<PAGE>
[LOGO Investing [PHOTO OF
APPEARS for the CALCULATOR &
HERE] 21st FINANCIAL NEWSPAPER
Century APPEARS HERE]
Annual Report December 31, 1997
EV
TRADITIONAL
TOTAL RETURN
FUND
Eaton Vance
Global Management-Global Distribution
[PHOTO OF NYSE FLAG
APPEARS HERE]
T r a d i t i o n a l
[PHOTO OF FLOOR OF NYSE
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<PAGE>
EV Traditional Total Return Fund as of December 31, 1997
LETTER TO SHAREHOLDERS
[PHOTO APPEARS HERE]
For the year ended December 31, 1997, EV Traditional Total Return Fund had a
total return of 16.2%./1/ This return resulted from a decrease in net asset
value to $8.45 per share on December 31, 1997 from $8.77 per share on December
31, 1996 and the reinvestment of $0.331 in income dividends and $1.285 per share
in capital gains distributions. By comparison, the average total return for
mutual funds in the Lipper Utility Funds Category* was 26.0% for the period.
The U.S. economy continued to grow at a healthy rate in 1997. Gross domestic
product, the primary indicator of economic performance, increased 3.8%,
exceeding most predictions made at the beginning of the year. Unemployment
declined 0.6% to 4.7%, and 3.2 million new jobs were created. The inflation
rate, which historically has risen after periods of sustained growth and low
unemployment, declined from the previous year. The consumer price index
increased only 1.7% in 1997, compared to 3.3% in 1996, and wholesale prices
decreased 1.2% the largest drop since 1986. Many economists, including Federal
Reserve Chairman Alan Greenspan, attribute this continued low inflation to the
effects of increasing global competition, a strong dollar, and higher
productivity brought on by advances in technology.
The stock market's performance in 1997 exceeded 20% for a record third
consecutive year. The S&P 500 Index* rose 31% during the year, with a
relatively small group of large capitalization stocks providing the leadership.
There was considerable volatility during the year, marked by significant market
declines -- the first in the spring, and a second, steeper decline in October
caused by economic turmoil in several important Asian countries. In both cases,
stock prices recovered.
For utility stocks, 1997 represented another year of change brought on by
deregulation of the telecommunications and electric utility industries. In
telecommunications, companies continued to battle between the courts and the FCC
over making local and long distance services more competitive. Meanwhile, the
electric utilities struggled to pass deregulation measures at the state level.
Both industries offer great challenges and opportunities for the investor.
The stock market's increased volatility and the changing utility environment
illustrate the importance of maintaining a long-term investment outlook. By
staying with an investment through the inevitable market cycles, investors can
reduce the impact of any one downturn. Moreover, a diversified investment such
as a professionally managed mutual fund further reduces risk. In the pages that
follow, Portfolio Manager Timothy P. O'Brien discusses the utility industries
and the performance of EV Traditional Total Return Fund in 1997.
Sincerely,
/s/ James B. Hawkes,
James B. Hawkes,
President
February 9, 1998
- --------------------------------------------------------------------------------
Performance/2/
- -------------------------------------------------------------------------------
Average Annual Total Returns (at net asset value)
- -------------------------------------------------------------------------------
One Year 16.2%
Five Years 8.8
Ten Years 11.6
SEC Average Annual Total Returns (including maximum 5.75% sales charge)
- -------------------------------------------------------------------------------
One Year 9.4%
Five Years 7.5
Ten Years 11.0
Ten Largest Equity Holdings/3/
- -------------------------------------------------------------------------------
Bellsouth Corp. 5.1%
SBC Communications, Inc. 4.4
Energis PLC 4.1
KN Energy 3.9
NIPSCO Industries, Inc. 3.9
DQE, Inc. 3.8
ACC Corp. 3.7
Pinnacle West Capital Corp. 3.6
DPL, Inc. 3.5
National Grid Holdings 3.3
/1/ This return does not include the maximum 5.75% sales charge.
/2/ Returns are calculated by determining the percentage change in net asset
value with all distributions reinvested. SEC returns reflect maximum sales
charge as noted.
/3/ By total net assets. Ten largest holdings are as of 12/31/97 only and may
not be representative of the Portfolio's current or future investments.
Holdings accounted for 39.3% of the Portfolio's investments, determined by
dividing the total market value of the holdings by the total net assets of
the Portfolio.
* It is not possible to invest directly in a Lipper Category or an Index.
Past performance is no guarantee of future results. Investment return and
principal value will fluctuate so that shares, when redeemed, may be worth
more or less than their original cost.
- --------------------------------------------------------------------------------
Mutual fund shares are not insured by the FDIC and are not deposits or other
obligations of, or guaranteed by, any depository institution. Shares are subject
to investment risks, including possible loss of principal invested.
- --------------------------------------------------------------------------------
2
<PAGE>
EV Traditional Total Return Fund as of December 31, 1997
MANAGEMENT DISCUSSION
[PHOTO APPEARS HERE]
Timothy P. O'Brien,
Portfolio Manager
An interview with Timothy P. O'Brien, Vice President and Portfolio Manager of
the Total Return Portfolio
Q: Tim, how would you summarize 1997 for the three main utility industries
electric, telephone and natural gas?
A: For the full year, telephone stocks outperformed the broad equity market,
while electric utility stocks and natural gas stocks substantially
underperformed. After struggling for much of the year, both telephone and
electric utility stocks rallied in the fourth quarter, aided by a rally in
the bond market and by a flight of capital from technology stocks and
particularly from companies exposed to emerging markets or to competitors
based in emerging markets. Natural gas stocks, which have a relatively small
weighting in the Fund, were hurt by falling energy prices generally and
forecasts of slowing worldwide demand.
Five Largest Equity Sectors+
- --------------------------------------------------------------------------------
As a percentage of total net assets
Electric Utilities 29.2%
Telephone Utilities 24.7%
Real Estate Investment Trusts 23.4%
Petroleum Stocks 5.0%
Natural Gas Utilities 3.9%
+Sector allocation is subject to change due to active management.
Q: Why is deregulation in the electric utility industry moving at such a slow
pace?
A: Some parts of the industry, such as wholesale electric generation, are well
on their way to becoming fully competitive. A competitive wholesale
electricity market exists already in the U.S., and it won't be long before
the retail market will be opened up equally to all buyers. The market for
retail electricity, however, remains mired in regulatory and legal problems.
Several issues are slowing deregulation of retail electric companies,
including recouping "stranded costs" -- utility investments in obsolete or
nuclear power plants and high-cost contracts -- and the complexity of
legislating new distribution and pricing systems.
