<PAGE>
[LOGO OF EATON VANCE Investing [PHOTO OF STATUE
MUTUAL FUNDS APPEARS for the OF LIBERTY
HERE] 21st APPEARS HERE]
Century
Annual Report December 31, 1997
EV
TRADITIONAL
[PHOTO OF GOVERNMENT OBLIGATIONS
BUILDING APPEARS HERE] FUND
Eaton Vance
Global Management-Global Distribution
[PHOTO OF AMERICAN
FLAG APPEARS HERE]
Traditional
<PAGE>
EV Traditional Government Obligations Fund as of December 31, 1997
Letter to Shareholders
[PHOTO OF M. DOZIER GARDNER APPEARS HERE]
M. Dozier Gardner,
President
EV Traditional Government Obligations Fund had a total return of 7.3% for the
year ended December 31, 1997./1/ That return was the result of a decline in net
asset value per share from $10.68 on December 31, 1996 to $10.62 on December 31,
1997, and the reinvestment of $0.808 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
$10.62, the Fund had a distribution rate of 7.53% on December 31./3/ The Fund's
SEC 30-day yield was 5.46% 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 7.3%
Five years 6.5
Ten years 8.1
SEC Average Annual Total Returns (including max. 4.75% sales charge)
- --------------------------------------------------------------------------------
One year 2.2%
Five years 5.4
Ten years 7.6
Diversification by Sectors/6/
- --------------------------------------------------------------------------------
[PIE CHART APPEARS HERE]
Federal National Mortgage Assn. 39.0%
Federal Home Loan Mortgage Corp. 33.8%
U.S. Treasuries 16.3%
Govt. National Mortgage Assn. 9.8%
CMOs 0.9%
Commercial Paper 0.2%
/1/ This return does not include the Fund's maximum 4.75% 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 maximum sales
charge as noted.
/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 Traditional Government Obligations Fund as of December 31, 1997
Management Discussion
[PHOTO OF SUSAN SCHIFF APPEARS HERE]
Susan Schiff
Portfolio Manager
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]
/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 Traditional 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 Traditional Government Obligations Fund as of December 31, 1997
Management Discussion Cont'd
Comparison of Change in Value of a $10,000 Investment in EV Traditional
Government Obligations Fund vs. the Lipper Intermediate Govt. Fund Group Average
and the Lehman Bros. Intermediate Govt. Bond Index.
Dec. 31, 1987 through Dec. 31, 1997
[LINE GRAPH APPEARS HERE]
EV Traditional EV Traditional
Government Government
Date Obligations Fund Obligations Fund** Lehman Lipper
- -------- ---------------- ---------------- ------- -------
12/31/87 $10,000 $9,521 $10,000 $10,000
1/31/88 $10,292 $9,800 $10,248 $10,244
2/28/88 $10,420 $9,921 $10,357 $10,344
3/31/88 $10,380 $9,883 $10,313 $10,311
4/30/88 $10,358 $9,882 $10,296 $10,303
5/31/88 $10,336 $9,841 $10,246 $10,270
6/30/88 $10,503 $10,001 $10,413 $10,415
7/31/88 $10,471 $9,970 $10,382 $10,416
8/31/88 $10,476 $9,974 $10,395 $10,425
9/30/88 $10,668 $10,139 $10,575 $10,567
10/31/88 $10,813 $10,295 $10,721 $10,695
11/30/88 $10,751 $10,237 $10,629 $10,645
12/31/88 $10,746 $10,232 $10,640 $10,659
1/31/89 $10,858 $10,338 $10,746 $10,756
2/28/89 $10,811 $10,294 $10,700 $10,743
3/31/89 $10,765 $10,250 $10,750 $10,777
4/30/89 $11,024 $10,497 $10,867 $10,933
5/31/89 $11,247 $10,708 $11,179 $11,107
6/30/89 $11,531 $10,979 $11,464 $11,309
7/31/89 $11,797 $11,232 $11,897 $11,478
8/31/89 $11,846 $11,089 $11,539 $11,395
9/30/89 $11,710 $11,149 $11,594 $11,450
