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[LOGO Investing [ART OF STREET
APPEARS for the SCENE APPEARS
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Century
Annual Report December 31, 1997
EV
TRADITIONAL
STOCK FUND
[PHOTO OF NYSE FLAG
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Eaton Vance
Global Management-Global Distribution
T r a d i t i o n a l
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EV Traditional Stock Fund as of December 31, 1997
LETTER TO SHAREHOLDERS
During the year ended December 31, 1997, EV Traditional Stock Fund had a total
return of 30.9%./1/ This return resulted from an increase in net asset value to
$13.76 per share on December 31, 1997 from $13.56 per share on December 31,
1996, and the reinvestment of $0.17 per share in income dividends and $3.62 per
share in capital gains distributions. This return compared favorably to the
average total return for mutual funds in the Lipper Growth & Income Funds
Category,* which was 27.1% during the period.
The U.S. economy continued to grow at a healthy rate in 1997. Gross domestic
product, the primary indicator of economic performance, increased 3.8%,
exceeding most predictions made at the beginning of the year. Unemployment
declined 0.6% to 4.7%, and 3.2 million new jobs were created. The inflation
rate, which historically has risen after periods of sustained growth and low
unemployment, declined from the previous year. The consumer price index
increased only 1.7% in 1997, compared to 3.3% in 1996, and wholesale prices
decreased 1.2% - the largest drop since 1986. Many economists, including Federal
Reserve Chairman Alan Greenspan, attribute this continued low inflation to the
effects of increasing global competition, a strong dollar, and higher
productivity brought on by advances in technology.
The stock market's performance in 1997 exceeded 20% for a record third
consecutive year. The S&P 500 Index* rose 31% during the year, with a relatively
small group of large capitalization stocks providing the leadership. There was
considerable volatility during the year, marked by significant market declines -
the first in the spring, and a second, steeper decline in October caused by
economic turmoil in several important Asian countries. In both cases, stock
prices recovered.
The stock market's increased volatility illustrates the importance of
maintaining a long-term investment outlook. By staying with an investment
through the inevitable market cycles, investors can reduce the impact of any one
downturn. Moreover, a diversified investment such as a professionally managed
mutual fund further reduces risk. At Eaton Vance, our goal is to achieve the
highest possible returns within the stated objectives of our mutual funds. In
the pages that follow, Portfolio Manager Duncan W. Richardson discusses the
economy, the stock market, and the performance of EV Traditional Stock Fund in
1997.
Sincerely,
/s/ James B. Hawkes
James B. Hawkes,
President
February 9, 1998
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Performance/2/
- --------------------------------------------------------------------------------
Average Annual Total Returns (at net asset value)
- --------------------------------------------------------------------------------
One Year 30.9%
Five Years 15.9
Ten Years 15.0
SEC Average Annual Total Returns (including maximum 5.75% sales charge)
- --------------------------------------------------------------------------------
One Year 23.4%
Five Years 14.5
Ten Years 14.3
Ten Largest Equity Holdings/3/
- --------------------------------------------------------------------------------
Home Depot, Inc. 3.7%
CVS Corp. 3.6
Automatic Data Processing, Inc. 3.4
Unilever NV 3.3
Baxter 3.0
Eli Lilly & Co. 2.9
Ecolab, Inc. 2.9
Marsh & McLennan Companies 2.9
Allstate Corp. 2.8
Reuters Holdings PLC 2.8
/1/ This return does not include the maximum 5.75% sales charge.
/2/ Returns are calculated by determining the percentage change in net asset
value with all distributions reinvested. SEC returns reflect maximum sales
charge as noted.
/3/ By total net assets. Ten largest holdings are as of 12/31/97 only and may
not be representative of the Portfolio's current or future investments.
Holdings accounted for 31.3% of the Portfolio's investments, determined by
dividing the total market value of the holdings by the total net assets of
the Portfolio.
* It is not possible to invest directly in a Lipper Category or an Index.
Past performance is no guarantee of future results. Investment return and
principal value will fluctuate so that shares, when redeemed, may be worth
more or less than their original cost.
- --------------------------------------------------------------------------------
Mutual fund shares are not insured by the FDIC and are not deposits or other
obligations of, or guaranteed by, any depository institution. Shares are subject
to investment risks, including possible loss of principal invested.
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2
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EV Traditional Stock Fund as of December 31, 1997
MANAGEMENT DISCUSSION
An interview with Duncan W. Richardson, Vice President and Portfolio Manager of
the Stock Portfolio
[PHOTO OF DUNCAN W. RICHARDSON APPEARS HERE]
Duncan W. Richardson, Portfolio Manager
Q: Duncan, how would you summarize 1997 for the stock market and for the Fund?
A: Once again, the market experienced a very good year in terms of absolute
returns for the 12-month period. It is interesting to note that most of the
gains occurred in the 6-month period from April to October, which is similar
to 1996, when most gains occurred in the second six months of the year. The
market has been much more volatile over the past year, with narrower support
from a select group of sectors. The Fund has been less volatile than the
broader market, outperforming the S&P 500 during the corrections in April and
October. Our lower volatility is primarily the result of our management
style, in which overweighted positions are trimmed after significant price
increases and underperforming positions are systematically sold.
Q: How does the increased volatility in the stock market affect your management
style?
A: In volatile markets, this Fund tends to benefit because our stock selection
process is driven by the fundamentals of individual companies, not by the
momentum of stock price movements. We attempt to identify the stocks we want
to own and are patient in buying them. We do not chase "momentum" stocks that
are experiencing a rapid price increase. We also do not take unnecessary
risks in specific stocks or specific sectors, which helps mitigate the Fund's
volatility. The average position for our top holdings ranges between two to
three percent, with a few select companies, that I watch very carefully, over
three percent. Within industry sectors, we keep our weightings roughly in
line with those of the broader market, although we are skewed toward growth
industries. Hence, the Fund is very well diversified, which, along with our
patience in buying and discipline in selling, has produced solid returns with
relatively low volatility.
Q: Financial stocks performed very well in 1997. What types of companies do you
look for in this sector?
A: We look for companies that are leaders in their specific industries, with
positively changing fundamentals. Ideally, we like to buy at a favorable
risk/reward level, so we tend to avoid stocks with excessive valuations. In
addition, we maintain as much diversity within the sector as possible. The
Fund's financial sector weighting has been slightly higher than that of the
S&P 500 because the sector's performance has been so strong. In fact, five of
the top ten performing stocks in the Portfolio were in this sector --
Progressive Corp., Allstate, Marsh & McLennan, Citicorp, and AIG -- and
represent a range of financial industries. When interest rates backed up last
spring, these companies' prices became very attractive, and we used that
period opportunistically to accumulate shares. It turned out to be a good
entry point, as rates steadily
[BAR CHART APPEARS HERE]
Five Largest Equity Sectors+
- --------------------------------------------------------------------------------
As a percentage of total net assets
Financial 18.5%
Drugs 11.0%
Foods 8.2%
Information Services 6.6%
Oil & Gas 5.6%
+ Five largest sectors are subject to change due to active management.
