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EV MARATHON EMERGING MARKETS FUND
EV MARATHON EMERGING MARKETS FUND (THE "FUND") IS A MUTUAL FUND SEEKING
LONG-TERM CAPITAL APPRECIATION THROUGH PURCHASE OF AN INTEREST IN A SEPARATE
INVESTMENT COMPANY WHICH INVESTS IN EQUITY SECURITIES OF COMPANIES IN COUNTRIES
WITH EMERGING MARKETS ("EMERGING MARKET COUNTRIES"). EMERGING MARKET COUNTRIES
ARE LOCATED IN ASIA, LATIN AMERICA, THE MIDDLE EAST, SOUTHERN EUROPE, EASTERN
EUROPE, AFRICA AND THE REGION COMPRISING THE FORMER SOVIET UNION. ACCORDINGLY,
THE FUND INVESTS ITS ASSETS IN EMERGING MARKETS 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
EMERGING MARKET COUNTRIES CAN INVOLVE SIGNIFICANT RISKS THAT ARE NOT NORMALLY
INVOLVED IN INVESTMENTS 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 SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
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<TABLE>
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PAGE
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<S> <C>
Shareholder and Fund Expenses........ 2
The Fund's Financial Highlights...... 3
The Fund's Investment Objective...... 4
The Portfolio's Investments in
Emerging Markets................... 4
How the Fund and the Portfolio Invest
their Assets....................... 5
Special Investment Methods and Risk
Factors............................ 6
Organization of the Fund and the
Portfolio.......................... 11
Management of the Fund and the
Portfolio.......................... 13
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PAGE
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Distribution Plan.................... 16
Valuing Fund Shares.................. 18
How to Buy Fund Shares............... 19
How to Redeem Fund Shares............ 20
Reports to Shareholders.............. 22
The Lifetime Investing
Account/Distribution Options....... 23
The Eaton Vance Exchange Privilege... 24
Eaton Vance Shareholder Services..... 25
Distributions and Taxes.............. 26
Performance Information.............. 28
</TABLE>
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PROSPECTUS DATED MAY 1, 1995
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SHAREHOLDER AND FUND EXPENSES(1)
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<TABLE>
<S> <C>
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 0.45%
Total Operating Expenses 2.50%
----
</TABLE>
<TABLE>
<CAPTION>
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: $75 $118
An investor would pay the following expenses on the same investment, assuming
(a) 5% annual return and (b) no redemptions: $25 $ 78
</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," "How to Redeem Fund Shares" and "Distribution
Plan." 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) For shares sold by Authorized Firms and remaining outstanding for at least
one year, the Fund will pay service fees not exceeding .25% per annum of its
average daily net assets. The Fund expects to begin making service fee
payments during the quarter ending December 31, 1995. Therefore, expenses
after year one will be higher. See "Distribution Plan".
(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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<TABLE>
FOR THE PERIOD FROM THE START OF BUSINESS, NOVEMBER 30, 1994, TO DECEMBER 31,
1994:
<S> <C>
NET ASSET VALUE, beginning of period..................................... $10.000
-------
INCOME (LOSS) FROM INVESTMENT OPERATIONS:
Net investment loss.................................................... $(0.003)
Net realized and unrealized loss on investments........................ (0.037)
-------
Total loss from investment operations............................... $(0.040)
-------
NET ASSET VALUE, end of period........................................... $ 9.96
=======
TOTAL RETURN(1).......................................................... (0.40)%
RATIOS/SUPPLEMENTAL DATA*:
Net assets, end of period (000's omitted).............................. $ 229
Ratio of net expenses to average daily net assets(2)................... 0.75%+
Ratio of net investment loss to average daily net assets............... (0.75)%+
<FN>
* The expenses related to the operation of the Fund reflect an assumption
of expenses by the Adviser. Had such action not been taken, the ratios
would have been as follows:
Net Investment Loss Per Share.......................................... $(0.037)
Ratios (to average daily net assets)
Expenses............................................................ 9.14%+
Net Investment Loss................................................. (9.14)%+
+ 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 Emerging Markets Portfolio's allocated expenses for
the period from the Fund's start of business, November 30, 1994 to December 31,
1994.
</TABLE>
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THE FUND'S INVESTMENT OBJECTIVE
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EV MARATHON EMERGING MARKETS 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 EMERGING MARKETS PORTFOLIO (THE
"PORTFOLIO"), A SEPARATE REGISTERED INVESTMENT COMPANY WHICH INVESTS IN EQUITY
SECURITIES OF COMPANIES IN COUNTRIES WITH EMERGING MARKETS ("EMERGING MARKET
COUNTRIES"). Emerging Market Countries are located in Asia, Latin America, the
Middle East, Southern Europe, Eastern Europe, Africa and the region comprising
the former Soviet Union. The Fund considers countries with emerging markets to
be all countries that are generally considered to be developing or emerging
countries by the International Bank for Reconstruction and Development (more
commonly referred to as the "World Bank") or the International Finance
Corporation, as well as countries that are classified by the United Nations or
otherwise regarded by their own authorities as developing.
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 Emerging Market Countries 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 EMERGING MARKETS
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THE FOLLOWING IS A GENERAL DISCUSSION OF CERTAIN FEATURES OF THE EMERGING MARKET
COUNTRIES ECONOMIES IN WHICH THE PORTFOLIO INTENDS TO INVEST. 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").
The Adviser believes that the long-term growth rates of the economies of
certain Emerging Market Countries may be substantially higher than those of
developed countries. For a discussion of the risks associated with investing in
Emerging Market Countries, see "Special Investment Methods and Risk Factors."
The Adviser believes that factors favoring investment in the economies of
many Emerging Market Countries include:
- POLITICAL CHANGES in governments which favor a shift from socialism and
government involvement in the private sector to a market-driven economy.
Emerging Market Countries in Asia, Latin America, the Middle East,
Southern Europe, Eastern Europe, Africa, and the region comprising the
former Soviet Union are in the process of implementing broad market
reforms to revitalize their economies. The Adviser believes that these
reforms have helped lead to significantly higher levels of economic
activity.
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- PRIVATIZATIONS of government-owned and operated companies in certain
Emerging Market Countries, which provide a source of capital for
government budgets and can result in improved operating efficiencies and
services. The Adviser believes that many privatized companies may have
significant growth potential arising from the demand created by
increasing economic activity.
- A FAVORABLE REGULATORY CLIMATE. Given the essential role of private
enterprise in economic growth, many Emerging Market Country governments
have in the past provided support to help companies to finance the
considerable capital expenditures they need to expand. This support has
taken a variety of forms, including tax concessions, more favorable rate
or tariff structures, and limited monopolies on services.
According to the World Bank, the combined market capitalization of
developing countries has grown from $67 billion in 1982 to over $1,629 billion,
as of September 30, 1994. World Bank data indicates that developing countries
are experiencing more rapid economic growth than industrialized countries.
