<PAGE>
[LOGO APPEARS HERE] [PHOTO OF WORLD GLOBE
APPEARS HERE]
Annual Report December 31, 1997
EV
TRADITIONAL
EMERGING
MARKETS
FUND
[PHOTO OF ASIAN STATUE
APPEARS HERE]
Eaton Vance
Global Management-Global Distribution
Traditional
[PHOTO OF ASIAN MARKETPLACE
APPEARS HERE]
<PAGE>
EV Traditional Emerging Markets Fund as of December 31, 1997
LETTER TO SHAREHOLDERS
[PHOTO APPEARS HERE]
EV Traditional Emerging Markets Fund had a total return of -3.2% for the year
ended December 31, 1997. That return was the result of a decline in net asset
value per share from $12.93 on December 31, 1996 to $11.97 on December 31, 1997,
and the reinvestment of $0.54 in capital gain distributions./1/ In a very
difficult market environment, the Fund managed to widely outperform its emerging
markets benchmark. The Fund significantly outperformed the Morgan Stanley
Capital International Emerging Markets Index - a widely recognized, unmanaged
index of emerging equity markets throughout the world - which had a return of
- -13.4%./2/
Despite volatility and currency concerns, investors continued to invest in
emerging markets...
In 1997, emerging markets in Asia were highlighted by currency-related
volatility. That volatility took a heavy toll on several markets, especially in
Thailand (-75.8%), Malaysia (-70%), South Korea (-68.7%), and Indonesia
(-63.5%). However, U.S. investors continued to display confidence in the
long-term future of emerging markets. According to the Bank of New York, the
issuance of American Depository Receipts rose 53% in 1997, that growth driven
mainly by the efforts of emerging countries to privatize industry. For the first
time, countries like Bahrain, Slovenia, and Kazakhstan found interest among U.S.
investors. Clearly, while some emerging markets were struggling, investors were
looking for buying opportunities in others.
Some emerging markets topped the high-flying U.S. market in 1997...
The U.S.-based Dow Jones Industrial Average (+24.9%) registered its third
consecutive year of 20%-plus returns, an unprecedented run for U.S. equities.
But some emerging markets fared even better in 1997, including Mexico (+54.2%),
Portugal (+51.0%), Venezuela (+30.5%) and Brazil (+28.9%). This demonstrates the
impressive diversity of the emerging markets. Despite the market woes in Asia,
these other nations continued to reap the rewards of reform and economic
development. We believe that development will continue and patient investors
will share in global growth. In the pages that follow, portfolio manager
Kiersten Christensen provides a review of recent events in the emerging markets
and looks ahead to the coming year.
Sincerely,
/s/ James B. Hawkes
James B. Hawkes
President
February 9, 1998
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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 December 31, 1997
Performance/3/
- ------------------------------------------------------------------------------
Average Annual Total Returns (at net asset value)
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One year -3.2%
Life of Fund (12/8/94) 8.2
SEC Average Annual Total Returns (5.75% Sales Charge)
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One year -8.8%
Life of Fund (12/8/94) 6.1
Ten Largest Holdings/4/
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JSC Surgutneftegaz ADR 3.3%
Carulla SA ADR 3.2
Compania Brasiliera de Distribuicao 3.1
Grupo Televiso GDR 3.1
Lever Brothers Pakistan Ltd. 3.1
Pan American Beverages, Inc. ADR 3.0
Tubos de Acero de Mexico 2.9
YPF Sociedad Anonima ADR 2.8
Pliva GDR 2.6
Mol Magyar Olay-es Gazi GDR 2.6
/1/This return does not reflect the Fund's maximum 5.75% sales charge.
/2/It is not possible to invest directly in the Index.
/3/Average annual total returns are calculated by determining the percentage
change in net asset value with all distributions reinvested. SEC average
annual returns reflect sales charge as noted.
/4/Ten largest holdings account for 29.7% 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.
2
<PAGE>
EV Traditional Emerging Markets Fund as of December 31, 1997
MANAGEMENT DISCUSSION
[PHOTO APPEARS HERE]
Kiersten Christensen,
Portfolio Manager
An interview with Kiersten Christensen, Lloyd George Management, investment
adviser to the Emerging Markets Portfolio.
Q: Kiersten, the emerging markets had a most eventful year in 1997. How would
you characterize the period?
A: The dominant theme for 1997 was volatility, resulting in the worst year in a
decade for the emerging markets. Through the first nine months of the year,
most emerging markets turned in a fairly robust performance. Growth rates
remained strong as economic reform measures continued to generate business
activity. Asia was boosted by the much-anticipated handover of Hong Kong to
China; Eastern Europe was helped by new reform measures proposed by Russian
President Yeltsin; and Latin America continued the economic turnaround it
started tentatively in 1996. Through late summer, most emerging markets had
achieved solid results.
In early fall, however, the climate changed and emerging markets were jolted by
a deepening currency crisis in Southeast Asia. As the crisis spread from country
to country, investors' confidence was shaken. Even stronger Asian markets such
as Hong Kong and non-Asian markets such as Latin America felt the tremors. As
the year ended, most emerging markets had lost much of the gains they had reaped
earlier in the year.
Q: What brought about the currency crisis in the Asian markets?
A: The root of the problem lay in the current account deficits and high U.S.
dollar debt levels of Asian corporations. It was exacerbated by a lack of
political leadership, encouraging speculative attacks by currency traders --
particularly in Indonesia, Thailand, Malaysia, and Korea. While these
countries tried to defend their currency by raising interest rates, the
possibility of slowing their economies forced them to devalue. Weaker
currencies resulted in much higher debt payments for companies with unhedged
dollar debt. Rising interest expenses, in turn, resulted in a wave of lower
earnings forecasts.
Q: Has the Asian situation stabilized since the beginning of the new year?
A: The Asian markets have become generally more stable, but these countries are
likely to see much weaker growth in 1998. Some will lapse into recession.
Thus, while the long-term scenario remains very positive, the coming year
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Five Largest Industry Positions/2/
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Oil and Gas 11.0%
Telephone Utilities 8.5%
Beverages 8.4%
Retail 7.0%
Conglomerates 6.4%
Regional Distribution/2/
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[PIE CHART APPEARS HERE]
Latin America 41.8%
Eastern Europe 16.3%
East Asia 15.0%
South Asia 11.5%
Middle East 9.7%
Other 5.7%
/1/Five largest sectors account for 41.3% of the Portfolio's investments,
determined by dividing the total market value of the holdings by the total
net assets of the Portfolio. Industry weightings and regional distribution
are subject to change.
3
<PAGE>
EV Traditional Emerging Markets Fund as of December 31, 1997
MANAGEMENT DISCUSSION CONT'D
[PHOTO OF MOSCOW BUILDING APPEARS HERE]
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While Asian markets struggled, Russia soared in 1997.
