AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 27, 1996
1933 ACT FILE NO. 2-90946
1940 ACT FILE NO. 811-4015
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933 [X]
POST-EFFECTIVE AMENDMENT NO. 27 [X]
REGISTRATION STATEMENT
UNDER
THE INVESTMENT COMPANY ACT OF 1940 [X]
AMENDMENT NO. 30 [X]
EATON VANCE MUTUAL FUNDS TRUST
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(FORMERLY EATON VANCE GOVERNMENT OBLIGATIONS TRUST)
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
24 FEDERAL STREET, BOSTON, MASSACHUSETTS 02110
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(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
617-482-8260
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(REGISTRANT'S TELEPHONE NUMBER)
H. DAY BRIGHAM, JR.
24 FEDERAL STREET, BOSTON, MASSACHUSETTS 02110
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(NAME AND ADDRESS OF AGENT FOR SERVICE)
It is proposed that this filing will become effective on February 28, 1996
pursuant to paragraph (b) of Rule 485.
The exhibit index required by Rule 483(a) under the Securities Act of 1933
is located on page in the sequential numbering system of the manually signed
copy of this Registration Statement.
Strategic Income Portfolio has also executed this Registration Statement.
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
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AMOUNT OF PROPOSED MAXIMUM PROPOSED AGGREGATE AMOUNT OF
TITLE OF SECURITIES SHARES BEING OFFERING PRICE MAXIMUM REGISTRATION
BEING REGISTERED REGISTERED PER SHARE OFFERING PRICE FEE
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<S> <C> <C> <C> <C>
Shares of Beneficial Interest 9,665,644 $8.85(1) $85,540,949(2) $100
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</TABLE>
(1) Computed under Rule 457(d) on the basis of the maximum aggregate offering
price per share at the close of business on February 22, 1996.
(2) Registrant elects to calculate the maximum aggregate offering price
pursuuant to Rule 24e-2 for those series with a fiscal year end of October
31, 1995. $97,266,549 of shares were redeemed during the fiscal year ended
October 31, 1995. $12,015,595 of shares were used for reductions puursuant
to Paragraph (c) of Rule 24f-2 during such fiscal year. $85,250,954 of
shares redeemed are being used for the reduction of the registration fee in
this Amendment. While no fee is required for the $85,250,954 of shares, the
Registrant has elected to register, for $100, an additional $290,000 of
shares.
The Registrant has filed a Declaration pursuant to Rule 24f-2 and on May 24,
1995 filed its "Notice" as required by that Rule for the series of the
Registrant with a fiscal year end of March 31, 1995, on November 8, 1995 filed
its "Notice" for the series of the Registrant with a fiscal year end of October
31, 1995 and on February 23, 1996 filed its "Notice" for the series of the
Registrant with a fiscal year end of December 31, 1995.
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This Amendment to the registration statement on Form N-1A consists of the
following documents and papers:
Cross Reference Sheets required by Rule 481(a) under the Securities Act of
1933
Part A--The Prospectuses of:
EV Classic Strategic Income Fund
EV Marathon Strategic Income Fund
Part B--The Statements of Additional Information of:
EV Classic Strategic Income Fund
EV Marathon Strategic Income Fund
Part C--Other Information
Signatures
Exhibit Index Required by Rule 483(a) under the Securities Act of 1933
Exhibits
This Amendment is not intended to amend the Prospectus and Statement of
Additional Information of any series of the Registrant not identified above.
<PAGE>
EATON VANCE MUTUAL FUNDS TRUST
EV CLASSIC STRATEGIC INCOME FUND
EV MARATHON STRATEGIC INCOME FUND
CROSS REFERENCE SHEET
ITEMS REQUIRED BY FORM N-1A
---------------------------
PART A
ITEM NO. ITEM CAPTION PROSPECTUS CAPTION
- ------ -------- -------------------------------
1. ............ Cover Page Cover Page
2. ............ Synopsis Shareholder and Fund Expenses
3. ............ Condensed Financial The Fund's Financial
Information Highlights; Performance
Information
4. ............ General Description of The Fund's Investment
Registrant Objective; Investment
Policies and Risks;
Organization of the Fund and
the Portfolio
5. ............ Management of the Fund Management of the Fund and the
Portfolio
5A............. Management's Discussion of Not Applicable
Fund Performance
6. ............ Capital Stock and Other Organization of the Fund and
Securities the Portfolio; Reports to
Shareholders; The Lifetime
Investing Account/
Distribution Options;
Distributions and Taxes
7. ............ Purchase of Securities Valuing Fund Shares; Service
Being Offered Plan; How to Buy Fund Shares;
The Lifetime Investing
Account/Distribution Options;
The Eaton Vance Exchange
Privilege; Eaton Vance
Shareholder Services
8. ............ Redemption or Repurchase How to Redeem Fund Shares
9. ............ Pending Legal Proceedings Not Applicable
PART B ITEM CAPTION STATEMENT OF ADDITIONAL
ITEM NO. INFORMATION CAPTION
- ------ -------- -------------------------------
10. ............ Cover Page Cover Page
11. ............ Table of Contents Table of Contents
12. ............ General Information and Other Information
History
13. ............ Investment Objectives and Additional Information About
Policies Investment Policies;
Investment Restrictions
14. ............ Management of the Fund Trustees and Officers; Fees and
Expenses
15. ............ Control Persons and Control Persons and Principal
Principal Holders of Holders of Securities
Securities
16. ............ Investment Advisory and Investment Adviser and
Other Administrator; Distribution
Services Plan; Custodian; Independent
Accountants; Fees and
Expenses; Other Information
17. ............ Brokerage Allocation and Portfolio Security
Other Practices Transactions; Fees and
Expenses
18. ............ Capital Stock and Other Other Information
Securities
19. ............ Purchase, Redemption and Determination of Net Asset
Pricing of Securities Value; Principal Underwriter;
Being Offered Service for Withdrawal;
Distribution Plan; Fees and
Expenses
20. ............ Tax Status Taxes
21. ............ Underwriters Principal Underwriter; Fees and
Expenses
22. ............ Calculation of Performance Investment Performance
Data
23. ............ Financial Statements Financial Statements
<PAGE>
PART A
INFORMATION REQUIRED IN A PROSPECTUS
EV CLASSIC
STRATEGIC INCOME FUND
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EV CLASSIC STRATEGIC INCOME FUND (THE "FUND") IS A MUTUAL FUND SEEKING A HIGH
LEVEL OF INCOME BY INVESTING IN A GLOBAL PORTFOLIO CONSISTING PRIMARILY OF HIGH
GRADE DEBT SECURITIES AND HAVING A DOLLAR WEIGHTED AVERAGE MATURITY OF NOT MORE
THAN THREE YEARS. THE FUND INVESTS ITS ASSETS IN STRATEGIC INCOME PORTFOLIO (THE
"PORTFOLIO"), A NON-DIVERSIFIED OPEN-END INVESTMENT COMPANY HAVING THE SAME
INVESTMENT OBJECTIVE AS THE FUND, RATHER THAN BY DIRECTLY INVESTING IN AND
MANAGING ITS OWN PORTFOLIO OF SECURITIES AS WITH HISTORICALLY STRUCTURED MUTUAL
FUNDS. THE PORTFOLIO'S INVESTMENT ADVISER WILL INVEST IN A VARIETY OF INCOME
PRODUCING SECURITIES, INCLUDING THOSE OF BELOW INVESTMENT GRADE QUALITY. THE
VALUE OF FUND SHARES WILL FLUCTUATE BECAUSE OF CHANGES IN CURRENCY EXCHANGE
RATES, CREDIT QUALITY AND INTEREST RATES, AND OTHER FACTORS. THE FUND IS A
SERIES OF EATON VANCE MUTUAL FUNDS TRUST (THE "TRUST").
Shares of the Fund are not deposits or obligations of, or guaranteed or endorsed
by, any bank or other insured depository institution, and are not federally
insured by the Federal Deposit Insurance Corporation, the Federal Reserve Board
or any other government agency. Shares of the Fund involve investment risks,
including fluctuations in value and the possible loss of some or all of the
principal investment.
This Prospectus is designed to provide you with information you should know
before investing. Please retain this document for future reference. A
Statement of Additional Information dated March 1, 1996 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 and
the Portfolio. 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.
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<TABLE>
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PAGE PAGE
<S> <C> <C>
Shareholder and Fund Expenses ......................... 2 How to Redeem Fund Shares .......................... 14
The Funds' Financial Highlights ........................ 3 Reports to Shareholders ............................ 15
The Funds' Investment Objective ....................... 4 The Lifetime Investing Account/Distribution
Investment Policies and Risks .......................... 4 Options ......................................... 15
Organization of the Fund and the Portfolio ............. 8 The Eaton Vance Exchange Privilege ................. 16
Management of the Fund and the Portfolio ............... 9 Eaton Vance Shareholder Services ................... 16
Distribution Plan ...................................... 11 Distributions and Taxes ............................ 17
Valuing Fund Shares .................................... 12 Performance Information ............................ 18
How to Buy Fund Shares ................................. 13 Appendix ........................................... 19
</TABLE>
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PROSPECTUS DATED MARCH 1, 1996
<PAGE>
<TABLE>
<CAPTION>
SHAREHOLDER AND FUND EXPENSES
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SHAREHOLDER TRANSACTION EXPENSES
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<S> <C>
Sales Charges Imposed on Purchases of Shares None
Sales Charges Imposed on Reinvested Distributions None
Fees to Exchange Shares None
Contingent Deferred Sales Charge 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)
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Investment Adviser Fee 0.55%
Rule 12b-1 Distribution (and Service) Fees 1.00%
Other Expenses (including the Portfolio's administration fee of .15%) (after
expense reduction) 0.35%
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Total Operating Expenses (after reduction) 1.90%
====
<CAPTION>
EXAMPLE 1 YEAR 3 YEARS 5 YEARS 10 YEARS
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<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: $29 $60 $103 $222
An investor would pay the following expenses on the same investment,
assuming (a) 5% annual return and (b) no redemptions: $19 $60 $103 $222
</TABLE>
NOTES:
The table and Example summarize the aggregate expenses of the Fund and the
Portfolio and are designed to help investors understand the costs and expenses
they will bear, directly or indirectly, by investing in the Fund. Information
for the Fund is based on its expenses for the most recent fiscal year, except
that the Rule 12b-1 Distribution (and Service) Fees are estimated. Absent an
expense allocation, Other Expenses would have been 131.30% and Total Operating
Expenses would have been 131.85%.
The Fund invests exclusively in the Portfolio. The Trustees believe the
aggregate per share expenses of the Fund and the Portfolio should approximate,
and over time may be less than, the per share expenses the Fund would incur if
the Trust retained the services of an investment adviser for the Fund and the
Fund's assets were invested directly in the type 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 return will vary.
For further information regarding the expenses of both the Fund and the
Portfolio see "The Fund's Financial Highlights", "Organization of the Fund and
the Portfolio", "Management of the Fund and the Portfolio" 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
one year prior to redemption, (b) shares acquired through the reinvestment of
dividends and distributions or (c) any appreciation in value of other shares in
the account (see "How to Redeem Fund Shares"), and no such charge is imposed on
exchanges of Fund shares for shares of one or more other funds listed under "The
Eaton Vance Exchange Privilege".
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 10.
Other investment companies with different distribution arrangements and fees
are investing in the Portfolio and others may do so in the future. See
"Organization of the Fund and the Portfolio".
<PAGE>
THE FUND'S FINANCIAL HIGHLIGHTS
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The following information should be read in conjunction with the audited
financial statements included in the Fund's annual report to shareholders which
is incorporated by reference into the Statement of Additional Information in
reliance upon the report of Coopers & Lybrand L.L.P., independent accountants,
as experts in accounting and auditing. Further information regarding the
performance of the Fund is contained in its annual report to shareholders which
may be obtained without charge by contacting the Principal Underwriter, Eaton
Vance Distributors, Inc.
- ------------------------------------------------------------------------------
YEAR ENDED OCTOBER 31,
---------------------------
1995 1994*
-------- --------
NET ASSET VALUE, beginning of year $ 9.750 $ 10.000
-------- --------
INCOME (LOSS) FROM OPERATIONS:
Net investment income $ 1.021 $ 0.348
Net realized and unrealized gain (loss) on
investments 0.559 (0.495)
-------- ---------
Total income (loss) from operations $ 1.580 $ (0.147)
-------- --------
LESS DISTRIBUTIONS:
From net investment income $ -- $ (0.103)
-------- --------
NET ASSET VALUE, end of year $ 11.330 $ 9.750
======== ========
TOTAL RETURN(1) 16.21% (1.41%)
RATIOS/SUPPLEMENTAL DATA**:
Net assets, end of period (000's omitted) $ 11 $ 10
Ratio of net expenses to average net assets(2) 0.90% 0.76%+
Ratio of net investment income to average
daily net assets 9.84% 7.74%+
**For the year ended October 31, 1995 and for the period from the start
of business, May 25, 1994, to October 31, 1994, the operating expenses
of the Fund reflect an allocation of expenses to the Administrator.
Had such action not been taken, net investment loss per share and the
ratios would have been as follows:
NET INVESTMENT LOSS PER SHARE $(13.000) $ (6.900)
======== ========
RATIOS (As a percentag e of average net assets):
Expenses(2) 131.85% 160.83%+
Net investment loss (121.12%) (152.33%)+
NOTE: Per share amounts have been computed using average shares outstanding
during the period.
+Computed on an annualized basis.
(1)Total return is calculated assuming a purchase at the net asset value on the
first day and a sale at the net asset value on the last day of each period
reported. Distributions, if any, are assumed to be reinvested at the net
asset value on the payable date. Total return is calculated on an
non-annualized basis.
(2)Includes the Fund's share of Strategic Income Portfolio's allocated expenses.
*For the period from the start of business, May 25, 1994, through October 31,
1994.
<PAGE>
THE FUND'S INVESTMENT OBJECTIVE
- ------------------------------------------------------------------------------
THE FUND'S INVESTMENT OBJECTIVE IS A HIGH LEVEL OF INCOME BY INVESTING IN A
GLOBAL PORTFOLIO CONSISTING PRIMARILY OF HIGH GRADE DEBT SECURITIES AND HAVING A
DOLLAR WEIGHTED AVERAGE MATURITY OF NOT MORE THAN THREE YEARS. Maturity is
measured by duration as described below. The Investment Adviser will allocate
investments among different countries, currencies and credits, including those
of below investment grade quality, based on the perception of the most favorable
markets and issuers, the relative yield and appreciation potential of a
particular country's securities and the relationship of a country's currency to
the U.S. dollar. Changes in exchange rates for the foreign currencies in which
the investments and forward contracts are denominated may adversely affect the
value of Fund shares. The Fund's investment objective may be changed by the
Trustees of the Trust without shareholder approval.
INVESTMENT POLICIES AND RISKS
- ------------------------------------------------------------------------------
THE FUND CURRENTLY SEEKS ITS OBJECTIVE BY INVESTING ALL OF ITS ASSETS IN
STRATEGIC INCOME PORTFOLIO (THE "PORTFOLIO"), WHICH IS ITSELF AN OPEN-END
INVESTMENT COMPANY HAVING THE SAME INVESTMENT OBJECTIVE AS THE FUND. The
Portfolio, in turn, invests primarily in a portfolio of high grade debt
securities of issuers located anywhere in the world.
The Investment Adviser adjusts the Portfolio's investments and engages in active
management techniques to take advantage of differences in interest rates and
currency exchange rates in markets around the world, and other differences among
countries and markets. By allocating the Portfolio's assets actively among
issuers in different countries, and among securities denominated in different
currencies, the Investment Adviser attempts to achieve a higher level of current
income than might be available from a portfolio invested only in the securities
of one country or denominated in one currency. This strategy requires the
Investment Adviser to identify countries and currencies where the Portfolio's
investments will outperform comparable investments in other countries and
currencies and in many cases to predict changes in economies, markets, political
conditions, and other factors. The success of this strategy will, of course,
involve the risk that the Investment Adviser's predictions may be untimely or
incorrect. The Investment Adviser also seeks to identify markets and securities
which appear to be undervalued and make investments to profit from increases in
value.
The Portfolio will invest primarily in high grade debt securities. "High grade"
debt securities include securities issued or guaranteed as to principal or
interest by the U.S. Government or any of its agencies or instrumentalities, and
debt securities, rated at least A by Standard & Poor's Ratings Group, Moody's
Investors Service, Inc. or Duff & Phelps Inc., of foreign governmental and
private issuers. They may also include commercial paper or other short-term debt
instruments rated in one of the two highest short-term ratings by any of those
rating services (or by Fitch Investors Service, Inc.), and certificates of
deposit and bankers' acceptances issued or guaranteed by, or time deposits
maintained at, banks having total assets of more than $500 million and
determined by the Investment Adviser to be of comparable credit quality to
short-term securities with those ratings. An unrated security will be considered
to be a high grade security if the Investment Adviser determines that it is of
comparable quality to any of the securities described above. In making such
determinations, the Adviser will consider any rating of the issuer of unrated
securities.
The Portfolio may invest the remainder of its assets in lower-rated debt
securities, although less than 35% of the Portfolio's assets will be invested in
securities rated below BBB-/Baa3 (commonly referred to as "junk bonds").
Lower-rated securities generally offer higher current yields and appreciation
potential than do higher rated securities, but are subject to greater risks.
Securities in the lower-rated categories are considered to be of poor standing
and predominantly speculative; securities in the lowest rating categories may be
in default and are generally regarded by the rating agencies as having extremely
poor prospects of ever attaining any real investment standing. The values of
lower-rated fixed income securities generally fluctuate more than those of
higher-rated fixed-income securities. For more detailed information about the
risks associated with investing in lower-rated securities, see "Additional Risk
and Investment Information" below.
The income producing securities in which the Portfolio invests may have fixed,
variable or floating interest rates, constitute a broad mix of asset classes,
and may include convertible bonds, securities of real estate investment trusts
and natural resource companies, stripped debt obligations, closed-end investment
companies (that invest primarily in debt securities the Portfolio could invest
in), preferred, preference and convertible stocks, equipment lease certificates,
equipment trust certificates, conditional sales contracts and debt obligations
collateralized by, or representing interests in pools of, mortgages and other
types of loans ("asset-backed obligations"). The Portfolio may invest a portion
of its assets in fixed and floating rate loans and loan interests. The Portfolio
will normally invest in securities of issuers located in at least three
different countries (which may include the United States), and will not normally
invest more than 25% of its assets in securities of issuers located in a single
foreign country or denominated in any single foreign currency, except the U.S.
dollar. Nevertheless, through "Active Management Strategies" discussed below,
the entire Fund may be exposed to foreign currency risks. For temporary
defensive purposes, the Portfolio may hold all or any portion of its assets in
securities of issuers located in the United States and in cash or money market
instruments. It is impossible to predict when, or for how long, the Portfolio
will engage in such strategies.
The Portfolio will maintain a dollar weighted average portfolio maturity of not
more than three years. In measuring the dollar weighted average portfolio
maturity of the Portfolio, the Portfolio will use the concept of "duration,"
adjusted to account for the volatility-reducing effect of diversifying a debt
portfolio among several countries. Duration represents the dollar weighted
average maturity of expected cash flows (i.e. interest and principal payments)
on one or more debt obligations, discounted to their present values. The
duration of a floating rate security will be defined as the time to the next
interest payment. The duration of an obligation is usually less than its stated
maturity and is related to the degree of volatility in the market value of the
obligation. Maturity measures only the time until a bond or other debt security
provides its final payment; it takes no account of the pattern of a security's
payments over time. Duration takes both interest and principal payments into
account and, thus, in the Investment Adviser's opinion, is a more accurate
measure of a debt security's price sensitivity in response to changes in
interest rates. In computing the duration of its portfolio, the Portfolio will
have to estimate the duration of debt obligations that are subject to prepayment
or redemption by the issuer, based on projected cash flows from such obligations
or their relationship to comparable U.S. Treasury securities. The Portfolio may
use various techniques to shorten or lengthen the dollar weighted average
maturity of its portfolio, including the acquisition of debt obligations at a
premium or discount, transactions in futures contracts and options on futures
and interest rate swaps. Subject to the requirement that the dollar weighted
average portfolio maturity will not exceed three years, the Portfolio may invest
in individual debt obligations of any maturity, including obligations with a
remaining stated maturity of more than three years.
THE MARKET VALUE OF THE PORTFOLIO'S INVESTMENTS WILL CHANGE IN RESPONSE TO
CHANGES IN CURRENCY EXCHANGE AND INTEREST RATES, CREDIT QUALITY CHANGES OF
ISSUERS AND OTHER FACTORS. Changes in the values of portfolio securities will
not affect interest income derived from those securities, but will affect the
Portfolio's net asset value. See "Additional Risk and Investment Information"
below.
ACTIVE MANAGEMENT TECHNIQUES
CURRENCY AND OTHER DERIVATIVE INSTRUMENTS. The Portfolio may purchase or sell
derivative instruments (which are instruments that derive their value from
another instrument, security, index or currency) to enhance return, to hedge
against fluctuations in securities prices, interest rates or currency exchange
rates, or as a substitute for the purchase or sale of securities or currencies.
The Portfolio's transactions in derivative instruments may be in the U.S. or
abroad and may include the purchase or sale of futures contracts on securities,
securities indices, other indices, other financial instruments or currencies;
options on futures contracts; exchange-traded and over-the-counter options on
securities, indices or currencies; and forward foreign currency exchange
contracts. The Portfolio's transactions in derivative instruments involve a risk
of loss or depreciation due to unanticipated adverse changes in securities
prices, interest rates, the other financial instruments' prices or currency
exchange rates, or 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.
To the extent that the Portfolio enters into futures contracts, options on
futures contracts and options on foreign currencies traded on an exchange
regulated by the Commodity Futures Trading Commission ("CFTC"), in each case
that are not for bona fide hedging purposes (as defined by the CFTC), the
aggregate initial margin and premiums required to establish these positions
(excluding the amount by which options are "in-the-money") may not exceed 5% of
the liquidation value of the Portfolio's investments, after taking into account
unrealized profits and unrealized losses on any contracts the Portfolio has
entered into.
Forward contracts are individually negotiated and privately traded by currency
traders and their customers. A forward contract involves an obligation to
purchase or sell a specific currency (or basket of currencies) for an agreed
price at a future date, which may be any fixed number of days from the date of
the contract. The Portfolio may engage in cross-hedging by using forward
contracts in one currency (or basket of currencies) to hedge against
fluctuations in the value of securities denominated in a different currency if
the Investment Adviser determines that there is an established historical
pattern or correlation between the two currencies (or the basket of currencies
and the underlying currency). Use of a different foreign currency magnifies the
Portfolio's exposure to foreign currency exchange rate fluctuations. The
Portfolio may also use forward contracts to shift its exposure to foreign
currency exchange rate changes from one currency to another. In addition, the
Portfolio may purchase forward contracts for non-hedging purposes when the
Investment Adviser anticipates that the foreign currency will appreciate in
value.
INTEREST RATE AND CURRENCY SWAPS. The Portfolio may enter into interest rate and
currency swaps both for hedging purposes and to enhance return. Interest rate
swaps involve the exchange by the Portfolio with another party of their
respective commitments to pay or receive interest, e.g., an exchange of fixed
rate payments for floating rate payments. Currency swaps involve the exchange of
their respective rights to make or receive payments in specified currencies. The
Portfolio will enter into interest rate swaps on a net basis, so the risk of
loss with respect to interest rate swaps is limited to the net amount of
interest payments that the Portfolio is contractually obligated to make. If the
other party to an interest rate swap defaults, the Portfolio's risk of loss
consists of the net amount of interest payments that the Portfolio is
contractually entitled to receive. In contrast, currency swaps usually involve
the delivery of the entire payment stream in one designated currency in exchange
for the entire payment stream in the other designated currency. Therefore, the
entire principal value of a currency swap is subject to the risk that the other
party to the swap will default on its contractual delivery obligations.
The use of interest rate and currency swaps is a highly specialized activity
which involves investment techniques and risks different from those associated
with ordinary portfolio securities transactions. The Investment Adviser has used
interest rate and currency swaps only to a limited extent but has utilized other
types of hedging techniques. If the Investment Adviser is incorrect in its
forecasts of market values, interest rates and currency exchange rates, the
investment performance of the Fund would be less favorable than it would have
been if swaps were not used.
SECURITIES LOANS, REPURCHASE AGREEMENTS, FORWARD COMMITMENTS AND REVERSE
REPURCHASE AGREEMENTS. The Portfolio may lend its portfolio securities to
broker-dealers and may enter into repurchase agreements. These transactions must
be fully collateralized at all times, but involve some risk to the Portfolio if
the other party should default on its obligations and the lender is delayed or
prevented from recovering the collateral. The Portfolio may also purchase
securities for future delivery by means of "forward commitments."
The Portfolio may also enter into "reverse" repurchase agreements which
generally involve the sale of securities held and an agreement to repurchase the
securities at an agreed-upon price, date, and interest payment. The Portfolio
can invest the cash it receives or use it to meet redemption requests. Reverse
repurchase agreements and forward commitments may increase the overall
investment exposure of the Portfolio and involve investment leverage. Use of
investment leverage may increase the amount of any losses incurred by the
Portfolio in the case of adverse changes in market conditions or the failure of
the issuer of a security or financial instrument to meet its obligations. The
Portfolio may also enter into reverse repurchase agreements as a hedge against a
possible decline in the value of the foreign currency in which a debt security
is denominated by converting the foreign currency cash proceeds from the sale of
the debt security into U.S. dollars.
ADDITIONAL RISK AND INVESTMENT INFORMATION
INVESTMENTS IN FOREIGN SECURITIES. Because foreign securities involve foreign
currencies, the values of the assets of the Portfolio and its net investment
income available for distribution may be affected favorably or unfavorably by
changes in currency exchange rates and exchange control regulations. There may
be less information publicly available about a foreign issuer than about a U.S.
issuer, and foreign issuers are not generally subject to accounting, auditing,
and financial reporting standards and practices comparable to those in the
United States. The willingness and ability of sovereign issuers to pay principal
and interest on government securities depends on various economic factors,
including among others the issuer's balance of payments, overall debt level, and
cash flow considerations related to the availability of tax or other revenues to
satisfy the issuer's obligations. The securities of some foreign issuers are
less liquid and at times more volatile than securities of comparable U.S.
issuers. Foreign brokerage commissions and fees are also generally higher than
in the United States. Foreign settlement procedures and trade regulations may
involve certain risks (such as delay in the payment or delivery of securities or
in the recovery of the Portfolio's assets held abroad) and expenses not present
in the settlement of domestic investments. The Portfolio's investments may
include securities issued by lesser-developed countries, which are sometimes
referred to as "emerging markets", and issuers located in such countries. As a
result, the Portfolio may be exposed to greater risk and will be more dependent
on the Investment Adviser's ability to assess such risk than if the Portfolio
invested solely in more developed countries.
In addition, there may be a possibility of nationalization or expropriation of
assets, imposition of currency exchange controls, confiscatory taxation,
political or financial instability, and diplomatic developments which could
affect the values of the Portfolio's investments in certain foreign countries.
Legal remedies available to investors in certain foreign countries, including
remedies available in bankruptcy proceedings, may be more limited than those
available with respect to investments in the United States or in other foreign
countries. The laws of some foreign countries may limit the Portfolio's ability
to invest in securities of certain issuers located in those foreign countries.
Special tax considerations apply to foreign securities.
INVESTING IN LOWER-RATED SECURITIES. Lower quality debt securities are subject
to the risk of an issuer's inability to meet principal and interest payments on
the obligations (credit risk) and may also be subject to price volatility due to
such factors as interest rate sensitivity, market perception of the
creditworthiness of the issuer and general market liquidity (market risk). Lower
rated and comparable unrated securities are also more likely to react to real or
perceived developments affecting market and credit risk than are more highly
rated securities, which react primarily to movements in the general level of
interest rates. The Portfolio may retain defaulted securities in its portfolio
when such retention is considered desirable by the Investment Adviser. In the
case of a defaulted security, the Portfolio may incur additional expense seeking
recovery of its investment. In the event the rating of a security held by the
Portfolio is downgraded, causing the Portfolio to have 35% or more of its total
assets in securities rated below investment grade, the Investment Adviser will
(in an orderly fashion within a reasonable period of time) dispose of such
securities as it deems necessary in order to comply with this limitation. See
the Appendix to this Prospectus for the asset composition of the Portfolio for
the fiscal year ended October 31, 1995. For a description of securities ratings,
see the Statement of Additional Information.
