<PAGE>
[LOGO Investing [ART OF STREET
APPEARS for the SCENE APPEARS
HERE] 21st HERE]
Century
Annual Report December 31, 1997
EV
MARATHON
STOCK FUND
[PHOTO OF NYSE FLAG
APPEARS HERE]
Eaton Vance
Global Management-Global Distribution
M a r a t h o n
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APPEARS HERE]
<PAGE>
EV Marathon Stock Fund as of December 31, 1997
LETTER TO SHAREHOLDERS
[PHOTO APPEARS HERE]
During the year ended December 31, 1997, EV Marathon Stock Fund had a total
return of 29.5%./1/ This return resulted from an increase in net asset value to
$15.40 per share on December 31, 1997 from $13.90 per share on December 31,
1996, and the reinvestment of $0.055 per share in income dividends and $2.441
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 Marathon 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 29.5%
Life of Fund (8/17/94) 21.3
SEC Average Annual Total Returns (including applicable CDSC)
- ---------------------------------------------------------------
One Year 24.5%
Life of Fund (8/17/94) 20.7
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 applicable contingent deferred sales
charge (CDSC).
/2/ Returns are calculated by determining the percentage change in net asset
value with all distributions reinvested. SEC returns reflect the Fund's
applicable CDSC based on the following schedule: 5% - 1st year; 5% - 2nd
year; 4% - 3rd year; 3% - 4th year; 2% - 5th year; 1% - 6th year.
/3/ 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.
- --------------------------------------------------------------------------------
2
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EV Marathon 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.
Five Largest Equity Sectors+
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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.
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
3
<PAGE>
EV Marathon 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-
4
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EV Marathon 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 Marathon Stock Fund as of December 31, 1997
FUND PERFORMANCE
Comparison of Change in Value of a $10,000 Investment in
EV Marathon Stock Fund vs. the Standard & Poor's 500*
August 31, 1994 through December 31, 1997
[LINE GRAPH APPEARS HERE]
Eaton Vance
Date Stock Fund Fund w/CDSC S&P 500*
---- ---------- ------------ -------
8/31/94 $10,000 $18,653 $10,000
9/30/94 $9,743 $18,653 $9,754
10/31/94 $9,803 $18,653 $9,981
11/30/94 $9,358 $18,653 $9,610
12/31/94 $9,487 $18,653 $9,752
1/31/95 $9,437 $18,653 $10,011
2/28/95 $9,783 $18,653 $10,394
3/31/95 $10,168 $18,653 $10,701
4/30/95 $10,385 $18,653 $11,026
5/31/95 $10,790 $18,653 $11,452
6/30/95 $10,977 $18,653 $11,721
7/31/95 $11,387 $18,653 $12,119
8/31/95 $11,585 $18,653 $12,140
9/30/95 $11,743 $18,653 $12,652
10/31/95 $11,649 $18,653 $12,615
11/30/95 $12,076 $18,653 $13,158
12/31/95 $12,331 $18,653 $13,413
1/31/96 $12,548 $18,653 $13,876
2/28/96 $12,508 $18,653 $13,997
3/31/96 $12,618 $18,653 $14,133
4/30/96 $12,803 $18,653 $14,350
5/31/96 $13,147 $18,653 $14,706
6/30/96 $13,259 $18,653 $14,767
7/31/96 $12,641 $18,653 $14,120
8/31/96 $13,077 $18,653 $14,414
9/30/96 $13,604 $18,653 $15,224
10/31/96 $13,883 $18,653 $15,649
11/30/96 $14,684 $18,653 $16,825
12/31/96 $14,638 $18,653 $16,492
1/31/97 $15,392 $18,653 $17,530
2/28/97 $15,550 $18,653 $17,660
3/31/97 $14,970 $18,653 $16,935
4/30/97 $15,690 $18,653 $17,953
5/31/97 $16,546 $18,653 $19,033
6/30/97 $17,145 $18,653 $19,889
7/31/97 $18,307 $18,653 $21,473
8/31/97 $17,375 $18,653 $20,270
9/30/97 $18,575 $18,653 $21,378
10/31/97 $18,168 $18,653 $20,671
11/30/97 $18,511 $18,653 $21,622
12/31/97 $18,953 $18,653** $21,992
Performance+
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Average Annual Total Returns (at net asset value)
- --------------------------------------------------------------------------------
One Year 29.5%
Life of Fund (8/17/94) 21.3
SEC Average Annual Total Returns (including applicable CDSC)
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One Year 24.5%
Life of Fund (8/17/94) 20.7
* Source: Towers Data Systems, Bethesda, MD. Investment operations commenced
8/17/94. 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.
