<PAGE>
[LOGO OF Investing
EATON VANCE for the
MUTUAL FUNDS 21st
APPEARS HERE] Century
[PHOTO OF THE
STATUE OF LIBERTY
APPEARS HERE]
Annual Report December 31, 1997
[PHOTO OF GOVERNMENT
BUILDING APPEARS HERE] EV
CLASSIC
GOVERNMENT
OBLIGATIONS
FUND
Eaton Vance
Global Management-Global Distribution
[PHOTO OF AMERICAN
FLAG APPEARS HERE]
Classic
<PAGE>
EV Classic Government Obligations Fund as of December 31, 1997
- --------------------------------------------------------------------------------
Letter to Shareholders
- --------------------------------------------------------------------------------
[PHOTO OF M. DOZIER GARDENER, PRESIDENT APPEARS HERE]
EV Classic Government Obligations Fund had a total return of 6.2% for the year
ended December 31, 1997/1/. That return was the result of a decline in net asset
value per share from $9.19 on December 31, 1996 to $9.13 on December 31, 1997,
and the reinvestment of $0.613 in dividends. By comparison, the Lehman Brothers
Intermediate Government Bond Index - a widely recognized, unmanaged index of
intermediate-maturity U.S. government bonds - had a total return of 7.7% for the
same period./2/
Based on the Fund's most recent dividend and
a net asset value per share of $9.13, the Fund had a distribution rate of 6.71%
on December 31./3/ The Fund's 30-day SEC yield was 4.91% on December 31./4/
Moderate economic growth and low inflation boost the bond market...
The economy was marked by healthy growth accompanied by continued low inflation
in 1997, a very favorable backdrop for the bond market. Third quarter GDP grew
at a 3.1% pace, up from 1.0% for the same period a year earlier. Meanwhile,
inflation for the year was 1.7%, as measured by the Consumer Price Index. Bond
market performance was especially impressive when matched against a falling
unemployment rate. The jobless rate declined to just 4.6% in November, its
lowest level in 24 years.
Anticipation of a balanced budget added further support to bonds in 1997...
The market was encouraged by news that the U.S. budget deficit is narrowing at a
faster pace than expected. Strong tax receipts, combined with modest spending
restraints, have raised the possibility of a balanced budget in coming years. A
balanced budget would likely reduce the government's financing needs and further
improve the prospects for government bond investors.
Amid the turmoil of the Asian
markets, the U.S. bond markets
witnessed a flight to quality...
In October, as deteriorating economic fundamentals overtook many of the
fast-growth Asian markets, many global investors sought the quality and relative
stability of the U.S. bond market. A reputation for high quality and attractive
yields have long been characteristic of mortgage-backed securities, making them
a prime investment alternative for conservative, income-oriented investors. In
the pages that follow, portfolio manager Susan Schiff discusses recent events in
the mortgage securities market and offers her thoughts on the year ahead.
Sincerely,
/s/ M. Dozier Gardner
M. Dozier Gardner
President
February 9, 1998
- --------------------------------------------------------------------------------
Fund Information
as of December 31, 1997
Performance/5/
Average Annual Total Returns (at net asset value)
- -----------------------------------------------------
One year 6.2%
Life of Fund (11/1/93) 4.8
SEC Average Annual Total Returns (including 1% CDSC)
- -----------------------------------------------------
One year 5.2%
Life of Fund (11/1/93) 4.8
Diversification by Sectors/6/
- -----------------------------------------------------
[PIE CHART APPEARS HERE]
CMO's 0.9%
U.S. Treasuries 16.3%
Govt. National Mortgage Assn. 9.8%
Commercial Paper 0.2%
Federal National Mortgage Loan Assn. 39.0%
Federal Home Loan Mortgage Corp. 33.8%
/1/ This return does not include the Fund's applicable contingent deferred sales
charge. /2/ It is not possible to invest directly in an Index. /3/ The Fund's
distribution rate represents actual distributions paid to shareholders and is
calculated daily by dividing the last distribution per share (annualized) by the
offering price. /4/ The Fund's SEC yield is calculated by dividing the net
investment income per share for the 30-day period by the offering price at the
end of the period and annualizing the result. /5/ Returns are calculated by
determining the percentage change in net asset value with all distributions
reinvested. SEC returns reflect 1% CDSC. /6/ Sector weightings are determined by
dividing the total market value of the holdings by the total net investments of
the Portfolio. Holdings are subject to change.
Past performance is no guarantee of future results. Investment return and
principal value will fluctuate so that shares, when redeemed, may be worth more
or less than their original cost.
2
<PAGE>
EV Classic Government Obligations Fund as of December 31, 1997
- --------------------------------------------------------------------------------
Management Discussion
- --------------------------------------------------------------------------------
[PHOTO OF SUSAN SCHIFF, PORTFOLIO MANAGER APPEARS HERE]
An interview with Susan Schiff, portfolio manager of Government Obligations
Portfolio.
Q:Susan, how would you characterize the bond market during the past year?
A:The year was certainly a good one for the bond market in general. Balanced
economic growth and low inflation contributed to a very favorable environment
for bonds. However, while the long-term Treasury market fared very well, the
mortgage-backed securities (MBS) market underperformed slightly, amid higher
volatility.
Q: Why did the MBS market lag the Treasury market?
A: There were several reasons. First, while the decline in interest rates was
felt in all maturities, the largest declines by far were in the longer
maturities. For example, 30-year Treasury bond yields declined to 5.92% on
December 31 from 6.64% a year earlier: a decline of 72 basis points (.72%). In
contrast, 3-year Treasury yields fell to 5.67% from 6.01% a year earlier: a
decline of just 34 basis points (.34%). The effective average maturity of the
Portfolio was 3.5 years at December 31.
A second reason was that, at the outset of 1997, yield spreads, the difference
in yields between mortgage-backed securities and Treasuries, had become very
narrow by historical standards. For low-coupon MBS, spreads were in the
70-to-100 basis point range (.7%-to-1%), while higher-coupon spreads were from
95-to-115 basis points (.95%-to-1.15%). As a result, there was very little room
for additional narrowing as the market rallied further.
Finally, with interest rates moving lower, investors in MBS became increasingly
concerned that prepayment rates would increase. That tended to limit further
upside moves for mortgage securities.
Q: How have you structured the Portfolio in recent months?