INTEREST RATE RISK. The value of Fund shares will reflect the value of the
Fund's interest in the Portfolio (which in turn, reflects the underlying value
of the Portfolio's assets and liabilities) and will change in response to
interest rate fluctuations. When interest rates decline, the value of debt
securities held by the Portfolio can be expected to rise. Conversely, when
interest rates rise, the value of debt securities held by the Portfolio can be
expected to decline.
OTHER PRACTICES. The Portfolio may at times invest in so-called "zero-coupon"
bonds (deferred interest bonds) and "payment-in-kind" bonds. Zero-coupon bonds
are issued at a significant discount from their principal amount and interest is
paid only at maturity rather than at intervals during the life of the security.
Payment-in-kind bonds allow the issuer, at its option, to make current interest
payments on the bonds either in cash or in additional bonds. The values of
zero-coupon bonds and payment-in-kind bonds are subject to greater fluctuation
in response to changes in market interest rates than bonds which pay interest in
cash currently. Because these instruments allow an issuer to avoid the need to
generate cash to meet current interest payments, they may involve greater credit
risks than bonds paying interest currently. Even though such bonds do not pay
current interest in cash, the Portfolio is nonetheless required to accrue
interest income on such investments and the Fund is required to distribute its
share of such amounts at least annually to shareholders. Thus, the Portfolio
could be required at times to liquidate other investments to obtain cash in
order to enable the Fund to satisfy its distribution requirements.
The Portfolio may temporarily borrow up to 5% of the value of its total assets
to satisfy redemption requests or settle securities transactions. 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.
NON-DIVERSIFIED STATUS. As a "non-diversified" investment company, the Portfolio
may invest, with respect to 50% of its total assets, more than 5%, (but not more
than 25%) of its total assets in securities of any one issuer, other than U.S.
government securities. The Portfolio is likely to invest a greater percentage of
its assets in the securities of a single issuer than would a diversified fund.
Therefore, the Portfolio is more susceptible to any single adverse or political
occurence or development affecting issuers in which the Portfolio invests.
INVESTMENT RESTRICTIONS. The Fund and the Portfolio have adopted certain
fundamental investment restrictions and policies which are enumerated in detail
in the Statement of Additional Information and which may not be changed unless
authorized by a shareholder vote or 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 of the Portfolio, as the case may be. If any changes were made in
the Fund's investment objective, the Fund might have investment objectives
different from the objectives which an investor considered appropriate at the
time the investor became a shareholder in the Fund.
ORGANIZATION OF THE FUND AND THE PORTFOLIO
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THE FUND IS A NON-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, as amended,
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,
which is a separate investment company with an identical investment objective
(although the Fund may temporarily hold a de minimis amount of cash). 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 of the Portfolio, see "The
Fund's Investment Objective" and "Investment Policies and Risks". Further
information regarding investment practices may 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 a larger investor in the Portfolio. For example, if a large investor
withdraws from the Portfolio, the remaining investors may experience higher pro
rata operating expenses, thereby producing lower returns. Additionally, the
Portfolio may hold fewer securities, 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 1992, 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 noninterested Trustees,
have approved written procedures designed to identify and address any potential
conflicts of interest arising from the fact that the Trustees of the Portfolio
also serve as Trustees of the Trust. 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 each of the Trust
and the Portfolio, see the Statement of Additional Information.
MANAGEMENT OF THE FUND AND THE PORTFOLIO
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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. BMR's expertise in the management of fixed-income
securities ranges from government obligations, high-grade corporate and
municipal securities, foreign debt and bank loan interests to higher yielding
instruments. BMR's fixed-income division is armed with the research and
technical ability to gain immediate access to interest rate data around the
world.
Acting under the general supervision of the Board of Trustees of the Portfolio,
BMR manages the Portfolio's investments and affairs, and furnishes for the use
of the Portfolio office space and all necessary office facilities, equipment and
personnel for servicing the investments of the Portfolio. 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
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1 up to $500 million 0.275% 2.75%
2 $500 million but less than $1 billion 0.250% 2.50%
3 $1 billion but less than $1.5 billion 0.225% 2.25%
4 $1.5 billion but less than $2 billion 0.200% 2.00%
5 $2 billion but less than $3 billion 0.175% 1.75%
6 $3 billion and over 0.150% 1.50%
Total daily gross income is the total gross investment income, exclusive of
capital gains and losses on investments and before deduction of expenses, earned
each day by the Portfolio.
As of October 31, 1995, the Portfolio had net assets of $152,583,289. For the
fiscal year ended October 31, 1995, the Portfolio paid BMR advisory fees
equivalent to 0.55% of the Portfolio's average daily net assets for such year.
BMR OR EATON VANCE ACTS AS INVESTMENT ADVISER TO INVESTMENT COMPANIES AND
VARIOUS INDIVIDUAL AND INSTITUTIONAL CLIENTS WITH ASSETS UNDER MANAGEMENT OF
APPROXIMATELY $16 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, oil and gas operations, real estate investment, consulting and
management, and development of precious metals properties.
Mark S. Venezia has acted as the portfolio manager of the Portfolio since it
commenced operations. He has been a Vice President of Eaton Vance since 1987 and
of BMR since 1992.
The Portfolio believes that most of the obligations which it will acquire will
be 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 which will 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.
The Portfolio also engages BMR as its administrator under an administration
agreement. Under the administration agreement, BMR is responsible for reviewing
and supervising the provision of custody services to the Portfolio and making
related reports and recommendations to the Board of Trustees of the Portfolio;
for providing certain valuation, legal, accounting and tax services in
connection with investments with foreign issuers or guarantors, investments
denominated in foreign currencies and transactions in derivative instruments;
and for such other special services as the Board may direct. BMR also furnishes
the office facilities and personnel necessary for providing these services. As
compensation for these services, BMR receives a monthly administration fee at an
annual rate of .15% of the Portfolio's average daily net assets. For the fiscal
year ended October 31, 1995, the Portfolio paid BMR administration fees
equivalent to 0.15% of the Portfolio's average daily net assets for such period.
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 such 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 and the administration agreement, by
Eaton Vance under the administrative services agreement, or by EVD under the
distribution agreement.
DISTRIBUTION PLAN
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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
(THE "1940 ACT"). Rule 12b-1 permits a mutual fund, such as the Fund, to finance
distribution activities and bear expenses associated with the distribution of
its shares provided that any payments made by the Fund are made pursuant to a
written plan adopted in accordance with the Rule. The Plan is subject to and
complies with the sales charge rule of the National Association of Securities
Dealers, Inc. (the "NASD Rule"). The Plan is described further in the Statement
of Additional Information, and the following is a description of the salient
features of the Plan. The Plan provides that the Fund, subject to the NASD Rule,
will pay sales commissions and distribution fees to the Principal Underwriter
only after and as a result of the sale of shares of the Fund. On each sale of
Fund shares (excluding reinvestment of distributions) the Fund will pay the
Principal Underwriter amounts representing (i) sales commissions equal to 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. The Principal
Underwriter currently expects to pay to a financial service firm (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 initial sales charge and
at the same time permit the Principal Underwriter to compensate Authorized Firms
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.
During the fiscal year ended October 31, 1995, the Fund neither paid nor accrued
sales commissions under the Plan.
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. 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 fiscal year
ended October 31, 1995, the Fund neither accrued nor paid service fees under the
Plan.
The Principal Underwriter may, from time to time, at its own expense, provide
additional incentives to Authorized Firms which employ registered
representatives who sell 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
sell or 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
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THE FUND VALUES ITS SHARES ONCE ON EACH DAY THE NEW YORK STOCK EXCHANGE (THE
"EXCHANGE") IS OPEN FOR TRADING, as of the close of regular trading on the
Exchange (normally 4:00 p.m. New York time). The Fund's net asset value per
share is determined by its custodian, Investors Bank & Trust Company ("IBT"),
(as agent for the Fund) in the manner authorized by the Trustees of the Trust.
Net asset value is computed by dividing the value of the Fund's total assets,
less its liabilities, by the number of shares outstanding. Because the Fund
invests its assets in an interest in the Portfolio, the Fund's net asset value
will reflect the value of its interest in the Portfolio (which, in turn,
reflects the underlying value of the Portfolio's assets and liabilities).
Authorized Firms must communicate an investor's order to the Principal
Underwriter prior to the close of the Principal Underwriter's business day to
receive that day's net asset value per Fund share. It is the Authorized Firms'
responsibility to transmit orders promptly to the Principal Underwriter, which
is a wholly-owned subsidiary of Eaton Vance.
The Portfolio's net asset value is also determined as of the close of regular
trading on the Exchange by IBT (as custodian and agent for the Portfolio) 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. Most debt securities are valued on the basis of market valuations
furnished by pricing services. For further information regarding the valuation
of the Portfolio's assets, see "Determination of Net Asset Value" in the
Statement of Additional Information.
SHAREHOLDERS MAY DETERMINE THE VALUE OF THEIR INVESTMENT BY MULTIPLYING THE
NUMBER OF FUND SHARES OWNED BY THE CURRENT NET ASSET VALUE PER SHARE.
HOW TO BUY FUND SHARES
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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 Authorized Firm may charge its
customers a fee in connection with transactions executed by that Firm.
An initial investment in the Fund must be at least $1,000. Once an account has
been established the investor may send investments of $50 or more at any time
directly to the Fund's transfer agent (the "Transfer Agent") as follows: First
Data Investor Services Group, 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 his or her participation in the plan, his or her shares
will be transferred to a regular individual account. However, such account will
be subject to the right of redemption by the Fund as described below under "How
to Redeem Fund Shares."
ACQUIRING FUND SHARES IN EXCHANGE FOR SECURITIES. IBT, as escrow agent, will
receive securities acceptable to Eaton Vance, as 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 on the day of their receipt 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
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 Strategic Income Fund
IN THE CASE OF PHYSICAL DELIVERY:
Investors Bank & Trust Company
Attention: EV Classic Strategic 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, must 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 FIRST DATA INVESTOR
SERVICES GROUP, BOS725, P.O. BOX 1559, BOSTON, MA 02104, during its business
hours a written request for redemption in good order, plus any share
certificates with executed stock powers. The redemption price will be based on
the net asset value per Fund share next computed after such delivery. Good order
means that all relevant documents must be endorsed by the record owner (s)
exactly as the shares are registered and the signature(s) must be guaranteed by
a member of either the Securities Transfer Association's STAMP program or the
New York Stock Exchange's Medallion Signature Program, or certain banks, savings
and loan institutions, credit unions, securities dealers, securities exchanges,
clearing agencies and registered securities associations as required by a
regulation of the Securities and Exchange Commission and acceptable to First
Data Investor Services Group. 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 First
Data Investor Services Group, the Fund will make payment in cash for the net
asset value of the shares as of the date determined above, reduced by the amount
of any applicable contingent deferred sales 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 15 days from the purchase date when the purchase
check has not yet cleared. Redemptions or repurchases may result in a taxable
gain or loss.
Due to the high cost of maintaining small accounts, the Fund reserves the right
to redeem accounts with balances of less than $750. Prior to such a redemption,
shareholders will be given 60 days' written notice to make an additional
purchase. However, no such redemptions would be required by the Fund if the
cause of the low account balance was a reduction in the net asset value of Fund
shares. No contingent deferred sales charge will be imposed with respect to such
involuntary redemptions.
CONTINGENT DEFERRED SALES CHARGE. Shares redeemed within the first year of their
purchase (except shares acquired through the reinvestment of distributions)
generally will be subject to a contingent deferred sales charge equal to 1% of
the net asset value of redeemed shares. 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.
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 Shareholder
Services"), (2) as part of a distribution from a retirement plan qualified under
Section 401, 403(b) or 457 of 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. When paid to
the Principal Underwriter it will reduce the amount of Uncovered Distribution
Charges calculated under the Fund's Distribution Plan. See "Distribution Plan".
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 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, FIRST DATA INVESTOR SERVICES GROUP, 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 SHARES BY SENDING A CHECK FOR $50 OR MORE to First Data Investor
Services Group.
Any questions concerning a shareholder's account or services available may also
be directed by telephone to EATON VANCE SHAREHOLDER SERVICES at 800-225- 6265,
extension 2, or in writing to First Data Investor Services Group, BOS725, P.O.
Box 1559, Boston, MA 02104 (Please provide the name of the shareholder, the Fund
and the account number).
THE FOLLOWING DISTRIBUTION OPTIONS WILL BE AVAILABLE TO ALL LIFETIME INVESTING
ACCOUNTS and may be changed as often as desired by written notice to the Fund's
dividend disbursing agent, First Data Investor Services Group, 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 in shares at the then current net asset value.
Furthermore, the distribution option on the account will be automatically
changed to the Share Option until such time as the shareholder selects a
different option.
DISTRIBUTION INVESTMENT OPTION. In addition to the distribution options set
forth above, dividends and/or capital gains may be invested in additional shares
of another Eaton Vance fund. Before selecting this option, a shareholder should
obtain a prospectus of the other Eaton Vance fund and consider its objectives
and policies carefully.
"STREET NAME" ACCOUNTS. If shares of the Fund are held in a "street name"
account with an Authorized Firm, all recordkeeping, transaction processing and
payments of distributions relating to the beneficial owner's account will be
performed by the Authorized Firm, and not by the Fund and its Transfer Agent.
Since the Fund will have no record of the beneficial owner's transactions, a
beneficial owner should 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.
THE EATON VANCE EXCHANGE PRIVILEGE
- ------------------------------------------------------------------------------
Shares of the Fund currently may be exchanged for shares of one or more other
funds in the Eaton Vance 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 exchange,
provided that such exchange offers are available only in states where shares of
the fund being acquired may legally be 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.
First Data Investor Services Group makes exchanges at the next determined net
asset value after receiving an exchange request in good order (see "How to
Redeem Fund Shares"). Consult First Data Investor Services Group for additional
information concerning the exchange privilege. Applications and prospectuses of
the other funds are available from Authorized Firms or the Principal
Underwriter. The prospectus for each fund describes its investment objectives
and policies, and shareholders should obtain a prospectus and consider these
objectives and policies carefully before requesting an exchange.
No contingent deferred sales charge is imposed on exchanges. For purposes of
calculating the contingent deferred sales charge upon the redemption of shares
acquired in an exchange, the 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 th current prospectus of any such
fund.
Telephone exchanges are accepted by First Data Investor Services Group provided
the investor has not disclaimed in writing the use of the privilege. To effect
such exchanges, call First Data Investor Services Group 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 First Data Investor
Services Group will be responsible for the authenticity of exchange instructions
received by telephone, provided that reasonable procedures to confirm that
instructions communicated are genuine have been followed. Telephone instructions
will be tape recorded. In times of drastic economic or market changes, a
telephone exchange may be difficult to implement. An exchange may result in a
taxable gain or loss.
EATON VANCE SHAREHOLDER SERVICES
- ------------------------------------------------------------------------------
THE FUND OFFERS THE FOLLOWING SERVICES, WHICH ARE VOLUNTARY, INVOLVE NO EXTRA
CHARGE, AND MAY BE CHANGED OR DISCONTINUED WITHOUT PENALTY AT ANY TIME. Full
information on each of the services described below and an application, where
required, are available from Authorized Firms or the Principal Underwriter. The
cost of administering such services for the benefit of shareholders who
participate in them is borne by the Fund as an expense to all shareholders.
INVEST-BY-MAIL -- FOR PERIODIC SHARE ACCUMULATION: Once the $1,000 minimum
investment has been made, checks of $50 or more payable to the order of EV
Classic Strategic Income Fund may be mailed directly to First Data Investor
Services Group, 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 a 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 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 Internal Revenue Code of 1986, as amended (the
"Code").
Detailed information concerning these plans, including certain exceptions to
minimum investment requirements, and copies of the plans are available from the
Principal Underwriter. This information should be read carefully and
consultation with an attorney or tax adviser may be advisable. The information
sets forth the service fee charged for retirement plans and describes the
federal income tax consequences of establishing a plan. Under these plans, all
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 the entire monthly
distribution, whether paid in cash or reinvested in additional shares of the
Fund, will constitute taxable income to the shareholders for federal income tax
purposes. 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. Daily distribution crediting will
commence on the day that collected funds for the purchase of Fund shares are
available at the Transfer Agent. Shareholders will receive timely federal income
tax information relating to all distributions made by the Fund during the
calendar year. The Fund's net realized capital gains, if any, consist of the net
realized capital gains allocated to the Fund by the Portfolio for tax purposes,
after taking into account any available capital loss carryovers; the Fund's net
realized capital gains, if any, will be distributed at least once a year,
usually in December.
Distributions of the Fund which are derived from the Fund's allocated share of
the Portfolio's net investment income, net short-term capital gains and certain
foreign exchange gains are taxable to shareholders as ordinary income, whether
paid in cash or reinvested in additional shares of the Fund.
Certain distributions, if 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.
Capital gains, if any, realized on sales of investments and on options and
futures transactions during the fiscal year, which ends on October 31, will be
offset by any capital losses, including any capital loss carryovers, and will be
distributed annually, usually in December, in compliance with the distribution
requirements of the Code. Distributions of long-term capital gains included
therein and designated by the Fund are taxable to shareholders as long-term
capital gains, whether paid in cash or additional shares of the Fund and
regardless of the length of time Fund shares have been owned by the shareholder.
If shares are purchased shortly before the record date of such a distribution,
the shareholder will pay the full price for the shares and then receive some
portion of the price back as a taxable distribution.
Income (possibly including in some cases, capital gains) realized by the
Portfolio from certain investments and allocated to the Fund may be subject to
foreign income or other foreign taxes and the Fund may make an election under
Section 853 of the Code that would allow Fund shareholders to claim a credit or
deduction on their federal income tax returns for (and treat as additional
amounts distributed to them) their pro rata portion of the Fund's allocated
share of qualified taxes paid by the Portfolio to foreign countries. This
election may be made annually only if more than 50% of the assets of the Fund,
including its allocable share of the Portfolio assets, at the close of the
Fund's taxable year consists of securities in foreign corporations. The Fund
will send a written notice of any such election (not later than 60 days after
the close of its taxable year) to each shareholder indicating the amount to be
treated as the shareholder's proportionate share of such taxes. Availability of
foreign tax credits or deductions for shareholders is subject to certain
additional restrictions and limitations under the Code.
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
also does not pay federal income or excise taxes.
Shareholders should consult their own tax advisers with respect to the local,
state, federal and foreign tax consequence of investing in the Fund.
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 earned during a recent 30-day period by the maximum offering
price per share (net asset value) of the Fund 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 publish
annual and cumulative total return figures from time to time. The Fund may also
quote total return for the period prior to commencement of operations which
would reflect the Portfolio's total return (or that of its predecessor) adjusted
to reflect any applicable Fund sales charge.
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 or total return for
any prior period should not be considered as a representation of what an
investment may earn or what the Fund's yield or total return may be in any
future period. If the expenses of the Fund or the Portfolio are paid by Eaton
Vance, the Fund's performance will be higher.
<PAGE>
APPENDIX
STRATEGIC INCOME PORTFOLIO
ASSET COMPOSITION INFORMATION
FOR FISCAL YEAR ENDED OCTOBER 31, 1995
PERCENT OF NET ASSETS
---------------------
YEAR ENDED
OCTOBER 31, 1995
----------------
Debt Securities -- Moody's Rating
Aaa ................................................. 19.5%
Aa1 ................................................. 4.1
Aa2 ................................................. 34.8
Aa3 ................................................. 0
A1 .................................................. 2.7
A3 .................................................. 2.7
Ba1 ................................................. 3.8
Ba2 ................................................. 0
Ba3 ................................................. 0.5
B1 .................................................. 2.1
B2 .................................................. 20.5
B3 .................................................. 2.9
Baa1 ................................................ 0.2
Baa3 ................................................ 1.2
Caa ................................................. 0.4
CCC ................................................. 0
Unrated ............................................. 4.6
----
Total ............................................... 100.0%
The chart above indicates the weighted average composition for the fiscal year
ended October 31, 1995 with the debt securities rated by Moody's Investors
Service, Inc. separated into the indicated categories. The weighted averages
indicated above were calculated on a dollar weighted basis and were 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 the description of Moody's Investors Service, Inc's. ratings of debt
securities, see Appendix A to the Statement of Additional Information.
<PAGE>
[LOGO] EATON VANCE
MUTUAL FUNDS
EV CLASSIC STRATEGIC INCOME FUND
- -------------------------------------------
PROSPECTUS
MARCH 1, 1996
EV CLASSIC
STRATEGIC INCOME FUND
24 FEDERAL STREET
BOSTON, MA 02110
- -------------------------------------------
INVESTMENT ADVISER AND ADMINISTRATOR OF STRATEGIC INCOME PORTFOLIO
Boston Management and Research, 24 Federal Street, Boston, MA 02110
ADMINISTRATOR OF EV CLASSIC STRATEGIC 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, 89 South Street, Boston, MA 02111
TRANSFER AGENT
First Data Investor Services Group, 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
C-SIP
<PAGE>
PART A
INFORMATION REQUIRED IN A PROSPECTUS
EV MARATHON
STRATEGIC INCOME FUND
- ------------------------------------------------------------------------------
EV MARATHON STRATEGIC INCOME FUND (THE "FUND") IS A MUTUAL FUND SEEKING A HIGH
LEVEL OF INCOME BY INVESTING IN A GLOBAL PORTFOLIO CONSISTING PRIMARILY OF HIGH
GRADE DEBT SECURITIES AND HAVING A DOLLAR WEIGHTED AVERAGE MATURITY OF NOT MORE
THAN THREE YEARS. THE FUND INVESTS ITS ASSETS IN STRATEGIC INCOME PORTFOLIO (THE
"PORTFOLIO"), A NON-DIVERSIFIED OPEN-END INVESTMENT COMPANY HAVING THE SAME
INVESTMENT OBJECTIVE AS THE FUND, RATHER THAN BY DIRECTLY INVESTING IN AND
MANAGING ITS OWN PORTFOLIO OF SECURITIES AS WITH HISTORICALLY STRUCTURED MUTUAL
FUNDS. THE PORTFOLIO'S INVESTMENT ADVISER WILL INVEST IN A VARIETY OF INCOME
PRODUCING SECURITIES, INCLUDING THOSE OF BELOW INVESTMENT GRADE QUALITY. THE
VALUE OF FUND SHARES WILL FLUCTUATE BECAUSE OF CHANGES IN CURRENCY EXCHANGE
RATES, CREDIT QUALITY AND INTEREST RATES, AND OTHER FACTORS. THE FUND IS A
SERIES OF EATON VANCE MUTUAL FUNDS TRUST (THE "TRUST").
Shares of the Fund are not deposits or obligations of, or guaranteed or endorsed
by, any bank or other insured depository institution, and are not federally
insured by the Federal Deposit Insurance Corporation, the Federal Reserve Board
or any other government agency. Shares of the Fund involve investment risks,
including fluctuations in value and the possible loss of some or all of the
principal investment.
This Prospectus is designed to provide you with information you should know
before investing. Please retain this document for future reference. A
Statement of Additional Information dated March 1, 1996 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 and
the Portfolio. 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>
PAGE PAGE
<S> <C> <C>
Shareholder and Fund Expenses ......................... 2 How to Redeem Fund Shares .......................... 14
The Funds' Financial Highlights ........................ 3 Reports to Shareholders ............................ 15
The Funds' Investment Objective ....................... 4 The Lifetime Investing Account/Distribution
Investment Policies and Risks .......................... 4 Options ......................................... 15
Organization of the Fund and the Portfolio ............. 8 The Eaton Vance Exchange Privilege ................. 16
Management of the Fund and the Portfolio ............... 9 Eaton Vance Shareholder Services ................... 17
Distribution Plan ...................................... 11 Distributions and Taxes ............................ 18
Valuing Fund Shares .................................... 12 Performance Information ............................ 19
How to Buy Fund Shares ................................. 13 Appendix ........................................... 20
</TABLE>
- -------------------------------------------------------------------------------
PROSPECTUS DATED MARCH 1, 1996
<PAGE>
<TABLE>
<CAPTION>
SHAREHOLDER AND FUND EXPENSES
- ------------------------------------------------------------------------------
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 Five Years (as a percentage of redemption proceeds exclusive
of all reinvestments and capital appreciation in the account) 3.00%-0%
ANNUAL FUND AND ALLOCATED PORTFOLIO OPERATING EXPENSES (as a
percentage of average daily net assets)
-------------------------------------------------------------------------------------------------------
Investment Adviser Fee 0.55%
Rule 12b-1 Distribution (and Service) Fees 0.96%
Other Expenses (including the Portfolio's administration fee of 0.15%) 0.67%
----
Total Operating Expenses 2.18%
====
<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: $52 $88 $117 $251
An investor would pay the following expenses on the same
investment, assuming (a) 5% annual return and (b) no
redemptions: $22 $68 $117 $251
</TABLE>
NOTES:
The table and Example summarize the aggregate expenses of the Fund and the
Portfolio and are designed to help investors understand the costs and expenses
they will bear, directly or indirectly, by investing in the Fund. Information
for the Fund is based on its expenses for the most recent fiscal year.
The Fund invests exclusively in the Portfolio. The Trustees believe the
aggregate per share expenses of the Fund and the Portfolio should approximate,
and over time may be less than, the per share expenses the Fund would incur if
the Trust retained the services of an investment adviser for the Fund and the
Fund's assets were invested directly in the type 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 "The Fund's Financial Highlights," "Organization of the Fund and
the Portfolio," "Management 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
four years prior to redemption, (b) shares acquired through the reinvestment of
distributions or (c) any appreciation in value of other shares in the account
(see "How to Redeem Fund Shares"), and no such charge is imposed on exchanges of
Fund shares for shares of one or more other funds listed under "The Eaton Vance
Exchange Privilege".
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 10.
Other investment companies and investors with different distribution
arrangements and fees are investing in the Portfolio and others 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 Coopers & Lybrand L.L.P.,
independent accountants, as experts in accounting and auditing. Further
information regarding the performance of the Fund is contained in its annual
report to shareholders which may be obtained without charge by contacting the
Principal Underwriter, Eaton Vance Distributors, Inc.
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
------------------------------------------------------------------------
1995 1994<F6> 1993 1992 1991<F4>
------------- ------------- ------------- ------------- ------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, beginning of year $ 8.290 $ 9.410 $ 9.120 $ 9.920 $ 10.000
-------- -------- -------- -------- --------
INCOME FROM OPERATIONS:
Net investment income $ 0.726 $ 0.645 $ 0.239 $ 0.816 $ 0.786
Net realized and unrealized gain
(loss) on investments 0.167 (1.135) 0.683 (0.943) (0.022)<F5>
-------- -------- -------- -------- --------
Total income (loss) from operations $ 0.893 $ (0.490) $ 0.922 $ (0.127) $ 0.764
------- -------- -------- -------- --------
LESS DISTRIBUTIONS:
From net investment income $ (0.361) $ (0.343) $ (0.632) $ (0.673) $ (0.786)
From tax return of capital (0.322) (0.290) -- -- --
From paid-in capital -- -- -- -- (0.058)
-------- -------- -------- -------- --------
Total distributions $ (0.683) $ (0.633) $ (0.632) $ (0.673) $ (0.844)
-------- -------- -------- -------- --------
NET ASSET VALUE -- end of year $ 8.500 $ 8.290 $ 9.410 $ 9.120 $ 9.920
======== ======== ======== ======== ========
TOTAL RETURN<F7> 11.34% (5.33%) 10.51% (1.45%) 7.97%
RATIOS/SUPPLEMENTAL DATA (to average
daily net assets):
Expenses<F1> 2.18% 2.00% 1.99% 1.95% 2.11%<F3>
Net investment income 7.85 7.24% 7.53% 8.20% 8.24%<F3>
PORTFOLIO TURNOVER<F2> -- 55% 55% 56% 20%
NET ASSETS AT END OF PERIOD
(000's omitted) $150,767 $233,139 $381,227 $533,253 $589,182
<FN>
<F1> Includes the Fund's share of Strategic Income Portfolio's allocated expenses for the year ended October 31, 1995,
and for the period from March 1, 1994 to October 31, 1994.