Russia was the among world's best-performing markets in 1997. Spurred by
continuing economic reforms, the Russian market surged to a 125.9% gain over the
one-year period.
Source:
The Wall Street Journal
- --------------------------------------------------------------------------------
will be difficult. Malaysia, Korea and Thailand have been offered assistance
from the International Monetary Fund, but it remains to be seen whether they
will enact the reforms necessary to ensure the delivery of aid. We have
therefore proceeded cautiously in these Asian countries, taking advantage of
selective, undervalued situations.
Q: In light of the changing outlook, what other adjustments have you made to the
Portfolio?
A: We've focused increasingly on countries where growth has been driven by a
strong domestic economy, such as Mexico, Hungary, Turkey and Israel. We've
also targeted countries where economic reforms have advanced, such as Russia.
Finally, we've found attractive opportunities in countries that have major
privatization campaigns under way, such as Brazil and Egypt.
From the standpoint of regional allocation, we've sharply lowered our
exposure to Asia, including the India region, to around 26% from 50% a year
ago. In addition, we've increased our weighting in Latin America to around
40% from 25%. Finally, we have sharply increased our presence in Africa and
the Middle East.
Q: What countries have you concentrated on in Latin America?
A: Mexico has continued the strong economic rebound it began in 1996. While the
domestic, consumer-driven economy has provided most of the momentum, our
Mexican investments are fairly broad-based. They include Tubos de Acero de
Mexico, a large industrial metals producer; Panamco, a leading Coca-Cola
bottler in Latin America; and Grupo Televisa, a media conglomerate and maker
of telecommunications equipment.
In Brazil, we remain neutral on the outlook for the broad market, but believe
Brazil's utility companies should benefit as the country continues its
administrative reforms. Saneamento Basico is Brazil's largest water utility
and Telecomunicacoes Brasilieras is a large telecom provider. Compania
Brasiliera de Distribuicao is a supermarket chain that should fare well, even
in a recession.
Q: Could you give some examples of your Mediterranean investments?
A: Yes. The Middle East is another region characterized by shifting political
tides. Naturally, that adds to the potential volatility of the markets in
Israel, Lebanon, and Egypt. However, we have looked for companies that should
remain fairly well insulated from political change while registering strong
earnings growth. A good example is Blue Square Stores, an Israel-based chain
of specialty retail stores that has expanded to 150 locations. In a similar
field, Super-Sol Ltd. is a well-managed chain of supermarkets in Israel.
Another Middle East holding is Lebanese
4
<PAGE>
EV Traditional Emerging Markets Fund as of December 31, 1997
MANAGEMENT DISCUSSION CONT'D
developer and builder Solidere, which is in the process of rebuilding
Beirut's central business district.
Q: Russia was among the world's best-performing markets in 1997. Where have you
invested there?
A: Although Russia remains a volatile market, President Yeltsin has made
significant progress in the past year toward his economic reforms. In
reshuffling his cabinet to include additional reformist ministers, he has
vastly increased the confidence of foreign investors.
The Portfolio's largest Russian holding is an energy company, JSC
Surgutneftigaz. As the largest oil producer in the country, the company is
well-positioned to benefit from increasing energy demand in the coming years.
The Russian energy sector has seen some consolidation in the past year, which
should enable the companies to operate more efficiently. Another Russian
investment is Mosenergo, a large gas power utility that serves Moscow and
vicinity. The company has introduced cost reductions in recent years and is
gradually reinventing itself as a modern utility.
Q: You maintained some investments in the Greater India region. What have you
found attractive there?
A: The India region was less acutely affected by the Asian currency crisis.
Moreover, despite a fluid political scene, India has adopted a more
accommodative monetary policy in recent months. One of the Portfolio's
investments, the State Bank of India, is India's largest commercial bank and,
as the principal banker to the Government, has branch offices in 31 foreign
countries. State Bank is poised to benefit from India's expansion as the
reform process unfolds. Elsewhere in the India region, Lever Brothers
Pakistan is Pakistan's largest personal products company. Lever enjoys a
dominant market share in soaps, detergents and toiletries and is a
beneficiary of rising consumer demand for personal care products.
Q: Then, you haven't abandoned the Asian markets altogether?
A: Not altogether, although I believe that selectivity will be very important
over the near-term. Over the longer-term, the prospects for the region remain
excellent. Asia is likely to suffer in 1998 from an overcapacity in some
manufacturing sectors, which will result in a very competitive climate among
Asian exporters.
Hong Kong is far and away the strongest economy in the region and will
continue to be the prime beneficiary of China's expansion in coming years.
The Hong Kong Monetary Authority is blessed with massive foreign reserves and
was thus able to maintain its currency peg. In addition, Hong Kong tends to
benefit from a flight to quality within the region. We maintained investments
in large Hong Kong blue chip conglomerates, including Cheung Kong Holdings, a
developer of property and infrastructure projects, and Hutchison Whampoa,
which has a wide array of interests, including property development and
telecommunications.
Q: Looking ahead, Kiersten, what is your outlook for the coming year?
A: As I indicated earlier, we are bound to see some short-term economic weakness
in Asia. However, we have been able to take advantage of the market pullback
to find some value in those markets and, while we remain underweighted there,
we will monitor the region for opportunities as they arise. Moreover, our
5
<PAGE>
EV Traditional Emerging Markets Fund as of December 31, 1997
MANAGEMENT DISCUSSION CONT'D
long-term view of Asia remains very positive. Clearly, at these levels, the
Asian markets and currencies appear to be oversold.
It is important to note that the emerging markets tend to move in different
cycles. For example, Latin America, the Mediterranean, and Eastern Europe are
responding to different economic stimuli and are therefore less affected by the
Asian woes. As a result, we are continuing to find good opportunities in those
markets.
Above all, shareholders should remember that we invest ultimately in companies,
not simply countries. In that respect, our ample resources and world-wide
research have served us well, as our record indicates. While the emerging
markets are likely to remain volatile, they will continue to produce worthwhile
opportunities for long-term investors. I believe that the Fund is
well-positioned to participate in those opportunities.
Comparison of Change in Value of a $10,000 Investment in EV Traditional
Emerging Markets Fund vs. the Morgan Stanely Capital International Emerging
Markets Index.
