<PAGE>
[LOGO OF EATON VANCE Investing
APPEARS HERE]
for the
21st
Century(R)
[PHOTO OF EARTH FROM SPACE APPEARS HERE]
Annual Report December 31, 1998
[PHOTO OF INDIA'S STATUE APPEARS HERE]
EATON VANCE
EMERGING
MARKETS
FUND
Eaton Vance
Global Management Global Distribution
[PHOTO OF CHINA PARADE W/FLAGS APPEARS HERE]
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Eaton Vance Emerging Markets Fund as of December 31, 1998
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Letter to Shareholders
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[PHOTO OF JAMES B. HAWKES APPEARS HERE]
James B. Hawkes
President
Eaton Vance Emerging Markets Fund, Class A shares, had a total return of -32.7%
for the year ended December 31, 1998. That return was the result of a decline in
net asset value per share (NAV) from $11.97 on December 31, 1997 to $8.06 on
December 31, 1998.1
The Fund's Class B shares had a total return of -32.9% during the year ended
December 31, 1998. This return resulted from a decline in NAV from $11.91 on
December 31, 1997 to $7.99 on December 31, 1998.1
By comparison, the Morgan Stanley Capital International Emerging Markets Index -
an unmanaged index of common stocks traded in the emerging markets - had a total
return of -23.2% during the same period.2
Emerging markets were buffeted
by weakness in Asia, currency woes...
The world's emerging markets were under great pressure through much of 1998. The
sluggish Asian economy was slowed further by the lingering recession in Japan
and a series of currency devaluations. Eastern Europe was set back by the
near-collapse of the Russian economy. Tremors were felt in areas such as Latin
America, where underlying economic fundamentals remained fairly strong.
Meanwhile, fears of a global credit squeeze made investors generally more
risk-conscious. The year's results in individual markets were quite
discouraging: Brazil declined 33.5%; Mexico lost 24.7%; Hungary fell 21.2%; and
Hong Kong slid 8.9%.
Continued economic reforms should
still produce good long-term returns in
the emerging markets...
The past year demonstrated the sometimes volatile nature of the emerging
markets. Yet, even as the markets slowly recover, it is important to keep in
mind that the emerging markets represent approximately 85% of the world's
population, but only 15% of the world's economic output. That suggests that
economic growth - admittedly uneven in these early stages - is just getting
started.
It is also helpful to recall how far these markets have come in such a brief
period. Less than a decade ago, Eastern Europe still labored under the yoke of
communism, while Latin America struggled with inefficient, state-run
bureaucracies and severe hyper-inflation. Today it is clear that free-market
economies are the trend of the future. While the past year has been difficult
for investors, we believe that the long-term future remains bright for the
emerging markets. In the pages that follow, portfolio manager Kiersten
Christensen reviews the year just ended, and looks ahead to 1999.
Sincerely,
/s/ James B. Hawkes
James B. Hawkes
President
February 9, 1999
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Fund Information
as of December 31, 1998
Performance/3/ Class A Class B
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Average Annual Total Returns
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(at net asset value)
One Year -32.7 -32.9%
Life of Fund+ -3.7 -4.3
SEC Average Annual Total Returns
(including sales charge or applicable CDSC)
One Year -36.5 -36.3%
Life of Fund+ -5.1 -4.8
+Inception dates: Class A: 12/8/94; Class B: 11/30/94
Ten Largest Holdings/4/
Siam Cement Ltd. 6.6%
Samsung Fire & Marine 6.2
Mol Magyar Olayes Gazi GDR 5.3
Vina Concha y Toro ADR 5.3
Videsh Sanchar Nigam Ltd. GDR 5.1
Telefonos de Mexico ADR 4.9
Pyramids Brewers 4.4
YPF Sociedad Anonima ADR 3.5
Korea Electric Power Corp. 3.1
Dairy Farm International Holdings Ltd. 3.0
1 These returns do not include the 5.75% maximum sales charge for the Fund's
Class A shares or the applicable contingent deferred sales charges (CDSC)
for Class B shares. 2 It is not possible to invest directly in an Index. 3
Returns are historical and are calculated by determining the percentage
change in net asset value with all distributions reinvested. SEC returns
for Class A reflect the maximum 5.75% sales charge. SEC returns for Class B
reflect applicable CDSC based on the following schedule: 5% - 1st and 2nd
years; 4% - 3rd year; 3% - 4th year; 2% - 5th year; 1% - 6th year. 4 Ten
largest holdings account for 47.4% of the Portfolio's investments,
determined by dividing the total market value of the holdings by the total
investments of the Portfolio. Holdings are subject to change. Past
performance is no guarantee of future results. Investment return and
principal value will fluctuate so that shares, when redeemed, may be worth
more or less than their original cost.
2
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Eaton Vance Emerging Markets Fund as of December 31, 1998
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Management Discussion
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[PHOTO OF KIERSTEN CHRISTENSEN APPEARS HERE]
Kiersten Christensen
Portfolio Manager
An interview with
Kiersten Christensen,
Lloyd George Management, London,
portfolio manager of
Emerging Markets Portfolio.
Q: Kiersten, 1998 was a most challenging period around the globe. How would you
characterize the emerging markets in the past year?
A Clearly, it was rough sledding in 1998 for investors in the emerging markets.
The year was marked by a rare confluence of events, including a continuing
economic slowdown in Asia, a meltdown in Russia, rising concerns over
Brazil's fiscal debt problems, a credit crunch and flight from risk following
the Long Term Capital Management crisis, and increasing political
uncertainties in many leading countries. Market volatility sent many
investors toward the relative safe harbor of the U.S. and European markets.
Amid that volatility, selectivity was increasingly important. But even for
the most selective investors, there was no place to hide in 1998.
Q: How have you positioned the Portfolio in this difficult environment?
A: The Portfolio's total Asian position was augmented throughout the third and
fourth quarters of 1998. While the year began with continued fallout from the
Asian financial crisis, Asian economies have since recovered somewhat due to
increased current account surpluses, restructurings, and additional reforms.
Moreover, the region has benefited from a decline in interest rates and a
strengthening of local currencies.
Our Latin America commitment was somewhat lower than a year ago, at 33.1%.
The Latin markets were hampered by higher interest rates for much of the
year. Declines in commodity exports were especially damaging for the region,
largely the result of lower demand from Asia. However, in October, the
International Monetary Fund announced a package to aid Brazil in
implementing its financial reforms. That helped to stabilize the region.
Eastern Europe, at 9.1%, was the next largest weighting. Russia's default on
government debt and subsequent devaluation of the ruble at mid-year hurt
other Eastern European markets. Ailing President Yeltsin's grip on power
appeared increasingly tenuous at year-end.
Q: What industry sectors did you emphasize in the Portfolio?
A: As the economic contagion spread among the emerging markets, the Portfolio
focused increasingly on consumer staples. Beverages, foods and
pharmaceuticals can be attractive in an uncertain economic climate because
they tend to be immune from fluctuations in the
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Five Largest Industry Weightings/1/
[BAR CHART APPEARS HERE]
Telephone Utilities 13.7%
Beverages 9.6%
Insurance 8.1%
Oil & Gas Equipment 7.4%
Banks/Money Services 7.1%
Regional Distribution/1/
[PIE CHART APPEARS HERE]
Latin America 33.1%
East Asia 32.7%
Other 9.6%
East Europe 9.1%
Middle East 8.0%
South Asia 7.5%
/1/ Because the Portfolio is actively managed, Industry Weightings and Regional
Distributions are subject to change.
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Mutual fund shares are not insured by the FDIC and are not deposits or other
obligations of, or guaranteed by, any depository institution. Shares are subject
to investment risks, including possible loss of principal invested.
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3
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Eaton Vance Emerging Markets Fund as of December 31, 1998
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Management Discussion Cont'd
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economy. Oil and gas exploration companies also numbered among our largest
holdings. While energy prices have been depressed, the companies remained
attractive for their proven oil and gas reserves. In addition, in the
aftermath of the Mobil-Texaco merger, there are signs of a possible trend
toward consolidation among large, global energy companies. Finally, we had
large investments among electric, gas and telephone utilities. While these
companies have generally been fairly recession-resistant, they are continuing
to benefit from government efforts to modernize phone and utility
infrastructures in these emerging markets.
Q: Let's look at Latin America. What companies have you favored in that region?
A: Telefonos de Mexico ADR is the monopoly supplier of fixed-line telephone
service in Mexico. Telmex provides local, long-distance and cellular
services, and has enjoyed good earnings momentum from rapid growth in access
lines and a sharp increase in local and international toll volume.
