<PAGE>
STATEMENT OF
ADDITIONAL INFORMATION
March 1, 1999
EATON VANCE TAX-MANAGED GROWTH FUND
24 Federal Street
Boston, Massachusetts 02110
(800) 225-6265
This Statement of Additional Information ("SAI") provides general
information about the Fund and the Portfolio. 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 .................. 10
Other Service Providers .......................................... 11
Purchasing and Redeeming Shares .................................. 12
Sales Charges .................................................... 14
Performance ...................................................... 17
Taxes ............................................................ 18
Portfolio Security Transactions .................................. 20
Financial Statements ............................................. 21
Appendices:
A: Class A Fees, Performance and Ownership ....................... a-1
B: Class B Fees, Performance and Ownership ....................... b-1
C: Class C Fees, Performance and Ownership ....................... c-1
THIS IS NOT A PROSPECTUS AND IS AUTHORIZED FOR DISTRIBUTION TO PROSPECTIVE
INVESTORS ONLY IF PRECEDED OR ACCOMPANIED BY THE FUND'S PROSPECTUS DATED MARCH
1, 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.
STRATEGIES AND RISKS
It is the policy of the Portfolio to invest in a broadly diversified selection
of equity securities, emphasizing common stocks of domestic and foreign growth
companies that are considered to be high in quality and attractive in their
long-term investment prospects. The Portfolio may invest in investment-grade
preferred stocks and debt securities, but purchase of such securities will
normally be limited to securities convertible into common stocks and temporary
investments in short-term notes or government obligations.
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 rates as high as 39.6%.
Distributions of realized long-term gains (on stocks held at least 12 months)
are taxed at 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 Portfolio 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 Portfolio 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 Portfolio 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 Portfolio's credit exposure to any one counterparty will be limited to 5%
or less of net assets. As described below, the Portfolio'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.
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 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 Portfolio 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 Portfolio 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). A
short sale against-the-box requires that the short seller absorb certain costs
so long as the position is open. 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. 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 Portfolio 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 Commission, 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 Potfolio 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 Portfolio's
total assets.
ASSET COVERAGE REQUIREMENTS. Transactions involving swaps, short sales,
forward contracts, futures contracts and options (other than options that the
Portfolio has purchased) create an obligation to another party. The Portfolio
will not enter into any such transactions unless it owns either (1) an
offsetting ("covered") position in securities, currencies, 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 obligation of a
swap will be covered. The Portfolio will comply with Commission 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.
SELECTION OF SECURITIES USED TO MEET REDEMPTIONS. Investors in the Portfolio
(including the Fund) may redeem all or a portion of their interests in the
Portfolio at net asset value on a daily basis. Redemptions by the Fund's
shareholders currently are met entirely in cash, but distributions of
securities generally are used to meet redemptions by investors in the
Portfolio who have contributed securities and may in the future be used to
meet redemptions by the Fund's shareholders. See "Redeeming Shares" in the
prospectus. The Portfolio's ability to select the securities used to meet
redemptions is limited with respect to redemptions by investors who
contributed securities, and with respect to the securities contributed by such
investors. Within seven years of a contribution of securities (or, for
securities contributed prior to June 9, 1997, within five years of
contribution), (the "initial holding period") the Portfolio will not
distribute such securities to any investor other than the contributing
investor. In meeting a redemption of an investor who contributed securities
within the initial holding period after the contribution by such investor, the
Portfolio will not, unless requested by the redeeming investor, distribute any
securities other than the securities contributed by the redeeming investor
while retaining all or a portion of the securities contributed by such
investor. In addition, upon the request at any time of a redeeming investor in
the Portfolio that contributed securities, the Portfolio will utilize
securities held in the Portfolio that were contributed by such investor to
meet the redemption. After expiration of the initial holding period, redeeming
investors in the Portfolio who contributed securities generally may request a
diversified basket of securities, the composition of which will be determined
in the investment adviser's discretion. These redemption practices constrain
the selection of securities distributed to meet redemptions (particularly
during the initial holding period) and, consequently, may adversely affect the
performance of the Portfolio and the Fund. The Trustees of the Portfolio
believe that the potential advantages for the Portfolio to be derived from
attracting contributions of securities that would not be made in the absence
of these redemption practices outweigh the potential disadvantages of reduced
flexibility to select securities to meet redemptions. It is impossible to
predict whether the net result will be beneficial or detrimental to the Fund's
performance.
TEMPORARY INVESTMENTS. Under unusual market conditions, the Portfolio 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 Portfolio 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 and will
generally not exceed 20% (excluding turnover of securities having a maturity
of one year or less). A high turnover rate (100% or more) necessarily involves
greater trading expenses to the Portfolio.
INVESTMENT RESTRICTIONS
The following investment restrictions of the Fund are designated as
fundamental 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; or
(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 and (c) lending portfolio securities;
(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 of the Fund, the
Fund may invest its investable assets in an open-end management investment
company with substantially the same investment objective, policies and
restrictions as the Fund. Notwithstanding the investment policies and
restrictions of the Portfolio, the Portfolio may invest part of its assets in
another investment company consistent with the 1940 Act.
The Fund and the Portfolio have adopted the following investment policies
which may be changed by the Trustees with respect to the Fund without
shareholder approval or with respect to the Portfolio without approval of the
Fund or its other investors. The Fund and the Porffolio 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;
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 Portfolio'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
Portfolio to dispose of such security or other asset. Notwithstanding the
foregoing, under normal market conditions the Portfolio must take actions
necessary to comply with the policy of investing at least 65% of total assets
in common stock. Moreover, the Portfolio 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 and the Portfolio are listed below. Except as indicated, each
individual has held the office shown or other offices in the same company for
the last five years. Unless otherwise noted, the business address of each
Trustee and officer is 24 Federal Street, Boston, Massachusetts 02110. Those
Trustees who are "interested persons" of the Trust or the Portfolio, as
defined in the 1940 Act, are indicated by an asterisk(*).
JAMES B. HAWKES (57), 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 (39), Trustee
President and Chief Operating Officer of John A. Levin & Co. (a registered
investment advisor) (since July, 1997) and a Director of Baker, Fentress &
Company which owns John A. Levin & Co. (since July, 1997). Formerly
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: One Rockefeller Plaza, New York, NY 10020
DONALD R. DWIGHT (67), Trustee
President of Dwight Partners, Inc. (a corporate relations and communications
company). 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-Cendant
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 (63), 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 (41), Trustee of the Trust
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
JOHN L. THORNDIKE (72), Trustee
Former Director of Fiduciary Company Incorporated. Trustee of various
investment companies managed by Eaton Vance or BMR.
Address: 175 Federal Street, Boston, Massachusetts 02110
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. (39), Vice President of the Trust
Vice President of BMR and Eaton Vance. Officer of various investment companies
managed by Eaton Vance or BMR.
THOMAS J. FETTER (55), Vice President of the Trust
Vice President of Eaton Vance and BMR. Officer of various investment companies
managed by Eaton Vance or BMR.
ROBERT B. MACINTOSH (42), Vice President of the Trust
Vice President of Eaton Vance and BMR. Officer of various investment companies
managed by Eaton Vance or BMR.
DUNCAN W. RICHARDSON (41), Vice President of the Portfolio
Vice President of Eaton Vance and BMR. Officer of various investment companies
managed by Eaton Vance or BMR.
MICHAEL B. TERRY (56), Vice President of the Trust
Vice President of BMR and Eaton Vance. Officer of various investment companies
managed by Eaton Vance or BMR.
JAMES L. O'CONNOR (53), Treasurer
Vice President of Eaton Vance and BMR. Officer of various investment companies
managed by Eaton Vance or BMR.
ALAN R. DYNNER (58), 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 (63), 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 (36), Assistant Secretary
Vice President of BMR and Eaton Vance. Officer of various investment companies
managed by Eaton Vance or BMR.
ERIC G. WOODBURY (41), Assistant Secretary
Vice President of BMR and Eaton Vance. Officer of various investment companies
managed by Eaton Vance or BMR.
Messrs. Hayes (Chairman), Reamer and Thorndike are members of the Special
Committee of the Board of Trustees of the Trust and of the Portfolio. The
purpose of the Special Committee is to consider, evaluate and make
recommendations to the full Board of Trustees concerning (i) all contractual
arrangements with service providers to the Fund and the Portfolio, including
investment advisory (Portfolio only), administrative, transfer agency,
custodial 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, the Portfolio or investors therein.
The Nominating Committee of the Board of Trustees of the Trust and the
Portfolio is comprised of four Trustees who are not "interested persons" as
that term is defined under the 1940 Act ("noninterested Trustees"). The
Committee has four-year staggered terms, with one member rotating off the
Committee to be replaced by another noninterested Trustee. The purpose of the
Committee is to recommend to the Board nominees for the position of
noninterested Trustee and to assure that at least a majority of the Board of
Trustees is independent of Eaton Vance and its affiliates.
Messrs. Treynor (Chairman) and Dwight are members of the Audit Committee
of the Board of Trustees of the Trust and of the Portfolio. The Audit
Committee's functions include making recommendations to the Board of Trustees
regarding the selection of the independent certified public accountants, and
reviewing matters relative to trading and brokerage policies and practices,
accounting and auditing practices and procedures, accounting records, internal
accounting controls, and the functions performed by the custodian, transfer
agent and dividend disbursing agent of the Trust and of the Portfolio.
Trustees of the Portfolio who 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 Portfolio's assets, liabilities, and net
income per share, and will not obligate the Portfolio to retain the services
of any Trustee or obligate the Portfolio to pay any particular level of
compensation to the Trustees. Neither the Portfolio nor the Trust has a
retirement plan for its Trustees.
The fees and expenses of the noninterested Trustees of the Trust and of
the Portfolio are paid by the Fund (and the other series of the Trust) and of
the Portfolio, respectively. (The Trustees of the Trust and of the Portfolio
who are members of the Eaton Vance organization receive no compensation from
the Trust or the Portfolio.) During the fiscal year ended October 31, 1998,
the noninterested Trustees of the Trust and the Portfolio earned the following
compensation in their capacities as Trustees of the Trust and the Portfolio
and, for the year ended December 31, 1998, earned the following compensation
in their capacities as Trustees of the funds in the Eaton Vance fund complex
(1):
<TABLE>
<CAPTION>
SOURCE OF JESSICA M. DONALD R. SAMUEL L. NORTON H. LYNN A. JOHN L. JACK L.
COMPENSATION BIBLIOWICZ(9) DWIGHT HAYES, III REAMER STOUT(9) THORNDIKE TREYNOR
------------ ------------- ------ ---------- ------ -------- --------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Trust(2) .............. $ -- $ 7,534 $ 7,910 $ 7,427 $ -- $ 7,656 $ 8,311
Portfolio ............. -- 6,433(3) 6,538(4) 6,212 -- 6,397(5) 6,990
Trust and Fund
Complex ............. 33,333 160,000(6) 170,000(7) 160,000 33,333 160,000(8) 170,000
- ------------
(1) As of March 1, 1999, the Eaton Vance Fund complex consists of 152 registered investment companies or series thereof.
(2) The Trust consisted of 12 Funds as of October 31, 1998.
(3) Includes $3,233 of deferred compensation.
(4) Includes $2,237 of deferred compensation.
(5) Includes $6,385 of deferred compensation.
(6) Includes $60,000 of deferred compensation.
(7) Includes $41,563 of deferred compensation.
(8) Includes $119,091 of deferred compensation.
(9) Ms. Bibliowicz and Ms. Stout were elected Trustees on October 30, 1998 and receive compensation approximating the other
Trustees.
</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 Fund (formerly EV Marathon Tax-Managed Growth Fund) established 3
classes of shares on November 1, 1997 -- Class A shares (formerly EV
Traditional Tax-Managed Growth Fund), Class B shares and Class C shares
(formerly EV Classic Tax-Managed Growth Fund) of Eaton Vance Tax-Managed
Growth Fund. Information herein prior to such date is for the Fund before it
became a multiple-class fund. Class A and Class C are successors to the
operations of separate series of the Trust.
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.
The Trustees of the Trust have considered the advantages and disadvantages
of investing the assets of the Fund in the Portfolio, as well as the
advantages and disadvantages of the two-tier format. The Trustees believe that
the structure offers opportunities for growth in the assets of the Portfolio,
may afford the potential for economies of scale for the Fund and may over time
result in lower expenses for the Fund.
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 Declaration of Trust may be amended by the Trustees when authorized by
vote of a majority of the outstanding voting securities of the Trust, the
financial interests of which are affected by the amendment. The Trustees may
also amend the Declaration of Trust without the vote or consent of
shareholders to change the name of the Trust or any series or to make such
other changes (such as reclassifying series or classes of shares or
restructuring the Trust) as do not have a materially adverse effect on the
financial interests of shareholders or if they deem it necessary to conform it
to applicable federal or state laws or regulations. The Trust'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.
The Portfolio is organized as a trust under the laws of the state of New
York and intends to be treated as a partnership for federal tax purposes. In
accordance with the Declaration of Trust of the Portfolio, there will normally
be no meetings of the investors for the purpose of electing Trustees unless
and until such time as less than a majority of the Trustees of the Portfolio
holding office have been elected by investors. In such an event the Trustees
of the Portfolio then in office will call an investors' meeting for the
election of Trustees. Except for the foregoing circumstances and unless
removed by action of the investors in accordance with the Portfolio's
Declaration of Trust, the Trustees shall continue to hold office and may
appoint successor Trustees.
The Declaration of Trust of the Portfolio provides that no person shall
serve as a Trustee if investors holding two-thirds of the outstanding interest
have removed him from that office either by a written declaration filed with
the Portfolio's custodian or by votes cast at a meeting called for that
purpose. The Declaration of Trust further provides that under certain
circumstances the investors may call a meeting to remove a Trustee and that
the Portfolio is required to provide assistance in communicating with
investors about such a meeting.
The Portfolio's Declaration of Trust provides that the Fund and other
entities permitted to invest in the Portfolio (e.g., other U.S. and foreign
investment companies, and common and commingled trust funds) will each be
liable for all obligations of the Portfolio. However, the risk of the Fund
incurring financial loss on account of such liability is limited to
circumstances in which both inadequate insurance exists and the Portfolio
itself is unable to meet its obligations. Accordingly, the Trustees of the
Trust believe that neither the Fund nor its shareholders will be adversely
affected by reason of the Fund investing in the Portfolio.
Whenever the Fund as an investor in a Portfolio is requested to vote on
matters pertaining to the Portfolio (other than the termination of the
Portfolio's business, which may be determined by the Trustees of the Portfolio
without investor approval), the Fund will hold a meeting of Fund shareholders
and will vote its interest in the Portfolio for or against such matters
proportionately to the instructions to vote for or against such matters
received from Fund shareholders. The Fund shall vote shares for which it
receives no voting instructions in the same proportion as the shares for which
it receives voting instructions. Other investors in the Portfolio may alone or
collectively acquire sufficient voting interests in the Portfolio to control
matters relating to the operation of the Portfolio, which may require the Fund
to withdraw its investment in the Portfolio or take other appropriate action.
Any such withdrawal could result in a distribution "in kind" of portfolio
securities (as opposed to a cash distribution from the Portfolio). If
securities are distributed, the Fund could incur brokerage, tax or other
charges in converting the securities to cash. In addition, the distribution in
kind may result in a less diversified portfolio of investments or adversely
affect the liquidity of the Fund. Notwithstanding the above, there are other
means for meeting shareholder redemption requests, such as borrowing.
The Fund may withdraw (completely redeem) all its assets from the
Portfolio at any time if the Board of Trustees of the Trust determines that it
is in the best interest of the Fund to do so. In the event the Fund withdraws
all of its assets from the Portfolio, or the Board of Trustees of the Trust
determines that the investment objective of the Portfolio is no longer
consistent with the investment objective of the Fund, the Trustees would
consider what action might be taken, including investing the assets of the
Fund in another pooled investment entity or retaining an investment adviser to
manage the Fund's assets in accordance with its investment objective. The
Fund's investment performance may be affected by a withdrawal of all its
assets (or the assets of another investor in the Portfolio) from the
Portfolio.
INVESTMENT ADVISORY AND ADMINISTRATIVE SERVICES
INVESTMENT ADVISORY SERVICES. BMR manages the investments and affairs of the
Portfolio subject to the supervision of the Portfolio's Board of Trustees. BMR
furnishes to the Portfolio investment research, advice and supervision,
furnishes an investment program and determines what securities will be
purchased, held or sold by the Portfolio and what portion, if any, of the
Portfolio's assets will be held uninvested. The Investment Advisory Agreement
requires BMR to pay the salaries and fees of all officers and Trustees of the
Portfolio who are members of the BMR organization and all personnel of BMR
performing services relating to research and investment activities.
For a description of the compensation that the Portfolio pays BMR under the
Investment Advisory Agreement on average daily net assets up to $1.5 billion,
see the prospectus. On net assets of $1.5 billion 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)
- -------------------------------------- ----------------
$1.5 billion but less than $7 billion 0.4375%
$7 billion but less than $10 billion 0.4250%
$10 billion and over 0.4125%
As of October 31, 1998, the Portfolio had net assets of $6,985,678,484. For
the fiscal years ended October 31, 1998 and 1997 and for the period from the
start of business, December 1, 1995, to October 31, 1996, the Portfolio paid BMR
advisory fees of $24,370,514, $9,455,900 and $2,116,576, respectively,
(equivalent to 0.47%, 0.53% and 0.618% (annualized), respectively, of the
Portfolio's average daily net assets for each such year).
The Investment Advisory Agreement with BMR continues in effect from year
to year for so long as such continuance is approved at least annually (i) by
the vote of a majority of the noninterested Trustees of the Portfolio cast in
person at a meeting specifically called for the purpose of voting on such
approval and (ii) by the Board of Trustees of the Portfolio or by vote of a
majority of the outstanding voting securities of the Portfolio. The Agreement
may be terminated at any time without penalty on sixty days' written notice by
the Board of Trustees of either party, or by vote of the majority of the
outstanding voting securities of the Portfolio, and the Agreement will
terminate automatically in the event of its assignment. The Agreement provides
that BMR may render services to others. The Agreement also provides that BMR
shall not be liable for any loss incurred in connection with the performance
of its duties, or action taken or omitted under that Agreement, in the absence
of willful misfeasance, bad faith, gross negligence in the performance of its
duties or by reason of its reckless disregard of its obligations and duties
thereunder, or for any losses sustained in the acquisition, holding or
disposition of any security or other investment.
