<PAGE>
EMERGING MARKETS PORTFOLIO AS OF DECEMBER 31, 1999
PORTFOLIO OF INVESTMENTS
<TABLE>
<S> <C> <C>
COMMON STOCKS -- 97.2%
SECURITY SHARES VALUE
<S> <C> <C>
- ----------------------------------------------------------------------
Aircraft Manufacture -- 2.2%
- ----------------------------------------------------------------------
Embraer - Empresa Brasileira de
Aeronautica SA 65,000 $ 323,831
Brazil's regional aircraft manufacturer
- ----------------------------------------------------------------------
$ 323,831
- ----------------------------------------------------------------------
Banks and Money Services -- 8.4%
- ----------------------------------------------------------------------
China Everbright Pacific, Ltd. 304,000 $ 250,302
One of China's fastest growing banks
Grupo Financiero Banamex(1) 100,000 400,844
Mexico's largest private bank
OTP Bank Rt. GDR 3,950 230,087
Hungary's biggest bank
Unibanco GDR 11,000 331,375
Brazil's third largest private bank
- ----------------------------------------------------------------------
$ 1,212,608
- ----------------------------------------------------------------------
Beverages -- 6.6%
- ----------------------------------------------------------------------
Cia Cervejaria Brahma-sp ADR 34,000 $ 476,000
Largest beer brewer in Brazil and Latin
America
Pan American Beverages, Inc. ADR 11,000 226,188
Latin America's largest anchor Coke
bottler with exposure to Mexico, Brazil,
Venezuela, Guatemala, Costa Rica,
Nicaragua and Colombia
Vina Concha y Toro ADR 6,500 246,188
Wine producer/exporter
- ----------------------------------------------------------------------
$ 948,376
- ----------------------------------------------------------------------
Broadcasting and Cable -- 1.9%
- ----------------------------------------------------------------------
TV Azteca SA 30,000 $ 270,000
Mexico's second largest television
company
- ----------------------------------------------------------------------
$ 270,000
- ----------------------------------------------------------------------
Computer Services -- 8.4%
- ----------------------------------------------------------------------
Dauo Technology, Inc.(1) 18,902 $ 657,533
Korean software provider to bigger
system integrators
El Sitio, Inc.(1) 2,000 73,500
A Latin American internet network and
content provider
SECURITY SHARES VALUE
<S> <C> <C>
- ----------------------------------------------------------------------
Computer Services (continued)
- ----------------------------------------------------------------------
Korea Information & Communications
Co., Ltd.(1) 3,230 $ 232,401
Info-tech company involved in creating
on-line markets for consumer products,
smart cards, and credit cards
Stone Electronic Technology, Ltd.(1) 350,000 247,652
Largest shareholder in China's largest
internet provider Sina.com
- ----------------------------------------------------------------------
$ 1,211,086
- ----------------------------------------------------------------------
Computer Software -- 3.4%
- ----------------------------------------------------------------------
Tecnomatix Technololgies, Ltd.(1) 16,907 $ 486,076
Israeli company concentrating in
computer aided production equipment
technology
- ----------------------------------------------------------------------
$ 486,076
- ----------------------------------------------------------------------
Conglomerates -- 3.6%
- ----------------------------------------------------------------------
Haci Omer Sabanci Holding AS 4,850,000 $ 281,665
One of Turkey's largest conglomerates
emcompassing banking, retailing, and
telephony
John Keells Holdings 2,449 12,857
Sri Lankan conglomerate involved in tea,
hotels, and beverages
John Keells Holdings GDR 81,000 229,972
Sri Lankan conglomerate involved in tea,
hotels, and beverages
- ----------------------------------------------------------------------
$ 524,494
- ----------------------------------------------------------------------
Electrical / Electronics -- 1.8%
- ----------------------------------------------------------------------
Hon Hai Precision Industry(1) 35,000 $ 261,244
Taiwan's largest connector manufacturer
and one of the largest global PC case
manufacturers
- ----------------------------------------------------------------------
$ 261,244
- ----------------------------------------------------------------------
Electronics - Semiconductors -- 3.6%
- ----------------------------------------------------------------------
Taiwan Semiconductor Manufacturing,
Co.(1) 98,400 $ 524,172
One of the world's largest contract
manufacturers of integrated circuits
(foundry) for third parties
- ----------------------------------------------------------------------
$ 524,172