3
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EV Traditional Stock Fund as of December 31, 1997
MANAGEMENT DISCUSSION CONT'D
declined through the end of the year, and financial stocks outperformed
almost every other market sector.
Q: How do you think the financial sector will perform in 1998?
A: Going forward, financial company stocks will continue to respond to the
direction of interest rates, but this direction is always difficult to call.
There is certainly an argument that, with little to no inflation, rates could
continue to trend downward. However, any dashed expectations about inflation
would probably lead to an increase in interest rates and therefore negatively
impact financial stocks. We are beginning to scale back somewhat in this
sector, having reaped the benefits of the meaningful decline in interest
rates in 1997. The sector should continue to perform well, but we will keep a
close eye on the effects of economic developments as they occur. Some firms,
such as AIG and Citicorp, will be impacted by the economic turmoil in Asia,
which we are also monitoring carefully.
Another area that has performed very well is regional banking. Many of these
stocks have benefited from several positive events, including the strong
economy, declining interest rates, and consolidation within the industry. We
think regional banks are in excellent financial condition -- especially this
late in an economic cycle -- and are still selling at relatively cheap
multiples. The tremendous turmoil in this industry during the early 1990s
produced banks that are much healthier than they were a decade ago.
Q: The stock market has had annual returns in excess of 20% for an unprecedented
three consecutive years. How long can this continue?
A: Investors need to see a continuation of earnings growth and continued low
inflation -- which translates to lower interest rates -- to keep stock prices
moving upwards. This happened in 1997 and produced a good year for stocks,
and it could happen again in 1998. The problem now, however, is that the
effects of the problems in Asia on both earnings and interest rates are still
unclear. Until that situation begins to stabilize and the effects on U.S.
corporate earnings become known, the market will probably continue to
experience the wide up-and-down movements that we have seen in recent months.
At this point, it is too early to know how severely the Asian crisis will
affect the U.S. economy, but we believe that corporate earnings growth for
some multinationals will have to be lowered.
It is very important to mention, as I have in past reports, that equity
investors and our Fund's shareholders should scale performance expectations
down to the 10-12% historical average. While I am pleased that the Fund has
performed well during the past three years -- its total return of 108.9% over
this period beat the Lipper Growth & Income Funds Average of 102.8%* -- the
phenomenal returns we have seen in the stock market were the result of a very
favorable equity investment climate. Due to elevated valuation levels, we are
now in a higher risk equity environment. There is also the potential for
earnings disappointments or external shocks that could lower the returns on
equity investments.
Q: Do you feel that the stock market is in need of a "healthy" correction?
A: A correction can only be viewed as "healthy" in retrospect, when the market
has recovered to a higher level. While I remain bullish about long-term
equity returns, I fully expect corrections in both the market and individual
stocks to occur. Overall market movements can be driven by events and
emotions which are beyond anyone's control and ability to predict, such as
interest rate hikes and the flow of funds from different groups of investors.
We try to stay focused on the indi-
* This return does not include the Fund's maximum 5.75% sales charge. Returns
are calculated by determining the percentage change in net asset value with
all distributions reinvested during the period from 12/31/94 to 12/31/97.
During this period, Lipper Growth & Income Funds Category consisted of 402
mutual funds tracked by Lipper Analytical Services, Inc., a nationally
recognized monitor of mutual fund performance. It is not possible to invest
directly in a Lipper Category. 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.
4
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EV Traditional Stock Fund as of December 31, 1997
MANAGEMENT DISCUSSION CONT'D
vidual earnings power of companies in our Portfolio. While we do not always
get each quarter's earnings forecasts right, we believe that, over the long
haul, stock prices follow earnings levels and fundamental research can
identify superior earnings growth companies.
Q: Are there any particular areas of the stock market that concern you?
A: One area is initial public offerings (IPOs), which have been steadily growing
for roughly five years with little sign of a slowdown. The amount of money
raised by IPOs during the past two years is phenomenal. There is the
potential that excess capital has funded too many competitors in several
portions of the market. Additionally, some individual stock prices -- for
example, those of selected Internet-related companies -- are stratospheric,
with little to no support from the companies' underlying fundamentals. I
would be very pleased to see the market work out some of these excesses
without experiencing an across-the-board correction.
Q: What is the general strategy of this Fund?
A: If this Fund had a motto, it would be: "No Unnecessary Risks." As I mentioned
previously, an equity fund such as this one needs to be exposed to stock
market risk, but that does not mean making big bets on individual stocks or
sectors. Our goal is to participate in the large capitalization, blue chip
segment of the market, buying stocks with a bottom-up, fundamental-driven
research focus. As a growth-and-income fund, we seek to invest in companies
that not only provide capital appreciation, but which also have strong
dividend growth. To enhance the Portfolio's yield, we invest a portion of the
assets in convertible preferred securities and other higher-yielding
securities, such as real estate investment trusts (REITs). Our selling
discipline allows us to further lower risk by preserving capital when we make
mistakes.
Q: What is your outlook for the U.S. stock market and the economy in 1998?
A: Over the next year, large capitalization stocks should, in my view, continue
to outperform small capitalization stocks. The economic uncertainty brought
on by the turmoil in Asia will present a host of new challenges to U.S. firms
which the larger, more established companies are better positioned to handle.
Domestic businesses should continue to perform well this year, including food
and drug retailers, computer service firms, financial services companies, and
media and cable firms. Over the longer term, many of the multinationals in
the Portfolio will be able to use the present turmoil to extend their
worldwide franchises.
As for the economy, its growth will be heavily dependent upon the duration
and depth of the slowdown in the Asian economies. Through our independent
research, conversations with company officials and research from Wall Street,
we will keep up to date on developments in the economically significant Asian
countries.
The key to successful investing in 1998 will likely be flexibility. We will
strive to adapt quickly to new information, assess the long-term earnings
ramifications that events have on our Portfolio holdings, and not overreact
to short-term market sentiment. We try to do this every year, of course, but
1998 has the potential to be a very volatile and challenging year for equity
investors, demanding flexibility and a disciplined stock selection process.
