EV Classic
National
Limited Maturity
Tax Free Fund
Semi-Annual Shareholder Report
September 30, 1995
Investment Adviser
of National
Limited Maturity Tax Free Portfolio
Boston Management and Research
24 Federal Street
Boston, MA 02110
Administrator of
EV Classic National
Limited Maturity Tax Free 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
24 Federal Street
Boston, MA 02110
Transfer Agent
The Shareholder Services Group, Inc.
BOS725
P.O. Box 1559
Boston, MA 02104
This report must be preceded or accompanied by a current prospectus which
contains more complete information on the Fund, including its distribution plan,
sales charges and expenses. Please read the prospectus carefully before you
invest or send money.
EV Classic National
Limited Maturity Tax Free Fund
24 Federal Street
Boston, MA 02110 C-LNASRC
<PAGE>
To Shareholders
EV Classic National Limited Maturity Tax Free Fund had a total return of 3.4%
for the six months ended September 30, 1995, the result of a rise in net asset
value per share to $9.66 on September 30, 1995 from $9.53 on March 31, 1995, and
the reinvestment of $0.19 per share in dividends. That return does not include
contingent deferred sales charges incurred by certain redeeming shareholders.
Based on the Fund's most recent dividend and a net asset value of $9.66, the
Fund had a distribution rate of 3.90% at September 30. To equal that in a
taxable investment, a couple paying the 36% federal tax rate would need a yield
of 6.09%.
A pattern of slow economic growth bodes well for all capital markets and
particularly fixed-income markets, including municipal bonds. Indeed, municipal
bonds performed well during the first nine months of 1995 by realizing strong
capital appreciation as a result of this favorable investment environment.
However, during this period, the tax-exempt market underperformed the taxable
market because of concern about the potential passage of major tax reform (e.g.,
flat tax, value added tax or consumption tax) legislation.
Were major tax reform to become law, municipal bonds would probably be
underperformers relative to taxable bonds because the current tax-advantaged
status of municipal bonds likely would be eliminated. However, for many reasons,
we at Eaton Vance believe there is little chance of major tax reform legislation
being enacted. For example, the inherent regressivity of the various flat tax
proposals will provoke much opposition, as will proposals to eliminate such tax
breaks as deductions for mortgage interest and state and local taxes. Also, such
proposals could seriously depress entire sectors of the U.S. economy.
Accordingly, we view this recent underperformance by municipal bonds (because
of fears of tax reform) as a potential buying opportunity. Municipal bonds
could represent an attractive asset class at these current relative trading
relationships, with the potential for future outperformance for those investors
willing to adopt a patient, long-term investment horizon. In addition, proposals
are now circulating in both Congress and the White House to reduce the nation's
budget deficit by severely cutting expenditures over the next decade. If
enacted, such a concept would drastically reduce the federal government's
borrowing needs and, as a result, would exert a meaningful downward influence on
interest rates across the entire yield curve. All fixed-income instruments,
including municipal bonds, would benefit.
We will continue to monitor changes in economic and political conditions and to
pursue the goal of your Fund: to provide you with a competitive distribution of
tax-free income from a portfolio of quality municipal bonds.
Sincerely,
/s/ Thomas J. Fetter
Thomas J. Fetter
President
November 20, 1995
+ A portion of the Portfolio's income could be subject to Federal alternative
minimum tax.
1
<PAGE>
Management Discussion
An interview with Raymond E. Hender, Vice President, and Portfolio Manager of
the National Limited Maturity Tax Free Portfolio.
Q. Ray, how would you describe the market climate in recent months?
R.H.: The economy has given a lot of mixed signals in recent months, and
that has added some uncertainty to the market. On one hand, the economy
continues to expand a bit. On the other hand, there is evidence that the
economy is reaching a mature phase. Consumers appear to have nearly
exhausted their borrowing power, and auto and home sales have flagged
somewhat. Importantly, inflation has remained in check, in the 2% range.
With inflation posing little threat, we feel interest rates should be
stable-to-modestly lower for the foreseeable future.
Q. What changes have you made to the Portfolio?
R.H.: The Portfolio's objective of seeking to maximize income while limiting
net asset volatility has remained unchanged. We did, however, slightly
alter the make-up of the Portfolio to take advantage of a changing
market.
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----------------------------
Raymond E. Hender
-----------------
From a credit standpoint, we've added to our holdings of non-rated bonds,
which should provide some new opportunities for the Portfolio. We've also
positioned the Portfolio's investments more evenly along the yield curve
to take advantage of a flatter curve. That's preferable to concentrating
on one area of the curve. In some cases, focusing on the short end alone
results in minimizing income, while focusing on the long end may provide
too much volatility. Given a flatter yield curve, we've been able to
spread our investment to offer a measure of protection against getting
caught at the wrong end.
With a more constructive outlook for the market, we were comfortable in
slightly increasing the Portfolio's exposure to interest rate changes.
Accordingly, we've sold bonds with the lowest book yield and lowest
durations and slightly increased the Portfolio's average duration.
Finally, from a quality standpoint, the Portfolio has maintained an
average rating of AA. While the rating mix within the Portfolio is
changing, our credit standards remain the same.
2
<PAGE>
Q. What is the advantage of investing in non-rated bonds?
R.H.: Non-rated bonds may provide some unusual opportunties for investors.
Eaton Vance has added to its analytical staff in recent months and has
thereby enhanced its research capabilities. We can now provide the
intensive research and constant monitoring that non-rated issues demand.
In addition to providing opportunities to enhance the Portfolio's yield,
investing in non-rated bonds represents a further diversification of the
Portfolio. For example, insured issues - which now represent 40% of the
market - are insured by only five major insurance companies. By including
bonds with so-called "stand-alone ratings" - those without third-party
ratings - we are diversifying away from these monoline insurers. I think
that's a positive development for the Portfolio.
Q. What changes have you made from a sector standpoint?
R.H.: As just mentioned, we've lightened up on the insured sector a bit.
We've also somewhat reduced the Portfolio's exposure to solid waste bonds
and electric utilities. Finally, we have become more selective with
respect to hospitals and the healthcare sector.
The solid waste sector tends to be very project-specific. Recent court
rulings have eliminated floor supports for some of these projects, so
there will be winners and losers in the resource recovery field. We're
focusing on projects we believe will benefit from these rulings. In the
electric utility sector, the onset of wholesale wheeling has reduced the
credit quality of some utilities, as large customers choose less costly
alternatives.
Q. Why have you been reducing your hospital exposure?
R.H.: The hospital sector has become more competitive with shifting
demographics and rising pressure to reduce health care costs. In a
tougher competitive environment, some hospitals will emerge with a larger
market share, while others will face a bleak future. We've tried to focus
on those hospitals and alternative health care facilities, such as
assisted living centers, that will be among the beneficiaries of the
newly competitive climate.
