<PAGE>
EATON VANCE EQUITY-TRUST
24 FEDERAL STREET, BOSTON, MASSACHUSETTS 02110
September 8, 1995
Dear Shareholder:
You are cordially invited to attend a Special Meeting of Shareholders (the
"Meeting") of Eaton Vance Equity-Income Trust ("Equity-Income"), to be held at
the offices of Equity-Income at 24 Federal Street, Boston, Massachusetts 02110
on Thursday, October 26, 1995, at 11:00 A.M.
At this important Meeting you are being asked to consider and approve an
Agreement and Plan of Reorganization (the "Agreement") between Equity-Income and
Eaton Vance Special Investment Trust on behalf of EV Marathon Total Return Fund
("Total Return"). If Equity-Income shareholders approve the Agreement, upon
consummation of the reorganization, all of the assets of Equity-Income will be
transferred to Total Return, and Equity-Income will be liquidated and
terminated. Each Equity-Income shareholder will receive a number of shares of
Total Return equal in value to the shares of Equity-Income held immediately
prior to the transfer of assets of Equity-Income to Total Return. Equity-Income
and Total Return have the same investment policies and both invest in Total
Return Portfolio.
Your Board of Trustees has unanimously approved the proposed reorganization
for the reasons set forth on pages 14-16 of the enclosed Proxy Statement and
recommends that shareholders vote to approve the Agreement. As a result of the
reorganization, shareholders of Equity-Income should benefit from expense
savings. Thus, shareholders may enjoy higher returns on their respective
investments.
In order for the Agreement and the subsequent termination to be approved,
the holders of a plurality of the outstanding shares of Equity-Income must vote
in favor of approving the Agreement and subsequent termination. We urge you to
take the time to consider this important matter and vote now. In order to make
sure that your vote is represented, indicate your choice on the enclosed proxy
form, date and sign it, and return it in the enclosed envelope.
Your prompt response will ensure that your shares are counted at the
Meeting. If you find that you are able to attend the Meeting in person, you may
revoke your proxy at the Meeting and vote in person.
For the Board of Trustees,
/s/James B. Hawkes
--------------------------------------
JAMES B. HAWKES, President and Trustee
<PAGE>
EATON VANCE EQUITY-INCOME TRUST
24 FEDERAL STREET, BOSTON, MASSACHUSETTS 02110
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD THURSDAY, OCTOBER 26, 1995
Notice is hereby given that a Special Meeting of Shareholders (the
"Meeting") of Eaton Vance Equity-Income Trust ("Equity-Income") will be held at
the principal office of Equity-Income at 24 Federal Street, Boston,
Massachusetts 02110 on Thursday, October 26, 1995 at 11:00 A.M., Boston time,
and at any adjournments thereof, for the following purposes:
1. To consider and act upon a proposal to approve an Agreement and Plan
of Reorganization (the "Agreement") between Equity-Income and Eaton
Vance Special Investment Trust on behalf of EV Marathon Total Return
Fund ("Total Return"). The Agreement provides for (i) the transfer of
all of the assets of Equity-Income to Total Return in exchange solely
for shares of beneficial interest of Total Return (the "Total Return
Shares"), (ii) the assumption by Total Return of certain liabilities
of Equity-Income, and (iii) the distribution of Total Return Shares to
the shareholders of Equity-Income in liquidation and termination of
Equity-Income.
2. To consider and act upon such other matters as may properly come
before the Meeting or any adjournment thereof.
The transfer books of Equity-Income will not be closed, but in lieu thereof
the Board of Trustees has fixed the close of business on August 30, 1995 as the
record date for determination of shareholders who are entitled to notice of and
to vote at the Meeting and any adjournment thereof.
If you cannot attend the Meeting in person, please complete, date and sign
the enclosed proxy and return it to The Shareholder Services Group, Inc.,
BOS725, P.O. Box 1559, Boston, Massachusetts 02104 in the enclosed envelope. It
is important that you exercise your right to vote. THE ENCLOSED PROXY IS BEING
SOLICITED BY THE BOARD OF TRUSTEES OF EQUITY-INCOME.
By order of the Board of Trustees
/s/ Thomas Otis
--------------------------------
THOMAS OTIS, Secretary
Boston, Massachusetts
September 8, 1995
<PAGE>
EV MARATHON TOTAL RETURN FUND
PROSPECTUS DATED SEPTEMBER 8, 1995
24 FEDERAL STREET
BOSTON, MASSACHUSETTS 02110
TELEPHONE 617-482-8260
SECURITIES OFFERED HEREBY
This Prospectus relates to shares of beneficial interest, no par value, of
EV Marathon Total Return Fund ("Total Return") to be issued by Total Return in
connection with the transfer to Total Return of all of the net assets of Eaton
Vance Equity-Income Trust ("Equity-Income"). The number of Total Return shares
of beneficial interest (the "Total Return Shares") to be issued to Equity-
Income will be that number of Total Return Shares having an aggregate net asset
value equal to the aggregate value of Equity-Income's assets, less liabilities
assumed, transferred to Total Return. Following the receipt of Total Return
Shares, Equity-Income will be liquidated and terminated and the Total Return
Shares will be distributed to the former shareholders of Equity-Income. The
terms and conditions of this transaction are more fully described herein and in
the Agreement and Plan of Reorganization attached as Exhibit A hereto.
The investment objective of each of Equity-Income and Total Return is to
seek for its shareholders a high level of total return, consisting of relatively
predictable income in conjunction with capital appreciation, consistent with
prudent management and preservation of capital. Each Fund seeks to achieve its
investment objective by investing its assets in the Total Return Portfolio (the
"Portfolio"), which has the same investment objective, rather than, as with a
traditional mutual fund, directly investing in and managing its own portfolio
securities. Total Return is a series of Eaton Vance Special Investment Trust, an
open-end management investment company.
Equity-Income's principal place of business is at 24 Federal Street, Boston,
Massachusetts 02110 and its telephone number is 617-482-8260.
This Prospectus sets forth concisely the information that a shareholder of
Equity-Income should know before voting on the proposed transactions described
above. It should be read and retained for future reference. SHARES OF TOTAL
RETURN ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR ENDORSED BY, ANY
BANK, AND ARE NOT FEDERALLY INSURED BY THE FEDERAL DEPOSIT INSURANCE
CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER AGENCY.
A Statement of Additional Information also dated September 8, 1995 of Total
Return is on file with the Securities and Exchange Commission. It is available,
upon oral or written request, and at no charge, from Total Return's Principal
Underwriter, Eaton Vance Distributors, Inc., 24 Federal Street, Boston,
Massachusetts 02110, telephone number 800-225-6265. The Statement of Additional
Information is incorporated by reference in this Prospectus.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<PAGE>
TABLE OF CONTENTS
PAGE
----
INTRODUCTION ...................................................... 6
SUMMARY ........................................................... 7
REASONS FOR THE PROPOSED REORGANIZATION ........................... 14
RISK FACTORS ...................................................... 16
INFORMATION CONCERNING THE MEETING ................................ 16
PROPOSAL TO APPROVE THE AGREEMENT AND PLAN OF REORGANIZATION ...... 18
DESCRIPTION OF THE AGREEMENT ...................................... 19
CAPITALIZATION .................................................... 20
COMPARATIVE PERFORMANCE INFORMATION ............................... 22
BUSINESS OF EQUITY-INCOME ......................................... 22
General ......................................................... 22
Investment Objective and Policies ............................... 22
Trustees ........................................................ 23
Investment Adviser, Administrator and Distributor ............... 23
Expenses ........................................................ 23
Custodian and Transfer Agent .................................... 23
Equity-Income Shares ............................................ 23
Purchase of Equity-Income Shares ................................ 23
Redemption of Equity-Income Shares .............................. 23
Dividends, Distributions and Taxes .............................. 23
BUSINESS OF TOTAL RETURN .......................................... 24
General ......................................................... 24
Investment Objective and Policies ............................... 24
Trustees ........................................................ 24
Investment Adviser, Administrator and Distributor ............... 24
Expenses ........................................................ 24
Custodian and Transfer Agent .................................... 24
Total Return Shares ............................................. 24
Purchase of Total Return Shares ................................. 24
Redemption of Total Return Shares ............................... 25
Dividends, Distributions and Taxes .............................. 25
EXPERTS ........................................................... 25
NOTICE TO BANKS AND BROKER/DEALERS ................................ 25
AVAILABLE INFORMATION ............................................. 25
EXHIBITS .......................................................... A-1
<PAGE>
EXHIBITS AND ENCLOSURES
A -- Agreement and Plan of Reorganization between Eaton Vance Equity-
Income Trust and Eaton Vance Special Investment Trust on behalf of
EV Marathon Total Return Fund
B -- Financial Highlights of Eaton Vance Equity-Income Trust and EV
Marathon Total Return Fund for the six months ended June 30, 1995
(unaudited)
Prospectus of EV Marathon Total Return Fund, dated May
1, 1995 as supplemented August 1, 1995 enclosed in proxy package
Prospectus of Eaton Vance Equity-Income Trust, dated May 1, 1995
enclosed in proxy package
<PAGE>
PROXY STATEMENT AND PROSPECTUS
FOR SPECIAL MEETING OF SHAREHOLDERS OF EATON VANCE EQUITY-INCOME TRUST
TO BE HELD ON OCTOBER 26, 1995
INTRODUCTION
This Proxy Statement and Prospectus is furnished in connection with the
solicitation of proxies by the Board of Trustees of Eaton Vance Equity-Income
Trust, a Massachusetts business trust ("Equity-Income"), to be voted at the
Special Meeting of Shareholders (the "Meeting") of Equity-Income to be held at
24 Federal Street, Boston, Massachusetts 02110 on Thursday, October 26, 1995 at
11:00 A.M., Boston time, and at any adjournment thereof, for the purposes set
forth in the accompanying Notice of Special Meeting of Shareholders. This Proxy
Statement and Prospectus includes and incorporates by reference the enclosed
prospectus of Equity-Income dated May 1, 1995 (the "Equity-Income Prospectus")
and the enclosed prospectus of EV Marathon Total Return Fund ("Total Return")
dated May 1, 1995 (the "Total Return Prospectus"). This combined Proxy Statement
and Prospectus (the "Proxy Statement and Prospectus") will be mailed to
shareholders of Equity-Income on or after September 8, 1995.
All properly executed proxies received by management prior to the Meeting,
unless revoked, will be voted at the Meeting in accordance with the instructions
thereon. If no instructions are given, shares represented by proxies will be
voted FOR the proposal (the "Proposal") to approve the Agreement and Plan of
Reorganization between Equity-Income and Eaton Vance Special Investment Trust on
behalf of Total Return (the "Agreement"). The transactions contemplated by the
Agreement are referred to in this Proxy Statement and Prospectus as the
"Reorganization."
The Board of Trustees of Equity-Income knows of no business other than that
mentioned in the immediately preceding paragraph that will be presented for
consideration at the Meeting. Should other business properly be brought before
the Meeting proxies will be voted in accordance with the judgment of persons
named as proxies.
In addition to the mailing of these proxy materials, proxies may be
personally solicited by Trustees and officers of Equity-Income, by personnel of
Eaton Vance Management ("Eaton Vance"), its transfer agent, The Shareholder
Services Group, Inc., by broker-dealer firms or by a professional solicitation
organization, in person or by telephone. The full cost of soliciting proxies and
of preparing, assembling and mailing the proxy materials will be borne by
Equity-Income.
The information in this Proxy Statement and Prospectus concerning Equity-
Income and Total Return has been supplied, respectively, by Equity-Income and
Total Return (the "Funds").
SUMMARY
The following is a summary of certain information contained elsewhere in
this Proxy Statement and Prospectus and is qualified by reference to the more
complete information contained herein and in the Exhibits attached hereto and
enclosed herewith. Shareholders should read this entire Proxy Statement and
Prospectus carefully.
BUSINESS OF Equity-Income is a diversified open-end management
EATON VANCE investment company organized as a Massachusetts
EQUITY-INCOME business trust in 1987. As of June 30, 1995, Equity-
TRUST Income's net asset value was $24,902,287.
BUSINESS OF EV Total Return is a diversified series of Eaton Vance
MARATHON TOTAL Special Investment Trust ("Special Investment Trust").
RETURN FUND Special Investment Trust is an open-end, management
investment company organized as a Massachusetts
business trust in 1981. As of June 30, 1995,
Total Return's net asset value was $29,728,046.
COMPARISON OF EATON The investment objective of each of Equity-Income and
VANCE EQUITY-INCOME Total Return is to seek for its shareholders a high
TRUST AND EV level of total return, consisting of relatively
MARATHON TOTAL RETURN predictable income in conjunction with capital
FUND appreciation, consistent with prudent management and
preservation of capital. Each Fund seeks to meet
its investment objective by investing its assets
in the Portfolio, a diversified open-end
investment company having the same investment
objective as the Funds.
INVESTMENT OBJECTIVES The Portfolio invests primarily in income producing
AND POLICIES equity securities, including common stocks and
preferred stocks. The Portfolio concentrates its
investments in common stocks of public utilities,
principally electric, gas and telephone companies.
Timothy O'Brien is the portfolio manager for Total
Return Portfolio since January, 1995. Mr. O'Brien
became a Vice President of Eaton Vance on April 25,
1994. Prior to joining Eaton Vance, Mr. O'Brien served
as a Vice President of Loomis, Sayles & Co.
FORM OF ORGANIZATION Equity-Income is organized as a Massachusetts business
trust. Equity-Income has outstanding a single class of
shares which are offered subject to a contingent
deferred sales charge. In addition, Equity-Income pays
a Rule 12b-1 distribution fee of up to 0.75% of its
average daily net assets and a service fee of up to
0.25% of its average daily net assets.
Total Return is one of several separate series of
Special Investment Trust, a Massachusetts business
trust. Each share of a series of Special Investment
Trust represents an equal proportionate interest in
the assets belonging to that series, and liabilities
attributable to one series are not charged against the
assets of any other series. Shares of each series are
voted separately with respect to matters pertaining to
that series, except that all shares vote together for
the election of trustees and ratification of
independent auditors. Total Return has outstanding a
single class of shares which are offered subject to a
contingent deferred sales charge. In addition, Total
Return pays a Rule 12b-1 distribution fee of up to
0.75% of its average daily net assets and a service
fee of up to 0.25% of its average daily net assets.
ADVISER AND Because each Fund invests all of its investable assets
ADVISORY FEES in the Portfolio, the Funds do not require the
services of an investment adviser. The Portfolio
engages Boston Management and Research ("BMR"), a
wholly-owned subsidiary of Eaton Vance, as its
investment adviser. The Portfolio pays BMR a monthly
advisory fee of .0625% (equivalent to .75% annually)
of the average daily net assets of the Portfolio up to
$500 million. On net assets of $500 million and over
the annual fee is reduced as follows:
<TABLE>
<CAPTION>
AVERAGE DAILY ANNUALIZED
NET ASSETS FEE RATE
FOR THE MONTH (FOR EACH LEVEL)
------------- ---------------
<S> <C>
500 million but less than $1 billion .... 0.6875%
$1 billion but less than $1.5 billion ... 0.6250%
$1.5 billion but less than $2 billion ... 0.5625%
$2 billion but less than $3 billion ..... 0.5000%
$3 billion and over ..................... 0.4375%
</TABLE>
For the period October 1, 1994 to December 31, 1994,
the Portfolio paid BMR an advisory fee equal to 0.74%
of its average daily net assets for the period.
OTHER SIGNIFICANT FEES Equity-Income and Total Return pay directly or
indirectly additional fees in connection with their
operations, including legal, accounting, transfer
agent and custodial fees.
Each Fund has retained the services of Eaton Vance
under an administrative services agreement to act as
administrator. For these services, Eaton Vance
currently receives no compensation. The Trustees of
Equity-Income and Special Investment Trust on behalf
of Total Return, respectively, may determine, in the
future, to compensate Eaton Vance for its services
under the administrative services agreement.
Equity-Income's ratio of expenses to average daily net
assets was 2.39% annualized for the period ended June
30, 1995. Total Return's ratio of expenses to average
daily net assets was 2.07% for the period ended June
30, 1995, computed on an annualized basis.
Equity-Income and Total Return each impose a
contingent deferred sales charge ("CDSC") in an amount
between 5.00% and 0% of redemption proceeds exclusive
of all reinvestments and capital appreciation. This
CDSC is imposed on any redemption the amount of which
exceeds the aggregate value at the time of redemption
of (a) all shares in a shareholder's account purchased
more than six years prior to the redemption, (b) all
shares in the account acquired through reinvestment of
monthly distributions, and (c) the increase, if any,
of value of all other shares in the account over the
purchase price of such shares. Redemptions are
processed in a manner to maximize the amount of
redemption which will not be subject to the CDSC. The
CDSC will apply to Total Return Shares acquired as a
result of the Reorganization but the holding period
for purposes of computing the CDSC on Total Return
Shares will include the period before the
Reorganization during which shares of Equity-Income
were held.
PURCHASES AND EXCHANGES Shares of both Equity-Income and Total Return may be
purchased through certain broker-dealers at their
respective net asset values per share. The minimum
initial investment in each Fund is $1,000 and $50 for
subsequent investments, except that the $1,000 minimum
initial investment is waived with respect to cash
investments of $50 or more made to a shareholder's
account via a bank draft each month or quarter.
Shareholders of either Fund may exchange their shares
for shares of certain other funds in the Eaton Vance
Marathon Group of Funds without incurring the CDSC.
The shares acquired in an exchange may be subject to a
CDSC upon redemption. For purposes of computing the
CDSC payable upon redemptions of shares acquired in an
exchange, the holding period of the original shares is
added to the holding period of the shares acquired in
the exchange. Each exchange represents a sale of
shares, which may produce a gain or loss for tax
purposes.
DISTRIBUTION PROCEDURES It is the present policy of Equity-Income and Total
Return to pay dividends quarterly and monthly,
respectively, from net investment income, if any. Each
Fund also distributes annually all of its other
taxable income, including both net realized short-term
and long-term capital gains, if any. Equity-Income
will make, immediately prior to the closing date of
the Reorganization, a distribution of all of its net
income and net realized capital gains, if any, not
previously distributed.
REINVESTMENT OPTIONS The shareholders of both Equity-Income and Total
Return have available the following distribution
options: Share Option (dividends and capital gains in
additional shares); Income Option (dividends in cash,
capital gains in additional shares); and Cash Option
(dividends and capital gains in cash). Purchases of
shares of both Funds pursuant to reinvestment of
dividends and capital gains distributions are made at
their respective effective net asset values per share
(net of any required tax withholding on the
distributions) and are not subject to any sales
charges.
REDEMPTION PROCEDURES Shares of Equity-Income and Total Return may be
redeemed on any business day at a price equal to the
net asset value of the shares next determined after
receipt by their common transfer agent, The
Shareholder Service Group, Inc., of a written
redemption request in good order less the applicable
CDSC, if any. Alternatively, shareholders of both
Funds may sell their shares through security dealers,
who may charge a fee. No such fees or CDSC will be
incurred in connection with the Reorganization. Shares
of Equity-Income may be redeemed up to and including
the closing date of the Reorganization.
THE
REORGANIZATION
EFFECT OF THE Pursuant to the terms of the Agreement, the
REORGANIZATION Reorganization will consist of a transfer of all of
the assets of Equity-Income (which consist primarily
of an interest in the Portfolio) to Total Return in
exchange solely for Total Return Shares, the
assumption by Total Return of certain liabilities of
Equity-Income, the distribution of Total Return
Shares to the shareholders of Equity-Income in
liquidation of Equity-Income and the termination of
Equity-Income.
The Reorganization will become effective on the
closing date, scheduled for October 30, 1995 or such
other date on or before December 31, 1995 as
Equity-Income and Total Return may agree (the "Closing
Date"). The assets of Equity-Income will be valued on
the business day immediately preceding the Closing
Date (the "Valuation Date"), which is expected to be
October 27, 1995. The number of Total Return Shares to
be issued to Equity-Income will be that number of
Total Return Shares having an aggregate net asset
value equal to the aggregate value of Equity-Income's
assets, less liabilities assumed, transferred to Total
Return.
TAX CONSIDERATIONS The consummation of the Reorganization is subject to
the receipt of an opinion of Brown & Wood,
satisfactory to Equity-Income and Total Return,
substantially to the effect that for purposes: (a) the
acquisition by Total Return of all of the assets of
Equity-Income solely in exchange for the issuance of
Total Return Shares to Equity-Income and the
assumption of certain Equity-Income liabilities by
Total Return, followed by the distribution by
Equity-Income, in liquidation of Equity-Income, of
Total Return Shares to the shareholders of Equity-
Income in exchange for their Equity-Income shares of
beneficial interest and the termination of
Equity-Income, will constitute a reorganization within
the meaning of Section 368 (a)(1) of the Internal
Revenue Code of 1986, as amended (the "Code"), and
Equity-Income and Total Return will each be "a party
to a reorganization" within the meaning of Section 368
(b) of the Code; (b) no gain or loss will be
recognized by Equity-Income upon (i) the transfer of
all of its assets to Total Return solely in exchange
for the issuance of Total Return Shares to
Equity-Income and the assumption of certain
Equity-Income liabilities by Total Return and (ii) the
distribution by Equity-Income of Total Return Shares
to the shareholders of Equity-Income; (c) no gain or
loss will be recognized by Total Return upon the
receipt of the assets of Equity-Income solely in
exchange for the issuance of Total Return Shares to
Equity-Income and the assumption of certain
Equity-Income liabilities by Total Return; (d) the
basis of the assets of Equity-Income acquired by Total
Return will be, in each instance, the same as the
basis of those assets in the hands of Equity-Income
immediately prior to the transfer; (e) the tax holding
period of the assets of Equity-Income in the hands of
Total Return will, in each instance, include the tax
holding period of Equity-Income for those assets; (f)
the shareholders of Equity-Income will not recognize
gain or loss upon the exchange of all of their
Equity-Income shares of beneficial interest solely for
Total Return Shares as part of the transaction; (g)
the basis of the Total Return Shares to be received by
the Equity-Income shareholders in the transaction will
be the same as the basis of the Equity-Income shares
of beneficial interest surrendered in exchange
therefor; and (h) the tax holding period of the Total
Return Shares to be received by the Equity-Income
shareholders will include, for each shareholder, his
tax holding period for the Equity-Income shares of
beneficial interest surrendered in exchange therefor,
provided the Equity-Income shares were held as capital
assets on the date of the exchange.
As regulated investment companies under the Code,
neither Equity-Income nor Total Return pay federal
income or excise taxes to the extent that they
distribute to shareholders their respective net
investment income and net realized capital gains in
accordance with the timing requirements imposed by the
Code. Under current law, provided that each of Equity-
Income, and Total Return qualifies as a regulated
investment company for federal income tax purposes, it
is not liable for any income, corporate excise or
franchise tax in the Commonwealth of Massachusetts.
UNREIMBURSED DISTRIBUTION The Board of Trustees of each of Equity-Income and
EXPENSES Special Investment Trust (on behalf of Total Return)
has determined that, if the Reorganization is
consummated, distribution expenses incurred in
connection with shares of Equity-Income, and not
reimbursed under Equity-Income's Rule 12b-1 Plan or
through CDSCs, will be reimbursable expenses under
Total Return's Rule 12b-1 Plan (the "assumption").
However, the maximum aggregate amounts payable during
any fiscal year under Total Return's Rule 12b-1 Plan
(including a distribution fee of up to 0.75% of
average daily net assets) will not be affected by the
assumption. The Trustees of Special Investment Trust
will consider formal amendment of Total Return's Rule
12b-1 Plan on October 23, 1995 to permit the
assumption. If not approved, the assumption will not
occur.
With respect to Total Return's shares, the percentage
of net assets on a pro forma combined basis that the
unreimbursed expenses represent will decrease as a
result of the Reorganization and the assumption. As of
June 30, 1995, the unreimbursed distribution expenses
of Total Return in the aggregate were $1,352,064 (4.5%
of Total Return's net assets). As of the same date,
the unreimbursed distribution expenses of
Equity-Income in the aggregate were $392,238 (1.6% of
Equity-Income's net assets). After the
Reorganization, on a pro forma combined basis, the
unreimbursed distribution expenses of Total Return in
the aggregate will be $1,743,650 (3.2% of Total
Return's pro forma net assets).
The assumption will have no immediate effect upon the
payments made under Total Return's Rule 12b-1 Plan.
While Eaton Vance Distributors, Inc. hopes to recover
unreimbursed distribution expenses over an extended
period of time, Total Return is not obligated to
assure that these amounts are recouped by Eaton Vance
Distributors, Inc.
Unreimbursed distribution expenses do not currently
appear as an expense or liability in the financial
statements of either Fund, nor will they appear in the
financial statements of Total Return after the
Reorganization until paid or accrued. Unreimbursed
expenses do not enter into the calculation of a Fund's
net asset value or the formula for calculating Rule
12b-1 payments. Even in the event of termination or
noncontinuance of Total Return's Rule 12b-1 Plan,
Total Return is not legally committed, and is not
required to commit, to the payment of any unreimbursed
distribution expenses. The staff of the Securities and
Exchange Commission has not approved or disapproved
the treatment of the unreimbursed distribution
expenses described in this Proxy Statement.
THE MEETING
TIME, PLACE AND DATE The Meeting will be held on Thursday, October 26,
1995 at 11:00 A.M., Boston Time, at 24 Federal Street,
Boston, Massachusetts 02110.
RECORD DATE August 30, 1995.
VOTE REQUIRED Approval of the Agreement by the shareholders of
FOR APPROVAL Equity-Income requires theaffirmative vote of a
plurality of outstanding voting securities of Equity-
Income. See "INFORMATION CONCERNING THE MEETING --
Voting Rights and Required Vote."
REASONS FOR THE PROPOSED REORGANIZATION
The Board of Trustees of Equity-Income believes that the proposed
Reorganization will be beneficial to the shareholders of Equity-Income in
several respects. The Trustees of Equity-Income, all of whom (except Landon T.
Clay) also serve as Trustees of Special Investment Trust, considered the
following matters, among others, in approving the Reorganization.
GENERAL
Given that Equity-Income and Total Return are both part of the Eaton Vance
group of mutual funds, and have the same investment objectives, the
Reorganization would eliminate competition for investors between the Funds that
may now exist.
In addition, both Equity-Income and Total Return incur, directly or
indirectly, overhead costs for securities registration, printing, and
accounting, distribution, legal, transfer agency, custodial and administrative
services. However, once the Reorganization is completed, some of those expenses
are expected to decline as a percentage of net asset value as a result of
economies of scale that should be achieved through the increased asset and
income base following the Reorganization.
The Board of Trustees of Equity-Income believes that over time the aggregate
per share expenses of Total Return should be less than or approximately equal to
the expenses that would be incurred by Equity-Income, although there can be no
assurance that such expense savings will be realized.
As of June 30, 1995, the net assets of Equity-Income were $24,902,287 and of
Total Return were $29,728,046.
Equity-Income's ratio of expenses to average daily net assets (including
allocated Portfolio expenses) was 2.49% for the year ended June 30, 1995. As a
percentage of average daily net assets, this ratio was comprised of the
following fees and expenses:
YEAR ENDED
JUNE 30, 1995
-------------
Investment Advisory Fees 0.74%
Rule 12b-1 Distribution (and Service) Fees 0.94%
Other Expenses (including auditing, registration and
legal fees, printing and miscellaneous expenses) 0.81%
-----
TOTAL OPERATING EXPENSES 2.49%
====
Total Return's ratio of expenses to average daily net assets (including
allocated Portfolio expenses) for the year ended June 30, 1995 was 2.08%. As a
percentage of average daily net assets, this ratio was as follows:
YEAR ENDED
JUNE 30, 1995
-------------
Investment Advisory Fees 0.74%
Rule 12b-1 Distribution (and Service) Fees 0.77%
Other Expenses (including auditing, registration and
legal fees, printing and miscellaneous expenses) 0.57%
-----
TOTAL OPERATING EXPENSES 2.08%
====
Based on the respective net assets of Equity-Income and Total Return as of
June 30, 1995, and using actual expenses for Equity-Income and actual expenses
of Total Return for the year ended June 30, 1995, there is an estimated annual
savings in expenses to Equity-Income of $97,000. This figure represents $0.034
per share on the Total Return Shares that would have been held by former
Equity-Income shareholders as of June 30, 1995 if the Reorganization had
occurred as of that date. Based on the same data and estimates, there is an
estimated annual saving in expenses net of reorganization costs to Total Return
of $8,900, or $0.003 per Total Return Share outstanding as of that date.
Had the Reorganization occurred on June 30, 1995, the ratio of projected
expenses to the combined net assets of Equity-Income and Total Return net of
reorganization costs at that date would have been approximately 2.05%, after
giving effect to such Reorganization, or approximately 0.44% lower than
Equity-Income's expense ratio of approximately 2.49% for the year ended June 30,
1995. (Reorganization costs are expected to be up to $30,000 and would be borne
by Equity-Income prior to the Reorganization.)
BOARD'S EVALUATION AND RECOMMENDATION
On the basis of the factors described above and other factors, the Board of
Trustees of Equity-Income determined that the Reorganization was in the best
interest of Equity-Income and that the interests of such Fund's shareholders
would not be diluted as a result of the Reorganization. In addition, on the
basis of the factors described above and other factors, the Board of Trustees of
Special Investment Trust, on behalf of Total Return, determined that the
Reorganization was in the best interest of Total Return and that the interests
of such Total Return's shareholders would not be diluted as a result of the
Reorganization.
RISK FACTORS
Because Equity-Income and Total Return have identical investment objectives
and policies, the Trustees of each Fund believe the Reorganization presents no
additional investment risks to shareholders.
INFORMATION CONCERNING THE MEETING
SOLICITATION, REVOCATION AND USE OF PROXIES
A majority of the shares of Equity-Income that are present and entitled to
vote at the Meeting will be a quorum for the transaction of business. An
Equity-Income shareholder executing and returning a proxy has the power to
revoke it at any time before it is exercised by filing with Equity-Income's
transfer agent, The Shareholder Services Group, Inc., BOS725, P.O. Box 1559,
Boston, Massachusetts 02104, a written notice of revocation or by returning a
duly executed proxy bearing a later date prior to the time of the Meeting. Any
shareholder who has executed a proxy but is present at the Meeting and who
wishes to vote in person may revoke his proxy by notifying the Secretary of
Equity-Income (without complying with any formalities) at any time before it is
voted. Presence at the Meeting alone will not serve to revoke a previously
executed and returned proxy.
All shares represented by properly executed proxies, unless such proxies
have previously been revoked, will be voted at the Meeting in accordance with
the directions on the proxies. If no direction is indicated, the shares will be
voted "FOR" the approval of the Agreement.
It is not anticipated that any matters other than the approval of the
Agreement will be brought before the Meeting. Should other business properly be
brought before the Meeting, it is intended that the accompanying proxies will be
voted in accordance with the judgment of the persons named as such proxies. The
proxies may be voted to adjourn the meeting to one or more later dates to permit
additional time for the solicitation of proxies.
In the event that at the time any session of the Meeting is called to order
a quorum is not present in person or by proxy, the persons named as proxies may
vote those proxies which have been received to adjourn the Meeting to a later
date. In the event that a quorum is present but sufficient votes in favor of the
Proposal have not been received, the persons named as proxies may propose one or
more adjournments of the Meeting to permit further solicitation of proxies with
respect to the Proposal. Any such adjournment will require the affirmative vote
of a majority of the shares of Equity-Income present in person or by proxy at
the session of the Meeting to be adjourned. In the event that an adjournment of
the Meeting is proposed because sufficient votes in favor of the Proposal have
not been obtained, although a quorum is present at the Meeting, the persons
named as proxies will vote those proxies in favor of the Proposal in favor of
such adjournment and will vote those proxies against the Proposal against such
adjournment. A shareholder vote may be taken on one or more of the proposals in
the Proxy Statement prior to such adjournment if sufficient votes for its
approval have been received and it is otherwise appropriate.
RECORD DATE AND OUTSTANDING SHARES
Only Equity-Income shareholders of record at the close of business on August
30, 1995 (the "Record Date"), are entitled to notice of and to vote at the
Meeting and any postponement or adjournment thereof. At the close of business on
the Record Date, there were 2,174,386.872 shares of beneficial interest of
Equity-Income outstanding.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT OF EQUITY-INCOME AND TOTAL RETURN
To the knowledge of Equity-Income, as of the Record Date, no person owned of
record or beneficially 5% or more of the outstanding shares of beneficial
interest of Equity-Income, except that Merrill, Lynch, Pierce, Fenner & Smith,
Inc. ("Merrill Lynch"), Jacksonville, Florida, a broker-dealer, held of record
approximately 37.5% of the outstanding shares; Merrill, Lynch has informed
Equity-Income that none of its customers beneficially owned more than 5% of the
outstanding shares. As of each date, the Trustees and officers of Equity-Income
owned less than 1% of the outstanding shares of beneficial interest of
Equity-Income.
To the knowledge of Total Return, as of the Record Date, no person owned of
record or beneficially 5% or more of the outstanding shares of beneficial
interest of Total Return, except that Merrill Lynch held of record approximately
8.9% of the outstanding shares; Merrill Lynch has informed Total Return that
none of its customers beneficially own more than 5% of the outstanding shares.
As of such date, the Trustees and officers of Total Return owned less than 1% of
the outstanding shares of beneficial interest of Total Return.
VOTING RIGHTS AND REQUIRED VOTE
Each Equity-Income share is entitled to one vote. Shares of beneficial
interest represented in person or by proxy (including shares which abstain or do
not vote with respect to the Proposal) will be counted for purposes of
determining whether a quorum is present at the Meeting. Abstentions will be
treated as shares that are present and entitled to vote for purposes of
determining the number of shares that are present and entitled to vote with
respect to the Proposal, but will not be counted as a vote in favor of the
Proposal. Accordingly, an abstention from voting on the Proposal or a "broker
non-vote" has the same effect as a vote against the Proposal. If no direction is
indicated, the shares will be voted "FOR" the approval of the Proposal.
Approval of the Proposal requires the affirmative vote of a plurality of the
outstanding voting securities of Equity-Income. If the requisite approval of
shareholders is not obtained, Equity-Income will continue to engage in business
as a registered open-end, management investment company and the Board of
Trustees will consider what further action may be appropriate.
PROPOSAL TO APPROVE THE AGREEMENT AND PLAN OF REORGANIZATION
The shareholders of Equity-Income are being asked to approve the Agreement,
a copy of which is attached as Exhibit A. Detailed information with respect to
Total Return is set forth in the current Total Return Prospectus, which is
enclosed with this Proxy Statement and Prospectus. The Reorganization will
consist of the transfer of all of the assets of Equity-Income to Total Return in
exchange solely for Total Return Shares and the assumption of certain
liabilities of Equity-Income by Total Return, the distribution, pursuant to the
Agreement, of the Total Return Shares to the shareholders of Equity-Income in
liquidation of Equity-Income as provided in the Agreement, and the termination
of Equity-Income. The number of Total Return Shares to be issued upon the
consummation of the Reorganization will be that number of Total Return Shares
having an aggregate net asset value equal to the aggregate value of
Equity-Income' assets, less liabilities assumed, transferred to Total Return,
see "Description of Agreement."
Pursuant to the Agreement, Equity-Income will liquidate and distribute the
Total Return Shares received as described above pro rata to its shareholders of
record determined as of the close of regular trading on the New York Stock
Exchange on the last day such Exchange is open for unrestricted trading
immediately preceding the effective date of the Reorganization. The result of
the transfer of assets will be that shareholders of Equity-Income will become
shareholders of Total Return.
The Agreement and the Reorganization were approved on August 7, 1995 by the
Boards of Trustees of Equity-Income and Special Investment Trust.
DESCRIPTION OF THE AGREEMENT
The following explanation of the Agreement is a summary, does not purport to
be complete, and is subject in all respects to the provisions of, and is
qualified in its entirety by reference to, the Agreement. A copy of the
Agreement is attached hereto as Exhibit A of this Proxy Statement and should be
read in its entirety. Paragraph references are to appropriate provisions of the
Agreement.
METHOD OF CARRYING OUT REORGANIZATION. If Equity-Income shareholders holding
at least a plurality of the outstanding Equity-Income shares of beneficial
interest approve the Agreement, the Reorganization will be consummated promptly
after the various conditions to the obligations of each of the parties are
satisfied (see Agreement paragraphs 4 through 8). The Reorganization will be
effected on October 31, 1995, or such other date on or before December 31, 1995,
as the parties may agree to in writing (the "Closing Date"). As of the date of
this proxy statement, the parties have designated Monday, October 30, 1995 as
the Closing Date.
On the Closing Date, Equity-Income will transfer all of its net assets in
exchange for Total Return Shares having an aggregate net asset value equal to
the value of the assets, less the liabilities of Equity-Income assumed,
delivered as of the close of business on the business day next preceding the
Closing Date (the "Valuation Date") (see Agreement paragraphs 1 and 2).
The value of Equity-Income assets and the Total Return per share net asset
value will be determined in accordance with the valuation procedures set forth
in Special Investment Trust's Declaration of Trust or By-laws and Total Return's
current prospectus (see "Valuing Fund Shares" in the Total Return Prospectus).
No sales charge will be imposed on the Total Return Shares delivered in exchange
for the assets of Equity-Income.
SURRENDER OF SHARE CERTIFICATES. Equity-Income shareholders whose shares of
beneficial interest are represented by one or more share certificates should,
prior to the Closing Date, either surrender such certificates to Equity-Income
or deliver to Equity-Income an affidavit with respect to lost certificates, in
such form and accompanied by such surety bonds as Equity-Income may require
(collectively, an "Affidavit"). On the Closing Date, all certificates which have
not been so surrendered will be deemed to be cancelled, will no longer evidence
ownership of Equity-Income shares and will not evidence ownership of Total
Return Shares. Such shareholders may not redeem or transfer Total Return Shares
received in the Reorganization until they have surrendered their Equity-Income
certificates or delivered an Affidavit relating thereto. Total Return will not
issue share certificates except upon request.
CONDITIONS PRECEDENT TO CLOSING. The obligation of Equity-Income to transfer
its assets to Total Return pursuant to the Agreement is subject to the
satisfaction of certain conditions precedent, including performance by Total
Return of all acts and undertakings required to be performed under the
Agreement, the receipt of certain documents from Total Return, the receipt of an
opinion of tax counsel and the receipt of all consents, orders and permits
necessary to consummate the Reorganization (see Agreement paragraphs 4 through
8).
Total Return's obligation to consummate the Reorganization is subject to the
satisfaction of certain conditions precedent, including the performance by
Equity-Income of all acts and undertakings to be performed under the Agreement,
the receipt of certain documents and financial statements from Equity-Income,
the receipt of an opinion of tax counsel and the receipt of all consents, orders
and permits necessary to consummate the Reorganization (see Agreement paragraphs
4 through 8).
The obligations of both parties are subject to the receipt of approval and
authorization of the Agreement by the vote of not less than a plurality of the
Equity-Income shares outstanding and entitled to vote (as described in the
section entitled "Voting Rights and Required Vote") and the receipt of a
favorable opinion of Messrs. Brown & Wood as to the federal income tax
consequences of the Reorganization (see Agreement paragraph 8.6).
EXPENSES OF THE REORGANIZATION. Total Return and Equity-Income will each be
responsible for its own expenses incurred in connection with entering into and
carrying out the provisions of this Agreement whether or not the Reorganization
is consummated.
CAPITALIZATION
The following table sets forth the capitalization of Total Return and
Equity-Income as of June 30, 1995, and the pro forma combined capitalization of
both as if the Reorganization had occurred on that date. The table reflects a
pro forma exchange ratio of approximately 3,356,000 Total Return Shares being
issued for each Equity-Income share. If the Reorganization is consummated, the
actual exchange ratio on the Closing Date of the Reorganization may vary from
the ratio indicated due to changes in the respective entities net asset values
as the result of expenses and differing proportionate interests of the Portfolio
market value changes between June 30, 1995, and the Valuation Date, changes in
the amount of undistributed net investment income of Total Return and
Equity-Income during that period resulting from net income (loss) and
distributions and changes in the accrued liabilities of Total Return and
Equity-Income during the same period.
<TABLE>
<CAPTION>
JUNE 30, 1995 (UNAUDITED)
TOTAL PRO FORMA
EQUITY-INCOME RETURN COMBINED
------------- ----------- ------------
<S> <C> <C> <C>
Net Assets ................................. $24,902,287 $29,728,046 $54,630,333
Net Asset Value per Share .................. $ 10.79 $ 8.86 $ 8.86
Shares Outstanding ......................... 2,308,000 3,356,000 6,167,000<F1>
Shares Authorized .......................... Unlimited Unlimited Unlimited
---------
<FN>
<F1>If the Reorganization had taken place on June 30, 1995, Equity-Income would
have received 2,811,000 Total Return Shares, which would be available for
distribution to its shareholders. No assurances can be given as to the
number of Total Return Shares that will be received by Equity-Income on the
Closing Date. The foregoing is merely an example of what Equity-Income would
have received and distributed had the Reorganization been consummated on
June 30, 1995, and should not be relied upon to reflect the amount that will
actually be received on or after the Closing Date.
</FN>
</TABLE>
TAX CONSIDERATIONS. The consummation of the Reorganization is subject to
the receipt of a favorable tax opinion of Brown & Wood, satisfactory to
Equity-Income and Total Return, substantially to that effect that:
(a) The acquisition by Total Return of all of the assets of Equity-
Income solely in exchange for the issuance of Total Return Shares to
Equity-Income and the assumption of certain Equity-Income liabilities by
Total Return, followed by the distribution by Equity-Income, in liquidation
of Equity-Income, of Total Return Shares to the shareholders of
Equity-Income in exchange for their Equity-Income shares of beneficial
interest and the termination of Equity-Income, will constitute a
reorganization within the meaning of Section 368(a)(1) of the Code, and
Equity-Income and Total Return will each be "a party to a reorganization"
within the meaning of Section 368(b) of the Code;
(b) No gain or loss will be recognized by Equity-Income upon (i) the
transfer of all of its assets to Total Return solely in exchange for the
issuance of Total Return Shares to Equity-Income and the assumption of
certain Equity-Income liabilities by Total Return and (ii) the distribution
by Equity-Income of Total Return Shares to the shareholders of
Equity-Income;
(c) No gain or loss will be recognized by Total Return upon the receipt
of the assets of Equity-Income solely in exchange for the issuance of Total
Return Shares to Equity-Income and the assumption of certain Equity-Income
liabilities by Total Return;
(d) The basis of the assets of Equity-Income acquired by Total Return
will be, in each instance, the same as the basis of those assets in the
hands of Equity-Income immediately prior to the transfer;
(e) The tax holding period of the assets of Equity-Income in the hands
of Total Return will, in each instance, include the tax holding period of
Equity-Income for those assets;
(f) The shareholders of Equity-Income will not recognize gain or loss
upon the exchange of all of their Equity-Income shares of beneficial
interest solely for Total Return Shares as part of the transaction;
(g) The basis of the Total Return Shares to be received by the Equity-
Income shareholders in the transaction will be the same as the basis of the
Equity-Income shares of beneficial interest surrendered in exchange
therefor; and
(h) The tax holding period of the Total Return Shares to be received by
the Equity-Income shareholders will include, for each shareholder, his or
her tax holding period for the Equity-Income shares of beneficial interest
surrendered in exchange therefor, provided the Equity-Income shares were
held as capital assets on the date of the exchange.
COMPARATIVE PERFORMANCE INFORMATION
Equity-Income's total return (excluding the effect of the contingent
deferred sales charge) for the period October 1, 1994 (when it invested in the
Portfolio) through June 30, 1995 was 9.43%.
Total Return was established as a series of Special Investment Trust and
commenced offering its shares effective October 28, 1993. The total return
(excluding the effects of the contingent deferred sales charge) for the period
October 1, 1994 through June 30, 1995, for one year through June 30, 1995 and
for the life of the Fund was 9.81%, 8.37% (annualized) and -3.12% (annualized),
respectively.
For additional performance information, see the Statement of Additional
Information.
BUSINESS OF EQUITY-INCOME
GENERAL
For a discussion of the organization and operation of Equity-Income, see
"Organization of the Fund and the Portfolio" and "How the Fund and the
Portfolio Invest their Assets; Investment Risks" in the Equity-Income
Prospectus.
INVESTMENT OBJECTIVE AND POLICIES
For a discussion of Equity-Income's investment objective and policies, see
"The Fund's Investment Objective" and "How the Fund and the Portfolio Invest
their Assets" in the Equity-Income Prospectus.
TRUSTEES
For a discussion of the responsibilities of Equity-Income's Board of
Trustees, see "Management of the Fund and the Portfolio" in the Equity-Income
Prospectus.
INVESTMENT ADVISER, ADMINISTRATOR AND DISTRIBUTOR
For a description of the Portfolio's investment adviser, and Equity-
Income's administrator and principal underwriter, see "Management of the Fund
and the Portfolio" and "How to Buy Shares of the Fund for Cash" in the Equity-
Income Prospectus.
EXPENSES
For a discussion of Equity Income's expenses, see "Shareholder and Fund
Expenses," "The Fund's Financial Highlights," "Management of the Fund and the
Portfolio" and "Distribution Plan" in the Equity-Income Prospectus.
CUSTODIAN AND TRANSFER AGENT
For a description of Equity-Income's custodian and transfer agent, see "How
to Buy Shares of the Fund for Cash," "How the Fund and the Portfolio Determine
their Net Asset Values" and "The Lifetime Investing Account/ Distribution
Options" in the Equity-Income Prospectus.
EQUITY-INCOME SHARES
For a discussion of the Equity-Income shares, see "Organization of the Fund
and the Portfolio" in the Equity-Income Prospectus.
PURCHASE OF EQUITY-INCOME SHARES
For a description of how Equity-Income shares may be purchased or exchanged,
see "How to Buy Shares of the Fund for Cash," "How to Acquire Fund Shares in
Exchange for Securities", "Eaton Vance Exchange Privilege" and "Eaton Vance
Shareholder Services" in the Equity-Income Prospectus.
REDEMPTION OF EQUITY-INCOME SHARES
For a description of how Equity-Income shares may be redeemed, see "How to
Redeem or Sell Fund Shares" in the Equity-Income Prospectus.
DIVIDENDS, DISTRIBUTIONS AND TAXES
For a discussion of Equity-Income's policy with respect to dividends,
distributions and taxes see "Distributions and Taxes" in the Equity-Income
Prospectus.
BUSINESS OF TOTAL RETURN
GENERAL
For a discussion of the organization and operation of Total Return, see
"Organization of the Fund and the Portfolio" and "How the Fund and Portfolio
Invest their Assets; Investment Risks" in the Total Return Prospectus.
INVESTMENT OBJECTIVE AND POLICIES
For a discussion of the investment objectives and policies of Total Return
and the Portfolio, see "The Fund's Investment Objective," "How the Fund and
the Portfolio Invest their Assets -- Investment Risks," "Leverage Through
Borrowing -- Lending of Securities, "Options and Futures Transactions and
Strategies" and "Total Return Risk Considerations" in the Total Return
Prospectus.
TRUSTEES
For a discussion of the responsibilities of the Board of Trustees of
Special Investment Trust, see "Management of the Fund and the Portfolio" in
the Total Return Prospectus.
INVESTMENT ADVISER, ADMINISTRATOR AND DISTRIBUTOR
For a description of the Portfolio's investment adviser, and Total
Return's administrator and principal underwriter, see "Management of the Fund
and the Portfolio" and "How to Buy Fund Shares" in the Total Return
Prospectus.
EXPENSES
For a discussion of Total Return's expenses, see "Shareholder and Fund
Expenses," "The Fund's Financial Highlights," "Management of the Fund and the
Portfolio," and "Distribution Plan" in the Total Return Prospectus.
CUSTODIAN AND TRANSFER AGENT
For a description of Total Return's custodian and transfer agent, see "How
to Buy Fund Shares," "Valuing Fund Shares" and "The Lifetime Investing
Account/Distribution Options" in the Total Return Prospectus.
TOTAL RETURN SHARES
For a discussion of the Total Return Shares, see "Organization of the Fund
and the Portfolio" in the Total Return Prospectus.
PURCHASE OF TOTAL RETURN SHARES
For a description of how shares of Total Return may be purchased or
exchanged, see "How to Buy Fund Shares," "The Eaton Vance Exchange Privilege,"
and "Eaton Vance Shareholder Services" in the Total Return Prospectus. Purchases
of shares of Total Return are normally subject to a contingent deferred sales
charge. The CDSC will apply to Total Return Shares acquired as a result of the
Reorganization but the holding period for purposes of computing the CDSC on
Total Return Shares will include the period before the Reorganization during
which shares of Equity-Income were held.
REDEMPTION OF TOTAL RETURN SHARES
For a discussion of how shares of Total Return may be redeemed, see "How to
Redeem Fund Shares" in the Total Return Prospectus. Equity-Income shareholders
whose shares are represented by certificates will be required to surrender their
certificates for cancellation or deliver an Affidavit to Equity-Income or its
transfer agent, The Shareholder Services Group, Inc., in order to redeem or
transfer Total Return Shares received in the Reorganization.
DIVIDENDS, DISTRIBUTIONS AND TAXES
For a discussion of Total Return's policy with respect to dividends,
distributions and taxes, see "Distributions and Taxes" in the Total Return
Prospectus.
EXPERTS
The Statement of Assets and Liabilities of Total Return included in its
current Statement of Additional Information, dated December 31, 1994, have been
audited by Coopers & Lybrand L.L.P., independent certified public accountants.
The financial statements audited by Coopers & Lybrand L.L.P. have been
incorporated herein by reference in reliance on their report given on their
authority as experts in accounting and auditing.
The financial statements of Equity-Income included in its Statement of
Additional Information dated December 31, 1994 have been audited by Coopers &
Lybrand L.L.P., independent certified public accountants. The financial
statements audited by Coopers & Lybrand L.L.P. have been incorporated herein by
reference in reliance on their report given on their authority as experts in
accounting and auditing.
NOTICE TO BANKS AND BROKER/DEALERS
Equity-Income has previously solicited all nominee and broker/dealer
accounts as to the number of additional Proxy Statements and Annual Reports
required to supply owners of shares. Should additional proxy materials be
required for beneficial owners, please forward such requests to: The Shareholder
Services Group, Inc., Eaton Vance Group of Funds, Proxy Department, P.O. Box
9122, Hingham, MA 02043-9717.
AVAILABLE INFORMATION
Equity-Income and Total Return are subject to the informational requirements
of the Securities Exchange Act of 1934 and the Investment Company Act of 1940,
and in accordance therewith file reports, proxy statements and other information
with the Securities and Exchange Commission (the "Commission"). Such reports,
proxy statements and other information filed by Equity-Income and Total Return
can be inspected and copied at the public reference facilities of the Commission
at Room 1024, 450 Fifth Street, N.W., Washington, D.C., and at the following
regional offices: Chicago (Room 1204, Everett McKinley Dirksen Building, 219
South Dearborn Street, Chicago, Illinois); and New York (Room 1102, Federal
Building, 26 Federal Plaza, New York, New York). Copies of such material can
also be obtained by mail from the Public Reference Section of the Commission at
450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates.
<PAGE>
EXHIBIT A
AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION (the "Agreement") is made as of
this 7th day of August, 1995, between Eaton Vance Special Investment Trust
("Special Investment Trust"), a Massachusetts business trust, with its principal
place of business at 24 Federal Street, Boston, Massachusetts 02110, on behalf
of EV Marathon Total Return Fund ("Total Return"), and Eaton Vance Equity-Income
Trust ("Equity-Income"), a Massachusetts business trust with its principal place
of business at 24 Federal Street, Boston, Massachusetts 02110.
This Agreement is intended to be and is adopted as a plan of reorganization
within the meaning of Section 368(a)(1) of the United States Internal Revenue
Code of 1986, as amended (the "Code"). The reorganization will consist of the
transfer of all of the assets of Equity-Income to Total Return in exchange
solely for the issuance of shares of beneficial interest of Total Return (the
"Total Return Shares") to Equity-Income, the assumption by Total Return of
certain liabilities of Equity-Income, and the distribution, on or promptly after
the Closing Date hereinafter referred to, of the Total Return Shares to the
shareholders of Equity-Income in liquidation and termination of Equity-Income as
provided herein, all upon the terms and conditions hereinafter set forth in this
Agreement.
In consideration of the premises of the covenants and agreements
hereinafter set forth, the parties hereto covenant and agree as follows:
1. TRANSFER OF ASSETS OF EQUITY-INCOME IN EXCHANGE FOR TOTAL RETURN SHARES
AND LIQUIDATION OF EQUITY-INCOME
1.1 Equity-Income will transfer all of its assets (consisting, without
limitation, of portfolio securities and instruments, dividends and interest
receivables, cash and other assets), as set forth in a statement of assets and
liabilities (the "Statement of Assets and Liabilities"), to Total Return free
and clear of all liens and encumbrances, except as otherwise provided herein in
exchange for (i) the assumption by Total Return of the liabilities of
Equity-Income set forth in the Statement of Assets and Liabilities, which shall
be assigned and transferred to and assumed by Total Return, and (ii) delivery by
Total Return to Equity-Income, for distribution pro rata by Equity-Income to its
shareholders as of the close of business on the closing date (the "Closing
Date"), of a number of Total Return Shares having an aggregate net asset value
equal to the value of the assets, less such liabilities (herein referred to as
the "net value of the assets"), of Equity-Income so transferred, assumed,
assigned and delivered, all determined as provided in paragraph 2 and as of a
date and time as specified therein. Such transactions shall take place at the
closing provided for in paragraph 3.1 hereof (the "Closing"). All computations
shall be provided by Investors Bank & Trust Company (the "Custodian"), as
custodian and pricing agent for Total Return and for Equity-Income and shall be
recomputed by Coopers & Lybrand L.L.P., independent auditors of Equity-Income.
The determination of the Custodian, as recomputed by said auditors, shall be
conclusive and binding on all parties in interest.
1.2 Equity-Income has provided Total Return with a list of the current
securities holdings of Equity-Income as of the date of execution of this
Agreement. Equity-Income reserves the right to sell any of these securities
(except to the extent sales may be limited by representations made in connection
with issuance of the tax opinion described in paragraph 8.6 hereof) but will
not, without the prior approval of Total Return, acquire any additional
securities other than securities of the type in which Total Return is permitted
to invest.
1.3 Total Return shall assume only those liabilities of Equity-Income set
forth on the Statement of Assets and Liabilities and shall not assume any other
liabilities, whether absolute or contingent, known or unknown, accrued or
unaccrued. Total Return and Equity-Income shall each bear its own expenses in
connection with the transactions contemplated by this Agreement.
1.4 On or as soon after the Closing Date as is conveniently practicable (the
"Liquidation Date"), Equity-Income will liquidate and distribute pro rata to
shareholders of record ("Equity-Income shareholders"), determined as of the
close of regular trading on the New York Stock Exchange on the last day such
Exchange is open for unrestricted trading immediately preceding the Closing Date
(the "Valuation Date"), the Total Return Shares received by Equity-Income
pursuant to paragraph 1.1. Such liquidation and distribution will be
accomplished by the transfer of the Total Return Shares then credited to the
account of Equity-Income on the books of Total Return, to open accounts on the
share records of Total Return in the names of the Equity-Income shareholders and
representing the respective pro rata number of Total Return Shares due such
shareholders. Total Return shall not issue certificates representing Total
Return Shares in connection with such exchange.
1.5 Equity-Income shareholders holding certificates representing their
ownership of shares of beneficial interest of Equity-Income shall surrender such
certificates or deliver an affidavit with respect to lost certificates, in such
form and accompanied by such surety bonds as Equity-Income may require
(collectively, an "Affidavit"), to Equity-Income prior to the Closing Date. Any
Equity-Income certificate which remains outstanding on the Closing Date shall be
deemed to be cancelled, shall no longer evidence ownership of shares of
beneficial interest of Equity-Income and shall evidence ownership of Total
Return Shares. Unless and until any such certificate shall be so surrendered or
an Affidavit relating thereto shall be delivered, dividends and other
distributions payable by Total Return subsequent to the Liquidation Date with
respect to Total Return Shares shall be paid to the holder of such certificate
(s), but such shareholders may not redeem or transfer Total Return Shares
received in the Reorganization. Total Return will not issue share certificates
except upon request.
1.6 Any transfer taxes payable upon issuance of Total Return Shares in a
name other than the registered holder of the Total Return Shares on the books of
Equity-Income as of that time shall, as a condition of such issuance and
transfer, be paid by the person to whom such Total Return Shares are to be
issued and transferred.
1.7 Equity-Income shall be terminated as a Massachusetts business trust
promptly following the Liquidation Date.
2. VALUATION
2.1 The net asset value of Total Return Shares and the net value of the
assets of Equity-Income to be transferred shall in each case be determined as of
the close of business on the Valuation Date. The net asset value per share of
Total Return Shares shall be computed by the Custodian in the manner set forth
in the Declaration of Trust or By-laws of Special Investment Trust and
then-current prospectus and statement of additional information of Total Return
and shall be computed to not fewer than four decimal places. The net value of
the assets of Equity-Income to be transferred shall be computed by the Custodian
by calculating the value of the assets transferred by Equity-Income and by
subtracting therefrom the amount of the liabilities to be assigned and
transferred to and assumed by Total Return on the Closing Date, said assets and
liabilities to be valued in the foregoing manner.
2.2 The number of Total Return Shares to be issued (including fractional
shares, if any) in exchange for Equity-Income's assets shall be determined by
dividing the value of the Equity-Income assets, less liabilities, by Total
Return's net asset value per share, both as determined in accordance with
paragraph 2.1.
2.3 All computations of value shall be made by the Custodian in accordance
with its regular practice as pricing agent for Total Return.
3. CLOSING AND CLOSING DATE
3.1 The Closing Date shall be October 31, 1995 or such other date on or
before December 31, 1995, as the parties may agree in writing. The Closing shall
be held at 2:00 P.M., Boston time, at the offices of Total Return, 24 Federal
Street, Boston, Massachusetts 02110, or at such other time and/or place as the
parties may agree in writing.
3.2 In the event that on the proposed Valuation Date (a) the New York Stock
Exchange shall be closed to trading or trading thereon shall be restricted, or
(b) trading or the reporting of trading on said Exchange or elsewhere shall be
disrupted so that accurate appraisal of the value of the net assets of Total
Return or Equity-Income is impracticable, the Closing Date shall be postponed
until the first business day after the day when trading shall have been fully
resumed and reporting shall have been restored; provided that if trading shall
not be fully resumed and reporting restored on or before December 31, 1995, this
Agreement may be terminated by Total Return or Equity-Income upon the giving of
written notice to the other party.
3.3 Equity-Income shall deliver at the Closing a list of the names,
addresses, federal taxpayer identification numbers and backup withholding and
nonresident alien withholding status of the Equity-Income shareholders and the
number and percentage ownership of outstanding shares of beneficial interest of
Equity-Income owned by each such shareholder, all as of the close of business on
the Valuation Date, certified by its Treasurer, Secretary or other authorized
officer (the "Shareholder List"). Total Return shall issue and deliver to
Equity-Income a confirmation evidencing the Total Return Shares to be credited
on the Liquidation Date, or provide evidence satisfactory to Equity-Income that
such Total Return Shares have been credited to Equity-Income's account on the
books of Total Return. At the Closing each party shall deliver to the other such
bills of sale, checks, assignments, certificates, receipts or other documents as
such other party or its counsel may reasonably request.
4. REPRESENTATIONS AND WARRANTIES
4.1 Equity-Income represents and warrants to Total Return as follows:
(a) Equity-Income is a business trust duly organized, validly existing
and in good standing under the laws of The Commonwealth of Massachusetts and
has the power to own all of its properties and assets and, subject to
approval by the shareholders of Equity-Income, to carry out the Agreement.
Equity-Income is not required to qualify to do business in any jurisdiction
other than Massachusetts. The Agreement has been duly authorized by
Equity-Income, subject to the approval of the shareholders of Equity-Income.
Equity-Income has all necessary federal, state and local authorizations to
own all of the properties and assets of Equity-Income and to carry on its
business as now being conducted;
(b) Equity-Income is a duly registered investment company classified as
a management company of the open-end diversified type and its registration
with the Securities and Exchange Commission (the "Commission") as an
investment company under the Investment Company Act of 1940, as amended (the
"1940 Act") is in full force and effect;
(c) Equity-Income is not, and the execution, delivery and performance
of this Agreement by Equity-Income will not result, in violation of any
provision of the Declaration of Trust or By-Laws of Equity-Income or of any
agreement, indenture, instrument, contract, lease or other undertaking to
which Equity-Income is a party or by which Equity-Income is bound;
(d) Equity-Income has no material contracts or other commitments (other
than this Agreement) which will not be terminated without liability to
Equity-Income at or prior to the Closing Date;
(e) Except as otherwise disclosed in writing to and accepted by Total
Return, no litigation or administrative proceeding or investigation of or
before any court or governmental body is currently pending or threatened as
to Equity-Income or any of its properties or assets. Equity-Income knows of
no facts which might form the basis for the institution of such proceedings,
and Equity-Income is not a party to or subject to the provisions of any
order, decree or judgment of any court or governmental body which materially
and adversely affects its business or its ability to consummate the
transactions herein contemplated;
(f) The statement of assets and liabilities, including the schedule of
portfolio investments, of Equity-Income as of December 31, 1994 and the
related statement of operations for the year then ended, and the statement
of changes in net assets for the period from the start of business, October
1, 1994 to December 31, 1994 (audited by Coopers & Lybrand L.L.P.,
independent certified public accountants) and for the seven years in the
period ended September 30, 1994 (audited by Delloitte & Touche LLP) (copies
of which have been furnished to Total Return) present fairly in all material
respects the financial position of Equity-Income as of December 31, 1994 and
the results of its operations and changes in net assets for the respective
stated periods in accordance with generally accepted accounting principles
consistently applied, and there were no known actual or contingent
liabilities of Equity-Income as of the respective dates thereof not
disclosed therein;
(g) Since December 31, 1994, there has not been any material adverse
change in Equity-Income's financial condition, assets, liabilities or
business other than changes occurring in the ordinary course of business, or
any incurrence by Equity-Income of indebtedness maturing more than one year
from the date such indebtedness was incurred, except as otherwise disclosed
to and accepted by Total Return. For the purposes of this subparagraph (g),
a decline in net asset value per share of beneficial interest of
Equity-Income as a result of changes in the market value of portfolio
securities, or a distribution or a payment of dividends shall not constitute
a material adverse change;
(h) At the date hereof and by the Closing Date, all federal, state and
other tax returns and reports, including information returns and payee
statements, of Equity-Income required by law to have been filed or furnished
by such dates shall have been filed or furnished, and all federal, state and
other taxes, interest and penalties shall have been paid so far as due, or
provision shall have been made for the payment thereof, and to the best of
Equity-Income's knowledge no such return is currently under audit and no
assessment has been asserted with respect to such returns or reports;
(i) Equity-Income has elected to be treated as a regulated investment
company for federal tax purposes, has qualified as such for each taxable
year of its operation and will qualify as such as of the Closing Date with
respect to its final taxable year ending on the Closing Date;
(j) The authorized capital of Equity-Income consists of an unlimited
number of shares of beneficial interest, no par value, all of one class, at
the date hereof. All issued and outstanding shares of benefical interest of
Equity-Income are, and at the Closing Date will be, duly and validly issued
and outstanding, fully paid and nonassessable. All of the issued and
outstanding shares of beneficial interest of Equity-Income will, at the time
of Closing, be held by the persons and in the amounts set forth in the
Shareholder List. Equity-Income does not have outstanding any options,
warrants or other rights to subscribe for or purchase any of its shares of
beneficial interest, nor is there outstanding any security convertible into
any of its shares of beneficial interest;
(k) At the Closing Date, Equity-Income will have full right, power and
authority to sell, assign, transfer and deliver its assets hereunder, and
upon delivery and in payment for such assets, Special Investment Trust on
behalf of Total Return will acquire good and marketable title thereto;
(l) The execution, delivery and performance of this Agreement have been
duly authorized by all necessary action on the part of Equity-Income, and
this Agreement constitutes a valid and binding obligation of Equity-Income
enforceable in accordance with its terms, subject to the approval of
Equity-Income shareholders;
(m) The information to be furnished by Equity-Income for use in
applications for orders, registration statements, proxy materials and other
documents which may be necessary in connection with the transactions
contemplated hereby shall be accurate and complete and shall comply fully
with federal securities and other laws and regulations thereunder applicable
thereto;
(n) The proxy statement of Equity-Income ("the Proxy Statement") to be
included in the Registration Statement referred to in paragraph 5.7 hereof
(other than written information furnished by Total Return for inclusion
therein, as covered by Total Return's warranty in paragraph 4.2(n) hereof),
on the effective date of the Registration Statement, on the date of the
meeting of Equity-Income shareholders and on the Closing Date, will not
contain any untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which such statements were
made, not materially misleading;
(o) No consent, approval, authorization or order of any court or
governmental authority is required for the consummation by Equity-Income of
the transactions contemplated by this Agreement;
(p) All of the issued and outstanding shares of beneficial interest of
Equity-Income have been offered for sale and sold in conformity with all
applicable federal and state securities laws, except as may have been
previously disclosed in writing to Total Return; and
(q) The prospectus of Equity-Income dated May 1, 1995, previously
furnished to Total Return, does not contain any untrue statements of a
material fact or omit to state a material fact required to be stated therein
or necessary to make the statements therein, in light of the circumstances
under which they were made, not misleading.
