<PAGE>
INVESTMENT ADVISER OF
GOVERNMENT OBLIGATIONS PORTFOLIO
Boston Management and Research
24 Federal Street
Boston, MA 02110
ADMINISTRATOR OF EV TRADITIONAL
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
Attn: Eaton Vance Funds
P.O. Box 5123
Westborough, MA 01581-5123
(800) 262-1122
INDEPENDENT ACCOUNTANTS
Coopers & Lybrand L.L.P.
One Post Office Square
Boston, MA 02109
This report must be preceded or accompanied by a current prospectus which
contains more complete information on the Fund, including its distribution plan,
sales charges and expenses. Please read the prospectus carefully before you
invest or send money.
EV TRADITIONAL GOVERNMENT
OBLIGATIONS FUND
24 FEDERAL STREET
BOSTON, MA 02110 T-GOSRC-2/97
EV TRADITIONAL
GOVERNMENT
OBLIGATIONS
FUND
ANNUAL
SHAREHOLDER REPORT
DECEMBER 31, 1996
<PAGE>
To Shareholders
EV Traditional Government Obligations Fund had a total return of 4.5% for the
year ended December 31, 1996. That return included dividends of $0.812 per
share, offset in part by a decline in the Fund's net asset value per share of
$0.34, from $11.02 on December 31, 1995, to $10.68 on December 31, 1996. The
Fund's return does not include the effect of the Fund's 3.75% maximum applicable
sales charge.
For comparison, the Lehman Intermediate Government Index* - an unmanaged index
of intermediate-term U.S. government securities -- had a total return of 4.1%
during the same period. The Lehman Brothers Government/Corporate Bond Index --
an unmanaged index of government and corporate bonds with longer maturities --
had a total return of only 2.9% for the same period.
Based on the Fund's most recent dividend and its net asset value per share of
$10.68 on December 31, 1996, the Fund's annualized distribution rate was 7.58%.
Throughout 1996, the economy continued along a path of moderate growth and low
inflation, ordinarily a favorable backdrop for the fixed-income markets. Yet,
given the relatively stable economic trends, the bond market was unusually
volatile.
The bond market seemed poised to move higher in January when the Federal Reserve
lowered the Federal funds rate -- the rate banks pay for overnight loans and a
key short-term interest rate barometer -- to 5.25%. However, those hopes were
dampened by employment reports in March and April that showed relatively strong
job creation. Although the Fed indicated a bias for higher rates in its public
statements, it nonetheless left short-term rates unchanged through the remainder
of the year. Meanwhile, yields for five-year Treasury notes rose to 6.1% at the
end of 1996 from 5.6% at the beginning of the year.
In this difficult environment for fixed-income investors, mortgage-backed
securities outperformed Treasuries. Yield spreads between Treasuries and
mortgage-backed securities narrowed in 1996 as investors were drawn to the
attractive yields and high quality of U.S. government-guaranteed mortgage
securities.
By most measures, the economy continues to generate steady-but-unspectacular
growth, accompanied by manageable inflation. While past trends and relationships
may not hold in the future, such an economic environment normally has been
favorable for investors in mortgage-backed securities. We believe that EV
Traditional Government Obligations Fund with its emphasis on the seasoned sector
of the mortgage securities market will continue to provide attractive
competitive returns for conservative fixed-income investors.
[Photo of M. Dozier Gardner]
Sincerely,
/s/ M. Dozier Gardner
M. Dozier Gardner
President
February 20, 1997
*It is not possible to invest directly in the Indices.
<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 1996?
A. While the Treasury market suffered during the year from increasing
volatility, mortgage-backed securities (MBS) fared somewhat better. Even as
the Treasury market was declining, yield spreads for generic mortgage
securities narrowed significantly: from approximately 140 basis points
(1.4%) over Treasury bonds with similar durations at the beginning of the
year to around 100 basis points (1%) at year-end. Among seasoned mortgages,
the sector we focus on, spreads narrowed from 110 basis points to around 75
basis points.
Q. HOW WOULD YOU ASSESS THE FUND'S PERFORMANCE DURING THE YEAR?
A. The Fund's total return of 4.5% was significantly above that of the average
of all Short/Intermediate Government funds, according to Lipper Analytical
Services, Inc., a mutual fund ranking service. The Fund maintained its focus
on the seasoned sector of the mortgage market and also its relatively low
duration - around 2.8 years early in the year and 3.3 years at year-end -
which made it less vulnerable to the interest rate volatility that
characterized 1996.
================================================================================
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.
================================================================================
Q. WHY DID MORTGAGE SPREADS NARROW DURING THE YEAR?
A. Spreads narrowed for several reasons. First, investors were increasingly
looking for vehicles that could provide above-average yields.
Another factor was that, as interest rates started to climb in the U.S.,
estimates for prepayment rates began to fall. As prepayment rates fall,
investors historically move to the higher yields that mortgage-backed
securities offer.
[Photo of Susan Schiff]
SUSAN SCHIFF
Finally, seasoned mortgages, in particular, received much more attention
from institutional investors. Many of the proprietary mortgage security
indices now include a representative sampling of seasoned mortgages. That
has led to increased demand from institutional buyers.
Q. WHAT IMPACT DO RISING INTEREST RATES HAVE ON PREPAYMENT RATES?
A. Typically, in a rising interest rate environment, prepayment rates for
generic mortgages slow somewhat. Understandably, homeowners are less
inclined to refinance their mortgages when rates are on the rise. As a
result, the durations of these generic mortgage-backed securities generally
increase.
Q. AND HOW DO SEASONED MORTGAGE SECURITIES DIFFER?
A. Unlike generic mortgages, which may have wide fluctuations in prepayment
rates, seasoned mortgages - the Fund's primary investment universe - tend to
enjoy relatively stable prepayment rates even as interest rate conditions
change. That relative stability of prepayment rates gives investors a major
advantage.