<F2> Portfolio Turnover represents the rate of portfolio activity for the period while the Fund was making investments
directly in securities. The portfolio turnover rate 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 to shareholders.
<F3> Computed on an annualized basis.
<F4> For the period from the start of business, November 26, 1990, to October 31, 1991.
<F5> The per share amount is not in accord with the net realized and unrealized gain for the period due to the timing of
the sales of Fund shares and the amount of per-share realized and unrealized gains and losses at such time.
<F6> Per share amounts have been calculated using the monthly average share method which more approximately presents the
per share data for the period, since the use of the undistributed method does not accord with the results of
operations.
<F7> 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. Distributions, if any, are assumed to be reinvested at the
net asset value on the payable date. Total return is calculated on a non-annualized basis.
</FN>
</TABLE>
<PAGE>
THE FUND'S INVESTMENT OBJECTIVE
- ------------------------------------------------------------------------------
THE FUND'S INVESTMENT OBJECTIVE IS A HIGH LEVEL OF INCOME BY INVESTING IN A
GLOBAL PORTFOLIO CONSISTING PRIMARILY OF HIGH GRADE DEBT SECURITIES AND HAVING A
DOLLAR WEIGHTED AVERAGE MATURITY OF NOT MORE THAN THREE YEARS. Maturity is
measured by duration as described below. The Investment Adviser will allocate
investments among different countries, currencies and credits, including those
of below investment grade quality, based on the perception of the most favorable
markets and issuers, the relative yield and appreciation potential of a
particular country's securities and the relationship of a country's currency to
the U.S. dollar. Changes in exchange rates for the foreign currencies in which
the investments and forward contracts are denominated may adversely affect the
value of Fund shares. The Fund's investment objective may be changed by the
Trustees of the Trust without shareholder approval.
INVESTMENT POLICIES AND RISKS
- ------------------------------------------------------------------------------
THE FUND CURRENTLY SEEKS ITS OBJECTIVE BY INVESTING ALL OF ITS ASSETS IN
STRATEGIC INCOME PORTFOLIO ( THE "PORTFOLIO"), WHICH IS ITSELF AN OPEN-END
INVESTMENT COMPANY HAVING THE SAME INVESTMENT OBJECTIVE AS THE FUND. The
Portfolio, in turn, invests primarily in a portfolio of high grade debt
securities of issuers located anywhere in the world.
The Investment Adviser adjusts the Portfolio's investments and engages in active
management techniques to take advantage of differences in interest rates and
currency exchange rates in markets around the world, and other differences among
countries and markets. By allocating the Portfolio's assets actively among
issuers in different countries, and among securities denominated in different
currencies, the Investment Adviser attempts to achieve a higher level of current
income than might be available from a portfolio invested only in the securities
of one country or denominated in one currency. This strategy requires the
Investment Adviser to identify countries and currencies where the Portfolio's
investments will outperform comparable investments in other countries and
currencies and in many cases to predict changes in economies, markets, political
conditions, and other factors. The success of this strategy will, of course,
involve the risk that the Investment Adviser's predictions may be untimely or
incorrect. The Investment Adviser also seeks to identify markets and securities
which appear to be undervalued and make investments to profit from increases in
value.
The Portfolio will invest primarily in high grade debt securities. "High grade"
debt securities include securities issued or guaranteed as to principal or
interest by the U.S. Government or any of its agencies or instrumentalities, and
debt securities, rated at least A by Standard & Poor's Ratings Group, Moody's
Investors Service, Inc. or Duff & Phelps Inc., of foreign governmental and
private issuers. They may also include commercial paper or other short-term debt
instruments rated in one of the two highest short-term ratings by any of those
rating services (or by Fitch Investors Service, Inc.), and certificates of
deposit and bankers' acceptances issued or guaranteed by, or time deposits
maintained at, banks having total assets of more than $500 million and
determined by the Investment Adviser to be of comparable credit quality to
short-term securities with those ratings. An unrated security will be considered
to be a high grade security if the Investment Adviser determines that it is of
comparable quality to any of the securities described above. In making such
determinations, the Adviser will consider any rating of the issuer of unrated
securities.
The Portfolio may invest the remainder of its assets in lower-rated debt
securities, although less than 35% of the Portfolio's assets will be invested in
securities rated below BBB-/Baa3 (commonly referred to as "junk bonds").
Lower-rated securities generally offer higher current yields and appreciation
potential than do higher rated securities, but are subject to greater risks.
Securities in the lower-rated categories are considered to be of poor standing
and predominantly speculative; securities in the lowest rating categories may be
in default and are generally regarded by the rating agencies as having extremely
poor prospects of ever attaining any real investment standing. The values of
lower-rated fixed income securities generally fluctuate more than those of
higher-rated fixed-income securities. For more detailed information about the
risks associated with investing in lower-rated securities, see "Additional Risk
and Investment Information" below.
The income producing securities in which the Portfolio invests may have fixed,
variable or floating interest rates, constitute a broad mix of asset classes,
and may include convertible bonds, securities of real estate investment trusts
and natural resource companies, stripped debt obligations, closed-end investment
companies (that invest primarily in debt securities the Portfolio could invest
in), preferred, preference and convertible stocks, equipment lease certificates,
equipment trust certificates, conditional sales contracts and debt obligations
collateralized by, or representing interests in pools of, mortgages and other
types of loans ("asset-backed obligations"). The Portfolio may invest a portion
of its assets in fixed and floating rate loans and loan interests. The Portfolio
will normally invest in securities of issuers located in at least three
different countries (which may include the United States), and will not normally
invest more than 25% of its assets in securities of issuers located in a single
foreign country or denominated in any single foreign currency, except the U.S.
dollar. Nevertheless, through "Active Management Strategies" discussed below,
the entire Fund may be exposed to foreign currency risks. For temporary
defensive purposes, the Portfolio may hold all or any portion of its assets in
securities of issuers located in the United States and in cash or money market
instruments. It is impossible to predict when, or for how long, the Portfolio
will engage in such strategies.
The Portfolio will maintain a dollar weighted average portfolio maturity of not
more than three years. In measuring the dollar weighted average portfolio
maturity of the Portfolio, the Portfolio will use the concept of "duration,"
adjusted to account for the volatility-reducing effect of diversifying a debt
portfolio among several countries. Duration represents the dollar weighted
average maturity of expected cash flows (i.e. interest and principal payments)
on one or more debt obligations, discounted to their present values. The
duration of a floating rate security will be defined as the time to the next
interest payment. The duration of an obligation is usually less than its stated
maturity and is related to the degree of volatility in the market value of the
obligation. Maturity measures only the time until a bond or other debt security
provides its final payment; it takes no account of the pattern of a security's
payments over time. Duration takes both interest and principal payments into
account and, thus, in the Investment Adviser's opinion, is a more accurate
measure of a debt security's price sensitivity in response to changes in
interest rates. In computing the duration of its portfolio, the Portfolio will
have to estimate the duration of debt obligations that are subject to prepayment
or redemption by the issuer, based on projected cash flows from such obligations
or their relationship to comparable U.S. Treasury securities. The Portfolio may
use various techniques to shorten or lengthen the dollar weighted average
maturity of its portfolio, including the acquisition of debt obligations at a
premium or discount, transactions in futures contracts and options on futures
and interest rate swaps. Subject to the requirement that the dollar weighted
average portfolio maturity will not exceed three years, the Portfolio may invest
in individual debt obligations of any maturity, including obligations with a
remaining stated maturity of more than three years.
THE MARKET VALUE OF THE PORTFOLIO'S INVESTMENTS WILL CHANGE IN RESPONSE TO
CHANGES IN CURRENCY EXCHANGE AND INTEREST RATES, CREDIT QUALITY CHANGES OF
ISSUERS AND OTHER FACTORS. Changes in the values of portfolio securities will
not affect interest income derived from those securities, but will affect the
Portfolio's net asset value. See "Additional Risk and Investment Information"
below.
ACTIVE MANAGEMENT TECHNIQUES
CURRENCY AND OTHER DERIVATIVE INSTRUMENTS. The Portfolio may purchase or sell
derivative instruments (which are instruments that derive their value from
another instrument, security, index or currency) to enhance return, to hedge
against fluctuations in securities prices, interest rates or currency exchange
rates, or as a substitute for the purchase or sale of securities or currencies.
The Portfolio's transactions in derivative instruments may be in the U.S. or
abroad and may include the purchase or sale of futures contracts on securities,
securities indices, other indices, other financial instruments or currencies;
options on futures contracts; exchange-traded and over-the-counter options on
securities, indices or currencies; and forward foreign currency exchange
contracts. The Portfolio's transactions in derivative instruments involve a risk
of loss or depreciation due to unanticipated adverse changes in securities
prices, interest rates, the other financial instruments' prices or currency
exchange rates, or 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.
To the extent that the Portfolio enters into futures contracts, options on
futures contracts and options on foreign currencies traded on an exchange
regulated by the Commodity Futures Trading Commission ("CFTC"), in each case
that are not for bona fide hedging purposes (as defined by the CFTC), the
aggregate initial margin and premiums required to establish these positions
(excluding the amount by which options are "in-the-money") may not exceed 5% of
the liquidation value of the Portfolio's investments, after taking into account
unrealized profits and unrealized losses on any contracts the Portfolio has
entered into.
Forward contracts are individually negotiated and privately traded by currency
traders and their customers. A forward contract involves an obligation to
purchase or sell a specific currency (or basket of currencies) for an agreed
price at a future date, which may be any fixed number of days from the date of
the contract. The Portfolio may engage in cross-hedging by using forward
contracts in one currency (or basket of currencies) to hedge against
fluctuations in the value of securities denominated in a different currency if
the Investment Adviser determines that there is an established historical
pattern or correlation between the two currencies (or the basket of currencies
and the underlying currency). Use of a different foreign currency magnifies the
Portfolio's exposure to foreign currency exchange rate fluctuations. The
Portfolio may also use forward contracts to shift its exposure to foreign
currency exchange rate changes from one currency to another. In addition, the
Portfolio may purchase forward contracts for non-hedging purposes when the
Investment Adviser anticipates that the foreign currency will appreciate in
value.
INTEREST RATE AND CURRENCY SWAPS. The Portfolio may enter into interest rate and
currency swaps both for hedging purposes and to enhance return. Interest rate
swaps involve the exchange by the Portfolio with another party of their
respective commitments to pay or receive interest, e.g., an exchange of fixed
rate payments for floating rate payments. Currency swaps involve the exchange of
their respective rights to make or receive payments in specified currencies. The
Portfolio will enter into interest rate swaps on a net basis, so the risk of
loss with respect to interest rate swaps is limited to the net amount of
interest payments that the Portfolio is contractually obligated to make. If the
other party to an interest rate swap defaults, the Portfolio's risk of loss
consists of the net amount of interest payments that the Portfolio is
contractually entitled to receive. In contrast, currency swaps usually involve
the delivery of the entire payment stream in one designated currency in exchange
for the entire payment stream in the other designated currency. Therefore, the
entire principal value of a currency swap is subject to the risk that the other
party to the swap will default on its contractual delivery obligations.
The use of interest rate and currency swaps is a highly specialized activity
which involves investment techniques and risks different from those associated
with ordinary portfolio securities transactions. The Investment Adviser has used
interest rate and currency swaps only to a limited extent but has utilized other
types of hedging techniques. If the Investment Adviser is incorrect in its
forecasts of market values, interest rates and currency exchange rates, the
investment performance of the Fund would be less favorable than it would have
been if swaps were not used.
SECURITIES LOANS, REPURCHASE AGREEMENTS, FORWARD COMMITMENTS AND REVERSE
REPURCHASE AGREEMENTS. The Portfolio may lend its portfolio securities to
broker-dealers and may enter into repurchase agreements. These transactions must
be fully collateralized at all times, but involve some risk to the Portfolio if
the other party should default on its obligations and the lender is delayed or
prevented from recovering the collateral. The Portfolio may also purchase
securities for future delivery by means of "forward commitments."
The Portfolio may also enter into "reverse" repurchase agreements which
generally involve the sale of securities held and an agreement to repurchase the
securities at an agreed-upon price, date, and interest payment. The Portfolio
can invest the cash it receives or use it to meet redemption requests. Reverse
repurchase agreements and forward commitments may increase the overall
investment exposure of the Portfolio and involve investment leverage. Use of
investment leverage may increase the amount of any losses incurred by the
Portfolio in the case of adverse changes in market conditions or the failure of
the issuer of a security or financial instrument to meet its obligations. The
Portfolio may also enter into reverse repurchase agreements as a hedge against a
possible decline in the value of the foreign currency in which a debt security
is denominated by converting the foreign currency cash proceeds from the sale of
the debt security into U.S. dollars.
ADDITIONAL RISK AND INVESTMENT INFORMATION
INVESTMENTS IN FOREIGN SECURITIES. Because foreign securities involve foreign
currencies, the values of the assets of the Portfolio and its net investment
income available for distribution may be affected favorably or unfavorably by
changes in currency exchange rates and exchange control regulations. There may
be less information publicly available about a foreign issuer than about a U.S.
issuer, and foreign issuers are not generally subject to accounting, auditing,
and financial reporting standards and practices comparable to those in the
United States. The willingness and ability of sovereign issuers to pay principal
and interest on government securities depends on various economic factors,
including among others the issuer's balance of payments, overall debt level, and
cash flow considerations related to the availability of tax or other revenues to
satisfy the issuer's obligations. The securities of some foreign issuers are
less liquid and at times more volatile than securities of comparable U.S.
issuers. Foreign brokerage commissions and fees are also generally higher than
in the United States. Foreign settlement procedures and trade regulations may
involve certain risks (such as delay in the payment or delivery of securities or
in the recovery of the Portfolio's assets held abroad) and expenses not present
in the settlement of domestic investments. The Portfolio's investments may
include securities issued by lesser-developed countries, which are sometimes
referred to as "emerging markets", and issuers located in such countries. As a
result, the Portfolio may be exposed to greater risk and will be more dependent
on the Investment Adviser's ability to assess such risk than if the Portfolio
invested solely in more developed countries.
In addition, there may be a possibility of nationalization or expropriation of
assets, imposition of currency exchange controls, confiscatory taxation,
political or financial instability, and diplomatic developments which could
affect the values of the Portfolio's investments in certain foreign countries.
Legal remedies available to investors in certain foreign countries, including
remedies available in bankruptcy proceedings, may be more limited than those
available with respect to investments in the United States or in other foreign
countries. The laws of some foreign countries may limit the Portfolio's ability
to invest in securities of certain issuers located in those foreign countries.
Special tax considerations apply to foreign securities.
INVESTING IN LOWER-RATED SECURITIES. Lower quality debt securities are subject
to the risk of an issuer's inability to meet principal and interest payments on
the obligations (credit risk) and may also be subject to price volatility due to
such factors as interest rate sensitivity, market perception of the
creditworthiness of the issuer and general market liquidity (market risk). Lower
rated and comparable unrated securities are also more likely to react to real or
perceived developments affecting market and credit risk than are more highly
rated securities, which react primarily to movements in the general level of
interest rates. The Portfolio may retain defaulted securities in its portfolio
when such retention is considered desirable by the Investment Adviser. In the
case of a defaulted security, the Portfolio may incur additional expense seeking
recovery of its investment. In the event the rating of a security held by the
Portfolio is downgraded, causing the Portfolio to have 35% or more of its total
assets in securities rated below investment grade, the Investment Adviser will
(in an orderly fashion within a reasonable period of time) dispose of such
securities as it deems necessary in order to comply with this limitation. See
the Appendix to this Prospectus for the asset composition of the Portfolio for
the fiscal year ended October 31, 1995. For a description of securities ratings,
see the Statement of Additional Information.
INTEREST RATE RISK. The value of Fund shares will reflect the value of the
Fund's interest in the Portfolio (which in turn, reflects the underlying value
of the Portfolio's assets and liabilities) and will change in response to
interest rate fluctuations. When interest rates decline, the value of debt
securities held by the Portfolio can be expected to rise. Conversely, when
interest rates rise, the value of debt securities held by the Portfolio can be
expected to decline.
OTHER PRACTICES. The Portfolio may at times invest in so-called "zero-coupon"
bonds (deferred interest bonds) and "payment-in-kind" bonds. Zero-coupon bonds
are issued at a significant discount from their principal amount and interest is
paid only at maturity rather than at intervals during the life of the security.
Payment-in-kind bonds allow the issuer, at its option, to make current interest
payments on the bonds either in cash or in additional bonds. The values of
zero-coupon bonds and payment-in-kind bonds are subject to greater fluctuation
in response to changes in market interest rates than bonds which pay interest in
cash currently. Because these instruments allow an issuer to avoid the need to
generate cash to meet current interest payments, they may involve greater credit
risks than bonds paying interest currently. Even though such bonds do not pay
current interest in cash, the Portfolio is nonetheless required to accrue
interest income on such investments and the Fund is required to distribute its
share of such amounts at least annually to shareholders. Thus, the Portfolio
could be required at times to liquidate other investments to obtain cash in
order to enable the Fund to satisfy its distribution requirements.
The Portfolio may temporarily borrow up to 5% of the value of its total assets
to satisfy redemption requests or settle securities transactions. 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.
NON-DIVERSIFIED STATUS. As a "non-diversified" investment company, the Portfolio
may invest, with respect to 50% of its total assets, more than 5% (but not more
than 25%) of its total assets in securities of any one issuer, other than U.S.
government securities. The Portfolio is likely to invest a greater percentage of
its assets in the securities of a single issuer than would a diversified fund.
Therefore, the Portfolio is more susceptible to any single adverse or political
occurence or development affecting issuers in which the Portfolio invests.
INVESTMENT RESTRICTIONS. The Fund and the Portfolio have adopted certain
fundamental investment restrictions and policies which are enumerated in detail
in the Statement of Additional Information and which may not be changed unless
authorized by a shareholder vote or 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 of the Portfolio, as the case may be. If any changes were made in
the Fund's investment objective, the Fund might have investment objectives
different from the objectives which an investor considered appropriate at the
time the investor became a shareholder in the Fund.
ORGANIZATION OF THE FUND AND THE PORTFOLIO
- ------------------------------------------------------------------------------
THE FUND IS A NON-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, as amended,
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,
which is a separate investment company with an identical investment objective
(although the Fund may temporarily hold a de minimis amount of cash). 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 of the Portfolio, see "The
Fund's Investment Objective" and "Investment Policies and Risks". Further
information regarding investment practices may 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 maybe.
Any such change of the investment objective will be preceded by thirty days'
advance written notice to the shareholders of the Fund or the investors in the
Portfolio, as the case may be. If a shareholder redeems shares because of a
change in the nonfundamental objective or policies of the Fund, those shares may
be subject to a contingent deferred sales charge, as described in "How to Redeem
Fund Shares". In the event the Fund withdraws all of its assets from the
Portfolio, or the Board of Trustees of the Trust determines that the investment
objective of the Portfolio is no longer consistent with the investment objective
of the Fund, such Trustees would consider what action might be taken, including
investing the assets of the Fund in another pooled investment entity or
retaining an investment adviser to manage the Fund's assets in accordance with
its investment objective. The Fund's investment performance may be affected by a
withdrawal of all its assets from the Portfolio.
Information regarding other pooled investment entities or funds which invest in
the Portfolio may be obtained by contacting Eaton Vance Distributors, Inc. (the
"Principal Underwriter" or "EVD"), 24 Federal Street, Boston, MA 02110, (617)
482-8260. Smaller investors in the Portfolio may be adversely affected by the
actions of larger investors in the Portfolio. For example, if a large investor
withdraws from the Portfolio, the remaining investors may experience higher pro
rata operating expenses, thereby producing lower returns. Additionally, the
Portfolio may hold fewer securities, resulting in increased portfolio risk, and
experience decreasing economies of scale. However, this possibility exists as
well for historically structured mutual funds which have large or institutional
investors.
Until 1992, 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 noninterested Trustees,
have approved written procedures designed to identify and address any potential
conflicts of interest arising from the fact that the Trustees of the Portfolio
also serve as Trustees of the Trust. 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. BMR's expertise in the management of fixed-income
securities ranges from government obligations, high-grade corporate and
municipal securities, foreign debt and bank loan interests to higher yielding
instruments. BMR's fixed-income division is armed with the research and
technical ability to gain immediate access to interest rate data around the
world.
Acting under the general supervision of the Board of Trustees of the Portfolio,
BMR manages the Portfolio's investments and affairs, and furnishes for the use
of the Portfolio office space and all necessary office facilities, equipment and
personnel for servicing the investments of the Portfolio. 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 0.275% 2.75%
2 $500 million but less than $1 billion 0.250% 2.50%
3 $1 billion but less than $1.5 billion 0.225% 2.25%
4 $1.5 billion but less than $2 billion 0.200% 2.00%
5 $2 billion but less than $3 billion 0.175% 1.75%
6 $3 billion and over 0.150% 1.50%
Total daily gross income is the total gross investment income, exclusive of
capital gains and losses on investments and before deduction of expenses, earned
each day by the Portfolio.
As of October 31, 1995, the Portfolio had net assets of $152,583,289. For the
fiscal year ended October 31, 1995, the Portfolio paid BMR advisory fees
equivalent to 0.55% of the Portfolio's average daily net assets for such year.
BMR OR EATON VANCE ACTS AS INVESTMENT ADVISER TO INVESTMENT COMPANIES AND
VARIOUS INDIVIDUAL AND INSTITUTIONAL CLIENTS WITH ASSETS UNDER MANAGEMENT OF
APPROXIMATELY $16 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, oil and gas operations, real estate investment, consulting and
management, and development of precious metals properties.
Mark S. Venezia has acted as the portfolio manager of the Portfolio since it
commenced operations. He has been a Vice President of Eaton Vance since 1987 and
of BMR since 1992.
The Portfolio believes that most of the obligations which it will acquire will
normally be 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 which will 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.
The Portfolio also engages BMR as its administrator under an administration
agreement. Under the administration agreement, BMR is responsible for reviewing
and supervising the provision of custody services to the Portfolio and making
related reports and recommendations to the Board of Trustees of the Portfolio;
for providing certain valuation, legal, accounting and tax services in
connection with investments with foreign issuers or guarantors, investments
denominated in foreign currencies and transactions in derivative instruments;
and for such other special services as the Board may direct. BMR also furnishes
the office facilities and personnel necessary for providing these services. As
compensation for these services, BMR receives a monthly administration fee at an
annual rate of .15% of the Portfolio's average daily net assets. For the fiscal
year ended October 31, 1995, the Portfolio paid BMR administration fees
equivalent to 0.15% of the Portfolio's average daily net assets for such period.
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 such 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 and the administration agreement, by
Eaton Vance under the administrative services agreement, or by EVD under the
distribution agreement.
DISTRIBUTION PLAN
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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
(THE "1940 ACT"). Rule 12b-1 permits a mutual fund, such as the Fund, to finance
distribution activities and bear expenses associated with the distribution of
its shares provided that any payments made by the Fund are made pursuant to a
written plan adopted in accordance with the Rule. The Plan is subject to, and
complies with, the sales charge rule of the National Association of Securities
Dealers, Inc. (the "NASD Rule"). The Plan is described further in the Statement
of Additional Information, and the following is a description of the salient
features of the Plan. The Plan provides that the Fund, subject to the NASD Rule,
will pay sales commissions and distribution fees to the Principal Underwriter
only after and as a result of the sale of shares of the Fund. On each sale of
Fund shares (excluding reinvestment of distributions) the Fund will pay the
Principal Underwriter amounts representing (i) sales commissions equal to 4.5%
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 3.5% 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.
During the fiscal year ended October 31, 1995, the Fund paid sales commissions
under the Plan equivalent to .75% (annualized) of the Fund's average daily net
assets for such year. As of October 31, 1995, the outstanding Uncovered
Distribution Charges of the Principal Underwriter on such day calculated under
the Plan amounted to approximately, $17,234,000 (which amount was equivalent to
11.4% 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 implemented the Plan by authorizing the Fund to make
quarterly payments of service fees to the Principal Underwriter and Authorized
Firms in amounts not expected to exceed .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 October 31, 1995, the Fund made service fee payments
equivalent to .22% 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 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
sell or 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 its custodian, Investors Bank & Trust Company ("IBT"),
(as agent for the Fund) in the manner authorized by the Board of Trustees of the
Trust. Net asset value is computed by dividing the value of the Fund's total
assets, less its liabilities, by the number of shares outstanding. Because the
Fund invests its assets in an interest in the Portfolio, the Fund's net asset
value will reflect the value of its interest in the Portfolio (which, in turn,
reflects the underlying value of the Portfolio's assets and liabilities).
Authorized Firms must communicate an investor's order to the Principal
Underwriter prior to the close of the Principal Underwriter's business day to
receive that day's net asset value per Fund share. It is the Authorized Firms'
responsibility to transmit orders promptly to the Principal Underwriter, which
is a wholly-owned subsidiary of Eaton Vance.
The Portfolio's net asset value is also determined as of the close of regular
trading on the Exchange by IBT (as custodian and agent for the Portfolio) 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. Most debt securities are valued on the basis of market valuations
furnished by pricing services. For further information regarding the valuation
of the Portfolio's assets, see "Determination of Net Asset Value" in the
Statement of Additional Information.
SHAREHOLDERS MAY DETERMINE THE VALUE OF THEIR INVESTMENT BY MULTIPLYING THE
NUMBER OF FUND SHARES OWNED BY THE CURRENT NET ASSET VALUE PER SHARE.
HOW TO BUY FUND SHARES
- ------------------------------------------------------------------------------
SHARES OF THE FUND MAY BE PURCHASED FOR CASH OR MAY BE ACQUIRED IN EXCHANGE FOR
SECURITIES. Investors may purchase shares of the Fund through Authorized Firms
at the net asset value per share of the Fund next determined after an order is
effective. The Fund may suspend the offering of shares at any time and may
refuse an order for the purchase of shares. An Authorized Firm may charge its
customers a fee in connection with transactions executed by that Firm.
An initial investment in the Fund must be at least $1,000. Once an account has
been established, the investor may send investments of $50 or more at any time
directly to the Fund's transfer agent (the "Transfer Agent") as follows: First
Data Investor Services Group, BOS725, P.O. Box 1559, Boston, MA 02104. The
$1,000 minimum initial investment is waived for Bank Automated Investing
accounts, which may be established with an investment of $50 or more. See "Eaton
Vance Shareholder Services".
In connection with employee benefit or other continuous group purchase plans
under which the average initial purchase by a participant of the plan is $1,000
or more, the Fund may accept initial investments of less than $1,000 on the part
of an individual participant. In the event a shareholder who is a participant of
such a plan terminates participation in the plan, his or her shares will be
transferred to a regular individual account. However, such account will be
subject to the right of redemption by the Fund as described below under "How to
Redeem Fund Shares."
ACQUIRING FUND SHARES IN EXCHANGE FOR SECURITIES. IBT, as escrow agent, will
receive securities acceptable to Eaton Vance, as 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 on the day of their receipt 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 Strategic Income Fund
IN THE CASE OF PHYSICAL DELIVERY:
Investors Bank & Trust Company
Attention: EV Marathon Strategic 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, must 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 FIRST DATA INVESTOR
SERVICES GROUP, BOS725, P.O. BOX 1559, BOSTON, MA 02104, during its business
hours a written request for redemption in good order, plus any stock
certificates with executed stock powers. The redemption price will be based on
the net asset value per Fund share next computed after such delivery. Good order
means that all relevant documents must be endorsed by the record owner (s)
exactly as the shares are registered and the signature(s) must be guaranteed by
a member of either the Securities Transfer Association's STAMP program or the
New York Stock Exchange's Medallion Signature Program, or certain banks, savings
and loan institutions, credit unions, securities dealers, securities exchanges,
clearing agencies and registered securities associations as required by a
regulation of the Securities and Exchange Commission and acceptable to First
Data Investor Services Group. 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 First
Data Investor Services Group, the Fund will make payment in cash for the net
asset value of the shares as of the date determined above, reduced by the amount
of any applicable contingent deferred sales 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 15 days from the purchase date when the purchase
check has not yet cleared. Redemptions or repurchases may result in a taxable
gain or loss.
