<PAGE>
[LOGO OF EATON VANCE APPEARS HERE]
[PICTURE OF STATUE OF LIBERTY APPEARS HERE]
Annual Report December 31, 1998
EATON VANCE
[PICTURE OF U.S. TREASURY GOVERNMENT
BUILDING APPEARS HERE] OBLIGATIONS
FUND
Eaton Vance
Global Management-Global Distribution
[PICTURE OF U.S. FLAG APPEARS HERE]
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Eaton Vance Government Obligations Fund as of December 31, 1998
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LETTER TO SHAREHOLDERS
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[PHOTO OF JAMES B. HAWKES APPEARS HERE]
James B. Hawkes
President
Eaton Vance Government Obligations Fund, Class A shares, had a total return of
5.6% for the year ended December 31, 1998. That return was the result of a
decline in net asset value per share from $10.62 on December 31, 1997 to $10.40
on December 31, 1998, and the reinvestment of $0.79 in dividends./1/
Class B shares had a total return of 4.8% for the year, the result of a decline
in NAV from $9.14 to $8.95, and the reinvestment of $0.611 in dividends./1/
Class C shares had a total return of 4.9% for the year, the result of a decline
in NAV from $9.13 to $8.96, and the reinvestment of $0.606 in dividends./1/
By comparison, the Lehman Brothers Intermediate Government Bond Index - a widely
recognized, unmanaged index of intermediate-maturity U.S. government bonds - had
a total return of 8.5% for the same period./2/
Continued, non-inflationary growth
prompted a strong rally
in the Treasury market...
The economy slowed somewhat in late 1998 from the fast pace set in the previous
year. Yet, despite economic weakness in Asia, a near meltdown in Russia, and
concerns over the emerging markets, U.S. economic output remained among the
strongest in the world. Consumers and businesses alike cheered the approach of
the nation's first budget surplus in many years. With inflation - the arch-enemy
of fixed-income investors - remaining in the 1.5% range, the Federal Reserve
felt comfortable in lowering interest rates, prompting a strong rally in
Treasury bonds.
Amid the turmoil of the Asian
markets, the U.S. bond markets
witnessed a flight to quality...
In October, as deteriorating economic fundamentals overtook many of the
fast-growth Asian markets, many global investors sought the quality and relative
stability of U.S. Treasury bonds. While the Treasury market surged, all other
fixed-income markets - including the mortgage-backed securities market -
suffered from increasing concerns over the stability of the global economy. This
overreaction by investors created a most difficult investment environment.
However, it also may have created interesting opportunities in some oversold
markets, such as mortgage securities. In the following pages, portfolio manager
Susan Schiff discusses the volatile mortgage securities markets of 1998 and,
most importantly, invokes some historical perspective as she looks ahead to the
coming year.
Sincerely,
/s/ James B. Hawkes
James B. Hawkes
President
February 9, 1999
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Fund Information
as of December 31, 1998
Performance/3/ Class A Class B Class C
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Average Annual Total Returns (at net asset value)
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One Year 5.6% 4.8% 4.9%
Five Years 5.7 5.1 4.9
Ten Years 7.9 N.A. N.A.
Life of Fund+ 8.8 5.0 4.8
SEC Average Annual Total Returns (including sales charge or applicable CDSC)
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One Year 0.5% -0.1% 3.9%
Five Years 4.7 4.8 4.9
Ten Years 7.4 N.A. N.A.
Life of Fund+ 8.4 4.9 4.8
+Inception Dates - Class A: 8/24/84; Class B: 11/1/93; Class C: 11/1/93
Diversification by Sectors/4/
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[PIE CHART APPEARS HERE]
Government National Mortgage Assn. 7.7%
Other 1.9%
Federal National Mortgage Assn. 52.6%
Federal Home Loan Mortgage Corp. 37.8%
/1/ These returns do not include the 4.75% maximum sales charge for the Fund's
Class A shares or the applicable contingent deferred sales charges (CDSC) for
Class B and Class C shares. /2/ It is not possible to invest directly in an
Index. /3/ Returns are historical and are calculated by determining the
percentage change in net asset value with all distributions reinvested. SEC
returns for Class A reflect the maximum 4.75% sales charge. SEC returns for
Class B reflect applicable CDSC based on the following schedule: 5% - 1st and
2nd years; 4% -3rd year; 3% - 4th year; 2% - 5th year; 1% - 6th year. SEC 1-Year
return for Class C reflects a 1% CDSC. /4/ Because the Portfolio is actively
managed, Sector Weightings are subject to change.
Past performance is no guarantee of future results. Investment return and
principal value will fluctuate so that shares, when redeemed, may be worth more
or less than their original cost.
2
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Eaton Vance Government Obligations Fund as of December 31, 1998
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Management Discussion
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[PHOTO OF SUSAN SCHIFF APPEARS HERE]
Susan Schiff
Portfolio Manager
An interview with Susan Schiff,
portfolio manager of
Government Obligations Portfolio.
Q: Susan, how would you characterize the mortgage-backed securities (MBS) market
during the past year?
A: Without question, this was one of the most difficult years on record for the
mortgage-backed securities market. The Treasury bond market mounted a rally
that lasted through most of the year, creating a problematic market
environment for mortgage-backed securities. Thirty-year Treasury bond yields
declined to 5.10% on December 31 from 5.92% a year earlier: a decline of 82
basis points (.82%). In the intermediate-term, 3-year Treasury yields fell to
4.68% from 5.67% a year earlier - a decline of nearly a full percentage
point.
The strong rally in the bond market engendered fears that there would be
massive mortgage refinancings by homeowners. Typically, based on the
direction of interest rates and past prepayment trends, investors can make
assumptions about future prepayment rates. This year, those assumptions were
grossly exaggerated, causing spreads - the difference between MBS yields and
Treasury yields - to widen dramatically.
Adding to the volatility, calamitous events in Russia during August and
October, as well as the Long-Term Capital debacle, exacerbated the spread
widening everywhere and caused mortgage-backed securities to underperform
further.
Q: How could the problems in Russia impact the U.S. mortgage market?
A: That's a question market professionals themselves have asked. The fact is,
Russia and the emerging markets have no intrinsic impact whatsoever on the
mortgage markets. The impact was psychological, as investors feared that the
emerging market crises might have serious repercussions for the global
economy.
That, in turn, encouraged a "flight to quality" in which investors opted for
only the very highest quality fixed-income investment - U.S. Treasury bonds -
over any other type of fixed-income investment, including foreign bonds,
corporate bonds, or high-yield bonds. In that climate, even mortgage-backed
securities - a high-quality investment in their own right - were sold in
favor of Treasuries.
Q: Was the seasoned sector of the MBS market spared in the downturn?
A: No. In one of the strangest market anomalies, the seasoned sector - the
principal investment universe of the Portfolio - actually underperformed
the generic sector. That is very unusual.
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Prepayment Rates/1/
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Government Obligations Portfolio vs. Generic 9% FNMAs
[LINE GRAPH APPEARS HERE]
Date Generic Seasoned
---- ------- --------
Mar-91 5 13.4
Dec-91 10.3 15.4
Dec-92 45.5 18.5
Dec-93 62.7 27.6
Dec-94 10.8 13.7
Dec-95 23.5 13.2
Dec-96 18.1 13.4
Dec-97 26.3 16.9
Dec-98 37.6 27.5
/1/ Chart compares annualized monthly principal prepayment rates of the
Portfolio's seasoned mortgage-backed securities (blue line) with those of
generic 30-year FNMA 9% mortgage-backed securities. Sources: Lehman
Brothers; Bloomberg L.P.; Eaton Vance Management.
Past performance is no guarantee of future results.
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Mutual fund shares are not insured by the FDIC and are not deposits or other
obligations of, or guaranteed by, any depository institution. Shares are subject
to investment risks, including possible loss of principal invested.
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3
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Eaton Vance Government Obligations Fund as of December 31, 1998
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Management Discussion Cont'd
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The prepayment assumptions the market used to price seasoned MBS were grossly
out of line with actual prepayment rates. In my view, the underperformance of
the seasoned MBS was a telltale sign of irrational market sentiment during
this period.
Q: What were the dimensions of the spread widening?
A: For low-coupon MBS, spreads rose from around 80 basis points (.8%) to 180
basis points (1.8%). Among high-coupon issues, the widening was equally
dramatic, moving from 100 basis points (1.0%) to 210 basis points (2.1%).
Even mortgages that were originated in the 1960s - mortgages with 6-7%
coupons that are very nearly paid off - showed a significant widening. That
gives some idea of the market extremes in October and November.
Q: You indicated that prepayment assumptions were greatly exaggerrated. What was
the trend of actual prepayment rates?