Q: The Fund has a sizable weighting in real estate investment trusts (REITs).
What kind of year was 1997 for this sector?
A: The performance of REITs is typically related to the commercial real estate
market, which had a very stable, and therefore good year in 1997. In a strong
economy such as we had, REITs tend to do what they are supposed to do --
provide high income along with stability of principal. Normally, REIT shares
would rally in a declining interest rate environment, providing the investor
with some capital appreciation in addition to a high level of income.
Unfortunately, that did not happen this year, so our REIT positions did not
give us the performance we had hoped for.
Generally speaking, REITs have higher dividend yields than utility stocks,
and, at this stage in an economic cycle, substantially higher dividend growth
rates than utility shares. This healthy dividend income is an important
component for a total return fund. Going forward, we intend to place more
emphasis on growth of principal -- the other component of total return to
improve annual returns.
3
<PAGE>
EV Traditional Total Return Fund as of December 31, 1997
MANAGEMENT DISCUSSION CONT'D
Q: Were you disappointed with any particular sectors or holdings this year?
A: In hindsight, our weightings in REITs should have been reduced, and those
in electric and telephone stocks ought to have been higher. This would have
resulted in stronger fourth quarter performance, which would have helped the
Fund's overall performance for the year.
Q: How does this Fund's yield compare with others in its peer group?
A: The Fund's yield is among the highest in its peer group. Our goal is to
improve the total return of the Fund, which would shift the investment
emphasis towards stocks with higher growth potential. This may reduce the
yield somewhat, but a higher overall return should be worth the reduction in
income.
Q: What is your outlook for the electric utility and telecommunications sectors
in 1998?
A: Electric utility stocks are likely to perform reasonably well in 1998,
because valuations, while up, are still reasonable. Yields are still
attractive, although they have come down somewhat. The uncertainty brought on
by deregulation will continue to be reduced, which should lower the
perception of risk and bring about higher valuations. There is no reason that
an electric distribution company should have a lower price/earnings ratio
than a natural gas distribution company, which is currently the case.
Telecommunications stocks generally had a very good year in 1997, and it is
unlikely that this performance will be matched in 1998. Stocks in this sector
are trading at historically peak valuations, with price/earnings ratios
approaching those of the broader market. Revenue growth is likely to slow,
especially if we see the slowing of the U.S. economy that many analysts
predict. Although increasing competition has been a concern, we have seen
little impact on stock prices so far. However, telecom stock valuations may
be affected by competition in the coming year.
Q: What do you foresee for the Fund's other investment sectors?
A: Natural gas utilities should perform reasonably well in 1998, as the industry
continues to consolidate, raising valuations and reducing the number of
companies to invest in. I do not foresee much regulatory or competitive risk
and may add to this sector during the seasonally weak second quarter. In
foreign utilities, I will continue to focus on Europe and will probably add
positions there. Also attractive are utilities in Latin America, where we
currently have no exposure. We do not currently own utilities in Asia, and it
is probably still early to invest there. I would like to see more economic
stability first.
Within the REIT sector, I see a potential risk of overbuilding which could
reduce returns. The office sector is currently stable, especially in central
business districts. As I mentioned, I will probably reduce the Fund's REIT
holdings in 1998 and invest in sectors with higher growth potential.
4
<PAGE>
EV Traditional Total Return Fund as of December 31, 1997
FUND PERFORMANCE
Comparison of Change in Value of a $10,000
Investment in EV Traditional Total Return Fund vs.
the Standard & Poor's 500*
December 31, 1987 through December 31, 1997
[LINE GRAPH APPEARS HERE]
Fund's Performance
EV Traditional Including Maximum
Total Return 5.75% Initial
Date Fund Sales Charge S&P 500*
---- ---- ----------- -------
12/31/87 $10,000 $9,429 $10,000
1/31/88 $11,000 $10,372 $10,435
2/28/88 $10,763 $10,149 $10,901
3/31/88 $10,323 $9,734 $10,569
4/30/88 $10,336 $9,746 $10,703
5/31/88 $10,832 $10,214 $10,771
6/30/88 $10,856 $10,237 $11,272
7/31/88 $10,720 $10,108 $11,245
8/31/88 $10,652 $10,044 $10,845
9/30/88 $10,970 $10,344 $11,310
10/31/88 $11,179 $10,541 $11,638
11/30/88 $11,109 $10,475 $11,452
12/31/88 $11,194 $10,555 $11,655
1/31/89 $11,462 $10,808 $12,519
2/28/89 $11,264 $10,621 $12,192
3/31/89 $11,406 $10,755 $12,480
4/30/89 $11,938 $11,256 $13,146
5/31/89 $12,527 $11,812 $13,648
6/30/89 $12,858 $12,124 $13,581
7/31/89 $13,573 $12,798 $14,821
8/31/89 $13,485 $12,716 $15,091
9/30/89 $13,559 $12,785 $15,033
10/31/89 $13,707 $12,925 $14,696
11/30/89 $14,106 $13,301 $14,980
12/31/89 $14,939 $14,087 $15,342
1/31/90 $14,007 $13,208 $14,326
2/28/90 $13,992 $13,194 $14,489
3/31/90 $14,083 $13,280 $14,881
4/30/90 $13,596 $12,820 $14,527
5/31/90 $14,175 $13,366 $15,911
6/30/90 $13,992 $13,193 $15,817
7/31/90 $14,146 $13,339 $15,778
8/31/90 $13,404 $12,639 $14,334
9/30/90 $13,716 $12,933 $13,645
10/31/90 $14,657 $13,821 $13,600
11/30/90 $14,861 $14,013 $14,462
12/31/90 $14,962 $14,108 $14,867
1/31/91 $14,681 $13,843 $15,527
2/28/91 $15,209 $14,341 $16,613
3/31/91 $15,593 $14,703 $17,024
4/30/91 $15,543 $14,656 $17,079
5/31/91 $15,242 $14,372 $17,787
6/30/91 $15,091 $14,230 $16,984
7/31/91 $15,719 $14,822 $17,794
8/31/91 $16,211 $15,286 $18,192
9/30/91 $16,950 $15,983 $17,891
10/31/91 $17,174 $16,194 $18,150
11/30/91 $17,432 $16,437 $17,400
12/31/91 $18,494 $17,439 $19,388
1/31/92 $17,603 $16,598 $19,048
2/28/92 $17,413 $16,419 $19,275
3/31/92 $17,146 $16,168 $18,900
