<PAGE>
INVESTMENT ADVISER OF
TOTAL RETURN PORTFOLIO
Boston Management and Research
24 Federal Street
Boston, MA 02110
ADMINISTRATOR OF EV TRADITIONAL
TOTAL RETURN FUND
Eaton Vance Management
24 Federal Street
Boston, MA 02110
PRINCIPAL UNDERWRITER
Eaton Vance Distributors, Inc.
24 Federal Street
Boston, MA 02110
(800) 482-8260
CUSTODIAN
Investors Bank & Trust Company
89 South Street
P.O. Box 1537
Boston, MA 02205-1537
TRANSFER AGENT
First Data Investor Services Group, Inc.
P.O. Box 5123
Westborough, MA 01581-5123
INDEPENDENT ACCOUNTANTS
Coopers & Lybrand L.L.P.
One Post Office Square
Boston, Ma 02109
This report must be preceded or accompanied by a current prospectus which
contains more complete information on the Fund, including its distribution plan,
sales charges and expenses. Please read the prospectus carefully before you
invest or send money.
EV TRADITIONAL TOTAL RETURN FUND
24 FEDERAL STREET
BOSTON, MA 02110 T-TMSRC-1/97
[Logo]
[Graphic Omitted]
EV Traditional
Total Return
Fund
Annual
Shareholder Report
December 31, 1996
<PAGE>
To Shareholders
EV Traditional Total Return Fund had a total return of 7.0% for the year ended
December 31, 1996. This return, which did not include the 4.75% initial sales
charge, resulted from income and capital gain distributions of $0.522 and $0.45
per share, respectively, offset in part by a $0.36 decline in the Fund's net
asset value from $9.13 per share to $8.77 per share.
By comparison, the average total return for mutual funds in the Lipper Utility
Funds Category,* which consists of 90 mutual funds primarily invested in
utility stocks, was 9.9% during the year.*
DESPITE A GOOD YEAR FOR THE ECONOMY, RISING INTEREST RATES HINDERED UTILITY
STOCKS...
The U.S. economy in 1996 experienced a year of growth, low inflation, and rising
employment. The annualized rate of economic growth, as measured by the U.S.
Commerce Department's quarterly report of Gross Domestic Product (GDP), was
2.0%, 4.7%, 2.1%, and 4.7%, for the four quarters of the year, respectively.
Inflation, as measured by the Consumer Price Index (CPI), was 3.3% for the year
as a whole (not seasonally adjusted). Unemployment remained at a low level of
5.3% in December.
In contrast to the stock market, the bond market did not fare as well in 1996.
The yield on the 30-year Treasury bond, a bellwether of bond market activity,
rose to 6.64% by December 31, 1996, from 6.02% at the beginning of the year. The
Lehman Brothers Government/Corporate Bond Index* -- an unmanaged index of
government and corporate bonds -- had a total return of only 2.9% for the year.
The general upward trend of interest rates had an adverse effect on the prices
of electric utility stocks, which are correlated with interest rate movements.
As a result, utility stocks underperformed the overall stock market, as
measured by the S&P 500 Index,* a broadly based, unmanaged index of common
stocks traded in the U.S., which had a total return of 22.9% for the year.
SIGNIFICANT CHANGES AFFECTED BOTH THE ELECTRIC UTILITY AND TELECOMMUNICATIONS
INDUSTRIES IN 1996...
Three significant developments in 1996 illustrated the vast changes occurring in
the electric utility and telecommunications industries: the passage of the
Telecommunications Reform Act; the continued deregulation of the electric
utility industry; and a wave of merger and acquisition activity in both
industries. Change introduces new risks and creates investment opportunities. In
such an environment, careful selection and diversification are critical to
investment success.
Sincerely,
/s/M. Dozier Gardner
[photo of M. Dozier Gardner] M. Dozier Gardner
President
February 7, 1997
-------------------------------------------------------------------------
Fund shares are not guaranteed by the FDIC and are not
deposits or other obligations of, or guaranteed by, any
depository institution. Shares are subject to investment risks,
including possible loss of principal invested.
-------------------------------------------------------------------------
*It is not possible to invest directly in an index or a Lipper category.
<PAGE>
Management Discussion
An interview with Timothy P. O'Brien, Vice President and Portfolio Manager of
the Total Return Portfolio.
Q. HOW WOULD YOU CHARACTERIZE THE ELECTRIC UTILITY AND TELECOMMUNICATIONS
INDUSTRIES OVER THE PAST YEAR?
A. Both industries experienced significant change in 1996. Interest rates were
rising during a good portion of the year, which hindered the performance of
electric utility stocks, and the passage of the Telecommunications Reform Act
in February led to a great deal of uncertainty within that industry. Although
there was a great deal of merger & acquisition activity in both industries,
this did not really increase stock prices. In the telecommunications
industry, the acquisition prices were, in many cases, at or below the current
share prices. Bell Atlantics acquisition of Nynex at a below-market price is
one such example. In the electric utility industry, most transactions have
been held up by regulatory obstacles. The high level of M&A activity is
indicative of significant changes in these two industries, both of which are
undergoing deregulation and reform. As this restructuring continues, both
industries will be characterized by a combination of opportunity and
uncertainty. However, this environment presents us with the exciting
challenge of ferreting out those companies which can succeed in their newly
restructured industries.
Q. WHEN DO YOU ANTICIPATE THAT INCREASED PRODUCTIVITY AND EFFICIENCY WILL
TRANSLATE INTO HIGHER STOCK PRICES FOR ELECTRIC UTILITY COMPANIES AND/OR
LOWER RATES FOR CONSUMERS?
A. It will take some time, because many of the acquisitions that have been
announced have not yet been consummated. A number were announced two years
ago and still have not been completed. It is very difficult to merge electric
utilities in this country due to the archaic regulatory structure which is
still in place. As a result, more mergers are occurring between electric and
gas utilities, where fewer anti-trust restrictions exist. As regulations
slowly change, more and more deals that make economic sense and are clearly
in the public interest will likely fall into place. When consolidation among
electric utility companies begins to move forward more rapidly, the economies
of scale needed to lower rates will be achieved.
[photo of Timothy P. O'Brien]
Q. IS THERE ANY UPCOMING LEGISLATION WHICH WILL AFFECT ELECTRIC UTILITY
COMPANIES?
A. There has been a great deal of activity at the state level -- especially
dealing with so-called "stranded investments", which are power generating
facilities that have been replaced by less expensive power sources.
California, Massachusetts and Rhode Island are examples of states which have
been more innovative in dealing with regulatory reform. However, federal
legislation, which would preempt the states, is probably unlikely in the near
term.
Q. HOW WELL HAS THE TELECOMMUNICATIONS REFORM ACT WORKED?
A. The Act was intended to inject competition into the local telephone market
and to favor facilities-based competition over resale competition. In the
year since the Acts passage, there has been gradual -- if slow -- progress. I
suspect that the main decision points will be worked out within the judicial
system and the Federal Communications Commission (FCC) over the next several
years. Clearly, the local telephone companies, which have monopolies in their
areas, would like to stall the process for as long as possible -- which, in
fact, is what they are doing. The big long distance companies, meanwhile, are
experiencing a loss of market share in their core businesses.
