<PAGE>
To Our Shareholders
During the six months ended June 30, 1996, shareholders of Eaton Vance Tax Free
Reserves received $0.015 per share in income dividends, all of which was free of
Federal income tax.* Based on the last monthly dividend paid and the Fund's
$1.00 share price, its distribution rate was 2.99% on June 30, 1996. To equal
that rate, a shareholder in the 36% Federal income tax bracket would need a
yield of 4.67% from a taxable investment.
- -------------------------------------------------------------------------------
TAX-FREE MONEY MARKET FUNDS PROVIDE STABILITY OF PRINCIPAL, A COMPETITIVE YIELD,
AND EXEMPTION FROM FEDERAL INCOME TAX.
- -------------------------------------------------------------------------------
Of course, an investment in the Fund is neither insured nor guaranteed by the
U.S. government and there can be no assurance that the Fund will be able to
maintain a stable net asset value of $1.00 per share.
In the first half of 1996, the U.S. economy continued an expansion that is now
in its sixth year. The period was characterized by a healthy mix of continued
growth with low inflation. The length of the economic expansion, however, caused
concern that inflation may begin to increase. This concern was reflected in the
negative market reaction to employment reports in March and June which indicated
significant gains in new jobs.
The bond market is very sensitive to changes in employment because demand for
workers increases as business picks up, which can result in an increase in
wages. Such wage increases are typically passed on to consumers in the form of
higher prices.
On January 31, 1996, the Federal Reserve lowered the Fed Funds rate for the
third time in six months to 5.25%, where it remains. The Fed Funds rate is the
rate at which large U.S. banks lend money to each other, and it is significant
because it affects all other interest rates. When the Federal Reserve raises
this rate, or "tightens" credit, individuals and companies must pay more to
borrow money. This tends to slow the economy and weaken inflation.
While some economists are looking for an increase in the Fed Funds rate this
summer, Federal Reserve officials have indicated that an increase may not be
necessary, noting that further evidence of inflation would be needed to warrant
an increase.
During the last few years, tax increases have caused many investors to gravitate
to tax-free money market funds. These funds provide stability of principal, a
competitive yield, and the additional advantage of exemption from Federal income
taxes.
To ensure shareholders of the advantage of high-quality investments, the
majority of the Fund's investments in securities was focused in the two highest
quality categories as defined by Moody's and Standard & Poor's, two leading
independent credit rating agencies.
Sincerely,
[Photo of Thomas J. Fetter] /s/ Thomas J. Fetter
Thomas J. Fetter
President
August 5, 1996
*A portion of the Fund's income could be subject to state, local and/or Federal
alternative minimum tax.
Fund shares are not guaranteed by the FDIC and are not deposits or other
obligations of, or guaranteed by, any depository institution. Shares are subject
to investment risks, including possible loss of principal invested.
<PAGE>
