<PAGE>
EV CLASSIC HIGH INCOME FUND
EV CLASSIC HIGH INCOME FUND (THE "FUND") IS A MUTUAL FUND SEEKING TO
PROVIDE A HIGH LEVEL OF CURRENT INCOME. THE FUND INVESTS ITS ASSETS IN HIGH
INCOME PORTFOLIO (THE "PORTFOLIO"), A DIVERSIFIED OPEN-END INVESTMENT COMPANY
HAVING THE SAME INVESTMENT OBJECTIVE AS THE FUND, RATHER THAN BY INVESTING
DIRECTLY IN AND MANAGING ITS OWN PORTFOLIO OF SECURITIES AS WITH HISTORICALLY
STRUCTURED MUTUAL FUNDS. THE FUND IS A SERIES OF EATON VANCE MUTUAL FUNDS
TRUST (THE "TRUST").
THE PORTFOLIO SEEKS TO ACHIEVE ITS INVESTMENT OBJECTIVE BY INVESTING UP TO
100% OF ITS ASSETS IN LOWER-RATED BONDS, COMMONLY KNOWN AS "JUNK BONDS", THAT
ENTAIL GREATER RISKS, INCLUDING DEFAULT, THAN THOSE OF HIGHER-RATED SECURITIES.
INVESTORS SHOULD CAREFULLY CONSIDER THESE RISKS AND INVEST FOR THE LONG TERM.
SEE "THE FUND'S INVESTMENT OBJECTIVE" AND "INVESTMENT POLICIES AND RISKS."
Shares of the Fund are not deposits or obligations of, or guaranteed or
endorsed by, any bank, or other insured depository institution and are not
federally insured by the Federal Deposit Insurance Corporation, the Federal
Reserve Board or any other government agency. Shares of the Fund involve
investment risks, including fluctuations in value and the possible loss of
some or all of the principal investment.
This Prospectus is designed to provide you with information you should
know before investing. Please retain this document for future reference. A
Statement of Additional Information dated August 1, 1995 for the Fund, as
supplemented from time to time, has been filed with the Securities and
Exchange Commission and is incorporated herein by reference. This Statement of
Additional Information is available without charge from the Fund's principal
underwriter, Eaton Vance Distributors, Inc. (the "Principal Underwriter"), 24
Federal Street, Boston, MA 02110 (telephone (800) 225-6265). The Portfolio's
investment adviser is Boston Management and Research (the "Investment
Adviser"), a wholly-owned subsidiary of Eaton Vance Management, and Eaton
Vance Management is the administrator (the "Administrator") of the Fund. The
offices of the Investment Adviser and the Administrator are located at 24
Federal Street, Boston, MA 02110.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR
HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
TABLE OF CONTENTS
Page Page
<S> <C> <C> <C>
Shareholder and Fund Expenses ................ 2 Reports to Shareholders .............. 18
The Fund's Financial Highlights .............. 4 The Lifetime Investing Account/
The Fund's Investment Objective .............. 5 Distribution Options ............... 18
Investment Policies and Risks ................ 5 The Eaton Vance Exchange Privilege ... 19
Organization of the Fund and the Portfolio ... 9 Eaton Vance Shareholder Services ..... 20
Management of the Fund and the Portfolio ..... 11 Distributions and Taxes .............. 21
Distribution Plan ............................ 12 Performance Information .............. 22
Valuing Fund Shares .......................... 14 Appendix A ........................... 23
How to Buy Fund Shares ....................... 15 Appendix B ........................... 26
How to Redeem Fund Shares .................... 16
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</TABLE>
PROSPECTUS DATED AUGUST 1, 1995
<PAGE>
SHAREHOLDER AND FUND EXPENSES
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
SHAREHOLDER TRANSACTION EXPENSES
Sales Charges Imposed on Purchases of Shares None
Sales Charges Imposed on Reinvested Distributions None
Fees to Exchange Shares None
Contingent Deferred Sales Charges Imposed on Redemptions during the First Year (as
a percentage of redemption proceeds exclusive of all reinvestments and capital
appreciation in the account) 1.00%
ANNUAL FUND AND ALLOCATED PORTFOLIO OPERATING EXPENSES
(as a percentage of average daily net assets)
Investment Adviser Fee 0.64%
Rule 12b-1 Distribution (and Service) Fees 1.00
Other Expenses (after expense reduction) 0.40
-----
Total Operating Expenses (after expense reduction) 2.04%
=====
<CAPTION>
EXAMPLE 1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
An investor would pay the following expenses (including a contingent
deferred sales charge in the case of redemption during the first year
after purchase) on a $1,000 investment, assuming (a) 5% annual return
and (b) redemption at the end of each period: $31 $64 $110 $237
An investor would pay the following expenses on the same investment,
assuming (a) 5% return and (b) no redemptions: $21 $64 $110 $237
</TABLE>
Notes:
The table and Example summarize the aggregate expenses of the Fund and the
Portfolio and is designed to help investors understand the costs and expenses
they will bear, directly or indirectly, by investing in the Fund. The
percentages indicated as Annual Fund and Allocated Portfolio Operating
Expenses in the table and the amounts included in the Example are based on the
Fund's and the Portfolio's fees and expenses for the fiscal year ended March
31, 1995. Absent an expense allocation, Other Expenses would have been 3.56%
of the Fund's average daily net assets.
The Fund invests exclusively in the Portfolio. The Trustees believe that,
over time, the aggregate per share expenses of the Fund and the Portfolio
should be approximately equal to, or less than, the per share expenses the
Fund would incur if the Fund were instead to retain the services of an
investment adviser and its assets were invested directly in the types of
securities being held by the Portfolio.
The Example should not be considered a representation of past or future
expenses and actual expenses may be greater or less than those shown. Federal
regulations require the example to assume a 5% annual return, but actual annual
return will vary. For further information regarding the expenses of both the
Fund and the Portfolio see "Organization of the Fund and the Portfolio," and
"How to Redeem Fund Shares." A long-term shareholder in the Fund may pay more
than the economic equivalent of the maximum front-end sales charge permitted by
a rule of the National Association of Securities Dealers, Inc.
The contingent deferred sales charge is imposed on the redemption of shares
purchased on or after January 30, 1995. No contingent deferred sales charge is
imposed on (a) shares purchased more than one year prior to redemption, (b)
shares acquired through the reinvestment of distributions or (c) any
appreciation in value of other shares in the account and no such charge is
imposed on exchanges of Fund shares for shares of one or more other funds listed
under "The Eaton Vance Exchange Privilege." See "How to Redeem Fund Shares".
The Portfolio's monthly advisory fee has two components, a fee based on
daily net assets and a fee based on daily gross income, as set forth in the fee
schedule on page 11.
Other investment companies with different distribution arrangements and fees
are investing in the Portfolio and additional such companies and investors may
do so in the future. See "Organization of the Fund and the Portfolio".
<PAGE>
THE FUND'S FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
The following information should be read in conjunction with the audited
financial statements included in the Fund's Annual Report to shareholders
which is incorporated by reference into the Statement of Additional
Information in reliance upon the report of Deloitte & Touche LLP, independent
certified public accountants, as experts in accounting and auditing. Further
information regarding the performance of the Fund is contained in the Fund's
annual report to shareholders which may be obtained without charge by
contacting the Principal Underwriter.
- ------------------------------------------------------------------------------
FOR THE PERIOD FROM THE START OF BUSINESS, JUNE 8, 1994, TO MARCH 31, 1995:
NET ASSET VALUE, beginning of period $ 10.000
--------
INCOME (LOSS) FROM OPERATIONS:
Net investment income $ 0.735
Net realized and unrealized loss on investments (0.544)
--------
Total income from operations $ 0.191
--------
LESS DISTRIBUTIONS:
From net investment income $ (0.735)*
In excess of net investment income(1) (0.026)
--------
Total distributions $ (0.761)
--------
NET ASSET VALUE, end of period $ 9.430
========
TOTAL RETURN(2) 1.89%
RATIOS/SUPPLEMENTAL DATA*:
Net assets, end of period (000 omitted) $ 2,076
Ratio of expenses to average daily net assets(3) 2.04%+*
Ratio of net investment income to average daily net assets 9.17%+*
*For the period from the start of business, June 8, 1994, to March 31, 1995,
the operating expenses of the Fund reflect an allocation of expenses to the
Administrator. Had such action not been taken, net investment income per
share and the ratios would have been as follows:
Net investment income per share $ 0.482
========
Ratios (As a percentage of average daily net assets):
Expenses(3) 5.20%+
========
Net investment income 6.01%+
========
+ Computed on an annualized basis.
(1)For book purposes, commissions paid on the sale of the Fund's shares and
other distribution costs are charged to operations. For tax purposes,
commissions paid were charged to paid-in capital prior to November 23, 1994
and subsequently charged to operations.
(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 payable date.
(3)Includes the Fund's share of the Portfolio's allocated expenses.
<PAGE>
THE FUND'S INVESTMENT OBJECTIVE
- --------------------------------------------------------------------------------
THE FUND'S INVESTMENT OBJECTIVE IS TO PROVIDE A HIGH LEVEL OF CURRENT INCOME.
The Fund seeks its objective through investments in a diversified portfolio of
high-yielding, high risk, fixed-income securities (commonly referred to as
"junk bonds"). The Fund may not be appropriate for investors who cannot assume
the greater risk of capital depreciation or loss inherent in seeking higher
yields.
INVESTMENT POLICIES AND RISKS
- --------------------------------------------------------------------------------
The Fund currently seeks to achieve its investment objective by investing its
assets in High Income Portfolio, which itself is an open-end management
investment company. The Portfolio normally is invested as follows:
* at least 80% in fixed-income securities, including convertible securities
and
* up to 20% in common stocks and other equity securities when consistent
with its objective or acquired as part of a unit combining fixed-income
and equity securities.
THE PORTFOLIO WILL NORMALLY INVEST AT LEAST 65% OF ITS ASSETS IN THE
LOWEST INVESTMENT GRADE AND LOWER RATED OBLIGATIONS (RATED BAA OR LOWER BY
MOODY'S INVESTORS SERVICE, INC. ("MOODY'S") OR BBB OR LOWER BY STANDARD &
POOR'S RATINGS GROUP ("S&P")) AND UNRATED OBLIGATIONS. For a description of
Moody's and S&P's ratings of fixed-income securities, see Appendix A to this
Prospectus. Unrated bonds are generally regarded as being speculative and
expose the investor to risks with respect to the issuer's capacity to pay
interest and repay principal which are similar to the risks of lower rated
bonds. At March 31, 1995, the Portfolio had approximately 96.8% of its assets
invested in high yield, high risk bonds that were rated lower than investment
grade or unrated. See Appendix B to this Prospectus for the Portfolio's asset
composition on March 31, 1995.
The Portfolio invests a substantial portion of its assets in high yield,
high risk securities issued in connection with mergers, acquisitions,
leveraged buy outs, recapitalizations and other highly leveraged transactions.
These securities are subject to substantially greater credit risks than some
of the other fixed-income securities in which the Portfolio may invest. These
credit risks include the possibility of default or bankruptcy of the issuer.
These securities are less liquid than other fixed-income securities. During
periods of deteriorating economic conditions and contraction in the credit
markets, the ability of issuers of such securities to service their debt, meet
projected goals, or obtain additional financing may be impaired. For more
detailed information about the risks associated with investing in such
securities, see "Risk Considerations" below.
The Portfolio may also invest a portion of its assets in debt securities
that are not paying current income in anticipation of possible future income
or capital appreciation. Interest and/or principal payments thereon could be
in arrears when such securities are acquired, and the issuer may be in
bankruptcy or undergoing a debt restructuring or reorganization. Such
securities may be unrated or the lowest rated obligations (rated C by Moody's
or D by S&P). Bonds rated C by Moody's are regarded as having extremely poor
prospects of ever attaining any real investment standing. Bonds rated D by
S&P are in payment default or a bankruptcy petition has been filed and debt
service payments are jeopardized. The Portfolio may retain defaulted
obligations in its portfolio when such retention is considered desirable by
the Investment Adviser. The Portfolio may also acquire other securities
issued in exchange for such obligations or issued in connection with the debt
restructuring or reorganization of the issuers, or where such acquisition, in
the judgment of the Investment Adviser, may enhance the value of such
obligations or would otherwise be consistent with the Portfolio's investment
policies.
Although the Investment Adviser considers security ratings when making
investment decisions, it performs its own credit and investment analysis and
does not rely primarily on the ratings assigned by the rating services. In
evaluating the quality of a particular issue, whether rated or unrated, the
Investment Adviser will normally take into consideration, among other things,
the issuer's financial resources and operating history, its sensitivity to
economic conditions and trends, the ability of its management, its debt
maturity schedules and borrowing requirements, and relative values based on
anticipated cash flow, interest and asset coverages, and earnings prospects.
Because of the greater number of investment considerations involved in
investing in high yield, high risk bonds, the achievement of the Portfolio's
objective depends more on the Investment Adviser's judgment and analytical
abilities than would be the case if the Portfolio were investing primarily in
securities in the higher rating categories.
When the Investment Adviser believes that it is appropriate to do so, for
defensive purposes, more than 35% of the Portfolio's assets may be temporarily
invested in securities rated A or better by Moody's or S&P. A portion of the
Portfolio's assets may be invested temporarily in cash or short-term
obligations including, but not limited to, certificates of deposit, commercial
paper, short-term notes, obligations issued or guaranteed by the U.S.
Government or any of its agencies or instrumentalities and repurchase
agreements.
FIXED-INCOME OBLIGATIONS. The fixed-income securities in which the Portfolio
may invest include preferred and preference stocks and all types of debt
obligations of both domestic and foreign issuers, such as bonds, debentures,
notes, equipment lease certificates, equipment trust certificates, conditional
sale contracts, commercial paper, and obligations issued or guaranteed by the
U.S. Government, any state or territory of the United States, any foreign
government or any of their respective political subdivisions, agencies or
instrumentalities. Debt securities may bear fixed, fixed and contingent,
variable or floating rates of interest. Investments in foreign securities may
not exceed 25% of total assets.
The Portfolio may also invest a portion of its assets in loan interests,
which are interests in amounts owed by a corporate, governmental or other
borrower to lenders or lending syndicates. Loan interests purchased by the
Portfolio may have a maturity of any number of days or years, may be secured
or unsecured, and may be of any credit quality. Loan interests, which may
take the form of participation interests in, assignments of or novations of a
loan, may be acquired from U.S. and foreign banks, insurance companies,
finance companies or other financial institutions which have made loans or are
members of a lending syndicate or from the holders of loan interests. Loan
interests involve the risk of loss in case of default or bankruptcy of the
borrower and, in the case of participation interest, involve the risk of
insolvency of the agent lending bank or other financial intermediary. The
Portfolio may also invest in restricted securities and securities eligible for
resale pursuant to Rule 144A of the Securities Act of 1933.
INVESTMENT PRACTICES
DERIVATIVE INSTRUMENTS. The Portfolio may purchase or sell derivative
instruments (which are instruments that derive their value from another
instrument, security, index or currency) to hedge against fluctuations in
interest rates, securities prices or currency exchange rates, to change the
duration of the Portfolio's fixed income portfolio or as a substitute for the
purchase or sale of securities or currency. Options may be written to enhance
income. The Portfolio's transaction in derivative instruments may include the
purchase or sale of futures contracts on securities, (such as U.S. Government
securities), indices, other financial instruments (such as certificates of
deposit, Eurodollar time deposits, and economic indices) or currencies;
options on futures contracts; exchange-traded options on securities; indices
or currencies; and forward contracts to purchase or sell currencies. All of
the Portfolio's transactions in derivative instruments involve a risk of loss
or depreciation due to unanticipated adverse changes in interest rates,
securities prices or currency exchange rates, the inability to close out a
position or default by the counterparty. The loss on derivative instruments
(other than purchased options) may exceed the Portfolio's initial investment
in these instruments. In addition, the Portfolio may lose the entire premium
paid for purchased options that expire before they can be profitably exercised
by the Portfolio. The Portfolio incurs transaction costs in opening and
closing positions in derivative instruments. There can be no assurance that
the Investment Adviser's use of derivative instruments will be advantageous to
the Portfolio.
The Portfolio's success in using derivative instruments to hedge portfolio
assets depends on the degree of price correlation between the derivative
instrument and the hedged asset. Imperfect correlation may be caused by
several factors, including temporary price disparities among the trading
markets for the derivative instrument, the assets underlying the derivative
instrument and the Portfolio's assets.
The Portfolio may write (sell) covered call and put options only with
respect to up to 25% of its net assets. To the extent that the Portfolio
enters into futures contracts, options on futures contracts and options on
foreign currencies traded on an exchange regulated by the Commodity Futures
Trading Commission, in each case that are not for bona fide hedging purposes
(as defined by the CFTC), the aggregate initial margin and premiums required
to establish these positions (excluding the amount by which options are "in-
the-money") may not exceed 5% of the liquidation value of the Portfolio's
portfolio, after taking into account unrealized profits and unrealized losses
on any contacts the Portfolio has entered into. The Portfolio did not engage
in such transactions during the period from June 1, 1994 (commencement of
operations) to June 30, 1995, and there is no assurance that it will engage in
such transactions in the future.
SHORT-TERM TRADING. Securities may be sold in anticipation of a market decline
(a rise in interest rates) or purchased in anticipation of a market rise (a
decline in interest rates) and later sold. In addition, a security may be sold
and another purchased at approximately the same time to take advantage of what
the Portfolio believes to be a temporary disparity in the normal yield
relationship between the two securities. Yield disparities may occur for
reasons not directly related to the investment quality of particular issues or
the general movement of interest rates, such as changes in the overall demand
for or supply of various types of fixed-income securities or changes in the
investment objectives of investors. Such trading may be expected to increase
the portfolio turnover rate and the expenses incurred in connection with such
trading. The Portfolio anticipates that its annual portfolio turnover rate
will generally not exceed 100% (excluding turnover of securities having a
maturity of one year or less).
RISK CONSIDERATIONS
Investors should carefully consider their ability to assume the risks of
owning shares of a mutual fund that invests in below investment grade debt
obligations (commonly referred to as "junk bonds") before making an investment
in the Fund. The lower ratings of certain securities held by the Portfolio
reflect a greater possibility that adverse changes in the financial condition
of an issuer, or in general economic conditions, or both, or an unanticipated
rise in interest rates, may impair the ability of the issuer to make payments
of interest and principal. The inability (or perceived inability) of issuers
to make timely payment of interest and principal would likely make the values
of securities held by the Fund more volatile and could limit the Portfolio's
ability to sell its securities at prices approximating the values the
Portfolio has placed on such securities. It is possible that legislation may
be adopted in the future limiting the ability of certain financial
institutions to purchase such securities; such legislation may adversely
affect the liquidity of such securities. In the absence of a liquid trading
market for securities held by it, the Portfolio may be unable at times to
establish the fair market value of such securities. The rating assigned to a
security by a rating agency does not reflect an assessment of the volatility
of the security's market value or of the liquidity of an investment in the
securities. Credit ratings are based largely on the issuer's historical
financial condition and the rating agency's investment analysis at the timing
of rating, and the rating assigned to any particular security is not
necessarily a reflection of the issuer's current financial condition. Credit
quality in the high yield, high risk bond market can change from time to time,
and recently issued credit ratings may not fully reflect the actual risks
posed by a particular high yield security.
While the Investment Adviser will attempt to reduce the risks of investing
in lower rated or unrated securities through active portfolio management,
diversification, credit analysis and attention to current developments and
trends in the economy and the financial markets, there can be no assurance
that a broadly diversified portfolio of such securities would substantially
lessen the risks of defaults brought about by an economic downturn or
recession.
The net asset value of the Fund will change in response to fluctuations in
prevailing interest rates and changes in the value of the securities held by
the Portfolio. When interest rates decline, the value of securities already
held by the Portfolio can be expected to rise. Conversely, when interest
rates rise, the value of existing portfolio security holdings can be expected
to decline. Changes in the credit quality of issuers of debt obligations held
by the Portfolio will affect the principal value (and possibly the income
earned) on such obligations. In addition, the values of such securities are
affected by changes in general economic conditions and business conditions
affecting the specific industries of their issuers. Changes by recognized
rating services in their ratings of any fixed-income security and in the
ability of an issuer to make payments of interest and principal may also
affect the value of these investments. The Portfolio will not dispose of a
security solely because its rating is reduced below its rating at the time of
purchase, although the Investment Adviser will monitor the investment to
determine whether continued investment in the security will assist in meeting
the Portfolio's investment objective.
Interest and/or principal payments on securities in default could be in
arrears when such securities are acquired, and the issuer may be in bankruptcy
or undergoing a debt restructuring or reorganization. In order to enforce its
rights in the event of a default under such securities, the Portfolio may be
required to take possession of and manage assets securing the issuer's
obligation on such securities, which may increase the Portfolio's operating
expenses and adversely affect the Portfolio's net asset value. As at March
31, 1995, none of the obligations of the Portfolio were in default.
Certain securities held by the Portfolio may permit the issuer at its
option to "call", or redeem, its securities. If an issuer were to redeem
securities held by the Portfolio during a time of declining interest rates,
the Portfolio may not be able to reinvest the proceeds in securities providing
the same investment return as the securities redeemed.
Loan interests generally are not rated by any nationally recognized rating
service and are, at present, not readily marketable and may be subject to
contractual restrictions on resale. An investment in restricted securities
may involve relative greater risk and cost to the Portfolio because of their
illiquidity.
Fixed-income securities that the Portfolio may invest in also include zero
coupon bonds, deferred interest bonds and bonds on which the interest is
payable in kind ("PIK bonds"). Zero coupon and deferred interest bonds are
debt obligations which are issued at a significant discount from face value.
While zero coupon bonds do not require the periodic payment of interest,
deferred interest bonds provide for a period of delay before the regular
payment of interest begins. PIK bonds are debt obligations which provide that
the issuer thereof may, at its option, pay interest on such bonds in cash or
in the form of additional debt obligations. Such investments may experience
greater volatility in market value due to changes in interest rates than debt
obligations which make regular payments of interest. The Portfolio will
accrue income on such investments for tax and accounting purposes, in
accordance with applicable law, which income is distributable to shareholders.
Because no cash is received at the time such income is accrued, the Portfolio
may be required to liquidate other portfolio securities to satisfy its
distribution obligations.
Investing in foreign securities may represent a greater degree of risk
than investing in domestic securities, because of the possibility of exchange
rate fluctuations, less publicly-available financial and other information,
more volatile and less liquid markets, less securities regulation, higher
brokerage costs, imposition of foreign withholding and other taxes, war,
expropriation or other adverse governmental actions.
------------------------------------------------------------------------
THE FUND AND THE PORTFOLIO HAVE ADOPTED CERTAIN FUNDAMENTAL INVESTMENT
RESTRICTIONS WHICH ARE ENUMERATED IN DETAIL IN THE STATEMENT OF
ADDITIONAL INFORMATION AND WHICH MAY NOT BE CHANGED UNLESS AUTHORIZED BY
A SHAREHOLDER VOTE, AND AN INVESTOR VOTE, RESPECTIVELY. EXCEPT FOR SUCH
ENUMERATED RESTRICTIONS AND AS OTHERWISE INDICATED IN THIS PROSPECTUS,
THE INVESTMENT OBJECTIVE AND POLICIES OF THE FUND AND THE PORTFOLIO ARE
NOT FUNDAMENTAL POLICIES AND ACCORDINGLY MAY BE CHANGED BY THE TRUSTEES
OF THE TRUST AND THE PORTFOLIO WITHOUT OBTAINING THE APPROVAL OF THE
FUND'S SHAREHOLDERS OR THE INVESTORS IN THE PORTFOLIO, AS THE CASE MAY
BE. IF ANY CHANGES WERE MADE IN THE FUND'S INVESTMENT OBJECTIVE, THE
FUND MIGHT HAVE AN INVESTMENT OBJECTIVE DIFFERENT FROM THE OBJECTIVE
WHICH AN INVESTOR CONSIDERED APPROPRIATE AT THE TIME THE INVESTOR BECAME
A SHAREHOLDER IN THE FUND.
------------------------------------------------------------------------
ORGANIZATION OF THE FUND AND THE PORTFOLIO
- --------------------------------------------------------------------------------
THE FUND IS A DIVERSIFIED SERIES OF EATON VANCE MUTUAL FUNDS TRUST (THE
"TRUST") A BUSINESS TRUST, ESTABLISHED UNDER MASSACHUSETTS LAW PURSUANT TO A
DECLARATION OF TRUST DATED MAY 7, 1984, AS AMENDED AND RESTATED. THE TRUST IS
A MUTUAL FUND -- AN OPEN-END MANAGEMENT INVESTMENT COMPANY. The Trustees of
the Trust are responsible for the overall management and supervision of its
affairs. The Trust may issue an unlimited number of shares of beneficial
interest (no par value per share) in one or more series, and because the Trust
can offer separate series (such as the Fund) it is known as a series company.
Each share represents an equal proportionate beneficial interest in the Fund.
When issued and outstanding, the shares are fully paid and nonassessable by
the Trust and redeemable as described under "How to Redeem Fund Shares".
Shareholders are entitled to one vote for each full share held. Fractional
shares may be voted proportionately. Shares have no preemptive or conversion
rights and are freely transferable. In the event of the liquidation of the
Fund, shareholders are entitled to share pro rata in the net assets of the
Fund available for distribution to shareholders.
THE PORTFOLIO IS ORGANIZED AS A TRUST UNDER THE LAWS OF THE STATE OF NEW
YORK AND INTENDS TO BE TREATED AS A PARTNERSHIP FOR FEDERAL TAX PURPOSES. The
Portfolio, as well as the Trust, intends to comply with all applicable Federal
and state securities laws. The Portfolio's Declaration of Trust provides that
the Fund and other entities permitted to invest in the Portfolio (e.g., other
U.S. and foreign investment companies, and common and commingled trust funds)
will each be liable for all obligations of the Portfolio. However, the risk of
the Fund incurring financial loss on account of such liability is limited to
circumstances in which both inadequate insurance exists and the Portfolio
itself is unable to meet its obligations. Accordingly, the Trustees of the
Trust believe that neither the Fund nor its shareholders will be adversely
affected by reason of the Fund investing in the Portfolio.
SPECIAL INFORMATION ON THE FUND/PORTFOLIO INVESTMENT STRUCTURE. An investor in
the Fund should be aware that the Fund, unlike mutual funds which directly
acquire and manage their own portfolios of securities, seeks to achieve its
investment objective by investing its assets in an interest in the Portfolio
(although the Fund may temporarily hold a de minimus amount of cash), which is
a separate investment company with an identical investment objective.
Therefore, the Fund's interest in the securities owned by the Portfolio is
indirect. In addition to selling an interest to the Fund, the Portfolio may
sell interests to other affiliated and non-affiliated mutual funds or
institutional investors. Such investors will invest in the Portfolio on the
same terms and conditions and will pay a proportionate share of the
Portfolio's expenses. However, the other investors investing in the Portfolio
are not required to sell their shares at the same public offering price as the
Fund due to variations in sales commissions and other operating expenses.
Therefore, investors in the Fund should be aware that these differences may
result in differences in returns experienced by investors in the various funds
that invest in the Portfolio. Such differences in returns are also present in
other mutual fund structures, including funds that have multiple classes of
shares. For information regarding the investment objective, policies and
restrictions, see "The Fund's Investment Objective" and "Investment Policies
and Risks". Further information regarding the investment practices may also be
found in the Statement of Additional Information.
The Trustees of the Trust have considered the advantages and disadvantages
of investing the assets of the Fund in the Portfolio, as well as the
advantages and disadvantages of the two-tier format. The Trustees believe that
the structure offers opportunities for substantial growth in the assets of the
Portfolio, and affords the potential for economies of scale for the Fund, at
least when the assets of the Portfolio exceed $500 million.
The Fund may withdraw (completely redeem) all its assets from the
Portfolio at any time if the Board of Trustees of the Trust determines that it
is in the best interest of the Fund to do so. The investment objective and the
nonfundamental investment policies of the Fund and the Portfolio may be
changed by the Trustees of the Trust and the Portfolio without obtaining the
approval of the shareholders of the Fund, or the investors in the Portfolio,
as the case may be. Any such change of the investment objective will be
preceded by thirty days' advance written notice to the shareholders of the
Fund or the investors in the Portfolio, as the case may be. If a shareholder
redeems shares within one year of their purchase because of a change in the
nonfundamental objective or policies of the Fund, those shares may be subject
to a contingent deferred sales charge as described in "How to Redeem Fund
Shares". In the event the Fund withdraws all of its assets from the Portfolio,
or the Board of Trustees of the Trust determines that the investment objective
of the Portfolio is no longer consistent with the investment objective of the
Fund, such Trustees would consider what action might be taken, including
investing the assets of the Fund in another pooled investment entity or
retaining an investment adviser to manage the Fund's assets in accordance with
its investment objective. The Fund's investment performance may be affected by
a withdrawal of all its assets from the Portfolio.
Information regarding other pooled investment entities or funds which
invest in the Portfolio may be obtained by contacting Eaton Vance
Distributors, Inc. (the "Principal Underwriter" or "EVD"), 24 Federal Street,
Boston, MA 02110, (617) 482-8260. Smaller investors in the Portfolio may be
adversely affected by the actions of larger investors in the Portfolio. For
example, if a large fund withdraws from the Portfolio, the remaining investors
may experience higher pro rata operating expenses, thereby producing lower
returns. Additionally, the Portfolio may become less diverse, resulting in
increased portfolio risk, and experience decreasing economies of scale.
However, this possibility exists as well for historically structured funds
which have large or institutional investors.
Until recently, the Administrator sponsored and advised historically
structured funds. Funds which invest all their assets in interests in a
separate investment company are a relatively new development in the mutual
fund industry and, therefore, the Fund may be subject to additional
regulations than historically structured funds.
The Declaration of Trust of the Portfolio provides that the Portfolio will
terminate 120 days after the complete withdrawal of the Fund or any other
investor in the Portfolio, unless either the remaining investors, by unanimous
vote at a meeting of such investors, or a majority of the Trustees of the
Portfolio, by written instrument consented to by all investors, agree to
continue the business of the Portfolio. This provision is consistent with
treatment of the Portfolio as a partnership for Federal income tax purposes.
See "Distributions and Taxes" for further information. Whenever the Fund as an
investor in the Portfolio is requested to vote on matters pertaining to the
Portfolio (other than the termination of the Portfolio's business, which may
be determined by the Trustees of the Portfolio without investor approval), the
Fund will hold a meeting of Fund shareholders and will vote its interest in
the Portfolio for or against such matters proportionately to the instructions
to vote for or against such matters received from Fund shareholders. The Fund
shall vote shares for which it receives no voting instructions in the same
proportion as the shares for which it receives voting instructions. Other
investors in the Portfolio may alone or collectively acquire sufficient voting
interests in the Portfolio to control matters relating to the operation of the
Portfolio, which may require the Fund to withdraw its investment in the
Portfolio or take other appropriate action. Any such withdrawal could result
in a distribution "in kind" of portfolio securities (as opposed to a cash
distribution from the Portfolio). If securities are distributed, the Fund
could incur brokerage, tax or other charges in converting the securities to
cash. In addition, the distribution in kind may result in a less diversified
portfolio of investments or adversely affect the liquidity of the Fund.
Notwithstanding the above, there are other means for meeting shareholder
redemption requests, such as borrowing.
The Trustees of the Trust, including a majority of the disinterested
Trustees, have approved written procedures designed to identify and address
any potential conflicts of interest arising from the fact that the Trustees of
the Trust, and the Trustees of the Portfolio are the same. Such procedures
require each Board to take actions to resolve any conflict of interest between
the Fund and the Portfolio, and it is possible that the creation of separate
Boards may be considered. For further information concerning the Trustees and
officers of the Trust and the Portfolio, see the Statement of Additional
Information.
MANAGEMENT OF THE FUND AND THE PORTFOLIO
- --------------------------------------------------------------------------------
THE PORTFOLIO ENGAGES BOSTON MANAGEMENT AND RESEARCH ("BMR"), A WHOLLY-OWNED
SUBSIDIARY OF EATON VANCE MANAGEMENT ("EATON VANCE"), AS ITS INVESTMENT
ADVISER. EATON VANCE, ITS AFFILIATES AND ITS PREDECESSOR COMPANIES HAVE BEEN
MANAGING ASSETS OF INDIVIDUALS AND INSTITUTIONS SINCE 1924 AND MANAGING
INVESTMENT COMPANIES SINCE 1931.
Acting under the general supervision of the Board of Trustees of the
Portfolio, BMR manages the Portfolio's investments and affairs. Under its
investment advisory agreement with the Portfolio, BMR receives a monthly
advisory fee equal to the aggregate of
(a) a daily asset based fee computed by applying the annual asset rate
applicable to that portion of the total daily net assets in each
Category as indicated below, plus
(b) a daily income based fee computed by applying the daily income rate
applicable to that portion of the total daily gross income (which
portion shall bear the same relationship to the total daily gross
income on such day as that portion of the total daily net assets in
the same Category bears to the total daily net assets on such day) in
each Category as indicated below:
ANNUAL DAILY
CATEGORY DAILY NET ASSETS ASSET RATE INCOME RATE
-------- ---------------- ---------- -----------
1 up to $500 million ..................... 0.300% 3.00%
2 $500 million but less than $1 billion .. 0.275% 2.75%
3 $1 billion but less than $1.5 billion .. 0.250% 2.50%
4 $1.5 billion but less than $2 billion .. 0.225% 2.25%
5 $2 billion but less than $3 billion .... 0.200% 2.00%
6 $3 billion and over .................... 0.175% 1.75%
As at March 31, 1995, the Portfolio had net assets of $442,551,815. For the
period from the start of business, June 1, 1994, to March 31, 1995, the
Portfolio paid BMR advisory fees equivalent to 0.64% (annualized) of the
Portfolio's average daily net assets for such period. BMR furnishes for the use
of the Portfolio office space and all necessary office facilities, equipment and
personnel for servicing the investments of the Portfolio.
BMR places the portfolio transactions of the Portfolio for execution with
many broker-dealer firms. Fixed-income securities are normally traded on a net
basis (without commission) through broker-dealers and banks acting for their
own account. Such firms attempt to profit from such transactions by buying at
the bid price and selling at the higher asked price of the market, and the
difference is customarily referred to as the spread. In selecting firms to
execute portfolio transactions, BMR judges their professional ability and
quality of service and uses its best efforts to obtain execution at prices
which are advantageous to the Portfolio and at reasonably competitive spreads.
Subject to the foregoing, BMR may consider sales of shares of the Fund or of
other investment companies sponsored by BMR or Eaton Vance as a factor in the
selection of firms to execute portfolio transactions.
Hooker Talcott, Jr. has acted as the Portfolio's portfolio manager since
it commenced operations. Mr. Talcott has been a Vice President of Eaton Vance
since 1987 and of BMR since 1992.
BMR OR EATON VANCE ACTS AS INVESTMENT ADVISER TO INVESTMENT COMPANIES AND
VARIOUS INDIVIDUAL AND INSTITUTIONAL CLIENTS WITH ASSETS UNDER MANAGEMENT OF
APPROXIMATELY $15 BILLION. Eaton Vance is a wholly-owned subsidiary of Eaton
Vance Corp., a publicly held holding company. Eaton Vance Corp. through its
subsidiaries and affiliates, engages in investment management and marketing
activities, fiduciary and banking services, oil and gas operations, real
estate investment, consulting and management, and development of precious
metals properties.
The Trust has retained the services of Eaton Vance to act as Administrator
of the Fund. The Trust has not retained the services of an investment adviser
since the Trust seeks to achieve the investment objective of the Fund by
investing the Fund's assets in the Portfolio. As Administrator, Eaton Vance
provides the Fund with general office facilities and supervises the overall
administration of the Fund. For these services Eaton Vance currently receives
no compensation. The Trustees of the Trust may determine, in the future, to
compensate Eaton Vance for its services.
The Portfolio and the Fund, as the case may be, will each be responsible
for all of its respective costs and expenses not expressly stated to be
payable by BMR under the investment advisory agreement, by Eaton Vance under
the administrative services agreement, or by EVD under the distribution
agreement. Such costs and expenses to be borne by the Portfolio and the Fund,
as the case may be, include, without limitation: custody and transfer agency
fees and expenses, including those incurred for determining net asset value
and keeping accounting books and records; expenses of pricing and valuation
services; the cost of share certificates; membership dues in investment
company organizations; expenses of acquiring, holding and disposing of
securities and other investments; fees and expenses of registering under the
securities laws and the governmental fees; expenses of reporting to
shareholders and investors; proxy statements and other expenses of
shareholders' or investors' meetings; insurance premiums; printing and mailing
expenses; interest, taxes and corporate fees; legal and accounting expenses;
compensation and expenses of Trustees not affiliated with BMR or Eaton Vance;
and investment advisory fees, and, if any, administrative services fees. The
Portfolio and the Fund will also each bear expenses incurred in connection
with litigation in which the Portfolio or the Fund, as the case may be, is a
party and any legal obligation to indemnify its respective officers or
Trustees with respect thereto.
DISTRIBUTION PLAN
- -------------------------------------------------------------------------------
THE FUND FINANCES DISTRIBUTION ACTIVITIES AND HAS ADOPTED A DISTRIBUTION PLAN
(THE "PLAN") PURSUANT TO RULE 12B-1 UNDER THE INVESTMENT COMPANY ACT OF 1940.
Rule 12b-1 permits a mutual fund, such as the Fund, to finance distribution
activities and bear expenses associated with the distribution of its shares
provided that any payments made by the Fund are made pursuant to a written
plan adopted in accordance with the Rule. The Plan is subject to, and complies
with the sales charge rule of the National Association of Securities Dealers,
Inc. (the "NASD Rule"). The Plan is described further in the Statement of
Additional Information, and the following is a description of the salient
features of the Plan. The Plan provides that the Fund, subject to the NASD
Rule, will pay sales commissions and distribution fees to the Principal
Underwriter only after and as a result of the sale of shares of the Fund. On
each sale of Fund shares (excluding reinvestment of distributions) the Fund
will pay the Principal Underwriter amounts representing (i) sales commissions
equal to 6.25% of the amount received by the Fund for each share sold and (ii)
distribution fees calculated by applying the rate of 1% over the prime rate
then reported in The Wall Street Journal to the outstanding balance of
Uncovered Distribution Charges (as described below) of the Principal
Underwriter. On sales of shares made prior to January 30, 1995, the Principal
Underwriter currently pays monthly sales commissions to a financial service
firm (an "Authorized Firm") in amounts anticipated to be equivalent to .75%,
annualized, of the assets maintained in the Fund by the customers of such
Firm. On sales of shares made on January 30, 1995 and thereafter, the
Principal Underwriter currently expects to pay to an Authorized Firm (a) sales
commissions (except on exchange transactions and reinvestments) at the time of
sale equal to .75% of the purchase price of the shares sold by such Firm, and
(b) monthly sales commissions approximately equivalent to 1/12 of .75% of the
value of shares sold by such Firm and remaining outstanding for at least one
year. The Plan is designed to permit an investor to purchase Fund shares
through an Authorized Firm without incurring an intial sales charge and at the
same time permit the Principal Underwriter to compensate Authorized Firms and
other persons in connection with the sale of Fund shares.
THE NASD RULE REQUIRES THE FUND TO LIMIT ITS ANNUAL PAYMENTS OF SALES
COMMISSIONS AND DISTRIBUTION FEES TO AN AMOUNT NOT EXCEEDING .75% OF THE
FUND'S AVERAGE DAILY NET ASSETS FOR EACH FISCAL YEAR. Under its Plan, the
Fund accrues daily an amount at the rate of 1/365 of .75% of the Fund's net
assets, and pays such accrued amounts monthly to the Principal Underwriter.
The Plan requires such accruals to be automatically discontinued during any
period in which there are no outstanding Uncovered Distribution Charges under
the Plan. Uncovered Distribution Charges are calculated daily and, briefly,
are equivalent to all unpaid sales commissions and distribution fees to which
the Principal Underwriter is entitled under the Plan less all contingent
deferred sales charges theretofore paid to the Principal Underwriter. The
Eaton Vance organization may be considered to have realized a profit under the
Plan if at any point in time the aggregate amounts of all payments made to the
Principal Underwriter pursuant to the Plan, including any contingent deferred
sales charges, have exceeded the total expenses theretofore incurred by such
organization in distributing shares of the Fund. Total expenses for this
purpose will include an allocable portion of the overhead costs of such
organization and its branch offices.
Because of the NASD Rule limitation on the amount of sales commissions and
distribution fees paid during any fiscal year, a high level of sales of Fund
shares during the initial years of the Fund's operations would cause a large
portion of the sales commissions attributable to a sale of Fund shares to be
accrued and paid by the Fund to the Principal Underwriter in fiscal years
subsequent to the year in which such shares were sold. This spreading of sales
commissions payments under the Plan over an extended period would result in
the incurrence and payment of increased distribution fees under the Plan. For
the period from the start of business, June 8, 1994, to March 31, 1995, the
Fund paid or accrued sales commissions under its Plan equivalent to 0.75%
(annualized) of the Fund's average daily net assets. As at March 31, 1995, the
outstanding Uncovered Distribution Charges of the Principal Underwriter
calculated under the Plan amounted to approximately $200,000 (which amount was
equivalent to 9.6% of the Fund's net assets on such day).
THE PLAN ALSO AUTHORIZES THE FUND TO MAKE PAYMENTS OF SERVICE FEES TO THE
PRINCIPAL UNDERWRITER, AUTHORIZED FIRMS AND OTHER PERSONS IN AMOUNTS NOT
EXCEEDING .25% OF THE FUND'S AVERAGE DAILY NET ASSETS FOR EACH FISCAL YEAR.
The Trustees of the Trust have initially implemented this provision of the
Plan by authorizing the Fund to make monthly service fee payments to the
Principal Underwriter in amounts not expected to exceed .25% of the Fund's
average daily net assets for any fiscal year. The Fund accrues the service fee
daily at the rate of 1/365 of .25% of the Fund's net assets. On sales of
shares made prior to January 30, 1995, the Principal Underwriter currently
makes monthly service fee payments to an Authorized Firm in amounts
anticipated to be equivalent to .25%, annualized, of the assets maintained in
the Fund by the customers of such Firm. On sales of shares made on January 30,
1995 and thereafter, the Principal Underwriter currently expects to pay to an
Authorized Firm (a) a service fee (except on exchange transactions and
reinvestments) at the time of sale equal to .25% of the purchase price of the
shares sold by such Firm, and (b) monthly service fees approximately
equivalent to 1/12 of .25% of the value of shares sold by such Firm and
remaining outstanding for at least one year. During the first year after a
purchase of Fund shares, the Principal Underwriter will retain the service fee
as reimbursement for the service fee payment made to the Authorized Firm at
the time of sale. As permitted by the NASD Rule, all service fee payments are
made for personal services and/or the maintenance of shareholder accounts.
Service fees are separate and distinct from the sales commissions and
distribution fees payable by the Fund to the Principal Underwriter, and as
such are not subject to automatic discontinuance when there are no outstanding
Uncovered Distribution Charges of the Principal Underwriter. For the period
from the start of business, June 8, 1994, to March 31, 1995, the Fund paid or
accrued service fees under its Plan equivalent to 0.25% (annualized) of the
Fund's average daily net assets for such period.
The Principal Underwriter may, from time to time, at its own expense,
provide additional incentives to Authorized Firms which employ registered
representatives who sell a minimum dollar amount of the Fund's shares and/or
shares of other funds distributed by the Principal Underwriter. In some
instances, such additional incentives may be offered only to certain
Authorized Firms whose representatives are expected to sell significant
amounts of shares. In addition, the Principal Underwriter may from time to
time increase or decrease the sales commissions payable to Authorized Firms.
