1997
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Trustees and Shareholders
of EV Traditional Emerging Growth Fund:
- ------------------------------------------------------------------------------
We have audited the accompanying statement of assets and liabilities of EV
Traditional Emerging Growth Fund (the Fund) (one of the funds constituting
the Eaton Vance Special Investment Trust), including the portfolio of
investments, as of December 31, 1997, and the related statement of
operations, the statements of changes in net assets and the financial
highlights for the year ended December 31, 1997. These financial statements
and financial highlights are the responsibility of the fund's management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements and
financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures
in the financial statements. Our procedures included confirmation of
securities owned as of December 31, 1997 by correspondence with the custodian
and brokers. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audit provides
a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of EV
Traditional Emerging Growth Fund (one of the series of Eaton Vance Special
Investment Trust) as of December 31, 1997, the results of its operations, the
changes in its net assets and the financial highlights for the year ended
December 31, 1997, in conformity with generally accepted accounting
principles.
COOPERS & LYBRAND L.L.P.
Boston, Massachusetts
February 6, 1998
EV Traditional Emerging Growth Fund as of December 31, 1997
INVESTMENT MANAGEMENT
EV Traditional Emerging Growth Fund
Officers
James B. Hawkes
President and Trustee
Edward E. Smiley, Jr.
Vice President and
Portfolio Manager
James L. O'Connor
Treasurer
Alan R. Dynner
Secretary
William J. Austin, Jr.
Assistant Treasurer
Trustees
M. Dozier Gardner
Vice Chairman, Eaton Vance Management
Donald R. Dwight
President, Dwight Partners, Inc.
Samuel L. Hayes, III
Jacob H. Schiff Professor of Investment Banking,
Harvard University Graduate School of
Business Administration
Norton H. Reamer
President, United Asset Management Corporation
John L. Thorndike
Former Director, Fiduciary Company Incorporated
Jack L. Treynor
Investment Adviser and Consultant
Investment Advisor and
Administrator of EV Traditional
Emerging Growth Fund
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
Boston, MA 02116
Transfer Agent
First Data Investor Services Group
Attention: Eaton Vance Funds
P.O. Box 5123
Westborough, MA 01581-5123
Independent Accountants
Coopers & Lybrand L.L.P.
One Post Office Square
Boston, MA 02109
EV Traditional Emerging Growth 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 distribution
plan, sales charges and expenses. Please read the prospectus carefully before
you invest or send money.
T-MGSRC-2/97
