<PAGE>
Emerging Markets Portfolio as of June 30, 1997
PORTFOLIO OF INVESTMENTS (Unaudited)
(Expressed in United States Dollars)
<TABLE>
<CAPTION>
Common Stocks -- 92.5%
Security Shares Value
- --------------------------------------------------------------------------------
<S> <C> <C>
Banks and Money Services -- 6.5%
- --------------------------------------------------------------------------------
Banco Credito del Peru 25,000 $ 550,000
Peru's largest banking conglomerate
Far East Bank and Trust Co. Ltd. (Rights)* 3,125 1,090
Fifth largest bank in the Phillippines
Far East Bank and Trust Co., Ltd. 3,125 7,820
Banking
State Bank of India GDR 20,000 530,000
India's largest commercial bank
Zagrebacka Banka GDR 10,000 323,750
Banking
- --------------------------------------------------------------------------------
$ 1,412,660
- --------------------------------------------------------------------------------
Beverages -- 4.8%
- --------------------------------------------------------------------------------
Pan American Beverages, Inc. ADR 17,000 $ 558,875
Coca Cola francisher
Vina Concha y Toro ADR 16,000 495,000
Wine producer/exporter
- --------------------------------------------------------------------------------
$ 1,053,875
- --------------------------------------------------------------------------------
Broadcasting and Cable -- 3.3%
- --------------------------------------------------------------------------------
Benpres Holdings GDR 50,000 $ 357,500
Philippine broadcasting conglomerate
Grupo Radio ADR 30,000 352,500
Mexican radio broadcasting company
- --------------------------------------------------------------------------------
$ 710,000
- --------------------------------------------------------------------------------
Chemicals -- 0.8%
- --------------------------------------------------------------------------------
Lautan Laus 150,000 $ 181,986
Indonasian speciality chemical manufacturer
and distributor
- --------------------------------------------------------------------------------
$ 181,986
- --------------------------------------------------------------------------------
Communications Equipment -- 3.6%
- --------------------------------------------------------------------------------
ECI Telecommunications 6,100 $ 176,900
Producer of equipment to enhance the
capacity of existing telecoms networks
Grupo Televisa GDR 20,000 607,500
Largest media company in the
Spanish-speaking world
- --------------------------------------------------------------------------------
$ 784,400
- --------------------------------------------------------------------------------
Communications Services -- 0.2%
- --------------------------------------------------------------------------------
Korea Mobile Telecom Corp. 61 $ 46,619
Mobile telecommunications operator
- --------------------------------------------------------------------------------
$ 46,619
- --------------------------------------------------------------------------------
Conglomerates -- 9.1%
- --------------------------------------------------------------------------------
Belle Corp. 1,200,000 $ 350,318
Tourism/gaming/property
Cheung Kong Holdings Ltd. 33,000 325,826
Property/infrastructure
Hutchison Whampoa 80,000 688,530
Hong Kong computer and
telecommunications conglomerate
John Keells Holdings GDR 1,633 15,105
Tourism/trading/agriculture
Min Xin Holdings 600,000 425,916
Energy/transportation/telecommunications
/electrical/engineering/industry/
finance/property
Quinenco SA ADR 10,000 185,000
A large diversified company engaged in
industrial and financial services
- --------------------------------------------------------------------------------
$ 1,990,695
- --------------------------------------------------------------------------------
Construction -- 5.9%
- --------------------------------------------------------------------------------
Budimex 45,000 $ 410,803
Largest construction company in Poland
Soares De Costa 29,300 275,078
Portugal's largest building and
construction contractor
Solidere GDR 34,000 604,350
Lebanese property developer
- --------------------------------------------------------------------------------
$ 1,290,231
- --------------------------------------------------------------------------------
Consumer Products -- 0.5%
- --------------------------------------------------------------------------------
Lever Brothers Pakistan Ltd. 5,300 $ 106,211
The largest and oldest consumer
non-durables company in Pakistan
- --------------------------------------------------------------------------------
$ 106,211
- --------------------------------------------------------------------------------
Drugs -- 2.6%
- --------------------------------------------------------------------------------
Agis Industries Ltd. 30,000 $ 314,371
Israeli pharmaceutical
products manufacturer
Yung Shin Pharmaceutical Ind. 86,000 242,842
Taiwan based pharmaceutical company
- --------------------------------------------------------------------------------
$ 557,213
- --------------------------------------------------------------------------------
</TABLE>
See notes to financial statements