The Fund may, in its absolute discretion, suspend, discontinue or limit
the offering of its shares at any time. In determining whether any such action
should be taken, the Fund's management intends to consider all relevant
factors, including without limitation the size of the Fund, the investment
climate and market conditions, the volume of sales and redemptions of Fund
shares, and the amount of Uncovered Distribution Charges of the Principal
Underwriter. The Plan may continue in effect and payments may be made under
the Plan following any such suspension, discontinuance or limitation of the
offering of Fund shares; however, the Fund is not contractually obligated to
continue the Plan for any particular period of time. Suspension of the
offering of Fund shares would not, of course, affect a shareholder's ability
to redeem shares.
VALUING FUND SHARES
- --------------------------------------------------------------------------------
THE FUND VALUES ITS SHARES ONCE ON EACH DAY THE NEW YORK STOCK EXCHANGE (THE
"EXCHANGE") IS OPEN FOR TRADING, as of the close of regular trading on the
Exchange (normally 4:00 p.m. New York time). The Fund's net asset value per
share is determined by IBT Fund Services (Canada) Inc., (as agent for the
Fund) in the manner authorized by the Trustees of the Trust. IBT Fund Services
(Canada), Inc. is a subsidiary of Investors Bank & Trust ("IBT"), the Fund's
and the Portfolio's custodian. Net asset value is computed by dividing the
value of the Fund's total assets, less its liabilities, by the number of
shares outstanding. Because the Fund invests its assets in an interest in the
Portfolio, the Fund's net asset value will reflect the value of its interest
in the Portfolio (which, in turn, reflects an interest in the underlying value
of the Portfolio's assets and liabilities).
Authorized Firms must communicate an investor's order to the Principal
Underwriter prior to the close of the Principal Underwriter's business day to
receive that day's net asset value per Fund share. It is the Authorized Firms'
responsibility to transmit orders promptly to the Principal Underwriter, which
is a wholly-owned subsidiary of Eaton Vance.
The Portfolio's net asset value is also determined as of the close of
regular trading on the Exchange by IBT Fund Services (Canada) Inc. (as agent
for the Portfolio), in the manner authorized by the Trustees of the Portfolio.
Net asset value is computed by subtracting the liabilities of the Portfolio
from the value of its total assets. Fixed-income securities (other than short-
term obligations), including listed securities and securities for which price
quotations are available, will normally be valued on the basis of market
valuations furnished by a pricing service. For further information regarding
the valuation of the Portfolio's assets, see "Determination of Net Asset
Value" in the Statement of Additional Information. Eaton Vance Corp. owns
77.3% of the outstanding stock of IBT.
------------------------------------------------------------------------
SHAREHOLDERS MAY DETERMINE THE VALUE OF THEIR INVESTMENT BY MULTIPLYING
THE NUMBER OF FUND SHARES OWNED BY THE CURRENT NET ASSET VALUE.
------------------------------------------------------------------------
HOW TO BUY FUND SHARES
- --------------------------------------------------------------------------------
SHARES OF THE FUND MAY BE PURCHASED FOR CASH OR MAY BE ACQUIRED IN EXCHANGE
FOR SECURITIES. Investors may purchase shares of the Fund through Authorized
Firms at the net asset value per share of the Fund next determined after an
order is effective. The Fund may suspend the offering of shares at any time
and may refuse an order for the purchase of shares.
An initial investment in the Fund must be at least $1,000. Once an account
has been established the investor may send investments of $50 or more at any
time directly to the Fund's Transfer Agent as follows: The Shareholder
Services Group, Inc., BOS725, P.O. Box 1559, Boston, MA 02104. The $1,000
minimum initial investment is waived for Bank Automated Investing accounts,
which may be established with an investment of $50 or more. See "Eaton Vance
Shareholder Services".
In connection with employee benefit or other continuous group purchase
plans under which the average initial purchase by a participant of the plan is
$1,000 or more, the Fund may accept initial investments of less than $1,000 on
the part of an individual participant. In the event a shareholder who is a
participant of such a plan terminates participation in the plan, his or her
shares will be transferred to a regular individual account. However, such
account will be subject to the right of redemption by the Fund as described
under "How to Redeem Fund Shares."
ACQUIRING FUND SHARES IN EXCHANGE FOR SECURITIES. IBT, as escrow agent, will
receive securities acceptable to Eaton Vance, as Administrator, in exchange
for Fund shares at their net asset value as determined above. The minimum
value of securities (or securities and cash) accepted for deposit is $5,000.
Securities accepted will be sold by IBT as agent for the account of their
owner on the day of their receipt by IBT or as soon thereafter as possible.
The number of Fund shares to be issued in exchange for securities will be the
aggregate proceeds from the sale of such securities, divided by the applicable
net asset value per Fund share on the day such proceeds are received. Eaton
Vance will use reasonable efforts to obtain the then current market price for
such securities but does not guarantee the best available price. Eaton Vance
will absorb any transaction costs, such as commissions, on the sale of the
securities.
Securities determined to be acceptable should be transferred via book
entry or physically delivered, in proper form for transfer, through an
Authorized Firm, together with a completed and signed Letter of Transmittal in
approved form (available from Authorized Firms), as follows:
IN THE CASE OF BOOK ENTRY:
Deliver through Depository Trust Co.
Broker #2212
Investors Bank & Trust Company
For A/C EV Classic High Income Fund
IN THE CASE OF PHYSICAL DELIVERY:
Investors Bank & Trust Company
Attention: EV Classic High Income Fund
Physical Securities Processing Settlement Area
89 South Street
Boston, MA 02111
Investors who are contemplating an exchange of securities for shares of
the Fund, or their representatives, are advised to contact Eaton Vance to
determine whether the securities are acceptable before forwarding such
securities to IBT. Eaton Vance reserves the right to reject any securities.
Exchanging securities for Fund shares may create a taxable gain or loss. Each
investor should consult his or her tax adviser with respect to the particular
Federal, state and local tax consequences of exchanging securities for Fund
shares.
------------------------------------------------------------------------
IF YOU DON'T HAVE AN AUTHORIZED FIRM, EATON VANCE CAN RECOMMEND ONE.
------------------------------------------------------------------------
HOW TO REDEEM FUND SHARES
- --------------------------------------------------------------------------------
A SHAREHOLDER MAY REDEEM FUND SHARES BY DELIVERING TO THE SHAREHOLDER SERVICES
GROUP, INC., BOS725, P.O. BOX 1559, BOSTON, MASSACHUSETTS 02104, during its
business hours a written request for redemption in good order, plus any share
certificates with executed stock powers. The redemption price will be based on
the net asset value per share of the Fund next computed after such delivery.
Good order means that all relevant documents must be endorsed by the record
owner(s) exactly as the shares are registered and the signature(s) must be
guaranteed by a member of either the Securities Transfer Association's STAMP
program or the New York Stock Exchange's Medallion Signature Program, or
certain banks, savings and loan institutions, credit unions, securities
dealers, securities exchanges, clearing agencies and registered securities
associations as required by a regulation of the Securities and Exchange
Commission and acceptable to The Shareholder Services Group, Inc. In addition,
in some cases, good order may require the furnishing of additional documents
such as where shares are registered in the name of a corporation, partnership
or fiduciary.
Within seven days after receipt of a redemption request in good order by
The Shareholder Services Group, Inc., the Fund will make payment in cash for
the net asset value of the redeemed shares as of the date determined above,
reduced by the amount of any applicable contingent deferred sales charge
(described below) and any Federal income tax required to be withheld. Although
the Fund normally expects to make payment in cash for redeemed shares, the
Trust, subject to compliance with applicable regulations, has reserved the
right to pay the redemption price of shares of the Fund, either totally or
partially, by a distribution in kind of readily marketable securities
withdrawn by the Fund from the Portfolio. The securities so distributed would
be valued pursuant to the Portfolio's valuation procedures. If a shareholder
received a distribution in kind, the shareholder could incur brokerage or
other charges in converting the securities to cash.
To sell shares at their net asset value through an Authorized Firm (a
repurchase), a shareholder can place a repurchase order with the Authorized
Firm, which may charge a fee. The value of such shares is based upon the net
asset value calculated after EVD, as the Fund's agent, receives the order. It
is the Authorized Firm's responsibility to transmit promptly repurchase orders
to EVD. Throughout this Prospectus, the word "redemption" is generally meant
to include a repurchase.
If shares were recently purchased, the proceeds of a redemption (or
repurchase) will not be sent until the check (including a certified or
cashier's check) received for the shares purchased has cleared. Payment for
shares tendered for redemption may be delayed up to fifteen days from the
purchase date when the purchase check has not yet cleared. Redemptions or
repurchases may result in a taxable gain or loss.
Due to the high cost of maintaining small accounts, the Fund reserves the
right to redeem accounts with balances of less than $1,000. Prior to such a
redemption, shareholders will be given 60 days' written notice to make an
additional purchase. Thus, an investor making an initial investment of $1,000
would not be able to redeem shares without being subject to this policy.
However, no such redemption would be required if the cause of the low account
balance was a reduction in the net asset value of Fund shares. No contingent
deferred sales charge will be imposed with respect to such involunatry
redemptions.
CONTINGENT DEFERRED SALES CHARGE. Shares purchased on or after January 30,
1995 and redeemed within the first year of their purchase (except shares
acquired through the reinvestment of distributions) generally will be subject
to a contingent deferred sales charge. This contingent deferred sales charge
is imposed on any redemption the amount of which exceeds the aggregate value
at the time of redemption of (a) all shares in the account purchased more than
one year prior to the redemption, (b) all shares in the account acquired
through reinvestment of distributions, and (c) the increase, if any, of value
in the other shares in the account (namely those purchased within the year
preceding the redemption) over the purchase price of such shares. Redemptions
are processed in a manner to maximize the amount of redemption proceeds which
will not be subject to a contingent deferred sales charge. That is, each
redemption will be assumed to have been made first from the exempt amounts
referred to in clauses (a), (b) and (c) above, and second through liquidation
of those shares in the account referred to in clause (c) on a first-in-first
out basis. Any contingent deferred sales charge which is required to be
imposed on share redemptions will be equal to 1% of the net asset value of
redeemed shares.
In calculating the contingent deferred sales charge upon the redemption of
Fund shares acquired in an exchange for shares of a fund currently listed
under "The Eaton Vance Exchange Privilege," the purchase of Fund shares
acquired in the exchange is deemed to have occurred at the time of the
original purchase of the exchanged shares.
No contingent deferred sales charge will be imposed on Fund shares which
have been sold to Eaton Vance or its affiliates, or to their respective
employees or clients. The contingent deferred sales charge will also be waived
for shares redeemed (1) pursuant to a Withdrawal Plan (see "Eaton Vance
Shareholders Services"), (2) as part of a distribution from a retirement plan
qualified under Section 401, 403(b) or 457 of the Internal Revenue Code of
1986, as amended (the "Code"), or (3) as part of a minimum required
distribution from other tax-sheltered retirement plans. The contingent
deferred sales charge will be paid to the Principal Underwriter or the Fund.
<PAGE>
REPORTS TO SHAREHOLDERS
- --------------------------------------------------------------------------------
THE FUND WILL ISSUE TO ITS SHAREHOLDERS SEMI-ANNUAL AND ANNUAL REPORTS
CONTAINING FINANCIAL STATEMENTS. Financial statements included in annual
reports are audited by the Fund's independent certified public accountants.
Shortly after the end of each calendar year, the Fund will furnish all
shareholders with information necessary for preparing Federal and state income
tax returns.
THE LIFETIME INVESTING ACCOUNT/DISTRIBUTION OPTIONS
- --------------------------------------------------------------------------------
AFTER AN INVESTOR MAKES AN INITIAL PURCHASE OF FUND SHARES, THE FUND'S
TRANSFER AGENT, THE SHAREHOLDER SERVICES GROUP, INC., WILL SET UP A LIFETIME
INVESTING ACCOUNT FOR THE INVESTOR ON THE FUND'S RECORDS. This account is a
complete record of all transactions between the investor and the Fund which at
all times shows the balance of shares owned. The Fund will not issue share
certificates except upon request.
At least quarterly, shareholders will receive a statement showing complete
details of any transaction and the current share balance in the account. THE
LIFETIME INVESTING ACCOUNT ALSO PERMITS A SHAREHOLDER TO MAKE ADDITIONAL
INVESTMENTS IN FUND SHARES BY SENDING A CHECK FOR $50 OR MORE TO The
Shareholder Services Group, Inc.
Any questions concerning a shareholder's account or services available may
be directed by telephone to EATON VANCE SHAREHOLDER SERVICES at 800-225-6265,
extension 2, or in writing to The Shareholder Services Group, Inc., BOS725,
P.O. Box 1559, Boston, MA 02104 (please provide the name of the shareholder,
the Fund and the account number).
THE FOLLOWING DISTRIBUTION OPTIONS WILL BE AVAILABLE TO LIFETIME INVESTING
ACCOUNTS and may be changed as often as desired by written notice to the
Fund's dividend disbursing agent, The Shareholder Services Group, Inc.,
BOS725, P.O. Box 1559, Boston, MA 02104. The currently effective option will
appear on each account statement.
Share Option -- Dividends and capital gains will be reinvested in
additional shares.
Income Option -- Dividends will be paid in cash, and capital gains will be
reinvested in additional shares.
Cash Option -- Dividends and capital gains will be paid in cash.
The Share Option will be assigned if no other option is specified.
Distributions, including those reinvested, will be reduced by any withholding
required under the Federal income tax laws.
If the Income Option or Cash Option has been selected, dividend and/or
capital gains distribution checks which are returned by the United States
Postal Service as not deliverable or which remain uncashed for six months or
more will be reinvested in the account at the then current net asset value.
Further, the distribution option on the account will be automatically changed
to the Share Option until such time as the shareholder selects a different
option.
DISTRIBUTION INVESTMENT OPTION. In addition to the distribution options
set forth above, dividends and/or capital gains may be invested in additional
shares of another Eaton Vance fund. Before selecting this option, a
shareholder should obtain a prospectus of the other Eaton Vance fund and
consider its objectives and policies carefully.
"STREET NAME" ACCOUNTS. If shares of the Fund are held in a "street name"
account with an Authorized Firm, all recordkeeping, transaction processing and
payments of distributions relating to the beneficial owner's account will be
performed by the Authorized Firm, and not by the Fund and its Transfer Agent.
Since the Fund will have no record of the beneficial owner's transactions, a
beneficial owner should contact the Authorized Firm to purchase, redeem or
exchange shares, to make changes in or give instructions concerning the
account, or to obtain information about the account. The transfer of shares in
a "street name" account to an account with another dealer or to an account
directly with the Fund involves special procedures and will require the
beneficial owner to obtain historical purchase information about the shares in
the account from the Authorized Firm. Before establishing a "street name"
account with an investment firm, or transferring the account to another
investment firm, an investor wishing to reinvest distributions should
determine whether the firm which will hold the shares allows reinvestment of
distributions in "street name" accounts.
------------------------------------------------------------------------
UNDER A LIFETIME INVESTING ACCOUNT A SHAREHOLDER CAN MAKE ADDITIONAL
INVESTMENTS BY SENDING A CHECK FOR $50 OR MORE.
------------------------------------------------------------------------
THE EATON VANCE EXCHANGE PRIVILEGE
- -------------------------------------------------------------------------------
Shares of the Fund may be exchanged for shares of one or more other funds in
the Eaton Vance Classic Group of Funds or Eaton Vance Money Market Fund, which
are distributed subject to a contingent deferred sales charge, on the basis of
the net asset value per share of each fund at the time of the exchange,
provided that such exchange offers are available only in states where shares
of such fund may be legally sold.
Each exchange must involve shares which have a net asset value of at least
$1,000. The exchange privilege may be changed or discontinued without penalty.
Shareholders will be given sixty (60) days' notice prior to any termination or
material amendment of the exchange privilege. The Fund does not permit the
exchange privilege to be used for "Market Timing" and may terminate the
exchange privilege for any shareholder account engaged in Market Timing
activity. Any shareholder account for which more than two round-trip exchanges
are made within any twelve month period will be deemed to be engaged in Market
Timing. Furthermore, a group of unrelated accounts for which exchanges are
entered contemporaneously by a financial intermediary will be considered to be
engaged in Market Timing.
The Shareholder Services Group, Inc. makes exchanges at the next determined
net asset value after receiving an exchange request in good order (see "How to
Redeem Fund Shares"). Consult The Shareholder Services Group, Inc. for
additional information concerning the exchange privilege. Applications and
prospectuses of other funds are available from Authorized Firms or the Principal
Underwriter. The prospectus for each fund describes its investment objectives
and policies, and shareholders should obtain a prospectus and consider these
objectives and policies carefully before requesting an exchange.
No contingent deferred sales charge is imposed on exchanges. For purposes
of calculating the contingent deferred sales charge upon the redemption of
Fund shares acquired in an exchange, the purchase of shares acquired in one or
more exchanges is deemed to have occurred at the time of the original purchase
of the exchanged shares.
Shares of the other funds in the Eaton Vance Classic Group of Funds, (and
shares of Eaton Vance Money Market Fund acquired as the result of an exchange
from an EV Classic Fund) may be exchanged for Fund shares on the basis of the
net asset value per share of each fund at the time of the exchange, but
subject to any restrictions or qualifications set forth in the current
prospectus of any such fund.
Telephone exchanges are accepted by The Shareholder Services Group,
provided that the investor has not disclaimed in writing the use of the
privilege. To effect such exchanges, call The Shareholder Services Group, Inc.
at 800-262-1122 or, within Massachusetts, 617-573-9403, Monday through Friday,
9:00 a.m. to 4:00 p.m. (Eastern Standard Time). Shares acquired by telephone
exchange must be registered in the same name(s) and with the same address as
the shares being exchanged. Neither the Fund, the Principal Underwriter nor
The Shareholder Services Group, Inc. will be responsible for the authenticity
of exchange instructions received by telephone, provided that reasonable
procedures to confirm that instructions communicated are genuine have been
followed. Telephone instructions will be tape recorded. In times of drastic
economic or market changes, a telephone exchange may be difficult to
implement. An exchange may result in a taxable gain or loss.
EATON VANCE SHAREHOLDER SERVICES
- --------------------------------------------------------------------------------
THE FUND OFFERS THE FOLLOWING SERVICES, WHICH ARE VOLUNTARY, INVOLVE NO EXTRA
CHARGE, AND MAY BE CHANGED OR DISCONTINUED WITHOUT PENALTY AT ANY TIME. Full
information on each of the services described below and an application, where
required, are available from Authorized Firms or the Principal Underwriter.
The cost of administering such services for the benefit of shareholders who
participate in them is borne by the Fund as an expense to all shareholders.
INVEST-BY-MAIL -- FOR PERIODIC SHARE ACCUMULATION: Once the $1,000 minimum
investment has been made, checks of $50 or more payable to the order of the
Fund may be mailed directly to The Shareholder Services Group, Inc., BOS725,
P.O. Box 1559, Boston, MA 02104 at any time -- whether or not dividends are
reinvested. The name of the shareholder, the Fund and the account number
should accompany each investment.
BANK AUTOMATED INVESTING -- FOR REGULAR SHARE ACCUMULATION: Cash investments
of $50 or more may be made automatically each month or quarter from the
shareholder's bank account. The $1,000 minimum initial investment and small
account redemption policy are waived for these accounts.
WITHDRAWAL PLAN: A shareholder may draw on shareholdings systematically with
monthly or quarterly checks in an aggregate amount that does not exceed
annually 12% of the account balance at the time the plan is established. Such
amount will not be subject to a contingent deferred sales charge. See "How to
Redeem Fund Shares". A minimum deposit of $5,000 in shares is required.
REINVESTMENT PRIVILEGE: A SHAREHOLDER WHO HAS REPURCHASED OR REDEEMED SHARES
MAY REINVEST, WITH CREDIT FOR ANY CONTINGENT DEFERRED SALES CHARGES PAID ON
THE REPURCHASED OR REDEEMED SHARES, ANY PORTION OR ALL OF THE REPURCHASE OR
REDEMPTION PROCEEDS (PLUS THAT AMOUNT NECESSARY TO ACQUIRE A FRACTIONAL SHARE
TO ROUND OFF THE PURCHASE TO THE NEAREST FULL SHARE) IN SHARES OF THE FUND,
provided that the reinvestment is effected within 60 days after such
repurchase or redemption, and the privilege has not been used more than once
in the prior 12 months. Shares are sold to a reinvesting shareholder at the
next determined net asset value following timely receipt of a written purchase
order by the Principal Underwriter or by the Fund (or by the Fund's Transfer
Agent). To the extent that any shares of the Fund are sold at a loss and the
proceeds are reinvested in shares of the Fund (or other shares of the Fund are
acquired within the period beginning 30 days before and ending 30 days after
the date of the redemption) some or all of the loss generally will not be
allowed as a tax deduction. Shareholders should consult their tax advisers
concerning the tax consequences of reinvestments.
TAX-SHELTERED RETIREMENT PLANS: Shares of the Fund are available for purchase
in connection with the following tax-sheltered retirement plans:
-- Pension and Profit Sharing Plans for self-employed individuals,
corporations and non-profit organizations;
-- Individual Retirement Account Plans for individuals and their non-
employed spouses; and
-- 403(b) Retirement Plans for employees of public school systems,
hospitals, colleges and other non-profit organizations meeting certain
requirements of the Code.
Detailed information concerning these plans, including certain exceptions
to minimum investment requirements, and copies of the plans are available from
the Principal Underwriter. This information should be read carefully and
consultation with an attorney or tax adviser may be advisable. The information
sets forth the service fee charged for retirement plans and describes the
Federal income tax consequences of establishing a plan. Under all plans,
distributions will be automatically reinvested in additional shares.
DISTRIBUTIONS AND TAXES
- ------------------------------------------------------------------------------
SUBSTANTIALLY ALL OF THE INVESTMENT INCOME ALLOCATED TO THE FUND BY THE
PORTFOLIO, LESS THE FUND'S DIRECT AND ALLOCATED EXPENSES, WILL BE DECLARED
DAILY AS A DISTRIBUTION TO FUND SHAREHOLDERS OF RECORD AT THE TIME OF
DECLARATION. Such distributions, whether taken in cash or reinvested in
additional shares, will ordinarily be paid on the twenty-second day of each
month or the next business day thereafter. The Fund anticipates that for tax
purposes the entire distribution, whether paid in cash or reinvested in
additional shares of the Fund, will constitute income to its shareholders.
Shareholders reinvesting the monthly distribution should treat the amount of
the entire distribution as the tax cost basis of the additional shares
acquired by reason of such reinvestment.
Certain distributions if declared by the Fund in October, November or
December and paid the following January will be taxable to shareholders as if
received on December 31, of the year in which they are declared.
Distributions of the Fund which are derived from net investment income,
net short-term capital gains and certain foreign exchange gains are taxable to
shareholders as ordinary income, whether received in cash or reinvested in
additional shares. Only a small portion, if any, of such distributions may be
eligible for the dividends-received deduction for corporations subject to
certain limitations.
Capital gains, if any, realized on sales of investments and on options and
futures transactions during the fiscal year, which ends on March 31, will be
offset by any capital loss carryovers and will usually be distributed with the
Fund's first monthly distribution paid after the close of such fiscal year,
but the Fund could make additional distribution of capital gains in any year
in order to comply with the distribution requirements of the Code.
Distrbutions of long-term capital gains are taxable to shareholders as such,
whether received in cash or reinvested in additional shares of the Fund and
regardless of the length of time Fund shares have been owned by the
shareholder. Gains and losses attributable to most transactions of the Fund in
options, futures contracts, options on futures and forward contracts are
generally treated as 40% short-term and 60% long-term for Federal income tax
purposes.
The Fund intends to qualify as a regulated investment company under the
Code, and to satisfy all requirements necessary to be relieved of Federal
taxes, income and gains it distributes to shareholders. In satisfying these
requirements, the Fund will treat itself as owning its proportionate share of
each of the Portfolio's assets and as entitled to the income of the Portfolio
properly attributable to such share.
------------------------------------------------------------------------
AS A REGULATED INVESTMENT COMPANY UNDER THE CODE, THE FUND DOES NOT PAY
FEDERAL INCOME OR EXCISE TAXES TO THE EXTENT THAT IT DISTRIBUTES TO
SHAREHOLDERS ITS NET INVESTMENT INCOME AND NET REALIZED CAPITAL GAINS IN
ACCORDANCE WITH THE TIMING REQUIREMENTS IMPOSED BY THE CODE. AS A
PARTNERSHIP UNDER THE CODE, THE PORTFOLIO DOES NOT PAY FEDERAL INCOME OR
EXCISE TAXES.
------------------------------------------------------------------------
PERFORMANCE INFORMATION
- --------------------------------------------------------------------------------
FROM TIME TO TIME, THE FUND MAY ADVERTISE ITS YIELD AND/OR AVERAGE ANNUAL
TOTAL RETURN. The Fund's current yield is calculated by dividing the net
investment income per share during a recent 30 day period by the Fund's
maximum offering price per share (net asset value) on the last day of the
period and annualizing the resulting figure. The Fund's average annual total
return is determined by computing the average annual percentage change in
value of $1,000 invested at the maximum public offering price (net asset
value) for specified periods ending with the most recent calendar quarter,
assuming reinvestment of all distributions. The average annual total return
calculation assumes a complete redemption of the investment and the deduction
of any applicable contingent deferred sales charge at the end of the period.
The Fund may also publish annual and cumulative total return figures from time
to time.The Fund may quote total return for the period prior to commencement
of operations which would reflect the Portfolio's total return (and that of
its predecessor) adjusted to reflect any applicable Fund sales charge.
The Fund may also publish its distribution rate and/or its effective
distribution rate. The Fund's distribution rate is computed by dividing the
most recent monthly distribution per share annualized by the current maximum
offering price per share (net asset value). The Fund's effective distribution
rate is computed by dividing the distribution rate by the ratio used to
annualize the most recent monthly distribution and reinvesting the resulting
amount for a full year on the basis of such ratio. The effective distribution
rate will be higher than the distribution rate because of the compounding
effect of the assumed reinvestment. Investors should note that the Fund's
yield is calculated using a standardized formula the income component of which
is computed from the yields to maturity of all debt obligations held by the
Portfolio based on prescribed methods (with all purchases and sales of
securities during such period included in the income calculation on a
settlement date basis), whereas the distribution rate is based on the Fund's
last monthly distribution which tends to be relatively stable and may be more
or less than the amount of net investment income and short-term capital gain
actually earned by the Fund during the month.
The Fund may also publish total return figures which do not take into
account any contingent deferred sales charge which may be imposed upon
redemption at the end of the specified period. Any performance figure which
does not take into account the contingent deferred sales charge would be
reduced to the extent such charge is imposed upon a redemption.
Investors should note that the investment results of the Fund will
fluctuate over time, and any presentation of the Fund's current yield, total
return distribution rate or effective distribution rate for any prior period
should not be considered as a representation of what an investment may earn or
what the Fund's yield, total return distribution rate or effective
distribution rate may be in any future period. If the expenses related to the
operation of the Fund or the Portfolio are allocated to Eaton Vance, the
Fund's performance will be higher.
<PAGE>
APPENDIX A
DESCRIPTION OF MOODY'S INVESTORS SERVICE, INC.'S CORPORATE BOND RATINGS:
Aa: Bonds which are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to as
"gilt-edge". Interest payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various protective elements
are likely to change, such changes as can be visualized are most unlikely to
impair the fundamentally strong position of such issues.
Aa: Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known
as high grade bonds. They are rated lower than the best bonds because margins
of protection may not be as large as in Aaa securities or fluctuation of
protective elements may be of greater amplitude or there may be other elements
present which make the long-term risks appear somewhat larger than in Aaa
securities.
A: Bonds which are rated A possess many favorable investment attributes and
are to be considered as upper medium grade obligations. Factors giving
security to principal and interest are considered adequate, but elements may
be present which suggest a susceptibility to impairment sometime in the
future.
SECURITIES IN WHICH THE PORTFOLIO MAY INVEST
WILL INCLUDE THOSE IN THE FOLLOWING CATEGORIES:
Baa: Bonds which are rated Baa are considered as medium grade obligations,
i.e., they are neither highly protected nor poorly secured. Interest payments
and principal security appear adequate for the present, but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
Ba: Bonds which are rated Ba are judged to have speculative elements; their
future cannot be considered as well assured. Often the protection of interest
and principal payments may be very moderate and thereby not well safeguarded
during both good and bad times over the future. Uncertainty of position
characterizes bonds in this class.
B: Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
Caa: Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal
or interest.
Ca: Bonds which are rated Ca represent obligations which are speculative in a
high degree. Such issues are often in default or have other marked
shortcomings.
C: Bonds which are rated C are the lowest rated class of bonds and issues so
rated can be regarded as having extremely poor prospects of ever attaining any
real investment standing.
NOTE: Moody's applies numerical modifiers, 1, 2 and 3 in each generic rating
classification from Aa through B in its corporate bond rating system. The
modifier 1 indicates that the security ranks in the higher end of its generic
rating category; the modifier 2 indicates a mid-range ranking; and the
modifier 3 indicates that the issue ranks in the lower end of its generic
rating category.
DESCRIPTION OF STANDARD & POOR'S RATINGS GROUP CORPORATE BOND RATINGS:
INVESTMENT GRADE
AAA: Bonds rated AAA have the highest rating assigned by Standard & Poor's to
a debt obligation. Capacity to pay interest and repay principal is extremely
strong.
AA: Bonds rated AA have a very strong capacity to pay interest and repay
principal and differ from the higher rated issues only in small degree.
A: Bonds rated A have a strong capacity to pay interest and repay principal
although they are somewhat more susceptible to the adverse effects of changes
in circumstances and economic conditions than bonds in higher rated
categories.
SECURITIES IN WHICH THE PORTFOLIO MAY INVEST
WILL INCLUDE THOSE IN THE FOLLOWING CATEGORIES:
BBB: Bonds rated BBB are regarded as having an adequate capacity to pay
interest and repay principal. Whereas they normally exhibit adequate
protection parameters, adverse economic conditions or changing circumstances
are more likely to lead to a weakened capacity to pay interest and repay
principal for bonds in this category than for bonds in higher rated
categories.
SPECULATIVE GRADE
Debt rated "BB", "B", "CCC", "CC" and "C" is regarded, on balance, as
predominantly speculative with respect to capacity to pay interest and repay
principal in accordance with the terms of the obligation. "BB" indicates the
lowest degree of speculation and "C" the highest degree of speculation. While
such debt will likely have some quality and protective characteristics, these
are outweighed by large uncertainties or major risk exposures to adverse
conditions.
BB: Debt rated BB has less near-term vulnerability to default than other
speculative issues. However, it faces major ongoing uncertainties or exposure
to adverse business, financial, or economic conditions which could lead to
inadequate capacity to meet timely interest and principal payments. The BB
rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied BBB- rating.
B: Debt rated B has a greater vulnerability to default but currently has the
capacity to meet interest payments and principal repayments. Adverse business,
financial, or economic conditions will likely impair capacity or willingness
to pay interest and repay principal.
The B rating category is also used for debt subordinated to senior debt that
is assigned an actual or implied BB or BB- rating.
CCC: Debt rated CCC has a currently identifiable vulnerability to default,
and is dependent upon favorable business, financial, and economic conditions
to meet timely payment of interest and repayment of principal. In the event of
adverse business, financial, or economic conditions, it is not likely to have
the capacity to pay interest and repay principal.
The CCC rating category is also used for debt subordinated to senior debt that
is assigned an actual or implied B or B- rating.
CC: The rating CC is typically applied to debt subordinated to senior debt
which is assigned an actual or implied CCC debt rating.
C: The rating C is typically applied to debt subordinated to senior debt
which is assigned an actual or implied CCC- debt rating. The C rating may be
used to cover a situation where a bankruptcy petition has been filed, but debt
service payments are continued.
C1: The Rating C1 is reserved for income bonds on which no interest is being
paid.
D: Debt rated D is in payment default. The D rating category is used when
interest payments or principal payments are not made on the date due even if
the applicable grace period has not expired, unless Standard & Poor's believes
that such payments will be made during such grace period. The D rating also
will be used upon the filing of a bankruptcy petition if debt service payments
are jeopardized.
PLUS (+) OR MINUS (-): The ratings from AA to CCC may be modified by the
addition of a plus or minus sign to show relative standing within the major
rating categories.
NR: Bonds may lack a Standard & Poor's rating because no public rating has
been requested, because there is insufficient information on which to base a
rating, or because Standard & Poor's does not rate a particular type of
obligation as a matter of policy.
NOTES: Bonds which are unrated expose the investor to risks with respect
to capacity to pay interest or repay principal which are similar to the risks
of lower-rated speculative obligations. The Portfolio is dependent on the
Investment Adviser's judgment, analysis and experience in the evaluation of
such bonds.
Investors should note that the assignment of a rating to a bond by a
rating service may not reflect the effect of recent developments on the
issuer's ability to make interest and principal payments.
<PAGE>
APPENDIX B
HIGH INCOME PORTFOLIO
ASSET COMPOSITION INFORMATION
FOR THE PERIOD ENDED MARCH 31, 1995
PERCENT OF
NET ASSETS
----------
Preferred Stocks and Other Equity Securities ............. 1.0%
Short-term Obligations ................................... 3.0
Debt Securities -- Moody's Rating
Ba ................................................. 8.2
B1 ................................................. 22.3
B2 ................................................. 27.0
B3 ................................................. 25.1
Caa ................................................ 8.7
Unrated ............................................ 4.7
------
Total .............................................. 100.00%
The chart above indicates the weighted average composition of the
Portfolio for the period ended March 31, 1995, with the debt securities rated
by Moody's Investors Service, Inc. separated into the indicated categories.
The weighted average indicated above was calculated on a dollar weighted basis
and was computed as at the end of each month during the period. The chart does
not necessarily indicate what the composition of the Portfolio will be in the
current and subsequent fiscal years.
For a description of Moody's Investors Service, Inc. ratings of fixed-
income securities, see Appendix A to this Prospectus.
<PAGE>
INVESTMENT ADVISER OF
HIGH INCOME PORTFOLIO
Boston Management and Research
24 Federal Street
Boston, MA 02110
ADMINISTRATOR OF
EV CLASSIC HIGH INCOME FUND
Eaton Vance Management
24 Federal Street
Boston, MA 02110
PRINCIPAL UNDERWRITER
Eaton Vance Distributors, Inc.
24 Federal Street
Boston, MA 02110
(800) 225-6265
CUSTODIAN
Investors Bank & Trust Company
24 Federal Street
Boston, MA 02110
TRANSFER AGENT
The Shareholder Services Group, Inc.
BOS725
P.O. Box 1559
Boston, MA 02104
(800) 262-1122
AUDITORS
Deloitte & Touche LLP
125 Summer Street
Boston, MA 02110
EV CLASSIC
HIGH INCOME FUND
24 FEDERAL STREET
BOSTON, MA 02110
C-HIP
[LOGO]
EV Classic
High Income
Fund
PROSPECTUS
AUGUST 1, 1994
<PAGE>
STATEMENT OF
ADDITIONAL INFORMATION
August 1, 1995
EV CLASSIC HIGH INCOME FUND
24 Federal Street
Boston, Massachusetts 02110
(800) 225-6265
This Statement of Additional Information consists of two parts. Part I
provides information about EV Classic High Income Fund (the "Fund") and
certain other series of Eaton Vance Mutual Funds Trust (the "Trust"). Part II
provides information solely about the Fund. Where appropriate, Part I includes
cross-references to the relevant sections of Part II.
- --------------------------------------------------------------------------------
TABLE OF CONTENTS Page
PART I
Investment Objective and Policies ..................................... 2
Investment Restrictions ............................................... 7
Trustees and Officers ................................................. 8
Investment Adviser and Administrator ................................. 10
Custodian ............................................................. 12
Service for Withdrawal ................................................ 13
Determination of Net Asset Value ...................................... 13
Investment Performance ................................................ 14
Taxes ................................................................. 15
Principal Underwriter ................................................. 17
Portfolio Security Transactions ....................................... 17
Other Information ..................................................... 18
Independent Accountants ............................................... 19
Financial Statements .................................................. 19
PART II
Fees and Expenses ..................................................... a-1
Performance Information ............................................... a-2
Distribution Plan ..................................................... a-3
Control Persons and Principal Holders of Securities ................... a-4
- --------------------------------------------------------------------------------
THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT A PROSPECTUS AND IS
AUTHORIZED FOR DISTRIBUTION TO PROSPECTIVE INVESTORS ONLY IF PRECEDED OR
ACCOMPANIED BY THE FUNDS' PROSPECTUS DATED AUGUST 1, 1995, AS SUPPLEMENTED
FROM TIME TO TIME. THIS STATEMENT OF ADDITIONAL INFORMATION SHOULD BE READ IN
CONJUNCTION WITH SUCH PROSPECTUS, A COPY OF WHICH MAY BE OBTAINED WITHOUT
CHARGE BY CONTACTING EATON VANCE DISTRIBUTORS, INC. (THE "PRINCIPAL
UNDERWRITER") (SEE BACK COVER FOR ADDRESS AND PHONE NUMBER).
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
PART I
This Part I provides information about the Fund, certain other series of
the Trust and the Portfolio. The Fund has the same investment policies as
those of the Portfolio. The Fund currently seeks to achieve its objective by
investing in the Portfolio.
INVESTMENT OBJECTIVE AND POLICIES
The investment objective of the Fund, is to seek for its shareholders a
high level of current income. The Fund seeks its objective by investing in a
portfolio of high-yielding, high risk, fixed-income securities (commonly
referred to as "junk bonds"). The Fund currently seeks to achieve its
investment objective by investing its assets in High Income Portfolio (the
"Portfolio"), a separate registered investment company with the same
investment objective as the Fund and substantially the same investment
policies and restrictions as the Fund. The Portfolio may invest up to 20% of
its assets in common stock and other equity securities when consistent with
its objective or acquired as a part of a unit combining fixed-income and
equity securities. The foregoing policy is a nonfundamental policy of the Fund
which may be changed when authorized by a vote of the Trustees of the Trust.
The securities in which the Portfolio may invest are described in the
Prospectus under "How the Fund and the Portfolio Invest their Assets; Risks
Associated with Investments."
The Portfolio may temporarily invest more than 35% of its assets in
securities rated A or better by Moody's Investors Service, Inc., ("Moody's")
or Standard & Poor's Ratings Group ("S&P") for defensive purposes during
periods of abnormal market conditions.
The Trustees of the Trust may withdraw the Fund's investment from the
Portfolio at any time, if they determine that it is in the best interests of
the Fund to do so. Upon any such withdrawal, the Fund's assets would be
invested in another investment company with substantially the same investment
objective, policies and restrictions as those of the Fund or invested directly
in investment securities in accordance with the Portfolio's investment
policies, as described below. Except as indicated below, the approval of the
Fund's shareholders would not be required to change the Portfolio's investment
objective or any of the Portfolio's investment policies discussed below,
including those concerning security transactions.
Because the investment characteristics of the Fund will correspond
directly to those of the Portfolio, the following is a discussion of the
various investments of and techniques employed by the Portfolio.
OTHER FIXED-INCOME SECURITIES
Included in the fixed-income securities in which the Portfolio may invest
are preferred, preference and convertible stocks, equipment lease
certificates, equipment trust certificates and conditional sales contracts.
Preference stocks are stocks that have many characteristics of preferred
stocks, but are typically junior to an existing class of preferred stocks.
Equipment lease certificates are debt obligations secured by leases on
equipment (such as railroad cars, airplanes or office equipment), with the
issuer of the certificate being the owner and lessor of the equipment.
Equipment trust certificates are debt obligations secured by an interest in
property (such as railroad cars or airplanes), the title of which is held by a
trustee while the property is being used by the borrower. Conditional sales
contracts are agreements under which the seller of property continues to hold
title to the property until the purchase price is fully paid or other
conditions are met by the buyer.
The Portfolio may purchase fixed-rate bonds which have a demand feature
allowing the holder to redeem the bonds at specified times. These bonds are
more defensive than conventional long-term bonds (protecting to some degree
against a rise in interest rates) while providing greater opportunity than
comparable intermediate term bonds, since the Portfolio may retain the bond if
interest rates decline. By acquiring these kinds of bonds the Portfolio
obtains the contractual right to require the issuer of the bonds to purchase
the security at an agreed upon price, which right is contained in the
obligation itself rather than in a separate agreement or instrument. Since
this right is assignable only with the bond, the Portfolio will not assign any
separate value to such right. The Portfolio may also purchase floating or
variable rate obligations, which it would anticipate using as short-term
investments pending longer term investment of its funds.
CONCENTRATION
Although there is no current intention to do so, the Portfolio may invest
up to 25% of its assets in securities of issuers in each of the electric, gas
and telephone utility industries if, in the opinion of the Investment Adviser,
the relative return available from such securities and the relative risk,
marketability, quality or availability of securities of issuers in such
industry justifies such an investment. The value of such investments may be
affected to a greater degree by adverse developments in such industries.
Industry-wide problems include the effects of fluctuating economic conditions,
energy conservation practices, environmental regulations, high capital
expenditures, construction delays due to pollution control and environmental
considerations, uncertainties as to fuel availability and costs, increased
competition in deregulated sectors of such industries and difficulties in
obtaining timely and adequate rate relief from regulatory commissions. If
applications for rate increases are not granted or are not acted upon
promptly, the market prices of and interest or dividend payments on utility
securities may be adversely affected.
LOAN INTERESTS
A loan in which the Portfolio may acquire a loan interest (a "Loan
Interest") is typically originated, negotiated and structured by a U.S. or
foreign commercial bank, insurance company, finance company or other financial
institution (the "Agent") for a lending syndicate of financial institutions.
The Agent typically administers and enforces the loan on behalf of the other
lenders in the syndicate. In addition, an institution, typically but not
always the Agent (the "Collateral Bank"), holds collateral (if any) on behalf
of the lenders. These Loan Interests may take the form of participation
interests in, assignments of or novations of a loan during its secondary
distribution, or direct interests during a primary distribution. Such Loan
Interests may be acquired from U.S. or foreign banks, insurance companies,
finance companies or other financial institutions who have made loans or are
members of a lending syndicate or from other holders of Loan Interests. The
Portfolio may also acquire Loan Interests under which the Portfolio derives
its rights directly from the borrower. Such Loan Interests are separately
enforceable by the Portfolio against the borrower and all payments of interest
and principal are typically made directly to the Portfolio from the borrower.
In the event that the Portfolio and other lenders become entitled to take
possession of shared collateral, it is anticipated that such collateral would
be held in the custody of a Collateral Bank for their mutual benefit. The
Portfolio may not act as an Agent, a Collateral Bank, a guarantor or sole
negotiator or structurer with respect to a loan.
The Portfolio's investment adviser, Boston Management and Research ("BMR"
or the "Investment Adviser") will analyze and evaluate the financial condition
of the borrower in connection with the acquisition of any Loan Interest. BMR
also analyzes and evaluates the financial condition of the Agent and, in the
case of Loan Interests in which the Portfolio does not have privity with the
borrower, those institutions from or through whom the Portfolio derives its
rights in a loan (the "Intermediate Participants"). From time to time BMR and
its affiliates may borrow money from various banks in connection with their
business activities. Such banks may also sell interests in loans to or acquire
such interests from the Portfolio or may be Intermediate Participants with
respect to loans in which the Portfolio owns interests. Such banks may also
act as Agents for loans in which the Portfolio owns interests.
In a typical loan the Agent administers the terms of the loan agreement.
In such cases, the Agent is normally responsible for the collection of
principal and interest payments from the borrower and the apportionment of
these payments to the credit of all institutions which are parties to the loan
agreement. The Portfolio will generally rely upon the Agent or an Intermediate
Participant to receive and forward to the Portfolio its portion of the
principal and interest payments on the loan. Furthermore, unless under the
terms of a participation agreement the Trust has direct recourse against the
borrower, the Portfolio will rely on the Agent and the other members of the
lending syndicate to use appropriate credit remedies against the borrower. The
Agent is typically responsible for monitoring compliance with covenants
contained in the loan agreement based upon reports prepared by the borrower.