- ----------------------------------------------------------------------
Foods -- 7.9%
- ----------------------------------------------------------------------
Carulla SA ADR 80,000 $ 70,000
Columbian grocery and supermarket chain
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
14
<PAGE>
EMERGING MARKETS PORTFOLIO AS OF DECEMBER 31, 1999
PORTFOLIO OF INVESTMENTS CONT'D
<TABLE>
SECURITY SHARES VALUE
<S> <C> <C>
- ----------------------------------------------------------------------
Foods (continued)
- ----------------------------------------------------------------------
Compania Brasileira de Distribuicao
Grupo Pao de Acurcar 18,500 $ 597,781
Supermarket chain
President Chain Store Corp. 106,200 469,177
Taiwanese operator of 7-11 convenience
stores and other consumer businesses
- ----------------------------------------------------------------------
$ 1,136,958
- ----------------------------------------------------------------------
Insurance -- 2.5%
- ----------------------------------------------------------------------
Liberty Life Associates of Africa 18,360 $ 211,780
One of South Africa's most efficient
life insurance companies
Samsung Fire & Marine Insurance 4,896 156,086
Korea's largest non-life insurance
company established in 1952 and
belonging to the Samsung Group
- ----------------------------------------------------------------------
$ 367,866
- ----------------------------------------------------------------------
Investment Services -- 4.1%
- ----------------------------------------------------------------------
Li & Fung, Ltd. 234,000 $ 587,032
Largest global intermediator between
garment suppliers and retailers
- ----------------------------------------------------------------------
$ 587,032
- ----------------------------------------------------------------------
Machinery -- 1.9%
- ----------------------------------------------------------------------
Siam Cement Co. Ltd.(1) 8,500 $ 282,356
Largest industrial and building material
producer in Thailand
- ----------------------------------------------------------------------
$ 282,356
- ----------------------------------------------------------------------
Manufacturing -- 1.4%
- ----------------------------------------------------------------------
Tata Engineering and Locomotion GDR 39,000 $ 209,625
Largest automobile manufacturer in India
with a dominant position in the
commercial vehicle business
- ----------------------------------------------------------------------
$ 209,625
- ----------------------------------------------------------------------
Media & Leisure -- 2.1%
- ----------------------------------------------------------------------
Corporacion Interamericana
de Entretenimiento S.A.(1) 75,040 $ 299,606
Mexican fully integrated entertainment
company comprising 15 subsidiaries
operating in North America, South
America and Europe
- ----------------------------------------------------------------------
$ 299,606
- ----------------------------------------------------------------------
SECURITY SHARES VALUE
<S> <C> <C>
- ----------------------------------------------------------------------
Metals - Industrial -- 4.7%
- ----------------------------------------------------------------------
Anglo American PLC 5,700 $ 366,711
The world's largest producer of gold,
platinum, and diamonds
Hindalco Industries Ltd. GDR 13,300 314,545
India's second largest aluminum producer
and lowest cost producer in the world
- ----------------------------------------------------------------------
$ 681,256
- ----------------------------------------------------------------------
Oil and Gas - Integrated -- 3.5%
- ----------------------------------------------------------------------
Surgutneftegaz ADR 30,000 $ 510,000
Russia's second largest oil company
- ----------------------------------------------------------------------
$ 510,000
- ----------------------------------------------------------------------
Publishing -- 2.1%
- ----------------------------------------------------------------------
Hurriyet Gazetecilik ve Matbaacilik AS 16,668,300 $ 307,306
Turkey's most widely read newspaper
- ----------------------------------------------------------------------
$ 307,306
- ----------------------------------------------------------------------
Semiconductors -- 4.4%
- ----------------------------------------------------------------------
Chartered Semiconductor
Manufacturing, Ltd.(1)* 35,000 $ 238,660
Singapore based DRAM foundry business
Samsung Electronics 1,720 402,924
World's biggest and most profitable
semiconductor company
- ----------------------------------------------------------------------
$ 641,584
- ----------------------------------------------------------------------
