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[LOGO]
Mutual Funds
for People
Who Pay
Taxes
Eaton Vance
Tax-Managed
Value Fund
A diversified fund seeking long-term, after-tax returns for investors
by investing in value stocks
Prospectus Dated
December 31, 1999
The Securities and Exchange Commission has not approved or disapproved these
securities or determined whether this prospectus is truthful or complete.
Any representation to the contrary is a criminal offense.
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Information in this prospectus
Page Page
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Fund Summary 2 Sales Charges 6
Investment Objective & Principal Policies and Risks 4 Redeeming Shares 8
Management and Organization 5 Shareholder Account Features 9
Valuing Shares 6 Tax Information 10
Purchasing Shares 6
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</TABLE>
This prospectus contains important information about the Fund and the services
available to shareholders. Please save it for reference.
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FUND SUMMARY
Investment Objective and Principal Strategies. The Fund's investment objective
is to achieve long-term, after-tax returns for its shareholders. The Fund
invests in a diversified portfolio of value stocks. Value stocks are common
stocks that are inexpensive relative to the overall stock market. The Fund
invests primarily in well-established U.S. companies. Although it invests
primarily in domestic companies, the Fund may invest up to 25% of its assets in
foreign companies. The Fund may engage in derivative transactions to protect
against price declines, to enhance returns or as a substitute for purchasing or
selling securities.
Tax-Managed Investing. Most equity mutual funds focus on pre-tax returns and
largely ignore shareholder tax considerations. By contrast, the Fund attempts
to achieve high after-tax returns for its shareholders by balancing investment
considerations and tax considerations. The Fund seeks to achieve returns
primarily in the form of price appreciation (which is not subject to current
tax). The Fund seeks to minimize income distributions and distributions of
realized short-term gains (taxed as ordinary income), as well as distributions
of realized long-term gains (taxed as long-term capital gains). Among the
techniques and strategies used in the tax-efficient management of the Fund are
the following:
* where appropriate, emphasizing lower-yielding value stocks;
* employing a long-term, low turnover approach to investing;
* attempting to avoid net realized short-term gains;
* where appropriate, selling stocks trading below cost to realize losses;
* in selling appreciated stocks, selecting the most tax-favored share
lots; and
* selectively using tax-advantaged hedging techniques as an alternative
to taxable sales.
The Fund can generally be expected to distribute a smaller percentage of returns
each year than similar equity mutual funds that are managed without regard to
tax considerations. There can be no assurance, however, that taxable
distributions can always be avoided.
Principal Risk Factors. The value of Fund shares is sensitive to stock market
volatility. If there is a general decline in the value of U.S. stocks, the
value of the Fund's shares will also likely decline. Changes in stock market
values can be sudden and unpredictable. Also, although stock values can
rebound, there is no assurance that values will return to previous levels. The
Fund seeks to minimize stock-specific risk by diversifying its holdings among
many companies and industries. The Fund's success in achieving its investment
objective will be determined by the portfolio manager's ability to develop and
maintain a portfolio of value stocks that performs well over the long term on an
after-tax basis.
Because the Fund invests in foreign securities, the value of Fund shares may be
affected by changes in currency exchange rates and other developments abroad.
The use of derivative transactions is subject to certain limitations and may
expose a Fund to increased risk of principal loss due to imperfect correlation,
failure of a counterparty and unexpected price or interest rate movements. Some
of the securities held by the Fund may be subject to restrictions on resale,
making them less liquid and more difficult to value.
The Fund is not a complete investment program and you may lose money by
investing. An investment in the Fund is not a deposit in a bank and is not
insured or guaranteed by the Federal Deposit Insurance Corporation or any other
government agency.
Performance Information. As of the date of this prospectus, the Fund had not
begun operations so there is no performance history.
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Fund Fees and Expenses. These tables describe the fees and expenses that you
may pay if you buy and hold shares.
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Shareholder Fees
(fees paid directly from your investment) Class A Class B Class C
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<S> <C> <C> <C>
Maximum Sales Charge (Load) (as a percentage of offering price) 5.75% None None
Maximum Deferred Sales Charge (Load)(as a percentage of the lower
of net asset value at time of purchase or redemption) None 5.00% 1.00%
Maximum Sales Charge (Load)Imposed on Reinvested Distributions None None None
Exchange Fee None None None
</TABLE>
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Annual Fund Operating Expenses
(expenses that are deducted from Fund assets) Class A Class B Class C
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<S> <C> <C> <C>
Management Fees 0.80% 0.80% 0.80%
Distribution and Service (12b-1) Fees* 0.00% 1.00% 1.00%
Other Expenses** 0.60% 0.35% 0.35%
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Total Annual Fund Operating Expenses 1.40% 2.15% 2.15%
</TABLE>
* Long-term shareholders of Class B and Class C shares may pay more than the
economic equivalent of the front-end sales charge permitted by the National
Association of Securities Dealers, Inc.
** Other Expenses are based on estimates and for Class A shares include a
service fee of 0.25%.
Example. This Example is intended to help you compare the cost of investing in
the Fund with the cost of investing in other mutual funds. The Example assumes
that you invest $10,000 in the Fund for the time periods indicated and then
redeem all of your shares at the end of those periods. The Example also assumes
that your investment has a 5% return each year and that the operating expenses
remain the same. Although your actual costs may be higher or lower, based on
these assumptions your costs would be:
1 Year 3 Years
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Class A shares $ 709 $ 993
Class B shares $ 718 $ 1,073
Class C shares $ 318 $ 673
You would pay the following expenses if you did not redeem your shares:
1 Year 3 Years
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Class A shares $ 709 $ 993
Class B shares $ 218 $ 673
Class C shares $ 218 $ 673
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INVESTMENT OBJECTIVE & PRINCIPAL POLICIES AND RISKS
The Fund's investment objective is to achieve long-term, after-tax returns for
its shareholders. The investment adviser seeks to achieve this objective by
investing in a diversified portfolio of value stocks. In the view of the Fund's
investment adviser, value stocks are common stocks that are inexpensive relative
to the overall stock market in terms of their earnings or cash flow
capabilities, or in relation to the value of their net assets. The Fund invests
primarily in value stocks of issuers that are well-established U.S. companies.
The Fund's investment objective may not be changed without shareholder
approval. Certain of the Fund's policies may be changed by the Trustees without
shareholder approval.
The Fund approaches its investments from the perspective of a taxpaying
shareholder. Buy and sell decisions are made by balancing investment
considerations and tax considerations, taking into account the taxes payable by
Fund shareholders in connection with distributions of investment income and net
realized capital gains. The Fund can generally be expected to distribute a
smaller percentage of its annual returns than similar equity funds that are
managed without regard to tax considerations.
The Fund invests at least 65% of its total assets in value stocks, primarily
common stocks of well-established U.S. companies that the portfolio manager
considers to have favorable long-term prospects and which may be undervalued in
relation to the overall market due to adverse economic conditions or other
near-term difficulties that cause them not to achieve their financial potential.
Undervaluation may also arise because companies are misunderstood by investors
or because they are out of step with favored market themes. The Fund's
portfolio manager seeks to build and maintain an investment portfolio of value
stocks that will perform well over the long term on an after-tax basis. The
primary basis upon which the Fund's portfolio is constructed and managed is
fundamental analysis. In analyzing potential Fund investments, the portfolio
manager relies in part on the research staff of the investment adviser. The
Fund's holdings will represent a number of different industries, and no more
than 25% of the Fund's total assets will be invested in any one industry.
Stocks generally are acquired with the expectation of being held for the long
term.
The Fund seeks to achieve long-term, after-tax returns in part by minimizing the
taxes incurred by shareholders in connection with the Fund's investment income
and realized capital gains. Fund distributions that are taxed as ordinary
income are minimized by emphasizing, where appropriate, investments in
lower-yielding value stocks and by generally avoiding net realized short-term
capital gains. Fund distributions taxed as long-term capital gains are
minimized by maintaining relatively low portfolio turnover and avoiding or
minimizing the sale of securities with large accumulated capital gains. When a
decision is made to sell a particular appreciated security, the portfolio
manager will select for sale the share lots resulting in the most favorable tax
treatment, generally those with holding periods sufficient to qualify for
long-term capital gains treatment that have the highest cost basis. The
portfolio manager may sell securities to realize capital losses that can be used
to offset realized gains.
To protect against price declines in securities holdings with large accumulated
gains, the Fund may use various hedging techniques (such as purchased put
options, equity collars (combining the purchase of a put option and the sale of
a call option), equity swaps, covered short sales, and the purchase or sale of
stock index futures contracts). By using these techniques rather than selling
appreciated securities, the Fund can reduce its exposure to price declines in
the securities without realizing substantial capital gains under current tax
law. These derivative instruments may also be used by the Fund to enhance
returns or as a substitute for the purchase or sale of securities. The use of
derivatives is highly specialized. The built-in leverage inherent to many
derivative instruments can result in losses that substantially exceed the
initial amount paid or received by the Fund. Equity swaps and over-the-counter
options are private contracts in which there is a risk of loss in the event of a
counterparty's default. Derivative instruments may be difficult to value, may
be illiquid, and may be subject to wide swings in valuation caused by changes in
the value of the underlying security.
The Fund may invest up to 25% of assets in securities of foreign companies
located in developed countries and traded in established markets. The value of
foreign securities is affected by changes in currency rates, foreign tax laws
(including withholding tax), government policies (in this country or abroad),
relations between nations and trading, settlement, custodial and other
operational risks. In addition, the costs of investing abroad are generally
higher than in the United States, and foreign securities markets may be less
liquid, more volatile and less subject to governmental supervision than markets
in the United States. As an alternative to holding foreign stocks directly, the
Fund may invest in dollar-denominated depositary receipts which evidence
ownership in underlying foreign stocks. Investment in depositary receipts is not
subject to the limitation on investing in foreign securities stated above.
The Fund may invest not more than 15% of its net assets in illiquid securities,
which may be difficult to value properly and may involve greater risks than
liquid securities. Illiquid securities include those legally restricted as to
resale, and may include commercial paper issued pursuant to Section 4(2) of the
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Securities Act of 1933 and securities eligible for resale pursuant to Rule 144A
thereunder. Certain Section 4(2) and Rule 144A securities may be treated as
liquid securities if the investment adviser determines that such treatment is
warranted. Even if determined to be liquid, holdings of these securities may
increase the level of Fund illiquidity if eligible buyers become uninterested in
purchasing them.
During defensive periods in which the investment adviser believes that returns
on common stock investments may be unfavorable, the Fund may temporarily invest
up to 65% of its assets in cash and cash equivalents. While temporarily
invested, the Fund may not achieve its investment objective. The Fund may also
borrow amounts up to one-third of the value of its total assets, but it will not
borrow more than 5% of the value of its total assets except to satisfy
redemption requests or for other temporary purposes. Such borrowings would
result in increased expense to the Fund and, while they are outstanding, would
magnify increases or decreases in the value of Fund shares. The Fund will not
purchase additional portfolio securities while outstanding borrowings exceed 5%
of the value of its total assets.