The seller of the Loan Interest usually does, but is often not obligated to,
notify holders of Loan Interests of any failures of compliance. The Agent may
monitor the value of the collateral and, if the value of the collateral
declines, may accelerate the loan, may give the borrower an opportunity to
provide additional collateral or may seek other protection for the benefit of
the participants in the loan. The Agent is compensated by the borrower for
providing these services under a loan agreement, and such compensation may
include special fees paid upon structuring and funding the loan and other fees
paid on a continuing basis. With respect to Loan Interests for which the Agent
does not perform such administrative and enforcement functions, the Portfolio
will perform such tasks on its own behalf, although a Collateral Bank will
typically hold any collateral on behalf of the Portfolio and the other lenders
pursuant to the applicable loan agreement.
A financial institution's appointment as Agent may usually be terminated
in the event that it fails to observe the requisite standard of care or
becomes insolvent, enters Federal Deposit Insurance Corporation ("FDIC")
receivership, or, if not FDIC insured, enters into bankruptcy proceedings. A
successor Agent would generally be appointed to replace the terminated Agent,
and assets held by the Agent under the loan agreement should remain available
to holders of Loan Interests. However, if assets held by the Agent for the
benefit of the Portfolio were determined to be subject to the claims of the
Agent's general creditors, the Portfolio might incur certain costs and delays
in realizing payment on a loan interest, or suffer a loss of principal and/or
interest. In situations involving Intermediate Participants similar risks may
arise.
Purchasers of loan interests depend primarily upon the creditworthiness of
the borrower for payment of principal and interest. If the Portfolio does not
receive scheduled interest or principal payments on such indebtedness, the
Portfolio's share price and yield could be adversely affected. Loans that are
fully secured offer the Portfolio more protections than an unsecured loan in
the event of non-payment of scheduled interest or principal. However, there is
no assurance that the liquidation of collateral from a secured loan would
satisfy the borrower's obligation, or that the collateral can be liquidated.
Indebtedness of borrowers whose creditworthiness is poor involves
substantially greater risks, and may be highly speculative. Borrowers that are
in bankruptcy or restructuring may never pay off their indebtedness, or may
pay only a small fraction of the amount owed. Direct indebtedness of
developing countries will also involve a risk that the governmental entities
responsible for the repayment of the debt may be unable, or unwilling, to pay
interest and repay principal when due.
The Portfolio limits the amount of total assets that it will invest in any
one issuer or in issuers within the same industry. See Investment Restrictions
(1) and (5) below. For purposes of these restrictions, the Portfolio generally
will treat the borrower as the "issuer" of a Loan Interest held by the
Portfolio. In the case of loan participations where the Agent or Intermediate
Participant serves as financial intermediary between the Portfolio and the
borrower, the Portfolio, in appropriate circumstances, will treat both the
Agent or Intermediate Participant and the borrower as "issuers" for the
purposes of determining whether the Portfolio has invested more than 5% of its
total assets in a single issuer. Treating a financial intermediary as an
issuer of indebtedness may restrict the Portfolio's ability to invest in
indebtedness related to a single intermediary, or a group of intermediaries
engaged in the same industry, even if the underlying borrowers represent many
different companies and industries.
FOREIGN INVESTMENTS
Investing in foreign issuers involves certain special considerations,
including those set forth below, which are not typically associated with
investing in U.S. issuers. Since investments in foreign issuers may involve
currencies of foreign countries, and since the Portfolio may temporarily hold
funds in bank deposits in foreign currencies during completion of investment
programs, the Portfolio may be affected favorably or unfavorably by changes in
currency rates and in exchange control regulations and may incur costs in
connection with conversions between various currencies.
Since foreign companies are not generally subject to uniform accounting,
auditing and financial reporting standards, practices and requirements
comparable to those applicable to U.S. companies, there may be less publicly
available information about a foreign company than about a domestic company.
Foreign stock markets, while growing in volume of trading activity, have
substantially less volume than the New York Stock Exchange, and securities of
some foreign companies are less liquid and more volatile than securities of
comparable U.S. companies. Similarly, volume and liquidity in most foreign
bond markets is less than in the United States and, at times, volatility of
price can be greater than in the United States. Fixed commissions on foreign
stock exchanges are generally higher than negotiated commissions on U.S.
exchanges, although the Portfolio endeavors to achieve the most favorable net
results on its portfolio transactions. There is generally less government
supervision and regulation of stock exchanges, brokers and listed companies
than in the United States. Mail service between the United States and foreign
countries may be slower or less reliable than within the United States, thus
increasing the risk of delayed settlements of portfolio transactions or loss
of certificates for portfolio securities. In addition, with respect to certain
foreign countries, there is the possibility of expropriation or confiscatory
taxation, political or social instability, or diplomatic developments which
could affect the Portfolio's investments in those countries. Moreover,
individual foreign economies may differ favorably or unfavorably from the U.S.
economy in such respects as growth of gross national product, rate of
inflation, capital reinvestment, resource self-sufficiency and balance of
payments position.
The Portfolio may enter into forward foreign currency exchange contracts.
A forward foreign currency exchange contract involves an obligation to
purchase or sell a specific currency at a future date, which may be any fixed
number of days from the date of the contract agreed upon by the parties, at a
price set at the time of the contract. These contracts are traded in the
interbank market conducted directly between currency traders (usually large
commercial banks) and their customers. A forward contract generally has no
deposit requirement, and no commissions are charged at any stage for trades.
At the maturity of a forward contract the Portfolio may either accept or
make delivery of the currency specified in the contract or, at or prior to
maturity, enter into a closing transaction involving the purchase or sale of
an offsetting contract. Closing transactions with respect to forward contracts
are usually effected with the currency trader who is a party to the original
forward contract.
FORWARD FOREIGN CURRENCY EXCHANGE TRANSACTIONS
The Portfolio does not intend to enter into forward foreign currency
exchange contracts to protect the value of its portfolio securities on a
regular continuous basis, and will not do so if, as a result, the Portfolio
will have more than 15% of the value of its total assets committed to the
consummation of such contracts. The Portfolio also will not enter into such
forward contracts or maintain a net exposure to such contracts where the
consummation of the contracts would obligate the Portfolio to deliver an
amount of foreign currency in excess of the value of the securities held by
the Portfolio's or other assets denominated in that currency. Under normal
circumstances, consideration of the prospect for currency parities will be
incorporated into the long-term investment decisions made with regard to
overall diversification strategies. However, the Portfolio believes that it is
important to have the flexibility to enter into such forward contracts when it
determines that the best interests of the Portfolio will be served. The
Portfolio generally will not enter into a forward contract with a term of
greater than one year.
OPTIONS ON SECURITIES
An options position may be closed out only on an options exchange which
provides a secondary market for an option of the same series. Although the
Portfolio will generally purchase or write only those options for which there
appears to be an active secondary market, there is no assurance that a liquid
secondary market on an exchange will exist for any particular option, or at
any particular time. For some options no secondary market on an exchange may
exist. In such event, it might not be possible to effect closing transactions
in particular options, with the result that the Portfolio would have to
exercise its options in order to realize any profit and would incur
transaction costs upon the sale of underlying securities pursuant to the
exercise of put options. If the Portfolio as a covered call option writer is
unable to effect a closing purchase transaction in a secondary market, it will
not be able to sell the underlying security until the option expires or it
delivers the underlying security upon exercise.
Reasons for the absence of a liquid secondary market on an exchange
include the following: (i) there may be insufficient trading interest in
certain options; (ii) restrictions may be imposed by an exchange on opening
transactions or closing transactions or both; (iii) trading halts, suspensions
or other restrictions may be imposed with respect to particular classes or
series of options or underlying securities; (iv) unusual or unforeseen
circumstances may interrupt normal operations on an exchange; (v) the
facilities of an exchange or the Options Clearing Corporation may not at all
times be adequate to handle current trading volume; or (vi) one or more
exchanges could, for economic or other reasons, decide or be compelled at some
future date to discontinue the trading of options (or a particular class or
series of options), in which event the secondary market on that exchange (or
in that class or series of options) would cease to exist, although outstanding
options on that exchange that had been issued by the Options Clearing
Corporation as a result of trades on that exchange would continue to be
exercisable in accordance with their terms.
There is no assurance that higher than anticipated trading activity or
other unforeseen events might not, at times, render certain of the facilities
of the Options Clearing Corporation inadequate, and thereby result in the
institution by an exchange of special procedures which may interfere with the
timely execution of customers' orders.
FUTURES CONTRACTS
All futures contracts entered into by the Portfolio are traded on
exchanges or boards of trade that are licensed and regulated by the Commodity
Futures Trading Commission ("CFTC").
The Portfolio may purchase and write call and put options on futures
contracts which are traded on a United States exchange or board of trade.
The Portfolio will engage in futures and related options transactions for
bona fide hedging or non-hedging purposes as defined in or permitted by CFTC
regulations. The Portfolio will determine that the price fluctuations in the
futures contracts and options on futures used for hedging purposes are
substantially related to price fluctuations in securities held by the
Portfolio or which it expects to purchase. Except as stated below, the
Portfolio's futures transactions will be entered into for traditional hedging
purposes -- i.e., futures contracts will be sold to protect against a decline
in the price of securities that the Portfolio owns, or futures contracts will
be purchased to protect the Portfolio against an increase in the price of
securities it intends to purchase. As evidence of this hedging intent, the
Portfolio expects that on 75% or more of the occasions on which it takes a
long futures (or option) position (involving the purchase of futures
contracts), the Portfolio will have purchased, or will be in the process of
purchasing, equivalent amounts of related securities in the cash market at the
time when the futures (or option) position is closed out. However, in
particular cases, when it is economically advantageous for the Portfolio to do
so, a long futures position may be terminated (or an option may expire)
without the corresponding purchase of securities. As an alternative to
compliance with the bona fide hedging definition, a CFTC regulation permits
the Portfolio to elect to comply with a different test, under which the
aggregate initial margin and premiums required to establish non-hedging
positions in futures contracts and options on futures will not exceed 5% of
the Portfolio's net asset value after taking into account unrealized profits
and losses on such positions and excluding the in-the-money amount of such
options. The Portfolio will engage in transactions in futures contracts and
related options only to the extent such transactions are consistent with the
requirements of the Internal Revenue Code for maintaining the qualification of
the Fund as a regulated investment company for Federal income tax purposes
(see "Taxes").
ASSET COVERAGE FOR DERIVATIVE INSTRUMENTS
Transactions using forward contracts, futures contracts and options (other
than options that the Portfolio has purchased) expose the Portfolio to an
obligation to another party. The Portfolio will not enter into any such
transactions unless it owns either (1) an offsetting ("covered") position in
securities, currencies, or other options, futures contracts or forward
contracts, or (2) cash, receivables and short-term debt securities with a
value sufficient at all times to cover its potential obligations not covered
as porvided in (1) above. The Portfolio will comply with Securities and
Exchange Commission ("SEC") guidelines regarding cover for these instruments
and, if the guidelines so require, set aside cash, U.S. Government securities
or other liquid, highgrade debt securities in a segragated account with its
custodian in the prescribed amount.
Assets used as cover or held in a segregated account cannot be sold while
the position in the corresponding forward contract, futures contract or option
is open, unless they are replaced with other appropriate assets. As a result,
the commitment of a large portion of the Portfolio's assets to cover or
segregated accounts could impede portfolio management or the Portfolio's
ability to meet redemption requests or other current obligations.
LENDING PORTFOLIO SECURITIES
The Portfolio may seek to increase its income by lending portfolio
securities to broker-dealers or other institutional borrowers. During the
existence of a loan, the Portfolio will continue to receive the equivalent of
the interest paid by the issuer on the securities loaned and will also receive
a fee or all of a portion of the interest on investment of the collateral, if
any. However, the Portfolio may pay lending fees to such borrowers. As with
other extensions of credit there are risks of delay in recovery or even loss
of rights in the securities loaned if the borrower of the securities fails
financially. However, the loans would be made only to organizations deemed by
the Portfolio's management to be of good standing and when, in the judgment of
the Portfolio's management, the consideration which can be earned from
securities loans of this type justifies the attendant risk. The financial
condition of the borrower will be monitored by the Investment Adviser on an
ongoing basis. The value of the securilties loaned will not exceed 30% of the
Portfolio's total assets.
Under present regulatory policies of the Securities and Exchange
Commission ("SEC"), such loans are required to be secured continuously by
collateral in cash, cash equivalents or U.S. Government securities held by the
Portfolio's custodian and maintained on a current basis at an amount at least
equal to the market value of the securities loaned, which will be marked to
market daily. Cash equivalents include certificates of deposit, commercial
paper and other short-term money market instruments. The Portfolio would have
the right to call a loan and obtain the securities loaned at any time on up to
five business days' notice. The Portfolio would not have the right to vote any
securities having voting rights during the existence of a loan, but would call
the loan in anticipation of an important vote to be taken among holders of the
securities or the giving or withholding of their consent on a material matter
affecting the investment.
PORTFOLIO TURNOVER
The Portfolio cannot accurately predict its portfolio turnover rate, but
it is anticipated that the annual turnover rate will generally not exceed 100%
(excluding turnover of securities having a maturity of one year or less). A
100% annual turnover rate would occur, for example, if all the securities in
the portfolio were replaced once in a period of one year. A high turnover rate
(100% or more) necessarily involves greater expenses to the Portfolio. The
Portfolio engages in portfolio trading (including short-term trading) if it
believes that a transaction including all costs will help in achieving its
investment objective either directly by increasing income or indirectly by
enhancing the Portfolio's net asset value.
Securities may be sold in anticipation of a market decline (a rise in
interest rates) or purchased in anticipation of a market rise (a decline in
interest rates) and later sold. In addition, a security may be sold and
another purchased at approximately the same time to take advantage of what the
Portfolio believes to be a temporary disparity in the normal yield
relationship between the two securities. Yield disparities may occur for
reasons not directly related to the investment quality of particular issues or
the general movement of interest rates, such as changes in the overall demand
for or supply of various types of fixed-income securities or changes in the
investment objectives of investors. Such trading may be expected to increase
the portfolio turnover rate and the expenses incurred in connection with such
trading.
INVESTMENT RESTRICTIONS
Certain investment restrictions are designated as fundamental policies and
as such cannot be changed without the approval of the holders of a majority of
the Fund's outstanding voting securities, which as used in this Statement of
Additional Information means the lesser of (a) 67% of the shares of the Fund
present or represented by proxy at a meeting if the holders of more than 50%
of the shares are present or represented at the meeting or (b) more than 50%
of the shares of the Fund. Accordingly, the Fund may not:
(1) With respect to 75% of total assets of the Fund, purchase any security
if such purchase, at the time thereof, would cause more than 5% of the total
assets of the Fund (taken at market value) to be invested in the securities of
a single issuer, or cause more than 10% of the total outstanding voting
securities of such issuer to be held by the Fund, except obligations issued or
guaranteed by the U.S. Government, its agencies or instrumentalities and
except securities of other investment companies;
(2) Borrow money or issue senior securities except as permitted by the
Investment Company Act of 1940;
(3) Purchase securities on margin (but the Fund may obtain such short-term
credits as may be necessary for the clearance of purchases and sales of
securities). The deposit or payment by the Fund of initial, maintenance or
variation margin in connection with all types of options and futures contract
transactions is not considered the purchase of a security on margin;
(4) Underwrite or participate in the marketing of securities of others,
except insofar as it may technically be deemed to be an underwriter in selling
a portfolio security under circumstances which may require the registration of
the same under the Securities Act of 1933;
(5) Purchase any security if such purchase, at the time thereof, would
cause more than 25% of the Fund's total assets to be invested in any single
industry, provided that the electric, gas and telephone utility industries
shall be treated as separate industries for purposes of this restriction and
further provided that there is no limitation with respect to obligations
issued or guaranteed by the U.S. Government or any of its agencies or
instrumentalities.
(6) Purchase or sell real estate, although it may purchase and sell
securities which are secured by real estate and securities of companies which
invest or deal in real estate;
(7) Purchase or sell physical commodities or contracts for the purchase or
sale of physical commodities; or
(8) Make loans to any person except by (i) the acquisition of debt
securities and making portfolio investments, (ii) entering into repurchase
agreements or (iii) lending portfolio securities.
Notwithstanding the investment policies and restrictions of the Fund, the
Fund may invest all of its investable assets in an open-end management
investment company with substantially the same investment objective, policies
and restrictions as the Fund.
The Portfolio has adopted substantially the same fundamental investment
restrictions as the foregoing investment restrictions adopted by the Fund;
such restrictions cannot be changed without the approval of a "majority of the
outstanding voting securities" of the Portfolio, which as used in this
Statement of Additional Information means the lesser or (a) 67% of the
outstanding voting securities of the Portfolio present or represented by proxy
at a meeting if the holders of more than 50% of the outstanding voting
securities of the Portfolio are present or represented at the meeting or (b)
more than 50% of the outstanding voting securities of the Portfolio. The term
"voting securities" as used in this paragraph has the same meaning as in the
Investment Company Act of 1940 (the "1940 Act"). Whenever the Trust is
requested to vote on a change in the investment restrictions of the Portfolio,
the Trust will hold a meeting of Fund shareholders and will cast its vote as
instructed by the shareholders.
The Fund and the Portfolio have each adopted the following nonfundamental
investment policies which may be changed with respect to the Fund by the
Trustees of the Trust without the approval by the Fund's shareholders or may
be changed with respect to the Portfolio by the Trustees of the Portfolio
without the approval by the Fund or its other investors. As a matter of
nonfundamental policy, neither the Fund nor the Portfolio may (a) invest more
than 15% of its net assets in investments which are not readily marketable,
including restricted securities and repurchase agreements maturing in more
than seven days. Restricted securities for the purposes of this limitation do
not include securities eligible for resale pursuant to Rule 144A of the
Securities Act of 1933 that the Board of Trustees of the Trust or the
Portfolio, or its delegate, determine to be liquid, based upon the trading
markets for the specific security, provided, however, that the Fund may invest
without limitation in the Portfolio or in another investment company with
substantially the same investment objective; (b) invest more than 5% of its
total assets (taken at current value) in the securities of issuers which,
including their predecessors, have been in operation for less than three
years; (c) purchase put or call options on securities only if after such
purchase more than 5% of its net assets, as measured by the aggregate of the
premiums paid for such options, would be so invested; (d) purchase warrants in
excess of 5% of net assets, of which 2% may be warrants which are not listed
on the New York or American Stock Exchanges; (e) make short sales of
securities or maintain a short position, unless at all times when a short
position is open the Fund owns an equal amount of such securities or
securities convertible into or exchangeable, without payment of any further
consideration, for securities of the same issuer as, and equal in amount to,
the securities sold short, and unless not more than 25% of the Fund's net
assets (taken at current value) is held as collateral for such sales at any
one time. (The Fund will make such sales only for the purpose of deferring
realization of gain or loss for federal income tax purposes.); (f) purchase or
retain in its portfolio any securities issued by an issuer, any of whose
officers, directors, trustees or security holders is an officer or Trustee of
the Trust or the Portfolio or is a member, officer, director or trustee of an
investment adviser of the Trust or the Portfolio, if after the purchase of the
securities of such issuer by the Fund or the Portfolio one or more of such
persons owns beneficially more than 1/2 of 1% of the shares or securities or
both (all taken at market value) of such issuer and such persons owning more
than 1/2 of 1% of such shares or securities together own beneficially more
than 5% of such shares or securities or both (all taken at market value); or
(g) purchase oil, gas or other mineral leases or purchase partnership
interests in oil, gas or other mineral exploration or development programs.
In order to permit the sale of shares of the Fund in certain states, the
Fund may make commitments more restrictive than the policies described above.
Should the Fund determine that any such commitment is no longer in the best
interests of the Fund and its shareholders, it will revoke the commitment by
terminating sales of its shares in the state(s) involved.
TRUSTEES AND OFFICERS
The Trustees and officers of the Trust and the Portfolio are listed below.
Except as indicated, each individual has held the office shown or other
offices in the same company for the last five years. Unless otherwise noted,
the business address of each Trustee and officer is 24 Federal Street, Boston,
Massachusetts 02110, which is also the address of the Trust's investment
adviser, Eaton Vance Management ("Eaton Vance"); Eaton Vance's wholly-owned
subsidiary, Boston Management and Research ("BMR"); Eaton Vance's parent,
Eaton Vance Corp. ("EVC"); and of Eaton Vance's and BMR's trustee, Eaton
Vance, Inc. ("EV"). Eaton Vance and EV are both wholly-owned subsidiaries of
EVC. Those Trustees and officers who are "interested persons" of the Trust,
Eaton Vance, BMR, EV or EVC, as defined in the 1940 Act, by virtue of their
affiliation with any one or more of the Trust, the Portfolio, Eaton Vance,
BMR, EVC or EV, are indicated by an asterisk(*).
TRUSTEES OF THE TRUST AND THE PORTFOLIO
M. DOZIER GARDNER (62), President and Trustee*
President and Chief Executive Officer of BMR, Eaton Vance, EVC and EV, and
Director of EVC and EV. Director, Trustee and officer of various investment
companies managed by Eaton Vance or BMR.
DONALD R. DWIGHT (64), Trustee
President of Dwight Partners, Inc. (a corporate relations and communications
company) founded in 1988; Chairman of the Board of Newspapers of New
England, Inc. since 1983; Director or Trustee of various investment
companies managed by Eaton Vance or BMR.
Address: Clover Mill Lane, Lyme, New Hampshire 03768
JAMES B. HAWKES (53), Vice President and Trustee*
Executive Vice President of BMR, Eaton Vance, EV and EVC and a Director of EV
and EVC. Director, Trustee and officer of various investment companies
managed by Eaton Vance or BMR.
SAMUEL L. HAYES, III (60), Trustee
Jacob H. Schiff Professor of Investment Banking, Harvard University Graduate
School of Business Administration. Director or Trustee of various investment
companies managed by Eaton Vance or BMR.
Address: Harvard University Graduate School of Business Administration,
Soldiers Field Road, Boston, Massachusetts 02163
NORTON H. REAMER (59), Trustee
President and Director, United Asset Management Corporation, a holding company
owning institutional investment management firms. Chairman, President and
Director, The Regis Fund, Inc. (mutual fund). Director or Trustee of various
investment companies managed by Eaton Vance or BMR.
Address: One International Place, Boston, Massachusetts 02110
JOHN L. THORNDIKE (68), Trustee
Director, Fiduciary Trust Company. Director or Trustee of various investment
companies managed by Eaton Vance or BMR.
Address: 175 Federal Street, Boston, Massachusetts 02110
JACK L. TREYNOR (65), Trustee
Investment Adviser and Consultant. Director or Trustee of various investment
companies managed by Eaton Vance or BMR.
Address: 504 Via Almar, Palos Verdes Estates, California 90274
OFFICERS OF THE TRUST AND THE PORTFOLIO
WILLIAM H. AHERN, JR. (36), Vice President of the Trust
Assistant Vice President of BMR, Eaton Vance and EV and an employee of Eaton
Vance since July 17, 1989. Officer of various investment companies managed
by Eaton Vance or BMR. Mr. Ahern was elected Vice President of the Trust on
June 19, 1995.
H. DAY BRIGHAM, JR., (68) Vice President of the Trust
Chairman of the Management Committee, Vice President of Eaton Vance, BMR, EVC
and EV and Director of EVC and EV. Director, Trustee and officer of various
investment companies managed by Eaton Vance or BMR.
WILLIAM CHISHOLM (35), Vice President of the Portfolio
Senior Trust Officer of The Bank of Nova Scotia Trust Company (Cayman)
Limited.
Address: The Bank of Nova Scotia Trust Company (Cayman) Ltd., The Bank of Nova
Scotia Building, P.O. Box 501, George Town, Grand Cayman, Cayman Islands,
British West Indies.
MICHEL NORMANDEAU (43), Vice President of the Portfolio
Assistant Manager -- Trust Services of The Bank of Nova Scotia Trust Company
(Cayman) Limited.
Address: The Bank of Nova Scotia Trust Company (Cayman) Ltd., The Bank of Nova
Scotia Building, P.O. Box 501, George Town, Grand Cayman, Cayman Islands,
British West Indies.
RAYMOND O'NEILL (33), Vice President of the Portfolio
Managing Director of IBT Trust and Custodian Services (Ireland) Limited since
January, 1995. Vice President, Atlantic Corporate Management Limited,
Warwick, Bermuda 1991-1994. Officer, The Bank of Bermuda Limited, Hamilton,
Bermuda 1987-1991.
HOOKER TALCOTT (52), Jr., Vice President of the Portfolio
Vice President of BMR, Eaton Vance and EV. Officer of various investment
companies managed by Eaton Vance or BMR.
MICHAEL B. TERRY (52), Vice President of the Trust
Vice President of BMR, Eaton Vance and EV. Officer of various investment
companies managed by Eaton Vance or BMR. Mr. Terry was elected Vice
President of the Trust on December 17, 1990.
JAMES L. O'CONNOR (50), Treasurer
Vice President of BMR, Eaton Vance and EV. Officer of various investment
companies managed by Eaton Vance or BMR.
THOMAS OTIS (63), Secretary
Vice President and Secretary of BMR, Eaton Vance, EV and EVC. Officer of
various investment companies managed by Eaton Vance or BMR.
JANET E. SANDERS (59), Assistant Treasurer and Assistant Secretary
Vice President of BMR, Eaton Vance and EV. Officer of various investment
companies managed by Eaton Vance or BMR.
A. JOHN MURPHY (32), Assistant Secretary
Assistant Vice President of BMR, Eaton Vance and EV since March 1, 1994;
employee of Eaton Vance since March 1993. Officer of various investment
companies managed by Eaton Vance or BMR. State Regulations Supervisor, The
Boston Company (1991 - 1993) and Registration Specialist, Fidelity
Management & Research Co. (1986 - 1991). Mr. Murphy was elected Assistant
Secretary of the Trust on March 27, 1995 and of the Portfolio on June 19,
1995.
ERIC G. WOODBURY (38), Assistant Secretary
Vice President of Eaton Vance since February 1993; formerly, associate at
Dechert, Price & Rhoads and Gaston Snow & Ely Bartlett.
Address: Eaton Vance Management, 24 Federal Street, Boston, Massachusetts
02110. Mr. Woodbury was elected Assistant Secretary of the Trust and
Portfolio on June 19, 1995.
Messrs. Thorndike (Chairman), Hayes and Reamer are members of the Special
Committee of the Board of Trustees of the Trust and of the Portfolio. The
Special Committee's functions include a continuous review of the Fund's
contractual relationship with the Administrator, the Portfolio's contractual
relationship with the Investment Adviser, making recommendations to the
Trustees regarding the compensation of those Trustees who are not members of
the Eaton Vance organization, and making recommendations to the Trustees
regarding candidates to fill vacancies, as and when they occur, in the ranks
of those Trustees who are not "interested persons" of the Trust, the
Portfolio, the Eaton Vance organization or the investment adviser.
Messrs. Treynor (Chairman) and Dwight are members of the Audit Committee
of the Board of Trustees of the Trust and of the Portfolio. The Audit
Committee's functions include making recommendations to the Trustees regarding
the selection of the independent public accountants, and reviewing with such
accountants and the Treasurer of the Trust and of the Portfolio matters
relative to accounting and auditing practices and procedures, accounting
records, internal accounting controls, and the functions performed by the
custodian and transfer agent of the Fund and of the Portfolio.
Trustees of the Portfolio who are not affiliated with the Investment
Adviser may elect to defer receipt of all or a percentage of their annual fees
in accordance with the terms of a Trustees Deferred Compensation Plan (the
"Plan"). Under the Plan, an eligible Trustee may elect to have his deferred
fees invested by the Portfolio in the shares of one or more funds in the Eaton
Vance Family of Funds, and the amount paid to the Trustees under the Plan will
be determined based upon the performance of such investments. Deferral of
Trustees' fees in accordance with the Plan will have a negligible effect on
the Portfolio's assets, liabilities, and net income per share, and will not
obligate the Portfolio to retain the services of any Trustee or obligate the
Portfolio to pay any particular level of compensation to the Trustee.
The fees and expenses of those Trustees of the Trust and the Portfolio who
are not members of the Eaton Vance organization (the noninterested Trustees)
are paid by the Fund (and the other series of the Trust) and the Portfolio,
respectively. For the compensation earned by the noninterested Trustees of the
Trust and the Portfolio, see "Fees and Expenses" in Part II of this Statement
of Additional Information.
INVESTMENT ADVISER AND ADMINISTRATOR
The Portfolio engages BMR as investment adviser pursuant to an Investment
Advisory Agreement dated May 31, 1994. BMR or Eaton Vance acts as investment
adviser to investment companies and various individual and institutional
clients with combined assets under management of approximately $15 billion.
Eaton Vance, its affiliates and its predecessor companies have been
managing assets of individuals and institutions since 1924 and managing
investment companies since 1931. They maintain a large staff of experienced
fixed-income and equity investment professionals to service the needs of their
clients. The fixed-income division focuses on all kinds of taxable investment-
grade and high-yield securities, tax-exempt investment-grade and high-yield
securities, and U.S. Government securities. The equity division covers stocks
ranging from blue chip to emerging growth companies.
BMR manages the investments and affairs of the Portfolio subject to the
supervision of the Portfolio's Board of Trustees. BMR furnishes to the
Portfolio investment research, advice and supervision, furnishes an investment
program and determines what securities will be purchased, held or sold by the
Portfolio and what portion, if any, of the Portfolio's assets will be held
uninvested. The Investment Advisory Agreement requires BMR to pay the salaries
and fees of all officers and Trustees of the Portfolio who are members of the
BMR organization and all personnel of BMR performing services relating to
research and investment activities. The Portfolio is responsible for all
expenses not expressly stated to be payable by BMR under the Investment
Advisory Agreement, including, without implied limitation, (i) expenses of
maintaining the Portfolio and continuing its existence, (ii) registration of
the Portfolio under the 1940 Act, (iii) commissions, fees and other expenses
connected with the acquisition, holding and disposition of securities and
other investments, (iv) auditing, accounting and legal expenses, (v) taxes and
interest, (vi) governmental fees, (vii) expenses of issue, sale and redemption
of interests in the Portfolio, (viii) expenses of registering and qualifying
the Portfolio and interests in the Portfolio under Federal and state
securities laws and of preparing and printing registration statements or other
offering statements or memoranda for such purposes and for distributing the
same to investors, and fees and expenses of registering and maintaining
registrations of the Portfolio and of the Portfolio's placement agent as
broker-dealer or agent under state securities laws, (ix) expenses of reports
and notices to investors and of meetings of investors and proxy solicitations
therefor, (x) expenses of reports to governmental officers and commissions,
(xi) insurance expenses, (xii) association membership dues, (xiii) fees,
expenses and disbursements of custodians and subcustodians for all services to
the Portfolio (including without limitation safekeeping of funds, securities
and other investments, keeping of books, accounts and records, and
determination of net asset values, book capital account balances and tax
capital account balances), (xiv) fees, expenses and disbursements of transfer
agents, dividend disbursing agents, investor servicing agents and registrars
for all services to the Portfolio, (xv) expenses for servicing the accounts of
investors, (xvi) any direct charges to investors approved by the Trustees of
the Portfolio, (xvii) compensation and expenses of Trustees of the Portfolio
who are not members of BMR's organization, and (xviii) such non-recurring
items as may arise, including expenses incurred in connection with litigation,
proceedings and claims and the obligation of the Portfolio to indemnify its
Trustees, officers and investors with respect thereto.
The Portfolio pays BMR as compensation under the Investment Advisory
Agreement a monthly fee equal to the aggregate of (a) a daily asset based fee
computed by applying the annual asset rate applicable to that portion of the
total daily net assets in each Category as indicated below, plus (b) a daily
income based fee computed by applying the daily income rate applicable to that
portion of the total daily gross income (which portion shall bear the same
relationship to the total daily gross income on such day as that portion of
the total daily net assets in the same Category bears to the total daily net
assets on such day) in each Category as indicated below:
<TABLE>
<CAPTION>
ANNUAL DAILY
CATEGORY DAILY NET ASSETS ASSET RATE INCOME RATE
-------- ---------------- ---------- -----------
<C> <S> <C> <C>
1 up to $500 million ......................................... 0.300% 3.00%
2 $500 million but less than $1 billion ...................... 0.275% 2.75%
3 $1 billion but less than $1.5 billion ...................... 0.250% 2.50%
4 $1.5 billion but less than $2 billion ...................... 0.225% 2.25%
5 $2 billion but less than $3 billion ........................ 0.200% 2.00%
6 $3 billion and over ........................................ 0.175% 1.75%
</TABLE>
As at March 31, 1995, the Portfolio had net assets of $442,551,815. For
the period from the Portfolio's start of business, June 1, 1994 to March 31,
1995, the Portfolio paid BMR advisory fees of $2,260,748 (equivalent to 0.64%
(annualized) of the Portfolio's average daily net assets for such period).
The Investment Advisory Agreement with BMR remains in effect until
February 28, 1996. It may be continued indefinitely thereafter so long as such
continuance after February 28, 1996 is approved at least annually (i) by the
vote of a majority of the Trustees of the Portfolio who are not interested
persons of the Portfolio or of BMR cast in person at a meeting specifically
called for the purpose of voting on such approval and (ii) by the Board of
Trustees of the Portfolio or by vote of a majority of the outstanding voting
securities of the Portfolio. The Agreement may be terminated at any time
without penalty on sixty (60) days' written notice by the Board of Trustees of
either party, or by vote of the majority of the outstanding voting securities
of the Portfolio, and the Agreement will terminate automatically in the event
of its assignment. The Agreement provides that BMR may render services to
others and engage in other business activities and may permit other fund
clients and other corporations and organizations to use the words "Eaton
Vance" or "Boston Management and Research" in their names. The Agreement also
provides that BMR shall not be liable for any loss incurred in connection with
the performance of its duties, or action taken or omitted under that
Agreement, in the absence of willful misfeasance, bad faith, gross negligence
in the performance of its duties or by reason of its reckless disregard of its
obligations and duties thereunder, or for any losses sustained in the
acquisition, holding or disposition of any security or other investment.
The Bank of Nova Scotia Trust Company (Cayman) Ltd. maintains the
Portfolio's principal office and certain of its records and provides
administrative assistance in connection with meetings of the Portfolio's
Trustees and interestholders, for which services the Portfolio pays $1,500 per
annum.
As indicated in the Prospectus, Eaton Vance serves as Administrator of the
Fund, but currently receives no compensation for providing administrative
services to the Fund. Under its Administrative Services Agreement with the
Fund, Eaton Vance has been engaged to administer the Fund's affairs, subject
to the supervision of the Trustees of the Trust, and shall furnish for the use
of the Fund office space and all necessary office facilities, equipment and
personnel for administering the affairs of the Fund. For additional
information about the Administrator, see "Fees and Expenses" in the Fund's
Part II of this Statement of Additional Information.
The Fund pays all of its own expenses including, without limitation, (i)
expenses of maintaining the Fund and continuing its existence, (ii)
registration of the Trust under the 1940 Act, (iii) commissions, fees and
other expenses connected with the purchase or sale of securities and other
investments, (iv) auditing, accounting and legal expenses, (v) taxes and
interest, (vi) governmental fees, (vii) expenses of issue, sale, repurchase
and redemption of shares, (viii) expenses of registering and qualifying the
Fund and its shares under federal and state securities laws and of preparing
and printing prospectuses for such purposes and for distributing the same to
shareholders and investors, and fees and expenses of registering and
maintaining registrations of the Fund and of the Fund's principal underwriter,
if any, as broker-dealer or agent under state securities laws, (ix) expenses
of reports and notices to shareholders and of meetings of shareholders and
proxy solicitations therefor, (x) expenses of reports to governmental officers
and commissions, (xi) insurance expenses, (xii) association membership dues,
(xiii) fees, expenses and disbursements of custodians and subcustodians for
all services to the Fund (including without limitation safekeeping of funds,
securities and other investments, keeping of books and accounts and
determination of net asset values), (xiv) fees, expenses and disbursements of
transfer agents, dividend disbursing agents, shareholder servicing agents and
registrars for all services to the Fund, (xv) expenses for servicing
shareholder accounts, (xvi) any direct charges to shareholders approved by the
Trustees of the Trust, (xvii) compensation and expenses of Trustees of the
Trust who are not members of the Eaton Vance organization, and (xviii) such
non-recurring items as may arise, including expenses incurred in connection
with litigation, proceedings and claims and the obligation of the Trust to
indemnify its Trustees and officers with respect thereto.
BMR is a wholly-owned subsidiary of Eaton Vance. Eaton Vance and EV are
both wholly-owned subsidiaries of EVC. BMR and Eaton Vance are both
Massachusetts business trusts, and EV is the trustee of BMR and Eaton Vance.
The Directors of EV are Landon T. Clay, H. Day Brigham, Jr., M. Dozier
Gardner, James B. Hawkes, and Benjamin A. Rowland, Jr. The Directors of EVC
consist of the same persons and John G. L. Cabot and Ralph Z. Sorenson. Mr.
Clay is chairman and Mr. Gardner is president and chief executive officer of
EVC, BMR, Eaton Vance and EV. All of the issued and outstanding shares of
Eaton Vance and EV are owned by EVC. All of the issued and outstanding shares
of BMR are owned by Eaton Vance. All shares of the outstanding Voting Common
Stock of EVC are deposited in a Voting Trust which expires on December 31,
1996, the Voting Trustees of which are Messrs. Clay, Brigham, Gardner, Hawkes
and Rowland. The Voting Trustees have unrestricted voting rights for the
election of Directors of EVC. All of the outstanding voting trust receipts
issued under said Voting Trust are owned by certain of the officers of BMR and
Eaton Vance who are also officers and Directors of EVC and EV. As of June 30,
1995, Messrs. Clay, Gardner and Hawkes each owned 24% of such voting trust
receipts, and Messrs. Rowland and Brigham owned 15% and 13%, respectively, of
such voting trust receipts. Messrs. Brigham, Gardner, Hawkes and Otis are
officers or Trustees of the Trust and/or the Portfolio and are members of the
EVC, BMR, Eaton Vance and EV organizations. Messrs. Ahern, Murphy, O'Connor,
Talcott, Terry and Woodbury and Ms. Sanders are officers or Trustees of the
Trust and/or the Portfolio and are also members of the BMR, Eaton Vance and EV
organizations. BMR will receive the fees paid under the Investment Advisory
Agreement.
Eaton Vance owns all of the stock of Energex Corporation, which is engaged
in oil and gas operations. EVC owns all of the stock of Marblehead Energy
Corp. (which engages in oil and gas operations) and 77.3% of the stock of
Investors Bank & Trust Company, custodian of the Fund and the Portfolio, which
provides custodial, trustee and other fiduciary services to investors,
including individuals, employee benefit plans, corporations, investment
companies, savings banks and other institutions. In addition, Eaton Vance owns
all the stock of Northeast Properties, Inc., which is engaged in real estate
investment, consulting and management. EVC owns all the stock of Fulcrum
Management, Inc. and MinVen, Inc., which are engaged in the development of
precious metal properties. EVC, BMR, Eaton Vance and EV may also enter into
other businesses.
EVC and its affiliates and their officers and employees from time to time
have transactions with various banks, including the custodian of the Fund and
the Portfolio, Investors Bank & Trust Company. It is Eaton Vance's opinion
that the terms and conditions of such transactions were not and will not be
influenced by existing or potential custodial or other relationships between
the Fund or the Portfolio and such banks.
CUSTODIAN
Investors Bank & Trust Company ("IBT"), 24 Federal Street, Boston,
Massachusetts (a 77.3% owned subsidiary of EVC) acts as custodian for the Fund
and the Portfolio. IBT has the custody of all cash and securities representing
the Fund's interest in the Portfolio, has custody of all the Portfolio assets,
and its subsidiary, IBT Fund Services (Canada) Inc., First Canadian Place,
King Street West, Toronto, Ontario, Canada, maintains the general ledger of
the Portfolio and the Fund and computes the daily net asset value of interests
in the Portfolio and the net asset value of shares of the Fund. In its
capacity as Custodian, IBT attends to details in connection with the sale,
exchange, substitution, transfer or other dealings with the Portfolio's
investments, receives and disburses all funds and performs various other
ministerial duties upon receipt of proper instructions from the Fund and the
Portfolio. IBT charges custody fees which are competitive within the industry.
A portion of the fee relates to custody, bookkeeping and valuation services
and is based upon a percentage of the Fund and Portfolio net assets, and a
portion of the fee relates to activity charges, primarily the number of
portfolio transactions. These fees are then reduced by a credit for cash
balances of the particular investment company at the custodian equal to 75% of
the 91-day, U.S. Treasury Bill auction rate applied to the particular
investment company's average daily collected balances for the week. In view of
the ownership of EVC in IBT, the Portfolio is treated as a self-custodian
pursuant to Rule 17f-2 under the 1940 Act, and the Portfolio's investments
held by IBT as custodian are thus subject to the additional examinations by
the Portfolio's independent certified public accountants as called for by such
Rule. For the period from the start of business, June 1, 1994, to March 31,
1995, the Portfolio paid IBT $147,500. For the custody fees that the Fund paid
to IBT, see "Fees and Expenses" in Part II of this Statement of Additional
Information.
SERVICE FOR WITHDRAWAL
By a standard agreement, the Trust's Transfer Agent will send to the
shareholder regular monthly or quarterly payments of any permitted amount
designated by the shareholder (see "Eaton Vance Shareholder Services --
Withdrawal Plan" in the Fund's Prospectus) based upon the value of the shares
held. The checks will be drawn from share redemptions and hence, are a return
of principal. Income dividends and capital gains distributions in connection
with withdrawal accounts will be credited at net asset value as of the record
date for each distribution. Continued withdrawals in excess of current income
will eventually use up principal, particularly in a period of declining market
prices.
To use this service, at least $5,000 in cash or shares at the public
offering price will have to be deposited with the Transfer Agent. The
maintenance of a withdrawal plan concurrently with purchases of additional
Fund shares would be disadvantageous if a sales charge is included in such
purchases. A shareholder may not have a withdrawal plan in effect at the same
time he has authorized Bank Automated Investing or is otherwise making regular
purchases of Fund shares. Either the shareholder, the Transfer Agent or the
Principal Underwriter will be able to terminate the withdrawal plan at any
time without penalty.
DETERMINATION OF NET ASSET VALUE
The net asset value of the Portfolio and of shares of the Fund is
determined by the Custodian (as agent for the Fund and the Portfolio) in the
manner described under "Valuing Fund Shares" in the Fund's current prospectus.
The Fund and the Portfolio will be closed for business and will not price
their respective shares or interests on the following business holidays: New
Year's Day, Presidents' Day, Good Friday (a New York Stock Exchange holiday),
Memorial Day, Independence Day, Labor Day, Thanksgiving Day and Christmas Day.
The Portfolio's net asset value is also computed by IBT (as agent and
custodian for the Portfolio), by subtracting the liabilities of the Portfolio
from the value of its total assets. Fixed-income securities (other than short-
term obligations), including listed securities and securities for which price
quotations are available, will normally be valued on the basis of market
valuations furnished by a pricing service. The pricing service uses
information with respect to transactions in bonds, quotations from bond
dealers, market transactions in comparable securities, various relationships
between securities, and yield to maturity in determining value. Securities
listed on securities exchanges or in the NASDAQ National Market are valued at
closing sale prices. Unlisted or listed securities for which closing sale
prices are not available are valued at the mean between the latest bid and
asked prices. Short-term obligations maturing in sixty days or less are valued
at amortized cost, which approximates market. Other assets are valued at fair
value using methods determined in good faith by the Trustees.