A: Not surprisingly, prepayment rates for seasoned MBS showed only a modest
uptick during the year. In fact, from October through December, the rise in
prepayment rates for seasoned MBS was much less severe than those for generic
MBS. That is consistent with past trends, and confirms that the market
reaction in September and October was greatly overdone.
Q: In the wake of this difficult year, how have you positioned the Portfolio?
A: In my view, the seasoned sector of the MBS market is among the most
attractive areas of the fixed-income market. Accordingly, I've taken
advantage of the downturn and selectively increased the Portfolio's exposure
to seasoned mortgage securities. At its recent level, the MBS market is
clearly undervalued.
At December 31, 1998, approximately 60.1% of the Portfolio was invested in
seasoned low-coupon MBS securities and another 21.9% was in seasoned
high-coupon MBS. The Portfolio's duration was in the 3.8-year range at
December 31.
Given the events of the past year, it is reasonable to expect that spreads
will at some point return to normal levels. That makes the sector attractive
on a risk basis as well. The Treasury market, on the other hand, is somewhat
more vulnerable to a rise in interest rates, following its strong rally in
1998. The Federal Reserve has demonstrated in the past that it will not
hesitate to raise interest rates if it detects an uptick in inflation due to
a stronger-than-expected economy.
Q: What is your outlook for the mortgage securities market in the coming year?
A: I believe the mortgage-backed securities market currently represents
excellent value for a very high-quality investment. That's an important
consideration for conservative, income-oriented investors. Moreover,
following the fourth consecutive year of 20%+ returns in the stock market,
investors may wish to diversify their portfolios in a quality fixed-income
vehicle.
At year-end, the MBS sector provided a very attractive yield advantage. While
mortgage-backed securities have recovered some of the ground lost in last
fall's downturn, past trends suggest that there is quite a way to go yet.
Spreads between MBS and Treasuries should ultimately return to a point of
equilibrium. Therefore, I'm optimistic about the outlook for the mortgage
sector in the coming year.
4
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Eaton Vance Government Obligations Fund as of December 31, 1998
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MANAGEMENT DISCUSSION CONT'D
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Comparison of Change in Value of a $10,000 Investment in Eaton Vance Government
Obligations Fund, Class A vs. the Lehman Brothers Intermediate Government Board
Index and the Upper Intermediate Government Fund Category Average*
Dec. 31, 1988 -- Dec. 31, 1998
[LINE GRAPH APPEARS HERE]
Date Fund/NAV Fund/MOP LBIGBI LINGFC
12/31/88 $10,000 $9,525 $10,000 $10,000
1/31/89 $10,104 $9,624 $10,100 $10,087
2/28/89 $10,061 $9,583 $10,057 $10,075
3/31/89 $10,017 $9,541 $10,104 $10,110
4/30/89 $10,259 $9,771 $10,308 $10,265
5/31/89 $10,466 $9,968 $10,507 $10,431
6/30/89 $10,730 $10,220 $10,775 $10,645
7/31/89 $10,978 $10,456 $10,994 $10,820
8/31/89 $10,837 $10,322 $10,845 $10,723
9/30/89 $10,897 $10,379 $10,897 $10,775
10/31/89 $11,150 $10,621 $11,126 $10,963
11/30/89 $11,250 $10,716 $11,236 $11,062
12/31/89 $11,321 $10,784 $11,269 $11,109
1/31/90 $11,225 $10,692 $11,199 $11,061
2/28/90 $11,247 $10,713 $11,240 $11,107
3/31/90 $11,290 $10,754 $11,254 $11,132
4/30/90 $11,222 $10,689 $11,216 $11,114
5/31/90 $11,470 $10,925 $11,456 $11,322
6/30/90 $11,627 $11,075 $11,606 $11,453
7/31/90 $11,796 $11,236 $11,768 $11,607
8/31/90 $11,714 $11,158 $11,726 $11,596
9/30/90 $11,812 $11,251 $11,830 $11,686
10/31/90 $11,964 $11,396 $11,995 $11,823
11/30/90 $12,171 $11,593 $12,176 $11,984
12/31/90 $12,336 $11,750 $12,344 $12,134
1/31/91 $12,481 $11,888 $12,471 $12,254
2/28/91 $12,538 $11,943 $12,547 $12,324
3/31/91 $12,597 $11,999 $12,616 $12,391
4/30/91 $12,745 $12,140 $12,746 $12,509
5/31/91 $12,804 $12,196 $12,817 $12,580
6/30/91 $12,853 $12,243 $12,827 $12,595
7/31/91 $12,982 $12,366 $12,966 $12,732
8/31/91 $13,240 $12,611 $13,212 $12,935
9/30/91 $13,453 $12,814 $13,437 $13,124
10/31/91 $13,632 $12,985 $13,590 $13,281
11/30/91 $13,766 $13,112 $13,749 $13,418
12/31/91 $14,115 $13,445 $14,083 $13,689
1/31/92 $13,974 $13,310 $13,948 $13,576
2/28/92 $14,033 $13,366 $13,991 $13,626
3/31/92 $13,933 $13,272 $13,935 $13,588
4/30/92 $13,993 $13,328 $14,061 $13,698
5/31/92 $14,152 $13,480 $14,270 $13,858
6/30/92 $14,328 $13,647 $14,476 $14,029
7/31/92 $14,542 $13,852 $14,754 $14,210
8/31/92 $14,682 $13,985 $14,904 $14,346
9/30/92 $14,886 $14,179 $15,110 $14,500
10/31/92 $14,757 $14,056 $14,929 $14,365
11/30/92 $14,692 $13,995 $14,866 $14,356
12/31/92 $14,862 $14,156 $15,061 $14,510
1/31/92 $15,151 $14,431 $15,341 $14,709
2/28/93 $15,429 $14,696 $15,566 $14,876
3/31/93 $15,562 $14,822 $15,624 $14,959
4/30/93 $15,696 $14,950 $15,746 $15,058
5/31/93 $15,682 $14,937 $15,703 $15,005
6/30/93 $15,852 $15,099 $15,931 $15,208
7/31/93 $15,955 $15,197 $15,963 $15,214
8/31/93 $16,155 $15,387 $16,201 $15,429
9/30/93 $16,231 $15,460 $16,267 $15,466
10/31/93 $16,252 $15,480 $16,306 $15,456
11/30/93 $16,175 $15,406 $16,224 $15,414
12/31/93 $16,238 $15,467 $16,291 $15,482
1/31/94 $16,367 $15,589 $16,452 $15,620
2/28/94 $16,191 $15,422 $16,227 $15,466
3/31/94 $15,938 $15,181 $15,990 $15,252
4/30/94 $15,795 $15,045 $15,886 $15,117
5/31/94 $15,783 $15,033 $15,897 $15,155
6/30/94 $15,781 $15,031 $15,900 $15,162
7/31/94 $15,980 $15,221 $16,109 $15,281
8/31/94 $16,020 $15,259 $16,155 $15,368
9/30/94 $15,888 $15,133 $16,021 $15,287
10/31/94 $15,892 $15,137 $16,024 $15,297
11/30/94 $15,838 $15,086 $15,952 $15,240
12/31/94 $15,908 $15,153 $16,005 $15,243
1/31/95 $16,155 $15,387 $16,266 $15,476
2/28/95 $16,473 $15,691 $16,580 $15,722
3/31/95 $16,569 $15,782 $16,671 $15,804
4/30/95 $16,760 $15,964 $16,864 $15,935
5/31/95 $17,187 $16,371 $17,340 $16,314
6/30/95 $17,280 $16,459 $17,451 $16,408
7/31/95 $17,248 $16,429 $17,460 $16,422
8/31/95 $17,448 $16,619 $17,605 $16,548
9/30/95 $17,558 $16,724 $17,723 $16,625
10/31/95 $17,799 $16,953 $17,917 $16,808
11/30/95 $17,972 $17,118 $18,136 $16,983
12/31/95 $18,130 $17,269 $18,316 $17,111
1/31/96 $18,260 $17,393 $18,469 $17,258
2/28/96 $18,058 $17,200 $18,274 $17,123
3/31/96 $18,015 $17,160 $18,190 $17,006
4/30/96 $17,979 $17,125 $18,137 $16,975
5/31/96 $17,938 $17,086 $18,128 $16,972
6/30/96 $18,182 $17,318 $18,313 $17,107
7/31/96 $18,220 $17,354 $18,369 $17,164
8/31/96 $18,216 $17,351 $18,390 $17,181
9/30/96 $18,512 $17,632 $18,627 $17,377
10/31/96 $18,780 $17,888 $18,932 $17,619
11/30/96 $19,041 $18,137 $19,161 $17,796
12/31/96 $18,950 $18,050 $19,058 $17,734
1/31/97 $18,997 $18,095 $19,130 $17,812
2/28/97 $19,131 $18,223 $19,161 $17,851
3/31/97 $19,059 $18,154 $19,052 $17,781
4/30/97 $19,194 $18,282 $19,267 $17,951
5/31/97 $19,333 $18,415 $19,417 $18,071
6/30/97 $19,480 $18,555 $19,584 $18,216
7/31/97 $19,858 $18,915 $19,945 $18,485
8/31/97 $19,744 $18,806 $19,869 $18,444
9/30/97 $19,947 $18,999 $20,086 $18,618
10/31/97 $20,148 $19,191 $20,321 $18,787
11/30/97 $20,151 $19,194 $20,365 $18,819
12/31/97 $20,325 $19,360 $20,530 $18,959
1/31/98 $20,474 $19,501 $20,797 $19,071
2/28/98 $20,458 $19,486 $20,774 $19,060
3/31/98 $20,494 $19,521 $20,839 $19,115
4/30/98 $20,505 $19,531 $20,939 $19,189
5/31/98 $20,634 $19,654 $21,083 $19,411
6/30/98 $20,748 $19,763 $21,224 $19,511
7/31/98 $20,759 $19,773 $21,305 $19,583
8/31/98 $21,205 $20,198 $21,708 $19,858
9/30/98 $21,576 $20,551 $22,213 $20,198
10/31/98 $21,254 $20,245 $22,251 $20,193
11/30/98 $21,351 $20,337 $22,182 $20,184
12/31/98 $21,455 $20,436 $22,269 $20,274
Performance** Class A Class B Class C
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Average Annual Total Returns (at net asset value)
- --------------------------------------------------------------------------------
One Year 5.6% 4.8% 4.9%
Five Years 5.7 5.1 4.9
Ten Years 7.9 N.A. N.A.