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 applicable
contingent deferred sales charge (CDSC) based on the following schedule:
5%-1st year; 5%-2nd year; 4%-3rd year; 3%-4th year; 2%-5th year; 1%-6th year.
+ Returns are calculated by determining the percentage change in net asset
value with all distributions reinvested. SEC returns reflect the Fund's
applicable CDSC.
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 Marathon Stock Fund as of December 31, 1997
FINANCIAL STATEMENTS
Statement of Assets and Liabilities
As of December 31, 1997
Assets
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Investment in Stock Portfolio (Portfolio), at value (Note 1A)
(identified cost, $14,624,411) $ 17,924,664
Receivable for Fund shares sold 362,218
Receivable from the Administrator (Note 4) 50,000
Deferred organization expenses (Note 1D) 15,915
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Total assets $ 18,352,797
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Liabilities
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Payable for Fund shares redeemed $ 21,613
Payable to affiliate for Trustees' fees (Note 4) 40
Accrued expenses 20,047
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Total liabilities $ 41,700
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Net Assets for 1,188,777 shares of beneficial interest
outstanding $ 18,311,097
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Sources of Net Assets
- --------------------------------------------------------------------------------
Paid-in capital $ 15,022,667
Accumulated net realized loss on investments from
Portfolio (computed on the basis of identified cost) (12,847)
Accumulated undistributed net investment income 1,024
Net unrealized appreciation of investments from
Portfolio (computed on the basis of identified cost) 3,300,253
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Total $ 18,311,097
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Net Asset Value, Offering and Redemption
Price Per Share (Note 6)
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($18,311,097 / 1,188,777 shares of beneficial
interest outstanding) $ 15.40
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Statement of Operations
For the Year Ended
December 31, 1997
Investment Income (Note 1B)
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Dividend income allocated from
Portfolio (net of foreign taxes, $1,862) $ 275,358
Interest income allocated from Portfolio 48,467
Expenses allocated from Portfolio (112,718)
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Net investment income from Portfolio $ 211,107
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Expenses
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Compensation of Trustees not members of the
Administrator's organization (Note 4) $ 63
Distribution and service fees (Note 5) 152,551
Legal and accounting services 17,073
Transfer and dividend disbursing agent fees 16,833
Registration fees 16,076
Printing and postage 13,309
Amortization of organization expenses (Note 1D) 9,125
Custodian fee 5,297
Miscellaneous 2,754
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Total expenses $ 233,081
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Deduct --
Allocation of expenses to the Administrator (Note 4) $ 50,000
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Total expense reductions $ 50,000
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Net expenses $ 183,081
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Net investment income $ 28,026
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Realized and Unrealized
Gain (Loss) from Portfolio
- --------------------------------------------------------------------------------
Net realized gain (loss) --
Investment transactions (identified cost basis) $ 2,356,613
Options 8,381
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Net realized gain on investment transactions $ 2,364,994
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Change in unrealized appreciation (depreciation)
Investments $ 1,455,781
Options 17,471
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Net change in unrealized appreciation (depreciation)
of investments $ 1,473,252
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Net realized and unrealized gain on investments $ 3,838,246
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Net increase in net assets from operations $ 3,866,272
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See notes to financial statements
7
<PAGE>
EV Marathon Stock Fund as of December 31, 1997
FINANCIAL STATEMENTS CONT'D
Statements of Changes in Net Assets
<TABLE>
<CAPTION>
Increase (Decrease) Year Ended Year Ended
in Net Assets December 31, 1997 December 31, 1996
- -------------------------------------------------------------------------------------------
<S> <C> <C>
From operations --
Net investment income $ 28,026 $ 56,330