10/31/89 $11,983 $11,409 $11,838 $11,639
11/30/89 $12,080 $11,511 $11,955 $11,738
12/31/89 $12,166 $11,584 $11,990 $11,788
1/31/90 $12,062 $11,485 $11,915 $11,740
2/28/90 $12,086 $11,508 $11,959 $11,789
3/31/90 $12,133 $11,552 $11,974 $11,830
4/30/90 $12,059 $11,482 $11,933 $11,806
5/31/90 $12,326 $11,736 $12,188 $12,026
6/30/90 $12,494 $11,897 $12,348 $12,171
7/31/90 $12,676 $12,070 $12,521 $12,328
8/31/90 $12,589 $11,986 $12,476 $12,307
9/30/90 $12,694 $12,086 $12,587 $12,403
10/31/90 $12,857 $12,242 $12,762 $12,544
11/30/90 $13,079 $12,453 $12,954 $12,733
12/31/90 $13,257 $12,623 $13,133 $12,896
1/31/91 $13,412 $12,770 $13,269 $13,020
2/28/91 $13,474 $12,829 $13,349 $13,091
3/31/91 $13,537 $12,889 $13,423 $13,163
4/30/91 $13,896 $13,041 $13,561 $13,295
5/31/91 $13,760 $13,102 $13,637 $13,375
6/30/91 $13,812 $13,151 $13,848 $13,387
7/31/91 $13,951 $13,284 $13,795 $13,531
8/31/91 $14,228 $13,547 $14,057 $13,769
9/30/91 $14,457 $13,765 $14,296 $13,992
10/31/91 $14,649 $13,948 $14,459 $14,147
11/30/91 $14,793 $14,085 $14,629 $14,291
12/31/91 $15,169 $14,443 $14,984 $14,614
1/31/92 $15,017 $14,298 $14,840 $14,455
2/28/92 $15,080 $14,358 $14,886 $14,500
3/31/92 $14,973 $14,257 $14,827 $14,456
4/30/92 $15,037 $14,318 $14,960 $14,568
5/31/92 $15,209 $14,481 $15,183 $14,779
6/30/92 $15,387 $14,661 $15,402 $14,977
7/31/92 $15,628 $14,880 $15,697 $15,221
8/31/92 $15,778 $15,023 $15,858 $15,364
9/30/92 $15,997 $15,232 $16,076 $15,529
10/31/92 $15,858 $15,099 $15,883 $15,351
11/30/92 $15,789 $15,033 $15,817 $15,301
12/31/92 $15,971 $15,207 $16,024 $15,484
1/31/92 $16,282 $15,502 $16,322 $15,729
2/28/93 $16,580 $15,787 $16,562 $15,929
3/31/93 $16,723 $15,823 $16,623 $15,983
4/30/93 $16,867 $16,060 $16,753 $16,087
5/31/93 $16,853 $16,046 $18,708 $16,060
6/30/93 $17,035 $16,220 $16,950 $16,246
7/31/93 $17,145 $16,325 $16,984 $18,280
8/31/93 $17,360 $16,529 $17,237 $16,501
9/30/93 $17,442 $16,608 $17,308 $18,544
10/31/93 $17,465 $16,829 $17,348 $18,574
11/30/93 $17,382 $16,550 $17,262 $16,496
12/31/93 $17,450 $16,615 $17,333 $16,562
1/31/94 $17,588 $16,746 $17,505 $16,698
2/28/94 $17,399 $16,566 $17,265 $16,501
3/31/94 $17,128 $16,308 $17,013 $16,267
4/30/94 $16,974 $16,162 $16,802 $16,135
5/31/94 $16,961 $16,149 $16,814 $16,114
6/30/94 $16,958 $16,147 $16,917 $16,103
7/31/94 $17,173 $16,351 $17,139 $16,264
8/31/94 $17,216 $16,392 $17,189 $16,298
9/30/94 $17,073 $16,258 $17,046 $16,179
10/31/94 $17,078 $16,261 $17,049 $16,182
11/30/94 $17,020 $16,208 $16,973 $16,114
12/31/94 $17,098 $16,278 $17,029 $16,151
1/31/95 $17,360 $16,530 $17,306 $16,381
2/28/95 $17,703 $16,855 $17,640 $16,654
3/31/95 $17,806 $16,954 $17,737 $16,734
4/30/95 $18,011 $17,149 $17,943 $16,893
5/31/95 $18,470 $17,586 $18,449 $17,297
6/30/95 $18,569 $17,881 $18,587 $17,388
7/31/95 $18,536 $17,649 $18,576 $17,392
8/31/95 $18,750 $17,853 $18,731 $17,531
9/30/95 $18,869 $17,966 $18,856 $17,643
10/31/95 $19,127 $18,212 $19,064 $17,821
11/30/95 $19,313 $18,389 $19,296 $18,014
12/31/95 $19,484 $18,551 $19,487 $18,183
1/31/96 $19,623 $18,684 $19,661 $18,316
2/28/96 $19,405 $18,477 $19,443 $18,138
3/31/96 $19,360 $18,433 $19,353 $18,071
4/30/96 $19,321 $18,396 $19,297 $18,028
5/31/96 $19,277 $18,355 $19,287 $18,013
6/30/96 $19,539 $18,604 $19,484 $18,159
7/31/96 $19,579 $18,643 $19,545 $18,217
8/31/96 $19,575 $18,639 $19,566 $18,230
9/30/96 $19,893 $18,941 $19,818 $18,446
10/31/96 $20,182 $19,216 $20,143 $18,711
11/30/96 $20,462 $19,483 $20,387 $18,908