------------------------------------
PORTFOLIO OF INVESTMENTS
JUNE 30, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
TAX-EXEMPT INVESTMENTS
- -----------------------------------------------------------------------------------------------------------------------------
RATINGS
- --------------------------------- PRINCIPAL
MOODY'S/S&P MOODY'S/S&P AMOUNT
SHORT-TERM LONG-TERM (000'S OMITTED) SECURITY VALUE
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
VARIABLE RATE DEMAND OBLIGATIONS - 57.0%
VMIG1/A1+ Aa3/AA $2,000 City of Albuquerque, New Mexico Gross Receipts/
Lodgers; Tax Adjustable Tender Revenue Bonds
Series 1994, Letter of Credit: Canadian Imperial
Bank of Commerce $ 2,000,000
VMIG1/A1+ Aaa/AAA 100 City of Charlotte, North Carolina Variable Rate
Airport Refunding Revenue Bonds Series 1993A, MBIA
Stand By Purchase Agreement: Commerzbank A.G. 100,000
VMIG1/A1+ Aa2/AA+ 2,500 City of Columbia, Missouri Special Obligation
Insurance Reserve Bonds Series 1988A, Letter of
Credit: Toronto Dominion 2,500,000
VMIG1/NR Aa3/AA- 905 Dade County Industrial Development Authority,
Florida Industrial Development Revenue Bonds,
(Stephen M. Greene Project), Series 1989A, Letter
of Credit: Sun Bank, Miami 905,000
VMIG1/A1+ Aa3/AA- 1,000 Housing Authority of the County of DeKalb, Georgia
Guaranteed Multifamily Housing Revenue Bonds,
(Wood Hills Apartment Project), Series 1985P,
Letter of Credit: Bank of Montreal 1,000,000
VMIG1/A1+ Aa1/AAA 1,800 DeSoto Parish Louisiana Pollution Control Revenue
Bonds (Central Louisiana Electric) Letter of
Credit: Swiss Bank 1,800,000
VMIG1/A1+ Aaa/AAA 1,500 Eddy County, New Mexico Variable Rate Demand
Pollution Control Revenue Refunding Bonds (IMC
Fertilizer, Inc. Project) Series 1993, Letter of
Credit: Rabobank 1,500,000
VMIG1/A1+ Aa3/AA- 1,000 Florida Housing Finance Agency Multi-Family Housing
Revenue Bonds (Monterey Meadows Apartment Project)
Series YY, Letter of Credit: Citibank 1,000,000
VMIG1/A1+ Aa2/AA+ 1,000 Development Authority of Fulton County Georgia
Revenue Bonds (American National Red Cross
Project), Series 1990, Letter of Credit: Wachovia
Bank 1,000,000
VMIG1/A1+ Aa3/AA- 945 Residential Care Facilities for the Elderly
Authority of Fulton County Revenue Bonds
(Canterbury Court Project) Series 1989A, Letter of
Credit: Sun Trust 945,000
VMIG1/A1+ Aaa/AAA 1,000 Jefferson Parish Hospital Service District No. 2,
Parish of Jefferson, State of Louisiana, Series
1985, Stand By Purchase Agreement: FGIC SPI 1,000,000
P-1/A1+ Aaa/AAA 2,700 The Industrial Development Authority of the City of
Kansas City, Missouri Variable Rate Demand
Multifamily Housing Revenue Refunding Bonds
(Willow Creek IV Apartments Project) Series 1995,
Letter of Credit: FNMA 2,700,000
VMIG1/A1+ Aa1/AA+ 2,000 Lake Charles Harbor and Terminal District Flexible
Demand Port Facilities Revenue Bonds (CITGO
Petroleum Corporation Project), Series 1984,
Letter of Credit: Westdeutsche Landesbank 2,000,000
VMIG1/A1+ Aa1/AA+ 1,000 City of Memphis, Tennessee General Improvement
Refunding Bonds, Series 1995A, Letter of Credit:
Westdeutsche Landesbank Girozentrale 1,000,000
VMIG1/A1+ Aa3/AA- 1,170 Metropolitan Government of Nashville & Davidson
Counties Tennessee Industrial Development Board
Refunding Revenue Bonds (Dixie Graphics Inc.