Q. What kind of hospitals are you looking at?
R.H.: We look for hospitals that have especially favorable demographics.
Others may have a unique market niche, such as rehabilitation or organ
transplants. Finally, we look for hospitals that have formed strategic
alliances with health maintenace organizations (HMOs). It's clear that
HMOs represent the wave of the future for health care. The hospitals that
have formed these alliances, or have merged with other institutions, have
managed to sharply reduce their cost structures. As a result, we believe
they can deliver health care more efficiently while eliminating waste.
3
<PAGE>
Q. Looking ahead, Ray, what is your outlook for the market?
R.H.: Because of investors' flat tax concerns - which are greatly
exaggerated in my view - the municipal market has lagged the Treasury
market in 1995. But 10-year municipal bonds still offer yields that are
nearly 83% of the 30-year muni yields, according to Bloomberg Financial,
representing value in the intermediate range. As we noted earlier, the
economy shows signs of maturing, usually a favorable time to consider
bonds. And, a flat yield curve typically signals value in the
intermediate range.
If the Federal Reserve chooses to lower interest rates, as has been
rumored for many months, the outlook for bonds could improve further.
Naturally, past trends don't always provide a clue to future performance.
But, in my view, fixed-income investors who want to limit their
volatility while enjoying a competitive level of tax-free income, should
consider the intermediate-term market.
- -------------------------------------------------------------------------------
The National Economy:
The nation's economy continues to grow at a moderate, albeit uneven pace, amid
signs that the expansion is reaching a mature phase. The manufacturing sector
paused at mid-year, with production slowing in the second quarter amid a jump in
inventories. The third quarter was more robust than expected, with GDP rising
4.2%. However, the consensus remains that the economy will continue to avoid
excesses and that inflation will remain under control. Recent reports have
suggested that retail sales and auto sales are lagging, while the leading
indicators have weakened somewhat as well. With the Fed having apparently
successfully engineered its soft landing, the market increasingly anticipates
lower interest rates in the future.
-------------------------------------------------
| Portfolio Overview |
| Based on market value as of |
| September 30, 1995 |
| [Map of |
| USA] Number of issues..............94 |
| Average quality..............AA- |
| Investment grade...........89.7% |
| Effective maturity.....5.55 yrs. |
| |
| Largest sectors: |
| General obligations...................20.5% |
| Education revenue.....................12.6 |
| Utility revenue........................8.8 |
| Industrial development revenue.........8.2 |
| Housing................................5.0 |
| |
-------------------------------------------------
4
<PAGE>
EV Classic National Limited Maturity Tax Free Fund
Financial Statements
Statement of Assets and Liabilities
- --------------------------------------------------------------------------------
September 30, 1995 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C> <C>
Assets:
Investment in National Limited Maturity Tax Free Portfolio, at value
(Note 1A)
(identified cost, $16,202,396) $16,173,471
Receivable for Fund shares sold 10,000
Receivable from the Administrator (Note 4) 32,652
Deferred organization expenses (Note 1D) 24,227
----------
Total assets $16,240,350
Liabilities:
Dividends payable $14,110
Payable to affiliates--
Trustees' fees 43
Custodian fee 84
Accrued expenses 10,727
----
Total liabilities 24,964
----------
Net Assets for 1,678,863 shares of beneficial interest outstanding $16,215,386
==========
Sources of Net Assets:
Paid-in capital $17,059,053
Accumulated net realized loss on investment and financial futures
transactions (computed on the basis of identified cost) (814,887)
Accumulated undistributed net investment income 145
Unrealized depreciation of investments from Portfolio (computed on the basis
of identified cost) (28,925)
----------
Total $16,215,386
==========
Net Asset Value, Offering Price and Redemption Price (Note 6) Per Share
($16,215,386 / 1,678,863 shares of beneficial interest outstanding) $ 9.66
==========
</TABLE>
See notes to financial statements
5
<PAGE>
Financial Statements (Continued)
Statement of Operations
- --------------------------------------------------------------------------------
Six Months Ended September 30, 1995 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C> <C>
Investment Income (Note 1B):
Interest income allocated from Portfolio $480,094
Expenses allocated from Portfolio (48,973)
-------
Net investment income from Portfolio $431,121
Expenses--
Compensation of Trustees not members of the
Administrator's organization $ 378
Custodian fees (Note 4) 1,506
Distribution fees (Note 5) 77,473
Transfer and dividend disbursing agent fees 5,773
Printing and postage 19,047
Legal and accounting services 9,770
Registration costs 5,611
Amortization of organization expenses (Note 1D) 626
Miscellaneous 2,856
-----
Total expenses $123,040
Deduct preliminary allocation of expenses to the Administrator
(Note 4) 32,652
-----
Net expenses 90,388
-------
Net investment income $340,733
-------
Realized and Unrealized Gain (Loss) on Investments:
Net realized gain (loss) from Portfolio--
Investment transactions (identified cost basis) $ 79,871
Financial futures contracts (86,237)
-----
Net realized loss $ (6,366)
Change in unrealized appreciation of investments 242,060
-------
Net realized and unrealized gain $235,694
-------
Net increase in net assets from operations $576,427
=======
</TABLE>
See notes to financial statements
6
<PAGE>
Statements of Changes in Net Assets
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months Ended
September 30, 1995 Year Ended
(Unaudited) March 31, 1995
------------------ --------------
<S> <C> <C>
Increase (Decrease) in Net Assets:
From operations--
Net investment income $ 340,733 $ 942,641
Net realized loss on investments (6,366) (796,469)
Change in unrealized appreciation of investments 242,060 617,396
----------------- ------------
Net increase in net assets from operations $ 576,427 $ 763,568
----------------- ------------
Distributions to shareholders (Note 2)--
From net investment income $ (340,692) $ (942,641)
In excess of net investment income -- (115,101)
----------------- ------------
Total distributions to shareholders $ (340,692) $ (1,057,742)
----------------- ------------
Transactions in shares of beneficial interest (Note 3)--
Proceeds from sales of shares $ 1,808,630 $ 17,501,074
Net asset value of shares issued to shareholders in payment
of distributions declared 220,225 703,136
Cost of shares redeemed (5,978,719) (24,026,115)
----------------- ------------
Decrease in net assets from Fund share transactions $(3,949,864) $ (5,821,905)
----------------- ------------
Net decrease in net assets $(3,714,129) $ (6,116,079)
Net Assets:
At beginning of period 19,929,515 26,045,594
----------------- ------------
At end of period (including undistributed net investment
income of $145 and $104, respectively) $16,215,386 $ 19,929,515
================= ============
</TABLE>
See notes to financial statements
7
<PAGE>
Financial Statements (Continued)
Financial Highlights
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months Ended Year Ended March 31,
September 30, 1995 --------------------------
(Unaudited) 1995 1994**
------------------ -------------- ---------
<S> <C> <C> <C>
Net asset value, beginning of period $ 9.530 $ 9.550 $10.000
