<PAGE>
DIVERSIFICATION FUND
An Eaton Vance
Exchange Fund
Semi-Annual Report
November 30, 1995
[logo]
<PAGE>
TO SHAREHOLDERS
DIVERSIFICATION FUND HAD A TOTAL RETURN OF 11.0% DURING THE SIX MONTHS THAT
ENDED NOVEMBER 30, 1995. That return represented a rise in net asset value per
share to $223.79 from $202.72 and the reinvestment of $1.15 in income dividends.
By comparison, the S&P 500 Index, an unmanaged index of common stocks, had a
return of 14.9% during the same period.
SHAREHOLDERS RECEIVED INCOME DIVIDENDS TOTALING $1.15 PER SHARE DURING THE SIX
MONTHS THAT ENDED NOVEMBER 30, 1995.
THE STOCK MARKET PERFORMED VERY WELL DURING THIS SIX-MONTH PERIOD, REACHING
RECORD LEVELS ON SEVERAL OCCASIONS. The market's behavior was a positive
response to an improved interest rate environment and prospects for continuing
economic growth. The market also reacted well to indications that the Federal
Reserve had achieved its goal of a "soft landing" for the economy, balancing
slow growth with low inflation levels.
THIS HAS BEEN A PERIOD OF STRONG PERFORMANCE FOR A WIDE RANGE OF STOCKS. Large
capitalization stocks led the market surge early in the period. Many major
corporations saw sharply escalating profits, reflecting a favorable economy and
the substantial cost reduction and productivity initiatives they have undertaken
in recent years.
AMONG THE STRONGER SECTORS OF THE MARKET DURING THIS PERIOD WERE TECHNOLOGY,
HEALTH CARE, FINANCIAL SERVICES AND CONSUMER PRODUCTS. The Fund's
underperformance during this period may be attributed in part to the fact that
it tends to be underrepresented in these sectors among its larger holdings.
FOR EXAMPLE, THE FUND'S LARGEST HOLDING, INTEL CORP, IS A TECHNOLOGY STOCK, BUT
IT GAINED ONLY 8.5% DURING THE PERIOD. By contrast, a consumer products company,
PepsiCo, Inc., was the Fund's top performer during the period, rising nearly
55%. PepsiCo is the Fund's second-largest holding.
AMONG THE FUND'S HEALTH CARE STOCKS, MERCK & CO., INC. WAS THE BEST PERFORMER
DURING THE PERIOD, GAINING 31%. Of the Fund's largest holdings, Emerson Electric
Co. increased 13.5%, Anheuser-Busch Co., Inc. was up 12.1%, and Citizens
Utilities Co. Class A, was up 15%, while Coca-Cola Co. declined 11%. Among the
Fund's strong performers were Union Pacific Corp., which gained 22%, Times
Mirror Co. Class A, up 40%, and Gap, Inc. (The), up 32%.
[Photo of Landon T. Clay]
"...WE BELIEVE THAT AN INVESTMENT IN A REPRESENTATIVE PORTFOLIO OF HIGH-QUALITY
COMMON STOCKS IS LIKELY TO DELIVER SOUND LONG-TERM PERFORMANCE."
LOOKING TO THE FUTURE, OUR OUTLOOK REMAINS POSITIVE BECAUSE OF CONTINUED LOW
INFLATION AND SLOW-TO-MODERATE ECONOMIC GROWTH. However, any additional stock
market gains are likely to depend on continued positive earnings results. Some
corporate profit disappoint-ments emerged toward the end of the period and may
cause declines in individual stocks. The market also may be more vulnerable than
usual to a correction after the recent strong runup.
REGARDLESS OF CHANGES IN THE MARKET OR IN INVESTMENT CONDITIONS, WE BELIEVE THAT
AN INVESTMENT IN A REPRESENTATIVE PORTFOLIO OF HIGH-QUALITY COMMON STOCKS IS
LIKELY TO DELIVER SOUND LONG-TERM PERFORMANCE. That remains the strategy of
Diversification Fund, and we are confident the Fund will continue to participate
in the ongoing growth of the economy.