Q. HOW HAS THE FUND'S RETURN COMPARED WITH THOSE OF OTHER UTILITY FUNDS?
A. Through the third quarter of this year the Fund was among the top Funds in
its peer group. During the fourth quarter, however, we were slightly
underweighted in natural gas stocks, and very underweighted in
telecommunications stocks -- both of which performed very well in the final
quarter of 1996. As a result, we ended the year with a slight
underperformance. It is important to note, however, that past performance is
not an indication of future results, and that it is often more telling to
look at the performance of a fund over a long period, such as three to five
years, rather than over one quarter or one year.
Q. WHAT STOCKS WOULD YOU LIKE TO HIGHLIGHT FOR SHAREHOLDERS READING THIS REPORT?
A. Edison International, a California utility which is one of the top holdings
that we discussed in the June 30, 1996 report, is worth mentioning again. The
price had dropped significantly due to legislative problems regarding
stranded assets. We were able to accumulate shares at these lower prices
during the first four months of this year and benefited when the legislation
worked out in the companys favor. We knew the company had relatively low risk
and was a good value. We also suspected that the stranded asset problem would
be resolved. As it turned out, our analysis proved correct, and the stock
appreciated very nicely in the second half of the year.
Q. WHAT ARE THIS FUND'S GREATEST STRENGTHS?
A. Historically, this Fund has had a competitive dividend, which has improved
over the years. We were forced to cut the dividend several times in
1993-1994, but have raised it since then to the point where the Fund is now
one of the top-yielding utility funds available. Obviously, it is impossible
to guarantee that this yield will be sustained, but we have found
opportunities over the years to boost the yield and will continue to seek
them. In addition to the yield, there is potential for capital appreciation,
as the performance of the first three quarters of this year and that of last
year illustrates.
INVESTING IN HIGH-QUALITY HOLDINGS WITH ATTRACTIVE YIELDS...
TOP 10 EQUITY HOLDINGS*
Enserch Corp.
Florida Progress Corp.
DPL, Inc.
Cali Realty, Inc.
CINergy Corp.
Edison International
FPL Group, Inc.
NIPSCO Industries, Inc.
PowerGen PLC
Texas Utilities, Inc.
IN A VARIETY OF INDUSTRY SECTORS AND FINANCIAL INSTRUMENTS...
PORTFOLIO SECTOR BREAKDOWN*
<TABLE>
<CAPTION>
CONVERTIBLE
PREFERRED CORPORATE PREFERRED FINANCIAL NATURAL GAS CONVERTIBLE TELEPHONE ELECTRIC
STOCK BONDS STOCK STOCKS UTILITIES BONDS REITS UTILITIES UTILITIES
<S> <C> <C> <C> <C> <C> <C> <C> <C>
3% 1% 4% 5% 8% 8% 11% 12% 48%
</TABLE>
*By market value as of December 31, 1996. Due to active management, portfolio
holdings and sector breakdown are subject to change.
COMPARISON OF CHANGE IN VALUE OF A $10,000 INVESTMENT IN
EV TRADITIONAL TOTAL RETURN FUND AND THE STANDARD AND POOR'S 500
From December 31, 1986, through December 31, 1996
AVERAGE ANNUAL 1 5 10 Value at
RETURNS Year Years Years 12/31/96
With Max. Sales Charge 1.9% 5.9% 7.6% $20,721
Without Max. Sales Charge 7.0% 6.9% 8.1% $21,750
EV TRADITIONAL TOTAL RETURN FUND
FUND, INCLUDING MAXIMUM SALES CHARGE
S&P 500
EVTMX vs. S&P 500
Date Fund/NAV Fund/OP S&P 500
12/31/86 $10,000 $ 9,527 $10,000
1/31/87 $11,004 $10,484 $11,347
2/28/87 $10,561 $10,061 $11,795
3/31/87 $10,403 $ 9,911 $12,135
4/30/87 $10,067 $ 9,591 $12,028
5/31/87 $ 9,997 $ 9,524 $12,132
6/30/87 $10,360 $ 9,870 $12,744
7/31/87 $10,412 $ 9,919 $13,390
8/31/87 $10,729 $10,222 $13,889
9/30/87 $10,637 $10,134 $13,585
10/31/87 $ 8,764 $ 8,349 $10,660
11/30/87 $ 8,358 $ 7,963 $ 9,781
12/31/87 $ 8,418 $ 8,020 $10,525
1/31/88 $ 9,260 $ 8,822 $10,983
2/28/88 $ 9,060 $ 8,632 $11,474
3/31/88 $ 8,690 $ 8,279 $11,123
4/30/88 $ 8,701 $ 8,290 $11,265
5/31/88 $ 9,118 $ 8,687 $11,337
6/30/88 $ 9,139 $ 8,707 $11,864
7/31/88 $ 9,024 $ 8,597 $11,835
8/31/88 $ 8,967 $ 8,543 $11,414
9/30/88 $ 9,235 $ 8,798 $11,903
10/31/88 $ 9,410 $ 8,965 $12,249
11/30/88 $ 9,352 $ 8,909 $12,054
12/31/88 $ 9,423 $ 8,977 $12,267
1/31/89 $ 9,649 $ 9,192 $13,176
2/28/89 $ 9,482 $ 9,034 $12,832
3/31/89 $ 9,601 $ 9,147 $13,136
4/30/89 $10,049 $ 9,574 $13,836
5/31/89 $10,545 $10,046 $14,365
6/30/89 $10,824 $10,312 $14,294
7/31/89 $11,425 $10,885 $15,599
8/31/89 $11,351 $10,815 $15,884
9/30/89 $11,414 $10,874 $15,823
10/31/89 $11,538 $10,993 $15,467
11/30/89 $11,874 $11,313 $15,767
12/31/89 $12,575 $11,981 $16,148
1/31/90 $11,791 $11,234 $15,079
2/28/90 $11,778 $11,221 $15,250
3/31/90 $11,855 $11,294 $15,662
4/30/90 $11,444 $10,903 $15,290
5/31/90 $11,932 $11,368 $16,746
6/30/90 $11,778 $11,221 $16,647
7/31/90 $11,908 $11,345 $16,607
8/31/90 $11,283 $10,750 $15,087
9/30/90 $11,545 $11,000 $14,362
10/31/90 $12,338 $11,755 $14,314
11/30/90 $12,510 $11,918 $15,221
12/31/90 $12,594 $11,999 $15,648
1/31/91 $12,358 $11,774 $16,342
2/28/91 $12,803 $12,197 $17,485
