<PAGE>
Emerging Markets Portfolio as of December 31, 1998
PORTFOLIO OF INVESTMENTS
Common Stocks -- 95.8%
Security Shares Value
- --------------------------------------------------------------------------------
Banks and Money Services -- 7.1%
- --------------------------------------------------------------------------------
Alpha Credit Bank 366 $ 37,937
Greek bank
Bank Handlowy Warszawie 7,000 86,353
Leading corporate and trade finance bank in Poland
Hana Bank 15,000 165,835
Korean commercial bank
National Bank of Greece 800 178,787
One of Greece's leading banks with over 40% of
the total deposit base
Philippine National Bank(1) 60,300 93,068
Philippine universal bank
- --------------------------------------------------------------------------------
$ 561,980
- --------------------------------------------------------------------------------
Beverages -- 9.6%
- --------------------------------------------------------------------------------
Pyramids Brewers 6,000 $ 343,109
The largest brewer in Egypt
Vina Concha y Toro ADR 16,000 414,000
Wine producer/exporter
- --------------------------------------------------------------------------------
$ 757,109
- --------------------------------------------------------------------------------
Broadcasting and Cable -- 2.5%
- --------------------------------------------------------------------------------
TV Azteca SA 30,000 $ 200,625
Mexico's second largest television company
- --------------------------------------------------------------------------------
$ 200,625
- --------------------------------------------------------------------------------
Communications Services -- 2.9%
- --------------------------------------------------------------------------------
Panafon Hellenic Registered S GDS(1) 8,500 $ 225,888
Greece's leading mobile phone operator
- --------------------------------------------------------------------------------
$ 225,888
- --------------------------------------------------------------------------------
Conglomerates -- 2.9%
- --------------------------------------------------------------------------------
John Keells Holdings 52,000 $ 169,458
John Keells Holdings GDR 2,041 12,246
A conglomerate involved in tea, hotels, beverages
and others
Quinenco SA ADR 5,400 43,200
A large diversified company engaged in industrial and
financial services
- --------------------------------------------------------------------------------
$ 224,904
- --------------------------------------------------------------------------------
Electric Utilities -- 4.6%
- --------------------------------------------------------------------------------
Cemig Cia Energy Spons ADR 6,000 $ 111,844
One of Brazil's two integrated power companies
Korea Electric Power Corp. 10,000 247,714
Korean Electricity generator & distributor
- --------------------------------------------------------------------------------
$ 359,558
- --------------------------------------------------------------------------------
Entertainment -- 2.4%
- --------------------------------------------------------------------------------
Grammy Entertainment Public 40,000 $ 189,349
Producer and distributor of music titles in Thailand
- --------------------------------------------------------------------------------
$ 189,349
- --------------------------------------------------------------------------------
Foods -- 3.9%
- --------------------------------------------------------------------------------
Carulla SA ADR 155,000 $ 193,750
Columbian grocery and supermarket chain
JG Summit Holdings, Class B(1) 1,853,000 114,397
Philippine Conglomerate
- --------------------------------------------------------------------------------
$ 308,147
- --------------------------------------------------------------------------------
Information Services -- 1.8%
- --------------------------------------------------------------------------------
Forsoft Ltd.(1) 13,500 $ 140,063
Israeli technology company concentrating on the year
2000 problem
- --------------------------------------------------------------------------------
$ 140,063
- --------------------------------------------------------------------------------
Insurance -- 8.1%
- --------------------------------------------------------------------------------
Liberty Life Associates of Africa 11,000 $ 151,446
One of South Africa's most efficient life
insurance companies
Samsung Fire & Marine Insurance 1,300 486,283
Korean non-life insurer
- --------------------------------------------------------------------------------
$ 637,729
- --------------------------------------------------------------------------------
Investment Services -- 1.0%
- --------------------------------------------------------------------------------
Li & Fung, Ltd. 38,000 $ 78,725
Largest global intermediator between garment
suppliers and retailers
- --------------------------------------------------------------------------------
