UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED
MANAGEMENT INVESTMENT COMPANIES
Investment Company Act file number | 811-22048 | |||||||
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Emerging Markets Income Portfolio | ||||||||
(Exact name of registrant as specified in charter) | ||||||||
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The Eaton Vance Building, 255 State Street, Boston, Massachusetts |
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(Address of principal executive offices) |
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Maureen A. Gemma The Eaton Vance Building, 255 State Street, Boston, Massachusetts 02109 | ||||||||
(Name and address of agent for service) | ||||||||
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Registrant’s telephone number, including area code: | (617) 482-8260 |
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Date of fiscal year end: | October 31 |
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Date of reporting period: | October 31, 2007 |
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Item 1. Reports to Stockholders
Emerging Markets Income Portfolio as of October 31, 2007
PORTFOLIO OF INVESTMENTS
| Bonds & Notes — 64.6% | |||||||||||
| Security | Principal | U.S. $ Value | |||||||||
| Brazil — 9.4% | |||||||||||
| Letra Tesouro Nacional, 0.00%, 1/1/09 | BRL | 2,200,000 | $ | 1,114,990 | |||||||
| Nota Do Tesouro Nacional, 10.00%, 1/1/14 | BRL | 3,810,000 | 2,027,921 | ||||||||
| Nota Do Tesouro Nacional, 10.00%, 1/1/10 | BRL | 3,775,000 | 2,108,474 | ||||||||
| Total Brazil (identified cost $4,980,589) | $ | 5,251,385 | |||||||||
| Czech Republic — 4.6% | |||||||||||
| Czech Republic, 3.55%, 10/18/12 | CZK | 12,300,000 | $ | 642,696 | |||||||
| Czech Republic, 3.80%, 3/22/09 | CZK | 11,820,000 | 635,202 | ||||||||
| Czech Republic, 3.80%, 4/11/15 | CZK | 12,370,000 | 643,893 | ||||||||
| Czech Republic, 4.00%, 4/11/17 | CZK | 12,420,000 | 645,793 | ||||||||
| Total Czech Republic (identified cost $2,233,344) | $ | 2,567,584 | |||||||||
| Egypt — 6.0% | |||||||||||
| Arab Republic of Egypt, 8.75%, 7/18/12(1) | EGP | 4,500,000 | $ | 850,494 | |||||||
| Egyptian Treasury Bill, 0.00%, 11/6/07 | EGP | 3,400,000 | 615,593 | ||||||||
| Egyptian Treasury Bill, 0.00%, 1/8/08 | EGP | 10,650,000 | 1,907,079 | ||||||||
| Total Egypt (identified cost $3,285,983) | $ | 3,373,166 | |||||||||
| Ghana — 0.9% | |||||||||||
| Republic of Ghana, 13.00%, 8/2/10(2) GHS | 470,000 | $ | 488,067 | ||||||||
| Total Ghana (identified cost $503,347) | $ | 488,067 | |||||||||
| Hungary — 9.1% | |||||||||||
| Hungary Government Bond, 6.50%, 8/12/09 | HUF | 380,000,000 | $ | 2,166,133 | |||||||
| Hungary Government Bond, 6.75%, 2/24/17 | HUF | 221,000,000 | 1,284,958 | ||||||||
| Hungary Government Bond, 7.25%, 6/12/12 | HUF | 277,000,000 | 1,624,037 | ||||||||
| Total Hungary (identified cost $4,832,577) | $ | 5,075,128 | |||||||||
| Indonesia — 8.8% | |||||||||||
| Indonesia Government, 9.75%, 5/15/37 | IDR | 11,804,000,000 | $ | 1,243,721 | |||||||
| Indonesia Government, 12.50%, 3/15/13 | IDR | 28,503,000,000 | 3,647,081 | ||||||||
| Total Indonesia (identified cost $4,923,059) | $ | 4,890,802 | |||||||||
| Security | Principal | U.S. $ Value | |||||||||
| Mexico — 9.0% | |||||||||||
| Mexican Fixed Rate Bonds, 9.00%, 12/24/09 | MXN | 22,100,000 | $ | 2,118,075 | |||||||
| Mexican Fixed Rate Bonds, 9.00%, 12/22/11 | MXN | 15,500,000 | 1,515,577 | ||||||||
| Mexican Fixed Rate Bonds, 10.00%, 12/5/24 | MXN | 12,450,000 | 1,391,889 | ||||||||
| Total Mexico (identified cost $4,980,186) | $ | 5,025,541 | |||||||||
| Nigeria — 1.4% | |||||||||||
| Nigeria Treasury Bill, 0.00%, 9/4/08(2) | NGN | 11,660,000 | $ | 90,570 | |||||||
| Republic of Nigeria, 9.35%, 8/31/17 | NGN | 16,595,000 | 132,870 | ||||||||
| Republic of Nigeria, 12.00%, 4/28/09 | NGN | 27,583,000 | 241,553 | ||||||||
| Republic of Nigeria, 17.00%, 12/16/08 | NGN | 36,700,000 | 335,450 | ||||||||
| Total Nigeria (identified cost $783,325) | $ | 800,443 | |||||||||
| Peru — 2.2% | |||||||||||
| Republic of Peru, 6.90%, 8/12/37(1) | PEN | 1,460,000 | $ | 514,058 | |||||||
| Republic of Peru, 8.60%, 8/12/17 | PEN | 1,000,000 | 392,350 | ||||||||
| Republic of Peru, 12.25%, 8/10/11 | PEN | 730,000 | 294,428 | ||||||||
| Total Peru (identified cost $1,117,445) | $ | 1,200,836 | |||||||||
| Poland — 4.4% | |||||||||||
| Poland Government Bond, 4.75%, 4/25/12 | PLN | 2,010,000 | $ | 773,654 | |||||||
| Poland Government Bond, 6.00%, 5/24/09 | PLN | 2,350,000 | 944,683 | ||||||||
| Poland Government Bond, 6.25%, 10/24/15 | PLN | 1,800,000 | 748,589 | ||||||||
| Total Poland (identified cost $2,203,366) | $ | 2,466,926 | |||||||||
| Slovakia — 3.0% | |||||||||||
| Slovak Republic, 4.90%, 2/5/10 | SKK | 20,800,000 | $ | 914,266 | |||||||
| Slovak Republic, 5.30%, 5/12/19 | SKK | 16,900,000 | 774,566 | ||||||||
| Total Slovakia (identified cost $1,621,888) | $ | 1,688,832 | |||||||||
| Turkey — 4.8% | |||||||||||
| Turkey Government Bond, 0.00%, 2/4/09 TRL | 3,800,000 | $ | 2,676,952 | ||||||||
| Total Turkey (identified cost $2,438,055) | $ | 2,676,952 | |||||||||
See notes to financial statements
13
Emerging Markets Income Portfolio as of October 31, 2007
PORTFOLIO OF INVESTMENTS CONT'D
| Security | Principal | U.S. $ Value | |||||||||
| Uruguay — 1.0% | |||||||||||
| Republic of Uruguay, 5.00%, 9/14/18(3) | UYU | 11,474,957 | $ | 567,846 | |||||||
| Total Uruguay (identified cost $528,258) | $ | 567,846 | |||||||||
| Total Bonds & Notes (identified cost $34,431,422) | $ | 36,073,508 | |||||||||
| Call Options Purchased — 0.1% | |||||||||||
| Security | Contracts (000's omitted) | Value | |||||||||
| South Korean Won Call Option, Expires 7/28/2009, Strike Price 905.2 | 905,200 | $ | 29,084 | ||||||||
| Total Call Options Purchased (identified cost $20,625) | $ | 29,084 | |||||||||
| Put Options Purchased — 0.0% | |||||||||||
| Security | Contracts (000's omitted) | Value | |||||||||
| South Korean Won Put Option, Expires 7/28/2009, Strike Price 905.2 | 905,200 | $ | 18,711 | ||||||||
| Total Put Options Purchased (identified cost $21,650) | $ | 18,711 | |||||||||
| Short-Term Investments — 32.1% | |||||||||||
| Description | Interest (000's omitted) | Value | |||||||||
| Investment in Cash Management Portfolio, 4.83%(4) | 17,883 | $ | 17,883,275 | ||||||||
| Total Short-Term Investments (identified cost $17,883,275) | $ | 17,883,275 | |||||||||
| Total Investments — 96.8% (identified cost $52,356,972) | $ | 54,004,578 | |||||||||
| Other Assets, Less Liabilities — 3.2% | $ | 1,808,195 | |||||||||
| Net Assets — 100.0% | $ | 55,812,773 | |||||||||
BRL - Brazilian Real
CZK - Crech Koruna
EGP - Egyptian Pound
GHS - Ghanaian Cedi
HUF - Hungarian Forint
IDR - Indonesian Rupiah
MXN - Mexican Peso
NGN - Nigerian Naira
PEN - Peruvian Sol
PLN - Polish Zloty
SKK - Slovak Koruna
TRL - Turkish Lira
UYU - Uruguayo Peso
(1) Security exempt from registration under Rule 144A of the Securities Act of 1933. These securities may be sold in transactions exempt from registration, normally to qualified institutional buyers. At October 31, 2007, the aggregate value of the securities is $1,364,552 or 2.4% of the Portfolio's net assets.
