<PAGE>
INVESTMENT ADVISER OF
GOVERNMENT OBLIGATIONS PORTFOLIO
Boston Management and Research
24 Federal Street
Boston, MA 02110
ADMINISTRATOR OF
EV CLASSIC
GOVERNMENT OBLIGATIONS FUND
Eaton Vance Management
24 Federal Street
Boston, MA 02110
PRINCIPAL UNDERWRITER
Eaton Vance Distributors, Inc.
24 Federal Street
Boston, MA 02110
(617) 482-8260
CUSTODIAN
Investors Bank & Trust Company
89 South Street
P.O. Box 1537
Boston, MA 02205-1537
TRANSFER AGENT
First Data Investor Services Group, Inc.
BOS725
P.O. Box 1559
Boston, MA 02104
INDEPENDENT ACCOUNTANTS
Coopers & Lybrand L.L.P.
One Post Office Square
Boston, MA 02109
This report must be preceded or accompanied by a current prospectus which
contains more complete information on the Fund, including its distribution plan,
sales charges and expenses. Please read the prospectus carefully before you
invest or send money.
EV CLASSIC GOVERNMENT
OBLIGATIONS FUND
24 FEDERAL STREET
BOSTON, MA 02110 C-GOSRC-2/96
[logo]
EV Classic
Government Obligations
Fund
Annual Shareholder Report
December 31, 1995
<PAGE>
To Shareholders
EV Classic Government Obligations Fund had a total return of 12.9% for the year
ended December 31, 1995. The return was the result of an increase in net asset
value per share from $8.98 on December 31, 1994, to $9.49 on December 31, 1995,
and the reinvestment of $0.619 per share in income dividends. The Fund's return
does not include the effect of the Fund's 1% contingent deferred sales charge on
redeeming shareholders.
For comparison, the Lehman Intermediate Government Index - an unmanaged index of
intermediate-term U.S. government securities - had a total return of 14.4%
during the same period.
Based on the Fund's most recent dividend and its net asset value per share of
$9.49 on December 31, 1995, the Fund's annualized distribution rate was 6.5%.
In 1995, it appeared that the Federal Reserve had achieved its long-sought goal
of a "soft landing." While not pointing to a recession, most economic indicators
suggested a slowing economy. As evidence of this slowdown, fourth quarter GDP
grew at a 0.9% pace, according to preliminary figures. That was significantly
weaker than the robust 5.1% pace set in the fourth quarter a year earlier.
Most importantly for fixed income investors, inflation appeared well under
control, growing at a 2.5% rate for the year. In response to the encouraging
inflation outlook, the Fed elected to lower its benchmark Fed funds rate in
July, and followed that move with another reduction in December. The
fixed-income markets cheered the easing of monetary policy and rallied
throughout 1995. Yields for five-year Treasury notes declined from 7.8% at the
end of 1994 to 5.6% on December 31, 1995.
While the 1995 market rally was impressive, toward the end of the year investors
were looking anxiously at the increasingly contentious budget debate. The
primary focus of the fixed-income markets will likely continue to be the economy
and the inflation level. However, with the budget stalemate extending into 1996,
negotiations between the White House and Congress will bear close scrutiny.
Historically, the mortgage securities market has represented a sound investment
choice for conservative, income-oriented investors. While it is impossible to
predict future market trends, we believe that the mortgage securities market
will continue to offer good investment value. Government Obligations Portfolio
will maintain its focus on the seasoned sector of this vast market, with its
attractive yields and relatively stable cash flows.
[Photo of M. Dozier Gardner]
Sincerely,
/s/ M. Dozier Gardner
M. Dozier Gardner
President
February 20, 1996
<PAGE>
Management Report
An Interview with Susan Schiff, Portfolio Manager of Government Obligations
Portfolio.
Q. SUSAN, HOW WOULD YOU DESCRIBE THE MORTGAGE SECURITIES MARKET IN 1995?
A. 1995 was an excellent year for the bond market. Moderate economic growth,
low inflation, and a gradual easing by the Federal Reserve all provided a
favorable backdrop, which sustained a rally throughout the year. While
mortgage-backed securities (MBS) participated in the rally, they nonetheless
underperformed the Treasury market. Generic MBS spreads widened during the
period from around 80 basis points (0.8%) over 5-year Treasuries at the
beginning of the year to almost 160 basis points (1.6%) at year-end. Because
mortgage-backed securities represent the largest portion of our investments,
that constrained the Fund's performance somewhat.
Q. HOW WOULD YOU ASSESS THE FUND'S PERFORMANCE DURING THE YEAR?
A. The Fund's performance was fairly consistent with our expectations, posting
a very respectable total return. However, in the midst of the strong bond
market rally, it's not surprising that the Fund underperformed some vehicles
with longer average maturities. But given its duration - 3.3 years at
December 31 - the Fund performed much as we would expect.
As I've indicated in past reports, mortgage securities typically lag the
Treasury market in a bullish interest rate climate because of the homeowner
prepayment option. This pattern has remained consistent through repeated
interest rate cycles, and this cycle has been no different.
Q. WHAT CAUSED MORTGAGE SPREADS TO WIDEN?
A. The most prominent reason was the decline in interest rates and the
resulting rise in prepayment rates on generic mortgage securities. As
prepayment rates rise, investors typically become concerned because they
will be forced to reinvest at less attractive yield levels.
[Photo of Susan Schiff]
SUSAN SCHIFF
------------
Q. DID PREPAYMENT RATES RISE SIGNIFICANTLY IN 1995?
A. Prepayment rates began to increase gradually after the Federal Reserve
lowered interest rates in February, and they gathered further momentum later
in the year. That was particularly true of generic mortgages, where the rate
ranged from 6% to over 25%, climbing in response to declining interest
rates. However, prepayment rates for seasoned mortgage securities, the
primary investment universe of the Portfolio, remained very stable. For
example, prepayment rates on the Fund's seasoned securities remained in a
narrow 11%-to-15% range during 1995. The more stable prepayment rate for
seasoned mortgages is characteristic of that sector of the market and
remains a primary attraction for investors in mortgage-backed securities.
Q. HOW HAVE YOU STRUCTURED THE PORTFOLIO IN RECENT MONTHS?
A. As I indicated earlier, our emphasis remains on the seasoned sector of the
mortgage-backed securities (MBS) market. At December 31, the Portfolio
consisted of around 50% seasoned low-coupon MBS; 21% seasoned high-coupon
MBS; 14% U.S. Treasuries; and 4.5% collateralized mortgage obligations.
The low-coupon issues have coupons predominantly in the 4%-to-8% range and
are attractive for several reasons: first, because these mortgages were
typically originated in the late 1960s and early 1970s at rates near or
below current market rates, homeowners have relatively little incentive to
refinance; second, the resulting consistent prepayment rates provide
investors with relatively stable cash flows; finally, these securities
provide a yield advantage of 70-to-120 basis points over Treasuries with
comparable maturities, according to Bloomberg Financial.
Q.WHAT IS YOUR OUTLOOK FOR THE MORTGAGE SECURITIES MARKET IN 1996?
A. The economy appears to be growing at a moderate pace, which could presage
relatively stable interest rates in coming months. Given the Fed's
continuing vigilance over inflation, I believe it's unlikely that rates will
move dramatically lower. Low inflation should help preserve bond values,
while continuing economic growth should promote a stable credit environment.