$ 78,725
- --------------------------------------------------------------------------------
Machinery -- 6.6%
- --------------------------------------------------------------------------------
Siam Cement Co. Ltd.(1) 23,000 $ 521,590
Largest industrial and building material producer
in Thailand
- --------------------------------------------------------------------------------
$ 521,590
- --------------------------------------------------------------------------------
Manufacturing -- 0.1%
- --------------------------------------------------------------------------------
Uralmash-Zavody ADR(1) 12,500 $ 7,100
Russian engineering company
- --------------------------------------------------------------------------------
$ 7,100
- --------------------------------------------------------------------------------
See notes to financial statements
14
<PAGE>
Emerging Markets Portfolio as of December 31, 1998
PORTFOLIO OF INVESTMENTS CONT'D
Security Shares Value
- --------------------------------------------------------------------
Media & Leisure -- 2.6%
- --------------------------------------------------------------------
Corporacion Interamericana de
Entretenimiento S.A.(1) 75,040 $ 204,799
South American fibre
optic cable company
for telecommunications
- --------------------------------------------------------------------
$ 204,799
- --------------------------------------------------------------------
Metals - Industrial -- 2.0%
- --------------------------------------------------------------------
Anglo America Corp. 5,700 $ 160,634
Major South African
mining finance company
- --------------------------------------------------------------------
$ 160,634
- --------------------------------------------------------------------
Oil and Gas - Equipment and Services -- 7.4%
- --------------------------------------------------------------------
Gulf Indonesia Resources
Ltd. ADR(1) 15,000 $ 97,500
Cheap explorer of oil and
natural gas in Indonesia
JSC Surgutneftegaz ADR 60,000 205,500
Russia's largest oil
producer
YPF Sociedad Anonima ADR 10,000 279,375
Exploration, development
and production of oil and
natural gas
- --------------------------------------------------------------------
$ 582,375
- --------------------------------------------------------------------
Oil and Gas - Integrated -- 5.3%
- --------------------------------------------------------------------
Mol Magyar Olayes Gazi GDR 15,000 $ 414,375
Interests in oil and gas
exploration and production,
gas wholesale distribution,
storage and transmission,
oil refining and marketing
- --------------------------------------------------------------------
$ 414,375
- --------------------------------------------------------------------
Retail - Food and Drug -- 6.8%
- --------------------------------------------------------------------
Blue Square Stores(1) 12,000 $ 141,766
Supermarket and specialty
store chain
Compania Brasileira de
Distrib. GDR 10,000 155,000
Supermarket chain
Dairy Farm International
Holdings Ltd. 207,726 238,885
Hong Kong and Pacific
supermarket operator and
general retailer
- --------------------------------------------------------------------
$ 535,651
- --------------------------------------------------------------------
Retail - General -- 4.5%
- --------------------------------------------------------------------
Pizza Co. Ltd. 48,400 $ 162,510
Owner and operator of all
Pizza Hut and other fast
food franchises in
Thailand
President Chain Store Corp. 60,000 189,013
Taiwanese operator of
7-11 convenience stores
and other consumer
businesses
- --------------------------------------------------------------------
$ 351,523
- --------------------------------------------------------------------
Telephone Utilities -- 13.7%
- --------------------------------------------------------------------
Compania de
Telecomunicaciones ADR 10,000 $ 206,875
Chile's largest telecom
provider
Telefonos de Mexico ADR 8,000 389,500
Largest telecom operator
with interests in local
and long distance
telecommunications
Telesp Participacoes SA 6,750,000 86,592
The holding company that
controls two operators in
the state of Sao Paulo,
Brazil's wealthiest state
Videsh Sanchar Nigam Ltd., GDR 32,500 398,125
India's monopoly
international telephone
service provider
- --------------------------------------------------------------------
$1,081,092
- --------------------------------------------------------------------
Total Common Stocks
(identified cost $8,048,647) $7,543,216
- --------------------------------------------------------------------
Preferred Stocks -- 4.1%
Security Shares Value
- --------------------------------------------------------------------
Electric Utilities -- 0.1%
- --------------------------------------------------------------------
Centrais Geradoras do Sul
do Brasil S.A.(1) 7,000,000 $ 9,154
This company is an
electricity generator.