4/30/92 $17,627 $16,621 $19,477
5/31/92 $18,051 $17,021 $19,547
6/30/92 $18,070 $17,039 $19,258
7/31/92 $19,222 $18,125 $20,067
8/31/92 $19,085 $17,996 $19,636
9/30/92 $19,186 $18,091 $19,865
10/31/92 $19,028 $17,942 $19,955
11/30/92 $19,166 $18,072 $20,607
12/31/92 $19,714 $18,589 $20,864
1/31/92 $20,262 $19,105 $21,059
2/28/93 $21,567 $20,337 $21,328
3/31/93 $21,782 $20,539 $21,775
4/30/93 $21,696 $20,458 $21,274
5/31/93 $21,547 $20,317 $21,810
6/30/93 $22,172 $20,907 $21,879
7/31/93 $22,711 $21,415 $21,815
8/31/93 $23,423 $22,086 $22,618
9/30/93 $23,291 $21,962 $22,444
10/31/93 $22,833 $21,530 $22,929
11/30/93 $21,328 $20,111 $22,684
12/31/93 $21,585 $20,353 $22,963
1/31/94 $21,244 $20,031 $23,761
2/28/94 $20,377 $19,214 $23,099
3/31/94 $19,935 $18,797 $22,094
4/30/94 $20,279 $19,122 $22,405
5/31/94 $19,448 $18,338 $22,739
6/30/94 $18,897 $17,819 $22,187
7/31/94 $19,171 $18,077 $22,940
8/31/94 $19,032 $17,946 $23,858
9/30/94 $18,693 $17,626 $23,270
10/31/94 $18,715 $17,647 $23,812
11/30/94 $18,690 $17,623 $22,928
12/31/94 $18,934 $17,854 $23,266
1/31/95 $19,479 $18,367 $23,884
2/28/95 $19,327 $18,224 $24,799
3/31/95 $19,300 $18,199 $25,530
4/30/95 $19,599 $18,481 $26,305
5/31/95 $20,556 $19,383 $27,321
6/30/95 $20,680 $19,500 $27,964
7/31/95 $21,212 $20,001 $28,912
8/31/95 $21,490 $20,264 $28,963
9/30/95 $22,511 $21,227 $30,185
10/31/95 $22,740 $21,442 $30,095
11/30/95 $23,098 $21,780 $31,392
12/31/95 $24,148 $22,770 $32,001
1/31/96 $24,729 $23,318 $33,104
2/28/96 $24,565 $23,163 $33,394
3/31/96 $24,457 $23,062 $33,718
4/30/96 $24,269 $22,884 $34,237
5/31/96 $24,907 $23,486 $35,085
6/30/96 $25,333 $23,887 $35,230
7/31/96 $24,114 $22,738 $33,686
8/31/96 $24,947 $23,523 $34,388
9/30/96 $25,131 $23,697 $36,320
10/31/96 $25,508 $24,052 $37,335
11/30/96 $25,857 $24,381 $40,142
12/31/96 $25,838 $24,363 $39,345
1/31/97 $26,304 $24,803 $41,822
2/28/97 $26,445 $24,936 $42,134
3/31/97 $25,687 $24,221 $40,402
4/30/97 $25,229 $23,789 $42,831
5/31/97 $26,515 $25,002 $45,409
6/30/97 $27,264 $25,708 $47,451
7/31/97 $28,238 $26,626 $51,230
8/31/97 $27,806 $26,219 $48,360
9/30/97 $29,526 $27,841 $51,003
10/31/97 $28,411 $26,790 $49,316
11/30/97 $29,268 $27,597 $51,586
12/31/97 $30,017 $28,304 $52,468
Performance+
- --------------------------------------------------------------------------------
Average Annual Total Returns (at net asset value)
- --------------------------------------------------------------------------------
One Year 16.2%
Five Years 8.8
Ten Years 11.6
SEC Average Annual Total Returns (including 5.75% sales charge)
- --------------------------------------------------------------------------------
One Year 9.4%
Five Years 7.5
Ten Years 11.0
* Source: Towers Data Systems, Bethesda, MD.
The chart compares the Fund's total return with that of the S&P 500 Index, a
broad-based unmanaged index of 500 common stocks. Returns are calculated by
determining the percentage change in net asset value with all distributions
reinvested. The lines on the chart represent the total returns of $10,000
hypothetical investments in the Fund and the S&P 500 Index. The Index's
total return does not reflect any commissions or expenses that would have
been incurred if an investor individually purchased or sold the securities
represented in the Index. It is not possible to invest directly in an Index.
** This figure represents the Fund's performance including the Fund's maximum
5.75% initial sales charge.
+ Returns are calculated by determining the percentage change in net asset
value with all distributions reinvested. SEC returns reflect maximum sales
charge as noted.
Past performance is no guarantee of future results. Investment return and
principal value will fluctuate so that shares, when redeemed, may be worth
more or less than their original cost.
5
<PAGE>
EV Traditional Total Return Fund as of December 31, 1997
FINANCIAL STATEMENTS
Statement of Assets and Liabilities
As of December 31, 1997
Assets
- --------------------------------------------------------------------------------
Investment in Total Return Portfolio
(Portfolio), at value (Note 1A) $ 367,763,853
(identified cost, $308,293,604)
Receivable for Fund shares sold 4,159,983
- --------------------------------------------------------------------------------
Total assets $ 371,923,836
- --------------------------------------------------------------------------------
Liabilities
- --------------------------------------------------------------------------------
Dividends payable $ 541,320
Payable for Fund shares redeemed 649,039
Payable to affiliate for Trustees' fees (Note 4) 840
Accrued expenses 275,210
- --------------------------------------------------------------------------------
Total liabilities $ 1,466,409
- --------------------------------------------------------------------------------
Net Assets for 43,821,871 shares of beneficial interest $ 370,457,427
outstanding
- --------------------------------------------------------------------------------
Sources of Net Assets
- --------------------------------------------------------------------------------
Paid-in capital $ 258,912,623
Accumulated distribution in excess of realized gains
(computed on the basis of identified cost) (1,055,396)
Accumulated undistributed net investment income 53,129,951
Net unrealized appreciation of investments
(computed on the basis of identified cost) 59,470,249
- --------------------------------------------------------------------------------
Total $ 370,457,427
- --------------------------------------------------------------------------------
Net Asset Value and Redemption
Price Per Share
- --------------------------------------------------------------------------------
($370,457,427 / 43,821,871 shares of
beneficial interest outstanding) $ 8.45
- --------------------------------------------------------------------------------
Computation of Offering Price
- --------------------------------------------------------------------------------
Offering price per share (100 / 94.25 of $8.45) $ 8.97
- --------------------------------------------------------------------------------
On sales of $100,000 or more, the offering price is reduced.
