<PAGE>
[LOGO OF EATON VANCE MUTUAL Investing
FUNDS APPEARS HERE] for the
21st
Century
[PHOTO OF EDUCATION SIGN ON BUILDING APPEARS HERE]
Annual Report December 31, 1998
EATON VANCE
TAX FREE
RESERVES
Eaton Vance
Global Management--Global Distribution
[PHOTO OF BRIDGE APPEARS HERE]
<PAGE>
Eaton Vance Tax Free Reserves as of December 31, 1998
[PHOTO OF JAMES B. Investment Environment
HAWKES APPEARS --------------------------------------------------------
HERE]
The Economy
James B. Hawkes
President . The U.S. economy continued the longest uninterrupted
growth period in its history in 1998, seemingly
unaffected by presidential scandal, renewed conflict
with Iraq, or global economic troubles. Recent data
suggests that the real growth rate for 1998 will be
about 4%. Inflation remained very low.
. Many economists predicted that the "Asian flu" would hamper growth in 1998.
Instead, it redirected capital to the U.S. markets, resulting in lower
interest rates, increased consumer spending, and continued growth in the
U.S. stock market.
. For 1999, a slowdown in the manufacturing sector, weakening corporate
earnings, further overseas economic problems, and the Y2K computer problem
are some of the obstacles the economy will face.
The Market
. The Federal Reserve Board lowered the Federal Funds interest rate 3 times
this year, ending the year at 4.75%. The Federal Funds rate is the rate for
interbank overnight loans and serves as a leading interest rate indicator.
In reaction, yields on money market instruments dipped significantly over
the course of the year.
. The general decline in interest rates in 1998 boosted U.S. Treasury
securities, resulting in solid total returns for investors. However, more
risky fixed-income investments did not perform as well.
The Fund
- --------------------------------------------------------------------------------
The Past Year
. During the year ended December 31, 1998, shareholders of Eaton Vance
Tax Free Reserves received $0.03 in income dividends, all free from
regular federal income tax./1/
. Based on the last monthly dividend paid and a $1.00 share price, the
Fund's distribution rate was 2.84% on December 31, 1998./2/
. To equal that rate, a shareholder in the 36% federal income tax
bracket would need a yield of 4.44% from a taxable investment.
About Eaton Vance Tax Free Reserves
. To attain its objective, Eaton Vance Tax Free Reserves invests only in
dollar-denominated, high-quality securities with minimal credit
risk./3/
. The Fund seeks to invest in short-term obligations which are rated in
one of the two highest short-term ratings categories.
. Taxes are always a concern for investors who wish to maximize their
after-tax returns. A money market mutual fund that invests in
high-quality investments, exempt from federal tax, can be a sensible
way to earn income while preserving capital and maintaining liquidity.
- --------------------------------------------------------------------------------
/1/ A portion of the Fund's income could be subject to federal alternative
minimum tax.
/2/ The Fund's distribution rate represents actual distributions paid to
shareholders and is calculated by dividing the last distribution per share
(annualized) by the net asset value.
/3/ An investment in the Fund is neither insured nor guaranteed by the U.S.
Government, and there can be no assurance that the Fund will be able to
maintain a stable net asset value of $1.00 per share. The Fund has no sales
charge.
