<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 28, 1995
1933 ACT FILE NO. 33-36507
1940 ACT FILE NO. 811-06157
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933 [X]
POST-EFFECTIVE AMENDMENT NO. 6 [X]
REGISTRATION STATEMENT
UNDER
THE INVESTMENT COMPANY ACT OF 1940 [X]
AMENDMENT NO. 8 [X]
EATON VANCE INVESTMENT FUND, INC.
-----------------------------------------------
(FORMERLY EATON VANCE SHORT-TERM GLOBAL INCOME FUND, INC.)
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
24 FEDERAL STREET, BOSTON, MASSACHUSETTS 02110
---------------------------------------
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
(617) 482-8260
--------------------
(REGISTRANT'S TELEPHONE NUMBER)
H. DAY BRIGHAM, JR.
24 FEDERAL STREET, BOSTON, MASSACHUSETTS 02110
---------------------------------
(NAME AND ADDRESS OF AGENT FOR SERVICE)
It is proposed that this Post-Effective Amendment will become effective on
March 1, 1995 pursuant to paragraph (b) of Rule 485.
The exhibit index required by Rule 483(a) under the Securities Act of 1933
is located on page in the sequential numbering system of the manually signed
copy of this Registration Statement.
Short-Term Income Portfolio has also executed this Registration Statement.
CALCULATION OF REGISTRATION FEE
<TABLE>
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- ------------------------------------------------------------------------------------------------------
<CAPTION>
PROPOSED
AMOUNT OF PROPOSED MAXIMUM AGGREGATE AMOUNT OF
TITLE OF SECURITIES SHARES BEING OFFERING PRICE MAXIMUM REGISTRATION
BEING REGISTERED REGISTERED PER SHARE OFFERING PRICE FEE
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
SHARES OF CAPITAL STOCK<F3> 13,647,073 $7.96<F1> $108,630,701<F2> $100
- ------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------
<F1> Computed under Rule 457(d) on the basis of the maximum aggregate offering
price per share at the close of business on February 15, 1995.
<F2> Registrant elects to calculate the maximum aggregate offering price
pursuant to Rule 24e-2. 14,266,256 shares were redeemed during the fiscal
year ended October 31, 1994. 655,615 shares were used for reductions
pursuant to Paragraph (c) of Rule 24f-2 during such fiscal year. 13,610,641
of the shares redeemed are being used for the reduction of the registration
fee in this Amendment. While no fee is required for the 13,610,641 shares,
the Registrant has elected to register, for $100, an additional 36,432
shares (36,432 shares at $7.96 per share).
<F3> Shares of EV Marathon Short-Term Strategic Income Fund, a series of the
Registrant are registered hereby.
</TABLE>
Pursuant to Rule 24f-2 under the Investment Company Act of 1940, Registrant
has registered an indefinite number of securities under the Securities Act of
1933. Registrant filed a Rule 24f-2 Notice for the Registrant with the fiscal
year ended October 31, 1994 on December 6, 1994. Registrant continues its
election to register an indefinite number of shares of capital stock pursuant to
Rule 24f-2 under the Investment Company Act of 1940, as amended.
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
<PAGE>
This Amendment to the registration statement on Form N-1A consists of the
following documents and papers:
Cross Reference Sheet required by Rule 481(a) under Securities Act of 1933
Part A--The Prospectuses
EV Classic Strategic Income Fund
EV Marathon Strategic Income Fund
Part B--The Statement of Additional Information
EV Classic Strategic Income Fund
EV Marathon Strategic Income Fund
Part C--Other Information
Signatures
Exhibit Index Required by Rule 483(b) under the Securities Act of 1933
Exhibits
<PAGE>
EATON VANCE INVESTMENT FUND, INC.
EV CLASSIC STRATEGIC INCOME FUND
CROSS REFERENCE SHEET
ITEMS REQUIRED BY FORM N-1A
---------------------------
PART A
ITEM NO. ITEM CAPTION PROSPECTUS CAPTION
- ----- ------- ----------------------------
1. ............... Cover Page Cover Page
2. ............... Synopsis Shareholder and Fund
Expenses
3. ............... Condensed Financial The Fund's Financial
Information Highlights; Performance
Information
4. ............... General Description of The Fund's Investment
Registrant Objective; How the Fund
and the Portfolio Invest
their Assets; Organization
of the Fund and the
Portfolio
5. ............... Management of the Fund Management of the Fund and
the Portfolio
6. ............... Capital Stock and Other Organization of the Fund and
Securities the Portfolio; Reports to
Shareholders; The Lifetime
Investing Account/
Distribution Options;
Distributions and Taxes
7. ............... Purchase of Securities Valuing Fund Shares; How to
Being Offered Buy Fund Shares; The
Lifetime Investing
Account/Distribution
Options; Distribution
Plan; The Eaton Vance
Exchange Privilege; Eaton
Vance Shareholder Services
8. ............... Redemption or Repurchase How to Redeem Fund Shares
9. ............... Pending Legal Proceedings Not Applicable
PART B
STATEMENT OF ADDITIONAL
ITEM NO. ITEM CAPTION INFORMATION CAPTION
- ----- ------- ----------------------------
10. ............... Cover Page Cover Page
11. ............... Table of Contents Table of Contents
12. ............... General Information and Not Applicable
History
13. ............... Investment Objectives and Investment Objective and
Policies Policies;
Investment Restrictions
14. ............... Management of the Fund Directors and Officers
15. ............... Control Persons and Control Persons and
Principal Holders of Principal Holders of
Securities Securities
16. ............... Investment Advisory and Investment Adviser and
Other Services Administrator; Custodian;
Independent Accountants;
Distribution Plan; Other
Information
17. ............... Brokerage Allocation and Portfolio Security
Other Practices Transactions
18. ............... Capital Stock and Other Other Information
Securities
19. ............... Purchase, Redemption and Service for Withdrawal;
Pricing of Securities Determination of Net Asset
Being Offered Value; Principal
Underwriter; Distribution
Plan
20. ............... Tax Status Taxes
21. ............... Underwriters Principal Underwriter
22. ............... Calculation of Performance Investment Performance
Data
23. ............... Financial Statements Financial Statements
<PAGE>
EATON VANCE INVESTMENT FUND, INC.