3/31/91 $13,126 $12,506 $17,918
4/30/91 $13,084 $12,465 $17,976
5/31/91 $12,830 $12,224 $18,721
6/30/91 $12,703 $12,103 $17,876
7/31/91 $13,232 $12,606 $18,728
8/31/91 $13,646 $13,001 $19,147
9/30/91 $14,268 $13,594 $18,831
10/31/91 $14,456 $13,773 $19,103
11/30/91 $14,674 $13,980 $18,313
12/31/91 $15,568 $14,832 $20,406
1/31/92 $14,817 $14,117 $20,048
2/28/92 $14,658 $13,965 $20,287
3/31/92 $14,433 $13,751 $19,892
4/30/92 $14,838 $14,137 $20,500
5/31/92 $15,195 $14,476 $20,573
6/30/92 $15,211 $14,492 $20,269
7/31/92 $16,180 $15,415 $21,121
8/31/92 $16,065 $15,306 $20,667
9/30/92 $16,150 $15,387 $20,908
10/31/92 $16,017 $15,260 $21,003
11/30/92 $16,134 $15,371 $21,689
12/31/92 $16,595 $15,810 $21,959
1/31/93 $17,056 $16,249 $22,164
2/28/93 $18,155 $17,297 $22,447
3/31/93 $18,335 $17,468 $22,918
4/30/93 $18,263 $17,400 $22,391
5/31/93 $18,138 $17,280 $22,955
6/30/93 $18,664 $17,781 $23,028
7/31/93 $19,118 $18,214 $22,960
8/31/93 $19,717 $18,785 $23,805
9/30/93 $19,606 $18,679 $23,622
10/31/93 $19,220 $18,312 $24,133
11/30/93 $17,954 $17,105 $23,875
12/31/93 $18,170 $17,311 $24,169
1/31/94 $17,083 $17,037 $25,009
2/28/94 $17,153 $16,342 $24,312
3/31/94 $16,781 $15,987 $23,254
4/30/94 $17,070 $16,263 $23,582
5/31/94 $16,371 $15,597 $23,933
6/30/94 $15,907 $15,155 $23,352
7/31/94 $16,138 $15,375 $24,145
8/31/94 $16,020 $15,263 $25,115
9/30/94 $15,736 $14,992 $24,492
10/31/94 $15,754 $15,009 $25,063
11/30/94 $15,732 $14,989 $24,132
12/31/94 $15,938 $15,185 $24,488
1/31/95 $16,397 $15,622 $25,138
2/28/95 $16,269 $15,500 $26,101
3/31/95 $16,246 $15,478 $26,870
4/30/95 $16,498 $15,718 $27,686
5/31/95 $17,303 $16,485 $28,756
6/30/95 $17,408 $16,585 $29,432
7/31/95 $17,855 $17,011 $30,430
8/31/95 $18,090 $17,235 $30,484
9/30/95 $18,950 $18,054 $31,769
10/31/95 $19,142 $18,237 $31,676
11/30/95 $19,443 $18,524 $33,040
12/31/95 $20,327 $19,366 $33,681
1/31/96 $20,816 $19,832 $34,843
2/28/96 $20,678 $19,701 $35,147
3/31/96 $20,588 $19,614 $35,489
4/30/96 $20,429 $19,463 $36,034
5/31/96 $20,966 $19,975 $36,927
6/30/96 $21,325 $20,317 $37,080
7/31/96 $20,299 $19,339 $35,455
8/31/96 $21,000 $20,007 $36,194
9/30/96 $21,155 $20,154 $38,228
10/31/96 $21,472 $20,457 $39,296
11/30/96 $21,766 $20,737 $42,249
12/31/96 $21,750 $20,721 $41,411
Past performance is not indicative of future results. Investment returns and
principal value will fluctuate so that an investor's shares, when redeemed, may
be worth more or less than their original cost. Source: Towers Data Systems,
Bethesda, MD.
THE FUND'S PERFORMANCE
In accordance with guidelines issued by the Securities and Exchange Commission,
the chart above compares the Fund's total return with that of a broad-based
securities market index. The lines on the chart represent the total returns of a
$10,000 hypothetical investment in the Fund and the Standard & Poor's 500 Index.
TOTAL RETURN FIGURES
The solid red line on the chart represents the Fund's performance at net asset
value. The total return figure reflects Fund expenses and transaction costs. The
dotted red line represents the Funds performance including the Fund's 4.75%
maximum initial sales charge. The solid black line represents the performance of
the Standard & Poor's 500 Index, a broad-based, widely recognized unmanaged
index of 500 large capitalization common stocks traded in the U.S. The Index's
total return does not reflect any commissions or expenses that would be incurred
if an investor individually purchased or sold the securities represented in the
Index. It is not possible to invest directly in the Index.
<PAGE>
EV TRADITIONAL TOTAL RETURN FUND
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
- ------------------------------------------------------------------------------
December 31, 1996
- ------------------------------------------------------------------------------
ASSETS:
Investment in Total Return Portfolio (Portfolio) at value
(Note 1A) $399,108,502
Receivable for Fund shares sold 3,845,037
------------
Total assets $402,953,539
LIABILITIES:
Payable for Fund shares redeemed $670,096
Payable to affiliate -
Trustees' fees 835
Accrued expenses 308,693
-------
Total liabilities 979,624
------------
NET ASSETS for 45,842,355 shares of beneficial interest
outstanding $401,973,915
============
SOURCES OF NET ASSETS:
Paid-in capital $278,960,667
Accumulated undistributed net investment income 52,727,791
Accumulated net realized gain on investment
transactions (computed on the basis of identified cost) 21,791,760
Unrealized appreciation of investments (computed
on the basis of identified cost) 48,491,697
------------
Total net assets $401,973,915
============
NET ASSET VALUE AND REDEMPTION PRICE PER SHARE
($401,973,915 / 45,842,355 shares of beneficial interest
outstanding) $8.77
=====
COMPUTATION OF OFFERING PRICE:
Offering price per share (100/95.25 of $8.77) $9.21
=====
On sales of $100,000 or more, the offering price is reduced.
