<PAGE>
Investment Adviser of
Tax-Managed Growth Portfolio
Boston Management and Research
24 Federal Street, Boston, MA 02110
Administrator of
EV Marathon Tax-Managed Growth 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
Attn: Eaton Vance Funds
P.O. Box 5123
Westborough, MA 01581-5123
Independent Auditors
Deloitte & Touche LLP
125 Summer Street
Boston, MA 02110
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THIS REPORT MUST BE PRECEDED OR ACCOMPANIED BY A CURRENT PROSPECTUS WHICH
CONTAINS MORE COMPLETE INFORMATION ON THE FUND, INCLUDING ITS DISTRIBUTION PLAN,
SALES CHARGES AND EXPENSES. PLEASE READ THE PROSPECTUS CAREFULLY BEFORE YOU
INVEST OR SEND MONEY.
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M-TMGSA-12/96
[logo] Investing
for the
21st
Century
EV Marathon
Tax-Managed
Growth Fund
[graphic omitted]
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Annual Shareholder Report
October 31, 1996
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EV Marathon Tax-Managed Growth Fund
24 Federal Street
Boston, MA 02110
<PAGE>
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TO SHAREHOLDERS
For the fiscal year ended October 31, 1996, EV Marathon Tax-Managed Growth Fund
had a total return of 11.5%. This return, which does not include the maximum 5%
contingent deferred sales charge (CDSC), resulted from an increase in net asset
value to $11.15 per share on October 31, 1996, from $10.00 per share on March
28, 1996, the date of the Fund's inception. This return compares favorably to
that of the S&P 500 Index, an unmanaged index of large capitalization stocks
traded in the U.S., which had a total return of 10.5% during the same period.*
THE U.S. ECONOMY IN 1996 HAS REMAINED STRONG, BUT SHOWS NO SIGNS YET OF
OVERHEATING...
After slowing somewhat at the end of 1995, the U.S. economy has shown solid
growth in 1996. Gross domestic product - the official indicator of economic
growth calculated by the U.S. Department of Commerce - grew by 2.0% in the
first quarter of 1996, shot up to 4.7% in the second quarter, and is expected to
exceed 3.0% for the year as a whole. Inflation, meanwhile, remains subdued. The
"core rate" of inflation, as measured by the Consumer Price Index (CPI)
excluding food and energy prices, declined 0.3% in October, and the overall
inflation rate as measured by the CPI is expected to remain at 3.0% for 1996,
where it has been for over four years.
IN RESPONSE, THE STOCK MARKET CONTINUES ITS UPWARD SURGE...
In mid-October, 1996, the Dow Jones Industrial Average broke through the 6,000
mark for the first time. Many of the worrisome excesses seen in the market
earlier in the year, including sky-high valuations of Internet stocks and an
oversaturation of initial public offerings (IPOs), were worked out when the
market corrected in July. Since then, name brand, blue chip stocks, such as
those in which this Fund invests, have led the market's advance.
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Fund shares are not guaranteed by the FDIC and are not deposits or other
obligations of,or guaranteed by, any depository institution. Shares are subject
to investment risks, including possible loss of principal invested.
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THE TAX-MANAGED GROWTH PORTFOLIO: MAXIMIZING AFTER-TAX SHAREHOLDER RETURNS...
While past performance is no guarantee of future returns, the EV Marathon
Tax-Managed Growth Fund has delivered solid returns with a minimum of taxable
shareholder distributions. As the market continues to head into uncharted
waters, it will undoubtedly experience some volatility. The case for investing
in a professionally managed, diversified portfolio of well established growth
companies remains strong. As the tax burden of our citizens is still
extraordinarily high, a tax-managed portfolio such as this one provides a viable
way for investors to maximize the return on their investments.
Sincerely,
[photo of James B. Hawkes] /s/ James B. Hawkes
James B. Hawkes
President
December 3, 1996
* It is not possible to invest directly in the S&P 500 Index.
<PAGE>
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MANAGEMENT REPORT
An interview with Duncan Richardson, Vice President and Portfolio Manager of the
Tax-Managed Growth Portfolio.
Q. DUNCAN, HOW WOULD YOU CHARACTERIZE THE STOCK MARKET DURING THE PAST SEVEN
MONTHS?
A. There was a great deal of enthusiasm in the stock market around the middle
of May, during which time there was a peak in the S&P 500 Index and among
the smaller, more volatile, stocks. The market corrected severely in July,
bringing the Dow Jones Industrial Average down 11%, and the smaller
capitalization Nasdaq Index down roughly 20%. The market recovered quickly
from the July correction, but the recovery has not been broadly based. The
types of stocks which have performed better recently have been the larger,
high-quality companies in which this Fund invests. Going forward, it appears
that this trend will continue: the higher quality stocks should continue to
do well, but their performance will be based more on their ability to
deliver earnings than ever before. Those companies whose earnings disappoint
will undoubtedly see sharp declines in their stock prices.
Q. ARE YOU CONCERNED ABOUT THE RELATIVELY HIGH PRICE-TO-EARNINGS RATIOS IN THE
CURRENT MARKET?
A. Stock valuations are indeed at historical highs, as indicated by the high
average price/earnings (P/E) ratio of the S&P 500 Index, but Iam willing to
hold higher P/E stocks as long as their earnings continue to grow strongly.
Movements in equity prices are typically correlated with interest rate
movements. I have some concern that the stock market has appreciated
substantially this year while long-term rates remain higher than they were
in January. This suggests an expectation in the market for lower interest
rates, which may or may not develop. We continue to focus on earnings of
specific companies which we feel we can predict better than interest rate
movements.
[Photo of Duncan Richardson]
DUNCAN RICHARDSON
Q. ARE YOU PLEASED WITH THE CURRENT HOLDINGS IN THE FUND?
A. Yes. Our top 20 holdings represent a diverse sampling of high-quality, blue
chip stocks. Opportunistically, we have been adding holdings in stocks whose
prices have been driven down by earnings aberrations but which continue to
have solid prospects for long-term growth. The long-term horizon of the Fund
allows it to benefit from the increasing volatility seen in specific stocks
and sectors. We hope to accumulate positions at more advantageous prices
than the many momentum and short-term participants in the market. The Fund
is almost fully invested, and our goal is to keep it that way.
Q. WHAT TECHNIQUES HAVE YOU EMPLOYED THUS FAR TO MINIMIZE THE TAX CONSEQUENCES
FOR THIS FUND'S INVESTORS?
