<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 24, 1998
1933 ACT FILE NO. 02-90946
1940 ACT FILE NO. 811-4015
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933 [X]
POST-EFFECTIVE AMENDMENT NO. 46 [X]
REGISTRATION STATEMENT
UNDER
THE INVESTMENT COMPANY ACT OF 1940 [X]
AMENDMENT NO. 49 [X]
EATON VANCE MUTUAL FUNDS TRUST
----------------------------------------------------
(FORMERLY EATON VANCE GOVERNMENT OBLIGATIONS TRUST)
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
24 FEDERAL STREET, BOSTON, MASSACHUSETTS 02110
----------------------------------------------
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
617-482-8260
-------------------------------------
(REGISTRANT'S TELEPHONE NUMBER)
ALAN R. DYNNER
24 FEDERAL STREET, BOSTON, MASSACHUSETTS 02110
--------------------------------------
(NAME AND ADDRESS OF AGENT FOR SERVICE)
It is proposed that this filing will become effective pursuant to Rule 485
(check appropriate box):
[ ] immediately upon filing pursuant to [ ] on (date) pursuant to
paragraph (b) paragraph (a)(1)
[X] on August 1, 1998 pursuant to [ ] 75 days after filing pursuant to
paragraph (b) paragraph (a)(2)
[ ] 60 days after filing pursuant to [ ] on (date) pursuant to
paragraph (a)(1) paragraph (a)(2).
If appropriate, check the following box:
[ ] this post effective amendment designates a new effective date for a
previously filed post- effective amendment.
TITLE OF SECURITIES BEING REGISTERED: Shares of Beneficial Interest
High Income Portfolio has also executed this Registration Statement.
================================================================================
<PAGE>
This Amendment to the registration statement on Form N-1A consists of the
following documents and papers:
Cross Reference Sheet required by Rule 481(a) under the Securities Act of
1933
Part A-- The Prospectus of:
Eaton Vance High Income Fund
Part B--The Statement of Additional Information of:
Eaton Vance High Income Fund
Part C--Other Information
Signatures
Exhibit Index Required by Rule 483(b) under the Securities Act of 1933
Exhibits
This Amendment is not intended to amend the Prospectus and Statement of
Additional Information of any series of the Registrant not identified above.
<PAGE>
EATON VANCE MUTUAL FUNDS TRUST
CROSS REFERENCE SHEET FOR
EATON VANCE HIGH INCOME FUND
ITEMS REQUIRED BY FORM N-1A
PART A
ITEM NO. ITEM CAPTION PROSPECTUS CAPTION
- -------- ------------ -------------------------------
1. ............ Cover Page Cover Page
2. ............ Synopsis Shareholder and Fund Expenses
3. ............ Condensed Financial The Fund's Financial
Information Highlights; Performance
Information
4. ............ General Description of The Fund's Investment
Registrant Objective; Investment
Policies and Risks;
Organization of the Fund and
the Portfolio
5. ............ Management of the Fund Management of the Fund and the
Portfolio
5A............. Management's Discussion of Not Applicable
Fund Performance
6. ............ Capital Stock and Other Organization of the Fund and
Securities the Portfolio; Reports to
Shareholders; The Lifetime
Investing Account/
Distribution Options;
Distributions and Taxes
7. ............ Purchase of Securities Valuing Shares; Distribution
Being Offered Plans; How to Buy Shares; The
Lifetime Investing Account/
Distribution Options; The
Eaton Vance Exchange
Privilege; Eaton Vance
Shareholder Services
8. ............ Redemption or Repurchase How to Redeem Shares
9. ............ Pending Legal Proceedings Not Applicable
PART B
STATEMENT OF ADDITIONAL
ITEM NO. ITEM CAPTION INFORMATION CAPTION
- -------- ------------ -------------------------------
10. ............ Cover Page Cover Page
11. ............ Table of Contents Table of Contents
12. ............ General Information and Other Information
History
13. ............ Investment Objectives and Additional Information about
Policies Investment Policies;
Investment Restrictions
14. ............ Management of the Fund Trustees and Officers
15. ............ Control Persons and Control Persons and Principal
Principal Holders of Holders of Securities
Securities
16. ............ Investment Advisory and Investment Adviser and
Other Services Administrator; Distribution
Plans -- Class B and Class C
Shares; Custodian;
Independent Certified Public
Accountants; Other
Information
17. ............ Brokerage Allocation and Portfolio Security Transactions
Other Practices
18. ............ Capital Stock and Other Other Information
Securities
19. ............ Purchase, Redemption and Determination of Net Asset
Pricing of Securities Value; Principal Underwriter;
Being Offered Service for Withdrawal;
Distribution Plans -- Class B
and Class C Shares
20. ............ Tax Status Taxes
21. ............ Underwriters Principal Underwriter
22. ............ Calculation of Performance Investment Performance
Data
23. ............ Financial Statements Financial Statements
<PAGE>
PART A
INFORMATION REQUIRED IN A PROSPECTUS
[LOGO] Investing
for the
EATON VANCE 21st
Mutual Funds Century
Eaton Vance
High Income Fund
EATON VANCE HIGH INCOME FUND (THE "FUND") IS A MUTUAL FUND SEEKING TO PROVIDE
A HIGH LEVEL OF CURRENT INCOME. THE FUND INVESTS ITS ASSETS IN HIGH INCOME
PORTFOLIO (THE "PORTFOLIO"), A DIVERSIFIED OPEN-END INVESTMENT COMPANY HAVING
THE SAME INVESTMENT OBJECTIVE AS THE FUND, RATHER THAN BY DIRECTLY INVESTING
IN AND MANAGING ITS OWN PORTFOLIO OF SECURITIES. THE FUND IS A SERIES OF EATON
VANCE MUTUAL FUNDS TRUST (THE "TRUST").
THE PORTFOLIO SEEKS TO ACHIEVE ITS INVESTMENT OBJECTIVE BY INVESTING UP TO
100% OF ITS ASSETS IN LOWER-RATED BONDS, COMMONLY KNOWN AS "JUNK BONDS", THAT
ENTAIL GREATER RISKS, INCLUDING DEFAULT, THAN THOSE OF HIGHER-RATED
SECURITIES. INVESTORS SHOULD CAREFULLY CONSIDER THESE RISKS AND INVEST FOR THE
LONG TERM. SEE "THE FUND'S INVESTMENT OBJECTIVE" AND "INVESTMENT POLICIES AND
RISKS."
SHARES OF THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY, ANY BANK OR OTHER INSURED DEPOSITORY INSTITUTION, AND ARE NOT
FEDERALLY INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL
RESERVE BOARD OR ANY OTHER GOVERNMENT AGENCY. SHARES OF THE FUND INVOLVE
INVESTMENT RISKS, INCLUDING FLUCTUATIONS IN VALUE AND THE POSSIBLE LOSS OF
SOME OR ALL OF THE PRINCIPAL INVESTMENT.
This Prospectus is designed to provide you with information you should know
before investing. Please retain this document for future reference. A
Statement of Additional Information dated August 1, 1998 for the Fund, as
supplemented from time to time, has been filed with the Securities and
Exchange Commission (the "Commission") and is incorporated herein by
reference. This Statement of Additional Information is available without
charge from the Fund's principal underwriter, Eaton Vance Distributors, Inc.
(the "Principal Underwriter"), 24 Federal Street, Boston, MA 02110 (telephone
(800) 225-6265). The Portfolio's investment adviser is Boston Management and
Research (the "Investment Adviser"), a wholly-owned subsidiary of Eaton Vance
Management, and Eaton Vance Management is the administrator (the
"Administrator") of the Fund. The offices of the Investment Adviser and the
Administrator are located at 24 Federal Street, Boston, MA 02110.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
CONTENTS
<TABLE>
<CAPTION>
Page Page
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Shareholder and Fund Expenses 2 How to Redeem Shares 11
The Fund's Financial Highlights 3 Reports to Shareholders 12
The Fund's Investment Objective 4 The Lifetime Investing Account/Distribution Options 12
Investment Policies and Risks 4 The Eaton Vance Exchange Privilege 13
Organization of the Fund and the Portfolio 7 Eaton Vance Shareholder Services 14
Management of the Fund and the Portfolio 8 Distributions and Taxes 15
Distribution Plans 9 Performance Information 15
Valuing Shares 10 Appendix A 17
How to Buy Shares 10 Appendix B 19
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
Prospectus dated August 1, 1998
<PAGE>
SHAREHOLDER AND FUND EXPENSES
SHAREHOLDER TRANSACTION EXPENSES
Class B Class C
Shares Shares
- ------------------------------------------------------------------------------
Sales Charge Imposed on Purchases None None
Sales Charges Imposed on Reinvested Distributions None None
Fees to Exchange Shares None None
Maximum Contingent Deferred Sales Charge 5.00% 1.00%
ANNUAL FUND AND ALLOCATED PORTFOLIO OPERATING EXPENSES (AS A PERCENTAGE OF
AVERAGE DAILY NET ASSETS)
Class B Class C
Shares Shares
- ------------------------------------------------------------------------------
Investment Adviser Fee 0.58% 0.58%
Rule 12b-1 Distribution and Service Fees 0.96 1.00
Other Expenses 0.19 0.19
---- ----
Total Operating Expenses 1.73% 1.77%
==== ====
EXAMPLE
An investor would pay the following expenses and, in the case of Class B and
Class C shares, the applicable contingent deferred sales charge on a $1,000
investment, assuming (a) 5% annual return and (b) redemption at the end of each
period:
Class B Class C
Shares Shares
- ------------------------------------------------------------------------------
1 Year $ 68 $ 28
3 Years 94 56
5 Years 114 96
10 Years 204 208
An investor would pay the following expenses on the same investment, assuming
(a) 5% annual return and (b) no redemptions:
Class B Class C
Shares Shares
- ------------------------------------------------------------------------------
1 Year $ 18 $ 18
3 Years 54 56
5 Years 94 96
10 Years 204 208
NOTES: The table and Example summarize the aggregate expenses of the Portfolio
and each Class of shares of the Fund and are designed to help investors
understand the costs and expenses they will bear, directly or indirectly, by
investing in the Fund. Information for Class B shares is for the most recent
fiscal year. Information for Class C shares is estimated based upon the most
recent fiscal year of its predecessor fund adjusted for the multiple-class
structure.
The Fund offers two classes of shares. Class B shares are sold subject to a
declining contingent deferred sales charge ("CDSC") (5% maximum) if redeemed
within six years of purchase and Class C shares are sold subject to a 1% CDSC
if redeemed within one year of purchase. The CDSC does not apply in certain
circumstances. See "How to Buy Shares" and "How to Redeem Shares".
THE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES AND ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN. Federal
regulations require the Example to assume a 5% annual return, but actual
return will vary. A long-term holder in the Fund may pay more than the
economic equivalent of the maximum front-end sales charge permitted by a rule
of the National Association of Securities Dealers, Inc. For further
information regarding the expenses of the Fund and the Portfolio, see "The
Fund's Financial Highlights", "Management of the Fund and the Portfolio",
"Distribution Plans" and "How to Redeem Shares".
The Portfolio's monthly advisory fee has two components, a fee based on daily
net assets and a fee based on daily gross income, as set forth in the fee
schedule on page 8.
The Fund invests exclusively in the Portfolio. Other investment companies and
investors with different distribution arrangements and fees are investing in
the Portfolio and others may do so in the future. See "Organization of the
Fund and the Portfolio".
THE FUND'S FINANCIAL HIGHLIGHTS
The following information should be read in conjunction with the audited
financial statements that appear in the Fund's annual report to shareholders.
The Fund's financial statements have been audited by Deloitte & Touche LLP,
independent certified public accountants, as experts in accounting and
auditing. The financial statements and the independent auditors' report are
incorporated by reference into the Statement of Additional Information.
Further information regarding the performance of the Fund is contained in its
annual report to shareholders which may be obtained without charge by
contacting the Principal Underwriter. The financial information for each of
the periods presented in the Fund's Financial Highlights are for the Fund
prior to reclassification of its shares as Class B shares on April 1, 1998.
Information for Class C shares is not presented because this class did not
exist prior to April 1, 1998. The Financial Highlights for Class C shares will
differ from the Financial Highlights for Class B shares due to the different
fees imposed on Class C shares.
<TABLE>
<CAPTION>
Year Ended March 31,
----------------------------------------------------------------------------------------------------------
1998 1997 1996 1995 1994 1993 1992 1991 1990 1989
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of year $ 7.220 $ 7.100 $ 6.920 $ 7.450 $ 7.480 $ 7.380 $ 6.120 $ 7.430 $ 9.230 $ 9.330
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Income (loss) from Operations:
Net investment
income $ 0.658 $ 0.652 $ 0.665 $ 0.671 $ 0.697 $ 0.767 $ 0.825 $ 0.973 $ 1.053 $ 1.054
Net realized and
unrealized gain
(loss) on
investments 0.774 0.120 0.189 (0.507) 0.047 0.170 1.356 (1.187) (1.708) (0.023)
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Total income
(loss) from $ $
operations $ 1.432 $ 0.772 $ 0.854 $ 0.164 $ 0.744 $ 0.937 $ 2.181 (0.214) (0.655) $ 1.031
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Less Distributions:
From net investment
income $ (0.622) $ (0.646) $ (0.665) $ (0.671) $ (0.697) $ (0.767) $ (0.825) $ (0.973) $ (1.078) $ (1.038)
In excess of net
investment income(1) -- (0.006) (0.009) (0.023) (0.077) (0.070) (0.096) (0.123) (0.067) (0.093)
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Total
distributions $ (0.622) $ (0.652) $ (0.674) $ (0.694) $ (0.774) $ (0.837) $ (0.921) $ (1.096) $ (1.145) $ (1.131)
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Net asset value, end
of year $ 8.030 $ 7.220 $ 7.100 $ 6.920 $ 7.450 $ 7.480 $ 7.380 $ 6.120 $ 7.430 $ 9.230
======== ======== ======== ======== ======== ======== ======== ======== ======== ========
Total Return(2) 20.59% 11.37% 12.80% 2.51% 10.28% 13.41% 38.21% (2.84)% (8.14)% 11.58%
Ratios/Supplemental Data:
Net assets, end of
year (000's
omitted) $693,818 $598,273 $496,966 $439,171 $399,259 $332,854 $252,967 $170,655 $214,075 $268,080
Ratio of net
expenses to
average daily net
assets(3) 1.73% 1.77% 1.78% 1.78% 1.82% 2.09% 2.19% 2.37% 2.20% 2.19%
Ratio of net
investment income
to average daily
net assets 8.58% 8.97% 9.38% 9.52% 9.09% 10.31% 12.00% 14.54% 12.12% 11.28%
Portfolio Turnover of
the Fund(4) -- -- -- 11% 96% 91% 82% 57% 53% 57%
Portfolio Turnover of
the Portfolio(4) 137% 78% 88% 53% -- -- -- -- -- --
(1) The Fund has followed the Statement of Position (SOP) 93-2: Determination, Disclosure and Financial Statement Presentation of
Income, Capital Gain, and Return of Capital Distribution by Investment Companies. The SOP requires that differences in the
recognition or classification of income between the financial statements and tax earnings and profits that result in temporary
over-distributions for financial statement purposes, are classified as distributions in excess of net investment income or
accumulated net realized gains.
(2) 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. Distributions, if any, are assumed to be reinvested at the net asset value on the payable
date. Capital gain distributions, if any, are assumed to be reinvested at the net asset value on the ex-dividend date. Total
return is computed on a non-annualized basis.
(3) Includes the Fund's share of the Portfolio's allocated expenses subsequent to June 1, 1994.
(4) Portfolio Turnover of the Fund represents the rate of portfolio activity for the period while the Fund was making investments
directly in securities. The Fund began investing in the Portfolio on June 1, 1994.
</TABLE>
<PAGE>
THE FUND'S INVESTMENT OBJECTIVE
THE FUND'S INVESTMENT OBJECTIVE IS TO PROVIDE A HIGH LEVEL OF CURRENT INCOME.
The Fund currently seeks to meet its investment objective by investing its
assets in the High Income Portfolio (the "Portfolio"), a separate registered
investment company which has the same investment objective and policies as the
Fund. The Portfolio seeks to invest a significant portion of its assets in
high-yielding, high risk, fixed-income securities (commonly referred to as
"junk-bonds"), to achieve this objective. The Fund's and the Portfolio's
investment objectives are nonfundamental and may be changed when authorized by
a vote of the Trustees of the Trust or the Portfolio, respectively, without
obtaining the approval of the Fund's shareholders or the investors in the
Portfolio, as the case may be. The Trustees of the Trust have no present
intention to change the Fund's objective and intend to submit any proposed
material change in the investment objective to shareholders in advance for
their approval. The Fund may not be appropriate for investors who cannot
assume the greater risk of capital depreciation or loss inherent in seeking
higher yields.
INVESTMENT POLICIES AND RISKS
The Portfolio normally is invested as follows:
at least 80% of its net assets in fixed-income securities, including
convertible securities; and
up to 20% of its net assets in common stocks and other equity securities
when consistent with its objective or acquired as part of a unit combining
fixed-income and equity securities.
THE PORTFOLIO WILL NORMALLY INVEST AT LEAST 65% OF ITS ASSETS IN THE LOWEST
INVESTMENT GRADE AND LOWER RATED OBLIGATIONS (RATED BAA OR LOWER BY MOODY'S
INVESTORS SERVICE, INC. ("MOODY'S") OR BBB OR LOWER BY STANDARD & POOR'S
RATINGS GROUP ("S&P")) AND UNRATED OBLIGATIONS. For a description of Moody's
and S&P's ratings of fixed-income securities, see Appendix A to this
Prospectus. Unrated bonds are generally regarded as being speculative and
expose the investor to risks with respect to the issuer's capacity to pay
interest and repay principal which are similar to the risks of lower rated
bonds. At March 31, 1998, the Portfolio had approximately 96.7% of its assets
invested in high yield, high risk bonds that were rated lower than investment
grade or unrated. See Appendix B to this Prospectus for the Portfolio's asset
composition information for the most recent fiscal year of the Fund.
The Portfolio invests a substantial portion of its assets in high yield, high
risk securities issued in connection with mergers, acquisitions, leveraged
buy-outs, recapitalizations and other highly leveraged transactions. These
securities are subject to substantially greater credit risks than some of the
other fixed-income securities in which the Portfolio may invest. These credit
risks include the possibility of default or bankruptcy of the issuer. These
securities are less liquid than other fixed-income securities. During periods
of deteriorating economic conditions and contraction in the credit markets,
the ability of issuers of such securities to service their debt, meet
projected goals, or obtain additional financing may be impaired. For more
detailed information about the risks associated with investing in such
securities, see "Additional Risk Considerations" below.
The Portfolio may also invest a portion of its assets in debt securities that
are not paying current income in anticipation of the receipt of possible
future income or capital appreciation. Interest and/or principal payments
thereon could be in arrears when such securities are acquired, and the issuer
may be in bankruptcy or undergoing a debt restructuring or reorganization.
Such securities may be unrated or the lowest rated obligations (rated C by
Moody's or D by S&P). Bonds rated C by Moody's are regarded as having
extremely poor prospects of ever attaining any real investment standing.
Bonds rated D by S&P are in payment default or a bankruptcy petition has been
filed and debt service payments are jeopardized. The Portfolio may retain
defaulted obligations in its portfolio when such retention is considered
desirable by the Investment Adviser. The Portfolio may also acquire other
securities issued in exchange for such obligations or issued in connection
with the debt restructuring or reorganization of the issuers, or where such
acquisition, in the judgment of the Investment Adviser, may enhance the value
of such obligations or would otherwise be consistent with the Portfolio's
investment policies.
Although the Investment Adviser considers security ratings when making
investment decisions, it performs its own credit and investment analysis and
does not rely primarily on the ratings assigned by the rating services. In
evaluating the quality of a particular issue, whether rated or unrated, the
Investment Adviser will normally take into consideration, among other things,
the issuer's financial resources and operating history, its sensitivity to
economic conditions and trends, the ability of its management, its debt
maturity schedules and borrowing requirements, and relative values based on
anticipated cash flow, interest and asset coverages, and earnings prospects.
Because of the greater number of investment considerations involved in
investing in high yield, high risk bonds, the achievement of the Portfolio's
objective depends more on the Investment Adviser's judgment and analytical
abilities than would be the case if the Portfolio were investing primarily in
securities in the higher rating categories.
When the Investment Adviser believes that it is appropriate to do so, for
defensive purposes, such as during abnormal market or economic conditions,
more than 35% of the Portfolio's assets may be temporarily invested in
securities rated A or better by Moody's or S&P. All or a portion of the
Portfolio's assets may be invested temporarily in cash or short-term
obligations including, but not limited to, certificates of deposit, commercial
paper, short-term notes, obligations issued or guaranteed by the U.S.
Government or any of its agencies or instrumentalities and repurchase
agreements.
FIXED-INCOME OBLIGATIONS. The fixed-income securities in which the Portfolio
may invest include preferred and preference stocks and all types of debt
obligations of both domestic and foreign issuers, such as bonds, debentures,
notes, equipment lease certificates, equipment trust certificates, conditional
sale contracts, commercial paper, and obligations issued or guaranteed by the
U.S. Government, any state or territory of the United States, any foreign
government or any of their respective political subdivisions, agencies or
instrumentalities. Debt securities may bear fixed, fixed and contingent,
variable or floating rates of interest. Investments in foreign securities may
not exceed 25% of total assets.
The Portfolio may also invest a portion of its assets in loan interests, which
are interests in amounts owed by a corporate, governmental or other borrower
to lenders or lending syndicates. Loan interests purchased by the Portfolio
may have a maturity of any number of days or years, may be secured or
unsecured, and may be of any credit quality. Loan interests, which may take
the form of participation interests in, assignments of or novations of a loan,
may be acquired from U.S. and foreign banks, insurance companies, finance
companies or other financial institutions which have made loans or are members
of a lending syndicate or from the holders of loan interests. Loan interests
involve the risk of loss in case of default or bankruptcy of the borrower and,
in the case of participation interests, involve the risk of insolvency of the
agent lending bank or other financial intermediary.
The Portfolio may hold up to 15% of its net assets in illiquid securities,
including securities legally restricted as to resale such as commercial paper
issued pursuant to Section 4(2) of the Securities Act of 1933 and securities
eligible for resale pursuant to Rule 144A thereunder. Section 4(2) and Rule
144A securities may, however, be treated as liquid by the Investment Adviser
pursuant to procedures adopted by the Trustees, which require consideration of
factors such as trading activity, availability of market quotations and number
of dealers willing to purchase the security. As of March 31, 1998, more than
25.8% of the Portfolio's assets were invested in liquid 144A securities. Rule
144A securities may increase illiquidity if qualified institutional buyers
become uninterested in purchasing such securities.
INVESTMENT PRACTICES
DERIVATIVE INSTRUMENTS. The Portfolio may purchase or sell derivative
instruments (which are instruments that derive their value from another
instrument, security, index or currency) to hedge against fluctuations in
interest rates, securities prices or currency exchange rates, to change the
duration of the Portfolio's fixed income portfolio or as a substitute for the
purchase or sale of securities or currency. Options may be written to enhance
income. The Portfolio's transactions in derivative instruments may include
the purchase or sale of futures contracts on securities, (such as U.S.
Government securities), indices, other financial instruments (such as
certificates of deposit, Eurodollar time deposits, and economic indices) or
currencies; options on futures contracts; exchange-traded options on
securities, indices or currencies; and forward contracts to purchase or sell
currencies. All of the Portfolio's transactions in derivative instruments
involve a risk of loss or depreciation due to: unanticipated adverse changes
in interest rates, securities prices or currency exchange rates; the inability
to close out a position; tax constraints on closing out positions; default by
the counterparty; imperfect correlation between a position and the desired
hedge; and portfolio management constraints on disposing of securities subject
to such transactions. The loss on derivative instruments (other than purchased
options) may substantially exceed the Portfolio's initial investment in these
instruments. In addition, the Portfolio may lose the entire premium paid for
purchased options that expire before they can be profitably exercised by the
Portfolio. The Portfolio incurs transaction costs in opening and closing
positions in derivative instruments. Under regulations of the Commodity
Futures Trading Commission, the use of futures transactions for nonhedging
purposes is limited. There can be no assurance that the Investment Adviser's
use of derivative instruments will be advantageous to the Portfolio.
The Portfolio's success in using derivative instruments to hedge portfolio
assets depends on the degree of price correlation between the derivative
instrument and the hedged asset. Imperfect correlation may be caused by
several factors, including temporary price disparities among the trading
markets for the derivative instrument, the assets underlying the derivative
instrument and the Portfolio's assets.
The Portfolio may write (sell) covered call and put options only with respect
to up to 25% of its net assets.
ADDITIONAL RISK CONSIDERATIONS
Investors should carefully consider their ability to assume the risks of
owning shares of a mutual fund that invests in below investment grade debt
obligations (commonly referred to as "junk bonds") before making an investment
in the Fund. The lower ratings of certain securities held by the Portfolio
reflect a greater possibility that adverse changes in the financial condition
of an issuer, or in general economic conditions, or both, or an unanticipated
rise in interest rates, may impair the ability of the issuer to make payments
of interest and principal. The inability (or perceived inability) of issuers
to make timely payment of interest and principal would likely make the values
of securities held by the Fund more volatile and could limit the Portfolio's
ability to sell its securities at prices approximating the values the
Portfolio has placed on such securities. It is possible that legislation may
be adopted in the future limiting the ability of certain financial
institutions to purchase such securities; such legislation may adversely
affect the liquidity of such securities. In the absence of a liquid trading
market for securities held by it, the Portfolio may be unable at times to
establish the fair market value of such securities.