The accompanying notes are an integral part of the financial statements
<PAGE>
STATEMENT OF OPERATIONS
- ------------------------------------------------------------------------------
For the Year Ended December 31, 1996
- ------------------------------------------------------------------------------
INVESTMENT INCOME (NOTE 1B):
Dividend income allocated from Portfolio (net of
withholding tax of $1,368,538) $25,525,899
Interest income allocated from Portfolio 3,799,210
Expenses allocated from Portfolio (3,677,267)
-----------
Total investment income $25,647,842
Expenses -
Compensation of Trustees not members of the
Investment Adviser's organization (Note 5) $ 5,426
Custodian fee 18,018
Service fee (Note 4) 1,014,582
Transfer and dividend disbursing agent fees 334,394
Printing and postage 134,894
Legal and accounting services 12,120
Miscellaneous 86,576
------------
Total expenses 1,606,010
-----------
Net investment income $24,041,832
REALIZED AND UNREALIZED GAIN (LOSS) FROM PORTFOLIO:
Net realized gain (identified cost basis)
Investment transactions $ 41,778,398
Foreign currency and forward foreign currency
contracts 12,926
------------
Net realized gain on investment
transactions and foreign currency
(identified cost basis) - $ 41,791,324
Change in unrealized appreciation of investments (37,254,680)
------------
Net realized and unrealized gain on
investments 4,536,644
-----------
Net increase in net assets resulting from operations $28,578,476
===========
The accompanying notes are an integral part of the financial statements
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS
- ------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
------------------------------
1996 1995
-------------- -------------
INCREASE (DECREASE) IN NET ASSETS:
From operations -
Net investment income $ 24,041,832 $ 19,817,769
Net realized gain on investments 41,791,324 15,408,374
Change in unrealized appreciation of
investments (37,254,680) 72,148,280
------------- -------------
Net increase in net assets resulting
from operations $ 28,578,476 $ 107,374,423
------------- -------------
Distributions to shareholders -
From net investment income $ (23,803,563) $ (19,282,519)
In excess of net investment income -- (2,062,200)
From net realized gain on investments (19,614,278) (3,821,636)
In excess of net realized gain on investment
transactions -- (3,085,824)
------------- -------------
Total distributions to shareholders $ (43,417,841) $ (28,252,179)
------------- -------------
Net decrease in net assets from Fund share
transactions (Note 2) $ (41,065,687) $ (66,376,647)
------------- -------------
Net increase (decrease) in net assets $ (55,905,052) $ 12,745,597
NET ASSETS:
At beginning of year 457,878,967 445,133,370
------------- -------------
At end of year (including undistributed net
investment income of $53,120,166 and
$52,881,897, respectively) $ 401,973,915 $ 457,878,967
============= =============
The accompanying notes are an integral part of the financial statements
<PAGE>
FINANCIAL HIGHLIGHTS
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
--------------------------------------------------------------------------
1996 1995 1994 1993 1992
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE - Beginning of year $ 9.1300 $ 7.6300 $ 9.1400 $ 9.3600 $ 9.7500
-------- -------- -------- -------- --------
Income from operations:
Net investment income $ 0.6260 $ 0.5235 $ 0.5458 $ 0.3626 $ 0.5113
Net realized and unrealized gain (loss) on
investments (0.0140)+ 1.5195 (1.6678) 0.5524 0.0937
-------- -------- -------- -------- --------
Total income (loss) from investment
operations $ 0.6120 $ 2.0430 $(1.1220) $ 0.9150 $ 0.6050
-------- -------- -------- -------- --------
Less distributions:
From net investment income $(0.5220) $ (0.3641) $(0.3880) $(0.4650) $(0.5200)
In excess of net investment income -- (0.0389) -- -- --
From net realized gain on investment
transactions (0.4500) (0.0775) -- (0.6544) (0.4750)
In excess of net realized gain on
investment transactions -- (0.0625) -- (0.0156) --
-------- --------- -------- -------- --------
Total distributions $(0.9720) $ (0.5430) $(0.3880) $(1.1350) $(0.9950)
-------- --------- -------- -------- --------
NET ASSET VALUE - End of year $ 8.7700 $ 9.1300 $ 7.6300 $ 9.1400 $ 9.3600
======== ========= ======== ======== ========
TOTAL RETURN(2) 7.00% 27.52% (12.28)% 9.49% 6.60%
RATIOS/SUPPLEMENTAL DATA:
(to average daily net assets)
Interest expense(1) -- -- -- 0.20% 0.29%
Other expenses(1) 1.23% 1.19% 1.18% 1.11% 1.10%
Net investment income 5.59% 4.49% 4.90% 4.64% 5.43%
PORTFOLIO TURNOVER* -- -- -- 63% 54%
NET ASSETS AT END OF YEAR (000'S OMITTED) $401,974 $457,879 $445,133 $629,514 $564,912
LEVERAGE ANALYSIS:(3)
Amount of debt outstanding at end of
year (000's omitted) -- -- -- -- $ 47,045
Average daily balance of debt outstanding
during year (000's omitted) -- -- -- $ 29,906(3) $ 27,764
Average weekly balance of shares outstanding
during year (000's omitted) -- -- -- 61,377(3) 57,280
Average amount of debt per share during
period -- -- -- $ 0.487(3) $ 0.485
*Portfolio Turnover represents the rate of portfolio activity for the period while the Fund was making investments directly in
securities. The portfolio turnover for the period since the Fund transferred substantially all of its investable assets to the
Portfolio is shown in the Portfolio's financial statements which are included elsewhere in this report.
+ The per share amount is not in accord with the net realized and unrealized gain (loss) for the period because of the timing of
sales of Fund shares and the amount of the per share realized and unrealized gains and losses at such time.
(1) Includes the Fund's share of Total Return Portfolio's allocated expenses for the years ended December 31, 1996, 1995 and 1994,
and for the period from October 28, 1993, to December 31, 1993.
(2) Total return is calculated assuming a purchase at the net asset value on the first day and a sale at the net asset value on
the last day of each period reported. Dividends and distributions, if any, are assumed to be reinvested at the net asset value
on the record date.
(3) The Leverage Analysis is for the period January 1, to October 27, 1993, when the Fund transferred the line of credit to the
Portfolio. The analysis for the three years ended December 31, 1996 and the period October 28, 1993 to December 31, 1993 is
shown in the Portfolio's financial statements which are included elsewhere in this report.
</TABLE>
The accompanying notes are an integral part of the financial statements
<PAGE>
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31,1996
(1) SIGNIFICANT ACCOUNTING POLICIES
EV Traditional Total Return Fund (the Fund), is a non-diversified entity of
the type commonly known as a Massachusetts business trust and is registered
under the Investment Company Act of 1940, as amended, as an open-end
management investment company. The Fund is a series in the Eaton Vance Special
Investment Trust. The Fund invests all of its investable assets in interests
in 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 (87.7% at
December 31, 1996). The performance of the Fund is directly affected by the
performance of the Portfolio. The financial statements of the Portfolio,
including the portfolio of investments, are included elsewhere in this report
and should be read in conjunction with the Fund's financial statements. The
following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. The
policies are in conformity with generally accepted accounting principles.
A. INVESTMENT VALUATIONS -- Valuations of securities by the Portfolio are
discussed in Note 1A of the Portfolio's Notes to Financial Statements which
are included elsewhere in this report.
B. INCOME -- The Fund's net investment income consists of the Fund's pro rata
share of the net investment income of the Portfolio, less all actual and
accrued expenses of the Fund.
C. EXPENSE REDUCTION -- The Fund has entered into an arrangement with its
custodian agent whereby interest earned on uninvested cash balances are used
to offset custody fees. All significant reductions are reported as a reduction
of expenses in the Statement of Operations.
D. FEDERAL TAXES -- The Fund's policy is to comply with the provisions of the
Internal Revenue Code applicable to regulated investment companies and to
distribute to shareholders each year all of its taxable income, including any
net realized gain on investments, options and financial futures transactions.
Accordingly, no provision for federal income or excise tax is necessary.
Pursuant to Section 852 of the Internal Revenue Code, the Fund designates
$17,890,475 as capital gain dividends for its taxable year ended December 31,
1996.