12/31/96 $20,364 $19,390 $20,277 $18,830
1/31/97 $20,415 $19,438 $20,354 $18,909
2/28/97 $20,559 $19,575 $20,387 $18,849
3/31/97 $20,481 $19,501 $20,270 $18,860
4/30/97 $20,626 $18,639 $20,500 $19,041
5/31/97 $20,776 $19,781 $20,859 $19,164
6/30/97 $20,934 $19,932 $20,835 $19,314
7/31/97 $21,340 $20,319 $21,216 $19,606
8/31/97 $21,217 $20,202 $21,138 $19,558
9/30/97 $21,436 $20,410 $21,386 $19,738
10/31/97 $21,651 $20,615 $21,616 $19,912
11/30/97 $21,655 $20,619 $21,664 $19,946
12/31/97 $21,842 $20,797 $21,841 $20,094
Performance+
- --------------------------------------------------------------------------------
Average Annual Total Returns (at net asset value)
- --------------------------------------------------------------------------------
One year 7.3%
Five years 6.5
Ten years 8.1
SEC Average Annual Total Returns (Including maximum 4.75% Sales Charge)
- --------------------------------------------------------------------------------
One year 2.2%
Five years 5.4
Ten years 7.6
* Source: Towers Data Systems, Bethesda, MD.
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.
** This figure represents the Fund's performance including the Fund's maximum
4.75% initial sales charge.
+ Returns are calculated by determining the percentage change in net asset
value (NAV) with all distributions reinvested. SEC returns reflect maximum
sales charge as noted.
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 Traditional 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,
$258,917,445) $278,014,185
Receivable for Fund shares sold 162,228
- -------------------------------------------------------------------------
Total assets $278,176,413
- -------------------------------------------------------------------------
Liabilities
- -------------------------------------------------------------------------
Dividends payable $ 916,967
Payable for Fund shares redeemed 333,322
Payable to affiliate for Trustees' fees (Note 5) 843
Accrued expenses 144,054
- -------------------------------------------------------------------------
Total liabilities $ 1,395,186
- -------------------------------------------------------------------------
Net Assets for 26,073,070 shares of
beneficial interest outstanding $276,781,227
- -------------------------------------------------------------------------
Sources of Net Assets
- -------------------------------------------------------------------------
Paid-in capital $313,942,536
Accumulated net realized loss on investments from
Portfolio (computed on the basis of identified
cost) (55,341,082)
Accumulated distributions in excess of net
investment income (916,967)
Net unrealized appreciation of investments from
Portfolio (computed on the basis of identified cost) 19,096,740
- -------------------------------------------------------------------------
Total $276,781,227
- -------------------------------------------------------------------------
Net Asset Value and Redemption
Price Per Share
- -------------------------------------------------------------------------
($276,781,227 / 26,073,070 shares of beneficial
interest outstanding) $ 10.62
- -------------------------------------------------------------------------
Computation of Offering Price
- -------------------------------------------------------------------------
Offering price per share (100 / 95.25 of $10.62) $ 11.15
- -------------------------------------------------------------------------
On sales of $25,000 or more, the offering price is reduced.