First, cash flows are more predictable, making it less likely that an
investor will have to reinvest unanticipated prepayments at disadvantageous
interest rates. And second, more stable prepayment rates make the securities
less price-sensitive to changing interest rates.
Q. WHAT IS YOUR OUTLOOK FOR THE MARKET IN THE YEAR AHEAD?
A. The economy, while far from robust, has shown signs of picking up steam in
the past couple of months. In my view, there is relatively little room for
lower interest rates. By the same token, the economy doesn't appear strong
enough to generate significant inflation. Therefore, while it's difficult to
predict interest rate trends, we are very likely to see a relatively stable
rate environment. That should be a reasonably good scenario for investors in
mortgage-backed securities. And, in my view, the mortgage-backed securities
market will continue to offer good opportunities for investors seeking
quality and above-average yields.
- --------------------------------------------------------------------------------
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 16.1
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 15.3
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 22.4
Aug 93 56 21.9
Sep 93 57.2 24.6
Oct 93 58 21.2
Nov 93 62.2 22.6
Dec 93 62.7 27.6
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
Jan 96 22.9 12.6
Feb 96 27.3 14.3
Mar 96 29.9 17.2
Apr 96 29.9 17
May 96 24.5 19
Jun 96 17.7 15.2
Jul 96 17 15.5
Aug 96 15.4 14.5
Sep 96 14.9 14.3
Oct 96 15.7 13.2
Nov 96 15.4 13
Dec 96 18.1 13.4
This chart compares the prepayment rates of the Portfolio'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 December 1996. The
Headline reads: "The Portfolio's Seasoned Mortgage Securities Have Helped
Contribute to its Share Price Stability."
<PAGE>
- --------------------------------------------------------------------------------
COMPARISON OF CHANGE IN VALUE OF A $10,000 INVESTMENT IN EV TRADITIONAL
GOVERNMENT OBLIGATIONS FUND, THE LEHMAN BROTHERS INTERMEDIATE GOVERNMENT
BOND INDEX AND THE LIPPER SHORT-INTERMEDIATE US GOVERNMENT FUNDS AVERAGE
From December 31, 1986, through December 31, 1996
- --------------------------------------------------------------------
AVERAGE ANNUAL 1 5 10 Value at
RETURNS Year Years Years 12/31/96
- --------------------------------------------------------------------
With Max. Sales Charge 0.6% 5.3% 7.4% $20,420
- --------------------------------------------------------------------
Without Max. Sls. Chg. 4.5% 6.1% 7.8% $21,213
- --------------------------------------------------------------------
EVGOX vs. LB Int. Govt. Bond Index & Lipper Int. US Govt. Fund Avg.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------------
EV Traditional Fund, Lehman Brothers Lipper
Government including Intermediate Short-Intermediate
Obligations maximum Government US Government
Date Fund sales charge Bond Index Funds Average
- -------- -------------- ------------ --------------- ------------------
<C> <C> <C> <C> <C>
12/31/86 $10,000 $9,626 $10,000 $10,000
1/31/87 $10,090 $9,713 $10,090 $10,103
2/28/87 $10,197 $9,816 $10,141 $10,161
3/31/87 $10,172 $9,792 $10,118 $10,132
4/30/87 $10,038 $9,663 $9,939 $9,940
5/31/87 $10,038 $9,663 $9,917 $9,929
6/30/87 $10,141 $9,762 $10,034 $10,046
7/31/87 $10,093 $9,716 $10,056 $10,060
8/31/87 $10,109 $9,731 $10,030 $10,039
9/30/87 $10,011 $9,637 $9,905 $9,915
10/31/87 $10,186 $9,806 $10,200 $10,175
11/30/87 $10,301 $9,916 $10,261 $10,244
12/31/87 $10,417 $10,027 $10,361 $10,332
1/31/88 $10,721 $10,320 $10,618 $10,590
2/28/88 $10,854 $10,448 $10,730 $10,698
3/31/88 $10,812 $10,408 $10,685 $10,657
4/30/88 $10,789 $10,386 $10,667 $10,645
5/31/88 $10,766 $10,364 $10,616 $10,610
6/30/88 $10,941 $10,532 $10,789 $10,762
7/31/88 $10,907 $10,500 $10,756 $10,759
8/31/88 $10,912 $10,504 $10,770 $10,767
9/30/88 $11,092 $10,677 $10,957 $10,919
10/31/88 $11,263 $10,842 $11,108 $11,052
11/30/88 $11,199 $10,780 $11,012 $10,998
12/31/88 $11,194 $10,776 $11,023 $11,011
1/31/89 $11,310 $10,887 $11,134 $11,114
2/28/89 $11,262 $10,841 $11,086 $11,097
3/31/89 $11,213 $10,794 $11,138 $11,134
4/30/89 $11,483 $11,054 $11,363 $11,297
5/31/89 $11,715 $11,277 $11,582 $11,478
6/30/89 $12,011 $11,562 $11,877 $11,695
7/31/89 $12,288 $11,829 $12,119 $11,873