From December 31, 1994 through December 31, 1997
[LINE GRAPH APPEARS HERE]
EV Traditional
Date Emerging Market Fund Morgan Stanley Index
---- -------------------- --------------------
12/31/94 $10,000 $10,000
1/31/95 $9,648 $8,905
2/28/95 $9,729 $8,869
3/31/95 $9,719 $8,746
4/30/95 $9,910 $9,051
5/31/95 $10,553 $9,369
6/30/95 $10,553 $9,346
7/31/95 $10,724 $9,488
8/31/95 $10,593 $9,174
9/30/95 $10,533 $9,275
10/31/95 $10,231 $8,967
11/30/95 $9,980 $8,742
12/31/95 $10,332 $9,080
1/31/96 $11,317 $9,493
2/28/96 $11,709 $9,372
3/31/96 $11,407 $9,505
4/30/96 $12,191 $10,185
5/31/96 $12,824 $9,988
6/30/96 $12,844 $10,119
7/31/96 $11,970 $9,432
8/31/96 $12,352 $9,640
9/30/96 $12,613 $9,723
10/31/96 $12,543 $9,448
11/30/96 $13,035 $9,618
12/31/96 $13,237 $9,624
1/31/97 $14,362 $10,250
2/28/97 $15,037 $10,664
3/31/97 $14,648 $10,403
4/30/97 $14,730 $10,477
5/31/97 $15,262 $10,736
6/30/97 $16,172 $11,356
7/31/97 $16,438 $11,563
8/31/97 $14,648 $10,227
9/30/97 $15,303 $10,305
10/31/97 $13,277 $8,527
11/30/97 $12,838 $8,200
12/31/97 $12,885 $8,329
Performance+
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Average Annual Total Returns (at net asset value)
- -------------------------------------------------------------------------------
One year -3.2%
Life of Fund 8.2
SEC Average Annual Total Returns (including 5.75% sales charge)
- -------------------------------------------------------------------------------
One year -8.8%
Life of Fund 6.1
* 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 their original cost. Source: Towers Data Systems, Bethesda, MD.
Investment operations commenced 12/8/94. 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 Morgan
Stanley Capital International Emerging Markets Index, a widely recognized,
unmanaged index of emerging markets throughout the world. 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
sales charge as noted.
6
<PAGE>
EV Traditional Emerging Markets Fund as of December 31, 1997
FINANCIAL STATEMENTS
Statement of Assets and Liabilities
As of December 31, 1997
Assets
- --------------------------------------------------------------------------------
Investment in Emerging Markets
Portfolio (Portfolio),
at value (Note 1A) (identified cost, $4,722,158) $ 4,951,736
Receivable for Fund shares sold 28,676
Deferred organization expenses (Note 1E) 25,582
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Total assets $ 5,005,994
- --------------------------------------------------------------------------------
Liabilities
- --------------------------------------------------------------------------------
Payable for Fund shares redeemed $ 7,513
Payable to affiliate for Trustees' fees (Note 4) 40
Accrued expenses 9,308
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Total liabilities $ 16,861
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Net Assets for 416,908 shares of beneficial interest
outstanding $ 4,989,133
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Sources of Net Assets
- --------------------------------------------------------------------------------
Paid-in capital $ 4,995,243
Accumulated net realized loss on investments from Portfolio
(computed on the basis of identified cost) (230,034)
Accumulated net investment loss (5,654)
Net unrealized appreciation of investments from Portfolio
(computed on the basis of identified cost) 229,578
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Total $ 4,989,133
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Net Asset Value and Redemption
Price Per Share
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($4,989,133 / 416,908 shares of beneficial interest outstanding) $ 11.97
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Computation of Offering Price
- --------------------------------------------------------------------------------
Offering price per share (100 / 94.25 of $11.97) $ 12.70
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On sales of $50,000 or more, the offering price is reduced.
Statement of Operations
For the Year Ended
December 31, 1997
Investment Income (Note 1B)
- --------------------------------------------------------------------------------
Dividend income allocated from
Portfolio (net of foreign taxes, $2,416) $ 74,219
Interest income allocated from Portfolio 367
Expenses allocated from Portfolio (68,132)
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Net investment income from Portfolio $ 6,454
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Expenses
- --------------------------------------------------------------------------------
Management fee (Note 4) $ 12,967
Compensation of Trustees not members of
the Manager's organization (Note 4) 80
Distribution and service fees (Note 5) 25,934
Registration fees 17,820
Printing and postage 16,017
Amortization of organization expenses (Note 1E) 13,232
Legal and accounting services 9,626
Transfer and dividend disbursing agent fees 6,442
Custodian fee 4,606
Miscellaneous 1,393
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Total expenses $ 108,117
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Deduct --
Waiver of management fee (Note 4) $ 5,856
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Total expense reductions $ 5,856
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Net expenses $ 102,261
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Net investment loss $ (95,807)
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Realized and Unrealized
Gain (Loss) from Portfolio
- --------------------------------------------------------------------------------
Net realized gain (loss) --
Investment transactions (identified cost basis) $ 140,849
Foreign currency and forward foreign
currency exchange contract transactions (28,498)
- --------------------------------------------------------------------------------
Net realized gain on investments $ 112,351
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Change in unrealized appreciation (depreciation) --
Investments $(481,371)
Foreign currency and forward foreign
currency exchange contracts (14,129)
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Net change in unrealized depreciation of investments $(495,500)
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Net realized and unrealized loss on investments $(383,149)
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Net decrease in net assets from operations $(478,956)
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See notes to financial statements
7
<PAGE>
EV Traditional Emerging Markets Fund as of December 31, 1997
FINANCIAL STATEMENTS CONT'D
Statements of Changes in Net Assets
Increase (Decrease) Year Ended Year Ended
in Net Assets December 31, 1997 December 31, 1996
- --------------------------------------------------------------------------------
From operations --
Net investment loss $ (95,807) $ (50,805)
Net realized gain (loss)
on investments 112,351 (1,900)
Net change in unrealized
appreciation (depreciation)
of investments (495,500) 589,470
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Net increase (decrease) in net assets
from operations $ (478,956) $ 536,765
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Distributions to shareholders (Note 2) --
From net realized gain on investments $ (112,351) $ (54,188)
In excess of net realized gain
on investments (103,401) --
- -------------------------------------------------------------------------------
Total distributions to shareholders $ (215,752) $ (54,188)
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Transactions in shares of beneficial
interest (Note 3) --
Proceeds from sale of shares $ 12,836,043 $ 4,744,666
Net asset value of shares issued to
shareholders in payment of
distributions declared 205,178 51,600
Cost of shares redeemed (10,610,285) (3,400,171)
- --------------------------------------------------------------------------------
Net increase in net assets from
Fund share transactions $ 2,430,936 $ 1,396,095
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Net increase in net assets $ 1,736,228 $ 1,878,672
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Net Assets
- --------------------------------------------------------------------------------
At beginning of year $ 3,252,905 $ 1,374,233
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At end of year $ 4,989,133 $ 3,252,905
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Accumulated net investment
loss included in net assets
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At end of year $ (5,654) $ (952)
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See notes to financial statements
8
<PAGE>
EV Traditional Emerging Markets Fund as of December 31, 1997
FINANCIAL STATEMENTS CONT'D
Financial Highlights
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------------------------