5
<PAGE>
EV Traditional Stock Fund as of December 31, 1997
FUND PERFORMANCE
Comparison of Change in Value of a $10,000 Investment in
EV Traditional Stock Fund vs. the Standard & Poor's 500*
December 31, 1987, through December 31, 1997
[LINE GRAPH APPEARS HERE]
EV TRADITIONAL
Date STOCK FUND Fund/Off Pr S&P 500
---- ---------- ----------- -------
12/31/87 $10,000 $9,423 $10,000
1/31/88 $10,525 $9,917 $10,435
2/28/88 $10,805 $10,181 $10,901
3/31/88 $10,401 $9,801 $10,569
4/30/88 $10,427 $9,825 $10,703
5/31/88 $10,660 $10,045 $10,771
6/30/88 $11,043 $10,405 $11,272
7/31/88 $11,018 $10,382 $11,245
8/31/88 $10,791 $10,168 $10,845
9/30/88 $11,236 $10,587 $11,310
10/31/88 $11,507 $10,843 $11,638
11/30/88 $11,321 $10,667 $11,452
12/31/88 $11,501 $10,837 $11,655
1/31/89 $12,215 $11,510 $12,519
2/28/89 $11,923 $11,234 $12,192
3/31/89 $12,069 $11,372 $12,480
4/30/89 $12,678 $11,946 $13,146
5/31/89 $13,084 $12,329 $13,648
6/30/89 $12,927 $12,181 $13,581
7/31/89 $13,998 $13,190 $14,821
8/31/89 $14,343 $13,515 $15,091
9/30/89 $14,343 $13,515 $15,033
10/31/89 $14,164 $13,346 $14,696
11/30/89 $14,333 $13,505 $14,980
12/31/89 $14,827 $13,971 $15,342
1/31/90 $13,910 $13,107 $14,326
2/28/90 $14,144 $13,327 $14,489
3/31/90 $14,459 $13,624 $14,881
4/30/90 $14,244 $13,421 $14,527
5/31/90 $15,425 $14,534 $15,911
6/30/90 $15,343 $14,457 $15,817
7/31/90 $15,446 $14,554 $15,778
8/31/90 $14,213 $13,393 $14,334
9/30/90 $13,757 $12,963 $13,645
10/31/90 $13,919 $13,115 $13,600
11/30/90 $14,667 $13,820 $14,462
12/31/90 $14,914 $14,053 $14,867
1/31/91 $15,100 $14,228 $15,527
2/28/91 $15,826 $14,913 $16,613
3/31/91 $16,091 $15,162 $17,024
4/30/91 $16,023 $15,098 $17,079
5/31/91 $16,534 $15,579 $17,787
6/30/91 $15,953 $15,032 $16,984
7/31/91 $16,607 $15,648 $17,794
8/31/91 $16,923 $15,946 $18,192
9/30/91 $16,689 $15,725 $17,891
10/31/91 $16,984 $16,003 $18,150
11/30/91 $16,370 $15,425 $17,400
12/31/91 $18,114 $17,068 $19,388
1/31/92 $17,477 $16,468 $19,048
2/28/92 $17,724 $16,701 $19,275
3/31/92 $17,555 $16,542 $18,900
4/30/92 $18,026 $16,985 $19,477
5/31/92 $18,366 $17,305 $19,547
6/30/92 $17,869 $16,837 $19,258
7/31/92 $18,723 $17,642 $20,067
8/31/92 $18,460 $17,394 $19,636
9/30/92 $18,565 $17,493 $19,865
10/31/92 $18,869 $17,780 $19,955
11/30/92 $19,345 $18,228 $20,607
12/31/92 $19,369 $18,251 $20,864
1/31/92 $19,123 $18,019 $21,059
2/28/93 $19,152 $18,046 $21,328
3/31/93 $19,629 $18,495 $21,775
4/30/93 $18,975 $17,880 $21,274
5/31/93 $19,179 $18,071 $21,810
6/30/93 $19,237 $18,126 $21,879
7/31/93 $19,310 $18,195 $21,815
8/31/93 $19,835 $18,690 $22,618
9/30/93 $19,864 $18,718 $22,444
10/31/93 $20,216 $19,049 $22,929
11/30/93 $19,761 $18,620 $22,684
12/31/93 $20,181 $19,016 $22,963
1/31/94 $20,912 $19,705 $23,761
2/28/94 $20,425 $19,246 $23,099
3/31/94 $19,484 $18,359 $22,094
4/30/94 $19,795 $18,652 $22,405
5/31/94 $19,958 $18,806 $22,739
6/30/94 $19,485 $18,360 $22,187
7/31/94 $19,903 $18,754 $22,940
8/31/94 $20,330 $19,156 $23,858
9/30/94 $19,804 $18,661 $23,270
10/31/94 $19,896 $18,747 $23,812
11/30/94 $19,005 $17,908 $22,928
12/31/94 $19,349 $18,232 $23,266
1/31/95 $19,323 $18,207 $23,884
2/28/95 $20,073 $18,914 $24,799
3/31/95 $20,894 $19,688 $25,530
4/30/95 $21,379 $20,145 $26,305
5/31/95 $22,259 $20,974 $27,321
6/30/95 $22,690 $21,380 $27,964
7/31/95 $23,591 $22,229 $28,912
8/31/95 $24,042 $22,654 $28,963
9/30/95 $24,439 $23,028 $30,185
10/31/95 $24,240 $22,840 $30,095
11/30/95 $25,164 $23,711 $31,392
12/31/95 $25,689 $24,206 $32,001
1/31/96 $26,197 $24,685 $33,104
2/28/96 $26,157 $24,647 $33,394
3/31/96 $26,359 $24,837 $33,718
4/30/96 $26,786 $25,240 $34,237
5/31/96 $27,579 $25,987 $35,085
6/30/96 $27,802 $26,197 $35,230
7/31/96 $26,554 $25,021 $33,686
8/31/96 $27,534 $25,944 $34,388
9/30/96 $28,698 $27,041 $36,320
10/31/96 $29,311 $27,618 $37,335
11/30/96 $30,990 $29,201 $40,142
12/31/96 $30,878 $29,095 $39,345
1/31/97 $32,520 $30,643 $41,822
2/28/97 $32,886 $30,987 $42,134
3/31/97 $31,698 $29,867 $40,402
4/30/97 $33,236 $31,317 $42,831
5/31/97 $35,079 $33,053 $45,409
6/30/97 $36,354 $34,255 $47,451
7/31/97 $38,884 $36,639 $51,230
8/31/97 $36,919 $34,787 $48,360
9/30/97 $39,524 $37,242 $51,003
10/31/97 $38,668 $36,435 $49,316
11/30/97 $39,427 $37,151 $51,586
12/31/97 $40,428 $38,094** $52,468
Performance+
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Average Annual Total Returns (at net asset value)
- --------------------------------------------------------------------------------
One Year 30.9%
Five Years 15.9
Ten Years 15.0
SEC Average Annual Total Returns (including 5.75% sales charge)
- --------------------------------------------------------------------------------
One Year 23.4%
Five Years 14.5
Ten Years 14.3
* Source: Towers Data Systems, Bethesda, MD.
The chart compares the Fund's total return with that of the S&P 500 Index, a
broad-based unmanaged index of 500 common stocks. Returns are calculated by
determining the percentage change in net asset value with all distributions
reinvested. The lines on the chart represent the total returns of $10,000
hypothetical investments in the Fund and the S&P 500 Index. 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. It is not possible to invest directly in an Index.
** This figure represents the Fund's performance including the Fund's maximum
5.75% initial sales charge.
+ Returns are calculated by determining the percentage change in net asset
value with all distributions reinvested. SEC returns reflect maximum sales
charge as noted.
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.