Net realized gain on
investment transactions 2,364,994 638,639
Net change in unrealized
appreciation (depreciation)
of investments 1,473,252 1,094,269
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Net increase in net assets from operations $ 3,866,272 $ 1,789,238
- -------------------------------------------------------------------------------------------
Distributions to shareholders (Note 2) --
From net investment income $ (33,622) $ (57,661)
In excess of net investment income (18,383) --
From net realized gain on investments (2,554,838) (444,768)
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Total distributions to shareholders $ (2,606,843) $ (502,429)
- -------------------------------------------------------------------------------------------
Transactions in shares of beneficial
interest (Note 3) --
Proceeds from sale of shares $ 6,160,040 $ 6,401,841
Net asset value of shares issued
to shareholders in payment of
distributions declared 2,294,231 378,659
Cost of shares redeemed (3,545,571) (3,260,520)
- -------------------------------------------------------------------------------------------
Net increase in net assets from Fund
share transactions $ 4,908,700 $ 3,519,980
- -------------------------------------------------------------------------------------------
Net increase in net assets $ 6,168,129 $ 4,806,789
- -------------------------------------------------------------------------------------------
Net Assets
- -------------------------------------------------------------------------------------------
At beginning of year $ 12,142,968 $ 7,336,179
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At end of year $ 18,311,097 $ 12,142,968
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Accumulated undistributed
net investment income
included in net assets
- -------------------------------------------------------------------------------------------
At end of year $ 1,024 $ 5,596
- -------------------------------------------------------------------------------------------
</TABLE>
See notes to financial statements
8
<PAGE>
EV Marathon Stock 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 $ 13.900 $ 12.250 $ 9.610 $ 10.000
- -----------------------------------------------------------------------------------------------------------------------------------
Income (loss) from operations
- -----------------------------------------------------------------------------------------------------------------------------------
Net investment income (loss) $ 0.033 $ 0.075 $ 0.060 $ (0.010)
Net realized and unrealized gain (loss) on investments 3.963 2.187 2.815 (0.380)
- -----------------------------------------------------------------------------------------------------------------------------------
Total income (loss) from operations $ 3.996 $ 2.262 $ 2.875 $ (0.390)
- -----------------------------------------------------------------------------------------------------------------------------------
Less distributions
- -----------------------------------------------------------------------------------------------------------------------------------
From net investment income $ (0.036) $ (0.080) $ (0.036) $ --
In excess of net investment income (0.019) -- -- --
From net realized gain on investments (2.441) (0.532) (0.199)
- -----------------------------------------------------------------------------------------------------------------------------------
Total distributions $ (2.496) $ (0.612)$ (0.235) $ --
- -----------------------------------------------------------------------------------------------------------------------------------
Net asset value -- End of period $ 15.400 $ 13.900 $ 12.250 $ 9.610
- -----------------------------------------------------------------------------------------------------------------------------------
Total Return /(1)/ 29.47% 18.71% 29.98% (3.90)%
- -----------------------------------------------------------------------------------------------------------------------------------
Ratios/Supplemental Data++
- -----------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (000 omitted) $ 18,311 12,143 $ 7,336 $ 1,066
Ratio of net expenses to average daily net assets/(2)/ 1.91% 2.09% 2.32% 3.25%+
Ratio of net investment income (loss) to average daily net assets 0.18% 0.57% 0.71% (0.74)%+
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
++ The operating expenses of the Fund and the Portfolio may reflect an
allocation of expenses to the Administrator. Had such action not been taken,
the ratios and net investment income (loss) per share would have been as
follows:
<TABLE>
<CAPTION>
Ratios (As a percentage of average daily net assets):
<S> <C> <C> <C> <C>
Expenses/(2)/ 2.23% 2.33% 3.66% 3.81%+
Net investment income (loss) (0.14)% 0.33% (0.63)% (0.18)%+
Net investment income (loss) per share $(0.026) $ 0.018 $(0.022) $ (0.016)
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
+ Annualized.