Statement of Operations
For the Year Ended
December 31, 1997
Investment Income (Note 1B)
- --------------------------------------------------------------------------------
Dividend income allocated from
Portfolio (net of foreign taxes, $328,050) $ 16,240,535
Interest income allocated from Portfolio 3,361,735
Expenses allocated from Portfolio (2,844,772)
- --------------------------------------------------------------------------------
Net investment income from Portfolio $ 16,757,498
- --------------------------------------------------------------------------------
Expenses
- --------------------------------------------------------------------------------
Compensation of Trustees not members of the
Administrator's organization (Note 4) $ 3,310
Service fees (Note 5) 820,115
Transfer and dividend disbursing agent fees 381,475
Printing and postage 80,469
Registration fees 29,382
Custodian fee 27,283
Legal and accounting services 19,746
Miscellaneous 61,753
- --------------------------------------------------------------------------------
Total expenses $ 1,423,533
- --------------------------------------------------------------------------------
Net investment income $ 15,333,965
- --------------------------------------------------------------------------------
Realized and Unrealized
Gain (Loss) from Portfolio
- --------------------------------------------------------------------------------
Net realized gain (loss) --
Investment transactions (identified cost basis) $ 30,236,975
Foreign currency transactions (5,500)
- --------------------------------------------------------------------------------
Net realized gain on investment transactions $ 30,231,475
- --------------------------------------------------------------------------------
Change in unrealized appreciation (depreciation)
Investments $ 10,973,405
Foreign currency transactions 5,147
- --------------------------------------------------------------------------------
Net change in unrealized appreciation (depreciation)
of investments $ 10,978,552
- --------------------------------------------------------------------------------
Net realized and unrealized gain on investments $ 41,210,027
- --------------------------------------------------------------------------------
Net increase in net assets from operations $ 56,543,992
- --------------------------------------------------------------------------------
See notes to financial statements
6
<PAGE>
EV Traditional Total Return Fund as of December 31, 1997
FINANCIAL STATEMENTS CONT'D
Statements of Changes in Net Assets
Increase (Decrease) Year Ended Year Ended
in Net Assets December 31, 1997 December 31, 1996
- --------------------------------------------------------------------------------
From operations --
Net investment income $ 15,333,965 $ 24,041,832
Net realized gain on investments 30,231,475 41,791,324
Net change in unrealized
appreciation (depreciation)
of investments 10,978,552 (37,254,680)
- --------------------------------------------------------------------------------
Net increase in net assets
from operations $ 56,543,992 $ 28,578,476
- --------------------------------------------------------------------------------
Distributions to shareholders (Note 2) --
From net investment income $ (14,226,568) $ (23,803,563)
From net realized gain
on investments (52,023,235) (19,614,278)
In excess of net realized gain (1,753,904) --
- --------------------------------------------------------------------------------
Total distributions to shareholders $ (68,003,707) $ (43,417,841)
- --------------------------------------------------------------------------------
Transactions in shares of beneficial
interest (Note 3)--
Proceeds from sale of shares $ 35,611,098 $ 7,148,549
Net asset value of shares issued to
shareholders in payment of
distributions declared 53,794,284 33,431,649
Cost of shares redeemed (109,462,155) (81,645,885)
- --------------------------------------------------------------------------------
Net decrease in net assets from Fund
share transactions $ (20,056,773) $ (41,065,687)
- --------------------------------------------------------------------------------
Net decrease in net assets $ (31,516,488) $ (55,905,052)
- --------------------------------------------------------------------------------
Net Assets
- --------------------------------------------------------------------------------
At beginning of year $ 401,973,915 $ 457,878,967
- --------------------------------------------------------------------------------
At end of year $ 370,457,427 $ 401,973,915
- --------------------------------------------------------------------------------
Accumulated undistributed net
investment income included in net
assets
- --------------------------------------------------------------------------------
At end of year $ 53,129,951 $ 52,727,791
- --------------------------------------------------------------------------------
See notes to financial statements
7
<PAGE>
EV Traditional Total Return Fund as of December 31, 1997
FINANCIAL STATEMENTS CONT'D
Financial Highlights
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------------------------------------
1997 1996 1995 1994 1993
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value -- Beginning of year $ 8.770 $ 9.130 $ 7.630 $ 9.140 $ 9.360
- -----------------------------------------------------------------------------------------------------------------------------
Income (loss) from operations
- -----------------------------------------------------------------------------------------------------------------------------
Net investment income $ 0.409 $ 0.626 $ 0.523 $ 0.545 $ 0.363
Net realized and unrealized gain (loss) on investments 0.887 (0.014)+ 1.520 (1.667) 0.552
- -----------------------------------------------------------------------------------------------------------------------------
Total income (loss) from operations $ 1.296 $ 0.612 $ 2.043 $ (1.122) $ 0.915
- -----------------------------------------------------------------------------------------------------------------------------
Less distributions
- -----------------------------------------------------------------------------------------------------------------------------
From net investment income $ (0.331) $ (0.522) $ (0.364) $ (0.388) $ (0.465)
In excess of net investment income -- -- (0.039) -- --
From net realized gain on investments (1.243) (0.450) (0.078) -- (0.654)
In excess of net realized gain on investments (0.042) -- (0.062) -- (0.016)
- -----------------------------------------------------------------------------------------------------------------------------
Total distributions $ (1.616) $ (0.972) $ (0.543) $ (0.388) $ (1.135)
- -----------------------------------------------------------------------------------------------------------------------------
Net asset value -- End of year $ 8.450 $ 8.770 $ 9.130 $ 7.630 $ 9.140
- -----------------------------------------------------------------------------------------------------------------------------
Total Return (1) 16.18% 7.00% 27.52% (12.28)% 9.49%
- -----------------------------------------------------------------------------------------------------------------------------
Ratios/Supplemental Data
- -----------------------------------------------------------------------------------------------------------------------------
Net assets, end of year (000's omitted) $370,457 $ 401,974 $457,879 $445,133 $629,514
Ratio of interest expense to average daily net assets -- -- -- -- 0.20%
Ratio of other expenses to average daily net assets (2) 1.13% 1.23% 1.19% 1.18% 1.11%
Ratio of net investment income to average daily net
assets 4.06% 5.59% 4.49% 4.90% 4.64%
Portfolio Turnover (3) -- -- -- -- 63%
- -----------------------------------------------------------------------------------------------------------------------------
Leverage Analysis (4)
- -----------------------------------------------------------------------------------------------------------------------------
Average daily balance of debt outstanding during period $ -- $ -- $ -- $ -- $ 29,906
Average weekly balance of shares outstanding
during period -- -- -- -- 61,377
Average amount of debt per share during period $ -- $ -- $ -- $ -- $ 0.487
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
+ The per share amount is not in accordance 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) Total investment return is calculated assuming a purchase at the net asset
value on the first day and a sale at the net asset value on the last day of
each period reported. Dividends and distributions, if any, are assumed to be
reinvested at the net asset value on the ex-dividend date. Total return is
not computed on an annualized basis.