Due to the high cost of maintaining small accounts, the Fund reserves the right
to redeem accounts with balances of less than $750. Prior to such a redemption,
shareholders will be given 60 days' written notice to make an additional
purchase. However, no such redemptions would be required by the Fund if the
cause of the low account balance was a reduction in the net asset value of Fund
shares. No contingent deferred sales charge will be imposed with respect to such
involuntary redemptions.
CONTINGENT DEFERRED SALES CHARGE. Shares redeemed within the first four 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 four years prior to the redemption, (b) all
shares in the account acquired through reinvestment of distributions, and (c)
the increase, if any, in the value of all other shares in the account (namely
those purchased within the four 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 REDEMPTION CONTINGENT DEFERRED
AFTER PURCHASE SALES CHARGE
-----------------------------------------------------------------
First 3.0%
Second 2.5%
Third 2.0%
Fourth 1.0%
Fifth and following 0.0%
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.
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 waived for shares redeemed
(1) pursuant to a Withdrawal Plan (see "Eaton Vance Shareholder Services") or
(2) as part of a required distribution from a tax-sheltered retirement plan. The
charge will also be waived on redemptions of shares purchased on or after
January 27, 1995 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). The contingent
deferred sales charge will be paid to the Principal Underwriter or the Fund.
When paid to the Principal Underwriter it will reduce the amount of Uncovered
Distribution Charges calculated under the Fund's Distribution Plan. See
"Distribution Plan."
THE FOLLOWING EXAMPLE ILLUSTRATES THE OPERATION OF THE CONTINGENT DEFERRED
SALES CHARGE. ASSUME THAT AN INVESTOR PURCHASES $10,000 OF THE FUND'S SHARES
AND THAT 16 MONTHS LATER THE VALUE OF THE ACCOUNT HAS GROWN THROUGH INVESTMENT
PERFORMANCE AND REINVESTMENT OF DIVIDENDS TO $12,000. THE INVESTOR THEN MAY
REDEEM UP TO $2,000 OF SHARES WITHOUT INCURRING A CONTINGENT DEFERRED SALES
CHARGE. IF THE INVESTOR SHOULD REDEEM $3,000 OF SHARES, A CHARGE WOULD BE
IMPOSED ON $1,000 OF THE REDEMPTION. THE RATE WOULD BE 2.5% BECAUSE THE
REDEMPTION WAS MADE IN THE SECOND YEAR AFTER THE PURCHASE WAS MADE AND THE
CHARGE WOULD BE $25.
REPORTS TO SHAREHOLDERS
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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 accountants. Shortly after the end of each
calendar year, the Fund will furnish all shareholders with information necessary
for preparing federal and state tax returns.
THE LIFETIME INVESTING ACCOUNT/DISTRIBUTION OPTIONS
- ------------------------------------------------------------------------------
AFTER AN INVESTOR MAKES AN INITIAL PURCHASE OF FUND SHARES, THE FUND'S TRANSFER
AGENT, FIRST DATA INVESTOR SERVICES GROUP, 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 balance in the account. THE LIFETIME
INVESTING ACCOUNT ALSO PERMITS A SHAREHOLDER TO MAKE ADDITIONAL INVESTMENTS IN
SHARES BY SENDING A CHECK FOR $50 OR MORE to First Data Investor Services Group.
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 First Data Investor Services Group, BOS725, P.O.
Box 1559, Boston, MA 02104 (Please provide the name of the shareholder, the Fund
and the account number).
THE FOLLOWING DISTRIBUTION OPTIONS WILL BE AVAILABLE TO ALL LIFETIME INVESTING
ACCOUNTS and may be changed as often as desired by written notice to the Fund's
dividend disbursing agent, First Data Investor Services Group, 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 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 in shares at the then current net asset value.
Furthermore, the distribution option on the account will be automatically
changed to the Share Option until such time as the shareholder selects a
different option.
DISTRIBUTION INVESTMENT OPTION. In addition to the distribution options set
forth above, dividends and/or capital gains may be invested in additional shares
of another Eaton Vance fund. Before selecting this option, a shareholder should
obtain a prospectus of the other Eaton Vance fund and consider its objectives
and policies carefully.
"STREET NAME" ACCOUNTS. If shares of the Fund are held in a "street name"
account with an Authorized Firm, all recordkeeping, transaction processing and
payments of distributions relating to the beneficial owner's account will be
performed by the Authorized Firm, and not by the Fund and its Transfer Agent.
Since the Fund will have no record of the beneficial owner's transactions, a
beneficial owner should 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.
THE EATON VANCE EXCHANGE PRIVILEGE
- ------------------------------------------------------------------------------
Shares of the Fund currently may be exchanged for one or more other funds in the
Eaton Vance Marathon Group of Funds or Eaton Vance Money Market Fund, which are
distributed subject to a contingent deferred sales charge. Fund shares purchased
directly or acquired in an exchange from any EV Marathon Limited Maturity Tax
Free Fund may also be exchanged for shares of Eaton Vance Prime Rate Reserves
which are distributed subject to an early withdrawal charge. Exchanges will be
made on the basis of the net asset value per share of each fund at the time of
exchange, provided that such exchange offers are available only in states where
shares of the fund being acquired may legally be 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.
First Data Investor Services Group makes exchanges at the next determined net
asset value after receiving an exchange request in good order (see "How to
Redeem Fund Shares"). Consult First Data Investor Services Group for additional
information concerning the exchange privilege. Applications and prospectuses of
the other funds are available from Authorized Firms or the Principal
Underwriter. The prospectus for each fund describes its investment objectives
and policies, and shareholders should obtain a prospectus and consider these
objectives and policies carefully before requesting an exchange.
No contingent deferred sales charge is imposed on exchanges. For purposes of
calculating the contingent deferred sales charge upon the redemption of shares
acquired in an exchange, the contingent deferred sales charge schedule
applicable to the shares at the time of purchase will apply and the purchase of
shares acquired in one or more exchanges is deemed to have occurred at the time
of the original purchase of the exchanged shares. For the contingent deferred
sales charge or early withdrawal charge schedule applicable to the Fund, Eaton
Vance Prime Rate Reserves 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 the other EV Marathon funds is 5%, 5%, 4%, 3%, 2%, or 1%
in the event of a redemption occurring in the first, second, third, fourth,
fifth or sixth year, respectively, after the original share purchase.
Shares of 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 First Data Investor Services Group, provided
that the investor has not disclaimed in writing the use of the privilege. To
effect such exchanges, call First Data Investor Services Group 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 First Data Investor
Services Group will be responsible for the authenticity of exchange instructions
received by telephone; provided that reasonable procedures to confirm that
instructions communicated are genuine have been followed. Telephone instructions
will be tape recorded. In times of drastic economic or market changes, a
telephone exchange may be difficult to implement. An exchange may result in a
taxable gain or loss.
EATON VANCE SHAREHOLDER SERVICES
- ------------------------------------------------------------------------------
THE FUND OFFERS THE FOLLOWING SERVICES, WHICH ARE VOLUNTARY, INVOLVE NO EXTRA
CHARGE, AND MAY BE CHANGED OR DISCONTINUED WITHOUT PENALTY AT ANY TIME. Full
information on each of the services described below and an application, where
required, are available from Authorized Firms or the Principal Underwriter. The
cost of administering such services for the benefit of shareholders who
participate in them is borne by the Fund as an expense to all shareholders.
INVEST-BY-MAIL -- FOR PERIODIC SHARE ACCUMULATION: Once the $1,000 minimum
investment has been made, checks of $50 or more payable to the order of EV
Marathon Strategic Income Fund may be mailed directly to First Data Investor
Services Group, BOS725, P.O. Box 1559, Boston, MA 02104 at any time -- whether
or not distributions are reinvested. The name of the shareholder, the Fund and
the account number should accompany each investment.
BANK AUTOMATED INVESTING -- FOR REGULAR SHARE ACCUMULATION: Cash investments of
$50 or more may be made automatically each month or quarter from a 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 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 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 Internal Revenue Code of 1986, as amended (the "Code").
Detailed information concerning these plans, including certain exceptions to
minimum investment requirements, and copies of the plans are available from the
Principal Underwriter. This information should be read carefully and
consultation with an attorney or tax adviser may be advisable. The information
sets forth the service fee charged for retirement plans and describes the
federal income tax consequences of establishing a plan. Under these plans, all
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 last day of each month or the next business day
thereafter. The Fund anticipates that the entire monthly distribution, whether
paid in cash or reinvested in additional shares of the Fund, will constitute
taxable income to the shareholders, for federal income tax purposes.
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. Daily distribution crediting will commence on the
day that collected funds for the purchase of Fund shares are available at the
Transfer Agent. Shareholders of the Fund will receive timely federal income tax
information relating to all distributions made by the Fund during the calendar
year. The Fund's net realized capital gains, if any, consist of the net realized
capital gains allocated to the Fund by the Portfolio for tax purposes, after
taking into account any available capital loss carryovers; the Fund's net
realized capital gains, if any, will be distributed at least once a year,
usually in December.
Distributions of the Fund which are derived from the Fund's allocated share of
the Portfolio's net investment income, net short-term capital gains and certain
foreign exchange gains are taxable to shareholders as ordinary income, whether
paid in cash or reinvested in additional shares of the Fund.
Certain distributions, if 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.
Capital gains, if any, realized on sales of investments and on options and
futures transactions during the fiscal year, which ends on October 31, will be
offset by any capital losses, including any capital loss carryovers, and will be
distributed annually, usually in December, in compliance with the distribution
requirements of the Code. Distributions of long-term capital gains included
therein and designated by the Fund are taxable to shareholders as long-term
capital gains, whether paid in cash or additional shares of the Fund and
regardless of the length of time Fund shares have been owned by the shareholder.
If shares are purchased shortly before the record date of such a distribution,
the shareholder will pay the full price for the shares and then receive some
portion of the price back as a taxable distribution.
Income (possibly including, in some cases, capital gains) realized by the
Portfolio from certain investments and allocated to the Fund may be subject to
foreign income or other foreign taxes and the Fund may make an election under
Section 853 of the Code that would allow Fund shareholders to claim a credit or
deduction on their federal income tax returns for (and treat as additional
amounts distributed to them) their pro rata portion of the Fund's allocated
share of qualified taxes paid by the Portfolio to foreign countries. This
election may be made annually only if more than 50% of the assets of the Fund,
including its allocable share of the Portfolio assets, at the close of the
Fund's taxable year consists of securities in foreign corporations. The Fund
will send a written notice of any such election (not later than 60 days after
the close of its taxable year) to each shareholder indicating the amount to be
treated as the shareholder's proportionate share of such taxes. Availability of
foreign tax credits or deductions for shareholders is subject to certain
additional restrictions and limitations under the Code.
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
also does not pay federal income or excise taxes.
Shareholders should consult their own tax advisers with respect to the local,
state, federal and foreign tax consequences of investing in the Fund.
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 earned during a recent 30-day period by the maximum offering
price per share (net asset value) of the Fund 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 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 or total return for
any prior period should not be considered as a representation of what an
investment may earn or what the Fund's yield or total return may be in any
future period. If the expenses of the Fund or the Portfolio are paid by Eaton
Vance, the Fund's performance will be higher.
<PAGE>
APPENDIX
STRATEGIC INCOME PORTFOLIO
ASSET COMPOSITION INFORMATION
FOR FISCAL YEAR ENDED OCTOBER 31, 1995
PERCENTAGE OF NET ASSETS
------------------------
YEAR ENDED
OCTOBER 31, 1995
----------------
Debt Securities -- Moody's Rating
Aaa ............................................... 19.5%
Aa1 ............................................... 4.1
Aa2 ............................................... 34.8
Aa3 ............................................... 0
A1 ................................................ 2.7
A3 ................................................ 2.7
Ba1 ............................................... 3.8
Ba2 ............................................... 0
Ba3 ............................................... 0.5
B1 ................................................ 2.1
B2 ................................................ 20.5
B3 ................................................ 2.9
Baa1 .............................................. 0.2
Baa3 .............................................. 1.2
Caa ............................................... 0.4
CCC ............................................... 0
Unrated ........................................... 4.6
-----
Total ............................................. 100.0%
The chart above indicates the weighted average composition for the fiscal year
ended October 31, 1995 with the debt securities rated by Moody's Investors
Service, Inc. separated into the indicated categories. The weighted averages
indicated above were calculated on a dollar weighted basis and were 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 the description of Moody's Investors Service, Inc's. ratings of debt
securities, see Appendix A to the Statement of Additional Information.
<PAGE>
[LOGO] EATON VANCE
MUTUAL FUNDS
EV MARATHON STRATEGIC INCOME FUND
- -------------------------------------------
PROSPECTUS
MARCH 1, 1996
EV MARATHON
STRATEGIC INCOME FUND
24 FEDERAL STREET
BOSTON, MA 02110
- -------------------------------------------
INVESTMENT ADVISER AND ADMINISTRATOR OF STRATEGIC INCOME PORTFOLIO
Boston Management and Research, 24 Federal Street, Boston, MA 02110
ADMINISTRATOR OF EATON VANCE STRATEGIC 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, 89 South Street, Boston, MA 02111
TRANSFER AGENT
First Data Investor Services Group, 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
C-SIP
<PAGE>
PART B
INFORMATION REQUIRED IN A STATEMENT OF ADDITIONAL INFORMATION
STATEMENT OF
ADDITIONAL INFORMATION
March 1, 1996
EV CLASSIC STRATEGIC 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 Strategic Income Fund (the "Fund") and
certain other series of Eaton Vance Mutual Funds Trust (the "Trust"). Part II
provides information solely about the Fund and the Portfolio. Where appropriate,
Part I includes cross-references to the relevant sections of Part II. This
Statement of Additional Information is sometimes referred to as the "SAI."
TABLE OF CONTENTS
Page
PART I
Additional Information about Investment Policies ........... 1
Investment Restrictions .................................... 8
Trustees and Officers ...................................... 9
Investment Adviser and Administrator ....................... 11
Custodian .................................................. 14
Service for Withdrawal ..................................... 14
Determination of Net Asset Value ........................... 14
Investment Performance ..................................... 15
Taxes ...................................................... 16
Portfolio Security Transactions ............................ 18
Other Information .......................................... 20
Independent Accountants .................................... 21
Financial Statements ....................................... 21
Appendix A ................................................. 22
PART II
Fees and Expenses .......................................... a-1
Principal Underwriter ...................................... a-1
Distribution Plan .......................................... a-2
Performance Information .................................... a-4
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 FUND'S PROSPECTUS DATED MARCH 1, 1996, 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>
PART B
INFORMATION REQUIRED IN A STATEMENT OF ADDITIONAL INFORMATION
STATEMENT OF
ADDITIONAL INFORMATION
March 1, 1996
EV MARATHON STRATEGIC 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 Strategic Income Fund (the "Fund") and
certain other series of Eaton Vance Mutual Funds Trust (the "Trust"). Part II
provides information solely about the Fund and the Portfolio. Where appropriate,
Part I includes cross-references to the relevant sections of Part II. This
Statement of Additional Information is sometimes referred to as the "SAI."
TABLE OF CONTENTS
Page
PART I
Additional Information about Investment Policies ............... 1
Investment Restrictions ........................................ 8
Trustees and Officers .......................................... 9
Investment Adviser and Administrator ........................... 11
Custodian ...................................................... 14
Service for Withdrawal ......................................... 14
Determination of Net Asset Value ............................... 14
Investment Performance ......................................... 15
Taxes .......................................................... 16
Portfolio Security Transactions ................................ 18
Other Information .............................................. 20
Independent Accountants ........................................ 21
Financial Statements ........................................... 21
Appendix A ..................................................... 22
PART II
Fees and Expenses .............................................. a-1
Principal Underwriter .......................................... a-2
Distribution Plan .............................................. a-2
Performance Information ........................................ a-4
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 FUND'S PROSPECTUS DATED MARCH 1, 1996, 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
The investment objective of the Fund is to provide a high level of income by
investing in a global portfolio consisting primarily of high grade debt
securities and having a dollar weighted average maturity of not more than three
years. The Fund seeks to meet its investment objective by investing its assets
in the Strategic Income Portfolio (the "Portfolio"), a separate registered
investment company with the same investment objective as the Fund. Capitalized
terms used in this SAI and not otherwise defined have the meanings given them in
the Fund's Prospectus. The Fund is subject to the same investment policies as
those of the Portfolio.
ADDITIONAL INFORMATION ABOUT INVESTMENT POLICIES
INCOME PRODUCING SECURITIES
Included in the income producing securities in which the Portfolio may
invest are preferred and preference stocks, convertible bonds, securities of
real estate investment trusts and natural resource companies, stripped debt
obligations, closed-end investment companies (that invest primarily in debt
securities the Portfolio could invest in), 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. Securities of real estate
investment trusts, such as debentures, are affected by conditions in the real
estate industry and interest rates. Securities of natural resource companies are
subject to price fluctuation based upon inflationary pressures and demand for
natural resources. Stripped debt obligations are comprised of principal only or
interest only obligations. The value of closed-end investment company
securities, which are generally traded on an exchange, is affected by demand for
those securities regardless of the demand for the underlying portfolio assets.
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. The issuers of
equipment lease certificates tend to be industrial, transportation and leasing
companies. 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 has no current intention of
investing more than 5% of its total assets in any of these types of securities.
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 and
warrants when such warrants are part of a unit with other securities.
The Portfolio's investments in high yield, high risk obligations rated below
investment grade, which have speculative characteristics, bear special risks.
They are subject to greater credit risks, including the possibility of default
or bankruptcy of the issuer. The value of such investments may also be subject
to a greater degree of volatility in response to interest rate fluctuations,
economic downturns and changes in the financial condition of the issuer. These
securities generally are less liquid than higher quality securities. During
periods of deteriorating economic conditions and contractions in the credit
markets, the ability of such issuers to service their debt, meet projected goals
or obtain additional financing may be impaired. The Portfolio will also take
such action as it considers appropriate in the event of anticipated financial
difficulties default or bankruptcy of either the issuer of any such obligation
or of the underlying source of funds for debt service. Such action may include
retaining the services of various persons and firms (including affiliates of the
Investment Adviser) to evaluate or protect any real estate, facilities or other
assets securing any such obligation or acquired by the Portfolio as a result of
any such event. The Portfolio will incur additional expenditures in taking
protective action with respect to portfolio obligations in default and assets
securing such obligations.
The Portfolio may invest in obligations of domestic and foreign companies in
the group consisting of the banking and the financial services industries.
Companies in the banking industry include U.S. and foreign commercial banking
institutions (including their parent holding companies). Companies in the
financial services industry include finance companies, diversified financial
services companies and insurance and insurance holding companies. Companies
engaged primarily in the investment banking, securities, investment advisory or
investment company business are not deemed to be in the financial services
industry for this purpose. The securities held by the Portfolio may be affected
by economic or regulatory developments in or related to such industries.
Sustained increases in interest rates can adversely affect the availability and
cost of funds for an institution's lending activities, and a deterioration in
general economic conditions could increase the institution's exposure to credit
losses.
A bank from whom the Portfolio acquires a loan participation interest may be
treated as a co-issuer for tax diversification purposes to the extent that the
Portfolio does not have direct recourse against the borrower of the underlying
loan and is therefore relying on the credit of such bank. For industry
concentration purposes, the Investment Adviser will consider all relevant
factors in determining the issuer of a loan interest, including: the credit
quality of the borrower, the amount and quality of the collateral, the terms of
the loan agreement and the other relevant agreements (including inter-creditor
agreements), the degree to which the credit of such interpositioned person was
deemed material to the decision to purchase the loan interest, the interest rate
environment, and general economic conditions applicable to the borrower and such
interpositioned person.
MORTGAGE ROLLS
The Portfolio may enter into mortgage "dollar rolls" in which the Portfolio
sells mortgage-backed securities for delivery in the current month and
simultaneously contracts to repurchase substantially similar (same type, coupon
and maturity) securities on a specified future date. During the roll period, the
Portfolio foregoes principal and interest paid on the mortgage-backed
securities. The Portfolio is compensated by the difference between the current
sales price and the lower forward price for the future purchase (often referred
to as the "drop") as well as by the interest earned on the cash proceeds of the
initial sale. A "covered roll" is a specific type of dollar roll for which there
is an offsetting cash position or a cash equivalent security position which
matures on or before the forward settlement date of the dollar roll transaction.
The Portfolio will only enter into covered rolls. Covered rolls are not treated
as a borrowing or other senior security and will be excluded from the
calculation of the Portfolio's borrowings and other senior securities.
LENDING OF PORTFOLIO SECURITIES
The Portfolio may seek to increase its income by lending portfolio
securities to broker-dealers or other institutional borrowers. Under present
regulatory policies of the Securities and Exchange Commission, such loans are
required to be secured continuously by collateral in cash, cash equivalents or
U.S. Government securities held by the Portfolio's custodian and maintained on a
current basis at an amount at least equal to 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.
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 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. Volume and liquidity in
most foreign bond markets is less than in the United States and securities of
some foreign companies are less liquid and more volatile than securities of
comparable U.S. companies. 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
securities exchanges, broker-dealers 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. The Portfolio may be required to pay for securities before
delivery. 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.
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS
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 purchase transaction involving the purchase or
sale of an offsetting contract. Closing purchase transactions with respect to
forward contracts are often effected with the currency trader who is a party to
the original forward contract.
The Portfolio may enter into forward foreign currency exchange contracts in
several circumstances. First, when the Portfolio enters into a contract for the
purchase or sale of a security denominated in a foreign currency, or when the
Portfolio anticipates the receipt in a foreign currency of dividend or interest
payments on such a security which it holds, the Portfolio may desire to "lock
in" the U.S. dollar price of the security or the U.S. dollar equivalent of such
dividend or interest payment, as the case may be. By entering into a forward
contract for the purchase or sale, for a fixed amount of dollars, of the amount
of foreign currency involved in the underlying transactions, the Portfolio will
attempt to protect itself against an adverse change in the relationship between
the U.S. dollar and the subject foreign currency during the period between the
date on which the security is purchased or sold, or on which the dividend or
interest payment is declared, and the date on which such payments are made or
received.
Additionally, when management of the Portfolio believes that the currency of
a particular foreign country may suffer a substantial decline against the U.S.
dollar, it may enter into a forward contract to sell, for a fixed amount of
dollars, the amount of foreign currency approximating the value of some or all
of the securities held by the Portfolio denominated in such foreign currency.
The precise matching of the forward contract amounts and the value of the
securities involved will not generally be possible because the future value of
such securities in foreign currencies will change as a consequence of market
movements in the value of those securities between the date on which the
contract is entered into and the date it matures. The precise projection of
short-term currency market movements is not possible, and short-term hedging
provides a means of fixing the dollar value of only a portion of the Portfolio's
foreign assets.
The Portfolio's custodian will place cash or liquid high grade debt
securities into a segregated account of the Portfolio in an amount equal to the
value of the Portfolio's total assets, reduced by the value of any offsetting
forward or written or purchased option position on the same or a related
currency, committed to the consummation of forward foreign currency exchange
contracts requiring the Portfolio to purchase foreign currencies or forward
contracts entered into for non-hedging purposes. If the value of the securities
placed in the segregated account declines, additional cash or securities will be
placed in the account on a daily basis so that the value of the account will
equal the amount of the Portfolio's commitments with respect to such contracts,
net of any offsetting forward contracts or options positions.
The Portfolio generally will not enter into a forward contract with a term
of greater than one year. Using forward contracts to protect the value of the
securities held by the Portfolio against a decline in the value of a currency
does not eliminate fluctuations in the underlying prices of the securities. It
simply establishes a rate of exchange which the Portfolio can achieve at some
future point in time.
While the Portfolio will enter into forward contracts to reduce currency
exchange rate risks, transactions in such contracts involve certain other risks.
Thus, while the Portfolio may benefit from such transactions, unanticipated
changes in currency prices may result in a poorer overall performance for the
Fund than if the Portfolio had not engaged in any such transactions. Moreover,
there may be imperfect correlation between the securities held by the Portfolio
denominated in a particular currency and forward contracts entered into by the
Portfolio. Such imperfect correlation may prevent the Portfolio from achieving a
complete hedge or expose the Portfolio to risk of foreign exchange loss.
WRITING AND PURCHASING CURRENCY CALL AND PUT OPTIONS
The Portfolio may write covered put and call options and purchase put and
call options on foreign currencies for the purpose of protecting against
declines in the dollar value of portfolio securities and against increases in
the dollar cost of securities to be acquired. A call option written by the
Portfolio obligates the Portfolio to sell specified currency to the holder of
the option at a specified price if the option is exercised at any time before
the expiration date. A put option written by the Portfolio would obligate the
Portfolio to purchase specified currency from the option holder at a specified
price if the option is exercised at any time before the expiration date.
A call option written by the Portfolio may be covered by segregating assets
denominated in the currency on which the call option is written. A written call
option or put option may also be covered by maintaining cash or high grade
liquid debt securities (either of which may be denominated in any currency) in a
segregated account, by entering into an offsetting forward contract and/or by
purchasing an offsetting option or any other option on the same or a related
currency and/or by purchasing an offsetting option or any other option which, by
virtue of its exercise price or otherwise, reduces the Portfolio's net exposure
on its written option position.
The writing of currency options involves a risk that the Portfolio will,
upon exercise of the option, be required to sell currency subject to a call at a
price that is less than the currency's market value or be required to purchase
currency subject to a put at a price that exceeds the currency's market value.
The Portfolio may terminate its obligations under a call or put option by
purchasing an option identical to the one it has written. Such purchases are
referred to as "closing purchase transactions." The Portfolio would also be able
to enter into closing sale transactions in order to realize gains or minimize
losses on options purchased by the Portfolio.
The Portfolio would normally purchase call options in anticipation of an
increase in the dollar value of currency in which securities to be acquired by
the Portfolio are denominated. The purchase of a call option would entitle the
Portfolio, in return for the premium paid, to purchase specified currency at a
specified price during the option period. The Portfolio would ordinarily realize
a gain if, during the option period, the value of such currency exceeded the sum
of the exercise price, the premium paid and transaction costs; otherwise the
Portfolio would realize a loss on the purchase of the call option.
The Portfolio would normally purchase put options in anticipation of a
decline in the dollar value of currency in which securities in its portfolio
("protective puts") are denominated. The purchase of a put option would entitle
the Portfolio, in exchange for the premium paid, to sell specified currency at a
specified price during the option period. The purchase of protective puts is
designed merely to offset or hedge against a decline in the dollar value of the
securities held by the Portfolio due to currency exchange rate fluctuations. The
Portfolio would ordinarily realize a gain if, during the option period, the
value of the underlying currency decreased below the exercise price sufficiently
to cover the premium and transaction costs; otherwise the Portfolio would
realize a loss on the purchase of the put option. Gains and losses on the
purchase of protective put options would tend to be offset by countervailing
changes in the value of underlying currency.
SPECIAL RISKS ASSOCIATED WITH OPTIONS ON CURRENCY
An exchange traded 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 currency (or security denominated in that
currency) until the option expires or it delivers the underlying currency 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.
The Portfolio may purchase and write over-the-counter options to the extent
consistent with its limitation on investments in illiquid securities, as
described in the Fund's prospectus. Trading in over-the-counter options is
subject to the risk that the other party will be unable or unwilling to closeout
options purchased or written by the Portfolio. The staff of the Commission takes
the position that purchased over-the-counter options and assets used to cover
written over-the-counter options are illiquid securities. However, with respect
to options written with primary dealers in U.S. Government securities or with
dealers on the Federal Reserve's approved list for foreign exchange dealers
pursuant to an agreement requiring a closing purchase transaction at a formula
price, the amount of illiquid securities may be calculated with reference to the
repurchase formula.
The Portfolio intends to write covered call options on foreign currencies. A
call option written on a foreign currency by the Portfolio is "covered" if the
Portfolio owns the underlying foreign currency covered by the call or has an
absolute and immediate right to acquire that foreign currency without additional
cash consideration (or for additional cash consideration held in a segregated
account by its custodian) upon conversion or exchange of other foreign currency
held in its portfolio. A call option is also covered if the Portfolio has a call
on the same foreign currency and in the same principal amount as the call
written where the exercise price of the call held (a) is equal to or less than
the exercise price of the call written or (b) is greater than the exercise price
of the call written if the difference is maintained by the Portfolio in cash,
U.S. Government Securities and other high grade liquid debt securities in a
segregated account with its custodian.