The rating assigned to a security by a rating agency does not reflect an
assessment of the volatility of the security's market value or of the
liquidity of an investment in the securities. Credit ratings are based
largely on the issuer's historical financial condition and the rating agency's
investment analysis at the timing of rating, and the rating assigned to any
particular security is not necessarily a reflection of the issuer's current
financial condition. Credit quality in the high yield, high risk bond market
can change from time to time, and recently issued credit ratings may not fully
reflect the actual risks posed by a particular high yield security.
While the Investment Adviser will attempt to reduce the risks of investing in
lower rated or unrated securities through active portfolio management,
diversification, credit analysis and attention to current developments and
trends in the economy and the financial markets, there can be no assurance
that a broadly diversified portfolio of such securities would substantially
lessen the risks of defaults brought about by an economic downturn or
recession.
THE NET ASSET VALUE OF SHARES OF THE FUND WILL CHANGE IN RESPONSE TO
FLUCTUATIONS IN PREVAILING INTEREST RATES AND CHANGES IN THE VALUE OF THE
SECURITIES HELD BY THE PORTFOLIO. When interest rates decline, the value of
securities already held by the Portfolio can be expected to rise. Conversely,
when interest rates rise, the value of existing portfolio security holdings
can be expected to decline. Changes in the credit quality of issuers of debt
obligations held by the Portfolio will affect the principal value (and
possibly the income earned) on such obligations. In addition, the values of
such securities are affected by changes in general economic conditions and
business conditions affecting the specific industries of their issuers.
Changes by recognized rating services in their ratings of any fixed-income
security and in the ability of an issuer to make payments of interest and
principal may also affect the value of these investments. The Portfolio will
not dispose of a security solely because its rating is reduced below its
rating at the time of purchase, although the Investment Adviser will monitor
the investment to determine whether continued investment in the security will
assist in meeting the Portfolio's investment objective.
Interest and/or principal payments on securities in default may be in arrears
when such securities are acquired, and the issuer may be in bankruptcy or
undergoing a debt restructuring or reorganization. In order to enforce its
rights in the event of a default under such securities, the Portfolio may be
required to take possession of and manage assets securing the issuer's
obligation on such securities, which may increase the Portfolio's operating
expenses and adversely affect the Portfolio's net asset value.
Because foreign securities involve foreign currencies, the values of the
assets of the Portfolio and their net investment income available for
distribution may be affected favorably or unfavorably by changes in currency
exchange rates and exchange control regulations. There may be less information
publicly available about a foreign issuer than about a U.S. issuer, and
foreign issuers are not generally subject to accounting, auditing, and
financial reporting standards and practices comparable to those in the United
States. The willingness and ability of foreign issuers to pay principal and
interest on government securities depends on various economic factors,
including among others the issuer's balance of payments, overall debt level,
and cash flow considerations related to the availability of tax or other
revenues to satisfy the issuer's obligations. The securities of some foreign
issuers are less liquid and at times more volatile than securities of
comparable U.S. issuers. Foreign brokerage commissions and fees are also
generally higher than in the United States. Foreign settlement procedures and
trade regulations may involve certain risks (such as delay in the payment or
delivery of securities or in the recovery of assets held abroad) and expenses
not present in the settlement of domestic investments. Investments may include
securities issued by companies in lesser-developed countries, which are
sometimes referred to as "emerging markets". As a result, the Portfolio may be
exposed to greater risk and will be more dependent on the Investment Adviser's
ability to assess such risk than if the Portfolio invested solely in more
developed countries. In addition, there may be a possibility of
nationalization or expropriation of assets, imposition of currency exchange
controls, confiscatory taxation, political or financial instability, armed
conflict and diplomatic developments which could affect the values of the
Portfolio's investments in certain foreign countries. Legal remedies available
to investors in certain foreign countries, including remedies available in
bankruptcy proceedings, may be more limited than those available with respect
to investments in the United States or in other foreign countries. The laws of
some foreign countries may limit the Portfolio's ability to invest in
securities of certain issuers located in those foreign countries. Special tax
considerations apply to foreign securities. Investments in foreign securities
will not exceed 25% of total assets.
Certain securities held by the Portfolio may permit the issuer at its option
to "call", or redeem, its securities. If an issuer were to redeem securities
held by the Portfolio during a time of declining interest rates, the Portfolio
may not be able to reinvest the proceeds in securities providing the same
investment return as the securities redeemed. In addition, the Portfolio may
temporarily borrow up to 5% of the value of its total assets to satisfy
redemption requests or settle securities transactions.
Loan interests generally are not rated by any nationally recognized rating
service and are, at present, not readily marketable and may be subject to
contractual restrictions on resale. An investment in restricted securities
may involve relative greater risk and cost to the Portfolio because of their
illiquidity. Moreover, liquid Rule 144A securities may increase the level of
Portfolio illiquidity to the extent qualified institutional buyers become
uninterested in purchasing such securities.
Fixed-income securities that the Portfolio may invest in also include zero
coupon bonds, deferred interest bonds and bonds on which the interest is
payable in kind ("PIK bonds"). Zero coupon and deferred interest bonds are
debt obligations which are issued at a significant discount from face value.
While zero coupon bonds do not require the periodic payment of interest,
deferred interest bonds provide for a period of delay before the regular
payment of interest begins. PIK bonds are debt obligations which provide that
the issuer thereof may, at its option, pay interest on such bonds in cash or
in the form of additional debt obligations. Such investments may experience
greater volatility in market value due to changes in interest rates than debt
obligations which make regular payments of interest. The Portfolio will
accrue income on such investments for tax and accounting purposes, in
accordance with applicable law, the Fund's share of which income is
distributable to shareholders. Because no cash is received at the time such
income is accrued, the Portfolio may be required to liquidate other portfolio
securities to enable the Fund to satisfy its distribution obligations.
Investing in foreign securities may represent a greater degree of risk than
investing in domestic securities, because of the possibility of exchange rate
fluctuations, less publicly-available financial and other information, more
volatile and less liquid markets, less securities regulation, higher brokerage
costs, imposition of foreign withholding and other taxes, war, expropriation
or other adverse governmental actions.
The Fund and the Portfolio have adopted certain fundamental investment
restrictions which are enumerated in detail in the Statement of Additional
Information and which may not be changed unless authorized by a shareholder
vote, and an interestholder vote, respectively. Except for such enumerated
restrictions and as otherwise indicated in this Prospectus, the investment
objective and policies of the Fund and the Portfolio are not fundamental
policies and accordingly may be changed by the Trustees of the Trust and the
Portfolio without obtaining the approval of the Fund's interestholders or the
investors in the Portfolio, as the case may be.
ORGANIZATION OF THE FUND AND THE PORTFOLIO
THE FUND IS A DIVERSIFIED SERIES OF EATON VANCE MUTUAL FUNDS TRUST A BUSINESS
TRUST ESTABLISHED UNDER MASSACHUSETTS LAW PURSUANT TO A DECLARATION OF TRUST
DATED MAY 7, 1984, AS AMENDED. The Trustees of the Trust are responsible for
the overall management and supervision of its affairs. The Trust may issue an
unlimited number of shares of beneficial interest (no par value per share) in
one or more series (such as the Fund). The Trustees of the Trust have divided
the shares of the Fund into multiple classes, including Class B and Class C
shares. Each class represents an interest in the Fund, but is subject to
different expenses, rights and privileges. See "Distribution Plans" and "How
to Buy Shares". The Trustees have the authority under the Declaration of Trust
to create additional classes of shares with differing rights and privileges.
As a result of a reorganization with separate series of the Trust, the Fund
commenced offering Class B and C shares on April 1, 1998.
When issued and outstanding, the shares are fully paid and nonassessable by
the Trust and redeemable as described under "How to Redeem Shares". There are
no annual meeting of shareholders, but special meetings may be held as
required by law to elect or remove Trustees and consider certain other
matters. Shareholders are entitled to one vote for each full share held.
Fractional shares may be voted proportionately. Shares of the Fund will be
voted together except that only shareholders of a particular class may vote on
matters affecting only that class. Shares have no preemptive or conversion
rights and are freely transferable. In the event of the liquidation of the
Fund, shareholders of each class are entitled to share pro rata in the net
assets attributable to that class available for distribution to shareholders.
The Trustees of the Trust have considered the advantages and disadvantages of
investing the assets of the Fund in the Portfolio, as well as the advantages
and disadvantages of the two-tier format. The Trustees believe that the
structure may offer opportunities for growth in the assets of the Portfolio,
may afford the potential for economies of scale for the Fund and may over time
result in lower expenses for the Fund.
THE PORTFOLIO IS ORGANIZED AS A TRUST UNDER THE LAWS OF THE STATE OF NEW YORK
AND INTENDS TO BE TREATED AS A PARTNERSHIP FOR FEDERAL TAX PURPOSES. In
addition to selling an interest to the Fund, the Portfolio may sell interests
to other affiliated and non-affiliated mutual funds or institutional
investors. Such investors will invest in the Portfolio on the same terms and
conditions and will pay a proportionate share of the Portfolio's expenses.
However, the other investors investing in the Portfolio are not required to
sell their shares at the same public offering price as the Fund or class due
to variations in sales commissions and other operating expenses. Therefore,
these differences may result in differences in returns experienced by
investors in the various funds that may invest in the Portfolio. Information
regarding other pooled investment entities or funds which invest in the
Portfolio may be obtained by contacting the Principal Underwriter, 24 Federal
Street, Boston, MA 02110 (617) 482-8260.
Whenever the Fund as an investor in the Portfolio is requested to vote on
matters pertaining to the Portfolio (other than the termination of the
Portfolio's business, which may be determined by the Trustees of the Portfolio
without investor approval), the Fund will hold a meeting of Fund shareholders
and will vote its interest in the Portfolio for or against such matters
proportionately to the instructions to vote for or against such matters
received from Fund shareholders. The Fund shall vote shares for which it
receives no voting instructions in the same proportion as the shares for which
it receives voting instructions. Other investors in the Portfolio may alone or
collectively acquire sufficient voting interests in the Portfolio to control
matters relating to the operation of the Portfolio, which may require the Fund
to withdraw its investment in the Portfolio or take other appropriate action.
Any such withdrawal could result in a distribution "in kind" of portfolio
securities (as opposed to a cash distribution from the Portfolio). If
securities are distributed, the Fund could incur brokerage, tax or other
charges in converting the securities to cash. In addition, the distribution in
kind may result in a less diversified portfolio of investments or adversely
affect the liquidity of the Fund. Notwithstanding the above, there are other
means for meeting shareholder redemption requests, such as borrowing.
The Fund may withdraw (completely redeem) all its assets from the Portfolio at
any time if the Board of Trustees of the Trust determines that it is in the
best interest of the Fund to do so. In the event the Fund withdraws all of its
assets from the Portfolio, or the Board of Trustees of the Trust determines
that the investment objective of the Portfolio is no longer consistent with
the investment objective of the Fund, the Trustees would consider what action
might be taken, including investing the assets of the Fund in another pooled
investment entity or retaining an investment adviser to manage the Fund's
assets in accordance with its investment objective. The Fund's investment
performance may be affected by a withdrawal of all its assets (or the assets
of another investor in the Portfolio) from the Portfolio.
MANAGEMENT OF THE FUND AND THE PORTFOLIO
THE PORTFOLIO ENGAGES BOSTON MANAGEMENT AND RESEARCH ("BMR"), A WHOLLY-OWNED
SUBSIDIARY OF EATON VANCE MANAGEMENT ("EATON VANCE"), AS ITS INVESTMENT
ADVISER. EATON VANCE, ITS AFFILIATES AND ITS PREDECESSOR COMPANIES HAVE BEEN
MANAGING ASSETS OF INDIVIDUALS AND INSTITUTIONS SINCE 1924 AND MANAGING
INVESTMENT COMPANIES SINCE 1931.
Acting under the general supervision of the Board of Trustees of the
Portfolio, BMR manages the Portfolio's investments and affairs. BMR also
furnishes for the use of the Portfolio office space and all necessary office
facilities, equipment and personnel for servicing the invesments of the
Portfolio. Under its investment advisory agreement with the Portfolio, BMR
receives a monthly advisory fee equal to the aggregate of
(a) a daily asset based fee computed by applying the annual asset rate
applicable to that portion of the total daily net assets in each
Category as indicated below, plus
(b) a daily income based fee computed by applying the daily income rate
applicable to that portion of the total daily gross income (which
portion shall bear the same relationship to the total daily gross
income on such day as that portion of the total daily net assets in
the same Category bears to the total daily net assets on such day) in
each Category as indicated below:
Annual Daily
Category Daily Net Assets Asset Rate Income Rate
- --------------------------------------------------------------------------------
1 up to $500 million 0.300% 3.00%
2 $500 million but less than $1 billion 0.275% 2.75%
3 $1 billion but less than $1.5 billion 0.250% 2.50%
4 $1.5 billion but less than $2 billion 0.225% 2.25%
5 $2 billion but less than $3 billion 0.200% 2.00%
6 $3 billion and over 0.175% 1.75%
As of March 31, 1998, the Portfolio had net assets of $960,500,710. For the
fiscal year ended March 31, 1998, the Portfolio paid BMR advisory fees
equivalent to 0.58% of the Portfolio's average daily net assets for such year.
BMR OR EATON VANCE ACTS AS INVESTMENT ADVISER TO INVESTMENT COMPANIES AND
VARIOUS INDIVIDUAL AND INSTITUTIONAL CLIENTS WITH ASSETS UNDER MANAGEMENT OF
APPROXIMATELY $25 BILLION. Eaton Vance is a wholly-owned subsidiary of Eaton
Vance Corp., a publicly-held holding company which through its subsidiaries
and affiliates engages primarily in investment management and marketing
activities. The Principal Underwriter is a wholly-owned subsidiary of Eaton
Vance.
Michael Weilheimer has acted as the portfolio manager of the Portfolio since
January 1, 1997. Mr. Weilheimer is a Vice President of Eaton Vance and BMR and
manages other Eaton Vance portfolios.
BMR places the portfolio transactions of the Portfolio for execution with many
broker-dealer firms. Fixed-income securities are normally traded on a net
basis (without commission) through broker-dealers and banks acting for their
own account. Such firms attempt to profit from such transactions by buying at
the bid price and selling at the higher asked price of the market, and the
difference is customarily referred to as the spread. In selecting firms to
execute portfolio transactions, BMR judges their professional ability and
quality of service and uses its best efforts to obtain execution at prices
which are advantageous to the Portfolio and at reasonably competitive spreads.
Subject to the foregoing, BMR may consider sales of shares of the Fund or of
other investment companies sponsored by BMR or Eaton Vance as a factor in the
selection of firms to execute portfolio transactions. The Fund, the Portfolio
and BMR have adopted Codes of Ethics relating to personal securities
transactions. The Codes permit Eaton Vance personnel to invest in securities
(including securities that may be purchased or held by the Portfolio) for
their own accounts, subject to certain pre-clearance, reporting and other
restrictions and procedures contained in such Codes.
The Trust has retained the services of Eaton Vance to act as Administrator of
the Fund. The Trust has not retained the services of an investment adviser
since the Trust seeks to achieve the investment objective of the Fund by
investing its assets in the Portfolio. As Administrator, Eaton Vance provides
the Fund with general office facilities and supervises the overall
administration of the Fund. For these services Eaton Vance currently receives
no compensation. The Trustees of the Trust may determine, in the future, to
compensate Eaton Vance for its services.
Like most mutual funds, the Fund and the Portfolio rely on computers in
conducting daily business and processing information. There is a concern that
on January 1, 2000 some computer programs will be unable to recognize the new
year and as a consequence computer malfunctions will occur. The Administrator
is taking steps that it believes are reasonably designed to address this
potential problem and to obtain satisfactory assurance from other service
providers to the Fund and Portfolio that they are also taking steps to address
the issue. There can, however, be no assurance that these steps will be
sufficient to avoid any adverse impact on the Fund, the Portfolio or
shareholders.
DISTRIBUTION PLANS
The Trust has adopted compensation-type Distribution Plans (the "Class B Plan"
and "Class C Plan") pursuant to Rule 12b-1 under the Investment Company Act of
1940 ("1940 Act") for the Fund's Class B and Class C shares. Each Plan is
designed to permit an investor to purchase shares through financial service
firms ("Authorized Firms") without incurring an initial sales charge and at
the same time permit the Principal Underwriter to compensate Authorized Firms
in connection therewith. UNDER SUCH PLANS, CLASS B AND CLASS C EACH PAYS THE
PRINCIPAL UNDERWRITER A FEE, ACCRUED DAILY AND PAID MONTHLY, AT AN ANNUAL RATE
NOT EXCEEDING .75% OF ITS AVERAGE DAILY NET ASSETS TO FINANCE THE DISTRIBUTION
OF ITS SHARES. Such fees compensate the Principal Underwriter for sales
commissions paid by it to Authorized Firms on the sale of Class B and Class C
shares and for interest expenses. Under the Class B Plan, the Principal
Underwriter uses its own funds to pay sales commissions (except on exchange
transactions and reinvestments) to Authorized Firms at the time of sale equal
to 4% of the purchase price of the Class B shares sold by such Firms. Under
the Class C Plan, the Principal Underwriter currently expects to pay to an
Authorized Firm (a) sales commissions (except on exchange transactions and
reinvestments) at the time of sale equal to .75% of the purchase price of
Class C shares sold by such Firm, and (b) monthly sales commissions
approximately equivalent to 1/12 of .75% of the value of Class C shares sold
by such Firm and remaining outstanding for at least one year. During the first
year after a purchase of Class C shares, the Principal Underwriter will retain
the sales commission as reimbursement for the sales commissions paid to
Authorized Firms at the time of sale. CDSCs paid to the Principal Underwriter
will be used to reduce amounts owed to it. Because payments to the Principal
Underwriter under the two Plans are limited, uncovered distribution charges
(sales commissions due the Principal Underwriter plus interest, less the above
fees and CDSCs received by it) may exist indefinitely. During the fiscal year
ended March 31, 1998, Class B (which was then a separate series fund) paid or
accrued sales commissions equivalent to .75% of average daily net assets. As
at March 31, 1998, the outstanding uncovered distribution charges of the
Principal Underwriter on such day calculated under the Class B Plan amounted
to approximately $16,865,000 (equivalent to 2.4% of net assets on such day).
THE CLASS B AND CLASS C PLANS ALSO AUTHORIZE EACH CLASS TO MAKE PAYMENTS OF
SERVICE FEES TO THE PRINCIPAL UNDERWRITER, AUTHORIZED FIRMS AND OTHER PERSONS
IN AMOUNTS NOT EXCEEDING .25% OF ITS AVERAGE DAILY NET ASSETS FOR PERSONAL
SERVICES, AND/OR THE MAINTENANCE OF SHAREHOLDER ACCOUNTS. Under the Class B
Plan, this fee is paid quarterly in arrears based on the value of Class B
shares sold by such persons and remaining outstanding for at least twelve
months. Under the Class C Plan, the Principal Underwriter currently expects to
pay to an Authorized Firm (a) a service fee (except on exchange transactions
and reinvestments) at the time of sale equal to .25% of the purchase price of
the Class C shares sold by such Firm, and (b) monthly service fees
approximately equivalent to 1/12 of .25% of the value of Class C shares sold
by such Firm and remaining outstanding for at least one year. During the first
year after a purchase of Class C shares, the Principal Underwriter will retain
the service fee as reimbursement for the service fee payment made to
Authorized Firms at the time of sale. For the fiscal year ended March 31,
1998, Class B paid or accrued service fees under its Plan equivalent to .21%
of average daily net assets for such year.
The Principal Underwriter may, from time to time, at its own expense, provide
additional incentives to Authorized Firms which employ registered
representatives who sell Fund shares and/or shares of other funds distributed
by the Principal Underwriter. In some instances, such additional incentives
may be offered only to certain Authorized Firms whose representatives sell or
are expected to sell significant amounts of shares. In addition, the Principal
Underwriter may from time to time increase or decrease the sales commissions
payable to Authorized Firms.
The Trust may, in its absolute discretion, suspend, discontinue or limit the
offering of one or more classes of its shares at any time. In determining
whether any such action should be taken, the Trust's management intends to
consider all relevant factors, including (without limitation) the size of the
Fund or class, the investment climate and market conditions, the volume of
sales and redemptions of shares, and in the case of Class B and Class C
shares, the amount of uncovered distribution charges of the Principal
Underwriter. The Plans may continue in effect and payments may be made under
the Plan following any such suspension, discontinuance or limitation of the
offering of shares; however, there is no contractual obligation to continue
any Plan for any particular period of time. Suspension of the offering of
shares would not, of course, affect a shareholder's ability to redeem shares.
VALUING SHARES
THE FUND VALUES ITS SHARES ONCE EACH DAY THE NEW YORK STOCK EXCHANGE (THE
"EXCHANGE") IS OPEN FOR TRADING, as of the close of regular trading on the
Exchange (normally 4:00 p.m. New York time). Each Class's net asset value per
share is determined by IBT Fund Services (Canada) Inc., (as agent for the
Trust) in the manner authorized by the Trustees of the Trust. IBT Fund
Services (Canada) Inc. is a subsidiary of Investors Bank & Trust Company
("IBT"), the Trust's and the Portfolio's custodian. The net asset value of
each Class is computed by dividing the value of that Class's pro rata share of
the Fund's total assets, less its liabilities, by the number of shares of that
Class outstanding. Because the Fund invests its assets in an interest in the
Portfolio, each Class's net asset value will reflect the value of the Fund's
interest in the Portfolio (which, in turn, reflects the underlying value of
the Portfolio's assets and liabilities).
Authorized Firms must communicate an investor's order to the Principal
Underwriter by a specific time each day to receive that day's public offering
price per share. It is the Authorized Firms' responsibility to transmit orders
promptly to the Principal Underwriter. The Fund has approved the acceptance of
purchase and redemption orders as of the time of their receipt by certain
Authorized Firms (or their designated intermediaries).
The Portfolio's net asset value is also determined as of the close of regular
trading on the Exchange by IBT Fund Services (Canada) Inc. (as agent for the
Portfolio), in the manner authorized by the Trustees of the Portfolio. Net
asset value is computed by subtracting the liabilities of the Portfolio from
the value of its total assets. Fixed-income securities (other than short-term
obligations), will normally be valued on the basis of market valuations
furnished by a pricing service.
SHAREHOLDERS MAY DETERMINE THE VALUE OF THEIR INVESTMENT BY MULTIPLYING THE
NUMBER OF SHARES OWNED BY THE CURRENT NET ASSET VALUE PER SHARE.
HOW TO BUY SHARES
SHARES OF THE FUND MAY BE PURCHASED FOR CASH OR MAY BE ACQUIRED IN EXCHANGE
FOR ACCEPTABLE SECURITIES. Class B and Class C shares are purchased at the net
asset value per share next determined after an order is effective. An
Authorized Firm may charge its customers a fee in connection with transactions
executed by that Firm. The Trust may suspend the offering of shares at any
time and may refuse an order for the purchase of shares.
An initial investment must be at least $1,000. Once an account has been
established, the investor may send investments of $50 or more at any time
directly to the Trust's transfer agent (the "Transfer Agent") as follows:
First Data Investor Services Group, P.O. Box 5123, Westborough, MA 01581-5123.
The $1,000 minimum initial investment is waived for Bank Automated Investing
accounts, which may be established with an investment of $50 or more. See
"Eaton Vance Shareholder Services".
In connection with employee benefit or other continuous group purchase plans,
the Trust may accept initial investments of less than $1,000 on the part of an
individual participant. In the event a shareholder who is a participant of
such a plan terminates participation in the plan, his or her shares will be
transferred to a regular individual account. However, such account will be
subject to the right of redemption by the Trust as described under "How to
Redeem Shares".
ACQUIRING FUND SHARES IN EXCHANGE FOR SECURITIES. IBT, as escrow agent, will
receive securities acceptable to Eaton Vance, as Administrator, in exchange
for Fund shares. The minimum value of securities (or securities and cash)
accepted for deposit is $5,000. Securities accepted will be sold on the day of
their receipt or as soon thereafter as possible. The number of Fund shares to
be issued in exchange for securities will be the aggregate proceeds from the
sale of such securities, divided by the applicable net asset value of Class B
and Class C shares on the day such proceeds are received. Eaton Vance will use
reasonable efforts to obtain the then current market price for such
securities, but does not guarantee the best available price. Eaton Vance will
absorb any transaction costs, such as commissions, on the sale of the
securities.
Securities determined to be acceptable should be transferred via book entry or
physically delivered, in proper form for transfer, through an Authorized Firm,
together with a completed and signed Letter of Transmittal in approved form
(available from Authorized Firms), as follows:
IN THE CASE OF BOOK ENTRY: IN THE CASE OF PHYSICAL DELIVERY:
Deliver through Depository Trust Co. Investors Bank & Trust Company
Broker #2212 Attention: Eaton Vance High Income
Investors Bank & Trust Company Fund (state Class)
For A/C Eaton Vance High Income Physical Securities Processing
Fund (state Class) Settlement Area
200 Clarendon Street
Boston, MA 02116
Investors who are contemplating an exchange of securities for shares, or their
representatives, must contact Eaton Vance to determine whether the securities
are acceptable before forwarding such securities. Eaton Vance reserves the
right to reject any securities. Exchanging securities for shares may create a
taxable gain or loss. Each investor should consult his or her tax adviser with
respect to the particular federal, state and local tax consequences of
exchanging securities.