As a result of such factors, the Adviser believes that substantial
opportunities for long-term capital appreciation will be presented by
investments in the equity securities of companies in Emerging Market Countries.
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 EMERGING MARKET COUNTRIES. A company will be
considered to be in an Emerging Market 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
("Emerging Market investments"). Substantially all of the Portfolio's assets,
however, will normally be invested in equity securities, warrants, and options
on equity securities and indices. The Portfolio will ordinarily be invested in
at least three Emerging Market Countries.
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 Emerging Market Countries, as
well as warrants, options on equity securities and indices, options on currency,
futures contracts, options on futures contracts, forward foreign currency
exchange
5
<PAGE> 6
contracts, currency swaps and other non-equity investments. However, such
investments will not, under normal market conditions, exceed 35% of the
Portfolio's total assets. In any event, 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 foreign
issuers 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 Emerging Market investments, its investment
performance will be especially affected by events affecting companies in
Emerging Market Countries. The value and liquidity of Emerging Market
investments may be affected favorably or unfavorably by political, economic,
fiscal, regulatory or other developments in Emerging Market Countries. Foreign
investment in the securities of issuers in Emerging Market Countries is usually
restricted or controlled to some degree. The extent of economic development,
political stability and market depth of different Emerging Market Countries
varies widely. Certain Emerging Market Countries are either comparatively
underdeveloped or are in the process of becoming developed. Emerging Market
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, Emerging Market Countries may
have relatively unstable governments and economies based on only a few
6
<PAGE> 7
industries. Given the Portfolio's investments, the Portfolio will likely be
particularly sensitive to changes in the economies of Emerging Market Countries
as the result of any reversals of economic liberalization in those countries,
political unrest or changes in trading status.
SECURITIES TRADING MARKETS. THE SECURITIES MARKETS IN EMERGING MARKET COUNTRIES
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. Emerging Market Country securities markets are
susceptible to being influenced by large investors trading significant blocks of
securities. Similarly, volume and liquidity in the bond markets in Emerging
Market 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
securities markets in Emerging Market Countries 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 many Emerging Market Countries 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 laws 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.
Settlement of securities transactions 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 liquid securities than 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 to received under certain circumstances. See "How to Redeem
Fund Shares."
THE PORTFOLIO WILL INVEST IN EMERGING MARKET COUNTRIES, IN WHICH POLITICAL
AND ECONOMIC STRUCTURES MAY BE UNDERGOING SIGNIFICANT EVOLUTION AND RAPID
DEVELOPMENT. Such countries may lack the social, political and economic
stability characteristics of the United States. Certain of such countries may
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
Emerging Market Countries relating to limited liability of corporate
shareholders, fiduciary duties of officers and directors, and the bankruptcy of
state enterprises may be less well developed than or different from such laws in
the United States. It may be more difficult to obtain a judgment in a court of
an Emerging Market Country than it is in the United States. In addition,
unanticipated political or social developments may affect the values of the
Portfolio's investments in those countries and the availability to the Portfolio
of additional investments in those countries.
7
<PAGE> 8
Governmental actions can have a significant effect on the economic
conditions in Emerging Market Countries, which could adversely affect the value
and liquidity of the Portfolio's investments. Although some governments in
Emerging Market Countries have recently begun to institute economic reform
policies, there can be no assurances that they will continue to pursue such
policies or, if they do, that such policies will succeed.
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 investments in 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 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.
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<PAGE> 9
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 or
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 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
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<PAGE> 10
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. However, the Portfolio is permitted
to invest 25% or more of its total assets in (i) the securities of issuers
located in any one Emerging Market Country and (ii) securities denominated in
the currency of any one country.
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) is permitted to
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.
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
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<PAGE> 11
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 Emerging Market
Countries, including some enterprises being privatized by such countries, are
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
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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 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
11
<PAGE> 12
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 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
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<PAGE> 13
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 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 many 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 Indosuez Asia Investment Services 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. LGM is ultimately controlled by the Hon. Robert
J. D. Lloyd George, President and Trustee of the
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<PAGE> 14
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).
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.
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 and
South Asia Portfolio (which invests in India and the Indian subcontinent).
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.
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.
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<PAGE> 15
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,
November 30, 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
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,
November 30, 1994, to December 31, 1994, the Fund paid Eaton Vance management
fees
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<PAGE> 16
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, November 30, 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
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
16
<PAGE> 17
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,
November 30, 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 $11,000 (equivalent to 4.8% 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 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
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<PAGE> 18
Uncovered Distribution Charges of the Principal Underwriter. The Fund expects to
begin making service fee payments during the quarter ending December 31, 1995.
The Principal Underwriter may, from time to time, at its own expense,
provide additional incentives to Authorized Firms which employ registered
representatives who sell a minimum dollar amount of the Fund's shares and/or
shares of other funds distributed by the Principal Underwriter. In some
instances, such additional incentives may be offered only to certain Authorized
Firms whose representatives are expected to sell significant amounts of shares.
In addition, the Principal Underwriter may from time to time increase or
decrease the sales commissions payable to Authorized Firms.
The 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
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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 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
18
<PAGE> 19
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 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.
19
<PAGE> 20
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 Emerging Markets Fund
IN THE CASE OF PHYSICAL DELIVERY:
Investors Bank & Trust Company
Attention: EV Marathon Emerging Markets Fund
Physical Securities Processing Settlement Area
89 South Street
Boston, MA 02111
Investors who are contemplating an exchange of securities for shares of the
Fund, or their representatives, are advised to contact Eaton Vance to determine
whether the securities are acceptable before forwarding such securities to IBT.
Eaton Vance reserves the right to reject any securities. Exchanging securities
for Fund shares may create a taxable gain or loss. Each investor should consult
his or her tax adviser with respect to the particular Federal, state and local
tax consequences of exchanging securities for Fund shares.
- --------------------------------------------------------------------------------
IF YOU DON'T HAVE AN AUTHORIZED FIRM, EATON VANCE CAN RECOMMEND ONE.
- --------------------------------------------------------------------------------
HOW TO REDEEM FUND SHARES
- --------------------------------------------------------------------------------
A SHAREHOLDER MAY REDEEM FUND SHARES BY DELIVERING TO THE SHAREHOLDER SERVICES
GROUP, INC., BOS725, P.O. BOX 1559, BOSTON, MA 02104, during its business hours
a written request for redemption in good order, plus any share certificates with
executed stock powers. The redemption price will be based on the net asset value
per Fund share next computed after such delivery. Good order means that all
relevant documents must be endorsed by the record owner(s) exactly as the shares
are registered and the signature(s) must be guaranteed by a member of either the
Securities Transfer Association's STAMP program or the New York Stock Exchange's
Medallion Signature Program, or certain banks, savings and loan institutions,
credit unions, securities dealers, securities exchanges, clearing agencies and
registered securities associations as required by a regulation of the Securities
and Exchange Commission and acceptable to The Shareholder Services Group, Inc.
