<PAGE>
Emerging Markets Portfolio as of June 30, 1998
PORTFOLIO OF INVESTMENTS (Unaudited)
Common Stocks -- 82.8%
Security Shares Value
- -----------------------------------------------------------------------------
Apparel -- 2.0%
- -----------------------------------------------------------------------------
Zaklady Metali Lekkich Kety* 15,693 $ 236,273
Poland metal company
- -----------------------------------------------------------------------------
$ 236,273
- -----------------------------------------------------------------------------
Banks and Money Services -- 4.5%
- -----------------------------------------------------------------------------
Akbank T.A.S. 80,000 $ 258,152
Turkish commercial bank
Alpha Credit Bank 3,300 267,437
Greek bank
- -----------------------------------------------------------------------------
$ 525,589
- -----------------------------------------------------------------------------
Beverages -- 12.6%
- -----------------------------------------------------------------------------
Pan American Beverages, Inc. ADR 13,000 $ 408,688
Coca Cola franchiser
Pyramids Brewers 6,000 383,437
The largest brewer in Egypt
Suncrush Ltd. 107,000 226,887
Coca Cola franchiser
Vina Concha y Toro ADR 16,000 456,000
Wine producer/exporter
- -----------------------------------------------------------------------------
$ 1,475,012
- -----------------------------------------------------------------------------
Communications Equipment -- 4.8%
- -----------------------------------------------------------------------------
Grupo Televisa GDR 15,000 $ 564,374
Largest media company in the
Spanish-speaking world
- -----------------------------------------------------------------------------
$ 564,374
- -----------------------------------------------------------------------------
Communications Services -- 1.9%
- -----------------------------------------------------------------------------
China Telecom* 130,000 $ 225,645
Only listed Chinese mobile
telephone company
- -----------------------------------------------------------------------------
$ 225,645
- -----------------------------------------------------------------------------
Conglomerates -- 3.4%
- -----------------------------------------------------------------------------
John Keells Holdings GDR 2,041 $ 11,226
A diversified conglomerate operating in
tourism, food & beverages, property
development sectors
Quinenco SA ADR* 5,400 48,600
A large diversified company engaged
in industrial and financial services
Sabanci Holdings 55,000 340,513
The second largest conglomerate in
Turkey
- -----------------------------------------------------------------------------
$ 400,339
- -----------------------------------------------------------------------------
Consumer Products -- 0.5%
- ----------------------------------------------------------------------------
Lever Brothers Pakistan Ltd. 2,800 $ 52,775
The largest and oldest consumer
non-durables company in Pakistan
- -----------------------------------------------------------------------------
$ 52,775
- -----------------------------------------------------------------------------
Electric Utilities -- 1.9%
- -----------------------------------------------------------------------------
BSES, Ltd. ADR* 22,000 $ 222,200
Generator and distributor of
electricity to the
Bombay region
- -----------------------------------------------------------------------------
$ 222,200
- -----------------------------------------------------------------------------
Foods -- 3.6%
- -----------------------------------------------------------------------------
Carulla SA ADR 155,000 $ 426,250
Columbian grocery and supermarket
chain
- -----------------------------------------------------------------------------
$ 426,250
- -----------------------------------------------------------------------------
Information Services -- 1.8%
- -----------------------------------------------------------------------------
Forsoft Ltd.* 13,500 $ 207,563
Israeli technology company
concentrating on the year 2000
problem
- -----------------------------------------------------------------------------
$ 207,563
- -----------------------------------------------------------------------------
Investment Services -- 0.8%
- -----------------------------------------------------------------------------
National Finance and Securities
Public Company Ltd.* 1,211,400 $ 94,506
Thai company operating in commercial
consumer and housing finance
- -----------------------------------------------------------------------------
$ 94,506
- -----------------------------------------------------------------------------
Manufacturing -- 4.2%
- -----------------------------------------------------------------------------
Barlow Ltd. 35,000 $ 185,539
South African conglomerate with
primary products interests
Ege Biracilik Ve Malt Sanayii A.S. 20,125 237,866
Turkish brewery
Uralmash-Zavody ADR* 12,500 71,982
Russian engineering company
- -----------------------------------------------------------------------------
$ 495,387