Naturally, past trends do not guarantee future performance. But, in my view,
a relatively stable interest rate market should provide a good opportunity
for conservative investors in the mortgage security market.
- --------------------------------------------------------------------------------
THE PORTFOLIO'S SEASONED, MORTGAGE-BACKED SECURITIES HAVE HELPED CONTRIBUTE TO
ITS RELATIVE SHARE PRICE STABILITY.
The purple line represents the annualized monthly principal prepayment rates of
the Portfolio's seasoned, mortgage-backed securities.
The black line represents the annualized monthly principal prepayment rates of
generic 30-year FNMA 9% mortgage-backed securities.
Source: Lehman Brothers; Bloomberg, L.P.; Eaton Vance Management
- -------------------------------------------
Date Generic Seasoned
- ---- ------- --------
Mar-91 5 13.4
Apr-91 6.1 12.8
May-91 7 15.1
Jun-91 6.7 16.2
Jul-91 6.6 16.5
Aug-91 6.2 16.1
Sep-91 5.5 15.2
Oct-91 6.3 15.5
Nov-91 7.8 14.1
Dec-91 10.3 15.4
Jan-92 13.2 15.7
Feb-92 19.7 18.1
Mar-92 26.5 22.4
Apr-92 22.8 22.5
May-92 18.3 22.2
Jun-92 18.1 19.5
Jul-92 19.2 14.2
Aug-92 31.1 16.5
Sep-92 46.9 14.1
Oct-92 52.4 17.3
Nov-92 50.2 17.8
Dec-92 45.5 18.5
Jan-93 29.5 18.1
Feb-93 25.3 15.5
Mar-93 42.3 17.2
Apr-93 58.3 18.2
May-93 61.9 18.7
Jun-93 63 21.4
Jul-93 54.3 32.4
Aug-93 56 21.9
Sep-93 57.2 24.6
Oct-93 58 21.2
Nov-93 62.2 22.3
Dec-93 62.7 27.8
Jan-94 50.9 23.9
Feb-94 43.2 21.1
Mar-94 49.7 23.5
Apr-94 40.7 23.4
May-94 32 23.3
Jun-94 25 20.5
Jul-94 19.5 17.2
Aug-94 20.1 15.9
Sep-94 17.5 14.3
Oct-94 14.1 14.5
Nov-94 12.1 11.8
Dec-94 10.8 13.7
Jan-95 7 10.5
Feb-95 6.3 10.6
Mar-95 7.7 11.1
Apr-95 8 12.4
May-95 13.9 12.7
Jun-95 15.7 12.8
Jul-95 21 13.5
Aug-95 24.6 15.8
Sep-95 19.8 14.4
Oct-95 21.1 14.7
Nov-95 21.2 14.5
Dec-95 23.5 13.2
- -------------------------------------------
This chart compares the prepayment rates of the Fund's seasoned FNMA securities
with those of unseasoned generic FNMA securities. The data starts at the Fund's
inception in March 1991 and extends through June 1995.
The Headline reads: "The Portfolio's Seasoned Mortgage Securities Have Helped
Contribute to its Share Price Stability."
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Comparison of Change in Value of a $10,000 Investment in EV Classic Government
Obligations Fund, Lehman Brothers Intermediate Government Bond Index and the
Lipper Intermediate U.S. Government Funds Average
From November 30, 1993 through December 31, 1995
- ------------------------------------------------
AVG. ANNUAL RETURN 1 YEAR Life of Fund*
With CDSC 11.9% 4.7%
Without CDSC 12.9% 4.7%
- ------------------------------------------------
- ------------------------------------------------------------------------
Date C. Gov't Lipper Lehman
- ---- -------- ------ ------
Nov-93+ $10,000 $10,000 $10,000
Dec-93 10,064 10,045 10,041
Jan-94 10,155 10,158 10,140
Feb-94 10,060 9,983 10,001
Mar-94 9,910 9,774 9,885
Apr-94 9,808 9,677 9,791
May-94 9,798 9,663 9,798
Jun-94 9,786 9,644 9,800
Jul-94 9,891 9,786 9,929
Aug-94 9,924 9,798 9,957
Sep-94 9,818 9,675 9,875
Oct-94 9,832 9,654 9,877
Nov-94 9,775 9,616 9,832
Dec-94 9,808 0,662 9,865
Jan-95 9,956 9,823 10,026
Feb-95 10,144 10,030 10,219
Mar-95 10,197 10,090 10,275
Apr-95 10,303 10,210 10,394
May-95 10,559 10,556 10,688
Jun-95 10,606 10,617 10,756
Jul-95 10,577 10,590 10,761
Aug-95 10,691 10,700 10,851
Sep-95 10,750 10,784 10,923
Oct-95 10,891 10,913 11,043
Nov-95 10,984 11,059 11,178
Dec-95 11,077 11,189 11,289
- ------------------------------------------------------------------------
Past performance is not indicative of future results. Investment returns and
principal will fluctuate so that an investor's shares, when redeemed, may be
worth more or less than their original cost. Source: Towers Data Systems,
Bethesda, MD.
* Investment operations commenced on 11/1/93.
+ Index information is available only at month-end; therefore, the line
comparison begins at the next month-end following the commencement of the
Fund's investment operations.
- --------------------------------------------------------------------------------
FUND PERFORMANCE
In accordance with guidelines issued by the Securities and Exchange Commission,
we are including a performance chart that compares your Fund's total return with
that of a broad-based market index. The lines on the chart represent the total
returns of $10,000 hypothetical investments in the Fund and the unmanaged Lehman
Brothers Intermediate Government Bond Index.
THE TOTAL RETURN FIGURES
The purple line on the chart represents the Fund's performance. The Fund's total
return figure reflects fund expenses and portfolio transaction costs, and
assumes the reinvestment of income dividends and capital gain distributions.
The dotted line represents the performance of the Lehman Brothers Intermediate
Government Bond Index, a broad-based, widely recognized, unmanaged index of U.S.
government bonds. The Index's total return does not reflect any commissions or
expenses that would be incurred if an investor individually purchased or sold
the securities represented in the Index.
The dashed line represents the performance of the Lipper Intermediate U.S.
Government Funds average. Its performance is included to indicate how the Fund
has performed relative to its competitive universe. However, the average total
rate of return does not include any commissions that would be incurred if an
investor individually purchased or sold the Funds represented in the Index.