6
<PAGE>
EV Traditional Stock Fund as of December 31, 1997
FINANCIAL STATEMENTS
Statement of Assets and Liabilities
As of December 31, 1997
Assets
- ------------------------------------------------------------------------------
Investment in Stock Portfolio
(Portfolio), at value (Note 1A) $124,107,423
(identified cost, $94,490,672)
Receivable for Fund shares sold 602,878
- ------------------------------------------------------------------------------
Total assets $124,710,301
- ------------------------------------------------------------------------------
Liabilities
- ------------------------------------------------------------------------------
Payable for Fund shares redeemed $ 74,258
Payable to affiliate for Trustees' fees (Note 4) 840
Accrued expenses 66,209
- ------------------------------------------------------------------------------
Total liabilities $ 141,307
- ------------------------------------------------------------------------------
Net Assets for 9,051,839 shares of
beneficial interest outstanding $124,568,994
- ------------------------------------------------------------------------------
Sources of Net Assets
- ------------------------------------------------------------------------------
Paid-in capital $ 95,012,355
Accumulated distributions in excess of realized gain on
investments from Portfolio (computed on the basis of
identified cost) (72,362)
Accumulated undistributed net investment income 12,250
Net unrealized appreciation of investments from Portfolio
(computed on the basis of identified cost) 29,616,751
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Total $124,568,994
- --------------------------------------------------------------------------------
Net Asset Value and Redemption
Price Per Share
- ------------------------------------------------------------------------------
($124,568,994 / 9,051,839 shares of beneficial
interest outstanding) $ 13.76
- ------------------------------------------------------------------------------
Computation of Offering Price
- ------------------------------------------------------------------------------
Offering price per share (100 / 94.25 of $13.76) $ 14.60
- -----------------------------------------------------------------------------
On sales of $25,000 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, $13,536) $ 2,150,052
Interest income allocated from Portfolio 376,456
Expenses allocated from Portfolio (873,121)
- --------------------------------------------------------------------------------
Net investment income from Portfolio $ 1,653,387
- --------------------------------------------------------------------------------
Expenses
- --------------------------------------------------------------------------------
Compensation of Trustees not members of the
Administrator's organization (Note 4) $ 2,890
Service fees (Note 5) 153,868
Transfer and dividend disbursing agent fees 118,255
Printing and postage 30,175
Registration fees 18,993
Legal and accounting services 17,653
Custodian fee 15,017
Miscellaneous 15,907
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Total expenses $ 372,758
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Net investment income $ 1,280,629
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Realized and Unrealized
Gain (Loss) from Portfolio
- --------------------------------------------------------------------------------
Net realized gain (loss) --
Investment transactions (identified cost basis) $ 24,399,182
Options 52,300
- --------------------------------------------------------------------------------
Net realized gain on investment transactions $ 24,451,482
- --------------------------------------------------------------------------------
Change in unrealized appreciation (depreciation) --
Investments $ 5,910,479
Options 162,438
- --------------------------------------------------------------------------------
Net change in unrealized appreciation (depreciation)
of investments $ 6,072,917
- --------------------------------------------------------------------------------
Net realized and unrealized gain on investments $ 30,524,399
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Net increase in net assets from operations $ 31,805,028
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See notes to financial statements
7
<PAGE>
EV Traditional Stock 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 income $ 1,280,629 $ 1,723,350
Net realized gain on
investment transactions 24,451,482 13,944,394
Net change in unrealized
appreciation (depreciation)
of investments 6,072,917 3,178,793
- --------------------------------------------------------------------------------
Net increase in net assets from operations $ 31,805,028 $ 18,846,537
- --------------------------------------------------------------------------------
Distributions to shareholders (Note 2) --
From net investment income $ (1,325,315) $ (1,656,709)
From net realized gain on investments (27,596,519) (10,784,514)
In excess of net realized gain (142,028) --
- --------------------------------------------------------------------------------
Total distributions to shareholders $ (29,063,862) $ (12,441,223)
- --------------------------------------------------------------------------------
Transactions in shares of beneficial
interest (Note 3) --
Proceeds from sale of shares $ 3,463,272 $ 2,060,267
Net asset value of shares issued to
shareholders in payment of
distributions declared 22,690,089 9,184,094
Cost of shares redeemed (11,100,776) (10,249,142)
- --------------------------------------------------------------------------------
Net increase in net assets from Fund
share transactions $ 15,052,585 $ 995,219
- --------------------------------------------------------------------------------
Net increase in net assets $ 17,793,751 $ 7,400,533
- --------------------------------------------------------------------------------
Net Assets
- --------------------------------------------------------------------------------
At beginning of year $ 106,775,243 $ 99,374,710
- --------------------------------------------------------------------------------
At end of year $ 124,568,994 $ 106,775,243
- --------------------------------------------------------------------------------
Accumulated
undistributed net
investment income
included in net assets
- --------------------------------------------------------------------------------
At end of year $ 12,250 $ 126,626
- --------------------------------------------------------------------------------
See notes to financial statements
8
<PAGE>
EV Traditional Stock Fund as of December 31, 1997
FINANCIAL STATEMENTS CONT'D
Financial Highlights
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------------------------
1997 1996 1995 1994 1993
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value -- Beginning of year $ 13.560 $ 12.760 $10.900 $12.490 $13.480
- ----------------------------------------------------------------------------------------------------------------------
Income (loss) from operations
- ----------------------------------------------------------------------------------------------------------------------
Net investment income $ 0.163 $ 0.228 $ 0.250 $ 0.250 $ 0.270*
Net realized and unrealized gain (loss) on investments 3.827 2.272 3.255 (0.765) 0.270*
- ----------------------------------------------------------------------------------------------------------------------
Total income (loss) from operations $ 3.990 $ 2.500 $ 3.505 $(0.515) $ 0.540
- ----------------------------------------------------------------------------------------------------------------------
Less distributions
- ----------------------------------------------------------------------------------------------------------------------
From net investment income $ (0.170) $ (0.220) $(0.251) $(0.250) $(0.270)
From net realized gain on investments (3.602) (1.480) (1.394) (0.765) (1.260)
In excess of net realized gain on investments (0.018) -- -- (0.060) --
- ----------------------------------------------------------------------------------------------------------------------
Total distributions $ (3.790) $ (1.700) $(1.645) $(1.075) $(1.530)
- ----------------------------------------------------------------------------------------------------------------------
Net asset value -- End of year $ 13.760 $ 13.560 $12.760 $10.900 $12.490
- ----------------------------------------------------------------------------------------------------------------------
Total Return/(1)/ 30.93% 20.20% 32.77% (4.12)% 4.19%
- ----------------------------------------------------------------------------------------------------------------------
Ratios/Supplemental Data
- ----------------------------------------------------------------------------------------------------------------------
Net assets, end of year (000 omitted) $124,569 $106,775 $99,375 $84,299 $97,513
Ratio of expenses to average daily net assets/(2)/ 1.04% 1.00% 1.04% 0.98% 0.96%
Ratio of net investment income to average daily net assets 1.07% 1.70% 2.02% 2.09% 2.01%
Portfolio Turnover/(3)/ -- -- -- 66% 105%
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
* Computed on average share basis
/(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
not computed on an annualized basis.