- --------------------------------------------------------------------
$ 9,154
- --------------------------------------------------------------------
Oil and Gas - Integrated -- 1.6%
- --------------------------------------------------------------------
Petroleo Brasiliero SA 1,110,000 $ 125,860
Brazil's sole integrated
oil company, a monopoly
in exploration,
production, refining,
transportation, importing
and exporting of oil and
natural gas
- --------------------------------------------------------------------
$ 125,860
- --------------------------------------------------------------------
Telephone Utilities -- 2.4%
- --------------------------------------------------------------------
Telecommunication Sudeste
Celular(1) 45,500,000 $ 192,055
The holding company for
the cellular operators in
the states of Rio de
Janeiro and Espirito Santo
- --------------------------------------------------------------------
$ 192,055
- --------------------------------------------------------------------
Total Preferred Stocks
(identified cost $326,560) $ 327,069
- --------------------------------------------------------------------
Total Investments -- 99.9%
(identified cost $8,375,207) $7,870,285
- --------------------------------------------------------------------
Other Assets, Less Liabilities -- 0.1% $ 6,563
- --------------------------------------------------------------------
Net Assets -- 100% $7,876,848
- --------------------------------------------------------------------
Company descriptions are unaudited.
ADR -- American Depository Receipt
GDR -- Global Depository Receipt
(1) Non-income producing security.
See notes to financial statements
15
<PAGE>
Emerging Markets Portfolio as of December 31, 1998
PORTFOLIO OF INVESTMENTS
Country Concentration of Portfolio
Percentage
Country of Net Assets Value
- ------------------------------------------------------------
Argentina 3.6% $279,375
Brazil 8.6% 680,505
Chile 8.4% 664,075
Colombia 2.5% 193,750
Egypt 4.4% 343,109
Greece 5.6% 442,612
Hong Kong 1.0% 78,725
Hungary 5.3% 414,375
India 5.1% 398,125
Indonesia 1.2% 97,500
Israel 3.6% 281,829
Mexico 10.1% 794,924
Philippines 2.6% 207,465
Poland 1.1% 86,353
Republic of Korea 11.4% 899,832
Russia 2.7% 212,600
Singapore 3.0% 238,885
South Africa 4.0% 312,080
Sri Lanka 2.3% 181,704
Taiwan 2.4% 189,013
Thailand 11.1% 873,449
See notes to financial statements
16
<PAGE>
Emerging Markets Portfolio as of December 31, 1998
FINANCIAL STATEMENTS
Statement of Assets and Liabilities
As of December 31, 1998
Assets
- --------------------------------------------------------------------------------
Investments, at value
(identified cost, $8,375,207) $ 7,870,285
Foreign currency, at value
(identified cost, $367,489) 382,183
Dividends receivable 14,179
Deferred organization expenses 3,473
- --------------------------------------------------------------------------------
Total assets $ 8,270,120
- --------------------------------------------------------------------------------
Liabilities
- --------------------------------------------------------------------------------
Demand note payable $ 285,000
Payable for investments purchased 84,010
Due to bank 144
Payable to affiliate for Trustees' fees 42
Other accrued expenses 24,076
- --------------------------------------------------------------------------------
Total liabilities $ 393,272
- --------------------------------------------------------------------------------
Net Assets applicable to investors' interest in Portfolio $ 7,876,848
- --------------------------------------------------------------------------------
Sources of Net Assets
- --------------------------------------------------------------------------------
Net proceeds from capital contributions and withdrawals $ 8,363,831
Net unrealized depreciation (computed on the basis of
identified cost) (486,983)
- --------------------------------------------------------------------------------
Total $ 7,876,848
- --------------------------------------------------------------------------------
Statement of Operations
For the Year Ended
December 31, 1998
Investment Income
- --------------------------------------------------------------------------------
Dividends (net of foreign taxes, $3,898) $ 216,054
- --------------------------------------------------------------------------------
Total investment income $ 216,054
- --------------------------------------------------------------------------------
Expenses
- --------------------------------------------------------------------------------
Investment adviser fee $ 91,187
Administration fee 30,396
Custodian fee 68,660
Legal and accounting services 21,037
Trustees fees and expenses 5,150
Amortization of organization expenses 3,825
Miscellaneous 7,036
- --------------------------------------------------------------------------------
Total expenses $ 227,291
- --------------------------------------------------------------------------------