Project) Letter of Credit: Sun Trust 1,170,000
VMIG1/A1+ Aa/AA 1,925 Minnesota Higher Education Coordinating Board
Supplemental Student Loan Program Variable Rate
Refunding Revenue Bonds, Series 1994A, Stand By
Purchase Agreement: Norwest Bank 1,925,000
VMIG1/A1+ Aaa/AAA 1,100 Montgomery County Higher Education and Health
Authority Variable Rate Demand Hospital Revenue
Bonds, Series 1988 AMBAC Insurance, Liquidity:
Swiss Bank 1,100,000
VMIG1/A1+ Aa3/AA- 1,000 City of Nekoosa, Wisconsin Adjustable Tender
Pollution Control Revenue Bonds (Nekoosa Papers
Inc. Project) 1986 Series, Letter of Credit: Bank
of America 1,000,000
VMIG1/A1+ Aa2/AA+ 1,200 North Carolina Medical Care Commission Hospital
Revenue Bonds (North Carolina Baptist Hospitals
Project) Series 1992B, Stand By Purchase
Agreement: Wachovia Bank 1,200,000
VMIG1/A1+ Aa2/AA+ 800 North Carolina Medical Care Commission Hospital
Revenue Bonds (Moses H Cone Memorial Hospital
Project) Series 1993, Letter of Credit: Wachovia
Bank 800,000
VMIG1/A1+ Aa3/AA- 2,000 The Industrial Development Authority of The County
of Pima (Arizona), Floating Rate Monthly Demand
Industrial Revenue Bonds, 1982 Series A, (Tucson
Electric Power Company Projects), Letter of
Credit: Bank of America 2,000,000
VMIG1/A1+ Aa2/AA- 500 The Industrial Development Authority of The County
of Pima (Arizona), Floating Rate Monthly Demand
Industrial Revenue Bonds, 1982 Series A, (Tucson
Electric Power Company Projects), Letter of
Credit: Societe Generale 500,000
VMIG1/A1+ Aa2/AA+ 1,400 Port Development Corporation (Texas) Adjustable
Tender Marine Terminal Refunding Revenue Bonds
(Stolt Terminals Inc. Project) Series 1989, Letter
of Credit: Credit Suisse 1,400,000
MIG1/A1+ NR/AA- 1,100 Putnam County Florida Development Authority
Pollution Control Revenue Bonds Series S (Seminole
Electric) Guaranty Agreement: Cooperative Finance
Corporation 1,100,000
MIG1/A1+ NR/AA- 1,170 Putnam County Florida Development Authority
Pollution Control Revenue Bonds Series S (Seminole
Electric) Guaranty Agreement: Cooperative Finance
Corporation 1,170,000
VMIG1/A1+ Aaa/AAA 2,000 City of Rock Hill, South Carolina Combined Utility
System Revenue Bonds, Series 1994, Stand By
Purchase Agreement: FGIC 2,000,000
VMIG1/A1+ Aa2/AA 2,000 Tarrant County Housing Finance Corporation
Multifamily Housing Revenue Refunding Bonds Series
1993 (SF Apartments, L.P. Project), Letter of
Credit: Societe Generale 2,000,000
-----------
Total Variable Rate Demand Obligations $36,815,000
-----------
GENERAL OBLIGATION NOTES/BONDS - 24.2%
VMIG1/A1+ Aa1/AAA $1,000 City of Chicago General Obligation Tender Notes,
Series B, 3.65%, 10/31/96, Letter of Credit:
Morgan Guaranty Trust $ 1,000,000
NR/NR Aaa/AAA 265 School District Number 140 Cook County, Illinois
(Tinley Park, Illinois), General Obligation
Refunding Bonds, Series 1996 A,
3.60%, 12/01/96, AMBAC 264,889
NR/NR Aaa/AAA 500 Cumberland Valley School District, Cumberland
County, Pennsylvania General Obligation Bonds,
Series of 1992, 4.70%, 09/01/96, AMBAC 500,804
NR/Sp1+ NR/NR 2,750 The Indianapolis Local Public Improvement Bond Bank
Notes, Series F, 4.50%, 07/11/96 2,750,746
MIGI1/Sp1+ Aaa/AAA 1,000 Iowa School Corporation Warrant Certificates Series
95-96B, 4.25%, 01/30/97, FSA 1,004,793
MIGI1/Sp1+ Aaa/AAA 1,000 Iowa School Corporation Warrant Certificates Series
96-97A, 4.75%, 06/27/97, FSA 1,007,606
NR/NR Aa/AA+ 750 State of Maine General Obligation Refunding Bonds
5.40%, 11/01/96 754,526
NR/NR Aaa/AAA 1,000 Metropolitan Council (Minneapolis-Saint Paul Area)
State of Minnesota General Obligation Refunding
Bonds, Series 1992 5.20%, 12/01/96 1,006,983
MIG1/Sp1+ Aa/AA 1,000 State of Michigan Full Faith and Credit General