ADMINISTRATIVE SERVICES. As indicated in the prospectus, Eaton Vance serves
as administrator of the Fund, but currently receives no compensation for
providing administrative services to the Fund. Under its Administrative
Services Agreement with the Trust, Eaton Vance has been engaged to administer
the Fund's affairs, subject to the supervision of the Trustees of the Trust,
and shall furnish for the use of the Fund office space and all necessary
office facilities, equipment and personnel for administering the affairs of
the Fund.
INFORMATION ABOUT BMR AND EATON VANCE. BMR and Eaton Vance are business
trusts organized under Massachusetts law. Eaton Vance, Inc. ("EV") serves as
trustee of BMR and Eaton Vance. BMR, Eaton Vance and EV are wholly-owned
subsidiaries of Eaton Vance Corporation ("EVC"), a Maryland corporation and
publicly-held holding company. EVC through its subsidiaries and affiliates
engages primarily in investment management, administration and marketing
activities. The Directors of EVC are James B. Hawkes, Benjamin A. Rowland,
Jr., 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 of the issued and outstanding shares of BMR are owned by Eaton Vance.
All shares of the outstanding Voting Common Stock of EVC are deposited in a
Voting Trust, the Voting Trustees of which are Messrs. Hawkes, and Rowland,
Alan R. Dynner, Thomas E. Faust, Jr., Thomas J. Fetter, Duncan W. Richardson,
William M. Steul, and Wharton P. Whitaker. The Voting Trustees have
unrestricted voting rights for the election of Directors of EVC. All of the
outstanding voting trust receipts issued under said Voting Trust are owned by
certain of the officers of BMR and Eaton Vance who are also officers, or
officers and Directors of EVC and EV. As 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 and Portfolio are each 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"), 24 Federal
Street, Boston, MA 02110, 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 and Portfolio. IBT has the
custody of all cash and securities representing the Fund's interest in the
Portfolio, has custody of the Portfolio's assets, maintains the general ledger
of the Portfolio and the Fund and computes the daily net asset value of
interests in the Portfolio and the net asset value of shares of the Fund. In
such capacity it attends to details in connection with the sale, exchange,
substitution, transfer or other dealings with the Portfolio's investments,
receives and disburses all funds and performs various other ministerial duties
upon receipt of proper instructions from the Trust and the Portfolio. IBT also
provides services in connection with the preparation of shareholder reports
and the electronic filing of such reports with the 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 or the
Portfolio and such banks.
INDEPENDENT ACCOUNTANTS. Deloitte & Touche LLP, 125 Summer Street, Boston,
Massachusetts, are the independent accountants of the Fund and the Portfolio,
providing audit services, tax return preparation, and assistance and
consultation with respect to the preparation of filings with the SEC.
TRANSFER AGENT. First Data Investor Services Group, 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 Portfolio is
computed by IBT (as agent and custodian for the Portfolio) by subtracting the
liabilities of the Portfolio from the value of its total assets. The Fund and
the Portfolio will be closed for business and will not price their respective
shares or interests on the following business holidays: New Year's Day, Martin
Luther King, Jr. Day, Presidents' Day, Good Friday, Memorial Day, Independence
Day, Labor Day, Thanksgiving Day and Christmas Day.
Each investor in the Portfolio, including the Fund, may add to or reduce
its investment in the Portfolio on each day the Exchange is open for trading
("Portfolio Business Day") as of the close of regular trading on the Exchange
(the "Portfolio Valuation Time"). The value of each investor's interest in the
Portfolio will be determined by multiplying the net asset value of the
Portfolio by the percentage, determined on the prior Portfolio Business Day,
which represented that investor's share of the aggregate interests in the
Portfolio on such prior day. Any additions or withdrawals for the current
Portfolio Business Day will then be recorded. Each investor's percentage of
the aggregate interest in the Portfolio will then be recomputed as the
percentage equal to a fraction (i) the numerator of which is the value of such
investor's investment in the Portfolio as of the close of Portfolio Valuation
Time on the prior Portfolio Business Day plus or minus, as the case may be,
that amount of any additions to or withdrawals from the investor's investment
in the Portfolio on the current Portfolio Business Day, and (ii) the
denominator of which is the aggregate net asset value of the Portfolio as of
the Portfolio Valuation Time on the prior Portfolio Business Day plus or
minus, as the case may be, the amount of the net additions to or withdrawals
from the aggregate investment in the Portfolio on the current Portfolio
Business Day by all investors in the Portfolio. The percentage so determined
will then be applied to determine the value of the investor's interest in the
Portfolio for the current Portfolio Business Day.
The Trustees of the Portfolio have established the following procedures
for the fair valuation of the Portfolio'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 price. 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 Portfolio 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 Portfolio'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 Portfolio's net asset value (unless the Portfolio
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 Portfolio 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 Portfolio 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, including the
Portfolio; to clients and current and retired officers and employees of Eaton
Vance, its affiliates and other investment advisers of Eaton Vance sponsored
funds; to registered representatives and employees of investment dealers and
bank employees who refer customers to registered representatives of invetment
dealers; to officers and employees of IBT and the transfer agent; and to such
persons' spouses, parents, siblings and children and their beneficial
accounts. Class A shares may also be issued at net asset value (1) in
connection with the merger of an investment company or series thereof with the
Fund, (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; and 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". Subject to
the applicable provisions of the 1940 Act, the Trust may issue Class A shares
at net asset value in the event that an investment company (whether a
regulated or private investment company or a personal holding company) is
merged or consolidated with or acquired by the Class. Normally no sales
charges will be paid in connection with an exchange of Class A shares for the
assets of such investment company. 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 adopted 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 the 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
Trustees of the Trust have initially implemented the Class A Plan by
authorizing Class A to make quarterly service fee payments to the principal
underwriter and investment dealers in amounts not expected to exceed .25% of
its average daily net assets for any fiscal year which is based on the value
of Class A shares sold by such persons and remaining outstanding for at least
twelve months. For the service fees paid by Class A shares, see Appendix A.
The Trust has also adopted 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. For the sales
commissions and CDSCs paid on (and uncovered distribution charges of) Class B
and Class C shares, see Appendix B and Appendix C, respectively.
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 and remaining outstanding for at least twelve months. 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. For the service fees
paid by Class B and Class C shares, see Appendix B and Appendix C,
respectively.
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
BMR by the Portfolio) resulting from sale of shares and through the amounts
paid to the principal underwriter, including CDSCs, pursuant to the Plans. The
Eaton Vance organization may be considered to have realized a profit under the
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, including the Plan
Trustees, on June 23, 1997.
The Trustees of the Trust believe that each Plan will be a significant
factor in the expected growth of each 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 separately for each Class of the
Fund by multiplying a hypothetical initial purchase order of $1,000 by the
average annual compound rate of return (including capital appreciation/
depreciation, and distributions paid and reinvested) for the stated period and
annualizing the result. The calculation assumes (i) that all distributions are
reinvested at net asset value on the reinvestment dates during the period,
(ii) 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. Total
returns may also be calculated based on a purchase at net asset value and at
varying sales charge levels. For information concerning the total return of the
Classes of the Fund, see Appendix A, Appendix B and Appendix C.
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 comparisons 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. The Fund's performance may differ from that of other
investors in the Portfolio, and other investment companies.
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 and Portfolio service providers, their investment styles, other
investment products, personnel and Fund distribution channels.
Information about the allocation and holdings of investments in the
Portfolio may be included in advertisements and other material furnished to
present and prospective shareholders.
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.
TAXES
Each series of the Trust, is treated as a separate entity for federal
income tax purposes. The Fund intends to elect 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.
Because the Fund invests its assets in the Portfolio, the Portfolio
normally must satisfy the applicable source of income and diversification
requirements in order for the Fund to also satisfy them, and the Portfolio
intends to do so. For federal income tax purposes, the Portfolio intends to be
treated as a partnership that is not a "publicly traded partnership" and, as a
result, will not be subject to federal income tax. The Fund, as an investor in
the Portfolio, will be required to take into account in determining its
federal income tax liability its share of the Portfolio's income, gains,
losses, deductions, and credits, without regard to whether it has received any
cash distributions from the Portfolio.
The Portfolio will allocate at least annually among its investors,
including the Fund, each investor's distributive share of the Portfolio's net
investment income, net realized capital gains, and any other items of income,
gain, loss, deduction or credit. For purposes of applying the requirements of
the Code regarding qualification as a RIC, the Fund (i) will be deemed to own
its proportionate share of each of the assets of the Portfolio and (ii) will
be entitled to the gross income of the Portfolio attributable to such share.
In order to avoid excise tax, the Code requires the Fund to distribute by
the end of each calendar year substantially all of its ordinary income for
such year and capital gain net income for the one-year period ending on
October 31 of such year, plus certain other amounts. Under current law,
provided the Fund qualifies as a RIC and the Portfolio is treated as a
partnership for Massachusetts and federal tax purposes, neither the Fund nor
the Portfolio should be liable for any income, 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.
A portion of distributions made by the Fund (that are derived from
dividends received by the Portfolio) from domestic corporations and allocated
to the Fund may qualify for the dividends-received deduction ("DRD") for
corporations. The DRD is reduced to the extent the shares of the Fund with
respect to which the dividends are received are treated as debt-financed under
the Code and is eliminated if the shares are deemed to have been held for less
than a minimum period, generally 46 days. Receipt of certain distributions
qualifying for the DRD may result in reduction of the tax basis of the
corporate shareholder's shares. Distributions eligible for the DRD may give
rise to or increase an alternative minimum tax for certain corporations.
Under the Code, the redemption or exchange of shares of a RIC normally
results in capital gain or loss if such shares are held as capital assets.
However, a loss realized on a redemption or other disposition of Fund shares
may be disallowed under certain "wash sale" rules if shares of the Fund are
acquired within a period beginning 30 days before and ending 30 days after the
date of such redemption or other disposition. Any disallowed loss will result
in an adjustment to the shareholder's tax basis in some or all of the other
shares acquired.
Any loss realized upon the redemption or exchange of a Fund with a tax
holding period of six months or less will be treated as a long-term capital
loss to the extent of any distribution of net long-term capital gains with
respect to such shares.
Certain investors in the Portfolio, including RICs, have acquired
interests in the Portfolio by contributing securities. Due to tax
considerations, during the first seven years following the contribution of
securities (or within five years for securities contributed prior to June 9,
1997) to the Portfolio by an investor, such securities will not be distributed
to any investor other than the investor who contributed those securities.
Investors who acquire an interest in the Portfolio by contributing securities
and who redeem that interest within the applicable time period will generally
receive back one or more of the securities they contributed. In partial
redemptions by such investors during this period, the Portfolio will attempt
to accommodate requests to distribute initially those contributed securities
and share lots with the highest cost basis.
The Portfolio has significant holdings of highly appreciated securities
that were contributed to the Portfolio by investors other than the Fund. If
such securities were to be sold, the resulting capital gain would be allocated
disproportionately among the Portfolio's investors, with the result that the
Fund would not be subject to taxation on any gain arising prior to the
contribution of the securities to the Portfolio.
PORTFOLIO SECURITY TRANSACTIONS
Decisions concerning the execution of portfolio security transactions,
including the selection of the market and the executing firm, are made by BMR.
BMR is also responsible for the execution of transactions for all other
accounts managed by it.
BMR places the portfolio security transactions of the Portfolio and of
certain other accounts managed by it for execution with many firms. BMR uses
its best efforts to obtain execution of portfolio transactions at prices which
are advantageous and (when a disclosed commission is being charged) at
reasonably competitive commission rates. In seeking such execution, BMR will
use its best judgment in evaluating the terms of a transaction, and will give
consideration to various relevant factors, including without limitation the
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 BMR, the size and type of the transaction, the nature and character
of the market for the security, the confidentiality, speed and certainty of
effective execution required for the transaction, the general execution and
operational capabilities of the executing firm, the reputation, reliability,
experience and financial condition of the firm, the value and quality of
services rendered by the firm in this and other transactions, and the
reasonableness of the commission, if any. Transactions on stock exchanges and
other agency transactions involve the payment of negotiated brokerage
commissions. Such commissions vary among different 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 BMR, be reasonable in relation
to the value of the services provided, commissions exceeding those which
another firm might charge may be paid to firms who were selected to execute
transactions on behalf of the Portfolio and BMR's other clients providing
brokerage and research services to BMR.
As authorized in Section 28(e) of the Securities Exchange Act of 1934, a
broker or dealer who executes a portfolio transaction may receive a commission
which is in excess of the amount of commission another broker or dealer would
have charged for effecting that transaction if BMR determines in good faith
that such compensation was reasonable in relation to the value of the
brokerage and research services provided. This determination may be made
either on the basis of that particular transaction or on the basis of overall
responsibilities which BMR and its affiliates have for accounts over which it
exercises investment discretion. In making any such determination, BMR will
not attempt to place a specific dollar value on the brokerage and research
services provided or to determine what portion of the commission should be
related to such services. Brokerage and research services may include advice
as to the value of securities, the advisability of investing in, purchasing or
selling securities, and the availability of securities or purchasers or
sellers of securities; furnishing analyses and reports concerning issuers,
industries, securities, economic factors and trends, portfolio strategy and
the performance of accounts; 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, BMR may receive Research Services
from broker-dealer firms with which it places the 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
BMR in connection with client accounts other than those accounts which pay
commissions to such broker-dealer. Any such Research Service may be broadly
useful and of value to BMR in rendering investment advisory services to all or
a significant portion of its clients, or may be relevant and useful for the
management of only one client's account or of a few clients' accounts, or may
be useful for the management of merely a segment of certain clients' accounts,
regardless of whether any such account or accounts paid commissions to the
broker-dealer through which such Research Service was obtained. The advisory
fee paid by the Portfolio is not reduced because BMR receives such Research
Services. BMR evaluates the nature and quality of the various Research
Services obtained through broker-dealer firms and attempts to allocate
sufficient portfolio securitiy transactions to such firms to ensure the
continued receipt of Research Services which BMR believes are useful or of
value to it in rendering investment advisory services to its clients.
The Fund and BMR may also receive Research Services from underwriters and
dealers in fixed price offerings, which Research Services are reviewed and
evaluated by BMR in connection with its investment responsibilities. The
investment companies sponsored by BMR or Eaton Vance 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 BMR, to
such companies. Such companies may also pay cash for such information.
Subject to the requirement that BMR shall use its best efforts to seek to
execute portfolio security transactions of the Fund at advantageous prices and
at reasonably competitive commission rates or spreads, BMR is authorized to
consider as a factor in the selection of any broker-dealer firm with whom
Portfolio orders may be placed the fact that such firm has sold or is selling
shares of the Fund or of other investment companies sponsored by 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 Portfolio may also be
appropriate for other investment accounts managed by BMR or its affiliates.
Whenever decisions are made to buy or sell securities by the Porttolio and one
or more of such other accounts simultaneously, BMR will allocate the security
transactions (including "hot" issues) in a manner which it believes to be
equitable under the circumstances. As a result of such allocations, there may
be instances where the Portfolio will not participate in a transaction that is
allocated among other accounts. If an aggregated order cannot be filled
completely, allocations will generally be made on a pro rata basis. An order
may not be allocated on a pro rata basis where, for example: (i) consideration
is given to portfolio managers who have been instrumental in developing or
negotiating a particular investment; (ii) consideration is given to an account
with specialized investment policies that coincide with the particulars of a
specific investment; (iii) pro rata allocation would result in odd-lot or de
minimis amounts being allocated to a portfolio or other client; or (iv) where
BMR reasonably determines that departure from a pro rata allocation is
advisable. While these aggregation and allocation policies could have a
detrimental effect on the price or amount of the securities available to the
Portfolio from time to time, it is the opinion of the Trustees of the
Portfolio that the benefits from BMR's organization outweigh any disadvantage
that may arise from exposure to simultaneous transactions.
For the fiscal years ended October 31, 1998 and 1997 and for the period
from the Portfolio's start of business, December 1, 1995, to October 31, 1996,
the Portfolio paid brokerage commissions of $2,367,391, $1,019,496 and
$144,815, respectively, on portfolio security transactions. Of these amounts,
approximately $1,542,207, $832,436 and $112,018, respectively, was paid in
respect of portfolio security transactions aggregating approximately
$2,248,322,320, $740,796,988 and $89,523,457, respectively, to firms which
provided some Research Services to the investment adviser's organization
(although many of such firms may have been selected in any particular
transaction primarily because of their execution capabilities).
FINANCIAL STATEMENTS
The audited financial statements of and the independent auditors' reports
for the Fund and the Portfolio, appear in the Fund's most recent annual report
to shareholders, which is incorporated by reference into this SAI. A copy of
the Fund's annual report accompanies this SAI. Consistent with applicable law,
duplicate mailings of shareholder reports and certain other Fund information
to shareholders residing at the same address may be eliminated.
APPENDIX A
CLASS A FEES, PERFORMANCE AND OWNERSHIP
SERVICE FEES
For the fiscal year ended October 31, 1998, Class A made service fee
payments under the Service Plan aggregating $256,146, of which $249,006 was
paid to investment dealers and the balance of which was retained by the
principal underwriter.
PRINCIPAL UNDERWRITER
The total sales charges paid in connection with sales of Class A shares
during the fiscal year ended October 31, 1998 was $15,839,512, of which
$2,265,177 was received by the principal underwriter. For the fiscal year
ended October 31, 1998, Authorized Firms received $13,574,335 from the total
sales charges.
The Trust has authorized the principal underwriter to act as its agent in
repurchasing shares at the rate of $2.50 for each repurchase transaction
handled by the principal underwriter. For the fiscal year ended October 31,
1998, Class A paid the principal underwriter $7,530 for repurchase
transactions handled by it.
PERFORMANCE INFORMATION
The table below indicates the cumulative and average annual total return
on a hypothetical investment of $1,000. Total return prior to November 1, 1997
reflects the total return of the predecessor to Class A. Total return prior to
March 28, 1996 reflects the total return of Class B, adjusted to reflect the
Class A sales charge. The Class B total return has not been adjusted to
reflect certain other expenses (such as distribution and/or service fees). If
such adjustments were made, the Class A total return would be different. The
"Value of Initial Investment" reflects the deduction of the maximum sales
charge of 5.75%. Past performance is not indicative of future results.
Investment return and principal value will fluctuate; shares, when redeemed,
may be worth more or less than their original cost.