EV MARATHON STRATEGIC INCOME FUND
CROSS REFERENCE SHEET
ITEMS REQUIRED BY FORM N-1A
---------------------------
PART A
ITEM NO. ITEM CAPTION PROSPECTUS CAPTION
- ----- ------- ----------------------------
1. ............... Cover Page Cover Page
2. ............... Synopsis Shareholder and Fund
Expenses
3. ............... Condensed Financial The Fund's Financial
Information Highlights; Performance
Information
4. ............... General Description of The Fund's Investment
Registrant Objective; How the Fund
and the Portfolio Invest
their Assets; Organization
of the Fund and the
Portfolio
5. ............... Management of the Fund Management of the Fund and
the Portfolio
5A. .............. Management's Discussion of Not Applicable
Fund Performance
6. ............... Capital Stock and Other Organization of the Fund and
Securities the Portfolio; Reports to
Shareholders; The Lifetime
Investing Account/
Distribution Options;
Distributions and Taxes
7. ............... Purchase of Securities Valuing Fund Shares; How to
Being Offered Buy Fund Shares; The
Lifetime Investing
Account/Distribution
Options; Distribution
Plan; The Eaton Vance
Exchange Privilege; Eaton
Vance Shareholder Services
8. ............... Redemption or Repurchase How to Redeem Fund Shares
9. ............... Pending Legal Proceedings Not Applicable
PART B
STATEMENT OF ADDITIONAL
ITEM NO. ITEM CAPTION INFORMATION CAPTION
- ----- ------- ----------------------------
10. ............... Cover Page Cover Page
11. ............... Table of Contents Table of Contents
12. ............... General Information and Not Applicable
History
13. ............... Investment Objectives and Investment Objective and
Policies Policies;
Investment Restrictions
14. ............... Management of the Fund Directors and Officers
15. ............... Control Persons and Control Persons and
Principal Holders of Principal Holders of
Securities Securities
16. ............... Investment Advisory and Investment Adviser and
Other Services Administrator; Custodian;
Independent Accountants;
Distribution Plan; Other
Information
17. ............... Brokerage Allocation and Portfolio Security
Other Practices Transactions
18. ............... Capital Stock and Other Other Information
Securities
19. ............... Purchase, Redemption and Service for Withdrawal;
Pricing of Securities Determination of Net Asset
Being Offered Value; Principal
Underwriter; Distribution
Plan
20. ............... Tax Status Taxes
21. ............... Underwriters Principal Underwriter
22. ............... Calculation of Performance Investment Performance
Data
23. ............... Financial Statements Financial Statements
<PAGE>
PART A
INFORMATION REQUIRED IN A PROSPECTUS
EV CLASSIC STRATEGIC INCOME FUND
EV CLASSIC STRATEGIC INCOME FUND (THE "FUND") IS A MUTUAL FUND SEEKING A
HIGH LEVEL OF INCOME, CONSISTENT WITH PRUDENT INVESTMENT RISK, BY INVESTING IN A
GLOBAL PORTFOLIO CONSISTING PRIMARILY OF HIGH GRADE DEBT SECURITIES AND HAVING A
DOLLAR WEIGHTED AVERAGE MATURITY OF NOT MORE THAN THREE YEARS. THE FUND INVESTS
ITS ASSETS IN THE STRATEGIC INCOME PORTFOLIO (THE "PORTFOLIO"), A
NON-DIVERSIFIED OPEN-END INVESTMENT COMPANY HAVING THE SAME INVESTMENT OBJECTIVE
AS THE FUND, RATHER THAN BY DIRECTLY INVESTING IN AND MANAGING ITS OWN PORTFOLIO
OF SECURITIES AS WITH HISTORICALLY STRUCTURED MUTUAL FUNDS. THE FUND IS A SERIES
OF EATON VANCE INVESTMENT FUND, INC. (THE "CORPORATION").
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 March 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 and the Portfolio. The offices
of the Investment Adviser and the Administrator are also located at 24 Federal
Street, Boston, MA 02110.
- ------------------------------------------------------------------------------
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>
TABLE OF CONTENTS
<CAPTION>
Page Page
<S> <C> <C>
Shareholder and Fund Expenses ..................... 2 How to Buy Fund Shares ........................ 20
The Fund's Financial Highlights ................... 3 How to Redeem Fund Shares ..................... 21
The Fund's Investment Objective ................... 4 Reports to Shareholders ....................... 23
How the Fund and the Portfolio Invest The Lifetime Investing Account/Distribution
their Assets .................................... 4 Options ..................................... 23
Organization of the Fund and the Portfolio ........ 12 The Eaton Vance Exchange Privilege ............ 24
Management of the Fund and the Portfolio .......... 14 Eaton Vance Shareholder Services ............. 26
Distribution Plan ................................. 17 Distributions and Taxes ....................... 27
Valuing Fund Shares ............................... 19 Performance Information ....................... 28
- ------------------------------------------------------------------------------------------------------------
PROSPECTUS DATED MARCH 1, 1995
</TABLE>
<PAGE>
SHAREHOLDER AND FUND EXPENSES\1/
- ------------------------------------------------------------------------------
SHAREHOLDER TRANSACTION EXPENSES
Sales Charges Imposed on Purchases of Shares None
Sales Charges Imposed on Reinvested Distributions None
Redemption Fees None
Fees to Exchange Shares None
Contingent Deferred Sales Charges None
ANNUAL FUND AND ALLOCATED PORTFOLIO OPERATING EXPENSES
(as a percentage of average daily net assets)
Investment Adviser Fee\2/ 0.54%
Rule 12b-1 Distribution (and Service) Fees 1.00%
Other Expenses (including administration fee of .15%) 0.40%
---
Total Operating Expenses 1.94%
---
---
EXAMPLE 1 YEAR 3 YEARS
- ------- ------ -------
You would pay the following expenses on a $1,000
investment, assuming (a) 5% annual return and
(b) redemption at the end of each period: $20 $61
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 Directors of the Corporation believe that
over time the aggregate per share expenses of the Fund and the Portfolio
should be approximately equal to the per share expenses which the Fund would
incur if the Directors 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. Since the Fund does not yet have a sufficient
operating history, the percentages indicated as Annual Fund and Allocated
Portfolio Operating Expenses and the amounts included in the Example are
based on both the Fund's and the Portfolio's projected fees and expenses for
the current fiscal year ended October 31, 1995. The table and Example should
not be considered a representation of past or future expenses and actual
expenses may be greater or less than those shown. 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".