Obligation Notes 4.00%, 09/30/96 1,002,449
NR/NR Aa1/AA+ 450 County of Monmouth New Jersey General Obligations
Series A, 6.20%, 07/15/96 450,414
MIG1/Sp1 NR/NR 2,500 County of Nassau, New York Bond Anticipation Notes,
Series 1995H, 4.00%, 08/15/96 2,501,934
NR/NR Aaa/AAA 1,055 State of Rhode Island and Providence Plantations
General Obligation Bonds Consolidated Capital
Development Loan of 1996, Refunding Series, 5.00%,
08/01/96, MBIA 1,056,143
MIG1/Sp1+ NR/NR 2,300 State of Texas Tax and Revenue Anticipation Notes
Series 1995 A, 4.75%, 08/30/96 2,305,491
-----------
Total General Obligation Notes/Bonds $15,606,778
-----------
PUT BONDS - 3.1%
VMIG1/A1+ Aa1/AAA $1,000 City of Houston, Texas Variable Rate Demand General
Obligation Bonds Series 1992E, Optional Put 10/01/
96, Stand By Purchase Agreement: Canadian Imperial
Bank of Commerce $ 1,000,000
MIG1/A1+ NR/AA- 1,000 Putnam County Florida Development Authority
Pollution Control Revenue Bonds (Seminole Electric
Cooperative, Inc. Project) Series 1984 D, Optional
Put 12/15/96, Unconditional Guaranty Agreement:
Cooperative Finance Corporation 1,000,000
-----------
Total Put Bonds $ 2,000,000
-----------
REVENUE NOTES/BONDS - 3.2%
NR/Sp1+ NR/NR $1,500 South Coast California Local Education Agencies
Pooled Tax and Revenue Anticipation Notes, 5.00%,
08/14/96 $ 1,500,863
NR/NR Aa/AA+ 600 Board of Regents of The University of Texas System
General Tuition Revenue Refunding Bonds Series
1986 7.80% 08/15/96 603,001
-----------
Total Revenue Notes/Bonds $ 2,103,864
-----------
PREREFUNDED/ESCROWED BONDS - 5.6%
NR/NR NR/AAA $1,000 Allegheny County Pennsylvania Hospital Development
Authority Hospital Revenue Refunding Bonds (Magee-
Women's Hospital) Series B 7.20%, 10/01/96
Escrowed to Maturity $ 1,009,087
705 State of Michigan Building Authority Revenue
Refunding Bonds (University of Michigan Adult
General Hospital),
7.875%, 12/01/04. Prerefunded 12/01/96 730,959
NR/NR Aaa/AAA 1,000 State of Missouri Third State Building General
Obligation Bonds Series A 1986, 7.00%, 08/01/10
Prerefunded 08/01/96 1,022,819
NR/NR Aaa/AAA 865 State of Wisconsin General Obligation Bonds of 1986
Series B, 7.70%, 08/01/00. Prerefunded 08/01/96 880,673
-----------
Total Prerefunded/Escrowed Bonds $ 3,643,538
-----------
TAX-EXEMPT COMMERCIAL PAPER - 3.3%
P-1/A1+ Aa2/AA+ $1,100 Jacksonville (Florida) Electric Authority Electric
System Tax-Exempt Commercial Paper Notes Series D
3.50%, 08/08/96. Standby Purchase Agreement:
Credit Suisse $ 1,100,000
P-1/A1+ Aa1/AAA 1,000 City of Lincoln, Nebraska Lincoln Electric System,
Electric System Revenue Commercial Paper Notes
Series 1995 3.55%, 09/10/96. Standby Purchase
Agreement: Morgan Guaranty Trust Company 1,000,000
-----------
Total Tax-Exempt Commercial Paper $ 2,100,000
-----------
TOTAL INVESTMENTS, AT AMORTIZED COST - 96.4% $62,269,180
OTHER ASSETS, LESS LIABILITIES - 3.6% 2,306,645
-----------
TOTAL NET ASSETS - 100% $64,575,825
===========
The accompanying notes are an integral part of the financial statements
</TABLE>
<PAGE>
------------------------------------
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
- ------------------------------------------------------------------------------
June 30, 1996 (Unaudited)
- ------------------------------------------------------------------------------
ASSETS:
Investments, at amortized cost (Note 1A) $62,269,180
Cash 2,310,404
Receivable for Fund shares sold 217,659
Interest receivable 563,574
Receivable from the Investment Adviser 9,741
-----------
Total assets $65,370,558
LIABILITIES:
Dividend payable $ 41,876
Payable for Fund shares redeemed 737,344
Payable for Trustees' fees 1,680
Accrued expenses 13,833
--------
Total liabilities 794,733