8/31/89 $12,131 $11,678 $11,955 $11,781
9/30/89 $12,198 $11,742 $12,012 $11,838
10/31/89 $12,482 $12,015 $12,265 $12,039
11/30/89 $12,593 $12,123 $12,386 $12,140
12/31/89 $12,673 $12,199 $12,422 $12,191
1/31/90 $12,565 $12,095 $12,345 $12,138
2/28/90 $12,590 $12,119 $12,391 $12,186
3/31/90 $12,638 $12,166 $12,405 $12,226
4/30/90 $12,561 $12,092 $12,363 $12,196
5/31/90 $12,839 $12,359 $12,628 $12,428
6/30/90 $13,015 $12,528 $12,793 $12,577
7/31/90 $13,204 $12,711 $12,972 $12,739
8/31/90 $13,113 $12,623 $12,926 $12,713
9/30/90 $13,223 $12,728 $13,041 $12,811
10/31/90 $13,393 $12,892 $13,222 $12,959
11/30/90 $13,624 $13,115 $13,422 $13,154
12/31/90 $13,809 $13,293 $13,607 $13,324
1/31/91 $13,971 $13,449 $13,747 $13,453
2/28/91 $14,035 $13,510 $13,831 $13,526
3/31/91 $14,101 $13,574 $13,907 $13,599
4/30/91 $14,267 $13,734 $14,050 $13,736
5/31/91 $14,333 $13,797 $14,129 $13,817
6/30/91 $14,388 $13,850 $14,140 $13,822
7/31/91 $14,532 $13,989 $14,293 $13,974
8/31/91 $14,821 $14,267 $14,564 $14,229
9/30/91 $15,059 $14,496 $14,812 $14,466
10/31/91 $15,260 $14,689 $14,981 $14,628
11/30/91 $15,409 $14,833 $15,156 $14,777
12/31/91 $15,801 $15,210 $15,525 $15,112
1/31/92 $15,642 $15,057 $15,375 $14,949
2/28/92 $15,708 $15,121 $15,423 $14,994
3/31/92 $15,597 $15,014 $15,361 $14,944
4/30/92 $15,664 $15,078 $15,500 $15,064
5/31/92 $15,842 $15,250 $15,731 $15,279
6/30/92 $16,039 $15,439 $15,957 $15,484
7/31/92 $16,279 $15,670 $16,264 $15,736
8/31/92 $16,435 $15,821 $16,429 $15,881
9/30/92 $16,664 $16,041 $16,656 $16,053
10/31/92 $16,519 $15,901 $16,456 $15,868
11/30/92 $16,447 $15,832 $16,387 $15,816
12/31/92 $16,636 $16,015 $16,602 $16,009
1/31/93 $16,960 $16,326 $16,911 $16,262
2/28/93 $17,271 $16,625 $17,159 $16,465
3/31/93 $17,419 $16,768 $17,223 $16,523
4/30/93 $17,570 $16,913 $17,357 $16,630
5/31/93 $17,555 $16,898 $17,310 $16,602
6/30/93 $17,745 $17,081 $17,561 $16,794
7/31/93 $17,859 $17,192 $17,596 $16,838
8/31/93 $18,083 $17,407 $17,858 $17,055
9/30/93 $18,169 $17,490 $17,932 $17,099
10/31/93 $18,192 $17,512 $17,975 $17,130
11/30/93 $18,106 $17,429 $17,885 $17,050
12/31/93 $18,177 $17,498 $17,958 $17,118
1/31/94 $18,321 $17,636 $18,136 $17,257
2/28/94 $18,124 $17,446 $17,888 $17,062
3/31/94 $17,841 $17,174 $17,626 $16,835
4/30/94 $17,681 $17,021 $17,512 $16,705
5/31/94 $17,667 $17,007 $17,524 $16,685
6/30/94 $17,665 $17,005 $17,528 $16,678
7/31/94 $17,888 $17,220 $17,757 $16,838
8/31/94 $17,933 $17,262 $17,809 $16,874
9/30/94 $17,784 $17,120 $17,661 $16,759
10/31/94 $17,790 $17,125 $17,664 $16,764
11/30/94 $17,729 $17,067 $17,585 $16,692
12/31/94 $17,808 $17,142 $17,643 $16,729
1/31/95 $18,083 $17,407 $17,931 $16,966
2/28/95 $18,440 $17,751 $18,277 $17,245
3/31/95 $18,547 $17,854 $18,377 $17,331
4/30/95 $18,761 $18,060 $18,590 $17,495
5/31/95 $19,240 $18,520 $19,115 $17,908
6/30/95 $19,343 $18,620 $19,237 $18,001
7/31/95 $19,308 $18,586 $19,246 $18,007
8/31/95 $19,531 $18,801 $19,406 $18,153
9/30/95 $19,655 $18,920 $19,536 $18,267
10/31/95 $19,924 $19,179 $19,751 $18,450
11/30/95 $20,118 $19,366 $19,992 $18,647
12/31/95 $20,295 $19,537 $20,190 $18,819
1/31/96 $20,441 $19,677 $20,360 $18,956
2/28/96 $20,214 $19,458 $20,144 $18,778
3/31/96 $20,166 $19,412 $20,051 $18,705
4/30/96 $20,126 $19,373 $19,993 $18,658
5/31/96 $20,080 $19,329 $19,983 $18,643
6/30/96 $20,353 $19,592 $20,187 $18,792
7/31/96 $20,395 $19,633 $20,249 $18,850
8/31/96 $20,391 $19,629 $20,272 $18,865
9/30/96 $20,722 $19,947 $20,533 $19,084
10/31/96 $21,023 $20,237 $20,870 $19,357
11/30/96 $21,314 $20,518 $21,122 $19,560
12/31/96 $21,213 $20,420 $21,008 $19,482
Past performance is not indicative of future results. Investment returns and principal value 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.
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
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 lines on the chart represent 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 black 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. It is not possible to invest directly
in the Index. The black dotted line represents the performance of the Lipper
Short-Intermediate U.S. Government Fund 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
incurred if an investor individually purchased or sold the Funds represented in
the Index.