IF YOU DON'T HAVE AN AUTHORIZED FIRM, EATON VANCE CAN RECOMMEND ONE.
HOW TO REDEEM FUND SHARES
A SHAREHOLDER MAY REDEEM SHARES IN ONE OF THREE WAYS -- BY MAIL, BY TELEPHONE
OR THROUGH AN AUTHORIZED FIRM. The redemption price will be based on the net
asset value per share next computed after a redemption request is received in
the proper form as described below. Within seven days after receipt of a
redemption request in good order by the Transfer Agent, the Trust will make
payment in cash for the net asset value of the shares as of the date
determined above, reduced by the amount of any applicable CDSC (described
below) and any federal income tax required to be withheld.
REDEMPTION BY MAIL. Shares may be redeemed by delivering to the Transfer
Agent, First Data Investor Services Group, P.O. Box 5123, Westborough, MA
01581-5123, during its business hours a written request for redemption in good
order, plus any share certificates with executed stock powers. Good order
means that all relevant documents must be endorsed by the record owner(s)
exactly as the shares are registered and the signature(s) must be guaranteed
by a member of either the Securities Transfer Association's STAMP program or
the New York Stock Exchange's Medallion Signature Program, or certain banks,
savings and loan institutions, credit unions, securities dealers, securities
exchanges, clearing agencies and registered securities associations as
required by a Commission regulation and acceptable to the Transfer Agent. In
addition, in some cases, good order may require the furnishing of additional
documents such as where shares are registered in the name of a corporation,
partnership or fiduciary.
REDEMPTION BY TELEPHONE. Shares may be redeemed by telephone provided the
investor has not disclaimed in writing the use of the privilege. Such
redemptions can be effected by calling the Transfer Agent at 800-262-1122,
Monday through Friday, 9:00 a.m. to 4:00 p.m. (Eastern Standard Time). The
proceeds of a telephone redemption may be no greater than the maximum amount
established by the Principal Underwriter (currently $50,000) and may be mailed
only to the account address of record. Shares held by corporations, trusts or
certain other entities, or subject to fiduciary arrangements, may not be
redeemed by telephone. Neither the Trust, the Principal Underwriter nor the
Transfer Agent will be responsible for the authenticity of redemption
instructions received by telephone, provided that reasonable procedures to
confirm that instructions communicated by telephone are genuine have been
followed. Telephone instructions will be tape recorded. In times of drastic
economic or market changes, a telephone redemption may be difficult to
implement.
REDEMPTION THROUGH AN AUTHORIZED FIRM. To sell shares at their net asset value
through an Authorized Firm (a repurchase), a shareholder can place a
repurchase order with the Authorized Firm, which may charge a fee. The value
of such shares is based upon the net asset value calculated after the order is
deemed to be received by the Trust or the Principal Underwriter, as the
Trust's agent. It is the Authorized Firm's responsibility to transmit promptly
repurchase orders to the Principal Underwriter. Throughout this Prospectus,
the word "redemption" is generally meant to include a repurchase.
While normally payments will be made in cash for redeemed shares, the Trust,
subject to compliance with applicable regulations, has reserved the right to
pay the redemption price of shares of the Fund, either totally or partially,
by a distribution in kind of readily marketable securities withdrawn from the
Portfolio. The securities so distributed would be valued pursuant to the
Portfolio's valuation procedures. If a shareholder received a distribution in
kind, the shareholder could incur brokerage or other charges in converting the
securities to cash.
If shares were recently purchased, the proceeds of a redemption will not be
sent until the check (including a certified or cashier's check) received for
the shares purchased has cleared. Payment for shares tendered for redemption
may be delayed up to 15 days from the purchase date when the purchase check
has not yet cleared. Redemptions may result in a taxable gain or loss.
Due to the high cost of maintaining small accounts, the Fund reserves the
right to redeem accounts with balances of less than $750. Prior to such a
redemption, shareholders will be given 60 days' written notice to make an
additional purchase. However, no such redemption would be required if the
cause of the low account balance was a reduction in the net asset value of
shares. No CDSC will be imposed with respect to such involunatry redemptions.
CONTINGENT DEFERRED SALES CHARGE. Each class of shares is subject to a CDSC on
certain redemptions. The CDSC is calculated based on the lower of the net
asset value at the time of purchase or the time of redemption. Shares acquired
through the reinvestment of distributions are exempt. Redemptions are made
first from shares in the account which are not subject to a CDSC.
In calculating a CDSC upon the redemption of shares acquired in an exchange,
the shares are deemed to have been acquired at the time of the original
purchase of the exchanged shares and, in the case of Class B shares, the CDSC
schedule applicable to the exchanged shares will apply to the acquired shares.
No CDSC is imposed on shares sold to Eaton Vance or its affiliates, or to
their respective employees or clients. Shares acquired as the result of a
merger or liquidation of another Eaton Vance sponsored fund generally will be
subject to the same CDSC rate imposed by the prior fund.
CLASS B SHARES. Class B shares will be subject to the following CDSC schedule:
Year of Redemption
After Purchase CDSC
- ----------------------------------------------------------------------------
First or Second 5%
Third 4%
Fourth 3%
Fifth 2%
Sixth 1%
Seventh and following 0%
The Class B CDSC is waived for redemptions (1) pursuant to a Withdrawal Plan
(see "Eaton Vance Shareholder Services"), (2) as part of a required minimum
distribution from a tax-sheltered retirement plan, or (3) following the death
of all beneficial owners of shares, provided the redemption is requested
within one year of death (a death certificate and other applicable documents
may be required).
CLASS C SHARES. Class C Shares will be subject to a 1% CDSC if redeemed within
12 months of purchase. The Class C CDSC is waived for redemptions (1)
pursuant to a Withdrawal Plan (see "Eaton Vance Shareholder Services"), (2) as
part of a distrubution from a retirement plan qualified under Section 401,
403(b) or 457 of the Code, or (3) as part of a required minimum distribution
from other tax-sheltered retirement plans.
REPORTS TO SHAREHOLDERS
THE FUND WILL ISSUE TO ITS SHAREHOLDERS SEMI-ANNUAL AND ANNUAL REPORTS
CONTAINING FINANCIAL STATEMENTS. Financial statements included in annual
reports are audited by the independent accountants. Shortly after the end of
each calendar year, shareholders will be furnished with information necessary
for preparing federal and state tax returns. Consistent with applicable law,
duplicate mailings of shareholder reports and certain other Fund information
to shareholders residing at the same address may be eliminated.
THE LIFETIME INVESTING ACCOUNT/DISTRIBUTION OPTIONS
AFTER AN INVESTOR MAKES AN INITIAL PURCHASE OF SHARES, THE TRANSFER AGENT WILL
SET UP A LIFETIME INVESTING ACCOUNT FOR THE INVESTOR ON THE TRUST'S RECORDS.
This account is a complete record of all transactions which at all times shows
the balance of shares owned. The Trust will not issue share certificates
except upon request.
At least quarterly, shareholders will receive a statement showing complete
details of any transaction and the current share balance in the account. THE
LIFETIME INVESTING ACCOUNT ALSO PERMITS A SHAREHOLDER TO MAKE ADDITIONAL
INVESTMENTS IN SHARES BY SENDING A CHECK FOR $50 OR MORE to the Transfer
Agent.
Any questions concerning a shareholder's account or services available may be
directed by telephone to EATON VANCE SHAREHOLDER SERVICES at 800-225-6265,
extension 2, or in writing to the Transfer Agent, First Data Investor Services
Group, P.O. Box 5123, Westborough, MA 01581-5123 (please provide the name of
the shareholder, the Fund and Class and the account number).
THE FOLLOWING DISTRIBUTION OPTIONS WILL BE AVAILABLE TO LIFETIME INVESTING
ACCOUNTS and may be changed as often as desired by written notice to the
Trust's dividend disbursing agent, First Data Investor Services Group, P.O.
Box 5123, Westborough, MA 01581-5123. The currently effective option will
appear on each account statement.
SHARE OPTION -- Dividends and capital gains will be reinvested in additional
shares.
INCOME OPTION -- Dividends will be paid in cash, and capital gains will be
reinvested in additional shares.
CASH OPTION -- Dividends and capital gains will be paid in cash.
The SHARE OPTION will be assigned if no other option is specified.
Distributions, including those reinvested, will be reduced by any withholding
required under the federal income tax laws.
If shareholder communications are returned by the United States Postal Service
or other delivery service as not deliverable, the distribution option on the
account will be automatically changed to the SHARE OPTION until such time as
the shareholder selects a different option. No interest will accrue on amounts
represented by uncashed distribution or redemption checks.
DISTRIBUTION INVESTMENT OPTION. In addition to the distribution options set
forth above, dividends and/or capital gains may be invested in additional
shares of another Eaton Vance fund. Before selecting this option, a
shareholder should obtain a prospectus of the other Eaton Vance fund and
consider its objectives and policies carefully.
"STREET NAME" ACCOUNTS. If shares are held in a "street name" account with an
Authorized Firm, all recordkeeping, transaction processing and payments of
distributions relating to the beneficial owner's account will be performed by
the Authorized Firm, and not by the Trust and its Transfer Agent. Since the
Trust will have no record of the beneficial owner's transactions, a beneficial
owner should contact the Authorized Firm to purchase, redeem or exchange
shares, to make changes in or give instructions concerning the account, or to
obtain information about the account. The transfer of shares in a "street
name" account to an account with another Authorized Firm or to an account
directly with the Trust involves special procedures and will require the
beneficial owner to obtain historical purchase information about the shares in
the account from the Authorized Firm. Before establishing a "street name"
account with an Authorized Firm, or transferring the account to another
Authorized Firm, an investor wishing to reinvest distributions should
determine whether the Authorized Firm which will hold the shares allows
reinvestment of distributions in "street name" accounts.
THE EATON VANCE EXCHANGE PRIVILEGE
Shares of the Fund currently may be exchanged for shares of the same class of
one or more other funds in the Eaton Vance Group of Funds. Class B shares may
also be exchanged for shares of Eaton Vance Prime Rate Reserves, which are
subject to an early withdrawal charge, or shares of Eaton Vance Money Market
Fund, which are subject to a CDSC, and shares of a money market fund sponsored
by an Authorized Firm and approved by the Principal Underwriter (an
"Authorized Firm fund"). Class C shares may also be exchanged for shares of
Eaton Vance Money Market Fund and EV Classic Senior Floating-Rate Fund. Any
such exchange will be made on the basis of the net asset value per share of
each fund/class at the time of exchange. Exchange offers are available only in
states where shares of the fund being acquired may legally be sold. Exchanges
are subject to any restrictions or qualifications set forth in the current
prospectus of any such fund.
Each exchange must involve shares which have a net asset value of at least
$1,000. The exchange privilege may be changed or discontinued without penalty.
Shareholders will be given sixty (60) days' notice prior to any termination or
material amendment of the exchange privilege. The Trust does not permit the
exchange privilege to be used for "Market Timing" and may terminate the
exchange privilege for any shareholder account engaged in Market Timing
activity. Any shareholder account for which more than two round-trip exchanges
are made within any twelve month period will be deemed to be engaged in Market
Timing. Furthermore, a group of unrelated accounts for which exchanges are
entered contemporaneously by a financial intermediary will be considered to be
engaged in Market Timing.
The Transfer Agent makes exchanges at the next determined net asset value
after receiving an exchange request in good order (see "How to Redeem
Shares"). Consult the Transfer Agent for additional information concerning the
exchange privilege. Applications and prospectuses of other funds are available
from Authorized Firms or the Principal Underwriter. The prospectus for each
fund describes its investment objectives and policies, and shareholders should
obtain a prospectus and consider these objectives and policies carefully
before requesting an exchange.
No CDSC is imposed on exchanges. For purposes of calculating the CDSC upon the
redemption of shares acquired in an exchange, the CDSC schedule applicable to
the shares at the time of purchase will apply and the purchase of shares
acquired in one or more exchanges is deemed to have occurred at the time of
the original purchase of the exchanged shares except that time during which
shares are held in an Authorized Firm fund will not be credited toward
completion of the CDSC period. For the CDSC schedule applicable to Class B
shares (except Prime Rate Reserves and Class B shares of the Limited Maturity
Funds), see "How to Redeem Shares". The CDSC or early withdrawal charge
schedule applicable to Prime Rate Reserves and Class B shares of the Limited
Maturity Funds is 3%, 2.5%, 2% or 1% in the event of a redemption occurring in
the first, second, third or fourth year, respectively, after the original
share purchase.
Telephone exchanges are accepted by the Transfer Agent provided that the
investor has not disclaimed in writing the use of the privilege. To effect
such exchanges, call the Transfer Agent at 800-262-1122, Monday through
Friday, 9:00 a.m. to 4:00 p.m. (Eastern Standard Time). Shares acquired by
telephone exchange must be registered in the same name(s) and with the same
address as the shares being exchanged. Neither the Trust, the Principal
Underwriter nor the Transfer Agent will be responsible for the authenticity of
exchange instructions received by telephone, provided that reasonable
procedures to confirm that instructions communicated are genuine have been
followed. Telephone instructions will be tape recorded. In times of drastic
economic or market changes, a telephone exchange may be difficult to
implement. An exchange may result in a taxable gain or loss.
EATON VANCE SHAREHOLDER SERVICES
THE TRUST OFFERS THE FOLLOWING SERVICES, WHICH ARE VOLUNTARY, INVOLVE NO EXTRA
CHARGE, AND MAY BE CHANGED OR DISCONTINUED WITHOUT PENALTY AT ANY TIME. Full
information on each of the services described below and an application, where
required, are available from Authorized Firms or the Principal Underwriter.
The cost of administering such services for the benefit of shareholders who
participate in them is borne by the Fund as an expense to all shareholders.
INVEST-BY-MAIL -- FOR PERIODIC SHARE ACCUMULATION. Once the $1,000 minimum
investment has been made, checks of $50 or more payable to the order of the
Fund and specifying the Class being purchased may be mailed directly to the
Transfer Agent, First Data Investor Services Group, P.O. Box 5123,
Westborough, MA 01581-5123 at any time -- whether or not dividends are
reinvested. The name of the shareholder, the Fund and Class and the account
number should accompany each investment.
BANK AUTOMATED INVESTING -- FOR REGULAR SHARE ACCUMULATION. Cash investments
of $50 or more may be made automatically each month or quarter from the
shareholder's bank account. The $1,000 minimum initial investment and small
account redemption policy are waived for these accounts.
WITHDRAWAL PLAN. A shareholder may draw on shareholdings systematically with
monthly or quarterly checks. For Class B and Class C shares, any such
withdrawals may not in the aggregate exceed 12% annually of the account
balance at the time the plan is established. Such amount will not be subject
to the Class B or Class C CDSC. See "How to Redeem Shares". A minimum deposit
of $5,000 in shares is required.
REINVESTMENT PRIVILEGE. A shareholder who has redeemed shares may reinvest,
with credit for any CDSC paid on the redeemed shares, any portion or all of
the redemption proceeds (plus that amount necessary to acquire a fractional
share to round off the purchase to the nearest full share) in the same shares,
provided that the reinvestment is effected within 60 days after such
redemption and the privilege has not been used more than once in the prior 12
months. Shares are sold to a reinvesting shareholder at the next determined
net asset value following timely receipt of a written purchase order by the
Principal Underwriter or by the Trust (or by the Trust's Transfer Agent). To
the extent that any shares are sold at a loss and the proceeds are reinvested
in shares (or other shares are acquired) within the period beginning 30 days
before and ending 30 days after the date of the redemption, some or all of the
loss generally will not be allowed as a tax deduction. Shareholders should
consult their tax advisers concerning the tax consequences of reinvestments.
TAX-SHELTERED RETIREMENT PLANS. Class C shares of the Fund are available for
purchase in connection with certain tax-sheltered retirement plans. Detailed
information concerning these plans, including certain exceptions to minimum
investment requirements, and copies of the plans are available from the
Principal Underwriter. This information should be read carefully and
consultation with an attorney or tax adviser may be advisable. The information
sets forth the service fee charged for retirement plans and describes the
federal income tax consequences of establishing a plan. Participant accounting
services (including trust fund reconciliation services) will be offered only
through third party recordkeepers and not by the Principal Underwriter. Under
all plans, dividends and distributions will be automatically reinvested in
additional shares.
DISTRIBUTIONS AND TAXES
SUBSTANTIALLY ALL OF THE INVESTMENT INCOME ALLOCATED TO THE FUND BY THE
PORTFOLIO, LESS THE FUND'S DIRECT AND ALLOCATED EXPENSES AND CLASS-SPECIFIC
EXPENSES, WILL BE DECLARED DAILY AS A DISTRIBUTION TO FUND SHAREHOLDERS OF
RECORD AT THE TIME OF DECLARATION. Distributions on Class B shares will
ordinarily be paid on the fifteenth day of each month or the next business day
thereafter. Distributions on Class C shares will ordinarily be paid on the
twenty-second day of each month or the next business day thereafter. The Fund
anticipates that for tax purposes the entire distribution, whether paid in
cash or reinvested in additional shares of the Fund, will constitute income to
its shareholders. Shareholders reinvesting the monthly distribution should
treat the amount of the entire distribution as the tax cost basis of the
additional shares acquired by reason of such reinvestment. Daily distribution
crediting will commence on the business day after collected funds for the
purchase of Fund shares are available at the Transfer Agent.
Certain distributions, if declared by the Fund in October, November or
December and paid the following January, will be taxable to shareholders as if
received on December 31 of the year in which they are declared.
Distributions of the Fund which are derived from net investment income, net
short-term capital gains and certain foreign exchange gains are taxable to
shareholders as ordinary income, whether received in cash or reinvested in
additional shares. Only a small portion, if any, of such distributions may be
eligible for the dividends-received deduction for corporations subject to
certain limitations.
Capital gains, if any, realized on sales of investments and on options and
futures transactions during the fiscal year, which ends on March 31, will be
offset by capital losses, including any capital loss carryovers, and will be
distributed at least once a year, usually in December. However, the Fund could
make additional distributions of capital gains in any year in order to comply
with the distribution requirements of the Internal Revenue Code of 1986, as
amended (the "Code"). Distributions that the Fund designates as long-term
capital gains are taxable to shareholders as long-term capital gains whether
received in cash or additional shares of the Fund and regardless of the length
of time Fund shares have been owned by the shareholder. If shares are
purchased shortly before the record date of such a distribution, the
shareholder will pay the full price for the shares and then receive some
portion of the price back as a taxable distribution.
Shareholders will receive annually tax information notices and Forms 1099 to
assist in the preparation of their federal and state tax returns for the prior
calendar year's distributions, proceeds from the redemption or exchange of
Fund shares, and federal income tax (if any) withheld therefrom.
The Fund intends to qualify as a regulated investment company under the Code
and to satisfy all requirements necessary to avoid paying federal income taxes
on the part of its investment company taxable income (consisting generally of
net investment income and net short-term capital gain) and net capital gains
that it distributes to shareholders. In satisfying these requirements, the
Fund will treat itself as owning its proportionate share of each of the
Portfolio's assets and as entitled to the income of the Portfolio properly
attributable to such share.
As a regulated investment company under the Code, the Fund does not pay
federal income or excise taxes to the extent that it distributes to
shareholders substantially all of its ordinary income and net realized capital
gain net income in accordance with the timing requirements imposed by the
Code. As a partnership under the Code, the Portfolio does not pay federal
income or excise taxes.
Shareholders should consult with their tax advisers concerning the
applicability of state, local or other taxes to an investment.
PERFORMANCE INFORMATION
FROM TIME TO TIME, YIELD AND/OR AVERAGE ANNUAL TOTAL RETURN MAY BE ADVERTISED.
Current yield is calculated separately for each class by dividing the net
investment income per share earned during a recent 30-day period by the
maximum offering price per share or net asset value on the last day of the
period and annualizing the resulting figure. Average annual total return is
determined separately for each class by computing the average annual
percentage change in value of $1,000 invested at the maximum public offering
price (including net asset value for Class B and Class C) for specified
periods, assuming reinvestment of all distributions. Total return may be
quoted for the period prior to commencement of operations which would reflect
the Class's total return (or that of its predecessor) adjusted to reflect any
applicable sales charge. The average annual total return calculation assumes a
complete redemption of the investment and the deduction of any applicable CDSC
at the end of the period. The Fund may also publish annual and cumulative
total return figures from time to time.
The Fund may also publish total return figures for each Class which do not
take into account any sales charge. Any performance figure which does not take
into account a sales charge would be reduced to the extent such charge is
imposed. The Fund's performance may be compared in publications to the
performance of various indices and investments for which reliable data is
available, and to averages, performance rankings, or other information
prepared by recognized mutual fund statistical services.
Investors should note that investment results will fluctuate over time, and
any presentation of yield or total return for any prior period should not be
considered as a representation of what an investment may earn or what the
yield or total return may be in any future period.
The following chart reflects the annual investment returns of Class B shares
of the Fund for one-year periods ending March 31 and does not take into
account any sales charge which investors may bear. The performance of the
predecessor fund of Class C was different.
5 Year Average Annual Total Return -- 11.36%
10 Year Average Annual Total Return -- 10.33%
1989 11.58%
1990 (8.14%)
1991 (2.84%)
1992 38.21%
1993 13.41%
1994 10.28%
1995 2.51%
1996 12.80%
1997 11.37%
1998 20.59%
<PAGE>
APPENDIX A
DESCRIPTION OF MOODY'S CORPORATE BOND RATINGS:
Aaa: Bonds which are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to as
"gilt-edged". Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be visualized
are most unlikely to impair the fundamentally strong position of such issues.
Aa: Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known
as high grade bonds. They are rated lower than the best bonds because margins
of protection may not be as large as in Aaa securities or fluctuation of
protective elements may be of greater amplitude or there may be other elements
present which make the long-term risk appear somewhat larger than in Aaa
securities.
A: Bonds which are rated A possess many favorable investment attributes and
are to be considered as upper-medium-grade obligations. Factors giving
security to principal and interest are considered adequate, but elements may
be present which suggest a susceptibility to impairment sometime in the
future.
SECURITIES IN WHICH THE PORTFOLIO MAY INVEST WILL INCLUDE THOSE IN THE
FOLLOWING CATEGORIES:
Baa: Bonds which are rated Baa are considered as medium-grade obligations,
(i.e., they are neither highly protected nor poorly secured). Interest
payments and principal security appear adequate for the present but certain
protective elements may be lacking or may be characteristically unreliable
over any great length of time. Such bonds lack outstanding investment
characteristics and in fact have speculative characteristics as well.
Ba: Bonds which are rated Ba are judged to have speculative elements; their
future cannot be considered as well-assured. Often the protection of interest
and principal payments may be very moderate, and thereby not well safeguarded
during both good and bad times over the future. Uncertainty of position
characterizes bonds in this class.
B: Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
Caa: Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal
or interest.
Ca: Bonds which are rated Ca represent obligations which are speculative in a
high degree. Such issues are often in default or have other marked
shortcomings.
C: Bonds which are rated C are the lowest rated class of bonds, and issues so
rated can be regarded as having extremely poor prospects of ever attaining any
real investment standing.
NOTE: Moody's applies numerical modifiers, 1, 2 and 3 in each generic rating
classification from Aa to B. The modifier 1 indicates that the company ranks
in the higher end of its generic rating category; the modifier 2 indicates a
mid-range ranking; and the modifier 3 indicates that the company ranks in the
lower end of its generic rating category.
DESCRIPTION OF S&P'S CORPORATE DEBT RATINGS:
INVESTMENT GRADE
AAA: Debt rated AAA has the highest rating assigned by S&P's. Capacity to pay
interest and repay principal is extremely strong.
AA: Debt rated AA has a very strong capacity to pay interest and repay
principal and differs from the higher rated issues only in small degree.
A: Debt rated A has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than bonds in higher rated categories.
SECURITIES IN WHICH THE PORTFOLIO MAY INVEST WILL INCLUDE THOSE IN THE
FOLLOWING CATEGORIES:
BBB: Debt rated BBB is regarded as having an adequate capacity to pay
interest and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than for bonds in higher rated categories.
SPECULATIVE GRADE
Debt rated BB, B, CCC, CC and C is regarded, on balance, as predominantly
speculative with respect to capacity to pay interest and repay principal in
accordance with the terms of the obligation. BB indicates the lowest degree of
speculation and C the highest degree of speculation. While such debt will
likely have some quality and protective characteristics, these are outweighed
by large uncertainties or major risk exposures to adverse conditions.
BB: Debt rated BB has less near-term vulnerability to default than other
speculative issues. However, it faces major ongoing uncertainties or exposure
to adverse business, financial, or economic conditions which could lead to
inadequate capacity to meet timely interest and principal payments. The BB
rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied BBB- rating.
B: Debt rated B has a greater vulnerability to default but currently has the
capacity to meet interest payments and principal repayments. Adverse business,
financial, or economic conditions will likely impair capacity or willingness
to pay interest and repay principal. The B rating category is also used for
debt subordinated to senior debt that is assigned an actual or implied BB or
BB- rating.