-----------
NET ASSETS for 64,593,913 shares outstanding (Note 4) $64,575,825
===========
SOURCES OF NET ASSETS:
Paid-in capital $64,593,913
Accumulated net realized loss on investments
(computed on the basis of identified cost) (18,088)
-----------
Total net assets $64,575,825
===========
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PRICE
PER SHARE (net assets divided by shares outstanding) $1.00
=====
The accompanying notes are an integral part of the financial statements
<PAGE>
STATEMENT OF OPERATIONS
- ------------------------------------------------------------------------------
For the Six Months Ended June 30, 1996 (Unaudited)
- ------------------------------------------------------------------------------
Investment Income (Note 1B) $1,061,113
Expenses:
Investment adviser fee (Note 3) $159,824
Trustees' compensation (Note 3) 2,853
Custodian fee 21,064
Transfer and dividend disbursing agent
fees 3,670
Printing and postage 12,415
Legal and accounting services 16,045
Interest 11,397
Miscellaneous 14,644
--------
Total expenses $241,912
Deduct --
Preliminary reduction of investment
adviser fee (Note 3) $124,309
Reduction of custodian fee 20,064 144,373
-------- --------
Net expenses 97,539
----------
Net income $ 963,574
Net realized gain on investments
(identified cost basis) 2,220
----------
Net increase in net assets resulting
from operations $ 965,794
==========
The accompanying notes are an integral part of the financial statements
<PAGE>
STATEMENTS OF CHANGES IN NET ASSETS
- ------------------------------------------------------------------------------
SIX MONTHS
ENDED YEAR ENDED
JUNE 30, 1996 DECEMBER 31,
(UNAUDITED) 1995
------------- -------------
INCREASE (DECREASE) IN NET ASSETS:
FROM OPERATIONS:
Net income $ 963,574 $ 1,777,950
Net realized gain on investments 2,220 --
Dividends paid to shareholders from net income
(Note 2) (963,574) (1,777,950)
------------ ------------
Increase in net assets resulting from
operations $ 2,220 $ --
------------ ------------
FROM FUND SHARE (PRINCIPAL) TRANSACTIONS AT NET
ASSET VALUE OF $1.00 PER SHARE (Note 4):
Proceeds from sale of shares $111,765,868 $151,505,071
Net asset value of shares issued to
shareholders in payment of dividends 699,973 354,164
Cost of shares redeemed (71,804,633) (156,967,383)
------------ ------------
Increase (decrease) in net assets from
Fund share transactions $ 40,661,208 $ (5,108,148)
------------ ------------
Net increase (decrease) in net assets $ 40,663,428 $ (5,108,148)
NET ASSETS:
Beginning of period 23,912,397 29,020,545
------------ ------------
End of period $ 64,575,825 $ 23,912,397
============ ============
The accompanying notes are an integral part of the financial statements
<PAGE>
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS
- ---------------------------------------------------------------------------------------------------------------------------------
SIX MONTHS
ENDED YEAR ENDED DECEMBER 31,
JUNE 30, 1996 -----------------------------------------------------------------------------------
(UNAUDITED) 1995 1994 1993 1992 1991**
--------------- -------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, beginning
of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
------ ------ ------ ------ ------ ------
INCOME FROM OPERATIONS:
Net investment income $ 0.015014 $ 0.034693 $ 0.023548 $ 0.018399 $ 0.023468 $ 0.038797
LESS DISTRIBUTIONS:
From net investment
income $(0.015014) $(0.034693) $(0.023548) $(0.018399) $(0.023468) $(0.038797)
---------- ---------- ---------- ---------- ---------- ----------
NET ASSET VALUE, end of
period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
====== ====== ====== ====== ====== ======