<PAGE>
-----------------------------------
EV TRADITIONAL GOVERNMENT OBLIGATIONS FUND
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
- --------------------------------------------------------------------------------
December 31, 1996
- --------------------------------------------------------------------------------
ASSETS:
Investment in Government Obligations Portfolio (Portfolio),
at value (Note 1A) $304,417,999
Receivable for Fund shares sold 122,538
------------
Total assets $304,540,537
LIABILITIES:
Dividends payable $945,362
Payable for Fund shares redeemed 554,247
Payable to affiliates -
Trustees' fees 820
Accrued expenses 76,697
--------
Total liabilities 1,577,126
------------
NET ASSETS for 28,380,431 shares of beneficial interest
outstanding $302,963,411
============
SOURCES OF NET ASSETS:
Paid-in capital $342,795,653
Accumulated net realized loss on investments and
financial futures transactions from Portfolio
(computed on the basis of idenitified cost) (55,219,668)
Unrealized appreciation of investments from
Portfolio
(computed on the basis of identified cost) 16,332,788
Accumulated distributions in excess of net
investment income (945,362)
------------
Total net assets $302,963,411
============
NET ASSET VALUE AND REDEMPTION PRICE PER SHARE
($302,963,411 / 28,380,431 shares of beneficial interest) $10.68
======
COMPUTATION OF OFFERING PRICE:
Offering price per share (100/96.25 of $10.68) $11.10
======
On sales of $100,000 or more, the offering price is reduced.
The accompanying notes are an integral part of the financial statements
<PAGE>
STATEMENT OF OPERATIONS
- ------------------------------------------------------------------------------
For the Year Ended December 31, 1996
- ------------------------------------------------------------------------------
INVESTMENT INCOME (NOTE 1B):
Interest income allocated from Portfolio $ 30,693,746
Expenses allocated from Portfolio (4,959,507)
------------
$ 25,734,239
Total investment income
Expenses -
Compensation of Trustees not members of the
Administrator's organization (Note 5) $ 3,210
Custodian fee 24,076
Distribution and service fees (Note 6) 619,705
Transfer and dividend disbursing agent fees 283,674
Printing and postage 84,551
Legal and accounting services 11,549
Registration fees 22,827
Miscellaneous 7,669
------------
Total expenses 1,057,261
------------
Net investment income $ 24,676,978
REALIZED AND UNREALIZED LOSS FROM PORTFOLIO:
Net realized loss (identified cost basis) -
Investment transactions $ (3,202,816)
Financial futures contracts (292,612)
------------
Net realized loss on investments $ (3,495,428)
Change in unrealized appreciation of
investments (7,582,158)
------------
Net realized and unrealized loss on
investments from Portfolio (11,077,586)
------------
Net increase in net assets resulting from operations $ 13,599,392
============
The accompanying notes are an integral part of the financial statements
<PAGE>
<TABLE>
<CAPTION>
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
--------------------------------
1996 1995
------------ ------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
From operations -
Net investment income $ 24,676,978 $ 28,391,483
Net realized loss on investments (3,495,428) (11,640,757)
Change in unrealized appreciation (depreciation) of
investments (7,582,158) 32,964,114
------------ ------------
Net increase in net assets from operations $ 13,599,392 $ 49,714,840
------------ ------------
Distributions to shareholders -
From net investment income $(24,581,667) $(28,339,410)
------------ ------------
Net decrease in net assets from Fund share transactions
(Note 3) $(45,792,109) $(47,823,194)
------------ ------------
Net decrease in net assets $(56,774,384) $(26,447,764)
NET ASSETS:
At beginning of year 359,737,795 386,185,559
------------ ------------
At end of year (including accumulated distributions in
excess of net investment income of $1,070,851 and
$1,166,162, respectively) $302,963,411 $359,737,795
============ ============
</TABLE>
The accompanying notes are an integral part of the financial statements
<PAGE>
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS
- ----------------------------------------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
-----------------------------------------------------------------
1996 1995 1994 1993 1992
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, beginning of year $11.020 $10.420 $11.480 $11.380 $11.800
------- ------- ------- ------- -------
INCOME FROM OPERATIONS:
Net investment income $ 0.810 $ 0.807 $ 0.805 $ 0.919 $ 0.975
Net realized and unrealized gain (loss)
on investments (0.340) 0.603 (1.029) 0.106 (0.388)
------- ------- ------- ------- -------
Total income (loss) from operations $ 0.470 $ 1.410 $(0.224) $ 1.025 $ 0.587
------- ------- ------- ------- -------
LESS DISTRIBUTIONS:
From net investment income $(0.810) $(0.810) $(0.805) $(0.919) $(1.007)
In excess of net investment income -- -- (0.031) (0.006) --
------- ------- ------- ------- -------
Total distributions $(0.810) $(0.810) $(0.836) $(0.925) $(1.007)
------- ------- ------- ------- -------
NET ASSET VALUE, end of year $10.680 $11.020 $10.420 $11.480 $11.380
======= ======= ======= ======= =======
TOTAL RETURN(2) 4.52% 13.97% (2.03)% 9.26% 5.29%
RATIOS/SUPPLEMENTAL DATA:
Ratio of interest expense to average net assets 0.70%* 0.71%* 0.56%* 0.40%* 0.31%
Ratio of other expenses to average net assets 1.16%* 1.16%* 1.17%* 1.12%* 1.10%
Ratio of net investment income to average net assets 7.59% 7.53% 7.70% 7.86% 8.52%
PORTFOLIO TURNOVER** -- -- -- 52% 26%
NET ASSETS, end of year (000's omitted) $302,963 $359,738 $386,186 $503,150 $468,960
LEVERAGE ANALYSIS:(1)
Average daily balance of debt outstanding during period
(000's omitted) -- -- -- $ 2,313 $ 1,687
Average weekly balance of shares outstanding during period
(000's omitted) -- -- -- 43,731 37,474
Average amount of debt per share during period -- -- -- $ 0.053 $ 0.045
*Includes the Fund's share of Government Obligations Portfolio's allocated expenses.
**Portfolio Turnover represents the rate of portfolio activity for the period while the Fund was making investments directly in
securities. The Portfolio Turnover for the period since the Fund transferred substantially all of its investable assets to the
Portfolio is shown in the Portfolio's financial statements which are included elsewhere in this report.
(1)The Leverage Analysis is for the period prior to the date the Fund transferred substantially all of its investable assets to the
Portfolio. For subsequent periods, the leverage analysis is shown in the Portfolio's financial statements which are included
elsewhere in this report.