Sincerely,
/s/ Landon T. Clay
Landon T. Clay
President
January 19, 1996
<PAGE>
INVESTMENT CHANGES
SIX MONTHS ENDED NOVEMBER 30, 1995 (UNAUDITED)
- ------------------------------------------------------------------------------
Shares Owned
INCREASES 5/31/95 11/30/95
- ------------------------------------------------------------------------------
Anadarko Petroleum Corp. -0- 15,000
- ------------------------------------------------------------------------------
Astra AB - ADR Series B -0- 30,000
- ------------------------------------------------------------------------------
Banyan Systems Inc. 40,000 85,000
- ------------------------------------------------------------------------------
Ericsson (L.M.) Telephone Co. -0- 22,000
- ------------------------------------------------------------------------------
Houghton Mifflin Co. -0- 8,000
- ------------------------------------------------------------------------------
Memtech Ltd. -0- 38,750
- ------------------------------------------------------------------------------
Wabash National Corp. -0- 15,000
- ------------------------------------------------------------------------------
DECREASES*
- ------------------------------------------------------------------------------
Citizens Utilities Co., Class A 241,979 235,428
- ------------------------------------------------------------------------------
Corning Inc. 35,000 -0-
- ------------------------------------------------------------------------------
Lotus Development Corp. 30,250 -0-
- ------------------------------------------------------------------------------
Nanometrics, Inc. 287,350 -0-
- ------------------------------------------------------------------------------
Novell Inc. 108,500 38,500
- ------------------------------------------------------------------------------
OTHER CHANGES
Shares
- ------------------------------------------------------------------------------
43,590 Intel Corp. in a 2 for 1 stock split less 9,310 shares paid in kind
on redemptions.
- ------------------------------------------------------------------------------
30,000 Millipore Corp. in a 2 for 1 stock split.
- ------------------------------------------------------------------------------
35,000 Sealed Air Corp. in a 2 for 1 stock split.
- ------------------------------------------------------------------------------
*Includes investments paid in kind on redemptions.
<PAGE>
PORTFOLIO OF INVESTMENTS
NOVEMBER 30, 1995
(UNAUDITED)
- ------------------------------------------------------------------------------
Name of Company Shares Value
- ------------------------------------------------------------------------------
COMMON STOCKS - 93.7%
- ------------------------------------------------------------------------------
BUSINESS PRODUCTS AND SERVICES - 4.0%
Banyan Systems Inc.* 85,000 $ 1,051,875
General Motors Corp. Class E 30,000 1,515,000
Novell Inc.* 38,500 649,687
-----------
$ 3,216,562
-----------
CHEMICALS - 2.5%
Dow Chemical Co. 11,331 $ 803,085
Nalco Chemical Co. 40,000 1,225,000
-----------
$ 2,028,085
-----------
CHEMICALS - SPECIALTY - 6.9%
Great Lakes Chemical Corp. 25,000 $ 1,778,125