4.2 Special Investment Trust represents and warrants on behalf of Total
Return to Equity-Income as follows:
(a) Special Investment Trust is a business trust duly organized, validly
existing and in good standing under the laws of The Commonwealth of
Massachusetts and has the power to own all of its properties and assets, and
subject to shareholder approval, to carry out the Agreement. Special
Investment Trust is not required to qualify to do business in any
jurisdiction other than Massachusetts. The Agreement has been duly
authorized by Special Investment Trust. Total Return has all necessary
federal, state and local authorizations to own all of its properties and
assets and to carry on its business as now being conducted;
(b) Special Investment Trust is a duly registered investment company
classified as a management company of the open-end diversified type and its
registration with the Commission as an investment company under the 1940 Act
is in full force and effect;
(c) The current prospectus and statement of additional information of
Total Return (the "Total Return Prospectus"), each dated May 1, 1995, and
the Registration Statement (other than written information furnished by
Equity-Income for inclusion therein as covered by Equity-Income's warranty
in paragraph 4.1(m) hereof) will conform in all material respects to the
applicable requirements of the 1933 Act and the 1940 Act and the rules and
regulations of the Commission thereunder on the date of the Proxy Statement,
on the date of the meeting of Equity-Income shareholders and on the Closing
Date and do not include any untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary to make
the statements therein, in light of the circumstances under which they were
made, not misleading;
(d) At the Closing Date, Total Return will have good and marketable
title to its assets;
(e) Special Investment Trust and Total Return are not, and the
execution, delivery and performance of this Agreement will not result, in
violation of any provisions of the Declaration of Trust or By-Laws of
Special Investment Trust or of any agreement, indenture, instrument,
contract, lease or other undertaking to which Total Return or Special
Investment Trust is a party or by which Total Return or Special Investment
Trust is bound;
(f) No material litigation or administrative proceeding or investigation
of or before any court or governmental body is currently pending or
threatened against Total Return or Special Investment Trust or any of Total
Return's properties or assets, except as previously disclosed in writing to
Equity-Income. Special Investment Trust knows of no facts which might form
the basis for the institution of such proceedings, and neither Special
Investment Trust nor Total Return is a party to or subject to the provisions
of any order, decree or judgment of any court or governmental body which
materially and adversely affects Total Return's business;
(g) The statements of assets and liabilities of Total Return, as of
December 31, 1994, and the related statement of operations for the fiscal
year ended December 31, 1994, and the statement of changes in net assets for
the fiscal years ended December 31, 1993 and December 31, 1994 (copies of
which have been furnished to Equity-Income) present fairly in all material
respects the financial position of Total Return as of December 31, 1994, and
the results of its operations and changes in net assets for the respective
stated periods in accordance with generally accepted accounting principles
consistently applied and there are no known actual or contingent liabilities
of Total Return as of the respective dates thereof not disclosed herein;
(h) Since December 31, 1994, there has not been any material adverse
change in Total Return's financial condition, assets, liabilities or
business other than changes occurring in the ordinary course of business or
any incurrence by Special Investment Trust on behalf of Total Return of
indebtedness maturing more than one year from the date such indebtedness was
incurred. For the purposes of this subparagraph (h), a decline in net asset
value per share of beneficial interest of Total Return resulting from losses
upon the disposition of investments or from changes in the market value of
investments held by Total Return, or a distribution or a payment of
dividends shall not constitute a material adverse change;
(i) Total Return will elect to be treated as a regulated investment
company for federal tax purposes for its taxable year that includes the
Closing Date and will qualify as such as of the Closing Date;
(j) At the date hereof and by the Closing Date, all federal, state and
other tax returns and reports, including information returns and payee
statements, of Total Return required by law then to be filed or furnished
shall have been filed or furnished, and all federal, state and other taxes,
interest and penalties shown due on said returns and reports shall have been
paid or provision shall have been made for the payment thereof;
(k) The authorized capital of Special Investment Trust consists of an
unlimited number of shares of beneficial interest, no par value, divided
into multiple series. The shares of Total Return are of one class at the
date hereof. All issued and outstanding shares of beneficial interest of
Special Investment Trust are, and at the Closing Date will be, duly and
validly issued and outstanding, fully paid and nonassessable by Special
Investment Trust. Special Investment Trust does not have outstanding any
options, warrants or other rights to subscribe for or purchase any Total
Return Shares, nor is there outstanding any security convertible into any
Total Return Shares;
(l) The execution, delivery and performance of this Agreement have been
duly authorized by all necessary action on the part of Special Investment
Trust, and this Agreement constitutes a valid and binding obligation of
Total Return enforceable in accordance with its terms;
(m) The Total Return Shares to be issued and delivered to Equity-Income
pursuant to the terms of this Agreement will have been duly authorized at
the Closing Date, and when so issued and delivered, will be duly and validly
issued Total Return Shares and will be fully paid and nonassessable by
Special Investment Trust;
(n) The information to be furnished by Total Return for use in
applications for orders, registration statements, proxy materials and other
documents which may be necessary in connection with the transactions
contemplated hereby shall be accurate and complete and shall comply fully
with federal securities and other laws and regulations applicable thereto;
(o) Special Investment Trust agrees to use all reasonable efforts to
obtain the approvals and authorizations required by the 1933 Act, the 1940
Act and such of the state Blue Sky or securities laws as it may deem
appropriate in order to continue the operations of Total Return after the
Closing Date;
(p) All of Total Return's issued and outstanding shares of beneficial
interest have been offered for sale and sold in conformity with all
applicable federal and state securities laws, except as may have been
previously disclosed in writing to Equity-Income; and
(q) No consent, approval, authorization or order of any court or
governmental authority is required for the consummation by Total Return of
the transactions contemplated by the Agreement.
5. COVENANTS OF TOTAL RETURN AND EQUITY-INCOME
5.1 Special Investment Trust, on behalf of Total Return, and Equity-Income
each will operate its business in the ordinary course between the date hereof
and the Closing Date, it being understood that such ordinary course of business
will include customary dividends and distributions and any other distributions
necessary or desirable to avoid federal income or excise taxes.
5.2 Equity-Income will call a meeting of its shareholders to consider and
act upon this Agreement and to take all other action necessary to obtain
approval of the transactions contemplated herein.
5.3 Equity-Income covenants that the Total Return Shares to be issued
hereunder are not being acquired by Equity-Income for the purpose of making any
distribution thereof other than in accordance with the terms of this Agreement.
5.4 Equity-Income will provide such information as Special Investment Trust
reasonably requests on behalf of Total Return concerning the beneficial
ownership of Equity-Income's shares of beneficial interest.
5.5 Subject to the provisions of this Agreement, Total Return and Equity-
Income each will take, or cause to be taken, all action, and do or cause to be
done, all things reasonably necessary, proper or advisable to consummate and
make effective the transactions contemplated by this Agreement.
5.6 Special Investment Trust on behalf of Total Return will prepare and file
with the Securities and Exchange Commission a Registration Statement on Form
N-14 (the "Registration Statement"), in compliance with the Securities Act of
1933 Act (the "1933 Act") and the 1940 Act in connection with the issuance of
the Total Return Shares as contemplated herein.
5.7 Equity-Income will prepare a Proxy Statement, to be included in the
Registration Statement in compliance with the 1933 Act, the Securities Exchange
Act of 1934, as amended (the "1934 Act"), and the 1940 Act and the rules and
regulations thereunder (collectively, the "Acts") in connection with the special
meeting of Equity-Income shareholders to consider approval of this Agreement.
Special Investment Trust agrees to provide Equity-Income with information
applicable to Total Return required under the Acts for inclusion in the Proxy
Statement.
6. CONDITIONS PRECEDENT TO OBLIGATIONS OF EQUITY-INCOME
The obligations of Equity-Income to consummate the transactions provided
for herein shall be, at its election, subject to the performance by Special
Investment Trust or Total Return of all the obligations to be performed by
either of them hereunder on or before the Closing Date, and, in addition
thereto, all representations and warranties of Special Investment Trust on
behalf of Total Return contained in this Agreement shall be true and correct
in all material respects as of the date hereof and, except as they may be
affected by the transactions contemplated by this Agreement, as of the Closing
Date with the same force and effect as if made on and as of the Closing Date.
7. CONDITIONS PRECEDENT TO OBLIGATIONS OF TOTAL RETURN
The obligations of Special Investment Trust and Total Return to complete
the transactions provided for herein shall be, at their election, subject to
the performance by Equity-Income of all the obligations to be performed by it
hereunder on or before the Closing Date and, in addition thereto, all
representations and warranties of Equity-Income contained in this Agreement
shall be true and correct in all material respects as of the date hereof and,
except as they may be affected by the transactions contemplated by this
Agreement, as of the Closing Date with the same force and effect as if made on
and as of the Closing Date.
8. FURTHER CONDITIONS PRECEDENT TO OBLIGATIONS OF EQUITY-INCOME AND TOTAL
RETURN
The obligations of Equity-Income hereunder are, at the option of Total
Return, and the obligations of Special Investment Trust and Total Return
hereunder are, at the option of Equity-Income, each subject to the further
conditions that on or before the Closing Date:
8.1 The Agreement and the transactions contemplated herein shall have been
approved by the requisite vote of the holders of the outstanding shares of
beneficial interest of Equity-Income in accordance with the provisions of
Equity-Income's Declaration of Trust and By-Laws;
8.2 On the Closing Date no action, suit or other proceeding shall be pending
before any court or governmental agency in which it is sought to restrain or
prohibit, or obtain damages or other relief in connection with, this Agreement
or the transactions contemplated herein;
8.3 All consents of other parties and all other consents, orders and permits
of federal, state and local regulatory authorities (including those of the
Commission and of state Blue Sky and securities authorities) deemed necessary by
Special Investment Trust or Equity-Income to permit consummation, in all
material respects, of the transactions contemplated hereby shall have been
obtained, except where failure to obtain any such consent, order or permit would
not involve a risk of a material adverse effect on the assets or properties of
Total Return or Equity-Income, provided that either party hereto may waive any
such conditions for itself;
8.4 The Registration Statement shall have become effective under the 1933
Act and no stop orders suspending the effectiveness thereof shall have been
issued and, to the best knowledge of the parties hereto, no investigation or
proceeding for that purpose shall have been instituted or be pending, threatened
or contemplated under the 1933 Act;
8.5 Equity-Income shall have distributed to its shareholders all of its
investment company taxable income as defined in Section 852(b)(2) of the Code
for its taxable year ending on the Closing Date and all of its net capital gain
as such term is used in Section 852(b)(3)(C) of the Code, after reduction by any
capital loss carryforward available for its taxable year ending on the Closing
Date; and
8.6 The parties shall have received an opinion of Messrs. Brown & Wood,
satisfactory to Equity-Income and Special Investment Trust, substantially to the
effect that for federal income tax purposes:
(a) The acquisition by Total Return of all of the assets of Equity-
Income solely in exchange for the issuance of Total Return Shares to
Equity-Income and the assumption of certain Equity-Income liabilities by
Total Return, followed by the distribution by Equity-Income, in liquidation
of Equity-Income, of Total Return Shares to the shareholders of
Equity-Income in exchange for their Equity-Income shares of beneficial
interest and the termination of Equity-Income, will constitute a
reorganization within the meaning of Section 368(a)(1) of the Code, and
Equity-Income and Total Return will each be "a party to a reorganization"
within the meaning of Section 368(b) of the Code;
(b) No gain or loss will be recognized by Equity-Income upon (i) the
transfer of all of its assets to Total Return solely in exchange for the
issuance of Total Return Shares to Equity-Income and the assumption of
certain Equity-Income liabilities by Total Return and (ii) the distribution
by Equity-Income of Total Return Shares to the shareholders of
Equity-Income;
(c) No gain or loss will be recognized by Total Return upon the receipt
of the assets of Equity-Income solely in exchange for the issuance of Total
Return Shares to Equity-Income and the assumption of certain Equity-Income
liabilities by Total Return;
(d) The basis of the assets of Equity-Income acquired by Total Return
will be, in each instance, the same as the basis of those assets in the
hands of Equity-Income immediately prior to the transfer;
(e) The tax holding period of the assets of Equity-Income in the hands
of Total Return will, in each instance, include the tax holding period of
Equity-Income for those assets;
(f) The shareholders of Equity-Income will not recognize gain or loss
upon the exchange of all of their Equity-Income shares of beneficial
interest solely for Total Return Shares as part of the transaction;
(g) The basis of the Total Return Shares received by the Equity-Income
shareholders in the transaction will be the same as the basis of the
Equity-Income shares of beneficial interest surrendered in exchange
therefor; and
(h) The tax holding period of the Total Return Shares to be received by
the Equity-Income shareholders will include, for each shareholder, the tax
holding period for the Equity-Income shares of beneficial interest
surrendered in exchange therefor, provided the Equity-Income shares were
held as capital assets on the date of the exchange.
Special Investment Trust and Equity-Income each agrees to make and provide
representations with respect to Total Return and Equity-Income,
respectively, which are reasonably necessary to enable Brown & Wood to
deliver an opinion substantially as set forth in this paragraph 8.6.
Notwithstanding anything herein to the contrary, Special Investment Trust
and Equity-Income may not waive in any material respect the conditions set
forth in this paragraph 8.6.
9. BROKERAGE FEES AND EXPENSES
9.1 Special Investment Trust, on behalf of Total Return, and Equity-Income
each represents and warrants to the other that there are no brokers or finders
entitled to receive any payments in connection with the transactions provided
for herein.
9.2 Total Return and Equity-Income shall each be liable solely for its
own expenses incurred in connection with entering into and carrying out the
provisions of this Agreement whether or not the transactions contemplated
hereby are consummated.
10. ENTIRE AGREEMENT; SURVIVAL OF WARRANTIES
10.1 Special Investment Trust, on behalf of Total Return, and Equity-Income
agree that neither party has made any representation, warranty or covenant not
set forth herein or referred to in paragraphs 4 and 5 hereof or required in
connection with paragraph 8.6 hereof and that this Agreement constitutes the
entire agreement between the parties.
10.2 The representations, warranties and covenants contained in this
Agreement or in any document delivered pursuant hereto or in connection
herewith shall survive the consummation of the transactions contemplated
hereunder.
11. TERMINATION
11.1 This Agreement may be terminated by the mutual agreement of Special
Investment Trust on behalf of Total Return and Equity-Income. In addition,
either party may at its option terminate this Agreement at or prior to the
Closing Date because of:
(a) a material breach by the other of any representation, warranty or
agreement contained herein to be performed at or prior to the Closing
Date; or
(b) a condition herein expressed to be precedent to the obligations of
the terminating party which has not been met and which reasonably appears
will not or cannot be met.
11.2 In the event of any such termination, there shall be no liability
for damages on the part of Special Investment Trust, Total Return or Equity-
Income, or their respective trustees or officers, to the other party or its
trustees or officers, but each shall bear the expenses incurred by it incidental
to the preparation and carrying out of this Agreement.
12. AMENDMENTS
This Agreement may be amended, modified or supplemented in such manner as
may be mutually agreed upon in writing by the authorized officers of Equity-
Income and Special Investment Trust; provided, however, that following the
meeting of shareholders called by Equity-Income pursuant to paragraph 5.2 of
this Agreement, no such amendment may have the effect of changing the provisions
for determining the number of Total Return Shares to be received by
Equity-Income shareholders under this Agreement to the detriment of such
shareholders without their further approval, provided that nothing contained in
this Article 12 shall be construed to prohibit the parties from amending this
Agreement to change the Closing Date or the Valuation Date.
13. NOTICES
Any notice, report, statement or demand required or permitted by any
provisions of this Agreement shall be in writing and shall be given by prepaid
telegraph, telecopy or certified mail addressed to Total Return or Equity-
Income, each at 24 Federal Street, Boston, Massachusetts 02110, Attention:
President.
14. HEADINGS; COUNTERPARTS; GOVERNING LAW; ASSIGNMENT
14.1 The article and paragraph headings contained in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
14.2 This Agreement may be executed in any number of counterparts, each of
which shall be deemed an original.
14.3 This Agreement shall be governed by and construed in accordance with
the laws of The Commonwealth of Massachusetts.
14.4 This Agreement shall bind and inure to the benefit of the parties
hereto and their respective successors and assigns, but no assignment or
transfer hereof or of any rights or obligations hereunder shall be made by any
party without the written consent of the other party. Nothing herein expressed
or implied is intended or shall be construed to confer upon or give any person,
firm or corporation, other than the parties hereto and their respective
successors and assigns, any rights or remedies under or by reason of this
Agreement.
14.5 All persons dealing with Total Return must look solely to the property
of Total Return for the enforcement of any claims against Total Return as
neither the Trustees, officers, agents or shareholders of Special Investment
Trust assume any personal liability for obligations entered into on behalf of
Total Return. None of the other series of Special Investment Trust shall be
responsible for any obligations assumed by or on behalf of Total Return under
this Agreement.
14.6 All persons dealing with Equity-Income must look solely to the property
of Equity-Income for the enforcement of any claims against Equity-Income as
neither the Trustees, officers, agents or shareholders of Equity-Income assume
any personal liability for obligations entered into on behalf of Equity-Income.
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement
to be executed by its President and its seal to be affixed thereto and
attested by its Secretary.
Attest: EATON VANCE EQUITY-INCOME TRUST
/s/ ERIC G. WOODBURY By: /s/ JAMES B. HAWKES
-------------------------------------- ------------------------------
Eric G. Woodbury, Assistant Secretary James B. Hawkes, President
Attest: EATON VANCE SPECIAL
INVESTMENT TRUST
On Behalf of EV MARATHON
TOTAL RETURN FUND
/s/ ERIC G. WOODBURY By: /s/ M. DOZIER GARDNER
-------------------------------------- --------------------------
Eric G. Woodbury, Assistant Secretary M. Dozier Gardner, President
<PAGE>
EXHIBIT B
<TABLE>
<CAPTION>
EATON VANCE EQUITY-INCOME TRUST
FINANCIAL HIGHLIGHTS
SIX MONTHS
ENDED YEAR ENDED YEAR ENDED SEPTEMBER 30,
JUNE 30, 1995 DECEMBER 31, ------------------------------------
(UNAUDITED) 1994 1994*** 1993*** 1992***
------------ ----- ---- ---- ----
<S> <C> <C> <C> <C> <C>
FINANCIAL HIGHLIGHTS (for a
share outstanding throughout
the period):
NET ASSET VALUE --
Beginning of period ........... $10.110 $10.120 $12.340 $10.730 $11.180
------ ------ ------ ------ ------
INCOME FROM OPERATIONS:
Net investment
income .................... $ 0.182 $ 0.094 $ 0.326 $ 0.440 $ 0.374
Net realized and
unrealized gain (loss)
on investments ........... 0.678 (0.014) (2.136) 1.640 (0.344)
----- ------ ------ ----- ------
Total income (loss)
from investment
operations ........... $ 0.860 $ 0.080 $ (1.810) $ 2.080 $ 0.030
------- ------- -------- ------- -------
Less distributions declared to shareholders:
From net investment
income .................... $(0.180) $(0.090) $ (0.326) $(0.330) $(0.413)
In excess of net
investment income ......... -- -- (0.084) (0.140) --
Paid-in capital ............ -- -- -- -- (0.067)
------ ------ ------ ------ ------
Total
distributions ......... $(0.180) $(0.090) $ (0.410) $(0.470) $(0.480)
------- ------- -------- ------- -------
NET ASSET VALUE --
End of period ................ $10.790 $10.110 $10.120 $12.340 $10.730
TOTAL RETURN** ................. 8.57% 0.79% (14.82)% 19.88% (0.03)%
RATIOS/SUPPLEMENTAL DATA:
(to average daily net assets)
Expenses(1) .................. 2.39%+ 2.98%+ 2.18% 2.30% 2.40%
Net investment
income ...................... 3.40%+ 3.85%+ 2.91% 2.88% 3.22%
PORTFOLIO TURNOVER++ ......... -- -- 119% 87% 158%
NET ASSETS AT END OF PERIOD
(000'S OMITTED) ............... $24,902 $27,650 $30,126 $49,941 $48,219
*For the period from the start of business, October 1, 1994 to December 31, 1994.
(1)Includes Equity Income's share of Total Return Portfolio's allocated expenses for the six months
ended June 30, 1995 and the period from October 1, 1994, to December 31, 1994.
**Total return is calculated assuming a purchase at the net asset value on the first day and a sale at
the net asset value on the last day of each period reported. Dividends and distributions, if any, are
assumed to be reinvested at the net asset value on the record date.
***Audited by previous auditors.
+Computed on an annualized basis.
++Portfolio turnover represents the rate of portfolio activity for the period when Equity Income was
making investments directly in securities. The portfolio turnover for the period since Equity Income
transferred substantially all of its investable assets to the Portfolio is shown in the Portfolio's
financial statements which are included in the Fund's shareholder report.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EV MARATHON TOTAL RETURN FUND
FINANCIAL HIGHLIGHTS
SIX MONTHS
ENDED YEAR ENDED DECEMBER 31,
JUNE 30, 1995 -------------------
(UNAUDITED) 1994 1993*
---------- ---- ----
<S> <C> <C> <C>
FINANCIAL HIGHLIGHTS (for a share outstanding throughout the period):
NET ASSET VALUE -- Beginning of period ...... $ 8.3000 $ 9.9300 $ 10.0000
-------- -------- --------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income ................... $ 0.1560 $ 0.3638 $ 0.0409
Net realized and unrealized
gain (loss) on investments ............ 0.5560 (1.5988) (0.0559)(1)
------ ------- -------
Total gain (loss) from
investment operations .............. $ 0.7120 $(1.2350) $(0.0150)
-------- -------- --------
Less distributions declared to shareholders:
From net investment income .............. $(0.1520) $(0.3535) $ (0.0461)
Tax return of capital ................... -- (0.0415) (0.0089)
-------- ------- -------
Total distributions ................. $(0.1520) $(0.3950) $ (0.0550)
NET ASSET VALUE -- End of period ............ $ 8.8600 $ 8.3000 $ 9.9300
======== ======== =========
TOTAL RETURN** .............................. 8.68% (12.70)% (0.15)%
RATIOS/SUPPLEMENTAL DATA:
(to average daily net assets)***
Expenses(2) ............................... 2.07%+ 2.07% 0.68%+
Net investment income ..................... 3.66%+ 3.95% 3.38%
NET ASSETS AT END OF PERIOD
(000'S OMITTED) ............................ $29,728 $26,210 $11,519
Note: Per share amounts have been computed using average shares outstanding during the period.
(1)The per share amount for the period from the start of business, November 1, 1993 to December 31,
1993, is not in accord with the net realized and unrealized gain for the period allocated to
Total Return by the Portfolio due to the timing of the sales of Total Return shares and the
amount of per share realized and unrealized gains and losses at such time.
(2)Includes Total Return's share of Total Return Portfolio's allocated expenses for the six months
ended June 30, 1995, the year ended December 31, 1994 and the period from November 1, 1993, to
December 31, 1993.
+Computed on an annualized basis.
*For the period from the start of business, November 1, 1993, to December 31, 1993.
**Total return is calculated assuming a purchase at the net asset value on the first day and a sale
at the net asset value on the last day of each period reported. Dividends and distributions, if
any, are assumed to be reinvested at the net asset value on the record date.
***The expenses related to the operation of Total Return reflect an allocation of expenses to the
administrator. Had such action not been taken, the ratios would have been as follows:
Ratios (to average daily
net assets)
Expenses .......................... -- -- 1.83%+
Net investment income ............. -- -- 2.23%+
</TABLE>
<PAGE>
EATON VANCE EQUITY-INCOME TRUST
A MUTUAL FUND SEEKING HIGH TOTAL RETURN FROM RELATIVELY PREDICTABLE INCOME
IN CONJUNCTION WITH CAPITAL APPRECIATION, CONSISTENT WITH PRUDENT
MANAGEMENT AND PRESERVATION OF CAPITAL.
IN SEEKING HIGH TOTAL RETURN, EATON VANCE EQUITY-INCOME TRUST (THE "FUND")
INVESTS ITS ASSETS IN TOTAL RETURN PORTFOLIO (THE "PORTFOLIO"), A DIVERSIFIED
OPEN-END INVESTMENT COMPANY HAVING THE SAME INVESTMENT OBJECTIVE AS THE FUND,
RATHER THAN, AS WITH AN HISTORICALLY STRUCTURED MUTUAL FUND, DIRECTLY INVESTING
IN AND MANAGING ITS OWN PORTFOLIO OF SECURITIES.
Shares of the Fund are not deposits or obligations of, or guaranteed or
endorsed by, any bank or other insured depository institution, and are not
federally insured by the Federal Deposit Insurance Corporation, the Federal
Reserve Board or any other government agency. Shares of the Fund involve
investment risks, including fluctuations in value and the possible loss of some
or all of the principal investment.
This prospectus is designed to provide you with information you should know
before investing. Please retain this document for future reference. A Statement
of Additional Information dated May 1, 1995, for the Fund, as supplemented from
time to time, has been filed with the Securities and Exchange Commission and is
incorporated herein by reference. This Statement of Additional Information is
available without charge from the Fund's principal underwriter, Eaton Vance
Distributors, Inc. (the "Principal Underwriter"), 24 Federal Street, Boston, MA
02110 (telephone (800) 225-6265). The Portfolio's investment adviser is Boston
Management and Research (the "Investment Adviser"), a wholly-owned subsidiary of
Eaton Vance Management, and Eaton Vance Management is the administrator (the
"Administrator") of the Fund. The offices of the Investment Adviser and the
Administrator are located at 24 Federal Street, Boston, MA 02110.
--------------------------------------------------------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
TABLE OF CONTENTS
<S> <C> <S> <C>
Shareholder and Fund Expenses ................. 2 How to Acquire Fund Shares in Exchange for
The Fund's Financial Highlights ............... 3 Securities .............................. 16
The Fund's Investment Objective ............... 4 How to Redeem or Sell Fund Shares ......... 17
How the Fund and the Portfolio Invest The Lifetime Investing Account/Distribution
their Assets; Investment Risks .............. 4 Options ................................. 20
Organization of the Fund and the Portfolio .... 9 Eaton Vance Exchange Privilege ............ 22
Reports to Shareholders ....................... 13 Eaton Vance Shareholder Services .......... 23
Management of the Fund and the Portfolio ...... 13 Distribution Plan ......................... 25
How the Fund and the Portfolio Determine Distributions and Taxes ................... 27
their Net Asset Values ...................... 14 Performance and Yield Information ......... 28
How to Buy Shares of the Fund for Cash ........ 15
</TABLE>
--------------------------------------------------------------------------------
Prospectus dated May 1, 1995
<PAGE>
SHAREHOLDER AND FUND EXPENSES (1)
--------------------------------------------------------------------------------
SHAREHOLDER TRANSACTION EXPENSES
Sales Charges Imposed on Purchases of Shares None
Sales Charges Imposed on Reinvested Distributions None
Fees to Exchange Shares None
Range of Declining Contingent Deferred Sales Charges Imposed
on Redemptions During the First Seven Years (as a percentage
of redemption proceeds exclusive of all reinvestments and
capital appreciation in the account)(2) 5.00%-0%
ANNUAL FUND AND ALLOCATED PORTFOLIO OPERATING EXPENSES
(as a percentage of average daily net assets)
Investment Adviser Fee 0.74%
Rule 12b-1 Distribution (and Service) Fees 0.98%
Other Expenses
(including Interest Expense of 0.03%) 1.26%
----
Total Operating Expenses 2.98%
EXAMPLE: 1 YEAR 3 YEARS 5 YEARS 10 YEARS
-------- ------ ------- ------- --------
An investor would pay the following
contingent deferred sales charge and
expenses on a $1,000 investment,
assuming (a) 5% annual return and (b)
redemption at the end of each period: $80 $132 $177 $330
An investor would pay the following expenses
on the same investment, assuming
(a) 5% annual return and (b) no redemptions:
$30 $ 92 $157 $330
Notes:
(1) The purpose of the above table and Example is to summarize the aggregate
expenses of the Fund and the Portfolio and to assist investors in
understanding the various costs and expenses that investors in the Fund
will bear directly or indirectly. The Trustees of the Trust believe that
over time the aggregate per share expenses of the Fund and the Portfolio
should be approximately equal to or less than the per share expenses which
the Fund would incur if the Trust retained the services of an investment
adviser and the assets of the Fund were invested directly in the type of
securities being held by the Portfolio. The percentages indicated as Annual
Fund and Allocated Portfolio Operating Expenses in the table and the
amounts included in the Example are based on the Fund's and the Portfolio's
results for the fiscal year ended December 31, 1994. The Example should not
be considered a representation of past or future expenses and actual
expenses may be greater or less than those shown. The Example assumes a 5%
annual return and the Fund's actual performance may result in an annual
return greater or less than 5%. For further information regarding the
expenses of both the Fund and the Portfolio see "The Fund's Financial
Highlights," "Organization of the Fund and the Portfolio," "Management of
the Fund and the Portfolio" and "How to Redeem or Sell Fund Shares."
Because the Fund makes payments under its Distribution Plan adopted under
Rule 12b-1, a long-term shareholder may pay more than the economic
equivalent of the maximum front-end sales charge permitted by a rule of the
National Association of Securities Dealers, Inc. See "Distribution Plan."
(2) No contingent deferred sales charge is imposed on (a) shares purchased more
than six years prior to the redemption, (b) shares acquired through the
reinvestment of distributions or (c) any appreciation in value of other
shares in the account (see "How to Redeem or Sell Fund Shares"), and no
such charge is imposed on exchanges of Fund shares for shares of one or
more other funds listed under "The Eaton Vance Exchange Privilege".
(3) Other investment companies with different distribution arrangements and
fees are investing in the Portfolio and additional such companies may do so
in the future. See "Organization of the Fund and the Portfolio."
<PAGE>
THE FUND'S FINANCIAL HIGHLIGHTS
--------------------------------------------------------------------------------
The following information should be read in conjunction with the audited
financial statements included in the Statement of Additional Information, all of
which have been so included in reliance upon the report of Coopers & Lybrand
L.L.P., independent accountants, as experts in accounting and auditing, which
report is contained in the Statement of Additional Information. The financial
highlights for each of the seven years in the period ended September 30, 1994,
presented here were audited by other auditors whose report dated November 2,
1994 expressed an unqualified opinion on such financial highlights. Further
information regard ing the performance of the Fund is contained in the Fund's
annual report to shareholders which may be obtained without charge by contacting
the Principal Underwriter.
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE PERIOD
FROM START
OF BUSINESS
OCTOBER 1, 1994 YEAR ENDED SEPTEMBER 30,
TO DECEMBER -----------------------------------------------------------------------------------
31, 1994 1994<F3> 1993<F3> 1992<F3> 1991<F3> 1990<F3> 1989<F3> 1989<F3><F5>
--------------- ------- ------- ------- ------- ------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value, beginning
of period $10.120 $12.340 $10.730 $11.180 $10.290 $11.800 $ 9.780 $10.000
------- ------- ------- ------- ------- ------- ------- -------
Income from investment operations:
Net investment income $ 0.094 $ 0.326 $ 0.440 $ 0.374 $ 0.442 $ 0.643 $ 0.583 $ 0.561
Net realized and unrealized gain
(loss) on investments (0.014) (2.136) 1.640 (0.344) 0.958 (1.183) 2.187 (0.417)
------- ------- ------- ------- ------- ------- ------- -------
Total income (loss) from
investment operations $ 0.080 $(1.810) $ 2.080 $ 0.030 $ 1.400 $(0.540) $ 2.770 $ 0.144
------- ------- ------- ------- ------- ------- ------- -------
Less distributions declared to
shareholders:
From net investment income $(0.090) $(0.326) $(0.330) $(0.413) $(0.510) $(0.634) $(0.750) $(0.364)
In excess of net investment income -- (0.084) (0.140) -- -- -- -- --
Net realized gain/(loss) on
investment transactions -- -- -- -- -- (0.336) -- --
Paid-in capital -- -- -- (0.067) -- -- -- --
------- ------- ------- ------- ------- ------- ------- -------
Total distributions $(0.090) $(0.410) $(0.470) $(0.480) $(0.510) $(0.970) $(0.750) $(0.364)
------- ------- ------- ------- ------- ------- ------- -------
NET ASSET VALUE, end of period $10.110 $10.120 $12.340 $10.730 $11.180 $10.290 $11.800 $ 9.780
======= ======= ======= ======= ======= ======= ======= =======
TOTAL RETURN<F2> 0.79% (14.82)% 19.88% (0.03)% 13.91% (4.98)% 29.52% 1.50%
RATIOS/SUPPLEMENTAL DATA:
(to average daily net assets)
Expenses<F1> 2.98%<F4> 2.18% 2.30% 2.40% 2.26% 1.43% 2.29% 1.00%<F4>
Net investment income 3.85%<F4> 2.91% 2.88% 3.22% 3.96% 5.22% 4.99%<F6> 6.58%<F4>
PORTFOLIO TURNOVER<F7> -- 119% 87% 158% 151% 204% 222% 297%
NET ASSETS, END OF PERIOD (000'S
OMITTED) $27,650 $30,126 $49,941 $48,219 $55,364 $42,693 $ 6,490 $ 2,160
<FN>
<F1> Includes the Fund's share of Total Return Portfolio's allocated expenses
for the period from October 1, 1994, to December 31, 1994.
<F2> Total return is calculated assuming a purchase at the net asset value on
the first day and a sale at the net asset value on the last day of each
period reported. Dividends and distributions, if any, are assumed to be
reinvested at the net asset value on the record date.
<F3> Audited by previous auditors.
<F4> Computed on an annualized basis.
<F5> For the period from the start of business, October 21, 1987, to September
30, 1988.
<F6> Investment income and net investment income per share include $.081
applicable to nonrecurring dividend income. Had such dividends not been
included, the ratio of net investment income to average net assets would
have been 3.85%.
<F7> Portfolio turnover represents the rate of portfolio activity for the period
when the Fund was making investments directly in securities. The portfolio
turnover for the period since the Fund transferred its assets to the
Portfolio is shown in the Portfolio's financial statements, which are
included elsewhere in this report. +
Note: Certain parts of the above per share data for the year ended September 30,
1990, have been determined on the basis of average monthly shares
outstanding.
</TABLE>
<PAGE>
THE FUND'S INVESTMENT OBJECTIVE
--------------------------------------------------------------------------------
EATON VANCE EQUITY-INCOME TRUST'S INVESTMENT OBJECTIVE IS TO SEEK FOR ITS
SHAREHOLDERS A HIGH LEVEL OF TOTAL RETURN, CONSISTING OF RELATIVELY PREDICTABLE
INCOME IN CONJUNCTION WITH CAPITAL APPRECIATION, CONSISTENT WITH PRUDENT
MANAGEMENT AND PRESERVATION OF CAPITAL. The Fund currently seeks to meet its
investment objective by investing its assets in the Total Return Portfolio, a
separate registered investment company which has the same investment objective
as the Fund. The Fund's and the Portfolio's investment objectives are
nonfundamental and may be changed when authorized by a vote of the Trustees of
the Fund or the Portfolio, respectively, without obtaining the approval of the
Fund's shareholders or the investors in the Portfolio, as the case may be. The
Trustees of the Fund have no present intention to change the Fund's objective
and intend to submit any proposed material change in the investment objective to
shareholders in advance for their approval.
HOW THE FUND AND THE PORTFOLIO INVEST THEIR ASSETS; INVESTMENT RISKS
--------------------------------------------------------------------------------
THE PORTFOLIO SEEKS TO ACHIEVE ITS OBJECTIVE BY INVESTING PRINCIPALLY IN
DIVIDEND-PAYING COMMON STOCKS WITH THE POTENTIAL TO INCREASE DIVIDENDS IN THE
FUTURE. The Portfolio concentrates its investments in common stocks of public
utilities (utility stocks), principally electric, gas and telephone companies.
Accordingly, the Portfolio invests at least 25% of its total assets, and may
invest up to 100% of its total assets, in utility stocks. The Portfolio may also
invest in preferred stocks and may hold non-incoming-producing securities.
The Portfolio may from time to time invest in fixed-income debt securities
when the Portfolio's investment adviser (BMR or the Investment Adviser) believes
that their total return potential is consistent with the Fund's objective. The
Portfolio may invest its cash reserves in high quality money market securities,
which include securities of the U.S. Government and its agencies or
instrumentalities maturing in one year or less, commercial paper, and bankers'
acceptances and certificates of deposit of domestic banks or savings and loan
associations having total assets of $1 billion or more. The Portfolio may also
invest in longer-term debt securities that at the time of purchase are rated
Aaa, Aa or A by Moody's Investors Service, Inc. (Moody's), or AAA, AA or A by
Standard & Poor's Ratings Group (S&P), Fitch Investors Service, Inc. (Fitch) or
Duff & Phelps, Inc. (Duff), or that at the time of purchase are issued,
guaranteed, backed or secured by the U.S. Government or any of its agencies or
instrumentalities. The Portfolio currently intends to limit its investments in
fixed-income debt securities to 20% or less of its net assets. Subject to such
limitation, the Portfolio may invest up to 10% of its net assets in fixed-income
debt securities that at the time of purchase are rated investment grade (i.e.,
rated Baa or higher by Moody's, or BBB or higher by S&P, Fitch or Duff) or below
investment grade. Debt securities rated below Baa or BBB are commonly known as
junk bonds.
In view of the Portfolio's policy of concentrating its investments in
utility stocks, an investment in shares of the Fund should be made with an
understanding of the characteristics of the public utility industry and the
potential risks of such an investment. Industry-wide problems include the
effects of fluctuating economic conditions, energy conservation practices,
environmental regulations, high capital expenditures, construction delays due to
pollution control and environmental considerations, uncertainties as to fuel
availability and costs, increased competition in deregulated sectors of the
industry, and difficulties in obtaining timely and adequate rate relief from
regulatory commissions. If applications for rate increases are not granted or
are not acted upon promptly, the market prices of and dividend payments on
utility stocks may be adversely affected. The Portfolio's policy of
concentrating in utility stocks is a fundamental policy and may not be changed
unless authorized by an investor vote. The Fund has a similar fundamental policy
which cannot be changed unless authorized by a shareholder vote.
The Portfolio may invest in securities issued by foreign companies
(including American Depository Receipts and Global Depository Receipts). Such
investments may be subject to various risks such as fluctuations in currency and
exchange rates, foreign taxes, social, political and economic conditions in the
countries in which such companies operate, and changes in governmental, economic
or monetary policies both here and abroad. There may be less publicly available
information about a foreign company than about a comparable domestic company.
Because the securities markets in many foreign countries are not as developed as
those in the United States, the securities of many foreign companies are less
liquid and their prices are more volatile than securities of comparable domestic
companies. In order to hedge against possible variations in foreign exchange
rates pending the settlement of foreign securities transactions, the Portfolio
may buy or sell foreign currencies, foreign currency futures and options, and
forward foreign currency exchange contracts.
The Portfolio may invest a significant portion of its assets in the
securities of real estate investment trusts (REITs), which are affected by
conditions in the real estate industry, interest rate changes and, in the case
of REITs investing in health care facilities, events affecting the health care
industry.
The Portfolio may also enter into repurchase agreements with respect to
securities of the U.S. Government and its agencies or instrumentalities with the
seller of such securities, usually a bank. Under a repurchase agreement, the
seller agrees to repurchase the securities at the Portfolio's cost plus interest
within a specified time (normally one day). Repurchase agreements involve a risk
that the value of the securities subject to the repurchase agreement may decline
to an amount less than the repurchase price and that, in the event of the
seller's bankruptcy or insolvency, the Portfolio may be prevented from disposing
of such securities. The Portfolio will comply with the collateralization
policies of the Securities and Exchange Commission (the Commission), which
policies require that the Portfolio or its custodian obtain actual or
constructive possession of the collateral and that the market value of the
securities held as collateral be marked to the market daily and at least equal
the repurchase price during the term of the agreement. The Portfolio intends
that the total of its investments, if any, in repurchase agreements maturing in
more than 7 days and other illiquid securities will not exceed 15% of its net
assets.
DERIVATIVE INSTRUMENTS. The Portfolio may purchase or sell derivative
instruments (which are instruments that derive their value from another
instrument, security, index or currency) to enhance return, to hedge against
fluctuations in securities prices, interest rates or currency exchange rates, or
as a substitute for the purchase or sale of securities or currencies. The
Portfolio's transactions in derivative instruments may include the purchase or
sale of futures contracts on securities (such as U.S. Government securities),
securities indices, other indices, other financial instruments or currencies;
options on futures contracts; exchange-traded options on securities, indices or
currencies; and forward foreign currency exchange contracts. The Portfolio's
transactions in derivative instruments involve a risk of loss or depreciation
due to unanticipated adverse changes in securities prices, interest rates, the
other financial instruments' prices or currency exchange rates, the inability to
close out a position or default by the counterparty. The loss on derivative
instruments (other than purchased options) may exceed the Portfolio's initial
investment in these instruments. In addition, the Portfolio may lose the entire
premium paid for purchased options that expire before they can be profitably
exercised by the Portfolio. The Portfolio incurs transaction costs in opening
and closing positions in derivative instruments. There can be no assurance that
the Investment Adviser's use of derivative instruments will be advantageous to
the Portfolio.
The Portfolio may write (sell) covered call and put options on securities,
currencies and indices with respect to up to 50% of its net assets, as measured
by the aggregate value of the securities underlying such written call and put
options. If a written covered call option is exercised, the Portfolio will be
unable to realize further price appreciation on the underlying securities and
portfolio turnover will increase, resulting in higher brokerage costs. The
Portfolio may purchase call and put options on any securities in which the
Portfolio may invest or options on any securities index composed of securities
in which the Portfolio may invest. The Portfolio does not intend to purchase an
option on any security if, after such transaction, more than 5% of its net
assets, as measured by the aggregate of all premiums paid for all such options
held by the Portfolio, would be so invested.
To the extent that the Portfolio enters into futures contracts, options on
futures contracts and options on foreign currencies traded on an exchange
regulated by the Commodity Futures Trading Commission (CFTC), in each case that
are not for bona fide hedging purposes (as defined by the CFTC), the aggregate
initial margin and premiums required to establish these positions (excluding the
amount by which options are in-the-money) may not exceed 5% of the liquidation
value of the Portfolio's portfolio, after taking into account unrealized profits
and unrealized losses on any contracts the Portfolio has entered into.
Forward contracts are individually negotiated and privately traded by
currency traders and their customers. A forward contract involves an obligation
to purchase or sell a specific currency (or basket of currencies) for an agreed
price at a future date, which may be any fixed number of days from the date of
the contract. The Portfolio may engage in cross-hedging by using forward
contracts in one currency (or basket of currencies) to hedge against
fluctuations in the value of securities denominated in a different currency if
the Investment Adviser determines that there is an established historical
pattern of correlation between the two currencies (or the basket of currencies
and the underlying currency). Use of a different foreign currency magnifies the
Portfolio's exposure to foreign currency exchange rate fluctuations. The
Portfolio may also use forward contracts to shift its exposure to foreign
currency exchange rate changes from one currency to another.
LEVERAGE THROUGH BORROWING. The Portfolio may from time to time increase its
ownership of portfolio securities above the amounts otherwise possible by
borrowing from banks on an unsecured basis at fixed or variable rates of
interest and investing the borrowed funds. The Investment Adviser currently
anticipates that the Portfolio will incur borrowings for the purpose of
acquiring additional income-producing securities when it is believed that the
interest payable with respect to such borrowings will be exceeded by (a) the
income payable on the securities acquired with such borrowings or (b) the
anticipated total return (a combination of income and appreciation) on such
securities. Such borrowings might be made, for example, when short-term interest
rates fall below the yields available from the securities acquired with the
borrowed funds or the total return anticipated from such securities.
The Portfolio is required to maintain asset coverage of at least 300% with
respect to such borrowings, which means that the Portfolio may borrow an amount
up to 50% of the value of its net assets (not including such borrowings). The
Portfolio may be required to dispose of securities held by it on unfavorable
terms if market fluctuations or other factors reduce such asset coverage to less
than 300%.
Leveraging will exaggerate any increase or decrease in the market value of
the securities held by the Portfolio. Money borrowed for leveraging will be
subject to interest costs which may or may not exceed the income from the
securities purchased. The Portfolio may also be required to maintain minimum
average balances in connection with such borrowing or to pay a commitment or
other fee to maintain a line of credit; either of these requirements will
increase the cost of borrowing over the stated interest rate. Unless the income
and appreciation, if any, on assets acquired with borrowed funds exceeds the
cost of borrowing, the use of leverage will diminish the investment performance
of the Portfolio compared with what it would have been without leverage.
The Portfolio will not always borrow money for additional investments. The
Portfolio's willingness to borrow money for investment purposes, and the amount
it will borrow, will depend on many factors, the most important of which are the
investment outlook, market conditions and interest rates. Successful use of a
leveraging strategy depends on the Investment Adviser's ability to predict
correctly interest rates and market movements, and there is no assurance that a
leverage strategy will be successful during any period in which it is employed.
The average daily loan balance for the fiscal year ended December 31, 1994 was
$3,137,134 and the average daily interest rate was 5.96%.
LENDING OF SECURITIES. The Portfolio may seek to increase its income by lending
portfolio securities to broker-dealers or other institutional borrowers. Under
present regulatory policies of the Commission, such loans would be required to
be secured continuously by collateral in cash, cash equivalents or U.S.
Government securities held by the Portfolio's custodian and maintained on a
current basis at an amount at least equal to the market value of the securities
loaned which will be marked to market daily. The Portfolio would have the right
to call a loan and obtain the securities loaned at any time on five business
days' notice. During the existence of a loan, the Portfolio will continue to
receive the equivalent of the interest or dividends paid by the issuer on the
securities loaned and will also receive a fee, or all or a portion of the
interest on investment of the collateral, if any. However, the Portfolio may pay
lending fees to such borrowers. The Portfolio would not have the right to vote
any securities having voting rights during the existence of the loan, but would
call the loan in anticipation of an important vote to be taken among holders of
the securities or the giving or withholding of their consent on a material
matter affecting the investment. As with other extensions of credit there are
risks of delay in recovery or even loss of rights in the securities loaned if
the borrower of the securities fails financially. However, the loans would be
made only to organizations deemed by the Portfolio's management to be of good
standing and, when, in the judgment of the Portfolio's management, the
consideration which can be earned from securities loans of this type justifies
the attendant risk. If the management of the Portfolio decides to make
securities loans, it is intended that the value of the securities loaned would
not exceed 30% of the Portfolio's total assets.
INVESTMENT RESTRICTIONS. The Fund and the Portfolio have adopted certain
fundmental investment restrictions which are enumerated in detail in the
Statement of Additional Information and which may not be changed unless
authorized by a shareholder vote and an investor vote, respectively. Except for
such enumerated restrictions and as otherwise indicated in this prospectus, the
investment objective and policies of the Fund and the Portfolio are not
fundamental policies and accordingly may be changed by the Trustees of the Trust
and the Portfolio without obtaining the approval of the Fund's shareholders or
the investors in the Portfolio, as the case may be. If any changes were made in
the Fund's investment objective, the Fund might have an investment objective
different from the objective which an investor considered appropriate at the
time the investor became a shareholder of the Fund.
An investment in the Fund entails the risk that the principal value of Fund
shares and the income earned there on may not increase or may decline. The
Portfolio's investments in equity securities are subject to the risk of adverse
developments affecting particular companies or industries and the stock market
generally. The lowest investment grade, lower rated and comparable unrated debt
securities in which the Portfolio may invest will have speculative
characteristics in varying degrees. While such securities may have some quality
and protective characteristics, these characteristics can be expected to be
offset or outweighed by uncertainties or major risk exposures to adverse
conditions. Lower rated and comparable unrated securites are subject to the risk
of an issuer's inability to meet principal and interest payments on the
securities (credit risk) and may also be subject to price volatility due to such
factors as interest rate sensitivity, market perception of the creditworthiness
of the issuer and general market liquidity (market risk). Lower rated and
comparable unrated securities are also more likely to react to real or perceived
developments affecting markets and credit risk than are more highly rated
securities, which react primarily to movements in the general level of interest
rates. The Portfolio may retain defaulted securities in its portfolio when such
retention is considered desirable by the Investment Adviser. In the case of a
defaulted security, the Portfolio may incur additional expenses seeking recovery
of its investment. In the event the rating of a security held by the Portfolio
is downgraded, the Investment Adviser will consider disposing of such security,
but is not obligated to do so.
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THE FUND IS NOT INTENDED TO BE A COMPLETE INVESTMENT PROGRAM, AND
PROSPECTIVE INVESTORS SHOULD TAKE INTO ACCOUNT THEIR OBJECTIVES AND
OTHER INVESTMENTS WHEN CONSIDERING THE PURCHASE OF FUND SHARES. THE
FUND CANNOT ELIMINATE RISK OR ASSURE ACHIEVEMENT OF ITS OBJECTIVE.
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ORGANIZATION OF THE FUND AND THE PORTFOLIO
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THE TRUSTEES OF THE FUND ARE RESPONSIBLE
FOR THE OVERALL MANAGEMENT AND
SUPERVISION OF ITS AFFAIRS.
EATON VANCE EQUITY-INCOME TRUST IS A BUSINESS TRUST ESTABLISHED UNDER
MASSACHUSETTS LAW PURSUANT TO A DECLARATION OF TRUST DATED AUGUST 3, 1987. THE
FUND IS A MUTUAL FUND -- A DIVERSIFIED OPEN-END MANAGEMENT INVESTMENT COMPANY.
The Trustees of the Fund are responsible for the overall management and
supervision of its affairs. The Fund has one class of shares of beneficial
interest, an unlimited number of which may be issued. Each share represents an
equal proportionate beneficial interest in the Fund. When issued and
outstanding, the shares are fully paid and nonassessable by the Fund and
redeemable as described under How to Redeem or Sell Fund Shares. Shareholders
are entitled to one vote for each full share held. Fractional shares may be
voted proportionately. Shares have no preemptive or conversion rights and are
freely transferable. In the event of the liquidation of the Fund, shareholders
are entitled to share pro rata in the net assets of the Fund available for
distribution to shareholders.
As permitted by Massachusetts law, there will normally be no meetings of
shareholders for the purpose of electing Trustees unless and until such time as
less than a majority of the Trustees of the Fund holding office have been
elected by shareholders. In such an event the Trustees then in office will call
a shareholders' meeting for the election of Trustees. Except for the foregoing
circumstances and unless removed by action of the shareholders in accordance
with the Fund's by-laws, the Trustees shall continue to hold office and may
appoint successor Trustees.
The Fund's by-laws provide that a Trustee may be removed at any special
meeting of the shareholders of the Fund by a vote of two-thirds of the
outstanding shares of beneficial interest of the Fund (the shares). The Trustees
will promptly call a meeting of shareholders for the purpose of voting upon a
question of removal of a Trustee when requested to do so by the record holders
of not less than 10 per centum of the outstanding shares.
THE PORTFOLIO IS ORGANIZED AS A TRUST UNDER THE LAWS OF THE STATE OF NEW
YORK AND INTENDS TO BE TREATED AS A PARTNERSHIP FOR FEDERAL TAX PURPOSES. The
Portfolio, as well as the Fund, intends to comply with all applicable Federal
and state securities laws. The Portfolio's Declaration of Trust provides that
the Fund and other entities permitted to invest in the Portfolio (e.g., other
U.S. and foreign investment companies, and common and commingled trust funds)
will each be liable for all obligations of the Portfolio. However, the risk of
the Fund incurring financial loss on account of such liability is limited to
circumstances in which both inadequate insurance exists and the Portfolio is
unable to meet its obligations. Accordingly, the Trustees of the Fund believe
that neither the Fund nor its shareholders will be adversely affected by reason
of the Fund investing in the Portfolio.
SPECIAL INFORMATION ON THE FUND/PORTFOLIO INVESTMENT STRUCTURE. An investor in
the Fund should be aware that the Fund, unlike mutual funds which directly
acquire and manage their own portfolios of securities, seeks to achieve its
investment objective by investing its assets in an interest in the Portfolio
(although the Fund may temporarily hold a de minimus amount of cash), which is a
separate investment company with an identical investment objective. Therefore,
the Fund's interest in the securities owned by the Portfolio is indirect. In
addition to selling an interest to the Fund, the Portfolio may sell interests to
other affiliated and non-affiliated mutual funds or institutional investors.
Such investors will invest in the Portfolio on the same terms and conditions and
will pay a proportionate share of the Portfolio's expenses. However, the other
investors investing in the Portfolio are not required to sell their shares at
the same public offering price as the Fund due to variations in sales
commissions and other operating expenses. Therefore, investors in the Fund
should be aware that these differences may result in differences in returns
experienced by investors in the various funds that invest in the Portfolio. Such
differences in returns are also present in other mutual fund structures,
including funds that have multiple classes of shares. For information regarding
the investment objective, policies and restrictions of the Fund and the
Portfolio, see How the Fund and the Portfolio Invest their Assets; Investment
Risks. Further information regarding investment practices may be found in the
Statement of Additional Information.
The Trustees of the Fund have considered the advantages and disadvantages
of investing the assets of the Fund in the Portfolio, as well as the advantages
and disadvantages of the two-tier format. The Trustees believe that the
structure offers opportunities for substantial growth in the assets of the
Portfolio, and affords the potential for economies of scale for the Fund, at
least when the assets of the Portfolio exceed $500 million. The shareholders of
the Fund approved the policy of investing the Fund's assets in an interest in
the Portfolio on September 1, 1994.
The Fund may withdraw (completely redeem) all its assets from the Portfolio
at any time if the Board of Trustees of the Fund determines that it is in the
best interest of the Fund to do so. The investment objective and the
nonfundamental investment policies of the Fund and the Portfolio may be changed
by the Trustees of the Fund and the Portfolio without obtaining the approval of
the shareholders of the Fund or the investors in the Portfolio, as the case may
be. Any such change of the investment objective of the Fund or the Portfolio
will be preceded by thirty days' advance written notice to the shareholders of
the Fund or the investors in the Portfolio, as the case may be. If a shareholder
redeems shares because of a change in the nonfundamental objective or policies
of the Fund, those shares may be subject to a contingent deferred sales charge,
as described in How to Redeem or Sell Fund Shares. In the event the Fund
withdraws all of its assets from the Portfolio, or the Board of Trustees of the
Fund determines that the investment objective of the Portfolio is no longer
consistent with the investment objective of the Fund, the Board of Trustees of
the Fund would consider what action might be taken, including investing the
assets of the Fund in another pooled investment entity or retaining an
investment adviser to manage the Fund's assets in accordance with its investment
objective. The Fund's investment performance may be affected by a withdrawal of
all its assets from the Portfolio.
Information regarding other pooled investment entities or funds which
invest in the Portfolio may be obtained by contacting Eaton Vance Distributors,
Inc. (the Principal Underwriter or EVD), 24 Federal Street, Boston, MA 02110,
(617) 482-8260. Smaller investors in the Portfolio may be adversely affected by
the actions of larger investors in the Portfolio. For example, if a large
investor withdraws from the Portfolio, the remaining investors may experience
higher pro rata operating expenses, thereby producing lower returns.
Additionally, the Portfolio may become less diverse, resulting in increased
portfolio risk, and experience decreasing economies of scale. However, this
possibility exists as well for historically structured funds which have large or
institutional investors.
Until recently, the Administrator sponsored and advised historically
structured funds. Funds which invest all their assets in interests in a separate
investment company are a relatively new development in the mutual fund industry
and, therefore, the Fund may be subject to additional regulations than
historically structured funds.
The Declaration of Trust of the Portfolio provides that the Portfolio will
terminate 120 days after the complete withdrawal of the Fund or any other
investor in the Portfolio, unless either the remaining investors, by unanimous
vote at a meeting of such investors, or a majority of the Trustees of the
Portfolio, by written instrument consented to by all investors, agree to
continue the business of the Portfolio. This provision is consistent with
treatment of the Portfolio as a partnership for Federal income tax purposes. See
Distributions and Taxes for further information. Whenever the Fund as an
investor in the Portfolio is requested to vote on matters pertaining to the
Portfolio (other than the termination of the Portfolio's business, which may be
determined by the Trustees of the Portfolio without investor approval), the Fund
will hold a meeting of Fund shareholders and will vote its interest in the
Portfolio for or against such matters proportionately to the instructions to
vote for or against such matters received from Fund shareholders. The Fund shall
vote shares for which it receives no voting instructions in the same proportion
as the shares for which it receives voting instructions. Other investors in the
Portfolio may alone or collectively acquire sufficient voting interests in the
Portfolio to control matters relating to the operation of the Portfolio, which
may require the Fund to withdraw its investment in the Portfolio or take other
appropriate action. Any such withdrawal could result in a distribution in kind
of portfolio securities (as opposed to a cash distribution from the Portfolio).
If securities are distributed, the Fund could incur brokerage, tax or other
charges in converting the securities to cash. In addition, the distribution in
kind may result in a less diversified portfolio of investments or adversely
affect the liquidity of the Fund. Notwithstanding the above, there are other
means for meeting shareholder redemption requests, such as borrowing.
In accordance with the Declaration of Trust of the Portfolio, there will
normally be no meetings of the investors for the purpose of electing Trustees
unless and until such time as less than a majority of the Trustees holding
office have been elected by investors. In such an event the Trustees of the
Portfolio then in office will call an investors' meeting for the election of
Trustees. Except for the foregoing circumstances and unless removed by action of
the investors in accordance with the Portfolio's Declaration of Trust, the
Trustees shall continue to hold office and may appoint successor Trustees.
The Declaration of Trust of the Portfolio provides that no person shall
serve as a Trustee if investors holding two-thirds of the outstanding interests
have removed him from that office either by a written declaration filed with the
Portfolio's custodian or by votes cast at a meeting called for that purpose. The
Declaration of Trust further provides that under certain circumstances the
investors may call a meeting to remove a Trustee and that the Portfolio is
required to provide assistance in communicating with investors about such a
meeting.
The Trustees of the Fund, including a majority of noninterested Trustees,
have approved written procedures designed to identify and address any potential
conflicts of interest arising from the fact that the Trustees of the Fund and
the Trustees of the Portfolio are the same. Such procedures require each Board
to take actions to resolve any conflict of interest between the Fund and the
Portfolio, and it is possible that the creation of separate Boards may be
considered. For further information concerning the Trustees and officers of the
Fund and the Portfolio, see the Statement of Additional Information.
REPORTS TO SHAREHOLDERS
--------------------------------------------------------------------------------
THE FUND WILL ISSUE TO ITS SHAREHOLDERS SEMI-ANNUAL AND ANNUAL REPORTS
CONTAINING FINANCIAL STATEMENTS. Financial statements included in annual reports
are audited by the Fund's independent accountants. Shortly after the end of each
calendar year, the Fund will furnish all shareholders with information necessary
for preparing Federal and state tax returns.
MANAGEMENT OF THE FUND AND THE PORTFOLIO
--------------------------------------------------------------------------------
THE PORTFOLIO ENGAGES BOSTON MANAGEMENT AND RESEARCH (BMR), A WHOLLY-OWNED
SUBSIDIARY OF EATON VANCE MANAGEMENT (EATON VANCE), AS ITS INVESTMENT ADVISER.
EATON VANCE, ITS AFFILIATES AND ITS PREDECESSOR COMPANIES HAVE BEEN MANAGING
ASSETS OF INDIVIDUALS AND INSTITUTIONS SINCE 1924 AND MANAGING INVESTMENT
COMPANIES SINCE 1931.
ACTING UNDER SUPERVISION OF THE
TRUSTEES, BMR MANAGES THE PORTFOLIO'S
INVESTMENTS AND AFFAIRS.
Acting under the general supervision of the Board of Trustees of the
Portfolio, BMR manages the Portfolio's investments and affairs. Under its
investment advisory agreement with the Portfolio, BMR receives a monthly
advisory fee of .0625% (equivalent to .75% annually) of the average daily net
assets of the Portfolio up to $500 million. On net assets of $500 million and
over the annual fee is reduced as follows:
ANNUALIZED FEE RATE
AVERAGE DAILY NET ASSETS FOR THE MONTH (FOR EACH LEVEL)
-------------------------------------- -------------------
$500 million but less than $1 billion .............. 0.6875%
$1 billion but less than $1.5 billion .............. 0.6250%
$1.5 billion but less than $2 billion .............. 0.5625%
$2 billion but less than $3 billion ................ 0.5000%
$3 billion and over ................................ 0.4375%
For the period from October 1, 1994 to December 31, 1994, the Portfolio
paid BMR advisory fees equivalent to 0.74% (annualized) of the Portfolio's
average daily net assets for such period. Prior to the close of business on
September 30, 1994 (when the Fund transferred its assets to the Portfolio in
exchange for an interest in the Portfolio) the Fund retained Eaton Vance as its
investment adviser. For the fiscal year ended September 30, 1994, the Fund paid
Eaton Vance advisory fees equivalent to 0.75% of the Fund's average daily net
assets for such year.
BMR furnishes for the use of the Portfolio office space and all necessary
office facilities, equipment and personnel for servicing the investments of the
Portfolio. BMR also places the portfolio security transactions of the Portfolio
for execution with many broker-dealer firms and uses its best efforts to obtain
execution of such transactions at prices which are advantageous to the Portfolio
and at reasonably competitive commission rates. Subject to the foregoing, BMR
may consider sales of shares of the Fund or of other investment companies
sponsored by BMR or Eaton Vance as a factor in the selection of broker-dealer
firms to execute portfolio transactions.
Timothy O'Brien has been the portfolio manager of the Portfolio since
January, 1995. Mr. O'Brien became a Vice President of Eaton Vance on April 25,
1994. Prior to joining Eaton Vance, Mr. O'Brien served as a Vice President of
Loomis, Sayles & Co.
BMR OR EATON VANCE ACTS AS INVESTMENT ADVISER TO INVESTMENT COMPANIES AND
VARIOUS INDIVIDUAL AND INSTITUTIONAL CLIENTS WITH ASSETS UNDER MANAGEMENT OF
APPROXIMATELY $15 BILLION. Eaton Vance is a wholly-owned subsidiary of Eaton
Vance Corp., a publicly-held holding company. Eaton Vance Corp., through its
subsidiaries and affiliates, engages in investment management and marketing
activities, fiduciary and banking services, oil and gas operations, real estate
investment, consulting and management, and development of precious metals
properties.
The Fund has retained the services of Eaton Vance to act as Administrator
of the Fund. The Fund has not retained the services of an investment adviser
since the Fund seeks to achieve the investment objective of the Fund by
investing the Fund's assets in the Portfolio. As Administrator, Eaton Vance
provides the Fund with general office facilities and supervises the overall
administration of the Fund. For these services Eaton Vance currently receives no
compensation. The Trustees of the Fund may determine, in the future, to
compensate Eaton Vance for such services.
The Portfolio and the Fund, as the case may be, will each be responsible
for all of its respective costs and expenses not expressly stated to be payable
by BMR under the investment advisory agreement, by Eaton Vance under the
administrative services agreement or by EVD under the distribution agreement.
HOW THE FUND AND THE PORTFOLIO DETERMINE THEIR NET ASSET VALUES
--------------------------------------------------------------------------------
THE FUND'S NET ASSET VALUE IS COMPUTED
DAILY.
THE FUND VALUES ITS SHARES ONCE ON EACH DAY THE NEW YORK STOCK EXCHANGE (THE
EXCHANGE) IS OPEN FOR TRADING, AS OF THE CLOSE OF REGULAR TRADING ON THE
EXCHANGE. The Fund's net asset value per share is determined by its custodian,
Investors Bank & Trust Company (IBT) (as agent for the Fund), in the manner
authorized by the Trustees of the Fund. The net asset value is computed by
dividing the value of the Fund's total assets, less its liabilities, by the
number of shares outstanding. Because the Fund invests its assets in an interest
in the Portfolio, the Fund's net asset value will reflect the value of its
interest in the Portfolio (which in turn, reflects the underlying value of the
Portfolio's assets and liabilities). For further information regarding the
valuation of the Fund's interest in the Portfolio, see Determination of Net
Asset Value in the Statement of Additional Information.
The net asset value per Fund share so determined is effective for orders
received by certain financial service firms (Authorized Firms) prior to the
price determination (which for this purpose shall be deemed to have been made as
of the close of regular trading on the Exchange -- normally 4:00 p.m., New York
time) and communicated by the Authorized Firm to the Principal Underwriter prior
to the close of the Principal Underwriter's business day. See How to Buy Shares
of the Fund for Cash. It is the Authorized Firms' responsibility to transmit
orders promptly to the Principal Underwriter. Authorized Firms include financial
service firms with whom the Principal Underwriter has agreements.
THE PORTFOLIO'S NET ASSET VALUE IS ALSO DETERMINED AS OF THE CLOSE OF
REGULAR TRADING ON THE EXCHANGE. The Portfolio's net asset value is determined
by IBT (as custodian and agent for the Portfolio), in the manner authorized by
the Trustees of the Portfolio. The net asset value is computed by subtracting
the liabilities of the Portfolio from the value of its total assets. Securities
listed on securities exchanges or in the NASDAQ National Market are valued at
closing sales prices or, if there are no sales, at the mean between the closing
bid and asked prices therefor on such exchanges. For further information
regarding the valuation of the Portfolio's assets, see Determination of Net
Asset Value in the Statement of Additional Information. Eaton Vance Corp. owns
77.3% of the outstanding stock of IBT, the Fund's and the Portfolio's custodian.
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SHAREHOLDERS MAY DETERMINE THE VALUE OF THEIR INVESTMENT BY
MULTIPLYING THE NUMBER OF FUND SHARES OWNED BY THE CURRENT NET ASSET
VALUE PER SHARE.
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HOW TO BUY SHARES OF THE FUND FOR CASH
--------------------------------------------------------------------------------
INVESTORS MAY PURCHASE SHARES OF THE FUND THROUGH AUTHORIZED FIRMS AT THE NET
ASSET VALUE PER SHARE OF THE FUND NEXT DETERMINED AFTER SUCH PURCHASE. Pursuant
to its Distribution Agreement with EVD, the Fund engages EVD to distribute the
Fund's shares on a best efforts basis through Authorized Firms. EVD will furnish
the names of Authorized Firms to an investor upon request.
THE INITIAL INVESTMENT MUST BE AT LEAST
$1,000. SHAREHOLDERS CAN MAKE ADDITIONAL
INVESTMENTS AT ANY TIME FOR AS LITTLE AS
$50.
An initial investment in the Fund must be at least $1,000. Once an account
has been established the investor may send investments of $50 or more at any
time directly to the Fund's Transfer Agent (the Transfer Agent) as follows: The
Shareholder Services Group, Inc., BOS725, P.O. Box 1559, Boston, MA 02104. The
$1,000 minimum initial investment is waived for Bank Automated Investing
accounts, which may be established with an investment of $50 or more. See Eaton
Vance Shareholder Services below.
The Fund may suspend the offering of shares at any time and may refuse any
order for the purchase of shares.
In connection with employee benefit or other continuous group purchase
plans under which the average initial purchase by a participant of the plan is
$1,000 or more, the Fund may accept initial investments of less than $1,000 on
the part of an individual participant. In the event a shareholder who is a
participant of such a plan terminates participation in the plan, his or her
shares will be transferred to a regular individual account. However, such
account will be subject to the right of redemption by the Fund as described
below under How to Redeem or Sell Fund Shares.
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IF YOU DON'T HAVE AN AUTHORIZED FIRM, EATON VANCE CAN RECOMMEND ONE.
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HOW TO ACQUIRE FUND SHARES IN EXCHANGE FOR SECURITIES
--------------------------------------------------------------------------------
IN EXCHANGING SECURITIES FOR FUND
SHARES, THE MINIMUM VALUE OF SECURITIES
ACCEPTABLE TO EATON VANCE IS $5,000.