<TABLE>
VALUE OF $1,000 INVESTMENT
<CAPTION>
TOTAL RETURN TOTAL RETURN
EXCLUDING MAXIMUM INCLUDING MAXIMUM
VALUE OF VALUE OF SALES CHARGE SALES CHARGE
INVESTMENT INVESTMENT INITIAL INVESTMENT ------------------------------ ----------------------------
PERIOD DATE INVESTMENT ON 10/31/98 CUMULATIVE ANNUALIZED CUMULATIVE ANNUALIZED
------ ---- ---------- ----------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
10 Years Ended
10/31/98 10/31/88 $942.41 $4,761.23 405.23% 17.58% 376.12% 16.89%
5 Years Ended
10/31/98 10/31/93 $942.24 $2,564.82 172.20% 22.17% 156.48% 20.73%
1 Year Ended
10/31/98 10/31/97 $942.24 $1,100.77 16.83% 16.83% 10.08% 10.08%
</TABLE>
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
As of February 1, 1999, the Trustees and officers of the Trust, as a
group, owned in the aggregate less than 1% of the outstanding Class A shares
of the Fund. As of February 1, 1999, Merrill Lynch, Pierce, Fenner & Smith,
Inc., Jacksonville, FL was the record owner of approximately 10.5% of the
outstanding Class A shares, which it held on behalf of its customers who are
the beneficial owners of such shares, and as to which they had voting power
under certain limited circumstances. To the knowledge of the Trust, no other
person owned of record or beneficially 5% or more of the Fund's outstanding
Class A shares as of such date.
<PAGE>
APPENDIX B
CLASS B FEES, PERFORMANCE AND OWNERSHIP
DISTRIBUTION AND SERVICE FEES
During the fiscal year ended October 31, 1998, the principal underwriter
paid to investment dealers sales commissions of $46,404,669 on sales of Class
B shares. During the same period, the Fund made distribution payments to the
principal underwriter under the Distribution Plan aggregating $9,091,696 and
the principal underwriter received approximately $1,991,000 in CDSCs imposed
on early redeeming shareholders. These distribution payments and CDSC payments
reduced uncovered distribution charges under the Plan. As at October 31, 1998,
the outstanding uncovered distribution charges of the principal underwriter
calculated under the Plan amounted to approximately $73,999,000 (which amount
was equivalent to 4.1% of Class B net assets on such date). During the fiscal
year ended October 31, 1998, Class B made service fee payments to the
principal underwriter and investment dealers aggregating $785,732, of which
$784,585 was paid to investment dealers and the balance of which was retained
by the principal underwriter.
PRINCIPAL UNDERWRITER
The Trust has authorized the principal underwriter to act as its agent in
repurchasing shares at the rate of $2.50 for each repurchase transaction
handled by the principal underwriter. For the fiscal year ended October 31,
1998, Class B paid the principal underwriter $17,845 for repurchase
transactions handled by it.
PERFORMANCE INFORMATION
The table below indicates the cumulative and average annual total return
on a hypothetical investment of $1,000 in Class B shares of the Fund. Total
return for Class B prior to March 28, 1996 reflects the total return of
another investor in the Portfolio, adjusted to reflect the Class B sales
charge. This total return has not been adjusted to reflect certain other Class
B expenses (such as distribution and/or service fees). If such adjustments
were made, the performance would be lower. Past performance is not indicative
of future results. Investment return and principal vaue will fluctuate;
shares, when redeemed, may be worth more or less than their original cost.
<TABLE>
VALUE OF A $1,000 INVESTMENT
<CAPTION>
VALUE OF VALUE OF
INVESTMENT INVESTMENT
BEFORE AFTER TOTAL RETURN BEFORE TOTAL RETURN AFTER
DEDUCTING THE DEDUCTING THE DEDUCTING THE CDSC DEDUCTING THE CDSC
INVESTMENT INVESTMENT AMOUNT OF CDSC CDSC -------------------------- ------------------------
PERIOD DATE INVESTMENT ON 10/31/98 ON 10/31/98 CUMULATIVE ANNUALIZED CUMULATIVE ANNUALIZED
------ ---- ---------- ----------- ----------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
10 Years Ended
10/31/98 10/31/88 $1,000 $4,953,88 $4,953.88 395.39% 17.35% 395.39% 17.35%
5 Years Ended
10/31/98 10/31/93 $1,000 $2,668.95 $2,648.95 166.90% 21.69% 164.90% 21.51%
1 Year Ended
8/31/98 10/31/97 $1,000 $1,159.46 $1,109.46 15.95% 15.95% 10.95% 10.95%
</TABLE>
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
As at February 1, 1999, the Trustees and officers of the Trust, as a
group, owned in the aggregate less than 1% of the outstanding Class B shares
of the Fund. As of February 1, 1999, Merrill Lynch, Pierce, Fenner & Smith,
Inc., Jacksonville, FL was the record owner of approximately 19.4% of the
outstanding Class B shares, which it held on behalf of its customers who are
the beneficial owners of such shares, and as to which they had voting power
under certain limited circumstances. To the knowledge of the Trust, no other
person owned of record or beneficially 5% or more of the Fund's outstanding
Class B shares as of such date.
<PAGE>
APPENDIX C
CLASS C FEES, PERFORMANCE AND OWNERSHIP
DISTRIBUTION AND SERVICE FEES
During the fiscal year ended October 31, 1998, the principal underwriter
paid to investment dealers sales commissions of $1,097,560 on sales of Class C
shares. During the same period, the Fund made distribution payments to the
principal underwriter under the Distribution Plan aggregating $2,538,292 and
the principal underwriter received approximately $151,000 in CDSCs imposed on
early redeeming shareholders. These distribution payments and CDSC payments
reduced uncovered distribution charges under the Plan. As at October 31, 1998,
the outstanding uncovered distribution charges of the principal underwriter
calculated under the Plan amounted to approximately $31,143,000 (which amount
was equivalent to 5.9% of Class C's assets on such date). During the fiscal
year ended October 31, 1998, Class C made service fee payments to the
principal underwriter and investment dealers aggregating $1,326,067 of which
$799,355 was paid to investment dealers and the balance of which was retained
by the principal underwriter.
PRINCIPAL UNDERWRITER
The Trust has authorized the principal underwriter to act as its agent in
repurchasing shares at the rate of $2.50 for each repurchase transaction
handled by the principal underwriter. For the fiscal year ended October 31,
1998, Class C paid the principal underwriter $5,620 for repurchase
transactions handled by it.
PERFORMANCE INFORMATION
The table below indicates the cumulative and average annual total return
on a hypothetical investment of $1,000. Total return prior to November 1, 1997
reflects the total return of the predecessor to Class C. Total return prior to
August 2, 1996 reflects the total return of Class B adjusted to reflect the
Class C sales charge. The Class B total return has not been adjusted to
reflect certain other expenses (such as distribution and/or service fees). If
such adjustments were made, the Class C total return would be different. Past
performance is not indicative of future results. Investment return and
principal value will fluctuate; shares, when redeemed, may be worth more or
less than their original cost.
<TABLE>
VALUE OF A $1,000 INVESTMENT
<CAPTION>
VALUE OF VALUE OF
INVEST- INVEST-
MENT BEFORE DE- MENT AFTER DE- TOTAL RETURN BEFORE TOTAL RETURN AFTER
DUCTING THE DUCTING THE DEDUCTING THE CDSC DEDUCTING THE CDSC
INVESTMENT INVESTMENT AMOUNT OF CDSC CDSC -------------------------- ------------------------
PERIOD DATE INVESTMENT ON 10/31/98 ON 10/31/98 CUMULATIVE ANNUALIZED CUMULATIVE ANNUALIZED
- ---------------- ------------ ----------- --------------- --------------- ------------ ------------ ------------ ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
10 Years Ended
10/31/98 10/31/88 $1,000 $4,921.00 $4,921.00 392.10% 17.27% 392.10% 17.27%
5 Years Ended
10/31/98 10/31/93 $1,000 $2,651.20 $2,651.20 165.12% 21.53% 165.12% 21.53%
1 Year Ended
10/31/98 10/31/97 $1,000 $1,157.52 $1,147.52 15.75% 15.75% 14.75% 14.75%
</TABLE>
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
As at February 1, 1999, the Trustees and officers of the Trust, as a
group, owned in the aggregate less than 1% of the outstanding Class C shares
of the Fund. As at February 1, 1999, Merrill Lynch, Pierce, Fenner & Smith,
Jacksonville, FL was the record owner of approximately 30.7% of the
outstanding Class C shares which are held on behalf of their customers who are
the beneficial owners of such shares, and as to which they have voting power
under certain limited circumstances. To the knowledge of the Trust, no other
person owned of record or beneficially 5% or more of the Fund's outstanding
Class C shares as of such date.
<PAGE>
[LOGO OF EATON VANCE APPEARS HERE] [PHOTO OF STATUE OF LIBERTY APPEARS HERE]
Mutual Funds
for People
Who Pay
Taxes
Annual Report October 31, 1998
[PHOTO OF WALL STREET SIGN APPEARS HERE]
EATON VANCE
TAX-MANAGED
GROWTH
FUND
[PHOTO OF IRS FORM 1120 - CORPORATE TAX RETURN & CALCULATOR APPEARS HERE]
<PAGE>
Eaton Vance Tax-Managed Growth Fund as of October 31, 1998
- --------------------------------------------------------------------------------
Letter to Shareholders
- --------------------------------------------------------------------------------
[PHOTO OF JAMES B. HAWKES APPEARS HERE]
During the year ended October 31, 1998, Eaton Vance Tax-Managed Growth Fund had
a total return of 16.8% for Class A shares, 16.0% for Class B shares, and 15.8%
for Class C shares./1/ For Class A, this return resulted from an increase in net
asset value (NAV) to $17.15 per share on October 31, 1998 from $14.68 per share
on October 31, 1997. For Class B, NAV increased to $16.87 from $14.55, and for
Class C, to $16.24 from $14.03. These returns compared very favorably to the
average total return for mutual funds in the Lipper Growth Funds Category, which
was 9.6% during the same period.*
Continued stock price volatility in 1998 has resulted in an unusual mix of
confidence and uncertainty ...
In 1998, a number of factors have contributed to an investment environment
almost unprecedented in its volatility. The Dow Jones Industrial Average saw a
tremendous rally in the first four months of 1998, followed by a turbulent
summer, a dizzying decline in September that erased the year's gains, then a
near-full recovery in October. Investor confidence, bolstered by the Federal
Reserve Board's interest rate cuts, modest economic growth, and low inflation,
kept stock valuations relatively high. However, the dangers that precipitated
the market's mid-year plunge still lurk on the horizon: Asian economies, while
stabilized, are still not strong; corporate earnings have been lackluster; and
ongoing currency crises in Japan and Brazil continue to worry credit markets.
...While providing opportunities for the tax-conscious investor...
In such a turbulent environment, most actively managed mutual funds not focused
specifically on tax efficiency typically had a high rate of turnover and,
subsequently, higher taxable distributions to shareholders. Eaton Vance
Tax-Managed Growth Fund, however, aims to provide high after-tax returns, and
its management employs a style that is consistent with this objective. This is
an especially important consideration, given that after much debate, Congress
approved no new tax cuts in its most recent session.
Volatility in the stock market can be troubling, but Eaton Vance believes that,
as a normal and even healthy part of the investment process, it can also present
good opportunities for long-term investors. Beginning on the following page,
Portfolio Manager Duncan W. Richardson discusses the past 12 months and offers
his outlook for the year ahead.
Sincerely,
/s/ James B. Hawkes
James B. Hawkes,
President
December 8, 1998
- --------------------------------------------------------------------------------
Fund Information
as of October 31, 1998
Performance/2/ Class A Class B Class C
- --------------------------------------------------------------------------------
Average Annual Total Returns (at net asset value)
- --------------------------------------------------------------------------------
One Year 16.8% 16.0% 15.8%
Life of Fund+ 23.2 22.3 24.1
- --------------------------------------------------------------------------------
SEC Average Annual Total Returns (including sales charge or applicable CDSC)
- --------------------------------------------------------------------------------
One Year 10.1% 11.0% 14.8%
Life of Fund+ 20.4 21.2 24.1
+Inception dates: Class A and Class B: 3/28/96; Class C: 8/2/96
Ten Largest Equity Holdings/3/
- --------------------------------------------------------------------------------
By total net assets
Automatic Data Processing, Inc. 2.0%
Lexmark International Group, Inc. 1.8
SunAmerica, Inc. 1.8
Xerox Corp. 1.8
Albertson's, Inc. 1.7
Unilever ADR 1.6
Johnson & Johnson Co. 1.6
Omnicom Group, Inc. 1.5
Marsh & McLennan Cos., Inc. 1.5
Home Depot, Inc. (The) 1.5
*/1/ These returns do not include the 5.75% 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/ 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 5.75%
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. /3/ As of 10/31/98. Ten largest holdings accounted for 16.8% of the
Portfolio's investments. Holdings are subject to change.
Past performance is no guarantee of future results. Investment return and
principal value will fluctuate so that shares, when redeemed, may be worth
more or less than their original cost.
It is not possible to invest directly in a Lipper Category or an Index.
- --------------------------------------------------------------------------------
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.
- --------------------------------------------------------------------------------
2
<PAGE>
Eaton Vance Tax-Managed Growth Fund as of October 31, 1998
- --------------------------------------------------------------------------------
Management Discussion
- --------------------------------------------------------------------------------
An interview with Duncan W. Richardson, Vice President and Portfolio Manager of
Tax-Managed Growth Portfolio
[PHOTO OF DUNCAN W. RICHARDSON, PORTFOLIO MANAGER APPEARS HERE]
Q: Duncan, what can you tell us about the extreme highs and lows of the stock
market over the past year?
A: The market volatility that began in 1997 was amplified in 1998. At this
time last year, we were talking about the concern that the Asian economies
would be collapsing. That fear turned out to be well-founded, but the U.S.
market rallied dramatically between January and April. An already high
valuation range for stocks was stretched to historic levels. With higher
valuation levels comes higher risk. In this environment, any external shock
can have an amplified effect on the market. We have seen overreactions to
political developments, the economic slowdowns overseas, the risk of
currency devaluations, and the deflationary threat. All have swung the
market wildly in the last several months.
Q: How did the Portfolio perform in this context?
A: Overall, we have continued to do quite well despite increasing volatility
in the marketplace. We significantly outperformed the Lipper Growth Fund
Category for the 12-month period ended October 31, 1998; Class A shares had
a 16.8% return, versus the average Lipper return of 9.6%. Year in and year
out, our goal is to be in the top quintile of pre-tax performance for all
growth funds, and the top decile for after-tax performance.
Our Fund "corrected" in line with the rest of the market. At this writing,
it continues to lag the S&P 500 Index for the year, but we've actually done
better than some of our more aggressive competitors whose portfolios are
more concentrated, that is, less diversified, than ours. Our style tends to
benefit from some volatility and we try to be no riskier than the S&P 500
benchmark, which I think has become increasingly risky in the past year.
Q: Is there one factor that drives the performance of this Portfolio?
A: I think it's important to understand that the performance of the Portfolio
can't be attributed to one particular stock or one particular sector. How
the Portfolio does depends more on our ability to correctly evaluate the
earnings potential of scores of quality growth companies. We have an
extremely well seasoned team of analysts, averaging 16 years of experience
in their areas of research. Strong research is central to Eaton Vance's
fundamental approach to growth stock investing.
As a growth fund, we look for companies with a history of strong earnings
and future growth potential. We are disciplined and don't want to overpay
for earnings that might not be delivered. The turbulent economic
environment around the world puts corporate earnings at risk. Companies
have been lowering their guidance for earnings, and as a result there have
been some dramatic devaluations of individual stocks and sectors. We have
used this near-term fear and uncertainty to our advantage, taking the
opportunity to invest when our favored stocks were "on sale."
We are patient in accumulating positions in companies that can grow their
earnings over a 5-year investment horizon. An "ideal" entry point is one
where we have the expectation of the stock doubling over a 5-year period. A
good example of this is Gillette Corporation, in which we have built a
position over the past several months. We've been able to buy it recently
at prices where we think it makes a good deal of long-term investment
sense.
Q: How do you decide when to sell a stock?
A: Our "selling discipline" is a key factor in producing high pre-tax and
after-tax returns. The most important part of our sell discipline is to
address any mistakes we may have made early. When a stock we hold
underperforms the market by 10% or more from our cost, we
3
<PAGE>
Eaton Vance Tax-Managed Growth Fund as of October 31, 1998
- --------------------------------------------------------------------------------
Management Discussion
- --------------------------------------------------------------------------------
will sell the stock and take a loss. This is a good investment practice to
preserve capital and it also makes sense with regard to taxes. Taking a
limited loss by selling stock allows us to offset gains taken elsewhere,
thereby limiting or eliminating any yearly capital gains distributions.
Selling an underperforming stock gives us a better perspective from which
to reevaluate both our original investment case and the company's current
fundamentals. Often, with emotion-driven volatility, we've had
opportunities to buy back a stock at a lower price than we sold it. We want
to own stocks for a minimum of five years, so we can easily sit out of an
investment for 30 days. Our selling discipline helps keep the Fund in the
right investments at the right prices and adds to the tax efficiency of our
results.
Q: What about a selling discipline for your "winners"?
A: I will generally lower the exposure of the Portfolio to an individual stock
when it reaches 3 - 4% of the Portfolio, or if there has been a change in
the company's fundamentals. We make every effort to ensure any gains taken
are from the most favorable tax lots.
Q: Earlier you referred to the Portfolio as more diversified than some of its
competitors.Would you elaborate?
A: Certainly. There are other funds that focus more on specific sectors and
have higher concentrations in individual stocks. However, we don't
radically overweight or underweight any particular sector, and our top
holdings tend to be 1 1/2-2% of the Portfolio, versus 3-4% positions held
in other funds. We view diversification as a partial shock absorber. Equity
investors must take some market risk in order to participate in the higher
returns equities can offer, but my mantra for this Fund is "No unnecessary
risks." We attempt to minimize our stock-specific and sector-specific
risks.
Another factor distinguishes this Portfolio from passively managed index
funds and other "momentum"-style funds. A passive fund "automatically" buys
securities based on market capitalizations without regard to fundamentals
or prices. For example, we saw the recent dip in Gillette's stock price as
a buying opportunity, while an index fund was buying more Gillette than
ever before at the 52-week high. Our active management style allows us to
take advantage of market volatility, rather than become a victim of it.
Q: What can you tell us about the Portfolio's top holding, Automatic Data
Processing?
A: This is a great example of a growth stock. We believe that over the long
haul, stock prices follow earnings. ADP has one of the best track records
for double-digit earnings growth, and we believe that the earnings stream
will continue to grow. As a long-term investor, that's exactly what we're
looking for. In addition, as a tax-conscious investor, we love this company
because we can use a buy-and-hold forever strategy. As long as the
company's growth continues, we will remain as investors. While the stock
has done well, at less than 2% of the Portfolio, I'm not yet worried about
too much stock-specific risk in Automatic Data, especially since their
fundamentals remain on track.