TOTAL RETURN\1/ 1.51% 3.53% 2.36% 1.86% 2.36% 3.92%
RATIOS/SUPPLEMENTAL DATA:*
Net assets, end of period
(000's omitted) $64,576 $23,912 $29,021 $60,247 $44,337 $47,140
Interest expense to
average net assets 0.04%+ 0.05% 0.07% 0.03% 0.06% 0.09%
Net other expense to
average net assets\2/ 0.33%+ 0.34% 0.47% 0.62% 0.53% 0.49%
Net other expense to
average net assets after
custodian fee reduction 0.27%+ 0.28% -- -- -- --
Net investment income to
average net assets 3.03%+ 3.47% 2.27% 1.82% 2.34% 3.92%
* During the six months ended June 30, 1996 and each of the years in the five year period ended December 31, 1995, the expenses
related to the operations of the Fund were reduced either by a reduction of the investment adviser fee, an allocation of
expenses to the Investment Adviser, or both. Had such actions not been taken, net investment income per share and the ratios
would have been as follows:
<CAPTION>
SIX MONTHS
ENDED YEAR ENDED DECEMBER 31,
JUNE 30, 1996 -----------------------------------------------------------------------------------
(UNAUDITED) 1995 1994 1993 1992 1991**
--------------- -------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C>
NET INVESTMENT INCOME PER
SHARE $ 0.013077 $ 0.030291 $ 0.018948 $ 0.016668 $ 0.020133 $ 0.034647
========== ========== ========== ========== ========== ==========
RATIOS (as a percentage of
average net assets):
Other expenses\2/ 0.66%+ 0.73% 0.87% 0.82% 0.92% 0.91%
========== ========== ========== ========== ========== ==========
Other expenses after
custodian fee reduction 0.60%+ 0.67% -- -- -- --
========== ========== ========== ========== ========== ==========
Net investment income 2.64%+ 3.02% 1.88% 1.65% 2.01% 3.50%
========== ========== ========== ========== ========== ==========
The accompanying notes are an integral part of the financial statements
<PAGE>
FINANCIAL HIGHLIGHTS (CONTINUED)
- -----------------------------------------------------------------------------------------------------------------------------------
From time to time it has been necessary for the Fund to borrow from banks as a temporary measure to facilitate the orderly sale
of portfolio securities to accommodate redemption requests. The following table summarizes such temporary borrowings.
<CAPTION>
AMOUNT OF DEBT AVERAGE DAILY AVERAGE WEEKLY AVERAGE AMOUNT OF
YEAR ENDED OUTSTANDING BALANCE OF DEBT BALANCE OF SHARES DEBT PER SHARE
DECEMBER 31, AT END OF PERIOD OUTSTANDING DURING PERIOD OUTSTANDING DURING PERIOD DURING PERIOD
- -----------------------------------------------------------------------------------------------------------------------------------
<C> <C> <C> <C> <C>
1991+ $ -- $379,000 31,686,707 $0.012
1992 -- 367,000 38,904,763 0.009
1993 2,428,000 285,000 48,697,998 0.006
1994 6,117,000 440,145 40,463,382 0.011
1995 1,266,000 279,586 51,107,215 0.005
1996++ -- 230,593 63,941,102 0.004
<FN>
- -------------
+ Computed on an annualized basis.
++ Six months ended June 30, 1996.
** Audited by the Fund's previous auditors.
\1/ Total investment return is calculated assuming a purchase at the net asset value on the first day and a sale at the net
asset value on the last day of each period reported. Dividends and distributions, if any, are assumed to be reinvested at
the net asset value on the record date.
\2/ The annualized expense ratios for the six months ended June 30, 1996 have been adjusted to reflect a change in reporting
requirements. The new reporting guidelines require the Portfolio to increase its expense ratio by the effect of any expense
offset arrangements with its service providers. The expense ratios for each of the periods ended on or before December 31,
1994 have not been adjusted to reflect this change.