A: I've continued the Portfolio's traditional emphasis on the seasoned segment
of the mortgage-backed market. At December 31, 1997 roughly 56% of the Portfolio
was invested in seasoned low-coupon securities; another 26% was in seasoned
high-coupon MBS; 16% was in Treasury securities; and 2% was in collateralized
mortgage obligations.
- --------------------------------------------------------------------------------
Prepayment Rates/1/
- ------------------------------------------------------
Government Obligations Portfolio vs. Generic 9% FNMAs
[LINE GRAPH APPEARS HERE]
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
Jan-97 16.6 14.3
Feb-97 15 13.7
Mar-97 17.5 15.5
Apr-97 17.9 15.2
May-97 16.8 14.2
Jun-97 16.1 15.6
Jul-97 17.7 16.6
Aug-97 18.5 15.3
Sep-97 22.1 15.4
Oct-97 23.9 15.2
Nov-97 21.7 15.9
Dec-97 21 15
/1/Chart compares annualized monthly principal prepayment rates of the
Portfolio's seasoned mortgage-backed securities (green line) with those of
generic 30-year FNMA 9% mortgage-backed securities. Sources: Lehman Brothers;
Bloomberg L.P.; Eaton Vance Management.
Past performance is no guarantee of future results.
Mutual fund shares are not insured 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.
3
<PAGE>
EV Classic Government Obligations Fund as of December 31, 1997
- --------------------------------------------------------------------------------
Management Discussion Cont'd
- --------------------------------------------------------------------------------
Q: Have you made any changes to the Portfolio within that framework?
A: Yes, some modest adjustments. As I indicated, the Portfolio focuses primarily
on the seasoned segment of the mortgage-backed securities market. Unlike generic
MBS, seasoned securities tend to have very predictable prepayment rates and are
significantly less sensitive to changes in interest rates.
In a lower interest rate environment, such as the one we have witnessed in the
past year, there is the likelihood that homeowners may elect at some point to
refinance their mortgages. Therefore, we have focused more intently on older
mortgage securities within the seasoned sector.
Q: What do you find attractive about the older mortgage securities?
A: The Portfolio's older mortgages were typically originated in the 1970s, at
interest rates similar to today's levels. As a result, there is very little
incentive for homeowners to refinance. That means very stable cash flows for
investors and a continuing attractive yield advantage over Treasury bonds with
similar maturities. And equally as important, that renewed focus on older
mortgages tends to provide an added degree of protection against prepayment risk
in the event that overall prepayment rates rise significantly in coming months.
Q: Did you make any adjustments to the Portfolio's duration during the year?
A: From the standpoint of duration, we made some minor adjustments to take
advantage of the changes in market conditions. Naturally, when the global crisis
began in October there was a strong shift of global investment to the U.S. bond
market. We were able to participate in that rally as a result of a slight
extension in duration to the 3.5 year range. However, the Portfolio's duration
remained within the 2.5-to-3.5 year range throughout the calendar year.
Q: What is your outlook for the mortgage securities market in the coming year?
A: The outlook for bonds in general is good. The economy has been growing at a
sustainable pace with very low inflation. The recent downturn in Asia could have
a slightly dampening effect on the U.S. economy. Therefore, there is relatively
little likelihood that the Federal Reserve will raise interest rates
dramatically in the near future.
For the mortgage-backed securities market, prepayment rates are the key
determinant. If interest rates remain at these low levels, we can expect
prepayments on generic MBS to rise, causing all mortgage spreads to widen. In
fact, in the closing months of 1997, there were some early indications of rising
prepayment rates.
Naturally, past performance is not necessarily an accurate indicator of future
trends. But if we enter a longer-term period of relatively stable interest
rates, conservative, income-oriented investors will likely continue to find good
opportunities within the mortgage-backed securities market.
4
<PAGE>
EV Classic Government Obligations Fund as of December 31, 1997
- --------------------------------------------------------------------------------
Management Discussion Cont'd
- --------------------------------------------------------------------------------
Comparison of Change in Value of a $10,000 Investment in EV Classic Government
Obligations Fund vs. the Lipper Intermediate Govt. Fund Group Average and the
Lehman Bros. Intermediate Govt. Bond Index Nov. 30, 1993, through Dec 31, 1997
[LINE GRAPH APPEARS HERE]
Eaton Vance Lehman Brothers Lipper
Govt/Obligations Intermediate Intermediate
Fund Government Government
Date Class C Bond Index Fund Average
- --------------------------------------------------------------------------------
11/30/93 $10,000 $10,000 $10,000
12/31/93 $10,064 $10,041 $10,040
1/31/93 $10,155 $10,140 $10,122
2/28/94 $10,060 $10,001 $10,003
3/31/94 $9,910 $9,855 $9,861
4/30/94 $9,808 $9,791 $9,781
5/31/94 $9,798 $9,798 $9,768
6/30/94 $9,786 $9,800 $9,761
7/31/94 $9,891 $9,929 $9,859
8/31/94 $9,924 $9,957 $9,879
9/30/94 $9,818 $9,875 $9,808
10/31/94 $9,832 $9,877 $9,810
11/30/94 $9,775 $9,832 $9,768
12/31/94 $9,808 $9,865 $9,791
1/31/95 $9,956 $10,026 $9,930
2/28/95 $10,144 $10,219 $10,096
3/31/95 $10,197 $10,275 $10,144
4/30/95 $10,303 $10,394 $10,241
5/31/95 $10,559 $10,688 $10,485
6/30/95 $10,606 $10,756 $10,541
7/31/95 $10,577 $10,761 $10,543
8/31/95 $10,691 $10,851 $10,627
9/30/95 $10,750 $10,923 $10,695
10/31/95 $10,891 $11,043 $10,803
11/30/95 $10,984 $11,178 $10,920
12/31/95 $11,077 $11,289 $11,023
1/31/96 $11,149 $11,384 $11,103
2/28/96 $11,010 $11,263 $10,995
3/31/96 $10,985 $11,211 $10,955
4/30/96 $10,952 $11,179 $10,928
5/31/96 $10,916 $11,173 $10,920
6/30/96 $11,054 $11,287 $11,008
7/31/96 $11,075 $11,322 $11,043
8/31/96 $11,064 $11,335 $11,051
9/30/96 $11,228 $11,481 $11,182
10/31/96 $11,398 $11,669 $11,343
11/30/96 $11,536 $11,810 $11,463
12/31/96 $11,464 $11,746 $11,415
1/31/97 $11,489 $11,791 $11,463
2/28/97 $11,559 $11,810 $11,487
3/31/97 $11,504 $11,743 $11,433
4/30/97 $11,591 $11,875 $11,542
5/31/97 $11,668 $11,968 $11,617
6/30/97 $11,737 $12,070 $11,708
7/31/97 $11,968 $12,292 $11,885
8/31/97 $11,879 $12,244 $11,856
9/30/97 $11,986 $12,377 $11,965
10/31/97 $12,105 $12,522 $12,071
11/30/97 $12,099 $12,550 $12,091
12/31/97 $12,174 $12,653 $12,181
Performance+
- --------------------------------------------------------------------------------
Average Annual Total Returns (at net asset value)
- --------------------------------------------------------------------------------
One year 6.2%
Life of Fund (11/1/93) 4.8
SEC Average Annual Total Returns (including applicable CDSC)
- --------------------------------------------------------------------------------
One year 5.2%
Life of Fund (11/1/93) 4.8
* Source: Towers Data Systems, Bethseda, MD. Investment operations commenced
11/1/93. Index information is only available at month-end; therefore, the line
comparison begins at the next month-end following the commencement of the Fund's
investment operations.