- -----------------------------------------------------------------------------
Media & Leisure -- 4.5%
- -----------------------------------------------------------------------------
Berjaya Sports Toto Bhd 37,000 $ 54,861
Malaysian gaming company
See notes to financial statements
9
<PAGE>
Emerging Markets Portfolio as of June 30, 1998
PORTFOLIO OF INVESTMENTS (Unaudited) CONT'D
Security Shares Value
- -----------------------------------------------------------------------------
Media & Leisure (continued)
- -----------------------------------------------------------------------------
Corporacion Interamericana de
Entretenimiento S.A.* 150,040 $ 422,695
Corporacion Interamericana de
Entretenimiento S.A., L Shares* 20,005 46,780
South American fibre optic cable
company for telecommunications
- -----------------------------------------------------------------------------
$ 524,336
- -----------------------------------------------------------------------------
Metals - Industrial -- 3.4%
- -----------------------------------------------------------------------------
Anglo America Corp. 5,700 $ 193,384
Major South African mining finance
company
Hindalco Industries Ltd. GDR* 15,000 210,000
Aluminum producer in India
- -----------------------------------------------------------------------------
$ 403,384
- -----------------------------------------------------------------------------
Miscellaneous -- 0.6%
- -----------------------------------------------------------------------------
Legend Holdings Ltd.* 220,000 $ 66,009
PC and services vendor in China
- -----------------------------------------------------------------------------
$ 66,009
- -----------------------------------------------------------------------------
Oil and Gas - Equipment and Services -- 5.6%
- -----------------------------------------------------------------------------
JSC Surgutneftegaz ADR 60,000 $ 360,000
Russia's largest oil producer
YPF Sociedad Anonima ADR 10,000 300,625
Exploration, development and
production of oil and natural gas
- -----------------------------------------------------------------------------
$ 660,625
- -----------------------------------------------------------------------------
Oil and Gas - Integrated -- 3.5%
- -----------------------------------------------------------------------------
Mol Magyar Olayes Gazi GDR 15,000 $ 405,000
Interests in oil and gas
exploration and production, gas
wholesale distribution, storage
and transmission, oil refining and
marketing
- -----------------------------------------------------------------------------
$ 405,000
- -----------------------------------------------------------------------------
Retail - Food and Drug -- 11.5%
- -----------------------------------------------------------------------------
Blue Square Stores* 45,000 $ 553,996
Supermarket and specialty store
chain
Compania Brasileira de Distrib. GDR 25,000 565,624
Supermarket chain
Dairy Farm International Holdings 207,726 222,267
Ltd.*
Hong Kong and Pacific supermarket
operator and general retailer
- -----------------------------------------------------------------------------
$ 1,341,887
- -----------------------------------------------------------------------------
Sanitation -- 1.9%
- -----------------------------------------------------------------------------
Saneamento Basico (Sabesp) 1,885,000 $ 226,539
Brazil's largest water and
sanitation utility
- -----------------------------------------------------------------------------
$ 226,539
- -----------------------------------------------------------------------------
Telephone Utilities -- 8.4%
- ----------------------------------------------------------------------------
Telefonica del Peru ADR 12,000 $ 245,250
Peru's primary operator of the
public telephone system
Telefonos de Mexico ADR 8,000 384,500
Largest telecom operator with
interests in local and long
distance telecommunications
Videsh Sanchar Nigam Ltd., GDR 32,500 347,750
India's monopoly International
Telephone service provider
- -----------------------------------------------------------------------------
$ 977,500
- -----------------------------------------------------------------------------
Transportation -- 1.4%
- -----------------------------------------------------------------------------
Pacific Ports Company Ltd. 1,150,000 $ 160,281
Development and management of
terminals in Asian sea and
river ports
- ----------------------------------------------------------------------------
$ 160,281
- ----------------------------------------------------------------------------
Total Common Stocks
(identified cost $10,484,652) $ 9,691,474
- ----------------------------------------------------------------------------
Preferred Stocks -- 4.0%
Security Shares Value
- ----------------------------------------------------------------------------
Electric Utilities -- 0.1%
- ----------------------------------------------------------------------------
Centrais Geradoras do Sul do
Brasil S.A.* 7,000,000 $ 9,563
This company is an electricity
generator owned by the government
which will be sold off in 1998.