Deduct --
Reduction of custodian fee $ 36,451
Reduction of investment adviser fee 14,847
Reduction of administration fee 4,950
- --------------------------------------------------------------------------------
Total expense reductions $ 56,248
- --------------------------------------------------------------------------------
Net expenses $ 171,043
- --------------------------------------------------------------------------------
Net investment income $ 45,011
- --------------------------------------------------------------------------------
Realized and Unrealized Gain (Loss)
- --------------------------------------------------------------------------------
Net realized gain (loss) --
Investment transactions (identified cost basis) $(3,478,264)
Foreign currency and forward foreign
currency exchange contract transactions (165,376)
- --------------------------------------------------------------------------------
Net realized loss $(3,643,640)
- --------------------------------------------------------------------------------
Change in unrealized appreciation (depreciation) --
Investments (identified cost basis) $(1,217,948)
Foreign currency and forward foreign
currency exchange contracts 77,252
- --------------------------------------------------------------------------------
Net change in unrealized appreciation (depreciation) $(1,140,696)
- --------------------------------------------------------------------------------
Net realized and unrealized loss $(4,784,336)
- --------------------------------------------------------------------------------
Net decrease in net assets from operations $(4,739,325)
- --------------------------------------------------------------------------------
See notes to financial statements
17
<PAGE>
Emerging Markets Portfolio as of December 31, 1998
FINANCIAL STATEMENTS CONT'D
Statements of Changes in Net Assets
Increase (Decrease) Year Ended Year Ended
in Net Assets December 31, 1998 December 31, 1997
- --------------------------------------------------------------------------------
From operations --
Net investment income $ 45,011 $ 15,335
Net realized loss (3,643,640) (593,013)
Net change in unrealized
appreciation (depreciation) (1,140,696) (1,182,400)
- --------------------------------------------------------------------------------
Net decrease in net assets
from operations $ (4,739,325) $ (1,760,078)
- --------------------------------------------------------------------------------
Capital transactions --
Contributions $ 3,995,966 $ 26,595,739
Withdrawals (9,933,398) (16,940,583)
- --------------------------------------------------------------------------------
Net increase (decrease) in net assets
from capital transactions $ (5,937,432) $ 9,655,156
- --------------------------------------------------------------------------------
Net increase (decrease) in net assets $ (10,676,757) $ 7,895,078
- --------------------------------------------------------------------------------
Net Assets
- --------------------------------------------------------------------------------
At beginning of year $ 18,553,605 $ 10,658,527
- --------------------------------------------------------------------------------
At end of year $ 7,876,848 $ 18,553,605
- --------------------------------------------------------------------------------
See notes to financial statements
18
<PAGE>
Emerging Markets Portfolio as of December 31, 1998
FINANCIAL STATEMENTS CONT'D
Supplementary Data
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------------------------------------------
1998 1997 1996 1995 1994 (1)
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Ratios to average daily net assets+
- ---------------------------------------------------------------------------------------------------------------------------------
Net expenses (2) 1.71% 1.53% 1.54% 2.58% 0.00%
Net expenses after custodian fee reduction 1.41% 1.35% 1.32% 2.58% --
Net investment income (loss) 0.37% 0.08% 0.14% (1.00)% 0.00%
Portfolio Turnover 117% 160% 125% 98% 0%
- ---------------------------------------------------------------------------------------------------------------------------------
Net assets, end of year (000's omitted) $7,877 $18,554 $10,659 $3,587 $1,195
- ---------------------------------------------------------------------------------------------------------------------------------
+ The operating expenses of the Portfolio may reflect a reduction of the investment adviser fee, an allocation of expenses to the
Investment Adviser, or both. Had such actions not been taken, the ratios would have been as follows:
Expenses (2) 1.87% 1.81% 2.24% 5.24% 2.21%(3)
Expenses after custodian fee reduction 1.57% 1.63% 2.02% 5.24% --
Net investment income (loss) 0.21% (0.20)% (0.56)% (3.66)% (2.21)%(3)
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) For the period from the start of business, November 30, 1994, to December
31, 1994.