The chart compares the Fund's total return with that of the Lehman Brothers
Intermediate Government Bond Index, a broad-based, unmanaged market index of
intermediate-maturity, U.S. government bonds. Returns are calculated by
determining the percentage change in net asset value (NAV) with all
distributions reinvested. The lines on the chart represent the total returns of
$10,000 hypothetical investments in the Fund and the index. The Index's total
return does not reflect commissions or expenses that would have been incurred if
an investor individually purchased or sold the securities represented in the
Index. It is not possible to invest directly in an Index.
+ Returns are calculated by determining the percentage change in net asset value
(NAV) with all distributions reinvested. SEC returns reflect 1% contingent
deferred sales change.
Past performance is no guarantee of future results. Investment return and
principal value will fluctuate so that shares, when redeemed, may be worth more
or less their original cost.
5
<PAGE>
EV Classic Government Obligations Fund as of December 31, 1997
FINANCIAL STATEMENTS
Statement of Assets and Liabilities
As of December 31, 1997
Assets
- --------------------------------------------------------------------------
Investment in Government Obligations Portfolio
(Portfolio), at value (Note 1A) (identified cost,
$37,359,937) $36,662,036
Receivable for Fund shares sold 28,321
Deferred organization expenses (Note 1D) 3,904
- --------------------------------------------------------------------------
Total assets $36,694,261
- --------------------------------------------------------------------------
Liabilities
- --------------------------------------------------------------------------
Dividends payable $ 61,651
Payable for Fund shares redeemed 67,070
Payable to affiliate for Trustees' fees (Note 5) 40
Accrued expenses 29,015
- --------------------------------------------------------------------------
Total liabilities $ 157,776
- --------------------------------------------------------------------------
Net Assets for 4,000,468 shares of beneficial
interest outstanding $36,536,485
- --------------------------------------------------------------------------
Sources of Net Assets
- --------------------------------------------------------------------------
Paid-in capital $40,349,541
Accumulated net realized loss on investments from
Portfolio (computed on the basis of
identified cost) (3,053,504)
Accumulated distributions in excess of net investment
income (61,651)
Net unrealized depreciation of investments from
Portfolio (computed on the basis of
identified cost) (697,901)
- --------------------------------------------------------------------------
Total $36,536,485
- --------------------------------------------------------------------------
Net Asset Value, Offering and Redemption
Price Per Share (Note 7)
- --------------------------------------------------------------------------
($36,536,485 divided by 4,000,468 shares of beneficial
interest outstanding) $ 9.13
- --------------------------------------------------------------------------
Statement of Operations
For the Year Ended
December 31, 1997
Investment Income (Note 1B)
- --------------------------------------------------------------------------
Interest income allocated from Portfolio $ 2,748,521
Expenses allocated from Portfolio (260,288)
- --------------------------------------------------------------------------
Net investment income from Portfolio $ 2,488,233
- --------------------------------------------------------------------------
Expenses
- --------------------------------------------------------------------------
Compensation of Trustees not members of the
Administrator's organization (Note 5) $ 165
Distribution fees (Note 6) 312,671
Transfer and dividend disbursing agent fees 55,211
Printing and postage 28,347
Registration fees 16,448
Legal and accounting services 15,005
Custodian fee 6,206
Amortization of organization expenses (Note 1D) 4,664
Miscellaneous 8,342
- --------------------------------------------------------------------------
Total expenses $ 447,059
- --------------------------------------------------------------------------
Net investment income $ 2,041,174
- --------------------------------------------------------------------------
Realized and Unrealized
Gain (Loss) from Portfolio
- --------------------------------------------------------------------------
Net realized gain (loss) --
Investment transactions (identified cost basis) $ (452,675)
Financial futures contracts (160,876)
- --------------------------------------------------------------------------
Net realized loss on investment transactions $ (613,551)
- --------------------------------------------------------------------------
Change in unrealized appreciation (depreciation) --
Investments $ 529,074
Financial futures contracts (88,535)
- --------------------------------------------------------------------------
Net change in unrealized appreciation (depreciation)
of investments $ 440,539
- --------------------------------------------------------------------------
Net realized and unrealized loss on investments $ (173,012)
- --------------------------------------------------------------------------
Net increase in net assets from operations $ 1,868,162
- --------------------------------------------------------------------------
See notes to financial statements
6
<PAGE>
EV Classic Government Obligations Fund as of December 31, 1997
FINANCIAL STATEMENTS CONT'D
Statements of Changes in Net Assets
Increase (Decrease) Year Ended Year Ended
in Net Assets December 31, 1997 December 31, 1996
- --------------------------------------------------------------------------------
From operations --
Net investment income $ 2,041,174 $ 2,352,918
Net realized loss on
investment transactions (613,551) (548,214)
Net change in unrealized
appreciation (depreciation)
of investments 440,539 (809,391)
- --------------------------------------------------------------------------------
Net increase in net assets
from operations $ 1,868,162 $ 995,313
- --------------------------------------------------------------------------------
Distributions to shareholders
(Note 2) --
From net investment income $ (2,041,174) $ (2,344,400)
In excess of net investment
income (16,365) --
From tax return of capital (37,263) --
- --------------------------------------------------------------------------------
Total distributions to shareholders $ (2,094,802) $ (2,344,400)
- --------------------------------------------------------------------------------
Transactions in shares of beneficial
interest (Note 3) --
Proceeds from sale of shares $ 14,439,841 $ 5,910,411
Net asset value of shares
issued to shareholders
in payment of
distributions declared 1,252,018 1,376,919
Cost of shares redeemed (9,082,130) (17,822,785)
- --------------------------------------------------------------------------------
Net increase (decrease) in net
assets from Fund
share transactions $ 6,609,729 $(10,535,455)
- --------------------------------------------------------------------------------
Net increase (decrease) in net
assets $ 6,383,089 $(11,884,542)
- --------------------------------------------------------------------------------