Vina Concha y Toro is among Chile's largest wineries. Chile's stature as a
wine producer and exporter has continued to soar in recent years. Its coastal
location has helped generate a growing trade with the Pacific Rim nations.
Quality producer Concha y Toro has expanded its major land holdings and
increased its wine-making capacity in recent years. The company should also
benefit significantly from the devaluation of the Chilean peso.
YPF Sociedad Anonima is a major Argentine energy producer, with more than 1
billion barrels of proven oil reserves. Like many large Argentine companies,
YPF suffered for many years from a bloated bureaucracy. The company's
prospects improved greatly from government's efforts to privatize industry
and the decontrolling of oil prices. One of the most undervalued global oil
companies, YPF has been in recent merger discussions.
Q: Could we look briefly at East Asia - the China region?
A: Yes. This area of the world has been among the most troubled. The currency
crises that swept through Asia in 1998 stifled economic growth in the first
half and depressed stock market performance. While the region is, by no
means, out of the woods, recently there have been some hopeful signs.
In Thailand, the Portfolio's largest Asian exposure, the government has made
strides in meeting International Monetary Fund targets and reforming the
banking system. Meanwhile, South Korea was the year's strongest performer in
Asia, as the government took steps to restructure the nation's largest
chaebols, or conglomerates. The market was helped by declining interest
rates, a rise in the Japanese yen, and by large current account surpluses and
foreign reserves.
The Portfolio's largest Asian investment at December 31 was Siam Cement, a
major Thai cement manufacturer. The company supplies large infrastructure
projects in Thailand and throughout the region. While domestic sales declined
sharply with the slower Thai economy, exports of petrochemicals, cement, and
construction materials rose dramatically. The devaluation of the baht
improved the company's competitiveness in foreign markets.
Samsung Fire & Marine is South Korea's largest non-life insurer. The company
maintains lines in property and casualty, marine, auto, and specialty
insurance, as well as a variety of other financial services. With a sizable
workforce already in the U.S., Samsung has expanded in recent years into
South America and Eastern Europe.
Q: The Portfolio also had investments in some newer markets, including Egypt and
Hungary.
A: Yes. Hungary re-opened its markets in 1990, following a 42-year hiatus. The
market has been instrumental in attracting capital to Hungary's newly
reformed economy. The
4
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Eaton Vance Emerging Markets Fund as of December 31, 1998
- --------------------------------------------------------------------------------
Management Discussion Cont'd
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Portfolio had an investment in Magyar Olayes Gazipuri GDR, Hungary's national
oil and gas company. The company is active in exploration and production as
well as in marketing and refining. Its proven reserves have risen sharply in
the past two years, reflecting a sharp increase in natural gas. Magyar is
part of a consortium that is building a power plant in Hungary. The company
is also expanding its retail operations in Eastern Europe.
In Egypt, the Portfolio had an investment in Al Ahram Beverages. Al Ahram
brewing operations have been in operation since 1897. The company's marquee
product is Bira Stella Lager, a favorite in Europe that is gaining a foothold
in the U.S. The company also produces a non-alcoholic, malt flavored beverage
as well as natural fruit drinks. Al Ahram also has a bottling agreement with
Royal Crown Cola.
Q: Given the volatility of the past year, what would you say to shareholders
about the coming year?
A: Understandably, many investors have been unnerved by the decline in the
markets during the past year. Yet, for all of the volatility, the commitment
toward economic reform remains unwavering in these emerging markets. Many
have shown a new resolve to correct their banking problems and eliminate some
past excesses that have been in place for decades in countries like Brazil.
But most importantly, investors should remember that we invest in companies,
not just countries. Many of the companies in the Portfolio continued to post
impressive earnings growth, even in these unsettling economic conditions.
That is a most encouraging sign. As the dust settles from these recent
difficulties, we believe that the emerging markets will again provide
excellent opportunities for patient, growth-oriented investors. We are
confident that Emerging Markets Portfolio is well-positioned to participate
in those opportunities.
Comparison of Change in Value of a $10,000 Investment in Eaton Vance Emerging
Markets Fund Class B vs. The Morgan Stanley Capital International Emerging
Markets Index*
[LINE GRAPH APPEARS HERE]
Date Fund/NAV MSCI
---- -------- ----
11/30/94 $10,000 $10,000
12/31/94 $9,960 $9,478
1/31/95 $9,590 $8,440
2/28/95 $9,660 $8,290
3/31/95 $9,640 $8,406
4/30/95 $9,820 $8,578
5/31/95 $10,440 $8,880
6/30/95 $10,450 $8,858
7/31/95 $10,610 $8,993
8/31/95 $10,480 $8,695
9/30/95 $10,410 $8,791
10/31/95 $10,100 $8,499
11/30/95 $9,710 $8,286
12/31/95 $10,050 $8,606
1/31/96 $11,020 $8,998
2/28/96 $11,420 $8,883
3/31/96 $11,130 $9,009
4/30/96 $11,890 $9,654
5/31/96 $12,550 $9,466
6/30/96 $12,580 $9,590
7/31/96 $11,740 $8,939
8/31/96 $12,110 $9,137
9/30/96 $12,360 $9,215
10/31/96 $12,270 $8,955
11/30/96 $12,660 $9,116
12/31/96 $12,903 $9,121
1/31/97 $14,029 $9,715
2/28/97 $14,699 $10,108
3/31/97 $14,324 $9,860
4/30/97 $14,405 $9,930
5/31/97 $14,912 $10,175
6/30/97 $15,794 $10,763
7/31/97 $16,007 $10,959
8/31/97 $14,253 $9,693
9/30/97 $14,790 $9,767
10/31/97 $12,822 $8,082
11/30/97 $12,406 $7,772
12/31/97 $12,454 $7,895
1/31/98 $11,576 $7,362
2/28/98 $13,029 $8,176
3/31/98 $13,332 $8,465
4/30/98 $13,416 $8,316
5/31/98 $11,304 $7,187
6/30/98 $10,059 $6,460
7/31/98 $10,373 $6,667
8/31/98 $7,414 $4,821
9/30/98 $7,445 $5,134
10/31/98 $7,592 $5,688
11/30/98 $8,355 $6,147
12/31/98 $8,365 $6,061
Performance+ Class A Class B
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Average Annual Total Returns
- --------------------------------------------------------------------------------
(at net asset value)
One Year -32.7 -32.9%
Life of Fund++ -3.7 -4.3
SEC Average Annual Total Returns
- --------------------------------------------------------------------------------
(including sales charge or
applicable CDSC)
One Year -36.5 -36.3%
Life of Fund++ -5.1 -4.8
++Inception dates: Class A: 12/8/94; Class B: 11/30/94
* Source: Towers Data Systems, Bethesda, MD. Investment operations commenced
11/30/94.
The chart compares the Fund's total return with that of the Morgan Stanley
Capital International Emerging Markets Index, a broad-based, unmanaged market
index of common stocks traded in the world's emerging markets. Returns are
calculated by determining the percentage change in net asset value (NAV) with
all distributions reinvested. The lines on the chart represent the total
returns of $10,000 hypothetical investments in the Fund and the Index. An
investment in the Fund's Class A shares on 12/31/94 at net asset value would
have been worth $8,632 on December 31, 1998; $8,133 including the 5.75% sales
charge. The Index's total return does not reflect 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.
+ Returns are historical and are calculated by determining the percentage
change in net asset value with all distributions reinvested. SEC returns for
Class A reflect the maximum 5.75% sales charge. SEC returns for Class B
reflect applicable CDSC based on the following schedule: 5% - 1st and 2nd
years; 4% - 3rd year; 3% - 4th year; 2% - 5th year; 1% - 6th year. 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.
5
<PAGE>
Eaton Vance Emerging Markets Fund as of December 31, 1998
FINANCIAL STATEMENTS
Statement of Assets and Liabilities
As of December 31, 1998
Assets
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Investment in Emerging Markets Portfolio, at value
(identified cost, $7,618,268) $ 7,252,512
Receivable for Fund shares sold 83,509
Receivable from the Manager 16,178
Receivable from the Investment Adviser 21,446
Deferred organization expenses 25,766
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Total assets $ 7,399,411
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Liabilities
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Payable for Fund shares redeemed $ 253,412
Payable to affiliate for Trustees' fees 96
Other accrued expenses 16,106
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Total liabilities $ 269,614
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Net Assets $ 7,129,797
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Sources of Net Assets
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Paid-in capital $ 10,960,011
Accumulated net realized loss from Portfolio (computed on
the basis of identified cost) (3,461,360)
Accumulated net investment loss (3,098)
Net unrealized depreciation from
Portfolio (computed on the basis of (365,756)
identified cost)
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Total $ 7,129,797
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Class A Shares
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Net Assets $ 3,065,562
Shares Outstanding 380,238
Net Asset Value and Redemption Price
Per Share
(net assets / shares of beneficial $ 8.06
interest outstanding)
Maximum Offering Price Per Share
(100 / 94.25 of $8.06) $ 8.55
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Class B Shares
- --------------------------------------------------------------------------------
Net Assets $ 4,064,235
Shares Outstanding 508,719
Net Asset Value, Offering Price and
Redemption Price Per Share
(net assets / shares of beneficial $ 7.99
interest outstanding)
- --------------------------------------------------------------------------------
On sales of $50,000 or more, the offering price of Class A shares is reduced.