Life of Fund+ 8.8 5.0 4.8
SEC Average Annual Total Returns (including sales charge or applicable CDSC)
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One Year 0.5% -0.1% 3.9%
Five Years 4.7 4.8 4.9
Ten Years 7.4 N.A. N.A.
Life of Fund+ 8.4 4.9 4.8
+Inception Dates - Class A: 8/24/84; Class B: 11/1/93; Class C: 11/1/93
* Source: Towers Data Systems, Bethesda, MD. Investment operations commenced
8/24/84. Index information is only available at month-end; therefore, the
line comparison begins at the next month-end following the commencement of
the Fund's investment operations.
The chart compares the Fund's total return with that of the Lehman Brothers
Intermediate Government Bond Index, a broad-based, unmanaged market index of
intermediate-maturity, U.S. government bonds. Returns are calculated by
determining the percentage change in net asset value (NAV) with all
distributions reinvested. The lines on the chart represent the total returns
of $10,000 hypothetical investments in the Fund and the Index. An investment
in the Fund's Class B shares on 11/30/93 at net asset value would have been
worth $12,917 on December 31, 1998; $12,827 including the applicable CDSC%
sales charge. An investment in the Fund's Class C shares on 11/30/93 at net
asset value would have been worth $12,773 on December 31, 1998. The Index's
total return does not reflect commissions or expenses that would have been
incurred if an investor individually purchased or sold the securities
represented in the Index. It is not possible to invest directly in an Index.
** Returns are historical and are calculated by determining the percentage
change in net asset value with all distributions reinvested. SEC returns for
Class A reflect the maximum 4.75% sales charge. SEC returns for Class B
reflect applicable CDSC based on the following schedule: 5% - 1st and 2nd
years; 4% - 3rd year; 3% - 4th year; 2% - 5th year; 1% - 6th year. SEC 1-year
return for Class C reflects 1% CDSC.
Past performance is no guarantee of future results. Investment return and
principal value will fluctuate so that shares, when redeemed, may be worth
more or less than their original cost.
5
<PAGE>
Eaton Vance Government Obligations Fund as of December 31, 1998
FINANCIAL STATEMENTS
Statement of Assets and Liabilities
As of December 31, 1998
Assets
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Investment in Government Obligations Portfolio,
at value (identified cost, $413,463,825) $421,010,775
Receivable for Fund shares sold 393,881
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Total assets $421,404,656
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Liabilities
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Payable for Fund shares redeemed $ 1,251,994
Dividends payable 1,243,645
Payable to affiliate for Trustees' fees 2,500
Other accrued expenses 447,095
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Total liabilities $ 2,945,234
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Net Assets $418,459,422
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Sources of Net Assets
- --------------------------------------------------------------------------------
Paid-in capital $466,193,079
Accumulated net realized loss from Portfolio
(computed on the basis of identified cost) (54,036,962)
Accumulated distributions in excess of net
investment income (1,243,645)
Net unrealized appreciation from Portfolio (computed
on the basis of identified cost) 7,546,950
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Total $418,459,422
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Class A Shares
- --------------------------------------------------------------------------------
Net Assets $251,727,246
Shares Outstanding 24,197,417
Net Asset Value and Redemption Price Per Share
(net assets / shares of beneficial interest
outstanding) $ 10.40
Maximum Offering Price Per Share
(100 / 95.25 of $10.40) $ 10.92
- --------------------------------------------------------------------------------
Class B Shares
- --------------------------------------------------------------------------------
Net Assets $132,013,155
Shares Outstanding 14,750,618
Net Asset Value, Offering Price and Redemption Price
Per Share (net assets / shares of beneficial
interest outstanding) $ 8.95
- --------------------------------------------------------------------------------
Class C Shares
- --------------------------------------------------------------------------------
Net Assets $ 34,719,021
Shares Outstanding 3,876,613
Net Asset Value, Offering Price and Redemption Price
Per Share (net assets / shares of beneficial
interest outstanding) $ 8.96
- --------------------------------------------------------------------------------
On sales of $25,000 or more, the offering price of Class A shares is reduced.
- --------------------------------------------------------------------------------
Statement of Operations
For the Year Ended
December 31, 1998
Investment Income
- --------------------------------------------------------------------------------
Interest allocated from Portfolio $ 37,955,761
Expenses allocated from Portfolio (3,865,686)
- --------------------------------------------------------------------------------
Net investment income from Portfolio $ 34,090,075
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Expenses
- --------------------------------------------------------------------------------
Trustees fees and expenses $ 3,619
Distribution and service fees
Class A 684,644
Class B 1,229,336
Class C 357,971
Transfer and dividend disbursing agent fees 561,885
Registration fees 61,823
Printing and postage 34,629
Custodian fee 33,372
Legal and accounting services 27,774
Amortization of organization expenses 7,921
Miscellaneous 35,505
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Total expenses $ 3,038,479
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Net investment income $ 31,051,596
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Realized and Unrealized
Gain (Loss) from Portfolio
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Net realized gain (loss) --
Investment transactions (identified cost basis) $ 6,505,030
Financial futures contracts (2,199,011)
Options (193,500)
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Net realized gain $ 4,112,519
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Change in unrealized appreciation (depreciation) --
Investments $(13,363,386)
Financial futures contracts 417,800
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Net change in unrealized appreciation (depreciation) $(12,945,586)
- --------------------------------------------------------------------------------
Net realized and unrealized loss $ (8,833,067)
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Net increase in net assets from operations $ 22,218,529
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See notes to financial statements
6
<PAGE>
Eaton Vance Government Obligations Fund as of December 31, 1998
FINANCIAL STATEMENTS CONT'D
Statements of Changes in Net Assets
<TABLE>
<CAPTION>
Increase (Decrease) Year Ended Year Ended
in Net Assets December 31, 1998 December 31, 1997
- ----------------------------------------------------------------------------------------
<S> <C> <C>
From operations --
Net investment income $ 31,051,596 $ 21,973,623
Net realized gain (loss) 4,112,519 (4,427,703)
Net change in unrealized
appreciation (depreciation) (12,945,586) 2,763,952
- ----------------------------------------------------------------------------------------
Net increase in net assets
from operations $ 22,218,529 $ 20,309,872
- ----------------------------------------------------------------------------------------
Distributions to shareholders --
From net investment income
Class A $ (20,440,557) $ (21,945,228)
Class B (8,144,144) --
Class C (2,378,819) --
From tax return capital
Class A (194,792) (174,478)
Class B (89,948) --
Class C (23,787) --
- ----------------------------------------------------------------------------------------
Total distributions to shareholders $ (31,272,047) $ (22,119,706)
- ----------------------------------------------------------------------------------------
Transactions in shares of
beneficial interest --
Proceeds from sale of shares
Class A $ 95,924,125 $ 85,503,535
Class B 68,635,046 --
Class C 17,843,615 --
Issued in reorganization of
EV Marathon and EV
Classic Government
Obligations Fund
Class B 121,843,468 --
Class C 36,536,485 --
Net asset value of shares
issued to shareholders in
payment of
distributions declared
Class A 8,923,556 9,983,362
Class B 3,356,428 --
Class C 1,401,542 --
Cost of shares redeemed
Class A (124,199,142) (119,859,247)
Class B (59,242,911) --
Class C (20,290,499) --
- ----------------------------------------------------------------------------------------
Net increase (decrease) in net assets from
Fund share transactions $ 150,731,713 $ (24,372,350)
- ----------------------------------------------------------------------------------------
Net increase (decrease) in net assets $ 141,678,195 $ (26,182,184)
- ----------------------------------------------------------------------------------------
Net Assets
- ----------------------------------------------------------------------------------------
At beginning of year $ 276,781,227 $ 302,963,411
- ----------------------------------------------------------------------------------------
At end of year $ 418,459,422 $ 276,781,227
- ----------------------------------------------------------------------------------------
Accumulated
distributions in excess
of net investment income
included in net assets
- ----------------------------------------------------------------------------------------
At end of year $ (1,243,645) $ (916,967)
- ----------------------------------------------------------------------------------------
</TABLE>
See notes to financial statements
7
<PAGE>
Eaton Vance Government Obligations Fund as of December 31, 1998
FINANCIAL STATEMENTS CONT'D
Financial Highlights
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------------------------------------------------
1998(1) 1997 1996 1995 1994