The amount of the premiums which the Portfolio may pay or receive may be
adversely affected as new or existing institutions, including other investment
companies, engage in or increase their option purchasing and writing activities.
FUTURES CONTRACTS
A change in the level of currency exchange rates or interest rates may
affect the value of the Portfolio's investments (or of investments that the
Portfolio expects to make). To hedge against such changes in rates, the
Portfolio may enter into (i) futures contracts for the purchase or sale of
securities, (ii) futures contracts on securities indices; (iii) futures
contracts on other financial instruments and indices and (iv) futures contracts
on foreign currencies. A futures contract may generally be described as an
agreement between two parties to buy and sell particular financial instruments
for an agreed price during a designated month (or to deliver the final cash
settlement price, in the case of a contract relating to an index or otherwise
not calling for physical delivery at the end of trading in the contract). All
futures contracts entered into by the Portfolio are traded on U.S. exchanges or
boards of trade that are licensed and regulated by the Commodity Futures Trading
Commission ("CFTC") or on foreign exchanges.
Futures on Securities or Currencies. A futures contract on a security or
currency is a binding contractual commitment which, if held to maturity, will
result in an obligation to make or accept delivery, during a particular month,
of securities or currency having a standardized face value and rate of return or
currency. By purchasing futures on securities or currency, the Portfolio will
legally obligate itself to accept delivery of the underlying security or
currency and pay the agreed price; by selling futures on securities or currency,
it will legally obligate itself to make delivery of the security or currency
against payment of the agreed price. Open futures positions on securities or
currency are valued at the most recent settlement price, unless such price does
not reflect the fair value of the contract, in which case the positions will be
valued by or under the direction of the Board of Trustees of the Portfolio.
Positions taken in the futures markets are not normally held to maturity,
but are instead liquidated through offsetting transactions which may result in a
profit or a loss. While the Portfolio's futures contracts on securities or
currency will usually be liquidated in this manner, it may instead make or take
delivery of the underlying securities or currency whenever it appears
economically advantageous for the Portfolio to do so. A clearing corporation
associated with the exchange on which futures on securities or currency are
traded guarantees that, if still open, the sale or purchase will be performed on
the settlement date.
Futures Contracts on Securities Indices. Futures contracts on securities or
other indices do not require the physical delivery of securities, but merely
provide for profits and losses resulting from changes in the market value of a
contract to be credited or debited at the close of each trading day to the
respective accounts of the parties to the contract. On the contract's expiration
date a final cash settlement occurs and the futures position is simply closed
out. Changes in the market value of a particular futures contract reflect
changes in the level of the index on which the futures contract is based.
Hedging Strategies. Hedging by use of futures contracts seeks to establish more
certainly than would otherwise be possible the effective price, rate of return
or currency exchange rate on portfolio securities or securities that the
Portfolio owns or proposes to acquire. The Portfolio may, for example, take a
"short" position in the futures market by selling futures contracts in order to
hedge against an anticipated rise in interest rates or a decline in market
prices or foreign currency rates that would adversely affect the dollar value of
the securities held by the Portfolio. Such futures contracts may include
contracts for the future delivery of securities held by the Portfolio or
securities with characteristics similar to those of the securities held by the
Portfolio. Similarly, the Portfolio may sell futures contracts on currency in
which its securities are denominated or in one currency to hedge against
fluctuations in the value of securities denominated in a different currency if
there is an established historical pattern of correlation between the two
currencies. If, in the opinion of the Investment Adviser, there is a sufficient
degree of correlation between price trends for the securities held by the
Portfolio and futures contracts based on other financial instruments, securities
indices or other indices, the Portfolio may also enter into such futures
contracts as part of its hedging strategy. Although under some circumstances
prices of securities held by the Portfolio may be more or less volatile than
prices of such futures contracts, the Investment Adviser will attempt to
estimate the extent of this difference in volatility based on historical
patterns and to compensate for it by having the Portfolio enter into a greater
or lesser number of futures contracts or by attempting to achieve only a partial
hedge against price changes affecting the securities held by the Portfolio. When
hedging of this character is successful, any depreciation in the value of
portfolio securities will substantially be offset by appreciation in the value
of the futures position.
On other occasions, the Portfolio may take a "long" position by purchasing
such futures contracts. This would be done, for example, when the Portfolio
anticipates the subsequent purchase of particular securities when it has the
necessary cash, but expects the prices or currency exchange rates then available
in the applicable market to be less favorable than prices or rates that are
currently available.
OPTIONS ON FUTURES CONTRACTS
The Portfolio may purchase and write call and put options on futures
contracts which are traded on a United States or foreign exchange or board of
trade. An option on a futures contract gives the purchaser the right, in return
for the premium paid, to assume a position in a futures contract at a specified
exercise price at any time during the option period. Upon exercise of the
option, the writer of the option is obligated to convey the appropriate futures
position to the holder of the option. If an option is exercised on the last
trading day before the expiration date of the option, a cash settlement will be
made in an amount equal to the difference between the closing price of the
futures contract and the exercise price of the option.
The Portfolio may use options on futures contracts for bona fide hedging
purposes as defined below. If the Portfolio purchases a call (put) option on a
futures contract it benefits from any increase (decrease) in the value of the
futures contract, but is subject to the risk of decrease (increase) in value of
the futures contract. The benefits received are reduced by the amount of the
premium and transaction costs paid by the Portfolio for the option. If market
conditions do not favor the exercise of the option, the Portfolio's loss is
limited to the amount of such premium and transaction costs paid by the
Portfolio for the option.
If the Portfolio writes a call (put) option on a futures contract, the
Portfolio receives a premium but assumes the risk of a rise (decline) in value
in the underlying futures contract. If the option is not exercised, the
Portfolio gains the amount of the premium, which may partially offset
unfavorable changes due to interest rate or currency exchange rate fluctuations
in the value of securities held or to be acquired for the Portfolio. If the
option is exercised, the Portfolio will incur a loss, which will be reduced by
the amount of the premium it receives. However, depending on the degree of
correlation between changes in the value of its portfolio securities (or the
currency in which they are denominated) and changes in the value of futures
positions, the Portfolio's losses from writing options on futures may be
partially offset by favorable changes in the value of portfolio securities or in
the cost of securities to be acquired.
The holder or writer of an option on a futures contract may terminate its
position by selling or purchasing an offsetting option of the same series. There
is no guarantee that such closing transactions can be effected. The Portfolio's
ability to establish and close out positions on such options will be subject to
the development and maintenance of a liquid market.
LIMITATIONS ON THE USE OF FUTURES CONTRACTS AND OPTIONS ON FUTURES
The Portfolio will engage in futures and related options transactions only
for bona fide hedging purposes as defined in or as 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. 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 (or the currency in
which they are denominated) that the Portfolio owns, or futures contracts will
be purchased to protect the Portfolio against an increase in the price of
securities (or the currency in which they are denominated) 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 (or assets denominated in the related currency) 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 or other assets. The Portfolio
will engage in transactions in futures contracts and related options only to the
extent such transactions are consistent with the requirements of the Code for
maintaining the qualification of the Fund as a regulated investment company for
Federal income tax purposes (see "Taxes").
The Portfolio will be required, in connection with transactions in futures
contracts and the writing of options on futures, to make margin deposits, which
will be held by the Portfolio's custodian for the benefit of the futures
commission merchant through whom the Portfolio engages in such futures and
options transactions. Cash or liquid high grade debt securities required to be
segregated in connection with a "long" futures position taken by the Portfolio
will also be held by the custodian in a segregated account and will be marked to
market daily.
INTEREST RATE AND CURRENCY SWAPS
The Portfolio will only enter into interest rate swaps on a net basis, i.e.,
the two payment streams are netted out with the Portfolio receiving or paying,
as the case may be, only the net amount of the two payments. In contrast,
currency swaps usually involve the delivery of the entire payment stream in one
designated currency in exchange for the entire payment stream in the other
designated currency. Inasmuch as the Portfolio maintains a segregated account
with respect to all interest rate and currency swaps, the Portfolio and its
Investment Adviser believe that such obligations do not constitute senior
securities (as defined in the Investment Company Act of 1940) and, accordingly,
will not treat them as being subject to the Portfolio's borrowing restrictions.
The net amount of the excess, if any, of the Portfolio's obligations over its
entitlements with respect to each interest rate or currency swap will be accrued
on a daily basis and an amount of cash or liquid high grade debt securities
having an aggregate net asset value at least equal to the accrued excess will be
maintained in a segregated account by the Portfolio's custodian. The Portfolio
will not enter into any interest rate or currency swap unless the credit quality
of the unsecured senior debt or the claims-paying ability of the other party
thereto is considered to be investment grade by the Investment Adviser. If there
is a default by the other party to such a transaction, the Portfolio will have
contractual remedies pursuant to the agreements related to the transaction. The
swap market has grown substantially in recent years with a large number of banks
and investment banking firms acting both as principals and as agents utilizing
standardized swap documentation. As a result, the swap market has become
relatively liquid in comparison with the markets for other similar instruments
which are traded in the interbank market.
REVERSE REPURCHASE AGREEMENTS
The Portfolio may enter into reverse repurchase agreements. Under a reverse
repurchase agreement, the Portfolio temporarily transfers possession of a
portfolio instrument to another party, such as a bank or broker-dealer, in
return for cash. At the same time, the Portfolio agrees to repurchase the
instrument at an agreed upon time (normally within seven days) and price, which
reflects an interest payment. The Portfolio could also enter into reverse
repurchase agreements as a means of raising cash to satisfy redemption requests
without the necessity of selling portfolio assets.
When the Portfolio enters into a reverse repurchase agreement, any
fluctuations in the market value of either the securities transferred to another
party or the securities in which the proceeds may be invested would affect the
market value of the Portfolio's assets. As a result, such transactions may
increase fluctuations in the market value of the Portfolio's assets. While there
is a risk that large fluctuations in the market value of the Portfolio's assets
could affect the Fund's net asset value per share, this risk is not
significantly increased by entering into reverse repurchase agreements, in the
opinion of the Investment Adviser. Because reverse repurchase agreements may be
considered to be the practical equivalent of borrowing funds, they constitute a
form of leverage. If the Portfolio reinvests the proceeds of a reverse
repurchase agreement at a rate lower than the cost of the agreement, entering
into the agreement will lower the Fund's yield. While the Investment Adviser
does not consider reverse repurchase agreements to involve a traditional
borrowing of money, reverse repurchase agreements will be included within
"borrowings" contained in the Fund's investment restriction (2) set forth below.
At all times that a reverse repurchase agreement for borrowing purposes is
outstanding, the Portfolio will maintain cash or high grade liquid securities in
a segregated account at its custodian bank with a value at least equal to its
obligation under the agreement. Securities and other assets held in the
segregated account may not be sold while the reverse repurchase agreement is
outstanding, unless other suitable assets are substituted. To the extent that
the Portfolio enters into reverse repurchase agreements for hedging purposes as
described in the Fund's prospectus, the Portfolio will not be required to
maintain the segregated account described above.
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 held by the
Portfolio were replaced in a period of one year. A high turnover rate (such as
100% or more) necessarily involves greater expenses to the Portfolio and may
result in the realization of substantial net short-term capital gains. The
Portfolio may engage in active short-term trading to benefit from yield
disparities among different issues of securities or among the markets for fixed
income securities of different countries, to seek short-term profits during
periods of fluctuating interest rates, or for other reasons. Such trading will
increase the Portfolio's rate of turnover and may increase the incidence of net
short-term capital gains allocated to the Fund by the Portfolio which, upon
distribution by the Fund, are taxable to Fund shareholders as ordinary income.
INVESTMENT RESTRICTIONS
The following investment restrictions of the Fund 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 SAI 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) Purchase any security (other than securities issued or guaranteed by the
U.S. Government or any of its agencies or instrumentalities) if such purchase,
at the time thereof, would cause 25% or more of the Fund's total assets (taken
at market value) to be invested in the securities of issuers in any single
industry, provided that the electric, gas and telephone utility industries shall
be treated as separate industries for purposes of this restriction;
(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 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;
(6) Purchase or sell physical commodities or futures contracts for the
purchase or sale of physical commodities, provided that the Fund may enter into
all types of futures and forward contracts on currency, securities and
securities, economic and other indices and may purchase and sell options on such
futures contracts; or
(7) Make loans to any person, except by (a) the acquisition of debt
instruments and making portfolio investments, (b) entering into repurchase
agreements, and (c) 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 SAI means
the lesser of (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 1940 Act. Whenever the Trust is requested to vote on a change
in the fundamental 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 adopted the following investment policies
which may be changed by the Trust with respect to the Fund without approval by
the Fund's shareholders or by the Portfolio with respect to the Portfolio
without approval by the Fund or its other investors. As a matter of
nonfundamental policy, the Fund and the Portfolio may not: (a) invest more than
15% of net assets in investments which are not readily marketable, including
restricted securities and repurchase agreements with a maturity longer than
seven days. Restricted securities for the purposes of this limitation do not
include securities eligible for resale pursuant to Rule 144A under the
Securities Act of 1933 and commercial paper issued pursuant to Section 4(2) of
said Act that the Board of Trustees of the Trust or the Portfolio, or their
delegate, determines to be liquid; (b) make short sales of securities or
maintain a short position, unless at all times when a short position is open it
owns an equal amount of such securities or securities convertible into or
exchangeable, without payment of any further consideration, for securities of
the same issue as, and equal in amount to, the securities sold short, and unless
no more than 25% of its net assets (taken at current value) is held as
collateral for such sales at any one time. It is the present intention of
management to make such sales only for the purpose of deferring realization of
gain or loss for Federal income tax purposes); (c) purchase or retain in its
portfolio any securities issued by an issuer any of whose officers, directors,
trustees or security holders is an officer or Trustee of the Trust or is a
member, officer, director or trustee of any investment adviser of the Trust or
the Portfolio if after the purchase of the securities of such issuer by the Fund
or the Portfolio one or more of such persons owns beneficially more than 1/2 of
1% of the shares 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 of securities
together own beneficially more than 5% of such shares or securities or both (all
taken at market value); (d) purchase oil, gas or other mineral leases or
purchase partnership interests in oil, gas or other mineral exploration or
development programs; (e) 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; (f) purchase put or call
options on securities 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
invested in such options; and (g) purchase warrants with a value in excess of 5%
of net assets, or warrants which are not listed on the New York or American
Stock Exchange with a value in excess of 2% of its net assets. The Portfolio has
no current intention during the current year of engaging in short sales.
In order to permit the sale of shares of the Fund in certain states, the
Fund may make commitments more restrictive than the fundamental policies
described above. Should the Fund determine that any such commitment is no longer
in the best interests of the Fund and its shareholders, it will revoke the
commitment by terminating sales of its shares in the state(s) involved.
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 Portfolio's investment
adviser, Boston Management and Research ("BMR"), a wholly-owned subsidiary of
Eaton Vance Management ("Eaton Vance"); Eaton Vance's parent, Eaton Vance Corp.
("EVC"); and of BMR's and Eaton Vance's trustee, Eaton Vance, Inc. ("EV"). Eaton
Vance and EV are both wholly-owned subsidiaries of EVC. Those Trustees who are
"interested persons" of the Trust, the Portfolio, BMR, Eaton Vance, EVC or EV,
as defined in the 1940 Act, by virtue of their affiliation with any one or more
of the Trust, the Portfolio, BMR, Eaton Vance, EVC, or EV, are indicated by an
asterisk(*).
TRUSTEES OF THE TRUST AND THE PORTFOLIO
M. DOZIER GARDNER (62), President and Trustee of the Trust*
President and Chief Executive Officer of BMR, Eaton Vance, EVC and EV, and a
Director of EVC and EV. Director, Trustee and officer of various investment
companies managed by Eaton Vance or BMR.
JAMES B. HAWKES (54), President of the Portfolio, Vice President of the Trust
and Trustee*
Executive Vice President, BMR, Eaton Vance, EVC and EV and a 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
SAMUEL L. HAYES, III (61), Trustee
Jacob H. Schiff, Professor of Investment Banking, at 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 (60), Trustee
President and Director, United Asset Management Corporation, a holding company
owning institutional investment management firms. Chairman, President and
Director, UAM Funds (mutual funds). Director or Trustee of various investment
companies managed by Eaton Vance or BMR.
Address: One International Place, Boston, Massachusetts 02110
JOHN L. THORNDIKE (69), Trustee
Director, Fiduciary Company Incorporated. Director or Trustee of various
investment companies managed by Eaton Vance or BMR.
Address: 175 Federal Street, Boston, Massachusetts 02110
JACK L. TREYNOR (66), 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 Eaton Vance and BMR. Officer of various investment
companies managed by Eaton Vance or BMR. Mr. Ahern was elected Vice
President of the Trust on June 19, 1995.
MARK VENEZIA (46), Vice President of the Portfolio
Vice President of BMR, Eaton Vance and EV. Officer of various investment
companies managed by Eaton Vance or BMR.
H. DAY BRIGHAM, JR. (69), Vice President of the Trust
Chairman of the Management Committee, Vice President of BMR, Eaton Vance, EVC
and EV, and a Director of EVC and EV. Director or Trustee and officer of
various investment companies managed by Eaton Vance or BMR.
MICHAEL B. TERRY (53), 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 (64), Secretary
Vice President and Secretary of BMR, Eaton Vance, EVC and EV. Officer of various
investment companies managed by Eaton Vance or BMR.
JANET E. SANDERS (60), Assistant Secretary
Vice President of BMR, Eaton Vance and EV. Officer of various investment
companies managed by Eaton Vance or BMR.
A. JOHN MURPHY (33), 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 and the Portfolio on March 27, 1995.
JOHN P. RYNNE (53), Assistant Secretary of the Trust
Corporate Controller and Vice President of EVC. Vice President of Eaton Vance,
EVD and BMR, and Treasurer of Energex Corporation. Mr. Rynne was elected an
officer of the Trust on June 19, 1995.
ERIC G. WOODBURY (38), Assistant Secretary
Vice President of Eaton Vance since February 1993; formerly, associate attorney
at Dechert, Price & Rhoades and Gaston & Snow. Officer of various investment
companies managed by Eaton Vance or BMR. Mr. Woodbury was elected Assistant
Secretary of the Trust and the 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 Trust's
contractual relationship with the Administrator on behalf of the Fund, 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, or the Eaton Vance organization.
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 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
Trust 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. Neither the Fund nor the
Portfolio has a retirement plan for its Trustees.
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 received by the noninterested Trustees of the
Trust and the Portfolio, see "Fees and Expenses" in Part II.
INVESTMENT ADVISER AND ADMINISTRATOR
The Portfolio engages BMR as investment adviser pursuant to an Investment
Advisory Agreement dated March 1, 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 $16 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,
foreign debt, 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.
For a description of the compensation that the Portfolio pays BMR under the
Investment Advisory Agreement, see the Fund's current Prospectus. As of October
31, 1995, the Portfolio had net assets of $152,583,289. For the period from the
start of business March 1, 1994 to October 31, 1994, and for the fiscal year
ended October 31, 1995, the Portfolio paid BMR advisory fees of $1,004,670 and
$992,620, respectively, (equivalent to 0.49% and 0.55% (annualized) of the
Portfolio's average daily net assets for such period).
A commitment has been made to a state securities authority that Eaton Vance
will take certain actions, if necessary, so that the Fund's expenses will not
exceed expense limitation requirements of such state. The commitment may be
amended or rescinded by Eaton Vance in response to changes in the requirements
of the state or for other reasons.
The Investment Advisory Agreement with BMR remains in effect until February
28, 1997. It may be continued indefinitely thereafter so long as such
continuance after February 28, 1997 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 Portfolio has also engaged BMR to act as its Administrator under an
Administration Agreement. The Administration Agreement with BMR remains in
effect until February 28, 1997 and shall continue in full force and effect
indefinitely thereafter, but only so long as such continuance is approved at
least annually (i) by the Trustees of the Portfolio and (ii) by the vote of a
majority of those Trustees of the Portfolio who are not interested persons of
the Portfolio or of the Administrator. Under the Administration Agreement, BMR
is obligated to (a) review and supervise the provision of all domestic and
foreign custodial services to the Portfolio, and to make such reports and
recommendations to the Board of Trustees of the Portfolio concerning the
provision of such services as the Board deems appropriate; (b) provide to the
Portfolio certain valuation, legal, accounting and tax assistance and services
in connection with the Portfolio's (i) investments in (A) securities,
obligations and commercial paper that are denominated in foreign currencies or
the European Currency Unit ("ECU"), or that are issued or guaranteed by foreign
entities, (B) certificates of deposit and bankers' acceptances issued or
guaranteed by, or time deposits maintained at, foreign banks or foreign branches
of U.S. banks, and (C) participation interests in loans by U.S. or foreign banks
that are made to foreign borrowers or that are denominated in foreign currencies
or the ECU; and (ii) transactions in derivative instruments, including
instruments indexed to foreign exchange rates, forward foreign currency exchange
contracts, put and call options on foreign currencies, futures contracts and
options on such contracts, and interest rate and currency swaps; and (c) provide
to the Portfolio such other special administrative services as the Board from
time to time shall instruct BMR to furnish under the Administration Agreement.
In return for these special services, the Portfolio pays BMR as compensation
under the Administration Agreement a monthly fee in the amount of .0125%
(equivalent to .15% annually) of the average daily net assets of the Portfolio.
For the fiscal year ended October 31, 1995 and for the period from the start of
business March 1, 1994, to October 31, 1994, the Portfolio paid BMR
administration fees of $273,545 and $284,828, respectively.
The Portfolio will be responsible for all costs and expenses not expressly
stated to be payable by BMR under the Administration Agreement. Such costs and
expenses to be borne by the Portfolio include, without limitation, the fees and
expenses of the Portfolio's custodian and transfer agent, including those
incurred for determining the Portfolio's net asset value and keeping the
Portfolio's books; expenses of pricing and valuation services; membership dues
in investment company organizations; brokerage commissions and fees;
registration of the Portfolio under the 1940 Act; expenses of reports to
investors, proxy statements, and other expenses of investor's meetings;
insurance premiums; printing and mailing expenses; interest, taxes and
governmental fees; legal and accounting expenses; compensation and expenses of
Trustees not affiliated with BMR; and investment advisory and administration
fees. The Portfolio will also bear expenses incurred in connection with
litigation in which the Portfolio is a party and the legal obligation the
Portfolio may have to indemnify its officers and Trustees with respect thereto.
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 Part II.
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 January 31, 1996, 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. Hawkes, Woodbury, Murphy,
Gardner, Clay, Brigham, Otis, Venezia, O'Connor, Ahern and Rynne and Ms. Sanders
who are officers or Trustees of the Trust and/or the Portfolio, are also members
of the EVC, BMR, Eaton Vance and EV organizations. BMR will receive the fees
paid under the Investment Advisory Agreement and the Administration Agreement.
EVC owns all of the stock of Energex Energy Corporation, which engages in
oil and gas operations. In addition, Eaton Vance owns all the stock of Northeast
Properties, Inc., which is engaged in real estate investment, consulting and
management. EVC owns all the stock of Fulcrum Management, Inc. and MinVen, Inc.,
which are engaged in the development of precious metal properties. EVC also owns
24% of the Class A shares of Lloyd George Management (B.V.I.) Limited, a
registered investment adviser. Eaton Vance, BMR, EVC 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"), 89 South Street, Boston,
Massachusetts 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's assets, 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
such capacity it 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. The fees for the
Portfolio relate to 1) bookkeeping and valuation services provided at an annual
rate, 2) activity charges based upon the volume of investment related
transactions, and 3) reimbursement of out-of-pocket expenses. These fees are
then reduced by a credit for cash balances of the Portfolio at the custodian
equal to 75% of the 91-day, U.S. Treasury Bill auction rate applied to the
Portfolio's average daily collected balances. The fee for the Fund relates to
bookkeeping and valuation services and is based upon a percentage of the Fund's
net assets. Landon T. Clay, a Director of EVC and an officer, Trustee or
Director of other entities in the Eaton Vance organization, owns approximately
13% of the voting stock of Investors Financial Services Corp., the holding
company parent of IBT. Management believes that such ownership does not create
an affiliated person relationship between the Fund or the Portfolio and IBT
under the Investment Company Act of 1940. During the fiscal year ended October
31, 1995, the Portfolio paid IBT $134,894. For the custody fees that the Fund
paid to IBT, see "Fees and Expenses" in Part II.
SERVICE FOR WITHDRAWAL
By a standard agreement, the Fund's Transfer Agent will send to the
shareholder regular monthly or quarterly payments of any permitted amount
designated by the shareholder (see "Eaton Vance Shareholder Services --
Withdrawal Plan" in the Fund's current Prospectus) based upon the value of the
shares held. The checks will be drawn from share redemptions and hence, are a
return of principal. Income dividends and capital 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. A shareholder
may not have a withdrawal plan in effect at the same time he or she has
authorized Bank Automated Investing or is otherwise making regular purchases of
Fund shares. 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 shares of the Fund is determined by IBT (as
agent and custodian for the Fund) in the manner described under "Valuing Fund
Shares" in the Fund's current Prospectus. The net asset value of the Portfolio
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.
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.
Debt securities (other than mortgage-backed, "pass-through" securities and
short-term obligations maturing in sixty days or less), including listed
securities and securities for which price quotations are available and forward
contracts, will normally be valued on the basis of market valuations furnished
by pricing services. Mortgage-backed "pass-through" securities are valued using
a matrix pricing system which takes into account closing bond valuations, yield
differentials, anticipated prepayments and interest rates. Financial futures
contracts listed on commodity exchanges and exchange-traded options are valued
at closing settlement prices. Over-the-counter options are valued at the mean
between the bid and asked prices provided by dealers. Short-term obligations and
money market securities maturing in sixty days or less are valued at amortized
cost which approximates value. Non-U.S. dollar denominated short-term
obligations maturing in sixty days or less are valued at amortized cost as
calculated in the base currency and translated into U.S. dollars at the current
exchange rate. Investments for which market quotations are unavailable are
valued at fair value using methods determined in good faith by or at the
direction of the Trustees of the Portfolio.
The value of all assets and liabilities expressed in foreign currencies will
be converted into U.S. dollar values at the mean between the buying and selling
rates of such currencies against U.S. dollars last quoted on one of the
principal markets for such currencies. Generally, trading in foreign securities,
derivative instruments and currencies is substantially completed each day at
various times prior to the time the Portfolio calculates its net asset value. If
an event materially affecting the values of such securities, instruments or
currencies occurs between the time such values are determined and the time net
asset value is calculated, such securities, instruments or currencies may be
valued at fair value.
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. The 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
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 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 the contingent deferred sales
charge at the end of the period. For further information concerning the total
return of the Fund, see "Performance Information" in Part II.
Yield is computed pursuant to a standardized formula by dividing the net
investment income per share earned during a recent 30-day period by the maximum
offering price 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 prescribed
methods, 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 distributions during the period. This yield figure does not
reflect the deduction of any contingent deferred sales charges (if applicable)
imposed upon certain redemptions at the rates set forth under "How to Redeem
Fund Shares" in the Fund's current Prospectus. For the yield of the Fund, see
"Performance Information" in Part II.
The Principal Underwriter may publish to Authorized Firms the Fund's
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 (the days in a year divided by the accrual days of the monthly period)
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. See "Distributions and Taxes" in the Fund's
current Prospectus. For the Fund's distribution rate and effective distribution
rate, see "Performance Information" in Part II.
The Fund's total return may be compared to various domestic, international
and global securities indices, such as the Commodity Research Bureau Futures
Price Index. The Fund's yield may also be compared to the yields of other
fixed-income securities, such as U.S. Treasuries, mortgage-backed securities,
and corporate bonds or other securities comparable to the securities held by the
Portfolio as reported by various independent sources (such as Bloomberg L.P.).
In making such comparisons, the Fund may provide information concerning the
nature of such indices or securities. This information 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 other investment companies.
Evaluations of the Fund's performance (including rankings) 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. In addition, 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. Examples of compounding will be used for illustration
purposes only.