<PAGE>
--------------------------------------
EV CLASSIC GOVERNMENT OBLIGATIONS FUND
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
- ------------------------------------------------------------------------------
December 31, 1995
- ------------------------------------------------------------------------------
ASSETS:
Investment in Government Obligations Portfolio
(Portfolio), at value (Note 1A) $42,330,679
Receivable for Fund shares sold 148,113
Deferred organization expenses (Note 1D) 13,246
-----------
Total assets $42,492,038
LIABILITIES:
Dividends payable $ 68,547
Payable for Fund shares redeemed 364,255
Payable to affiliates -
Trustees' fees 43
Accrued expenses 21,255
--------
Total liabilities 454,100
-----------
NET ASSETS for 4,429,550 shares of beneficial interest
outstanding $42,037,938
===========
SOURCES OF NET ASSETS:
Paid-in capital $44,409,996
Accumulated net realized loss on investments and
financial futures transactions from Portfolio
(computed on the basis of identified cost) (1,974,462)
Unrealized depreciation of investments from
Portfolio (computed on the basis of identified cost) (329,049)
Accumulated distributions in excess of net
investment income (68,547)
-----------
Total net assets $42,037,938
===========
NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE
(NOTE 7) ($42,037,938 / 4,429,550 shares of
beneficial interest) $9.49
=====
The accompanying notes are an integral part of the financial statements
<PAGE>
STATEMENT OF OPERATIONS
- ------------------------------------------------------------------------------
For the Year Ended December 31, 1995
- ------------------------------------------------------------------------------
INVESTMENT INCOME (NOTE 1B):
Interest income allocated from Portfolio $ 4,008,440
Expenses allocated from Portfolio (655,372)
-----------
Total investment income $ 3,353,068
Expenses --
Compensation of Trustees not members of the
Administrator's organization (Note 5) $ 1,840
Custodian fees (Note 5) 5,083
Distribution and service fees (Note 6) 426,361
Transfer and dividend disbursing agent fees 37,029
Printing and postage 46,101
Legal and accounting services 12,339
Registration costs 16,977
Amortization of organization expenses (Note 1D) 4,664
---------
Total expenses 550,394
-----------
Net investment income $ 2,802,674
REALIZED AND UNREALIZED GAIN (LOSS) FROM PORTFOLIO:
Net realized loss (identified cost basis) --
Investment transactions $(736,935)
Financial futures contracts (623,129)
---------
Net realized loss on investments $(1,360,064)
Change in unrealized appreciation of investments 3,760,045
-----------
Net realized and unrealized gain on
investments from Portfolio 2,399,981
-----------
Net increase in net assets resulting from operations $ 5,202,655
===========
The accompanying notes are an integral part of the financial statements
<PAGE>
<TABLE>
<CAPTION>
STATEMENTS OF CHANGES IN NET ASSETS
- ----------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
-----------------------------
1995 1994
----------- -----------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
From operations --
Net investment income $ 2,802,674 $ 3,218,202
Net investment loss from Portfolio (1,360,064) (730,375)
Change in unrealized appreciation (depreciation)
from Portfolio 3,760,045 (4,054,551)
----------- -----------
Net increase (decrease) in net assets from operations $ 5,202,655 $(1,566,724)
----------- -----------
Distributions to shareholders --
From net investment income $(2,802,674) $(3,218,202)
In excess of net investment income (44,888) (430,267)
----------- -----------
Total distributions to shareholders $(2,847,562) $(3,648,469)
----------- -----------
Net increase in net assets from Fund share transactions
(Note 3) $ 96,447 $27,360,876
----------- -----------
Net increase in net assets $ 2,451,540 $22,145,683
NET ASSETS:
At beginning of year 39,586,398 17,440,715
----------- -----------
At end of year (including distributions in excess of net
investment income of $68,547 and $71,205, respectively) $42,037,938 $39,586,398
=========== ===========
</TABLE>
The accompanying notes are an integral part of the financial statements
<PAGE>
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS
- -----------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
----------------------------------
1995 1994 1993*
-------- ------- -------
<S> <C> <C> <C>
NET ASSET VALUE, beginning of year $ 8.980 $ 9.940 $10.000
-------- ------- -------
INCOME FROM OPERATIONS:
Net investment income $ 0.609 $ 0.626 $ 0.107
Net realized and unrealized gain (loss)
on investments 0.520 (0.876) (0.051)
-------- ------- -------
Total income (loss) from operations $ 1.129 $(0.250) $(0.056)
-------- ------- -------
LESS DISTRIBUTIONS:
From net investment income $ (0.609) $(0.626) $(0.107)
In excess of net investment income (0.010) (0.084) (0.009)
-------- ------- -------
Total distributions $ (0.619) $(0.710) $(0.116)
-------- ------- -------
NET ASSET VALUE, end of year $ 9.490 $ 8.980 $ 9.940
======== ======= =======
TOTAL RETURN(2) 12.94% (2.54)% 0.34%
RATIOS/SUPPLEMENTAL DATA:
Ratio of interest expense to average net
assets(1) 0.71% 0.57% 0.54%+
Ratio of other expenses to average net
assets (1) 2.11% 2.15% 2.31%+
Ratio of net investment income to average
net assets 6.57% 6.60% 5.45%+
Net assets, end of period (000's omitted) $ 42,038 $39,586 $17,441
<FN>
+ Computed on an annualized basis.
(1) Includes the Fund's share of Government Obligations Portfolio's allocated
expenses.
(2) Total investment return is calculated assuming a purchase at the net asset
value on the first day and a sale at the net asset value on the last day of
each period reported. Dividends and distributions, if any, are assumed to be
reinvested at the net asset value on the payable date. Total return is not
computed on an annualized basis.
* For the period from the start of business, November 1, 1993, to December 31,
1993.
</TABLE>
The accompanying notes are an integral part of the financial statements
<PAGE>
--------------------------------------------
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995
- --------------------------------------------------------------------------------
(1) SIGNIFICANT ACCOUNTING POLICIES
EV Classic Government Obligations Fund (the Fund) is a diversified entity of the
type commonly known as a Massachusetts business trust and is registered under
the Investment Company Act of 1940, as amended, as an open-end management
investment company. The Fund is a series of Eaton Vance Mutual Funds Trust
(formerly Eaton Vance Government Obligations Trust). The Fund invests all of its
investable assets in interests in the Government Obligations Portfolio (the
Portfolio), a New York Trust, having the same investment objective as the Fund.
The value of the Fund's investment in the Portfolio reflects the Fund's
proportionate interest in the net assets of the Portfolio (8.1% at December 31,
1995). The performance of the Fund is directly affected by the performance of
the Portfolio. The financial statements of the Portfolio, including the
portfolio of investments, are included elsewhere in this report and should be
read in conjunction with the Fund's financial statements. The following is a
summary of significant accounting policies consistently followed by the Fund in
the preparation of its financial statements. The policies are in conformity with
generally accepted accounting principles.
A. INVESTMENT VALUATIONS -- Valuation of securities by the Portfolio is
discussed in Note 1 of the Portfolio's Notes to Financial Statements which are
included elsewhere in this report.
B. INCOME -- The Fund's net investment income consists of the Fund's pro rata
share of the net investment income of the Portfolio, less all actual and accrued
expenses of the Fund.
C. FEDERAL TAXES -- The Fund's policy is to comply with the provisions of the
Internal Revenue Code applicable to regulated investment companies and to
distribute to shareholders each year all of its taxable income, including any
net realized gain on investments, option and financial futures transactions.
Accordingly, no provision for federal income or excise tax is necessary. At
December 31, 1995, the Fund, for federal income tax purposes, had a capital loss
carryover of $2,081,341, which will reduce the Fund's taxable income arising
from future net realized gain on investment transactions, if any, to the extent
permitted by the Internal Revenue Code, and thus will reduce the amount of the
distributions to shareholders which would otherwise be necessary to relieve the
Fund of any liability for federal income or excise tax. Such capital loss
carryovers will expire on December 31, 2001 ($32,316), December 31, 2002
($1,822,648) and December 31, 2003 ($226,377).