International Specialty Products Inc. 50,000 500,000
Loctite Corp. 23,000 1,124,125
Sealed Air Corp.* 70,000 2,135,000
-----------
$ 5,537,250
-----------
COMMUNICATIONS - 1.4%
Cox Communications Inc., Class A* 28,428 $ 568,560
Ericsson (L.M.) Telephone Co. 22,000 522,500
-----------
$ 1,091,060
-----------
CONSUMER PRODUCTS - 14.5%
Anheuser-Busch Co., Inc. 43,000 $ 2,848,750
Coca-Cola Co. 59,270 4,489,702
PepsiCo, Inc. 77,460 4,279,665
-----------
$11,618,117
-----------
DRUGS & MEDICAL - 7.7%
Astra AB - ADR Series B 30,000 $ 1,101,453
Bausch & Lomb Inc. 40,000 1,445,000
Merck & Co., Inc. 35,000 2,165,625
Warner-Lambert Co. 16,380 1,461,915
-----------
$ 6,173,993
-----------
ELECTRICAL EQUIPMENT - 5.2%
Emerson Electic Co. 53,076 $ 4,139,928
-----------
ELECTRONICS - 7.5%
Intel Corp.* 97,990 5,965,141
-----------
ENERGY - 0.9%
Andarko Petroleum Corp. 15,000 $ 721,875
-----------
FOREST PRODUCTS - 4.9%
Champion International Corp. 42,984 $ 2,025,621
Weyerhaeuser Co. 42,250 1,911,813
-----------
$ 3,937,434
-----------
INSURANCE - 10.0%
General Re Corp. 25,500 $ 3,815,438
Kansas City Life Insurance Co. 35,400 1,823,100
St. Paul Cos., Inc. 41,400 2,318,400
-----------
$ 7,956,938
-----------
MACHINERY & EQUIPMENT - 3.4%
Memtec Ltd. 38,750 $ 692,656
Tecumseh Products Co. Class A 32,850 1,741,050
Tecumseh Products Co. Class B 5,000 260,000
-----------
$ 2,693,706
-----------
OFFICE EQUIPMENT - 1.5%
International Business Machines Corp. 12,570 1,214,576
-----------
PETROLEUM - 5.6%
Atlantic Richfield Co. 14,003 $ 1,517,575
Mobil Corp. 27,850 2,906,844
-----------
$ 4,424,419
-----------
PETROLEUM SERVICES AND EQUIPMENT - 1.4%
Schlumberger Ltd. 18,086 $ 1,148,461
-----------
POWER AND LIGHT - 3.7%
Citizens Utilities Co., Class A* 235,428 $ 2,972,281
-----------
PUBLISHING AND PRINTING - 2.8%
Harcourt General Inc. 10,000 $ 402,500
Houghton Mifflin Co. 8,000 322,000
Times Mirror Co., Class A 46,204 1,501,630
-----------
$ 2,226,130
-----------
RETAIL - 1.1%
Gap, Inc. (The) 20,000 $905,000
-----------
SPECIAL PRODUCTS AND SERVICES - 5.0%
Millipore Corp. 60,000 $ 2,235,000
Wheelabrator Technologies Inc. 40,000 600,000
WMX Technologies, Inc. 37,930 1,118,935
-----------
$ 3,953,935
-----------
TRANSPORTATION - 3.7%
Union Pacific Corp. 36,790 $ 2,492,523
Wabash National Corp.* 15,000 420,000
-----------
$ 2,912,523
-----------
TOTAL COMMON STOCKS
(Identified Cost, $17,113,075) $74,837,414
-----------
- --------------------------------------------------------------------------
FACE AMOUNT
(000 OMITTED)
- --------------------------------------------------------------------------
SHORT-TERM OBLIGATIONS - 5.8%
- --------------------------------------------------------------------------
Ford Motor Credit Co., 5.75%, due 12/6/95 $2,898 $ 2,897,684
General Electric Capital Corp.,
5.72%, due 12/6/95 1,739 1,738,618
-----------
TOTAL SHORT-TERM OBLIGATIONS,
AT AMORTIZED COST $ 4,636,302
-----------
TOTAL INVESTMENTS
(Identified Cost, $21,749,377) - 99.5% $79,473,716
OTHER ASSETS, LESS LIABILITIES - 0.5% 409,297
-----------
NET ASSETS - 100% $79,883,013
===========
*Non-income producing security.