8
<PAGE>
Emerging Markets Portfolio as of June 30, 1997
PORTFOLIO OF INVESTMENTS (Unaudited) CONT'D
(Expressed in United States Dollars)
<TABLE>
<CAPTION>
Security Shares Value
- --------------------------------------------------------------------------------
<S> <C> <C>
Electric Utilities -- 2.1%
- --------------------------------------------------------------------------------
Hub Power Company Ltd. GDR 18,500 $ 455,655
Pakistan's first independent power producer
- --------------------------------------------------------------------------------
$ 455,655
- --------------------------------------------------------------------------------
Foods -- 12.7%
- --------------------------------------------------------------------------------
Carulla SA ADR 120,000 $ 405,000
Columbian grocery and supermarket chain
Grupo Minsa SA ADR 45,000 582,836
Mexican corn flour and tortilla producer
Perdigao Preferred 109,000,000 258,186
Brazilian processed meats manufacturer
PT Indofood Sukses Makmur (Foreign) 200,000 460,621
Indonesian instant noodle producer
PT Mayora Indah (Foreign) 600,000 339,297
Indonisian food manufacturer
Standard Foods (Taiwan) GDR 50,000 478,750
Taiwanese baby food, oatmeal and
edible oil manufacturer
Universal Robina Corp. 700,000 254,777
Large Phillipines food company
- --------------------------------------------------------------------------------
$ 2,779,467
- --------------------------------------------------------------------------------
Investment Services -- 9.5%
- --------------------------------------------------------------------------------
Arab-Malaysian Merchant Bank 85,000 $ 529,922
Multi service bank
Banco Totta and Acores 13,700 229,256
Portuguese bank specializing in retail
banking and mortgages
Grupo Financieri Banamex Accivl, Series B 151,000 387,350
Large Mexican bank
HSBC Holdings PLC 11,200 336,810
International bank and financial
services company
Kwong Yik Bank 57,000 193,037
Malysian retail bank
Smith Ltd. 71,000 396,578
Investment holding company
- --------------------------------------------------------------------------------
$ 2,072,953
- --------------------------------------------------------------------------------
Lodging and Gaming -- 1.1%
- --------------------------------------------------------------------------------
Asian Hotel Corp. 1,100,000 $ 237,434
Hotel company
- --------------------------------------------------------------------------------
$ 237,434
- --------------------------------------------------------------------------------
Manufacturing -- 3.4%
- --------------------------------------------------------------------------------
First Tractor Co. (Hampshire) 190,000 $ 125,065
China's second largest tractor producer
Tata Engineering & Locomotion GDR 9,720 149,202
Tata Engineering & Locomotion GDR, 30,000 460,500
Class A
India's largest auto producer and
distributor
- --------------------------------------------------------------------------------
$ 734,767
- --------------------------------------------------------------------------------
Metals - Industrial -- 2.1%
- --------------------------------------------------------------------------------
Noble Group Ltd. 600,000 $ 468,000
Producer and distributor of raw materials
- --------------------------------------------------------------------------------
$ 468,000
- --------------------------------------------------------------------------------
Natural Gas Utilities -- 1.4%
- --------------------------------------------------------------------------------
Mosenergo 144A ADR 7,000 $ 304,500
Gas power utilities
- --------------------------------------------------------------------------------
$ 304,500
- --------------------------------------------------------------------------------
Oil and Gas - Equipment and Services -- 5.1%
- --------------------------------------------------------------------------------
JSC Surgutneftegaz ADR 12,000 $ 643,500
Russia's largest oil producer
YPF Sociedad Anonima ADR 15,200 467,400
Exploration, development, and production
of oil and natural gas
- --------------------------------------------------------------------------------
$ 1,110,900
- --------------------------------------------------------------------------------
Publishing -- 1.5%
- --------------------------------------------------------------------------------
Star Publications 76,000 $ 325,114
Malaysian newspaper and
magazine publisher
- --------------------------------------------------------------------------------
$ 325,114
- --------------------------------------------------------------------------------
REITS -- 2.2%
- --------------------------------------------------------------------------------
New World Development 80,000 $ 475,534
Property developer
- --------------------------------------------------------------------------------
$ 475,534
- --------------------------------------------------------------------------------
Retail - Food and Drug -- 7.7%
- --------------------------------------------------------------------------------
Blue Square Stores 45,000 $ 436,701
Supermarket and specialty store chain