In addition, in some cases, good order may require the furnishing of additional
documents such as where shares are registered in the name of a corporation,
partnership or fiduciary.
20
<PAGE> 21
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
21
<PAGE> 22
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>
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.
- --------------------------------------------------------------------------------
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.
22
<PAGE> 23
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.
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
23
<PAGE> 24
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 Shareholder 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
24
<PAGE> 25
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 Emerging Markets Fund may be mailed directly to The Shareholder
Services Group, Inc. BOS725, P.O. Box 1559, Boston, MA 02104 at any time
- --whether or not distributions are reinvested. The name of the shareholder, the
Fund and the account number should accompany each investment.
BANK AUTOMATED INVESTING -- FOR REGULAR SHARE ACCUMULATION: Cash investments of
$50 or more may be made automatically each month or quarter from 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.
25
<PAGE> 26
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 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
26
<PAGE> 27
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.
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.
27
<PAGE> 28
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. If the expenses related to the operation of the Fund or the
Portfolio are allocated to Eaton Vance, the Fund's performance will be higher.
28
<PAGE> 29
STATEMENT OF
ADDITIONAL INFORMATION
May 1, 1995
EV MARATHON EMERGING MARKETS 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 Emerging Markets 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.......................................................... 12
Custodian....................................................................... 14
Service for Withdrawal.......................................................... 15
Determination of Net Asset Value................................................ 15
Investment Performance.......................................................... 16
Taxes........................................................................... 17
Portfolio Security Transactions................................................. 19
Other Information............................................................... 21
Independent Certified Public Accountants........................................ 22
Appendix A -- Ratings........................................................... 23
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 B -- Statistical Information........................................... a-24
</TABLE>
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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> 30
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 Emerging Markets 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 in equity securities of companies in countries
with emerging markets ("Emerging Market Countries"). The Fund considers
countries with emerging markets to be all countries that are generally
considered to be developing or emerging countries by the International Bank for
Reconstruction and Development (more commonly referred to as the "World Bank"),
or the International Finance Corporation, as well as countries that are
classified by the United Nations or otherwise regarded by their own authorities
as developing. 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
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<PAGE> 31
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 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 Investments" 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.
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<PAGE> 32
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
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 instru-
4
<PAGE> 33
ments and the hedged asset. Imperfect correlation may be caused by several
factors, including temporary price disparities among the trading markets for the
derivative instrument, the assets underlying the derivative instrument and the
Portfolio assets. Over-the-counter ("OTC") derivative instruments involve an
enhanced risk that the issuer or counterparty will fail to perform its
contractual obligations. Some derivative instruments are not readily marketable
or may become illiquid under adverse market conditions. In addition, during
periods of market volatility, a commodity exchange may suspend or limit trading
in an exchange-traded derivative instrument, which may make the contract
temporarily illiquid and difficult to price. Commodity exchanges may also
establish daily limits on the amount that the price of a futures contract or
futures option can vary from the previous day's settlement price. Once the daily
limit is reached, no trades may be made that day at a price beyond the limit.
This may prevent the Portfolio from closing out positions and limiting its
losses. The staff of the 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
5
<PAGE> 34
trends for the securities held by the Portfolio and futures contracts based on
other financial instruments, securities indices or other indices, the Portfolio
may also enter into such futures contracts as part of its hedging strategy.
All call and put options on securities written by the Portfolio will be
covered. This means that, in the case of a call option, the Portfolio will own
the securities subject to the call option or an offsetting call option so long
as the call option is outstanding. In the case of a put option, the Portfolio
will own an offsetting put option or will have deposited with its custodian cash
or liquid, high-grade debt securities with a value at least equal to the
exercise price of the put option. The Portfolio may only write a put option on a
security that it intends ultimately to acquire for its investment portfolio.
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.
6
<PAGE> 35
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 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 holding 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; or
(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).
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<PAGE> 36
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").
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 their 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 of 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
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<PAGE> 37
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 (*).
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. Director or Trustee and 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.
9
<PAGE> 38
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 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 (60), III, 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
10
<PAGE> 39
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
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
WILLIAM J. AUSTIN, JR. (43), Assistant Treasurer
Assistant 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
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 received 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.
11
<PAGE> 40
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 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.
12
<PAGE> 41
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 agreement may be continued from
year to year after February 28, 1996, 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
13
<PAGE> 42
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, Gardner, 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 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
14
<PAGE> 43
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 additional Fund
shares would be disadvantageous if a sales charge is included in such purchase.
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 fair valuation of the Portfolio's assets under normal market conditions.
Marketable securities listed on foreign or U.S. securities exchanges or in the
NASDAQ National Market System generally 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 on such
National Market 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
15
<PAGE> 44
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.
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.
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<PAGE> 45
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 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 (not including tax-exempt income) for
such year, at least 98% of the excess of its realized capital gains over its
realized capital losses, generally computed on the basis of the one-year period
ending on October 31 of such year, 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
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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 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 separate
category 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 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
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<PAGE> 47
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.
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
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<PAGE> 48
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 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
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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 and 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 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 per
centum of the outstanding shares.
As permitted by Massachusetts law, there will normally be no meetings of
shareholders for the purpose of electing Trustees unless and until such time as
less than a majority of the Trustees of the Trust holding office have been
elected by shareholders. In such an event the Trustees then in office will call
a 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.
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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.
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.
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APPENDIX A
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.
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<PAGE> 52
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.
24
<PAGE> 53
STATEMENT OF ADDITIONAL INFORMATION
PART II
This Part II provides information about EV MARATHON EMERGING MARKETS 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 $1,195,270. For
the period from the start of business, November 30, 1994, to December 31, 1994,
the Adviser earned advisory fees of $318 (equivalent to 0.75% (annualized) of
the Portfolio's average daily net assets for such period). To enhance the net
income of the Portfolio, the Adviser made a reduction of its fee in the amount
of $318.
MANAGER AND ADMINISTRATOR
As of December 31, 1994, the Fund had net assets of $229,131. For the
period from the start of business, November 30, 1994, to December 31, 1994,
Eaton Vance earned management fees of $23 (equivalent to 0.25% (annualized) of
the Fund's average daily net assets for such period). To enhance the net income
of the Fund, Eaton Vance waived its management fee and was allocated expenses in
the amount of $23 and $732, respectively. As of December 31, 1994, the Portfolio
had net assets of $1,195,270. For the period from the start of business,
November 30, 1994, to December 31, 1994, Eaton Vance earned administration fees
of $106 (equivalent to 0.25% (annualized) of the Portfolio's average daily net
assets for such period). To enhance the net income of the Portfolio, Eaton Vance
made a reduction of its administration fee and was allocated expenses in the
amount of $106 and $631, respectively.
