<PAGE>
EATON VANCE EQUITY-INCOME TRUST
A MUTUAL FUND SEEKING HIGH TOTAL RETURN FROM RELATIVELY PREDICTABLE INCOME
IN CONJUNCTION WITH CAPITAL APPRECIATION, CONSISTENT WITH PRUDENT
MANAGEMENT AND PRESERVATION OF CAPITAL.
IN SEEKING HIGH TOTAL RETURN, EATON VANCE EQUITY-INCOME TRUST (THE "FUND")
INVESTS ITS ASSETS IN TOTAL RETURN PORTFOLIO (THE "PORTFOLIO"), A DIVERSIFIED
OPEN-END INVESTMENT COMPANY HAVING THE SAME INVESTMENT OBJECTIVE AS THE FUND,
RATHER THAN, AS WITH AN HISTORICALLY STRUCTURED MUTUAL FUND, DIRECTLY INVESTING
IN AND MANAGING ITS OWN PORTFOLIO OF SECURITIES.
Shares of the Fund are not deposits or obligations of, or guaranteed or
endorsed by, any bank or other insured depository institution, and are not
federally insured by the Federal Deposit Insurance Corporation, the Federal
Reserve Board or any other government agency. Shares of the Fund involve
investment risks, including fluctuations in value and the possible loss of some
or all of the principal investment.
This prospectus is designed to provide you with information you should know
before investing. Please retain this document for future reference. A Statement
of Additional Information dated May 1, 1995, for the Fund, as supplemented from
time to time, has been filed with the Securities and Exchange Commission and is
incorporated herein by reference. This Statement of Additional Information is
available without charge from the Fund's principal underwriter, Eaton Vance
Distributors, Inc. (the "Principal Underwriter"), 24 Federal Street, Boston, MA
02110 (telephone (800) 225-6265). The Portfolio's investment adviser is Boston
Management and Research (the "Investment Adviser"), a wholly-owned subsidiary of
Eaton Vance Management, and Eaton Vance Management is the administrator (the
"Administrator") of the Fund. The offices of the Investment Adviser and the
Administrator are located at 24 Federal Street, Boston, MA 02110.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
TABLE OF CONTENTS
<S> <C> <S> <C>
Shareholder and Fund Expenses ................. 2 How to Acquire Fund Shares in Exchange for
The Fund's Financial Highlights ............... 3 Securities .............................. 16
The Fund's Investment Objective ............... 4 How to Redeem or Sell Fund Shares ......... 17
How the Fund and the Portfolio Invest The Lifetime Investing Account/Distribution
their Assets; Investment Risks .............. 4 Options ................................. 20
Organization of the Fund and the Portfolio .... 9 Eaton Vance Exchange Privilege ............ 22
Reports to Shareholders ....................... 13 Eaton Vance Shareholder Services .......... 23
Management of the Fund and the Portfolio ...... 13 Distribution Plan ......................... 25
How the Fund and the Portfolio Determine Distributions and Taxes ................... 27
their Net Asset Values ...................... 14 Performance and Yield Information ......... 28
How to Buy Shares of the Fund for Cash ........ 15
</TABLE>
- --------------------------------------------------------------------------------
Prospectus dated May 1, 1995
<PAGE>
SHAREHOLDER AND FUND EXPENSES (1)
- --------------------------------------------------------------------------------
SHAREHOLDER TRANSACTION EXPENSES
Sales Charges Imposed on Purchases of Shares None
Sales Charges Imposed on Reinvested Distributions None
Fees to Exchange Shares None
Range of Declining Contingent Deferred Sales Charges Imposed
on Redemptions During the First Seven Years (as a percentage
of redemption proceeds exclusive of all reinvestments and
capital appreciation in the account)(2) 5.00%-0%
ANNUAL FUND AND ALLOCATED PORTFOLIO OPERATING EXPENSES
(as a percentage of average daily net assets)
Investment Adviser Fee 0.74%
Rule 12b-1 Distribution (and Service) Fees 0.98%
Other Expenses
(including Interest Expense of 0.03%) 1.26%
----
Total Operating Expenses 2.98%
EXAMPLE: 1 YEAR 3 YEARS 5 YEARS 10 YEARS
- -------- ------ ------- ------- --------
An investor would pay the following
contingent deferred sales charge and
expenses on a $1,000 investment,
assuming (a) 5% annual return and (b)
redemption at the end of each period: $80 $132 $177 $330
An investor would pay the following expenses
on the same investment, assuming
(a) 5% annual return and (b) no redemptions:
$30 $ 92 $157 $330
Notes:
(1) The purpose of the above table and Example is to summarize the aggregate
expenses of the Fund and the Portfolio and to assist investors in
understanding the various costs and expenses that investors in the Fund
will bear directly or indirectly. The Trustees of the Trust believe that
over time the aggregate per share expenses of the Fund and the Portfolio
should be approximately equal to or less than the per share expenses which
the Fund would incur if the Trust retained the services of an investment
adviser and the assets of the Fund were invested directly in the type of
securities being held by the Portfolio. The percentages indicated as Annual
Fund and Allocated Portfolio Operating Expenses in the table and the
amounts included in the Example are based on the Fund's and the Portfolio's
results for the fiscal year ended December 31, 1994. The Example should not
be considered a representation of past or future expenses and actual
expenses may be greater or less than those shown. The Example assumes a 5%
annual return and the Fund's actual performance may result in an annual
return greater or less than 5%. For further information regarding the
expenses of both the Fund and the Portfolio see "The Fund's Financial
Highlights," "Organization of the Fund and the Portfolio," "Management of
the Fund and the Portfolio" and "How to Redeem or Sell Fund Shares."
Because the Fund makes payments under its Distribution Plan adopted under
Rule 12b-1, a long-term shareholder may pay more than the economic
equivalent of the maximum front-end sales charge permitted by a rule of the
National Association of Securities Dealers, Inc. See "Distribution Plan."
(2) No contingent deferred sales charge is imposed on (a) shares purchased more
than six years prior to the redemption, (b) shares acquired through the
reinvestment of distributions or (c) any appreciation in value of other
shares in the account (see "How to Redeem or Sell Fund Shares"), and no
such charge is imposed on exchanges of Fund shares for shares of one or
more other funds listed under "The Eaton Vance Exchange Privilege".
(3) Other investment companies with different distribution arrangements and
fees are investing in the Portfolio and additional such companies may do so
in the future. See "Organization of the Fund and the Portfolio."
<PAGE>
THE FUND'S FINANCIAL HIGHLIGHTS
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The following information should be read in conjunction with the audited
financial statements included in the Statement of Additional Information, all of
which have been so included in reliance upon the report of Coopers & Lybrand
L.L.P., independent accountants, as experts in accounting and auditing, which
report is contained in the Statement of Additional Information. The financial
highlights for each of the seven years in the period ended September 30, 1994,
presented here were audited by other auditors whose report dated November 2,
1994 expressed an unqualified opinion on such financial highlights. Further
information regard ing the performance of the Fund is contained in the Fund's
annual report to shareholders which may be obtained without charge by contacting
the Principal Underwriter.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE PERIOD
FROM START
OF BUSINESS
OCTOBER 1, 1994 YEAR ENDED SEPTEMBER 30,
TO DECEMBER -----------------------------------------------------------------------------------
31, 1994 1994<F3> 1993<F3> 1992<F3> 1991<F3> 1990<F3> 1989<F3> 1989<F3><F5>
--------------- ------- ------- ------- ------- ------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value, beginning
of period $10.120 $12.340 $10.730 $11.180 $10.290 $11.800 $ 9.780 $10.000
------- ------- ------- ------- ------- ------- ------- -------
Income from investment operations:
Net investment income $ 0.094 $ 0.326 $ 0.440 $ 0.374 $ 0.442 $ 0.643 $ 0.583 $ 0.561
Net realized and unrealized gain
(loss) on investments (0.014) (2.136) 1.640 (0.344) 0.958 (1.183) 2.187 (0.417)
------- ------- ------- ------- ------- ------- ------- -------
Total income (loss) from
investment operations $ 0.080 $(1.810) $ 2.080 $ 0.030 $ 1.400 $(0.540) $ 2.770 $ 0.144
------- ------- ------- ------- ------- ------- ------- -------
Less distributions declared to
shareholders:
From net investment income $(0.090) $(0.326) $(0.330) $(0.413) $(0.510) $(0.634) $(0.750) $(0.364)
In excess of net investment income -- (0.084) (0.140) -- -- -- -- --
Net realized gain/(loss) on
investment transactions -- -- -- -- -- (0.336) -- --
Paid-in capital -- -- -- (0.067) -- -- -- --
------- ------- ------- ------- ------- ------- ------- -------
Total distributions $(0.090) $(0.410) $(0.470) $(0.480) $(0.510) $(0.970) $(0.750) $(0.364)
------- ------- ------- ------- ------- ------- ------- -------
NET ASSET VALUE, end of period $10.110 $10.120 $12.340 $10.730 $11.180 $10.290 $11.800 $ 9.780
======= ======= ======= ======= ======= ======= ======= =======
TOTAL RETURN<F2> 0.79% (14.82)% 19.88% (0.03)% 13.91% (4.98)% 29.52% 1.50%
RATIOS/SUPPLEMENTAL DATA:
(to average daily net assets)
Expenses<F1> 2.98%<F4> 2.18% 2.30% 2.40% 2.26% 1.43% 2.29% 1.00%<F4>
Net investment income 3.85%<F4> 2.91% 2.88% 3.22% 3.96% 5.22% 4.99%<F6> 6.58%<F4>
PORTFOLIO TURNOVER<F7> -- 119% 87% 158% 151% 204% 222% 297%
NET ASSETS, END OF PERIOD (000'S
OMITTED) $27,650 $30,126 $49,941 $48,219 $55,364 $42,693 $ 6,490 $ 2,160
<FN>
<F1> Includes the Fund's share of Total Return Portfolio's allocated expenses
for the period from October 1, 1994, to December 31, 1994.
<F2> 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 to be
reinvested at the net asset value on the record date.
<F3> Audited by previous auditors.
<F4> Computed on an annualized basis.
<F5> For the period from the start of business, October 21, 1987, to September
30, 1988.
<F6> Investment income and net investment income per share include $.081
applicable to nonrecurring dividend income. Had such dividends not been
included, the ratio of net investment income to average net assets would
have been 3.85%.
<F7> Portfolio turnover represents the rate of portfolio activity for the period
when the Fund was making investments directly in securities. The portfolio
turnover for the period since the Fund transferred its assets to the
Portfolio is shown in the Portfolio's financial statements, which are
included elsewhere in this report. +
Note: Certain parts of the above per share data for the year ended September 30,
1990, have been determined on the basis of average monthly shares
outstanding.
</TABLE>
<PAGE>
THE FUND'S INVESTMENT OBJECTIVE
- --------------------------------------------------------------------------------
EATON VANCE EQUITY-INCOME TRUST'S INVESTMENT OBJECTIVE IS TO SEEK FOR ITS
SHAREHOLDERS A HIGH LEVEL OF TOTAL RETURN, CONSISTING OF RELATIVELY PREDICTABLE
INCOME IN CONJUNCTION WITH CAPITAL APPRECIATION, CONSISTENT WITH PRUDENT
MANAGEMENT AND PRESERVATION OF CAPITAL. The Fund currently seeks to meet its
investment objective by investing its assets in the Total Return Portfolio, a
separate registered investment company which has the same investment objective
as the Fund. The Fund's and the Portfolio's investment objectives are
nonfundamental and may be changed when authorized by a vote of the Trustees of
the Fund or the Portfolio, respectively, without obtaining the approval of the
Fund's shareholders or the investors in the Portfolio, as the case may be. The
Trustees of the Fund have no present intention to change the Fund's objective
and intend to submit any proposed material change in the investment objective to
shareholders in advance for their approval.
HOW THE FUND AND THE PORTFOLIO INVEST THEIR ASSETS; INVESTMENT RISKS
- --------------------------------------------------------------------------------
THE PORTFOLIO SEEKS TO ACHIEVE ITS OBJECTIVE BY INVESTING PRINCIPALLY IN
DIVIDEND-PAYING COMMON STOCKS WITH THE POTENTIAL TO INCREASE DIVIDENDS IN THE
FUTURE. The Portfolio concentrates its investments in common stocks of public
utilities (utility stocks), principally electric, gas and telephone companies.
Accordingly, the Portfolio invests at least 25% of its total assets, and may
invest up to 100% of its total assets, in utility stocks. The Portfolio may also
invest in preferred stocks and may hold non-incoming-producing securities.
The Portfolio may from time to time invest in fixed-income debt securities
when the Portfolio's investment adviser (BMR or the Investment Adviser) believes
that their total return potential is consistent with the Fund's objective. The
Portfolio may invest its cash reserves in high quality money market securities,
which include securities of the U.S. Government and its agencies or
instrumentalities maturing in one year or less, commercial paper, and bankers'
acceptances and certificates of deposit of domestic banks or savings and loan
associations having total assets of $1 billion or more. The Portfolio may also
invest in longer-term debt securities that at the time of purchase are rated
Aaa, Aa or A by Moody's Investors Service, Inc. (Moody's), or AAA, AA or A by
Standard & Poor's Ratings Group (S&P), Fitch Investors Service, Inc. (Fitch) or
Duff & Phelps, Inc. (Duff), or that at the time of purchase are issued,
guaranteed, backed or secured by the U.S. Government or any of its agencies or
instrumentalities. The Portfolio currently intends to limit its investments in
fixed-income debt securities to 20% or less of its net assets. Subject to such
limitation, the Portfolio may invest up to 10% of its net assets in fixed-income
debt securities that at the time of purchase are rated investment grade (i.e.,
rated Baa or higher by Moody's, or BBB or higher by S&P, Fitch or Duff) or below
investment grade. Debt securities rated below Baa or BBB are commonly known as
junk bonds.
In view of the Portfolio's policy of concentrating its investments in
utility stocks, an investment in shares of the Fund should be made with an
understanding of the characteristics of the public utility industry and the
potential risks of such an investment. Industry-wide problems include the
effects of fluctuating economic conditions, energy conservation practices,
environmental regulations, high capital expenditures, construction delays due to
pollution control and environmental considerations, uncertainties as to fuel
availability and costs, increased competition in deregulated sectors of the
industry, and difficulties in obtaining timely and adequate rate relief from
regulatory commissions. If applications for rate increases are not granted or
are not acted upon promptly, the market prices of and dividend payments on
utility stocks may be adversely affected. The Portfolio's policy of
concentrating in utility stocks is a fundamental policy and may not be changed
unless authorized by an investor vote. The Fund has a similar fundamental policy
which cannot be changed unless authorized by a shareholder vote.
The Portfolio may invest in securities issued by foreign companies
(including American Depository Receipts and Global Depository Receipts). Such
investments may be subject to various risks such as fluctuations in currency and
exchange rates, foreign taxes, social, political and economic conditions in the
countries in which such companies operate, and changes in governmental, economic
or monetary policies both here and abroad. There may be less publicly available
information about a foreign company than about a comparable domestic company.
Because the securities markets in many foreign countries are not as developed as
those in the United States, the securities of many foreign companies are less
liquid and their prices are more volatile than securities of comparable domestic
companies. In order to hedge against possible variations in foreign exchange
rates pending the settlement of foreign securities transactions, the Portfolio
may buy or sell foreign currencies, foreign currency futures and options, and
forward foreign currency exchange contracts.
The Portfolio may invest a significant portion of its assets in the
securities of real estate investment trusts (REITs), which are affected by
conditions in the real estate industry, interest rate changes and, in the case
of REITs investing in health care facilities, events affecting the health care
industry.
The Portfolio may also enter into repurchase agreements with respect to
securities of the U.S. Government and its agencies or instrumentalities with the
seller of such securities, usually a bank. Under a repurchase agreement, the
seller agrees to repurchase the securities at the Portfolio's cost plus interest
within a specified time (normally one day). Repurchase agreements involve a risk
that the value of the securities subject to the repurchase agreement may decline
to an amount less than the repurchase price and that, in the event of the
seller's bankruptcy or insolvency, the Portfolio may be prevented from disposing
of such securities. The Portfolio will comply with the collateralization
policies of the Securities and Exchange Commission (the Commission), which
policies require that the Portfolio or its custodian obtain actual or
constructive possession of the collateral and that the market value of the
securities held as collateral be marked to the market daily and at least equal
the repurchase price during the term of the agreement. The Portfolio intends
that the total of its investments, if any, in repurchase agreements maturing in
more than 7 days and other illiquid securities will not exceed 15% of its net
assets.
DERIVATIVE INSTRUMENTS. The Portfolio may purchase or sell derivative
instruments (which are instruments that derive their value from another
instrument, security, index or currency) to enhance return, to hedge against
fluctuations in securities prices, interest rates or currency exchange rates, or
as a substitute for the purchase or sale of securities or currencies. The
Portfolio's transactions in derivative instruments may include the purchase or
sale of futures contracts on securities (such as U.S. Government securities),
securities indices, other indices, other financial instruments or currencies;
options on futures contracts; exchange-traded options on securities, indices or
currencies; and forward foreign currency exchange contracts. The Portfolio's
transactions in derivative instruments involve a risk of loss or depreciation
due to unanticipated adverse changes in securities prices, interest rates, the
other financial instruments' prices or currency exchange rates, the inability to
close out a position or default by the counterparty. The loss on derivative
instruments (other than purchased options) may exceed the Portfolio's initial
investment in these instruments. In addition, the Portfolio may lose the entire
premium paid for purchased options that expire before they can be profitably
exercised by the Portfolio. The Portfolio incurs transaction costs in opening
and closing positions in derivative instruments. There can be no assurance that
the Investment Adviser's use of derivative instruments will be advantageous to
the Portfolio.
The Portfolio may write (sell) covered call and put options on securities,
currencies and indices with respect to up to 50% of its net assets, as measured
by the aggregate value of the securities underlying such written call and put
options. If a written covered call option is exercised, the Portfolio will be
unable to realize further price appreciation on the underlying securities and
portfolio turnover will increase, resulting in higher brokerage costs. The
Portfolio may purchase call and put options on any securities in which the
Portfolio may invest or options on any securities index composed of securities
in which the Portfolio may invest. The Portfolio does not intend to purchase an
option on any security if, after such transaction, more than 5% of its net
assets, as measured by the aggregate of all premiums paid for all such options
held by the Portfolio, would be so invested.
To the extent that the Portfolio enters into futures contracts, options on
futures contracts and options on foreign currencies traded on an exchange
regulated by the Commodity Futures Trading Commission (CFTC), in each case that
are not for bona fide hedging purposes (as defined by the CFTC), the aggregate
initial margin and premiums required to establish these positions (excluding the
amount by which options are in-the-money) may not exceed 5% of the liquidation
value of the Portfolio's portfolio, after taking into account unrealized profits
and unrealized losses on any contracts the Portfolio has entered into.
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 Portfolio may engage in cross-hedging by using forward
contracts in one currency (or basket of currencies) to hedge against
fluctuations in the value of securities denominated in a different currency if
the Investment Adviser determines that there is an established historical
pattern of correlation between the two currencies (or the basket of currencies
and the underlying currency). Use of a different foreign currency magnifies the
Portfolio's exposure to foreign currency exchange rate fluctuations. The
Portfolio may also use forward contracts to shift its exposure to foreign
currency exchange rate changes from one currency to another.
LEVERAGE THROUGH BORROWING. The Portfolio may from time to time increase its
ownership of portfolio securities above the amounts otherwise possible by
borrowing from banks on an unsecured basis at fixed or variable rates of
interest and investing the borrowed funds. The Investment Adviser currently
anticipates that the Portfolio will incur borrowings for the purpose of
acquiring additional income-producing securities when it is believed that the
interest payable with respect to such borrowings will be exceeded by (a) the
income payable on the securities acquired with such borrowings or (b) the
anticipated total return (a combination of income and appreciation) on such
securities. Such borrowings might be made, for example, when short-term interest
rates fall below the yields available from the securities acquired with the
borrowed funds or the total return anticipated from such securities.
The Portfolio is required to maintain asset coverage of at least 300% with
respect to such borrowings, which means that the Portfolio may borrow an amount
up to 50% of the value of its net assets (not including such borrowings). The
Portfolio may be required to dispose of securities held by it on unfavorable
terms if market fluctuations or other factors reduce such asset coverage to less
than 300%.
Leveraging will exaggerate any increase or decrease in the market value of
the securities held by the Portfolio. Money borrowed for leveraging will be
subject to interest costs which may or may not exceed the income from the
securities purchased. The Portfolio may also be required to maintain minimum
average balances in connection with such borrowing or to pay a commitment or
other fee to maintain a line of credit; either of these requirements will
increase the cost of borrowing over the stated interest rate. Unless the income
and appreciation, if any, on assets acquired with borrowed funds exceeds the
cost of borrowing, the use of leverage will diminish the investment performance
of the Portfolio compared with what it would have been without leverage.
The Portfolio will not always borrow money for additional investments. The
Portfolio's willingness to borrow money for investment purposes, and the amount
it will borrow, will depend on many factors, the most important of which are the
investment outlook, market conditions and interest rates. Successful use of a
leveraging strategy depends on the Investment Adviser's ability to predict
correctly interest rates and market movements, and there is no assurance that a
leverage strategy will be successful during any period in which it is employed.
The average daily loan balance for the fiscal year ended December 31, 1994 was
$3,137,134 and the average daily interest rate was 5.96%.
LENDING OF SECURITIES. The Portfolio may seek to increase its income by lending
portfolio securities to broker-dealers or other institutional borrowers. Under
present regulatory policies of the Commission, such loans would be required to
be secured continuously by collateral in cash, cash equivalents or U.S.
Government securities held by the Portfolio's 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. The Portfolio would have the right
to call a loan and obtain the securities loaned at any time on five business
days' notice. During the existence of a loan, the Portfolio will continue to
receive the equivalent of the interest or dividends paid by the issuer on the
securities loaned and will also receive a fee, or all or a portion of the
interest on investment of the collateral, if any. However, the Portfolio may pay
lending fees to such borrowers. The Portfolio would not have the right to vote
any securities having voting rights during the existence of the loan, but would
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. 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 would be
made only to organizations deemed by the Portfolio's management to be of good
standing and, when, in the judgment of the Portfolio's management, the
consideration which can be earned from securities loans of this type justifies
the attendant risk. If the management of the Portfolio decides to make
securities loans, it is intended that the value of the securities loaned would
not exceed 30% of the Portfolio's total assets.