----------------- ------------ -------
Income from operations:
Net investment income $ 0.189 $ 0.375 $ 0.104
Net realized and unrealized gain (loss) on investments 0.130 0.026+++ (0.421)
----------------- ------------ -------
Total income (loss) from operations $ 0.319 $ 0.401 $(0.317)
----------------- ------------ -------
Less distributions:
From net investment income $(0.189) $(0.375) $(0.104)
In excess of net investment income -- (0.046) (0.029)
----------------- ------------ -------
Total distributions $(0.189) $(0.421) $(0.133)
----------------- ------------ -------
Net asset value, end of period $ 9.660 $ 9.530 $ 9.550
================= ============ =======
Total return (1) 3.39% 4.35% (3.32)%
Ratios/Supplemental Data*:
Net assets, end of period (000 omitted) $16,215 $19,930 $26,046
Ratio of net expenses to average daily net assets (2) 1.63%+ 1.57% 1.53%+
Ratio of net investment income to average daily net
assets 3.96%+ 4.01% 3.10%+
</TABLE>
*For the period from the start of business, December 8, 1993, to March 31, 1994,
for the year ended March 31, 1995, and for the six months ended September 30,
1995, the operating expenses of the Fund reflect a preliminary allocation of
expenses to the Administrator. Had such actions not been taken, net investment
income per share and the ratios would have been as follows:
Net investment income per share $ 0.171 $ 0.353 $ 0.093
==== ==== ======
Ratios (As a percentage of average daily
net assets):
Expenses (2) 2.01%+ 1.81% 1.87%+
Net investment income 3.58%+ 3.77% 2.76%+
** For the period from the start of business, December 8, 1993, to March 31,
1994.
+ Computed on an annualized basis.
+++ The per share amount is not in accord with the net realized and
unrealized gain (loss) for the period because of timing of sales of Fund
shares and the amount of per share realized and unrealized gains and
losses at such time.
(1) Total investment 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 to be reinvested at the net asset value on the payable date.
Computed on a nonannualized basis.
(2) Includes the Fund's share of National Limited Maturity Tax Free
Portfolio's allocated expenses.
See notes to financial statements
8
<PAGE>
Notes to Financial Statements
(Unaudited)
- --------------------------------------------------------------------------------
(1) Significant Accounting Policies
EV Classic National Limited Maturity Tax Free Fund (the Fund) is a diversified
series of Eaton Vance Investment 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 invests all of its investable assets in interests
in the National Limited Maturity Tax Free 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 (10.5% at September 30, 1995). 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--Valuations of securities by the Portfolio is discussed
in Note 1 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 taxable and tax-exempt income,
including any net realized gain on investments. Accordingly, no provision for
federal income or excise tax is necessary. At March 31, 1995, the Fund, for
federal income tax purposes, had a capital loss carryover of $283,163 which will
reduce the Fund's taxable income arising from future net realized gain on
investments, if any, to the extent permitted by the Internal Revenue Code, and
thus will reduce the amount of distributions to shareholders which will
otherwise be necessary to relieve the Fund of any liability for federal income
taxes. Such capital loss carryover will expire on March 31, 2002 ($1,059) and
March 31, 2003 ($282,104). Dividends paid by the Fund from net interest on
tax-exempt municipal bonds allocated from the Portfolio are not includable by
shareholders as gross income for federal income tax purposes because the Fund
and Portfolio intend to meet certain requirements of the Internal Revenue 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 to shareholders.
D. Deferred Organization Expenses--Costs incurred by the Fund in connection with
its organization, including registration costs, are being amortized on the
straight-line basis over five years.
E. Other--Investment transactions are accounted for on a trade date basis.
F. Interim Financial Information--The interim financial statements relating to
September 30, 1995 and for the six month period then ended have not been audited
by independent certified public accountants, but in the opinion of the Fund's
management, reflect all adjustments, consisting only of normal recurring
adjustments, necessary for the fair presentation of the financial statements.
- --------------------------------------------------------------------------------
(2) Distributions to Shareholders
The net income of the Fund is determined daily and substantially all of the net
income so determined is declared as a dividend to shareholders of record at the
time of declaration. Distributions are paid monthly. Distributions of allocated
realized capital gains, if any, are made at least annually. Shareholders may
reinvest capital gain distributions in additional shares of the Fund at the net
asset value as of the ex-dividend date. Distributions are paid in the form of
additional shares or, at the election of the shareholder, in cash. The Fund
distinguishes between distributions on a tax basis and a financial reporting
basis. Generally accepted accounting principles require that only distributions
in excess of tax basis earnings and profits be reported in the financial
statements as a return of capital. Differences in the recognition or
classification of income between the financial statements and tax earnings and
profits which result in over-distributions for financial statement purposes only
are classified as distributions in excess of net investment income or
accumulated net realized gains. Permanent differences between book and tax
accounting relating to distributions are reclassified to paid-in capital. The
tax treatment of distributions for the calendar year will be reported to
shareholders prior to February 1, 1996 and will be based on tax accounting
methods which may differ from amounts determined for financial statement
purposes.
9
<PAGE>
Notes to Financial Statements (Continued)
- --------------------------------------------------------------------------------
(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:
Six Months Ended
September 30, 1995 Year Ended
(unaudited) March 31, 1995
------------------ --------------
Sales 188,380 1,838,806
Issued to shareholders electing to
receive payments of distributions
in Fund shares 22,955 74,432
Redemptions (624,028) (2,549,447)
-------- ----------
Net decrease (412,693) (636,209)
======== ==========
- --------------------------------------------------------------------------------
(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, to render investment advisory services. See
Note 2 of the Portfolio's Notes to Financial Statements which are included
elsewhere in this report. To enhance the net income of the Fund, $32,652 of
expenses related to the operation of the Fund were allocated, on a preliminary
basis, to EVM.
Except as to Trustees of the Fund and the Portfolio who are not members of EVM's
or BMR's organization, officers and Trustees receive remuneration for their
services to the Fund out of such investment adviser fee. Investors Bank & Trust
Company (IBT), an affiliate of EVM, serves as custodian of the Fund and the
Portfolio. Pursuant to the respective custodian agreements, IBT receives a fee
reduced by credits which are determined based on the average cash balances the
Fund or the Portfolio maintains with IBT. Certain of the officers and Trustees
of the Fund and Portfolio are officers and directors/trustees of the above
organizations (Note 5).