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".
\2/ The Portfolio's monthly advisory fee has two components, a fee based on
daily net assets and a fee based on daily gross income, as set forth in the
fee schedule on page 15. The Portfolio's monthly administration fee is based
on a percentage of the Portfolio's average daily net assets.
<PAGE>
THE FUND'S FINANCIAL HIGHLIGHTS
- ------------------------------------------------------------------------------
The following information should be read in conjunction with the financial
statements included in the Statement of Additional Information, all of which has
been so included in reliance upon the report of Coopers & Lybrand L.L.P.,
independent accountants, as experts in accounting and auditing. Further
information regarding the performance of the Fund is contained in the Fund's
annual report to shareholders which may be obtained without charge by contacting
the Fund's Principal Underwriter.
FOR THE PERIOD FROM THE START OF BUSINESS, MAY 25, 1994, TO OCTOBER 31, 1994
NET ASSET VALUE, BEGINNING OF PERIOD $ 10.000
Income (loss) from operations:
Net investment income $ 0.348
Net realized and unrealized gain
(loss) on investments (0.495)
---------
Total income (loss) from
operations $ (0.147)
---------
LESS DISTRIBUTIONS:
From net investment income $ (0.103)
---------
NET ASSET VALUE, END OF PERIOD $ 9.750
---------
---------
TOTAL RETURN\1/ (1.41%)
RATIOS/SUPPLEMENTAL DATA*:
Net assets, at end of period
(000's omitted) $ 10
Ratio of net expenses to average
net assets \2/ 0.76%+
Ratio of net investment income to
average net assets 7.74%+
*For the period from the start of business, May 25, 1994, to October 31, 1994,
the operating expenses of the Fund reflect an allocation of expenses to the
Administrator. Had such action not been taken, net investment loss per share
and the ratios would have been as follows:
NET INVESTMENT LOSS PER SHARE $ (6.900)
---------
---------
RATIOS (As a percentage of average net assets):
Expenses\2/ 160.83%+
Net investment loss (152.33%)+
+ Computed on an annualized basis.
\1/Total return is calculated assuming a purchase at the net asset value on the
first day and a sale at the net asset value on the last day of each period
reported. Dividends and distributions, if any, are assumed to be reinvested
at the net asset value on the payable date.
\2/Includes the Fund's share of the Portfolio's allocated expenses.
94.
<PAGE>
THE FUND'S INVESTMENT OBJECTIVE
- ------------------------------------------------------------------------------
EV CLASSIC STRATEGIC INCOME FUND'S INVESTMENT OBJECTIVE IS A HIGH LEVEL OF
INCOME, CONSISTENT WITH PRUDENT INVESTMENT RISK, BY INVESTING IN A GLOBAL
PORTFOLIO CONSISTING PRIMARILY OF HIGH GRADE DEBT SECURITIES AND HAVING A DOLLAR
WEIGHTED AVERAGE MATURITY OF NOT MORE THAN THREE YEARS. The Fund currently seeks
to meet its investment objective by investing its assets in the Strategic Income
Portfolio, a separate registered investment company with the same investment
objective as the Fund. The Portfolio's investment adviser is Boston Management
and Research ("BMR" or the "Investment Adviser"). The Fund's and the Portfolio's
investment objective are nonfundamental and may be changed when authorized by a
vote of the Directors of the Corporation or the Trustees of the Portfolio,
respectively, without obtaining the approval of the Fund's shareholders or the
investors in the Portfolio, as the case may be.
HOW THE FUND AND THE PORTFOLIO INVEST THEIR ASSETS
- ------------------------------------------------------------------------------
In pursuing its investment objective, the Portfolio's Investment Adviser will
strategically allocate the Portfolio's investments among different countries and
currencies based on its perception of the most favorable markets and issuers,
the relative yield and appreciation potential of a particular country's
securities and the relationship of a country's currency to the U.S. Dollar. The
Portfolio will, under normal market conditions, invest in the securities of
issuers in at least three countries, one of which may be the United States. The
Portfolio may, for temporary defensive purposes, invest up to 100% of its total
assets in U.S. securities. Investments will be allocated among particular
industries or types of securities based on each issuer's fundamental economic
strength, credit quality, relative interest rate spreads and interest rate
trends.
The Portfolio seeks to minimize credit risk and fluctuations in net asset
value. The Portfolio will pursue investment opportunities in both U.S. and
foreign markets, and may invest a substantial portion of its assets in debt
obligations denominated in foreign currencies. While the Portfolio intends to
invest at least 25% of its total assets in U.S. Dollar denominated debt
obligations, such investment will not limit the foreign currency exposure that
may result from the Portfolio's investments in foreign currency forward exchange
contracts, options, futures, options on futures, and currency swaps. The
Portfolio may not invest more than 25% of its total assets in securities
denominated in a single currency other than the U.S. Dollar and may not invest
more than 25% of its total assets in the securities of issuers located in a
single country other than the United States at the time of purchase; these 25%
limitations do not apply to the Portfolio's positions in forward contracts,
options, futures contracts, options on futures or currency swap.