Bompreco Supermercado GDR 26,500 709,007
Brazilian supermarket chain
Compania Brasileira de Distrib. GDR 14,000 318,500
Supermarket chain
KFC Holdings (Malaysia) BHD 60,000 225,774
Fast food chain
- --------------------------------------------------------------------------------
$ 1,689,982
- --------------------------------------------------------------------------------
</TABLE>
See notes to financial statements
9
<PAGE>
Emerging Markets Portfolio as of June 30, 1997
PORTFOLIO OF INVESTMENTS (Unaudited) CONT'D
(Expressed in United States Dollars)
<TABLE>
<CAPTION>
Security Shares Value
- --------------------------------------------------------------------------------
<S> <C> <C>
Sanitation -- 2.6%
- --------------------------------------------------------------------------------
Saneamento Basico (Sabesp) 1,885,000 $ 574,316
Brazil's largest water and sanitation
utility
- --------------------------------------------------------------------------------
$ 574,316
- --------------------------------------------------------------------------------
Telephone Utilities -- 3.8%
- --------------------------------------------------------------------------------
Telecomunicacoes Brasileiras ADR 2,750 $ 417,313
Telecommunications holding company
Telefonica del Peru ADR 16,000 419,000
Is Peru's primary operator of the public
telephone system
- --------------------------------------------------------------------------------
$ 836,313
- --------------------------------------------------------------------------------
Total Common Stocks
(identified cost $16,962,956) $20,198,825
- --------------------------------------------------------------------------------
<CAPTION>
Preferred Stocks -- 6.6%
Security Shares Value
- --------------------------------------------------------------------------------
<S> <C> <C>
Electrical Equipment -- 2.8%
- --------------------------------------------------------------------------------
Eletricidade Sao Paulo 2,100,000 $ 614,443
Electricity distributor in Brazil
- --------------------------------------------------------------------------------
$ 614,443
- --------------------------------------------------------------------------------
Financial - Miscellaneous -- 2.4%
- --------------------------------------------------------------------------------
Banco Bradesco SA 51,258,993 $ 516,613
Brazilian international bank
- --------------------------------------------------------------------------------
$ 516,613
- --------------------------------------------------------------------------------
Telephone Utilities -- 1.4%
- --------------------------------------------------------------------------------
Telec de Minas Gerias 1,800,000 $ 318,517
Third largest telecommunications system
by access lines in state of Minas Gerias
(Brazil)
- --------------------------------------------------------------------------------
$ 318,517
- --------------------------------------------------------------------------------
Total Preferred Stocks
(identified cost $1,069,690) $ 1,449,573
- --------------------------------------------------------------------------------
<CAPTION>
Warrants -- 0.1%
Security Shares Value
- --------------------------------------------------------------------------------
<S> <C> <C>
Lodging and Gaming -- 0.0%
- --------------------------------------------------------------------------------
Lai Sun Hotels International 30,106 $ 2,642
Ltd. (Warrants)*
Company with investments in property,
hotels and broadcasting
- --------------------------------------------------------------------------------
$ 2,642
- --------------------------------------------------------------------------------
Retail - Food and Drug -- 0.1%
- --------------------------------------------------------------------------------
KFC Holdings BHD (Warrants)* 8,000 $ 9,443
Fast food chain
- --------------------------------------------------------------------------------
$ 9,443
- --------------------------------------------------------------------------------
Total Warrants
(identified cost $1,984) $ 12,085
- --------------------------------------------------------------------------------
<CAPTION>
Convertible Bonds -- 0.8%
Principal
Amount
(000
Security Omitted) Value
- --------------------------------------------------------------------------------
<S> <C> <C>
Compal Electronics, 1.00%, 11/21/03 $ 105 $ 177,450
- --------------------------------------------------------------------------------
Total Convertible Bonds
(identified cost $148,575) $ 177,450
- --------------------------------------------------------------------------------
Total Investments -- 100.0%
(identified cost $18,183,205) $21,837,933
- --------------------------------------------------------------------------------
Other Assets, Less Liabilities -- 0.0% $ 5,962
- --------------------------------------------------------------------------------
Net Assets -- 100% $21,843,895
- --------------------------------------------------------------------------------
</TABLE>
ADR -- American Depository Receipt
GDR -- Global Depository Receipt
* Non-income producing security.