Net Assets
- --------------------------------------------------------------------------------
At beginning of year $ 30,153,396 $ 42,037,938
- --------------------------------------------------------------------------------
At end of year $ 36,536,485 $ 30,153,396
- --------------------------------------------------------------------------------
Accumulated distributions in
excess of net investment income
included in net assets
- --------------------------------------------------------------------------------
At end of year $ (61,651) $ (45,286)
- --------------------------------------------------------------------------------
See notes to financial statements
7
<PAGE>
EV Classic Government Obligations Fund as of December 31, 1997
FINANCIAL STATEMENTS CONT'D
Financial Highlights
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------------------------------------
1997 1996 1995 1994 1993*
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value -- Beginning of year $ 9.190 $ 9.490 $ 8.980 $ 9.940 $10.000
- ----------------------------------------------------------------------------------------------------------------------
Income (loss) from operations
- ----------------------------------------------------------------------------------------------------------------------
Net investment income $ 0.602 $ 0.613 $ 0.609 $ 0.626 $ 0.107
Net realized and unrealized gain (loss) on investments (0.049) (0.300) 0.520 (0.876) (0.051)
- ----------------------------------------------------------------------------------------------------------------------
Total income (loss) from operations $ 0.553 $ 0.313 $ 1.129 $(0.250) $ 0.056
- ----------------------------------------------------------------------------------------------------------------------
Less distributions
- ----------------------------------------------------------------------------------------------------------------------
From net investment income $(0.599) $(0.613) $(0.609) $(0.626) $(0.107)
In excess of net investment income (0.005) -- (0.010) (0.084) (0.009)
From tax return of capital (0.009) -- -- -- --
- ----------------------------------------------------------------------------------------------------------------------
Total distributions $(0.613) $(0.613) $(0.619) $(0.710) $(0.116)
- ----------------------------------------------------------------------------------------------------------------------
Net asset value -- End of year $ 9.130 $ 9.190 $ 9.490 $ 8.980 $ 9.940
- ----------------------------------------------------------------------------------------------------------------------
Total Return/(1)/ 6.20% 3.49% 12.94% (2.54)% 0.34%
- ----------------------------------------------------------------------------------------------------------------------
Ratios/Supplemental Data
- ----------------------------------------------------------------------------------------------------------------------
Net assets, end of year (000 omitted) $36,536 $30,153 $42,038 $39,586 $17,441
Ratio of expenses to average daily net assets/(2)/ 2.26% 2.08% 2.11% 2.15% 2.31%+
Ratio of net investment income to average daily net
assets 6.52% 6.66% 6.57% 6.60% 5.45%+
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
+ Annualized.
* For the period from the start of business, November 1, 1993 to December 31,
1993.
/(1)/Total return is calculated assuming a purchase at the net asset value on
the first day and a sale at the net asset value on the last day of each
period reported. Dividends and distributions, if any, are assumed to be
reinvested at the net asset value on the reinvestment date. Total return is
not computed on an annualized basis.
/(2)/Includes the Fund's share of its Portfolio's allocated expenses.
See notes to financial statements
8
<PAGE>
EV Classic Government Obligations Fund as of December 31, 1997
NOTES TO FINANCIAL STATEMENTS
1 Significant Accounting Policies
-----------------------------------------------------------------------------
EV Classic Government Obligations Fund (the Fund) is a diversified entity of
the type commonly known as a Massachusetts business trust and is registered
under the Investment Company Act of 1940, as amended, as an open-end
management investment company. The Fund is a series of Eaton Vance Mutual
Funds Trust. The Fund invests all of its investable assets in interests in
the Government Obligations Portfolio (the Portfolio), a New York Trust,
having the same investment objective as the Fund. The value of the Fund's
investment in the Portfolio reflects the Fund's proportionate interest in the
net assets of the Portfolio (8.5% at December 31, 1997). 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.
On June 23, 1997, the Board of Trustees approved a Plan of Reorganization
(the "Plan") for the Trust. Under the terms of the Plan, the EV Traditional
Government Obligations Fund (the Successor Fund), a separate series of the
Trust, would acquire substantially all of the assets and liabilities of the
Fund (the Acquired Fund). The transaction will be structured for tax purposes
to qualify as a tax-free reorganization under the Internal Revenue Code. The
Trust will issue and deliver to the Acquired Fund a number of full and
fractional shares of beneficial interest of a separate class of the Successor
Fund (Class C shares), which will be equal in value to the net asset value
per share of the Acquired Fund multiplied by the number of full and
fractional shares of the Acquired Fund then outstanding. Such transaction
will occur after the close of business on December 31, 1997.
Effective January 1, 1998, the EV Traditional Government Obligations Fund
changed its name to the Eaton Vance Government Obligations Fund.
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 Taxes -- The Fund's policy is to comply with the provisions of the
Internal Revenue Code applicable to regulated investment companies and to
distribute to shareholders each year all of its taxable income, including any
net realized gain on investments, options and financial futures transactions.
Accordingly, no provision for federal income or excise tax is necessary. At
December 31, 1997, the Fund, for federal income tax purposes, had a capital
loss carryover of $3,387,865, 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 distribution to shareholders which would otherwise be necessary
to relieve the Fund of any liability for federal income tax. Such capital
loss carryover will be transferred to the Successor Fund upon date of merger
and will be available to the Successor Fund subject to certain limitations.
Such capital loss carryovers will expire on December 31, 2001 ($32,316),
December 31, 2002 ($1,822,648), December 31, 2003 ($226,377), December 31,
2004 ($911,775) and December 31, 2005 ($394,749).
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 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.
F Expense Reduction -- Investors Bank & Trust Company (IBT) serves as
custodian of 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 daily cash balances the Fund or the Portfolio maintains with
IBT. All significant credit balances used to reduce the Fund's custodian fees
are reported as a reduction of expenses on the Statement of Operations.