See notes to financial statements
<PAGE>
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
- -------------------------------------------------------------------------------
November 30, 1995 (Unaudited)
- -------------------------------------------------------------------------------
ASSETS:
Investments, at value (Note 1A) (identified cost, $21,749,377) $79,473,716
Cash 119,845
Dividends receivable 150,283
Other assets 150,288
-----------
Total assets $79,894,132
LIABILITIES:
Payable to affiliates --
Custodian fee $1,617
Directors' fees 921
Accrued expenses 8,581
------
Total liabilities 11,119
-----------
NET ASSETS for 356,956 shares of capital stock outstanding $79,883,013
===========
SOURCES OF NET ASSETS:
Accumulated net realized gain on investment transactions
(computed on the basis of identified cost), less the
excess of cost of capital stock redeemed over proceeds
from sales of capital stock (including shares issued to
shareholders electing to receive payment of distributions
in capital stock) $30,991,666
Unrealized appreciation of investments (computed on
the basis of identified cost) 57,724,339
Provision for federal tax on undistributed net
realized long-term capital gain (9,081,783)
Undistributed net investment income 248,791
-----------
Total $79,883,013
===========
NET ASSET VALUE AND REDEMPTION PRICE PER SHARE
($79,883,013 / 356,956 shares of capital stock outstanding) $223.79
=======
See notes to finanacial statements
<PAGE>
STATEMENT OF OPERATIONS
- --------------------------------------------------------------------------------
For the Six Months Ended November 30, 1995 (Unaudited)
- --------------------------------------------------------------------------------
INVESTMENT INCOME:
Income --
Dividends $ 625,357
Interest 121,620
----------
Total income $ 746,977
Expenses --
Investment adviser fee (Note 4) $ 239,877
Compensation of Directors not members of the
Investment Adviser's organization 2,847
Custodian fee (Note 4) 21,329
Legal and accounting services 27,620
Printing and postage 12,319
Transfer and dividend disbursing agent fees 6,816
Miscellaneous 4,900
----------
Total expenses 315,708
----------
Net investment income $ 431,269
REALIZED AND UNREALIZED GAIN ON INVESTMENTS:
Net realized gain on investments, computed on
the basis of identified cost ($1,946,454 net
gain as computed for federal income tax
purposes) $2,732,763
Increase in unrealized appreciation of investments 4,813,821
----------
Net realized and unrealized gain on
investments 7,546,584
----------
Net increase in net assets from operations $7,977,853
==========
See notes to finanacial statements
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS
--------------------------------------------------------------------------
Six Months
Ended
November
30, 1995 Year Ended
(Unaudited) May 31, 1995
----------- -----------
INCREASE (DECREASE) IN NET ASSETS:
From operations --
Net investment income $ 431,269 $ 864,776
Net realized gain on investments 2,732,763 8,388,088
Increase in unrealized appreciation of
investments 4,813,821 3,792,149
----------- -----------
Increase in net assets from operations $ 7,977,853 $13,045,013
----------- -----------
Distributions to shareholders --
From net investment income $ (413,248) $ (840,438)
From net realized gain on investments -- (429,393)
----------- -----------
Total distributions to shareholders $ (413,248) $(1,269,831)
----------- -----------
Provision for federal tax on undistributed net
realized long-term gain (Note 1B) $ -- $ (163,853)
----------- -----------
Net decrease from capital stock transactions $ (778,362) $(7,718,214)
----------- -----------
Net increase in net assets $ 6,786,243 $ 3,893,115
NET ASSETS:
At beginning of period 73,096,770 69,203,655
----------- -----------
At end of period (including undistributed net
investment income of $248,791 and $230,770,
respectively) $79,883,013 $73,096,770
=========== ===========
See notes to finanacial statements
<PAGE>
<TABLE>
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Six Months Ended Year Ended May 31,
November 30, 1995 ---------------------------------------------------------------------
(Unaudited) 1995 1994 1993 1992 1991
----------------- --------- --------- --------- --------- --------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, beginning of period $202.720 $ 170.980 $174.560 $159.820 $147.710 $135.280
-------- --------- -------- -------- -------- --------
INCOME FROM OPERATIONS:
Net investment income $ 1.210 $ 2.350 $ 2.011 $ 1.935 $ 1.876 $ 2.021
Net realized and unrealized gain
(loss) on investments 21.010 33.209 (2.899) 17.155 12.485 13.325
-------- --------- -------- -------- -------- --------