</TABLE>
The accompanying notes are an integral part of the financial statements
<PAGE>
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1996
(UNAUDITED)
(1) SIGNIFICANT ACCOUNTING POLICIES
Eaton Vance Mutual Funds Trust (the Trust) is an entity of the type known as a
Massachusetts business trust and is registered under the Investment Company
Act of 1940 (1940 Act), as amended, as an open-end management investment
company. The Trust presently consists of fourteen Funds, of which Eaton Vance
Tax Free Reserves (the Fund) is one. The Fund is registered under the
Investment Company Act of 1940 (1940 Act), as amended, as an open-end
management investment company. The following is a summary of significant
accounting policies consistently followed by the Fund in the preparation of
its financial statements. The policies are in conformity with generally
accepted accounting principles.
A. INVESTMENT VALUATIONS -- The Trustees have determined that the best method
currently available for valuing portfolio investments is amortized cost. The
Fund's use of the amortized cost method to value its portfolio investments is
subject to the Fund's compliance with certain conditions as specified under
Rule 2a-7 of the Investment Company Act of 1940.
B. INTEREST INCOME -- Interest income consists of interest accrued, adjusted
for amortization of any discount or premium, on the investments of the Fund,
accrued ratably to the date of maturity.
C. FEDERAL TAXES -- The Fund's policy is to comply with the provisions of the
Internal Revenue Code available to regulated investment companies and to
distribute to shareholders each year all of its net income, including any net
realized gain on investments. Accordingly, no provision for federal income or
excise tax is necessary. At December 31, 1995, the Fund, for federal income
tax purposes, had a capital loss carryover of $20,308, which will reduce the
Fund's taxable income arising from future net realized gain on investment
transactions, if any, to the extent permitted by the Internal Revenue Code,
and thus will reduce the amount of the distributions to shareholders which
would otherwise be necessary to relieve the Fund of any liability for federal
income or excise tax. Such capital loss carryover will expire on December 31,
2002. Dividends paid by the Fund from net interest earned on tax-exempt
municipal bonds are not includable by shareholders as gross income for federal
income tax purposes because the Fund intends to meet certain requirements of
the Internal Revenue Code applicable to regulated investment companies which
will enable the Fund to pay exempt-interest dividends. The portion of such
interest, if any, earned on private activity bonds issued after August 7,
1986, may be considered a tax preference item for shareholders.
D. OTHER -- Investment transactions are accounted for on the date the
investments are purchased or sold, or the date that they mature.
E. EXPENSE REDUCTION -- Investors Bank & Trust Company (IBT) serves as
custodian of the Fund. Pursuant to the custodian agreement, IBT receives a fee
reduced by credits which are determined based on the average daily cash
balance the Fund maintains with IBT. All significant credit balances used to
reduce the Fund's custodian fees are reported as a reduction of expenses in
the statement of operations.
F. USE OF ESTIMATES -- The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities at the date of the financial statements and the reported amounts
of revenue and expense during the reporting period. Actual results could
differ from those estimates.
G. INTERIM FINANCIAL INFORMATION -- The interim financial statements relating
to June 30, 1996 and for the six months then ended have not been audited by
independent certified public accountants, but in the opinion of the Fund's
management, reflect all adjustments, consisting only of normal recurring
adjustments, necessary for the fair presentation of the financial statements.
- ------------------------------------------------------------------------------
(2) DISTRIBUTIONS TO SHAREHOLDERS
The net income of the Fund is determined daily, and all of the net income so
determined is declared as a dividend to shareholders of record at the time of
declaration. Such dividends are paid monthly. Dividends are distributed in the
form of additional shares of the Fund, or, at the election of the shareholder,
in cash.
