<PAGE> 1
EV MARATHON GREATER INDIA FUND
EV MARATHON GREATER INDIA FUND (THE "FUND") IS A MUTUAL FUND SEEKING
LONG-TERM CAPITAL APPRECIATION THROUGH THE PURCHASE OF AN INTEREST IN A SEPARATE
INVESTMENT COMPANY WHICH INVESTS PRIMARILY IN EQUITY SECURITIES OF COMPANIES IN
INDIA AND SURROUNDING COUNTRIES OF THE INDIAN SUBCONTINENT. ACCORDINGLY, THE
FUND INVESTS ALL OF ITS ASSETS IN SOUTH ASIA 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 AN HISTORICALLY STRUCTURED MUTUAL FUND. INVESTMENTS IN INDIA
AND THE INDIAN SUBCONTINENT CAN INVOLVE SIGNIFICANT RISKS THAT ARE NOT NORMALLY
INVOLVED IN INVESTMENT IN SECURITIES OF U.S. COMPANIES, AND THEREFORE THE FUND
MAY NOT BE SUITABLE FOR ALL INVESTORS. THE FUND IS A SEPARATE SERIES OF EATON
VANCE SPECIAL INVESTMENT 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 in the Fund. Please retain this document for future reference.
A Statement of Additional Information for the Fund dated May 1, 1995, as
supplemented from time to time, has been filed with the Securities and Exchange
Commission and is incorporated herein by reference. The 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 sponsor and manager of the Fund
and the administrator of the Portfolio is Eaton Vance Management, 24 Federal
Street, Boston, MA 02110 (the "Manager"). The Portfolio's investment adviser is
Lloyd George Investment Management (Bermuda) Limited (the "Adviser"). The
principal business address of the Adviser is 3808 One Exchange Square, Central,
Hong Kong.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURI-
TIES 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 PROSPEC-
TUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
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PAGE
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Shareholder and Fund Expenses........ 2
The Fund's Financial Highlights...... 3
The Fund's Investment Objective...... 4
The Portfolio's Investments in India
and the Indian Subcontinent........ 4
How the Fund and the Portfolio Invest
their Assets....................... 6
Special Investment Methods and Risk
Factors............................ 7
Organization of the Fund and the
Portfolio.......................... 14
Management of the Fund and the
Portfolio.......................... 16
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PAGE
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Distribution Plan.................... 19
Valuing Fund Shares.................. 21
How to Buy Fund Shares............... 22
How to Redeem Fund Shares............ 23
Reports to Shareholders.............. 26
The Lifetime Investing
Account/Distribution Options....... 26
The Eaton Vance Exchange Privilege... 27
Eaton Vance Shareholder Services..... 28
Distributions and Taxes.............. 29
Performance Information.............. 31
</TABLE>
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PROSPECTUS DATED MAY 1, 1995
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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)
Management Fees (including management fees paid by the Fund and investment
advisory and administration fees paid by the Portfolio of 0.25%, 0.75% and
0.25%, respectively) 1.25%
Rule 12b-1 Distribution (and Service) Fees(3) 0.80%
Other Expenses 0.25%
Total Operating Expenses 2.30%
</TABLE>
<TABLE>
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EXAMPLE 1 YEAR 3 YEARS
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<S> <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 time period: $73 $110
An investor would pay the following expenses on the same investment, assuming (a) 5% annual return
and (b) no redemptions: $23 $ 70
</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. Because the Fund does not yet have a sufficient
operating history, 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 projected fees and
expenses for the current fiscal year ending December 31, 1995. 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) The Fund expects to begin making service fee payments during the quarter
ending June 30, 1995 and the table assumes .05% in service fees will be
paid.
(4) 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".
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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 Deloitte & Touche
LLP, independent certified public 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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FOR THE PERIOD FROM THE START OF BUSINESS, MAY 2, 1994, TO DECEMBER 31, 1994:
<TABLE>
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NET ASSET VALUE, beginning of period..................................... $10.000
-------
INCOME (LOSS) FROM INVESTMENT OPERATIONS:
Net investment loss.................................................... $(0.065)
Net realized and unrealized loss on investments........................ (0.095)
-------
Total loss from investment operations............................... $(0.160)
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NET ASSET VALUE, end of period........................................... $ 9.840
========
TOTAL RETURN(1).......................................................... (1.60)%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's omitted).............................. $38,925
Ratio of net expenses to average net assets(2)......................... 2.54%+
Ratio of net investment loss to average net assets..................... (1.42)%+
<FN>
+ Annualized.
(1) Total return is calculated assuming a purchase at the net asset value on the
first day and a sale at the net asset value on the last day of the period
reported. Dividends and distributions, if any, are assumed to be reinvested at
the net asset value on the record date.
(2) Includes the Fund's share of South Asia Portfolio's allocated expenses for the
period from the Fund's start of business, May 2, 1994, to December 31, 1994.
</TABLE>
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THE FUND'S INVESTMENT OBJECTIVE
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EV MARATHON GREATER INDIA FUND (THE "FUND") IS A DIVERSIFIED SERIES OF EATON
VANCE SPECIAL INVESTMENT TRUST (THE "TRUST"). THE FUND'S INVESTMENT OBJECTIVE IS
TO SEEK LONG-TERM CAPITAL APPRECIATION. IT CURRENTLY SEEKS TO MEET ITS
INVESTMENT OBJECTIVE BY INVESTING ITS ASSETS IN SOUTH ASIA PORTFOLIO (THE
"PORTFOLIO"), A SEPARATE REGISTERED INVESTMENT COMPANY WHICH INVESTS PRIMARILY
IN EQUITY SECURITIES OF COMPANIES IN INDIA AND SURROUNDING COUNTRIES OF THE
INDIAN SUBCONTINENT. THE PORTFOLIO WILL NORMALLY INVEST AT LEAST 50% OF ITS
TOTAL ASSETS IN EQUITY SECURITIES OF INDIAN COMPANIES.
The Fund is intended for long-term investors and is not intended to be a
complete investment program. Prospective investors should take into account
their objectives and other investments when considering the purchase of Fund
shares. The Fund cannot assure achievement of its investment objective. See "How
the Fund and the Portfolio Invest their Assets" for further information. The
investment objective of the Fund and the Portfolio are nonfundamental. See
"Organization of the Fund and the Portfolio -- Special Information on the
Fund/Portfolio Investment Structure" for further information. In addition,
investments in India and the Indian subcontinent can be considered speculative,
and therefore may offer higher potential for gains and losses than investments
in the developed markets of the world. See "Special Investment Methods and Risk
Factors" for further information.
THE PORTFOLIO'S INVESTMENTS IN INDIA AND THE INDIAN SUBCONTINENT
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THE FOLLOWING IS A GENERAL DISCUSSION OF CERTAIN FEATURES OF THE ECONOMIES OF
INDIA, PAKISTAN AND SRI LANKA. There can be no assurance that the Portfolio will
be able to capitalize on the factors described herein. Opinions expressed herein
are the good faith opinions of the Portfolio's investment adviser, Lloyd George
Investment Management (Bermuda) Limited (the "Adviser"). Unless otherwise
indicated, all amounts are expressed in United States dollars.
India is the seventh largest country in the world, covering an area of
approximately 3,300,000 square kilometers. It is situated in South Asia and is
bordered by Nepal, Bhutan and China in the north, Myanmar and Bangladesh in the
east, Pakistan in the west and Sri Lanka in the south.
India's population is currently estimated at approximately 900 million; the
figure in 1981, according to the official census, was 685 million. Most of the
population still lives in rural areas. Approximately 84 percent are Hindus, 11
percent Muslims, 2 percent Sikhs, 2 percent Christians and 1 percent Buddhists.
The official language is Hindi, with English also being used widely in official
and business communications. With a middle class of approximately 200 million
people, India constitutes one of the largest markets in the world.
Unlike certain other emerging market countries, India has a long tradition
of trade and markets, despite the central planning of the economy carried out by
the Indian government in the first decades after India's independence. The
Bombay Stock Exchange, for example, was founded over 100 years ago, is the
oldest stock exchange in Asia and currently lists over 2,800 companies,
approximately the same number as the New York Stock Exchange.
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<PAGE> 5
India became independent from the United Kingdom in 1947. It is governed by
a parliamentary democracy under the Constitution of India, under which the
executive, legislative and judicial functions are separated. India has been
engaged in a policy of gradual economic reform since the mid-1980's. Since 1991,
the government of Prime Minister Narasimha Rao has introduced far-reaching
measures with the goal of reducing government intervention in the economy,
strengthening India's industrial base, expanding exports and increasing economic
efficiency. The main focus of the Narasimha Rao government's policy is to place
more authority for making business decisions in the hands of those who operate
the businesses. The system of industrial licenses known as the "License Raj", by
means of which the government controlled many private sector investment
decisions, has been cut back. Government approvals required to increase, reduce
or change production have been greatly reduced.
Modern economic development in India began in the mid-1940s with the
publication of the Bombay Plan. The Planning Commission was established in 1950
to assess the country's available resources and to identify growth areas. A
centrally planned economic model was adopted, and in order to control the
direction of private investment, all investment and major economic decisions
required government approval. Foreign investment was allowed only selectively.
This protectionist regime held back development of India's economy until the
mid-1980s when there began to be some move towards liberalization and market
orientation of the economy. With the liberalization measures introduced in the
budget of 1985, the annual growth of the country's real gross domestic product
rose from an average 3-4% since the 1940s to an average 6.1 percent between 1986
and 1990.
Since 1990, the Indian government has continued to adopt measures to
further open the economy to private investment, attract foreign capital and
speed up the country's industrial growth rate. For example, the banking industry
has recently been opened to the private sector, including to foreign investors.
Banks were nationalized in 1969, and no new privately owned banks had been
permitted. The government is now granting new banking licenses. The government
also has recently permitted foreign brokerage firms to operate in India on
behalf of foreign institutional investors, and has permitted foreign investors
to own majority stakes in Indian asset management firms. Ownership and sale of
commercial real estate is expected to be permitted to foreign firms soon as
well. In 1992, it was announced that foreign institutional investors would be
able to invest directly in the Indian capital markets. In September 1992, the
guidelines for foreign institutional investors were published and a number of
such investors have been registered by the Securities and Exchange Board of
India, including the Adviser.
The government has also cut subsidies to ailing public sector businesses.
Further cuts, and privatizations, are expected, although resistance by labor
unions and other interest groups may hinder this process. Continuing the reform
process, India's Finance Minister in early 1994 proposed tax cuts for the
corporate sector, sharp reductions in import duties and a further lowering of
bank interest rates. In sum, the government's new policies seek to expand
opportunities for entrepreneurship in India.
Foreign investors have responded to these trends by putting resources into
the Indian economy. The Asian Development Bank, for example, established its
first Indian office in 1992. Investment by Singapore-based companies accelerated
significantly in 1993. India's foreign exchange reserves, which had fallen to
about $1 billion in 1991, were over $20 billion in March, 1995.
5
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In view of these trends, the Adviser believes that India now represents one
of the Asian economies most likely to experience significant growth in the next
several years. This growth may be expected to manifest itself in rising share
prices of many companies participating in the Indian economy.
Pakistan and Sri Lanka have also taken steps to liberalize their economies
and improve economic growth. In Pakistan, former interim Prime Minister Moeen
Qureshi set an ambitious agenda of economic reform during his three-month tenure
in 1993. The successor government of Prime Minister Benazir Bhutto is continuing
many of the liberalization policies that Mr. Qureshi established. In Sri Lanka,
the government continues to review and revise laws, regulations and procedures
with the goal of promoting a competitive business environment and reducing
unnecessary government regulation. As a result, international investors have
showed increasing interest in Pakistan and Sri Lanka. The Portfolio has no
current intention to invest more than 5% of its assets in companies in the
Indian subcontinent located in other than India, Pakistan or Sri Lanka.
HOW THE FUND AND THE PORTFOLIO INVEST THEIR ASSETS
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THE PORTFOLIO SEEKS TO ACHIEVE ITS OBJECTIVE THROUGH INVESTING IN A CAREFULLY
SELECTED AND CONTINUOUSLY MANAGED PORTFOLIO CONSISTING PRIMARILY OF EQUITY
SECURITIES OF COMPANIES IN INDIA AND SURROUNDING COUNTRIES OF THE INDIAN
SUBCONTINENT. A company will be considered to be in India or another country if
it is domiciled or has significant operations in that country. The Portfolio
will, under normal market conditions, invest at least 65% of its total assets in
such securities ("Greater India investments") and at least 50% of its total
assets in equity securities of Indian companies. Substantially all of the
Portfolio's assets, however, will normally be invested in equity securities,
warrants and options on equity securities and indices. Greater India investments
are typically listed on stock exchanges or traded in the over-the-counter
markets in countries of the Indian subcontinent, but also include securities
traded in markets outside these countries, including securities trading in the
form of Global Depositary Receipts and American Depositary Receipts.
Equity securities, for purposes of the 65% policy, will be limited to
common and preferred stocks; equity interests in trusts, partnerships, joint
ventures and other unincorporated entities or enterprises; special classes of
shares available only to foreign investors in markets that restrict ownership by
foreign investors to certain classes of equity securities; convertible preferred
stocks; and other convertible instruments. The convertible instruments in which
the Portfolio will invest will generally not be rated, but will typically be
equivalent in credit quality to securities rated below investment grade (i.e.,
credit quality equivalent to lower than Baa by Moody's Investors Service, Inc.
or lower than BBB by Standard & Poor's Ratings Group). Convertible debt
securities that are not investment grade are commonly called "junk bonds" and
have risks similar to equity securities; they have speculative characteristics
and changes in economic conditions or other circumstances are more likely to
lead to a weakened capacity to make principal and interest payments than is the
case with higher grade debt securities. Such debt securities will not exceed 20%
of total assets.
When consistent with its investment objective, the Portfolio may also
invest in equity securities of companies outside the Indian subcontinent, as
well as warrants, options on equity securities and indices, options on currency,
futures contracts, options on futures contracts, forward foreign currency
exchange contracts, currency swaps and other non-equity investments. However,
such investments will not, under
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<PAGE> 7
normal market conditions, exceed 35% of the Portfolio's total assets. The
issuers of these equity securities may be located in neighboring countries
outside the region, such as Indonesia and Malaysia, as well as more developed
countries. The Portfolio will not invest more than 5% of its net assets in
warrants.
The Portfolio may, for temporary defensive purposes, invest some or all of
its total assets in debt securities of foreign and United States companies,
foreign governments and the U.S. Government, and their respective agencies,
instrumentalities, political subdivisions and authorities, as well as in high
quality money market instruments denominated in U.S. dollars or a foreign
currency.
SPECIAL INVESTMENT METHODS AND RISK FACTORS
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INVESTING IN FOREIGN SECURITIES. Investing in securities issued by foreign
companies and governments involves considerations and possible risks not
typically associated with investing in securities issued by the U.S. Government
and domestic corporations. The values of foreign investments are affected by
changes in currency rates or exchange control regulations, application of
foreign tax laws, including withholding taxes, changes in governmental
administration or economic or monetary policy (in this country or abroad) or
changed circumstances in dealings between nations. Because investment in Greater
India investments will usually involve currencies of foreign countries, the
value of the assets of the Portfolio as measured in U.S. dollars may be
adversely affected by changes in foreign currency exchange rates. Such rates may
fluctuate significantly over short periods of time causing the Portfolio's net
asset value to fluctuate as well. Costs are incurred in connection with
conversions between various currencies. In addition, foreign brokerage
commissions, custody fees and other costs of investing are generally higher than
in the United States, and foreign securities markets may be less liquid, more
volatile and less subject to governmental supervision than in the United States.
Investments in foreign issuers could be affected by other factors not present in
the United States, including expropriation, confiscatory taxation, lack of
uniform accounting and auditing standards and potential difficulties in
enforcing contractual obligations.
More than 25% of the Portfolio's total assets, adjusted to reflect currency
transactions and positions, may be denominated in any single currency.
Concentration in a particular currency will increase the Portfolio's exposure to
adverse developments affecting the value of such currency. An issuer of
securities purchased by the Portfolio may be domiciled in a country other than
the country in whose currency the securities are denominated.
Since the Portfolio will, under normal market conditions, invest at least
65% of its total assets in Greater India investments, its investment performance
will be especially affected by events affecting companies in the Indian
subcontinent and particularly India. The value and liquidity of Greater India
investments may be affected favorably or unfavorably by political, economic,
fiscal, regulatory or other developments in the Indian subcontinent or
neighboring regions. Economic conditions, political stability and market depth
in the region are comparatively underdeveloped. Greater India investments
typically involve greater potential for gain or loss than investments in
securities of issuers in developed countries. In comparison to the United States
and other developed countries, countries in the Indian subcontinent have
relatively unstable governments and economies based on only a few industries.
Given the Portfolio's investments, the Portfolio will likely be particularly
sensitive to changes in the economies of such countries
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<PAGE> 8
as a result of any reversals of economic liberalization in those countries,
political unrest or changes in trading status.
SECURITIES TRADING MARKETS. THE SECURITIES MARKETS IN THE INDIAN SUBCONTINENT
ARE SUBSTANTIALLY SMALLER, LESS LIQUID AND MORE VOLATILE THAN THE MAJOR
SECURITIES MARKETS IN THE UNITED STATES. A high proportion of the shares of many
issuers may be held by a limited number of persons and financial institutions,
which may limit the number of shares available for investment by the Portfolio.
The prices at which the Portfolio may acquire investments may be affected by
trading by persons with material non-public information and by securities
transactions by brokers in anticipation of transactions by the Portfolio in
particular securities. The securities markets in the region are susceptible to
being influenced by large investors trading significant blocks of securities.
Similarly, volume and liquidity in the bond markets in these countries are less
than in the United States and, at times, price volatility can be greater than in
the United States. The limited liquidity of these securities markets may also
affect the Portfolio's ability to acquire or dispose of securities at the price
and time it wishes to do so.
The stock markets in the region are undergoing a period of growth and
change, which may result in trading or price volatility and difficulties in the
settlement and recording of transactions, and in interpreting and applying the
relevant law and regulations. The securities industries in these countries are
comparatively underdeveloped, and stockbrokers and other intermediaries may not
perform as well as their counterparts in the United States and other more
developed securities markets. Physical delivery of securities in small lots
generally is required in India and a shortage of vault capacity and trained
personnel has existed among qualified custodial Indian banks. The Portfolio may
be unable to sell securities where the registration process is incomplete and
may experience delays in receipt of dividends. If trading volume is limited by
operational difficulties, the ability of the Portfolio to invest its assets may
be impaired.
Settlement of securities transactions in the Indian subcontinent may be
delayed and is generally less frequent than in the United States, which could
affect the liquidity of the Portfolio's assets. In addition, disruptions due to
work stoppages and trading improprieties in these securities markets have caused
such markets to close. If extended closings were to occur in stock markets where
the Portfolio was heavily invested, the Fund's ability to redeem Fund shares
could become correspondingly impaired. To mitigate these risks, the Portfolio
may maintain a higher cash position than it otherwise would, thereby possibly
diluting its return, or the Portfolio may have to sell more liquid securities
which it would not otherwise choose to sell. In some cases, the Portfolio may
find it necessary or desirable to borrow funds on a short-term basis, within the
limits of the Investment Company Act of 1940 (the "1940 Act"), to help meet
redemption requests. Such borrowings would result in increased expense to the
Fund. The Fund may suspend redemption privileges or postpone the date of payment
for more than seven days after a redemption order is received under certain
circumstances. See "How to Redeem Fund Shares".
Securities in which the Portfolio invests may have their principal trading
markets in other developing countries. Such securities markets are generally
subject to risks similar to those of the Indian subcontinent.
INVESTMENT CONTROLS. FOREIGN INVESTMENT IN THE SECURITIES OF ISSUERS IN GREATER
INDIA COUNTRIES IS USUALLY RESTRICTED OR CONTROLLED TO SOME DEGREE. In India,
Foreign Institutional Investors ("FIIs") may predominately invest in
exchange-traded securities (and securities to be listed, or those approved on
the over-the-counter exchange of India) subject to the conditions specified in
the Guidelines for Direct Foreign Investment by FIIs in India, (the
"Guidelines") published in a Press Note dated September 14, 1992, issued by the
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<PAGE> 9
Government of India, Ministry of Finance, Investment Division. FIIs have to
apply for registration to the Securities and Exchange Board of India ("SEBI")
and to the Reserve Bank of India for permission to trade in Indian securities.
The Guidelines require SEBI to take into account the track record of the FII,
its professional competence, financial soundness, experience and other relevant
criteria. SEBI must also be satisfied that suitable custodial arrangements are
in place for the Indian securities. The Adviser is a registered FII and the
inclusion of the Portfolio in the Adviser's registration was approved by SEBI.
FIIs are required to observe certain investment restrictions, including an
account ownership ceiling of 5% of the total issued share capital of any one
company. In addition, the shareholdings of all registered FIIs, together with
the shareholdings of non-resident Indian individuals and foreign bodies
corporate substantially owned by non-resident Indians, may not exceed 24% of the
issued share capital of any one company. Only registered FIIs and non-Indian
mutual funds that comply with certain statutory conditions may make direct
portfolio investments in exchange-traded Indian securities. Income, gains and
initial capital with respect to such investments are freely repatriable, subject
to payment of applicable Indian taxes. See "Regional Taxes" below.