9
<PAGE>
EV Classic Government Obligations Fund as of December 31, 1997
NOTE TO FINANCIAL STATEMENTS CONT'D
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 assets 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 net realized gain on
investments. Permanent differences between book and tax accounting relating
to distributions are reclassified to paid-in capital.
3 Shares of Beneficial Interest
-----------------------------------------------------------------------------
The Declaration of Trust permits the Trustees to issue an unlimited number of
full and fractional shares of beneficial interest (without par value).
Transactions in Fund shares were as follows:
Year ended December 31,
-------------------------------------------
1997 1996
-----------------------------------------------------------------------------
Sales 1,577,660 638,952
Issued to shareholders electing
to receive payments of
distributions in Fund shares 137,099 149,243
Redemptions (994,640) (1,937,396)
-----------------------------------------------------------------------------
Net increase (decrease) 720,119 (1,149,201)
-----------------------------------------------------------------------------
4 Investment Transactions
-----------------------------------------------------------------------------
Increases and decreases in the Fund's investment in the Portfolio for the
year ended December 31, 1997, aggregated $14,805,589 and $10,738,231,
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
(Note 6). Except as to Trustees of the Fund and the Portfolio who are not
members of EVM's organization, officers and Trustees receive remuneration for
their services to the Fund out of such investment adviser fee earned by BMR.
6 Distribution Plan
-----------------------------------------------------------------------------
The Fund has adopted a distribution plan (the "Plan") pursuant to Rule 12b-1
under the Investment Company Act of 1940. The Plan requires the Fund to pay
the principal underwriter, Eaton Vance Distributors, Inc. (EVD) amounts equal
to 1/365 of 0.75%, annualized, of the Fund's daily net assets, for providing
ongoing distribution services and facilities to the Fund. The Fund will
automatically discontinue payments to EVD during any period in which there
are no outstanding Uncovered Distribution Charges, which are equivalent to
the sum of (i) 6.25% of the aggregate amount received by the Fund for the
shares sold plus, (ii) distribution fees calculated by applying the rate of
1% over the prevailing prime rate to the outstanding balance of Uncovered
Distribution Charges of EVD reduced by amounts therefore paid to EVD. The
amount payable to EVD with respect to each day is accrued on such day as a
liability of the Fund and, accordingly, reduces the Fund's net assets. The
Fund paid or accrued $234,503 to or payable to EVD for the year ended
December 31, 1997, representing 0.75% of average daily net assets. At
December 31, 1997, the amount of Uncovered Distribution Charges of EVD
calculated under the Plan was approximately $8,579,000.
In addition, the Plan permits the Fund to make monthly payments of service
fees to the Principal Underwriter in amounts not expected to exceed 0.25%, of
the Fund's average daily net assets for any fiscal year. The Trustees have
initially implemented the Plan by authorizing the Fund to make monthly
service fee payments to the Principal Underwriter in amounts not expected to
exceed 0.25% of the Fund's average daily net assets for any fiscal year.
The Fund paid or accrued service fees to or payable to
10
<PAGE>
EV Classic Government Obligations Fund as of December 31, 1997
NOTE TO FINANCIAL STATEMENTS CONT'D
EVD for the year ended December 31, 1997, in amount of $78,168. EVD makes
monthly service fee payments to Authorized Firms in amounts anticipated to be
equivalent to 0.25%, annualized, of the assets maintained in the Fund by
their customers. On sales of shares made on January 30, 1995 and thereafter,
EVD currently expects to pay to an Authorized Firm a service fee at the time
of sale equal to 0.25%, annualized, of the purchase price of the shares sold
by such Firm and monthly payments of service fees in amounts not expected to
exceed 0.25% per annum of the Fund's average daily net assets based on the
value of Fund shares sold by such Firm and remaining outstanding for at least
one year. During the first year after a purchase of Fund shares, EVD will
retain the service fee as reimbursement for the service fee payment made to
the Authorized Firm at the time of sale. Service fee payments are made for
personal services and/or the maintenance of shareholder accounts. Service
fees paid to EVD and Authorized Firms are separate and distinct from the
sales commissions and distribution fees payable by the Fund to EVD, and as
such are not subject to automatic discontinuance when there are no
outstanding Uncovered Distribution Charges of EVD.
Certain officers and Trustees of the Fund are officers or directors of EVD.
7 Contingent Deferred Sales Charge
-----------------------------------------------------------------------------
A contingent deferred sales charge (CDSC) of 1% is imposed on any redemption
of Fund shares made within one year of purchase. Generally, the CDSC is based
upon the lower of the net asset value at date of redemption or date of
purchase. No charge is levied on shares acquired by reinvestment of dividends
or capital gains distributions. No CDSC is levied on shares which have been
sold to EVD or its affiliates or to their respective employees or clients.
CDSC charges are paid to EVD to reduce the amount of Uncovered Distribution
Charges calculated under the Fund's Distribution Plan. CDSC charges received
when no Uncovered Distribution Charges exist will be credited to the Fund.
For the year ended December 31, 1997, EVD received approximately $11,000 of
CDSC paid by shareholders.
11
<PAGE>
EV Classic Government Obligations Fund as of December 31, 1997
INDEPENDENT ACCOUNTANTS' REPORT
To the Shareholders and Board of Trustees
of EV Classic Government Obligations Fund:
- --------------------------------------------------------------------------------
We have audited the accompanying statement of assets and liabilities of EV
Classic Government Obligations Fund, a series of Eaton Vance Mutual Funds Trust,
as of December 31, 1997, 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 four years in the
period then ended and for the period from November 1, 1993 (start of business)
to December 31, 1993. These financial statements and financial highlights are
the responsibility of the Fund's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of EV
Classic Government Obligations Fund, a series of Eaton Vance Mutual Funds Trust,
as of December 31, 1997, 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 four years in the period
then ended and for the period from November 1, 1993 (start of business) to
December 31, 1993, in conformity with generally accepted accounting principles.
COOPERS & LYBRAND L.L.P.