HIGH GRADE DEBT SECURITIES. The Portfolio seeks to minimize investment risk by,
among other strategies, investing primarily in high grade debt securities, which
are: (i) debt securities issued or guaranteed by the U.S. Government, its
agencies or instrumentalities ("U.S. Government securities"); (ii) obligations
issued or guaranteed by a foreign government or any of its political
subdivisions, authorities, agencies, or instrumentalities, or by supra-national
entities, provided that such obligations are rated AAA, AA or A or a comparable
rating by Standard & Poor's Corporation ("S&P") or Duff & Phelps Inc. ("Duff"),
or Aaa, Aa or A or a comparable rating by Moody's Investors Service, Inc.
("Moody's") ("High Grade Ratings") or, if unrated, are determined by the
Investment Adviser to be of equivalent credit quality; (iii) corporate debt
securities having at least one High Grade Rating or, if unrated, determined by
the Investment Adviser to be of equivalent credit quality; (iv) certificates of
deposit and bankers' acceptances issued or guaranteed by, or time deposits
maintained at, banks (including foreign branches of U.S. banks or U.S. or
foreign branches of foreign banks) having total assets of more than $500 million
and determined by the Investment Adviser to be of comparable credit quality to
securities with High Grade Ratings; and (v) commercial paper and other
short-term securities rated A-1 or A-2 by S&P, Prime-1 or Prime-2 by Moody's,
Fitch-1 or Fitch-2 by Fitch Investors Service, Inc. ("Fitch"), or Duff 1 or Duff
2 by Duff or, if not rated, issued by U.S. or foreign companies, governments, or
other entities having outstanding debt securities with a High Grade Rating or
determined by the Investment Adviser to be high grade, and loan participation
interests having a remaining term not exceeding one year in loans made by banks
to such companies. The remainder of the Portfolio may be invested in investment
grade securities (rated BBB by S&P or Duff, Baa by Moody's, or the equivalent)
which have speculative characteristics.
The Portfolio also may invest in debt securities that are rated below
investment grade or which are unrated, which are commonly referred to as "junk
bonds". The Portfolio will invest less than 35% of its total assets in such
securities, which may include securities in the lowest rating categories. The
Portfolio is more likely to purchase sovereign debt obligations, as opposed to
U.S. corporate obligations. Sovereign debt and other below investment grade and
unrated securities have speculative characteristics and, therefore, present
higher risks of untimely interest and principal payments, default and price
volatility than higher quality securities, and may present problems of liquidity
and valuation. During periods of deteriorating economic conditions and
contraction in the credit markets, the ability of governmental and other issuers
of such securities to service such debt, meet projected goals, or obtain
additional financing may be impaired. Securities eligible for purchase may
include those in default as to payment of principal and/or interest in
anticipation of future income.
The income producing securities in which the Portfolio invests may have
fixed, variable or floating interest rates, constitute a broad mix of asset
classes, and may include convertible bonds, securities of real estate investment
trusts and natural resource companies, stripped debt obligations, closed-end
investment companies (that invest primarily in debt securities the Portfolio
could invest in), preferred, preference and convertible stocks, equipment lease
certificates, equipment trust certificates, conditional sales contracts and debt
obligations collateralized by, or representing interests in pools of, mortgages
and other types of loans ("asset-backed obligations"). The Portfolio may also
invest in loans and loan participations. The Portfolio may invest a portion of
its assets in fixed and floating rate loans and loan interests, which generally
will be fully collateralized. Such investments must meet the Investment
Adviser's creditworthiness guidelines, as applied to the borrower or, as the
case may be, an agent lending bank or other financial intermediary. Loan
interests may take the form of participation interests in, assignments of or
novations of a loan during its secondary distribution, or direct interests
during a primary distribution. Loan interests may be acquired from banks or
other financial institutions, and the Portfolio may derive its rights directly
from the borrower. Prepayment of loan interests may reduce the yield of the Fund
depending upon the returns available on investments at the time of prepayment.
FOREIGN INVESTMENTS AND FOREIGN CURRENCY CONSIDERATIONS. The Portfolio invests
in debt securities denominated in the currencies of countries whose governments
are considered stable by the Investment Adviser. In addition to the U.S. Dollar,
such currencies include, among others, the Australian Dollar, British Pound
Sterling, Canadian Dollar, European Currency Unit ("ECU"), Finnish Markka,
French Franc, German Mark, Greek Drachma, Irish Punt, Italian Lira, Japanese
Yen, Spanish Peseta and Swiss Franc. The Portfolio may also invest in debt
securities denominated in currencies of developing countries such as the
Malaysian Ringgit, Indonesian Rupiah, Brazilian Cruzeiro, Peruvian New Sol and
the Mexican Peso. An issuer of debt securities purchased by the Portfolio may be
domiciled in a country other than the country in whose currency the instrument
is denominated. To the extent that the Portfolio's investments are diversified
as to currency, it is expected by the Investment Adviser that fluctuations in
the value of a particular currency may be offset by fluctuations in the value of
other currencies in which the Portfolio's securities are denominated.
Changes in exchange rates for the foreign currencies in which the
Portfolio's investments are denominated may adversely affect the value of such
investments and the value of Fund shares. The Portfolio may hedge against
foreign currency risk by investing in instruments indexed to a specific
currency, entering into forward foreign currency exchange contracts and currency
swaps, engaging in transactions in futures contracts on currency and options on
such futures contracts and purchasing and writing options on currency.