E. OTHER -- Investment transactions are accounted for on a trade date basis.
F. DISTRIBUTIONS -- Generally accepted accounting principles require that
differences in the recognition or classification of income between the
financial statements and tax earnings and profits which result in temporary
over-distributions for financial statement purposes, are classified as
distributions in excess of net investment income or accumulated net realized
gains. Permanent differences between book and tax accounting relating to
distributions are reclassified to paid-in capital, with no impact to the net
asset value of the Fund.
G. USE OF ESTIMATES -- The preparation of the financial statements in
conformity with generally accepted accounting principles requires management
to make estimates and assumptions that affect the reported amounts of assets
and liabilities at the date of the financial statements and the reported
amounts of income and expense during the reporting period. Actual results
could differ from those estimates.
<PAGE>
- ------------------------------------------------------------------------------
(2) SHARES OF BENEFICIAL INTEREST
The Declaration of Trust permits the Trustees to issue an unlimited number of
full and fractional shares of beneficial interest (with no par value).
Transactions in Fund shares were as follows:
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, 1996 DECEMBER 31, 1995
------------------------- --------------------------
SHARES AMOUNT SHARES AMOUNT
--------- ------------ ---------- ------------
<S> <C> <C> <C> <C>
Sales 766,884 $ 7,148,549 1,704,188 $ 14,083,202
Issued to shareholders electing to receive payment
of distributions in Fund shares 3,808,653 33,431,649 2,525,349 21,374,284
Redemptions (8,867,665) (81,645,885) (12,417,731) (101,834,133)
--------- ------------ ---------- -------------
Net decrease (4,292,128) $(41,065,687) (8,188,194) $ (66,376,647)
========== ============ ========== =============
</TABLE>
- ------------------------------------------------------------------------------
(3) INVESTMENT TRANSACTIONS
Increases and decreases in the Fund's investments in the Portfolio aggregated
$10,530,257 and $99,106,880, respectively.
- ------------------------------------------------------------------------------
(4) SERVICE PLAN
The Fund adopted a Service Plan on July 7, 1993 designed to meet the
requirements of Rule 12b-1 under the Investment Company Act of 1940 and the
service fee requirements of the revised sales charge rule of The National
Association of Securities Dealers Inc. The Service Plan replaced the Fund's
distribution plan which became effective on July 1, 1987. The Service Plan
provides that the Fund may make service fee payments to the Principal
Underwriter, Eaton Vance Distributors, Inc., a subsidiary of Eaton Vance
Management, Authorized Firms or other persons in amounts not exceeding 0.25% of
the Fund's average daily net assets for any fiscal year. The Trustees have
implemented the Service Plan by authorizing the Fund to make quarterly service
fee payments to the Principal Underwriter and Authorized Firms in amounts not
expected to exceed 0.25% of that portion of the Fund's average daily net assets
for any fiscal year which is attributable to shares of the Fund sold by such
persons and remaining outstanding for at least twelve months. Such payments are
made for personal services and/or the maintenance of shareholder accounts.
During the year ended December 31, 1996 the Fund provided for $1,014,582 under
the Plan to the Principal Underwriter and Authorized Firms.
- ------------------------------------------------------------------------------
(5) TRANSACTIONS WITH AFFILIATES
Eaton Vance Management (EVM) serves as the administrator of the Fund, but
receives no compensation. The Portfolio has engaged Boston Management and
Research (BMR), a subsidiary of EVM, to render investment advisory services. See
Note 3 of the Portfolio's Notes to Financial Statements which are included
elsewhere in this report. Except as to Trustees of the Fund and the Portfolio
who are not members of EVM's of BMR's organization, officers and Trustees
receive remuneration for their services to the Fund out of such investment
adviser fee. Certain of the officers and Trustees of the Fund and Portfolio are
officers and directors/trustees of the above organizations.
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
- ------------------------------------------------------------------------------
TO THE SHAREHOLDERS AND BOARD OF TRUSTEES OF
EV TRADITIONAL TOTAL RETURN FUND:
We have audited the accompanying statement of assets and liabilities of EV
Traditional Total Return Fund, a series of Eaton Vance Special Investment Trust,
as of December 31, 1996, and the related statement of operations for the year
then ended, the statement of changes in net assets for each of the two years
then ended and the financial highlights for each of the five years then ended.
These financial statements and financial highlights are the responsibility of
the Fund's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
December 31, 1996 by correspondence with the custodian. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of EV
Traditional Total Return Fund, a series of Eaton Vance Special Investment Trust,
as of December 31, 1996, the results of its operations for the year then ended,
the changes in its net assets for each of the two years then ended and the
financial highlights for each of the five years then ended, in conformity with
generally accepted accounting principles.
COOPERS & LYBRAND L.L.P.
BOSTON, MASSACHUSETTS
JANUARY 31, 1997
<PAGE>
--------------------------------------------
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1996
- -------------------------------------------------------------------------------
COMMON STOCKS - 83.8%
- -------------------------------------------------------------------------------
NAME OF COMPANY SHARES VALUE
- -------------------------------------------------------------------------------
ELECTRIC UTILITIES - 48.1%
Carolina Power & Light Co. 200,000 $ 7,300,000
Central Louisiana Electric Co. 215,600 5,955,950
Cilcorp Inc. 227,200 8,321,200
CINergy Corp. 525,000 17,521,875
DPL Inc. 775,000 18,987,500
DQE, Inc. 400,000 11,600,000
Edison International 800,000 15,900,000
Florida Progress Corp. 700,000 22,575,000
FPL Group, Inc. 325,000 14,950,000
Illinova Corp. 100,000 2,750,000
LG & E Energy Corp. 198,000 4,851,000
Long Island Lighting Co. 100,000 2,212,500
National Grid Holdings* 706,156 2,362,445
NIPSCO Industries, Inc. 375,000 14,859,375
PECO Energy Co. 250,000 6,312,500
Pinnacle West Capital Corp. 350,000 11,112,500
PowerGen PLC* 1,506,024 14,754,668
Sierra Pacific Resources 150,000 4,312,500
Southern Electric* 200,000 2,724,380
Teco Energy, Inc. 300,000 7,237,500
Texas Utilities Co. 300,000 12,225,000
WPS Resources Corp. 350,000 9,975,000
------------
$218,800,893
------------
FINANCIAL SERVICES - 5.4%
Bank Plus Corp 475,000 $ 5,462,500
Echelon International Corp.* 46,667 729,166
GCR Holdings Ltd. 437,000 9,723,250
Security First Network Bank* 40,000 425,000
Surety Capital Corp.* 91,900 373,344
Wells Fargo & Co 30,000 8,092,500
------------
$ 24,805,760
------------
MEDIA - 0.5%
Ovation Inc. 238,168 $ 2,214,962
------------