Total income (loss) from operations $ 22.220 $ 35.559 $ (0.888) $ 19.090 $ 14.361 $ 15.346
-------- --------- -------- -------- -------- --------
LESS DISTRIBUTIONS:
From net investment income $ (1.150) $ (2.220) $ (1.950) $ (1.900) $ (1.900) $ (2.100)
From net realized gain on investments -- (1.145) -- (2.450) -- --
-------- --------- -------- -------- -------- --------
Total distributions $ (1.150) $ (3.365) $ (1.950) $ (4.350) $ (1.900) $ (2.100)
-------- --------- -------- -------- -------- --------
PROVISION FOR FEDERAL TAX ON
UNDISTRIBUTED NET REALIZED
LONG-TERM GAIN (NOTE 1B) $ -- $ (0.454) $ (0.742) $ -- $ (0.351) $ (0.816)
-------- --------- -------- -------- -------- --------
NET ASSET VALUE, end of period $223.790 $202.720 $170.980 $174.560 $159.820 $147.710
======== ======== ======== ======== ======== ========
TOTAL RETURN<F1> 10.99% 20.89% (0.93)% 12.10% 9.59% 11.00%
RATIOS/SUPPLEMENTAL DATA:
Net assets,end of period (000's omitted) $ 79,883 $ 73,097 $ 69,204 $ 79,243 $ 76,697 $ 72,981
Ratio of expenses to average net assets 0.82%<F2> 0.79% 0.78% 0.78% 0.82% 0.85%
Ratio of net investment income to
average net assets 1.12%<F2> 1.30% 1.17% 1.19% 1.24% 1.57%
PORTFOLIO TURNOVER 6% 9% 8% 5% 5% 7%
- ----------
<FN>
<F1> Total investment 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.
<F2> Computed on an annualized basis.
</TABLE>
See notes to finanacial statements
<PAGE>
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
- -------------------------------------------------------------------------------
(1) SIGNIFICANT ACCOUNTING POLICIES
The Fund is registered under the Investment Company Act of 1940, as amended, as
a diversified, open-end, management investment company. The following is a
summary of significant accounting policies consistently followed by the Fund in
the preparation of its financial statements. The policies are in conformity with
generally accepted accounting principles.
A. INVESTMENT VALUATIONS --
Investments listed on security exchanges or in the NASDAQ National Market are
valued at closing sale prices. Listed or unlisted investments for which closing
sale prices are not available are valued at closing bid prices. Short-term
obligations, maturing in 60 days or less, are valued at amortized cost, which
approximates value.
B. FEDERAL TAXES -- The Fund's policy is to comply with the
provisions of the Internal Revenue Code available to regulated investment
companies and to distribute to shareholders each year all of its taxable income
from dividends, interest and net realized short-term capital gain. Accordingly,
no provision for federal income or excise tax is necessary on such income. 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.
C. DISTRIBUTIONS -- Generally accepted
accounting principles require that differences in the recognition or
classification of income between the financial statements and tax earnings and
profits which result in over-distributions for financial statement purposes are
classified as distributions in excess of net investment income or accumulated
net realized gains.
D. OTHER -- Investment transactions are accounted for on a
trade date basis. Dividend income and dividends to shareholders are recorded on
the ex-dividend date.
F. INTERIM FINANCIAL INFORMATION -- The interim financial
statements relating to November 30, 1995 and for the six-month period then ended
have not been audited by independent certified public accountants, but in the
opinion of the Fund's management, reflect all adjustments, consisting only of
normal recurring adjustments, necessary for the fair presentation of the
financial statements.
- ------------------------------------------------------------------------------
(2) CAPITAL STOCK
At November 30, 1995, there were 4,395,355 shares of $1.00 par value capital
stock authorized. Transactions in capital stock were as follows:
Six Months Ended
November 30, 1995
(Unaudited) Year Ended May 31, 1995
--------------------- ------------------------
Shares Amount Shares Amount
------ ------ ------ ------
Redemptions (3,993) $(857,774) (46,276) $(8,078,211)
Issued to shareholders
electing to receive payment
of dividends in capital stock 373 79,412 2,096 359,997
------ --------- ------- -----------
Net decrease (3,620) $(778,362) (44,180) $(7,718,214)
====== ========= ======= ===========
- ------------------------------------------------------------------------------
(3) INVESTMENT TRANSACTIONS
Purchases and sales of investments, other than short-term obligations,
aggregated $4,201,166 and $5,780,357, respectively. In addition, investments
having an aggregate market value of $816,754 at dates of redemption were
distributed in payment for capital stock redeemed.