In Pakistan, the Portfolio may invest in the shares of issuers listed on
any of the stock exchanges in the country provided that the purchase price as
certified by a local stock exchange broker is paid in foreign exchange
transferred into Pakistan through a commercial bank and, in the case of an
off-exchange sale of listed shares, that the sale price is not less than the
price quoted on any of the local stock exchanges on the date of the sale. In
addition, the issuer's shares held by the Portfolio must be registered with the
State Bank of Pakistan for purposes of repatriation of income, gains and initial
capital. The Portfolio may also invest in the shares of unlisted and
closely-held manufacturing companies provided that the sale price is certified
by a Pakistani chartered accountant to be not less than the break-up value of
the shares, and is paid in foreign exchange transferred into Pakistan through a
commercial bank. If local procedures are complied with, income, gains and
initial capital are freely repatriable after payment of any applicable Pakistani
withholding taxes. In Sri Lanka, the Portfolio may invest in the shares of
exchange-listed issuers, subject to certain limitations for specific sectors of
the economy.
There can be no assurance that these investment control regimes will not
change in a way that makes it more difficult or impossible for the Portfolio to
implement its investment objective or repatriate its income, gains and initial
capital from these countries. Similar risks and considerations will be
applicable to the extent the Portfolio invests in other countries.
REGIONAL TAXES. The Fund and the Portfolio each intends to conduct its
respective affairs in such a manner that it will not be resident in India or any
other country in the Indian subcontinent for local tax purposes. The Portfolio's
income from certain regional sources will be subject to tax by those countries
as described below.
India currently imposes 20% withholding tax on interest and dividends.
Withholding tax of 10% is currently imposed on gains from sales of shares held
one year or more and 30% on gains from sales of shares held less than one year.
The withholding rate on gains from sales of debt securities is currently 10% if
the securities have been held three years or more and 30% if the securities have
been held less than three years. (Rates are higher for non-FII transactions.)
Pakistan currently imposes withholding tax on dividends at a rate of 15%
and on interest at a rate of 46%. Under current law, the withholding rate on
interest is to be reduced by three percentage points per
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<PAGE> 10
year through 1998. There is currently no withholding tax on capital gains from
listed shares. This exemption will expire in June 1998. As regards the shares of
unlisted and closely held manufacturing companies, withholding tax on capital
gains is currently imposed at a rate of 46%, reduced to 27 1/2% (or 25% for
small amounts) if the shares are held for 12 months or more. Sri Lanka imposes
15% withholding tax on dividends and interest, but does not impose withholding
tax on capital gains of listed shares. Unlisted shares are subject to a maximum
capital gains tax of 35%.
GREATER INDIA COUNTRY CONSIDERATIONS. POLITICAL AND ECONOMIC STRUCTURES IN
INDIA AND OTHER COUNTRIES OF THE INDIAN SUBCONTINENT GENERALLY LACK THE SOCIAL,
POLITICAL AND ECONOMIC STABILITY CHARACTERISTIC OF THE UNITED STATES.
Governmental actions can have a significant effect on the economic conditions in
such countries, which could adversely affect the value and liquidity of the
Portfolio's investments. Although the governments of India, Pakistan and Sri
Lanka have recently begun to institute economic reform policies, there can be no
assurance that they will continue to pursue such policies or, if they do, that
such policies will succeed. Such countries have in the past failed to recognize
private property rights and have at times nationalized or expropriated the
assets of private companies.
The laws of countries in the region relating to limited liability of
corporate shareholders, fiduciary duties of officers and directors, and the
bankruptcy of state enterprises are generally less well developed than or
different from such laws in the United States. It may be more difficult to
obtain a judgment in the courts of these countries than it is in the United
States. In addition, unanticipated political or social developments may affect
the value of the Portfolio's investments in these countries and the availability
to the Portfolio of additional investments. Monsoons and natural disasters also
can affect the value of Portfolio investments.
INDIA. The Indian population is comprised of diverse religious and
linguistic groups. Despite this diversity, India is the world's largest
democracy and has had one of the more stable political systems among the world's
developing nations. However, periodic sectarian conflict among India's religious
and linguistic groups could adversely affect Indian businesses, temporarily
close stock exchanges or other institutions, or undermine or distract from
government efforts to liberalize the Indian economy.
PAKISTAN. The military has been, and continues to be, an important factor
in Pakistani government and politics, and the civilian government continues to
rely on the support of the army. Ethnic unrest and troubled relations with India
are also continuing problems.
The Federal Shariat Court, a constitutionally established body which has
exclusive jurisdiction to determine whether any law in Pakistan violates the
principles of Islam, the official State religion, ruled in November 1991 that a
number of legal provisions in Pakistan violated Islamic principles relating to
Riba (an Islamic term generally accepted as being analogous to interest) and
instructed the Government of Pakistan to conform these provisions to Islamic
principles. It is believed that strict conformity with the ruling of the Shariat
Court would substantially disrupt a variety of commercial relationships in
Pakistan involving the payment of interest, although the extent and nature of
any such disruption on the Pakistani economy, or any segment thereof (other than
the banking system), is uncertain. The ruling of the Shariat Court has been
appealed and will have no effect until the Shariat Appellate Bench of the
Supreme Court of Pakistan renders a decision on the appeal. A hearing on the
appeal was held in November 1993 but, in early 1994 at the request of the
Government of Pakistan, the appeal is still continuing. In addition, pursuant to
the Enforcement of Shariat Act, 1991 (the "Shariat Act"), the Government of
Pakistan has appointed a commission to recommend steps to be taken to introduce
suitable alternatives by which an
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economic system in Pakistan conforming to Islamic principles could be
established. This commission may be in a position to propose a pragmatic
approach to the requirements of the Constitution and the Shariat Act with a view
to avoiding any substantial disruption to the economy of Pakistan. There can be
no assurance, however, that the commission will propose such an approach or that
implementation of the steps recommended by the commission or the effect of the
ultimate decision of the courts in Pakistan on this issue will not adversely
affect the economy in Pakistan.
SRI LANKA. Insurrection and political violence among Sri Lanka's ethnic
groups, including terrorist actions by the Tamil Tigers separatist organization,
have in the past disrupted Sri Lanka's government and economy. Although Sri
Lanka's government is currently fairly stable, there can be no assurance that
such stability will continue.
UNLISTED SECURITIES. The Portfolio may invest up to 15% of its net assets in
securities of companies that are neither listed on a stock exchange nor traded
over the counter. Unlisted securities may include new and early stage companies,
which may involve a high degree of business and financial risk that can result
in substantial losses and may be considered speculative. Such securities will
generally be deemed to be illiquid. Because of the absence of any public trading
market for these investments, the Portfolio may take longer to liquidate these
positions than would be the case for publicly traded securities. Although these
securities may be resold in privately negotiated transactions, the prices
realized from these sales could be less than those originally paid by the
Portfolio or less than what may be considered the fair value of such securities.
Furthermore, issuers whose securities are not publicly traded may not be subject
to public disclosure and other investor protection requirements applicable to
publicly traded securities. If such securities are required to be registered
under the securities laws of one or more jurisdictions before being resold, the
Portfolio may be required to bear the expenses of registration. In addition, any
capital gains realized on the sale of such securities may be subject to higher
rates of taxation than taxes payable on the sale of listed securities.
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 be in the U.S. or abroad
and may include the purchase or sale of futures contracts on securities,
securities indices, other indices, other financial instruments or currencies;
options on futures contracts; exchange-traded and over-the-counter 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 Adviser's use of derivative instruments will
be advantageous to the Portfolio.
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
write a covered option on any security if after such transaction more than 15%
of its net
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<PAGE> 12
assets, as measured by the aggregate value of the securities underlying all
covered calls and puts written by the Portfolio, would be subject to such
options. 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 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.
CURRENCY SWAPS. The Portfolio may enter into currency swaps for both hedging
and non-hedging purposes. Currency swaps involve the exchange of rights to make
or receive payments in specified currencies. Since currency swaps are
individually negotiated, the Portfolio expects to achieve an acceptable degree
of correlation between its portfolio investments and its currency swap
positions. Currency swaps usually involve the delivery of the entire principal
value of one designated currency in exchange for the other designated currency.
Therefore, the entire principal value of a currency swap is subject to the risk
that the other party to the swap will default on its contractual delivery
obligations. The use of currency swaps is a highly specialized activity which
involves special investment techniques and risks. If the Adviser is incorrect in
its forecasts of market values and currency exchange rates, the Portfolio's
performance will be adversely affected.
LENDING OF PORTFOLIO SECURITIES. The Portfolio may seek to earn additional
income by lending portfolio securities to broker-dealers or other institutional
borrowers. 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 will be made only to
organizations deemed by the Adviser to be sufficiently creditworthy and when, in
the judgment of the Adviser, the consideration which can be earned from
securities loans of this type justifies the attendant risk.
REPURCHASE AGREEMENTS. The Portfolio may enter into repurchase agreements with
respect to its permitted investments, but currently intends to do so only with
member banks of the Federal Reserve System or with primary dealers in U.S.
Government securities. In the event of the bankruptcy of the other party to a
repurchase agreement, the Portfolio might experience delays in recovering its
cash. To the extent that, in the meantime, the value of the securities the
Portfolio purchased may have decreased, the Portfolio could
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<PAGE> 13
experience a loss. The Portfolio does not expect to invest more than 5% of its
total assets in repurchase agreements, under normal circumstances.
OTHER INVESTMENT COMPANIES. The Portfolio reserves the right to invest up to
10% of its total assets in the securities of other investment companies
unaffiliated with the Adviser or the Manager that have the characteristics of
closed-end investment companies. The Portfolio will indirectly bear its
proportionate share of any management fees paid by investment companies in which
it invests in addition to the advisory fee paid by the Portfolio. The value of
closed-end investment company securities, which are usually traded on an
exchange, is affected by demand for the securities themselves, independent of
the demand for the underlying portfolio assets and, accordingly, such securities
can trade at a discount from their net asset values.
PORTFOLIO TURNOVER. While it is the policy of the Portfolio to seek long-term
capital appreciation, and generally not to engage in trading for short-term
gains, the Portfolio will effect portfolio transactions without regard to its
holding period if, in the judgment of the Adviser, such transactions are
advisable in light of a change in circumstances of a particular company or
within a particular industry, or in light of general market, economic or
political conditions. Accordingly, the Portfolio may engage in short-term
trading under such circumstances. Portfolio expenses increase with turnover of
securities. It is anticipated that the annual portfolio turnover rate of the
Portfolio will be not more than 100%.
CERTAIN INVESTMENT POLICIES. The Fund and the Portfolio have adopted certain
fundamental investment restrictions and policies 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. Among these
fundamental restrictions, neither the Fund nor the Portfolio may (1) borrow
money except as permitted by the 1940 Act; (2) purchase any securities on margin
(but the Fund and the Portfolio may obtain such short-term credits as may be
necessary for the clearance of purchases and sales of securities); or (3) with
respect to 75% of its total assets, invest more than 5% of its total assets
(taken at current value) in the securities of any one issuer, or invest in 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.
Investment restrictions are considered at the time of acquisition of assets; the
sale of portfolio assets is not required in the event of a subsequent change in
circumstances. As a matter of fundamental policy the Portfolio will not invest
25% or more of its total assets in the securities, other than U.S. Government
securities, of issuers in any one industry.
Except for the fundamental investment restrictions and policies
specifically identified above and enumerated in the Statement of Additional
Information, 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 shareholders
of the Fund or the investors in the Portfolio, as the case may be. If any
changes were made, the Fund might have investment objectives different from the
objectives which an investor considered appropriate at the time the investor
became a shareholder in the Fund.
As a matter of nonfundamental policy, neither the Fund nor the Portfolio
(i) may purchase any securities if, at the time of such purchase, permitted
borrowings exceed 5% of the value of its total assets, or (ii) may invest more
than 15% of its net assets in over-the-counter options, repurchase agreements
maturing in more than seven days and other illiquid securities.
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Under the 1940 Act and the rules promulgated thereunder, the Portfolio's
investments in the securities of any company that, in its most recent fiscal
year, derived more than 15% of its gross revenues from securities-related
activities is limited to 5% of any class of the issuer's equity securities and
10% of the outstanding principal amount of the issuer's debt securities,
provided that the Portfolio's aggregate investments in the securities of any
such issuer does not exceed 5% of the Portfolio's total assets. Some of the
companies available for investment in India and the Indian subcontinent,
including enterprises being privatized by such countries, may be financial
services businesses that engage in securities-related activities. The
Portfolio's ability to invest in such enterprises may thus be limited.
ORGANIZATION OF THE FUND AND THE PORTFOLIO
- --------------------------------------------------------------------------------
THE FUND IS A DIVERSIFIED SERIES OF EATON VANCE SPECIAL INVESTMENT TRUST, A
BUSINESS TRUST ESTABLISHED UNDER MASSACHUSETTS LAW PURSUANT TO A DECLARATION OF
TRUST DATED MARCH 27, 1989, AS AMENDED, AS THE SUCCESSOR TO A MASSACHUSETTS
CORPORATION WHICH COMMENCED ITS INVESTMENT COMPANY OPERATIONS IN 1968. 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 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
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<PAGE> 15
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 Portfolio, see "How
the Fund and the Portfolio Invest their Assets" and "Special Investment Methods
and Risk Factors." Further information regarding the investment practices of the
Portfolio may also 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 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
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 Manager 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
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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.
One independent Trustee of the Portfolio also serves as a Trustee of the
Trust. The Trustees of the Trust and the Portfolio have adopted written
procedures for resolution of conflicts of interest which might arise as a result
of the existence of one common independent Trustee on the two boards. 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
- --------------------------------------------------------------------------------
EATON VANCE MANAGEMENT ("EATON VANCE") ACTS AS THE SPONSOR AND MANAGER OF THE
FUND AND AS THE ADMINISTRATOR OF THE PORTFOLIO. THE PORTFOLIO HAS ENGAGED LLOYD
GEORGE INVESTMENT MANAGEMENT (BERMUDA) LIMITED (THE "ADVISER") AS ITS INVESTMENT
ADVISER. The Portfolio is co-managed by Robert Lloyd George and Scobie
Dickinson Ward.
The Adviser, which maintains offices in Hong Kong and in Bombay, India, is
a corporation formed on October 29, 1991 under the laws of Bermuda. The Adviser
is registered as an investment adviser with the U.S. Securities and Exchange
Commission (the "Commission"). The Adviser employs two full-time investment
professionals in its Bombay office, who provide investment research and advice
on Greater India investments. The Adviser is a subsidiary of Lloyd George
Management (B.V.I.) Limited ("LGM"). LGM and its subsidiaries act as investment
adviser to various individual and institutional clients with total assets under
management of more than $1 billion.
LGM specializes in providing investment management services with respect to
equity securities of companies trading in Asian securities markets, especially
those of emerging markets. LGM currently manages portfolios for both private
clients and institutional investors seeking long-term capital growth. LGM's core
investment team consists of ten experienced investment professionals who have
worked together over a number of years successfully managing client portfolios
in non-U.S. stock markets. The team has a unique knowledge of, and experience
with, Asian emerging markets. In particular, while at
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<PAGE> 17
Indosuez Asia Investment Securities Ltd., members of the team launched and
managed the $100 million Himalayan Fund, which invested in Indian listed
equities. In 1993, LGM established an office in Bombay, India and launched the
LG India Fund. The Adviser is registered as a Foreign Institutional Investor
("FII") with the Securities and Exchange Board of India. LGM is ultimately
controlled by the Hon. Robert J.D. Lloyd George, President and Trustee of the
Portfolio and Chairman and Chief Executive Officer of the Adviser. LGM's only
business is portfolio management.
LGM and the Adviser have adopted a conservative management style, providing
a blend of Asian and multinational expertise with the most rigorous
international standards of fundamental security analysis. Although focused
primarily in Asia, LGM and the Adviser maintain a network of international
contacts in order to monitor international economic and stock market trends and
offer clients a global management service.
THE HONOURABLE ROBERT LLOYD GEORGE. Chairman. Born in London in 1952 and
educated at Eton College, where he was a King's Scholar, and at Oxford
University. Prior to founding LGM, Mr. Lloyd George was Managing Director of
Indosuez Asia Investment Services Ltd., which, under his supervision, grew in
assets under management to over $1 billion from 1984 to 1991. Much of this
growth was based on the successful launch of such products as the Asian Growth
Fund (1984), the Pacific Gold Fund (1986), the Siam Fund (1988), the Malacca
Fund (1989), the Manila Fund (1989), and the Himalayan Fund (1990).
In 1983 Mr. Lloyd George launched and managed the Henderson Japan Special
Situations Trust. Prior to that he spent four years with the Fiduciary Trust
Company of New York researching international securities, in the United States
and Europe, for the United Nations Pension Fund. Mr. Lloyd George is the author
of numerous published articles and two books -- "A Guide to Asian Stock Markets"
(Longmans, Hong Kong, 1989) and "The East West Pendulum" (Woodhead-Faulkner,
Cambridge, 1991).
SCOBIE DICKINSON WARD. Director. Born in 1966, cum laude graduate of both
Phillips Academy Andover, and Harvard College. Mr. Ward joined Indosuez Asia
Investment Services in 1989, where he managed the $100 million Himalayan Fund,
and the Indosuez Tasman Fund, investing in Australia and New Zealand. Messrs.
Ward and Lloyd George manage Eaton Vance's Greater China Growth Portfolio.
WILLIAM WALTER RALEIGH KERR. Finance Director and Chief Operating Officer.
Born in 1950 and educated at Ampleforth and Oxford. Mr. Kerr qualified as a
Chartered Accountant at Thomson McLintock & Co. before joining The Oldham Estate
Company plc as Financial Controller. Prior to joining LGM, Mr. Kerr was a
Director of Banque Indosuez's corporate finance subsidiary, Financiere Indosuez
Limited, in London. Prior to that Mr. Kerr worked for First Chicago Limited.
M. F. TANG. Director. Born in 1946 and educated in Hong Kong. Mr. Tang is
a Fellow of the Chartered Association of Certified Accountants. Mr. Tang joined
LGM having worked for Australian Mutual Provident Society in Sydney where he was
a Portfolio Manager responsible for Asian Equities. Prior thereto Mr. Tang
worked for Barclays Australia Investment Services Ltd. From 1978 to 1986 Mr.
Tang worked for Barings International Investment Management and prior to that he
spent six years with Peat Marwick Mitchell & Co. Mr. Tang is fluent in the
Cantonese and Mandarin dialects of the Chinese language.
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BIDARE NARAYANRAO MANJUNATH. Chief Representative, India. Born in 1958 and
educated at Birla Institute of Technology and Science where he received a
Masters Degree, Mr. Manjunath joined Canara Bank in 1982 where he worked in the
economic research department before joining its mutual fund division in 1987. In
1992, Mr. Manjunath joined Credit Capital Finance Corporation Ltd. where he
served as Associate Vice President before becoming Lloyd George Management's
Chief Representative, India in 1993. Mr. Manjunath was involved in the
investment process for both the Himalayan Fund and the LG India Fund, which he
co-manages.
PARAMESWARAN SUBRAMANIAN KALPATHY. Investment Analyst. Born in 1967 and
educated at Paddar College, Bombay, Mr. Parameswaran is qualified as a Chartered
Accountant from the Institute of Chartered Accountants of India. He served as an
investment analyst at Merwanjee Securities Bombay before joining the Adviser in
1993.
Acting under the general supervision of the Board of Trustees of the
Portfolio, the Adviser manages the investment of the Portfolio's assets. Under
its investment advisory agreement with the Portfolio, the Adviser receives a
monthly advisory fee of .0625% (equivalent to .75% annually) of the average
daily net assets of the Portfolio up to $500 million, which fee declines at
intervals above $500 million. For the period from the start of business, May 2,
1994, to December 31, 1994, the Portfolio paid the Adviser advisory fees
equivalent to .75% (annualized) of the Portfolio's average daily net assets for
such period. The Adviser also furnishes for the use of the Portfolio office
space and all necessary office facilities, equipment and personnel for servicing
the investments of the Portfolio.
The Adviser places the portfolio securities transactions of the Portfolio
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, the Adviser
may consider sales of shares of the Fund as a factor in the selection of firms
to execute portfolio transactions.
EATON VANCE, ITS AFFILIATES AND ITS PREDECESSOR COMPANIES HAVE BEEN
MANAGING ASSETS OF INDIVIDUALS AND INSTITUTIONS SINCE 1924 AND MANAGING
INVESTMENT COMPANIES SINCE 1931. 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. Eaton Vance Corp. also owns 2% of the
A Shares and 20% of the Preferred Shares issued by LGM.
Acting under the general supervision of the Boards of Trustees of the Trust
and the Portfolio, Eaton Vance manages and administers the business affairs of
the Fund and the Portfolio. Eaton Vance's services include monitoring and
providing reports to the Trustees of the Trust and the Portfolio concerning the
investment performance achieved by the Adviser for the Portfolio, recordkeeping,
preparation and filing of documents required to comply with Federal and state
securities laws, supervising the activities of the transfer agent of the Fund
and the custodian of the Portfolio, providing assistance in connection with
Trustees' and shareholders' meetings and other management and administrative
services necessary to conduct the business of the Fund and the Portfolio. Eaton
Vance also furnishes for the use of the Fund and the Portfolio office space and
all necessary office facilities, equipment and personnel for managing and
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<PAGE> 19
administering the business affairs of the Fund and the Portfolio. Eaton Vance
does not provide any investment management or advisory services to the Portfolio
or the Fund.
Under its management contract with the Fund, Eaton Vance receives a monthly
management fee in the amount of 1/48 of 1% (equal to .25% annually) of the
average daily net assets of the Fund up to $500 million, which fee declines at
intervals above $500 million. For the period from the Fund's start of business,
May 2, 1994, to December 31, 1994, the Fund paid Eaton Vance management fees
equivalent to .25% (annualized) of the Fund's average daily net assets for such
period. In addition, under its administration agreement with the Portfolio,
Eaton Vance receives a monthly administration fee in the amount of 1/48 of 1%
(equal to .25% annually) of the average daily net assets of the Portfolio up to
$500 million, which fee declines at intervals above $500 million. For the period
from the Portfolio's start of business, May 2, 1994, to December 31, 1994, the
Portfolio paid Eaton Vance administration fees equivalent to .25% (annualized)
of the Portfolio's average daily net assets for such period. The combined
investment advisory, management and administration fees payable by the Fund and
the Portfolio are higher than similar fees charged by most other investment
companies.