Boston, Massachusetts
February 6, 1998
12
<PAGE>
Government Obligations Portfolio as of December 31, 1997
PORTFOLIO OF INVESTMENTS
Mortgage Pass-Throughs -- 95.3%
Principal
Amount
(000's
omitted) Value
- --------------------------------------------------------------------------------
Federal Home Loan Mortgage Corp.:
4.50%, with maturity at 2000 $ 2 $ 2,050
4.75%, with various maturities to 2002 8 7,265
5.00%, with various maturities to 2003 338 329,409
5.25%, with various maturities to 2005 164 160,633
5.50%, with various maturities to 2011 652 642,061
6.00%, with various maturities to 2022 2,235 2,218,877
6.25%, with various maturities to 2013 591 589,099
6.50%, with various maturities to 2022 7,184 7,210,595
6.75%, with various maturities to 2011 5,988 6,023,790
7.00%, with various maturities to 2019 9,886 10,017,823
7.25%, with maturity at 2003 1,096 1,110,633
7.50%, with various maturities to 2020 13,867 14,260,442
7.75%, with various maturities to 2018 2,860 2,946,945
8.00%, with various maturities to 2026 25,281 26,325,212
8.25%, with various maturities to 2011 12,326 12,900,308
8.50%, with various maturities to 2018 17,377 18,287,577
8.75%, with various maturities to 2016 14,890 15,690,351
9.00%, with various maturities to 2020 7,947 8,495,295
9.25%, with various maturities to 2010 4,736 5,062,683
9.50%, with various maturities to 2016 922 994,138
10.00%, with various maturities to 2017 227 250,739
11.00%, with various maturities to 2019 1,898 2,150,339
12.00%, with various maturities to 2019 2,103 2,439,355
12.25%, with various maturities to 2019 2,675 3,130,466
12.50%, with various maturities to 2019 8,379 9,864,920
12.75%, with various maturities to 2015 1,036 1,213,165
13.00%, with various maturities to 2019 3,273 3,880,782
13.25%, with various maturities to 2019 363 436,391
13.50%, with various maturities to 2015 4,027 4,775,937
13.75%, with various maturities to 2014 48 57,816
14.00%, with various maturities to 2016 1,989 2,410,748
14.50%, with various maturities to 2014 207 252,048
14.75%, with maturity at 2010 713 864,218
15.00%, with various maturities to 2013 794 991,294
15.25%, with maturity at 2012 144 182,666
15.50%, with various maturities to 2012 166 207,181
16.00%, with various maturities to 2012 74 94,440
16.25%, with various maturities to 2012 212 270,401
- --------------------------------------------------------------------------------
$166,748,092
- --------------------------------------------------------------------------------
Federal National Mortgage Assn.:
0.25%, with maturity at 2014 $ 155 $ 132,730
3.50%, with maturity at 2007 104 97,870
4.50%, with maturity at 1999 3 3,036
5.00%, with various maturities to 2017 595 578,105
5.25%, with various maturities to 2006 136 132,335
5.50%, with various maturities to 2006 284 279,849
5.75%, with maturity at 2003 90 88,678
6.00%, with various maturities to 2010 13,999 13,877,700
6.25%, with various maturities to 2007 382 381,071
6.50%, with various maturities to 2017 1,029 1,033,439
6.75%, with various maturities to 2007 740 742,987
7.00%, with various maturities to 2018 5,260 5,335,888
7.25%, with various maturities to 2017 1,548 1,582,933
7.50%, with various maturities to 2020 9,938 10,228,745
7.75%, with various maturities to 2008 1,110 1,147,700
8.00%, with various maturities to 2019 28,265 29,489,418
8.25%, with various maturities to 2020 13,283 13,896,208
8.50%, with various maturities to 2020 23,375 24,674,966
8.75%, with various maturities to 2017 1,157 1,225,120
9.00%, with various maturities to 2020 9,395 10,108,114
9.25%, with various maturities to 2016 3,686 3,976,373
9.50%, with maturity at 2009 224 243,778
9.75%, with maturity at 2019 349 384,293
11.00%, with various maturities to 2010 477 537,440
11.50%, with various maturities to 2016 5,428 6,265,740
11.75%, with various maturities to 2015 1,689 1,957,170
12.00%, with various maturities to 2020 12,006 14,013,459
12.25%, with various maturities to 2015 2,851 3,359,703
12.50%, with various maturities to 2021 12,992 15,341,311
12.75%, with various maturities to 2014 1,417 1,680,603
13.00%, with various maturities to 2019 10,327 12,424,176
13.25%, with various maturities to 2015 1,811 2,176,457
13.50%, with various maturities to 2015 3,901 4,730,954
13.75%, with various maturities to 2014 140 170,035
14.00%, with various maturities to 2014 672 823,845
14.25%, with various maturities to 2014 157 195,954
14.50%, with various maturities to 2014 219 270,059
14.75%, with various maturities to 2012 3,405 4,248,338
15.00%, with various maturities to 2013 2,748 3,453,791
15.50%, with various maturities to 2012 844 1,069,993
15.75%, with maturity at 2011 23 30,019
16.00%, with various maturities to 2012 286 365,800
- --------------------------------------------------------------------------------
$192,756,183
- --------------------------------------------------------------------------------
Government National Mortgage Assn.:
5.50%, with maturity at 1999 $ 3 $ 2,581
6.50%, with various maturities to 2002 400 400,041
7.25%, with various maturities to 2022 3,703 3,849,766
See notes to financial statements
13
<PAGE>
Government Obligations Portfolio as of December 31, 1997
PORTFOLIO OF INVESTMENTS CONT'D
Principal
Amount
(000's
omitted) Value
- --------------------------------------------------------------------------------
7.50%, with maturity at 2017 $ 945 $ 996,299
8.00%, with various maturities to 2017 17,112 17,955,719
8.25%, with various maturities to 2008 436 460,343
8.50%, with various maturities to 2018 1,408 1,506,323
9.00%, with maturity at 2011 393 424,179
11.50%, with maturity at 2013 241 278,714
12.00%, with various maturities to 2015 3,044 3,570,800
12.50%, with various maturities to 2015 13,385 15,899,295
13.00%, with various maturities to 2014 1,027 1,235,030
13.50%, with various maturities to 2013 257 310,433
14.00%, with various maturities to 2015 116 143,276
14.50%, with various maturities to 2014 407 509,910
15.00%, with various maturities to 2013 509 643,549
16.00%, with various maturities to 2012 300 388,150
- --------------------------------------------------------------------------------
$ 48,574,408
- --------------------------------------------------------------------------------
Collateralized Mortgage Obligations:
Federal Home Loan Mortgage Corp.
Series B Class 3, 12.5%, due 2013
Collateral 100% FHLMC PC $ 152 $ 176,925
Federal National Mortgage Assn.
Series 93-73E, 6.35%, due 2019
Collateral 100% FNMA MBS 3,000 2,979,375
Salomon Brothers Mortgage Securities II, Inc.