- --------------------------------------------------------------------------------
(5) Distribution Plan
The Fund has adopted a distribution plan (the "Plan") pursuant to Rule 12b-1
under the Investment Company Act of 1940. The Plan requires the Fund to pay the
Principal Underwriter, Eaton Vance Distributors, Inc. (EVD), amounts equal to
1/365 of 0.75% of the Fund's 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 (i) 6.25% of
the aggregate amount received by the Fund for shares sold plus, (ii)
distribution fees calculated by applying the rate of 1% over the prevailing
prime rate to the outstanding balance of Uncovered Distribution Charges of EVD
reduced by amounts theretofore paid to EVD. 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. The Fund paid or accrued $64,561 to
or payable to EVD for the six months ended September 30, 1995, representing
0.75% (annualized) of average daily net assets. At September 30, 1995, the
amount of Uncovered Distribution Charges of EVD calculated under the Plan was
approximately $3,084,000.
In addition, the Plan permits the Fund to make monthly payments of service fees
to the Principal Underwriter in amounts not expected to exceed 0.25% of the
Fund's average daily net assets for any fiscal year. The Trustees have initially
implemented the Plan by authorizing the Fund to make monthly service fee
payments to the Principal Underwriter in amounts not expected to exceed 0.15% of
the Fund's average daily net assets for any fiscal year. The Fund paid or
accrued service fees to or payable to EVD for the six months ended September 30,
1995, in the amount of $12,912. EVD makes monthly service fee payments to
Authorized Firms in amounts anticipated to be equivalent to 0.15%, annualized,
of the assets maintained in the Fund by their customers. On sales of shares made
on January 30, 1995 and thereafter, EVD currently expects to pay to an
Authorized Firm a service fee at the time of sale equal to 0.15% of the purchase
price of the shares sold by such Firm and monthly payments of service fees in
amounts not expected to exceed 0.15% per annum of the Funds' average daily net
assets based on the value of Fund shares sold by such Firm and remaining
outstanding for at least one year. During the first year after a purchase of
Fund shares, EVD will retain the service fee as reimbursement for the service
10
<PAGE>
fee payment made to the Authorized Firm at the time of sale. Service fee
payments are made for personal services and/or maintenance of shareholder
accounts. Service fees paid to EVD and Authorized Firms are separate and
distinct from the sales commissions and distribution fees payable by a 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 the Fund and Portfolio are officers or
directors of EVD.
- --------------------------------------------------------------------------------
(6) Contingent Deferred Sales Charges
For shares purchased on or after January 30, 1995, a contingent deferred sales
charge (CDSC) of 1% is imposed on any redemption of Fund shares made within one
year of purchase. Generally, the CDSC is based upon the lower of the net asset
value at date of redemption or date of purchase. No charge is levied on shares
acquired by reinvestment of dividends or capital gains distributions. No CDSC is
levied on shares which have been sold to EVD or its affiliates or to their
respective employees or clients. CDSC charges are paid to EVD to reduce the
amount of Uncovered Distribution Charges calculated under the Funds Distribution
Plan. CDSC received when no Uncovered Distribution Charges exist will be
credited to the Fund. For the six months ended September 30, 1995, EVD received
aproximately $6,300 of CDSC paid by shareholders.
- --------------------------------------------------------------------------------
(7) Investment Transactions
Increases and decreases in the Fund's investment in the Portfolio for the six
months ended September 30, 1995, aggregated $1,990,701 and $6,409,383,
respectively.
11
<PAGE>
<TABLE>
<CAPTION>
National Limited Maturity Tax Free Portfolio
Portfolio of Investments
September 30, 1995
(Unaudited)
- ----------------------------------------------------------------------------------------------------------------
Tax-Exempt Investments--100%
- ----------------------------------------------------------------------------------------------------------------
Ratings (unaudited)
- -------------------
Principal
Standard Amount
Moody's & Poor's (000 omitted) Security Value
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Education Revenue--12.6%
Aa NR $1,500 Arizona Educational Loan Marketing Corporation,
(AMT), 6.00%, 9/1/01 $ 1,570,365
A NR 1,000 Arizona Student Loan Acquisition Authority, (AMT),
7.625%, 5/1/10 1,094,240
Baa NR 500 Louisiana Public Facilities Authority, Louisiana
Association of Independent Colleges & Universities,
6.20%, 12/1/99 508,535
A NR 1,970 Louisiana Public Facilities Authority Student Loan
Revenue Bonds, (AMT), 7.00%, 9/1/06 2,070,982
A A- 1,275 Massachusetts Industrial Financing Agency, Clark
University, 6.80%, 7/1/06 1,397,324
A1 A+ 1,730 Massachusetts Health and Educational Facilities
Authority, Tufts University Issue, 7.40%, 8/1/18 1,864,715
Aa AA 1,615 Metropolitan Government Nashville & Davidson
Counties, Tennessee, Health & Education Facilities,
(Vanderbilt Univ.), 7.625%, 5/1/08 1,754,003
Aaa NR 1,000 The New England Education Loan Marketing Corporation,
5.80%, 3/1/02 1,045,020
Baa1 BBB+ 250 New York Dormitory Authority, State University
Education Facilities, 7.00%, 5/15/02 269,645
A1 A+ 1,000 State of New York Dormitory Authority, University of
Rochester, 6.50%, 7/1/09 1,037,690
A1 AA 1,000 Texas A & M University Revenue Bonds, 7.00%, 5/15/09 1,085,070
A NR 1,610 The State of Texas, Texas College Student Loan Senior
Lien, 7.45%, 10/1/06 1,739,331
Aa1 AA 2,000 University of Texas Financing System, 7.00%, 8/15/07 2,228,740
NR AA 1,500 Wyoming Student Loan Corporation, 6.25%, 12/1/99 1,556,385
-----------
$ 19,222,045
-----------
Escrowed--3.7%
Aaa AAA $1,720 Corpus Christi TX, (FGIC), Prerefunded to 3/1/02,
6.70%, 3/1/08 $ 1,908,340
Aaa A+ 2,000 The Commonwealth of Massachusetts, Prerefunded to
8/1/01, 6.75%, 8/1/06 2,248,060
