<PAGE>
BALANCED PORTFOLIO AS OF JUNE 30, 1999
PORTFOLIO OF INVESTMENTS (UNAUDITED)
<TABLE>
<S> <C> <C>
COMMON STOCKS -- 63.7%
<CAPTION>
SECURITY SHARES VALUE
<S> <C> <C>
- --------------------------------------------------------------------------
Advertising and Marketing Services -- 1.2%
- --------------------------------------------------------------------------
Valassis Communications, Inc.(1) 120,000 $ 4,395,000
- --------------------------------------------------------------------------
$ 4,395,000
- --------------------------------------------------------------------------
Aerospace and Defense -- 1.6%
- --------------------------------------------------------------------------
General Motors Corp., Class H(1) 100,000 $ 5,625,000
- --------------------------------------------------------------------------
$ 5,625,000
- --------------------------------------------------------------------------
Auto and Parts -- 2.3%
- --------------------------------------------------------------------------
General Motors Corp. 60,000 $ 3,960,000
Magna International, Inc., Class A 75,000 4,256,250
- --------------------------------------------------------------------------
$ 8,216,250
- --------------------------------------------------------------------------
Banks - Regional -- 1.4%
- --------------------------------------------------------------------------
Wells Fargo & Co. 120,000 $ 5,130,000
- --------------------------------------------------------------------------
$ 5,130,000
- --------------------------------------------------------------------------
Banks and Money Services -- 0.6%
- --------------------------------------------------------------------------
Banco Latinoamericano de
Exportaciones(2) 75,000 $ 2,006,250
- --------------------------------------------------------------------------
$ 2,006,250
- --------------------------------------------------------------------------
Beverages -- 2.1%
- --------------------------------------------------------------------------
Anheuser-Busch Cos., Inc. 60,000 $ 4,256,250
PepsiCo, Inc. 80,000 3,095,000
- --------------------------------------------------------------------------
$ 7,351,250
- --------------------------------------------------------------------------
Broadcasting and Cable -- 0.9%
- --------------------------------------------------------------------------
MediaOne Group, Inc.(1) 45,000 $ 3,346,875
- --------------------------------------------------------------------------
$ 3,346,875
- --------------------------------------------------------------------------
Chemicals -- 1.1%
- --------------------------------------------------------------------------
Praxair, Inc. 80,000 $ 3,915,000
- --------------------------------------------------------------------------
$ 3,915,000
- --------------------------------------------------------------------------
Communications Services -- 4.6%
- --------------------------------------------------------------------------
Ameritech Corp. 80,896 $ 5,945,856
GTE Corp. 75,000 5,681,250
<CAPTION>
SECURITY SHARES VALUE
<S> <C> <C>
- --------------------------------------------------------------------------
Communications Services (continued)
- --------------------------------------------------------------------------
MCI Worldcom, Inc.(1) 55,000 $ 4,743,750
- --------------------------------------------------------------------------
$ 16,370,856
- --------------------------------------------------------------------------
Drugs -- 5.8%
- --------------------------------------------------------------------------
Elan Corp., PLC ADR(1)(2) 130,000 $ 3,607,500
Pfizer, Inc. 37,800 4,148,550
Sepracor, Inc.(1) 100,000 8,125,000
Warner-Lambert Co. 65,000 4,509,375
- --------------------------------------------------------------------------
$ 20,390,425
- --------------------------------------------------------------------------
Electric Utilities -- 1.0%
- --------------------------------------------------------------------------
The Southern Co. 140,000 $ 3,710,000
- --------------------------------------------------------------------------
$ 3,710,000
- --------------------------------------------------------------------------
Electronics - Semiconductors -- 1.0%
- --------------------------------------------------------------------------
Intel Corp. 60,000 $ 3,570,000