- ----------------------------------------------------------------------------
$ 9,563
- ----------------------------------------------------------------------------
Oil and Gas - Integrated -- 1.8%
- ----------------------------------------------------------------------------
Petroleo Brasiliero SA 1,100,000 $ 204,479
Brazil's sole integrated oil company,
a monopoly in exploration, production,
refining, transportation, importing
and exporting of oil and natural gas
- ----------------------------------------------------------------------------
$ 204,479
- ----------------------------------------------------------------------------
Telephone Utilities -- 2.1%
- ----------------------------------------------------------------------------
Telec de Minas Gerias 2,500,000 $ 174,001
Third largest telecommunications
system by access lines in state of
Minas Gerias (Brazil)
See notes to financial statements
10
<PAGE>
Emerging Markets Portfolio as of June 30, 1998
PORTFOLIO OF INVESTMENTS (Unaudited) CONT'D
Security Shares Value
- ----------------------------------------------------------------------------
Telephone Utilities (continued)
- ----------------------------------------------------------------------------
Telemig Celular S.A.* 2,500,000 $ 75,653
Part of Telebras operating mobile
telephones awaiting privatization
- ----------------------------------------------------------------------------
$ 249,654
- ----------------------------------------------------------------------------
Total Preferred Stocks
(identified cost $676,088) $ 463,696
- ----------------------------------------------------------------------------
Warrants -- 0.1%
Security Shares Value
- ----------------------------------------------------------------------------
Investment Services -- 0.1%
- ----------------------------------------------------------------------------
National Finance and Securities
Public Company Ltd. 670,600 $ 17,439
Thai company operating in
commercial consumer and housing
finance
- ----------------------------------------------------------------------------
$ 17,439
- ----------------------------------------------------------------------------
Lodging and Gaming -- 0.0%
- ----------------------------------------------------------------------------
Belle Corp. (Warrants) 240,000 $ 331
Philippine gaming and property
company with hotel interests,
golf resorts, casinos, jai-lai,
and lottery franchises
- ----------------------------------------------------------------------------
$ 331
- ----------------------------------------------------------------------------
Total Warrants
(identified cost $0) $ 17,770
- ----------------------------------------------------------------------------
Total Investments -- 86.9%
(identified cost $11,160,740) $10,172,940
- ----------------------------------------------------------------------------
Other Assets, Less Liabilities -- 13.1% $ 1,530,198
- ----------------------------------------------------------------------------
Net Assets -- 100% $11,703,138
- ----------------------------------------------------------------------------
ADR -- American Depository Receipt
GDR -- Global Depository Receipt
* Non-income producing security.