See notes to financial statements
10
<PAGE>
Emerging Markets Portfolio as of June 30, 1997
PORTFOLIO OF INVESTMENTS (Unaudited)
Country Concentration of Portfolio
<TABLE>
<CAPTION>
Percentage
Country of Net Assets Value
- ------------------------------------------------------------------------------
<S> <C> <C>
Argentina 2.1% 467,400
Brazil 17.0% 3,726,895
Colombia 1.9% 405,000
Croatia 1.5% 323,750
Hong Kong 7.8% 1,714,194
India 5.3% 1,154,807
Indonesia 4.5% 981,904
Israel 4.3% 927,972
Malaysia 4.7% 1,033,209
Mexico 11.4% 2,489,060
Pakistan 2.6% 561,866
Peru 4.4% 969,000
Poland 1.9% 410,803
Portugal 4.6% 999,334
Republic of Korea 0.2% 46,619
Russia 1.4% 304,500
Singapore 2.1% 468,000
South Africa 1.8% 396,578
Sri Lanka 1.1% 237,434
Taiwan 3.3% 721,592
The Philippines 4.5% 971,505
United States 7.4% 1,610,300
</TABLE>
See notes to financial statements
11
<PAGE>
Emerging Markets Portfolio as of June 30, 1997
FINANCIAL STATEMENTS (Unaudited)
Statement of Assets and Liabilities
<TABLE>
<CAPTION>
As of June 30, 1997
(Expressed in United States Dollars)
Assets
- ---------------------------------------------------------------------------
<S> <C>
Investments, at value (Note 1A)
(identified cost, $18,183,205) $21,837,933
Cash 462,697
Foreign currency, at value
(identified cost, $304,521) 301,322
Receivable for investments sold 802,431
Interest and dividends receivable 43,082
Tax reclaim receivable 236
Deferred organization expenses (Note 1D) 9,210
- ---------------------------------------------------------------------------
Total assets $23,456,911
- ---------------------------------------------------------------------------
Liabilities
- ---------------------------------------------------------------------------
Payable for investments purchased $ 1,608,274
Payable for open forward foreign currency contracts
(Note 6) 953
Payable to affiliate -
Trustees' fees (Note 2) 1,250
Accrued expenses 2,539
- ---------------------------------------------------------------------------
Total liabilities $ 1,613,016
- ---------------------------------------------------------------------------
Net Assets applicable to investors' interest in Portfolio $21,843,895
- ---------------------------------------------------------------------------
Sources of Net Assets
- ---------------------------------------------------------------------------
Net proceeds from capital contributions and withdrawals $18,193,342
Net unrealized appreciation of investments (computed
on the basis of identified cost) 3,650,553
- ----------------------------------------------------------------------------
Total $21,843,895
- ----------------------------------------------------------------------------
<CAPTION>
Statement of Operations
For the Six Months Ended
June 30, 1997
(Expressed in United States Dollars)
Investment Income (Note 1H)
- --------------------------------------------------------------------------
Dividends (net of foreign taxes, $4,664) $ 129,688
Interest income 2,720
- ---------------------------------------------------------------------------
Total income $ 132,408
- ---------------------------------------------------------------------------
Expenses
- ---------------------------------------------------------------------------
Investment adviser fee (Note 2) $ 61,702
Administration fee 20,567
Compensation of Trustees not members of the
Investment Adviser's organization (Note 2) 3,087
Custodian fee (Note 1C) 43,748
Legal and accounting services 13,633
Amortization of organization expenses (Note 1D) 1,892
Miscellaneous 3,767
- ---------------------------------------------------------------------------
Total expenses $ 148,396
- ---------------------------------------------------------------------------
Deduct --
Preliminary reduction of investment adviser fee
(Note 2) $ 51,117
Preliminary reduction of custodian fee (Note 1C) 18,249
Preliminary waiver of administration fee (Note 2) 17,039
- ---------------------------------------------------------------------------
Total expense reductions $ 86,405
- ---------------------------------------------------------------------------
Net expenses $ 61,991
- ---------------------------------------------------------------------------
Net investment income $ 70,417
- ---------------------------------------------------------------------------
Realized and Unrealized