A. We use every means at our disposal to avoid having taxable distributions to
shareholders. That starts with investing in high-quality growth stocks and
staying with them for a sustained period of several years. Growth stocks
also tend to pay lower dividends, which further reduces the need to have
taxable distributions. To the extent that we do realize gains, we try to
offset them with losses taken elsewhere in the Fund.
Q. CAN YOU PROVIDE AN EXAMPLE OF A RECENT SUCCESS STORY IN THE FUND?
A. Absolutely -- there are several. Duracell is a fairly large position in the
Portfolio and will be acquired by Gillette in a stock transaction. Duracell
is the type of company that I like to buy for this Portfolio because the
company has a global consumer franchise and the price had declined due to
short-term earnings disappointments. We were opportunistic and bought the
stock at these lower prices. In a turn of good fortune, Gillette announced
their acquisition shortly thereafter. This is a double-win for the
shareholders because the Fund benefits from a significant increase in value
which has no tax consequence since Duracell will be acquired with Gillette
stock, rather than cash.
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A CONTINUING EMPHASIS ON
ABOVE-AVERAGE EARNINGS GROWTH...
THE PORTFOLIO'S 10 LARGEST HOLDINGS*
Company Business
Intel Corp................................................Electrical --
..........................................................Semiconductors
PepsiCo, Inc..............................................Beverages
Coca-Cola Co..............................................Beverages
Pfizer, Inc...............................................Drugs & Medical
Reuters Holdings PLC, ADR.................................Information Services
American Int'l. Group, Inc................................Insurance
Johnson & Johnson.........................................Medical Products
Hewlett-Packard Co........................................Computer &
..........................................................Business Equipment
Astra AB - Series A.......................................Drugs & Medical
Merck &Co., Inc...........................................Drugs & Medical
* The 10 holdings above represented 27.4% of the Portfolio's investments at
October 31, 1996. Due to active management, portfolio holdings and sector
breakdown are subject to change.
WITH A DIVERSIFIED REPRESENTATION
OF ECONOMIC SECTORS...
PORTFOLIO SECTOR BREAKDOWN*
HEALTH CARE ................................................... 17.30%
TECHNOLOGY .................................................... 15.32%
BUSINESS PRODUCTS & SERVICES .................................. 14.82%
CONSUMER NON-DURABLES ......................................... 12.69%
FINANCIAL ..................................................... 10.43%
ENERGY ........................................................ 7.83%
CAPITAL GOODS ................................................. 7.19%
MEDIA & LEISURE ............................................... 4.37%
BASIC MATERIALS ............................................... 4.07%
RETAIL ........................................................ 3.88%
CASH & OTHER .................................................. 2.10%
* by market value as of 10/31/96
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Q. WHAT ARE SOME OTHER COMPANIES THAT REPRESENT GOOD LONG-TERM PROSPECTS?
A. Boeing is a good long-term stock in which we have been increasing our
holdings over the last seven months on price pull-backs. It is currently
benefiting from a favorable multi-decade cycle, and is yet another example
of a high-quality core holding. Home Depot is also an example of a stock
which we feel comfortable accumulating at current prices. Its price peaked a
number of years ago, and its earnings have since caught up with the price,
creating a very positive risk/reward situation. Demographic and housing
trends are working in their favor, and the company is still expanding with
new stores so we are very bullish on their growth prospects.
Q. THE FUND REMAINS HEAVILY INVESTED IN HEALTH CARE STOCKS. WHAT IS THE OUTLOOK
FOR THIS INDUSTRY IN 1997?
A. Much of this Fund's health care sector is composed of pharmaceutical stocks,
such as Merck & Co., Pfizer, Inc., and Johnson &Johnson, and the sector has
grown since the last shareholder report primarily due to price appreciation.
These companies are good long-term investments because they have strong,
predictable earnings with solid global opportunities. They should continue
to do well next year and beyond. Our percentage in this sector is roughly
the same as that of the S&P 500, so we are not really overweighted. These
stocks continue to provide what I think is desirable for this Fund:
consistent earnings growth from well-positioned companies in growth
industries.
Q. HOW DOES THE PORTFOLIO MEET REDEMPTIONS BY FUNDS THAT HAVE CONTRIBUTED
SECURITIES?
A. A Fund that invests in the Portfolio through the contribution of securities
has the right to receive those securities to meet its redemptions, if those
securities are at that time held in the Portfolio. Moreover, those
securities will not be distributed to any other redeeming Fund until they
have been held in the Portfolio for at least five years. This policy reduces
flexibility in selecting particular securities used to meet in-kind
redemptions, but the Trustees of the Portfolio believe that this potential
disadvantage is outweighed by the potential advantages derived from
attracting contribu-tions of securities to the Portfolio that would not be
made in the absence of this policy.
Q. FOR WHICH INVESTOR PROFILE(S) WOULD THIS FUND BE BEST SUITED?
A. This Fund is appropriate for a wide variety of investment needs. Examples
might include: saving for college education; an alternative to a variable
annuity or UGMA investment; or simply dollar-cost averaging in order to
gradually increase exposure to the equity market. The low turnover
management style gives shareholders a decided advantage because, with
minimum distributions, the after-tax returns of this Fund will be very close
to the pre-tax returns. Most equity investment vehicles in the marketplace
make no effort to be tax-efficient. The Fund is a great vehicle for any
taxable investors who seek high-quality U.S. equity exposure, as well as for
those that want more control over the timing of their capital gains and/or
losses.
<PAGE>
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COMPARISON OF CHANGE IN VALUE OF A $10,000 INVESTMENT (INCLUDING SALES CHARGE)
IN EV MARATHON TAX-MANAGED GROWTH FUND AND THE STANDARD & POOR'S 500 INDEX
From March 31, 1996, through October 31, 1996
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CUMULATIVE Life of Value of
TOTAL RETURNS Fund* Investment at 10/31
- -------------------------------------------------------
Including CDSC 6.5% $10,717
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Without CDSC 11.5% $11,217
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EV MARATHON TAX-MANAGED GROWTH FUND VS STANDARD & POOR'S 500 INDEX
Date Fund Fund w/CDSC S&P
3/31/96+ $10,000 NA $10,000
4/30/96 $10,272 NA $10,154
5/31/96 $10,503 NA $10,405
6/30/96 $10,543 NA $10,448
7/31/96 $10,040 NA $9,991
8/31/96 $10,332 NA $10,199
9/30/96 $10,936 NA $10,772
10/31/96 $11,217 $10,717 $11,073
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 3/28/96. +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.