NATURAL GAS UTILITIES - 7.6%
Enserch Corp. 1,025,000 $ 23,575,000
K N Energy 150,000 5,887,500
Wicor Inc. 150,000 5,381,250
------------
$ 34,843,750
------------
REITS - 10.6%
Beacon Properties Corp. 80,000 $ 2,930,000
Cali Realty Corp. 600,000 18,525,000
First Industrial Realty Trust, Inc. 100,000 3,037,500
Homestead Village, Inc. Warrants 5,504 44,720
LTC Properties, Inc. 150,000 2,775,000
Prime Retail, Inc. 300,000 3,693,750
Redwood Trust, Inc. 146,500 5,457,125
Security Capital US Realty Trust* 300,000 3,810,000
Vornado Realty Trust 150,000 7,875,000
------------
$ 48,148,095
------------
TELEPHONE UTILITIES - 11.6%
ACC Corp. 264,000 $ 7,986,000
Bellsouth Corp. 250,000 10,093,750
Cellnet Data Systems* 100,000 1,468,750
GTE Corp. 50,000 2,275,000
Intercel Inc.* 125,000 1,531,250
LCI International, Inc.* 150,000 3,225,000
Midcom Communications, Inc.* 190,000 1,615,000
Premiere Technologies, Inc.* 90,000 2,272,500
Smartalk Teleservices, Inc.* 260,000 4,517,500
Telco Communications Group, Inc.* 180,000 3,150,000
Tele Save Holdings, Inc. 265,000 7,685,000
Trescom International, Inc.* 859,200 6,873,600
------------
$ 52,693,350
------------
TOTAL COMMON STOCKS
(IDENTIFIED COST, $326,567,054) $381,506,810
------------
- --------------------------------------------------------------------------------
CONVERTIBLE PREFERRED STOCKS - 3.5%
- --------------------------------------------------------------------------------
First Washington Realty Trust, 9.75s 45,000 $ 1,226,250
Philippines Long Distance
Telephone, 7s 150,000 7,650,000
Prime Retail Inc. Series B 33,206 722,230
SunAmerica Inc., 3.188s* 40,000 1,690,000
Walden Residential, 9.16s Series B 153,000 4,417,875
------------
TOTAL CONVERTIBLE PREFERRED STOCKS
(IDENTIFIED COST, $14,532,091) $ 15,706,355
------------
- --------------------------------------------------------------------------------
PREFERRED STOCKS - 3.5%
- --------------------------------------------------------------------------------
Fidelity Federal Bank, 12s* 250,000 $ 7,062,500
Walden Residential Properties 340,000 8,670,000
------------
TOTAL PREFERRED STOCKS
(IDENTIFIED COST, $14,762,500) $ 15,732,500
------------
- --------------------------------------------------------------------------------
CONVERTIBLE BONDS - 7.9%
- --------------------------------------------------------------------------------
FACE AMOUNT
NAME OF COMPANY (000'S OMITTED) VALUE
- --------------------------------------------------------------------------------
Assisted Living, 7s, 8/15/05 $ 2,000 $ 2,175,000
Cirrus Logic, 6s, 12/15/03 2,500 2,290,625
Emeritus Corp., 6.25s, 1/1/06 4,750 3,859,375
Midcom Communications,
8.25s, 8/15/03* 10,000 9,200,000
Novacare Inc. 5.5s, 1/15/00 5,000 4,575,000
Ovation Inc., 9.75s, 2/22/01* 2,000 2,000,000
SA Telecommunications,
10s, 8/15/06 3,000 2,925,000
Sterling House, 6.75s, 6/30/06* 3,000 2,160,000
U.S. Filter Corp., 4.5s, 12/15/99* 2,000 2,042,500
VLSI Technology, 8.25s, 10/1/05* 5,000 4,975,000
------------
TOTAL CONVERTIBLE BONDS
(IDENTIFIED COST, $38,409,222) $ 36,202,500
------------
- --------------------------------------------------------------------------------
CORPORATE BONDS - 1.1%
- --------------------------------------------------------------------------------
Bank United, 10.25s, 12/31/26 $ 3,000 $ 3,000,000
Mego Mortgage Corp., 12.5s, 12/1/01 2,000 2,000,000
------------
TOTAL CORPORATE BONDS
(IDENTIFIED COST, $5,000,000) $ 5,000,000
------------
<PAGE>
- --------------------------------------------------------------------------------
SHORT-TERM OBLIGATION - 0.6%
- --------------------------------------------------------------------------------
Associates Corp. of North America,
6.5s, 1/2/97 $ 2,640 $ 2,639,523
------------
TOTAL SHORT-TERM OBLIGATION,
AT AMORTIZED COST $ 2,639,523
------------
TOTAL INVESTMENTS - 100.4%
(IDENTIFIED COST, $401,910,390) $456,787,688
OTHER ASSETS, LESS LIABILITIES - (0.4%) (1,720,693)
------------
NET ASSETS - 100% $455,066,995
=== ============
*Non-income producing security.
The accompanying notes are an integral part
of the financial statements
<PAGE>
------------------------------------------------
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
- ------------------------------------------------------------------------------
December 31, 1996
- ------------------------------------------------------------------------------
ASSETS:
Investments, at value (Note 1A) (identified cost,
$401,910,390) $456,787,688
Cash 1,841
Receivable for investments sold 30,625
Dividends receivable 1,140,527
Interest receivable 1,080,620
Deferred organization expenses (Note 1H) 7,621
Foreign tax reclaim receivable 45,260
Other receivables 15,213
------------
Total assets $459,109,395
LIABILITIES:
Payable for investments purchased $3,939,797
Payable to affiliate --
Trustees' fees 5,224
Accrued expenses 97,379
----------
Total liabilities 4,042,400
------------
NET ASSETS applicable to investors' interest in Portfolio $455,066,995
============
SOURCES OF NET ASSETS:
Net proceeds from capital contributions and
withdrawals $400,174,992
Unrealized appreciation of investments and
foreign currencies (computed on the basis
of identified cost) 54,892,003
------------
Total net assets $455,066,995
============
The accompanying notes are an integral part of the financial statements
<PAGE>
<TABLE>
<CAPTION>
STATEMENT OF OPERATIONS
- -------------------------------------------------------------------------------------------------
For the Year Ended December 31, 1996
- -------------------------------------------------------------------------------------------------
INVESTMENT INCOME:
<S> <C> <C>
Dividend income (net of withholding taxes, $1,559,681) $ 29,112,169
Interest income 4,332,092
------------
Total income $ 33,444,261
Expenses --
Investment adviser fee (Note 3) $ 3,690,566
Compensation of Trustees not members of the
Investment Adviser's organization (Note 3) 21,333
Custodian fee 214,625
Commitment fee (Note 4) 142,463
Legal and accounting services 57,359
Amortization of deferred organization expenses
(Note 1H) 4,209
Miscellaneous 65,788
------------
Total expenses 4,196,343
------------
Net investment income $ 29,247,918
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized gain (identified cost basis) --
Investment transactions $ 46,853,646
Foreign currency and forward foreign currency
exchange contracts 14,700
------------
Net realized gain on investments and foreign
currency $ 46,868,346
Change in unrealized appreciation --
Investment transactions $(41,696,594)
Foreign currency transactions and forward foreign
currency contracts (2,255)
------------
Net change in unrealized appreciation (41,698,849)
------------
Net realized and unrealized gain on investments 5,169,497
------------
Net increase in net assets resulting from operations $ 34,417,415
============
</TABLE>
The accompanying notes are an integral part of the financial statements
<PAGE>
STATEMENTS OF CHANGES IN NET ASSETS
- ------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
------------------------------
1996 1995
-------------- --------------
INCREASE (DECREASE) IN NET ASSETS:
From operations --
Net investment income $ 29,247,918 $ 24,296,939
Net realized gain on investment
transactions 46,868,346 16,628,404
Change in unrealized appreciation