1997 1996 1995 1994*
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net asset value -- Beginning of period $12.930 $10.280 $ 9.950 $10.000
- ----------------------------------------------------------------------------------------------------------------------
Income (loss) from operations
- ----------------------------------------------------------------------------------------------------------------------
Net investment loss $(0.010) $(0.202) $(0.317) $(0.001)
Net realized and unrealized gain (loss) on investments (0.410) 3.072 0.647 (0.049)
- ----------------------------------------------------------------------------------------------------------------------
Total income (loss) from operations $(0.420) $ 2.870 $ 0.330 $(0.050)
- ----------------------------------------------------------------------------------------------------------------------
Less distributions
- ----------------------------------------------------------------------------------------------------------------------
From net realized gain on investments $(0.281) $(0.220) $ -- $ --
In excess of net realized gain on investments (0.259) -- -- --
- ----------------------------------------------------------------------------------------------------------------------
Total distributions $(0.540) $(0.220) $ -- $ --
- ----------------------------------------------------------------------------------------------------------------------
Net asset value -- End of period $11.970 $12.930 $10.280 $ 9.950
- ----------------------------------------------------------------------------------------------------------------------
Total Return/(1)/ (3.18)% 28.12% 3.32% (0.50)%
- ----------------------------------------------------------------------------------------------------------------------
Ratios/Supplemental Data++
- ----------------------------------------------------------------------------------------------------------------------
Net assets, end of period (000's omitted) $ 4,989 $ 3,253 $ 1,374 $ 1,003
Ratio of net expenses to average daily net assets/(2)//(3)/ 3.46% 3.09% 5.06% 0.50%+
Ratio of net expenses to average daily net assets after
custodian fee reduction/(2)/ 3.28% 2.87% -- --
Ratio of net investment loss to average daily net assets (1.85)% (1.41)% (3.79)% (0.50)%+
- ----------------------------------------------------------------------------------------------------------------------
</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> <C> <C> <C> <C>
Ratios (As a percentage of average daily net assets):
<S>
Expenses/(2)//(3)/ 3.88% 4.59% 10.48% 7.84%+
Expenses after custodian fee reduction/(2)/ 3.70% 4.37% -- --
Net investment loss (2.26)% (2.91)% (9.21)% (7.84)%+
Net investment loss per share $(0.012) $(0.417) $(0.770) $(0.010)
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
+ Annualized.
* For the period from the start of business, December 8, 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 ex-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 years ended December 31, 1995 and thereafter
have been adjusted to reflect a change in reporting requirements. The new
reporting guidelines require the Portfolio 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
9
<PAGE>
EV Traditional Emerging Markets Fund as of December 31, 1997
NOTES TO FINANCIAL STATEMENTS
1 Significant Accounting Policies
-----------------------------------------------------------------------------
EV Traditional 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 (26.7% at December 31, 1997). The
performance of the Fund is directly affected by the performance of the
Portfolio. The financial statements of the Portfolio, including the portfolio
of investments, are included elsewhere in this report and should be read in
conjunction with the Fund's financial statements.
On June 23, 1997, the Board of Trustees approved a Plan of Reorganization
(the "Plan") for the Trust. Under the terms of the Plan, the EV Marathon
Emerging Markets Fund (the Successor Fund), a separate series of the Trust,
would acquire substantially all of the assets and liabilities of the Fund
(the Acquired Fund). The transaction will be structured for tax purposes to
qualify as a tax-free reorganization under the Internal Revenue Code. The
Trust will issue and deliver to the Acquired Fund a number of full and
fractional shares of beneficial interest of a separate class of the Successor
Fund (Class A shares), which will be equal in value to the net asset value
per share of the Acquired Fund multiplied by the number of full and
fractional shares of the Acquired Fund then outstanding. Such transaction
will occur after the close of business, on December 31, 1997.
Effective January 1, 1998, the EV Marathon Emerging Markets Fund changed its
name to the Eaton Vance Emerging Markets Fund.
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 and the Portfolio. Pursuant to the respective custodian
agreements, IBT receives a fee reduced by credits which are determined based
on the average daily cash balances the Fund or the Portfolio maintains with
IBT. All significant credit balances used to reduce the Fund's or Portfolio's
custodian fees are reflected as a reduction of operating 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. At December 31, 1997, net capital losses of
$250,934 and net currency losses of $5,654, attributable to security
transactions incurred after October 31, 1997, are treated as arising on the
first day of the Fund's next taxable year.
E Deferred Organization Expenses -- Costs incurred by the Fund in connection
with its organization, including registration costs, are being amortized on
the straight-line basis over five years.
F Use of Estimates -- The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities at the date of the financial statements and the reported amounts
of revenue and expense during the reporting period. Actual results could
differ from those estimates.
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 net
investment income allocated to the Fund by the Portfolio, less the Fund's
direct and allocated expenses and at least one distribution annually of
10
<PAGE>
EV Traditional Emerging Markets Fund as of December 31, 1997
NOTES TO FINANCIAL STATEMENTS CONT'D
all or substantially all of the net realized capital gains (reduced by any
available capital loss carryforwards from prior years) allocated by the
Portfolio to the Fund, if any. Shareholders may reinvest all distributions in
shares of the Fund at the per share net asset value as of the close of
business on the ex-dividend date. 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. During the year ended December 31, 1997,
$91,105 was reclassified from accumulated net investment loss to paid-in
capital due to permanent differences between book and tax accounting for
operating losses. Additionally, $10,951 was reclassified from accumulated net
realized loss from Portfolio to paid-in capital due to permanent differences
between book and tax accounting for capital losses. Net investment loss, net
realized gain on investment transactions and net assets were unaffected by
these reclassifications.
3 Shares of Beneficial Interest
-----------------------------------------------------------------------------
The Fund's Declaration of Trust permits the Trustees to issue an unlimited
number of full and fractional shares of beneficial interest (without par
value). Transactions in Fund shares were as follows:
Year ended December 31,
-------------------------------
1997 1996
-----------------------------------------------------------------------------
Sales 871,188 384,505
Issued to shareholders electing to
receive payments of distributions
in Fund shares 17,243 4,175
Redemptions (723,143) (270,689)
-----------------------------------------------------------------------------
Net increase 165,288 117,991
-----------------------------------------------------------------------------
4 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 year ended
December 31, 1997, the fee was equivalent to 0.25% of the Fund's average net
assets for such period and amounted to $12,967. To reduce the net operating
loss of the Fund, EVM made a waiver of its management fee in the amount of
$5,856. Except as to Trustees of the Fund who are not members of EVM's
organization, officers and Trustees receive remuneration for their services
to the Fund out of such management fee. Eaton Vance Distributors, Inc.,
(EVD), a subsidiary of EVM and the Fund's principal underwriter, received
approximately $4,700 as its portion of the sales charge on sales of Fund
shares for the year ended December 31, 1997. EVD also receives a contingent
deferred sales charge (CDSC) on shareholder redemptions made within 18 months
of purchase, where the initial investment in the Fund was $1 million or more.