(2) Includes the Fund's share of its corresponding Portfolio's allocated
expenses for the period the fund was investing in the Portfolio.
(3) 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
assets to the Portfolio is shown in the Portfolio's financial statements
which are included elsewhere in this report.
(4) 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 four years ended December 31, 1997 and the period from October 28, 1993
to December 31, 1993 is shown in the Portfolio's financial statements which
are included elsewhere in this report.
See notes to financial statements
8
<PAGE>
EV Traditional Total Return Fund as of December 31, 1997
NOTES TO FINANCIAL STATEMENTS
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 of the Eaton Vance
Special Investment Trust (the Trust). The Fund invests all of its investable
assets in interests in the Total Return Portfolio (the Portfolio), a New
York Trust, having the same investment objective as the Fund. The value of
the Fund's investment in the Portfolio reflects the Fund's proportionate
interest in the net assets of the Portfolio (89.0% at December 31, 1997).
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.
On June 23, 1997, the Board of Trustees of the Trust adopted a multiple
class plan for the Fund which permits the Fund to issue more than one class
of shares. Initially, the Fund will offer three classes of shares and,
effective January 1, 1998 the existing shares of the Fund will be designated
as Class A shares. On June 23, 1997, the Board of Trustees also approved a
Plan of Reorganization (the "Plan") for the Trust. Under the terms of the
Plan, the Fund will acquire substantially all of the assets and liabilities
of EV Marathon Total Return Fund and EV Classic Total Return Fund. The
transaction will be structured for tax purposes to qualify as a tax-free
reorganization under the Internal Revenue Code. As a result of the
reorganization, shareholders of the Marathon Fund will receive Class B
shares and shareholders of the Classic Fund will receive Class C shares of
the Fund. The reorganization will occur after the close of business,
December 31, 1997.
A Investment Valuations -- Valuation of securities by the Portfolio is
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 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. Accordingly, no provision for federal
income or excise tax is necessary. Pursuant to Section 852 of the Internal
Revenue Code, the Fund designates $33,098,612 at 28% and $20,678,527 at 20%,
as long-term capital gain distributions for its taxable year ended December
31, 1997.
D Expense Reduction -- Investors Bank & Trust Company (IBT) 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. All significant credit balances used
to reduce the Fund's custodian fees are reflected as a reduction of
operating expenses on the Statement of Operations.
E Other -- Investment transactions are accounted for on a trade date basis.
F Use of Estimates -- The preparation of 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 Distributions to Shareholders
----------------------------------------------------------------------------
The Fund's policy is to distribute monthly substantially all of the net
investment income allocated to the Fund by the Portfolio (less the Fund's
direct expenses) and to distribute at least annually substantially all of
its net realized capital gains. Distributions are paid in the form of
additional shares of the Fund or, at the election of the shareholder, in
cash. The Fund distinguishes between distributions on a tax basis and a
financial reporting basis. Generally accepted 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 over distributions only for
financial statement purposes are classified as distributions in excess of
net investment income or net realized gain on investments. Permanent
9
<PAGE>
EV Traditional Total Return Fund as of December 31, 1997
NOTES TO FINANCIAL STATEMENTS CONT'D
differences between book and tax accounting relating to distributions are
reclassified to paid-in capital.
3 Shares of Beneficial Interest
----------------------------------------------------------------------------
The Fund's 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:
Year Ended December 31,
--------------------------------
1997 1996
------------------------------------------------------------------------
Sales 4,081,005 766,884
Issued to shareholders electing to
receive payment of distributions in
Fund shares 6,457,940 3,808,653
Redemptions (12,559,429) (8,867,665)
------------------------------------------------------------------------
Net decrease (2,020,484) (4,292,128)
------------------------------------------------------------------------
4 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 2 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 or 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
the Portfolio are officers and directors/trustees of the above
organizations.
5 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 maintenance of
shareholder accounts. During the year ended December 31, 1997 the Fund paid
or accrued service fees of $820,115 under the Plan to the Principal
Underwriter and Authorized Firms.
6 Investment Transactions
----------------------------------------------------------------------------
Increases and decreases in the Fund's investments in the Portfolio for the
year ended December 31, 1997, aggregated $44,060,824 and $133,373,001,
respectively.
7 Subsequent Event
----------------------------------------------------------------------------
Effective January 1, 1998, the Fund changed its name to Eaton Vance Total
Return Fund and shares of the Fund are designated Class A shares. Additional
classes of shares are also offered.
10
<PAGE>
EV Traditional Total Return Fund as of December 31, 1997
INDEPENDENT ACCOUNTANTS' REPORT
To the Shareholders and Board of Trustees of EV Traditional Total Return Fund, a
series of Eaton Vance Special Investment Trust:
- --------------------------------------------------------------------------------
We have audited the accompanying statement of assets and liabilities of EV
Traditional Total Return Fund (the Fund), a series of Eaton Vance Special
Investment Trust, as of December 31, 1997, and the related statement of
operations for the year then ended, the statements of changes in net assets for
each of the two years in the period then ended and the financial highlights for
each of the five years in the period 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. 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 the
Fund, a series of Eaton Vance Special Investment Trust, as of December 31, 1997,
the results of its operations for the year then ended, the changes in its net
assets for each of the two years in the period then ended and the financial
highlights for each of the five years in the period then ended, in conformity
with generally accepted accounting principles.
COOPERS & LYBRAND L.L.P.