Gain (Loss) on Investments
- ---------------------------------------------------------------------------
Net realized gain (loss) --
Investment transactions (identified cost basis) $ 1,417,306
Foreign currency transactions (38,795)
- ---------------------------------------------------------------------------
Net realized gain on investments $ 1,378,511
- ---------------------------------------------------------------------------
Change in unrealized appreciation (depreciation) --
Investments (identified cost basis) $ 1,818,479
Foreign currency (4,039)
- ---------------------------------------------------------------------------
Net change in unrealized appreciation $ 1,814,440
- ---------------------------------------------------------------------------
Net realized and unrealized gain on investments $ 3,192,951
- ---------------------------------------------------------------------------
Net increase in net assets resulting from operations $ 3,263,368
- ---------------------------------------------------------------------------
</TABLE>
See notes to financial statements
12
<PAGE>
Emerging Markets Portfolio as of June 30, 1997
FINANCIAL STATEMENTS CONT'D
Statements of Changes in Net Assets (Expressed in United States Dollars)
<TABLE>
<CAPTION>
Six Months Ended
Increase (Decrease) June 30, 1997 Year Ended
in Net Assets (Unaudited) December 31, 1996
- --------------------------------------------------------------------------------
<S> <C> <C>
From operations --
Net investment income $ 70,417 $ 11,410
Net realized gain on investments 1,378,511 139,702
Net change in unrealized appreciation 1,814,440 1,561,355
- --------------------------------------------------------------------------------
Net increase in net assets
from operations $ 3,263,368 $ 1,712,467
- --------------------------------------------------------------------------------
Capital transactions --
Contributions $ 18,169,148 $11,229,400
Withdrawals (10,247,148) (5,870,609)
- --------------------------------------------------------------------------------
Net increase in net assets from
capital transactions $ 7,922,000 $ 5,358,791
- --------------------------------------------------------------------------------
Net increase in net assets $ 11,185,368 $ 7,071,258
- --------------------------------------------------------------------------------
Net Assets
- --------------------------------------------------------------------------------
At beginning of period $ 10,658,527 $ 3,587,269
- --------------------------------------------------------------------------------
At end of period $ 21,843,895 $10,658,527
- --------------------------------------------------------------------------------
</TABLE>
See notes to financial statements
13
<PAGE>
Emerging Markets Portfolio as of June 30, 1997
FINANCIAL STATEMENTS CONT'D
Supplementary Data (Expressed in United States Dollars)
<TABLE>
<CAPTION>
Six Months Ended Year Ended December 31,
June 30, 1997 -----------------------------------------
(Unaudited) 1996 1995 1994*
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Ratios to average daily net assets++
- ---------------------------------------------------------------------------------------------------------------------
Expenses/(1)/ 0.97%+ 1.54% 2.58% 0.00%
Net expenses, after custodian fee reduction 0.75%+ 1.32% 2.58% --
Net investment income (loss) 0.85%+ 0.14% (1.00)% 0.00%
Portfolio Turnover 60% 125% 98% 0%
- ---------------------------------------------------------------------------------------------------------------------
Average commission rate (per share)/(2)/ $ 0.0007 $ 0.0029 $ -- $ --
- ---------------------------------------------------------------------------------------------------------------------
Net assets, end of period (000s omitted) $ 21,844 $ 10,659 $ 3,587 $ 1,195
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
++ The operating expenses of the Portfolio reflect an allocation of expenses to
the Administrator and a waiver of investment adviser fees. Had such actions
not been taken, the ratios would have been as follows:
<TABLE>
<S> <C> <C> <C> <C>
Expenses/(1)/ 1.80%+ 2.24% 5.24% 2.21%+
Expenses after custodian fee reduction 1.58%+ 2.02% 5.24% --
Net investment income (loss) 0.03%+ (0.56)% (3.66)% (2.21)%+
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
+ Annualized.