- --------------------------------------------------------------------------------
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 Free Reserves as of December 31, 1998
PORTFOLIO OF INVESTMENTS
Tax-Exempt Investments -- 100.3%
Ratings (Unaudited) Principal
- ------------------------- Amount
Moody's/S&P Moody's/S&P (000's
Short-Term Long-Term omitted) Security Value
- --------------------------------------------------------------------------------
Commercial Paper -- 3.2%
- --------------------------------------------------------------------------------
NR/A-1+ NR/AA+ $ 1,500 Rochester, MN Health Care
Facilities, (Mayo Clinic),
2.90%, 3/4/99 $ 1,500,000
- --------------------------------------------------------------------------------
$ 1,500,000
- --------------------------------------------------------------------------------
General Obligation Notes/Bonds -- 10.8%
- --------------------------------------------------------------------------------
NR/NR Aa3/AA $ 1,000 Connecticut State,
4.50%, 8/15/99 $ 1,005,275
MIG1/Sp1+ NR/NR 1,500 Iowa State School District,
Cash Anticipation Program,
(Iowa School Corp.), (FSA),
4.50%, 6/25/99 1,505,884
VMIG1/A-1+ Aa2/AA 2,100 Texas State Veteran's Housing
Assistance, Variable
Rate, 12/1/16 2,100,000
NR/NR Aa1/AA+ 500 Washington State,
5.00%, 7/1/99 503,380
- --------------------------------------------------------------------------------
$ 5,114,539
- --------------------------------------------------------------------------------
Prerefunded -- 2.2%
- --------------------------------------------------------------------------------
NR/NR AAA/AAA $ 1,000 Dallas, TX, 8.25%, 5/1/99 $ 1,014,216
- -------------------------------------------------------------------------------
$ 1,014,216
- -------------------------------------------------------------------------------
Revenue Notes/Bonds -- 2.1%
- -------------------------------------------------------------------------------
NR/NR Aaa/AAA $ 1,000 Montgomery County, MD
Consolidated Public,
5.00%, 5/1/99 $ 1,004,485
- -------------------------------------------------------------------------------
$ 1,004,485
- -------------------------------------------------------------------------------
Variable Rate Demand Obligations -- 82.0%
- --------------------------------------------------------------------------------
NR/A-1+ NR/AA $ 2,000 Adams County, CO IDR,
(LOC: Barclay's Bank),
4.05%, 12/1/15 $ 2,000,000
VMIG1/A-1+ Aa3/AA 1,100 Apache County, AZ IDA, (LOC:
Toronto Dominion Bank),
4.10%, 12/1/20 1,100,000
NR/A-1+ NR/AAA 1,000 Bexar County, TX Health
Facilities, (LOC: Rabobank
Nederland), 4.00%, 7/1/11 1,000,000
NR/A-1 NR/A 2,100 California PCR, (Wadham
Energy), (LOC: Banque
Paribas), 4.25%, 11/1/17 2,100,000
VMIG1/NR Aa2/NR 1,500 Cambria County, PA IDA,
(LOC: Bayerische Hypo-und),
4.08%, 12/1/28 1,500,000
VMIG1/NR Aaa/NR 1,000 Chicago, IL Multi-family,
(LOC: Swiss Bank), 4.05%,
11/1/10 1,000,000
VMIG1/A-1+ Aaa/AAA 1,000 Connecticut State HEFA,
3.25%, 7/1/27 1,000,000
NR/A-1+ NR/AA- 1,500 Delaware EDA, IDR, (Star
Enterprise), (LOC: Canadian
Imperial Bank),
4.15%, 8/1/29 1,500,000
VMIG1/A-1+ A1/AA 1,000 Delaware Valley, PA Regional
Finance Authority, (LOC:
Credit Suisse), 3.90%, 12/1/20 1,000,000
NR/NR Aa2/NR 1,700 Downtown Savannah, GA Revenue
Authority, (LOC: Wachovia
Bank NC),