D. DEFERRED ORGANIZATION EXPENSES -- Costs incurred by the Fund in connection
with its organization are being amortized on the straight-line basis over five
years.
E. DISTRIBUTION COSTS -- For book and tax purposes, commissions paid on the
sale of Fund shares and other distribution costs are charged to operations.
(Note 6).
- ------------------------------------------------------------------------------
(2) DISTRIBUTIONS TO SHAREHOLDERS
The net income of the Fund is determined daily and substantially all of the net
income so determined is declared as a dividend to shareholders of record at the
time of declaration. In addition, the Fund declares each day an amount equal to
the excess of tax basis net income over book net income, which amount is charged
to distributions in excess of net investment income. Distributions are paid
monthly. Distributions of allocated realized capital gains, if any, are made at
least annually. Shareholders may reinvest capital gain distributions in
additional shares of the Fund at the net asset value as of the ex-dividend date.
Distributions are paid in the form of additional shares or, at the election of
the shareholder, in cash. The Fund distinguishes between distributions on a tax
basis and a financial reporting basis. Generally accepted accounting principles
require that only distributions in excess of tax basis earnings and profits be
reported in the financial statements as a return of capital. Differences in the
recognition or classification of income between the financial statements and tax
earnings and profits which result in over-distributions for financial statement
purposes only are classified as distributions in excess of net investment income
or accumulated net realized gains. Permanent differences between book and tax
accounting relating to distributions are reclassified to paid-in capital.
- ------------------------------------------------------------------------------
(3) SHARES OF BENEFICIAL INTEREST
The Declaration of Trust permits the Trustees to issue an unlimited number of
full and fractional shares of beneficial interest (without par value).
Transactions in Fund shares were as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------------------
1995 1994
----------------------------- ---------------------------
SHARES AMOUNT SHARES AMOUNT
--------- ------------- --------- -------------
<S> <C> <C> <C> <C>
Sales 1,676,016 $ 15,439,473 8,155,362 $ 79,148,122
Issued to shareholders electing to receive payments of
distribution in Fund shares 176,799 1,641,022 248,209 2,325,806
Redemptions (1,830,541) (16,984,048) (5,751,695) (54,113,052)
--------- ------------- --------- -------------
Net increase 22,274 $ 96,447 2,651,876 $ 27,360,876
========= ============= ========= =============
</TABLE>
- ------------------------------------------------------------------------------
(4) INVESTMENT TRANSACTIONS
Increases and decreases in the Fund's investment in the Portfolio for the year
ended December 31, 1995 aggregated $15,992,619 and $20,099,386, respectively.
- ------------------------------------------------------------------------------
(5) TRANSACTIONS WITH AFFILIATES
Eaton Vance Management (EVM) serves as the administrator of the Fund, but
receives no compensation. The Portfolio has engaged Boston Management and
Research (BMR), a subsidiary of EVM, to render investment advisory services. See
Note 3 of the Portfolio's Notes to Financial Statements which are included
elsewhere in this report. Except as to Trustees of the Fund and the Portfolio
who are not members of EVM's organization, officers and Trustees receive
remuneration for their services to the Fund out of such investment adviser fee.
Investors Bank & Trust Company (IBT), serves as custodian of the Fund and the
Portfolio. Prior to November 10, 1995, IBT was an affiliate of EVM. Pursuant to
the respective custodian agreements, IBT receives a fee reduced by credits which
are determined based on the average cash balances the Fund or the Portfolio
maintains with IBT. Certain of the officers and Trustees of the Fund and
Portfolio are officers and directors/trustees of the above organizations (Note
6).
- ------------------------------------------------------------------------------
(6) DISTRIBUTION PLAN
The Fund has adopted a distribution plan (the "Plan") pursuant to Rule 12b-1
under the Investment Company Act of 1940. The Plan requires the Fund to pay the
principal underwriter, Eaton Vance Distributors, Inc. (EVD) amounts equal to
1/365 of 0.75% of the Fund's daily net assets, for providing ongoing
distribution services and facilities to the Fund. The Fund will automatically
discontinue payments to EVD during any period in which there are no outstanding
Uncovered Distribution Charges, which are equivalent to the sum of (i) 6.25% of
the aggregate amount received by the Fund for shares sold plus, (ii)
distribution fees calculated by applying the rate of 1% over the prevailing
prime rate to the outstanding balance of Uncovered Distribution Charges of EVD,
reduced by amounts theretofore paid to EVD. The amount payable to EVD with
respect to each day is accrued on such day as a liability of the Fund and,
accordingly, reduces the Fund's net assets. The Fund paid or accrued $319,771 to
EVD for the year ended December 31, 1995, representing 0.75% (annualized) of
average daily net assets. At December 31, 1995, the amount of Uncovered
Distribution Charges of EVD calculated under the Plan was approximately
$6,791,000.
In addition, the Plan permits the Fund to make monthly payments of service
fees to the Principal Underwriter in amounts not expected to exceed 0.25% of the
Fund's average daily net assets for any fiscal year. The Trustees have initially
implemented the Plan by authorizing the Fund to make monthly service fee
payments to the Principal Underwriter in amounts not expected to exceed 0.25% of
the Fund's average daily net assets for any fiscal year. The Fund paid or
accrued service fees to or payable to EVD for the year ended December 31, 1995,
in the amount of $106,590. EVD makes monthly service fee payments to Authorized
Firms in amounts anticipated to be equivalent to 0.25%, annualized, of the
assets maintained in the Fund by their customers. On sales of shares made on
January 30, 1995 and thereafter, EVD currently expects to pay to an Authorized
Firm a service fee at the time of sale equal to 0.25% of the purchase price of
the shares sold by such Firm and monthly payments of service fees in amounts not
expected to exceed 0.25% per annum of the Funds' average daily net assets based
on the value of Fund shares sold by such Firm and remaining outstanding for at
least one year. During the first year after a purchase of Fund shares, EVD will
retain the service fee as reimbursement for the service fee payment made to the
Authorized Firm at the time of sale. Service fee payments are made for personal
services and/or the maintenance of shareholder accounts. Service fees paid to
EVD and Authorized Firms are separate and distinct from the sales commissions
and distribution fees payable by the Fund to EVD, and as such are not subject to
automatic discontinuance when there are no outstanding Uncovered Distribution
Charges of EVD.
Certain officers and Trustees of the Fund are officers or directors of EVD.
- ------------------------------------------------------------------------------
(7) CONTINGENT DEFERRED SALES CHARGES
For shares purchased on or after January 30, 1995, a contingent deferred sales
charge (CDSC) of 1% is imposed on any redemption of Fund shares made within one
year of purchase. Generally, the CDSC is based upon the lower of the net asset
value at date of redemption or date of purchase. No charge is levied on shares
acquired by reinvestment of dividends or capital gains distributions. No CDSC is
levied on shares which have been sold to EVD or its affiliates or to their
respective employees or clients. CDSC charges are paid to EVD to reduce the
amount of Uncovered Distribution Charges calculated under the Funds Distribution
Plan. CDSC received when no Uncovered Distribution Charges exist will be
credited to the Fund. For the year ended December 31, 1995, EVD received
approximately $8,800 of CDSC paid by shareholders.