Statement of Operations
For the Year Ended
December 31, 1998
Investment Income
- --------------------------------------------------------------------------------
Dividends allocated from Portfolio
(net of foreign taxes, $3,349) $ 170,535
Expenses allocated from Portfolio (149,415)
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Net investment income from Portfolio $ 21,120
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Expenses
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Management fee $ 26,612
Trustees fees and expenses 199
Distribution and service fees
Class A 20,726
Class B 62,011
Amortization of organization expenses 27,940
Registration fees 24,925
Printing and postage 23,090
Transfer and dividend disbursing agent fees 20,285
Legal and accounting services 12,442
Custodian fee 8,769
Miscellaneous 7,507
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Total expenses $ 234,506
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Deduct --
Allocation of expenses to the Investment Adviser $ 21,446
Allocation of expenses to the Manager 16,178
Reduction of management fee 4,569
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Total expense reductions $ 42,193
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Net expenses $ 192,313
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Net investment loss $ (171,193)
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Realized and Unrealized
Gain (Loss) from Portfolio
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Net realized gain (loss) --
Investment transactions (identified cost basis) $ (2,800,043)
Foreign currency and forward foreign currency exchange
contract transactions (136,450)
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Net realized loss $ (2,936,493)
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Change in unrealized appreciation (depreciation) --
Investments $ (1,070,035)
Foreign currency and forward foreign
currency exchange contracts 68,144
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Net change in unrealized appreciation (depreciation) $ (1,001,891)
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Net realized and unrealized loss $ (3,938,384)
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Net decrease in net assets from operations $ (4,109,577)
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See notes to financial statements
6
<PAGE>
Eaton Vance Emerging Markets Fund as of December 31, 1998
FINANCIAL STATEMENTS CONT'D
Statements of Changes in Net Assets
<TABLE>
<CAPTION>
Increase (Decrease) Year Ended Year Ended
in Net Assets December 31, 1998 December 31, 1997
- ------------------------------------------------------------------------------------------
<S> <C> <C>
From operations --
Net investment loss $ (171,193) $ (190,959)
Net realized loss (2,936,493) (168,823)
Net change in unrealized
appreciation (depreciation) (1,001,891) (571,715)
- ------------------------------------------------------------------------------------------
Net decrease in net assets from operations $ (4,109,577) $ (931,497)
- ------------------------------------------------------------------------------------------
Distributions to shareholders --
In excess of net realized gain
Class B $ -- $ (279,016)
- ------------------------------------------------------------------------------------------
Total distributions to shareholders $ -- $ (279,016)
- ------------------------------------------------------------------------------------------
Transactions in shares of beneficial interest --
Proceeds from sale of shares
Class A $ 1,790,820 $ --
Class B 1,560,888 6,853,550
Issued in reorganization of EV Traditional
Emerging Markets Fund
Class A 4,989,133 --
Net asset value of shares issued to
shareholders in payment of
distributions declared
Class B -- 248,582
Cost of shares redeemed
Class A (2,105,721) --
Class B (4,069,955) (3,542,043)
- ------------------------------------------------------------------------------------------
Net increase in net assets from
Fund share transactions $ 2,165,165 $ 3,560,089
- ------------------------------------------------------------------------------------------
Net increase (decrease) in net assets $ (1,944,412) $ 2,349,576
- ------------------------------------------------------------------------------------------
Net Assets
- ------------------------------------------------------------------------------------------
At beginning of year $ 9,074,209 $ 6,724,633
- ------------------------------------------------------------------------------------------
At end of year $ 7,129,797 $ 9,074,209
- ------------------------------------------------------------------------------------------
Accumulated
net investment loss
included in net assets
- ------------------------------------------------------------------------------------------
At end of year $ (3,098) $ (12,112)
- ------------------------------------------------------------------------------------------
</TABLE>
See notes to financial statements
7
<PAGE>
Eaton Vance Emerging Markets Fund as of December 31, 1998
FINANCIAL STATEMENTS CONT'D
Financial Highlights
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------------------------------------------------------------
1998 1997 1996 1995 1994(1)
-----------------------------------------------------------------------------------------
Class A Class B Class B Class B Class B Class B
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value -- Beginning of year $ 11.970 $ 11.910 $ 12.720 $ 10.050 $ 9.960 $ 10.000
- ------------------------------------------------------------------------------------------------------------------------------------
Income (loss) from operations
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment loss $ (0.146) $ (0.236) $ (0.012) $ (0.143) $ (0.268) $ (0.003)
Net realized and unrealized gain (loss) (3.764) (3.684) (0.436) 2.988 0.358 (0.037)
- ------------------------------------------------------------------------------------------------------------------------------------
Total income (loss) from operations $ (3.910) $ (3.920) $ (0.448) $ 2.845 $ 0.090 $ (0.040)
- ------------------------------------------------------------------------------------------------------------------------------------
Less distributions
- ------------------------------------------------------------------------------------------------------------------------------------
From net realized gain $ -- $ -- $ -- $ (0.175) $ -- $ --
In excess of net realized gain -- -- (0.362) -- -- --
- ------------------------------------------------------------------------------------------------------------------------------------
Total distributions $ -- $ -- $ (0.362) $ (0.175) $ -- $ --
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value -- End of year $ 8.060 $ 7.990 $ 11.910 $ 12.720 $ 10.050 $ 9.960
- ------------------------------------------------------------------------------------------------------------------------------------
Total Return (2) (32.66)% (32.91)% (3.48)% 28.49% 0.90% (0.40)%
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios/Supplemental Data+
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of year (000's omitted) $ 3,066 $ 4,064 $ 9,074 $ 6,725 $ 1,801 $ 229
Ratios (As a percentage of average
daily net assets):
Net expenses (3)(4) 3.25% 3.70% 3.50% 3.41% 6.19% 0.75%(5)
Net expenses after custodian
fee reduction (3) 2.95% 3.40% 3.32% 3.19% 6.19% --
Net investment loss (1.34)% (1.79)% (1.92)% (1.76)% (4.64)% (0.75)%(5)
- ------------------------------------------------------------------------------------------------------------------------------------
+ The operating expenses of the Fund and the Portfolio may reflect a reduction of the investment adviser fee, an allocation of
expenses to the Investment Adviser and/or Manager, or both. Had such actions not been taken, the ratios and net investment loss
per share would have been as follows:
Ratios (As a percentage of average
daily net assets):
Expenses (3)(4) 3.65% 4.10% 3.79% 4.52% 11.35% 9.14%(5)
Expenses after custodian fee
reduction (3) 3.35% 3.80% 3.61% 4.30% 11.35% --
Net investment loss (1.74)% (2.19)% (2.21)% (2.87)% (9.80)% (9.14)%(5)
Net investment loss per share $ (0.188) $ (0.289) $ (0.014) $ (0.233) $ (0.566) $ (0.037)
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) For the period from the start of business, November 30, 1994, to December
31, 1994.
(2) 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
reinvested at the net asset value on the reinvestment date. Total return is
not computed on an annualized basis.
(3) Includes the Fund's share of the Portfolio's allocated expenses.
(4) The expense ratios for the year ended December 31, 1995 and periods
thereafter have been adjusted to reflect a change in reporting
requirements. The new reporting guidelines require the Fund, as well as its
corresponding Portfolio, to increase its expense ratio by the effect of any
expense offset arrangements with its service providers. The expense ratio
for the prior period has not been adjusted to reflect this change.
(5) Annualized.