3.95%, 10/1/07 1,700,000
NR/A-1+ NR/AAA 1,500 Eddy County, NM
PCR, (IMC Fertilizer, Inc.),
(LOC: Rabobank Nederland),
3.90%, 2/1/03 1,500,000
NR/A-1+ NR/AA- 1,200 Florida HFA, (Monterey
Meadows Apt.), (LOC:
Citibank, N.A.), 3.45%,
12/1/07 1,200,000
VMIG1/NR Aa1/NR 1,000 Fort Wayne, IN Hospital
Authority, (Parkview Memorial
Hospital), (LOC: Bank of
America), 3.90%, 1/1/16 1,000,000
NR/A-1+ NR/AA 700 Fulton County, GA IDR,
(American National Red
Cross), (LOC: Wachovia Bank
GA, N.A.), 4.10%, 8/1/05 700,000
P-1/NR Aa3/NR 845 Fulton County, GA Residential
Care, (Canterbury Court),
(LOC: Suntrust Bank),
4.00%, 10/1/99 845,000
NR/A-1+ NR/AA- 900 Galveston, TX IDR, (Mitchell
Interests), (LOC: Banc One),
4.15%, 9/1/13 900,000
NR/A-1+ NR/AA- 965 Illinois DFA, (Cinnamon Lake
Towers), (LOC: The First
National Bank of Chicago),
4.20%, 4/1/37 965,000
NR/A-1+ NR/AAA 1,800 Irvine Ranch, CA Water
District, (LOC: Landesbank
Hessen-Thran), 5.00%, 10/1/04 1,800,000
See notes to financial statements
3
<PAGE>
Eaton Vance Tax Free Reserves as of December 31, 1998
PORTFOLIO OF INVESTMENTS CONT'D
Ratings (Unaudited) Principal
- ------------------------- Amount
Moody's/S&P Moody's/S&P (000's
Short-Term Long-Term omitted) Security Value
- --------------------------------------------------------------------------------
Variable Rate Demand Obligations (continued)
- --------------------------------------------------------------------------------
NR/A-1+ NR/AAA $ 2,600 Kansas City, MO IDA, (Willow
Creek IV Apartments), Fannie
Mae, 4.00%, 9/1/25 $ 2,600,000
VMIG1/NR Aa3/NR 2,000 Lee County, FL IDA, Health
Care Facilities, (Cypress
Cove HealthPark), (LOC:
Kredietbank, N.V.), 3.45%,
10/1/04 2,000,000
VMIG1/NR Aa3/NR 1,650 Loudoun County, VA IDA, (LOC:
Bank of Scotland),
3.90%, 11/1/28 1,650,000
P-1/A-1+ NR/AA 300 Maricopa County, AZ PCR,
(LOC: Toronto Dominion Bank),
5.00%, 5/1/29 300,000
VMIG1/NR Aa3/NR 1,975 Maryland State HEFA,
4.05%, 1/1/28 1,975,000
P-1/NR Aa3/NR 1,260 Metropolitan Government
Nashville and Davidson
County, TN IDR, (Dixie
Graphics, Inc.), (LOC:
Suntrust Bank, Nashville, 1,260,000
N.A.), 4.00%, 5/1/09
VMIG1/A-1+ Aaa/AAA 1,900 Missouri State HEFA,
5.00%, 6/1/15 1,900,000
VMIG1/A-1+ Aa1/AA+ 1,100 North Carolina Educational
Facilities, 3.95%, 12/1/17 1,100,000
MIG1/A-1+ NR/AA- 2,170 Putnam County, FL PCR,
(Seminole Electric),
4.05%, 3/15/14 2,170,000
VMIG1/A-1+ Aa1/AA+ 1,000 South Carolina EDA, (Baptist
Healthcare), 3.90%, 8/1/17 1,000,000
- --------------------------------------------------------------------------------
$ 38,765,000
- --------------------------------------------------------------------------------
Total Tax-Exempt Investments -- 100.3%
(identified cost $47,398,240) $ 47,398,240(1)
- --------------------------------------------------------------------------------
Other Assets, Less Liabilities -- (0.3)% $ (126,541)
- --------------------------------------------------------------------------------
Net Assets -- 100% $ 47,271,699
- --------------------------------------------------------------------------------
At December 31, 1998, the concentration of the Fund's investments in various
states, determined as a percentage of total investments, is as follows:
Florida 11.3%
Texas 10.6%
Others (less than 10% individually) 78.1%
(1) Cost for Federal income tax purposes is the same.