INVESTMENT RESTRICTIONS. The Fund and the Portfolio have adopted certain
fundmental investment restrictions which are enumerated in detail in the
Statement of Additional Information and which may not be changed unless
authorized by a shareholder vote and an investor vote, respectively. Except for
such enumerated restrictions and as otherwise indicated in this prospectus, the
investment objective and policies of the Fund and the Portfolio are not
fundamental policies and accordingly may be changed by the Trustees of the Trust
and the Portfolio without obtaining the approval of the Fund's shareholders or
the investors in the Portfolio, as the case may be. If any changes were made in
the Fund's investment objective, the Fund might have an investment objective
different from the objective which an investor considered appropriate at the
time the investor became a shareholder of the Fund.
An investment in the Fund entails the risk that the principal value of Fund
shares and the income earned there on may not increase or may decline. The
Portfolio's investments in equity securities are subject to the risk of adverse
developments affecting particular companies or industries and the stock market
generally. The lowest investment grade, lower rated and comparable unrated debt
securities in which the Portfolio may invest will have speculative
characteristics in varying degrees. While such securities may have some quality
and protective characteristics, these characteristics can be expected to be
offset or outweighed by uncertainties or major risk exposures to adverse
conditions. Lower rated and comparable unrated securites are subject to the risk
of an issuer's inability to meet principal and interest payments on the
securities (credit risk) and may also be subject to price volatility due to such
factors as interest rate sensitivity, market perception of the creditworthiness
of the issuer and general market liquidity (market risk). Lower rated and
comparable unrated securities are also more likely to react to real or perceived
developments affecting markets and credit risk than are more highly rated
securities, which react primarily to movements in the general level of interest
rates. The Portfolio may retain defaulted securities in its portfolio when such
retention is considered desirable by the Investment Adviser. In the case of a
defaulted security, the Portfolio may incur additional expenses seeking recovery
of its investment. In the event the rating of a security held by the Portfolio
is downgraded, the Investment Adviser will consider disposing of such security,
but is not obligated to do so.
--------------------------------------------------------------------
THE FUND IS NOT INTENDED TO BE A COMPLETE INVESTMENT PROGRAM, AND
PROSPECTIVE INVESTORS SHOULD TAKE INTO ACCOUNT THEIR OBJECTIVES AND
OTHER INVESTMENTS WHEN CONSIDERING THE PURCHASE OF FUND SHARES. THE
FUND CANNOT ELIMINATE RISK OR ASSURE ACHIEVEMENT OF ITS OBJECTIVE.
--------------------------------------------------------------------
ORGANIZATION OF THE FUND AND THE PORTFOLIO
- --------------------------------------------------------------------------------
THE TRUSTEES OF THE FUND ARE RESPONSIBLE
FOR THE OVERALL MANAGEMENT AND
SUPERVISION OF ITS AFFAIRS.
EATON VANCE EQUITY-INCOME TRUST IS A BUSINESS TRUST ESTABLISHED UNDER
MASSACHUSETTS LAW PURSUANT TO A DECLARATION OF TRUST DATED AUGUST 3, 1987. THE
FUND IS A MUTUAL FUND -- A DIVERSIFIED OPEN-END MANAGEMENT INVESTMENT COMPANY.
The Trustees of the Fund are responsible for the overall management and
supervision of its affairs. The Fund has one class of shares of beneficial
interest, an unlimited number of which may be issued. Each share represents an
equal proportionate beneficial interest in the Fund. When issued and
outstanding, the shares are fully paid and nonassessable by the Fund and
redeemable as described under How to Redeem or Sell Fund Shares. Shareholders
are entitled to one vote for each full share held. Fractional shares may be
voted proportionately. Shares have no preemptive or conversion rights and are
freely transferable. In the event of the liquidation of the Fund, shareholders
are entitled to share pro rata in the net assets of the Fund available for
distribution to shareholders.
As permitted by Massachusetts law, there will normally be no meetings of
shareholders for the purpose of electing Trustees unless and until such time as
less than a majority of the Trustees of the Fund 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 Fund's by-laws, the Trustees shall continue to hold office and may
appoint successor Trustees.
The Fund's by-laws provide that a Trustee may be removed at any special
meeting of the shareholders of the Fund by a vote of two-thirds of the
outstanding shares of beneficial interest of the Fund (the shares). The Trustees
will promptly call a meeting of shareholders for the purpose of voting upon a
question of removal of a Trustee when requested to do so by the record holders
of not less than 10 per centum of the outstanding shares.
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. The
Portfolio, as well as the Fund, intends to comply with all applicable Federal
and state securities laws. 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 is
unable to meet its obligations. Accordingly, the Trustees of the Fund believe
that neither the Fund nor its shareholders will be adversely affected by reason
of the Fund investing in the Portfolio.
SPECIAL INFORMATION ON THE FUND/PORTFOLIO INVESTMENT STRUCTURE. An investor in
the Fund should be aware that the Fund, unlike mutual funds which directly
acquire and manage their own portfolios of securities, seeks to achieve its
investment objective by investing its assets in an interest in the Portfolio
(although the Fund may temporarily hold a de minimus amount of cash), which is a
separate investment company with an identical investment objective. Therefore,
the Fund's interest in the securities owned by the Portfolio is indirect. In
addition to selling an interest to the Fund, the Portfolio may sell interests to
other affiliated and non-affiliated mutual funds or institutional investors.
Such investors will invest in the Portfolio on the same terms and conditions and
will pay a proportionate share of the Portfolio's expenses. However, the other
investors investing in the Portfolio are not required to sell their shares at
the same public offering price as the Fund due to variations in sales
commissions and other operating expenses. Therefore, investors in the Fund
should be aware that these differences may result in differences in returns
experienced by investors in the various funds that invest in the Portfolio. Such
differences in returns are also present in other mutual fund structures,
including funds that have multiple classes of shares. For information regarding
the investment objective, policies and restrictions of the Fund and the
Portfolio, see How the Fund and the Portfolio Invest their Assets; Investment
Risks. Further information regarding investment practices may be found in the
Statement of Additional Information.
The Trustees of the Fund 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 substantial growth in the assets of the
Portfolio, and affords the potential for economies of scale for the Fund, at
least when the assets of the Portfolio exceed $500 million. The shareholders of
the Fund approved the policy of investing the Fund's assets in an interest in
the Portfolio on September 1, 1994.
The Fund may withdraw (completely redeem) all its assets from the Portfolio
at any time if the Board of Trustees of the Fund determines that it is in the
best interest of the Fund to do so. The investment objective and the
nonfundamental investment policies of the Fund and the Portfolio may be changed
by the Trustees of the Fund and the Portfolio without obtaining the approval of
the shareholders of the Fund or the investors in the Portfolio, as the case may
be. Any such change of the investment objective of the Fund or the Portfolio
will be preceded by thirty days' advance written notice to the shareholders of
the Fund or the investors in the Portfolio, as the case may be. If a shareholder
redeems shares because of a change in the nonfundamental objective or policies
of the Fund, those shares may be subject to a contingent deferred sales charge,
as described in How to Redeem or Sell Fund Shares. In the event the Fund
withdraws all of its assets from the Portfolio, or the Board of Trustees of the
Fund determines that the investment objective of the Portfolio is no longer
consistent with the investment objective of the Fund, the Board of Trustees of
the Fund 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 from the Portfolio.
Information regarding other pooled investment entities or funds which
invest in the Portfolio may be obtained by contacting Eaton Vance Distributors,
Inc. (the Principal Underwriter or EVD), 24 Federal Street, Boston, MA 02110,
(617) 482-8260. Smaller investors in the Portfolio may be adversely affected by
the actions of larger investors in the Portfolio. For example, if a large
investor withdraws from the Portfolio, the remaining investors may experience
higher pro rata operating expenses, thereby producing lower returns.
Additionally, the Portfolio may become less diverse, resulting in increased
portfolio risk, and experience decreasing economies of scale. However, this
possibility exists as well for historically structured funds which have large or
institutional investors.
Until recently, the Administrator sponsored and advised historically
structured funds. Funds which invest all their assets in interests in a separate
investment company are a relatively new development in the mutual fund industry
and, therefore, the Fund may be subject to additional regulations than
historically structured funds.
The Declaration of Trust of the Portfolio provides that the Portfolio will
terminate 120 days after the complete withdrawal of the Fund or any other
investor in the Portfolio, unless either the remaining investors, by unanimous
vote at a meeting of such investors, or a majority of the Trustees of the
Portfolio, by written instrument consented to by all investors, agree to
continue the business of the Portfolio. This provision is consistent with
treatment of the Portfolio as a partnership for Federal income tax purposes. See
Distributions and Taxes for further information. Whenever the Fund as an
investor in the 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.
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 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 interests
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 Trustees of the Fund, including a majority of noninterested Trustees,
have approved written procedures designed to identify and address any potential
conflicts of interest arising from the fact that the Trustees of the Fund and
the Trustees of the Portfolio are the same. Such procedures require each Board
to take actions to resolve any conflict of interest between the Fund and the
Portfolio, and it is possible that the creation of separate Boards may be
considered. For further information concerning the Trustees and officers of the
Fund and the Portfolio, see the Statement of Additional Information.
REPORTS TO SHAREHOLDERS
- --------------------------------------------------------------------------------
THE FUND WILL ISSUE TO ITS SHAREHOLDERS SEMI-ANNUAL AND ANNUAL REPORTS
CONTAINING FINANCIAL STATEMENTS. Financial statements included in annual reports
are audited by the Fund's independent accountants. Shortly after the end of each
calendar year, the Fund will furnish all shareholders with information necessary
for preparing Federal and state tax returns.
MANAGEMENT OF THE FUND AND THE PORTFOLIO
- --------------------------------------------------------------------------------
THE PORTFOLIO ENGAGES BOSTON MANAGEMENT AND RESEARCH (BMR), A WHOLLY-OWNED
SUBSIDIARY OF EATON VANCE MANAGEMENT (EATON VANCE), AS ITS INVESTMENT ADVISER.
EATON VANCE, ITS AFFILIATES AND ITS PREDECESSOR COMPANIES HAVE BEEN MANAGING
ASSETS OF INDIVIDUALS AND INSTITUTIONS SINCE 1924 AND MANAGING INVESTMENT
COMPANIES SINCE 1931.
ACTING UNDER SUPERVISION OF THE
TRUSTEES, BMR MANAGES THE PORTFOLIO'S
INVESTMENTS AND AFFAIRS.
Acting under the general supervision of the Board of Trustees of the
Portfolio, BMR manages the Portfolio's investments and affairs. Under its
investment advisory agreement with the Portfolio, BMR receives a monthly
advisory fee of .0625% (equivalent to .75% annually) of the average daily net
assets of the Portfolio up to $500 million. On net assets of $500 million and
over the annual fee is reduced as follows:
ANNUALIZED FEE RATE
AVERAGE DAILY NET ASSETS FOR THE MONTH (FOR EACH LEVEL)
- -------------------------------------- -------------------
$500 million but less than $1 billion .............. 0.6875%
$1 billion but less than $1.5 billion .............. 0.6250%
$1.5 billion but less than $2 billion .............. 0.5625%
$2 billion but less than $3 billion ................ 0.5000%
$3 billion and over ................................ 0.4375%
For the period from October 1, 1994 to December 31, 1994, the Portfolio
paid BMR advisory fees equivalent to 0.74% (annualized) of the Portfolio's
average daily net assets for such period. Prior to the close of business on
September 30, 1994 (when the Fund transferred its assets to the Portfolio in
exchange for an interest in the Portfolio) the Fund retained Eaton Vance as its
investment adviser. For the fiscal year ended September 30, 1994, the Fund paid
Eaton Vance advisory fees equivalent to 0.75% of the Fund's average daily net
assets for such year.
BMR furnishes for the use of the Portfolio office space and all necessary
office facilities, equipment and personnel for servicing the investments of the
Portfolio. BMR also places the portfolio security transactions of the Portfolio
for execution with many broker-dealer firms and uses its best efforts to obtain
execution of such transactions at prices which are advantageous to the Portfolio
and at reasonably competitive commission rates. Subject to the foregoing, BMR
may consider sales of shares of the Fund or of other investment companies
sponsored by BMR or Eaton Vance as a factor in the selection of broker-dealer
firms to execute portfolio transactions.
Timothy O'Brien has been the portfolio manager of the Portfolio since
January, 1995. Mr. O'Brien became a Vice President of Eaton Vance on April 25,
1994. Prior to joining Eaton Vance, Mr. O'Brien served as a Vice President of
Loomis, Sayles & Co.
BMR OR EATON VANCE ACTS AS INVESTMENT ADVISER TO INVESTMENT COMPANIES AND
VARIOUS INDIVIDUAL AND INSTITUTIONAL CLIENTS WITH ASSETS UNDER MANAGEMENT OF
APPROXIMATELY $15 BILLION. Eaton Vance is a wholly-owned subsidiary of Eaton
Vance Corp., a publicly-held holding company. Eaton Vance Corp., through its
subsidiaries and affiliates, engages in investment management and marketing
activities, fiduciary and banking services, oil and gas operations, real estate
investment, consulting and management, and development of precious metals
properties.
The Fund has retained the services of Eaton Vance to act as Administrator
of the Fund. The Fund has not retained the services of an investment adviser
since the Fund seeks to achieve the investment objective of the Fund by
investing the Fund's assets in the Portfolio. As Administrator, Eaton Vance
provides the Fund with general office facilities and supervises the overall
administration of the Fund. For these services Eaton Vance currently receives no
compensation. The Trustees of the Fund may determine, in the future, to
compensate Eaton Vance for such services.
The Portfolio and the Fund, as the case may be, will each be responsible
for all of its respective costs and expenses not expressly stated to be payable
by BMR under the investment advisory agreement, by Eaton Vance under the
administrative services agreement or by EVD under the distribution agreement.
HOW THE FUND AND THE PORTFOLIO DETERMINE THEIR NET ASSET VALUES
- --------------------------------------------------------------------------------
THE FUND'S NET ASSET VALUE IS COMPUTED
DAILY.
THE FUND VALUES ITS SHARES ONCE ON EACH DAY THE NEW YORK STOCK EXCHANGE (THE
EXCHANGE) IS OPEN FOR TRADING, AS OF THE CLOSE OF REGULAR TRADING ON THE
EXCHANGE. The Fund's net asset value per share is determined by its custodian,
Investors Bank & Trust Company (IBT) (as agent for the Fund), in the manner
authorized by the Trustees of the Fund. The net asset value is computed by
dividing the value of the Fund's total assets, less its liabilities, by the
number of shares outstanding. Because the Fund invests its assets in an interest
in the Portfolio, the Fund's net asset value will reflect the value of its
interest in the Portfolio (which in turn, reflects the underlying value of the
Portfolio's assets and liabilities). For further information regarding the
valuation of the Fund's interest in the Portfolio, see Determination of Net
Asset Value in the Statement of Additional Information.
The net asset value per Fund share so determined is effective for orders
received by certain financial service firms (Authorized Firms) prior to the
price determination (which for this purpose shall be deemed to have been made as
of the close of regular trading on the Exchange -- normally 4:00 p.m., New York
time) and communicated by the Authorized Firm to the Principal Underwriter prior
to the close of the Principal Underwriter's business day. See How to Buy Shares
of the Fund for Cash. It is the Authorized Firms' responsibility to transmit
orders promptly to the Principal Underwriter. Authorized Firms include financial
service firms with whom the Principal Underwriter has agreements.
THE PORTFOLIO'S NET ASSET VALUE IS ALSO DETERMINED AS OF THE CLOSE OF
REGULAR TRADING ON THE EXCHANGE. The Portfolio's net asset value is determined
by IBT (as custodian and agent for the Portfolio), in the manner authorized by
the Trustees of the Portfolio. The net asset value is computed by subtracting
the liabilities of the Portfolio from the value of its total assets. Securities
listed on securities exchanges or in the NASDAQ National Market are valued at
closing sales prices or, if there are no sales, at the mean between the closing
bid and asked prices therefor on such exchanges. For further information
regarding the valuation of the Portfolio's assets, see Determination of Net
Asset Value in the Statement of Additional Information. Eaton Vance Corp. owns
77.3% of the outstanding stock of IBT, the Fund's and the Portfolio's custodian.
--------------------------------------------------------------------
SHAREHOLDERS MAY DETERMINE THE VALUE OF THEIR INVESTMENT BY
MULTIPLYING THE NUMBER OF FUND SHARES OWNED BY THE CURRENT NET ASSET
VALUE PER SHARE.
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HOW TO BUY SHARES OF THE FUND FOR CASH
- --------------------------------------------------------------------------------
INVESTORS MAY PURCHASE SHARES OF THE FUND THROUGH AUTHORIZED FIRMS AT THE NET
ASSET VALUE PER SHARE OF THE FUND NEXT DETERMINED AFTER SUCH PURCHASE. Pursuant
to its Distribution Agreement with EVD, the Fund engages EVD to distribute the
Fund's shares on a best efforts basis through Authorized Firms. EVD will furnish
the names of Authorized Firms to an investor upon request.
THE INITIAL INVESTMENT MUST BE AT LEAST
$1,000. SHAREHOLDERS CAN MAKE ADDITIONAL
INVESTMENTS AT ANY TIME FOR AS LITTLE AS
$50.
An initial investment in the Fund must be at least $1,000. Once an account
has been established the investor may send investments of $50 or more at any
time directly to the Fund's Transfer Agent (the Transfer Agent) as follows: The
Shareholder Services Group, Inc., BOS725, P.O. Box 1559, Boston, MA 02104. The
$1,000 minimum initial investment is waived for Bank Automated Investing
accounts, which may be established with an investment of $50 or more. See Eaton
Vance Shareholder Services below.
The Fund may suspend the offering of shares at any time and may refuse any
order for the purchase of shares.
In connection with employee benefit or other continuous group purchase
plans under which the average initial purchase by a participant of the plan is
$1,000 or more, 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 under How to Redeem or Sell Fund Shares.
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IF YOU DON'T HAVE AN AUTHORIZED FIRM, EATON VANCE CAN RECOMMEND ONE.
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HOW TO ACQUIRE FUND SHARES IN EXCHANGE FOR SECURITIES
- --------------------------------------------------------------------------------
IN EXCHANGING SECURITIES FOR FUND
SHARES, THE MINIMUM VALUE OF SECURITIES
ACCEPTABLE TO EATON VANCE IS $5,000.
COMPLIANCE WITH CERTAIN OTHER CONDITIONS
IS ALSO REQUIRED TO MAKE AN EXCHANGE.
IBT, AS ESCROW AGENT, WILL RECEIVE SECURITIES ACCEPTABLE TO EATON VANCE, AS
ADMINISTRATOR, IN EXCHANGE FOR FUND SHARES AT THEIR NET ASSET VALUE AS
DETERMINED ABOVE. The minimum value of securities (or securities and cash)
accepted for deposit is $5,000. Securities accepted will be sold by IBT as agent
for the account of their owner on the day of their receipt by IBT 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 net asset value per Fund share on the day such
proceeds are received. Eaton Vance will use reasonable efforts to obtain the
then current prices for such securities, but does not guarantee the best price
available. Eaton Vance will absorb any transaction costs, such as commissions,
on the sale of the securities.
Securities determined to be acceptable should be transferred via book entry
or physically delivered, in proper form for transfer, through an Authorized
Firm, together with a completed and signed Letter of Transmittal in approved
form (available from Authorized Firms), as follows:
In the case of book entry:
Deliver through Depository Trust Co.
Broker #2212
Investors Bank & Trust Company
For A/C Eaton Vance Equity-Income Trust
In the case of physical delivery:
Investors Bank & Trust Company
Attention: Eaton Vance Equity-Income Trust
Physical Securities Processing Settlement Area
89 South Street
Boston, MA 02111
Investors who are contemplating an exchange of securities for shares of the
Fund, or their representatives, are advised to contact Eaton Vance to determine
whether the securities are acceptable before forwarding such securities to IBT.
Eaton Vance reserves the right to reject any securities.
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EXCHANGING SECURITIES FOR FUND 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 FOR FUND SHARES.
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HOW TO REDEEM OR SELL FUND SHARES
- --------------------------------------------------------------------------------
THE REDEMPTION PRICE WILL BE BASED ON
THE NET ASSET VALUE NEXT COMPUTED AFTER
DELIVERY OF THE SHARE CERTIFICATES OR
STOCK POWERS.
A SHAREHOLDER MAY REDEEM FUND SHARES BY DELIVERING TO THE SHAREHOLDER SERVICES
GROUP, INC., BOS725, P.O. BOX 1559, BOSTON, MA 02104, EITHER SHARE CERTIFICATES,
OR A STOCK POWER if no certificates have been issued, in good order for
transfer, with a separate written request for redemption. The redemption price
will be based on the net asset value next computed after such delivery. Good
order means that the certificates or stock powers must be endorsed by the record
owner(s) exactly as the shares are registered and the signature(s) must be
guaranteed by a member of either the Securities Transfer Association's STAMP
program or the New York Stock Exchange's Medallion Signature Program, or certain
banks, savings and loan institutions, credit unions, securities dealers,
securities exchanges, clearing agencies and registered securities associations
as required by a regulation of the Securities and Exchange Commission and
acceptable to The Shareholder Services Group, Inc. In addition, in some cases,
good order may require the furnishing of additional documents such as where
shares are registered in the name of a corporation, partnership or fiduciary.
Within seven days after receipt of a redemption request by The Shareholder
Services Group, Inc. in good order, the Fund will make payment in cash for the
net asset value of the shares as of the date determined above, reduced by the
amount of any applicable contingent deferred sales charge (described below) and
any Federal income tax required to be withheld. Although the Fund normally
expects to make payment in cash for redeemed shares, the Fund, subject to
compliance with applicable regulations, has reserved the right to pay the
redemption price of shares of the Fund, either totally or partially, by a
distribution in kind of readily marketable securities withdrawn by the Fund from
the Portfolio (instead of cash). The securities so distributed would be valued
at the same amount as that assigned to them in calculating the net asset value
for the shares being sold. If a shareholder received a distribution in kind, the
shareholder could incur brokerage or other charges in converting the securities
to cash.
The right to redeem can be suspended and the payment of the redemption
price deferred when the Exchange is closed (other than customary weekend and
holiday closings), during periods when trading on the Exchange is restricted as
determined by the Commission, or during any emergency as determined by the
Commission 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 Commission for the protection of investors.