The Portfolio may invest in debt securities issued by supranational
organizations such as: the World Bank, which was chartered to finance
development projects in developing member countries; the European Community,
which is a twelve-nation organization engaged in cooperative economic
activities; the European Coal and Steel Community, which is an economic union of
various European nations' steel and coal industries; and the Asian Development
Bank, which is an international development bank established to lend funds,
promote investment and provide technical assistance to member nations in the
Asian and Pacific regions.
Investing in securities issued by foreign governments and corporations
involves considerations and possible risks not typically associated with
investing in obligations issued by the U.S. Government and domestic
corporations. The values of foreign investments are affected by changes in
currency rates or exchange control regulations, application of foreign tax laws,
including withholding taxes, changes in governmental administration or economic
or monetary policy (in this country or abroad) or changed circumstances in
dealings between nations. Costs are incurred in connection with conversions
between various currencies. In addition, foreign brokerage commissions are
generally higher than in the United States, and foreign securities markets may
be less liquid, more volatile and less subject to governmental supervision than
in the United States. Investments in foreign countries could be affected by
other factors not present in the United States, including expropriation,
confiscatory taxation, lack of uniform accounting and auditing standards and
potential difficulties in enforcing contractual obligations and could be subject
to settlement delays.
The Portfolio may invest in the debt securities of issuers in developing
countries in Eastern Europe, Asia, Latin America and elsewhere to the extent
such securities meet the Portfolio's quality standards. The economies of some of
these countries are currently suffering both from the stagnation resulting from
centralized economic planning and control and the higher prices and unemployment
associated with the transition to market economies. Unstable economic and
political conditions may adversely affect the ability of issuers of debt
securities located in these countries to meet their obligations under such
securities.
INTEREST RATE RISK MANAGEMENT. The net asset value of the Fund shares will
reflect the value of its interest in the Portfolio (which in turn, reflects the
underlying value of the Portfolio's assets and liabilities) and will change in
response to interest rate fluctuations. When interest rates decline, the value
of debt securities held by the Portfolio can be expected to rise. Conversely,
when interest rates rise, the value of debt securities held by the Portfolio can
be expected to decline. Although a shorter maturity is generally associated with
a lower level of market value volatility, since interest rate trends are
different for each country, it is possible that interest rate changes affecting
the value of the Portfolio's investments in one country may be offset by
countervailing changes affecting the Portfolio's investments in another country.
Thus, the Portfolio's policy of diversifying its investments among several
countries may reduce its susceptibility to interest rate volatility.
The Portfolio will maintain a dollar weighted average portfolio maturity of
not more than three years. In measuring the dollar weighted average portfolio
maturity of the Portfolio, the Portfolio will use the concept of "duration",
adjusted to account for the volatility-reducing effect of diversifying a debt
portfolio among several countries. Duration represents the dollar weighted
average maturity of expected cash flows (i.e. interest and principal payments)
on one or more debt obligations, discounted to their present values. The
duration of a floating rate security will be defined as the time to the next
interest payment. The duration of an obligation is usually less than its stated
maturity and is related to the degree of volatility in the market value of the
obligation. Maturity measures only the time until a bond or other debt security
provides its final payment; it takes no account of the pattern of a security's
payments over time. Duration takes both interest and principal payments into
account and, thus, in the Investment Adviser's opinion, is a more accurate
measure of a debt security's price sensitivity in response to changes in
interest rates. In computing the duration of its portfolio, the Portfolio will
have to estimate the duration of debt obligations that are subject to prepayment
or redemption by the issuer, based on projected cash flows from such
obligations.
The Portfolio may use various techniques to shorten or lengthen the dollar
weighted average maturity of its portfolio, including the acquisition of debt
obligations at a premium or discount, transactions in futures contracts and
options on futures and interest rate swaps. Subject to the requirement that the
dollar weighted average portfolio maturity will not exceed three years, the
Portfolio may invest in individual debt obligations of any maturity, including
obligations with a remaining stated maturity of more than three years.
U.S. GOVERNMENT SECURITIES. U.S. Government securities that the Portfolio may
invest in include (1) U.S. Treasury obligations, which differ in their interest
rates, maturities and times of issuance: U.S. Treasury bills (maturities of one
year or less), U.S. Treasury notes (maturities of one to ten years) and U.S.
Treasury bonds (generally maturities of greater than ten years) and (2)
obligations issued or guaranteed by U.S. Government agencies and
instrumentalities which are supported by any of the following: (a) the full
faith and credit of the U.S. Treasury, (b) the right of the issuer to borrow any
amount limited to a specific line of credit from the U.S. Treasury, (c)
discretionary authority of the U.S. Government to purchase certain obligations
of the U.S. Government agency or instrumentality or (d) the credit of the agency
or instrumentality. The Portfolio may also invest in any other security or
agreement collateralized or otherwise secured by U.S. Government securities.
Agencies and instrumentalities of the U.S. Government include but are not
limited to: Federal Land Banks, Federal Financing Banks, Banks for Cooperatives,
Federal Intermediate Credit Banks, Farm Credit Banks, Federal Home Loan Banks,
Federal Home Loan Mortgage Corporation, Federal National Mortgage Association,
Student Loan Marketing Association, United States Postal Service, Chrysler
Corporate Loan Guarantee Board, Small Business Administration, Tennessee Valley
Authority and any other enterprise established or sponsored by the U.S.
Government.
ZERO COUPON AND PAYMENT IN KIND BONDS. The Portfolio may invest in zero coupon
bonds, deferred interest bonds and bonds on which the interest is payable in
kind ("PIK bonds"). Zero coupon and deferred interest bonds are debt obligations
which are issued at a significant discount from face value. The discount
approximates the total amount of interest the bonds will accrue and compound
over the period until maturity or the first interest accrual date at a rate of
interest reflecting the market rate of the security at the time of issuance.