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THE FUND'S PERFORMANCE
In accordance with guidelines issued by the Securities and Exchange Commission,
the above performance chart compares the Fund's total return with that of a
broad-based securities market index. The lines on the chart represent the total
returns of $10,000 hypothetical investments in the Fund and the Standard &
Poor's 500 Index.
TOTAL RETURN FIGURES
The purple line on the chart represents the Fund's performance at net asset
value. The Fund's total return reflects Fund expenses and transaction costs. The
second dollar figure for the Fund, in purple italics, reflects the Fund's
maximum applicable contingent deferred sales charge (CDSC), deducted at
redemption as follows: 5% - 1st and 2nd years; 4% - 3rd year; 3% - 4th year; 2%
- - 5th year; 1% - 6th year.
The black line represents the performance of the Standard & Poor's 500 Index, a
broad-based, widely recognized unmanaged index of 500 large capitalization
common stocks traded in the U.S. The Index's total return does not reflect any
commissions or expenses that would be incurred if an investor purchased or sold
the securities represented in the Index. It is not possible to invest directly
in the Index.
<PAGE>
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EV MARATHON TAX-MANAGED GROWTH FUND
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
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October 31, 1996
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ASSETS:
Investment in Tax-Managed Growth Portfolio (Portfolio),
at value (Note 1A) (Identified cost $73,460,144) $77,680,740
Receivable for Fund shares sold 708,644
Deferred organization expenses (Note 1D) 31,929
-----------
Total assets $78,421,313
LIABILITIES:
Payable for Fund shares redeemed $772,865
Payable to affiliate --
Trustees' fees (Note 3) 14
Accrued expenses 4,893
--------
Total liabilities 777,772
-----------
NET ASSETS for 6,964,854 shares of beneficial interest
outstanding $77,643,541
===========
SOURCES OF NET ASSETS:
Paid-in capital $73,455,844
Accumulated net realized loss from Portfolio
(computed on the basis
of identified cost) (32,899)
Unrealized appreciation from Portfolio (computed on
the basis of identified cost) 4,220,596
-----------
Total $77,643,541
===========
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PRICE
PER SHARE (NOTE 6)
($77,643,541 / 6,964,854 shares of beneficial
interest outstanding) $11.15
======
See notes to financial statements
<PAGE>
STATEMENT OF OPERATIONS
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For the period from the start of business, March 28, 1996, to October 31, 1996
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INVESTMENT INCOME (NOTE 1B):
Dividend income allocated from Portfolio (net of
foreign taxes withheld, $943) $ 232,617
Interest income allocated from Portfolio 22,558
Expenses allocated from Portfolio (111,586)
----------
Net investment income allocated from
Portfolio $ 143,589
Expenses --
Compensation of Trustees not members of the
Administrator's organization (Note 3) $ 56
Custodian fees 1,820
Distribution fees (Note 5) 126,080
Transfer and dividend disbursing agent fees 14,564
Registration fees 8,991
Printing and postage 6,558
Amortization of organization expenses (Note 1D) 3,614
Legal and accounting services 678
Miscellaneous 3,684
----------
Total expenses 166,045
----------
Net investment loss $ (22,456)
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized loss from Portfolio (identified cost
basis) $ (32,899)
Unrealized appreciation of investments 4,220,596
----------
Net realized and unrealized gain 4,187,697
----------
Net increase in net assets from operations $4,165,241
==========
See notes to financial statements
<PAGE>
FINANCIAL STATEMENTS (Continued)
STATEMENT OF CHANGES IN NET ASSETS
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For the period from the start of business, March 28, 1996, to October 31, 1996
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INCREASE (DECREASE) IN NET ASSETS:
From operations --
Net investment loss $ (22,456)
Net realized loss on investments (32,899)
Unrealized appreciation of investments 4,220,596
-----------
Net increase in net assets from operations $ 4,165,241
-----------
Transactions in shares of beneficial interest (Note 4) --
Proceeds from sale of shares $74,098,398
Cost of shares redeemed (620,108)
-----------
Net increase from Fund share transactions $73,478,290
-----------
Net increase in net assets $77,643,531
NET ASSETS:
At beginning of period 10
-----------
At end of period $77,643,541
===========
See notes to financial statements
<PAGE>
FINANCIAL HIGHLIGHTS
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For the period from the start of business, March 28, 1996, to October 31, 1996
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NET ASSET VALUE, beginning of period $ 10.000
--------
INCOME FROM OPERATIONS:
Net investment loss $ (0.003)
Net realized and unrealized gain on investments 1.153
--------
Total income from operations $ 1.150
--------
NET ASSET VALUE, end of period $ 11.150
========
TOTAL RETURN(1) 11.50%
RATIOS/SUPPLEMENTAL DATA:
Ratio of expenses to average net assets(2) 1.63% +
Ratio of net investment loss to average net assets (0.13%)+
Net assets, end of period (000's omitted) $ 77,644
+ Annualized.
(1) Total investment return is calculated assuming a purchase at the net asset
value on the first day and a sale at the net asset value on the last day of
each period reported. Dividends and distributions, if any, are assumed to be
reinvested at the net asset value on the payable date. Total return is
computed on a non-annualized basis.
(2) Includes the Fund's share of Tax-Managed Growth Portfolio's allocated
expenses.
See notes to financial statements
<PAGE>
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NOTES TO FINANCIAL STATEMENTS
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(1) SIGNIFICANT ACCOUNTING POLICIES
EV Marathon Tax-Managed Growth Fund (the Fund) is a diversified series of Eaton
Vance Mutual Funds Trust (the Trust). The Trust is an 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 invests all of its investable assets in interests
in Tax-Managed Growth 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 (8.3% at October 31, 1996). 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 VALUATION -- Valuation of the 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 determined in accordance with generally accepted accounting
principles.
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 net investment income, and any
net realized capital gains. Accordingly, no provision for federal income or
excise tax is necessary. At October 31, 1996, the Fund for federal income tax
purposes, had a capital loss carryover of $18,834 which will reduce taxable
income arising from future net realized gains, if any, to the extent permitted
by the Internal Revenue Code, and thus will reduce the amount of distributions
to shareholders which would otherwise be necessary to relieve the Fund of any
liability for federal income or excise tax. Such capital loss carryover will
expire on October 31, 2004.