CCC: Debt rated CCC has a currently identifiable vulnerability to default,
and is dependent upon favorable business, financial, and economic conditions
to meet timely payment of interest and repayment of principal. In the event of
adverse business, financial, or economic conditions, it is not likely to have
the capacity to pay interest and repay principal. The CCC rating category is
also used for debt subordinated to senior debt that is assigned an actual or
implied B or B- rating.
CC: The rating CC is typically applied to debt subordinated to senior debt
that is assigned an actual or implied CCC debt rating.
C: The rating C is typically applied to debt subordinated to senior debt
which is assigned an actual or implied CCC- debt rating. The C rating may be
used to cover a situation where a bankruptcy petition has been filed, but debt
service payments are continued.
C1: The rating C1 is reserved for income bonds on which no interest is being
paid.
D: Debt rated D is in payment default. The D rating category is used when
interest payments or principal payments are not made on the date due even if
the applicable grace period has not expired, unless Standard & Poor's believes
that such payments will be made during such grace period. The D rating also
will be used upon the filing of a bankruptcy petition if debt service payments
are jeopardized.
PLUS (+) OR MINUS (-): The ratings from AA to CCC may be modified by the
addition of a plus or minus sign to show relative standing within the major
rating categories.
NR: Indicates that no public rating has been requested, because there is
insufficient information on which to base a rating, or because Standard &
Poor's does not rate a particular type of obligation as a matter of policy.
NOTES: Debt which is unrated exposes the investor to risks with respect to
capacity to pay interest or repay principal which are similar to the risks of
lower-rated speculative obligations. The Portfolio is dependent on the
Investment Adviser's judgment, analysis and experience in the evaluation of
such debt.
Investors should note that the assignment of a rating to a bond by a rating
service may not reflect the effect of recent developments on the issuer's
ability to make interest and principal payments.
<PAGE>
APPENDIX B
HIGH INCOME PORTFOLIO
ASSET COMPOSITION INFORMATION
FOR THE FISCAL YEAR ENDED MARCH 31, 1998
Percent of
Net Assets
- -----------------------------------------------------------------------------
Cash/Short-term Obligations 1.9%
Debt Securities -- Moody's Rating
Ba 5.4%
B1 10.5%
B2 20.2%
B3 39.5%
Caa 6.2%
Unrated 10.5%
Preferred 5.2%
Equity Security 0.6%
------
Total 100.0%
The chart above indicates the weighted average composition of the securities
held by the Portfolio for the fiscal year ended March 31, 1998, with the debt
securities rated by Moody's separated into the indicated categories. The
weighted average indicated above was calculated on a dollar weighted basis and
was computed as at the end of each month during the fiscal year. The chart
does not necessarily indicate what the composition of the Fund's portfolio
will be in the current and subsequent fiscal years.
For a description of Moody's ratings of fixed-income securities, see Appendix
A to this Prospectus.
<PAGE>
[LOGO] Investing
for the
EATON VANCE 21st
Mutual Funds Century
- -------------------------------------------------------------------------------
Eaton Vance
High Income Fund
PROSPECTUS
AUGUST 1, 1998
- -------------------------------------------------------------------------------
PORTFOLIO INVESTMENT ADVISER
Boston Management and Research, 24 Federal Street, Boston, MA 02110
FUND ADMINISTRATOR
Eaton Vance Management, 24 Federal Street, Boston, MA 02110
PRINCIPAL UNDERWRITER
Eaton Vance Distributors, Inc., 24 Federal Street, Boston, MA 02110
(800) 225-6265
CUSTODIAN
Investors Bank & Trust Company, 200 Clarendon Street, Boston, MA 02116
TRANSFER AGENT
First Data Investor Services Group, P.O. Box 5123, Westborough, MA 01581-5123
(800) 262-1122
AUDITORS
Deloitte & Touche LLP, 125 Summer Street, Boston, MA 02110
HIP
<PAGE>
PART B
INFORMATION REQUIRED IN A STATEMENT OF ADDITIONAL INFORMATION
STATEMENT OF
ADDITIONAL INFORMATION
August 1, 1998
EATON VANCE HIGH INCOME FUND
24 Federal Street
Boston, Massachusetts 02110
(800) 225-6265
This Statement of Additional Information provides general information
about Eaton Vance High Income Fund (the "Fund") and High Income Portfolio (the
"Portfolio"). This Statement of Additional Information is sometimes referred
to herein as the "SAI".
TABLE OF CONTENTS
Page
Additional Information about Investment Policies ...................... 2
Investment Restrictions ............................................... 6
Trustees and Officers ................................................. 8
Investment Adviser and Administrator .................................. 10
Custodian ............................................................. 12
Service for Withdrawal ................................................ 13
Determination of Net Asset Value ...................................... 13
Investment Performance ................................................ 13
Taxes ................................................................. 14
Principal Underwriter ................................................. 16
Distribution Plans .................................................... 16
Portfolio Security Transactions ....................................... 17
Other Information ..................................................... 19
Independent Certified Public Accountants .............................. 20
Financial Statements .................................................. 21
Appendix A: Class B Shares ............................................ a-1
Appendix B: Class C Shares ............................................ b-1
THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT A PROSPECTUS AND IS
AUTHORIZED FOR DISTRIBUTION TO PROSPECTIVE INVESTORS ONLY IF PRECEDED OR
ACCOMPANIED BY THE FUND'S PROSPECTUS DATED AUGUST 1, 1998, AS SUPPLEMENTED
FROM TIME TO TIME, WHICH IS INCORPORATED HEREIN BY REFERENCE. THIS STATEMENT
OF ADDITIONAL INFORMATION SHOULD BE READ IN CONJUNCTION WITH SUCH PROSPECTUS,
A COPY OF WHICH MAY BE OBTAINED WITHOUT CHARGE BY CONTACTING EATON VANCE
DISTRIBUTORS, INC. (THE "PRINCIPAL UNDERWRITER") (SEE BACK COVER FOR ADDRESS
AND PHONE NUMBER).
<PAGE>
This SAI provides information about the Fund and the Portfolio.
Capitalized terms used in this SAI and not otherwise defined have the meanings
given them in the Prospectus. The Fund is subject to the same investment
policies as those of the Portfolio. The Fund currently seeks to achieve its
objective by investing in the Portfolio.
ADDITIONAL INFORMATION ABOUT INVESTMENT POLICIES
OTHER FIXED-INCOME SECURITIES
Included in the fixed-income securities in which the Portfolio may invest
are preferred, preference and convertible stocks, equipment lease
certificates, equipment trust certificates and conditional sales contracts.
Preference stocks are stocks that have many characteristics of preferred
stocks, but are typically junior to an existing class of preferred stocks.
Equipment lease certificates are debt obligations secured by leases on
equipment (such as railroad cars, airplanes or office equipment), with the
issuer of the certificate being the owner and lessor of the equipment.
Equipment trust certificates are debt obligations secured by an interest in
property (such as railroad cars or airplanes), the title of which is held by a
trustee while the property is being used by the borrower. Conditional sales
contracts are agreements under which the seller of property continues to hold
title to the property until the purchase price is fully paid or other
conditions are met by the buyer.
The Portfolio may purchase fixed-rate bonds which have a demand feature
allowing the holder to redeem the bonds at specified times. These bonds are
more defensive than conventional long-term bonds (protecting to some degree
against a rise in interest rates) while providing greater opportunity than
comparable intermediate term bonds, since the Portfolio may retain the bond if
interest rates decline. By acquiring these kinds of bonds the Portfolio
obtains the contractual right to require the issuer of the bonds to purchase
the security at an agreed upon price, which right is contained in the
obligation itself rather than in a separate agreement or instrument. Since
this right is assignable only with the bond, the Portfolio will not assign any
separate value to such right. The Portfolio may also purchase floating or
variable rate obligations, which it would anticipate using as short-term
investments pending longer term investment of its funds.
CONCENTRATION
Although there is no current intention to do so, the Portfolio may invest
up to 25% of its assets in securities of issuers in each of the electric, gas
and telephone utility industries if, in the opinion of the Investment Adviser,
the relative return available from such securities and the relative risk,
marketability, quality or availability of securities of issuers in such
industry justifies such an investment. The value of such investments may be
affected to a greater degree by adverse developments in such industries.
Industry-wide problems include the effects of fluctuating economic conditions,
energy conservation practices, environmental regulations, high capital
expenditures, construction delays due to pollution control and environmental
considerations, uncertainties as to fuel availability and costs, increased
competition in deregulated sectors of such industries and difficulties in
obtaining timely and adequate rate relief from regulatory commissions. If
applications for rate increases are not granted or are not acted upon
promptly, the market prices of and interest or dividend payments on utility
securities may be adversely affected.
LOAN INTERESTS
A loan in which the Portfolio may acquire a loan interest (a "Loan
Interest") is typically originated, negotiated and structured by a U.S. or
foreign commercial bank, insurance company, finance company or other financial
institution (the "Agent") for a lending syndicate of financial institutions.
The Agent typically administers and enforces the loan on behalf of the other
lenders in the syndicate. In addition, an institution, typically but not
always the Agent (the "Collateral Bank"), holds collateral (if any) on behalf
of the lenders. These Loan Interests may take the form of participation
interests in, assignments of or novations of a loan during its secondary
distribution, or direct interests during a primary distribution. Such Loan
Interests may be acquired from U.S. or foreign banks, insurance companies,
finance companies or other financial institutions who have made loans or are
members of a lending syndicate or from other holders of Loan Interests. The
Portfolio may also acquire Loan Interests under which the Portfolio derives
its rights directly from the borrower. Such Loan Interests are separately
enforceable by the Portfolio against the borrower and all payments of interest
and principal are typically made directly to the Portfolio from the borrower.
In the event that the Portfolio and other lenders become entitled to take
possession of shared collateral, it is anticipated that such collateral would
be held in the custody of a Collateral Bank for their mutual benefit. The
Portfolio may not act as an Agent, a Collateral Bank, a guarantor or sole
negotiator or structurer with respect to a loan.
The Investment Adviser will analyze and evaluate the financial condition
of the borrower in connection with the acquisition of any Loan Interest. The
Investment Adviser also analyzes and evaluates the financial condition of the
Agent and, in the case of Loan Interests in which the Portfolio does not have
privity with the borrower, those institutions from or through whom the
Portfolio derives its rights in a loan (the "Intermediate Participants"). From
time to time the Investment Adviser and its affiliates may borrow money from
various banks in connection with their business activities. Such banks may
also sell interests in loans to or acquire such interests from the Portfolio
or may be Intermediate Participants with respect to loans in which the
Portfolio owns interests. Such banks may also act as Agents for loans in which
the Portfolio owns interests.
In a typical loan the Agent administers the terms of the loan agreement.
In such cases, the Agent is normally responsible for the collection of
principal and interest payments from the borrower and the apportionment of
these payments to the credit of all institutions which are parties to the loan
agreement. The Portfolio will generally rely upon the Agent or an Intermediate
Participant to receive and forward to the Portfolio its portion of the
principal and interest payments on the loan. Furthermore, unless under the
terms of a participation agreement the Portfolio has direct recourse against
the borrower, the Portfolio will rely on the Agent and the other members of
the lending syndicate to use appropriate credit remedies against the borrower.
The Agent is typically responsible for monitoring compliance with covenants
contained in the loan agreement based upon reports prepared by the borrower.
The seller of the Loan Interest usually does, but is often not obligated to,
notify holders of Loan Interests of any failures of compliance. The Agent may
monitor the value of the collateral and, if the value of the collateral
declines, may accelerate the loan, may give the borrower an opportunity to
provide additional collateral or may seek other protection for the benefit of
the participants in the loan. The Agent is compensated by the borrower for
providing these services under a loan agreement, and such compensation may
include special fees paid upon structuring and funding the loan and other fees
paid on a continuing basis. With respect to Loan Interests for which the Agent
does not perform such administrative and enforcement functions, the Portfolio
will perform such tasks on its own behalf, although a Collateral Bank will
typically hold any collateral on behalf of the Portfolio and the other lenders
pursuant to the applicable loan agreement.
A financial institution's appointment as Agent may usually be terminated
in the event that it fails to observe the requisite standard of care or
becomes insolvent, enters Federal Deposit Insurance Corporation ("FDIC")
receivership, or, if not FDIC insured, enters into bankruptcy proceedings. A
successor Agent would generally be appointed to replace the terminated Agent,
and assets held by the Agent under the loan agreement should remain available
to holders of Loan Interests. However, if assets held by the Agent for the
benefit of the Portfolio were determined to be subject to the claims of the
Agent's general creditors, the Portfolio might incur certain costs and delays
in realizing payment on a loan interest, or suffer a loss of principal and/or
interest. In situations involving Intermediate Participants similar risks may
arise.
Purchasers of Loan interests depend primarily upon the creditworthiness of
the borrower for payment of principal and interest. If the Portfolio does not
receive scheduled interest or principal payments on such indebtedness, the
Portfolio could be adversely affected. Loans that are fully secured offer the
Portfolio more protections than an unsecured loan in the event of non-payment
of scheduled interest or principal. However, there is no assurance that the
liquidation of collateral from a secured loan would satisfy the borrower's
obligation, or that the collateral can be liquidated. Indebtedness of
borrowers whose creditworthiness is poor involves substantially greater risks,
and may be highly speculative. Borrowers that are in bankruptcy or
restructuring may never pay off their indebtedness, or may pay only a small
fraction of the amount owed. Direct indebtedness of developing countries will
also involve a risk that the governmental entities responsible for the
repayment of the debt may be unable, or unwilling, to pay interest and repay
principal when due.
The Portfolio limits the amount of total assets that it will invest in any
one issuer or in issuers within the same industry. See Investment Restrictions
(1) and (5) below. For purposes of these restrictions, the Portfolio generally
will treat the borrower as the "issuer" of a Loan Interest held by the
Portfolio. In the case of loan participations where the Agent or Intermediate
Participant serves as financial intermediary between the Portfolio and the
borrower, the Portfolio, in appropriate circumstances, will treat both the
Agent or Intermediate Participant and the borrower as "issuers" for the
purposes of determining whether the Portfolio has invested more than 5% of its
total assets in a single issuer. Treating a financial intermediary as an
issuer of indebtedness may restrict the Portfolio's ability to invest in
indebtedness related to a single intermediary, or a group of intermediaries
engaged in the same industry, even if the underlying borrowers represent many
different companies and industries.
FOREIGN INVESTMENTS
Investing in foreign issuers involves certain special considerations,
including those set forth below, which are not typically associated with
investing in U.S. issuers. Since investments in foreign issuers may involve
currencies of foreign countries, and since the Portfolio may temporarily hold
funds in bank deposits in foreign currencies during completion of investment
programs, the Portfolio may be affected favorably or unfavorably by changes in
currency rates and in exchange control regulations and may incur costs in
connection with conversions between various currencies.
Since foreign companies are not subject to uniform accounting, auditing
and financial reporting standards, practices and requirements comparable to
those applicable to U.S. companies, there may be less publicly available
information about a foreign company than about a domestic company. Foreign
stock markets, while growing in volume of trading activity, have substantially
less volume than the Exchange, and securities of some foreign companies are
less liquid and more volatile than securities of comparable U.S. companies.
Similarly, volume and liquidity in most foreign bond markets is less than in
the United States and, at times, volatility of price can be greater than in
the United States. Fixed commissions on foreign stock exchanges are generally
higher than negotiated commissions on U.S. exchanges, although the Portfolio
endeavors to achieve the most favorable net results on its portfolio
transactions. There is generally less government supervision and regulation of
stock exchanges, brokers and listed companies than in the United States. Mail
service between the United States and foreign countries may be slower or less
reliable than within the United States, thus increasing the risk of delayed
settlements of portfolio transactions or loss of certificates for portfolio
securities. The Portfolio may be required to pay for securities before
delivery. In addition, with respect to certain foreign countries, there is the
possibility of expropriation or confiscatory taxation, political or social
instability, or diplomatic developments which could affect the Portfolio's
investments in those countries. Moreover, individual foreign economies may
differ favorably or unfavorably from the U.S. economy in such respects as
growth of gross national product, rate of inflation, capital reinvestment,
resource self-sufficiency and balance of payments position.
FORWARD FOREIGN CURRENCY EXCHANGE TRANSACTIONS
The Portfolio may enter into forward foreign currency exchange contracts.
A forward foreign currency exchange contract involves an obligation to
purchase or sell a specific currency at a future date, which may be any fixed
number of days from the date of the contract agreed upon by the parties, at a
price set at the time of the contract. These contracts are traded in the
interbank market conducted directly between currency traders (usually large
commercial banks) and their customers. A forward contract generally has no
deposit requirement, and no commissions are charged at any stage for trades.
At the maturity of a forward contract the Portfolio may either accept or
make delivery of the currency specified in the contract or, at or prior to
maturity, enter into a closing transaction involving the purchase or sale of
an offsetting contract. Closing transactions with respect to forward contracts
are usually effected with the currency trader who is a party to the original
forward contract.
The Portfolio does not intend to enter into forward foreign currency
exchange contracts to protect the value of its portfolio securities on a
regular continuous basis, and will not do so if, as a result, the Portfolio
will have more than 15% of the value of its total assets committed to the
consummation of such contracts. The Portfolio also will not enter into such
forward contracts or maintain a net exposure to such contracts where the
consummation of the contracts would obligate the Portfolio to deliver an
amount of foreign currency in excess of the value of the securities held by
the Portfolio's or other assets denominated in that currency. Under normal
circumstances, consideration of the prospect for currency parities will be
incorporated into the long-term investment decisions made with regard to
overall diversification strategies. However, the Portfolio believes that it is
important to have the flexibility to enter into such forward contracts when it
determines that the best interests of the Portfolio will be served. The
Portfolio generally will not enter into a forward contract with a term of
greater than one year.
To the extent that the Portfolio enters into futures contracts, options on
futures contracts and options on foreign currencies traded on an exchange
regulated by the Commodity Futures Trading Commission (the "CFTC"), in each
case that are not for bona fide hedging purposes (as defined by the CFTC), the
aggregate initial margin and premiums required to establish these positions
(excluding the amount by which options are "in-the-money") may not exceed 5%
of the liquidation value of the Portfolio's investments, after taking into
account unrealized profits and unrealized losses on any contracts the
Portfolio has entered into. The Portfolio did not engage in such transactions
during the fiscal year ended March 31, 1998, and there is no assurance that it
will engage in such transactions in the future.
OPTIONS ON SECURITIES
An options position may be closed out only on an options exchange which
provides a secondary market for an option of the same series. Although the
Portfolio will generally purchase or write only those options for which there
appears to be an active secondary market, there is no assurance that a liquid
secondary market on an exchange will exist for any particular option, or at
any particular time. For some options, no secondary market on an exchange may
exist. In such event, it might not be possible to effect closing transactions
in particular options, with the result that the Portfolio would have to
exercise its options in order to realize any profit and would incur
transaction costs upon the sale of underlying securities pursuant to the
exercise of put options. If the Portfolio as a covered call option writer is
unable to effect a closing purchase transaction in a secondary market, it will
not be able to sell the underlying security until the option expires or it
delivers the underlying security upon exercise.
Reasons for the absence of a liquid secondary market on an exchange
include the following: (i) there may be insufficient trading interest in
certain options; (ii) restrictions may be imposed by an exchange on opening
transactions or closing transactions or both; (iii) trading halts, suspensions
or other restrictions may be imposed with respect to particular classes or
series of options or underlying securities; (iv) unusual or unforeseen
circumstances may interrupt normal operations on an exchange; (v) the
facilities of an exchange or the Options Clearing Corporation ("OCC") may not
at all times be adequate to handle current trading volume; or (vi) one or more
exchanges could, for economic or other reasons, decide or be compelled at some
future date to discontinue the trading of options (or a particular class or
series of options), in which event the secondary market on that exchange (or
in that class or series of options) would cease to exist, although outstanding
options on that exchange that had been issued by the OCC as a result of trades
on that exchange would continue to be exercisable in accordance with their
terms.
There is no assurance that higher than anticipated trading activity or
other unforeseen events might not, at times, render certain of the facilities
of the OCC inadequate, and thereby result in the institution by an exchange of
special procedures which may interfere with the timely execution of customers'
orders.
FUTURES CONTRACTS
All futures contracts entered into by the Portfolio are traded on
exchanges or boards of trade that are licensed and regulated by the CFTC. The
Portfolio may purchase and write call and put options on futures contracts
which are traded on a U.S. exchange or board of trade.
The Portfolio will engage in futures and related options transactions for
bona fide hedging or non-hedging purposes as defined in or permitted by CFTC
regulations. The Portfolio will determine that the price fluctuations in the
futures contracts and options on futures used for hedging purposes are
substantially related to price fluctuations in securities held by the
Portfolio or which it expects to purchase. The Portfolio will engage in
transactions in futures and related options contracts only to the extent such
transactions are consistent with the requirements of the Code for maintaining
the qualification of the Fund as a regulated investment company for federal
income tax purposes (see "Taxes").
ASSET COVERAGE FOR DERIVATIVE INSTRUMENTS
Transactions using forward contracts, futures contracts and options (other
than options that the Portfolio has purchased) expose the Portfolio to an
obligation to another party. The Portfolio will not enter into any such
transactions unless it owns either (1) an offsetting ("covered") position in
securities, currencies, or other options, futures contracts or forward
contracts, or (2) cash or liquid securities (such as readily marketable
obligations and money market instruments) with a value sufficient at all times
to cover its potential obligations not covered as provided in (1) above. The
Portfolio will comply with Commission guidelines regarding cover for these
instruments and, if the guidelines so require, set aside cash, U.S. Government
securities or other liquid, high grade debt securities in a segregated account
with its custodian in the prescribed amount. The securities in the segregated
account will be marked to market daily. Assets used as cover or held in a
segregated account maintained by the Portfolio's custodian cannot be sold
while the position in the corresponding forward contract, futures contract or
option is open, unless they are replaced with other appropriate assets. As a
result, the commitment of a large portion of the Portfolio's assets to cover
or segregated accounts could impede portfolio management or the Portfolio's
ability to meet redemption requests or other current obligations.
LENDING PORTFOLIO SECURITIES
The Portfolio may seek to increase its income by lending portfolio
securities to broker-dealers or other institutional borrowers. Under present
regulatory policies of the Commission, such loans are required to be secured
continuously by collateral in cash, cash equivalents or U.S. Government
securities held by the Portfolio's custodian and maintained on a current basis
at an amount at least equal to the market value of the securities loaned,
which will be marked to market daily. Cash equivalents include certificates of
deposit, commercial paper and other short-term money market instruments. The
Portfolio would have the right to call a loan and obtain the securities loaned
at any time on up to five business days' notice. During the existence of a
loan, the Portfolio will continue to receive the equivalent of the interest
paid by the issuer on the securities loaned and will also receive a fee or all
of a portion of the interest on investment of the collateral, if any. However,
the Portfolio may pay lending fees to such borrowers. The Portfolio would not
have the right to vote any securities having voting rights during the
existence of a loan, but would call the loan in anticipation of an important
vote to be taken among holders of the securities or the giving or withholding
of their consent on a material matter affecting the investment. As with other
extensions of credit there are risks of delay in recovery or even loss of
rights in the securities loaned if the borrower of the securities fails
financially. However, the loans would be made only to organizations deemed by
the Portfolio's management to be of good standing and when, in the judgment of
the Portfolio's management, the consideration which can be earned from
securities loans of this type, net of administrative expenses and any finder's
fees, justifies the attendant risk. The financial condition of the borrower
will be monitored by the Investment Adviser on an ongoing basis. If the
Investment Adviser determines to make securities loans, it is not intended
that the value of the securities loaned would exceed 30% of the Portfolio's
total assets. As of the present time, the Trustees of the Portfolio have not
made a determination to engage in this activity, and have no present intention
of making such a determination during the current fiscal year.
PORTFOLIO TURNOVER
The Portfolio cannot accurately predict its portfolio turnover rate, but
it is anticipated that the annual turnover rate will generally not exceed 150%
(excluding turnover of securities having a maturity of one year or less). A
100% annual turnover rate could occur, for example, if all the securities held
by the Portfolio were replaced more than once in a period of one year. A high
turnover rate (100% or more) necessarily involves greater brokerage costs to
the Portfolio and may result in the realization of taxable gain.
Securities may be sold in anticipation of a market decline (a rise in
interest rates) or purchased in anticipation of a market rise (a decline in
interest rates) and later sold. In addition, a security may be sold and
another purchased at approximately the same time to take advantage of what the
Portfolio believes to be a temporary disparity in the normal yield
relationship between the two securities. Yield disparities may occur for
reasons not directly related to the investment quality of particular issues or
the general movement of interest rates, such as changes in the overall demand
for or supply of various types of fixed-income securities or changes in the
investment objectives of investors. Such trading may be expected to increase
the portfolio turnover rate and the expenses incurred in connection with such
trading. The Portfolio anticipates that its annual portfolio turnover rate
will generally exceed 150% (excluding turnover of securities having a maturity
of one year or less). For the fiscal years ended March 31, 1998 and 1997, the
portfolio turnover rate of the Portfolio was 137% and 78%, respectively.