The Fund and the Portfolio, as the case may be, will each be responsible
for all respective costs and expenses not expressly stated to be payable by the
Adviser under the investment advisory agreement, by Eaton Vance under the
management contract or the administration agreement, or by EVD under the
distribution agreement. Such costs and expenses to be borne by each of the Fund
or the Portfolio, as the case may be, include, without limitation: custody and
transfer agency fees and expenses, including those incurred for determining net
asset value and keeping accounting books and records; expenses of pricing and
valuation services; the cost of share certificates; membership dues in
investment company organizations; brokerage commissions and fees; fees and
expenses of registering under the securities laws; expenses of reports to
shareholders and investors; proxy statements, and other expenses of
shareholders' or investors' meetings; insurance premiums, printing and mailing
expenses; interest, taxes and corporate fees; legal and accounting expenses;
compensation and expenses of Trustees not affiliated with Eaton Vance or the
Adviser; and investment advisory, management and administration fees. The Fund
and the Portfolio, as the case may be, will also each bear expenses incurred in
connection with litigation in which the Fund or the Portfolio, as the case may
be, is a party and any legal obligation to indemnify its respective officers and
Trustees with respect thereto.
DISTRIBUTION PLAN
- --------------------------------------------------------------------------------
THE FUND FINANCES DISTRIBUTION ACTIVITIES AND HAS ADOPTED A DISTRIBUTION PLAN
(THE "PLAN") PURSUANT TO RULE 12B-1 UNDER THE 1940 ACT. 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
19
<PAGE> 20
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 and all
amounts theretofore paid to the Principal Underwriter by the Adviser in
consideration of the former's distribution efforts. 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 sales commissions, distribution fees and
contingent deferred sales charges theretofore paid to the Principal Underwriter
from the Fund pursuant to the Plan, from the Adviser in consideration of the
distribution efforts 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.
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 period from the start of business, May
2, 1994, to December 31, 1994, the Fund paid sales commissions under the Plan
equivalent to .75% (annualized) of the Fund's average daily net assets for such
period. As at December 31, 1994, the outstanding Uncovered Distribution Charges
of the Principal Underwriter calculated under the Plan amounted to approximately
$1,843,000 (equivalent to 4.7% 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 service fee payments to the Principal Underwriter and
Authorized Firms in amounts not expected to exceed .25% per annum of the Fund's
average daily net assets based on the value of Fund shares sold by such
20
<PAGE> 21
persons and remaining outstanding for at least one year. 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.
The Fund expects to begin making service fee payments during the quarter ending
June 30, 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 distribution of Fund shares by the Principal Underwriter will also be
encouraged by the payment by the Adviser to the Principal Underwriter of amounts
equivalent to .15% annually of the Fund's average daily net assets. Such
payments will be made from the Adviser's own resources, not from Fund assets.
The aggregate amounts of such payments are a deduction in calculating the
outstanding Uncovered Distribution Charges of the Principal Underwriter under
the Plan and, therefore, will benefit Fund shareholders when such charges exist.
Such payments will be made in consideration of the Principal Underwriter's
distribution efforts.
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 Fund 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
21
<PAGE> 22
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) based on market or fair value in the manner authorized by the
Trustees of the Portfolio, with special provisions for valuing debt obligations,
short-term investments, foreign securities, direct investments, hedging
instruments and assets not having readily available market quotations, if any.
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 an 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 Manager, 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
22
<PAGE> 23
market 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 Greater India Fund
IN THE CASE OF PHYSICAL DELIVERY:
Investors Bank & Trust Company
Attention: EV Marathon Greater India 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 Commission
and acceptable to The Shareholder Services Group, Inc. In
23
<PAGE> 24
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 charges (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 15 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, of value in the 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
24
<PAGE> 25
charge which is required to be imposed on share redemptions will be made in
accordance with the following schedule:
<TABLE>
<CAPTION>
YEAR OF CONTINGENT
REDEMPTION DEFERRED SALES
AFTER PURCHASE CHARGE
----------------------------------------------------- --------------
<S> <C>
First................................................ 5%
Second............................................... 5%
Third................................................ 4%
Fourth............................................... 3%
Fifth................................................ 2%
Sixth................................................ 1%
Seventh and following................................ 0%
</TABLE>
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 for 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 DIVIDENDS 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.
- -------------------------------------------------------------------------------
25
<PAGE> 26
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 certified public 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
- --------------------------------------------------------------------------------
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. (Under certain investment plans,
statements may be sent only quarterly.) THE LIFETIME INVESTING ACCOUNT 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).
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 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 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.
26
<PAGE> 27
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.
- --------------------------------------------------------------------------------
THE EATON VANCE EXCHANGE PRIVILEGE
- --------------------------------------------------------------------------------
Shares of the Fund currently 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.
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 Share-
27
<PAGE> 28
holder Services Group, Inc. for additional information concerning the exchange
privilege. Applications and prospectuses of 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 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 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 Greater India 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.
28
<PAGE> 29
BANK AUTOMATED INVESTING -- FOR REGULAR SHARE ACCUMULATION: Cash investments of
$50 or more may be made automatically each month or quarter from the
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 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 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 nonprofit 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 nonprofit 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
- --------------------------------------------------------------------------------
DISTRIBUTIONS. It is the present policy of the Fund to make (A) at least one
distribution annually (normally in December) of all or substantially all of the
investment income allocated to the Fund by the Portfolio, less the Fund's direct
and allocated expenses and (B) at least one distribution annually of all or
substantially all
29
<PAGE> 30
of the net realized capital gains (if any) allocated to the Fund by the
Portfolio (reduced by any available capital loss carryforwards from prior
years).
Shareholders may reinvest all distributions in shares of the Fund without a
sales charge at the net asset value per share as of the close of business on the
record date.
The Fund's net investment income consists of the Fund's allocated share of
the net investment income of the Portfolio, less all actual and accrued expenses
of the Fund determined in accordance with generally accepted accounting
principles. The Portfolio's net investment income consists of all income accrued
on the Portfolio's assets, less all actual and accrued expenses of the Portfolio
determined in accordance with generally accepted accounting principles. The
Fund's net realized capital gains, if any, consist of the net realized capital
gains (if any) allocated to the Fund by the Portfolio for tax purposes, after
taking into account any available capital loss carryovers.
TAXES. Distributions by the Fund which are derived from the Fund's allocated
share of the Portfolio's net investment income, net short-term capital gains and
certain foreign exchange gains are taxable to shareholders as ordinary income,
whether received in cash or reinvested in additional shares of the Fund. The
Fund's distributions will generally not qualify for the dividends-received
deduction for corporate shareholders.
Capital gains referred to in clause (B) above, if any, realized by the
Portfolio and allocated to the Fund for the Fund's fiscal year, which ends on
December 31, will usually be distributed by the Fund prior to the end of
December. Distributions by the Fund of long-term capital gains allocated to the
Fund by the Portfolio 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 the shareholder.
If shares are purchased shortly before the record date of a distribution,
the shareholder will pay the full price for the shares and then receive some
portion of the price back as a taxable distribution. The amount, timing and
character of the Fund's distributions to shareholders may be affected by special
tax rules governing the Portfolio's activities in options, futures and forward
foreign currency exchange transactions or certain other investments.
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.
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.
30
<PAGE> 31
Income realized by the Portfolio from certain investments and allocated to
the Fund may be subject to foreign income taxes, and the Fund may make an
election under Section 853 of the Code that would allow shareholders to claim a
credit or deduction on their Federal income tax returns for (and treated as
additional amounts distributed to them) their pro rata portion of the Fund's
allocated share of qualified taxes paid by the Portfolio to foreign countries.
This election may be made only if more than 50% of the assets of the Fund,
including its allocable share of the Portfolio's assets, at the close of a
taxable year consists of securities in foreign corporations. The Fund will send
a written notice of any such election (not later than 60 days after the close of
its taxable year) to each shareholder indicating the amount to be treated as the
proportionate share of such taxes. The availability of foreign tax credits or
deductions for shareholders is subject to certain additional restrictions and
limitations.
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.
PERFORMANCE INFORMATION
- --------------------------------------------------------------------------------
FROM TIME TO TIME, THE FUND MAY ADVERTISE ITS AVERAGE ANNUAL TOTAL RETURN. The
Fund's average annual total return is determined by multiplying a hypothetical
initial purchase order of $1,000 invested at the maximum public offering price
(net asset value) by the average annual compounded rate of return (including
capital appreciation/depreciation, and dividends and distributions paid and
reinvested) for the stated period and annualizing the result. The average annual
total return calculation assumes a complete redemption of the investment and the
deduction of any 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 use such total return figures, together with comparisons with
the Consumer Price Index, various domestic and foreign securities indices and
performance studies prepared by independent organizations, in advertisements and
in information furnished to present or prospective shareholders.
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 total return for any
prior period should not be considered a representation of what an investment may
earn or what the Fund's total return may be in any future period. The Fund's
investment results are based on many factors, including market conditions, the
composition of the security holdings of the Portfolio and the operating expenses
of the Fund and the Portfolio. Investment results also often reflect the risks
associated with the particular investment objective and policies of the Fund and
the Portfolio. Among others, these factors should be considered when comparing
the Fund's investment results to those of other mutual funds and other
investment vehicles.
31
<PAGE> 32
STATEMENT OF
ADDITIONAL INFORMATION
May 1, 1995
EV MARATHON GREATER INDIA 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 Greater India Fund (the "Fund") and
certain other series of Eaton Vance Special Investment 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.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
TABLE OF CONTENTS Page
<S> <C>
PART I
Investment Objective............................................................ 2
Additional Information About Investment Policies................................ 2
Investment Restrictions......................................................... 7
Trustees and Officers........................................................... 8
Management of the Fund.......................................................... 11
Custodian....................................................................... 14
Service for Withdrawal.......................................................... 14
Determination of Net Asset Value................................................ 15
Investment Performance.......................................................... 16
Taxes........................................................................... 16
Portfolio Security Transactions................................................. 19
Other Information............................................................... 20
Independent Certified Public Accountants........................................ 22
Appendix A -- Country Information............................................... 23
Appendix B -- Ratings........................................................... 27
PART II
Fees and Expenses............................................................... a-1
Performance Information......................................................... a-2
Principal Underwriter........................................................... a-2
Distribution Plan............................................................... a-3
Control Persons and Principal Holders of Securities............................. a-5
Financial Statements............................................................ a-6
Appendix C -- Statistical Information........................................... a-25
</TABLE>
- --------------------------------------------------------------------------------
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> 33
STATEMENT OF ADDITIONAL INFORMATION
PART I
This Part I provides information about the Fund and certain other series of
the Trust.
INVESTMENT OBJECTIVE
The investment objective of the Fund is to seek long-term capital
appreciation. It seeks to meet its investment objective by investing its assets
in the South Asia Portfolio (the "Portfolio"), a separate registered investment
company which is organized as a trust under the laws of the State of New York.
The Portfolio invests primarily in equity securities of companies in India and
surrounding countries of the Indian subcontinent. The Portfolio has the same
investment objective as the Fund.
Except for the fundamental investment restrictions and policies
specifically identified in the Prospectus or enumerated in this Statement of
Additional Information, 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
shareholders of the Fund or the investors in the Portfolio. If any changes were
made, the Fund might have investment objectives different from the objectives
which an investor considered appropriate at the time the investor became a
shareholder in the Fund.
ADDITIONAL INFORMATION ABOUT INVESTMENT POLICIES
FOREIGN INVESTMENTS. Investing in securities issued by companies whose
principal business activities are outside the United States may involve
significant risks not present in domestic investments. For example, there is
generally less publicly available information about foreign companies,
particularly those not subject to the disclosure and reporting requirements of
the U.S. securities laws. Foreign issuers are generally not bound by uniform
accounting, auditing, and financial reporting requirements and standards of
practice comparable to those applicable to domestic issuers. Investments in
foreign securities also involve the risk of possible adverse changes in
investment or exchange control regulations, expropriation or confiscatory
taxation, limitation on the removal of funds or other assets of the Portfolio,
political or financial instability or diplomatic and other developments which
could affect such investments. Further, economies of particular countries or
areas of the world may differ favorably or unfavorably from the economy of the
United States. It is anticipated that in most cases the best available market
for foreign securities will be on exchanges or in over-the-counter markets
located outside of the United States. Foreign stock markets, while growing in
volume and sophistication, are generally not as developed as those in the United
States, and securities of some foreign issuers (particularly those located in
developing countries) may be less liquid and more volatile than securities of
comparable U.S. companies. In addition, foreign brokerage commissions are
generally higher than commissions on securities traded in the United States and
may be non-negotiable. In general, there is less overall governmental
supervision and regulation of foreign securities markets, broker-dealers, and
issuers than in the United States.
FOREIGN CURRENCY TRANSACTIONS. Since investments in companies whose principal
business activities are located outside of the United States will frequently
involve currencies of foreign countries, and since assets of the Portfolio may
temporarily be held in bank deposits in foreign currencies during the completion
of investment programs, the value of the assets of the Portfolio as measured in
U.S. dollars may be affected favorably or unfavorably by changes in foreign
currency exchange rates and exchange control regulations. Currency exchange
rates can also be affected unpredictably by intervention by U.S. or foreign
governments or central banks, or the failure to intervene, or by currency
controls or political developments in the U.S. or abroad. The Portfolio may
conduct its foreign currency exchange transactions on a spot (i.e., cash) basis
at the spot rate prevailing in the foreign currency exchange market or through
entering into swaps, forward contracts, options or futures on currency. On spot
transactions, foreign exchange dealers do not charge a fee for conversion, they
do realize a profit based on the difference (the "spread") between the prices at
which they are buying and selling various currencies. Thus, a dealer may offer
to sell a foreign currency to the
2
<PAGE> 34
Portfolio at one rate, while offering a lesser rate of exchange should the
Portfolio desire to resell that currency to the dealer.
CURRENCY SWAPS. Currency swaps require maintenance of a segregated account
described under "Asset Coverage for Derivative Instruments" below. The Portfolio
will not enter into any currency swap unless the credit quality of the unsecured
senior debt or the claims-paying ability of the other party thereto is
considered to be investment grade by Lloyd George Investment Management
(Bermuda) Limited (the "Adviser"). If there is a default by the other party to
such a transaction, the Portfolio will have contractual remedies pursuant to the
agreements related to the transaction. The swap market has grown substantially
in recent years with a large number of banks and investment banking firms acting
both as principals and as agents utilizing standardized swap documentation. As a
result, the swap market has become relatively liquid in comparison with the
markets for other similar instruments which are traded in the interbank market.
FORWARD FOREIGN CURRENCY EXCHANGE TRANSACTIONS. The Portfolio may enter into
forward foreign currency exchange contracts in several circumstances. First,
when the Portfolio enters into a contract for the purchase or sale of a security
denominated in a foreign currency, or when the Portfolio anticipates the receipt
in a foreign currency of dividend or interest payments on such a security which
it holds, the Portfolio may desire to "lock in" the U.S. dollar price of the
security or the U.S. dollar equivalent of such dividend or interest payment, as
the case may be. By entering into a forward contract for the purchase or sale,
for a fixed amount of dollars, of the amount of foreign currency involved in the
underlying transactions, the Portfolio will attempt to protect itself against an
adverse change in the relationship between the U.S. dollar and the subject
foreign currency during the period between the date on which the security is
purchased or sold, or on which the dividend or interest payment is declared, and
the date on which such payments are made or received.
Additionally, when management of the Portfolio believes that the currency
of a particular foreign country may suffer a substantial decline against the
U.S. dollar, it may enter into a forward contract to sell, for a fixed amount of
dollars, the amount of foreign currency approximating the value of some or all
of the securities held by the Portfolio denominated in such foreign currency.
The precise matching of the forward contract amounts and the value of the
securities involved will not generally be possible because the future value of
such securities in foreign currencies will change as a consequence of market
movements in the value of those securities between the date on which the
contract is entered into and the date it matures. The precise projection of
short-term currency market movements is not possible, and short-term hedging
provides a means of fixing the dollar value of only a portion of the Portfolio's
foreign assets.
The portfolio generally will not enter into a forward contract with a term
of greater than one year.
SPECIAL RISKS ASSOCIATED WITH CURRENCY TRANSACTIONS. Transactions in forward
contracts, as well as futures and options on foreign currencies, are subject to
the risk of governmental actions affecting trading in or the prices of
currencies underlying such contracts, which could restrict or eliminate trading
and could have a substantial adverse effect on the value of positions held by
the Portfolio. In addition, the value of such positions could be adversely
affected by a number of other complex political and economic factors applicable
to the countries issuing the underlying currencies.
Furthermore, unlike trading in most other types of instruments, there is no
systematic reporting of last sale information with respect to the foreign
currencies underlying forward contracts, futures contracts and options. As a
result, the available information on which the Portfolio's trading systems will
be based may not be as complete as the comparable data on which the Portfolio
makes investment and trading decisions in connection with securities and other
transactions. Moreover, because the foreign currency market is a global,
twenty-four hour market, events could occur on that market which will not be
reflected in the forward, futures or options markets until the following day,
thereby preventing the Portfolio from responding to such events in a timely
manner.
Settlements of over-the-counter forward contracts or of the exercise of
foreign currency options generally must occur within the country issuing the
underlying currency, which in turn requires parties to such contracts to accept
or make delivery of such currencies in conformity with any United States or
3
<PAGE> 35
foreign restrictions and regulations regarding the maintenance of foreign
banking relationships, fees, taxes or other charges.
Unlike currency futures contracts and exchange-traded options, options on
foreign currencies and forward contracts are not traded on contract markets
regulated by the Commodity Futures Trading Commission ("CFTC") or (with the
exception of certain foreign currency options) the Securities and Exchange
Commission ("Commission"). To the contrary, such instruments are traded through
financial institutions acting as market-makers. (Foreign currency options are
also traded on the Philadelphia Stock Exchange subject to Commission
regulation). In an over-the-counter trading environment, many of the protections
associated with transactions on exchanges will not be available. For example,
there are no daily price fluctuation limits, and adverse market movements could
therefore continue to an unlimited extent over a period of time. Although the
purchaser of an option cannot lose more than the amount of the premium plus
related transaction costs, this entire amount could be lost. Moreover, an option
writer could lose amounts substantially in excess of its initial investment due
to the margin and collateral requirements associated with such option positions.
Similarly, there is no limit on the amount of potential losses on forward
contracts to which the Portfolio is a party.
In addition, over-the-counter transactions can only be entered into with a
financial institution willing to take the opposite side, as principal, of the
Portfolio's position unless the institution acts as broker and is able to find
another counterparty willing to enter into the transaction with the Portfolio.
Where no such counterparty is available, it will not be possible to enter into a
desired transaction. There also may be no liquid secondary market in the trading
of over-the-counter contracts, and the Portfolio may be unable to close out
options purchased or written, or forward contracts entered into, until their
exercise, expiration or maturity. This in turn could limit the Portfolio's
ability to realize profits or to reduce losses on open positions and could
result in greater losses.
Furthermore, over-the-counter transactions are not backed by the guarantee
of an exchange's clearing corporation. The Portfolio will therefore be subject
to the risk of default by, or the bankruptcy of, the financial institution
serving as its counterparty. One or more of such institutions also may decide to
discontinue its role as market-maker in a particular currency, thereby
restricting the Portfolio's ability to enter into desired hedging transactions.
The Portfolio will enter into over-the-counter transactions only with parties
whose creditworthiness has been reviewed and found satisfactory by the Adviser.
The purchase and sale of exchange-traded foreign currency options, however,
are subject to the risks of the availability of a liquid secondary market
described above, as well as the risks regarding adverse market movements,
margining of options written, the nature of the foreign currency market,
possible intervention by governmental authorities and the effect of other
political and economic events. In addition, exchange-traded options on foreign
currencies involve certain risks not presented by the over-the-counter market.
For example, exercise and settlement of such options must be made exclusively
through the Options Clearing Corporation ("OCC"), which has established banking
relationships in applicable foreign countries for this purpose. As a result, the
OCC may, if it determines that foreign governmental restrictions or taxes would
prevent the orderly settlement of foreign currency option exercises, or would
result in undue burdens on the OCC or its clearing member, impose special
procedures for exercise and settlement, such as technical changes in the
mechanics of delivery of currency, the fixing of dollar settlement prices or
prohibitions on exercise.
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 en-
4
<PAGE> 36
hanced 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
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. However, with respect to options written with primary
dealers in U.S. Government securities pursuant to an agreement requiring a
closing purchase transaction at a formula price the amount of illiquid
securities may be calculated with reference to the formula price. The
Portfolio's ability to terminate OTC derivative instruments may depend on the
cooperation of the counterparties to such contracts. 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 (the "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 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 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 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.
5
<PAGE> 37
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.
REPURCHASE AGREEMENTS. Under a repurchase agreement the Portfolio buys a
security at one price and simultaneously promises to sell that same security
back to the seller at a higher price. At no time will the Portfolio commit more
than 15% of its net assets to repurchase agreements which mature in more than
seven days and other illiquid securities. The Portfolio's repurchase agreements
will provide that the value of the collateral underlying the repurchase
agreement will always be at least equal to the repurchase price, including any
accrued interest earned on the repurchase agreement, and will be marked to
market daily.