-----------------------------------------------------------------------------
Class A Class B Class C Class A Class A Class A Class A
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Net asset value -- Beginning of year $ 10.620 $ 9.140 $ 9.130 $ 10.680 $ 11.020 $ 10.420 $ 11.480
- ------------------------------------------------------------------------------------------------------------------------------------
Income (loss) from operations
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income $ 0.783 $ 0.602 $ 0.607 $ 0.799 $ 0.810 $ 0.807 $ 0.805
Net realized and unrealized gain (loss) (0.215) (0.182) (0.172) (0.051) (0.340) 0.603 (1.029)
- ------------------------------------------------------------------------------------------------------------------------------------
Total income (loss) from operations $ 0.568 $ 0.420 $ 0.435 $ 0.748 $ 0.470 $ 1.410 $ (0.224)
- ------------------------------------------------------------------------------------------------------------------------------------
Less distributions
- ------------------------------------------------------------------------------------------------------------------------------------
From net investment income $ (0.781) $ (0.603) $(0.599) $ (0.801) $ (0.810) $ (0.810) $ (0.805)
In excess of net investment income -- -- -- -- -- -- (0.031)
From tax return of capital (0.007) (0.007) (0.006) (0.007) -- -- --
- ------------------------------------------------------------------------------------------------------------------------------------
Total distributions $ (0.788) $ (0.610) $(0.605) $ (0.808) $ (0.810) $ (0.810) $ (0.836)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value -- End of year $ 10.400 $ 8.950 $ 8.960 $ 10.620 $ 10.680 $ 11.020 $ 10.420
- ------------------------------------------------------------------------------------------------------------------------------------
Total Return (2) 5.56% 4.76% 4.92% 7.26% 4.52% 13.97% (2.03)%
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios/Supplemental Data
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of year (000's omitted) $251,727 $132,013 $34,719 $276,781 $302,963 $359,738 $386,186
Ratios (As a percentage of average daily net assets):
Expenses (3) 1.32% 2.07% 2.07% 1.24% 1.16% 1.16% 1.17%
Net investment income 7.46% 6.66% 6.71% 7.57% 7.59% 7.53% 7.70%
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Net investment income per share was computed using average shares
outstanding.
(2) Total return is calculated assuming a purchase at the net asset value on
the first day and a sale at the net asset value on the last day of each
period reported. Dividends and distributions, if any, are assumed
reinvested at the net asset value on the reinvestment date. Total return is
not computed on an annualized basis.
(3) Includes the Fund's share of the Portfolio's allocated expenses.
See notes to financial statements
8
<PAGE>
Eaton Vance Government Obligations Fund as of December 31, 1998
NOTES TO FINANCIAL STATEMENTS
1 Significant Accounting Policies
- --------------------------------------------------------------------------------
Eaton Vance Government Obligations Fund (the Fund) is a diversified entity
of the type commonly known as a Massachusetts business trust and is
registered under the Investment Company Act of 1940, as amended, as an
open-end management investment company. The Fund is a series of Eaton Vance
Mutual Funds Trust. The Fund offers three classes of shares. Class A shares
are sold subject to a sales charge imposed at the time of purchase. Class B
and Class C shares are sold at net asset value and are subject to a
contingent deferred sale charge (see Note 7). All classes of shares have
equal rights to assets and voting privileges. Realized and unrealized gains
and losses and net investment income, other than class specific expenses,
are allocated daily to each class of shares based on the relative net
assets of each class to the total net assets of the Fund. Each class of
shares differs in its distribution plan and certain other class specific
expenses. The Fund invests all of its investable assets in interests in the
Government Obligations Portfolio (the Portfolio), a New York Trust, having
the same investment objective as the Fund. The value of the Fund's
investment in the Portfolio reflects the Fund's proportionate interest in
the net assets of the Portfolio (100.0% at December 31, 1998). The
performance of the Fund is directly affected by the performance of the
Portfolio. The financial statements of the Portfolio, including the
portfolio of investments, are included elsewhere in this report and should
be read in conjunction with the Fund's financial statements.
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. The
policies are in conformity with generally accepted accounting principles.
A Investment Valuation -- Valuation of securities by the Portfolio is
discussed in Note 1A of the Portfolio's Notes to Financial Statements which
are included elsewhere in this report.
B Income -- The Fund's net investment income consists of the Fund's pro
rata share of the net investment income of the Portfolio, less all actual
and accrued expenses of the Fund.
C Federal Taxes -- The Fund's policy is to comply with the provisions of
the Internal Revenue Code applicable to regulated investment companies and
to distribute to shareholders each year all of its taxable income,
including any net realized gain on investments. Accordingly, no provision
for federal income or excise tax is necessary. At December 31, 1998, the
Fund, for federal income tax purposes, had a capital loss carryover of
$48,318,452 which will reduce the Fund's taxable income arising from future
net realized gain on investment transactions, if any, to the extent
permitted by the Internal Revenue Code and thus will reduce the amount of
distributions to shareholders which would otherwise be necessary to relieve
the Fund of any liability for federal income tax. A portion of the capital
loss carryovers were acquired through the Fund Reorganization (see Note 8)
and may be subject to certain limitations. The capital loss carryovers will
expire on December 31, 1999 ($1,545,746), December 31, 2000 ($5,952,987),
December 31, 2001 ($70,869), December 31, 2002 ($17,954,518), December 31,
2003 ($2,688,390), December 31, 2004 ($10,207,058), December 31, 2005
($4,786,337) and December 31, 2006 ($5,112,547).
D Use of Estimates -- The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities at the date of the financial statements and the reported
amounts of income and expense during the reporting period. Actual results
could differ from those estimates.
2 Distributions to Shareholders
- --------------------------------------------------------------------------------
The net income of the Fund is determined daily and substantially all of the
net income so determined is declared as a dividend to shareholders of
record at the time of declaration. Distributions are paid monthly.
Distributions of allocated realized capital gains, if any, are made at
least annually. Shareholders may reinvest capital gain distributions in
additional shares of the Fund at the net asset value as of the ex-dividend
date. Distributions are paid in the form of additional shares or, at the
election of the shareholder, in cash. The Fund distinguishes between
distributions on a tax basis and a financial reporting basis. Generally
accepted accounting principles require that only distributions in excess of
tax basis earnings and profits be reported in the financial statements as a
return of capital. Differences in the recognition or classification of
income between the financial statements and tax earnings and profits which
result in over-distributions for financial statement purposes only are
classified as distributions in excess of net investment income or
accumulated net realized gain on investments.
9
<PAGE>
Eaton Vance Government Obligations Fund as of December 31, 1998
NOTES TO FINANCIAL STATEMENTS CONT'D
Permanent differences between book and tax accounting relating to
distributions are reclassified to paid-in capital.
3 Shares of Beneficial Interest
- --------------------------------------------------------------------------------
The Declaration of Trust permits the Trustees to issue an unlimited number
of full and fractional shares of beneficial interest (without par value).
Transactions in Fund shares were as follows:
Year Ended December 31,
----------------------------------------
Class A 1998 1997
---------------------------------------------------------------------------
Sales 9,108,147 8,049,910
Issued to shareholders electing
to receive payments of
distributions in Fund shares 849,495 940,639
Redemptions (11,833,295) (11,297,910)
---------------------------------------------------------------------------
Net decrease (1,875,653) (2,307,361)
---------------------------------------------------------------------------
Year Ended
Class B December 31, 1998
---------------------------------------------------------------------------
Sales 7,600,366
Issued to shareholders electing to receive
payments of distributions in Fund shares 371,618
Redemptions (6,557,844)
Issued to EV Marathon Government
Obligations Fund shareholders 13,336,478
---------------------------------------------------------------------------
Net increase 14,750,618
---------------------------------------------------------------------------
Year Ended
Class C December 31, 1998
---------------------------------------------------------------------------
Sales 1,967,561
Issued to shareholders electing to receive
payment of distributions in Fund shares 155,019
Redemptions (2,246,435)
Issued to EV Classic Government
Obligations Fund shareholders 4,000,468
---------------------------------------------------------------------------
Net increase 3,876,613
---------------------------------------------------------------------------
4 Investment Transactions
- --------------------------------------------------------------------------------
Increases and decreases in the Fund's investment in the Portfolio for the
year ended December 31, 1998, aggregated $187,817,118 and $225,170,325,
respectively.