The Fund's investment policies include a fundamental investment provision
allowing the Fund to invest its assets in one or more open-end management
investment companies having substantially the same investment policies and
restrictions as the Fund. Any such company or companies would be advised by the
Fund's investment adviser (or an affiliate) and the Fund would not pay directly
any advisory fee with respect to the assets so invested. The Fund may initiate
investments in one or more investment companies without shareholder approval at
any time.
Like most mutual funds, the Fund relies on computers in conducting daily
business and processing information. There is a concern that on and after
January 1, 2000 some computer programs will be unable to recognize the new year
and as a consequence computer malfunctions will occur. Eaton Vance has taken
steps that it believes are reasonably designed to address this potential problem
and to obtain satisfactory assurance from other service providers to the Fund
that they also have taken 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 or shareholders. The Year 2000 concern may also adversely impact issuers of
securities held by the Fund and the markets in which these securities trade.
The foregoing statement is subject to the Year 2000 Information and Readiness
Disclosure Act, which may protect Eaton Vance and the Fund from liability
arising from the statement.
MANAGEMENT AND ORGANIZATION
Management. The Fund's investment adviser is Eaton Vance Management ("Eaton
Vance"), with offices at The Eaton Vance Building, 255 State Street, Boston,
Massachusetts 02109. Eaton Vance has been managing assets since 1924 and
managing mutual funds since 1931. Eaton Vance and its subsidiaries currently
manage over $41 billion on behalf of mutual funds, institutional clients and
individuals.
The investment adviser manages the investments of the Fund and provides related
office facilities and personnel. Under its investment advisory agreement with
the Fund, Eaton Vance receives a monthly advisory fee of 13/240 of 1%
(equivalent to 0.650% annually) of the average daily net assets of the Fund up
to and including $500 million. On net assets of $500 million and over the
annual fee is reduced.
Michael R. Mach is the portfolio manager of the Fund (since inception). He also
manages another Eaton Vance portfolio, has been an employee of Eaton Vance and
BMR since December 1999, and is a Vice President of Eaton Vance. Prior to
joining Eaton Vance, Mr. Mach was a Managing Director and Senior Analyst for
Robertson Stephens (1998-1999); Managing Director and Senior Analyst for Piper
Jaffray(1996-1998); and Senior Vice President and Senior Analyst for Putnam
Investments (1989-1996).
The investment adviser and the Fund have adopted Codes of Ethics governing
personal securities transactions. Under the Codes, Eaton Vance employees may
purchase and sell securities (including securities held by the Fund) subject to
certain pre-clearance and reporting requirements and other procedures.
Eaton Vance serves as administrator of the Fund, providing the Fund with
administrative services and related office facilities. In return, the Fund is
authorized to pay Eaton Vance a fee in the amount of 0.15% of average daily net
assets.
Organization. The Fund is a series of Eaton Vance Mutual Funds Trust, a
Massachusetts business trust. The Fund offers multiple classes of shares. Each
class represents a pro rata interest in the Fund, but is subject to different
expenses and rights. The Fund does not hold annual shareholder meetings, but
may hold special meetings for matters that require shareholder approval (like
electing or removing trustees, approving management contracts or changing
investment policies that may only be changed with shareholder approval).
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VALUING SHARES
The Fund values its shares once each day only when the New York Stock Exchange
is open for trading (typically Monday through Friday), as of the close of
regular trading on the Exchange (normally 4:00 p.m. eastern time). The purchase
price of Fund shares is their net asset value (plus a sales charge for Class A
shares). Exchange-listed securities are generally valued at closing sale
prices.
When purchasing or redeeming Fund shares, your investment dealer must
communicate your order to the principal underwriter by a specific time each day
in order for the purchase price or the redemption price to be based on that
day's net asset value per share. It is the investment dealer's responsibility
to transmit orders promptly. The Fund may accept purchase and redemption orders
as of the time of their receipt by certain investment dealers (or their
designated intermediaries).
PURCHASING SHARES
You may purchase shares through your investment dealer or by mailing the account
application form included in this prospectus to the transfer agent (see back
cover for address). Your initial investment must be at least $1,000. The price
of Class A shares is the net asset value plus a sales charge. The price of
Class B and Class C shares is the net asset value; however, you may be subject
to a sales charge (called a "contingent deferred sales charge" or "CDSC") if you
redeem Class B shares within six years of purchase or Class C shares within one
year of purchase. The sales charges are described below. Your investment
dealer can help you decide which class of shares suits your investment needs.
After your initial investment, additional investments of $50 or more may be made
at any time by sending a check payable to the order of the Fund or the transfer
agent directly to the transfer agent (see back cover for address). Please
include your name and account number and the name of the Fund and class of
shares with each investment.
You may also make automatic investments of $50 or more each month or each
quarter from your bank account. You can establish bank automated investing on
the account application or by calling 1-800-262-1122. The minimum initial
investment amount and Fund policy of redeeming accounts with low account
balances are waived for bank automated investing accounts and certain group
purchase plans.
You may purchase Fund shares in exchange for securities. Please call
1-800-225-6265 for information about exchanging securities for Fund shares. If
you purchase shares through an investment dealer (which includes brokers,
dealers and other financial institutions), that dealer may charge you a fee for
executing the purchase for you. The Fund may suspend the sale of its shares at
any time and any purchase order may be refused.
SALES CHARGES
Front-End Sales Charge. Class A shares are offered at net asset value per share
plus a sales charge that is determined by the amount of your investment. The
current sales charge schedule is:
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Sales Charge Sales Charge Dealer Commission
as Percentage of as Percentage of Net as a Percentage of
Amount of Purchase Offering Price Amount Invested Offering Price
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<S> <C> <C> <C>
Less than $50,000 5.75% 6.10% 5.00%
$50,000 but less than $100,000 4.75% 4.99% 4.00%
$100,000 but less than $250,000 3.75% 3.90% 3.00%
$250,000 but less than $500,000 3.00% 3.09% 2.50%
$500,000 but less than $1,000,000 2.00% 2.04% 1.75%
$1,000,000 or more 0.00* 0.00* See Below
* No sales charge is payable at the time of purchase on investments of $1 million or more.
A CDSC of 1.00% will be imposed on such investments (as described below) in the event of
redemptions within 12 months of purchase.
</TABLE>
The principal underwriter will pay a commission to investment dealers on sales
of $1 million or more as follows: 1.00% on amounts of $1 million or more but
less than $3 million; plus 0.50% on amounts over $3 million but less than $5
million; plus 0.25% on amounts over $5 million. Purchases totalling $1 million
or more will be aggregated over a 12-month period for purposes of determining
the commission. The principal underwriter may also pay commissions of up to
1.00% on sales of Class A shares made at net asset value to certain tax-deferred
retirement plans.
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Contingent Deferred Sales Charge. Each class of shares is subject to a CDSC on
certain redemptions. Class A shares purchased at net asset value in amounts of
$1 million or more are subject to a 1.00% CDSC if redeemed within 12 months of
purchase. Class C shares are subject to a 1.00% CDSC if redeemed within 12
months of purchase. Class B shares are subject to the following CDSC schedule:
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Year of Redemption After Purchase CDSC
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First or Second 5% The CDSC is based on the lower of the net asset value at
Third 4% the time of purchase or at the time of redemption.
Fourth 3% Shares acquired through the reinvestment of distributions
Fifth 2% are exempt from the CDSC. Redemptions are made first
Sixth 1% from shares that are not subject to a CDSC.
Seventh or following 0%
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The principal underwriter pays commissions to investment dealers on sales of
Class B and Class C shares (except exchange transactions and reinvestments).
The sales commission on Class B shares equals 4% of the purchase price of the
shares. The sales commission on Class C shares equals 0.75% of the purchase
price of the shares. After the first year, investment dealers also receive
0.75% of the value of Class C shares in distribution fees.
Reducing or Eliminating Sales Charges. Front-end sales charges on purchases of
Class A shares may be reduced under the right of accumulation or under a
statement of intention. Under the right of accumulation, the sales charges you
pay are reduced if the current market value of your current holdings (based on
the current offering price), plus your new purchases, total $50,000 or more.
Class A shares of other Eaton Vance funds owned by you can be included as part
of your current holdings for this purpose. Under a statement of intention,
purchases of $50,000 or more made over a 13-month period are eligible for
reduced sales charges. Under a statement of intention, the principal
underwriter may hold 5% of the dollar amount to be purchased in escrow in the
form of shares registered in your name until you satisfy the statement or the
13-month period expires. See the account application for details.
Class A shares are offered at net asset value to clients of financial
intermediaries who charge a fee for their services; accounts affiliated with
those financial intermediaries; tax-deferred retirement plans; investment and
institutional clients of Eaton Vance; certain persons affiliated with Eaton
Vance; and certain Eaton Vance and fund service providers. Ask your investment
dealer for details.
CDSCs are waived for certain redemptions pursuant to a Withdrawal Plan (see
"Shareholder Account Features") and, for Class B and Class C shares, in
connection with certain redemptions from tax-sheltered retirement plans. Call
1-800-225-6265 for details. The Class B CDSC is also waived following the death
of all beneficial owners of shares, but only if the redemption is requested
within one year after death (a death certificate and other applicable documents
may be required).
If you redeem shares, you may reinvest at net asset value all or any portion of
the redemption proceeds in the same class of shares of the Fund (or, for Class A
shares, in Class A shares of any other Eaton Vance fund), provided that the
reinvestment occurs within 60 days of the redemption, and the privilege has not
been used more than once in the prior 12 months. Under these circumstances your
account will be credited with any CDSC paid in connection with the redemption.
Any CDSC period applicable to the shares you acquire upon reinvestment will run
from the date of your original share purchase. Reinvestment requests must be in
writing. If you reinvest, you will be sold shares at the next determined net
asset value following receipt of your request.
Distribution and Service Fees. Class B and Class C shares have in effect plans
under Rule 12b-1 that allows the Fund to pay distribution fees for the sale and
distribution of shares (so-called "12b-1 fees"). Class B and Class C shares pay
distribution fees of 0.75% of average daily net assets annually. Because these
fees are paid from Fund assets on an ongoing basis, they will increase your cost
over time and may cost you more than paying other types of sales charges. All
classes pay service fees for personal and/or account services equal to 0.25% of
average daily net assets annually.
Class B and Class C distribution fees are subject to termination when payments
under the Rule 12b-1 plans are sufficient to extinguish uncovered distribution
charges. As described more fully in the Statement of Additional Information,
uncovered distribution charges of a class are increased by sales commissions
payable by the class to the principal underwriter in connection with sales of
shares of that class and by an interest factor tied to the U.S. Prime Rate.
Uncovered distribution charges are reduced by the distribution fees paid by the
class and by CDSCs paid to the Fund by redeeming shareholders. The amount of
the sales commissions payable by Class B to the principal underwriter in
connection with
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sales of Class B shares is significantly less than the maximum permitted by the
sales charge rule of the National Association of Securities Dealers, Inc.
REDEEMING SHARES
You can redeem shares in any of the following ways:
By Mail Send your request to the transfer agent along with any
certificates and stock powers. The request must be
signed exactly as your account is registered and
signature guaranteed. You can obtain a signature
guarantee at certain banks, savings and loan
institutions, credit unions, securities dealers,
securities exchanges, clearing agencies and registered
securities associations. You may be asked to provide
additional documents if your shares are registered in
the name of a corporation, partnership or fiduciary.