See notes to financial statements
4
<PAGE>
Eaton Vance Tax Free Reserves as of December 31, 1998
FINANCIAL STATEMENTS
Statement of Assets and Liabilities
As of December 31, 1998
Assets
- --------------------------------------------------------------------------------
Investments, at value (identified cost, 47,398,240) $ 47,398,240
Cash 1,123,161
Receivable for Fund shares sold 296,821
Interest receivable 204,592
- --------------------------------------------------------------------------------
Total assets $ 49,022,814
- --------------------------------------------------------------------------------
Liabilities
- --------------------------------------------------------------------------------
Payable for Fund shares redeemed $ 1,644,814
Dividends payable 84,041
Payable to affiliate for Trustees' fees 1,738
Other accrued expenses 20,522
- --------------------------------------------------------------------------------
Total liabilities $ 1,751,115
- --------------------------------------------------------------------------------
Net Assets for 47,289,386 shares of beneficial interest
outstanding $ 47,271,699
- --------------------------------------------------------------------------------
Sources of Net Assets
- --------------------------------------------------------------------------------
Paid-in capital $ 47,289,386
Accumulated net realized loss (computed on the basis of
identified cost) (17,687)
- --------------------------------------------------------------------------------
Total $ 47,271,699
- --------------------------------------------------------------------------------
Net Asset Value, Offering and
Redemption Price Per Share
- --------------------------------------------------------------------------------
($47,271,699 / 47,289,386 shares of
beneficial interest outstanding) $ 1.00
- --------------------------------------------------------------------------------
Statement of Operations
For the Year Ended
December 31, 1998
Investment Income
- --------------------------------------------------------------------------------
Interest $ 1,887,268
- --------------------------------------------------------------------------------
Total investment income $ 1,887,268
- --------------------------------------------------------------------------------
Expenses
- --------------------------------------------------------------------------------
Investment adviser fee $ 274,297
Trustees fees and expenses 5,230
Custodian fee 43,458
Legal and accounting services 35,251
Registration fees 15,649
Transfer and dividend disbursing agent fees 15,023
Interest 6,527
Printing and postage 5,168
Miscellaneous 14,086
- --------------------------------------------------------------------------------
Total expenses $ 414,689
- --------------------------------------------------------------------------------
Deduct --
Reduction of investment advisor fee $ 154,048
Reduction of custodian fee 42,896
- --------------------------------------------------------------------------------
Total expense reductions $ 196,944
- --------------------------------------------------------------------------------
Net expenses $ 217,745
- --------------------------------------------------------------------------------
Net investment income $ 1,669,523
- --------------------------------------------------------------------------------
Realized and Unrealized
Gain (Loss)
- --------------------------------------------------------------------------------
Net realized gain (loss) --
Investment transactions (identified cost basis) $ 321
- --------------------------------------------------------------------------------
Net realized gain $ 321
- --------------------------------------------------------------------------------
Net increase in net assets from operations $ 1,669,844
- --------------------------------------------------------------------------------
See notes to financial statements
5
<PAGE>
Eaton Vance Tax Free Reserves as of December 31, 1998
FINANCIAL STATEMENTS CONT'D
Statements of Changes in Net Assets
Increase (Decrease) Year Ended Year Ended
in Net Assets December 31, 1998 December 31, 1997
- --------------------------------------------------------------------------------
From operations--
Net investment income $ 1,669,523 $ 2,004,308
Net realized gain (loss) 321 (1,479)
- --------------------------------------------------------------------------------
Net increase in net assets
from operations $ 1,669,844 $ 2,002,829
- --------------------------------------------------------------------------------
Distributions to shareholders --
From net investment income $ (1,669,523) $ (2,004,308)
- --------------------------------------------------------------------------------
Total distributions to
shareholders $ (1,669,523) $ (2,004,308)
- --------------------------------------------------------------------------------
Transactions in shares of beneficial
interest at Net Asset Value of
$1.00 per share --
Proceeds from sale of shares $ 175,926,805 $ 181,218,594
Net asset value of shares
issued to shareholders in