REVERSE REPURCHASE AGREEMENTS. The Portfolio may enter into reverse repurchase
agreements. Under a reverse repurchase agreement, the Portfolio temporarily
transfers possession of a portfolio instrument to another party, such as a bank
or broker-dealer, in return for cash. At the same time, the Portfolio agrees to
repurchase the instrument at an agreed upon time (normally within seven days)
and price, which reflects an interest payment. The Portfolio expects that it
will enter into reverse repurchase agreements when it is able to invest the cash
so acquired at a rate higher than the cost of the agreement, which would
increase the income earned by the Portfolio. The Portfolio could also enter into
reverse repurchase agreements as a means of raising cash to satisfy redemption
requests without the necessity of selling portfolio assets.
When the Portfolio enters into a reverse repurchase agreement, any
fluctuations in the market value of either the securities transferred to another
party or the securities in which the proceeds may be invested would affect the
market value of the Portfolio's assets. As a result, such transactions may
increase fluctuations in the market value of the Portfolio's assets. While there
is a risk that large fluctuations in the market value of the Portfolio's assets
could affect the Portfolio's net asset value, this risk is not significantly
increased by entering into reverse repurchase agreements, in the opinion of the
Adviser. Because reverse repurchase agreements may be considered to be the
practical equivalent of borrowing funds, they constitute a form of leverage. If
the Portfolio reinvests the proceeds of a reverse repurchase agreement at a rate
lower than the cost of the agreement, entering into the agreement will lower the
Portfolio's yield.
At all times that a reverse repurchase agreement is outstanding, the
Portfolio will maintain cash or high grade liquid securities in a segregated
account at its custodian bank with a value at least equal to its obligation
under the agreement. Securities and other assets held in the segregated account
may not be sold while the reverse repurchase agreement is outstanding, unless
other suitable assets are substituted. While the Adviser does not consider
reverse repurchase agreements to involve a traditional borrowing of money,
reverse repurchase agreements will be included within the aggregate limitation
on "borrowings" contained in the Portfolio's investment restriction (1) set
forth below.
PORTFOLIO TURNOVER. The Portfolio cannot accurately predict its portfolio
turnover rate, but it is anticipated that the annual turnover rate will
generally not exceed 100% (excluding turnover of securities having a maturity of
one year or less). A 100% annual turnover rate would occur, for example, if all
the securities in the portfolio were replaced once in a period of one year. A
high turnover rate (100% or more) necessarily involves greater expenses to the
Portfolio. The Portfolio engages in portfolio trading (including short-term
trading) if it believes that a transaction including all costs will help in
achieving its investment objective either by increasing income or by enhancing
the Portfolio's net asset value. High portfolio turnover may also result in the
realization of substantial net short-term capital gains. In order for the Fund
to continue to qualify as a regulated investment company for Federal tax
purposes, less than 30% of the annual gross income of the Fund must be derived
from the sale of securities (including its share of gains from the sale of
securities held by the Portfolio) held for less than three months.
LENDING PORTFOLIO SECURITIES. If the Adviser decides to make securities loans,
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 are required to be secured continuously
by collateral in cash, cash equivalents or U.S. Government securities held by
the Portfolio's custodian and
6
<PAGE> 38
maintained on a current basis at an amount at least equal to market value of the
securities loaned, which will be marked to market daily. Cash equivalents
include certificates of deposit, commercial paper and other short-term money
market instruments. The financial condition of the borrower will be monitored by
the Adviser on an ongoing basis. The Portfolio would continue to receive the
equivalent of the interest or dividends paid by the issuer on the securities
loaned and would also receive a fee, or all or a portion of the interest on
investment of the collateral. The Portfolio would have the right to call a loan
and obtain the securities loaned at any time on up to five business days'
notice. The Portfolio would not have the right to vote any securities having
voting rights during the existence of a loan, but could 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. If the Adviser decides to make securities loans, it is intended that
the value of the securities loaned would not exceed 1/3 of the Portfolio's total
assets.
INVESTMENT RESTRICTIONS
Whenever an investment policy or investment restriction set forth in the
Prospectus or this Statement of Additional Information states a maximum
percentage of assets that may be invested in any security or other asset or
describes a policy regarding quality standards, such percentage limitation or
standard shall be determined immediately after and as a result of the Fund's or
the Portfolio's acquisition of such security or other asset. Accordingly, any
later increase or decrease resulting from a change in values, assets or other
circumstances, other than a subsequent rating change below investment grade made
by a rating service, will not compel the Fund or the Portfolio, as the case may
be, to dispose of such security or other asset.
The Fund and the Portfolio have each adopted the following investment
restrictions which may not be changed without the approval by the holders of a
majority of the outstanding voting securities of the Fund or the Portfolio, as
the case may be, which as used in this Statement of Additional Information means
the lesser of (a) 67% or more of the outstanding voting securities of the Fund
or the Portfolio, as the case may be, present or represented by proxy at a
meeting if the holders of more than 50% of the outstanding voting securities of
the Fund or the Portfolio are present or represented at the meeting or (b) more
than 50% of the outstanding voting securities of the Fund or the Portfolio.
Neither the Fund nor the Portfolio may:
(1) Borrow money or issue senior securities except as permitted by the
Investment Company Act of 1940.
(2) Purchase any securities on margin (but the Fund and the Portfolio may
obtain such short-term credits as may be necessary for the clearance of
purchases and sales of securities).
(3) Underwrite securities of other issuers.
(4) Invest in 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) or
in commodities or commodity contracts for the purchase or sale of physical
commodities.
(5) 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.
(6) With respect to 75% of its total assets, invest more than 5% of its
total assets (taken at current value) in the securities of any one issuer, or
invest in 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.
(7) Concentrate its investments in any particular industry, but, if deemed
appropriate for the Fund's objective, up to 25% of the value of its assets may
be invested in securities of companies in any one industry (although more than
25% may be invested in securities issued or guaranteed by the U.S. Government or
its agencies or instrumentalities).
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. Notwithstanding the investment policies and restrictions of the Portfolio,
the Portfolio may invest part of its assets in another investment company
consistent with the Investment Company Act of 1940 (the "1940 Act").
7
<PAGE> 39
The Fund and the Portfolio have each adopted the following investment
policies which may be changed without shareholder or investor approval. Neither
the Fund nor the Portfolio may invest more than 15% of its net assets in
investments which are not readily marketable, including restricted securities
and repurchase agreements with a maturity longer than seven days. Restricted
securities for the purposes of this limitation do not include securities
eligible for resale pursuant to Rule 144A under the Securities Act of 1933 that
the Board of Trustees of the Trust or the Portfolio, or its delegate, determines
to be liquid. Factors taken into account in reaching liquidity decisions
include, but are not limited to: (i) the frequency of trading in the security;
(ii) the number of dealers who provide quotes for the security; (iii) the number
of dealers who have undertaken to make a market in the security; (iv) the number
of other potential purchasers; and (v) the nature of the security and how
trading is effected (e.g., the time needed to sell the security, how offers are
solicited, and the mechanics of transfer). The Adviser will monitor the
liquidity of the Portfolio's securities and report periodically on such
decisions to the Board of Trustees of the Portfolio. Neither the Fund nor the
Portfolio intends to make short sales of securities during the coming year.
Except for obligations issued or guaranteed by the U.S. Government or any of its
agencies or instrumentalities, neither the Fund nor the Portfolio will knowingly
purchase a security issued by a company (including predecessors) with less than
three years operating history (unless such security is rated at least B or a
comparable rating at the time of purchase by at least one nationally recognized
rating service) if, as a result of such purchase, more than 5% of the
Portfolio's or the Fund's total assets, as the case may be (taken at current
value), would be invested in such securities. Neither the Fund nor the Portfolio
will purchase warrants if, as a result of such purchase, more than 5% of the
Portfolio's or the Fund's net assets, as the case may be (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
Portfolio's or the Fund's net assets; this policy does not apply to or restrict
warrants acquired by the Portfolio or the Fund in units or attached to
securities, inasmuch as such warrants are deemed to be without value. Neither
the Fund nor the Portfolio will purchase any securities if at the time of such
purchase, permitted borrowings under investment restriction (1) above exceed 5%
of the value of the Portfolio's or the Fund's total assets, as the case may be.
Neither the Fund nor the Portfolio will purchase oil, gas or other mineral
leases or purchase partnership interests in oil, gas or other mineral
exploration or development programs. Neither the Fund nor the Portfolio will
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 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 or securities together own beneficially more than 5% of such shares
or securities or both (all taken at market value).
In order to permit the sale of shares of the Fund in certain states, the
Fund and the Portfolio may make commitments more restrictive than the
fundamental 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.
Although permissible under the Fund's investment restrictions, the Fund has
no present intention during the coming fiscal year to: borrow money; pledge its
assets; or make loans to other persons.
TRUSTEES AND OFFICERS
The Trust's Trustees and officers 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 Fund's sponsor and manager, Eaton Vance Management
("Eaton Vance"), of Eaton Vance's wholly-owned subsidiary, Boston Management and
Research ("BMR"), of Eaton Vance's parent, Eaton Vance Corp. ("EVC"), and of
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, Eaton Vance, BMR, EVC or EV as defined in the 1940 Act by virtue of
their affiliation with any one or more of the Trust, Eaton Vance, BMR, EVC or
EV, are indicated by an asterisk (*).
8
<PAGE> 40
OFFICERS AND TRUSTEES OF THE TRUST
TRUSTEES
JAMES B. HAWKES (53), President and Trustee*
Executive Vice President of Eaton Vance, BMR, EVC and EV, and a Director of EVC
and EV. Director or Trustee and officer of various investment companies
managed by Eaton Vance or BMR.
LANDON T. CLAY (69), Trustee*
Chairman of Eaton Vance, BMR, EVC and EV and a Director of EVC and EV. Director
or 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. 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
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
PETER F. KIELY (58), Vice President
Vice President of Eaton Vance, BMR and EV. Officer of various investment
companies managed by Eaton Vance or BMR.
CLIFFORD H. KRAUSS (40), Vice President
Vice President of Eaton Vance, BMR and EV.
JAMES L. O'CONNOR (50), Treasurer
Vice President of Eaton Vance, BMR 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.
DOUGLAS C. MILLER (30), Assistant Treasurer
Assistant Vice President of BMR, Eaton Vance and EV since March 1, 1994.
Director of Corporate Finance -- State Street Research Investment Services
(1992-1993). Audit Senior -- Financial Services Industry Practice. Deloitte &
Touche (1987-1991). Officer of various investment companies managed by Eaton
Vance or BMR. Mr. Miller was elected Assistant Treasurer of the Trust on
December 9, 1994.
THOMAS OTIS (63), Secretary
Vice President and Secretary of Eaton Vance, BMR, 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 Eaton Vance, BMR and EV. Officer of various investment
companies managed by Eaton Vance or BMR.
A. JOHN MURPHY (32), Assistant Secretary of the Trust
Assistant Vice President of BMR, Eaton Vance and EV since March 1, 1994;
employee of Eaton Vance since March 1993. State Regulations Supervisor, The
Boston Company (1991-1993) and Registration Specialist, Fidelity Management &
Research Co. (1986-1991). Officer of various investment companies managed by
Eaton or BMR. Mr. Murphy was elected Assistant Secretary of the Trust on March
27, 1995.
Messrs. Thorndike (Chairman), Hayes and Reamer are members of the Special
Committee of the Board of Trustees of the Trust. The Special Committee's
functions include a continuous review of the Fund's management contract with
Eaton Vance, making recommendations to the Board of Trustees
9
<PAGE> 41
regarding the compensation of those Trustees who are not members of the Eaton
Vance organization, and making recommendations to the Board of 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. The Audit Committee's functions include making
recommendations to the Board of Trustees regarding the selection of the
independent certified public accountants, and reviewing with such accountants
and the Treasurer of the Trust matters relative to accounting and auditing
practices and procedures, accounting records, internal accounting controls, and
the functions performed by the custodian, transfer agent and dividend disbursing
agent of the Trust.
Trustees of the Portfolio who are not affiliated with the 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. For information concerning the
compensation earned by the Trustees of the Trust, see "Fees and Expenses" in
Part II of this Statement of Additional Information.
OFFICERS AND TRUSTEES OF THE PORTFOLIO
The Portfolio's Trustees and officers 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. The business address of the Adviser is
3808 One Exchange Square, Central, Hong Kong. Those Trustees who are "interested
persons" of the Portfolio, the Adviser, Eaton Vance, EVC or EV as defined in the
1940 Act by virtue of their affiliation with any one or more of the Portfolio,
the Adviser, Eaton Vance, BMR, EVC or EV, are indicated by an asterisk (*).
TRUSTEES
HON. ROBERT LLOYD GEORGE (42), President and Trustee*
Chairman and Chief Executive of Lloyd George Management (B.V.I.) Limited.
Chairman and Chief Executive Officer of the Adviser. Managing Director of
Indosuez Asia Investment Services, Ltd. from 1984 to 1991.
Address: 3808 One Exchange Square, Central, Hong Kong
JAMES B. HAWKES (53), Vice President and Trustee*
Executive Vice President of Eaton Vance, BMR, EVC and EV, and a Director of EVC
and EV. Director or Trustee and officer of various investment companies
managed by Eaton Vance or BMR.
Address: Eaton Vance Management, 24 Federal Street, Boston, Massachusetts 02110
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
STUART HAMILTON LECKIE (49), Trustee
Managing Director and Actuary of The Wyatt Company. Member of the Hong Kong
Government's Advisory Committee on Insurance.
Address: The Wyatt Company (HK) Ltd., Sun Hung Kai Centre, 27th Floor, 30
Harbour Road, Hong Kong
HON. EDWARD K.Y. CHEN (50), Trustee
Professor and Director of the Centre of Asian Studies, University of Hong Kong.
Director of First Pacific Bancshares Holdings Ltd. and a non-executive
Director of the Securities and Futures Commission. Vice-Chairman and
Consultant of ACL Consultants Ltd. from 1983 to 1989. Director of First
Pacific Bank Ltd. from 1986 to 1990. Director of Inc -- Asia from 1988 to
1991.
Address: University of Hong Kong, Centre of Asian Studies, Pokfulam Road, Hong
Kong
10
<PAGE> 42
OFFICERS
SCOBIE DICKINSON WARD (29), Vice President, Assistant Secretary and Assistant
Treasurer
Director of Lloyd George Management (B.V.I.) Limited. Director of the Adviser.
Investment Manager of Indosuez Asia Investment Services, Ltd. from 1984 to
1991.
Address: 3808 One Exchange Square, Central, Hong Kong
WILLIAM WALTER RALEIGH KERR (44), Vice President, Secretary and Assistant
Treasurer
Director, Finance Director and Chief Operating Officer of the Adviser. Director
of Lloyd George Management (B.V.I.) Limited.
Address: 3808 One Exchange Square, Central, Hong Kong
JAMES L. O'CONNOR (50), Vice President and Treasurer
Vice President of Eaton Vance, BMR and EV. Officer of various investment
companies managed by Eaton Vance or BMR.
Address: Eaton Vance Management, 24 Federal Street, Boston, Massachusetts 02110
THOMAS OTIS (63), Vice President and Assistant Secretary
Vice President and Secretary of Eaton Vance, BMR, EVC and EV. Officer of various
investment companies managed by Eaton Vance or BMR.
Address: Eaton Vance Management, 24 Federal Street, Boston, Massachusetts 02110
JANET E. SANDERS (59), Assistant Secretary
Vice President of Eaton Vance, BMR and EV. Officer of various investment
companies managed by Eaton Vance or BMR.
Address: Eaton Vance Management, 24 Federal Street, Boston, Massachusetts 02110
DOUGLAS C. MILLER (30), Assistant Treasurer
Assistant Vice President of BMR, Eaton Vance and EV since March 1, 1994.
Director of Corporate Finance -- State Street Research Investment Services
(1992-1993). Audit Senior -- Financial Services Industry Practice. Deloitte &
Touche (1987-1991). Officer of various investment companies managed by Eaton
Vance or BMR. Mr. Miller was elected Assistant Treasurer of the Trust on
December 9, 1994.
The Adviser is a subsidiary of Lloyd George Management (B.V.I.) Limited,
which is ultimately controlled by the Hon. Robert J.D. Lloyd George, President
and Trustee of the Portfolio and Chairman and Chief Executive Officer of the
Adviser. Mr. Hawkes is a Trustee and officer of the Trust and an officer of the
Fund's sponsor and manager. Mr. Hayes is a Trustee of the Trust.
The fees and expenses of those Trustees of the Portfolio who are not
members of the Adviser or Eaton Vance organizations are paid by the Portfolio.
For information concerning the compensation earned by the Trustees of the
Portfolio, see "Fees and Expenses" in Part II of this Statement of Additional
Information.
While the Portfolio is a New York trust, the Adviser, together with Messrs.
Lloyd George, Leckie, Chen, Ward and Kerr, are not residents of the United
States, and substantially all of their respective assets may be located outside
of the United States. It may be difficult for investors to effect service of
process within the United States upon the individuals identified above, or to
realize judgments of courts of the United States predicated upon civil
liabilities of the Adviser and such individuals under the Federal securities
laws of the United States. The Portfolio has been advised that there is
substantial doubt as to the enforceability in the countries in which the Adviser
and such individuals reside of such civil remedies and criminal penalties as are
afforded by the Federal securities laws of the United States.
MANAGEMENT OF THE FUND
Eaton Vance acts as the sponsor and manager of the Fund and the
administrator of the Portfolio. The Portfolio has engaged Lloyd George
Investment Management (Bermuda) Limited (the "Adviser") as its investment
adviser.
THE ADVISER
As investment adviser to the Portfolio, the Adviser manages the Portfolio's
investments, subject to the supervision of the Board of Trustees of the
Portfolio. The Adviser is also responsible for effecting all security
transactions on behalf of the Portfolio, including the allocation of principal
transactions and portfolio brokerage and the negotiation of commissions. See
"Portfolio Security Transactions." Under the investment advisory agreement, the
Adviser receives a monthly advisory fee computed by applying the annual
11
<PAGE> 43
asset rate applicable to that portion of the average daily net assets of the
Portfolio throughout the month in each Category as indicated below:
<TABLE>
<CAPTION>
ANNUAL
CATEGORY AVERAGE DAILY NET ASSETS ASSET RATE
- -------- --------------------------------------------------------- ----------
<C> <S> <C>
1 less than $500 million................................... 0.75%
2 $500 million but less than $1 billion.................... 0.70
3 $1 billion but less than $1.5 billion.................... 0.65
4 $1.5 billion but less than $2 billion.................... 0.60
5 $2 billion but less than $3 billion...................... 0.55
6 $3 billion and over...................................... 0.50
</TABLE>
For additional information about the Investment Advisory Agreement,
including the net assets of the Portfolio and the investment advisory fees that
the Portfolio paid the Adviser under the Investment Advisory Agreement, see
"Fees and Expenses" in Part II of this Statement of Additional Information.
The directors of the Adviser are the Honorable Robert Lloyd George, William
Walter Raleigh Kerr, M.F. Tang and Scobie Dickinson Ward. The Hon. Robert J.D.
Lloyd George is Chairman and Chief Executive Officer of the Adviser and Mr. Kerr
is an officer of the Adviser. The business address of these individuals is 3808
One Exchange Square, Central, Hong Kong.
The Portfolio's investment advisory agreement with the Adviser 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 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 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 the Adviser may render services to
others. The agreement also provides that, in the absence of willful misfeasance,
bad faith, gross negligence or reckless disregard of obligations or duties under
the agreement on the part of the Adviser, the Adviser shall not be liable to the
Portfolio or to any shareholder for any act or omission in the course of or
connected with rendering services or for any losses sustained in the purchase,
holding or sale of any security.
MANAGER, SPONSOR AND ADMINISTRATOR
See "Management of the Fund and the Portfolio" in the Prospectus for a
description of the services Eaton Vance performs as manager and sponsor of the
Fund and administrator of the Portfolio. Under Eaton Vance's management contract
with the Fund and administration agreement with the Portfolio, Eaton Vance
receives a monthly management fee from the Fund and a monthly administration fee
from the Portfolio. Each fee is computed by applying the annual asset rate
applicable to that portion of the average daily net assets of the Fund or the
Portfolio throughout the month in each Category as indicated below:
<TABLE>
<CAPTION>
ANNUAL
CATEGORY AVERAGE DAILY NET ASSETS ASSET RATE
- -------- --------------------------------------------------------- ----------
<C> <S> <C>
1 less than $500 million................................... 0.25%
2 $500 million but less than $1 billion.................... 0.23333
3 $1 billion but less than $1.5 billion.................... 0.21667
4 $1.5 billion but less than $2 billion.................... 0.20
5 $2 billion but less than $3 billion...................... 0.18333
6 $3 billion and over...................................... 0.16667
</TABLE>
For the administration and the management fees that the Portfolio and the
Fund paid to Eaton Vance, see "Fees and Expenses" in Part II of this Statement
of Additional Information.
Eaton Vance's management contract with the Fund will remain in effect until
February 28, 1996, and its administration agreement with the Portfolio will
remain in effect until February 28, 1996. Each
12
<PAGE> 44
agreement may be continued from year to year after such date, respectively, so
long as such continuance is approved annually by the vote of a majority of the
Trustees of the Trust or the Portfolio, as the case may be. Each agreement may
be terminated at any time without penalty on sixty days' written notice by the
Board of Trustees of either party thereto, or by a vote of a majority of the
outstanding voting securities of the Fund or the Portfolio, as the case may be.