Boston, Massachusetts
February 6, 1998
11
<PAGE>
Total Return Portfolio as of December 31, 1997
PORTFOLIO OF INVESTMENTS
Common Stocks -- 86.7%
Security Shares Value
- --------------------------------------------------------------------------------
Broadcasting and Cable -- 0.5%
- --------------------------------------------------------------------------------
Ovation, Inc.*++ 238,168 $ 1,981,558
- --------------------------------------------------------------------------------
$ 1,981,558
- --------------------------------------------------------------------------------
Electric Utilities -- 29.2%
- --------------------------------------------------------------------------------
Central Louisiana Electric Co. 210,000 $ 6,798,750
Cilcorp, Inc. 130,000 6,353,750
DPL, Inc. 500,000 14,375,001
DQE, Inc. 450,000 15,806,251
Electric de Portugal ADR* 20,000 775,000
Endesa S.A. ADR 200,000 3,637,500
LG & E Energy Corp. 6,500 160,875
Long Island Lighting Co. 175,000 5,271,875
National Grid Holdings 2,875,000 13,730,001
NIPSCO Industries, Inc. 325,000 16,067,189
Pinnacle West Capital Corp. 350,000 14,831,251
PowerGen PLC 1,000,000 13,080,901
Sierra Pacific Resources 150,000 5,625,000
Southern Electric 500,000 3,998,300
United Utilities PLC 7,807 100,838
- --------------------------------------------------------------------------------
$120,612,482
- --------------------------------------------------------------------------------
Natural Gas Utilities -- 3.9%
- --------------------------------------------------------------------------------
K N Energy 300,000 $ 16,200,001
- --------------------------------------------------------------------------------
$ 16,200,001
- --------------------------------------------------------------------------------
Oil and Gas - Equipment and Services -- 2.1%
- --------------------------------------------------------------------------------
Diamond Offshore Drilling, Inc. 180,000 $ 8,662,500
- --------------------------------------------------------------------------------
$ 8,662,500
- --------------------------------------------------------------------------------
Oil and Gas - Exploration
and Production -- 2.9%
- --------------------------------------------------------------------------------
Coho Energy Inc.* 150,000 $ 1,368,750
EEX Corporation* 800,000 7,250,000
Louis Dreyfus Natural Gas* 180,000 3,363,750
- --------------------------------------------------------------------------------
$ 11,982,500
- --------------------------------------------------------------------------------
REITS -- 23.4%
- --------------------------------------------------------------------------------
Annaly Mortgage, Inc., 144A 350,000 $ 3,828,125
Criimi Mae, Inc. 650,000 9,750,000
Equity Office Properties 150,415 4,747,473
Excel Realty Trust, Inc. 125,000 3,937,500
First Union Real Estate 50,000 812,500
Hanover Capital Mortgage 50,000 825,000
Imperial Credit Commercial
Mortgage Investment 150,000 2,193,750
Mack-Cali Realty Corp. 300,000 12,300,001
Ocwen Asset Investment Corp. 400,000 8,200,000
Parkway Properties Inc. 175,000 6,004,688
Prime Group Realty Trust 290,000 5,872,500
Prime Retail, Inc. 250,000 3,546,875
Security Capital US Realty Trust* 600,000 8,520,000
Sunstone Hotel Investors, Inc. 525,000 9,056,250
Tower Realty Trust, Inc. 300,000 7,387,500
Vornado Realty Trust 210,000 9,856,876
- --------------------------------------------------------------------------------
$ 96,839,038
- --------------------------------------------------------------------------------
Telephone Utilities -- 24.7%
- --------------------------------------------------------------------------------
ACC Corp.* 300,000 $ 15,150,001
Bell Atlantic Corp. 100,000 9,100,000
BellSouth Corp. 375,000 21,117,189
Energis* 4,050,000 16,926,166
GTE Corp. 100,000 5,225,000
MCI Communications Corp. 250,000 10,703,126
Metronet Communications* 100,000 1,737,500
Nextlink Communications* 26,000 554,125
SBC Communications, Inc. 250,000 18,312,501
Tel Save Holdings, Inc.* 50,000 993,750
Trescom International, Inc.* 335,000 2,491,563
- --------------------------------------------------------------------------------
$102,310,921
- --------------------------------------------------------------------------------
Total Common Stocks
(identified cost $290,500,017) $358,589,000
- --------------------------------------------------------------------------------
Convertible Preferred Stocks -- 7.6%
Business Services - Miscellaneous -- 0.7%
- --------------------------------------------------------------------------------
Newell Financial Trust* 50,000 $ 2,612,500
- --------------------------------------------------------------------------------
$ 2,612,500
- --------------------------------------------------------------------------------
REITS -- 4.4%
- --------------------------------------------------------------------------------
Excel Realty 375,000 $ 11,378,889
See notes to financial statements
12
<PAGE>
Total Return Portfolio as of December 31, 1997
PORTFOLIO OF INVESTMENTS CONT'D
Security Shares Value
- --------------------------------------------------------------------------------
REITS (continued)
- --------------------------------------------------------------------------------
Vornado Realty Trust 40,000 $ 2,640,000
Walden Residential 140,000 4,130,000
- --------------------------------------------------------------------------------
$18,148,889
- --------------------------------------------------------------------------------
Telephone Utilities -- 2.5%
- --------------------------------------------------------------------------------
Intermedia Communications, Inc. 25,000 $ 950,000
Intermedia Communications, Inc., 144A* 250,000 9,500,000
- --------------------------------------------------------------------------------
$10,450,000
- --------------------------------------------------------------------------------
Total Convertible Preferred Stocks
(identified cost $24,737,650) $31,211,389
- --------------------------------------------------------------------------------
Warrants -- 0.1%
REITS -- 0.1%
- --------------------------------------------------------------------------------
Walden Residential Warrants* 340,000 $ 425,000
- --------------------------------------------------------------------------------
$ 425,000
- --------------------------------------------------------------------------------
Total Warrants
(identified cost $0) $ 425,000
- --------------------------------------------------------------------------------
Convertible Bonds -- 6.9%
Principal
Amount
(000's
Security omitted) Value
- --------------------------------------------------------------------------------
Loews Corp., 3.125%, 9/15/07 $ 10,000 $ 9,813,001
Midcom Communications, 144A,
8.25%, 8/15/03+ 10,000 3,100,000
Ovation, Inc., 9.75%, 2/23/01++ 2,000 1,800,000
SA Telecommunications, 10.00%, 8/15/06+ 3,000 1,050,000
Smartalk Teleservices, 144A, 5.75%, 9/15/04 12,000 12,772,501
- --------------------------------------------------------------------------------
Total Convertible Bonds
(identified cost $37,862,169) $28,535,502
- --------------------------------------------------------------------------------
Corporate Bonds -- 3.2%
Principal
Amount
(000's
Security omitted) Value
- --------------------------------------------------------------------------------
Bank Plus Corp., 12.00%, 7/18/07 $ 10,625 $11,953,126
Orbital Sciences, 144A, 5.00%, 10/1/02 1,000 1,281,250
- --------------------------------------------------------------------------------
Total Corporate Bonds
(identified cost $12,018,750) $13,234,376
- --------------------------------------------------------------------------------
Commercial Paper -- 1.2%
Principal
Amount
(000's
Security omitted) Value
- --------------------------------------------------------------------------------
Associates Corp., N.A., 6.70%, 1/2/98 $ 5,167 $ 5,166,038
- --------------------------------------------------------------------------------
Total Commercial Paper
(amortized cost $5,166,038) $ 5,166,038
- --------------------------------------------------------------------------------
Total Investments -- 105.7%
(identified cost $370,284,624) $ 437,161,305
- --------------------------------------------------------------------------------
Other Assets, Less Liabilities -- (5.7)% $ (23,752,406)
- --------------------------------------------------------------------------------
Net Assets -- 100% $ 413,408,899
- --------------------------------------------------------------------------------
* Non-income producing security.