/(2)/Includes the Fund's share of the Portfolio's allocated expenses for the
period the Fund was investing in the Portfolio.
/(3)/Portfolio Turnover represents the rate of portfolio activity for the period
while the Fund was making investments directly in securities. The portfolio
turnover rate for the period since the Fund transferred substantially all
of its investable assets to the Portfolio is shown in the Portfolio's
financial statements which are included elsewhere in this report.
See notes to financial statements
9
<PAGE>
EV Traditional Stock Fund as of December 31, 1997
NOTES TO FINANCIAL STATEMENTS
1 Significant Accounting Policies
-----------------------------------------------------------------------------
EV Traditional Stock Fund (the Fund) a Massachusetts business trust, is
registered under the Investment Company Act of 1940, as amended, as a
diversified, open-end management investment company. The Fund is a series in
the Eaton Vance Special Investment Trust. On August 1, 1994, the Fund
transferred substantially all of its investable assets to the Stock Portfolio
(the Portfolio). Prior to this date the Fund's name was Eaton Vance Stock
Fund. The Fund invests all of its investable assets in interests in 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 (86.6% 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. 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.
On June 23, 1997, the Board of Trustees of the Trust adopted a multiple class
plan for the Fund which permits the Fund to issue more than one class of
shares. Initially, the Fund will offer three classes of shares and, effective
January 1, 1998 the existing shares of the Fund will be designated Class A
shares. On June 23, 1997, the Board of Trustees also approved a Plan of
Reorganization (the "Plan") for the Trust. Under the terms of the Plan, the
Fund will acquire substantially all of the assets and liabilities of EV
Marathon Stock Fund and EV Classic Stock Fund. The transaction will be
structured for tax purposes to qualify as a tax-free reorganization under the
Internal Revenue Code. As a result of the reorganization, shareholders of the
Marathon Fund will receive Class B shares and shareholders of the Classic
Fund will receive Class C shares of the Fund. The reorganization will occur
after the close of business, December 31, 1997.
A Investment Valuations -- Valuations 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. Prior to the Fund's investment in the
Portfolio, the Fund held its investments directly.
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, option and financial futures transactions.
Accordingly, no provision for federal income or excise tax is necessary.
Pursuant to Section 852 of the Internal Revenue Code, the Fund designates
$13,464,429 at 28% and $9,288,797 at 20% as a long-term capital gain
distribution for its taxable year ended December 31, 1997.
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 reflected as a reduction of operating
expenses on the Statement of Operations.
E Other -- Investment transactions are accounted for on a trade date basis.
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
-----------------------------------------------------------------------------
The Fund's present policy is to pay quarterly dividends from net investment
income allocated to the Fund by the Portfolio (less the Fund's direct and
allocated expenses) and to distribute at least annually any net realized
capital gains so allocated. 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 requires that only
distributions in excess of tax basis earnings and profits be
10
<PAGE>
EV Traditional Stock Fund as of December 31, 1997
NOTES TO FINANCIAL STATEMENTS CONT'D
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 over distributions 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 Fund under its indenture of trust is authorized to issue unlimited shares
of beneficial interest (with no par value). Transactions in Fund shares were
as follows:
Year ended December 31,
---------------------------
1997 1996
-------------------------------------------------------------------------
Sales 222,388 153,277
Issued to shareholders electing to
receive payments of distributions
in Fund shares 1,677,473 696,901
Redemptions (723,746) (764,183)
-------------------------------------------------------------------------
Net increase 1,176,115 85,995
-------------------------------------------------------------------------
4 Investment Adviser Fee and Other Transactions with Affiliates
-----------------------------------------------------------------------------
Eaton Vance serves only as the administrator of the Fund, but receives no
compensation. The Portfolio has engaged Boston Management and Research (BMR),
a subsidiary of Eaton Vance Management (EVM), to render investment advisory
services. See Note 2 of the Portfolio's Notes to Financial Statements which
are included elsewhere in this report. Except as to Trustees of the Fund and
the Portfolio who are not members of EVM's or BMR's organization, officers
and Trustees receive remuneration for their services to the Fund out of the
investment adviser fee.
Certain of the officers and Trustees of the Fund and Portfolio are officers
and trustees of the above organizations.
5 Service Plan
-----------------------------------------------------------------------------
The Trustees of the Fund adopted a Service Plan designed to meet the service
fee requirements of the revised sales charge rule of The National Association
of Securities Dealers, Inc. The Service Plan replaced the Fund's distribution
plan which became effective on December 27, 1990. The Service Plan provides
that the Fund may make service fee payments to the Principal Underwriter,
Eaton Vance Distributors, Inc., a subsidiary of Eaton Vance Management,
Authorized Firms or other persons in amounts not exceeding 0.25% of the
Fund's average daily net assets for any fiscal year. The Trustees have
implemented the Service Plan by authorizing the Fund to make quarterly
service fee payments to the Principal Underwriter and Authorized Firms in
amounts not expected to exceed 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 sold on or after June 12, 1991 by such persons and remaining outstanding
for at least twelve months. Such payments are made for personal service
and/or the maintenance of shareholder accounts. During the year ended
December 31, 1997, the Fund paid or accrued $153,868 under the Plan to the
Principal Underwriter and Authorized Firms.
6 Investment Transactions
-----------------------------------------------------------------------------
Increases and decreases in the Fund's investment in the Portfolio aggregated
$4,651,034 and $20,444,016, respectively.
7 Subsequent Event
-----------------------------------------------------------------------------
Effective January 1, 1998, the Fund changed its name to Eaton Vance Stock
Fund and shares of the Fund are designated Class A shares. Additional classes
of shares are also offered.
11
<PAGE>
EV Traditional Stock Fund as of December 31, 1997
REPORT OF INDEPENDENT ACCOUNTANTS
To Shareholders and Board of Trustees
of EV Traditional Stock Fund:
- --------------------------------------------------------------------------------
We have audited the accompanying statement of assets and liabilities of EV
Traditional Stock Fund, a series of 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 in the
period then ended and the financial highlights for each of the five years in the
period then ended. 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 audits 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, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of EV
Traditional Stock Fund, a series of Eaton Vance Special Investment Trust, as of
December 31, 1997, the results of its operations for the year then ended, the
changes in its net assets for each of the two years in the period then ended and
the financial highlights for each of the five years in the period then ended, in
conformity with generally accepted accounting principles.
COOPERS & LYBRAND L.L.P.