No such fees were received during the period. 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 Lloyd George Management (Bermuda), EVM and its
affiliates. See Note 2 of the Portfolio's Notes to Financial Statements,
which are included elsewhere in this report.
11
<PAGE>
EV Traditional Emerging Markets Fund as of December 31, 1997
NOTES TO FINANCIAL STATEMENTS CONT'D
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) a monthly
distribution fee equal, on an annual basis, to the aggregate of (a) 0.50% of
that portion of the Fund's average daily net assets for any fiscal year which
is attributable to shares of the Fund which have remained outstanding for
less than one year and (b) 0.25% of that portion of the Fund's average daily
net assets for any fiscal year which is attributable to shares of the Fund
which have remained outstanding for more than one year. During the year ended
December 31, 1997 the Fund paid distribution fees to EVD aggregating $18,429
representing 0.36% of average daily net assets. The Plan also provides that
the Fund will pay a quarterly service fee to EVD in an amount equal, on an
annual basis, to 0.25% of that portion of the Fund's average daily net assets
for any fiscal year which is attributable to shares of the Fund which have
remained outstanding for more than one year. The Fund paid or accrued an
aggregate of $7,505 for the year ended December 31, 1997 as service fees
under the Plan. EVD may pay up to the entire amount of the service fee to
Authorized Firms through which the Fund's shares are distributed. Certain
officers and Trustees of the Fund are officers or directors of EVD.
6 Investment Transactions
-----------------------------------------------------------------------------
Increases and decreases in the Fund's investment in the Portfolio aggregated
$12,957,862 and $10,828,414, respectively.
12
<PAGE>
EV Traditional Emerging Markets Fund as of December 31, 1997
INDEPENDENT AUDITORS' REPORT
To the Trustees and Shareholders
of Eaton Vance Special Investment Trust:
- --------------------------------------------------------------------------------
We have audited the accompanying statement of assets and liabilities of EV
Traditional Emerging Markets Fund (the Fund) (one of the series constituting
Eaton Vance Special Investment Trust) as of December 31, 1997, and the related
statement of operations for the year then ended, the statements of changes in
net assets for each of the two years then ended and the financial highlights for
each of the three years then ended and for the period from the start of business
December 8, 1994 to December 31, 1994. These financial statements and financial
highlights are the responsibility of the Fund's management. Our responsibility
is to express an opinion on these financial statements and financial highlights
based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such financial statements and financial highlights present
fairly, in all material respects, the financial position of the EV Traditional
Emerging Markets Fund series of Eaton Vance Special Investment Trust at December
31, 1997, and the results of its operations, the changes in its net assets and
its financial highlights for the respective stated periods, in conformity with
generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Boston, Massachusetts
February 6, 1998
13
<PAGE>
Emerging Markets Portfolio as of December 31, 1997
PORTFOLIO OF INVESTMENTS
(Expressed in United States Dollars)
Common Stocks -- 81.5%
Security Shares Value
- --------------------------------------------------------------------------------
Banks - Regional -- 2.6%
- --------------------------------------------------------------------------------
Bangkok Bank Co. Ltd. (Foreign) 50,000 $ 128,342
The largest commercial bank in Thailand
Bangkok Bank Co. Ltd. (Public) 50,000 91,979
The largest commercial bank in Thailand
Latvijas Unibanka GDR 50,000 262,500
Latvia's leading bank and the most actively traded
stock on the Riga stock exchange
- --------------------------------------------------------------------------------
$ 482,821
- --------------------------------------------------------------------------------
Banks and Money Services -- 2.0%
- --------------------------------------------------------------------------------
Far East Bank & Trust Co. Ltd. (Rights)* 3,125 $ 0
Fifth largest bank in the Philippines
State Bank of India GDR 20,000 364,000
India's largest commercial bank
- --------------------------------------------------------------------------------
$ 364,000
- --------------------------------------------------------------------------------
Beverages -- 8.4%
- --------------------------------------------------------------------------------
Pan American Beverages, Inc. ADR 17,000 $ 554,625
Coca Cola franchiser
Pyramids Brewers* 6,000 342,101
The largest brewer in Egypt
Suncrush Ltd. 107,000 258,587
Manufactures and distributes soft drinks in terms of
franchise agreements with the Coca-Cola Company of
Southern Africa
Vina Concha y Toro ADR 16,000 404,000
Wine producer/exporter
- --------------------------------------------------------------------------------
$1,559,313
- --------------------------------------------------------------------------------
Broadcasting and Cable -- 2.3%
- --------------------------------------------------------------------------------
Grupo Radio ADR 30,000 $ 427,500
Mexican radio broadcasting company
- --------------------------------------------------------------------------------
$ 427,500
- --------------------------------------------------------------------------------
Communications Equipment -- 3.1%
- --------------------------------------------------------------------------------
Grupo Televisa GDR 15,000 $ 580,313
Largest media company in the Spanish-speaking world
- --------------------------------------------------------------------------------
$ 580,313
- --------------------------------------------------------------------------------
Conglomerates -- 6.4%
- --------------------------------------------------------------------------------
Cheung Kong Holdings, Ltd. 30,000 $ 196,477
Property/infrastructure
Hutchison Whampoa 50,000 313,589
Hong Kong computer and
telecommunications conglomerate
John Keells Holdings GDR 1,633 17,147
A diversified conglomerate operating in tourism, food
& beverages, property development sectors
Quinenco SA ADR* 5,400 62,100
A large diversified company engaged in industrial and
financial services
Sabanci Holdings 55,000 338,686
The second largest congolmerate in Turkey
Swire Pacific, Ltd. Class B 250,000 253,258
Interests in aviation, property development, property
investment, trading, hotels and shipping
- --------------------------------------------------------------------------------
$1,181,257
- --------------------------------------------------------------------------------
Construction -- 1.5%
- --------------------------------------------------------------------------------
Solidere GDR 21,000 $ 275,625
Lebanese property developer
- --------------------------------------------------------------------------------
$ 275,625
- --------------------------------------------------------------------------------
Consumer Products -- 3.1%
- --------------------------------------------------------------------------------
Lever Brothers Pakistan Ltd. 18,300 $ 567,639
The largest and oldest consumer non-durables company
in Pakistan
- --------------------------------------------------------------------------------
$ 567,639
- --------------------------------------------------------------------------------
Drugs -- 4.4%
- --------------------------------------------------------------------------------
Pliva GDR 27,750 $ 489,788
The largest pharmaceutical producer in Eastern Europe
Teva Pharmaceutical ADR 7,000 331,188
Israel's largest pharmaceutical company and the
second largest independent generic company in
the U.S.