Each agreement will terminate automatically in the event of its assignment. Each
agreement provides that, in the absence of Eaton Vance's willful misfeasance,
bad faith, gross negligence or reckless disregard of its obligations or duties
to the Fund or the Portfolio under such contract or agreement, Eaton Vance will
not be liable to the Fund or the Portfolio for any loss incurred. Each agreement
was initially approved by the Trustees, including the non-interested Trustees,
of the Trust or the Portfolio which is a party thereto at meetings held on
February 23, 1994 of the Trust and the Portfolio.
The Fund and the Portfolio, as the case may be, will each be responsible
for all of its respective costs and expenses not expressly stated to be payable
by the Adviser under the investment advisory agreement, by Eaton Vance under the
management contract or the administration agreement, or by EVD under the
distribution agreement. Such costs and expenses to be borne by each of the Fund
or the Portfolio, as the case may be, include, without limitation: custody and
transfer agency fees and expenses, including those incurred for determining net
asset value and keeping accounting books and records; expenses of pricing and
valuation services; the cost of share certificates; membership dues in
investment company organizations; brokerage commissions and fees; fees and
expenses of registering under the securities laws; expenses of reports to
shareholders and investors; proxy statements, and other expenses of
shareholders' or investors' meetings; insurance premiums, printing and mailing
expenses; interest, taxes and corporate fees; legal and accounting expenses;
compensation and expenses of Trustees not affiliated with Eaton Vance or the
Adviser; distribution and service fees payable by the Fund under its Rule 12b-1
distribution plan; and investment advisory, management and administration fees.
The Fund and the Portfolio, as the case may be, will also each bear expenses
incurred in connection with litigation in which the Fund or the Portfolio, as
the case may be, is a party and any legal obligation to indemnify its respective
officers and Trustees with respect thereto.
Eaton Vance and EV are both wholly-owned subsidiaries of EVC. BMR is a
wholly-owned subsidiary of Eaton Vance. Eaton Vance and BMR are both
Massachusetts business trusts, and EV is the trustee of Eaton Vance and BMR. 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, Eaton Vance, BMR
and EV. All of the issued and outstanding shares of Eaton Vance and of 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 December 31, 1996, the Voting Trustees of which are
Messrs. Brigham, Clay, 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 Eaton Vance and BMR 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,
Hawkes and Otis, who are officers or Trustees of the Trust, are members of the
EVC, Eaton Vance, BMR and EV organizations. Messrs. Kiely, O'Connor, Otis,
Austin, Miller, Ms. Sanders and Murphy, are officers of the Trust, and are also
members of the Eaton Vance, BMR and EV organizations. Eaton Vance will receive
the fees paid under the management agreement and its wholly-owned subsidiary,
Eaton Vance Distributors, Inc., as Principal Underwriter, will receive its
portion of the sales charge on shares of the Fund sold through investment
dealers.
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 77.3% of the stock of Investors
Bank & Trust Company, the 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
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<PAGE> 45
management. EVC owns all the stock of Fulcrum Management, Inc. and MinVen, Inc.,
which are engaged in the development of precious metal properties. EVC also owns
2% of the A shares and 20% of the Preferred Shares issued by the parent of the
Adviser. EVC, Eaton Vance, BMR and EV may also enter into other businesses.
EVC and its affiliates and its 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 will not be influenced by existing
or potential custodial or other relationships between the Fund 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 of the Fund
and all securities of the Portfolio purchased in the United States, maintains
the Fund's and the Portfolio's general ledger and computes the Fund's and the
Portfolio's respective daily per share net asset value. In such capacities IBT
attends to details in connection with the sale, exchange, substitution, transfer
or other dealings with the Fund's and the Portfolio's respective investments,
receives and disburses all funds, and performs various other ministerial duties
upon receipt of proper instructions from the Fund and the Portfolio,
respectively.
Portfolio securities, if any, purchased by the Portfolio in the U.S. are
maintained in the custody of IBT or of other domestic banks or depositories.
Portfolio securities purchased outside of the U.S. are maintained in the custody
of foreign banks and trust companies that are members of IBT's Global Custody
Network, or foreign depositories used by such foreign banks and trust companies.
Each of the domestic and foreign custodial institutions holding portfolio
securities has been approved by the Board of Trustees of the Portfolio in
accordance with regulations under the 1940 Act.
IBT charges fees which are competitive within the industry. These fees for
the Portfolio relate to, (1) custody services based upon a percentage of the
market values of Portfolio securities; (2) bookkeeping and valuation services
provided at an annual rate; (3) activity charges, primarily the result of the
number of portfolio transactions; and (4) reimbursement of out-of-pocket
expenses. These fees are then reduced by a credit for cash balances of the
Portfolio at the custodian equal to 75% of the 91-day U.S. Treasury Bill auction
rate applied to the Portfolio's average daily collected balances. The portion of
the fee for the Fund related to bookkeeping and pricing services is based upon a
percentage of the Fund's net assets and the portion of the fee related to
financial statement preparation is a fixed amount.
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 the additional
examinations by the Portfolio's independent certified public accountants as
called for by such Rule.
For the custody fees that the Portfolio and 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 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 current 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
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<PAGE> 46
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 Fund's
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 Fund and Portfolio will be closed for business and will not price their
shares 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.
The Trustees of the Portfolio have established the following procedures for
the valuation of the Portfolio's assets. Marketable securities listed on foreign
or U.S. securities exchanges or in the NASDAQ National Market System are valued
at closing sale prices or, if there were no sales, at the mean between the
closing bid and asked prices therefor on the exchange where such securities are
principally traded or such System. Unlisted or listed securities for which
closing sale prices are not available are valued at the mean between the latest
bid and asked prices. An option is valued at the last sale price as quoted on
the principal exchange or board of trade on which such option or contract is
traded, or in the absence of a sale, the mean between the last bid and asked
price. Futures positions on securities or currencies are generally valued at
closing settlement prices. All other securities are valued at fair value as
determined in good faith by or pursuant to procedures established by the
Trustees.
Short-term debt securities with a remaining maturity of 60 days or less are
valued at amortized cost. If securities were acquired with a remaining maturity
of more than 60 days, their amortized cost value will be based on their value on
the sixty-first day prior to maturity. Other fixed income and debt securities,
including listed securities and securities for which price quotations are
available, will normally be valued on the basis of valuations furnished by a
pricing service.
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 as of the close of regular trading on the
Exchange. 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, effective for that day, which represents that investor's share of
the aggregate interests in the Portfolio. Any additions or withdrawals, which
are to be effected on that day, will then be effected. The investor's percentage
of the aggregate interests in the Portfolio will then be recomputed as the
percentage equal to the fraction (i) the numerator of which is the value of such
investor's investment in the Portfolio as of the close of regular trading on the
Exchange (normally 4:00 p.m., New York time), on such day plus or minus, as the
case may be, that amount of any additions to or withdrawals from the investor's
investment in the Portfolio effected on such day, and (ii) the denominator of
which is the aggregate net asset value of the Portfolio as of the close of such
trading on such 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 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.
Generally, trading in the foreign securities owned by the Portfolio is
substantially completed each day at various times prior to the close of the
Exchange. The values of these securities used in determining the net asset value
of the Portfolio's shares are computed as of such times. Occasionally, events
affecting the value of foreign securities may occur between such times and the
close of the Exchange which will not be reflected in the computation of the
Portfolio's net asset value (unless the Portfolio deems that such events would
materially affect its net asset value, in which case an adjustment would be made
and reflected in such computation). Foreign securities and currency held by the
Portfolio will be valued in U.S. dollars; such values will be computed by the
custodian based on foreign currency exchange rate quotations supplied by Reuters
Information Service.
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<PAGE> 47
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 distributions paid and
reinvested) for the stated period and annualizing the result. The calculation
assumes that all distributions are reinvested at net asset value on the
reinvestment dates during the period. For information concerning the total
return of the Fund, see "Performance Information" in Part II of this Statement
of Additional Information.
The Fund's total return may be compared to the Consumer Price Index and
various domestic and foreign securities indices, for example: Standard & Poor's
Index of 400 Common Stocks, Standard & Poor's Index of 500 Common Stocks,
Merrill Lynch U.S. Treasury (15-year plus) Index, Lehman Brothers
Government/Corporate Bond Index, the Dow Jones Industrial Average, Morgan
Stanley Pacific (Excluding Japan) Hang Seng, and FT Pacific (Excluding Japan).
The Fund's total return 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 the 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 allocation and holdings of
investments in the Portfolio may be included in advertisements and other
material furnished to present and prospective shareholders.
From time to time, evaluations of the Fund's performance made by
independent sources, such as Lipper Analytical Services, Inc., CDA/Weisenberger
and Morningstar, Inc. 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 the other investment
companies.
Information used in advertisements and materials furnished to present or
prospective shareholders may include examples and performance illustrations of
the cumulative change in various levels of investments in the Fund for various
periods of time and at various prices per share. Such examples and illustrations
may assume that all dividends and capital gain distributions are reinvested in
additional shares and may also show separately the value of shares acquired from
such reinvestments as well as the total value of all shares acquired for such
investments and reinvestments. Such information may also 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, charts and illustrations relating to the Fund's
investment performance, see "Performance Information" in Part II of this
Statement of Additional Information.
TAXES
See also "Distributions and Taxes" in the Fund's current prospectus.
The Fund, as a series of a Massachusetts business trust, will be treated as
a separate entity for accounting and tax purposes. The Fund intends to elect to
be treated, and to qualify each year as a regulated investment company ("RIC")
under 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
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<PAGE> 48
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. 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, each investor's distributive
share of the Portfolio's net investment income, net realized capital gains, and
any other items of income, gain, loss, deduction or credit. 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 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,
after reduction by any available capital loss carryforwards, and 100% of any
income and capital gains from the prior year (as previously computed) that was
not paid out during such year and on which the Fund was not taxed. Further,
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, corporate excise or franchise tax in the Commonwealth of Massachusetts.
Foreign exchange gains and losses realized by the Portfolio and allocated
to the Fund in connection with the Portfolio's investments in foreign securities
and certain options, futures or forward contracts or foreign currency may be
treated as ordinary income and losses under special tax rules. Certain options,
futures or forward contracts of the Portfolio may be required to be marked to
market (i.e., treated as if closed out) on the last day of each taxable year,
and any gain or loss realized with respect to these contracts may be required to
be treated as 60% long-term and 40% short-term gain or loss. Positions of the
Portfolio in securities and offsetting options, futures or forward contracts may
be treated as "straddles" and be subject to other special rules that may, upon
allocation of the Portfolio's income, gain or loss to the Fund, affect the
amount, timing and character of the Fund's distributions to shareholders.
Certain uses of foreign currency and foreign currency derivatives such as
options, futures, forward contracts and swaps and investment by the Portfolio in
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.
The Portfolio anticipates that it will be subject to foreign taxes on its
income (including, in some cases, capital gains) from foreign securities. Tax
conventions between certain countries and the U.S. may reduce or eliminate such
taxes. If more than 50% 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 consists of stock or securities of foreign corporations, the
Fund may file an election with the Internal Revenue Service pursuant to which
shareholders of the Fund will be required to (i) include in ordinary gross
income (in addition to taxable dividends actually received) their pro rata
shares of foreign income taxes paid by the Portfolio and allocated to the Fund
even though not actually received, and (ii) treat such respective pro rata
portions as foreign income taxes paid by them. Shareholders may then deduct such
pro rata portions of foreign income taxes in computing their taxable incomes,
or, alternatively, use them as foreign tax credits, subject to applicable
limitations, against their U.S. income taxes. Shareholders who do not itemize
deductions for Federal income tax purposes will not, however, be able to deduct
their pro rata portion of foreign taxes deemed paid by the Fund, although such
shareholders will be required to include their shares of such taxes in gross
income. Shareholders who claim a foreign tax credit for such foreign taxes may
be required to treat a portion of dividends received from the Fund as a separate
category of income for purposes of computing the limitations on the foreign tax
credit. Tax-exempt shareholders will ordinarily not benefit from this election.
Each year that the Fund files the election described above, its shareholders
will be notified of the amount of (i) each shareholder's pro rata share of
foreign income taxes paid by the Portfolio and allocated to the Fund
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<PAGE> 49
and (ii) the portion of Fund dividends which represents income from each foreign
country. If the Fund does not make this election, it may deduct its allocated
share of such taxes in computing its investment company taxable income.
The Portfolio will allocate at least annually to the Fund and its other
investors their respective distributive shares of any net investment income and
net capital gains which have been recognized for Federal income tax purposes
(including unrealized gains at the end of the Portfolio's fiscal year on certain
options and futures transactions that are required to be marked-to-market). Such
amounts will be distributed by the Fund to its shareholders in cash or
additional shares, as they elect. Shareholders of the Fund will be advised of
the nature of the distributions.
Distributions by the Fund of the excess of net long-term capital gains over
net short-term capital losses earned by the Portfolio and allocated to the Fund,
taking into account any capital loss carryforwards that may be available to the
Fund in years after its first taxable year, are taxable to shareholders of the
Fund as long-term capital gains, whether received in cash or in additional
shares and regardless of the length of time their shares have been held. Certain
distributions declared in October, November or December and paid the following
January will be taxed to shareholders as if received on December 31 of the year
in which they are declared.
Any loss realized upon the redemption or exchange of shares 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. All or a portion of a loss realized upon a taxable disposition of
Fund shares may be disallowed under "wash sale" rules if other Fund shares are
purchased (whether through reinvestment of dividends or otherwise) within 30
days before or after the 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 Fund will not be subject to Massachusetts income, corporate excise or
franchise taxation as long as it qualifies as a RIC under the Code.
Special tax rules apply to Individual Retirement Accounts ("IRAs") and
shareholders investing through IRAs 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 describe many of the tax rules applicable
to IRAs nor does it address the special tax rules applicable to certain other
classes of investors, such as other retirement plans, tax-exempt entities,
insurance companies and financial institutions. Shareholders should consult
their own tax advisers with respect to these or other 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.
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<PAGE> 50
PORTFOLIO SECURITY TRANSACTIONS
Decisions concerning the execution of portfolio security transactions by
the Portfolio, including the selection of the market and the broker-dealer firm,
are made by the Adviser.
The Adviser places the portfolio security transactions of the Portfolio and
of certain other accounts managed by the Adviser for execution with many
broker-dealer firms. The Adviser uses its best efforts to obtain execution of
portfolio 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, the Adviser 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 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 transactions will, in the judgment of the Adviser, 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 the Adviser's other
clients in part for providing brokerage and research services to the Adviser.
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 the
Adviser 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 the Adviser and its affiliates have for
accounts over which they exercise investment discretion. In making any such
determination, the Adviser 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-dealers
which execute portfolio transactions for the clients of such advisers and from
third parties with which such broker-dealers have arrangements. Consistent with
this practice, the Adviser may receive Research Services from broker-dealer
firms with which the Adviser places the portfolio transactions of the Portfolio
and from third parties with which these broker-dealers have arrangements. These
Research Services may 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 the Adviser in connection with client
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<PAGE> 51
accounts other than those accounts which pay commissions to such broker-dealer.
Any such Research Service may be broadly useful and of value to the Adviser 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 the Adviser receives such Research Services. The Adviser
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 the
Adviser believes are useful or of value to it in rendering investment advisory
services to its clients.
Subject to the requirement that the Adviser shall use its best efforts to
seek to execute portfolio security transactions of the Portfolio at advantageous
prices and at reasonably competitive commission rates or spreads, the Adviser 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 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 the Adviser or its
affiliates. The Adviser will attempt to allocate equitably portfolio
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 Portfolio that the benefits available from
the Adviser's organization outweigh any disadvantage that may arise from
exposure to simultaneous transactions. For the brokerage commissions paid by the
Portfolio on portfolio transactions, see "Fees and Expenses" in Part II of this
Statement of Additional Information.
OTHER INFORMATION
On July 21, 1992, the Trust changed its name from Eaton Vance Special
Equities Fund to Eaton Vance Special Investment Trust. The Trust is organized as
a business trust under the laws of the Commonwealth of Massachusetts under a
Declaration of Trust dated March 27, 1989, as amended. The Trust is the
successor to a corporation which commenced offering its shares to the public in
April, 1968. The Trust changed its name from Eaton & Howard Growth Fund, Inc. on
September 24, 1982. Eaton Vance, pursuant to its agreement with the Trust,
controls the use of the words "Eaton Vance" in the Trust's name and may use the
words "Eaton Vance" in other connections and for other purposes.
The Trust's 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
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<PAGE> 52
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. 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. The By-Laws also provide that the Trustees shall 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
percentum 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 shareholder's 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 Trust's By-Laws provide that no person shall serve a Trustee if
shareholders holding two-thirds of the outstanding shares have removed him from
that office either by a written declaration filed with the Trust's custodian or
by votes cast at a meeting called for that purpose. The By-Laws also provide
that the Trustees shall promptly call a meeting of shareholders for the purpose
of voting upon a question of removal of any such Trustee or Trustees when
requested so to do by the record holders of not less than 10 percentum of the
outstanding shares. The By-Laws further provide that under certain circumstances
the shareholders may call a meeting to remove a Trustee and that the Trust is
required to provide assistance in communicating with shareholders about such a
meeting.
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 right to redeem can be suspended and the payment of the redemption
price deferred when the Exchange is closed (other than for customary weekend and
holiday closings), during periods when trading on the Exchange is restricted as
determined by the Securities and Exchange 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.
21
<PAGE> 53
INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Deloitte & Touche LLP, 125 Summer Street, Boston, Massachusetts, are the
independent certified public 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.
For the financial statements of the Fund and the Portfolio see "Financial
Statements" in Part II of this Statement of Additional Information.
22
<PAGE> 54
APPENDIX A
COUNTRY INFORMATION
The country specific information set forth in this Statement of Additional
Information and the Prospectus is based on various publicly available sources.
The Fund, the Portfolio and their respective Boards of Trustees make no
representation as to the accuracy of the information and have made no attempt to
verify it. Furthermore, no representation is made that any correlation exists or
will exist between the countries discussed or their economies in general and the
performance of the Portfolio.
INDIA
India's Parliament consists of the Lok Sabha (House of the People) and the
Rajya Sabha (Council of States). The Lok Sabha is elected directly by universal
suffrage for a period of five years while the Rajya Sabha comprises members
indirectly elected by the States and Union Territories for a six-year term and
members nominated by the President of India.
The President of India is the constitutional head of the executive branch
of government and exercises powers under the Constitution with the advice of the
Council of Ministers, headed by the Prime Minister. The Prime Minister and the
Council of Ministers, who are responsible to the Lok Sabha, hold effective
executive power. The present Prime Minister is Mr. Narasimha Rao, who leads the
Congress Party. The Congress Party holds a slim majority of seats in the Lok
Sabha. The Bhartiya Janata Party holds the next largest number, accounting for a
approximately 20%. The Congress Party lost 3 out of the 4 state legislature
elections held in 1994.
India comprises 7 Union Territories and 25 States. Each state has a
governor, a council of ministers and a Legislature. The Union Territories are
administered by the central government in New Delhi. There is a general system
of local government throughout the country.
The Judiciary consists of the Supreme Court of India, located at New Delhi,
and High Courts located in each State. The Judiciary is independent of the
Executive and the Legislature. The Supreme Court is vested with powers to
determine disputes between the Union Territories and the States or between
States, to enforce fundamental rights and to act as the guardian of the
Constitution. All judges of the Supreme Court and High Courts are appointed by
the President of India. The Constitution provides that the judges cannot be
removed from office unless impeached by both Houses of Parliament.
The government of Mr. Narasimha Rao which took office in June 1991 has been
supported by consensus among the other main political parties that structural
changes in the economic system were required. With a rising oil import bill,
adverse balance of payments and a large foreign debt, India had reached a
position where it was unable to obtain further commercial borrowings. In July
1991 the Finance Minister, Dr. Manmohan Singh, presented his first budget and
announced a new industrial policy. In consequence, for many industrial sectors,
it became no longer necessary to obtain government approval for new investments.
Foreign companies could now hold up to 51% of an Indian company as opposed to
40% previously.
The process of liberalization was taken further with the budget of February
1992 when the Rupee was made partially convertible and import tariffs were
reduced. Personal tax rates were brought down. The office of the Controller of
Capital Issues which had determined the pricing of shares issued by companies
was abolished.
The Finance Minister has presented the budget for 1995 which has further
rationalized indirect taxes by reducing excise duties on a variety of items and
slashing peak import tariffs from 65% to 50%. However, outlay on welfare
measures has been increased and no further tax cuts have been announced for the
corporate sector.
23
<PAGE> 55
PAKISTAN
Pakistan, occupying an area of about 800,000 square kilometers, is bounded
in the south by the Arabian Sea and India and in the north by China and
Afghanistan. To the west and northwest are Iran and Afghanistan and to the east
is India. The capital is Islamabad. Karachi is the biggest commercial and
industrial city.
Pakistan is the world's ninth most populous country. The population is
currently estimated at approximately 130 million, with an annual population
growth rate of 3.0%. The national language is Urdu, although English is widely
spoken and understood throughout the country.
Pakistan was created in 1947, in response to the demands of Indian Muslims
for an independent homeland, by the partition from British India of two Muslim
majority areas. In 1971, a civil war in East Pakistan culminated in independence
for East Pakistan (now Bangladesh). Over the past 46 years, Pakistan and India
have gone to war three times, and intermittent border exchanges occur at times.
In particular, relations with India remain unfriendly over the disputed
territory of Kashmir, with its majority Muslim population.
Pakistan has a federal parliamentary system in which its provinces enjoy
considerable autonomy. The head of state is the President, who has certain
important executive powers but is generally required by the Constitution to act
on the advice of the Prime Minister. The President is elected for a period of
five years by the members of the National Assembly, the Senate and the four
provincial assemblies. The Prime Minister may remain in office as long as he or
she has the support of the National Assembly but not beyond the five-year term
of Parliament. The Prime Minister is currently Ms. Benazir Bhutto, of the
Pakistan Peoples Party.