DISTRIBUTION PLAN
For the period from the start of business, November 30, 1994, to December
31, 1994, the Fund made sales commission payments to the Principal Underwriter
under the Plan aggregating $67, which amount was used to reduce Uncovered
Distribution Charges. During such period no contingent deferred sales charges
were imposed on early redeeming shareholders. As of December 31, 1994, the
outstanding Uncovered Distribution Charges of the Principal Underwriter
calculated under the Plan amounted to approximately $11,000 (which amount was
equivalent to 4.8% of the Fund's net assets on such day). For the period from
the start of business, November 30, 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 December 31, 1995.
PRINCIPAL UNDERWRITER
For the period from the start of business, November 30, 1994, to December
31, 1994, the Fund paid no repurchase transaction fees to the Principal
Underwriter.
CUSTODIAN
For the period from the start of business, November 30, 1994, to December
31, 1994, the Portfolio paid no fees to IBT. For the period from the start of
business, November 30, 1994, to December 31, 1994, the Fund paid no fees to IBT.
BROKERAGE
For the period from the start of business, November 30, 1994, to December
31, 1994, the Portfolio paid brokerage commissions of $2,170 with respect to
portfolio securities transactions. Of the brokerage commissions of $2,170 paid
during this period, all of such amount was paid in respect of portfolio security
transactions aggregating approximately $405,241 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> 54
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):
<TABLE>
<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................ $ 0 $ 0 $8,750 $ 135,000
Samuel L. Hayes, III............ 0 0 8,865 142,500
Norton H. Reamer................ 0 0 0 135,000
John L. Thorndike............... 0 0 0 140,000
Jack L. Treynor................. 0 0 0 140,000
</TABLE>
- ---------------
(1) The Eaton Vance fund complex consists of 201 registered investment companies
or series thereof.
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 November 30, 1994 through December 31,
1994.
VALUE OF A $1,000 INVESTMENT
<TABLE>
<CAPTION>
VALUE OF VALUE OF TOTAL
INVESTMENT INVESTMENT RETURN TOTAL RETURN
BEFORE AFTER BEFORE AFTER DEDUCTING CDSC**
INVESTMENT INVESTMENT AMOUNT OF DEDUCTING CDSC DEDUCTING CDSC** DEDUCTING ------------------------
PERIOD DATE INVESTMENT ON 12/31/94 ON 12/31/94 CDSC CUMULATIVE ANNUALIZED
- ---------------- --------- ---------- -------------- ---------------- --------- --------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Life of the
Fund* 11/30/94 $1,000 $ 996.00*** $ 946.20*** -0.40%*** -5.38%*** --
</TABLE>
PERCENTAGE CHANGES 5/2/94 - 12/31/94
<TABLE>
<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* -- -0.40%*** -- -- -5.38%*** --
</TABLE>
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 November 30, 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.
*** If a portion of the expenses related to the operation of the Fund had not
been allocated to Eaton Vance, the Fund would have had lower returns.
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
a-2
<PAGE> 55
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 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.
a-3
<PAGE> 56
In calculating daily the amount of uncovered distribution charges,
distribution charges will include the aggregate amount of sales commissions and
distribution fees theretofore paid plus the aggregate amount of sales
commissions and distribution fees which the Principal Underwriter is entitled to
be paid under the Plan since its inception. Payments theretofore paid and
payable under the Plan by the Fund to the Principal Underwriter and contingent
deferred sales charges theretofore paid and payable to the Principal Underwriter
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
a-4
<PAGE> 57
(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 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 14.5% 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. In addition,
as of March 31, 1995, Vincent Baratta, Islip, NY owned beneficially and of
record 37.4% of the outstanding shares of the Fund. To the knowledge of the
Trust, no other person beneficially owns 5% or more of the Fund's outstanding
shares.
a-5
<PAGE> 58
EV MARATHON EMERGING MARKETS FUND
FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1994
<TABLE>
<S> <C> <C>
ASSETS:
Investment in Emerging Markets Portfolio, at value (Note 1A)
(identified cost, $154,559) $153,707
Receivable for Fund shares sold 72,291
Deferred organization expenses (Note 1D) 51,804
Receivable from Administrator 732
--------
Total assets $278,534
LIABILITIES:
Accrued expenses and other liabilities $49,403
-------
Total liabilities 49,403
--------
NET ASSETS for 23,007 shares of beneficial interest outstanding $229,131
========
SOURCES OF NET ASSETS:
Paid-in capital $229,905
Accumulated net investment loss (67)
Accumulated undistributed net realized gain
from the Portfolio 145
Unrealized depreciation of investments from Portfolio (computed on
the basis of identified cost) (852)
--------
Total $229,131
========
NET ASSET VALUE, OFFERING PRICE, AND REDEMPTION PRICE (NOTE 6) PER SHARE
($229,131 / 23,007 shares of beneficial interest) $9.96
========
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
8
<PAGE> 59
STATEMENT OF OPERATIONS
For the period from the start of business,
November 30, 1994, to December 31, 1994
<TABLE>
<S> <C> <C>
INVESTMENT INCOME (Note 1B):
Investment income allocated from Portfolio $ -
Expenses allocated from Portfolio -
------------
Net investment income from Portfolio $ -
Expenses -
Management fee (Note 3) $ 23
Distribution fees (Note 5) 67
Transfer and dividend disbursing agent fees 36
Amortization of organization expenses (Note 1D) 696
------------
Total expenses $ 822
Reduction of management fee (23)
Allocation of expenses to Administrator (732)
------------
Net expenses $ 67
------------
Net investment loss $ (67)
REALIZED AND UNREALIZED GAIN (LOSS) FROM PORTFOLIO:
Net realized gain from foreign currency transactions $ 145
Change in unrealized depreciation of investments and foreign currency (852)
------------
Net realized and unrealized loss (707)
------------
Net decrease in net assets from operations $ (774)
============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
9
<PAGE> 60
FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS
For the period from the start of business,
November 30, 1994, to December 31, 1994
<TABLE>
<S> <C>
INCREASE (DECREASE) IN NET ASSETS:
From operations -
Net investment loss $ (67)
Net realized loss on investment transactions 145
Net decrease in unrealized depreciation of investments (852)
------------
Decrease in net assets from operations $ (774)
Transactions in shares of beneficial interest (Note 4):
Proceeds from sale of shares 229,895
------------
Net increase in net assets $ 229,121
NET ASSETS:
At beginning of period 10
------------
At end of period (including accumulated net investment loss of $(67)) $ 229,131
============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
10
<PAGE> 61
FINANCIAL HIGHLIGHTS
For the period from the start of business,
November 30, 1994, to December 31, 1994
<TABLE>
<S> <C>
NET ASSET VALUE, beginning of period $ 10.00
--------
Income (loss) from Investment Operations:
Net investment loss $ (0.003)
Net realized and unrealized loss on investments (0.037)
--------
Total loss from investment operations $ (0.040)
--------
NET ASSET VALUE, end of period $ 9.96
========
TOTAL RETURN*** (0.40)%
RATIOS/SUPPLEMENTAL DATA:**
Net assets, end of period (000 omitted) $229
Ratio of net expenses to average daily net assets (1) 0.75%*
Ratio of net investment loss to average daily net assets (0.75)%*
</TABLE>
(1) Includes the Fund's share of Emerging Markets Portfolio's allocated
expenses.
