-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, CAJsGRtOtNF8ewh1xNU7ZCM4gVCwlIGtKPMdt2hNgFzJQ515z1gzOGklGisnIz3v +5GmDtMlE9h7RarOnpt/dQ== 0000950156-98-000077.txt : 19980121 0000950156-98-000077.hdr.sgml : 19980121 ACCESSION NUMBER: 0000950156-98-000077 CONFORMED SUBMISSION TYPE: N-30D PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19971031 FILED AS OF DATE: 19980120 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: FIDUCIARY EXCHANGE FUND INC CENTRAL INDEX KEY: 0000035427 STANDARD INDUSTRIAL CLASSIFICATION: UNKNOWN SIC - 0000 [0000] IRS NUMBER: 042398467 STATE OF INCORPORATION: MA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: N-30D SEC ACT: SEC FILE NUMBER: 811-01409 FILM NUMBER: 98508904 BUSINESS ADDRESS: STREET 1: 24 FEDERAL ST CITY: BOSTON STATE: MA ZIP: 02110 BUSINESS PHONE: 6174828260 MAIL ADDRESS: STREET 1: EATON VANCE CORP STREET 2: 24 FEDERAL ST 11TH FLOOR CITY: BOSTON STATE: MA ZIP: 02110 FORMER COMPANY: FORMER CONFORMED NAME: SECOND DIVERSIFICATION FUND INC DATE OF NAME CHANGE: 19661130 N-30D 1 FIDUCIARY EXCHANGE FUND AR [LOGO] Investing for the 21st EATON VANCE ============== Century Mutual Funds [Photo of Statue of Liberty] Annual Report October 31, 1997 [Photo of Wall Street Sign] FIDUCIARY EXCHANGE FUND Eaton Vance Global Management - Global Distribution [Photo of IRS Form] Fiduciary Exchange Fund as of October 31, 1997 - -------------------------------------------------------------------------------- LETTER TO SHAREHOLDERS - -------------------------------------------------------------------------------- [Photo of James B. Hawkes] During the year ended October 31, 1997, Fiduciary Exchange Fund, Inc. had a total return of 31.7%. This return resulted from an increase in net asset value to $286.36 per share on October 31, 1997 from $218.85 per share on October 31, 1996 and the reinvestment of $1.73 per share in income dividends. The Fund's performance compared favorably to the average total return for mutual funds in the Lipper Growth Funds Category, which was 27.3% during the period.* In 1997, record highs in the stock market have been accompanied by an increase in volatility... Over the past year, the sustained growth of the U.S. economy and low inflation have produced a near-perfect investment environment in which prices of large capitalization stocks have soared to record levels. An increase in volatility has accompanied higher stock valuations, however. Within a six-week period in March and April, the S&P 500 Index* declined almost 10% and then fully recovered to reach new record highs. In August, the S&P 500 declined almost 7% but again recovered this loss by the end of September. In late October, news of turmoil in several Asian economies precipitated a sharp decline of over 10% in less than a week, but the market again recovered this loss. ...Further emphasizing the importance of tax-efficient investing... An increase in stock market volatility can lead to higher turnover - and, subsequently, higher taxable distributions to shareholders in actively-managed mutual funds that do not focus specifically on tax efficiency. The goal of this Fund is to provide higher after-tax returns, and its management employs a style that is consistent with this objective. While volatility in the stock market can be disconcerting, Eaton Vance recognizes that it is a normal and even healthy part of the investment process, and that it is always important to take a long-term view. In the pages that follow, Portfolio Manager Duncan W. Richardson discusses the past 12 months and offers his outlook for the year ahead. Sincerely, /s/ James B. Hawkes James B. Hawkes, President December 8, 1997 - -------------------------------------------------------------------------------- Performance(1) - -------------------------------------------------------------------------------- Average Annual Total Returns - -------------------------------------------------------------------------------- One Year 31.7% Five Years 16.1 Ten Years 15.5 Life of Fund (3/17/67) 11.4 Adjusted Average Annual Total Returns - -------------------------------------------------------------------------------- One Year 31.7% Five Years 16.1 Ten Years 16.2 Life of Fund (3/17/67) 12.0 Ten Largest Equity Holdings(2) - -------------------------------------------------------------------------------- By total net assets Home Depot 1.9% Pfizer, Inc. 1.8 Johnson & Johnson 1.8 Reuters Holdings 1.8 Automatic Data Processing 1.7 Intel Corp. 1.7 Merck & Co. 1.6 Federal National Mortgage Association 1.5 American International Group 1.5 Pepsico, Inc. 1.5 (1) Standardized SEC performance data. Returns are calculated by determining the percentage change in net asset value with all distributions reinvested. Adjusted returns reflect the Fund's election to retain its long-term capital gain during the period and to pay the federal tax thereon on behalf of shareholders. SEC standardized total return figures treat such payments as a distribution to shareholders (who receive a tax credit in the amount of the allocable share of the taxes paid by the Fund). (2) Ten largest holdings are as of 10/31/97 only and may not be representative of the Portfolio's current or future investments. Holdings accounted for 16.8% of the Portfolio's investments, determined by dividing the total market value of the holdings by the total net assets of the Portfolio. * It is not possible to invest directly in a Lipper Category or an Index. Past performance is no guarantee of future results. Investment return and principal value will fluctuate so that shares, when redeemed, may be worth more or less than their original cost. - -------------------------------------------------------------------------------- Mutual fund shares are not insured by the FDIC and are not deposits or other obligations of, or guaranteed by, any depository institution. Shares are subject to investment risks, including possible loss of principal invested. - -------------------------------------------------------------------------------- Fiduciary Exchange Fund as of October 31, 1997 - -------------------------------------------------------------------------------- MANAGEMENT DISCUSSION - -------------------------------------------------------------------------------- An interview with Duncan W. Richardson, Vice President and Portfolio Manager of the Tax-Managed Growth Portfolio [Photo of Duncan W. Richardson] Duncan W. Richardson Portfolio Manager Five Largest Sectors+ - -------------------------------------------------------------------------------- As a percentage of total net assets Health Care 16.6% Financial 15.7% Business Products & Services 14.8% Technology 13.5% Consumer Non-Durables 8.8% + Sector allocation is subject to change due to active management. Q: Duncan, how would you describe the stock market's performance during the past 12 months? A: The most remarkable thing about this past year was the continuation of superior absolute returns after two stunningly good years in 1995 and 1996. This third consecutive year of high returns has taken us into a higher risk equity environment. Valuation levels are at historical extremes and are supported somewhat by lower interest rates and lower inflation. While we do not try to forecast interest rates, it seems that many factors are in place for the declining trend to continue. Our primary focus is the earnings levels and growth rates of companies in the Portfolio. Generally speaking, corporate earnings have not kept pace with the S&P 500 Index's 27% average annual increases over the past three years. This mismatch between price and earnings levels has translated into an increase in volatility this year. We have recently set records for volatility, both within sectors and in individual securities. Investors are having exaggerated reactions to bad news of any kind - especially if it pertains to earnings or growth projections. In the Fund, we use periods of short-term volatility as entry points or accumulation points for investments that we want to hold for a long period of time. Q: This has been a very good year for the Fund, having outperformed the Lipper Growth Fund average. To what do you attribute this strong performance? A: The Fund's performance is essentially the result of strong earnings growth among the companies in the Portfolio. The Fund is broadly diversified across many different sectors. We do not over-concentrate in any one stock or any one sector, but some of our larger sectors, such as finance, health care, and technology, have performed well. Q: Index funds, which are passively managed, have attracted much attention over the past few years. What influence do these funds have in the market, and how does this Fund differ from them? A: A tremendous amount of money has been "indexed" over the last several years, resulting in a larger portion of market activity being "automatic." A passive fund "automatically" buys and sells securities without regard to fundamentals or prices. I believe the recent inflow into index funds has exerted a near-term positive buying force under the largest capitalization companies. Some of these companies have reached valuations that appear vulnerable, and I worry that some could have severe corrections should there be any disappointment in reported earnings or a general correction in the overall market. Our investment style, in contrast, is to individually assess companies on their reward-to-risk characteristics, using fundamental analysis, realistic earnings projections, and a valuation overlay. This allows us to not overpay for growth and to take advantage of the short-term price fluctuations for the benefit of our long-term investors. We like to think that an aircraft analogy captures the difference between indexing and actively-managed funds. When there are clear skies (a favorable investment climate) and no turbulence (market volatility), an aircraft's auto pilot (indexing) works fine. However, when there is the threat of a deteriorating forecast and turbulence, it is nice to have someone in the cockpit at the controls (active management). Q: How significantly do you think the economic situation in Asia will affect companies in this Fund? A: The problems in the stock markets and economies of Asian countries will affect many U.S. companies, including several in this Fund, but the effects will vary. Any company that has business ties to an Asian country - whether exporting products there, owning manufacturing facilities, or holding investments in a foreign stock market - will be affected. Also, companies whose primary competitors are in Asia will be affected by the currency changes. Our job is to look at each company individually, assess the impact, and then make adjustments accordingly. So far, the Fund has been well-positioned to handle the events. Our exposure to Asia is mostly in our multi-national investments, and we are assessing their abilities to respond to the crisis. After the initial declines in the currencies and stock markets of several Asian countries, many investors flocked to U.S. firms that had less exposure to Asia - such as broadcasting, publishing, and retail firms - which boosted their performance. We had already invested in these industries because we found their fundamentals attractive, so the Fund has benefited from this recent flight to domestic