Boston, Massachusetts
February 6, 1998
12
<PAGE>
Stock Portfolio as of December 31, 1997
PORTFOLIO OF INVESTMENTS
Common Stocks -- 93.1%
Security Shares Value
- ------------------------------------------------------------------------------
Advertising -- 0.6%
- ------------------------------------------------------------------------------
Omnicom Group, Inc. 20,000 $ 847,500
- ------------------------------------------------------------------------------
$ 847,500
- ------------------------------------------------------------------------------
Auto and Parts -- 2.4%
- ------------------------------------------------------------------------------
Magna International, Inc. Class A 55,000 $ 3,454,688
- ------------------------------------------------------------------------------
$ 3,454,688
- ------------------------------------------------------------------------------
Banks and Money Services -- 4.9%
- ------------------------------------------------------------------------------
Citicorp 10,332 $ 1,306,352
First Union Corp. 45,000 2,306,250
JP Morgan and Co., Inc. 30,000 3,386,250
- ------------------------------------------------------------------------------
$ 6,998,852
- ------------------------------------------------------------------------------
Beverages -- 0.6%
- ------------------------------------------------------------------------------
PepsiCo, Inc. 25,000 $ 910,938
- ------------------------------------------------------------------------------
$ 910,938
- ------------------------------------------------------------------------------
Communications Equipment -- 0.5%
- ------------------------------------------------------------------------------
Nokia Corp., ADR 10,000 $ 700,000
- ------------------------------------------------------------------------------
$ 700,000
- ------------------------------------------------------------------------------
Computers and Business Equipment -- 2.8%
- ------------------------------------------------------------------------------
Lexmark International Group, Inc.* 65,000 $ 2,470,000
Xerox Corp. 20,000 1,476,250
- ------------------------------------------------------------------------------
$ 3,946,250
- ------------------------------------------------------------------------------
Drugs -- 11.0%
- ------------------------------------------------------------------------------
Amgen, Inc.* 45,000 $ 2,435,625
Elan Corp., PLC, ADR* 50,000 2,559,375
Eli Lilly & Co. 60,000 4,177,500
Genzyme Corp. Class A* 50,000 1,384,375
Pfizer, Inc. 20,000 1,491,250
Warner-Lambert Co. 30,000 3,720,000
- ------------------------------------------------------------------------------
$15,768,125
- ------------------------------------------------------------------------------
Electronics - Semiconductors -- 1.0%
- ------------------------------------------------------------------------------
Intel Corp. 20,000 $ 1,405,000
- ------------------------------------------------------------------------------
$ 1,405,000
- ------------------------------------------------------------------------------
Financial - Miscellaneous -- 3.5%
- ------------------------------------------------------------------------------
Federal National Mortgage Association 65,000 $ 3,709,063
MGIC Investment Corp. 20,000 1,330,000
- ------------------------------------------------------------------------------
$ 5,039,063
- ------------------------------------------------------------------------------
Foods -- 8.2%
- ------------------------------------------------------------------------------
McCormick & Co., Inc. 130,000 $ 3,648,125
Sara Lee Corp. 60,000 3,378,750
Unilever ADR 76,000 4,745,249
- ------------------------------------------------------------------------------
$11,772,124
- ------------------------------------------------------------------------------
Health Services -- 0.6%
- ------------------------------------------------------------------------------
Trigon Healthcare, Inc.* 30,000 $ 783,750
- ------------------------------------------------------------------------------
$ 783,750
- ------------------------------------------------------------------------------
Household Products -- 2.6%
- ------------------------------------------------------------------------------
Gillette Co. 19,640 $ 1,972,593
Newell Co. 40,000 1,700,000
- ------------------------------------------------------------------------------
$ 3,672,593
- ------------------------------------------------------------------------------
Information Services -- 6.6%
- ------------------------------------------------------------------------------
Automatic Data Processing, Inc. 80,000 $ 4,909,999
Reuters Holdings PLC, ADR 60,000 3,975,000
SunGard Data Systems, Inc.* 20,000 620,000
- ------------------------------------------------------------------------------
$ 9,504,999
- ------------------------------------------------------------------------------
Insurance -- 9.5%
- ------------------------------------------------------------------------------
Allstate Corp. 44,540 $ 4,047,573
American International Group, Inc. 15,000 1,631,250
Marsh & McLennan Cos., Inc. 55,000 4,100,938
Progressive Corp. 32,000 3,836,000
- ------------------------------------------------------------------------------
$13,615,761
- ------------------------------------------------------------------------------
See notes to financial statements
13
<PAGE>
Stock Portfolio as of December 31, 1997
PORTFOLIO OF INVESTMENTS CONT'D
Security Shares Value
- --------------------------------------------------------------------------------
Leisure Equipment -- 0.6%
- --------------------------------------------------------------------------------
Sturm, Ruger & Co., Inc. 50,000 $ 921,875
- --------------------------------------------------------------------------------
$ 921,875
- --------------------------------------------------------------------------------
Medical Products -- 5.7%
- --------------------------------------------------------------------------------
Baxter International, Inc. 85,000 $ 4,287,187
Johnson & Johnson Co. 60,000 3,952,500
- --------------------------------------------------------------------------------
$ 8,239,687
- --------------------------------------------------------------------------------
Oil and Gas - Equipment and Services -- 0.4%
- --------------------------------------------------------------------------------
Smith International, Inc.* 10,000 $ 613,750
- --------------------------------------------------------------------------------
$ 613,750
- --------------------------------------------------------------------------------
Oil and Gas - Exploration and Production -- 5.6%
- --------------------------------------------------------------------------------
Anadarko Petroleum Corp. 25,000 $ 1,517,188
British Petroleum, PLC ADR 30,000 2,390,625
Meridian Resource Corp.* 300,000 2,868,750
USX-Marathon Group 35,000 1,181,250
- --------------------------------------------------------------------------------
$ 7,957,813
- --------------------------------------------------------------------------------
Publishing -- 4.9%
- --------------------------------------------------------------------------------
Dow Jones & Co., Inc. 70,000 $ 3,758,125
McGraw-Hill, Inc. 45,000 3,330,000
- --------------------------------------------------------------------------------
$ 7,088,125
- --------------------------------------------------------------------------------
REITS -- 5.1%
- --------------------------------------------------------------------------------
Camden Property Trust 20,000 $ 620,000
Equity Residential Properties Trust 10,000 505,625
Highwood Properties, Inc. 20,000 743,750
Liberty Property Trust, Inc. 25,000 714,063
Patriot America Hospitality, Inc. 70,000 2,016,875
Public Storage, Inc. 50,000 1,468,750
Security Capital Industrial Trust 25,000 621,875
Security Capital Pacific Trust, Inc. 25,000 606,250
- --------------------------------------------------------------------------------
$ 7,297,188
- --------------------------------------------------------------------------------
Retail - Food and Drug -- 5.6%
- --------------------------------------------------------------------------------
CVS Corp. 80,000 $ 5,124,999
Safeway, Inc.* 45,000 2,846,250
- --------------------------------------------------------------------------------
$ 7,971,249
- --------------------------------------------------------------------------------
Retail - Specialty and Apparel -- 3.7%
- --------------------------------------------------------------------------------
The Home Depot, Inc. 90,000 $ 5,298,749
- --------------------------------------------------------------------------------
$ 5,298,749
- --------------------------------------------------------------------------------
Specialty Chemicals and Materials -- 2.9%
- --------------------------------------------------------------------------------
Ecolab, Inc. 75,000 $ 4,157,813
- --------------------------------------------------------------------------------
$ 4,157,813
- --------------------------------------------------------------------------------
Telephone Utilities -- 3.8%