* For the period from the start of business, November 30, 1994, to
December 31, 1994.
/(1)/ The expense ratios for the six months ended June 30, 1997 and for the
years ended December 31, 1996 and 1995 have been adjusted to reflect a
change in reporting requirements. The new reporting guidelines require the
Fund to increase its expense ratio by the effect of any expense offset
arrangements with its service providers. The expense ratios for the period
ended December 31, 1994 have not been adjusted to reflect this change.
/(2)/ Average commission rate paid is computed by dividing the total dollar
amount of commissions paid during the fiscal year by the total number of
shares purchased and sold during the fiscal year for which commissions
were charged. For fiscal years beginning on or after September 1, 1995, a
Fund is required to disclose its average commission rate per share for
security trades on which commissions were charged.
See notes to financial statements
14
<PAGE>
Emerging Markets Portfolio as of June 30, 1997
NOTES TO FINANCIAL STATEMENTS (Unaudited)
(Expressed in United States Dollars)
1 Significant Accounting Policies
----------------------------------------------------------------------------
Emerging Market Portfolio (the Portfolio) is registered under the Investment
Company Act of 1940 as a diversified, open-end investment company which was
organized as a trust under the laws of the State of New York. The
Declaration of Trust permits the Trustees to issue interests in the
Portfolio. The following is a summary of significant accounting policies of
the Portfolio. The policies are in conformity with generally accepted
accounting principles.
A Investment Valuation -- Marketable securities, including options, that are
listed on foreign or U.S. securities exchanges or in the NASDAQ National
Market System are valued at closing sale prices, on the exchange where such
securities are principally traded. Future positions on securities or
currencies are generally valued at closing settlement prices. Unlisted or
listed securities for which closing sales prices are not available are
valued at the mean between the latest bid and asked prices. Short term debt
securities with a remaining maturity of 60 days or less are valued at
amortized cost. Other fixed income and debt securities, including listed
securities and securities for which price quotations are available, will
normally be valued on the basis of valuations furnished by a pricing
service. Investments for which valuations or market quotations are
unavailable are valued at fair value using methods determined in good faith
by or at the direction of the Trustees.
B Federal Taxes -- The Portfolio has elected to be treated as a partnership
for Federal tax purposes. No provision is made by the Portfolio for federal
or state taxes on any taxable income of the Portfolio because each investor
in the Portfolio is individually responsible for the payment of any taxes on
its share of such income. Since some of the Portfolio's investors are
regulated investment companies that invest all or substantially all of their
assets in the Portfolio, the Portfolio normally must satisfy the applicable
source of income and diversification requirements (under the Internal
Revenue Code) in order for its investors to satisfy them. The Portfolio will
allocate, at least annually among its investors, each investor's
distributive share of the Portfolio's net investment income, net realized
capital gains, and any other items of income, gain, loss, deduction or
credit. Withholding taxes on foreign dividends and capital gains have been
provided for in accordance with the Portfolio's understanding of the
applicable countries' tax rules and rates.
C Expense Reduction -- Investors Bank & Trust Company serves as custodian of
the Portfolio. Pursuant to the custodian agreement, IBT receives a fee
reduced by credits which are determined based on the average daily cash
balances the Portfolio maintains with IBT. All significant credit balances
used to reduce the Portfolio's custodian fees are reported as a reduction of
expenses on the Statement of Operations.
D Deferred Organization Expenses -- Costs incurred by the Portfolio in
connection with its organization, including registration costs, are being
amortized on the straight-line basis over five years.