While zero coupon bonds do not require the periodic payment of interest,
deferred interest bonds provide for a period of delay before the regular payment
of interest begins. Although this period of delay is different for each deferred
interest bond, a typical period is approximately one-third of the bond's term to
maturity. PIK bonds are debt obligations which provide that the issuer thereof
may, at its option, pay interest on such bonds in cash or in the form of
additional debt obligations. Such investments benefit the issuer by mitigating
its need for cash to meet debt service, but also require a higher rate of return
to attract investors who are willing to defer receipt of such cash. Such
investments experience greater volatility in market value due to changes in
interest rates than debt obligations which provide for regular payments of
interest. The Portfolio will accrue income on such investments for tax and
accounting purposes, in accordance with applicable law, the Fund's proportionate
share of which income is distributable to shareholders of the Fund. Because no
cash is received at the time such income is accrued, the Portfolio may be
required to liquidate other portfolio securities to generate cash that the Fund
may withdraw from the Portfolio to enable the Fund to satisfy its distribution
obligations.
DERIVATIVE INSTRUMENTS. The Portfolio may purchase or enter into the derivative
instruments described below to enhance return, to hedge against fluctuations in
interest rates, securities prices or currency exchange rates, to change the
duration of the Portfolio's fixed income portfolio or as a substitute for the
purchase or sale of securities or currency. The Portfolio's investments in
derivative securities may include certain indexed securities. The Portfolio's
transactions in derivative contracts may include the purchase or sale of futures
contracts on securities, indices or currency; options on futures contracts;
options on currency; forward contracts to purchase or sell currency; currency
and interest rate swaps; and interest rate caps, floors and collars.
All of the Portfolio's transactions in derivative instruments involve a risk
of loss or depreciation due to unanticipated adverse changes in interest rates,
securities prices or currency exchange rates. The loss on derivative contracts
(other than purchased options, caps, floors and collars) may exceed the
Portfolio's initial investment in these contracts. In addition, the Portfolio
may lose the entire premium paid for purchased options, caps, floors and collars
that expire before they can be profitably exercised by the Portfolio.
Indexed Investments. The Portfolio may invest in instruments which are
indexed to certain specific foreign currency exchange rates. The terms of such
instruments may provide that their principal amounts or just their coupon
interest rates are adjusted upwards or downwards (but not below zero) at
maturity or on established coupon payment dates to reflect changes in the
exchange rate between two currencies while the obligation is outstanding. An
indexed security may be leveraged to the extent that the magnitude of any change
in the interest rate or principal payable on an indexed security is a multiple
of the change in the reference price. Thus, indexed securities may decline in
value due to adverse market changes in the relevant exchange rates. The
Portfolio has provided an undertaking to the Securities and Exchange Commission
to establish and maintain a segregated account consisting of cash, U.S.
Government securities or other high grade liquid debt securities having a value
equal to the aggregate principal amount of the Portfolio's currency indexed
investments. The Portfolio may invest without limitation in instruments indexed
to foreign currency rates. The market values of currency linked securities may
be very volatile and may decline during periods of unstable currency exchange
rates.
Derivative Contracts. The Portfolio may purchase and sell a variety of
derivative contracts, including futures contracts on securities, indices or
currency; options on futures contracts; options on currency; forward contracts
to purchase or sell currency; currency and interest rate swaps; and interest
rate caps, floors and collars. The Portfolio incurs liability to a counterparty
in connection with transactions in futures contracts, forward contracts and
swaps and in selling options, caps, floors and collars. The Portfolio pays a
premium for purchased options, caps, floors and collars. In addition, the
Portfolio incurs transaction costs in opening and closing positions in
derivative contracts.
Forward Foreign Currency Exchange Contracts. The Portfolio may enter into
forward foreign currency exchange contracts. A forward foreign currency exchange
contract is a contract individually negotiated and privately traded by currency
traders and their customers. A forward contract involves an obligation to
purchase or sell a specific currency 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 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. The purpose of
entering into these contracts is to minimize the risk to the Portfolio from
adverse changes in the relationship between the U.S. Dollar and foreign
currencies. In addition, the Portfolio may purchase forward contracts for
non-hedging purposes when the portfolio manager of the Portfolio anticipates
that the foreign currency will appreciate in value, but securities denominated
in that currency do not present attractive investment opportunities. However,
forward contracts may limit potential gain from a positive change in the
relationship between the U.S. Dollar and foreign currencies. Unanticipated
changes in currency prices may result in poorer overall performance for the Fund
than if the Portfolio had not entered into forward foreign currency exchange
contracts.
Options on Foreign Currencies. The Portfolio may write covered put and call
options and purchase put and call options on foreign currencies for the purpose
of protecting against declines in the dollar value of portfolio securities and
against increases in the dollar cost of securities to be acquired. The Portfolio
may use options on currency to cross-hedge, which involves writing or purchasing
options on one currency to hedge against changes in exchange rates for a
different, but related currency. As with other types of options, however, the
writing of an option on foreign currency will constitute only a partial hedge,
up to the amount of the premium received, and the Portfolio could be required to
purchase or sell foreign currencies at disadvantageous exchange rates, thereby
incurring losses. The purchase of an option on foreign currency may be used to
hedge against fluctuations in exchange rates although, in the event of exchange
rate movements adverse to the Portfolio's position, it may forfeit the entire
amount of the premium plus related transaction costs. In addition, the Portfolio
may purchase call options on currency for non-hedging purposes when the
Investment Adviser anticipates that the currency will appreciate in value, but
the securities denominated in that currency do not present attractive investment
opportunities.
Futures Contracts and Options on Futures Contracts. A change in the level of
currency exchange rates or interest rates may affect the value of the
Portfolio's investments (or of investments that the Portfolio expects to make).