+ The issuer has filed for chapter 11 bankruptcy.
++ Valued in good faith at fair value using procedures approved by the board
of directors (see note 1 of Notes to Financial Statements).
See notes to financial statements
13
<PAGE>
Total Return Portfolio as of December 31, 1997
FINANCIAL STATEMENTS
Statement of Assets and Liabilities
<TABLE>
<CAPTION>
As of December 31, 1997
Assets
- ------------------------------------------------------------------------------
<S> <C>
Investments, at value (Note 1A)
(identified cost, $370,284,624) $437,161,305
Cash 2,897
Dividends and interest receivable 2,695,749
Miscellaneous receivable 15,213
Tax reclaim receivable 24,608
Deferred organization expenses (Note 1I) 2,592
- ------------------------------------------------------------------------------
Total assets $439,902,364
- ------------------------------------------------------------------------------
Liabilities
- ------------------------------------------------------------------------------
Payable for investments purchased $ 26,418,623
Payable to affiliate for Trustees' fees (Note 2) 4,700
Accrued expenses 70,142
- ------------------------------------------------------------------------------
Total liabilities $ 26,493,465
- ------------------------------------------------------------------------------
Net Assets applicable to investors' interest in
Portfolio $413,408,899
- ------------------------------------------------------------------------------
Sources of Net Assets
- ------------------------------------------------------------------------------
Net proceeds from capital contributions and withdrawals $346,511,992
Net unrealized appreciation of investments (computed
on the basis of identified cost) 66,896,907
- ------------------------------------------------------------------------------
Total $413,408,899
- ------------------------------------------------------------------------------
Statement of Operations
For the Year Ended
December 31, 1997
Investment Income (Note 1B)
- ------------------------------------------------------------------------------
Dividends (net of foreign taxes, $369,852) $ 18,358,463
Interest income 3,800,498
- ------------------------------------------------------------------------------
Total income $ 22,158,961
- ------------------------------------------------------------------------------
Expenses
- ------------------------------------------------------------------------------
Investment adviser fee (Note 2) $ 2,839,559
Compensation of Trustees not members of the
Investment Adviser's organization (Note 2) 14,929
Custodian fee 222,143
Legal and accounting services 55,601
Amortization of organization expenses (Note 1I) 5,029
Miscellaneous 78,065
- ------------------------------------------------------------------------------
Total expenses $ 3,215,326
- ------------------------------------------------------------------------------
Net investment income $ 18,943,635
- ------------------------------------------------------------------------------
Realized and Unrealized
Gain (Loss) on Investments
- ------------------------------------------------------------------------------
Net realized gain (loss) --
Investment transactions (identified cost basis) $ 34,492,215
Foreign currency transactions (6,190)
- ------------------------------------------------------------------------------
Net realized gain on investment transactions $ 34,486,025
- ------------------------------------------------------------------------------
Change in unrealized appreciation (depreciation) --
Investments (identified cost basis) $ 11,999,383
Foreign currency transactions 5,521
- ------------------------------------------------------------------------------
Net change in unrealized appreciation (depreciation)
of investments $ 12,004,904
- ------------------------------------------------------------------------------
Net realized and unrealized gain on investments $ 46,490,929
- ------------------------------------------------------------------------------
Net increase in net assets from operations $ 65,434,564
- ------------------------------------------------------------------------------
</TABLE>
See notes to financial statements
14
<PAGE>
Total Return Portfolio as of December 31, 1997
FINANCIAL STATEMENTS CONT'D
Statements of Changes in Net Assets
Increase (Decrease) Year Ended Year Ended
in Net Assets December 31, 1997 December 31, 1996
- --------------------------------------------------------------------------------
From operations --
Net investment income $ 18,943,635 $ 29,247,918
Net realized gain on investments 34,486,025 46,868,346
Net change in unrealized
appreciation (depreciation)
of investments 12,004,904 (41,698,849)
- --------------------------------------------------------------------------------
Net increase in net assets
from operations $ 65,434,564 $ 34,417,415
- --------------------------------------------------------------------------------
Capital transactions --
Contributions $ 47,969,480 $ 18,255,080
Withdrawals (155,062,140) (119,275,825)
- --------------------------------------------------------------------------------
Net decrease in net assets from
capital transactions $(107,092,660) $(101,020,745)
- --------------------------------------------------------------------------------
Net decrease in net assets $ (41,658,096) $ (66,603,330)
- --------------------------------------------------------------------------------
Net Assets
- --------------------------------------------------------------------------------
At beginning of year $ 455,066,995 $ 521,670,325
- --------------------------------------------------------------------------------
At end of year $ 413,408,899 $ 455,066,995
- --------------------------------------------------------------------------------
See notes to financial statements
15
<PAGE>
Total Return Portfolio as of December 31, 1997
FINANCIAL STATEMENTS CONT'D
Supplementary Data
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------------------------------------------
1997 1996 1995 1994 1993*
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios to average daily net assets
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Expenses 0.75% 0.85% 0.84% 0.85% 0.91%+
Net investment income 4.42% 5.94% 4.83% 5.22% 4.57%+
Portfolio Turnover 169% 166% 103% 107% 16%
- ------------------------------------------------------------------------------------------------------------------------------------
Average commission rate (per share)/(1)/ $ 0.0429 $ 0.0374 $ -- $ -- $ --
- ------------------------------------------------------------------------------------------------------------------------------------
Leverage Analysis:
- ------------------------------------------------------------------------------------------------------------------------------------
Average daily balance of debt outstanding during
year (000's omitted) $ 922 $ 217 $ 232 $ 3,137 $ 15,452
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of year (000's omitted) $ 413,409 $ 455,067 $521,670 $505,567 $636,567
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
+ Annualized.
* For the period from the start of business, October 28, 1993 to December
31, 1993.