- --------------------------------------------------------------------------------
$ 820,976
- --------------------------------------------------------------------------------
Electric Utilities -- 3.5%
- --------------------------------------------------------------------------------
BSES, Ltd. ADR* 22,000 $ 382,360
Generator and distributor of electricity to the
Bombay region
Manila Electric Class B 83,000 274,617
The largest electricity distributor in the country
supplying power to metro Manila and the
Calabarzon area
- --------------------------------------------------------------------------------
$ 656,977
- --------------------------------------------------------------------------------
See notes to financial statements
14
<PAGE>
Emerging Markets Portfolio as of December 31, 1997
PORTFOLIO OF INVESTMENTS CONT'D
(Expressed in United States Dollars)
Security Shares Value
- --------------------------------------------------------------------------------
Foods -- 4.5%
- --------------------------------------------------------------------------------
Carulla SA ADR 165,000 $ 598,124
Columbian grocery and supermarket chain
Grupo Minsa SA ADR 10,000 73,115
Mexican corn flour and tortilla producer
International Foods Hostess* 7,300 163,593
Manufacturer and producer of sweet snack
cake products
- --------------------------------------------------------------------------------
$ 834,832
- --------------------------------------------------------------------------------
Investment Services -- 1.3%
- --------------------------------------------------------------------------------
HSBC Holdings PLC 9,600 $ 236,624
International bank and financial services company
- --------------------------------------------------------------------------------
$ 236,624
- --------------------------------------------------------------------------------
Lodging and Gaming -- 0.7%
- --------------------------------------------------------------------------------
Asian Hotel Corp.* 1,100,000 $ 133,603
Hotel company
- --------------------------------------------------------------------------------
$ 133,603
- --------------------------------------------------------------------------------
Manufacturing -- 2.0%
- --------------------------------------------------------------------------------
First Tractor Co. (Hampshire) 400,000 $ 241,321
China's second largest tractor producer
Tata Engineering and Locomotion GDR 14,720 122,544
India's largest auto producer and distributor
- --------------------------------------------------------------------------------
$ 363,865
- --------------------------------------------------------------------------------
Metals - Industrial -- 2.9%
- --------------------------------------------------------------------------------
Tubos de Acero de Mexico* 25,000 $ 540,625
Manufacturer of stainless steel pipes used
mainly for the oil and gas industries
- --------------------------------------------------------------------------------
$ 540,625
- --------------------------------------------------------------------------------
Natural Gas Utilities -- 1.4%
- --------------------------------------------------------------------------------
Mosenergo 144A ADR 7,000 $ 259,000
Gas power utilities
- --------------------------------------------------------------------------------
$ 259,000
- --------------------------------------------------------------------------------
Oil and Gas - Equipment and Services -- 6.1%
- --------------------------------------------------------------------------------
JSC Surgutneftegaz ADR 60,000 $ 607,499
Russia's largest oil producer
YPF Sociedad Anonima ADR 15,200 519,650
Exploration, development and production of oil and
natural gas
- --------------------------------------------------------------------------------
$1,127,149
- --------------------------------------------------------------------------------
Oil and Gas - Exploration
and Production -- 0.9%
- --------------------------------------------------------------------------------
PTT Exploration and Production 13,500 $ 159,979
The exploration and production arm of the Petroleum
Authority of Thailand (PTT)
- --------------------------------------------------------------------------------
$ 159,979
- --------------------------------------------------------------------------------
Oil and Gas - Integrated -- 2.6%
- --------------------------------------------------------------------------------
Mol Magyar Olayes Gazi GDR 20,000 $ 488,000
Interests in oil and gas exploration and production,
gas wholesale distribution, storage and transmission,
oil refining and marketing
- --------------------------------------------------------------------------------
$ 488,000
- --------------------------------------------------------------------------------
REITS -- 1.1%
- --------------------------------------------------------------------------------
New World Development 60,000 $ 207,511
Property developer
- --------------------------------------------------------------------------------
$ 207,511
- --------------------------------------------------------------------------------
Retail - Food and Drug -- 7.0%
- --------------------------------------------------------------------------------
Blue Square Stores* 45,000 $ 430,366
Supermarket and specialty store chain
Compania Brasileira de Distrib. GDR 30,000 581,250
Supermarket chain
Supersol Ltd. ADR 20,000 281,250
One of Israel's two largest publicly traded
supermarket chains
- --------------------------------------------------------------------------------
$1,292,866
- --------------------------------------------------------------------------------
Sanitation -- 2.4%
- --------------------------------------------------------------------------------
Saneamento Basico (Sabesp) 1,885,000 $ 447,583
Brazil's largest water and sanitation utility
- --------------------------------------------------------------------------------
$ 447,583
- --------------------------------------------------------------------------------
Telephone Utilities -- 8.5%
- --------------------------------------------------------------------------------
PT Indosat 150,000 $ 278,435
Has largest market share of international
telecommunications business
Telecomunicacoes Brasileiras ADR 2,750 320,203
Telecommunications holding company
See notes to financial statements
15
<PAGE>
Emerging Markets Portfolio as of December 31, 1997
PORTFOLIO OF INVESTMENTS CONT'D
(Expressed in United States Dollars)
Security Shares Value
- --------------------------------------------------------------------------------
Telephone Utilities (continued)
- --------------------------------------------------------------------------------
Telefonica del Peru ADR 12,000 $ 279,000
Peru's primary operator of the public
telephone system
Telefonos de Mexico ADR 8,000 448,500
Largest telecom operator with interests in
local and long distance telecommunications
Videsh Sanchar Nigam Ltd., GDR 17,500 245,438
India's monopoly International Telephone
service provider.
- --------------------------------------------------------------------------------
$ 1,571,576
- --------------------------------------------------------------------------------
Transportation -- 0.6%
- --------------------------------------------------------------------------------
Brisa Automotive Estradas* 3,250 $ 116,579
The second largest listed toll motorway in Europe
- --------------------------------------------------------------------------------
$ 116,579
- --------------------------------------------------------------------------------
Trucks and Parts -- 2.2%
- --------------------------------------------------------------------------------
Uzel Mikina Sanayii AS* 24,733 $ 418,095
The largest tractor producer in Turkey
- --------------------------------------------------------------------------------
$ 418,095
- --------------------------------------------------------------------------------
Total Common Stocks
(identified cost $14,348,907) $15,114,308
- --------------------------------------------------------------------------------
Preferred Stocks -- 4.5%
Electric Utilities -- 1.9%
- --------------------------------------------------------------------------------
Eletrobras 7,000,000 $ 357,511
The only utility serving the entire country of
Brazil through its various subsidiaries which
are due to be privatized over the next five years
- --------------------------------------------------------------------------------
$ 357,511
- --------------------------------------------------------------------------------
Oil and Gas - Integrated -- 1.4%
- --------------------------------------------------------------------------------
Petroleo Brasiliero SA 1,100,000 $ 257,247
Brazil's sole integrated oil company, a monopoly
in exploration, production, refining, transportion,
importing and exporting of oil and natural gas
- --------------------------------------------------------------------------------
$ 257,247
- --------------------------------------------------------------------------------
Telephone Utilities -- 1.2%
- --------------------------------------------------------------------------------
Telec de Minas Gerias 1,800,000 $ 227,409
Third largest telecommunications system by access
lines in state of Minas Gerias (Brazil)
- --------------------------------------------------------------------------------
$ 227,409
- --------------------------------------------------------------------------------
Total Preferred Stocks
(identified cost $894,542) $ 842,167
- --------------------------------------------------------------------------------
Warrants -- 0.0%
Lodging and Gaming -- 0.0%
- --------------------------------------------------------------------------------
Belle Corp. (Warrants) 240,000 $ 0
Philippine gaming and property company
with hotel interests, golf resorts,
casinos, jai-lai, and lottery franchises
- --------------------------------------------------------------------------------
$ 0
- --------------------------------------------------------------------------------
Total Investments -- 86.0%
(identified cost $15,243,449) $15,956,475
- --------------------------------------------------------------------------------
Other Assets, Less Liabilities -- 14.0% $ 2,597,130
- --------------------------------------------------------------------------------
Net Assets -- 100% $18,553,605
- --------------------------------------------------------------------------------
ADR -- American Depository Receipt
GDR -- Global Depository Receipt
* Non-income producing security.