(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.
</TABLE>
The accompanying notes are an integral part of the financial statements
<PAGE>
-----------------------------------
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996
- --------------------------------------------------------------------------------
(1) SIGNIFICANT ACCOUNTING POLICIES
EV Traditional 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 the 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 (66.8% at December 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 securities by the Portfolio is discussed
in Note 1A 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 TAX -- 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, options and financial futures transactions.
Accordingly, no provision for federal income or excise tax is necessary. At
December 31, 1996, the Fund, for federal income and excise tax purposes, had a
capital loss carryover of $42,090,122 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, 1997 $ (4,277,560), December
31, 1998 $(6,941,299), December 31, 1999 $(1,545,746), December 31, 2000
$(5,952,987), December 31, 2002 $(14,269,677), December 31, 2003 $(2,262,938)
and December 31, 2004 $(6,839,915).
D. 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 maintains with IBT. All significant
credit balances used to reduce the Fund's custodian fees are reflected as a
reduction of operating expenses on the statement of operations.
E. 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
income and expense during the reporting period. Actual results could differ from
those estimates.
- --------------------------------------------------------------------------------
(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. 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. During
the year ended December 31, 1996, reclassifications were made among the Fund's
capital accounts primarily due to the expiration of capital loss carryovers. Net
investment income, net realized gains and net assets were not affected by this
reclassification.
- --------------------------------------------------------------------------------
(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,
------------------------------------------------------------------
1996 1995
----------------------------- -----------------------------------
SHARES AMOUNT SHARES AMOUNT
---------- ------------ ---------- ------------
<S> <C> <C> <C> <C>
Sales 1,855,497 $ 19,913,181 2,554,842 $ 27,136,261
Issued to shareholders electing to receive
payment of distributions in Trust shares 1,112,439 11,926,517 1,310,585 14,149,265
Redemptions (7,221,418) (77,631,807) (8,289,876) (89,108,720)
---------- ------------ ---------- ------------
Net decrease (4,253,482) $(45,792,109) (4,424,449) $(47,823,194)
========== ============ ========== ============
</TABLE>
- --------------------------------------------------------------------------------
(4) INVESTMENT TRANSACTIONS
Increases and decreases in the Fund's investment in the Portfolio for the year
ended December 31, 1996, aggregated $21,324,288 and $93,422,514, 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. Certain of the officers and Trustees of the Fund and
Portfolio are officers and trustees of the above organizations. Except as to
Trustees of the Fund and the Portfolio who are not members of EVM's of BMR's
organization, officers and Trustees receive remuneration for their services to
the Fund out of such investment adviser fee earned by BMR.
- --------------------------------------------------------------------------------
(6) SERVICE PLAN
The Fund adopted a Service Plan on July 7, 1993 designed to meet the
requirements of Rule 12b-1 under the Investment Company Act of 1940 and the
service fee requirements of the revised sales charge rule of The National
Association of Securities Dealers Inc. The Service Plan replaced the Fund's
distribution plan which became effective on July 9, 1984. The Service Plan
provides that the Fund may make service fee payments to the Principal
Underwriter, Eaton Vance Distributors, Inc., a subsidiary of Eaton Vance
Management, Authorized Firms or other persons in amounts not exceeding 0.25% of
the Fund's average daily net assets for any fiscal year. The Trustees have
implemented the Service Plan by authorizing the Fund to make quarterly service
fee payments to the Principal Underwriter and Authorized Firms in amounts not
expected to exceed 0.25% of the Fund's average daily net assets for any fiscal
year which is attributable to shares of the Fund sold by such persons and
remaining outstanding for at least twelve months. Such payments are made for
personal services and/or the maintenance of shareholder accounts. Provision for
service fee payments amounted to $619,705 for the year ended December 31, 1996.
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
- --------------------------------------------------------------------------------
TO THE SHAREHOLDERS AND BOARD OF TRUSTEES OF
EV TRADITIONAL GOVERNMENT OBLIGATIONS FUND:
We have audited the accompanying statement of assets and liabilities of EV
Traditional Government Obligations Fund a series of Eaton Vance Mutual Funds
Trust (formerly Eaton Vance Government Obligations Trust), as of December 31,
1996, and the related statement 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 each of the five years in the period
ended December 31, 1996. 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 held as of
December 31, 1996 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
Traditional Government Obligations Fund, a series of Eaton Vance Mutual Funds
Trust, as of December 31, 1996, 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 each of the five years in the
period ended December 31, 1996, in conformity with generally accepted accounting
principles.
COOPERS & LYBRAND L.L.P.