5 Transactions with Affiliates
- --------------------------------------------------------------------------------
Eaton Vance Management (EVM) serves as the administrator of the Fund, but
receives no compensation. The Portfolio has engaged Boston Management and
Research (BMR), a subsidiary of EVM, to render investment advisory
services. See Note 3 of the Portfolio's Notes to Financial Statements which
are included elsewhere in this report. Certain of the officers and Trustees
of the Fund and Portfolio are officers and trustees of the above
organizations. Except as to Trustees of the Fund and the Portfolio who are
not members of EVM's of BMR's organization, officers and Trustees receive
remuneration for their services to the Fund out of the investment adviser
fee earned by BMR.
6 Distribution and Service Plans
- --------------------------------------------------------------------------------
The Fund has adopted distribution plans (Class B Plan and Class C Plan, the
Plans) pursuant to Rule 12b-1 under the Investment Company Act of 1940 and
a service plan (Class A Plan). The Plans require the Fund to pay the
Principal Underwriter, Eaton Vance Distributors, Inc. (EVD) amounts equal
to 1/365 of 0.75% of the Fund's average daily net assets attributable to
Class B and Class C shares for providing ongoing distribution services and
facilities to the Fund. The Fund will automatically discontinue payments to
EVD during any period in which there are no outstanding Uncovered
Distribution Charges, which are equivalent to the sum of (i) 5.00% and
6.25% of the aggregate amount received by the Fund for the Class B and
Class C shares sold, respectively, plus (ii) interest calculated by
applying the rate of 1% over the prevailing prime rate to the outstanding
balance of Uncovered Distribution Charges of EVD of each respective class
reduced by the aggregate amount of contingent deferred sales charges (see
Note 7) and daily amounts theretofore paid to EVD by each respective class.
The Fund paid or accrued $914,502 and $268,478 for Class B and Class C
shares, respectively, for the year ended December 31, 1998, to or payable
to EVD representing 0.75% of average daily net assets for Class B and Class
C shares. At December 31, 1998, the amount of Uncovered Distribution
Charges of EVD calculated under the Plan was approximately $4,683,000 and
$9,797,000 for Class B and Class C shares, respectively.
10
<PAGE>
Eaton Vance Government Obligations Fund as of December 31, 1998
NOTES TO FINANCIAL STATEMENTS CONT'D
In addition, the Plans authorize the Fund to make payments of service fees
to the Principal Underwriter, Authorized Firms and other persons in amounts
not exceeding 0.25% of the Fund's average daily net assets attributable to
Class A (Service Plan), Class B and Class C shares for each fiscal year.
The Trustees have initially implemented the Plans by authorizing the Fund
to make quarterly service fee payments to the Principal Underwriter and
Authorized Firms in amounts not expected to exceed 0.25% per annum of the
Fund's average daily net assets attributable to Class A and Class B shares
based on the value of Fund shares sold by such persons and remaining
outstanding for at least twelve months. The Class C Plan permits the Fund
to make monthly payments of service fees in amounts not expected to exceed
0.25% of the Fund's average daily net assets attributable to Class C shares
for any fiscal year. Such payments are made for personal services and/or
the maintenance of shareholder accounts. Service fees are separate and
distinct from the sales commissions and distributions fees payable by the
Fund to EVD, and as such are not subject to automatic discontinuance when
there are no outstanding Uncovered Distribution Charges of EVD. Service fee
payments for the year ended December 31, 1998 amounted to $684,644,
$314,834 and $89,493 for Class A, Class B and Class C shares, respectively.
7 Contingent Deferred Sales Charge
- --------------------------------------------------------------------------------
A contingent deferred sales charge (CDSC) is imposed on any redemption of
Class B shares made within six years of purchase. A CDSC of 1% is imposed
on any redemption of Class C shares made within one year of purchase.
Generally, the CDSC is based upon the lower of the net asset value at date
of redemption or date of purchase. No charge is levied on shares acquired
by reinvestment of dividends or capital gain distributions. The Class B
CDSC is imposed at declining rates that begin at 5% in the first and second
year of redemption after purchase, declining one percentage point in each
subsequent year. Class C shares will be subject to a 1% CDSC if redeemed
within one year of purchase. No CDSC is levied on shares which have been
sold to EVM or its affiliates or to their respective employees or clients.
CDSC charges are paid to EVD to reduce the amount of Uncovered Distribution
Charges calculated under the Fund's Distribution Plans (see Note 6). CDSC
charges received when no Uncovered Distribution Charges exist will be
credited to the Fund. EVD received approximately $477,000 and $6,000 of
CDSC paid by shareholders for Class B shares and Class C shares,
respectively for the year ended December 31, 1998.
8 Transfer of Net Assets
- --------------------------------------------------------------------------------
On January 1, 1998, EV Traditional Government Obligations Fund acquired the
net assets of the EV Marathon Government Obligations Fund and EV Classic
Government Obligations Fund pursuant to an Agreement and Plan of
Reorganization dated June 23, 1997. In accordance with the agreement, EV
Traditional Government Obligations Fund, at the closing, issued 13,336,478
Class B shares and 4,000,468 Class C shares of the Fund having an aggregate
value of $121,843,468 and $36,536,485, respectively. As a result, the Fund
issued one Class B share and one Class C share for each share of EV
Marathon Government Obligations Fund and EV Classic Government Obligations
Fund, respectively. The transaction was structured for tax purposes to
qualify as a tax free reorganization under the Internal Revenue Code. The
EV Marathon Government Obligations Fund's and EV Classic Government
Obligations Fund's net assets at the date of the transaction were
$121,843,468 and $36,536,485, respectively, including $2,093,697 and
$(697,901) of unrealized appreciation(depreciation). Directly after the
merger, the combined net assets of the Eaton Vance Government Obligations
Fund (formerly "EV Traditional Government Obligations Fund") were
$435,161,180 with a net asset value of $10.62, $9.14 and $9.13 for Class A,
Class B and Class C, respectively.
9 Name Change
- --------------------------------------------------------------------------------
Effective January 1, 1998, EV Traditional Government Obligations Fund
changed its name to Eaton Vance Government Obligations Fund.