Telecommunications Services -- 8.6%
- ----------------------------------------------------------------------
ECtel, Ltd.(1) 13,140 $ 239,805
Israeli technology company specializing
in fraud management and network
monitoring systems
Hellenic Telecommunications Organization
SA ADR 21,000 252,000
Incumbent Greek telecommunications
operator with both fixed and mobile
operations
Korea Mobile Telecom Corp.* 200 747,690
Korea's dominant mobile
telecommunications company
- ----------------------------------------------------------------------
$ 1,239,495
- ----------------------------------------------------------------------
Telephone Utilities -- 14.1%
- ----------------------------------------------------------------------
Korea Telecom Corp. ADR(1) 9,070 $ 677,983
Monopolistic telecom service provider
for South Korea
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
15
<PAGE>
EMERGING MARKETS PORTFOLIO AS OF DECEMBER 31, 1999
PORTFOLIO OF INVESTMENTS CONT'D
<TABLE>
SECURITY SHARES VALUE
<S> <C> <C>
- ----------------------------------------------------------------------
Telephone Utilities (continued)
- ----------------------------------------------------------------------
Tele Norte Leste Participacoes ADR 15,000 $ 382,500
One of Brazil's three fixed line holding
companies, located in the northeast of
Brazil
Telefonos de Mexico ADR 4,000 450,000
Largest telecom operator with interests
in local and long distance
telecommunications
Videsh Sanchar Nigam Ltd., GDR 21,500 533,200
India's monopoly international telephone
service provider
- ----------------------------------------------------------------------
$ 2,043,683
- ----------------------------------------------------------------------
Total Common Stocks
(identified cost $9,017,665) $14,068,654
- ----------------------------------------------------------------------
CONVERTIBLE PREFERRED STOCKS -- 0.8%
SECURITY SHARES VALUE
<S> <C> <C>
- ----------------------------------------------------------------------
Banks and Money Centers -- 0.8%
- ----------------------------------------------------------------------
Siam Commercial Bank(1) 90,000 $ 109,844
One of Thailand's major banks
- ----------------------------------------------------------------------
$ 109,844
- ----------------------------------------------------------------------
Total Convertible Preferred Stocks
(identified cost $63,235) $ 109,844
- ----------------------------------------------------------------------
PREFERRED STOCKS -- 0.0%
SECURITY SHARES VALUE
<S> <C> <C>
- ----------------------------------------------------------------------
Electric Utilities -- 0.0%
- ----------------------------------------------------------------------
Centrais Geradoras do Sul do Brasil S.A. 7,000,000 $ 7,091
This company is an electricity
generator.
- ----------------------------------------------------------------------
$ 7,091
- ----------------------------------------------------------------------
Total Preferred Stocks
(identified cost $25,810) $ 7,091
- ----------------------------------------------------------------------
WARRANTS -- 0.3%
SECURITY SHARES VALUE
<S> <C> <C>
- ----------------------------------------------------------------------
Banks and Money Services -- 0.3%
- ----------------------------------------------------------------------
Siam Commercial Bank 90,000 $ 41,788
One of Thailand's major banks
- ----------------------------------------------------------------------
$ 41,788
- ----------------------------------------------------------------------
Total Warrants
(identified cost $0) $ 41,788
- ----------------------------------------------------------------------
RIGHTS -- 0.1%
SECURITY SHARES VALUE
<S> <C> <C>
- ----------------------------------------------------------------------
Insurance -- 0.1%
- ----------------------------------------------------------------------
Samsung Fire & Marine Insurance 1,001 $ 8,025
Korea's largest non-life insurance
company established in 1952 and
belonging to the Samsung Group
- ----------------------------------------------------------------------
$ 8,025
- ----------------------------------------------------------------------
Total Rights
(identified cost $0) $ 8,025
- ----------------------------------------------------------------------
Total Investments -- 98.4%
(identified cost $9,106,710) $14,235,402
- ----------------------------------------------------------------------
Other Assets, Less Liabilities -- 1.6% $ 236,837
- ----------------------------------------------------------------------
Net Assets -- 100.0% $14,472,239
- ----------------------------------------------------------------------
</TABLE>
Company descriptions are unaudited.