BOSTON, MASSACHUSETTS
JANUARY 31, 1997
<PAGE>
--------------------------------------------
GOVERNMENT OBLIGATIONS PORTFOLIO
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1996
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------
MORTGAGE PASS-THROUGHS - 94.6%
- ------------------------------------------------------------------------------------------------
PRINCIPAL AMOUNT VALUE
- ------------------------------------------------------------------------------------------------
<C> <C> <C>
FEDERAL HOME LOAN MORTGAGE CORP. PARTICIPATION CERTIFICATES:
4.5s, with maturity at 2000 $ 35,225 $ 34,816
4.75s, with various maturities to 2002 39,531 38,213
5s, with various maturities to 2003 547,008 532,289
5.25s, with various maturities to 2005 280,440 273,764
5.5s, with various maturities to 2011 1,116,871 1,095,819
5.75s, with maturity at 1998 30,394 30,073
6s, with various maturities to 2022 3,266,400 3,215,535
6.25s, with various maturities to 2013 784,719 774,897
6.5s, with various maturities to 2022 9,774,620 9,731,201
6.75s, with various maturities to 2011 8,194,090 8,215,112
7s, with various maturities to 2019 13,231,084 13,318,106
7.25s, with maturity at 2003 1,436,984 1,459,947
7.5s, with various maturities to 2019 16,610,037 16,930,917
7.75s, with various maturities to 2018 3,644,609 3,728,701
8s, with various maturities to 2026 23,387,702 24,127,801
8.25s, with various maturities to 2011 12,739,769 13,248,009
8.5s, with various maturities to 2024 25,553,426 26,697,207
8.75s, with various maturities to 2014 3,198,806 3,355,347
9s, with various maturities to 2020 9,971,101 10,567,262
9.25s, with various maturities to 2010 3,226,416 3,421,127
9.5s, with various maturities to 2016 1,093,634 1,164,516
10s, with various maturities to 2017 247,677 266,754
11s, with various maturities to 2019 2,283,131 2,546,899
12s, with various maturities to 2019 1,849,311 2,114,257
12.25s, with various maturities to 2019 3,546,507 4,089,878
12.5, with various maturities to 2019 10,553,673 12,181,759
12.75s, with various maturities to 2015 1,481,400 1,710,764
13s, with various maturities to 2019 4,194,140 4,902,034
13.25s, with various maturities to 2019 433,304 511,765
13.5s, with various maturities to 2015 5,138,048 6,015,469
13.75s, with various maturities to 2014 77,914 91,992
14s, with various maturities to 2016 2,601,177 3,097,983
14.5s, with various maturities to 2014 251,426 302,092
14.75s, with maturity at 2010 869,896 1,041,387
15s, with various maturities to 2013 1,011,363 1,243,920
15.25s, with maturity at 2012 146,326 182,021
15.5s, with various maturities to 2012 221,729 272,442
16s, with various maturities to 2012 193,676 243,438
16.25s, with various maturities to 2012 246,354 309,693
------------
$183,085,206
------------
FEDERAL NATIONAL MORTGAGE ASSOCIATION MORTGAGE BACKED SECURITIES:
0.25s, with maturity at 2014 $ 215,021 $ 177,975
3.5s, with maturity at 2007 135,951 124,573
4.5s, with maturity at 1999 6,754 6,608
5s, with various maturities to 2017 918,091 881,079
5.25s, with various maturities to 2006 223,879 216,518
5.5s, with various maturities to 2006 641,584 631,116
5.75s, with maturity at 2003 150,934 148,870
6s, with various maturities to 2010 18,589,538 18,320,436
6.25s, with various maturities to 2007 531,751 526,670
6.5s, with various maturities to 2017 1,489,920 1,475,444
6.75s, with various maturities to 2007 1,036,908 1,037,932
7s, with various maturities to 2018 6,678,466 6,723,125
7.25s, with various maturities to 2017 1,954,005 1,978,161
7.5s, with various maturities to 2020 10,968,264 11,159,894
7.75s, with various maturities to 2008 1,457,637 1,496,350
8s, with various maturities to 2019 30,533,382 31,514,234
8.25s, with various maturities to 2020 12,223,103 12,709,460
8.5s, with various maturities to 2020 19,216,638 20,096,336
8.75s, with various maturities to 2017 1,376,416 1,451,580
9s, with various maturities to 2020 8,904,329 9,447,509
9.25s, with maturity to 2016 4,229,220 4,499,458
9.5s, with maturity at 2009 281,865 303,415
9.75s, with maturity at 2019 383,565 416,656
11s, with maturity at 2010 37,491 41,723
11.75s, with various maturities to 2015 2,188,895 2,504,862
12s, with various maturities to 2020 5,636,192 6,444,271
12.25s, with maturity at 2015 3,641,106 4,219,800
12.5s, with various maturities to 2021 9,134,110 10,567,797
12.75s, with various maturities to 2014 1,664,462 1,943,091
13s, with various maturities to 2019 9,229,912 10,819,747
13.25s, with various maturities to 2015 2,182,297 2,585,350
13.5s, with various maturities to 2015 3,699,675 4,408,069
13.75s, with various maturities to 2014 179,000 214,745
14s, with various maturities to 2014 758,379 912,472
14.25s, with various maturities to 2014 296,106 360,647
14.5s, with various maturities to 2014 231,794 281,183
14.75s, with maturity at 2012 4,111,887 5,002,898
15s, with various maturities to 2013 3,311,144 4,063,568
15.5s, with maturity at 2012 999,905 1,247,024
15.75s, with maturity at 2011 31,307 39,074
16s, with maturity at 2012 378,790 477,810
------------
$181,477,530
------------
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION MORTGAGE BACKED SECURITIES:
5.5s, with maturity at 1999 $ 30,221 $ 29,949
6.5s, with various maturities to 2002 524,161 523,776
7.25s, with various maturities to 2022 4,237,361 4,285,295
7.5s, with maturity at 2017 1,038,880 1,063,014
8s, with various maturities to 2017 21,249,564 22,055,520
8.25s, with various maturities to 2008 547,870 572,399
8.5s, with various maturities to 2018 4,546,019 4,813,879
9s, with various maturities to 2016 5,524,433 5,880,891
11.5s, with maturity at 2013 409,896 465,957
12s, with various maturities to 2015 3,673,527 4,243,592
12.5s, with various maturities to 2015 2,072,039 2,429,837
13s, with various maturities to 2014 1,286,371 1,526,110
13.5s, with various maturities to 2013 350,251 417,217
14s, with various maturities to 2015 208,747 252,203
14.5s, with various maturities to 2014 509,854 623,099
15s, with various maturities to 2013 827,445 1,022,294
16s, with various maturities to 2012 412,808 522,846
------------
$ 50,727,878
------------
COLLATERALIZED MORTGAGE OBLIGATIONS:
Federal Home Loan Mtg. Corp.
Series 1188-GC, 7.5%, due 2019, Collateral 100% FHLMC PC $10,000,000 $ 10,120,310
Federal Home Loan Mtg. Corp.