Statement of Operations
For the Year Ended
December 31, 1997
Investment Income (Note 1B)
- -------------------------------------------------------------------------
Interest income allocated from Portfolio $ 25,567,297
Expenses allocated from Portfolio (2,416,232)
- -------------------------------------------------------------------------
Net investment income from Portfolio $ 23,151,065
- -------------------------------------------------------------------------
Expenses
- -------------------------------------------------------------------------
Compensation of Trustees not members of the
Administrator's organization (Note 5) $ 3,328
Service fees (Note 6) 717,259
Transfer and dividend disbursing agent fees 302,270
Printing and postage 52,683
Custodian fee 25,802
Registration fees 19,524
Legal and accounting services 16,405
Miscellaneous 40,171
- -------------------------------------------------------------------------
Total expenses $ 1,177,442
- -------------------------------------------------------------------------
Net investment income $ 21,973,623
- -------------------------------------------------------------------------
Realized and Unrealized
Gain (Loss) from Portfolio
- -------------------------------------------------------------------------
Net realized gain (loss) --
Investment transactions (identified cost basis) $ (3,100,370)
Financial futures contracts (1,327,333)
- -------------------------------------------------------------------------
Net realized loss on investment transactions $ (4,427,703)
- -------------------------------------------------------------------------
Change in unrealized appreciation (depreciation) --
Investments $ 3,586,945
Financial futures contracts (822,993)
- -------------------------------------------------------------------------
Net change in unrealized appreciation (depreciation)
of investments $ 2,763,952
- -------------------------------------------------------------------------
Net realized and unrealized loss on investments $ (1,663,751)
- -------------------------------------------------------------------------
Net increase in net assets from operations $ 20,309,872
- -------------------------------------------------------------------------
See notes to financial statements
6
<PAGE>
EV Traditional 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 $ 21,973,623 $ 24,676,978
Net realized loss on investment
transactions (4,427,703) (3,495,428)
Net change in unrealized
appreciation (depreciation)
of investments 2,763,952 (7,582,158)
- --------------------------------------------------------------------------------
Net increase in net assets
from operations $ 20,309,872 $ 13,599,392
- --------------------------------------------------------------------------------
Distributions to shareholders
(Note 2) --
From net investment income $ (21,945,228) $ (24,581,667)
From tax return of capital (174,478) --
- --------------------------------------------------------------------------------
Total distributions to shareholders $ (22,119,706) $ (24,581,667)
- --------------------------------------------------------------------------------
Transactions in shares of beneficial
interest (Note 3) --
Proceeds from sale of shares $ 85,503,535 $ 19,913,181
Net asset value of shares issued to
shareholders in payment of
distributions declared 9,983,362 11,926,517
Cost of shares redeemed (119,859,247) (77,631,807)
- --------------------------------------------------------------------------------
Net decrease in net assets from Fund
share transactions $ (24,372,350) $ (45,792,109)
- --------------------------------------------------------------------------------
Net decrease in net assets $ (26,182,184) $ (56,774,384)
- --------------------------------------------------------------------------------
Net Assets
- --------------------------------------------------------------------------------
At beginning of year $ 302,963,411 $ 359,737,795
- --------------------------------------------------------------------------------
At end of year $ 276,781,227 $ 302,963,411
- --------------------------------------------------------------------------------
Accumulated distributions in excess
of net investment income included
in net assets
- --------------------------------------------------------------------------------
At end of year $ (916,967) $ (945,362)
- --------------------------------------------------------------------------------
See notes to financial statements
7
<PAGE>
EV Traditional 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 $ 10.680 $ 11.020 $ 10.420 $ 11.480 $ 11.380
- -----------------------------------------------------------------------------------------------------------------------------------
Income (loss) from operations
- -----------------------------------------------------------------------------------------------------------------------------------
Net investment income $ 0.799 $ 0.810 $ 0.807 $ 0.805 $ 0.919
Net realized and unrealized gain (loss) on investments (0.051) (0.340) 0.603 (1.029) 0.106
- -----------------------------------------------------------------------------------------------------------------------------------
Total income (loss) from operations $ 0.748 $ 0.470 $ 1.410 $ (0.224) $ 1.025
- -----------------------------------------------------------------------------------------------------------------------------------
Less distributions
- -----------------------------------------------------------------------------------------------------------------------------------
From net investment income $ (0.801) $ (0.810) $ (0.810) $ (0.805) $ (0.919)
In excess of net investment income -- -- -- (0.031) (0.006)
From tax return of capital (0.007) -- -- -- --
- -----------------------------------------------------------------------------------------------------------------------------------
Total distributions $ (0.808) $ (0.810) $ (0.810) $ (0.836) $ (0.925)
- -----------------------------------------------------------------------------------------------------------------------------------
Net asset value -- End of year $ 10.620 $ 10.680 $ 11.020 $ 10.420 $ 11.480
- -----------------------------------------------------------------------------------------------------------------------------------
Total Return/(1)/ 7.26% 4.52% 13.97% (2.03)% 9.26%
- -----------------------------------------------------------------------------------------------------------------------------------
Ratios/Supplemental Data
- -----------------------------------------------------------------------------------------------------------------------------------
Net assets, end of year (000 omitted) $ 276,781 $ 302,963 $ 359,738 $386,186 $503,150
Ratio of expenses to average daily net assets/(2)/ 1.24% 1.16% 1.16% 1.17% 1.12%
Ratio of net investment income to average daily net assets 7.57% 7.59% 7.53% 7.70% 7.86%
Portfolio turnover/(3)/ -- -- -- -- 52%
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
/(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.