ADR - American Depositary Receipt
GDR - Global Depository Receipt
* Security valued at fair value using methods determined in good faith by or
at direction of the Trustees.
(1) Non-income producing security.
SEE NOTES TO FINANCIAL STATEMENTS
16
<PAGE>
EMERGING MARKETS PORTFOLIO AS OF DECEMBER 31, 1999
PORTFOLIO OF INVESTMENTS CONT'D
COUNTRY CONCENTRATION OF PORTFOLIO
<TABLE>
<CAPTION>
PERCENTAGE
COUNTRY OF NET ASSETS VALUE
<S> <C> <C>
- -------------------------------------------------------------------
Argentina 0.5% $ 73,500
Brazil 14.6 2,118,578
Chile 1.7 246,188
China 3.4 497,954
Colombia 0.5 70,000
Greece 1.7 252,000
Hong Kong 4.1 587,032
Hungary 1.6 230,088
India 7.3 1,057,370
Israel 5.0 725,881
Mexico 11.4 1,646,637
Republic of Korea 19.9 2,882,641
Russia 3.5 510,000
Singapore 1.7 238,660
South Africa 4.0 578,492
Sri Lanka 1.7 242,829
Taiwan 8.7 1,254,593
Thailand 3.0 433,988
Turkey 4.1 588,971
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
17
<PAGE>
EMERGING MARKETS PORTFOLIO AS OF DECEMBER 31, 1999
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1999
<S> <C>
Assets
- -----------------------------------------------------
Investments, at value
(identified cost, $9,106,710) $14,235,402
Cash 71,337
Foreign currency, at value
(identified cost, $192,568) 192,861
Dividends receivable 14,590
- -----------------------------------------------------
TOTAL ASSETS $14,514,190
- -----------------------------------------------------
Liabilities
- -----------------------------------------------------
Accrued expenses $ 41,951
- -----------------------------------------------------
TOTAL LIABILITIES $ 41,951
- -----------------------------------------------------
NET ASSETS APPLICABLE TO INVESTORS'
INTEREST IN PORTFOLIO $14,472,239
- -----------------------------------------------------
Sources of Net Assets
- -----------------------------------------------------
Net proceeds from capital contributions
and withdrawals $ 9,343,180
Net unrealized appreciation (computed on
the basis of identified cost) 5,129,059
- -----------------------------------------------------
TOTAL $14,472,239
- -----------------------------------------------------
</TABLE>
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
DECEMBER 31, 1999
<S> <C>
Investment Income
- ----------------------------------------------------
Dividends (net of foreign taxes,
$17,539) $ 172,400
- ----------------------------------------------------
TOTAL INVESTMENT INCOME $ 172,400
- ----------------------------------------------------
Expenses
- ----------------------------------------------------
Investment adviser fee $ 71,563
Administration fee 23,919
Trustees fees and expenses 7,261
Custodian fee 73,735
Legal and accounting services 45,608
Amortization of organization expenses 3,473
Miscellaneous 6,365
- ----------------------------------------------------
TOTAL EXPENSES $ 231,924
- ----------------------------------------------------
Deduct --
Reduction of investment adviser fee $ 71,563
Reduction of administration fee 23,919
Reduction of custodian fee 6,755
- ----------------------------------------------------
TOTAL EXPENSE REDUCTIONS $ 102,237
- ----------------------------------------------------
NET EXPENSES $ 129,687
- ----------------------------------------------------
NET INVESTMENT INCOME $ 42,713
- ----------------------------------------------------
Realized and Unrealized
Gain (Loss)
- ----------------------------------------------------
Net realized gain (loss) --
Investment transactions (identified
cost basis) (net of foreign
taxes, $15,535) $ 862,026
Foreign currency and forward foreign
currency exchange
contract transactions (11,942)
- ----------------------------------------------------
NET REALIZED GAIN $ 850,084
- ----------------------------------------------------
Change in unrealized appreciation
(depreciation) --
Investments (identified cost basis) $5,633,614
Foreign currency and forward foreign