Each investor in the Portfolio, including the Fund, may add to or reduce
its investment in the Portfolio on each day the New York Stock Exchange (the
"Exchange") is open for trading ("Portfolio Business Day") as of the close of
regular trading on the Exchange (the "Portfolio Valuation Time"). The value of
each investor's interest in the Portfolio will be determined by multiplying
the net asset value of the Portfolio by the percentage, determined on the
prior Portfolio Business Day, which represented that investor's share of the
aggregate interests in the Portfolio on such prior day. Any additions or
withdrawals for the current Portfolio Business Day will then be recorded. Each
investor's percentage of the aggregate interest in the Portfolio will then be
recomputed as a percentage equal to a fraction (i) the numerator of which is
the value of such investor's investment in the Portfolio as of the Portfolio
Valuation Time on the prior Portfolio Business Day plus or minus, as the case
may be, the amount of any additions to or withdrawals from the investor's
investment in the Portfolio on the current Portfolio Business Day and (ii) the
denominator of which is the aggregate net asset value of the Portfolio as of
the Portfolio Valuation Time on the prior Portfolio Business Day plus or
minus, as the case may be, the amount of the net additions to or withdrawals
from the aggregate investment in the Portfolio on the current Portfolio
Business Day by all investors in the Portfolio. The percentage so determined
will then be applied to determine the value of the investor's interest in the
Portfolio for the current Portfolio Business Day.
INVESTMENT PERFORMANCE
The average annual total return is determined by multiplying a
hypothetical initial purchase order of $1,000 by the average annual compound
rate of return (including capital appreciation/depreciation, and dividends and
distributions paid and reinvested) for the stated period and annualizing the
results. The calculation assumes that all dividends and distributions are
reinvested at net asset value on the reinvestment dates during the period and
a complete redemption of the investment and, if applicable, the deduction of a
contingent deferred sales charge at the end of the period.
The Fund's yield is computed pursuant to a standardized formula by
dividing its net investment income per share earned during a recent thirty-day
period by the net asset value per share on the last day of the period and
annualizing the resulting figure. Net investment income per share is
calculated from the yields to maturity of all debt obligations held by the
Portfolio based on the market value of such obligations and from dividends
from equity securities based on stated annual rates, exclusive of special or
extra distributions, reduced by accrued Fund expenses for the period, with the
resulting number being divided by the average daily number of Fund shares
outstanding and entitled to receive dividends during the period. This yield
figure does not reflect the deduction of any contingent deferred sales charges
which are imposed upon certain redemptions of shares at the rates set forth
under "How to Redeem Fund Shares" in the Prospectus. For information
concerning the total return of the Fund, see "Performance Information" in Part
II of this Statement of Additional Information.
The Fund may also publish its distribution rate and/or its effective
distribution rate. The Fund's distribution rate is computed by dividing the
most recent monthly distribution per share annualized by the current net asset
value per share. The Fund's effective distribution rate is computed by
dividing the distribution rate by the ratio used to annualize the distribution
and reinvesting the resulting amount for a full year on the basis of such
ratio. The effective distribution rate will be higher than the distribution
rate because of the compounding effect of the assumed reinvestment. Investors
should note that the Fund's yield is calculated using a standardized formula
the income component of which is computed from the yields to maturity of all
debt obligations held by the Portfolio based on the market value of such
obligations and from dividends from equity securities based on stated annual
rates, exclusive of special or extra distributions, (with all purchases and
sales of securities during such period included in the income calculation on a
settlement date basis), whereas the distribution rate is based on the Fund's
last monthly distribution which tends to be relatively stable and may be more
or less than the amount of net investment income and short-term capital gain
actually earned by the Fund during the month. For further information
concerning the Distribution Rate and Effective Distribution Rate, see
"Performance Information in Part II of this Statement of Additional
Information.
The Fund's total return may be compared to the Consumer Price Index and
various domestic securities indices. The Fund's total return and comparisons
with these indices may be used in advertisements and in information furnished
to present or prospective shareholders. The Fund's performance may differ from
that of other investors in the Portfolio, including the other investment
companies.
From time to time, information showing the effects of compounding interest
may be included in advertisements and other material furnished to present and
prospective shareholders. Compounding is the process of earning interest on
principal plus interest that was earned earlier. Interest can be compounded
annually, semi-annually, quarterly or daily, e.g. $1,000 compounded annually
at 9 percent will grow to $1,090 at the end of the first year and $1,188 at
the end of the second year. The extra $8, which was earned on the $90 interest
from the first year, is the compound interest. $1,000 compounded annually at 9
percent grows to $2,367 at the end of 10 years and $5,604 at the end of 20
years. Other examples of compounding $1,000 annually are 7 percent grows to
$1,967 at the end of 10 years and $3,870 at the end of 20 years. At 12 percent
the $1,000 grows to $3,106 at the end of 10 years and $9,646 at the end of 20
years. All of these examples are for illustrative purposes only and are not
meant to indicate performance of the Fund.
From time to time, information, charts and illustrations relating to
inflation and the effects of inflation on the dollar may be included in
advertisements and other material furnished to present and prospective
shareholders. For example: After 10 years, the purchasing power of $25,000
would shrink to $16,621, $14,968, $13,465 and $12,100, respectively, if the
annual rates of inflation during such period were 4%, 5%, 6% and 7%,
respectively. (To calculate the purchasing power, the value at the end of each
year is reduced by the above inflation rates for 10 consecutive years.)
From time to time, information, charts and illustrations showing
comparative historical information of high-yielding bonds as represented by
The First Boston High Yield Index over 10-year U.S. treasury bonds may be used
in advertisements and other material furnished to present or prospective
shareholders. The First Boston High Yield Index is an unmanaged index of 661
high-yielding securities with an average life of 8.1 years, an average
maturity of 8.2 years and an average coupon of 10.7%. The principal and
interest of U.S. Treasury bonds are guaranteed by the United States
government, while high yield bonds, sometimes referred to as "junk bonds", are
of lower quality than investment-grade bonds and U.S. securities. Rates are
given for illustrative purposes only and are not meant to imply or predict
actual results of an investment in the Fund.
From time to time evaluations of the Fund's performance made by
independent sources, e.g. Lipper Analytical Services, Inc., CDA/Wiesenberger
and Morningstar, Inc., may be used in advertisements and in information
furnished to present or prospective shareholders.
Information used in advertisements and in materials furnished to present
and prospective shareholders may include statements or illustrations relating
to the appropriateness of types of securities and/or mutual funds which may be
employed to meet specific financial goals, such as (1) funding retirement, (2)
paying for children's education, and (3) financially supporting aging parents.
These three financial goals may be referred to in such advertisements or
materials as the "Triple Squeeze."
For additional information on the Fund's investment performance, see
"Performance Information" in Part II of this Statement of Additional
Information.
TAXES
FEDERAL INCOME TAXES
See "Distributions and Taxes" in the Fund's current prospectus.
Each series of the Trust is treated as a separate entity for Federal
income tax purposes. The Fund has elected to be treated, and intends to
qualify each year, as a regulated investment company under the Internal
Revenue Code (the "Code"). Accordingly, the Fund intends to satisfy certain
requirements relating to sources of its income and diversification of its
assets and to distribute all of its net investment income and net realized
capital gains in accordance with the timing requirements imposed by the Code,
so as to avoid any Federal income or excise tax to the Fund. Because the Fund
invests substantially all of its assets in the Portfolio, the Portfolio
normally must satisfy the applicable source of income and diversification
requirements in order for the Fund to satisfy them. The Portfolio will
allocate at least annually among its investors, including the Fund, each
investor's distributive share of the Portfolio's net taxable (if any) and tax-
exempt investment income, net realized capital gains, and any other items of
income, gain, loss, deduction or credit. For purposes of applying the
requirements of the Code regarding qualification as a regulated investment
company, the Fund will be deemed (i) to own its proportionate share of each of
the assets of the Portfolio and (ii) to be entitled to the gross income of the
Portfolio attributable to such share.
In order to avoid Federal excise tax, the Code requires that the Fund
distribute by December 31 of each calendar year at least 98% of its ordinary
income for such year, at least 98% of the excess of its realized capital gains
over its realized capital losses, generally computed on the basis of the one-
year period ending on October 31 of such year, after reduction by any
available capital loss carryforwards, and 100% of any income from the prior
year (as previously computed) that was not paid out during such year and on
which the Fund was not taxed. Under current law, provided that the Fund
qualifies as a regulated investment company for Federal income tax purposes
and the Portfolio is treated as a partnership for Massachusetts and Federal
tax purposes, neither the Fund nor the Portfolio is liable for any income,
excise or franchise tax in the Commonwealth of Massachusetts.
The Portfolio's transactions in options, futures contracts and forward
contracts will be subject to special tax rules that may affect the amount,
timing and character of distributions to shareholders. For example, certain
positions held by the Portfolio on the last business day of each taxable year
will be marked to market (i.e., treated as if closed out on such day), and any
resulting gain or loss will be treated as 60% long-term and 40% short-term
capital gain or loss. Certain positions held by the Portfolio that
substantially diminish the Portfolio's risk of loss with respect to other
positions in its portfolio may constitute "straddles," which are subject to
tax rules that may cause deferral of Portfolio losses, adjustments in the
holding periods of Portfolio securities and conversion of short-term into
long-term capital losses. The Portfolio may have to limit its activities in
options, futures contracts and forward contracts in order to enable the Fund
to maintain its qualification as a regulated investment company.
The Portfolio may be subject to foreign withholding taxes with respect to
income derived from foreign securities. These taxes may be reduced or
eliminated under the terms of an applicable U.S. income tax treaty. As it is
not expected that more than 50% of the value of the total assets of the Fund
at the close of any taxable year will consist of securities issued by foreign
corporations, the Fund will not be eligible to pass through to shareholders
any foreign tax credits or deductions for foreign taxes paid by the Portfolio.
Certain foreign exchange gains and losses realized by the Fund will be treated
as ordinary income and losses. Certain uses of foreign currency and investment
by the Portfolio in certain "passive foreign investment companies" may be
limited as a tax election may be made, if available, in order to avoid
imposition of a tax on the Portfolio.
The Portfolio's investment in zero coupon and deferred interest securities
and payment in kind securities will cause it to realize income prior to the
receipt of cash payments with respect to these securities. Such income will be
allocated daily to interests in the Portfolio and, in order to enable the Fund
to distribute its proportionate share of this income and avoid a tax payable
by the Fund, the Portfolio may be required to liquidate portfolio securities
that it might otherwise have continued to hold in order to generate cash that
the Fund may withdraw from the Portfolio for subsequent distribution to Fund
shareholders.
Investments in lower-rated or unrated securities may present special tax
issues for the Portfolio and hence for the Fund to the extent actual or
anticipated defaults may be more likely with respect to such securities. Tax
rules are not entirely clear about issues such as when the Portfolio may cease
to accrue interest, original issue discount, or market discount; when and to
what extent deductions may be taken for bad debts or worthless securities; how
payments received on obligations in default should be allocated between
principal and income; and whether exchanges of debt obligations in a workout
context are taxable.
Distributions by the Fund of net investment income, the excess of net
short-term capital gains over net long-term capital losses and certain foreign
exchange gains are taxable to shareholders as ordinary income, whether
received in cash or reinvested in additional shares. Distributions of the
excess of net long-term capital gains over net short-term capital losses
(including any capital losses carried forward from prior years) are taxable to
shareholders as long-term capital gains, whether received in cash or in
additional shares and regardless of the length of time their shares of the
Fund have been held. Certain distributions declared in October, November or
December and paid the following January will be taxable to shareholders as if
received on December 31 of the year in which they are declared.
Any loss realized upon the redemption or exchange of shares of the Fund
with a tax holding period of 6 months or less will be treated as a long-term
capital loss to the extent of any distribution of net long-term capital gains
with respect to such shares. All or a portion of any loss realized upon a
taxable disposition of Fund shares may be disallowed under "wash sale" rules
if other shares of the Fund are purchased (whether through the reinvestment of
distributions or otherwise) within 30 days before or after such disposition.
Special tax rules apply to Individual Retirement Accounts ("IRAs") and to
other retirement plans, and persons investing through such plans should
consult their tax advisers for more information. The deductibility of such
contributions may be restricted or eliminated for particular shareholders.
Amounts paid by the Fund to individuals and certain other shareholders who
have not provided the Fund with their correct taxpayer identification number
and certain required certifications, as well as shareholders with respect to
whom the Fund has received notification from the Internal Revenue Service or a
broker, may be subject to "backup" withholding of Federal income tax from the
Fund's dividends and distributions and the proceeds of redemptions (including
repurchases and exchanges), at a rate of 31%. An individual's taxpayer
identification number is generally his or her social security number.
Non-resident alien individuals and certain foreign corporations and other
foreign entities generally will be subject to a U.S. withholding tax at a rate
of 30% on the Fund's distributions from its ordinary income and the excess of
its net short-term capital gain over its net long-term capital loss, unless
the tax is reduced or eliminated by an applicable tax treaty. Distributions
from the excess of the Fund's net long-term capital gain over its net short-
term capital loss received by such shareholders and any gain from the sale or
other disposition of shares of the Fund generally will not be subject to U.S.
Federal income taxation, provided that non-resident alien status has been
certified by the shareholder. Different U.S. tax consequences may result if
the shareholder is engaged in a trade or business in the United States, is
present in the United States for a sufficient period of time during a taxable
year to be treated as a U.S. resident, or fails to provide any required
certifications regarding status as a non-resident alien investor. Foreign
shareholders should consult their tax advisers regarding the U.S. and foreign
tax consequences of an investment in the Fund.
The foregoing discussion does not address the special tax rules applicable
to certain classes of investors, such as retirement plans, tax-exempt
entities, insurance companies and financial institutions. Shareholders should
consult their own tax advisers with respect to state and local tax
consequences of investing in the Fund. Shareholders should consult their own
tax advisers with respect to special tax rules that may apply in their
particular situations, as well as the state, local or foreign tax consequences
of investing in the Fund.
PRINCIPAL UNDERWRITER
Under the Distribution Agreement the Principal Underwriter acts as
principal in selling shares of the Fund. The expenses of printing copies of
prospectuses used to offer shares to financial service firms or investors and
other selling literature and of advertising is borne by the Principal
Underwriter. The fees and expenses of qualifying and registering and
maintaining qualifications and registrations of the Fund and its shares under
Federal and state securities laws are borne by the Fund. In addition, the Fund
makes payments to the Principal Underwriter pursuant to its Distribution Plan
as described in the Fund's current Prospectus; the provisions of the
Distribution Plan relating to such payments are included in the Distribution
Agreement. The Distribution Agreement is renewable annually by the Trust's
Board of Trustees (including a majority of its Trustees who are not interested
persons of the Trust and who have no direct or indirect financial interest in
the operation of the Fund's Distribution Plan or the Distribution Agreement),
may be terminated on sixty days" notice either by such Trustees or by vote of
a majority of the outstanding voting securities of the Fund or on six months'
notice by the Principal Underwriter and is automatically terminated upon
assignment. The Principal Underwriter distributes Fund shares on a "best
efforts" basis under which it is required to take and pay for only such shares
as may be sold.
PORTFOLIO SECURITY TRANSACTIONS
Decisions concerning the execution of portfolio security transactions,
including the selection of the market and the broker-dealer firm, are made by
Eaton Vance. Eaton Vance is also responsible for the execution of transactions
for all other accounts managed by it.
BMR places the portfolio security transactions of the Portfolio and of all
other accounts managed by it for execution with many broker-dealer firms. BMR
uses its best efforts to obtain execution of portfolio security transactions
at prices which are advantageous to the Portfolio and (when a disclosed
commission is being charged) at reasonably competitive commission rates. In
seeking such execution, BMR will use its best judgment in evaluating the terms
of a transaction, and will give consideration to various relevant factors
including without limitation the size and type of the transaction, the general
execution and operational capabilities of the broker-dealer, the nature and
character of the market for the security, the confidentiality, speed and
certainty of effective execution required for the transaction, the reputation,
reliability, experience and financial condition of the broker-dealer, the
value and quality of services rendered by the broker-dealer in other
transactions, and the reasonableness of the commission or spread, if any.
Transactions on United States stock exchanges and other agency transactions
involve the payment by the Portfolio of negotiated brokerage commissions. Such
commissions vary among different broker-dealer firms, and a particular broker-
dealer may charge different commissions according to such factors as the
difficulty and size of the transaction and the volume of business done with
the broker-dealer. Transactions in foreign securities usually involve the
payment of fixed brokerage commissions, which are generally higher than those
in the United States. There is generally no stated commission in the case of
securities traded in the over-the-counter markets, but the price paid or
received by the Portfolio usually includes an undisclosed dealer markup or
markdown. In an underwritten offering, the price paid by the Portfolio often
includes a disclosed fixed commission or discount retained by the underwriter
or dealer. Although commissions paid on portfolio security transactions will,
in the judgment of BMR, be reasonable in relation to the value of the services
provided, commissions exceeding those which another firm might charge may be
paid to broker-dealers who were selected to execute transactions on behalf of
the Portfolio and BMR's other clients in part for providing brokerage and
research services to BMR.
As authorized in Section 28(e) of the Securities Exchange Act of 1934, a
broker or dealer who executes a portfolio transaction on behalf of the
Portfolio may receive a commission which is in excess of the amount of
commission another broker or dealer would have charged for effecting that
transaction if BMR determines in good faith that such commission was
reasonable in relation to the value of the brokerage and research services
provided. This determination may be made on the basis of either that
particular transaction or on the basis of overall responsibilities which BMR
and its affiliates have for accounts over which they exercise investment
discretion. In making any such determination, BMR will not attempt to place a
specific dollar value on the brokerage and research services provided or to
determine what portion of the commission should be related to such services.
Brokerage and research services may include advice as to the value of
securities, the advisability of investing in, purchasing, or selling
securities, and the availability of securities or purchasers or sellers of
securities; furnishing analyses and reports concerning issuers, industries,
securities, economic factors and trends, portfolio strategy and the
performance of accounts; effecting securities transactions and performing
functions incidental thereto (such as clearance and settlement); and the
"Research Services" referred to in the next paragraph.
It is a common practice in the investment advisory industry for the
advisers of investment companies, institutions and other investors to receive
research, statistical and quotation services, data, information and other
services, products and materials which assist such advisers in the performance
of their investment responsibilities ("Research Services") from broker-dealers
which execute portfolio transactions for the clients of such advisers and from
third parties with which such broker-dealers have arrangements. Consistent
with this practice, BMR receives Research Services from many broker-dealer
firms with which BMR places the portfolio transactions and from third parties
with which these broker-dealers have arrangements. These Research Services
include such matters as general economic and market reviews, industry and
company reviews, evaluations of securities and portfolio strategies and
transactions, recommendations as to the purchase and sale of securities and
other portfolio transactions, financial, industry and trade publications, news
and information services, pricing and quotation equipment and services, and
research oriented computer hardware, software, data bases and services. Any
particular Research Service obtained through a broker-dealer may be used by
BMR in connection with client accounts other than those accounts which pay
commissions to such broker-dealer. Any such Research Service may be broadly
useful and of value to BMR in rendering investment advisory services to all or
a significant portion of its clients, or may be relevant and useful for the
management of only one client's account or of a few clients' accounts, or may
be useful for the management of merely a segment of certain clients' accounts,
regardless of whether any such account or accounts paid commissions to the
broker-dealer through which such Research Service was obtained. The advisory
fee paid by the Portfolio is not reduced because BMR receives such Research
Services. BMR evaluates the nature and quality of the various Research
Services obtained through broker-dealer firms and attempts to allocate
sufficient commissions to such firms to ensure the continued receipt of
Research Services which BMR believes are useful or of value to it in rendering
investment advisory services to its clients.
Subject to the requirement that BMR shall use its best efforts to seek to
execute portfolio security transactions at advantageous prices and at
reasonably competitive commission rates or spreads, BMR is authorized to
consider as a factor in the selection of any broker-dealer firm with whom
portfolio orders may be placed the fact that such firm has sold or is selling
shares of the Fund or of other investment companies sponsored by BMR or Eaton
Vance. This policy is not inconsistent with a rule of the National Association
of Securities Dealers, Inc., which rule provides that no firm which is a
member of the Association shall favor or disfavor the distribution of shares
of any particular investment company or group of investment companies on the
basis of brokerage commissions received or expected by such firm from any
source.
Securities considered as investments for the Portfolio may also be
appropriate for other investment accounts managed by BMR or Eaton Vance or its
affiliates. BMR or Eaton Vance will attempt to allocate equitably portfolio
security transactions among the Portfolio and the portfolios of its other
investment accounts whenever decisions are made to purchase or sell securities
by the Portfolio and one or more of such other accounts simultaneously. In
making such allocations, the main factors to be considered are the respective
investment objectives of the Portfolio and such other accounts, the relative
size of portfolio holdings of the same or comparable securities, the
availability of cash for investment by the Portfolio and such accounts, the
size of investment commitments generally held by the Portfolio and such
accounts and the opinions of the persons responsible for recommending
investments to the Portfolio and such accounts. While this procedure could
have a detrimental effect on the price or amount of the securities available
to the Portfolio from time to time, it is the opinion of the Trustees of the
Trust that the benefits available from the BMR organization outweigh any
disadvantage that may arise from exposure to simultaneous transactions. For
the period from the start of business, June 1, 1994, to March 31, 1995, the
Portfolio paid brokerage commissions of $3,684 on portfolio security
transactions of which $569 was paid in respect of portfolio security
transactions aggregating approximately $206,198 to firms which provided some
research services to BMR or its affiliates (although many of such firms may
have been selected in any particular transaction primarily because of their
execution capabilities).
OTHER INFORMATION
Eaton Vance, pursuant to its agreement with the Trust, controls the use of
the words "Eaton Vance" in the Fund's name and may use the words "Eaton Vance"
in other connections and for other purposes.
The Trust's Declaration of Trust may be amended by the Trustees when
authorized by vote of a majority of the outstanding voting securities of the
Trust, the financial interests of which are affected by the amendment. The
Trustees may also amend the Declaration of Trust without the vote or consent
of shareholders to change the name of the Trust or any series or to make such
other changes as do not have a materially adverse effect on the financial
interests of shareholders or if they deem it necessary to conform it to
applicable federal or state laws or regulations. The Trust or any series or
class thereof may be terminated by: (1) the affirmative vote of the holders of
not less than two-thirds of the Shares outstanding and entitled to vote at any
meeting of shareholders of the Trust or the appropriate series or class
thereof, or by an instrument or instruments in writing without a meeting,
consented to by the holders of two-thirds of the shares of the Trust or a
series or class thereof, provided, however, that, if such termination is
recommended by the Trustees, the vote of a majority of the outstanding voting
securities of the Trust or a series or class thereof entitled to vote thereon
shall be sufficient authorization; or (2) by means of an instrument in writing
signed by a majority of the Trustees, to be followed by a written notice to
shareholders stating that a majority of the Trustees has determined that the
continuation of the Trust or a series or a class thereof is not in the best
interest of the Trust, such series or class or of their respective
shareholders.
The Declaration of Trust further provides that the Trustees will not be
liable for errors of judgment or mistakes of fact or law; but nothing in the
Declaration of Trust protects a Trustee against any liability to which he
would otherwise be subject by reason of willful misfeasance, bad faith, gross
negligence, or reckless disregard of the duties involved in the conduct of his
office. The Trust's by-laws provide that a Trustee may be removed at any
special meeting of the Shareholders of the Trust by a vote of two-thirds of
the outstanding shares of beneficial Interest of the Trust (the "Shares"). The
Trustees will promptly call a meeting of Shareholders for the purpose of
voting upon a question of removal of a Trustee when requested so to do by the
record holders of not less than 10 per centum of the outstanding shares.
As permitted by Massachusetts law, there will normally be no meetings of
shareholders for the purpose of electing Trustees of the Trust unless and
until such time as less than a majority of the Trustees of the Trust holding
office have been elected by shareholders. In such an event the Trustees then
in office will call a shareholder's meeting for the election of Trustees.
Except for the foregoing circumstances and unless removed by action of the
shareholders in accordance with the Trust's by-laws, the Trustees shall
continue to hold office and may appoint successor Trustees.
The Trust's by-laws provide that no person shall serve as a Trustee of the
Trust if shareholders holding two-thirds of the outstanding shares have
removed him from that office either by a written declaration filed with the
Trust's custodian or by votes cast at a meeting called for that purpose. The
by-laws further provide that under certain circumstances the shareholders may
call a meeting to remove a Trustee and that the Trust is required to provide
assistance in communication with shareholders about such a meeting.
The Declaration of Trust of the Portfolio provides that no person shall
serve as a Trustee if investors holding two-thirds of the outstanding
interests have removed him from that office either by a written declaration
filed with the Portfolio's custodian or by votes cast at a meeting called for
that purpose. The Declaration of Trust further provides that under certain
circumstances the investors may call a meeting to remove a Trustee and that
the Portfolio is required to provide assistance in communicating with
investors about such a meeting.
The right to redeem shares of the Fund can be suspended and the payment of
the redemption price deferred when the Exchange is closed (other than for
customary weekend and holiday closings), during periods when trading on the
Exchange is restricted as determined by the Securities and Exchange Commission
(the "Commission"), or during any emergency as determined by the Commission
which makes it impracticable for the Portfolio to dispose of its securities or
value its assets, or during any other period permitted by order of the
Commission for the protection of investors.
INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Deloitte & Touche LLP, 125 Summer Street, Boston, Massachusetts, and
Deloitte & Touche, Grand Caymen, Caymen Islands, British West Indies are the
independent certified public accountants of the Fund and the Portfolio,
respectively, providing audit services, tax return preparation, and assistance
and consultation with respect to the preparation of filings with the
Securities and Exchange Commission.
FINANCIAL STATEMENTS
The financial statements of the Fund and the Portfolio, which are included
in the Fund's Annual Report to Shareholders, are incorporated by reference
into this Statement of Additional Information and have been so incorporated in
reliance on the report of Deloitte & Touche LLP, independent certified public
accountants, as experts in accounting and auditing. A copy of the Annual
Report accompanies this Statement of Additional Information.
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
PART II
This Part II provides information about EV CLASSIC HIGH INCOME FUND. The
Fund became a series of the Trust on July 31, 1995. The Trust changed its name
from Eaton Vance Government Obligations Trust on July 31, 1995.
FEES AND EXPENSES
ADMINISTRATOR
As stated under "Investment Adviser and Administrator" in Part I of this
Statement of Additional Information, the Administrator receives no
compensation for providing administrative services to the Fund. For the period
from the start of business, June 8, 1994, to March 31, 1995, $37,087 of the
Fund's operating expenses were allocated to the Administrator.
DISTRIBUTION PLAN
For the period from the start of business, June 8, 1994, to March 31,
1995, the Fund accrued sales commission payments under the Plan aggregating
$8,783, of which $8,477 was paid to the Principal Underwriter. The Principal
Underwriter paid $8,084 as sales commissions to Authorized Firms and the
balance was retained by the Principal Underwriter. As at March 31, 1995, the
outstanding uncovered distribution charges of the Principal Underwriter
calculated under the Plan amounted to approximately $200,000 (which amount was
equivalent to 9.6% of the Fund's net assets on such day). For the period from
the start of business, June 8, 1994, to March 31, 1995, the Fund accrued
service fee payments under the Plan aggregating $2,928, of which $2,825 was
paid to the Principal Underwriter. The Principal Underwriter paid $2,670 as
service fees to Authorized Firms, and the balance was retained by the
Principal Underwriter.
PRINCIPAL UNDERWRITER
For the period ended March 31, 1995, the Fund paid the Principal
Underwriter $82.50 for repurchase transactions handled by the Principal
Underwriter (being $2.50 for each such transaction).
CUSTODIAN
For the period ended March 31, 1995, the Fund paid IBT $751.
<TABLE>
<CAPTION>
TRUSTEES
The fees and expenses of those Trustees of the Trust and of the Portfolio who are not members of the
Eaton Vance organization (the noninterested Trustees) are paid by the Fund (and the other series of the
Trust) and the Portfolio, respectively. (The Trustees of the Trust and of the Portfolio who are members of
the Eaton Vance organization receive no compensation from the Trust or the Portfolio.) During the fiscal year
ended March 31, 1995, the noninterested Trustees of the Trust and the Portfolio earned the following
compensation in their capacities as Trustees from the Fund, the Portfolio and the other funds in the Eaton
Vance fund complex<F1>:
AGGREGATE AGGREGATE TOTAL COMPENSATION
COMPENSATION COMPENSATION FROM TRUST AND
NAME FROM FUND FROM PORTFOLIO FUND COMPLEX
- ---- ------------ -------------- -----------
<S> <C> <C> <C>
Donald R. Dwight ............................. --0-- $2,769<F2> $135,000<F4>
Samuel L. Hayes, III ......................... --0-- 2,755<F3> 147,500<F5>
Norton H. Reamer ............................. --0-- 2,728 135,000
John L. Thorndike ............................ --0-- 2,816 140,000
Jack L. Treynor .............................. --0-- 2,884 140,000
- ----------
<FN>
<F1>The Eaton Vance fund complex consists of 205 registered investment companies or series thereof.
<F2>Includes $609 of deferred compensation.
<F3>Includes $1,178 of deferred compensation.
<F4>Includes $17,500 of deferred compensation.
<F5>Includes $33,750 of deferred compensation.
</FN>
</TABLE>
PERFORMANCE INFORMATION
The table below indicates the total return (capital changes plus
reinvestment of all distributions and percentage changes) on a hypothetical
investment of $1,000 in the Fund through March 31, 1995. The total return and
percentage changes for the period prior to the Fund's commencement of
operations on November 4, 1994 reflect the Portfolio's total return and
percentage changes (or that of its predecessor) adjusted to reflect any
applicable Fund sales charge. Such performance has not been adjusted to
reflect the Fund's distribution fees and certain other expenses. If such an
adjustment were made, the performance would be lower.
<TABLE>
<CAPTION>
VALUE OF $1,000 INVESTMENT
TOTAL RETURN TOTAL RETURN
BEFORE DEDUCTING AFTER DEDUCTING
CONTINGENT DEFERRED CONTINGENT DEFERRED
VALUE OF SALES CHARGE SALES CHARGE***
INVESTMENT INVESTMENT AMOUNT OF INVESTMENT --------------------------------------------------
PERIOD DATE INVESTMENT ON 3/31/95 CUMULATIVE ANNUALIZED CUMULATIVE ANNUALIZED
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Life of Fund 8/19/86 $1,000.00 $1,964.80 96.48% 8.15% 96.48% 8.15%
5 Years Ended
3/31/95 3/31/90 $1,000.00 $1,705.80 70.58% 11.27% 70.58% 11.27%
1 Year Ended
3/31/95* 3/31/94 $1,000.00 $1,015.60** 1.56% 0.56% 0.56% 0.56%
<CAPTION>
PERCENTAGE CHANGES
8/19/86 -- 3/31/95
NET ASSET VALUE NET ASSET VALUE
TO NET ASSET VALUE TO NET ASSET VALUE
BEFORE DEDUCTING THE AFTER DEDUCTING THE
CONTINGENT DEFERRED SALES CHARGE CONTINGENT DEFERRED SALES CHARGE
WITH ALL DISTRIBUTIONS REINVESTED WITH ALL DISTRIBUTIONS REINVESTED
--------------------------------------------- --------------------------------------------
FISCAL YEAR AVERAGE AVERAGE
ENDED ANNUAL CUMULATIVE ANNUAL ANNUAL CUMULATIVE ANNUAL
----- ------ ---------- ------ ------ ---------- ------
<S> <C> <C> <C> <C> <C> <C>
3/31/87 -- 10.71% -- -- 9.71% --
3/31/88 1.52% 12.39% 7.49% 0.62% 12.39% 7.49%
3/31/89 11.58% 25.40% 9.04% 10.59% 25.40% 9.04%
3/31/90 -8.14% 15.19% 3.99% -8.95% 15.19% 3.99%
3/31/91 -2.84% 11.92% 2.47% -3.66% 11.92% 2.47%
3/31/92 38.21% 54.68% 8.07% 37.21% 54.68% 8.07%
3/31/93 13.41% 75.43% 8.86% 12.41% 75.43% 8.86%
3/31/94 10.28% 93.47% 9.05% 9.29% 93.47% 9.05%
3/31/95* 1.56% 96.48% 8.15% 0.56% 96.48% 8.15%
Past performance is not indicative of future results. Investment return and principal value will fluctuate; shares, when
redeemed, may be worth more or less than their original cost.
- ----------
*If a portion of the Fund's expenses had not been subsidized, the Fund would have had lower returns.
**After deducting the contingent deferred sales charge, the value would be $1,015.60. No contingent deferred sales charge is
imposed on shares purchased more than one year prior to the redemption, shares acquired through the reinvestment of
distributions, or any appreciation in value of other shares in the account, and no such charge is imposed on exchanges of Fund
shares for shares of one or more other funds listed under "The Eaton Vance Exchange Privilege" in the Prospectus.
</TABLE>
For the thirty-day period ended March 31, 1995, the yield of the Fund was
10.24%. If a portion of the Fund's expenses had not been allocated to Eaton
Vance, the Fund would have had a lower yield.
The Fund's distribution rate (calculated on March 31, 1995 and based on
the Fund's monthly distribution paid on March 22, 1995) was 9.49%, and the
Fund's effective distribution rate (calculated on the same date and based on
the same monthly distribution) was 9.92%. If a portion of the Fund's expenses
had not been allocated to Eaton Vance, the Fund would have had a lower
distribution rate and effective distribution rate.
DISTRIBUTION PLAN
The Distribution Plan ("the Plan") is described in the prospectus and is
designed to meet the requirements of Rule 12b-1 under the 1940 Act and the
sales charge rule of the National Association of Securities Dealers, Inc. (the
"NASD Rule"). The purpose of the Plan is to compensate the Principal
Underwriter for its distribution services and facilities provided to the Fund
by paying the Principal Underwriter sales commissions and a separate
distribution fee in connection with sales of Fund shares. The following
supplements the discussion of the Plan contained in the Fund's Prospectus.
The amount payable by the Fund to the Principal Underwriter pursuant to
the Plan as sales commissions and distribution fees with respect to each day
will be accrued on such day as a liability of the Fund and will accordingly
reduce the Fund's net assets upon such accrual, all in accordance with
generally accepted accounting principles. The amount payable on each day is
limited to 1/365 of .75% of the Fund's net assets on such day. The level of
the Fund's net assets changes each day and depends upon the amount of sales
and redemptions of Fund shares, the changes in the value of the investments
held by the Portfolio, the expenses of the Fund and the Portfolio accrued and
allocated to the Fund on such day, income on portfolio investments of the
Portfolio accrued and allocated to the Fund on such day, and any dividends and
distributions declared on Fund shares. The Fund does not accrue possible
future payments as a liability of the Fund or reduce the Fund's current net
assets in respect of unknown amounts which may become payable under the Plan
in the future because the standards for accrual of such a liability under
accounting principles have not been satisfied.
The Plan provides that the Fund will receive all contingent deferred sales
charges and will make no payments to the Principal Underwriter in respect of
any day on which there are no outstanding Uncovered Distribution Charges of
the Principal Underwriter. Contingent deferred sales charges and accrued
amounts will be paid by the Fund to the Principal Underwriter whenever there
exist Uncovered Distribution Charges under the Plan.
Periods with a high level of sales of Fund shares accompanied by a low
level of early redemptions of Fund shares resulting in the imposition of
contingent deferred sales charges will tend to increase the time during which
there will exist Uncovered Distribution Charges of the Principal Underwriter.
Conversely, periods with a low level of sales of Fund shares accompanied by a
high level of early redemptions of Fund shares resulting in the imposition of
contingent deferred sales charges will tend to reduce the time during which
there will exist Uncovered Distribution Charges of the Principal Underwriter.
In calculating daily the amount of Uncovered Distribution Charges,
distribution charges will include the aggregate amount of sales commissions
and distribution fees theretofore paid plus the aggregate amount of sales
commissions and distribution fees which the Principal Underwriter is entitled
to be paid under the Plan since its inception. Payments theretofore paid or
payable under the Plan by the Fund to the Principal Underwriter and contingent
deferred sales charges theretofore paid or payable to the Principal
Underwriter will be subtracted from such distribution charges; if the result
of such subtraction is positive, a distribution fee (computed at 1% over the
prime rate then reported in The Wall Street Journal ) will be computed on such
amount and added thereto, with the resulting sum constituting the amount of
outstanding uncovered distribution charges with respect to such day. The
amount of outstanding uncovered distribution charges of the Principal
Underwriter calculated on any day does not constitute a liability recorded on
the financial statements of the Fund.
The amount of Uncovered Distribution Charges of the Principal Underwriter
at any particular time depends upon various changing factors, including the
level and timing of sales of Fund shares, the nature of such sales (i.e.,
whether they result from exchange transactions, reinvestments or from cash
sales through Authorized Firms), the level and timing of redemptions of Fund
shares upon which a contingent deferred sales charge will be imposed, the
level and timing of redemptions of Fund shares upon which no contingent
deferred sales charge will be imposed (including redemptions involving
exchanges of Fund shares for shares of another fund in the Eaton Vance Classic
Group of Funds which result in a reduction of uncovered distribution charges),
changes in the level of the net assets of the Fund, and changes in the
interest rate used in the calculation of the distribution fee under the Plan.
(For shares sold prior to January 30, 1995, Plan payments are as follows: the
Principal Underwriter pays monthly sales commissions and service fee payments
to Authorized Firms equivalent to approximately .75% and .25%, respectively,
annualized of the assets maintained in the Fund by their customers beginning
at the time of sale. No payments were made at the time of sale, and there is
no contingent deferred sales charge.)
As currently implemented by the Trustees, the Plan authorizes payments of
sales commissions, distribution fees and service fees to the Principal
Underwriter which may be equivalent, on an aggregate basis during any fiscal
year of the Fund, to 1% of the Fund's average daily net assets for such year.
For the sales commission and service fee payments made by the Fund and the
outstanding uncovered distribution charges of the Principal Underwriter, see
"Fees and Expenses--Distribution Plan" in this Part II. The Fund believes that
the combined rate of all these payments may be higher than the rate of
payments made under distribution plans adopted by other investment companies
pursuant to Rule 12b-1. Although the Principal Underwriter will use its own
funds (which may be borrowed from banks) to pay sales commissions and service
fees at the time of sale, it is anticipated that the Eaton Vance organization
will profit by reason of the operation of the Plan through an increase in the
Fund's assets (thereby increasing the advisory fee payable to BMR by the
Portfolio) resulting from sale of Fund shares and through the amounts paid to
the Principal Underwriter, including contingent deferred sales charges,
pursuant to the Plan. The Eaton Vance organization may be considered to have
realized a profit under the Plan if at any point in time the aggregate amounts
theretofore paid to the Principal Underwriter under the Plan, and from
contingent deferred sales charges, have exceeded the total expenses
theretofore incurred by such organization in distributing shares of the Fund.
Total expenses for this purpose will include an allocable portion of the
overhead costs of such organization and its branch offices, which costs will
include without limitation leasing expense, depreciation of building and
equipment, utilities, communication and postage expense, compensation and
benefits of personnel, travel and promotional expense, stationery and
supplies, literature and sales aids, interest expense, data processing fees,
consulting and temporary help costs, insurance, taxes other than income taxes,
legal and auditing expense and other miscellaneous overhead items. Overhead is
calculated and allocated for such purpose by the Eaton Vance organization in a
manner deemed equitable to the Fund.
The provisions of the Plan relating to payments of sales commissions and
distribution fees to the Principal Underwriter are also included in the
Distribution Agreement between the Trust on behalf of the Fund and the
Principal Underwriter. Pursuant to Rule 12b-1, the Plan has been approved by
the Fund's initial sole shareholder (Eaton Vance) and by the Board of Trustees
of the Trust, including the Rule 12b-1 Trustees. The Plan continues in effect
through and including April 28, 1996, and shall continue in effect
indefinitely thereafter for so long as such continuance is approved at least
annually by the vote of both a majority of (i) the Trustees of the Trust who
are not interested persons of the Trust and who have no direct or indirect
financial interest in the operation of the Plan or any agreements related to
the Plan (the "Rule 12b-1 Trustees") and (ii) all of the Trustees then in
office, and the Distribution Agreement contains a similar provision. The Plan
and Distribution Agreement may be terminated at any time by vote of a majority
of the Rule 12b-1 Trustees or by a vote of a majority of the outstanding
voting securities of the Fund. Under the Plan the President or a Vice
President of the Trust shall provide to the Trustees for their review, and the
Trustees shall review at least quarterly, a written report of the amount
expended under the Plan and the purposes for which such expenditures were
made. The Plan may not be amended to increase materially the payments
described therein without approval of the shareholders of the Fund, and all
material amendments of the Plan must also be approved by the Trustees as
required by Rule 12b-1. So long as the Plan is in effect, the selection and
nomination of Trustees who are not interested persons of the Trust shall be
committed to the discretion of the Trustees who are not such interested
persons.
The Trustees of the Trust believe that the Plan will be a significant
factor in the expected growth of the Fund's assets, and will result in
increased investment flexibility and advantages which will benefit the Fund
and its shareholders. Payments for sales commissions and distribution fees
made to the Principal Underwriter under the Plan will compensate the Principal
Underwriter for its services and expenses in distributing shares of the Fund.
Service fee payments made to the Principal Underwriter and Authorized Firms
under the Plan provide incentives to provide continuing personal services to
investors and the maintenance of shareholder accounts. By providing
incentives to the Principal Underwriter and Authorized Firms, the Plan is
expected to result in the maintenance of, and possible future growth in, the
assets of the Fund. Based on the foregoing and other relevant factors, the
Trustees of the Trust have determined that in their judgment there is a
reasonable likelihood that the Plan will benefit the Fund and its
shareholders.
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
As of June 30, 1995, the Trustees and officers of the Trust, as a group,
owned in the aggregate less than 1% of the outstanding shares of the Fund. As
of June 30, 1995, Merrill Lynch, Pierce, Fenner & Smith, Inc. New Brunswick,
NJ was the record owner of approximately 14.43% of the outstanding shares,
which were held on behalf of its customers who are the beneficial owners of
such shares, and as to which it had voting power under certain limited
circumstances. To the knowledge of the Trust, no other person owned of record
or beneficially 5% or more of the Fund's outstanding shares on such date.
<PAGE>
INVESTMENT ADVISER OF
HIGH INCOME PORTFOLIO
Boston Management and Research
24 Federal Street
Boston, MA 02110
ADMINISTRATOR OF
EV CLASSIC HIGH INCOME FUND
Eaton Vance Management
24 Federal Street
Boston, MA 02110
PRINCIPAL UNDERWRITER
Eaton Vance Distributors, Inc.
24 Federal Street
Boston, MA 02110
(800) 225-6265
CUSTODIAN
Investors Bank & Trust Company
24 Federal Street
Boston, MA 02110
TRANSFER AGENT
The Shareholder Services Group, Inc.
BOS725
P.O. Box 1559
Boston, MA 02104
(800) 262-1122
AUDITORS
Deloitte & Touche LLP
125 Summer Street
Boston, MA 02110
EV CLASSIC
HIGH INCOME FUND
24 FEDERAL STREET
BOSTON, MA 02110
C-HISAI
[LOGO]
EV Classic
High Income Fund
STATEMENT OF ADDITIONAL
INFORMATION
AUGUST 1, 1995
<PAGE>
EV MARATHON HIGH INCOME FUND
EV MARATHON HIGH INCOME FUND (THE "FUND") IS A MUTUAL FUND SEEKING TO
PROVIDE A HIGH LEVEL OF CURRENT INCOME. THE FUND INVESTS ITS ASSETS IN HIGH
INCOME PORTFOLIO (THE "PORTFOLIO"), A DIVERSIFIED OPEN-END INVESTMENT COMPANY
HAVING THE SAME INVESTMENT OBJECTIVE AS THE FUND, RATHER THAN BY INVESTING
DIRECTLY IN AND MANAGING ITS OWN PORTFOLIO OF SECURITIES AS WITH HISTORICALLY
STRUCTURED MUTUAL FUNDS. THE FUND IS A SERIES OF EATON VANCE MUTUAL FUNDS TRUST
(THE "TRUST").