INVESTMENT RESTRICTIONS
The following investment restrictions of the Fund are designated as
fundamental policies and as such cannot be changed without the approval of the
holders of a majority of the Fund's outstanding voting securities, which as
used in this SAI means the lesser of (a) 67% of the shares of the Fund present
or represented by proxy at a meeting if the holders of more than 50% of the
shares are present or represented at the meeting or (b) more than 50% of the
shares of the Fund. As a matter of fundamental policy, the Fund may not:
(1) With respect to 75% of total assets of the Fund, purchase any security
if such purchase, at the time thereof, would cause more than 5% of the total
assets of the Fund (taken at market value) to be invested in the securities of
a single issuer, or cause more than 10% of the total outstanding voting
securities of such issuer to be held by the Fund, except obligations issued or
guaranteed by the U.S. Government, its agencies or instrumentalities and
except securities of other investment companies;
(2) Borrow money or issue senior securities except as permitted by the
1940 Act;
(3) Purchase securities on margin (but the Fund may obtain such short-term
credits as may be necessary for the clearance of purchases and sales of
securities). The deposit or payment by the Fund of initial, maintenance or
variation margin in connection with all types of options and futures contract
transactions is not considered the purchase of a security on margin;
(4) Underwrite or participate in the marketing of securities of others,
except insofar as it may technically be deemed to be an underwriter in selling
a portfolio security under circumstances which may require the registration of
the same under the Securities Act of 1933;
(5) Purchase any security if such purchase, at the time thereof, would
cause more than 25% of the Fund's total assets to be invested in any single
industry, provided that the electric, gas and telephone utility industries
shall be treated as separate industries for purposes of this restriction and
further provided that there is no limitation with respect to obligations
issued or guaranteed by the U.S. Government or any of its agencies or
instrumentalities.
(6) Purchase or sell real estate, although it may purchase and sell
securities which are secured by real estate and securities of companies which
invest or deal in real estate;
(7) Purchase or sell physical commodities or contracts for the purchase or
sale of physical commodities; or
(8) Make loans to any person except by (i) the acquisition of debt
securities and making portfolio investments, (ii) entering into repurchase
agreements or (iii) lending portfolio securities.
Notwithstanding the investment policies and restrictions of the Fund, the
Fund may invest all of its investable assets in an open-end management
investment company with substantially the same investment objective, policies
and restrictions as the Fund.
The Portfolio has adopted substantially the same fundamental investment
restrictions as the foregoing investment restrictions adopted by the Fund;
such restrictions cannot be changed without the approval of a "majority of the
outstanding voting securities" of the Portfolio.
For as long as a feeder fund of the Portfolio has registered shares in
Hong Kong, the Portfolio may not (i) invest more than 10% of its net assets in
the securities of any one issuer or, purchase more than 10% of any class of
security of any one issuer, provided, however, up to 30% of the Portfolio's
net asset value may be invested in Government and public securities of the
same issue; and the Portfolio may invest all of its assets in Government and
other public securities in at least six different issues, (ii) invest more
than 15% of net assets in securities which are not listed or quoted on any
stock exchange, over-the-counter market or other organized securities market
that is open to the international public and on which such securities are
regularly traded (a "Market"), (iii) invest more than 15% of net assets in
warrants and options for non-hedging purposes, (iv) write call options on
Portfolio investments exceeding 25% of its total net asset value in terms of
exercise price, (v) enter into futures contracts on an unhedged basis where
the net total aggregate value of contract prices, whether payable by or to the
Portfolio under all outstanding futures contracts, together with the aggregate
value of holdings under (vi) below exceeds 20% of the net asset value of the
Portfolio, (vi) invest in physical commodities (including gold, silver,
platinum or other bullion) and commodity based investments (other than shares
in companies engaged in producing, processing or trading in commodities) which
value together with the net aggregate value of the holdings described in (v)
above, exceeds 20% of the Portfolio's net asset value, (vii) purchase shares
of other investment companies exceeding 10% of net assets. In addition, the
investment objective of any scheme in which any Portfolio invests must not be
to invest in investments prohibited by this undertaking and where the scheme's
investment objective is to invest primarily in investments which are
restricted by this undertaking, such holdings must not be in contravention of
the relevant limitation, (viii) borrow more than 25% of its net assets
(provided that for the purposes of this paragraph, back to back loans are not
to be categorized as borrowings), (ix) write uncovered options, (x) invest in
real estate (including options, rights or interests therein but excluding
shares in real estate companies), (xi) assume, guarantee, endorse or otherwise
become directly or contingently liable for, or in connection with, any
obligation or indebtedness of any person in respect of borrowed money without
the prior written consent of the custodian of the Portfolio, (xii) engage in
short sales involving a liability to deliver securities exceeding 10% of its
net assets provided that any security which a Portfolio does sell short must
be actively traded on a market, (xiii) subject to paragraph (v) above,
purchase an investment with unlimited liability or (xiv) purchase any nil or
partly-paid securities unless any call thereon could be met in full out of
cash or near cash held by it in the amount of which has not already been taken
into account for the purposes of (ix) above.
The Fund and the Portfolio have adopted the following investment policies
which may be changed with respect to the Fund by the Trustees of the Trust
without approval by the Fund's shareholders or with respect to the Portfolio
by the Trustees of the Portfolio without approval by the Fund or its other
investors. As a matter of nonfundamental policy, neither the Fund nor the
Portfolio may (a) invest more than 15% of its net assets in investments which
are not readily marketable, including restricted securities and repurchase
agreements maturing in more than seven days. Restricted securities for the
purposes of this limitation do not include securities eligible for resale
pursuant to Rule 144A under the Securities Act of 1933 and commercial paper
issued pursuant to Section 4(2) of said Act that the Board of Trustees of the
Trust or the Portfolio, or its delegate, determines to be liquid; or (b) make
short sales of securities or maintain a short position, unless at all times
when a short position is open the Fund owns an equal amount of such securities
or securities convertible into or exchangeable, without payment of any further
consideration, for securities of the same issuer as, and equal in amount to,
the securities sold short, and unless not more than 25% of the Fund's net
assets (taken at current value) is held as collateral for such sales at any
one time.
Whenever an investment policy or investment restriction set forth in the
Prospectus or this SAI states a maximum percentage of assets that may be
invested in any security or other asset, or describes a policy regarding
quality standards, such percentage limitation or standard shall be determined
immediately after and as a result of the Fund's or the Portfolio's acquisition
of such security or asset. Accordingly, any later increase or decrease
resulting from a change in values, assets or other circumstances, or any
subsequent rating change will not compel the Fund or the Portfolio, as the
case may be, to dispose of such security or other asset. Notwithstanding the
foregoing, under normal market conditions the Portfolio must take actions
necessary to comply with the policy of investing at least 65% of total assets
in the lowest investment grade and lower rated and unrated debt obligations
and not investing more than 15% of net assets in illiquid securities.
Moreover, the Fund and Portfolio must always be in compliance with the
borrowing policies set forth above.
TRUSTEES AND OFFICERS
The Trustees and officers of the Trust and the Portfolio are listed below.
Except as indicated, each individual has held the office shown or other
offices in the same company for the last five years. Unless otherwise noted,
the business address of each Trustee and officer is 24 Federal Street, Boston,
Massachusetts 02110, which is also the address of the Investment Adviser, BMR,
a wholly-owned subsidiary of Eaton Vance; of Eaton Vance's parent, Eaton Vance
Corp. ("EVC"); and of BMR's and Eaton Vance's trustee, Eaton Vance, Inc.
("EV"). Eaton Vance and EV are both wholly-owned subsidiaries of EVC. Those
Trustees who are "interested persons" of the Trust or the Portfolio, as
defined in the 1940 Act, by virtue of their affiliation with BMR, Eaton Vance,
EVC or EV, are indicated by an asterisk(*).
TRUSTEES OF THE TRUST AND THE PORTFOLIO
M. DOZIER GARDNER (64), President and Trustee*
Vice Chairman of BMR, Eaton Vance, EVC and EV, and Director of EVC and EV.
Director or Trustee and officer of various investment companies managed by
Eaton Vance or BMR.
DONALD R. DWIGHT (67), Trustee
President of Dwight Partners, Inc. (a corporate relations and communications
company). Director or Trustee of various investment companies managed by
Eaton Vance or BMR.
Address: Clover Mill Lane, Lyme, New Hampshire 03768
JAMES B. HAWKES (56), Vice President and Trustee*
Chairman, President and Chief Executive Officer of BMR, Eaton Vance, EV and
EVC and a Director of EV and EVC. Director, Trustee and officer of various
investment companies managed by Eaton Vance or BMR.
SAMUEL L. HAYES, III (63), Trustee
Jacob H. Schiff Professor of Investment Banking, Harvard University Graduate
School of Business Administration. Trustee, Kubrick Funds (mutual funds).
Director or Trustee of various investment companies managed by Eaton Vance
or BMR.
Address: Harvard University Graduate School of Business Administration,
Soldiers Field Road, Boston, Massachusetts 02163
NORTON H. REAMER (62), Trustee
Chairman of the Board and Chief Executive Officer -- United Asset Management
Corporation (a holding company owning institutional investment management
firms); Chairman, President and Director, UAM Funds (mutual funds). Director
or Trustee of various investment companies managed by Eaton Vance or BMR.
Address: One International Place, Boston, Massachusetts 02110
JOHN L. THORNDIKE (71), Trustee
Formerly Director of Fiduciary Company Incorporated. Director or Trustee of
various investment companies managed by Eaton Vance or BMR.
Address: 175 Federal Street, Boston, Massachusetts 02110
JACK L. TREYNOR (68), Trustee
Investment Adviser and Consultant. Director or Trustee of various investment
companies managed by Eaton Vance or BMR.
Address: 504 Via Almar, Palos Verdes Estates, California 90274
OFFICERS OF THE TRUST AND THE PORTFOLIO
WILLIAM H. AHERN, JR. (39), Vice President of the Trust
Vice President of BMR and Eaton Vance. Officer of various investment companies
managed by Eaton Vance or BMR.
THOMAS J. FETTER (54), Vice President of the Trust
Vice President of BMR, Eaton Vance and EV. Officer of various investment
companies managed by Eaton Vance or BMR. Mr. Fetter was elected Vice
President on October 17, 1997.
ROBERT B. MACINTOSH (41), Vice President of the Trust
Vice President of BMR, Eaton Vance and EV. Officer of various investment
companies managed by Eaton Vance or BMR. Mr. MacIntosh was elected Vice
President on February 20, 1998.
MICHAEL WEILHEIMER (37), Vice President of the Portfolio
Vice President of Eaton Vance. Officer of various investment companies managed
by Eaton Vance or BMR. Mr. Weilheimer was elected Vice President of
Portfolio on December 18, 1995.
MICHEL NORMANDEAU (46), Vice President of the Portfolio
Assistant Manager -- Trust Services of The Bank of Nova Scotia Trust Company
(Cayman) Limited. Officer of various investment companies managed by Eaton
Vance or BMR.
Address: The Bank of Nova Scotia Trust Company (Cayman) Ltd., The Bank of Nova
Scotia Building, P.O. Box 501, George Town, Grand Cayman, Cayman Islands,
British West Indies.
RAYMOND O'NEILL (36), Vice President of the Portfolio
Managing Director of IBT Trust and Custodian Services (Ireland) Limited since
January, 1995. Officer of various investment companies managed by Eaton
Vance or BMR.
Address: Earlsfort Terrace, Dublin 2, Ireland
MICHAEL B. TERRY (55), Vice President of the Trust
Vice President of BMR, Eaton Vance and EV. Officer of various investment
companies managed by Eaton Vance or BMR.
JAMES L. O'CONNOR (53), Treasurer
Vice President of BMR, Eaton Vance and EV. Officer of various investment
companies managed by Eaton Vance or BMR.
ALAN R. DYNNER (57), Secretary
Vice President and Chief Legal Officer of BMR, Eaton Vance, EVC and EV since
November 1, 1996. Previously, Mr. Dynner was a Partner of the law firm of
Kirkpartrick & Lockhart LLP, New York and Washington, D.C., and was
Executive Vice President of Neuberger & Berman Management, Inc., a mutual
fund management company. Officer of various investment companies managed by
Eaton Vance or BMR. Mr. Dynner was elected Secretary on June 23, 1997.
JANET E. SANDERS (62), Assistant Treasurer and Assistant Secretary
Vice President of BMR, Eaton Vance and EV. Officer of various investment
companies managed by Eaton Vance or BMR.
A. JOHN MURPHY (35), Assistant Secretary
Assistant Vice President of BMR, Eaton Vance and EV. Officer of various
investment companies managed by Eaton Vance or BMR.
ERIC G. WOODBURY (41), Assistant Secretary
Vice President of BMR, Eaton Vance and EV. Officer of various investment
companies managed by Eaton Vance or BMR.
Messrs. Hayes (Chairman), Reamer and Thorndike are members of the Special
Committee of the Board of Trustees of the Trust and of the Portfolio. The
purpose of the Special Committee is to consider, evaluate and make
recommendations to the full Board of Trustees concerning (i) all contractual
arrangements with service providers to the Fund and the Portfolio, including
investment advisory (Portfolio only), administrative, transfer agency,
custodial, fund accounting and distribution services, and (ii) all other
matters in which Eaton Vance or its affiliates has any actual or potential
conflict of interest with the Fund, the Portfolio or investors therein.
The Nominating Commitee of the Board of Trustees of the Trust and the
Portfolio is comprised of four Trustees who are not "interested persons" as
that term is defined by the 1940 Act ("noninterested Trustees"). The Committee
has four-year staggered terms, with one member rotating off the Committee to
be replaced by another noninterested Trustee. The purpose of the Committee is
to recommend to the Board nominees for the position of noninterested Trustee
and to assure that at least a majority of the Board of Trustees is independent
of Eaton Vance and its affiliates.
Messrs. Treynor (Chairman) and Dwight are members of the Audit Committee
of the Board of Trustees of the Trust and of the Portfolio. The Audit
Committee's functions include making recommendations to the Trustees regarding
the selection of the independent certified public accountants, and reviewing
matters relative to trading and brokerage policies and practices, accounting
and auditing practices and procedures, accounting records, internal accounting
controls, and the functions performed by the custodian, transfer agent and
dividend disbursing agent of the Trust and of the Portfolio.
Trustees of the Portfolio who 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 a Trustees Deferred Compensation Plan (the
"Trustees" Plan"). Under the Trustees' Plan, an eligible Trustee may elect to
have his deferred fees invested by the Portfolio in the shares of one or more
funds in the Eaton Vance Family of Funds, and the amount paid to the Trustees
under the Trustees' Plan will be determined based upon the performance of such
investments. Deferral of Trustees' fees in accordance with the Trustees' Plan
will have a negligible effect on the Portfolio's assets, liabilities, and net
income per share, and will not obligate the Portfolio to retain the services
of any Trustee or obligate the Portfolio to pay any particular level of
compensation to the Trustee. Neither the Portfolio nor the Trust has a
retirement plan for its Trustees.
Messrs. Normandeau and O'Neill are not U.S. residents. It may be difficult
to effect service of process within the U.S. or to realize judgments of U.S.
courts upon them. It is uncertain whether courts in other countries would
entertain original actions against them.
The fees and expenses of the noninterested Trustees of the Trust and of
the Portfolio are paid by the Fund (and the other series of the Trust) and the
Portfolio, respectively. (The Trustees of the Trust and the Portfolio who are
members of the Eaton Vance organization receive no compensation from the Trust
or the Portfolio.) During the fiscal year ended March 31, 1998, the
noninterested Trustees of the Trust and the Portfolio earned the following
compensation in their capacities as Trustees from the Trust, the Portfolio and
the funds in the Eaton Vance fund complex(1):
<TABLE>
<CAPTION>
DONALD R. SAMUEL L. NORTON H. JOHN L. JACK L.
SOURCE OF COMPENSATION DWIGHT HAYES, III REAMER THORNDIKE TREYNOR
- ---------------------- ------ ---------- ------ --------- -------
<S> <C> <C> <C> <C> <C>
Trust(2) ..................................... $ 6,304 $ 6,536 $ 6,469 $ 6,359 $ 6,774
Portfolio .................................... 4,635(3) 4,748(4) 4,474 4,669(5) 4,951
Trust and Fund Complex ....................... 148,750(6) 158,780(7) 148,750 148,750(8) 155,000
- ----------
(1) As of August 1, 1998 the Eaton Vance fund complex consists of 144 registered investment companies or series thereof.
(2) As of March 31, 1998, the Trust consisted of 14 Funds.
(3) Includes $2,136 of deferred compensation.
(4) Includes $1,619 of deferred compensation.
(5) Includes $4,659 of deferred compensation.
(6) Includes $48,711 of deferred compensation.
(7) Includes $39,660 of deferred compensation.
(8) Includes $110,693 of deferred compensation.
</TABLE>
INVESTMENT ADVISER AND ADMINISTRATOR
The Portfolio engages BMR as investment adviser pursuant to an Investment
Advisory Agreement. BMR or Eaton Vance acts as investment adviser to
investment companies and various individual and institutional clients with
combined assets under management of approximately $25 billion.
Eaton Vance, its affiliates and its predecessor companies have been
managing assets of individuals and institutions since 1924 and managing
investment companies since 1931. They maintain a large staff of experienced
fixed-income and equity investment professionals to service the needs of their
clients. The fixed-income division focuses on all kinds of taxable investment-
grade and high-yield securities, tax-exempt investment-grade and high-yield
securities, and U.S. Government securities. The equity division covers stocks
ranging from blue chip to emerging growth companies.
Eaton Vance and its affiliates act as adviser to a family of mutual funds,
and individual and various institutional accounts, including corporations,
hospitals, retirement plans, universities, foundations and trusts. Eaton Vance
mutual funds feature international equities, domestic equities, tax-free
municipal bonds, and U.S. government and corporate bonds. Lloyd George
Management has advised Eaton Vance's international equity funds since 1992.
Founded in 1991, Lloyd George is headquartered in Hong Kong with offices in
London and Mumbai, India. It has established itself as a leader in investment
management in Asian equities and other global markets. Lloyd George features
an experienced team of investment professionals that began working together in
the mid-1980s. Lloyd George analysts cover East Asia, the India subcontinent,
Russia and Eastern Europe, Latin America, Australia and New Zealand from
offices in Hong Kong, London and Mumbai. Together Eaton Vance and Lloyd George
manage over $26 billion in assets. Eaton Vance mutual funds are distributed by
the Principal Underwriter both within the United States and offshore.
The Principal Underwriter believes that an investment professional can
provide valuable services to you to help you reach your investment goals.
Meeting investment goals requires time, objectivity and investment savvy.
Before making an investment recommendation, a representative can help you
carefully consider your short-term and long-term financial goals, your
tolerance for investment risk, your investment time frame, and other
investments you may already own. Your professional investment representatives
are knowledgeable about financial markets, as well as the wide range of
investment opportunities available. A representative can provide you with
tailored financial advice and help you decide when to buy, sell or persevere
with your investments.
BMR manages the investments and affairs of the Portfolio subject to the
supervision of the Portfolio's Board of Trustees. BMR furnishes to the
Portfolio investment research, advice and supervision, furnishes an investment
program and determines what securities will be purchased, held or sold by the
Portfolio and what portion, if any, of the Portfolio's assets will be held
uninvested. The Investment Advisory Agreement requires BMR to pay the salaries
and fees of all officers and Trustees of the Portfolio who are members of the
BMR organization and all personnel of BMR performing services relating to
research and investment activities. The Portfolio is responsible for all
expenses not expressly stated to be payable by BMR under the Investment
Advisory Agreement, including, without implied limitation, (i) expenses of
maintaining the Portfolio and continuing its existence, (ii) registration of
the Portfolio under the 1940 Act, (iii) commissions, fees and other expenses
connected with the acquisition, holding and disposition of securities and
other investments, (iv) auditing, accounting and legal expenses, (v) taxes and
interest, (vi) governmental fees, (vii) expenses of issue, sale and redemption
of interests in the Portfolio, (viii) expenses of registering and qualifying
the Portfolio and interests in the Portfolio under federal and state
securities laws and of preparing and printing registration statements or other
offering statements or memoranda for such purposes and for distributing the
same to investors, and fees and expenses of registering and maintaining
registrations of the Portfolio and of the Portfolio's placement agent as
broker-dealer or agent under state securities laws, (ix) expenses of reports
and notices to investors and of meetings of investors and proxy solicitations
therefor, (x) expenses of reports to governmental officers and commissions,
(xi) insurance expenses, (xii) association membership dues, (xiii) fees,
expenses and disbursements of custodians and subcustodians for all services to
the Portfolio (including without limitation safekeeping of funds, securities
and other investments, keeping of books, accounts and records, and
determination of net asset values, book capital account balances and tax
capital account balances), (xiv) fees, expenses and disbursements of transfer
agents, dividend disbursing agents, investor servicing agents and registrars
for all services to the Portfolio, (xv) expenses for servicing the accounts of
investors, (xvi) any direct charges to investors approved by the Trustees of
the Portfolio, (xvii) compensation and expenses of Trustees of the Portfolio
who are not members of BMR's organization, and (xviii) such non-recurring
items as may arise, including expenses incurred in connection with litigation,
proceedings and claims and any legal obligation of the Portfolio to indemnify
its Trustees, officers and investors with respect thereto, to the extent not
covered by insurance.
For a description of the compensation that the Portfolio pays BMR under
the Investment Advisory Agreement, see the Prospectus. As at March 31, 1998,
the Portfolio had net assets of $960,500,710. For the fiscal years ended March
31, 1998, 1997 and 1996, the Portfolio paid BMR advisory fees of $4,736,709,
$3,683,894 and $3,094,793, respectively, (equivalent to 0.58%, 0.61% and 0.63%
(annualized) of the Portfolio's average daily net assets for each such year).
The Investment Advisory Agreement with BMR continues in effect from year
to year for so long as such continuance is approved at least annually (i) by
the vote of a majority of the noninterested Trustees of the Portfolio cast in
person at a meeting specifically called for the purpose of voting on such
approval and (ii) by the Board of Trustees of the Portfolio or by vote of a
majority of the outstanding voting securities of the Portfolio. The Agreement
may be terminated at any time without penalty on sixty (60) days' written
notice by the Board of Trustees of either party, or by vote of the majority of
the outstanding voting securities of the Portfolio, and the Agreement will
terminate automatically in the event of its assignment. The Agreement provides
that BMR may render services to others. The Agreement also provides that BMR
shall not be liable for any loss incurred in connection with the performance
of its duties, or action taken or omitted under that Agreement, in the absence
of willful misfeasance, bad faith, gross negligence in the performance of its
duties or by reason of its reckless disregard of its obligations and duties
thereunder, or for any losses sustained in the acquisition, holding or
disposition of any security or other investment.
IBT Trust Company (Cayman), Ltd. maintains the Portfolio's principal
office and certain of its records and provides administrative assistance in
connection with meetings of the Portfolio's Trustees and interestholders.
As indicated in the Prospectus, Eaton Vance serves as Administrator of the
Fund, but currently receives no compensation for providing administrative
services to the Fund. Under its Administrative Services Agreement with the
Trust, Eaton Vance has been engaged to administer the Fund's affairs, subject
to the supervision of the Trustees of the Trust, and shall furnish for the use
of the Fund office space and all necessary office facilities, equipment and
personnel for administering the affairs of the Fund.
The Fund pays all of its own expenses including, without limitation, (i)
expenses of maintaining the Fund and continuing its existence, (ii) its pro
rata share of the Trust's registration under the 1940 Act, (iii) commissions,
fees and other expenses connected with the purchase or sale of securities and
other investments, (iv) auditing, accounting and legal expenses, (v) taxes and
interest, (vi) governmental fees, (vii) expenses of issue, sale, repurchase
and redemption of shares, (viii) expenses of registering and qualifying the
Fund and its shares under federal and state securities laws and of preparing
and printing prospectuses for such purposes and for distributing the same to
shareholders and investors, and fees and expenses of registering and
maintaining registrations of the Fund and of the Fund's principal underwriter,
if any, as broker-dealer or agent under state securities laws, (ix) expenses
of reports and notices to shareholders and of meetings of shareholders and
proxy solicitations therefor, (x) expenses of reports to governmental officers
and commissions, (xi) insurance expenses, (xii) association membership dues,
(xiii) fees, expenses and disbursements of custodians and subcustodians for
all services to the Fund (including without limitation safekeeping of funds,
securities and other investments, keeping of books and accounts and
determination of net asset values), (xiv) fees, expenses and disbursements of
transfer agents, dividend disbursing agents, shareholder servicing agents and
registrars for all services to the Fund, (xv) expenses for servicing
shareholder accounts, (xvi) any direct charges to shareholders approved by the
Trustees of the Trust, (xvii) compensation and expenses of Trustees of the
Trust who are not members of the Eaton Vance organization, and (xviii) such
non-recurring items as may arise, including expenses incurred in connection
with litigation, proceedings and claims and any legal obligation of the Trust
to indemnify its Trustees and officers with respect thereto, to the extent not
covered by insurance.
BMR is a wholly-owned subsidiary of Eaton Vance. Eaton Vance and EV are
both wholly-owned subsidiaries of EVC. BMR and Eaton Vance are both
Massachusetts business trusts, and EV is the trustee of BMR and Eaton Vance.
The Directors of EV are M. Dozier Gardner, James B. Hawkes, and Benjamin A.
Rowland, Jr. The Directors of EVC consist of the same persons and John G. L.
Cabot, John M. Nelson, Vincent M. O'Reilly and Ralph Z. Sorenson. Mr. Hawkes
is chairman, president and chief executive officer and Mr. Gardner is vice
chairman of EVC, BMR, Eaton Vance and EV. All of the issued and outstanding
shares of Eaton Vance and EV are owned by EVC. All of the issued and
outstanding shares of BMR are owned by Eaton Vance. All shares of the
outstanding Voting Common Stock of EVC are deposited in a Voting Trust the
Voting Trustees of which are Messrs. Gardner, Hawkes, and Rowland and Alan R.