(2) Security valued at fair value using methods determined in good faith by or at the direction of the Trustees.
(3) Bond pays a coupon of 5% on the face at the end of the payment period. Principal grows with the Uruguayan inflation rate. Original face of the bond is UYU 4,900,000.
(4) Affiliated investment company available to Eaton Vance portfolios and funds which invests in high quality U.S. dollar denominated money market instruments. The rate shown is the annualized seven-day yield as of October 31, 2007.
See notes to financial statements
14
Emerging Markets Income Portfolio as of October 31, 2007
FINANCIAL STATEMENTS
Statement of Assets and Liabilities
As of October 31, 2007
| Assets | |||||||
| Unaffiliated investments, at value (identified cost, $34,473,697) | $ | 36,121,303 | |||||
| Affiliated investment, at value (identified cost, $17,883,275) | 17,883,275 | ||||||
| Foreign currency, at value (identified cost, $34,993) | 35,898 | ||||||
| Interest receivable | 789,417 | ||||||
| Interest receivable from affiliated investment | 82,879 | ||||||
| Receivable for open swap contracts | 74,335 | ||||||
| Receivable for open forward foreign currency contracts | 917,500 | ||||||
| Receivable for closed forward foreign currency contracts | 161,405 | ||||||
| Total assets | $ | 56,066,012 | |||||
| Liabilities | |||||||
| Payable to affiliate for investment advisory fee | $ | 21,968 | |||||
| Payable for open swap contracts | 3,819 | ||||||
| Payable for open forward foreign currency contracts | 106,544 | ||||||
| Payable for closed forward foreign currency contracts | 7,187 | ||||||
| Accrued expenses and other liabilities | 113,721 | ||||||
| Total liabilities | $ | 253,239 | |||||
| Net Assets applicable to investors' interest in Portfolio | $ | 55,812,773 | |||||
| Sources of Net Assets | |||||||
| Net proceeds from capital contributions and withdrawals | $ | 53,247,346 | |||||
| Net unrealized appreciation (computed on the basis of identified cost) | 2,565,427 | ||||||
| Total | $ | 55,812,773 | |||||
Statement of Operations
For the Period Ended
October 31, 2007(1)
| Investment Income | |||||||
| Interest (net of foreign taxes, $39,918) | $ | 705,283 | |||||
| Interest income allocated from affiliated investment | 432,616 | ||||||
| Expenses allocated from affliated investment | (42,577 | ) | |||||
| Total investment income | $ | 1,095,322 | |||||
| Expenses | |||||||
| Investment adviser fee | $ | 74,040 | |||||
| Legal and accounting services | 51,886 | ||||||
| Custodian fee | 32,162 | ||||||
| Miscellaneous | 997 | ||||||
| Total expenses | $ | 159,085 | |||||
| Net investment income | $ | 936,237 | |||||
| Realized and Unrealized Gain | |||||||
| Net realized gain — Investment transactions (identified cost basis) | $ | 2,953 | |||||
| Swap contracts | 3,387 | ||||||
| Foreign currency and forward foreign currency exchange contract transactions | 1,807,876 | ||||||
| Net realized gain | $ | 1,814,216 | |||||
| Change in unrealized appreciation (depreciation) — Investments (identified cost basis) | $ | 1,647,606 | |||||
| Swap contracts | 70,516 | ||||||
| Foreign currency and forward foreign currency exchange contracts | 847,305 | ||||||
| Net change in unrealized appreciation (depreciation) | $ | 2,565,427 | |||||
| Net realized and unrealized gain | $ | 4,379,643 | |||||
| Net increase in net assets from operations | $ | 5,315,880 | |||||
(1) For the period from the start of business, June 27, 2007 to October 31, 2007.
See notes to financial statements
15
Emerging Markets Income Portfolio as of October 31, 2007
FINANCIAL STATEMENTS CONT'D
Statement of Changes in Net Assets
| Increase (Decrease) in Net Assets | Period Ended October 31, 2007(1) | ||||||
| From operations — Net investment income | $ | 936,237 | |||||
| Net realized gain from investment transactions, swap contracts, and foreign currency and forward foreign currency exchange contract transactions | 1,814,216 | ||||||
| Net change in unrealized appreciation (depreciation) from investments, swap contracts, and foreign currency and forward foreign currency exchange contracts | 2,565,427 | ||||||
| Net increase in net assets from operations | $ | 5,315,880 | |||||
| Capital transactions — Contributions | $ | 58,250,069 | |||||
| Withdrawals | (7,868,186 | ) | |||||
| Net increase in net assets from capital transactions | $ | 50,381,883 | |||||
| Net increase in net assets | $ | 55,697,763 | |||||
| Net Assets | |||||||
| At beginning of period | $ | 115,010 | |||||
| At end of period | $ | 55,812,773 | |||||
(1) For the period from the start of business, June 27, 2007 to October 31, 2007.
See notes to financial statements
16
Emerging Markets Income Portfolio as of October 31, 2007
FINANCIAL STATEMENTS CONT'D
Supplementary Data
| Period Ended October 31, 2007(1) | |||||||
| Ratios/Supplemental Data | |||||||
| Ratios (As a percentage of average daily net assets): | |||||||
| Expenses | 1.13 | %(2) | |||||
| Net investment income | 5.25 | %(2) | |||||
| Portfolio Turnover | 2 | % | |||||
| Total Return | 10.48 | %(3) | |||||
| Net assets, end of period (000's omitted) | $ | 55,813 | |||||
(1) For the period from the start of business on June 27, 2007 to October 31, 2007.