Aaa AAA 1,350 Schuykill County, Pennsylvania, Redevelopment
Authority, (AMBAC), Prerefunded to 6/1/01,
6.75%, 6/1/02 1,491,926
-----------
$ 5,648,326
-----------
General Obligations--20.5%
Aa AA $2,150 Arlington, Texas, Permanent Improvement,
6.00%, 8/15/01 $ 2,325,956
Aaa AAA 1,500 Austin Independent School District of Travis County,
Texas, 5.20%, 8/1/01 1,556,280
12
<PAGE>
- ----------------------------------------------------------------------------------------------------------------
Tax-Exempt Investments (Continued)
- ----------------------------------------------------------------------------------------------------------------
Ratings (unaudited)
- -------------------
Principal
Standard Amount
Moody's & Poor's (000 omitted) Security Value
- ----------------------------------------------------------------------------------------------------------------
General Obligations--(Continued)
Aaa AA+ 1,500 Baltimore County, Maryland, 6.00%, 7/1/05 1,624,275
NR NR 1,000 Cleveland, Ohio, City School District, 6.50%, 6/15/97 1,005,120
Aaa AAA 1,000 Dallas County, Texas, Unlimited Tax (Road
Improvement), 6.50%, 8/15/08 1,072,200
Aa1 AAA 2,000 City of Dallas, Texas (Dallas, Denton and Collin
Counties), 5.90%, 2/15/01 2,133,960
Ba1 BBB 5,000 City of Detroit, Michigan, 6.50%, 4/1/02 5,206,200
Ba1 BBB 460 City of Detroit, Michigan, 6.75%, 4/1/03 485,387
Aaa AA+ 1,000 State of Georgia, 6.00%, 3/1/04 1,092,290
Aa AA 2,225 Harris County, Texas, 0.00%, 10/1/08 1,095,501
A1 AA- 3,500 State of Rhode Island and Providence Plantations,
6.00%, 5/15/01 3,746,925
Aa AA 1,200 Texas Public Finance Authority, 5.375%, 10/1/00 1,251,372
Aa AA 3,000 State of Texas, Veterans Program, (AMT), 7.625%,
12/1/13 3,311,160
Aa AA 1,000 City of Tulsa, Oklahoma, 6.20%, 6/1/03 1,077,610
NR NR 3,950 Youngstown, Ohio County School District, 6.40%,
7/1/00 4,082,878
-----------
$ 31,067,114
-----------
Health Care--2.3%
Baa BBB $1,500 Colorado Health Facilities Authority, (Rocky Mountain
Adventist Project), 6.00%, 2/1/98 $ 1,516,665
NR NR 475 Vermont Industrial Development Authority, (Wake
Robins Corp Project), 8.00%, 4/1/99 485,417
NR NR 1,550 St. Tammany Public Trust Finance Authority,
Louisiana, (Christwood Project), 8.75%, 11/15/05 1,534,438
-----------
$ 3,536,520
-----------
Hospitals--3.1%
A1 AA- $1,500 Anchorage, Alaska, Hospital Revenue Bonds, (Sisters
of Providence Project), 6.75%, 10/1/00 $ 1,620,870
A1 AA- 1,400 California Health Facilities Financing Authority,
(Sisters of Providence), 7.50%, 10/1/10 1,547,938
NR BBB+ 575 County of Lucas, Ohio, Hospital Facilities (Flower
Hospital) 5.70%, 12/1/00 575,966
NR BBB+ 425 County of Lucas, Ohio, Hospital Facilities (Flower
Hospital) 5.80%, 12/1/01 427,801
Baa1 BBB 500 Massachusetts Health and Educational Facilities
Authority, (Sisters of Providence Health System),
6.00%, 11/15/00 519,315
-----------
$ 4,691,890
13
<PAGE>
- ----------------------------------------------------------------------------------------------------------------
Tax-Exempt Investments (Continued)
- ----------------------------------------------------------------------------------------------------------------
Ratings (unaudited)
- -------------------
Principal
Standard Amount
Moody's & Poor's (000 omitted) Security Value
- ----------------------------------------------------------------------------------------------------------------
Housing--5.0%
Aa AA+ $3,390 Minnesota Housing Finance Agency, (Single Family
Mortgage Bonds), (FHA), 7.55%, 7/1/04 $ 3,599,943
NR A+ 1,000 New Jersey Housing and Mortgage Finance Agency,
6.40%, 11/1/02 1,057,500
Aa AA 2,895 Wyoming Community Development Agency, (Single Family
Mortgage Bonds), (FHA/VA Mortgages), (AMT), 7.20%,
6/1/10 3,066,645
-----------
$ 7,724,088
-----------
Industrial Development Revenue--8.2%
Baa1 NR $ 400 Jackson, Alabama, Industrial Development Board, Solid
Waste Disposal (Boise Cascade), 7.875%, 8/1/00 $ 414,468
NR NR 5,325 Jackson, Tennessee, Industrial Development Board,
Solid Waste Disposal (Owens-Corning Fiberglass),
(AMT), 6.25%, 3/31/04 5,384,267
Baa2 BBB 2,000 Memphis-Shelby County, Tennessee, Airport, (Federal
Express), 6.75%, 9/1/12 2,089,580
NR A- 1,115 Ohio Economic Development Commission, (Ohio
Enterprise Board), (AMT), 5.60%, 6/1/02 1,121,668
NR A+ 300 Ohio Industrial Development Revenue Bonds, (Specko
Corporation) (AMT), 6.25%, 6/1/00 306,270
B1 BB+ 2,075 Polk County Florida, Industrial Development
Authority, (IMC Fertilizer), (AMT), 7.525%, 1/1/15 2,168,002
A1 A- 1,000 Richland County, South Carolina, Pollution Control
Revenue (Union Camp Corporation Project), 5.875%,
11/1/02 1,059,490
-----------
$ 12,543,745
-----------
Insured Transportation--1.8%
Aaa AAA $1,100 Metropolitan Washington D.C. Airport Authority,
(MBIA), 7.60%, 10/1/14 $ 1,211,342
Aaa AAA 1,500 Port of Houston Authority of Harris County, Texas,
(MBIA) 5.75%, 5/1/02 1,545,690
-----------
$ 2,757,032
-----------
Insured Education--3.5%
Aaa AAA $1,000 Alabama A&M University, (MBIA), 6.00%, 7/1/05 $ 1,076,700
Aaa AAA 2,150 Illinois State University Auxiliary Facilities
System, (MBIA), 6.20%, 4/1/01 2,314,174
Aaa AAA 1,840 Pennsylvania State Higher Education Assistance
Agency, (FGIC), 6.80%, 12/1/00 1,974,099
-----------
$ 5,364,973
-----------
Insured General Obligations--4.4%
Aaa AAA $1,280 Corpus Christi, Texas, (FGIC), 6.70%, 3/1/08 $ 1,389,952
14
<PAGE>
- ----------------------------------------------------------------------------------------------------------------
Tax-Exempt Investments (Continued)
- ----------------------------------------------------------------------------------------------------------------
Ratings (unaudited)
- -------------------
Principal
Standard Amount
Moody's & Poor's (000 omitted) Security Value
- ----------------------------------------------------------------------------------------------------------------
Insured General Obligations--(Continued)
Aaa AAA 1,000 District of Columbia, (MBIA), 6.00%, 6/1/01 1,058,770
Aaa AAA 1,500 Grand Ledge, Michigan, Public School District,
(MBIA), 7.875%, 5/1/11 1,773,315
Aaa AAA 3,760 Maricopa County, Arizona, School District #28,
(FGIC), 0.00%, 7/1/03 2,553,717
-----------
$ 6,775,754
-----------
Insured Hospitals--3.9%