See notes to financial statements
8
<PAGE>
Eaton Vance Emerging Markets Fund as of December 31, 1998
NOTES TO FINANCIAL STATEMENTS
1 Significant Accounting Policies
-----------------------------------------------------------------------------
Eaton Vance Emerging Markets Fund (the Fund) is a mutual fund seeking
long-term capital appreciation through investment in a portfolio of equity
securities of companies in countries with emerging markets. The Fund is a
diversified series of Eaton Vance Special Investment Trust (the Trust). The
Trust is an entity of the type commonly known as a Massachusetts business
trust and is registered under the Investment Company Act of 1940, as amended,
as an open-end management investment company. The Fund offers two classes of
shares. Class A shares are sold subject to a sales charge imposed at the time
of purchase. Class B shares are sold at net asset value and are subject to a
contingent deferred sales charge (see Note 6). All classes of shares have
equal rights to assets and voting privileges. Realized and unrealized gains
and losses and net investment income, other than class specific expenses, are
allocated daily to each class of shares based on the relative net assets of
each class to the total net assets of the Fund. Each class of shares differs
in its distribution plan and certain other class specific expenses. The Fund
invests all of its investable assets in interests in Emerging Markets
Portfolio (the Portfolio), a New York Trust, having the same investment
objective as the Fund. The value of the Fund's investment in the Portfolio
reflects the Fund's proportionate interest in the net assets of the Portfolio
(92.1% at December 31, 1998). The performance of the Fund is directly
affected by the performance of the Portfolio. The financial statements of the
Portfolio, including the portfolio of investments, are included elsewhere in
this report and should be read in conjunction with the Fund's financial
statements.
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. The
policies are in conformity with generally accepted accounting principles.
A Investment Valuations -- Valuation of securities by the Portfolio is
discussed in Note 1A of the Portfolio's Notes to Financial Statements which
are included elsewhere in this report.
B Income -- The Fund's net investment income consists of the Fund's pro rata
share of the net investment income of the Portfolio, less all actual and
accrued expenses of the Fund determined in accordance with generally accepted
accounting principles.
C Expense Reduction -- Investors Bank & Trust Company (IBT) serves as
custodian of the Fund and the Portfolio. Pursuant to the respective custodian
agreements, IBT receives a fee reduced by credits which are determined based
on the average daily cash balances the Fund or the Portfolio maintains with
IBT. All significant credit balances used to reduce the Fund's custodian fees
are reported as a reduction of expenses on the Statement of Operations.
D Federal Taxes -- The Fund's policy is to comply with the provisions of the
Internal Revenue Code applicable to regulated investment companies and to
distribute to shareholders each year all of its net investment income, and
any net realized capital gains. Accordingly, no provision for federal income
or excise tax is necessary. At December 31, 1998, net currency losses of
$3,098, attributable to security transactions incurred after October 31,
1998, are treated as arising on the first day of the Fund's next taxable
year. At December 31, 1998, the Fund, for federal income tax purposes had a
capital loss carryover of $3,519,591 which will reduce the taxable income
arising from future net realized gains on investments, if any, to the extent
permitted by the Internal Revenue Code, and thus will reduce the amount of
the distributions to shareholders which would otherwise be necessary to
relieve the Fund of any liability for federal income or excise tax. The
capital loss carryover expires on December 31, 2006.
E Deferred Organization Expenses -- Costs incurred by the Fund in connection
with its organization, including registration costs, are being amortized on
the straight-line basis over five years.
F 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
9
<PAGE>
Eaton Vance Emerging Markets Fund as of December 31, 1998
NOTES TO FINANCIAL STATEMENTS CONT'D
expense during the reporting period. Actual results
could differ from those estimates.
2 Distributions to Shareholders
-----------------------------------------------------------------------------
It is the present policy of the Fund to make at least one distribution
annually (normally in December) of all or substantially all of the net
investment income allocated to the Fund by the Portfolio, less the Fund's
direct and allocated expenses and to distribute at least annually all or
substantially all of the net realized capital gains (reduced by any available
capital loss carryforwards from prior years) allocated by the Portfolio to
the Fund, if any. Shareholders may reinvest all distributions in shares of
the Fund without a sales charge at the per share net asset value as of the
close of business on the ex-dividend date. The Fund distinguishes between
distributions on a tax basis and a financial reporting basis. Generally
accepted accounting principles require that only distributions in excess of
tax basis earnings and profits be reported in the financial statements as a
return of capital. Differences in the recognition or classification of income
between the financial statements and tax earnings and profits which result in
temporary over distributions for financial statement purposes are classified
as distributions in excess of net investment income or accumulated net
realized gains. Permanent differences between book and tax accounting are
reclassified to paid-in capital. During the year ended December 31, 1998,
$185,861 was reclassified from accumulated net investment loss to paid-in
capital due to permanent differences between book and tax accounting for
operating losses. Additionally, $211,077 was reclassified from accumulated
net realized loss from Portfolio to paid-in capital due to permanent
differences between book and tax accounting for capital losses. Net
investment loss, net realized loss on investment transactions and net assets
were unaffected by these reclassifications.
3 Shares of Beneficial Interest
-----------------------------------------------------------------------------
The Fund's Declaration of Trust permits the Trustees to issue an unlimited
number of full and fractional shares of beneficial interest (without par
value). Such shares may be issued in a number of different classes.
Transactions in Fund shares were as follows:
Year Ended
Class A December 31, 1998
-----------------------------------------------------------------------------
Sales 196,494
Redemptions (233,164)
Issued to EV Traditional Emerging Markets
Fund shareholders 416,908
-----------------------------------------------------------------------------
Net increase 380,238
-----------------------------------------------------------------------------
Year Ended December 31,
Class B ---------------------------
1998 1997
-----------------------------------------------------------------------------
Sales 154,536 478,265
Issued to shareholders electing to
receive payment of distributions
in Fund shares -- 21,003
Redemptions (407,659) (266,016)
-----------------------------------------------------------------------------
Net increase (decrease) (253,123) 233,252
-----------------------------------------------------------------------------
4 Management Fee and Other Transactions
with Affiliates
-----------------------------------------------------------------------------
The management fee is earned by Eaton Vance Management (EVM) (the "Manager")
as compensation for management and administration of the business affairs of
the Fund. The fee is based on a percentage of average daily net assets. For
the year ended December 31, 1998, the fee was equivalent to 0.25% of the
Fund's average daily net assets for such period and amounted to $26,612. To
reduce the net operating loss of the Fund, the Manager reduced the management
fee by $4,569. In addition, the Manager was allocated $16,178 of the Fund's
operating expenses. Except as to Trustees of the Fund who are not members of
EVM's organization, officers and Trustees receive remuneration for their
services to the Fund out of such management fee. Certain officers and
Trustees of the Fund and the Portfolio are officers and directors/trustees of
the above organizations. In addition, investment adviser and administrative
fees are paid by the Portfolio to Lloyd George Management (Bermuda), and to
EVM and its affiliates. To reduce the net operating loss of the Fund, the
Adviser was allocated $21,446 of the Fund's operating expenses. See Note 2 of
the Portfolio's Notes to Financial Statement, which are included elsewhere in
this report.
10
<PAGE>
Eaton Vance Emerging Markets Fund as of December 31, 1998
NOTES TO FINANCIAL STATEMENTS CONT'D
5 Distribution Plans
-----------------------------------------------------------------------------
The Fund has adopted distribution plans (Class A Plan and Class B Plan, the
Plans) pursuant to Rule 12b-1 under the Investment Company Act of 1940. The
Plans require the Fund to pay the Principal Underwriter, Eaton Vance
Distributors, Inc. (EVD) an amount equal to (a) 0.50% of that portion of the
Fund's Class A shares average daily net assets attributable to Class A shares
of the Fund which have remained outstanding for less than one year and (b)
0.25% of that portion of the Fund's Class A average daily net assets which is
attributable to Class A shares of the Fund which have remained outstanding
for more than one year and an amount equal to 1/365 of 0.75% of the Fund's
average daily net assets attributable to Class B shares for providing ongoing
distribution services and facilities to the Fund. The Fund will automatically
discontinue payments attributable to Class B shares 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 Class B shares sold plus, (ii) interest calculated by applying the
rate of 1% over the prevailing prime rate to the outstanding balance of
Uncovered Distribution Charges of EVD, reduced by the aggregate amount of the
contingent deferred sales charge (see Note 6) and daily amounts theretofore
paid to EVD. The Fund paid or accrued $14,968 and $48,738 for Class A and
Class B shares, respectively, to EVD for the year ended December 31, 1998,
representing 0.36% and 0.75% of average daily net assets for Class A and
Class B shares, respectively. At December 31, 1998, the amount of Uncovered
Distribution Charges of EVD calculated under the Plan was approximately
$229,000 for Class B shares.