COMPLIANCE WITH CERTAIN OTHER CONDITIONS
IS ALSO REQUIRED TO MAKE AN EXCHANGE.
IBT, AS ESCROW AGENT, WILL RECEIVE SECURITIES ACCEPTABLE TO EATON VANCE, AS
ADMINISTRATOR, IN EXCHANGE FOR FUND SHARES AT THEIR NET ASSET VALUE AS
DETERMINED ABOVE. The minimum value of securities (or securities and cash)
accepted for deposit is $5,000. Securities accepted will be sold by IBT as agent
for the account of their owner on the day of their receipt by IBT or as soon
thereafter as possible. The number of Fund shares to be issued in exchange for
securities will be the aggregate proceeds from the sale of such securities
divided by the applicable net asset value per Fund share on the day such
proceeds are received. Eaton Vance will use reasonable efforts to obtain the
then current prices for such securities, but does not guarantee the best price
available. Eaton Vance will absorb any transaction costs, such as commissions,
on the sale of the securities.
Securities determined to be acceptable should be transferred via book entry
or physically delivered, in proper form for transfer, through an Authorized
Firm, together with a completed and signed Letter of Transmittal in approved
form (available from Authorized Firms), as follows:
In the case of book entry:
Deliver through Depository Trust Co.
Broker #2212
Investors Bank & Trust Company
For A/C Eaton Vance Equity-Income Trust
In the case of physical delivery:
Investors Bank & Trust Company
Attention: Eaton Vance Equity-Income Trust
Physical Securities Processing Settlement Area
89 South Street
Boston, MA 02111
Investors who are contemplating an exchange of securities for shares of the
Fund, or their representatives, are advised to contact Eaton Vance to determine
whether the securities are acceptable before forwarding such securities to IBT.
Eaton Vance reserves the right to reject any securities.
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EXCHANGING SECURITIES FOR FUND SHARES MAY CREATE A TAXABLE GAIN OR
LOSS. EACH INVESTOR SHOULD CONSULT HIS OR HER TAX ADVISER WITH
RESPECT TO THE PARTICULAR FEDERAL, STATE AND LOCAL TAX CONSEQUENCES
OF EXCHANGING SECURITIES FOR FUND SHARES.
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HOW TO REDEEM OR SELL FUND SHARES
--------------------------------------------------------------------------------
THE REDEMPTION PRICE WILL BE BASED ON
THE NET ASSET VALUE NEXT COMPUTED AFTER
DELIVERY OF THE SHARE CERTIFICATES OR
STOCK POWERS.
A SHAREHOLDER MAY REDEEM FUND SHARES BY DELIVERING TO THE SHAREHOLDER SERVICES
GROUP, INC., BOS725, P.O. BOX 1559, BOSTON, MA 02104, EITHER SHARE CERTIFICATES,
OR A STOCK POWER if no certificates have been issued, in good order for
transfer, with a separate written request for redemption. The redemption price
will be based on the net asset value next computed after such delivery. Good
order means that the certificates or stock powers must be endorsed by the record
owner(s) exactly as the shares are registered and the signature(s) must be
guaranteed by a member of either the Securities Transfer Association's STAMP
program or the New York Stock Exchange's Medallion Signature Program, or certain
banks, savings and loan institutions, credit unions, securities dealers,
securities exchanges, clearing agencies and registered securities associations
as required by a regulation of the Securities and Exchange Commission and
acceptable to The Shareholder Services Group, Inc. In addition, in some cases,
good order may require the furnishing of additional documents such as where
shares are registered in the name of a corporation, partnership or fiduciary.
Within seven days after receipt of a redemption request by The Shareholder
Services Group, Inc. in good order, the Fund will make payment in cash for the
net asset value of the shares as of the date determined above, reduced by the
amount of any applicable contingent deferred sales charge (described below) and
any Federal income tax required to be withheld. Although the Fund normally
expects to make payment in cash for redeemed shares, the Fund, subject to
compliance with applicable regulations, has reserved the right to pay the
redemption price of shares of the Fund, either totally or partially, by a
distribution in kind of readily marketable securities withdrawn by the Fund from
the Portfolio (instead of cash). The securities so distributed would be valued
at the same amount as that assigned to them in calculating the net asset value
for the shares being sold. If a shareholder received a distribution in kind, the
shareholder could incur brokerage or other charges in converting the securities
to cash.
The right to redeem can be suspended and the payment of the redemption
price deferred when the Exchange is closed (other than customary weekend and
holiday closings), during periods when trading on the Exchange is restricted as
determined by the Commission, or during any emergency as determined by the
Commission which makes it impracticable for the Portfolio to dispose of its
securities or value its assets, or during any other period permitted by order of
the Commission for the protection of investors.
To sell shares at their net asset value through an Authorized Firm (a
repurchase), a shareholder can place a repurchase order with the Authorized
Firm, which may charge a fee. Net asset value is calculated on the day the Firm
places the order with EVD, as the Fund's agent, if the Firm receives the order
prior to the close of regular trading on the Exchange and communicates it to EVD
on the same day before EVD closes.
If shares were recently purchased, the proceeds of a redemption (or repur-
chase) will not be sent until the check (including a certified or cashier's
check) received for the shares purchased has cleared. Payment for shares
tendered for redemption or repurchase may result in a delay of more than seven
days when the purchase check has not yet cleared, but the delay (anticipated not
to exceed fifteen days) will be no longer than required to verify that the
purchase check has cleared. The value of Fund shares redeemed or repurchased,
less any contingent deferred sales charge imposed (see below), may be more or
less than their cost, and redemptions or repurchases may therefore result in a
taxable gain or loss.
Due to the high cost of maintaining small accounts, the Fund reserves the
right to redeem accounts with balances of less than $1,000. Prior to such a
redemption, shareholders will be notified in writing and will be allowed 60
days' written notice to make additional purchases to bring the account up to the
Fund's $1,000 minimum investment requirement. Thus, an investor making an
initial investment of $1,000 would not be able to redeem shares without being
subject to this policy. However, no such redemption would be required by the
Fund if the cause of the low account balance was a reduction in the net asset
value of Fund shares. No contingent deferred sales charge will be imposed with
respect to such involuntary redemptions.
A CONTINGENT DEFERRED SALES CHARGE MAY
BE IMPOSED ON THE REDEMPTION OF CERTAIN
SHARES.
IF THE SHAREHOLDER HOLDS FUND SHARES FOR MORE THAN SIX YEARS AFTER THEIR
PURCHASE, THE SHAREHOLDER WILL NOT HAVE TO PAY ANY CHARGE WHEN HE OR SHE REDEEMS
THOSE SHARES. SHARES REDEEMED WITHIN THE FIRST SIX YEARS OF THEIR PURCHASE
(EXCEPT SHARES ACQUIRED THROUGH THE REINVESTMENT OF DISTRIBUTIONS) GENERALLY
WILL BE SUBJECT TO A CONTINGENT DEFERRED SALES CHARGE. A CONTINGENT DEFERRED
SALES CHARGE IS IMPOSED ON ANY REDEMPTION THE AMOUNT OF WHICH EXCEEDS THE
AGGREGATE VALUE AT THE TIME OF REDEMPTION OF (A) ALL SHARES IN THE ACCOUNT
PURCHASED MORE THAN SIX YEARS PRIOR TO THE REDEMPTION, (B) ALL SHARES IN THE
ACCOUNT ACQUIRED THROUGH REINVESTMENT OF DISTRIBUTIONS, AND (C) THE INCREASE, IF
ANY, OF VALUE OF ALL OTHER SHARES IN THE ACCOUNT (NAMELY THOSE PURCHASED WITHIN
THE SIX YEARS PRECEDING THE REDEMPTION) OVER THE PURCHASE PRICE OF SUCH SHARES.
REDEMPTIONS ARE PROCESSED IN A MANNER TO MAXIMIZE THE AMOUNT OF REDEMPTION
PROCEEDS WHICH WILL NOT BE SUBJECT TO A CONTINGENT DEFERRED SALES CHARGE. THAT
IS, EACH REDEMPTION WILL BE ASSUMED TO HAVE BEEN MADE FIRST FROM THE EXEMPT
AMOUNTS REFERRED TO IN CLAUSES (A), (B) AND (C) ABOVE, AND SECOND THROUGH
LIQUIDATION OF THOSE SHARES IN THE ACCOUNT REFERRED TO IN CLAUSE (C) ON A
FIRST-IN-FIRST-OUT BASIS. Any contingent deferred sales charge which is required
to be imposed on share redemptions will be made in accordance with the following
schedule:
YEAR OF CONTINGENT
REDEMPTION DEFERRED SALES
AFTER PURCHASE CHARGE
-------------- --------------
First ............................. 5%
Second ............................ 5%
Third ............................. 4%
Fourth ............................ 3%
Fifth ............................. 2%
Sixth ............................. 1%
Seventh and following ............. 0%
For shares purchased prior to August 1, 1994, the contingent deferred sales
charge for redemptions within the first year after purchase is 6%. In
calculating the contingent deferred sales charge upon the redemption of Fund
shares acquired in an exchange of shares of a fund currently listed under The
Eaton Vance Exchange Privilege, the contingent deferred sales charge schedule
applicable to the shares at the time of purchase will apply and the purchase of
Fund shares acquired in the exchange is deemed to have occurred at the time of
the original purchase of the exchanged shares. The contingent deferred sales
charge will be waived for shares redeemed (1) pursuant to a Withdrawal Plan (See
Eaton Vance Shareholder Services), (2) as part of a required distribution from a
tax-sheltered retirement plan or (3) following the death of all beneficial
owners of such shares, provided the redemption is requested within one year of
death (a death certificate and other applicable documents may be required).
No contingent deferred sales charge will be imposed on Fund shares which
have been sold to Eaton Vance or its affiliates or to their respective employees
or clients. The contingent deferred sales charge will be paid to the Principal
Underwriter or the Fund.
--------------------------------------------------------------------
THE FOLLOWING EXAMPLE ILLUSTRATES THE OPERATION OF THE CONTINGENT
DEFERRED SALES CHARGE. ASSUME THAT AN INVESTOR PURCHASES $10,000 OF
THE FUND'S SHARES AND THAT 16 MONTHS LATER THE VALUE OF THE ACCOUNT
HAS GROWN THROUGH INVESTMENT PERFORMANCE AND REINVESTMENT OF
DISTRIBUTIONS TO $12,000. THE INVESTOR THEN MAY REDEEM UP TO $2,000
OF SHARES WITHOUT INCURRING A CONTINGENT DEFERRED SALES CHARGE. IF
THE INVESTOR SHOULD REDEEM $3,000 OF SHARES, A CONTINGENT DEFERRED
SALES CHARGE WOULD BE IMPOSED ON $1,000 OF THE REDEMPTION. THE RATE
WOULD BE 5% BECAUSE THE REDEMPTION WAS MADE IN THE SECOND YEAR AFTER
THE PURCHASE WAS MADE AND THE CHARGE WOULD BE $50.
--------------------------------------------------------------------
THE LIFETIME INVESTING ACCOUNT/DISTRIBUTION OPTIONS
--------------------------------------------------------------------------------
THE TRANSFER AGENT AUTOMATICALLY SETS UP
AN ACCOUNT FOR YOU. EACH TIME A
TRANSACTION TAKES PLACE YOU WILL RECEIVE
A STATEMENT SHOWING COMPLETE DETAILS OF
THE TRANSACTION AND THE ACCOUNT'S
CURRENT BALANCE.
AFTER AN INVESTOR MAKES AN INITIAL PURCHASE OF FUND SHARES, THE FUND'S TRANSFER
AGENT, THE SHAREHOLDER SERVICES GROUP, INC., WILL SET UP A LIFETIME INVESTING
ACCOUNT FOR THE INVESTOR ON THE FUND'S RECORDS. This account is a complete
record of all transactions between the investor and the Fund which at all times
shows the balance of shares owned. The Fund will not issue share certificates
except upon request.
Each time a transaction takes place in a shareholder's account, the
shareholder will receive a statement showing complete details of the transaction
and the current balance in the account. The Lifetime Investing Account also
permits a shareholder to make additional investments in shares by sending a
check for $50 or more to The Shareholder Services Group, Inc.
Any questions concerning a shareholder's account or services available may
be directed by telephone to Eaton Vance Shareholder Services at 800-225-6265,
extension 2 or in writing to The Shareholder Services Group, Inc., BOS725, P.O.
Box 1559, Boston, MA 02104 (please provide the name of the shareholder, the Fund
and the account number).
SHAREHOLDERS MAY CHOOSE WHETHER TO
RECEIVE DIVIDENDS AND CAPITAL GAINS
DISTRIBUTIONS IN CASH OR SHARES.
THE FOLLOWING DISTRIBUTION OPTIONS WILL BE AVAILABLE TO ALL LIFETIME INVESTING
ACCOUNTS and may be changed as often as desired by written notice to the Fund's
dividend-disbursing agent, The Shareholder Services Group, Inc., BOS725, P.O.
Box 1559, Boston, MA 02104. The currently effective option will appear on each
confirmation statement.
Share Option -- Dividends and capital gains in additional shares. This option
will be assigned if no other option is specified.
Income Option -- Dividends in cash; capital gains in additional shares.
Cash Option -- Dividends in cash; capital gains in cash.
Under the Share Option, dividends will be reinvested (net of any
withholding required under the Federal income tax laws) on the payment date in
additional full and fractional shares at the net asset value per share as of the
record date.
Under Share and Income Options, all distributions from capital gains
(whether long or short-term) will be paid in additional full and fractional
shares at the net asset value as of the record date of each such distribution,
net of any withholding required under Federal income tax laws.
If the Income Option or Cash Option has been selected, dividend and/or
capital gains distribution checks which are returned by the United States Postal
Service as not deliverable or which remain uncashed for six months or more will
be reinvested in the account at the then current net asset value. Furthermore,
the distribution option on the account will be automatically changed to the
Share Option until such time as the shareholder selects a different option.
Distribution Investment Option. Dividends and/or capital gains may be
invested in additional shares of another Eaton Vance fund. Before selecting this
option, a shareholder should obtain a prospectus of the other Eaton Vance fund
and consider its objectives and policies carefully.
A beneficial owner of shares who holds shares in a street name account at
an investment firm is reminded that all recordkeeping, transaction processing
and payments of distributions to his account will be done by the firm holding
the shares, and not by the Fund or its Transfer Agent. Year end forms required
for tax purposes (1099-DIV, 1099-B, etc.) are also provided by that investment
firm. The Fund will have no record of transactions for a beneficial owner of
shares while shares held for him are in a street name account. Requests for any
such information regarding the shares or the account should be directed to that
investment firm.
Transactions in a street name account will be reflected on the records of
the Fund only upon the instructions of the investment firm which is the record
owner of the shares. A beneficial owner of shares in a street name account
should contact his investment firm representative if he wants to purchase or
redeem shares or make other changes in his account. A transfer of a street name
account at one investment firm to a street name account at another firm may
require approval by the transferee firm. There are no fees charged by the Fund
for an account transfer, but transfer fees may be charged by the investment
firms.
If a beneficial owner wishes to transfer shares from a street name account
to another firm's street name account, he should instruct the firm currently
holding the street name account to provide the costs and purchase dates of all
shares purchased in the account and the number of shares accumulated through
reinvestment of distributions and remaining in the account to the transferee
firm in a form satisfactory to the Fund. If the transfer is to an account to be
registered in the name of the owner on the records of the Fund, this information
must be furnished to the Fund's transfer agent in a form satisfactory to the
Fund. The furnishing of this information is essential to provide an historical
investment record of all shares owned.
Before establishing a street name account with an investment firm, or
transferring the account to another investment firm, an investor wishing to
reinvest distributions should determine whether the firm which will hold the
shares allows reinvestment of distributions in street name accounts.
--------------------------------------------------------------------
UNDER A LIFETIME INVESTING ACCOUNT A SHAREHOLDER CAN MAKE ADDITIONAL
INVESTMENTS IN SHARES BY SENDING A CHECK FOR $50 OR MORE.
--------------------------------------------------------------------
THE EATON VANCE EXCHANGE PRIVILEGE
--------------------------------------------------------------------------------
SHAREHOLDERS MAY EXCHANGE FUND SHARES
FOR SHARES OF OTHER EV MARATHON FUNDS.
NO CONTINGENT DEFERRED SALES CHARGE IS
IMPOSED ON SUCH EXCHANGES.
Fund shares may be exchanged for shares of one or more other funds in the
Eaton Vance Marathon Group of Funds (which includes Eaton Vance Equity-Income
Trust and any EV Marathon fund, except Eaton Vance Prime Rate Reserves) or Eaton
Vance Money Market Fund, which are distributed subject to a contingent deferred
sales charge, on the basis of the net asset value per share of each fund at the
time of the exchange, provided that such exchange offers are available only in
states where shares of the fund being acquired may be legally sold.
The prospectus for each fund describes its investment objectives and
policies, and shareholders should obtain a prospectus and consider these
objectives and policies carefully before requesting an exchange. Each exchange
must involve shares which have a net asset value of at least $1,000. The
exchange privilege may be changed or discontinued without penalty. Shareholders
will be given sixty (60) days' written notice prior to any termination or
material amendment of the exchange privilege. The Fund does not permit the
exchange privilege to be used for Market Timing and may terminate the exchange
privilege for any shareholder account engaged in Market Timing activity. Any
shareholder account for which more than two round-trip exchanges are made within
any twelve month period will be deemed to be engaged in Market Timing.
Furthermore, a group of unrelated accounts for which exchanges are entered
contemporaneously by a financial intermediary will be considered to be engaged
in Market Timing.
The Shareholder Services Group, Inc. makes exchanges at the next determined
net asset value after receiving an exchange request in good order (see How to
Redeem or Sell Fund Shares), and share certificates, if any. The Shareholder
Services Group, Inc. may require additional documentation if shares are
registered in the name of a corporation, partnership or fiduciary.
No contingent deferred sales charge is imposed on exchanges. For purposes
of calculating the contingent deferred sales charge upon the redemption of
shares acquired in an exchange, the contingent deferred sales charge schedule
applicable to the shares at the time of purchase will apply and the purchase of
shares acquired in one or more exchanges is deemed to have occurred at the time
of the original purchase of the exchanged shares. Any contingent deferred sales
charge which is required to be imposed on redemptions of shares acquired in an
exchange will be imposed in accordance with the schedule set forth under How to
Redeem or Sell Fund Shares, except that shares acquired in an exchange from EV
Marathon Strategic Income Fund or any EV Marathon Limited Maturity Fund will be
subject to a charge of 3%, 2.5%, 2% or 1% in the event of a redemption occurring
in the first, second, third or fourth year, respectively, after the original
purchase of the exchanged shares.
Shares of the other funds in the Eaton Vance Marathon Group of Funds and
shares of Eaton Vance Money Market Fund may be exchanged for Fund shares on the
basis of the net asset value per share of each fund at the time of the exchange,
but subject to any restrictions or qualifications set forth in the current
prospectus of any such fund.
Telephone exchanges within the group of funds listed above are also
accepted if the exchange involves shares on deposit with The Shareholder
Services Group, Inc. and the investor has not disclaimed in writing the use of
the privilege. To effect such exchanges, call The Shareholder Services Group,
Inc. at 800-262-1122 or, within Massachusetts, 617-573-9403, Monday through
Friday, 9:00 a.m. to 4:00 p.m. (Eastern Standard Time). All such telephone
exchanges must be registered in the same name(s) and with the same address as
are registered with the fund from which the exchange is being made. Neither the
Fund, the Principal Underwriter nor The Shareholder Services Group, Inc. will be
responsible for the authenticity of exchange instructions received by telephone;
provided that reasonable procedures to confirm that instructions communicated
are genuine have been followed. Telephone instructions will be tape recorded. In
times of drastic economic or market changes, a telephone exchange may be
difficult to implement. An exchange may result in a taxable gain or loss.
EATON VANCE SHAREHOLDER SERVICES
--------------------------------------------------------------------------------
FULL INFORMATION ON THESE SERVICES IS
AVAILABLE FROM EATON VANCE DISTRIBUTORS,
INC.
THE FOLLOWING SERVICES ARE VOLUNTARY, INVOLVE NO EXTRA CHARGE, AND MAY BE
CHANGED OR DISCONTINUED WITHOUT PENALTY AT ANY TIME. Full information on each of
the services described below and an application, where required, are available
from Authorized Firms or the Principal Underwriter. The cost of administering
such services for the benefit of shareholders who participate in them is borne
by the Fund as an expense to all shareholders.
INVEST-BY-MAIL -- FOR PERIODIC SHARE ACCUMULATION: Once the $1,000 minimum
investment has been made, checks of $50 or more payable to the order of Eaton
Vance Equity-Income Trust may be mailed directly to The Shareholder Services
Group, Inc., BOS725, P.O. Box 1559, Boston, MA 02104 at any time -- whether or
not distributions are reinvested. The name of the shareholder, the Fund and the
account number should accompany each investment.
BANK AUTOMATED INVESTING -- FOR REGULAR SHARE ACCUMULATION: Cash investments of
$50 or more may be made automatically each month or quarter from a shareholder's
bank account. The $1,000 minimum initial investment and small account redemption
policy are waived for these accounts.
WITHDRAWAL PLAN: A shareholder may draw on shareholdings systematically with
monthly or quarterly checks in an aggregate amount that does not exceed annually
12% of the account balance at the time the plan is established. Such amount will
not be subject to a contingent deferred sales charge. See How to Redeem or Sell
Fund Shares. A minimum deposit of $5,000 in shares is required.
REINVESTMENT PRIVILEGE: A SHAREHOLDER WHO HAS REPURCHASED OR REDEEMED SHARES MAY
REINVEST, WITH CREDIT FOR ANY CONTINGENT DEFERRED SALES CHARGES PAID ON THE
REDEEMED OR REPURCHASED SHARES, ANY PORTION OR ALL OF THE REPURCHASE OR
REDEMPTION PROCEEDS (PLUS THAT AMOUNT NECESSARY TO ACQUIRE A FRACTIONAL SHARE TO
ROUND OFF THE PURCHASE TO THE NEAREST FULL SHARE) IN SHARES OF THE FUND,
provided that the reinvestment is effected within 30 days after such repurchase
or redemption. Shares are sold to a reinvesting shareholder at the net asset
value next determined following timely receipt of a written purchase order by
the Principal Underwriter or by the Fund (or by the Fund's Transfer Agent). To
the extent that any shares of the Fund are sold at a loss and the proceeds are
reinvested in shares of the Fund (or other shares of the Fund are acquired
within the period beginning 30 days before and ending 30 days after the date of
the redemption), some or all of the loss generally will not be allowed as a tax
deduction. Shareholders should consult their tax advisers concerning the tax
consequences of reinvestments.
TAX-SHELTERED RETIREMENT PLANS: Shares of the Fund are available for purchase in
connection with the following tax-sheltered retirement plans:
-- Pension and Profit Sharing Plans for self-employed individuals,
corporations and non-profit organizations;
-- Individual Retirement Account Plans for individuals and their non-
employed spouses; and
-- 403(b) Retirement Plans for employees of public school systems,
hospitals, colleges and other non-profit organizations meeting certain
requirements of the Internal Revenue Code of 1986, as amended (the
Code).
Detailed information concerning these plans, including certain exceptions
to minimum investment requirements, and copies of the plans are available from
the Principal Underwriter. This information should be read carefully and
consultation with an attorney or tax adviser may be advisable. The information
sets forth the service fee charged for retirement plans and describes the
Federal income tax consequences of establishing a plan. Under all plans,
dividends and distributions will be automatically reinvested in additional
shares.
DISTRIBUTION PLAN
--------------------------------------------------------------------------------
THE FUND WILL FINANCE DISTRIBUTION
ACTIVITIES BY MONTHLY PAYMENTS EQUAL ON
AN ANNUAL BASIS TO .75% OF THE FUND'S
AVERAGE DAILY NET ASSETS.
THE FUND FINANCES DISTRIBUTION ACTIVITIES AND HAS ADOPTED A DISTRIBUTION PLAN
(THE :PLAN:) PURSUANT TO RULE 12B-1 UNDER THE INVESTMENT COMPANY ACT OF 1940.
Rule 12b-1 permits a mutual fund, such as the Fund, to finance distribution
activities and bear expenses associated with the distribution of its shares
provided that any payments made by the Fund are made pursuant to a written plan
adopted in accordance with the Rule. The Plan is subject to, and complies with,
the sales charge rule of the National Association of Securities Dealers, Inc.
(the NASD Rule). The Plan is described further in the Statement of Additional
Information, and the following is a description of the salient features of the
Plan. The Plan provides that the Fund, subject to the NASD Rule, will pay sales
commissions and distribution fees to the Principal Underwriter only after and as
a result of the sale of shares of the Fund. On each sale of Fund shares
(excluding reinvestment of distributions) the Fund will pay the Principal
Underwriter amounts representing (i) sales commissions equal to 5% of the amount
received by the Fund for each share sold and (ii) distribution fees calculated
by applying the rate of 1% over the prime rate then reported in The Wall Street
Journal to the outstanding balance of Uncovered Distribution Charges (as
described below) of the Principal Underwriter. The Principal Underwriter
currently expects to pay sales commissions (except on exchange transactions and
reinvestments) to an Authorized Firm at the time of sale equal to 4% of the
purchase price of the shares sold by such Firm. The Principal Underwriter will
use its own funds (which may be borrowed from banks) to pay such commissions.
Because the payment of the sales commissions and distribution fees to the
Principal Underwriter is subject to the NASD Rule described below, it will take
the Principal Underwriter a number of years to recoup the sales commissions paid
by it to Authorized Firms from the payments received by it from the Fund
pursuant to the Plan.
THE NASD RULE REQUIRES THE FUND TO LIMIT ITS ANNUAL PAYMENTS OF SALES
COMMISSIONS AND DISTRIBUTION FEES TO THE PRINCIPAL UNDERWRITER TO AN AMOUNT NOT
EXCEEDING .75% OF THE FUND'S AVERAGE DAILY NET ASSETS FOR EACH FISCAL YEAR.
Under the Plan, the Fund accrues daily an amount at the rate of 1/365 of .75% of
the Fund's net assets, and pays such accrued amounts monthly to the Principal
Underwriter. The Plan requires such accruals to be automatically discontinued
during any period in which there are no outstanding Uncovered Distribution
Charges under the Plan. Uncovered Distribution Charges are calculated daily and,
briefly, are equivalent to all unpaid sales commissions and distribution fees to
which the Principal Underwriter is entitled under the Plan less all contingent
deferred sales charges theretofore paid to the Principal Underwriter. The Eaton
Vance organization may be considered to have realized a profit under the Plan if
at any point in time the aggregate amounts of all payments received by the
Principal Underwriter from the Fund pursuant to the Plan, including any
contingent deferred sales charges, have exceeded the total expenses theretofore
incurred by such organization in distributing shares of the Fund. Total expenses
for this purpose will include an allocable portion of the overhead costs of such
organization and its branch offices.
Because of the NASD Rule limitation on the amount of sales commissions and
distribution fees paid to the Principal Underwriter during any fiscal year, a
high level of sales of Fund shares during the initial years of the Fund's
operations would cause a large portion of the sales commission attributable to a
sale of Fund shares to be accrued and paid by the Fund to the Principal
Underwriter in fiscal years subsequent to the year in which such shares were
sold. This spreading of sales commissions payments under the Plan over an
extended period would result in the incurrence and payment of increased
distribution fees under the Plan. For the fiscal year ended September 30, 1994,
and for the period from October 1, 1994 to December 31, 1994, the Fund paid
sales commissions under the Plan to the Principal Underwriter equivalent to
0.75% and 0.75% (annualized), respectively, of the Fund's average daily net
assets for such periods. The amount of Uncovered Distribution Charges of the
Principal Underwriter calculated under the Plan on September 30, 1994 and
December 31, 1994 amounted to approximately $638,000 and $541,466, respectively
(equivalent to 2.1% and 1.9%, respectively, of the Fund's net assets on such
days).
THE FUND ALSO WILL PAY QUARTERLY SERVICE
FEES NOT EXPECTED TO EXCEED .25% OF THE
FUND'S AVERAGE DAILY NET ASSETS FOR EACH
FISCAL YEAR.
THE PLAN ALSO AUTHORIZES THE FUND TO MAKE PAYMENTS OF SERVICE FEES TO THE
PRINCIPAL UNDERWRITER, AUTHORIZED FIRMS AND OTHER PERSONS IN AMOUNTS NOT
EXCEEDING .25% OF THE FUND'S AVERAGE DAILY NET ASSETS FOR EACH FISCAL YEAR. The
Trustees of the Fund have initially implemented the Plan by authorizing the Fund
to make quarterly payments of service fees to the Principal Underwriter and
Authorized Firms in amounts not expected to exceed .25% of the Fund's average
daily net assets for any fiscal year based on the value of Fund shares sold by
such persons and remaining outstanding for at least twelve months. As permitted
by the NASD Rule, such payments are made for personal services and/or the
maintenance of shareholder accounts. Service fees are separate and distinct from
the sales commissions and distribution fees payable by the Fund to the Principal
Underwriter, and as such are not subject to automatic discontinuance when there
are no outstanding Uncovered Distribution Charges of the Principal Underwriter.
For the fiscal year ended September 30, 1994, and for the period from October 1,
1994 to December 31, 1994, the Fund made service fee payments to the Principal
Underwriter and Authorized Firms equivalent to 0.19% and 0.23% (annualized) of
the Fund's average daily net assets for such periods.
The Principal Underwriter may, from time to time, at its own expense,
provide additional incentives to Authorized Firms which employ registered
representatives who sell a minimum dollar amount of the Fund's shares and/or
shares of other funds distributed by the Principal Underwriter. In some
instances, such additional incentives may be offered only to certain Authorized
Firms whose representatives are expected to sell significant amounts of shares.
In addition, the Principal Underwriter may from time to time increase or
decrease the sales commissions payable to Authorized Firms.
The Fund may, in its absolute discretion, suspend, discontinue or limit the
offering of its shares at any time. In determining whether any such action
should be taken, the Fund's management intends to consider all relevant factors,
including without limitation the size of the Fund, the investment climate and
market conditions, the volume of sales and redemptions of Fund shares, and the
amount of Uncovered Distribution Charges of the Principal Underwriter. The Plan
may continue in effect and payments may be made under the Plan following any
such suspension, discontinuance or limitation of the offering of Fund shares;
however, the Fund is not contractually obligated to continue the Plan for any
particular period of time. Suspension of the offering of Fund shares would not,
of course, affect a shareholder's ability to redeem shares.
DISTRIBUTIONS AND TAXES
--------------------------------------------------------------------------------
DIVIDENDS WILL BE PAID AT LEAST
QUARTERLY. CAPITAL GAINS WILL BE
DISTRIBUTED ANNUALLY. THE FUND IS NOT
EXPECTED TO HAVE ANY FEDERAL OR STATE
TAX LIABILITY.
THE FUND'S POLICY IS TO DISTRIBUTE QUARTERLY SUBSTANTIALLY ALL OF THE NET
INVESTMENT INCOME ALLOCATED TO THE FUND BY THE PORTFOLIO, LESS THE FUND'S DIRECT
AND ALLOCATED EXPENSES, AND TO DISTRIBUTE AT LEAST ANNUALLY SUBSTANTIALLY ALL OF
ITS NET REALIZED CAPITAL GAINS. A portion of distributions from net investment
income will be eligible for the dividends- received deduction for corporations.
The Fund's distributions from its net investment income, net short-term capital
gains, and certain foreign exchange gains will be taxable to shareholders as
ordinary income, whether paid in cash or reinvested in additional shares of the
Fund. The Fund's distributions from its net long-term capital gains are taxable
to shareholders as long-term capital gains, whether paid in cash or reinvested
in additional shares of the Fund and regardless of the length of time Fund
shares have been owned by shareholders. Certain distributions declared by the
Fund in October, November or December and paid the following January will be
taxable to shareholders as if received on December 31 of the year in which they
are declared.
Shareholders will receive annually tax information notices and Forms 1099
to assist in the preparation of their Federal and state tax returns for the
prior calendar year's distributions, proceeds from the redemption or exchange of
Fund shares, and Federal income tax (if any) withheld by the Fund's Transfer
Agent.
In order to qualify as a regulated investment company under the Code, the
Fund must satisfy certain requirements relating to the sources of its income,
the distribution of its income, and the diversification of its assets. In
satisfying these requirements, the Fund will treat itself as owning its
proportionate share of each of the Portfolio's assets and as entitled to the
income of the Portfolio properly attributable to such share.
--------------------------------------------------------------------
AS A REGULATED INVESTMENT COMPANY UNDER THE CODE, THE FUND DOES NOT
PAY FEDERAL INCOME OR EXCISE TAXES TO THE EXTENT THAT IT DISTRIBUTES
TO SHAREHOLDERS ITS NET INVESTMENT INCOME AND NET REALIZED CAPITAL
GAINS IN ACCORDANCE WITH THE TIMING REQUIREMENTS IMPOSED BY THE
CODE. AS A PARTNERSHIP UNDER THE CODE, THE PORTFOLIO DOES NOT PAY
FEDERAL INCOME OR EXCISE TAXES.
--------------------------------------------------------------------
PERFORMANCE AND YIELD INFORMATION
--------------------------------------------------------------------------------
FROM TIME TO TIME, THE FUND MAY ADVERTISE ITS YIELD AND/OR AVERAGE ANNUAL TOTAL
RETURN. The Fund's current yield is calculated by dividing the net investment
income per share during a recent 30-day period by the maximum offering price per
share (net asset value) of the Fund on the last day of the period and
annualizing the resulting figure. The Fund's average annual total return is
determined by computing the average annual percentage change in value of $1,000
invested at the maximum public offering price (net asset value) for specified
periods ending with the most recent calendar quarter, assuming reinvestment of
all distributions. The average annual total return calculation assumes a
complete redemption of the investment and the deduction of any applicable
contingent deferred sales charge at the end of the period. The Fund may also
publish annual and cumulative total return figures from time to time.
The Fund may also publish its distribution rate and/or its effective
distribution rate. The Fund's distribution rate is computed by dividing the most
recent monthly distribution per share annualized by the current maximum offering
price per share (net asset value). The Fund's effective distribution rate is
computed by dividing the distribution rate by 12 and reinvesting the resulting
amount for a full year on a monthly basis. The effective distribution rate will
be higher than the distribution rate because of the compounding effect of the
assumed reinvestment. Investors should note that the Fund's yield is calculated
using a standardized formula the income component of which is computed from
dividends on equity securities held by the Portfolio based on the stated annual
dividend rates of such securities, exclusive of special or extra distributions
(with all purchases and sales of securities during such period included in the
income calculation on a settlement date basis), and from the income earned on
short-term debt instruments held by the Portfolio, whereas the distribution rate
is based on the Fund's last monthly distribution, which tends to be relatively
stable and may be more or less than the amount of net investment income actually
earned by the Fund during the quarter.
The Fund may also publish total return figures which do not take into
account any contingent deferred sales charge which may be imposed upon
redemptions at the end of the specified period. Any performance figure which
does not take into account the contingent deferred sales charge would be reduced
to the extent such charge is imposed upon a redemption.
Investors should note that the investment results of the Fund will
fluctuate over time, and any presentation of the Fund's current yield or total
return for any prior periods should not be considered as a representation of
what an investment may earn or what the Fund's yield or total return may be in
any future period.
<PAGE>
INVESTMENT ADVISER OF
TOTAL RETURN PORTFOLIO
Boston Management and Research
24 Federal Street
Boston, MA 02110
ADMINISTRATOR OF
EATON VANCE EQUITY-INCOME TRUST
Eaton Vance Management
24 Federal Street
Boston, MA 02110
PRINCIPAL UNDERWRITER
Eaton Vance Distributors, Inc.
24 Federal Street
Boston, MA 02110
(800) 225-6265
CUSTODIAN
Investors Bank & Trust Company
24 Federal Street
Boston, MA 02110
TRANSFER AGENT
The Shareholder Services Group, Inc.
BOS725
P.O. Box 1559
Boston, MA 02104
(800) 262-1122
INDEPENDENT ACCOUNTANTS
Coopers & Lybrand L.L.P.
One Post Office Square
Boston, MA 02109
EATON VANCE EQUITY-INCOME TRUST
24 FEDERAL STREET
BOSTON, MA 02110
EIP
EATON VANCE
EQUITY-INCOME
TRUST
PROSPECTUS
MAY 1, 1995
<PAGE>
EATON VANCE
SPECIAL INVESTMENT TRUST
EV MARATHON TOTAL RETURN FUND
SUPPLEMENT TO PROSPECTUS DATED MAY 1, 1995
1. Effective August 1, 1995, EV Marathon Total Return Fund was reorganized and
became a series of Eaton Vance Special Investment Trust, a business trust
organized under the laws of the Commonwealth of Massachusetts. Prior to the
reorganization, the Fund had been a series of Eaton Vance Total Return Trust,
which was also a Massachusetts business trust. Except for the fact that the
Fund is now a series of Eaton Vance Special Investment Trust, shares of the
Fund represent the same interest in the Fund's assets, are of the same class,
are subject to the same terms and conditions, fees and expenses and confer the
same rights as when the Fund was a series of Eaton Vance Total Return Trust.
2. THE FOLLOWING IS ADDED TO THE FIRST PARAGRAPH UNDER "PERFORMANCE
INFORMATION":
The Fund may quote total return for the period prior to the Fund's
commencement of operations which would reflect the Portfolio's total return
(and that of its predecessor) adjusted to reflect any applicable Fund sales
charge.
3. THE FOLLOWING PARAGRAPH REPLACES THE PARAGRAPH UNDER THE CAPTION "EATON
VANCE SHAREHOLDER SERVICES -- REINVESTMENT PRIVILEGE":
REINVESTMENT PRIVILEGE: A SHAREHOLDER WHO HAS REPURCHASED OR REDEEMED
SHARES MAY REINVEST, WITH CREDIT FOR ANY CONTINGENT DEFERRED SALES CHARGES
PAID ON THE REPURCHASED OR REDEEMED SHARES, ANY PORTION OR ALL OF THE
REPURCHASE OR REDEMPTION PROCEEDS (PLUS THAT AMOUNT NECESSARY TO ACQUIRE A
FRACTIONAL SHARE TO ROUND OFF THE PURCHASE TO THE NEAREST FULL SHARE) IN
SHARES OF THE FUND, provided that the reinvestment is effected within 60
days after such repurchase or redemption, and the privilege has not been
used more than once in the prior 12 months. Shares are sold to a reinvesting
shareholder at the next determined net asset value following timely receipt
of a written purchase order by the Principal Underwriter or by the Fund (or
by the Fund's Transfer Agent). To the extent that any shares of the Fund are
sold at a loss and the proceeds are reinvested in shares of the Fund (or
other shares of the Fund are acquired within the period beginning 30 days
before and ending 30 days after the date of the redemption), some or all of
the loss generally will not be allowed as a tax deduction. Shareholders
should consult their tax advisers concerning the tax consequences of
reinvestments.
THE DATE OF THE ATTACHED PROSPECTUS IS CHANGED TO AUGUST 1, 1995. ALL
REFERENCES IN THE PROSPECTUS TO EATON VANCE TOTAL RETURN TRUST OR THE TRUST
ARE DEFINED TO MEAN EATON VANCE SPECIAL INVESTMENT TRUST.
August 1, 1995 M-TMPS
<PAGE>
EV MARATHON TOTAL RETURN FUND
EV MARATHON TOTAL RETURN FUND (THE "FUND") IS A MUTUAL FUND SEEKING HIGH
TOTAL RETURN FROM RELATIVELY PREDICTABLE INCOME IN CONJUNCTION WITH CAPITAL
APPRECIATION, CONSISTENT WITH PRUDENT MANAGEMENT AND PRESERVATION OF CAPITAL.
THE FUND INVESTS ITS ASSETS IN TOTAL RETURN PORTFOLIO (THE "PORTFOLIO"), A
DIVERSIFIED OPEN-END INVESTMENT COMPANY HAVING THE SAME INVESTMENT OBJECTIVE AS
THE FUND, RATHER THAN BY DIRECTLY INVESTING IN AND MANAGING ITS OWN PORTFOLIO OF
SECURITIES AS WITH HISTORICALLY STRUCTURED MUTUAL FUNDS. THE FUND IS A SERIES OF
EATON VANCE TOTAL RETURN TRUST (THE "TRUST").
Shares of the Fund are not deposits or obligations of, or guaranteed or
endorsed by, any bank or other insured depository institution, and are not
federally insured by the Federal Deposit Insurance Corporation, the Federal
Reserve Board or any other government agency. Shares of the Fund involve
investment risks, including fluctuations in value and the possible loss of some
or all of the principal investment.
This Prospectus is designed to provide you with information you should know
before investing. Please retain this document for future reference. A Statement
of Additional Information dated May 1, 1995 for the Fund, as supplemented from
time to time, has been filed with the Securities and Exchange Commission and is
incorporated herein by reference. This Statement of Additional Information is
available without charge from the Fund's principal underwriter, Eaton Vance
Distributors, Inc. (the "Principal Underwriter"), 24 Federal Street, Boston, MA
02110 (telephone (800) 225-6265). The Portfolio's investment adviser is Boston
Management and Research (the "Investment Adviser"), a wholly-owned subsidiary of
Eaton Vance Management, and Eaton Vance Management is the administrator (the
"Administrator") of the Fund. The offices of the Investment Adviser and the
Administrator are located at 24 Federal Street, Boston, MA 02110.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
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<TABLE>
<CAPTION>
PAGE PAGE
<S> <C> <C> <C>
Shareholder and Fund Expenses ................................. 2 How to Buy Fund Shares ................................... 13
The Fund's Financial Highlights ............................... 3 How to Redeem Fund Shares ................................ 14
The Fund's Investment Objective ............................... 4 Reports to Shareholders .................................. 16
How the Fund and the Portfolio Invest The Lifetime Investing Account/Distribution
their Assets; Investment Risks .............................. 4 Options ................................................ 17
Organization of the Fund and the Portfolio .................... 8 The Eaton Vance Exchange Privilege ....................... 18
Management of the Fund and the Portfolio ...................... 10 Eaton Vance Shareholder Services ......................... 19
Distribution Plan ............................................. 11 Distributions and Taxes .................................. 20
Valuing Fund Shares ........................................... 13 Performance Information .................................. 21
-----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
PROSPECTUS DATED MAY 1, 1995
<PAGE>
SHAREHOLDER AND FUND EXPENSES(1)
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SHAREHOLDER TRANSACTION EXPENSES
Sales Charges Imposed on Purchases of Shares None
Sales Charges Imposed on Reinvested Distributions None
Fees to Exchange Shares None
Range of Declining Contingent Deferred Sales Charges
Imposed on Redemptions During the First Seven Years
(as a percentage of redemption proceeds exclusive of
all reinvestments and capital appreciation in the
account)\2/ 5.00%-0%
ANNUAL FUND AND ALLOCATED PORTFOLIO OPERATING EXPENSES
(as a percentage of average daily net assets)
Investment Adviser Fee 0.74%
Rule 12b-1 Distribution (and Service) Fees 0.80%
Other Expenses 0.58%
-----
Total Operating Expenses 2.12%
=====
<TABLE>
<CAPTION>
EXAMPLE: 1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
An investor would pay the following contingent deferred sales charge
and expenses on a $1,000 investment, assuming (a) 5% annual return and
(b) redemption at the end of each period: $72 $106 $134 $245
An investor would pay the following expenses on the same investment,
assuming (a) 5% annual return and (b) no redemptions: $22 $ 66 $114 $245
</TABLE>
Notes:
\1/ The purpose of the above table and Example is to summarize the aggregate
expenses of the Fund and the Portfolio and to assist investors in
understanding the various costs and expenses that investors in the Fund will
bear directly or indirectly. The Trustees of the Trust believe that over
time the aggregate per share expenses of the Fund and the Portfolio should
be approximately equal to or less than the per share expenses which the Fund
would incur if the Trust retained the services of an investment adviser and
the assets of the Fund were invested directly in the type of securities
being held by the Portfolio. The percentages indicated as Annual Fund and
Allocated Portfolio Operating Expenses in the table and the amounts included
in the Example are based on the Fund's and the Portfolio's results for the
fiscal year ended December 31, 1994, except for Service Fees, which are
estimated to be 0.05% in the current fiscal year. The Example should not be
considered a representation of past or future expenses and actual expenses
may be greater or less than those shown. The Example assumes a 5% annual
return, and the Fund's actual performance may result in an annual return
greater or less than 5%. For further information regarding the expenses of
both the Fund and the Portfolio, see "The Fund's Financial Highlights,"
"Organization of the Fund and the Portfolio," "Management of the Fund and
the Portfolio" and "How to Redeem Fund Shares." Because the Fund makes
payments under its Distribution Plan adopted under Rule 12b-1, a long-term
shareholder may pay more than the economic equivalent of the maximum
front-end sales charge permitted by a rule of the National Association of
Securities Dealers, Inc. See "Distribution Plan."
\2/ No contingent deferred sales charge is imposed on (a) shares purchased more
than six years prior to the redemption, (b) shares acquired through the
reinvestment of distributions or (c) any appreciation in value of other
shares in the account (see "How to Redeem Fund Shares"), and no such charge
is imposed on exchanges of Fund shares for shares of one or more other funds
listed under "The Eaton Vance Exchange Privilege."
\3/ Other investment companies with different distribution arrangements and fees
are investing in the Portfolio and additional such companies may do so in
the future. See "Organization of the Fund and the Portfolio".
<PAGE>
THE FUND'S FINANCIAL HIGHLIGHTS
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The following information should be read in conjunction with the audited
financial statements included in the Statement of Additional Information, all of
which have been so included in reliance upon the report of Coopers & Lybrand
L.L.P., independent accountants, as experts in accounting and auditing. which
report is contained in the Statement of Additional Information. Further
information regarding the performance of the Fund is contained in the Fund's
annual report to shareholders which may be obtained without charge by contacting
the Principal Underwriter.
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1994 1993*
---- -----
NET ASSET VALUE -- Beginning of period
...................................... $ 9.9300 $10.0000
-------- --------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income ............ $ 0.3638 $ 0.0409
Net realized and unrealized gain/
(loss) on investments ........... (1.5988) (0.0559)\1/
-------- --------
Total income/(loss) from
investment operations ......... $(1.2350) $(0.0150)
-------- --------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS:
From net investment income ....... $(0.3535) $(0.0461)
Tax return of capital ............ (0.0415) (0.0089)
-------- --------
Total distributions ............ $(0.3950) $(0.0550)
-------- --------
NET ASSET VALUE -- End of period ..... $ 8.3000 $ 9.9300
======== ========
TOTAL RETURN\2/ ...................... (12.57%) (0.15%)
RATIOS/SUPPLEMENTAL DATA (to average daily net assets):**
Expenses\3/ ........................ 2.07% 0.68%+
Net investment income .............. 3.95% 3.38%+
NET ASSETS AT END OF PERIOD
(000's omitted) ..................... $ 26,210 $ 11,519
----------
+Computed on an annualized basis.
*For the period from the start of business, November 1, 1993, to December 31,
1993.
**The expenses related to the operation of the Fund reflect an allocation of
expenses to the Administrator. Had such action not been taken, the ratios
would have been as follows:
Ratios (to average daily net assets)
Expenses ................... -- 1.83%+
Net investment income ...... -- 2.23%+
Note: Per share amounts have been computed using average shares outstanding
during the period.
\1/The per share amount for the period from the start of business,
November 1, 1993 to December 31, 1993 is not in accord with the net
realized and unrealized gain for the period allocated to the Fund by
the Portfolio due to the timing of the sales of Fund shares and the
amount of per share realized and unrealized gains and losses at such
time.
\2/Total return is calculated assuming a purchase at the net asset value
on the first day and a sale at the net asset value on the last day of
each period reported. Dividends and distributions, if any, are
assumed to be reinvested at the net asset value on the record date.
\3/Includes the Fund's share of Total Return Portfolio's allocated
expenses for the year ended December 31, 1994 and for the period from
the Fund's start of business, November 1, 1993, to December 31, 1993.
THE FUND'S INVESTMENT OBJECTIVE
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EV MARATHON TOTAL RETURN FUND'S INVESTMENT OBJECTIVE IS TO SEEK FOR ITS
SHAREHOLDERS A HIGH LEVEL OF TOTAL RETURN, CONSISTING OF RELATIVELY PREDICTABLE
INCOME IN CONJUNCTION WITH CAPITAL APPRECIATION, CONSISTENT WITH PRUDENT
MANAGEMENT AND PRESERVATION OF CAPITAL. The Fund currently seeks to meet its
investment objective by investing its assets in the Total Return Portfolio, a
separate registered investment company which has the same investment objective
as the Fund. The Fund's and the Portfolio's investment objectives are
nonfundamental and may be changed when authorized by a vote of the Trustees of
the Trust or the Portfolio, respectively, without obtaining the approval of the
Fund's shareholders or the investors in the Portfolio, as the case may be. The
Trustees of the Trust have no present intention to change the Fund's objective
and intend to submit any proposed material change in the investment objective to
shareholders in advance for their approval.
HOW THE FUND AND THE PORTFOLIO INVEST THEIR ASSETS; INVESTMENT RISKS
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THE PORTFOLIO SEEKS TO ACHIEVE ITS OBJECTIVE BY INVESTING PRINCIPALLY IN
DIVIDEND-PAYING COMMON STOCKS WITH THE POTENTIAL TO INCREASE DIVIDENDS IN THE
FUTURE. The Portfolio concentrates its investments in common stocks of public
utilities ("utility stocks"), principally electric, gas and telephone companies.
Accordingly, the Portfolio invests at least 25% of its total assets, and may
invest up to 100% of its total assets, in utility stocks. The Portfolio may also
invest in preferred stocks and may hold non-incoming-producing securities.
The Portfolio may from time to time invest in fixed-income debt securities
when the Portfolio's investment adviser ("BMR" or the "Investment Adviser")
believes that their total return potential is consistent with the Fund's
objective. The Portfolio may invest its cash reserves in high quality money
market securities, which include securities of the U.S. Government and its
agencies or instrumentalities maturing in one year or less, commercial paper,
and bankers' acceptances and certificates of deposit of domestic banks or
savings and loan associations having total assets of $1 billion or more. The
Portfolio may also invest in longer-term debt securities that at the time of
purchase are rated Aaa, Aa or A by Moody's Investors Service, Inc. ("Moody's"),
or AAA, AA or A by Standard & Poor's Ratings Group ("S&P"), Fitch Investors
Service, Inc. ("Fitch") or Duff & Phelps, Inc. ("Duff"), or that at the time of
purchase are issued, guaranteed, backed or secured by the U.S. Government or any
of its agencies or instrumentalities. The Portfolio currently intends to limit
its investments in fixed-income debt securities to 20% or less of its net
assets. Subject to such limitation, the Portfolio may invest up to 10% of its
net assets in fixed-income debt securities that at the time of purchase are
rated investment grade (i.e., rated Baa or higher by Moody's, or BBB or higher
by S&P, Fitch or Duff) or below investment grade. Debt securities rated below
Baa or BBB are commonly known as "junk bonds".
In view of the Portfolio's policy of concentrating its investments in
utility stocks, an investment in shares of the Fund should be made with an
understanding of the characteristics of the public utility industry and the
potential risks of such an investment. Industry-wide problems include the
effects of fluctuating economic conditions, energy conservation practices,
environmental regulations, high capital expenditures, construction delays due to
pollution control and environmental considerations, uncertainties as to fuel
availability and costs, increased competition in deregulated sectors of the
industry, and difficulties in obtaining timely and adequate rate relief from
regulatory commissions. If applications for rate increases are not granted or
are not acted upon promptly, the market prices of and dividend payments on
utility stocks may be adversely affected. The Portfolio's policy of
concentrating in utility stocks is a fundamental policy and may not be changed
unless authorized by an investor vote. The Fund has a similar fundamental policy
which cannot be changed unless authorized by a shareholder vote.
The Portfolio may invest in securities issued by foreign companies
(including American Depository Receipts and Global Depository Receipts). Such
investments may be subject to various risks such as fluctuations in currency and
exchange rates, foreign taxes, social, political and economic conditions in the
countries in which such companies operate, and changes in governmental, economic
or monetary policies both here and abroad. There may be less publicly available
information about a foreign company than about a comparable domestic company.
Because the securities markets in many foreign countries are not as developed as
those in the United States, the securities of many foreign companies are less
liquid and their prices are more volatile than securities of comparable domestic
companies. In order to hedge against possible variations in foreign exchange
rates pending the settlement of foreign securities transactions, the Portfolio
may buy or sell foreign currencies, foreign currency futures and options, and
forward foreign currency exchange contracts.
The Portfolio may invest a significant portion of its assets in the
securities of real estate investment trusts ("REITs"), which are affected by
conditions in the real estate industry, interest rate changes and, in the case
of REITs investing in health care facilities, events affecting the health care
industry.
The Portfolio may also enter into repurchase agreements with respect to
securities of the U.S. Government and its agencies or instrumentalities with the
seller of such securities, usually a bank. Under a repurchase agreement, the
seller agrees to repurchase the securities at the Portfolio's cost plus interest
within a specified time (normally one day). Repurchase agreements involve a risk
that the value of the securities subject to the repurchase agreement may decline
to an amount less than the repurchase price and that, in the event of the
seller's bankruptcy or insolvency, the Portfolio may be prevented from disposing
of such securities. The Portfolio will comply with the collateralization
policies of the Securities and Exchange Commission (the "Commission"), which
policies require that the Portfolio or its custodian obtain actual or
constructive possession of the collateral and that the market value of the
securities held as collateral be marked to the market daily and at least equal
the repurchase price during the term of the agreement. The Portfolio intends
that the total of its investments, if any, in repurchase agreements maturing in
more than 7 days and other illiquid securities will not exceed 15% of its net
assets.
DERIVATIVE INSTRUMENTS. The Portfolio may purchase or sell derivative
instruments (which are instruments that derive their value from another
instrument, security, index or currency) to enhance return, to hedge against
fluctuations in securities prices, interest rates or currency exchange rates, or
as a substitute for the purchase or sale of securities or currencies. The
Portfolio's transactions in derivative instruments may include the purchase or
sale of futures contracts on securities (such as U.S. Government securities),
securities indices, other indices, other financial instruments or currencies;
options on futures contracts; exchange-traded options on securities, indices or
currencies; and forward foreign currency exchange contracts. The Portfolio's
transactions in derivative instruments involve a risk of loss or depreciation
due to unanticipated adverse changes in securities prices, interest rates, the
other financial instruments' prices or currency exchange rates, the inability to
close out a position or default by the counterparty. The loss on derivative
instruments (other than purchased options) may exceed the Portfolio's initial
investment in these instruments. In addition, the Portfolio may lose the entire
premium paid for purchased options that expire before they can be profitably
exercised by the Portfolio. The Portfolio incurs transaction costs in opening
and closing positions in derivative instruments. There can be no assurance that
the Investment Adviser's use of derivative instruments will be advantageous to
the Portfolio.
The Portfolio may write (sell) covered call and put options on securities,
currencies and indices with respect to up to 50% of its net assets, as measured
by the aggregate value of the securities underlying such written call and put
options. If a written covered call option is exercised, the Portfolio will be
unable to realize further price appreciation on the underlying securities and
portfolio turnover will increase, resulting in higher brokerage costs. The
Portfolio may purchase call and put options on any securities in which the
Portfolio may invest or options on any securities index composed of securities
in which the Portfolio may invest. The Portfolio does not intend to purchase an
option on any security if, after such transaction, more than 5% of its net
assets, as measured by the aggregate of all premiums paid for all such options
held by the Portfolio, would be so invested.
To the extent that the Portfolio enters into futures contracts, options on
futures contracts and options on foreign currencies traded on an exchange
regulated by the Commodity Futures Trading Commission ("CFTC"), in each case
that are not for bona fide hedging purposes (as defined by the CFTC), the
aggregate initial margin and premiums required to establish these positions
(excluding the amount by which options are "in-the-money") may not exceed 5% of
the liquidation value of the Portfolio's portfolio, after taking into account
unrealized profits and unrealized losses on any contracts the Portfolio has
entered into.
Forward contracts are individually negotiated and privately traded by
currency traders and their customers. A forward contract involves an obligation
to purchase or sell a specific currency (or basket of currencies) for an agreed
price at a future date, which may be any fixed number of days from the date of
the contract. The Portfolio may engage in cross-hedging by using forward
contracts in one currency (or basket of currencies) to hedge against
fluctuations in the value of securities denominated in a different currency if
the Investment Adviser determines that there is an established historical
pattern of correlation between the two currencies (or the basket of currencies
and the underlying currency). Use of a different foreign currency magnifies the
Portfolio's exposure to foreign currency exchange rate fluctuations. The
Portfolio may also use forward contracts to shift its exposure to foreign
currency exchange rate changes from one currency to another.
LEVERAGE THROUGH BORROWING. The Portfolio may from time to time increase its
ownership of portfolio securities above the amounts otherwise possible by
borrowing from banks on an unsecured basis at fixed or variable rates of
interest and investing the borrowed funds. The Investment Adviser currently
anticipates that the Portfolio will incur borrowings for the purpose of
acquiring additional income-producing securities when it is believed that the
interest payable with respect to such borrowings will be exceeded by (a) the
income payable on the securities acquired with such borrowings or (b) the
anticipated total return (a combination of income and appreciation) on such
securities. Such borrowings might be made, for example, when short-term interest
rates fall below the yields available from the securities acquired with the
borrowed funds or the total return anticipated from such securities.
The Portfolio is required to maintain asset coverage of at least 300% with
respect to such borrowings, which means that the Portfolio may borrow an amount
up to 50% of the value of its net assets (not including such borrowings). The
Portfolio may be required to dispose of securities held by it on unfavorable
terms if market fluctuations or other factors reduce such asset coverage to less
than 300%.
Leveraging will exaggerate any increase or decrease in the market value of
the securities held by the Portfolio. Money borrowed for leveraging will be
subject to interest costs which may or may not exceed the income from the
securities purchased. The Portfolio may also be required to maintain minimum
average balances in connection with such borrowing or to pay a commitment or
other fee to maintain a line of credit; either of these requirements will
increase the cost of borrowing over the stated interest rate. Unless the income
and appreciation, if any, on assets acquired with borrowed funds exceeds the
cost of borrowing, the use of leverage will diminish the investment performance
of the Portfolio compared with what it would have been without leverage.
The Portfolio will not always borrow money for additional investments. The
Portfolio's willingness to borrow money for investment purposes, and the amount
it will borrow, will depend on many factors, the most important of which are the
investment outlook, market conditions and interest rates. Successful use of a
leveraging strategy depends on the Investment Adviser's ability to predict
correctly interest rates and market movements, and there is no assurance that a
leverage strategy will be successful during any period in which it is employed.
The average daily loan balance for the fiscal year ended December 31, 1994 was
$3,137,134 and the average daily interest rate was 5.96%.
LENDING OF SECURITIES. The Portfolio may seek to increase its income by lending
portfolio securities to broker-dealers or other institutional borrowers. Under
present regulatory policies of the Commission, such loans would be required to
be secured continuously by collateral in cash, cash equivalents or U.S.
Government securities held by the Portfolio's custodian and maintained on a
current basis at an amount at least equal to the market value of the securities
loaned which will be marked to market daily. The Portfolio would have the right
to call a loan and obtain the securities loaned at any time on five business
days' notice. During the existence of a loan, the Portfolio will continue to
receive the equivalent of the interest or dividends paid by the issuer on the
securities loaned and will also receive a fee, or all or a portion of the
interest on investment of the collateral, if any. However, the Portfolio may pay
lending fees to such borrowers. The Portfolio would not have the right to vote
any securities having voting rights during the existence of the loan, but would
call the loan in anticipation of an important vote to be taken among holders of
the securities or the giving or withholding of their consent on a material
matter affecting the investment. As with other extensions of credit there are
risks of delay in recovery or even loss of rights in the securities loaned if
the borrower of the securities fails financially. However, the loans would be
made only to organizations deemed by the Portfolio's management to be of good
standing and, when, in the judgment of the Portfolio's management, the
consideration which can be earned from securities loans of this type justifies
the attendant risk. If the management of the Portfolio decides to make
securities loans, it is intended that the value of the securities loaned would
not exceed 30% of the Portfolio's total assets.
INVESTMENT RESTRICTIONS. The Fund and the Portfolio have adopted certain
fundmental investment restrictions which are enumerated in detail in the
Statement of Additional Information and which may not be changed unless
authorized by a shareholder vote and an investor vote, respectively. Except for
such enumerated restrictions and as otherwise indicated in this prospectus, the
investment objective and policies of the Fund and the Portfolio are not
fundamental policies and accordingly may be changed by the Trustees of the Trust
and the Portfolio without obtaining the approval of the Fund's shareholders or
the investors in the Portfolio, as the case may be. If any changes were made in
the Fund's investment objective, the Fund might have an investment objective
different from the objective which an investor considered appropriate at the
time the investor became a shareholder of the Fund.
An investment in the Fund entails the risk that the principal value of Fund
shares and the income earned thereon may not increase or may decline. The
Portfolio's investments in equity securities are subject to the risk of adverse
developments affecting particular companies or industries and the stock market
generally. The lowest investment grade, lower rated and comparable unrated debt
securities in which the Portfolio may invest will have speculative
characteristics in varying degrees. While such securities may have some quality
and protective characteristics, these characteristics can be expected to be
offset or outweighed by uncertainties or major risk exposures to adverse
conditions. Lower rated and comparable unrated securites are subject to the risk
of an issuer's inability to meet principal and interest payments on the
securities (credit risk) and may also be subject to price volatility due to such
factors as interst rate sensitivity, market perception of the creditworthiness
of the issuer and general market liquidity (market risk). Lower rated and
comparable unrated securities are also more likely to react to real or perceived
developments affecting markets and credit risk than are more highly rated
securities, which react primarily to movements in the general level of interest
rates. The Portfolio may retain defaulted securities in its portfolio when such
retention is considered desirable by the Investment Adviser. In the case of a
defaulted security, the Portfolio may incur additional expenses seeking recovery
of its investment. In the event the rating of a security held by the Portfolio
is downgraded, the Investment Adviser will consider disposing of such security,
but is not obligated to do so.
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THE FUND IS NOT INTENDED TO BE A COMPLETE INVESTMENT PROGRAM, AND PROSPECTIVE
INVESTORS SHOULD TAKE INTO ACCOUNT THEIR OBJECTIVES AND OTHER INVESTMENTS WHEN
CONSIDERING THE PURCHASE OF FUND SHARES. THE FUND CANNOT ELIMINATE RISK OR
ASSURE ACHIEVEMENT OF ITS OBJECTIVE.
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ORGANIZATION OF THE FUND AND THE PORTFOLIO
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THE FUND IS A DIVERSIFIED SERIES OF EATON VANCE TOTAL RETURN TRUST, A BUSINESS
TRUST ESTABLISHED UNDER MASSACHUSETTS LAW PURSUANT TO A DECLARATION OF TRUST
DATED OCTOBER 9, 1981, AS AMENDED AND RESTATED. THE TRUST IS A MUTUAL FUND -- AN
OPEN-END MANAGEMENT INVESTMENT COMPANY. The Trustees of the Trust are
responsible for the overall management and supervision of its affairs. The Trust
may issue an unlimited number of shares of beneficial interest (no par value per
share) in one or more series and because the Trust can offer separate series
(such as the Fund) it is known as a "series company." Each share represents an
equal proportionate beneficial interest in the Fund. When issued and
outstanding, the shares are fully paid and nonassessable by the Trust and
redeemable as described under "How to Redeem Fund Shares". Shareholders are
entitled to one vote for each full share held. Fractional shares may be voted
proportionately. Shares have no preemptive or conversion rights and are freely
transferable. In the event of the liquidation of the Fund, shareholders are
entitled to share pro rata in the net assets of the Fund available for
distribution to shareholders.
THE PORTFOLIO IS ORGANIZED AS A TRUST UNDER THE LAWS OF THE STATE OF NEW YORK
AND INTENDS TO BE TREATED AS A PARTNERSHIP FOR FEDERAL TAX PURPOSES. The
Portfolio, as well as the Trust, intends to comply with all applicable Federal
and state securities laws. The Portfolio's Declaration of Trust provides that
the Fund and other entities permitted to invest in the Portfolio (e.g., other
U.S. and foreign investment companies, and common and commingled trust funds)
will each be liable for all obligations of the Portfolio. However, the risk of
the Fund incurring financial loss on account of such liability is limited to
circumstances in which both inadequate insurance exists and the Portfolio itself
is unable to meet its obligations. Accordingly, the Trustees of the Trust
believe that neither the Fund nor its shareholders will be adversely affected by
reason of the Fund investing in the Portfolio.
SPECIAL INFORMATION ON THE FUND/PORTFOLIO INVESTMENT STRUCTURE. An investor in
the Fund should be aware that the Fund, unlike mutual funds which directly
acquire and manage their own portfolios of securities, seeks to achieve its
investment objective by investing its assets in an interest in the Portfolio
(although the Fund may temporarily hold a de minimus amount of cash), which is a
separate investment company with an identical investment objective. Therefore,
the Fund's interest in the securities owned by the Portfolio is indirect. In
addition to selling an interest to the Fund, the Portfolio may sell interests to
other affiliated and non-affiliated mutual funds or institutional investors.
Such investors will invest in the Portfolio on the same terms and conditions and
will pay a proportionate share of the Portfolio's expenses. However, the other
investors investing in the Portfolio are not required to sell their shares at
the same public offering price as the Fund due to variations in sales
commissions and other operating expenses. Therefore, investors in the Fund
should be aware that these differences may result in differences in returns
experienced by investors in the various funds that invest in the Portfolio. Such
differences in returns are also present in other mutual fund structures,
including funds that have multiple classes of shares. For information regarding
the investment objective, policies and restrictions of the Fund and the
Portfolio, see "The Fund's Investment Objective" and "How the Fund and the
Portfolio Invest their Assets; Investment Risks". Further information regarding
investment practices may be found in the Statement of Additional Information.
The Trustees of the Trust have considered the advantages and disadvantages
of investing the assets of the Fund in the Portfolio, as well as the advantages
and disadvantages of the two-tier format. The Trustees believe that the
structure offers opportunities for substantial growth in the assets of the
Portfolio, and affords the potential for economies of scale for the Fund, at
least when the assets of the Portfolio exceed $500 million.