- --------------------------------------------------------------------------------
GTE Corp. 70,000 $ 3,657,500
SBC Communications, Inc. 25,000 1,831,250
- --------------------------------------------------------------------------------
$ 5,488,750
- --------------------------------------------------------------------------------
Total Common Stocks
(identified cost, $99,845,661) $133,454,642
- --------------------------------------------------------------------------------
Convertible Preferred Stocks -- 3.6%
Insurance -- 0.8%
- --------------------------------------------------------------------------------
Sun America, Inc., 3.188% 25,000 $ 1,164,063
- --------------------------------------------------------------------------------
$ 1,164,063
- --------------------------------------------------------------------------------
Metals - Gold -- 2.8%
- --------------------------------------------------------------------------------
Freeport McMoRan Copper & Gold,
Series CV, 5% 180,000 $ 3,903,750
- --------------------------------------------------------------------------------
$ 3,903,750
- --------------------------------------------------------------------------------
Total Convertible Preferred Stocks
(identified cost, $4,977,348) $ 5,067,813
- --------------------------------------------------------------------------------
Convertible Bonds -- 3.2%
Principal
Amount
Security (000's Omitted) Value
- --------------------------------------------------------------------------------
INCO Ltd., 5.75%, 7/1/04 $ 3,920 $ 3,743,600
Scandinavian Broadcasting System,
7.25%, 8/1/05 840 844,200
- --------------------------------------------------------------------------------
Total Convertible Bonds
(identified cost, $5,038,992) $ 4,587,800
- --------------------------------------------------------------------------------
See notes to financial statements
14
<PAGE>
Stock Portfolio as of December 31, 1997
PORTFOLIO OF INVESTMENTS CONT'D
Corporate Bonds -- 0.0%
Principal
Amount
Security (000's Omitted) Value
- --------------------------------------------------------------------------------
H. P. Hood & Son, 7.50%, 2/1/01 $ 50 $ 39,400
- --------------------------------------------------------------------------------
Total Corporate Bonds
(identified cost, $50,000) $ 39,400
- --------------------------------------------------------------------------------
Total Investments -- 99.9%
(identified cost, $109,912,001) $143,149,655
- --------------------------------------------------------------------------------
Other Assets, Less Liabilities -- 0.1% $ 198,180
- --------------------------------------------------------------------------------
Net Assets -- 100% $143,347,835
- --------------------------------------------------------------------------------
ADR -- American Depositary Receipt
REIT -- Real Estate Investment Trust
* Non-income producing security.
See notes to financial statements
15
<PAGE>
Stock Portfolio as of December 31, 1997
FINANCIAL STATEMENTS
Statement of Assets and Liabilities
As of December 31, 1997
Assets
- --------------------------------------------------------------------------------
Investments, at value (Note 1A)
(identified cost, $109,912,001) $143,149,655
Cash 174
Interest and dividends receivable 373,245
Tax reclaim receivable 26,891
Deferred organization expenses (Note 1D) 5,195
- --------------------------------------------------------------------------------
Total assets $143,555,160
- --------------------------------------------------------------------------------
Liabilities
- --------------------------------------------------------------------------------
Demand note payable (Note 5) $ 175,000
Payable to affiliate for Trustees' fees (Note 2) 2,000
Accrued expenses 30,325
- --------------------------------------------------------------------------------
Total liabilities $ 207,325
- --------------------------------------------------------------------------------
Net Assets applicable to investors' interest in Portfolio $143,347,835
- --------------------------------------------------------------------------------
Sources of Net Assets
- --------------------------------------------------------------------------------
Net proceeds from capital contributions and withdrawals $110,110,181
Net unrealized appreciation of investments (computed
on the basis of identified cost) 33,237,654
- --------------------------------------------------------------------------------
Total $143,347,835
- --------------------------------------------------------------------------------
Statement of Operations
For the Year Ended
December 31, 1997
Investment Income (Note 1B)
- --------------------------------------------------------------------------------
Dividends (net of foreign taxes, $15,541) $ 2,449,371
Interest income 429,090
- --------------------------------------------------------------------------------
Total income $ 2,878,461
- --------------------------------------------------------------------------------
Expenses
- --------------------------------------------------------------------------------
Investment adviser fee (Note 2) $ 856,583
Compensation of Trustees not members of the Investment
Adviser's organization (Note 2) 8,656
Custodian fee 91,489
Legal and accounting services 30,382
Amortization of organization expenses (Note 1D) 3,266
Miscellaneous 5,118
- --------------------------------------------------------------------------------
Total expenses $ 995,494
- --------------------------------------------------------------------------------
Net investment income $ 1,882,967
- --------------------------------------------------------------------------------
Realized and Unrealized
Gain (Loss) on Investments
- --------------------------------------------------------------------------------
Net realized gain (loss) --
Investment transactions (identified cost basis) $27,030,018
Options 61,335
- --------------------------------------------------------------------------------
Net realized gain on investment transactions $27,091,353
- --------------------------------------------------------------------------------
Change in unrealized appreciation (depreciation) --
Investments (identified cost basis) $ 7,432,174
Options 181,789
- --------------------------------------------------------------------------------
Net change in unrealized appreciation (depreciation)
of investments $ 7,613,963
- --------------------------------------------------------------------------------
Net realized and unrealized gain on investments $34,705,316
- --------------------------------------------------------------------------------
Net increase in net assets from operations $36,588,283
- --------------------------------------------------------------------------------
See notes to financial statements
16
<PAGE>
Stock Portfolio 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 income $ 1,882,967 $ 2,212,222
Net realized gain on investment
transactions 27,091,353 14,716,162
Net change in unrealized appreciation
(depreciation) of investments 7,613,963 4,346,638
- --------------------------------------------------------------------------------
Net increase in net assets from
operations $ 36,588,283 $ 21,275,022
- --------------------------------------------------------------------------------
Capital transactions --
Contributions $ 11,266,958 $ 9,663,514
Withdrawals (27,470,554) (15,692,663)
- --------------------------------------------------------------------------------
Net decrease in net assets from
capital transactions $(16,203,596) $(6,029,149)
- --------------------------------------------------------------------------------
Net increase in net assets $ 20,384,687 $ 15,245,873
- --------------------------------------------------------------------------------
Net Assets
- --------------------------------------------------------------------------------
At beginning of year $122,963,148 $107,717,275
- --------------------------------------------------------------------------------
At end of year $143,347,835 $122,963,148
- --------------------------------------------------------------------------------
See notes to financial statements
17
<PAGE>
Stock Portfolio as of December 31, 1997
FINANCIAL STATEMENTS CONT'D
Supplementary Data
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------------------------
1997 1996 1995 1994*
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Ratios to average daily net assets
- ----------------------------------------------------------------------------------------------------------------------
Expenses 0.73% 0.73% 0.75% 0.73%+
Net investment income 1.37% 1.96% 2.30% 2.45%+
Portfolio Turnover 93% 114% 108% 28%
- ----------------------------------------------------------------------------------------------------------------------
Average commission rate (per share)/(1)/ $ 0.0584 $ 0.0579 $ -- $ --
- ----------------------------------------------------------------------------------------------------------------------
Net assets, end of year (000's omitted) $143,348 $122,963 $107,717 $85,519
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
+ Annualized.