- --------------------------------------------------------------------------
$ 3,570,000
- --------------------------------------------------------------------------
Environmental Services -- 1.8%
- --------------------------------------------------------------------------
Waste Management, Inc. 120,000 $ 6,450,000
- --------------------------------------------------------------------------
$ 6,450,000
- --------------------------------------------------------------------------
Financial - Miscellaneous -- 5.9%
- --------------------------------------------------------------------------
Associates First Capital Corp. 170,000 $ 7,533,125
Fannie Mae 45,000 3,076,875
MBNA Corp. 180,000 5,512,500
MGIC Investment Corp. 100,000 4,862,500
- --------------------------------------------------------------------------
$ 20,985,000
- --------------------------------------------------------------------------
Foods -- 3.3%
- --------------------------------------------------------------------------
Tyson Foods, Inc. 264,700 $ 5,955,750
Unilever ADR(2) 82,142 5,729,405
- --------------------------------------------------------------------------
$ 11,685,155
- --------------------------------------------------------------------------
Health Services -- 0.8%
- --------------------------------------------------------------------------
Health Management Associates, Inc.(1) 250,000 $ 2,812,500
- --------------------------------------------------------------------------
$ 2,812,500
- --------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
10
<PAGE>
BALANCED PORTFOLIO AS OF JUNE 30, 1999
PORTFOLIO OF INVESTMENTS (UNAUDITED) CONT'D
<TABLE>
<CAPTION>
SECURITY SHARES VALUE
- --------------------------------------------------------------------------
<S> <C> <C>
Information Services -- 1.5%
- --------------------------------------------------------------------------
Reynolds & Reynolds, Inc., Class A 225,000 $ 5,245,313
- --------------------------------------------------------------------------
$ 5,245,313
- --------------------------------------------------------------------------
Insurance -- 4.3%
- --------------------------------------------------------------------------
American International Group, Inc. 41,950 $ 4,910,772
Berkshire Hathaway, Inc., Class B(1) 2,100 $ 4,722,900
Mutual Risk Management Ltd. 162,800 5,433,450
- --------------------------------------------------------------------------
$ 15,067,122
- --------------------------------------------------------------------------
Medical Products -- 1.6%
- --------------------------------------------------------------------------
Medtronic, Inc. 74,817 $ 5,826,374
- --------------------------------------------------------------------------
$ 5,826,374
- --------------------------------------------------------------------------
Metals and Minerals -- 1.5%
- --------------------------------------------------------------------------
Potash Corp. of Saskatchewan(2) 55,000 $ 2,846,250
Steel Dynamics Corp.(1) 150,000 2,320,320
- --------------------------------------------------------------------------
$ 5,166,570
- --------------------------------------------------------------------------
Oil and Gas - Exploration and Production -- 1.5%
- --------------------------------------------------------------------------
Anadarko Petroleum Corp. 140,000 $ 5,153,750
- --------------------------------------------------------------------------
$ 5,153,750
- --------------------------------------------------------------------------
Oil and Gas - Integrated -- 2.6%
- --------------------------------------------------------------------------
Exxon Corp. 67,280 $ 5,188,970
Mobil Corp. 40,000 3,960,000
- --------------------------------------------------------------------------
$ 9,148,970
- --------------------------------------------------------------------------
Paper and Forest Products -- 2.1%
- --------------------------------------------------------------------------
Longview Fibre Co. 285,500 $ 4,460,938
Plum Creek Timber Co., L.P. 90,000 2,801,250
- --------------------------------------------------------------------------
$ 7,262,188
- --------------------------------------------------------------------------
Publishing -- 1.5%
- --------------------------------------------------------------------------
Central Newspapers, Inc., Class A 140,000 $ 5,267,500