The Fund may also provide investors and prospective investors with
information on the Fund's duration and duration's relationship to the stability
or volatility of a security's price. The Fund may also provide information
concerning the diversification of the Portfolio (on such basis as country of
issuer's origin, industry sector or security type), as well as the allocation of
securities held by the Portfolio across various rating categories. In addition,
information on the Portfolio's turnover rate may be provided to investors and
prospective investors.
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."
Eaton Vance Distributors believes that an investment professional can
provide valuable services to you to help you reach your investment goals.
Meeting investment goals requires time, objectivity and investment savvy. Before
making an investment recommendation, a representative can help you carefully
consider your short- and long-term financial goals, your tolerance for
investment risk, your investment time frame, and other investments you may
already own. Your professional investment representatives are knowledgeable
about financial markets, as well as the wide range of investment opportunities
available. A representative can help you decide when to buy, sell or persevere
with your investments. A professional investment representative can provide you
with tailored financial advice. Information about investment professionals may
appear in sales literature and advertisements used by the Fund.
TAXES
FEDERAL INCOME TAXES
Each series of the Trust is treated as a separate entity for federal income
tax purposes. The Fund has elected to be treated, has qualified, and intends to
continue to qualify each year as a regulated investment company ("RIC") under
the Code. Accordingly, the Fund intends to satisfy certain requirements relating
to sources of its income and diversification of its assets and to distribute all
of its net investment income and net realized capital gains in accordance with
the timing requirements imposed by the Code, so as to avoid any federal income
or excise tax to the Fund. The Fund so qualified for its fiscal year ended
October 31, 1995. (see the Notes to Financial Statements incorporated by
reference into this SAI). 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 and tax-exempt (if any) 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 RIC, the Fund
will be deemed (i) to own its proportionate share of each of the assets of the
Portfolio and (ii) to be entitled to the gross income of the Portfolio
attributable to such share.
In order to avoid federal excise tax, the Code requires that the Fund
distribute by December 31 of each calendar year at least 98% of its ordinary
income (not including tax-exempt income) for such year, at least 98% of the
excess of its realized capital gains over its realized capital losses, generally
computed on the basis of the one-year period ending on October 31 of such year,
after reduction by any available capital loss carryforwards, and 100% of any
income from the prior year (as previously computed) that was not paid out during
such year and on which the Fund paid no federal income tax. Under current law,
provided that the Fund qualifies as a RIC for federal income tax purposes and
the Portfolio is treated as a partnership for Massachusetts and federal tax
purposes, neither the Fund nor the Portfolio is liable for any income, corporate
excise or franchise tax in the Commonwealth of Massachusetts.
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 Fund 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 generally 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 make certain elections to mitigate adverse
consequences of these tax rules and 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 RIC.
The Portfolio may be subject to foreign withholding or other foreign taxes
with respect to income (possibly including, in some cases, capital gains)
derived from foreign securities. These taxes may be reduced or eliminated under
the terms of an applicable U.S. income tax treaty. Since it is expected that
more than 50% of the value of the total assets of the Fund taking into account
its allocable share of the Portfolio's total assets, at the close of any taxable
year will consist of securities issued by foreign corporations, the Fund may be
eligible to pass through to shareholders their proportionate shares of foreign
taxes paid by the Fund, with the result that shareholders would include such
proportionate shares in income subject to federal income tax and would be
entitled to take a foreign tax credit or deduction for such foreign taxes,
subject to certain limitations. Certain foreign exchange gains and losses
realized by the Fund will be treated as ordinary income and losses. Certain uses
of foreign currency, foreign currency options, futures and forward contracts,
and interest rate and currency swaps, and investment by the Portfolio in certain
"passive foreign investment companies" may be limited or a tax election may be
made, if available, in order to preserve the Fund's qualification as a RIC
and/or avoid imposition of a tax on the Fund.
The Portfolio's investment in zero coupon, deferred interest 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 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.
The appropriate tax accounting for dollar rolls is also uncertain in some
respects, and the Portfolio's use of such rolls may accordingly be limited in
order to preserve the Fund's qualification as a RIC.
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.
The Fund's distributions of taxable net investment income, the excess of net
short-term capital gain over net long-term capital loss and certain foreign
exchange gains earned by the Portfolio and allocated to the Fund are taxable to
shareholders of the Fund as ordinary income whether received in cash or
reinvested in additional shares. Only a small portion, if any, of such
distributions of net investment income made by the Fund may qualify for the
dividends-received deduction for corporations, subject to applicable limitations
under the Code. The Fund's distributions of the excess of net long-term capital
gain over net short-term capital loss (including any capital losses carried
forward from prior years) earned by the Portfolio and allocated to the Fund are
taxable to shareholders of the Fund as long-term capital gains, whether received
in cash or in additional shares and regardless of the length of time their
shares of the Fund have been held.
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 other
retirement plans, and persons investing through such plans should consult their
tax advisers for more information. The deductibility of contributions to IRAs
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 certifications required by the Internal Revenue Service ("IRS"), as well
as shareholders with respect to whom the Fund has received notification from the
IRS 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, foreign corporations and certain 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 Fund had qualified to do business in the Commonwealth of Pennsylvania
and, therefore, was subject to the Pennsylvania foreign franchise and corporate
net income tax in respect of its business activities in Pennsylvania. The amount
of such taxes was $28,080 for the fiscal year ended October 31, 1994. In 1995,
however, the Fund took actions to cease doing business in Pennsylvania and does
not intend to pay Pennsylvania foreign franchise and corporate net income tax in
Pennsylvania. Accordingly, Fund shareholders should consult their tax advisers
regarding the applicability of Pennsylvania local and county personal property
taxes.
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 special tax rules that may apply in their
particular situations, as well as the state, local or foreign tax consequences
of investing in the Fund.
PORTFOLIO SECURITY TRANSACTIONS
Decisions concerning the execution of portfolio security transactions,
including the selection of the market and the executing firm, are made by BMR.
BMR 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 firms. BMR uses its best
efforts to obtain execution of portfolio security transactions at prices which
are advantageous to the Portfolio and at reasonably competitive spreads or (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
nature and character of the market for the security, the confidentiality, speed
and certainty of effective execution required for the transaction, the general
execution and operational capabilities of the executing firm, the reputation,
reliability, experience and financial condition of the firm, the value and
quality of the services rendered by the firm in this and other transactions, and
the reasonableness of the spread or commission, if any. The debt securities and
obligations purchased and sold by the Portfolio are generally traded in the
domestic or foreign over-the-counter markets on a net basis (i.e. without
commission) through broker-dealers and banks acting for their own account rather
than as brokers, or otherwise involve transactions directly with the issuer of
such obligations. Such firms attempt to profit from such transactions by buying
at the bid price and selling at the higher asked price of the market for such
obligations, and the difference between the bid and asked price is customarily
referred to as the spread. The Portfolio may also purchase debt securities from
domestic and foreign underwriters, the cost of which may include undisclosed
fees and concessions to the underwriters. Transactions in foreign obligations
usually involve the payment of fixed brokerage commissions when executed on
foreign securities exchanges, which commissions are generally higher than those
in the United States. Although commissions 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 firms who were selected to execute transactions on behalf of the
Portfolio and BMR's other clients 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 of the investment advisory industry and of 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-dealer
firms 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 and
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 and
execute portfolio security transactions at advantageous prices and at reasonably
competitive spreads or commission rates, BMR is authorized to consider as a
factor in the selection of any 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 its affiliates. BMR
will attempt to allocate equitably portfolio security transactions among the
Portfolio and the portfolios of its other investment accounts purchasing
municipal obligations 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 and the Portfolio
that the benefits available from the BMR organization outweigh any disadvantage
that may arise from exposure to simultaneous transactions. For the fiscal year
ended October 31, 1995, the Portfolio paid brokerage commissions of $11,700 with
respect to portfolio transactions. Of this amount, approximately $11,357 was
paid in respect of portfolio security transactions aggregating approximately
$148,774,532 to firms which provided some Research Services to BMR's
organization. For the period from the start of business, March 1, 1994, to
October 31, 1994, the Portfolio paid foreign brokerage commissions on its
portfolio security transactions amounting to $6,875.
OTHER INFORMATION
The Trust changed its name from Eaton Vance Government Obligations Trust on
July 10, 1995. On October 31, 1995, the Fund was reorganized as a series of the
Trust. Prior thereto, the Fund was a series of Eaton Vance Investment Fund, Inc.
Eaton Vance, pursuant to its agreement with the Trust, controls the use of the
words "Eaton Vance" and "EV" in the Fund's name and may use the words "Eaton
Vance" or "EV" in other connections and for other purposes.
As permitted by Massachusetts law, there will normally be no meeting of
shareholders for the purpose of electing Trustees unless and until such time as
less than a majority of the Trustees of the Trust holding office have been
elected by shareholders. In such an event the Trustees then in office will call
a shareholders' 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 and may appoint
successor Trustees.
The Trust's Amended and Restated Declaration of Trust may be amended by the
Trustees when authorized by vote of a majority of the outstanding voting
securities of the Trust and any other outstanding series of shares, the
financial interests of which are affected by the amendment. The Trustees may
also amend the Declaration of Trust without the vote or consent of shareholders
to change the name of the Trust or any series or to make such other changes as
do not have a materially adverse effect on the financial interests of
shareholders or if they deem it necessary to conform it to applicable Federal or
state laws or regulations. The Trust or any series or class thereof may be
terminated by: (1) the affirmative vote of the holders of not less than
two-thirds of the shares outstanding and entitled to vote at any meeting of
shareholders of the Trust or the appropriate series or class thereof, or by an
instrument or instruments in writing without a meeting, consented to by the
holders of two-thirds of the shares of the Trust or a series or class thereof,
provided, however, that, if such termination is recommended by the Trustees, the
vote of a majority of the outstanding voting securities of the Trust or a series
or class thereof entitled to vote thereon shall be sufficient authorization; or
(2) by means of an instrument in writing signed by a majority of the Trustees,
to be followed by a written notice to shareholders stating that a majority of
the Trustees has determined that the continuation of the Trust or a series or a
class thereof is not in the best interest of the Trust, such series or class or
of their respective shareholders.
The Declaration of Trust further provides that the Trustees will not be
liable for errors of judgment or mistakes of fact or law; but nothing in the
Declaration of Trust protects a Trustee against any liability to which he would
otherwise be subject by reason of willful misfeasance, bad faith, gross
negligence, or reckless disregard of the duties involved in the conduct of his
office. In addition, the By-Laws of the Trust provide that no natural person
shall serve as a Trustee of the Trust after the holders of record of not less
than two-thirds of the outstanding shares have declared that he be removed from
office either by declaration in writing filed with the custodian of the assets
of the Trust or by votes cast in person or by proxy at a meeting called for the
purpose. The By-laws further provide that under certain circumstances the
shareholders may call a meeting to remove a Trustee and that the Trust is
required to provide assistance in communicating with shareholders about such a
meeting. The By-Laws also provide that the Trustees shall promptly call a
meeting of shareholders for the purpose of voting upon a question of removal of
a Trustee when requested so to do by the record holders of not less than 10 per
centum of the outstanding shares.
In accordance with the Declaration of Trust of the Portfolio, there will
normally be no meetings of the investors for the purpose of electing Trustees
unless and until such time as less than a majority of the Trustees holding
office have been elected by investors. In such an event the Trustees of the
Portfolio then in office will call an investors' meeting for the election of
Trustees. Except for the foregoing circumstances and unless removed by action of
the investors in accordance with the Portfolio's Declaration of Trust, the
Trustees shall continue to hold office and may appoint successor Trustees.
The Declaration of Trust of the Portfolio provides that no person shall
serve as a Trustee if investors holding two-thirds of the outstanding interests
have removed him from that office either by a written declaration filed with the
Portfolio's custodian or by votes cast at a meeting called for that purpose. The
Declaration of Trust further provides that under certain circumstances the
investors may call a meeting to remove a Trustee and that the Portfolio is
required to provide assistance in communicating with investors about such a
meeting.
The right to redeem can be suspended and the payment of the redemption price
deferred when the Exchange is closed (other than for customary weekend and
holiday closings), during periods when trading on the Exchange is restricted as
determined by the 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 ACCOUNTANTS
Coopers & Lybrand L.L.P., One Post Office Square, Boston, Massachusetts
02109, are the independent accountants for the Fund and the Portfolio providing
audit services, tax return preparation, and assistance and consultation with
respect to the preparation of filings with the 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 SAI and have been so incorporated in reliance on the report of Coopers &
Lybrand L.L.P., independent accountants, as experts in accounting and auditing.
A copy of the Fund's most recent Annual Report accompanies this SAI.
Registrant incorporates by reference the audited financial information for
the Fund's listed below and for the Portfolio for the fiscal year ended October
31, 1995 as previously filed electronically with the Securities and Exchange
Commission:
EV Classic Strategic Income Fund
(Accession No. 0000928816-96-000013)
EV Marathon Strategic Income Fund
(Accession No. 0000928816-96-000014)
<PAGE>
APPENDIX A
DESCRIPTION OF SECURITIES RATINGS\1/
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-edged". 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 fluctuations of protective elements
may be of greater amplitude or there may be other elements present which make
the long-term risk 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.
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 safe-guarded
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 corporated 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.
SHORT-TERM DEBT
Moody's short-term debt ratings are opinions of the ability of issuers to repay
punctually promissory obligations not having an original maturity in excess of
one year.
Issuers rated PRIME-1 or P-1 (or supporting institutions) have a superior
ability for repayment of senior short-term debt obligations. Prime-1 or P-1
repayment ability will often be evidenced by many of the following
characteristics:
-- Leading market positions in well established industries.
-- High rates of return on funds employed.
-- Conservative capitalization structure with moderate reliance on debt and
ample asset protection.
-- Broad margins in earnings coverage of fixed financial charges and high
internal cash generation.
-- Well established access to a range of financial markets and assured
sources of alternate liquidity.
Issuers rated PRIME-2 or P-2 (or supporting institutions) have a strong ability
for repayment of senior short-term debt obligations. This will normally be
evidenced by many of the characteristics cited above but to a lesser degree.
Earnings trends and coverage ratios, while sound, may be more subject to
variation. Capitalization characteristics, while still appropriate, may be more
affected by external conditions. Ample alternate liquidity is maintained.
DESCRIPTION OF STANDARD & POOR'S RATINGS GROUP'S CORPORATE BOND RATINGS:
INVESTMENT GRADE
AAA: Debt rated AAA has the highest rating assigned by S&P's to a debt
obligation. Capacity to pay interest and repay principal is extremely strong.
AA: Debt rated AA has a very strong capacity to pay interest and repay principal
and differs from the higher rated issues only in small degree.
A: Debt rated A has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than bonds in higher rated categories.
BBB: Debt rated BBB is regarded as having an adequate capacity to pay interest
and repay principal. Whereas it normally exhibits 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
debt in this category than in higher rated categories.
SPECULATIVE GRADE
Debt rated BB, B, CCC, CC, and C is regarded as having predominantly speculative
characteristics with respect to capacity to pay interest and repay principal. BB
indicates the least degree of speculation and C the highest. While such debt
will likely have some quality and protective characteristics, these are
outweighed by large uncertainties or major 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 S&P's rating because no public rating has been requested,
because there is insufficient information on which to base a rating, or because
S&P's does not rate a particular type of obligation as a matter of policy.
COMMERCIAL PAPER
A: S&P's commercial paper rating is a current assessment of the likelihood of
timely payment of debt considered short-term in the relevant market.
A-1: This highest category indicates that the degree of safety regarding timely
payment is strong. Those issues determined to possess extremely strong safety
characteristics are denoted with a plus (+) sign designation.
A-2: Capacity for timely payment on issues with this designation is
satisfactory. However, the relative degree of safety is not as high as for
issues designated "A-1".
A-3: Issues carrying this designation have adequate capacity for timely payment.
They are, however, more vulnerable to the adverse effects of changes in
circumstances than obligations carrying the higher designations.
FITCH INVESTORS SERVICE, INC.
INVESTMENT GRADE BOND RATINGS
AAA: Bonds considered to be investment grade and of the highest credit quality.
The obligor has an exceptionally strong ability to pay interest and repay
principal, which is unlikely to be affected by reasonably foreseeable events.
AA: Bonds considered to be investment grade and of very high credit quality. The
obligor's ability to pay interest and repay principal is very strong, although
not quite as strong as bonds rated "AAA". Because bonds rated in the "AAA" and
"AA" categories are not significantly vulnerable to foreseeable future
developments, short-term debt of these issuers is generally rated "F- 1+".
A: Bonds considered to be investment grade and of high credit quality. The
obligors ability to pay interest and repay principal is considered to be strong,
but may be more vulnerable to adverse changes in economic conditions and
circumstances than bonds with higher ratings.
BBB: Bonds considered to be investment grade and of satisfactory credit quality.
The obligor's ability to pay interest and repay principal is considered to be
adequate. Adverse changes in economic conditions and circumstances, however, are
more likely to have adverse impact on these bonds, and therefore, impair timely
payment. The likelihood that the ratings of these bonds will fall below
investment grade is higher than for bonds with higher ratings.
HIGH YIELD BOND RATINGS
BB: Bonds are considered speculative. The obligor's ability to pay interest and
repay principal may be affected over time by adverse economic changes. However,
business and financial alternatives can be identified which could assist the
obligor in satisfying its debt service requirements.
B: Bonds are considered highly speculative. While bonds in this class are
currently meeting debt service requirements, the probability of continued timely
payment of principal and interest reflects the obligor's limited margin of
safety and the need for reasonable business and economic activity throughout the
life of the issue.
CCC: Bonds have certain identifiable characteristics which, if not remedied,
may lead to default. The ability to meet obligations requires an advantageous
business and economic environment.
CC: Bonds are minimally protected. Default in payment of interest and/or
principal seems probable over time.
C: Bonds are in imminent default in payment of interest or principal.
DDD, DD, AND D: Bonds are in default of interest and/or principal payments. Such
bonds are extremely speculative and should be valued on the basis of their
ultimate recovery value in liquidation or reorganization of the obligor. "DDD"
represents the highest potential for recovery on these bonds, and"D" represents
the lowest potential for recovery.
PLUS (+) OR MINUS (-): The ratings from AA to C may be modified by the addition
of a plus or minus sign to indicate the relative position of a credit within the
rating category.
NR: Indicates that Fitch does not rate the specific issue.
CONDITIONAL: A conditional rating is premised on the successful completion of
a project or the occurrence of a specific event.
INVESTMENT GRADE SHORT-TERM RATINGS
Fitch's short-term ratings apply to debt obligations that are payable on demand
or have original maturities of generally up to three years, including commercial
paper, certificates of deposit, medium-term notes, and municipal and investment
notes.
F-1+: Exceptionally Strong Credit Quality. Issues assigned this rating are
regarded as having the strongest degree of assurance for timely payment.
F-1: Very Strong Credit Quality. Issues assigned this rating reflect an
assurance of timely payment only slightly less in degree than issues rated
"F-1+".
F-2: Good Credit Quality. Issues assigned this rating have a satisfactory
degree of assurance for timely payment, but the margin of safety is not as
great as the "F-1+" and "F-1" categories.
F-3: Fair Credit Quality. Issues assigned this rating have characteristics
suggesting that the degree of assurance for timely payment is adequate, however,
near-term adverse changes could cause these securities to be rated below
investment grade.
DUFF & PHELPS
INVESTMENT GRADE BOND RATINGS
AAA: Highest credit quality. The risk factors are negligible, being only
slightly more than for risk-free U.S. Treasury debt.
AA+, AA, AND AA-: High credit quality. Protection factors are strong. Risk is
modest but may vary slightly from time to time because of economic conditions.
A+, A, AND A-: Protection factors are average but adequate. However, risk
factors are more variable and greater in periods of economic stress.
BBB+, BBB, AND BBB-: Below average protection factors but still considered
sufficient for prudent investment. Considerable variability in risk during
economic cycles.
HIGH YIELD BOND RATINGS
BB+, BB, AND BB-: Below investment grade but deemed likely to meet obligations
when due. Present or prospective financial protection factors fluctuate
according to industry conditions or company fortunes. Overall quality may move
up or down frequently within this category.
B+, B, AND B-: Below investment grade and possessing risk that obligations will
not be met when due. Financial protection factors will fluctuate widely
according to economic cycles, industry conditions and/or company fortunes.
Potential exists for frequent changes in the rating within this category or into
a higher or lower rating grade.
CCC: Well below investment grade securities. Considerable uncertainty exists as
to timely payment of principal interest or preferred dividends. Protection
factors are narrow and risk can be substantial with unfavorable economic/
industry conditions, and/or with unfavorable company developments.
Preferred stocks are rated on the same scale as bonds but the preferred rating
gives weight to its more junior position in the capital structure. Structured
Financings are also rated on this scale.
COMMERCIAL PAPER/CERTIFICATES OF DEPOSIT
CATEGORY 1: TOP GRADE
DUFF 1 PLUS: Highest certainty of timely payment. Short-term liquidity including
internal operating factors and/or ready access to alternative sources of funds,
is outstanding, and safety is just below risk-free U.S.Treasury short-term
obligations.
DUFF 1: Very high certainty of timely payment. Liquidity factors are excellent
and supported by good fundamental protection factors. Risk factors are minor.
DUFF 1 MINUS: High certainty of timely payment. Liquidity factors are strong
and supported by good fundamental protection factors. Risk factors are very
small.
CATEGORY 2: GOOD GRADE
DUFF 2: Good certainty of timely payment. Liquidity factors and company
fundamentals are sound. Although ongoing funding needs may enlarge total
financing requirements, access to capital markets is good. Risk factors are
small.
CATEGORY 3: SATISFACTORY GRADE
DUFF 3: Satisfactory liquidity and other protection factors qualify issue as to
investment grade. Risk factors are larger and subject to more variation.
Nevertheless timely payment is expected.
No ratings are issued for companies whose paper is not deemed to be of
investment grade.
* * * *
NOTES:
\1/ The ratings indicated herein are believed to be the most recent ratings
available at the date of this Statement of Additional Information for the
securities listed. Ratings are generally given to securities at the time of
issuance. While the rating agencies may from time to time revise such
ratings, they undertake no obligation to do so, and the ratings indicated do
not necessarily represent ratings which would be given to these securities
on the date of the Portfolio's fiscal year end.
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
bonds. 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>
STATEMENT OF ADDITIONAL INFORMATION
PART II
This Part II provides information about EV CLASSIC STRATEGIC INCOME FUND.
The Fund became a series of the Trust on October 31, 1995.
FEES AND EXPENSES
ADMINISTRATOR
As stated under "Investment Adviser and Administrator" Part I of this SAI,
the Administrator currently receives no compensation for providing
administrative services to the Fund. For the fiscal year ended October 31, 1995
and for the period from the start of business, May 25, 1994, to October 31,
1994, $13,723 and $7,345, respectively, of the Fund's operating expenses were
allocated to the Administrator.
DISTRIBUTION PLAN
During the fiscal year ended October 31, 1995, the Principal Underwriter
paid no sales commissions to Authorized Firms on sales of shares of the Fund.
During the same period, the Fund made no sales commission payments under the
Plan to the Principal Underwriter and the Principal Underwriter received no
contingent deferred sales charges ("CDSCs") on early redeeming shareholders. As
at October 31, 1995 there were no outstanding Uncovered Distribution Charges of
the Principal Underwriter calculated under the Plan. During the fiscal year
ended October 31, 1995, the Fund made no service fee payments to the Principal
Underwriter and Authorized Firms.
PRINCIPAL UNDERWRITER
During the fiscal year ended October 31, 1995 there were no repurchase
transactions.
CUSTODIAN
During the fiscal year ended October 31, 1995, the Fund paid IBT $1,918.
<TABLE>
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 October 31, 1995, the noninterested Trustees of the Trust and the Portfolio
received the following compensation in their capacities as Trustees from the Fund and the Portfolio, and, for the year ended
December 31, 1995, earned the following compensation in their capacities as Trustees of the other funds in the Eaton Vance fund
complex<F1>:
<CAPTION>
AGGREGATE AGGREGATE TOTAL COMPENSATION
COMPENSATION COMPENSATION FROM TRUST AND
NAME FROM FUND FROM PORTFOLIO FUND COMPLEX
---- ------------ -------------- ------------------
<S> <C> <C> <C>
Donald R. Dwight .............................. $0 $2,274<F2> $135,000<F4>
Samuel L. Hayes, III .......................... 0 2,298<F3> 150,000<F5>
Norton H. Reamer .............................. 0 2,300 135,000
John L. Thorndike ............................. 0 2,397 140,000
Jack L. Treynor ............................... 0 2,383 140,000
<FN>
<F1> The Eaton Vance fund complex consists of 219 registered investment companies or series thereof.
<F2> Includes $761 of deferred compensation.
<F3> Includes $806 of deferred compensation.
<F4> Includes $35,000 of deferred compensation.
<F5> Includes $33,750 of deferred compensation.
</FN>
</TABLE>
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 Authorized Firms or investors and other selling
literature and of advertising is borne by the Principal Underwriter. The fees
and expenses of qualifying and registering and maintaining qualifications and
registrations of the Fund and its shares under federal and state securities laws
is borne by the Fund. In addition, the Fund makes payments to the Principal
Underwriter pursuant to its Distribution Plan as described in the Fund's current
Prospectus; the provisions of the Fund's 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.
The Fund has authorized the Principal Underwriter to act as its agent in
repurchasing shares at the rate of $2.50 for each repurchase transaction handled
by the Principal Underwriter. The Principal Underwriter estimates that the
expenses incurred by it in acting as repurchase agent for the Fund will exceed
the amounts paid therefor by the Fund. For the amount paid by the Fund to the
Principal Underwriter for acting as repurchase agent, see "Fees and Expenses" in
this Part II.
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 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 CDSCs 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.
CDSCs and accrued amounts will be paid by the Fund to the Principal Underwriter
whenever there exist Uncovered Distribution Charges under the Fund's 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 CDSCs 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 CDSCs 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 CDSCs 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 CDSC will be imposed, the level and timing of redemptions of Fund shares upon
which no CDSC 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.
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 commissions 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 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 CDSCs, 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 CDSCs 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
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.
PERFORMANCE INFORMATION
The table below indicates the cumulative and average annual total return on
a hypothetical investment of $1,000 in the Fund from November 26, 1990 through
October 31, 1995 and for the one-year period ended October 31, 1995. The total
return for the period prior to the Fund's commencement of operations on May 25,
1994 reflects the Portfolio's total return (or that of its predecessor) adjusted
to reflect any applicable Fund CDSC. The total return for such prior period 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 BEFORE VALUE AFTER TOTAL RETURN TOTAL RETURN AFTER
DEDUCTING DEDUCTING BEFORE DEDUCTING CDSC DEDUCTING CDSC<F1>
INVESTMENT INVESTMENT AMOUNT OF CDSC ON CDSC<F2> ON -------------------------- --------------------------
PERIOD DATE INVESTMENT 10/31/95 10/31/95 CUMULATIVE ANNUALIZED CUMULATIVE ANNUALIZED
- -------------- ------------ ----------- --------------- --------------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Life of the Fund 11/26/90 $1,000 $1,293.66 $1,293.66 29.37% 5.36% 29.37% 5.36%
1 Year Ended
10/31/95<F2> 10/31/94 $1,000 $1,162.05 $1,152.05 16.21% 16.21% 15.21% 15.21%
- ----------
<FN>
<F1> No CDSC is imposed on certain redemptions. See the Fund's current Prospectus.
<F2> If a portion of the Fund's expenses had not been subsidized, the Fund would have had lower returns.
</FN>
</TABLE>
The Fund's yield for the 30-day period ended October 31, 1995 was 9.75%. If
a portion of the Fund's expenses had not been allocated to the Administrator,
the Fund would have had a lower yield.
The Fund's distribution rate (calculated on October 31, 1995 and based on
the Fund's monthly distribution paid October 22, 1995) was 5.96%, and the Fund's
effective distribution rate (calculated on the same date and based on the same
monthly distribution) was 6.12%. If a portion of the Fund's expenses had not
been allocated to the Administrator, the Fund would have had a lower
distribution rate and effective distribution rate.
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
As at January 31, 1996, 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
January 31, 1996, the following shareholder owned of record the percentage of
outstanding shares indicated after its name: Eaton Vance Management, Boston, MA
(99.2%). To the knowledge of the Trust, no other person owned of record or
beneficially 5% or more of the Fund's outstanding shares as of such date.