See notes to financial statements
11
<PAGE>
Emerging Markets Portfolio as of June 30, 1998
PORTFOLIO OF INVESTMENTS
Country Concentration of Portfolio
Percentage
Country of Net Assets Value
- --------------------------------------------------------------------------------
Argentina 2.6% $ 300,625
Brazil 10.7% 1,255,859
Chile 4.3% 504,600
Colombia 3.6% 426,250
Egypt 3.3% 383,437
Greece 2.3% 267,437
Hong Kong 3.9% 451,935
Hungary 3.5% 405,000
India 6.7% 779,950
Israel 6.5% 761,559
Malaysia 0.5% 54,861
Mexico 15.6% 1,827,037
Pakistan 0.4% 52,775
Peru 2.1% 245,250
Philippines 0.0% 331
Poland 2.0% 236,273
Russia 3.7% 431,982
Singapore 1.9% 222,267
South Africa 5.2% 605,810
Sri Lanka 0.1% 11,226
Thailand 0.9% 111,945
Turkey 7.1% 836,531
See notes to financial statements
12
<PAGE>
Emerging Markets Portfolio as of June 30, 1998
FINANCIAL STATEMENTS (Unaudited)
Statement of Assets and Liabilities
As of June 30, 1998
Assets
- --------------------------------------------------------------------------
Investments, at value
(identified cost, $11,160,740) $10,172,940
Cash 1,447,199
Foreign currency, at value
(identified cost, $60,722) 55,594
Dividends receivable 38,724
Deferred organization expenses 5,396
- --------------------------------------------------------------------------
Total assets $11,719,853
- --------------------------------------------------------------------------
Liabilities
- --------------------------------------------------------------------------
Payable for investments purchased $ 924
Payable to affiliate for Trustees' fees 150
Other accrued expenses 15,641
- --------------------------------------------------------------------------
Total liabilities $ 16,715
- --------------------------------------------------------------------------
Net Assets applicable to investors' interest in Portfolio $11,703,138
- --------------------------------------------------------------------------
Sources of Net Assets
- --------------------------------------------------------------------------
Net proceeds from capital contributions and withdrawals $12,697,698
Net unrealized depreciation (computed on the basis of
identified cost) (994,560)
- --------------------------------------------------------------------------
Total $11,703,138
- --------------------------------------------------------------------------
Statement of Operations
For the Six Months
Ended June 30, 1998
Investment Income
- --------------------------------------------------------------------------
Dividends (net of foreign taxes, $3,898) $ 153,136
- --------------------------------------------------------------------------
Total investment income $ 153,136
- --------------------------------------------------------------------------
Expenses
- --------------------------------------------------------------------------
Investment adviser fee $ 57,469
Administration fee 19,156
Trustees fees and expenses 2,702
Custodian fee 41,109
Amortization of organization expenses 1,902
Legal and accounting services 348
Miscellaneous 7,852
- --------------------------------------------------------------------------
Total expenses $ 130,538
- --------------------------------------------------------------------------
Deduct --
Reduction of custodian fee $ 20,079
- --------------------------------------------------------------------------
Total expense reductions $ 20,079
- --------------------------------------------------------------------------
Net expenses $ 110,459
- --------------------------------------------------------------------------
Net investment income $ 42,677
- --------------------------------------------------------------------------
Realized and Unrealized Gain (Loss)
- --------------------------------------------------------------------------
Net realized gain (loss) --
Investment transactions (identified cost basis) $(1,063,368)
Foreign currency and forward foreign
currency exchange contract transactions (146,963)
- --------------------------------------------------------------------------
Net realized loss $(1,210,331)
- --------------------------------------------------------------------------
Change in unrealized appreciation (depreciation) --
Investments (identified cost basis) $(1,700,826)
Foreign currency and forward foreign
currency exchange contracts 52,553
- --------------------------------------------------------------------------
Net change in unrealized appreciation (depreciation) $(1,648,273)
- --------------------------------------------------------------------------
Net realized and unrealized loss $(2,858,604)
- --------------------------------------------------------------------------
Net decrease in net assets from operations $(2,815,927)
- --------------------------------------------------------------------------
See notes to financial statements
13
<PAGE>
Emerging Markets Portfolio as of June 30, 1998
FINANCIAL STATEMENTS CONT'D
Statements of Changes in Net Assets
Six Months Ended
Increase (Decrease) June 30, 1998 Year Ended
in Net Assets (Unaudited) December 31, 1997
- --------------------------------------------------------------------------
From operations --
Net investment income $ 42,677 $ 15,335
Net realized loss (1,210,331) (593,013)
Net change in unrealized
appreciation (depreciation) (1,648,273) (1,182,400)
- --------------------------------------------------------------------------
Net decrease in net assets
from operations $ (2,815,927) $ (1,760,078)