stocks. Q: Home Depot, the Fund's top holding, has shown strong appreciation during the past year. What accounts for this stock's performance? A: We are very pleased with Home Depot. As an earnings-driven company with great fundamentals, it is a good example of the kind of stock we like to have as a core holding. We bought it last year in the low $30s (split-adjusted), along with some other retail stocks which were out of favor at that time. This was a great opportunity because the company had continued its solid earnings growth. When the price/earnings ratio dropped to its lowest level in almost a decade, we began to accumulate shares. This year, after doubling in price over a 12-month period, it has become the Fund's top holding. While the stock has recently benefited from the interest in domestic names, but we think it can continue to appreciate in line with its mid-teens earnings growth rate. Q: How diversified is this Portfolio? A: It is highly diversified. There are currently over 350 different stocks, with the top 20 positions representing less than 30% of the Portfolio's assets. The top 10 holdings are typically 1.5%-2% positions and the next 10 are 1%-1.5% positions. To achieve above-average returns in the equity markets, it is necessary to accept some market-related risk, but not excess company-specific risk. The Fund's broad diversity allows us to hold stocks for long periods, which lowers turnover and any capital gains realization. This low turnover style is a very tax-efficient way to invest. Q: Can you elaborate on any other elements of your management style? A: Sure. A selling discipline is very important in the achievement of high pre-tax and after-tax returns. We generally sell securities that have declined more than 10% from our cost, which accomplishes several things. First, it preserves capital. Second, taking a limited loss allows us an offset to gains taken elsewhere, thereby limiting or eliminating any yearly capital gains distribution. Finally, it helps avoid big mistakes by giving us time to revisit our analysis of a company. We all do not like to admit mistakes, but it is important not to let emotions conflict with investment judgment. We want to own stocks for a minimum of five-years, so we can easily sit out of an investment for 30 days. Our selling discipline helps keep the Fund in the right investments at the right prices and adds to the tax-efficiency of our results. Q: Why has tax-managed investing become so popular recently? A: There are several reasons for the current emphasis on tax-efficient investing. First, the excess equity returns during the past few years, combined with an increase in momentum-driven, high-turnover portfolio management, has produced enormous taxable distributions in the form of long-term gains, short-term gains, and dividends in many mutual funds. After three years in a row, investors are noticing the huge tax bills on their mutual fund returns. Combined with this year's reduction in the long-term capital gains tax - which increases the spread between long-term gains and short-term/dividend income - the result is a heightened sensitivity to the effect of taxes on investment returns. In addition, mutual fund rating organizations, such as Lipper and Morningstar, have realized that the tax efficiency of funds is very important to people who pay taxes on their investments. The difference between a fund that is tax-efficient and one that is not can be, on average, as much as 2% per year. This may not sound like much, but, compounded over a long period of time, the difference between giving 2% away in taxes every year versus allowing those returns to compound tax-free can be substantial. Q: What experience does Eaton Vance have in tax-managed investing? A: Eaton Vance has incorporated the principles of tax-managed investing for private clients since its founding in 1924. In the mutual fund area, we have been managing funds for after-tax returns for over 30 years. While there are several other tax-managed funds in existence, many are newcomers to this approach. The principles of tax-efficient investing guide our general investing objectives for building wealth over a long period of time: 1) having exposure to the equity market; 2) holding on to stocks whose earnings can continue to grow; and 3) taking losses early to preserve capital. Q: Finally, what is your outlook for the year ahead? A: We expect somewhat lower equity returns next year and continuing volatility in the stock market. With the tremendous returns we have seen for the past three years, we anticipate some reversion to the historic average return of 10% per year. In the long run, stock prices will reflect the earnings power of individual companies, and earnings are our main focus. In the short run, emotions, fund flows, and external events can set prices all over the map. This Fund has relatively low volatility, due, in part, to our "growth at a reasonable price" investment style and, in part, to our generally lower exposure to cyclical industries. We hope the Fund's volatility will remain low as we try to take advantage of the market's volatility through our research capabilities. As always, our goal is to make the best risk/reward investment decisions in any market environment that we encounter. FIDUCIARY EXCHANGE FUND as of October 31, 1997 - --------------------------------------------------------------------------------------------------- FINANCIAL STATEMENTS - --------------------------------------------------------------------------------------------------- Statement of Assets and Liabilities As of October 31, 1997 Assets - --------------------------------------------------------------------------------------------------- Investment in Tax-Managed Growth Portfolio (Portfolio), at value (Note 1A) (identified cost, $13,047,142) $76,163,305 - --------------------------------------------------------------------------------------------------- Total assets $76,163,305 - --------------------------------------------------------------------------------------------------- Liabilities - --------------------------------------------------------------------------------------------------- Payable to affiliate for Trustees' fees (Note 6) $ 141 Accrued expenses 5,839 - --------------------------------------------------------------------------------------------------- Total liabilities $ 5,980 - --------------------------------------------------------------------------------------------------- Net Assets for 265,946 shares of beneficial interest outstanding $76,157,325 - --------------------------------------------------------------------------------------------------- Sources of Net Assets - -------------------------------------------------------------------------------------------------- Accumulated undistributed net realized gain on investment transactions from Portfolio (computed on the basis of identified cost), less the excess of cost of Fund shares redeemed over proceeds from sales of Fund shares (including shares issued to shareholders electing to receive payment of distributions in Fund shares) $22,095,285 Accumulated undistributed net investment income 118,434 Federal tax on undistributed net realized long-term capital gain, paid on behalf of shareholders (Note 1C) (9,172,557) Net unrealized appreciation of investments from Portfolio (computed on the basis of identified cost) 63,116,163 - --------------------------------------------------------------------------------------------------- Total $76,157,325 - --------------------------------------------------------------------------------------------------- Net Asset Value and Redemption Price Per Share - -------------------------------------------------------------------------------------------------- ($76,157,325 / 265,946 shares of beneficial interest outstanding) $ 286.36 - ---------------------------------------------------------------------------------------------------
Statement of Operations For the Year Ended October 31, 1997 Investment Income (Note 1B) - --------------------------------------------------------------------------------------------------- Dividend income allocated from Portfolio (net of foreign taxes withheld of $9,376) $ 886,120 Interest income allocated from Portfolio 140,853 Expenses allocated from Portfolio (411,738) - --------------------------------------------------------------------------------------------------- Net investment income from Portfolio $ 615,235 - --------------------------------------------------------------------------------------------------- Expenses - --------------------------------------------------------------------------------------------------- Compensation of Trustees not members of the Administrator's organization (Note 6) $ 1,279 Printing and postage 21,168 Legal and accounting services 16,230 Transfer and dividend disbursing agent fees 15,479 Custodian fee 8,233 Miscellaneous 4,320 - --------------------------------------------------------------------------------------------------- Total expenses $ 66,709 - --------------------------------------------------------------------------------------------------- Net investment income $ 548,526 - --------------------------------------------------------------------------------------------------- Realized and Unrealized Gain (Loss) from Portfolio - --------------------------------------------------------------------------------------------------- Net realized gain (loss) -- Investment transactions (identified cost basis) $ 3,713,666 Securities sold short 49,149 - --------------------------------------------------------------------------------------------------- Net realized gain $ 3,762,815 - --------------------------------------------------------------------------------------------------- Change in unrealized appreciation (depreciation) -- Investment transactions $14,833,120 - --------------------------------------------------------------------------------------------------- Change in unrealized appreciation (depreciation) $14,833,120 - --------------------------------------------------------------------------------------------------- Net realized and unrealized gain $18,595,935 - --------------------------------------------------------------------------------------------------- Net increase in net assets resulting from operations $19,144,461 - ---------------------------------------------------------------------------------------------------