(2) The expense ratios for the year ended December 31, 1995 and periods
thereafter have been adjusted to reflect a change in reporting requirements.
The new reporting guidelines require the Portfolio to increase its expense
ratio by the effect of any expense offset arrangements with its service
providers. The expense ratio for the prior period has not been adjusted to
reflect this change.
(3) Annualized.
See notes to financial statements
19
<PAGE>
Emerging Markets Portfolio as of December 31, 1998
NOTES TO FINANCIAL STATEMENTS
1 Significant Accounting Policies
------------------------------------------------------------------------------
Emerging Markets Portfolio (the Portfolio) is registered under the Investment
Company Act of 1940 as a diversified, open-end management investment company
which was organized as a trust under the laws of the State of New York on
January 18, 1994. The Declaration of Trust permits the Trustees to issue
interests in the Portfolio. The following is a summary of significant
accounting policies of the Portfolio. The policies are in conformity with
accounting principles generally accepted in the United States.
A Investment Valuation -- Marketable securities, including options, that are
listed on foreign or U.S. securities exchanges or in the NASDAQ National
Market System are valued at closing sale prices, on the exchange where such
securities are principally traded. Futures positions on securities or
currencies are generally valued at closing settlement prices. Unlisted or
listed securities for which closing sales prices are not available are valued
at the mean between the latest bid and asked prices. Short term debt
securities with a remaining maturity of 60 days or less are valued at
amortized cost which approximates value. Other fixed income and debt
securities, including listed securities and securities for which price
quotations are available, will normally be valued on the basis of valuations
furnished by a pricing service. Investments for which valuations or market
quotations are unavailable are valued at fair value using methods determined
in good faith by or at the direction of the Trustees.
B Income -- Dividend income is recorded on the ex-dividend date. However, if
the ex-dividend date has passed, certain dividends from securities are
recorded as the Portfolio is informed of the ex-dividend date. Interest income
is recorded on the accrual basis.
C Federal Taxes -- The Portfolio has elected to be treated as a partnership
for United States Federal tax purposes. No provision is made by the Portfolio
for federal or state taxes on any taxable income of the Portfolio because each
investor in the Portfolio is individually responsible for the payment of any
taxes on its share of such income. Since some of the Portfolio's investors are
regulated investment companies that invest all or substantially all of their
assets in the Portfolio, the Portfolio normally must satisfy the applicable
source of income and diversification requirements (under the Internal Revenue
Code) in order for its investors to satisfy them. The Portfolio will allocate,
at least annually among its investors, each investor's distributive share of
the Portfolio's net investment income, net realized capital gains, and any
other items of income, gain, loss, deduction or credit. Withholding taxes on
foreign dividends and capital gains have been provided for in accordance with
the Portfolio's understanding of the applicable countries' tax rules and
rates.
D Expense Reduction -- Investors Bank & Trust Company (IBT) serves as
custodian of the Portfolio. Pursuant to the custodian agreement, IBT receives
a fee reduced by credits which are determined based on the average daily cash
balances the Portfolio maintains with IBT. All significant credit balances
used to reduce the Portfolio's custodian fees are reported as a reduction of
expenses on the Statement of Operations.
E Deferred Organization Expenses -- Costs incurred by the Portfolio in
connection with its organization, including registration costs, are being
amortized on the straight-line basis over five years.
F Futures Contracts -- Upon the entering of a financial futures contract, the
Portfolio is required to deposit (initial margin) either cash or securities in
an amount equal to a certain percentage of the purchase price indicated in the
financial futures contract. Subsequent payments are made or received by the
Portfolio (margin maintenance) each day, dependent on the daily fluctuations
in the value of the underlying security, and are recorded for book purposes as
unrealized gains or losses by the Portfolio. The Portfolio's investment in
financial futures contracts is designed only to hedge against anticipated
future changes in interest or currency exchange rates. Should interest or
currency exchange rates move unexpectedly, the Portfolio may not achieve the
anticipated benefits of the financial futures contracts and may realize a
loss. If the Portfolio enters into a closing transaction, the Portfolio will
realize, for book purposes, a gain or loss equal to the difference between the
value of the financial futures contract to sell and financial futures contract
to buy.