To sell shares at their net asset value through an Authorized Firm (a
repurchase), a shareholder can place a repurchase order with the Authorized
Firm, which may charge a fee. Net asset value is calculated on the day the Firm
places the order with EVD, as the Fund's agent, if the Firm receives the order
prior to the close of regular trading on the Exchange and communicates it to EVD
on the same day before EVD closes.
If shares were recently purchased, the proceeds of a redemption (or repur-
chase) will not be sent until the check (including a certified or cashier's
check) received for the shares purchased has cleared. Payment for shares
tendered for redemption or repurchase may result in a delay of more than seven
days when the purchase check has not yet cleared, but the delay (anticipated not
to exceed fifteen days) will be no longer than required to verify that the
purchase check has cleared. The value of Fund shares redeemed or repurchased,
less any contingent deferred sales charge imposed (see below), may be more or
less than their cost, and redemptions or repurchases may therefore result in a
taxable gain or loss.
Due to the high cost of maintaining small accounts, the Fund reserves the
right to redeem accounts with balances of less than $1,000. Prior to such a
redemption, shareholders will be notified in writing and will be allowed 60
days' written notice to make additional purchases to bring the account up to the
Fund's $1,000 minimum investment requirement. Thus, an investor making an
initial investment of $1,000 would not be able to redeem shares without being
subject to this policy. However, no such redemption would be required by the
Fund if the cause of the low account balance was a reduction in the net asset
value of Fund shares. No contingent deferred sales charge will be imposed with
respect to such involuntary redemptions.
A CONTINGENT DEFERRED SALES CHARGE MAY
BE IMPOSED ON THE REDEMPTION OF CERTAIN
SHARES.
IF THE SHAREHOLDER HOLDS FUND SHARES FOR MORE THAN SIX YEARS AFTER THEIR
PURCHASE, THE SHAREHOLDER WILL NOT HAVE TO PAY ANY CHARGE WHEN HE OR SHE REDEEMS
THOSE SHARES. SHARES REDEEMED WITHIN THE FIRST SIX YEARS OF THEIR PURCHASE
(EXCEPT SHARES ACQUIRED THROUGH THE REINVESTMENT OF DISTRIBUTIONS) GENERALLY
WILL BE SUBJECT TO A CONTINGENT DEFERRED SALES CHARGE. A CONTINGENT DEFERRED
SALES CHARGE IS IMPOSED ON ANY REDEMPTION THE AMOUNT OF WHICH EXCEEDS THE
AGGREGATE VALUE AT THE TIME OF REDEMPTION OF (A) ALL SHARES IN THE ACCOUNT
PURCHASED MORE THAN SIX YEARS PRIOR TO THE REDEMPTION, (B) ALL SHARES IN THE
ACCOUNT ACQUIRED THROUGH REINVESTMENT OF DISTRIBUTIONS, AND (C) THE INCREASE, IF
ANY, OF VALUE OF ALL OTHER SHARES IN THE ACCOUNT (NAMELY THOSE PURCHASED WITHIN
THE SIX YEARS PRECEDING THE REDEMPTION) OVER THE PURCHASE PRICE OF SUCH SHARES.
REDEMPTIONS ARE PROCESSED IN A MANNER TO MAXIMIZE THE AMOUNT OF REDEMPTION
PROCEEDS WHICH WILL NOT BE SUBJECT TO A CONTINGENT DEFERRED SALES CHARGE. THAT
IS, EACH REDEMPTION WILL BE ASSUMED TO HAVE BEEN MADE FIRST FROM THE EXEMPT
AMOUNTS REFERRED TO IN CLAUSES (A), (B) AND (C) ABOVE, AND SECOND THROUGH
LIQUIDATION OF THOSE SHARES IN THE ACCOUNT REFERRED TO IN CLAUSE (C) ON A
FIRST-IN-FIRST-OUT BASIS. Any contingent deferred sales charge which is required
to be imposed on share redemptions will be made in accordance with the following
schedule:
YEAR OF CONTINGENT
REDEMPTION DEFERRED SALES
AFTER PURCHASE CHARGE
-------------- --------------
First ............................. 5%
Second ............................ 5%
Third ............................. 4%
Fourth ............................ 3%
Fifth ............................. 2%
Sixth ............................. 1%
Seventh and following ............. 0%
For shares purchased prior to August 1, 1994, the contingent deferred sales
charge for redemptions within the first year after purchase is 6%. In
calculating the contingent deferred sales charge upon the redemption of Fund
shares acquired in an exchange of shares of a fund currently listed under The
Eaton Vance Exchange Privilege, the contingent deferred sales charge schedule
applicable to the shares at the time of purchase will apply and the purchase of
Fund shares acquired in the exchange is deemed to have occurred at the time of
the original purchase of the exchanged shares. The contingent deferred sales
charge will be waived for shares redeemed (1) pursuant to a Withdrawal Plan (See
Eaton Vance Shareholder Services), (2) as part of a required distribution from a
tax-sheltered retirement plan or (3) following the death of all beneficial
owners of such shares, provided the redemption is requested within one year of
death (a death certificate and other applicable documents may be required).
No contingent deferred sales charge will be imposed on Fund shares which
have been sold to Eaton Vance or its affiliates or to their respective employees
or clients. The contingent deferred sales charge will be paid to the Principal
Underwriter or the Fund.
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THE FOLLOWING EXAMPLE ILLUSTRATES THE OPERATION OF THE CONTINGENT
DEFERRED SALES CHARGE. ASSUME THAT AN INVESTOR PURCHASES $10,000 OF
THE FUND'S SHARES AND THAT 16 MONTHS LATER THE VALUE OF THE ACCOUNT
HAS GROWN THROUGH INVESTMENT PERFORMANCE AND REINVESTMENT OF
DISTRIBUTIONS TO $12,000. THE INVESTOR THEN MAY REDEEM UP TO $2,000
OF SHARES WITHOUT INCURRING A CONTINGENT DEFERRED SALES CHARGE. IF
THE INVESTOR SHOULD REDEEM $3,000 OF SHARES, A CONTINGENT DEFERRED
SALES CHARGE WOULD BE IMPOSED ON $1,000 OF THE REDEMPTION. THE RATE
WOULD BE 5% BECAUSE THE REDEMPTION WAS MADE IN THE SECOND YEAR AFTER
THE PURCHASE WAS MADE AND THE CHARGE WOULD BE $50.
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THE LIFETIME INVESTING ACCOUNT/DISTRIBUTION OPTIONS
- --------------------------------------------------------------------------------
THE TRANSFER AGENT AUTOMATICALLY SETS UP
AN ACCOUNT FOR YOU. EACH TIME A
TRANSACTION TAKES PLACE YOU WILL RECEIVE
A STATEMENT SHOWING COMPLETE DETAILS OF
THE TRANSACTION AND THE ACCOUNT'S
CURRENT BALANCE.
AFTER AN INVESTOR MAKES AN INITIAL PURCHASE OF FUND SHARES, THE FUND'S TRANSFER
AGENT, THE SHAREHOLDER SERVICES GROUP, INC., WILL SET UP A LIFETIME INVESTING
ACCOUNT FOR THE INVESTOR ON THE FUND'S RECORDS. This account is a complete
record of all transactions between the investor and the Fund which at all times
shows the balance of shares owned. The Fund will not issue share certificates
except upon request.
Each time a transaction takes place in a shareholder's account, the
shareholder will receive a statement showing complete details of the transaction
and the current balance in the account. The Lifetime Investing Account also
permits a shareholder to make additional investments in shares by sending a
check for $50 or more to The Shareholder Services Group, Inc.
Any questions concerning a shareholder's account or services available may
be directed by telephone to Eaton Vance Shareholder Services at 800-225-6265,
extension 2 or in writing to The Shareholder Services Group, Inc., BOS725, P.O.
Box 1559, Boston, MA 02104 (please provide the name of the shareholder, the Fund
and the account number).
SHAREHOLDERS MAY CHOOSE WHETHER TO
RECEIVE DIVIDENDS AND CAPITAL GAINS
DISTRIBUTIONS IN CASH OR SHARES.
THE FOLLOWING DISTRIBUTION OPTIONS WILL BE AVAILABLE TO ALL LIFETIME INVESTING
ACCOUNTS and may be changed as often as desired by written notice to the Fund's
dividend-disbursing agent, The Shareholder Services Group, Inc., BOS725, P.O.
Box 1559, Boston, MA 02104. The currently effective option will appear on each
confirmation statement.
Share Option -- Dividends and capital gains in additional shares. This option
will be assigned if no other option is specified.
Income Option -- Dividends in cash; capital gains in additional shares.
Cash Option -- Dividends in cash; capital gains in cash.
Under the Share Option, dividends will be reinvested (net of any
withholding required under the Federal income tax laws) on the payment date in
additional full and fractional shares at the net asset value per share as of the
record date.
Under Share and Income Options, all distributions from capital gains
(whether long or short-term) will be paid in additional full and fractional
shares at the net asset value as of the record date of each such distribution,
net of any withholding required under Federal income tax laws.
If the Income Option or Cash Option has been selected, dividend and/or
capital gains distribution checks which are returned by the United States Postal
Service as not deliverable or which remain uncashed for six months or more will
be reinvested in the account at the then current net asset value. Furthermore,
the distribution option on the account will be automatically changed to the
Share Option until such time as the shareholder selects a different option.
Distribution Investment Option. Dividends and/or capital gains may be
invested in additional shares of another Eaton Vance fund. Before selecting this
option, a shareholder should obtain a prospectus of the other Eaton Vance fund
and consider its objectives and policies carefully.
A beneficial owner of shares who holds shares in a street name account at
an investment firm is reminded that all recordkeeping, transaction processing
and payments of distributions to his account will be done by the firm holding
the shares, and not by the Fund or its Transfer Agent. Year end forms required
for tax purposes (1099-DIV, 1099-B, etc.) are also provided by that investment
firm. The Fund will have no record of transactions for a beneficial owner of
shares while shares held for him are in a street name account. Requests for any
such information regarding the shares or the account should be directed to that
investment firm.
Transactions in a street name account will be reflected on the records of
the Fund only upon the instructions of the investment firm which is the record
owner of the shares. A beneficial owner of shares in a street name account
should contact his investment firm representative if he wants to purchase or
redeem shares or make other changes in his account. A transfer of a street name
account at one investment firm to a street name account at another firm may
require approval by the transferee firm. There are no fees charged by the Fund
for an account transfer, but transfer fees may be charged by the investment
firms.
If a beneficial owner wishes to transfer shares from a street name account
to another firm's street name account, he should instruct the firm currently
holding the street name account to provide the costs and purchase dates of all
shares purchased in the account and the number of shares accumulated through
reinvestment of distributions and remaining in the account to the transferee
firm in a form satisfactory to the Fund. If the transfer is to an account to be
registered in the name of the owner on the records of the Fund, this information
must be furnished to the Fund's transfer agent in a form satisfactory to the
Fund. The furnishing of this information is essential to provide an historical
investment record of all shares owned.
Before establishing a street name account with an investment firm, or
transferring the account to another investment firm, an investor wishing to
reinvest distributions should determine whether the firm which will hold the
shares allows reinvestment of distributions in street name accounts.
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UNDER A LIFETIME INVESTING ACCOUNT A SHAREHOLDER CAN MAKE ADDITIONAL
INVESTMENTS IN SHARES BY SENDING A CHECK FOR $50 OR MORE.
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THE EATON VANCE EXCHANGE PRIVILEGE
- --------------------------------------------------------------------------------
SHAREHOLDERS MAY EXCHANGE FUND SHARES
FOR SHARES OF OTHER EV MARATHON FUNDS.
NO CONTINGENT DEFERRED SALES CHARGE IS
IMPOSED ON SUCH EXCHANGES.
Fund shares may be exchanged for shares of one or more other funds in the
Eaton Vance Marathon Group of Funds (which includes Eaton Vance Equity-Income
Trust and any EV Marathon fund, except Eaton Vance Prime Rate Reserves) or Eaton
Vance Money Market Fund, which are distributed subject to a contingent deferred
sales charge, on the basis of the net asset value per share of each fund at the
time of the exchange, provided that such exchange offers are available only in
states where shares of the fund being acquired may be legally sold.
The prospectus for each fund describes its investment objectives and
policies, and shareholders should obtain a prospectus and consider these
objectives and policies carefully before requesting an exchange. Each exchange
must involve shares which have a net asset value of at least $1,000. The
exchange privilege may be changed or discontinued without penalty. Shareholders
will be given sixty (60) days' written notice prior to any termination or
material amendment of the exchange privilege. The Fund does not permit the
exchange privilege to be used for Market Timing and may terminate the exchange
privilege for any shareholder account engaged in Market Timing activity. Any
shareholder account for which more than two round-trip exchanges are made within
any twelve month period will be deemed to be engaged in Market Timing.
Furthermore, a group of unrelated accounts for which exchanges are entered
contemporaneously by a financial intermediary will be considered to be engaged
in Market Timing.
The Shareholder Services Group, Inc. makes exchanges at the next determined
net asset value after receiving an exchange request in good order (see How to
Redeem or Sell Fund Shares), and share certificates, if any. The Shareholder
Services Group, Inc. may require additional documentation if shares are
registered in the name of a corporation, partnership or fiduciary.
No contingent deferred sales charge is imposed on exchanges. For purposes
of calculating the contingent deferred sales charge upon the redemption of
shares acquired in an exchange, the contingent deferred sales charge schedule
applicable to the shares at the time of purchase will apply and the purchase of
shares acquired in one or more exchanges is deemed to have occurred at the time
of the original purchase of the exchanged shares. Any contingent deferred sales
charge which is required to be imposed on redemptions of shares acquired in an
exchange will be imposed in accordance with the schedule set forth under How to
Redeem or Sell Fund Shares, except that shares acquired in an exchange from EV
Marathon Strategic Income Fund or any EV Marathon Limited Maturity Fund will be
subject to a charge of 3%, 2.5%, 2% or 1% in the event of a redemption occurring
in the first, second, third or fourth year, respectively, after the original
purchase of the exchanged shares.
Shares of the other funds in the Eaton Vance Marathon Group of Funds and
shares of Eaton Vance Money Market Fund may be exchanged for Fund shares on the
basis of the net asset value per share of each fund at the time of the exchange,
but subject to any restrictions or qualifications set forth in the current
prospectus of any such fund.
Telephone exchanges within the group of funds listed above are also
accepted if the exchange involves shares on deposit with The Shareholder
Services Group, Inc. and the investor has not disclaimed in writing the use of
the privilege. To effect such exchanges, call The Shareholder Services Group,
Inc. at 800-262-1122 or, within Massachusetts, 617-573-9403, Monday through
Friday, 9:00 a.m. to 4:00 p.m. (Eastern Standard Time). All such telephone
exchanges must be registered in the same name(s) and with the same address as
are registered with the fund from which the exchange is being made. Neither the
Fund, the Principal Underwriter nor The Shareholder Services Group, Inc. will be
responsible for the authenticity of exchange instructions received by telephone;
provided that reasonable procedures to confirm that instructions communicated
are genuine have been followed. Telephone instructions will be tape recorded. In
times of drastic economic or market changes, a telephone exchange may be
difficult to implement. An exchange may result in a taxable gain or loss.
EATON VANCE SHAREHOLDER SERVICES
- --------------------------------------------------------------------------------
FULL INFORMATION ON THESE SERVICES IS
AVAILABLE FROM EATON VANCE DISTRIBUTORS,
INC.
THE FOLLOWING SERVICES ARE VOLUNTARY, INVOLVE NO EXTRA CHARGE, AND MAY BE
CHANGED OR DISCONTINUED WITHOUT PENALTY AT ANY TIME. Full information on each of
the services described below and an application, where required, are available
from Authorized Firms or the Principal Underwriter. The cost of administering
such services for the benefit of shareholders who participate in them is borne
by the Fund as an expense to all shareholders.
INVEST-BY-MAIL -- FOR PERIODIC SHARE ACCUMULATION: Once the $1,000 minimum
investment has been made, checks of $50 or more payable to the order of Eaton
Vance Equity-Income Trust may be mailed directly to The Shareholder Services
Group, Inc., BOS725, P.O. Box 1559, Boston, MA 02104 at any time -- whether or
not distributions are reinvested. The name of the shareholder, the Fund and the
account number should accompany each investment.
BANK AUTOMATED INVESTING -- FOR REGULAR SHARE ACCUMULATION: Cash investments of
$50 or more may be made automatically each month or quarter from a shareholder's
bank account. The $1,000 minimum initial investment and small account redemption
policy are waived for these accounts.
WITHDRAWAL PLAN: A shareholder may draw on shareholdings systematically with
monthly or quarterly checks in an aggregate amount that does not exceed annually
12% of the account balance at the time the plan is established. Such amount will
not be subject to a contingent deferred sales charge. See How to Redeem or Sell
Fund Shares. A minimum deposit of $5,000 in shares is required.
REINVESTMENT PRIVILEGE: A SHAREHOLDER WHO HAS REPURCHASED OR REDEEMED SHARES MAY
REINVEST, WITH CREDIT FOR ANY CONTINGENT DEFERRED SALES CHARGES PAID ON THE
REDEEMED OR REPURCHASED SHARES, ANY PORTION OR ALL OF THE REPURCHASE OR
REDEMPTION PROCEEDS (PLUS THAT AMOUNT NECESSARY TO ACQUIRE A FRACTIONAL SHARE TO
ROUND OFF THE PURCHASE TO THE NEAREST FULL SHARE) IN SHARES OF THE FUND,
provided that the reinvestment is effected within 30 days after such repurchase
or redemption. Shares are sold to a reinvesting shareholder at the net asset
value next determined following timely receipt of a written purchase order by
the Principal Underwriter or by the Fund (or by the Fund's Transfer Agent). To
the extent that any shares of the Fund are sold at a loss and the proceeds are
reinvested in shares of the Fund (or other shares of the Fund are acquired
within the period beginning 30 days before and ending 30 days after the date of
the redemption), some or all of the loss generally will not be allowed as a tax
deduction. Shareholders should consult their tax advisers concerning the tax
consequences of reinvestments.
TAX-SHELTERED RETIREMENT PLANS: Shares of the Fund are available for purchase in
connection with the following tax-sheltered retirement plans:
-- Pension and Profit Sharing Plans for self-employed individuals,
corporations and non-profit organizations;
-- Individual Retirement Account Plans for individuals and their non-
employed spouses; and
-- 403(b) Retirement Plans for employees of public school systems,
hospitals, colleges and other non-profit organizations meeting certain
requirements of the Internal Revenue Code of 1986, as amended (the
Code).
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. Under all plans,
dividends and distributions will be automatically reinvested in additional
shares.
DISTRIBUTION PLAN
- --------------------------------------------------------------------------------
THE FUND WILL FINANCE DISTRIBUTION
ACTIVITIES BY MONTHLY PAYMENTS EQUAL ON
AN ANNUAL BASIS TO .75% OF THE FUND'S
AVERAGE DAILY NET ASSETS.
THE FUND FINANCES DISTRIBUTION ACTIVITIES AND HAS ADOPTED A DISTRIBUTION PLAN
(THE :PLAN:) PURSUANT TO RULE 12B-1 UNDER THE INVESTMENT COMPANY ACT OF 1940.
Rule 12b-1 permits a mutual fund, such as the Fund, to finance distribution
activities and bear expenses associated with the distribution of its shares
provided that any payments made by the Fund are made pursuant to a written plan
adopted in accordance with the Rule. The Plan is subject to, and complies with,
the sales charge rule of the National Association of Securities Dealers, Inc.
(the NASD Rule). The Plan is described further in the Statement of Additional
Information, and the following is a description of the salient features of the
Plan. The Plan provides that the Fund, subject to the NASD Rule, will pay sales
commissions and distribution fees to the Principal Underwriter only after and as
a result of the sale of shares of the Fund. On each sale of Fund shares
(excluding reinvestment of distributions) the Fund will pay the Principal
Underwriter amounts representing (i) sales commissions equal to 5% 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. The Principal Underwriter
currently expects to pay sales commissions (except on exchange transactions and
reinvestments) to an Authorized Firm at the time of sale equal to 4% of the
purchase price of the shares sold by such Firm. The Principal Underwriter will
use its own funds (which may be borrowed from banks) to pay such commissions.
Because the payment of the sales commissions and distribution fees to the
Principal Underwriter is subject to the NASD Rule described below, it will take
the Principal Underwriter a number of years to recoup the sales commissions paid
by it to Authorized Firms from the payments received by it from the Fund
pursuant to the Plan.
THE NASD RULE REQUIRES THE FUND TO LIMIT ITS ANNUAL PAYMENTS OF SALES
COMMISSIONS AND DISTRIBUTION FEES TO THE PRINCIPAL UNDERWRITER TO AN AMOUNT NOT
EXCEEDING .75% OF THE FUND'S AVERAGE DAILY NET ASSETS FOR EACH FISCAL YEAR.
Under the Plan, the Fund accrues daily an amount at the rate of 1/365 of .75% of
the Fund's net assets, and pays such accrued amounts monthly to the Principal
Underwriter. The Plan requires such accruals to be automatically discontinued
during any period in which there are no outstanding Uncovered Distribution
Charges under the Plan. Uncovered Distribution Charges are calculated daily and,
briefly, are equivalent to all unpaid sales commissions and distribution fees to
which the Principal Underwriter is entitled under the Plan less all contingent
deferred sales charges theretofore paid to the Principal Underwriter. The Eaton
Vance organization may be considered to have realized a profit under the Plan if
at any point in time the aggregate amounts of all payments received by the
Principal Underwriter from the Fund pursuant to the Plan, including any
contingent deferred sales charges, have exceeded the total expenses theretofore
incurred by such organization in distributing shares of the Fund. Total expenses
for this purpose will include an allocable portion of the overhead costs of such
organization and its branch offices.