Ms. Bhutto was preceded as Prime Minister by Mr. Moeen Qureshi, who was
named to head an interim government until a new government could be elected
following the resignations of the Prime Minister and President in July 1993.
Instead of acting as a caretaker for the term of the interim government, Mr.
Qureshi instituted a number of significant policies designed to reform
Pakistan's economy, including new taxes on large landowners, increased utility
tariffs, reduced import duties, increased autonomy of the State Bank of Pakistan
and devaluation of Pakistan's currency to make exports more competitive.
Although Ms. Bhutto's government has continued the implementation of many of the
reforms adopted by the interim government, the permanence of these reforms
depends on the political success and constancy of the new government, as to
which there can be no assurance.
Recent violence and political unrest have made Pakistan a less attractive
investment destination.
OVERVIEW OF THE ECONOMY AND RECENT DEVELOPMENTS
Economic development since 1955 has taken place within the framework of
successive five-year plans which established growth targets and allocations of
public sector investment. In addition, annual development plans are prepared
indicating yearly allocation of investment and the program for economic
development in the public and private sectors.
For most of the 1980's, the Pakistani economy showed strong growth, with
GDP increasing at over 6% per annum. Over the past decade, despite a rapid
increase in the labor force, real wages in both rural and urban areas rose
substantially. However, the latter part of the decade was characterized by
increasing fiscal and external deficits, infrastructure deficiencies and
disruptions in production. In 1989, the government initiated a three year
structural adjustment program with the assistance of the International Monetary
Fund. The program sought to redress the growing macroeconomic imbalances
resulting from the large fiscal deficits and to increase productivity through
major structural reforms in the industrial and financial sectors.
The government of Pakistan has been heavily involved in the economy through
ownership of financial and industrial enterprises, investment policies and
incentives, and taxation programs established in the five-year economic plans.
Recent governments, however, have announced various liberalization measures,
including banking reforms and a number of measures designed to encourage the
private sector.
24
<PAGE> 56
In February 1991, the government announced a twenty-five point
liberalization and reform package. In particular, no approval would be required
for the issue and transfer of shares and the issue of capital by companies in
all but a few specified industries, and Pakistanis residing overseas and foreign
investors would be permitted to purchase listed shares and to transfer capital
and dividends without approval. The government has also embarked on a major
privatization program and, as of July 1994, a large number of public sector
entities have been offered for sale.
In 1992 and 1993, the rate of growth of approximately 6% attained in
previous years was interrupted, with estimated GDP growth of 3%. The lower
growth rate is mainly owing to a decline of 3.9% in agricultural output due to
heavy rains that caused damaging floods. During the 1994 summer, there has also
been torrential rains and flooding, and crop damage. In 1994, Pakistan's
established GDP growth was approximately 4%. The Government has recently
downgraded its projection for economic growth for 1994-1995 from 6.9% to 5.3%
attributing it to a poor cotton crop.
SRI LANKA
Sri Lanka, historically known as Ceylon, is an island of about 65,000
square kilometers, situated off the southeast coast of India. It has a
relatively well-educated population, with nearly 25% of the 17 million Sri
Lankans speaking English and a literacy rate (in Sinhalese and Tamil) of nearly
90%.
A former British colony, Ceylon became an independent Commonwealth in 1948
and became the Democratic Socialist Republic of Sri Lanka in 1972. Sri Lanka is
governed by a popularly elected President and unicameral Parliament.
In the parliamentary elections held in August 1994, the People's Alliance
led by Mrs. Chandrika Kumaratunga managed to form the government ending the
17-year regime of the United National Party. The People's Alliance has further
consolidated its position by the victory of Mrs. Chandrika Kumaratunga in the
presidential elections held in November 1994. The new government has accorded
top priority for settling the ethnic conflict with the Tamils in the north and
has initiated peace talks with the LTTE. Pending settlement of the dispute, a
ceasefire has been announced.
OVERVIEW OF THE ECONOMY AND RECENT DEVELOPMENTS
The Sri Lankan government recently has reviewed and revised laws,
regulations and procedures to promote a competitive business environment, remove
distortions, and reduce unnecessary government regulation. The government has
liberalized trade and encourages private ownership, including foreign
investment. Laws pertaining to tax, labor standards, customs and environmental
norms have been designed to attract more investment. There are now few exchange
controls, a fairly stable currency, and many incentives for private investors.
With guidance from the World Bank, IMF and U.S. advisers, government enterprises
are being privatized, financial services liberalized, manufacturing for exports
encouraged, a stock exchange formed, and foreign investment actively sought.
About eighty percent of the land in Sri Lanka is still owned by the government,
including most tea, rubber and coconut plantations. The government did privatize
the management of these estates recently, however.
Sri Lanka's economy is primarily agricultural, but the manufacturing and
service sectors have grown greatly in the past decade, partly in response to the
Sri Lankan government's efforts to diversify and liberalize its economy. In 1991
gross foreign exchange earnings from apparel exports exceeded earnings from the
entire agricultural sector (tea, rubber and coconut) for the first time.
The financial system is reasonably sophisticated, and basic legislation for
private corporations is in place. Commercial banks are the principal source of
finance. However, the increase in net government borrowing (because of budget
deficits) has reduced credit to the private sector. Inflation, which was about
21 percent in 1990, has come down to approximately 10-11%, but remains a
concern.
Sri Lanka is actively working to improve its basic infrastructure. A $500
million expansion of the telecommunications network has begun. The Colombo
container port -- the 25th busiest in the world -- is expected to increase its
capacity soon, and new dry dock services are under construction.
25
<PAGE> 57
The economic statement announced by the new government in January 1995
attempts a careful balance between the compulsions for welfare measures and the
need for attracting fresh investments. The privatization program is scheduled to
continue with the private sector given a major role in infrastructure
development. The new government has also presented its maiden budget in February
1995 in which it has tried to do a delicate balancing act between an extensive
array of consumer subsidies on wheat, diesel and fertilizers with a steep cut in
import tariffs on consumer goods.
26
<PAGE> 58
APPENDIX B
DESCRIPTION OF SECURITIES RATINGS+
DESCRIPTION OF MOODY'S INVESTORS SERVICE, INC.'S CORPORATE BOND RATINGS:
AAA: Bonds which are rated Aaa are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as
"gilt-edge". Interest payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various protective elements are
likely to change, such changes as can be visualized are most unlikely to impair
the fundamentally strong position of such issues.
AA: Bonds which are rated Aa are judged to be of high quality by all standards.
Together with the Aaa group they comprise what are generally known as high grade
bonds. They are rated lower than the best bonds because margins of protection
may not be as large as in Aaa securities or fluctuation of protective elements
may be of greater amplitude or there may be other elements present which make
the long-term risks appear somewhat larger than in Aaa securities.
A: Bonds which are rated A possess many favorable investment attributes and are
to be considered as upper medium grade obligations. Factors giving security to
principal and interest are considered adequate, but elements may be present
which suggest a susceptibility to impairment sometime in the future.
SECURITIES IN WHICH THE PORTFOLIO MAY INVEST WILL INCLUDE THOSE IN THE FOLLOWING
CATEGORIES:
BAA: Bonds which are rated Baa are considered as medium grade obligations, i.e.,
they are neither highly protected nor poorly secured. Interest payments and
principal security appear adequate for the present, but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
BA: Bonds which are Ba are judged to have speculative elements; their future
cannot be considered as well assured. Often the protection of interest and
principal payments may be very moderate and thereby not well safeguarded during
both good and bad times over the future. Uncertainty of position characterizes
bonds in this class.
B: Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
CAA: Bonds which are rated Caa are of poor standing. Such issue may be in
default or there may be present elements of danger with respect to principal or
interest.
CA: Bonds which are rated Ca represent obligations which are speculative in a
high degree. Such issues are often in default or have other marked shortcomings.
C: Bonds which are rated C are the lowest rated class of bonds and issues so
rated can be regarded as having extremely poor prospects of event attaining any
real investment standing.
NOTE: Moody's applies numerical modifiers, 1, 2 and 3 in each generic rating
classification from Aa through B in its corporate bond rating system. The
modifier 1 indicates that the security ranks in the higher end of its generic
rating category; the modifier 2 indicates a mid-range ranking; and the modifier
3 indicates that the issue ranks in the lower end of its generic rating
category.
DESCRIPTION OF STANDARD & POOR'S RATINGS GROUP CORPORATE BOND RATINGS:
INVESTMENT GRADE
AAA: Bonds rated AAA have the highest rating assigned by Standard & Poor's to a
debt obligation. Capacity to pay interest and repay principal is extremely
strong.
- ---------------
(+) Investors should note that the assignment of a rating to a bond by a rating
service may not reflect the effect of recent developments on the issuer's
ability to make interest and principal payments.
27
<PAGE> 59
AA: Bonds rated AA have a very strong capacity to pay interest and repay
principal and differ from the higher rated issues only in small degree.
A: Bonds rated A have a strong capacity to pay interest and repay principal
although they are somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than bonds in higher rated categories.
SECURITIES IN WHICH THE PORTFOLIO MAY INVEST WILL INCLUDE THOSE IN THE FOLLOWING
CATEGORIES:
BBB: Bonds rated BBB are regarded as having an adequate capacity to pay interest
and repay principal. Whereas they normally exhibit adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
bonds in this category than for bonds in higher rated categories.
SPECULATIVE GRADE
Debt rated 'BB', 'B', 'CCC', 'CC' and 'C' is regarded, on balance, as
predominantly speculative with respect to capacity to pay interest and repay
principal in accordance with the terms of the obligation. 'BB' indicates the
lowest degree of speculation and 'C' the highest degree of speculation. While
such debt will likely have some quality and protective characteristics, these
are outweighed by large uncertainties or major risk exposures to adverse
conditions.
BB: Debt rated BB has less near-term vulnerability to default than other
speculative issues. However, it faces major ongoing uncertainties or exposure to
adverse business, financial, or economic conditions which could lead to
inadequate capacity to meet timely interest and principal payments. The BB
rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied BBB- rating.
B: Debt rated B has a greater vulnerability to default but currently has the
capacity to meet interest payments and principal repayments. Adverse business,
financial, or economic conditions will likely impair capacity or willingness to
pay interest and repay principal.
The B rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied BB or BB- rating.
CCC: Debt rated CCC has a currently identifiable vulnerability to default, and
is dependent upon favorable business, financial, and economic conditions to meet
timely payment of interest and repayment of principal. In the event of adverse
business, financial, or economic conditions, it is not likely to have the
capacity to pay interest and repay principal.
The CCC rating category is also used for debt subordinated to senior debt that
is assigned an actual or implied B or B- rating.
CC: The rating CC is typically applied to debt subordinated to senior debt which
is assigned an actual or implied CCC debt rating.
C: The rating C is typically applied to debt subordinated to senior debt which
is assigned an actual or implied CCC- debt rating. The C rating may be used to
cover a situation where a bankruptcy petition has been filed, but debt service
payments are continued.
C1: The Rating C1 reserved for income bonds on which no interest is being paid.
D: Debt rated D is in payment default. The D rating category is used when
interest payments or principal payments are not made on the date due even if the
applicable grace period has not expired, unless Standard & Poor's believes that
such payments will be made during such grace period. The D rating also will be
used upon the filing of a bankruptcy petition if debt service payments are
jeopardized.
PLUS (+) OR MINUS (-): The ratings from AA to CCC may be modified by the
addition of a plus or minus sign to show relative standing within the major
rating categories.
NR: Bonds may lack a Standard & Poor's rating because no public rating has been
requested, because there is insufficient information on which to base a rating,
or because Standard & Poor's does not rate a particular type of obligation as a
matter of policy.
NOTES: Bonds which are unrated expose the investor to risks with respect to
capacity to pay interest or repay principal which are similar to the risks of
lower-rated speculative obligations. The Portfolio is dependent on the
Investment Adviser's judgment, analysis and experience in the evaluation of such
bonds.
28
<PAGE> 60
STATEMENT OF ADDITIONAL INFORMATION
PART II
This Part II provides information about EV MARATHON GREATER INDIA FUND. The
Fund became a series of the Trust on January 20, 1994.
FEES AND EXPENSES
ADVISER
As of December 31, 1994, the Portfolio had net assets of $56,853,590. For
the period from the start of business, May 2, 1994, to December 31, 1994, the
Adviser earned advisory fees of $197,675 (equivalent to 0.75% (annualized) of
the Portfolio's average daily net assets for such period).
MANAGER AND ADMINISTRATOR
As of December 31, 1994, the Fund had net assets of $38,924,595. For the
period from the start of business, May 2, 1994, to December 31, 1994, Eaton
Vance earned management fees of $45,072 (equivalent to 0.25% (annualized) of the
Fund's average daily net assets for such period). As of December 31, 1994, the
Portfolio had net assets of $56,853,590. For the period from the start of
business, May 2, 1994, to December 31, 1994, Eaton Vance earned administration
fees of $65,898 (equivalent to 0.25% (annualized) of the Portfolio's average
daily net assets for such period).
DISTRIBUTION PLAN
For the period from the start of business, May 2, 1994, to December 31,
1994, the Fund made sales commission payments to the Principal Underwriter under
the Plan aggregating $135,217, which amount was used by the Principal
Underwriter to defray sales commissions aggregating $5,098 paid during such
period by the Principal Underwriter to Authorized Firms on sales of Fund shares
and to reduce Uncovered Distribution Charges. During such period, contingent
deferred sales charges aggregating approximately $44,400 were imposed on early
redeeming shareholders and paid to the Principal Underwriter, which amount was
used by the Principal Underwriter to defray sales commissions and to reduce the
outstanding Uncovered Distribution Charges. As of December 31, 1994, the
outstanding Uncovered Distribution Charges of the Principal Underwriter
calculated under the Plan amounted to approximately $1,843,000 (which amount was
equivalent to 4.7% of the Fund's net assets on such day). For the period from
the start of business, May 2, 1994, to December 31, 1994, the Fund made no
service fee payments under the Plan. The Fund expects to begin making service
fee payments during the quarter ending June 30, 1995.
PRINCIPAL UNDERWRITER
For the period from the start of business, May 2, 1994, to December 31,
1994, the Fund paid the Principal Underwriter $342.50 for repurchase
transactions handled by the Principal Underwriter (being $2.50 for each such
transaction).
CUSTODIAN
For the period from the start of business, May 2, 1994, to December 31,
1994, the Portfolio paid IBT $18,587. For the period from the start of business,
May 2, 1994, to December 31, 1994, the Fund paid IBT $2,920.
BROKERAGE
For the period from the start of business, May 2, 1994, to December 31,
1994, the Portfolio paid brokerage commissions of $374,604 with respect to
portfolio securities transactions. Of the total brokerage commissions paid,
approximately $360,358 was paid in respect of portfolio security transactions
aggregating approximately $34,051,047 to firms which provided some Research
Services to the Adviser's organization (although many such firms may have been
selected in any particular transaction primarily because of their execution
capabilities).
a-1
<PAGE> 61
<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 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(1):
<CAPTION>
AGGREGATE
AGGREGATE COMPENSATION RETIREMENT TOTAL COMPENSATION
COMPENSATION FROM BENEFIT ACCRUED FROM TRUST
NAME FROM FUND PORTFOLIO FROM FUND COMPLEX AND FUND COMPLEX
---- ------------- ------------- ------------------ -------------------
<S> <C> <C> <C> <C>
Donald R. Dwight................ $17 $ 0 $8,750 $135,000
Samuel L. Hayes, III............ 16 2,500 8,865 142,500
Norton H. Reamer................ 16 0 0 135,000
John L. Thorndike............... 16 0 0 140,000
Jack L. Treynor 17 0 0 140,000
<FN>
- ---------------
(1) The Eaton Vance fund complex consists of 201 registered investment companies or series thereof.
</TABLE>
<TABLE>
PERFORMANCE INFORMATION
The tables below indicate 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 May 2, 1994 through December 31, 1994.
VALUE OF A $1,000 INVESTMENT
<CAPTION>
VALUE OF VALUE OF
INVESTMENT INVESTMENT
BEFORE AFTER TOTAL RETURN
INVESTMENT INVESTMENT AMOUNT OF DEDUCTING CDSC DEDUCTING CDSC** BEFORE
PERIOD DATE INVESTMENT ON 12/31/94 ON 12/31/94 DEDUCTING CDSC
---------- ---------- ---------- ---------------- ---------------- ---------------------
<S> <C> <C> <C> <C> <C>
Life of the Fund* 5/2/94 $ 1,000 $ 984.00 $ 934.00 -1.60%
<CAPTION>
TOTAL RETURN
AFTER DEDUCTING CDSC**
INVESTMENT -------------------------
PERIOD CUMULATIVE ANNUALIZED
---------- ---------- ----------
<S> <C> <C>
Life of the Fund* -6.52% --
</TABLE>
<TABLE>
PERCENTAGE CHANGES 5/2/94 - 12/31/94
<CAPTION>
NET ASSET VALUE TO NET ASSET VALUE NET ASSET VALUE TO NET ASSET VALUE
BEFORE DEDUCTING CDSC WITH ALL AFTER DEDUCTING CDSC**
DISTRIBUTIONS REINVESTED WITH ALL DISTRIBUTIONS REINVESTED
-------------------------------------------- --------------------------------------------
PERIOD ENDED ANNUAL CUMULATIVE AVERAGE ANNUAL ANNUAL CUMULATIVE AVERAGE ANNUAL
- ---------------- ------ ---------- -------------- ------ ---------- --------------
<S> <C> <C> <C> <C> <C> <C>
12/31/94* -- -1.60% -- -- -6.52% --
<FN>
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.
- ---------------
* Investment operations began May 2, 1994.
** No contingent deferred sales charge is imposed on shares purchased more than
six years prior to the redemption, shares acquired through 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>
PRINCIPAL UNDERWRITER
The Principal Underwriter is a wholly-owned subsidiary of Eaton Vance.
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 ("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
a-2
<PAGE> 62
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 reserves the right to suspend or limit the offering of
shares to the public at any time.
The Fund has authorized the Principal Underwriter to act as its agent in
repurchasing shares and will pay the Principal Underwriter $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,
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
a-3
<PAGE> 63
Underwriter and contingent deferred sales charges theretofore paid and payable
to the Principal Underwriter and all amounts theretofore paid or payable to the
Principal Underwriter by the Adviser in consideration of the former's
distribution efforts, 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
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 these payments may be
higher than the rate of payments made under distribution plans adopted by many
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 management fee payable to
Eaton Vance by the Fund and the administration fee payable to Eaton Vance 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. The Eaton Vance organization may be considered to have
realized a profit in distributing shares of the Fund if at any point in time the
aggregate amounts theretofore received by the Principal Underwriter from the
Fund pursuant to the Plan, from the Adviser in consideration of the distribution
efforts 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
shareholders and by the Board of Trustees of the Trust as required by Rule
12b-1. The Plan provides that it shall continue 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 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 the Distribution Agreement may each be
terminated at any time by vote of a
a-4
<PAGE> 64
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 Authorized Firms under the Plan would 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 40.3% 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 beneficially owns 5% or more of the
Fund's outstanding shares.
a-5
<PAGE> 65
<TABLE>
EV MARATHON GREATER INDIA FUND
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1994
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS:
Investment in South Asia Portfolio, at value (Note 1A)
(identified cost, $41,321,760) $38,785,372
Receivable for Fund shares sold 233,353
Deferred organization expenses (Note 1D) 61,142
-----------
Total assets $39,079,867
LIABILITIES:
Payable for Fund shares redeemed $ 133,760
Payable to affiliate
Custodian fees 231
Trustees' fees 42
Accrued expenses 21,239
-----------
Total liabilities 155,272
-----------
NET ASSETS for 3,955,995 shares of beneficial interest outstanding $38,924,595
===========
SOURCES OF NET ASSETS:
Paid-in capital $41,628,751
Accumulated undistributed net realized gain 89,276
Accumulated net investment loss (257,044)
Unrealized depreciation of investments from Portfolio (2,536,388)
-----------
Total $38,924,595
===========
NET ASSET VALUE, OFFERING PRICE, AND REDEMPTION PRICE (NOTE 6) PER SHARE
($38,924,595 / 3,955,995 shares of beneficial interest) $9.84
=====
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
8
<PAGE> 66
<TABLE>
STATEMENT OF OPERATIONS
For the period from the start of business, May 2, 1994, to December 31, 1994
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
INVESTMENT INCOME (Note 1B):
Dividend income allocated from Portfolio (net of foreign tax, $37,484) $ 162,400
Interest income allocated from Portfolio 41,867
Expenses allocated from Portfolio (200,048)
----------
Net investment income from Portfolio $ 4,219
Expenses -
Management fee (Note 2) $ 45,072
Compensation of Trustees not members of the Administrator's organization 83
Custodian fees (Note 2) 2,920
Distribution fees (Note 5) 135,217
Printing and postage 22,026
Transfer and dividend disbursing agent fees 19,114
Amortization of organization expenses (Note 1D) 8,858
Registration fees 3,567
Legal and accounting services 779
Miscellaneous 23,627
---------
Total expenses 261,263
----------
Net investment loss $ (257,044)
----------
Realized and Unrealized Gain (Loss) from Portfolio:
Net realized loss from investment transactions (identified cost basis) $ (7,586)
---------
Net realized gain on foreign currency transactions 96,862
---------
Net realized gain $ 89,276
Change in unrealized depreciation (2,536,388)
----------
Net realized and unrealized loss $(2,447,112)
----------
Net decrease in net assets from operations $(2,704,156)
==========
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
9
<PAGE> 67
FINANCIAL STATEMENTS (CONTINUED)
<TABLE>
STATEMENT OF CHANGES IN NET ASSETS
For the period from the start of business, May 2, 1994, to December 31, 1994
- -----------------------------------------------------------------------------------------------------------------
<S> <C>
INCREASE (DECREASE) IN NET ASSETS:
From operations -
Net investment loss $ (257,044)
Net realized gain from Portfolio 89,276
Change in unrealized depreciation from Portfolio (2,536,388)
-----------
Net decrease in net assets from operations $ (2,704,156)
-----------
Transactions in shares of beneficial interest (Note 3) -
Proceeds from sale of shares $ 45,817,041
Cost of shares redeemed (4,188,290)
-----------
Increase in net assets from Fund share transactions $ 41,628,751
-----------
Net increase in net assets $ 38,924,595
NET ASSETS:
At beginning of period --
-----------
At end of period (including net investment loss of $257,044) $ 38,924,595
===========
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
10
<PAGE> 68
<TABLE>
FINANCIAL HIGHLIGHTS
For the period from the start of business, May 2, 1994, to December 31, 1994
- -----------------------------------------------------------------------------------------------------------
<S> <C>
NET ASSET VALUE, beginning of period $ 10.000
---------
Income (Loss) From Investment Operations:
Net investment loss $ (0.065)
Net realized and unrealized loss on investments (0.095)
---------
Total loss from investment operations $ (0.160)
---------
NET ASSET VALUE, end of period $ 9.840
=========
TOTAL RETURN (2) (1.60)%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000 omitted) $ 38,925
Ratio of net expenses to average net assets (1) 2.54%+
Ratio of net investment loss to average net assets (1.42)%+
<FN>
(1) Includes the Fund's share of South Asia Portfolio's allocated expenses.