By Telephone You can redeem up to $50,000 b y calling the transfer
agent at 1-800-262-1122 on Monday through Friday, 9:00
a.m. to 4:00 p.m. (eastern time). Proceeds of a
telephone redemption can be mailed only to the account
address. Shares held by corporations, trusts or certain
other entities and shares that are subject to fiduciary
arrangements cannot be redeemed by telephone.
Through an
Investment Dealer Your investment dealer is responsible for transmitting
the order promptly. A dealer may charge a fee for
this service.
If you redeem shares, your redemption price will be based on the net asset value
per share next computed after the redemption request is received. Your
redemption proceeds will be paid in cash within seven days, reduced by the
amount of any applicable CDSC and any federal income tax required to be
withheld. Payments will be sent by mail unless you complete the Bank Wire
Redemptions section of the account application.
If you recently purchased shares, the proceeds of a redemption will not be sent
until the purchase check (including a certified or cashier's check) has cleared.
If the purchase check has not cleared, redemption proceeds may be delayed up to
15 days from the purchase date. If your account value falls below $750 (other
than due to market decline), you may be asked to either add to your account or
redeem it within 60 days. If you take no action, your account will be redeemed
and the proceeds sent to you.
Meeting Redemptions by Distributing Portfolio Securities. The Fund currently
pays shareholder redemptions entirely in cash, but in the future may adopt a
policy of meeting redemption requests in whole or in part by distributing
appreciated securities chosen by the investment adviser. The Fund would only
distribute readily marketable securities, which would be valued pursuant to the
Fund's valuation procedures. The practice of distributing appreciated
securities to meet redemptions can be a useful tool for tax-efficient
management. A policy of meeting redemptions in whole or in part through the
distribution of securities will only be established after any necessary
regulatory approvals are received and in conjunction with putting in place a
program whereby redeeming shareholders who receive securities could elect to
sell the securities received to Eaton Vance, the Fund's custodian or a
designated agent without transaction costs and at a price equal to the price
used in determining the redemption value of the distributed securities.
Redeeming shareholders who receive securities and who elect to participate in
this program would receive the same amount of cash as if the redemption had been
paid directly in cash and would incur no more or less taxable gain than if the
redemption had been paid directly in cash. Redeeming shareholders electing not
to participate in the program would be required to take delivery of any
securities distributed upon redemption. Such shareholders could incur brokerage
charges and other costs and may be exposed to market risk in selling the
distributed securities.
If the Fund adopts a policy of distributing securities to meet redemptions, it
may continue to meet redemptions in whole or in part with cash. During periods
of volatile market conditions, the Fund could be expected to meet redemptions
primarily with cash.
8
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SHAREHOLDER ACCOUNT FEATURES
Once you purchase shares, the transfer agent establishes a Lifetime Investing
Account(R) for you. Share certificates are issued only on request.
Distributions. You may have your Fund distributions paid in one of the
following ways:
*Full Reinvest Option Dividends and capital gains are reinvested in
additional shares. This option will be assigned if
you do not specify an option.
*Partial Reinvest Option Dividends are paid in cash and capital gains are
reinvested in additional shares.
*Cash Option Dividends and capital gains are paid in cash.
*Exchange Option Dividends and/or capital gains are reinvested in
additional shares of another Eaton Vance fund
chosen by you. Before selecting this option, you
must obtain a prospectus of the other fund and
consider its objectives and policies carefully.
Information from the Fund. From time to time, you may be mailed the following:
* Annual and Semi-Annual Reports, containing performance information and
financial statements.
* Periodic account statements, showing recent activity and total share
balance.
* Form 1099 and tax information needed to prepare your income tax returns.
* Proxy materials, in the event a shareholder vote is required.
* Special notices about significant events affecting your Fund.
Withdrawal Plan. You may redeem shares on a regular quarterly basis by
establishing a systematic withdrawal plan. Withdrawal amounts must be at least
$200 per year, or a specified percentage of net asset value of at least 4% but
not more than 12% annually. These withdrawals will not be subject to a CDSC. A
minimum account size of $5,000 is required to establish a systematic withdrawal
plan. Because purchases of Class A shares are generally subject to an initial
sales charge, you should not make withdrawals from your account while you are
making purchases.
Exchange Privilege. You may exchange your Fund shares for shares of the same
class of another Eaton Vance fund. Exchanges are generally made at net asset
value. If you hold Class A shares for less than six months and exchange them
for shares subject to a higher sales charge, you will be charged the difference
between the two sales charges. If your shares are subject to a CDSC, the CDSC
will continue to apply to your new shares at the same CDSC rate. For purposes
of the CDSC, your shares will continue to age from the date of your original
purchase.
Before exchanging, you should read the prospectus of the new fund carefully. If
you wish to exchange shares, write to the transfer agent (address on back cover)
or call 1-800-262-1122. Periodic automatic exchanges are also available. The
exchange privilege may be changed or discontinued at any time. You will receive
60 days' notice of any material change to the privilege. This privilege may not
be used for "market timing". If an account (or group of accounts) makes more
than two round-trip exchanges within 12 months, it will be deemed to be market
timing. The exchange privilege may be terminated for market timing accounts.
Telephone and Electronic Transactions. You can redeem or exchange shares by
telephone as described in this prospectus. In addition, certain transactions
may be conducted through the Internet. The transfer agent and the principal
underwriter have procedures in place to authenticate telephone and electronic
instructions (such as using security codes or verifying personal account
information). As long as the transfer agent and principal underwriter follow
these procedures, they will not be responsible for unauthorized telephone or
electronic transactions and you bear the risk of possible loss resulting from
these transactions. You may decline the telephone redemption option on the
account application. Telephone instructions are tape recorded.
"Street Name" Accounts. If your shares are held in a "street name" account at
an investment dealer, that dealer (and not the Fund or its transfer agent) will
perform all recordkeeping, transaction processing and distribution payments.
Because the Fund will have no record of your transactions, you should contact
your investment dealer to purchase, redeem or exchange shares, to make changes
in your account, or to obtain account information. You will not be able to
utilize a number of shareholder features, such as telephone transactions,
directly with the Fund. The transfer of shares in a "street name" account to an
account with another investment dealer or to an account directly with the Fund
involves special procedures and you will be required to obtain historical
9
<PAGE>
information about your shares prior to the transfer. Before establishing a
"street name" account with an investment dealer, you should determine whether
that dealer allows reinvestment of distributions in "street name" accounts.
Account Questions. If you have any questions about your account or the services
available, please call Eaton Vance Shareholder Services at 1-800-225-6265, or
write to the transfer agent (see back cover for address).
TAX INFORMATION
While the Fund attempts to minimize taxable distributions, there can be no
assurance that taxable distributions can be avoided. Distributions of investment
income and net realized short-term capital gains will be taxable as ordinary
income. Distributions of net realized long-term capital gains are taxable as
long-term gains. The Fund expects to pay any distributions annually.
Investors who purchase shares shortly before the record date of a distribution
will pay the full price for the shares and then receive some portion of the
purchase price back as a taxable distribution. Certain distributions paid in
January (if any) will be taxable to shareholders as if received on December 31
of the prior year. A redemption of Fund shares, including an exchange for shares
of another fund, is a taxable transaction.
Shareholders should consult with their advisers concerning the applicability of
state, local and other taxes to an investment.
10
<PAGE>
LOGO
Mutual Funds
for People
Who Pay
Taxes
More Information
- --------------------------------------------------------------------------------
About the Fund: More information is available in the statement of
additional information. The statement of additional information is
incorporated by reference into this prospectus. Additional
information about the Fund's investments is available in the annual
and semi-annual reports to shareholders. In the annual report, you
will find a discussion of the market conditions and investment
strategies that significantly affected the Fund's performance during
the past year. You may obtain free copies of the statement of
additional information and the shareholder reports by contacting:
EATON VANCE DISTRIBUTORS, INC.
The Eaton Vance Building
255 State Street
Boston, MA 02109
1-800-225-6265
website: www.eatonvance.com
You will find and may copy information about the Fund at the
Securities and Exchange Commission's public reference room in
Washington, DC (call 1-800-SEC-0330 for information on the operation
of the public reference room); on the SEC's Internet site
(http://www.sec.gov); or, upon payment of copying fees, by writing
to the SEC's public reference room in Washington, DC 20549-0102 or
by electronic mail at [email protected].
About Shareholder Accounts: You can obtain more information from
Eaton Vance Share- holder Services (1-800-225-6265). If you own
shares and would like to add to, redeem or change your account,
please write or call the transfer agent:
- --------------------------------------------------------------------------------
PFPC GLOBAL FUND SERVICES
P.O. Box 5123
Westborough, MA 01581-5123
1-800-262-1122
The Fund's SEC File No. is 811-4015 TMVP
<PAGE>
STATEMENT OF
ADDITIONAL INFORMATION
December 31, 1999
EATON VANCE TAX-MANAGED VALUE FUND
The Eaton Vance Building
255 State Street
Boston, Massachusetts 02109
(800) 225-6265
This Statement of Additional Information ("SAI") provides general
information about the Fund. The Fund is a series of Eaton Vance Mutual Funds
Trust. Capitalized terms used in this SAI and not otherwise defined have the
meanings given to them in the prospectus. This SAI contains additional
information about:
Page
Strategies and Risks ....................................... 2
Investment Restrictions .................................... 5
Management and Organization ................................ 6
Investment Advisory and Administrative Services ............ 9
Other Service Providers .................................... 10
Purchasing and Redeeming Shares ............................ 11
Sales Charges .............................................. 12
Performance ................................................ 16
Control Persons and Principal Holders of Shares ............ 17
Taxes ...................................................... 17
Portfolio Security Transactions ............................ 18
THIS SAI IS NOT A PROSPECTUS AND IS AUTHORIZED FOR DISTRIBUTION TO
PROSPECTIVE INVESTORS ONLY IF PRECEDED OR ACCOMPANIED BY THE FUND'S PROSPECTUS
DATED DECEMBER 31, 1999, AS SUPPLEMENTED FROM TIME TO TIME, WHICH IS
INCORPORATED HEREIN BY REFERENCE. THIS SAI SHOULD BE READ IN CONJUNCTION WITH
THE PROSPECTUS, WHICH MAY BE OBTAINED BY CALLING 1-800-225-6265.
<PAGE>
STRATEGIES AND RISKS
Under normal market conditions, the Fund will invest at least 65% of its
total assets in value stocks as described in the prospectus. The Fund may invest
up to 35% of its assets in preferred stocks, warrants, money market instruments
(to meet anticipated redemption requests or while investment of cash is pending)
and other securities and instruments.
TAX-MANAGED INVESTING. Taxes are a major influence on the net returns that
investors receive on their taxable investments. There are four components of the
returns of an equity mutual fund -- price appreciation, distributions of income
and distributions of realized short-term and long-term capital gains -- which
are treated differently for federal income tax purposes. Distributions of net
investment income and net realized short-term gains (on stocks held less than 12
months) are taxed as ordinary income, at federal rates as high as 39.6%.
Distributions of realized long-term gains (on stocks held at least 12 months)
are taxed at federal rates up to 20%. Returns derived from price appreciation
are untaxed until the shareholder redeems. Upon redemption, a capital gain equal
to the difference between the net proceeds of the redemption and the
shareholder's adjusted tax basis is realized.