REPORT OF INDEPENDENT ACCOUNTANTS
- ------------------------------------------------------------------------------
TO THE SHAREHOLDERS AND TRUSTEES OF
EV CLASSIC GOVERNMENT OBLIGATIONS FUND,
A SERIES OF EATON VANCE MUTUAL FUNDS TRUST:
We have audited the accompanying statement of assets and liabilities of EV
Classic Government Obligations Fund, a series of Eaton Vance Mutual Funds Trust
(formerly Eaton Vance Government Obligations Trust), as of December 31, 1995,
the related statements of operations for the year then ended, the statements of
changes in net assets for each of the two years in the period then ended, and
the financial highlights for the two years then ended and for the period from
November 1, 1993 (start of business) to December 31, 1993. These financial
statements and financial highlights are the responsibility of the Fund's
management. Our responsibility is to express an opinion on these financial
statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
December 31, 1995 by correspondence with the custodian. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of EV
Classic Government Obligations Fund, a series of Eaton Vance Mutual Funds Trust,
as of December 31, 1995, the results of its operations for the year then ended,
the changes in its net assets for each of the two years in the period then
ended, and the financial highlights for the two years then ended and for the
period from November 1, 1993 (start of business) to December 31, 1993, in
conformity with generally accepted accounting principles.
COOPERS & LYBRAND L.L.P.
BOSTON, MASSACHUSETTS
FEBRUARY 2, 1996
<PAGE>
--------------------------------------------
GOVERNMENT OBLIGATIONS PORTFOLIO
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1995
- --------------------------------------------------------------------------------
MORTGAGE PASS-THROUGHS - 95.5%
- --------------------------------------------------------------------------------
PRINCIPAL AMOUNT VALUE
- --------------------------------------------------------------------------------
FEDERAL HOME LOAN MORTGAGE CORP.
PARTICIPATION CERTIFICATES:
4.5s, with maturity at 2000 $ 129,430 $ 128,579
4.75s, with various maturities to 2002 81,124 79,883
5s, with various maturities to 2003 857,801 845,310
5.25s, with various maturities to 2005 415,840 410,222
5.5s, with various maturities to 2011 1,897,020 1,888,058
5.75s, with maturity at 1998 69,456 69,415
6s, with various maturities to 2022 4,411,251 4,409,402
6.25s, with various maturities to 2013 1,046,597 1,049,650
6.5s, with various maturities to 2022 19,620,356 19,876,684
6.75s, with various maturities to 2011 10,777,956 10,976,283
7s, with various maturities to 2019 17,028,452 17,428,229
7.25s, with maturity at 2003 1,957,267 2,014,982
7.5s, with various maturities to 2019 20,894,342 21,625,530
7.75s, with various maturities to 2018 4,532,111 4,733,182
8s, with various maturities to 2022 22,245,627 23,320,290
8.25s, with various maturities to 2011 15,716,675 16,579,860
8.5s, with various maturities to 2018 24,723,871 26,257,090
8.75s, with various maturities to 2014 3,815,701 4,073,223
9s, with various maturities to 2020 9,632,137 10,426,534
9.25s, with various maturities to 2010 1,612,994 1,741,676
9.5s, with various maturities to 2016 1,339,383 1,460,372
10s, with various maturities to 2017 263,414 283,192
11s, with various maturities to 2019 2,796,971 3,093,287
12s, with various maturities to 2019 2,213,182 2,505,911
12.25s, with various maturities to 2019 4,620,216 5,278,881
12.5, with various maturities to 2019 13,962,910 16,012,292
12.75s, with various maturities to 2015 1,869,392 2,146,825
13s, with various maturities to 2019 5,209,133 6,022,538
13.25s, with various maturities to 2019 792,182 925,190
13.5s, with various maturities to 2015 6,435,272 7,429,600
13.75s, with various maturities to 2014 131,761 153,778
14s, with various maturities to 2016 3,438,451 4,050,818
14.5s, with various maturities to 2014 277,362 330,278
14.75s, with maturity at 2010 1,092,452 1,296,500
15s, with various maturities to 2013 1,347,133 1,640,250
15.25s, with maturity at 2012 201,726 248,167
15.5s, with various maturities to 2012 337,724 412,581
16s, with maturity at 2012 242,047 300,093
16.25s, with various maturities to 2012 297,431 371,165
------------
$221,895,800
------------
FEDERAL NATIONAL MORTGAGE ASSOCIATION
MORTGAGE BACKED SECURITIES:
0.25s, with maturity at 2014 $ 285,166 $ 234,972
3.5s, with maturity at 2007 163,955 153,501
4.5s, with maturity at 1999 13,387 13,175
5s, with various maturities to 2017 1,274,114 1,241,278
5.25s, with various maturities to 2006 400,000 391,857
5.5s, with various maturities to 2006 1,231,238 1,226,343
5.75s, with maturity at 2003 216,880 216,448
6s, with various maturities to 2010 23,700,765 23,721,659
6.25s, with various maturities to 2007 2,696,318 2,706,547
6.5s, with various maturities to 2017 6,786,513 6,848,122
6.75s, with various maturities to 2007 1,387,457 1,411,418
7s, with various maturities to 2018 8,700,095 8,888,954
7.25s, with various maturities to 2017 2,302,634 2,364,202
7.5s, with various maturities to 2020 10,000,288 10,355,825
7.75s, with various maturities to 2008 1,846,112 1,922,666
8s, with various maturities to 2017 22,672,040 23,751,155
8.25s, with various maturities to 2020 15,155,881 16,001,478
8.5s, with various maturities to 2017 24,012,814 25,565,270
8.75s, with various maturities to 2017 1,623,305 1,734,909
9s, with various maturities to 2020 10,133,784 10,929,360
9.25s, with maturity to 2010 2,745,777 2,977,963
9.5s, with maturity at 2009 381,894 416,580
9.75s, with maturity at 2019 481,943 536,059
11s, with maturity at 2010 38,689 42,735
11.75s, with various maturities to 2015 2,705,061 3,064,528
12s, with various maturities to 2020 7,265,070 8,464,810
12.25s, with maturity at 2011 1,159,922 1,321,091
12.5s, with various maturities to 2021 6,756,798 7,752,664
12.75s, with various maturities to 2014 1,991,759 2,301,910
13s, with various maturities to 2019 8,782,166 10,131,322
13.25s, with various maturities to 2015 2,726,445 3,192,115
13.5s, with various maturities to 2015 4,528,641 5,289,523
13.75s, with various maturities to 2014 223,438 264,302
14s, with various maturities to 2014 944,870 1,123,496
14.25s, with maturity at 2014 370,014 443,543
14.5s, with various maturities to 2014 346,140 416,227
14.75s, with maturity at 2012 5,141,517 6,164,483
15s, with various maturities to 2013 4,162,338 5,038,755
15.5s, with maturity at 2012 1,277,134 1,577,795
15.75s, with maturity at 2011 39,197 48,251
16s, with maturity at 2012 462,224 578,033
------------
$200,825,324
------------
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION
MORTGAGE BACKED SECURITIES:
5.5s, with maturity at 1999 $ 75,678 $ 75,635
6.5s, with maturity at 2002 656,816 667,642
7.25s, with various maturities to 2022 4,697,140 4,884,698
7.5s, with maturity at 2017 1,143,783 1,196,887
8s, with various maturities to 2017 18,587,122 19,643,099
8.25s, with maturity at 2008 660,206 698,287
8.5s, with various maturities to 2018 1,337,987 1,441,542
9s, with various maturities to 2016 6,562,394 7,131,012
9.5s, with maturity at 2018 763,645 822,475
12s, with various maturities to 2015 4,647,054 5,303,055
12.5s, with various maturities to 2015 2,552,580 2,954,632
13s, with various maturities to 2014 1,483,428 1,738,372
13.5s, with various maturities to 2013 448,337 527,823
14s, with maturity at 2015 279,437 331,605
14.5s, with various maturities to 2014 518,507 623,258
15s, with various maturities to 2013 1,011,818 1,231,087
16s, with various maturities to 2012 443,939 554,454
------------
$ 49,825,563
------------
COLLATERALIZED MORTGAGE OBLIGATIONS:
Federal Home Loan Mtg. Corp.