- --------------------------------------------------------------------------
$ 5,267,500
- --------------------------------------------------------------------------
<CAPTION>
SECURITY SHARES VALUE
<S> <C> <C>
- --------------------------------------------------------------------------
REITS -- 2.1%
- --------------------------------------------------------------------------
Equity Residential Properties Trust 101,400 $ 4,569,338
Prologis Trust 150,000 3,037,500
- --------------------------------------------------------------------------
$ 7,606,838
- --------------------------------------------------------------------------
Retail - Food and Drug -- 3.3%
- --------------------------------------------------------------------------
CVS Corp. 100,000 $ 5,112,500
Safeway, Inc.(1) 130,000 6,435,000
- --------------------------------------------------------------------------
$ 11,547,500
- --------------------------------------------------------------------------
Retail - Specialty and Apparel -- 3.8%
- --------------------------------------------------------------------------
Autonation, Inc.(1) 270,000 $ 4,809,375
Circuit City Stores, Inc. 60,000 5,580,000
Home Depot, Inc. (The) 50,000 3,221,875
- --------------------------------------------------------------------------
$ 13,611,250
- --------------------------------------------------------------------------
Specialty Chemicals and Materials -- 2.5%
- --------------------------------------------------------------------------
Corning, Inc. 80,000 $ 5,610,000
Millipore Corp. 80,000 3,245,000
- --------------------------------------------------------------------------
$ 8,855,000
- --------------------------------------------------------------------------
Total Common Stocks
(identified cost $145,335,681) $ 225,717,936
- --------------------------------------------------------------------------
CONVERTIBLE PREFERRED STOCK -- 0.6%
<CAPTION>
SECURITY SHARES VALUE
<S> <C> <C>
- --------------------------------------------------------------------------
Metals - Gold -- 0.6%
- --------------------------------------------------------------------------
Freeport McMoRan Copper & Gold, 5%
Series CV 125,000 $ 2,343,750
- --------------------------------------------------------------------------
$ 2,343,750
- --------------------------------------------------------------------------
Total Convertible Preferred Stock
(identified cost $2,872,500) $ 2,343,750
- --------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
11
<PAGE>
BALANCED PORTFOLIO AS OF JUNE 30, 1999
PORTFOLIO OF INVESTMENTS (UNAUDITED) CONT'D
<TABLE>
<S> <C> <C>
CORPORATE BONDS -- 17.6%
<CAPTION>
PRINCIPAL
AMOUNT
SECURITY (000'S OMITTED) VALUE
<S> <C> <C>
- --------------------------------------------------------------------------
Air Products and Chemicals, Inc., 7.34%,
6/15/26 $ 720 $ 746,698
Associates Corp., N.A., 5.96%, 5/15/37 4,280 4,281,840
Chesapeake Potomac Telephone Co.,
8.375%, 10/1/29 2,850 3,226,685
Commercial Credit Corp., 7.875%, 2/1/25 2,000 2,118,680
Commercial Credit Corp., 6.625%, 6/1/15 1,350 1,359,315
Dayton Hudson, MTN, 5.865%, 8/15/27 2,490 2,492,664
Grand Metropolitan Investments Corp.,
7.45%, 4/15/35 3,090 3,275,802
Intermediate American Development Bank,
8.40%, 9/1/09 3,690 4,201,360
Intermediate American Development Bank,
6.95%, 8/1/26 220 227,982
J.C. Penney, Inc., 7.40%, 4/1/37 3,500 3,572,485
Johnson Controls, Inc., 7.70%, 3/1/15 2,000 2,106,600
Lowe's Cos., Inc., 7.11%, 5/15/37 5,000 5,137,100
Mead Corp. (The), 6.84%, 3/1/37 2,000 1,982,180
Motorola, Inc., 6.50%, 9/1/25 3,000 2,972,250
Proctor and Gamble Co., 8.00%, 9/1/24 3,000 3,416,970
Seagram (Joseph) & Sons, Inc., 9.65%,
8/15/18 1,030 1,216,615
State Street Bank, 7.35%, 6/15/26 2,450 2,535,236
Tennessee Valley Power Authority,
6.235%, 7/15/45 700 702,653
Tennessee Valley Power Authority, 5.88%,
4/1/36 3,350 3,284,809
Times Mirror Co., 6.61%, 9/15/27 3,250 3,255,330
Tribune Co., 6.25%, 11/10/26 1,000 994,890
TRW, Inc., MTN, 9.35%, 6/4/20 1,045 1,219,316
Willamette Industries, 7.35%, 7/1/26 4,000 4,064,960
Xerox Corp., 5.90%, 5/5/37 3,000 2,998,860
Xerox Corp., 5.875%, 6/15/37 1,000 998,900
- --------------------------------------------------------------------------
Total Corporate Bonds
(identified cost $63,385,028) $ 62,390,180
- --------------------------------------------------------------------------