11.5%, due 2015 1,240 1,333,920
- --------------------------------------------------------------------------------
$ 4,490,220
- --------------------------------------------------------------------------------
Total Mortgage Pass-Throughs
(identified cost, $404,902,438) $412,568,903
- --------------------------------------------------------------------------------
U.S. Treasury Obligations -- 18.6%
- --------------------------------------------------------------------------------
U.S. Treasury Bond, 7.125%, 2/15/23+ $ 6,000 $ 6,850,314
U.S. Treasury Bond, 12.000%, 8/15/13++ 50,000 73,718,750
- --------------------------------------------------------------------------------
Total U.S. Treasury Obligations
(identified cost, $67,368,569) $ 80,569,064
- --------------------------------------------------------------------------------
Short-Term Investments -- 0.2%
- --------------------------------------------------------------------------------
Banque National de Paris Euro
Time-deposit Cayman Island,
5.750%, 1/02/98 $ 900 $ 900,000
- --------------------------------------------------------------------------------
Total Short-Term Investments
(identified cost, $900,000) $ 900,000
- --------------------------------------------------------------------------------
Total Investments -- 114.1%
(identified cost $473,171,007) $494,037,967
- --------------------------------------------------------------------------------
Other Assets, Less Liabilities -- (14.1)% $(60,930,973)
- --------------------------------------------------------------------------------
Net Assets -- 100% $433,106,994
- --------------------------------------------------------------------------------
+ Security (or a portion thereof) has been pledged as collateral for futures
contracts.
++ A portion of this security is on loan at December 31, 1997 (See Note 5).
See notes to financial statements
14
<PAGE>
Government Obligations Portfolio as of December 31, 1997
FINANCIAL STATEMENTS
Statement of Assets and Liabilities
As of December 31, 1997
Assets
- ----------------------------------------------------------
Investments, at value (Note 1A)
(identified cost, $473,171,007) $494,037,967
Cash 69,736
Receivable for investments sold 1,187,126
Interest receivable 5,810,946
Deferred organization expenses (Note 1H) 3,141
- ----------------------------------------------------------
Total assets $501,108,916
- ----------------------------------------------------------
Liabilities
- ----------------------------------------------------------
Payable for investments purchased $ 5,908,008
Payable for daily variation margin on
open financial futures contracts
(Note 1G) 199,229
Liability for collateral received for
securities loaned (Note 5) 61,812,000
Payable to affiliate for Trustees'
fees (Note 3) 4,764
Accrued expenses 77,921
- ----------------------------------------------------------
Total liabilities $ 68,001,922
- ----------------------------------------------------------
Net Assets applicable to investors'
interest in Portfolio $433,106,994
- ----------------------------------------------------------
Sources of Net Assets
- ----------------------------------------------------------
Net proceeds from capital
contributions and withdrawals $412,607,422
Net unrealized appreciation of
investments (computed on the basis
of identified cost) 20,499,572
- ----------------------------------------------------------
Total $433,106,994
- ----------------------------------------------------------
Statement of Operations
For the Year Ended
December 31, 1997
Investment Income (Note 1B)
- ----------------------------------------------------------
Interest income $ 38,681,716
- ----------------------------------------------------------
Total income $ 38,681,716
- ----------------------------------------------------------
Expenses
- ----------------------------------------------------------
Investment adviser fee (Note 3) $ 3,305,992
Compensation of Trustees not members
of the Investment Adviser's organization
(Note 3) 19,263
Custodian fee 196,940
Legal and accounting services 45,097
Amortization of organization expenses
(Note 1H) 3,811
Miscellaneous 85,571
- ----------------------------------------------------------
Total expenses $ 3,656,674
- ----------------------------------------------------------
Net investment income $ 35,025,042
- ----------------------------------------------------------
Realized and Unrealized
Gain (Loss) on Investments
- ----------------------------------------------------------
Net realized gain (loss) --
Investment transactions (identified
cost basis) $ (4,772,453)
Financial futures contracts (2,072,153)
- ----------------------------------------------------------
Net realized loss on investment
transactions $ (6,844,606)
- ----------------------------------------------------------
Change in unrealized appreciation
(depreciation) --
Investments (identified cost basis) $ 5,657,614
Financial futures contracts (1,242,597)
- ----------------------------------------------------------
Net change in unrealized appreciation
(depreciation) of investments $ 4,415,017
- ----------------------------------------------------------
Net realized and unrealized loss on
investments $ (2,429,589)
- ----------------------------------------------------------
Net increase in net assets from
operations $ 32,595,453
- ----------------------------------------------------------
See notes to financial statements
15
<PAGE>
Government Obligations Portfolio as of December 31, 1997
FINANCIAL STATEMENTS CONT'D
Statements of Changes in Net Assets
Increase (Decrease) Year Ended Year Ended
in Net Assets December 31, 1997 December 31, 1996
- ---------------------------------------------------------------------------
From operations --
Net investment income $ 35,025,042 $ 37,858,369
Net realized loss on
investment transactions (6,844,606) (5,404,267)
Net change in unrealized
appreciation (depreciation)
of investments 4,415,017 (10,812,405)
- ---------------------------------------------------------------------------
Net increase in net assets
from operations $ 32,595,453 $ 21,641,697
- ---------------------------------------------------------------------------
Capital transactions --
Contributions $ 163,961,740 $ 66,333,513
Withdrawals (218,972,747) (154,241,567)
- ---------------------------------------------------------------------------
Net decrease in net assets from
capital transactions $ (55,011,007) $ (87,908,054)
- ---------------------------------------------------------------------------
Net decrease in net assets $ (22,415,554) $ (66,266,357)
- ---------------------------------------------------------------------------
Net Assets
- ---------------------------------------------------------------------------
At beginning of year $ 455,522,548 $ 521,788,905
- ---------------------------------------------------------------------------
At end of year $ 433,106,994 $ 455,522,548
- ---------------------------------------------------------------------------
See notes to financial statements
16
<PAGE>
Government Obligations Portfolio as of December 31, 1997
FINANCIAL STATEMENTS CONT'D
Supplementary Data
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------------------------------------
1997 1996 1995 1994 1993*
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Ratios to average daily net assets
- ----------------------------------------------------------------------------------------------------------------------
Expenses 0.83% 0.82% 0.82% 0.80% 0.86%+
Net investment income 7.95% 7.88% 7.82% 8.03% 8.46%+
Portfolio Turnover 20% 11% 19% 35% 42%
- ----------------------------------------------------------------------------------------------------------------------
Net assets, end of year (000s omitted) $433,107 $455,523 $521,789 $515,670 $537,297
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
+ Annualized.