Q: It seems there has been an increased awareness of tax-managed investing of
late. Why is that so?
A: Thinking about taxes is something people should do more than once or twice
a year. In many mutual funds, high equity returns over the past few years,
combined with an increase in momentum-driven, high-turnover portfolio
management, have produced enormous taxable distributions. Taxable investors
have seen huge tax bills drag down their actual mutual fund returns over
the past three or four years. This year could be even more interesting and
painful. It may be a lower-return year, but the market volatility had led
to a lot more turnover in many funds, which may kick out high distributions
despite modest returns.
4
<PAGE>
Eaton Vance Tax-Managed Growth Fund as of October 31, 1998
- --------------------------------------------------------------------------------
Management Discussion
- --------------------------------------------------------------------------------
New mutual fund rating organizations have realized that the tax efficiency
of funds is very important to investors with assets outside of qualified
plans. The after-tax performance difference between a fund that is
tax-efficient and one that is not can be more than 2% per year. This may
not sound like much, but, compounded over a long period of time, the
difference between losing 2% in taxes every year versus deferring those
taxes and allowing those returns to compound tax-free, can be substantial.
Q: What is Eaton Vance's background in tax-managed investing?
A: Eaton Vance has incorporated the principles of tax-managed investing for
private clients for decades. We have been managing mutual funds that focus
on after-tax returns for over 30 years. There are several other tax-managed
funds starting up, but none have Eaton Vance's depth of experience in using
an active management, research-driven approach. The Tax-Managed Growth
Portfolio is the largest pool of actively managed, tax-efficient mutual
fund assets in the industry. The principles of tax-efficient investing
guide our general investment approach for building wealth for our clients
over a long period of time: 1) having exposure to the equity market, which
historically has provided the highest inflation-adjusted returns; 2)
holding on to companies whose business and earnings can continue to grow;
and 3) taking losses early to preserve capital.
Q: What do you see happening in the year ahead?
A: Well, I can simply repeat my comments from last year, when I predicted
somewhat lower equity returns in 1998 and more volatility in the stock
market. Historically high valuations and the dominance of many passive and
short-term investors in the market should ensure continued volatility. We
continue to anticipate a levelling off of equity market returns, back to
the historic average of 10% per year. It's important to remember that stock
prices will reflect the earnings power of individual companies, and
evaluating these earnings, not predicting markets, is our main focus.
We expect that downside earnings surprises will continue to play a role
through 1999, especially as companies spend an increasing amount to fix the
Year 2000 computer problem. There are a number of other potentially
negative influences on corporate earnings that will require constant
monitoring by our research staff. Overall, we will aim to keep the
Portfolio's volatility low, through its diversified structure and our buy
and sell disciplines.
Our entire research staff and I are grateful to our fellow shareholders,
new and old, for their continued participation in the Tax-Managed Growth
Portfolio. Those who purchased shares recently have had a bumpy few
quarters. As always, our goal is to make the best risk/reward investment
decisions in any market environment that we encounter. Long-term investing
success takes patience and persistence, and we are pleased that our
shareholders have placed their confidence in us to help them meet their
objectives.
5
<PAGE>
Eaton Vance Tax-Managed Growth Fund as of October 31, 1998
- --------------------------------------------------------------------------------
FUND PERFORMANCE
- --------------------------------------------------------------------------------
Eaton Vance Tax-Managed Growth Fund, Class A vs.
Standard & Poor's 500 Index*
[LINE GRAPH APPEARS HERE[]
Date Fund/NAV Fund/OP S&P 500
---- -------- ------- -------
3/31/96 $10,000 $9,422 $10,000
4/30/96 $10,282 $9,687 $10,154
5/31/96 $10,503 $9,896 $10,405
6/30/96 $10,543 $9,934 $10,448
7/31/96 $10,050 $9,469 $9,991
8/31/96 $10,342 $9,744 $10,199
9/30/96 $10,956 $10,322 $10,772
10/31/96 $11,237 $10,588 $11,073
11/30/96 $12,042 $11,346 $11,905
12/31/96 $11,831 $11,147 $11,669
1/31/97 $12,525 $11,801 $12,403
2/28/97 $12,435 $11,716 $12,496
3/31/97 $12,052 $11,355 $11,982
4/30/97 $12,676 $11,943 $12,703
5/31/97 $13,471 $12,692 $13,467
6/30/97 $14,090 $13,275 $14,073
7/31/97 $15,227 $14,346 $15,194
8/31/97 $14,583 $13,739 $14,342
9/30/97 $15,378 $14,489 $15,126
10/31/97 $14,816 $13,959 $14,626
11/30/97 $15,250 $14,368 $15,299
12/31/97 $15,644 $14,739 $15,561
1/31/98 $15,704 $14,796 $15,739
2/28/98 $16,956 $15,975 $16,868
3/31/98 $17,773 $16,746 $17,730
4/30/98 $18,076 $17,031 $17,914
5/31/98 $17,521 $16,508 $17,599
6/30/98 $18,187 $17,135 $18,316
7/31/98 $17,773 $16,746 $18,126
8/31/98 $15,179 $14,302 $15,506
9/30/98 $16,169 $15,234 $16,497
10/31/98 $17,309 $16,308 $17,844
Eaton Vance Tax-Managed Growth Fund, Class B vs.
Standard & Poor's 500 Index*
[LINE GRAPH APPEARS HERE]
Date Fund/NAV Fund/CDSC S&P 500
-------- -------- --------- -------
3/31/96 $10,000 $10,000
4/30/96 $10,272 $10,154
5/31/96 $10,503 $10,405
6/30/96 $10,543 $10,448
7/31/96 $10,040 $9,991
8/31/96 $10,332 $10,199
9/30/96 $10,936 $10,772
10/31/96 $11,217 $11,073
11/30/96 $12,002 $11,905
12/31/96 $11,781 $11,669
1/31/97 $12,465 $12,403
2/28/97 $12,374 $12,496
3/31/97 $11,992 $11,982
4/30/97 $12,596 $12,703
5/31/97 $13,360 $13,467
6/30/97 $13,954 $14,073
7/31/97 $15,060 $15,194
8/31/97 $14,416 $14,342
9/30/97 $15,191 $15,126
10/31/97 $14,638 $14,626
11/30/97 $15,060 $15,299
12/31/97 $15,433 $15,561
1/31/98 $15,483 $15,739
2/28/98 $16,700 $16,868
3/31/98 $17,495 $17,730
4/30/98 $17,787 $17,914
5/31/98 $17,233 $17,599
6/30/98 $17,877 $18,316
7/31/98 $17,455 $18,126
8/31/98 $14,909 $15,506
9/30/98 $15,855 $16,497
10/31/98 $16,972 $16,572** $17,844
Performance/+/ Class A Class B Class C
- --------------------------------------------------------------------------------
Average Annual Total Returns (at net asset value)
- --------------------------------------------------------------------------------
One Year 16.8% 16.0% 15.8%
Life of Fund/+/ 23.2 22.3 24.1
- --------------------------------------------------------------------------------
SEC Average Annual Total Returns (including sales charge or applicable CDSC)
- --------------------------------------------------------------------------------
One Year 10.1% 11.0% 14.8
Life of Fund/+/ 20.4 21.2 24.1
/+/ Inception dates: Class A and Class B: 3/28/96; Class C: 8/2/96
* Source: Towers Data Systems, Bethesda, MD. Investment operations commenced
3/28/96. Index information is available only at month-end; therefore, the
line comparison begins at the next month-end following the commencement of
the Fund's investment operations. Past performance is no guarantee of
future results. Investment return and principal fluctuate so that shares,
when redeemed, may be worth more or less their original cost.
The chart compares the Fund's total return with that of the S&P 500 Index,
a broad-based unmanaged index of 500 common stocks. 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 S&P 500
Index. An investment in the Fund's Class C shares on 8/2/96 at net asset
value would have grown to $16,354 on October 31, 1998. The Index's total
return does not reflect any 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 5.75% 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.
** This figure represents the performance of the Fund's Class B shares,
including the Fund's applicable CDSC charge.
6
<PAGE>
Eaton Vance Tax-Managed Growth Fund as of October 31, 1998
FINANCIAL STATEMENTS
Statement of Assets and Liabilities
As of October 31, 1998
Assets
- -------------------------------------------------------------------------
Investment in Tax-Managed Growth Portfolio,
at value (identified cost, $2,686,779,687) $3,001,046,290
Receivable for Fund shares sold 17,521,968
Deferred organization expenses 54,451
- -------------------------------------------------------------------------
Total assets $3,018,622,709
- -------------------------------------------------------------------------
Liabilities
- -------------------------------------------------------------------------
Payable for Fund shares redeemed $ 4,033,635
Payable to affiliate for Trustees' fees 21
Other accrued expenses 710,117
- -------------------------------------------------------------------------
Total liabilities $ 4,743,773
- -------------------------------------------------------------------------
Net Assets $3,013,878,936
- -------------------------------------------------------------------------
Sources of Net Assets
- -------------------------------------------------------------------------
Paid-in capital $2,755,107,018
Accumulated net realized loss from Portfolio
(computed on the basis of identified cost) (55,494,685)
Net unrealized appreciation from Portfolio
(computed on the basis of identified cost) 314,266,603
- -------------------------------------------------------------------------
Total $3,013,878,936
- -------------------------------------------------------------------------
Class A Shares
- -------------------------------------------------------------------------
Net Assets $ 689,282,549
Shares Outstanding 40,187,814
Net Asset Value and Redemption Price Per Share
(net assets / shares of beneficial interest
outstanding) $ 17.15
Maximum Offering Price Per Share
(100 / 94.25 of $17.15) $ 18.20
- -------------------------------------------------------------------------
Class B Shares
- -------------------------------------------------------------------------
Net Assets $1,801,719,661
Shares Outstanding 106,794,004
Net Asset Value, Offering Price and Redemption
Price Per Share
(net assets / shares of beneficial interest
outstanding) $ 16.87
- -------------------------------------------------------------------------
Class C Shares
- -------------------------------------------------------------------------
Net Assets $ 522,876,726
Shares Outstanding 32,203,501
Net Asset Value, Offering Price and Redemption
Price Per Share
(net assets / shares of beneficial interest
outstanding) $ 16.24
- -------------------------------------------------------------------------
On sales of $50,000 or more, the offering price of Class A shares is reduced.
Statement of Operations
For the Year Ended
October 31, 1998
Investment Income
- -------------------------------------------------------------------------
Dividends allocated from Portfolio
(net of foreign taxes, $204,585) $ 20,819,186
Interest allocated from Portfolio 4,512,363
Expenses allocated from Portfolio (9,893,499)
- -------------------------------------------------------------------------
Net investment income from Portfolio $ 15,438,050
- -------------------------------------------------------------------------
Expenses
- -------------------------------------------------------------------------
Trustees fees and expenses $ 2,987
Distribution and service fees
Class A 290,289
Class B 9,981,917
Class C 3,341,182
Transfer and dividend disbursing agent fees 1,819,786
Registration fees 179,128
Printing and postage 123,496
Custodian fee 32,662
Amortization of organization expenses 20,168
Legal and accounting services 17,802
Miscellaneous 110,786
- -------------------------------------------------------------------------
Total expenses $ 15,920,203
- -------------------------------------------------------------------------
Net investment loss $ (482,153)
- -------------------------------------------------------------------------
Realized and Unrealized
Gain (Loss) from Portfolio
- -------------------------------------------------------------------------
Net realized gain (loss) --
Investment transactions (identified cost
basis) $ (54,618,739)
- -------------------------------------------------------------------------
Net realized loss $ (54,618,739)
- -------------------------------------------------------------------------
Change in unrealized appreciation (depreciation) --
Investments $ 217,424,667
- -------------------------------------------------------------------------
Net change in unrealized appreciation
(depreciation) $ 217,424,667
- -------------------------------------------------------------------------
Net realized and unrealized gain $ 162,805,928
- -------------------------------------------------------------------------
Net increase in net assets from operations $ 162,323,775
- -------------------------------------------------------------------------
See notes to financial statements
7
<PAGE>
Eaton Vance Tax-Managed Growth Fund as of October 31, 1998
FINANCIAL STATEMENTS CONT'D
Statements of Changes in Net Assets
<TABLE>
<CAPTION>
Increase (Decrease) Year Ended Year Ended
in Net Assets October 31, 1998 October 31, 1997
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C>
From operations --
Net investment loss $ (482,153) $ (425,855)
Net realized loss (54,618,739) (444,646)
Net change in unrealized
appreciation (depreciation) 217,424,667 57,375,366
- ---------------------------------------------------------------------------------------------------------
Net increase in net assets
from operations $ 162,323,775 $ 56,504,865
- ---------------------------------------------------------------------------------------------------------
Transactions in shares of beneficial interest --
Proceeds from sale of shares
Class A $ 523,912,788 $ --
Class B 1,222,858,520 460,965,429
Class C 396,976,810 --
Issued in reorganization of EV
Traditional and EV Classic
Tax-Managed Growth Fund
Class A 201,987,148 --
Class C 148,819,397 --
Cost of shares redeemed
Class A (74,448,821) --
Class B (96,831,316) (20,373,856)
Class C (46,459,344) --
- ---------------------------------------------------------------------------------------------------------
Net increase in net assets from Fund
shares transactions $2,276,815,182 $ 440,591,573
- ---------------------------------------------------------------------------------------------------------
Net increase in net assets $2,439,138,957 $ 497,096,438
- ---------------------------------------------------------------------------------------------------------
Net Assets
- ---------------------------------------------------------------------------------------------------------
At beginning of year $ 574,739,979 $ 77,643,541
- ---------------------------------------------------------------------------------------------------------
At end of year $3,013,878,936 $ 574,739,979
- ---------------------------------------------------------------------------------------------------------
Accumulated net
investment income
included in net assets
- ---------------------------------------------------------------------------------------------------------
At end of year $ -- $ --
- ---------------------------------------------------------------------------------------------------------
</TABLE>
See notes to financial statements
8
<PAGE>
Eaton Vance Tax-Managed Growth Fund as of October 31, 1998
FINANCIAL STATEMENTS CONT'D
Financial Highlights
<TABLE>
<CAPTION>
Year Ended October 31,
--------------------------------------------------------------------------------
1998(1) 1997 1996(2)
-------------------------------------------- -----------------------------
Class A Class B Class C Class B Class B
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value -- Beginning of year $ 14.680 $ 14.550 $ 14.030 $ 11.150 $ 10.000
- -------------------------------------------------------------------------------------------------------------------------------
Income (loss) from operations
- -------------------------------------------------------------------------------------------------------------------------------
Net investment income (loss) $ 0.099 $ (0.027) $ (0.053) $ (0.011) $ (0.003)
Net realized and unrealized gain on
investments 2.371 2.347 2.263 3.411 1.153
- -------------------------------------------------------------------------------------------------------------------------------
Total income from operations $ 2.470 $ 2.320 $ 2.210 $ 3.400 $ 1.150
- -------------------------------------------------------------------------------------------------------------------------------
Net asset value -- End of year $ 17.150 $ 16.870 $ 16.240 $ 14.550 $ 11.150
- -------------------------------------------------------------------------------------------------------------------------------
Total Return (3) 16.83% 15.95% 15.75% 30.49% 11.50%
- -------------------------------------------------------------------------------------------------------------------------------
Ratios/Supplemental Data
- -------------------------------------------------------------------------------------------------------------------------------
Net assets, end of year (000's omitted) $ 689,283 $1,801,720 $ 522,877 $ 574,740 $ 77,644
Ratios (As a percentage of average daily
net assets):
Expenses (4) 0.67% 1.43% 1.59% 1.50% 1.63%(5)
Net investment income (loss) 0.59% (0.16)% (0.33)% (0.15)% (0.13)%(5)
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Net investment income (loss) per share was computed using average shares
outstanding.
(2) For the period from the start of business, March 28, 1996, to October 31,
1996.
(3) 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.
(4) Includes the Fund's share of the Portfolio's allocated expenses.
(5) Annualized.
See notes to financial statements
9
<PAGE>
Eaton Vance Tax-Managed Growth Fund as of October 31, 1998
NOTES TO FINANCIAL STATEMENTS
1 Significant Accounting Policies
-----------------------------------------------------------------------------
Eaton Vance Tax-Managed Growth Fund (the Fund) is a diversified series of
Eaton Vance Mutual Funds Trust (the Trust). The Trust is an 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 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 sales charge (see Note 6). 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 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
Tax-Managed Growth 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 (43% at October 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 determined in accordance with generally
accepted accounting principles.
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 net investment income, and
any net realized capital gains. Accordingly, no provision for federal income
or excise tax is necessary. At October 31, 1998, the Fund, for federal
income tax purposes, had a capital loss carryover of $62,470,841 which will
reduce taxable income arising from future net realized gains, 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 or excise tax. A
portion of such capital loss carryover was acquired through the Fund
Reorganization (see Note 8) and may be subject to certain limitations. Such
capital loss carryover will expire on October 31, 2006 ($56,075,499),
October 31, 2005 ($6,216,089) and October 31, 2004 ($179,253).
D Deferred Organization Expenses -- Costs incurred by the Fund in connection
with its organization are being amortized on the straight-line basis over
five years.
E Other -- Investment transactions are accounted for on a trade date basis.
Dividends to shareholders are recorded on the ex-dividend date.
F 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 revenue and expense during the reporting period. Actual results could
differ from those estimates.
2 Distributions to Shareholders
-----------------------------------------------------------------------------
The Fund's policy is to distribute annually (normally in December)
substantially all of the net investment income allocated to the Fund by the
Portfolio (less the Fund's direct expenses) and to distribute annually all
or substantially all of its net realized capital gains (reduced by any
available capital loss carryforwards from prior years) allocated by the
Portfolio to the Fund, if any. Distributions are paid in the form of
additional shares of the Fund 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
10
<PAGE>
Eaton Vance Tax-Managed Growth Fund as of October 31, 1998
NOTES TO FINANCIAL STATEMENTS CONT'D
financial statements and tax earnings and profits which result in temporary
over distributions for financial statement purposes only are classified as
distributions in excess of net investment income or accumulated net realized
gains. Permanent differences between book and tax accounting relating to
distributions are reclassified to paid-in capital. During the period ended
October 31, 1998, the Fund has reclassified amounts to reflect a decrease in
paid-in-capital of $481,071, an increase in accumulated net realized loss from
Portfolio of $1,082 and a decrease in accumulated net investment loss of
$482,153 due to permanent differences between book and tax accounting for net
operating loss carryovers and distributions to shareholders. Net investment
loss, net realized loss and net assets were not affected by these
reclassifications.