- ------------------------------------------------------------------------------
(3) INVESTMENT ADVISER FEE AND OTHER TRANSACTIONS WITH AFFILIATES
The investment adviser fee was earned by Eaton Vance Management (EVM) as
compensation for management, investment advisory, and other services rendered to
the Fund and is computed at the monthly rate of 1/24 of 1% (1/2 of 1% per annum)
of the Fund's average monthly net assets. To enhance the net income of the Fund,
EVM made a preliminary reduction of its fee in the amount of $124,309 during the
six months ended June 30, 1996. Except as to Trustees of the Fund who are not
members of EVM's organization, officers and Trustees receive remuneration for
their services to the Fund out of such investment adviser fee. Certain of the
officers and Trustees of the Trust are officers and directors/trustees of the
above organizations.
- ------------------------------------------------------------------------------
(4) SHARES OF BENEFICIAL INTEREST
The Declaration of Trust permits the Trustees to issue an unlimited number of
full and fractional shares of beneficial interest (without par value).
- ------------------------------------------------------------------------------
(5) LINE OF CREDIT
The Fund participates with other funds managed by EVM and affiliates in a $120
million unsecured line of credit agreement with a bank. The line of credit
consists of a $20 million committed facility and a $100 million discretionary
facility. Borrowings will be made by the Fund solely to facilitate the
handling of unusual and/or unanticipated short-term cash requirements.
Interest is charged to each participating fund based on its borrowings at an
amount above either the bank's adjusted certificate of deposit rate, a
variable adjusted certificate of deposit rate, or a federal funds effective
rate. In addition, a fee computed at an annual rate of 1/4 of 1% on the $20
million committed facility and on the daily unused portion of the $100 million
discretionary facility is allocated among the participating funds at the end
of each quarter. The average daily loan balance for the six months ended June
30, 1996 was $230,593, and the average interest rate was 6.88%.
- ------------------------------------------------------------------------------
(6) PURCHASES AND SALES OF INVESTMENTS
The Fund invests primarily in state and municipal debt securities. The ability
of the issuers of the debt securities held by the Fund to meet their obligations
may be affected by economic developments in a specific industry or municipality.
Purchases and sales (including maturities) of investments aggregated $93,935,949
and $58,475,420, respectively.
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INVESTMENT MANAGEMENT
EATON VANCE OFFICERS TRUSTEES
MUTUAL FUNDS
TRUST M. DOZIER GARDNER DONALD R. DWIGHT
24 Federal Street President, Trustee President, Dwight Partners, Inc.
Boston, MA 02110 Chairman, Newspapers of New
JAMES B. HAWKES England, Inc.
Vice President,
SAMUEL L. HAYES, III
H. DAY BRIGHAM, JR. Jacob H. Schiff Professor of
Vice President Investment Banking,
Harvard University Graduate
WILLIAM H. AHERN, School of Business Administration
JR.
Vice President and NORTON H. REAMER
Portfolio Manager President and Director,
United Asset
MICHAEL B. TERRY Management Corporation
Vice President
JOHN L. THORNDIKE
JAMES L. O'CONNOR Director, Fiduciary Company
Treasurer Incorporated
THOMAS OTIS JACK L. TREYNOR
Secretary Investment Adviser and Consultant
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INVESTMENT ADVISER
Eaton Vance Management
24 Federal Street
Boston, MA 02110
PRINCIPAL UNDERWRITER
Eaton Vance Distributors, Inc.
24 Federal Street
Boston, MA 02110
(617) 482-8260
CUSTODIAN
Investors Bank & Trust Company
89 South Street
P.O. Box 1537
Boston, MA 02205-1537
TRANSFER AGENT
First Data Investor Services Group, Inc.
BOS725
P.O. Box 1559
Boston, MA 02104
(800) 262-1122
INDEPENDENT ACCOUNTANTS
Coopers & Lybrand L.L.P.
One Post Office Square
Boston, MA 02109
This report must be preceded or accompanied by a current prospectus which
contains more complete information on the Fund, including its distribution plan,
sales charges and expenses. Please read the prospectus carefully before you
invest or send money.
EATON VANCE TAX FREE RESERVES
24 FEDERAL STREET
BOSTON, MA 02110 T-TRSRC-6/96
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EATON VANCE
TAX FREE
RESERVES
SEMI-ANNUAL
SHAREHOLDER REPORT
JUNE 30, 1996