Series 1327-F, 7.5%, due 2003,
Collateral 100% FHLMC PC $ 5,027,000 $ 5,305,059
Federal Home Loan Mtg. Corp.
Series 1058-F, 8.0%, due 2004,
Collateral 100% FHLMC PC 3,906,688 3,931,106
Federal Home Loan Mtg. Corp.
Series 1188-GC, 7.5%, due 2019,
Collateral 100% FHLMC PC 10,000,000 10,525,000
Federal National Mtg. Association Series 93-73E,
6.35%, due 2019 Collateral 100% FNMA MBS 3,000,000 2,940,000
Guaranteed Mtg. Corp. III Series H2, 9% due 2015,
Collateral 100% FNMA MBS 919,486 945,635
Salomon Brothers Mortgage Securities II, Inc.
Series III, Class Z, 11.50%, due 2015
Collateral 100%
GNMA/FNMA MBS 2,007,213 2,253,728
------------
$ 25,900,528
------------
TOTAL MORTGAGE PASS-THROUGHS
(identified cost, $487,675,564) $498,447,215
------------
- --------------------------------------------------------------------------------
UNITED STATES TREASURY BONDS - 16.1%
- --------------------------------------------------------------------------------
PRINCIPAL AMOUNT VALUE
- --------------------------------------------------------------------------------
U.S. Treasury Bond, 12s, 8/15/13++ $50,000,000 $ 77,214,050
U.S. Treasury Bond, 7.125s, 2/15/23+ 6,000,000 6,853,896
------------
TOTAL UNITED STATES TREASURY BONDS
(identified cost, $67,368,569) $ 84,067,946
------------
TOTAL INVESTMENTS - 111.6%
(identified cost, $555,044,133) $582,515,161
OTHER ASSETS, LESS LIABILITIES - (11.6%) (60,726,256)
------------
NET ASSETS - 100% $521,788,905
============
+ Collateral for financial futures contracts held at December 31, 1995
(See Note 7).
++ A portion of this security is on loan at December 31, 1995 (See Note 5).
The accompanying notes are an integral part
of the financial statements
<PAGE>
--------------------------------------------
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
- --------------------------------------------------------------------------------
December 31, 1995
- --------------------------------------------------------------------------------
ASSETS:
Investments, at value (Note 1A)
(identified cost, $555,044,133) $582,515,161
Cash 230
Receivable for investments sold 935,637
Interest receivable 6,446,980
Deferred organization expenses (Note 1H) 10,773
------------
Total assets $589,908,781
LIABILITIES:
Demand note payable (Note 4) $ 3,835,000
Payable for daily variation margin on open
financial futures contracts (Note 1G) 86,328
Liability for collateral received for securities
loaned (Note 5) 64,094,800
Payable to affiliate --
Trustees' fees 4,980
Accrued expenses 98,768
-----------
Total liabilities 68,119,876
------------
NET ASSETS applicable to investors' interest in Portfolio $521,788,905
============
SOURCES OF NET ASSETS:
Net proceeds from capital contributions and
withdrawals $494,891,945
Unrealized appreciation of investments and
financial futures contracts
(computed on the basis of identified cost) 26,896,960
------------
Total net assets $521,788,905
============
The accompanying notes are an integral part of the financial statements
<PAGE>
STATEMENT OF OPERATIONS
- --------------------------------------------------------------------------------
For the Year Ended December 31, 1995
- --------------------------------------------------------------------------------
INVESTMENT INCOME:
Interest income -- $ 49,156,066
Expenses --
Investment adviser fee (Note 3) $ 3,928,237
Compensation of Trustees not members of the
Administrator's organization (Note 3) 32,456
Custodian fee (Note 3) 236,803
Interest (Note 5) 3,738,252
Printing and postage 877
Legal and accounting services 58,636
Amortization of organization expenses
(Note 1H) 3,810
Miscellaneous 42,567
-----------
Total expenses 8,041,638
------------
Net investment income $ 41,114,428
------------
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS:
Net realized loss (identified cost basis) --
Investment transactions $(7,705,021)
Financial futures contracts (7,999,647)
-----------
Net realized loss on investments $(15,704,668)
Change in unrealized appreciation
(depreciation) --
Investments (identified cost basis) $45,644,289
Financial futures contracts (776,490)
-----------
Net unrealized appreciation of investments $ 44,867,799
------------
Net realized and unrealized gain on
investments $ 29,163,131
------------
Net increase in net assets from operations $ 70,277,559
============
The accompanying notes are an integral part of the financial statements
<PAGE>
<TABLE>
<CAPTION>
STATEMENT OF CHANGES IN NET ASSETS
- -----------------------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
---------------------------------------
1995 1994
---- ----
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
From operations --
Net investment income $ 41,114,428 $ 45,968,015
Net realized loss on investments (15,704,668) (4,216,708)
Change in unrealized appreciation (depreciation) of investments 44,867,799 (50,227,104)
------------ -------------
Net increase (decrease) in net assets from operations $ 70,277,559 $ (8,475,797)
------------ -------------
Capital transactions --
Contributions $ 95,964,004 $ 272,129,376
Withdrawals (160,122,171) (285,281,160)
------------ -------------
Decrease in net assets resulting from capital transactions $(64,158,167) $ (13,151,784)
------------ -------------
Total increase (decrease) in net assets $ 6,119,392 $ (21,627,581)
NET ASSETS:
At beginning of year 515,669,513 537,297,094
------------ -------------
At end of year $521,788,905 $ 515,669,513
============ =============
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
SUPPLEMENTARY DATA
- ---------------------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
------------------------------------------------
1995 1994 1993*
------ ------ ------
<S> <C> <C> <C>
RATIOS (As a percentage of net assets):
Interest expense 0.71% 0.56% 0.63%+
Other expenses 0.82% 0.80% 0.86%+
Net investment income 7.82% 8.03% 8.46%+
PORTFOLIO TURNOVER 19% 35% 42%
LEVERAGE ANALYSIS:
Amount of debt outstanding at end of period
(000 omitted) $3,835 $3,924 --
Average daily balance of debt outstanding during period
(000 omitted) $1,067 $ 982 $1,660
<FN>
* For the period from the start of business, October 28, 1993, to December 31, 1993.
+ Computed on an annualized basis.