Aaa AAA $3,430 Connecticut Development Authority, (Hartford Hospital
Real Estate Corporation Project), (MBIA), (AMT),
6.875%, 10/1/06 $ 3,709,065
Aaa AAA 1,000 Kentucky Development Finance Authority, (St. Luke's
Hospital) (MBIA), 7.30%, 10/1/03 1,104,070
Aaa AAA 1,000 Massachusetts Health & Education Facilities
Authority, (Metro West Health Inc.), (AMBAC),
5.70%, 11/15/01 1,059,620
-----------
$ 5,872,755
-----------
Insured Housing--1.8%
Aaa AAA $1,610 Iowa Finance Authority, Single Family Mortgage,
(AMBAC), 5.55%, 7/1/00 $ 1,631,236
Aaa AAA 1,460 Massachusetts State Housing Finance Authority,
(AMBAC), (AMT), 6.00%, 1/1/04 1,038,040
-----------
$ 2,669,276
-----------
Insured Industrial Development Revenue--1.8%
Aaa AAA $1,500 Alabama Water Pollution Control Authority, Revolving
Fund (AMBAC), 6.50%, 8/15/04 $ 1,576,965
Aaa AAA 1,000 Illinois Development Finance Authority, Pollution
Control Revenue, (Commonwealth Edison), (MBIA),
7.25%, 6/1/11 1,091,560
-----------
$ 2,668,525
-----------
Insured Lease Revenue/Certificates of
Participation--2.2%
Aaa AAA $1,750 Anchorage, Alaska, Certificates of Participation,
(BIGI), 7.55%, 2/15/98 $ 1,806,718
Aaa AAA 1,500 Texas State Public Finance Authority, (AMBAC), 5.60%,
2/1/00 1,571,280
-----------
$ 3,377,998
-----------
Insured Utilities--2.2%
Aaa AAA $1,000 Intermountain Power Agency, Utah, (FGIC), 7.00%,
7/1/15 $ 1,051,030
Aaa AAA 2,150 Washington Public Power Supply System, Nuclear
Project No. 3, (FGIC), 7.00%, 7/1/05 2,335,954
-----------
$ 3,386,984
-----------
15
<PAGE>
Portfolio of Investments (Continued)
- ----------------------------------------------------------------------------------------------------------------
Tax-Exempt Investments (Continued)
- ----------------------------------------------------------------------------------------------------------------
Ratings (unaudited)
- -------------------
Principal
Standard Amount
Moody's & Poor's (000 omitted) Security Value
- ----------------------------------------------------------------------------------------------------------------
Insured Special Tax--1.4%
Aaa AAA $1,000 Arizona State Transportation Board, (Maricopa County
Area Regional Road Fund), (MBIA), 7.00%, 7/1/00 $ 1,103,140
Aaa AAA 1,000 Harris County Municipal Utility District No. 238,
(MBIA), 6.00%, 9/1/09 1,016,310
-----------
$ 2,119,450
-----------
Insured Water & Sewer--1.5%
Aaa AAA $1,000 Boston Water and Sewer Commission, (FSA), 5.50%,
11/1/01 $ 1,049,890
Aaa AAA 1,170 City of Vallejo, California, (Water Improvement
Project), (FGIC), 6.00%, 11/1/00 1,254,813
-----------
$ 2,304,703
-----------
Lease Revenue/Certificate of Participation--0.9%
NR NR $1,405 Los Angeles, California, Regional Airports
Improvement Corporation, (Trans World Airlines
Inc.), 6.125%, 5/15/00 $ 1,395,868
-----------
Miscellaneous--2.0%
A A+ $1,000 Metropolitan Pier and Exposition Authority of
Illinois, McCormick Place Expansion Project, 5.75%,
6/15/02 $ 1,059,650
A A+ 500 Metropolitan Pier and Exposition Authority of
Illinois, McCormick Place Expansion Project, 5.90%,
6/15/03 535,005
Aa AA 1,400 Virginia State Public School Authority, 6.00%, 8/1/01 1,510,908
-----------
$ 3,105,563
-----------
Solid Waste--3.7%
NR A+ $1,500 Fairfax County Economic Development Authority, (Ogden
Martin Systems of Fairfax, Inc. Project), (AMT),
7.75%, 2/1/11 $ 1,643,985
NR BBB- 2,120 New Jersey Economic Development Authority Heating &
Cooling, (Trigen-Trenton Project), (AMT), 6.10%,
12/1/04 2,127,441
NR NR 1,800 Pennsylvania Economic Development Authority, Resource
Recovery, (Northampton), 6.75%, 1/1/07 1,809,594
-----------
$ 5,581,020
-----------
Transportation--4.0%
Baa BB $2,000 Denver, Colorado City & County Airport, (AMT), 7.00%,
11/15/09 $ 2,118,740
Aa AA- 3,700 Los Angeles, California, Department of Airports,
7.40%, 5/1/10 3,922,000
-----------
$ 6,040,740
-----------
Utility Revenue--8.8%
Aa AA $1,545 Conservation and Renewable Energy System, Washington
Conservation Project, 5.55%, 10/1/02 $ 1,609,396
16
<PAGE>
- ----------------------------------------------------------------------------------------------------------------
Tax-Exempt Investments (Continued)
- ----------------------------------------------------------------------------------------------------------------
Ratings (unaudited)
- -------------------
Principal
Standard Amount
Moody's & Poor's (000 omitted) Security Value
- ----------------------------------------------------------------------------------------------------------------
Utility Revenue--(Continued)
Aa3 AA- 1,000 Chicago, Illinois, Gas Supply Revenue Bonds, (The
Peoples Gas Light and Coke Company Project), 7.50%,
3/1/15 1,106,290
Aa AA 1,000 Intermountain Power Agency, Power Supply Revenue
Bonds, 7.20%, 7/1/11 1,088,950
Aa1 AA 1,000 Jacksonville Electric Authority, St. John's River
Power System, 6.75%, 10/1/05 1,111,600
Aa2 AA 2,500 Jefferson County, Kentucky, Louisville Gas and
Electric Company Project, 7.75%, 2/1/19 2,711,875
Aa3 AA- 1,000 Joliet Illinois, Gas Supply Revenue, Peoples Gas
Light & Coke, 8.00%, 6/1/99 1,106,100
Aa A+ 1,000 Platte River Power Authority (Colorado), 6.50%,
6/1/01 1,052,420
Aa AA- 1,000 Southern California Public Power Authority, 5.50%,
7/1/12 955,660
Aa AA 1,000 Washington Public Power Supply System, Nuclear
Project No. 3, 7.375%, 7/1/04 1,109,940
Aa AA 1,500 Washington Public Power Supply System, Nuclear
Project No. 1, 7.50%, 7/1/15 1,621,860
-----------
$ 13,474,091
-----------
Water & Sewer Revenue--0.7%
Aa AA+ $1,000 Harris County, Texas, Flood Control District, 7.125%,
10/1/00 $ 1,122,347
-----------
Total Investments (identified cost, $148,688,833) $152,450,807
===========
</TABLE>
The Portfolio invests primarily in debt securities issued by municipalities. The
ability of the issuers of the debt securities to meet their obligations may be
affected by economic developments in a specific industry or municipality. In
order to reduce the risk associated with such economic developments, at
September 30, 1995, 24.5% of the securities in the portfolio of investments are
backed by bond insurance of various financial institutions and financial
guaranty assurance agencies. The aggregate percentage by financial institution
range from 0.7% to 11.3% of total investments.