(depreciation) of investments (41,698,849) 82,965,652
------------- -------------
Net increase in net assets resulting
from operations $ 34,417,415 $ 123,890,995
------------- -------------
Capital transactions --
Contributions $ 18,255,080 $ 29,142,153
Withdrawals (119,275,825) (136,929,715)
------------- -------------
Decrease in net assets resulting from
capital transactions $(101,020,745) $(107,787,562)
------------- -------------
Net increase (decrease) in net assets $ (66,603,330) $ 16,103,433
NET ASSETS:
At beginning of year 521,670,325 505,566,892
------------- -------------
At end of year $ 455,066,995 $ 521,670,325
============= =============
The accompanying notes are an integral part of the financial statements
<PAGE>
<TABLE>
<CAPTION>
SUPPLEMENTARY DATA
- -----------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
----------------------------------------
1996 1995 1994 1993*
---- ---- ---- -----
RATIOS (to average daily net assets):
<S> <C> <C> <C> <C>
Expenses 0.85% 0.84% 0.85% 0.91%+
Net investment income 5.94% 4.83% 5.22% 4.57%+
PORTFOLIO TURNOVER 166% 103% 107% 16%
AVERAGE COMMISSION RATE PAID(1) $0.0374 -- -- --
LEVERAGE ANALYSIS:
Average daily balance of debt outstanding
during period (000'somitted) $217 $232 $3,137 $15,452
</TABLE>
+Computed on an annualized basis.
*For the period from the start of business, October 28, 1993, to December 31,
1993.
(1) For fiscal years beginning on or after September 1, 1995, a fund is required
to disclose its average commission rate per share for security trades on
which commissions are charged. Average commission rate paid is computed by
dividing the total dollar amount of commissions paid during the fiscal year
by the total number of shares purchased and sold during the fiscal year for
which commissions were charged.
<PAGE>
------------------------------------------
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996
- --------------------------------------------------------------------------------
(1) SIGNIFICANT ACCOUNTING POLICIES
Total Return Portfolio (the Portfolio) is registered under the Investment
Company Act of 1940 as a diversified open-end investment company which was
organized as a trust under the laws of the State of New York on May 1, 1992. The
Declaration of Trust permits the Trustees to issue beneficial interests in the
Portfolio. The following is a summary of significant accounting policies of the
Portfolio. The policies are in conformity with generally accepted accounting
principles.
A. INVESTMENT VALUATIONS -- Securities listed on securities exchanges or in the
NASDAQ National Market are valued at closing sales prices or, if there has been
no sale, at the mean between the closing bid and asked prices. Unlisted
securities are valued at the mean between the latest available bid and asked
prices. Options and financial futures contracts are valued at the last sale
price, as quoted on the principal exchange or board of trade on which such
options or contracts are traded or, in the absence of a sale, the mean between
the last bid and asked prices. Short-term obligations, maturing in 60 days or
less, are valued at amortized cost, which approximates value. Securities for
which market quotations are unavailable are appraised at their fair value as
determined in good faith by or at the direction of the Trustees.
B. INCOME TAXES -- The Portfolio is treated as a partnership for federal tax
purposes. No provision is made by the Portfolio for federal or state taxes on
any taxable income of the Portfolio because each investor in the Portfolio is
ultimately responsible for the payment of any taxes. Since some of the
Portfolio's investors are regulated investment companies that invest all or
substantially all of their assets in the Portfolio, the Portfolio normally must
satisfy the applicable source of income and diversification requirements (under
the Code) in order for its investors to satisfy them. The Portfolio will
allocate at least annually among its investors each investors' distributive
share of the Portfolio's net investment income, net realized capital gains, and
any other items of income, gain, loss, deduction or credit.
C. EXPENSE REDUCTION -- The Portfolio has entered into an arrangement with its
custodian agent whereby interest earned on uninvested cash balances are used to
offset custody fees. All significant reductions are reported as a reduction of
expenses in the Statement of Operations.
D. OPTION ACCOUNTING PRINCIPLES -- Upon the writing of a covered call option, an
amount equal to the premium received by the Portfolio is included in the
Statement of Assets and Liabilities as a liability. The amount of the liability
is subsequently marked-to-market to reflect the current market value of the
option written in accordance with the Portfolio's policies on investment
valuations discussed above. Premiums received from writing call options which
expire are treated as realized gains. Premiums received from writing call
options which are exercised or are closed are added to or offset against the
proceeds or amount paid on the transaction to determine the realized gain or
loss. The Portfolio, as writer of a call option, may have no control over
whether the underlying securities may be sold and, as a result, bears the market
risk for an unfavorable change in the price of the securities underlying the
written option.
E. FINANCIAL FUTURES CONTRACTS -- Upon the entering of a financial futures
contract, the Portfolio is required to deposit an amount ("initial margin")
either in cash or securities equal to a certain percentage of the purchase price
indicated in the financial futures contract. Subsequent payments are made or
received by the Portfolio ("margin maintenance") each day, dependent on the
daily fluctuations in the value of the underlying security, and are recorded for
book purposes as unrealized gains or losses by the Portfolio. When the Portfolio
enters into a closing transaction, the Portfolio will realize for book purposes
a gain or loss equal to the difference between the value of the financial
futures contract to sell and the financial futures contract to buy. The
Portfolio's investment in financial futures contracts is designed only to hedge
against anticipated future changes in interest rates, security prices, commodity
prices or currency exchange rates. Should interest rates, security prices,
commodity prices or currency exchange rates move unexpectedly, the Portfolio may
not achieve the anticipated benefits of the financial futures contracts and may
realize a loss.
F. FOREIGN CURRENCY TRANSLATION -- Investment valuations, other assets, and
liabilities initially expressed in foreign currencies are converted each
business day into U.S. dollars based upon current exchange rates. Purchases
and sales of foreign investment securities and income and expenses are
converted into U.S. dollars based upon currency exchange rates prevailing on
the respective dates of such transactions. Recognized gains or losses on
investment transactions attributable to foreign currency rates are recorded
for financial statement purposes as net realized gains and losses on
investments. That portion of unrealized gains and losses on investments that
result from fluctuations in foreign currency exchange rates are not separately
disclosed.