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
Class A October 31, 1998
------------------------------------------------------------------------------
Sales 30,965,178
Redemptions (4,534,563)
Issued to EV Traditional Tax-Managed
Growth Fund Shareholders 13,757,199
------------------------------------------------------------------------------
Net increase 40,187,814
------------------------------------------------------------------------------
Year Ended October 31,
--------------------------------------------
Class B 1998 1997
------------------------------------------------------------------------------
Sales 73,217,473 34,049,891
Redemptions (5,928,292) (1,509,922)
------------------------------------------------------------------------------
Net increase 67,289,181 32,539,969
------------------------------------------------------------------------------
Year Ended
Class C October 31, 1998
------------------------------------------------------------------------------
Sales 24,592,476
Redemptions (2,996,704)
Issued to EV Classic Tax-Managed
Growth Fund Shareholders 10,607,729
------------------------------------------------------------------------------
Net increase 32,203,501
------------------------------------------------------------------------------
4 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. See Note 2 of the Portfolio's Notes to
Financial Statements which are included elsewhere in this report. Except for
Trustees of the Fund who are not members of EVM's organization, officers and
Trustees receive remuneration for their services to the Fund out of such
management fee. Certain officers and Trustees of the Fund and the Portfolio
are officers and directors/trustees of the above organizations (Note 5). Eaton
Vance Distributors, Inc. (EVD), a subsidiary of EVM and the Fund's principal
underwriter, received $2,265,177 as its portion of the sales charge on sales
of Class A shares for the year ended October 31, 1998.
5 Distribution and Service Plan
------------------------------------------------------------------------------
The Fund has adopted a Service Plan for the Fund's Class A shares (the "Class
A Plan") that is designed to meet the service fee requirements of the sales
charge rule of the National Association of Securities Dealers, Inc. The Class
A Plan provides that the Fund may make service fee payments for personal
services and/or the maintenance of shareholder accounts to the Principal
Underwriter, financial service firms ("Authorized Firms") and other persons in
amounts not exceeding 0.25% of average daily net assets for Class A shares for
any fiscal year. The Trustees have initially implemented the Class A Plan by
authorizing Class A to make quarterly service fee payments to the Principal
Underwriter and Authorized Firms in amounts not expected to exceed 0.25% of
the average daily net assets for any fiscal year which is based on the value
of Class A shares sold by such persons and remaining outstanding for at least
twelve months. The Fund paid or accrued service fees to or payable to EVD for
the year ended October 31, 1998 in the amount of $290,289 for Class A.
The Fund has also adopted distribution plans ("Class B Plan" and "Class C
Plan," collectively "the Plans") pursuant to Rule 12b-1 under the Investment
Company Act of 1940. The Plans, which are approved annually, 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 Class B and Class C daily net
assets, for providing ongoing distribution services and facilities to the
Fund. The Fund will automatically discontinue payments to EVD during any
period in which there are no outstanding Uncovered Distribution Charges, which
are equivalent to the sum of
11
<PAGE>
Eaton Vance Tax-Managed Growth Fund as of October 31, 1998
NOTES TO FINANCIAL STATEMENTS CONT'D
(i) 5% and 6.25% of the aggregate amount received by the Fund for 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 due EVD, of each respective class
reduced by the aggregate amount of contingent deferred sales charges (see
Note 6) and daily distribution fees theretofore paid to EVD by each
respective class. The amount payable to EVD with respect to each day is
accrued on such day as a liability of the Fund and, accordingly, reduces the
Fund's net assets. For the year ended October 31, 1998, the Fund paid or
accrued $9,091,696 and $2,538,292, to or payable to EVD representing 0.75%
of average daily net assets of Class B and Class C shares, respectively. At
October 31, 1998, the amount of Uncovered Distribution Charges of EVD
calculated under the Plans was approximately $73,999,000 and $31,143,000 for
Class B and Class C shares, respectively.
In addition, the Plans authorize the Fund to make payments of service fees
to EVD, Authorized Firms, and other persons in amounts not exceeding 0.25%
of their average daily net assets for each fiscal year. Service fee payments
are made for personal services and/or the maintenance of shareholder
accounts. Under the Class B Plan, this fee is paid quarterly in arrears
based on the value of Class B shares sold by such persons and remaining
outstanding for at least twelve months. Under the Class C Plan, EVD
currently expects to pay to an Authorized Firm (a) a service fee (except on
exchange transactions and reinvestments) at the time of sale equal to 0.25%
of the purchase price of the Class C shares sold by such Firm and (b)
monthly service fees approximately equivalent to 1/12 of 0.25% of the value
of Class C shares sold by such Firm and remaining outstanding for at least
one year. During the first year after a purchase of Class C shares, EVD will
retain the service fee as reimbursement for the service fee payment made to
Authorized Firms at the time of sale. The Fund paid or accrued service fees
to or payable to EVD for the year ended October 31, 1998 in the amount of
$890,221 and $802,890 for Class B and Class C shares, respectively. Service
fees are separate and distinct from the sales commissions and distribution
fees payable by the Fund to EVD, and as such are not subject to automatic
discontinuance when there are no outstanding Uncovered Distribution Charges
of EVD.
Certain officers and Trustees of this fund are officers or directors of EVD.
6 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 is imposed on
certain Class C shares redeemed within one year of purchase. Generally, the
CDSC is based upon the lower of the net asset value at date of redemption or
date of purchase. No charge is levied on shares acquired by reinvestment of
dividends or capital gains distributions. Class B CDSC is imposed at
declining rates that begin at 5% in the case of redemptions in the first and
second year after purchase, declining one percentage point 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 each Fund's Distribution Plan (see Note 5). CDSC charges
received when no Uncovered Distribution Charges exist will be credited to
the Fund. EVD received approximately $1,991,000 and $151,000 of CDSC paid by
shareholders for Class B shares and Class C shares, respectively, for the
year ended October 31, 1998.
7 Investment Transactions
----------------------------------------------------------------------------
Increases and decreases in the Fund's investment in the Portfolio aggregated
$2,136,885,354 and $230,002,510, respectively, for the year ended October
31, 1998. In addition, investments were distributed in payment for fund
shares redeemed resulting in realized capital gains for book purposes of
$4,654,616.
8 Transfer of Net Assets
----------------------------------------------------------------------------
On November 1, 1997, the EV Marathon Tax-Managed Growth Fund acquired the
net assets of the EV Traditional Tax-Managed Growth Fund and EV Classic
Tax-Managed Growth Fund pursuant to an Agreement and Plan of Reorganization
dated June 23, 1997. In accordance with the agreement, EV Marathon
Tax-Managed Growth Fund, at the closing, issued 13,757,199 Class A shares
and 10,607,729 Class C shares of the Fund having an aggregate value of
$201,987,148 and $148,819,397, respectively. As a result, the Fund issued
one Class A share and one Class C share for each share of EV Traditional
Tax-Managed Growth Fund and EV Classic Tax-Managed Growth Fund,
respectively. The transaction was structured for tax purposes to qualify as
a tax free reorganization under the
12
<PAGE>
Eaton Vance Tax-Managed Growth Fund as of October 31, 1998
NOTES TO FINANCIAL STATEMENTS CONT'D
Internal Revenue Code. The EV Traditional Tax-Managed Growth Fund's and EV
Classic Tax-Managed Growth Fund's net assets at the date of the transaction
were $201,987,148 and $148,819,397, respectively, including $22,188,108 and
$13,057,866 of unrealized appreciation. Directly after the merger, the
combined net assets of the Eaton Vance Tax-Managed Growth Fund (formerly "EV
Marathon Tax-Managed Growth Fund") were $925,546,524 with a net asset value
of $14.68, $14.55 and $14.03 for Class A, Class B and Class C, respectively.
9 Name Change
----------------------------------------------------------------------------
Effective November 1, 1997, the EV Marathon Tax-Managed Growth Fund changed
its name to Eaton Vance Tax-Managed Growth Fund.
10 Subsequent Event
----------------------------------------------------------------------------
Effective November 1, 1998, the Fund changed its fiscal year-end to December
31.
13
<PAGE>
Eaton Vance Tax-Managed Growth Fund as of October 31, 1998
INDEPENDENT AUDITORS' REPORT
To the Trustees and Shareholders of Eaton Vance Mutual Funds Trust:
- -------------------------------------------------------------------
We have audited the accompanying statement of assets and liabilities of Eaton
Vance Tax-Managed Growth Fund (the Fund) (one of the series constituting Eaton
Vance Mutual Funds Trust) as of October 31, 1998, the related statement of
operations for the year then ended, the statements of changes in net assets for
each of the years in the two-year period ended October 31, 1998, and the
financial highlights for each of the years in the two-year period ended October
31, 1998 and for the period from the start of business, March 28, 1996, to
October 31, 1996. These financial statements and financial highlights are the
responsibility of the Trust's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such financial statements and financial highlights present
fairly, in all material respects, the financial position of Eaton Vance Tax-
Managed Growth Fund at October 31, 1998, the results of its operations, the
changes in its net assets, and its financial highlights for the respective
stated periods in conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Boston, Massachusetts
December 4, 1998
14
<PAGE>
Tax-Managed Growth Portfolio as of October 31, 1998
PORTFOLIO OF INVESTMENTS
Common Stocks-- 93.1%
Security Shares Value
- --------------------------------------------------------------------------------
Advertising and Marketing Services -- 2.5%
- --------------------------------------------------------------------------------
ACNielsen Corp.(1) 45,668 $ 1,221,619
Advo, Inc.(1) 170,000 4,324,375
Harte-Hanks Communications, Inc. 144,604 3,515,685
Interpublic Group of Companies, Inc. 540,138 31,598,073
Interpublic Group of Companies, Inc.(2) 42,000 2,457,000
Omnicom Group, Inc. 2,164,018 106,983,639
R.H. Donelley Corp. 8,153 114,142
Snyder Communications, Inc.(1)(2) 442,500 15,781,191
Snyder Communications, Inc.(1)(2) 40,000 1,425,716
TMP Worldwide, Inc.(1) 43,000 1,290,000
True North Communications, Inc. 93,000 2,197,125
WPP Group PLC 488,000 2,427,263
Young and Rubicam, Inc.(1) 186,000 4,859,250
- --------------------------------------------------------------------------------
$ 178,195,078
- --------------------------------------------------------------------------------
Aerospace and Defense -- 0.3%
- --------------------------------------------------------------------------------
Allied Signal, Inc. 25,000 $ 973,438
Boeing Company (The) 228,127 8,554,763
Raytheon Co., Class B 213,564 12,400,060
- --------------------------------------------------------------------------------
$ 21,928,261
- --------------------------------------------------------------------------------
Apparel & Textiles -- 0.0%
- --------------------------------------------------------------------------------
Unifi, Inc. 50,000 $ 843,750
- --------------------------------------------------------------------------------
$ 843,750
- --------------------------------------------------------------------------------
Auto and Parts -- 1.0%
- --------------------------------------------------------------------------------
Aftermarket Technology Corp.(1)(2) 46,000 $ 286,925
Borg-Warner Automotive, Inc. 225,000 10,546,875
Chrysler Corp. 32,000 1,540,000
Ford Motor Co. 32,000 1,736,000
General Motors Corp. 5,396 340,285
Genuine Parts Co. 147,059 4,632,359
Harley-Davidson, Inc. 1,000 38,750
Magna International, Inc., Class A 775,000 48,098,438
Meritor Automotive, Inc. 61,133 1,142,423
SPX Corp.(1) 47,862 2,605,500
TRW, Inc. 2,000 113,875
- --------------------------------------------------------------------------------
$ 71,081,430
- --------------------------------------------------------------------------------
Banks - Money Center-- 0.2%
- --------------------------------------------------------------------------------
Bank of Montreal 36,650 $ 1,498,069
Chase Manhattan Corp. 78,706 4,471,485
Morgan (J.P.) & Co., Inc. 1,000 94,250
National Westminster Bank PLC 8,753 875,847
Wells Fargo & Co. 11,542 4,270,540
- --------------------------------------------------------------------------------
$ 11,210,191
- --------------------------------------------------------------------------------
Banks - Regional -- 4.8%
- --------------------------------------------------------------------------------
AmSouth Bancorporation 27,492 $ 1,101,398
Bank of Granite Corp. 22,500 753,750
Bank of New York Co., Inc. (The) 156,344 4,934,608
Bank One Corp. 779,787 38,112,090
Bank United Corp. 2,000 79,688
BankAmerica Corp. 611,570 35,127,036
BankBoston Corp. 202,160 7,442,015
BB&T Corp. 66,470 2,372,148
City National Corp. 100,000 3,418,750
Colonial Bancgroup, Inc. (The) 310,822 4,060,112
Comerica, Inc. 100,000 6,450,000
Community First Bancshares, Inc. 296,000 5,883,000
Community First Bancshares, Inc.(2) 72,000 1,428,615
Compass Bancshares, Inc. 171,112 6,299,061
Crestar Financial Corp. 28,348 1,867,425
Fifth Third Bancorp. 112,500 7,453,125
First Citizens BancShares, Inc. 35,300 3,150,525
First Tennessee National Corp. 33,488 1,061,151
First Union Corp. 974,826 56,539,907
Fleet Financial Group, Inc. 114,972 4,591,694
Golden West Financial Corp. 7,000 634,813
Keycorp 163,689 4,961,823
Marshall and Ilsley Corp. 20,000 975,000
Mellon Bank Corp. 16,000 962,000
Mercantile Bancorporation, Inc. 58,722 2,682,861
National City Corp. 61,553 3,958,627
National Commerce Bancorporation(2) 159,632 2,831,579
Northern Trust Corp. 181,898 13,414,978
Norwest Corp. 2,154,655 80,126,232
PNC Bank Corp. 62,502 3,125,100
Regions Financial Corp. 49,300 1,824,100
Southwest Bancorporation of Texas,
Inc.(1) 7,688 117,723
Sovereign Bancorp., Inc. 366,000 4,803,750
Summit Bancorp. 21,642 821,043
See notes to financial statements
15
<PAGE>
Tax-Managed Growth Portfolio as of October 31, 1998
PORTFOLIO OF INVESTMENTS CONT'D
Security Shares Value
- --------------------------------------------------------------------------------
Banks - Regional (continued)
- --------------------------------------------------------------------------------
SunTrust Banks, Inc. 480 $ 33,450
U.S. Bancorp. 136,000 4,964,000
Union Planters Corp. 14,875 690,758
Valley National Bancorp. 230,863 6,233,301
Wachovia Corp. 37,199 3,380,459
Washington Mutual, Inc. 143,506 5,372,506
Westamerica Bancorporation 82,596 2,746,317
Zions Bancorporation 20,000 1,061,250
- --------------------------------------------------------------------------------
$ 337,847,768
- --------------------------------------------------------------------------------
Beverages -- 1.4%
- --------------------------------------------------------------------------------
Anheuser-Busch Cos., Inc. 261,465 $ 15,540,826
Coca-Cola Company (The) 582,666 39,402,788
PepsiCo, Inc. 1,251,241 42,229,384
- --------------------------------------------------------------------------------
$ 97,172,998
- --------------------------------------------------------------------------------
Broadcasting and Cable -- 0.9%
- --------------------------------------------------------------------------------
Clear Channel Communications,
Inc.(1) 108,600 $ 4,948,088
Comcast Corp., Class A 62,500 3,085,938
Cox Communications, Inc., Class
A(1) 93,319 5,120,880
Liberty Media Group, Class A(1) 91,828 3,495,203
MediaOne Group, Inc.(1) 258,524 10,938,797
Tele-Communications, Inc., Series
A(1) 490,073 20,644,325
Univision Communications, Inc.(1) 200,649 5,919,146
Univision Communications,
Inc.(1)(2) 183,556 5,405,877
- --------------------------------------------------------------------------------
$ 59,558,254
- --------------------------------------------------------------------------------
Building Materials and Tools -- 0.6%
- --------------------------------------------------------------------------------
American Standard Companies,
Inc.(1) 172,899 $ 5,521,962
CRH PLC 257,105 3,745,994
Interface, Inc. 323,608 3,984,424
Masco Corp. 228,662 6,445,410
Sherwin-Williams Co. (The) 44,670 1,125,126
Snap-On, Inc.(2) 44,444 1,574,984
Valspar Corp. 620,000 17,398,750
Walter Industries, Inc.(1) 1,000 14,000
- --------------------------------------------------------------------------------
$ 39,810,650
- --------------------------------------------------------------------------------
Business Services - Miscellaneous -- 0.7%
- --------------------------------------------------------------------------------
Cintas Corp. 39,604 $ 2,118,814
Corrections Corporation of
America(1) 97,310 1,873,218
Fair, Issac and Co., Inc. 88,828 3,564,224
Fair, Issac and Co., Inc.(2) 150,000 6,011,227
Half (Robert) International,
Inc.(1) 1,800 72,225
Manpower, Inc. 110,000 2,653,750
Metzler Group, Inc. (The)(1) 314,880 13,224,960
Navigant International, Inc.(1) 59,631 342,878
Romac International, Inc.(1)(2) 45,546 796,524
Service Master Co. 68,343 1,443,746
Staff Leasing, Inc.(1) 78,125 966,797
Staff Leasing, Inc.(1)(2) 78,125 964,863
Sylvan Learning Systems, Inc.(1) 509,469 15,729,855
Viad Corp. 40,314 1,106,115
- --------------------------------------------------------------------------------
$ 50,869,196
- --------------------------------------------------------------------------------
Chemicals -- 0.6%
- --------------------------------------------------------------------------------
Bayer AG ADR 40,000 $ 1,625,428
Dow Chemical Co. (The) 21,318 1,995,898
DuPont (E.I.) de Nemours & Co. 224,967 12,935,603
Eastman Chemical Co. 123 7,226
Monsanto Co. 492,240 19,997,250
Octel Corp.(1) 8,322 120,149
Olin Corp. 1,037 28,712
Solutia, Inc. 200,336 4,394,871
- --------------------------------------------------------------------------------
$ 41,105,137
- --------------------------------------------------------------------------------
Communications Equipment -- 1.5%
- --------------------------------------------------------------------------------
Dialogic Corp.(1) 80,000 $ 1,800,000
General Cable Corp. 3,000 59,250
General Motors Corp., Class H 300,000 11,475,000