Dynner, Thomas E. Faust, Jr., William M. Steul and Wharton P. Whitaker. The
Voting Trustees have unrestricted voting rights for the election of Directors
of EVC. All of the outstanding voting trust receipts issued under said Voting
Trust are owned by certain of the officers of BMR and Eaton Vance who are also
officers or officers and Directors of EVC and EV. As of July 31, 1998, Messrs.
Gardner and Hawkes each owned 24% of such voting trust receipts, Messrs.
Rowland and Faust owned 15% and 13%, respectively, and Messrs. Dynner, Steul
and Whitaker each owned 8%. Messrs. Dynner, Gardner and Hawkes are officers or
Trustees of the Trust and the Portfolio and are members of the EVC, BMR, Eaton
Vance and EV organizations. Messrs. Ahern, Fetter, MacIntosh, Murphy,
O'Connor, Terry, Weilheimer and Woodbury and Ms. Sanders, are officers of the
Trust and/or the Portfolio and are also members of the BMR, Eaton Vance and EV
organizations.
Eaton Vance owns all the stock of Northeast Properties, Inc., which is
engaged in real estate investment. EVC also owns approximately 21% of the
Class A shares of Lloyd George Management (B.V.I.) Limited, a registered
investment adviser. EVC owns all the stock of Fulcrum Management, Inc. and
MinVen, Inc., which are engaged in the precious metal mining venture
investment and management. EVC, BMR, Eaton Vance and EV may also enter into
other businesses.
EVC and its affiliates and their officers and employees from time to time
have transactions with various banks, including the custodian of the Trust and
the Portfolio, IBT. It is Eaton Vance's opinion that the terms and conditions
of such transactions were not and will not be influenced by existing or
potential custodial or other relationships between the Fund or the Portfolio
and such banks.
CUSTODIAN
IBT acts as custodian for the Trust and the Portfolio. IBT has the custody
of all cash and securities representing the Fund's interest in the Portfolio
and has custody of all the Portfolio's assets. Its subsidiary, IBT Fund
Services (Canada) Inc., 1 First Canadian Place, King Street West, Toronto,
Ontario, Canada, maintains the general ledger of the Portfolio and the Fund
and computes the daily net asset value of interests in the Portfolio and the
net asset value of shares of the Fund. In its capacity as custodian, IBT
attends to details in connection with the sale, exchange, substitution,
transfer or other dealings with the Portfolio's investments, receives and
disburses all funds and performs various other ministerial duties upon receipt
of proper instructions from the Trust and the Portfolio. IBT also provides
services in connection with the preparation of shareholder reports and the
electronic filing of such reports with the Commission.
SERVICE FOR WITHDRAWAL
The Transfer Agent will send to the shareholder regular monthly or
quarterly payments of any permitted amount designated by the shareholder (see
"Eaton Vance Shareholder Services -- Withdrawal Plan" in the Prospectus) based
upon the value of the shares held. The checks will be drawn from share
redemptions and, hence, although they are a return of principal, may require
the recognition of a taxable gain or loss. Income dividends and capital gains
distributions in connection with withdrawal accounts will be credited at net
asset value as of the record date for each distribution. Continued withdrawals
in excess of current income will eventually use up principal, particularly in
a period of declining market prices. A shareholder may not have a withdrawal
plan in effect at the same time he/she has authorized Bank Automated Investing
or is otherwise making regular purchases of Fund shares. The shareholder, the
Transfer Agent or the Principal Underwriter will be able to terminate the
withdrawal plan at any time without penalty.
DETERMINATION OF NET ASSET VALUE
The net asset value of the Portfolio is determined by IBT (as agent and
custodian for the Portfolio) in the manner described under "Valuing Shares" in
the Prospectus. The Fund and the Portfolio will be closed for business and
will not price their respective shares or interests on the following business
holidays: New Year's Day, Martin Luther King, Jr. Day, Presidents' Day, Good
Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day and
Christmas Day.
Each investor in the Portfolio, including the Fund, may add to or reduce
its investment in the Portfolio on each day the Exchange is open for trading
("Portfolio Business Day") as of the close of regular trading on the Exchange
(the "Portfolio Valuation Time"). The value of each investor's interest in the
Portfolio will be determined by multiplying the net asset value of the
Portfolio by the percentage, determined on the prior Portfolio Business Day,
which represented that investor's share of the aggregate interests in the
Portfolio on such prior day. Any additions or withdrawals for the current
Portfolio Business Day will then be recorded. Each investor's percentage of
the aggregate interest in the Portfolio will then be recomputed as a
percentage equal to a fraction (i) the numerator of which is the value of such
investor's investment in the Portfolio as of the Portfolio Valuation Time on
the prior Portfolio Business Day plus or minus, as the case may be, the amount
of any additions to or withdrawals from the investor's investment in the
Portfolio on the current Portfolio Business Day and (ii) the denominator of
which is the aggregate net asset value of the Portfolio as of the Portfolio
Valuation Time on the prior Portfolio Business Day plus or minus, as the case
may be, the amount of the net additions to or withdrawals from the aggregate
investment in the Portfolio on the current Portfolio Business Day by all
investors in the Portfolio. The percentage so determined will then be applied
to determine the value of the investor's interest in the Portfolio for the
current Portfolio Business Day.
INVESTMENT PERFORMANCE
Average annual total return is determined separately for each Class of the
Fund by multiplying a hypothetical initial purchase order of $1,000 by the
average annual compound rate of return (including capital appreciation/
depreciation, and distributions paid and reinvested) for the stated period and
annualizing the result. The calculation assumes (i) that all distributions are
reinvested at net asset value on the reinvestment dates during the period,
(ii) a complete redemption of the investment and (iii) the deduction of any
CDSC at the end of the period. For information concerning the total return of
the Classes of the Fund, see Appendix A and Appendix B.
Yield is computed separately for each Class of the Fund pursuant to a
standardized formula by dividing net investment income per share earned during
a recent thirty-day period by the maximum offering price (net asset value) per
share on the last day of the period and annualizing the resulting figure. Net
investment income per share is calculated from the yields to maturity of all
debt obligations held by the Portfolio based on the market value of such
obligations and from dividends from equity securities based on prescribed
methods, reduced by accrued Fund and Class expenses for the period, with the
resulting number being divided by the average daily number of Class shares
outstanding and entitled to receive distributions during the period. This
yield figure does not reflect the deduction of any CDSCs which (if applicable)
are imposed upon certain redemptions at the rates set forth under "How to
Redeem Shares" in the Prospectus. For the yield of the Classes of the Fund,
see Appendix A and Appendix B.
Total return may be compared to related indices, such as the Consumer
Price Index, and various domestic securities indicies, which may be used in
advertisements and in information furnished to present or prospective
shareholders. The Fund's performance may differ from that of other investors
in the Portfolio, including the other investment companies.
Information showing the effects of compounding interest may be included in
advertisements and other material furnished to present and prospective
shareholders. Compounding is the process of earning interest on principal plus
interest that was earned earlier.
Evaluations of the Fund's performance including ratings and rankings made
by independent sources, e.g. Lipper Analytical Services, Inc., CDA/
Wiesenberger and Morningstar, Inc., may be used in advertisements and in
information furnished to present or prospective shareholders. Information,
charts and illustrations relating to inflation and the effects of inflation on
the dollar may be included in advertisements and other material furnished to
present and prospective shareholders.
Information, charts and illustrations showing comparative historical
information of high-yielding bonds as represented by a relevant bond index as
compared to 10-year U.S. Treasury bonds may be used in advertisements and
other material furnished to present or prospective shareholders. Rates are
given for illustrative purposes only and are not meant to imply or predict
actual results of an investment in the Fund.
Information about portfolio allocation and holdings of a Portfolio at a
particular date (including ratings assigned by independent ratings services
such as Moody's, S&P and Fitch) may be included in advertisements and other
material furnished to present and prospective shareholders. Such information
may be stated as a percentage of the Portfolio's bond holdings on such date.
Information used in advertisements and materials furnished to present and
prospective investors may include statements or illustrations relating to the
appropriateness of certain types of securities and/or mutual funds to meet
specific financial goals. Such information may address:
-- cost associated with aging parents;
-- funding a college education (including its actual and estimated
cost);
-- health care expenses (including actual and projected expenses);
-- long-term disabilities (including the availability of, and coverage
provided by, disability insurance); and
-- retirement (including the availability of social security benefits,
the tax treatment of such benefits and statistics and other
information relating to maintaining a particular standard of living
and outliving existing assets).
Such information may also address different methods for saving money and
the results of such methods, as well as the benefits of investing in bond
funds.
The Trust (or Principal Underwriter) may provide information about Eaton
Vance, its affiliates and other investment advisers to the funds in the Eaton
Vance Family of Funds in sales material or advertisements provided to
investors or prospective investors. Such material or advertisements may also
provide information on the use of investment professionals by such investors.
TAXES
Each series of the Trust is treated as a separate entity for federal
income tax purposes. The Fund has elected to be treated, has qualified, and
intends to continued to qualify each year, as a regulated investment company
("RIC") under the Code. Accordingly, the Fund intends to satisfy certain
requirements relating to sources of its income and diversification of its
assets and to distribute all of its ordinary income and net income in
accordance with the timing requirements imposed by the Code, so as to maintain
its RIC status and to avoid paying any federal income or excise tax. The Fund
so qualified for its fiscal year ended March 31, 1998. Because the Fund
invests its assets in the Portfolio, the Portfolio normally must satisfy the
applicable source of income and diversification requirements in order for the
Fund to also satisfy these requirements. The Portfolio will allocate at least
annually among its investors, including the Fund, 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. The Portfolio
will make allocations to the Fund in accordance with the Code and applicable
regulations and will make moneys available for withdrawal at appropriate times
and in sufficient amounts to enable the Fund to satisfy the tax distribution
requirements that apply to the Fund and that must be satisfied in order to
avoid federal income and/or excise tax on the Fund. For purposes of applying
the requirements of the Code regarding qualification as a RIC, the Fund (i)
will be deemed to own its proportionate share of each of the assets of the
Portfolio and (ii) will be entitled to the gross income of the Portfolio
attributable to such share.
In order to avoid incurring a federal excise tax obligation, the Code
requires that the Fund distribute (or be deemed to have distributed) by
December 31 of each calendar year at least 98% of its ordinary income for such
year, at least 98% of its capital gain net income (which is the excess of its
realized capital gains over its realized capital losses), generally computed
on the basis of the one-year period ending on October 31 of such year, after
reduction by (i) any available capital loss carryforwards and (ii) 100% of any
income from the prior year (as previously computed) that was not paid out
during such year and on which the Fund paid no federal income tax. Under
current law, provided that the Fund qualifies as a RIC and the Portfolio is
treated as a partnership for Massachusetts and federal tax purposes, neither
the Fund nor the Portfolio should be liable for any income, excise or
franchise tax in the Commonwealth of Massachusetts.
The Portfolio's transactions in options, futures contracts and forward
contracts will be subject to special tax rules that may affect the amount,
timing and character of the Fund's distributions to shareholders. For example,
certain positions held by the Portfolio on the last business day of each
taxable year will be "marked to market" (i.e., treated as if closed out on
such day), and any resulting gain or loss will generally be treated as 60%
long-term and 40% short-term capital gain or loss. Certain positions held by
the Portfolio that substantially diminish the Portfolio's risk of loss with
respect to other positions in its portfolio may constitute "straddles," which
are subject to tax rules that may cause deferral of Portfolio losses,
adjustments in the holding periods of Portfolio securities, and conversion of
short-term capital losses into long-term capital losses. The Portfolio may
make certain elections to mitigate adverse consequences of these tax rules and
may have to limit its activities in options, futures contracts and forward
contracts in order to enable the Fund to maintain its RIC status.
The Portfolio may be subject to foreign income tax withholding or other
foreign taxes with respect to income (possibly including, in some cases,
capital gains) arising from certain transactions in foreign securities. These
taxes may be reduced or eliminated under the terms of an applicable tax
convention between certain countries and the U.S. It is not expected that more
than 50% of the value of the total assets of the Fund, taking into account its
allocable share of the Portfolio's total assets at the close of any taxable
year will consist of securities issued by foreign corporations. Accordingly
under the Code, the Fund will not be eligible to pass through to its
shareholders their proportionate share of any foreign tax credits or
deductions for foreign taxes paid by the Portfolio and allocated to the Fund.
Certain foreign exchange gains and losses realized by the Fund will be treated
as ordinary income and losses. Certain uses of foreign currency and foreign
currency options, futures and forward contracts and investment by the
Portfolio in certain "passive foreign investment companies" ("PFICs") may be
limited or a tax election may be made, if available, in order to seek to
preserve the Fund's qualification as a RIC and/or avoid imposition of an
income tax on the Fund.
The Portfolio's investment in zero coupon and certain securities will
cause it to realize income prior to the receipt of cash payments with respect
to these securities. Such income will be allocated daily to interests in the
Portfolio and, in order to enable the Fund to distribute its proportionate
share of this income and avoid a tax payable by the Fund, the Portfolio may be
required to liquidate securities that it might otherwise have continued to
hold in order to generate cash that the Fund may withdraw from the Portfolio
to make distributions to Fund shareholders.
Investments in lower-rated or unrated securities may present special tax
issues for the Portfolio (and, hence, for the Fund) to the extent that the
issuers of these securities default on their obligations pertaining thereto.
The Code is not entirely clear regarding the federal income tax consequences
of the Portfolio's taking certain positions in connection with ownership of
such distressed securities. For example, the Code is unclear regarding: (i)
when the Portfolio may cease to accrue interest, original issue discount, or
market discount; (ii) when and to what extent deductions may be taken for bad
debts or worthless securities; (iii) how payments received on obligations in
default should be allocated between principal and income; and (iv) whether
exchanges of debt obligations in a workout context are taxable.
Any loss realized upon the sale or exchange of shares of the Fund with a
tax holding period of 6 months or less will be treated as a long-term capital
loss to the extent of any distribution treated as long-term capital gains with
respect to such shares. All or a portion of any loss realized upon a taxable
disposition of Fund shares may be disallowed under "wash sale" rules if other
shares of the Fund are purchased (whether through the reinvestment of
distributions or otherwise) within 30 days before or after such disposition.
Amounts paid by the Fund to individuals and certain other shareholders who
have not provided the Fund with their correct taxpayer identification number
("TIN") and certain certifications required by the Internal Revenue Service
(the "IRS"), as well as shareholders with respect to whom the Fund has
received notification from the IRS or a broker, may be subject to "backup"
withholding of federal income tax arising from the Fund's taxable dividends
and other distributions as well as the proceeds of redemption transactions
(including repurchases and exchanges), at a rate of 31%. An individual's TIN
is generally his or her social security number.
The foregoing discussion does not address the special tax rules applicable
to certain classes of investors, such as retirement plans, tax-exempt
entities, insurance companies and financial institutions. Shareholders should
consult their own tax advisers with respect to special tax rules that may
apply in their particular situations, as well as the state, local, and, where
applicable, foreign tax consequences of investing in the Fund.
PRINCIPAL UNDERWRITER
The Trust has authorized the Principal Underwriter to act as its agent in
repurchasing shares at the rate of $2.50 for each repurchase transaction
handled by the Principal Underwriter. For the amount paid by the Trust to the
Principal Underwriter for acting as repurchase agent, see Appendix B.
Under the Distribution Agreement, the Principal Underwriter acts as
principal in selling Class B and Class C shares. The expenses of printing
copies of prospectuses used to offer shares to Authorized Firms or investors
and other selling literature and of advertising is borne by the Principal
Underwriter. The fees and expenses of qualifying and registering and
maintaining qualifications and registrations of the Fund and its shares under
federal and state securities laws are borne by the Fund. In addition, each
Class B and Class C makes payments to the Principal Underwriter pursuant to
their Distribution Plans as described in the Prospectus; the provisions of the
plan relating to such payments are included in the Distribution Agreement. The
Distribution Agreement is renewable annually by the Trust's Board of Trustees
(including a majority of the noninterested Trustees who have no direct or
indirect financial interest in the operation of the Distribution Plans or the
Distribution Agreement), may be terminated on sixty days' notice either by
such Trustees or by vote of a majority of the outstanding Class B and Class C
shares or on six months' notice by the Principal Underwriter and is
automatically terminated upon assignment. The Principal Underwriter
distributes Class B and Class C shares on a "best efforts" basis under which
it is required to take and pay for only such shares as may be sold.
DISTRIBUTION PLANS
The Trust has adopted Distribution Plans (the "Plans") on behalf of its
Class B and Class C shares designed to meet the requirements of Rule 12b-1
under the 1940 Act and the sales charge rule of the NASD. The purpose of the
Plans is to compensate the Principal Underwriter for its distribution services
and facilities provided with respect to Class B and Class C shares.
The Plans provide that the Fund will pay sales commissions and
distribution fees to the Principal Underwriter only after and as a result of
the sale of Class B or Class C shares of the Fund. On each sale of Fund shares
(excluding reinvestment of distributions) the Fund will pay the Principal
Underwriter amounts representing (i) sales commissions equal to 5% of Class B
sales and 6.25% of Class C sales of the amount received by the Fund for each
share sold and (ii) distribution fees calculated by applying the rate of 1%
over the prime rate then reported in The Wall Street Journal to the
outstanding balance of uncovered distribution charges (as described below) of
the Principal Underwriter.
The Plans provide that the Class will receive all CDSCs and will make no
payments to the Principal Underwriter in respect of any day on which there are
no outstanding uncovered distribution charges of the Principal Underwriter.
CDSCs and accrued amounts will be paid by the Trust to the Principal
Underwriter whenever there exist uncovered distribution charges.
In calculating daily the amount of uncovered distribution charges,
distribution charges will include the aggregate amount of sales commissions
and distribution fees theretofore paid plus the aggregate amount of sales
commissions and distribution fees which the Principal Underwriter is entitled
to be paid under the Plans since their inception. Payments theretofore paid or
payable under the Plans by the Trust to the Principal Underwriter and CDSCs
theretofore paid or payable to the Principal Underwriter will be subtracted
from such distribution charges; if the result of such subtraction is positive,
a distribution fee (computed at 1% over the prime rate then reported in The
Wall Street Journal) will be computed on such amount and added thereto, with
the resulting sum constituting the amount of outstanding uncovered
distribution charges with respect to such day. The amount of outstanding
uncovered distribution charges of the Principal Underwriter calculated on any
day does not constitute a liability recorded on the financial statements of
the Fund.
The amount of uncovered distribution charges of the Principal Underwriter
at any particular time depends upon various changing factors, including the
level and timing of sales of shares, the nature of such sales (i.e., whether
they result from exchange transactions, reinvestments or from cash sales
through Authorized Firms), the level and timing of redemptions of shares upon
which a CDSC will be imposed, the level and timing of redemptions of shares
upon which no CDSC will be imposed (including redemptions of shares pursuant
to the exchange privilege which result in a reduction of uncovered
distribution charges), changes in the level of the net assets of the Class,
and changes in the interest rate used in the calculation of the distribution
fee under the Plans.
Currently, payments of sales commissions and distribution fees and of
service fees may equal 1% of a Class's average daily net assets per annum. For
actual payments made and the outstanding uncovered distribution charges of the
Principal Underwriter, see Appendix B. The Trust believes that the combined
rate of all these payments may be higher than the rate of payments made under
distribution plans adopted by other investment companies pursuant to Rule
12b-1. Although the Principal Underwriter will use its own funds (which may be
borrowed from banks) to pay sales commissions and service fees for Class C
sales and sales commissions for Class B sales at the time of sale, it is
anticipated that the Eaton Vance organization will profit by reason of the
operation of the Plans through an increase in the Fund's assets (thereby
increasing the advisory fee payable to BMR by the Portfolio) resulting from
sale of shares and through the amounts paid to the Principal Underwriter,
including CDSCs, pursuant to the Plans. The Eaton Vance organization may be
considered to have realized a profit under the Plans if at any point in time
the aggregate amounts theretofore received by the Principal Underwriter
pursuant to the Plans and from CDSCs have exceeded the total expenses
theretofore incurred by such organization in distributing Class B and Class C
shares of the Fund. Total expenses for this purpose will include an allocable
portion of the overhead costs of such organization and its branch offices,
which costs will include without limitation leasing expense, depreciation of
building and equipment, utilities, communication and postage expense,
compensation and benefits of personnel, travel and promotional expense,
stationery and supplies, literature and sales aids, interest expense, data
processing fees, consulting and temporary help costs, insurance, taxes other
than income taxes, legal and auditing expense and other miscellaneous overhead
items. Overhead is calculated and allocated for such purpose by the Eaton
Vance organization in a manner deemed equitable to the Trust.
The Plans continue in effect from year to year for so long as such
continuance is approved at least annually by the vote of both a majority of
(i) the noninterested Trustees of the Trust who have no direct or indirect
financial interest in the operation of the Plan or any agreements related to
the Plan (the "Rule 12b-1 Trustees") and (ii) all of the Trustees then in
office, and the Distribution Agreement contains a similar provision. The Plans
and Distribution Agreement may be terminated at any time by vote of a majority
of the Rule 12b-1 Trustees or by a vote of a majority of the outstanding
voting securities of the applicable Class. The Plans require quarterly Trustee
review of a written report of the amount expended under the Plans and the
purposes for which such expenditures were made. The Plans may not be amended
to increase materially the payments described therein without approval of the
shareholders of the affected Class and the Trustees. So long as the Plans are
in effect, the selection and nomination of the noninterested Trustees shall be
committed to the discretion of such Trustees. Each Plan was approved by the
Trustees, including the Rule 12b-1 Trustees, on June 23, 1997.
The Trustees of the Trust believe that the Plans will be a significant
factor in the expected growth of the Fund's assets, and will result in
increased investment flexibility and advantages which have benefitted and will
continue to benefit the Fund and its Class B and Class C shareholders.
Payments for sales commissions and distribution fees made to the Principal
Underwriter under the Plans will compensate the Principal Underwriter for its
services and expenses in distributing Class B and Class C shares of the Fund.
Service fee payments made to the Principal Underwriter and Authorized Firms
under the Plans provide incentives to provide continuing personal services to
investors and the maintenance of shareholder accounts. By providing
incentives to the Principal Underwriter and Authorized Firms, the Plans are
expected to result in the maintenance of, and possible future growth in, the
assets of the Fund. Based on the foregoing and other relevant factors, the
Trustees of the Trust have determined that in their judgment there is a
reasonable likelihood that the Plan will benefit the Fund and its Class B and
Class C shareholders.
PORTFOLIO SECURITY TRANSACTIONS
Decisions concerning the execution of portfolio security transactions,
including the selection of the market and the executing firm, are made by BMR.
BMR is also responsible for the execution of transactions for all other
accounts managed by it.
BMR places the portfolio security transactions of the Portfolio and of all
other accounts managed by it for execution with many broker-dealer firms. BMR
uses its best efforts to obtain execution of portfolio security transactions
at prices which are advantageous to the Portfolio and (when a disclosed
commission is being charged) at reasonably competitive commission rates. In
seeking such execution, BMR will use its best judgment in evaluating the terms
of a transaction, and will give consideration to various relevant factors
including without limitation the size and type of the transaction, the general
execution and operational capabilities of the executing firm, the nature and
character of the market for the security, the confidentiality, speed and
certainty of effective execution required for the transaction, the reputation,
reliability, experience and financial condition of the firm, the value and
quality of services rendered by the firm in other transactions, and the
reasonableness of the commission or spread, if any. Transactions on United
States stock exchanges and other agency transactions involve the payment by
the Portfolio of negotiated brokerage commissions. Such commissions vary among
different executing firms, and a particular firm may charge different
commissions according to such factors as the difficulty and size of the
transaction and the volume of business done with such broker-dealer.
Transactions in foreign securities usually involve the payment of fixed
brokerage commissions, which are generally higher than those in the United
States. There is generally no stated commission in the case of securities
traded in the over-the-counter markets, but the price paid or received by the
Portfolio usually includes an undisclosed dealer markup or markdown. In an
underwritten offering, the price paid by the Portfolio often includes a
disclosed fixed commission or discount retained by the underwriter or dealer.
Although commissions paid on portfolio security transactions will, in the
judgment of BMR, be reasonable in relation to the value of the services
provided, commissions exceeding those which another firm might charge may be
paid to firms who were selected to execute transactions on behalf of the
Portfolio and BMR's other clients for providing brokerage and research
services to BMR.
As authorized in Section 28(e) of the Securities Exchange Act of 1934, a
broker or dealer who executes a portfolio transaction on behalf of the
Portfolio may receive a commission which is in excess of the amount of
commission another broker or dealer would have charged for effecting that
transaction if BMR determines in good faith that such compensation was
reasonable in relation to the value of the brokerage and research services
provided. This determination may be made on the basis of either that
particular transaction or on the basis of overall responsibilities which BMR
and its affiliates have for accounts over which they exercise investment
discretion. In making any such determination, BMR will not attempt to place a
specific dollar value on the brokerage and research services provided or to
determine what portion of the commission should be related to such services.
Brokerage and research services may include advice as to the value of
securities, the advisability of investing in, purchasing, or selling
securities, and the availability of securities or purchasers or sellers of
securities; furnishing analyses and reports concerning issuers, industries,
securities, economic factors and trends, portfolio strategy and the
performance of accounts; effecting securities transactions and performing
functions incidental thereto (such as clearance and settlement); and the
"Research Services" referred to in the next paragraph.