Series B Class 3, 12.5%, due 2013,
Collateral 100% FHLMC PC 195,131 225,620
Federal National Mtg. Association
Series 93-73E, 6.35%, due 2019
Collateral 100% FNMA MBS 3,000,000 2,936,250
Guaranteed Mtg. Corp. III Series H2, 9% due 2015, Collateral
100% FNMA MBS 562,561 559,397
Salomon Brothers Mortgage Securities II,
Inc. Series III, Class Z, 11.50%, due 2015 Collateral 100%
GNMA/FNMA MBS 1,583,123 1,728,572
------------
$ 15,570,149
------------
TOTAL MORTGAGE PASS-THROUGHS
(identified cost, $426,094,126) $430,860,763
------------
<CAPTION>
- ------------------------------------------------------------------------------------------------
UNITED STATES TREASURY BONDS - 17.1%
- ------------------------------------------------------------------------------------------------
PRINCIPAL AMOUNT VALUE
- ------------------------------------------------------------------------------------------------
<S> <C> <C>
U.S. Treasury Bond, 12s, 8/15/13++ $50,000,000 $ 71,546,900
U.S. Treasury Bond, 7.125s, 2/15/23+ 6,000,000 6,264,378
------------
TOTAL UNITED STATES TREASURY BONDS
(identified cost, $67,368,569) $ 77,811,278
------------
<CAPTION>
- ------------------------------------------------------------------------------------------------
SHORT-TERM INVESTMENTS - 0.1%
- ------------------------------------------------------------------------------------------------
<S> <C> <C>
Banque National de Paris Cayman Time-Deposit, 5.625%, 1/2/97
at value $ 400,000 $ 400,000
------------
TOTAL INVESTMENTS - 111.8%
(identified cost, $493,862,695) $509,072,041
OTHER ASSETS, LESS LIABILITIES - (11.8%) (53,549,493)
------------
NET ASSETS - 100% $455,522,548
============
+Collateral for financial futures contracts held at December 31, 1996 (See Note 7).
++A portion of this security is on loan at December 31, 1996 (See Note 5).
</TABLE>
The accompanying notes are an integral part of the financial statements
<PAGE>
--------------------------------------------
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
- -----------------------------------------------------------------------------
December 31, 1996
- -----------------------------------------------------------------------------
ASSETS:
Investments, at value (Note 1A) (identified cost,
$493,862,695) $509,072,041
Cash 47,120
Receivable for daily variation margin on open
financial futures contracts (Note 1G) 296,089
Receivable for investments sold 869,574
Interest receivable 5,903,903
Deferred organization expenses (Note 1H) 6,952
------------
Total assets $516,195,679
LIABILITIES:
Liability for collateral received for securities
loaned (Note 5) $60,639,200
Payable to affiliate --
Trustees' fees 4,796
Accrued expenses 29,135
-----------
Total liabilities 60,673,131
------------
NET ASSETS applicable to investors' interest
in Portfolio $455,522,548
============
SOURCES OF NET ASSETS:
Net proceeds from capital contributions and
withdrawals $439,437,993
Unrealized appreciation of investments and
financial futures contracts (computed on
the basis of identified cost) 16,084,555
------------
Total net assets $455,522,548
============
The accompanying notes are an integral part of the financial statements
<PAGE>
STATEMENT OF OPERATIONS
- -----------------------------------------------------------------------------
For the Year Ended December 31, 1996
- -----------------------------------------------------------------------------
INVESTMENT INCOME:
Interest income - $ 45,154,049
Expenses --
Investment adviser fee (Note 3) $ 3,603,385
Compensation of Trustees not members of the
Administrator's organization (Note 3) 19,573
Custodian fee 225,407
Interest (Note 5) 3,363,924
Legal and accounting services 45,052
Amortization of organization expenses
(Note 1H) 3,821
Miscellaneous 34,518
-----------
Total expenses 7,295,680
------------
Net investment income $ 37,858,369
------------
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS:
Net realized loss (identified cost basis) --
Investment transactions $(4,975,414)
Financial futures contracts (428,853)
-----------
Net realized loss on investments $(5,404,267)
Change in unrealized appreciation
(depreciation) --
Investments (identified cost basis) $(12,261,683)
Financial futures contracts 1,449,278
-----------
Net unrealized appreciation of investments $(10,812,405)
------------
Net realized and unrealized loss on
investments $(16,216,672)
------------
Net increase in net assets from operations $ 21,641,697
============
The accompanying notes are an integral part of the financial statements
<PAGE>
<TABLE>
<CAPTION>
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
--------------------------------
1996 1995
---- ----
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
From operations --
Net investment income $ 37,858,369 $ 41,114,428
Net realized loss on investments (5,404,267) (15,704,668)
Change in unrealized appreciation (depreciation) of investments (10,812,405) 44,867,799
------------ --------------
Net increase in net assets from operations $ 21,641,697 $ 70,277,559
------------ --------------
Capital transactions --
Contributions $ 66,333,513 $ 95,964,004
Withdrawals (154,241,567) (160,122,171)
------------ --------------
Decrease in net assets resulting from capital transactions $(87,908,054) $ (64,158,167)
------------ --------------
Total increase (decrease) in net assets $(66,266,357) $ 6,119,392
NET ASSETS:
At beginning of year 521,788,905 515,669,513
------------ --------------
At end of year $455,522,548 $ 521,788,905
============ ==============
<CAPTION>
- ---------------------------------------------------------------------------------------------------------
SUPPLEMENTARY DATA
- ---------------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
------------------------------------------
1996 1995 1994 1993*
------ ------ ------ ------
<S> <C> <C> <C> <C>
RATIOS (As a percentage of net assets):
Interest expense 0.70% 0.71% 0.56% 0.63%+
Other expenses 0.82% 0.82% 0.80% 0.86%+
Net investment income 7.88% 7.82% 8.03% 8.46%+
PORTFOLIO TURNOVER 11% 19% 35% 42%
LEVERAGE ANALYSIS:
Amount of debt outstanding at end of year (000 omitted) $ -- $3,835 $3,924 $ --
Average daily balance of debt outstanding during period
(000 omitted) $ 550 $1,067 $ 982 $1,660
+Computed on an annualized basis.