L.M. Ericsson Telephone Co., ADR 452,000 10,226,500
Lucent Technologies, Inc. 4,205 337,188
Nokia Corp., Class A ADR 659,380 61,363,550
Northern Telecom Ltd. 111,740 4,783,869
PairGain Technologies, Inc.(1) 350,581 2,881,355
Salient 3 Communications, Inc.,
Class A 78,125 546,875
Tellabs, Inc.(1) 151,623 8,339,265
- --------------------------------------------------------------------------------
$ 101,812,852
- --------------------------------------------------------------------------------
See notes to financial statements
16
<PAGE>
Tax-Managed Growth Portfolio as of October 31, 1998
PORTFOLIO OF INVESTMENTS CONT'D
Security Shares Value
- --------------------------------------------------------------------------------
Communications Services-- 1.4%
- --------------------------------------------------------------------------------
Airtouch Communications, Inc.(1) 1,865 $ 104,440
Aliant Communications, Inc. 36,322 1,024,963
Alltel Corp. 54,746 2,562,817
American Tower Corp., Class A(1) 149,451 3,269,241
Ameritech Corp. 28,362 1,529,775
AT&T Corp. 36,767 2,288,746
Bell Atlantic Corp. 8,166 433,819
BellSouth Corp. 6,980 557,091
Citizens Utilities Corp., Class B(1) 44,975 404,773
Excel Communications, Inc.(1) 100,000 2,406,250
GTE Corp. 3,789 222,367
GTE Corp.(2) 17,500 1,025,747
Intermedia Communications, Inc.(1) 113,637 2,102,285
MCI Worldcom, Inc.(1) 1,158,374 64,000,163
McLeodUSA, Inc.(1) 57,143 2,089,291
McLeodUSA, Inc.(1)(2) 36,000 1,315,373
Nextel Communications, Inc., Class A(1) 75,830 1,374,419
Premiere Technologies, Inc.(1) 28,000 154,000
SBC Communications, Inc. 9,342 432,651
Sprint Corp. 1,600 122,800
Tel-Save Holdings, Inc.(1) 247,376 2,218,666
Telecom Corp. of New Zealand Ltd. ADR 8,000 264,000
Telephone & Data Systems, Inc. 131,756 5,253,771
US West, Inc. 8,339 478,450
- --------------------------------------------------------------------------------
$ 95,635,898
- --------------------------------------------------------------------------------
Computer Software -- 2.6%
- --------------------------------------------------------------------------------
Baan Co., NV ADR(1) 223,926 $ 2,463,186
BMC Software, Inc.(1) 8,000 384,500
Boole and Babbage, Inc.(1) 40,000 1,065,000
Cadence Design Systems, Inc.(1) 506,000 10,815,750
Computer Associates International, Inc. 854,684 33,653,183
Compuware Corp.(1) 1,400 75,863
CSG Systems International, Inc.(1) 20,558 1,120,411
HNC Software, Inc.(1) 254,814 8,568,121
HNC Software, Inc.(1)(2) 147,980 4,971,681
Intuit, Inc.(1) 286,227 14,454,464
Microsoft Corp.(1) 235,255 24,907,623
Oracle Corp.(1) 1,262,500 37,322,656
Parametric Technology Corp.(1) 94,600 1,572,725
PeopleSoft, Inc.(1) 354,174 7,504,062
Platinum Technology, Inc.(1) 155,000 2,547,813
Sapient Corp.(1) 323,876 14,594,662
Security Dynamics Technologies, Inc.(1) 40,000 410,000
Siebel Systems, Inc.(1) 118,000 2,411,625
Sterling Commerce, Inc.(1) 2,388 84,177
Structural Dynamics Research Corp.(1) 675,000 9,703,125
Wind River Systems, Inc.(1)(2) 13,000 569,183
- --------------------------------------------------------------------------------
$ 179,199,810
- --------------------------------------------------------------------------------
Computers and Business Equipment -- 7.1%
- --------------------------------------------------------------------------------
Cabletron Systems, Inc.(1) 33,715 $ 383,508
Cisco Systems, Inc.(1) 965,884 60,850,691
Compaq Computer Corp. 38,714 1,224,330
Dell Computer Corp.(1) 3,800 248,900
Dell Computer Corp.(1)(2) 1,500,000 98,184,499
Dell Computer Corp.(1)(2) 150,512 9,842,105
EMC Corp.(1) 5,800 373,375
Fore Systems, Inc.(1) 52,250 816,406
Fore Systems, Inc.(1)(2) 38,466 600,030
Gateway 2000, Inc.(1)(2) 200,000 11,143,896
Hewlett-Packard Co. 588,680 35,431,178
International Business Machines Corp. 154,293 22,902,867
Lexmark International Group, Inc.(1) 1,841,746 128,807,110
Sun Microsystems, Inc.(1) 3,500 203,875
Xerox Corp. 1,314,000 127,293,749
- --------------------------------------------------------------------------------
$ 498,306,519
- --------------------------------------------------------------------------------
Conglomerates -- 1.3%
- --------------------------------------------------------------------------------
General Electric Co. 974,391 $ 85,259,212
United Technologies Corp. 86,242 8,214,551
- --------------------------------------------------------------------------------
$ 93,473,763
- --------------------------------------------------------------------------------
Consumer Services -- 0.3%
- --------------------------------------------------------------------------------
Block (H&R), Inc. 366,177 $ 16,409,307
Cendant Corp.(1) 187,999 2,150,239
Service Corp. International 3,000 106,875
Stewart Enterprises, Inc. 153,992 3,551,441
- --------------------------------------------------------------------------------
$ 22,217,862
- --------------------------------------------------------------------------------
Containers and Packaging -- 0.2%
- --------------------------------------------------------------------------------
Sealed Air Corp.(1) 325,000 $ 11,517,188
Sonoco Products Co. 78,571 2,229,452
- --------------------------------------------------------------------------------
$ 13,746,640
- --------------------------------------------------------------------------------
See notes to financial statements
17
<PAGE>
Tax-Managed Growth Portfolio as of October 31, 1998
PORTFOLIO OF INVESTMENTS CONT'D
Security Shares Value
- --------------------------------------------------------------------------------
Distribution Services -- 1.7%
- --------------------------------------------------------------------------------
Airgas, Inc.(1) 61,000 $ 701,500
Airgas, Inc.(1)(2) 205,555 2,363,883
Cardinal Health, Inc. 379,200 35,858,100
School Specialty, Inc.(1) 66,257 1,043,541
Supervalu, Inc. 26,723 641,352
Sysco Corp. 1,763,972 47,516,996
U.S. Foodservice, Inc.(1) 505,489 24,010,728
U.S. Foodservice, Inc.(1)(2) 66,438 3,151,860
US Office Products Co.(1) 149,077 1,146,031
Wilmar Industries, Inc.(1) 50,000 1,237,500
- --------------------------------------------------------------------------------
$ 117,671,491
- --------------------------------------------------------------------------------
Drugs -- 9.8%
- --------------------------------------------------------------------------------
Abbott Laboratories 888,180 $ 41,688,949
Agouron Pharmaceuticals, Inc.(1) 242,400 9,393,000
American Home Products Corp. 4,600 224,250
Amgen, Inc.(1) 405,532 31,859,608
Astra AB, Class A 1,074,400 17,387,015
Astra AB, Class B ADR 160,000 2,550,000
Bristol-Myers Squibb Co. 363,531 40,192,896
Covance, Inc.(1) 81,250 2,264,844
Elan Corp., PLC ADR(1) 361,360 25,317,785
Genentech, Inc.(1) 80,000 5,730,000
Genzyme Corp.(1) 12,150 41,006
Genzyme Corp., Class A(1) 1,490,000 62,673,124
Incyte Pharmaceuticals, Inc.(1)(2) 577,571 17,605,933
Incyte Pharmaceuticals, Inc.(1)(2) 150,856 4,599,114
Lilly (Eli) & Co. 812,448 65,757,509
Merck & Co., Inc. 587,004 79,392,290
Parexel International Corp.(1)(2) 35,000 771,705
Pfizer, Inc. 852,858 91,522,323
Quintiles Transnational Corp.(1) 195,420 8,842,755
Schering-Plough Corp. 321,892 33,114,640
Sepracor, Inc.(1) 440,000 30,195,000
SmithKline Beecham PLC ADR 225,440 14,371,800
Teva Pharmaceutical Industries
Ltd. ADR(2) 100,000 3,938,097
Vertex Pharmaceuticals, Inc.(1) 35,000 923,125
Warner-Lambert Co. 716,032 56,119,007
Watson Pharmaceuticals, Inc.(1) 599,550 33,349,969
Watson Pharmaceuticals, Inc.(1)(2) 122,888 6,827,100
- --------------------------------------------------------------------------------
$ 686,652,844
- --------------------------------------------------------------------------------
Electric Utilities -- 0.2%
- --------------------------------------------------------------------------------
Central and South West Corp. 1,600 $ 44,500
Dominion Resources, Inc. 28,938 1,336,574
Duke Energy Corp. 1,800 116,438
New England Electric System 2,700 109,856
Teco Energy, Inc. 40,000 1,105,000
Texas Utilities Co. 250,196 10,946,075
- --------------------------------------------------------------------------------
$ 13,658,443
- --------------------------------------------------------------------------------
Electrical Equipment -- 0.6%
- --------------------------------------------------------------------------------
American Power Conversion Corp.(1) 200,000 $ 8,487,500
AMP, Inc. 112,340 4,612,961
Emerson Electric Co. 151,648 10,008,768
Molex, Inc., Class A 90,066 2,944,032
Rockwell International Corp. 183,700 7,543,181
Sanmina Corp.(1)(2) 150,000 6,139,750
Thomas and Betts Corp. 22,963 1,026,159
- --------------------------------------------------------------------------------
$ 40,762,351
- --------------------------------------------------------------------------------
Electronics - Instruments -- 0.2%
- --------------------------------------------------------------------------------
Dionex Corp.(1) 362,140 $ 9,641,978
Waters Corp.(1) 29,580 2,174,130
X-Rite, Inc. 310,000 2,208,750
X-Rite, Inc.(2) 118,000 840,190
- --------------------------------------------------------------------------------
$ 14,865,048
- --------------------------------------------------------------------------------
Electronics - Semiconductors -- 2.2%
- --------------------------------------------------------------------------------
Altera Corp.(1) 3,600 $ 149,850
Analog Devices, Inc.(1) 1,630,000 32,396,250
Burr-Brown Corp.(1) 600,000 11,137,500
Intel Corp. 729,379 65,051,489
KLA-Tencor Corp.(1) 36,000 1,327,500
Lam Research Corp.(1) 106,000 1,530,375
Linear Technologies Corp. 66,000 3,935,250
Maxim Intergrated Products Co.(1) 40,000 1,427,500
Motorola, Inc. 112,768 5,863,936
National Semiconductor Corp.(1) 79,368 1,006,982
See notes to financial statements
18
<PAGE>
Tax-Managed Growth Portfolio as of October 31, 1998
PORTFOLIO OF INVESTMENTS CONT'D
Security Shares Value
- --------------------------------------------------------------------------------
Electronics - Semiconductors (continued)
- --------------------------------------------------------------------------------
Smart Modular Technologies, Inc.(1) 60,000 $ 1,260,000
Speedfam International, Inc.(1) 221,000 3,563,625
Texas Instruments, Inc. 337,948 21,607,550
Ultratech Stepper, Inc.(1) 245,129 4,412,322
Uniphase Corp.(1)(2) 25,932 1,282,778
- --------------------------------------------------------------------------------
$ 155,952,907
- --------------------------------------------------------------------------------
Engineering and Construction -- 0.1%
- --------------------------------------------------------------------------------
Jacobs Engineering Group, Inc.(1) 162,455 $ 5,300,094
- --------------------------------------------------------------------------------
$ 5,300,094
- --------------------------------------------------------------------------------
Entertainment -- 0.5%
- --------------------------------------------------------------------------------
Callaway Golf Co.(2) 35,715 $ 388,090
Disney (Walt) Co. 80,700 2,173,856
Mattel, Inc. 20,995 753,196
Time Warner Inc. 250,684 23,266,609
Time Warner Inc., Series J 31,209 2,890,792
Viacom Inc., Class B(1) 35,399 2,119,515
- --------------------------------------------------------------------------------
$ 31,592,058
- --------------------------------------------------------------------------------
Environmental Services -- 0.6%
- --------------------------------------------------------------------------------
Browning-Ferris Industries, Inc. 391,647 $ 13,878,991
U.S. Filter Corp.(1) 100,412 2,127,479
Waste Management, Inc. 552,975 24,952,997
- --------------------------------------------------------------------------------
$ 40,959,467
- --------------------------------------------------------------------------------
Financial Services - Miscellaneous -- 3.6%
- --------------------------------------------------------------------------------
American Express Co. 616,648 $ 54,496,267
Associates First Capital Corp. 200,000 14,100,000
Capital One Financial Corp. 73,411 7,469,569
Citigroup 1,395,391 65,670,588
Fannie Mae 945,355 66,942,950
FirstPlus Financial Group,
Inc.(1)(2) 120,000 532,500
Freddie Mac 352,500 20,268,750
Household International, Inc. 199,293 7,286,650
Providian Financial Corp. 166,107 13,184,743
- --------------------------------------------------------------------------------
$ 249,952,017
- --------------------------------------------------------------------------------
Foods -- 3.7%
- --------------------------------------------------------------------------------
Archer-Daniels-Midland Co. 143,775 $ 2,399,245
Bestfoods 22,400 1,220,800
Conagra, Inc. 294,949 8,977,510
Flowers Industries, Inc. 393,000 8,056,500
General Mills, Inc. 24,850 1,826,475
Kellogg Co. 69,714 2,300,562
McCormick & Co., Inc. 629,298 19,547,569
Nabisco Holdings Corp., Class A 100,000 3,775,000
Pioneer Hi-Bred International,
Inc. 952,171 26,660,788
Quaker Oats Co. (The) 39,942 2,359,074
Riviana Foods, Inc. 150,000 2,939,070
Riviana Foods, Inc.(2) 100,000 1,956,109
Sara Lee Corp. 577,972 34,497,704
Tyson Food, Inc. 870,276 20,016,348
Unilever ADR 1,502,000 113,025,499
Wrigley (Wm.) Jr. Co. 113,180 9,160,506
- --------------------------------------------------------------------------------
$ 258,718,759
- --------------------------------------------------------------------------------
Furniture and Appliances -- 0.5%
- --------------------------------------------------------------------------------
HON Industries, Inc. 1,135,488 $ 24,058,152
HON Industries, Inc.(2) 134,930 2,856,923
Leggett & Platt, Inc. 298,328 6,973,417
Miller (Herman), Inc. 120,000 2,647,500
- --------------------------------------------------------------------------------
$ 36,535,992
- --------------------------------------------------------------------------------
Health Services -- 0.7%
- --------------------------------------------------------------------------------
Aetna, Inc. 59,821 $ 4,464,142
Beverly Enterprises, Inc.(1) 357,143 2,410,715
FPA Medical Management, Inc.(1)(3) 315,000 3,150
Genesis Health Ventures, Inc.(1) 4,000 54,000
Health Management Associates, Inc.,
Class A(1) 61,170 1,089,591
HealthSouth Corp.(1) 146,000 1,770,250
Integrated Health Services, Inc. 50,000 809,375
Magellan Health Services, Inc.(1) 50,000 453,125
MedPartners, Inc.(1) 17,696 63,042
Omnicare, Inc. 25,650 886,528
Orthodontic Centers of America,
Inc.(1) 100,000 1,893,750
Pacificare Health Systems, Inc.,
Class B(1) 19,500 1,535,625
PhyCor, Inc.(1) 312,500 2,265,625
Quest Diagnostics, Inc.(1) 15,625 259,766
Quorum Health Group, Inc.(1) 55,733 808,129
See notes to financial statements
19
<PAGE>
Tax-Managed Growth Portfolio as of October 31, 1998
PORTFOLIO OF INVESTMENTS CONT'D
Security Shares Value
- --------------------------------------------------------------------------------
Health Services (continued)
- --------------------------------------------------------------------------------
Renal Care Group, Inc.(1) 175,282 $ 5,105,088
Renal Care Group, Inc.(1)(2) 196,225 5,703,623
Response Oncology, Inc.(1) 44,761 223,805
Sunrise Assisted Living, Inc.(1) 210,000 9,043,125
Sunrise Assisted Living,
Inc.(1)(2) 140,000 6,023,324
United HealthCare Corp. 20,000 871,250
Vencor, Inc.(1) 25,600 118,400
- --------------------------------------------------------------------------------
$ 45,855,428
- --------------------------------------------------------------------------------
Household Products -- 2.4%
- --------------------------------------------------------------------------------
Avon Products, Inc. 8,400 $ 333,375
Blyth Industries, Inc.(1) 522,000 14,420,250
Blyth Industries, Inc.(1)(2) 40,000 1,104,263
Blyth Industries, Inc.(1)(2) 20,000 551,395
Colgate-Palmolive Co. 54,337 4,802,032
Fortune Brands, Inc. 1,500 49,594
Gillette Co. 1,605,200 72,133,674
Helen of Troy Ltd.(1) 65,000 966,875
Kimberly-Clark Corp. 551,928 26,630,526
Procter & Gamble Co. 389,741 34,638,231
Rubbermaid, Inc. 463,920 15,396,345
- --------------------------------------------------------------------------------
$ 171,026,560
- --------------------------------------------------------------------------------
Industrial Equipment -- 0.8%
- --------------------------------------------------------------------------------
Dover Corp. 355,445 $ 11,285,379
DT Industries, Inc. 37,728 679,104
Federal Signal Corp. 283,471 6,821,021
Illinois Tool Works, Inc. 169,010 10,837,766
Parker-Hannifin Corp. 150,898 5,394,604
Regal Beloit Corp. 265,000 5,581,563
Tecumseh Products Co., Class A 156,420 8,133,840
Tyco International Ltd. 83,462 5,169,428
- --------------------------------------------------------------------------------
$ 53,902,705
- --------------------------------------------------------------------------------
Information Services -- 4.5%
- --------------------------------------------------------------------------------
Acxiom Corp.(1) 210,527 $ 5,289,491
America Online, Inc.(1) 10,800 1,372,275
At Home Corp., Series A(1)(2) 20,291 875,609
Automatic Data Processing, Inc. 1,756,243 136,657,657
Aztec Technology Partners(1) 119,262 648,486
Bell and Howell Co.(1) 115,000 3,047,500
BISYS Group, Inc. (The)(1) 53,873 2,356,944
Ceridian Corp.(1) 90,500 5,192,438
Computer Sciences Corp. 450,202 23,748,156
Dun and Bradstreet Corp. (The) 40,768 1,156,792
Electronic Data Systems Corp. 155,000 6,306,563
Equifax, Inc. 40,000 1,547,500
First Data Corp. 282,761 7,493,167
HBO and Co. 27,599 724,474
IDX Systems Corp.(1)(2) 35,000 1,481,271
IMS Health, Inc. 249,006 16,558,899
Lason, Inc.(1)(2) 165,000 9,027,728
Lason, Inc.(1)(2) 190,000 10,381,695
National Data Corp. 81,333 2,755,155
Nielsen Media Research 83,002 1,177,591
Paychex, Inc. 87,976 4,376,806
Reuters Holdings PLC ADR 273,945 16,607,916
Saville Systems PLC(1) 320,000 5,400,000
Saville Systems PLC ADR(1)(2) 99,197 1,670,601
Saville Systems PLC ADR(1)(2) 297 5,004
SunGard Data Systems, Inc.(1) 1,382,319 46,653,266
USCS International, Inc.(1)(2) 150,000 4,456,922
- --------------------------------------------------------------------------------
$ 316,969,906
- --------------------------------------------------------------------------------
Insurance -- 8.3%
- --------------------------------------------------------------------------------
20th Century Industries 70,700 $ 1,736,569
Aegon, N.V. ADR 86,504 7,558,287
Allmerica Financial Corp. 1,500 75,000
Allstate Corp. (The) 1,046,416 45,061,289
American General Corp. 91,153 6,243,981
American International Group, Inc. 595,816 50,793,314
AON Corp. 85,385 5,293,870
<PAGE>
Berkshire Hathaway, Inc., Class
A(1)(2) 80 5,160,000
Berkshire Hathaway, Inc., Class
B(1) 21 45,108
Chubb Corp. 101,050 6,214,575
Conseco, Inc.(2) 100,000 3,461,813
Delphi Financial Group, Inc.(1) 40,000 1,865,000
General RE Corp. 409,481 89,957,856
Jefferson-Pilot Corp. 38,267 2,324,720
Kansas City Life Insurance Co. 35,400 2,955,900
Lab Holdings, Inc. 35,960 627,053
Marsh & McLennan Cos., Inc. 1,916,666 106,374,962
Mercury General Corp. 2,000 85,000
See notes to financial statements
20
<PAGE>
Tax-Managed Growth Portfolio as of October 31, 1998
PORTFOLIO OF INVESTMENTS CONT'D
Security Shares Value
- --------------------------------------------------------------------------------
Insurance (continued)
- --------------------------------------------------------------------------------
Mutual Risk Management Ltd. 1,043,500 $ 35,283,344