THE PORTFOLIO SEEKS TO ACHIEVE ITS INVESTMENT OBJECTIVE BY INVESTING UP TO
100% OF ITS ASSETS IN LOWER-RATED BONDS, COMMONLY KNOWN AS "JUNK BONDS", THAT
ENTAIL GREATER RISKS, INCLUDING DEFAULT, THAN THOSE OF HIGHER-RATED
SECURITIES. INVESTORS SHOULD CAREFULLY CONSIDER THESE RISKS AND INVEST FOR THE
LONG TERM. SEE "THE FUND'S INVESTMENT OBJECTIVE" AND "INVESTMENT POLICIES AND
RISKS."
Shares of the Fund are not deposits or obligations of, or guaranteed or
endorsed by, any bank, or other insured depository institution and are not
federally insured by the Federal Deposit Insurance Corporation, the Federal
Reserve Board or any other government agency. Shares of the Fund involve
investment risks, including fluctuations in value and the possible loss of some
or all of the principal investment.
This Prospectus is designed to provide you with information you should know
before investing. Please retain this document for future reference. A Statement
of Additional Information dated August 1, 1995 for the Fund, as supplemented
from time to time, has been filed with the Securities and Exchange Commission
and is incorporated herein by reference. This Statement of Additional
Information is available without charge from the Fund's principal underwriter,
Eaton Vance Distributors, Inc. (the "Principal Underwriter"), 24 Federal Street,
Boston, MA 02110 (telephone (800) 225-6265). The Portfolio's investment adviser
is Boston Management and Research (the "Investment Adviser"), a wholly-owned
subsidiary of Eaton Vance Management, and Eaton Vance Management is the
administrator (the "Administrator") of the Fund. The offices of the Investment
Adviser and the Administrator are located at 24 Federal Street, Boston, MA
02110.
- --------------------------------------------------------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR
HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------
TABLE OF CONTENTS
Page Page
<S> <C> <C> <C>
Shareholder and Fund Expenses .................... 2 Reports to Shareholders ....................... 19
The Fund's Financial Highlights .................. 4 The Lifetime Investing Account/Distribution
The Fund's Investment Objective .................. 6 Options ..................................... 19
Investment Policies and Risks .................... 6 The Eaton Vance Exchange Privilege ............ 20
Organization of the Fund and the Portfolio ....... 10 Eaton Vance Shareholder Services .............. 21
Management of the Fund and the Portfolio ......... 12 Distributions and Taxes ....................... 22
Distribution Plan ................................ 13 Performance Information ....................... 23
Valuing Fund Shares .............................. 15 Appendix A .................................... 24
How to Buy Fund Shares ........................... 15 Appendix B .................................... 27
How to Redeem Fund Shares ........................ 17
- -----------------------------------------------------------------------------------------------------------
</TABLE>
PROSPECTUS DATED AUGUST 1, 1995
<PAGE>
SHAREHOLDER AND FUND EXPENSES
- --------------------------------------------------------------------------------
<TABLE>
SHAREHOLDER TRANSACTION EXPENSES
<S> <C>
Sales Charges Imposed on Purchases of Shares None
Sales Charges Imposed on Reinvested Distributions None
Fees to Exchange Shares None
Range of Declining Contingent Deferred Sales Charges Imposed on Redemptions during the
First Seven Years (as a percentage of redemption proceeds exclusive of all
reinvestments and capital appreciation in the account) 5.00%-0%
ANNUAL FUND AND ALLOCATED PORTFOLIO OPERATING EXPENSES
(as a percentage of average daily net assets)
Investment Adviser Fee 0.64%
Rule 12b-1 Distribution (and Service) Fees 0.91
Other Expenses 0.23
----
Total Operating Expenses 1.78%
====
<CAPTION>
EXAMPLE 1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
An Investor would pay the following contingent deferred sales charge
and expenses on a $1,000 investment, assuming (a) 5% annual return and
(b) redemption at the end of each period: $68 $96 $116 $209
An Investor would pay the following expenses on the same investment,
assuming (a) 5% annual return and (b) no redemptions: $18 $56 $ 96 $209
</TABLE>
Notes:
The above table and Example summarize the aggregate expenses of the Fund
and the Portfolio and are designed to help investors understand the costs and
expenses that they will bear directly or indirectly, by investing in the Fund.
The percentages indicated as Annual Fund and Allocated Portfolio Operating
Expenses in the table and the amounts included in the Example are based on the
Fund's and Portfolio's results for the fiscal year ended March 31, 1995.
The Fund invests exclusively in the Portfolio. The Trustees believe that,
over time, the aggregate per share expenses of the Fund and the Portfolio should
be approximately equal to, or less than, the per share expenses the Fund would
incur if the Fund were instead to retain the services of an investment adviser
and its assets were invested directly in the types of securities being held by
the Portfolio.
The Example should not be considered a representation of past or future
expenses and actual expenses may be greater or less than those shown. Federal
regulations require the Example to assume a 5% annual return, but actual
performance will vary. For further information regarding the expenses of both
the Fund and the Portfolio see "Organization of the Fund and the Portfolio" and
"How to Redeem Fund Shares". A long-term shareholder in the Fund may pay more
than the economic equivalent of the maximum front-end sales charge permitted by
a rule of the National Association of Securities Dealers, Inc. See "Distribution
Plan".
No contingent deferred sales charge is imposed on (a) shares purchased more
than six years prior to the redemption, (b) shares acquired through the
reinvestment of dividends and distributions or (c) any appreciation in value of
other shares in the account, and no such charge is imposed on exchanges of Fund
shares for shares of one or more other funds listed under "The Eaton Vance
Exchange Privilege". See "How to Redeem Fund Shares".
Other investment companies with different distribution arrangements and fees
are investing in the Portfolio and additional such companies and investors may
do so in the future. See "Organization of the Fund and the Portfolio".
<PAGE>
THE FUND'S FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
The following information should be read in conjunction with the financial
statements included in the Annual Report to Shareholders which is incorporated
by reference into the Statement of Additional Information, in reliance upon the
report of Deloitte & Touche LLP, independent certified public accountants, as
experts in accounting and auditing. Further information regarding the
performance of the Fund is contained in the Fund's annual report to shareholders
which may be obtained without charge by contracting the Principal Underwriter.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
-------------------------------------------------------------------------------------------
1995 1994<F8> 1993 1992 1991 1990 1989 1988 1987<F7><F1>
------- ------- ------- ------- ------- ------- ------- ------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, beginning of year $ 7.450 $ 7.480 $ 7.380 $ 6.120 $ 7.430 $ 9.230 $ 9.330 $10.380 $10.000
------- ------- ------- ------- ------- ------- ------- ------- -------
INCOME (LOSS) FROM OPERATIONS:
Net investment income ........... $ 0.671 $ 0.697 $ 0.767 $ 0.825 $ 0.973 $ 1.053 $ 1.054 $ 1.041 $ 0.701
Net realized and unrealized gain
(loss) on investments ......... (0.507) 0.047 0.170 1.356 (1.187) (1.708) (0.023) (0.916) 0.427
Commissions paid on sale of
Trust shares .................. -- -- -- -- -- -- -- -- (0.046)
------- ------- ------- ------- ------- ------- ------- ------- -------
Total income (loss) from
operations .................. $ 0.164 $ 0.744 $ 0.937 $ 2.181 $(0.214) $(0.655) $ 1.031 $ 0.125 $ 1.082
------- ------- ------- ------- ------- ------- ------- ------- -------
LESS DISTRIBUTIONS:
From net investment income ...... $(0.671) $(0.697) $(0.767) $(0.825) $(0.973) $(1.078) $(1.038) $(1.030) $(0.702)
In excess of net investment
income<F3> .................... (0.023) (0.077) (0.070) (0.096) (0.123) (0.067) (0.093) (0.095) --
From realized capital gains ..... -- -- -- -- -- -- -- (0.050) --
------- ------- ------- ------- ------- ------- ------- ------- -------
Total distributions ........... $(0.694) $(0.774) $(0.837) $(0.921) $(1.096) $(1.145) $(1.131) $(1.125) $(0.702)
------- ------- ------- ------- ------- ------- ------- ------- -------
NET ASSET VALUE, end of year ...... $ 6.920 $ 7.450 $ 7.480 $ 7.380 $ 6.120 $ 7.430 $ 9.230 $ 9.330 $10.380
======= ======= ======= ======= ======= ======= ======= ======= =======
TOTAL RETURN<F4> .................. 2.51% 10.28% 13.41% 38.21% (2.84)% (8.14)% 11.58% 1.52% 2.00%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year
(000 omitted) ................. $439,171 $399,259 $332,854 $252,967 $170,655 $214,075 $268,080 $231,648 $189,035
Ratio of expenses to average
daily net assets<F5> .......... 1.78% 1.82% 2.09% 2.19% 2.37% 2.20% 2.19% 2.02% 1.01%<F2>
Ratio of net investment income to
average daily net assets ...... 9.52% 9.09% 10.31% 12.00% 14.54% 12.12% 11.28% 10.89% 11.06%<F2>
PORTFOLIO TURNOVER<F6> ............ 11% 96% 91% 82% 57% 53% 57% 59% 47%
<FN>
<F1> Period from the start of business, August 19, 1986, to March 31, 1987.
<F2> Computed on an annualized basis.
Notes:
<F3> Distributions from paid-in capital for the years ended March 31, 1988 through March 31, 1993 have been restated to conform
with the treatment permitted under current financial reporting standards. For book purposes, commissions paid on the sale of
Fund shares and other distribution costs are charged to operations. For tax purposes, commissions paid were charged to
paid-in capital prior to November 16, 1994 and subsequently charged to operations.
<F4> 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 payable date.
<F5> Includes the Fund's share of High Income Portfolio's allocated expenses for the period from June 1, 1994, to March 31, 1995.
<F6> 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 in the Fund's Annual Report.
<F7> On June 12, 1987, the Securities and Exchange Commission adopted a new rule which requires sales commissions paid to the
Principal Underwriter under the Distribution Plan to be treated as an operating expense rather than a charge to paid-in
capital. Accordingly, such commissions for the years ended after March 31, 1987 are reflected as an expense. As a result, for
such periods, expenses per share are increased and net income per share is decreased, with no effect on net asset value per
share. Also, the ratios of expenses and net investment income to average net assets are correspondingly affected. Had the
rule been in effect for the period from the start of business, August 19, 1986, to March 31, 1987, the annualized ratios of
expenses and net investment income to average net assets would have been 2.01% and 10.06%, respectively.
<F8> During the period from the start of business, August 19, 1986 to May 31, 1994, the Fund invested directly in securities. As
of the close of business, May 31, 1994, the Fund transferred substantially all of its assets to the Portfolio in exchange for
an interest in the Portfolio.
</FN>
</TABLE>
<PAGE>
THE FUND'S INVESTMENT OBJECTIVE
- --------------------------------------------------------------------------------
THE FUND'S INVESTMENT OBJECTIVE IS TO PROVIDE A HIGH LEVEL OF CURRENT INCOME.
The Fund seeks its objective through investments in a diversified portfolio of
high-yielding, high risk, fixed-income securities (commonly referred to as "junk
bonds"). The Fund may not be appropriate for investors who cannot assume the
greater risk of capital depreciation or loss inherent in seeking higher yields.
INVESTMENT POLICIES AND RISKS
- -------------------------------------------------------------------------------
The Fund currently seeks to achieve its investment objective by investing its
assets in High Income Portfolio, which itself is an open-end management
investment company. The Portfolio normally is invested as follows:
* at least 80% in fixed-income securities, including convertible securities
and
* up to 20% in common stocks and other equity securities when consistent
with its objective or acquired as part of a unit combining fixed-income
and equity securities.
THE PORTFOLIO WILL NORMALLY INVEST AT LEAST 65% OF ITS ASSETS IN THE LOWEST
INVESTMENT GRADE AND LOWER RATED OBLIGATIONS (RATED BAA OR LOWER BY MOODY'S
INVESTORS SERVICE, INC. ("MOODY'S") OR BBB OR LOWER BY STANDARD & POOR'S RATINGS
GROUP ("S&P")) AND UNRATED OBLIGATIONS. For a description of Moody's and S&P's
ratings of fixed-income securities, see Appendix A to this Prospectus. Unrated
bonds are generally regarded as being speculative and expose the investor to
risks with respect to the issuer's capacity to pay interest and repay principal
which are similar to the risks of lower rated bonds. At March 31, 1995, the
Portfolio had approximately 96.8% of its assets invested in high yield, high
risk bonds that were rated lower than investment grade or unrated. See Appendix
B to this Prospectus for the Portfolio's asset composition on March 31, 1995.
The Portfolio invests a substantial portion of its assets in high yield,
high risk securities issued in connection with mergers, acquisitions, leveraged
buy outs, recapitalizations and other highly leveraged transactions. These
securities are subject to substantially greater credit risks than some of the
other fixed-income securities in which the Portfolio may invest. These credit
risks include the possibility of default or bankruptcy of the issuer. These
securities are less liquid than other fixed-income securities. During periods of
deteriorating economic conditions and contraction in the credit markets, the
ability of issuers of such securities to service their debt, meet projected
goals, or obtain additional financing may be impaired. For more detailed
information about the risks associated with investing in such securities, see
"Risk Considerations" below.
The Portfolio may also invest a portion of its assets in debt securities
that are not paying current income in anticipation of possible future income or
capital appreciation. Interest and/or principal payments thereon could be in
arrears when such securities are acquired, and the issuer may be in bankruptcy
or undergoing a debt restructuring or reorganization. Such securities may be
unrated or the lowest rated obligations (rated C by Moody's or D by S&P). Bonds
rated C by Moody's are regarded as having extremely poor prospects of ever
attaining any real investment standing. Bonds rated D by S&P are in payment
default or a bankruptcy petition has been filed and debt service payments are
jeopardized. The Portfolio may retain defaulted obligations in its portfolio
when such retention is considered desirable by the Investment Adviser. The
Portfolio may also acquire other securities issued in exchange for such
obligations or issued in connection with the debt restructuring or
reorganization of the issuers, or where such acquisition, in the judgment of the
Investment Adviser, may enhance the value of such obligations or would otherwise
be consistent with the Portfolio's investment policies.
Although the Investment Adviser considers security ratings when making
investment decisions, it performs its own credit and investment analysis and
does not rely primarily on the ratings assigned by the rating services. In
evaluating the quality of a particular issue, whether rated or unrated, the
Investment Adviser will normally take into consideration, among other things,
the issuer's financial resources and operating history, its sensitivity to
economic conditions and trends, the ability of its management, its debt maturity
schedules and borrowing requirements, and relative values based on anticipated
cash flow, interest and asset coverages, and earnings prospects. Because of the
greater number of investment considerations involved in investing in high yield,
high risk bonds, the achievement of the Portfolio's objective depends more on
the Investment Adviser's judgment and analytical abilities than would be the
case if the Portfolio were investing primarily in securities in the higher
rating categories.
When the Investment Adviser believes that it is appropriate to do so, for
defensive purposes, more than 35% of the Portfolio's assets may be temporarily
invested in securities rated A or better by Moody's or S&P. A portion of the
Portfolio's assets may be invested temporarily in cash or short-term obligations
including, but not limited to, certificates of deposit, commercial paper,
short-term notes, obligations issued or guaranteed by the U.S. Government or any
of its agencies or instrumentalities and repurchase agreements.
FIXED-INCOME OBLIGATIONS. The fixed-income securities in which the Portfolio may
invest include preferred and preference stocks and all types of debt obligations
of both domestic and foreign issuers, such as bonds, debentures, notes,
equipment lease certificates, equipment trust certificates, conditional sale
contracts, commercial paper, and obligations issued or guaranteed by the U.S.
Government, any state or territory of the United States, any foreign government
or any of their respective political subdivisions, agencies or
instrumentalities. Debt securities may bear fixed, fixed and contingent,
variable or floating rates of interest. Investments in foreign securities may
not exceed 25% of total assets.
The Portfolio may also invest a portion of its assets in loan interests,
which are interests in amounts owed by a corporate, governmental or other
borrower to lenders or lending syndicates. Loan interests purchased by the
Portfolio may have a maturity of any number of days or years, may be secured or
unsecured, and may be of any credit quality. Loan interests, which may take the
form of participation interests in, assignments of or novations of a loan, may
be acquired from U.S. and foreign banks, insurance companies, finance companies
or other financial institutions which have made loans or are members of a
lending syndicate or from the holders of loan interests. Loan interests involve
the risk of loss in case of default or bankruptcy of the borrower and, in the
case of participation interest, involve the risk of insolvency of the agent
lending bank or other financial intermediary. The Portfolio may also invest in
restricted securities and securities eligible for resale pursuant to Rule 144A
of the Securities Act of 1933.
INVESTMENT PRACTICES
DERIVATIVE INSTRUMENTS. The Portfolio may purchase or sell derivative
instruments (which are instruments that derive their value from another
instrument, security, index or currency) to hedge against fluctuations in
interest rates, securities prices or currency exchange rates, to change the
duration of the Portfolio's fixed income portfolio or as a substitute for the
purchase or sale of securities or currency. Options may be written to enhance
income. The Portfolio's transaction in derivative instruments may include the
purchase or sale of futures contracts on securities, (such as U.S. Government
securities), indices, other financial instruments (such as certificates of
deposit, Eurodollar time deposits, and economic indices) or currencies; options
on futures contracts; exchange-traded options on securities; indices or
currencies; and forward contracts to purchase or sell currencies. All of the
Portfolio's transactions in derivative instruments involve a risk of loss or
depreciation due to unanticipated adverse changes in interest rates, securities
prices or currency exchange rates, the inability to close out a position or
default by the counterparty. The loss on derivative instruments (other than
purchased options) may exceed the Portfolio's initial investment in these
instruments. In addition, the Portfolio may lose the entire premium paid for
purchased options that expire before they can be profitably exercised by the
Portfolio. The Portfolio incurs transaction costs in opening and closing
positions in derivative instruments. There can be no assurance that the
Investment Adviser's use of derivative instruments will be advantageous to the
Portfolio.
The Portfolio's success in using derivative instruments to hedge portfolio
assets depends on the degree of price correlation between the derivative
instrument and the hedged asset. Imperfect correlation may be caused by several
factors, including temporary price disparities among the trading markets for the
derivative instrument, the assets underlying the derivative instrument and the
Portfolio's assets.
The Portfolio may write (sell) covered call and put options only with
respect to up to 25% of its net assets. To the extent that the Portfolio enters
into futures contracts, options on futures contracts and options on foreign
currencies traded on an exchange regulated by the Commodity Futures Trading
Commission, in each case that are not for bona fide hedging purposes (as defined
by the CFTC), the aggregate initial margin and premiums required to establish
these positions (excluding the amount by which options are "in- the-money") may
not exceed 5% of the liquidation value of the Portfolio's portfolio, after
taking into account unrealized profits and unrealized losses on any contacts the
Portfolio has entered into. The Portfolio did not engage in such transactions
during the period from June 1, 1994 (commencement of operations) to June 30,
1995, and there is no assurance that it will engage in such transactions in the
future.
SHORT-TERM TRADING. Securities may be sold in anticipation of a market decline
(a rise in interest rates) or purchased in anticipation of a market rise (a
decline in interest rates) and later sold. In addition, a security may be sold
and another purchased at approximately the same time to take advantage of what
the Portfolio believes to be a temporary disparity in the normal yield
relationship between the two securities. Yield disparities may occur for reasons
not directly related to the investment quality of particular issues or the
general movement of interest rates, such as changes in the overall demand for or
supply of various types of fixed-income securities or changes in the investment
objectives of investors. Such trading may be expected to increase the portfolio
turnover rate and the expenses incurred in connection with such trading. The
Portfolio anticipates that its annual portfolio turnover rate will generally not
exceed 100% (excluding turnover of securities having a maturity of one year or
less).
RISK CONSIDERATIONS
Investors should carefully consider their ability to assume the risks of owning
shares of a mutual fund that invests in below investment grade debt obligations
(commonly referred to as "junk bonds") before making an investment in the Fund.
The lower ratings of certain securities held by the Portfolio reflect a greater
possibility that adverse changes in the financial condition of an issuer, or in
general economic conditions, or both, or an unanticipated rise in interest
rates, may impair the ability of the issuer to make payments of interest and
principal. The inability (or perceived inability) of issuers to make timely
payment of interest and principal would likely make the values of securities
held by the Fund more volatile and could limit the Portfolio's ability to sell
its securities at prices approximating the values the Portfolio has placed on
such securities. It is possible that legislation may be adopted in the future
limiting the ability of certain financial institutions to purchase such
securities; such legislation may adversely affect the liquidity of such
securities. In the absence of a liquid trading market for securities held by it,
the Portfolio may be unable at times to establish the fair market value of such
securities. The rating assigned to a security by a rating agency does not
reflect an assessment of the volatility of the security's market value or of the
liquidity of an investment in the securities. Credit ratings are based largely
on the issuer's historical financial condition and the rating agency's
investment analysis at the timing of rating, and the rating assigned to any
particular security is not necessarily a reflection of the issuer's current
financial condition. Credit quality in the high yield, high risk bond market can
change from time to time, and recently issued credit ratings may not fully
reflect the actual risks posed by a particular high yield security.
While the Investment Adviser will attempt to reduce the risks of investing
in lower rated or unrated securities through active portfolio management,
diversification, credit analysis and attention to current developments and
trends in the economy and the financial markets, there can be no assurance that
a broadly diversified portfolio of such securities would substantially lessen
the risks of defaults brought about by an economic downturn or recession.
The net asset value of the Fund will change in response to fluctuations in
prevailing interest rates and changes in the value of the securities held by the
Portfolio. When interest rates decline, the value of securities already held by
the Portfolio can be expected to rise. Conversely, when interest rates rise, the
value of existing portfolio security holdings can be expected to decline.
Changes in the credit quality of issuers of debt obligations held by the
Portfolio will affect the principal value (and possibly the income earned) on
such obligations. In addition, the values of such securities are affected by
changes in general economic conditions and business conditions affecting the
specific industries of their issuers. Changes by recognized rating services in
their ratings of any fixed-income security and in the ability of an issuer to
make payments of interest and principal may also affect the value of these
investments. The Portfolio will not dispose of a security solely because its
rating is reduced below its rating at the time of purchase, although the
Investment Adviser will monitor the investment to determine whether continued
investment in the security will assist in meeting the Portfolio's investment
objective.
Interest and/or principal payments on securities in default could be in
arrears when such securities are acquired, and the issuer may be in bankruptcy
or undergoing a debt restructuring or reorganization. In order to enforce its
rights in the event of a default under such securities, the Portfolio may be
required to take possession of and manage assets securing the issuer's
obligation on such securities, which may increase the Portfolio's operating
expenses and adversely affect the Portfolio's net asset value. As at March 31,
1995, none of the obligations of the Portfolio were in default.
Certain securities held by the Portfolio may permit the issuer at its option
to "call", or redeem, its securities. If an issuer were to redeem securities
held by the Portfolio during a time of declining interest rates, the Portfolio
may not be able to reinvest the proceeds in securities providing the same
investment return as the securities redeemed.
Loan interests generally are not rated by any nationally recognized rating
service and are, at present, not readily marketable and may be subject to
contractual restrictions on resale. An investment in restricted securities may
involve relative greater risk and cost to the Portfolio because of their
illiquidity.
Fixed-income securities that the Portfolio may invest in also include zero
coupon bonds, deferred interest bonds and bonds on which the interest is payable
in kind ("PIK bonds"). Zero coupon and deferred interest bonds are debt
obligations which are issued at a significant discount from face value. While
zero coupon bonds do not require the periodic payment of interest, deferred
interest bonds provide for a period of delay before the regular payment of
interest begins. PIK bonds are debt obligations which provide that the issuer
thereof may, at its option, pay interest on such bonds in cash or in the form of
additional debt obligations. Such investments may experience greater volatility
in market value due to changes in interest rates than debt obligations which
make regular payments of interest. The Portfolio will accrue income on such
investments for tax and accounting purposes, in accordance with applicable law,
which income is distributable to shareholders. Because no cash is received at
the time such income is accrued, the Portfolio may be required to liquidate
other portfolio securities to satisfy its distribution obligations.
Investing in foreign securities may represent a greater degree of risk than
investing in domestic securities, because of the possibility of exchange rate
fluctuations, less publicly-available financial and other information, more
volatile and less liquid markets, less securities regulation, higher brokerage
costs, imposition of foreign withholding and other taxes, war, expropriation or
other adverse governmental actions.
------------------------------------------------------------------------
THE FUND AND THE PORTFOLIO HAVE ADOPTED CERTAIN FUNDAMENTAL INVESTMENT
RESTRICTIONS WHICH ARE ENUMERATED IN DETAIL IN THE STATEMENT OF
ADDITIONAL INFORMATION AND WHICH MAY NOT BE CHANGED UNLESS AUTHORIZED BY
A SHAREHOLDER VOTE, AND AN INVESTOR VOTE, RESPECTIVELY. EXCEPT FOR SUCH
ENUMERATED RESTRICTIONS AND AS OTHERWISE INDICATED IN THIS PROSPECTUS,
THE INVESTMENT OBJECTIVE AND POLICIES OF THE FUND AND THE PORTFOLIO ARE
NOT FUNDAMENTAL POLICIES AND ACCORDINGLY MAY BE CHANGED BY THE TRUSTEES
OF THE TRUST AND THE PORTFOLIO WITHOUT OBTAINING THE APPROVAL OF THE
FUND'S SHAREHOLDERS OR THE INVESTORS IN THE PORTFOLIO, AS THE CASE MAY
BE. IF ANY CHANGES WERE MADE IN THE FUND'S INVESTMENT OBJECTIVE, THE
FUND MIGHT HAVE AN INVESTMENT OBJECTIVE DIFFERENT FROM THE OBJECTIVE
WHICH AN INVESTOR CONSIDERED APPROPRIATE AT THE TIME THE INVESTOR BECAME
A SHAREHOLDER IN THE FUND.
------------------------------------------------------------------------
ORGANIZATION OF THE FUND AND THE PORTFOLIO
- --------------------------------------------------------------------------------
THE FUND IS A DIVERSIFIED SERIES OF EATON VANCE MUTUAL FUNDS TRUST (THE "TRUST")
A BUSINESS TRUST, ESTABLISHED UNDER MASSACHUSETTS LAW PURSUANT TO A DECLARATION
OF TRUST DATED MAY 7, 1984, AS AMENDED AND RESTATED. THE TRUST IS A MUTUAL FUND
- -- AN OPEN-END MANAGEMENT INVESTMENT COMPANY. The Trustees of the Trust are
responsible for the overall management and supervision of its affairs. The Trust
may issue an unlimited number of shares of beneficial interest (no par value per
share) in one or more series, and because the Trust can offer separate series
(such as the Fund) it is known as a series company. Each share represents an
equal proportionate beneficial interest in the Fund. When issued and
outstanding, the shares are fully paid and nonassessable by the Trust and
redeemable as described under "How to Redeem Fund Shares". Shareholders are
entitled to one vote for each full share held. Fractional shares may be voted
proportionately. Shares have no preemptive or conversion rights and are freely
transferable. In the event of the liquidation of the Fund, shareholders are
entitled to share pro rata in the net assets of the Fund available for
distribution to shareholders.
THE PORTFOLIO IS ORGANIZED AS A TRUST UNDER THE LAWS OF THE STATE OF NEW
YORK AND INTENDS TO BE TREATED AS A PARTNERSHIP FOR FEDERAL TAX PURPOSES. The
Portfolio, as well as the Trust, intends to comply with all applicable Federal
and state securities laws. The Portfolio's Declaration of Trust provides that
the Fund and other entities permitted to invest in the Portfolio (e.g., other
U.S. and foreign investment companies, and common and commingled trust funds)
will each be liable for all obligations of the Portfolio. However, the risk of
the Fund incurring financial loss on account of such liability is limited to
circumstances in which both inadequate insurance exists and the Portfolio itself
is unable to meet its obligations. Accordingly, the Trustees of the Trust
believe that neither the Fund nor its shareholders will be adversely affected by
reason of the Fund investing in the Portfolio.
SPECIAL INFORMATION ON THE FUND/PORTFOLIO INVESTMENT STRUCTURE. An investor in
the Fund should be aware that the Fund, unlike mutual funds which directly
acquire and manage their own portfolios of securities, seeks to achieve its
investment objective by investing its assets in an interest in the Portfolio
(although the Fund may temporarily hold a de minimus amount of cash), which is a
separate investment company with an identical investment objective. Therefore,
the Fund's interest in the securities owned by the Portfolio is indirect. In
addition to selling an interest to the Fund, the Portfolio may sell interests to
other affiliated and non-affiliated mutual funds or institutional investors.
Such investors will invest in the Portfolio on the same terms and conditions and
will pay a proportionate share of the Portfolio's expenses. However, the other
investors investing in the Portfolio are not required to sell their shares at
the same public offering price as the Fund due to variations in sales
commissions and other operating expenses. Therefore, investors in the Fund
should be aware that these differences may result in differences in returns
experienced by investors in the various funds that invest in the Portfolio. Such
differences in returns are also present in other mutual fund structures,
including funds that have multiple classes of shares. For information regarding
the investment objective, policies and restrictions, see "The Fund's Investment
Objective" and "Investment Policies and Risks". Further information regarding
the investment practices may also be found in the Statement of Additional
Information.
The Trustees of the Trust have considered the advantages and disadvantages
of investing the assets of the Fund in the Portfolio, as well as the advantages
and disadvantages of the two-tier format. The Trustees believe that the
structure offers opportunities for substantial growth in the assets of the
Portfolio, and affords the potential for economies of scale for the Fund, at
least when the assets of the Portfolio exceed $500 million. The public
shareholders of the Fund have previously approved the policy of investing the
Fund's assets in an interest in the Portfolio.
The Fund may withdraw (completely redeem) all its assets from the Portfolio
at any time if the Board of Trustees of the Trust determines that it is in the
best interest of the Fund to do so. The investment objective and the
nonfundamental investment policies of the Fund and the Portfolio may be changed
by the Trustees of the Trust and the Portfolio without obtaining the approval of
the shareholders of the Fund, or the investors in the Portfolio, as the case may
be. Any such change of the investment objective will be preceded by thirty days'
advance written notice to the shareholders of the Fund or the investors in the
Portfolio, as the case may be. If a shareholder redeems shares within one year
of their purchase because of a change in the nonfundamental objective or
policies of the Fund, those shares may be subject to a contingent deferred sales
charge as described in "How to Redeem Fund Shares". In the event the Fund
withdraws all of its assets from the Portfolio, or the Board of Trustees of the
Trust determines that the investment objective of the Portfolio is no longer
consistent with the investment objective of the Fund, such Trustees would
consider what action might be taken, including investing the assets of the Fund
in another pooled investment entity or retaining an investment adviser to manage
the Fund's assets in accordance with its investment objective. The Fund's
investment performance may be affected by a withdrawal of all its assets from
the Portfolio.
Information regarding other pooled investment entities or funds which invest
in the Portfolio may be obtained by contacting Eaton Vance Distributors, Inc.
(the "Principal Underwriter" or "EVD"), 24 Federal Street, Boston, MA 02110,
(617) 482-8260. Smaller investors in the Portfolio may be adversely affected by
the actions of larger investors in the Portfolio. For example, if a large fund
withdraws from the Portfolio, the remaining investors may experience higher pro
rata operating expenses, thereby producing lower returns. Additionally, the
Portfolio may become less diverse, resulting in increased portfolio risk, and
experience decreasing economies of scale. However, this possibility exists as
well for historically structured funds which have large or institutional
investors.
Until recently, the Administrator sponsored and advised historically
structured funds. Funds which invest all their assets in interests in a separate
investment company are a relatively new development in the mutual fund industry
and, therefore, the Fund may be subject to additional regulations than
historically structured funds.
The Declaration of Trust of the Portfolio provides that the Portfolio will
terminate 120 days after the complete withdrawal of the Fund or any other
investor in the Portfolio, unless either the remaining investors, by unanimous
vote at a meeting of such investors, or a majority of the Trustees of the
Portfolio, by written instrument consented to by all investors, agree to
continue the business of the Portfolio. This provision is consistent with
treatment of the Portfolio as a partnership for Federal income tax purposes.
See "Distributions and Taxes" for further information. Whenever the Fund as an
investor in the Portfolio is requested to vote on matters pertaining to the
Portfolio (other than the termination of the Portfolio's business, which may
be determined by the Trustees of the Portfolio without investor approval), the
Fund will hold a meeting of Fund shareholders and will vote its interest in
the Portfolio for or against such matters proportionately to the instructions
to vote for or against such matters received from Fund shareholders. The Fund
shall vote shares for which it receives no voting instructions in the same
proportion as the shares for which it receives voting instructions. Other
investors in the Portfolio may alone or collectively acquire sufficient voting
interests in the Portfolio to control matters relating to the operation of the
Portfolio, which may require the Fund to withdraw its investment in the
Portfolio or take other appropriate action. Any such withdrawal could result
in a distribution "in kind" of portfolio securities (as opposed to a cash
distribution from the Portfolio). If securities are distributed, the Fund
could incur brokerage, tax or other charges in converting the securities to
cash. In addition, the distribution in kind may result in a less diversified
portfolio of investments or adversely affect the liquidity of the Fund.
Notwithstanding the above, there are other means for meeting shareholder
redemption requests, such as borrowing.
The Trustees of the Trust, including a majority of the disinterested
Trustees, have approved written procedures designed to identify and address
any potential conflicts of interest arising from the fact that the Trustees of
the Trust, and the Trustees of the Portfolio are the same. Such procedures
require each Board to take actions to resolve any conflict of interest between
the Fund and the Portfolio, and it is possible that the creation of separate
Boards may be considered. For further information concerning the Trustees and
officers of the Trust and the Portfolio, see the Statement of Additional
Information.
MANAGEMENT OF THE FUND AND THE PORTFOLIO
- ------------------------------------------------------------------------------
THE PORTFOLIO ENGAGES BOSTON MANAGEMENT AND RESEARCH ("BMR"), A WHOLLY-OWNED
SUBSIDIARY OF EATON VANCE MANAGEMENT ("EATON VANCE"), AS ITS INVESTMENT
ADVISER. EATON VANCE, ITS AFFILIATES AND ITS PREDECESSOR COMPANIES HAVE BEEN
MANAGING ASSETS OF INDIVIDUALS AND INSTITUTIONS SINCE 1924 AND MANAGING
INVESTMENT COMPANIES SINCE 1931.
Acting under the general supervision of the Board of Trustees of the
Portfolio, BMR manages the Portfolio's investments and affairs. Under its
investment advisory agreement with the Portfolio, BMR receives a monthly
advisory fee equal to the aggregate of
(a) a daily asset based fee computed by applying the annual asset rate
applicable to that portion of the total daily net assets in each
Category as indicated below, plus
(b) a daily income based fee computed by applying the daily income rate
applicable to that portion of the total daily gross income (which
portion shall bear the same relationship to the total daily gross
income on such day as that portion of the total daily net assets in
the same Category bears to the total daily net assets on such day) in
each Category as indicated below:
ANNUAL DAILY
CATEGORY DAILY NET ASSETS ASSET RATE INCOME RATE
-------- ---------------- ---------- -----------
1 up to $500 million ..................... 0.300% 3.00%
2 $500 million but less than $1 billion .. 0.275% 2.75%
3 $1 billion but less than $1.5 billion .. 0.250% 2.50%
4 $1.5 billion but less than $2 billion .. 0.225% 2.25%
5 $2 billion but less than $3 billion .... 0.200% 2.00%
6 $3 billion and over .................... 0.175% 1.75%
As at March 31, 1995, the Portfolio had net assets of $442,551,815. For
the period from the start of business, June 1, 1994, to March 31, 1995, the
Portfolio paid BMR advisory fees equivalent to 0.64% (annualized) of the
Portfolio's average daily net assets for such period. BMR furnishes for the
use of the Portfolio office space and all necessary office facilities,
equipment and personnel for servicing the investments of the Portfolio.
BMR places the portfolio transactions of the Portfolio for execution with
many broker-dealer firms. Fixed-income securities are normally traded on a net
basis (without commission) through broker-dealers and banks acting for their
own account. Such firms attempt to profit from such transactions by buying at
the bid price and selling at the higher asked price of the market, and the
difference is customarily referred to as the spread. In selecting firms to
execute portfolio transactions, BMR judges their professional ability and
quality of service and uses its best efforts to obtain execution at prices
which are advantageous to the Portfolio and at reasonably competitive spreads.
Subject to the foregoing, BMR may consider sales of shares of the Fund or of
other investment companies sponsored by BMR or Eaton Vance as a factor in the
selection of firms to execute portfolio transactions.
Hooker Talcott, Jr. has acted as the Portfolio's portfolio manager since
it commenced operations. Mr. Talcott has been a Vice President of Eaton Vance
since 1987 and of BMR since 1992.
BMR OR EATON VANCE ACTS AS INVESTMENT ADVISER TO INVESTMENT COMPANIES AND
VARIOUS INDIVIDUAL AND INSTITUTIONAL CLIENTS WITH ASSETS UNDER MANAGEMENT OF
APPROXIMATELY $15 BILLION. Eaton Vance is a wholly-owned subsidiary of Eaton
Vance Corp., a publicly held holding company. Eaton Vance Corp. through its
subsidiaries and affiliates, engages in investment management and marketing
activities, fiduciary and banking services, oil and gas operations, real
estate investment, consulting and management, and development of precious
metals properties.
The Trust has retained the services of Eaton Vance to act as Administrator
of the Fund. The Trust has not retained the services of an investment adviser
since the Trust seeks to achieve the investment objective of the Fund by
investing the Fund's assets in the Portfolio. As Administrator, Eaton Vance
provides the Fund with general office facilities and supervises the overall
administration of the Fund. For these services Eaton Vance currently receives
no compensation. The Trustees of the Trust may determine, in the future, to
compensate Eaton Vance for its services.
The Portfolio and the Fund, as the case may be, will each be responsible
for all of its respective costs and expenses not expressly stated to be
payable by BMR under the investment advisory agreement, by Eaton Vance under
the administrative services agreement, or by EVD under the distribution
agreement.
DISTRIBUTION PLAN
- --------------------------------------------------------------------------------
THE FUND FINANCES DISTRIBUTION ACTIVITIES AND HAS ADOPTED A DISTRIBUTION PLAN
(THE "PLAN") PURSUANT TO RULE 12B-1 UNDER THE INVESTMENT COMPANY ACT OF 1940.
Rule 12b-1 permits a mutual fund, such as the Fund, to finance distribution
activities and bear expenses associated with the distribution of its shares
provided that any payments made by the Fund are made pursuant to a written plan
adopted in accordance with the Rule. The Plan is subject to, and complies with
the sales charge rule of the National Association of Securities Dealers, Inc.
(the "NASD Rule"). The Plan is described further in the Statement of Additional
Information, and the following is a description of the salient features of the
Plan. The Plan provides that the Fund, subject to the NASD Rule, will pay sales
commissions and distribution fees to the Principal Underwriter only after and as
a result of the sale of shares of the Fund. On each sale of Fund shares
(excluding reinvestment of distributions) the Fund will pay the Principal
Underwriter (i) sales commissions equal to 5% of the amount received by the Fund
for each share sold and (ii) distribution fees calculated by applying the rate
of 1% over the prime rate then reported in The Wall Street Journal to the
outstanding balance of Uncovered Distribution Charges (as described below) of
the Principal Underwriter. The Principal Underwriter currently expects to pay
sales commissions (except on exchange transactions and reinvestments) to a
financial service firm (an "Authorized Firm") at the time of sale equal to 4% of
the purchase price of the shares sold by such Firm. The Principal Underwriter
will use its own funds (which may be borrowed from banks) to pay such
commissions. Because the payment of the sales commissions and distribution fees
to the Principal Underwriter is subject to the NASD Rule described below, it
will take the Principal Underwriter a number of years to recoup the sales
commissions paid by it to Authorized Firms from the payments received by it from
the Fund pursuant to the Plan.
THE NASD RULE REQUIRES THE FUND TO LIMIT ITS ANNUAL PAYMENTS OF SALES
COMMISSIONS AND DISTRIBUTION FEES TO AN AMOUNT NOT EXCEEDING .75% OF THE
FUND'S AVERAGE DAILY NET ASSETS FOR EACH FISCAL YEAR. Under its Plan, the
Fund accrues daily an amount at the rate of 1/365 of .75% of the Fund's net
assets, and pays such accrued amounts monthly to the Principal Underwriter.
The Plan requires such accruals to be automatically discontinued during any
period in which there are no outstanding Uncovered Distribution Charges under
the Plan. Uncovered Distribution Charges are calculated daily and, briefly,
are equivalent to all unpaid sales commissions and distribution fees to which
the Principal Underwriter is entitled under the Plan less all contingent
deferred sales charges theretofore paid to the Principal Underwriter. The
Eaton Vance organization may be considered to have realized a profit under the
Plan if at any point in time the aggregate amounts of all payments received by
the Principal Underwriter from the Fund pursuant to the Plan, including any
contingent deferred sales charges, have exceeded the total expenses
theretofore incurred by such organization in distributing shares of the Fund.
Total expenses for this purpose will include an allocable portion of the
overhead costs of such organization and its branch offices.
Because of the NASD Rule limitation on the amount of sales commissions and
distribution fees paid during any fiscal year, a high level of sales of Fund
shares during the initial years of the Fund's operations would cause a large
portion of the sales commissions attributable to a sale of Fund shares to be
accrued and paid by the Fund to the Principal Underwriter in fiscal years
subsequent to the year in which such shares were sold. This spreading of sales
commissions payments under the Plan over an extended period would result in
the incurrence and payment of increased distribution fees under the Plan. For
the fiscal year ended March 31, 1995, the Fund paid or accrued sales
commissions under its Plan to the Principal Underwriter equivalent to 0.75% of
the Fund's average daily net assets for such year. As at March 31, 1995, the
outstanding Uncovered Distribution Charges of the Principal Underwriter
calculated under the Plan amounted to approximately $14,688,000 (which amount
was equivalent to 3.3% of the Fund's net assets on such day).
THE PLAN ALSO AUTHORIZES THE FUND TO MAKE PAYMENTS OF SERVICE FEES TO THE
PRINCIPAL UNDERWRITER, AUTHORIZED FIRMS AND OTHER PERSONS IN AMOUNTS NOT
EXCEEDING .25% OF THE FUND'S AVERAGE DAILY NET ASSETS FOR EACH FISCAL YEAR.
The Trustees of the Trust have initially implemented the Plan by authorizing
the Fund to make quarterly service fee payments to the Principal Underwriter
and Authorized Firms in amounts not expected to exceed .25% of the Fund's
average daily net assets for any fiscal year based on the value of Fund shares
sold by such persons and remaining outstanding for at least twelve months. As
permitted by the NASD Rule, such payments are made for personal services and/
or the maintenance of shareholder accounts. Service fees are separate and
distinct from the sales commissions and distribution fees payable by the Fund
to the Principal Underwriter, and as such are not subject to automatic
discontinuance when there are no outstanding Uncovered Distribution Charges of
the Principal Underwriter. For the fiscal year ended to March 31, 1995, the
Fund paid or accrued service fees under the Plan equivalent to 0.16%
(annualized) of the Fund's average daily net assets for such year.
The Principal Underwriter may, from time to time, at its own expense,
provide additional incentives to Authorized Firms which employ registered
representatives who sell a minimum dollar amount of the Fund's shares and/or
shares of other funds distributed by the Principal Underwriter. In some
instances, such additional incentives may be offered only to certain Authorized
Firms whose representatives are expected to sell significant amounts of shares.
In addition, the Principal Underwriter may from time to time increase or
decrease the sales commissions payable to Authorized Firms.
The Fund may, in its absolute discretion, suspend, discontinue or limit the
offering of its shares at any time. In determining whether any such action
should be taken, the Fund's management intends to consider all relevant factors,
including without limitation the size of the Fund, the investment climate and
market conditions, the volume of sales and redemptions of Fund shares, and the
amount of Uncovered Distribution Charges of the Principal Underwriter. The Plan
may continue in effect and payments may be made under the Plan following any
such suspension, discontinuance or limitation of the offering of Fund shares;
however, the Fund is not contractually obligated to continue the Plan for any
particular period of time. Suspension of the offering of Fund shares would not,
of course, affect a shareholder's ability to redeem shares.