At September 30, 1995, the concentration of the Portfolio's investments in the
various states, determined as a percentage of total investments, is as follows:
Texas 17%
Others, representing less than 7% individually 83%
See notes to financial statements
17
<PAGE>
<TABLE>
<CAPTION>
Financial Statements
Statement of Assets and Liabilities
- ---------------------------------------------------------------------------------------
September 30, 1995 (Unaudited)
- ---------------------------------------------------------------------------------------
<S> <C> <C>
Assets:
Investments, at value (Note 1A)
(identified cost, $148,688,833) $152,450,807
Cash 743,925
Receivable for investments sold 382,076
Interest receivable 2,762,222
Deferred organization expenses (Note 1D) 6,391
-----------
Total assets $156,345,421
Liabilities:
Payable for investments purchased $2,524,835
Payable to affiliates--
Trustees' fees 2,590
Custodian fee 1,353
Accrued expenses 3,599
-------
Total liabilities 2,532,377
-----------
Net Assets applicable to investors' interest in Portfolio $153,813,044
===========
Sources of Net Assets:
Net proceeds from capital contributions and withdrawals $150,051,070
Unrealized appreciation of investments (computed on the
basis of identified cost) 3,761,974
-----------
Total $153,813,044
===========
</TABLE>
See notes to financial statements
18
<PAGE>
<TABLE>
<CAPTION>
Statement of Operations
- ---------------------------------------------------------------------------------------
Six Months Ended September 30, 1995 (unaudited)
- ---------------------------------------------------------------------------------------
<S> <C> <C>
Investment Income:
Interest income $4,481,895
Expenses--
Investment adviser fee (Note 2) $ 375,074
Compensation of Trustees not members of the Investment
Adviser's
organization 6,248
Custodian fees (Note 2) 37,833
Legal and accounting services 23,028
Amortization of organization expenses (Note 1D) 1,237
Miscellaneous 23,351
Total expenses $ 466,771
Deduct reduction of custodian fee (Note 2) 9,482
-------
Net expenses 457,289
---------
Net investment income $4,024,606
---------
Realized and Unrealized Gain (Loss):
Net realized gain (loss)--
Investment transactions (identified cost basis) $ 751,633
Financial futures contracts (815,015)
-------
Net realized loss $ (63,382)
Change in unrealized appreciation of--
Investments $2,147,434
Financial futures contracts 144,506
-------
Net change in unrealized appreciation 2,291,940
---------
Net realized and unrealized gain $2,228,558
---------
Net increase in net assets from operations $6,253,164
=========
</TABLE>
See notes to financial statements
19
<PAGE>
<TABLE>
<CAPTION>
Financial Statements (Continued)
- ------------------------------------------------------------------------------------------------
Statements of Changes in Net Assets
- ------------------------------------------------------------------------------------------------
Six Months Ended
September 30, 1995 Year Ended
(unaudited) March 31, 1995
----------------- --------------
<S> <C> <C>
Increase (Decrease) in Net Assets:
From operations--
Net investment income $ 4,024,606 $ 8,797,304
Net realized loss on investments (63,382) (4,509,177)
Change in unrealized appreciation of investments 2,291,940 4,668,165
----------------- --------------
Net increase in net assets from operations $ 6,253,164 $ 8,956,292
----------------- --------------
Capital transactions--
Contributions $ 8,039,635 $ 53,163,573
Withdrawals (30,100,559) (70,340,668)
----------------- --------------
Decrease in net assets resulting from capital
transactions $(22,060,924) $(17,177,095)
----------------- --------------
Total decrease in net assets $(15,807,760) $ (8,220,803)
Net Assets:
At beginning of period 169,620,804 177,841,607
----------------- --------------
At end of period $153,813,044 $169,620,804
================= ==============
</TABLE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------
Supplementary Data
- ------------------------------------------------------------------------------------------------
Six Months Ended Year Ended March 31,
September 30, --------------------
1995** 1995 1994*
---------------- ------ -------
<S> <C> <C> <C>
Ratios (As a percentage of average daily net
assets):
Expenses 0.58%+ 0.53% 0.52%+
Net investment income 4.99%+ 5.02% 4.74%+
Portfolio Turnover 26% 56% 21%
Net Assets, end of period (000 omitted) $153,813 $169,621 $177,842
+Annualized.
*For the period from the start of business, May 3, 1993, to March 31,
1994.
**Unaudited.
</TABLE>
See notes to financial statements
20
<PAGE>
Notes to Financial Statements
(Unaudited)
- --------------------------------------------------------------------------------
(1) Significant Accounting Policies
National Limited Maturity Tax Free Portfolio (the Portfolio) is registered under
the Investment Company Act of 1940 as a diversified open-end management
investment company which was organized as a trust under the laws of the State of
New York on May 1, 1992. The Declaration of Trust permits the Trustees to issue
interests in the Portfolio. The following is a summary of significant accounting
policies of the Portfolio. The policies are in conformity with generally
accepted accounting principles.