Progressive Corp. 285,085 41,978,766
Protective Life Corp. 64,346 2,384,824
Safeco Corp. 12,122 525,034
St. Paul Cos., Inc. (The) 269,024 8,911,420
SunAmerica, Inc. 1,810,644 127,650,401
Torchmark Corp. 222,850 9,749,688
UICI(1) 57,257 844,541
UICI(1)(2) 180,000 2,653,892
UNUM Corp. 251,200 11,162,700
- --------------------------------------------------------------------------------
$ 576,978,907
- --------------------------------------------------------------------------------
Investment Services -- 0.7%
- --------------------------------------------------------------------------------
E*Trade Group, Inc.(1)(2) 100,000 $ 1,766,250
Merrill Lynch & Co., Inc. 349,756 20,723,043
Morgan Stanley Dean Witter & Co. 232,519 15,055,605
Morgan Stanley Dean Witter &
Co.(2) 52,000 3,361,388
Price (T. Rowe) Associates, Inc. 86,716 3,083,838
Schwab (Charles) and Co., Inc. 44,500 2,133,219
- --------------------------------------------------------------------------------
$ 46,123,343
- --------------------------------------------------------------------------------
Lodging and Gaming -- 0.2%
- --------------------------------------------------------------------------------
Royal Caribbean Cruises Ltd.(2) 500,000 $ 13,870,600
Sunterra Corp.(1)(2) 50,000 473,971
- --------------------------------------------------------------------------------
$ 14,344,571
- --------------------------------------------------------------------------------
Medical Products -- 5.8%
- --------------------------------------------------------------------------------
Allegiance Corp. 45,322 $ 1,685,412
Ballard Medical Products 251,058 5,334,983
Bausch & Lomb, Inc. 123,919 5,165,873
Baxter International, Inc. 1,166,028 69,888,802
Becton, Dickinson and Co. 7,020 295,718
Becton, Dickinson and Co.(2) 28,980 1,219,806
Boston Scientific Corp.(1) 539,850 29,388,084
Dentsply International, Inc. 42,000 1,081,500
ESC Medical Systems Ltd.(1) 30,000 243,750
ESC Medical Systems Ltd.(1)(2) 150,000 1,214,180
Guidant Corp. 100,000 7,650,000
Heartport, Inc.(1) 41,026 174,361
Hillenbrand Industries, Inc. 647,898 38,347,463
Johnson & Johnson Co. 1,350,723 110,083,924
Marquette Medical Systems, Inc.(1) 55,000 $ 2,450,938
Medtronics, Inc. 1,103,098 71,701,369
Schein (Henry), Corp.(1) 555,700 21,498,644
Schein (Henry), Corp.(1)(2) 17,000 656,372
Schein (Henry), Corp.(1)(2) 281,000 10,853,069
Sofamor Danek Group, Inc.(1) 223,000 22,662,375
St. Jude Medical, Inc.(1) 42,144 1,190,568
Steris Corp.(1) 78,394 1,803,062
- --------------------------------------------------------------------------------
$ 404,590,253
- --------------------------------------------------------------------------------
Metals - Gold -- 0.0%
- --------------------------------------------------------------------------------
Freeport-McMoran Copper & Gold,
Inc. 6,000 $ 73,875
- --------------------------------------------------------------------------------
$ 73,875
- --------------------------------------------------------------------------------
Metals - Industrial -- 0.0%
- --------------------------------------------------------------------------------
Cyprus Amax Minerals Co. 20,950 $ 260,566
Nucor Corp.(2) 22,648 1,025,553
- --------------------------------------------------------------------------------
$ 1,286,119
- --------------------------------------------------------------------------------
Minerals and Fertilizer -- 0.1%
- --------------------------------------------------------------------------------
Mississippi Chemical Corp. 272,180 $ 3,929,599
Potash Corp. of Saskatchewan 105 7,284
- --------------------------------------------------------------------------------
$ 3,936,883
- --------------------------------------------------------------------------------
Natural Gas Distribution -- 0.1%
- --------------------------------------------------------------------------------
Columbia Energy Group 1,121 $ 64,849
Dynegy, Inc. 290,000 4,350,000
KN Energy, Inc. 20,000 993,750
National Fuel Gas Co. 2,000 94,500
Sonat, Inc. 107,200 3,249,500
- --------------------------------------------------------------------------------
$ 8,752,599
- --------------------------------------------------------------------------------
Oil and Gas - Equipment and Services -- 0.9%
- --------------------------------------------------------------------------------
Baker Hughes, Inc. 739,234 $ 16,309,350
Halliburton Co. 401,675 14,435,195
National-Oilwell, Inc.(1) 50,000 793,750
National-Oilwell, Inc.(1)(2) 416,400 6,597,129
Newpark Resources, Inc.(1) 110,000 1,038,125
Noble Drilling, Inc.(1) 170,000 2,921,875
See notes to financial statements
21
<PAGE>
Tax-Managed Growth Portfolio as of October 31, 1998
PORTFOLIO OF INVESTMENTS CONT'D
Security Shares Value
- --------------------------------------------------------------------------------
Oil and Gas - Equipment and Services (continued)
- --------------------------------------------------------------------------------
Patterson Energy, Inc.(1) 200,000 $ 1,237,500
Schlumberger Ltd. 367,470 19,292,175
Syntroleum Corp.(1) 2,735 26,153
Weatherford International(1) 56,750 1,542,891
- --------------------------------------------------------------------------------
$ 64,194,143
- --------------------------------------------------------------------------------
Oil and Gas - Exploration and Production -- 1.0%
- --------------------------------------------------------------------------------
Anadarko Petroleum Corp. 1,654,000 $ 56,029,249
Apache Corp. 127,003 3,595,772
Burlington Resources, Inc. 119,335 4,915,110
Oryx Energy Co.(1) 369,103 5,167,442
Triton Energy, Ltd.(1) 700 7,613
Union Pacific Resources Group, Inc. 79,795 1,037,335
USX-Marathon Group 50,895 1,663,630
- --------------------------------------------------------------------------------
$ 72,416,151
- --------------------------------------------------------------------------------
Oil and Gas - Integrated -- 1.0%
- --------------------------------------------------------------------------------
Amoco Corp. 282,730 $ 15,868,221
Atlantic Richfield Co. 42,450 2,923,744
British Petroleum Co. PLC 508 44,926
Chevron Corp. 55,600 4,531,400
Exxon Corp. 215,675 15,366,844
Mobil Corp. 200,645 15,186,318
Murphy Oil Corp. 29,700 1,226,981
Phillips Petroleum Co. 979 42,342
Quaker State Corp. 90,758 1,281,957
Royal Dutch Petroleum Co. 26,361 1,298,279
Texaco, Inc. 1,914 113,524
Tosco Corp. 300 8,419
Tosco Corp.(2) 314,619 8,823,110
- --------------------------------------------------------------------------------
$ 66,716,065
- --------------------------------------------------------------------------------
Paper and Forest Products -- 0.6%
- --------------------------------------------------------------------------------
Caraustar Industries, Inc. 224,961 $ 5,342,824
Champion International Corp. 52,192 1,666,882
Fort James Corp. 56,401 2,273,665
Georgia-Pacific Corp. - G-P Group 305,098 15,788,822
Georgia-Pacific Corp. - G-P
Group(2) 14,133 730,469
Georgia-Pacific Corp. - Timber
Group 305,098 6,769,362
Louisiana Pacific Corp. 55,364 982,711
Mead Corporation (The) 38,768 1,226,038
Union Camp Corp. 80,309 3,453,287
Weyerhaeuser Co. 61,755 2,890,906
Willamette Industries, Inc. 53,000 1,643,000
- --------------------------------------------------------------------------------
$ 42,767,966
- --------------------------------------------------------------------------------
Photography -- 0.1%
- --------------------------------------------------------------------------------
Eastman Kodak Co. 47,200 $ 3,658,000
- --------------------------------------------------------------------------------
$ 3,658,000
- --------------------------------------------------------------------------------
Printing and Business Products -- 0.7%
- --------------------------------------------------------------------------------
American Business Products, Inc. 261,355 $ 4,851,402
Avery Dennison Corp. 803,004 33,274,478
Bowne & Co., Inc. 172,640 2,319,850
Consolidated Graphics, Inc.(1) 35,064 1,663,349
Corporate Express, Inc.(1) 92,486 1,080,930
Danka Business Systems, PLC 1,000 5,563
Deluxe Corp. 80,675 2,611,853
Donnelley (R.R.) & Sons Co. 32,896 1,418,640
Harland (John H.) Co. 51,540 747,330
Ikon Office Solutions, Inc. 115,500 1,090,031
Workflow Management, Inc.(1) 79,508 457,170
- --------------------------------------------------------------------------------
$ 49,520,596
- --------------------------------------------------------------------------------
Publishing -- 1.9%
- --------------------------------------------------------------------------------
Belo (A.H.) Corp. 110,220 $ 2,004,626
Dow Jones & Co., Inc. 1,111,000 50,897,688
Gannett Co., Inc. 280,900 17,380,688
Houghton Mifflin Co. 97,400 3,798,600
McGraw-Hill Companies, Inc. (The) 455,608 40,976,245
Meredith Corp. 190,000 7,030,000
The MacClatchy Co., Class A 48,066 1,631,240
Times Mirror Co., Class A 151,670 8,408,206
- --------------------------------------------------------------------------------
$ 132,127,293
- --------------------------------------------------------------------------------
Real Estate -- 0.5%
- --------------------------------------------------------------------------------
Avalonbay Communities, Inc. 55,000 $ 1,766,875
Catellus Development Corp.(1) 290,000 3,987,500
Equity Office Properties Trust 2,812 67,488
Grubb and Ellis Co.(1)(2) 100,000 973,375
See notes to financial statements
22
<PAGE>
Tax-Managed Growth Portfolio as of October 31, 1998
PORTFOLIO OF INVESTMENTS CONT'D
Security Shares Value
- --------------------------------------------------------------------------------
Real Estate (continued)
- --------------------------------------------------------------------------------
LaSalle Partners, Inc.(1)(2) 213,193 $ 6,231,738
Patriot America Hospitality, Inc. 132,212 1,173,382
Redwood Trust, Inc. 71,710 986,013
Rouse Co. (The) 127,700 3,583,581
Trammell Crow Co.(1)(2) 876,098 18,914,043
Ventas, Inc.(1) 25,600 292,800
- --------------------------------------------------------------------------------
$ 37,976,795
- --------------------------------------------------------------------------------
Restaurants -- 1.1%
- --------------------------------------------------------------------------------
Bob Evans Farms, Inc. 48,193 $ 948,800
Boston Chicken, Inc.(1)(3) 38,500 385
Brinker International, Inc.(1) 446,376 10,796,720
CKE Restaurants, Inc.(2) 100,000 2,629,496
CKE Restaurants, Inc.(2) 10,000 262,599
Lone Star Steakhouse and Saloon,
Inc.(1) 145,981 1,167,848
Lone Star Steakhouse and Saloon,
Inc.(1)(2) 200,000 1,597,333
McDonald's Corp. 263,100 17,594,813
Outback Steakhouse, Inc.(1) 77,101 2,669,622
Outback Steakhouse, Inc.(1)(2) 130,181 4,498,502
Outback Steakhouse, Inc.(1)(2) 250,000 8,641,823
Papa John's International, Inc.(1) 25,807 979,861
Papa John's International,
Inc.(1)(2) 51,744 1,961,381
Sonic Corp.(1)(2) 47,338 897,923
Starbucks Corp.(1) 342,000 14,834,250
Tricon Global Restaurants, Inc.(1) 175,767 7,645,865
- --------------------------------------------------------------------------------
$ 77,127,221
- --------------------------------------------------------------------------------
Retail - Food and Drug -- 4.3%
- --------------------------------------------------------------------------------
Albertson's, Inc. 2,090,219 $ 116,137,792
CVS Corp. 1,980,000 90,461,249
General Nutrition Companies,
Inc.(1) 44,460 647,449
Hannaford Brothers Co. 30,849 1,351,572
Kroger Co. (The)(1) 22,800 1,265,400
Rite Aid Corp. 6,000 238,125
Safeway, Inc.(1) 1,677,501 80,205,516
Walgreen Co. 13,750 669,453
Whole Foods Market, Inc.(1) 90,000 3,605,625
Winn-Dixie Stores, Inc. 220,221 7,473,750
- --------------------------------------------------------------------------------
$ 302,055,931
- --------------------------------------------------------------------------------
Retail - General -- 2.0%
- --------------------------------------------------------------------------------
99 (cent) Only Stores(1)(2) 342,670 $ 15,836,337
Casey's General Stores, Inc.(2) 75,000 1,048,688
Dayton Hudson Corp. 270 11,441
Department 56, Inc.(1) 190,000 5,925,625
Dollar General Corp. 25,625 611,797
Dollar Tree Stores, Inc.(1) 292,500 11,279,531
Dollar Tree Stores, Inc.(1)(2) 247,792 9,549,109
Harcourt General, Inc. 216,416 10,536,754
May Department Stores Co. (The) 104,008 6,344,488
Nordstrom, Inc. 27,610 754,098
Penney (J.C.) Company, Inc. 1,101,673 52,329,468
Wal-Mart Stores, Inc. 396,890 27,385,410
- --------------------------------------------------------------------------------
$ 141,612,746
- --------------------------------------------------------------------------------
Retail - Specialty and Apparel -- 2.3%
- --------------------------------------------------------------------------------
Abercrombie and Fitch Co., Class
A(1) 2,802 $ 111,204
Burlington Coat Factory Warehouse
Corp. 543,600 8,154,000
CompUSA, Inc.(1) 1,000 13,875
Home Depot, Inc. (The) 2,374,361 103,284,703
Limited, Inc. (The) 205,000 5,253,125
Lowe's Companies, Inc. 60,000 2,021,250
Office Depot, Inc.(1) 140,000 3,500,000
OfficeMax, Inc.(1) 300,000 2,737,500
Pep Boys - Manny, Moe & Jack (The) 35,476 554,313
Pep Boys - Manny, Moe & Jack
(The)(2) 62,500 975,911
Pier 1 Imports, Inc.(2) 150,000 1,385,766
Pier 1 Imports, Inc.(2) 75,000 692,594
Republic Industries, Inc.(1) 1,748,523 28,085,651
Staples, Inc.(1) 50,000 1,631,250
Tiffany and Co. 22,000 710,875
TJX Companies, Inc. (The) 500 9,469
Toys "R" Us, Inc.(1) 73,255 1,433,051
- --------------------------------------------------------------------------------
$ 160,554,537
- --------------------------------------------------------------------------------
Specialty Chemicals and Materials -- 1.4%
- --------------------------------------------------------------------------------
Corning, Inc. 130,000 $ 4,720,625
Dexter Corp. (The) 36,139 1,057,066
Ecolab, Inc. 2,088,536 62,395,012
International Flavors &
Fragrances, Inc. 148,101 5,544,531
International Specialty Products,
Inc.(1) 59,000 792,813
MacDermid, Inc. 30,000 1,098,750
Millipore Corp. 261,340 6,435,498
See notes to financial statements
23
<PAGE>
Tax-Managed Growth Portfolio as of October 31, 1998
PORTFOLIO OF INVESTMENTS CONT'D
Security Shares Value
- --------------------------------------------------------------------------------
Specialty Chemicals and Materials (continued)
- --------------------------------------------------------------------------------
Minnesota Mining & Manufacturing
Co. 37,685 $ 3,014,800
Morton International, Inc. 34,000 845,750
Nalco Chemical Co. 224,852 6,956,359
Pall Corp. 216,000 5,454,000
- --------------------------------------------------------------------------------
$ 98,315,204
- --------------------------------------------------------------------------------
Tobacco -- 0.2%
- --------------------------------------------------------------------------------
Philip Morris Cos., Inc. 215,494 $ 11,017,131
- --------------------------------------------------------------------------------
$ 11,017,131
- --------------------------------------------------------------------------------
Transportation -- 0.4%
- --------------------------------------------------------------------------------
Arnold Industries, Inc. 148,543 $ 1,893,923
Burlington Northern Santa Fe Corp. 188,799 5,829,169
Coach USA, Inc./(1)/ 168,889 4,528,336
Coach USA, Inc./(1)//(2)/ 185,676 4,975,451
FDX Corp./(1)/ 93,723 4,926,315
Heartland Express, Inc./(1)/ 250,000 4,500,000
Union Pacific Corp. 92,081 4,385,358
- --------------------------------------------------------------------------------
$ 31,038,552
- --------------------------------------------------------------------------------
Trucks and Parts -- 0.0%
- --------------------------------------------------------------------------------
Paccar, Inc. 46,602 $ 2,033,012
- --------------------------------------------------------------------------------
$ 2,033,012
- --------------------------------------------------------------------------------
Total Common Stocks
(identified cost $4,918,536,928) 6,503,610,020
- --------------------------------------------------------------------------------
Put Options Purchased -- 0.1%
Computers and Business Equipment -- 0.1%
- --------------------------------------------------------------------------------
Dell Computer, Expires 1/16/99,
Strike Price 45 250,000 $ 468,750
Dell Computer, Expires 1/16/99,
Strike Price 50 250,000 718,750
Dell Computer, Expires 2/20/99,
Strike Price 50 250,000 906,250
Dell Computer, Expires 2/20/99,
Strike Price 55 500,000 2,500,000
- --------------------------------------------------------------------------------
$ 4,593,750
- --------------------------------------------------------------------------------
Total Put Options Purchased
(identified cost $5,771,939) $ 4,593,750
- --------------------------------------------------------------------------------
Convertible Preferred Stocks-- 0.3%
Entertainment -- 0.3%
- --------------------------------------------------------------------------------
Time Warner Inc., Series J/(3)/ 100,187 $ 19,992,930
Time Warner Inc., Series J/(3)/ 21,410 4,263,952
- --------------------------------------------------------------------------------
$ 24,256,882
- --------------------------------------------------------------------------------
Financial - Miscellaneous -- 0.0%
- --------------------------------------------------------------------------------
American General Corp., Series D 21,474 $ 1,256,229
- --------------------------------------------------------------------------------
$ 1,256,229
- --------------------------------------------------------------------------------
Insurance -- 0.0%
- --------------------------------------------------------------------------------
Aetna, Inc., Series C 449 $ 32,104
- --------------------------------------------------------------------------------
$ 32,104
- --------------------------------------------------------------------------------
Total Convertible Preferred Stocks
(identified cost $14,428,021) $ 25,545,215
- --------------------------------------------------------------------------------
Commercial Paper -- 7.0%
Face Amount
Name of Company (000's omitted) Value
- --------------------------------------------------------------------------------
Corporate Asset Funding, Inc.,
5.55%, 11/2/98 $ 12,813 $ 12,811,025
Corporate Receivables Corp.,
5.65%, 11/2/98 85,000 84,986,660
CXC, Inc., 5.65%, 11/2/98 95,000 94,985,090
Ford Motor Credit Co., 4.98%,
11/2/98 20,733 20,730,132
Ford Motor Credit Co., 5.13%,
11/4/98 93,075 93,035,210
General Electric Capital Co.,
5.69%, 11/2/98 95,000 94,984,985
Panasonic Finance, 5.64%, 11/2/98 8,313 8,311,698
Prudential Funding Corp., 4.95%,
11/3/98 75,000 74,979,375
- --------------------------------------------------------------------------------
Total Commercial Paper
(identified cost $484,824,175) $ 484,824,175
- --------------------------------------------------------------------------------
Total Investments-- 100.5%
(identified cost $5,423,561,063) $7,018,573,160
- --------------------------------------------------------------------------------
Other Assets, Less Liabilities -- (0.5)% $ (32,894,676)
- --------------------------------------------------------------------------------
Net Assets -- 100.0% $6,985,678,484
- --------------------------------------------------------------------------------
ADR-American Depositary Receipt
/(1)/ Non-income producing security.