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. EXPENSE REDUCTION -- Investors Bank & Trust Company (IBT), serves as
custodian to the Fund and the Portfolio. 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 maintain with IBT. All
significant credit balances used to reduce the Fund's custodian fees are
reported as a reduction of expenses in the Statement of Operations.
F. USE OF ESTIMATES -- The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities at the date of the financial statements and the reported amounts of
revenue and expense during the reporting period. Actual results could differ
from those estimates.
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(2) DISTRIBUTIONS TO SHAREHOLDERS
It is the present policy of the Fund to make at least one distribution annually
(normally in December) of all or substantially all of the investment income
allocated to the Fund by the Portfolio, less the Fund's direct and allocated
expenses and at least one distribution annually of all or substantially all of
the net realized capital gains (reduced by any available capital loss
carryforwards from prior years) allocated by the Portfolio to the Fund, if any.
Shareholders may reinvest all distributions in shares of the Fund without a
sales charge at the net asset value per share as of the close of business on the
record date. 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 temporary over distributions for financial statement
purposes 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. During
the period ended October 31, 1996, $22,456 was reclassified from accumulated net
investment loss to paid-in capital due to permanent differences between book and
tax accounting for net operating loss carryovers. Net investment loss and net
assets were not affected by these reclassifications.
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(3) 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. See Note 2 of the Portfolio's Notes to
Financial Statements which are included elsewhere in this report. Except as to
Trustees of the Fund who are not members of EVM's organization, officers and
Trustees receive remuneration for their services to the Fund out of such
management fee. Certain officers and Trustees of the Fund and the Portfolio are
officers and directors/trustees of the above organizations (Note 5).
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(4) SHARES OF BENEFICIAL INTEREST
The Declaration of Trust permits the Trustees to issue an unlimited number of
full and fractional shares of beneficial interest (without par value).
Transactions in Fund shares for the period from the start of business, March 28,
1996, to October 31, 1996 were as follows:
Sales 7,023,683
Redemptions (58,829)
---------
Net increase 6,964,854
=========
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(5) 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) 5% 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 the
aggregate amount of contingent deferred sales charges (see Note 6) and daily
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 $126,080 to EVD for the period from the
start of business, March 28, 1996, to October 31, 1996, representing 0.75% of
average daily net assets. At October 31, 1996, the amount of Uncovered
Distribution Charges of EVD calculated under the Plan was approximately
$3,260,000.
In addition, the Plan authorizes the Fund to make payments of service fees to
the Principal Underwriter, Authorized Firms and other persons in amounts not
exceeding 0.25% of the Fund's average daily net assets for each fiscal year. The
Trustees have initially 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 0.25% per annum of the Fund's average
daily net assets based on the value of Fund shares sold by such persons and
remaining outstanding for at least one year. Service fee payments will be 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 EVD, and, as such, are not subject to automatic
discontinuance where there are no outstanding Uncovered Distribution Charges of
EVD. The Fund expects to begin accruing for its service fee payments during the
quarter ending June 30, 1997.
Certain officers and Trustees of the Fund are officers or directors of EVD.
- ------------------------------------------------------------------------------
(6) CONTINGENT DEFERRED SALES CHARGE
A contingent deferred sales charge (CDSC) is imposed on any redemption of Fund
shares made within six years of purchase. Generally, the CDSC is based upon the
lower of net asset value at date of redemption or date of purchase. No charge is
levied on shares acquired by reinvestment of dividends or capital gain
distributions. The CDSC is imposed at declining rates that begin at 5% in the
first and second year of redemption after purchase, declining one percentage
point each year thereafter. No CDSC is levied on shares which have been sold to
EVM or its affiliates or to their respective employees. CDSC charges are paid to
EVD to reduce the amount of Uncovered Distribution Charges calculated under the
Fund's Distribution Plan. CDSC charges received when no Uncovered Distribution
Charges exist will be retained by the Fund. EVD received $6,015 of CDSC paid by
shareholders for the period ended October 31, 1996.
- ------------------------------------------------------------------------------
(7) INVESTMENT TRANSACTIONS
Increases and decreases in the Fund's investment in the Portfolio aggregated
$74,194,469 and $845,015, respectively.
<PAGE>
INDEPENDENT AUDITORS' REPORT
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TO THE SHAREHOLDERS AND TRUSTEES OF
EATON VANCE MUTUAL FUNDS TRUST:
We have audited the accompanying statement of assets and liabilities of EV
Marathon Tax-Managed Growth Fund (one of the series constituting Eaton Vance
Mutual Funds Trust) as of October 31, 1996, and the related statements of
operations and changes in net assets and the financial highlights for the period
from the start of business, March 28, 1996, to October 31, 1996. These financial
statements and financial highlights are the responsibility of the Trust's
management. Our responsibility is to express an opinion on these financial
statements and financial highlights based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements and financial highlights are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit 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 audit provides a reasonable basis
for our opinion.
In our opinion, such financial statements and financial highlights present
fairly, in all material respects, the financial position of EV Marathon Tax-
Managed Growth Fund series of Eaton Vance Mutual Funds Trust at October 31,
1996, the results of its operations, the changes in its net assets, and its
financial highlights for the period from the start of business, March 28, 1996,
to October 31, 1996, in conformity with generally accepted accounting
principles.