In addition, the Plans authorize the Fund to make payments of service fees to
EVD, Authorized Firms and other persons in amounts not exceeding 0.25% of the
Fund's average daily net assets attributable to Class A and Class B shares
for each fiscal year. The Trustees have initially implemented the Plans by
authorizing the Fund to make quarterly payments of service fees to EVD and
Authorized Firms in amounts not expected to exceed 0.25% per annum of the
Fund's average daily net assets attributable to Class A and Class B shares
based on the value of Fund shares sold by such persons and remaining
outstanding for at least one year. Service fee payments will be made for
personal services and/or the maintenance of shareholder accounts. Service
fees are separate and distinct from the sales commissions and distribution
fees payable by the Fund to EVD, and as such, are not subject to automatic
discontinuance when there are no outstanding Uncovered Distribution Charges
to EVD. The Fund paid or accrued service fees to EVD for the year ended
December 31, 1998 in the amounts of $5,758 and $13,273 for Class A shares and
Class B shares, respectively.
Certain officers and Trustees of the Fund are officers or directors of EVD.
6 Contingent Deferred Sales Charge
-----------------------------------------------------------------------------
A contingent deferred sales charge (CDSC) is imposed on any redemption of
Class B 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 for Class B shares 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
$66,000 of CDSC paid by shareholders for Class B shares for the year ended
December 31, 1998. A CDSC of 1% is imposed on any redemption of Class A
shares made within 12 months of purchase that were acquired at net asset
value because the purchase amount was $1 million or more.
7 Investment Transactions
-----------------------------------------------------------------------------
Increases and decreases in the Fund's investment in the Portfolio aggregated
$3,352,082 and $6,527,775, respectively, for the year ended December 31,
1998.
8 Transfer of Net Assets
-----------------------------------------------------------------------------
On January 1, 1998, EV Marathon Emerging Markets Fund acquired the net assets
of EV Traditional Emerging Markets Fund pursuant to an Agreement and Plan of
Reorganization dated June 23, 1997. In accordance with the agreement, EV
11
<PAGE>
Eaton Vance Emerging Markets Fund as of December 31, 1998
NOTES TO FINANCIAL STATEMENTS CONT'D
Marathon Emerging Markets Fund, at the closing, issued 416,908 Class A shares
of the Fund having an aggregate value of $4,989,133. As a result, the Fund
issued one Class A share for each share of EV Traditional Emerging Markets
Fund. The transaction was structured for tax purposes to qualify as a tax
free reorganization under the Internal Revenue Code. The EV Traditional
Emerging Markets Fund's net assets at the date of the transaction was
$4,989,133, including $229,578 of unrealized appreciation. Directly after the
merger, the combined net assets of the Eaton Vance Emerging Markets Fund
(formerly EV Marathon Emerging Markets Fund) were $14,063,342 with a net
asset value of $11.97 and $11.91 for Class A and Class B shares,
respectively.
9 Name Change
-----------------------------------------------------------------------------
Effective January 1, 1998, EV Marathon Emerging Markets Fund changed its name
to Eaton Vance Emerging Markets Fund.
12
<PAGE>
Eaton Vance Emerging Markets Fund as of December 31, 1998
INDEPENDENT AUDITORS' REPORT
To the Trustees and Shareholders of Eaton Vance Special Investment Trust:
- -------------------------------------------------------------------------------
We have audited the accompanying statement of assets and liabilities of Eaton
Vance Emerging Markets Fund (the Fund) (one of the series constituting Eaton
Vance Special Investment Trust) as of December 31, 1998, the related statement
of operations for the year then ended, the statements of changes in net assets
for the years ended December 31, 1998 and 1997 and the financial highlights for
each of the years in the four-year period ended December 31, 1998 and for the
period from the start of business, November 30, 1994, to December 31, 1994.
These financial statements and financial highlights are the responsibility of
the Fund's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such financial statements and financial highlights present
fairly, in all material respects, the financial position of the Eaton Vance
Emerging Markets Fund series of Eaton Vance Special Investment Trust at December
31, 1998, and the results of its operations, the changes in its net assets and
its financial highlights for the respective stated periods in conformity with
generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Boston, Massachusetts
February 12, 1999
13
<PAGE>
Emerging Markets Portfolio as of December 31, 1998
PORTFOLIO OF INVESTMENTS
Common Stocks -- 95.8%
Security Shares Value
- --------------------------------------------------------------------------------
Banks and Money Services -- 7.1%
- --------------------------------------------------------------------------------
Alpha Credit Bank 366 $ 37,937
Greek bank
Bank Handlowy Warszawie 7,000 86,353
Leading corporate and trade finance bank in Poland
Hana Bank 15,000 165,835
Korean commercial bank
National Bank of Greece 800 178,787
One of Greece's leading banks with over 40% of
the total deposit base
Philippine National Bank(1) 60,300 93,068
Philippine universal bank
- --------------------------------------------------------------------------------
$ 561,980
- --------------------------------------------------------------------------------
Beverages -- 9.6%
- --------------------------------------------------------------------------------
Pyramids Brewers 6,000 $ 343,109
The largest brewer in Egypt
Vina Concha y Toro ADR 16,000 414,000
Wine producer/exporter
- --------------------------------------------------------------------------------
$ 757,109
- --------------------------------------------------------------------------------
Broadcasting and Cable -- 2.5%
- --------------------------------------------------------------------------------
TV Azteca SA 30,000 $ 200,625
Mexico's second largest television company
- --------------------------------------------------------------------------------
$ 200,625
- --------------------------------------------------------------------------------
Communications Services -- 2.9%
- --------------------------------------------------------------------------------
Panafon Hellenic Registered S GDS(1) 8,500 $ 225,888
Greece's leading mobile phone operator
- --------------------------------------------------------------------------------
$ 225,888
- --------------------------------------------------------------------------------
Conglomerates -- 2.9%
- --------------------------------------------------------------------------------
John Keells Holdings 52,000 $ 169,458
John Keells Holdings GDR 2,041 12,246
A conglomerate involved in tea, hotels, beverages
and others
Quinenco SA ADR 5,400 43,200
A large diversified company engaged in industrial and
financial services
- --------------------------------------------------------------------------------
$ 224,904
- --------------------------------------------------------------------------------
Electric Utilities -- 4.6%
- --------------------------------------------------------------------------------
Cemig Cia Energy Spons ADR 6,000 $ 111,844
One of Brazil's two integrated power companies
Korea Electric Power Corp. 10,000 247,714
Korean Electricity generator & distributor
- --------------------------------------------------------------------------------
$ 359,558
- --------------------------------------------------------------------------------
Entertainment -- 2.4%
- --------------------------------------------------------------------------------
Grammy Entertainment Public 40,000 $ 189,349
Producer and distributor of music titles in Thailand
- --------------------------------------------------------------------------------
$ 189,349
- --------------------------------------------------------------------------------
Foods -- 3.9%
- --------------------------------------------------------------------------------
Carulla SA ADR 155,000 $ 193,750
Columbian grocery and supermarket chain
JG Summit Holdings, Class B(1) 1,853,000 114,397
Philippine Conglomerate
- --------------------------------------------------------------------------------
$ 308,147
- --------------------------------------------------------------------------------
Information Services -- 1.8%
- --------------------------------------------------------------------------------
Forsoft Ltd.(1) 13,500 $ 140,063
Israeli technology company concentrating on the year
2000 problem
- --------------------------------------------------------------------------------
$ 140,063
- --------------------------------------------------------------------------------
Insurance -- 8.1%
- --------------------------------------------------------------------------------
Liberty Life Associates of Africa 11,000 $ 151,446
One of South Africa's most efficient life
insurance companies
Samsung Fire & Marine Insurance 1,300 486,283
Korean non-life insurer
- --------------------------------------------------------------------------------
$ 637,729
- --------------------------------------------------------------------------------
Investment Services -- 1.0%
- --------------------------------------------------------------------------------
Li & Fung, Ltd. 38,000 $ 78,725
Largest global intermediator between garment
suppliers and retailers
- --------------------------------------------------------------------------------
$ 78,725
- --------------------------------------------------------------------------------
Machinery -- 6.6%
- --------------------------------------------------------------------------------
Siam Cement Co. Ltd.(1) 23,000 $ 521,590
Largest industrial and building material producer
in Thailand
- --------------------------------------------------------------------------------
$ 521,590
- --------------------------------------------------------------------------------
Manufacturing -- 0.1%
- --------------------------------------------------------------------------------
Uralmash-Zavody ADR(1) 12,500 $ 7,100
Russian engineering company