(2) Annualized.
(3) Not annualized.
See notes to financial statements
17
Emerging Markets Income Portfolio as of October 31, 2007
NOTES TO FINANCIAL STATEMENTS
1 Significant Accounting Policies
Emerging Markets Income Portfolio (the Portfolio) is a New York trust, registered under the Investment Company Act of 1940, as amended (the 1940 Act), as a non-diversified open-end management investment company. The Portfolio's investment objective is to seek total return. The Declaration of Trust permits the Trustees to issue interests in the Portfolio. At October 31, 2007, Eaton Vance Emerging Markets Income Fund and Eaton Vance Strategic Income Fund held an approximate 0.01% and 85.2% interest, respectively, in the Portfolio.
The following is a summary of significant accounting policies of the Portfolio. The policies are in conformity with accounting principles generally accepted in the United States of America.
A Investment Valuation — Debt securities, including those issued by foreign entities, will normally be valued on the basis of market valuations furnished by pricing services. The pricing services consider various factors relating to bonds or loans and/or market transactions to determine market value. Marketable securities that are listed on foreign or U.S. securities exchanges are valued at closing sale prices on the exchange where such securities are principally traded. Equity securities listed in the NASDAQ Global or Global Select Market are valued at the NASDAQ official closing price. Unlisted or listed securities for which closing sale prices are not available are valued at the mean between the latest available bid and ask prices. When valuing foreign investments that meet certain criteria, the Trustees have approved the use of a fair-value service that values such securities to reflect market trading that occurs after the close of the applicable foreign markets of comparable or other instruments that have strong correlation to the fair-valued securities. Financial futures contracts and options thereon listed on commodity exchanges and exchange-traded options are valued at closing settlement prices. The value of interest rate swaps are generally based upon a dealer quotation. Credit default swaps are valued by broker dealers (usually the counterparty to the agreement). Short-term debt securities and money-market securities (of U.S. issuers) maturing in sixty days or less are valued at amortized cost, which approximates market value. If short-term debt securities are acquired with a remaining maturity of more than sixty days, they will be valued by a pricing service. Other short-term instruments, including those issued by foreign entities, are valued by a pricing service, if available, or other market quotations.
Foreign exchange rates for foreign exchange forward contracts and for the translation of non-U.S. dollar-denominated investments into U.S. dollars are obtained from a pricing service. Sovereign credit default swaps are valued by a pricing service. Foreign interest rate swaps and over-the-counter currency options are valued using inputs from a third party into a valuation model. Investments for which market quotations are not readily available and investments for which the price of the security is not believed to represent its fair market value, are valued at fair value using methods determined in good faith by or at the direction of the Trustees.
The Portfolio may invest in Cash Management Portfolio (Cash Management), an affiliated investment company managed by Boston Management and Research (BMR), a subsidiary of Eaton Vance Management (EVM). Cash Management values its investment securities utilizing the amortized cost valuation technique permitted by Rule 2a-7 of the 1940 Act. This technique involves initially valuing a portfolio security at its cost and thereafter assuming a constant amortization to maturity of any discount or premium.
B Investment Transactions — Investment transactions for financial statement purposes are accounted for on a trade date basis. Realized gains and losses on investments sold are determined on the basis of identified cost.
C Income — Interest income is determined on the basis of interest accrued, adjusted for amortization of premium or accretion of discount. Dividend income is recorded on the ex-dividend date for dividends received in cash and/or securities. 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.
D Federal Taxes — The Portfolio has elected to be treated as a partnership for federal tax purposes. No provision is made by the Portfolio for federal or state taxes on any taxable income of the Portfolio because each investor in the Portfolio is ultimately responsible for the payment of any taxes on its share of taxable income. Since at least one of the Portfolio's investors is a regulated investment company that invests all or substantially all of its 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.
In June 2006, the Financial Accounting Standards Board (FASB) issued FASB Interpretation No. 48 (FIN 48), "Accounting for Uncertainty in Income Taxes – an interpretation of FASB Statement No. 109". FIN 48 clarifies the accounting for uncertainty in income taxes recognized in accordance with FASB Statement No. 109, "Accounting
18
Emerging Markets Income Portfolio as of October 31, 2007
NOTES TO FINANCIAL STATEMENTS CONT'D
for Income Taxes". This interpretation prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. It also provides guidance on de-recognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. FIN 48 is effective on the last business day of the first required financial reporting period for fiscal years beginning after December 15, 2006. Management has concluded that as of October 31, 2007, there are no uncertain tax positions that would require financial statement recognition, derecognition, or disclosure.
E Financial Futures Contracts — The Portfolio may enter into financial futures contracts. The Portfolio's investment in financial futures contracts is designed for hedging against changes in interest rates or as a substitute for the purchase of securities. Upon entering into a financial futures contract, the Portfolio is required to deposit with the broker, either in cash or securities an amount equal to a certain percentage of the purchase price (initial margin). Subsequent payments, known as variation margin, are made or received by the Portfolio each business day, depending on the daily fluctuations in the value of the underlying security, and are recorded as unrealized gains or losses by the Portfolio. Gains (losses) are realized upon the expiration or closing of the financial futures contracts. Should market conditions change unexpectedly, the Portfolio may not achieve the anticipated benefits of the financial futures contracts and may realize a loss. In entering such contracts, the Portfolio bears the risk if the counterparties do not perform under the contracts' terms.
F Expense Reduction — State Street Bank and Trust Company (SSBT) serves as custodian of the Portfolio. Pursuant to the custodian agreement, SSBT receives a fee reduced by credits, which are determined based on the average daily cash balance the Portfolio maintains with SSBT. All credit balances, if any, used to reduce the Portfolio's custodian fees are reported as a reduction of expenses in the Statement of Operations.
G Foreign Currency Translation — Investment valuations, other assets, and liabilities initially expressed in foreign currencies are translated each business day into U.S. dollars based upon current exchange rates. Purchases and sales of foreign investment securities and income and expenses denominated in foreign currencies are translated into U.S. dollars based upon currency exchange rates in effect on the respective dates of such transactions. Recognized gains or losses on investment transactions attributable to changes in foreign currency exchange rates are recorded for financial statement purposes as net realized gains and losses on investments. That portion of unrealized gains and losses on invest ments that results from fluctuations in foreign currency exchange rates is not separately disclosed.
H Use of Estimates — The preparation of the financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of income and expense during the reporting period. Actual results could differ from those estimates.
I Indemnifications — Under the Portfolio's organizational documents, its officers and Trustees may be indemnified against certain liabilities and expenses arising out of the performance of their duties to the Portfolio. Interestholders in the Portfolio are jointly and severally liable for the liabilities and obligations of the Portfolio in the event that the Portfolio fails to satisfy such liabilities and obligations; provided, however, that, to the extent assets are available in the Portfolio, the Portfolio may, under certain circumstances, indemnify interestholders from and against any claim or liability to which such holder may become subject by reason of being or having been an interestholder in the Portfolio. Additionally, in the normal course of business, the Portfo lio enters into agreements with service providers that may contain indemnification clauses. The Portfolio's maximum exposure under these arrangements is unknown as this would involve future claims that may be made against the Portfolio that have not yet occurred.