/(3)/ Portfolio Turnover represents the rate of portfolio activity for the
period while the Trust was making investments directly in securities. The
portfolio turnover rate for the period since the Trust 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.
See notes to financial statements
8
<PAGE>
EV Traditional Government Obligations Fund as of December 31, 1997
NOTES TO FINANCIAL STATEMENTS
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. 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 (64.2% 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 of the Trust adopted a multiple class
plan for the Fund which permits the Fund to issue more than one class of
shares. Initially, the Fund will offer three classes of shares and, effective
January 1, 1998 the existing shares of the Fund will be designated Class A
shares. On June 23, 1997, the Board of Trustees also approved a Plan of
Reorganization (the "Plan") for the Trust. Under the terms of the Plan, the
Fund will acquire substantially all of the assets and liabilities of the EV
Marathon Government Obligations Fund (the Marathon Fund) and the EV Classic
Government Obligations Fund (the Classic Fund). The transaction will be
structured for tax purposes to qualify as a tax-free reorganization under the
Internal Revenue Code. As a result of the reorganization, shareholders of the
Marathon Fund will receive Class B shares and shareholders of the Classic
Fund will receive Class C shares of the Fund. The reorganization will occur
after the close of business December 31, 1997.
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. 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 $40,894,981
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 distributions to
shareholders which would otherwise be necessary to relieve the Fund of any
liability for federal income tax. Such capital loss carryovers will expire on
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), December 31, 2004 ($6,841,560), and December 31, 2005
($3,080,774).
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 each 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.
9
<PAGE>
EV Traditional Government Obligations Fund as of December 31, 1997
NOTES 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 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 gain on investments. Permanent
differences between book and tax accounting relating to distributions are
reclassified to paid-in capital. During the year ended December 31, 1997,
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:
Year Ended December 31,
--------------------------------
1997 1996
-----------------------------------------------------------------------------
Sales 8,049,910 1,855,497
Issued to shareholders electing to
receive payments of
distributions in Fund shares 940,639 1,112,439
Redemptions (11,297,910) (7,221,418)
-----------------------------------------------------------------------------
Net decrease (2,307,361) (4,253,482)
-----------------------------------------------------------------------------
4 Investment Transactions
-----------------------------------------------------------------------------
Increases and decreases in the Fund's investment in the Portfolio for the
year ended December 31, 1997, aggregated $86,594,603 and $134,485,731,
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 the investment adviser fee earned by BMR.
6 Service Plan
-----------------------------------------------------------------------------
The Fund has adopted a Service Plan on July 7, 1993 designed to meet 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 $717,259 for the year ended December 31,
1997.
7 Subsequent Event
-----------------------------------------------------------------------------
Effective January 1, 1998, the Fund changed its name to Eaton Vance
Government Obligations Fund and shares of the Fund were designated Class A
shares. Additional classes of shares are also offered.
10
<PAGE>
EV Traditional Government Obligations Fund as of December 31, 1997
INDEPENDENT ACCOUNTANTS' REPORT
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 as of December 31, 1997, 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, 1997. 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
Traditional 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 five years in the period
ended December 31, 1997, in conformity with generally accepted accounting
principles.
COOPERS & LYBRAND L.L.P.
Boston, Massachusetts
February 6, 1998
11
<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
See notes to financial statements
12
<PAGE>
Government Obligations Portfolio as of December 31, 1997
PORTFOLIO OF INVESTMENTS CONT'D
Principal
Amount
(000's omitted) Value
- --------------------------------------------------------------------------------
7.25%, with various maturities to 2022 $ 3,703 $ 3,849,766
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%
Principal
Amount
(000's omitted) Value
- --------------------------------------------------------------------------------
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%
Principal
Amount
(000's omitted) Value
- --------------------------------------------------------------------------------
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
13
<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 financial statements
14
<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 (6,844,606) (5,404,267)
transactions
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
15
<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
16
<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
17
<PAGE>
Government Obligations Portfolio as of December 31, 1997
NOTES TO FINANCIAL STATEMENTS CONT'D
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 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
-----------------------------------------------------------------------------
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.
18
<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.
19
<PAGE>
Government Obligations Portfolio as of December 31, 1997
INDEPENDENT ACCOUNTANTS' REPORT
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, 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
20
<PAGE>
EV Traditional Government Obligations Fund as of December 31, 1997
INVESTMENT MANAGEMENT
EV Traditional 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
21
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<PAGE>
Investment Advisor 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
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 Traditional Government
Obligations Fund
24 Federal Street
Boston, MA 02110
- --------------------------------------------------------------------------------
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.
- --------------------------------------------------------------------------------