* For the period from the start of business, August 17, 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-dividend date. Total return
is not computed on an annualized basis.
/(2)/ Includes the Fund's share of its corresponding Portfolio's allocated
expenses.
See notes to financial statements
9
<PAGE>
EV Marathon Stock Fund as of December 31, 1997
NOTES TO FINANCIAL STATEMENTS
1 Significant Accounting Policies
----------------------------------------------------------------------------
EV Marathon 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. The Fund invests all of its
investable assets in interests in the Stock 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 (12.50% 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 the 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 approved a Plan of Reorganization
(the "Plan") for the Trust. Under the terms of the Plan, the EV Traditional
Stock 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 B 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 Traditional Stock Fund changed its name to
the Eaton Vance Stock Fund.
A Investment Valuations -- Valuations of securities by the Portfolio are
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.
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, options 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 $1,081,202 at 28% and $928,521 at 20% as a long-term capital gain
distribution for its taxable year ended December 31, 1997.
D Deferred Organization Expenses -- Costs incurred by the Fund in connection
with its organization, are being amortized on the straight-line basis over
five years.
E 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.
F Other -- Investment transactions are accounted for on a trade date basis.
G 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
----------------------------------------------------------------------------
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
10
<PAGE>
EV Marathon Stock Fund as of December 31, 1997
NOTES TO FINANCIAL STATEMENTS CONT'D
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 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 relating to distributions are reclassified
to paid-in capital.
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 (with no par
value). Transactions in Fund shares were as follows:
Year ended December 31,
----------------------------------------
1997 1996
--------------------------------------------------------------------------
Sales 384,678 502,161
Issued to shareholders electing to
receive payments of distributions in
Fund shares 152,905 28,362
Redemptions (222,571) (255,733)
--------------------------------------------------------------------------
Net increase 315,012 274,790
--------------------------------------------------------------------------
4 Investment Adviser Fee and Other Transactions with Affiliates
----------------------------------------------------------------------------
Eaton Vance serves only as the administrator of the Fund, but receives no
compensation. To enhance the net income of the Fund $50,000 of the Fund's
expenses were allocated to EV for the year ended December 31, 1997. 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 such
investment adviser fee.
Certain of the officers and Trustees of the Fund and Portfolio are officers
and trustees of the above organizations.
5 Distribution Plan
----------------------------------------------------------------------------
The Fund has adopted a Distribution Plan (the Plan) pursuant to Rule 12b-1
under the Investment Company Act of 1940. The Plan requires the Fund to pay
the principal underwriter, Eaton Vance Distributors, Inc. (EVD) amounts
equal to 1/365 of 0.75% (0.75% annualized) of the Fund's daily net assets,
for providing ongoing distribution services and facilities to the Fund. The
Fund will automatically discontinue payments to EVD during any period in
which there are no outstanding Uncovered Distribution Charges, which are
equivalent to the sum of (i) 5% of the aggregate amount received by the Fund
for the shares sold plus, (ii) distribution fees calculated by applying the
rate of 1% over the prevailing prime rate to the outstanding balance of
Uncovered Distribution Charges of EVD, reduced by the aggregate amount of
contingent deferred sales charges (see Note 6) and amounts theretofore paid
to EVD.
The amount payable to EVD with respect to each day is accrued on such day as
a liability of the Fund and, accordingly, reduces the Fund's net assets.
Such payments would increase upon termination of the distribution agreement
(unless made in accordance with another distribution agreement). As a
result, the Fund does not accrue amounts which may become payable to EVD in
the future because the conditions for recording any contingent liability
under generally accepted accounting principles have not been satisfied. EVD
earned $116,262 for the year ended December 31, 1997, representing 0.75% of
average daily net assets. At December 31,1997, the amount of Uncovered
Distribution Charges of EVD calculated under the Plan was approximately
$340,000.