The Fund may withdraw (completely redeem) all its assets from the Portfolio
at any time if the Board of Trustees of the Trust determines that it is in the
best interest of the Fund to do so. The investment objective and the
nonfundamental investment policies of the Fund and the Portfolio may be changed
by the Trustees of the Trust and the Portfolio without obtaining the approval of
the shareholders of the Fund or the investors in the Portfolio, as the case may
be. Any such change of the investment objective will be preceded by thirty days'
advance written notice to the shareholders or the investors in the Portfolio, as
the case may be. If a shareholder redeems shares because of a change in the
nonfundamental objective or policies of the Fund, those shares may be subject to
a contingent deferred sales charge, as described in "How to Redeem Fund Shares."
In the event the Fund withdraws all of its assets from the Portfolio, or the
Board of Trustees of the Trust determines that the investment objective of the
Portfolio is no longer consistent with the investment objective of the Fund,
such Trustees would consider what action might be taken, including investing the
assets of the Fund in another pooled investment entity or retaining an
investment adviser to manage the Fund's assets in accordance with its investment
objective. The Fund's investment performance may be affected by a withdrawal of
all its assets from the Portfolio.
Information regarding other pooled investment entities or funds which invest
in the Portfolio may be obtained by contacting Eaton Vance Distributors, Inc.
(the "Principal Underwriter" or "EVD"), 24 Federal Street, Boston, MA 02110,
(617) 482-8260. Smaller investors in the Portfolio may be adversely affected by
the actions of larger investors in the Portfolio. For example, if a large
investor withdraws from the Portfolio, the remaining investors may experience
higher pro rata operating expenses, thereby producing lower returns.
Additionally, the Portfolio may become less diverse, resulting in increased
portfolio risk, and experience decreasing economies of scale. However, this
possibility exists as well for historically structured funds which have large or
institutional investors.
Until recently, the Administrator sponsored and advised historically
structured funds. Funds which invest all their assets in interests in a separate
investment company are a relatively new development in the mutual fund industry
and, therefore, the Fund may be subject to additional regulations than
historically structured funds.
The Declaration of Trust of the Portfolio provides that the Portfolio will
terminate 120 days after the complete withdrawal of the Fund or any other
investor in the Portfolio, unless either the remaining investors, by unanimous
vote at a meeting of such investors, or a majority of the Trustees of the
Portfolio, by written instrument consented to by all investors, agree to
continue the business of the Portfolio. This provision is consistent with
treatment of the Portfolio as a partnership for Federal income tax purposes. See
"Distributions and Taxes" for further information. Whenever the Fund as an
investor in the Portfolio is requested to vote on matters pertaining to the
Portfolio (other than the termination of the Portfolio's business, which may be
determined by the Trustees of the Portfolio without investor approval), the Fund
will hold a meeting of Fund shareholders and will vote its interest in the
Portfolio for or against such matters proportionately to the instructions to
vote for or against such matters received from Fund shareholders. The Fund shall
vote shares for which it receives no voting instructions in the same proportion
as the shares for which it receives voting instructions. Other investors in the
Portfolio may alone or collectively acquire sufficient voting interests in the
Portfolio to control matters relating to the operation of the Portfolio, which
may require the Fund to withdraw its investment in the Portfolio or take other
appropriate action. Any such withdrawal could result in a distribution "in kind"
of portfolio securities (as opposed to a cash distribution from the Portfolio).
If securities are distributed, the Fund could incur brokerage, tax or other
charges in converting the securities to cash. In addition, the distribution in
kind may result in a less diversified portfolio of investments or adversely
affect the liquidity of the Fund. Notwithstanding the above, there are other
means for meeting shareholder redemption requests, such as borrowing.
The Trustees of the Trust, including a majority of the noninterested
Trustees, have approved written procedures designed to identify and address any
potential conflicts of interest arising from the fact that the Trustees of the
Trust and the Trustees of the Portfolio are the same. Such procedures require
each Board to take actions to resolve any conflict of interest between the Fund
and the Portfolio, and it is possible that the creation of separate Boards may
be considered. For further information concerning the Trustees and officers of
the Trust and the Portfolio, see the Statement of Additional Information.
MANAGEMENT OF THE FUND AND THE PORTFOLIO
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THE PORTFOLIO ENGAGES BOSTON MANAGEMENT AND RESEARCH ("BMR"), A WHOLLY-OWNED
SUBSIDIARY OF EATON VANCE MANAGEMENT ("EATON VANCE"), AS ITS INVESTMENT ADVISER.
EATON VANCE, ITS AFFILIATES AND ITS PREDECESSOR COMPANIES HAVE BEEN MANAGING
ASSETS OF INDIVIDUALS AND INSTITUTIONS SINCE 1924 AND MANAGING INVESTMENT
COMPANIES SINCE 1931.
Acting under the general supervision of the Board of Trustees of the
Portfolio, BMR manages the Portfolio's investments and affairs. Under its
investment advisory agreement with the Portfolio, BMR receives a monthly
advisory fee of .0625% (equivalent to .75% annually) of the average daily net
assets of the Portfolio up to $500 million. On net assets of $500 million and
over the annual fee is reduced as follows:
<TABLE>
<CAPTION>
ANNUALIZED FEE RATE
AVERAGE DAILY NET ASSETS FOR THE MONTH (FOR EACH LEVEL)
-------------------------------------- -------------------
<S> <C>
$500 million but less than $1 billion ................................. 0.6875%
$1 billion but less than $1.5 billion ................................. 0.6250%
$1.5 billion but less than $2 billion ................................. 0.5625%
$2 billion but less than $3 billion ................................... 0.5000%
$3 billion and over ................................................... 0.4375%
</TABLE>
For the fiscal year ended December 31, 1994, the Portfolio paid BMR advisory
fees equivalent to 0.74% of the Portfolio's average daily net assets for such
year.
BMR furnishes for the use of the Portfolio office space and all necessary
office facilities, equipment and personnel for servicing the investments of the
Portfolio. BMR also places the portfolio security transactions of the Portfolio
for execution with many broker-dealer firms and uses its best efforts to obtain
execution of such transactions at prices which are advantageous to the Portfolio
and at reasonably competitive commission rates. Subject to the foregoing, BMR
may consider sales of shares of the Fund or of other investment companies
sponsored by BMR or Eaton Vance as a factor in the selection of broker-dealer
firms to execute portfolio transactions.
Timothy O'Brien has acted as the portfolio manager of the Portfolio since
January, 1995. Mr. O'Brien joined Eaton Vance as a Vice President on April 25,
1994. Prior to joining Eaton Vance, he served as a Vice President of Loomis,
Sayles & Co.
BMR OR EATON VANCE ACTS AS INVESTMENT ADVISER TO INVESTMENT COMPANIES AND
VARIOUS INDIVIDUAL AND INSTITUTIONAL CLIENTS WITH ASSETS UNDER MANAGEMENT OF
APPROXIMATELY $15 BILLION. Eaton Vance is a wholly-owned subsidiary of Eaton
Vance Corp., a publicly held holding company. Eaton Vance Corp., through its
subsidiaries and affiliates, engages in investment management and marketing
activities, fiduciary and banking services, oil and gas operations, real estate
investment, consulting and management, and development of precious metals
properties.
The Trust has retained the services of Eaton Vance to act as Administrator
of the Fund. The Trust has not retained the services of an investment adviser
since the Trust seeks to achieve the investment objective of the Fund by
investing the Fund's assets in the Portfolio. As Administrator, Eaton Vance
provides the Fund with general office facilities and supervises the overall
administration of the Fund. For these services Eaton Vance currently receives no
compensation. The Trustees of the Trust may determine, in the future, to
compensate Eaton Vance for such services.
The Portfolio and the Fund, as the case may be, will each be responsible for
all of its respective costs and expenses not expressly stated to be payable by
BMR under the investment advisory agreement, by Eaton Vance under the
administrative services agreement, or by EVD under the distribution agreement.
DISTRIBUTION PLAN
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THE FUND FINANCES DISTRIBUTION ACTIVITIES AND HAS ADOPTED A DISTRIBUTION PLAN
(THE "PLAN") PURSUANT TO RULE 12B-1 UNDER THE INVESTMENT COMPANY ACT OF 1940.
Rule 12b-1 permits a mutual fund, such as the Fund, to finance distribution
activities and bear expenses associated with the distribution of its shares
provided that any payments made by the Fund are made pursuant to a written plan
adopted in accordance with the Rule. The Plan is subject to, and complies with,
the sales charge rule of the National Association of Securities Dealers, Inc.
(the "NASD Rule"). The Plan is described further in the Statement of Additional
Information, and the following is a description of the salient features of the
Plan. The Plan provides that the Fund, subject to the NASD Rule, will pay sales
commissions and distribution fees to the Principal Underwriter only after and as
a result of the sale of shares of the Fund. On each sale of Fund shares
(excluding reinvestment of distributions) the Fund will pay the Principal
Underwriter amounts representing (i) sales commissions equal to 5% of the amount
received by the Fund for each share sold and (ii) distribution fees calculated
by applying the rate of 1% over the prime rate then reported in The Wall Street
Journal to the outstanding balance of Uncovered Distribution Charges (as
described below) of the Principal Underwriter. The Principal Underwriter
currently expects to pay sales commissions (except on exchange transactions and
reinvestments) to a financial services firm (an "Authorized Firm") at the time
of sale equal to 4% of the purchase price of the shares sold by such Firm. The
Principal Underwriter will use its own funds (which may be borrowed from banks)
to pay such commissions. Because the payment of the sales commissions and
distribution fees to the Principal Underwriter is subject to the NASD rule
described below, it will take the Principal Underwriter a number of years to
recoup the sales commissions paid by it to Authorized Firms from the payments
received by it from the Fund pursuant to the Plan.
THE NASD RULE REQUIRES THE FUND TO LIMIT ITS ANNUAL PAYMENTS OF SALES
COMMISSIONS AND DISTRIBUTION FEES TO THE PRINCIPAL UNDERWRITER TO AN AMOUNT NOT
EXCEEDING .75% OF THE FUND'S AVERAGE DAILY NET ASSETS FOR EACH FISCAL YEAR.
Under its Plan, the Fund accrues daily an amount at the rate of 1/365 of .75% of
the Fund's net assets, and pays such accrued amounts monthly to the Principal
Underwriter. The Plan requires such accruals to be automatically discontinued
during any period in which there are no outstanding Uncovered Distribution
Charges under the Plan. Uncovered Distribution Charges are calculated daily and,
briefly, are equivalent to all unpaid sales commissions and distribution fees to
which the Principal Underwriter is entitled under the Plan less all contingent
deferred sales charges theretofore paid to the Principal Underwriter. The Eaton
Vance organization may be considered to have realized a profit under the Plan if
at any point in time the aggregate amounts of all payments received by the
Principal Underwriter from the Fund pursuant to the Plan, including any
contingent deferred sales charges, have exceeded the total expenses theretofore
incurred by such organization in distributing shares of the Fund. Total expenses
for this purpose will include an allocable portion of the overhead costs of such
organization and its branch offices.
Because of the NASD Rule limitation on the amount of sales commissions and
distribution fees paid to the Principal Underwriter during any fiscal year, a
high level of sales of Fund shares during the initial years of the Fund's
operations would cause a large portion of the sales commission attributable to a
sale of Fund shares to be accrued and paid by the Fund to the Principal
Underwriter in fiscal years subsequent to the year in which such shares were
sold. This spreading of sales commissions payments under the Plan over an
extended period would result in the incurrence and payment of increased
distribution fees under the Plan. For the fiscal year ended December 31, 1994,
the Fund paid sales commissions under the Plan equivalent to .75% of the Fund's
average daily net assets for such year. As at December 31, 1994, the outstanding
Uncovered Distribution Charges of the Principal Underwriter calculated under the
Plan amounted to approximately $1,322,445 (equivalent to 5.0% of the Fund's net
assets on such day).
THE PLAN ALSO AUTHORIZES THE FUND TO MAKE PAYMENTS OF SERVICE FEES TO THE
PRINCIPAL UNDERWRITER, AUTHORIZED FIRMS AND OTHER PERSONS IN AMOUNTS NOT
EXCEEDING .25% OF THE FUND'S AVERAGE DAILY NET ASSETS FOR EACH FISCAL YEAR. The
Trustees of the Trust have initially implemented the Plan by authorizing the
Fund to make quarterly payments of service fees to the Principal Underwriter and
Authorized Firms in amounts not expected to exceed .25% of the Fund's average
daily net assets for each fiscal year based on the value of Fund shares sold by
such persons and remaining outstanding for at least twelve months. As permitted
by the NASD Rule, such payments are made for personal services and/or the
maintenance of shareholder accounts. Service fees are separate and distinct from
the sales commissions and distribution fees payable by the Fund to the Principal
Underwriter, and as such are not subject to automatic discontinuance when there
are no outstanding Uncovered Distribution Charges of the Principal Underwriter.
For the fiscal year ended December 31, 1994, the Fund did not pay or accrue any
service fees under the Plan. The Fund began accruing for its service fee
payments in the quarter ended March 31, 1995.
The Principal Underwriter may, from time to time, at its own expense,
provide additional incentives to Authorized Firms which employ registered
representatives who sell a minimum dollar amount of the Fund's shares and/or
shares of other funds distributed by the Principal Underwriter. In some
instances, such additional incentives may be offered only to certain Authorized
Firms whose representatives are expected to sell significant amounts of shares.
In addition, the Principal Underwriter may from time to time increase or
decrease the sales commissions payable to Authorized Firms.
The Fund may, in its absolute discretion, suspend, discontinue or limit the
offering of its shares at any time. In determining whether any such action
should be taken, the Fund's management intends to consider all relevant factors,
including without limitation the size of the Fund, the investment climate and
market conditions, the volume of sales and redemptions of Fund shares, and the
amount of Uncovered Distribution Charges of the Principal Underwriter. The Plan
may continue in effect and payments may be made under the Plan following any
such suspension, discontinuance or limitation of the offering of Fund shares;
however, the Fund is not contractually obligated to continue the Plan for any
particular period of time. Suspension of the offering of Fund shares would not,
of course, affect a shareholder's ability to redeem shares.
VALUING FUND SHARES
------------------------------------------------------------------------------
THE FUND VALUES ITS SHARES ONCE ON EACH DAY THE NEW YORK STOCK EXCHANGE (THE
"EXCHANGE") IS OPEN FOR TRADING, as of the close of regular trading on the
Exchange (normally 4:00 p.m., New York time). The Fund's net asset value per
share is determined by its custodian, Investors Bank & Trust Company ("IBT"),
(as agent for the Fund) in the manner authorized by the Trustees of the Trust.
Net asset value is computed by dividing the value of the Fund's total assets,
less its liabilities, by the number of shares outstanding. Because the Fund
invests its assets in an interest in the Portfolio, the Fund's net asset value
will reflect the value of its interest in the Portfolio (which, in turn,
reflects the underlying value of the Portfolio's assets and liabilities).
Authorized Firms must communicate an investor's order to the Principal
Underwriter prior to the close of the Principal Underwriter's business day to
receive that day's net asset value per Fund share. It is the Authorized Firms'
responsibility to transmit orders promptly to the Principal Underwriter, which
is a wholly-owned subsidiary of Eaton Vance.
The Portfolio's net asset value is also determined as of the close of
regular trading on the Exchange by IBT (as custodian and agent for the
Portfolio) in the manner authorized by the Trustees of the Portfolio. Net asset
value is computed by subtracting the liabilities of the Portfolio from the value
of its total assets. Securities listed on securities exchanges or in the NASDAQ
National Market are valued at closing sales prices. For further information
regarding the valuation of the Portfolio's assets, see "Determination of Net
Asset Value" in the Statement of Additional Information. Eaton Vance Corp. owns
77.3% of the outstanding stock of IBT, the Fund's and the Portfolio's custodian.
------------------------------------------------------------------------------
SHAREHOLDERS MAY DETERMINE THE VALUE OF THEIR INVESTMENT BY MULTIPLYING THE
NUMBER OF FUND SHARES OWNED BY THE CURRENT NET ASSET VALUE PER SHARE.
------------------------------------------------------------------------------
HOW TO BUY FUND SHARES
------------------------------------------------------------------------------
SHARES OF THE FUND MAY BE PURCHASED FOR CASH OR MAY BE ACQUIRED IN EXCHANGE FOR
SECURITIES. Investors may purchase shares of the Fund through Authorized Firms
at the net asset value per share of the Fund next determined after an order is
effective. The Fund may suspend the offering of shares at any time and may
refuse any order for the purchase of shares.
An initial investment in the Fund must be at least $1,000. Once an account
has been established the investor may send investments of $50 or more at any
time directly to the Fund's Transfer Agent (the "Transfer Agent") as follows:
The Shareholder Services Group, Inc., BOS725, P.O. Box 1559, Boston, MA 02104.
The $1,000 minimum initial investment is waived for Bank Automated Investing
accounts, which may be established with an investment of $50 or more. See "Eaton
Vance Shareholder Services".
In connection with employee benefit or other continuous group purchase plans
under which the average initial purchase by a participant of the plan is $1,000
or more, the Fund may accept initial investments of less than $1,000 on the part
of an individual participant. In the event a shareholder who is a participant of
such a plan terminates participation in the plan, his or her shares will be
transferred to a regular individual account. However, such account will be
subject to the right of redemption by the Fund as described below under "How to
Redeem Fund Shares."
ACQUIRING FUND SHARES IN EXCHANGE FOR SECURITIES. IBT, as escrow agent, will
receive securities acceptable to Eaton Vance, as Administrator, in exchange for
Fund shares at their net asset value as determined above. The minimum value of
securities (or securities and cash) accepted for deposit is $5,000. Securities
accepted will be sold by IBT as agent for the account of their owner on the day
of their receipt by IBT or as soon thereafter as possible. The number of Fund
shares to be issued in exchange for securities will be the aggregate proceeds
from the sale of such securities divided by the applicable net asset value per
Fund share on the day such proceeds are received. Eaton Vance will use
reasonable efforts to obtain the then current price for such securities but does
not guarantee the best price available. Eaton Vance will absorb any transaction
costs, such as commissions, on the sale of the securities.
Securities determined to be acceptable should be transferred via book entry
or physically delivered, in proper form for transfer, through an Authorized
Firm, together with a completed and signed Letter of Transmittal in approved
form (available from Authorized Firms), as follows:
IN THE CASE OF BOOK ENTRY:
Deliver through Depository Trust Co.
Broker #2212
Investors Bank & Trust Company
For A/C EV Marathon Total Return Fund
IN THE CASE OF PHYSICAL DELIVERY:
Investors Bank & Trust Company
Attention: EV Marathon Total Return Fund
Physical Securities Processing Settlement Area
89 South Street
Boston, MA 02111
Investors who are contemplating an exchange of securities for shares of the
Fund, or their representatives, are advised to contact Eaton Vance to determine
whether the securities are acceptable before forwarding such securities to IBT.
Eaton Vance reserves the right to reject any securities. Exchanging securities
for Fund shares may create a taxable gain or loss. Each investor should consult
his or her tax adviser with respect to the particular Federal, state and local
tax consequences of exchanging securities for Fund shares.
-------------------------------------------------------------------------------
IF YOU DON'T HAVE AN AUTHORIZED FIRM, EATON VANCE CAN RECOMMEND ONE.
-------------------------------------------------------------------------------
HOW TO REDEEM FUND SHARES
------------------------------------------------------------------------------
A SHAREHOLDER MAY REDEEM FUND SHARES BY DELIVERING TO THE SHAREHOLDER SERVICES
GROUP, INC., BOS725, P.O. BOX 1559, BOSTON, MA 02104, during its business hours,
a written request for redemption in good order plus any share certificates with
executed stock powers. The redemption price will be based on the net asset value
per Fund share next computed after such delivery. Good order means that all
relevant documents must be endorsed by the record owner (s) exactly as the
shares are registered and the signature(s) must be guaranteed by a member of
either the Securities Transfer Association's STAMP program or the New York Stock
Exchange's Medallion Signature Program, or certain banks, savings and loan
institutions, credit unions, securities dealers, securities exchanges, clearing
agencies and registered securities associations as required by a regulation of
the Securities and Exchange Commission and acceptable to The Shareholder
Services Group, Inc. In addition, in some cases, good order may require the
furnishing of additional documents such as where shares are registered in the
name of a corporation, partnership or fiduciary.
Within seven days after receipt of a redemption request in good order by The
Shareholder Services Group, Inc., the Fund will make payment in cash for the net
asset value of the shares as of the date determined above, reduced by the amount
of any applicable contingent deferred sales charge (described below) and any
Federal income tax required to be withheld. Although the Fund normally expects
to make payment in cash for redeemed shares, the Trust, subject to compliance
with applicable regulations, has reserved the right to pay the redemption price
of shares of the Fund, either totally or partially, by a distribution in kind of
readily marketable securities withdrawn by the Fund from the Portfolio. The
securities so distributed would be valued pursuant to the Portfolio's valuation
procedures. If a shareholder received a distribution in kind, the shareholder
could incur brokerage or other charges in converting the securities to cash.
To sell shares at their net asset value through an Authorized Firm (a
repurchase), a shareholder can place a repurchase order with the Authorized
Firm, which may charge a fee. The value of such shares is based upon the net
asset value calculated after EVD, as the Fund's agent, receives the order. It is
the Authorized Firm's responsibility to transmit promptly repurchase orders to
EVD. Throughout this Prospectus, the word "redemption" is generally meant to
include a repurchase.
If shares were recently purchased, the proceeds of a redemption (or
repurchase) will not be sent until the check (including a certified or cashier's
check) received for the shares purchased has cleared. Payment for shares
tendered for redemption may be delayed up to fifteen days from the purchase date
when the purchase check has not yet cleared. Redemptions or repurchases may
result in a taxable gain or loss.
Due to the high cost of maintaining small accounts, the Fund reserves the
right to redeem accounts with balances of less than $1,000. Prior to such a
redemption, shareholders will be given 60 days' written notice to make an
additional purchase. Thus, an investor making an initial investment of $1,000
would not be able to redeem shares without being subject to this policy.
However, no such redemption would be required by the Fund if the cause of the
low account balance was a reduction in the net asset value of Fund shares. No
contingent deferred sales charge will be imposed with respect to such
involuntary redemptions.
CONTINGENT DEFERRED SALES CHARGE. Shares redeemed within the first six years of
their purchase (except shares acquired through the reinvestment of
distributions) generally will be subject to a contingent deferred sales charge.
This contingent deferred sales charge is imposed on any redemption the amount of
which exceeds the aggregate value at the time of redemption of (a) all shares in
the account purchased more than six years prior to the redemption, (b) all
shares in the account acquired through reinvestment of distributions, and (c)
the increase, if any, in the value of all other shares in the account (namely
those purchased within the six years preceding the redemption) over the purchase
price of such shares. Redemptions are processed in a manner to maximize the
amount of redemption proceeds which will not be subject to a contingent deferred
sales charge. That is, each redemption will be assumed to have been made first
from the exempt amounts referred to in clauses (a), (b) and (c) above, and
second through liquidation of those shares in the account referred to in clause
(c) on a first-in-first-out basis. Any contingent deferred sales charge which is
required to be imposed on share redemptions will be made in accordance with the
following schedule:
YEAR OF CONTINGENT
REDEMPTION DEFERRED SALES
AFTER PURCHASE CHARGE
-------------- --------------
First ............. 5%
Second ............ 5%
Third ............. 4%
Fourth ............ 3%
Fifth ............. 2%
Sixth ............. 1%
Seventh and following 0%
For shares purchased prior to August 1, 1994, the contingent deferred sales
charge for redemptions within the first year after purchase is 6%. In
calculating the contingent deferred sales charge upon the redemption of Fund
shares acquired in an exchange of shares of a fund currently listed under "The
Eaton Vance Exchange Privilege," the contingent deferred sales charge schedule
applicable to the shares at the time of purchase will apply and the purchase of
Fund shares acquired in the exchange is deemed to have occurred at the time of
the original purchase of the exchanged shares. The contingent deferred sales
charge will be waived for shares redeemed (1) pursuant to a Withdrawal Plan (see
"Eaton Vance Shareholder Services"), (2) as part of a required distribution from
a tax-sheltered retirement plan or (3) following the death of all beneficial
owners of such shares, provided the redemption is requested within one year of
death (a death certificate and other applicable documents may be required).
No contingent deferred sales charge will be imposed on Fund shares which
have been sold to Eaton Vance or its affiliates, or to their respective
employees or clients. The contingent deferred sales charge will be paid to the
Principal Underwriter or the Fund.
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THE FOLLOWING EXAMPLE ILLUSTRATES THE OPERATION OF THE CONTINGENT DEFERRED SALES
CHARGE. ASSUME THAT AN INVESTOR PURCHASES $10,000 OF THE FUND'S SHARES AND THAT
16 MONTHS LATER THE VALUE OF THE ACCOUNT HAS GROWN THROUGH INVESTMENT
PERFORMANCE AND REINVESTMENT OF DISTRIBUTIONS TO $12,000. THE INVESTOR THEN MAY
REDEEM UP TO $2,000 OF SHARES WITHOUT INCURRING A CONTINGENT DEFERRED SALES
CHARGE. IF THE INVESTOR SHOULD REDEEM $3,000 OF SHARES, A CHARGE WOULD BE
IMPOSED ON $1,000 OF THE REDEMPTION. THE RATE WOULD BE 5% BECAUSE THE REDEMPTION
WAS MADE IN THE SECOND YEAR AFTER THE PURCHASE WAS MADE AND THE CHARGE WOULD BE
$50.
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REPORTS TO SHAREHOLDERS
------------------------------------------------------------------------------
THE FUND WILL ISSUE TO ITS SHAREHOLDERS SEMI-ANNUAL AND ANNUAL REPORTS
CONTAINING FINANCIAL STATEMENTS. Financial statements included in annual reports
are audited by the Fund's independent accountants. Shortly after the end of each
calendar year, the Fund will furnish all shareholders with information necessary
for preparing Federal and state tax returns.
THE LIFETIME INVESTING ACCOUNT/DISTRIBUTION OPTIONS
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AFTER AN INVESTOR MAKES AN INITIAL PURCHASE OF FUND SHARES, THE FUND'S TRANSFER
AGENT, THE SHAREHOLDER SERVICES GROUP, INC., WILL SET UP A LIFETIME INVESTING
ACCOUNT FOR THE INVESTOR ON THE FUND'S RECORDS. This account is a complete
record of all transactions between the investor and the Fund which at all times
shows the balance of shares owned. The Fund will not issue share certificates
except upon request.
At least quarterly, shareholders will receive a statement showing complete
details of any transaction and the current balance in the account. THE LIFETIME
INVESTING ACCOUNT ALSO PERMITS A SHAREHOLDER TO MAKE ADDITIONAL INVESTMENTS IN
SHARES BY SENDING A CHECK FOR $50 OR MORE to The Shareholder Services Group,
Inc.
Any questions concerning a shareholder's account or services available may
be directed by telephone to EATON VANCE SHAREHOLDER SERVICES at 800-225-6265,
extension 2 or in writing to The Shareholder Services Group, Inc., BOS725, P.O.
Box 1559, Boston, Massachusetts 02104. Please provide the name of the
shareholder, the Fund and the account number.
THE FOLLOWING DISTRIBUTION OPTIONS WILL BE AVAILABLE TO ALL LIFETIME
INVESTING ACCOUNTS and may be changed as often as desired by written notice to
the Fund's dividend-disbursing agent, The Shareholder Services Group, Inc.,
BOS725, P.O. Box 1559, Boston, MA 02104. The currently effective option will
appear on each account statement.
Share Option -- Dividends and capital gains will be reinvested in additional
shares.
Income Option -- Dividends will be paid in cash, and capital gains will be
reinvested in additional shares.
Cash Option -- Dividends and capital gains will be paid in cash.
The Share Option will be assigned if no other option is specified.
Distributions, including those reinvested, will be reduced by any withholding
required under Federal income tax laws.
If the Income Option or Cash Option has been selected, dividend and/or
capital gains distribution checks which are returned by the United States Postal
Service as not deliverable or which remain uncashed for six months or more will
be reinvested in the account in shares at the then current net asset value.
Furthermore, the distribution option on the account will be automatically
changed to the Share Option until such time as the shareholder selects a
different option.
DISTRIBUTION INVESTMENT OPTION. In addition to the distribution options set
forth above, dividends and/or capital gains may be invested in additional shares
of another Eaton Vance fund. Before selecting this option, a shareholder should
obtain a prospectus of the other Eaton Vance fund and consider its objectives
and policies carefully.
"STREET NAME" ACCOUNTS. If shares of the Fund are held in a "street name"
account with an Authorized Firm, all recordkeeping, transaction processing and
payments of distributions relating to the beneficial owner's account will be
performed by the Authorized Firm, and not by the Fund and its Transfer Agent.
Since the Fund will have no record of the beneficial owner's transactions, a
beneficial owner should contact the Authorized Firm to purchase, redeem or
exchange shares, to make changes in or give instructions concerning the account,
or to obtain information about the account. The transfer of shares in a "street
name" account to an account with another dealer or to an account directly with
the Fund involves special procedures and will require the beneficial owner to
obtain historical purchase information about the shares in the account from the
Authorized Firm. Before establishing a "street name" account with an investment
firm, or transferring the account to another investment firm, an investor
wishing to reinvest distributions should determine whether the firm which will
hold the shares allows reinvestment of distributions in "street name" accounts.
------------------------------------------------------------------------------
UNDER A LIFETIME INVESTING ACCOUNT A SHAREHOLDER CAN MAKE ADDITIONAL INVESTMENTS
IN SHARES BY SENDING A CHECK FOR $50 OR MORE.
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THE EATON VANCE EXCHANGE PRIVILEGE
------------------------------------------------------------------------------
Shares of the Fund may currently be exchanged for shares of one or more other
funds in the Eaton Vance Marathon Group of Funds (which includes Eaton Vance
Equity-Income Trust and any EV Marathon fund, except Eaton Vance Prime Rate
Reserves) or Eaton Vance Money Market Fund, which are distributed subject to a
contingent deferred sales charge, on the basis of the net asset value per share
of each fund at the time of the exchange, provided that such exchange offers are
available only in states where shares of the fund being acquired may be legally
sold.
Each exchange must involve shares which have a net asset value of at least
$1,000. The exchange privilege may be changed or discontinued without penalty.
Shareholders will be given sixty (60) days' notice prior to any termination or
material amendment of the exchange privilege. The Fund does not permit the
exchange privilege to be used for "Market Timing" and may terminate the exchange
privilege for any shareholder account engaged in Market Timing activity. Any
shareholder account for which more than two round-trip exchanges are made within
any twelve month period will be deemed to be engaged in Market Timing.
Furthermore, a group of unrelated accounts for which exchanges are entered
contemporaneously by a financial intermediary will be considered to be engaged
in Market Timing.
The Shareholder Services Group, Inc. makes exchanges at the next determined
net asset value after receiving an exchange request in good order (see "How to
Redeem Fund Shares"). Consult The Shareholder Services Group, Inc. for
additional information concerning the exchange privilege. Applications and
prospectuses of the other funds are available from Authorized Firms or the
Principal Underwriter. The prospectus for each fund describes its investment
objectives and policies, and shareholders should obtain a prospectus and
consider these objectives and policies carefully before requesting an exchange.
No contingent deferred sales charge is imposed on exchanges. For purposes of
calculating the contingent deferred sales charge upon the redemption of shares
acquired in an exchange, the contingent deferred sales charge schedule
applicable to the shares at the time of purchase will apply and the purchase of
shares acquired in one or more exchanges is deemed to have occurred at the time
of the original purchase of the exchanged shares. For the contingent deferred
sales charge schedule applicable to the Eaton Vance Marathon Group of Funds
(except EV Marathon Strategic Income Fund and Class I shares of any EV Marathon
Limited Maturity Fund), see "How to Redeem Fund Shares". The contingent deferred
sales charge schedule applicable to EV Marathon Strategic Income Fund and Class
I shares of any EV Marathon Limited Maturity Fund is 3%, 2.5%, 2% or 1% in the
event of a redemption occurring in the first, second, third or fourth year,
respectively, after the original share purchase.
Shares of other funds in the Eaton Vance Marathon Group of Funds and shares
of Eaton Vance Money Market Fund may be exchanged for Fund shares on the basis
of the net asset value per share of each fund at the time of the exchange, but
subject to any restrictions or qualifications set forth in the current
prospectus of any such fund.
Telephone exchanges are accepted by The Shareholder Services Group, Inc.,
provided that the investor has not disclaimed in writing the use of the
privilege. To effect such exchanges, call The Shareholder Services Group, Inc.
at 800-262-1122 or, within Massachusetts, 617-573-9403, Monday through Friday,
9:00 a.m. to 4:00 p.m. (Eastern Standard Time). Shares acquired by telephone
exchange must be registered in the same name(s) and with the same address as the
shares being exchanged. Neither the Fund, the Principal Underwriter nor The
Shareholder Services Group, Inc. will be responsible for the authenticity of
exchange instructions received by telephone, provided that reasonable procedures
to confirm that instructions communicated are genuine have been followed.
Telephone instructions will be tape recorded. In times of drastic economic or
market changes, a telephone exchange may be difficult to implement. An exchange
may result in a taxable gain or loss.
EATON VANCE SHAREHOLDER SERVICES
------------------------------------------------------------------------------
THE FUND OFFERS THE FOLLOWING SERVICES WHICH ARE VOLUNTARY, INVOLVE NO EXTRA
CHARGE, AND MAY BE CHANGED OR DISCONTINUED WITHOUT PENALTY AT ANY TIME. Full
information on each of the services described below and an application, where
required, are available from Authorized Firms or the Principal Underwriter. The
cost of administering such services for the benefit of shareholders who
participate in them is borne by the Fund as an expense to all shareholders.
INVEST-BY-MAIL -- FOR PERIODIC SHARE ACCUMULATION: Once the $1,000 minimum
investment has been made, checks of $50 or more payable to the order of EV
Marathon Total Return Fund may be mailed directly to The Shareholder Services
Group, Inc., BOS725, P.O. Box 1559, Boston, MA 02104 at any time -- whether or
not distributions are reinvested. The name of the shareholder, the Fund and the
account number should accompany each investment.
BANK AUTOMATED INVESTING -- FOR REGULAR SHARE ACCUMULATION: Cash investments of
$50 or more may be made automatically each month or quarter from a shareholder's
bank account. The $1,000 minimum initial investment and small account redemption
policy are waived for these accounts.
WITHDRAWAL PLAN. A shareholder may draw on shareholdings systematically with
monthly or quarterly checks in an aggregate amount that does not exceed annually
12% of the account balance at the time the plan is established. Such amount will
not be subject to a contingent deferred sales charge. See "How to Redeem Fund
Shares". A minimum deposit of $5,000 in shares is required.
REINVESTMENT PRIVILEGE: A SHAREHOLDER WHO HAS REPURCHASED OR REDEEMED SHARES MAY
REINVEST, WITH CREDIT FOR ANY CONTINGENT DEFERRED SALES CHARGES PAID ON THE
REPURCHASED OR REDEEMED SHARES, ANY PORTION OR ALL OF THE REPURCHASE OR
REDEMPTION PROCEEDS (PLUS THAT AMOUNT NECESSARY TO ACQUIRE A FRACTIONAL SHARE TO
ROUND OFF THE PURCHASE TO THE NEAREST FULL SHARE) IN SHARES OF THE FUND,
provided that the reinvestment is effected within 30 days after such repurchase
or redemption. Shares are sold to a reinvesting shareholder at the next
determined net asset value following timely receipt of a written purchase order
by the Principal Underwriter or by the Fund (or by the Fund's Transfer Agent).
To the extent that any shares of the Fund are sold at a loss and the proceeds
are reinvested in shares of the Fund (or other shares of the Fund are acquired
within the period beginning 30 days before and ending 30 days after the date of
the redemption), some or all of the loss generally will not be allowed as a tax
deduction. Shareholders should consult their tax advisers concerning the tax
consequences of reinvestments.
TAX-SHELTERED RETIREMENT PLANS: Shares of the Fund are available for purchase
in connection with the following tax-sheltered retirement plans:
-- Pension and Profit Sharing Plans for self-employed individuals,
corporations and non-profit organizations;
-- Individual Retirement Account Plans for individuals and their non-
employed spouses; and
-- 403(b) Retirement Plans for employees of public school systems,
hospitals, colleges and other non-profit organizations meeting certain
requirements of the Internal Revenue Code of 1986, as amended (the
"Code").
Detailed information concerning these plans, including certain exceptions to
minimum investment requirements, and copies of the plans are available from the
Principal Underwriter. This information should be read carefully and
consultation with an attorney or tax adviser may be advisable. The information
sets forth the service fee charged for retirement plans and describes the
Federal income tax consequences of establishing a plan. Under all plans,
dividends and distributions will be automatically reinvested in additional
shares.
DISTRIBUTIONS AND TAXES
------------------------------------------------------------------------------
THE FUND'S POLICY IS TO DISTRIBUTE MONTHLY SUBSTANTIALLY ALL OF THE NET
INVESTMENT INCOME ALLOCATED TO THE FUND BY THE PORTFOLIO, LESS THE FUND'S DIRECT
AND ALLOCATED EXPENSES, AND TO DISTRIBUTE AT LEAST ANNUALLY SUBSTANTIALLY ALL OF
ITS NET REALIZED CAPITAL GAINS. A portion of distributions from net investment
income will be eligible for the dividends-received deduction for corporations.
The Fund's distributions from its net investment income, net short-term capital
gains, and certain foreign exchange gains will be taxable to shareholders as
ordinary income, whether paid in cash or reinvested in additional shares of the
Fund. The Fund's distributions from its net long-term capital gains are taxable
to shareholders as long-term capital gains, whether paid in cash or reinvested
in additional shares of the Fund and regardless of the length of time Fund
shares have been owned by shareholders. Certain distributions, if declared by
the Fund in October, November or December and paid the following January, will
be taxable to shareholders as if received on December 31 of the year in which
they are declared.
Shareholders will receive annually tax information notices and Forms 1099 to
assist in the preparation of their Federal and state tax returns for the prior
calendar year's distributions, proceeds from the redemption or exchange of Fund
shares, and Federal income tax (if any) withheld by the Fund's Transfer Agent.
In order to qualify as a regulated investment company under the Code, the
Fund must satisfy certain requirements relating to the sources of its income,
the distribution of its income, and the diversification of its assets. In
satisfying these requirements, the Fund will treat itself as owning its
proportionate share of each of the Portfolio's assets and as entitled to the
income of the Portfolio properly attributable to such share.
-------------------------------------------------------------------------------
AS A REGULATED INVESTMENT COMPANY UNDER THE CODE, THE FUND DOES NOT PAY FEDERAL
INCOME OR EXCISE TAXES TO THE EXTENT THAT IT DISTRIBUTES TO SHAREHOLDERS ITS NET
INVESTMENT INCOME AND NET REALIZED CAPITAL GAINS IN ACCORDANCE WITH THE TIMING
REQUIREMENTS IMPOSED BY THE CODE. AS A PARTNERSHIP UNDER THE CODE, THE PORTFOLIO
DOES NOT PAY FEDERAL INCOME OR EXCISE TAXES.
-------------------------------------------------------------------------------
PERFORMANCE INFORMATION
------------------------------------------------------------------------------
FROM TIME TO TIME, THE FUND MAY ADVERTISE ITS YIELD AND/OR AVERAGE ANNUAL TOTAL
RETURN. The Fund's current yield is calculated by dividing the net investment
income per share during a recent 30-day period by the maximum offering price per
share (net asset value) of the Fund on the last day of the period and
annualizing the resulting figure. The Fund's average annual total return is
determined by computing the average annual percentage change in value of $1,000
invested at the maximum public offering price (net asset value) for specified
periods ending with the most recent calendar quarter, assuming reinvestment of
all distributions. The average annual total return calculation assumes a
complete redemption of the investment and the deduction of any applicable
contingent deferred sales charge at the end of the period. The Fund may also
publish annual and cumulative total return figures from time to time.
The Fund may also publish its distribution rate and/or its effective
distribution rate. The Fund's distribution rate is computed by dividing the most
recent monthly distribution per share annualized by the current maximum offering
price per share (net asset value). The Fund's effective distribution rate is
computed by dividing the distribution rate by 12 and reinvesting the resulting
amount for a full year on a monthly basis. The effective distribution rate will
be higher than the distribution rate because of the compounding effect of the
assumed reinvestment. Investors should note that the Fund's yield is calculated
using a standardized formula, the income component of which is computed from
dividends on equity securities held by the Portfolio based on the stated annual
dividend rates of such securities, exclusive of special or extra distributions
(with all purchases and sales of securities during such period included in the
income calculation on a settlement date basis), and from the income earned on
short-term debt instruments held by the Portfolio, whereas the distribution rate
is based on the Fund's last monthly distribution, which tends to be relatively
stable and may be more or less than the amount of net investment income and
short-term capital gain actually earned by the Fund during the month.
The Fund may also publish performance figures which do not take into account
any contingent deferred sales charge which may be imposed upon redemptions at
the end of the specified period. Any performance figure which does not take into
account the contingent deferred sales charge would be reduced to the extent such
charge is imposed upon a redemption.
Investors should note that the investment results of the Fund will fluctuate
over time, and any presentation of the Fund's current yield or total return, for
any prior periods should not be considered as a representation of what an
investment may earn or what the Fund's yield or total return may be in any
future period.
<PAGE>
INVESTMENT ADVISER OF
TOTAL RETURN PORTFOLIO
Boston Management and Research
24 Federal Street
Boston, MA 02110
ADMINISTRATOR OF
EV MARATHON TOTAL RETURN FUND
Eaton Vance Management
24 Federal Street
Boston, MA 02110
PRINCIPAL UNDERWRITER
Eaton Vance Distributors, Inc.
24 Federal Street
Boston, MA 02110
(800) 225-6265
CUSTODIAN
Investors Bank & Trust Company
24 Federal Street
Boston, MA 02110
TRANSFER AGENT
The Shareholder Services Group, Inc.
BOS 725
P.O. Box 1559
Boston, MA 02104
(800) 262-1122
INDEPENDENT ACCOUNTANTS
Coopers & Lybrand L.L.P.
One Post Office Square
Boston, MA 02109
EV MARATHON TOTAL RETURN FUND
24 FEDERAL STREET
BOSTON, MA 02110
M-TMP
EV MARATHON
TOTAL RETURN
FUND
PROSPECTUS
MAY 1, 1995
<PAGE>
EATON VANCE EQUITY-INCOME TRUST
PROXY
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF TRUSTEES
The undersigned, revoking all previous proxies for his or her shares, hereby
acknowledges receipt of the notice of meeting and proxy statement dated
September 8, 1995, and appoints H. Day Brigham, Jr., M. Dozier Gardner and
Thomas Otis, and each of them as proxies, with power of substitution, to vote
all shares of Eaton Vance Equity-Income Trust ("Equity-Income"), which the
undersigned is entitled to vote at the special meeting of shareholders of
Equity-Income to be held at the offices of Equity-Income, 24 Federal Street,
Boston, Massachusetts, on October 26, 1995 at 11:00 a.m., local time, including
any adjournments thereof, upon such business as may be properly brought before
the meeting and specifically upon the proposal set out on the back of this
Proxy.
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED
BY THE UNDERSIGNED SHAREHOLDER. IF NO SPECIFICATION IS MADE, THE PROXY WILL BE
VOTED FOR APPROVAL OF THE AGREEMENT AND PLAN OF REORGANIZATION. AS TO ANY
OTHER MATTERS, SAID PROXIES SHALL VOTE IN ACCORDANCE WITH THEIR BEST JUDGMENT.
(PLEASE MARK AND SIGN ON REVERSE SIDE AND RETURN PROMPTLY IN
THE ENCLOSED ENVELOPE.)
------------------------------------------------------------------------------
To vote on the following proposal, please indicate your vote for each of
your accounts beneath your account number.
Account No. No. of Shares
(1) Approval of an Agreement and Plan of Reorganization between Eaton Vance
Equity-Income Trust and Eaton Vance Special Investment Trust on behalf of EV
Marathon Total Return Fund and the transactions contemplated thereby, as
described in the accompanying proxy statement and prospectus.
[] FOR [] AGAINST [] ABSTAIN
Dated ---------------------, 1995
---------------------------------
---------------------------------
Signature(s)
---------------------------------
Signature(s)
(Sign exactly as name appears
hereon)
IMPORTANT-PLEASE READ
If more than one owner, each must sign. If the
signer is a corporation, please sign full
corporate name by duly authorized officer.
Executors, administrators, trustees, guardians,
custodians, attorneys-in-fact, etc., should so
indicate when signing.
PLEASE MARK, SIGN, DATE AND RETURN THE PROXY CARD PROMPTLY USING THE ENCLOSED
ENVELOPE.
<PAGE>
EV MARATHON TOTAL RETURN FUND
--------------------------------------------------------------------------------
STATEMENT OF ADDITIONAL INFORMATION
September 8, 1995
--------------------------------------------------------------------------------
Acquisition of the Assets of Eaton Vance By and in Exchange for Shares of EV
Equity-Income Trust Marathon Total Return Fund, a series
24 Federal Street of Eaton Vance Special
Boston, Massachusetts 02110 Investment Trust
Telephone: 800-225-6265 24 Federal Street
Boston, Massachusetts 02110
Telephone: (800) 225-6265
This Statement of Additional Information is available to the
shareholders of Eaton Vance Equity-Income Trust ("Equity-Income") in connection
with a proposed transaction whereby EV Marathon Total Return Fund ("Total
Return"), a series of Eaton Vance Special Investment Trust, will acquire all of
the assets of Equity-Income in exchange for shares of Total Return and will
assume all of the liabilities of Equity-Income.
This Statement of Additional Information of Total Return consists of
this cover page and the following documents, each of which is attached hereto
and incorporated by reference herein:
(1) The Statement of Additional Information dated May 1, 1995 of
Equity-Income containing Financial Statements for the year ended
December 31, 1994;
(2) The Statement of Additional Information dated May 1, 1995 of Total
Return as supplemented August 1, 1995 containing Financial
Statements for the year ended December 31, 1994;
(3) Semi-Annual Report dated June 30, 1995 (unaudited) for
Equity-Income including financial statements for Total Return
Portfolio (audited);
(4) Semi-Annual Report dated June 30, 1995 (unaudited) for Total
Return including financial statements for Total Return Portfolio
(audited); and
(5) Pro Forma financial statements (unaudited) of Equity-Income and
Total Return as of June 30, 1995.
This Statement of Additional Information is not a Prospectus. A
Prospectus/Proxy Statement dated September 8, 1995 relating to the
reorganization of Equity-Income may be obtained by writing to Eaton Vance
Distributors, Inc., 24 Federal Street, Boston, MA 02110 or by calling
1-800-225-6265. This Statement of Additional Information should be read in
conjunction with the Prospectus/Proxy Statement.
<PAGE>
STATEMENT OF
ADDITIONAL INFORMATION
May 1, 1995
EATON VANCE EQUITY-INCOME TRUST
24 Federal Street
Boston, Massachusetts 02110
800-225-6265
--------------------------------------------------------------------------------
TABLE OF CONTENTS Page
Investment Objective and Policies ......................................... 2
Investment Restrictions ................................................... 4
Trustees and Officers ..................................................... 5
Control Persons and Principal Holders of Securities ....................... 7
Investment Adviser and Administrator ...................................... 7
Custodian ................................................................. 10
Independent Accountants ................................................... 10
Service for Withdrawal .................................................... 10
Determination of Net Asset Value .......................................... 10
Purchase and Redemption of Shares ......................................... 11
Investment Performance .................................................... 11
Taxes ..................................................................... 14
Principal Underwriter ..................................................... 16
Distribution Plan ......................................................... 16
Portfolio Security Transactions ........................................... 18
Other Information ......................................................... 20
Financial Statements ...................................................... 21
--------------------------------------------------------------------------------
THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT A PROSPECTUS AND IS
AUTHORIZED FOR DISTRIBUTION TO PROSPECTIVE INVESTORS ONLY IF PRECEDED OR
ACCOMPANIED BY THE CURRENT PROSPECTUS OFFERING SHARES OF EATON VANCE EQUITY-
INCOME TRUST (THE "FUND") DATED MAY 1, 1995, AS SUPPLEMENTED FROM TIME TO TIME.
THIS STATEMENT OF ADDITIONAL INFORMATION SHOULD BE READ IN CONJUNCTION WITH SUCH
PROSPECTUS, A COPY OF WHICH MAY BE OBTAINED WITHOUT CHARGE BY CONTACTING THE
PRINCIPAL UNDERWRITER (SEE BACK COVER FOR ADDRESS AND PHONE NUMBER).
<PAGE>
INVESTMENT OBJECTIVE AND POLICIES
The primary investment objective of Eaton Vance Equity-Income Trust (the
"Fund" or "Trust") is to seek for its shareholders a high level of total return,
consisting of relatively predictable income in conjunction with capital
appreciation, consistent with prudent management and preservation of capital.
The Fund currently seeks to meet its investment objective by investing its
assets in the Total Return Portfolio (the "Portfolio"), a separate registered
investment company with the same investment objective as the Fund and
substantially the same investment policies and restrictions as the Fund. The
Portfolio seeks to achieve its investment objective by investing principally in
dividend-paying common stocks with the potential for increased dividends in the
future.
The Trust is a Massachusetts business trust established in 1987.
The Trustees of the Trust may withdraw the Fund's investment from the
Portfolio at any time, if they determine that it is in the best interests of the
Fund to do so. Upon any such withdrawal, the Fund's assets would be invested in
another investment company with substantially the same investment objective,
policies and restrictions as those of the Fund or directly in investment
securities in accordance with the Portfolio's investment policies, as described
below. Except as indicated in the next paragraph, the approval of the Fund's
shareholders would not be required to change the Portfolio's investment
objective or any of the Portfolio's investment policies discussed below,
including those concerning security transactions.
Because the investment characteristics of the Fund will correspond directly
to those of the Portfolio, the following is a discussion of the various
investments of and techniques employed by the Portfolio.
LEVERAGE THROUGH BORROWING
The practice of leveraging to enhance investment return may be viewed as a
speculative activity. Leveraging will exaggerate any increase or decrease in the
market value of the securities held by the Portfolio. Money borrowed for
leveraging will be subject to interest costs which may or may not exceed the
dividends for the securities purchased. The Portfolio may also be required to
maintain minimum average balances in connection with such borrowing or to pay a
commitment or other fee to maintain a line of credit; either of these
requirements will increase the cost of borrowing over the stated interest rate.
The Portfolio and the other investment companies managed by Boston
Management and Research ("BMR") or Eaton Vance Management participate in a Line
of Credit Agreement (the "Credit Agreement") with Citibank, N.A. ("Citibank").
Citibank agrees, in the Credit Agreement, to consider requests from the
Portfolio and such other investment companies that Citibank make advances
("Advances") to the Portfolio and such other investment companies from time to
time. The aggregate amount of all such Advances to all such borrowers will not
exceed $120,000,000, of which $100,000,000 is a discretionary facility and
$20,000,000 is a committed facility. The Portfolio has currently determined that
its borrowings under the Credit Agreement will not exceed, at any one time
outstanding, the lesser of (a) 1/3 of the current market value of the net assets
of the Portfolio or (b) $60,000,000 (the "Amount Available to the Portfolio").
The Portfolio is obligated to pay to Citibank, in addition to interest on
Advances made to it, a quarterly fee on the $20,000,000 committed facility and
on the daily unused portion of the Amount Available to the Portfolio at the rate
of 1/4 of 1% per annum. The Credit Agreement may be terminated by Citibank or
the borrowers at any time upon 30 days' prior written notice. The Portfolio
expects to use the proceeds of the Advances primarily for leveraging purposes.
As at December 31, 1994, the Portfolio had no outstanding loans pursuant to the
Credit Agreement.
The Portfolio, like many other investment companies, can also borrow money
for temporary extraordinary or emergency purposes. Such borrowings may not
exceed 5% of the value of the Portfolio's total assets when the loan is made.
The Portfolio may pledge up to 10% of the lesser of cost or value of its total
assets to secure such borrowings.
The ability of the Portfolio to borrow could be partially or entirely
curtailed in the event that the Credit Control Act of 1969 were to be invoked
and the Federal Reserve Board were to limit or prohibit certain extensions of
credit. This Act empowers the Federal Reserve Board, when authorized by the
President, to regulate directly the costs and allocation of funds in the credit
market.
RISKS ASSOCIATED WITH DERIVATIVE INSTRUMENTS
Entering into a derivative instrument involves a risk that the applicable
market will move against the Portfolio's position and that the Portfolio will
incur a loss. For derivative instruments other than purchased options, this loss
may exceed the amount of the initial investment made or the premium received by
the Portfolio. Derivative instruments may sometimes increase or leverage the
Portfolio's exposure to a particular market risk. Leverage enhances the
Portfolio's exposure to the price volatility of derivative instruments it holds.
The Portfolio's success in using derivative instruments to hedge portfolio
assets depends on the degree of price correlation between the derivative
instruments and the hedged asset. Imperfect correlation may be caused by several
factors, including temporary price disparities among the trading markets for the
derivative instrument, the assets underlying the derivative instrument and the
Portfolio assets. Over-the-counter ("OTC") derivative instruments involve an
enhanced risk that the issuer or counterparty will fail to perform its
contractual obligations. Some derivative instruments are not readily marketable
or may become illiquid under adverse market conditions. In addition, during
periods of market volatility, a commodity exchange may suspend or limit trading
in an exchange-traded derivative instrument, which may make the contract
temporarily illiquid and difficult to price. Commodity exchanges may also
establish daily limits on the amount that the price of a futures contract or
futures option can vary from the previous day's settlement price. Once the daily
limit is reached, no trades may be made that day at a price beyond the limit.
This may prevent the Portfolio from closing out positions and limiting its
losses. The staff of the Securities and Exchange Commission ("Commission") takes
the position that purchased OTC options, and assets used as cover for written
OTC options, are subject to the Portfolio's 15% limit on illiquid investments.
The Portfolio's ability to terminate OTC derivative instruments may depend on
the cooperation of the counterparties to such contracts. The Portfolio expects
to purchase and write only exchange-traded options until such time as the
Portfolio's management determines that the OTC options market is sufficiently
developed and the Portfolio has amended its prospectus so that appropriate
disclosure is furnished to prospective and existing shareholders. For thinly
traded derivative instruments, the only source of price quotations may be the
selling dealer or counterparty. In addition, certain provisions of the Internal
Revenue Code of 1986, as amended ("Code"), limit the extent to which the
Portfolio may purchase and sell derivative instruments. The Portfolio will
engage in transactions in futures contracts and related options only to the
extent such transactions are consistent with the requirements of the Code for
maintaining the qualification of the Fund as a regulated investment company for
Federal income tax purposes. See "Taxes."
ASSET COVERAGE FOR DERIVATIVE INSTRUMENTS
Transactions using forward contracts, futures contracts and options (other
than options that the Portfolio has purchased) expose the Portfolio to an
obligation to another party. The Portfolio will not enter into any such
transactions unless it owns either (1) an offsetting ("covered") position in
securities, currencies, or other options or futures contracts or forward
contracts, or (2) cash, receivables and short-term debt securities with a value
sufficient at all times to cover its potential obligations not covered as
provided in (1) above. The Portfolio will comply with Commission guidelines
regarding cover for these instruments and, if the guidelines so require, set
aside cash, U.S. Government securities or other liquid, high-grade debt
securities in a segregated account with its custodian in the prescribed amount.
Assets used as cover or held in a segregated account cannot be sold while
the position in the corresponding forward contract, futures contract or option
is open, unless they are replaced with other appropriate assets. As a result,
the commitment of a large portion of the Portfolio's assets to cover or
segregated accounts counsel impede portfolio management or the Portfolio's
ability to meet redemption requests or other current obligations.
LIMITATIONS ON FUTURES CONTRACTS AND OPTIONS
If the Portfolio has not complied with the 5% CFTC test set forth in the
Fund's prospectus, to evidence its hedging intent, the Portfolio expects that,
on 75% or more of the occasions on which it takes a long futures or option on
futures position, it will have purchased or will be in the process of
purchasing, equivalent amounts of related securities at the time when the
futures or options position is closed out. However, in particular cases, when it
is economically advantageous for the Portfolio to do so, a long futures or
options position may be terminated (or an option may expire) without a
corresponding purchase of securities.
The Portfolio may enter into futures contracts, and options on futures
contracts, traded on an exchange regulated by the CFTC and on foreign exchanges,
but, with respect to foreign exchange-traded futures contracts and options on
such futures contracts, only if the Investment Adviser determines that trading
on each such foreign exchange does not subject the Portfolio to risks, including
credit and liquidity risks, that are materially greater than the risks
associated with trading on CRTC-regulated exchanges.
In order to hedge its current or anticipated portfolio position, the
Portfolio may use futures contracts on securities held in its Portfolio or on
securities with characteristics similar to those of the securities held by the
Portfolio. If, in the opinion of the Investment Adviser, there is a sufficient
degree of correlation between price trends for the securities held by the
Portfolio and futures contracts based on other financial instruments, securities
indices or other indices, the Portfolio may also enter into such futures
contracts as part of its hedging strategy.
All call and put options on securities written by the Portfolio will be
covered. This means that, in the case of a call option, the Portfolio will own
the securities subject to the call option or an offsetting call option so long
as the call option is outstanding. In the case of a put option, the Portfolio
will own an offsetting put option or will have deposited with its custodian cash
or liquid, high-grade debt securities with a value at least equal to the
exercise price of the put option. The Portfolio may only write a put option on a
security that it intends ultimately to acquire for its investment portfolio.
PORTFOLIO TURNOVER
The portfolio turnover rate of the Portfolio is likely to exceed 100%, but
under normal conditions is not likely to exceed 250%. A 100% turnover rate
occurs if all of the securities held by the Portfolio are sold and either
repurchased or replaced within one year. High portfolio turnover involves
correspondingly greater brokerage commissions and other transaction costs, which
will be borne directly by the Portfolio. It may also result in the realization
of capital gains. See "Portfolio Security Transactions" for a discussion of the
Portfolio's brokerage practices.
INVESTMENT RESTRICTIONS
The following investment restrictions are designated as fundamental policies
and as such cannot be changed without the approval of the holders of a majority
of the Fund's outstanding voting securities, which as used in this Statement of
Additional Information means the lesser of (a) 67% of the shares of the Fund
present or represented by proxy at a meeting if the holders of more than 50% of
the shares are present or represented at the meeting or (b) more than 50% of the
shares of the Fund. Accordingly, the Fund may not:
(1) With respect to 75% of its total assets, invest more than 5% of its
total assets in the securities of any one issuer or purchase more than 10% of
the outstanding voting securities of any one issuer, except obligations issued
or guaranteed by the U.S. Government, its agencies or instrumentalities and
except securities of other investment companies;
(2) Borrow money or issue senior securities except as permitted by the
Investment Company Act of 1940;
(3) Purchase securities on margin (but the Fund may obtain such short-term
credits as may be necessary for the clearance of purchases and sales of
securities). The deposit or payment by the Fund of initial, maintenance or
variation margin in connection with all types of options and futures contract
transactions is not considered the purchase of a security on margin;
(4) Underwrite or participate in the marketing of securities of others,
except insofar as it may technically be deemed to be an underwriter in selling a
portfolio security under circumstances which may require the registration of the
same under the Securities Act of 1933;
(5) Make an investment in any one industry if such investment would cause
investments in such industry to exceed 25% of the Fund's total assets (taken at
market value) except that the Fund will concentrate at least 25% of its
investments in utility stocks (i.e., principally electric, gas and telephone
companies);
(6) Purchase or sell real estate (including interests in real estate limited
partnerships), although it may purchase and sell securities which are secured by
real estate and securities of companies which invest or deal in real estate;
(7) Purchase or sell physical commodities or contracts for the purchase or
sale of physical commodities; or (8) Make loans to any person except by (a) the
acquisition of debt securities and making portfolio investments, (b) entering
into repurchase agreements and (c) lending portfolio securities.
Notwithstanding the investment policies and restrictions of the Fund, the
Fund may invest its assets in an open-end management investment company with
substantially the same investment objective, policies and restrictions as the
Fund.
For purposes of investment restriction (5) above, the Fund will not invest
25% or more of its assets in any one industry.
The Portfolio has adopted substantially the same fundamental investment
restrictions as the foregoing numbered investment restrictions adopted by the
Fund; such restrictions cannot be changed without the approval of a "majority of
the outstanding voting securities" of the Portfolio, which as used in this
Statement of Additional Information means the lesser of (a) 67% of the
outstanding voting securities of the Portfolio present or represented by proxy
at a meeting if the holders of more than 50% of the outstanding voting
securities of the Portfolio are present or represented at the meeting or (b)
more than 50% of the outstanding voting securities of the Portfolio. The term
"voting securities" as used in this paragraph has the same meaning as in the
Investment Company Act of 1940 (the "1940 Act"). Whenever the Trust is requested
to vote on a change in the investment restrictions of the Portfolio, the Trust
will hold a meeting of Fund shareholders and will cast its vote as instructed by
the shareholders.
The Fund and the Portfolio have each adopted the following nonfundamental
investment policies which may be changed with respect to the Fund by the
Trustees of the Trust without approval by the Fund's shareholders or may be
changed with respect to the Portfolio by the Trustees of the Portfolio with or
without the approval of the Fund or the Portfolio's other investors. As a matter
of nonfundamental policy, neither the Fund nor the Portfolio may: (a) invest
more than 15% of net assets in investments which are not readily marketable,
including restricted securities and repurchase agreements maturing in more than
seven days. Restricted securities for the purposes of this limitation do not
include securities eligible for resale pursuant to Rule 144A of the Securities
Act of 1933 that the Board of Trustees of the Fund or the Portfolio, or its
delegate, determine to be liquid, based upon the trading markets for the
specific security; (b) purchase warrants if, as a result of such purchase, more
than 5% of the Trust's net assets, taken at current value, would be invested in
warrants (and the value of such warrants which are not listed on the New York or
American Stock Exchange may not exceed 2% of the Trust's net assets); this
policy does not apply to or restrict warrants acquired by the Trust in units or
attached to securities, inasmuch as such warrants are deemed to be without
value; (c) make short sales of securities or maintain a short position, unless
at all times when a short position is open, the Fund owns an equal amount of
such securities or securities convertible into or exchangeable, without payment
of any further consideration, for securities of the same issue as, and equal in
amount to, the securities sold short, and unless no more than 25% of its net
assets (taken at current value) is held as collateral for such sales at any one
time. (It is the present intention of management to make such sales only for the
purpose of deferring realization of gain or loss for Federal income tax
purposes); (d) purchase securities of any issuer which, including predecessors,
has not been in continuous operation for at least three years, except that 5% of
its total assets (taken at market value) may be invested in certain issuers not
in such continuous operation but substantially all of whose assets are (i)
securities of one or more issuers which have had a record of three years'
continuous operation or (ii) assets of an independent division of an issuer
which division has had a record of three years' continuous operation; provided,
however, that exempted from this restriction are U.S. Government securities,
securities of issuers which are rated by at least one nationally recognized
statistical rating organization, municipal obligations and obligations issued or
guaranteed by any foreign government or its agencies or instrumentalities; (e)
purchase or retain in its portfolio any securities issued by an issuer, any of
whose officers, directors, trustees or security holders is an officer or trustee
of the Fund or the Portfolio or is a member, officer, director or trustee of any
investment adviser of the Trust or the Portfolio, if after the purchase of the
securities of such issuer by the Fund or the Portfolio one or more of such
persons owns beneficially more than 1/2 of 1% of the shares or securities or
both (all taken at market value) of such issuer and such persons owning more
than 1/2 of 1% of such shares of securities together own beneficially more than
5% of such shares or securities or both (all taken at market value); (f)
purchase oil, gas or other mineral leases or purchase partnership interests in
oil, gas or other mineral exploration or development programs; and (g) invest
more than 5% of its net assets in the securities of foreign issuers. (For
purposes of restriction (g), U.S. dollar denominated ADRs and GDRs traded on a
U.S. exchange shall not be deemed foreign securities.)
It is contrary to the present policy of the Fund and the Portfolio which may
be changed without shareholder or investor approval, as the case may be, to
purchase any voting security of any electric or gas utility company (as defined
by the Public Utility Holding Company Act of 1935) if as a result it would then
hold more than 5% of the outstanding voting securities of such company.
In order to permit the sale of shares of the Fund in certain states, the
Fund may make commitments more restrictive than the policies described above.
Should the Fund determine that any such commitment is no longer in the best
interests of the Fund and its shareholders, it will revoke the commitment by
terminating sales of its shares in the state(s) involved.
TRUSTEES AND OFFICERS
The Trustees and officers of the Trust and the Portfolio are listed below.
Except as indicated, each individual has held the office shown or other offices
in the same company for the last five years. Unless otherwise noted, the
business address of each Trustee and officer is 24 Federal Street, Boston,
Massachusetts 02110, which is also the address of the Portfolio's investment
adviser, Boston Management and Research ("BMR"), a wholly-owned subsidiary of
Eaton Vance Management ("Eaton Vance"); of Eaton Vance's parent, Eaton Vance
Corp. ("EVC"); and of BMR's and Eaton Vance's trustee, Eaton Vance, Inc. ("EV").
Eaton Vance and EV are both wholly-owned subsidiaries of EVC. Those Trustees who
are "interested persons" of the Trust, the Portfolio, BMR, Eaton Vance, EVC or
EV, as defined in the 1940 Act, by virtue of their affiliation with any one or
more of the Trust, the Portfolio, BMR, Eaton Vance, EVC or EV, are indicated by
an asterisk(*).
TRUSTEES OF THE TRUST AND THE PORTFOLIO
JAMES B. HAWKES (53), President of the Trust, Vice President of the Portfolio
and Trustee*
Executive Vice President of Eaton Vance, BMR, EVC and EV, and a Director of EVC
and EV. Director, Trustee and officer of various investment companies managed
by Eaton Vance or BMR.
M. DOZIER GARDNER (61), President and Trustee of the Portfolio*
President and Chief Executive Officer of BMR, Eaton Vance, EVC and EV, and
Director of EVC and EV. Director, Trustee and officer of various investment
companies managed by Eaton Vance or BMR.
LANDON T. CLAY (69), Vice President and Trustee of the Portfolio*
Chairman of BMR, Eaton Vance, EVC and EV and a Director of EVC and EV. Director,
Trustee and officer of various investment companies managed by Eaton Vance or
BMR.
DONALD R. DWIGHT (64), Trustee
President of Dwight Partners, Inc. (a corporate relations and communications
company) founded in 1988; Chairman of the Board of Newspapers of New England,
Inc., since 1983. Director or Trustee of various investment companies managed
by Eaton Vance or BMR.