* Annualized
** The expenses related to the operation of the fund reflect an assumption of
expenses by the investment advisor. Had such action not been taken, the ratios
would have been as follows:
<TABLE>
<S> <C>
Net Investment Loss Per Share (0.037)
Ratios (to average daily net assets)
Expenses 9.14%*
Net Investment Income (9.14%)*
</TABLE>
*** Total return is calculated assuming a purchase at the net asset value on the
first day and a sale at the net asset value on the last day of each period
reported. Dividends and distributions, if any, are assumed to be reinvested at
the net asset value on the record date.
SEE NOTES TO FINANCIAL STATEMENTS
11
<PAGE> 62
NOTES TO FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
(1) SIGNIFICANT ACCOUNTING POLICIES
EV Marathon Emerging Markets 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 Emerging Markets 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 (12.9% 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.
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.
- -------------------------------------------------------------------------------
(2) DISTRIBUTIONS TO SHAREHOLDERS
It is the present policy of the Fund to make 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 at least one distribution annually of all or substantially all of
the net realized capital gains (reduced by any available capital loss carry
forwards from prior years) allocated by the Portfolio to the Fund, if any.
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. The Fund distinguishes between distributions on a tax basis and a
financial reporting basis. Generally accepted
12
<PAGE> 63
accounting principles require that only distributions in excess of tax basis
earnings and profits be reported in the financial statements as a return of
capital. Differences in the recognition or classification of income between the
financial statements and tax earnings and profits which result in temporary
over- distributions for financial statement purposes are classified as
distributions in excess of net investment income or accumulated net realized
gains. Permanent differences between book and tax accounting relating to
distributions are reclassified to paid-in capital.
- -------------------------------------------------------------------------------
(3) 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, November 30, 1994 to December 31, 1994, the fee was equivalent to
0.25% of the Fund's average net assets for such period and amounted to $23. To
enhance the net income of the Fund, the Administrator waived their management
fee and was allocated expenses in the amount of $23 and $732, respectively.
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 average
daily 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
custodian 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.
- -------------------------------------------------------------------------------
(4) SHARES OF BENEFICIAL INTEREST
The Declaration of Trust permits the Trustees to issue an unlimited number of
full and fractional shares of beneficial interest (without par value).
Transactions in Fund shares were as follows:
<TABLE>
<CAPTION>
FOR THE PERIOD FROM THE START OF
BUSINESS, NOVEMBER 30, 1994
TO DECEMBER 31, 1994
--------------------------------
<S> <C>
Sales 23,006
Redemptions -
------
Net increase 23,006
======
</TABLE>
13
<PAGE> 64
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 the 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 all amounts theretofore paid or
payable to EVD by Lloyd George Management (Bermuda) Limited, the investment
adviser of the Portfolio (the Adviser) in connection with 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 $67 as payable to EVD for the period from
the start of business, November 30, 1994 to December 31, 1994, representing
0.75% of average daily net assets. The amount payable by the Adviser to EVD,
equivalent to 0.15% of the Fund's annual average daily net assets is paid from
the Adviser's own resources, not Fund assets. At December 31, 1994, the amount
of Uncovered Distribution Charges of EVD calculated under the Plan was
approximately $11,000.
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
first and second year of redemption after purchase, declining one percentage
point each year thereafter. No CDSC is levied on shares which have been sold to
EVM or its affiliates or to their respective employees or clients. CDSC charges
are paid to EVD to reduce the amount of Uncovered Distribution Charges
calculated under the Fund's Distribution Plan. CDSC charges received when no
Uncovered Distribution Charges exist will be retained by the Fund. There was no
CDSC paid by shareholders for the period from the start of business, November
30, 1994 to December 31, 1994.
- -------------------------------------------------------------------------------
(7) INVESTMENT TRANSACTIONS
Increases and decreases in the Fund's investment in the Portfolio aggregated
$157,614 and $3,200, respectively.
14
<PAGE> 65
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 Emerging Markets 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, November 30, 1994, to December 31,
1994. These financial statements and financial highlights are the responsibility
of the Fund's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based 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 EV Marathon Emerging
Markets 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, November 30,
1994 to December 31, 1994, in conformity with generally accepted accounting
principles.
DELOITTE & TOUCHE LLP
Boston, Massachusetts
February 8, 1995
15
<PAGE> 66
Emerging Markets Portfolio
Annual Report - December 31, 1994
- --------------------------------------------------------------------------------
COMMON STOCKS--35.2%
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
ARGENTINA -2.1% <C> <C>
Cia Naviera Perez Companc B 3,600 $ 14,832
YPF Sociedad Anonima ADR 460 9,832
----------
$ 24,664
----------
BRAZIL -1.6%
Usiminas Siderurg Minas ADR 1,425 $ 19,594
----------
CHILE -0.8%
Banco Osorno Y LA Union ADR 860 $ 9,245
----------
HONG KONG -11.6%
HSBC Holdings PLC 4,000 $ 43,169
Hutchison Whampoa 10,000 40,455
Jardine Matheson HK Registry 4,000 28,564
National Mutual Limited 40,000 26,368
----------
$ 138,556
----------
INDONESIA -3.0%
PT Indonesia Satellite ADR 1,000 $ 35,750
----------
MAYLASIA -3.5%
Land & General Behard 10,000 $ 41,512
----------
MEXICO -3.3%
Grupo Tribasa SA ADR 510 $ 8,479
Telefonos de Mexico ADR 750 30,750
----------
$ 39,229
----------
PHILIPPINES -6.9%
Bacnotan Consolidated Industries 4,000 $ 43,647
Philippine Long Distance Telephone 700 38,945
----------
$ 82,592
----------
THAILAND -2.4%
Krung Thai Bank Ltd. (Local) 9,000 $ 29,754
----------
TOTAL COMMON STOCKS
(IDENTIFIED COST, $427,558) $ 420,896
OTHER ASSETS, LESS LIABLITIES -64.8% 774,374
----------
NET ASSETS - 100% $1,195,270
==========
</TABLE>
ADR-AMERICAN DEPOSITARY RECEIPT
SEE NOTES TO FINANCIAL STATEMENTS
16
<PAGE> 67
FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1994
<TABLE>
<S> <C> <C>
ASSETS:
Investments, at value (Note 1A) (Identified cost, $427,558) $ 420,896
Cash 1,005,510
Deferred organization expenses (Note 1C) 37,446
Receivable from Administrator 631
--------------
Total assets $ 1,464,483
LIABILITIES:
Payable for investments purchased $ 231,136
Accrued expenses and other liabilities 38,077
--------------
Total liabilities 269,213
--------------
NET ASSETS applicable to investors' interest in Portfolio $ 1,195,270
==============
SOURCES OF NET ASSETS:
Net proceeds from capital contributions and withdrawals $ 1,201,975
Net unrealized appreciation of investments (computed on the