J Purchased Options — Upon the purchase of a call or put option, the premium paid by the Portfolio is included in the Statement of Assets and Liabilities as an investment. The amount of the investment is subsequently marked-to-market to reflect the current market value of the option purchased, in accordance with the Portfolio's policies on investment valuations discussed above. If an option which the Portfolio has purchased expires on the stipulated expiration date, the Portfolio will realize a loss in the amount of the cost of the option. If the Portfolio enters into a closing sale transaction, the Portfolio will realize a gain or loss, depending on whether the sales proceeds from the closing sale transaction are greater or less than the cost of the option. If a Portfoli o exercises a put option, it will realize a gain or loss from the sale of the underlying security, and the proceeds from such sale will be decreased by the premium originally paid. If the Portfolio exercises a call option, the cost of the security which the Portfolio purchases upon exercise will be increased by the premium originally paid.
K Written Options — Upon the writing of a call or a put option, an amount equal to the premium received by the Portfolio is included in the Statement of Assets and Liabilities
19
Emerging Markets Income Portfolio as of October 31, 2007
NOTES TO FINANCIAL STATEMENTS CONT'D
as a liability. The amount of the liability is subsequently marked-to-market to reflect the current value of the option written in accordance with the Portfolio's policies on investment valuations discussed above. Premiums received from writing options which expire are treated as realized gains. Premiums received from writing options which are exercised or are closed are added to or offset against the proceeds or amount paid on the transaction to determine the realized gain or loss. If a put option is exercised, the premium reduces the cost basis of the securities purchased by the Portfolio. The Portfolio, as writer of an option, may have no control over whether the underlying securities may be sold (call) or purchased (put) and, as a result, bears the market risk of an unfavorable change in the price of the securities underlying the written option.
L Forward Foreign Currency Exchange Contracts — The Portfolio may enter into forward foreign currency exchange contracts for the purchase or sale of a specific foreign currency at a fixed price on a future date. The Portfolio enters into forward contracts for hedging purposes as well as non-hedging purposes. The forward foreign currency exchange contract is adjusted by the daily exchange rate of the underlying currency and any gains or losses are recorded for financial statement purposes as unrealized until such time as the contract has been closed or offset by another contract with the same broker for the same settlement date and currency. Risks may arise upon entering these contracts from the potential inability of counterparties to meet the terms of their contracts and from movements in the value of a foreign currency relative to the U.S. dollar.
M Interest Rate Swaps — The Portfolio may enter into interest rate swap agreements to enhance return, to hedge against fluctuations in securities prices or interest rates, or as substitution for the purchase or sale of securities. Pursuant to these agreements, the Portfolio makes periodic payments at a fixed interest rate and, in exchange, receives payments based on the interest rate of a benchmark industry index. Payments received or made are recorded as realized gains or losses. During the term of the outstanding swap agreement, changes in the underlying value of the swap are recorded as unrealized gains or losses. The value of the swap is determined by changes in the relationship between two rates of interest. The Portfolio is exposed to credit loss in the event of non - -performance by the swap counterparty. Risk may also arise from movements in interest rates.
N Total Return Swaps — The Portfolio may enter into swap agreements to enhance return, to hedge against fluctuations in securities prices or interest rates or as substitution for the purchase or sale of securities. In a total return swap, the Portfolio makes payments at a rate equal to a predetermined spread to the one or three-month LIBOR. In exchange, the Portfolio receives payments based on the rate of return of a benchmark industry index or basket of securities. During the term of the outstanding swap agreement, changes in the underlying value of the swap are recorded as unrealized gains and losses. Periodic payments received or made are recorded as realized gains or losses. The value of the swap is determined by changes in the relationship between the rate of interest and the benchmark industry index or basket of securities. The Portfolio is exposed to credit loss in the event of nonperformance by the swap counterparty. However, the Portfolio does not anticipate nonperformance by the counterparty. Risk may also arise from the unanticipated movements in value of interest rates, securities, or the index.
O Credit Default Swaps — The Portfolio may enter into credit default swap contracts to buy or sell protection against default on an individual issuer or a basket of issuers of bonds. When the Portfolio is the buyer of a credit default swap contract, the Portfolio is entitled to receive the par (or other agreed-upon) value of a referenced debt obligation (or basket of debt obligations) from the counterparty to the contract in the event of a default by a third party, such as a U.S. or foreign corporate issuer, on the debt obligation. In return, the Portfolio pays the counterparty a periodic stream of payments over the term of the contract provided that no event of default has occurred. If no default occurs, the Portfolio would have spent the stream of payments and received no benefit from the contract. When the Portfolio is the seller of a credit default swap contract, it receives the stream of payments, but is obligated to pay upon default of the referenced debt obligation. As the seller, the Portfolio effectively adds leverage to its portfolio because, in addition to its total net assets, the Portfolio is subject to investment exposure on the notional amount of the swap. The interest fee paid or received on the swap contract, which is based on a specified interest rate on a fixed notional amount, is accrued daily as a component of unrealized appreciation (depreciation) and is recorded as realized gain upon receipt or realized loss upon payment. The Portfolio also records an increase or decrease to unrealized appreciation (depreciation) in an amount equal to the daily valuation. Up-front payments or receipts, if any, are recorded as other assets or other liabilities, respectively, and amortized over the life of the swap contract as realized gains or losses. The Portfolio segr egates assets in the form of cash and cash equivalents in an amount equal to the aggregate market value of the credit default swap of which it is the seller, marked to market on a daily basis. These transactions involve certain risks, including the risk that the seller may be unable to fulfill the transaction.
20
Emerging Markets Income Portfolio as of October 31, 2007
NOTES TO FINANCIAL STATEMENTS CONT'D
2 Investment Adviser Fee and Other Transactions with Affiliates
The investment adviser fee is earned by BMR as compensation for management and investment advisory services rendered to the Portfolio. Pursuant to the investment advisory agreement, BMR receives a monthly advisory fee at the annual rate of 0.65% annually of the average daily net assets of the Portfolio up to $1 billion, and at reduced rates as daily net assets exceed that level. The portion of the advisory fee payable by Cash Management on the Portfolio's investment of cash therein is credited against the Portfolio's advisory fee. For the period from the start of business, June 27, 2007, to October 31, 2007, the Portfolio's advisory fee totaled $114,815 of which $40,775 was allocated from Cash Management and $74,040 was paid or accrued directly by the Portfolio. BMR serves as administrator of the Portfolio but currently does not receive any fees.
Except for 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 the investment advisory fee. Trustees of the Portfolio who are not affiliated with the investment adviser may elect to defer receipt of all or a portion of their annual fees in accordance with the terms of the Trustees Deferred Compensation Plan. For the period from the start of business, June 27, 2007 to October 31, 2007, no significant amounts have been deferred. Certain officers and Trustees of the Portfolio are officers of the above organizations.
3 Line of Credit
The Portfolio participates with other portfolios and funds managed by EVM and its affiliates in a $200 million unsecured line of credit agreement with a group of banks. Borrowings are made by the Portfolio solely to facilitate the handling of unusual and/or unanticipated short-term cash requirements. Interest is charged to the Portfolio based on its borrowings at an amount above either the Eurodollar rate or Federal Funds rate. In addition, a fee computed at an annual rate of 0.07% on the daily unused portion of the line of credit is allocated among the participating portfolios and funds at the end of each quarter. The Portfolio did not have any significant borrowings or allocated fees during the period from the start of business, June 27, 2007, to October 31, 2007.