payment of
distributions declared 825,544 1,177,904
Cost of shares redeemed (163,440,839) (171,789,887)
- --------------------------------------------------------------------------------
Net increase in net assets from
Fund share transactions $ 13,311,510 $ 10,606,611
- --------------------------------------------------------------------------------
Net increase in net assets $ 13,311,831 $ 10,605,132
- --------------------------------------------------------------------------------
Net Assets
- --------------------------------------------------------------------------------
At beginning of year $ 33,959,868 $ 23,354,736
- --------------------------------------------------------------------------------
At end of year $ 47,271,699 $ 33,959,868
- --------------------------------------------------------------------------------
See notes to financial statements
6
<PAGE>
Eaton Vance Tax Free Reserves as of December 31, 1998
FINANCIAL STATEMENTS CONT'D
Financial Highlights
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------------------------------------------------
1998 1997 1996 1995 1994
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value -- Beginning of year $ 1.0000 $ 1.0000 $ 1.0000 $ 1.0000 $ 1.0000
- --------------------------------------------------------------------------------------------------------------------------------
Income (loss) from operations
- --------------------------------------------------------------------------------------------------------------------------------
Net investment income $ 0.0305 $ 0.0312 $ 0.0303 $ 0.0347 $ 0.0235
- --------------------------------------------------------------------------------------------------------------------------------
Total income from operations $ 0.0305 $ 0.0312 $ 0.0303 $ 0.0347 $ 0.0235
- --------------------------------------------------------------------------------------------------------------------------------
Less distributions
- --------------------------------------------------------------------------------------------------------------------------------
From net investment income $(0.0305) $(0.0312) $(0.0303) $ (0.0347) $ (0.0235)
- --------------------------------------------------------------------------------------------------------------------------------
Total distributions $(0.0305) $(0.0312) $(0.0303) $ (0.0347) $ (0.0235)
- --------------------------------------------------------------------------------------------------------------------------------
Net asset value-- End of year $ 1.0000 $ 1.0000 $ 1.0000 $ 1.0000 $ 1.0000
- --------------------------------------------------------------------------------------------------------------------------------
Total Return (1) 3.09% 3.16% 3.08% 3.53% 2.36%
- --------------------------------------------------------------------------------------------------------------------------------
Ratios/Supplemental Data +
- --------------------------------------------------------------------------------------------------------------------------------
Net assets, end of year (000's omitted) $ 47,272 $ 33,960 $ 23,355 $ 23,912 $ 29,021
Ratios (As a percentage of average daily
net assets):
Expenses (2) 0.48% 0.52% 0.33% 0.34% 0.47%
Expenses after custodian fee reduction(2) 0.40% 0.46% 0.27% -- --
Interest expense 0.01% 0.01% 0.02% 0.05% 0.07%
Net investment income 3.04% 3.12% 3.04% 3.47% 2.27%
- --------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
+ The operating expenses of the Fund may reflect a reduction of the investment adviser fee, an allocation of expenses to the
Investment Adviser, or both. Had such actions not been taken, the ratios and net investment income per share would have been as
follows:
<S> <C> <C> <C> <C> <C>
Ratios (As a percentage of average
daily net assets):
Expenses (2) 0.76% 0.67% 0.69% 0.73% 0.87%
Expenses after custodian fee reduction (2) 0.68% 0.61% 0.63% -- --
Net investment income 2.76% 2.96% 2.66% 3.02% 1.88%
Net investment income per share $ 0.0277 $ 0.0296 $ 0.0266 $ 0.0303 $ 0.0189
- --------------------------------------------------------------------------------------------------------------------------------
Leverage Analysis
- --------------------------------------------------------------------------------------------------------------------------------
Amount of debt outstanding at end of year $ -- $ -- $ -- $1,266,000 $6,117,000
Average daily balance of debt outstanding
during year $109,382 $134,611 $116,757 $ 279,586 $ 440,145
Average weekly balance of shares outstanding
during year 54,796,165 64,279,572 61,730,866 51,107,215 40,463,382
Average amount of debt per share during year $ 0.002 $ 0.002 $ 0.002 $ 0.005 $ 0.011
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Total return is calculated assuming a purchase at the net asset value on
the first day and a sale at the net asset value on the last day of each
period reported. Dividends and distributions, if any, are assumed
reinvested at the net asset value on the reinvestment date. Total return is
not computed on an annualized basis.