Address: Clover Mill Lane, Lyme, New Hampshire 03768
SAMUEL L. HAYES, III (60), Trustee
Jacob H. Schiff Professor of Investment Banking, Harvard University Graduate
School of Business Administration. Director or Trustee of various investment
companies managed by Eaton Vance or BMR.
Address: Harvard University Graduate School of Business Administration, Soldiers
Field Road, Boston, Massachusetts 02163
PETER F. KIELY (58), Vice President and Trustee of the Trust*
Vice President of Eaton Vance, BMR, and EV. Director or Trustee and officer of
various investment companies managed by Eaton Vance or BMR. Mr. Kiely was
elected Trustee and Vice President of the Trust on December 16, 1991.
NORTON H. REAMER (59), Trustee
President and Director, United Asset Management Corporation, a holding company
owning institutional investment management firms. Chairman, President and
Director, The Regis Fund, Inc. (mutual fund). Director or Trustee of various
investment companies managed by Eaton Vance or BMR.
Address: One International Place, Boston, Massachusetts 02110
JOHN L. THORNDIKE (68), Trustee
Director, Fiduciary Company Incorporated. Director or Trustee of various
investment companies managed by Eaton Vance or BMR.
Address: 175 Federal Street, Boston, Massachusetts 02110
JACK L. TREYNOR (65), Trustee
Investment Adviser and Consultant. Director or Trustee of various investment
companies managed by Eaton Vance or BMR.
Address: 504 Via Almar, Palos Verdes Estates, California 90274
OFFICERS OF THE TRUST AND THE PORTFOLIO
EDWIN W. BRAGDON (72), Vice President
Vice President of BMR, Eaton Vance and EV. Officer of various investment
companies managed by Eaton Vance or BMR.
A. WALKER MARTIN (49), Vice President
Vice President of BMR, Eaton Vance and EV. Officer of various investment
companies managed by Eaton Vance or BMR.
JAMES L. O'CONNOR (50), Treasurer
Vice President of BMR, Eaton Vance and EV. Officer of various investment
companies managed by Eaton Vance or BMR.
THOMAS OTIS (63), Secretary
Vice President and Secretary of BMR, Eaton Vance, EVC and EV. Officer of various
investment companies managed by Eaton Vance or BMR.
JANET E. SANDERS (59), Assistant Treasurer and Assistant Secretary
Vice President of BMR, Eaton Vance and EV. Officer of various investment
companies managed by Eaton Vance or BMR.
WILLIAM J. AUSTIN, JR. (43), Assistant Treasurer
Assistant Vice President of BMR, Eaton Vance and EV. Officer of various
investment companies managed by Eaton Vance or BMR. Mr. Austin was elected
Assistant Treasurer of the Trust on June 22, 1992.
A. JOHN MURPHY (32), Assistant Secretary
Assistant Vice President of BMR, Eaton Vance and EV since March 1, 1994;
employee of Eaton Vance since March 1993. Officer of various investment
companies managed by Eaton Vance or BMR. (State Regulations Supervisor, The
Boston Company, 1991-1993 and Registration Specialist, Fidelity Management &
Research Co., 1986-1991.) Mr. Murphy was elected Assistant Secretary of the
Trust and the Portfolio on March 27, 1995.
Messrs. Thorndike (Chairman), Hayes and Reamer are members of the Special
Committee of the Board of Trustees of the Trust and of the Portfolio. The
Special Committee's functions include a continuous review of the Trust's
contractual relationship with the Administrator, the Portfolio's contractual
relationship with the Investment Adviser, making recommendations to the Trustees
regarding the compensation of those Trustees who are not members of the Eaton
Vance organization, and making recommendations to the Trustees regarding
candidates to fill vacancies, as and when they occur, in the ranks of those
Trustees who are not "interested persons" of the Trust, the Portfolio, or the
Eaton Vance organization.
Messrs. Treynor (Chairman) and Dwight are members of the Audit Committee of
the Board of Trustees of the Trust and of the Portfolio. The Audit Committee's
functions include making recommendations to the Trustees regarding the selection
of the independent accountants, and reviewing with such independent accountants
and the Treasurer of the Trust and of the Portfolio matters relative to
accounting and auditing practices and procedures, accounting records, internal
accounting controls, and the functions performed by the custodian and transfer
agent of the Fund and of the Portfolio.
<TABLE>
The fees and expenses of those Trustees of the Trust and the Portfolio who
are not members of the Eaton Vance organization (the noninterested Trustees) are
paid by the Fund and the Portfolio, respectively. (The Trustees who are members
of the Eaton Vance organization receive no compensation from the Fund or the
Portfolio.) During the fiscal year ended December 31, 1994, the noninterested
Trustees of the Trust and the Portfolio earned the following compensation in
their capacities as Trustees from the Fund, the Portfolio and the other funds in
the Eaton Vance fund complex:<F1>
<CAPTION>
AGGREGATE AGGREGATE RETIREMENT TOTAL COMPENSATION
COMPENSATION COMPENSATION BENEFIT ACCRUED FROM TRUST AND
NAME FROM FUND FROM PORTFOLIO FROM FUND COMPLEX FUND COMPLEX
---- ------------ -------------- ----------------- ------------------
<S> <C> <C> <C> <C>
Donald R. Dwight ...... $266 $4,119<F2> $8,750 $135,000
Samuel L. Hayes, III .. 255 4,079<F3> 8,865 142,500
Norton H. Reamer ...... 247 4,002 -- 0 -- 135,000
John L. Thorndike ..... 254 4,140 -- 0 -- 140,000
Jack L. Treynor ....... 268 4,247 -- 0 -- 140,000
---------
<FN>
<F1> The Eaton Vance fund complex consists of 201 registered investment
companies or series thereof.
<F2> Includes $331 of deferred compensation.
<F3> Includes $334 of deferred compensation.
</FN>
</TABLE>
Trustees of the Portfolio who are not affiliated with the Investment Adviser
may elect to defer receipt of all or a percentage of their annual fees in
accordance with the terms of a Trustees Deferred Compensation Plan (the "Plan").
Under the Plan, an eligible Trustee may elect to have his deferred fees invested
by the Portfolio in the shares of one or more funds in the Eaton Vance Family of
Funds, and the amount paid to the Trustees under the Plan will be determined
based upon the performance of such investments. Deferral of Trustees' fees in
accordance with the Plan will have a negligible effect on the Portfolio's
assets, liabilities, and net income per share, and will not obligate the
Portfolio to retain the services of any Trustee or obligate the Portfolio to pay
any particular level of compensation to the Trustee.
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
As at March 31, 1995, the Trustees and officers of the Trust, as a group,
owned in the aggregate less than 1% of the outstanding shares of the Fund. As of
March 31, 1995, Merrill Lynch, Pierce, Fenner & Smith, Inc., New Brunswick, NJ
was the record owner of approximately 37.7% of the outstanding shares, which
were held on behalf of its customers who are beneficial owners of such shares,
and as to which it had voting power under certain limited circumstances. To the
knowledge of the Trust, no other person owned of record or beneficially 5% or
more of the Fund's outstanding shares on such date.
INVESTMENT ADVISER AND ADMINISTRATOR
The Portfolio engages BMR as its investment adviser pursuant to an
Investment Advisory Agreement dated October 28, 1993. BMR or Eaton Vance acts as
investment adviser to investment companies and various individual and
institutional clients with combined assets under management of approximately $15
billion.
Eaton Vance, its affiliates and its predecessor companies have been managing
assets of individuals and institutions since 1924 and managing investment
companies since 1931. They maintain a large staff of experienced fixed-income
and equity investment professionals to service the needs of their clients. The
fixed-income division focuses on all kinds of taxable investment- grade and
high-yield securities, tax-exempt investment-grade and high-yield securities,
and U.S. Government securities. The equity division covers stocks ranging from
blue chip to emerging growth companies.
BMR manages the investments and affairs of the Portfolio subject to the
supervision of the Portfolio's Board of Trustees. BMR furnishes to the Portfolio
investment research, advice and supervision, furnishes an investment program and
determines what securities will be purchased, held or sold by the Portfolio and
what portion, if any, of the Portfolio's assets will be held uninvested. The
Investment Advisory Agreement requires BMR to pay the salaries and fees of all
officers and Trustees of the Portfolio who are members of the BMR organization
and all personnel of BMR performing services relating to research and investment
activities. The Portfolio is responsible for all expenses not expressly stated
to be payable by BMR under the Investment Advisory Agreement, including, without
implied limitation, (i) expenses of maintaining the Portfolio and continuing its
existence, (ii) registration of the Portfolio under the 1940 Act, (iii)
commissions, fees and other expenses connected with the acquisition, holding and
disposition of securities and other investments, (iv) auditing, accounting and
legal expenses, (v) taxes and interest, (vi) governmental fees, (vii) expenses
of issue, sale and redemption of interests in the Portfolio, (viii) expenses of
registering and qualifying the Portfolio and interests in the Portfolio under
Federal and state securities laws and of preparing and printing registration
statements or other offering statements or memoranda for such purposes and for
distributing the same to investors, and fees and expenses of registering and
maintaining registrations of the Portfolio and of the Portfolio's placement
agent as broker-dealer or agent under state securities laws, (ix) expenses of
reports and notices to investors and of meetings of investors and proxy
solicitations therefor, (x) expenses of reports to governmental officers and
commissions, (xi) insurance expenses, (xii) association membership dues, (xiii)
fees, expenses and disbursements of custodians and subcustodians for all
services to the Portfolio (including without limitation safekeeping of funds,
securities and other investments, keeping of books, accounts and records, and
determination of net asset values, book capital account balances and tax capital
account balances), (xiv) fees, expenses and disbursements of transfer agents,
dividend disbursing agents, investor servicing agents and registrars for all
services to the Portfolio, (xv) expenses for servicing the accounts of
investors, (xvi) any direct charges to investors approved by the Trustees of the
Portfolio, (xvii) compensation and expenses of Trustees of the Portfolio who are
not members of BMR's organization, and (xviii) such non-recurring items as may
arise, including expenses incurred in connection with litigation, proceedings
and claims and the obligation of the Portfolio to indemnify its Trustees,
officers and investors with respect thereto.
Under the Investment Advisory Agreement with the Portfolio, BMR receives a
monthly advisory fee of .0625% (equivalent to .75% annually) of the average
daily net assets of the Portfolio up to $500 million. On net assets of $500
million and above the annual fee is reduced as follows:
AVERAGE DAILY NET ANNUALIZED FEE RATE
ASSETS FOR THE MONTH (FOR EACH LEVEL)
-------------------- -------------------
$500 million but less than $1 billion ....................... 0.6875%
$1 billion but less than $1.5 billion ....................... 0.6250%
$1.5 billion but less than $2 billion ....................... 0.5625%
$2 billion but less than $3 billion ......................... 0.5000%
$3 billion and over ......................................... 0.4375%
As at December 31, 1994, the Portfolio had net assets of $505,566,892. For
the fiscal year ended December 31, 1994, the Portfolio paid BMR advisory fees of
$4,106,857 (equivalent to 0.74% of the Portfolio's average daily net assets for
such year). For the period from the Portfolio's start of business, October 28,
1993, to the fiscal year ended December 31, 1993, the Portfolio paid BMR
advisory fees of $841,228 (equivalent to 0.74% (annualized) of the Portfolio's
average daily net assets for such period).
Prior to the close of business on September 30, 1994 (when the Fund
transferred its assets to the Portfolio in exchange for an interest in the
Portfolio), the Fund retained Eaton Vance as its investment adviser. As at
September 30, 1994, the Fund had net assets of $30,126,226. For the fiscal year
ended September 30, 1994, the Fund paid Eaton Vance advisory fees of $294,607
(equivalent to 0.75% of the Fund's average daily net assets for such year). The
Fund paid Eaton Vance advisory fees of $360,036 and $394,943, respectively, for
the fiscal years ended September 30, 1993 and September 30, 1992.
The Investment Advisory Agreement with BMR remains in effect until February
28, 1996. It may be continued indefinitely thereafter so long as such
continuance after February 28, 1996 is approved at least annually (i) by the
vote of a majority of the Trustees of the Portfolio who are not interested
persons of the Portfolio or of BMR cast in person at a meeting specifically
called for the purpose of voting on such approval and (ii) by the Board of
Trustees of the Portfolio or by vote of a majority of the outstanding voting
securities of the Portfolio. The Agreement may be terminated at any time without
penalty on sixty (60) days' written notice by the Board of Trustees of either
party, or by vote of the majority of the outstanding voting securities of the
Portfolio, and the Agreement will terminate automatically in the event of its
assignment. The Agreement provides that BMR may render services to others and
engage in other business activities and may permit other fund clients and other
corporations and organizations to use the words "Eaton Vance" or "Boston
Management and Research" in their names. The Agreement also provides that BMR
shall not be liable for any loss incurred in connection with the performance of
its duties, or action taken or omitted under that Agreement, in the absence of
willful misfeasance, bad faith, gross negligence in the performance of its
duties or by reason of its reckless disregard of its obligations and duties
thereunder, or for any losses sustained in the acquisition, holding or
disposition of any security or other investment.
As indicated in the Prospectus, Eaton Vance serves as Administrator of the
Fund, but receives no compensation for providing administrative services to the
Fund. Under its Administrative Services Agreement with the Fund, Eaton Vance has
been engaged to administer the Fund's affairs, subject to the supervision of the
Trustees of the Trust, and shall furnish for the use of the Fund office space
and all necessary office facilities, equipment and personnel for administering
the affairs of the Fund.
The Fund pays all of its own expenses including, without limitation, (i)
expenses of maintaining the Fund and continuing its existence, (ii) registration
of the Trust under the 1940 Act, (iii) commissions, fees and other expenses
connected with the purchase or sale of securities and other investments, (iv)
auditing, accounting and legal expenses, (v) taxes and interest, (vi)
governmental fees, (vii) expenses of issue, sale, repurchase and redemption of
shares, (viii) expenses of registering and qualifying the Fund and its shares
under federal and state securities laws and of preparing and printing
prospectuses for such purposes and for distributing the same to shareholders and
investors, and fees and expenses of registering and maintaining registrations of
the Fund and of the Fund's principal underwriter, if any, as broker-dealer or
agent under state securities laws, (ix) expenses of reports and notices to
shareholders and of meetings of shareholders and proxy solicitations therefor,
(x) expenses of reports to governmental officers and commissions, (xi) insurance
expenses, (xii) association membership dues, (xiii) fees, expenses and
disbursements of custodians and subcustodians for all services to the Fund
(including without limitation safekeeping of funds, securities and other
investments, keeping of books and accounts and determination of net asset
values), (xiv) fees, expenses and disbursements of transfer agents, dividend
disbursing agents, shareholder servicing agents and registrars for all services
to the Fund, (xv) expenses for servicing shareholder accounts, (xvi) any direct
charges to shareholders approved by the Trustees of the Trust, (xvii)
compensation and expenses of Trustees of the Trust who are not members of the
Eaton Vance organization, and (xviii) such non-recurring items as may arise,
including expenses incurred in connection with litigation, proceedings and
claims and the obligation of the Trust to indemnify its Trustees and officers
with respect thereto.
BMR is a wholly-owned subsidiary of Eaton Vance. Eaton Vance and EV are both
wholly-owned subsidiaries of EVC. BMR and Eaton Vance are both Massachusetts
business trusts, and EV is the trustee of BMR and Eaton Vance. The Directors of
EV are Landon T. Clay, H. Day Brigham, Jr., M. Dozier Gardner, James B. Hawkes
and Benjamin A. Rowland, Jr. The Directors of EVC consist of the same persons
and John G. L. Cabot and Ralph Z. Sorenson. Mr. Clay is chairman and Mr. Gardner
is president and chief executive officer of EVC, BMR, Eaton Vance and EV. All of
the issued and outstanding shares of Eaton Vance and EV are owned by EVC. All of
the issued and outstanding shares of BMR are owned by Eaton Vance. All shares of
the outstanding Voting Common Stock of EVC are deposited in a Voting Trust which
expires on December 31, 1996, the Voting Trustees of which are Messrs. Clay,
Brigham, Gardner, Hawkes and Rowland. The Voting Trustees have unrestricted
voting rights for the election of Directors of EVC. All of the outstanding
voting trust receipts issued under said Voting Trust are owned by certain of the
officers of BMR and Eaton Vance who are also officers and Directors of EVC and
EV. As of March 31, 1995, Messrs. Clay, Gardner and Hawkes each owned 24% of
such voting trust receipts, and Messrs. Rowland and Brigham owned 15% and 13%,
respectively, of such voting trust receipts. Messrs. Clay, Gardner, Hawkes and
Otis are officers or Trustees of the Trust and/or the Portfolio and are members
of the EVC, BMR, Eaton Vance and EV organizations. Messrs. Austin, Bragdon,
Kiely, Martin, Murphy and O'Connor and Ms. Sanders are officers or Trustees of
the Trust and the Portfolio and are also members of the BMR, Eaton Vance and EV
organizations. BMR will receive the fees paid under the Investment Advisory
Agreement.
Eaton Vance owns all of the stock of Energex Corporation, which is engaged
in oil and gas operations. EVC owns all of the stock of Marblehead Energy Corp.
(which engages in oil and gas operations) and owns 77.3% of the stock of
Investors Bank & Trust Company, custodian of the Fund and the Portfolio, which
provides custodial, trustee and other fiduciary services to investors, including
individuals, employee benefit plans, corporations, investment companies, savings
banks and other institutions. In addition, Eaton Vance owns all the stock of
Northeast Properties, Inc., which is engaged in real estate investment,
consulting and management. EVC owns all the stock of Fulcrum Management, Inc.
and MinVen, Inc., which are engaged in the development of precious metal
properties. EVC, BMR, Eaton Vance and EV may also enter into other businesses.
EVC and its affiliates and their officers and employees from time to time
have transactions with various banks, including the custodian of the Fund and
the Portfolio, Investors Bank & Trust Company. It is Eaton Vance's opinion that
the terms and conditions of such transactions were not and will not be
influenced by existing or potential custodial or other relationships between the
Trust or the Portfolio and such banks.
CUSTODIAN
Investors Bank & Trust Company ("IBT"), 24 Federal Street, Boston,
Massachusetts (a 77.3% owned subsidiary of EVC) acts as custodian for the Fund
and the Portfolio. IBT has the custody of all cash and securities representing
the Fund's interest in the Portfolio, has custody of all the Portfolio's assets,
maintains the general ledger of the Portfolio and the Fund and computes the
daily net asset value of interests in the Portfolio and the net asset value of
shares of the Fund. In such capacity it attends to details in connection with
the sale, exchange, substitution, transfer or other dealings with the
Portfolio's investments, receives and disburses all funds and performs various
other ministerial duties upon receipt of proper instructions from the Fund and
the Portfolio. IBT charges fees which are competitive within the industry. A
portion of the fee relates to custody, bookkeeping and valuation services and is
based upon a percentage of Fund and Portfolio net assets, and a portion of the
fee relates to activity charges, primarily the number of portfolio transactions.
These fees are then reduced by a credit for cash balances of the particular
investment company at the custodian equal to 75% of the 91-day, U.S. Treasury
Bill auction rate applied to the particular investment company's average daily
collected balances for the week. In view of the ownership of EVC in IBT, the
Portfolio is treated as a self-custodian pursuant to Rule 17f-2 under the 1940
Act, and the Portfolio's investments held by IBT as custodian are thus subject
to additional examinations by the Portfolio's independent accountants as called
for by such Rule. For the fiscal year ended September 30, 1994, and for the
period from October 1, 1994 to December 31, 1994, the Fund paid IBT $31,599 and
$2,121, respectively, for its services as custodian. For the fiscal year ended
December 31, 1994, the Portfolio paid IBT $159,872.
INDEPENDENT ACCOUNTANTS
Coopers & Lybrand L.L.P., One Post Office Square, Boston, Massachusetts are
the independent accountants of the Fund and the Portfolio, providing audit
services, tax return preparation, and assistance and consultation with respect
to the preparation of filings with the Securities and Exchange Commission.
SERVICE FOR WITHDRAWAL
By a standard agreement, the Fund's Transfer Agent will send to the
shareholder regular monthly or quarterly payments of any permitted amount
designated by the shareholder (see "Eaton Vance Shareholder Services --
Withdrawal Plan" in the Fund's prospectus) based upon the value of the shares
held. The checks will be drawn from share redemptions and hence are a return of
principal and may give rise to gain or loss for tax purposes. Income dividend
and capital gains distributions in connection with withdrawal accounts will be
credited at net asset value as of the record date for each distribution.
Continued withdrawals in excess of current income will eventually use up
principal, particularly in a period of declining market prices.
To use this service, at least $5,000 in cash or shares at the public
offering price (i.e., net asset value plus the applicable sales charge) will
have to be deposited with the Transfer Agent. A shareholder may not have a
withdrawal plan in effect at the same time he or she has authorized Bank
Automated Investing or is otherwise making regular purchases of Fund shares.
Either the shareholder, the Transfer Agent or the Principal Underwriter will be
able to terminate the withdrawal plan at any time without penalty.
DETERMINATION OF NET ASSET VALUE
The net asset value of the Portfolio and of shares of the Fund is
determined by the custodian, IBT (as agent for the Fund and the Portfolio) in
the manner described under "How the Fund and the Portfolio Determine their Net
Asset Values" in the Fund's current prospectus. The Fund and the Portfolio will
be closed for business and will not price their respective shares or interests
on the following business holidays: New Year's Day, Presidents' Day, Good Friday
(a New York Stock Exchange holiday), Memorial Day, Independence Day, Labor Day,
Thanksgiving Day and Christmas Day.
Securities listed on securities exchanges or in the NASDAQ National Market
are valued at closing sales prices. Unlisted or listed securities for which
closing sales prices are not available are valued at the mean between the latest
available bid and asked prices. An option or futures contract is valued at the
last sale price, as quoted on the principal exchange or board of trade on which
such option or futures contract is traded or, in the absence of a sale, at the
mean between the last bid and asked prices. Short-term obligations maturing in
sixty days or less are valued at amortized cost, which is believed to represent
fair value. Securities for which market quotations are unavailable, including
any security the disposition of which is restricted under the Securities Act of
1933, and other assets will be appraised at their fair value as determined in
good faith by or at the direction of the Trustees of the Portfolio.
Each investor in the Portfolio, including the Fund, may add to or reduce its
investment in the Portfolio on each day the New York Stock Exchange (the
"Exchange") is open for trading ("Portfolio Business Day") as of the close of
regular trading on the Exchange (the "Portfolio Valuation Time"). The value of
each investor's interest in the Portfolio will be determined by multiplying the
net asset value of the Portfolio by the percentage, determined on the prior
Portfolio Business Day, which represented that investor's share of the aggregate
interests in the Portfolio on such prior day. Any additions or withdrawals for
the current Portfolio Business Day will then be recorded. Each investor's
percentage of the aggregate interest in the Portfolio will then be recomputed as
a percentage equal to a fraction (i) the numerator of which is the value of such
investor's investment in the Portfolio as of the Portfolio Valuation Time on the
prior Portfolio Business Day plus or minus, as the case may be, the amount of
any additions to or withdrawals from the investor's investment in the Portfolio
on the current Portfolio Business Day and (ii) the denominator of which is the
aggregate net asset value of the Portfolio as of the Portfolio Valuation Time on
the prior Portfolio Business Day plus or minus, as the case may be, the amount
of the net additions to or withdrawals from the aggregate investment in the
Portfolio on the current Portfolio Business Day by all investors in the
Portfolio. The percentage so determined will then be applied to determine the
value of the investor's interest in the Portfolio for the current Portfolio
Business Day.
PURCHASE AND REDEMPTION OF SHARES
For information regarding the purchase of shares, see "How to Buy Shares of
the Fund for Cash" and "How to Acquire Fund Shares in Exchange for Securities"
in the Fund's current prospectus.
For a description of how a shareholder may have the Fund redeem his or her
shares, or how a shareholder may sell his or her shares through an Authorized
Firm, see "How to Redeem or Sell Fund Shares" in the Fund's current prospectus.
See the Statement of Assets and Liabilities in the Fund's Financial
Statements for a specimen price mark-up sheet showing the computation of maximum
offering price per share as at December 31, 1994.
INVESTMENT PERFORMANCE
The average annual total return is determined by multiplying a hypothetical
initial purchase order of $1,000 by the average annual compound rate of return
(including capital appreciation/depreciation, and dividends and distributions
paid and reinvested) for the stated period and annualizing the result. The
calculation assumes that all dividends and distributions are reinvested at net
asset value on the reinvestment dates during the period and a complete
redemption of the investment and, if applicable, the deduction of the maximum
contingent deferred sales charge at the end of the period.
The Fund's yield is computed pursuant to a standardized formula by dividing
its net investment income per share earned during a recent thirty-day period by
the maximum offering price (net asset value) per share on the last day of the
period and annualizing the resulting figure. Net investment income per share is
calculated using a standardized formula the income component of which is
computed from dividends on equity securities held by the Portfolio based on the
stated annual dividend rates of such securities, exclusive of special or extra
distributions (with all purchases and sales of securities during such period
included in the income calculation on a settlement date basis), and from the
income earned on short-term debt instruments held by the Portfolio, and such
income is then reduced by accrued Fund expenses for the period, with the
resulting number being divided by the average daily number of Fund shares
outstanding and entitled to receive dividends during the period. The yield
figure does not reflect the deduction of any contingent deferred sales charges
which are imposed upon certain redemptions at the rates set forth under "How to
Redeem or Sell Fund Shares" in the prospectus. For the thirty-day period ended
December 31, 1994, the yield of the Fund was 3.24%.
The Fund may publish its distribution rate and/or its effective distribution
rate. The Fund's distribution rate is computed by dividing the most recent
monthly distribution per share annualized, by the current net asset value per
share. The Fund's effective distribution rate is computed by dividing the
distribution rate by 12 and reinvesting the resulting amount for a full year on
a monthly basis. The effective distribution rate will be higher than the
distribution rate because of the compounding effect of the assumed reinvestment.
Investors should note that the Fund's yield is calculated using a standardized
formula the income component of which is computed from dividends on equity
securities and from the income earned on short-term debt instruments held by the
Portfolio, whereas the distribution rate is based on the Fund's last monthly
distribution. Monthly distributions tend to be relatively stable and may be more
or less than the amount of net investment income and short-term capital gain
actually earned by the Fund during the quarter. The Fund's distribution rate
(calculated on December 31, 1994 and based on the Fund's quarterly distribution
paid December 31, 1994) was 3.56%, and the Fund's effective distribution rate
(calculated on the same date and based on the same quarterly distribution) was
3.61%.
The table below indicates the total return (capital changes plus
reinvestment of all distributions) on a hypothetical investment of $1,000 in the
Fund covering the life of the Fund from October 21, 1987 through December 31,
1994, and for the five-year and the one-year periods ended December 31, 1994.
VALUE OF A $1,000 INVESTMENT
<TABLE>
<CAPTION>
VALUE OF INVEST- VALUE OF INVEST- TOTAL RETURN
MENT BEFORE DE- MENT AFTER DE- TOTAL RETURN BEFORE AFTER DEDUCTING
DUCTING THE CON- DUCTING THE CON- DEDUCTING THE CONTINGENT THE CONTINGENT DEFERRED
TINGENT DEFERRED TINGENT DEFERRED DEFERRED SALES CHARGE SALES CHARGE**
INVESTMENT INVESTMENT AMOUNT OF SALES CHARGE SALES CHARGE<F2> --------------------------------------------------
PERIOD DATE INVESTMENT 12/31/94 12/31/94 CUMULATIVE ANNUALIZED CUMULATIVE ANNUALIZED
---------- ---------- ---------- ---------------- ---------------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Life of the Fund* 10/21/87 $1,000 $ 1,464.25 $ 1,464.25 46.43% 5.44% 46.43% 5.44%
5 Years Ended
12/31/94 2/31/89 $1,000 $ 1,078.13 $ 1,060.79 7.81% 1.52% 6.08% 1.19%
1 Year Ended
12/31/94 12/31/93 $1,000 $ 934.16 $ 889.15 - 6.58% -6.58% -11.09% -11.09%
</TABLE>
<TABLE>
PERCENTAGE CHANGES 10/21/87--12/31/94
<CAPTION>
NET ASSET VALUE TO NET ASSET VALUE NET ASSET VALUE TO NET ASSET VALUE
BEFORE DEDUCTING THE CONTINGENT DEFERRED SALES AFTER DEDUCTING THE CONTINGENT DEFERRED SALES
CHARGE WITH WITH ALL DISTRIBUTIONS REINVESTED** CHARGE WITH ALL DISTRIBUTIONS REINVESTED
FISCAL YEAR ----------------------------------------------- ------------------------------------------------
ENDED ANNUAL CUMULATIVE AVERAGE ANNUAL ANNUAL CUMULATIVE AVERAGE ANNUAL
----------- ------ ---------- -------------- ------ ---------- --------------
<S> <C> <C> <C> <C> <C> <C>
12/31/87<F1> -- 0.13% -- -- -4.84% --
12/31/88 4.94% 5.08% 4.22% - 0.00% 0.17% 0.14%
12/31/89 29.25% 35.81% 14.95% 24.25% 31.81% 13.39%
12/31/90 -4.79% 29.31% 8.37% -9.30% 26.31% 7.58%
12/31/91 11.80% 44.57% 9.18% 6.80% 42.57% 8.82%
12/31/92 1.03% 46.05% 7.56% -3.81% 45.05% 7.41%
12/31/93 7.32% 56.75% 7.52% 2.32% 56.75% 7.52%
12/31/94 -6.58% 46.43% 5.44% -11.09% 46.43% 5.44%
This was a period of fluctuating prices and interest rates; the above tables
should not be considered a representation of the future performance of the Fund.
<FN>
----------
<F1> Investment operations began on October 21, 1987
<F2> No contingent deferred sales charge is imposed on shares purchased more
than six years prior to the redemption, shares acquired through the
reinvestment of dividends and distributions, or any appreciation in value
of other shares in the account, and no such charge is imposed on exchanges
of Fund shares for shares of one or more other funds listed under "The
Eaton Vance Exchange Privilege" in the Prospectus.
</TABLE>
Some of the expenses related to the operation of the Fund during this period
were allocated to Eaton Vance Management, which increased total return/ yield.
The Fund's total return and yield may be compared to the Consumer Price
Index and various domestic securities indices, for example: Standard & Poor's
Utilities Index, Standard & Poor's 400 Stock Index, Standard & Poor's 500 Stock
Index. Standard & Poor's Telephone Index, Standard & Poor's Natural Gas Index,
Standard & Poor's Electric Companies Index, Merrill Lynch U.S. Treasury (15-year
plus) Index, Lehman Brothers Government/Corporate Bond Index, Dow Jones 15
Utility Average, and the Dow Jones Industrial Average. The Fund's total return,
yield and comparisons with these indices may be used in advertisements and in
information furnished to present or prospective shareholders. The Fund's
performance may differ from that of other investors in the Portfolio, including
any other investment companies.
Information used in advertisements and in materials furnished to present or
prospective shareholders may include statistics, data and performance studies
prepared by independent organizations, (e.g. Ibbotson Associates, Standard &
Poor's Ratings Group, Merrill Lynch, Pierce, Fenner & Smith, Inc., Bloomberg,
L.P., Dow Jones & Company, Inc., and The Federal Reserve Board) or included in
various publications (e.g. The Wall Street Journal, Barron's and The Decade:
Wealth of Investments in U.S. Stocks, Bonds, Bills & Inflation) reflecting the
investment performance or return achieved by various classes and types of
investments (e.g. common stocks, small company stocks, long-term corporate
bonds, long-term government bonds, intermediate-term government bonds, U.S.
Treasury bills) over various periods of time. This information may be used to
illustrate the benefits of long-term investments in common stocks.
From time to time, evaluations of the Fund's performance made by independent
sources, e.g., Lipper Analytical Srvices, Inc., CDA/Wiesenberger and
Morningstar, Inc., may be used in advertisements and in informatin furnished to
present and prospective shareholders, may be used in advertisements and in
information furnished to present or prospective
shareholders.
From time to time, information showing the effect of compounding interest
may be included in advertisements and other material furnished to present and
prospective shareholders. Compounding is the process of earning income on
principal plus interest that was earned earlier. Interest can be compounded
annually, semi-annually, quarterly or daily, e.g. $1,000 compounded annually at
9% will grow to $1,090 at the end of the first year and $1,188 at the end of the
second year. The extra $8, which was earned on the $90 income from the first
year, is the compound interest. $1,000 compounded annually at 9% grows to $2,367
at the end of 10 years and $5,604 at the end of 20 years. Other examples of
compounding $1,000 annually are 7% grows to $1,967 at the end of 10 years and
$3,870 at the end of 20 years. At 12% the $1,000 grows to $3,106 at the end of
10 years and $9,646 at the end of 20 years. All of these examples are for
illustrative purposes only and are not meant to indicate performance of the
Fund.
From time to time, information, charts and illustrations relating to
inflation and the effects of inflation on the dollar may be included in
advertisements and other material furnished to present and prospective
shareholders. For example: After 10 years, the purchasing power of $25,000 would
shrink to $16,621, $14,968, $13,465 and $12,100, respectively, if the annual
rate of inflation during such period were 4%, 5%, 6% and 7%, respectively. (To
calculate the purchasing power, the value at the end of each year is reduced by
the above inflation rates for 10 consecutive years.)
From time to time, information about the portfolio allocation and holdings
of the Portfolio may be included in advertisements and other material furnished
to present and prospective shareholders.
The Portfolio's portfolio allocation on March 31, 1995 was:
PERCENT OF NET ASSETS
---------------------
Common Stock ........................................ 82.99%
Electric Utilities ........................ 54.55%
Telephone Utilities ....................... 8.38
Natural Gas ............................... 0.55
Oil ....................................... 5.24
REITs ..................................... 14.12
Other ..................................... 0.15
Convertible Preferred ............................... 2.68
Convertible Bonds ................................... 3.51
Cash and Commercial Paper ........................... 10.82
------
Total ........................................... 100.00%
The Portfolio's 10 largest common stock holdings on March 31, 1995, were:
COMPANY PERCENT OF NET ASSETS
------- ---------------------
Cinergy ............................................. 4.5%
FPL Group ........................................... 4.4
DPL Inc. ............................................ 4.0
Carolina Power & Light .............................. 3.3
DQE ................................................. 2.7
Nipsco Industries ................................... 2.5
Ameritech ........................................... 2.5
Central Louisiana Electric .......................... 2.5
Southern Company .................................... 2.5
Central Pacific & Southwest ......................... 2.4
----
Total ........................................... 31.3%
Information used in advertisements and in materials furnished to present and
prospective shareholders may include statements or illustrations relating to the
appropriateness of types of securities and/or mutual funds which may be employed
to meet specific financial goals, such as (1) funding retirement, (2) paying for
children's education, and (3) financially supporting aging parents. These three
financial goals may be referred to in such advertisements or materials as the
"Triple Squeeze."
TAXES
See "Distributions and Taxes" in the Fund's current prospectus.
The Fund has elected to be treated, has qualified and intends to continue to
qualify each year, as a regulated investment company ("RIC") under the Internal
Revenue Code ("the Code"). Accordingly, the Fund intends to satisfy certain
requirements relating to sources of its income and diversification of its assets
and to distribute all of its net investment income and net realized capital
gains in accordance with the timing requirements imposed by the Code, so as to
avoid any Federal income or excise tax on the Fund. The Fund so qualified for
the fiscal year ended September 30, 1994, and for the period from October 31,
1994 to December 31, 1994 (see the Notes to Financial Statements). Because the
Fund invests its assets in the Portfolio, the Portfolio normally must satisfy
the applicable source of income and diversification requirements in order for
the Fund to satisfy them. The Portfolio will allocate at least annually among
its investors, including the Fund, the Portfolio's net investment income, net
realized capital gains, and any other items of income, gain, loss, deduction or
credit. The Portfolio will make allocations to the Fund in accordance with the
Code and applicable regulations and will make moneys available for withdrawal at
appropriate times and in sufficient amounts to enable the Fund to satisfy the
tax distribution requirements that apply to the Fund and that must be satisfied
in order to avoid Federal income and/or excise tax on the Fund. For purposes of
applying the requirements of the Code regarding qualification as a RIC, the Fund
will be deemed (i) to own its proportionate share of each of the assets of the
Portfolio and (ii) to be entitled to the gross income of the Portfolio
attributable to such share.
In order to avoid Federal excise tax, the Code requires that the Fund
distribute (or be deemed to have distributed) by December 31 of each calendar
year at least 98% of its ordinary income (not including tax-exempt income) for
such year, at least 98% of the excess of its realized capital gains over its
realized capital losses, generally computed on the basis of the one-year period
ending on October 31 of such year or, by election, December 31 of such year,
after reduction by any available capital loss carryforwards, and 100% of any
income or capital gain from the prior year (as previously computed) that was not
paid out during such year and on which the Fund paid no Federal income tax.
As of the close of business, September 30, 1994, the Fund contributed its
assets to the Portfolio in exchange for an interest in the Portfolio. The Trust
has obtained an opinion of tax counsel to the effect that, although there is no
judicial authority directly on point, this contribution will not result in the
recognition of gain or loss by the Fund for Federal income tax purposes. The
Trust intends to file the Fund's Federal income tax return for its taxable year
ended December 31, 1994 reporting such contribution of assets in a manner
consistent with such opinion. If it were determined that this contribution by
the Fund was a taxable transaction, the Fund could be required to recognize gain
on the transfer of its assets to the Portfolio and to make additional
distributions to its shareholders in order to avoid Fund-level Federal income
taxes, and any such distributions would be taxable to the shareholders who
receive them; and in such case, the Fund might also be required to pay penalties
and/or interest to the Internal Revenue Service.
Distributions of net investment income and the excess of net short-term
capital gain over net long-term capital loss and certain foreign exchange gains
earned by the Portfolio and allocated to the Fund are taxable to shareholders of
the Fund as ordinary income whether received in cash or reinvested in additional
shares. Distributions of the excess of net long-term capital gain over net
short-term capital loss (including any capital loss carried forward from prior
years) earned by the Portfolio and allocated to the Fund are taxable to
shareholders of the Fund as long-term capital gains, whether received in cash or
reinvested in additional shares, and regardless of the length of time their
shares have been held.
Distributions by the Fund reduce the net asset value of the Fund's shares.
Should a distribution reduce the net asset value below a shareholder's cost
basis, such distribution would be taxable to the shareholder even though, from
an investment standpoint, it may constitute a return of capital. Therefore,
investors should consider the tax implications of buying shares immediately
before a distribution.
A portion of distributions made by the Fund which are derived from dividends
received by the Portfolio from domestic corporations and allocated to the Fund
may qualify for the dividends-received deduction for corporations. The
dividends-received deduction for corporate shareholders is reduced to the extent
the shares of the Fund with respect to which the dividends are received are
treated as debt-financed under the Federal income tax law and is eliminated if
the shares are deemed to have been held for less than a minimum period,
generally 46 days. Receipt of certain distributions qualifying for the deduction
may result in reduction of the tax basis of the corporate shareholder's shares.
Distributions eligible for the dividends-received deduction may give rise to or
increase an alternative minimum tax for corporations.
Any loss realized upon the redemption or exchange of shares of the Fund with
a tax holding period of 6 months or less will be treated as a long-term capital
loss to the extent of any distribution of net long-term capital gains with
respect to such shares. In addition, all or a portion of a loss realized on a
redemption or other disposition of Fund shares may be disallowed under certain
"wash sale" rules if other shares of the Fund are acquired within a period
beginning 30 days before and ending 30 days after the date of such redemption or
other disposition. Any disallowed loss will result in an adjustment to the
shareholder's tax basis in some or all of the other shares acquired.
The Portfolio's transactions in options and futures contracts will be
subject to special tax rules that may affect the amount, timing and character of
Fund distributions to shareholders. For example, certain positions held by the
Portfolio on the last business day of each taxable year will be marked to market
(i.e., treated as if closed out on such day), and any resulting gain or loss
will generally be treated as 60% long-term and 40% short-term capital gain or
loss. Certain positions held by the Portfolio that substantially diminish the
Portfolio's risk of loss with respect to other positions in its portfolio may
constitute "straddles," which are subject to tax rules that may cause deferral
of Portfolio losses, adjustments in the holding period of Portfolio securities
and conversion of short-term into long-term capital losses. The Portfolio may
have to limit its activities in options and futures contracts in order to enable
the Fund to maintain its qualification as a RIC.
The Portfolio may be subject to foreign withholding or other foreign taxes
with respect to income (possibly including, in some cases, capital gains) on
certain foreign securities. As it is not expected that more than 50% of the
value of the Fund's total assets, taking into account its allocable share of the
Portfolio's total assets at the close of any taxable year of the Fund, will
consist of securities issued by foreign corporations, the Fund will not be
eligible to pass through to shareholders their proportionate share of foreign
taxes paid by the Portfolio and allocated to the Fund, with the result that
shareholders will not include in income, and will not be entitled to take any
foreign tax credits or deductions for, foreign taxes paid by the Portfolio and
allocated to the Fund. However, the Fund may deduct such taxes in calculating
its distributable income earned by the Portfolio and allocated to the Fund.
These taxes may be reduced or eliminated under the terms of an applicable U.S.
income tax treaty. Certain foreign exchange gains and losses realized by the
Portfolio and allocated to the Fund will be treated as ordinary income and
losses. Certain uses of foreign currency and investment by the Portfolio in the
stock of certain "passive foreign investment companies" may be limited or a tax
election may be made, if available, in order to preserve the Fund's
qualification as a RIC and/or avoid imposition of a tax on the Fund.
Special tax rules apply to Individual Retirement Accounts ("IRAs") and to
other retirement plans, and persons investing through such plans should consult
their tax advisers for more information.
Amounts paid by the Fund to individuals and certain other shareholders who
have not provided the Fund with their correct taxpayer identification number and
certain required certifications, as well as shareholders with respect to whom
the Fund has received notification from the Internal Revenue Service or a
broker, may be subject to "backup" withholding of Federal income tax from the
Fund's dividends and distributions and the proceeds of redemptions (including
repurchases and exchanges), at a rate of 31%. An individual's taxpayer
identification number is generally his or her social security number.
Non-resident alien individuals and certain foreign corporations and other
foreign entities generally will be subject to a U.S. withholding tax at a rate
of 30% on the Fund's distributions from its ordinary income and the excess of
its net short-term capital gain over its net long-term capital loss, unless the
tax is reduced or eliminated by an applicable tax treaty. Distributions from the
excess of the Fund's net long-term capital gain over its net short-term capital
loss received by such shareholders and any gain from the sale or other
disposition of shares of the Fund generally will not be subject to U.S. Federal
income taxation, provided that non-resident alien status has been certified by
the shareholder. Different U.S. tax consequences may result if the shareholder
is engaged in a trade or business in the United States, is present in the United
States for a sufficient period of time during a taxable year to be treated as a
U.S. resident, or fails to provide any required certifications regarding status
as a non-resident alien investor. Foreign shareholders should consult their tax
advisers regarding the U.S. and foreign tax consequences of an investment in the
Fund.
The foregoing discussion does not address the special tax rules applicable
to certain classes of investors, such as retirement plans, tax-exempt entities,
insurance companies and financial institutions. Shareholders should consult
their own tax advisers with respect to special tax rules that may apply in their
particular situations, as well as the state, local or foreign tax consequences
of investing in the Fund.
PRINCIPAL UNDERWRITER
Under the Distribution Agreement the Principal Underwriter acts as principal
in selling shares of the Fund. The expenses of printing copies of prospectuses
used to offer shares to financial service firms or investors and other selling
literature and of advertising is borne by the Principal Underwriter. The fees
and expenses of qualifying and registering and maintaining qualifications and
registrations of the Fund and its shares under Federal and state securities laws
is borne by the Fund. In addition, the Fund makes payments to the Principal
Underwriter pursuant to its Distribution Plan as described in the Fund's current
prospectus; the provisions of the plan relating to such payments are included in
the Distribution Agreement. The Distribution Agreement is renewable annually by
the Trust's Board of Trustees (including a majority of its Trustees who are not
interested persons of the Trust and who have no direct or indirect financial
interest in the operation of the Fund's Distribution Plan or the Distribution
Agreement), may be terminated on sixty days' notice either by such Trustees or
by vote of a majority of the outstanding voting securities of the Fund or on six
months' notice by the Principal Underwriter and is automatically terminated upon
assignment. The Principal Underwriter distributes Fund shares on a "best
efforts" basis under which it is required to take and pay for only such shares
as may be sold.
The Fund has authorized the Principal Underwriter to act as agent in
repurchasing shares and paid the Principal Underwriter $1,945 for the period
ended December 31, 1994 (being $2.50 for each repurchase transaction handled by
the Principal Underwriter). The Principal Underwriter estimates that the
expenses incurred by it in acting as repurchase agent for the Fund will exceed
the amounts paid therefor by the Fund.
DISTRIBUTION PLAN
The Distribution Plan (the "Plan") is described in the prospectus and is
designed to meet the requirements of Rule 12b-1 under the 1940 Act and the sales
charge rule of the National Association of Securities Dealers, Inc. (the "NASD
Rule"). The purpose of the Plan is to compensate the Principal Underwriter for
its distribution services and facilities provided to the Fund by paying the
Principal Underwriter sales commissions and a separate distribution fee in
connection with sales of Fund shares. The following supplements the discussion
of the Plan contained in the Fund's prospectus.
The amount payable by the Fund to the Principal Underwriter pursuant to the
Plan as sales commissions and distribution fees with respect to each day will be
accrued on such day as a liability of the Fund and will accordingly reduce the
Fund's net assets upon such accrual, all in accordance with generally accepted
accounting principles. The amount payable on each day is limited to 1/365 of
.75% of the Fund's net assets on such day. The level of the Fund's net assets
changes each day and depends upon the amount of sales and redemptions of Fund
shares, the changes in the value of the investments held, by the Portfolio, the
expenses of the Fund and the Portfolio accrued and allocated to the Fund on such
day, income on portfolio investments of the Portfolio accrued and allocated to
the Fund on such day, and any dividends and distributions declared on Fund
shares. The Fund does not accrue possible future payments as a liability of the
Fund or reduce the Fund's current net assets in respect of unknown amounts which
may become payable under the Plan in the future because the standards for
accrual of a liability under such accounting principles have not been satisfied.
The Plan provides that the Fund will receive all contingent deferred sales
charges and will make no payments to the Principal Underwriter in respect of any
day on which there are no outstanding Uncovered Distribution Charges of the
Principal Underwriter. Contingent deferred sales charges and accrued amounts
will be paid by the Fund to the Principal Underwriter whenever there exist
Uncovered Distribution Charges under the Plan.
Periods with a high level of sales of Fund shares accompanied by a low level
of early redemptions of Fund shares resulting in the imposition of contingent
deferred sales charges will tend to increase the time during which there will
exist Uncovered Distribution Charges of the Principal Underwriter. Conversely,
periods with a low level of sales of Fund shares accompanied by a high level of
early redemptions of Fund shares resulting in the imposition of contingent
deferred sales charges will tend to reduce the time during which there will
exist Uncovered Distribution Charges of the Principal Underwriter.
In calculating daily the amount of uncovered distribution charges will be
calculated daily. For the purposes of this calculation, distribution charges
will include the aggregate amount of sales commissions and distribution fees
theretofore paid plus the aggregate amount of sales commissions and distribution
fees which the Principal Underwriter is entitled to be paid under the Plan since
its inception. Payments theretofore paid and payable under the Plan by the Fund
to the Principal Underwriter and contingent deferred sales charges theretofore
paid and payable to the Principal Underwriter will be subtracted from such
distribution charges; if the result of such subtraction is positive, a
distribution fee (computed at 1% over the prime rate then reported in The Wall
Street Journal) will be computed on such amount and added thereto, with the
resulting sum constituting the amount of outstanding uncovered distribution
charges with respect to such day. The amount of outstanding uncovered
distribution charges of the Principal Underwriter calculated on any day does not
constitute a liability recorded on the financial statements of the Fund.
The amount of uncovered distribution charges of the Principal Underwriter at
any particular time depends upon various changing factors, including the level
and timing of sales of Fund shares, the nature of such sales (i.e., whether they
result from exchange transactions, reinvestments or from cash sales through
Authorized Firms), the level and timing of redemptions of Fund shares upon which
a contingent deferred sales charge will be imposed, the level and timing of
redemptions of Fund shares upon which no contingent deferred sales charge will
be imposed (including redemptions involving exchanges of Fund shares for shares
of another fund in the Eaton Vance Marathon Group of Funds which result in a
reduction of uncovered distribution charges), changes in the level of the net
assets of the Fund, and changes in the interest rate used in the calculation of
the distribution fee under the Plan.
As currently implemented by the Trustees, the Plan authorizes payments of
sales commissions and distribution fees to the Principal Underwriter and service
fees to the Principal Underwriter and Authorized Firms which may be equivalent,
on an aggregate basis during any fiscal year of the Fund, to 1% of the Fund's
average daily net assets for such year. The Fund believes that the combined rate
of all these payments may be higher than the rate of payments made under
distribution plans adopted by other investment companies pursuant to Rule 12b-1.
Although the Principal Underwriter will use its own funds (which may be borrowed
from banks) to pay sales commissions at the time of sale, it is anticipated that
the Eaton Vance organization will profit by reason of the operation of the Plan
through an increase in the Fund's assets (thereby increasing the advisory fee
payable to BMR by the Portfolio) resulting from sale of Fund shares and through
the sales commissions and distribution fees and contingent deferred sales
charges paid to the Principal Underwriter pursuant to the Plan. The Eaton Vance
organization may be considered to have realized a profit under the Plan if at
any point in time the aggregate amounts theretofore received by the Principal
Underwriter pursuant to the Plan and from contingent deferred sales charges have
exceeded the total expenses theretofore incurred by such organization in
distributing shares of the Fund. Total expenses for this purpose will include an
allocable portion of the overhead costs of such organization and its branch
offices, which costs will include without limitation leasing expense,
depreciation of building and equipment, utilities, communication and postage
expense, compensation and benefits of personnel, travel and promotional expense,
stationery and supplies, literature and sales aids, interest expense, data
processing fees, consulting and temporary help costs, insurance, taxes other
than income taxes, legal and auditing expense and other miscellaneous overhead
items. Overhead is calculated and allocated for such purpose by the Eaton Vance
organization in a manner deemed equitable to the Fund.
For the period from October 1, 1994 to December 31, 1994, the Fund paid
sales commissions under the Plan to the Principal Underwriter aggregating
$53,776, which amount was used by the Principal Underwriter to defray sales
commissions aggregating $6,393 paid during such period by the Principal
Underwriter to Authorized Firms on sales of shares of the Fund and to reduce the
outstanding uncovered distribution charges. For the period from October 1, 1994
to December 31, 1994, contingent deferred sales charges aggregating
approximately $72,219 were imposed on early redeeming shareholders and paid to
the Principal Underwriter, which amounts were used by the Principal Underwriter
to reduce the outstanding uncovered distribution charges. As at December 31,
1994, the outstanding uncovered distribution charges of the Principal
Underwriter under the Plan amounted to approximately $541,466 (which amount was
equivalent to 1.9% of the Fund's net assets on such day).
The Plan also authorizes the Fund to make payments of service fees. For the
period from October 1, 1994 to December 31, 1994, the Fund made service fee
payments to the Principal Underwriter and Authorized Firms aggregating $13,721,
of which $13,679 was paid to financial service firms and the balance was
retained by the Principal Underwriter.
The provisions of the Plan relating to payments of sales commissions and
distribution fees to the Principal Underwriter are also included in the
Distribution Agreement between the Fund and the Principal Underwriter. Pursuant
to Rule 12b-1, the Plan has been approved by the Trust's initial sole
shareholder (Eaton Vance) and by the Board of Trustees of the Trust, as required
by Rule 12b-1. The Plan continues in effect through and including April 28,
1996, and shall continue in effect indefinitely thereafter for so long as such
continuance is approved at least annually by the vote of both a majority of (i)
the Trustees of the Fund who are not interested persons of the Fund and who have
no direct or indirect financial interest in the operation of the Plan or any
agreements related to the Plan (the "Rule 12b-1 Trustees") and (ii) all of the
Trustees then in office, and the Distribution Agreement contains a similar
provision. The Plan and Distribution Agreement may be terminated at any time by
vote of a majority of the Rule 12b-1 Trustees or by a vote of a majority of the
outstanding voting securities of the Fund. Under the Plan the President or a
Vice President of the Trust shall provide to the Trustees for their review, and
the Trustees shall review at least quarterly, a written report of the amount
expended under the Plan and the purposes for which such expenditures were made.
The Plan may not be amended to increase materially the payments described
therein without approval of the shareholders of the Fund, and all material
amendments of the Plan must also be approved by the Trustees as required by Rule
12b-1. So long as the Plan is in effect, the selection and nomination of
Trustees who are not interested persons of the Trust shall be committed to the
discretion of the Trustees who are not such interested persons.
The Trustees of the Trust believe that the Plan will be a significant factor
in the growth of the Fund's assets, and will result in increased investment
flexibility and advantages which will benefit the Fund and its shareholders.
Payments for sales commissions and distribution fees made to the Principal
Underwriter under the Plan will compensate the Principal Underwriter for its
services and expenses in distributing shares of the Fund. Service fee payments
made to the Principal Underwriter and Authorized Firms under the Plan provide
incentives to provide continuing personal services to investors and the
maintenance of shareholder accounts. By providing incentives to the Principal
Underwriter and Authorized Firms, the Plan is expected to result in the
maintenance of, and possible future growth in, the assets of the Fund. Based on
the foregoing and other relevant factors, the Trustees of the Trust have
determined that in their judgment there is a reasonable likelihood that the Plan
will benefit the Fund and its shareholders.
PORTFOLIO SECURITY TRANSACTIONS
Decisions concerning the execution of portfolio security transactions,
including the selection of the market and the broker-dealer firm, are made by
BMR. BMR is also responsible for the execution of transactions for all other
accounts managed by it.
BMR places the portfolio security transactions of the Portfolio and of all
other accounts managed by it for execution with many broker-dealer firms. BMR
uses its best efforts to obtain execution of portfolio security transactions at
prices which are advantageous to the Portfolio and (when a disclosed commission
is being charged) at reasonably competitive commission rates. In seeking such
execution, BMR will use its best judgment in evaluating the terms of a
transaction, and will give consideration to various relevant factors, including
without limitation the size and type of the transaction, the general execution
and operational capabilities of the broker-dealer, the nature and character of
the market for the security, the confidentiality, speed and certainty of
effective execution required for the transaction, the reputation, reliability,
experience and financial condition of the broker-dealer, the value and quality
of services rendered by the broker-dealer in other transactions, and the
reasonableness of the commission, if any. Transactions on United States stock
exchanges and other agency transactions involve the payment by the Portfolio of
negotiated brokerage commissions. Such commissions vary among different
broker-dealer firms, and a particular broker-dealer may charge different
commissions according to such factors as the difficulty and size of the
transaction and the volume of business done with such broker-dealer.
Transactions in foreign securities usually involve the payment of fixed
brokerage commissions, which are generally higher than those in the United
States. There is generally no stated commission in the case of securities traded
in the over-the-counter markets, but the price paid or received by the Portfolio
usually includes an undisclosed dealer markup or markdown. In an underwritten
offering the price paid by the Portfolio includes a disclosed fixed commission
or discount retained by the underwriter or dealer. Although commissions paid on
portfolio security transactions will, in the judgment of BMR, be reasonable in
relation to the value of the services provided, commissions exceeding those
which another firm might charge may be paid to broker-dealers who were selected
to execute transactions on behalf of the Portfolio and BMR's other clients in
part for providing brokerage and research services to BMR.
As authorized in Section 28(e) of the Securities Exchange Act of 1934, a
broker or dealer who executes a portfolio transaction on behalf of the Portfolio
may receive a commission which is in excess of the amount of commission another
broker or dealer would have charged for effecting that transaction if BMR
determines in good faith that such commission was reasonable in relation to the
value of the brokerage and research services provided. This determination may be
made on the basis of either that particular transaction or on the basis of the
overall responsibilities which BMR and its affiliates have for accounts over
which they exercise investment discretion. In making any such determination, BMR
will not attempt to place a specific dollar value on the brokerage and research
services provided or to determine what portion of the commission should be
related to such services. Brokerage and research services may include advice as
to the value of securities, the advisability of investing in, purchasing, or
selling securities, and the availability of securities or purchasers or sellers
of securities; furnishing analyses and reports concerning issuers, industries,
securities, economic factors and trends, portfolio strategy and the performance
of accounts; and effecting securities transactions and performing functions
incidental thereto (such as clearance and settlement); and the "Research
Services" referred to in the next paragraph.
It is a common practice in the investment advisory industry for the advisers
of investment companies, institutions and other investors to receive research,
statistical and quotation services, data, information and other services,
products and materials which assist such advisers in the performance of their
investment responsibilities ("Research Services") from broker-dealer firms whch
execute portfolio transactions for the clients of such advisers and from third
parties with which such broker-dealers have arrangements. Consistent with this
practice, BMR receives Research Services from many broker-dealer firms with
which BMR places the Portfolio transactions and from third parties with which
these broker-dealers have arrangements. These Research Services include such
matters as general economic and market reviews, industry and company reviews,
evaluations of securities and portfolio strategies and transactions,
recommendations as to the purchase and sale of securities and other portfolio
transactions, financial, industry and trade publications, news and information
services, pricing and quotation equipment and services, and research oriented
computer hardware, software, data bases and services. Any particular Research
Service obtained through a broker-dealer may be used by BMR in connection with
client accounts other than those accounts which pay commissions to such
broker-dealer. Any such Research Service may be broadly useful and of value to
BMR in rendering investment advisory services to all or a significant portion of
its clients, or may be relevant and useful for the management of only one
client's account or of a few clients' accounts, or may be useful for the
management of merely a segment of certain clients' accounts, regardless of
whether any such account or accounts paid commissions to the broker-dealer
through which such Research Service was obtained. The advisory fee paid by the
Portfolio is not reduced because BMR receives such Research Services. BMR
evaluates the nature and quality of the various Research Services obtained
through broker-dealer firms and attempts to allocate sufficient commissions to
such firms to ensure the continued receipt of Research Services which BMR
believes are useful or of value to it in rendering investment advisory services
to its clients.
Subject to the requirement that BMR shall use its best efforts to seek to
execute portfolio security transactions at advantageous prices and at reasonably
competitive commission rates. BMR is authorized to consider as a factor in the
selection of any broker-dealer firm with whom portfolio orders may be placed the
fact that such firm has sold or is selling shares of the Fund or of other
investment companies sponsored by BMR or Eaton Vance. This policy is not
inconsistent with a rule of the National Association of Securities Dealers,
Inc., which rule provides that no firm which is a member of the Association
shall favor or disfavor the distribution of shares of any particular investment
company or group of investment companies on the basis of brokerage commissions
received or expected by such firm from any source.
Securities considered as investments for the Portfolio may also be
appropriate for other investment accounts managed by BMR or its affiliates. BMR
will attempt to allocate equitably portfolio security transactions among the
Portfolio and the portfolios of its other investment accounts whenever decisions
are made to purchase or sell securities by the Portfolio and one or more of such
other accounts simultaneously. In making such allocations, the main factors to
be considered are the respective investment objectives of the Portfolio and such
other accounts, the relative size of portfolio holdings of the same or
comparable securities, the availability of cash for investment by the Portfolio
and such accounts, the size of investment commitments generally held by the
Portfolio and such accounts and the opinions of the persons responsible for
recommending investments to the Portfolio and such accounts. While this
procedure could have a detrimental effect on the price or amount of the
securities available to the Portfolio from time to time, it is the opinion of
the Trustees of the Trust and the Portfolio that the benefits available from the
BMR organization outweigh any disadvantage that may arise from exposure to
simultaneous transactions.
During the fiscal years ended September 30, 1994, 1993 and 1992, the Trust
paid brokerage commissions of $162,605, $133,768 and $320,413, respectively, on
portfolio security transactions. Of the total brokerage commissions paid during
the fiscal year ended September 30, 1994, approximately $148,112 was paid in
respect of portfolio security transactions aggregating approximately $83,003,408
to firms which provided some research services to BMR or its affiliates. For the
fiscal year ended December 31, 1994, the Portfolio paid brokerage commissions of
$1,997,260 on portfolio security transactions, of which approximately $1,509,827
was paid in respect of portfolio security transactions aggregating approximately
$718,689,809 to firms which provided some research services to BMR or its
affiliates.
OTHER INFORMATION
Eaton Vance, pursuant to its agreement with the Trust, controls the use of
the words "Eaton Vance" in the Fund's name and may use the words "Eaton Vance"
in other connections and for other purposes.
The Trust's Declaration of Trust may not be amended without the affirmative
vote of a majority of the outstanding shares of the Trust, except that the
Declaration of Trust may be amended by the Trustees to change the name of the
Trust, to make such other changes as do not have a materially adverse effect on
the rights or interests of shareholders and to conform the Declaration of Trust
to applicable Federal laws or regulations. The Trust may be terminated (i) upon
the merger or consolidation with or sale of the Trust's assets to another
company, if approved by the holders of two-thirds of the outstanding shares of
the Trust, except that if the Trustees recommend such transaction, the approval
by vote of the holders of a majority of the outstanding shares will be
sufficient; or (ii) upon liquidation and distribution of the assets of the
Trust, if approved by a majority of the Trustees or by the holders of a majority
of the Trust's outstanding shares. If not so terminated, the Trust may continue
indefinitely.
The Declaration of Trust further provides that the Trustees will not be
liable for errors of judgment or mistakes of fact or law; but nothing in the
Declaration of Trust protects a Trustee against any liability to which he would
otherwise be subject by reason of willful misfeasance, bad faith, gross
negligence, or reckless disregard of the duties involved in the conduct of his
office. In addition, the By-Laws of the Trust provide that no natural person
shall serve as a Trustee of the Trust after the holders of record of not less
than two-thirds of the outstanding shares have declared that he be removed from
office either by declaration in writing filed with the custodian of the assets
of the Trust or by votes cast in person or by proxy at a meeting called for the
purpose.
<PAGE>
EV EQUITY-INCOME TRUST
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
-------------------------------------------------------------------------------
December 31, 1994
-------------------------------------------------------------------------------
ASSETS:
Investment in Total Return Portfolio (Portfolio)
at value (Note 1A) $27,624,478
Receivable for fund shares sold and dividend reinvestments 166,073
-----------
Total assets $27,790,551
LIABILITIES:
Payable for Trust shares redeemed $115,706
Accrued expenses 24,512
-------
Total liabilities 140,218
-----------
NET ASSETS for 2,733,924 shares of beneficial interest outstanding $27,650,333
===========
SOURCES OF NET ASSETS:
Proceeds from sales of shares (including shares
issued to shareholders electing to receive
payment of distributions in shares), less
cost of shares redeemed $28,332,530
Accumulated net realized loss on
investment and financial futures
transactions (1,632,186)
Undistributed net investment income 24,899
Unrealized appreciation of investments and open
financial futures contracts (computed on the
basis of identified cost) 925,090
-----------
Total $27,650,333
===========
NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE
($27,650,333/2,733,924 shares of
beneficial interest) $10.11
======
The accompanying notes are an integral part of the financial statements
<PAGE>
STATEMENT OF OPERATIONS
-------------------------------------------------------------------------------
For the period from start of business, October 1, 1994, to December 31, 1994
-------------------------------------------------------------------------------
INVESTMENT INCOME (NOTE 1B):
Dividend income allocated from Portfolio $ 440,931
Interest income allocated from Portfolio 36,752
Expenses allocated from Portfolio (60,382)
---------
Total investment income $ 417,301
Expenses --
Compensation of Trustees not members of
the Investment Adviser's organization $ 419
Distribution fees (Note 4) 53,776
Custodian fee 2,121
Legal and accounting services 33,101
Service fee 16,359
Printing and postage 17,318
Transfer and dividend disbursing agent fees 7,246
Registration fees 8,325
Miscellaneous 9,250
-------
Total expenses 147,915
---------
Net investment income $ 269,386
REALIZED AND UNREALIZED GAIN (LOSS) FROM PORTFOLIO:
Net realized gain (loss) (identified cost basis) --
Investment transactions $(383,660)
Financial futures contracts 158,424
Net realized loss on investment
transactions and financial futures
(identified cost basis) (225,236)
Change in unrealized appreciation
of investments and financial
futures contracts 173,127
-------
Net realized and unrealized loss
on investments (52,109)
---------
Net decrease in net assets resulting
from operations $ 217,277
=========
The accompanying notes are an integral part of the financial statements
<PAGE>
FINANCIAL STATEMENTS (Continued)
STATEMENT OF CHANGES IN NET ASSETS
-------------------------------------------------------------------------------
FOR THE PERIOD
FROM START OF
BUSINESS OCTOBER YEAR ENDED
1, 1994, TO SEPTEMBER
DECEMBER 31, 1994 30, 1994
----------------- ---------
INCREASE (DECREASE) IN NET ASSETS:
From operations --
Net investment income $ 269,386 $ 1,140,520
Net realized gain on investments (225,236) 129,629
Increase (decrease) in unrealized
appreciation of investments 173,127 (8,168,493)
------------ ------------
Net increase (decrease) in net assets
resulting from operations $ 217,277 $ (6,898,344)
------------ ------------
Distributions to shareholders from (Note 4)
Net investment income $ (245,154) $ (1,140,520)
In excess of net investment income- - (294,126)
------------ ------------
Total distributions to shareholders $ (245,154) $ (1,434,646)
------------ ------------
Net decrease in net assets from Fund
share transactions (Note 2) $ (2,448,016) $(11,481,772)
------------ ------------
Net decrease in net assets $ (2,475,893) $(19,814,762)
NET ASSETS:
At beginning of year 30,126,226 49,940,988
------------ ------------
At end of year $ 27,650,333 $ 30,126,226
------------ ------------
------------ ------------
The accompanying notes are an integral part of the financial statements
<PAGE>
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS
-------------------------------------------------------------------------------------------------------------------------------
FOR THE PERIOD
FROM START OF
BUSINESS OCTOBER YEAR ENDED SEPTEMBER 30,
1, 1994, TO ----------------------------------------------------
DECEMBER 31, 1994 1994<F3> 1993<F3> 1992<F3> 1991<F3>
----------------- ----------------------------------------------------
<S> <C> <C> <C> <C> <C>
FINANCIAL HIGHLIGHTS (for a share outstanding throughout
the period):
NET ASSET VALUE -- Beginning of period $ 10.120 $ 12.340 $ 10.730 $ 11.180 $ 10.290
--------- --------- -------- --------- ---------
Income from investment operations:
Net investment income $ 0.094 $ 0.326 $ 0.440 $ 0.374 $ 0.442
Net realized and unrealized gain
(loss) on investments (0.014) (2.136) 1.640 (0.344) 0.958
--------- --------- -------- --------- ---------
Total income (loss) from investment operations $ 0.080 $ (1.810) $ 2.080 $ 0.030 $ 1.400
--------- --------- -------- --------- ---------
Less distributions declared to shareholders:
From net investment income $ (0.090) $ (0.326) $ (0.330) $ (0.413) $ (0.510)
In excess of net investment income- -- (0.084) (0.140) -- --
Net realized gain on investment transactions -- -- -- --
Paid-in capital -- -- -- (0.067) --
--------- --------- -------- --------- ---------
Total distributions $ (0.090) $ (0.410) $ (0.470) $ (0.480) $ (0.510)
NET ASSET VALUE -- End of period $ 10.110 $ 10.120 $ 12.340 $ 10.730 $ 11.180
TOTAL RETURN<F2> 0.79% (14.82)% 19.88% (0.03)% 13.91
--------- --------- -------- --------- ---------
--------- --------- -------- --------- ---------
RATIOS/SUPPLEMENTAL DATA: (to average daily net assets)
Expenses<F1> 2.98%<F4> 2.18% 2.30% 2.40% 2.26%
Net investment income 3.85%<F4> 2.91% 2.88% 3.22% 3.96%
Portfolio Turnover<F5> 119% 87% 158% 151%
NET ASSETS AT END OF PERIOD (000'S OMITTED $27,650 $30,126 $49,941 $48,219 $55,364
<FN>
<F1> Includes the Fund's share of Total Return Portfolio's allocated expenses for the period from October 1, 1994,
to December 31, 1994.