The Fund is similar to retirement planning products such as variable
annuities and IRAs in that they are vehicles for long-term, tax-deferred
investing. As a mutual fund, however, the Fund avoids a number of structural
disadvantages inherent in a variable annuity--including the limitations and
penalties on early withdrawals, the taxing of all income and gain upon
withdrawal at ordinary income rates, and the inability to gain a step up in
basis at death. Variable annuities offer tax-free exchanges and a death benefit,
which are not offered by the Fund. Eligibility to invest in IRAs and annual
contributions to IRAs are limited. Contributions to deductible IRAs can be made
from pre-tax dollars and distributions from Roth IRAs are not taxed if certain
requirements are met.
An analysis of long-term hypothetical returns achievable from a tax- managed
equity fund that achieves returns predominantly from unrealized gains compared
to a conventional equity mutual fund and a variable annuity can illustrate the
fundamental soundness of a tax-managed equity fund investment. Assuming
identical annual pre-tax returns, over a holding period of several years a
tax-managed fund can generate liquidation proceeds higher than a conventional
managed equity mutual fund and a variable annuity. If the investments are passed
into an estate (thereby triggering a step-up in basis), the relative performance
advantage of a tax-managed fund compared to a conventional fund or to a variable
annuity can be substantial, again assuming equivalent annual returns before
taxes. Of course, actual returns achieved by long-term investors in the Fund
cannot be predicted.
FOREIGN SECURITIES. Investing in securities issued by foreign-domiciled
companies may involve significant risks not present in domestic investments. For
example, there is generally less publicly available information about foreign
companies, particularly those not subject to the disclosure and reporting
requirements of the U.S. securities laws. Foreign issuers are generally not
bound by uniform accounting, auditing, and financial reporting requirements and
standards of practice comparable to those applicable to domestic issuers.
Investments in foreign securities also involve the risk of possible adverse
changes in investment or exchange control regulations, expropriation or
confiscatory taxation, limitation on the removal of funds or other assets,
political or financial instability or diplomatic and other developments which
could affect such investments. Further, economies of particular countries or
areas of the world may differ favorably or unfavorably from the economy of the
United States. It is anticipated that in most cases the best available market
for foreign securities will be on exchanges or in over-the-counter markets
located outside of the United States. Foreign stock markets, while growing in
volume and sophistication, are generally not as developed as those in the United
States, and securities of some foreign issuers (particularly those located in
developing countries) may be less liquid and more volatile than securities of
comparable U.S. companies. In addition, foreign brokerage commissions are
generally higher than commissions on securities traded in the United States and
may be non-negotiable. In general, there is less overall governmental
supervision and regulation of foreign securities markets, broker-dealers, and
issuers than in the United States.
DERIVATIVE INVESTMENTS. The Fund may purchase or sell derivative instruments to
hedge against securities price declines and currency movements, to enhance
returns and as a substitute for the purchase and sale of securities.
Transactions in derivative instruments (which derive their value by reference to
other securities, indices, instruments, or currencies) may be conducted in the
U.S. and abroad. Such transactions may include the purchase and sale of stock
index futures contracts and options on stock index futures; the purchase of put
options and the sale of call options on securities held; equity swaps; and the
purchase and sale of forward currency exchange contracts and currency futures.
Derivative transactions may be more advantageous in a given circumstance than
transactions involving securities due to more favorable current tax treatment,
lower transaction costs, or greater liquidity. While many derivative instruments
have built-in leveraging characteristics, the Fund will not use them for the
purpose of leverage. The purchase and sale of derivative instruments is a highly
specialized activity that can expose the Fund to a significant risk of loss. The
use of futures for nonhedging purposes is limited by regulations of the
Commodity Futures Trading Commission ("CFTC"). There can be no assurance that
the use of derivative instruments will be advantageous.
EQUITY SWAPS AND OTC OPTIONS. Equity swaps and over-the-counter options
contracts will only be entered into with counterparties whose credit quality or
claims paying ability are considered to be investment grade by the investment
adviser. In addition, at the time of entering into a transaction, the Fund's
credit exposure to any one counterparty will be limited to 5% or less of net
assets. As described below, the Fund's investment in illiquid assets, which may
include certain equity swaps and over-the-counter options, may not represent
more than 15% of net assets at the time any such illiquid assets are acquired.
FOREIGN CURRENCY TRANSACTIONS. The value of foreign assets as measured in U.S.
dollars may be affected favorably or unfavorably by changes in foreign currency
exchange rates and exchange control regulations. Currency exchange rates can
also be affected unpredictably by intervention by U.S. or foreign governments or
central banks, or the failure to intervene, or by currency controls or political
developments in the U.S. or abroad. Foreign currency exchange transactions may
be conducted on a spot (i.e., cash) basis at the spot rate prevailing in the
foreign currency exchange market or through entering into swaps, forward
contracts, options or futures on currency. On spot transactions, foreign
exchange dealers generally do not charge a fee for conversion, but they do
realize a profit based on the difference (the "spread") between the prices at
which they are buying and selling various currencies. Thus, a dealer may offer
to sell a foreign currency at one rate, while offering a lesser rate of exchange
should the investment adviser desire to resell that currency to the dealer.
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS AND CURRENCY FUTURES. Forward
foreign currency contracts ("forward contracts") are individually negotiated and
privately traded by currency traders and their customers. A forward contract
involves an obligation to purchase or sell a specific currency (or basket of
currencies) for an agreed price at a future date, which may be any fixed number
of days from the date of the contract. The investment adviser may enter into a
forward contract in connection with the purchase or sale of a security
denominated in a foreign currency, or when it anticipates the receipt in a
foreign currency of dividend or interest payments on such a security which it
holds, to "lock" in the U.S. dollar price of the security or the U.S. dollar
equivalent of such dividend or interest payment, as the case may be.
Additionally, when the investment adviser believes that the currency of a
particular foreign country may suffer a substantial decline against the U.S.
dollar, it may enter into a forward contract to sell, for a fixed amount of
dollars, the amount of foreign currency approximating the value of some or all
of the securities denominated in such foreign currency. The precise matching of
the forward contract amounts and the value of the securities involved will not
generally be possible. Forward contracts with a term of greater than one year
generally will not be entered into.
Currency futures contracts are exchange-traded instruments that may be used
for the purposes described in the preceding paragraphs as an alternative to the
purchase or sale of forward currency exchange contracts. Currency futures
contracts are similar in structure to stock index futures contracts, but change
in value to reflect the movements of a currency or basket of currencies rather
than a stock index. Investments in currency contracts are subject to limitations
and restrictions similar to those set forth for investments in stock index
futures and options on stock index futures.
RISKS ASSOCIATED WITH DERIVATIVE INSTRUMENTS. Entering into a derivative
instrument involves a risk that the applicable market will move against the
position held and that a loss will result. For derivative instruments other than
purchased options, this loss may exceed the amount of the initial investment
made or the premium received. Derivative instruments may sometimes increase or
leverage exposure to a particular market risk. Leverage enhances exposure to the
price volatility of derivative instruments. Success in using derivative
instruments to hedge portfolio assets depends on the degree of price correlation
between the derivative instruments 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 other assets held in the portfolio. Over-the-counter
("OTC") derivative instruments involve an enhanced risk that the issuer or
counterparty will fail to perform its contractual obligations. Some derivative
instruments are not readily marketable or may become illiquid under adverse
market conditions. In addition, during periods of market volatility, a commodity
exchange may suspend or limit trading in an exchange-traded derivative
instrument, which may make the contract temporarily illiquid and difficult to
price. Commodity exchanges may also establish daily limits on the amount that
the price of a futures contract or futures option can vary from the previous
day's settlement price. Once the daily limit is reached, no trades may be made
that day at a price beyond the limit. This may prevent the closing out of
positions and limiting losses. The staff of the Securities and Exchange
Commission (the "SEC") takes the position that certain purchased OTC options,
and assets used as cover for written OTC options, are subject to the 15% limit
on illiquid investments. The ability to terminate OTC derivative instruments may
depend on the cooperation of the counterparties to such contracts. For thinly
traded derivative instruments, the only source of price quotations may be the
selling dealer or counterparty. In addition, certain provisions of the Code
limit the extent to which derivative instruments may be purchased and sold.
Transactions in futures contracts and related options will be entered into only
to the extent such transactions are consistent with the requirements of the Code
for maintaining qualification as a regulated investment company for federal
income tax purposes.
LIMITATIONS ON FUTURES CONTRACTS AND OPTIONS. All futures contracts will be
traded on exchanges or boards of trade that are licensed and regulated by the
CFTC and must be executed through a futures commission merchant or brokerage
firm that is a member of the relevant exchange. Under CFTC regulations, futures
contracts may only be entered into if, immediately thereafter, the value of the
aggregate initial margin with respect to all currently outstanding non-hedging
positions in futures contracts does not exceed 5% of net asset value, after
taking into account unrealized profits and losses on such positions.
In order to hedge current or anticipated portfolio positions, futures
contracts on securities held or on securities with characteristics similar to
those of the securities held may be used. If, in the opinion of the investment
adviser, there is a sufficient degree of correlation between price trends for
the securities held and futures contracts based on other financial instruments,
securities indices or other indices, such futures contracts may also be entered
into as part of its hedging strategy.
All call options on securities written will be covered. This means that, the
Fund will own the securities subject to the call option or an offsetting call
option so long as the call option is outstanding.
SHORT SALES AGAINST-THE-BOX. The Fund may sell securities short where it owns at
least an equal amount of the security sold short or another security convertible
or exchangeable for an equal amount of the security sold short without payment
of further compensation (a short sale against-the-box). In a short sale
against-the-box, the short seller is exposed to the risk of being forced to
deliver appreciated stock to close the position if the borrowed stock is called
in, causing a gain to be recognized. These transactions may also require the
current recognition of taxable gain under certain tax rules applicable to
constructive sales. The investment adviser expects normally to close short sale
against-the-box transactions by delivering newly-acquired stock. No more than
25% of assets is expected to be subject to short-sales against-the-box at any
one time.
The ability to use short sales against-the-box, certain equity swaps and
certain equity collar strategies as a tax-efficient management technique with
respect to holdings of appreciated securities is limited to circumstances in
which the hedging transaction is closed out within thirty days after the end of
the taxable year and the underlying appreciated securities position is held
unhedged for at least the next sixty days after the hedging transaction is
closed.