Because of the NASD Rule limitation on the amount of sales commissions and
distribution fees paid to the Principal Underwriter during any fiscal year, a
high level of sales of Fund shares during the initial years of the Fund's
operations would cause a large portion of the sales commission attributable to a
sale of Fund shares to be accrued and paid by the Fund to the Principal
Underwriter in fiscal years subsequent to the year in which such shares were
sold. This spreading of sales commissions payments under the Plan over an
extended period would result in the incurrence and payment of increased
distribution fees under the Plan. For the fiscal year ended September 30, 1994,
and for the period from October 1, 1994 to December 31, 1994, the Fund paid
sales commissions under the Plan to the Principal Underwriter equivalent to
0.75% and 0.75% (annualized), respectively, of the Fund's average daily net
assets for such periods. The amount of Uncovered Distribution Charges of the
Principal Underwriter calculated under the Plan on September 30, 1994 and
December 31, 1994 amounted to approximately $638,000 and $541,466, respectively
(equivalent to 2.1% and 1.9%, respectively, of the Fund's net assets on such
days).
THE FUND ALSO WILL PAY QUARTERLY SERVICE
FEES NOT EXPECTED TO EXCEED .25% OF THE
FUND'S AVERAGE DAILY NET ASSETS FOR EACH
FISCAL YEAR.
THE PLAN ALSO AUTHORIZES THE FUND TO MAKE PAYMENTS OF SERVICE FEES TO THE
PRINCIPAL UNDERWRITER, AUTHORIZED FIRMS AND OTHER PERSONS IN AMOUNTS NOT
EXCEEDING .25% OF THE FUND'S AVERAGE DAILY NET ASSETS FOR EACH FISCAL YEAR. The
Trustees of the Fund have initially implemented the Plan by authorizing the Fund
to make quarterly payments of service fees to the Principal Underwriter and
Authorized Firms in amounts not expected to exceed .25% of the Fund's average
daily net assets for any fiscal year based on the value of Fund shares sold by
such persons and remaining outstanding for at least twelve months. As permitted
by the NASD Rule, such payments are made for personal services and/or the
maintenance of shareholder accounts. Service fees are separate and distinct from
the sales commissions and distribution fees payable by the Fund to the Principal
Underwriter, and as such are not subject to automatic discontinuance when there
are no outstanding Uncovered Distribution Charges of the Principal Underwriter.
For the fiscal year ended September 30, 1994, and for the period from October 1,
1994 to December 31, 1994, the Fund made service fee payments to the Principal
Underwriter and Authorized Firms equivalent to 0.19% and 0.23% (annualized) of
the Fund's average daily net assets for such periods.
The Principal Underwriter may, from time to time, at its own expense,
provide additional incentives to Authorized Firms which employ registered
representatives who sell a minimum dollar amount of the Fund's shares and/or
shares of other funds distributed by the Principal Underwriter. In some
instances, such additional incentives may be offered only to certain Authorized
Firms whose representatives 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 Authorized Firms.
The Fund may, in its absolute discretion, suspend, discontinue or limit the
offering of its shares at any time. In determining whether any such action
should be taken, the Fund's management intends to consider all relevant factors,
including without limitation the size of the Fund, the investment climate and
market conditions, the volume of sales and redemptions of Fund shares, and the
amount of Uncovered Distribution Charges of the Principal Underwriter. The Plan
may continue in effect and payments may be made under the Plan following any
such suspension, discontinuance or limitation of the offering of Fund shares;
however, the Fund is not contractually obligated to continue the Plan for any
particular period of time. Suspension of the offering of Fund shares would not,
of course, affect a shareholder's ability to redeem shares.
DISTRIBUTIONS AND TAXES
- --------------------------------------------------------------------------------
DIVIDENDS WILL BE PAID AT LEAST
QUARTERLY. CAPITAL GAINS WILL BE
DISTRIBUTED ANNUALLY. THE FUND IS NOT
EXPECTED TO HAVE ANY FEDERAL OR STATE
TAX LIABILITY.
THE FUND'S POLICY IS TO DISTRIBUTE QUARTERLY SUBSTANTIALLY ALL OF THE NET
INVESTMENT INCOME ALLOCATED TO THE FUND BY THE PORTFOLIO, LESS THE FUND'S DIRECT
AND ALLOCATED EXPENSES, AND TO DISTRIBUTE AT LEAST ANNUALLY SUBSTANTIALLY ALL OF
ITS NET REALIZED CAPITAL GAINS. A portion of distributions from net investment
income will be eligible for the dividends- received deduction for corporations.
The Fund's distributions from its net investment income, net short-term capital
gains, and certain foreign exchange gains will be taxable to shareholders as
ordinary income, whether paid in cash or reinvested in additional shares of the
Fund. The Fund's distributions from its net long-term capital gains are taxable
to shareholders as long-term capital gains, whether paid in cash or reinvested
in additional shares of the Fund and regardless of the length of time Fund
shares have been owned by shareholders. Certain distributions declared by the
Fund in October, November or December and paid the following January will be
taxable to shareholders as if received on December 31 of the year in which they
are declared.
Shareholders will receive annually tax information notices and Forms 1099
to assist in the preparation of their Federal and state tax returns for the
prior calendar year's distributions, proceeds from the redemption or exchange of
Fund shares, and Federal income tax (if any) withheld by the Fund's Transfer
Agent.
In order to qualify as a regulated investment company under the Code, the
Fund must satisfy certain requirements relating to the sources of its income,
the distribution of its income, and the diversification of its assets. In
satisfying these requirements, the Fund will treat itself as owning its
proportionate share of each of the Portfolio's assets and as entitled to the
income of the Portfolio properly attributable to such share.
--------------------------------------------------------------------
AS A REGULATED INVESTMENT COMPANY UNDER THE CODE, THE FUND DOES NOT
PAY FEDERAL INCOME OR EXCISE TAXES TO THE EXTENT THAT IT DISTRIBUTES
TO SHAREHOLDERS ITS NET INVESTMENT INCOME AND NET REALIZED CAPITAL
GAINS IN ACCORDANCE WITH THE TIMING REQUIREMENTS IMPOSED BY THE
CODE. AS A PARTNERSHIP UNDER THE CODE, THE PORTFOLIO DOES NOT PAY
FEDERAL INCOME OR EXCISE TAXES.
--------------------------------------------------------------------
PERFORMANCE AND YIELD INFORMATION
- --------------------------------------------------------------------------------
FROM TIME TO TIME, THE FUND MAY ADVERTISE ITS YIELD AND/OR AVERAGE ANNUAL TOTAL
RETURN. The Fund's current yield is calculated by dividing the net investment
income per share during a recent 30-day period by the maximum offering price per
share (net asset value) of the Fund on the last day of the period and
annualizing the resulting figure. The Fund's average annual total return is
determined by computing the average annual percentage change in value of $1,000
invested at the maximum public offering price (net asset value) for specified
periods ending with the most recent calendar quarter, assuming reinvestment of
all distributions. The average annual total return calculation assumes a
complete redemption of the investment and the deduction of any applicable
contingent deferred sales charge at the end of the period. The Fund may also
publish annual and cumulative total return figures from time to time.
The Fund may also publish its distribution rate and/or its effective
distribution rate. The Fund's distribution rate is computed by dividing the most
recent monthly distribution per share annualized by the current maximum offering
price per share (net asset value). The Fund's effective distribution rate is
computed by dividing the distribution rate by 12 and reinvesting the resulting
amount for a full year on a monthly basis. The effective distribution rate will
be higher than the distribution rate because of the compounding effect of the
assumed reinvestment. Investors should note that the Fund's yield is calculated
using a standardized formula the income component of which is computed from
dividends on equity securities held by the Portfolio based on the stated annual
dividend rates of such securities, exclusive of special or extra distributions
(with all purchases and sales of securities during such period included in the
income calculation on a settlement date basis), and from the income earned on
short-term debt instruments held by the Portfolio, whereas the distribution rate
is based on the Fund's last monthly distribution, which tends to be relatively
stable and may be more or less than the amount of net investment income actually
earned by the Fund during the quarter.
The Fund may also publish total return figures which do not take into
account any contingent deferred sales charge which may be imposed upon
redemptions at the end of the specified period. Any performance figure which
does not take into account the contingent deferred sales charge would be reduced
to the extent such charge is imposed upon a redemption.
Investors should note that the investment results of the Fund will
fluctuate over time, and any presentation of the Fund's current yield or total
return for any prior periods should not be considered as a representation of
what an investment may earn or what the Fund's yield or total return may be in
any future period.
<PAGE>
INVESTMENT ADVISER OF
TOTAL RETURN PORTFOLIO
Boston Management and Research
24 Federal Street
Boston, MA 02110
ADMINISTRATOR OF
EATON VANCE EQUITY-INCOME TRUST
Eaton Vance Management
24 Federal Street
Boston, MA 02110
PRINCIPAL UNDERWRITER
Eaton Vance Distributors, Inc.
24 Federal Street
Boston, MA 02110
(800) 225-6265
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
(800) 262-1122
INDEPENDENT ACCOUNTANTS
Coopers & Lybrand L.L.P.
One Post Office Square
Boston, MA 02109
EATON VANCE EQUITY-INCOME TRUST
24 FEDERAL STREET
BOSTON, MA 02110
EIP
EATON VANCE
EQUITY-INCOME
TRUST
PROSPECTUS
MAY 1, 1995
<PAGE>
STATEMENT OF
ADDITIONAL INFORMATION
May 1, 1995
EATON VANCE EQUITY-INCOME TRUST
24 Federal Street
Boston, Massachusetts 02110
800-225-6265
- --------------------------------------------------------------------------------
TABLE OF CONTENTS Page
Investment Objective and Policies ......................................... 2
Investment Restrictions ................................................... 4
Trustees and Officers ..................................................... 5
Control Persons and Principal Holders of Securities ....................... 7
Investment Adviser and Administrator ...................................... 7
Custodian ................................................................. 10
Independent Accountants ................................................... 10
Service for Withdrawal .................................................... 10
Determination of Net Asset Value .......................................... 10
Purchase and Redemption of Shares ......................................... 11
Investment Performance .................................................... 11
Taxes ..................................................................... 14
Principal Underwriter ..................................................... 16
Distribution Plan ......................................................... 16
Portfolio Security Transactions ........................................... 18
Other Information ......................................................... 20
Financial Statements ...................................................... 21
- --------------------------------------------------------------------------------
THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT A PROSPECTUS AND IS
AUTHORIZED FOR DISTRIBUTION TO PROSPECTIVE INVESTORS ONLY IF PRECEDED OR
ACCOMPANIED BY THE CURRENT PROSPECTUS OFFERING SHARES OF EATON VANCE EQUITY-
INCOME TRUST (THE "FUND") DATED MAY 1, 1995, AS SUPPLEMENTED FROM TIME TO TIME.
THIS STATEMENT OF ADDITIONAL INFORMATION SHOULD BE READ IN CONJUNCTION WITH SUCH
PROSPECTUS, A COPY OF WHICH MAY BE OBTAINED WITHOUT CHARGE BY CONTACTING THE
PRINCIPAL UNDERWRITER (SEE BACK COVER FOR ADDRESS AND PHONE NUMBER).
<PAGE>
INVESTMENT OBJECTIVE AND POLICIES
The primary investment objective of Eaton Vance Equity-Income Trust (the
"Fund" or "Trust") is to seek for its shareholders a high level of total return,
consisting of relatively predictable income in conjunction with capital
appreciation, consistent with prudent management and preservation of capital.
The Fund currently seeks to meet its investment objective by investing its
assets in the Total Return Portfolio (the "Portfolio"), a separate registered
investment company with the same investment objective as the Fund and
substantially the same investment policies and restrictions as the Fund. The
Portfolio seeks to achieve its investment objective by investing principally in
dividend-paying common stocks with the potential for increased dividends in the
future.
The Trust is a Massachusetts business trust established in 1987.
The Trustees of the Trust may withdraw the Fund's investment from the
Portfolio at any time, if they determine that it is in the best interests of the
Fund to do so. Upon any such withdrawal, the Fund's assets would be invested in
another investment company with substantially the same investment objective,
policies and restrictions as those of the Fund or directly in investment
securities in accordance with the Portfolio's investment policies, as described
below. Except as indicated in the next paragraph, the approval of the Fund's
shareholders would not be required to change the Portfolio's investment
objective or any of the Portfolio's investment policies discussed below,
including those concerning security transactions.
Because the investment characteristics of the Fund will correspond directly
to those of the Portfolio, the following is a discussion of the various
investments of and techniques employed by the Portfolio.
LEVERAGE THROUGH BORROWING
The practice of leveraging to enhance investment return may be viewed as a
speculative activity. Leveraging will exaggerate any increase or decrease in the
market value of the securities held by the Portfolio. Money borrowed for
leveraging will be subject to interest costs which may or may not exceed the
dividends for the securities purchased. The Portfolio may also be required to
maintain minimum average balances in connection with such borrowing or to pay a
commitment or other fee to maintain a line of credit; either of these
requirements will increase the cost of borrowing over the stated interest rate.
The Portfolio and the other investment companies managed by Boston
Management and Research ("BMR") or Eaton Vance Management participate in a Line
of Credit Agreement (the "Credit Agreement") with Citibank, N.A. ("Citibank").
Citibank agrees, in the Credit Agreement, to consider requests from the
Portfolio and such other investment companies that Citibank make advances
("Advances") to the Portfolio and such other investment companies from time to
time. The aggregate amount of all such Advances to all such borrowers will not
exceed $120,000,000, of which $100,000,000 is a discretionary facility and
$20,000,000 is a committed facility. The Portfolio has currently determined that
its borrowings under the Credit Agreement will not exceed, at any one time
outstanding, the lesser of (a) 1/3 of the current market value of the net assets
of the Portfolio or (b) $60,000,000 (the "Amount Available to the Portfolio").
The Portfolio is obligated to pay to Citibank, in addition to interest on
Advances made to it, a quarterly fee on the $20,000,000 committed facility and
on the daily unused portion of the Amount Available to the Portfolio at the rate
of 1/4 of 1% per annum. The Credit Agreement may be terminated by Citibank or
the borrowers at any time upon 30 days' prior written notice. The Portfolio
expects to use the proceeds of the Advances primarily for leveraging purposes.
As at December 31, 1994, the Portfolio had no outstanding loans pursuant to the
Credit Agreement.
The Portfolio, like many other investment companies, can also borrow money
for temporary extraordinary or emergency purposes. Such borrowings may not
exceed 5% of the value of the Portfolio's total assets when the loan is made.
The Portfolio may pledge up to 10% of the lesser of cost or value of its total
assets to secure such borrowings.
The ability of the Portfolio to borrow could be partially or entirely
curtailed in the event that the Credit Control Act of 1969 were to be invoked
and the Federal Reserve Board were to limit or prohibit certain extensions of
credit. This Act empowers the Federal Reserve Board, when authorized by the
President, to regulate directly the costs and allocation of funds in the credit
market.
RISKS ASSOCIATED WITH DERIVATIVE INSTRUMENTS
Entering into a derivative instrument involves a risk that the applicable
market will move against the Portfolio's position and that the Portfolio will
incur a loss. For derivative instruments other than purchased options, this loss
may exceed the amount of the initial investment made or the premium received by
the Portfolio. Derivative instruments may sometimes increase or leverage the
Portfolio's exposure to a particular market risk. Leverage enhances the
Portfolio's exposure to the price volatility of derivative instruments it holds.
The Portfolio's 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 the
Portfolio assets. 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 Portfolio from closing out positions and limiting its
losses. The staff of the Securities and Exchange Commission ("Commission") takes
the position that purchased OTC options, and assets used as cover for written
OTC options, are subject to the Portfolio's 15% limit on illiquid investments.
The Portfolio's ability to terminate OTC derivative instruments may depend on
the cooperation of the counterparties to such contracts. The Portfolio expects
to purchase and write only exchange-traded options until such time as the
Portfolio's management determines that the OTC options market is sufficiently
developed and the Portfolio has amended its prospectus so that appropriate
disclosure is furnished to prospective and existing shareholders. For thinly
traded derivative instruments, the only source of price quotations may be the
selling dealer or counterparty. In addition, certain provisions of the Internal
Revenue Code of 1986, as amended ("Code"), limit the extent to which the
Portfolio may purchase and sell derivative instruments. The Portfolio will
engage in transactions in futures contracts and related options only to the
extent such transactions are consistent with the requirements of the Code for
maintaining the qualification of the Fund as a regulated investment company for
Federal income tax purposes. See "Taxes."
ASSET COVERAGE FOR DERIVATIVE INSTRUMENTS
Transactions using forward contracts, futures contracts and options (other
than options that the Portfolio has purchased) expose the Portfolio to 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, or other options or futures contracts or forward
contracts, or (2) cash, receivables and short-term debt securities with a value
sufficient at all times to cover its potential obligations not covered as
provided in (1) above. The Portfolio will comply with Commission guidelines
regarding cover for these instruments and, if the guidelines so require, set
aside cash, U.S. Government securities or other liquid, high-grade debt
securities in a segregated account with its custodian in the prescribed amount.
Assets used as cover or held in a segregated account cannot be sold while
the position in the corresponding forward contract, futures contract or option
is open, unless they are replaced with other appropriate assets. As a result,
the commitment of a large portion of the Portfolio's assets to cover or
segregated accounts counsel impede portfolio management or the Portfolio's
ability to meet redemption requests or other current obligations.
LIMITATIONS ON FUTURES CONTRACTS AND OPTIONS
If the Portfolio has not complied with the 5% CFTC test set forth in the
Fund's prospectus, to evidence its hedging intent, the Portfolio expects that,
on 75% or more of the occasions on which it takes a long futures or option on
futures position, it will have purchased or will be in the process of
purchasing, equivalent amounts of related securities at the time when the
futures or options position is closed out. However, in particular cases, when it
is economically advantageous for the Portfolio to do so, a long futures or
options position may be terminated (or an option may expire) without a
corresponding purchase of securities.
The Portfolio may enter into futures contracts, and options on futures
contracts, traded on an exchange regulated by the CFTC and on foreign exchanges,
but, with respect to foreign exchange-traded futures contracts and options on
such futures contracts, only if the Investment Adviser determines that trading
on each such foreign exchange does not subject the Portfolio to risks, including
credit and liquidity risks, that are materially greater than the risks
associated with trading on CRTC-regulated exchanges.
In order to hedge its current or anticipated portfolio position, the
Portfolio may use futures contracts on securities held in its Portfolio or on
securities with characteristics similar to those of the securities held by the
Portfolio. If, in the opinion of the Investment Adviser, there is a sufficient
degree of correlation between price trends for the securities held by the
Portfolio and futures contracts based on other financial instruments, securities
indices or other indices, the Portfolio may also enter into such futures
contracts as part of its hedging strategy.
All call and put options on securities written by the Portfolio will be
covered. This means that, in the case of a call option, the Portfolio will own
the securities subject to the call option or an offsetting call option so long
as the call option is outstanding. In the case of a put option, the Portfolio
will own an offsetting put option or will have deposited with its custodian cash
or liquid, high-grade debt securities with a value at least equal to the
exercise price of the put option. The Portfolio may only write a put option on a
security that it intends ultimately to acquire for its investment portfolio.
PORTFOLIO TURNOVER
The portfolio turnover rate of the Portfolio is likely to exceed 100%, but
under normal conditions is not likely to exceed 250%. A 100% turnover rate
occurs if all of the securities held by the Portfolio are sold and either
repurchased or replaced within one year. High portfolio turnover involves
correspondingly greater brokerage commissions and other transaction costs, which
will be borne directly by the Portfolio. It may also result in the realization
of capital gains. See "Portfolio Security Transactions" for a discussion of the
Portfolio's brokerage practices.
INVESTMENT RESTRICTIONS
The following investment restrictions are designated as fundamental policies
and as such cannot be changed without the approval of the holders of a majority
of the Fund's outstanding voting securities, which as used in this Statement of
Additional Information 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 shares are present or represented at the meeting or (b) more than 50% of the
shares of the Fund. Accordingly, the Fund may not:
(1) With respect to 75% of its total assets, invest more than 5% of its
total assets in the securities of any one issuer or purchase 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;
(2) Borrow money or issue senior securities except as permitted by the
Investment Company Act of 1940;
(3) Purchase securities on margin (but the Fund may obtain such short-term
credits as may be necessary for the clearance of purchases and sales of
securities). The deposit or payment by the Fund of initial, maintenance or
variation margin in connection with all types of options and futures contract
transactions is not considered the purchase of a security on margin;
(4) Underwrite or participate in the marketing of securities of others,
except insofar as it may technically be deemed to be an underwriter in selling a
portfolio security under circumstances which may require the registration of the
same under the Securities Act of 1933;
(5) Make an investment in any one industry if such investment would cause
investments in such industry to exceed 25% of the Fund's total assets (taken at
market value) except that the Fund will concentrate at least 25% of its
investments in utility stocks (i.e., principally electric, gas and telephone
companies);
(6) Purchase or sell real estate (including interests in real estate limited
partnerships), although it may purchase and sell securities which are secured by
real estate and securities of companies which invest or deal in real estate;
(7) Purchase or sell physical commodities or contracts for the purchase or
sale of physical commodities; or (8) Make loans to any person except by (a) the
acquisition of debt securities and making portfolio investments, (b) entering
into repurchase agreements and (c) lending portfolio securities.
Notwithstanding the investment policies and restrictions of the Fund, the
Fund may invest its assets in an open-end management investment company with
substantially the same investment objective, policies and restrictions as the
Fund.
For purposes of investment restriction (5) above, the Fund will not invest
25% or more of its assets in any one industry.
The Portfolio has adopted substantially the same fundamental investment
restrictions as the foregoing numbered investment restrictions adopted by the
Fund; such restrictions cannot be changed without the approval of a "majority of
the outstanding voting securities" of the Portfolio, which as used in this
Statement of Additional Information means the lesser of (a) 67% of the
outstanding voting securities of the Portfolio present or represented by proxy
at a meeting if the holders of more than 50% of the outstanding voting
securities of the Portfolio are present or represented at the meeting or (b)
more than 50% of the outstanding voting securities of the Portfolio. The term
"voting securities" as used in this paragraph has the same meaning as in the
Investment Company Act of 1940 (the "1940 Act"). Whenever the Trust is requested
to vote on a change in the investment restrictions of the Portfolio, the Trust
will hold a meeting of Fund shareholders and will cast its vote as instructed by
the shareholders.