It is a common practice in the investment advisory industry for the
advisers of investment companies, institutions and other investors to receive
research, analytical, statistical and quotation services, data, information
and other services, products and materials which assist such advisers in the
performance of their investment responsibilities ("Research Services") from
broker-dealers which execute portfolio transactions for the clients of such
advisers and from third parties with which such broker-dealers have
arrangements. Consistent with this practice, BMR receives Research Services
from many broker-dealer firms with which BMR places the portfolio transactions
and from third parties with which these broker-dealers have arrangements.
These Research Services include such matters as general economic, political,
business and market information, industry and company reviews, evaluations of
securities and portfolio strategies and transactions, proxy voting data and
analysis services, technical analysis of various aspects of the securities
markets, recommendations as to the purchase and sale of securities and other
portfolio transactions, financial, industry and trade publications, news and
information services, pricing and quotation equipment and services, and
research oriented computer hardware, software, data bases and services. Any
particular Research Service obtained through a broker-dealer may be used by
BMR in connection with client accounts other than those accounts which pay
commissions to such broker-dealer. Any such Research Service may be broadly
useful and of value to BMR in rendering investment advisory services to all or
a significant portion of its clients, or may be relevant and useful for the
management of only one client's account or of a few clients' accounts, or may
be useful for the management of merely a segment of certain clients' accounts,
regardless of whether any such account or accounts paid commissions to the
broker-dealer through which such Research Service was obtained. The advisory
fee paid by the Portfolio is not reduced because BMR receives such Research
Services. BMR evaluates the nature and quality of the various Research
Services obtained through broker-dealer firms and attempts to allocate
sufficient commissions to such firms to ensure the continued receipt of
Research Services which BMR believes are useful or of value to it in rendering
investment advisory services to its clients.
The Portfolio and BMR may also receive Research Services from underwriters
and dealers in fixed-price offerings, which Research Services are reviewed by
BMR in connection with its investment responsibilities.
Subject to the requirement that BMR shall use its best efforts to seek to
execute portfolio security transactions at advantageous prices and at
reasonably competitive commission rates or spreads, BMR is authorized to
consider as a factor in the selection of any broker-dealer firm with whom
portfolio orders may be placed the fact that such firm has sold or is selling
shares of the Fund or of other investment companies sponsored by BMR or Eaton
Vance. This policy is not inconsistent with a rule of the National Association
of Securities Dealers, Inc. (the "NASD"), which rule provides that no firm
which is a member of the NASD shall favor or disfavor the distribution of
shares of any particular investment company or group of investment companies
on the basis of brokerage commissions received or expected by such firm from
any source.
Securities considered as investments for the Portfolio may also be
appropriate for other investment accounts managed by BMR or its affiliates.
Whenever decisions are made to buy or sell securities by the Portfolio and one
or more of such other accounts simultaneously, BMR will allocate the security
transactions (including "hot" issues) in a manner which it believes to be
equitable under the circumstances. As a result of such allocations, there may
be instances where the Portfolio will not participate in a transaction that is
allocated among other accounts. If an aggregated order cannot be filled
completely, allocations will generally be made on a pro rata basis. An order
may not be allocated on a pro rata basis where, for example: (i) consideration
is given to portfolio managers who have been instrumental in developing or
negotiating a particular investment; (ii) consideration is given to an account
with specialized investment policies that coincide with the particulars of a
specific investment; (iii) pro rata allocation would result in odd-lot or de
minimis amounts being allocated to a portfolio or other client; or (iv) where
BMR reasonably determines that departure from a pro rata allocation is
advisable. While these aggregation and allocation policies could have a
detrimental effect on the price or amount of the securities available to the
Portfolio from time to time, it is the opinion of the Trustees of the Trust
and the Portfolio that the benefits from the BMR organization outweigh any
disadvantage that may arise from exposure to simultaneous transactions.
For the fiscal year ended March 31, 1998, the Portfolio paid brokerage
commissions of $5,287 on portfolio security transactions, all of which was
paid in respect of portfolio security transactions aggregating $2,552,494 to
firms which provided some research services to Eaton Vance (although many of
such firms may have been selected in any particular transaction primarily
because of their execution capabilities). For the fiscal years ended March 31,
1997 and 1996, the Portfolio paid no brokerage commissions on portfolio
transactions.
OTHER INFORMATION
The Trust changed its name from Eaton Vance Government Obligations Trust
on July 10, 1995. On August 1, 1995, the Fund was reorganized as a series of
the Trust. Prior thereto, the Fund was a series of Eaton Vance High Income
Trust. The Fund established multiple classes of shares on April 1, 1998. The
operations of Class B reflect the operations of the Fund prior to such date.
Class C is the successor to the operations of a separate series of the Trust.
Eaton Vance, pursuant to its agreement with the Trust, controls the use of the
words "Eaton Vance" and "EV" in the Fund's name and may use the words "Eaton
Vance" and "EV" in other connections and for other purposes.
As permitted by Massachusetts law, there will normally be no meetings of
shareholders for the purpose of electing Trustees unless and until such time
as less than a majority of the Trustees of the Trust holding office have been
elected by shareholders. In such an event, the Trustees then in office will
call a shareholders' meeting for the election of Trustees. Except for the
foregoing circumstances and unless removed by action of the shareholders in
accordance with the Trust's by-laws, the Trustees shall continue to hold
office and may appoint successor Trustees.
The Trust's Declaration of Trust may be amended by the Trustees when
authorized by vote of a majority of the outstanding voting securities of the
Trust, the financial interests of which are affected by the amendment. The
Trustees may also amend the Declaration of Trust without the vote or consent
of shareholders to change the name of the Trust or any series or to make such
other changes (such as reclassifying series or classes of shares or
restructuring the Trust) as do not have a materially adverse effect on the
financial interests of shareholders or if they deem it necessary to conform it
to applicable federal or state laws or regulations. The Trust or any series or
class thereof may be terminated by: (1) the affirmative vote of the holders of
not less than two-thirds of the shares outstanding and entitled to vote at any
meeting of shareholders of the Trust or the appropriate series or class
thereof, or by an instrument or instruments in writing without a meeting,
consented to by the holders of two-thirds of the shares of the Trust or a
series or class thereof, provided, however, that, if such termination is
recommended by the Trustees, the vote of a majority of the outstanding voting
securities of the Trust or a series or class thereof entitled to vote thereon
will be sufficient authorization; or (2) by means of an instrument in writing
signed by a majority of the Trustees, to be followed by a written notice to
shareholders stating that a majority of the Trustees has determined that the
continuation of the Trust or a series or a class thereof is not in the best
interest of the Trust, such series or class or of their respective
shareholders.
Under Massachusetts law, if certain conditions prevail, shareholders of a
Massachusetts business trust (such as the Trust) could be deemed to have
personal liability for the obligations of the Trust. Numerous investment
companies registered under the 1940 Act have been formed as Massachusetts
business trusts, and management is not aware of an instance where such
liability has been imposed. The Trust's Declaration of Trust contains an
express disclaimer of liability on the part of the Fund shareholders and the
Trust's By-laws provide that the Trust shall assume the defense on behalf of
any Fund shareholders. (The Declaration of Trust also contains provisions
limiting the liability of a series or class to that series or class.)
Moreover, the Trust's By-laws also provide for indemnification out of the
property of the Fund of any shareholder held personally liable solely by
reason of being or having been a shareholder for all loss or expense arising
from such liability. The assets of the Fund are readily marketable and will
ordinarily substantially exceed its liabilities. In light of the nature of the
Fund's business and the nature of its assets, management believes that the
possibility of the Fund's liability exceeding its assets, and therefore the
shareholder's risk of personal liability, is remote.
In accordance with the Declaration of Trust of the Portfolio, there will
normally be no meetings of the investors for the purpose of electing Trustees
unless and until such time as less than a majority of the Trustees holding
office have been elected by investors. In such an event the Trustees of the
Portfolio then in office will call an investors' meeting for the election of
Trustees. Except for the foregoing circumstances and unless removed by action
of the investors in accordance with the Portfolio's Declaration of Trust, the
Trustees shall continue to hold office and may appoint successor Trustees.
The Declaration of Trust of the Portfolio provides that no person shall
serve as a Trustee if investors holding two-thirds of the outstanding interest
have removed him from that office either by a written declaration filed with
the Portfolio custodian or by votes cast at a meeting called for that purpose.
The Declaration of Trust further provides that under certain circumstances the
investors may call a meeting to remove a Trustee and that the Portfolio is
required to provide assistance in communicating with investors about such a
meeting.
The Portfolio's Declaration of Trust provides that the Fund and other
entities permitted to invest in the Portfolio (e.g., other U.S. and foreign
investment companies, and common and commingled trust funds) will each be
liable for all obligations of the Portfolio. However, the risk of the Fund
incurring financial loss on account of such liability is limited to
circumstances in which both inadequate insurance exists and the Portfolio
itself is unable to meet its obligations. Accordingly, the Trustees of the
Trust believe that neither the Fund nor its shareholders will be adversely
affected by reason of the Fund investing in the Portfolio.
The Portfolio's Declaration of Trust provides that the Portfolio will
terminate 120 days after the complete withdrawal of the Fund or any other
investor in the Portfolio, unless either the remaining investors, by unanimous
vote at a meeting of such investors, or a majority of the Trustees of the
Portfolio, by written instrument consented to by all investors, agree to
continue the business of the Portfolio. This provision is consistent with
treatment of the Portfolio as a partnership for federal income tax purposes.
In connection with telephone redemptions and exchanges, the Trust, the
Principal Underwriter and the Transfer Agent generally will verify personal
account information in order to determine that instructions communicated are
genuine.
The right to redeem shares of the Fund can be suspended and the payment of
the redemption price deferred when the Exchange is closed (other than for
customary weekend and holiday closings), during periods when trading on the
Exchange is restricted as determined by the Commission, or during any
emergency as determined by the Commission which makes it impracticable for the
Portfolio to dispose of its securities or value its assets, or during any
other period permitted by order of the Commission for the protection of
investors.
INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Deloitte & Touche LLP, 125 Summer Street, Boston, Massachusetts, are the
independent certified public accountants of the Fund, providing audit
services, tax return preparation, and assistance and consultation with respect
to the preparation of filings with the Commission. Deloitte & Touche, Grand
Cayman, Cayman Islands, British West Indies, are the independent certified
public accountants of the Portfolio.
FINANCIAL STATEMENTS
The audited financial statements of, and the independent auditors' report
for the Fund and the Portfolio appear in the Fund's most recent annual report
to shareholders, and are incorporated by reference into this SAI. A copy of
the Fund's annual report accompanies this SAI.
Registrant incorporates by reference the audited financial information for
the Fund and the Portfolio for the fiscal year ended March 31, 1998 as
previously filed electronically with the Commission (Accession No.
0000950109-98-003502).
<PAGE>
APPENDIX A: CLASS B SHARES
FEES AND EXPENSES
DISTRIBUTION PLAN
During the fiscal year ended March 31, 1998, the Principal Underwriter
paid to Authorized Firms sales commissions of $3,004,836 on sales of Fund
shares. During the same period, the Fund made payments under the Plan to the
Principal Underwriter aggregating $4,873,159, and the Principal Underwriter
received approximately $1,638,000 in CDSCs imposed on early redeeming
shareholders. These payments reduced uncovered distribution charges under the
Plan. As at March 31, 1998 the outstanding uncovered distribution charges of
the Principal Underwriter calculated under the Plan amounted to approximately
$16,865,000. During the fiscal year ended March 31, 1998, the Fund made
service fee payments to the Principal Underwriter and Authorized Firms
aggregating $1,290,131 of which $1,283,389 was paid to Authorized Firms and
the balance of which was retained by the Principal Underwriter.
PRINCIPAL UNDERWRITER
For the fiscal year ended March 31, 1998, the Fund paid the Principal
Underwriter $13,950.00 for repurchase transactions handled by the Principal
Underwriter.
PERFORMANCE INFORMATION
The table below indicates the cumulative and average annual total return
on a hypothetical investment of $1,000 in Class B shares for the periods shown
in the table. Past performance is not indicative of future results. Investment
return and principal value will fluctuate; shares, when redeemed, may be worth
more or less than their original cost.
<TABLE>
VALUE OF A $1,000 INVESTMENT
<CAPTION>
VALUE OF VALUE OF TOTAL RETURN BEFORE TOTAL RETURN AFTER
INVESTMENT INVESTMENT DEDUCTING DEDUCTING
BEFORE AFTER THE CDSC THE CDSC
DEDUCTING DEDUCTING
INVESTMENT INVESTMENT AMOUNT OF THE CDSC THE CDSC -------------------------- -------------------------
PERIOD DATE INVESTMENT ON 3/31/98 ON 3/31/98 CUMULATIVE ANNUALIZED CUMULATIVE ANNUALIZED
- --------------- ---------- ---------- ------------- ------------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Life of the Fund 3/31/88 $1,000 $2,673.14 $2,673.14 167.31% 10.33% 167.31% 10.33%
5 Years
Ended 3/31/98 3/31/93 $1,000 $1,712.59 $1,692.59 71.26% 11.36% 69.26% 11.10%
1 Year Ended
3/31/98 3/31/97 $1,000 $1,205.88 $1,155.88 20.59% 20.59% 15.59% 15.59%
- ------------
The Fund's yield for the 30-day period ended March 31, 1998 was 7.60%.
</TABLE>
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
As at June 30, 1998, the Trustees and officers of the Trust, as a group,
owned in the aggregate less than 1% of the outstanding Class B shares of the
Fund. As of June 30, 1998, Merrill Lynch, Pierce, Fenner & Smith, Inc.,
Jacksonville, FL 32246 was the record owner of approximately 28.4% of the
outstanding Class B shares, which were held on behalf of its customers who are
the beneficial owners of such shares, and as to which it had voting power
under certain limited circumstances. To the knowledge of the Trust, no other
person owned of record or beneficially 5% or more of the Fund's outstanding
Class B shares as of such date.
<PAGE>
APPENDIX B: CLASS C SHARES
PERFORMANCE INFORMATION
The table below indicates the cumulative and average annual total return
on a hypothetical investment in shares of $1,000. Total return for the period
prior to April 1, 1998 reflects the total return of the predecessor to Class
C. Total return prior to the Predecessor Fund's commencement of operations
reflects the total return of Class B, adjusted to reflect the Class C sales
charge. The Class B total return has not been adjusted to reflect certain
other expenses (such as distribution and/or service fees). If such adjustments
were made, the Class C total return would be different. Past performance is
not indicative of future results. Investment return and principal value will
fluctuate; shares, when redeemed, may be worth more or less than their
original cost. Two asterisk(**) indicates subsidized expenses. Return would
have been lower without subsidies.
<TABLE>
VALUE OF A $1,000 INVESTMENT
<CAPTION>
VALUE OF VALUE OF TOTAL RETURN BEFORE TOTAL RETURN AFTER
INVESTMENT INVESTMENT DEDUCTING DEDUCTING
BEFORE AFTER THE CDSC THE CDSC
DEDUCTING DEDUCTING
INVESTMENT INVESTMENT AMOUNT OF THE CDSC THE CDSC -------------------------- ------------------------
PERIOD DATE INVESTMENT ON 3/31/98 ON 3/31/98 CUMULATIVE ANNUALIZED CUMULATIVE ANNUALIZED
- ---------------- --------- ---------- ------------ ------------ ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Life of Fund** 3/31/88 $1,000 $2,628.30 $2,628.30 162.83% 10.15% 162.83% 10.15%
5 Years Ended**
3/31/98 3/31/93 $1,000 $1,683.92 $1,683.92 68.39% 10.99% 68.39% 10.99%
1 Year Ended
3/31/98 3/31/97 $1,000 $1,201.92 $1,191.92 20.19% 20.19% 19.19% 19.19%
- ------------
</TABLE>
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
As at June 30, 1998, the Trustees and officers of the Trust, as a group,
owned in the aggregate less than 1% of the outstanding Class C shares of the
Fund. As at June 30, 1998, Merrill Lynch, Pierce, Fenner & Smith, Inc.,
Jacksonville, FL 32246 was the record owner of approximately 31.2% of the
outstanding Class C shares, which it held on behalf of its customers who are
the beneficial owners of such shares, and as to which they had voting power
under certain limited circumstances. To the knowledge of the Trust, no other
person owned of record or beneficially 5% or more of the Fund's outstanding
Class C shares as of such date.
<PAGE>
[LOGO] Investing
for the
EATON VANCE 21st
Mutual Funds Century
- -------------------------------------------------------------------------------
Eaton Vance
High Income Fund
STATEMENT OF ADDITIONAL INFORMATION
AUGUST 1, 1998
- -------------------------------------------------------------------------------
PORTFOLIO INVESTMENT ADVISER
Boston Management and Research, 24 Federal Street, Boston, MA 02110
FUND ADMINISTRATOR
Eaton Vance Management, 24 Federal Street, Boston, MA 02110
PRINCIPAL UNDERWRITER
Eaton Vance Distributors, Inc., 24 Federal Street, Boston, MA 02110
(800) 225-6265
CUSTODIAN
Investors Bank & Trust Company, 200 Clarendon Street, Boston, MA 02116
TRANSFER AGENT
First Data Investor Services Group, P.O. Box 5123, Westborough, MA 01581-5123
(800) 262-1122
AUDITORS
Deloitte & Touche LLP, 125 Summer Street, Boston, MA 02110
HISAI
<PAGE>
PART C
OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS
(a) FINANCIAL STATEMENTS
INCLUDED IN PART A FOR EATON VANCE HIGH INCOME FUND (FORMERLY EV
MARTHON HIGH INCOME FUND) ARE "FINANCIAL HIGHLIGHTS" FOR THE TEN YEARS
ENDED MARCH 31, 1998.
INCORPORATED BY REFERENCE INTO PART B ARE THE FOLLOWING FINANCIAL
STATEMENTS CONTAINED IN THE ANNUAL REPORT FOR THE FUND, DATED MARCH 31,
1998 (WHICH WERE PREVIOUSLY FILED ELECTRONICALLY PURSUANT TO SECTION
30(b)(2) OF THE INVESTMENT COMPANY ACT OF 1940) (ACCESSION NO.
0000950109-98-003502):
Statement of Assets and Liabilities
Statement of Operations
Statement of Changes in Net Assets
Financial Highlights
Notes to Financial Statements
Independent Auditors' Report
ALSO INCORPORATED BY REFERENCE INTO PART B ARE THE FOLLOWING FINANCIAL
STATEMENTS OF HIGH INCOME PORTFOLIO, WHICH ARE CONTAINED IN THE ANNUAL
REPORT DATED MARCH 31, 1998 OF THE FUND:
Portfolio of Investments
Statement of Assets and Liabilities
Statement of Operations
Statement of Changes in Net Assets
Supplementary Data
Notes to Financial Statements
Independent Auditors' Report
(b) EXHIBITS:
(1)(a) Amended and Restated Declaration of Trust dated August 17,
1993 filed as Exhibit (1)(a) to Post-Effective Amendment
No. 23 and incorporated herein by reference.
(b) Amendment to Declaration of Trust dated July 10, 1995 filed
as Exhibit (1)(b) to Post- Effective Amendment No. 23 and
incorporated herein by reference.
(c) Amendment to Declaration of Trust dated June 23, 1997 filed
as Exhibit (1)(c) to Post- Effective Amendment No. 38 and
incorporated herein by reference.
(d) Amendment and Restatement of Establishment and Designation
of Series of Shares dated January 6, 1998 filed as Exhibit
(1)(d) to Post-Effective Amendment No. 41 and incorporated
herein by reference.
(2)(a) By-Laws (As Amended November 3, 1986) filed as Exhibit
(2)(a) to Post-Effective Amendment No. 23 and incorporated
herein by reference.
(b) Amendment to By-Laws dated December 13, 1993 filed as
Exhibit (2)(b) to Post-Effective Amendment No. 23 and
incorporated herein by reference.
(3) Not applicable
(4) Not applicable
(5)(a) Investment Advisory Agreement with Eaton Vance Management
for Eaton Vance Short-Term Treasury Fund dated February 4,
1991 filed as Exhibit (5)(a) to Post-Effective Amendment
No. 23 and incorporated herein by reference.
(b) Investment Advisory Agreement with Eaton Vance Management
for Eaton Vance Tax Free Reserves dated August 15, 1995
filed as Exhibit (5)(b) to Post-Effective Amendment No. 25
and incorporated herein by reference.
(c) Investment Advisory Agreement with Eaton Vance Management
for Eaton Vance Tax-Managed Emerging Growth Fund dated
September 16, 1997 filed as Exhibit No. (5)(c) to Post-
Effective Amendment No. 37 and incorporated herein by
reference.
(d) Investment Advisory Agreement with Eaton Vance Management
for Eaton Vance Municipal Bond Fund dated October 17, 1997
filed as Exhibit No. (5)(d) to Post-Effective Amendment No.
37 and incorporated herein by reference.
(e) Investment Advisory Agreement with Eaton Vance Management
for Eaton Vance Tax-Managed International Growth Fund dated
March 4, 1998 filed as Exhibit (5)(e) to Post-Effective
Amendment No. 42 and incorporated herein by reference.
(6)(a)(1) Distribution Agreement between Eaton Vance Mutual Funds
Trust, on behalf of Eaton Vance Cash Management Fund, and
Eaton Vance Distributors, Inc. effective November 1, 1996
filed as Exhibit No. (6)(a)(4) to Post-Effective Amendment
No. 34 and incorporated herein by reference.
(2) Distribution Agreement between Eaton Vance Mutual Funds
Trust, on behalf of Eaton Vance Liquid Assets Fund, and
Eaton Vance Distributors, Inc. effective November 1, 1996
filed as Exhibit No. (6)(a)(5) to Post-Effective Amendment
No. 34 and incorporated herein by reference.
(3) Distribution Agreement between Eaton Vance Mutual Funds
Trust, on behalf of Eaton Vance Money Market Fund, and
Eaton Vance Distributors, Inc. effective November 1, 1996
filed as Exhibit No. (6)(a)(6) to Post-Effective Amendment
No. 34 and incorporated herein by reference.
(4) Distribution Agreement between Eaton Vance Mutual Funds
Trust, on behalf of Eaton Vance Tax Free Reserves, and
Eaton Vance Distributors, Inc. effective November 1, 1996
filed as Exhibit No. (6)(a)(7) to Post-Effective Amendment
No. 34 and incorporated herein by reference.
(5) Distribution Agreement between Eaton Vance Mutual Funds
Trust (on behalf of certain of its series), and Eaton Vance
Distributors, Inc. dated June 23, 1997 with attached
Schedules filed as Exhibit (6)(a)(8) to Post-Effective
Amendment No. 38 and incorporated herein by reference.
(i) Amendment to Distribution Agreement dated October
17, 1997 filed as Exhibit (6)(a)(9) to
Post-Effective Amendment No. 38 and incorporated
herein by reference.
(ii) Schedule A-2 to Distributio n Agreement dated March
4, 1998, filed as Exhibit (6)(a)(5) (ii) to Post-
Effective Amendment No. 42 and incorporate d herein
by reference.
(6)(b) Selling Group Agreement between Eaton Vance Distributors,
Inc. and Authorized Dealers filed as Exhibit (6)(b) to the
Registration Statement of Eaton Vance Growth Trust Post-
Effective Amendment No. 61 and incorporated herein by
reference.
(7) The Securities and Exchange Commission has granted the
Registrant an exemptive order that permits the Registrant
to enter into deferred compensation arrangements with its
independent Trustees. See in the Matter of Capital Exchange
Fund, Inc., Release No. IC-20671 (November 1, 1994).
(8)(a) Custodian Agreement with Investors Bank & Trust Company
dated October 15, 1992 filed as Exhibit (8) to
Post-Effective Amendment No. 23 and incorporated herein by
reference.
(b) Amendment to Custodian Agreement with Investors Bank &
Trust Company dated October 23, 1995 filed as Exhibit
(8)(b) to Post-Effective Amendment No. 27 and incorporated
herein by reference.
(9)(a) Amended Administrative Services Agreement between Eaton
Vance Mutual Funds Trust (on behalf of certain of its
series) and Eaton Vance Management dated July 31, 1995,
with attached schedules (including Amended Schedule A dated
May 7, 1996) filed as Exhibit (9)(a) to Post-Effective
Amendment No. 24 and incorporated herein by reference.
(1) Amendment to Schedule A dated June 23, 1997 to the Amended
Administrative Services Agreement filed as Exhibit
(9)(a)(1) to Post-Effective Amendment No. 38 and
incorporated herein by reference.
(2) Schedule A-1 to the Amended Administrative Services
Agreement dated March 4, 1998, filed as Exhibit (9)(a)(2)
to Post-Effective Amendment No. 42 and incorporated herein
by reference.
(b) Transfer Agency Agreement dated January 1, 1998 filed as
Exhibit (k)(b) to the Registration Statement on Form N-2 of
Eaton Vance Advisers Senior Floating-Rate Fund (File Nos.
333-46853, 811-08671) (Accession No. 0000950156-98-000172)
and incorporated herein by reference.
(10) Opinion of Internal Counsel filed as Exhibit (10) to
Post-Effective Amendment No. 41 and incorporated herein by
reference.
(11)(a) Consent of Independent Accountants for Eaton Vance High
Income Fund filed herewith.
(11)(b) Consent of Independent Accountants for High Income
Portfolio filed herewith.