basis of identified cost) (6,662)
Net unrealized depreciation of foreign currencies (43)
--------------
TOTAL $ 1,195,270
==============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
17
<PAGE> 68
FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
For the period from the start of business, November 30, 1994,
to December 31, 1994
<TABLE>
<S> <C> <C> <C>
INVESTMENT INCOME:
Income -
Dividends $ -
Interest -
-------------
Total income $ -
Expenses -
Investment adviser fee (Note 2) $ 318
Administration fee (Note 2) 106
Amortization of organization expense (Note 1C) 504
Miscellaneous 127
-------------
Total expenses 1,055
Deduct:
Reduction of investment adviser fee $318
Reduction of administration fee 106
Allocation of expenses to administrator 631
------------
Total deducted 1,055
-------------
Net expenses -
-------------
Net investment income $ -
-------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized gain on foreign currency transactions $ 1,132
-------------
Change in unrealized appreciation
Investments $ (6,662)
Foreign currency (43)
-------------
Net unrealized depreciation (6,705)
-------------
Net realized and unrealized loss on investments $ (5,573)
-------------
Net decrease in net assets from operations $ (5,573)
=============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
18
<PAGE> 69
STATEMENT OF CHANGES IN NET ASSETS
For the period from the start of business November 30, 1994 to December 31, 1994
<TABLE>
<S> <C>
INCREASE (DECREASE) IN NET ASSETS
From operations:
Net (loss) investment income $ -
Net realized gain on foreign currency transactions 1,132
Net increase in unrealized depreciation of investments (6,705)
----------
Decrease in net assets from operations (5,573)
----------
Capital transactions:
Contributions $1,107,223
Withdrawals (6,400)
----------
Increase in net assets resulting from capital transactions $1,100,823
----------
Net increase in net assets $1,095,250
NET ASSETS:
At beginning of period 100,020
----------
At end of period $1,195,270
==========
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
19
<PAGE> 70
FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
SUPPLEMENTARY DATA
<TABLE>
<CAPTION>
For the period
from the start of business
November 30, 1994 to
December 31, 1994
--------------------------
<S> <C>
RATIOS (As a percentage of average net assets):
Expenses 0%
Net investment income 0%
PORTFOLIO TURNOVER 0%
</TABLE>
The operating expenses of the Portfolio reflect a reduction of the Investment
Adviser and Administrator fees as well as an allocation of expenses to the
Administrator. Had such action not been taken, the annualized ratios would have
been as follows:
<TABLE>
<S> <C>
Expenses 2.21%
Net Investment loss (2.21%)
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
20
<PAGE> 71
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
(1) SIGNIFICANT ACCOUNTING POLICIES
Emerging Markets 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. 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, 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 has elected to be treated as a partnership for
Federal tax purposes. No provision is made by the Portfolio for federal or state
taxes on any taxable income of the Portfolio because each investor in the
Portfolio is 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 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. Withholding taxes on foreign dividends and
capital gains have been provided for in accordance with the Trust's
understanding of the applicable countries' tax rules and rates.
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. 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. The Portfolio's investment in
financial futures contracts is designed only to hedge against anticipated future
changes in interest or currency exchange rates. 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.
21
<PAGE> 72
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
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 realized and 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 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 million, and at reduced rates as daily net assets exceed
that level. For the year ended December 31, 1994 the adviser fee was 0.75%
(annualized) of average net assets. To enhance the net income of the portfolio,
the adviser made a reduction of its fee in the amount of $318. In addition, an
administration 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 million,
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. To enhance the net income of the Portfolio, the administrator made a
reduction of its fee and was allocated expenses in the amount of $106 and $631,
respectively. 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 directors/trustees of the above
organizations.
22
<PAGE> 73
(3) INVESTMENT TRANSACTIONS
Purchases of investments, other than short-term obligations, aggregated
$427,558. There were no sales of investments during the period.
- --------------------------------------------------------------------------------
(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 $ 427,558
==============
Gross unrealized depreciation $ 9,610
Gross unrealized appreciation 2,948
--------------
Net unrealized depreciation $ 6,662
==============
</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.
23
<PAGE> 74
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
(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 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.
24
<PAGE> 75
INDEPENDENT AUDITORS' REPORT
To the Trustees and Investors of
Emerging Markets Portfolio:
We have audited the accompanying statement of assets and liabilities, including
the portfolio of investments, of Emerging Markets 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,
November 30, 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 Emerging Markets 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,
November 30, 1994, to December 31, 1994, in conformity with generally accepted
accounting principles.
DELOITTE & TOUCHE LLP
Boston, Massachusetts
February 8, 1995
25
<PAGE> 76
APPENDIX B
a-7
<PAGE> 77
THE EMERGING MARKETS INVESTMENT OPPORTUNITY
A dramatic shift has occurred in the
world's investment markets in
recent years
In 1970, U.S. stocks represented just over two-thirds of the world's total
equity market capitalization and dominated global markets. By the end of 1994,
the situation was just the opposite:the U.S. share had declined to 33 percent,
while foreign markets grew to represent 67 percent of world capitalization.
The Growing Importance of
Foreign Stock Markets (pie chart)
<TABLE>
<S> <C> <C>
1970 Foreign 32% U.S. 68%
1994 Foreign 67% U.S. 33%
</TABLE>
Sources: Morgan Stanley Capital International,
International Finance Corporation
Today, this historic trend toward foreign investment is continuing, but with the
focus increasingly on emerging markets, which in recent years have undergone
remarkable growth
- - The market capitalization of emerging stock markets now exceeds $1.4 trillion,
up from $148 million in 1985.
- - During the same period, the emerging stock markets' share of world stock
market capitalization jumped to 10.1 percent, from 4 percent in 1985 . . .
- - Emerging markets constitute 15 percent of the value traded in shares on world
stock markets and include 45 percent of all companies listed on the world's
stock exchanges, according to the International Finance Corporation (IFC),
and .. .
- - Institutional investment in the stocks of emerging market countries has grown
to an estimated $100 billion today, up from a few hundred million dollars in
the early 1980s, according to the IFC.