/(1)/ Average commission rate paid is computed by dividing the total dollar
amount of commissions paid during the period by the total number of shares
purchased and sold during the period for which commissions were charged.
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 were charged.
See notes to financial statements
16
<PAGE>
Total Return Portfolio as of December 31, 1997
NOTES TO FINANCIAL STATEMENTS
1 Significant Accounting Policies
----------------------------------------------------------------------------
Total Return Portfolio (the Portfolio) is registered under the Investment
Company Act of 1940 as a diversified open-end management 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.
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. 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 -- Interest income is determined on the basis of interest accrued,
adjusted for amortization of premium or discount when required for federal
income tax purposes. Dividend income is recorded on the ex-dividend date for
dividends received in cash and/or securities. 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.
C 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
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.
D 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.
E Expense Reduction -- Investors Bank & Trust Company (IBT) serves as
custodian of the Portfolio. Pursuant to the custodian agreement, IBT
receives a fee reduced by credits which are based on the average daily cash
balances the Portfolio maintains with IBT. All significant credit balances
used to reduce the Portfolio's custodian fees are reported as a reduction of
expenses on the Statement of Operations.
F 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.
17
<PAGE>
Total Return Portfolio as of December 31, 1997
NOTES TO FINANCIAL STATEMENTS CONT'D
G 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.
H 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 is fixed. Losses may arise due
to changes in the market value of the underlying securities if the
counterparty does not perform under the contract.
I Deferred Organization Expenses -- Costs incurred by the Portfolio in
connection with its organization are being amortized on the straight-line
basis over five years.
J Other -- Investment transactions are accounted for on a trade date basis.
K 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 Adviser Fee and Other Transactions with Affiliates
----------------------------------------------------------------------------
The investment adviser fee is earned by Boston Management and Research
(BMR), a wholly-owned subsidiary of Eaton Vance Management (EVM), as
compensation for management and investment advisory services rendered to the
Portfolio. The fee is based upon a percentage of average daily net assets.
For the year ended December 31, 1997, the fee was equivalent to 0.66% of the
Portfolio's average net assets for such period and amounted to $2,839,559.
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, 1997, no significant
amounts have been deferred.
3 Investment Transactions
----------------------------------------------------------------------------
Purchases and sales of investments, other than short-term obligations,
aggregated $704,111,417 and $772,863,330, respectively.
4 Federal Income Tax Basis of Investments
----------------------------------------------------------------------------
The cost and unrealized appreciation/depreciation in value of the
investments owned at December 31, 1997, as computed on a federal income tax
basis, were as follows:
Aggregate cost $373,101,094
----------------------------------------------------------------------------
Gross unrealized appreciation $ 81,033,066
Gross unrealized depreciation (16,972,855)
----------------------------------------------------------------------------
Net unrealized appreciation $ 64,060,211
----------------------------------------------------------------------------
5 Line of Credit
----------------------------------------------------------------------------
The Portfolio participates with other portfolios and funds managed by BMR
and EVM and its affiliates in a $100 million unsecured line of credit
agreement with a group of banks. The Portfolio may temporarily borrow from
the line
18
<PAGE>
Total Return Portfolio as of December 31, 1997
NOTES TO FINANCIAL STATEMENTS CONT'D
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 eurodollar rate or federal funds rate. In addition, a fee
computed at an annual rate of 0.10% on the daily unused portion of the line
of credit is allocated among the participating portfolios and funds at the
end of each quarter.
6 Financial Instruments
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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, 1997 there were no outstanding obligations under these
financial instruments.
19
<PAGE>
Total Return Portfolio as of December 31, 1997
INDEPENDENT ACCOUNTANTS' REPORT
To the Trustees and Investors
of Total Return Portfolio
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We have audited the accompanying statement of assets and liabilities of Total
Return Portfolio (the Portfolio), including the portfolio of investments, as of
December 31, 1997, and the related statement of operations for the year then
ended, the statements of changes in net assets for each of the two years then
ended and the supplementary data for each of the four years ended December 31,
1997 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 held as of
December 31, 1997 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 the
Portfolio as of December 31, 1997, and the results of its operations, the
changes in its net assets for each of the two years ended December 31, 1997 and
the supplementary data for each of the four years ended December 31, 1997 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
February 6, 1998
20
<PAGE>
EV Traditional Total Return Fund as of December 31, 1997
INVESTMENT MANAGEMENT
EV Traditional Total Return Fund
<TABLE>
Officers Trustees
<S> <C>
James B. Hawkes M. Dozier Gardner
President and Trustee Vice Chairman, Eaton Vance
Management
Edward E. Smiley, Jr.
Vice President Donald R. Dwight
President, Dwight Partners, Inc.
James L. O'Connor
Treasurer Samuel L. Hayes, III
Jacob H. Schiff Professor of Investment
Alan R. Dynner Banking, Harvard University Graduate School of
Secretary Business Administration
Norton H. Reamer
President and Director, United Asset
Management Corporation
John L. Thorndike
Formerly Director, Fiduciary Company Incorporated
Jack L. Treynor
Investment Adviser and Consultant
</TABLE>
Total Return Portfolio
<TABLE>
Officers Independent Trustees
<S> <C>
M. Dozier Gardner Donald R. Dwight
President and Trustee President, Dwight Partners, Inc.
James B. Hawkes Samuel L. Hayes, III
Vice President and Trustee Jacob H. Schiff Professor of Investment
Banking, Harvard University Graduate School of
Business Administration
Timothy O'Brien
Vice President and Norton H. Reamer
Portfolio Manager President and Director, United Asset
Management Corporation
James L. O'Connor
Treasurer John L. Thorndike
Formerly Director, Fiduciary Company Incorporated
Alan R. Dynner
Secretary Jack L. Treynor
Investment Adviser and Consultant
</TABLE>
21
<PAGE>
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<PAGE>
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<PAGE>
Investment Advisor 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
(617) 482-8260
Custodian
Investors Bank & Trust Company
200 Clarendon Street, 16th Floor
Boston, MA 02116
Transfer Agent
First Data Investor Services Group
Attention: Eaton Vance Funds
P.O. Box 5123
Westborough, MA 01581-5123
Independent Accountants
Coopers & Lybrand L.L.P.
One Post Office Square
Boston, MA 02109
EV Traditional Total Return Fund
24 Federal Street
Boston, MA 02110
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This report must be preceded or accompanied by a current prospectus which
contains more complete information on the Fund, including its sales charges and
expenses. Please read the prospectus carefully before you invest or send money.
- --------------------------------------------------------------------------------
T-TMSRC 2/98