In addition, the Plan authorizes the Fund to make payments of service fees
to the Principal Underwriter, Authorized Firms and other persons in amounts
not exceeding 0.25% of the Fund's average daily net assets for each fiscal
year. The Trustees of the fund have implemented the Plan by authorizing the
Fund to make quarterly payments of service fees to the Principal Underwriter
and Authorized Firms in amounts not expected to exceed 0.25%, of the Fund's
average daily net assets for any fiscal year based on the value of Fund
shares sold by such persons and remaining outstanding for at least twelve
months. Service fees are separate and distinct from the sales commissions
and distribution fees payable by the Fund to EVD, and, as such, are not
subject to automatic discontinuance when there are no outstanding Uncovered
Distribution Charges of EVD. During the year ended December 31, 1997, the
Fund provided for $36,289 under
11
<PAGE>
EV Marathon Stock Fund as of December 31, 1997
NOTES TO FINANCIAL STATEMENTS CONT'D
the Plan to the Principal Underwriter and Authorized Firms.
Certain of the officers of the Fund and Directors of the Corporation are
officers or directors of EVD.
6 Contingent Deferred Sales Charge (CDSC)
----------------------------------------------------------------------------
A contingent deferred sales charge (CDSC) is imposed on any redemption of
Fund shares made within six years of purchase. Generally, the CDSC is based
upon the lower of the net asset value at date of redemption or date of
purchase. No charge is levied on shares acquired by reinvestment of
dividends or capital gain distributions. The CDSC is imposed at declining
rates that begin at 5% in the first and second year of redemption after
purchase, declining one percentage point each year thereafter. No CDSC is
levied on shares which have been sold to EVD or its affiliates or to their
respective employees or clients. CDSC charges are paid to EVD to reduce the
amount of Uncovered Distribution Charges calculated under the Fund's
Distribution Plan. CDSC charges received when no Uncovered Distribution
charges exist will be retained by the Fund. EVD received approximately
$38,000 of CDSC paid by shareholders for the year ended December 31, 1997.
7 Investment Transactions
----------------------------------------------------------------------------
Increases and decreases in the Fund's investment in the Portfolio aggregated
$5,415,425 and $5,526,763, respectively.
12
<PAGE>
EV Marathon Stock Fund as of December 31, 1997
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Board of Trustees of
EV Marathon Stock Fund:
- --------------------------------------------------------------------------------
We have audited the accompanying statement of assets and liabilities of EV
Marathon Stock Fund, a series of Eaton Vance Special Investment Trust, as of
December 31, 1997, 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 three years in the
period then ended and for the period from August 17, 1994 (start of business) 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, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of EV
Marathon 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 three years in the period then ended
and for the period from August 17, 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
13
<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
14
<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
(000's
Security 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
15
<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
16
<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
17
<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 transaction 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
18
<PAGE>
Stock Portfolio as of December 31, 1997
FINANCIAL STATEMENTS CONT'D
Supplementary Data
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------------------------
1997 1996 1995 1994*
- ----------------------------------------------------------------------------------------------------------------------
Ratios to average daily net assets
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
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 period (000s 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
19
<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.
20
<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
-----------------------------------------------------------------------------
Gross unrealized appreciation $ 34,114,170
Gross unrealized depreciation (988,008)
-----------------------------------------------------------------------------
Net unrealized appreciation $ 33,126,162
-----------------------------------------------------------------------------
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 - $ -
-----------------------------------------------------
21
<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
22
<PAGE>
EV Marathon Stock Fund as of December 31, 1997
INVESTMENT MANAGEMENT
EV Marathon 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
23
<PAGE>
Investment Advisor of Stock Portfolio
Boston Management and Research
24 Federal Street
Boston, MA 02110
Administrator of EV Marathon 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 Marathon Stock Fund
24 Federal Street
Boston, MA 02110
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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.
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M-STSRC-2/98