<PAGE>
[logo] EV CLASSIC STRATEGIC INCOME FUND
- ------------------------------------------------------------------------------
STATEMENT OF ADDITIONAL INFORMATION
MARCH 1, 1996
EV CLASSIC
STRATEGIC INCOME FUND
24 FEDERAL STREET
BOSTON, MA 02110
- ------------------------------------------------------------------------------
INVESTMENT ADVISER AND ADMINISTRATOR OF STRATEGIC INCOME PORTFOLIO
Boston Management and Research, 24 Federal Street, Boston, MA 02110
ADMINISTRATOR OF EV CLASSIC STRATEGIC 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, 89 South Street, Boston, MA 02111
TRANSFER AGENT
First Data Investor Services Group, 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
C-SISAI
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
PART II
This Part II provides information about EV MARATHON STRATEGIC INCOME FUND.
The Fund became a series of the Trust on October 31, 1995.
FEES AND EXPENSES
INVESTMENT ADVISER
Prior to March 1, 1994 (when the Fund transferred its assets to the
Portfolio in exchange for an interest in the Portfolio), the Fund retained Eaton
Vance as its investment adviser. For the period from November 1, 1993 to March
1, 1994, and for the fiscal year ended October 31, 1993, the Fund paid Eaton
Vance advisory fees of $658,963 and $2,376,432, respectively, (equivalent to
0.54% and 0.54% (annualized) of the Fund's average net assets for such periods).
ADMINISTRATOR
As stated under "Investment Adviser and Administrator" Part I of this SAI,
the Fund's Administrator currently receives no compensation for providing
administrative services to the Fund. Prior to March 1, 1994 (when the Fund
transferred substantially all of its assets to the Portfolio in exchange for an
interest in the Portfolio), the Fund retained Eaton Vance as its administrator
under its Administration Agreement (which is no longer in effect) for which
Eaton Vance received a monthly administration fee at an annual rate of .15% of
the Fund's average daily net assets. For the period November 1, 1993 to March 1,
1994, and for the fiscal years ended October 31, 1993 and 1992, the Fund paid
Eaton Vance administration fees of $182,735, $642,861 and $989,372,
respectively.
DISTRIBUTION PLAN
During the fiscal year ended October 31, 1995, the Principal Underwriter
paid to Authorized Firms sales commissions of $79,145 on sales of shares of the
Fund. During the same period, the Fund made sales commission payments under the
Plan to the Principal Underwriter aggregating $1,351,634 and the Principal
Underwriter received approximately $604,000 in contingent deferred sales charges
("CDSCs") imposed on early redeeming shareholders. These sales commissions and
CDSC payments reduced Uncovered Distribution Charges under the Plan. As of
October 31, 1995 the outstanding Uncovered Distribution Charges of the Principal
Underwriter calculated under the Plan amounted to approximately $17,234,000
(which amount was equivalent to 11.4% of the Fund's net assets on such day).
During the fiscal year ended October 31, 1995, the Fund made service fee
payments to the Principal Underwriter and Authorized Firms aggregating $310,869
of which $309,534 was paid to Authorized Firms and the balance of which was
retained by the Principal Underwriter.
PRINCIPAL UNDERWRITER
For the fiscal year ended October 31, 1995, the Fund paid the Principal
Underwriter $6,180.00 for repurchase transactions handles by the Principal
Underwriter (being $2.50 for each such transaction).
CUSTODIAN
During the fiscal year ended October 31, 1995, the Fund paid IBT $29,571.
BROKERAGE
For the period November 1, 1993 to February 28, 1994, the Fund paid foreign
brokerage commissions on its portfolio security transactions amounting to
$6,300. During the fiscal year ended October 31, 1993, the Fund paid no foreign
brokerage commissions on its portfolio security transactions.
<TABLE>
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 October 31, 1995, the noninterested Trustees of the Trust and the Portfolio
received the following compensation in their capacities as Trustees from the Fund and the Portfolio, and, for the year ended
December 31, 1995, earned the following compensation in their capacities as Trustees of the other funds in the Eaton Vance
fund complex<F1>:
<CAPTION>
AGGREGATE AGGREGATE TOTAL COMPENSATION
COMPENSATION COMPENSATION FROM TRUST AND
NAME FROM FUND FROM PORTFOLIO FUND COMPLEX
---- ------------ -------------- ------------------
<S> <C> <C> <C>
Donald R. Dwight .............................. $672 $2,274<F2> $135,000<F4>
Samuel L. Hayes, III .......................... 648 2,298<F3> 150,000<F5>
Norton H. Reamer .............................. 632 2,300 135,000
John L. Thorndike ............................. 641 2,397 140,000
Jack L. Treynor ............................... 693 2,383 140,000
<FN>
<F1> The Eaton Vance fund complex consists of 219 registered investment companies or series thereof.
<F2> Includes $761 of deferred compensation.
<F3> Includes $806 of deferred compensation.
<F4> Includes $35,000 of deferred compensation.
<F5> Includes $33,750 of deferred compensation.
</FN>
</TABLE>
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 Authorized Firms or investors and other selling
literature and of advertising is borne by the Principal Underwriter. The fees
and expenses of qualifying and registering and maintaining qualifications and
registrations of the Fund and its shares under federal and state securities laws
is borne by the Fund. In addition, the Fund makes payments to the Principal
Underwriter pursuant to its Distribution Plan as described in the Fund's current
Prospectus; the provisions of the Fund's 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.
The Fund has authorized the Principal Underwriter to act as its agent in
repurchasing shares at the rate of $2.50 for each repurchase transaction handled
by the Principal Underwriter. The Principal Underwriter estimates that the
expenses incurred by it in acting as repurchase agent for the Fund will exceed
the amounts paid therefor by the Fund. For the amount paid by the Fund to the
Principal Underwriter for acting as repurchase agent, see "Fees and Expenses" in
this Part II.
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 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 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 CDSCs 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.
CDSCs and accrued amounts will be paid by the Fund to the Principal Underwriter
whenever there exist Uncovered Distribution Charges under the Fund's 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 CDSCs 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 CDSCs 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 CDSCs 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 CDSC will be imposed, the level and timing of redemptions of Fund shares upon
which no CDSC 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 commissions 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 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 CDSCs, 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 CDSCs 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 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. 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. 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 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 have determined that in
their judgment there is a reasonable likelihood that the Plan will benefit the
Fund and its shareholders.
PERFORMANCE INFORMATION
The table below indicates the cumulative and average total return on a
hypothetical investment of $1,000 in the Fund covering the life of the Fund from
November 26, 1990 through October 31, 1995 and for the one-year period ended
October 31, 1995.
<TABLE>
<CAPTION>
VALUE OF INVEST- VALUE OF INVEST-
MENT BEFORE MENT AFTER TOTAL RETURN BEFORE TOTAL RETURN AFTER
DEDUCTING THE DEDUCTING THE DEDUCTING THE CDSC DEDUCTING THE CDSC<F2>
INVESTMENT INVESTMENT AMOUNT OF CDSC ON CDSC<F2> ON -------------------------- --------------------------
PERIOD DATE INVESTMENT 10/31/95 10/31/95 CUMULATIVE ANNUALIZED CUMULATIVE ANNUALIZED
- -------------- ------------ ----------- --------------- --------------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Life of the
Fund<F1> 11/26/90 $1,000 $1,239.44 $1,239.44 23.94% 4.45% 23.94% 4.45%
1 Year Ended
10/31/95 10/31/94 $1,000 $1,113.43 $1,083.43 11.34% 11.34% 8.34% 8.34%
- ----------
<FN>
<F1> Investment operations began on November 26, 1990.
<F2> No CDSC is imposed on certain redemptions. See the Fund's current Prospectus.
</FN>
</TABLE>
The Fund's yield for the 30-day period ended October 31, 1995 was 8.63%. The
Fund's distribution rate (calculated on October 31, 1995 and based on the Fund's
monthly distribution paid October 31, 1995) was 8.03%, and the Fund's effective
distribution rate (calculated on the same date and based on the same monthly
distribution) was 8.33%.
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
As at January 31, 1996, 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
January 31, 1996, Merrill Lynch, Pierce, Fenner & Smith, Inc., Jacksonville, FL
was the record owner of approximately 38.45% 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 as of such date.
<PAGE>
[logo]
EV MARATHON
STRATEGIC INCOME
FUND
STATEMENT OF ADDITIONAL INFORMATION
MARCH 1, 1996
EV MARATHON
STRATEGIC INCOME FUND
24 FEDERAL STREET
BOSTON, MA 02110
- ----------------------------------------------------------------------------
INVESTMENT ADVISER AND ADMINISTRATOR OF STRATEGIC INCOME PORTFOLIO
Boston Management and Research, 24 Federal Street, Boston, MA 02110
ADMINISTRATOR OF EV MARATHON STRATEGIC 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, 89 South Street, Boston, MA 02111
TRANSFER AGENT
First Data Investor Services Group, 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
M-SISAI
<PAGE>
PART C
OTHER INFORMATION
ITEM 24: FINANCIAL STATEMENTS AND EXHIBITS
(A) FINANCIAL STATEMENTS
INCLUDED IN PART A:
FOR EV CLASSIC STRATEGIC INCOME FUND:
Financial Highlights for the fiscal year ended October 31,
1995 and for the period from the start of business, May 25,
1994, through October 31, 1994.
FOR EV MARATHON STRATEGIC INCOME FUND:
Financial Highlights for the fiscal years end October 31,
1995, 1994, 1993, 1992 and for period from the start of
business, November 26, 1990, through October 31, 1991.
INCLUDED IN PART B:
INCORPORATED BY REFERENCE TO THE ANNUAL REPORTS FOR THE
FUNDS, EACH DATED OCTOBER 31, 1995, FILED ELECTRONICALLY
PURSUANT TO SECTION 30(B)(2) OF THE INVESTMENT COMPANY ACT
OF 1940 ARE THE FOLLOWING:
For:
EV Classic Strategic Income Fund (Accession No. 0000928816-96-000013)
EV Marathon Strategic Income Fund (Accession No. 0000928816-96-000014)
The Financial Statements for the above-referenced Funds
for the time periods set forth in the Funds' Annual
Reports dated October 31, 1995 include:
Statement of Assets and Liabilities
Statement of Operations
Statements of Changes in Net Assets
Financial Highlights
Notes to Financial Statements
Report of Independent Accountants
For:
Strategic Income Portfolio
The Financial Statements for the above-referenced Portfolio for the time
period set forth in the Funds' Annual Reports dated October 31, 1995
include:
Portfolio of Investments
Statement of Assets and Liabilities
Statement of Operations
Statement of Changes in Net Assets
Supplementary Data
Notes to Financial Statements
Report of Independent Accountants
(B) EXHIBITS:
(1)(a) Amended and Restated Declaration of Trust dated August
17, 1993 filed as Exhibit (1)(a) to Post-Effective
Amendment No. 23 and incorporated herein by reference.
(b) Amendment to Declaration of Trust dated July 10, 1995
filed as Exhibit (1)(c) to Post-Effective Amendment No. 23
and incorporated herein by reference.
(c) Amendment and Restatement of Establishment and Designation
of Series dated October 23, 1995 filed as Exhibit (1)(d)
to Post-Effective Amendment No. 26 and incorporated herein
by reference.
(2)(a) By-Laws (As Amended November 3, 1986) filed as Exhibit
(2)(a) to Post-Effective Amendment No. 23 and incorporated
herein by reference.
(b) Amendment to By-Laws of Eaton Vance Government Obligations
Trust dated December 13, 1993 filed as Exhibit (2)(b) to
Post-Effective Amendment No. 23 and incorporated herein
by reference.
(3) Not applicable
(4) Not applicable
(5)(a) Investment Advisory Agreement with Eaton Vance Management
for Eaton Vance Short-Term Treasury Fund dated February 4,
1991 filed as Exhibit (5)(a) to Post-Effective Amendment
No. 23 and incorporated herein by reference.
(b) Investment Advisory Agreement with Eaton Vance Management
for Eaton Vance Tax Free Reserves dated August 15, 1995
filed as Exhibit (5)(b) to Post-Effective Amendment No.
25 and incorporated herein by reference.
(6)(a)(1) Distribution Agreement with Eaton Vance Distributors, Inc.
for Eaton Vance Government Obligations Trust (now EV
Traditional Government Obligations Fund) dated July 9,
1984 filed as Exhibit (6)(a)(1) to Post-Effective
Amendment No. 23 and incorporated herein by reference.
(2) Distribution Agreement with Eaton Vance Distributors,
Inc. for Eaton Vance Short-Term Treasury Fund dated
February 4, 1991 as Amended and Restated February 25, 1991
filed as Exhibit (6)(a)(2) to Post-Effective Amendment No.
23 and incorporated herein by reference.
(3) Amended Distribution Agreement with Eaton Vance
Distributors, Inc. for EV Classic Government Obligations
Fund dated January 27, 1995 filed as Exhibit (6)(a)(3) to
Post- Effective Amendment No. 22 and incorporated herein
by reference.
(4) Distribution Agreement with Eaton Vance Distributors,
Inc. for EV Marathon Government Obligations Fund dated
October 28, 1993 filed as Exhibit (6)(a)(3) to
Post-Effective Amendment No. 2 and incorporated herein by
reference.
(5) Distribution Agreement with Eaton Vance Distributors,
Inc. for EV Marathon High Income Fund dated July 31, 1995
filed as Exhibit (6)(a)(5) to Post-Effective Amendment No.
25 and incorporated herein by reference.
(6) Distribution Agreement with Eaton Vance Distributors,
Inc. for EV Classic High Income Fund dated July 31, 1995
filed as Exhibit (6)(a)(6) to Post-Effective Amendment No.
25 and incorporated herein by reference.
(7) Distribution Agreement with Eaton Vance Distributors,
Inc. for EV Classic Strategic Income Fund dated August 15,
1995 filed as Exhibit (6)(a)(7) to Post-Effective
Amendment No. 24 and incorporated herein by reference.
(8) Distribution Agreement with Eaton Vance Distributors,
Inc. for EV Marathon Strategic Income Fund dated August
15, 1995 filed as Exhibit (6)(a)(8) to Post-Effective
Amendment No. 24 and incorporated herein by reference.
(9) Distribution Agreement between Eaton Vance Cash
Management Fund and Eaton Vance Distributors, Inc. dated
August 15, 1995, filed as Exhibit (6)(a)(9) to
Post-Effective Amendment No. 25 and incorporated herein by
reference.
(10)Distribution Agreement with Eaton Vance Distributors,
Inc. for Eaton Vance Liquid Assets Fund dated August 15,
1995 filed as Exhibit (6)(a)(10) to Post-Effective
Amendment No. 25 and incorporated herein by reference.
(11)Distribution Agreement with Eaton Vance Distributors,
Inc. for Eaton Vance Money Market Fund dated August 15,
1995 filed as Exhibit (6)(a)(11) to Post-Effective
Amendment No. 25 and incorporated herein by reference.
(12)Distribution Agreement between Eaton Vance Tax Free
Reserves and Eaton Vance Distributors, Inc. dated August
15, 1995 filed as Exhibit (6)(a)(12) to Post-Effective
Amendment No. 25 and incorporated herein by reference.
(13)Form of Distribution Agreement with Eaton Vance
Distributors, Inc. for EV Marathon Tax- Managed Growth
Fund filed as Exhibit (6)(a)(13) to Post-Effective
Amendment No. 26 and incorporated herein by reference.
(14)Form of Distribution Agreement with Eaton Vance
Distributors, Inc. for EV Traditional Tax-Managed Growth
Fund filed as Exhibit (6)(a)(14) to Post-Effective
Amendment No. 26 and incorporated herein by reference.
(b) Selling Group Agreement between Eaton Vance Distributors,
Inc. and Authorized Dealers filed as Exhibit (6)(b) to the
Registration Statement of Eaton Vance Growth Trust Post-
Effective Amendment No. 61 and incorporated herein by
reference.
(c) Schedule of Dealer Discounts and Sales Charges filed as
Exhibit (6)(c) to the Registration Statement of Eaton
Vance Growth Trust Post-Effective Amendment No. 59 and
incorporated herein by reference.
(7) The Securities and Exchange Commission has granted the
Registrant an exemptive order that permits the Registrant
to enter into deferred compensation arrangements with its
independent Trustees. See in the Matter of Capital
Exchange Fund, Inc., Release No. IC-20671 (November 1,
1994).
(8)(a) Custodian Agreement with Investors Bank & Trust Company
dated October 15, 1992 filed as Exhibit (8) to
Post-Effective Amendment No. 23 and incorporated herein by
reference.
(b) Amendment to Custodian Agreement with Investors Bank &
Trust Company dated October 23, 1995 filed herewith.
(9)(a) Amended Administrative Services Agreement between Eaton
Vance Mutual Funds Trust (on behalf of each of its series)
and Eaton Vance Management dated July 31, 1995, with
attached schedule under Rule 8b-31 under the Investment
Company Act of 1940, as amended, filed as Exhibit (9)(a)
to Post-Effective Amendment No. 24 and incorporated herein
by reference.
(1)Amended Schedule A dated October 23, 1995 to the Amended
Administrative Services Agreement (filed as Exhibit
(9)(a)) filed herewith.
(b) Transfer Agency Agreement dated June 7, 1989 filed as
Exhibit 9(d) to the Registration Statement of Eaton Vance
Growth Trust Post-Effective Amendment No. 59 and
incorporated herein by reference.
(c) Amendment to Transfer Agency Agreement dated February 1,
1993 filed as Exhibit 9(e) to the Registration Statement
of Eaton Vance Growth Trust Post-Effective Amendment No.
59 and incorporated herein by reference.
(10) Opinion of Counsel filed herewith.
(11)(a) Consent of Independent Accountants for EV Classic
Strategic Income Fund filed herewith.
(b) Consent of Independent Accountants for EV Marathon
Strategic Income Fund filed herewith.
(12) Not applicable
(13) Not applicable
(14)(a) Vance, Sanders Profit Sharing Retirement Plan for Self-
Employed Persons with Adoption Agreement and instructions
filed as Exhibit #14(1) to Post-Effective Amendment #22 on
Form N-1 under the Securities Act of 1933 (File No.
2-28471) and incorporated herein by reference.
(b) Eaton & Howard, Vance Sanders Defined Contribution
Prototype Plan and Trust with Adoption Agreements (1)
Basic Profit-Sharing Retirement Plan, (2) Basic Money
Purchase Pension Plan, (3) Thrift Plan Qualifying as
Profit Sharing Plan, (4) Thrift Plan Qualifying as Money
Purchase Plan, (5) Integrated Profit Sharing Retirement
Plan, (6) Integrated Money Purchase Pension Plan filed as
Exhibit 14(2) to Post-Effective Amendment #22 on Form N-1
under the Securities Act of 1933 (File No. 2-28471) and
incorporated herein by reference.
(c) Individual Retirement Custodial Account (Form 5305-A) and
Investment Instruction Form filed as Exhibit 14(3) to
Post-Effective Amendment #22 on Form N-1 under the
Securities Act of 1933 (File No. 2-28471) and incorporated
herein by reference.
(d) Eaton & Howard, Vance Sanders Variable Pension Prototype
Plan and Trust with Adoption Agreement filed as Exhibit
14(b) to Post-Effective Amendment #22 on Form N-1 under
the Securities Act of 1933 (File No. 2-28471) and
incorporated herein by reference.
(15)(a) Service Plan for Eaton Vance Government Obligations Fund
(now EV Traditional Government Obligations Fund) pursuant
to Rule 12b-1 under the Investment Company Act of 1940
dated July 7, 1993 filed as Exhibit (15)(a) to
Post-Effective Amendment No. 23 and incorporated herein by
reference.
(b) Distribution Plan pursuant to Rule 12b-1 under the
Investment Company Act of 1940 for Eaton Vance Short-Term
Treasury Fund dated February 4, 1991 as Amended and
Restated February 25, 1991 filed as Exhibit (15)(b) to
Post-Effective Amendment No. 23 and incorporated herein by
reference.
(c) Amended Distribution Plan for EV Classic Government
Obligations Fund pursuant to Rule 12b-1 under the
Investment Company Act of 1940 dated January 27, 1995
filed as Exhibit (15)(c) to Post-Effective Amendment No.
22 and incorporated herein by reference.
(d) Distribution Plan for EV Marathon Government Obligations
Fund pursuant to Rule 12b-1 under the Investment Company
Act of 1940 dated October 28, 1993 filed as Exhibit (15)
(d) to Post-Effective Amendment No. 23 and incorporated
herein by reference.
(e) Distribution Plan for EV Marathon High Income Fund
pursuant to Rule 12b-1 under the Investment Company Act
of 1940 dated June 19, 1995 filed as Exhibit (15)(e) to
Post-Effective Amendment No. 25 and incorporated herein by
reference.
(f) Distribution Plan for EV Classic High Income Fund pursuant
to Rule 12b-1 under the Investment Company Act of 1940
dated June 19, 1995 filed as Exhibit (15)(f) to Post-
Effective Amendment No. 25 and incorporated herein by
reference.
(g) Distribution Plan for EV Classic Strategic Income Fund
pursuant to Rule 12b-1 under the Investment Company Act of
1940 dated June 19, 1995 filed as Exhibit (15)(g) to Post-
Effective Amendment No. 24 and incorporated herein by
reference.
(h) Distribution Plan for EV Marathon Strategic Income Fund
pursuant to Rule 12b-1 under the Investment Company Act of
1940 dated June 19, 1995 filed as Exhibit (15)(h) to
Post-Effective Amendment No. 24 and incorporated herein by
reference.
(i) Distribution Plan for Eaton Vance Liquid Assets Fund
pursuant to Rule 12b-1 under the Investment Company Act of
1940 dated June 19, 1995 filed as Exhibit (15)(i) to Post-
Effective Amendment No. 25 and incorporated herein by
reference.
(j) Distribution Plan for Eaton Vance Money Market Fund
pursuant to Rule 12b-1 under the Investment Company Act of
1940 dated June 19, 1995 filed as Exhibit (15)(j) to Post-
Effective Amendment No. 25 and incorporated herein by
reference.
(k) Form of Distribution Plan for EV ---Marathon ---Tax-
Managed Growth Fund pursuant to Rule 12b-1 under the
Investment Company Act of 1940, filed as Exhibit (15)(k)
to Post- Effective Amendment No. 26 and incorporated
herein by reference.
(l) Form of Service Plan for EV Traditional Tax-Managed Growth
Fund pursuant to Rule 12b-1 under the Investment Company
Act of 1940, filed as Exhibit (15)(l) to Post-Effective
Amendment No. 26 and incorporated herein by reference.
(16) Schedules for Computation of Performance Quotations filed
herewith.
(17)(a) Power of Attorney for Eaton Vance Mutual Funds Trust
dated July 11, 1995 filed as Exhibit (17)(a) to
Post-Effective Amendment No. 23 and incorporated herein by
reference.
(b) Power of Attorney for Eaton Vance Government Obligations
Portfolio dated June 19, 1995 filed as Exhibit (17)(b) to
Post-Effective Amendment No. 23 and incorporated herein by
reference.
(c) Power of Attorney for High Income Portfolio dated June
19, 1995 filed as Exhibit (17) (c) to Post-Effective
Amendment No. 23 and incorporated herein by reference.
(d) Power of Attorney for Strategic Income Portfolio dated
August 7, 1995 filed as Exhibit (17)(d) to Post-Effective
Amendment No. 24 and incorporated herein by reference.
(e) Power of Attorney for Cash Management Portfolio dated
August 7 1995 filed as Exhibit (17)(e) to Post-Effective
Amendment No. 25 and incorporated herein by reference.
(f) Power of Attorney for Tax-Managed Growth Portfolio dated
October 23, 1995 filed as Exhibit (17)(f) to
Post-Effective Amendment No. 26 and incorporated herein by
reference.
ITEM 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT
Not applicable
ITEM 26. NUMBER OF HOLDERS OF SECURITIES
(1) (2)
TITLE OF CLASS NUMBER OF RECORD HOLDERS
Shares of beneficial interest without par value as of January 31, 1996
Eaton Vance Short-Term Treasury Fund 68
EV Classic Government Obligations Fund 995
EV Marathon Government Obligations Fund 3,463
EV Traditional Government Obligations Fund 10,686
EV Classic High Income Fund 195
EV Marathon High Income Fund 15,025
EV Classic Strategic Income Fund 2
EV Marathon Strategic Income Fund 6,308
Eaton Vance Cash Management Fund 2,248
Eaton Vance Liquid Assets Fund 827
Eaton Vance Money Market Fund 363
Eaton Vance Tax Free Reserves 192
ITEM 27. INDEMNIFICATION
No change from the information set forth in Item 4 of Form N-1A filed as
Pre-Effective Amendment No. 1 which information is incorporated herein by
reference.
Registrant's Trustees and officers are insured under a standard mutual fund
errors and omissions insurance policy covering loss incurred by reason of
negligent errors and omissions committed in their capacities as such.
ITEM 28. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER
Reference is made to the information set forth under the caption "Investment
Adviser and Administrator" in the Statement of Additional Information which
information is incorporated herein by reference.
ITEM 29. PRINCIPAL UNDERWRITERS
(A) Registrant's principal underwriter, Eaton Vance Distributors, Inc., a
wholly-owned subsidiary of Eaton Vance Management, is the principal
underwriter for each of the investment companies named below:
<TABLE>
<S> <C>
EV Classic California Municipals Fund EV Classic New York Limited Maturity
EV Classic Connecticut Municipals Fund Municipals Fund
EV Classic Florida Insured Municipals Fund EV Classic New York Municipals Fund
EV Classic Florida Limited Maturity EV Classic Pennsylvania Municipals Fund
Municipals Fund EV Classic Rhode Island Municipals Fund
EV Classic Florida Municipals Fund EV Classic Senior Floating-Rate Fund
EV Classic Government Obligations Fund EV Classic Strategic Income Fund
EV Classic Greater China Growth Fund EV Classic Special Equities Fund
EV Classic Growth Fund EV Classic Stock Fund
EV Classic High Income Fund EV Classic Total Return Fund
EV Classic Information Age Fund EV Marathon Alabama Municipals Fund
EV Classic Investors Fund EV Marathon Arizona Limited Maturity
EV Classic Massachusetts Limited Maturity Municipals Fund
Municipals Fund EV Marathon Arizona Municipals Fund
EV Classic National Limited Maturity EV Marathon Arkansas Municipals Fund
Municipals Fund EV Marathon California Limited Maturity
EV Classic National Municipals Fund Municipals Fund
EV Classic New Jersey Municipals Fund EV Marathon California Municipals Fund
</TABLE>
<PAGE>
<TABLE>
<S> <C>
EV Marathon Colorado Municipals Fund EV Marathon Tennessee Municipals Fund
EV Marathon Connecticut Limited Maturity EV Marathon Texas Municipals Fund
Municipals Fund EV Marathon Total Return Fund
EV Marathon Connecticut Municipals Fund EV Marathon Virginia Municipals Fund
EV Marathon Emerging Markets Fund EV Marathon West Virginia Municipals Fund
EV Marathon Florida Insured Municipals Fund EV Traditional Alabama Municipals Fund
EV Marathon Florida Limited Maturity EV Traditional Arizona Municipals Fund
Municipals Fund EV Traditional Arkansas Municipals Fund
EV Marathon Florida Municipals Fund EV Traditional California Limited Maturity
EV Marathon Georgia Municipals Fund Municipals Fund
EV Marathon Gold & Natural Resources Fund EV Traditional California Municipals Fund
EV Marathon Government Obligations Fund EV Traditional Colorado Municipals Fund
EV Marathon Greater China Growth Fund EV Traditional Connecticut Limited Maturity
EV Marathon Greater India Fund Municipals Fund
EV Marathon Growth Fund EV Traditional Connecticut Municipals Fund
EV Marathon Hawaii Municipals Fund EV Traditional Emerging Markets Fund
EV Marathon High Income Fund EV Traditional Florida Insured Municipals Fund
EV Marathon High Yield Municipals Fund EV Traditional Florida Limited Maturity
EV Marathon Information Age Fund Municipals Fund
EV Marathon Investors Fund EV Traditional Florida Municipals Fund
EV Marathon Kansas Municipals Fund EV Traditional Georgia Municipals Fund
EV Marathon Kentucky Municipals Fund EV Traditional Government Obligations Fund
EV Marathon Louisiana Municipals Fund EV Traditional Greater China Growth Fund
EV Marathon Maryland Municipals Fund EV Traditional Greater India Fund
EV Marathon Massachusetts Limited Maturity EV Traditional Growth Fund
Municipals Fund EV Traditional Hawaii Municipals Fund
EV Marathon Massachusetts Municipals Fund EV Traditional High Yield Municipals Fund
EV Marathon Michigan Limited Maturity Eaton Vance Income Fund of Boston
Municipals Fund EV Traditional Information Age Fund
EV Marathon Michigan Municipals Fund EV Traditional Investors Fund
EV Marathon Minnesota Municipals Fund EV Traditional Kansas Municipals Fund
EV Marathon Mississippi Municipals Fund EV Traditional Kentucky Municipals Fund
EV Marathon Missouri Municipals Fund EV Traditional Louisiana Municipals Fund
EV Marathon National Limited Maturity EV Traditional Maryland Municipals Fund
Municipals Fund EV Traditional Massachusetts Municipals Fund
EV Marathon National Municipals Fund EV Traditional Michigan Limited Maturity
EV Marathon New Jersey Limited Maturity Municipals Fund
Municipals Fund EV Traditional Michigan Municipals Fund
EV Marathon New Jersey Municipals Fund EV Traditional Minnesota Municipals Fund
EV Marathon New York Limited Maturity EV Traditional Mississippi Municipals Fund
Municipals Fund EV Traditional Missouri Municipals Fund
EV Marathon New York Municipals Fund Eaton Vance Municipal Bond Fund L.P.