- --------------------------------------------------------------------------
Capital transactions --
Contributions $ 2,546,154 $ 26,595,739
Withdrawals (6,580,694) (16,940,583)
- --------------------------------------------------------------------------
Net increase (decrease) in net
assets from capital transactions $ (4,034,540) $ 9,655,156
- --------------------------------------------------------------------------
Net increase (decrease) in net assets $ (6,850,467) $ 7,895,078
- --------------------------------------------------------------------------
Net Assets
- --------------------------------------------------------------------------
At beginning of period $ 18,553,605 $ 10,658,527
- --------------------------------------------------------------------------
At end of period $ 11,703,138 $ 18,553,605
- --------------------------------------------------------------------------
See notes to financial statements
14
<PAGE>
Emerging Markets Portfolio as of June 30, 1998
FINANCIAL STATEMENTS CONT'D
Supplementary Data
<TABLE>
<CAPTION>
Six Months Ended
June 30, 1998 Year Ended December 31,
- ------------------------------------------------------------------------------------------------------------------------------------
(Unaudited) 1997 1996 1995 1994 *
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios to average daily net assets +
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net expenses (1) 1.71%+ 1.53% 1.54% 2.58% 0.00%
Net expenses after custodian fee reduction 1.45%+ 1.35% 1.32% 2.58% --
Net investment income (loss) 0.56%+ 0.08% 0.14% (1.00)% 0.00%
Portfolio Turnover 55% 160% 125% 98% 0%
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (000's omitted) $ 11,703 $ 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 (1) 1.81% 2.24% 5.24% 2.21%+
Expenses after custodian fee reduction 1.63% 2.02% 5.24% --
Net investment loss (0.20)% (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 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 ratios for each of the periods ended December 31,
1994 have not been adjusted to reflect this change.
See notes to financial statements
15
<PAGE>
Emerging Markets Portfolio as of June 30, 1998
NOTES TO FINANCIAL STATEMENTS (Unaudited)
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 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 of such transactions. Recognized gains or losses on
investment transactions attributable to foreign currency
16
<PAGE>
Emerging Markets Portfolio as of June 30, 1998
NOTES TO FINANCIAL STATEMENTS (Unaudited) CONT'D
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.
K Interim Financial Information -- The interim financial statements relating
to June 30, 1998 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 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 six months ended June 30, 1998,
the adviser fee was 0.75% (annualized) of average daily net assets and
amounted to $57,469. 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 six months ended June 30, 1998, the administration
fee was 0.25% (annualized) of average daily net assets and amounted to
$19,156. 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 $8,097,242 and $11,186,373, respectively.
4 Federal Income Tax Basis of Investments
-----------------------------------------------------------------------------
The cost and unrealized appreciation (depreciation) in value of the
investments owned at June 30, 1998, as computed on a federal income tax
basis, are as follows:
Aggregate cost $ 11,160,740
-----------------------------------------------------------------------
Gross unrealized appreciation $ 1,202,692
Gross unrealized depreciation (2,190,492)
-----------------------------------------------------------------------
Net unrealized depreciation $ (987,800)
-----------------------------------------------------------------------
17
<PAGE>
Emerging Markets Portfolio as of June 30, 1998
NOTES TO FINANCIAL STATEMENTS (Unaudited) CONT'D
5 Line of Credit
------------------------------------------------------------------------------
The Portfolio participates with other portfolios and funds managed by EVM and
its affiliates in a $100 million unsecured line of credit agreement with a
group of banks. The Portfolio may temporarily borrow from the line of credit
to satisfy redemption requests or settle investment transactions. Interest is
charged to each portfolio or fund based on its borrowings at an amount above
the Eurodollar rate or federal funds rate. In addition, a fee computed at an
annual rate of 0.10% on the daily unused portion of the line of credit is
allocated among the participating portfolios and funds at the end of each
quarter. The Portfolio did not have any significant borrowings or allocated
fees during the period.
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 June 30, 1998, there were no outstanding
obligations under these financial instruments.
18
<PAGE>
Emerging Markets Portfolio as of June 30, 1998
INVESTMENT MANAGEMENT
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
Professor and Director, Center for
Asian Studies, University of Hong Kong
Donald R. Dwight
President, Dwight Partners, Inc.
Samuel L. Hayes, III
Jacob H. Schiff Professor of Investment
Banking, Harvard University Graduate
School of Business Administration
Norton H. Reamer
Chairman and Chief Executive Officer, United Asset
Management Corporation