FIDUCIARY EXCHANGE FUND as of October 31, 1997 - -------------------------------------------------------------------------------- FINANCIAL STATEMENTS CONT'D - -------------------------------------------------------------------------------- Statements of Changes in Net Assets Period Ended Year Ended Increase (Decrease) Year Ended October 31, December 31, in Net Assets October 31, 1997 1996* 1995 - ------------------------------------------------------------------------------- From operations -- Net investment income $ 548,526 $ 465,737 $ 667,806 Net realized gain 3,762,815 3,265,132 7,662,357 Net change in unrealized appreciation 14,833,120 5,619,131 8,140,251 - ------------------------------------------------------------------------------- Net increase in net assets from operations $19,144,461 $ 9,350,000 $16,470,414 - ------------------------------------------------------------------------------- Distributions to shareholders (Note 2) -- From net investment income $ (475,312) $ (480,714) $ (667,806) In excess of net investment income -- -- (8,476) - ------------------------------------------------------------------------------- Total distributions to shareholders $ (475,312) $ (480,714) $ (676,282) - ------------------------------------------------------------------------------- Provision for federal tax on undistributed net realized long-term gain (Note 1C) $ -- $ -- $ (33,033) - ------------------------------------------------------------------------------- Transactions in shares of capital stock (Note 3) -- Net asset value of share issued to shareholders in payment of distributions declared $ 97,738 $ 89,743 $ 153,851 Cost of shares redeemed (4,395,324) (3,504,037) (8,416,869) - ------------------------------------------------------------------------------- Net decrease in net assets from Fund share transactions $(4,297,586) $(3,414,294) $(8,263,018) - ------------------------------------------------------------------------------- Net increase in net assets $14,371,563 $ 5,454,992 $ 7,498,081 - ------------------------------------------------------------------------------- Net Assets - ------------------------------------------------------------------------------- At beginning of period $61,785,762 $56,330,770 $48,832,689 - ------------------------------------------------------------------------------- At end of period $76,157,325 $61,785,762 $56,330,770 - ------------------------------------------------------------------------------- Accumulated undistributed net investment income included in net assets - ------------------------------------------------------------------------------- At end of year $ 118,434 $ 45,220 $ 60,197 - ------------------------------------------------------------------------------- * For the ten month period ended October 31, 1996 (Note 5). FIDUCIARY EXCHANGE FUND as of October 31, 1997 - -------------------------------------------------------------------------------------------------------------- FINANCIAL STATEMENTS CONT'D - -------------------------------------------------------------------------------------------------------------- Financial Highlights
Year Ended Period Ended Year Ended December 31, October 31, August 31, ---------------------------------- 1997 1996* 1995 1994 1993 1992 - -------------------------------------------------------------------------------------------------------------- Net asset value -- Beginning of period $218.850 $188.440 $ 141.160 $ 149.470 $ 151.610 $ 148.620 - -------------------------------------------------------------------------------------------------------------- Income (loss) from operations - -------------------------------------------------------------------------------------------------------------- Net investment income $ 2.015 $ 1.609 $ 2.103 $ 1.997 $ 1.639 $ 1.570 Net realized and unrealized gain (loss) on investments 67.225 30.451 47.388 (8.329) (1.168) 3.180 - -------------------------------------------------------------------------------------------------------------- Total income (loss) from operations $ 69.240 $ 32.060 $ 49.491 $ (6.332) $ 0.471 $ 4.750 - -------------------------------------------------------------------------------------------------------------- Less distributions - -------------------------------------------------------------------------------------------------------------- From net investment income $ (1.730) $ (1.650) $ (2.074) $ (1.850) $ (1.600) $ (1.760) In excess of net investment income -- -- (0.026) -- -- -- From net realized gain on investments -- -- -- -- (0.900) -- - -------------------------------------------------------------------------------------------------------------- Total distributions (1.730) (1.650) $ (2.100) $ (1.850) $ (2.500) $ (1.760) - -------------------------------------------------------------------------------------------------------------- Provision for federal tax on undistributed net realized long- term gain (Note 1C) -- -- $ (0.111) $ (0.128) $ (0.111) $ -- - -------------------------------------------------------------------------------------------------------------- Net asset value -- End of period $286.360 $218.850 $ 188.440 $ 141.160 $ 149.470 $ 151.610 - -------------------------------------------------------------------------------------------------------------- Total Return (1) 31.73% 17.07% 35.10% (4.33)% 0.28% 3.28% - -------------------------------------------------------------------------------------------------------------- Ratios/Supplemental Data - ------------------------------------------------- ---------------------------------------------------------- Net assets, end of period (000 omitted) $ 76,157 $ 61,786 $ 56,331 $ 48,833 $ 58,113 $ 60,653 Ratio of net expenses to average daily net assets (2) 0.67% 0.81%+ 0.82% 0.83% 0.81% 0.83% Ratio of net investment income to average daily net assets 0.77% 0.95%+ 1.20% 1.37% 1.11% 1.11% Portfolio Turnover (3) -- 1% 3% 5% 6% 5% - -------------------------------------------------------------------------------------------------------------- Average commission rate paid(4) -- $ 0.0600 -- -- -- -- - --------------------------------------------------------------------------------------------------------------
+Annualized. *For the ten month period ended October 31, 1996 (Note 5). (1)Total return is calculated assuming a purchase at the net asset value on the first day and a sale at the net asset value on the last day of each period reported. Dividends and distributions, if any, are assumed to be reinvested at the net asset value on the payable date. Total return is not computed on an annualized basis. (2)Includes the Fund's share of Tax-Managed Growth Portfolio's allocated expenses for the period the Fund was investing directly in the Portfolio. (3)Portfolio Turnover represents the rate of portfolio activity for the period while the Fund was making investments directly in securities. The portfolio turnover rate for the period since the Fund transferred substantially all of its investable assets to the Portfolio is shown in the Portfolio's financial statements which are included elsewhere in this report. (4)For fiscal years beginning on or after September 1, 1995, a Fund is required to disclose its average commission rate per share for security trades on which commissions are charged. Average commission rate paid is computed by dividing the total dollar amount of commissions paid during the fiscal year by the total number of shares purchased and sold during the fiscal year for which commissions were charged. The average commission rate for the period since the Fund transferred substantially all of its investable assets to the Portfolio is shown in the Portfolio's financial statements which are included elsewhere in this report. See notes to financial statements Fiduciary Exchange Fund as of October 31, 1997 - -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- 1 Significant Accounting Policies - ------------------------------------------------------------------------------- Fiduciary Exchange Fund (the Fund) is registered under the Investment Company Act of 1940, as amended, as a diversified, open-end management investment company. The Fund invests all of its investable assets in interests in the Tax-Managed Growth Portfolio (the Portfolio), a New York Trust, having the same investment objective as the Fund. The value of the Fund's investment in the Portfolio reflects the Fund's proportionate interest in the net assets of the Portfolio (2.7% at October 31, 1997). The performance of the Fund is directly affected by the performance of the Portfolio. The financial statements of the Portfolio, including the portfolio of investments, are included elsewhere in this report and should be read in conjunction with the Fund's financial statements. The following is a summary of significant accounting policies consistently followed by the Fund in preparation of its financial statements. The policies are in conformity with generally accepted accounting principles. A Investment Valuation -- Valuation of securities by the Portfolio is discussed in Note 1A of the Portfolio's Notes to Financial Statements, which are included elsewhere in this report. B Income -- The Fund's net investment income consists of the Fund's pro rata share of the net investment income of the Portfolio, less all actual and accrued expenses of the Fund determined in accordance with generally accepted accounting principles. C Federal Taxes -- The Fund's policy is to comply with the provisions of the Internal Revenue Code applicable to regulated investment companies and to distribute to shareholders each year all of its net investment income and net realized short-term capital gain. Accordingly, no provision for federal income or excise tax is necessary. At October 31, 1997, the Fund, for federal income tax purposes, had a capital loss carryover of $84,559 which will reduce the taxable income arising from future net realized gain on investments, if any, to the extent permitted by the Internal Revenue Code, and thus will reduce the amount of distributions to shareholders which would otherwise be necessary to relieve the Fund of any liability for federal income or excise tax. Such capital loss carryover will expire on October 31, 2005 ($11,597) and October 31, 2004 ($72,962). The Fund generally designates as undistributed any taxable net realized long-term gain (but reserves the right to distribute such gain in any year) and pays the federal tax thereon on behalf of shareholders. Provision for such tax is recorded on the Fund's records on the last business day of the Fund's fiscal year because the Internal Revenue Code provides that such tax is allocated among shareholders of record on that date. D Other -- Investment transactions are accounted for on a trade date basis. Dividends to shareholders are recorded on the ex-dividend date. E 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 revenue and expense during the reporting period. Actual results could differ from those estimates. F Expense Reduction -- Investors Bank and Trust Company (IBT) serves as custodian to the Fund and the Portfolio. Pursuant to the respective custodian agreements, IBT receives a fee reduced by credits which are determined based on the average cash balances the Fund or the Portfolio maintain with IBT. All significant credit balances used to reduce the Fund's custodian fees are reported as a reduction of operating expenses on the Statement of Operations. 2 Distributions to Shareholders - -------------------------------------------------------------------------------- The Fund's policy is to distribute annually all or substantially all of the net investment income allocated to the Fund by the Portfolio (less the Fund's direct expenses). Distributions are paid in the form of additional shares of the Fund or, at the election of the shareholder, in cash. Generally accepted accounting principles require that only distributions in excess of tax basis earnings and profits be reported in the financial statements as a return of capital. Differences in the recognition or classification of income between the financial statements and tax earnings and profits which result in temporary over distributions for financial statement purposes only are classified as distributions in excess of net investment income or accumulated net realized gains. 3 Capital Stock - -------------------------------------------------------------------------------- At October 31, 1997, there were 5,005,000 shares of $1.00 par value capital stock authorized. Transactions in Fund shares were as follows:
Years Ended ---------------------------------------------- October 31, October 31, December 31, 1997 1996* 1995 - --------------------------------------------------------------------------------------------------------- Issued to shareholders electing to receive payment of distributions in Fund shares 382 437 880 Redemptions (16,756) (17,055) (47,886) - -------------------------------------------------------------------------------------------------------- Net decrease (16,374) (16,618) (47,006) - --------------------------------------------------------------------------------------------------------
* For the ten-month period ended October 31, 1996. 4 Investment Transactions - -------------------------------------------------------------------------------- Increases and decreases in the Fund's investment in the Portfolio aggregated $1,101 and $4,839,582, respectively, for the year ended October 31, 1997. In addition, investments were distributed in payment for capital stock redeemed for the year ended October 31, 1997, resulting in realized capital gains, for book purposes, of $3,727,906. 5 Change in Fiscal Year - -------------------------------------------------------------------------------- During the year ended October 31, 1996, the Fund changed its fiscal year end from December 31 to October 31. 6 Transactions with Affiliates - -------------------------------------------------------------------------------- Eaton Vance Management (EVM) serves as the administrator of the Fund, but receives no compensation. The Portfolio has engaged Boston Management and Research (BMR), a subsidiary of EVM, to render investment advisory services. See Note 2 of the Portfolio's Notes to Financial Statements which are included elsewhere in this report. Except as to directors of the Fund who are not members of EVM's or BMR's organization, officers and directors receive remuneration for their services to the Fund out of the investment adviser fee earned by BMR. Certain of the officers and directors of the Fund are officers and directors/trustees of the above organizations. 7 Special Meeting of Stockholders (Unaudited) - -------------------------------------------------------------------------------- The Fund held a special meeting of stockholders on October 9, 1997. On August 11, 1997, the record date for the meeting, the Fund had 268,721.351 shares outstanding of which 173,666.946 shares were represented at the meeting. The vote at the meeting was as follows: Proposal: To consider and act upon a proposal to approve an Agreement and Plan of Reorganization on behalf of the Fund pursuant to which the Fund would be reorganized from a Massachusetts corporation to a series fund of Eaton Vance Series Trust, a Massachusetts business trust (the "Successor Fund") and to approve the dissolution of the corporation. Number of Shares ---------------------------------------------------------------------------- Affirmative 162,940.314 Against 10,149.550 Abstain 577.082 FIDUCIARY EXCHANGE FUND as of October 31, 1997 - -------------------------------------------------------------------------------- INDEPENDENT AUDITORS REPORT - -------------------------------------------------------------------------------- To the Board of Directors and Shareholders of Fiduciary Exchange Fund: - -------------------------------------------------------------------------------- We have audited the accompanying statement of assets and liabilities of Fiduciary Exchange Fund as of October 31, 1997, the related statement of operations for the year then ended, the statements of changes in net assets for the year then ended, the ten-month period ended October 31, 1996 and the year ended December 31, 1995, and the financial highlights for the year ended October 31, 1997, the ten- month period ended October 31, 1996 and for each of the years in the four-year period ended December 31, 1995. These financial statements and financial highlights are the responsibility of the Fund's management. Our responsibility is to express an opinion on these financial statements and financial highlights 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 financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. 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 financial highlights present fairly, in all material respects, the financial position of Fiduciary Exchange Fund as of October 31, 1997, the results of its operations, the changes in its net assets, and its financial highlights for the respective stated periods in conformity with generally accepted accounting principles. DELOITTE & TOUCHE LLP Boston, Massachusetts December 5, 1997 Tax-Managed Growth Portfolio as of October 31, 1997 - ------------------------------------------------------------------------------- PORTFOLIO OF INVESTMENTS - ------------------------------------------------------------------------------- Common Stocks -- 96.4% Security Shares Value - ------------------------------------------------------------------------------- Advertising -- 2.3% - ------------------------------------------------------------------------------- AC Nielson Corp.* 45,668 $ 1,044,655 Advo Systems, Inc.* 170,000 3,814,375 Cognizant Corp. 249,006 9,757,923 Harte-Hanks Communications 72,302 2,512,495 Interpublic Group of Companies, Inc. 256,500 12,183,750 Interpublic Group of Companies, Inc.+ 82,350 3,905,758 Omnicom Group, Inc. 455,100 32,141,438 WPP Group 488,000 2,229,916 - ------------------------------------------------------------------------------- $ 67,590,310 - ------------------------------------------------------------------------------- Aerospace and Defense -- 1.3% - ------------------------------------------------------------------------------- Boeing Co. 450,740 $ 21,579,178 Raytheon Co. 226,544 12,290,012 United Technologies Corp.+ 66,844 4,672,061 - ------------------------------------------------------------------------------- $ 38,541,251 - ------------------------------------------------------------------------------- Auto and Parts -- 0.9% - ------------------------------------------------------------------------------- Borg-Warner Automotive, Inc. 80,000 $ 4,360,000 Chrysler Corp. 32,000 1,128,000 General Motors Corp. 2,100 134,794 Magna International, Inc. Class A ADR 275,000 18,115,625 Meritor Automotive, Inc.* 61,133 1,364,037 - ------------------------------------------------------------------------------- $ 25,102,456 - ------------------------------------------------------------------------------- Banks - Regional -- 3.3% - ------------------------------------------------------------------------------- Banc One Corp. 193,558 $ 10,089,211 Bank of Granite Corp. 18,000 580,500 BB&T Corp. 33,235 1,809,230 Community First Bancshares+ 148,000 7,056,400 Compass Bancshares, Inc. 48,208 1,816,839 Corestates Financial Corp. 160,000 11,640,000 Fifth Third Bancorp 75,000 4,809,375 First Citizens Bancshares Class A 35,300 3,459,400 First Union Corp. 130,800 6,417,375 Fleet Financial Group, Inc. 20,500 1,318,406 Golden West Financial Corp. 7,000 607,250 Keycorp 17,400 1,064,663 Nationsbank Corp. 216,963 12,990,660 Norwest Corp. 730,000 23,405,625 PNC Bank Corp. 25,000 1,187,500 Signet Banking Corp. 16,500 887,906 Sovereign Bancorp, Inc. 305,000 5,413,750 - ------------------------------------------------------------------------------- $ 94,554,090 - ------------------------------------------------------------------------------- Banks and Money Services -- 2.1% - ------------------------------------------------------------------------------- BankAmerica Corp. 41,624 $ 2,976,116 Chase Manhattan Corp. 32,562 3,756,841 Citicorp 340,000 42,521,250 First Chicago NBD Corp. 43,007 3,128,753 JP Morgan and Co., Inc. 15,000 1,646,250 Washington Mutual, Inc. 65,759 4,500,382 Wells Fargo & Co. 11,542 3,363,050 - ------------------------------------------------------------------------------- $ 61,892,642 - ------------------------------------------------------------------------------- Beverages -- 2.6% - ------------------------------------------------------------------------------- Anheuser-Busch Cos., Inc. 238,700 $ 9,533,081 Coca-Cola Co. 405,090 22,887,585 PepsiCo, Inc. 1,172,156 43,149,993 - ------------------------------------------------------------------------------- $ 75,570,659 - ------------------------------------------------------------------------------- Broadcasting and Cable -- 0.8% - ------------------------------------------------------------------------------- American Radio Systems Corp. 149,451 $ 7,285,736 Clear Channel Communications* 21,000 1,386,000 Comcast Corp. Class A 62,500 1,718,750 Cox Communications, Inc. Class A* 93,319 2,869,559 Liberty Media Group, Class A* 52,552 1,829,467 Tele-Communications, Inc.* 311,073 7,135,237 - ------------------------------------------------------------------------------- $ 22,224,749 - ------------------------------------------------------------------------------- Building Materials -- 0.2% - ------------------------------------------------------------------------------- Interface, Inc.+ 62,500 $ 1,804,688 Masco Corp. 55,540 2,436,818 Sherwin Williams Co. 28,420 788,655 Sherwin Williams Co.+ 16,250 450,753 Stanley Works 16,270 687,408 - ------------------------------------------------------------------------------- $ 6,168,322 - ------------------------------------------------------------------------------- Business Services - Miscellaneous -- 0.5% - ------------------------------------------------------------------------------- Corrections Corporation of America* 28,000 $ 854,000 Manpower, Inc. 110,000 4,221,250 Robert Half International, Inc.* 1,800 73,688 Sylvan Learning Systems, Inc.+* 196,789 8,258,650 - ------------------------------------------------------------------------------- $ 13,407,588 - ------------------------------------------------------------------------------- Chemicals -- 1.5% - ------------------------------------------------------------------------------- Bayer AG ADR 40,000 $ 1,406,032 Dow Chemical Co. 28,360 2,573,670 E.I. Du Pont de Nemours & Co., Inc. 213,300 12,131,438 Eastman Chemical Co. 161 9,600 Monsanto Corp. 506,680 21,660,570 Solutia, Inc.* 200,336 4,432,434 - ------------------------------------------------------------------------------- $ 42,213,744 - ------------------------------------------------------------------------------- Communications Equipment -- 1.7% - ------------------------------------------------------------------------------- Dialogic Corp.* 80,000 $ 3,300,000 L.M. Ericsson Telephone Co. ADR 86,000 3,805,500 Nokia Corp., Class A ADR 280,000 24,710,000 Northern Telecom Ltd. ADR 55,870 5,010,841 Pairgain Technologies, Inc.+* 210,000 5,923,601 Salient 3 Communications, Inc., Class A 78,125 908,203 Tellabs, Inc.* 110,193 5,950,422 - ------------------------------------------------------------------------------- $ 49,608,567 - ------------------------------------------------------------------------------- Communications Services -- 1.7% - ------------------------------------------------------------------------------- Ameritech Corp. 1,500 $ 97,500 AT&T Corp. 28,000 1,370,250 BellSouth Corp. 4,000 189,250 Citizens Utilities Co., Class B* 43,545 432,725 Nextel Communications, Inc.