E Futures Contracts -- Upon the entering of a financial futures contract,
the Portfolio is required to deposit (initial margin) either of cash or
securities an amount equal to a certain percentage of the purchase price
indicated in the financial futures contract. Subsequent payments are made or
received by the Portfolio (margin maintenance) each day, dependent on the
daily fluctuations in the value of the underlying security, and are recorded
for book purposes as unrealized gains or losses by the Portfolio. The
Portfolio's investment in financial futures contracts is designed only to
hedge against anticipated future changes in interest or currency exchange
rates. Should interest or currency exchange rates move unexpectedly, the
Portfolio may not achieve the anticipated benefits of the financial futures
contracts and may realize a loss. If the Portfolio enters into a closing
transaction, the Portfolio will realize, for book purposes, a gain or loss
equal to the difference between the value of the financial futures contract
to sell and financial futures contract to buy.
F Foreign Currency Translation -- Investment valuations, other assets, and
liabilities initially expressed in foreign currencies are converted each
business day into U.S. dollars based upon current exchange rates. Purchases
and sales of foreign investment securities and income and expenses are
converted into U.S. dollars based upon currency exchange rates prevailing on
the respective dates of such transactions. Recognized gains or losses on
investment transactions attributable to foreign currency rates are recorded
for financial statement purposes as net realized gains and losses on
investments. That portion of unrealized gains and losses on investments that
result from fluctuation in foreign currency exchange rates are not
separately disclosed.
15
<PAGE>
Emerging Markets Portfolio as of June 30, 1997
NOTES TO FINANCIAL STATEMENTS (Unaudited) CONT'D
(Expressed in United States Dollars)
G Forward Foreign Currency Exchange Contracts -- The Portfolio may enter
into forward foreign currency exchange contracts for the purchase or sale of
a specific foreign currency at a fixed price on a future date. Risk may
arise upon entering these contracts from the potential inability of
counterparties to meet the terms of their contracts and from movements in
the value of a foreign currency relative to the U.S. dollar. The Portfolio
will enter into forward contracts for hedging purposes as well as non-
hedging purposes. The forward foreign currency exchange contracts are
adjusted by the daily exchange rate of the underlying currency and any gains
or losses are recorded for financial statement purposes as unrealized until
such time as the contracts have been closed or offset.
H Other -- Investment transactions are accounted for on the date the
investments are purchased or old. 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-dividends date. Interest income is recorded on the accrual basis.
I Use of Estimates -- The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities at the date of the financial statements and the reported amounts
of income and expense during the reporting period. Actual results could
differ from those estimated.
J Interim Financial Information -- The interim financial statements relating
to June 30, 1997 and for the six-month period then ended have not been
audited by independent certified public accountants, but in the opinion of
the Fund's management, reflect all adjustments, consisting only of normal
recurring adjustments, necessary for the fair presentation of the financial
statements.
2 Investment Adviser Fee and Other Transactions with Affiliates
----------------------------------------------------------------------------
The investment adviser fee is earned by Lloyd George Management (Bermuda)
Limited (the Adviser) as compensation for management and investment advisory
services rendered to the Portfolio. Under the advisory agreement, the Adviser
receives a monthly fee of 0.0625% (0.75% annually) of the average daily net
assets of the Portfolio up to $500,000,000, and at reduced rates as daily net
assets exceed that level. For the six months ended June 30, 1997, the adviser
fee was 0.75% of average net assets. To enhance the net income of the
Portfolio the Adviser made a waiver of $51,117 of investment adviser fees. In
addition, an administrative fee is earned by Eaton Vance Management (EVM) for
managing and administrating the business affairs of the Portfolio. Under the
administration agreement, EVM earns a monthly fee in the amount of 1/48th of
1% (equal to 0.25% annually) of the average daily net assets of the Portfolio
up to $500,000,000, and at reduced rates as daily net assets exceed that
level. For the six months ended June 30, 1997, the administration fee was
0.25% of average net assets. To enhance the net income of the Portfolio, the
administrator was allocated expenses in the amount of $17,039. Except as to
Trustees of the Portfolio who are not members of the Adviser or EVM's
organization, officers and Trustees receive remuneration for their services to
the Portfolio out of such investment adviser and administrative fee. Certain
of the officers and Trustees of the Portfolio are officers and
directors/trustees of the above organizations.