VALUING FUND SHARES
- --------------------------------------------------------------------------------
THE FUND VALUES ITS SHARES ONCE ON EACH DAY THE NEW YORK STOCK EXCHANGE (THE
"EXCHANGE") IS OPEN FOR TRADING, as of the close of regular trading on the
Exchange (normally 4:00 p.m. New York time). The Fund's net asset value per
share is determined by IBT Fund Services (Canada) Inc., (as agent for the
Fund) in the manner authorized by the Trustees of the Trust. IBT Fund Services
(Canada), Inc. is a subsidiary of Investors Bank & Trust ("IBT"), the Fund's
and the Portfolio's custodian. Net asset value is computed by dividing the
value of the Fund's total assets, less its liabilities, by the number of
shares outstanding. Because the Fund invests its assets in an interest in the
Portfolio, the Fund's net asset value will reflect the value of its interest
in the Portfolio (which, in turn, reflects an interest in the underlying value
of the Portfolio's assets and liabilities).
Authorized Firms must communicate an investor's order to the Principal
Underwriter prior to the close of the Principal Underwriter's business day to
receive that day's net asset value per Fund share. It is the Authorized Firms'
responsibility to transmit orders promptly to the Principal Underwriter, which
is a wholly-owned subsidiary of Eaton Vance.
The Portfolio's net asset value is also determined as of the close of
regular trading on the Exchange by IBT Fund Services (Canada) Inc. (as agent
for the Portfolio), in the manner authorized by the Trustees of the Portfolio.
Net asset value is computed by subtracting the liabilities of the Portfolio
from the value of its total assets. Fixed-income securities (other than short-
term obligations), including listed securities and securities for which price
quotations are available, will normally be valued on the basis of market
valuations furnished by a pricing service. For further information regarding
the valuation of the Portfolio's assets, see "Determination of Net Asset
Value" in the Statement of Additional Information. Eaton Vance Corp. owns
77.3% of the outstanding stock of IBT.
------------------------------------------------------------------------
SHAREHOLDERS MAY DETERMINE THE VALUE OF THEIR INVESTMENT BY MULTIPLYING
THE NUMBER OF FUND SHARES OWNED BY THE CURRENT NET ASSET VALUE.
------------------------------------------------------------------------
HOW TO BUY FUND SHARES
- --------------------------------------------------------------------------------
SHARES OF THE FUND MAY BE PURCHASED FOR CASH OR MAY BE ACQUIRED IN EXCHANGE
FOR SECURITIES. Investors may purchase shares of the Fund through Authorized
Firms at the net asset value per share of the Fund next determined after an
order is effective. The Fund may suspend the offering of shares at any time
and may refuse an order for the purchase of shares.
An initial investment in the Fund must be at least $1,000. Once an account
has been established the investor may send investments of $50 or more at any
time directly to the Fund's Transfer Agent as follows: The Shareholder
Services Group, Inc., BOS725, P.O. Box 1559, Boston, MA 02104. The $1,000
minimum initial investment is waived for Bank Automated Investing accounts,
which may be established with an investment of $50 or more. See "Eaton Vance
Shareholder Services".
In connection with employee benefit or other continuous group purchase
plans under which the average initial purchase by a participant of the plan is
$1,000 or more, the Fund may accept initial investments of less than $1,000 on
the part of an individual participant. In the event a shareholder who is a
participant of such a plan terminates participation in the plan, his or her
shares will be transferred to a regular individual account. However, such
account will be subject to the right of redemption by the Fund as described
under "How to Redeem Fund Shares."
ACQUIRING FUND SHARES IN EXCHANGE FOR SECURITIES. IBT, as escrow agent, will
receive securities acceptable to Eaton Vance, as Administrator, in exchange
for Fund shares at their net asset value as determined above. The minimum
value of securities (or securities and cash) accepted for deposit is $5,000.
Securities accepted will be sold by IBT as agent for the account of their
owner on the day of their receipt by IBT or as soon thereafter as possible.
The number of Fund shares to be issued in exchange for securities will be the
aggregate proceeds from the sale of such securities, divided by the applicable
net asset value per Fund share on the day such proceeds are received. Eaton
Vance will use reasonable efforts to obtain the then current market price for
such securities but does not guarantee the best available price. Eaton Vance
will absorb any transaction costs, such as commissions, on the sale of the
securities.
Securities determined to be acceptable should be transferred via book
entry or physically delivered, in proper form for transfer, through an
Authorized Firm, together with a completed and signed Letter of Transmittal in
approved form (available from Authorized Firms), as follows:
IN THE CASE OF BOOK ENTRY:
Deliver through Depository Trust Co.
Broker #2212
Investors Bank & Trust Company
For A/C EV Marathon High Income Fund
IN THE CASE OF PHYSICAL DELIVERY:
Investors Bank & Trust Company
Attention: EV Marathon High Income Fund
Physical Securities Processing Settlement Area
89 South Street
Boston, MA 02111
Investors who are contemplating an exchange of securities for shares of
the Fund, or their representatives, are advised to contact Eaton Vance to
determine whether the securities are acceptable before forwarding such
securities to IBT. Eaton Vance reserves the right to reject any securities.
Exchanging securities for Fund shares may create a taxable gain or loss. Each
investor should consult his or her tax adviser with respect to the particular
Federal, state and local tax consequences of exchanging securities for Fund
shares.
--------------------------------------------------------------------
IF YOU DON'T HAVE AN AUTHORIZED FIRM, EATON VANCE CAN RECOMMEND ONE.
--------------------------------------------------------------------
HOW TO REDEEM FUND SHARES
- --------------------------------------------------------------------------------
A SHAREHOLDER MAY REDEEM HIS FUND SHARES BY DELIVERING TO THE SHAREHOLDER
SERVICES GROUP, INC., BOS725, P.O. BOX 1559, BOSTON, MASSACHUSETTS 02104,
during its business hours a written request for redemption in good order, plus
any share certificates with executed stock powers. The redemption price will
be based on the net asset value per share of the Fund next computed after such
delivery. Good order means that all relevant documents must be endorsed by the
record owner(s) exactly as the shares are registered and the signature(s) must
be guaranteed by a member of either the Securities Transfer Association's
STAMP program or the New York Stock Exchange's Medallion Signature Program, or
certain banks, savings and loan institutions, credit unions, securities
dealers, securities exchanges, clearing agencies and registered securities
associations as required by a regulation of the Securities and Exchange
Commission and acceptable to The Shareholder Services Group, Inc. In addition,
in some cases, good order may require the furnishing of additional documents
such as where shares are registered in the name of a corporation, partnership
or fiduciary.
Within seven days after receipt of a redemption request in good order by
The Shareholder Services Group, Inc., the Fund will make payment in cash for
the net asset value of the redeemed shares as of the date determined above,
reduced by the amount of any applicable contingent deferred sales charge
(described below) and any Federal income tax required to be withheld. Although
the Fund normally expects to make payment in cash for redeemed shares, the
Trust, subject to compliance with applicable regulations, has reserved the
right to pay the redemption price of shares of the Fund, either totally or
partially, by a distribution in kind of readily marketable securities
withdrawn by the Fund from the Portfolio. The securities so distributed would
be valued pursuant to the Portfolio's valuation procedures. If a shareholder
received a distribution in kind, the shareholder could incur brokerage or
other charges in converting the securities to cash.
To sell shares at their net asset value through an Authorized Firm (a
repurchase), a shareholder can place a repurchase order with the Authorized
Firm, which may charge a fee. The value of such shares is based upon the net
asset value calculated after EVD, as the Fund's agent, receives the order. It
is the Authorized Firm's responsibility to transmit promptly repurchase orders
to EVD. Throughout this Prospectus, the word "redemption" is generally meant
to include a repurchase.
If shares were recently purchased, the proceeds of redemption (or
repurchase) will not be sent until the check (including a certified or
cashier's check) received for the shares purchased has cleared. Payment for
shares tendered for redemption may be delayed up to fifteen days from the
purchase date when the purchase check has not yet cleared. Redemptions or
repurchases may result in a taxable gain or loss.
Due to the high cost of maintaining small accounts, the Fund reserves the
right to redeem accounts with balances of less than $1,000. Prior to such a
redemption, shareholders will be given 60 days' written notice to make an
additional purchase. Thus, an investor making an initial investment of $1,000
would not be able to redeem shares without being subject to this policy.
However, no such redemption would be required if the cause of the low account
balance was a reduction in the net asset value of Fund shares. No contingent
deferred sales charge will be imposed with respect to such involunatry
redemptions.
CONTINGENT DEFERRED SALES CHARGE. Shares redeemed within the first six years
of their purchase (except shares acquired through the reinvestment of
distributions) generally will be subject to a contingent deferred sales
charge. This contingent deferred sales charge is imposed on any redemption the
amount of which exceeds the aggregate value at the time of redemption of (a)
all shares in the account purchased more than six years prior to the
redemption, (b) all shares in the account acquired through reinvestment of
distributions, and (c) the increase, if any, of value in the other shares in
the account (namely those purchased within six years preceding the redemption)
over the purchase price of such shares. Redemptions are processed in a manner
to maximize the amount of redemption proceeds which will not be subject to a
contingent deferred sales charge. That is, each redemption will be assumed to
have been made first from the exempt amounts referred to in clauses (a), (b)
and (c) above, and second through liquidation of those shares in the account
referred to in clause (c) on a first-in-first out basis. Any contingent
deferred sales charge which is required to be imposed on share redemptions
will be made in accordance with the following schedule:
YEAR OF CONTINGENT
REDEMPTION DEFERRED SALES
AFTER PURCHASE CHARGE
-------------- --------------
First ............................................. 5%
Second ............................................ 5%
Third ............................................. 4%
Fourth ............................................ 3%
Fifth ............................................. 2%
Sixth ............................................. 1%
Seventh and following ............................. 0%
In calculating the contingent deferred sales charge upon the redemption of
Fund shares acquired in an exchange for shares of a fund currently listed
under "The Eaton Vance Exchange Privilege", the contingent deferred sales
charge schedule applicable to the shares at the time of purchase will apply
and the purchase of Fund shares acquired in the exchange is deemed to have
occurred at the time of the original purchase of the exchanged shares. The
contingent deferred sales charge will be waived for shares redeemed (1)
pursuant to a Withdrawal Plan (see "Eaton Vance Shareholders Services"), (2)
as part of a required distribution from a tax-sheltered retirement plan, or
(3) following the death of all beneficial owners of such shares, provided the
redemption is requested within one year of death (a death certificate and
other applicable documents may be required).
No contingent deferred sales charge will be imposed on Fund shares which
have been sold to Eaton Vance or its affiliates, or to their respective
employees or clients. The contingent deferred sales charge will be paid to the
Principal Underwriter or the Fund.
------------------------------------------------------------------------
THE FOLLOWING EXAMPLE ILLUSTRATES THE OPERATION OF THE CONTINGENT
DEFERRED SALES CHARGE. ASSUME THAT AN INVESTOR PURCHASES $10,000 OF THE
FUND'S SHARES AND THAT 16 MONTHS LATER THE VALUE OF THE ACCOUNT HAS
GROWN THROUGH INVESTMENT PERFORMANCE AND REINVESTMENT OF DISTRIBUTIONS
TO $12,000. THE INVESTOR THEN MAY REDEEM UP TO $2,000 OF SHARES WITHOUT
INCURRING A CONTINGENT DEFERRED SALES CHARGE. IF THE INVESTOR SHOULD
REDEEM $3,000 OF SHARES, A CONTINGENT DEFERRED SALES CHARGE WOULD BE
IMPOSED ON $1,000 OF THE REDEMPTION. THE RATE WOULD BE 5% BECAUSE THE
REDEMPTION WAS MADE IN THE SECOND YEAR AFTER THE PURCHASE WAS MADE AND
THE CHARGE WOULD BE $50.
------------------------------------------------------------------------
<PAGE>
REPORTS TO SHAREHOLDERS
- --------------------------------------------------------------------------------
THE FUND WILL ISSUE TO ITS SHAREHOLDERS SEMI-ANNUAL AND ANNUAL REPORTS
CONTAINING FINANCIAL STATEMENTS. Financial statements included in annual
reports are audited by the Fund's independent certified public accountants.
Shortly after the end of each calendar year, the Fund will furnish all
shareholders with information necessary for preparing Federal and state income
tax returns.
THE LIFETIME INVESTING ACCOUNT/DISTRIBUTION OPTIONS
- --------------------------------------------------------------------------------
AFTER AN INVESTOR MAKES AN INITIAL PURCHASE OF FUND SHARES, THE FUND'S
TRANSFER AGENT, THE SHAREHOLDER SERVICES GROUP, INC., WILL SET UP A LIFETIME
INVESTING ACCOUNT FOR THE INVESTOR ON THE FUND'S RECORDS. This account is a
complete record of all transactions between the investor and the Fund which at
all times shows the balance of shares owned. The Fund will not issue share
certificates except upon request.
At least quarterly, shareholders will receive a statement showing complete
details of any transaction and the current share balance in the account. THE
LIFETIME INVESTING ACCOUNT ALSO PERMITS A SHAREHOLDER TO MAKE ADDITIONAL
INVESTMENTS IN FUND SHARES BY SENDING A CHECK FOR $50 OR MORE TO The
Shareholder Services Group, Inc.
Any questions concerning a shareholder's account or services available may
be directed by telephone to EATON VANCE SHAREHOLDER SERVICES at 800-225-6265,
extension 2, or in writing to The Shareholder Services Group, Inc., BOS725,
P.O. Box 1559, Boston, MA 02104 (please provide the name of the shareholder,
the Fund and the account number).
THE FOLLOWING DISTRIBUTION OPTIONS WILL BE AVAILABLE TO LIFETIME INVESTING
ACCOUNTS and may be changed as often as desired by written notice to the
Fund's dividend disbursing agent, The Shareholder Services Group, Inc.,
BOS725, P.O. Box 1559, Boston, MA 02104. The currently effective option will
appear on each account statement.
Share Option -- Dividends and capital gains will be reinvested in
additional shares.
Income Option -- Dividends will be paid in cash, and capital gains will be
reinvested in additional shares.
Cash Option -- Dividends and capital gains will be paid in cash.
The Share Option will be assigned if no other option is specified.
Distributions, including those reinvested, will be reduced by any withholding
required under the Federal income tax laws.
If the Income Option or Cash Option has been selected, dividend and/or
capital gains distribution checks which are returned by the United States
Postal Service as not deliverable or which remain uncashed for six months or
more will be reinvested in the account at the then current net asset value.
Further, the distribution option on the account will be automatically changed
to the Share Option until such time as the shareholder selects a different
option.
DISTRIBUTION INVESTMENT OPTION. In addition to the distribution options
set forth above, dividends and/or capital gains may be invested in additional
shares of another Eaton Vance fund. Before selecting this option, a
shareholder should obtain a prospectus of the other Eaton Vance fund and
consider its objectives and policies carefully.
"STREET NAME" ACCOUNTS. If shares of the Fund are held in a "street name"
account with an Authorized Firm, all recordkeeping, transaction processing and
payments of distributions relating to the beneficial owner's account will be
performed by the Authorized Firm, and not by the Fund and its Transfer Agent.
Since the Fund will have no record of the beneficial owner's transactions, a
beneficial owner should contact the Authorized Firm to purchase, redeem or
exchange shares, to make changes in or give instructions concerning the
account, or to obtain information about the account. The transfer of shares in
a "street name" account to an account with another dealer or to an account
directly with a Fund involves special procedures and will require the
beneficial owner to obtain historical purchase information about the shares in
the account from the Authorized Firm. Before establishing a "street name"
account with an investment firm, or transferring the account to another
investment firm, an investor wishing to reinvest distributions should
determine whether the firm which will hold the shares allows reinvestment of
distributions in "street name" accounts.
------------------------------------------------------------------------
UNDER A LIFETIME INVESTING ACCOUNT A SHAREHOLDER CAN MAKE ADDITIONAL
INVESTMENTS BY SENDING A CHECK FOR $50 OR MORE.
------------------------------------------------------------------------
THE EATON VANCE EXCHANGE PRIVILEGE
- --------------------------------------------------------------------------------
Shares of the Fund may be exchanged for shares of one or more other funds in
the Eaton Vance Marathon Group of Funds (which includes Eaton Vance Equity-
Income Trust and any EV Marathon fund except Eaton Vance Prime Rate Reserves)
or Eaton Vance Money Market Fund, which are distributed subject to a
contingent deferred sales charge, on the basis of the net asset value per
share of each fund at the time of the exchange, provided that such exchange
offers are available only in states where shares of such fund may be legally
sold.
Each exchange must involve shares which have a net asset value of at least
$1,000. The exchange privilege may be changed or discontinued without penalty.
Shareholders will be given sixty (60) days' notice prior to any termination or
material amendment of the exchange privilege. The Fund does not permit the
exchange privilege to be used for "Market Timing" and may terminate the
exchange privilege for any shareholder account engaged in Market Timing
activity. Any shareholder account for which more than two round-trip exchanges
are made within any twelve month period will be deemed to be engaged in Market
Timing. Furthermore, a group of unrelated accounts for which exchanges are
entered contemporaneously by a financial intermediary will be considered to be
engaged in Market Timing.
The Shareholder Services Group, Inc. makes exchanges at the next
determined net asset value after receiving an exchange request in good order
(see "How to Redeem Fund Shares"). Consult The Shareholder Services Group,
Inc. for additional information concerning the exchange privilege.
Applications and prospectuses of other funds are available from Authorized
Firms or the Principal Underwriter. The prospectus for each fund describes its
investment objectives and policies, and shareholders should obtain a
prospectus and consider these objectives and policies carefully before
requesting an exchange.
No contingent deferred sales charge is imposed on exchanges. For purposes
of calculating the contingent deferred sales charge upon the redemption of
Fund shares acquired in an exchange, the contingent deferred sales charge
schedule applicable to the shares at the time of purchase will apply and the
purchase of shares acquired in one or more exchanges is deemed to have
occurred at the time of the original purchase of the exchanged shares. For the
contingent deferred sales charge schedule applicable to the Eaton Vance
Marathon Group of Funds (except EV Marathon Strategic Income Fund and Class I
shares of any EV Marathon Limited Maturity Fund), see "How to Redeem Fund
Shares". The contingent deferred sales charge schedule applicable to EV
Marathon Strategic Income Fund and Class I shares of any EV Marathon Limited
Maturity Fund is 3%, 2.5%, 2% or 1% in the event of a redemption occurring in
the first, second, third or fourth year, respectively, after the original
share purchase.
Shares of the other funds in the Eaton Vance Marathon Group of Funds, and
shares of Eaton Vance Money Market Fund may be exchanged for Fund shares on
the basis of the net asset value per share of each fund at the time of the
exchange, but subject to any restrictions or qualifications set forth in the
current prospectus of any such fund.
Telephone exchanges are accepted by The Shareholder Services Group,
provided that the investor has not disclaimed in writing the use of the
privilege. To effect such exchanges, call The Shareholder Services Group, Inc.
at 800-262-1122 or, within Massachusetts, 617-573-9403, Monday through Friday,
9:00 a.m. to 4:00 p.m. (Eastern Standard Time). Shares acquired by telephone
exchange must be registered in the same name(s) and with the same address as
the shares being exchanged. Neither the Fund, the Principal Underwriter nor
The Shareholder Services Group, Inc. will be responsible for the authenticity
of exchange instructions received by telephone, provided that reasonable
procedures to confirm that instructions communicated are genuine have been
followed. Telephone instructions will be tape recorded. In times of drastic
economic or market changes, a telephone exchange may be difficult to
implement. An exchange may result in a taxable gain or loss.
EATON VANCE SHAREHOLDER SERVICES
- --------------------------------------------------------------------------------
THE FUND OFFERS THE FOLLOWING SERVICES, WHICH ARE VOLUNTARY, INVOLVE NO EXTRA
CHARGE, AND MAY BE CHANGED OR DISCONTINUED WITHOUT PENALTY AT ANY TIME. Full
information on each of the services described below and an application, where
required, are available from Authorized Firms or the Principal Underwriter.
The cost of administering such services for the benefit of shareholders who
participate in them is borne by the Fund as an expense to all shareholders.
INVEST-BY-MAIL -- FOR PERIODIC SHARE ACCUMULATION: Once the $1,000 minimum
investment has been made, checks of $50 or more payable to the order of the
Fund may be mailed directly to The Shareholder Services Group, Inc., BOS725,
P.O. Box 1559, Boston, MA 02104 at any time -- whether or not dividends are
reinvested. The name of the shareholder, the Fund and the account number
should accompany each investment.
BANK AUTOMATED INVESTING -- FOR REGULAR SHARE ACCUMULATION: Cash investments
of $50 or more may be made automatically each month or quarter from the
shareholder's bank account. The $1,000 minimum initial investment and small
account redemption policy are waived for these accounts.
WITHDRAWAL PLAN: A shareholder may draw on shareholdings systematically with
monthly or quarterly checks in an aggregate amount that does not exceed
annually 12% of the account balance at the time the plan is established. Such
amount will not be subject to a contingent deferred sales charge. See "How to
Redeem Fund Shares". A minimum deposit of $5,000 in shares is required.
REINVESTMENT PRIVILEGE: A SHAREHOLDER WHO HAS REPURCHASED OR REDEEMED SHARES
MAY REINVEST, WITH CREDIT FOR ANY CONTINGENT DEFERRED SALES CHARGES PAID ON
THE REPURCHASED OR REDEEMED SHARES, ANY PORTION OR ALL OF THE REPURCHASE OR
REDEMPTION PROCEEDS (PLUS THAT AMOUNT NECESSARY TO ACQUIRE A FRACTIONAL SHARE
TO ROUND OFF THE PURCHASE TO THE NEAREST FULL SHARE) IN SHARES OF THE FUND,
provided that the reinvestment is effected within 60 days after such
repurchase or redemption, and the privilege has not been used more than once
in the prior 12 months. Shares are sold to a reinvesting shareholder at the
next determined net asset value following timely receipt of a written purchase
order by the Principal Underwriter or by the Fund (or by the Fund's Transfer
Agent). To the extent that any shares of the Fund are sold at a loss and the
proceeds are reinvested in shares of the Fund (or other shares of the Fund are
acquired within the period beginning 30 days before and ending 30 days after
the date of the redemption) some or all of the loss generally will not be
allowed as a tax deduction. Shareholders should consult their tax advisers
concerning the tax consequences of reinvestments.
TAX-SHELTERED RETIREMENT PLANS: Shares of the Fund are available for purchase
in connection with the following tax-sheltered retirement plans:
-- Pension and Profit Sharing Plans for self-employed individuals,
corporations and non-profit organizations;
-- Individual Retirement Account Plans for individuals and their non-
employed spouses; and
-- 403(b) Retirement Plans for employees of public school systems,
hospitals, colleges and other non-profit organizations meeting certain
requirements of the Code.
Detailed information concerning these plans, including certain exceptions
to minimum investment requirements, and copies of the plans are available from
the Principal Underwriter. This information should be read carefully and
consultation with an attorney or tax adviser may be advisable. The information
sets forth the service fee charged for retirement plans and describes the
Federal income tax consequences of establishing a plan. Under all plans,
distributions will be automatically reinvested in additional shares.
DISTRIBUTIONS AND TAXES
- --------------------------------------------------------------------------------
SUBSTANTIALLY ALL OF THE INVESTMENT INCOME ALLOCATED TO THE FUND BY THE
PORTFOLIO, LESS THE FUND'S DIRECT AND ALLOCATED EXPENSES, WILL BE DECLARED
DAILY AS A DISTRIBUTION TO FUND SHAREHOLDERS OF RECORD AT THE TIME OF
DECLARATION. Such distributions, whether taken in cash or reinvested in
additional shares, will ordinarily be paid on the fifteenth day of each month
or the next business day thereafter. The Fund anticipates that for tax
purposes the entire distribution, whether paid in cash or additional shares of
the Fund, will constitute income to its shareholders. Shareholders reinvesting
the monthly distribution should treat the amount of the entire distribution as
the tax cost basis of the additional shares acquired by reason of such
reinvestment.
Certain distributions if declared by the Fund in October, November or
December and paid the following January will be taxable to shareholders as if
received on December 31, of the year in which they are declared.
Distributions of the Fund which are derived from net investment income,
net short-term capital gains and certain foreign exchange gains are taxable to
shareholders as ordinary income, whether received in cash or reinvested in
additional shares. Only a small portion, if any, of such distributions may be
eligible for the dividends-received deduction for corporations subject to
certain limitations.
Capital gains, if any, realized on sales of investments and on options and
futures transactions during the fiscal year, which ends on March 31, will be
offset by any capital loss carryovers and will usually be distributed with the
Fund's first monthly distribution paid after the close of such fiscal year,
but the Fund could make additional distribution of capital gains in any year
in order to comply with the distribution requirements of the Code.
Distrbutions of long-term capital gains are taxable to shareholders as such,
whether received in cash or additional shares of the Fund and regardless of
the length of time Fund shares have been owned by the shareholder. Gains and
losses attributable to most transactions of the Fund in options, futures
contracts, options on futures and forward contracts are generally treated as
40% short-term and 60% long-term for Federal income tax purposes.
The Fund intends to qualify as a regulated investment company under the
Code, and to satisfy all requirements necessary to be relieved of Federal
taxes on income and gains it distributes to shareholders. In satisfying these
requirements, the Fund will treat itself as owning its proportionate share of
each of the Portfolio's assets and as entitled to the income of the Portfolio
properly attributable to such share.
------------------------------------------------------------------------
AS A REGULATED INVESTMENT COMPANY UNDER THE CODE, THE FUND DOES NOT PAY
FEDERAL INCOME OR EXCISE TAXES TO THE EXTENT THAT IT DISTRIBUTES TO
SHAREHOLDERS ITS NET INVESTMENT INCOME AND NET REALIZED CAPITAL GAINS IN
ACCORDANCE WITH THE TIMING REQUIREMENTS IMPOSED BY THE CODE. AS A
PARTNERSHIP UNDER THE CODE, THE PORTFOLIO DOES NOT PAY FEDERAL INCOME OR
EXCISE TAXES.
------------------------------------------------------------------------
PERFORMANCE INFORMATION
- --------------------------------------------------------------------------------
FROM TIME TO TIME, THE FUND MAY ADVERTISE ITS YIELD AND/OR AVERAGE ANNUAL
TOTAL RETURN. The Fund's current yield is calculated by dividing the net
investment income per share during a recent 30 day period by the Fund's
maximum offering price per share (net asset value) on the last day of the
period and annualizing the resulting figure. The Fund's average annual total
return is determined by computing the average annual percentage change in
value of $1,000 invested at the maximum public offering price (net asset
value) for specified periods ending with the most recent calendar quarter,
assuming reinvestment of all distributions. The average annual total return
calculation assumes a complete redemption of the investment and the deduction
of any applicable contingent deferred sales charge at the end of the period.
The Fund may also publish annual and cumulative total return figures from time
to time.
The Fund may also publish its distribution rate and/or its effective
distribution rate. The Fund's distribution rate is computed by dividing the
most recent monthly distribution per share annualized by the current maximum
offering price per share (net asset value). The Fund's effective distribution
rate is computed by dividing the distribution rate by the ratio used to
annualize the most recent monthly distribution and reinvesting the resulting
amount for a full year on the basis of such ratio. The effective distribution
rate will be higher than the distribution rate because of the compounding
effect of the assumed reinvestment. Investors should note that the Fund's
yield is calculated using a standardized formula the income component of which
is computed from the yields to maturity of all debt obligations held by the
Portfolio based on prescribed methods (with all purchases and sales of
securities during such period included in the income calculation on a
settlement date basis), whereas the distribution rate is based on the Fund's
last monthly distribution which tends to be relatively stable and may be more
or less than the amount of net investment income and short-term capital gain
actually earned by the Fund during the month.
The Fund may also publish total return figures which do not take into
account any contingent deferred sales charge which may be imposed upon
redemptions at the end of the specified period. Any performance figure which
does not take into account the contingent deferred sales charge would be
reduced to the extent such charge is imposed upon a redemption.
Investors should note that the investment results of the Fund will
fluctuate over time, and any presentation of the Fund's current yield, total
return distribution rate or effective distribution rate for any prior period
should not be considered as a representation of what an investment may earn or
what the Fund's yield, total return distribution rate or effective
distribution rate may be in any future period. If the expenses related to the
operation of the Fund or the Portfolio are allocated to Eaton Vance, the
Fund's performance will be higher.
<PAGE>
APPENDIX A
DESCRIPTION OF MOODY'S INVESTORS SERVICE, INC.'S CORPORATE BOND RATINGS:
Aaa: Bonds which are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to as
"gilt-edge". Interest payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various protective elements
are likely to change, such changes as can be visualized are most unlikely to
impair the fundamentally strong position of such issues.
Aa: Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known
as high grade bonds. They are rated lower than the best bonds because margins
of protection may not be as large as in Aaa securities or fluctuation of
protective elements may be of greater amplitude or there may be other elements
present which make the long-term risks appear somewhat larger than in Aaa
securities.
A: Bonds which are rated A possess many favorable investment attributes and
are to be considered as upper medium grade obligations. Factors giving
security to principal and interest are considered adequate, but elements may
be present which suggest a susceptibility to impairment sometime in the
future.
SECURITIES IN WHICH THE PORTFOLIO MAY INVEST
WILL INCLUDE THOSE IN THE FOLLOWING CATEGORIES:
Baa: Bonds which are rated Baa are considered as medium grade obligations,
i.e., they are neither highly protected nor poorly secured. Interest payments
and principal security appear adequate for the present, but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
Ba: Bonds which are rated Ba are judged to have speculative elements; their
future cannot be considered as well assured. Often the protection of interest
and principal payments may be very moderate and thereby not well safeguarded
during both good and bad times over the future. Uncertainty of position
characterizes bonds in this class.
B: Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
Caa: Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal
or interest.
Ca: Bonds which are rated Ca represent obligations which are speculative in a
high degree. Such issues are often in default or have other marked
shortcomings.
C: Bonds which are rated C are the lowest rated class of bonds and issues so
rated can be regarded as having extremely poor prospects of ever attaining any
real investment standing.
NOTE: Moody's applies numerical modifiers, 1, 2 and 3 in each generic rating
classification from Aa through B in its corporate bond rating system. The
modifier 1 indicates that the security ranks in the higher end of its generic
rating category; the modifier 2 indicates a mid-range ranking; and the
modifier 3 indicates that the issue ranks in the lower end of its generic
rating category.
DESCRIPTION OF STANDARD & POOR'S RATINGS GROUP CORPORATE BOND RATINGS:
INVESTMENT GRADE
AAA: Bonds rated AAA have the highest rating assigned by Standard & Poor's to
a debt obligation. Capacity to pay interest and repay principal is extremely
strong.
AA: Bonds rated AA have a very strong capacity to pay interest and repay
principal and differ from the higher rated issues only in small degree.
A: Bonds rated A have a strong capacity to pay interest and repay principal
although they are somewhat more susceptible to the adverse effects of changes
in circumstances and economic conditions than bonds in higher rated
categories.
SECURITIES IN WHICH THE PORTFOLIO MAY INVEST
WILL INCLUDE THOSE IN THE FOLLOWING CATEGORIES:
BBB: Bonds rated BBB are regarded as having an adequate capacity to pay
interest and repay principal. Whereas they normally exhibit adequate
protection parameters, adverse economic conditions or changing circumstances
are more likely to lead to a weakened capacity to pay interest and repay
principal for bonds in this category than for bonds in higher rated
categories.
SPECULATIVE GRADE
Debt rated "BB", "B", "CCC", "CC" and "C" is regarded, on balance, as
predominantly speculative with respect to capacity to pay interest and repay
principal in accordance with the terms of the obligation. "BB" indicates the
lowest degree of speculation and "C" the highest degree of speculation. While
such debt will likely have some quality and protective characteristics, these
are outweighed by large uncertainties or major risk exposures to adverse
conditions.
BB: Debt rated BB has less near-term vulnerability to default than other
speculative issues. However, it faces major ongoing uncertainties or exposure
to adverse business, financial, or economic conditions which could lead to
inadequate capacity to meet timely interest and principal payments. The BB
rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied BBB- rating.
B: Debt rated B has a greater vulnerability to default but currently has the
capacity to meet interest payments and principal repayments. Adverse business,
financial, or economic conditions will likely impair capacity or willingness
to pay interest and repay principal.
The B rating category is also used for debt subordinated to senior debt that
is assigned an actual or implied BB or BB- rating.
CCC: Debt rated CCC has a currently identifiable vulnerability to default,
and is dependent upon favorable business, financial, and economic conditions
to meet timely payment of interest and repayment of principal. In the event of
adverse business, financial, or economic conditions, it is not likely to have
the capacity to pay interest and repay principal.
The CCC rating category is also used for debt subordinated to senior debt that
is assigned an actual or implied B or B- rating.
CC: The rating CC is typically applied to debt subordinated to senior debt
which is assigned an actual or implied CCC debt rating.
C: The rating C is typically applied to debt subordinated to senior debt
which is assigned an actual or implied CCC- debt rating. The C rating may be
used to cover a situation where a bankruptcy petition has been filed, but debt
service payments are continued.
C1: The Rating C1 is reserved for income bonds on which no interest is being
paid.
D: Debt rated D is in payment default. The D rating category is used when
interest payments or principal payments are not made on the date due even if
the applicable grace period has not expired, unless Standard & Poor's believes
that such payments will be made during such grace period. The D rating also
will be used upon the filing of a bankruptcy petition if debt service payments
are jeopardized.
PLUS (+) OR MINUS (-): The ratings from AA to CCC may be modified by the
addition of a plus or minus sign to show relative standing within the major
rating categories.
NR: Bonds may lack a Standard & Poor's rating because no public rating has
been requested, because there is insufficient information on which to base a
rating, or because Standard & Poor's does not rate a particular type of
obligation as a matter of policy.
NOTES: Bonds which are unrated expose the investor to risks with respect
to capacity to pay interest or repay principal which are similar to the risks
of lower-rated speculative obligations. The Portfolio is dependent on the
Investment Adviser's judgment, analysis and experience in the evaluation of
such bonds.
Investors should note that the assignment of a rating to a bond by a
rating service may not reflect the effect of recent developments on the
issuer's ability to make interest and principal payments.
<PAGE>
APPENDIX B
HIGH INCOME PORTFOLIO
ASSET COMPOSITION INFORMATION
FOR THE PERIOD ENDED MARCH 31, 1995
PERCENT OF
NET ASSETS
----------
Preferred Stocks and Other Equity Securities ............. 1.0%
Short-term Obligations ................................... 3.0
Debt Securities -- Moody's Rating
Ba ................................................. 8.2
B1 ................................................. 22.3
B2 ................................................. 27.0
B3 ................................................. 25.1
Caa ................................................ 8.7
Unrated ............................................ 4.7
------
Total .............................................. 100.00%
The chart above indicates the weighted average composition of the
Portfolio for the period ended March 31, 1995, with the debt securities rated
by Moody's Investors Service, Inc. separated into the indicated categories.
The weighted average indicated above was calculated on a dollar weighted basis
and was computed as at the end of each month during the period. The chart does
not necessarily indicate what the composition of the Portfolio will be in the
current and subsequent fiscal years.
For a description of Moody's Investors Service, Inc. ratings of fixed-
income securities, see Appendix A to this Prospectus.
<PAGE>
INVESTMENT ADVISER OF
HIGH INCOME PORTFOLIO
Boston Management and Research
24 Federal Street
Boston, MA 02110
ADMINISTRATOR OF
EV MARATHON HIGH INCOME FUND
Eaton Vance Management
24 Federal Street
Boston, MA 02110
PRINCIPAL UNDERWRITER
Eaton Vance Distributors, Inc.
24 Federal Street
Boston, MA 02110
(800) 225-6265
CUSTODIAN
Investors Bank & Trust Company
24 Federal Street
Boston, MA 02110
TRANSFER AGENT
The Shareholder Services Group, Inc.
BOS725
P.O. Box 1559
Boston, MA 02104
(800) 262-1122
AUDITORS
Deloitte &Touche LLP
125 Summer Street
Boston, MA 02110
EV MARATHON
HIGH INCOME FUND
24 FEDERAL STREET
BOSTON, MA 02110
M-HIP
[LOGO]
EV MARATHON
HIGH INCOME
FUND
PROSPECTUS
AUGUST 1, 1995
<PAGE>
STATEMENT OF
ADDITIONAL INFORMATION
August 1, 1995
EV MARATHON HIGH INCOME FUND
24 Federal Street
Boston, Massachusetts 02110
(800) 225-6265
This Statement of Additional Information consists of two parts. Part I
provides information about EV Marathon High Income Fund (the "Fund") and
certain other series of Eaton Vance Mutual Funds Trust (the "Trust"). Part II
provides information solely about the Fund. Where appropriate, Part I includes
cross-references to the relevant sections of Part II.
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TABLE OF CONTENTS Page
PART I
Investment Objective and Policies .................................... 2
Investment Restrictions .............................................. 7
Trustees and Officers ................................................ 8
Investment Adviser and Administrator ................................. 10
Custodian ............................................................ 12
Service for Withdrawal ............................................... 13
Determination of Net Asset Value ..................................... 13
Investment Performance ............................................... 14
Taxes ................................................................ 15
Principal Underwriter ................................................ 17
Portfolio Security Transactions ...................................... 17
Other Information .................................................... 18
Independent Accountants .............................................. 19
Financial Statements ................................................. 19
PART II
Fees and Expenses .................................................... a-1
Performance Information .............................................. a-1
Distribution Plan .................................................... a-2
Control Persons and Principal Holders of Securities .................. a-4
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THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT A PROSPECTUS AND IS
AUTHORIZED FOR DISTRIBUTION TO PROSPECTIVE INVESTORS ONLY IF PRECEDED OR
ACCOMPANIED BY THE FUND'S PROSPECTUS DATED AUGUST 1, 1995, AS SUPPLEMENTED
FROM TIME TO TIME. THIS STATEMENT OF ADDITIONAL INFORMATION SHOULD BE READ IN
CONJUNCTION WITH SUCH PROSPECTUS, A COPY OF WHICH MAY BE OBTAINED WITHOUT
CHARGE BY CONTACTING EATON VANCE DISTRIBUTORS, INC. (THE "PRINCIPAL
UNDERWRITER") (SEE BACK COVER FOR ADDRESS AND PHONE NUMBER).
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
PART I
This Part I provides information about the Fund, certain other series of
the Trust and the Portfolio. The Fund has the same investment policies as
those of the Portfolio. The Fund currently seeks to achieve its objective by
investing in the Portfolio.
INVESTMENT OBJECTIVE AND POLICIES
The investment objective of the Fund, is to seek for its shareholders a
high level of current income. The Fund seeks its objective by investing in a
portfolio of high-yielding, high risk, fixed-income securities (commonly
referred to as "junk bonds"). The Fund currently seeks to achieve its
investment objective by investing its assets in High Income Portfolio (the
"Portfolio"), a separate registered investment company with the same
investment objective as the Fund and substantially the same investment
policies and restrictions as the Fund. The Portfolio may invest up to 20% of
its assets in common stock and other equity securities when consistent with
its objective or acquired as a part of a unit combining fixed-income and
equity securities. The foregoing policy is a nonfundamental policy of the Fund
which may be changed when authorized by a vote of the Trustees of the Trust.
The securities in which the Portfolio may invest are described in the
Prospectus under "How the Fund and the Portfolio Invest their Assets; Risks
Associated with Investments."
The Portfolio may temporarily invest more than 35% of its assets in
securities rated A or better by Moody's Investors Service, Inc., ("Moody's")
or Standard & Poor's Ratings Group ("S&P") for defensive purposes during
periods of abnormal market conditions.
The Trustees of the Trust may withdraw the Fund's investment from the
Portfolio at any time, if they determine that it is in the best interests of
the Fund to do so. Upon any such withdrawal, the Fund's assets would be
invested in another investment company with substantially the same investment
objective, policies and restrictions as those of the Fund or invested directly
in investment securities in accordance with the Portfolio's investment
policies, as described below. Except as indicated below, the approval of the
Fund's shareholders would not be required to change the Portfolio's investment
objective or any of the Portfolio's investment policies discussed below,
including those concerning security transactions.
Because the investment characteristics of the Fund will correspond
directly to those of the Portfolio, the following is a discussion of the
various investments of and techniques employed by the Portfolio.
OTHER FIXED-INCOME SECURITIES
Included in the fixed-income securities in which the Portfolio may invest
are preferred, preference and convertible stocks, equipment lease
certificates, equipment trust certificates and conditional sales contracts.
Preference stocks are stocks that have many characteristics of preferred
stocks, but are typically junior to an existing class of preferred stocks.
Equipment lease certificates are debt obligations secured by leases on
equipment (such as railroad cars, airplanes or office equipment), with the
issuer of the certificate being the owner and lessor of the equipment.
Equipment trust certificates are debt obligations secured by an interest in
property (such as railroad cars or airplanes), the title of which is held by a
trustee while the property is being used by the borrower. Conditional sales
contracts are agreements under which the seller of property continues to hold
title to the property until the purchase price is fully paid or other
conditions are met by the buyer.
The Portfolio may purchase fixed-rate bonds which have a demand feature
allowing the holder to redeem the bonds at specified times. These bonds are
more defensive than conventional long-term bonds (protecting to some degree
against a rise in interest rates) while providing greater opportunity than
comparable intermediate term bonds, since the Portfolio may retain the bond if
interest rates decline. By acquiring these kinds of bonds the Portfolio
obtains the contractual right to require the issuer of the bonds to purchase
the security at an agreed upon price, which right is contained in the
obligation itself rather than in a separate agreement or instrument. Since
this right is assignable only with the bond, the Portfolio will not assign any
separate value to such right. The Portfolio may also purchase floating or
variable rate obligations, which it would anticipate using as short-term
investments pending longer term investment of its funds.
CONCENTRATION
Although there is no current intention to do so, the Portfolio may invest
up to 25% of its assets in securities of issuers in each of the electric, gas
and telephone utility industries if, in the opinion of the Investment Adviser,
the relative return available from such securities and the relative risk,
marketability, quality or availability of securities of issuers in such
industry justifies such an investment. The value of such investments may be
affected to a greater degree by adverse developments in such industries.
Industry-wide problems include the effects of fluctuating economic conditions,
energy conservation practices, environmental regulations, high capital
expenditures, construction delays due to pollution control and environmental
considerations, uncertainties as to fuel availability and costs, increased
competition in deregulated sectors of such industries and difficulties in
obtaining timely and adequate rate relief from regulatory commissions. If
applications for rate increases are not granted or are not acted upon
promptly, the market prices of and interest or dividend payments on utility
securities may be adversely affected.
LOAN INTERESTS
A loan in which the Portfolio may acquire a loan interest (a "Loan
Interest") is typically originated, negotiated and structured by a U.S. or
foreign commercial bank, insurance company, finance company or other financial
institution (the "Agent") for a lending syndicate of financial institutions.
The Agent typically administers and enforces the loan on behalf of the other
lenders in the syndicate. In addition, an institution, typically but not
always the Agent (the "Collateral Bank"), holds collateral (if any) on behalf
of the lenders. These Loan Interests may take the form of participation
interests in, assignments of or novations of a loan during its secondary
distribution, or direct interests during a primary distribution. Such Loan
Interests may be acquired from U.S. or foreign banks, insurance companies,
finance companies or other financial institutions who have made loans or are
members of a lending syndicate or from other holders of Loan Interests. The
Portfolio may also acquire Loan Interests under which the Portfolio derives
its rights directly from the borrower. Such Loan Interests are separately
enforceable by the Portfolio against the borrower and all payments of interest
and principal are typically made directly to the Portfolio from the borrower.