* 75,830 1,990,538 SBC Communications, Inc. 1,000 63,625 Telecom Corp. of New Zealand ADR 8,000 311,500 Telephone & Data Systems, Inc. 86,756 3,687,130 Worldcom, Inc.* 1,175,000 39,509,375 - ------------------------------------------------------------------------------- $ 47,651,893 - ------------------------------------------------------------------------------- Computer Software -- 3.4% - ------------------------------------------------------------------------------- BMC Software, Inc. 4,000 $ 241,500 Cadence Design Systems, Inc.* 28,000 1,491,000 Computer Associates International, Inc. 195,000 14,539,688 CSG Systems International, Inc.* 7,958 311,854 HNC Software, Inc. 50,000 1,850,000 HNC Software, Inc.+ 129,814 4,767,095 Intuit, Inc.* 266,667 8,700,011 Lexmark International Group, Inc.* 100,000 3,056,250 Microsoft Corp.* 63,850 8,300,500 Oracle Corp.* 815,000 29,161,678 PeopleSoft, Inc.* 50,000 3,143,750 PeopleSoft, Inc.+* 60,000 3,766,841 Sapient Corp.+* 161,938 8,590,862 Saville Systems PLC ADR+* 80,000 4,762,075 Saville Systems PLC ADR* 80,000 4,780,000 Security Dynamics Technology, Inc.* 40,000 1,355,000 - ------------------------------------------------------------------------------- $ 98,818,104 - ------------------------------------------------------------------------------- Computers and Business Equipment -- 3.6% - ------------------------------------------------------------------------------- Cabletron Systems, Inc.* 28,572 $ 828,588 Cisco Systems, Inc.* 218,620 17,933,661 Cisco Systems, Inc.+* 77,375 6,337,647 Digital Equipment Corp.* 29,355 1,469,585 Hewlett-Packard Co. 448,238 27,650,682 International Business Machines Corp. 115,626 11,338,575 Xerox Corp. 485,000 38,466,563 - ------------------------------------------------------------------------------- $ 104,025,301 - ------------------------------------------------------------------------------- Conglomerates -- 0.8% - ------------------------------------------------------------------------------- General Electric Co. 365,199 $ 23,578,160 - ------------------------------------------------------------------------------- $ 23,578,160 - ------------------------------------------------------------------------------- Consumer Services -- 0.0% - ------------------------------------------------------------------------------- CUC International, Inc.* 42,000 $ 1,239,000 - ------------------------------------------------------------------------------- $ 1,239,000 - ------------------------------------------------------------------------------- Containers and Packaging -- 0.8% - ------------------------------------------------------------------------------- Sealed Air Corp.* 425,000 $ 21,914,063 - ------------------------------------------------------------------------------- $ 21,914,063 - ------------------------------------------------------------------------------- Distribution -- 1.1% - ------------------------------------------------------------------------------- Airgas, Inc.* 61,000 $ 949,313 Cardinal Health, Inc. 96,500 7,165,125 JP Food Service, Inc.* 146,973 4,693,950 Supervalu, Inc. 51,506 1,886,407 Sysco Corp. 367,760 14,710,400 Wilmar Industries, Inc.* 50,000 1,312,500 - ------------------------------------------------------------------------------- $ 30,717,695 - ------------------------------------------------------------------------------- Drugs -- 9.1% - ------------------------------------------------------------------------------- Amgen, Inc. 201,532 $ 9,925,451 Astra AB Class A 1,074,400 17,370,143 Astra AB Class B ADR 160,000 2,500,000 Bristol-Myers Squibb Co. 340,720 29,898,180 Covance, Inc.* 31,250 552,734 Elan Corp., PLC ADR 381,676 19,036,091 Eli Lilly & Co. 94,440 6,315,675 Genentech, Inc.* 80,000 4,645,000 Genzyme Corp.* 12,150 104,794 Genzyme Corp. Class A* 650,000 17,793,750 Merck & Co., Inc. 526,315 46,973,614 Pfizer, Inc. 742,040 52,499,330 Quintiles Transnational Corp.* 37,210 2,697,725 Quintiles Transnational Corp.+* 50,000 3,619,563 Schering-Plough Corp. 276,240 15,486,705 Smithkline Beecham PLC ADR 98,040 4,669,155 Vertex Pharmaceuticals, Inc.* 85,000 2,507,500 Warner-Lambert Co. 104,644 14,983,713 Watson Pharmaceuticals, Inc.* 348,550 11,066,463 - ------------------------------------------------------------------------------- $ 262,645,586 - ------------------------------------------------------------------------------- Electrical Equipment -- 1.1% - ------------------------------------------------------------------------------- American Power Conversion Corp.+* 200,000 $ 5,441,825 AMP, Inc. 112,340 5,055,300 Emerson Electric Co. 150,948 7,915,336 General Signal Corp. 68,600 2,752,575 Molex, Inc. Class A 28,000 981,750 Rockwell International Corp. 93,400 4,576,600 Rockwell International Corp.+ 90,000 4,403,385 Thomas & Betts Corp.+ 22,963 1,140,696 - ------------------------------------------------------------------------------- $ 32,267,467 - ------------------------------------------------------------------------------- Electronics - Instruments -- 1.0% - ------------------------------------------------------------------------------- Analog Devices, Inc.* 50,000 $ 1,528,125 Dionex Corp.* 181,070 9,030,866 Thermo Electron Corp.* 390,000 14,551,875 Waters Corp.+* 29,580 1,299,568 X-Rite, Inc.+ 140,000 2,708,431 - ------------------------------------------------------------------------------- $ 29,118,865 - ------------------------------------------------------------------------------- Electronics - Semiconductors -- 3.6% - ------------------------------------------------------------------------------- Burr-Brown Corp.+* 400,000 $ 12,081,850 Intel Corp. 637,798 49,110,446 Intel Corp.+ 70,002 5,382,069 KLA-Tencor Corp.* 36,000 1,581,750 Linear Technology Corp. 45,000 2,829,375 Maxim Integrated Products+* 20,000 1,323,013 Motorola, Inc. 55,768 3,443,674 National Semiconductor Corp.+* 79,368 2,852,962 Smart Modular Technologies+* 30,000 1,486,903 Speedfam International, Inc.+* 221,000 8,192,318 Texas Instruments, Inc. 86,890 9,270,077 Ultratech Stepper, Inc.+* 245,129 6,654,716 - ------------------------------------------------------------------------------- $ 104,209,153 - ------------------------------------------------------------------------------- Engineering and Construction -- 0.1% - ------------------------------------------------------------------------------- Jacobs Engineering Group, Inc.* 45,000 $ 1,215,000 Jacobs Engineering Group, Inc.+* 32,230 868,905 - ------------------------------------------------------------------------------- $ 2,083,905 - ------------------------------------------------------------------------------- Entertainment -- 0.1% - ------------------------------------------------------------------------------- Regal Cinemas, Inc.* 2,250 $ 51,750 Walt Disney Co. 26,600 2,187,850 - ------------------------------------------------------------------------------- $ 2,239,600 - ------------------------------------------------------------------------------- Environmental Services -- 0.3% - ------------------------------------------------------------------------------- Browning-Ferris Industries, Inc. 127,000 $ 4,127,500 Waste Management, Inc. 143,504 3,354,406 - ------------------------------------------------------------------------------- $ 7,481,906 - ------------------------------------------------------------------------------- Financial - Miscellaneous -- 4.1% - ------------------------------------------------------------------------------- American Express Co. 108,148 $ 8,435,544 American General Corp. 74,155 3,781,905 Capital One Financial Corp. 16,000 730,000 Federal Home Loan Mortgage Corp. 352,500 13,350,938 Federal National Mortgage Association 909,820 44,069,406 Household International, Inc. 10,600 1,200,450 MGIC Investment Corp. 210,000 12,665,625 Providian Financial Corp. 64,455 2,384,835 Sunamerica, Inc. 668,524 24,025,081 Travelers, Inc. 90,676 6,347,320 - ------------------------------------------------------------------------------- $ 116,991,104 - ------------------------------------------------------------------------------- Foods -- 2.7% - ------------------------------------------------------------------------------- CPC International, Inc. 2,000 $ 198,000 Earthgrains Co. 3,545 145,788 Flowers Industries, Inc. 181,000 3,439,000 General Mills, Inc. 17,500 1,155,000 Kellogg Co. 44,714 1,925,497 McCormick & Co., Inc. 229,298 5,732,450 Pioneer Hi-Bred International, Inc. 149,900 13,734,588 Riviana Foods, Inc.+ 150,000 3,032,944 Sara Lee Corp. 269,972 13,802,319 Unilever ADR 490,000 26,153,750 WM. Wrigley, Jr. Co. 106,580 7,713,728 - ------------------------------------------------------------------------------- $ 77,033,064 - ------------------------------------------------------------------------------- Furniture and Appliances -- 0.8% - ------------------------------------------------------------------------------- Herman Miller, Inc. 60,000 $ 2,932,500 HON Inds, Inc. 254,202 13,123,178 HON Inds, Inc.+ 67,465 3,477,656 Leggett & Platt, Inc. 31,150 1,300,513 Leggett & Platt, Inc.+ 29,420 1,226,443 - ------------------------------------------------------------------------------- $ 22,060,290 - ------------------------------------------------------------------------------- Health Services -- 1.1% - ------------------------------------------------------------------------------- Aetna, Inc. 4,821 $ 342,592 Aetna, Inc.+ 55,000 3,902,575 FPA Medical Management, Inc.* 315,000 7,599,375 Healthsouth Corp.* 146,000 3,732,125 Integrated Health Services, Inc. 50,000 1,587,500 Medpartners, Inc.* 17,696 450,142 Orthodontic Centers of America, Inc.+* 100,000 1,693,595 Pacificare Health Systems, Inc., Class B* 19,500 1,262,625 Quest Diagnostics, Inc.* 15,625 260,742 Quorum Health Group, Inc.* 6,893 167,143 Quorum Health Group, Inc.+* 48,840 1,182,593 Response Oncology, Inc.* 44,761 458,800 Sunrise Assisted Living, Inc.+* 210,000 7,784,556 United Healthcare Corp. 20,000 926,250 Vencor, Inc.* 25,600 691,200 - ------------------------------------------------------------------------------- $ 32,041,813 - ------------------------------------------------------------------------------- Household Products -- 2.4% - ------------------------------------------------------------------------------- Blyth Industries, Inc.* 222,000 $ 5,522,250 Blyth Industries, Inc.+* 300,000 7,434,516 Colgate-Palmolive Co. 43,652 2,826,467 Fortune Brands, Inc. 1,500 49,594 Gillette Co. 115,400 10,277,813 Kimberly-Clark Corp. 138,060 7,170,491 Procter & Gamble Co. 349,200 23,745,600 Rubbermaid, Inc. 463,920 11,163,075 - ------------------------------------------------------------------------------- $ 68,189,806 - ------------------------------------------------------------------------------- Industrial Equipment -- 1.2% - ------------------------------------------------------------------------------- Dover Corp. 164,580 $ 11,109,150 Dover Corp.