MORTGAGE PASS-THROUGHS -- 2.0%
<CAPTION>
PRINCIPAL
AMOUNT
SECURITY (000'S OMITTED) VALUE
<S> <C> <C>
- --------------------------------------------------------------------------
FHLMC, PAC, CMO, Series 1627-PZ, 5.60%,
8/15/17 $ 4,495 $ 4,485,143
FHLMC, PAC, CMO, Series 1630-PE, 5.50%,
5/15/18 1,020 1,017,058
FHLMC, PAC, CMO, Series 34-C, 9.00%,
11/15/19 34 34,077
FHLMC, PAC, CMO, Series 41-F, 10.00%,
5/15/20 990 1,064,982
FNMA, PAC, CMO, Series 1990 24-E, 9.00%,
3/25/20 603 617,582
- --------------------------------------------------------------------------
Total Mortgage Pass-Throughs
(identified cost $7,120,470) $ 7,218,842
- --------------------------------------------------------------------------
U.S. TREASURY OBLIGATIONS -- 13.6%
<CAPTION>
PRINCIPAL
AMOUNT
SECURITY (000'S OMITTED) VALUE
<S> <C> <C>
- --------------------------------------------------------------------------
U.S. Treasury Bond, 7.50%, 11/15/16 $ 5,000 $ 5,635,150
U.S. Treasury Note, 6.25%, 2/15/07 3,000 3,056,730
U.S. Treasury Note, 6.625%, 4/30/02 10,000 10,265,599
U.S. Treasury Note, 6.375%, 5/15/00 2,000 2,018,120
U.S. Treasury Note, 5.75%, 11/30/02 18,000 18,036,539
U.S. Treasury Note, 6.125%, 9/30/00 4,000 4,034,360
U.S. Treasury Note, 8.50%, 2/15/00 5,000 5,102,350
- --------------------------------------------------------------------------
Total U.S. Treasury Obligations
(identified cost $49,253,129) $ 48,148,848
- --------------------------------------------------------------------------
COMMERCIAL PAPER -- 1.9%
<CAPTION>
PRINCIPAL
AMOUNT
SECURITY (000'S OMITTED) VALUE
<S> <C> <C>
- --------------------------------------------------------------------------
Associates Corp., 5.75%, 7/1/99 $ 6,706 $ 6,706,000
- --------------------------------------------------------------------------
Total Commercial Paper
(amortized cost $6,706,000) $ 6,706,000
- --------------------------------------------------------------------------
Total Investments -- 99.4%
(identified cost $274,672,808) $ 352,525,556
- --------------------------------------------------------------------------
Other Assets, Less Liabilities -- 0.6% $ 2,027,644
- --------------------------------------------------------------------------
Net Assets -- 100% $ 354,553,200
- --------------------------------------------------------------------------
</TABLE>
ADR - American Depositary Receipt
PAC - Planned Authorization Class
CMO - Collateralized Mortgage Obligations
REIT - Real Estate Investment Trust
(1) Non-income producing security.
(2) Foreign security.
SEE NOTES TO FINANCIAL STATEMENTS
12
<PAGE>
BALANCED PORTFOLIO AS OF JUNE 30, 1999
FINANCIAL STATEMENTS (UNAUDITED)
STATEMENT OF ASSETS AND LIABILITIES
<TABLE>
<CAPTION>
AS OF JUNE 30, 1999
<S> <C>
Assets
- -------------------------------------------------------
Investments, at value (identified cost,
$274,672,808) $ 352,525,556
Cash 1,491
Interest and dividends receivable 1,988,825
Tax reclaim receivable 63,947
- -------------------------------------------------------
TOTAL ASSETS $ 354,579,819
- -------------------------------------------------------
Liabilities
- -------------------------------------------------------
Payable to affiliate for Trustees' fees $ 6,883
Other accrued expenses 19,736
- -------------------------------------------------------
TOTAL LIABILITIES $ 26,619
- -------------------------------------------------------
NET ASSETS APPLICABLE TO INVESTORS'
INTEREST IN PORTFOLIO $ 354,553,200
- -------------------------------------------------------
Sources of Net Assets
- -------------------------------------------------------
Net proceeds from capital contributions
and withdrawals $ 276,700,452
Net unrealized appreciation (computed on
the basis of identified cost) 77,852,748
- -------------------------------------------------------
TOTAL $ 354,553,200
- -------------------------------------------------------
</TABLE>
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDED
JUNE 30, 1999
<S> <C>
Investment Income
- ------------------------------------------------------
Dividends (net of foreign taxes,
$112,634) $ 2,088,383
Interest 4,064,156
- ------------------------------------------------------
TOTAL INVESTMENT INCOME $ 6,152,539
- ------------------------------------------------------
Expenses
- ------------------------------------------------------