<F2> Total return is calculated assuming a purchase at the net asset value on the first day and a sale at the net
asset value on the last day of each period reported. Dividends and distributions, if any, are assumed to be
reinvested at the net asset value on the record date.
<F3> Audited by previous auditors.
<F4>Computed on an annualized basis.
<F5>Portfolio turnover represents the rate of portfolio activity for the period when the Fund was making
investments directly in securities. The portfolio turnover for the period since the Fund transferred
substantially all of its investable assets to the Portfolio is shown in the Portfolio's financial statements
which are included elsewhere in this report.
</TABLE>
The accompanying notes are an integral part of the financial statements
<PAGE>
NOTES TO FINANCIAL STATEMENTS
-------------------------------------------------------------------------------
(1) SIGNIFICANT ACCOUNTING POLICIES
EV Equity-Income Trust (the Fund) is a non-diversified entity of the type
commonly known as a Massachusetts business trust and is registered under the
Investment Company Act of 1940, as amended, as an open-end management investment
company. The Fund is a series in the Eaton Vance Total Return Trust. On October
1, 1994, the fund transferred substantially all of its investable assets to the
Total Return Portfolio (the Portfolio). The Fund invests all of its investable
assets in interests in the Total Return Portfolio (the Portfolio), a New York
Trust, having the same investment objective as the Fund. The value of the Fund's
investment in the Portfolio reflects the Fund's proportionate interest in the
net assets of the Portfolio (5.4% at December 31, 1994). The performance of the
Fund is directly affected by the performance of the Portfolio. The financial
statements of the Portfolio, including the portfolio of investments, are
included elsewhere in this report and should be read in conjunction with the
Fund's financial statements. The following is a summary of significant
accounting policies consistently followed by the Fund in the preparation of its
financial statements. The policies are in conformity with generally accepted
accounting principles.
A. INVESTMENT VALUATIONS -- Valuations of securities by the Portfolio is
discussed in Note 1 of the Portfolio's Notes to Financial Statements which are
included elsewhere in this report.
B. INCOME -- The Fund's net investment income consists of the Fund's pro rata
share of the net investment income of the Portfolio, less all actual and accrued
expenses of the Fund.
C. FEDERAL TAXES -- The Fund's policy is to comply with the provisions of the
Internal Revenue Code applicable to regulated investment companies and to
distribute to shareholders eachyear all of its taxable income, including any net
realized gain oninvestments, option and financial futures transactions.
Accordingly, no provision for federal income or excise tax is neces-sary. At
December 31, 1994, the Fund, for federal income tax purposes, had capital loss
carryovers of $1,740,353, which will reduce the Fund's taxable income arising
from future net realized gain on investment transactions, if any, to the extent
permitted by the Internal Revenue Code, and thus will reduce the amount of the
distributions to shareholders which would otherwise be necessary to relieve the
Fund of any liability for federal income or excise tax. Such capital loss
carryovers will expire on December 31, 2001 ($1,376,736) and on December 31,
2002 ($363,617).
D. DEFERRED ORGANIZATION EXPENSES -- Costs incurred by the Fund in connection
with its organization are being amortized on the straight-line basis over five
years.
E. OTHER -- Investment transactions are accounted for on the date the
investments are purchased or sold. Distributions to shareholders are recorded on
the ex-dividend date.
F. DISTRIBUTION COSTS -- For book purposes, commissions paid on the sale of Fund
shares and other distribution costs are charged to operations. For tax purposes,
commissions paid were charged to paid-in capital prior to November 16, 1994 and
subsequently charged to operations. The change in the tax accounting practice
was prompted by a recent Internal Revenue Service ruling and has no effect on
either the Fund's current yield or total return (Note 4).
G. 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 temporary
over-distributions for financial statement purposes, are classified as
distributions in excess of net investment income or accumulated net realized
gains.
-------------------------------------------------------------------------------
(2) SHARES OF BENEFICIAL INTEREST
The Declaration of Trust permits the Trustees to issue an unlimited number of
full and fractional shares of beneficial interest (without par value).
Transactions in Trust shares were as follows:
<TABLE>
<CAPTION>
FOR THE PERIOD
FROM START OF
BUSINESS OCTOBER
1, 1994, TO YEAR ENDED
DECEMBER 31, 1994 SEPTEMBER 30, 1994
--------------------- ------------------------
SHARES AMOUNT SHARES AMOUNT
-------- ----------- ----------- ------------
<S> <C> <C> <C> <C>
Sales 103,367 $ 1,038,730 411,383 $4,564,751
Issued to share-holders 18,691 189,156 104,509 1,126,202
electing to receive payment of
distribution in Trust shares
Redemptions (365,004) (3,675,902) (1,584,537) (17,172,725)
-------- ----------- ---------- ------------
Net decrease (242,946) $(2,448,016) (1,068,645) $(11,481,772)
-------- ----------- ---------- ------------
-------- ----------- ---------- ------------
</TABLE>
-------------------------------------------------------------------------------
(3) INVESTMENT TRANSACTIONS
Increases and decreases in the Fund's investment in the Portfolio aggregated
$31,309,316 and $4,093,233, respectively.
-------------------------------------------------------------------------------
<PAGE>
NOTES TO FINANCIAL STATEMENTS (Continued)
(4) DISTRIBUTION PLAN
The Fund has adopted a distribution plan (the Plan) pursuant to Rule 12b-1 under
the Investment Company Act of 1940. The Plan requires the Fund to accrue amounts
daily to the principal underwriter, Eaton Vance Distributors, Inc. (EVD), equal
to 1/365th of 0.75% of the Fund's average daily net assets, for providing
ongoing distribution services and facilities to the Fund. The Fund will
automatically discontinue accruals to EVD during any period in which there are
no outstanding Uncovered Distribution Charges, which are approximately
equivalent to the sum of (i) 5% of the aggregate amount received by the Fund for
shares sold plus (ii) distribution fees calculated by applying the rate of 1%
over the prevailing prime rate to the outstanding balance of Uncovered
Distribution Charges of EVD, reduced by the aggregate amount of contingent
deferred sales charges (see Note 6) and amounts theretofore paid to EVD. The
amount payable to EVD with respect to each day is accrued on such day as a
liability of the Fund and, accordingly, reduces the Fund's net assets. Such
payments would cease upon termination of the distribution agreement (unless made
in accordance with another distribution agreement). As a result, the Fund does
not accrue amounts which may become payable to EVD in the future because the
conditions for recording any contingent liability under generally accepted
accountingprinciples have not been satisfied. EVD earned $53,776 forthe period
from the start of business, October 1, 1994, to December 31, 1994, representing
0.75% of average daily net assets. At December 31, 1994, the amount of Uncovered
Distribution Charges of EVD calculated under the Plan was approximately
$541,466.
In addition, the Plan authorizes the Fund to make payments of service fees
to the Principal Underwriter, Authorized Firms and other persons in amounts not
exceeding 0.25% of the Fund's average daily net assets for each fiscal year. The
Trustees have implemented the plan by authorizing the Fund to make quarterly
payments of service fees to the Principal Underwriter and Authorized Firms in
amounts not expected to exceed 0.25% of the Fund's average daily net assets for
each fiscal year based on the value of Fund shares sold by such persons and
remaining outstanding for at least twelve months. Service fees are separate and
distinct from the sales commissions and distribution fees payable by the Fund to
EVD, and, as such, are not subject to automatic discontinuance where there are
no outstanding Uncovered Distribution Charges of EVD. Provision for service fees
amounted to $16,359 for the period from the start of business, October 1, 1994,
to December 31, 1994.
Certain of the officers of the Fund and Directors of the Corporation are
officers and directors of EVD.
-------------------------------------------------------------------------------
(5) CONTINGENT DEFERRED SALES CHARGE
A contingent deferred sales charge (CDSC) is imposed on any redemption of Fund
shares made within six years of purchase. Generally, the CDSC is based upon the
lower of the net asset value at date of redemption or date of purchase. No
charge is levied on shares acquired by reinvestment of dividends or capital gain
distributions. The CDSC is imposed at declining rates that begin at 6% in the
first year of redemption after purchase, declining one percentage pointeach
year. No CDSC is levied on shares which have been sold to EVM or its affiliates
or to their respective employees or clients. CDSC charges are paid to EVD to
reduce the amount of Uncovered Distribution Charges calculated under the Fund's
Distribution Plan. CDSC charges received when no Uncovered Distribution Charges
exist will be retained by the Fund. EVD received approximately $72,219 of CDSC
paid by shareholders for the period from October 1, 1994, to December 31, 1994.
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
-------------------------------------------------------------------------------
To the Shareholders and Board of Trustees of
EV Equity-Income Trust, a series of Eaton Vance Total Return Trust:
We have audited the accompanying statement of assets and liabilities of EV
Equity-Income Trust, a series of Eaton Vance Total Return Trust, as of December
31, 1994, and the related statement of operations, changes in net assets and the
financial highlights for the period from start of business, October 1, 1994 to
December 31, 1994. These financial statements and financial highlights are the
responsibility of the Fund's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audit. The statement of changes for the year ended September 30, 1994 and the
financial highlights for each of the four years in the period ended September
30, 1994, presented herein, were audited by other auditors whose report dated
November 2, 1994, expressed an unqualified opinion on such financial highlights.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements and financial highlights are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. Our
procedures included confirmation of securities owned as of December 31, 1994 by
correspondence with the custodian and brokers. An audit also includes assessing
the accounting principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation. We believe that
our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of EV
Equity-Income Trust, a series of Eaton Vance Total Return Trust, as of December
31, 1994, the results of its operations, changes in its net assets, and the
financial highlights for the period from the start of business October 1, 1994
to December 31, 1994, in conformity with generally accepted accounting
principles.
COOPERS & LYBRAND L.L.P.
Boston, Massachusetts
February 3, 1995
<PAGE>
TOTAL RETURN PORTFOLIO
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1994
-------------------------------------------------------------------------------
COMMON STOCKS -- 93.4%
-------------------------------------------------------------------------------
NAME OF COMPANY SHARES VALUE
-------------------------------------------------------------------------------
ELECTRIC UTILITIES -- 62.1%
American Electric Power Co. Inc. 200,000 $ 6,575,000
Baltimore Gas & Electric Co. 150,000 3,318,750
Carolina Power & Light Co. 750,000 19,968,750
Central & South West Corp. 479,994 10,859,864
Central Louisiana Electric Co. 326,800 7,720,650
Cinergy Corp. 1,250,250 29,224,594
Dominion Resources, Inc. 200,000 7,150,000
DPL Inc. 950,000 19,475,000
DQE, Inc. 400,000 11,850,000
Duke Power Co. 270,000 10,293,750
FPL Group, Inc. 560,000 19,670,000
General Public Utilities Corp. 320,000 8,400,000
IPALCO Enterprises, Inc. 350,000 10,500,000
Kansas City Power & Light Co. 181,900 4,251,913
LG & E Energy Corp. 125,000 4,609,375
New England Electric System 100,000 3,212,500
NIPSCO Industries, Inc. 400,000 11,900,000
Northern States Power Co. Minn. 322,800 14,203,200
Norweb Ord PLC 200,000 2,690,940
Ohio Edison Co. 200,000 3,700,000
PacifiCorp 583,200 10,570,500
PECO Energy Co. 200,000 4,900,000
Pinnacle West Capital Corp. 300,000 5,925,000
Portland General Corp. 350,000 6,737,500
Public Service Co. of New Mexico* 565,300 7,348,900
Southern Co. 1,072,460 21,449,200
Teco Energy, Inc. 410,000 8,251,250
Union Electric Co. 346,500 12,257,438
United Illuminating Co. 110,200 3,250,900
Western Resources, Inc. 200,000 5,725,000
Wisconsin Energy Corp. 689,650 17,844,694
------------
$313,834,668
------------
OIL & GAS -- 5.4%
Amoco Corp. 165,000 $ 9,755,625
BP Prudhoe Bay Rty Tr Unit Ben Int. 437,000 7,429,000
Mobil Corp. 120,000 10,110,000
------------
$ 27,294,625
------------
REITS -- 18.5%
Apartment Investment & Management Co. Class A 200,000 $ 3,450,000
Associated Estates Realty Corp. 200,000 4,200,000
<PAGE>
-------------------------------------------------------------------------------
COMMON STOCKS -- (Continued)
-------------------------------------------------------------------------------
NAME OF COMPANY SHARES VALUE
-------------------------------------------------------------------------------
Avalon Properties, Inc. 165,000 $ 3,795,000
Bay Apartment Communities 213,400 4,294,675
Bradley Real Estate Trust 72,750 1,109,437
Cali Realty Corp. 150,000 2,400,000
Camden Properties Trust SBI 200,000 4,975,000
Columbus Realty Trust 140,000 2,590,000
Developers Diversified Realty Corp. 170,000 5,312,500
Duke Realty Investments, Inc. 40,000 1,130,000
Equity Residential Properties Trust 80,000 2,400,000
Health Care Property Investors, Inc. 140,000 4,217,500
Healthcare Realty Trust 350,000 7,350,000
LTC Properties, Inc. 490,000 6,492,500
Macerich Co. 175,000 3,740,625
Meditrust Sh Ben Int. 100,000 3,025,000
Mid America Apartment Communities, Inc. 164,500 4,400,375
Nationwide Health Properties, Inc. 320,000 11,440,000
Oasis Residential, Inc. 225,000 5,512,500
Post Properties Inc. 100,000 3,150,000
Simon Property Group, Inc. 150,000 3,637,500
Southwestern Property Trust, Inc. 180,000 2,205,000
Sun Communities Inc. 110,000 2,475,000
------------
$ 93,302,612
------------
TELEPHONE UTILITIES -- 6.9%
Ameritech Corp. 380,000 $ 15,342,500
Bell Atlantic Corp. 100,000 4,975,000
Southern New England Telecommunications 50,000 1,606,250
Southwestern Bell Corp. 150,000 6,056,250
Tele Danmark A/S* 63,000 1,606,500
Telecom Corp. New Zealand Ltd. ADR 100,000 5,137,500
------------
$ 34,724,000
------------
OTHER -- 0.5%
British Sky Broadcasting Group PLC ADR* 25,000 $ 600,000
Sonat Inc. 71,000 1,988,000
------------
$ 2,588,000
------------
TOTAL COMMON STOCKS (identified cost, $455,294,874) $471,743,905
------------
<PAGE>
PORTFOLIO OF INVESTMENTS (Continued)
-------------------------------------------------------------------------------
CONVERTIBLE PREFERRED STOCK -- 2.0%
-------------------------------------------------------------------------------
SHARES VALUE
-------------------------------------------------------------------------------
Freeport McMoRan Copper & Gold 40,000 $ 830,000
Kenetech Corp., 8.25s 200,000 3,075,000
Philippines Long Distance Telephone, 7s 112,000 6,062,000
------------
$ 9,967,000
------------
TOTAL CONVERTIBLE PREFERRED STOCKS
(identified cost, $10,549,225) $ 9,967,000
------------
-------------------------------------------------------------------------------
CONVERTIBLE BONDS -- 0.1%
-------------------------------------------------------------------------------
FACE AMOUNT
(000 OMITTED)
-------------------------------------------------------------------------------
IDB Communications Group, Inc., 5s,
8/15/03 (identified cost, $858,750 $1,000 $ 762,500
------------
-------------------------------------------------------------------------------
U.S. TREASURY OBLIGATIONS -- 1.5%
-------------------------------------------------------------------------------
U.S. Treasury Bill, 0s, 3/5/95+
(identified cost, $7,696,456) $ 7,780 $ 7,703,600
------------
-------------------------------------------------------------------------------
SHORT-TERM OBLIGATIONS -- 1.5%
-------------------------------------------------------------------------------
CXC Inc., 5.95s, 1/3/95 $ 3,499 $ 3,497,265
American Express Credit Corp., 5.80s, 1/5/95 4,294 4,290,541
-------------
TOTAL SHORT-TERM OBLIGATIONS, AT AMORTIZED COST $ 7,787,806
-------------
TOTAL INVESTMENTS -- 98.5%
(identified cost, $482,187,111) $497,964,811
OTHER ASSETS, LESS LIABILITIES -- 1.5% 7,602,081
-------------
NET ASSETS -- 100.0% $505,566,892
============
+Collateral for futures held at December 31, 1994 (see Note 6)
*Non-income producing security
The accompanying notes are an integral part of the financial statements
<PAGE>
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
-------------------------------------------------------------------------------
December 31, 1994
-------------------------------------------------------------------------------
ASSETS:
Investments, at value (Note 1A) (identified
cost, $482,187,111) $497,964,811
Cash 2,597
Receivable for investments sold 8,994,384
Dividends receivable 2,364,639
Receivable for daily variation margin on
financial futures contracts 975,000
Deferred organization expenses (Note 1E) 16,027
Foreign tax reclaim receivable 25,565
Interest receivable 29,754
------------
Total assets $510,372,777
LIABILITIES:
Payable for investments purchased $ 4,775,774
Trustees fees payable 5,160
Custodian fee payable 8,403
Accrued expenses 16,548
------------
Total liabilities 4,805,885
------------
NET ASSETS applicable to investors' interest in Portfolio $505,566,892
============
SOURCES OF NET ASSETS:
Net proceeds from capital contributions and withdrawals $491,941,692
Unrealized appreciation of investments and open
futures contracts (computed on the basis of
identified cost) 13,625,200
------------
Total net assets $505,566,892
============
The accompanying notes are an integral part of the financial statements
<PAGE>
FINANCIAL STATEMENTS (Continued)
STATEMENT OF OPERATIONS
-------------------------------------------------------------------------------
For the Year Ended December 31, 1994
-------------------------------------------------------------------------------
INVESTMENT INCOME:
Dividend income $ 32,158,717
Interest income 1,330,065
-------------
Total income $ 33,488,782
Expenses --
Investment adviser fee (Note 3) $ 4,106,857
Compensation of trustees not members of
the investment adviser's organization
(Note 3) 20,687
Custodian fee (Note 3) 159,872
Interest expense 187,106
Commitment fee 143,450
Audit and legal fees 46,657
Printing and postage fees 14,129
Amortization of deferred organizational
expenses (Note 1E) 4,197
Miscellaneous 19,841
-------------
Total expenses 4,702,796
-------------
Net investment income $ 28,785,986
REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS:
Net realized gain (loss) (identified
cost basis) --
Investment transactions $ (21,035,623)
Financial futures contracts 5,883,625
-------------
Net realized loss on investments
and financial futures
(identified cost basis) $ (15,151,998)
Change in unrealized appreciation on
investments and financial futures contracts (89,492,365)
-------------
Net realized and unrealized loss on investments (104,644,363)
-------------
Net decrease in net assets resulting from operations $ (75,858,377)
=============
The accompanying notes are an integral part of the financial statements
<PAGE>
<TABLE>
<CAPTION>
STATEMENT OF CHANGES IN NET ASSETS
--------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
-------------------------------
1994 1993<F1>
-------------- --------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
From operations --
Net investment income $ 28,785,986 $ 5,227,429
Net realized loss on investment transactions and (15,151,998) (3,109,783)
financial futures contracts
Decrease in unrealized appreciation of investments (89,492,365) (31,858,504)
------------- -------------
Net decrease in net assets resulting from operations $ (75,858,377) $ (29,740,858)
------------- -------------
Capital transactions --
Contributions $ 97,021,559 $ 700,057,818
Withdrawals (152,162,876) (33,850,394)
------------- -------------
Increase (decrease) in net assets
resulting from capital transactions $ (55,141,317) $ 666,207,424
------------- -------------
Total increase (decrease) in net assets $(130,999,694) $ 636,466,566
NET ASSETS:
At beginning of period 636,566,586 100,020
------------ -------------
At end of period $ 505,566,892 $ 636,566,586
============= =============
<FN>
<F1> For the period from the start of business, October 28, 1993, to December 31, 1993.
</TABLE>
The accompanying notes are an integral part of the financial statements
<PAGE>
FINANCIAL STATEMENTS (Continued)
SUPPLEMENTARY DATA
--------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
-------------------------
1994 1993*
--------- ------------
RATIOS (As a percentage of average net assets):
Expenses 0.85% 0.91%+
Net investment income 5.22% 4.57%+
PORTFOLIO TURNOVER 107% 16%
LEVERAGE ANALYSIS:
Amount of debt outstanding at end of period
(000's omitted) -- --
Average daily balance of debt outstanding
during period (000 omitted) $ 3,137 $15,452
+ Computed on an annualized basis.
* For the period from the start of business, October 28, 1993, to December 31,
1993.
The accompanying notes are an integral part of the financial statements
<PAGE>
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1994
--------------------------------------------------------------------------------
(1) SIGNIFICANT ACCOUNTING POLICIES
Total Return Portfolio (the Portfolio) is registered under the Investment
Company Act of 1940 as a diversified open-end investment company which was
organized as a trust under the laws of the State of New York on May 1, 1992. The
Declaration of Trust permits the Trustees to issue beneficial interests in the
Portfolio. Investment operations began on October 28, 1993, with the acquisition
of net assets of $668,641,088 in exchange for an interest in the Portfolio by
one of the Portfolio's investors. The following is a summary of significant
accounting policies of the Portfolio. The policies are in conformity with
generally accepted accounting principles.
A. INVESTMENT VALUATIONS -- Securities listed on securities exchanges or in the
NASDAQ National Market are valued at closing sales prices or, if there has been
no sale, at the mean between the closing bid and asked prices. Unlisted
securities are valued at the mean between the latest available bid and asked
prices. Options and financial futures contracts are valued at the last sale
price, as quoted on the principal exchange or board of trade on which such
options or contracts are traded or, in the absence of a sale, the mean between
the last bid and asked prices. Short-term obligations, maturing in 60 days or
less, are valued at amortized cost, which approximates value. Securities for
which market quotations are unavailable are appraised at their fair value as
determined in good faith by or at the direction of the Trustees.
B. INCOME TAXES -- The Portfolio is treated as a partnership for federal tax
purposes. No provision is made by the Portfolio for federal or state taxes on
any taxable income of the Portfolio because each investor in the Portfolio is
ultimately responsible for the payment of any taxes. Since some of the
Portfolio's investors are regulated investment companies that invest all or
substantially all of their assets in the Portfolio, the Portfolio normally must
satisfy the applicable source of income and diversification requirements (under
the Code) in order for its investors to satisfy them. The Portfolio will
allocate at least annually among its investors each investors' distributive
share of the Portfolio's net investment income, net realized capital gains, and
any other items of income, gain, loss, deduction or credit.
C. OPTION ACCOUNTING PRINCIPLES -- Upon the writing of a covered call option, an
amount equal to the premium received by the Portfolio is included in the
Statement of Assets and Liabilities as a liability. The amount of the liability
is subsequently marked-to-market to reflect the current market value of the
option written in accordance with the Portfolio's policies on investment
valuations discussed above. Premiums received from writing call options which
expire are treated as realized gains. Premiums received from writing call
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. The Portfolio, as writer of a call option, may have no control over
whether the underlying securities may be sold and, as a result, bears the market
risk of an unfavorable change in the price of the securities underlying the
written option.
D. FINANCIAL FUTURES CONTRACTS -- Upon the entering of a financial futures
contract, the Portfolio is required to deposit an amount ("initial margin")
either in cash or securities equal to a certain percentage of the purchase price
indicated in the financial futures contract. Subsequent payments are made or
received by the Portfolio ("margin maintenance") each day, dependent on the
daily fluctuations in the value of the underlying security, and are recorded for
book purposes as unrealized gains or losses by the Portfolio. When the Portfolio
enters into a closing transaction, the Portfolio will realize for book purposes
a gain or loss equal to the difference between the value of the financial
futures contract to sell and the financial futures contract to buy. The
Portfolio's investment in financial futures contracts is designed only to hedge
against anticipated future changes in interest rates, security prices, commodity
prices or currency exchange rates. Should interest rates, security prices,
commodity prices or currency exchange rates move unexpectedly, the Portfolio may
not achieve the anticipated benefits of the financial futures contracts and may
realize a loss.
<PAGE>
NOTES TO FINANCIAL STATEMENTS (Continued)
--------------------------------------------------------------------------------
E. DEFERRED ORGANIZATION EXPENSES -- Costs incurred by the Portfolio in
connection with its organization are being amortized on the straight-line basis
over five years.
F. OTHER -- Investment transactions are accounted for on the date the
investments are purchased or sold. Dividend income is recorded on the
ex-dividend date. Realized gains and losses on the sale of investments are
determined on the identified cost basis.
(2) INVESTMENT TRANSACTIONS
Purchases and sales of investments, other than short-term obligations,
aggregated $574,395,813 and $620,810,869,respectively.
(3) INVESTMENT ADVISER FEE AND OTHER TRANSACTIONS WITH AFFILIATES
The investment adviser fee is earned by Boston Management and Research (BMR), a
wholly-owned subsidiary of Eaton Vance Management (EVM), as compensation for
manage- ment and investment advisory services rendered to the Portfolio. The fee
is based upon a percentage of average daily net assets. For the year ended
December 31, 1994, the fee was equivalent to 0.74% of the Portfolio's average
net assets for such period and amounted to $4,106,857. Except as to Trustees of
the Portfolio who are not members of EVM's or BMR's organization, officers and
Trustees receive remuneration for their service to the Portfolio out of such
investment adviser fee. Investors Bank & Trust Company (IBT), an affiliate of
EVM and BMR, serves as custodian of the Portfolio. Pursuant to the custodian
agreement, IBT receives a fee reduced by credits which are determined based on
the average daily cash balances the Portfolio maintains with IBT. Certain of the
officers and Trustees of the Portfolio are officers and directors/trustees of
the above organizations.
--------------------------------------------------------------------------------
(4) LINE OF CREDIT
The Portfolio participates with other portfolios and funds managed by BMR and
EVM and its affiliates 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. The Portfolio expects to use the proceeds
of the advances primarily for leveraging purposes. Borrowings by the Portfolio
under the Credit Agreement will not exceed the lesser of 1/3 of the market value
of the net assets of the Portfolio or $60,000,000. Interest is charged to each
portfolio 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 and portfolios at the end of each quarter. The average daily loan balance
for the year ended December 31, 1994 was $3,137,134 and the average interest
rate was 5.96%. The maximum borrowings outstanding at any month end during the
year ended December 31, 1994, was $26,083,000.
--------------------------------------------------------------------------------
(5) FEDERAL INCOME TAX BASIS OF INVESTMENTS
The cost and unrealized appreciation/depreciation in value of the investments
owned at December 31, 1994, as computed on a federal income tax basis, are as
follows:
Aggregate cost $482,915,174
============
Gross unrealized appreciation $ 28,239,363
Gross unrealized depreciation 13,189,726
------------
Net unrealized appreciation $ 15,049,637
============
<PAGE>
NOTES TO FINANCIAL STATEMENTS (Continued)
(6) FINANCIAL INSTRUMENTS
The Portfolio may trade in financial instruments with
off-balance sheet risk in the normal course of its investing activities to
assist in managing exposure to various market risks. These financial instruments
include written options, forward foreign currency exchange contracts, and
financial futures contracts and may involve, to a varying degree, elements of
risk in excess of the amounts recognized for financial statement purposes. The
notational 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 off-setting transactions are considered.
A summary of obligations under these financial instruments at December 31, 1994
is as follows:
NET
FUTURES CONTRACT UNREALIZED
EXPIRATION DATE CONTRACTS POSITION DEPRECIATION
--------------- --------- -------- ------------
3/95 600 S&P 500 Futures Short $2,152,500
At December 31, 1994, the Portfolio has sufficient cash and/or securities to
cover margin requirements on open futures contracts.
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
--------------------------------------------------------------------------------
To the Trustees and Investors of
Total Return Portfolio:
We have audited the accompanying statement of assets and liabilities of Total
Return Portfolio, including the portfolio of investments, as of December 31,
1994, the related statement of operations for the year then ended and the
statement of changes in net assets and supplementary data for the year ended
December 31, 1994, and for the period from the start of business, October 28,
1993, to December 31, 1993. These financial statements and supplementary data
are the responsibility of the Portfolio's management. Our responsibility is to
express an opinion on these financial statements and supplementary data based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and supplementary
data are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
December 31, 1994 by correspondence with the custodian and brokers. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and supplementary data referred to
above present fairly, in all material respects, the financial position of Total
Return Portfolio as of December 31, 1994, the results of its operations for the
year then ended, and the changes in its net assets and the supplementary data
for the year ended December 31, 1994, and for the period from the start of
business, October 28, 1993, to December 31, 1993, in conformity with generally
accepted accounting principles.
COOPERS & LYBRAND L.L.P.
Boston, Massachusetts
February 3, 1995
<PAGE>
INVESTMENT ADVISER OF
TOTAL RETURN PORTFOLIO
Boston Management and Research
24 Federal Street
Boston, MA 02110
ADMINISTRATOR OF
EATON VANCE EQUITY-INCOME TRUST
Eaton Vance Management
24 Federal Street
Boston, MA 02110
PRINCIPAL UNDERWRITER
Eaton Vance Distributors, Inc.
24 Federal Street
Boston, MA 02110
(800) 225-6265
CUSTODIAN
Investors Bank & Trust Company
24 Federal Street
Boston, MA 02110
TRANSFER AGENT
The Shareholder Services Group, Inc.
BOS725
P.O. Box 1559
Boston, MA 02104
(800) 262-1122
INDEPENDENT ACCOUNTANTS
Coopers & Lybrand L.L.P.
One Post Office Square
Boston, MA 02109
EATON VANCE EQUITY-INCOME TRUST
24 FEDERAL STREET
BOSTON, MA 02110
EISAI
EATON VANCE
EQUITY-INCOME
TRUST
STATEMENT OF
ADDITIONAL
INFORMATION
MAY 1, 1995
<PAGE>
EATON VANCE SPECIAL INVESTMENT TRUST
EV MARATHON TOTAL RETURN FUND
SUPPLEMENT TO STATEMENT OF ADDITIONAL INFORMATION DATED MAY 1, 1995
Effective August 1, 1995, EV Marathon Total Return Fund was reorganized
and became a series of Eaton Vance Special Investment Trust, a business trust
organized under the laws of the Commonwealth of Massachusetts. Prior to the
reorganization, the Fund had been a series of Eaton Vance Total Return Trust,
which was also a Massachusetts business trust. Except for the fact that the Fund
is now a series of Eaton Vance Special Investment Trust, shares of the Fund
represent the same interest in the Fund's assets, are of the same class, are
subject to the same terms and conditions, fees and expenses and confer the same
rights as when the Fund was a series of Eaton Vance Total Return Trust.
THE DATE OF THE ATTACHED STATEMENT OF ADDITIONAL INFORMATION IS CHANGED
TO AUGUST 1, 1995. ALL REFERENCES IN THE STATEMENT OF ADDITIONAL INFORMATION TO
EATON VANCE TOTAL RETURN TRUST OR THE TRUST ARE DEFINED TO MEAN EATON VANCE
SPECIAL INVESTMENT TRUST.
The tables below indicate the total return (capital changes plus
reinvestment of all distributions) and percentage changes on a hypothetical
investment of $1,000 in the Fund from December 31, 1985 through December 31,
1994. The tables replace the tables appearing under "Performance Information" in
Part II of the Statement of Additional Information. The total return and
percentage changes for the period prior to the Fund's commencement of operations
on November 1, 1993 reflect the Portfolio's total return and percentage changes
(or that of its predecessor) adjusted to reflect any applicable Fund sales
charge. Such performance has not been adjusted to reflect the Fund's
distribution fees and certain other expenses. If such an adjustment were made,
the performance would be lower.
<TABLE>
<CAPTION>
VALUE OF A $1,000 INVESTMENT
Value of Value of
investment investment
before after
deducting deducting the Total return before Total return after
the contingent contingent deducting the contingent deducting the contingent
deferred deferred deferred sales charge deferred sales charge
Investment Investment Amount of sales charge sales charge ------------------------ ------------------------
Period Date Investment on 12/31/94 on 12/31/94 Cumulative Annualized Cumulative Annualized
---------- ---------- ---------- -------------- ------------- ---------- ----------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
10 Years
Ended
12/31/94 12/31/84 $1,000.00 $3,094.90 $3,094.90 209.49% 11.95% 209.49% 11.95%
5 Years
Ended
12/31/94 12/31/89 $1,000.00 $1,335.80 $1,320.45 33.58% 5.96% 32.04% 5.72%
1 Year
Ended
12/31/94* 12/31/93 $1,000.00 $ 875.30 $ 833.51 -12.47% -12.47% -16.65% -16.65%
<PAGE>
<CAPTION>
PERCENTAGE CHANGES -- 12/31/85-12/31/94
Net asset value to net asset value Net asset value to net asset value
before deducting the contingent deferred after deducting the contingent deferred
sales charge with all distributions reinvested sales charge with all distributions reinvested
---------------------------------------------- ----------------------------------------------
Fiscal Year Ended Annual Cumulative Average Annual Annual Cumulative Average Annual
----------------- ------ ---------- -------------- ------ ---------- --------------
<C> <C> <C> <C> <C> <C> <C>
12/31/85 40.13% 40.13% 40.13% 35.13% 35.13% 35.13%
12/31/86 31.48% 84.24% 35.74% 26.48% 79.24% 33.88%
12/31/87 -15.82% 55.09% 15.75% -19.38% 51.09% 14.75%
12/31/88 11.94% 73.60% 14.78% 6.94% 70.60% 14.28%
12/31/89 33.46% 131.69% 18.29% 28.46% 129.69% 18.08%
12/31/90 0.15% 132.04% 15.05% -4.38% 131.04% 14.97%
12/31/91 23.61% 186.83% 16.24% 18.61% 186.83% 16.24%
12/31/92 6.60% 205.75% 14.98% 1.80% 205.75% 14.98%
12/31/93* 15.65% 253.58% 15.06% 10.65% 253.58% 15.06%
12/31/94* -12.47% 209.49% 11.95% -16.65% 209.49% 11.95%
Past performance is not indicative of future results. Investment return and principal value will fluctuate; shares, when
redeemed, may be worth more or less than their original cost.
* If a portion of the Fund's expenses had not been subsidized, the Fund would have had lower returns.
</TABLE>
August 1, 1995 M-TMSAIS
<PAGE>
STATEMENT OF
ADDITIONAL INFORMATION
May 1, 1995
EV MARATHON TOTAL RETURN FUND
24 Federal Street
Boston, Massachusetts 02110
(800) 225-6265
This Statement of Additional Information consists of two parts. Part I
provides information about EV Marathon Total Return Fund (the "Fund") and
certain other series of Eaton Vance Total Return Trust (the "Trust"). Part II
provides information solely about the Fund. Where appropriate, Part I includes
cross-references to the relevant sections of Part II that provide additional,
Fund-specific information.
------------------------------------------------------------------------------
TABLE OF CONTENTS Page
PART I
Investment Objective and Policies .............................. 2
Investment Restrictions ........................................ 4
Trustees and Officers .......................................... 5
Investment Adviser and Administrator ........................... 7
Custodian ...................................................... 9
Service for Withdrawal ......................................... 10
Determination of Net Asset Value ............................... 10
Investment Performance ......................................... 10
Taxes .......................................................... 12
Portfolio Security Transactions ................................ 14
Other Information .............................................. 15
Independent Accountants ........................................ 16
PART II
Fees and Expenses .............................................. a-1
Performance Information ........................................ a-2
Principal Underwriter .......................................... a-3
Distribution Plan .............................................. a-3
Control Persons and Principal Holders of Securities ............ a-5
Financial Statements ........................................... a-5
--------------------------------------------------------------------------------
THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT A PROSPECTUS AND IS
AUTHORIZED FOR DISTRIBUTION TO PROSPECTIVE INVESTORS ONLY IF PRECEDED OR
ACCOMPANIED BY THE FUND'S PROSPECTUS DATED MAY 1, 1995, AS SUPPLEMENTED FROM
TIME TO TIME. THIS STATEMENT OF ADDITIONAL INFORMATION SHOULD BE READ IN
CONJUNCTION WITH SUCH PROSPECTUS, A COPY OF WHICH MAY BE OBTAINED WITHOUT CHARGE
BY CONTACTING EATON VANCE DISTRIBUTORS, INC. (THE "PRINCIPAL UNDERWRITER") (SEE
BACK COVER FOR ADDRESS AND PHONE NUMBER).
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
PART I
This Part I provides information about the Fund and certain other series of
the Trust.
INVESTMENT OBJECTIVE AND POLICIES
The investment objective of the Fund is to seek for its shareholders a high
level of total return, consisting of relatively predictable income in
conjunction with capital appreciation, consistent with prudent management and
preservation of capital. The Fund currently seeks to achieve its investment
objective by investing its assets in the Total Return Portfolio (the
"Portfolio"), a separate registered investment company with the same investment
objective as the Fund and substantially the same investment policies and
restrictions as the Fund. The Portfolio seeks to achieve its investment
objective by investing principally in dividend-paying common stocks with the
potential to increase dividends in the future.
The Trustees of the Trust may withdraw the Fund's investment from the
Portfolio at any time, if they determine that it is in the best interests of the
Fund to do so. Upon any such withdrawal, the Fund's assets would be invested in
another investment company with substantially the same investment objective,
policies and restrictions as those of the Fund or invested directly in
investment securities in accordance with the Portfolio's investment policies, as
described below. Except as indicated below, the approval of the Fund's
shareholders would not be required to change the Portfolio's investment
objective or any of the Portfolio's investment policies discussed below,
including those concerning security transactions.
Because the investment characteristics of the Fund will correspond directly
to those of the Portfolio, the following is a discussion of the various
investments of and techniques employed by the Portfolio.
LEVERAGE THROUGH BORROWING
The practice of leveraging to enhance investment return may be viewed as a
speculative activity. Leveraging will exaggerate any increase or decrease in the
market value of the securities held by the Portfolio. Money borrowed for
leveraging will be subject to interest costs which may or may not exceed the
dividends for the securities purchased. The Portfolio may also be required to
maintain minimum average balances in connection with such borrowing or to pay a
commitment or other fee to maintain a line of credit; either of these
requirements will increase the cost of borrowing over the stated interest rate.
The Portfolio and the other investment companies managed by Boston
Management and Research ("BMR") or Eaton Vance Management participate in a Line
of Credit Agreement (the "Credit Agreement") with Citibank, N.A. ("Citibank").
Citibank agrees, in the Credit Agreement, to consider requests from the
Portfolio and such other investment companies that Citibank make advances
("Advances") to the Portfolio and such other investment companies from time to
time. The aggregate amount of all such Advances to all such borrowers will not
exceed $120,000,000, of which $100,000,000 is a discretionary facility and
$20,000,000 is a committed facility. The Portfolio has currently determined that
its borrowings under the Credit Agreement will not exceed, at any one time
outstanding, the lesser of (a) 1/3 of the current market value of the net assets
of the Portfolio or (b) $60,000,000 (the "Amount Available to the Portfolio").
The Portfolio is obligated to pay to Citibank, in addition to interest on
Advances made to it, a quarterly fee on the $20,000,000 committed facility and
on the daily unused portion of the Amount Available to the Portfolio at the rate
of 1/4 of 1% per annum. The Credit Agreement may be terminated by Citibank or
the borrowers at any time upon 30 days' prior written notice. The Portfolio
expects to use the proceeds of the Advances primarily for leveraging purposes.
As at December 31, 1994, the Portfolio had no outstanding loans pursuant to the
Credit Agreement.
The Portfolio, like many other investment companies, can also borrow money
for temporary extraordinary or emergency purposes. Such borrowings may not
exceed 5% of the value of the Portfolio's total assets when the loan is made.
The Portfolio may pledge up to 10% of the lesser of cost or value of its total
assets to secure such borrowings.
The ability of the Portfolio to borrow could be partially or entirely
curtailed in the event that the Credit Control Act of 1969 were to be invoked
and the Federal Reserve Board were to limit or prohibit certain extensions of
credit. This Act empowers the Federal Reserve Board, when authorized by the
President, to regulate directly the costs and allocation of funds in the credit
market.
RISKS ASSOCIATED WITH DERIVATIVE INSTRUMENTS
Entering into a derivative instrument involves a risk that the applicable
market will move against the Portfolio's position and that the Portfolio will
incur a loss. For derivative instruments other than purchased options, this loss
may exceed the amount of the initial investment made or the premium received by
the Portfolio. Derivative instruments may sometimes increase or leverage the
Portfolio's exposure to a particular market risk. Leverage enhances the
Portfolio's exposure to the price volatility of derivative instruments it holds.
The Portfolio's success in using derivative instruments to hedge portfolio
assets depends on the degree of price correlation between the derivative
instruments and the hedged asset. Imperfect correlation may be caused by several
factors, including temporary price disparities among the trading markets for the
derivative instrument, the assets underlying the derivative instrument and the
Portfolio assets. Over-the-counter ("OTC") derivative instruments involve an
enhanced risk that the issuer or counterparty will fail to perform its
contractual obligations. Some derivative instruments are not readily marketable
or may become illiquid under adverse market conditions. In addition, during
periods of market volatility, a commodity exchange may suspend or limit trading
in an exchange-traded derivative instrument, which may make the contract
temporarily illiquid and difficult to price. Commodity exchanges may also
establish daily limits on the amount that the price of a futures contract or
futures option can vary from the previous day's settlement price. Once the daily
limit is reached, no trades may be made that day at a price beyond the limit.
This may prevent the Portfolio from closing out positions and limiting its
losses. The staff of the Securities and Exchange Commission ("Commission") takes
the position that purchased OTC options, and assets used as cover for written
OTC options, are subject to the Portfolio's 15% limit on illiquid investments.
The Portfolio's ability to terminate OTC derivative instruments may depend on
the cooperation of the counterparties to such contracts. The Portfolio expects
to purchase and write only exchange-traded options until such time as the
Portfolio's management determines that the OTC options market is sufficiently
developed and the Portfolio has amended its prospectus so that appropriate
disclosure is furnished to prospective and existing shareholders. For thinly
traded derivative instruments, the only source of price quotations may be the
selling dealer or counterparty. In addition, certain provisions of the Internal
Revenue Code of 1986, as amended ("Code"), limit the extent to which the
Portfolio may purchase and sell derivative instruments. The Portfolio will
engage in transactions in futures contracts and related options only to the
extent such transactions are consistent with the requirements of the Code for
maintaining the qualification of the Fund as a regulated investment company for
Federal income tax purposes. See "Taxes."
ASSET COVERAGE FOR DERIVATIVE INSTRUMENTS
Transactions using forward contracts, futures contracts and options (other
than options that the Portfolio has purchased) expose the Portfolio to an
obligation to another party. The Portfolio will not enter into any such
transactions unless it owns either (1) an offsetting ("covered") position in
securities, currencies, or other options or futures contracts or forward
contracts, or (2) cash, receivables and short-term debt securities with a value
sufficient at all times to cover its potential obligations not covered as
provided in (1) above. The Portfolio will comply with Commission guidelines
regarding cover for these instruments and, if the guidelines so require, set
aside cash, U.S. Government securities or other liquid, high-grade debt
securities in a segregated account with its custodian in the prescribed amount.
Assets used as cover or held in a segregated account cannot be sold while
the position in the corresponding forward contract, futures contract or option
is open, unless they are replaced with other appropriate assets. As a result,
the commitment of a large portion of the Portfolio's assets to cover or
segregated accounts could impede portfolio management or the Portfolio's ability
to meet redemption requests or other current obligations.
LIMITATIONS ON FUTURES CONTRACTS AND OPTIONS
If the Portfolio has not complied with the 5% CFTC test set forth in the
Fund's prospectus, to evidence its hedging intent, the Portfolio expects that,
on 75% or more of the occasions on which it takes a long futures or option on
futures position, it will have purchased or will be in the process of
purchasing, equivalent amounts of related securities at the time when the
futures or options position is closed out. However, in particular cases, when it
is economically advantageous for the Portfolio to do so, a long futures or
options position may be terminated (or an option may expire) without a
corresponding purchase of securities.
The Portfolio may enter into futures contracts, and options on futures
contracts, traded on an exchange regulated by the CFTC and on foreign exchanges,
but, with respect to foreign exchange-traded futures contracts and options on
such futures contracts, only if the Investment Adviser determines that trading
on each such foreign exchange does not subject the Portfolio to risks, including
credit and liquidity risks, that are materially greater than the risks
associated with training on CFTC-regulated exchanges.
In order to hedge its current or anticipated portfolio positions, the
Portfolio may use futures contracts on securities held in its Portfolio or on
securities with characteristics similar to those of the securities held by the
Portfolio. If, in the opinion of the Investment Adviser, there is a sufficient
degree of correlation between price trends for the securities held by the
Portfolio and futures contracts based on other financial instruments, securities
indices or other indices, the Portfolio may also enter into such futures
contracts as part of its hedging strategy.
All call and put options on securities written by the Portfolio will be
covered. This means that, in the case of a call option, the Portfolio will own
the securities subject to the call option or an offsetting call option so long
as the call option is outstanding. In the case of a put option, the Portfolio
will own an offsetting put option or will have deposited with its custodian cash
or liquid, high-grade debt securities with a value at least equal to the
exercise price of the put option. The Portfolio may only write a put option on a
security that it intends ultimately to acquire for its investment portfolio.
PORTFOLIO TURNOVER
The portfolio turnover rate of the Portfolio is likely to exceed 100%, but
under normal conditions is not likely to exceed 250%. A 100% turnover rate
occurs if all of the securities held by the Portfolio are sold and either
repurchased or replaced within one year. High portfolio turnover involves
correspondingly greater brokerage commissions and other transaction costs, which
will be borne directly by the Portfolio. It may also result in the realization
of capital gains. See "Portfolio Security Transactions" for a discussion of the
Portfolio's brokerage practices.
INVESTMENT RESTRICTIONS
The following investment restrictions have been adopted by the Fund and may
be changed only by the vote of a majority of the Fund's outstanding voting
securities as defined in the Investment Company Act of 1940 (the "1940 Act").
As a matter of fundamental policy, the Fund may not:
(1) With respect to 75% of its total assets, invest more than 5% of its
total assets in the securities of any one issuer or purchase more than 10% of
the outstanding voting securities of any one issuer, except obligations issued
or guaranteed by the U.S. Government, its agencies or instrumentalities and
except securities of other investment companies;
(2) Borrow money or issue senior securities except as permitted by the
Investment Company Act of 1940;
(3) Purchase securities on margin (but the Fund may obtain such short-term
credits as may be necessary for the clearance of purchases and sales of
securities). The deposit or payment by the Fund of initial, maintenance or
variation margin in connection with all types of options and futures contract
transactions is not considered the purchase of a security on margin;
(4) Underwrite or participate in the marketing of securities of others,
except insofar as it may technically be deemed to be an underwriter in selling a
portfolio security under circumstances which may require the registration of the
same under the Securities Act of 1933;
(5) Make an investment in any one industry if such investment would cause
investments in such industry to exceed 25% of the Fund's total assets (taken at
market value) except that the Fund will concentrate at least 25% of its
investments in utility stocks (i.e., principally electric, gas and telephone
companies);
(6) Purchase or sell real estate, although it may purchase and sell
securities which are secured by real estate and securities of companies which
invest or deal in real estate;
(7) Purchase or sell physical commodities or contracts for the purchase or
sale of physical commodities; or
(8) Make loans to any person except by (a) the acquisition of debt
securities and making portfolio investments, (b) entering into repurchase
agreements and (c) lending portfolio securities.
Notwithstanding the investment policies and restrictions of the Fund, the
Fund may invest its assets in an open-end management investment company with
substantially the same investment objective, policies and restrictions as the
Fund.
The Portfolio has adopted substantially the same fundamental investment
restrictions as the foregoing numbered investment restrictions adopted by the
Fund; such restrictions cannot be changed without the approval of a "majority of
the outstanding voting securities" of the Portfolio, which as used in this
Statement of Additional Information means the lesser of (a) 67% of the
outstanding voting securities of the Portfolio present or represented by proxy
at a meeting if the holders of more than 50% of the outstanding voting
securities of the Portfolio are present or represented at the meeting or (b)
more than 50% of the outstanding voting securities of the Portfolio. The term
"voting securities" as used in this paragraph has the same meaning as in the
1940 Act. Whenever the Trust is requested to vote on a change in the investment
restrictions of the Portfolio, the Trust will hold a meeting of Fund
shareholders and will cast its vote as instructed by the shareholders.
The Fund and the Portfolio have each adopted the following nonfundamental
investment policies which may be changed with respect to the Fund by the
Trustees of the Trust without approval by the Fund's shareholders or may be
changed with respect to the Portfolio by the Trustees of the Portfolio with or
without the approval of the Fund or the Portfolio's other investors. As a matter
of nonfundamental policy, neither the Fund nor the Portfolio may: (a) invest
more than 15% of net assets in investments which are not readily marketable,
including restricted securities and repurchase agreements maturing in more than
seven days. Restricted securities for the purposes of this limitation do not
include securities eligible for resale pursuant to Rule 144A of the Securities
Act of 1933 that the Board of Trustees of the Trust or the Portfolio, or its
delegate, determine to be liquid, based upon the trading markets for the
specific security; (b) purchase warrants in excess of 5% of its net assets, of
which 2% may be warrants which are not listed on the New York or American Stock
Exchange; (c) make short sales of securities or maintain a short position,
unless at all times when a short position is open it owns an equal amount of
such securities or securities convertible into or exchangeable, without payment
of any further consideration, for securities of the same issue as, and equal in
amount to, the securities sold short, and unless no more than 25% of its net
assets (taken at current value) is held as collateral for such sales at any one
time. (It is the present intention of management to make such sales only for the
purpose of deferring realization of gain or loss for Federal income tax
purposes); (d) purchase securities of any issuer which, including predecessors,
has not been in continuous operation for at least three years, except that 5% of
its total assets (taken at market value) may be invested in certain issuers not
in such continuous operation but substantially all of whose assets are (i)
securities of one or more issuers which have had a record of three years'
continuous operation or (ii) assets of an independent division of an issuer
which division has had a record of three years' continuous operation; provided,
however, that exempted from this restriction are U.S. Government securities,
securities of issuers which are rated by at least one nationally recognized
statistical rating organization, municipal obligations and obligations issued or
guaranteed by any foreign government or its agencies or instrumentalities; (e)
purchase or retain in its portfolio any securities issued by an issuer any of
whose officers, directors, trustees or security holders is an officer or trustee
of the Trust or the Portfolio or is a member, officer, director or trustee of
any investment adviser of the Trust or the Portfolio, if after the purchase of
the securities of such issuer by the Fund or the Portfolio one or more of such
persons owns beneficially more than 1/2 of 1% of the shares or securities or
both (all taken at market value) of such issuer and such persons owning more
than 1/2 of 1% of such shares of securities together own beneficially more than
5% of such shares or securities or both (all taken at market value); (f)
purchase oil, gas or other mineral leases or purchase partnership interests in
oil, gas or other mineral exploration or development programs; and (g) invest
more than 5% of its net assets in the securities of foreign issuers. (For
purposes of restriction (g), U.S. dollar denominated ADRs and GDRs traded on a
U.S. exchange shall not be deemed foreign securities.)
It is contrary to the present policy of the Fund and the Portfolio, which
policy may be changed without shareholder or investor approval, as the case may
be, to purchase any voting security of any electric or gas utility company (as
defined by the Public Utility Holding Company Act of 1935) if as a result it
would then hold more than 5% of the outstanding voting securities of such
company.
In order to permit the sale of shares of the Fund in certain states, the
Fund may make commitments more restrictive than the policies described above.
Should the Fund determine that any such commitment is no longer in the best
interests of the Fund and its shareholders, it will revoke the commitment by
terminating sales of its shares in the state(s) involved.
TRUSTEES AND OFFICERS
The Trustees and officers of the Trust and the Portfolio are listed below.
Except as indicated, each individual has held the office shown or other offices
in the same company for the last five years. Unless otherwise noted, the
business address of each Trustee and officer is 24 Federal Street, Boston,
Massachusetts 02110, which is also the address of the Portfolio's investment
adviser, Boston Management and Research ("BMR" or the "Investment Adviser"), a
wholly-owned subsidiary of Eaton Vance Management ("Eaton Vance"); of Eaton
Vance's parent, Eaton Vance Corp. ("EVC"); and of BMR's and Eaton Vance's
trustee, Eaton Vance, Inc. ("EV"). Eaton Vance and EV are both wholly-owned
subsidiaries of EVC. Those Trustees who are "interested persons" of the Trust,
the Portfolio, BMR, Eaton Vance, EVC or EV, as defined in the 1940 Act, by
virtue of their affiliation with any one or more of the Trust, the Portfolio,
BMR, Eaton Vance, EVC or EV, are indicated by an asterisk(*).
TRUSTEES OF THE TRUST AND THE PORTFOLIO
M. DOZIER GARDNER (61), PRESIDENT AND TRUSTEE*
President and Chief Executive Officer of BMR, Eaton Vance, EVC and EV, and
Director of EVC and EV. Director, Trustee and officer of various investment
companies managed by Eaton Vance or BMR.
LANDON T. CLAY (69), VICE PRESIDENT AND TRUSTEE*
Chairman of BMR, Eaton Vance, EVC and EV and a Director of EVC and EV. Director,
Trustee and officer of various investment companies managed by Eaton Vance or
BMR.
DONALD R. DWIGHT (64), TRUSTEE
President of Dwight Partners, Inc. (a corporate relations and communications
company) founded in 1988; Chairman of the Board of Newspapers of New England,
Inc., since 1983. Director or Trustee of various investment companies managed
by Eaton Vance or BMR.
Address: Clover Mill Lane, Lyme, New Hampshire 03768
JAMES B. HAWKES (53), VICE PRESIDENT OF THE PORTFOLIO AND TRUSTEE*
Executive Vice President of BMR, Eaton Vance, EVC and EV, and a Director of EVC
and EV. Director, Trustee and officer of various investment companies managed
by Eaton Vance or BMR. Mr. Hawkes was elected Trustee of the Trust on June 14,
1993.
SAMUEL L. HAYES, III (60), TRUSTEE
Jacob H. Schiff Professor of Investment Banking, Harvard University Graduate
School of Business Administration. Director or Trustee of various investment
companies managed by Eaton Vance or BMR.
Address: Harvard University Graduate School of Business Administration,
Soldiers Field Road, Boston, Massachusetts 02163
NORTON H. REAMER (59), TRUSTEE
President and Director, United Asset Management Corporation, a holding company
owning institutional investment management firms. Chairman, President and
Director, The Regis Fund, Inc. (mutual fund). Director or Trustee of various
investment companies managed by Eaton Vance or BMR.
Address: One International Place, Boston, Massachusetts 02110
JOHN L. THORNDIKE (68), TRUSTEE
Director, Fiduciary Company Incorporated. Director or Trustee of various
investment companies managed by Eaton Vance or BMR.
Address: 175 Federal Street, Boston, Massachusetts 02110
JACK L. TREYNOR (65), TRUSTEE
Investment Adviser and Consultant. Director or Trustee of various investment
companies managed by Eaton Vance or BMR.
Address: 504 Via Almar, Palos Verdes Estates, California 90274
OFFICERS OF THE TRUST AND THE PORTFOLIO
EDWIN W. BRAGDON (72), VICE PRESIDENT
Vice President of BMR, Eaton Vance and EV. Officer of various investment
companies managed by Eaton Vance or BMR.
A. WALKER MARTIN (49), VICE PRESIDENT
Vice President of BMR, Eaton Vance and EV. Officer of various investment
companies managed by Eaton Vance or BMR.
JAMES L. O'CONNOR (50), TREASURER
Vice President of BMR, Eaton Vance and EV. Officer of various investment
companies managed by Eaton Vance or BMR.
THOMAS OTIS (63), SECRETARY
Vice President and Secretary of BMR, Eaton Vance, EVC and EV. Officer of various
investment companies managed by Eaton Vance or BMR.
JANET E. SANDERS (59), ASSISTANT TREASURER AND ASSISTANT SECRETARY
Vice President of BMR, Eaton Vance and EV. Officer of various investment
companies managed by Eaton Vance or BMR.
WILLIAM J. AUSTIN, JR. (43), ASSISTANT TREASURER
Assistant Vice President of BMR, Eaton Vance and EV. Officer of various
investment companies managed by Eaton Vance or BMR. Mr. Austin was elected
Assistant Treasurer of the Trust on December 16, 1991.
A. JOHN MURPHY (32), ASSISTANT SECRETARY
Assistant Vice President of BMR, Eaton Vance and EV since March 1, 1994;
employee of Eaton Vance since March 1993. Officer of various investment
companies managed by Eaton Vance or BMR. State Regulations Supervisor, The
Boston Company (1991 - 1993) and Registration Specialist, Fidelity Management
& Research Co. (1986 - 1991). Mr. Murphy was elected Assistant Secretary of
the Trust and the Portfolio on March 27, 1995.
Messrs. Thorndike (Chairman), Hayes and Reamer are members of the Special
Committee of the Board of Trustees of the Trust and of the Portfolio. The
Special Committee's functions include a continuous review of the Trust's
contractual relationship with the Administrator, the Portfolio's contractual
relationship with the Investment Adviser, making recommendations to the Trustees
regarding the compensation of those Trustees who are not members of the Eaton
Vance organization, and making recommendations to the Trustees regarding
candidates to fill vacancies, as and when they occur, in the ranks of those
Trustees who are not "interested persons" of the Trust, the Portfolio, or the
Eaton Vance organization.
Messrs. Treynor (Chairman) and Dwight are members of the Audit Committee of
the Board of Trustees of the Trust and of the Portfolio. The Audit Committee's
functions include making recommendations to the Trustees regarding the selection
of the independent accountants, and reviewing with such independent accountants
and the Treasurer of the Trust and of the Portfolio matters relative to
accounting and auditing practices and procedures, accounting records, internal
accounting controls, and the functions performed by the custodian and transfer
agent of the Fund and of the Portfolio.
Trustees of the Portfolio who are not affiliated with the Investment Adviser
may elect to defer receipt of all or a percentage of their annual fees in
accordance with the terms of a Trustees Deferred Compensation Plan (the "Plan").
Under the Plan, an eligible Trustee may elect to have his deferred fees invested
by the Portfolio in the shares of one or more funds in the Eaton Vance Family of
Funds, and the amount paid to the Trustees under the Plan will be determined
based upon the performance of such investments. Deferral of Trustees' fees in
accordance with the Plan will have a negligible effect on the Portfolio's
assets, liabilities, and net income per share, and will not obligate the
Portfolio to retain the services of any Trustees or obligate the Portfolio to
pay any particular level of compensation to the Trustees.
The fees and expenses of those Trustees of the Trust and the Portfolio who
are not members of the Eaton Vance organization (the noninterested Trustees) are
paid by the Fund (and the other series of the Trust) and the Portfolio,
respectively. For the compensation earned by the noninterested Trustees of the
Trust and the Portfolio, see "Fees and Expenses" in Part II of this Statement of
Additional Information.
INVESTMENT ADVISER AND ADMINISTRATOR
The Portfolio engages BMR as its investment adviser pursuant to an
Investment Advisory Agreement dated October 28, 1993. BMR or Eaton Vance acts as
investment adviser to investment companies and various individual and
institutional clients with combined assets under management of approximately $15
billion.
Eaton Vance, its affiliates and its predecessor companies have been managing
assets of individuals and institutions since 1924 and managing investment
companies since 1931. They maintain a large staff of experienced fixed-income
and equity investment professionals to service the needs of their clients. The
fixed-income division focuses on all kinds of taxable investment-grade and
high-yield securities, tax-exempt investment-grade and high-yield securities,
and U.S. Government securities. The equity division covers stocks ranging from
blue chip to emerging growth companies.
BMR manages the investments and affairs of the Portfolio subject to the
supervision of the Portfolio's Board of Trustees. BMR furnishes to the Portfolio
investment research, advice and supervision, furnishes an investment program and
determines what securities will be purchased, held or sold by the Portfolio and
what portion, if any, of the Portfolio's assets will be held uninvested. The
Investment Advisory Agreement requires BMR to pay the salaries and fees of all
officers and Trustees of the Portfolio who are members of the BMR organization
and all personnel of BMR performing services relating to research and investment
activities. The Portfolio is responsible for all expenses not expressly stated
to be payable by BMR under the Investment Advisory Agreement, including, without
implied limitation, (i) expenses of maintaining the Portfolio and continuing its
existence, (ii) registration of the Portfolio under the 1940 Act, (iii)
commissions, fees and other expenses connected with the acquisition, holding and
disposition of securities and other investments, (iv) auditing, accounting and
legal expenses, (v) taxes and interest, (vi) governmental fees, (vii) expenses
of issue, sale and redemption of interests in the Portfolio, (viii) expenses of
registering and qualifying the Portfolio and interests in the Portfolio under
Federal and state securities laws and of preparing and printing registration
statements or other offering statements or memoranda for such purposes and for
distributing the same to investors, and fees and expenses of registering and
maintaining registrations of the Portfolio and of the Portfolio's placement
agent as broker-dealer or agent under state securities laws, (ix) expenses of
reports and notices to investors and of meetings of investors and proxy
solicitations therefor, (x) expenses of reports to governmental officers and
commissions, (xi) insurance expenses, (xii) association membership dues, (xiii)
fees, expenses and disbursements of custodians and subcustodians for all
services to the Portfolio (including without limitation safekeeping of funds,
securities and other investments, keeping of books, accounts and records, and
determination of net asset values, book capital account balances and tax capital
account balances), (xiv) fees, expenses and disbursements of transfer agents,
dividend disbursing agents, investor servicing agents and registrars for all
services to the Portfolio, (xv) expenses for servicing the accounts of
investors, (xvi) any direct charges to investors approved by the Trustees of the
Portfolio, (xvii) compensation and expenses of Trustees of the Portfolio who are
not members of BMR's organization, and (xviii) such non-recurring items as may
arise, including expenses incurred in connection with litigation, proceedings
and claims and the obligation of the Portfolio to indemnify its Trustees,
officers and investors with respect thereto.
Under the Investment Advisory Agreement with the Portfolio, BMR receives a
monthly advisory fee of .0625% (equivalent to .75% annually) of the average
daily net assets of the Portfolio up to $500 million. On net assets of $500
million and above the annual fee is reduced as follows:
Average Daily Net Annualized Fee Rate
Assets for the Month (For Each Level)
-------------------- ----------------
$500 million but less than $1 billion .................... 0.6875%
$1 billion but less than $1.5 billion .................... 0.6250%
$1.5 billion but less than $2 billion .................... 0.5625%
$2 billion but less than $3 billion ...................... 0.5000%
$3 billion and over ...................................... 0.4375%
As at December 31, 1994, the Portfolio had net assets of $505,566,892. For
the fiscal year ended December 31, 1994, the Portfolio paid BMR advisory fees of
$4,106,857 (equivalent to 0.74% of the Portfolio's average daily net assets for
such year). For the period from the start of business, October 28, 1993, to
December 31, 1993, the Portfolio paid BMR advisory fees of $841,228 (equivalent
to 0.74% (annualized) of the Portfolio's average daily net assets for such
period).
The Investment Advisory Agreement with BMR remains in effect until February
28, 1996. It may be continued indefinitely thereafter so long as such
continuance after February 28, 1996 is approved at least annually (i) by the
vote of a majority of the Trustees of the Portfolio who are not interested
persons of the Portfolio or of BMR cast in person at a meeting specifically
called for the purpose of voting on such approval and (ii) by the Board of
Trustees of the Portfolio or by vote of a majority of the outstanding voting
securities of the Portfolio. The Agreement may be terminated at any time without
penalty on sixty (60) days' written notice by the Board of Trustees of either
party, or by vote of the majority of the outstanding voting securities of the
Portfolio, and the Agreement will terminate automatically in the event of its
assignment. The Agreement provides that BMR may render services to others and
engage in other business activities and may permit other fund clients and other
corporations and organizations to use the words "Eaton Vance" or "Boston
Management and Research" in their names. The Agreement also provides that BMR
shall not be liable for any loss incurred in connection with the performance of
its duties, or action taken or omitted under that Agreement, in the absence of
willful misfeasance, bad faith, gross negligence in the performance of its
duties or by reason of its reckless disregard of its obligations and duties
thereunder, or for any losses sustained in the acquisition, holding or
disposition of any security or other investment.
As indicated in the Prospectus, Eaton Vance serves as Administrator of the
Fund, but receives no compensation for providing administrative services to the
Fund. Under its agreement with the Fund, Eaton Vance has been engaged to
administer the Fund's affairs, subject to the supervision of the Trustees of the
Trust, and shall furnish for the use of the Fund office space and all necessary
office facilities, equipment and personnel for administering the affairs of the
Fund.