+ 23,000 1,550,171 Illinois Tool Works, Inc. 81,010 3,984,679 Parker-Hannifin Corp. 150,898 6,309,423 Regal Beloit Corp. 265,000 7,121,875 Tecumseh Products Co. Class A 108,145 5,610,022 Tecumseh Products Co. Class B 5,000 261,250 - ------------------------------------------------------------------------------- $ 35,946,570 - ------------------------------------------------------------------------------- Information Services -- 4.4% - ------------------------------------------------------------------------------- Automatic Data Processing, Inc. 967,040 $ 49,439,920 Computer Sciences Corp.+* 140,000 9,916,353 Dun & Bradstreet Corp. 107,256 3,063,500 Electronic Data Systems Corp. 155,000 5,996,563 First Data Corp. 128,618 3,737,961 Paychex, Inc. 58,651 2,236,069 Reuters Holdings PLC ADR 791,090 52,014,168 - ------------------------------------------------------------------------------- $ 126,404,534 - ------------------------------------------------------------------------------- Insurance -- 6.6% - ------------------------------------------------------------------------------- Aegon, N.V. ADR 28,246 $ 2,245,557 Allstate Corp. 20,208 1,676,001 American International Group, Inc. 429,950 43,881,721 AON Corp. 44,054 2,376,163 Berkshire Hathaway, Inc. Class A* 50 2,185,000 Berkshire Hathaway, Inc. Class B* 21 30,849 Chubb Corp. 101,050 6,694,563 General RE Corp. 192,446 37,947,946 Kansas City Life Insurance Co. 35,400 3,115,200 Laboratory Holdings, Inc. 35,960 899,000 Marsh & McLennan Cos., Inc. 474,344 33,678,424 Mutual Risk Management Ltd. 490,000 12,709,375 Progressive Corp. 190,000 19,807,500 Protective Life Corp. 34,012 1,798,385 Provident Companies, Inc. 19,198 640,733 Safeco Corp. 12,122 577,310 St. Paul Cos., Inc. 130,280 10,414,258 Torchmark Corp. 222,850 8,886,144 USF&G Corp. 15,005 303,851 - ------------------------------------------------------------------------------- $ 189,867,980 - ------------------------------------------------------------------------------- Investment Services -- 0.7% - ------------------------------------------------------------------------------- Merrill Lynch & Co. 242,983 $ 16,431,725 Morgan Stanley Dean Witter Discover & Co. 23,704 1,161,496 T. Rowe Price Associates, Inc. 20,500 1,358,125 - ------------------------------------------------------------------------------- $ 18,951,346 - ------------------------------------------------------------------------------- Lodging and Gaming -- 0.0% - ------------------------------------------------------------------------------- ITT Corp. 1,892 $ 141,309 - ------------------------------------------------------------------------------- $ 141,309 - ------------------------------------------------------------------------------- Medical Products -- 6.6% - ------------------------------------------------------------------------------- Abbott Laboratories 150,000 $ 9,196,875 Allegiance Corp. 22,661 628,843 Ballard Medical Products+ 251,058 5,655,999 Bausch & Lomb, Inc. 145,574 5,713,780 Baxter International, Inc. 477,828 22,099,545 Becton Dickinson and Co. 2,000 92,125 Boston Scientific Corp.* 265,000 12,057,500 Dentsply International, Inc. 42,000 1,191,750 Heartport, Inc.* 41,026 1,030,778 Henry Schein, Inc.+* 225,700 7,408,758 Hillenbrand Industries, Inc. 385,029 16,459,990 Johnson & Johnson Co. 908,974 52,152,383 Marquette Medical Systems, Inc.* 55,000 1,416,250 Medtronics, Inc. 832,516 36,214,446 Medtronics, Inc.+ 29,472 1,280,109 Sofamor Danek Group, Inc.* 173,000 11,915,375 United States Surgical Corp. 150,000 4,040,625 - ------------------------------------------------------------------------------- $ 188,555,131 - ------------------------------------------------------------------------------- Metals - Gold -- 0.0% - ------------------------------------------------------------------------------- Freeport-McMoran Copper & Gold, Inc. Class B 6,000 $ 143,625 - ------------------------------------------------------------------------------- $ 143,625 - ------------------------------------------------------------------------------- Metals - Industrial -- 0.5% - ------------------------------------------------------------------------------- Cyprus Amax Minerals Co. 20,950 $ 438,641 Inco, Ltd. 124,000 2,557,500 Nucor Corp. 40,000 2,090,000 Potash Corp. of Saskatchewan 120,000 9,832,500 - ------------------------------------------------------------------------------- $ 14,918,641 - ------------------------------------------------------------------------------- Natural Gas Utilities -- 0.2% - ------------------------------------------------------------------------------- NGC Corp. 290,000 $ 5,510,000 Sonat, Inc. 27,200 1,249,500 - ------------------------------------------------------------------------------- $ 6,759,500 - ------------------------------------------------------------------------------- Oil and Gas - Equipment and Services -- 2.2% - ------------------------------------------------------------------------------- Baker Hughes, Inc. 39,234 $ 1,802,312 Dresser Industries, Inc. 79,800 3,361,575 EVI, Inc.* 33,000 2,118,188 Halliburton Co. 177,400 10,577,475 Noble Drilling, Inc.* 120,000 4,267,500 Patterson Energy, Inc.+ 100,000 5,478,200 Schlumberger Ltd. 406,722 35,588,175 - ------------------------------------------------------------------------------- $ 63,193,425 - ------------------------------------------------------------------------------- Oil and Gas - Exploration and Production -- 1.0% - ------------------------------------------------------------------------------- Anadarko Petroleum Corp. 246,000 $ 18,019,500 Apache Corp. 186,440 7,830,480 Burlington Resources, Inc. 38,125 1,865,742 Union Pacific Resources Group, Inc. 79,795 1,964,952 - ------------------------------------------------------------------------------- $ 29,680,674 - ------------------------------------------------------------------------------- Oil and Gas - Integrated -- 1.5% - ------------------------------------------------------------------------------- Amoco Corp. 89,778 $ 8,231,520 Atlantic Richfield Co. 41,766 3,437,864 Chevron Corp. 55,600 4,611,325 Exxon Corp. 172,879 10,621,254 Mobil Corp. 186,368 13,569,920 Murphy Oil Corp. 29,700 1,720,744 - ------------------------------------------------------------------------------- $ 42,192,627 - ------------------------------------------------------------------------------- Paper and Forest Products -- 0.9% - ------------------------------------------------------------------------------- Champion International Corp. 61,687 $ 3,404,351 Deltic Timber Corp. 8,486 239,191 Fort James Corp. 26,401 1,047,790 Georgia-Pacific Corp. 160,000 13,570,000 Mead Corp. 19,384 1,172,732 Union Camp Corp. 80,309 4,351,744 Weyerhauser Co. 61,755 2,948,801 - ------------------------------------------------------------------------------- $ 26,734,609 - ------------------------------------------------------------------------------- Photography -- 0.1% - ------------------------------------------------------------------------------- Eastman Kodak Co. 31,698 $ 1,897,918 - ------------------------------------------------------------------------------- $ 1,897,918 - ------------------------------------------------------------------------------- Printing and Business Products -- 0.4% - ------------------------------------------------------------------------------- American Business Products, Inc. 146,497 $ 2,939,096 Bowne & Co., Inc. 89,970 3,137,704 Deluxe Corp. 51,750 1,694,813 John H. Harland Co. 51,540 1,156,429 R.R. Donnelley & Sons Co. 47,896 1,562,607 - ------------------------------------------------------------------------------- $ 10,490,649 - ------------------------------------------------------------------------------- Publishing -- 2.2% - ------------------------------------------------------------------------------- Dow Jones & Co., Inc. 465,000 $ 21,622,500 Gannett Co., Inc. 260,900 13,713,556 Houghton Mifflin Co. 127,400 4,522,700 McGraw-Hill Companies, Inc. 240,608 15,729,748 Times Mirror Co. Class A 151,670 8,209,139 - ------------------------------------------------------------------------------- $ 63,797,643 - ------------------------------------------------------------------------------- REITs -- 0.2% - ------------------------------------------------------------------------------- Redwood Trust, Inc. 71,710 $ 1,801,714 Rouse Co. 127,700 3,543,675 SLH Corp.* 26,970 1,375,470 - ------------------------------------------------------------------------------- $ 6,720,859 - ------------------------------------------------------------------------------- Restaurants -- 1.1% - ------------------------------------------------------------------------------- Boston Chicken, Inc.* 38,500 $ 344,094 Brinker International, Inc.* 354,000 4,956,000 McDonald's Corp. 263,100 11,790,169 Starbucks Corp.* 300,000 9,900,000 Tricon Global Restaurants* 117,216 3,553,098 - ------------------------------------------------------------------------------- $ 30,543,361 - ------------------------------------------------------------------------------- Retail - Food and Drug -- 2.1% - ------------------------------------------------------------------------------- Albertson's, Inc. 974,744 $ 35,943,685 CVS Corp. 330,000 20,233,125 Hannaford Brothers Co. 30,849 1,166,478 Rite Aid Corp. 3,000 178,125 Safeway, Inc.* 50,000 2,906,250 - ------------------------------------------------------------------------------- $ 60,427,663 - ------------------------------------------------------------------------------- Retail - General -- 2.0% - ------------------------------------------------------------------------------- Dollar Tree Stores, Inc.+* 195,000 $ 7,885,654 J.C. Penney Co., Inc. 543,510 31,897,243 May Department Stores Co. 104,008 5,603,431 Wal-Mart Stores, Inc. 344,390 12,096,699 - ------------------------------------------------------------------------------- $ 57,483,027 - ------------------------------------------------------------------------------- Retail - Specialty and Apparel -- 3.4% - ------------------------------------------------------------------------------- Burlington Coat Factory Warehouse 205,200 $ 3,398,625 Burlington Coat Factory Warehouse+ 338,400 5,596,343 Harcourt General, Inc. 216,416 10,834,326 Home Depot, Inc. 989,500 55,040,938 Limited, Inc. 135,000 3,180,938 Lowe's Companies+ 30,000 1,246,877 Republic Industries, Inc. 343,457 10,131,982 The Pep Boys - Manny, Moe & Jack+ 35,476 892,211 Toys "R" Us, Inc.* 121,325 4,132,633 Unifi, Inc. 50,000 1,921,875 - ------------------------------------------------------------------------------- $ 96,376,748 - ------------------------------------------------------------------------------- Specialty Chemicals and Materials -- 3.3% - ------------------------------------------------------------------------------- Corning, Inc. 125,000 $ 5,640,625 Dexter Corp. 47,829 1,877,288 Ecolab, Inc. 678,768 32,283,903 Great Lakes Chemical Corp. 62,780 2,950,660 International Flavors & Fragrances, Inc. 148,101 7,164,386 International Specialty Products, Inc. 59,000 881,313 Lam Research Corp.* 83,000 2,998,375 Memtec Ltd. ADR 77,500 2,557,500 Millipore Corp. 626,440 24,509,465 Minnesota Mining & Manufacturing Co. 26,288 2,405,352 Nalco Chemical Co. 196,020 7,840,800 Pall Corp. 216,000 4,468,500 - ------------------------------------------------------------------------------- $ 95,578,167 - ------------------------------------------------------------------------------- Tobacco -- 0.1% - ------------------------------------------------------------------------------- Philip Morris Cos., Inc. 30,000 $ 1,188,750 Schweitzer-Mauduit International, Inc. 5,731 241,418 - ------------------------------------------------------------------------------- $ 1,430,168 - ------------------------------------------------------------------------------- Transportation -- 0.6% - ------------------------------------------------------------------------------- Coach USA, Inc.