EV Marathon North Carolina Municipals Fund EV Traditional National Limited Maturity
EV Marathon Ohio Limited Maturity Municipals Fund
Municipals Fund EV Traditional National Municipals Fund
EV Marathon Ohio Municipals Fund EV Traditional New Jersey Limited Maturity
EV Marathon Oregon Municipals Fund Municipals Fund
EV Marathon Pennsylvania Limited Maturity EV Traditional New Jersey Municipals Fund
Municipals Fund EV Traditional New York Limited Maturity
EV Marathon Pennsylvania Municipals Fund Municipals Fund
EV Marathon Rhode Island Municipals Fund EV Traditional New York Municipals Fund
EV Marathon Strategic Income Fund EV Traditional North Carolina Municipals Fund
EV Marathon South Carolina Municipals Fund EV Traditional Ohio Limited
EV Marathon Special Equities Fund Maturity Municipals Fund
EV Marathon Stock Fund EV Traditional Ohio Municipals Fund
</TABLE>
<PAGE>
<TABLE>
<S> <C>
EV Traditional Oregon Municipals Fund EV Traditional Virginia Municipals Fund
EV Traditional Pennsylvania Limited Maturity EV Traditional West Virginia Municipals Fund
Municipals Fund Eaton Vance Cash Management Fund
EV Traditional Pennsylvania Municipals Fund Eaton Vance Liquid Assets Trust
EV Traditional South Carolina Municipals Fund Eaton Vance Money Market Fund
EV Traditional Special Equities Fund Eaton Vance Prime Rate Reserves
EV Traditional Stock Fund Eaton Vance Short-Term Treasury Fund
EV Traditional Tennessee Municipals Fund Eaton Vance Tax Free Reserves
EV Traditional Texas Municipals Fund Massachusetts Municipal Bond Portfolio
EV Traditional Total Return Fund
</TABLE>
(B)
<TABLE>
<CAPTION>
(1) (2) (3)
NAME AND PRINCIPAL POSITIONS AND OFFICES POSITIONS AND OFFICE
BUSINESS ADDRESS WITH PRINCIPAL UNDERWRITER WITH REGISTRANT
------------------ -------------------------- --------------------
<S> <C> <C>
James B. Hawkes* Vice President and Director Vice President and Trustee
William M. Steul* Vice President and Director None
Wharton P. Whitaker* President and Director None
Chris Berg Vice President None
45 Windsor Lane
Palm Beach Gardens, Florida
H. Day Brigham, Jr.* Vice President None
Susan W. Bukima Vice President None
106 Princess Street
Alexandria, Virginia
Jeffrey W. Butterfield Vice President None
9378 Mirror Road
Columbus, Indiana
Mark A. Carlson* Vice President None
Jeffrey Chernoff Vice President None
115 Concourse West
Bright Waters, New York
James S. Comforti Vice President None
1859 Crest Drive
Encinitas, California
Mark P. Doman Vice President None
107 Pine Street
Philadelphia, Pennsylvania
Michael A. Foster Vice President None
850 Kelsey Court
Centerville, Ohio
William M. Gillen Vice President None
280 Rea Street
North Andover, Massachusetts
Hugh S. Gilmartin Vice President None
1531-184th Avenue, NE
Bellevue, Washington
Brian Jacobs* Senior Vice President None
Thomas J. Marcello Vice President None
553 Belleville Avenue
Glen Ridge, New Jersey
Timothy D. McCarthy Vice President None
9801 Germantown Pike
Lincoln Woods Apt. 416
Lafayette Hill, Pennsylvania
Morgan C. Mohrman* Senior Vice President None
James A. Naughton* Vice President None
James L. O'Connor* Vice President Treasurer
Thomas Otis* Secretary and Clerk Secretary
George D. Owen Vice President None
1911 Wildwood Court
Blue Springs, Missouri
F. Anthony Robinson Vice President None
510 Gravely Hill Road
Wakefield, Rhode Island
Benjamin A. Rowland, Jr.* Vice President, None
Treasurer and Director
John P. Rynne* Vice President None
George V.F. Schwab, Jr. Vice President None
9501 Hampton Oaks Lane
Charlotte, North Carolina
Cornelius J. Sullivan* Vice President None
David M. Thill Vice President None
126 Albert Drive
Lancaster, New York
Chris Volf Vice President None
6517 Thoroughbred Loop
Odessa, Florida
Sue Wilder Vice President None
141 East 89th Street
New York, New York
<FN>
- ----------
*Address is 24 Federal Street, Boston, MA 02110
</FN>
</TABLE>
(C) Not applicable
ITEM 30. LOCATION OF ACCOUNTS AND RECORDS
All applicable accounts, books and documents required to be maintained by
the Registrant by Section 31(a) of the Investment Company Act of 1940 and the
Rules promulgated thereunder are in the possession and custody of the
Registrant's custodian, Investors Bank & Trust Company, 89 South Street, Boston,
MA 02111 and its transfer agent, First Data Investor Services Group, 53 State
Street, Boston, MA 02104, with the exception of certain corporate documents and
portfolio trading documents which are in the possession and custody of Eaton
Vance Management, 24 Federal Street, Boston, MA 02110. Certain corporate
documents of High Income Portfolio (the "Portfolio") are also maintained by IBT
Trust Company (Cayman), Ltd., The Bank of Nova Scotia Building, P.O. Box 501,
George Town, Grand Cayman, Cayman Islands, British West Indies, and certain
investor account, Portfolio and the Registrant's accounting records are held by
IBT Fund Services (Canada) Inc., 1 First Canadian Place, King Street West, Suite
2800, P.O. Box 231, Toronto, Ontario, Canada M5X 1C8. Registrant is informed
that all applicable accounts, books and documents required to be maintained by
registered investment advisers are in the custody and possession of Eaton Vance
Management.
ITEM 31. MANAGEMENT SERVICES
Not applicable
ITEM 32. UNDERTAKINGS
The Registrant undertakes to file a Post-Effective Amendment on behalf of EV
Marathon Tax-Managed Growth Fund and EV Traditional Tax-Managed Growth Fund,
using financial statements which need not be certified, within four to six
months from the effective date of Post-Effective Amendment No. 26.
The Registrant undertakes to furnish to each person to whom a prospectus is
delivered a copy of the latest annual report to shareholders, upon request and
without charge.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, and the
Investment Company Act of 1940, the Registrant certifies that it meets all of
the requirements for effectiveness of this Amendment to its Registration
Statement pursuant to Rule 485(b) under the Securities Act of 1933 and has duly
caused this Post-Effective Amendment to its Registration Statement to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of
Boston, and the Commonwealth of Massachusetts, on the 26th day of February,
1996.
EATON VANCE MUTUAL FUNDS TRUST
By: /s/ M. DOZIER GARDNER
-------------------------------------
M. DOZIER GARDNER, President
Pursuant to the requirements of the Securities Act of 1933, this Post-
Effective Amendment to the Registration Statement has been signed below by the
following persons in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
President, Principal
Executive Officer and
/s/ M. DOZIER GARDNER Trustee February 26, 1996
- ------------------------------------
M. DOZIER GARDNER
Treasurer and Principal
Financial and Accounting
/s/ JAMES L. O'CONNOR Officer February 26, 1996
- ------------------------------------
JAMES L. O'CONNOR
/s/ JAMES B. HAWKES Vice President, Trustee February 26, 1996
- ------------------------------------
JAMES B. HAWKES
DONALD R. DWIGHT* Trustee February 26, 1996
- ------------------------------------
DONALD R. DWIGHT
SAMUEL L. HAYES, III* Trustee February 26, 1996
- ------------------------------------
SAMUEL L. HAYES, III
NORTON H. REAMER* Trustee February 26, 1996
- ------------------------------------
NORTON H. REAMER
JOHN L. THORNDIKE* Trustee February 26, 1996
- ------------------------------------
JOHN L. THORNDIKE
JACK L. TREYNOR* Trustee February 26, 1996
- ------------------------------------
JACK L. TREYNOR
*By: /s/ H. DAY BRIGHAM, JR.
- ------------------------------------
As Attorney-in-fact
</TABLE>
<PAGE>
SIGNATURES
Strategic Income Portfolio has duly caused this Amendment to the
Registration Statement on Form N-1A of Eaton Vance Mutual Funds Trust (File No.
2-90946) to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Boston, and the Commonwealth of Massachusetts, on the
26th day of February, 1996.
STRATEGIC INCOME PORTFOLIO
By: /s/ JAMES B. HAWKES
-------------------------------------
JAMES B. HAWKES, President
This Amendment to the Registration Statement on Form N-1A of Eaton Vance
Mutual Funds Trust (File No. 2-90946) has been signed below by the following
persons in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
Trustee, President and
Principal Executive
/s/ JAMES B. HAWKES Officer February 26, 1996
- ------------------------------------
JAMES B. HAWKES
Treasurer and Principal
Financial and Accounting
/s/ JAMES L. O'CONNOR Officer February 26, 1996
- ------------------------------------
JAMES L. O'CONNOR
DONALD R. DWIGHT* Trustee February 26, 1996
- ------------------------------------
DONALD R. DWIGHT
SAMUEL L. HAYES, III* Trustee February 26, 1996
- ------------------------------------
SAMUEL L. HAYES, III
NORTON H. REAMER* Trustee February 26, 1996
- ------------------------------------
NORTON H. REAMER
JOHN L. THORNDIKE* Trustee February 26, 1996
- ------------------------------------
JOHN L. THORNDIKE
JACK L. TREYNOR* Trustee February 26, 1996
- ------------------------------------
JACK L. TREYNOR
*By: /s/ H. DAY BRIGHAM, JR.
- ------------------------------------
As Attorney-in-fact
</TABLE>
<PAGE>
EXHIBIT INDEX
PAGE IN SEQUENTIAL
EXHIBIT NO. DESCRIPTION NUMBERING SYSTEM
- ----------- ----------- ----------------
(8)(b) Amendment to Custodian Agreement with Investors
Bank & Trust Company dated October 23, 1995.
(9)(a)(1) Amended Schedule A dated October 23, 1995 to
the Amended Administrative Services Agreement
(filed as Exhibit (9)(a)).
(10) Opinion of Counsel.
(11)(a) Consent of Independent Accountants for EV
Classic Strategic Income Fund dated
February 26, 1996.
(11)(b) Consent of Independent Accountants for EV
Marathon Strategic Income Fund dated
February 26, 1996.
(16) Schedules for Computation of Performance
Quotations.
EXHIBIT 8(b)
AMENDMENT TO
MASTER CUSTODIAN AGREEMENT
BETWEEN
EATON VANCE GROUP OF FUNDS
AND
INVESTORS BANK & TRUST COMPANY
This Amendment, dated as of October 23, 1995, is made to the MASTER
CUSTODIAN AGREEMENT (the "Agreement") between each investment company for which
Eaton Vance Management acts as investment adviser or administrator which has
adopted the Agreement (the "Funds") and Investors Bank & Trust Company (the
"Custodian") pursuant to Section 10 of the Agreement.
The Funds and the Custodian agree that Section 10 of the Agreement
shall, as of October 23, 1995, be amended to read as follows:
Unless otherwise defined herein, terms which are defined in the
Agreement and used herein are so used as so defined.
10. Effective Period, Termination and Amendment; Successor Custodian
This Agreement shall become effective as of its execution, shall
continue in full force and effect until terminated by either party after August
31, 2000 by an instrument in writing delivered or mailed, postage prepaid to the
other party, such termination to take effect not sooner than sixty (60) days
after the date of such delivery or mailing; provided, that the Fund may at any
time by action of its Board, (i) substitute another bank or trust company for
the Custodian by giving notice as described above to the Custodian in the event
the Custodian assigns this Agreement to another party without consent of the
noninterested Trustees of the Funds, or (ii) immediately terminate this
Agreement in the event of the appointment of a conservator or receiver for the
Custodian by the Federal Deposit Insurance Corporation or by the Banking
Commissioner of The Commonwealth of Massachusetts or upon the happening of a
like event at the direction of an appropriate regulatory agency or court of
competent jurisdiction. Upon termination of the Agreement, the Fund shall pay to
the Custodian such compensation as may be due as of the date of such termination
(and shall likewise reimburse the Custodian for its costs, expenses and
disbursements).
This Agreement may be amended at any time by the written agreement of
the parties hereto. If a majority of the non-interested trustees of any of the
Funds determines that the performance of the Custodian has been unsatisfactory
or adverse to the interests of shareholders of any Fund or Funds or that the
terms of the Agreement are no longer consistent with publicly available industry
standards, then the Fund or Funds shall give written notice to the Custodian of
such determination and the Custodian shall have 60 days to (1) correct such
performance to the satisfaction of the non-interested trustees or (2)
renegotiate terms which are satisfactory to the non-interested trustees of the
Funds. If the conditions of the preceding sentence are not met then the Fund or
Funds may terminate this Agreement on sixty (60) days written notice.
The Board of the Fund shall, forthwith, upon giving or receiving notice
of termination of this Agreement, appoint as successor custodian, a bank or
trust company having the qualifications required by the Investment Company Act
of 1940 and the Rules thereunder. The Bank, as Custodian, Agent or otherwise,
shall, upon termination of the Agreement, deliver to such successor custodian,
all securities then held hereunder and all funds or other properties of the Fund
deposited with or held by the Bank hereunder and all books of account and
records kept by the Bank pursuant to this Agreement, and all documents held by
the Bank relative thereto. In the event that no written order designating a
successor custodian shall have been delivered to the Bank on or before the date
when such termination shall become effective, then the Bank shall not deliver
the securities, funds and other properties of the Fund to the Fund but shall
have the right to deliver to a bank or trust company doing business in Boston,
Massachusetts of its own selection meeting the above required qualifications,
all funds, securities and properties of the Fund held by or deposited with the
Bank, and all books of account and records kept by the Bank pursuant to this
Agreement, and all documents held by the Bank relative thereto. Thereafter such
bank or trust company shall be the successor of the Custodian under this
Agreement.
Except as expressly provided herein, the Agreement shall remain
unchanged and in full force and effect.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
executed by their duly authorized officers, as of the day and year first above
written.
CAPITAL EXCHANGE FUND, INC. EATON VANCE MUNICIPALS TRUST II
DEPOSITORS FUND OF BOSTON, INC. EATON VANCE MUTUAL FUNDS TRUST
DIVERSIFICATION FUND, INC. EATON VANCE PRIME RATE RESERVES
EATON VANCE EQUITY-INCOME TRUST EATON VANCE SPECIAL INVESTMENT TRUST
EATON VANCE GROWTH TRUST EV CLASSIC SENIOR FLOATING-RATE FUND
EATON VANCE INVESTMENT FUND, INC. FIDUCIARY EXCHANGE FUND, INC.
EATON VANCE INVESTMENT TRUST SECOND FIDUCIARY EXCHANGE FUND, INC.
EATON VANCE MUNICIPAL BOND FUND L.P. THE EXCHANGE FUND OF BOSTON, INC.
EATON VANCE MUNICIPALS TRUST VANCE, SANDERS EXCHANGE FUND
By: /s/ James L. O'Connor
-----------------------------
Treasurer
INVESTORS BANK & TRUST COMPANY
By: /s/ Michael Rogers
-----------------------------
-2- a:\custamend.fnd
<PAGE>
EXHIBIT 9(a)(1)
AMENDED SCHEDULE A
EATON VANCE MUTUAL FUNDS TRUST
AMENDED ADMINISTRATIVE SERVICES AGREEMENT
DATED OCTOBER 23, 1995
Eaton Vance Cash Management Fund
Eaton Vance Liquid Assets Fund
Eaton Vance Money Market Fund
EV Classic Government Obligations Fund
EV Marathon Government Obligations Fund
EV Traditional Government Obligations Fund
EV Classic High Income Fund
EV Marathon High Income Fund
EV Classic Strategic Income Fund
EV Marathon Strategic Income Fund
EV Marathon Tax-Managed Growth Fund
EV Traditional Tax-Managed Growth Fund
EATON VANCE MANAGEMENT
- -------------------------------------------------------------------------------
24 Federal Street
Boston, MA 02110
(617) 482-8260
EXHIBIT 10
February 27, 1996
Eaton Vance Mutual Funds Trust
24 Federal Street
Boston, MA 02110
Gentlemen:
Eaton Vance Mutual Funds Trust (the "Trust") is a Massachusetts
business trust created under a Declaration of Trust dated May 7, 1984 executed
and delivered in Boston, Massachusetts and currently operating under an Amended
and Restated Declaration of Trust dated August 17, 1993 (the "Declaration of
Trust"). I am of the opinion that all legal requirements have been complied with
in the creation of the Trust, and that said Declaration of Trust is legal and
valid.
The Trustees of the Trust have the powers set forth in the Declaration
of Trust, subject to the terms, provisions and conditions therein provided. As
provided in the Declaration of Trust, the interest of shareholders is divided
into shares of beneficial interest without par value, and the number of shares
that may be issued is unlimited. The Trustees may from time to time issue and
sell or cause to be issued and sold shares for cash or for property. All such
shares, when so issued, shall be fully paid and nonassessable by the Trust.
By votes duly adopted, the Trustees of the Trust have authorized the
issuance of shares of beneficial interest, without par value. The Trust intends
to register under the Securities Act of 1933, as amended, 9,665,644 of its
shares of beneficial interest with Post-Effective Amendment No. 27 to its
Registration Statement on Form N-1A (the "Amendment") with the Securities and
Exchange Commission.
I have examined originals, or copies, certified or otherwise identified
to my satisfaction, of such certificates, records and other documents as I have
deemed necessary or appropriate for the purpose of this opinion, including the
Declaration of Trust and votes adopted by the Trustees. Based upon the
foregoing, and with respect to Massachusetts law (other than the Massachusetts
Uniform Securities Act), only to the extent that Massachusetts law may be
applicable and without reference to the laws of the other several states or of
the United States of America, I am of the opinion that under existing law:
1. The Trust is a trust with transferable shares of beneficial interest
organized in compliance with the laws of The Commonwealth of Massachusetts, and
the Declaration of Trust is legal and valid under the laws of The Commonwealth
of Massachusetts.
<PAGE>
Eaton Vance Mutual Funds Trust
February 27, 1996
Page 2
2. Shares of beneficial interest registered by the Amendment may be
legally and validly issued in accordance with the Declaration of Trust upon
receipt by the Trust of payment in compliance with the Declaration of Trust and,
when so issued and sold, will be fully paid and nonassessable by the Trust.
I am a member of the Massachusetts and New York bars, and I hereby
consent to the filing of this opinion with the Securities and Exchange
Commission as an exhibit thereto.
Very truly yours,
/s/ H. Day Brigham, Jr.
--------------------------------------
H. Day Brigham, Jr., Esq.
Vice President, Eaton Vance Management
HDB/EGW/drb
b:\mutfnds.opn
EXHIBIT 11(a)
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the use in this Post-Effective Amendment No. 27 to the
Registration Statement of Eaton Vance Mutual Funds Trust (1933 Act File No.
2-90946) on behalf of EV Classic Strategic Income Fund of our report dated
December 1, 1995, relating to EV Classic Strategic Income Fund, and of our
report dated December 1, 1995, relating to Strategic Income Portfolio, which
reports are included in the Annual Report to Shareholders for the year ended
October 31, 1995, which is incorporated by reference in the Statement of
Additional Information.
We also consent to the reference to our Firm under the heading "The Fund's
Financial Highlights" in the Prospectus and under the captions "Financial
Statements" and "Independent Accountants" in the Statement of Additional
Information of the Registration Statement.
COOPERS & LYBRAND L.L.P.
February 26, 1996
Boston, Massachusetts
EXHIBIT 11(b)
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the use in this Post-Effective Amendment No. 27 to the
Registration Statement of Eaton Vance Mutual Funds Trust (1933 Act File No.
2-90946) on behalf of EV Marathon Strategic Income Fund of our report dated
December 1, 1995, relating to EV Marathon Strategic Income Fund, and of our
report dated December 1, 1995, relating to Strategic Income Portfolio, which
reports are included in the Annual Report to Shareholders for the year ended
October 31, 1995, which is incorporated by reference in the Statement of
Additional Information.
We also consent to the reference to our Firm under the heading "The Fund's
Financial Highlights" in the Prospectus and under the captions "Financial
Statements" and "Independent Accountants" in the Statement of Additional
Information of the Registration Statement.
COOPERS & LYBRAND L.L.P.
February 26, 1996
Boston, Massachusetts
EXHIBIT 16
INVESTMENT PERFORMANCE -- EV CLASSIC STRATEGIC INCOME FUND
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 period from November 26, 1990 through October 31, 1995 and for the 1 year
period ended October 31, 1995. Total return for the period prior to the Fund's
commencement of operations is for the Portfolio (or its predecessor) adjusted
for the Fund's sales charge.
<TABLE>
<CAPTION>
VALUE OF A $1,000 INVESTMENT
VALUE OF VALUE OF
INVESTMENT INVESTMENT TOTAL RETURN TOTAL RETURN
INVESTMENT INVESTMENT BEFORE CDSC AFTER CDSC BEFORE DEDUCTING CDSC AFTER DEDUCTING CDSC
PERIOD DATE ON 10/31/95 ON 10/31/95 CUMULATIVE ANNUALIZED CUMULATIVE ANNUALIZED
- ---------- ----------- ------------ ------------ ---------- ----------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
LIFE OF
FUND 11/26/90 $1,293.66 $1,293.66 29.37% 5.36% 29.37% 5.36%
1 YEAR ENDED
10/31/95 10/31/94 $1,162.05 $1,152.05 16.21% 16.21% 15.21% 15.21%
</TABLE>
Average annual total return is calculated using the following formula:
n
P(1+T) = ERV
where P = an initial investment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value of $1,000 initial
investment at the end of the period after
deducting the CDSC*
Cumulative total return is calculated using the following formula:
T = ( ERV / P ) - 1
where T = cumulative total return including the
maximum sales charge
ERV = ending redeemable value of $1,000 initial
investment at the end of the period after
deducting the CDSC **
P = an initial investment of $1,000
*The average annual total return not including the CDSC is calculated based
on the ending investment value before deducting the CDSC.
**The cumulative total return not including the CDSC is calculated based on
the ending investment value before deducting the CDSC.
CALCULATION OF DISTRIBUTION RATE AND EFFECTIVE DISTRIBUTION RATE
The distribution rate as of 10/31/95 was 5.96% and was calculated by annualizing
the most recent dividend distribution ($0.055479480) and dividing the result by
the current maximum offering price ($11.33).
The effective distribution rate as of 10/31/95 was 6.12% and was calculated by
dividing the distribtion rate by the compounding period (365/30), and then
compounding the result by adding 1, raising the sum to a power equal to the
compounding period, and subtracting 1 from the result according to the following
formula:
(365/30)
EFFECTIVE DISTRIBUTION RATE = [(DISTRIBUTION RATE/(365/30))+1] - 1
<PAGE>
EXHIBIT 16
EV CLASSIC STRATEGIC INCOME FUND
CALCULATION OF YIELD
For the 30 days ended 10/31/95:
Interest Income Earned: $99
Plus
----------
Equal Gross Income: $99
Minus Expenses: $8
----------
Equal Net Investment Income: $91
Divided by Average daily number of shares
outstanding that were entitled
to receive dividends: 1,006
----------
Equal Net Investment Income Earned Per Share: $0.0903
Maximum Offering Price Per Share 10/31/95: $11.33
30 Day Yield*: 9.75%
*Yield is calculated on a bond equivalent rate as follows:
6
2[(($0.0903/$11.33)+1) -1]
<PAGE>
EXHIBIT 16
INVESTMENT PERFORMANCE -- EV MARATHON STRATEGIC INCOME FUND
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 period from November 26, 1990 through October 31, 1995 and for the 1 year
period ended October 31, 1995.
<TABLE>
<CAPTION>
VALUE OF A $1,000 INVESTMENT
VALUE OF VALUE OF
INVESTMENT INVESTMENT TOTAL RETURN TOTAL RETURN
INVESTMENT INVESTMENT BEFORE CDSC AFTER CDSC BEFORE DEDUCTING CDSC AFTER DEDUCTING CDSC
PERIOD DATE ON 10/31/95 ON 10/31/95 CUMULATIVE ANNUALIZED CUMULATIVE ANNUALIZED
- ---------- ----------- ------------ ------------ ---------- ---------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
LIFE OF
FUND 11/26/90 $1,239.44 $1,239.44 23.94% 4.45% 23.94% 4.45%
1 YEAR ENDED
10/31/95 10/31/94 $1,113.43 $1,083.43 11.34% 11.34% 8.34% 8.34%
</TABLE>
Average annual total return is calculated using the following formula:
n
P(1+T) = ERV
where P = an initial investment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value of $1,000 initial
investment at the end of the period after
deducting the CDSC *
Cumulative total return is calculated using the following formula:
T = ( ERV / P ) - 1
where T = cumulative total return including the
maximum sales charge
ERV = ending redeemable value of $1,000 initial
investment at the end of the period after
deducting the CDSC **
P = an initial investment of $1,000
* The average annual total return not including the CDSC is calculated based
on the ending investment value before deducting the CDSC.
** The cumulative total return not including the CDSC is calculated based on
the ending investment value before deducting the CDSC.
CALCULATION OF DISTRIBUTION RATE AND EFFECTIVE DISTRIBUTION RATE
The distribution rate as of 10/31/95 was 8.03% and was calculated by annualizing
the most recent dividend distribution ($0.057965753) and dividing the result by
the current maximum offering price ($8.50).
The effective distribution rate as of 10/31/95 was 8.33% and was calculated by
dividing the distribtion rate by the compounding period (365/31), and then
compounding the result by adding 1, raising the sum to a power equal to the
compounding period, and subtracting 1 from the result according to the following
formula:
(365/31)
EFFECTIVE DISTRIBUTION RATE = [(DISTRIBUTION RATE/(365/31))+1] - 1
<PAGE>
EXHIBIT 16
EV MARATHON STRATEGIC INCOME FUND
CALCULATION OF YIELD
For the 30 days ended 10/31/95:
Interest Income Earned: $1,349,855
Plus
----------
Equal Gross Income: $1,349,855
Minus Expenses: $265,899
----------
Equal Net Investment Income: $1,083,956
Divided by Average daily number of shares
outstanding that were entitled
to receive dividends: 18,054,043
----------
Equal Net Investment Income Earned Per Share: $0.0600
Maximum Offering Price Per Share 10/31/95: $8.50
30 Day Yield*: 8.63%
* Yield is calculated on a bond equivalent rate as follows:
6
2[(($0.0600/$8.50)+1) -1]
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000745463
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WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
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