(2) Total return is calculated assuming a purchase at net asset value on the first day and a sale at
the net asset value on the last day of the period. Dividends and distributions, if any, are assumed
to be reinvested at the net asset value on the payable date.
+% Annualized
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
11
<PAGE> 69
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
(1) SIGNIFICANT ACCOUNTING POLICIES
EV Marathon Greater India Fund (the Fund) is a diversified series of Eaton
Vance Special Investment Trust (the Trust). The Trust is an 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 invests all of its investable assets in interests
in South Asia 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 (68.2% 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 - Valuation 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 determined in accordance with generally accepted
accounting principles.
C. FEDERAL TAXES - The Fund's policy is to comply with the provisions of the
Internal Revenue Code applicable to regulated investment companies and to
distribute to shareholders each year all of its net investment income, and any
net realized capital gains. Accordingly, no provision for federal income or
excise tax is necessary. At December 31, 1994, the Fund, for federal income tax
purposes had a capital loss carryover of $6,809 which will reduce the taxable
income arising from future net realized gains on investments, 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 carryover will expire on December 31, 2002.
D. DEFERRED ORGANIZATION EXPENSES - Costs incurred by the Fund in connection
with its organization, including registration costs, are being amortized on the
straight-line basis over five years.
E. DISTRIBUTIONS TO SHAREHOLDERS - It is the present policy of the Fund to make
(a) at least one distribution annually (normally in December) of all or
substantially all of the investment income allocated to the Fund by the
Portfolio, if any, less the Fund's direct and allocated expenses and (b) at
least one distribution annually of all or substantially all of the net realized
capital gains allocated by the Portfolio to the Fund, if any (reduced by any
available capital loss carryforwards from prior years). Shareholders may
reinvest all distributions in shares of the Fund without a sales charge at the
per share net asset value as of the close of business on the record 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 5).
12
<PAGE> 70
- --------------------------------------------------------------------------------
(2) MANAGEMENT FEE AND OTHER TRANSACTIONS WITH AFFILIATES
The management fee is earned by Eaton Vance Management (EVM) as compensation
for management and administration of the business affairs of the Fund. The fee
is based on a percentage of average daily net assets. For the period from the
start of business, May 2, 1994 to December 31, 1994 the fee was equivalent to
0.25% (annualized) of the Fund's average net assets for such period and
amounted to $45,072. Except as to Trustees of the Fund who are not members of
EVM's organization, officers and Trustees receive remuneration for their
services to the Fund out of such management fee. Investors Bank & Trust Company
(IBT), an affiliate of EVM, serves as custodian of the Fund. Pursuant to the
custodian agreement, IBT receives a fee reduced by credits which are determined
based on the daily average cash balances the Fund maintains with IBT. Certain
officers and Trustees of the Fund and the Portfolio are officers and
directors/trustees of the above organizations. In addition, investment adviser,
administrative fees, and custody fees are paid by the Portfolio to EVM and its
affiliates. See Note 2 of the Portfolio's Notes to Financial Statements which
are included elsewhere in this report.
- -------------------------------------------------------------------------------
(3) 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 for the period from the start of business, May 2,
1994, to December 31, 1994 were as follows:
<TABLE>
<S> <C>
Sales 4,356,983
Redemptions (400,988)
---------
Net increase 3,955,995
=========
</TABLE>
- --------------------------------------------------------------------------------
(4) INVESTMENT TRANSACTIONS
Increases and decreases in the Fund's investment in the Portfolio aggregated
$45,393,992 and $4,165,727, respectively.
13
<PAGE> 71
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
(5) 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 pay the
Principal Underwriter, Eaton Vance Distributors, Inc. (EVD) amounts equal to
1/365 of 0.75% of the Fund's daily net assets, for providing ongoing
distribution services and facilities to the Fund. The Fund will automatically
discontinue payments to EVD during any period in which there are no outstanding
Uncovered Distribution Charges, which are 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), daily amounts theretofore paid to EVD and amounts theretofore paid or
payable to EVD by Lloyd George Investment Management (Bermuda) Limited,
investment adviser for the Portfolio (the Adviser), in consideration of EVD's
distribution effort. The amount payable to EVD by the Fund with respect to each
day is accrued on such day as a liability of the Fund and, accordingly, reduces
the Fund's net assets. The Fund accrued $135,217 as payable to EVD for the
period from May 2, 1994 (start of business) to December 31, 1994, representing
0.75% of average daily net assets. The amounts paid or payable by the Adviser
to EVD are equivalent to 0.15% of the Fund's annual average net assets and are
made from the Adviser's own resources, not the Fund's net assets. At December
31, 1994, the amount of Uncovered Distribution Charges of EVD calculated under
the Plan was approximately $1,843,000.
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 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 0.25% per
annum of the Fund's average daily net assets based on the value of Fund shares
sold by such persons and remaining outstanding for at least one year, and that
payment of these service fees shall commence with the quarter ending December
31, 1995. Service fee payments will be 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 EVD,
and, as such, are not subject to automatic discontinuance where there are no
outstanding Uncovered Distribution Charges of EVD.
Certain officers and Trustees of the Fund are officers or directors
of EVD.
- --------------------------------------------------------------------------------
(6) 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 5% in
the case of redemptions in the first and second year after purchase (6% and 5%,
respectively, for shares purchased prior to August 1, 1994) declining one
percentage point 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 $44,400 of CDSC paid by shareholders for the period from
May 2, 1994 (start of business) to December 31, 1994.
14
<PAGE> 72
INDEPENDENT AUDITORS' REPORT
- --------------------------------------------------------------------------------
To the Trustees and Shareholders of
Eaton Vance Special Investment Trust:
We have audited the accompanying statement of assets and liabilities of EV
Marathon Greater India Fund (one of the series constituting Eaton Vance Special
Investment Trust) as of December 31, 1994, and the related statement of
operations, the statement of changes in net assets, and the financial
highlights for the period from the start of business, May 2, 1994, to December
31, 1994. These financial statements and financial highlights are the
responsibility of the Trust's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based upon our
audit.
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. 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, such financial statements and financial highlights present
fairly, in all material respects, the financial position of the EV Marathon
Greater India Fund series of the Eaton Vance Special Investment Trust at
December 31, 1994, the results of its operations, the changes in its net assets
and its financial highlights for the period from the start of business, May 2,
1994, to December 31, 1994, in conformity with generally accepted accounting
principles.
DELOITTE & TOUCHE LLP
Boston, Massachusetts
February 8, 1995
15
<PAGE> 73
South Asia Portfolio
Portfolio of Investments
December 31, 1994
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------
Shares Value
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Common Stocks - 86.8%
BANGLADESH, 4.0%
Apex Spinning & Knitting 40,000 $ 447,732
Apex Tannery Ltd. 20,000 466,474
Eastern Housing Ltd. 90,300 497,110
Monno Fabrics Ltd. 133,000 495,159
Square Pharmaceuticals Ltd. 16,000 357,408
-----------
$ 2,263,883
-----------
INDIA, 69.8%
Alacrity Housing Ltd. 321,000 $ 480,954
Bellary Steels & Alloys 310,000 474,362
Bharat Heavy Electricals 125,000 702,325
Bombay Dyeing & Manufacturing GDR 105,000 1,378,125
BPL Engineering Ltd. 150,000 430,365
Century Textiles & Industrial GDR 5,316 877,140
DCL Polyesters 224,600 329,353
Enkay Texofood Industries 185,000 184,297
Essar Gujarat 240,500 728,354
E.I.D. Parry (India) Ltd. GDR 30,000 161,400
Flex Industries 6,400 51,516
Flex Industries (rights) (1) 3,200 38,765
Great Eastern Shipping GDR 40,000 440,000
Gujarat Ambuja Cement 18,000 177,883
Himachal Futuristic Community 220,900 1,003,482
Himachal Telematics Ltd. 125,000 328,750
Hoechst India Ltd. 100,000 1,243,280
Hotel Leela Venture Ltd. 250,000 1,295,075
Hotel Leela Venture (rights) (1) 21,180 101,278
IFB Industries Ltd. 107,800 996,600
Innovation Medi Equipment Ltd. 150,000 248,655
Indian Aluminum Co. GDR 60,000 630,000
Indo Gulf Fertilizer GDR 190,000 527,250
Indo Gulf Fertilizers 100,000 298,860
Infosys Technologies Ltd. 72,500 1,086,274
JCT Limited GDR 75,000 1,218,750
Karur Vysya Bank 260,000 812,273
KEC International Ltd. 100,000 956,370
Kotak Mahindra Finance Ltd. 205,000 1,960,558
Larsen & Toubro 102,500 849,571
Madras Refinery Ltd. 253,550 909,331
</TABLE>
16
<PAGE> 74
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
SHARES VALUE
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Mahindra & Mahindra 120,000 $ 1,338,912
Murudeshnar Ceramics Ltd. 167,200 692,926
Nicholas Pirame l27,950 490,058
Orchid Chemicals & Pharma 125,000 687,387
Paper Products Ltd. 50,000 294,880
Punjab Wireless Systems 100,000 1,083,880
Ranbaxy Laboratories Ltd. GDR 60,000 1,335,000
Rubber Products 132,000 173,580
S & S Industries & Enterprise 356,000 468,140
Sakthi Sugars 150,000 478,185
Southern Petrochemical GDR 45,000 483,750
State Bank of India - New 205,000 1,462,244
Tata Chemicals 128,850 1,704,646
Tata Engineering & Locomotive (units) 85,714 1,757,137
Tauraus Mutual Fund 320,000 102,016
Thiru Aroonan Sugars 100,000 422,390
Triveni Engineering 190,850 1,277,664
TTG Industries Ltd. 66,200 316,555
Tube Investments of India GDR 76,000 513,000
T.V.S. Suzuki 203,550 1,362,685
Usha Beltron Ltd. GDR 103,450 879,325
W.S. Industries Ltd. 102,500 196,051
Zuari Agrochemicals 90,000 1,226,538
----------
$39,668,145
PAKISTAN, 6.7%
Adamjee Insurance Co. 70,000 $ 423,150
Chakwal Cement Company Ltd. GDR 55,000 460,900
D.G. Xhan Cement Company Ltd. 392,150 790,182
Maple Leaf Cement Factory 45,760 85,886
Maple Leaf Cement Factory (rights) (1) 91,520 67,669
Nishat Chuhian 255,000 140,887
Pakistan State Oil Co. Ltd. 96,100 1,386,723
Pakistan Telecommunications 620 81,607
Searle Pakistan 123,280 374,623
----------
$ 3,811,627
----------
</TABLE>
17
<PAGE> 75
- -----------------------------------------------------------------------
Portfolio of Investments (continued)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------
Shares Value
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C>
SRI LANKA, 6.3%
Dev Fin Corp of Ceylon 26,800 $ 270,052
Hayleys 135,840 525,619
John Keells Holdings 67,900 369,471
John Keells Holdings Ltd. GDR 74,000 703,000
Kelani Tyres 537,400 444,053
National Development Bank 53,900 450,798
Royal Ceramics 359,000 419,635
Royal Ceramics (rights) (1) 35,900 0
Sampath Bank 186,000 189,292
Vanik Corporation 183,000 220,368
Vanik Corporation (rights) (1) 45,750 29,384
-----------
$ 3,621,672
-----------
TOTAL COMMON STOCKS (IDENTIFIED COST, $53,072,065) $49,365,327
-----------
</TABLE>
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------
BONDS - 2.2% PRINCIPAL AMOUNT
(000 OMITTED) VALUE
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C>
Ballarpur Industries Ltd. Conv., 4s, 4/1/99 U.S. $500 $ 491,250
Gujarat Ambuja, 3s, 6/30/99 U.S. $500 742,500
-----------
TOTAL BONDS (IDENTIFIED COST, $1,255,000) $ 1,233,750
-----------
TOTAL INVESTMENTS (IDENTIFIED COST, $54,327,065) 89.0% $50,599,077
Other Assets, less Liabilities, 11.0% 6,254,513
-----------
NET ASSETS, 100% $56,853,590
===========
GDR -- Global depository receipt
(1)Non-income producing security.
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
18
<PAGE> 76
<TABLE>
<CAPTION>
FINANCIAL STATEMENTS
- ----------------------------------------------------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1994
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS:
Investments, at value (Note 1A) (Identified cost, $54,327,065) $ 50,599,077
Cash 7,016,379
Foreign currency, at value (Identified cost, $146,495) 146,720
Receivable for investments sold 44,763
Dividends and interest receivable 150,567
Deferred organization expenses (Note 1C) 76,049
------------
Total assets $ 58,033,555
LIABILITIES:
Payable for investments purchased $ 1,034,794
Payable to affiliates:
Custodian fee 3,335
Trustees fees 1,250
Accrued expenses 140,586
-----------
Total liabilities 1,179,965
------------
NET ASSETS applicable to investors' interest in Portfolio $ 56,853,590
============
SOURCES OF NET ASSETS:
Net proceeds from capital contributions and withdrawals $ 60,581,353
Net unrealized depreciation of investments and foreign currency
(computed on the basis of indentified cost) (3,727,763)
------------
TOTAL $ 56,853,590
============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
19
<PAGE> 77
FINANCIAL STATEMENTS (CONTINUED)
<TABLE>
<CAPTION>
STATEMENT OF OPERATIONS
For the period from the start of business, May 2, 1994, to December 31, 1994
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C>
INVESTMENT INCOME:
Income -
Dividends (net of foreign taxes, $56,041) $ 242,737
Interest 65,501
------------
Total income $ 308,238
Expenses -
Investment adviser fee (Note 2) $ 197,675
Administration fees (Note 2) 65,898
Compensation of Trustees not members of
Investment Advisers or Administrator's organization 8,750
Custodian fee (Note 2) 18,587
Amortization of organization expenses (Note 1C) 11,016
Legal and accounting services 1,440
Registration costs 115
Miscellaneous 3,108
-------------
Total expenses 306,589
------------
Net investment income $ 1,649
------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized gain (loss) -
Net realized loss on investments (identified cost basis) $ (12,194)
Net realized gain on foreign currency transactions 149,944
-------------
Net realized gain $ 137,750
Net unrealized appreciation (depreciation) -
Net unrealized depreciation of investments (identified cost basis) $ (3,727,988)
Net unrealized appreciation of foreign currency 225
-------------
Net unrealized depreciation (3,727,763)
------------
Net realized and unrealized loss on investments $ (3,590,013)
------------
Net decrease in net assets from operations $ (3,588,364)
============
</TABLE>
See notes to financial statements
20
<PAGE> 78
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS
For the period from the start of business, May 2, 1994, to December 31, 1994
- ----------------------------------------------------------------------------------------------
<S> <C>
INCREASE (DECREASE) IN NET ASSETS:
From operations -
Net investment income $ 1,649
Net realized gain on investments and foreign currency transactions 137,750
Change in unrealized depreciation of investments (3,727,763)
------------
Decrease in net assets from operations $ (3,588,364)
------------
Capital transactions:
Contributions $ 67,765,119
Withdrawals (7,423,185)
------------
Increase in net assets resulting from capital transactions $ 60,341,934
------------
Net increase in net assets $ 56,753,570
NET ASSETS:
At beginning of period 100,020
------------
At end of period $ 56,853,590
============
</TABLE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------
SUPPLEMENTARY DATA
For the period from the start of business, May 2, 1994, to December 31, 1994
- ----------------------------------------------------------------------------------------------
<S> <C>
ANNUALIZED RATIOS (As a percentage of average net assets):
Expenses 1.16%+
Net investment income 0.01%+
PORTFOLIO TURNOVER 1%
+ Annualized
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
21
<PAGE> 79
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
(1) SIGNIFICANT ACCOUNTING POLICIES
South Asia 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 January 18,
1994. The Declaration of Trust permits the Trustees to issue interests in the
Portfolio. The following is a summary of the significant accounting policies of
the Portfolio. The policies are in conformity with generally accepted
accounting principles.
A. INVESTMENT VALUATIONS - Marketable securities, including options, that are
listed on foreign or U.S. securities exchanges or in the NASDAQ National Market
System are valued at closing sale prices or, if there were no sales, at the
mean between the closing bid and asked prices therefor on the exchange where
such securities are principally traded. Futures positions on securities or
currencies are generally valued at closing settlement prices. Unlisted or
listed securities for which closing sale prices are not available are valued at
the mean between the latest bid and asked prices. Short term debt securities
with a remaining maturity of 60 days or less are valued at amortized cost.
Other fixed income and debt securities, including listed securities and
securities for which price quotations are available, will normally be valued on
the basis of valuations furnished by a pricing service. Investments for which
valuations or market quotations are unavailable are valued at fair value using
methods determined in good faith by or at the direction of the Trustees.
B. FEDERAL TAXES - The Portfolio is treated as a partnership for U.S. Federal
tax purposes. No provision is made by the Portfolio for federal or state taxes
on any taxable income of the Portfolio because each investor in the Portfolio
is individually responsible for the payment of any taxes on its share of such
income. Since some of the Portfolio's investors are regulated investment
companies that invest all or substantially all of their assets in the
Portfolio, the Portfolio normally must satisfy the applicable source of income
and diversification requirements, (under the U.S. Internal Revenue Code), in
order for its investors to satisfy them. The Portfolio will allocate, at least
annually among its investors, each investor's distributive share of the
Portfolio's net investment income, net realized capital gains, and any other
items of income, gain, loss, deduction or credit.
C. DEFERRED ORGANIZATION EXPENSES - Costs incurred by the Portfolio in
connection with its organization, including registration costs, are being
amortized on the straight-line basis over five years.
D. FINANCIAL FUTURES CONTRACTS - Upon the entering of a financial futures
contract, the Portfolio is required to deposit ("initial margin") either in
cash or securities an amount equal to a certain percentage of the purchase
price indicated in the financial futures contract. Subsequent payments are made
or received by the Portfolio ("margin maintenance") each day, dependent on
daily fluctuations in the value of the underlying security, and are recorded
for book purposes as unrealized gains or losses by the Portfolio. Should
interest or currency exchange rates move unexpectedly, the Portfolio may not
achieve the anticipated benefits of the financial futures contracts and may
realize a loss. If the Portfolio enters into a closing transaction, the
Portfolio will realize, for book purposes, a gain or loss equal to the
difference between the value of the financial futures contract to sell and
financial futures contract to buy.
22
<PAGE> 80
- --------------------------------------------------------------------------------
E. FOREIGN CURRENCY TRANSLATION - Investment valuations, other assets, and
liabilities initially expressed in foreign currencies are converted each
business day into U.S. dollars based upon current exchange rates. Purchases and
sales of foreign investment securities and income and expenses are converted
into U.S. dollars based upon currency exchange rates prevailing on the
respective dates of such transactions. Recognized gains or losses on investment
transactions attributable to foreign currency rates are recorded for financial
statement purposes as net realized gains and losses on investments. That
portion of unrealized gains and losses on investments that result from
fluctuations in foreign currency exchange rates are not separately disclosed.
F. FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS - The Portfolio may enter into
forward foreign currency exchange contracts for the purchase or sale of a
specific foreign currency at a fixed price on a future date. Risks may arise
upon entering these contracts from the potential inability of counterparties to
meet the terms of their contracts and from movements in the value of a foreign
currency relative to the U.S. dollar. The Portfolio will enter into forward
contracts for hedging purposes as well as non-hedging purposes. The forward
foreign currency exchange contracts are adjusted by the daily exchange rate of
the underlying currency and any gains or losses are recorded for financial
statement purposes as unrealized until such time as the contracts have been
closed or offset.
G. OTHER - Investment transactions are accounted for on the date the
investments are purchased or sold. Dividend income is recorded on the
ex-dividend date. However, if the ex-dividend date has passed, certain
dividends from foreign securities are recorded as the Portfolio is informed of
the ex-dividend date. Interest income is recorded on the accrual basis.