LENDING PORTFOLIO SECURITIES. The Fund may seek to earn income by lending
portfolio securities to broker-dealers or other institutional borrowers. 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 will be made only to organizations deemed by the
investment adviser to be sufficiently creditworthy and when, in the judgment of
the investment adviser, the consideration which can be earned from securities
loans of this type, net of administrative expenses and finders' fees, justifies
the attendant risk. Under present regulatory policies of the SEC, securities
loans are required to be secured continuously by collateral in cash, cash
equivalents or U.S. Government securities held by the 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. Securities will be loaned only to borrowers whose credit
quality or claims paying ability is considered to be investment grade by the
investment adviser. The financial condition of the borrower will be monitored by
the investment adviser on an ongoing basis. If a borrower of securities defaults
on a securities loan, the lender (i.e., the Fund will, under proposed Treasury
Regulations, be considered to have disposed of the securities in a taxable
transaction. Delays may be experienced in the recovery or loss of rights in
loaned securities if a borrower of securities fails financially. The lender of
the securities would continue to receive the equivalent of the interest or
dividends paid by the issuer on the securities loaned and would also receive a
fee, or all or a portion of the interest on investment of the collateral. The
lender of the securities would have the right to call a loan and obtain the
securities loaned at any time on up to five business days' notice. The lender
would not have the right to vote any securities having voting rights during the
existence of a loan, but could 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. Securities lending
involves administrative expenses, including finders' fees. If the investment
adviser decides to make securities loans, it is intended that the value of the
securities loaned would not exceed one-third of the Fund's total assets.
ASSET COVERAGE REQUIREMENTS. Transactions involving swaps, short sales, forward
contracts, futures contracts and options (other than options that the Fund has
purchased) create an obligation to another party. The Fund will not enter into
any such transactions unless it owns either (1) an offsetting ("covered")
position in securities, currencies, swaps, or other options, futures contracts
or forward contracts, or (2) cash or liquid securities (such as readily
marketable common stock and money market instruments) with a value sufficient at
all times to cover its potential obligations not covered as provided in (1)
above. (Only the net obligations of a swap will be covered.) The Fund will
comply with SEC guidelines regarding cover for these instruments and, if the
guidelines so require, set aside cash or liquid 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
custodian cannot be sold while the position requiring coverage or segregation is
outstanding unless they are replaced with other appropriate assets. As a result,
the commitment of a large portion of assets to segregated accounts or to cover
could impede portfolio management or the ability to meet redemption requests or
other current obligations.
TEMPORARY INVESTMENTS. Under unusual market conditions, the Fund may invest
temporarily in cash or cash equivalents. Cash equivalents are highly liquid,
short-term securities such as commercial paper, certificates of deposit,
short-term notes and short-term U.S. Government obligations.
PORTFOLIO TURNOVER. The Fund cannot accurately predict its portfolio turnover
rate, but it is anticipated that the annual turnover rate will generally be
lower than that of most other equity mutual funds, except to the extent the Fund
sells securities in order to generate capital losses. Selling securities to
generate capital losses will increase the Fund's turnover rate, resulting in
more commission expense.
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
outstanding shares are present or represented at the meeting or (b) more than
50% of the outstanding shares of the Fund. Accordingly, the Fund may not:
(1) Borrow money or issue senior securities except as permitted by the
Investment Company Act of 1940;
(2) Purchase any securities or evidences of interest therein on
"margin," that is to say in a transaction in which it has borrowed all or a
portion of the purchase price and pledged the purchased securities or
evidences of interest therein as collateral for the amount so borrowed;
(3) Engage in the underwriting of securities;
(4) Buy 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), commodities or commodity contracts for
the purchase or sale of physical commodities;
(5) Make loans to other persons, except by (a) the acquisition of debt
securities and making portfolio investments, (b) entering into repurchase
agreements, (c) lending portfolio securities and (d) lending cash consistent
with applicable law;
(6) With respect to 75% of its total assets, invest more than 5% of its
total assets (taken at current value) in the securities of any one issuer,
or invest in more than 10% of the outstanding voting securities of any one
issuer, except obligations issued or guaranteed by the U.S. Government, its
agencies or instrumentalities and except securities of other investment
companies; or
(7) Concentrate its investments in any particular industry, but, if
deemed appropriate for the Fund's objective, up to 25% of the value of its
assets may be invested in any one industry.
Notwithstanding the investment policies and restrictions, the Fund may
invest its assets in an open-end management investment company with
substantially the same investment objective, policies and restrictions as the
Fund; moreover, subject to Trustee approval, the Fund may invest its investable
assets in other open-end management investment companies in the same group of
investment companies with the same placement agent or investment adviser as the
Fund (or an affiliate thereof) if, with respect to such assets, the other
companies' permitted investments are substantially the same as those of the
Fund.
The Fund has adopted the following investment policies which may be changed
by the Trustees without shareholder approval. The Fund will not:
(a) invest more than 15% of its net assets in investments which are not
readily marketable, including restricted securities and repurchase
agreements with a maturity longer 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 its delegate, determines to be liquid. Any such
determination by a delegate will be made pursuant to procedures adopted by
the Board. If the Fund invests in Rule 144A Securities, the level of
portfolio illiquidity may be increased to the extent that eligible buyers
become uninterested in purchasing such securities; or
(b) sell or contract to sell any security which it does not own unless
by virtue of its ownership of other securities it has at the time of sale a
right to obtain securities equivalent in kind and amount to the securities
sold and provided that if such right is conditional the sale is made upon
the same conditions.
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, such percentage limitation shall be
determined immediately after and as a result of the Fund's acquisition of such
security or asset. Accordingly, any later increase or decrease resulting from a
change in values, assets or other circumstances, will not compel the Fund to
dispose of such security or other asset. Notwithstanding the foregoing, under
normal market conditions the Fund must take action to comply with its policy of
investing at least 65% of total assets in value stocks (as described in the
prospectus). Moreover, the Fund must always be in compliance with the borrowing
policy and 15% limitation on investing in illiquid securities set forth above.
MANAGEMENT AND ORGANIZATION
FUND MANAGEMENT. The Trustees of the Trust are responsible for the overall
management and supervision of the Trust's affairs. The Trustees and officers of
the Trust 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 The
Eaton Vance Building, 255 State Street, Boston, Massachusetts 02109. Those
Trustees who are "interested persons" of the Trust, as defined in the 1940 Act,
are indicated by an asterisk(*).
JAMES B. HAWKES (58), President and Trustee*
Chairman, President and Chief Executive Officer of Eaton Vance, BMR and their
corporate parent and trustee (EVC and EV). Director of EVC and EV. Trustee and
officer of various investment companies managed by Eaton Vance or BMR.
JESSICA M. BIBLIOWICZ (40), Trustee*
President and Chief Operating Officer of National Financial Partners (a
financial services company) (since April, 1999). President and Chief Operating
Officer of John A. Levin & Co. (a registered investment advisor) (July, 1997
to April, 1999) and a Director of Baker, Fentress & Company which owns John A.
Levin & Co. (July, 1997 to April, 1999). Executive Vice President of Smith
Barney Mutual Funds (from July, 1994 to June, 1997). Elected Trustee October
30, 1998. Trustee of various investment companies managed by Eaton Vance or
BMR since October 30, 1998.
Address: 1301 Avenue of the Americas, New York, New York 10019
DONALD R. DWIGHT (68), Trustee
President of Dwight Partners, Inc. (a corporate relations and communications
company). Trustee/Director of the Royce Funds (mutual funds). Trustee of
various investment companies managed by Eaton Vance or BMR.
Address: Clover Mill Lane, Lyme, New Hampshire 03768
SAMUEL L. HAYES, III (64), Trustee
Jacob H. Schiff Professor of Investment Banking Emeritus, Harvard University
Graduate School of Business Administration. Trustee of the Kobrick Investment
Trust (mutual funds). Trustee of various investment companies managed by Eaton
Vance or BMR.
Address: 345 Nahatan Road, Westwood, Massachusetts 02090
NORTON H. REAMER (64), 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). Trustee of
various investment companies managed by Eaton Vance or BMR.
Address: One International Place, Boston, Massachusetts 02110
LYNN A. STOUT (42), Trustee
Professor of Law, Georgetown University Law Center. Elected Trustee October
30, 1998. Trustee of various investment companies managed by Eaton Vance or
BMR since October 30, 1998.
Address: 600 New Jersey Avenue, NW, Washington, DC 20001
JACK L. TREYNOR (69), Trustee
Investment adviser and Consultant. Trustee of various investment companies
managed by Eaton Vance or BMR.
Address: 504 Via Almar, Palos Verdes Estates, California 90274
WILLIAM H. AHERN, JR. (40), Vice President
Vice President of Eaton Vance and BMR. Officer of various investment companies
managed by Eaton Vance or BMR.
THOMAS J. FETTER (56), Vice President
Vice President of Eaton Vance and BMR. Officer of various investment companies
managed by Eaton Vance or BMR.
ARMIN J. LANG (35), Vice President
Vice President of Eaton Vance and BMR since March, 1998. Previously he was a
Vice President at Standish, Ayer & Wood.
MICHAEL R. MACH (52), Vice President
Vice President of Eaton Vance and BMR since December 15, 1999. Previously, he
was a Managing Director and Senior Analyst for Robertson Stephens (1998-1999);
Managing Director and Senior Analyst for Piper Jaffray (1996-1998); and Senior
Vice President and Senior Analyst for Putnam Investments (1989-1996). Officer
of various investment companies managed by Eaton Vance or BMR.
ROBERT B. MACINTOSH (42), Vice President
Vice President of Eaton Vance and BMR. Officer of various investment companies
managed by Eaton Vance or BMR.
EDWARD E. SMILEY, JR. (55), Vice President
Vice President of Eaton Vance and BMR since November, 1996. Previously he was a
Senior Vice President at Nationsbank. Officer of various investment companies
managed by Eaton Vance or BMR.
JAMES L. O'CONNOR (54), Treasurer
Vice President of Eaton Vance and BMR. Officer of various investment companies
managed by Eaton Vance or BMR.
ALAN R. DYNNER (59), Secretary
Vice President and Chief Legal Officer of Eaton Vance, BMR, EVC and EV since
November 1, 1996. Previously, he was a Partner of the law firm of Kirkpatrick
& 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.
JANET E. SANDERS (64), Assistant Treasurer and Assistant Secretary
Vice President of Eaton Vance and BMR. Officer of various investment companies
managed by Eaton Vance or BMR.
A. JOHN MURPHY (37), Assistant Secretary
Vice President of Eaton Vance and BMR. Officer of various investment companies
managed by Eaton Vance or BMR.
ERIC G. WOODBURY (42), Assistant Secretary
Vice President of Eaton Vance and BMR. Officer of various investment companies
managed by Eaton Vance or BMR.
The Nominating Committee of the Board of Trustees of the Trust is comprised
of the Trustees who are not "interested persons" as that term is defined under
the 1940 Act ("noninterested Trustees"). 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. Hayes (Chairman), Dwight and Reamer and Ms. Stout are members of the
Special Committee of the Board of Trustees of the Trust. 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, including investment advisory, administrative, transfer
agency, custodial and 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 or its shareholders.
Messrs. Treynor (Chairman) and Dwight are members of the Audit Committee of
the Board of Trustees of the Trust. 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.
Trustees of the Trust 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 Fund 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 Fund's assets, liabilities, and net income per share, and will not
obligate the Fund to retain the services of any Trustee or obligate the Fund to
pay any particular level of compensation to the Trustees. The Trust does not
have a retirement plan for its Trustees.
The fees and expenses of the noninterested Trustees of the Trust are paid by
the Fund (and the other series of the Trust). (The Trustees of the Trust who are
members of the Eaton Vance organization receive no compensation from the Trust.)