3 Investment Transaction
----------------------------------------------------------------------------
Purchases and sales of investments, other than short-term obligations,
aggregated $18,126,745 and $9,496,227, respectively.
4 Federal Income Tax Basis of Investments
----------------------------------------------------------------------------
The cost and unrealized appreciation (depreciation) in value of the
investments owned at June 30, 1997, as computed on a federal income tax
basis, are as follows:
<TABLE>
<S> <C>
Aggregate cost $18,183,205
--------------------------------------------------------------------
Gross unrealized appreciation $3,981,551
Gross unrealized depreciation (326,823)
--------------------------------------------------------------------
Net unrealized appreciation $3,654,728
--------------------------------------------------------------------
</TABLE>
16
<PAGE>
Emerging Markets Portfolio as of June 30, 1997
NOTES TO FINANCIAL STATEMENTS (Unaudited) CONT'D
(Expressed in United States Dollars)
5 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
publically 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.
6 Financial Instruments
----------------------------------------------------------------------------
The Portfolio regularly trades in financial instruments with off-balance sheet
risk in the normal course of its investing activities to assist in managing
exposure to various market risks. These financial instruments include written
options, forward foreign currency exchange contracts and financial futures
contracts and may involve, to a varying degree, elements of risk in excess of
the amounts recognized for financial statement purposes. The notional or
contractual amounts of these instruments represent the investment the
Portfolio has in particular classes of financial instruments and does not
necessarily represent the amounts potentially subject to risk. The measurement
of the risks associated with these instruments is meaningful only when all
related and offsetting transactions are considered.
A summary of obligations under these financial instruments at June 30, 1997
is as follows:
Forward Foreign Currency Exchange Contracts
Sales
<TABLE>
<CAPTION>
------------------------------------------------------------------------
Net Unrealized
Settlement In Exchange For Appreciation
Date Deliver (in U.S. dollars) (Depreciation)
------------------------------------------------------------------------
<S> <C> <C> <C>
7/2/97 Indonesian Rupiah $396,768 $(653)
------------------------------------------------------------------------
$396,768 $(653)
------------------------------------------------------------------------
<CAPTION>
Purchases
------------------------------------------------------------------------
Net Unrealized
Settlement Deliver Appreciation
Date In Exchange For (in U.S. dollars) (Depreciation)
------------------------------------------------------------------------
<S> <C> <C> <C>
7/08/97 Pakistan Rupee $108,504 $(300)
------------------------------------------------------------------------
$108,504 $(300)
------------------------------------------------------------------------
</TABLE>
At June 30, 1997, the Portfolio had sufficient cash and/or securities to
cover potential obligations arising from open forward contracts.
7 Line of Credit
----------------------------------------------------------------------------
The Portfolio participates with other portfolios and funds managed by BMR and
EVM and its affiliates in a committed $120 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 either the bank's adjusted certificate of
deposit rate, eurodollar rate or federal funds rate. In addition, a fee
computed at an annual rate of 0.15% 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, 1997.
17
<PAGE>
Emerging Markets Portfolio as of June 30, 1997
INVESTMENT MANAGEMENT
Emerging Markets Portfolio
Officers Trustees
Hon. Robert Lloyd George Hon. Edward K. Y. Chen
President, Trustee Professor and Director, Center for
Asian Studies, University of Hong Kong
James B. Hawkes
Vice President and Trustee Donald R. Dwight
President, Dwight Partners, Inc.
Scobie Dickinson Ward Chairman, Newspapers of New England, Inc.
Vice President, Assistant
Secretary and Samuel L. Hayes, III
Assistant Treasurer Jacob H. Schiff Professor of Investment
Banking, Harvard University Graduate School
William Walter Raleigh Kerr of Business Administration
Vice President,
Assistant Treasurer Norton H. Reamer
President and Director, United Asset
James L. O'Connor Management Corporation
Vice President, Treasurer
Alan R. Dynner
Vice President, Secretary
18