* For the period from the start of business, October 28, 1993 to
December 31, 1993.
See notes to financial statements
17
<PAGE>
Government Obligations Portfolio as of December 31, 1997
NOTES TO FINANCIAL STATEMENTS
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 Valuation -- Mortgage backed, "pass-through" securities are
valued using an independent matrix pricing system applied by the adviser
which takes into account closing bond valuations, yield differentials,
anticipated prepayments and interest rates provided by dealers. 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
18
<PAGE>
Government Obligations Portfolio as of December 31, 1997
NOTES TO FINANCIAL STATEMENTS CONT'D
loss, depending on whether the sales proceeds from the closing sale
transaction are greater or less than the cost of the option. If a 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 rates.
Should interest 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 the 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 expense 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, aggregated $100,515,430, $32,669,268 and $85,183,347,
respectively.
3 Investment Adviser Fee and Other Transactions with Affiliates
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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, 1997, the
fee was equivalent to 0.75% of the Portfolio's average net assets for such
period and amounted to $3,305,992. 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. 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, 1997, no significant amounts have been deferred.
19
<PAGE>
Government Obligations Portfolio as of December 31, 1997
NOTES TO FINANCIAL STATEMENTS CONT'D
4 Line of Credit
-----------------------------------------------------------------------------
The Portfolio participates with other portfolios and funds managed by BMR and
EVM and its affiliates in a committed $100 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 Eurodollar rate or federal funds rate. In
addition, a fee computed at an annual rate of 0.10% 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, 1997 was $2,661,326 and the average interest rate was
6.3%. The maximum borrowing outstanding at any time during the year ended
December 31, 1997 was $8,165,000.
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.
Collateral received is generally cash, and the Portfolio invests the cash and
receives 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 loan rebate fee paid by the Fund offsets a portion of the
interest income received. During the year ended December 31, 1997, the value
of the securities loaned and the value of the collateral typically amounted
to approximately $59,000,000 and $62,000,000, respectively.
6 Federal Income Tax Basis of Investments
-----------------------------------------------------------------------------
The cost and unrealized appreciation/depreciation in value of the investment
securities owned at December 31, 1997, as computed on a federal income tax
basis, were as follows:
Aggregate cost $ 473,171,007
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Gross unrealized appreciation $ 22,243,358
Gross unrealized depreciation (1,376,398)
-----------------------------------------------------------------------------
Net unrealized appreciation $ 20,866,960
-----------------------------------------------------------------------------
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 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,
1997 is as follows:
Futures Contracts
-----------------------------------------------------------------------------
Expiration Net Unrealized
Date Contracts Position Depreciation
-----------------------------------------------------------------------------
3/98 850 US Treasury Five Year
Note Futures Short $ (367,388)
-----------------------------------------------------------------------------
At December 31, 1997, the Portfolio had sufficient cash and/or securities to
cover margin requirements on any open futures contracts.
20
<PAGE>
Government Obligations Portfolio as of December 31, 1997
INDEPENDENT ACCOUNTANTS' REPORT
To the Board of Trustees and Investors
of Government Obligations Portfolio:
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We have audited the accompanying statement of assets and liabilities of
Government Obligations Portfolio, including the portfolio of investments, as of
December 31, 1997, and the related statement of operations for year then ended,
the statements of changes in net assets for each of the two years in the period
then ended, and the supplementary data for each of the four years in the period
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, 1997 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, 1997, 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 supplementary data for each of
the four years in the period then ended and for the period from October 28, 1993
(start of business) to December 31, 1993, in conformity with generally accepted
accounting principles.
COOPERS & LYBRAND L.L.P.
Boston, Massachusetts
February 6, 1998
21
<PAGE>
EV Classic Government Obligations Fund as of December 31, 1997
INVESTMENT MANAGEMENT
EV Classic Government Obligations Fund
Officers
M. Dozier Gardner
President and Trustee
James B. Hawkes
Vice President and Trustee
William H. Ahern, Jr.
Vice President
Thomas J. Fetter
Vice President
Michael B. Terry
Vice President
James L. O'Connor
Treasurer
Alan R. Dynner
Secretary
Independent Trustees
Donald R. Dwight
President, Dwight Partners, Inc.
Samuel L. Hayes, III
Jacob H. Schiff Professor of Investment
Banking, Harvard University Graduate School of Business Administration
Norton H. Reamer
President and Director, United Asset
Management Corporation
John L. Thorndike
Formerly Director, Fiduciary Company Incorporated
Jack L. Treynor
Investment Adviser and Consultant
Government Obligations Portfolio
Officers
M. Dozier Gardner
President and Trustee
James B. Hawkes
Vice President and Trustee
Susan Schiff
Vice President and
Portfolio Manager
Mark S. Venezia
Vice President
James L. O'Connor
Treasurer
Alan R. Dynner
Secretary
Independent Trustees
Donald R. Dwight
President, Dwight Partners, Inc.
Samuel L. Hayes, III
Jacob H. Schiff Professor of Investment
Banking, Harvard University Graduate School of Business Administration
Norton H. Reamer
President and Director, United Asset
Management Corporation
John L. Thorndike
Formerly Director, Fiduciary Company Incorporated
Jack L. Treynor
Investment Adviser and Consultant
22
<PAGE>
This Page Intentionally Left Blank
<PAGE>
Investment Advisor of
Government Obligations Portfolio
Boston Management and Research
24 Federal Street
Boston, MA 02110
Administrator of EV Classic
Government Obligations Fund
Eaton Vance Management
24 Federal Street
Boston, MA 02110
Principal Underwriter
Eaton Vance Distributors, Inc.
24 Federal Street
Boston, MA 02110
(617) 482-8260
Custodian
Investors Bank & Trust Company
200 Clarendon Street, 16th Floor
Boston, MA 02116
Transfer Agent
First Data Investor Services Group
Attention: Eaton Vance Funds
P.O. Box 5123
Westborough, MA 01581-5123
Independent Accountants
Coopers & Lybrand L.L.P.
One Post Office Square
Boston, MA 02109
EV Classic Government
Obligations Funds
24 Federal 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 sales charges and
expenses. Please read the prospectus carefully before you invest or send money.
- --------------------------------------------------------------------------------