* 94,666 $ 2,816,314 Coach USA, Inc.+* 74,223 2,204,822 CSX Corp. 9,970 545,234 Heartland Express+* 250,000 6,864,688 Union Pacific Corp. 93,140 5,704,825 - ------------------------------------------------------------------------------- $ 18,135,883 - ------------------------------------------------------------------------------- Trucks and Parts -- 0.1% - ------------------------------------------------------------------------------- Paccar, Inc. 46,602 $ 2,100,003 - ------------------------------------------------------------------------------- $ 2,100,003 - ------------------------------------------------------------------------------- Total Common Stocks (identified cost $1,718,891,645) $2,769,653,213 - ------------------------------------------------------------------------------- Convertible Preferred Stocks -- 0.8% Entertainment -- 0.8% - ------------------------------------------------------------------------------- Time Warner, Inc., Series J+(1) 166,978 $ 21,507,334 - ------------------------------------------------------------------------------- $ 21,507,334 - ------------------------------------------------------------------------------- Financial - Miscellaneous -- 0.0% - ------------------------------------------------------------------------------- American General Corp., Series D 21,474 $ 946,198 - ------------------------------------------------------------------------------- $ 946,198 - ------------------------------------------------------------------------------- Insurance -- 0.0% - ------------------------------------------------------------------------------- Aetna, Inc., Series C 449 $ 32,216 - ------------------------------------------------------------------------------- $ 32,216 - ------------------------------------------------------------------------------- Total Convertible Preferred Stocks (identified cost $18,414,229) $ 22,485,748 - ------------------------------------------------------------------------------- Commercial Paper -- 4.3% Face Amount Name of Company (000 omitted) Value - ------------------------------------------------------------------------------- General Electric Capital Corp., 5.68%, 11/3/97 $74,713 $ 74,677,636 Prudential Funding Corp., 5.56%, 11/5/97 48,000 47,948,083 - ------------------------------------------------------------------------------- Total Commercial Paper (identified cost $122,625,719) $ 122,625,719 - ------------------------------------------------------------------------------- Total Investments -- 101.5% (identified cost $1,859,931,593) $2,914,764,680 - ------------------------------------------------------------------------------- Other Assets, Less Liabilities -- (1.5)% $ (43,318,862) - ------------------------------------------------------------------------------- Net Assets -- 100.0% $2,871,445,818 - ------------------------------------------------------------------------------- ADR -- American Depositary Receipt. + Security exempt from registration under Rule 144A or Rule 145 of the Securities Act of 1933. These securities may be resold in transactions exempt from registration, normally to qualified institutional buyers. At October 31, 1997, the value of these securities amounted to $224,896,884 or 7.8% of net assets. * Non-income producing security. (1) Security valued using methods determined in good faith by or at the direction of the Trustees. See notes to financial statements Tax-Managed Growth Portfolio as of October 31, 1997 - ------------------------------------------------------------------------------- FINANCIAL STATEMENTS - ------------------------------------------------------------------------------- Statement of Assets and Liabilities As of October 31, 1997 Assets - ------------------------------------------------------------------------------- Investments, at value (Note 1A) (identified cost, $1,859,931,593) $2,914,764,680 Cash 113,692 Receivable for investments sold 70,718 Dividends and interest receivable 2,515,939 Tax reclaim receivable 38,097 Prepaid expenses 97,457 Deferred organization expenses (Note 1C) 6,704 - ------------------------------------------------------------------------------- Total assets $2,917,607,287 - ------------------------------------------------------------------------------- Liabilities - ------------------------------------------------------------------------------- Payable for investments purchased $ 46,013,234 Payable to affiliate -- Trustees' fees (Note 2) 2,487 Accrued expenses 145,748 - -------------------------------------------------------------------------------- Total liabilities $ 46,161,469 - -------------------------------------------------------------------------------- Net Assets applicable to investors' interest in Portfolio $2,871,445,818 - -------------------------------------------------------------------------------- Sources of Net Assets - -------------------------------------------------------------------------------- Net proceeds from capital contributions and withdrawals $1,816,612,731 Net unrealized appreciation of investments (computed on the basis of identified cost) 1,054,833,087 - -------------------------------------------------------------------------------- Total $2,871,445,818 - -------------------------------------------------------------------------------- See notes to financial statements Statement of Operations For the Year Ended October 31, 1997 Investment Income (Note 1F) - -------------------------------------------------------------------------------- Dividends (net of foreign taxes withheld of $207,276) $ 21,074,140 Interest income 3,332,220 - -------------------------------------------------------------------------------- Total income $ 24,406,360 - -------------------------------------------------------------------------------- Expenses - -------------------------------------------------------------------------------- Investment adviser fee (Note 2) $ 9,455,900 Compensation of Trustees not members of the Investment Adviser's organization (Note 2) 27,835 Custodian fee 358,840 Legal and accounting services 87,829 Dividends on securities sold short (Note 1E) 17,000 Amortization of organization expenses (Note 1C) 7,726 Miscellaneous 51,615 - -------------------------------------------------------------------------------- Total expenses $ 10,006,745 - -------------------------------------------------------------------------------- Net investment income $ 14,399,615 - -------------------------------------------------------------------------------- Realized and Unrealized Gain (Loss) on Investments - -------------------------------------------------------------------------------- Net realized gain (loss) -- Investment transactions (identified cost basis) $ 51,570,685 Securities sold short 1,066,894 - -------------------------------------------------------------------------------- Net realized gain on investments $ 52,637,579 - -------------------------------------------------------------------------------- Change in unrealized appreciation (depreciation) -- Investment transactions (identified cost basis) $ 375,109,348 - -------------------------------------------------------------------------------- Net change in unrealized appreciation (depreciation) of investments $ 375,109,348 - -------------------------------------------------------------------------------- Net realized and unrealized gain on investments $ 427,746,927 - -------------------------------------------------------------------------------- Net increase in net assets from operations $ 442,146,542 - -------------------------------------------------------------------------------- See notes to financial statements Tax-Managed Growth Portfolio as of October 31, 1997 - ------------------------------------------------------------------------------- FINANCIAL STATEMENTS CONT'D - ------------------------------------------------------------------------------- Statements of Changes in Net Assets Increase (Decrease) Year Ended Period Ended in Net Assets October 31, October 31, 1997 1996* - -------------------------------------------------------------------------------- From operations -- Net investment income $ 14,399,615 $ 3,104,708 Net realized gain on investments 52,637,579 9,582,500 Net change in unrealized appreciation (depreciation) of investments 375,109,348 70,637,961 - -------------------------------------------------------------------------------- Net increase in net assets from operations $ 442,146,542 $ 83,325,169 - -------------------------------------------------------------------------------- Capital transactions -- Contributions $1,907,707,281 $871,076,582 Withdrawals (415,207,575) (17,702,191) - -------------------------------------------------------------------------------- Net increase in net assets from capital transactions $1,492,499,706 $853,374,391 - -------------------------------------------------------------------------------- Net increase in net assets $1,934,646,248 $936,699,560 - -------------------------------------------------------------------------------- Net Assets - -------------------------------------------------------------------------------- At beginning of period $ 936,799,570 $ 100,010 - -------------------------------------------------------------------------------- At end of period $2,871,445,818 $936,799,570 - -------------------------------------------------------------------------------- * For the period from the start of business, December 1, 1995, to October 31, 1996. See notes to financial statements Tax-Managed Growth Portfolio as of October 31, 1997 - ------------------------------------------------------------------------------- FINANCIAL STATEMENTS CONT'D - ------------------------------------------------------------------------------- Supplementary Data Year Ended Period Ended October 31, October 31, 1997 1996* - ------------------------------------------------------------------------------- Ratios to average daily net assets - ------------------------------------------------------------------------------- Expenses 0.56% 0.66%+ Net investment income 0.81% 0.91%+ Portfolio Turnover 14% 6% - ------------------------------------------------------------------------------- Net assets, end of period (000s omitted) $2,871,446 $936,800 Average commission rate (per share)(1) $ 0.0582 $ 0.0585 - -------------------------------------------------------------------------------- + Annualized. * For the period from the start of business, December 1, 1995, to October 31, 1996. (1) Average commission rate paid is computed by dividing the total dollar amount of commissions paid during the fiscal year by the t otal number of shares purchased and sold during the fiscal year for which commissions were charged. See notes to financial statements Tax-Managed Growth Portfolio as of October 31, 1997 - -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- 1 Significant Accounting Policies - -------------------------------------------------------------------------------- Tax-Managed