(2) The expense ratios for the year ended December 31, 1996 and periods
thereafter have been adjusted to reflect a change in reporting
requirements. The new reporting guidelines require the Fund to increase its
expense ratio by the effect of any expense offset arrangements with its
service providers. The expense ratio for the prior period has not been
adjusted to reflect this change.
See notes to financial statements
7
<PAGE>
Eaton Vance Tax Free Reserves as of December 31, 1998
NOTES TO FINANCIAL STATEMENTS
1 Significant Accounting Policies
---------------------------------------------------------------------------
Eaton Vance Tax Free Reserves (the Fund) is a series of Eaton Vance Mutual
Funds Trust (the Trust). The Trust is an entity of the type 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 seeks to earn as high a rate of income exempt from regular federal
income tax while preserving capital and maintaining liquidity. 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 Valuations -- The Trustees have determined that the best
method currently available for valuing portfolio investments is amortized
cost. The Fund's use of the amortized cost method to value its portfolio
investments is subject to the Fund's compliance with certain conditions as
specified under Rule 2a-7 of the Investment Company Act of 1940.
B Interest Income -- Interest income consists of interest accrued, adjusted
for amortization of any discount or premium, accrued ratably to the date of
maturity or call when required for federal income tax purposes.
C Federal Taxes -- The Fund's policy is to comply with the provisions of
the Internal Revenue Code (the Code) applicable to regulated investment
companies and to distribute to shareholders each year all of its net
investment income, including any net realized gain on investments.
Accordingly, no provision for federal income or excise tax is necessary. At
December 31, 1998, the Fund, for federal income tax purposes, had a capital
loss carryover of $17,687, which will reduce the Fund's taxable income
arising from future net realized gain on investments, if any, to the extent
permitted by the Code, and thus will reduce the amount of the distributions
to shareholders which would otherwise be necessary to relieve the Fund of
any liability for federal income tax. Such capital loss carryover will
expire on December 31, 2002 ($16,208) and December 31, 2005 ($1,479).
Dividends paid by the Fund from net interest earned on tax-exempt municipal
bonds are not includable by shareholders as gross income for federal income
tax purposes because the Fund intends to meet certain requirements of the
Code applicable to regulated investment companies which will enable the
Fund to pay exempt-interest dividends. The portion of such interest, if
any, earned on private activity bonds issued after August 7, 1986, may be
considered a tax preference item for shareholders.
D Other -- Investment transactions are accounted for on a trade date basis.
E Expense Reduction -- Investors Bank and Trust Company (IBT) serves as
custodian of the Fund. Pursuant to the custodian agreement, IBT receives a
fee reduced by credits which are determined based on the average daily cash
balances the Fund maintains with IBT. All significant credit balances used
to reduce the Fund's custodian fee are reported as a reduction of expenses
in the Statement of Operations.
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 income and expense during the reporting period. Actual results
could differ from those estimates.
2 Distribution to Shareholders
---------------------------------------------------------------------------
The net investment income of the Fund is determined daily, and
substantially all of the net investment income so determined is declared as
a dividend to shareholders of record at the time of declaration. Such
dividends are paid monthly. Distributions are paid in the form of
additional shares of the Fund, or, at the election of the shareholder, in
cash.