11
<PAGE>
Eaton Vance Government Obligations Fund as of December 31, 1998
INDEPENDENT ACCOUNTANTS' REPORT
To the Trustees and Shareholders of Eaton Vance Government Obligations Fund:
- --------------------------------------------------------------------------------
In our opinion, the accompanying statement of assets and liabilities and the
related statements of operations and of changes in net assets and financial
highlights present fairly, in all material respects, the financial position of
Eaton Vance Government Obligations Fund (the "Fund") at December 31, 1998, the
results of its operations for the year then ended, the changes in its net assets
for each of the two years in the period then ended and the financial highlights
for each of the five years in the period then ended, in conformity with
generally accepted accounting principles. These financial statements and
financial highlights (hereafter referred to as "financial statements") are the
responsibility of the Fund's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these financial statements in accordance with generally accepted
auditing standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
Boston, Massachusetts
February 5, 1999
12
<PAGE>
Government Obligations Portfolio as of December 31, 1998
PORTFOLIO OF INVESTMENTS
Mortgage Pass-Throughs -- 99.2%
Principal
Amount
(000's
omitted) Value
- -----------------------------------------------------------------------------
Federal Home Loan Mortgage Corp.:
5.00%, with various maturities to 2003 $ 203 $ 200,974
5.25%, with various maturities to 2005 111 109,664
5.50%, with various maturities to 2011 399 397,170
6.00%, with various maturities to 2022 1,467 1,470,472
6.25%, with various maturities to 2013 396 397,633
6.50%, with various maturities to 2022 4,809 4,868,362
6.75%, with various maturities to 2008 367 370,488
7.00%, with various maturities to 2019 7,141 7,290,410
7.25%, with maturity at 2003 719 731,097
7.50%, with various maturities to 2020 11,892 12,313,752
7.75%, with various maturities to 2018 2,202 2,274,436
8.00%, with various maturities to 2026 44,095 45,964,389
8.25%, with various maturities to 2017 16,799 17,553,246
8.50%, with various maturities to 2018 18,589 19,532,026
8.75%, with various maturities to 2016 12,874 13,504,870
9.00%, with various maturities to 2020 18,651 19,664,872
9.25%, with various maturities to 2010 5,921 6,289,958
9.50%, with various maturities to 2016 3,429 3,648,003
10.00%, with various maturities to 2017 156 168,112
11.00%, with various maturities to 2019 3,587 3,980,076
12.00%, with various maturities to 2019 1,530 1,742,517
12.25%, with various maturities to 2019 1,818 2,088,521
12.50%, with various maturities to 2019 12,059 13,964,952
12.75%, with various maturities to 2015 706 815,209
13.00%, with various maturities to 2019 2,379 2,776,830
13.25%, with various maturities to 2019 229 269,093
13.50%, with various maturities to 2015 3,161 3,686,408
13.75%, with maturity at 2010 25 29,401
14.00%, with various maturities to 2016 1,475 1,752,955
14.50%, with various maturities to 2014 133 158,279
14.75%, with maturity at 2010 561 666,481
15.00%, with various maturities to 2013 681 829,961
15.25%, with maturity at 2012 141 174,290
15.50%, with various maturities to 2012 126 153,253
16.00%, with various maturities to 2012 66 81,531
16.25%, with various maturities to 2012 151 187,809
- -----------------------------------------------------------------------------
$190,107,500
- -----------------------------------------------------------------------------
Federal National Mortgage Assn.:
0.25%, with maturity at 2014 $ 102 $ 89,515
3.50%, with maturity at 2007 76 73,055
4.50%, with maturity at 1999 1 537
5.00%, with various maturities to 2017 350 344,743
5.25%, with maturity at 2006 109 107,939
5.50%, with various maturities to 2006 152 151,364
5.75%, with maturity at 2003 53 52,362
6.00%, with various maturities to 2010 960 962,238
6.25%, with various maturities to 2007 276 277,905
6.50%, with various maturities to 2017 674 683,493
6.75%, with various maturities to 2007 471 475,080
7.00%, with various maturities to 2018 2,014 2,060,879
7.25%, with various maturities to 2017 1,201 1,234,415
7.50%, with various maturities to 2020 8,185 8,465,162
7.75%, with various maturities to 2008 807 836,193
8.00%, with various maturities to 2022 37,142 38,768,172
8.25%, with various maturities to 2025 15,425 16,176,676
8.50%, with various maturities to 2020 21,404 22,477,146
8.75%, with various maturities to 2017 926 974,005
9.00%, with various maturities to 2022 24,635 26,225,856
9.25%, with various maturities to 2016 2,884 3,072,835
9.50%, with maturity at 2009 213 229,052
9.75%, with maturity at 2019 291 317,320
10.00%, with maturity at 2020 3,132 3,404,454
11.00%, with various maturities to 2019 1,649 1,849,234
11.50%, with various maturities to 2016 3,662 4,156,581
11.75%, with various maturities to 2015 1,236 1,403,464
12.00%, with various maturities to 2020 10,337 11,839,484
12.25%, with various maturities to 2015 2,128 2,449,137
12.50%, with various maturities to 2027 10,395 12,000,172
12.75%, with various maturities to 2014 1,050 1,215,805
13.00%, with various maturities to 2019 8,872 10,473,133
13.25%, with various maturities to 2015 1,483 1,743,092
13.50%, with various maturities to 2015 2,865 3,403,631
13.75%, with various maturities to 2014 114 135,260
14.00%, with various maturities to 2014 445 533,950
14.25%, with various maturities to 2014 154 186,791
14.50%, with various maturities to 2014 205 248,746
14.75%, with various maturities to 2012 2,713 3,285,640
15.00%, with various maturities to 2013 3,286 4,005,346
15.50%, with various maturities to 2012 662 817,237
15.75%, with maturity at 2011 18 22,832
16.00%, with various maturities to 2012 215 268,547
- -----------------------------------------------------------------------------
$187,498,478
- -----------------------------------------------------------------------------
Government National Mortgage Assn.:
7.25%, with various maturities to 2022 $ 2,918 $ 3,049,752
7.50%, with maturity at 2017 733 775,517
8.00%, with various maturities to 2017 14,611 15,381,589
8.25%, with various maturities to 2008 372 391,966
8.50%, with various maturities to 2018 1,832 1,942,591
9.00%, with maturity at 2011 315 337,416
11.50%, with maturity at 2013 143 162,782
12.00%, with various maturities to 2015 2,330 2,683,469
12.50%, with various maturities to 2019 10,162 11,767,774
13.00%, with various maturities to 2014 781 918,333
See notes to financial statements
13
<PAGE>
Government Obligations Portfolio as of December 31, 1998
PORTFOLIO OF INVESTMENTS CONT'D
Principal
Amount
(000's
omitted) Value
- -----------------------------------------------------------------------------
13.50%, with various maturities to 2013 $ 164 $ 192,515
14.00%, with maturity at 2015 62 74,520
14.50%, with various maturities to 2014 216 263,461
15.00%, with various maturities to 2013 461 563,861
16.00%, with various maturities to 2012 214 266,699
- -----------------------------------------------------------------------------
$ 38,772,245
- -----------------------------------------------------------------------------
Collateralized Mortgage Obligations:
Federal Home Loan Mortgage Corp.
Series B Class 3, 12.5%, due 2013
Collateral 100% FHLMC PC $ 116 $ 123,940
Salomon Brothers Mortgage Securities
II, Inc. 11.5%, due 2015 901 952,590
- -----------------------------------------------------------------------------
$ 1,076,530
- -----------------------------------------------------------------------------
Total Mortgage Pass-Throughs
(identified cost, $414,503,992) $417,454,753
- -----------------------------------------------------------------------------
U.S. Government Agency Debentures -- 18.4%
Principal
Amount
(000's
omitted) Value
- -----------------------------------------------------------------------------
Federal National Mortgage Assn., 6.00%,
5/15/08(1) $73,000 $ 77,330,651
- -----------------------------------------------------------------------------
Total U.S. Government
Agency Debentures
(identified cost, $73,840,961) $ 77,330,651
- -----------------------------------------------------------------------------
U.S. Treasury Obligations -- 1.7%
Principal
Amount
(000's
omitted) Value
- -----------------------------------------------------------------------------
U.S. Treasury Bond, 7.125%, 2/15/23(2) $ 6,000 $ 7,391,249
- -----------------------------------------------------------------------------
Total U.S. Treasury Obligations
(identified cost, $6,328,126) $ 7,391,249
- -----------------------------------------------------------------------------
Total Investments -- 119.3%
(identified cost $494,673,079) $502,176,653
- -----------------------------------------------------------------------------
Other Assets, Less Liabilities-- (19.3)% $(81,165,858)
- -----------------------------------------------------------------------------
Net Assets-- 100% $421,010,795
- -----------------------------------------------------------------------------
(1) A portion of this security is on loan at December 31, 1998.
(2) Security (or a portion thereof) has been segregated to cover margin
requirements on open financial futures contracts.