4 Purchases and Sales of Investments
The Portfolio invests primarily in foreign government and U.S. Government debt securities. The ability of the issuers of the debt securities to meet their obligations may be affected by economic developments in a specific industry or country. The Portfolio regularly invests in lower rated and comparable quality unrated high yield securities. These investments have different risks than investments in debt securities rated investment grade and held by the Portfolio. Risk of loss upon default by the borrower is significantly greater with respect to such debt securities than with other debt securities because these securities are generally unsecured and are more sensitive to adverse economic conditions, such as recession or increasing interest rates, than are investment grade issuers. At October 31, 2007, the Portfolio had invested approximately 17.28% of its net assets or approximately $9,650,000 in high yield securities. Purchases and sales of investments, other than short-term obligations, for the period from the start of business, June 27, 2007, to October 31, 2007 were as follows:
| Purchases | |||||||
| Investments (non-U.S. Government) | $ | 34,803,104 | |||||
| $ | 34,803,104 | ||||||
| Sales | |||||||
| Investments (non-U.S. Government) | $ | 425,538 | |||||
| $ | 425,538 | ||||||
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 may include forward foreign currency exchange contracts, interest rate swaps, credit default swaps 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.
21
Emerging Markets Income Portfolio as of October 31, 2007
NOTES TO FINANCIAL STATEMENTS CONT'D
A summary of obligations under these financial instruments at October 31, 2007 is as follows:
| Forward Foreign Currency Exchange Contracts | |||||||||||||||
| Sales | |||||||||||||||
| Settlement Date(s) | Deliver | In Exchange For | Net Unrealized Depreciation | ||||||||||||
| 11/6/07 | Canadian Dollar | United States Dollar | |||||||||||||
| 487,500 | 497,726 | $ | (15,547 | ) | |||||||||||
| 11/14/07 | Canadian Dollar 426,000 | United States Dollar 446,323 | (2,207 | ) | |||||||||||
| 11/5/07 | Chilean Peso 377,000,000 | United States Dollar 762,695 | (1,236 | ) | |||||||||||
| 11/1/07 | Icelandic Krona 27,300,000 | Euro 314,335 | (1,949 | ) | |||||||||||
| 11/8/07 | New Zealand Dollar 530,000 | United States Dollar 398,549 | (8,850 | ) | |||||||||||
| 11/5/07 | Polish Zloty 3,844,000 | Euro 1,056,044 | (5,156 | ) | |||||||||||
| 11/1/07 | Serbia 26,000,000 | Euro 336,134 | 184 | ||||||||||||
| 11/5/07 | Slovakia Koruna 34,000,000 | United States Dollar 1,427,731 | (50,164 | ) | |||||||||||
| 11/1/07 | United States Dollar 3,736 | Euro 2,588 | 8 | ||||||||||||
| $ | (84,917 | ) | |||||||||||||
| Purchases | |||||||||||||||
| Settlement Date(s) | In Exchange For | Deliver | Net Unrealized Appreciation (Depreciation) | ||||||||||||
| 11/30/07 | Botswana Pula 315,000 | United States Dollar 49,493 | $3,638 | ||||||||||||
| 12/4/07 | Brazilian Real 2,504,000 | United States Dollar 1,430,530 | 3,539 | ||||||||||||
| 11/5/07 | Chilean Peso 377,000,000 | United States Dollar 740,741 | 23,190 | ||||||||||||
| 11/13/07 | Chilean Peso 377,000,000 | United States Dollar 762,726 | 1,184 | ||||||||||||
| 11/16/07 | Colombian Peso 1,159,000,000 | United States Dollar 588,923 | (7,505 | ) | |||||||||||
| 11/19/07 | Czech Republic Koruna 52,660,000 | United States Dollar 2,711,638 | 122,546 | ||||||||||||
| 7/21/08 | Guatemalan Quetzal 2,059,994 | United States Dollar 263,866 | (616 | ) | |||||||||||
| 11/1/07 | Icelandic Krona 27,300,000 | Euro Dollar 316,705 | (1,481 | ) | |||||||||||
| Settlement Date(s) | In Exchange For | Deliver | Net Unrealized Appreciation (Depreciation) | ||||||||||||
| 11/5/07 | Icelandic Krona | Euro Dollar | |||||||||||||
| 42,500,000 | 481,423 | $ | 13,945 | ||||||||||||
| 11/16/07 | Icelandic Krona 27,300,000 | Euro Dollar 317,793 | (4,722 | ) | |||||||||||
| 12/3/07 | Icelandic Krona 27,300,000 | Euro Dollar 311,786 | 1,962 | ||||||||||||
| 11/5/07 | Indian Rupee 10,588,000 | United States Dollar 265,630 | 3,584 | ||||||||||||
| 11/13/07 | Indian Rupee 10,518,000 | United States Dollar 265,405 | 1,924 | ||||||||||||
| 11/26/07 | Indian Rupee 10,528,000 | United States Dollar 266,329 | 1,083 | ||||||||||||
| 12/3/07 | Indian Rupee 14,272,000 | United States Dollar 360,677 | 1,708 | ||||||||||||
| 11/13/07 | Indonesian Rupiah 2,451,000,000 | United States Dollar 268,956 | 248 | ||||||||||||
| 11/26/07 | Indonesian Rupiah 8,844,015,000 | United States Dollar 962,666 | 7,749 | ||||||||||||
| 10/14/08 | Kazakh Tenge 51,456,000 | United States Dollar 411,648 | (3,166 | ) | |||||||||||
| 11/5/07 | Kenyan Shilling 3,300,000 | United States Dollar 49,361 | (34 | ) | |||||||||||
| 11/9/07 | Malaysian Ringgit 24,000,000 | United States Dollar 7,058,824 | 139,015 | ||||||||||||
| 11/13/07 | Malaysian Ringgit 728,000 | United States Dollar 215,417 | 2,942 | ||||||||||||
| 1/18/08 | Maritian Rand 1,595,500 | United States Dollar 52,408 | 152 | ||||||||||||
| 11/20/07 | Mexican Peso 5,000,000 | United States Dollar 461,476 | 5,042 | ||||||||||||
| 11/9/07 | New Turkish Lira 2,192,704 | United States Dollar 1,835,052 | 32,176 | ||||||||||||
| 11/19/07 | New Turkish Lira 3,897,704 | United States Dollar 3,196,936 | 111,432 | ||||||||||||
| 11/30/07 | Philippine Peso 59,000,000 | United States Dollar 1,352,529 | (3,411 | ) | |||||||||||
| 11/5/07 | Polish Zloty 3,844,000 | Euro 1,027,102 | 47,030 | ||||||||||||
| 11/8/07 | Polish Zloty 3,150,000 | Euro 860,914 | 10,616 | ||||||||||||
| 11/19/07 | Polish Zloty 7,700,000 | United States Dollar 2,938,483 | 132,256 | ||||||||||||
| 11/26/07 | Polish Zloty 3,844,000 | Euro 1,055,644 | 5,085 | ||||||||||||
| 11/13/07 | Romanian Leu 951,500 | Euro 283,016 | 3,720 | ||||||||||||
22
Emerging Markets Income Portfolio as of October 31, 2007
NOTES TO FINANCIAL STATEMENTS CONT'D
| Settlement Date(s) | In Exchange For | Deliver | Net Unrealized Appreciation (Depreciation) | ||||||||||||
| 11/6/07 | Russian Ruble | United States Dollar | |||||||||||||
| 27,050,000 | 1,082,618 | $ | 13,371 | ||||||||||||
| 11/1/07 | Serbia 26,000,000 | Euro 336,352 | (500 | ) | |||||||||||
| 11/5/07 | Slovakia Koruna 34,000,000 | United States Dollar 1,419,861 | 58,034 | ||||||||||||
| 11/19/07 | South African Rand 26,662,790 | United States Dollar 3,904,634 | 161,829 | ||||||||||||
| 4/4/08 | Uganda Shilling 439,470,000 | United States Dollar 246,917 | 1,510 | ||||||||||||
| 2/7/08 | Zambian Kwacha 403,690,000 | United States Dollar 98,094 | 6,798 | ||||||||||||
| $ | 895,873 | ||||||||||||||
At October 31, 2007, closed forward foreign currency purchases and sales excluded above amounted to a receivable of $161,405 and a payable of $7,187.