As emerging markets have grown in capitalization from $148 million to $1.4
trillion . . . (pie chart)
<TABLE>
<S> <C>
Latin America 29.2%
Asia 52.7%
Europe, Middle East, Africa 18.1%
1994: $1,427,089,000,000
Latin America 35.7%
Asia 24.6%
Europe, Middle East, Africa 39.7%
1985: $148,340,000
</TABLE>
Source: Morgan Stanley Capital International,
International Finance Corporation Fact Book, 1994
. . . so has their investment significance as their Share of world market
capitalization has grown from 4% to 10.1% (mountain chart)
<TABLE>
<S> <C>
'85 4.2%
'86 3.7%
'87 3.7%
'88 4.1%
'89 6.3%
'90 6.5%
'91 7.5%
'92 8.8%
'93 11.6%
'94 10.1%
</TABLE>
Source: International Finance Corporation, The IFC Indexes
a-8
<PAGE> 78
Emerging Markets record of performance
The Performance Record of Emerging markets
Average annual total returns for respective five-, three- and
one-year periods ended December 31, 1994 (bar chart)
<TABLE>
<CAPTION>
5 Years 3 Years 1 Year
<S> <C> <C> <C>
Emerging Markets 20.9% 21.8% -7.3%
Developed Countries 1.8% 8.2% 8.1%
</TABLE>
Source: Emerging Markets: Morgan Stanley Capital International Emerging Markets
Free (EMF) Index. EMF is a market capitalization weighted stock index composed
of a sample of companies representative of the market structure of 19 Asian,
Latin American and European emerging markets which are open to foreign
investments. Developed Countries: Morgan Stanley Capital International EAFE
Index. EAFE is composed of a sample of companies representative of the market
structure of 20 European and Pacific Basin countries. The indices are unmanaged.
Investors may not invest directly in an index. All distributions are reinvested.
All figures are historical and are for illustrative purposes only and are not
meant to be indicative of the future performance of EV Traditional Emerging
Markets Fund. The return and principal value of an investment in the Fund are
not guaranteed and will fluctuate, so that shares, when redeemed, may be worth
more or less than original cost.
Over the past five years, the stock markets of the world's emerging countries
have generated far higher average annual total returns than the stock markets of
the developed countries.
The one-year period ended December 31, 1994 is the one exception. The 1994
average total return of -7.3 percent recorded by the 19 countries tracked in the
Morgan Stanley Capital International Index reflected diverging returns in Asia
and South America and underscores the importance of diversification when
investing in emerging market countries. In fact, six of the nineteen countries
turned in positive results, with Brazil's +65.7 percent leading the way, versus
the -50.5 percent of Turkey on the downside. While past performance is no
guarantee of future results, here is the 1994 performance, country by country:
<TABLE>
<CAPTION>
<S> <C>
Brazil +65.7%
Chile +44.8
Korea +23.7
Columbia +21.3
Portugal +12.0
India +9.9
Greece -0.8
Sri Lanka -3.0
Pakistan -7.1
Philippines -7.9%
Jordan -8.7
Thailand -9.0
Venezuela -14.6
Malaysia -20.1
Argentina -23.6
Indonesia -25.9
Mexico -40.6
Turkey -50.5
</TABLE>
An open-end mutual fund - EV Marathon Emerging Markets Fund - harnesses the
investment potential of the emerging markets for individual investors
EV Traditional Emerging Markets Fund seeks long-term capital appreciation by
investing its assets in the Emerging Markets Portfolio, a diversified open-end
investment company having the same investment objective as the Fund. The Fund is
sponsored by Eaton Vance, a Boston-based investment firm founded in 1924, and
managed on a day-to-day basis by Lloyd George Management, an investment adviser
with extensive hands-on experience in the emerging markets countries.
Of course, while Eaton Vance believes that the opportunities for long-term
capital appreciation by investing in emerging markets are excellent, investors
should consider the risks involved in committing a portion of their assets to
the Fund.
Such risks, for example, 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. In addition, foreign securities markets may be less liquid, more
volatile and subject to less government supervision than in the United States.
Further, there is no guarantee that the economies or stock markets of the
emerging markets countries will continue to grow as they have in the past, or
that EV Traditional Emerging Markets Fund will benefit from such growth. Shares
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 of, or guaranteed
by, any depository institution. Shares are subject to investment risks,
including possible loss of principal invested.
a-9
<PAGE> 79
What and where are Emerging Markets?
Emerging markets are found in developing economies. An emerging market is
frequently associated with an economy in political, economic or financial
transition. Often, it is in the process of changing from a managed, state-run,
centralized economy to market-driven, entrepreneurial economy.
Latin America East Asia South Asia Europe/
Middle East/
Argentina China India Africa
Brazil Korea Indonesia Greece
Chile Philippines Malaysia Hungary
Columbia Taiwan Pakistan Jordan
Mexico Sri Lanka Nigeria
Peru Thailand Poland
Venezuela Portugal
Turkey
Zimbabwe
"Potential" is the one word that best defines today's emerging markets. Emerging
markets represent 20 percent of world's Gross National Product, are the world's
fastest growing economies, and house 85 percent of the world's population and
much of the planet's natural resources, according to the IFC. Emerging markets
clearly have the potential for further growth.
Emerging Markets: (pie charts)
85% of world population
20% of world gnp
Emerging Markets' Share of World Population, 1992: 85%
Developed Markets' Share: 15%
Emerging Markets' Share of World GNP, 1992: 20%
Developed Markets' Share: 80%
Source: IFC Emerging Stock Markets Factbook, 1994
Some recent political, economic and
financial changes in the Emerging
Markets of
...
Asia... Asia houses the world's largest population. Its economies are growing
vigorously and its markets have large and fast growing capitalizations.
Asian currencies are closely linked to the U.S. dollar while such underlying
cultural factors as education, literacy, the work ethic, family and savings are
still strong and could bode well for future decades of growth.
Source: Lloyd George Management
Latin America... The region is beginning to boom. Most nations have begun
privatization programs, and nowhere else in the world is the unlocking of
capital flows so obviously beneficial as between the U.S. and South America. The
transformation of Latin America as a destination for investors in the past 10
years is nothing short of remarkable. For example, in the late 1970s Chile
pioneered the way from state interventionism towards free market reforms, and
Argentina followed in the late 1980s. Peru has cut its budget deficit and
reduced inflation and Paraguay has opened its economy to foreign investment.
Sources: Lloyd George Management and Standard and Poor's
Europe/Middle East/Africa... With the disintegration of the USSR, the people of
Eastern Europe have become politically and economically independent for the
first time in modern history. Export growth is accelerating across the region.
The Eastern European countries, with their competitive wage and exchange rate
conditions, look likely to be key beneficiaries of rising West European demand.
Their export growth rates of over 10 percent already exceed those of Southern
Europe.
Source: Morgan Guaranty Trust Company
a-10
<PAGE> 80
CONSIDERABLE POTENTIAL FOR GROWTH
What all of the world's emerging markets have in common is considerable
potential for growth, as their improving standards of living and productivity
lead to higher wages, increased savings and greater domestic consumption. This
potential for growth is being fueled by the political, economic and financial
changes in the emerging markets that are helping to boost productivity, attract
foreign investment, cut tariff rates, increase industrial output, foster export
activity and trigger consumer demand for domestically produced and imported
goods.