During the fiscal year ended October 31, 1999, the noninterested Trustees of the
Trust earned the following compensation in their capacities as Trustees of the
Trust and for the year ended December 31, 1998, earned the following
compensation in their capacities as Trustees of all of the funds in the Eaton
Vance fund complex(1):
<TABLE>
<CAPTION>
SOURCE OF JESSICA M. DONALD R. SAMUEL L. NORTON H. LYNN A. JACK L.
COMPENSATION BIBLIOWICZ(5) DWIGHT HAYES, III REAMER STOUT(5) TREYNOR
------------ ------------- ------ ---------- ------ -------- -------
<S> <C> <C> <C> <C> <C> <C>
Trust(2) $ 1,656 $ 7,026 $ 7,450 $ 6,996 $ 1,399 $ 7,371
Trust and Fund
Complex $33,334 $160,000(3) $170,000(4) $160,000 $32,842 $170,000
- ----------
(1) As of December 31, 1999, the Eaton Vance complex consists of 143 registered investment companies or series thereof.
(2) The Trust consisted of 16 Funds as of October 31, 1999.
(3) Includes $60,000 of deferred compensation.
(4) Includes $41,563 of deferred compensation.
(5) Ms. Bibliowicz and Ms. Stout were elected Trustees on October 30, 1998.
</TABLE>
ORGANIZATION. The Fund is a series of the Trust, which is organized under
Massachusetts law, and is operated as an open-end management investment company.
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. Each class
represents an interest in the Fund, but is subject to different expenses, rights
and privileges. The Trustees have the authority under the Declaration of Trust
to create additional classes of shares with differing rights and privileges.
When issued and outstanding, shares are fully paid and nonassessable by the
Trust. 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.
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 By-laws provide that no person shall serve as a Trustee if
shareholders holding two-thirds of the outstanding shares have removed him from
that office either by a written declaration filed with the Trust's custodian or
by votes cast at a meeting called for that purpose. The By-laws further provide
that under certain circumstances the shareholders may call a meeting to remove a
Trustee and that the Trust is required to provide assistance in communication
with shareholders about such a meeting.
The 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 rights or interests of
shareholders or if they deem it necessary to conform it to applicable federal or
state laws or regulations. The Trust's By-laws provide that the Trust will
indemnify its Trustees and officers against liabilities and expenses incurred in
connection with any litigation or proceeding in which they may be involved
because of their offices with the Trust. However, no indemnification will be
provided to any Trustee or officer for any liability to the Trust or its
shareholders by reason of willful misfeasance, bad faith, gross negligence or
reckless disregard of the duties involved in the conduct of his office. 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
shall 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.
INVESTMENT ADVISORY AND ADMINISTRATIVE SERVICES
INVESTMENT ADVISORY SERVICES. The Trust has engaged Eaton Vance to act as the
Fund's investment adviser. As investment adviser to the Fund, Eaton Vance
manages the Fund's investments, subject to the supervision of the Board of
Trustees of the Trust. Eaton Vance is also responsible for effecting all
security transactions on behalf of the Fund, including the allocation of
principal transactions and portfolio brokerage and the negotiation of
commissions.
Eaton Vance furnishes to the Fund investment research, advice and
assistance, administrative services, office space, equipment and clerical
personnel, and investment advisory, statistical and research facilities, and has
arranged for certain members of the Eaton Vance organization to serve without
salary as officers or Trustees of the Trust. The Fund is responsible for all
expenses not expressly stated to be payable by Eaton Vance under the Investment
Advisory Agreement, including, without limitation, the fees and expenses of its
custodian and transfer agent, including those incurred for determining the
Fund's net asset value and keeping its books; the cost of share certificates;
membership dues in investment company organizations; brokerage commissions and
fees; fees and expenses of registering its shares; expenses of reports to
shareholders, proxy statements, and other expenses of shareholders' meetings;
insurance premiums; printing and mailing expenses; interest, taxes and corporate
fees; legal and accounting expenses; and compensation and expenses of Trustees
not affiliated with Eaton Vance. The Fund will also bear expenses incurred in
connection with litigation, proceedings and claims and any legal obligation of
the Trust to indemnify its officers and Trustees with respect thereto, to the
extent not covered by insurance.
For a description of the compensation that Fund pays Eaton Vance under the
Investment Advisory Agreement on average daily net assets up to $500 million,
see the prospectus. On net assets of $500 million and over the annual fee is
reduced and the advisory fee is computed as follows:
ANNUALIZED FEE RATE
AVERAGE DAILY NET ASSETS FOR THE MONTH (FOR EACH LEVEL)
- -----------------------------------------------------------------------------
$500 million but less than $1 billion 0.625%
$1 billion but less than $2.5 billion 0.600%
The Investment Advisory Agreement continues in effect from year to year so
long as such continuance is approved at least annually (i) by the vote of a
majority of the noninterested Trustees of the Trust 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 Trust or by vote of a majority of the outstanding
voting securities of the Fund. The Agreement may be terminated at any time
without penalty on sixty days' written notice by the Board of Trustees of either
party or by vote of the majority of the outstanding voting securities of the
Fund, and the Agreement will terminate automatically in the event of its
assignment. The Agreement provides that the investment adviser may render
services to others. The Agreement also provides that the investment adviser
shall not be liable for any loss incurred in connection with the performance of
its duties, or action taken or omitted under the 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.
ADMINISTRATIVE SERVICES. As indicated in the prospectus, Eaton Vance serves as
administrator of the Fund, and the Fund is authorized to pay Eaton Vance a fee
in the amount of 0.15% of average daily net assets 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.
INFORMATION ABOUT EATON VANCE. Eaton Vance and Eaton Vance, Inc. ("EV") are
wholly-owned subsidiaries of Eaton Vance Corporation ("EVC"), a Maryland
corporation and publicly-held holding company. Eaton Vance is a Massachusetts
business trust, and EV is the trustee of Eaton Vance. EVC through its
subsidiaries and affiliates engages primarily in investment management,
administration and marketing activities. The Directors of EVC are James B.
Hawkes, John G.L. Cabot, John M. Nelson, Vincent M. O'Reilly and Ralph Z.
Sorenson. All of the issued and outstanding shares of Eaton Vance are owned by
EVC. All shares of the outstanding Voting Common Stock of EVC are deposited in a
Voting Trust, the Voting Trustees of which are Messrs. Hawkes, Jeffrey P. Beale,
Alan R. Dynner, Thomas E. Faust, Jr., Thomas J. Fetter, Scott H. Page, Duncan W.
Richardson, William M. Steul, Payson F. Swaffield, Michael W. Weilheimer, and
Wharton P. Whitaker (all of whom are officers of Eaton Vance). 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 Eaton Vance who are also officers, or
officers and Directors of EVC and EV. As indicated under "Management and
Organization," all of the officers of the Trust (as well as Mr. Hawkes who is
also a Trustee) hold positions in the Eaton Vance organization.
EXPENSES. The Fund is responsible for all expenses not expressly stated to be
payable by another party (such as the investment adviser under the Investment
Advisory Agreement, Eaton Vance under the Administrative Services Agreement or
the principal underwriter under the Distribution Agreement). In the case of
expenses incurred by the Trust, the Fund is responsible for its pro rata share
of those expenses. The only expenses of the Fund allocated to a particular class
are those incurred under the Distribution or Service Plan applicable to that
class and those resulting from the fee paid to the principal underwriter for
repurchase transactions.
OTHER SERVICE PROVIDERS
PRINCIPAL UNDERWRITER. Eaton Vance Distributors, Inc. ("EVD"), The Eaton Vance
Building, 255 State Street, Boston, MA 02109, is the Fund's principal
underwriter. The principal underwriter acts as principal in selling shares under
a Distribution Agreement with the Trust. The expenses of printing copies of
prospectuses used to offer shares and other selling literature and of
advertising are 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. The Distribution Agreement as it applies to Class A shares is renewable
annually by the Board of Trustees of the Trust (including a majority of the
noninterested Trustees) may be terminated on six months' notice by either party
and is automatically terminated upon assignment. The Distribution Agreement as
it applies to Class B and Class C shares 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
Plan or the Distribution Agreement), may be terminated on sixty days' notice
either by such Trustees or by vote of a majority of the outstanding shares of
the relevant class or on six months' notice by the principal underwriter and is
automatically terminated upon assignment. The principal underwriter distributes
shares on a "best efforts" basis under which it is required to take and pay for
only such shares as may be sold. The principal underwriter allows investment
dealers discounts from the applicable public offering price which are alike for
all investment dealers. See "Sales Charges". EVD is a wholly-owned subsidiary of
EVC. Mr. Hawkes is a Vice President and Director and Messrs. Dynner and O'Connor
are Vice Presidents of EVD.
CUSTODIAN. Investors Bank & Trust Company ("IBT"), 200 Clarendon Street, Boston,
MA 02116, serves as custodian to the Fund. IBT has the custody of all cash and
securities of the Fund, maintains the Fund's general ledger and computes the
daily net asset value of the Fund. In such capacity it attends to details in
connection with the sale, exchange, substitution, transfer or other dealings
with the Fund's investments, receives and disburses all funds and performs
various other ministerial duties upon receipt of proper instructions from the
Trust. IBT also provides services in connection with the preparation of
shareholder reports and the electronic filing of such reports with the SEC. EVC
and its affiliates and their officers and employees from time to time have
transactions with various banks, including 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 and such banks.
INDEPENDENT ACCOUNTANTS. Deloitte & Touche LLP, 200 Berkeley Street, Boston, MA
02116, are the independent accountants of the Fund, providing audit services,
tax return preparation, and assistance and consultation with respect to the
preparation of filings with the SEC.
TRANSFER AGENT. PFPC Global Fund Services, P.O. Box 5123, Westborough, MA
01581-5123, serves as transfer and dividend disbursing agent for the Fund.
PURCHASING AND REDEEMING SHARES
CALCULATION OF NET ASSET VALUE. The net asset value of the Fund is computed by
IBT (as agent and custodian for the Fund) in the manner described in the
prospectus. The Fund will be closed for business and will not price their
respective shares 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.
The Trustees of the Trust have established the following procedures for the
fair valuation of the Fund's assets under normal market conditions. Securities
listed on foreign or U.S. securities exchanges or in the NASDAQ National Market
System generally are valued at the last sale prices or, if there were no sales
on a particular day, at the mean between the closing bid and asked prices
therefor on the exchange where such securities are principally traded or on such
National Market System. Unlisted or listed securities for which closing sale
prices are not available are valued at the mean between the latest bid and asked
prices. An option is valued at the last sale price as quoted on the principal
exchange or board of trade on which such option or contract is traded, or in the
absence of a sale, at the mean between the last bid and asked prices. Futures
positions on securities or currencies are generally valued at closing settlement
prices. Short-term debt securities with a remaining maturity of 60 days or less
are valued at amortized cost. If securities were acquired with a remaining
maturity of more than 60 days, their amortized cost value will be based on their
value on the sixty-first day prior to maturity. Other fixed income and debt
securities, including listed securities and securities for which price
quotations are available, will normally be valued on the basis of valuations
furnished by a pricing service. All other securities are valued at fair value as
determined in good faith by or at the direction of the Trustees.