Credit Default Swaps
The Portfolio has entered into credit default swaps whereby the Portfolio is buying or selling protection against default exposing the Portfolio to risks associated with changes in credit spreads of the underlying instruments.
| Counterparty | Reference Entity | Buy/ Sell | Notional Amount (000s omitted) | Pay/ Receive Annual Fixed Rate | Termination Date | Net Unrealized Appreciation (Depreciation) | |||||||||||||||||||||
| Lehman | |||||||||||||||||||||||||||
| Brothers, Inc. | Turkey | ||||||||||||||||||||||||||
| (Republic of) | Buy | $ | 1,057 | 1.45 | % | 7/20/12 | $ | 4,062 | |||||||||||||||||||
| Lehman Brothers, Inc. | CDX.EM. 8 Index* | Buy | 2,000 | 1.75 | 12/20/12 | (3,610 | ) | ||||||||||||||||||||
| $ | 452 | ||||||||||||||||||||||||||
* CDX. EM. 8 Index is composed of issues from (i) Latin America; (ii) Eastern Europe, the Middle East and Africa; and (iii) Asia as determined by Markit Partners.
Interest Rate Swaps
| Counterparty | Notional Amount (000's omitted) | Fund Pay/ Receive Floating Rate | Floating Rate Index | Annual Fixed Rate | Termination Date | Net Unrealized Appreciation (Depreciation) | |||||||||||||||||||||
| J.P. Morgan Chase, N.A | ZAR | 36,500 | Pay | 3 month Jibar | 9.05% | October 12, 2015 | $70,273 | ||||||||||||||||||||
J.P. Morgan Chase, N.A | BRL | 1,466 | Pay | Brazilian Interbank Deposit Rate | 11.34 | January 2, 2009 | (209) | ||||||||||||||||||||
| $70,064 | |||||||||||||||||||||||||||
At October 31, 2007, the Portfolio had sufficient cash and/or securities segregated to cover commitments under these contracts.
6 Federal Income Tax Basis of Unrealized Appreciation (Depreciation)
The cost and unrealized appreciation (depreciation) of investments of the Portfolio at October 31, 2007, as determined on a federal income tax basis, were as follows:
| Aggregate cost | $ | 52,438,770 | |||||
| Gross unrealized appreciation | $ | 1,641,917 | |||||
| Gross unrealized depreciation | (76,109 | ) | |||||
| Net unrealized appreciation | $ | 1,565,808 | |||||
The net unrealized appreciation at October 31, 2007 on foreign currency, forward foreign currency exchange contracts and swap contracts on a federal income tax basis was $917,821.
7 Risks Associated with Foreign Investments
Investing in securities issued by companies whose principal business activities are outside the United States may involve significant risks not present in domestic investments. For example, there is generally less publicly available information about foreign companies, particularly those not subject to the disclosure and reporting requirements of the U.S. securities laws. Certain foreign issuers are generally not bound by uniform accounting, auditing, and financial reporting requirements and standards of practice comparable to those applicable to domestic issuers. Investments in foreign securities also involve the risk of possible adverse changes in investment or exchange control regulations, expropriation or confiscatory taxation, limitation on the removal of funds or other assets of the Portfolio, political or financial instability or diplomatic and other developments which could affect such investments. Foreign stock markets, while growing in volume and sophistication, are generally not as developed as those in the United States, and securities of some foreign issuers (particularly those located in developing countries) may be less liquid and more volatile than securities of comparable U.S. companies. In general, there is less overall governmental supervision and regulation of foreign securities markets, broker-dealers and issuers than in the United States.
23
Emerging Markets Income Portfolio as of October 31, 2007
NOTES TO FINANCIAL STATEMENTS CONT'D
8 Recently Issued Accounting Pronouncements
In September 2006, the FASB issued Statement of Financial Accounting Standards No. 157 (FAS 157), "Fair Value Measurements". FAS 157 defines fair value, establishes a framework for measuring fair value in accordance with generally accepted accounting principles and expands disclosure about fair value measurements. FAS 157 is effective for fiscal years beginning after November 15, 2007. Management is currently evaluating the impact the adoption of FAS 157 will have on the Portfolio's financial statement disclosures.
24
Emerging Markets Income Portfolio as of October 31, 2007
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Trustees and Investors
of Emerging Markets Income Portfolio:
We have audited the accompanying statement of assets and liabilities of Emerging Markets Income Portfolio (the "Portfolio"), including the portfolio of investments, as of October 31, 2007, and the related statement of operations, the statements of changes in net assets, and the supplementary data from the start of business, June 27, 2007 to October 31, 2007. These financial statements and supplementary data are the responsibility of the Portfolio's management. Our responsibility is to express an opinion on these financial statements and supplementary data based on our audit.
We conducted our audit in accordance with standards of the Public Company Accounting Oversight Board (United States). 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. The Portfolio is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Portfolio's internal control over financial reporting. Accordingly, we express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and sig nifying estimates made by management, as well as evaluating the overall financial statement presentation. Our procedures included confirmation of securities owned as of October 31, 2007 by correspondence with the custodian and brokers. We believe that our audit provides 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 Emerging Markets Income Portfolio as of October 31, 2007, the results of its operations, the changes in its net assets, and the supplementary data from the the start of business, June 27, 2007 to October 31, 2007, in conformity with accounting principles generally accepted in the United States of America.
DELOITTE & TOUCHE LLP
Boston, Massachusetts
December 17, 2007
25
Eaton Vance Emerging Markets Income Fund
BOARD OF TRUSTEES' APPROVAL OF THE INVESTMENT ADVISORY AGREEMENTS
Overview of the Contract Review Process
The Investment Company Act of 1940, as amended (the "1940 Act"), provides, in substance, that for a fund to enter into an investment advisory agreement with an investment adviser, the fund's board of trustees, including a majority of the trustees who are not "interested persons" of the fund ("Independent Trustees"), must approve the agreement and its terms at an in-person meeting called for the purpose of considering such approval.