</TABLE>
The accompanying notes are an integral part of the financial statements
<PAGE>
--------------------------------------------
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995
- --------------------------------------------------------------------------------
(1) SIGNIFICANT ACCOUNTING POLICIES
Government Obligations Portfolio (the Portfolio) is registered under the
Investment Company Act of 1940 as a diversified open-end investment company
which was organized as a trust under the laws of the State of New York in 1992.
The Declaration of Trust permits the Trustees to issue beneficial interests in
the Portfolio. Investment operations began on October 28, 1993, with the
acquisition of net assets of $564,244,545 in exchange for an interest in the
Portfolio by one of the Portfolio's investors. The following is a summary of
significant accounting policies of the Portfolio. The policies are in conformity
with generally accepted accounting principles.
A. INVESTMENT VALUATIONS -- 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.
Debt securities (other than mortgage backed, "pass-through" securities) are
normally valued at the mean between the latest available bid and asked prices
for securities for which the over-the-counter market is the primary market. Debt
securities may also be valued on the basis of valuations furnished by a pricing
service. Options are valued at last sale price on an exchange or board of trade
or, in the absence of a sale, at the mean between the last bid and asked price.
Financial futures contracts listed on commodity exchanges are valued at closing
settlement prices. Securities for which there is no such quotation or valuation
are valued at fair value using methods determined in good faith by or at the
direction of the Trustees. Short-term obligations having remaining maturities of
less than 60 days are valued at amortized cost, which approximates fair or
market value.
B. INCOME -- Interest income is determined on the basis of interest accrued and
discount earned, adjusted for amortization of discount when required for federal
income tax purposes.
C. GAINS AND LOSSES FROM SECURITY TRANSACTIONS -- For book purposes, gains or
losses are not recognized until disposition. For federal tax purposes, the
Portfolio has elected, under Section 1092 of the Internal Revenue Code, to
utilize mixed straddle accounting for certain designated classes of activities
involving options and financial futures contracts in determining recognized
gains or losses. Under this method, Section 1256 positions (financial futures
contracts and options on investments or financial futures contracts) and
non-Section 1256 positions (bonds, etc.) are marked-to-market on a daily basis
resulting in the recognition of taxable gains or losses on a daily basis. Such
gains or losses are categorized as short-term or long-term based on aggregation
rules provided in the Code.
D. INCOME TAXES -- The Portfolio is treated as a partnership for federal tax
purposes. No provision is made by the Portfolio for federal or state taxes on
any taxable income of the Portfolio because each investor in the Portfolio is
ultimately responsible for the payment of any taxes. Since some of the
Portfolio's investors are regulated investment companies that invest all or
substantially all of their assets in the Portfolio, the Portfolio normally must
satisfy the applicable source of income and diversification requirements (under
the Code) in order for its investors to satisfy them. The Portfolio will
allocate at least annually among its investors each investors' distributive
share of the Portfolio's net investment income, net realized capital gains, and
any other items of income, gain, loss, deduction or credit.
E. WRITTEN OPTIONS -- Upon the writing of a call or a put option, an amount
equal to the premium received by the Portfolio is included in the Statement of
Assets and Liabilities as a liability. The amount of the liability is
subsequently marked-to-market to reflect the current value of the option written
in accordance with the Portfolio's policies on investment valuations discussed
above. Premiums received from writing options which expire are treated as
realized gains. Premiums received from writing options which are exercised or
are closed are added to or offset against the proceeds or amount paid on the
transaction to determine the realized gain or loss. If a put option is
exercised, the premium reduces the cost basis of the securities purchased by the
Portfolio. The Portfolio, as writer of an option, may have no control over
whether the underlying securities may be sold (call) or purchased (put) and, as
a result, bears the market risk of an unfavorable change in the price of the
securities underlying the written option.
F. PURCHASED OPTIONS -- Upon the purchase of a call or put option, the premium
paid by the Portfolio is included in the Statement of Assets and Liabilities as
an investment. The amount of the investment is subsequently marked-to-market to
reflect the current market value of the option purchased, in accordance with the
Portfolio's policies on investment valuations discussed above. If an option
which the Portfolio has purchased expires on the stipulated expiration date, the
Portfolio will realize a loss in the amount of the cost of the option. If the
Portfolio enters into a closing sale transaction, the Portfolio will realize a
gain or loss, depending on whether the sales proceeds from the closing sale
transaction are greater or less than the cost of the option. If the Portfolio
exercises a put option, it will realize a gain or loss from the sale of the
underlying security, and the proceeds from such sale will be decreased by the
premium originally paid. If the Portfolio exercises a call option, the cost of
the security which the Portfolio purchases upon exercise will be increased by
the premium originally paid. For tax purposes, the Portfolio's options are
generally subject to the mixed straddle rules described in Note 1C, and
unrealized gains or losses are recognized on a daily basis.
G. FINANCIAL FUTURES CONTRACTS -- Upon entering into a financial futures
contract, the Portfolio is required to deposit an amount ("initial margin")
either in cash or securities equal to a certain percentage of the purchase price
indicated in the financial futures contract. Subsequent payments are made or
received by the Portfolio ("margin maintenance") each day, dependent on the
daily fluctuations in the value of the underlying securities, and are recorded
for book purposes as unrealized gains or losses by the Portfolio.
If the Portfolio enters into a closing transaction, the Portfolio will
realize, for book purposes, a gain or loss equal to the difference between the
value of the financial futures contract to sell and the financial futures
contract to buy. The Portfolio's investment in financial futures contracts is
designed only to hedge against anticipated futures changes in interest or
currency exchange rates. Should interest or currency exchange rates move
unexpectedly, the Portfolio may not achieve the anticipated benefits of the
financial futures contracts and may realize a loss. For tax purposes, such
futures contracts are generally subject to the mixed straddle rules described in
Note 1C, and unrealized gains or losses are recognized on a daily basis.
H. DEFERRED ORGANIZATION EXPENSES -- Costs incurred by the Portfolio in
connection with its organization are being amortized on the straight-line
basis over five years.
I. OTHER -- Investment transactions are accounted for on the date the
investments are purchased or sold.
- --------------------------------------------------------------------------------
(2) PURCHASES AND SALES OF INVESTMENTS
Purchases and sales of investments, other than short-term obligations,
aggregated $109,818,095 and $148,287,474, respectively.
- --------------------------------------------------------------------------------
(3) INVESTMENT ADVISER FEE AND OTHER TRANSACTIONS WITH AFFILIATES The investment
adviser fee, computed at the monthly rate of 0.0625% (0.75% per annum) of the
Portfolio's average daily net assets up to $500 million and at reduced rates as
daily net assets exceed that level, is earned by Boston Management and Research
(BMR), a wholly-owned subsidiary of Eaton Vance Management (EVM), as
compensation for management and investment advisory services rendered to the
Portfolio. For the year ended December 31, 1995, the fee was equivalent to 0.75%
(annualized) of the Portfolio's average net assets for such period and amounted
to $3,928,237. Except as to Trustees of the Portfolio who are not members of
EVM's or BMR's organization, officers and Trustees receive remuneration for
their service to the Portfolio out of such investment adviser fee. Trustees of
the Portfolio that are not affiliated with the Investment Adviser may elect to
defer receipt of all or a percentage of their annual fees in accordance with the
terms of the Trustees Deferred Compensation Plan. For the year ended December
31, 1995, no significant amounts have been deferred. The custodian fee was paid
to Investors Bank & Trust Company (IBT) for its services as custodian of the
Fund. Prior to November 10, 1995, IBT was an affiliate of EVM. Pursuant to the
custodian agreement, IBT receives a fee reduced by credits which are determined
based on the average daily cash balances the Portfolio maintains with IBT.