DELOITTE & TOUCHE LLP
BOSTON, MASSACHUSETTS
NOVEMBER 29, 1996
<PAGE>
--------------------------------
TAX-MANAGED GROWTH PORTFOLIO
PORTFOLIO OF INVESTMENTS
OCTOBER 31, 1996
- --------------------------------------------------------------------------
COMMON STOCKS - 97.9%
- --------------------------------------------------------------------------
NAME OF COMPANY SHARES VALUE
- --------------------------------------------------------------------------
ADVERTISING - 0.5%
Interpublic Group of Cos., Inc. 106,000 $ 5,141,000
------------
AEROSPACE & DEFENSE - 2.1%
Boeing Co. 90,370 $ 8,619,039
Raytheon Co. 226,544 11,157,292
------------
$ 19,776,331
------------
BANKS - 1.0%
BankAmerica Corp. 20,812 $ 1,904,298
Citicorp 40,000 3,960,000
First Chicago NBD Corp. 43,007 2,193,353
Wells Fargo & Co. 4,265 1,139,288
------------
$ 9,196,939
------------
BEVERAGES - 6.4%
Anheuser-Busch Cos., Inc. 210,260 $ 8,095,010
Coca-Cola Co. 478,208 24,149,504
PepsiCo, Inc. 900,682 26,682,704
------------
$ 58,927,218
------------
BROADCAST & CABLE - 0.1%
Cox Communications Inc., Class A* 93,319 $ 1,726,402
------------
BUILDING MATERIALS - 0.3%
Masco Corp. 55,540 $ 1,742,567
Stanley Works 40,490 1,143,843
------------
$ 2,886,410
------------
BUSINESS SERVICES - 2.3%
Automatic Data Processing Inc. 211,040 $ 8,784,540
Ecolab Inc. 132,620 4,840,630
Electronic Data Systems Corp. 110,000 4,950,000
Manpower Inc. 110,000 3,121,250
------------
$ 21,696,420
------------
CHEMICALS - 2.5%
Bayer AG Sponsored ADR 40,000 $ 1,512,548
Dow Chemical Co. 25,248 1,963,032
DuPont (E.I.) de Nemours & Co., Inc. 44,800 4,155,200
Monsanto Co. 396,680 15,718,445
------------
$ 23,349,225
------------
COMMUNICATIONS EQUIPMENT - 2.0%
Ericsson (L.M.) Telephone Co. 66,000 $ 1,823,250
Nokia Corp. 280,000 12,985,000
Northern Telecom Ltd. 55,870 3,638,534
------------
$ 18,446,784
------------
COMPUTER SOFTWARE - 1.1%
Microsoft Corp.* 20,000 $ 2,745,000
Oracle Systems Corp.* 180,000 7,616,250
------------
$ 10,361,250
------------
COMPUTER & BUSINESS EQUIPMENT - 5.1%
Bay Networks, Inc.* 200,000 $ 4,050,000
Cisco Systems, Inc.* 75,000 4,640,624
Digital Equipment Corp.* 41,620 1,227,790
Hewlett-Packard Co. 481,928 21,265,073
Imation Corp.* 2,628 71,942
International Business Machines Corp. 67,921 8,761,809
Xerox Corp. 160,000 7,420,000
------------
$ 47,437,238
------------
CONTAINERS & PACKAGING - 0.5%
Crown Cork & Seal Co., Inc. 100,000 $ 4,800,000
------------
DISTRIBUTION - 0.5%
Super Valu Stores Inc. 51,506 $ 1,532,304
Sysco Corp. 107,760 3,663,840
------------
$ 5,196,144
------------
DRUGS - 10.0%
Astra AB-Series A 420,000 $ 19,321,973
Astra AB-ADR Series B 60,000 2,741,994
Bristol-Myers Squibb Co. 56,860 6,012,945
Elan Corp., PLC (ADRs)* 300,000 8,325,000
Genentech, Inc.* 34,000 1,831,750
Merck & Co., Inc. 239,075 17,721,434
Pfizer Inc. 290,752 24,059,728
Schering-Plough Corp. 128,120 8,199,680
Smithkline Beecham PLC 37,520 2,349,690
Warner-Lambert Co. 51,644 3,285,850
------------
$ 93,850,044
------------
ELECTRIC UTILITIES - 0.1%
Citizen's Utilities Co., Class A* 55,411 $ 602,595
------------
ELECTRICAL EQUIPMENT - 2.0%
AMP Inc. 112,460 $ 3,809,582
Emerson Electric Co. 75,474 6,717,186
General Electric Co. 74,114 7,170,530
Lincoln Electric Co. 19,700 546,675
Lincoln Electric Co. Class A 19,700 541,750
------------
$ 18,785,723
------------
ELECTRICAL - SEMICONDUCTORS - 6.5%
Intel Corp. 505,796 $ 55,574,335
Texas Instruments Inc. 84,390 4,061,269
------------
$ 59,635,604
------------
ENGINEERING & CONSTRUCTION - 0.1%
Gilbert Associates Inc. Class A 78,125 $ 1,015,625
------------
ENTERTAINMENT - 0.2%
Disney (Walt) Co. 29,000 $ 1,910,375
------------
ENVIRONMENTAL SERVICES - 0.3%
WMX Technologies, Inc. 77,930 $ 2,678,844
------------
FINANCIAL - MISCELLANEOUS - 2.1%
American Express Co. 56,798 $ 2,669,506
Federal National Mortgage Association 303,820 11,886,958
MGIC Investment Corp. 75,000 5,146,875
------------
$ 19,703,339
------------
FOOD - 1.6%
Pioneer Hi-Bred International, Inc. 87,000 $ 5,839,875
Earthgrains Co. 4,204 222,812
McCormick & Co., Inc., Non-voting 375,208 9,051,893
------------
$ 15,114,580
------------
HEALTH SERVICES - 0.7%
Columbia/HCA Healthcare Corp. 180,000 $ 6,435,000
Medpartners, Inc.* 17,696 373,828
------------
$ 6,808,828
------------
HOUSEHOLD PRODUCTS - 3.5%
Colgate-Palmolive Co. 21,826 $ 2,007,991
Duracell International Inc. 100,000 6,675,000
Kimberly-Clark Corp. 57,310 5,344,158
Procter & Gamble Co. 170,800 16,909,200
Rubbermaid Inc. 78,920 1,834,890
------------
$ 32,771,239
------------
INDUSTRIAL EQUIPMENT - 3.0%
Dover Corp. 164,580 $ 8,455,297
General Signal Corp. 68,600 2,795,450
Goulds Pumps, Inc. 110,539 2,556,214
Illinois Tool Works Inc. 10,000 702,500
Parker-Hannifin Corp. 76,099 2,882,250
Tecumseh Products Co. Class A 167,090 9,398,813
Tecumseh Products Co. Class B 18,320 980,120
------------
$ 27,770,644
------------
INFORMATION SERVICES - 3.3%