Generally, trading in the foreign securities owned by the Fund is
substantially completed each day at various times prior to the close of the
Exchange. The values of these securities used in determining the net asset value
of the Fund's shares generally are computed as of such times. Occasionally,
events affecting the value of foreign securities may occur between such times
and the close of the Exchange which will not be reflected in the computation of
the Fund's net asset value (unless the Fund deems that such events would
materially affect its net asset value, in which case an adjustment would be made
and reflected in such computation). Foreign securities and currency held by the
Fund will be valued in U.S. dollars; such values will be computed by the
custodian based on foreign currency exchange rate quotations supplied by an
independent quotation service.
ADDITIONAL INFORMATION ABOUT PURCHASES. Fund shares are continuously offered
through investment dealers which have entered agreements with the principal
underwriter. The public offering price is the net asset value next computed
after receipt of the order, plus, in the case of Class A shares, a variable
percentage (sales charge) depending upon the amount of purchase as indicated by
the sales charge table set forth in the prospectus. The sales charge is divided
between the principal underwriter and the investment dealer. The sales charge
table is applicable to purchases of the Fund alone or in combination with
purchases of certain other funds offered by the principal underwriter, made at a
single time by (i) an individual, or an individual, his spouse and their
children under the age of twenty-one, purchasing shares for his or their own
account, and (ii) a trustee or other fiduciary purchasing shares for a single
trust estate or a single fiduciary account. The table is also presently
applicable to (1) purchases of Class A shares pursuant to a written Statement of
Intention; or (2) purchases of Class A shares pursuant to the Right of
Accumulation and declared as such at the time of purchase. See "Sales Charges".
In connection with employee benefit or other continuous group purchase
plans, the Fund 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 Fund as described below.
SUSPENSION OF SALES. The Trust may, in its absolute discretion, suspend,
discontinue or limit the offering of one or more of its classes of 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 Class B and Class C Distribution Plans may continue
in effect and payments may be made under the Plans 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.
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 public offering price of Class A
shares or 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 securities. Securities determined to be acceptable should be
transferred via book entry or physically delivered, in proper form for transfer,
through an investment dealer, together with a completed and signed Letter of
Transmittal in approved form (available from investment dealers). 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.
ADDITIONAL INFORMATION ABOUT REDEMPTIONS. 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
SEC, or during any emergency as determined by the SEC which makes it
impracticable for the Fund to dispose of its securities or value its assets, or
during any other period permitted by order of the SEC for the protection of
investors.
Due to the high cost of maintaining small accounts, the Trust 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 by the Trust
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 involuntary redemptions.
SYSTEMATIC WITHDRAWAL PLAN. The transfer agent will send to the shareholder
regular monthly or quarterly payments of any permitted amount designated by the
shareholder based upon the value of the shares held. The checks will be drawn
from share redemptions and hence, may require the recognition of taxable gain or
loss. Income dividends and capital gains distributions in connection with
withdrawal plan 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 or 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.
SALES CHARGES
DEALER COMMISSIONS. The principal underwriter may, from time to time, at its own
expense, provide additional incentives to investment dealers 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 investment dealers 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 investment dealers. The principal underwriter
may allow, upon notice to all investment dealers with whom it has agreements,
discounts up to the full sales charge during the periods specified in the
notice. During periods when the discount includes the full sales charge, such
investment dealers may be deemed to be underwriters as that term is defined in
the Securities Act of 1933.
SALES CHARGE WAIVERS. Class A shares may be sold at net asset value to current
and retired Directors and Trustees of Eaton Vance funds; to clients and current
and retired officers and employees of Eaton Vance, its affiliates and other
investment advisers of Eaton Vance sponsored funds; to officers and employees of
IBT and the transfer agent; to persons associated with law firms, consulting
firms and others providing services to Eaton Vance and the Eaton Vance funds;
and to such persons' spouses, parents, siblings and children and their
beneficial accounts. Such shares may also be issued at net asset value (1) in
connection with the merger of an investment company (or series or class thereof)
with the Fund (or class thereof), (2) to investors making an investment as part
of a fixed fee program whereby an entity unaffiliated with the investment
adviser provides multiple investment services, such as management, brokerage and
custody, and (3) to investment advisors, financial planners or other
intermediaries who place trades for their own accounts or the accounts of their
clients and who charge a management, consulting or other fee for their services;
clients of such investment advisors, financial planners or other intermediaries
who place trades for their own accounts if the accounts are linked to the master
account of such investment advisor, financial planner or other intermediary on
the books and records of the broker or agent. Class A shares may also be sold at
net asset value to registered representatives and employees of investment
dealers and bank employees who refer customers to registered representatives of
investment dealers and to retirement and deferred compensation plans and trusts
used to fund those plans, including, but not limited to, those defined in
Section 401(a), 403(b) or 457 of the Internal Revenue Code of 1986, as amended
(the "Code") and "rabbi trusts". Class A shares may be sold at net asset value
to any investment advisory, agency, custodial or trust account managed or
administered by Eaton Vance or by any parent, subsidiary or other affiliate of
Eaton Vance. Class A shares are offered at net asset value to the foregoing
persons and in the foregoing situations because either (i) there is no sales
effort involved in the sale of shares or (ii) the investor is paying a fee
(other than the sales charge) to the investment dealer involved in the sale.
The CDSC applicable to Class B shares will be waived in connection with
minimum required distributions from tax-sheltered retirement plans by applying
the rate required to be withdrawn under the applicable rules and regulations of
the Internal Revenue Service to the balance of Class B shares in your account.
STATEMENT OF INTENTION. If it is anticipated that $50,000 or more of Class A
shares and shares of other funds exchangeable for Class A shares of another
Eaton Vance fund will be purchased within a 13-month period, a Statement of
Intention should be signed so that shares may be obtained at the same reduced
sales charge as though the total quantity were invested in one lump sum. Shares
held under Right of Accumulation (see below) as of the date of the Statement
will be included toward the completion of the Statement. The Statement
authorizes the transfer agent to hold in escrow sufficient shares (5% of the
dollar amount specified in the Statement) which can be redeemed to make up any
difference in sales charge on the amount intended to be invested and the amount
actually invested. Execution of a Statement does not obligate the shareholder to
purchase or the Fund to sell the full amount indicated in the Statement, and
should the amount actually purchased during the 13-month period be more or less
than that indicated on the Statement, price adjustments will be made. Any
investor considering signing a Statement of Intention should read it carefully.
RIGHT OF ACCUMULATION. The applicable sales charge level for the purchase of
Class A shares is calculated by taking the dollar amount of the current purchase
and adding it to the value (calculated at the maximum current offering price) of
the Class A shares the shareholder owns in his or her account(s) in the Fund,
and shares of other funds exchangeable for Class A shares. The sales charge on
the shares being purchased will then be at the rate applicable to the aggregate.
Shares purchased (i) by an individual, his or her spouse and their children
under the age of twenty-one, and (ii) by a trustee, guardian or other fiduciary
of a single trust estate or a single fiduciary account, will be combined for the
purpose of determining whether a purchase will qualify for the Right of
Accumulation and if qualifying, the applicable sales charge level. For any such
discount to be made available, at the time of purchase a purchaser or his or her
investment dealer must provide the principal underwriter (in the case of a
purchase made through an investment dealer) or the transfer agent (in the case
of an investment made by mail) with sufficient information to permit
verification that the purchase order qualifies for the accumulation privilege.
Confirmation of the order is subject to such verification. The Right of
Accumulation privilege may be amended or terminated at any time as to purchases
occurring thereafter.
TAX-SHELTERED RETIREMENT PLANS. Class A and Class C shares 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.
DISTRIBUTION AND SERVICE PLANS. The Trust has in effect a Service Plan (the
"Class A Plan") for the Fund's Class A shares that is designed to meet the
service fee requirements of the sales charge rule of the National Association of
Securities Dealers, Inc. (the "NASD"). (Management believes service fee payments
are not distribution expenses governed by Rule 12b-1 under the 1940 Act, but has
chosen to have the Plan approved as if that Rule were applicable.) The Class A
Plan provides that each Class A may make service fee payments for personal
services and/or the maintenance of shareholder accounts to the principal
underwriter, investment dealers and other persons in amounts not exceeding .25%
of its average daily net assets for any fiscal year.
The Trust also has in effect compensation-type Distribution Plans (the
"Class B and Class C Plans") pursuant to Rule 12b-1 under the 1940 Act for the
Fund's Class B and Class C shares. The Class B and Class C Plans are designed to
permit an investor to purchase shares through an investment dealer without
incurring an initial sales charge and at the same time permit the principal
underwriter to compensate investment dealers in connection therewith. The Class
B and Class C 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 shares. On each sale of shares (excluding reinvestment of
distributions), the Fund will pay the principal underwriter amounts representing
(i) sales commissions equal to 5% for Class B shares and 6.25% for Class C
shares 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. To pay
these amounts, each Class 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 investment dealers on
the sale of shares and for interest expenses. For sales of Class B shares, the
principal underwriter uses its own funds to pay sales commissions (except on
exchange transactions and reinvestments) to investment dealers at the time of
sale equal to 4% of the purchase price of the Class B shares sold by such
dealers. For Class C shares, the principal underwriter currently expects to pay
to an investment dealer (a) sales commissions (except on exchange transactions
and reinvestments) at the time of sale equal to .75% of the purchase price of
the shares sold by such dealer, and (b) monthly sales commissions approximately
equivalent to 1/12 of .75% of the value of shares sold by such dealer 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 investment dealers
at the time of sale. CDSCs paid to the principal underwriter will be used to
reduce amounts owed to it. The Class B and Class C Plans provide that the Fund
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.
Because payments to the principal underwriter under the Class B and Class C
Plans are limited, uncovered distribution charges (sales commissions paid by the
principal underwriter plus interest, less the above fees and CDSCs received by
it) may exist indefinitely.
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 Plan since its inception. Payments theretofore paid or payable
under the Class B and Class C 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
investment dealers), 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
Class B and Class C Plans.
The Class B and Class C Plans also authorize each Class to make payments of
service fees to the principal underwriter, investment dealers and other persons
in amounts not exceeding .25% of its average daily net assets for personal
services, and/or the maintenance of shareholder accounts. This fee is paid
quarterly in arrears based on the value of Class B shares sold by such persons.
For Class C, investment dealers currently receive (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 dealer, and (b) monthly
service fees approximately equivalent to 1/12 of .25% of the value of Class C
shares sold by such dealer 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 investment dealers at the time of sale.
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. 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 at the
time of sale, it is anticipated that the Eaton Vance organization will profit by
reason of the operation of the Class B and Class C Plans through an increase in
the Fund's assets (thereby increasing the advisory fee payable to Eaton Vance by
the Fund) 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 Class B and
Class C Plans if at any point in time the aggregate amounts theretofore received
by the principal underwriter pursuant to the Class B or Class C Plan and from
CDSCs have exceeded the total expenses theretofore incurred by such organization
in distributing shares. 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 Class A and Class B and Class C Plans continue in effect from year to
year 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 "Plan Trustees") and (ii) all of the
Trustees then in office. Each Plan may be terminated at any time by vote of a
majority of the Plan Trustees or by a vote of a majority of the outstanding
voting securities of the applicable Class. Each Plan requires quarterly Trustee
review of a written report of the amount expended under the Plan 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 a Plan is in
effect, the selection and nomination of the noninterested Trustees shall be
committed to the discretion of such Trustees. The Class A, Class B and Class C
Plans were initially approved by the Trustees on August 16, 1999.