Certain of the officers and Trustees of the Portfolio are officers and
directors/trustees of the above organizations.
- --------------------------------------------------------------------------------
(4) LINE OF CREDIT
The Portfolio participates with other portfolios and funds managed by BMR and
EVM in a $120 million unsecured line of credit agreement with a bank. The line
of credit consists of a $20 million committed facility and an $100 million
discretionary facility. Interest is charged to each portfolio or fund based on
its borrowings at an amount above either the bank's adjusted certificate of
deposit rate, a variable adjusted certificate of deposit rate, or a federal
funds effective rate. In addition, a fee computed at an annual rate of 1/4 of 1%
on the $20 million committed facility and on the daily unused portion of the
$100 million discretionary facility is allocated among the participating
portfolios and funds at the end of each quarter. At December 31, 1995, the
Portfolio had a balance outstanding pursuant to this line of credit amounting to
$3,835,000. The average daily loan balance for the year ended December 31, 1995,
was $1,067,197 and the average interest rate was 7.41%. The maximum borrowing
outstanding at any month end during the year ended December 31, 1995 was
$9,661,000.
- --------------------------------------------------------------------------------
(5) SECURITIES LENDING AGREEMENT
The Portfolio has established a securities lending agreement with a broker in
which the Portfolio lends portfolio securities to the broker in exchange for
collateral consisting of either cash or U.S. government securities. Under the
agreement, the Portfolio continues to earn interest on the securities loaned. If
the collateral received is U.S. government securities, the Portfolio will also
receive from the broker an additional loan premium fee computed as a varying
percentage of the market value of the securities loaned. If the collateral
received is cash, the Portfolio may invest the cash and receive any interest on
the amount invested but it must also pay the broker a loan rebate fee computed
as a varying percentage of the collateral received. The Portfolio did not
receive any loan premium fee during the year ended December 31, 1995, but did
incur $3,656,000 of loan rebate fees which have been included in interest
expense. The maximum liability for cash collateral received for securities
loaned at any month end during the year ended December 31, 1995, was
$64,094,800.
<PAGE>
- --------------------------------------------------------------------------------
(6) FEDERAL INCOME TAX BASIS OF INVESTMENT
The cost and unrealized appreciation/depreciation in the value of investment
securities owned at December 31, 1995, as computed on a United States federal
income tax basis, were as follows:
Aggregate cost $573,306,263
============
Gross unrealized appreciation $ 10,445,033
Gross unrealized depreciation 1,236,135
------------
Net unrealized appreciation $ 9,208,898
============
- --------------------------------------------------------------------------------
(7) FINANCIAL INSTRUMENTS
The Portfolio regularly trades in financial instruments with off-balance sheet
risk in the normal course of its investing activities to assist in managing
exposure to various market risks. These financial instruments include written
options, forward foreign currency exchange contracts, and financial futures
contracts and may involve, to a varying degree, elements of risk in excess of
the amounts recognized for financial statement purposes.
The notional or contractual amounts of these instruments represent the
investment the Fund has in particular classes of financial instruments and does
not necessarily represent the amounts potentially subject to risk. The
measurement of the risks associated with these instruments is meaningful only
when all related and/or offsetting transactions are considered.
A summary of obligations under these financial instruments at December 31,
1995 is as follows:
<TABLE>
<CAPTION>
FUTURES CONTRACT NET UNREALIZED
EXPIRATION DATE CONTRACTS POSITION DEPRECIATION
--------------- --------- -------- ------------
<S> <C> <C> <C> <C>
3/96 425 U.S. Treasury Five Year Note Futures Short $(574,068)
=========
At December 31, 1995, the Fund had sufficient cash and/or securities to cover margin requirements on any open futures contracts.
</TABLE>
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
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TO THE TRUSTEES AND INVESTORS OF
GOVERNMENT OBLIGATIONS PORTFOLIO:
We have audited the accompanying statement of assets and liabilities of
Government Obligations Portfolio, including the portfolio of investments, as of
December 31, 1995, and the related statement of operations for the year then
ended, the statements of changes in net assets for the two years then ended, and
the supplementary data for the two years then ended December 31, 1995, and 1994
and for the period from October 28, 1993 (start of business), to December 31,
1993. These financial statements and supplementary data are the responsibility
of the Portfolio's management. Our responsibility is to express an opinion on
these financial statements and supplementary data based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and supplementary
data are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
December 31, 1995 by correspondence with the custodian and brokers. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and supplementary data referred to
above present fairly, in all material respects, the financial position of
Government Obligations Portfolio as of December 31, 1995, the results of its
operations for the year then ended, the changes in its net assets for the two
years then ended, and the supplementary data for the two years then ended and
for the period from October 28, 1993 (start of business) to December 31, 1993,
in conformity with generally accepted accounting principles.
COOPERS & LYBRAND L.L.P.
BOSTON, MASSACHUSETTS
FEBRUARY 2, 1996
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INVESTMENT MANAGEMENT
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EV CLASSIC OFFICERS TRUSTEES
GOVERNMENT M. DOZIER GARDNER DONALD R. DWIGHT
OBLIGATIONS President, Trustee President, Dwight Partners, Inc.
FUND Chairman, Newspapers of
24 Federal Street JAMES B. HAWKES New England, Inc.
Boston, MA 02110 Vice President, Trustee
H. DAY BRIGHAM, JR. SAMUEL L. HAYES, III
Vice President Jacob H. Schiff Professor of
Investment Banking, Harvard
WILLIAM H. AHERN, JR. University Graduate School of
Vice President Business Administration
MICHAEL B. TERRY NORTON H. REAMER
Vice President President and Director,
United Asset Management
JAMES L. O'CONNOR Corporation
Treasurer
JOHN L. THORNDIKE
THOMAS OTIS Director, Fiduciary Company
Secretary Incorporated
JACK L. TREYNOR
Investment Adviser and
Consultant
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GOVERNMENT OFFICERS TRUSTEES
OBLIGATIONS M. DOZIER GARDNER DONALD R. DWIGHT
PORTFOLIO President, Trustee President, Dwight Partners, Inc.
24 Federal Street Chairman, Newspapers of
Boston, MA 02110 JAMES B. HAWKES New England, Inc.
Vice President, Trustee
SAMUEL L. HAYES, III
SUSAN SCHIFF Jacob H. Schiff Professor of
Vice President and Investment Banking, Harvard
Portfolio Manager University Graduate School of
Business Administration
MARK S. VENEZIA
Vice President NORTON H. REAMER
President and Director,
WILLIAM CHRISHOLM United Asset Management
Vice President Corporation
RAYMOND O'NEILL JOHN L. THORNDIKE
Vice President Director, Fiduciary Company
Incorporated
MICHEL NORMANDEAU
Vice President JACK L. TREYNOR
Investment Adviser and
JAMES L. O'CONNOR Consultant
Treasurer
THOMAS OTIS
Secretary
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