(2) INVESTMENT ADVISER FEE AND OTHER TRANSACTIONS WITH AFFILIATES
The investment adviser fee is earned by Lloyd George Investment Management
(Bermuda) Limited (the Adviser) as compensation for management and investment
advisory services rendered to the Portfolio. Under the advisory agreement, the
Adviser receives a monthly fee of 0.0625% (0.75% annually) of the average daily
net assets of the Portfolio up to $500,000,000, and at reduced rates as daily
net assets exceed that level.For the period from the start of business, May 2,
1994 to December 31, 1994 the annualized adviser fee was 0.75% of average net
assets. In addition, an administrative fee is earned by Eaton Vance Management
(EVM) for managing and administering the business affairs of the Portfolio.
Under the administration agreement, EVM earns a monthly fee in the amount of
1/48th of 1% (equal to 0.25% annually) of the average daily net assets of the
Portfolio up to $500,000,000, and at reduced rates as daily net assets exceed
that level. For the year ended December 31, 1994, the administration fee was
0.25% (annualized) of average net assets. Except as to Trustees of the
Portfolio who are not members of the Adviser or EVM's organization, officers
and Trustees receive remuneration for their services to the Portfolio out of
such investment adviser and administrative fees. Investors Bank & Trust Company
(IBT), an affiliate of EVM, 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 or
trustees of the above organizations.
23
<PAGE> 81
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
(3) INVESTMENT TRANSACTIONS
Purchases and sales of investments, other than short-term obligations,
aggregated $54,770,667 and $431,408 respectively.
- --------------------------------------------------------------------------------
(4) 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:
<TABLE>
<S> <C>
Aggregate cost $ 54,327,065
=============
Gross unrealized appreciation $ 2,973,466
Gross unrealized depreciation 6,701,454
-------------
Net unrealized depreciation $ (3,727,988)
=============
</TABLE>
- --------------------------------------------------------------------------------
(5) RISKS ASSOCIATED WITH FOREIGN INVESTMENTS
Investing in securities issued by companies whose principal business activities
are outside the United States may involve significant risks not present in
domestic investments. For example, there is generally less publicly available
information about foreign companies, particularly those not subject to the
disclosure and reporting requirements of the U.S. securities laws. Foreign
issuers are generally not bound by uniform accounting, auditing, and financial
reporting requirements and standards of practice comparable to those applicable
to domestic issuers. Investments in foreign securities also involve the risk of
possible adverse changes in investment or exchange control regulations,
expropriation or confiscatory taxation, limitation on the removal of funds or
other assets of the Portfolio, political or financial instability or diplomatic
and other developments which could affect such investments. Foreign stock
markets, while growing in volume and sophistication, are generally not as
developed as those in the United States, and securities of some foreign issuers
(particularly those located in developing countries) may be less liquid and
more volatile than securities of comparable U.S. companies.
In general, there is less overall governmental supervision and regulation of
foreign securities markets, broker-dealers, and issuers than in the United
States.
24
<PAGE> 82
- --------------------------------------------------------------------------------
(6) LINE OF CREDIT
The Portfolio participates with other portfolios and funds managed by 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. Borrowings will be made by the Portfolio
solely to facilitate the handling of unusual and/or unanticipated short-term
cash requirements. Interest is charged to each portfolio or fund based on its
borrowings at an amount above either the bank's adjusted certificate of deposit
rate, a variable adjusted certificate of deposit rate, or a federal funds
effective rate. In addition, a fee computed at an annual rate of 1/4 of 1% on
the $20 million committed facility and on the daily unused portion of the $100
million discretionary facility is allocated among the participating funds and
portfolios at the end of each quarter. The Portfolio did not have any
significant borrowings or allocated fees during the period.
25
<PAGE> 83
INDEPENDENT AUDITORS' REPORT
- --------------------------------------------------------------------------------
To the Trustees and Investors of
South Asia Portfolio:
We have audited the accompanying statement of assets and liabilities, including
the portfolio of investments, of South Asia Portfolio as of December 31, 1994,
and the related statement of operations, the statement of changes in net
assets, and the supplementary data for the period from the start of business,
May 2, 1994, 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 upon our audit.
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 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 the securities owned at
December 31, 1994, by correspondence with the custodian and brokers; where
replies were not received from brokers, we performed other auditing procedures.
An audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, such financial statements and supplementary data present
fairly, in all material respects, the financial position of South Asia
Portfolio at December 31, 1994, the results of its operations, the changes in
its net assets and its supplementary data for the period from the start of
business, May 2, 1994, to December 31, 1994, in conformity with generally
accepted accounting principles.
DELOITTE & TOUCHE LLP
Boston, Massachusetts
February 8, 1995
26
<PAGE> 84
APPENDIX C
[LOGO] AN
EATON VANCE
MARATHON
FUND
EV MARATHON
GREATER INDIA
FUND
[PHOTO]
30991 - 4/95 M-GICB
a-25
<PAGE> 85
AS ONE OF THE WORLD'S LARGEST ECONOMIES WITH BOTH A POPULATION OF
APPROXIMATELY 900 MILLION PEOPLE AND ABUNDANT NATURAL RESOURCES, INDIA HAS LONG
BEEN RECOGNIZED AS A COUNTRY WITH ENORMOUS POTENTIAL.
Until recently, however, India's progress has been hampered by the central
planning and government control of its economy, put in place in 1947 when the
country gained independence and adopted a socialist economic model.
But that started to change in 1991, when India experienced a deep economic
crisis triggered by a collapse of trade with the Soviet Union, a rise in
petroleum prices and domestic political instability. In response, India's newly
elected leadership adopted a vigorous, free-market oriented economic reform
program designed to unleash India's potential.
[PHOTO]
Now, with that program strongly under way, Eaton Vance believes that
India's economy, as well as the economies of surrounding countries on the Indian
subcontinent, are poised for rapid and sustained growth which will lead to a
substantial increase in India's standard of living, as well as the earnings of
many Indian companies.
EV MARATHON GREATER INDIA FUND...
...Providing U.S. investors access to the current and future investment
opportunities in Greater India. The Fund offers investors the advantages and
convenience of an open-end mutual fund and the benefits of an experienced
investment adviser with specialized knowledge of the India markets.
a-26
<PAGE> 86
THE PORTFOLIO INVESTS PRIMARILY IN INDIA AND THE SURROUNDING COUNTRIES OF
THE INDIAN SUBCONTINENT
[GRAPHIC - MAP OF INDIA]
a-27
<PAGE> 87
THE INDIA ADVANTAGE:
THE FUNDAMENTALS ARE STRONG
India represents one of the world's largest economies. It ranks 15th in
terms of GDP (Gross Domestic Product) measured in U.S. dollars, maintains a
position among the top ten on the basis of purchasing power parity, and ranks
among the top in industrial output (1994 data). India is generously endowed with
mineral resources and houses the largest reserves in the world of several
industrial minerals, including coal, iron ore and limestone.
* Source: Lloyd George Management Ltd.
FUNDAMENTALS ARE SUPPORTED BY
AN ESTABLISHED INFRASTRUCTURE...
The economy is supported by an established infrastructure, which is
well-developed by Asian standards. India has the largest network of railways in
Asia and the second largest in the world, a 1.2 million-mile road network, 11
major ports, four major international airports and the largest postal network in
the world.
India's educational system, influenced by years of British colonial
rule, produces large numbers of highly qualified scientific and technical
personnel. English is widely spoken throughout the country and is considered the
official language of business and government. Furthermore, the country's
well-established legal and accounting systems are patterned on British models.
* Source: Lloyd George Management Ltd.
...COMPETITIVE LABOR COSTS...
India offers a double-barreled labor advantage. First, the country has the
second largest pool of trained scientific and technical manpower in the world
after the United States and an imposing cadre of management-level personnel,
widely respected for their dedication to excellence.
Second, these professionals and skilled workers earn one-fifth to
one-tenth of what their counterparts do in the United States and Western
Europe, making them highly competitive in the global economy.
...AND DEMOCRATIC
POLITICAL INSTITUTIONS
India is the largest democracy in the world with a bicameral government and
a separation of executive, legislative and judicial powers, protected in the
country's constitution. With a democratic tradition of more than 45 years since
independence, India's political institutions have demonstrated their ability to
govern effectively and have withstood the test of time.
a-28
<PAGE> 88
THE INDIA ADVANTAGE:
BOLD ECONOMIC REFORMS ARE WORKING
India is currently carrying out an ambitious program of reform to
accelerate economic growth and improve international competitiveness. Following
four decades of socialism and state control of industry, India embarked on a
bold program of economic change in July 1991.
Its goals: to cut the fiscal deficit, reduce inflation and growth in money
supply, allow greater play of market forces in resource allocation in both the
domestic and external sectors, and switch over from borrowing to investment in
external financing.
Foreign Investment Approvals Have Risen in Recent Years (line chart)
<TABLE>
<S> <C>
1990 $40 million
1991 $170 million
1992 $1.3 billion
1993 $2.8 billion
1994 $2.1 billion*
</TABLE>
*as of November 30, 1994
Source: Centre for Monitoring India Economy
IT IS EXPECTED 1995 WILL BRING OVER $5 BILLION IN APPROVALS AS EVIDENCED BY THE
SIGNING OF $7 BILLION WORTH OF PRELIMINARY AGREEMENTS BETWEEN U.S. AND INDIAN
COMPANIES EVEN THOUGH THERE HAS BEEN A SLOWDOWN IN FOREIGN INVESTMENT APPROVALS
IN THE FIRST 11 MONTHS OF 1994.
THESE NEW ECONOMIC PROGRAMS
ARE FIRMLY ENTRENCHED
The economic reforms are firmly entrenched and the program is working. The
Indian government has substantially liberalized foreign trade through decontrol
of exports and imports, reduction in tariff levels and easing of foreign
exchange controls. In addition, exports are being promoted though a variety of
measures including fiscal incentives, concessional finance and encouragement of
foreign investments.
As a result, its markets are expanding world wide. As of September 30,
1994, the United States accounted for over 19.8 percent of India's exports, the
European Economic Community 28.2 percent, Japan 7.7 percent, the OPEC countries
9.8 percent and the former USSR states about 3.9 percent.*
Furthermore, investment by foreign companies in India is growing rapidly.
For example, major U.S. companies, including AT&T, General Motors and Motorola,
have recently made significant commitments in India.
* Source: Centre for Monitoring India Economy
Monthly Review, December, 1994
a-29
<PAGE> 89
THE INDIA ADVANTAGE:
RAPIDLY GROWING DEMAND FOR CONSUMER GOODS
India has a rapidly growing consumer class. India's population has steadily
increased from 361 million people in 1951 to approximately 900 million in 1994.
Today, its strong middle-class base of over 200 million holds the key to the
country's potentially explosive demand for consumer goods.
GROWTH FUELS CONSUMER SPENDING
Recently, consumer spending has been fueled by...
- - A sustained economic growth of 5.5 percent per year during the 1980s...
- - Annual increases of more than 7 percent in the manufacturing and services
sectors...
- - Growth in urban population from 160 million in 1981 to 220 million
in 1991...
Source: Lloyd George Management Ltd.
<TABLE>
India's Growth in Population and Literacy (bar chart)
<CAPTION>
Population in millions
<S> <C> <C>
1971 548 34% literacy rate
1981 685 44% literacy rate
1991 860 52% literacy rate
1994 900 52% literacy rate
</TABLE>
Source: Lloyd George Management, Government of India
<TABLE>
THE CONSUMER SECTOR HOLDS CONSIDERABLE POTENTIAL FOR GROWTH
<CAPTION>
1992 Per 1,000 population Per mn
per capita Telephones Televisions Autos McDonalds's
GDP/GNP* 1992 1994E 1994E 1994E
---------- ---------- --------------------- ------ ------------
<S> <C> <C> <C> <C> <C>
United States $23,120 565 843 566 36
South Korea 8,950 363 216 65 .60
Mexico 7,490 75 655 76 1
Russia 6,220 153 640 100 .01
Hungary 5,740 125 420 300 2
Brazil 5,240 68 190 81 1
China 1,910 10 103 2 .02
India 1,210 8 23 3 0
<FN>
* Based on purchasing power parity, which compares the costs of
purchasing a typical bundle of goods and services in each of the listed
domestic markets, weighting each item according to its contribution to the
country's Gross Domestic or National product, and then comparing that cost
to its U.S. equivalent.
</TABLE>
Source: Lloyd George Management, Crossborder Monitor, August 31, 1994
a-30
<PAGE> 90
- - The emergence of multiple income households in urban areas...
- - Increased advertising via television and other media...
- - Higher literacy levels...
- - Increasing domestic and foreign travel...
- - A thriving consumer finance business for durables, which grew from almost
zero in 1980 to about $900 million by 1994.
Source: Lloyd George Management Ltd.
The spectacular growth in the market for consumer goods reflects a
significant rise in income levels and rapid changes in the lifestyle of large
segments of the population.
While the spending pattern and buying intensity of this class of consumers
do not compare with those in highly industrialized societies, the sheer size of
this segment represents an enormous market potential for a variety of consumer
goods.
[INSERT PHOTO]
<TABLE>
GROWTH IN INDIA CORPORATE EARNINGS (bar chart)
Net Profit Growth,
Bombay Stock Exchange Sensex index
<S> <C>
1991 4%
1992 -10%
1993 3%
1994 48%
1995 (est.) 54%
- --------------------------------------------
FISCAL YEAR ENDED 3/31
</TABLE>
Source: Smith New Court
ONE OF THE WORLD'S HIGHEST SAVINGS RATES
India is a country of savers, as well as spenders, with one of the highest
savings rates in the world. Between 1991 and 1994, gross domestic savings
averaged 23.2 percent.
Source: Centre for Monitoring India Economy
ca-31
<PAGE> 91
THE INDIA ADVANTAGE:
INVESTMENT OPPORTUNITIES ARE MOUNTING
As a result of its vigorous reform policies, India today boasts a buoyant
investment climate reflecting strong investor confidence in its economic
performance. The proof: earnings of India companies are projected to increase
significantly (see chart on previous page) and between 1989 and 1994, total
public issue of common and preferred stocks and bonds rose from $3.8 billion to
$10.3 billion.
A PROMISING EMERGING MARKET
The Indian securities market is considered one of the most promising of the
emerging markets. There are over 7,000 listed companies - second only to United
States on 22 exchanges, regulated by the Securities & Exchange Board of India.
Total market capitalization is approximately $155.6 billion. The Bombay Stock
Exchange, founded over 100 years ago and representing the oldest securities
exchange in Asia, lists over 2,800 companies, approximately the same number as
the New York Stock Exchange.
With 20 million investors, India has the second largest pool of
shareholders in the world, after the United States. In addition, foreign
institutional investors are allowed to invest in the Indian securities market,
and Indian companies are also being permitted to raise equity capital from the
international market.
Source: Lloyd George Management Ltd., Capital Market
Magazine, February, 1995
<TABLE>
India's Active New-Issue
Market is Growing (bar chart)
<CAPTION>
$ billions
<S> <C>
1989 3.8
1990 7.4
1991 4.0
1992 5.5
1993 9.3
1994 10.3
1995 (9 months) 10.5
- --------------------------------------------
Fiscal year ended 3/31
</TABLE>
Source: Centre for Monitoring India Economy
<TABLE>
Increased Trading Activity on the Bombay
Exchange (bar chart)
<CAPTION>
Average daily turnover
($ millions)
<S> <C>
1Q 139
2Q 230
3Q 302
4Q 386
<CAPTION>
- ------------
Fiscal year ended
3/31/94
<S> <C>
1Q 183
2Q 277
3Q 240
</TABLE>
- ------------
Fiscal year ended
3/31/95
Source: Centre for Monitoring India Economy
a-32
<PAGE> 92
THE EV MARATHON GREATER INDIA FUND ADVANTAGE:
THE POTENTIAL TO BENEFIT FROM INDIA'S GROWTH...
The investment objective of EV Marathon Greater India Fund is long-term
capital appreciation. The Fund offers investors the potential to benefit from
the economic development and growth of India and surrounding countries of the
Indian subcontinent.
The Fund invests in interests in the South Asia Portfolio. The Portfolio
invests primarily in equities traded on the securities markets in the India
region, including the 22 stock exchanges in India itself.
In addition to investing in common and preferred stocks of Indian firms,
the Portfolio may also take positions in companies that provide goods or
services to India, or those that have manufacturing or other operations there,
and that are normally listed on the Greater India exchanges or traded on their
over-the-counter markets.
...AND IMPORTANT
OTHER CONSIDERATIONS
Of course, while Eaton Vance believes that the opportunities for long-term
capital appreciation are excellent, investors should consider carefully the
risks involved in committing a portion of their assets to the Fund.
For example, securities of some foreign issuers may be less liquid and more
volatile than securities of comparable U.S. companies.
[PHOTO]
a-33
<PAGE> 93
In addition, there is less government supervision and regulation of foreign
securities markets, broker-dealers and issuers than in the United States.
Other risks may include fluctuations in foreign exchange rates, political
or economic instability in the country in which the security's issuer is
located, and the possible imposition of exchange controls or other laws or
restrictions. Share values will fluctuate and, when redeemed, may be worth more
or less than at the time of purchase.
FUND SHARES ARE NOT INSURED BY THE FDIC AND ARE NOT DEPOSITS OR OTHER
OBLIGATIONS OF, OR GUARANTEED BY, ANY DEPOSITORY INSTITUTION. SHARES ARE SUBJECT
TO INVESTMENT RISKS, INCLUDING POSSIBLE LOSS OF PRINCIPAL INVESTED.
INVESTING THROUGHOUT
GREATER INDIA
Portfolio investments include countries throughout the India region. A
minimum of 50 percent of the Fund's assets will be invested in the equity
securities Indian Companies. The Fund may also invest in markets of
other countries on the Indian subcontinent, including Pakistan, Sri Lanka,
Bangladesh and Nepal.
Any well-managed investment, be it a start-up portfolio or a billion-dollar
institutional account, requires in-depth knowledge of markets, products,
management styles and, to the extent possible, a keen sense of economic and
political trends - past, current and future.
[PHOTO]
But investing in emerging overseas markets calls for even more. And that is a
thorough understanding of the cultures, history and attitudes of the people and
countries in which assets will be placed.
While there is no shortage of expertise in the established markets of North
America, Japan and Europe, there are relatively few advisers dedicated to the
emerging markets of the Indian subcontinent.
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<PAGE> 94
THE EV MARATHON GREATER INDIA FUND ADVANTAGE:
THE EXPERIENCE OF LLOYD GEORGE MANAGEMENT
The adviser, Lloyd George Management, is based in Hong Kong and comprises a
group of highly qualified and experienced investment professionals with
extensive hands-on experience in the securities markets of the India region,
including the management of several regional mutual funds. With a satellite
office and research analysts located in Bombay, Lloyd George Management is
ideally situated to monitor the pulse of Greater India, select the securities
for the Portfolio and manage its assets on a day-to-day basis.
ONE OF THE EARLIEST FOREIGN INVESTMENT FIRMS IN INDIA
The firm was among the first six approved Foreign Institutional Investors
in India. It has offices in Hong Kong and Bombay, its analysts have over five
years experience investing in India, and the firm has made more than 200 company
visits in India since 1993.
EATON VANCE IS THE FUND'S
SPONSOR AND ADMINISTRATOR
The Fund's sponsor and administrator is Eaton Vance Management, a
Boston-based investment firm founded in 1924. Eaton Vance currently manages
approximately $15 billion in assets for more than 140 mutual funds, whose
investment objectives range from tax free and taxable income to maximum capital
appreciation, as well as individual and institutional accounts for retirement
plans, pension funds and endowments.
[PHOTO]
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<PAGE> 95
THE EV MARATHON GREATER INDIA FUND ADVANTAGE:
NO INITIAL SALES CHARGE
* Invest a minimum of $1,000. The minimum subsequent investment is only $50.
* There's no initial sales charge when you invest in EV Marathon Greater
India Fund! Every dollar you invest goes to work for you right away.
Please refer to a Fund prospectus for details of the Fund's contingent
deferred sales charge and distribution plan.
* Dividends and capital gains distributions may be taken in cash, or
reinvested at net asset value in additional shares.
* Qualified plans, including Individual Retirement
Accounts, are available.
* Free telephone exchange is available between a variety of Eaton Vance
Funds. Ask your investment adviser for details.
* Bank draft investing (minimum $50 per month or quarter) allows
shareholders to invest regularly.
Please see a prospectus for more information about any of these services.
For more complete information about EV Marathon Greater India Fund or any
other Eaton Vance fund, including distribution plans, charges and expenses,
please write or call your financial adviser for a prospectus. Read the
prospectus(es) carefully before you invest or send money.
[EATON VANCE LOGO]
EATON VANCE DISTRIBUTORS, INC.
24 Federal Street
Boston, MA 02110
[LLOYD GEORGE LOGO]
LLOYD GEORGE MANAGEMENT (BERMUDA) LIMITED
o 3808, One Exchange Square
Central, Hong Kong
o DBS Centre, 213, Raheja Chambers
Nariman Point, Bombay
a-36
<PAGE> 96
SPONSOR AND MANAGER OF EV MARATHON
GREATER INDIA FUND
Administrator of South Asia Portfolio
Eaton Vance Management
24 Federal Street
Boston, MA 02110
ADVISER OF SOUTH ASIA PORTFOLIO
Lloyd George Investment Management
(Bermuda) Limited
3808 One Exchange Square
Central, Hong Kong
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 1159
Boston, MA 02104
(800) 262-1122
AUDITORS
Deloitte & Touche LLP
125 Summer Street
Boston, MA 02110
EV MARATHON
GREATER INDIA FUND
24 FEDERAL STREET
BOSTON, MA 02110
EV MARATHON [LOGO]
GREATER INDIA
FUND
STATEMENT OF
ADDITIONAL
INFORMATION
MAY 1, 1995
M-GISAI