Dun & Bradstreet Corp. 137,006 $ 7,929,222
Reuters Holdings PLC, ADR 310,090 23,062,944
------------
$ 30,992,166
------------
INSURANCE - 7.4%
American International Group, Inc. 206,633 $ 22,445,510
Chubb Corp. 101,050 5,052,500
General Re Corp. 112,446 16,557,671
Highlands Insurance Group* 5,070 100,133
Kansas City Life Insurance Co. 35,400 1,982,400
Marsh & McLennan Cos., Inc. 62,172 6,473,660
Progressive Corp. (The) 50,000 3,437,500
Providian Corp. 46,794 2,199,318
Provident Companies Inc. 18,789 697,542
Seafield Capital Corp. 35,960 1,269,838
St. Paul Cos., Inc. 130,280 7,083,975
Torchmark Corp. 31,425 1,520,184
------------
$ 68,820,231
------------
MEDICAL PRODUCTS - 6.6%
Abbott Laboratories 80,000 $ 4,050,000
Bausch & Lomb Inc. 145,574 4,913,121
Baxter International, Inc. 170,828 7,110,716
Boston Scientific Corp.* 255,000 13,865,625
Johnson & Johnson 449,040 22,115,220
Medtronic, Inc. 72,000 4,635,000
Sofamor Danek Group, Inc.* 173,000 4,757,500
------------
$ 61,447,182
------------
METALS - 0.6%
Inco Ltd. 124,000 $ 3,937,000
Nucor Corp. 40,000 1,895,000
------------
$ 5,832,000
------------
NATURAL GAS UTILITIES - 0.4%
Enron Oil & Gas Co. 100,000 $ 2,575,000
Sonat, Inc. 27,200 1,339,600
------------
$ 3,914,600
------------
OIL & GAS - EXPLORATION & PRODUCTION - 2.2%
Anadarko Petroleum Corp. 161,000 $ 10,243,625
Apache Corp. 66,440 2,358,626
Louisiana Land & Exploration Corp. 25,000 1,421,875
Triton Energy Ltd.* 100,000 4,462,500
Union Pacific Resources Group, Inc. 79,796 2,194,386
------------
$ 20,681,012
------------
OIL & GAS - EQUIPMENT & SERVICES - 2.5%
Baker Hughes, Inc. 39,234 $ 1,397,711
Dresser Industries, Inc. 79,800 2,623,425
Halliburton Co. 50,700 2,870,888
Schlumberger Ltd. 168,393 16,691,956
------------
$ 23,583,980
------------
OIL & GAS - INTEGRATED - 3.1%
Amoco Corp. 47,928 $ 3,630,546
Atlantic Richfield Co. 20,883 2,766,998
Chevron Corp. 55,600 3,655,700
Exxon Corp. 100,704 8,924,892
Mobil Corp. 74,333 8,678,378
Murphy Oil Corp. 29,700 1,466,437
------------
$ 29,122,951
------------
PAPER & FOREST PRODUCTS - 1.0%
Allegiance Corp.* 22,661 $ 424,894
Champion International Corp. 41,484 1,804,554
Union Camp Corp. 80,309 3,915,064
Weyerhaeuser Co. 61,630 2,827,276
------------
$ 8,971,788
------------
PHOTOGRAPHY - 1.0%
Eastman Kodak Co. 122,181 $ 9,743,935
------------
PRINTING & BUSINESS FORMS - 1.1%
American Business Products Inc. GA 146,497 $ 3,259,558
Bowne & Co. Inc. 91,770 2,145,124
Deluxe Corp. 57,150 1,864,519
Donnelley, (R.R.) & Sons Co. 47,896 1,454,841
Harland, (John H.) Co. 51,540 1,604,183
Moore Corp., Ltd. 19,075 386,268
------------
$ 10,714,493
------------
PUBLISHING - 2.7%
Gannett Co., Inc. 130,450 $ 9,897,894
Harcourt General, Inc. 90,000 4,477,500
Houghton Mifflin Co. 63,700 3,161,113
McGraw-Hill Inc. 25,608 1,200,375
Times Mirror Co. Class A 151,670 7,014,737
------------
$ 25,751,619
------------
RESTAURANTS - 0.7%
McDonald's Corp. 143,100 $ 6,350,063
------------
RETAIL - GENERAL - 0.8%
Wal-Mart Stores, Inc. 274,390 $ 7,305,634
------------
RETAIL - FOOD & DRUG - 0.6%
Albertson's, Inc. 156,048 $ 5,364,150
------------
RETAIL - SPECIALTY & APPAREL - 2.5%
Home Depot, Inc. (The) 255,000 $ 13,961,250
Toys 'R' Us, Inc.* 287,075 9,724,666
------------
$ 23,685,916
------------
SPECIALTY - CHEMICALS & MATERIALS - 6.1%
Corning Inc. 100,000 $ 3,875,000
Dexter Corp. 47,829 1,482,697
Dionex Corp.* 181,070 6,925,928
Great Lakes Chemical Corp. 68,720 3,582,030
International Flavors & Fragrances, Inc. 148,101 6,127,679
International Specialty Products Inc.* 59,000 641,625
Loctite Corp. 177,167 10,386,415
Memtec Ltd. Sponsored ADR 77,500 2,644,688
Millipore Corp. 151,440 5,300,400
Minnesota Mining & Manufacturing Co. 26,288 2,014,318
Nalco Chemical Co. 196,020 7,130,228
Sealed Air Corp.* 180,000 6,997,500
------------
$ 57,108,508
------------
TOBACCO - 0.0%
Schweitzer-Mauduit International Inc. 5,731 $ 176,228
------------
TRANSPORTATION - 0.8%
CSX Corp. 15,270 $ 658,519
Flightsafety International, Ltd. 35,000 1,728,125
Union Pacific Corp. 94,210 5,287,536
------------
$ 7,674,180
------------
TOTAL COMMON STOCKS
(IDENTIFIED COST, $237,105,867) $916,829,437
------------
- --------------------------------------------------------------------------
SHORT-TERM OBLIGATIONS - 2.1%
- --------------------------------------------------------------------------
NAME OF COMPANY FACE AMOUNT VALUE
- --------------------------------------------------------------------------
Ford Motor Credit Company,
5.35%, due 11/6/96 $10,000,000 $ 9,992,570
Prudential Funding Corporation,
5.60%, due 11/1/96 9,626,000 9,626,000
------------
TOTAL SHORT-TERM OBLIGATIONS,
AT AMORTIZED COST $ 19,618,570
------------
TOTAL INVESTMENTS (IDENTIFIED COST,
$256,724,437) - 100% $936,448,007
OTHER ASSETS, LESS LIABILITIES - 0.0% 351,563
------------
NET ASSETS - 100% $936,799,570
============
*Non-income producing security.