To hedge against such changes in such rates or prices or for non- hedging
purposes, the Portfolio may purchase and sell various kinds of futures contracts
and write and purchase call and put options on any of such futures contracts; it
may also enter into closing purchase and sale transactions with respect to any
of such contracts and options. The futures contracts may be based on various
securities in which the Portfolio may invest, foreign currencies, certificates
of deposit, Eurodollar time deposits, securities indices, economic indices (such
as the Commodity Research Bureau Futures Price Index) and other financial
instruments and indices. The Portfolio will engage in futures and related
options transactions only for bona fide hedging or non- hedging purposes as
defined in or permitted by regulations of the Commodity Futures Trading
Commission ("CFTC"). The Portfolio may engage in cross-hedging by purchasing or
selling futures or options on a security or currency different from the security
or currency position being hedged if the Investment Adviser determines that
there is a historical pattern of correlation between the two securities or
currencies.
The Portfolio may not purchase or sell futures contracts or purchase or sell
related options, except for closing purchase or sale transactions, if
immediately thereafter the sum of the amount of margin deposits on and premiums
paid for the Portfolio's outstanding non-hedging positions in futures and
options on futures would exceed 5% of the market value of the Portfolio's net
assets. There are no other percentage limitations on the amount of the
Portfolio's assets that may be committed to futures transactions and the
Portfolio may enter into futures positions with respect to 100% of its assets.
These transactions involve brokerage costs, require margin deposits and, in the
case of contracts and options obligating the Portfolio to purchase securities or
currency, require the Portfolio to segregate cash, U.S. government and other
liquid high grade debt securities in an amount equal to the underlying value of
such contracts and options.
Interest Rate and Currency Swaps. The Portfolio may enter into interest rate
and currency swaps both for hedging purposes and to enhance return. The
Portfolio will typically use interest rate swaps to shorten the effective
maturity of its portfolio. Interest rate swaps involve the exchange by the
Portfolio with another party of their respective commitments to pay or receive
interest, e.g., an exchange of fixed rate payments for floating rate payments.
Currency swaps involve the exchange of their respective rights to make or
receive payments in specified currencies. Since interest rate and currency swaps
are individually negotiated, the Portfolio expects to achieve an acceptable
degree of correlation between its portfolio investments and interest rate or
currency swap positions entered into for hedging purposes.
The Portfolio will only enter into interest rate swaps on a net basis, i.e.,
the two payment streams are netted out, with the Portfolio receiving or paying,
as the case may be, only the net amount of the two payments. Interest rate swaps
do not involve the delivery of securities or principal. Accordingly, the risk of
loss with respect to interest rate swaps is limited to the net amount of
interest payments that the Portfolio is contractually obligated to make. If the
other party to an interest rate swap defaults, the Portfolio's risk of loss
consists of the net amount of interest payments that the Portfolio is
contractually entitled to receive. In contrast, currency swaps usually involve
the delivery of the entire payment stream in one designated currency in exchange
for the entire payment stream in the other designated currency. Therefore, the
entire principal value of a currency swap is subject to the risk that the other
party to the swap will default on its contractual delivery obligations.
The use of interest rate and currency swaps is a highly specialized activity
which involves investment techniques and risks different from those associated
with ordinary portfolio securities transactions. The Investment Adviser has used
interest rate and currency swaps only to a limited extent but has utilized other
types of hedging techniques. If the Investment Adviser is incorrect in its
forecasts of market values, interest rates and currency exchange rates, the
investment performance of the Fund would be less favorable than it would have
been if swaps were not used.
Risks Associated With Derivative Securities and Contracts. The risks
associated with the Portfolio's transactions in derivative securities and
contracts may include some or all of the following: (1) market risk; (2)
leverage and volatility risk; (3) correlation risk; (4) credit risk; and (5)
liquidity and valuation risk.
Market Risk. Investments in mortgage-backed and indexed securities are
subject to the prepayment, extension, interest rate and other market risks
described above. Entering into a derivative contract involves a risk that the
applicable market will move against the Portfolio's position and that the
Portfolio will incur a loss. For derivative contracts other than purchased
options, this loss may exceed the amount of the initial investment made or the
premium received by the Portfolio.
Leverage and Volatility Risk. Derivative instruments may sometimes increase
or leverage the Portfolio's exposure to a particular market risk. Leverage
enhances the price volatility of derivative instruments held by the Portfolio.
The Portfolio may partially offset the leverage inherent in derivative contracts
by maintaining a segregated account consisting of cash and liquid, high grade
debt securities, by holding offsetting portfolio securities or currency
positions or by covering written options.
Correlation Risk. The Portfolio's success in using derivative instruments to
hedge portfolio assets depends on the degree of price correlation between the
derivative instrument 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's assets.
Credit Risk. Derivative securities and over-the-counter derivative
contracts involve a risk that the issuer or counterparty will fail to perform
its contractual obligations.
Liquidity and Valuation Risk. Some derivative securities are not readily
marketable or may become illiquid under adverse market conditions. In addition,
during periods of extreme market volatility, a commodity or option exchange may
suspend or limit trading in an exchange-traded derivative contract, which may
make the contract temporarily illiquid and difficult to price. The staff of the
Securities and Exchange Commission ("SEC") takes the position that certain
over-the-counter options and all swaps, caps, floors and collars are subject to
the Portfolio's 15% limit on illiquid investments. The Portfolio's ability to
terminate over-the-counter derivative contracts may depend on the cooperation of
the counterparties to such contracts. For thinly traded derivative securities
and contracts, the only source of price quotations may be the selling dealer or
counterparty.
LENDING OF PORTFOLIO SECURITIES. The Portfolio may seek to earn additional
income by lending portfolio securities to broker-dealers or other institutional
borrowers. 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 at
the same time pay a transaction fee to such borrowers. As with other extensions
of credit there are risks of delay in recovery or even loss of rights in the
securities loaned if the borrower of the securities fails financially. However,
the loans will be made only to organizations deemed by the Investment Adviser to
be of good standing and when, in its judgment, the consideration which can be
earned from securities loans of this type justifies the attendant risk. The
financial condition of the borrower will be monitored by the Investment Adviser
on an ongoing basis. If the Investment Adviser 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.