- --------------------------------------------------------------------------------
$ 7,100
- --------------------------------------------------------------------------------
See notes to financial statements
14
<PAGE>
Emerging Markets Portfolio as of December 31, 1998
PORTFOLIO OF INVESTMENTS CONT'D
Security Shares Value
- --------------------------------------------------------------------
Media & Leisure -- 2.6%
- --------------------------------------------------------------------
Corporacion Interamericana de
Entretenimiento S.A.(1) 75,040 $ 204,799
South American fibre
optic cable company
for telecommunications
- --------------------------------------------------------------------
$ 204,799
- --------------------------------------------------------------------
Metals - Industrial -- 2.0%
- --------------------------------------------------------------------
Anglo America Corp. 5,700 $ 160,634
Major South African
mining finance company
- --------------------------------------------------------------------
$ 160,634
- --------------------------------------------------------------------
Oil and Gas - Equipment and Services -- 7.4%
- --------------------------------------------------------------------
Gulf Indonesia Resources
Ltd. ADR(1) 15,000 $ 97,500
Cheap explorer of oil and
natural gas in Indonesia
JSC Surgutneftegaz ADR 60,000 205,500
Russia's largest oil
producer
YPF Sociedad Anonima ADR 10,000 279,375
Exploration, development
and production of oil and
natural gas
- --------------------------------------------------------------------
$ 582,375
- --------------------------------------------------------------------
Oil and Gas - Integrated -- 5.3%
- --------------------------------------------------------------------
Mol Magyar Olayes Gazi GDR 15,000 $ 414,375
Interests in oil and gas
exploration and production,
gas wholesale distribution,
storage and transmission,
oil refining and marketing
- --------------------------------------------------------------------
$ 414,375
- --------------------------------------------------------------------
Retail - Food and Drug -- 6.8%
- --------------------------------------------------------------------
Blue Square Stores(1) 12,000 $ 141,766
Supermarket and specialty
store chain
Compania Brasileira de
Distrib. GDR 10,000 155,000
Supermarket chain
Dairy Farm International
Holdings Ltd. 207,726 238,885
Hong Kong and Pacific
supermarket operator and
general retailer
- --------------------------------------------------------------------
$ 535,651
- --------------------------------------------------------------------
Retail - General -- 4.5%
- --------------------------------------------------------------------
Pizza Co. Ltd. 48,400 $ 162,510
Owner and operator of all
Pizza Hut and other fast
food franchises in
Thailand
President Chain Store Corp. 60,000 189,013
Taiwanese operator of
7-11 convenience stores
and other consumer
businesses
- --------------------------------------------------------------------
$ 351,523
- --------------------------------------------------------------------
Telephone Utilities -- 13.7%
- --------------------------------------------------------------------
Compania de
Telecomunicaciones ADR 10,000 $ 206,875
Chile's largest telecom
provider
Telefonos de Mexico ADR 8,000 389,500
Largest telecom operator
with interests in local
and long distance
telecommunications
Telesp Participacoes SA 6,750,000 86,592
The holding company that
controls two operators in
the state of Sao Paulo,
Brazil's wealthiest state
Videsh Sanchar Nigam Ltd., GDR 32,500 398,125
India's monopoly
international telephone
service provider
- --------------------------------------------------------------------
$1,081,092
- --------------------------------------------------------------------
Total Common Stocks
(identified cost $8,048,647) $7,543,216
- --------------------------------------------------------------------
Preferred Stocks -- 4.1%
Security Shares Value
- --------------------------------------------------------------------
Electric Utilities -- 0.1%
- --------------------------------------------------------------------
Centrais Geradoras do Sul
do Brasil S.A.(1) 7,000,000 $ 9,154
This company is an
electricity generator.
- --------------------------------------------------------------------
$ 9,154
- --------------------------------------------------------------------
Oil and Gas - Integrated -- 1.6%
- --------------------------------------------------------------------
Petroleo Brasiliero SA 1,110,000 $ 125,860
Brazil's sole integrated
oil company, a monopoly
in exploration,
production, refining,
transportation, importing
and exporting of oil and
natural gas
- --------------------------------------------------------------------
$ 125,860
- --------------------------------------------------------------------
Telephone Utilities -- 2.4%
- --------------------------------------------------------------------
Telecommunication Sudeste
Celular(1) 45,500,000 $ 192,055
The holding company for
the cellular operators in
the states of Rio de
Janeiro and Espirito Santo
- --------------------------------------------------------------------
$ 192,055
- --------------------------------------------------------------------
Total Preferred Stocks
(identified cost $326,560) $ 327,069
- --------------------------------------------------------------------
Total Investments -- 99.9%
(identified cost $8,375,207) $7,870,285
- --------------------------------------------------------------------
Other Assets, Less Liabilities -- 0.1% $ 6,563
- --------------------------------------------------------------------
Net Assets -- 100% $7,876,848
- --------------------------------------------------------------------
Company descriptions are unaudited.
ADR -- American Depository Receipt
GDR -- Global Depository Receipt
(1) Non-income producing security.
See notes to financial statements
15
<PAGE>
Emerging Markets Portfolio as of December 31, 1998
PORTFOLIO OF INVESTMENTS
Country Concentration of Portfolio
Percentage
Country of Net Assets Value
- ------------------------------------------------------------
Argentina 3.6% $279,375
Brazil 8.6% 680,505
Chile 8.4% 664,075
Colombia 2.5% 193,750
Egypt 4.4% 343,109
Greece 5.6% 442,612
Hong Kong 1.0% 78,725
Hungary 5.3% 414,375
India 5.1% 398,125
Indonesia 1.2% 97,500
Israel 3.6% 281,829
Mexico 10.1% 794,924
Philippines 2.6% 207,465
Poland 1.1% 86,353
Republic of Korea 11.4% 899,832
Russia 2.7% 212,600
Singapore 3.0% 238,885
South Africa 4.0% 312,080
Sri Lanka 2.3% 181,704
Taiwan 2.4% 189,013
Thailand 11.1% 873,449
See notes to financial statements
16
<PAGE>
Emerging Markets Portfolio as of December 31, 1998
FINANCIAL STATEMENTS
Statement of Assets and Liabilities
As of December 31, 1998
Assets
- --------------------------------------------------------------------------------
Investments, at value
(identified cost, $8,375,207) $ 7,870,285
Foreign currency, at value
(identified cost, $367,489) 382,183
Dividends receivable 14,179
Deferred organization expenses 3,473
- --------------------------------------------------------------------------------
Total assets $ 8,270,120
- --------------------------------------------------------------------------------
Liabilities
- --------------------------------------------------------------------------------
Demand note payable $ 285,000
Payable for investments purchased 84,010
Due to bank 144
Payable to affiliate for Trustees' fees 42
Other accrued expenses 24,076
- --------------------------------------------------------------------------------
Total liabilities $ 393,272
- --------------------------------------------------------------------------------
Net Assets applicable to investors' interest in Portfolio $ 7,876,848
- --------------------------------------------------------------------------------
Sources of Net Assets
- --------------------------------------------------------------------------------
Net proceeds from capital contributions and withdrawals $ 8,363,831
Net unrealized depreciation (computed on the basis of
identified cost) (486,983)
- --------------------------------------------------------------------------------
Total $ 7,876,848
- --------------------------------------------------------------------------------
Statement of Operations
For the Year Ended
December 31, 1998
Investment Income
- --------------------------------------------------------------------------------
Dividends (net of foreign taxes, $3,898) $ 216,054
- --------------------------------------------------------------------------------
Total investment income $ 216,054
- --------------------------------------------------------------------------------
Expenses
- --------------------------------------------------------------------------------
Investment adviser fee $ 91,187
Administration fee 30,396
Custodian fee 68,660
Legal and accounting services 21,037
Trustees fees and expenses 5,150
Amortization of organization expenses 3,825
Miscellaneous 7,036
- --------------------------------------------------------------------------------
Total expenses $ 227,291
- --------------------------------------------------------------------------------
Deduct --
Reduction of custodian fee $ 36,451
Reduction of investment adviser fee 14,847
Reduction of administration fee 4,950
- --------------------------------------------------------------------------------
Total expense reductions $ 56,248
- --------------------------------------------------------------------------------
Net expenses $ 171,043
- --------------------------------------------------------------------------------
Net investment income $ 45,011
- --------------------------------------------------------------------------------
Realized and Unrealized Gain (Loss)
- --------------------------------------------------------------------------------
Net realized gain (loss) --
Investment transactions (identified cost basis) $(3,478,264)
Foreign currency and forward foreign
currency exchange contract transactions (165,376)
- --------------------------------------------------------------------------------
Net realized loss $(3,643,640)
- --------------------------------------------------------------------------------
Change in unrealized appreciation (depreciation) --
Investments (identified cost basis) $(1,217,948)
Foreign currency and forward foreign
currency exchange contracts 77,252
- --------------------------------------------------------------------------------