WHILE EMERGING MARKET COUNTRIES ENJOY VIGOROUS
YEAR-TO-YEAR GAINS IN GROSS DOMESTIC PRODUCT . . .
[bar chart]
Annual Real (inflation-adjusted) GDP Growth Rates
<TABLE>
<CAPTION>
Emerging Markets Developed Countries
<S> <C> <C>
1991 4.4% 0.8%
1992 5.9 1.7
1993 6.1 1.1
1994 5.5 2.1
1995E 5.8 2.7
</TABLE>
Past performance is no guarantee of future growth. Sources: International
Monetary Fund, Organization for Economic Cooperation and Development
. . . There's Still Attractive Potential for Growth in Domestic Consumption and
Factory Wages.
1994 Average Factory Wages per Month ($U.S.) (bar chart)
<TABLE>
<CAPTION>
Developed Countries
<S> <C>
Japan $3,574
USA $2,041
Emerging Markets
South Korea $1,247
Taiwan $1,208
Singapore $1,191
Hong Kong $1,140
Argentina $800
Mexico $446
Chile $408
Brazil $357
Malaysia $346
Thailand $156
Philippines $124
China $82
Indonesia $66
</TABLE>
Source: Lloyd George Management Ltd.
GDP per head,
$PPP*, 1992
Telephone lines per
1,000, 1992
TVs per 1,000
people, 1994E
Cars per 1,000
people, 1994E
McDonald's restaurants
per million people, 1994E
United States
South Korea
Mexico
Russia
Hungary
Brazil
China
India
<TABLE>
<S> <C> <C> <C>
23,120 8,950 7,490 6,220
5,740 5,240 1,910
1,210
565 363 75 153
125 68 10
8
843 216 655 640
420 190 103
23
566 65 76 100
300 81 2
3
36.00 0.60 1.00 0.01
2.00 1.00 0.02
0.00
</TABLE>
*Based on purchasing power parity, which compares the cost of purchasing a
typical bundle of goods and services in each of the listed domestic markets,
weighing 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.
Sources: World Bank, International Monetary Fund, Organization for Economic
Cooperation & Development, International Labor Organization
a-11
<PAGE> 81
THE FUND OFFERS INVESTORS THE POTENTIAL TO
BENEFIT FROM THE GROWTH OF THE EMERGING MARKETS
The investment objective of EV Marathon Emerging Markets Fund is long-term
capital appreciation.
The Fund offers investors the potential to benefit from the economic
development and growth of emerging markets. It invests in interests in the
Emerging Markets Portfolio. The Portfolio invests primarily in equities traded
on the securities exchanges in the emerging market countries.
PORTFOLIO INVESTMENTS INCLUDE EQUITY
SECURITIES OF COMPANIES IN COUNTRIES
WITH EMERGING MARKETS
The countries in which the Portfolio may invest include emerging market
countries in Asia, Latin America, the Middle East, Eastern Europe, Southern
Europe, Africa and the region comprising the former Soviet Union.
THE BENEFITS OF DIVERSIFYING
INTO FOREIGN MARKETS
Adding foreign stocks to a domestic portfolio may help increase overall total
return while decreasing volatility.
Diversification may benefit investors because not all markets move in tandem.
For example, during periods when the U.S. markets decline, the foreign markets
do not necessarily follow suit. As the graph indicates, adding approximately 30
percent foreign holdings to an all-domestic portfolio increased return and
reduced overall volatility. Past performance, of course, is not indicative of
future results.
[Graph]
Average Annual Returns: 6/29/84 - 12/31/94 (hypothetical line chart)
19%
18%
17%
16%
15%
100% investment in foreign stocks
20 - 40% investment in foreign stocks
100% investment in U.S. stocks
High Volatility Low Volatility
Source: International Finance Corporation
a-12
<PAGE> 82
THE ADVISER, LLOYD GEORGE MANAGEMENT, HAS EXTENSIVE,
HANDS-ON EXPERIENCE IN THE EMERGING MARKET COUNTRIES
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.
Lloyd George Management, the Portfolio's investment adviser, comprises a group
of highly qualified and experienced investment professionals. Individually and
collectively, they have extensive hands-on experience in the securities markets
around the world, including the management of several regional mutual funds
focusing on emerging markets.
Based in Hong Kong, Lloyd George Management is ideally situated to monitor the
pulse of the emerging market countries, select the securities for the Portfolio
and manage, on a day-to-day basis, its assets.
[Insert with the following caption and a picture of ROBERT LLOYD GEORGE
"The political map of the world in the 1990s is radically different from that of
the previous 50 years. The end of the Cold War has changed the power balance in
every corner of the globe as the former communist nations have rejoined the
world trading system. Democracy has been reborn in Latin America and Southern
Africa. Many of the former European colonies in Asia and Africa have, for the
first time in a generation, opened up for foreign investment. Capital now flows
freely across boundaries in search of the best investment returns, which are
usually found in countries with the highest economic growth. And the highest
economic growth is now frequently found in the emerging market countries."]
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.
- - There's no initial sales charge when you invest in EV Marathon Emerging
Markets 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 Eaton Vance Funds with
the same distribution plan within the same family. 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 Emerging Markets 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.
a-13
<PAGE> 83
EV MARATHON
EMERGING
MARKETS FUND
Ask your financial adviser how EV MARATHON EMERGING MARKETS FUND might fit into
your portfolio.
Eaton Vance Distributors, Inc.
24 Federal Street
Boston, MA 02110
<PAGE> 84
SPONSOR AND MANAGER OF EV MARATHON
EMERGING MARKETS FUND
Administrator of Emerging Markets Portfolio
Eaton Vance Management
24 Federal Street
Boston, MA 02110
ADVISER OF EMERGING MARKETS PORTFOLIO EV MARATHON
Lloyd George Investment Management EMERGING MARKETS
(Bermuda) Limited FUND
3808 One Exchange Square
Central, Hong Kong
-----------------------
PRINCIPAL UNDERWRITER
Eaton Vance Distributors, Inc.
24 Federal Street
Boston, MA 02110
(800)225-6265
CUSTODIAN STATEMENT OF ADDITIONAL
Investors Bank & Trust Company INFORMATION
24 Federal Street MAY 1, 1995
Boston, MA 02110
TRANSFER AGENT
The Shareholder Services Group, Inc.
BOS725
P.O. Box 1559
Boston, MA 02104
(800) 262-1122
AUDITORS
Deloitte & Touche LLP
125 Summer Street
Boston, MA 02110
EV MARATHON EMERGING MARKETS FUND
24 FEDERAL STREET
BOSTON, MA 02110
M-EMSAI