3 Investment Adviser Fee and Other Transactions with Affiliates
---------------------------------------------------------------------------
The investment adviser fee is earned by Eaton Vance Management (EVM) as
compensation for management, investment advisory, and other services
rendered to the Fund and is computed at the monthly rate of 1/24 of 1%
(0.50% annually) of the Fund's average monthly net assets. To enhance the
net investment income of the Fund, EVM made a reduction of its fee in the
amount of $154,048 for the year ended December 31, 1998. Except as to
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 investment adviser fee. Certain of the officers and Trustees of the
Trust are officers and directors/trustees of the above organizations.
8
<PAGE>
Eaton Vance Tax Free Reserves as of December 31, 1998
NOTES TO FINANCIAL STATEMENTS CONT'D
4 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).
5 Line of Credit
---------------------------------------------------------------------------
The Fund participates with other portfolios and funds managed by EVM and
affiliates in a $130 million unsecured line of credit agreement with a
group of banks. Borrowings will be made by the Fund solely to facilitate
the handling of unusual and/or unanticipated short-term cash requirements.
Interest is charged to each participating portfolio or fund based on its
borrowings at an amount above the Eurodollar rate or Federal Funds rate. In
addition, a fee computed at an annual rate of 0.10% on the daily unused
portion of the line of credit is allocated among the participating
portfolios and funds at the end of each quarter. The average daily loan
balance for the year ended December 31, 1998 was $109,382, and the average
interest rate was 5.97%.
6 Purchases and Sales of Investments
---------------------------------------------------------------------------
The Fund invests primarily in state and municipal debt securities. The
ability of the issuers of the debt securities held by the Fund to meet
their obligations may be affected by economic developments in a specific
industry or municipality. Purchases and sales (including maturities) of
investments aggregated $152,879,263 and $139,242,308, respectively.
9
<PAGE>
Eaton Vance Tax Free Reserves as of December 31, 1998
REPORT OF INDEPENDENT ACCOUNTANTS
To the Trustees and Shareholders
of Eaton Vance Tax Free Reserves:
- --------------------------------------------------------------------------------
In our opinion, the accompanying statement of assets and liabilities and the
related statements of operations and of changes in net assets and financial
highlights present fairly, in all material respects, the financial position of
Eaton Vance Tax Free Reserves (the "Fund") at December 31, 1998, the results of
its operations for the year then ended, the changes in its net assets for each
of the two years in the period then ended and the financial highlights for each
of the five years in the period then ended, in conformity with generally
accepted accounting principles. These financial statements and financial
highlights (hereafter referred to as "financial statements") are the
responsibility of the Fund's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these financial statements in accordance with generally accepted
auditing standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of securities at December 31, 1998 by
correspondence with the custodian and brokers, provide a reasonable basis for
the opinion expressed above.
PricewaterhouseCoopers LLP
Boston, Massachusetts
February 5, 1999
10
<PAGE>
Eaton Vance Tax Free Reserves as of December 31, 1998
INVESTMENT MANAGEMENT
Eaton Vance Tax Free Reserves
Officers
James B. Hawkes
President and Trustee
William H. Ahern, Jr.
Vice President and
Portfolio Manager
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
11
<PAGE>
Investment Advisor
Eaton Vance Management
24 Federal Street
Boston, MA 02110
Principal Underwriter
Eaton Vance Distributors, Inc.
24 Federal Street
Boston, MA 02110
(617) 482-8260
Custodian
Investors Bank & Trust Company
200 Clarendon Street, 16th Floor
Boston, MA 02116
Transfer Agent
First Data Investor Services Group
Attention: Eaton Vance Funds
P.O. Box 5123
Westborough, MA 01581-5123
Independent Accountants
PricewaterhouseCoopers LLP
One Post Office Square
Boston, MA 02109
Eaton Vance Tax Free Reserves
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.
- --------------------------------------------------------------------------------
TRSRC-2/99