currency exchange contracts (17,572)
- ----------------------------------------------------
NET CHANGE IN UNREALIZED
APPRECIATION (DEPRECIATION) $5,616,042
- ----------------------------------------------------
NET REALIZED AND UNREALIZED GAIN $6,466,126
- ----------------------------------------------------
NET INCREASE IN NET ASSETS FROM
OPERATIONS $6,508,839
- ----------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
18
<PAGE>
EMERGING MARKETS PORTFOLIO AS OF DECEMBER 31, 1999
FINANCIAL STATEMENTS CONT'D
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
Increase (Decrease) YEAR ENDED YEAR ENDED
in Net Assets DECEMBER 31, 1999 DECEMBER 31, 1998
<S> <C> <C>
- ------------------------------------------------------------------------------
From operations --
Net investment income $ 42,713 $ 45,011
Net realized gain (loss) 850,084 (3,643,640)
Net change in unrealized
appreciation (depreciation) 5,616,042 (1,140,696)
- ------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN NET ASSETS
FROM OPERATIONS $ 6,508,839 $ (4,739,325)
- ------------------------------------------------------------------------------
Capital transactions --
Contributions $ 6,286,238 $ 3,995,966
Withdrawals (6,199,686) (9,933,398)
- ------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN NET ASSETS
FROM CAPITAL TRANSACTIONS $ 86,552 $ (5,937,432)
- ------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN NET ASSETS $ 6,595,391 $ (10,676,757)
- ------------------------------------------------------------------------------
Net Assets
- ------------------------------------------------------------------------------
At beginning of year $ 7,876,848 $ 18,553,605
- ------------------------------------------------------------------------------
AT END OF YEAR $ 14,472,239 $ 7,876,848
- ------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
19
<PAGE>
EMERGING MARKETS PORTFOLIO AS OF DECEMBER 31, 1999
FINANCIAL STATEMENTS CONT'D
SUPPLEMENTARY DATA
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------
1999 1998 1997 1996 1995
<S> <C> <C> <C> <C> <C>
- -------------------------------------------------------------------------
Ratios to average daily net assets+
- -------------------------------------------------------------------------
Net expenses 1.42% 1.71% 1.53% 1.54% 2.58%
Net expenses after custodian
fee reduction 1.35% 1.41% 1.35% 1.32% 2.58%
Net investment income (loss) 0.45% 0.37% 0.08% 0.14% (1.00)%
Portfolio Turnover 95% 117% 160% 125% 98%
- -------------------------------------------------------------------------
NET ASSETS, END OF YEAR
(000'S OMITTED) $14,472 $7,877 $18,554 $10,659 $3,587
- -------------------------------------------------------------------------
+ The operating expenses of the Portfolio may reflect a reduction of the
investment adviser fee and/or administration fee, an allocation of
expenses to the Investment Adviser and/or Administrator, or both. Had
such actions not been taken, the ratios would have been as follows:
Expenses 2.42% 1.87% 1.81% 2.24% 5.24%
Expenses after custodian
fee reduction 2.35% 1.57% 1.63% 2.02% 5.24%
Net investment income (loss) (0.55)% 0.21% (0.20)% (0.56)% (3.66)%
- -------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
20
<PAGE>
EMERGING MARKETS PORTFOLIO AS OF DECEMBER 31, 1999
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 of America.
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 or are considered unreliable 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
balance the Portfolio maintains with IBT. All significant credit balances
used to reduce the Portfolio's custodian fees are reported as a reduction of
total expenses in the Statement of Operations.
E Deferred Organization Expenses -- Costs incurred by the Portfolio in
connection with its organization, including registration costs, had been
amortized on the straight-line basis over five years and are fully amortized
at December 31, 1999.