At a meeting of the Boards of Trustees (each a "Board") of the Eaton Vance group of mutual funds (the "Eaton Vance Funds") held on March 12, 2007, the Board, including a majority of the Independent Trustees, voted to approve the investment advisory agreement of the Emerging Markets Income Fund (the "Fund") with Eaton Vance Management ("EVM"), as well as the investment advisory agreement of the Emerging Markets Income Portfolio (the "Portfolio"), the portfolio in which the Fund will invest substantially all of its assets, with Boston Management and Research ("BMR"), an affiliate of EVM (EVM, with respect to the Fund, and BMR, with respect to the Portfolio, are each referred to herein as the "Adviser"). The Board reviewed information furnished for the March 2007 meeting as well as information previously furnished with respect to the approval of other investment advisory agreements for other Eaton Vance Funds. Such information incl uded, among other things, the following:
Information about Fees and Expenses
• The advisory and related fees to be paid by the Fund directly or indirectly through the Portfolio and the estimated expense ratio of the Fund;
• Comparative information concerning fees charged by the Adviser for managing other mutual funds and institutional accounts using investment strategies and techniques similar to those to be used in managing the Fund and the Portfolio, and concerning fees charged by other advisers for managing funds similar to the Fund and Portfolio;
Information about Portfolio Management
• Descriptions of the investment management services to be provided to the Fund and the Portfolio, including the investment strategies and processes to be employed;
• Information concerning the allocation of brokerage and the benefits expected to be received by the Adviser as a result of brokerage allocation, including information concerning the acquisition of research through "soft dollar" benefits received in connection with the Eaton Vance Funds' brokerage, and the implementation of the soft dollar reimbursement program established with respect to the Eaton Vance Funds;
• The procedures and processes to be used to determine the fair value of Fund and Portfolio assets and actions to be taken to monitor and test the effectiveness of such procedures and processes;
Information about the Adviser
• Reports detailing the financial results and condition of the Adviser;
• Descriptions of the qualifications, education and experience of the individual investment professionals whose responsibilities include portfolio management and investment research for the Fund and the Portfolio, and information relating to their compensation and responsibilities with respect to managing other mutual funds and investment accounts;
• Copies of the Codes of Ethics of the Adviser and its affiliates, together with information relating to compliance with and the administration of such codes;
• Information concerning the resources devoted to compliance efforts undertaken by the Adviser and its affiliates on behalf of the Eaton Vance Funds (including descriptions of various compliance programs) and their record of compliance with investment policies and restrictions, including policies with respect to market-timing, late trading and selective portfolio disclosure, and with policies on personal securities transactions;
• Descriptions of the business continuity and disaster recovery plans of the Adviser and its affiliates;
Other Relevant Information
• Information concerning the nature, cost and character of the administrative and other non-investment management services to be provided by Eaton Vance Management and its affiliates;
• Information concerning management of the relationship with the custodian, subcustodians and fund accountants by the Adviser or the administrator; and
• The terms of the advisory agreement for the Fund and for the Portfolio.
26
Eaton Vance Emerging Markets Income Fund
BOARD OF TRUSTEES' APPROVAL OF THE INVESTMENT ADVISORY AGREEMENTS CONT'D
Results of the Process
Based on its consideration of the foregoing, and such other information as it deemed relevant, including the factors and conclusions described below, the Board concluded that the investment advisory agreement of the Fund with EVM, as well as the terms of the investment advisory agreement of the Portfolio with BMR, including the fee structure of each agreement, is in the interests of shareholders and, therefore, the Board, including a majority of the Independent Trustees, voted to approve the investment advisory agreements for the Fund and the Portfolio.
Nature, Extent and Quality of Services
In considering whether to approve the investment advisory agreements of the Fund and the Portfolio, the Board evaluated the nature, extent and quality of services provided to the Fund by EVM and the Portfolio by BMR. The Board considered EVM's and BMR's management capabilities and investment process with respect to the types of investments to be held by the Fund and the Portfolio, including the education, experience and number of its investment professionals and other personnel who provide portfolio management, investment research, and similar services to the Portfolio and the Fund. The Board specifically noted EVM's and BMR's expertise with respect to emerging markets and in-house research capabilities. The Board also took into account the resources dedicated to portfolio management and other services, including the compensation paid to recruit and retain investment personnel, and the time and attention devoted to each fund in the complex by senior management.
The Board noted that under the terms of the investment advisory agreement of the Fund, EVM may invest assets of the Fund directly in securities, for which it may receive a fee, or in the Portfolio, for which it receives no separate fee but for which BMR receives an advisory fee from the Portfolio. The Trustees considered the potential benefits to the Fund of the ability to make direct investments, such as an improved ability to: manage the Fund's duration, or other general market exposures, using certain derivatives; add exposure to specific market sectors or asset classes without changing the Portfolio's investments, which would affect any other fund investing in the Portfolio; hedge some of the general market risks of the Portfolio while retaining the value added by the individual manager; and hedge a portion of the exposures of the Portfolio while retaining others (e.g., hedging the U.S. government exposure of the Portfolio w hile retaining its exposure to high-grade corporate bonds).
The Board reviewed the compliance programs of the Adviser and relevant affiliates thereof. Among other matters, the Board considered compliance and reporting matters relating to personal trading by investment personnel, selective disclosure of portfolio holdings, late trading, frequent trading, portfolio valuation, business continuity and the allocation of investment opportunities. The Board also evaluated the responses of the Adviser and its affiliates to requests from regulatory authorities such as the Securities and Exchange Commission and the National Association of Securities Dealers.
The Board considered shareholder and other administrative services provided or managed by EVM and its affiliates, including transfer agency and accounting services. The Board evaluated the benefits to shareholders of investing in a fund that is a part of a large family of funds, including the ability, in many cases, to exchange an investment among different funds without incurring additional sales charges.
After consideration of the foregoing factors, among others, the Board concluded that the nature, extent and quality of services provided by the Adviser, taken as a whole, are appropriate and consistent with the terms of the investment advisory agreements.
Management Fees and Expenses
The Board reviewed contractual investment advisory fee rates to be paid by the Fund directly or indirectly through its pro rata share of the expenses of the Portfolio (referred to as "management fees"). As part of its review, the Board considered the Fund's management fees and estimated expense ratio for a one-year period.
After reviewing the foregoing information, and in light of the nature, extent and quality of the services provided by the Adviser, the Board concluded that the management fees proposed to be charged for advisory and related services and the Fund's total expense ratio are reasonable.
Economies of Scale
In reviewing management fees and profitability, the Board also considered the extent to which the Adviser and its affiliates, on the one hand, and the Fund and the Portfolio, on the other hand, can expect to realize benefits from economies of scale as the assets of the Fund and the Portfolios increase. The Board noted the structure of the advisory fee, which includes breakpoints at several asset levels both at the Fund and at the Portfolio level. Based upon the foregoing, the Board concluded that the Adviser and its affiliates and the Fund and the Portfolio can be expected to share such benefits equitably.
27
Investment Adviser of Emerging Markets Income Portfolio
Boston Management and Research
The Eaton Vance Building
255 State Street
Boston, MA 02109
Investment Adviser and Administrator of Emerging Markets Income Fund
Eaton Vance Management
The Eaton Vance Building
255 State Street
Boston, MA 02109
Principal Underwriter
Eaton Vance Distributors, Inc.
The Eaton Vance Building
255 State Street
Boston, MA 02109
(617) 482-8260
Custodian
State Street Bank and Trust Company
200 Clarendon Street
Boston, MA 02116
Transfer Agent
PFPC Inc.
Attn: Eaton Vance Funds
P.O. Box 9653
Providence, RI 02940-9653
(800) 262-1122
Independent Registered Public Accounting Firm
Deloitte & Touche LLP
200 Berkeley Street
Boston, MA 02116-5022
Eaton Vance Emerging Markets Income Fund
The Eaton Vance Building
255 State Street
Boston, MA 02109
This report must be preceded or accompanied by a current prospectus. Before investing, investors should consider carefully the Fund's investment objective(s), risks, and charges and expenses. The Fund's current prospectus contains this and other information about the Fund and is available through your financial advisor. Please read the prospectus carefully before you invest or send money. For further information please call 1-800-225-6265.