- ------------------------------------------------------------------------------
(4) INVESTMENT ADVISER FEE AND OTHER TRANSACTIONS WITH AFFILIATES
The investment adviser fee, computed at the monthly rate of 5/96 of 1% ( 5/8 of
1% annually) of the Fund's average monthly net assets, was paid to Eaton Vance
Management (EVM) as compensation for management and investment advisory services
rendered to the Fund. Except as to directors of the Fund who are not members of
EVM's organization, officers and directors receive remuneration for their
services to the Fund out of such investment adviser fee. The custodian fee was
paid to Investors Bank & Trust Company (IBT) for its services as custodian of
the Fund. One of the Directors of the Fund owns approximately 13% of the voting
stock of Investors Financial Services Corp., the parent company of IBT. Pursuant
to the custodian agreement, IBT receives a fee reduced by credits which are
determined based on the average daily cash balances the Fund maintains with IBT.
Certain of the officers and directors of the Fund are officers and
directors/trustees of the above organizations. Directors of the Fund that are
not affiliated with the Investment Advisor 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 six months ended November 30, 1995, 1995, no
significant amounts have been deferred.
- ------------------------------------------------------------------------------
(5) LINE OF CREDIT
The Fund participates with other funds managed by EVM in a $120 million
unsecured line of credit agreement with a bank. The line of credit consists of a
$20 million committed facility and a $100 million discretionary facility.
Borrowings will be made by the Fund solely to facilitate the handling of unusual
and/or unanticipated short-term cash requirements. Interest is charged to each
fund based on its borrowings at an amount above either the bank's adjusted
certificate of deposit rate, a variable adjusted certificate of deposit rate, or
a federal funds effective rate. In addition, a fee computed at an annual rate of
1/4 of 1% on the $20 million committed facility and on the daily unused portion
of the $100 million discretionary facility is allocated among the participating
funds at the end of each quarter. The Fund did not have any significant
borrowings or allocated fees during the period.
- ------------------------------------------------------------------------------
(6) FEDERAL INCOME TAX BASIS OF INVESTMENTS
The cost and unrealized appreciation/depreciation in value of the investments
owned at November 30, 1995, as computed on a federal income tax basis, are as
follows:
Aggregate cost $21,749,377
===========
Gross unrealized appreciation $57,981,750
Gross unrealized depreciation 257,411
-----------
Net unrealized appreciation $57,724,339
===========
- ------------------------------------------------------------------------------
(7) DISTRIBUTIONS
On December 18, 1995, the Directors of the Fund declared a dividend from net
investment income of $0.68 per share, a distribution from net realized short-
term capital gains of $4.48 per share and a distribution from net realized
long-term capital gains of $0.985 per share all payable December 29, 1995, to
shareholders of record on December 18, 1995.
- ------------------------------------------------------------------------------
(8) ANNUAL SHAREHOLDER MEETING
On September 21, 1995, the annual meeting of the shareholders of the Fund was
held for the purpose of voting on the following matters:
1. To fix the number of Directors at six, and to elect the following individuals
as Directors for the ensuing year and until their successors are elected and
qualified:
Landon T. Clay Norton H. Reamer
Donald R. Dwight John L. Thorndike
Samuel L. Hayes, III Jack L. Treynor
2. To ratify or reject the selection of Deloitte & Touche LLP as the independent
certified public accountants to be employed by the Fund to sign or certify
financial statements which may be filed by the Fund with the Securities and
Exchange Commission in respect of all or any part of the fiscal year ending
May 31, 1996.