See notes to financial statements
16
<PAGE>
Emerging Markets Portfolio as of December 31, 1997
PORTFOLIO OF INVESTMENTS
(Expressed in United States Dollars)
Country Concentration of Portfolio
Percentage
Country of Net Assets Value
- --------------------------------------------------------------------------------
Argentina 2.8% $ 519,650
Brazil 11.8% 2,191,203
Canada 1.5% 281,250
Chile 2.5% 466,100
Colombia 3.2% 598,124
Croatia 2.7% 489,788
Egypt 2.7% 505,694
Hong Kong 7.8% 1,448,780
Hungary 2.6% 488,000
India 6.0% 1,114,342
Indonesia 1.5% 278,435
Israel 4.1% 761,554
Latvia 1.4% 262,500
Lebanon 1.5% 275,625
Mexico 14.1% 2,624,678
Netherlands 1.4% 259,000
Pakistan 3.1% 567,639
Peru 1.5% 279,000
Portugal 0.6% 116,579
Russia 3.3% 607,499
South Africa 1.4% 258,587
Sri Lanka 0.8% 150,750
Thailand 2.1% 380,300
The Philippines 1.5% 274,617
Turkey 4.1% 756,781
See notes to financial statements
17
<PAGE>
Emerging Markets Portfolio as of December 31, 1997
FINANCIAL STATEMENTS
Statement of Assets and Liabilities
As of December 31, 1997
(Expressed in United States Dollars)
Assets
- --------------------------------------------------------------------------------
Investments, at value (Note 1A)
(identified cost, $15,243,449) $ 15,956,475
Cash 1,920,589
Foreign currency, at value
(identified cost, $484,825) 429,110
Receivable for investments sold 237,714
Dividends receivable 38,449
Tax reclaim receivable 11
Deferred organization expenses (Note 1D) 7,298
- --------------------------------------------------------------------------------
Total assets $ 18,589,646
- --------------------------------------------------------------------------------
Liabilities
- --------------------------------------------------------------------------------
Accrued expenses $ 36,041
- --------------------------------------------------------------------------------
Total liabilities $ 36,041
- --------------------------------------------------------------------------------
Net Assets applicable to investors' interest in Portfolio $ 18,553,605
- --------------------------------------------------------------------------------
Sources of Net Assets
- --------------------------------------------------------------------------------
Net proceeds from capital contributions and withdrawals $ 17,899,892
Net unrealized appreciation of investments (computed on the
basis of identified cost) 653,713
- --------------------------------------------------------------------------------
Total $ 18,553,605
- --------------------------------------------------------------------------------
Statement of Operations
For the Year Ended
December 31, 1997
(Expressed in United States Dollars)
Investment Income (Note 1H)
- --------------------------------------------------------------------------------
Dividends (net of foreign taxes, $8,524) $ 272,694
Interest income 1,196
- --------------------------------------------------------------------------------
Total income $ 273,890
- --------------------------------------------------------------------------------
Expenses
- --------------------------------------------------------------------------------
Investment adviser fee (Note 2) $ 143,776
Administration fee (Note 2) 47,925
Compensation of Trustees not members of the Investment
Adviser's organization (Note 2) 4,387
Custodian fee (Note 1C) 94,104
Legal and accounting services 43,831
Amortization of organization expenses (Note 1D) 3,804
Miscellaneous 8,791
- --------------------------------------------------------------------------------
Total expenses $ 346,618
- --------------------------------------------------------------------------------
Deduct --
Waiver of investment adviser fee (Note 2) $ 36,117
Reduction of custodian fee (Note 1C) 34,907
Waiver of administration fee (Note 2) 17,039
- --------------------------------------------------------------------------------
Total expense reductions $ 88,063
- --------------------------------------------------------------------------------
Net expenses $ 258,555
- --------------------------------------------------------------------------------
Net investment income $ 15,335
- --------------------------------------------------------------------------------
Realized and Unrealized
Gain (Loss) on Investments
- --------------------------------------------------------------------------------
Net realized gain (loss) --
Investment transactions (identified cost basis) $ (488,881)
Foreign currency and forward foreign
currency exchange contract transactions (104,132)
- --------------------------------------------------------------------------------
Net realized loss on investment transactions $ (593,013)
- --------------------------------------------------------------------------------
Change in unrealized appreciation (depreciation) --
Investments (identified cost basis) $ (1,123,223)
Foreign currency and forward foreign
currency exchange contract transactions (59,177)
- --------------------------------------------------------------------------------
Net change in unrealized appreciation (depreciation)
of investments $ (1,182,400)
- --------------------------------------------------------------------------------
Net realized and unrealized loss on $ (1,775,413)
- --------------------------------------------------------------------------------
Net decrease in net assets from operations $ (1,760,078)
- --------------------------------------------------------------------------------
See notes to financial statements
18
<PAGE>
Emerging Markets Portfolio as of December 31, 1997
FINANCIAL STATEMENTS CONT'D
Statements of Changes in Net Assets (Expressed in United States Dollars)
Increase (Decrease) Year Ended Year Ended
in Net Assets December 31, 1997 December 31, 1996
- --------------------------------------------------------------------------------
From operations --
Net investment income $ 15,335 $ 11,410
Net realized gain (loss) on
investment transactions (593,013) 139,702
Net change in unrealized
appreciation (depreciation)
of investments (1,182,400) 1,561,355
- --------------------------------------------------------------------------------
Net increase (decrease) in net assets
from operations $ (1,760,078) $ 1,712,467
- --------------------------------------------------------------------------------
Capital transactions --
Contributions $ 26,595,739 $ 11,229,400
Withdrawals (16,940,583) (5,870,609)
- --------------------------------------------------------------------------------
Net increase in net assets from
capital transactions $ 9,655,156 $ 5,358,791
- --------------------------------------------------------------------------------
Net increase in net assets $ 7,895,078 $ 7,071,258
- --------------------------------------------------------------------------------
Net Assets
- --------------------------------------------------------------------------------
At beginning of year $ 10,658,527 $ 3,587,269
- --------------------------------------------------------------------------------
At end of year $ 18,553,605 $ 10,658,527
- --------------------------------------------------------------------------------
See notes to financial statements
19
<PAGE>
Emerging Markets Portfolio as of December 31, 1997
FINANCIAL STATEMENTS CONT'D
Supplementary Data (Expressed in United States Dollars)
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------------------------
1997 1996 1995 1994*
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Ratios to average daily net assets++
- ----------------------------------------------------------------------------------------------------------------------
Net expenses /(1)/ 1.53% 1.54% 2.58% 0.00%
Net expenses after custodian fee reduction 1.35% 1.32% 2.58% --
Net investment income (loss) 0.08% 0.14% (1.00)% 0.00%
Portfolio Turnover 160% 125% 98% 0%
- ----------------------------------------------------------------------------------------------------------------------
Average commission rate (per share) /(2)/ $0.0007 $0.0029 $ -- $ --
- ----------------------------------------------------------------------------------------------------------------------
Net assets, end of period (000's omitted) $18,554 $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)/ 1.81% 2.24% 5.24% 2.21%+
Expenses after custodian fee reduction 1.63% 2.02% 5.24% --
Net investment loss (0.20)% (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 years ended December 31, 1995 and thereafter
have been adjusted to reflect a change in reporting requirements. The new
reporting guidelines require the Portfolio 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
20
<PAGE>
Emerging Markets Portfolio as of December 31, 1997
NOTES TO FINANCIAL STATEMENTS
(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. Futures 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 United States 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 cash or securities
in 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.