The Fund and the Portfolio have each adopted the following nonfundamental
investment policies which may be changed with respect to the Fund by the
Trustees of the Trust without approval by the Fund's shareholders or may be
changed with respect to the Portfolio by the Trustees of the Portfolio with or
without the approval of the Fund or the Portfolio's other investors. As a matter
of nonfundamental policy, neither the Fund nor the Portfolio may: (a) invest
more than 15% of net assets in investments which are not readily marketable,
including restricted securities and repurchase agreements maturing in more than
seven days. Restricted securities for the purposes of this limitation do not
include securities eligible for resale pursuant to Rule 144A of the Securities
Act of 1933 that the Board of Trustees of the Fund or the Portfolio, or its
delegate, determine to be liquid, based upon the trading markets for the
specific security; (b) purchase warrants if, as a result of such purchase, more
than 5% of the Trust's net assets, taken at current value, would be invested in
warrants (and the value of such warrants which are not listed on the New York or
American Stock Exchange may not exceed 2% of the Trust's net assets); this
policy does not apply to or restrict warrants acquired by the Trust in units or
attached to securities, inasmuch as such warrants are deemed to be without
value; (c) make short sales of securities or maintain a short position, unless
at all times when a short position is open, the Fund owns an equal amount of
such securities or securities convertible into or exchangeable, without payment
of any further consideration, for securities of the same issue as, and equal in
amount to, the securities sold short, and unless no more than 25% of its net
assets (taken at current value) is held as collateral for such sales at any one
time. (It is the present intention of management to make such sales only for the
purpose of deferring realization of gain or loss for Federal income tax
purposes); (d) purchase securities of any issuer which, including predecessors,
has not been in continuous operation for at least three years, except that 5% of
its total assets (taken at market value) may be invested in certain issuers not
in such continuous operation but substantially all of whose assets are (i)
securities of one or more issuers which have had a record of three years'
continuous operation or (ii) assets of an independent division of an issuer
which division has had a record of three years' continuous operation; provided,
however, that exempted from this restriction are U.S. Government securities,
securities of issuers which are rated by at least one nationally recognized
statistical rating organization, municipal obligations and obligations issued or
guaranteed by any foreign government or its agencies or instrumentalities; (e)
purchase or retain in its portfolio any securities issued by an issuer, any of
whose officers, directors, trustees or security holders is an officer or trustee
of the Fund or the Portfolio or is a member, officer, director or trustee of any
investment adviser of the Trust or the Portfolio, if after the purchase of the
securities of such issuer by the Fund or the Portfolio one or more of such
persons owns beneficially more than 1/2 of 1% of the shares or securities or
both (all taken at market value) of such issuer and such persons owning more
than 1/2 of 1% of such shares of securities together own beneficially more than
5% of such shares or securities or both (all taken at market value); (f)
purchase oil, gas or other mineral leases or purchase partnership interests in
oil, gas or other mineral exploration or development programs; and (g) invest
more than 5% of its net assets in the securities of foreign issuers. (For
purposes of restriction (g), U.S. dollar denominated ADRs and GDRs traded on a
U.S. exchange shall not be deemed foreign securities.)
It is contrary to the present policy of the Fund and the Portfolio which may
be changed without shareholder or investor approval, as the case may be, to
purchase any voting security of any electric or gas utility company (as defined
by the Public Utility Holding Company Act of 1935) if as a result it would then
hold more than 5% of the outstanding voting securities of such company.
In order to permit the sale of shares of the Fund in certain states, the
Fund may make commitments more restrictive than the policies described above.
Should the Fund determine that any such commitment is no longer in the best
interests of the Fund and its shareholders, it will revoke the commitment by
terminating sales of its shares in the state(s) involved.
TRUSTEES AND OFFICERS
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, which is also the address of the Portfolio's investment
adviser, Boston Management and Research ("BMR"), a wholly-owned subsidiary of
Eaton Vance Management ("Eaton Vance"); of Eaton Vance's parent, Eaton Vance
Corp. ("EVC"); and of BMR's and Eaton Vance's trustee, Eaton Vance, Inc. ("EV").
Eaton Vance and EV are both wholly-owned subsidiaries of EVC. Those Trustees who
are "interested persons" of the Trust, the Portfolio, BMR, Eaton Vance, EVC or
EV, as defined in the 1940 Act, by virtue of their affiliation with any one or
more of the Trust, the Portfolio, BMR, Eaton Vance, EVC or EV, are indicated by
an asterisk(*).
TRUSTEES OF THE TRUST AND THE PORTFOLIO
JAMES B. HAWKES (53), President of the Trust, Vice President of the Portfolio
and Trustee*
Executive Vice President of Eaton Vance, BMR, EVC and EV, and a Director of EVC
and EV. Director, Trustee and officer of various investment companies managed
by Eaton Vance or BMR.
M. DOZIER GARDNER (61), President and Trustee of the Portfolio*
President and Chief Executive Officer of BMR, Eaton Vance, EVC and EV, and
Director of EVC and EV. Director, Trustee and officer of various investment
companies managed by Eaton Vance or BMR.
LANDON T. CLAY (69), Vice President and Trustee of the Portfolio*
Chairman of BMR, Eaton Vance, EVC and EV and a Director of EVC and EV. Director,
Trustee and officer of various investment companies managed by Eaton Vance or
BMR.
DONALD R. DWIGHT (64), Trustee
President of Dwight Partners, Inc. (a corporate relations and communications
company) founded in 1988; Chairman of the Board of Newspapers of New England,
Inc., since 1983. Director or Trustee of various investment companies managed
by Eaton Vance or BMR.
Address: Clover Mill Lane, Lyme, New Hampshire 03768
SAMUEL L. HAYES, III (60), Trustee
Jacob H. Schiff Professor of Investment Banking, Harvard University Graduate
School of Business Administration. Director or Trustee of various investment
companies managed by Eaton Vance or BMR.
Address: Harvard University Graduate School of Business Administration, Soldiers
Field Road, Boston, Massachusetts 02163
PETER F. KIELY (58), Vice President and Trustee of the Trust*
Vice President of Eaton Vance, BMR, and EV. Director or Trustee and officer of
various investment companies managed by Eaton Vance or BMR. Mr. Kiely was
elected Trustee and Vice President of the Trust on December 16, 1991.
NORTON H. REAMER (59), Trustee
President and Director, United Asset Management Corporation, a holding company
owning institutional investment management firms. Chairman, President and
Director, The Regis Fund, Inc. (mutual fund). Director or Trustee of various
investment companies managed by Eaton Vance or BMR.
Address: One International Place, Boston, Massachusetts 02110
JOHN L. THORNDIKE (68), Trustee
Director, Fiduciary Company Incorporated. Director or Trustee of various
investment companies managed by Eaton Vance or BMR.
Address: 175 Federal Street, Boston, Massachusetts 02110
JACK L. TREYNOR (65), Trustee
Investment Adviser and Consultant. Director or Trustee of various investment
companies managed by Eaton Vance or BMR.
Address: 504 Via Almar, Palos Verdes Estates, California 90274
OFFICERS OF THE TRUST AND THE PORTFOLIO
EDWIN W. BRAGDON (72), Vice President
Vice President of BMR, Eaton Vance and EV. Officer of various investment
companies managed by Eaton Vance or BMR.
A. WALKER MARTIN (49), Vice President
Vice President of BMR, Eaton Vance and EV. Officer of various investment
companies managed by Eaton Vance or BMR.
JAMES L. O'CONNOR (50), Treasurer
Vice President of BMR, Eaton Vance and EV. Officer of various investment
companies managed by Eaton Vance or BMR.
THOMAS OTIS (63), Secretary
Vice President and Secretary of BMR, Eaton Vance, EVC and EV. Officer of various
investment companies managed by Eaton Vance or BMR.
JANET E. SANDERS (59), Assistant Treasurer and Assistant Secretary
Vice President of BMR, Eaton Vance and EV. Officer of various investment
companies managed by Eaton Vance or BMR.
WILLIAM J. AUSTIN, JR. (43), Assistant Treasurer
Assistant Vice President of BMR, Eaton Vance and EV. Officer of various
investment companies managed by Eaton Vance or BMR. Mr. Austin was elected
Assistant Treasurer of the Trust on June 22, 1992.
A. JOHN MURPHY (32), Assistant Secretary
Assistant Vice President of BMR, Eaton Vance and EV since March 1, 1994;
employee of Eaton Vance since March 1993. Officer of various investment
companies managed by Eaton Vance or BMR. (State Regulations Supervisor, The
Boston Company, 1991-1993 and Registration Specialist, Fidelity Management &
Research Co., 1986-1991.) Mr. Murphy was elected Assistant Secretary of the
Trust and the Portfolio on March 27, 1995.
Messrs. Thorndike (Chairman), Hayes and Reamer are members of the Special
Committee of the Board of Trustees of the Trust and of the Portfolio. The
Special Committee's functions include a continuous review of the Trust's
contractual relationship with the Administrator, the Portfolio's contractual
relationship with the Investment Adviser, making recommendations to the Trustees
regarding the compensation of those Trustees who are not members of the Eaton
Vance organization, and making recommendations to the Trustees regarding
candidates to fill vacancies, as and when they occur, in the ranks of those
Trustees who are not "interested persons" of the Trust, the Portfolio, or the
Eaton Vance organization.
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 Trustees regarding the selection
of the independent accountants, and reviewing with such independent accountants
and the Treasurer of the Trust and of the Portfolio matters relative to
accounting and auditing practices and procedures, accounting records, internal
accounting controls, and the functions performed by the custodian and transfer
agent of the Fund and of the Portfolio.
The fees and expenses of those Trustees of the Trust and the Portfolio who
are not members of the Eaton Vance organization (the noninterested Trustees) are
paid by the Fund and the Portfolio, respectively. (The Trustees who are members
of the Eaton Vance organization receive no compensation from the Fund or the
Portfolio.) During the fiscal year ended December 31, 1994, the noninterested
Trustees of the Trust and the Portfolio earned the following compensation in
their capacities as Trustees from the Fund, the Portfolio and the other funds in
the Eaton Vance fund complex:<F1>
<TABLE>
<CAPTION>
AGGREGATE AGGREGATE RETIREMENT TOTAL COMPENSATION
COMPENSATION COMPENSATION BENEFIT ACCRUED FROM TRUST AND
NAME FROM FUND FROM PORTFOLIO FROM FUND COMPLEX FUND COMPLEX
- ---- ------------ -------------- ----------------- ------------------
<S> <C> <C> <C> <C> <C>
Donald R. Dwight ...... $266 $4,119<F2> $8,750 $135,000
Samuel L. Hayes, III .. 255 4,079<F3> 8,865 142,500
Norton H. Reamer ...... 247 4,002 -- 0 -- 135,000
John L. Thorndike ..... 254 4,140 -- 0 -- 140,000
Jack L. Treynor ....... 268 4,247 -- 0 -- 140,000
- ---------
<F1> The Eaton Vance fund complex consists of 201 registered investment
companies or series thereof.
<F2> Includes $331 of deferred compensation.
<F3> Includes $334 of deferred compensation.
</TABLE>
Trustees of the Portfolio who are not affiliated with the Investment Adviser
may elect to defer receipt of all or a percentage of their annual fees in
accordance with the terms of a Trustees Deferred Compensation Plan (the "Plan").
Under the Plan, an eligible Trustee may elect to have his deferred fees invested
by the Portfolio in the shares of one or more funds in the Eaton Vance Family of
Funds, and the amount paid to the Trustees under the Plan will be determined
based upon the performance of such investments. Deferral of Trustees' fees in
accordance with the 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 Trustee.
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
As at March 31, 1995, the Trustees and officers of the Trust, as a group,
owned in the aggregate less than 1% of the outstanding shares of the Fund. As of
March 31, 1995, Merrill Lynch, Pierce, Fenner & Smith, Inc., New Brunswick, NJ
was the record owner of approximately 37.7% of the outstanding shares, which
were held on behalf of its customers who are beneficial owners of such shares,
and as to which it 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 shares on such date.
INVESTMENT ADVISER AND ADMINISTRATOR
The Portfolio engages BMR as its investment adviser pursuant to an
Investment Advisory Agreement dated October 28, 1993. BMR or Eaton Vance acts as
investment adviser to investment companies and various individual and
institutional clients with combined assets under management of approximately $15
billion.
Eaton Vance, its affiliates and its predecessor companies have been managing
assets of individuals and institutions since 1924 and managing investment
companies since 1931. They maintain a large staff of experienced fixed-income
and equity investment professionals to service the needs of their clients. The
fixed-income division focuses on all kinds of taxable investment- grade and
high-yield securities, tax-exempt investment-grade and high-yield securities,
and U.S. Government securities. The equity division covers stocks ranging from
blue chip to emerging growth companies.
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. The Portfolio is responsible for all expenses not expressly stated
to be payable by BMR under the Investment Advisory Agreement, including, without
implied limitation, (i) expenses of maintaining the Portfolio and continuing its
existence, (ii) registration of the Portfolio under the 1940 Act, (iii)
commissions, fees and other expenses connected with the acquisition, holding and
disposition of securities and other investments, (iv) auditing, accounting and
legal expenses, (v) taxes and interest, (vi) governmental fees, (vii) expenses
of issue, sale and redemption of interests in the Portfolio, (viii) expenses of
registering and qualifying the Portfolio and interests in the Portfolio under
Federal and state securities laws and of preparing and printing registration
statements or other offering statements or memoranda for such purposes and for
distributing the same to investors, and fees and expenses of registering and
maintaining registrations of the Portfolio and of the Portfolio's placement
agent as broker-dealer or agent under state securities laws, (ix) expenses of
reports and notices to investors and of meetings of investors and proxy
solicitations therefor, (x) expenses of reports to governmental officers and
commissions, (xi) insurance expenses, (xii) association membership dues, (xiii)
fees, expenses and disbursements of custodians and subcustodians for all
services to the Portfolio (including without limitation safekeeping of funds,
securities and other investments, keeping of books, accounts and records, and
determination of net asset values, book capital account balances and tax capital
account balances), (xiv) fees, expenses and disbursements of transfer agents,
dividend disbursing agents, investor servicing agents and registrars for all
services to the Portfolio, (xv) expenses for servicing the accounts of
investors, (xvi) any direct charges to investors approved by the Trustees of the
Portfolio, (xvii) compensation and expenses of Trustees of the Portfolio who are
not members of BMR's organization, and (xviii) such non-recurring items as may
arise, including expenses incurred in connection with litigation, proceedings
and claims and the obligation of the Portfolio to indemnify its Trustees,
officers and investors with respect thereto.
Under the Investment Advisory Agreement with the Portfolio, BMR receives a
monthly advisory fee of .0625% (equivalent to .75% annually) of the average
daily net assets of the Portfolio up to $500 million. On net assets of $500
million and above the annual fee is reduced as follows:
AVERAGE DAILY NET ANNUALIZED FEE RATE
ASSETS FOR THE MONTH (FOR EACH LEVEL)
-------------------- -------------------
$500 million but less than $1 billion ....................... 0.6875%
$1 billion but less than $1.5 billion ....................... 0.6250%
$1.5 billion but less than $2 billion ....................... 0.5625%
$2 billion but less than $3 billion ......................... 0.5000%
$3 billion and over ......................................... 0.4375%
As at December 31, 1994, the Portfolio had net assets of $505,566,892. For
the fiscal year ended December 31, 1994, the Portfolio paid BMR advisory fees of
$4,106,857 (equivalent to 0.74% of the Portfolio's average daily net assets for
such year). For the period from the Portfolio's start of business, October 28,
1993, to the fiscal year ended December 31, 1993, the Portfolio paid BMR
advisory fees of $841,228 (equivalent to 0.74% (annualized) of the Portfolio's
average daily net assets for such period).
Prior to the close of business on September 30, 1994 (when the Fund
transferred its assets to the Portfolio in exchange for an interest in the
Portfolio), the Fund retained Eaton Vance as its investment adviser. As at
September 30, 1994, the Fund had net assets of $30,126,226. For the fiscal year
ended September 30, 1994, the Fund paid Eaton Vance advisory fees of $294,607
(equivalent to 0.75% of the Fund's average daily net assets for such year). The
Fund paid Eaton Vance advisory fees of $360,036 and $394,943, respectively, for
the fiscal years ended September 30, 1993 and September 30, 1992.
The Investment Advisory Agreement with BMR remains in effect until February
28, 1996. It may be continued indefinitely thereafter so long as such
continuance after February 28, 1996 is approved at least annually (i) by the
vote of a majority of the Trustees of the Portfolio who are not interested
persons of the Portfolio or of BMR 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 (60) 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 and
engage in other business activities and may permit other fund clients and other
corporations and organizations to use the words "Eaton Vance" or "Boston
Management and Research" in their names. 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.
As indicated in the Prospectus, Eaton Vance serves as Administrator of the
Fund, but receives no compensation for providing administrative services to the
Fund. Under its Administrative Services Agreement with the Fund, 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.
The Fund pays all of its own expenses including, without limitation, (i)
expenses of maintaining the Fund and continuing its existence, (ii) registration
of the Trust under the 1940 Act, (iii) commissions, fees and other expenses
connected with the purchase or sale of securities and other investments, (iv)
auditing, accounting and legal expenses, (v) taxes and interest, (vi)
governmental fees, (vii) expenses of issue, sale, repurchase and redemption of
shares, (viii) expenses of registering and qualifying the Fund and its shares
under federal and state securities laws and of preparing and printing
prospectuses for such purposes and for distributing the same to shareholders and
investors, and fees and expenses of registering and maintaining registrations of
the Fund and of the Fund's principal underwriter, if any, as broker-dealer or
agent under state securities laws, (ix) expenses of reports and notices to
shareholders and of meetings of shareholders and proxy solicitations therefor,
(x) expenses of reports to governmental officers and commissions, (xi) insurance
expenses, (xii) association membership dues, (xiii) fees, expenses and
disbursements of custodians and subcustodians for all services to the Fund
(including without limitation safekeeping of funds, securities and other
investments, keeping of books and accounts and determination of net asset
values), (xiv) fees, expenses and disbursements of transfer agents, dividend
disbursing agents, shareholder servicing agents and registrars for all services
to the Fund, (xv) expenses for servicing shareholder accounts, (xvi) any direct
charges to shareholders approved by the Trustees of the Trust, (xvii)
compensation and expenses of Trustees of the Trust who are not members of the
Eaton Vance organization, and (xviii) such non-recurring items as may arise,
including expenses incurred in connection with litigation, proceedings and
claims and the obligation of the Trust to indemnify its Trustees and officers
with respect thereto.
BMR is a wholly-owned subsidiary of Eaton Vance. Eaton Vance and EV are both
wholly-owned subsidiaries of EVC. BMR and Eaton Vance are both Massachusetts
business trusts, and EV is the trustee of BMR and Eaton Vance. The Directors of
EV are Landon T. Clay, H. Day Brigham, Jr., M. Dozier Gardner, James B. Hawkes
and Benjamin A. Rowland, Jr. The Directors of EVC consist of the same persons
and John G. L. Cabot and Ralph Z. Sorenson. Mr. Clay is chairman and Mr. Gardner
is president and chief executive officer of EVC, BMR, Eaton Vance and EV. All of
the issued and outstanding shares of Eaton Vance and EV 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 which
expires on December 31, 1996, the Voting Trustees of which are Messrs. Clay,
Brigham, Gardner, Hawkes and Rowland. 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 and Directors of EVC and
EV. As of March 31, 1995, Messrs. Clay, Gardner and Hawkes each owned 24% of
such voting trust receipts, and Messrs. Rowland and Brigham owned 15% and 13%,
respectively, of such voting trust receipts. Messrs. Clay, Gardner, Hawkes and
Otis are officers or Trustees of the Trust and/or the Portfolio and are members
of the EVC, BMR, Eaton Vance and EV organizations. Messrs. Austin, Bragdon,
Kiely, Martin, Murphy and O'Connor and Ms. Sanders are officers or Trustees of
the Trust and the Portfolio and are also members of the BMR, Eaton Vance and EV
organizations. BMR will receive the fees paid under the Investment Advisory
Agreement.
Eaton Vance owns all of the stock of Energex Corporation, which is engaged
in oil and gas operations. EVC owns all of the stock of Marblehead Energy Corp.
(which engages in oil and gas operations) and owns 77.3% of the stock of
Investors Bank & Trust Company, custodian of the Fund and the Portfolio, which
provides custodial, trustee and other fiduciary services to investors, including
individuals, employee benefit plans, corporations, investment companies, savings
banks and other institutions. In addition, Eaton Vance owns all the stock of
Northeast Properties, Inc., which is engaged in real estate investment,
consulting and management. EVC owns all the stock of Fulcrum Management, Inc.
and MinVen, Inc., which are engaged in the development of precious metal
properties. EVC, BMR, Eaton Vance and EV may also enter into other businesses.
EVC and its affiliates and their officers and employees from time to time
have transactions with various banks, including the custodian of the Fund and
the Portfolio, Investors Bank & Trust Company. 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
Trust or the Portfolio and such banks.
CUSTODIAN
Investors Bank & Trust Company ("IBT"), 24 Federal Street, Boston,
Massachusetts (a 77.3% owned subsidiary of EVC) acts as custodian for the Fund
and the Portfolio. IBT has the custody of all cash and securities representing
the Fund's interest in the Portfolio, has custody of all 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 Fund and
the Portfolio. IBT charges fees which are competitive within the industry. A
portion of the fee relates to custody, bookkeeping and valuation services and is
based upon a percentage of Fund and Portfolio net assets, and a portion of the
fee relates to activity charges, primarily the number of portfolio transactions.
These fees are then reduced by a credit for cash balances of the particular
investment company at the custodian equal to 75% of the 91-day, U.S. Treasury
Bill auction rate applied to the particular investment company's average daily
collected balances for the week. In view of the ownership of EVC in IBT, the
Portfolio is treated as a self-custodian pursuant to Rule 17f-2 under the 1940
Act, and the Portfolio's investments held by IBT as custodian are thus subject
to additional examinations by the Portfolio's independent accountants as called
for by such Rule. For the fiscal year ended September 30, 1994, and for the
period from October 1, 1994 to December 31, 1994, the Fund paid IBT $31,599 and
$2,121, respectively, for its services as custodian. For the fiscal year ended
December 31, 1994, the Portfolio paid IBT $159,872.
INDEPENDENT ACCOUNTANTS
Coopers & Lybrand L.L.P., One Post Office Square, 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 Securities and Exchange Commission.
SERVICE FOR WITHDRAWAL
By a standard agreement, the Fund's Transfer Agent will send to the
shareholder regular monthly or quarterly payments of any permitted amount
designated by the shareholder (see "Eaton Vance Shareholder Services --
Withdrawal Plan" in the Fund's prospectus) based upon the value of the shares
held. The checks will be drawn from share redemptions and hence are a return of
principal and may give rise to gain or loss for tax purposes. Income dividend
and capital gains distributions in connection with withdrawal 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.