In the event that the Portfolio and other lenders become entitled to take
possession of shared collateral, it is anticipated that such collateral would
be held in the custody of a Collateral Bank for their mutual benefit. The
Portfolio may not act as an Agent, a Collateral Bank, a guarantor or sole
negotiator or structurer with respect to a loan.
The Portfolio's investment adviser, Boston Management and Research ("BMR"
or the "Investment Adviser") will analyze and evaluate the financial condition
of the borrower in connection with the acquisition of any Loan Interest. BMR
also analyzes and evaluates the financial condition of the Agent and, in the
case of Loan Interests in which the Portfolio does not have privity with the
borrower, those institutions from or through whom the Portfolio derives its
rights in a loan (the "Intermediate Participants"). From time to time BMR and
its affiliates may borrow money from various banks in connection with their
business activities. Such banks may also sell interests in loans to or acquire
such interests from the Portfolio or may be Intermediate Participants with
respect to loans in which the Portfolio owns interests. Such banks may also
act as Agents for loans in which the Portfolio owns interests.
In a typical loan the Agent administers the terms of the loan agreement.
In such cases, the Agent is normally responsible for the collection of
principal and interest payments from the borrower and the apportionment of
these payments to the credit of all institutions which are parties to the loan
agreement. The Portfolio will generally rely upon the Agent or an Intermediate
Participant to receive and forward to the Portfolio its portion of the
principal and interest payments on the loan. Furthermore, unless under the
terms of a participation agreement the Trust has direct recourse against the
borrower, the Portfolio will rely on the Agent and the other members of the
lending syndicate to use appropriate credit remedies against the borrower. The
Agent is typically responsible for monitoring compliance with covenants
contained in the loan agreement based upon reports prepared by the borrower.
The seller of the Loan Interest usually does, but is often not obligated to,
notify holders of Loan Interests of any failures of compliance. The Agent may
monitor the value of the collateral and, if the value of the collateral
declines, may accelerate the loan, may give the borrower an opportunity to
provide additional collateral or may seek other protection for the benefit of
the participants in the loan. The Agent is compensated by the borrower for
providing these services under a loan agreement, and such compensation may
include special fees paid upon structuring and funding the loan and other fees
paid on a continuing basis. With respect to Loan Interests for which the Agent
does not perform such administrative and enforcement functions, the Portfolio
will perform such tasks on its own behalf, although a Collateral Bank will
typically hold any collateral on behalf of the Portfolio and the other lenders
pursuant to the applicable loan agreement.
A financial institution's appointment as Agent may usually be terminated
in the event that it fails to observe the requisite standard of care or
becomes insolvent, enters Federal Deposit Insurance Corporation ("FDIC")
receivership, or, if not FDIC insured, enters into bankruptcy proceedings. A
successor Agent would generally be appointed to replace the terminated Agent,
and assets held by the Agent under the loan agreement should remain available
to holders of Loan Interests. However, if assets held by the Agent for the
benefit of the Portfolio were determined to be subject to the claims of the
Agent's general creditors, the Portfolio might incur certain costs and delays
in realizing payment on a loan interest, or suffer a loss of principal and/or
interest. In situations involving Intermediate Participants similar risks may
arise.
Purchasers of loan interests depend primarily upon the creditworthiness of
the borrower for payment of principal and interest. If the Portfolio does not
receive scheduled interest or principal payments on such indebtedness, the
Portfolio's share price and yield could be adversely affected. Loans that are
fully secured offer the Portfolio more protections than an unsecured loan in
the event of non-payment of scheduled interest or principal. However, there is
no assurance that the liquidation of collateral from a secured loan would
satisfy the borrower's obligation, or that the collateral can be liquidated.
Indebtedness of borrowers whose creditworthiness is poor involves
substantially greater risks, and may be highly speculative. Borrowers that are
in bankruptcy or restructuring may never pay off their indebtedness, or may
pay only a small fraction of the amount owed. Direct indebtedness of
developing countries will also involve a risk that the governmental entities
responsible for the repayment of the debt may be unable, or unwilling, to pay
interest and repay principal when due.
The Portfolio limits the amount of total assets that it will invest in any
one issuer or in issuers within the same industry. See Investment Restrictions
(1) and (5) below. For purposes of these restrictions, the Portfolio generally
will treat the borrower as the "issuer" of a Loan Interest held by the
Portfolio. In the case of loan participations where the Agent or Intermediate
Participant serves as financial intermediary between the Portfolio and the
borrower, the Portfolio, in appropriate circumstances, will treat both the
Agent or Intermediate Participant and the borrower as "issuers" for the
purposes of determining whether the Portfolio has invested more than 5% of its
total assets in a single issuer. Treating a financial intermediary as an
issuer of indebtedness may restrict the Portfolio's ability to invest in
indebtedness related to a single intermediary, or a group of intermediaries
engaged in the same industry, even if the underlying borrowers represent many
different companies and industries.
FOREIGN INVESTMENTS
Investing in foreign issuers involves certain special considerations,
including those set forth below, which are not typically associated with
investing in U.S. issuers. Since investments in foreign issuers may involve
currencies of foreign countries, and since the Portfolio may temporarily hold
funds in bank deposits in foreign currencies during completion of investment
programs, the Portfolio may be affected favorably or unfavorably by changes in
currency rates and in exchange control regulations and may incur costs in
connection with conversions between various currencies.
Since foreign companies are not generally subject to uniform accounting,
auditing and financial reporting standards, practices and requirements
comparable to those applicable to U.S. companies, there may be less publicly
available information about a foreign company than about a domestic company.
Foreign stock markets, while growing in volume of trading activity, have
substantially less volume than the New York Stock Exchange, and securities of
some foreign companies are less liquid and more volatile than securities of
comparable U.S. companies. Similarly, volume and liquidity in most foreign
bond markets is less than in the United States and, at times, volatility of
price can be greater than in the United States. Fixed commissions on foreign
stock exchanges are generally higher than negotiated commissions on U.S.
exchanges, although the Portfolio endeavors to achieve the most favorable net
results on its portfolio transactions. There is generally less government
supervision and regulation of stock exchanges, brokers and listed companies
than in the United States. Mail service between the United States and foreign
countries may be slower or less reliable than within the United States, thus
increasing the risk of delayed settlements of portfolio transactions or loss
of certificates for portfolio securities. In addition, with respect to certain
foreign countries, there is the possibility of expropriation or confiscatory
taxation, political or social instability, or diplomatic developments which
could affect the Portfolio's investments in those countries. Moreover,
individual foreign economies may differ favorably or unfavorably from the U.S.
economy in such respects as growth of gross national product, rate of
inflation, capital reinvestment, resource self-sufficiency and balance of
payments position.
The Portfolio may enter into forward foreign currency exchange contracts.
A forward foreign currency exchange contract involves an obligation to
purchase or sell a specific currency at a future date, which may be any fixed
number of days from the date of the contract agreed upon by the parties, at a
price set at the time of the contract. These contracts are traded in the
interbank market conducted directly between currency traders (usually large
commercial banks) and their customers. A forward contract generally has no
deposit requirement, and no commissions are charged at any stage for trades.
At the maturity of a forward contract the Portfolio may either accept or
make delivery of the currency specified in the contract or, at or prior to
maturity, enter into a closing transaction involving the purchase or sale of
an offsetting contract. Closing transactions with respect to forward contracts
are usually effected with the currency trader who is a party to the original
forward contract.
FORWARD FOREIGN CURRENCY EXCHANGE TRANSACTIONS
The Portfolio does not intend to enter into forward foreign currency
exchange contracts to protect the value of its portfolio securities on a
regular continuous basis, and will not do so if, as a result, the Portfolio
will have more than 15% of the value of its total assets committed to the
consummation of such contracts. The Portfolio also will not enter into such
forward contracts or maintain a net exposure to such contracts where the
consummation of the contracts would obligate the Portfolio to deliver an
amount of foreign currency in excess of the value of the securities held by
the Portfolio's or other assets denominated in that currency. Under normal
circumstances, consideration of the prospect for currency parities will be
incorporated into the long-term investment decisions made with regard to
overall diversification strategies. However, the Portfolio believes that it is
important to have the flexibility to enter into such forward contracts when it
determines that the best interests of the Portfolio will be served. The
Portfolio generally will not enter into a forward contract with a term of
greater than one year.
OPTIONS ON SECURITIES
An options position may be closed out only on an options exchange which
provides a secondary market for an option of the same series. Although the
Portfolio will generally purchase or write only those options for which there
appears to be an active secondary market, there is no assurance that a liquid
secondary market on an exchange will exist for any particular option, or at
any particular time. For some options no secondary market on an exchange may
exist. In such event, it might not be possible to effect closing transactions
in particular options, with the result that the Portfolio would have to
exercise its options in order to realize any profit and would incur
transaction costs upon the sale of underlying securities pursuant to the
exercise of put options. If the Portfolio as a covered call option writer is
unable to effect a closing purchase transaction in a secondary market, it will
not be able to sell the underlying security until the option expires or it
delivers the underlying security upon exercise.
Reasons for the absence of a liquid secondary market on an exchange
include the following: (i) there may be insufficient trading interest in
certain options; (ii) restrictions may be imposed by an exchange on opening
transactions or closing transactions or both; (iii) trading halts, suspensions
or other restrictions may be imposed with respect to particular classes or
series of options or underlying securities; (iv) unusual or unforeseen
circumstances may interrupt normal operations on an exchange; (v) the
facilities of an exchange or the Options Clearing Corporation may not at all
times be adequate to handle current trading volume; or (vi) one or more
exchanges could, for economic or other reasons, decide or be compelled at some
future date to discontinue the trading of options (or a particular class or
series of options), in which event the secondary market on that exchange (or
in that class or series of options) would cease to exist, although outstanding
options on that exchange that had been issued by the Options Clearing
Corporation as a result of trades on that exchange would continue to be
exercisable in accordance with their terms.
There is no assurance that higher than anticipated trading activity or
other unforeseen events might not, at times, render certain of the facilities
of the Options Clearing Corporation inadequate, and thereby result in the
institution by an exchange of special procedures which may interfere with the
timely execution of customers' orders.
FUTURES CONTRACTS
All futures contracts entered into by the Portfolio are traded on
exchanges or boards of trade that are licensed and regulated by the Commodity
Futures Trading Commission ("CFTC").
The Portfolio may purchase and write call and put options on futures
contracts which are traded on a United States exchange or board of trade.
The Portfolio will engage in futures and related options transactions for
bona fide hedging or non-hedging purposes as defined in or permitted by CFTC
regulations. The Portfolio will determine that the price fluctuations in the
futures contracts and options on futures used for hedging purposes are
substantially related to price fluctuations in securities held by the
Portfolio or which it expects to purchase. Except as stated below, the
Portfolio's futures transactions will be entered into for traditional hedging
purposes -- i.e., futures contracts will be sold to protect against a decline
in the price of securities that the Portfolio owns, or futures contracts will
be purchased to protect the Portfolio against an increase in the price of
securities it intends to purchase. As evidence of this hedging intent, the
Portfolio expects that on 75% or more of the occasions on which it takes a
long futures (or option) position (involving the purchase of futures
contracts), the Portfolio will have purchased, or will be in the process of
purchasing, equivalent amounts of related securities in the cash market at the
time when the futures (or option) position is closed out. However, in
particular cases, when it is economically advantageous for the Portfolio to do
so, a long futures position may be terminated (or an option may expire)
without the corresponding purchase of securities. As an alternative to
compliance with the bona fide hedging definition, a CFTC regulation permits
the Portfolio to elect to comply with a different test, under which the
aggregate initial margin and premiums required to establish non-hedging
positions in futures contracts and options on futures will not exceed 5% of
the Portfolio's net asset value after taking into account unrealized profits
and losses on such positions and excluding the in-the-money amount of such
options. The Portfolio will engage in transactions in futures contracts and
related options only to the extent such transactions are consistent with the
requirements of the Internal Revenue Code for maintaining the qualification of
the Fund as a regulated investment company for Federal income tax purposes
(see "Taxes").
ASSET COVERAGE FOR DERIVATIVE INSTRUMENTS
Transactions using forward contracts, futures contracts and options (other
than options that the Portfolio has purchased) expose the Portfolio to an
obligation to another party. The Portfolio will not enter into any such
transactions unless it owns either (1) an offsetting ("covered") position in
securities, currencies, or other options, futures contracts or forward
contracts, or (2) cash, receivables and short-term debt securities with a
value sufficient at all times to cover its potential obligations not covered
as porvided in (1) above. The Portfolio will comply with Securities and
Exchange Commission ("SEC") guidelines regarding cover for these instruments
and, if the guidelines so require, set aside cash, U.S. Government securities
or other liquid, highgrade debt securities in a segragated account with its
custodian in the prescribed amount.
Assets used as cover or held in a segregated account cannot be sold while
the position in the corresponding forward contract, futures contract or option
is open, unless they are replaced with other appropriate assets. As a result,
the commitment of a large portion of the Portfolio's assets to cover or
segregated accounts could impede portfolio management or the Portfolio's
ability to meet redemption requests or other current obligations.
LENDING PORTFOLIO SECURITIES
The Portfolio may seek to increase its income by lending portfolio
securities to broker-dealers or other institutional borrowers. During the
existence of a loan, the Portfolio will continue to receive the equivalent of
the interest paid by the issuer on the securities loaned and will also receive
a fee or all of a portion of the interest on investment of the collateral, if
any. However, the Portfolio may pay lending fees to such borrowers. As with
other extensions of credit there are risks of delay in recovery or even loss
of rights in the securities loaned if the borrower of the securities fails
financially. However, the loans would be made only to organizations deemed by
the Portfolio's management to be of good standing and when, in the judgment of
the Portfolio's management, the consideration which can be earned from
securities loans of this type justifies the attendant risk. The financial
condition of the borrower will be monitored by the Investment Adviser on an
ongoing basis. The value of the securilties loaned will not exceed 30% of the
Portfolio's total assets.
Under present regulatory policies of the Securities and Exchange
Commission ("SEC"), such loans are required to be secured continuously by
collateral in cash, cash equivalents or U.S. Government securities held by the
Portfolio's custodian and maintained on a current basis at an amount at least
equal to the market value of the securities loaned, which will be marked to
market daily. Cash equivalents include certificates of deposit, commercial
paper and other short-term money market instruments. The Portfolio would have
the right to call a loan and obtain the securities loaned at any time on up to
five business days' notice. The Portfolio would not have the right to vote any
securities having voting rights during the existence of a loan, but would call
the loan in anticipation of an important vote to be taken among holders of the
securities or the giving or withholding of their consent on a material matter
affecting the investment.
PORTFOLIO TURNOVER
The Portfolio cannot accurately predict its portfolio turnover rate, but
it is anticipated that the annual turnover rate will generally not exceed 100%
(excluding turnover of securities having a maturity of one year or less). A
100% annual turnover rate would occur, for example, if all the securities in
the portfolio were replaced once in a period of one year. A high turnover rate
(100% or more) necessarily involves greater expenses to the Portfolio. The
Portfolio engages in portfolio trading (including short-term trading) if it
believes that a transaction including all costs will help in achieving its
investment objective either directly by increasing income or indirectly by
enhancing the Portfolio's net asset value.
Securities may be sold in anticipation of a market decline (a rise in
interest rates) or purchased in anticipation of a market rise (a decline in
interest rates) and later sold. In addition, a security may be sold and
another purchased at approximately the same time to take advantage of what the
Portfolio believes to be a temporary disparity in the normal yield
relationship between the two securities. Yield disparities may occur for
reasons not directly related to the investment quality of particular issues or
the general movement of interest rates, such as changes in the overall demand
for or supply of various types of fixed-income securities or changes in the
investment objectives of investors. Such trading may be expected to increase
the portfolio turnover rate and the expenses incurred in connection with such
trading.
INVESTMENT RESTRICTIONS
Certain investment restrictions are designated as fundamental policies and
as such cannot be changed without the approval of the holders of a majority of
the Fund's outstanding voting securities, which as used in this Statement of
Additional Information means the lesser of (a) 67% of the shares of the Fund
present or represented by proxy at a meeting if the holders of more than 50%
of the shares are present or represented at the meeting or (b) more than 50%
of the shares of the Fund. Accordingly, the Fund may not:
(1) With respect to 75% of total assets of the Fund, purchase any security
if such purchase, at the time thereof, would cause more than 5% of the total
assets of the Fund (taken at market value) to be invested in the securities of
a single issuer, or cause more than 10% of the total outstanding voting
securities of such issuer to be held by the Fund, except obligations issued or
guaranteed by the U.S. Government, its agencies or instrumentalities and
except securities of other investment companies;
(2) Borrow money or issue senior securities except as permitted by the
Investment Company Act of 1940;
(3) Purchase securities on margin (but the Fund may obtain such short-term
credits as may be necessary for the clearance of purchases and sales of
securities). The deposit or payment by the Fund of initial, maintenance or
variation margin in connection with all types of options and futures contract
transactions is not considered the purchase of a security on margin;
(4) Underwrite or participate in the marketing of securities of others,
except insofar as it may technically be deemed to be an underwriter in selling
a portfolio security under circumstances which may require the registration of
the same under the Securities Act of 1933;
(5) Purchase any security if such purchase, at the time thereof, would
cause more than 25% of the Fund's total assets to be invested in any single
industry, provided that the electric, gas and telephone utility industries
shall be treated as separate industries for purposes of this restriction and
further provided that there is no limitation with respect to obligations
issued or guaranteed by the U.S. Government or any of its agencies or
instrumentalities.
(6) Purchase or sell real estate, although it may purchase and sell
securities which are secured by real estate and securities of companies which
invest or deal in real estate;
(7) Purchase or sell physical commodities or contracts for the purchase or
sale of physical commodities; or
(8) Make loans to any person except by (i) the acquisition of debt
securities and making portfolio investments, (ii) entering into repurchase
agreements or (iii) lending portfolio securities.
Notwithstanding the investment policies and restrictions of the Fund, the
Fund may invest all of its investable assets in an open-end management
investment company with substantially the same investment objective, policies
and restrictions as the Fund.
The Portfolio has adopted substantially the same fundamental investment
restrictions as the foregoing investment restrictions adopted by the Fund;
such restrictions cannot be changed without the approval of a "majority of the
outstanding voting securities" of the Portfolio, which as used in this
Statement of Additional Information means the lesser or (a) 67% of the
outstanding voting securities of the Portfolio present or represented by proxy
at a meeting if the holders of more than 50% of the outstanding voting
securities of the Portfolio are present or represented at the meeting or (b)
more than 50% of the outstanding voting securities of the Portfolio. The term
"voting securities" as used in this paragraph has the same meaning as in the
Investment Company Act of 1940 (the "1940 Act"). Whenever the Trust is
requested to vote on a change in the investment restrictions of the Portfolio,
the Trust will hold a meeting of Fund shareholders and will cast its vote as
instructed by the shareholders.
The Fund and the Portfolio have each adopted the following nonfundamental
investment policies which may be changed with respect to the Fund by the
Trustees of the Trust without the approval by the Fund's shareholders or may
be changed with respect to the Portfolio by the Trustees of the Portfolio
without the approval by the Fund or its other investors. As a matter of
nonfundamental policy, neither the Fund nor the Portfolio may (a) invest more
than 15% of its net assets in investments which are not readily marketable,
including restricted securities and repurchase agreements maturing in more
than seven days. Restricted securities for the purposes of this limitation do
not include securities eligible for resale pursuant to Rule 144A of the
Securities Act of 1933 that the Board of Trustees of the Trust or the
Portfolio, or its delegate, determine to be liquid, based upon the trading
markets for the specific security, provided, however, that the Fund may invest
without limitation in the Portfolio or in another investment company with
substantially the same investment objective; (b) invest more than 5% of its
total assets (taken at current value) in the securities of issuers which,
including their predecessors, have been in operation for less than three
years; (c) purchase put or call options on securities only if after such
purchase more than 5% of its net assets, as measured by the aggregate of the
premiums paid for such options, would be so invested; (d) purchase warrants in
excess of 5% of net assets, of which 2% may be warrants which are not listed
on the New York or American Stock Exchanges; (e) make short sales of
securities or maintain a short position, unless at all times when a short
position is open the Fund owns an equal amount of such securities or
securities convertible into or exchangeable, without payment of any further
consideration, for securities of the same issuer as, and equal in amount to,
the securities sold short, and unless not more than 25% of the Fund's net
assets (taken at current value) is held as collateral for such sales at any
one time. (The Fund will make such sales only for the purpose of deferring
realization of gain or loss for federal income tax purposes.); (f) purchase or
retain in its portfolio any securities issued by an issuer, any of whose
officers, directors, trustees or security holders is an officer or Trustee of
the Trust or the Portfolio or is a member, officer, director or trustee of an
investment adviser of the Trust or the Portfolio, if after the purchase of the
securities of such issuer by the Fund or the Portfolio one or more of such
persons owns beneficially more than 1/2 of 1% of the shares or securities or
both (all taken at market value) of such issuer and such persons owning more
than 1/2 of 1% of such shares or securities together own beneficially more
than 5% of such shares or securities or both (all taken at market value); or
(g) purchase oil, gas or other mineral leases or purchase partnership
interests in oil, gas or other mineral exploration or development programs.
In order to permit the sale of shares of the Fund in certain states, the
Fund may make commitments more restrictive than the policies described above.
Should the Fund determine that any such commitment is no longer in the best
interests of the Fund and its shareholders, it will revoke the commitment by
terminating sales of its shares in the state(s) involved.
TRUSTEES AND OFFICERS
The Trustees and officers of the Trust and the Portfolio are listed below.
Except as indicated, each individual has held the office shown or other
offices in the same company for the last five years. Unless otherwise noted,
the business address of each Trustee and officer is 24 Federal Street, Boston,
Massachusetts 02110, which is also the address of the Trust's investment
adviser, Eaton Vance Management ("Eaton Vance"); Eaton Vance's wholly-owned
subsidiary, Boston Management and Research ("BMR"); Eaton Vance's parent,
Eaton Vance Corp. ("EVC"); and of Eaton Vance's and BMR's trustee, Eaton
Vance, Inc. ("EV"). Eaton Vance and EV are both wholly-owned subsidiaries of
EVC. Those Trustees and officers who are "interested persons" of the Trust,
Eaton Vance, BMR, EV or EVC, as defined in the 1940 Act, by virtue of their
affiliation with any one or more of the Trust, the Portfolio, Eaton Vance,
BMR, EVC or EV, are indicated by an asterisk(*).
TRUSTEES OF THE TRUST AND THE PORTFOLIO
M. DOZIER GARDNER (62), President and Trustee*
President and Chief Executive Officer of BMR, Eaton Vance, EVC and EV, and
Director of EVC and EV. Director, Trustee and officer of various investment
companies managed by Eaton Vance or BMR.
DONALD R. DWIGHT (64), Trustee
President of Dwight Partners, Inc. (a corporate relations and communications
company) founded in 1988; Chairman of the Board of Newspapers of New
England, Inc. since 1983; Director or Trustee of various investment
companies managed by Eaton Vance or BMR.
Address: Clover Mill Lane, Lyme, New Hampshire 03768
JAMES B. HAWKES (53), Vice President and Trustee*
Executive Vice President of BMR, Eaton Vance, EV and EVC and a Director of EV
and EVC. Director, Trustee and officer of various investment companies
managed by Eaton Vance or BMR.
SAMUEL L. HAYES, III (60), Trustee
Jacob H. Schiff Professor of Investment Banking, Harvard University Graduate
School of Business Administration. Director or Trustee of various investment
companies managed by Eaton Vance or BMR.
Address: Harvard University Graduate School of Business Administration,
Soldiers Field Road, Boston, Massachusetts 02163
NORTON H. REAMER (59), Trustee
President and Director, United Asset Management Corporation, a holding company
owning institutional investment management firms. Chairman, President and
Director, The Regis Fund, Inc. (mutual fund). Director or Trustee of various
investment companies managed by Eaton Vance or BMR.
Address: One International Place, Boston, Massachusetts 02110
JOHN L. THORNDIKE (68), Trustee
Director, Fiduciary Trust Company. Director or Trustee of various investment
companies managed by Eaton Vance or BMR.
Address: 175 Federal Street, Boston, Massachusetts 02110
JACK L. TREYNOR (65), Trustee
Investment Adviser and Consultant. Director or Trustee of various investment
companies managed by Eaton Vance or BMR.
Address: 504 Via Almar, Palos Verdes Estates, California 90274
OFFICERS OF THE TRUST AND THE PORTFOLIO
WILLIAM H. AHERN, JR. (36), Vice President of the Trust
Assistant Vice President of BMR, Eaton Vance and EV and an employee of Eaton
Vance since July 17, 1989. Officer of various investment companies managed
by Eaton Vance or BMR. Mr. Ahern was elected Vice President of the Trust on
June 19, 1995.
H. DAY BRIGHAM, JR., (68) Vice President of the Trust
Chairman of the Management Committee, Vice President of Eaton Vance, BMR, EVC
and EV and Director of EVC and EV. Director, Trustee and officer of various
investment companies managed by Eaton Vance or BMR.
WILLIAM CHISHOLM (35), Vice President of the Portfolio
Senior Trust Officer of The Bank of Nova Scotia Trust Company (Cayman)
Limited.
Address: The Bank of Nova Scotia Trust Company (Cayman) Ltd., The Bank of Nova
Scotia Building, P.O. Box 501, George Town, Grand Cayman, Cayman Islands,
British West Indies.
MICHEL NORMANDEAU (43), Vice President of the Portfolio
Assistant Manager -- Trust Services of The Bank of Nova Scotia Trust Company
(Cayman) Limited.
Address: The Bank of Nova Scotia Trust Company (Cayman) Ltd., The Bank of Nova
Scotia Building, P.O. Box 501, George Town, Grand Cayman, Cayman Islands,
British West Indies.
RAYMOND O'NEILL (33), Vice President of the Portfolio
Managing Director of IBT Trust and Custodian Services (Ireland) Limited since
January, 1995. Vice President, Atlantic Corporate Management Limited,
Warwick, Bermuda 1991-1994. Officer, The Bank of Bermuda Limited, Hamilton,
Bermuda 1987-1991.
HOOKER TALCOTT (52), Jr., Vice President of the Portfolio
Vice President of BMR, Eaton Vance and EV. Officer of various investment
companies managed by Eaton Vance or BMR.
MICHAEL B. TERRY (52), Vice President of the Trust
Vice President of BMR, Eaton Vance and EV. Officer of various investment
companies managed by Eaton Vance or BMR. Mr. Terry was elected Vice
President of the Trust on December 17, 1990.
JAMES L. O'CONNOR (50), Treasurer
Vice President of BMR, Eaton Vance and EV. Officer of various investment
companies managed by Eaton Vance or BMR.
THOMAS OTIS (63), Secretary
Vice President and Secretary of BMR, Eaton Vance, EV and EVC. Officer of
various investment companies managed by Eaton Vance or BMR.
JANET E. SANDERS (59), Assistant Treasurer and Assistant Secretary
Vice President of BMR, Eaton Vance and EV. Officer of various investment
companies managed by Eaton Vance or BMR.
A. JOHN MURPHY (32), Assistant Secretary
Assistant Vice President of BMR, Eaton Vance and EV since March 1, 1994;
employee of Eaton Vance since March 1993. Officer of various investment
companies managed by Eaton Vance or BMR. State Regulations Supervisor, The
Boston Company (1991 - 1993) and Registration Specialist, Fidelity
Management & Research Co. (1986 - 1991). Mr. Murphy was elected Assistant
Secretary of the Trust on March 27, 1995 and of the Portfolio on June 19,
1995.
ERIC G. WOODBURY (38), Assistant Secretary
Vice President of Eaton Vance since February 1993; formerly, associate at
Dechert, Price & Rhoads and Gaston Snow & Ely Bartlett.
Address: Eaton Vance Management, 24 Federal Street, Boston, Massachusetts
02110. Mr. Woodbury was elected Assistant Secretary of the Trust and
Portfolio on June 19, 1995.
Messrs. Thorndike (Chairman), Hayes and Reamer are members of the Special
Committee of the Board of Trustees of the Trust and of the Portfolio. The
Special Committee's functions include a continuous review of the Fund's
contractual relationship with the Administrator, the Portfolio's contractual
relationship with the Investment Adviser, making recommendations to the
Trustees regarding the compensation of those Trustees who are not members of
the Eaton Vance organization, and making recommendations to the Trustees
regarding candidates to fill vacancies, as and when they occur, in the ranks
of those Trustees who are not "interested persons" of the Trust, the
Portfolio, the Eaton Vance organization or the investment adviser.
Messrs. Treynor (Chairman) and Dwight are members of the Audit Committee
of the Board of Trustees of the Trust and of the Portfolio. The Audit
Committee's functions include making recommendations to the Trustees regarding
the selection of the independent public accountants, and reviewing with such
accountants and the Treasurer of the Trust and of the Portfolio matters
relative to accounting and auditing practices and procedures, accounting
records, internal accounting controls, and the functions performed by the
custodian and transfer agent of the Fund and of the Portfolio.
Trustees of the Portfolio who are not affiliated with the Investment
Adviser may elect to defer receipt of all or a percentage of their annual fees
in accordance with the terms of a Trustees Deferred Compensation Plan (the
"Plan"). Under the Plan, an eligible Trustee may elect to have his deferred
fees invested by the Portfolio in the shares of one or more funds in the Eaton
Vance Family of Funds, and the amount paid to the Trustees under the Plan will
be determined based upon the performance of such investments. Deferral of
Trustees' fees in accordance with the Plan will have a negligible effect on
the Portfolio's assets, liabilities, and net income per share, and will not
obligate the Portfolio to retain the services of any Trustee or obligate the
Portfolio to pay any particular level of compensation to the Trustee.
The fees and expenses of those Trustees of the Trust and the Portfolio who
are not members of the Eaton Vance organization (the noninterested Trustees)
are paid by the Fund (and the other series of the Trust) and the Portfolio,
respectively. For the compensation earned by the noninterested Trustees of the
Trust and the Portfolio, see "Fees and Expenses" in Part II of this Statement
of Additional Information.
INVESTMENT ADVISER AND ADMINISTRATOR
The Portfolio engages BMR as investment adviser pursuant to an Investment
Advisory Agreement dated May 31, 1994. BMR or Eaton Vance acts as investment
adviser to investment companies and various individual and institutional
clients with combined assets under management of approximately $15 billion.
Eaton Vance, its affiliates and its predecessor companies have been
managing assets of individuals and institutions since 1924 and managing
investment companies since 1931. They maintain a large staff of experienced
fixed-income and equity investment professionals to service the needs of their
clients. The fixed-income division focuses on all kinds of taxable investment-
grade and high-yield securities, tax-exempt investment-grade and high-yield
securities, and U.S. Government securities. The equity division covers stocks
ranging from blue chip to emerging growth companies.
BMR manages the investments and affairs of the Portfolio subject to the
supervision of the Portfolio's Board of Trustees. BMR furnishes to the
Portfolio investment research, advice and supervision, furnishes an investment
program and determines what securities will be purchased, held or sold by the
Portfolio and what portion, if any, of the Portfolio's assets will be held
uninvested. The Investment Advisory Agreement requires BMR to pay the salaries
and fees of all officers and Trustees of the Portfolio who are members of the
BMR organization and all personnel of BMR performing services relating to
research and investment activities. The Portfolio is responsible for all
expenses not expressly stated to be payable by BMR under the Investment
Advisory Agreement, including, without implied limitation, (i) expenses of
maintaining the Portfolio and continuing its existence, (ii) registration of
the Portfolio under the 1940 Act, (iii) commissions, fees and other expenses
connected with the acquisition, holding and disposition of securities and
other investments, (iv) auditing, accounting and legal expenses, (v) taxes and
interest, (vi) governmental fees, (vii) expenses of issue, sale and redemption
of interests in the Portfolio, (viii) expenses of registering and qualifying
the Portfolio and interests in the Portfolio under Federal and state
securities laws and of preparing and printing registration statements or other
offering statements or memoranda for such purposes and for distributing the
same to investors, and fees and expenses of registering and maintaining
registrations of the Portfolio and of the Portfolio's placement agent as
broker-dealer or agent under state securities laws, (ix) expenses of reports
and notices to investors and of meetings of investors and proxy solicitations
therefor, (x) expenses of reports to governmental officers and commissions,
(xi) insurance expenses, (xii) association membership dues, (xiii) fees,
expenses and disbursements of custodians and subcustodians for all services to
the Portfolio (including without limitation safekeeping of funds, securities
and other investments, keeping of books, accounts and records, and
determination of net asset values, book capital account balances and tax
capital account balances), (xiv) fees, expenses and disbursements of transfer
agents, dividend disbursing agents, investor servicing agents and registrars
for all services to the Portfolio, (xv) expenses for servicing the accounts of
investors, (xvi) any direct charges to investors approved by the Trustees of
the Portfolio, (xvii) compensation and expenses of Trustees of the Portfolio
who are not members of BMR's organization, and (xviii) such non-recurring
items as may arise, including expenses incurred in connection with litigation,
proceedings and claims and the obligation of the Portfolio to indemnify its
Trustees, officers and investors with respect thereto.
The Portfolio pays BMR as compensation under the Investment Advisory
Agreement a monthly fee equal to the aggregate of (a) a daily asset based fee
computed by applying the annual asset rate applicable to that portion of the
total daily net assets in each Category as indicated below, plus (b) a daily
income based fee computed by applying the daily income rate applicable to that
portion of the total daily gross income (which portion shall bear the same
relationship to the total daily gross income on such day as that portion of
the total daily net assets in the same Category bears to the total daily net
assets on such day) in each Category as indicated below:
<TABLE>
<CAPTION>
ANNUAL DAILY
CATEGORY DAILY NET ASSETS ASSET RATE INCOME RATE
-------- ---------------- ---------- -----------
<C> <S> <C> <C>
1 up to $500 million ......................................... 0.300% 3.00%
2 $500 million but less than $1 billion ...................... 0.275% 2.75%
3 $1 billion but less than $1.5 billion ...................... 0.250% 2.50%
4 $1.5 billion but less than $2 billion ...................... 0.225% 2.25%
5 $2 billion but less than $3 billion ........................ 0.200% 2.00%
6 $3 billion and over ........................................ 0.175% 1.75%
</TABLE>
As at March 31, 1995, the Portfolio had net assets of $442,551,815. For
the period from the Portfolio's start of business, June 1, 1994 to March 31,
1995, the Portfolio paid BMR advisory fees of $2,260,748 (equivalent to 0.64%
(annualized) of the Portfolio's average daily net assets for such period).
The Investment Advisory Agreement with BMR remains in effect until
February 28, 1996. It may be continued indefinitely thereafter so long as such
continuance after February 28, 1996 is approved at least annually (i) by the
vote of a majority of the Trustees of the Portfolio who are not interested
persons of the Portfolio or of BMR cast in person at a meeting specifically
called for the purpose of voting on such approval and (ii) by the Board of
Trustees of the Portfolio or by vote of a majority of the outstanding voting
securities of the Portfolio. The Agreement may be terminated at any time
without penalty on sixty (60) days' written notice by the Board of Trustees of
either party, or by vote of the majority of the outstanding voting securities
of the Portfolio, and the Agreement will terminate automatically in the event
of its assignment. The Agreement provides that BMR may render services to
others and engage in other business activities and may permit other fund
clients and other corporations and organizations to use the words "Eaton
Vance" or "Boston Management and Research" in their names. The Agreement also
provides that BMR shall not be liable for any loss incurred in connection with
the performance of its duties, or action taken or omitted under that
Agreement, in the absence of willful misfeasance, bad faith, gross negligence
in the performance of its duties or by reason of its reckless disregard of its
obligations and duties thereunder, or for any losses sustained in the
acquisition, holding or disposition of any security or other investment.
The Bank of Nova Scotia Trust Company (Cayman) Ltd. maintains the
Portfolio's principal office and certain of its records and provides
administrative assistance in connection with meetings of the Portfolio's
Trustees and interestholders, for which services the Portfolio pays $1,500 per
annum.
As indicated in the Prospectus, Eaton Vance serves as Administrator of the
Fund, but currently receives no compensation for providing administrative
services to the Fund. Under its Administrative Services Agreement with the
Fund, Eaton Vance has been engaged to administer the Fund's affairs, subject
to the supervision of the Trustees of the Trust, and shall furnish for the use
of the Fund office space and all necessary office facilities, equipment and
personnel for administering the affairs of the Fund. For additional
information about the Administrator, see "Fees and Expenses" in the Fund's
Part II of this Statement of Additional Information.
The Fund pays all of its own expenses including, without limitation, (i)
expenses of maintaining the Fund and continuing its existence, (ii)
registration of the Trust under the 1940 Act, (iii) commissions, fees and
other expenses connected with the purchase or sale of securities and other
investments, (iv) auditing, accounting and legal expenses, (v) taxes and
interest, (vi) governmental fees, (vii) expenses of issue, sale, repurchase
and redemption of shares, (viii) expenses of registering and qualifying the
Fund and its shares under federal and state securities laws and of preparing
and printing prospectuses for such purposes and for distributing the same to
shareholders and investors, and fees and expenses of registering and
maintaining registrations of the Fund and of the Fund's principal underwriter,
if any, as broker-dealer or agent under state securities laws, (ix) expenses
of reports and notices to shareholders and of meetings of shareholders and
proxy solicitations therefor, (x) expenses of reports to governmental officers
and commissions, (xi) insurance expenses, (xii) association membership dues,
(xiii) fees, expenses and disbursements of custodians and subcustodians for
all services to the Fund (including without limitation safekeeping of funds,
securities and other investments, keeping of books and accounts and
determination of net asset values), (xiv) fees, expenses and disbursements of
transfer agents, dividend disbursing agents, shareholder servicing agents and
registrars for all services to the Fund, (xv) expenses for servicing
shareholder accounts, (xvi) any direct charges to shareholders approved by the
Trustees of the Trust, (xvii) compensation and expenses of Trustees of the
Trust who are not members of the Eaton Vance organization, and (xviii) such
non-recurring items as may arise, including expenses incurred in connection
with litigation, proceedings and claims and the obligation of the Trust to
indemnify its Trustees and officers with respect thereto.
BMR is a wholly-owned subsidiary of Eaton Vance. Eaton Vance and EV are
both wholly-owned subsidiaries of EVC. BMR and Eaton Vance are both
Massachusetts business trusts, and EV is the trustee of BMR and Eaton Vance.
The Directors of EV are Landon T. Clay, H. Day Brigham, Jr., M. Dozier
Gardner, James B. Hawkes, and Benjamin A. Rowland, Jr. The Directors of EVC
consist of the same persons and John G. L. Cabot and Ralph Z. Sorenson. Mr.
Clay is chairman and Mr. Gardner is president and chief executive officer of
EVC, BMR, Eaton Vance and EV. All of the issued and outstanding shares of
Eaton Vance and EV are owned by EVC. All of the issued and outstanding shares
of BMR are owned by Eaton Vance. All shares of the outstanding Voting Common
Stock of EVC are deposited in a Voting Trust which expires on December 31,
1996, the Voting Trustees of which are Messrs. Clay, Brigham, Gardner, Hawkes
and Rowland. The Voting Trustees have unrestricted voting rights for the
election of Directors of EVC. All of the outstanding voting trust receipts
issued under said Voting Trust are owned by certain of the officers of BMR and
Eaton Vance who are also officers and Directors of EVC and EV. As of June 30,
1995, Messrs. Clay, Gardner and Hawkes each owned 24% of such voting trust
receipts, and Messrs. Rowland and Brigham owned 15% and 13%, respectively, of
such voting trust receipts. Messrs. Brigham, Gardner, Hawkes and Otis are
officers or Trustees of the Trust and/or the Portfolio and are members of the
EVC, BMR, Eaton Vance and EV organizations. Messrs. Ahern, Murphy, O'Connor,
Talcott, Terry and Woodbury and Ms. Sanders are officers or Trustees of the
Trust and/or the Portfolio and are also members of the BMR, Eaton Vance and EV
organizations. BMR will receive the fees paid under the Investment Advisory
Agreement.
Eaton Vance owns all of the stock of Energex Corporation, which is engaged
in oil and gas operations. EVC owns all of the stock of Marblehead Energy
Corp. (which engages in oil and gas operations) and 77.3% of the stock of
Investors Bank & Trust Company, custodian of the Fund and the Portfolio, which
provides custodial, trustee and other fiduciary services to investors,
including individuals, employee benefit plans, corporations, investment
companies, savings banks and other institutions. In addition, Eaton Vance owns
all the stock of Northeast Properties, Inc., which is engaged in real estate
investment, consulting and management. EVC owns all the stock of Fulcrum
Management, Inc. and MinVen, Inc., which are engaged in the development of
precious metal properties. EVC, BMR, Eaton Vance and EV may also enter into
other businesses.
EVC and its affiliates and their officers and employees from time to time
have transactions with various banks, including the custodian of the Fund and
the Portfolio, Investors Bank & Trust Company. It is Eaton Vance's opinion
that the terms and conditions of such transactions were not and will not be
influenced by existing or potential custodial or other relationships between
the Fund or the Portfolio and such banks.
CUSTODIAN
Investors Bank & Trust Company ("IBT"), 24 Federal Street, Boston,
Massachusetts (a 77.3% owned subsidiary of EVC) acts as custodian for the Fund
and the Portfolio. IBT has the custody of all cash and securities representing
the Fund's interest in the Portfolio, has custody of all the Portfolio assets,
and its subsidiary, IBT Fund Services (Canada) Inc., First Canadian Place,
King Street West, Toronto, Ontario, Canada, maintains the general ledger of
the Portfolio and the Fund and computes the daily net asset value of interests
in the Portfolio and the net asset value of shares of the Fund. In its
capacity as Custodian, IBT attends to details in connection with the sale,
exchange, substitution, transfer or other dealings with the Portfolio's
investments, receives and disburses all funds and performs various other
ministerial duties upon receipt of proper instructions from the Fund and the
Portfolio. IBT charges custody fees which are competitive within the industry.
A portion of the fee relates to custody, bookkeeping and valuation services
and is based upon a percentage of the Fund and Portfolio net assets, and a
portion of the fee relates to activity charges, primarily the number of
portfolio transactions. These fees are then reduced by a credit for cash
balances of the particular investment company at the custodian equal to 75% of
the 91-day, U.S. Treasury Bill auction rate applied to the particular
investment company's average daily collected balances for the week. In view of
the ownership of EVC in IBT, the Portfolio is treated as a self-custodian
pursuant to Rule 17f-2 under the 1940 Act, and the Portfolio's investments
held by IBT as custodian are thus subject to the additional examinations by
the Portfolio's independent certified public accountants as called for by such
Rule. For the period from the start of business, June 1, 1994, to March 31,
1995, the Portfolio paid IBT $147,500. For the custody fees that the Fund paid
to IBT, see "Fees and Expenses" in Part II of this Statement of Additional
Information.
SERVICE FOR WITHDRAWAL
By a standard agreement, the Trust's Transfer Agent will send to the
shareholder regular monthly or quarterly payments of any permitted amount
designated by the shareholder (see "Eaton Vance Shareholder Services --
Withdrawal Plan" in the Fund's Prospectus) based upon the value of the shares
held. The checks will be drawn from share redemptions and hence, are a return
of principal. Income dividends and capital gains distributions in connection
with withdrawal accounts will be credited at net asset value as of the record
date for each distribution. Continued withdrawals in excess of current income
will eventually use up principal, particularly in a period of declining market
prices.
To use this service, at least $5,000 in cash or shares at the public
offering price will have to be deposited with the Transfer Agent. The
maintenance of a withdrawal plan concurrently with purchases of additional
Fund shares would be disadvantageous if a sales charge is included in such
purchases. A shareholder may not have a withdrawal plan in effect at the same
time he has authorized Bank Automated Investing or is otherwise making regular
purchases of Fund shares. Either the shareholder, the Transfer Agent or the
Principal Underwriter will be able to terminate the withdrawal plan at any
time without penalty.