/(2)/ Security restricted from resale for a period not exceeding two years.
These securities may be distributed to investors in payment for capital
withdrawals. At October 31, 1998, the value of these securities amounted
to $404,092,153 or 5.8% of net assets.
/(3)/ Security valued at fair value using methods determined in good faith by or
at the direction of the Trustees.
See notes to financial statements
24
<PAGE>
Tax-Managed Growth Portfolio as of October 31, 1998
FINANCIAL STATEMENTS
Statement of Assets and Liabilities
As of October 31, 1998
Assets
- --------------------------------------------------------------------------------
Investments, at value
(identified cost $5,423,561,063) $7,018,573,160
Cash 140,335
Receivable for investments sold 30,029,857
Dividends and interest receivable 4,969,250
Tax reclaim receivable 27,580
Other assets 15,734
Prepaid expenses 375,518
Deferred organization expenses 4,528
- --------------------------------------------------------------------------------
Total assets $7,054,135,962
- --------------------------------------------------------------------------------
Liabilities
- --------------------------------------------------------------------------------
Payable for investments purchased $ 68,280,650
Payable to affiliate for Trustees' fees 190
Other accrued expenses 176,638
- --------------------------------------------------------------------------------
Total liabilities $ 68,457,478
- --------------------------------------------------------------------------------
Net Assets applicable to investors' interest in
Portfolio $6,985,678,484
- --------------------------------------------------------------------------------
Sources of Net Assets
- --------------------------------------------------------------------------------
Net proceeds from capital contributions and
withdrawals $5,390,665,865
Net unrealized appreciation (computed on the basis
of identified cost) 1,595,012,619
- --------------------------------------------------------------------------------
Total $6,985,678,484
- --------------------------------------------------------------------------------
Statement of Operations
For the Year Ended
October 31, 1998
Investment Income
- -------------------------------------------------------------------------------
Dividends (net of foreign taxes, $555,644) $ 54,405,581
Interest 11,564,060
- --------------------------------------------------------------------------------
Total investment income $ 65,969,641
- --------------------------------------------------------------------------------
Expenses
- --------------------------------------------------------------------------------
Investment adviser fee $ 24,370,514
Trustees fees and expenses 30,273
Custodian fee 729,631
Legal and accounting services 129,922
Amortization of organization expenses 2,176
Miscellaneous 384,423
- --------------------------------------------------------------------------------
Total expenses $ 25,646,939
- --------------------------------------------------------------------------------
Net investment income $ 40,322,702
- --------------------------------------------------------------------------------
Realized and Unrealized Gain (Loss)
- --------------------------------------------------------------------------------
Net realized gain (loss) --
Investment transactions (identified cost basis) $ (88,268,073)
- --------------------------------------------------------------------------------
Net realized loss $ (88,268,073)
- --------------------------------------------------------------------------------
Change in unrealized appreciation (depreciation) --
Investments (identified cost basis) $ 540,179,532
- --------------------------------------------------------------------------------
Net change in unrealized appreciation
(depreciation) $ 540,179,532
- --------------------------------------------------------------------------------
Net realized and unrealized gain $ 451,911,459
- --------------------------------------------------------------------------------
Net increase in net assets from operations $ 492,234,161
- --------------------------------------------------------------------------------
See notes to financial statements
25
<PAGE>
Tax-Managed Growth Portfolio as of October 31, 1998
FINANCIAL STATEMENTS CONT'D
Statements of Changes in Net Assets
Increase (Decrease) Year Ended Year Ended
in Net Assets October 31, 1998 October 31, 1997
- --------------------------------------------------------------------------------
From operations--
Net investment income $ 40,322,702 $ 14,399,615
Net realized gain (loss) (88,268,073) 52,637,579
Net change in unrealized
appreciation (depreciation) 540,179,532 375,109,348
- --------------------------------------------------------------------------------
Net increase in net assets
from operations $ 492,234,161 $ 442,146,542
- --------------------------------------------------------------------------------
Capital transactions --
Contributions $ 4,084,235,841 $ 1,907,707,281
Withdrawals (462,237,336) (415,207,575)
- --------------------------------------------------------------------------------
Net increase in net assets from
capital transactions $ 3,621,998,505 $ 1,492,499,706
- --------------------------------------------------------------------------------
Net increase in net assets $ 4,114,232,666 $ 1,934,646,248
- --------------------------------------------------------------------------------
Net Assets
- --------------------------------------------------------------------------------
At beginning of year $ 2,871,445,818 $ 936,799,570
- --------------------------------------------------------------------------------
At end of year $ 6,985,678,484 $ 2,871,445,818
- --------------------------------------------------------------------------------
See notes to financial statements
26
<PAGE>
Tax-Managed Growth Portfolio as of October 31, 1998
FINANCIAL STATEMENTS CONT'D
Supplementary Data
<TABLE>
<CAPTION>
Year Ended October 31,
---------------------------------------------------------------
1998 1997 1996(1)
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Ratios to average daily net assets
- -------------------------------------------------------------------------------------------------------------------------------
Expenses 0.50% 0.56% 0.66%(2)
Net investment income 0.78% 0.81% 0.91%(2)
Portfolio Turnover 12% 14% 6%
- -------------------------------------------------------------------------------------------------------------------------------
Net assets, end of year (000's omitted) $ 6,985,678 $ 2,871,446 $ 936,800
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) For the period from the start of business, December 1, 1995, to October 31,
1996.
(2) Annualized.
See notes to financial statements
27
<PAGE>
Tax-Managed Growth Portfolio as of October 31, 1998
NOTES TO FINANCIAL STATEMENTS
1 Significant Accounting Policies
----------------------------------------------------------------------------
Tax-Managed Growth Portfolio (the Portfolio) is registered under the
Investment Company Act of 1940, as amended, as a diversified, open-end
management investment company. The Portfolio, which is organized as a trust
under the laws of the State of New York on December 1, 1995, seeks to
provide long-term after-tax returns by investing in a diversified portfolio
of equity securities. The Declaration of Trust permits the Trustees to
issue interests in the Portfolio. The following is a summary of significant
accounting policies consistently followed by the Portfolio in the
preparation of its financial statements. The policies are in conformity
with generally accepted accounting principles.
A Investment Valuations -- Marketable securities, including options, that
are listed on foreign or U.S. securities exchanges or in the NASDAQ
National Market System are valued at closing sale prices, on the exchange
where such securities are principally traded. Futures positions on
securities or currencies are generally valued at closing settlement prices.
Unlisted or listed securities for which closing sale prices are not
available are valued at the mean between the latest bid and asked prices.
Short-term debt securities with a remaining maturity of 60 days or less are
valued at amortized cost, which approximates value. 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. Over-the-counter options are
normally valued at the mean between the latest bid and asked price.
Investments for which valuations or market quotations are unavailable are
valued at fair value using methods determined in good faith by or at the
direction of the Trustees.
B 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 on its
share of such income. 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 Internal Revenue
Code) in order for its investors to satisfy them. The Portfolio will
allocate, at least annually among its investors, each investor's
distributive share of the Portfolio's net investment income, net realized
capital gains, and any other items of income, gain, loss, deduction or
credit.
C Deferred Organization Expenses -- Costs incurred by the Portfolio in
connection with its organization, are being amortized on the straight-line
basis over five years.
D Futures Contracts -- Upon the entering of a financial futures contract,
the Portfolio is required to deposit either in cash or securities an amount
("initial margin") 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
daily fluctuations in the value of the underlying security, and are
recorded for book purposes as unrealized gains or losses by the Portfolio.
The Portfolio's investment in financial futures contracts is designed to
hedge against anticipated future changes in price of current or anticipated
portfolio positions. Should prices move unexpectedly, the Portfolio may not
achieve the anticipated benefits of the financial futures contracts and may
realize a loss.
E Put Options -- Upon the purchase of a put option by the Portfolio, the
premium paid is recorded as an investment, the value of which is
marked-to-market daily. When a purchased option expires, the Portfolio will
realize a loss in the amount of the cost of the option. When the Portfolio
enters into a closing sale transaction, the Portfolio will realize a gain
or loss depending on whether the sales proceeds from the closing sale
transaction are greater or less than the cost of the option. When the
Portfolio exercises a put option, settlement is made in cash. The risk
associated with purchasing options is limited to the premium originally
paid.
F Securities Sold Short -- The Portfolio may sell securities it does not
own in anticipation of a decline in the market price of the securities or
in order to hedge portfolio positions. The Portfolio will generally borrow
the security sold in order to make delivery to the buyer. Upon executing
the transaction, the Portfolio records the proceeds as deposits with
brokers in the Statement of Assets and Liabilities and establishes an
offsetting payable for securities sold short for the securities due on
settlement. The proceeds are retained by the broker as collateral for the
short position. The liability is marked to market and the Portfolio is
required to pay the lending broker any dividend or interest income earned
while the short position is open. A gain or loss is recorded when the
security is delivered to the broker. The Portfolio may recognize a loss on
the transaction if the market value of the securities sold increases before
the securities are delivered.
28
<PAGE>
Tax-Managed Growth Portfolio as of October 31, 1998
NOTES TO FINANCIAL STATEMENTS CONT'D
G Other -- Investment transactions are accounted for on the date the
investments are purchased or sold. Dividend income is recorded on the
ex-dividend date. However, if the ex-dividend date has passed, certain
dividends from foreign securities are recorded as the Portfolio is informed
of the ex-dividend date. Interest income is recorded on the accrual basis.
H 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 revenue and expense during the reporting period. Actual results
could differ from those estimates.
2 Investment Adviser Fee and Other Transactions with Affiliates
----------------------------------------------------------------------------
The investment adviser fee 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. Under the advisory agreement, BMR receives a monthly
advisory fee of 5/96 of 1% (0.625% annually) of the average daily net
assets of the Portfolio up to $500,000,000, and at reduced rates as daily
net assets exceed that level. For the year ended October 31, 1998, the
adviser fee was 0.47% of the Portfolio's average net assets. Except for
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. 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 October 31, 1998, no significant amounts have been deferred. Certain
of the officers and Trustees of the Portfolio are officers or
directors/trustees of the above organizations.
3 Investment Transactions
----------------------------------------------------------------------------
Purchases and sales of investments, other than short-term obligations,
aggregated $2,151,267,687 and $608,237,096, respectively. In addition,
investments having an aggregate market value of $136,368,120 at dates of
withdrawal were distributed in payment for capital withdrawals resulting in
capital gains for book purposes of $125,868,954. During the year ended
October 31, 1998, investors contributed securities with a value of
$1,855,101,919.
4 Federal Income Tax Basis of Investment
----------------------------------------------------------------------------
The cost and unrealized appreciation (depreciation) in value of the
investments owned at October 31, 1998, as computed on a federal income tax
basis, are as follows:
Aggregate cost $2,952,967,635
--------------------------------------------------------------------
Gross unrealized appreciation $4,098,117,808
Gross unrealized depreciation (32,512,283)
--------------------------------------------------------------------
Net unrealized appreciation $4,065,605,525
---------------------------------------------------------------------
5 Financial Instruments
----------------------------------------------------------------------------
The Portfolio may trade 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, forward foreign currency exchange contracts 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 Portfolio 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.
The Portfolio did not have any open obligations under these financial
instruments at October 31, 1998.
6 Line of Credit
----------------------------------------------------------------------------
The Portfolio participates with other portfolios and funds managed by BMR
and EVM and its affiliates in a $80 million ($130 million effective
November 12, 1998) 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
29
<PAGE>
Tax-Managed Growth Portfolio as of October 31, 1998
NOTES TO FINANCIAL STATEMENTS CONT'D
based on its borrowings at 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 Portfolio did not have
any significant borrowings or allocated fees during the year ended October
31, 1998.
7 Subsequent Event
----------------------------------------------------------------------------
Effective November 1, 1998, the Portfolio changed its fiscal year-end to
December 31.
30
<PAGE>
Tax-Managed Growth Portfolio as of October 31, 1998
INDEPENDENT AUDITORS' REPORT
To the Trustees and Investors
of Tax-Managed Growth Portfolio:
- --------------------------------------------------------------------------------
We have audited the accompanying statement of assets and liabilities, including
the portfolio of investments, of Tax-Managed Growth Portfolio (the Portfolio) as
of October 31, 1998, the related statement of operations for the year then
ended, the statements of changes in net assets for the years ended October 31,
1998 and 1997, and the supplementary data for the years ended October 31, 1998
and 1997 and for the period from the start of business, December 1, 1995 to
October 31, 1996. These financial statements and supplementary data are the
responsibility of the Portfolio's management. Our responsibility is to express
an opinion on these financial statements and supplementary data based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and supplementary
data are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
October 31, 1998 by correspondence with the custodian and brokers; where replies
were not received from brokers, we performed other auditing procedures. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, such financial statements and supplementary data referred to
above present fairly, in all material respects, the financial position of the
Portfolio as of October 31, 1998, the results of its operations, the changes in
its net assets and its supplementary data for the respective stated periods in
conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Boston, Massachusetts
December 4, 1998
31
<PAGE>
Eaton Vance Tax-Managed Growth Fund as of October 31, 1998
INVESTMENT MANAGEMENT
Eaton Vance Tax-Managed Growth Fund
Officers
James B. Hawkes
President and Trustee
William H. Ahern, Jr.
Vice-President
Thomas J. Fetter
Vice-President
Robert B. MacIntosh
Vice President
Michael B. Terry
Vice-President
James L. O'Connor
Treasurer
Alan R. Dynner
Secretary
Independent Trustees
Jessica M. Bibliowicz
President and Chief Operating Officer,
John A. Levin & Co.
Director, Baker, Fentress & Company
Donald R. Dwight
President, Dwight Partners, Inc.
Samuel L. Hayes, III
Jacob H. Schiff Professor of Investment
Banking, Emeritus, Harvard University Graduate School
of Business Administration
Norton H. Reamer
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
Tax-Managed Growth Portfolio
Officers
James B. Hawkes
President and Trustee
Duncan W. Richardson
Vice President and
Portfolio Manager
James L. O'Connor
Treasurer
Alan R. Dynner
Secretary
Independent Trustees
Jessica M. Bibliowicz
President and Chief Operating Officer,
John A. Levin & Co.
Director, Baker, Fentress & Co.
Donald R. Dwight
President, Dwight Partners, Inc.
Samuel L. Hayes, III
Jacob H. Schiff Professor of Investment
Banking, Emeritus, Harvard University Graduate School
of Business Administration
Norton H. Reamer
Chairman and Chief Executive Officer,
United Asset Management Corporation
John L. Thorndike
Formerly Director, Fiduciary Company Incorporated
Jack L. Treynor
Investment Adviser and Consultant
32
<PAGE>
Investment Adviser of Tax-Managed Growth Portfolio
Boston Management and Research
24 Federal Street
Boston, MA 02110
Administrator of Eaton Vance Tax-Managed Growth 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 and Dividend Disbursing Agent
First Data Investor Services Group
Attention: Eaton Vance Funds
P.O. Box 5123
Westborough, MA 01581-5123
Independent Auditors
Deloitte & Touche LLP
125 Summer Street
Boston, MA 02110
Eaton Vance Tax-Managed Growth 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.
- --------------------------------------------------------------------------------
TCSRC-12/98