See notes to financial statements
<PAGE>
--------------------------------
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
- ----------------------------------------------------------------------------
October 31, 1996
- ----------------------------------------------------------------------------
ASSETS:
Investments, at value (Note 1A) (identified cost,
$256,724,437) $936,448,007
Cash 30,274
Receivable for investments sold 504,059
Dividends receivable 572,932
Deferred organization expenses (Note 1C) 8,879
Other assets 64,669
------------
Total assets $937,628,820
LIABILITIES:
Payable for investments purchased $798,425
Payable to affiliate --
Trustees' fees (Note 2) 1,406
Accrued expenses 29,419
--------
Total liabilities 829,250
------------
NET ASSETS APPLICABLE TO INVESTORS' INTEREST IN PORTFOLIO $936,799,570
============
SOURCES OF NET ASSETS:
Net proceeds from capital contributions and
withdrawals $257,075,830
Unrealized appreciation of investments (computed
on the basis of identified cost) 679,723,740
------------
Total $936,799,570
============
See notes to financial statements
<PAGE>
STATEMENT OF OPERATIONS
- --------------------------------------------------------------------------------
For the period from the start of business, December 1, 1995, to October 31, 1996
- --------------------------------------------------------------------------------
INVESTMENT INCOME (NOTE 1B):
Income --
Dividends (net of foreign withholding taxes of $25,573) $ 4,931,924
Interest 442,263
-----------
Total income $ 5,374,187
Expenses --
Investment adviser fee (Note 2) $ 2,116,576
Compensation of Trustees not members of the
Investment Adviser's organization (Note 2) 9,500
Custodian fee 125,097
Legal and accounting services 1,200
Amortization of organization expenses (Note 1C) 2,007
Miscellaneous 15,099
-----------
Total expenses 2,269,479
-----------
Net investment income $ 3,104,708
-----------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS:
Net realized gain on investments, computed on
the basis of identified cost $ 9,582,500
Unrealized appreciation of investments 70,637,961
-----------
Net realized and unrealized gain on
investments 80,220,461
-----------
Net increase in net assets from operations $83,325,169
===========
See notes to financial statements
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
For the period from the start of business, December 1, 1995, to October 31, 1996
- --------------------------------------------------------------------------------
INCREASE IN NET ASSETS:
From operations --
Net investment income $ 3,104,708
Net realized gain on investments 9,582,500
Unrealized appreciation of investments 70,637,961
------------
Net increase in net assets from operations $ 83,325,169
------------
Capital transactions --
Contributions $871,076,582
Withdrawals (17,702,191)
------------
Increase in net assets from capital transactions $853,374,391
------------
Total increase in net assets $936,699,560
NET ASSETS:
At beginning of period 100,010
------------
At end of period $936,799,570
============
- --------------------------------------------------------------------------------
SUPPLEMENTARY DATA
- --------------------------------------------------------------------------------
For the period from the start of business, December 1, 1995, to October 31, 1996
- --------------------------------------------------------------------------------
RATIOS (AS A PERCENTAGE OF NET ASSETS):
Expenses 0.66%+
Net investment income 0.91%+
PORTFOLIO TURNOVER 6%
AVERAGE COMMISSION RATE PAID(1) $0.0585
+ Annualized.
(1) Average commission rate paid is computed by dividing the total dollar amount
of commissions paid during the fiscal year by the total number of shares
purchased and sold during the fiscal year for which commissions were
charged.
See notes to financial statements
<PAGE>
--------------------------------
NOTES TO FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
(1) SIGNIFICANT ACCOUNTING POLICIES
Tax-Managed Growth Portfolio (the "Portfolio") is registered under the
Investment Company Act of 1940 as a diversified, open-end management investment
company. The Portfolio, which was organized as a trust under the laws of the
State of New York on December 1, 1995, seeks to provide long-term after-tax
returns by investing in a diversified portfolio of equity securities. The
Declaration of Trust permits the Trustees to issue interests in the Portfolio.
Investment operations began on December 1, 1995, with the acquisition of
investments with a value of $115,586,248, including unrealized appreciation of
$96,618,064, in exchange for an interest in the Portfolio by one of the
Portfolio's investors. During the period, additional investors contributed
securities with a value of $639,241,121, including unrealized appreciation of
$512,467,715. The following is a summary of the significant accounting policies
followed by the Portfolio in preparation of its financial statements. The
policies are in conformity with generally accepted accounting principles.
A. INVESTMENT VALUATIONS -- Marketable securities, including options, that are
listed on foreign or U.S. securities exchanges or in the NASDAQ National Market
System are valued at closing sale prices, on the exchange where such securities
are principally traded. Futures positions on securities or currencies are
generally valued at closing settlement prices. Unlisted or listed securities for
which closing sale prices are not available are valued at the mean between the
latest bid and asked prices. Short-term debt securities with a remaining
maturity of 60 days or less are valued at amortized cost, which approximates
value. Other fixed income and debt securities, including listed securities and
securities for which price quotations are available, will normally be valued on
the basis of valuations furnished by a pricing service. Investments for which
valuations or market quotations are unavailable are valued at fair value using
methods determined in good faith by or at the direction of the Trustees.
B. 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 on its share of such income.
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 Internal Revenue Code) in order for its investors to
satisfy them. The Portfolio will allocate, at least annually among its
investors, each investor's distributive share of the Portfolio's net investment
income, net realized capital gains, and any other items of income, gain, loss,
deduction or credit.
C. DEFERRED ORGANIZATION EXPENSES -- Costs incurred by the Portfolio in
connection with its organization, are being amortized on the straight-line
basis over five years.
D. FUTURES CONTRACTS -- Upon the entering of a financial futures contract, the
Portfolio is required to deposit either in cash or securities an amount
("initial margin") 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 daily fluctuations
in the value of the underlying security, and are recorded for book purposes as
unrealized gains or losses by the Portfolio. The Portfolio's investment in
financial futures contracts is designed to hedge against anticipated future
changes in price of current or anticipated portfolio positions. Should prices
move unexpectedly, the Portfolio may not achieve the anticipated benefits of the
financial futures contracts and may realize a loss.
E. OTHER -- Investment transactions are accounted for on the date the
investments are purchased or sold. Dividend income is recorded on the ex-
dividend date. However, if the ex-dividend date has passed, certain dividends
from foreign securities are recorded as the Portfolio is informed of the ex-
dividend date. Interest income is recorded on the accrual basis.
F. USE OF ESTIMATES -- The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities at the date of the financial statements and the reported amounts of
revenue and expense during the reporting period. Actual results could differ
from those estimates.