Growth Portfolio (the Portfolio) is registered under the Investment Company Act of 1940, as amended, as a diversified, open-end management investment company. The Portfolio, which was organized as a trust under the laws of the State of New York on December 1, 1995, seeks to provide long-term after-tax returns by investing in a diversified portfolio of equity securities. The Declaration of Trust permits the Trustees to issue interests in the Portfolio. Investment operations began on December 1, 1995, with the acquisition of investments with a value of $115,586,248, including unrealized appreciation of $96,618,064, in exchange for an interest in the Portfolio by one of the Portfolio's investors. During the period from the start of business, December 1, 1995 to October 31, 1996, additional investors contributed securities with a value of $639,241,121, including unrealized appreciation of $512,467,715. During the year ended October 31, 1997, additional investors contributed securities with a value of $860,796,038. The following is a summary of significant accounting policies consistently followed by the Portfolio in the preparation of its financial statements. The polices are in conformity with generally accepted accounting principles. A Investment Valuations -- Marketable securities, including options, that are listed on foreign or U.S. securities exchanges or in the NASDAQ National Market System are valued at closing sale prices, on the exchange where such securities are principally traded. Futures positions on securities or currencies are generally valued at closing settlement prices. Unlisted or listed securities for which closing sale 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 Taxes -- The Portfolio is treated as a partnership for Federal tax purposes. No provision is made by the Portfolio for federal or state taxes on any taxable income of the Portfolio because each investor in the Portfolio is ultimately 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. C Deferred Organization Expenses -- Costs incurred by the Portfolio in connection with its organization are being amortized on the straight-line basis over five years. D Futures Contracts -- Upon the entering of a financial futures contract, the Portfolio is required to deposit either in cash or securities an amount ("initial margin") 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 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 to hedge against anticipated future changes in price of current or anticipated portfolio positions. Should prices move unexpectedly, the Portfolio may not achieve the anticipated benefits of the financial futures contracts and may realize a loss. E Securities Sold Short -- The Portfolio may sell securities short where it owns an equal amount of the security sold short or another security convertible or exchangeable for an equal amount of the security sold short. The Portfolio may do this in anticipation of a decline in the market price of the securities or in order to hedge portfolio positions. The Portfolio will generally borrow the security sold in order to make delivery to the buyer. Upon executing the transaction, the Portfolio records the proceeds as deposits with brokers in the Statement of Assets and Liabilities and establishes an offsetting payable for securities sold short for the securities due on settlement. The security sold short is segregated as collateral for the short position. The liability is marked to market and the Portfolio is required to pay the lending broker any dividend or interest income earned while the short position is open. A gain or loss is realized when the security is delivered to the broker. The Portfolio may recognize a loss on the transaction if the market value of the securities sold increases before the securities are delivered. F Other -- Investment transactions are accounted for on the date the investments are purchased or sold. Dividend income is recorded on the ex- dividend date. However, if the ex-dividend date has passed, certain dividends from foreign securities are recorded as the Portfolio is informed of the ex-dividend date. Interest income is recorded on the accrual basis. G 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 revenue and expense during the reporting period. Actual results could differ from those estimates. H 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 reflected as a reduction of expenses on the Statement of Operations. 2 Investment Adviser Fee and Other Transactions with Affiliates - -------------------------------------------------------------------------------- The investment adviser fee is earned by Boston Management and Research (BMR), a wholly-owned subsidiary of Eaton Vance Management (EVM), as compensation for management and investment advisory services rendered to the Portfolio. Under the advisory agreement, BMR receives a monthly advisory fee of 5/96 of 1% (0.625% 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 October 31, 1997 the adviser fee was 0.53% of the Portfolio's average net assets (annualized). Except as to Trustees of the Portfolio who are not members of EVM's or BMR's organization, officers and Trustees receive remuneration for their services to the Portfolio out of such investment adviser fee. Trustees of the Portfolio that are not affiliated with the Investment Adviser may elect to defer receipt of all or a percentage of their annual fees in accordance with the terms of the Trustees Deferred Compensation Plan. For the year ended October 31, 1997, no significant amounts have been deferred. Certain of the officers and Trustees of the Portfolio are officers or directors/trustees of the above organizations. 3 Investment Transactions - -------------------------------------------------------------------------------- Purchases and sales of investments, other than short-term obligations, aggregated $831,449,166 and $172,736,800, respectively. In addition, investments having an aggregate market value of $70,856,186 at dates of withdrawal were distributed in payment for capital withdrawals resulting in capital gains for book purposes of $63,185,375. 4 Federal Income Tax Basis of Investment - -------------------------------------------------------------------------------- The cost and unrealized appreciation (depreciation) in value of the investments owned at October 31, 1997, as computed on a federal income tax basis, are as follows: Aggregate cost $1,859,931,593 -------------------------------------------------------------------------- Gross unrealized appreciation $1,056,938,628 Gross unrealized depreciation (2,105,541) -------------------------------------------------------------------------- Net unrealized appreciation $1,054,833,087 -------------------------------------------------------------------------- 5 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 written options, forward foreign currency exchange contracts and financial futures contracts and may involve, to a varying degree, elements of risk in excess of the amounts recognized for financial statement purposes. The notional or contractual amounts of these instruments represent the investment the Portfolio has in particular classes of financial instruments and does not necessarily represent the amounts potentially subject to risk. The measurement of the risks associated with these instruments is meaningful only when all related and offsetting transactions are considered. The Portfolio did not have any open obligations under these financial instruments at October 31, 1997. 6 Line of Credit - -------------------------------------------------------------------------------- The Portfolio participates with other portfolios and funds managed by BMR and 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 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 October 31, 1997. Tax-Managed Growth Portfolio as of October 31, 1997 - -------------------------------------------------------------------------------- INDEPENDENT AUDITORS' REPORT - -------------------------------------------------------------------------------- To the Trustees and Investors of Tax-Managed Growth Portfolio - -------------------------------------------------------------------------------- We have audited the accompanying statement of assets and liabilities, including the portfolio of investments, of Tax-Managed Growth Portfolio (the Portfolio) as of October 31, 1997, the related statement of operations for the year then ended, and the statements of changes in net assets, and the supplementary data for the year ended October 31, 1997 and for the period from the start of business, December 1, 1995 to October 31, 1996. These financial statements and supplementary data are the responsibility of the Trust'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 October 31, 1997 by correspondence with the custodian and brokers; where replies were not received from brokers, we performed other audit procedures. 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, the financial statements and supplementary data referred to above present fairly, in all material respects, the financial position of the Portfolio, as of October 31, 1997, 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 December 5, 1997 Fiduciary Exchange Fund Officers Other Trustees JAMES B. HAWKES LANDON T. CLAY President, Trustee DONALD R. DWIGHT JAMES L. O'CONNOR President, Dwight Partners, Inc. Treasurer Chairman, Newspapers of New England, Inc. ALAN R. DYNNER SAMUEL L. HAYES, III Secretary Jacob H. Schiff Professor of Investment Banking, Harvard University Graduate School of Business Administration NORTON H. REAMER President and Director, United Asset Management Corporation JOHN L. THORNDIKE Formerly Director, Fiduciary Company Incorporated JACK L. TREYNOR Investment Adviser and Consultant Tax-Managed Growth Portfolio Officers Other Trustees JAMES B. HAWKES LANDON T. CLAY President, Trustee DONALD R. DWIGHT DUNCAN W. RICHARDSON President, Dwight Partners, Inc. Vice President Chairman, Newspapers of New England, Inc. JAMES L. O'CONNOR SAMUEL L. HAYES, III Treasurer Jacob H. Schiff Professor of Investment Banking, Harvard University Graduate School of Business Administration ALAN R. DYNNER Secretary NORTON H. REAMER President and Director, United Asset Management Corporation JOHN L. THORNDIKE Formerly Director, Fiduciary Company Incorporated JACK L. TREYNOR Investment Adviser and Consultant INVESTMENT ADVISOR OF TAX-MANAGED GROWTH PORTFOLIO Boston Management and Research 24 Federal Street Boston, MA02110 ADMINISTRATOR OF FIDUCIARY EXCHANGE FUND Eaton Vance Management 24 Federal Street Boston, MA 02110 CUSTODIAN Investors Bank & Trust 200 Clarendon Street, 16th Floor Boston, MA 02116 TRANSFER AND DIVIDEND DISBURSING AGENT First Data Investor Services Group, Inc. Attn: Eaton Vance Funds P.O. Box 5123 Westborough, MA01581-5123 INDEPENDENT AUDITORS Deloitte & Touche LLP 125 Summer Street Boston, MA 02110 FIDUCIARY EXCHANGE FUND 24 FEDERAL STREET BOSTON, MA 02110 - -------------------------------------------------------------------------------- This report must be preceded or accompanied by a current prospectus which contains more complete information on the Fund. - -------------------------------------------------------------------------------- 12/97 -----END PRIVACY-ENHANCED MESSAGE-----