The Fund pays all of its own expenses including, without limitation, (i)
expenses of maintaining the Fund and continuing its existence, (ii) registration
of the Trust under the 1940 Act, (iii) commissions, fees and other expenses
connected with the purchase or sale of securities and other investments, (iv)
auditing, accounting and legal expenses, (v) taxes and interest, (vi)
governmental fees, (vii) expenses of issue, sale, repurchase and redemption of
shares, (viii) expenses of registering and qualifying the Fund and its shares
under federal and state securities laws and of preparing and printing
prospectuses for such purposes and for distributing the same to shareholders and
investors, and fees and expenses of registering and maintaining registrations of
the Fund and of the Fund's principal underwriter, if any, as broker-dealer or
agent under state securities laws, (ix) expenses of reports and notices to
shareholders and of meetings of shareholders and proxy solicitations therefor,
(x) expenses of reports to governmental officers and commissions, (xi) insurance
expenses, (xii) association membership dues, (xiii) fees, expenses and
disbursements of custodians and subcustodians for all services to the Fund
(including without limitation safekeeping of funds, securities and other
investments, keeping of books and accounts and determination of net asset
values), (xiv) fees, expenses and disbursements of transfer agents, dividend
disbursing agents, shareholder servicing agents and registrars for all services
to the Fund, (xv) expenses for servicing shareholder accounts, (xvi) any direct
charges to shareholders approved by the Trustees of the Trust, (xvii)
compensation and expenses of Trustees of the Trust who are not members of the
Eaton Vance organization, and (xviii) such non-recurring items as may arise,
including expenses incurred in connection with litigation, proceedings and
claims and the obligation of the Trust to indemnify its Trustees and officers
with respect thereto.
A commitment has been made to a state securities authority that Eaton Vance
will take certain actions, if necessary, so that the Fund's expenses will not
exceed the expense limitation requirements of such state. The commitment may be
amended or rescinded by Eaton Vance in response to changes in the requirements
of the state or for other reasons.
BMR is a wholly-owned subsidiary of Eaton Vance. Eaton Vance and EV are both
wholly-owned subsidiaries of EVC. BMR and Eaton Vance are both Massachusetts
business trusts, and EV is the trustee of BMR and Eaton Vance. The Directors of
EV are Landon T. Clay, H. Day Brigham, Jr., M. Dozier Gardner, James B. Hawkes
and Benjamin A. Rowland, Jr. The Directors of EVC consist of the same persons
and John G. L. Cabot and Ralph Z. Sorenson. Mr. Clay is chairman and Mr. Gardner
is president and chief executive officer of EVC, BMR, Eaton Vance and EV. All of
the issued and outstanding shares of Eaton Vance and EV are owned by EVC. All of
the issued and outstanding shares of BMR are owned by Eaton Vance. All shares of
the outstanding Voting Common Stock of EVC are deposited in a Voting Trust,
which expires on December 31, 1996, the Voting Trustees of which are Messrs.
Clay, Brigham, Gardner, Hawkes and Rowland. The Voting Trustees have
unrestricted voting rights for the election of Directors of EVC. All of the
outstanding voting trust receipts issued under said Voting Trust are owned by
certain of the officers of BMR and Eaton Vance who are also officers and
Directors of EVC and EV. As of March 31, 1995, Messrs. Clay, Gardner and Hawkes
each owned 24% of such voting trust receipts, and Messrs. Rowland and Brigham
owned 15% and 13%, respectively, of such voting trust receipts. Messrs. Clay,
Gardner, Hawkes and Otis are officers or Trustees of the Trust and/or the
Portfolio and are members of the EVC, BMR, Eaton Vance and EV organizations.
Messrs. Austin, Bragdon, Martin, Murphy and O'Connor and Ms. Sanders are
officers of the Trust and the Portfolio and are also members of the BMR, Eaton
Vance and EV organizations. BMR will receive the fees paid under the Investment
Advisory Agreement.
Eaton Vance owns all of the stock of Energex Corporation, which is engaged
in oil and gas operations. EVC owns all of the stock of Marblehead Energy Corp.
(which is engaged in oil and gas operations) and 77.3% of the stock of Investors
Bank & Trust Company, custodian of the Fund and the Portfolio, which provides
custodial, trustee and other fiduciary services to investors, including
individuals, employee benefit plans, corporations, investment companies, savings
banks and other institutions. In addition, Eaton Vance owns all of the stock of
Northeast Properties, Inc., which is engaged in real estate investment,
consulting and management. EVC owns all of the stock of Fulcrum Management, Inc.
and MinVen, Inc., which are engaged in the development of precious metal
properties. EVC, BMR, Eaton Vance and EV may also enter into other businesses.
EVC and its affiliates and their officers and employees from time to time
have transactions with various banks, including the custodian of the Fund and
the Portfolio, Investors Bank & Trust Company. It is Eaton Vance's opinion that
the terms and conditions of such transactions were not and will not be
influenced by existing or potential custodial or other relationships between the
Trust or the Portfolio and such banks.
CUSTODIAN
Investors Bank & Trust Company ("IBT"), 24 Federal Street, Boston,
Massachusetts, (a 77.3% owned subsidiary of EVC) acts as custodian for the Fund
and the Portfolio. IBT has the custody of all cash and securities representing
the Fund's interest in the Portfolio, has custody of all the Portfolio's assets,
maintains the general ledger of the Portfolio and the Fund, and computes the
daily net asset value of interests in the Portfolio and the net asset value of
shares of the Fund. In such capacity it attends to details in connection with
the sale, exchange, substitution, transfer or other dealings with the
Portfolio's investments, receives and disburses all funds and performs various
other ministerial duties upon receipt of proper instructions from the Fund and
the Portfolio. IBT charges fees which are competitive within the industry. A
portion of the fee relates to custody, bookkeeping and valuation services and is
based upon a percentage of Fund and Portfolio net assets, and a portion of the
fee relates to activity charges, primarily the number of portfolio transactions.
These fees are then reduced by a credit for cash balances of the particular
investment company at the custodian equal to 75% of the 91-day, U.S. Treasury
Bill auction rate applied to the particular investment company's average daily
collected balances for the week. In view of the ownership of EVC in IBT, the
Portfolio is treated as a self-custodian pursuant to Rule 17f-2 under the 1940
Act, and the Portfolio's investments held by IBT as custodian are thus subject
to additional examinations by the Portfolio's independent accountants as called
for by such Rule. For the fiscal year ended December 31, 1994, the Portfolio
paid IBT $159,872. For the custody fees that the Fund paid to IBT, see "Fees and
Expenses" in Part II of this Statement of Additional Information.
SERVICE FOR WITHDRAWAL
By a standard agreement, the Trust's Transfer Agent will send to the
shareholder regular monthly or quarterly payments of any permitted amount
designated by the shareholder (see "Eaton Vance Shareholder Services --
Withdrawal Plan" in the Fund's prospectus) based upon the value of the shares
held. The checks will be drawn from share redemptions and hence are a return of
principal. Income dividends and capital gain distributions in connection with
withdrawal accounts will be credited at net asset value as of the record date
for each distribution. Continued withdrawals in excess of current income will
eventually use up principal, particularly in a period of declining market
prices.
To use this service, at least $5,000 in cash or shares at the public
offering price will have to be deposited with the Transfer Agent. The
maintenance of a withdrawal plan concurrently with purchases of additional Fund
shares would be disadvantageous if a sales charge is included in such purchases.
A shareholder may not have a withdrawal plan in effect at the same time he or
she has authorized Bank Automated Investing or is otherwise making regular
purchases of Fund shares. Either the shareholder, the Transfer Agent or the
Principal Underwriter will be able to terminate the withdrawal plan at any time
without penalty.
DETERMINATION OF NET ASSET VALUE
The net asset value of the Portfolio and of shares of the Fund is determined
by IBT (as agent and custodian for the Fund and the Portfolio) in the manner
described under "Valuing Fund Shares" in the Fund's current prospectus. The Fund
and the Portfolio will be closed for business and will not price their
respective shares or interests on the following business holidays: New Year's
Day, Presidents' Day, Good Friday (a New York Stock Exchange holiday), Memorial
Day, Independence Day, Labor Day, Thanksgiving Day and Christmas Day.
Securities listed on securities exchanges or in the NASDAQ National Market
are valued at closing sales prices. Unlisted or listed securities for which
closing sales prices are not available are valued at the mean between the latest
available bid and asked prices. An option or futures contract is valued at the
last sale price, as quoted on the principal exchange or board of trade on which
such option or futures contract is traded or, in the absence of a sale, at the
mean between the last bid and asked prices. Short-term obligations maturing in
sixty days or less are valued at amortized cost, which is believed to represent
fair value. Securities for which market quotations are unavailable, including
any security the disposition of which is restricted under the Securities Act of
1933, and other assets will be appraised at their fair value as determined in
good faith by or at the direction of the Trustees of the Portfolio.
Each investor in the Portfolio, including the Fund, may add to or reduce its
investment in the Portfolio on each day the New York Stock Exchange (the
"Exchange") is open for trading ("Portfolio Business Day") as of the close of
regular trading on the Exchange (the "Portfolio Valuation Time"). The value of
each investor's interest in the Portfolio will be determined by multiplying the
net asset value of the Portfolio by the percentage, determined on the prior
Portfolio Business Day, which represented that investor's share of the aggregate
interests in the Portfolio on such prior day. Any additions or withdrawals for
the current Portfolio Business Day will then be recorded. Each investor's
percentage of the aggregate interest in the Portfolio will then be recomputed as
a percentage equal to a fraction (i) the numerator of which is the value of such
investor's investment in the Portfolio as of the Portfolio Valuation Time on the
prior Portfolio Business Day plus or minus, as the case may be, the amount of
any additions to or withdrawals from the investor's investment in the Portfolio
on the current Portfolio Business Day and (ii) the denominator of which is the
aggregate net asset value of the Portfolio as of the Portfolio Valuation Time on
the prior Portfolio Business Day plus or minus, as the case may be, the amount
of the net additions to or withdrawals from the aggregate investment in the
Portfolio on the current Portfolio Business Day by all investors in the
Portfolio. The percentage so determined will then be applied to determine the
value of the investor's interest in the Portfolio for the current Portfolio
Business Day.
INVESTMENT PERFORMANCE
The Fund's total return and yield may be compared to the Consumer Price
Index and various domestic securities indices, for example: Standard & Poor's
Utilities Index, Standard & Poor's 400 Stock Index, Standard & Poor's 500 Stock
Index, Standard & Poor's Telephone Index, Standard & Poor's Natural Gas Index,
Standard & Poor's Electric Companies Index, Merrill Lynch U.S. Treasury (15-year
plus) Index, Lehman Brothers Government/Corporate Bond Index, Dow Jones 15
Utility Average, and the Dow Jones Industrial Average. The Fund's total return,
yield and comparisons with these indices may be used in advertisements and in
information furnished to present or prospective shareholders. The Fund's
performance may differ from that of other investors in the Portfolio, including
any other investment companies.
Information used in advertisements and in materials furnished to present or
prospective shareholders may include statistics, data and performance studies
prepared by independent organizations, (e.g., Ibbotson Associates, Standard &
Poor's Ratings Group, Merrill Lynch, Pierce, Fenner & Smith, Inc., Bloomberg,
L.P., Dow Jones & Company, Inc., and The Federal Reserve Board) or included in
various publications (e.g., The Wall Street Journal, Barron's and The Decade:
Wealth of Investments in U.S. Stocks, Bonds, Bills & Inflation) reflecting the
investment performance or return achieved by various classes and types of
investments (e.g., common stocks, small company stocks, long-term corporate
bonds, long-term government bonds, intermediate-term government bonds, U.S.
Treasury bills) over various periods of time. This information may be used to
illustrate the benefits of long-term investments in common stocks.
From time to time, information about the portfolio allocation and holdings
of the Portfolio may be included in advertisements and other material furnished
to present and prospective shareholders.
The Portfolio's asset allocation on March 31, 1995 was:
Percent of
net assets
----------
Common Stock 82.99%
Electric Utilities 54.55%
Telephone Utilities 8.38
Natural Gas 0.55
Oil 5.24
REITs 14.12
Other 0.15
Convertible Preferred 2.68
Convertible Bonds 3.51
Cash and Commercial Paper 10.82
----
Total 100.00%
The Portfolio's 10 largest common stock holdings on March 31, 1995 were:
Percent of
Company net assets
------- ----------
Cinergy 4.5%
FPL Group 4.4
DPL Inc. 4.0
Carolina Power & Light 3.3
DQE 2.7
Nipsco Industries 2.5
Ameritech 2.5
Central Louisiana Electric 2.5
Southern Company 2.5
Central Pacific & Southwest 2.4
---
Total 31.3%
From time to time, information, charts and illustrations showing the effect
of compounding interest may be included in advertisements and other material
furnished to present and prospective shareholders. Compounding is the process of
earning income on principal plus income that was earned earlier. Income can be
compounded annually, semi-annually, quarterly or daily, e.g., $1,000 compounded
annually at 9% will grow to $1,090 at the end of the first year and $1,188 at
the end of the second year. The extra $8, which was earned on the $90 income
from the first year, is the compound income. $1,000 compounded annually at 9%
grows to $2,367 at the end of 10 years and $5,604 at the end of 20 years. Other
examples of compounding $1,000 annually are 7% grows to $1,967 at the end of 10
years and $3,870 at the end of 20 years. At 12% the $1,000 grows to $3,106 at
the end of 10 years and $9,646 at the end of 20 years. All of these examples are
for illustrative purposes only and are not meant to indicate the performance of
the Fund.
From time to time, information, charts and illustrations relating to
inflation and the effects of inflation on the dollar may be included in
advertisements and other material furnished to present and prospective
shareholders.
For example: After 10 years, the purchasing power of $25,000 would shrink to
$16,621, $14,968, $13,465 and $12,100, respectively, if the annual rates of
inflation during such period were 4%, 5%, 6% and 7%, respectively. (To calculate
the purchasing power, the value at the end of each year is reduced by the above
inflation rates for 10 consecutive years.)
From time to time, evaluations of the Fund's performance made by independent
sources (e.g., Lipper Analytical Services, Inc., CDA/ Wiesenberger and
Morningstar, Inc.) may be used in advertisements and in information furnished to
present or prospective shareholders.
Information used in advertisements and in materials furnished to present and
prospective shareholders may include statements or illustrations relating to the
appropriateness of types of securities and/or mutual funds which may be employed
to meet specific financial goals, such as (1) funding retirement, (2) paying for
children's education, and (3) financially supporting aging parents. These three
financial goals may be referred to in such advertisements or materials as the
"Triple Squeeze."
For additional information on the Fund's investment performance, see
"Performance Information" in Part II of this Statement of Additional
Information.
TAXES
See "Distributions and Taxes" in the Fund's current prospectus.
Each series of the Trust is treated as a separate entity for Federal income
tax purposes. The Fund has elected to be treated, has qualified, and intends to
continue to qualify each year as a regulated investment company ("RIC") under
the Internal Revenue Code of 1986, as amended (the "Code"). Accordingly, the
Fund intends to satisfy certain requirements relating to sources of its income
and diversification of its assets and to distribute all of its net investment
income and net realized capital gains in accordance with the timing requirements
imposed by the Code, so as to avoid any Federal income or excise tax to the
Fund. The Fund so qualified for its taxable year ended December 31, 1994 (see
the Notes to Financial Statements). Because the Fund invests its assets in the
Portfolio, the Portfolio normally must satisfy the applicable source of income
and diversification requirements in order for the Fund to satisfy them. The
Portfolio will allocate at least annually among its investors, including the
Fund, the Portfolio's net investment income, net realized capital gains, and any
other items of income, gain, loss, deduction or credit. The Portfolio will make
allocations to the Fund in accordance with the Code and applicable regulations
and will make moneys available for withdrawal at appropriate times and in
sufficient amounts to enable the Fund to satisfy the tax distribution
requirements that apply to the Fund and that must be satisfied in order to avoid
Federal income and/or excise tax on the Fund. For purposes of applying the
requirements of the Code regarding qualification as a RIC, the Fund will be
deemed (i) to own its proportionate share of each of the assets of the Portfolio
and (ii) to be entitled to the gross income of the Portfolio attributable to
such share.
In order to avoid Federal excise tax, the Code requires that the Fund
distribute (or be deemed to have distributed) by December 31 of each calendar
year at least 98% of its ordinary income (not including tax-exempt income) for
such year, at least 98% of the excess of its realized capital gains over its
realized capital losses, generally computed on the basis of the one-year period
ending on October 31 of such year or, by election, December 31 of such year,
after reduction by any available capital loss carryforwards, and 100% of any
income from the prior year (as previously computed) that was not paid out during
such year and on which the Fund paid no Federal income tax.
Under current law, provided that the Fund qualifies as a RIC for Federal
income tax purposes and the Portfolio is treated as a partnership for
Massachusetts and Federal tax purposes, neither the Fund nor the Portfolio is
liable for any income, excise or franchise tax in the Commonwealth of
Massachusetts.
Distributions of net investment income and the excess of net short-term
capital gain over net long-term capital loss and certain foreign exchange gains
earned by the Portfolio and allocated to the Fund are taxable to shareholders of
the Fund as ordinary income whether received in cash or reinvested in additional
shares. Distributions of the excess of net long-term capital gain over net
short-term capital loss (including any capital loss carried forward from prior
years) earned by the Portfolio and allocated to the Fund are taxable to
shareholders of the Fund as long-term capital gains, whether received in cash or
reinvested in additional shares, and regardless of the length of time their
shares have been held.
Distributions by the Fund reduce the net asset value of the Fund's shares.
Should a distribution reduce the net asset value below a shareholder's cost
basis, such distribution would be taxable to the shareholder even though, from
an investment standpoint, it may constitute a return of capital. Therefore,
investors should consider the tax implications of buying shares immediately
before a distribution.
A portion of distributions made by the Fund which are derived from dividends
received by the Portfolio from domestic corporations and allocated to the Fund
may qualify for the dividends-received deduction for corporations. The
dividends-received deduction for corporate shareholders is reduced to the extent
the shares of the Fund with respect to which the dividends are received are
treated as debt-financed under Federal income tax law and is eliminated if the
shares are deemed to have been held for less than a minimum period, generally 46
days. Receipt of certain distributions qualifying for the deduction may result
in reduction of the tax basis of the corporate shareholder's shares.
Distributions eligible for the dividends-received deduction may give rise to or
increase an alternative minimum tax for corporations.
Any loss realized upon the redemption or exchange of shares of the Fund with
a tax holding period of 6 months or less will be treated as a long-term capital
loss to the extent of any distribution of net long-term capital gains with
respect to such shares. In addition, all or a portion of a loss realized on a
redemption or other disposition of Fund shares may be disallowed under "wash
sale" rules if other Fund shares are acquired (whether through reinvestment of
dividends or otherwise) within a period beginning 30 days before and ending 30
days after the date of such redemption or other disposition. Any disallowed loss
will result in an adjustment to the shareholder's tax basis in some or all of
the other shares acquired.
The Portfolio's transactions in options and futures contracts will be
subject to special tax rules that may affect the amount, timing and character of
Fund distributions to shareholders. For example, certain positions held by the
Portfolio on the last business day of each taxable year will be marked to market
(i.e., treated as if closed out on such day), and any resulting gain or loss
will generally be treated as 60% long-term and 40% short-term capital gain or
loss. Certain positions held by the Portfolio that substantially diminish the
Portfolio's risk of loss with respect to other positions in its portfolio may
constitute "straddles," which are subject to tax rules that may cause deferral
of Portfolio losses, adjustments in the holding period of Portfolio securities
and conversion of short-term into long-term capital losses. The Portfolio may
have to limit its activities in options and futures contracts in order to enable
the Fund to maintain its qualification as a RIC.
The Portfolio may be subject to foreign withholding or other foreign taxes
with respect to income (possibly including, in some cases, capital gains) on
certain foreign securities. As it is not expected that more than 50% of the
value of the Fund's total assets, taking into account its allocable share of the
Portfolio's total assets at the close of any taxable year of the Fund, will
consist of securities issued by foreign corporations, the Fund will not be
eligible to pass through to shareholders their proportionate share of foreign
taxes paid by the Portfolio and allocated to the Fund, with the result that
shareholders will not include in income, and will not be entitled to take any
foreign tax credits or deductions for, foreign taxes paid by the Portfolio and
allocated to the Fund. However, the Fund may deduct such taxes in calculating
its distributable income earned by the Portfolio and allocated to the Fund.
These taxes may be reduced or eliminated under the terms of an applicable U.S.
income tax treaty. Certain foreign exchange gains and losses realized by the
Portfolio and allocated to the Fund will be treated as ordinary income and
losses. Certain uses of foreign currency and investment by the Portfolio in the
stock of certain "passive foreign investment companies" may be limited or a tax
election may be made, if available, in order to preserve the Fund's
qualification as a RIC and/or avoid imposition of a tax on the Fund.
Special tax rules apply to Individual Retirement Accounts ("IRAs") and other
retirement plans and shareholders investing through IRAs or such plans should
consult their tax advisers for more information.
Amounts paid by the Fund to individuals and certain other shareholders who
have not provided the Fund with their correct taxpayer identification number and
certain required certifications, as well as shareholders with respect to whom
the Fund has received notification from the Internal Revenue Service or a
broker, may be subject to "backup" withholding of Federal income tax from the
Fund's dividends and distributions and the proceeds of redemptions (including
repurchases and exchanges), at a rate of 31%. An individual's taxpayer
identification number is generally his or her social security number.
Non-resident alien individuals and certain foreign corporations and other
foreign entities generally will be subject to a U.S. withholding tax at a rate
of 30% on the Fund's distributions from its ordinary income and the excess of
its net short-term capital gain over its net long-term capital loss, unless the
tax is reduced or eliminated by an applicable tax treaty. Distributions from the
excess of the Fund's net long-term capital gain over its net short-term capital
loss received by such shareholders and any gain from the sale or other
disposition of shares of the Fund generally will not be subject to U.S. Federal
income taxation, provided that non-resident alien status has been certified by
the shareholder. Different U.S. tax consequences may result if the shareholder
is engaged in a trade or business in the United States, is present in the United
States for a sufficient period of time during a taxable year to be treated as a
U.S. resident, or fails to provide any required certifications regarding status
as a non-resident alien investor. Foreign shareholders should consult their tax
advisers regarding the U.S. and foreign tax consequences of an investment in the
Fund.
The foregoing discussion does not address the special tax rules applicable
to certain classes of investors, such as IRAs and other retirement plans,
tax-exempt entities, insurance companies and financial institutions.
Shareholders should consult their own tax advisers with respect to special tax
rules that may apply in their particular situations, as well as the state, local
or foreign tax consequences of investing in the Fund.
PORTFOLIO SECURITY TRANSACTIONS
Decisions concerning the execution of portfolio security transactions of the
Portfolio, including the selection of the market and the broker-dealer firm, are
made by BMR. BMR is also responsible for the execution of transactions for all
other accounts managed by it.
BMR places the portfolio security transactions of the Portfolio and of all
other accounts managed by it for execution with many broker-dealer firms. BMR
uses its best efforts to obtain execution of portfolio security transactions at
prices which are advantageous to the Portfolio and (when a disclosed commission
is being charged) at reasonably competitive commission rates. In seeking such
execution, BMR will use its best judgment in evaluating the terms of a
transaction, and will give consideration to various relevant factors, including
without limitation the size and type of the transaction, the general execution
and operational capabilities of the broker-dealer, the nature and character of
the market for the security, the confidentiality, speed and certainty of
effective execution required for the transaction, the reputation, reliability,
experience and financial condition of the broker-dealer, the value and quality
of services rendered by the broker-dealer in other transactions, and the
reasonableness of the commission, if any. Transactions on United States stock
exchanges and other agency transactions involve the payment by the Portfolio of
negotiated brokerage commissions. Such commissions vary among different
broker-dealer firms, and a particular broker-dealer may charge different
commissions according to such factors as the difficulty and size of the
transaction and the volume of business done with such broker-dealer.
Transactions in foreign securities usually involve the payment of fixed
brokerage commissions, which are generally higher than those in the United
States. There is generally no stated commission in the case of securities traded
in the over-the-counter markets, but the price paid or received by the Portfolio
usually includes an undisclosed dealer markup or markdown. In an underwritten
offering the price paid by the Portfolio includes a disclosed fixed commission
or discount retained by the underwriter or dealer. Although commissions paid on
portfolio security transactions will, in the judgment of BMR, be reasonable in
relation to the value of the services provided, commissions exceeding those
which another firm might charge may be paid to broker-dealers who were selected
to execute transactions on behalf of the Portfolio and BMR's other clients in
part for providing brokerage and research services to BMR.
As authorized in Section 28(e) of the Securities Exchange Act of 1934, a
broker or dealer who executes a portfolio transaction on behalf of the Portfolio
may receive a commission which is in excess of the amount of commission another
broker or dealer would have charged for effecting that transaction if BMR
determines in good faith that such commission was reasonable in relation to the
value of the brokerage and research services provided. This determination may be
made on the basis of either that particular transaction or on the basis of the
overall responsibilities which BMR and its affiliates have for accounts over
which they exercise investment discretion. In making any such determination, BMR
will not attempt to place a specific dollar value on the brokerage and research
services provided or to determine what portion of the commission should be
related to such services. Brokerage and research services may include advice as
to the value of securities, the advisability of investing in, purchasing, or
selling securities, and the availability of securities or purchasers or sellers
of securities; furnishing analyses and reports concerning issuers, industries,
securities, economic factors and trends, portfolio strategy and the performance
of accounts; and effecting securities transactions and performing functions
incidental thereto (such as clearance and settlement); and the "Research
Services" referred to in the next paragraph.
It is a common practice in the investment advisory industry for the advisers
of investment companies, institutions and other investors to receive research,
statistical and quotation services, data, information and other services,
products and materials which assist such advisers in the performance of their
investment responsibilities ("Research Services") from broker-dealer firms whch
execute portfolio transactions for the clients of such advisers and from third
parties with which such broker-dealers have arrangements. Consistent with this
practice, BMR receives Research Services from many broker-dealer firms with
which BMR places the Portfolio transactions and from third parties with which
these broker-dealers have arrangements. These Research Services include such
matters as general economic and market reviews, industry and company reviews,
evaluations of securities and portfolio strategies and transactions,
recommendations as to the purchase and sale of securities and other portfolio
transactions, financial, industry and trade publications, news and information
services, pricing and quotation equipment and services, and research oriented
computer hardware, software, data bases and services. Any particular Research
Service obtained through a broker-dealer may be used by BMR in connection with
client accounts other than those accounts which pay commissions to such
broker-dealer. Any such Research Service may be broadly useful and of value to
BMR in rendering investment advisory services to all or a significant portion of
its clients, or may be relevant and useful for the management of only one
client's account or of a few clients' accounts, or may be useful for the
management of merely a segment of certain clients' accounts, regardless of
whether any such account or accounts paid commissions to the broker-dealer
through which such Research Service was obtained. The advisory fee paid by the
Portfolio is not reduced because BMR receives such Research Services. BMR
evaluates the nature and quality of the various Research Services obtained
through broker-dealer firms and attempts to allocate sufficient commissions to
such firms to ensure the continued receipt of Research Services which BMR
believes are useful or of value to it in rendering investment advisory services
to its clients.
Subject to the requirement that BMR shall use its best efforts to seek to
execute portfolio security transactions at advantageous prices and at reasonably
competitive commission rates. BMR is authorized to consider as a factor in the
selection of any broker-dealer firm with whom portfolio orders may be placed the
fact that such firm has sold or is selling shares of the Fund or of other
investment companies sponsored by BMR or Eaton Vance. This policy is not
inconsistent with a rule of the National Association of Securities Dealers,
Inc., which rule provides that no firm which is a member of the Association
shall favor or disfavor the distribution of shares of any particular investment
company or group of investment companies on the basis of brokerage commissions
received or expected by such firm from any source.
Securities considered as investments for the Portfolio may also be
appropriate for other investment accounts managed by BMR or its affiliates. BMR
will attempt to allocate equitably portfolio security transactions among the
Portfolio and the portfolios of its other investment accounts whenever decisions
are made to purchase or sell securities by the Portfolio and one or more of such
other accounts simultaneously. In making such allocations, the main factors to
be considered are the respective investment objectives of the Portfolio and such
other accounts, the relative size of portfolio holdings of the same or
comparable securities, the availability of cash for investment by the Portfolio
and such accounts, the size of investment commitments generally held by the
Portfolio and such accounts and the opinions of the persons responsible for
recommending investments to the Portfolio and such accounts. While this
procedure could have a detrimental effect on the price or amount of the
securities available to the Portfolio from time to time, it is the opinion of
the Trustees of the Trust and the Portfolio that the benefits available from the
BMR organization outweigh any disadvantage that may arise from exposure to
simultaneous transactions.
For the fiscal year ended December 31, 1994, and for the period from the
start of business, October 28, 1993, to December 31, 1993, the Portfolio paid
brokerage commissions of $1,997,260 and $382,786, respectively, on portfolio
security transactions, of which approximately $1,509,827 and $211,594,
respectively, was paid in respect of portfolio security transactions aggregating
approximately $718,689,809 and $126,205,010, respectively, to firms which
provided some research services to BMR or its affiliates (although many of such
firms may have been selected in any particular transaction primarily because of
their execution capabilities).
OTHER INFORMATION
The Trust, which is a Massachusetts business trust established in 1981, was
originally called Eaton Vance Tax Managed Trust. The Trust changed its name to
Eaton Vance Total Return Trust on August 22, 1986. Eaton Vance, pursuant to its
agreement with the Trust, controls the use of the words "Eaton Vance" in the
Fund's name and may use the words "Eaton Vance" in other connections and for
other purposes.
The Trust's Amended and Restated Declaration of Trust may be amended by the
Trustees when authorized by vote of a majority of the outstanding voting
securities of the Trust, the financial interests of which are affected by the
amendment. The Trustees may also amend the Declaration of Trust without the vote
or consent of shareholders to change the name of the Trust or any series or to
make such other changes as do not have a materially adverse effect on the
financial interests of shareholders or if they deem it necessary to conform it
to applicable Federal or state laws or regulations. The Trust or any series or
class thereof may be terminated by: (1) the affirmative vote of the holders of
not less than two-thirds of the shares outstanding and entitled to vote at any
meeting of shareholders of the Trust or the appropriate series or class thereof,
or by an instrument or instruments in writing without a meeting, consented to by
the holders of two-thirds of the shares of the Trust or a series or class
thereof, provided, however, that, if such termination is recommended by the
Trustees, the vote of a majority of the outstanding voting securities of the
Trust or a series or class thereof entitled to vote thereon shall be sufficient
authorization; or (2) by means of an instrument in writing signed by a majority
of the Trustees, to be followed by a written notice to shareholders stating that
a majority of the Trustees has determined that the continuation of the Trust or
a series or a class thereof is not in the best interest of the Trust, such
series or class or of their respective shareholders.
The Declaration of Trust further provides that the Trustees will not be
liable for errors of judgment or mistakes of fact or law; but nothing in the
Declaration of Trust protects a Trustee against any liability to which he would
otherwise be subject by reason of willful misfeasance, bad faith, gross
negligence, or reckless disregard of the duties involved in the conduct of his
office. The Trust's by-laws provide that a Trustee may be removed at any special
meeting of the shareholders of the Trust by a vote of two-thirds of the
outstanding shares of beneficial interest of the Trust (the "shares"). The
Trustees will promptly call a meeting of shareholders for the purpose of voting
upon a question of removal of a Trustee when requested so to do by the record
holders of not less than 10 per centum of the outstanding shares.
As permitted by Massachusetts law, there will normally be no meetings of
shareholders for the purpose of electing Trustees unless and until such time as
less than a majority of the Trustees of the Trust holding office have been
elected by shareholders. In such an event the Trustees then in office will call
a shareholders' meeting for the election of Trustees. Except for the foregoing
circumstances and unless removed by action of the shareholders in accordance
with the Trust's by-laws, the Trustees shall continue to hold office and may
appoint successor Trustees.
The Declaration of Trust of the Portfolio provides that no person shall
serve as a Trustee if investors holding two-thirds of the outstanding interests
have removed him from that office either by a written declaration filed with the
Portfolio's custodian or by votes cast at a meeting called for that purpose. The
Declaration of Trust further provides that under certain circumstances the
investors may call a meeting to remove a Trustee and that the Portfolio is
required to provide assistance in communicating with investors about such a
meeting.
The right to redeem can be suspended and the payment of the redemption price
deferred when the Exchange is closed (other than customary weekend and holiday
closings), during periods when trading on the Exchange is restricted as
determined by the Commission, or during any emergency as determined by the
Commission which makes it impracticable for the Portfolio to dispose of its
securities or value its assets, or during any other period permitted by order of
the Commission for the protection of investors.
INDEPENDENT ACCOUNTANTS
Coopers & Lybrand L.L.P., One Post Office Square, Boston, Massachusetts, are
the independent accountants for the Fund and the Portfolio, providing audit
services, tax return preparation, and assistance and consultation with respect
to the preparation of filings with the Securities and Exchange Commission.
For the financial statements of the Fund and the Portfolio, see "Financial
Statements" in Part II of this Statement of Additional Information.
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
PART II
This Part II provides information about EV MARATHON TOTAL RETURN FUND.
FEES AND EXPENSES
INVESTMENT ADVISER
To enhance the net income of the Fund, BMR voluntarily assumed $14,358 of
the Fund's expenses in the period from the start of business, November 1, 1993,
to December 31, 1993.
ADMINISTRATOR
As stated under "Investment Adviser and Administrator" in Part I of this
Statement of Additional Information, the Administrator receives no compensation
for providing administrative services to the Fund.
DISTRIBUTION PLAN
During the fiscal year ended December 31, 1994, the Fund paid sales
commissions under the Plan to the Principal Underwriter aggregating $167,071,
which amount was used by the Principal Underwriter to partially defray sales
commissions aggregating $723,532 paid during such period by the Principal
Underwriter to Authorized Firms on sales of shares of the Fund. During such
period contingent deferred sales charges aggregating approximately $118,019 were
imposed on early redeeming shareholders and paid to the Principal Underwriter,
which amount was used by the Principal Underwriter to partially defray such
sales commissions. As at December 31, 1994 the outstanding uncovered
distribution charges of the Principal Underwriter calculated under the Plan
amounted to approximately $1,322,445 (which amount was equivalent to 5.0% of the
Fund's net assets on such day). For the fiscal year ended December 31, 1994, the
Fund did not pay or accrue any service fees under the Plan. The Fund began
accruing for its service fee payments in the quarter ended March 31, 1995.
PRINCIPAL UNDERWRITER
For the fiscal year ended December 31, 1994, the Fund paid the Principal
Underwriter $447.50 for repurchase transactions handled by the Principal
Underwriter (being $2.50 for each such transaction).
CUSTODIAN
For the fiscal year ended December 31, 1994, the Fund paid IBT $12,357.
<TABLE>
TRUSTEES
The fees and expenses of those Trustees of the Trust and of the Portfolio who are not members of the Eaton Vance organization
(the noninterested Trustees) are paid by the Fund (and the other series of the Trust) and the Portfolio, respectively. (The
Trustees of the Trust and of the Portfolio who are members of the Eaton Vance organization receive no compensation from the Trust
or the Portfolio.) During the fiscal year ended December 31, 1994, the noninterested Trustees of the Trust and the Portfolio
earned the following compensation in their capacities as Trustees from the Fund, the Portfolio and the other funds in the Eaton
Vance fund complex<F1>:
AGGREGATE AGGREGATE RETIREMENT TOTAL COMPENSATION
COMPENSATION COMPENSATION BENEFIT ACCRUED FROM TRUST AND
NAME FROM FUND FROM PORTFOLIO FROM FUND COMPLEX FUND COMPLEX
---- ------------- -------------- ----------------- -----------
<S> <C> <C> <C> <C>
Donald R. Dwight ............................ $68 $4,119<F2> $8,750 $135,000
Samuel L. Hayes, III ........................ 65 4,079<F3> 8,865 142,500
Norton H. Reamer ............................ 63 4,002 --0-- 135,000
John L. Thorndike ........................... 64 4,140 --0-- 140,000
Jack L. Treynor ............................. 68 4,247 --0-- 140,000
----------
<F1>Eaton Vance fund complex consists of 201 registered investment companies or series thereof.
<F2>Includes $331 of deferred compensation.
<F3>Includes $334 of deferred compensation.
</TABLE>
PERFORMANCE INFORMATION
The average annual total return is determined by multiplying a hypothetical
initial purchase order of $1,000 by the average annual compound rate of return
(including capital appreciation/depreciation, and dividends and distributions
paid and reinvested) for the stated period and annualizing the result. The
calculation assumes that all dividends and distributions are reinvested at net
asset value on the reinvestment dates during the period and a complete
redemption of the investment and, if applicable, the deduction of a contingent
deferred sales charge at the end of the period.
The table below indicates the total return (capital changes plus
reinvestment of all distributions) on a hypothetical investment of $1,000 in the
Fund covering the life of the Fund from November 1, 1993, through December 31,
1994 and the one-year period ended December 31, 1994.
<TABLE>
<CAPTION>
VALUE OF A $1,000 INVESTMENT
VALUE OF INVEST- VALUE OF INVEST-
MENT BEFORE DE- MENT AFTER DEDUCT-
DUCTING THE CON- ING THE CONTINGENT TOTAL RETURN BEFORE DEDUCTING TOTAL RETURN AFTER DEDUCTING
TINGENT DEFERRED DEFERRED SALES THE CONTINGENT DEFERRED THE CONTINGENT DEFERRED
INVESTMENT INVESTMENT AMOUNT OF SALES CHARGE CHARGE<F3> SALES CHARGE SALES CHARGE<F3>
PERIOD DATE INVESTMENT ON 12/31/94 ON 12/31/94 CUMULATIVE ANNUALIZED CUMULATIVE ANNUALIZED
---------- ---------- ---------- ------------- ------------- ----------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Life of
the Fund<F1> 11/01/93 $1,000 $1,000 $ 872.95<F2> -12.71%<F2> -11.01%<F2> -16.86%<F2> -14.66%<F2>
1 Year
Ended
12/31/94 12/31/93 $1,000 $1,000 $ 832.48 -12.57% -12.57% -16.75% -16.75%
<CAPTION>
PERCENTAGE CHANGES 11/01/93--12/31/94
NET ASSET VALUE TO NET ASSET VALUE NET ASSET VALUE TO NET ASSET VALUE
BEFORE DEDUCTING THE CONTINGENT DEFERRED AFTER DEDUCTING THE CONTINGENT DEFERRED
SALES CHARGE WITH ALL DISTRIBUTIONS REINVESTED SALES CHARGE*** WITH ALL DISTRIBUTIONS REINVESTED
------------------------------------------------------- -----------------------------------------------------
FISCAL YEAR ENDED ANNUAL CUMULATIVE AVERAGE ANNUAL ANNUAL CUMULATIVE AVERAGE ANNUAL
----------------- ------ ---------- -------------- ------ ---------- -------------
<S> <C> <C> <C> <C> <C> <C>
12/31/93<F1> -- -0.15%<F2> -- -- -5.12%<F2> --
12/31/94 -12.57% -12.71%<F2> -11.01%<F2> -16.75% -16.86%<F2> -14.66<F2>
Past performance is not indicative of future results. Investment return and principal value will fluctuate; shares, when
redeemed, may be worth more or less than their original cost.
----------
<FN>
<F1>Investment operations began on November 1, 1993.
<F2>If a portion of the expenses related to the operation of the Fund had not been allocated to Eaton Vance, the Fund would have had
lower returns.
<F3>No contingent deferred sales charge is imposed on shares purchased more than six years prior to the redemption, shares acquired
through the reinvestment of distributions, or any appreciation in value of other shares in the account, and no such charge is
imposed on exchanges of Fund shares for shares of one or more other funds listed under "The Eaton Vance Exchange Privilege" in
the Prospectus.
</TABLE>
The Fund's yield is computed pursuant to a standardized formula by dividing
its net investment income per share earned during a recent thirty-day period by
the maximum offering price (net asset value) per share on the last day of the
period and annualizing the resulting figure. Net investment income per share is
calculated using a standardized formula the income component of which is
computed from dividends on equity securities held by the Portfolio based on the
stated annual dividend rates of such securities, exclusive of special or extra
distributions (with all purchases and sales of securities during such period
included in the income calculation on a settlement date basis), and from the
income earned on short-term debt instruments held by the Portfolio, and such
income is then reduced by accrued Fund expenses for the period, with the
resulting number being divided by the average daily number of Fund shares
outstanding and entitled to receive dividends during the period. The yield
figure does not reflect the deduction of any contingent deferred sales charges
which are imposed upon certain redemptions of shares at the rates set forth
under "How to Redeem Fund Shares" in the Prospectus. For the thirty-day period
ended December 31, 1994, the yield of the Fund was 3.52%.
The Fund may publish its distribution rate and/or its effective distribution
rate. The Fund's distribution rate is computed by dividing the most recent
monthly distribution per share annualized, by the current net asset value per
share. The Fund's effective distribution rate is computed by dividing the
distribution rate by 12 and reinvesting the resulting amount for a full year on
a monthly basis. The effective distribution rate will be higher than the
distribution rate because of the compounding effect of the assumed reinvestment.
Investors should note that the Fund's yield is calculated using a standardized
formula the income component of which is computed from dividends on equity
securities and from the income earned on short-term debt instruments held by the
Portfolio, whereas the distribution rate is based on the Fund's last monthly
distribution. Monthly distributions tend to be relatively stable and may be more
or less than the amount of net investment income and short-term capital gain
actually earned by the Fund during the month. The Fund's distribution rate
(calculated on December 31, 1994 and based on the Fund's monthly distribution
paid on December 15, 1994) was 3.61%, and the Fund's effective distribution rate
(calculated on the same date and based on the same monthly distribution) was
3.67%.
PRINCIPAL UNDERWRITER
Under the Distribution Agreement the Principal Underwriter acts as principal
in selling shares of the Fund. The expenses of printing copies of prospectuses
used to offer shares to Authorized Firms or investors and other selling
literature and of advertising is borne by the Principal Underwriter. The fees
and expenses of qualifying and registering and maintaining qualifications and
registrations of the Fund and its shares under Federal and state securities laws
is borne by the Fund. In addition, the Fund makes payments to the Principal
Underwriter pursuant to its Distribution Plan as described in the Fund's current
Prospectus; the provisions of the Plan relating to such payments are included in
the Distribution Agreement. The Distribution Agreement is renewable annually by
the Trust's Board of Trustees (including a majority of its Trustees who are not
interested persons of the Trust and who have no direct or indirect financial
interest in the operation of the Fund's Distribution Plan or the Distribution
Agreement), may be terminated on sixty days' notice either by such Trustees or
by vote of a majority of the outstanding voting securities of the Fund or on six
months' notice by the Principal Underwriter, and is automatically terminated
upon assignment. The Principal Underwriter distributes Fund shares on a "best
efforts" basis under which it is required to take and pay for only such shares
as may be sold.
The Fund has authorized the Principal Underwriter to act as its agent in
repurchasing shares at the rate of $2.50 for each repurchase transaction handled
by the Principal Underwriter. The Principal Underwriter estimates that the
expenses incurred by it in acting as a repurchase agent for the Fund will exceed
the amounts paid therefor by the Fund. For the amount paid by the Fund to the
Principal Underwriter for acting as repurchase agent, see "Fees and Expenses" in
this Part II.
DISTRIBUTION PLAN
The Distribution Plan (the "Plan") is described in the prospectus and is
designed to meet the requirements of Rule 12b-1 under the 1940 Act and the sales
charge rule of the National Association of Securities Dealers, Inc. (the "NASD
Rule"). The purpose of the Plan is to compensate the Principal Underwriter for
its distribution services and facilities provided to the Fund by paying the
Principal Underwriter sales commissions and a separate distribution fee in
connection with sales of Fund shares. The following supplements the discussion
of the Plan contained in the Fund's prospectus.
The amount payable by the Fund to the Principal Underwriter pursuant to the
Plan as sales commissions and distribution fees with respect to each day will be
accrued on such day as a liability of the Fund and will accordingly reduce the
Fund's net assets upon such accrual, all in accordance with generally accepted
accounting principles. The amount payable on each day is limited to 1/365 of
.75% of the Fund's net assets on such day. The level of the Fund's net assets
changes each day and depends upon the amount of sales and redemptions of Fund
shares, the changes in the value of the investments held by the Portfolio, the
expenses of the Fund and the Portfolio accrued and allocated to the Fund on such
day, income on portfolio investments of the Portfolio accrued and allocated to
the Fund on such day, and any dividends and distributions declared on Fund
shares. The Fund does not accrue possible future payments as a liability of the
Fund or reduce the Fund's current net assets in respect of unknown amounts which
may become payable under the Plan in the future because the standards for
accrual of a liability under such accounting principles have not been satisfied.
The Plan provides that the Fund will receive all contingent deferred sales
charges and will make no payments to the Principal Underwriter in respect of any
day on which there are no outstanding Uncovered Distribution Charges of the
Principal Underwriter. Contingent deferred sales charges and accrued amounts
will be paid by the Fund to the Principal Underwriter whenever there exist
Uncovered Distribution Charges under the Plan.
Periods with a high level of sales of Fund shares accompanied by a low level
of early redemptions of Fund shares resulting in the imposition of contingent
deferred sales charges will tend to increase the time during which there will
exist Uncovered Distribution Charges of the Principal Underwriter. Conversely,
periods with a low level of sales of Fund shares accompanied by a high level of
early redemptions of Fund shares resulting in the imposition of contingent
deferred sales charges will tend to reduce the time during which there will
exist Uncovered Distribution Charges of the Principal Underwriter.
In calculating daily the amount of Uncovered Distribution Charges,
distribution charges will include the aggregate amount of sales commissions and
distribution fees theretofore paid plus the aggregate amount of sales
commissions and distribution fees which the Principal Underwriter is entitled to
be paid under the Plan since its inception. Payments theretofore paid and
payable under the Plan by the Fund to the Principal Underwriter and contingent
deferred sales charges theretofore paid and payable to the Principal Underwriter
will be subtracted from such distribution charges; if the result of such
subtraction is positive, a distribution fee (computed at 1% over the prime rate
then reported in The Wall Street Journal) will be computed on such amount and
added thereto, with the resulting sum constituting the amount of outstanding
uncovered distribution charges with respect to such day. The amount of
outstanding uncovered distribution charges of the Principal Underwriter
calculated on any day does not constitute a liability recorded on the financial
statements of the Fund.
The amount of Uncovered Distribution Charges of the Principal Underwriter at
any particular time depends upon various changing factors, including the level
and timing of sales of Fund shares, the nature of such sales (i.e., whether they
result from exchange transactions, reinvestments or from cash sales through
Authorized Firms), the level and timing of redemptions of Fund shares upon which
a contingent deferred sales charge will be imposed, the level and timing of
redemptions of Fund shares upon which no contingent deferred sales charge will
be imposed (including redemptions involving exchanges of Fund shares for shares
of another fund in the Eaton Vance Marathon Group of Funds which result in a
reduction of uncovered distribution charges), changes in the level of the net
assets of the Fund, and changes in the interest rate used in the calculation of
the distribution fee under the Plan.
As currently implemented by the Trustees, the Plan authorizes payments of
sales commissions and distribution fees to the Principal Underwriter and service
fees to the Principal Underwriter and Authorized Firms which may be equivalent,
on an aggregate basis during any fiscal year of the Fund, to 1% of the Fund's
average daily net assets for such year. For the sales commission and service fee
payments made by the Fund and the outstanding uncovered distribution charges of
the Principal Underwriter, see "Fees and Expenses -- Distribution Plan" in this
Part II. The Fund believes that the combined rate of all of these payments may
be higher than the rate of payments made under distributions plans adopted by
other investment companies pursuant to Rule 12b-1. Although the Principal
Underwriter will use its own funds (which may be borrowed from banks) to pay
sales commissions at the time of sale, it is anticipated that the Eaton Vance
organization will profit by reason of the operation of the Plan through an
increase in the Fund's assets (thereby increasing the advisory fee payable to
BMR by the Portfolio) resulting from sale of Fund shares and through the sales
commissions and distribution fees and contingent deferred sales charges paid to
the Principal Underwriter pursuant to the Plan. The Eaton Vance organization may
be considered to have realized a profit under the Plan if at any point in time
the aggregate amounts theretofore received by the Principal Underwriter pursuant
to the Plan and from contingent deferred sales charges have exceeded the total
expenses theretofore incurred by such organization in distributing shares of the
Fund. Total expenses for this purpose will include an allocable portion of the
overhead costs of such organization and its branch offices, which costs will
include without limitation leasing expense, depreciation of building and
equipment, utilities, communication and postage expense, compensation and
benefits of personnel, travel and promotional expense, stationery and supplies,
literature and sales aids, interest expense, data processing fees, consulting
and temporary help costs, insurance, taxes other than income taxes, legal and
auditing expense and other miscellaneous overhead items. Overhead is calculated
and allocated for such purpose by the Eaton Vance organization in a manner
deemed equitable to the Fund.
The provisions of the Plan relating to payments of sales commissions and
distribution fees to the Principal Underwriter are also included in the
Distribution Agreement between the Trust on behalf of the Fund and the Principal
Underwriter. Pursuant to Rule 12b-1, the Plan has been approved by the Fund's
initial sole shareholder (Eaton Vance) and by the Board of Trustees of the
Trust, including the Rule 12b-1 Trustees. The Plan continues in effect through
and including April 28, 1996, and shall continue in effect indefinitely
thereafter for so long as such continuance is approved at least annually by the
vote of both a majority of (i) the Trustees of the Trust who are not interested
persons of the Trust and who have no direct or indirect financial interest in
the operation of the Plan or any agreement related to the Plan (the "Rule 12b-1
Trustees") and (ii) all of the Trustees then in office, and the Distribution
Agreement contains a similar provision. The Plan and Distribution Agreement may
be terminated at any time by vote of a majority of the Rule 12b-1 Trustees or by
a vote of a majority of the outstanding voting securities of the Fund. Under the
Plan the President or a Vice President of the Trust shall provide to the
Trustees for their review, and the Trustees shall review at least quarterly, a
written report of the amount expended under the Plan and the purposes for which
such expenditures were made. The Plan may not be amended to increase materially
the payments described therein without approval of the shareholders of the Fund,
and all material amendments of the Plan must also be approved by the Trustees as
required by Rule 12b-1. So long as the Plan is in effect, the selection and
nomination of Trustees who are not interested persons of the Trust shall be
committed to the discretion of the Trustees who are not such interested persons.
The Trustees of the Trust believe that the Plan will be a significant factor
in the expected growth of the Fund's assets, and will result in increased
investment flexibility and advantages which will benefit the Fund and its
shareholders. Payments for sales commissions and distribution fees made to the
Principal Underwriter under the Plan will compensate the Principal Underwriter
for its services and expenses in distributing shares of the Fund. Service fee
payments made to the Principal Underwriter and Authorized Firms under the Plan
provide incentives to provide continuing personal services to investors and the
maintenance of shareholder accounts. By providing incentives to the Principal
Underwriter and Authorized Firms, the Plan is expected to result in the
maintenance of, and possible future growth in, the assets of the Fund. Based on
the foregoing and other relevant factors, the Trustees of the Trust have
determined that in their judgment there is a reasonable likelihood that the Plan
will benefit the Fund and its shareholders.
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
As of March 31, 1995, the Trustees and officers of the Trust, as a group,
owned in the aggregate less than 1% of the outstanding shares of the Fund. As of
March 31, 1995, Merrill Lynch, Pierce, Fenner & Smith, Inc., New Brunswick, NJ
was the record owner of approximately 9.4% of the outstanding shares, which were
held on behalf of its customers who are the beneficial owners of such shares,
and as to which it had voting power under certain limited circumstances. To the
knowledge of the Trust, no other person owned of record or beneficially 5% or
more of the Fund's outstanding shares on such date.
<PAGE>
<TABLE>
<CAPTION>
EV MARATHON TOTAL RETURN FUND
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
--------------------------------------------------------------------------------------------------
December 31, 1994
--------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS:
Investment in Total Return Portfolio (Portfolio) at value (Note 1A) $26,128,193
Receivable for Fund shares sold 195,717
Deferred organization expenses (Note 1D) 36,595
-----------
Total assets $26,360,505
LIABILITIES:
Payable for Fund shares redeemed $135,705
Accrued expenses 13,912
--------
Total liabilities 149,617
-----------
NET ASSETS for 3,158,766 shares of beneficial interest outstanding $26,210,888
===========
SOURCES OF NET ASSETS:
Proceeds from sales of shares (including shares issued to
shareholders electing to receive payment of distributions
in shares), less cost of shares redeemed $28,689,291
Undistributed net investment income 3,607
Accumulated net realized loss on investments and financial
futures transactions (1,761,166)
Unrealized depreciation of investments and open financial
future contracts (computed on the basis of identified cost) (720,844)
------------
Total net assets $26,210,888
============
NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE
($26,210,888 / 3,158,766 shares of beneficial interest) $8.30
=====
The accompanying notes are an integral part of the financial statements
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
STATEMENT OF OPERATIONS
-------------------------------------------------------------------------------------------------
For the Year Ended December 31, 1994
-------------------------------------------------------------------------------------------------
<S> <C> <C>
INVESTMENT INCOME (NOTE 1B):
Dividend income allocated from Portfolio $ 1,287,862
Interest income allocated from Portfolio 54,717
Expenses allocated from Portfolio (188,969)
-----------
Total investment income $ 1,153,610
Expenses --
Custodian fee $ 12,357
Distribution fees (Note 4) 167,071
Printing & Postage 26,900
Registration fees 23,546
Transfer and dividend disbursing agent fees 18,681
Legal and accounting services 12,131
Amortization of organization expenses 8,030
Miscellaneous 4,068
-----------
Total expenses 272,784
-----------
Net investment income $ 880,826
REALIZED AND UNREALIZED GAIN (LOSS) FROM PORTFOLIO:
Net realized gain (loss) (identified cost basis) --
Investment transactions $(2,861,257)
Financial futures contracts 228,634
-----------
Net realized loss on investments and financial futures
(identified cost basis) $(2,632,623)
Change in unrealized appreciation of investments and
financial futures contracts (823,963)
-----------
Net realized and unrealized loss on investments (3,456,586)
----------
Net decrease in net assets resulting from operations (2,575,760)
==========
The accompanying notes are an integral part of the financial statements
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
STATEMENT OF CHANGES IN NET ASSETS
-------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
----------------------------------
1994 1993*
----------- ------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
From operations --
Net investment income $ 880,826 $ 42,114
Net realized loss from Portfolio (2,632,623) (51,495)
Change in unrealized appreciation from Portfolio (823,963) 103,119
------------ -----------
Net increase (decrease) in net assets resulting from
operations $(2,575,760) $ 93,738
----------- -----------
Distributions to shareholders --
From net investment income $ (866,139) $ (42,114)
Tax return of capital (131,190) (10,379)
----------- -----------
Total distributions to shareholders $ (997,329) $ (52,493)
----------- -----------
Net increase in net assets from Fund share transactions
(Note 2) $18,264,787 $11,477,935
----------- -----------
Net increase in net assets $14,691,698 $11,519,180
NET ASSETS:
At beginning of period 11,519,190 10
----------- -----------
At end of period $26,210,888 $11,519,190
=========== ===========
*For the period from the start of business, November 1, 1993, to December 31, 1993.
The accompanying notes are an integral part of the financial statements
</TABLE>
<PAGE>
FINANCIAL HIGHLIGHTS
-----------------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
-----------------------
1994 1993*
---- -----
FINANCIAL HIGHLIGHTS (for a share outstanding
throughout the period):
NET ASSET VALUE -- Beginning of period $ 9.9300 $10.0000
-------- --------
Income from investment operations:
Net investment income $ 0.3638 $ 0.0409
Net realized and unrealized loss on investments (1.5988) (0.0559)\1/
--------- --------
Total loss from investment operations $(1.2350) $(0.0150)
-------- --------
Less distributions declared to shareholders:
From net investment income $(0.3535) $(0.0461)
Tax return of capital (0.0415) (0.0089)
--------- --------
Total distributions $(0.3950) $(0.0550)
--------- --------
NET ASSET VALUE -- End of period $ 8.3000 $ 9.9300
======== ========
TOTAL RETURN** (12.70%) (0.15%)
RATIOS/SUPPLEMENTAL DATA: (to average
daily net assets)***
Expenses\2/ 2.07% 0.68%+
Net investment income 3.95% 3.38%+
NET ASSETS AT END OF PERIOD (000'S OMITTED) $ 26,210 $ 11,519
Note: Per share amounts have been computed using average shares outstanding
during the period.
\1/ The per share amount for the period from the start of business, November
1, 1993 to December 31, 1993, is not in accord with the net realized and
unrealized gain for the period allocated to the Fund by the Portfolio due
to the timing of the sales of Fund shares and the amount of per share
realized and unrealized gains and losses at such time.
\2/ Includes the Fund's share of Total Return Portfolio's allocated expenses
for the year ended December 31, 1994 and the period from November 1, 1993,
to December 31, 1993.
+ Computed on an annualized basis.
* For the period from the start of business, November 1, 1993, to December
31, 1993.
** Total return is calculated assuming a purchase at the net asset value on
the first day and a sale at the net asset value on the last day of each
period reported. Dividends and distributions, if any, are assumed to be
reinvested at the net asset value on the record date.
*** The expenses related to the operation of the fund reflect an allocation of
expenses to the administrator. Had such action not been taken, the ratios
would have been as follows:
Ratios (to average daily net assets)
Expenses -- 1.83%+
Net investment income -- 2.23%+
The accompanying notes are an integral part of the financial statements
<PAGE>
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1994
-------------------------------------------------------------------------------
(1) SIGNIFICANT ACCOUNTING POLICIES
EV Marathon Total Return Fund (the Fund) is a non-diversified entity of the type
commonly known as a Massachusetts business trust and is registered under the
Investment Company Act of 1940, as amended, as an open-end management investment
company. The Fund is a series in the Eaton Vance Total Return Trust. The Fund
invests all of its investable assets in interests in the Total Return Portfolio
(the Portfolio), a New York Trust, having the same investment objective as the
Fund. The value of the Fund's investment in the Portfolio reflects the Fund's
proportionate interest in the net assets of the Portfolio (5.2% at December 31,
1994). The performance of the Fund is directly affected by the performance of
the Portfolio. The financial statements of the Portfolio, including the
portfolio of investments, are included elsewhere in this report and should be
read in conjunction with the Fund's financial statements. The following is a
summary of significant accounting policies consistently followed by the Fund in
the preparation of its financial statements. The policies are in conformity with
generally accepted accounting principles.
A. INVESTMENT VALUATIONS -- Valuations of securities by the Portfolio is
discussed in Note 1 of the Portfolio's Notes to Financial Statements which are
included elsewhere in this report.
B. INCOME -- The Fund's net investment income consists of the Fund's pro rata
share of the net investment income of the Portfolio, less all actual and accrued
expenses of the Fund.
C. FEDERAL TAXES -- The Fund's policy is to comply with the provisions of the
Internal Revenue Code applicable to regulated investment companies and to
distribute to shareholders each year all of its taxable income, including any
net realized gain on investments, option and financial futures transactions.
Accordingly, no provision for federal income or excise tax is necessary. At
December 31, 1994, the Fund, for federal income tax purposes, had capital loss
carryovers of $1,835,173, which will reduce the Fund's taxable income arising
from future net realized gain on investment transactions, if any, to the extent
permitted by the Internal Revenue Code, and thus will reduce the amount of the
distributions to shareholders which would otherwise be necessary to relieve the
Fund of any liability for federal income or excise tax. Such capital loss
carryovers will expire on December 31, 2001 ($48,915) and December 31, 2002
($1,786,258).
D. DEFERRED ORGANIZATION EXPENSES -- Costs incurred by the Fund in connection
with its organization are being amortized on the straight-line basis over five
years.
E. OTHER -- Investment transactions are accounted for on the date the
investments are purchased or sold. Distributions to shareholders are recorded on
the ex-dividend date. Dividend income may include dividends that represent
returns of capital for federal tax purposes.
F. DISTRIBUTION COSTS -- For book purposes, commissions paid on the sale of Fund
shares and other distribution costs are charged to operations. For tax purposes,
commissions paid were charged to paid-in capital prior to November 16, 1994 and
subsequently charged to operations. The change in the tax accounting practice
was prompted by a recent Internal Revenue Service ruling and has no effect on
either the Fund's current yield or total return (Note 4).
G. 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 temporary
over-distributions for financial statement purposes, are classified as
distributions in excess of net investment income or accumulated net realized
gains.
<PAGE>
--------------------------------------------------------------------------------
(2) SHARES OF BENEFICIAL INTEREST
The Declaration of Trust permits the Trustees to issue an unlimited number of
full and fractional shares of beneficial interest (without par value).
Transactions in Fund shares were as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------------------------
1994 1993*
------------------------------ ------------------------------
SHARES AMOUNT SHARES AMOUNT
------------- -------------- ------------ --------------
<S> <C> <C> <C> <C>
Sales 2,631,297 $23,702,106 1,187,442 $11,749,837
Issued to shareholders electing to receive payment of
distribution in Fund shares 90,751 785,136 3,323 33,616
Redemptions (723,105) (6,222,454) (30,943) (305,518)
--------- ----------- --------- -----------
Net increase 1,998,943 $18,264,788 1,159,822 $11,477,935
========= =========== ========= ===========
*From the start of business, November 1, 1993 to December 31, 1993
</TABLE>
--------------------------------------------------------------------------------
(3) INVESTMENT TRANSACTIONS
Increases and decreases in the Fund's investment in the Portfolio aggregated
$24,515,051 and $6,756,703, respectively.
--------------------------------------------------------------------------------
(4) DISTRIBUTION PLAN
The Fund has adopted a distribution plan (the Plan) pursuant to Rule 12b-1 under
the Investment Company Act of 1940. The Plan requires the Fund to accrue amounts
daily to the principal underwriter, Eaton Vance Distributors, Inc. (EVD), equal
to 1/365th of 0.75% of the Fund's average daily net assets, for providing
ongoing distribution services and facilities to the Fund. The Fund will
automatically discontinue accruals to EVD during any period in which there are
no outstanding Uncovered Distribution Charges, which are approximately
equivalent to the sum of (i) 5% of the aggregate amount received by the Fund for
shares sold plus (ii) distribution fees calculated by applying the rate of 1%
over the prevailing prime rate to the outstanding balance of Uncovered
Distribution Charges of EVD, reduced by the aggregate amount of contingent
deferred sales charges (see Note 5) and amounts theretofore paid to EVD. The
amount payable to EVD with respect to each day is accrued on such day as a
liability of the Fund and, accordingly, reduces the Fund's net assets. Such
payments would cease upon termination of the distribution agreement (unless made
in accordance with another distribution agreement). As a result, the Fund does
not accrue amounts which may become payable to EVD in the future because the
conditions for recording any contingent liability under generally accepted
accounting principles have not been satisfied. EVD earned $142,927 for the year
ended December 31, 1994, representing 0.75% of average daily net assets. At
December 31, 1994, the amount of Uncovered Distribution Charges of EVD
calculated under the Plan was approximately $1,322,445.
In addition, the Plan authorizes the Fund to make payments of service fees to
the Principal Underwriter, Authorized Firms and other persons in amounts not
exceeding 0.25% of the Fund's average daily net assets for each fiscal year. The
Trustees have implemented the Plan by authorizing the Fund to make quarterly
payments of service fees to the Principal Underwriter and Authorized Firms in
amounts not expected to exceed 0.25% of the Fund's average daily net assets for
each fiscal year based on the value of Fund shares sold by such persons and
remaining outstanding for at least twelve months. During the year ended December
31, 1994 the Fund provided for $24,144 under the Plan to the Principal
Underwriter and Authorized Firms. Service fees are separate and distinct from
the sales commissions and distribution fees payable by the Fund to EVD, and, as
such, are not subject to automatic discontinuance where there are no outstanding
Uncovered Distribution Charges of EVD.
Certain of the officers of the Fund and Directors of the Corporation are
officers and directors of EVD.
<PAGE>
NOTES TO FINANCIAL STATEMENTS (Continued)
--------------------------------------------------------------------------------
(5) CONTINGENT DEFERRED SALES CHARGE
A contingent deferred sales charge (CDSC) is imposed on any redemption of Fund
shares made within six years of purchase. Generally, the CDSC is based upon the
lower of the net asset value at date of redemption or date of purchase. No
charge is levied on shares acquired by reinvestment of dividends or capital gain
distributions. For Fund shares purchased prior to August 1, 1994, the CDSC was
imposed at declining rates that begin at 6% in the first year of redemption
after purchase, declining one percentage point each year. For Fund shares
purchased on or after August 1, 1994, the CDSC will be imposed at declining
rates beginning at 5% in the first and second years, of redemption after
purchase, declining one percentage point in each subsequent year. No CDSC is
levied on shares which have been sold to EVM or its affiliates or to their
respective employees or clients. CDSC charges are paid to EVD to reduce the
amount of Uncovered Distribution Charges calculated under the Fund's
Distribution Plan. CDSC charges received when no Uncovered Distribution Charges
exist will be credited to the Fund. EVD received approximately $118,019 of CDSC
paid by shareholders for the year ended December 31, 1994.
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
--------------------------------------------------------------------------------
To the Shareholders and Board of Trustees of
EV Marathon Total Return Fund, a series of Eaton Vance Total Return Trust:
We have audited the accompanying statement of assets and liabilities of EV
Marathon Total Return Fund, a series of Eaton Vance Total Return Trust, as of
December 31, 1994, and the related statement of operations for the year then
ended, the statement of changes in net assets and the financial highlights for
the year then ended and for the period from November 1, 1993 (start of business)
to December 31, 1993. These financial statements and financial highlights are
the responsibility of the Fund's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
December 31, 1994 by correspondence with the custodian and brokers. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of EV
Marathon Total Return Fund, a series of Eaton Vance Total Return Trust, as of
December 31, 1994, the results of its operations for the year then ended, and
the changes in its net assets and the financial highlights for the year then
ended and for the period from November 1, 1993, (start of business) to December
31, 1993, in conformity with generally accepted accounting principles.
COOPERS & LYBRAND L.L.P.