G. EXPENSE REDUCTION -- Investors Bank & Trust Company (IBT) serves as custodian
of the Portfolio. Pursuant to the custodian agreement, IBT receives a fee
reduced by credits which are determined based on the average daily cash balances
the Portfolio maintains with IBT. All significant credit balances used to reduce
the Portfolio's custodian fees are reported as a reduction of expenses on the
Statement of Operations.
- -------------------------------------------------------------------------------
(2) INVESTMENT ADVISER FEE AND OTHER TRANSACTIONS WITH AFFILIATES
The investment adviser fee is earned by Boston Management and Research (BMR), a
wholly-owned subsidiary of Eaton Vance Management (EVM), as compensation for
management and investment advisory services rendered to the Portfolio. Under the
advisory agreement, BMR receives a monthly advisory fee of 5/96 of 1% (0.625%
annually) of the average daily net assets of the Portfolio up to $500,000,000,
and at reduced rates as daily net assets exceed that level. For the period from
the start of business, December 1, 1995, to October 31, 1996 the adviser fee was
0.618% of the Portfolio's average net assets (annualized). Except as to Trustees
of the Portfolio who are not members of EVM's or BMR's organization, officers
and Trustees receive remuneration for their services to the Portfolio out of
such investment adviser fee. 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 period ended October 31, 1996, no significant amounts
have been deferred. Certain of the officers and Trustees of the Portfolio are
officers or directors/trustees of the above organizations.
- -------------------------------------------------------------------------------
(3) INVESTMENT TRANSACTIONS
Purchases and sales of investments, other than short-term obligations,
aggregated $119,106,410 and $20,535,675, respectively.
- -------------------------------------------------------------------------------
(4) FEDERAL INCOME TAX BASIS OF INVESTMENT
The cost and unrealized appreciation (depreciation) in value of the
investments owned at October 31, 1996, as computed on a federal income tax
basis, are as follows:
Aggregate cost $256,724,437
============
Gross unrealized appreciation $682,343,179
Gross unrealized depreciation 2,619,609
------------
Net unrealized appreciation $679,723,570
============
- -------------------------------------------------------------------------------
(5) FINANCIAL INSTRUMENTS
The Portfolio may trade in financial instruments with off-balance sheet risk in
the normal course of its investing activities to assist in managing exposure to
various market risks. These financial instruments include written options,
forward foreign currency exchange contracts and financial futures contracts and
may involve, to a varying degree, elements of risk in excess of the amounts
recognized for financial statement purposes.
The notional or contractual amounts of these instruments represent the
investment the Portfolio has in particular classes of financial instruments and
does not necessarily represent the amounts potentially subject to risk. The
measurement of the risks associated with these instruments is meaningful only
when all related and offsetting transactions are considered.
The Portfolio did not have any open obligations under these financial
instruments at October 31, 1996.
- -------------------------------------------------------------------------------
(6) LINE OF CREDIT
The Portfolio participates with other portfolios and funds managed by BMR and
EVM and its affiliates in a $120 million unsecured line of credit agreement with
a bank. Borrowings will be made by the Portfolio solely to facilitate the
handling of unusual and/or unanticipated short-term cash requirements. Interest
is charged to each portfolio or fund based on its borrowings at the bank's base
rate or an amount above either the bank's adjusted certificate of deposit rate,
a Eurodollar rate, or a federal funds effective rate. In addition, a fee
computed at an annual rate of 0.15% on the average daily amount of the unused
portion of the facility is allocated among the participating funds and
portfolios at the end of each quarter. The Portfolio did not have any
significant borrowings or allocated fees during the period.
<PAGE>
INDEPENDENT AUDITORS' REPORT
- -------------------------------------------------------------------------------
TO THE TRUSTEES AND INVESTORS OF
TAX-MANAGED GROWTH PORTFOLIO:
We have audited the accompanying statement of assets and liabilities,
including the portfolio of investments of Tax-Managed Growth Portfolio as of
October 31, 1996, the related statements of operations, changes in net assets,
and the supplementary data for the period from the start of business, December
1, 1995, to October 31, 1996. These financial statements and supplementary data
are the responsibility of the Trust's management. Our responsibility is to
express an opinion on these financial statements and supplementary data based on
our audit.
We conducted our audit 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 the securities owned at October 31, 1996, by
correspondence with the custodian and brokers; where replies were not received
from brokers, we performed other audit procedures. 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 audit provides a reasonable basis for our opinion.
In our opinion, such financial statements and supplementary data present fairly,
in all material respects, the financial position of Tax-Managed Growth Portfolio
as of October 31, 1996, the results of its operations, the changes in its net
assets and its supplementary data for the period from the start of business,
December 1, 1995, to October 31, 1996, in conformity with generally accepted
accounting principles.
DELOITTE & TOUCHE LLP
BOSTON, MASSACHUSETTS
NOVEMBER 29, 1996
<PAGE>
INVESTMENT MANAGEMENT
EV MARATHON OFFICERS INDEPENDENT TRUSTEES
TAX-MANAGED
GROWTH FUND M. DOZIER GARDNER DONALD R. DWIGHT
24 Federal Street President, Trustee President, Dwight
Boston, MA 02110 Partners, Inc.
JAMES B. HAWKES Chairman, Newspapers of
Vice President, New England, Inc.
Trustee
SAMUEL L. HAYES, III
JAMES L. O'CONNOR Jacob H. Schiff
Treasurer Professor of
Investment Banking,
THOMAS OTIS Harvard University
Secretary Graduate School of Business
Administration
NORTON H. REAMER
President and Director,
United Asset Management Corporation
JOHN L. THORNDIKE
Director, Fiduciary Company
Incorporated
JACK L. TREYNOR
Investment Adviser and Consultant
--------------------------------------------
TAX-MANAGED OFFICERS INDEPENDENT TRUSTEES
GROWTH PORTFOLIO
24 Federal Street LANDON T. CLAY DONALD R. DWIGHT
Boston, MA 02110 President, Trustee President, Dwight
Partners, Inc.
JAMES B. HAWKES Chairman, Newspapers of
Vice President, New England, Inc.
Trustee
SAMUEL L. HAYES, III
DUNCAN W. RICHARDSON Jacob H. Schiff
Vice President and Professor of
Portfolio Manager Investment Banking,
Harvard University
JAMES L. O'CONNOR Graduate School of
Treasurer Business Administration
THOMAS OTIS NORTON H. REAMER
Secretary President and Director,
United Asset
Management Corporation
JOHN L. THORNDIKE
Director, Fiduciary
Company Incorporated
JACK L. TREYNOR
Investment Adviser and Consultant