G. DELAYED DELIVERY TRANSACTIONS -- The Portfolio may purchase or sell
securities on a when-issued or forward commitment basis. Payment and delivery
may take place at a period in time after the date of the transaction. At the
time the transaction is negotiated, the price of the security that will be
delivered and paid for are fixed. Losses may arise due to changes in the
market value of the underlying securities if the counterparty does not perform
under the contract.
H. DEFERRED ORGANIZATION EXPENSES -- Costs incurred by the Portfolio in
connection with its organization are being amortized on the straight-line
basis over five years.
I. OTHER -- Investment transactions are accounted for on the date the
investments are purchased or sold. Dividend income is recorded on the ex-
dividend date. Realized gains and losses on the sale of investments are
determined on the identified cost basis.
J. USE OF ESTIMATES -- The preparation of the financial statements in
conformity with generally accepted accounting principles requires management
to make estimates and assumptions that affect the reported amounts of assets
and liabilities at the date of the financial statements and the reported
amounts of revenue and expense during the reporting period. Actual results
could differ from those estimates.
- ------------------------------------------------------------------------------
(2) INVESTMENT TRANSACTIONS
Purchases and sales of investments, other than short-term obligations,
aggregated $794,432,128 and $857,511,361, respectively.
- ------------------------------------------------------------------------------
(3) INVESTMENT ADVISER FEE AND OTHER TRANSACTIONS WITH AFFILIATES The investment
adviser fee is earned by Boston Management and Research (BMR), a wholly-owned
subsidiary of Eaton Vance Management (EVM), as compensation for management and
investment advisory services rendered to the Portfolio. The fee is based upon a
percentage of average daily net asets. For the year ended December 31, 1996, the
fee was equivalent to 0.75% of the Portfolio's average net assets for such
period and amounted to $3,690,566. Except as to Trustees of the Portfolio who
are not members of EVM's or BMR's organization, officers and Trustees receive
remuneration for their services to the Portfolio out of such investment adviser
fee. Certain of the officers and Trustees of the Portfolio are officers and
directors/trustees of the above organizations. Trustees of the Portfolio that
are not affiliated with the Investment Adviser may elect to defer receipt of all
or a percentage of their annual fees in accordance with the terms of the
Trustees Deferred Compensation Plan. For the year ended December 31, 1996, no
significant amounts have been deferred.
- ------------------------------------------------------------------------------
(4) LINE OF CREDIT
The Portfolio participates with other portfolios and funds managed by BMR and
EVM and its affiliates in a committed $120 million unsecured line of credit
agreement with a group of banks. The Portfolio may temporarily borrow from the
line of credit to satisfy redemption requests or settle investment
transactions. Interest is charged to each portfolio or fund based on its
borrowings at an amount above the banks' adjusted certificate of deposit rate,
eurodollar rate or federal funds rate. In addition, a fee computed at an
annual rate of 0.15% on the daily unused portion of the line of credit is
allocated among the participating portfolios and funds at the end of each
quarter. The Portfolio did not have any significant borrowings or allocated fees
during the year ended December 31, 1996.
<PAGE>
- ------------------------------------------------------------------------------
(5) FEDERAL INCOME TAX BASIS OF INVESTMENTS
The cost and unrealized appreciation/depreciation in value of the investments
owned at December 31, 1996, as computed on a federal income tax basis, are as
follows:
Aggregate cost $402,571,302
============
Gross unrealized appreciation $ 66,577,466
Gross unrealized depreciation 11,039,667
------------
Net unrealized appreciation $ 55,537,739
============
- ------------------------------------------------------------------------------
(6) FINANCIAL INSTRUMENTS
The Portfolio may trade in financial instruments with off-balance sheet risk in
the normal course of its investing activities to assist in managing exposure to
various market risks. These financial instruments include written options,
forward foreign currency exchange contracts, and financial futures contracts and
may involve, to a varying degree, elements of risk in excess of the amounts
recognized for financial statement purposes. The notional or contractual amounts
of these instruments represent the investment the Portfolio has in particular
classes of financial instruments and does not necessarily represent the amounts
potentially subject to risk. The measurement of the risks associated with these
instruments is meaningful only when all related and offsetting transactions are
considered.
At December 31, 1996 there were no outstanding obligations under these
financial instruments.
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
- ------------------------------------------------------------------------------
TO THE TRUSTEES AND INVESTORS OF
TOTAL RETURN PORTFOLIO:
We have audited the accompanying statement of assets and liabilities of Total
Return Portfolio, including the portfolio of investments, as of December 31,
1996, the related statement of operations for the year then ended and the
statement of changes in net assets for each of the two years then ended and
supplementary data for each of the three years then ended and for the period
from October 23, 1993 (start of business) to December 31, 1993. These financial
statements and supplementary data are the responsibility of the Portfolio's
management. Our responsibility is to express an opinion on these financial
statements and supplementary data based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and supplementary
data are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
December 31, 1996 by correspondence with the custodian and brokers. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and supplementary data referred to
above present fairly, in all material respects, the financial position of Total
Return Portfolio as of December 31, 1996, the results of its operations for the
year then ended and the changes in its net assets for each of the two years then
ended and the supplementary data for each of the three years then ended, and for
the period from October 23, 1993 (start of business), to December 31, 1993, in
conformity with generally accepted accounting principles.
COOPERS & LYBRAND L.L.P.
BOSTON, MASSACHUSETTS
JANUARY 30, 1997
<PAGE>
INVESTMENT MANAGEMENT
EV TRADITIONAL OFFICERS TRUSTEES
TOTAL RETURN JAMES B. HAWKES M. DOZIER GARDNER
FUND President, Trustee Vice Chairman, EVM
24 Federal Street EDWARD E. SMILEY, JR. DONALD R. DWIGHT
Boston, MA 02110 Vice President President, Dwight Partners, Inc.
JAMES L. O'CONNOR Chairman, Newspapers of
Treasurer New England, Inc.
THOMAS OTIS SAMUEL L. HAYES, III
Secretary Jacob H. Schiff Professor of
Investment Banking, Harvard
University Graduate School of
Business Administration
NORTON H. REAMER
President and Director, United Asset
Management Corporation
JOHN L. THORNDIKE
Director, Fiduciary Company
Incorporated
JACK L. TREYNOR
Investment Adviser and Consultant
--------------------------------------------------------------
TOTAL RETURN OFFICERS TRUSTEES
PORTFOLIO M. DOZIER GARDNER DONALD R. DWIGHT
24 Federal Street President, Trustee President,
Boston, MA 02110 JAMES B. HAWKES Dwight Partners, Inc.
Vice President, Trustee Chairman, Newspapers of
TIMOTHY O'BRIEN New England, Inc.
Vice President and SAMUEL L. HAYES, III
Portfolio Manager Jacob H. Schiff Professor of
JAMES L. O'CONNOR Investment Banking,
Treasurer Harvard University
THOMAS OTIS Graduate School of
Secretary Business Administration
NORTON H. REAMER
President and Director, United Asset
Management Corporation
JOHN L. THORNDIKE
Director, Fiduciary Company
Incorporated
JACK L. TREYNOR
Investment Adviser and Consultant