*For the period from the start of business, October 28, 1993, to December 31, 1993.
</TABLE>
The accompanying notes are an integral part of the financial statements
<PAGE>
--------------------------------------------
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996
- --------------------------------------------------------------------------------
(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. 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 a U.S. 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
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 future 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. 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 cash balances the
Portfolio maintains with IBT. All significant credit balances used to reduce the
Portfolio's custodian fees are reflected as a reduction of operating expenses on
the statement of operations.
J. OTHER -- Investment transactions are accounted for on the date the
investments are purchased or sold.
K. 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
income and expense during the reporting period. Actual results could differ from
those estimates.
- --------------------------------------------------------------------------------
(2) PURCHASES AND SALES OF INVESTMENTS
Purchases, sales and paydowns of investments, other than short-term obligations,
aggregrated $54,853,826, $16,095,500, and $96,080,407, 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, 1996, the
fee was equivalent to 0.75% of the Portfolio's average net assets for such
period and amounted to $3,603,385. 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. Certain of the officers and Trustees of the Portfolio are officers and
directors/trustees of the above organizations. 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, 1996, no
significant amounts have been deferred.
- --------------------------------------------------------------------------------
(4) LINE OF CREDIT
The Portfolio participates with other portfolios and funds managed by BMR and
EVM and its affiliates in a committed $120 million unsecured line of credit
agreement with a group of banks. The Portfolio may temporarily borrow from the
line of credit to satisfy redemption requests or settle investment transactions.
Interest is charged to each portfolio or fund based on its borrowings at an
amount above the banks' adjusted certificate of deposit rate, eurodollar rate or
federal funds rate. In addition, a fee computed at an annual rate of 0.15% on
the daily unused portion of the line of credit is allocated among the
participating portfolios and funds at the end of each quarter. The average daily
loan balance for the year ended December 31, 1996 was $549,560 and the average
interest rate was 6.79%. The maximum borrowing outstanding at any time during
the year ended December 31, 1996, was $6,289,000.
- --------------------------------------------------------------------------------
(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, 1996, but did
incur $3,326,488 of loan rebate fees which have been included in interest
expense. The income received on the investments related to the cash collateral
is included in interest income. The maximum and average liability for cash
collateral received for securities loaned at any month end during the year ended
December 31, 1996, were $72,636,000 and $61,900,000, respectively.
- --------------------------------------------------------------------------------
(6) FEDERAL INCOME TAX BASIS OF INVESTMENT
The cost and unrealized appreciation/depreciation in the value of investment
securities owned at December 31, 1996, as computed on a federal income tax
basis, were as follows:
Aggregate cost $505,872,878
============
Gross unrealized appreciation $ 7,721,490
Gross unrealized depreciation 4,522,202
------------
Net unrealized appreciation $ 3,199,288
============
- ------------------------------------------------------------------------------
(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 offsetting transactions are considered.
A summary of obligations under these financial instruments at December 31,
1996 is as follows:
<TABLE>
<CAPTION>
FUTURES CONTRACT NET UNREALIZED
EXPIRATION DATE CONTRACTS POSITION APPRECIATION
--------------- --------- -------- ------------
<S> <C> <C> <C> <C>
3/97 425 U.S. Treasury Five Year Note Futures Short $615,134
3/97 50 U.S. Treasury Long Bond Futures Short 162,213
4/97 100 U.S. Treasury Two Year Note Futures Short 97,862
--------
$875,209
========
</TABLE>
At December 31, 1996, the Portfolio had sufficient cash and/or securities to
cover margin requirements on any open futures contracts.
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
- --------------------------------------------------------------------------------
TO THE BOARD OF 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, 1996, 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 three years then ended 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, 1996 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, 1996, 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 three 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
JANUARY 31, 1997
<PAGE>
-----------------------------------
INVESTMENT MANAGEMENT
EV TRADITIONAL OFFICERS TRUSTEES
GOVERNMENT M. DOZIER GARDNER
OBLIGATIONS FUND President, Trustee DONALD R. DWIGHT
24 Federal Street President, Dwight Partners, Inc.
Boston, MA 02110 JAMES B. HAWKES Chairman, Newspapers of
Vice President, Trustee New England, Inc.
WILLIAM H. AHERN, JR. SAMUEL L. HAYES, III
Vice President Jacob H. Schiff Professor of
Investment Banking, Harvard
MICHAEL B. TERRY University Graduate School of
Vice President Business Administration
JAMES L. O'CONNOR NORTON H. REAMER
Treasurer President and Director,
United Asset Management
THOMAS OTIS Corporation
Secretary
JOHN L. THORNDIKE
Director, Fiduciary Company
Incorporated
JACK L. TREYNOR
Investment Adviser and
Consultant
-----------------------------------------------------------
GOVERNMENT OFFICERS
OBLIGATIONS TRUSTEES
PORTFOLIO M. DOZIER GARDNER
24 Federal Street President, Trustee DONALD R. DWIGHT
Boston, MA 02110 President, Dwight Partners, Inc.
JAMES B. HAWKES Chairman, Newspapers of
Vice President, Trustee New England, Inc.
SUSAN SCHIFF SAMUEL L. HAYES, III
Vice President and Jacob H. Schiff Professor of
Portfolio Manager Investment Banking, Harvard
University Graduate School of
MARK S. VENEZIA Business Administration
Vice President
NORTON H. REAMER
JAMES L. O'CONNOR President and Director,
Treasurer United Asset Management
Corporation
THOMAS OTIS
Secretary JOHN L. THORNDIKE
Director, Fiduciary Company
Incorporated
JACK L. TREYNOR
Investment Adviser and
Consultant