G Foreign Currency Translation -- Investment valuations, other assets, and
liabilities initially expressed in foreign currencies are converted each
business day into U.S. dollars based upon current exchange rates. Purchases
and sales of foreign investment securities and income and expenses are
converted into U.S. dollars based upon currency exchange rates prevailing on
the respective dates
20
<PAGE>
Emerging Markets Portfolio as of December 31, 1998
NOTES TO FINANCIAL STATEMENTS CONT'D
of such transactions. Recognized gains or losses on investment transactions
attributable to foreign currency rates are recorded for financial statement
purposes as net realized gains and losses on investments. That portion of
unrealized gains and losses on investments that result from fluctuations in
foreign currency exchange rates are not separately disclosed.
H Forward Foreign Currency Exchange Contracts -- The Portfolio may enter into
forward foreign currency exchange contracts for the purchase or sale of a
specific foreign currency at a fixed price on a future date. Risk may arise
upon entering these contracts from the potential inability of counterparties
to meet the terms of their contracts and from movements in the value of a
foreign currency relative to the U.S. dollar. The Portfolio will enter into
forward contracts for hedging purposes as well as non-hedging purposes. The
forward foreign currency exchange contracts are adjusted by the daily exchange
rate of the underlying currency and any gains or losses are recorded for
financial statement purposes as unrealized until such time as the contracts
have been closed or offset.
I Other -- Investment transactions are accounted for on a trade date basis.
J Use of Estimates -- The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities at the date of the financial statements and the reported amounts
of income and expense during the reporting period. Actual results could differ
from those estimates.
2 Investment Adviser Fee and Other Transactions with Affiliates
------------------------------------------------------------------------------
The investment adviser fee is earned by Lloyd George Investment Management
(Bermuda) Limited (the Adviser) as compensation for management and investment
advisory services rendered to the Portfolio. Under the advisory agreement, the
Adviser receives a monthly fee of 0.0625% (0.75% annually) of the average
daily net assets of the Portfolio up to $500,000,000, and at reduced rates as
daily net assets exceed that level. For the year ended December 31, 1998, the
adviser fee was 0.75% of average daily net assets and amounted to $91,187. To
enhance the net income of the Portfolio the Adviser made a reduction of the
investment adviser fee of $14,847. In addition, an administrative fee is
earned by Eaton Vance Management (EVM) for managing and administrating the
business affairs of the Portfolio. Under the administration agreement, EVM
earns a monthly fee in the amount of 1/48th of 1% (0.25% annually) of the
average daily net assets of the Portfolio up to $500,000,000, and at reduced
rates as daily net assets exceed that level. For the year ended December 31,
1998, the administration fee was 0.25% of average daily net assets and
amounted to $30,396. To enhance the net income of the Portfolio, the
administrator reduced fees in the amount of $4,950. Except as to Trustees of
the Portfolio who are not members of the Adviser or EVM's organization,
officers and Trustees receive remuneration for their services to the Portfolio
out of such investment adviser and administrative fees. Certain of the
officers and Trustees of the Portfolio are officers and/or directors/trustees
of the above organizations.
3 Investment Transactions
------------------------------------------------------------------------------
Purchases and sales of investments, other than short-term obligations,
aggregated $13,277,680 and $16,752,321, respectively.
4 Federal Income Tax Basis of Investments
------------------------------------------------------------------------------
The cost and unrealized appreciation (depreciation) in value of the
investments owned at December 31, 1998, as computed on a federal income tax
basis, are as follows:
Aggregate cost $ 8,375,207
-----------------------------------------------------------------------------
Gross unrealized appreciation $ 992,806
Gross unrealized depreciation (1,497,728)
-----------------------------------------------------------------------------
Net unrealized depreciation $ (504,922)
-----------------------------------------------------------------------------
5 Line of Credit
-----------------------------------------------------------------------------
The Portfolio participates with other portfolios and funds managed by EVM and
its affiliates in a $130 million unsecured line of credit agreement with a
group of banks. The Portfolio may temporarily borrow from the line of credit
to satisfy redemption requests or settle investment transactions. Interest is
charged to each portfolio or fund based on its borrowings at an amount above
the Eurodollar rate or Federal Funds rate. In addition, a fee computed at an
annual rate of 0.10% on the daily unused portion of the line of credit is
allocated among the participating portfolios and funds at the end of each
quarter. At December 31, 1998, the Portfolio had a balance outstanding
pursuant to this line of credit of $285,000.