Net change in unrealized appreciation (depreciation) $(1,140,696)
- --------------------------------------------------------------------------------
Net realized and unrealized loss $(4,784,336)
- --------------------------------------------------------------------------------
Net decrease in net assets from operations $(4,739,325)
- --------------------------------------------------------------------------------
See notes to financial statements
17
<PAGE>
Emerging Markets Portfolio as of December 31, 1998
FINANCIAL STATEMENTS CONT'D
Statements of Changes in Net Assets
Increase (Decrease) Year Ended Year Ended
in Net Assets December 31, 1998 December 31, 1997
- --------------------------------------------------------------------------------
From operations --
Net investment income $ 45,011 $ 15,335
Net realized loss (3,643,640) (593,013)
Net change in unrealized
appreciation (depreciation) (1,140,696) (1,182,400)
- --------------------------------------------------------------------------------
Net decrease in net assets
from operations $ (4,739,325) $ (1,760,078)
- --------------------------------------------------------------------------------
Capital transactions --
Contributions $ 3,995,966 $ 26,595,739
Withdrawals (9,933,398) (16,940,583)
- --------------------------------------------------------------------------------
Net increase (decrease) in net assets
from capital transactions $ (5,937,432) $ 9,655,156
- --------------------------------------------------------------------------------
Net increase (decrease) in net assets $ (10,676,757) $ 7,895,078
- --------------------------------------------------------------------------------
Net Assets
- --------------------------------------------------------------------------------
At beginning of year $ 18,553,605 $ 10,658,527
- --------------------------------------------------------------------------------
At end of year $ 7,876,848 $ 18,553,605
- --------------------------------------------------------------------------------
See notes to financial statements
18
<PAGE>
Emerging Markets Portfolio as of December 31, 1998
FINANCIAL STATEMENTS CONT'D
Supplementary Data
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------------------------------------------
1998 1997 1996 1995 1994 (1)
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Ratios to average daily net assets+
- ---------------------------------------------------------------------------------------------------------------------------------
Net expenses (2) 1.71% 1.53% 1.54% 2.58% 0.00%
Net expenses after custodian fee reduction 1.41% 1.35% 1.32% 2.58% --
Net investment income (loss) 0.37% 0.08% 0.14% (1.00)% 0.00%
Portfolio Turnover 117% 160% 125% 98% 0%
- ---------------------------------------------------------------------------------------------------------------------------------
Net assets, end of year (000's omitted) $7,877 $18,554 $10,659 $3,587 $1,195
- ---------------------------------------------------------------------------------------------------------------------------------
+ The operating expenses of the Portfolio may reflect a reduction of the investment adviser fee, an allocation of expenses to the
Investment Adviser, or both. Had such actions not been taken, the ratios would have been as follows:
Expenses (2) 1.87% 1.81% 2.24% 5.24% 2.21%(3)
Expenses after custodian fee reduction 1.57% 1.63% 2.02% 5.24% --
Net investment income (loss) 0.21% (0.20)% (0.56)% (3.66)% (2.21)%(3)
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) For the period from the start of business, November 30, 1994, to December
31, 1994.
(2) The expense ratios for the year ended December 31, 1995 and periods
thereafter have been adjusted to reflect a change in reporting requirements.
The new reporting guidelines require the Portfolio to increase its expense
ratio by the effect of any expense offset arrangements with its service
providers. The expense ratio for the prior period has not been adjusted to
reflect this change.
(3) Annualized.
See notes to financial statements
19
<PAGE>
Emerging Markets Portfolio as of December 31, 1998
NOTES TO FINANCIAL STATEMENTS
1 Significant Accounting Policies
------------------------------------------------------------------------------
Emerging Markets Portfolio (the Portfolio) is registered under the Investment
Company Act of 1940 as a diversified, open-end management investment company
which was organized as a trust under the laws of the State of New York on
January 18, 1994. The Declaration of Trust permits the Trustees to issue
interests in the Portfolio. The following is a summary of significant
accounting policies of the Portfolio. The policies are in conformity with
accounting principles generally accepted in the United States.
A Investment Valuation -- Marketable securities, including options, that are
listed on foreign or U.S. securities exchanges or in the NASDAQ National
Market System are valued at closing sale prices, on the exchange where such
securities are principally traded. Futures positions on securities or
currencies are generally valued at closing settlement prices. Unlisted or
listed securities for which closing sales prices are not available are valued
at the mean between the latest bid and asked prices. Short term debt
securities with a remaining maturity of 60 days or less are valued at
amortized cost which approximates value. Other fixed income and debt
securities, including listed securities and securities for which price
quotations are available, will normally be valued on the basis of valuations
furnished by a pricing service. Investments for which valuations or market
quotations are unavailable are valued at fair value using methods determined
in good faith by or at the direction of the Trustees.
B Income -- Dividend income is recorded on the ex-dividend date. However, if
the ex-dividend date has passed, certain dividends from securities are
recorded as the Portfolio is informed of the ex-dividend date. Interest income
is recorded on the accrual basis.
C Federal Taxes -- The Portfolio has elected to be treated as a partnership
for United States Federal tax purposes. No provision is made by the Portfolio
for federal or state taxes on any taxable income of the Portfolio because each
investor in the Portfolio is individually responsible for the payment of any
taxes on its share of such income. Since some of the Portfolio's investors are
regulated investment companies that invest all or substantially all of their
assets in the Portfolio, the Portfolio normally must satisfy the applicable
source of income and diversification requirements (under the Internal Revenue
Code) in order for its investors to satisfy them. The Portfolio will allocate,
at least annually among its investors, each investor's distributive share of
the Portfolio's net investment income, net realized capital gains, and any
other items of income, gain, loss, deduction or credit. Withholding taxes on
foreign dividends and capital gains have been provided for in accordance with
the Portfolio's understanding of the applicable countries' tax rules and
rates.
D 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 on the Statement of Operations.
E Deferred Organization Expenses -- Costs incurred by the Portfolio in
connection with its organization, including registration costs, are being
amortized on the straight-line basis over five years.
F Futures Contracts -- Upon the entering of a financial futures contract, the
Portfolio is required to deposit (initial margin) either cash or securities in
an amount equal to a certain percentage of the purchase price indicated in the
financial futures contract. Subsequent payments are made or received by the
Portfolio (margin maintenance) each day, dependent on the daily fluctuations
in the value of the underlying security, and are recorded for book purposes as
unrealized gains or losses by the Portfolio. The Portfolio's investment in
financial futures contracts is designed only to hedge against anticipated
future changes in interest or currency exchange rates. Should interest or
currency exchange rates move unexpectedly, the Portfolio may not achieve the
anticipated benefits of the financial futures contracts and may realize a
loss. If the Portfolio enters into a closing transaction, the Portfolio will
realize, for book purposes, a gain or loss equal to the difference between the
value of the financial futures contract to sell and financial futures contract
to buy.
G Foreign Currency Translation -- Investment valuations, other assets, and
liabilities initially expressed in foreign currencies are converted each
business day into U.S. dollars based upon current exchange rates. Purchases
and sales of foreign investment securities and income and expenses are
converted into U.S. dollars based upon currency exchange rates prevailing on
the respective dates
20
<PAGE>
Emerging Markets Portfolio as of December 31, 1998
NOTES TO FINANCIAL STATEMENTS CONT'D
of such transactions. Recognized gains or losses on investment transactions
attributable to foreign currency rates are recorded for financial statement
purposes as net realized gains and losses on investments. That portion of
unrealized gains and losses on investments that result from fluctuations in
foreign currency exchange rates are not separately disclosed.
H Forward Foreign Currency Exchange Contracts -- The Portfolio may enter into
forward foreign currency exchange contracts for the purchase or sale of a
specific foreign currency at a fixed price on a future date. Risk may arise
upon entering these contracts from the potential inability of counterparties
to meet the terms of their contracts and from movements in the value of a
foreign currency relative to the U.S. dollar. The Portfolio will enter into
forward contracts for hedging purposes as well as non-hedging purposes. The
forward foreign currency exchange contracts are adjusted by the daily exchange
rate of the underlying currency and any gains or losses are recorded for
financial statement purposes as unrealized until such time as the contracts
have been closed or offset.
I Other -- Investment transactions are accounted for on a trade date basis.
J Use of Estimates -- The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities at the date of the financial statements and the reported amounts
of income and expense during the reporting period. Actual results could differ
from those estimates.