* For the period from the start of business, August 1, 1994, to December 31,
1994.
/(1)/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
18
<PAGE>
Stock Portfolio as of December 31, 1997
NOTES TO FINANCIAL STATEMENTS
1 Significant Accounting Policies
-----------------------------------------------------------------------------
Stock 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 on May 1, 1992. The
Declaration of Trust permits the Trustees to issue beneficial 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 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 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 available 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. If securities were acquired with a remaining maturity of more
than 60 days, their amortized cost value will be based on their value on the
sixty-first day prior to maturity. 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. Securities for which market quotations are unavailable,
including any security the disposition of which is restricted under the
Securities Act of 1933, and other assets will be appraised at their fair
value as determined in good faith by or at the direction of the Trustees of
the Portfolio.
B Income Taxes -- The Portfolio is treated as a partnership for federal tax
purposes. No provision is made by the Portfolio for federal or state taxes on
any taxable income of the Portfolio because each investor in the Portfolio is
ultimately responsible for the payment of any taxes. 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
investors' distributive share of the Portfolio's net investment income, net
realized capital gains, and any other items of income, gain, loss, deduction
or credit.
C Expense Reduction -- Investors Bank & Trust Company (IBT) 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 in the Statement of Operations.
D Deferred Organization Expenses -- Costs incurred by the Portfolio in
connection with its organization are being amortized on the straight-line
basis over five years.
E Other -- Investment transactions are accounted for on a trade date basis.
F Written Options -- The Portfolio may write call or put options for which
premiums are received and are recorded as liabilities, and are subsequently
adjusted to the current value of the options written. Premiums received from
writing options which expire are treated as realized gains. Premiums received
from writing options which are exercised or are closed are offset against the
proceeds or amount paid on the transaction to determine the realized gain or
loss. If a put option is exercised, the premium reduces the cost basis of the
securities purchased by the Portfolio. The Portfolio as a writer of an option
may have no control over whether the underlying securities may be sold (call)
or purchased (put) and as a result bears the market risk of an unfavorable
change in the price of the securities underlying the written option.
G 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 income and expenses during the reporting period. Actual results
could differ from those estimates.
19
<PAGE>
Stock Portfolio as of December 31, 1997
NOTES TO FINANCIAL STATEMENTS CONT'D
2 Investment Adviser Fee and Other Transactions with Affiliates
-----------------------------------------------------------------------------
The investment adviser fee is earned by Boston Management and Research (BMR),
a wholly-owned subsidiary of Eaton Vance Management (EVM), as compensation
for management and investment advisory services rendered to the Portfolio.
The fee is at the annual rate of 5/8 of 1% of average daily net assets. For
the year ended December 31, 1997, the fee amounted to $856,583. Except as to
Trustees of the Portfolio who are not members of EVM's or BMR's organization,
officers and Trustees receive remuneration for their services to the
Portfolio out of such investment adviser fee. Certain of the officers and
Trustees of the Portfolio are officers and trustees of the above
organizations. Trustees of the Portfolio that are not affiliated with the
Investment Adviser may elect to defer receipt of all or a percentage of their
annual fees in accordance with the terms of the Trustees Deferred
Compensation Plan. For the year ended December 31, 1997, no significant
amounts have been deferred.
3 Investments Transactions
-----------------------------------------------------------------------------
Purchases and sales of investments, other than short-term obligations,
aggregated $122,748,987 and $129,415,241, 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, were
as follows:
Aggregate cost $ 110,023,493
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Gross unrealized appreciation $ 34,114,170
Gross unrealized depreciation (988,008)
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Net unrealized appreciation $ 33,126,162
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5 Line of Credit
-----------------------------------------------------------------------------
The Portfolio participates with other portfolios and funds managed by BMR and
EVM and its affiliates in a $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. At December 31, 1997, the Portfolio had a balance
outstanding pursuant to this line of credit of $175,000.
6 Financial Instruments
-----------------------------------------------------------------------------
The Portfolio regularly trades in financial instruments with
off-balance-sheet risk in the normal course of its investing activities and
to assist in managing exposure to market risks such as interest rates and
foreign currency exchange rates. These financial instruments include written
options. The notional or contractual amounts of these instruments represent
the investment the Portfolio has in particular classes of financial
instruments and do not necessarily represent the amounts potentially subject
to risk. The measurement of the risks associated with these instruments is
meaningful only when all related and offsetting transactions are considered.
A summary of obligations under these financial instruments at December 31,
1997 is as follows:
Number of
Contracts
(000's omitted) Premiums
--------------------------------------------------------------------------
Outstanding, beginning of year 100 $ 61,335
Options expired (100) (61,335)
--------------------------------------------------------------------------
Outstanding, end of year - $ -
--------------------------------------------------------------------------
20
<PAGE>
Stock Portfolio as of December 31, 1997
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Trustees and Investors
of Stock Portfolio:
- --------------------------------------------------------------------------------
We have audited the accompanying statement of assets and liabilities of Stock
Portfolio, including the portfolio of investments, 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 in the period then ended and the
supplementary data for each of the three years in the period then ended and for
the period from August 1, 1994 (start of business), 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 held 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 audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and supplementary data referred to
above present fairly, in all material respects, the financial position of Stock
Portfolio, as of December 31, 1997, the results of its operations for the year
then ended, the changes in its net assets for each of the two years in the
period then ended, and the supplementary data for each of the three years in the
period then ended and for the period from August 1, 1994 (start of business) to
December 31, 1994, in conformity with generally accepted accounting principles.
COOPERS & LYBRAND L.L.P.
Boston, Massachusetts
February 6, 1998
21
<PAGE>
EV Traditional Stock Fund as of December 31, 1997
INVESTMENT MANAGEMENT
EV Traditional Stock Fund
Officers
James B. Hawkes
President and 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, Fiduciary Company Incorporated
Jack L. Treynor
Investment Adviser and Consultant
Stock Portfolio
Officers
James B. Hawkes
President and Trustee
Duncan W. Richardson
Vice President and
Portfolio Manager
James L. O'Connor
Treasurer
Alan R. Dynner
Secretary
Independent Trustees
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, Fiduciary Company Incorporated
Jack L. Treynor
Investment Adviser and Consultant
22
<PAGE>
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<PAGE>
Investment Advisor of Stock Portfolio
Boston Management and Research
24 Federal Street
Boston, MA 02110
Administrator of EV Traditional Stock 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, 16th Floor
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 Stock 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-STSRC-2/98