A. Investment Valuation--Municipal bonds are normally valued on the basis of
valuations furnished by a pricing service. Taxable obligations, if any, for
which price quotations are readily available are normally valued at the mean
between the latest bid and asked prices. Futures contracts listed on commodity
exchanges are valued at closing settlement prices. Short-term obligations,
maturing in sixty days or less, are valued at amortized cost, which approximates
value. 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--Interest income is determined on the basis of interest accrued,
adjusted for amortization of premium or discount when required for federal
income tax purposes.
C. Income Taxes--The Portfolio is treated as a partnership for federal tax
purposes. No provision is made by the Portfolio for federal or state taxes on
any taxable income of the Portfolio because each investor in the Portfolio is
ultimately responsible for the payment of any taxes. Since some of the
Portfolio's investors are regulated investment companies that invest all or
substantially all of their assets in the Portfolio, the Portfolio normally must
satisfy the applicable source of income and diversification requirements (under
the 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 taxable (if any) and tax-exempt
investment income, net realized capital gains, and any other items of income,
gain, loss, deduction or credit. Interest income received by the Portfolio on
investments in municipal bonds, which is excludable from gross income under the
Internal Revenue Code, will retain its status as income exempt from federal
income tax when allocated to the Portfolio's investors. 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 investors.
D. Deferred Organization Expenses--Costs incurred by the Portfolio in connection
with its organization are being amortized on the straight-line basis over five
years.
E. Financial Futures Contracts--Upon the entering of a financial futures
contract, the Portfolio is required to deposit ("initial margin") either in cash
or securities an amount equal to a certain percentage of the purchase price
indicated in the financial futures contract. Subsequent payments are made or
received by the Portfolio ("margin maintenance") each day, dependent on the
daily fluctuations in the value of the underlying 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 only to hedge against
anticipated future changes in interest rates. Should interest rates move
unexpectedly, the Portfolio may not achieve the anticipated benefits of the
financial futures contracts and may realize a loss.
F. Other--Investment transactions are accounted for on a trade date basis.
G. Interim Financial Information--The interim financial statements relating to
September 30, 1995 and for the period then ended have not been audited by
independent certified public accountants, but in the opinion of the Portfolio's
management, reflect all adjustments, consisting only of normal recurring
adjustments, necessary for the fair presentation of the financial statements.
21
<PAGE>
Notes to Financial Statements (continued)
- --------------------------------------------------------------------------------
(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. The fee
is based upon a percentage of average daily net assets plus a percentage of
gross income (i.e., income other than gains from the sale of securities). For
the six months ended September 30, 1995, the fee was equivalent to 0.47% of the
Portfolio's average net assets for such period and amounted to $375,074. Except
as to Trustees of the Portfolio who are not members of EVM's or BMR's
organization, officers and Trustees receive remuneration for their services to
the Portfolio out of such investment adviser fee. Investors Bank & Trust Company
(IBT), an affiliate of EVM and BMR, serves as custodian of the Portfolio.
Pursuant to the custodian agreement, IBT receives a fee reduced by credits which
are determined based on the average daily cash balances the Portfolio maintains
with IBT. For the six months ended September 30, 1995, credits used to reduce
custodian fees amounted to $9,482. Certain of the officers and Trustees of the
Portfolio are officers and directors/trustees of the above organizations.
Trustees of the Portfolio that are not affiliated with the Investment Advisor
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
six months ended September 30, 1995, no significant amounts have been deferred.
- --------------------------------------------------------------------------------
(3) Line of Credit
The Portfolio participates with other portfolios and funds managed by BMR or EVM
in a $120 million unsecured line of credit agreement with a bank. The line of
credit consists of a $20 million committed facility and a $100 million
discretionary facility. Borrowings will be made by the Portfolio solely to
facilitate the handling of unusual and/or unanticipated short-term cash
requirements. Interest is charged to each portfolio or fund based on its
borrowings at an amount above either the bank's adjusted certificate of deposit
rate, a variable adjusted certificate of deposit rate, or a federal funds
effective rate. In addition, a fee computed at an annual rate of 1/4 of 1% on
the $20 million committed facility and on the daily unused portion of the $100
million discretionary facility is allocated among the participating funds and
portfolios at the end of each quarter. The Portfolio did not have any
significant borrowings or allocated fees during the period.
- --------------------------------------------------------------------------------
(4) Investments
Purchases and sales of investments, other than U.S. Government securities and
short-term obligations, aggregated $41,356,131 and $57,615,122, respectively.
- --------------------------------------------------------------------------------
(5) Federal Income Tax Basis of Investments
The cost and unrealized appreciation/depreciation in value of the investments
owned at September 30, 1995, as computed on a federal income tax basis, were as
follows:
Aggregate cost $148,688,833
===========
Gross unrealized appreciation $ 3,954,214
Gross unrealized depreciation 192,240
-----------
Net unrealized appreciation $ 3,761,974
===========
- --------------------------------------------------------------------------------
(6) Financial Instruments
The Portfolio regularly trades in financial instruments with off-balance sheet
risk in the normal course of its investing activities to assist in managing
exposure to various market risks. These financial instruments include written
options and 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 had no such
obligations outstanding at September 30, 1995.
22
<PAGE>
Investment Management
EV Classic Officers Independent Trustees
National Thomas J. Fetter Donald R. Dwight
Limited Maturity President President, Dwight
Tax Free Fund Partners, Inc. Chairman,
24 Federal Street James B. Hawkes Newspapers of New
Boston, MA 02110 Vice President, England, Inc.
Trustee
Robert B. MacIntosh Samuel L. Hayes, III
Vice President Jacob H. Schiff
Professor of Investment
James L. O'Connor Banking, Harvard
Treasurer University Graduate
School of Business
Thomas Otis Administration
Secretary
Norton H. Reamer
President and Director,
United Asset Management
Corporation
John L. Thorndike
Director, Fiduciary
Company Incorporated
Jack L. Treynor
Investment Adviser and
Consultant
-------------------------------------------------
National Officers Independent Trustees
Limited Maturity Tax Free Thomas J. Fetter Donald R. Dwight
Portfolio President President, Dwight
24 Federal Street Partners, Inc. Chairman,
Boston, MA 02110 James B. Hawkes Newspapers of New
Vice President, England, Inc.
Trustee
Robert B. MacIntosh Samuel L. Hayes, III
Vice President Jacob H. Schiff
Professor of Investment
Raymond E. Hender Banking, Harvard
Vice President and University Graduate
Portfolio Manager School of Business
Administration
James L. O'Connor
Treasurer
Norton H. Reamer
Thomas Otis President and Director,
Secretary United Asset Management
Corporation
John L. Thorndike
Director, Fiduciary
Company Incorporated
Jack L. Treynor
Investment Adviser and
Consultant
23