Boston, Massachusetts
February 3, 1995
<PAGE>
--------------------------------------------------------------------------------
TOTAL RETURN PORTFOLIO
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1994
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
COMMON STOCKS -- 93.4%
-------------------------------------------------------------------------------------------------
NAME OF COMPANY SHARES VALUE
-------------------------------------------------------------------------------------------------
<S> <C> <C>
ELECTRIC UTILITIES -- 62.1%
American Electric Power Co. Inc. 200,000 $ 6,575,000
Baltimore Gas & Electric Co. 150,000 3,318,750
Carolina Power & Light Co. 750,000 19,968,750
Central & South West Corp. 479,994 10,859,864
Central Louisiana Electric Co. 326,800 7,720,650
Cinergy Corp. 1,250,250 29,224,594
Dominion Resources, Inc. 200,000 7,150,000
DPL Inc. 950,000 19,475,000
DQE, Inc. 400,000 11,850,000
Duke Power Co. 270,000 10,293,750
FPL Group, Inc. 560,000 19,670,000
General Public Utilities Corp. 320,000 8,400,000
IPALCO Enterprises, Inc. 350,000 10,500,000
Kansas City Power & Light Co. 181,900 4,251,913
LG & E Energy Corp. 125,000 4,609,375
New England Electric System 100,000 3,212,500
NIPSCO Industries, Inc. 400,000 11,900,000
Northern States Power Co. Minn. 322,800 14,203,200
Norweb Ord PLC 200,000 2,690,940
Ohio Edison Co. 200,000 3,700,000
PacifiCorp 583,200 10,570,500
PECO Energy Co. 200,000 4,900,000
Pinnacle West Capital Corp. 300,000 5,925,000
Portland General Corp. 350,000 6,737,500
Public Service Co. of New Mexico<F2> 565,300 7,348,900
Southern Co. 1,072,460 21,449,200
Teco Energy, Inc. 410,000 8,251,250
Union Electric Co. 346,500 12,257,438
United Illuminating Co. 110,200 3,250,900
Western Resources, Inc. 200,000 5,725,000
Wisconsin Energy Corp. 689,650 17,844,694
------------
$313,834,668
------------
OIL & GAS -- 5.4%
Amoco Corp. 165,000 $ 9,755,625
BP Prudhoe Bay Rty Tr Unit Ben Int. 437,000 7,429,000
Mobil Corp. 120,000 10,110,000
------------
$ 27,294,625
------------
REITS -- 18.5%
Apartment Investment & Management Co. Class A 200,000 $ 3,450,000
Associated Estates Realty Corp. 200,000 4,200,000
Avalon Properties, Inc. 165,000 3,795,000
Bay Apartment Communities 213,400 4,294,675
Bradley Real Estate Trust 72,750 1,109,437
Cali Realty Corp. 150,000 2,400,000
Camden Properties Trust SBI 200,000 4,975,000
Columbus Realty Trust 140,000 2,590,000
Developers Diversified Realty Corp. 170,000 5,312,500
Duke Realty Investments, Inc. 40,000 1,130,000
Equity Residential Properties Trust 80,000 2,400,000
Health Care Property Investors, Inc. 140,000 4,217,500
Healthcare Realty Trust 350,000 7,350,000
LTC Properties, Inc. 490,000 6,492,500
Macerich Co. 175,000 3,740,625
Meditrust Sh Ben Int. 100,000 3,025,000
Mid America Apartment Communities, Inc. 164,500 4,400,375
Nationwide Health Properties, Inc. 320,000 11,440,000
Oasis Residential, Inc. 225,000 5,512,500
Post Properties Inc. 100,000 3,150,000
Simon Property Group, Inc. 150,000 3,637,500
Southwestern Property Trust, Inc. 180,000 2,205,000
Sun Communities Inc. 110,000 2,475,000
------------
$ 93,302,612
------------
TELEPHONE UTILITIES -- 6.9%
Ameritech Corp. 380,000 $ 15,342,500
Bell Atlantic Corp. 100,000 4,975,000
Southern New England
Telecommunications 50,000 1,606,250
Southwestern Bell Corp. 150,000 6,056,250
Tele Danmark A/S<F2> 63,000 1,606,500
Telecom Corp. New Zealand Ltd. ADR 100,000 5,137,500
------------
$ 34,724,000
------------
OTHER -- 0.5%
British Sky Broadcasting Group PLC ADR<F2> 25,000 $ 600,000
Sonat Inc. 71,000 1,988,000
------------
$ 2,588,000
------------
TOTAL COMMON STOCKS
(identified cost, $455,294,874) $471,743,905
------------
<CAPTION>
-------------------------------------------------------------------------------------------------
CONVERTIBLE PREFERRED STOCK -- 2.0%
-------------------------------------------------------------------------------------------------
SHARES VALUE
-------------------------------------------------------------------------------------------------
<S> <C> <C>
Freeport McMoRan Copper & Gold 40,000 $ 830,000
Kenetech Corp., 8.25s 200,000 3,075,000
Philippines Long Distance Telephone, 7s 112,000 6,062,000
------------
$ 9,967,000
------------
TOTAL CONVERTIBLE PREFERRED STOCKS
(identified cost, $10,549,225) $ 9,967,000
------------
<PAGE>
<CAPTION>
-------------------------------------------------------------------------------------------------
CONVERTIBLE BONDS -- 0.1%
-------------------------------------------------------------------------------------------------
FACE AMOUNT
(000 OMITTED)
-------------------------------------------------------------------------------------------------
<S> <C> <C>
IDB Communications Group, Inc.,
5s, 8/15/03 (identified cost, $858,750) $1,000 $ 762,500
------------
-------------------------------------------------------------------------------------------------
U.S. TREASURY OBLIGATIONS -- 1.5%
-------------------------------------------------------------------------------------------------
U.S. Treasury Bill, 0s, 3/5/95<F1>
(identified cost, $7,696,456) $7,780 $ 7,703,600
------------
-------------------------------------------------------------------------------------------------
SHORT-TERM OBLIGATIONS -- 1.5%
-------------------------------------------------------------------------------------------------
CXC Inc., 5.95s, 1/3/95 $3,499 $ 3,497,265
American Express Credit Corp.,
5.80s, 1/5/95 4,294 4,290,541
------------
TOTAL SHORT-TERM OBLIGATIONS, AT
AMORTIZED COST $ 7,787,806
------------
TOTAL INVESTMENTS -- 98.5%
(identified cost, $482,187,111) $497,964,811
OTHER ASSETS, LESS LIABILITIES -- 1.5% 7,602,081
------------
NET ASSETS -- 100.0% $505,566,892
============
<FN>
<F1>Collateral for futures held at December 31, 1994 (see Note 6)
<F2>Non-income producing security
</FN>
</TABLE>
The accompanying notes are an integral part
of the financial statements
<PAGE>
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
--------------------------------------------------------------------------------------------------
December 31, 1994
--------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS:
Investments, at value (Note 1A)
(identified cost, $482,187,111) $497,964,811
Cash 2,597
Receivable for investments sold 8,994,384
Dividends receivable 2,364,639
Receivable for daily variation margin on financial
futures contracts 975,000
Deferred organization expenses (Note 1E) 16,027
Foreign tax reclaim receivable 25,565
Interest receivable 29,754
------------
Total assets $510,372,777
LIABILITIES:
Payable for investments purchased $4,775,774
Trustees fees payable 5,160
Custodian fee payable 8,403
Accrued expenses 16,548
----------
Total liabilities 4,805,885
------------
NET ASSETS applicable to investors' interest in Portfolio $505,566,892
============
SOURCES OF NET ASSETS:
Net proceeds from capital contributions and withdrawals $491,941,692
Unrealized appreciation of investments and open futures
contracts (computed on the basis of identified cost) 13,625,200
------------
Total net assets $505,566,892
============
</TABLE>
The accompanying notes are an integral part of the financial statements
<PAGE>
FINANCIAL STATEMENTS (Continued)
<TABLE>
<CAPTION>
STATEMENT OF OPERATIONS
----------------------------------------------------------------------------------------------
For the Year Ended December 31, 1994
----------------------------------------------------------------------------------------------
<S> <C> <C>
INVESTMENT INCOME:
Dividend income $ 32,158,717
Interest income 1,330,065
-------------
Total income $ 33,488,782
Expenses -- Investment adviser fee (Note 3) $ 4,106,857
Compensation of trustees not members of the
investment adviser's organization
(Note 3) 20,687
Custodian fee (Note 3) 159,872
Interest expense 187,106
Commitment fee 143,450
Audit and legal fees 46,657
Printing and postage fees 14,129
Amortization of deferred organizational expenses
(Note 1E) 4,197
Miscellaneous 19,841
-----------
Total expenses 4,702,796
-------------
Net investment income $ 28,785,986
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized gain (loss) (identified cost basis) --
Investment transactions $(21,035,623)
Financial futures contracts 5,883,625
------------
Net realized loss on investments and financial
futures (identified cost basis) $(15,151,998)
Change in unrealized appreciation on investments and
financial futures contracts (89,492,365)
------------
Net realized and unrealized loss on investments (104,644,363)
-------------
Net decrease in net assets resulting from
operations $ (75,858,377)
=============
</TABLE>
The accompanying notes are an integral part of the financial statements
<PAGE>
<TABLE>
<CAPTION>
STATEMENT OF CHANGES IN NET ASSETS
-----------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
------------------------------------
1994 1993<F1>
----------------- ----------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
From operations --
Net investment income $ 28,785,986 $ 5,227,429
Net realized loss on investment transactions and
financial futures contracts (15,151,998) (3,109,783)
Decrease in unrealized appreciation of investments (89,492,365) (31,858,504)
------------- -------------
Net decrease in net assets resulting from
operations $ (75,858,377) $ (29,740,858)
------------- -------------
Capital transactions --
Contributions $ 97,021,559 $ 700,057,818
Withdrawals (152,162,876) (33,850,394)
------------- -------------
Increase (decrease) in net assets resulting from
capital transactions $ (55,141,317) $ 666,207,424
------------- -------------
Total increase (decrease) in net assets $(130,999,694) $ 636,466,566
NET ASSETS:
At beginning of period 636,566,586 100,020
------------- -------------
At end of period $ 505,566,892 $ 636,566,586
============= =============
<FN>
<F1>For the period from the start of business, October 28, 1993, to December 31, 1993.
</FN>
</TABLE>
The accompanying notes are an integral part of the financial statements
<PAGE>
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------
SUPPLEMENTARY DATA
-----------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
-------------------------------------
1994 1993<F2>
----------------- -----------------
<S> <C> <C>
RATIOS (As a percentage of average net assets):
Expenses 0.85% 0.91%<F1>
Net investment income 5.22% 4.57%<F1>
PORTFOLIO TURNOVER 107% 16%
LEVERAGE ANALYSIS:
Amount of debt outstanding at end of period (000's
omitted) -- --
Average daily balance of debt outstanding during
period (000 omitted) $ 3,137 $15,452
<FN>
<F1>Computed on an annualized basis.
<F2>For the period from the start of business, October 28, 1993, to December 31, 1993.
</FN>
</TABLE>
The accompanying notes are an integral part of the financial statements
<PAGE>
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1994
-------------------------------------------------------------------------------
(1) SIGNIFICANT ACCOUNTING POLICIES
Total Return Portfolio (the Portfolio) is registered under the Investment
Company Act of 1940 as a diversified open-end investment company which was
organized as a trust under the laws of the State of New York on May 1, 1992. The
Declaration of Trust permits the Trustees to issue beneficial interests in the
Portfolio. Investment operations began on October 28, 1993, with the acquisition
of net assets of $668,641,088 in exchange for an interest in the Portfolio by
one of the Portfolio's investors. The following is a summary of significant
accounting policies of the Portfolio. The policies are in conformity with
generally accepted accounting principles.
A. INVESTMENT VALUATIONS -- Securities listed on securities exchanges or in the
NASDAQ National Market are valued at closing sales prices or, if there has been
no sale, at the mean between the closing bid and asked prices. Unlisted
securities are valued at the mean between the latest available bid and asked
prices. Options and financial futures contracts are valued at the last sale
price, as quoted on the principal exchange or board of trade on which such
options or contracts are traded or, in the absence of a sale, the mean between
the last bid and asked prices. Short-term obligations, maturing in 60 days or
less, are valued at amortized cost, which approximates value. Securities for
which market quotations are unavailable are appraised at their fair value as
determined in good faith by or at the direction of the Trustees.
B. INCOME TAXES -- The Portfolio is treated as a partnership for federal tax
purposes. No provision is made by the Portfolio for federal or state taxes on
any taxable income of the Portfolio because each investor in the Portfolio is
ultimately responsible for the payment of any taxes. Since some of the
Portfolio's investors are regulated investment companies that invest all or
substantially all of their assets in the Portfolio, the Portfolio normally must
satisfy the applicable source of income and diversification requirements (under
the Code) in order for its investors to satisfy them. The Portfolio will
allocate at least annually among its investors each investors' distributive
share of the Portfolio's net investment income, net realized capital gains, and
any other items of income, gain, loss, deduction or credit.
C. OPTION ACCOUNTING PRINCIPLES -- Upon the writing of a covered call option, an
amount equal to the premium received by the Portfolio is included in the
Statement of Assets and Liabilities as a liability. The amount of the liability
is subsequently marked-to-market to reflect the current market value of the
option written in accordance with the Portfolio's policies on investment
valuations discussed above. Premiums received from writing call options which
expire are treated as realized gains. Premiums received from writing call
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. The Portfolio, as writer of a call option, may have no control over
whether the underlying securities may be sold and, as a result, bears the market
risk of an unfavorable change in the price of the securities underlying the
written option.
D. FINANCIAL FUTURES CONTRACTS -- Upon the entering of a financial futures
contract, the Portfolio is required to deposit an amount ("initial margin")
either in cash or securities equal to a certain percentage of the purchase price
indicated in the financial futures contract. Subsequent payments are made or
received by the Portfolio ("margin maintenance") each day, dependent on the
daily fluctuations in the value of the underlying security, and are recorded for
book purposes as unrealized gains or losses by the Portfolio. When the Portfolio
enters into a closing transaction, the Portfolio will realize for book purposes
a gain or loss equal to the difference between the value of the financial
futures contract to sell and the financial futures contract to buy. The
Portfolio's investment in financial futures contracts is designed only to hedge
against anticipated future changes in interest rates, security prices, commodity
prices or currency exchange rates. Should interest rates, security prices,
commodity prices or currency exchange rates move unexpectedly, the Portfolio may
not achieve the anticipated benefits of the financial futures contracts and may
realize a loss.
<PAGE>
NOTES TO FINANCIAL STATEMENTS (Continued)
--------------------------------------------------------------------------------
E. DEFERRED ORGANIZATION EXPENSES -- Costs incurred by the Portfolio in
connection with its organization are being amortized on the straight-line basis
over five years.
F. OTHER -- Investment transactions are accounted for on the date the
investments are purchased or sold. Dividend income is recorded on the ex-
dividend date. Realized gains and losses on the sale of investments are
determined on the identified cost basis.
--------------------------------------------------------------------------------
(2) INVESTMENT TRANSACTIONS
Purchases and sales of investments, other than short-term obligations,
aggregated $574,395,813 and $620,810,869, respectively.
--------------------------------------------------------------------------------
(3) INVESTMENT ADVISER FEE AND OTHER TRANSACTIONS WITH AFFILIATES
The investment adviser fee is earned by Boston Management and Research (BMR), a
wholly-owned subsidiary of Eaton Vance Management (EVM), as compensation for
management and investment advisory services rendered to the Portfolio. The fee
is based upon a percentage of average daily net assets. For the year ended
December 31, 1994, the fee was equivalent to 0.74% of the Portfolio's average
net assets for such period and amounted to $4,106,857. Except as to Trustees of
the Portfolio who are not members of EVM's or BMR's organization, officers and
Trustees receive remuneration for their service to the Portfolio out of such
investment adviser fee. Investors Bank & Trust Company (IBT), an affiliate of
EVM and BMR, serves as custodian of the Portfolio. Pursuant to the custodian
agreement, IBT receives a fee reduced by credits which are determined based on
the average daily cash balances the Portfolio maintains with IBT. Certain of the
officers and Trustees of the Portfolio are officers and directors/trustees of
the above organizations.
<PAGE>
--------------------------------------------------------------------------------
(4) LINE OF CREDIT
The Portfolio participates with other portfolios and funds managed by BMR and
EVM and its affiliates 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. The Portfolio expects to use the proceeds
of the advances primarily for leveraging purposes. Borrowings by the Portfolio
under the Credit Agreement will not exceed the lesser of 1/3 of the market value
of the net assets of the Portfolio or $60,000,000. Interest is charged to each
portfolio 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 and portfolios at the end of each quarter. The average daily loan balance
for the year ended December 31, 1994 was $3,137,134 and the average interest
rate was 5.96%. The maximum borrowings outstanding at any month end during the
year ended December 31, 1994, was $26,083,000.
--------------------------------------------------------------------------------
(5) FEDERAL INCOME TAX BASIS OF INVESTMENTS
The cost and unrealized appreciation/depreciation in value of the investments
owned at December 31, 1994, as computed on a federal income tax basis, are as
follows:
Aggregate cost $482,915,174
============
Gross unrealized appreciation $ 28,239,363
Gross unrealized depreciation 13,189,726
------------
Net unrealized appreciation $ 15,049,637
============
--------------------------------------------------------------------------------
(6) FINANCIAL INSTRUMENTS
The Portfolio may trade in financial instruments with off-balance sheet risk in
the normal course of its investing activities to assist in managing exposure to
various market risks. These financial instruments include written options,
forward foreign currency exchange contracts, and financial futures contracts and
may involve, to a varying degree, elements of risk in excess of the amounts
recognized for financial statement purposes. The notational 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 off-setting
transactions are considered.
A summary of obligations under these financial instruments at December 31, 1994
is as follows:
NET
FUTURES CONTRACT UNREALIZED
EXPIRATION DATE CONTRACTS POSITION DEPRECIATION
--------------- --------- -------- ------------
3/95 600 S&P 500 Futures Short $2,152,500
At December 31, 1994, the Portfolio has sufficient cash and/or securities to
cover margin requirements on open futures contracts.
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
--------------------------------------------------------------------------------
To the Trustees and Investors of
Total Return Portfolio:
We have audited the accompanying statement of assets and liabilities of Total
Return Portfolio, including the portfolio of investments, as of December 31,
1994, the related statement of operations for the year then ended and the
statement of changes in net assets and supplementary data for the year ended
December 31, 1994, and for the period from the start of business, October 28,
1993, to December 31, 1993. These financial statements and supplementary data
are the responsibility of the Portfolio's management. Our responsibility is to
express an opinion on these financial statements and supplementary data based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and supplementary
data are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
December 31, 1994 by correspondence with the custodian and brokers. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and supplementary data referred to
above present fairly, in all material respects, the financial position of Total
Return Portfolio as of December 31, 1994, the results of its operations for the
year then ended, and the changes in its net assets and the supplementary data
for the year ended December 31, 1994, and for the period from the start of
business, October 28, 1993, to December 31, 1993, in conformity with generally
accepted accounting principles.
COOPERS & LYBRAND L.L.P.
Boston, Massachusetts
February 3, 1995
<PAGE>
INVESTMENT ADVISER OF
TOTAL RETURN PORTFOLIO
Boston Management and Research
24 Federal Street
Boston, MA 02110
ADMINISTRATOR OF
EV MARATHON TOTAL RETURN FUND
Eaton Vance Management
24 Federal Street
Boston, MA 02110
PRINCIPAL UNDERWRITER
Eaton Vance Distributors, Inc.
24 Federal Street
Boston, MA 02110
(800) 225-6265
CUSTODIAN
Investors Bank & Trust Company
24 Federal Street
Boston, MA 02110
TRANSFER AGENT
The Shareholder Services Group, Inc.
BOS 725
P.O. Box 1559
Boston, MA 02104
(800) 262-1122
INDEPENDENT ACCOUNTANTS
Coopers & Lybrand L.L.P.
One Post Office Square
Boston, MA 02109
EV MARATHON TOTAL RETURN FUND
24 FEDERAL STREET
BOSTON, MA 02110
M-TMSAI
EV MARATHON
TOTAL RETURN FUND
STATEMENT OF ADDITIONAL INFORMATION
MAY 1, 1995
<PAGE>
EV EQUITY-INCOME TRUST
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
--------------------------------------------------------------------------------
June 30, 1995 (Unaudited)
--------------------------------------------------------------------------------
ASSETS:
Investment in Total Return Portfolio (Portfolio) at value
(Note 1A) $24,920,861
Receivable for fund shares sold and dividend reinvestments 1,175
-----------
Total assets $24,922,036
LIABILITIES:
Payable to affiliates:
Trustees' fees $ 565
Custodian fee 175
Accrued expenses 19,009
-------
Total liabilities 19,749
-----------
NET ASSETS for 2,307,515 shares of beneficial interest
outstanding $24,902,287
===========
SOURCES OF NET ASSETS:
Proceeds from sales of shares (including shares
issued to shareholders electing to receive payment
of distributions in shares), less cost of shares
redeemed $23,919,477
Accumulated net realized loss on investment and
financial futures transactions (1,649,487)
Undistributed net investment income 26,302
Unrealized appreciation of investments (computed on
the basis of identified cost) 2,605,995
-----------
Total $24,902,287
===========
NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE
($24,902,287 / 2,307,515 shares of beneficial interest) $10.79
======
The accompanying notes are an integral part of the financial statements
<PAGE>
FINANCIAL STATEMENTS (Continued)
STATEMENT OF OPERATIONS
--------------------------------------------------------------------------------
For the Six Months Ended June 30, 1995 (Unaudited)
--------------------------------------------------------------------------------
INVESTMENT INCOME (NOTE 1B):
Dividend income allocated from Portfolio (net of
foreign withholding tax of $4,306) $ 670,272
Interest income allocated from Portfolio 79,920
Expenses allocated from Portfolio (108,575)
----------
Total investment income $ 641,617
Expenses --
Compensation of Directors not members of the
investment adviser's organization $ 225
Distribution fees (Note 4) 120,604
Custodian fees 2,374
Transfer and dividend disbursing agent fees 25,773
Printing and postage 17,130
Legal and accounting services 16,624
Registration fees 10,950
Miscellaneous 7,624
---------
Total expenses 201,304
----------
Net investment income $ 440,313
REALIZED AND UNREALIZED GAIN (LOSS) FROM PORTFOLIO:
Net realized gain (loss) (identified cost basis) --
Investment transactions $ 433,144
Financial futures contracts (450,445)
---------
Net realized loss on investment transactions and
financial futures contracts (identified cost basis) $ (17,301)
Change in unrealized appreciation of investments
and financial futures contracts 1,680,905
---------
Net realized and unrealized gain (loss) on investments 1,663,604
----------
Net increase in net assets resulting from operations $2,103,917
==========
The accompanying notes are an integral part of the financial statements
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS
------------------------------------------------------------------------------
SIX MONTHS
ENDED
JUNE 30, 1995 YEAR ENDED
(UNAUDITED) DECEMBER 31, 1994*
------------- -----------------
INCREASE (DECREASE) IN NET ASSETS:
From operations --
Net investment income $ 440,313 $ 269,386
Net realized loss on investments (17,301) (225,236)
Increase in unrealized appreciation of
investments 1,680,905 173,127
----------- -----------
Net increase in net assets resulting
from operations $ 2,103,917 $ 217,277
----------- -----------
Distributions to shareholders from
net investment income $ (438,910) $ (245,154)
----------- -----------
Net decrease in net assets from Fund
share transactions (Note 2) $(4,413,053) $(2,448,016)
----------- -----------
Net decrease in net assets $(2,748,046) $(2,475,893)
NET ASSETS:
At beginning of year 27,650,333 30,126,226
----------- -----------
At end of year $24,902,287 $27,650,333
=========== ===========
* For the period from the start of business, October 1, 1994 to December 31,
1994.
The accompanying notes are an integral part of the financial statements
<PAGE>
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
--------------------------------------------------------------------------------
(1) SIGNIFICANT ACCOUNTING POLICIES
EV Equity-Income Trust (the Fund) is a diversified entity of the type commonly
known as a Massachusetts business trust and is registered under the Investment
Company Act of 1940, as amended, as an open-end management investment company.
The Fund is a series in the Eaton Vance Total Return Trust. On October 1, 1994,
the Fund transferred substantially all of its investable assets to the Total
Return Portfolio (the Portfolio). The Fund invests all of its investable assets
in interests in the Total Return Portfolio (the Portfolio), a New York Trust,
having the same investment objective as the Fund. The value of the Fund's
investment in the Portfolio reflects the Fund's proportionate interest in the
net assets of the Portfolio (5% at June 30, 1995). The performance of the Fund
is directly affected by the performance of the Portfolio. The financial
statements of the Portfolio, including the portfolio of investments, are
included elsewhere in this report and should be read in conjunction with the
Fund's financial statements. The following is a summary of significant
accounting policies consistently followed by the Fund in the preparation of its
financial statements. The policies are in conformity with generally accepted
accounting principles.
A. INVESTMENT VALUATIONS -- Valuations of securities by the Portfolio is
discussed in Note 1 of the Portfolio's Notes to Financial Statements which are
included elsewhere in this report.
B. INCOME -- The Fund's net investment income consists of the Fund's pro rata
share of the net investment income of the Portfolio, less all actual and accrued
expenses of the Fund.
C. FEDERAL TAXES -- The Fund's policy is to comply with the provisions of the
Internal Revenue Code applicable to regulated investment companies and to
distribute to shareholders each year all of its taxable income, including any
net realized gain on investments, option and financial futures transactions.
Accordingly, no provision for federal income or excise tax is necessary. At
December 31, 1994, the Fund, for federal income tax purposes, had capital loss
carryovers of $1,740,353, which will reduce the Fund's taxable income arising
from future net realized gain on investment transactions, if any, to the extent
permitted by the Internal Revenue Code, and thus will reduce the amount of the
distributions to shareholders which would otherwise be necessary to relieve the
Fund of any liability for federal income or excise tax. Such capital loss
carryovers will expire on December 31, 2001 ($1,376,736) and on December 31,
2002 ($363,617).
D. DEFERRED ORGANIZATION EXPENSES -- Costs incurred by the Fund in connection
with its organization are being amortized on the straight-line basis over five
years.
E. OTHER -- Investment transactions are accounted for on the date the
investments are purchased or sold. Distributions to shareholders are recorded on
the ex-dividend date.
F. 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 temporary
over-distributions for financial statement purposes, are classified as
distributions in excess of net investment income or accumulated net realized
gains.
G. INTERIM FINANCIAL INFORMATION -- The interim financial statements relating to
June 30, 1995 and for the 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.
<PAGE>
NOTES TO FINANCIAL STATEMENTS (Continued)
--------------------------------------------------------------------------------
(2) SHARES OF BENEFICIAL INTEREST
The Declaration of Trust permits the Trustees to issue an unlimited number of
full and fractional shares of beneficial interest (without par value).
Transactions in Trust shares were as follows:
FOR THE PERIOD FROM
SIX MONTHS ENDED START OF BUSINESS
JUNE 30, 1995 OCTOBER 1, 1994, TO
(UNAUDITED) DECEMBER 31, 1994
------------------------- -----------------------
SHARES AMOUNT SHARES AMOUNT
---------- ------------- --------- ------------
Sales 84,267 $ 875,558 103,367 $ 1,038,730
Issued to shareholders
electing to receive
payment of
distribution in Trust
shares 32,670 341,205 18,691 189,156
Redemptions (543,346) (5,629,816) (365,004) (3,675,902)
-------- ----------- ------- -----------
Net decrease (426,409) $(4,413,053) (242,946) $(2,448,016)
======= =========== ======= ===========
--------------------------------------------------------------------------------
(3) INVESTMENT TRANSACTIONS
Increases and decreases in the Fund's investment in the Portfolio aggregrated
$1,106,422 and $6,115,259, respectively.
<PAGE>
--------------------------------------------------------------------------------
(4) DISTRIBUTION PLAN
The Fund has adopted a distribution plan (the Plan) pursuant to Rule 12b-1 under
the Investment Company Act of 1940. The Plan requires the Fund to accrue amounts
daily to the principal underwriter, Eaton Vance Distributors, Inc. (EVD), equal
to 1/365th of 0.75% of the Fund's average daily net assets, for providing
ongoing distribution services and facilities to the Fund. The Fund will
automatically discontinue accruals to EVD during any period in which there are
no outstanding Uncovered Distribution Charges, which are approximately
equivalent to the sum of (i) 5% of the aggregate amount received by the Fund for
shares sold plus (ii) distribution fees calculated by applying the rate of 1%
over the prevailing prime rate to the outstanding balance of Uncovered
Distribution Charges of EVD, reduced by the aggregate amount of contingent
deferred sales charges (see Note 6) and amounts theretofore paid to EVD. The
amount payable to EVD with respect to each day is accrued on such day as a
liability of the Fund and, accordingly, reduces the Fund's net assets. Such
payments would cease upon termination of the distribution agreement (unless made
in accordance with another distribution agreement). As a result, the Fund does
not accrue amounts which may become payable to EVD in the future because the
conditions for recording any contingent liability under generally accepted
accounting principles have not been satisfied. EVD earned $97,310 for the six
months ended June 30, 1995, representing 0.75% of average daily net assets. At
June 30, 1995, the amount of Uncovered Distribution Charges of EVD calculated
under the Plan was approximately $392,238.
In addition, the Plan authorizes the Fund to make payments of service fees
to the Principal Underwriter, Authorized Firms and other persons in amounts not
exceeding 0.25% of the Fund's average daily net assets for each fiscal year. The
Trustees have implemented the plan by authorizing the Fund to make quarterly
payments of service fees to the Principal Underwriter and Authorized Firms in
amounts not expected to exceed 0.25% of the Fund's average daily net assets for
each fiscal year based on the value of Fund shares sold by such persons and
remaining outstanding for at least twelve months. Service fees are separate and
distinct from the sales commissions and distribution fees payable by the Fund to
EVD, and, as such, are not subject to automatic discontinuance where there are
no outstanding Uncovered Distribution Charges of EVD. Provision for service fees
amounted to $23,294 for the six months ended June 30, 1995.
Certain of the officers of the Fund and Directors of the Corporation are
officers and directors of EVD.
--------------------------------------------------------------------------------
(5) CONTINGENT DEFERRED SALES CHARGE
A contingent deferred sales charge (CDSC) is imposed on any redemption of Fund
shares made within six years of purchase. Generally, the CDSC is based upon the
lower of the net asset value at date of redemption or date of purchase. No
charge is levied on shares acquired by reinvestment of dividends or capital gain
distributions. The CDSC is imposed at declining rates that begin at 6% in the
first year of redemption after purchase, declining one percentage point each
year. No CDSC is levied on shares which have been sold to EVM or its affiliates
or to their respective employees or clients. CDSC charges are paid to EVD to
reduce the amount of Uncovered Distribution Charges calculated under the Fund's
Distribution Plan. CDSC charges received when no Uncovered Distribution Charges
exist will be retained by the Fund. EVD received approximately $81,658 of CDSC
paid by shareholders for the six months ended June 30, 1995.
<PAGE>
EV MARATHON TOTAL RETURN FUND
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
--------------------------------------------------------------------------------
June 30, 1995 (Unaudited)
--------------------------------------------------------------------------------
ASSETS:
Investment in Total Return Portfolio (Portfolio) at value
(Note 1A) $29,755,841
Receivable for Fund shares sold 3,476
Deferred organization expenses (Note 1D) 32,613
-----------
Total assets $29,791,930
LIABILITIES:
Payable for Fund shares redeemed $44,501
Payable to Affiliates:
Trustees' fees 63
Custodian fee 109
Accrued expenses 19,211
-------
Total liabilities 63,884
-----------
NET ASSETS for 3,355,913 shares of beneficial interest
outstanding $29,728,046
===========
SOURCES OF NET ASSETS:
Proceeds from sales of shares (including shares issued to
shareholders electing to receive payment of distributions
in shares), less cost of shares redeemed $30,339,445
Accumulated net realized loss on investments and
financial futures transactions (1,727,567)
Undistributed net investment income 18,176
Unrealized appreciation of investments (computed on
the basis of identified cost) 1,097,992
-----------
Total net assets $29,728,046
===========
NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE
($29,728,046 / 3,355,913 shares of beneficial interest) $8.86
=====
The accompanying notes are an integral part of the financial statements
<PAGE>
STATEMENT OF OPERATIONS
--------------------------------------------------------------------------------
For the Six Months Ended June 30, 1995 (Unaudited)
--------------------------------------------------------------------------------
INVESTMENT INCOME (NOTE 1B):
Dividend income allocated from Portfolio (net of
foreign withholding tax of $4,945) $ 714,826
Interest income allocated from Portfolio 87,686
Expenses allocated from Portfolio (119,991)
----------
Total investment income $ 682,521
Expenses --
Compensation of Directors not members of the
investment adviser's organization $ 101
Distribution fees (Note 4) 110,828
Custodian fees 1,920
Printing & postage 23,667
Transfer and dividend disbursing agent fees 11,486
Legal and accounting services 7,362
Registration fees 4,900
Amortization of organization expenses (Note 1D) 3,982
Miscellaneous 5,774
----------
Total expenses 170,020
----------
Net investment income $ 512,501
REALIZED AND UNREALIZED GAIN (LOSS) FROM PORTFOLIO:
Net realized gain (loss) (identified cost basis)
Investment transactions $ 507,072
Financial futures contracts (473,473)
----------
Net realized gain on investments and financial
futures contracts (identified costs basis) $ 33,599
Change in unrealized appreciation of investments
and financial futures contracts 1,818,836
----------
Net realized and unrealized gain on
investments and financial futures contracts 1,852,435
----------
Net increase in net assets resulting from
operations $2,364,936
----------
The accompanying notes are an integral part of the financial statements
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS
------------------------------------------------------------------------------
SIX MONTHS
ENDED YEAR ENDED
JUNE 30, 1995 DECEMBER 31,
(UNAUDITED) 1994
------------- ----------------
INCREASE (DECREASE) IN NET ASSETS:
From operations --
Net investment income $ 512,501 $ 880,826
Net realized gain (loss) from
Portfolio 33,599 (2,632,623)
Change in unrealized appreciation
(depreciation) from Portfolio 1,818,836 (823,963)
--------- --------
Net increase (decrease) in net
assets resulting from operations $ 2,364,936 $(2,575,760)
----------- -----------
Distributions to shareholders --
From net investment income $ (497,932) $ (866,139)
Tax return of capital -- (131,190)
----------- -----------
Total distributions to $ (497,932) $ (997,329)
shareholders ----------- -----------
Net increase in net assets from Fund
share transactions (Note 2) $ 1,650,154 $18,264,787
----------- -----------
Net increase in net assets $ 3,517,158 $14,691,698
NET ASSETS:
At beginning of period 26,210,888 11,519,190
---------- ----------
At end of period $29,728,046 $26,210,888
=========== ===========
The accompanying notes are an integral part of the financial statements
<PAGE>
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1995
(UNAUDITED)
------------------------------------------------------------------------------
(1) SIGNIFICANT ACCOUNTING POLICIES
EV Marathon Total Return Fund (the Fund) is a diversified entity of the type
commonly known as a Massachusetts business trust and is registered under the
Investment Company Act of 1940, as amended, as an open-end management investment
company. The Fund is a series in the Eaton Vance Total Return Trust. The Fund
invests all of its investable assets in interests in the Total Return Portfolio
(the Portfolio), a New York Trust, having the same investment objective as the
Fund. The value of the Fund's investment in the Portfolio reflects the Fund's
proportionate interest in the net assets of the Portfolio (6% at June 30, 1995).
The performance of the Fund is directly affected by the performance of the
Portfolio. The financial statements of the Portfolio, including the portfolio of
investments, are included elsewhere in this report and should be read in
conjunction with the Fund's financial statements. The following is a summary of
significant accounting policies consistently followed by the Fund in the
preparation of its financial statements. The policies are in conformity with
generally accepted accounting principles.
A. INVESTMENT VALUATIONS -- Valuations of securities by the Portfolio is
discussed in Note 1 of the Portfolio's Notes to Financial Statements which are
included elsewhere in this report.
B. INCOME -- The Fund's net investment income consists of the Fund's pro rata
share of the net investment income of the Portfolio, less all actual and accrued
expenses of the Fund.
C. FEDERAL TAXES -- The Fund's policy is to comply with the provisions of the
Internal Revenue Code applicable to regulated investment companies and to
distribute to shareholders each year all of its taxable income, including any
net realized gain on investments, option and financial futures transactions.
Accordingly, no provision for federal income or excise tax is necessary. At
December 31, 1994, the Fund, for federal income tax purposes, had capital loss
carryovers of $1,835,173, which will reduce the Fund's taxable income arising
from future net realized gain on investment transactions, if any, to the extent
permitted by the Internal Revenue Code, and thus will reduce the amount of the
distributions to shareholders which would otherwise be necessary to relieve the
Fund of any liability for federal income or excise tax. Such capital loss
carryovers will expire on December 31, 2001 ($48,915) and December 31, 2002
($1,786,258).
D. DEFERRED ORGANIZATION EXPENSES -- Costs incurred by the Fund in connection
with its organization are being amortized on the straight-line basis over five
years.
E. OTHER -- Investment transactions are accounted for on the date the
investments are purchased or sold. Distributions to shareholders are recorded on
the ex-dividend date. Dividend income may include dividends that represent
returns of capital for federal tax purposes.
F. 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 temporary
over-distributions for financial statement purposes, are classified as
distributions in excess of net investment income or accumulated net realized
gains.
G. INTERIM FINANCIAL INFORMATION -- The interim financial statements relating to
June 30, 1995 and for the 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.
<PAGE>
--------------------------------------------------------------------------------
(2) SHARES OF BENEFICIAL INTEREST
The Declaration of Trust permits the Trustees to issue an unlimited number of
full and fractional shares of beneficial interest (without par value).
Transactions in Fund shares were as follows:
SIX MONTHS ENDED
JUNE 30, 1995 YEAR ENDED
(UNAUDITED) DECEMBER 31, 1994
------------------------- ------------------------
SHARES AMOUNT SHARES AMOUNT
---------- ----------- --------- -----------
Sales 468,770 $ 3,963,527 2,631,297 $23,702,106
Issued to shareholders
electing to receive
payment of distribution
in Fund shares 49,427 417,642 90,751 785,136
Redemptions (321,050) (2,731,015) (723,105) (6,222,454)
---------- ----------- --------- -----------
Net increase 197,147 $ 1,650,154 1,998,943 $18,264,788
======= =========== ========= ===========
--------------------------------------------------------------------------------
(3) INVESTMENT TRANSACTIONS
Increases and decreases in the Fund's investment in the Portfolio aggregated
$4,197,578 and $3,105,715, respectively.
--------------------------------------------------------------------------------
(4) DISTRIBUTION PLAN
The Fund has adopted a distribution plan (the Plan) pursuant to Rule 12b-1 under
the Investment Company Act of 1940. The Plan requires the Fund to accrue amounts
daily to the principal underwriter, Eaton Vance Distributors, Inc. (EVD), equal
to 1/365th of 0.75% of the Fund's average daily net assets, for providing
ongoing distribution services and facilities to the Fund. The Fund will
automatically discontinue accruals to EVD during any period in which there are
no outstanding Uncovered Distribution Charges, which are approximately
equivalent to the sum of (i) 5% of the aggregate amount received by the Fund for
shares sold plus (ii) distribution fees calculated by applying the rate of 1%
over the prevailing prime rate to the outstanding balance of Uncovered
Distribution Charges of EVD, reduced by the aggregate amount of contingent
deferred sales charges (see Note 5) and amounts theretofore paid to EVD. The
amount payable to EVD with respect to each day is accrued on such day as a
liability of the Fund and, accordingly, reduces the Fund's net assets. Such
payments would cease upon termination of the distribution agreement (unless made
in accordance with another distribution agreement). As a result, the Fund does
not accrue amounts which may become payable to EVD in the future because the
conditions for recording any contingent liability under generally accepted
accounting principles have not been satisfied. EVD earned $105,066 for the six
months ended June 30, 1995, representing 0.75% of average daily net assets. At
June 30, 1995, the amount of Uncovered Distribution Charges of EVD calculated
under the Plan was approximately $1,352,064.
In addition, the Plan authorizes the Fund to make payments of service fees
to the Principal Underwriter, Authorized Firms and other persons in amounts not
exceeding 0.25% of the Fund's average daily net assets for each fiscal year. The
Trustees have implemented the Plan by authorizing the Fund to make quarterly
payments of service fees to the Principal Underwriter and Authorized Firms in
amounts not expected to exceed 0.25% of the Fund's average daily net assets for
each fiscal year based on the value of Fund shares sold by such persons and
remaining outstanding for at least twelve months. During the six months ended
June 30, 1995 the Fund provided for $5,762 under the Plan to the Principal
Underwriter and Authorized Firms. Service fees are separate and distinct from
the sales commissions and distribution fees payable by the Fund to EVD, and, as
such, are not subject to automatic discontinuance where there are no outstanding
Uncovered Distribution Charges of EVD.
Certain of the officers of the Fund and Directors of the Corporation are
officers and directors of EVD.
------------------------------------------------------------------------------
(5) CONTINGENT DEFERRED SALES CHARGES
A contingent deferred sales charge (CDSC) is imposed on any redemption of Fund
shares made within six years of purchase. Generally, the CDSC is based upon the
lower of the net asset value at date of redemption or date of purchase. No
charge is levied on shares acquired by reinvestment of dividends or capital gain
distributions. For Fund shares purchased prior to August 1, 1994, the CDSC was
imposed at declining rates that begin at 6% in the first year of redemption
after purchase, declining one percentage point each year. For Fund shares
purchased on or after August 1, 1994, the CDSC will be imposed at declining
rates beginning at 5% in the first and second years, of redemption after
purchase, declining one percentage point in each subsequent year. No CDSC is
levied on shares which have been sold to EVM or its affiliates or to their
respective employees or clients. CDSC charges are paid to EVD to reduce the
amount of Uncovered Distribution Charges calculated under the Fund's
Distribution Plan. CDSC charges received when no Uncovered Distribution Charges
exist will be credited to the Fund. EVD received approximately $68,592 of CDSC
paid by shareholders for the six months ended June 30, 1995.
<PAGE>
PORTFOLIO OF INVESTMENTS
JUNE 30, 1995
------------------------------------------------------------------------------
COMMON STOCKS - 81.5%
------------------------------------------------------------------------------
NAME OF COMPANY SHARES VALUE
------------------------------------------------------------------------------
BANKS - 0.3%
BankAmerica Corp. 25,000 $ 1,315,625
------------
ELECTRIC UTILITIES - 50.2%
Baltimore Gas & Electric Co. 135,000 $ 3,375,000
Carolina Power & Light Co. 600,000 18,150,000
Central Louisiana Electric Co. 547,200 12,859,200
CINergy Corp. 900,000 23,625,000
DPL Inc. 950,000 21,018,750
DQE, Inc. 590,000 13,865,000
FPL Group, Inc. 600,000 23,175,000
General Public Utilities Corp. 280,000 8,330,000
Houston Industries, Inc. 100,000 4,212,500
IPALCO Enterprises, Inc. 320,000 10,200,000
LG & E Energy Corp. 125,000 4,875,000
Midlands Electricity PLC 225,000 2,255,085
National Power PLC 400,000 1,097,720
National Power PLC ADR 347,500 4,300,313
NIPSCO Industries, Inc. 400,000 13,600,000
Norweb Ord PLC 300,000 3,245,430
Ohio Edison Co. 350,000 7,918,750
PacifiCorp 583,200 10,935,000
PECO Energy Co. 200,000 5,525,000
Pinnacle West Capital Corp. 300,000 7,350,000
Portland General Electric Corp. 340,000 7,522,500
Southern Co. 600,000 13,425,000
Southern Electric PLC 200,000 2,042,700
Teco Energy, Inc. 410,000 8,968,750
Union Electric Co. 80,000 2,980,000
Wisconsin Energy Corp. 150,400 4,211,200
Wisconsin Power & Light
Holdings, Inc. 200,000 5,725,000
WPS Resources Corp. 200,000 5,850,000
------------
$250,637,898
------------
NATURAL GAS UTILITIES - 1.4%
KN Energy 200,000 $ 5,075,000
MCN Corp. 87,000 1,718,250
------------
$ 6,793,250
------------
OIL - 0.7%
BP Prudhoe Bay Rty Tr Unit Ben Int. 200,000 $ 3,400,000
------------
REITS - 8.0%
Apartment Investment
& Management Co. Class A 100,000 $ 2,025,000
<PAGE>
------------------------------------------------------------------------------
COMMON STOCKS (Continued)
------------------------------------------------------------------------------
NAME OF COMPANY SHARES VALUE
------------------------------------------------------------------------------
Associated Estates Realty Corp. 180,000 $ 3,802,500
Bradley Real Estate Trust 72,750 1,173,094
Cali Realty Corp. 150,000 2,906,250
Camden Properties Trust SBI 200,000 4,375,000
Glimcher Realty Trust 30,000 622,500
Health Care Property Investors, Inc. 126,000 4,032,000
Healthcare Realty Trust 315,000 6,378,750
LTC Properties, Inc. 150,000 1,968,750
Macerich Co. 10,700 209,987
Meditrust Sh Ben Int. 90,000 3,071,250
Mid America Apartment
Communities, Inc. 42,000 1,050,000
Simon Property Group, Inc. 150,000 3,768,750
Southwestern Property Trust, Inc. 162,900 1,873,350
Sun Communities Inc. 110,000 2,750,000
Walden Residential Properties 10,000 183,750
------------
$ 40,190,931
------------
RETAIL - 3.9%
Ingles Markets Class A 20,000 $ 215,000
Penny J.C. Co. 400,000 19,200,000
------------
$ 19,415,000
------------
TELECOMMUNICATIONS - 1.1%
Alcatel Alsthom Sponsored ADR 200,000 $ 3,625,000
Boston Technologies Corp. 42,500 791,562
NERA AS ADR 35,000 984,375
------------
$ 5,400,937
------------
TELEPHONE UTILITIES - 15.4%
ALC Communications Corp. 40,000 $ 1,805,000
Ameritech Corp. 250,000 11,000,000
AT&T Corp. 150,000 7,968,750
Frontier Corp. 1,125,000 27,000,000
Globolstar Telecommunications 90,000 1,192,500
GTE Corp. 100,000 3,412,500
Mannesmann A.G. Ord 10,000 3,052,476
SBC Communications, Inc. 225,000 10,715,625
Tele Danmark A/S 100,000 2,800,000
Telecom Corp. New Zealand Ltd. ADR 100,000 6,062,500
U.S. West Inc. 40,000 1,665,000
------------
$ 76,674,351
------------
OTHER - 0.5%
Sonat Inc. 90,000 $ 2,745,000
------------
TOTAL COMMON STOCKS
(IDENTIFIED COST, $366,294,354) $406,572,992
------------
<PAGE>
PORTFOLIO OF INVESTMENTS (Continued)
------------------------------------------------------------------------------
CONVERTIBLE PREFERRED STOCKS - 6.1%
------------------------------------------------------------------------------
NAME OF COMPANY SHARES VALUE
------------------------------------------------------------------------------
Allstate Corp., 230s 100,000 $ 4,075,000
American General Corp., 3s 25,000 1,296,875
Browning Ferris, 7.25s 45,000 1,642,500
Freeport McMoRan Copper & Gold 40,000 865,000
Oasis Residential, Inc., 9s 60,000 1,515,000
Philippines Long Distance Telephone, 7s 189,000 12,166,875
Prime Retail Inc. Series B 30,000 558,750
Sovereign Bancorp. Class B 105,000 5,656,875
St. Paul Capital 25,000 1,306,250
Stone Container, 1.75s, Series E 59,900 1,452,575
------------
TOTAL CONVERTIBLE PREFERRED STOCKS
(IDENTIFIED COST, $26,732,677) $ 30,535,700
------------
------------------------------------------------------------------------------
CONVERTIBLE BONDS - 7.2%
------------------------------------------------------------------------------
FACE AMOUNT
(000 OMITTED)
------------------------------------------------------------------------------
Alberto Culver Co., 5.5s, 6/30/05 $ 1,900 $ 1,904,750
Danka Business, 6.75s, 4/1/02 4,000 4,210,000
LDDS Communications, Inc., 5s, 8/15/03 4,000 3,820,000
Novacare Inc., 5.5s, 1/15/00 11,000 9,515,000
Theratx Inc., 8s, 2/1/02 5,000 4,556,250
Time Warner, Inc., 8.75s, 1/10/15 10,000 10,462,500
U.S. Cellular Corp., 0%, 6/15/15 5,000 1,575,000
------------
TOTAL CONVERTIBLE BONDS
(IDENTIFIED COST, $34,374,987) $ 36,043,500
------------
------------------------------------------------------------------------------
SHORT-TERM OBLIGATION - 4.9%
------------------------------------------------------------------------------
Melville Corp., 6.23s, 7/3/95 $16,757 $ 16,751,200
Prudential Funding Corp.,
5.97s, 7/6/95 7,707 7,700,610
------------
TOTAL SHORT-TERM OBLIGATIONS, AT
AMORTIZED COST $ 24,451,810
------------
TOTAL INVESTMENTS -- 99.7%
(IDENTIFIED COST, $451,853,828) $497,604,002
OTHER ASSETS, LESS LIABILITIES - 0.3% 1,515,392
------------
NET ASSETS -- 100% $499,119,394
============
The accompanying notes are an integral part
of the financial statements
<PAGE>
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
------------------------------------------------------------------------------
June 30, 1995
------------------------------------------------------------------------------
ASSETS:
Investments, at value (Note 1A) (identified cost,
$451,853,828) $497,604,002
Cash 8,989
Receivable for investments sold 7,920,584
Dividends receivable 1,887,245
Deferred organization expenses (Note 1E) 13,946
Foreign tax reclaim receivable 94,677
Interest receivable 804,380
------------
Total assets $508,333,823
LIABILITIES:
Payable for investments purchased $9,182,125
Payable to affiliates --
Trustees' fees 8,000
Custodian fee 9,100
Accrued expenses 15,204
----------
Total liabilities 9,214,429
------------
NET ASSETS applicable to investors' interest in Portfolio $499,119,394
============
SOURCES OF NET ASSETS:
Net proceeds from capital contributions and
withdrawals $453,369,220
Unrealized appreciation of investments
(computed on the basis of identified cost) 45,750,174
------------
Total net assets $499,119,394
============
The accompanying notes are an integral part of the financial statements
<PAGE>
FINANCIAL STATEMENTS (Continued)
STATEMENT OF OPERATIONS
------------------------------------------------------------------------------
For the Six Months Ended June 30, 1995
--------------------------------------------------------------------------------
INVESTMENT INCOME:
Dividend income (net of foreign taxes,
$84,200) $12,715,048
Interest income 1,531,926
-----------
Total income $14,246,974
Expenses --
Investment adviser fee (Note 3) $ 1,876,440
Compensation of trustees not members of
the investment adviser's organization
(Note 3) 13,090
Custodian fee (Note 3) 75,972
Commitment fee 75,001
Legal and accounting services 34,430
Amortization of deferred organization
expenses (Note 1E) 2,081
Printing 272
Registration fees 125
Miscellaneous 4,189
-----------
Total expenses 2,081,600
-----------
Net investment income $12,165,374
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized gain (loss)
(identified cost basis) --
Investment transactions $ 8,541,756
Financial futures contracts (8,405,750)
-----------
Net realized gain on investments and
financial futures (identified cost basis) $ 136,006
Change in unrealized appreciation
Investment transactions $29,972,474
Financial futures contracts 2,152,500
-----------
Net change in unrealized appreciation on
investments and financial futures
contracts 32,124,974
-----------
Net realized and unrealized gain on investments 32,260,980
-----------
Net increase in net assets resulting from operations $44,426,354
===========
The accompanying notes are an integral part of the financial statements
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS
------------------------------------------------------------------------------
SIX MONTHS
ENDED YEAR ENDED
JUNE 30, 1995 DECEMBER 31, 1994
------------- -----------------
INCREASE (DECREASE) IN NET ASSETS:
From operations --
Net investment income
$ 12,165,374 $ 28,785,986
Net realized gain (loss) on investment
transactions and financial
futures contracts 136,006 (15,151,998)
Increase in unrealized appreciation
(depreciation) of investments 32,124,974 (89,492,365)
------------- -------------
Net increase (decrease) in net assets
resulting from operations $ 44,426,354 $ (75,858,377)
------------- -------------
Capital transactions --
Contributions 15,560,607
$ $ 97,021,559
Withdrawals (66,434,459) (152,162,876)
------------- -------------
Decrease in net assets resulting from
capital transactions $ (50,873,852) $ (55,141,317)
------------- -------------
Total decrease in net assets $ (6,447,498) $(130,999,694)
NET ASSETS:
At beginning of period 505,566,892 636,566,586
------------- -------------
At end of period $ 499,119,394 $ 505,566,892
============= =============
------------------------------------------------------------------------------
SUPPLEMENTARY DATA
------------------------------------------------------------------------------
SIX MONTHS
ENDED YEAR ENDED DECEMBER 31,
JUNE 30, 1995 1994 1993*
------------- ----------------------
RATIOS (As a percentage of
average net assets):
Expenses 0.84%+ 0.85% 0.91%+
Net investment income 4.90%+ 5.22% 4.57%+
PORTFOLIO TURNOVER 47% 107% 16%
LEVERAGE ANALYSIS:
Average daily balance of
debt outstanding during
period (000's omitted) -- $3,137 $15,452
+ Computed on an annualized basis.
* For the period from the start of business, October 28, 1993, to December 31,
1993.
The accompanying notes are an integral part of the financial statements
<PAGE>
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1995
-------------------------------------------------------------------------------
(1) SIGNIFICANT ACCOUNTING POLICIES
Total Return Portfolio (the Portfolio) is registered under the Investment
Company Act of 1940 as a diversified open-end investment company which was
organized as a trust under the laws of the State of New York on May 1, 1992.
The Declaration of Trust permits the Trustees to issue beneficial interests in
the Portfolio. The following is a summary of significant accounting policies
of the Portfolio. The policies are in conformity with generally accepted
accounting principles.
A. INVESTMENT VALUATIONS -- Securities listed on securities exchanges or in the
NASDAQ National Market are valued at closing sales prices or, if there has been
no sale, at the mean between the closing bid and asked prices. Unlisted
securities are valued at the mean between the latest available bid and asked
prices. Options and financial futures contracts are valued at the last sale
price, as quoted on the principal exchange or board of trade on which such
options or contracts are traded or, in the absence of a sale, the mean between
the last bid and asked prices. Short-term obligations, maturing in 60 days or
less, are valued at amortized cost, which approximates value. Securities for
which market quotations are unavailable are appraised at their fair value as
determined in good faith by or at the direction of the Trustees.
B. INCOME TAXES -- The Portfolio is treated as a partnership for federal tax
purposes. No provision is made by the Portfolio for federal or state taxes on
any taxable income of the Portfolio because each investor in the Portfolio is
ultimately responsible for the payment of any taxes. Since some of the
Portfolio's investors are regulated investment companies that invest all or
substantially all of their assets in the Portfolio, the Portfolio normally must
satisfy the applicable source of income and diversification requirements (under
the Code) in order for its investors to satisfy them. The Portfolio will
allocate at least annually among its investors each investors' distributive
share of the Portfolio's net investment income, net realized capital gains, and
any other items of income, gain, loss, deduction or credit.
C. OPTION ACCOUNTING PRINCIPLES -- Upon the writing of a covered call option, an
amount equal to the premium received by the Portfolio is included in the
Statement of Assets and Liabilities as a liability. The amount of the liability
is subsequently marked-to-market to reflect the current market value of the
option written in accordance with the Portfolio's policies on investment
valuations discussed above. Premiums received from writing call options which
expire are treated as realized gains. Premiums received from writing call
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. The Portfolio, as writer of a call option, may have no control over
whether the underlying securities may be sold and, as a result, bears the market
risk or an unfavorable change in the price of the securities underlying the
written option.
D. FINANCIAL FUTURES CONTRACTS -- Upon the entering of a financial futures
contract, the Portfolio is required to deposit an amount ("initial margin")
either in cash or securities equal to a certain percentage of the purchase price
indicated in the financial futures contract. Subsequent payments are made or
received by the Portfolio ("margin maintenance") each day, dependent on the
daily fluctuations in the value of the underlying security, and are recorded for
book purposes as unrealized gains or losses by the Portfolio. When the Portfolio
enters into a closing transaction, the Portfolio will realize for book purposes
a gain or loss equal to the difference between the value of the financial
futures contract to sell and the financial futures contract to buy. The
Portfolio's investment in financial futures contracts is designed only to hedge
against anticipated future changes in interest rates, security prices, commodity
prices or currency exchange rates. Should interest rates, security prices,
commodity prices or currency exchange rates move unexpectedly, the Portfolio may
not achieve the anticipated benefits of the financial futures contracts and may
realize a loss.
<PAGE>
--------------------------------------------------------------------------------
E. DEFERRED ORGANIZATION EXPENSES -- Costs incurred by the Portfolio in
connection with its organization are being amortized on the straight-line basis
over five years.
F. OTHER -- Investment transactions are accounted for on the date the
investments are purchased or sold. Dividend income is recorded on the
ex-dividend date. Realized gains and losses on the sale of investments are
determined on the identified cost basis.
--------------------------------------------------------------------------------
(2) INVESTMENT TRANSACTIONS
Purchases and sales of investments, other than short-term obligations,
aggregrated $224,407,749 and $280,139,532, respectively.
--------------------------------------------------------------------------------
(3) INVESTMENT ADVISER FEE AND OTHER TRANSACTIONS WITH AFFILIATES
The investment adviser fee is earned by Boston Management and Research (BMR), a
wholly-owned subsidiary of Eaton Vance Management (EVM), as compensation for
management and investment advisory services rendered to the Portfolio. The fee
is based upon a percentage of average daily net asets. For the six months ended
June 30, 1995, the fee was equivalent to 0.74% of the Portfolio's average net
assets for such period and amounted to $1,876,440. Except as to Trustees of the
Portfolio who are not members of EVM's or BMR's organization, officers and
Trustees receive remuneration for their services to the Portfolio out of such
investment adviser fee. Investors Bank & Trust Company (IBT), an affiliate of
EVM and BMR, serves as custodian of the Portfolio. Pursuant to the custodian
agreement, IBT receives a fee reduced by credits which are determined based on
the average daily cash balances the Portfolio maintains with IBT. Certain of the
officers and Trustees of the Portfolio are officers and directors/trustees of
the above organizations. Trustees of the Portfolio that are not affiliated with
the Investment Adviser may elect to defer receipt of all or a percentage of
their annual fees in accordance with the terms of the Trustees Deferred
Compensation Plan. For the six months ended June 30, 1995, no significant
amounts have been deferred.
<PAGE>
NOTES TO FINANCIAL STATEMENTS (Continued)
--------------------------------------------------------------------------------
(4) LINE OF CREDIT
The Portfolio participates with other portfolios and funds managed by BMR and
EVM and its affiliates in a $120 million unsecured line of credit agreement with
a bank. The line of credit consists of $20 million committed facility and a $100
million discretionary facility. The Portfolio expects to use the proceeds of the
advances primarily for leveraging purposes. Borrowings by the Portfolio under
the Credit Agreement will not exceed the lesser of 1/3 of the market value of
the net assets of the Portfolio or $60,000,000. Interest is charged to each
portfolio based on its borrrowings 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 and portfolios at the end of each quarter. At June 30, 1995 there were no
outstanding loans under the line of credit.
--------------------------------------------------------------------------------
(5) FEDERAL INCOME TAX BASIS OF INVESTMENTS
The cost and unrealized appreciation/depreciation in value of the investments
owned at June 30, 1995, as computed on a federal income tax basis, are as
follows:
Aggregate cost $451,853,828
============
Gross unrealized appreciation $ 51,709,094
Gross unrealized depreciation 5,958,920
------------
Net unrealized appreciation $ 45,750,174
============
<PAGE>
------------------------------------------------------------------------------
(6) FINANCIAL INSTRUMENTS
The Portfolio may trade in financial instruments with off-balance sheet risk in
the normal course of its investing activities to assist in managing exposure to
various market risks. These financial instruments include written options,
forward foreign currency exchange contracts, and financial futures contracts and
may involve, to a varying degree, elements of risk in excess of the amounts
recognized for financial statement purposes. The notional or contractual
amounts of these instruments represent the investment the Portfolio has in
particular classes of financial instruments and does not necessarily represent
the amounts potentially subject to risk. The measurement of the risks associated
with these instruments is meaningful only when all related and offsetting
transactions are considered.
At June 30, 1995 there were no outstanding obligations under these
financial instruments.
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
--------------------------------------------------------------------------------
To the Trustees and Investors of
Total Return Portfolio:
We have audited the accompanying statement of assets and liabilities of Total
Return Portfolio, including the portfolio of investments, as of June 30, 1995,
the related statement of operations for the six months then ended and the
statement of changes in net assets and supplementary data for the six months
ended June 30, 1995, and for the period from the start of business, October 28,
1993, to December 31, 1994. These financial statements and supplementary data
are the responsibility of the Portfolio's management. Our responsibility is to
express an opinion on these financial statements and supplementary data based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and supplementary
data are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of June
30, 1995 by correspondence with the custodian and brokers. An audit also
includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and supplementary data referred to
above present fairly, in all material respects, the financial position of Total
Return Portfolio as of June 30, 1995, the results of its operations for the six
months then ended, and the changes in its net assets and the supplementary data
for the six months ended June 30, 1995, and for the period from the start of
business, October 28, 1993, to December 31, 1994, in conformity with generally
accepted accounting principles.
COOPERS & LYBRAND L.L.P.
Boston, Massachusetts
August 4, 1995
<PAGE>
<TABLE>
<CAPTION>
PRO FORMA COMBINING
STATEMENT OF ASSETS AND LIABILITIES EV Pro Forma Combined
JUNE 30, 1995 (000's) MARATHON EV Marathon Total
TOTAL EQUITY Pro Forma Return Fund
RETURN INCOME Adjustments Equity Income Trust
FUND TRUST (Unaudited) (Unaudited)
---------------------------------------------------------------
Assets
<S> <C> <C> <C>
Investments in Total Return Portfolio at value $29,756 $24,921 $54,677
Other assets less liabilities ($28) ($19) ($47)
---------------------------------------------------------------
Net Assets $29,728 $24,902 $54,630
---------------------------------------------------------------
Sources of Net Assets:
Proceeds from sales of shares, less cost
of shares redeemed $30,339 $23,919 $54,258
Undistributed net investment income $18 $26 $44
Unrealized gain on investments $1,098 $2,606 $3,704
Accumulated net realized loss ($1,727) ($1,649) ($3,376)
---------------------------------------------------------------
Net Assets $29,728 $24,902 $54,630
===============================================================
Shares of beneficial interest outstanding 3,356 2,308 503 6,167
---------------------------------------------------------------
Net asset value and redemption price per share $8.86 $10.79 $8.86
===============================================================
</TABLE>
See Notes to Pro Forma Combining Financial Statements
<PAGE>
<TABLE>
<CAPTION>
PRO FORMA COMBINING
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED EV Pro- Forma
JUNE 30, 1995 (000's) Marathon EV Combined
Total Equity Pro Forma Marathon
Return Income Adjustments Total Return
Fund Trust (Unaudited) Equity Income
-------------------------------------------------------------
<S> <C> <C> <C> <C>
Investment income:
Dividend income $1,462 $1,420 $2,882
Interest income $127 $188 $315
Expenses allocated from Portfolio ($226) ($235) ($461)
-------------------------------------------------------------
Total income $1,363 $1,373 $2,736
Expenses:
Distribution fees $205 $251 - $456
Custodian fees (Note 3a) $6 $5 ($1) $10
Transfer agent fees $22 $40 - $62
Printing & postage (Note 3b) $51 $35 ($22) $64
Legal & accounting services (Note 3c) $12 $18 ($11) $19
Registration fees (Note 3d) $18 $20 ($20) $18
Directors compensation $1 $1 - $2
Organization expense $8 - - $8
Miscellaneous $3 $15 - $18
-------------------------------------------------------------
Expenses, net before merger cost $326 $385 ($54) $657
Merger costs (Note 4 ) $30 $30
-------------------------------------------------------------
Net investment income $1,037 $988 $24 $2,049
-------------------------------------------------------------
Realized and Unrealized Gain (Loss) from Portfolio:
Net realized gain (loss) on:
Investments ($1,408) ($675) ($2,083)
Financial futures contracts ($293) ($292) ($585)
Change in unrealized appreciation of investment $995 $2,425 $3,420
-------------------------------------------------------------
Net realized & unrealized gain (loss) on
investments & financial futures contracts ($706) $1,458 $752
-------------------------------------------------------------
Net increase in net assets resulting
from operations $331 $2,446 $24 $2,801
=============================================================
</TABLE>
<PAGE>
EV EQUITY INCOME TRUST
PROPOSED MERGER WITH
EV MARATHON TOTAL RETURN FUND
NOTES TO PRO FORMA COMBINING FINANCIAL STATEMENTS (UNAUDITED)
1. BASIS OF COMBINATION.
Subject to approval of the proposed Agreement and Plan of Reorganization
(the "Plan") by shareholders of the EV Equity Income Trust (Equity Income) and
other conditions specified in the agreement and plan of reorganization, the EV
Marathon Total Return Fund ("Total Return") will acquire substantially all of
the assets of Equity Income in exchange for shares of Total Return. This merger
of the entities will be accounted for by the method of accounting for tax free
mergers of investment companies. The pro forma combining Statement of Assets and
Liabilities reflects the financial position of Total Return and Equity Income at
June 30,1995, as though the merger occured as of that date. The pro forma
combining Statement of Operations reflects the results of operations of the
Total Return and Equity Income funds for the year ended June 30,1995, as though
the merger occurred at the beginning of the year presented. Both the Statement
of Assets and Liabilities and the Statement of Operations are presented for the
information of the reader, and may not necessarily be representative of what the
combined statements would have been had the acquisition occurred on June 30,
1995.
2. CAPITAL/SHARES
The number of additional shares issued was calculated by dividing the net
assets of Equity Income at June 30, 1995 by the net asset value per share of the
Total Return Fund at June 30, 1995 of $8.86. The pro forma combined number of
shares outstanding of 6,167 consists of the 2,811 shares issuable to Equity
Income in the merger and 3,356 shares of the Total Return Fund outstanding at
June 30, 1995.
3. PRO FORMA COMBINING OPERATING EXPENSES
Certain expenses have been adjusted in the pro forma Statement of
Operations to reflect the expenses of the combined entity more closely.
Pro forma operating expenses include the actual expenses of the Total
Return Fund and the Equity Income Trust adjusted for certain items which are
factually supportable.
a) Decrease caused by savings in financial statement preparation.
b) Savings in printing of prospectus, statement of additional information,
annual and semi-annual reports. Postage will increase slightly due to
change in frequency of distributions to Equity Income shareholders from
quarterly to monthly basis.
c) Decrease in accounting costs for auditing a spoke and for tax
preparation of the Equity Income Trust.
d) Decrease in "Blue Sky" fees .
4. MERGER COSTS
Merger costs represent the maximum estimated expense in carrying out the
Plan of Reorganization. They consist of management's estimate of legal
fees, auditing fees, and printing and postage expenses related to the
merger.