2 Investment Adviser Fee and Other Transactions with Affiliates
------------------------------------------------------------------------------
The investment adviser fee is earned by Lloyd George Investment Management
(Bermuda) Limited (the Adviser) as compensation for management and investment
advisory services rendered to the Portfolio. Under the advisory agreement, the
Adviser receives a monthly fee of 0.0625% (0.75% annually) of the average
daily net assets of the Portfolio up to $500,000,000, and at reduced rates as
daily net assets exceed that level. For the year ended December 31, 1998, the
adviser fee was 0.75% of average daily net assets and amounted to $91,187. To
enhance the net income of the Portfolio the Adviser made a reduction of the
investment adviser fee of $14,847. In addition, an administrative fee is
earned by Eaton Vance Management (EVM) for managing and administrating the
business affairs of the Portfolio. Under the administration agreement, EVM
earns a monthly fee in the amount of 1/48th of 1% (0.25% annually) of the
average daily net assets of the Portfolio up to $500,000,000, and at reduced
rates as daily net assets exceed that level. For the year ended December 31,
1998, the administration fee was 0.25% of average daily net assets and
amounted to $30,396. To enhance the net income of the Portfolio, the
administrator reduced fees in the amount of $4,950. Except as to Trustees of
the Portfolio who are not members of the Adviser or EVM's organization,
officers and Trustees receive remuneration for their services to the Portfolio
out of such investment adviser and administrative fees. Certain of the
officers and Trustees of the Portfolio are officers and/or directors/trustees
of the above organizations.
3 Investment Transactions
------------------------------------------------------------------------------
Purchases and sales of investments, other than short-term obligations,
aggregated $13,277,680 and $16,752,321, respectively.
4 Federal Income Tax Basis of Investments
------------------------------------------------------------------------------
The cost and unrealized appreciation (depreciation) in value of the
investments owned at December 31, 1998, as computed on a federal income tax
basis, are as follows:
Aggregate cost $ 8,375,207
-----------------------------------------------------------------------------
Gross unrealized appreciation $ 992,806
Gross unrealized depreciation (1,497,728)
-----------------------------------------------------------------------------
Net unrealized depreciation $ (504,922)
-----------------------------------------------------------------------------
5 Line of Credit
-----------------------------------------------------------------------------
The Portfolio participates with other portfolios and funds managed by EVM and
its affiliates in a $130 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, 1998, the Portfolio had a balance outstanding
pursuant to this line of credit of $285,000.
21
<PAGE>
Emerging Markets Portfolio as of December 31, 1998
NOTES TO FINANCIAL STATEMENTS CONT'D
6 Risks Associated with Foreign Investments
------------------------------------------------------------------------------
Investing in securities issued by companies whose principal business
activities are outside the United States may involve significant risks not
present in domestic investments. For example, there is generally less publicly
available information about foreign companies, particularly those not subject
to the disclosure and reporting requirements of the U.S. securities laws.
Foreign issuers are generally not bound by uniform accounting, auditing, and
financial reporting requirements and standards of practice comparable to those
applicable to domestic issuers. Investment in foreign securities also involves
the risk of possible adverse changes in investment or exchange control
regulations, expropriation or confiscatory taxation, limitation on the removal
of funds or other assets of the Portfolio, political or financial instability
or diplomatic and other developments which could affect such investments.
Foreign stock markets, while growing in volume and sophistication, are
generally not as developed as those in the United States, and securities of
some foreign issuers (particularly those located in developing countries) may
be less liquid and more volatile than securities of comparable U.S. companies.
In general, there is less overall governmental supervision and regulation of
foreign securities markets, broker-dealers, and issuers than in the United
States.
7 Financial Instruments
------------------------------------------------------------------------------
The Portfolio regularly trades in financial instruments with off-balance sheet
risk in the normal course of its investing activities to assist in managing
exposure to various market risks. These financial instruments include forward
foreign currency exchange contracts and futures contracts and may involve, to
a varying degree, elements of risk in excess of the amounts recognized for
financial statement purposes. The notional or contractual amounts of these
instruments represent the investment the Portfolio has in particular classes
of financial instruments and does not necessarily represent the amounts
potentially subject to risk. The measurement of the risks associated with
these instruments is meaningful only when all related and offsetting
transactions are considered. At December 31, 1998, the Portfolio had one open
forward foreign currency exchange contract. The settlement date of the
contract was January 4, 1999. The contract was for the purchase of 1,518,207
Philippine Pesos. This translated to $39,220 and the contract was valued at
$39,054 resulting in unrealized depreciation amounting to $166.
At December 31, 1998 the Portfolio had sufficient cash and/or securities to
cover the commitment under this contract.
22
<PAGE>
Emerging Markets Portfolio as of December 31, 1998
INDEPENDENT AUDITORS' REPORT
To the Trustees and Investors
of Emerging Markets Portfolio:
- --------------------------------------------------------------------------------
We have audited the accompanying statement of assets and liabilities, including
the portfolio of investments, of Emerging Markets Portfolio (the Portfolio) as
of December 31, 1998, the related statement of operations for the year then
ended, the statements of changes in net assets for the years ended December 31,
1998 and 1997 and the supplementary data for each of the years in the four-year
period ended December 31, 1998 and for the period from the start of business
November 30, 1994, to December 31, 1994. These financial statements and
supplementary data are the responsibility of the Portfolio's management. Our
responsibility is to express an opinion on these financial statements and
supplementary data based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and supplementary
data are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
December 31, 1998 by correspondence with the custodian and brokers. Where
replies were not received alternative audit procedures were performed. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, such financial statements and supplementary data present fairly,
in all material respects, the financial position of Emerging Markets Portfolio
at December 31, 1998, and the results of its operations, the changes in its net
assets and its supplementary data for the respective stated periods in
conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Boston, Massachusetts
February 12, 1999
23
<PAGE>
Eaton Vance Emerging Markets Fund as of December 31, 1998
INVESTMENT MANAGEMENT
Eaton Vance Emerging Markets Fund
Officers
James B. Hawkes
President and Trustee
Edward E. Smiley, Jr.
Vice President
Michael B. Terry
Vice President
James L. O'Connor
Treasurer
Alan R. Dynner
Secretary
Trustees
Jessica M. Bibliowicz
President and Chief Operating Officer
John A. Levin & Co.
Director, Baker, Fentress & Company
Donald R. Dwight
President, Dwight Partners, Inc.
Samuel L. Hayes, III
Jacob H. Schiff Professor of Investment Banking,
Emeritus, Harvard University Graduate School of
Business Administration
Norton H. Reamer
Chairman and Chief Executive Officer,
United Asset Management Corporation
Lynn A. Stout
Professor of Law,
Georgetown University Law Center
John L. Thorndike
Formerly Director, Fiduciary Company Incorporated
Jack L. Treynor
Investment Adviser and Consultant
Emerging Markets Portfolio
Officers
Hon. Robert Lloyd George
President, Trustee
James B. Hawkes
Vice President, Trustee
Scobie Dickinson Ward
Vice President, Assistant
Secretary and
Assistant Treasurer
William Walter Raleigh Kerr
Vice President,
Assistant Treasurer
James L. O'Connor
Vice President, Treasurer
Alan R. Dynner
Secretary
Trustees
Hon. Edward K. Y. Chen
President of Lingnan College,
University of Hong Kong
Donald R. Dwight
President, Dwight Partners, Inc.
Samuel L. Hayes, III
Jacob H. Schiff Professor of Investment Banking,
Emeritus, Harvard University Graduate School of
Business Administration
Norton H. Reamer
Chairman and Chief Executive Officer,
United Asset Management Corporation
24
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<PAGE>
Investment Adviser of
Emerging Markets Portfolio
Lloyd George Management
(Bermuda) Limited
3808 One Exchange Square
Central, Hong Kong
Sponsor and Manager of
Eaton Vance Emerging Markets Fund
and Administrator of Emerging Markets Portfolio
Eaton Vance Management
24 Federal Street
Boston, MA 02110
Principal Underwriter
Eaton Vance Distributors, Inc.
24 Federal Street
Boston, MA 02110
(617) 482-8260
Custodian
Investors Bank & Trust Company
200 Clarendon, 16th Floor
Boston, MA 02116
Transfer Agent
First Data Investor Services Group
Attention: Eaton Vance Funds
P.O. Box 5123
Westborough, MA 01581-5123
Eaton Vance
Emerging Markets Fund
24 Federal Street
Boston, MA 02110
- --------------------------------------------------------------------------------
This report must be preceded or accompanied by a current prospectus which
contains more complete information on the Fund,
including its soles charges and expenses. Please read the prospectus carefully
before you invest or send money.
- --------------------------------------------------------------------------------
EMSRC.2/99