Investment adviser fee $ 1,069,032
Trustees fees and expenses 15,401
Custodian fee 84,109
Legal and accounting services 21,718
Miscellaneous 2,907
- ------------------------------------------------------
TOTAL EXPENSES $ 1,193,167
- ------------------------------------------------------
NET INVESTMENT INCOME $ 4,959,372
- ------------------------------------------------------
Realized and Unrealized Gain (Loss)
- ------------------------------------------------------
Net realized gain (loss) --
Investment transactions (identified
cost basis) $ 3,759,665
- ------------------------------------------------------
NET REALIZED GAIN $ 3,759,665
- ------------------------------------------------------
Change in unrealized appreciation
(depreciation) --
Investments (identified cost basis) $ 4,893,490
- ------------------------------------------------------
NET CHANGE IN UNREALIZED APPRECIATION
(DEPRECIATION) $ 4,893,490
- ------------------------------------------------------
NET REALIZED AND UNREALIZED GAIN $ 8,653,155
- ------------------------------------------------------
NET INCREASE IN NET ASSETS FROM
OPERATIONS $ 13,612,527
- ------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
13
<PAGE>
BALANCED PORTFOLIO AS OF JUNE 30, 1999
FINANCIAL STATEMENTS CONT'D
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
SIX MONTHS ENDED
Increase (Decrease) JUNE 30, 1999 YEAR ENDED
in Net Assets (UNAUDITED) DECEMBER 31, 1998
<S> <C> <C>
- --------------------------------------------------------------------------------
From operations --
Net investment income $ 4,959,372 $ 9,645,705
Net realized gain 3,759,665 56,088,137
Net change in unrealized appreciation
(depreciation) 4,893,490 (20,974,301)
- --------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS FROM
OPERATIONS $ 13,612,527 $ 44,759,541
- --------------------------------------------------------------------------------
Capital transactions --
Contributions $ 19,462,993 $ 38,451,067
Withdrawals (33,875,378) (57,564,792)
- --------------------------------------------------------------------------------
NET DECREASE IN NET ASSETS FROM CAPITAL
TRANSACTIONS $ (14,412,385) $ (19,113,725)
- --------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN NET ASSETS $ (799,858) $ 25,645,816
- --------------------------------------------------------------------------------
Net Assets
- --------------------------------------------------------------------------------
At beginning of period $ 355,353,058 $ 329,707,242
- --------------------------------------------------------------------------------
AT END OF PERIOD $ 354,553,200 $ 355,353,058
- --------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
14
<PAGE>
BALANCED PORTFOLIO AS OF JUNE 30, 1999
FINANCIAL STATEMENTS CONT'D
SUPPLEMENTARY DATA
<TABLE>
<CAPTION>
YEAR ENDED
SIX MONTHS ENDED YEAR ENDED DECEMBER 31, JANUARY 31,
JUNE 30, 1999 ------------------------------------------------ -------------
(UNAUDITED) 1998 1997 1996 1995(1) 1995
<S> <C> <C> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------------------------
Ratios to average daily net assets
- -----------------------------------------------------------------------------------------------------------------------------
Expenses 0.68%(2) 0.67% 0.69% 0.70% 0.71%(2) 0.70%
Net investment income 2.84%(2) 2.75% 2.62% 3.23% 3.83%(2) 4.25%
Portfolio turnover 23% 49% 37% 64% 47% 28%
- -----------------------------------------------------------------------------------------------------------------------------
NET ASSETS, END OF PERIOD (000'S
OMITTED) $354,553 $355,353 $329,707 $301,561 $276,375 $217,157
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) For the eleven-month period ended December 31, 1995.
(2) Annualized.
SEE NOTES TO FINANCIAL STATEMENTS
15
<PAGE>
BALANCED PORTFOLIO AS OF JUNE 30, 1999
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
1 Significant Accounting Policies
- -------------------------------------------
Balanced Portfolio (the "Portfolio") (formerly Investors 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 in 1992. The Declaration of Trust permits
the Trustees to issue interests in the Portfolio. The following is a summary
of significant accounting policies of the Portfolio. The policies are in
conformity with generally accepted accounting principles.