3. To approve an Amendment to the By-Laws of the Fund.
The results of the vote on Proposal 1 were as follows:
<TABLE>
<CAPTION>
NO. OF SHARES % OF
VOTING FOR EACH OUTSTANDING % OF SHARES
VOTE NOMINEE SHARES VOTED
- ---- -------------- ----------- ------------
<S> <C> <C> <C>
Affirmative 210,247.620 58.523% 91.862%
Abstain 18,624.859 5.184 8.138
----------- ------ -------
Total 228,872.479 63.707% 100.000%
=========== ====== =======
The results of the vote on Proposal 2 were as follows:
% OF
OUTSTANDING % OF SHARES
VOTE NO. OF SHARES SHARES VOTED
- ---- ------------- ----------- -----------
Affirmative 223,725.887 62.274% 97.751%
Abstain 5,146.592 1.433 2.249
----------- ------ -------
Total 228,872.479 63.707% 100.000%
=========== ====== =======
The results of the vote on Proposal 3 were as follows:
% OF
OUTSTANDING % OF SHARES
VOTE NO. OF SHARES SHARES VOTED
- ---- ------------- ----------- ----------
Affirmative 218,101.990 60.709% 95.294%
Abstain 10,770.489 2.998 4.706
----------- ------ -------
Total 228,872.479 63.707% 100.000%
=========== ====== =======
</TABLE>
<PAGE>
INVESTMENT MANAGEMENT
DIVERSIFICATION OFFICERS AND STAFF INDEPENDENT DIRECTORS
FUND, INC.
24 Federal Street LANDON T. CLAY DONALD R. DWIGHT
Boston, MA 02110 President, Director President, Dwight
Partners, Inc.
JAMES B. HAWKES Chairman, Newspapers of
Vice President New England, Inc.
DUNCAN W. RICHARDSON SAMUEL L. HAYES, III
Vice President and Jacob H. Schiff Professor of
Portfolio Manager Investment Banking,
Harvard University
JAMES L. O'CONNOR Graduate School of Business
Treasurer Administration
THOMAS OTIS NORTON H. REAMER
Clerk President and Director,
United Asset
Management Corporation
JOHN L. THORNDIKE
Director, Fiduciary Company
Incorporated
JACK L. TREYNOR
Investment Adviser and
Consultant
- --------------------------------------------------------------------------------
INVESTMENT ADVISER TRANSFER AND DIVIDEND
Eaton Vance Management DISBURSING AGENT
24 Federal Street First Data
Boston, MA 02110 Investor Services Group, Inc.
BOS725
CUSTODIAN P.O. Box 1559
Investors Bank & Trust Boston, MA 02104
Company
89 South Street
P.O. Box 1537
Boston, MA 02205-1537
<PAGE>
DIVERSIFICATION
FUND, INC.
PERFORMANCE RESULTS+
- ------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
(STANDARDIZED SEC PERFORMANCE DATA
FOR THE PERIODS ENDED NOVEMBER 30, 1995)
- ------------------------------------------------------------------------------
One year 32.9%
- ------------------------------------------------------------------------------
Five years 15.2%
- ------------------------------------------------------------------------------
Ten years 12.6%
- ------------------------------------------------------------------------------
Life of Fund (7/27/61) 9.3%
- ------------------------------------------------------------------------------
CUMULATIVE TOTAL RETURN
LIFE OF FUND
(7/27/61 TO 11/30/95)
- ------------------------------------------------------------------------------
Diversification Fund 2,052.3%
- ------------------------------------------------------------------------------
Dow Jones Industrial Average 2,845.4%
- ------------------------------------------------------------------------------
Standard &Poor's 500 3,169.7%
- ------------------------------------------------------------------------------
+Past performance is no guarantee of future results. Investment returns and
principal will fluctuate so that an investor's shares, when redeemed, may be
worth more or less than their original cost.
The Dow Jones Industrial Average and the Standard & Poor's 500 are unmanaged
lists of common stocks.
This report must be preceded or accompanied by a prospectus which contains more
complete information on the Fund including its distribution plan, sales charges
and expenses. Please read the prospectus carefully before investing.
[logo]
EATON VANCE
The Boston Tradition
Funds offered through
Eaton Vance Distributors, Inc.
24 Federal Street, Boston, Massachusetts 02110
1/96