21
<PAGE>
Emerging Markets Portfolio as of December 31, 1997
NOTES TO FINANCIAL STATEMENTS 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-dividend 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 estimates.
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 year ended December 31, 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 $36,117 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 year ended December 31, 1997, the administration fee was 0.25%
of average net assets. To enhance the net income of the Portfolio, the
administrator waived fees 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 fees. Certain of
the officers and Trustees of the Portfolio are officers and
directors/trustees of the above organizations.
3 Investment Transactions
-----------------------------------------------------------------------------
Purchases and sales of investments, other than short-term obligations,
aggregated $34,351,810 and $26,970,319, respectively.
4 Federal Income Tax Basis of Investments
-----------------------------------------------------------------------------
The cost and unrealized appreciation (depreciation) in value of the
investments owned at December 31, 1997, as computed on a federal income tax
basis, are as follows:
Aggregate cost $15,243,449
-----------------------------------------------------------------------------
Gross unrealized appreciation $ 1,986,952
Gross unrealized depreciation (1,273,926)
-----------------------------------------------------------------------------
Net unrealized appreciation $ 713,026
-----------------------------------------------------------------------------
5 Line of Credit
-----------------------------------------------------------------------------
The Portfolio participates with other portfolios and funds managed by BMR and
EVM and its affiliates in a committed $100 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 the Eurodollar rate or federal funds rate. In
addition, a fee computed at an annual rate of 0.10% on the daily unused
portion of the line of credit is allocated among the participating portfolios
and funds at the end of each quarter. The Portfolio did not have any
significant borrowings or allocated fees during the year ended December 31,
1997.
22
<PAGE>
Emerging Markets Portfolio as of December 31, 1997
NOTES TO FINANCIAL STATEMENTS CONT'D
(Expressed in United States Dollars)
6 Risks Associated with Foreign Investments
-----------------------------------------------------------------------------
Investing in securities issued by companies whose principal business
activities are outside the United States may involve significant risks not
present in domestic investments. For example, there is generally less
publicly available information about foreign companies, particularly those
not subject to the disclosure and reporting requirements of the U.S.
securities laws. Foreign issuers are generally not bound by uniform
accounting, auditing, and financial reporting requirements and standards of
practice comparable to those applicable to domestic issuers. 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.
7 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. At December
31, 1997, there were no outstanding obligations under these financial
instruments.
23
<PAGE>
Emerging Markets Portfolio as of December 31, 1997
INDEPENDENT AUDITORS' REPORT
To the Trustees and Shareholders
of Emerging Markets Portfolio:
- --------------------------------------------------------------------------------
We have audited the accompanying statement of assets and liabilities, including
the portfolio of investments, of Emerging Markets Portfolio (the Portfolio) as
of December 31, 1997, and the related statement of operations for the year then
ended, the statements of changes in net assets for each of the two years then
ended and the supplementary data for each of the three years then ended and for
the period from the start of business November 30, 1994, to December 31, 1994.
These financial statements and supplementary data are the responsibility of the
Portfolio's management. Our responsibility is to express an opinion on these
financial statements and supplementary data based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and supplementary
data are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
December 31, 1997 by correspondence with the custodian. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such financial statements and supplementary data present fairly,
in all material respects, the financial position of the Emerging Markets
Portfolio at December 31, 1997, and the results of its operations, the changes
in its net assets and its supplementary data for the respective stated periods
in conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Boston, Massachusetts
February 6, 1998
24
<PAGE>
EV Traditional Emerging Markets Fund as of December 31, 1997
INVESTMENT MANAGEMENT
EV Traditional Emerging Markets Fund
Officers
James B. Hawkes
President, Trustee
Edward E. Smiley, Jr.
Vice President
James L. O'Connor
Treasurer
Alan R. Dynner
Secretary
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 and Director, United Asset
Management Corporation
John L. Thorndike
Formerly Director of, Fiduciary Company Incorporated
Jack L. Treynor
Investment Adviser and Consultant
Emerging Markets Portfolio
Officers
Hon. Robert Lloyd George
President, Trustee
James B. Hawkes
Vice President and Trustee
Scobie Dickinson Ward
Vice President, Assistant
Secretary and
Assistant Treasurer
William Walter Raleigh Kerr
Vice President,
Assistant Treasurer
James L. O'Connor
Vice President, Treasurer
Alan R. Dynner
Secretary
Trustees
Hon. Edward K. Y. Chen
Professor and Director, Center for
Asian Studies, University of Hong Kong
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 and Director, United Asset
Management Corporation
25
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<PAGE>
Investment Adviser of
Emerging Markets Portfolio
Lloyd George Management
(Bermuda) Limited
3808 One Exchange Square
Central, Hong Kong
Sponsor and Manager of
EV Traditional 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
P.O. Box 5123
Westborough, MA 01581-5123
Independent Auditors
Deloitte & Touche
125 Summer Street
Boston, MA 02110
EV Traditional
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.
- --------------------------------------------------------------------------------
T-EMSRC-2/98