A Investment Valuations -- 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. Listed or unlisted securities for which
closing sale prices are not available are valued at the mean between latest
bid and asked prices. Debt securities (other than mortgage-backed "pass
through" securities and short-term obligations maturing in sixty days or
less), including listed securities and securities for which price quotations
are available and forward contracts, will normally be valued on the basis of
market valuations furnished by pricing services. Mortgage-backed, "pass
through" securities are valued using an independent matrix pricing system
applied by the adviser which takes into account closing bond valuations,
yield differentials, anticipated prepayments and interest rates provided by
dealers. Short-term obligations and money market securities maturing in 60
days or less are valued at amortized cost which approximates value. Non-U.S.
dollar denominated short-term obligations are valued at amortized cost as
calculated in the base currency and translated to U.S. dollars at the current
exchange rate. 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 -- Interest income is determined on the basis of interest accrued,
adjusted for amortization of premium or discount when required for federal
income tax purposes. Dividend income is recorded on the ex-dividend date for
dividends received in cash and/or securities. However, if the ex-dividend
date has passed, certain dividends from foreign securities are recorded as
the Portfolio is informed of the ex-dividend date. Dividend income may
include dividends that represent returns of capital for federal income tax
purposes.
C Income 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 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 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 Foreign Currency Translation -- Investment valuations, other assets, and
liabilities initially expressed in foreign currencies are converted each
business day into U.S. dollars based upon current exchange rates. Purchases
and sales of foreign investment securities and income and expenses are
converted into U.S. dollars based upon currency exchange rates prevailing on
the respective dates of such transactions. Recognized gains or losses on
investment transactions attributable to foreign currency rates are recorded
for financial statement purposes as net realized gains and losses on
investments. That portion of unrealized gains and losses on investments that
result from fluctuations in foreign currency exchange rates are not
separately disclosed.
E 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 expense during the reporting period. Actual results could
differ from those estimates.
F Interim Financial Statements -- The interim financial statements relating to
June 30, 1999 and for the six months then ended have not been audited by
independent certified public accountants, but in the opinion of the
Portfolio's management, reflect all adjustments, consisting only of normal
recurring adjustments, necessary for the fair presentation of the financial
statements.
16
<PAGE>
BALANCED PORTFOLIO AS OF JUNE 30, 1999
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) CONT'D
G Other -- Investment transactions are accounted for on a trade date basis.
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 computed at the monthly rate of 5/96 of 1% (0.625%
annually) of the Portfolio's average daily net assets up to $300 million and
at reduced rates as daily net assets exceed that level. For the six months
ended June 30, 1999, the fee was equivalent to 0.61% (annualized) of the
Portfolio's average net assets for such period and amounted to $1,069,032.
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 service to
the Portfolio out of such investment adviser fee. Certain officers and
Trustees of the Portfolio are officers 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 portion of their annual fees in accordance
with the terms of the Trustees Deferred Compensation Plan. For the six months
ended June 30, 1999, no significant amounts have been deferred.
3 Investment Transactions
- -------------------------------------------
Purchases and sales of investments, other than U.S. Government securities and
short-term obligations, aggregated $44,178,618 and $67,621,665, respectively.
Purchases and sales of U.S. Government/agency securities aggregated
$36,373,203 and $24,578,848, respectively.
4 Federal Income Tax Basis of Investments
- -------------------------------------------
The cost and unrealized appreciation (depreciation) in the value of
investments owned at June 30, 1999, as computed on a federal income tax
basis, are as follows:
<TABLE>
<S> <C>
AGGREGATE COST $ 274,672,808
- -------------------------------------------------------
Gross unrealized appreciation $ 89,367,247
Gross unrealized depreciation (11,514,499)
- -------------------------------------------------------
NET UNREALIZED APPRECIATION $ 77,852,748
- -------------------------------------------------------
</TABLE>
5 Line of Credit
- -------------------------------------------
The Portfolio participates with other portfolios and funds managed by BMR and
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. The Portfolio did not have any significant borrowings or
allocated fees during the six months ended June 30, 1999.
6 Risk 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. Investments in
foreign securities also involve 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.
17
<PAGE>
BALANCED PORTFOLIO
Officers
James B. Hawkes
President and Trustee
Thomas E. Faust, Jr.
Vice President and
Portfolio Manager
Michael B. Terry
Vice President
James L. O'Connor
Treasurer
Alan R. Dynner
Secretary
Trustees
Jessica M. Bibliowicz
President and Chief Executive Officer,
National Financial Partners
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
Jack L. Treynor
Investment Adviser and Consultant
18