DETERMINATION OF NET ASSET VALUE
The net asset value of the Portfolio and of shares of the Fund is
determined by the Custodian (as agent for the Fund and the Portfolio) in the
manner described under "Valuing Fund Shares" in the Fund's current prospectus.
The Fund and the Portfolio will be closed for business and will not price
their respective shares or interests on the following business holidays: New
Year's Day, Presidents' Day, Good Friday (a New York Stock Exchange holiday),
Memorial Day, Independence Day, Labor Day, Thanksgiving Day and Christmas Day.
The Portfolio's net asset value is also computed by IBT (as agent and
custodian for the Portfolio), by subtracting the liabilities of the Portfolio
from the value of its total assets. Fixed-income securities (other than short-
term obligations), including listed securities and securities for which price
quotations are available, will normally be valued on the basis of market
valuations furnished by a pricing service. The pricing service uses
information with respect to transactions in bonds, quotations from bond
dealers, market transactions in comparable securities, various relationships
between securities, and yield to maturity in determining value. Securities
listed on securities exchanges or in the NASDAQ National Market are valued at
closing sale prices. Unlisted or listed securities for which closing sale
prices are not available are valued at the mean between the latest bid and
asked prices. Short-term obligations maturing in sixty days or less are valued
at amortized cost, which approximates market. Other assets are valued at fair
value using methods determined in good faith by the Trustees.
Each investor in the Portfolio, including the Fund, may add to or reduce
its investment in the Portfolio on each day the New York Stock Exchange (the
"Exchange") is open for trading ("Portfolio Business Day") as of the close of
regular trading on the Exchange (the "Portfolio Valuation Time"). The value of
each investor's interest in the Portfolio will be determined by multiplying
the net asset value of the Portfolio by the percentage, determined on the
prior Portfolio Business Day, which represented that investor's share of the
aggregate interests in the Portfolio on such prior day. Any additions or
withdrawals for the current Portfolio Business Day will then be recorded. Each
investor's percentage of the aggregate interest in the Portfolio will then be
recomputed as a percentage equal to a fraction (i) the numerator of which is
the value of such investor's investment in the Portfolio as of the Portfolio
Valuation Time on the prior Portfolio Business Day plus or minus, as the case
may be, the amount of any additions to or withdrawals from the investor's
investment in the Portfolio on the current Portfolio Business Day and (ii) the
denominator of which is the aggregate net asset value of the Portfolio as of
the Portfolio Valuation Time on the prior Portfolio Business Day plus or
minus, as the case may be, the amount of the net additions to or withdrawals
from the aggregate investment in the Portfolio on the current Portfolio
Business Day by all investors in the Portfolio. The percentage so determined
will then be applied to determine the value of the investor's interest in the
Portfolio for the current Portfolio Business Day.
INVESTMENT PERFORMANCE
The average annual total return is determined by multiplying a
hypothetical initial purchase order of $1,000 by the average annual compound
rate of return (including capital appreciation/depreciation, and dividends and
distributions paid and reinvested) for the stated period and annualizing the
results. The calculation assumes that all dividends and distributions are
reinvested at net asset value on the reinvestment dates during the period and
a complete redemption of the investment and, if applicable, the deduction of a
contingent deferred sales charge at the end of the period.
The Fund's yield is computed pursuant to a standardized formula by
dividing its net investment income per share earned during a recent thirty-day
period by the net asset value per share on the last day of the period and
annualizing the resulting figure. Net investment income per share is
calculated from the yields to maturity of all debt obligations held by the
Portfolio based on the market value of such obligations and from dividends
from equity securities based on stated annual rates, exclusive of special or
extra distributions, reduced by accrued Fund expenses for the period, with the
resulting number being divided by the average daily number of Fund shares
outstanding and entitled to receive dividends during the period. This yield
figure does not reflect the deduction of any contingent deferred sales charges
which are imposed upon certain redemptions of shares at the rates set forth
under "How to Redeem Fund Shares" in the Prospectus. For information
concerning the total return of the Fund, see "Performance Information" in Part
II of this Statement of Additional Information.
The Fund may also publish its distribution rate and/or its effective
distribution rate. The Fund's distribution rate is computed by dividing the
most recent monthly distribution per share annualized by the current net asset
value per share. The Fund's effective distribution rate is computed by
dividing the distribution rate by the ratio used to annualize the distribution
and reinvesting the resulting amount for a full year on the basis of such
ratio. The effective distribution rate will be higher than the distribution
rate because of the compounding effect of the assumed reinvestment. Investors
should note that the Fund's yield is calculated using a standardized formula
the income component of which is computed from the yields to maturity of all
debt obligations held by the Portfolio based on the market value of such
obligations and from dividends from equity securities based on stated annual
rates, exclusive of special or extra distributions, (with all purchases and
sales of securities during such period included in the income calculation on a
settlement date basis), whereas the distribution rate is based on the Fund's
last monthly distribution which tends to be relatively stable and may be more
or less than the amount of net investment income and short-term capital gain
actually earned by the Fund during the month. For further information
concerning the Distribution Rate and Effective Distribution Rate, see
"Performance Information in Part II of this Statement of Additional
Information.
The Fund's total return may be compared to the Consumer Price Index and
various domestic securities indices. The Fund's total return and comparisons
with these indices may be used in advertisements and in information furnished
to present or prospective shareholders. The Fund's performance may differ from
that of other investors in the Portfolio, including the other investment
companies.
From time to time, information showing the effects of compounding interest
may be included in advertisements and other material furnished to present and
prospective shareholders. Compounding is the process of earning interest on
principal plus interest that was earned earlier. Interest can be compounded
annually, semi-annually, quarterly or daily, e.g. $1,000 compounded annually
at 9 percent will grow to $1,090 at the end of the first year and $1,188 at
the end of the second year. The extra $8, which was earned on the $90 interest
from the first year, is the compound interest. $1,000 compounded annually at 9
percent grows to $2,367 at the end of 10 years and $5,604 at the end of 20
years. Other examples of compounding $1,000 annually are 7 percent grows to
$1,967 at the end of 10 years and $3,870 at the end of 20 years. At 12 percent
the $1,000 grows to $3,106 at the end of 10 years and $9,646 at the end of 20
years. All of these examples are for illustrative purposes only and are not
meant to indicate performance of the Fund.
From time to time, information, charts and illustrations relating to
inflation and the effects of inflation on the dollar may be included in
advertisements and other material furnished to present and prospective
shareholders. For example: After 10 years, the purchasing power of $25,000
would shrink to $16,621, $14,968, $13,465 and $12,100, respectively, if the
annual rates of inflation during such period were 4%, 5%, 6% and 7%,
respectively. (To calculate the purchasing power, the value at the end of each
year is reduced by the above inflation rates for 10 consecutive years.)
From time to time, information, charts and illustrations showing
comparative historical information of high-yielding bonds as represented by
The First Boston High Yield Index over 10-year U.S. treasury bonds may be used
in advertisements and other material furnished to present or prospective
shareholders. The First Boston High Yield Index is an unmanaged index of 661
high-yielding securities with an average life of 8.1 years, an average
maturity of 8.2 years and an average coupon of 10.7%. The principal and
interest of U.S. Treasury bonds are guaranteed by the United States
government, while high yield bonds, sometimes referred to as "junk bonds", are
of lower quality than investment-grade bonds and U.S. securities. Rates are
given for illustrative purposes only and are not meant to imply or predict
actual results of an investment in the Fund.
From time to time evaluations of the Fund's performance made by
independent sources, e.g. Lipper Analytical Services, Inc., CDA/Wiesenberger
and Morningstar, Inc., may be used in advertisements and in information
furnished to present or prospective shareholders.
Information used in advertisements and in materials furnished to present
and prospective shareholders may include statements or illustrations relating
to the appropriateness of types of securities and/or mutual funds which may be
employed to meet specific financial goals, such as (1) funding retirement, (2)
paying for children's education, and (3) financially supporting aging parents.
These three financial goals may be referred to in such advertisements or
materials as the "Triple Squeeze."
For additional information on the Fund's investment performance, see
"Performance Information" in Part II of this Statement of Additional
Information.
TAXES
FEDERAL INCOME TAXES
See "Distributions and Taxes" in the Fund's current prospectus.
Each series of the Trust is treated as a separate entity for Federal
income tax purposes. The Fund has elected to be treated, and intends to
qualify each year, as a regulated investment company under the Internal
Revenue Code (the "Code"). Accordingly, the Fund intends to satisfy certain
requirements relating to sources of its income and diversification of its
assets and to distribute all of its net investment income and net realized
capital gains in accordance with the timing requirements imposed by the Code,
so as to avoid any Federal income or excise tax to the Fund. Because the Fund
invests substantially all of its assets in the Portfolio, the Portfolio
normally must satisfy the applicable source of income and diversification
requirements in order for the Fund to satisfy them. The Portfolio will
allocate at least annually among its investors, including the Fund, each
investor's distributive share of the Portfolio's net taxable (if any) and tax-
exempt investment income, net realized capital gains, and any other items of
income, gain, loss, deduction or credit. For purposes of applying the
requirements of the Code regarding qualification as a regulated investment
company, the Fund will be deemed (i) to own its proportionate share of each of
the assets of the Portfolio and (ii) to be entitled to the gross income of the
Portfolio attributable to such share.
In order to avoid Federal excise tax, the Code requires that the Fund
distribute by December 31 of each calendar year at least 98% of its ordinary
income for such year, at least 98% of the excess of its realized capital gains
over its realized capital losses, generally computed on the basis of the one-
year period ending on October 31 of such year, after reduction by any
available capital loss carryforwards, and 100% of any income from the prior
year (as previously computed) that was not paid out during such year and on
which the Fund was not taxed. Under current law, provided that the Fund
qualifies as a regulated investment company for Federal income tax purposes
and the Portfolio is treated as a partnership for Massachusetts and Federal
tax purposes, neither the Fund nor the Portfolio is liable for any income,
excise or franchise tax in the Commonwealth of Massachusetts.
The Portfolio's transactions in options, futures contracts and forward
contracts will be subject to special tax rules that may affect the amount,
timing and character of distributions to shareholders. For example, certain
positions held by the Portfolio on the last business day of each taxable year
will be marked to market (i.e., treated as if closed out on such day), and any
resulting gain or loss will be treated as 60% long-term and 40% short-term
capital gain or loss. Certain positions held by the Portfolio that
substantially diminish the Portfolio's risk of loss with respect to other
positions in its portfolio may constitute "straddles," which are subject to
tax rules that may cause deferral of Portfolio losses, adjustments in the
holding periods of Portfolio securities and conversion of short-term into
long-term capital losses. The Portfolio may have to limit its activities in
options, futures contracts and forward contracts in order to enable the Fund
to maintain its qualification as a regulated investment company.
The Portfolio may be subject to foreign withholding taxes with respect to
income derived from foreign securities. These taxes may be reduced or
eliminated under the terms of an applicable U.S. income tax treaty. As it is
not expected that more than 50% of the value of the total assets of the Fund
at the close of any taxable year will consist of securities issued by foreign
corporations, the Fund will not be eligible to pass through to shareholders
any foreign tax credits or deductions for foreign taxes paid by the Portfolio.
Certain foreign exchange gains and losses realized by the Fund will be treated
as ordinary income and losses. Certain uses of foreign currency and investment
by the Portfolio in certain "passive foreign investment companies" may be
limited as a tax election may be made, if available, in order to avoid
imposition of a tax on the Portfolio.
The Portfolio's investment in zero coupon and deferred interest securities
and payment in kind securities will cause it to realize income prior to the
receipt of cash payments with respect to these securities. Such income will be
allocated daily to interests in the Portfolio and, in order to enable the Fund
to distribute its proportionate share of this income and avoid a tax payable
by the Fund, the Portfolio may be required to liquidate portfolio securities
that it might otherwise have continued to hold in order to generate cash that
the Fund may withdraw from the Portfolio for subsequent distribution to Fund
shareholders.
Investments in lower-rated or unrated securities may present special tax
issues for the Portfolio and hence for the Fund to the extent actual or
anticipated defaults may be more likely with respect to such securities. Tax
rules are not entirely clear about issues such as when the Portfolio may cease
to accrue interest, original issue discount, or market discount; when and to
what extent deductions may be taken for bad debts or worthless securities; how
payments received on obligations in default should be allocated between
principal and income; and whether exchanges of debt obligations in a workout
context are taxable.
Distributions by the Fund of net investment income, the excess of net
short-term capital gains over net long-term capital losses and certain foreign
exchange gains are taxable to shareholders as ordinary income, whether
received in cash or reinvested in additional shares. Distributions of the
excess of net long-term capital gains over net short-term capital losses
(including any capital losses carried forward from prior years) are taxable to
shareholders as long-term capital gains, whether received in cash or in
additional shares and regardless of the length of time their shares of the
Fund have been held. Certain distributions declared in October, November or
December and paid the following January will be taxable to shareholders as if
received on December 31 of the year in which they are declared.
Any loss realized upon the redemption or exchange of shares of the Fund
with a tax holding period of 6 months or less will be treated as a long-term
capital loss to the extent of any distribution of net long-term capital gains
with respect to such shares. All or a portion of any loss realized upon a
taxable disposition of Fund shares may be disallowed under "wash sale" rules
if other shares of the Fund are purchased (whether through the reinvestment of
distributions or otherwise) within 30 days before or after such disposition.
Special tax rules apply to Individual Retirement Accounts ("IRAs") and to
other retirement plans, and persons investing through such plans should
consult their tax advisers for more information. The deductibility of such
contributions may be restricted or eliminated for particular shareholders.
Amounts paid by the Fund to individuals and certain other shareholders who
have not provided the Fund with their correct taxpayer identification number
and certain required certifications, as well as shareholders with respect to
whom the Fund has received notification from the Internal Revenue Service or a
broker, may be subject to "backup" withholding of Federal income tax from the
Fund's dividends and distributions and the proceeds of redemptions (including
repurchases and exchanges), at a rate of 31%. An individual's taxpayer
identification number is generally his or her social security number.
Non-resident alien individuals and certain foreign corporations and other
foreign entities generally will be subject to a U.S. withholding tax at a rate
of 30% on the Fund's distributions from its ordinary income and the excess of
its net short-term capital gain over its net long-term capital loss, unless
the tax is reduced or eliminated by an applicable tax treaty. Distributions
from the excess of the Fund's net long-term capital gain over its net short-
term capital loss received by such shareholders and any gain from the sale or
other disposition of shares of the Fund generally will not be subject to U.S.
Federal income taxation, provided that non-resident alien status has been
certified by the shareholder. Different U.S. tax consequences may result if
the shareholder is engaged in a trade or business in the United States, is
present in the United States for a sufficient period of time during a taxable
year to be treated as a U.S. resident, or fails to provide any required
certifications regarding status as a non-resident alien investor. Foreign
shareholders should consult their tax advisers regarding the U.S. and foreign
tax consequences of an investment in the Fund.
The foregoing discussion does not address the special tax rules applicable
to certain classes of investors, such as retirement plans, tax-exempt
entities, insurance companies and financial institutions. Shareholders should
consult their own tax advisers with respect to state and local tax
consequences of investing in the Fund. Shareholders should consult their own
tax advisers with respect to special tax rules that may apply in their
particular situations, as well as the state, local or foreign tax consequences
of investing in the Fund.
PRINCIPAL UNDERWRITER
Under the Distribution Agreement the Principal Underwriter acts as
principal in selling shares of the Fund. The expenses of printing copies of
prospectuses used to offer shares to financial service firms or investors and
other selling literature and of advertising is borne by the Principal
Underwriter. The fees and expenses of qualifying and registering and
maintaining qualifications and registrations of the Fund and its shares under
Federal and state securities laws are borne by the Fund. In addition, the Fund
makes payments to the Principal Underwriter pursuant to its Distribution Plan
as described in the Fund's current Prospectus; the provisions of the
Distribution Plan relating to such payments are included in the Distribution
Agreement. The Distribution Agreement is renewable annually by the Trust's
Board of Trustees (including a majority of its Trustees who are not interested
persons of the Trust and who have no direct or indirect financial interest in
the operation of the Fund's Distribution Plan or the Distribution Agreement),
may be terminated on sixty days" notice either by such Trustees or by vote of
a majority of the outstanding voting securities of the Fund or on six months'
notice by the Principal Underwriter and is automatically terminated upon
assignment. The Principal Underwriter distributes Fund shares on a "best
efforts" basis under which it is required to take and pay for only such shares
as may be sold.
PORTFOLIO SECURITY TRANSACTIONS
Decisions concerning the execution of portfolio security transactions,
including the selection of the market and the broker-dealer firm, are made by
Eaton Vance. Eaton Vance is also responsible for the execution of transactions
for all other accounts managed by it.
BMR places the portfolio security transactions of the Portfolio and of all
other accounts managed by it for execution with many broker-dealer firms. BMR
uses its best efforts to obtain execution of portfolio security transactions
at prices which are advantageous to the Portfolio and (when a disclosed
commission is being charged) at reasonably competitive commission rates. In
seeking such execution, BMR will use its best judgment in evaluating the terms
of a transaction, and will give consideration to various relevant factors
including without limitation the size and type of the transaction, the general
execution and operational capabilities of the broker-dealer, the nature and
character of the market for the security, the confidentiality, speed and
certainty of effective execution required for the transaction, the reputation,
reliability, experience and financial condition of the broker-dealer, the
value and quality of services rendered by the broker-dealer in other
transactions, and the reasonableness of the commission or spread, if any.
Transactions on United States stock exchanges and other agency transactions
involve the payment by the Portfolio of negotiated brokerage commissions. Such
commissions vary among different broker-dealer firms, and a particular broker-
dealer may charge different commissions according to such factors as the
difficulty and size of the transaction and the volume of business done with
the broker-dealer. Transactions in foreign securities usually involve the
payment of fixed brokerage commissions, which are generally higher than those
in the United States. There is generally no stated commission in the case of
securities traded in the over-the-counter markets, but the price paid or
received by the Portfolio usually includes an undisclosed dealer markup or
markdown. In an underwritten offering, the price paid by the Portfolio often
includes a disclosed fixed commission or discount retained by the underwriter
or dealer. Although commissions paid on portfolio security transactions will,
in the judgment of BMR, be reasonable in relation to the value of the services
provided, commissions exceeding those which another firm might charge may be
paid to broker-dealers who were selected to execute transactions on behalf of
the Portfolio and BMR's other clients in part for providing brokerage and
research services to BMR.
As authorized in Section 28(e) of the Securities Exchange Act of 1934, a
broker or dealer who executes a portfolio transaction on behalf of the
Portfolio may receive a commission which is in excess of the amount of
commission another broker or dealer would have charged for effecting that
transaction if BMR determines in good faith that such commission was
reasonable in relation to the value of the brokerage and research services
provided. This determination may be made on the basis of either that
particular transaction or on the basis of overall responsibilities which BMR
and its affiliates have for accounts over which they exercise investment
discretion. In making any such determination, BMR will not attempt to place a
specific dollar value on the brokerage and research services provided or to
determine what portion of the commission should be related to such services.
Brokerage and research services may include advice as to the value of
securities, the advisability of investing in, purchasing, or selling
securities, and the availability of securities or purchasers or sellers of
securities; furnishing analyses and reports concerning issuers, industries,
securities, economic factors and trends, portfolio strategy and the
performance of accounts; effecting securities transactions and performing
functions incidental thereto (such as clearance and settlement); and the
"Research Services" referred to in the next paragraph.
It is a common practice in the investment advisory industry for the
advisers of investment companies, institutions and other investors to receive
research, statistical and quotation services, data, information and other
services, products and materials which assist such advisers in the performance
of their investment responsibilities ("Research Services") from broker-dealers
which execute portfolio transactions for the clients of such advisers and from
third parties with which such broker-dealers have arrangements. Consistent
with this practice, BMR receives Research Services from many broker-dealer
firms with which BMR places the portfolio transactions and from third parties
with which these broker-dealers have arrangements. These Research Services
include such matters as general economic and market reviews, industry and
company reviews, evaluations of securities and portfolio strategies and
transactions, recommendations as to the purchase and sale of securities and
other portfolio transactions, financial, industry and trade publications, news
and information services, pricing and quotation equipment and services, and
research oriented computer hardware, software, data bases and services. Any
particular Research Service obtained through a broker-dealer may be used by
BMR in connection with client accounts other than those accounts which pay
commissions to such broker-dealer. Any such Research Service may be broadly
useful and of value to BMR in rendering investment advisory services to all or
a significant portion of its clients, or may be relevant and useful for the
management of only one client's account or of a few clients' accounts, or may
be useful for the management of merely a segment of certain clients' accounts,
regardless of whether any such account or accounts paid commissions to the
broker-dealer through which such Research Service was obtained. The advisory
fee paid by the Portfolio is not reduced because BMR receives such Research
Services. BMR evaluates the nature and quality of the various Research
Services obtained through broker-dealer firms and attempts to allocate
sufficient commissions to such firms to ensure the continued receipt of
Research Services which BMR believes are useful or of value to it in rendering
investment advisory services to its clients.
Subject to the requirement that BMR shall use its best efforts to seek to
execute portfolio security transactions at advantageous prices and at
reasonably competitive commission rates or spreads, BMR is authorized to
consider as a factor in the selection of any broker-dealer firm with whom
portfolio orders may be placed the fact that such firm has sold or is selling
shares of the Fund or of other investment companies sponsored by BMR or Eaton
Vance. This policy is not inconsistent with a rule of the National Association
of Securities Dealers, Inc., which rule provides that no firm which is a
member of the Association shall favor or disfavor the distribution of shares
of any particular investment company or group of investment companies on the
basis of brokerage commissions received or expected by such firm from any
source.
Securities considered as investments for the Portfolio may also be
appropriate for other investment accounts managed by BMR or Eaton Vance or its
affiliates. BMR or Eaton Vance will attempt to allocate equitably portfolio
security transactions among the Portfolio and the portfolios of its other
investment accounts whenever decisions are made to purchase or sell securities
by the Portfolio and one or more of such other accounts simultaneously. In
making such allocations, the main factors to be considered are the respective
investment objectives of the Portfolio and such other accounts, the relative
size of portfolio holdings of the same or comparable securities, the
availability of cash for investment by the Portfolio and such accounts, the
size of investment commitments generally held by the Portfolio and such
accounts and the opinions of the persons responsible for recommending
investments to the Portfolio and such accounts. While this procedure could
have a detrimental effect on the price or amount of the securities available
to the Portfolio from time to time, it is the opinion of the Trustees of the
Trust that the benefits available from the BMR organization outweigh any
disadvantage that may arise from exposure to simultaneous transactions. For
the period from the start of business, June 1, 1994, to March 31, 1995, the
Portfolio paid brokerage commissions of $3,684 on portfolio security
transactions of which $569 was paid in respect of portfolio security
transactions aggregating approximately $206,198 to firms which provided some
research services to BMR or its affiliates (although many of such firms may
have been selected in any particular transaction primarily because of their
execution capabilities).
OTHER INFORMATION
Eaton Vance, pursuant to its agreement with the Trust, controls the use of
the words "Eaton Vance" in the Fund's name and may use the words "Eaton Vance"
in other connections and for other purposes.
The Trust's Declaration of Trust may be amended by the Trustees when
authorized by vote of a majority of the outstanding voting securities of the
Trust, the financial interests of which are affected by the amendment. The
Trustees may also amend the Declaration of Trust without the vote or consent
of shareholders to change the name of the Trust or any series or to make such
other changes as do not have a materially adverse effect on the financial
interests of shareholders or if they deem it necessary to conform it to
applicable federal or state laws or regulations. The Trust or any series or
class thereof may be terminated by: (1) the affirmative vote of the holders of
not less than two-thirds of the Shares outstanding and entitled to vote at any
meeting of shareholders of the Trust or the appropriate series or class
thereof, or by an instrument or instruments in writing without a meeting,
consented to by the holders of two-thirds of the shares of the Trust or a
series or class thereof, provided, however, that, if such termination is
recommended by the Trustees, the vote of a majority of the outstanding voting
securities of the Trust or a series or class thereof entitled to vote thereon
shall be sufficient authorization; or (2) by means of an instrument in writing
signed by a majority of the Trustees, to be followed by a written notice to
shareholders stating that a majority of the Trustees has determined that the
continuation of the Trust or a series or a class thereof is not in the best
interest of the Trust, such series or class or of their respective
shareholders.
The Declaration of Trust further provides that the Trustees will not be
liable for errors of judgment or mistakes of fact or law; but nothing in the
Declaration of Trust protects a Trustee against any liability to which he
would otherwise be subject by reason of willful misfeasance, bad faith, gross
negligence, or reckless disregard of the duties involved in the conduct of his
office. The Trust's by-laws provide that a Trustee may be removed at any
special meeting of the Shareholders of the Trust by a vote of two-thirds of
the outstanding shares of beneficial Interest of the Trust (the "Shares"). The
Trustees will promptly call a meeting of Shareholders for the purpose of
voting upon a question of removal of a Trustee when requested so to do by the
record holders of not less than 10 per centum of the outstanding shares.
As permitted by Massachusetts law, there will normally be no meetings of
shareholders for the purpose of electing Trustees of the Trust unless and
until such time as less than a majority of the Trustees of the Trust holding
office have been elected by shareholders. In such an event the Trustees then
in office will call a shareholder's meeting for the election of Trustees.
Except for the foregoing circumstances and unless removed by action of the
shareholders in accordance with the Trust's by-laws, the Trustees shall
continue to hold office and may appoint successor Trustees.
The Trust's by-laws provide that no person shall serve as a Trustee of the
Trust if shareholders holding two-thirds of the outstanding shares have
removed him from that office either by a written declaration filed with the
Trust's custodian or by votes cast at a meeting called for that purpose. The
by-laws further provide that under certain circumstances the shareholders may
call a meeting to remove a Trustee and that the Trust is required to provide
assistance in communication with shareholders about such a meeting.
The Declaration of Trust of the Portfolio provides that no person shall
serve as a Trustee if investors holding two-thirds of the outstanding
interests have removed him from that office either by a written declaration
filed with the Portfolio's custodian or by votes cast at a meeting called for
that purpose. The Declaration of Trust further provides that under certain
circumstances the investors may call a meeting to remove a Trustee and that
the Portfolio is required to provide assistance in communicating with
investors about such a meeting.
The right to redeem shares of the Fund can be suspended and the payment of
the redemption price deferred when the Exchange is closed (other than for
customary weekend and holiday closings), during periods when trading on the
Exchange is restricted as determined by the Securities and Exchange Commission
(the "Commission"), or during any emergency as determined by the Commission
which makes it impracticable for the Portfolio to dispose of its securities or
value its assets, or during any other period permitted by order of the
Commission for the protection of investors.
INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Deloitte & Touche LLP, 125 Summer Street, Boston, Massachusetts, and
Deloitte & Touche, Grand Caymen, Caymen Islands, British West Indies are the
independent certified public accountants of the Fund and the Portfolio,
respectively, providing audit services, tax return preparation, and assistance
and consultation with respect to the preparation of filings with the
Securities and Exchange Commission.
FINANCIAL STATEMENTS
The financial statements of the Fund and the Portfolio, which are included
in the Fund's Annual Report to Shareholders, are incorporated by reference
into this Statement of Additional Information and have been so incorporated in
reliance on the report of Deloitte & Touche LLP, independent certified public
accountants, as experts in accounting and auditing. A copy of the Annual
Report accompanies this Statement of Additional Information.
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
PART II
This Part II provides information about EV MARATHON HIGH INCOME FUND. The
Fund became a series of the Trust on July 31, 1995. The Trust changed its name
from Eaton Vance Government Obligations Trust on July 31, 1995.
FEES AND EXPENSES
ADMINISTRATOR
As stated under "Investment Adviser and Administrator" in Part I of this
Statement of Additional Information, the Administrator receives no
compensation for providing administrative services to the Fund.
DISTRIBUTION PLAN
For the fiscal year ended March 31, 1995, the Fund paid sales commissions
under the Plan to the Principal Underwriter aggregating $3,144,405, which
amount was used by the Principal Underwriter to partially defray sales
commissions aggregating $2,918,802 paid during such period by the Principal
Underwriter to Authorized Firms on sales of shares of the Fund and to reduce
uncovered distribution charges. During such period contingent deferred sales
charges aggregating approximately $1,644,000 were imposed on early redeeming
shareholders and paid to the Principal Underwriter, which amount was used by
the Principal Underwriter to reduce uncovered distribution charges. As at
March 31, 1995 the outstanding uncovered distribution charges of the Principal
Underwriter calculated under the Plan amounted to approximately $14,688,000
(which amount was equivalent to 3.3% of the Fund's net assets on such day).
For the fiscal year ended March 31, 1995, the Fund accrued service fee
payments under the Plan aggregating $652,673 of which $622,580 was paid to the
Principal Underwriter. The Principal Underwriter paid $618,188 as service fees
to Authorized Firms, and the balance was retained by the Principal
Underwriter.
PRINCIPAL UNDERWRITER
For the fiscal year ended March 31, 1995, the Fund paid the Principal
Underwriter $7,927.50 for repurchase transactions handled by the Principal
Underwriter (being $2.50 for each such transaction).
CUSTODIAN
For the fiscal year ended March 31, 1995, the Fund paid IBT $46,099.
TRUSTEES
The fees and expenses of those Trustees of the Trust and of the Portfolio
who are not members of the Eaton Vance organization (the noninterested
Trustees) are paid by the Fund (and the other series of the Trust) and the
Portfolio, respectively. (The Trustees of the Trust and of the Portfolio who
are members of the Eaton Vance organization receive no compensation from the
Fund or the Portfolio.) During the fiscal year ended March 31, 1995, the
noninterested Trustees of the Trust and the Portfolio earned the following
compensation in their capacities as Trustees from the Fund, the Portfolio and
the other funds in the Eaton Vance fund complex(1):
AGGREGATE AGGREGATE TOTAL COMPENSATION
COMPENSATION COMPENSATION FROM TRUST AND
NAME FROM FUND FROM PORTFOLIO FUND COMPLEX
- ---- ------------ -------------- ------------------
Donald R. Dwight ....... $1,454 $2,769(2) $135,000(4)
Samuel L. Hayes, III ... 1,438 2,755(3) 147,500(5)
Norton H. Reamer ....... 1,392 2,728 135,000
John L. Thorndike ...... 1,439 2,816 140,000
Jack L. Treynor ........ 1,489 2,884 140,000
- ----------
(1) The Eaton Vance fund complex consists of 205 registered investment
companies or series thereof.
(2) Includes $609 of deferred compensation.
(3) Includes $1,178 of deferred compensation.
(4) Includes $17,500 of deferred compensation.
(5) Includes $33,750 of deferred compensation.
PERFORMANCE INFORMATION
The table below indicates the total return (capital changes plus
reinvestment of all distributions) on a hypothetical investment of $1,000 in
the Fund covering the life of the Fund from August 19, 1986, through March 31,
1995 and for the five and one-year periods ended March 31, 1995.
<TABLE>
<CAPTION>
VALUE OF A $1,000 INVESTMENT
VALUE OF VALUE OF
INVESTMENT INVESTMENT
BEFORE AFTER
DEDUCTING DEDUCTING THE TOTAL RETURN BEFORE TOTAL RETURN AFTER
THE CONTINGENT CONTINGENT DEDUCTING THE CONTINGENT DEDUCTING THE CONTINGENT
DEFERRED DEFERRED DEFERRED SALES CHARGE DEFERRED SALES CHARGE***
INVESTMENT INVESTMENT AMOUNT OF SALES CHARGE SALES CHARGE** ------------------------ ------------------------
PERIOD DATE INVESTMENT ON 3/31/95 ON 3/31/95 CUMULATIVE ANNUALIZED CUMULATIVE ANNUALIZED
---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Life of
the Fund* 08/19/86 $1,000 $1,983.20 $1,983.20 98.32% 8.27% 98.32% 8.27%
5 Years
Ended
3/31/95 03/31/90 $1,000 $1,721.72 $1,703.09 72.17% 11.48% 70.31% 11.24%
1 Year
Ended
3/31/95 03/31/94 $1,000 $1,025.72 $ 978.63 2.51% 2.51% -2.14% -2.14%
<CAPTION>
PERCENTAGE CHANGES 8/19/86 -- 3/31/95
NET ASSET VALUE TO NET ASSET VALUE NET ASSET VALUE TO NET ASSET VALUE
BEFORE DEDUCTING THE CONTINGENT DEFERRED AFTER DEDUCTING THE CONTINGENT DEFERRED
SALES CHARGE WITH ALL DISTRIBUTIONS REINVESTED SALES CHARGE WITH ALL DISTRIBUTIONS REINVESTED**
---------------------------------------------- ------------------------------------------------
FISCAL YEAR ENDED ANNUAL CUMULATIVE AVERAGE ANNUAL ANNUAL CUMULATIVE AVERAGE ANNUAL
- ----------------- ------ ---------- -------------- ------ ---------- --------------
<C> <C> <C> <C> <C> <C> <C>
3/31/87 --% 10.71% --% --% 5.71% --%
3/31/88 1.52 12.39 7.49 -2.87 7.72 4.71
3/31/89 11.58 25.40 9.04 6.63 21.71 7.80
3/31/90 -8.14 15.19 3.99 -12.17 12.96 3.43
3/31/91 -2.84 11.92 2.47 -6.96 10.70 2.23
3/31/92 38.21 54.69 8.07 33.21 53.95 7.98
3/31/93 13.41 75.43 8.86 8.41 75.43 8.86
3/31/94 10.28 93.47 9.05 5.30 93.47 9.05
3/31/95 2.51 98.32 8.27 -2.14 98.32 8.27
Past performance is not indicative of future results. Investment return and principal value will fluctuate; shares, when
redeemed, may be worth more or less than their original cost.
- ----------
* Investment operations began on August 19, 1986.
** No contingent deferred sales charge is imposed on shares purchased more than six years prior to the redemption, shares acquired
through the reinvestment of distributions, or any appreciation in value of other shares in the account, and no such charge is
imposed on exchanges of Fund shares for shares of one or more other funds listed under "The Eaton Vance Exchange Privilege" in
the Prospectus.
</TABLE>
For the thirty-day period ended March 31, 1995, the yield of the Fund was
10.88%.
The Fund's distribution rate (calculated on March 31, 1995 and based on
the Fund's monthly distribution paid on March 15, 1995) was 9.51%, and the
Fund's effective distribution rate (calculated on the same date and based on
the same monthly distribution) was 9.94%.
DISTRIBUTION PLAN
The Distribution Plan (the "Plan") is described in the prospectus and is
designed to meet the requirements of Rule 12b-1 under the 1940 Act and the
sales charge rule of the National Association of Securities Dealers, Inc. (the
"NASD Rule"). The purpose of the Plan is to compensate the Principal
Underwriter for its distribution services and facilities provided to the Fund
by paying the Principal Underwriter sales commissions and a separate
distribution fee in connection with sales of Fund shares. The following
supplements the discussion of the Plan contained in the Fund's prospectus.
The amount payable by the Fund to the Principal Underwriter pursuant to
the Plan as sales commissions and distribution fees with respect to each day
will be accrued on such day as a liability of the Fund and will accordingly
reduce the Fund's net assets upon such accrual, all in accordance with
generally accepted accounting principles. The amount payable on each day is
limited to 1/365 of .75% of the Fund's net assets on such day. The level of
the Fund's net assets changes each day and depends upon the amount of sales
and redemptions of Fund shares, the changes in the value of the investments
held by the Portfolio, the expenses of the Fund and the Portfolio accrued and
allocated to the Fund on such day, income on portfolio investments of the
Portfolio accrued and allocated to the Fund on such day, and any dividends and
distributions declared on Fund shares. The Fund does not accrue possible
future payments as a liability of the Fund or reduce the Fund's current net
assets in respect of unknown amounts which may become payable under the Plan
in the future because the standards for accrual of a liability under such
accounting principles have not been satisfied.
The Plan provides that the Fund will receive all contingent deferred sales
charges and will make no payments to the Principal Underwriter in respect of
any day on which there are no outstanding Uncovered Distribution Charges of
the Principal Underwriter. Contingent deferred sales charges and accrued
amounts will be paid by the Fund to the Principal Underwriter whenever there
exist Uncovered Distribution Charges under the Plan.
Periods with a high level of sales of Fund shares accompanied by a low
level of early redemptions of Fund shares resulting in the imposition of
contingent deferred sales charges will tend to increase the time during which
there will exist Uncovered Distribution Charges of the Principal Underwriter.
Conversely, periods with a low level of sales of Fund shares accompanied by a
high level of early redemptions of Fund shares resulting in the imposition of
contingent deferred sales charges will tend to reduce the time during which
there will exist Uncovered Distribution Charges of the Principal Underwriter.
In calculating daily the amount of Uncovered Distribution Charges,
distribution charges will include the aggregate amount of sales commissions
and distribution fees theretofore paid plus the aggregate amount of sales
commissions and distribution fees which the Principal Underwriter is entitled
to be paid under the Plan since its inception. Payments theretofore paid and
payable under the Plan by the Fund to the Principal Underwriter and contingent
deferred sales charges theretofore paid and payable to the Principal
Underwriter will be subtracted from such distribution charges; if the result
of such subtraction is positive, a distribution fee (computed at 1% over the
prime rate then reported in The Wall Street Journal) will be computed on such
amount and added thereto, with the resulting sum constituting the amount of
outstanding uncovered distribution charges with respect to such day. The
amount of outstanding uncovered distribution charges of the Principal
Underwriter calculated on any day does not constitute a liability recorded on
the financial statements of the Fund.
The amount of Uncovered Distribution Charges of the Principal Underwriter
at any particular time depends upon various changing factors, including the
level and timing of sales of Fund shares, the nature of such sales (i.e.,
whether they result from exchange transactions, reinvestments or from cash
sales through Authorized Firms), the level and timing of redemptions of Fund
shares upon which a contingent deferred sales charge will be imposed, the
level and timing of redemptions of Fund shares upon which no contingent
deferred sales charge will be imposed (including redemptions involving
exchanges of Fund shares for shares of another fund in the Eaton Vance
Marathon Group of Funds which result in a reduction of uncovered distribution
charges), changes in the level of the net assets of the Fund, and changes in
the interest rate used in the calculation of the distribution fee under the
Plan.
As currently implemented by the Trustees, the Plan authorizes payments of
sales commissions and distribution fees to the Principal Underwriter and
service fees to the Principal Underwriter and Authorized Firms which may be
equivalent, on an aggregate basis during any fiscal year of the Fund, to 1% of
the Fund's average daily net assets for such year. For the sales commission
and service fee payments made by the Fund and the outstanding uncovered
distribution charges of the Principal Underwriter, see "Fees and Expenses --
Distribution Plan" in this Part II. The Fund believes that the combined rate
of all of these payments may be higher than the rate of payments made under
distributions plans adopted by other investment companies pursuant to Rule
12b-1. Although the Principal Underwriter will use its own funds (which may be
borrowed from banks) to pay sales commissions at the time of sale, it is
anticipated that the Eaton Vance organization will profit by reason of the
operation of the Plan through an increase in the Fund's assets (thereby
increasing the advisory fee payable to BMR by the Portfolio) resulting from
sale of Fund shares and through the sales commissions and distribution fees
and contingent deferred sales charges paid to the Principal Underwriter
pursuant to the Plan. The Eaton Vance organization may be considered to have
realized a profit under the Plan if at any point in time the aggregate amounts
theretofore received by the Principal Underwriter pursuant to the Plan and
from contingent deferred sales charges have exceeded the total expenses
theretofore incurred by such organization in distributing shares of the Fund.
Total expenses for this purpose will include an allocable portion of the
overhead costs of such organization and its branch offices, which costs will
include without limitation leasing expense, depreciation of building and
equipment, utilities, communication and postage expense, compensation and
benefits of personnel, travel and promotional expense, stationery and
supplies, literature and sales aids, interest expense, data processing fees,
consulting and temporary help costs, insurance, taxes other than income taxes,
legal and auditing expense and other miscellaneous overhead items. Overhead is
calculated and allocated for such purpose by the Eaton Vance organization in a
manner deemed equitable to the Fund.
The provisions of the Plan relating to payments of sales commissions and
distribution fees to the Principal Underwriter are also included in the
Distribution Agreement between the Trust on behalf of the Fund and the
Principal Underwriter. Pursuant to Rule 12b-1, the Plan has been approved by
the Fund's initial sole shareholder (Eaton Vance) and by the Board of Trustees
of the Trust, including the Rule 12b-1 Trustees. The Plan continues in effect
through and including April 28, 1996, and shall continue in effect
indefinitely thereafter for so long as such continuance is approved at least
annually by the vote of both a majority of (i) the Trustees of the Trust who
are not interested persons of the Trust and who have no direct or indirect
financial interest in the operation of the Plan or any agreement related to
the Plan (the "Rule 12b-1 Trustees") and (ii) all of the Trustees then in
office, and the Distribution Agreement contains a similar provision. The Plan
and Distribution Agreement may be terminated at any time by vote of a majority
of the Rule 12b-1 Trustees or by a vote of a majority of the outstanding
voting securities of the Fund. Under the Plan the President or a Vice
President of the Trust shall provide to the Trustees for their review, and the
Trustees shall review at least quarterly, a written report of the amount
expended under the Plan and the purposes for which such expenditures were
made. The Plan may not be amended to increase materially the payments
described therein without approval of the shareholders of the Fund, and all
material amendments of the Plan must also be approved by the Trustees as
required by Rule 12b-1. So long as the Plan is in effect, the selection and
nomination of Trustees who are not interested persons of the Trust shall be
committed to the discretion of the Trustees who are not such interested
persons.
The Trustees of the Trust believe that the Plan will be a significant
factor in the expected growth of the Fund's assets, and will result in
increased investment flexibility and advantages which will benefit the Fund
and its shareholders. Payments for sales commissions and distribution fees
made to the Principal Underwriter under the Plan will compensate the Principal
Underwriter for its services and expenses in distributing shares of the Fund.
Service fee payments made to the Principal Underwriter and Authorized Firms
under the Plan provide incentives to provide continuing personal services to
investors and the maintenance of shareholder accounts. By providing
incentives to the Principal Underwriter and Authorized Firms, the Plan is
expected to result in the maintenance of, and possible future growth in, the
assets of the Fund. Based on the foregoing and other relevant factors, the
Trustees of the Trust have determined that in their judgment there is a
reasonable likelihood that the Plan will benefit the Fund and its
shareholders.
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
As of June 30, 1995, the Trustees and officers of the Trust, as a group,
owned in the aggregate less than 1% of the outstanding shares of the Fund. As
of June 30, 1995, Merrill Lynch, Pierce, Fenner & Smith, Inc., New Brunswick,
NJ was the record owner of approximately 25.63% of the outstanding shares,
which were held on behalf of its customers who are the beneficial owners of
such shares, and as to which it had voting power under certain limited
circumstances. To the knowledge of the Trust, no other person owned of record
or beneficially 5% or more of the Fund's outstanding shares on such date.
<PAGE>
INVESTMENT ADVISER OF
HIGH INCOME PORTFOLIO
Boston Management and Research
24 Federal Street
Boston, MA 02110
ADMINISTRATOR OF
EV MARATHON HIGH INCOME FUND
Eaton Vance Management
24 Federal Street
Boston, MA 02110
PRINCIPAL UNDERWRITER
Eaton Vance Distributors, Inc.
24 Federal Street
Boston, MA 02110
(800) 225-6265
CUSTODIAN
Investors Bank & Trust Company
24 Federal Street
Boston, MA 02110
TRANSFER AGENT
The Shareholder Services Group, Inc.
BOS725
P.O. Box 1559
Boston, MA 02104
(800) 262-1122
AUDITORS
Deloitte & Touche LLP
125 Summer Street
Boston, MA 02110
EV MARATHON HIGH INCOME FUND
24 FEDERAL STREET
BOSTON, MA 02110
M-HISAI
[LOGO]
EV MARATHON
HIGH
INCOME FUND
STATEMENT OF
ADDITIONAL
INFORMATION
AUGUST 1, 1995