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 rates are recorded
for financial statement purposes as net
21
<PAGE>
EMERGING MARKETS PORTFOLIO AS OF DECEMBER 31, 1999
NOTES TO FINANCIAL STATEMENTS CONT'D
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 the financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities at the date of the financial statements and the reported amounts
of income and expense during the reporting period. Actual results could
differ from those estimates.
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, 1999, the
adviser fee was 0.75% of average daily net assets and amounted to $71,563. To
enhance the net income of the Portfolio, the Adviser made a reduction of the
investment adviser fee of $71,563. 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,
1999, the administration fee was 0.25% of average daily net assets and
amounted to $23,919. To enhance the net income of the Portfolio, the
administrator reduced fees in the amount of $23,919. 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
officers and Trustees of the Portfolio are officers of the above
organizations.
3 Investment Transactions
- -------------------------------------------
Purchases and sales of investments, other than short-term obligations,
aggregated $8,785,429 and $8,935,445, respectively, for the year ended
December 31, 1999.
4 Federal Income Tax Basis of Investments
- -------------------------------------------
The cost and unrealized appreciation (depreciation) in value of the
investments owned at December 31, 1999, as computed on a federal income tax
basis, were as follows:
<TABLE>
<S> <C>
AGGREGATE COST $9,106,710
----------------------------------------------------
Gross unrealized appreciation $5,631,818
Gross unrealized depreciation (503,126)
----------------------------------------------------
NET UNREALIZED APPRECIATION $5,128,692
----------------------------------------------------
</TABLE>
5 Line of Credit
- -------------------------------------------
The Portfolio participates with other portfolios and funds managed by EVM and
its affiliates in a $150 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 year ended December 31, 1999.
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
22
<PAGE>
EMERGING MARKETS PORTFOLIO AS OF DECEMBER 31, 1999
NOTES TO FINANCIAL STATEMENTS CONT'D
investments. For example, there is generally less publicly available
information about foreign companies, particularly those not subject to the
disclosure and reporting requirements of the U.S. securities laws. Foreign
issuers are generally not bound by uniform accounting, auditing, and
financial reporting requirements and standards of practice comparable to
those applicable to domestic issuers. Investments in foreign securities also
involve the risk of possible adverse changes in investment or exchange
control regulations, expropriation or confiscatory taxation, limitation on
the removal of funds or other assets of the Portfolio, political or financial
instability or diplomatic and other developments which could affect such
investments. Foreign stock markets, while growing in volume and
sophistication, are generally not as developed as those in the United States,
and securities of some foreign issuers (particularly those located in
developing countries) may be less liquid and more volatile than securities of
comparable U.S. companies. In general, there is less overall governmental
supervision and regulation of foreign securities markets, broker-dealers, and
issuers than in the United States.
7 Financial Instruments
- -------------------------------------------
The Portfolio may trade 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, 1999, there were no obligations
under these financial instruments outstanding.
8 Subsequent Event
- -------------------------------------------
Effective May 1, 2000, Jacob Rees-Mogg will be co-portfolio manager of the
Emerging Markets Portfolio. Mr. Rees-Mogg is an Investment Manager for Lloyd
George Investment Management (Bermuda) Limited and has been employed by Lloyd
George for more than five years.
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EMERGING MARKETS PORTFOLIO AS OF DECEMBER 31, 1999
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, 1999, and the related statement of operations for the year then
ended, the statements of changes in net assets for each of the two years then
ended and the supplementary data for each of the years in the five-year period
then ended. 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, 1999 by correspondence with the custodian and brokers; where
replies were not received from brokers, alternative auditing 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, 1999, 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 11, 2000
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EATON VANCE EMERGING MARKETS FUND AS OF DECEMBER 31, 1999
INVESTMENT MANAGEMENT
EMERGING MARKETS PORTFOLIO
Officers
Hon. Robert Lloyd George
President and Trustee
James B. Hawkes
Vice President and Trustee
Scobie Dickinson Ward
Vice President, Assistant
Secretary and Assistant Treasurer
William Walter Raleigh Kerr
Vice President and
Assistant Treasurer
James L. O'Connor
Vice President and 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
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