(12) Not applicable
(13) Not applicable
(14)(a) Vance, Sanders Profit Sharing Retirement Plan for
Self-Employed Persons with Adoption Agreement and
instructions filed as Exhibit No. 14(1) to Post-Effective
Amendment #22 on Form N-1 under the Securities Act of 1933
(File No. 2-28471) and incorporated herein by reference.
(b) Eaton & Howard, Vance Sanders Defined Contribution
Prototype Plan and Trust with Adoption Agreements (1) Basic
Profit-Sharing Retirement Plan, (2) Basic Money Purchase
Pension Plan, (3) Thrift Plan Qualifying as Profit Sharing
Plan, (4) Thrift Plan Qualifying as Money Purchase Plan,
(5) Integrated Profit Sharing Retirement Plan, (6)
Integrated Money Purchase Pension Plan filed as Exhibit
14(2) to Post-Effective Amendment No. 22 on Form N-1 under
the Securities Act of 1933 (File No. 2-28471) and
incorporated herein by reference.
(c) Individual Retirement Custodial Account (Form 5305-A) and
Investment Instruction Form filed as Exhibit 14(3) to
Post-Effective Amendment No. 22 on Form N-1 under the
Securities Act of 1933 (File No. 2-28471) and incorporated
herein by reference.
(d) Eaton & Howard, Vance Sanders Variable Pension Prototype
Plan and Trust with Adoption Agreement filed as Exhibit
14(b) to Post-Effective Amendment No. 22 on Form N-1 under
the Securities Act of 1933 (File No. 2-28471) and
incorporated herein by reference.
(15)(a) Distribution Plan pursuant to Rule 12b-1 under the
Investment Company Act of 1940 for Eaton Vance Short-Term
Treasury Fund dated February 4, 1991 as Amended and
Restated February 25, 1991 filed as Exhibit (15)(b) to
Post-Effective Amendment No. 23 and incorporated herein by
reference.
(1) Amendment to Distribution Plan for Eaton Vance Mutual Funds
Trust on behalf of Eaton Vance Short-Term Treasury Fund
adopted June 24, 1996 filed as Exhibit No. (15)(b)(1) to
Post-Effective Amendment No. 34 and incorporated herein by
reference.
(b) Distribution Plan for Eaton Vance Liquid Assets Fund
pursuant to Rule 12b-1 under the Investment Company Act of
1940 dated June 19, 1995 filed as Exhibit (15)(g) to Post-
Effective Amendment No. 25 and incorporated herein by
reference.
(1) Amendment to Distribution Plan for Eaton Vance Mutual Funds
Trust on behalf of Eaton Vance Liquid Assets Fund adopted
June 24, 1996 filed as Exhibit No. (15)(g)(1) to Post-
Effective Amendment No. 34 and incorporated herein by
reference.
(c) Distribution Plan for Eaton Vance Money Market Fund
pursuant to Rule 12b-1 under the Investment Company Act of
1940 dated June 19, 1995 filed as Exhibit (15)(h) to Post-
Effective Amendment No. 25 and incorporated herein by
reference.
(1) Amendment to Distribution Plan for Eaton Vance Mutual Funds
Trust on behalf of Eaton Vance Money Market Fund adopted
June 24, 1996 filed as Exhibit No. (15)(h)(1) to Post-
Effective Amendment No. 34 and incorporated herein by
reference.
(d) Eaton Vance Mutual Funds Trust Class A Service Plan adopted
June 23, 1997 with attached Schedules filed as Exhibit
(15)(i) to Post-Effective Amendment No. 38 and incorporated
herein by reference.
(1) Schedule A-2 to Class A Service Plan dated March 4, 1998,
filed as Exhibit (15)(d)(1) to Post-Effective Amendment No.
42 and incorporated herein by reference.
(e) Eaton Vance Mutual Funds Trust Class B Distribution Plan
adopted June 23, 1997 with attached Schedules filed as
Exhibit (15)(j) to Post-Effective Amendment No. 38 and
incorporated herein by reference.
(1) Schedule A-2 to Class B Distribution Plan dated March 4,
1998, filed as Exhibit (15)(e) (1) to Post-Effective
Amendment No. 42 and incorporated herein by reference.
(f) Eaton Vance Mutual Funds Trust Class C Distribution Plan
adopted June 23, 1997 with attached Schedules filed as
Exhibit (15)(k) to Post-Effective Amendment No. 38 and
incorporated herein by reference.
(1) Schedule A-2 to Class C Distribution Plan dated March 4,
1998, filed as Exhibit (15)(f) (1) to Post-Effective
Amendment No. 42 and incorporated herein by reference.
(16) Schedules for Computation of Performance Quotations filed
herewith.
(17)(a) Power of Attorney for Eaton Vance Mutual Funds Trust dated
June 23, 1997, filed as Exhibit No. (17)(a) to
Post-Effective Amendment No. 35 and incorporated herein by
reference.
(b) Power of Attorney for Government Obligations Portfolio
dated April 22, 1997 filed as Exhibit (17)(b) to
Post-Effective Amendment No. 36 and incorporated herein by
reference.
(c) Power of Attorney for High Income Portfolio dated February
14, 1997 filed as Exhibit (17)(c) to Post-Effective
Amendment No. 36 and incorporated herein by reference.
(d) Power of Attorney for Strategic Income Portfolio dated
April 22, 1997 filed as Exhibit (17)(d) to Post-Effective
Amendment No. 36 and incorporated herein by reference.
(e) Power of Attorney for Cash Management Portfolio dated April
22, 1997 filed as Exhibit (17)(e) to Post-Effective
Amendment No. 36 and incorporated herein by reference.
(f) Power of Attorney for Tax-Managed Growth Portfolio dated
February 20, 1998 filed as Exhibit (17)(f) to
Post-Effective Amendment No. 41 and incorporated herein by
reference.
(18)(a) Multiple Class Plan for Eaton Vance Funds dated June 23,
1997 filed as Exhibit (18) to Post-Effective Amendment No.
37 and incorporated herein by reference.
(1) Schedule A-4 to Multiple Class Plan dated January 6, 1998
filed as Exhibit (18)(a)(1) to Post-Effective Amendment No.
42 and incorporated herein by reference.
ITEM 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT
Not applicable
ITEM 26. NUMBER OF HOLDERS OF SECURITIES
<TABLE>
<CAPTION>
(1) (2)
TITLE OF CLASS NUMBER OF RECORD HOLDERS
Shares of beneficial interest without par value as of June 30, 1998
<S> <C>
Eaton Vance Cash Management Fund 2,485
Eaton Vance Liquid Assets Fund 338
Eaton Vance Money Market Fund 1,116
Eaton Vance Short-Term Treasury Fund 57
Eaton Vance Tax Free Reserves 183
<CAPTION>
CLASS A CLASS B CLASS C CLASS I
<S> <C> <C> <C>
Eaton Vance Government Obligations Fund 7,949 3,184 3,211 --
Eaton Vance High Income Fund -- 16,388 936 --
Eaton Vance Municipal Bond Fund 86 81 -- 1,755
Eaton Vance Strategic Income Fund 35 5,417 505 --
Eaton Vance Tax-Managed Growth Fund 17,844 46,516 13,961 --
Eaton Vance Tax-Managed Emerging Growth Fund 1,257 2,426 779 --
Eaton Vance Tax-Managed International Growth
Fund 199 336 87 --
</TABLE>
ITEM 27. INDEMNIFICATION
Article IV of the Trust's Amended and Restated Declaration of Trust
permits Trustee and officer indemnification by By-law, contract and vote.
Article XI of the By-laws contains indemnification provisions. Registrant's
Trustees and officers are insured under a standard mutual fund errors and
omissions insurance policy covering insured by reason of negligent errors and
omissions committed in their capacities as such.
The distribution agreements of the Trust also provide for reciprocal
indemnity of the Principal Underwriter, on the one hand, and the Trustees and
officers, on the other.
ITEM 28. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER
Reference is made to the information set forth under the captions
"Investment Adviser and Administrator" or "Investment Adviser" in the
Statements of Additional Information which information is incorporated herein
by reference.
ITEM 29. PRINCIPAL UNDERWRITERS
(a) Registrant's principal underwriter, Eaton Vance Distributors, Inc., a
wholly-owned subsidiary of Eaton Vance Management, is the principal
underwriter for each of the investment companies named below:
Eaton Vance Advisers Senior Eaton Vance Municipals Trust II
Floating-Rate Fund Eaton Vance Mutual Funds Trust
Eaton Vance Growth Trust Eaton Vance Prime Rate Reserves
Eaton Vance Income Fund of Boston Eaton Vance Special Investment Trust
Eaton Vance Investment Trust EV Classic Senior Floating-Rate Fund
Eaton Vance Municipals Trust
(b)
<TABLE>
<CAPTION>
(1) (2) (3)
NAME AND PRINCIPAL POSITIONS AND OFFICES POSITIONS AND OFFICE
BUSINESS ADDRESS* WITH PRINCIPAL UNDERWRITER WITH REGISTRANT
----------------- -------------------------- ---------------
<S> <C> <C>
James B. Hawkes Vice President and Director Vice President and Trustee
William M. Steul Vice President and Director None
Wharton P. Whitaker President and Director None
Albert F. Barbaro Vice President None
Chris Berg Vice President None
Kate Bradshaw Vice President None
David B. Carle Vice President None
Daniel C. Cataldo Vice President None
Raymond Cox Vice President None
Mark P. Doman Vice President None
Alan R. Dynner Vice President Secretary
Richard Finelli Vice President None
Kelly Flynn Vice President None
James Foley Vice President None
Michael A. Foster Vice President None
William M. Gillen Senior Vice President None
Hugh S. Gilmartin Vice President None
Perry D. Hooker Vice President None
Brian Jacobs Senior Vice President None
Thomas P. Luka Vice President None
John Macejka Vice President None
Stephen Marks Vice President None
Timothy D. McCarthy Vice President None
Joseph T. McMenamin Vice President None
Morgan C. Mohrman Senior Vice President None
James A. Naughton Vice President None
Mark D. Nelson Vice President None
Linda D. Newkirk Vice President None
James L. O'Connor Vice President Treasurer
Thomas Otis Secretary and Clerk None
George D. Owen, II Vice President None
Enrique M. Pineda Vice President None
F. Anthony Robinson Vice President None
Jay S. Rosoff Vice President None
Benjamin A. Rowland, Jr. Vice President, Treasurer and None
Director
Stephen M. Rudman Vice President None
John P. Rynne Vice President Assistant Secretary
Kevin Schrader Vice President None
George V.F. Schwab, Jr. Vice President None
Teresa A. Sheehan Vice President None
David C. Sturgis Vice President None
Cornelius J. Sullivan Senior Vice President None
David M. Thill Vice President None
John M. Trotsky Vice President None
Chris Volf Vice President None
Sue Wilder Vice President None
- ----------
*Address is 24 Federal Street, Boston, MA 02110
</TABLE>
(c) Not applicable
ITEM 30. LOCATION OF ACCOUNTS AND RECORDS
All applicable accounts, books and documents required to be maintained by
the Registrant by Section 31(a) of the Investment Company Act of 1940 and the
Rules promulgated thereunder are in the possession and custody of the
Registrant's custodian, Investors Bank & Trust Company, 200 Clarendon Street,
16th Floor, Mail Code ADM27, Boston, MA 02116 and its transfer agent, First
Data Investor Services Group, 4400 Computer Drive, Westborough, MA 01581, with
the exception of certain corporate documents and portfolio trading documents
which are in the possession and custody of Eaton Vance Management, 24 Federal
Street, Boston, MA 02110. Registrant is informed that all applicable accounts,
books and documents required to be maintained by registered investment
advisers are in the custody and possession of Eaton Vance Management.
ITEM 31. MANAGEMENT SERVICES
Not applicable
ITEM 32. UNDERTAKINGS
The Registrant undertakes to furnish to each person to whom a prospectus
is delivered a copy of the latest annual report to shareholders, upon request
and without charge.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, and the
Investment Company Act of 1940, the Registrant certifies that it meets all of
the requirements for effectiveness of this Amendment to the Registration
Statement pursuant to Rule 485(b) under the Securities Act of 1933 and has
duly caused this Post-Effective Amendment to its Registration Statement to be
signed on its behalf by the undersigned, thereunto duly authorized, in the
City of Boston, and the Commonwealth of Massachusetts, on the 20th day of
July, 1998.
EATON VANCE MUTUAL FUNDS TRUST
By: /s/ M. DOZIER GARDNER
------------------------------------
M. DOZIER GARDNER, President
Pursuant to the requirements of the Securities Act of 1933, this Post-
Effective Amendment to the Registration Statement has been signed below by the
following persons in the capacities and on the dates indicated.
SIGNATURE TITLE DATE
--------- ----- ----
President, Principal
Executive Officer and
/s/ M. DOZIER GARDNER Trustee July 20, 1998
- -----------------------------
M. DOZIER GARDNER
Treasurer and Principal
Financial and
/s/ JAMES L. O'CONNOR Accounting Officer July 20, 1998
- -----------------------------
JAMES L. O'CONNOR
/s/ JAMES B. HAWKES Vice President and Trustee July 20, 1998
- -----------------------------
JAMES B. HAWKES
DONALD R. DWIGHT* Trustee July 20, 1998
- -----------------------------
DONALD R. DWIGHT
SAMUEL L. HAYES, III* Trustee July 20, 1998
- -----------------------------
SAMUEL L. HAYES, III
NORTON H. REAMER* Trustee July 20, 1998
- -----------------------------
NORTON H. REAMER
JOHN L. THORNDIKE* Trustee July 20, 1998
- -----------------------------
JOHN L. THORNDIKE
JACK L. TREYNOR* Trustee July 20, 1998
- -----------------------------
JACK L. TREYNOR
*By: /s/ JAMES B. HAWKES
------------------------
JAMES B. HAWKES
As Attorney-in-fact
<PAGE>
SIGNATURES
High Income Portfolio has duly caused this Amendment to the Registration
Statement on Form N-1A of Eaton Vance Mutual Funds Trust (File No. 02-90946)
to be signed on its behalf by the undersigned, thereunto duly authorized, in
Hamilton, Bermuda on the 22nd day of June, 1998.
HIGH INCOME PORTFOLIO
By: /s/ M. DOZIER GARDNER
-------------------------------
M. DOZIER GARDNER, President
This Amendment to the Registration Statement on Form N-1A of Eaton Vance
Mutual Funds Trust (File No. 02-90946) has been signed below by the following
persons in the capacities and on the dates indicated.
SIGNATURE TITLE DATE
--------- ----- ----
Trustee, President and
Principal Executive
/s/ M. DOZIER GARDNER Officer June 22, 1998
- -----------------------------
M. DOZIER GARDNER
Treasurer and Principal
Financial and
JAMES L. O'CONNOR* Accounting Officer June 22, 1998
- -----------------------------
JAMES L. O'CONNOR
/s/ JAMES B. HAWKES Vice President and Trustee June 22, 1998
- -----------------------------
JAMES B. HAWKES
DONALD R. DWIGHT* Trustee June 22, 1998
- -----------------------------
DONALD R. DWIGHT
SAMUEL L. HAYES, III* Trustee June 22, 1998
- -----------------------------
SAMUEL L. HAYES, III
NORTON H. REAMER* Trustee June 22, 1998
- -----------------------------
NORTON H. REAMER
JOHN L. THORNDIKE* Trustee June 22, 1998
- -----------------------------
JOHN L. THORNDIKE
JACK L. TREYNOR* Trustee June 22, 1998
- -----------------------------
JACK L. TREYNOR
*By: /s/ JAMES B. HAWKES
------------------------
JAMES B. HAWKES
As Attorney-in-fact
<PAGE>
EXHIBIT INDEX
PAGE IN SEQUENTIAL
EXHIBIT NO. DESCRIPTION NUMBERING SYSTEM
- ----------- ----------- ----------------
(11)(a) Consent of Independent Accountants for Eaton Vance
High Income Fund.
(11)(b) Consent of Independent Accountants for High Income
Portfolio.
(16) Schedules for Computation of Performance
Quotations.
<PAGE>
EXHIBIT 11(a)
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Post-Effective Amendment No. 46 to the
Registration Statement of Eaton Vance Mutual Funds Trust (1933 Act File No.
02-90946) on behalf of Eaton Vance High Income Fund of our report dated May 8,
1998, relating to Eaton Vance High Income Fund (formerly EV Marathon High
Income Fund), which report is included in the Annual Report to Shareholders
for the year ended March 31, 1998, which is incorporated by reference in the
Statement of Additional Information, which is part of such Registration
Statement.
We also consent to the reference to our Firm under the heading "The Fund's
Financial Highlights" in the Prospectus and under the caption "Independent
Certified Public Accountants" in the Statement of Additional Information of
the Registration Statement.
/s/ DELOITTE & TOUCHE LLP
---------------------------
DELOITTE & TOUCHE LLP
July 20, 1998
Boston, Massachusetts
<PAGE>
EXHIBIT 11(b)
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Post-Effective Amendment No. 46 to the
Registration Statement of Eaton Vance Mutual Funds Trust (1933 Act File No.
02-90946) on behalf of High Income Portfolio, of our report dated May 8, 1998,
relating to High Income Portfolio which report is included in the Annual Report
to Shareholders of Eaton Vance High Income Fund for the year ended March 31,
1998, which is incorporated by reference in the Statement of Additional
Information, which is part of such Registration Statement.
We also consent to the reference to our Firm under the caption "Independent
Certified Public Accountants" in the Statement of Additional Information of
the Registration Statement.
/s/ DELOITTE & TOUCHE
-------------------------
DELOITTE & TOUCHE
July 20, 1998
Grand Cayman, Cayman Islands
British West Indies
<PAGE>
Exhibit 16
<TABLE>
INVESTMENT PERFORMANCE -- EATON VANCE HIGH INCOME FUND - CLASS B SHARES
The table below indicates the total return (capital changes plus reinvestment of all distributions) on a hypothetical investment of
$1,000 in the Fund covering the 1, 5, and 10 year periods ended March 31, 1998.
<CAPTION>
VALUE OF A $1,000 INVESTMENT
VALUE OF VALUE OF
INVESTMENT INVESTMENT TOTAL RETURN TOTAL RETURN
INVESTMENT INVESTMENT BEFORE CDSC AFTER CDSC BEFORE DEDUCTING CDSC AFTER DEDUCTING CDSC
PERIOD DATE ON 03/31/98 ON 03/31/98 CUMULATIVE ANNUALIZED CUMULATIVE ANNUALIZED
- ------ ---- ----------- ----------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
10 YEARS ENDED
03/31/98 03/31/88 $2,673.14 $2,673.14 167.31% 10.33% 167.31% 10.33%
5 YEARS ENDED
03/31/98 03/31/93 $1,712.59 $1,692.59 71.26% 11.36% 69.26% 11.10%
1 YEAR ENDED
03/31/98 03/31/97 $1,205.88 $1,155.88 20.59% 20.59% 15.59% 15.59%
Average annual total return is calculated using the following formula:
n
P(1+T) = ERV
where P = an initial investment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value of $1,000 initial investment at the end of the period after
deducting the CDSC *
Cumulative total return is calculated using the following formula:
T = ( ERV / P ) - 1
where T = cumulative total return including the maximum sales charge
ERV = ending redeemable value of $1,000 initial investment at the end of the period after
deducting the CDSC **
P = an initial investment of $1,000
* The average annual total return not including the CDSC is calculated based on the ending investment value
before deducting the CDSC.
** The cumulative total return not including the CDSC is calculated based on the ending investment value before
deducting the CDSC.
</TABLE>
<PAGE>
EATON VANCE HIGH INCOME FUND - CLASS B
30-DAY YIELD CALCULATIONS
For the 30 days ended 3/31/98:
Interest Income Earned: $5,331,986
Plus Dividend Income Earned:
----------
Equal Gross Income: $5,331,986
Minus Expenses: $1,006,815
----------
Equal Net Investment Income: $4,325,171
Divided by Average daily number of shares
outstanding that were entitled
to receive dividends: 86,346,759
----------
Equal Net Investment Income Earned Per Share: $0.0501
Net Asset Value Per Share 3/31/98: $8.03
30 Day Yield*: 7.60%
<PAGE>
<TABLE>
INVESTMENT PERFORMANCE -- EATON VANCE HIGH INCOME FUND - CLASS C SHARES
The table below indicates the total return (capital changes plus reinvestment of all distributions) on a hypothetical investment of
$1,000 in the Fund covering the 1, 5, and 10 year periods ended March 31, 1998. Total return for the period prior to the
Fund's commencement of operations is for the Portfolio (or its predecessor) adjusted for the Fund's sales charge.
<CAPTION>
VALUE OF A $1,000 INVESTMENT
VALUE OF VALUE OF
INVESTMENT INVESTMENT TOTAL RETURN TOTAL RETURN
INVESTMENT INVESTMENT BEFORE CDSC AFTER CDSC BEFORE DEDUCTING CDSC AFTER DEDUCTING CDSC
PERIOD DATE ON 03/31/98 ON 03/31/98 CUMULATIVE ANNUALIZED CUMULATIVE ANNUALIZED
- ------ ---- ----------- ----------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
10 YEARS ENDED
03/31/98 03/31/88 $2,628.30 $2,628.30 162.83% 10.15% 162.83% 10.15%
5 YEARS ENDED
03/31/98 03/31/93 $1,683.92 $1,683.92 68.39% 10.99% 68.39% 10.99%
1 YEAR ENDED
03/31/98 03/31/97 $1,201.92 $1,191.92 20.19% 20.19% 19.19% 19.19%
Average annual total return is calculated using the following formula:
n
P(1+T) = ERV
where P = an initial investment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value of $1,000 initial investment at the end of the period after
deducting the CDSC *
Cumulative total return is calculated using the following formula:
T = ( ERV / P ) - 1
where T = cumulative total return including the maximum sales charge
ERV = ending redeemable value of $1,000 initial investment at the end of the period after
deducting the CDSC **
P = an initial investment of $1,000
* The average annual total return not including the CDSC is calculated based on the ending investment value
before deducting the CDSC.
** The cumulative total return not including the CDSC is calculated based on the ending investment value before
deducting the CDSC.
</TABLE>
<PAGE>
EATON VANCE HIGH INCOME FUND - CLASS C
30-DAY YIELD CALCULATIONS
For the 30 days ended 3/31/98:
Interest Income Earned: $249,749
Plus Dividend Income Earned:
---------
Equal Gross Income: $249,749
Minus Expenses: $83,784
---------
Equal Net Investment Income: $165,965
Divided by Average daily number of shares
outstanding that were entitled
to receive dividends: 3,025,575
---------
Equal Net Investment Income Earned Per Share: $0.0549
Net Asset Value Per Share 3/31/98: $10.74
30 Day Yield*: 6.21%
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 7
<NAME> EV MARATHON HIGH INCOME FUND
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAR-31-1998
<PERIOD-END> MAR-31-1998
<INVESTMENTS-AT-COST> 654106
<INVESTMENTS-AT-VALUE> 696744
<RECEIVABLES> 1244
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 697988
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 4170
<TOTAL-LIABILITIES> 4170
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 687729
<SHARES-COMMON-STOCK> 86382
<SHARES-COMMON-PRIOR> 82808
<ACCUMULATED-NII-CURRENT> 939
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (37488)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 42638
<NET-ASSETS> 693818
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 0
<OTHER-INCOME> 66983
<EXPENSES-NET> 11216
<NET-INVESTMENT-INCOME> 55767
<REALIZED-GAINS-CURRENT> 33999
<APPREC-INCREASE-CURRENT> 31500
<NET-CHANGE-FROM-OPS> 121266
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 52768
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 17727
<NUMBER-OF-SHARES-REDEEMED> 16308
<SHARES-REINVESTED> 2155
<NET-CHANGE-IN-ASSETS> 95545
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (71487)
<OVERDISTRIB-NII-PRIOR> 2060
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 11216
<AVERAGE-NET-ASSETS> 650017
<PER-SHARE-NAV-BEGIN> 7.220
<PER-SHARE-NII> 0.658
<PER-SHARE-GAIN-APPREC> 0.774
<PER-SHARE-DIVIDEND> 0.622
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 8.03
<EXPENSE-RATIO> 1.73
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 101
<NAME> HIGH INCOME PORTFOLIO
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAR-31-1998
<PERIOD-END> MAR-31-1998
<INVESTMENTS-AT-COST> 897767
<INVESTMENTS-AT-VALUE> 949743
<RECEIVABLES> 33695
<ASSETS-OTHER> 38
<OTHER-ITEMS-ASSETS> 5
<TOTAL-ASSETS> 983481
<PAYABLE-FOR-SECURITIES> 22899
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 81
<TOTAL-LIABILITIES> 22980
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 908524
<SHARES-COMMON-STOCK> 0
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 51977
<NET-ASSETS> 960501
<DIVIDEND-INCOME> 3499
<INTEREST-INCOME> 78984
<OTHER-INCOME> 1390
<EXPENSES-NET> 5121
<NET-INVESTMENT-INCOME> 78752
<REALIZED-GAINS-CURRENT> 40198
<APPREC-INCREASE-CURRENT> 41198
<NET-CHANGE-FROM-OPS> 160148
<EQUALIZATION> 93641
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 160148
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 4737
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 5122
<AVERAGE-NET-ASSETS> 817913
<PER-SHARE-NAV-BEGIN> 0
<PER-SHARE-NII> 0
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 0
<EXPENSE-RATIO> 0.63
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