See notes to financial statements
14
<PAGE>
Government Obligations Portfolio as of December 31, 1998
FINANCIAL STATEMENTS
Statement of Assets and Liabilities
As of December 31, 1998
Assets
- --------------------------------------------------------------------------------
Investments, at value
(identified cost, $494,673,079) $502,176,653
Cash 109
Receivable for investments sold 1,782,571
Interest receivable 4,313,882
- --------------------------------------------------------------------------------
Total assets $508,273,215
- --------------------------------------------------------------------------------
Liabilities
- --------------------------------------------------------------------------------
Collateral for securities loaned $ 78,369,150
Demand note payable 8,799,000
Payable for daily variation margin on open
financial futures contracts 3,135
Payable to affiliate for Trustees' fees 13,900
Other accrued expenses 77,235
- --------------------------------------------------------------------------------
Total liabilities $ 87,262,420
- --------------------------------------------------------------------------------
Net Assets applicable to investors' interest in
Portfolio $421,010,795
- --------------------------------------------------------------------------------
Sources of Net Assets
- --------------------------------------------------------------------------------
Net proceeds from capital contributions and
withdrawals $413,456,809
Net unrealized appreciation (computed on the basis
of identified cost) 7,553,986
- --------------------------------------------------------------------------------
Total $421,010,795
- --------------------------------------------------------------------------------
Statement of Operations
For the Year Ended
December 31, 1998
Investment Income
- --------------------------------------------------------------------------------
Interest $ 37,955,761
- --------------------------------------------------------------------------------
Total investment income $ 37,955,761
- --------------------------------------------------------------------------------
Expenses
- --------------------------------------------------------------------------------
Investment adviser fee $ 3,257,584
Trustees fees and expenses 30,790
Interest expense 289,920
Custodian fee 224,987
Legal and accounting services 42,938
Amortization of organization expenses 3,141
Miscellaneous 16,326
- --------------------------------------------------------------------------------
Total expenses $ 3,865,686
- --------------------------------------------------------------------------------
Net investment income $ 34,090,075
- --------------------------------------------------------------------------------
Realized and Unrealized
Gain (Loss)
- --------------------------------------------------------------------------------
Net realized gain (loss) --
Investment transactions (identified cost basis) $ 6,505,030
Financial futures contracts (2,199,011)
Options (193,500)
- --------------------------------------------------------------------------------
Net realized gain $ 4,112,519
- --------------------------------------------------------------------------------
Change in unrealized appreciation (depreciation) --
Investments (identified cost basis) $(13,363,386)
Financial futures contracts 417,800
- --------------------------------------------------------------------------------
Net change in unrealized appreciation (depreciation) $(12,945,586)
- --------------------------------------------------------------------------------
Net realized and unrealized loss $ (8,833,067)
- --------------------------------------------------------------------------------
Net increase in net assets from operations $ 25,257,008
- --------------------------------------------------------------------------------
See notes to financial statements
15
<PAGE>
Government Obligations Portfolio as of December 31, 1998
FINANCIAL STATEMENTS CONT'D
Statements of Changes in Net Assets
Increase (Decrease) Year Ended Year Ended
in Net Assets December 31, 1998 December 31, 1997
- --------------------------------------------------------------------------------
From operations --
Net investment income $ 34,090,075 $ 35,025,042
Net realized gain (loss) 4,112,519 (6,844,606)
Net change in unrealized
appreciation (depreciation) (12,945,586) 4,415,017
- --------------------------------------------------------------------------------
Net increase in net assets
from operations $ 25,257,008 $ 32,595,453
- --------------------------------------------------------------------------------
Capital transactions --
Contributions $ 187,817,118 $ 163,961,740
Withdrawals (225,170,325) (218,972,747)
- --------------------------------------------------------------------------------
Net decrease in net assets
from capital transactions $ (37,353,207) $ (55,011,007)
- --------------------------------------------------------------------------------
Net decrease in net assets $ (12,096,199) $ (22,415,554)
- --------------------------------------------------------------------------------
Net Assets
- --------------------------------------------------------------------------------
At beginning of year $ 433,106,994 $ 455,522,548
- --------------------------------------------------------------------------------
At end of year $ 421,010,795 $ 433,106,994
- --------------------------------------------------------------------------------
See notes to financial statements
16
<PAGE>
Government Obligations Portfolio as of December 31, 1998
FINANCIAL STATEMENTS CONT'D
Supplementary Data
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------------------------------------------------------------
1998 1997 1996 1995 1994
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios to average daily net assets
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Expenses 0.89% 0.83% 0.82% 0.82% 0.80%
Net investment income 7.85% 7.95% 7.88% 7.82% 8.03%
Portfolio Turnover 48% 20% 11% 19% 35%
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of year (000's omitted) $421,011 $433,107 $455,523 $521,789 $ 515,670
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See notes to financial statements
17
<PAGE>
Government Obligations Portfolio as of December 31, 1998
NOTES TO FINANCIAL STATEMENTS
1 Significant Accounting Policies
----------------------------------------------------------------------------
Government Obligations Portfolio (the Portfolio) is registered under the
Investment Company Act of 1940 as a diversified open-end investment company
which was organized as a trust under the laws of the State of New York in
1992. The Declaration of Trust permits the Trustees to issue beneficial
interests in the Portfolio. The following is a summary of significant
accounting policies of the Portfolio. The policies are in conformity with
generally accepted accounting principles.
A Investment Valuation -- Mortgage backed, "pass-through" securities are
valued using an independent matrix pricing system applied by the adviser
which takes into account closing bond valuations, yield differentials,
anticipated prepayments and interest rates provided by dealers. Debt
securities (other than mortgage backed, "pass-through" securities) are
normally valued at the mean between the latest available bid and asked
prices for securities for which the over-the-counter market is the primary
market. Debt securities may also be valued on the basis of valuations
furnished by a pricing service. Options are valued at last sale price on a
U.S. exchange or board of trade or, in the absence of a sale, at the mean
between the last bid and asked price. Financial futures contracts listed on
commodity exchanges are valued at closing settlement prices. Securities for
which there is no such quotation or valuation are valued at fair value
using methods determined in good faith by or at the direction of the
Trustees. Short-term obligations having remaining maturities of less than
60 days are valued at amortized cost, which approximates value.
B Income -- Interest income is determined on the basis of interest accrued
and discount earned, adjusted for amortization of discount when required
for federal income tax purposes.
C Gains and Losses From Security Transactions -- For book purposes, gains
or losses are not recognized until disposition. For federal tax purposes,
the Portfolio has elected, under Section 1092 of the Internal Revenue Code,
to utilize mixed straddle accounting for certain designated classes of
activities involving options and financial futures contracts in determining
recognized gains or losses. Under this method, Section 1256 positions
(financial futures contracts and options on investments or financial
futures contracts) and non-Section 1256 positions (bonds, etc.) are
marked-to market on a daily basis resulting in the recognition of taxable
gains or losses on a daily basis.
Such gains or losses are categorized as short-term or long-term based on
aggregation rules provided in the Code.
D Income Taxes -- The Portfolio is treated as a partnership for federal tax
purposes. No provision is made by the Portfolio for federal or state taxes
on any taxable income of the Portfolio because each investor in the
Portfolio is ultimately responsible for the payment of any taxes. Since
some of the Portfolio's investors are regulated investment companies that
invest all or substantially all of their assets in the Portfolio, the
Portfolio normally must satisfy the applicable source of income and
diversification requirements (under the Code) in order for its investors to
satisfy them. The Portfolio will allocate at least annually among its
investors each investors' distributive share of the Portfolio's net
investment income, net realized capital gains, and any other items of
income, gain, loss, deduction or credit.
E Written Options -- Upon the writing of a call or a put option, an amount
equal to the premium received by the Portfolio is included in the Statement
of Assets and Liabilities as a liability. The amount of the liability is
subsequently marked-to-market to reflect the current value of the option
written in accordance with the Portfolio's policies on investment
valuations discussed above. Premiums received from writing options which
expire are treated as realized gains. Premiums received from writing
options which are exercised or are closed are added to or offset against
the proceeds or amount paid on the transaction to determine the realized
gain or loss. If a put option is exercised, the premium reduces the cost
basis of the securities purchased by the Portfolio. The Portfolio, as
writer of an option, may have no control over whether the underlying
securities may be sold (call) or purchased (put) and, as a result, bears
the market risk of an unfavorable change in the price of the securities
underlying the written option.
F Purchased Options -- Upon the purchase of a call or put option, the
premium paid by the Portfolio is included in the Statement of Assets and
Liabilities as an investment. The amount of the investment is subsequently
marked-to-market to reflect the current market value of the option
purchased, in accordance with the Portfolio's policies on investment
valuations discussed above. If an option which the Portfolio has purchased
expires on the stipulated expiration date, the Portfolio will realize a
loss in the amount of the cost of the option. If the Portfolio enters into
a closing sale transaction, the Portfolio will realize a gain or
18
<PAGE>
Government Obligations Portfolio as of December 31, 1998
NOTES TO FINANCIAL STATEMENTS CONT'D
loss, depending on whether the sales proceeds from the closing sale
transaction are greater or less than the cost of the option. If a Portfolio
exercises a put option, it will realize a gain or loss from the sale of the
underlying security, and the proceeds from such sale will be decreased by
the premium originally paid. If the Portfolio exercises a call option, the
cost of the security which the Portfolio purchases upon exercise will be
increased by the premium originally paid. For tax purposes, the Portfolio's
options are generally subject to the mixed straddle rules described in Note
1C, and unrealized gains or losses are recognized on a daily basis.
G Financial Futures Contracts -- Upon entering into a financial futures
contract, the Portfolio is required to deposit an amount ("initial margin")
either in cash or securities equal to a certain percentage of the purchase
price indicated in the financial futures contract. Subsequent payments are
made or received by the Portfolio ("margin maintenance") each day,
dependent on the daily fluctuations in the value of the underlying
securities, and are recorded for book purposes as unrealized gains or
losses by the Portfolio.
If the Portfolio enters into a closing transaction, the Portfolio will
realize, for book purposes, a gain or loss equal to the difference between
the value of the financial futures contract to sell and the financial
futures contract to buy. The Portfolio's investment in financial futures
contracts is designed only to hedge against anticipated future changes in
interest rates. Should interest rates move unexpectedly, the Portfolio may
not achieve the anticipated benefits of the financial futures contracts and
may realize a loss. For tax purposes, such futures contracts are generally
subject to the mixed straddle rules described in Note 1C, and unrealized
gains or losses are recognized on a daily basis.
H Other -- Investment transactions are accounted for on the date the
investments are purchased or sold.
I Use of Estimates -- The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities at the date of the financial statements and the reported
amounts of income and expense during the reporting period. Actual results
could differ from those estimates.