21
<PAGE>
Emerging Markets Portfolio as of December 31, 1998
NOTES TO FINANCIAL STATEMENTS CONT'D
6 Risks Associated with Foreign Investments
------------------------------------------------------------------------------
Investing in securities issued by companies whose principal business
activities are outside the United States may involve significant risks not
present in domestic investments. For example, there is generally less publicly
available information about foreign companies, particularly those not subject
to the disclosure and reporting requirements of the U.S. securities laws.
Foreign issuers are generally not bound by uniform accounting, auditing, and
financial reporting requirements and standards of practice comparable to those
applicable to domestic issuers. Investment in foreign securities also involves
the risk of possible adverse changes in investment or exchange control
regulations, expropriation or confiscatory taxation, limitation on the removal
of funds or other assets of the Portfolio, political or financial instability
or diplomatic and other developments which could affect such investments.
Foreign stock markets, while growing in volume and sophistication, are
generally not as developed as those in the United States, and securities of
some foreign issuers (particularly those located in developing countries) may
be less liquid and more volatile than securities of comparable U.S. companies.
In general, there is less overall governmental supervision and regulation of
foreign securities markets, broker-dealers, and issuers than in the United
States.
7 Financial Instruments
------------------------------------------------------------------------------
The Portfolio regularly trades in financial instruments with off-balance sheet
risk in the normal course of its investing activities to assist in managing
exposure to various market risks. These financial instruments include forward
foreign currency exchange contracts and futures contracts and may involve, to
a varying degree, elements of risk in excess of the amounts recognized for
financial statement purposes. The notional or contractual amounts of these
instruments represent the investment the Portfolio has in particular classes
of financial instruments and does not necessarily represent the amounts
potentially subject to risk. The measurement of the risks associated with
these instruments is meaningful only when all related and offsetting
transactions are considered. At December 31, 1998, the Portfolio had one open
forward foreign currency exchange contract. The settlement date of the
contract was January 4, 1999. The contract was for the purchase of 1,518,207
Philippine Pesos. This translated to $39,220 and the contract was valued at
$39,054 resulting in unrealized depreciation amounting to $166.
At December 31, 1998 the Portfolio had sufficient cash and/or securities to
cover the commitment under this contract.
22
<PAGE>
Emerging Markets Portfolio as of December 31, 1998
INDEPENDENT AUDITORS' REPORT
To the Trustees and Investors
of Emerging Markets Portfolio:
- --------------------------------------------------------------------------------
We have audited the accompanying statement of assets and liabilities, including
the portfolio of investments, of Emerging Markets Portfolio (the Portfolio) as
of December 31, 1998, the related statement of operations for the year then
ended, the statements of changes in net assets for the years ended December 31,
1998 and 1997 and the supplementary data for each of the years in the four-year
period ended December 31, 1998 and for the period from the start of business
November 30, 1994, to December 31, 1994. These financial statements and
supplementary data are the responsibility of the Portfolio's management. Our
responsibility is to express an opinion on these financial statements and
supplementary data based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and supplementary
data are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
December 31, 1998 by correspondence with the custodian and brokers. Where
replies were not received alternative audit procedures were performed. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, such financial statements and supplementary data present fairly,
in all material respects, the financial position of Emerging Markets Portfolio
at December 31, 1998, and the results of its operations, the changes in its net
assets and its supplementary data for the respective stated periods in
conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Boston, Massachusetts
February 12, 1999
23
<PAGE>
Emerging Markets Portfolio as of December 31, 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
President of Lingnan College,
University of Hong Kong
Donald R. Dwight
President, Dwight Partners, Inc.
Samuel L. Hayes, III
Jacob H. Schiff Professor of Investment Banking,
Emeritus, Harvard University Graduate School of
Business Administration
Norton H. Reamer
Chairman and Chief Executive Officer,
United Asset Management Corporation
24