To use this service, at least $5,000 in cash or shares at the public
offering price (i.e., net asset value plus the applicable sales charge) will
have to be deposited with the Transfer Agent. 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.
Either the shareholder, the Transfer Agent or the Principal Underwriter will be
able to terminate the withdrawal plan at any time without penalty.
DETERMINATION OF NET ASSET VALUE
The net asset value of the Portfolio and of shares of the Fund is
determined by the custodian, IBT (as agent for the Fund and the Portfolio) in
the manner described under "How the Fund and the Portfolio Determine their Net
Asset Values" in the Fund's current prospectus. 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, Presidents' Day, Good Friday
(a New York Stock Exchange holiday), Memorial Day, Independence Day, Labor Day,
Thanksgiving Day and Christmas Day.
Securities listed on securities exchanges or in the NASDAQ National Market
are valued at closing sales prices. Unlisted or listed securities for which
closing sales prices are not available are valued at the mean between the latest
available bid and asked prices. An option or futures contract is valued at the
last sale price, as quoted on the principal exchange or board of trade on which
such option or futures contract is traded or, in the absence of a sale, at the
mean between the last bid and asked prices. Short-term obligations maturing in
sixty days or less are valued at amortized cost, which is believed to represent
fair value. Securities for which market quotations are unavailable, including
any security the disposition of which is restricted under the Securities Act of
1933, and other assets will be appraised at their fair value as determined in
good faith by or at the direction of the Trustees of the Portfolio.
Each investor in the Portfolio, including the Fund, may add to or reduce its
investment in the Portfolio on each day the New York Stock Exchange (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
a percentage equal to a fraction (i) the numerator of which is the value of such
investor's investment in 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
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.
PURCHASE AND REDEMPTION OF SHARES
For information regarding the purchase of shares, see "How to Buy Shares of
the Fund for Cash" and "How to Acquire Fund Shares in Exchange for Securities"
in the Fund's current prospectus.
For a description of how a shareholder may have the Fund redeem his or her
shares, or how a shareholder may sell his or her shares through an Authorized
Firm, see "How to Redeem or Sell Fund Shares" in the Fund's current prospectus.
See the Statement of Assets and Liabilities in the Fund's Financial
Statements for a specimen price mark-up sheet showing the computation of maximum
offering price per share as at December 31, 1994.
INVESTMENT PERFORMANCE
The average annual total return is determined by multiplying a hypothetical
initial purchase order of $1,000 by the average annual compound rate of return
(including capital appreciation/depreciation, and dividends and distributions
paid and reinvested) for the stated period and annualizing the result. The
calculation assumes that all dividends and distributions are reinvested at net
asset value on the reinvestment dates during the period and a complete
redemption of the investment and, if applicable, the deduction of the maximum
contingent deferred sales charge at the end of the period.
The Fund's yield is computed pursuant to a standardized formula by dividing
its net investment income per share earned during a recent thirty-day period by
the maximum offering price (net asset value) per share on the last day of the
period and annualizing the resulting figure. Net investment income per share is
calculated using a standardized formula the income component of which is
computed from dividends on equity securities held by the Portfolio based on the
stated annual dividend rates of such securities, exclusive of special or extra
distributions (with all purchases and sales of securities during such period
included in the income calculation on a settlement date basis), and from the
income earned on short-term debt instruments held by the Portfolio, and such
income is then reduced by accrued Fund expenses for the period, with the
resulting number being divided by the average daily number of Fund shares
outstanding and entitled to receive dividends during the period. The yield
figure does not reflect the deduction of any contingent deferred sales charges
which are imposed upon certain redemptions at the rates set forth under "How to
Redeem or Sell Fund Shares" in the prospectus. For the thirty-day period ended
December 31, 1994, the yield of the Fund was 3.24%.
The Fund may publish its distribution rate and/or its effective distribution
rate. The Fund's distribution rate is computed by dividing the most recent
monthly distribution per share annualized, by the current net asset value per
share. The Fund's effective distribution rate is computed by dividing the
distribution rate by 12 and reinvesting the resulting amount for a full year on
a monthly basis. The effective distribution rate will be higher than the
distribution rate because of the compounding effect of the assumed reinvestment.
Investors should note that the Fund's yield is calculated using a standardized
formula the income component of which is computed from dividends on equity
securities and from the income earned on short-term debt instruments held by the
Portfolio, whereas the distribution rate is based on the Fund's last monthly
distribution. Monthly distributions tend to be relatively stable and may be more
or less than the amount of net investment income and short-term capital gain
actually earned by the Fund during the quarter. The Fund's distribution rate
(calculated on December 31, 1994 and based on the Fund's quarterly distribution
paid December 31, 1994) was 3.56%, and the Fund's effective distribution rate
(calculated on the same date and based on the same quarterly distribution) was
3.61%.
The table below indicates the total return (capital changes plus
reinvestment of all distributions) on a hypothetical investment of $1,000 in the
Fund covering the life of the Fund from October 21, 1987 through December 31,
1994, and for the five-year and the one-year periods ended December 31, 1994.
VALUE OF A $1,000 INVESTMENT
<TABLE>
<CAPTION>
VALUE OF INVEST- VALUE OF INVEST- TOTAL RETURN
MENT BEFORE DE- MENT AFTER DE- TOTAL RETURN BEFORE AFTER DEDUCTING
DUCTING THE CON- DUCTING THE CON- DEDUCTING THE CONTINGENT THE CONTINGENT DEFERRED
TINGENT DEFERRED TINGENT DEFERRED DEFERRED SALES CHARGE SALES CHARGE**
INVESTMENT INVESTMENT AMOUNT OF SALES CHARGE SALES CHARGE<F2> --------------------------------------------------
PERIOD DATE INVESTMENT 12/31/94 12/31/94 CUMULATIVE ANNUALIZED CUMULATIVE ANNUALIZED
- ---------- ---------- ---------- ---------------- ---------------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Life of the Fund* 10/21/87 $1,000 $ 1,464.25 $ 1,464.25 46.43% 5.44% 46.43% 5.44%
5 Years Ended
12/31/94 2/31/89 $1,000 $ 1,078.13 $ 1,060.79 7.81% 1.52% 6.08% 1.19%
1 Year Ended
12/31/94 12/31/93 $1,000 $ 934.16 $ 889.15 - 6.58% -6.58% -11.09% -11.09%
</TABLE>
<TABLE>
PERCENTAGE CHANGES 10/21/87--12/31/94
<CAPTION>
NET ASSET VALUE TO NET ASSET VALUE NET ASSET VALUE TO NET ASSET VALUE
BEFORE DEDUCTING THE CONTINGENT DEFERRED SALES AFTER DEDUCTING THE CONTINGENT DEFERRED SALES
CHARGE WITH WITH ALL DISTRIBUTIONS REINVESTED** CHARGE WITH ALL DISTRIBUTIONS REINVESTED
FISCAL YEAR ----------------------------------------------- ------------------------------------------------
ENDED ANNUAL CUMULATIVE AVERAGE ANNUAL ANNUAL CUMULATIVE AVERAGE ANNUAL
- ----------- ------ ---------- -------------- ------ ---------- --------------
<S> <C> <C> <C> <C> <C> <C>
12/31/87<F1> -- 0.13% -- -- -4.84% --
12/31/88 4.94% 5.08% 4.22% - 0.00% 0.17% 0.14%
12/31/89 29.25% 35.81% 14.95% 24.25% 31.81% 13.39%
12/31/90 -4.79% 29.31% 8.37% -9.30% 26.31% 7.58%
12/31/91 11.80% 44.57% 9.18% 6.80% 42.57% 8.82%
12/31/92 1.03% 46.05% 7.56% -3.81% 45.05% 7.41%
12/31/93 7.32% 56.75% 7.52% 2.32% 56.75% 7.52%
12/31/94 -6.58% 46.43% 5.44% -11.09% 46.43% 5.44%
This was a period of fluctuating prices and interest rates; the above tables
should not be considered a representation of the future performance of the Fund.
<FN>
- ----------
<F1> Investment operations began on October 21, 1987
<F2> No contingent deferred sales charge is imposed on shares purchased more
than six years prior to the redemption, shares acquired through the
reinvestment of dividends and distributions, or any appreciation in value
of other shares in the account, and no such charge is imposed on exchanges
of Fund shares for shares of one or more other funds listed under "The
Eaton Vance Exchange Privilege" in the Prospectus.
</TABLE>
Some of the expenses related to the operation of the Fund during this period
were allocated to Eaton Vance Management, which increased total return/ yield.
The Fund's total return and yield may be compared to the Consumer Price
Index and various domestic securities indices, for example: Standard & Poor's
Utilities Index, Standard & Poor's 400 Stock Index, Standard & Poor's 500 Stock
Index. Standard & Poor's Telephone Index, Standard & Poor's Natural Gas Index,
Standard & Poor's Electric Companies Index, Merrill Lynch U.S. Treasury (15-year
plus) Index, Lehman Brothers Government/Corporate Bond Index, Dow Jones 15
Utility Average, and the Dow Jones Industrial Average. The Fund's total return,
yield and comparisons with these indices may be used in advertisements and in
information furnished to present or prospective shareholders. The Fund's
performance may differ from that of other investors in the Portfolio, including
any 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, (e.g. Ibbotson Associates, Standard &
Poor's Ratings Group, Merrill Lynch, Pierce, Fenner & Smith, Inc., Bloomberg,
L.P., Dow Jones & Company, Inc., and The Federal Reserve Board) or included in
various publications (e.g. The Wall Street Journal, Barron's and The Decade:
Wealth of Investments in U.S. Stocks, Bonds, Bills & Inflation) 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.
From time to time, evaluations of the Fund's performance made by independent
sources, e.g., Lipper Analytical Srvices, Inc., CDA/Wiesenberger and
Morningstar, Inc., may be used in advertisements and in informatin furnished to
present and prospective shareholders, may be used in advertisements and in
information furnished to present or prospective
shareholders.
From time to time, information showing the effect of compounding interest
may be included in advertisements and other material furnished to present and
prospective shareholders. Compounding is the process of earning income on
principal plus interest that was earned earlier. Interest can be compounded
annually, semi-annually, quarterly or daily, e.g. $1,000 compounded annually at
9% will grow to $1,090 at the end of the first year and $1,188 at the end of the
second year. The extra $8, which was earned on the $90 income from the first
year, is the compound interest. $1,000 compounded annually at 9% grows to $2,367
at the end of 10 years and $5,604 at the end of 20 years. Other examples of
compounding $1,000 annually are 7% grows to $1,967 at the end of 10 years and
$3,870 at the end of 20 years. At 12% the $1,000 grows to $3,106 at the end of
10 years and $9,646 at the end of 20 years. All of these examples are for
illustrative purposes only and are not meant to indicate performance of the
Fund.
From time to time, information, charts and illustrations relating to
inflation and the effects of inflation on the dollar may be included in
advertisements and other material furnished to present and prospective
shareholders. For example: After 10 years, the purchasing power of $25,000 would
shrink to $16,621, $14,968, $13,465 and $12,100, respectively, if the annual
rate of inflation during such period were 4%, 5%, 6% and 7%, respectively. (To
calculate the purchasing power, the value at the end of each year is reduced by
the above inflation rates for 10 consecutive years.)
From time to time, information about the portfolio allocation and holdings
of the Portfolio may be included in advertisements and other material furnished
to present and prospective shareholders.
The Portfolio's portfolio allocation on March 31, 1995 was:
PERCENT OF NET ASSETS
---------------------
Common Stock ........................................ 82.99%
Electric Utilities ........................ 54.55%
Telephone Utilities ....................... 8.38
Natural Gas ............................... 0.55
Oil ....................................... 5.24
REITs ..................................... 14.12
Other ..................................... 0.15
Convertible Preferred ............................... 2.68
Convertible Bonds ................................... 3.51
Cash and Commercial Paper ........................... 10.82
------
Total ........................................... 100.00%
The Portfolio's 10 largest common stock holdings on March 31, 1995, were:
COMPANY PERCENT OF NET ASSETS
------- ---------------------
Cinergy ............................................. 4.5%
FPL Group ........................................... 4.4
DPL Inc. ............................................ 4.0
Carolina Power & Light .............................. 3.3
DQE ................................................. 2.7
Nipsco Industries ................................... 2.5
Ameritech ........................................... 2.5
Central Louisiana Electric .......................... 2.5
Southern Company .................................... 2.5
Central Pacific & Southwest ......................... 2.4
----
Total ........................................... 31.3%
Information used in advertisements and in materials furnished to present and
prospective shareholders may include statements or illustrations relating to the
appropriateness of types of securities and/or mutual funds which may be employed
to meet specific financial goals, such as (1) funding retirement, (2) paying for
children's education, and (3) financially supporting aging parents. These three
financial goals may be referred to in such advertisements or materials as the
"Triple Squeeze."
TAXES
See "Distributions and Taxes" in the Fund's current prospectus.
The Fund has elected to be treated, has qualified and intends to continue to
qualify each year, as a regulated investment company ("RIC") under the Internal
Revenue Code ("the Code"). Accordingly, the Fund intends to satisfy certain
requirements relating to sources of its income and diversification of its assets
and to distribute all of its net investment income and net realized capital
gains in accordance with the timing requirements imposed by the Code, so as to
avoid any Federal income or excise tax on the Fund. The Fund so qualified for
the fiscal year ended September 30, 1994, and for the period from October 31,
1994 to December 31, 1994 (see the Notes to Financial Statements). 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 satisfy them. The Portfolio will allocate at least annually among
its investors, including the Fund, the Portfolio's net investment income, net
realized capital gains, and any other items of income, gain, loss, deduction or
credit. The Portfolio will make allocations to the Fund in accordance with the
Code and applicable regulations and will make moneys available for withdrawal at
appropriate times and in sufficient amounts to enable the Fund to satisfy the
tax distribution requirements that apply to the Fund and that must be satisfied
in order to avoid Federal income and/or excise tax on the Fund. For purposes of
applying the requirements of the Code regarding qualification as a RIC, the Fund
will be deemed (i) to own its proportionate share of each of the assets of the
Portfolio and (ii) to be entitled to the gross income of the Portfolio
attributable to such share.
In order to avoid Federal excise tax, the Code requires that the Fund
distribute (or be deemed to have distributed) by December 31 of each calendar
year at least 98% of its ordinary income (not including tax-exempt income) for
such year, at least 98% of the excess of its realized capital gains over its
realized capital losses, generally computed on the basis of the one-year period
ending on October 31 of such year or, by election, December 31 of such year,
after reduction by any available capital loss carryforwards, and 100% of any
income or capital gain from the prior year (as previously computed) that was not
paid out during such year and on which the Fund paid no Federal income tax.
As of the close of business, September 30, 1994, the Fund contributed its
assets to the Portfolio in exchange for an interest in the Portfolio. The Trust
has obtained an opinion of tax counsel to the effect that, although there is no
judicial authority directly on point, this contribution will not result in the
recognition of gain or loss by the Fund for Federal income tax purposes. The
Trust intends to file the Fund's Federal income tax return for its taxable year
ended December 31, 1994 reporting such contribution of assets in a manner
consistent with such opinion. If it were determined that this contribution by
the Fund was a taxable transaction, the Fund could be required to recognize gain
on the transfer of its assets to the Portfolio and to make additional
distributions to its shareholders in order to avoid Fund-level Federal income
taxes, and any such distributions would be taxable to the shareholders who
receive them; and in such case, the Fund might also be required to pay penalties
and/or interest to the Internal Revenue Service.
Distributions of net investment income and the excess of net short-term
capital gain over net long-term capital loss and certain foreign exchange gains
earned by the Portfolio and allocated to the Fund are taxable to shareholders of
the Fund as ordinary income whether received in cash or reinvested in additional
shares. Distributions of the excess of net long-term capital gain over net
short-term capital loss (including any capital loss carried forward from prior
years) earned by the Portfolio and allocated to the Fund are taxable to
shareholders of the Fund as long-term capital gains, whether received in cash or
reinvested in additional shares, and regardless of the length of time their
shares have been held.
Distributions by the Fund reduce the net asset value of the Fund's shares.
Should a distribution reduce the net asset value below a shareholder's cost
basis, such distribution would be taxable to the shareholder even though, from
an investment standpoint, it may constitute a return of capital. Therefore,
investors should consider the tax implications of buying shares immediately
before a distribution.
A portion of distributions made by the Fund which are derived from dividends
received by the Portfolio from domestic corporations and allocated to the Fund
may qualify for the dividends-received deduction for corporations. The
dividends-received deduction for corporate shareholders 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 Federal income tax law 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 deduction
may result in reduction of the tax basis of the corporate shareholder's shares.
Distributions eligible for the dividends-received deduction may give rise to or
increase an alternative minimum tax for corporations.
Any loss realized upon the redemption or exchange of shares of the Fund with
a tax holding period of 6 months or less will be treated as a long-term capital
loss to the extent of any distribution of net long-term capital gains with
respect to such shares. In addition, all or a portion of a loss realized on a
redemption or other disposition of Fund shares may be disallowed under certain
"wash sale" rules if other 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.
The Portfolio's transactions in options and futures contracts will be
subject to special tax rules that may affect the amount, timing and character of
Fund distributions to shareholders. For example, certain positions held by the
Portfolio on the last business day of each taxable year will be marked to market
(i.e., treated as if closed out on such day), and any resulting gain or loss
will generally be treated as 60% long-term and 40% short-term capital gain or
loss. Certain positions held by the Portfolio that substantially diminish the
Portfolio's risk of loss with respect to other positions in its portfolio may
constitute "straddles," which are subject to tax rules that may cause deferral
of Portfolio losses, adjustments in the holding period of Portfolio securities
and conversion of short-term into long-term capital losses. The Portfolio may
have to limit its activities in options and futures contracts in order to enable
the Fund to maintain its qualification as a RIC.
The Portfolio may be subject to foreign withholding or other foreign taxes
with respect to income (possibly including, in some cases, capital gains) on
certain foreign securities. As it is not expected that more than 50% of the
value of the Fund's total assets, taking into account its allocable share of the
Portfolio's total assets at the close of any taxable year of the Fund, will
consist of securities issued by foreign corporations, the Fund will not be
eligible to pass through to shareholders their proportionate share of foreign
taxes paid by the Portfolio and allocated to the Fund, with the result that
shareholders will not include in income, and will not be entitled to take any
foreign tax credits or deductions for, foreign taxes paid by the Portfolio and
allocated to the Fund. However, the Fund may deduct such taxes in calculating
its distributable income earned by the Portfolio and allocated to the Fund.
These taxes may be reduced or eliminated under the terms of an applicable U.S.
income tax treaty. Certain foreign exchange gains and losses realized by the
Portfolio and allocated to the Fund will be treated as ordinary income and
losses. Certain uses of foreign currency and investment by the Portfolio in the
stock of certain "passive foreign investment companies" may be limited or a tax
election may be made, if available, in order to preserve the Fund's
qualification as a RIC and/or avoid imposition of a tax on the Fund.
Special tax rules apply to Individual Retirement Accounts ("IRAs") and to
other retirement plans, and persons investing through such plans should consult
their tax advisers for more information.
Amounts paid by the Fund to individuals and certain other shareholders who
have not provided the Fund with their correct taxpayer identification number and
certain required certifications, as well as shareholders with respect to whom
the Fund has received notification from the Internal Revenue Service or a
broker, may be subject to "backup" withholding of Federal income tax from the
Fund's dividends and distributions and the proceeds of redemptions (including
repurchases and exchanges), at a rate of 31%. An individual's taxpayer
identification number is generally his or her social security number.
Non-resident alien individuals and certain foreign corporations and other
foreign entities generally will be subject to a U.S. withholding tax at a rate
of 30% on the Fund's distributions from its ordinary income and the excess of
its net short-term capital gain over its net long-term capital loss, unless the
tax is reduced or eliminated by an applicable tax treaty. Distributions from the
excess of the Fund's net long-term capital gain over its net short-term capital
loss received by such shareholders and any gain from the sale or other
disposition of shares of the Fund generally will not be subject to U.S. Federal
income taxation, provided that non-resident alien status has been certified by
the shareholder. Different U.S. tax consequences may result if the shareholder
is engaged in a trade or business in the United States, is present in the United
States for a sufficient period of time during a taxable year to be treated as a
U.S. resident, or fails to provide any required certifications regarding status
as a non-resident alien investor. Foreign shareholders should consult their tax
advisers regarding the U.S. and foreign tax consequences of an investment in the
Fund.
The foregoing discussion does not address the special tax rules applicable
to certain classes of investors, such as retirement plans, tax-exempt entities,
insurance companies and financial institutions. Shareholders should consult
their own tax advisers with respect to special tax rules that may apply in their
particular situations, as well as the state, local or foreign tax consequences
of investing in the Fund.
PRINCIPAL UNDERWRITER
Under the Distribution Agreement the Principal Underwriter acts as principal
in selling shares of the Fund. The expenses of printing copies of prospectuses
used to offer shares to financial service firms or investors and other selling
literature and of advertising is 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
is borne by the Fund. In addition, the Fund makes payments to the Principal
Underwriter pursuant to its Distribution Plan as described in the Fund's current
prospectus; the provisions of the plan relating to such payments are included in
the Distribution Agreement. The Distribution Agreement is renewable annually by
the Trust's Board of Trustees (including a majority of its Trustees who are not
interested persons of the Trust and who have no direct or indirect financial
interest in the operation of the Fund's 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 voting securities of the Fund or on six
months' notice by the Principal Underwriter and is automatically terminated upon
assignment. The Principal Underwriter distributes Fund shares on a "best
efforts" basis under which it is required to take and pay for only such shares
as may be sold.
The Fund has authorized the Principal Underwriter to act as agent in
repurchasing shares and paid the Principal Underwriter $1,945 for the period
ended December 31, 1994 (being $2.50 for each repurchase transaction handled by
the Principal Underwriter). The Principal Underwriter estimates that the
expenses incurred by it in acting as repurchase agent for the Fund will exceed
the amounts paid therefor by the Fund.