2 Purchases and Sales of Investments
----------------------------------------------------------------------------
Purchases, sales and paydowns of investments, other than short-term
obligations, aggregated $253,254,556, $124,985,962 and $112,210,267,
respectively.
3 Investment Adviser Fee and Other Transactions with Affiliates
----------------------------------------------------------------------------
The investment adviser fee, computed at the monthly rate of 0.0625% (0.75%
per annum) of the Portfolio's average daily net assets up to $500 million
and at reduced rates as daily net assets exceed that level, is earned by
Boston Management and Research (BMR), a wholly-owned subsidiary of Eaton
Vance Management (EVM), as compensation for management and investment
advisory services rendered to the Portfolio. For the year ended December
31, 1998, the fee was equivalent to 0.75% of the Portfolio's average net
assets for such period and amounted to $3,257,584. Except as to Trustees of
the Portfolio who are not members of EVM's or BMR's organization, officers
and Trustees receive remuneration for their services to the Portfolio out
of such investment adviser fee. Certain of the officers and Trustees of the
Portfolio are officers and directors/trustees of the above organizations.
Trustees of the Portfolio that are not affiliated with the Investment
Adviser may elect to defer receipt of all or a percentage of their annual
fees in accordance with the terms of the Trustees Deferred Compensation
Plan. For the year ended December 31, 1998, no significant amounts have
been deferred.
4 Line of Credit
----------------------------------------------------------------------------
The Portfolio participates with other portfolios and funds managed by BMR
and EVM and its affiliates in a committed $130 million unsecured line of
credit agreement with a group of banks. The Portfolio may temporarily
borrow from the line of credit to satisfy redemption requests or settle
investment transactions. Interest is charged to each portfolio or fund
based on its borrowings at an amount above the Eurodollar rate or federal
funds rate. In addition, a fee computed at an annual rate of 0.10% on the
daily unused portion of the line of credit is allocated among the
participating portfolios and funds at the end of each quarter. The average
daily loan balance for the year ended December 31, 1998 was $4,752,627 and
the average interest rate was 6.10%. The maximum borrowing outstanding at
any time during the year ended
19
<PAGE>
Government Obligations Portfolio as of December 31, 1998
NOTES TO FINANCIAL STATEMENTS CONT'D
December 31, 1998 was $33,665,000. As of December 31, 1998, $8,799,000 was
outstanding.
5 Securities Lending Agreement
----------------------------------------------------------------------------
The Portfolio has established a securities lending agreement with a broker
in which the Portfolio lends portfolio securities to the broker in exchange
for collateral consisting of either cash or U.S. government securities.
Under the agreement, the Portfolio continues to earn interest on the
securities loaned. Collateral received is generally cash, and the Portfolio
invests the cash and receives any interest on the amount invested but it
must also pay the broker a loan rebate fee computed as a varying percentage
of the collateral received. The loan rebate fee paid by the Fund offsets a
portion of the interest income received. At December 31, 1998, the value of
the securities loaned and the value of the collateral amounted to
approximately $77,000,000 and $78,000,000, respectively.
6 Federal Income Tax Basis of Investments
----------------------------------------------------------------------------
The cost and unrealized appreciation/depreciation in value of the investment
securities owned at December 31, 1998, as computed on a federal income tax
basis, were as follows:
Aggregate cost $500,350,386
---------------------------------------------------------------------------
Gross unrealized appreciation $ 5,288,617
Gross unrealized depreciation (3,462,350)
---------------------------------------------------------------------------
Net unrealized appreciation $ 1,826,267
---------------------------------------------------------------------------
7 Financial Instruments
----------------------------------------------------------------------------
The Portfolio regularly trades in financial instruments with off-balance
sheet risk in the normal course of its investing activities to assist in
managing exposure to various market risks. These financial instruments
include written options and financial futures contracts, and may involve, to
a varying degree, elements of risk in excess of the amounts recognized for
financial statement purposes. The notional or contractual amounts of these
instruments represent the investment the Fund has in particular classes of
financial instruments and does not necessarily represent the amounts
potentially subject to risk. The measurement of the risks associated with
these instruments is meaningful only when all related and offsetting
transactions are considered.
A summary of obligations under these financial instruments at December 31,
1998 is as follows:
Futures Contracts
----------------------------------------------------------------------------
Expiration Net Unrealized
Date Contracts Position Appreciation
----------------------------------------------------------------------------
3/99 200 US Treasury Five Year
Note Futures Long $ 50,412
----------------------------------------------------------------------------
At December 31, 1998, the Portfolio had sufficient cash and/or securities
to cover margin requirements on any open futures contracts.
20
<PAGE>
Government Obligations Portfolio as of December 31, 1998
INDEPENDENT ACCOUNTANTS' REPORT
To the Trustees and Investors
of Government Obligations Portfolio:
- --------------------------------------------------------------------------------
In our opinion, the accompanying statement of assets and liabilities, including
the schedule of investments and the related statements of operations and of
changes in net assets and supplementary data present fairly, in all material
respects, the financial position of Eaton Vance Government Obligations Portfolio
(the "Portfolio") at December 31, 1998, the results of its operations for the
year then ended, the changes in its net assets for each of the two years in the
period then ended and the supplementary data for each of the five years in the
period then ended, in conformity with generally accepted accounting principles.
These financial statements and supplementary data (hereafter referred to as
"financial statements") are the responsibility of the Portfolio's management;
our responsibility is to express an opinion on these financial statements based
on our audits. We conducted our audits of these financial statements in
accordance with generally accepted auditing standards which require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits which included confirmation of securities at December
31, 1998 by correspondence with the custodian and brokers, provide a reasonable
basis for the opinion expressed above.
PricewaterhouseCoopers LLP
Boston, Massachusetts
February 5, 1999
21
<PAGE>
Eaton Vance Government Obligations Fund as of December 31, 1998
INVESTMENT MANAGEMENT
Eaton Vance Government Obligations Fund
Officers Independent Trustees
James B. Hawkes Jessica M. Bibliowicz
President and Trustee President and Chief Operating Officer,
John A. Levin & Co. Director,
William H. Ahern, Jr. Baker, Fentress & Co.
Vice President
Donald R. Dwight
Thomas J. Fetter President, Dwight Partners, Inc.
Vice President
Samuel L. Hayes, III
Robert MacIntosh Jacob H. Schiff Professor of Investment
Vice President Banking, Harvard University Graduate School of
Business Administration
Michael B. Terry
Vice President Norton H. Reamer
Chairman and Chief Executive Officer, United Asset
James L. O'Connor Management Corporation
Treasurer
Lynn A. Stout
Alan R. Dynner Professor of Law
Secretary Georgetown University Law Center
John L. Thorndike
Formerly Director, Fiduciary Company Incorporated
Jack L. Treynor
Investment Adviser and Consultant
Government Obligations Portfolio
Officers Independent Trustees
James B. Hawkes Jessica M. Bibliowicz
President and Trustee President and Chief Operating Officer,
John A. Levin & Co. Director,
Susan Schiff Baker, Fentress & Co.
Vice President and
Portfolio Manager Donald R. Dwight
President, Dwight Partners, Inc.
Mark S. Venezia
Vice President Samuel L. Hayes, III
Jacob H. Schiff Professor of Investment
James L. O'Connor Banking, Harvard University Graduate School of
Treasurer Business Administration
Alan R. Dynner Norton H. Reamer
Secretary Chairman and Chief Executive Officer, United Asset
Management Corporation
Lynn A. Stout
Professor of Law
Georgetown University Law Center
John L. Thorndike
Formerly Director, Fiduciary Company Incorporated
Jack L. Treynor
Investment Adviser and Consultant
22
<PAGE>
This Page Intentionally Left Blank
<PAGE>
Investment Advisor of
Government Obligations Portfolio
Boston Management and Research
24 Federal Street
Boston, MA 02110
Administrator of Eaton Vance
Government Obligations Fund
Eaton Vance Management
24 Federal Street
Boston, MA 02110
Principal Underwriter
Eaton Vance Distributors, Inc.
24 Federal Street
Boston, MA 02110
(617) 482-8260
Custodian
Investors Bank & Trust Company
200 Clarendon Street, 16th Floor
Boston, MA 02116
Transfer Agent
First Data Investor Services Group
Attention: Eaton Vance Funds
P.O. Box 5123
Westborough, MA 01581-5123
Independent Accountants
PricewaterhouseCoopers LLP
One Post Office Square
Boston, MA 02109
Eaton Vance Government Obligations Fund
24 Federal Street
Boston, MA 02110
- --------------------------------------------------------------------------------
This report must be preceded or accompanied by a current prospectus which
contains more complete information on the Fund, including its sales charges and
expenses. Please read the prospectus carefully before you invest or send money.
- --------------------------------------------------------------------------------
GOSRC-2/99