The Trustees of the Trust believe that each Plan 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 shareholders. Payments for sales commissions and
distribution fees made to the principal underwriter under the Class B and Class
C Plans will compensate the principal underwriter for its services and expenses
in distributing those classes of shares. Service fee payments made to the
principal underwriter and investment dealers provide incentives to provide
continuing personal services to investors and the maintenance of shareholder
accounts. By providing incentives to the principal underwriter and investment
dealers, each Plan is 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 each Plan will benefit the Fund
and its shareholders.
PERFORMANCE
Average annual total return is determined seperately 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)
the deduction of the maximum sales charge from the initial $1,000 purchase order
for Class A shares, (iii) a complete redemption of the investment and, (iv) the
deduction of any CDSC at the end of the period. The Fund may also publish total
return figures for each class based on reduced sales charges or a net asset
value. These returns would be lower if the full sales charge was imposed.
The Fund may use total return figures showing after-tax returns, including
comparisons to tax-deferred vehicles such as Individual Retirement Accounts
("IRAs") and variable annuities. In calculating after-tax returns, the Fund
will, in general, assume that its shareholders are U.S. individual taxpayers
subject to federal income taxes at the highest marginal rate then applicable to
ordinary income and long-term capital gains. After-tax returns may also be
calculated using different tax rate assumptions and taking into account state
and local income taxes as well as federal taxes. In calculating after-tax
returns, distributions made by the Fund are assumed to be reduced by the amount
of taxes payable on the distribution, and the after-tax proceeds of the
distribution are reinvested in the Fund at net asset value on the reinvestment
date.
Total return may be compared to relevant indices, such as the Consumer Price
Index and various domestic and foreign securities indices. The Fund's total
return and companies with these indices may be used in advertisements and in
information furnished to present or prospective shareholders. In addition,
evaluations of the Fund's performance or rankings of mutual funds (which include
the Fund) made by independent sources may be used in advertisements and in
information furnished to present or prospective shareholders. Information,
charts and illustrations showing the effect of compounding interest or relating
to inflation and taxes (including their effects on the dollar and the return on
stocks and other investment vehicles) may also be included in advertisements and
materials furnished to present and prospective investors.
Information used in advertisements and in materials furnished to present or
prospective shareholders may include statistics, data and performance studies
prepared by independent organizations or included in various publications
reflecting the investment performance or return achieved by various classes and
types of investments (e.g. common stocks, small company stocks, long-term
corporate bonds, long-term government bonds, intermediate- term government
bonds, U.S. Treasury bills) over various periods of time. This information may
be used to illustrate the benefits of long-term investments in common stocks.
Information used in advertisements and in materials provided to present and
prospective shareholders may include descriptions of Eaton Vance and other Fund
service providers, their investment styles, other investment products, personnel
and Fund distribution channels.
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:
-- costs 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 equity
securities. Such information may describe: the potential for growth; the
performance of equities as compared to other investment vehicles; and the value
of investing as early as possible and regularly, as well as staying invested.
The benefits of investing in equity securities by means of a mutual fund may
also be included (such benefits may include diversification, professional
management and the variety of equity mutual fund products).
Information in advertisements and materials furnished to present and
prospective investors may include profiles of different types of investors
(i.e., investors with different goals and assets) and different investment
strategies for meeting specific financial goals. Such information may provide
hypothetical illustrations which include: results of various investment
strategies; performance of an investment in the Fund over various time periods;
and results of diversifying assets among several investments with varying
performance. Information in advertisements and materials furnished to present
and prospective investors may also include quotations (including editorial
comments) and statistics concerning investing in securities, as well as
investing in particular types of securities and the performance of such
securities.
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.
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
As of the date hereof, Eaton Vance owned one share of the Fund, being the
only shares of the Fund outstanding on such date. Eaton Vance is a Massachusetts
business trust and a wholly-owned subsidiary of EVC.
TAXES
Each series of the Trust is treated as a separate entity for federal income
tax purposes. The Fund has elected to be treated and 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 a sufficient amount of any
investment company taxable income so as to effect such qualification. The Fund
may also distribute part or all of any net investment income and net realized
capital gains in accordance with the timing requirements imposed by the Code, so
as to reduce or avoid any federal income or excise tax.
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 (i) at least 98% of its ordinary income for such year,
(ii) 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 any available capital loss carryforwards and (iii) 100% of any
income and capital gains 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 the Fund qualifies as a RIC for federal income tax
purposes, the Fund should not be liable for any income, corporate excise or
franchise tax in the Commonwealth of Massachusetts.
The Fund may retain for investment its net capital gain. However, if the
Fund does so, it will be subject to a tax of 35% on the amount retained. In that
event, the Fund expects to designate the retained amount as undistributed
capital gain in a notice to its Shareholders, who (i) will be required to
include in income for tax purposes, as long-term capital gain, their
proportionate shares of such undistributed amount, (ii) will be entitled to
credit their proportionate shares of the 35% tax paid by the Fund against their
federal income tax liabilities, if any, and to claim refunds to the extent the
credit exceeds those liabilities, and (iii) will increase the tax basis of their
Fund Shares by an amount equal to 65% of the amount of undistributed capital
gain included in their gross income.
Foreign exchange gains and losses realized by the Fund in connection with
its investments in foreign securities and certain options, futures or forward
contracts or foreign currency may be treated as ordinary income and losses under
special tax rules. Certain options, futures or forward contracts of the Fund may
be required to be marked to market (i.e., treated as if closed out) on the last
day of each taxable year, and any gain or loss realized with respect to these
contracts may be required to be treated as 60% long-term and 40% short-term gain
or loss. Positions of the Fund in securities and offsetting options, swaps,
futures or forward contracts may be treated as "straddles" and be subject to
other special rules that may affect the amount, timing and character of the
Fund's distributions to shareholders. Certain uses of foreign currency and
foreign currency derivatives such as options, futures, forward contracts and
swaps and investment by the Fund in certain "passive foreign investment
companies" may be limited or a tax election may be made, if available, in order
to preserve the Fund's qualification as a RIC or avoid imposition of a tax on
the Fund.
Distributions by the Fund of the excess of net long-term capital gains over
short-term capital losses earned by the Fund, taking into account any capital
loss carryforwards that may be available to the Fund in years after its first
taxable year, are taxable to shareholders of the Fund as long-term capital
gains, whether received in cash or in additional shares and regardless of the
length of time their shares have been held. Certain distributions, if declared
in October, November or December and paid the following January, will be taxed
to shareholders as if received on December 31 of the year in which they are
declared.
Any loss realized upon the redemption 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 a 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 reinvestment of dividends or
otherwise) within 30 days before or after the disposition. Any disallowed loss
will result in an adjustment to the shareholder's tax basis in some or all of
the other shares acquired.
Sales charges paid upon a purchase of shares of the Fund cannot be taken
into account for purposes of determining gain or loss on a redemption or
exchange of the shares before the 91st day after their purchase to the extent a
sales charge is reduced or eliminated in a subsequent acquisition of shares of
the Fund or of another fund pursuant to the Fund's reinvestment or exchange
privilege. Any disregarded amounts will result in an adjustment to the
shareholder's tax basis in some or all of any other shares acquired.
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
certain information 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 other classes of investors, such as other retirement plans,
tax-exempt entities, foreign investors, 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.
PORTFOLIO SECURITY TRANSACTIONS
Decisions concerning the execution of Fund portfolio security transactions,
including the selection of the market and the broker-dealer firm, are made by
Eaton Vance. Eaton Vance is also responsible for the execution of transactions
for all other accounts managed by it.
Eaton Vance places the portfolio security transactions of the Fund and of
certain other accounts managed by it for execution with many broker-dealer
firms. Eaton Vance uses its best efforts to obtain execution of portfolio
security transactions at prices which are advantageous to the Fund and (when a
disclosed commission is being charged) at reasonably competitive commission
rates. In seeking such execution, Eaton Vance will use its best judgment in
evaluating the terms of a transaction, and will give consideration to various
relevant factors, including without limitation the full range and quality of the
broker-dealer's services, the value of the brokerage and research services
provided, the responsiveness of the broker-dealer to Eaton Vance, the size and
type of the transaction, the general execution and operational capabilities of
the broker-dealer, 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 broker-dealer, the value and quality of services rendered by the
broker-dealer in this and other transactions, and the reasonableness of the
commission or spread, if any. Transactions on stock exchanges and other agency
transactions involve the payment of negotiated brokerage commissions. Such
commissions vary among different broker-dealer firms, and a particular
broker-dealer 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 usually includes
an undisclosed dealer markup or markdown. In an underwritten offering the price
paid includes a disclosed fixed commission or discount retained by the
underwriter or dealer. Although commissions paid on portfolio transactions will,
in the judgment of Eaton Vance, be reasonable in relation to the value of the
services provided, commissions exceeding those which another firm might charge
may be paid to broker-dealers who were selected to execute transactions on
behalf of the Fund and Eaton Vance's other clients in part for providing
brokerage and research services to Eaton Vance.
As authorized in Section 28(e) of the Securities Exchange Act of 1934, a
broker or dealer who executes a portfolio transaction 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 Eaton Vance 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 Eaton Vance and its affiliates have for accounts over
which it exercises investment discretion. In making any such determination,
Eaton Vance 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; and 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 of 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, Eaton Vance may receive Research Services from broker-dealer
firms with which Eaton Vance places portfolio transactions and from third
parties with which these broker-dealers have arrangements. These Research
Services may 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, and
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 Eaton Vance 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 Eaton Vance 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 Fund is not reduced because Eaton Vance receives such Research
Services. Eaton Vance evaluates the nature and quality of the various Research
Services obtained through broker-dealer firms and attempts to allocate
sufficient portfolio security transactions to such firms to ensure the continued
receipt of Research Services which Eaton Vance believes are useful or of value
to it in rendering investment advisory services to its clients.
The Fund and Eaton Vance may also receive Research Services from
underwriters and dealers in fixed price offerings, which Research Services are
reviewed and evaluated by Eaton Vance in connection with its investment
responsibilities. The investment companies sponsored by Eaton Vance or BMR may
allocate brokerage commissions to acquire information relating to the
performance, fees and expenses of such companies and other mutual funds, which
information is used by the Trustees of such companies to fulfill their
responsibility to oversee the quality of the services provided by various
entities, including Eaton Vance, to such companies. Such companies may also pay
cash for such information.
Subject to the requirement that Eaton Vance shall use its best efforts to
seek to execute Fund portfolio security transactions at advantageous prices and
at reasonably competitive commission rates or spreads, Eaton Vance is authorized
to consider as a factor in the selection of any broker-dealer firm with whom
Fund 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 Eaton
Vance. This policy is not inconsistent with a rule of 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 Fund may also be appropriate
for other investment accounts managed by Eaton Vance or its affiliates. Whenever
decisions are made to buy or sell securities for the Fund and one or more of
such other accounts simultaneously, Eaton Vance 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 Fund 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 Eaton
Vance 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
Fund from time to time, it is the opinion of the Trustees of the Trust that the
benefits from Eaton Vance's organization outweigh any disadvantage that may
arise from exposure to simultaneous transactions.
* * * *
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