DISTRIBUTION PLAN
The Distribution Plan (the "Plan") is described in the prospectus and is
designed to meet the requirements of Rule 12b-1 under the 1940 Act and the sales
charge rule of the National Association of Securities Dealers, Inc. (the "NASD
Rule"). The purpose of the Plan is to compensate the Principal Underwriter for
its distribution services and facilities provided to the Fund by paying the
Principal Underwriter sales commissions and a separate distribution fee in
connection with sales of Fund shares. The following supplements the discussion
of the Plan contained in the Fund's prospectus.
The amount payable by the Fund to the Principal Underwriter pursuant to the
Plan as sales commissions and distribution fees with respect to each day will be
accrued on such day as a liability of the Fund and will accordingly reduce the
Fund's net assets upon such accrual, all in accordance with generally accepted
accounting principles. The amount payable on each day is limited to 1/365 of
.75% of the Fund's net assets on such day. The level of the Fund's net assets
changes each day and depends upon the amount of sales and redemptions of Fund
shares, the changes in the value of the investments held, by the Portfolio, the
expenses of the Fund and the Portfolio accrued and allocated to the Fund on such
day, income on portfolio investments of the Portfolio accrued and allocated to
the Fund on such day, and any dividends and distributions declared on Fund
shares. The Fund does not accrue possible future payments as a liability of the
Fund or reduce the Fund's current net assets in respect of unknown amounts which
may become payable under the Plan in the future because the standards for
accrual of a liability under such accounting principles have not been satisfied.
The Plan provides that the Fund will receive all contingent deferred sales
charges and 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. Contingent deferred sales charges and accrued amounts
will be paid by the Fund to the Principal Underwriter whenever there exist
Uncovered Distribution Charges under the Plan.
Periods with a high level of sales of Fund shares accompanied by a low level
of early redemptions of Fund shares resulting in the imposition of contingent
deferred sales charges will tend to increase the time during which there will
exist Uncovered Distribution Charges of the Principal Underwriter. Conversely,
periods with a low level of sales of Fund shares accompanied by a high level of
early redemptions of Fund shares resulting in the imposition of contingent
deferred sales charges will tend to reduce the time during which there will
exist Uncovered Distribution Charges of the Principal Underwriter.
In calculating daily the amount of uncovered distribution charges will be
calculated daily. For the purposes of this calculation, 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 and payable under the Plan by the Fund
to the Principal Underwriter and contingent deferred sales charges theretofore
paid and 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 Fund shares, the nature of such sales (i.e., whether they
result from exchange transactions, reinvestments or from cash sales through
Authorized Firms), the level and timing of redemptions of Fund shares upon which
a contingent deferred sales charge will be imposed, the level and timing of
redemptions of Fund shares upon which no contingent deferred sales charge will
be imposed (including redemptions involving exchanges of Fund shares for shares
of another fund in the Eaton Vance Marathon Group of Funds which result in a
reduction of uncovered distribution charges), changes in the level of the net
assets of the Fund, and changes in the interest rate used in the calculation of
the distribution fee under the Plan.
As currently implemented by the Trustees, the Plan authorizes payments of
sales commissions and distribution fees to the Principal Underwriter and service
fees to the Principal Underwriter and Authorized Firms which may be equivalent,
on an aggregate basis during any fiscal year of the Fund, to 1% of the Fund's
average daily net assets for such year. The Fund 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 Plan
through an increase in the Fund's assets (thereby increasing the advisory fee
payable to BMR by the Portfolio) resulting from sale of Fund shares and through
the sales commissions and distribution fees and contingent deferred sales
charges paid to the Principal Underwriter pursuant to the Plan. The Eaton Vance
organization may be considered to have realized a profit under the Plan if at
any point in time the aggregate amounts theretofore received by the Principal
Underwriter pursuant to the Plan and from contingent deferred sales charges have
exceeded the total expenses theretofore incurred by such organization in
distributing shares of the Fund. 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 Fund.
For the period from October 1, 1994 to December 31, 1994, the Fund paid
sales commissions under the Plan to the Principal Underwriter aggregating
$53,776, which amount was used by the Principal Underwriter to defray sales
commissions aggregating $6,393 paid during such period by the Principal
Underwriter to Authorized Firms on sales of shares of the Fund and to reduce the
outstanding uncovered distribution charges. For the period from October 1, 1994
to December 31, 1994, contingent deferred sales charges aggregating
approximately $72,219 were imposed on early redeeming shareholders and paid to
the Principal Underwriter, which amounts were used by the Principal Underwriter
to reduce the outstanding uncovered distribution charges. As at December 31,
1994, the outstanding uncovered distribution charges of the Principal
Underwriter under the Plan amounted to approximately $541,466 (which amount was
equivalent to 1.9% of the Fund's net assets on such day).
The Plan also authorizes the Fund to make payments of service fees. For the
period from October 1, 1994 to December 31, 1994, the Fund made service fee
payments to the Principal Underwriter and Authorized Firms aggregating $13,721,
of which $13,679 was paid to financial service firms and the balance was
retained by the Principal Underwriter.
The provisions of the Plan relating to payments of sales commissions and
distribution fees to the Principal Underwriter are also included in the
Distribution Agreement between the Fund and the Principal Underwriter. Pursuant
to Rule 12b-1, the Plan has been approved by the Trust's initial sole
shareholder (Eaton Vance) and by the Board of Trustees of the Trust, as required
by Rule 12b-1. The Plan continues in effect through and including April 28,
1996, and shall continue in effect indefinitely thereafter for so long as such
continuance is approved at least annually by the vote of both a majority of (i)
the Trustees of the Fund who are not interested persons of the Fund and who have
no direct or indirect financial interest in the operation of the Plan or any
agreements related to the Plan (the "Rule 12b-1 Trustees") and (ii) all of the
Trustees then in office, and the Distribution Agreement contains a similar
provision. The Plan and Distribution Agreement may be terminated at any time by
vote of a majority of the Rule 12b-1 Trustees or by a vote of a majority of the
outstanding voting securities of the Fund. Under the Plan the President or a
Vice President of the Trust shall provide to the Trustees for their review, and
the Trustees shall review at least quarterly, a written report of the amount
expended under the Plan and the purposes for which such expenditures were made.
The Plan may not be amended to increase materially the payments described
therein without approval of the shareholders of the Fund, and all material
amendments of the Plan must also be approved by the Trustees as required by Rule
12b-1. So long as the Plan is in effect, the selection and nomination of
Trustees who are not interested persons of the Trust shall be committed to the
discretion of the Trustees who are not such interested persons.
The Trustees of the Trust believe that the Plan will be a significant factor
in the growth of the Fund's assets, and will result in increased investment
flexibility and advantages which will benefit the Fund and its shareholders.
Payments for sales commissions and distribution fees made to the Principal
Underwriter under the Plan will compensate the Principal Underwriter for its
services and expenses in distributing shares of the Fund. Service fee payments
made to the Principal Underwriter and Authorized Firms under the Plan provide
incentives to provide continuing personal services to investors and the
maintenance of shareholder accounts. By providing incentives to the Principal
Underwriter and Authorized Firms, the 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 the Plan
will benefit the Fund and its shareholders.
PORTFOLIO SECURITY TRANSACTIONS
Decisions concerning the execution of portfolio security transactions,
including the selection of the market and the broker-dealer 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 all
other accounts managed by it for execution with many broker-dealer firms. BMR
uses its best efforts to obtain execution of portfolio security transactions at
prices which are advantageous to the Portfolio 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 size and type of the transaction, the general execution
and operational capabilities of the broker-dealer, the nature and character of
the market for the security, the confidentiality, speed and certainty of
effective execution required for the transaction, the reputation, reliability,
experience and financial condition of the broker-dealer, the value and quality
of services rendered by the broker-dealer in other transactions, and the
reasonableness of the commission, if any. Transactions on United States stock
exchanges and other agency transactions involve the payment by the Portfolio of
negotiated brokerage commissions. Such commissions vary among different
broker-dealer firms, and a particular broker-dealer may charge different
commissions according to such factors as the difficulty and size of the
transaction and the volume of business done with such broker-dealer.
Transactions in foreign securities usually involve the payment of fixed
brokerage commissions, which are generally higher than those in the United
States. There is generally no stated commission in the case of securities traded
in the over-the-counter markets, but the price paid or received by the Portfolio
usually includes an undisclosed dealer markup or markdown. In an underwritten
offering the price paid by the Portfolio includes a disclosed fixed commission
or discount retained by the underwriter or dealer. Although commissions paid on
portfolio security 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 broker-dealers who were selected
to execute transactions on behalf of the Portfolio and BMR's other clients in
part for 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 on behalf of the Portfolio
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 commission was reasonable in relation to the
value of the brokerage and research services provided. This determination may be
made on the basis of either that particular transaction or on the basis of the
overall responsibilities which BMR and its affiliates have for accounts over
which they exercise 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 in the investment advisory industry for the advisers
of investment companies, institutions and other investors to receive research,
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-dealer firms whch
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 receives Research Services from many broker-dealer firms with
which BMR places the Portfolio transactions and from third parties with which
these broker-dealers have arrangements. These Research Services include such
matters as general economic and market reviews, industry and company reviews,
evaluations of securities and portfolio strategies and transactions,
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 commissions 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.
Subject to the requirement that BMR shall use its best efforts to seek to
execute portfolio security transactions at advantageous prices and at reasonably
competitive commission rates. 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 BMR or Eaton Vance. This policy is not
inconsistent with a rule of the National Association of Securities Dealers,
Inc., which rule provides that no firm which is a member of the Association
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. BMR
will attempt to allocate equitably portfolio security transactions among the
Portfolio and the portfolios of its other investment accounts whenever decisions
are made to purchase or sell securities by the Portfolio and one or more of such
other accounts simultaneously. In making such allocations, the main factors to
be considered are the respective investment objectives of the Portfolio and such
other accounts, the relative size of portfolio holdings of the same or
comparable securities, the availability of cash for investment by the Portfolio
and such accounts, the size of investment commitments generally held by the
Portfolio and such accounts and the opinions of the persons responsible for
recommending investments to the Portfolio and such accounts. While this
procedure 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 Trust and the Portfolio that the benefits available from the
BMR organization outweigh any disadvantage that may arise from exposure to
simultaneous transactions.
During the fiscal years ended September 30, 1994, 1993 and 1992, the Trust
paid brokerage commissions of $162,605, $133,768 and $320,413, respectively, on
portfolio security transactions. Of the total brokerage commissions paid during
the fiscal year ended September 30, 1994, approximately $148,112 was paid in
respect of portfolio security transactions aggregating approximately $83,003,408
to firms which provided some research services to BMR or its affiliates. For the
fiscal year ended December 31, 1994, the Portfolio paid brokerage commissions of
$1,997,260 on portfolio security transactions, of which approximately $1,509,827
was paid in respect of portfolio security transactions aggregating approximately
$718,689,809 to firms which provided some research services to BMR or its
affiliates.
OTHER INFORMATION
Eaton Vance, pursuant to its agreement with the Trust, controls the use of
the words "Eaton Vance" in the Fund's name and may use the words "Eaton Vance"
in other connections and for other purposes.
The Trust's Declaration of Trust may not be amended without the affirmative
vote of a majority of the outstanding shares of the Trust, except that the
Declaration of Trust may be amended by the Trustees to change the name of the
Trust, to make such other changes as do not have a materially adverse effect on
the rights or interests of shareholders and to conform the Declaration of Trust
to applicable Federal laws or regulations. The Trust may be terminated (i) upon
the merger or consolidation with or sale of the Trust's assets to another
company, if approved by the holders of two-thirds of the outstanding shares of
the Trust, except that if the Trustees recommend such transaction, the approval
by vote of the holders of a majority of the outstanding shares will be
sufficient; or (ii) upon liquidation and distribution of the assets of the
Trust, if approved by a majority of the Trustees or by the holders of a majority
of the Trust's outstanding shares. If not so terminated, the Trust may continue
indefinitely.
The Declaration of Trust further provides that the Trustees will not be
liable for errors of judgment or mistakes of fact or law; but nothing in the
Declaration of Trust protects a Trustee against any liability to which he would
otherwise be subject by reason of willful misfeasance, bad faith, gross
negligence, or reckless disregard of the duties involved in the conduct of his
office. In addition, the By-Laws of the Trust provide that no natural person
shall serve as a Trustee of the Trust after the holders of record of not less
than two-thirds of the outstanding shares have declared that he be removed from
office either by declaration in writing filed with the custodian of the assets
of the Trust or by votes cast in person or by proxy at a meeting called for the
purpose.
<PAGE>
EV EQUITY-INCOME TRUST
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
- -------------------------------------------------------------------------------
December 31, 1994
- -------------------------------------------------------------------------------
ASSETS:
Investment in Total Return Portfolio (Portfolio)
at value (Note 1A) $27,624,478
Receivable for fund shares sold and dividend reinvestments 166,073
-----------
Total assets $27,790,551
LIABILITIES:
Payable for Trust shares redeemed $115,706
Accrued expenses 24,512
-------
Total liabilities 140,218
-----------
NET ASSETS for 2,733,924 shares of beneficial interest outstanding $27,650,333
===========
SOURCES OF NET ASSETS:
Proceeds from sales of shares (including shares
issued to shareholders electing to receive
payment of distributions in shares), less
cost of shares redeemed $28,332,530
Accumulated net realized loss on
investment and financial futures
transactions (1,632,186)
Undistributed net investment income 24,899
Unrealized appreciation of investments and open
financial futures contracts (computed on the
basis of identified cost) 925,090
-----------
Total $27,650,333
===========
NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE
($27,650,333/2,733,924 shares of
beneficial interest) $10.11
======
The accompanying notes are an integral part of the financial statements
<PAGE>
STATEMENT OF OPERATIONS
- -------------------------------------------------------------------------------
For the period from start of business, October 1, 1994, to December 31, 1994
- -------------------------------------------------------------------------------
INVESTMENT INCOME (NOTE 1B):
Dividend income allocated from Portfolio $ 440,931
Interest income allocated from Portfolio 36,752
Expenses allocated from Portfolio (60,382)
---------
Total investment income $ 417,301
Expenses --
Compensation of Trustees not members of
the Investment Adviser's organization $ 419
Distribution fees (Note 4) 53,776
Custodian fee 2,121
Legal and accounting services 33,101
Service fee 16,359
Printing and postage 17,318
Transfer and dividend disbursing agent fees 7,246
Registration fees 8,325
Miscellaneous 9,250
-------
Total expenses 147,915
---------
Net investment income $ 269,386
REALIZED AND UNREALIZED GAIN (LOSS) FROM PORTFOLIO:
Net realized gain (loss) (identified cost basis) --
Investment transactions $(383,660)
Financial futures contracts 158,424
Net realized loss on investment
transactions and financial futures
(identified cost basis) (225,236)
Change in unrealized appreciation
of investments and financial
futures contracts 173,127
-------
Net realized and unrealized loss
on investments (52,109)
---------
Net decrease in net assets resulting
from operations $ 217,277
=========
The accompanying notes are an integral part of the financial statements
<PAGE>
FINANCIAL STATEMENTS (Continued)
STATEMENT OF CHANGES IN NET ASSETS
- -------------------------------------------------------------------------------
FOR THE PERIOD
FROM START OF
BUSINESS OCTOBER YEAR ENDED
1, 1994, TO SEPTEMBER
DECEMBER 31, 1994 30, 1994
----------------- ---------
INCREASE (DECREASE) IN NET ASSETS:
From operations --
Net investment income $ 269,386 $ 1,140,520
Net realized gain on investments (225,236) 129,629
Increase (decrease) in unrealized
appreciation of investments 173,127 (8,168,493)
------------ ------------
Net increase (decrease) in net assets
resulting from operations $ 217,277 $ (6,898,344)
------------ ------------
Distributions to shareholders from (Note 4)
Net investment income $ (245,154) $ (1,140,520)
In excess of net investment income- - (294,126)
------------ ------------
Total distributions to shareholders $ (245,154) $ (1,434,646)
------------ ------------
Net decrease in net assets from Fund
share transactions (Note 2) $ (2,448,016) $(11,481,772)
------------ ------------
Net decrease in net assets $ (2,475,893) $(19,814,762)
NET ASSETS:
At beginning of year 30,126,226 49,940,988
------------ ------------
At end of year $ 27,650,333 $ 30,126,226
------------ ------------
------------ ------------
The accompanying notes are an integral part of the financial statements
<PAGE>
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS
- -------------------------------------------------------------------------------------------------------------------------------
FOR THE PERIOD
FROM START OF
BUSINESS OCTOBER YEAR ENDED SEPTEMBER 30,
1, 1994, TO ----------------------------------------------------
DECEMBER 31, 1994 1994<F3> 1993<F3> 1992<F3> 1991<F3>
----------------- ----------------------------------------------------
<S> <C> <C> <C> <C> <C>
FINANCIAL HIGHLIGHTS (for a share outstanding throughout
the period):
NET ASSET VALUE -- Beginning of period $ 10.120 $ 12.340 $ 10.730 $ 11.180 $ 10.290
--------- --------- -------- --------- ---------
Income from investment operations:
Net investment income $ 0.094 $ 0.326 $ 0.440 $ 0.374 $ 0.442
Net realized and unrealized gain
(loss) on investments (0.014) (2.136) 1.640 (0.344) 0.958
--------- --------- -------- --------- ---------
Total income (loss) from investment operations $ 0.080 $ (1.810) $ 2.080 $ 0.030 $ 1.400
--------- --------- -------- --------- ---------
Less distributions declared to shareholders:
From net investment income $ (0.090) $ (0.326) $ (0.330) $ (0.413) $ (0.510)
In excess of net investment income- -- (0.084) (0.140) -- --
Net realized gain on investment transactions -- -- -- --
Paid-in capital -- -- -- (0.067) --
--------- --------- -------- --------- ---------
Total distributions $ (0.090) $ (0.410) $ (0.470) $ (0.480) $ (0.510)
NET ASSET VALUE -- End of period $ 10.110 $ 10.120 $ 12.340 $ 10.730 $ 11.180
TOTAL RETURN<F2> 0.79% (14.82)% 19.88% (0.03)% 13.91
--------- --------- -------- --------- ---------
--------- --------- -------- --------- ---------
RATIOS/SUPPLEMENTAL DATA: (to average daily net assets)
Expenses<F1> 2.98%<F4> 2.18% 2.30% 2.40% 2.26%
Net investment income 3.85%<F4> 2.91% 2.88% 3.22% 3.96%
Portfolio Turnover<F5> 119% 87% 158% 151%
NET ASSETS AT END OF PERIOD (000'S OMITTED $27,650 $30,126 $49,941 $48,219 $55,364
<FN>
<F1> Includes the Fund's share of Total Return Portfolio's allocated expenses for the period from October 1, 1994,
to December 31, 1994.
<F2> 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 to be
reinvested at the net asset value on the record date.
<F3> Audited by previous auditors.
<F4>Computed on an annualized basis.
<F5>Portfolio turnover represents the rate of portfolio activity for the period when the Fund was making
investments directly in securities. The portfolio turnover for the period since the Fund transferred
substantially all of its investable assets to the Portfolio is shown in the Portfolio's financial statements
which are included elsewhere in this report.
</TABLE>
The accompanying notes are an integral part of the financial statements
<PAGE>
NOTES TO FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
(1) SIGNIFICANT ACCOUNTING POLICIES
EV Equity-Income Trust (the Fund) is a non-diversified entity of the type
commonly known as a Massachusetts business trust and is registered under the
Investment Company Act of 1940, as amended, as an open-end management investment
company. The Fund is a series in the Eaton Vance Total Return Trust. On October
1, 1994, the fund transferred substantially all of its investable assets to the
Total Return Portfolio (the Portfolio). The Fund invests all of its investable
assets in interests in the Total Return 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 (5.4% at December 31, 1994). 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 VALUATIONS -- 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.
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 eachyear all of its taxable income, including any net
realized gain oninvestments, option and financial futures transactions.
Accordingly, no provision for federal income or excise tax is neces-sary. At
December 31, 1994, the Fund, for federal income tax purposes, had capital loss
carryovers of $1,740,353, which will reduce the Fund's taxable income arising
from future net realized gain on investment transactions, if any, to the extent
permitted by the Internal Revenue Code, and thus will reduce the amount of the
distributions to shareholders which would otherwise be necessary to relieve the
Fund of any liability for federal income or excise tax. Such capital loss
carryovers will expire on December 31, 2001 ($1,376,736) and on December 31,
2002 ($363,617).
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 the date the
investments are purchased or sold. Distributions to shareholders are recorded on
the ex-dividend date.
F. DISTRIBUTION COSTS -- For book purposes, commissions paid on the sale of Fund
shares and other distribution costs are charged to operations. For tax purposes,
commissions paid were charged to paid-in capital prior to November 16, 1994 and
subsequently charged to operations. The change in the tax accounting practice
was prompted by a recent Internal Revenue Service ruling and has no effect on
either the Fund's current yield or total return (Note 4).
G. DISTRIBUTIONS -- Generally accepted accounting principles require that
differences in the recognition or classification of income between the financial
statements and tax earnings and profits which result in temporary
over-distributions for financial statement purposes, are classified as
distributions in excess of net investment income or accumulated net realized
gains.
- -------------------------------------------------------------------------------
(2) 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 Trust shares were as follows:
<TABLE>
<CAPTION>
FOR THE PERIOD
FROM START OF
BUSINESS OCTOBER
1, 1994, TO YEAR ENDED
DECEMBER 31, 1994 SEPTEMBER 30, 1994
--------------------- ------------------------
SHARES AMOUNT SHARES AMOUNT
-------- ----------- ----------- ------------
<S> <C> <C> <C> <C>
Sales 103,367 $ 1,038,730 411,383 $4,564,751
Issued to share-holders 18,691 189,156 104,509 1,126,202
electing to receive payment of
distribution in Trust shares
Redemptions (365,004) (3,675,902) (1,584,537) (17,172,725)
-------- ----------- ---------- ------------
Net decrease (242,946) $(2,448,016) (1,068,645) $(11,481,772)
-------- ----------- ---------- ------------
-------- ----------- ---------- ------------
</TABLE>
- -------------------------------------------------------------------------------
(3) INVESTMENT TRANSACTIONS
Increases and decreases in the Fund's investment in the Portfolio aggregated
$31,309,316 and $4,093,233, respectively.