3040-12/07 EMISRC
Item 2. Code of Ethics
The registrant has adopted a code of ethics applicable to its Principal Executive Officer, Principal Financial Officer and Principal Accounting Officer. The registrant undertakes to provide a copy of such code of ethics to any person upon request, without charge, by calling 1-800-262-1122.
Item 3. Audit Committee Financial Expert
The registrant’s Board has designated William H. Park and Norton H. Reamer, each an independent trustee, as its audit committee financial experts. Mr. Park is a certified public accountant who is the Vice Chairman of Commercial Industrial Finance Corp (specialty finance company). Previously, he served as President and Chief Executive Officer of Prizm Capital Management, LLC (investment management firm) and as Executive Vice President and Chief Financial Officer of United Asset Management Corporation (“UAM”) (a holding company owning institutional investment management firms). Mr. Reamer is the President, Chief Executive Officer and a Director of Asset Management Finance Corp. (a specialty finance company serving the investment management industry) and is President of Unicorn Corporation (an investment and financial advisory services company). Formerly, Mr. Reamer was Chairman and Chief Operating Officer of Hellman, Jordan Management Co., Inc. (an investment management company) and Advisory Director of Berkshire Capital Corporation (an investment banking firm), Chairman of the Board of UAM and Chairman, President and Director of the UAM Funds (mutual funds).
Item 4. Principal Accountant Fees and Services
(a)-(d)
The following table presents the aggregate fees billed to the registrant for the commencement of operations on June 27, 2007 to October 31, 2007 by the Fund’s principal accountant for professional services rendered for the audit of the registrant’s annual financial statements and fees billed for other services rendered by the principal accountant during those periods.
Period Ended |
| 10/31/07 |
| |
|
|
|
| |
Audit Fees |
| $ | 27,000 |
|
|
|
|
| |
Audit-Related Fees(1) |
| 0 |
| |
|
|
|
| |
Tax Fees(2) |
| 10,800 |
| |
|
|
|
| |
All Other Fees(3) |
| 0 |
| |
|
|
|
| |
Total |
| $ | 37,800 |
|
(1) |
| Audit-related fees consist of the aggregate fees billed for assurance and related services that are reasonably related to the performance of the audit of the registrant’s financial statements and are not reported under the category of audit fees. |
|
|
|
(2) |
| Tax fees consist of the aggregate fees billed for professional services rendered by the principal accountant relating to tax compliance, tax advice, and tax planning and specifically include fees for tax return preparation and other tax related compliance/planning matters. |
|
|
|
(3) |
| All other fees consist of the aggregate fees billed for products and services provided by the principal accountant other than audit, audit-related, and tax services. |
During the period from commencement of operations on June 27, 2007 to October 31, 2007, $35,000 was billed for each such fiscal year by D&T, the principal accountant for the Funds, for work done in connection with its Rule 17Ad-13 examination of Eaton Vance Management’s assertion that it has
maintained an effective internal control structure over the sub-transfer agent and registrar functions, such services being pre-approved in accordance with Rule 2-01(c) (7) (ii) of Regulation S-X.
(e)(1) The registrant’s audit committee has adopted policies and procedures relating to the pre-approval of services provided by the registrant’s principal accountant (the “Pre-Approval Policies”). The Pre-Approval Policies establish a framework intended to assist the audit committee in the proper discharge of its pre-approval responsibilities. As a general matter, the Pre-Approval Policies (i) specify certain types of audit, audit-related, tax, and other services determined to be pre-approved by the audit committee; and (ii) delineate specific procedures governing the mechanics of the pre-approval process, including the approval and monitoring of audit and non-audit service fees. Unless a service is specifically pre-approved under the Pre-Approval Policies, it must be separately pre-approved by the audit committee.
The Pre-Approval Policies and the types of audit and non-audit services pre-approved therein must be reviewed and ratified by the registrant’s audit committee at least annually. The registrant’s audit committee maintains full responsibility for the appointment, compensation, and oversight of the work of the registrant’s principal accountant.
(e)(2) No services described in paragraphs (b)-(d) above were approved by the registrant’s audit committee pursuant to the “de minimis exception” set forth in Rule 2-01 (c)(7)(i)(C) of Regulation S-X.
(f) Not applicable.
(g) The following table presents (i) the aggregate non-audit fees (i.e., fees for audit-related, tax, and other services) billed to the registrant by the registrant’s principal accountant for the commencement of operations on June 27, 2007 to October 31, 2007; and (ii) the aggregate non-audit fees (i.e., fees for audit-related, tax, and other services) billed to the Eaton Vance organization by the registrant’s principal accountant for the same time periods, respectively.
Period Ended |
| 10/31/ 2007 |
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Registrant |
| $ | 10,800 |
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Eaton Vance(1) |
| $ | 286,446 |
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(1) Certain subsidiaries of Eaton Vance Corp. provide ongoing services to the registrant.
(h) The registrant’s audit committee has considered whether the provision by the registrant’s principal accountant of non-audit services to the registrant’s investment adviser and any entity controlling, controlled by, or under common control with the adviser that provides ongoing services to the registrant that were not pre-approved pursuant to Rule 2-01(c)(7)(ii) of Regulation S-X is compatible with maintaining the principal accountant’s independence.
Item 5. Audit Committee of Listed registrants
Not required in this filing.
Item 6. Schedule of Investments
Please see schedule of investments contained in the Report to Stockholders included under Item 1 of this Form N-CSR.
Item 7. Disclosure of Proxy Voting Policies and Procedures for Closed-End Management Investment Companies
Not required in this filing.
Item 8. Portfolio Managers of Closed-End Management Investment Companies
Not required in this filing.
Item 9. Purchases of Equity Securities by Closed-End Management Investment Company and Affiliated Purchasers.
Not required in this filing.
Item 10. Submission of Matters to a Vote of Security Holders.
No Material Changes.
Item 11. Controls and Procedures
(a) It is the conclusion of the registrant’s principal executive officer and principal financial officer that the effectiveness of the registrant’s current disclosure controls and procedures (such disclosure controls and procedures having been evaluated within 90 days of the date of this filing) provide reasonable assurance that the information required to be disclosed by the registrant has been recorded, processed, summarized and reported within the time period specified in the Commission’s rules and forms and that the information required to be disclosed by the registrant has been accumulated and communicated to the registrant’s principal executive officer and principal financial officer in order to allow timely decisions regarding required disclosure.
(b) There have been no changes in the registrant’s internal controls over financial reporting during the second fiscal quarter of the period covered by this report that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting.
Item 12. Exhibits
(a)(1) |
| Registrant’s Code of Ethics – Not applicable (please see Item 2). |
(a)(2)(i) |
| Treasurer’s Section 302 certification. |
(a)(2)(ii) |
| President’s Section 302 certification. |
(b) |
| Combined Section 906 certification. |
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. | |||
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Emerging Markets Income Portfolio | |||
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By: |
| /s/ Mark S. Venezia |
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| Mark S. Venezia | |
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| President | |
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Date: |
| December 11, 2007 |
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Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. | |||
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By: |
| /s/ Dan A. Maalouly |
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| Dan A. Maalouly | |
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| Treasurer | |
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Date: |
| December 11, 2007 |
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By: |
| /s/ Mark S. Venezia |
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| Mark S. Venezia | |
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| President | |
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Date: |
| December 11, 2007 |
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