- -------------------------------------------------------------------------------
<PAGE>
NOTES TO FINANCIAL STATEMENTS (Continued)
(4) 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 accrue amounts
daily to the principal underwriter, Eaton Vance Distributors, Inc. (EVD), equal
to 1/365th of 0.75% of the Fund's average daily net assets, for providing
ongoing distribution services and facilities to the Fund. The Fund will
automatically discontinue accruals to EVD during any period in which there are
no outstanding Uncovered Distribution Charges, which are approximately
equivalent to the sum of (i) 5% 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 the aggregate amount of contingent
deferred sales charges (see Note 6) and 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. Such
payments would cease upon termination of the distribution agreement (unless made
in accordance with another distribution agreement). As a result, the Fund does
not accrue amounts which may become payable to EVD in the future because the
conditions for recording any contingent liability under generally accepted
accountingprinciples have not been satisfied. EVD earned $53,776 forthe period
from the start of business, October 1, 1994, to December 31, 1994, representing
0.75% of average daily net assets. At December 31, 1994, the amount of Uncovered
Distribution Charges of EVD calculated under the Plan was approximately
$541,466.
In addition, the Plan authorizes the Fund to make payments of service fees
to the Principal Underwriter, Authorized Firms and other persons in amounts not
exceeding 0.25% of the Fund's average daily net assets for each fiscal year. The
Trustees have implemented the plan by authorizing the Fund to make quarterly
payments of service fees to the Principal Underwriter and Authorized Firms in
amounts not expected to exceed 0.25% of the Fund's average daily net assets for
each fiscal year based on the value of Fund shares sold by such persons and
remaining outstanding for at least twelve months. 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 where there are
no outstanding Uncovered Distribution Charges of EVD. Provision for service fees
amounted to $16,359 for the period from the start of business, October 1, 1994,
to December 31, 1994.
Certain of the officers of the Fund and Directors of the Corporation are
officers and directors of EVD.
- -------------------------------------------------------------------------------
(5) CONTINGENT DEFERRED SALES CHARGE
A contingent deferred sales charge (CDSC) is imposed on any redemption of Fund
shares made within six years of purchase. Generally, the CDSC is based upon the
lower of the net asset value at date of redemption or date of purchase. No
charge is levied on shares acquired by reinvestment of dividends or capital gain
distributions. The CDSC is imposed at declining rates that begin at 6% in the
first year of redemption after purchase, declining one percentage pointeach
year. No CDSC is levied on shares which have been sold to EVM or its affiliates
or to their respective employees or clients. CDSC charges are paid to EVD to
reduce the amount of Uncovered Distribution Charges calculated under the Fund's
Distribution Plan. CDSC charges received when no Uncovered Distribution Charges
exist will be retained by the Fund. EVD received approximately $72,219 of CDSC
paid by shareholders for the period from October 1, 1994, to December 31, 1994.
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
- -------------------------------------------------------------------------------
To the Shareholders and Board of Trustees of
EV Equity-Income Trust, a series of Eaton Vance Total Return Trust:
We have audited the accompanying statement of assets and liabilities of EV
Equity-Income Trust, a series of Eaton Vance Total Return Trust, as of December
31, 1994, and the related statement of operations, changes in net assets and the
financial highlights for the period from start of business, October 1, 1994 to
December 31, 1994. These financial statements and financial highlights are the
responsibility of the Fund's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audit. The statement of changes for the year ended September 30, 1994 and the
financial highlights for each of the four years in the period ended September
30, 1994, presented herein, were audited by other auditors whose report dated
November 2, 1994, expressed an unqualified opinion on such financial highlights.
We conducted our audit 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. Our
procedures included confirmation of securities owned as of December 31, 1994 by
correspondence with the custodian and brokers. 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 audit provides a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of EV
Equity-Income Trust, a series of Eaton Vance Total Return Trust, as of December
31, 1994, the results of its operations, changes in its net assets, and the
financial highlights for the period from the start of business October 1, 1994
to December 31, 1994, in conformity with generally accepted accounting
principles.
COOPERS & LYBRAND L.L.P.
Boston, Massachusetts
February 3, 1995
<PAGE>
TOTAL RETURN PORTFOLIO
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1994
- -------------------------------------------------------------------------------
COMMON STOCKS -- 93.4%
- -------------------------------------------------------------------------------
NAME OF COMPANY SHARES VALUE
- -------------------------------------------------------------------------------
ELECTRIC UTILITIES -- 62.1%
American Electric Power Co. Inc. 200,000 $ 6,575,000
Baltimore Gas & Electric Co. 150,000 3,318,750
Carolina Power & Light Co. 750,000 19,968,750
Central & South West Corp. 479,994 10,859,864
Central Louisiana Electric Co. 326,800 7,720,650
Cinergy Corp. 1,250,250 29,224,594
Dominion Resources, Inc. 200,000 7,150,000
DPL Inc. 950,000 19,475,000
DQE, Inc. 400,000 11,850,000
Duke Power Co. 270,000 10,293,750
FPL Group, Inc. 560,000 19,670,000
General Public Utilities Corp. 320,000 8,400,000
IPALCO Enterprises, Inc. 350,000 10,500,000
Kansas City Power & Light Co. 181,900 4,251,913
LG & E Energy Corp. 125,000 4,609,375
New England Electric System 100,000 3,212,500
NIPSCO Industries, Inc. 400,000 11,900,000
Northern States Power Co. Minn. 322,800 14,203,200
Norweb Ord PLC 200,000 2,690,940
Ohio Edison Co. 200,000 3,700,000
PacifiCorp 583,200 10,570,500
PECO Energy Co. 200,000 4,900,000
Pinnacle West Capital Corp. 300,000 5,925,000
Portland General Corp. 350,000 6,737,500
Public Service Co. of New Mexico* 565,300 7,348,900
Southern Co. 1,072,460 21,449,200
Teco Energy, Inc. 410,000 8,251,250
Union Electric Co. 346,500 12,257,438
United Illuminating Co. 110,200 3,250,900
Western Resources, Inc. 200,000 5,725,000
Wisconsin Energy Corp. 689,650 17,844,694
------------
$313,834,668
------------
OIL & GAS -- 5.4%
Amoco Corp. 165,000 $ 9,755,625
BP Prudhoe Bay Rty Tr Unit Ben Int. 437,000 7,429,000
Mobil Corp. 120,000 10,110,000
------------
$ 27,294,625
------------
REITS -- 18.5%
Apartment Investment & Management Co. Class A 200,000 $ 3,450,000
Associated Estates Realty Corp. 200,000 4,200,000
<PAGE>
- -------------------------------------------------------------------------------
COMMON STOCKS -- (Continued)
- -------------------------------------------------------------------------------
NAME OF COMPANY SHARES VALUE
- -------------------------------------------------------------------------------
Avalon Properties, Inc. 165,000 $ 3,795,000
Bay Apartment Communities 213,400 4,294,675
Bradley Real Estate Trust 72,750 1,109,437
Cali Realty Corp. 150,000 2,400,000
Camden Properties Trust SBI 200,000 4,975,000
Columbus Realty Trust 140,000 2,590,000
Developers Diversified Realty Corp. 170,000 5,312,500
Duke Realty Investments, Inc. 40,000 1,130,000
Equity Residential Properties Trust 80,000 2,400,000
Health Care Property Investors, Inc. 140,000 4,217,500
Healthcare Realty Trust 350,000 7,350,000
LTC Properties, Inc. 490,000 6,492,500
Macerich Co. 175,000 3,740,625
Meditrust Sh Ben Int. 100,000 3,025,000
Mid America Apartment Communities, Inc. 164,500 4,400,375
Nationwide Health Properties, Inc. 320,000 11,440,000
Oasis Residential, Inc. 225,000 5,512,500
Post Properties Inc. 100,000 3,150,000
Simon Property Group, Inc. 150,000 3,637,500
Southwestern Property Trust, Inc. 180,000 2,205,000
Sun Communities Inc. 110,000 2,475,000
------------
$ 93,302,612
------------
TELEPHONE UTILITIES -- 6.9%
Ameritech Corp. 380,000 $ 15,342,500
Bell Atlantic Corp. 100,000 4,975,000
Southern New England Telecommunications 50,000 1,606,250
Southwestern Bell Corp. 150,000 6,056,250
Tele Danmark A/S* 63,000 1,606,500
Telecom Corp. New Zealand Ltd. ADR 100,000 5,137,500
------------
$ 34,724,000
------------
OTHER -- 0.5%
British Sky Broadcasting Group PLC ADR* 25,000 $ 600,000
Sonat Inc. 71,000 1,988,000
------------
$ 2,588,000
------------
TOTAL COMMON STOCKS (identified cost, $455,294,874) $471,743,905
------------
<PAGE>
PORTFOLIO OF INVESTMENTS (Continued)
- -------------------------------------------------------------------------------
CONVERTIBLE PREFERRED STOCK -- 2.0%
- -------------------------------------------------------------------------------
SHARES VALUE
- -------------------------------------------------------------------------------
Freeport McMoRan Copper & Gold 40,000 $ 830,000
Kenetech Corp., 8.25s 200,000 3,075,000
Philippines Long Distance Telephone, 7s 112,000 6,062,000
------------
$ 9,967,000
------------
TOTAL CONVERTIBLE PREFERRED STOCKS
(identified cost, $10,549,225) $ 9,967,000
------------
- -------------------------------------------------------------------------------
CONVERTIBLE BONDS -- 0.1%
- -------------------------------------------------------------------------------
FACE AMOUNT
(000 OMITTED)
- -------------------------------------------------------------------------------
IDB Communications Group, Inc., 5s,
8/15/03 (identified cost, $858,750 $1,000 $ 762,500
------------
- -------------------------------------------------------------------------------
U.S. TREASURY OBLIGATIONS -- 1.5%
- -------------------------------------------------------------------------------
U.S. Treasury Bill, 0s, 3/5/95+
(identified cost, $7,696,456) $ 7,780 $ 7,703,600
------------
- -------------------------------------------------------------------------------
SHORT-TERM OBLIGATIONS -- 1.5%
- -------------------------------------------------------------------------------
CXC Inc., 5.95s, 1/3/95 $ 3,499 $ 3,497,265
American Express Credit Corp., 5.80s, 1/5/95 4,294 4,290,541
-------------
TOTAL SHORT-TERM OBLIGATIONS, AT AMORTIZED COST $ 7,787,806
-------------
TOTAL INVESTMENTS -- 98.5%
(identified cost, $482,187,111) $497,964,811
OTHER ASSETS, LESS LIABILITIES -- 1.5% 7,602,081
-------------
NET ASSETS -- 100.0% $505,566,892
============
+Collateral for futures held at December 31, 1994 (see Note 6)
*Non-income producing security
The accompanying notes are an integral part of the financial statements
<PAGE>
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
- -------------------------------------------------------------------------------
December 31, 1994
- -------------------------------------------------------------------------------
ASSETS:
Investments, at value (Note 1A) (identified
cost, $482,187,111) $497,964,811
Cash 2,597
Receivable for investments sold 8,994,384
Dividends receivable 2,364,639
Receivable for daily variation margin on
financial futures contracts 975,000
Deferred organization expenses (Note 1E) 16,027
Foreign tax reclaim receivable 25,565
Interest receivable 29,754
------------
Total assets $510,372,777
LIABILITIES:
Payable for investments purchased $ 4,775,774
Trustees fees payable 5,160
Custodian fee payable 8,403
Accrued expenses 16,548
------------
Total liabilities 4,805,885
------------
NET ASSETS applicable to investors' interest in Portfolio $505,566,892
============
SOURCES OF NET ASSETS:
Net proceeds from capital contributions and withdrawals $491,941,692
Unrealized appreciation of investments and open
futures contracts (computed on the basis of
identified cost) 13,625,200
------------
Total net assets $505,566,892
============
The accompanying notes are an integral part of the financial statements
<PAGE>
FINANCIAL STATEMENTS (Continued)
STATEMENT OF OPERATIONS
- -------------------------------------------------------------------------------
For the Year Ended December 31, 1994
- -------------------------------------------------------------------------------
INVESTMENT INCOME:
Dividend income $ 32,158,717
Interest income 1,330,065
-------------
Total income $ 33,488,782
Expenses --
Investment adviser fee (Note 3) $ 4,106,857
Compensation of trustees not members of
the investment adviser's organization
(Note 3) 20,687
Custodian fee (Note 3) 159,872
Interest expense 187,106
Commitment fee 143,450
Audit and legal fees 46,657
Printing and postage fees 14,129
Amortization of deferred organizational
expenses (Note 1E) 4,197
Miscellaneous 19,841
-------------
Total expenses 4,702,796
-------------
Net investment income $ 28,785,986
REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS:
Net realized gain (loss) (identified
cost basis) --
Investment transactions $ (21,035,623)
Financial futures contracts 5,883,625
-------------
Net realized loss on investments
and financial futures
(identified cost basis) $ (15,151,998)
Change in unrealized appreciation on
investments and financial futures contracts (89,492,365)
-------------
Net realized and unrealized loss on investments (104,644,363)
-------------
Net decrease in net assets resulting from operations $ (75,858,377)
=============
The accompanying notes are an integral part of the financial statements
<PAGE>
<TABLE>
<CAPTION>
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
-------------------------------
1994 1993<F1>
-------------- --------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
From operations --
Net investment income $ 28,785,986 $ 5,227,429
Net realized loss on investment transactions and (15,151,998) (3,109,783)
financial futures contracts
Decrease in unrealized appreciation of investments (89,492,365) (31,858,504)
------------- -------------
Net decrease in net assets resulting from operations $ (75,858,377) $ (29,740,858)
------------- -------------
Capital transactions --
Contributions $ 97,021,559 $ 700,057,818
Withdrawals (152,162,876) (33,850,394)
------------- -------------
Increase (decrease) in net assets
resulting from capital transactions $ (55,141,317) $ 666,207,424
------------- -------------
Total increase (decrease) in net assets $(130,999,694) $ 636,466,566
NET ASSETS:
At beginning of period 636,566,586 100,020
------------ -------------
At end of period $ 505,566,892 $ 636,566,586
============= =============
<FN>
<F1> For the period from the start of business, October 28, 1993, to December 31, 1993.
</TABLE>
The accompanying notes are an integral part of the financial statements
<PAGE>
FINANCIAL STATEMENTS (Continued)
SUPPLEMENTARY DATA
- --------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
-------------------------
1994 1993*
--------- ------------
RATIOS (As a percentage of average net assets):
Expenses 0.85% 0.91%+
Net investment income 5.22% 4.57%+
PORTFOLIO TURNOVER 107% 16%
LEVERAGE ANALYSIS:
Amount of debt outstanding at end of period
(000's omitted) -- --
Average daily balance of debt outstanding
during period (000 omitted) $ 3,137 $15,452
+ Computed on an annualized basis.
* For the period from the start of business, October 28, 1993, to December 31,
1993.
The accompanying notes are an integral part of the financial statements
<PAGE>
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1994
- --------------------------------------------------------------------------------
(1) SIGNIFICANT ACCOUNTING POLICIES
Total Return Portfolio (the Portfolio) is registered under the Investment
Company Act of 1940 as a diversified open-end investment company which was
organized as a trust under the laws of the State of New York on May 1, 1992. The
Declaration of Trust permits the Trustees to issue beneficial interests in the
Portfolio. Investment operations began on October 28, 1993, with the acquisition
of net assets of $668,641,088 in exchange for an interest in the Portfolio by
one of the Portfolio's investors. The following is a summary of significant
accounting policies of the Portfolio. The policies are in conformity with
generally accepted accounting principles.
A. INVESTMENT VALUATIONS -- Securities listed on securities exchanges or in the
NASDAQ National Market are valued at closing sales prices or, if there has been
no sale, at the mean between the closing bid and asked prices. Unlisted
securities are valued at the mean between the latest available bid and asked
prices. Options and financial futures contracts are valued at the last sale
price, as quoted on the principal exchange or board of trade on which such
options or contracts are traded or, in the absence of a sale, the mean between
the last bid and asked prices. Short-term obligations, maturing in 60 days or
less, are valued at amortized cost, which approximates value. Securities for
which market quotations are unavailable are appraised at their fair value as
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. Since some of the
Portfolio's investors are regulated investment companies that invest all or
substantially all of their assets in the Portfolio, the Portfolio normally must
satisfy the applicable source of income and diversification requirements (under
the Code) in order for its investors to satisfy them. The Portfolio will
allocate at least annually among its investors each investors' distributive
share of the Portfolio's net investment income, net realized capital gains, and
any other items of income, gain, loss, deduction or credit.
C. OPTION ACCOUNTING PRINCIPLES -- Upon the writing of a covered call option, an
amount equal to the premium received by the Portfolio is included in the
Statement of Assets and Liabilities as a liability. The amount of the liability
is subsequently marked-to-market to reflect the current market value of the
option written in accordance with the Portfolio's policies on investment
valuations discussed above. Premiums received from writing call options which
expire are treated as realized gains. Premiums received from writing call
options which are exercised or are closed are added to or offset against the
proceeds or amount paid on the transaction to determine the realized gain or
loss. The Portfolio, as writer of a call option, may have no control over
whether the underlying securities may be sold and, as a result, bears the market
risk of an unfavorable change in the price of the securities underlying the
written option.
D. FINANCIAL FUTURES CONTRACTS -- Upon the entering of a financial futures
contract, the Portfolio is required to deposit an amount ("initial margin")
either in cash or securities equal to a certain percentage of the purchase price
indicated in the financial futures contract. Subsequent payments are made or
received by the Portfolio ("margin maintenance") each day, dependent on the
daily fluctuations in the value of the underlying security, and are recorded for
book purposes as unrealized gains or losses by the Portfolio. When the Portfolio
enters into a closing transaction, the Portfolio will realize for book purposes
a gain or loss equal to the difference between the value of the financial
futures contract to sell and the financial futures contract to buy. The
Portfolio's investment in financial futures contracts is designed only to hedge
against anticipated future changes in interest rates, security prices, commodity
prices or currency exchange rates. Should interest rates, security prices,
commodity prices or currency exchange rates move unexpectedly, the Portfolio may
not achieve the anticipated benefits of the financial futures contracts and may
realize a loss.
<PAGE>
NOTES TO FINANCIAL STATEMENTS (Continued)
- --------------------------------------------------------------------------------
E. DEFERRED ORGANIZATION EXPENSES -- Costs incurred by the Portfolio in
connection with its organization are being amortized on the straight-line basis
over five years.
F. OTHER -- Investment transactions are accounted for on the date the
investments are purchased or sold. Dividend income is recorded on the
ex-dividend date. Realized gains and losses on the sale of investments are
determined on the identified cost basis.
(2) INVESTMENT TRANSACTIONS
Purchases and sales of investments, other than short-term obligations,
aggregated $574,395,813 and $620,810,869,respectively.
(3) 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
manage- ment and investment advisory services rendered to the Portfolio. The fee
is based upon a percentage of average daily net assets. For the year ended
December 31, 1994, the fee was equivalent to 0.74% of the Portfolio's average
net assets for such period and amounted to $4,106,857. 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 service 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. Certain of the
officers and Trustees of the Portfolio are officers and directors/trustees of
the above organizations.
- --------------------------------------------------------------------------------
(4) LINE OF CREDIT
The Portfolio participates with other portfolios and funds managed by BMR and
EVM and its affiliates 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. The Portfolio expects to use the proceeds
of the advances primarily for leveraging purposes. Borrowings by the Portfolio
under the Credit Agreement will not exceed the lesser of 1/3 of the market value
of the net assets of the Portfolio or $60,000,000. Interest is charged to each
portfolio 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 average daily loan balance
for the year ended December 31, 1994 was $3,137,134 and the average interest
rate was 5.96%. The maximum borrowings outstanding at any month end during the
year ended December 31, 1994, was $26,083,000.
- --------------------------------------------------------------------------------
(5) FEDERAL INCOME TAX BASIS OF INVESTMENTS
The cost and unrealized appreciation/depreciation in value of the investments
owned at December 31, 1994, as computed on a federal income tax basis, are as
follows:
Aggregate cost $482,915,174
============
Gross unrealized appreciation $ 28,239,363
Gross unrealized depreciation 13,189,726
------------
Net unrealized appreciation $ 15,049,637
============
<PAGE>
NOTES TO FINANCIAL STATEMENTS (Continued)
(6) 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
notational 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 off-setting transactions are considered.
A summary of obligations under these financial instruments at December 31, 1994
is as follows:
NET
FUTURES CONTRACT UNREALIZED
EXPIRATION DATE CONTRACTS POSITION DEPRECIATION
- --------------- --------- -------- ------------
3/95 600 S&P 500 Futures Short $2,152,500
At December 31, 1994, the Portfolio has sufficient cash and/or securities to
cover margin requirements on open futures contracts.
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
- --------------------------------------------------------------------------------
To the Trustees and Investors of
Total Return Portfolio:
We have audited the accompanying statement of assets and liabilities of Total
Return Portfolio, including the portfolio of investments, as of December 31,
1994, the related statement of operations for the year then ended and the
statement of changes in net assets and supplementary data for the year ended
December 31, 1994, and for the period from the start of business, October 28,
1993, to December 31, 1993. 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
December 31, 1994 by correspondence with the custodian and brokers. 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, the financial statements and supplementary data referred to
above present fairly, in all material respects, the financial position of Total
Return Portfolio as of December 31, 1994, the results of its operations for the
year then ended, and the changes in its net assets and the supplementary data
for the year ended December 31, 1994, and for the period from the start of
business, October 28, 1993, to December 31, 1993, in conformity with generally
accepted accounting principles.
COOPERS & LYBRAND L.L.P.
Boston, Massachusetts
February 3, 1995
<PAGE>
INVESTMENT ADVISER OF
TOTAL RETURN PORTFOLIO
Boston Management and Research
24 Federal Street
Boston, MA 02110
ADMINISTRATOR OF
EATON VANCE EQUITY-INCOME TRUST
Eaton Vance Management
24 Federal Street
Boston, MA 02110
PRINCIPAL UNDERWRITER
Eaton Vance Distributors, Inc.
24 Federal Street
Boston, MA 02110
(800) 225-6265
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
(800) 262-1122
INDEPENDENT ACCOUNTANTS
Coopers & Lybrand L.L.P.
One Post Office Square
Boston, MA 02109
EATON VANCE EQUITY-INCOME TRUST
24 FEDERAL STREET
BOSTON, MA 02110
EISAI
EATON VANCE
EQUITY-INCOME
TRUST
STATEMENT OF
ADDITIONAL
INFORMATION
MAY 1, 1995