REPURCHASE AGREEMENTS. The Portfolio may enter into repurchase agreements with
respect to its permitted investments, but currently intends to do so only with
member banks of the Federal Reserve System or with primary dealers in U.S.
Government securities. Under a repurchase agreement the Portfolio buys a
security at one price and simultaneously promises to sell that same security
back to the seller at a higher price. The repurchase date is usually within
seven days of the original purchase date. At no time will the Portfolio commit
more than 15% of its net assets to repurchase agreements which mature in more
than seven days and in illiquid securities. Repurchase agreements are deemed to
be loans under the Investment Company Act of 1940. In all cases the Investment
Adviser must be satisfied with the creditworthiness of the other party to the
agreement before entering into a repurchase agreement. In the event of the
bankruptcy of the other party to a repurchase agreement, the Portfolio might
experience delays in recovering its cash. To the extent that, in the meantime,
the value of the securities the Portfolio purchased may have decreased, the
Portfolio could experience a loss.
REVERSE REPURCHASE AGREEMENTS. The Portfolio may enter into reverse repurchase
agreements. Under a reverse repurchase agreement, the Portfolio temporarily
transfers possession of a portfolio instrument to another party, such as a bank
or broker-dealer, in return for cash. At the same time, the Portfolio agrees to
repurchase the instrument at an agreed upon time (normally within seven days)
and price, which reflects an interest payment. The Portfolio could also enter
into reverse repurchase agreements as a means of raising cash to satisfy
redemption requests without the necessity of selling portfolio assets.
When the Portfolio enters into a reverse repurchase agreement for such
purposes described above, any fluctuations in the market value of either the
securities transferred to another party or the securities in which the proceeds
may be invested would affect the market value of the Portfolio's assets. As a
result, such transactions may increase fluctuations in the market value of the
Portfolio's assets. While there is a risk that large fluctuations in the market
value of the Portfolio's assets could affect the Portfolio's net asset value per
share, this risk is not significantly increased by entering into reverse
repurchase agreements, in the opinion of the Investment Adviser. Because reverse
repurchase agreements may be considered to be the practical equivalent of
borrowing funds, they constitute a form of leverage. If the Portfolio reinvests
the proceeds of a reverse repurchase agreement at a rate lower than the cost of
the agreement, entering into the agreement will lower the Fund's yield.
The Portfolio may also enter into reverse repurchase agreements in order to
hedge against a possible decline in the value of the foreign currency in which a
debt security is denominated. In these transactions, the Portfolio sells a debt
security denominated in a foreign currency for delivery in the current month and
simultaneously contracts to repurchase the same security on a specified future
date. The foreign currency cash proceeds from the sale of the debt security are
then converted into U.S. dollars. Thus, as a result of the transaction, the
Portfolio continues to be subject to fluctuations in the value of the security,
but not to fluctuations in the value of the currency in which the security is
denominated. Because these reverse repurchase transactions are entered into to
hedge foreign currency risk and not for leverage purposes, they will not be
treated as borrowing for purposes of the Portfolio's investment restriction
concerning borrowing.
CERTAIN INVESTMENT POLICIES. The Fund and the Portfolio have adopted certain
fundamental investment restrictions and policies which are enumerated in detail
in the Statement of Additional Information and which may not be changed unless
authorized by a shareholder vote or an investor vote, respectively. Among these
fundamental restrictions, neither the Fund nor the Portfolio may (1) borrow
money or issue senior securities except as permitted by the Investment Company
Act of 1940 (the "1940 Act"), or (2) purchase securities on margin (but they may
obtain such short-term credits as may be necessary for the clearance of
purchases and sales of securities). Except for the fundamental investment
restrictions and policies specifically enumerated in the Statement of Additional
Information, the investment objective and policies of the Fund and the Portfolio
are not fundamental policies and accordingly may be changed by the Board of
Directors of the Corporation and the Trustees of 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 investment objectives different from the objectives which an
investor considered appropriate at the time the investor became a shareholder in
the Fund.
"NON-DIVERSIFIED" INVESTMENT COMPANY. The Portfolio is a "non-diversified"
investment company under the 1940 Act, which means that the Portfolio is not
limited in the proportion of its assets that may be invested in the securities
of a single issuer. However, the Portfolio intends to conduct its operations so
as to enable the Fund to qualify as a "regulated investment company" for
purposes of the Internal Revenue Code, which will relieve the Fund of any
liability for Federal income tax to the extent its earnings are distributed to
shareholders. See "Distributions and Taxes." To enable the Fund to so qualify,
among other requirements, the Portfolio will limit its investments so that, at
the close of each quarter of the taxable year, (i) not more than 25% of the
market value of the Portfolio's total assets will be invested in the securities
of a single issuer, and (ii) with respect to 50% of the market value of its
total assets, not more than 5% of the market value of its total assets will be
invested in the securities of a single issuer and the Portfolio will not own
more than 10% of the outstanding voting securities of a single issuer. The
Portfolio's investments in U.S. Government securities and regulated investment
companies, if any, are not subject to these limitations. Because the Portfolio
may invest in a smaller number of individual issuers than a diversified
investment company, an investment in the Fund may present greater risk to an
investor than an investment in a diversified investment company.
ORGANIZATION OF THE FUND AND THE PORTFOLIO
- ------------------------------------------------------------------------------
THE FUND IS A SERIES OF THE CORPORATION, WHICH WAS INCORPORATED UNDER MARYLAND
LAW ON OCTOBER 4, 1990, AS AMENDED, AS THE SUCCESSOR TO A BUSINESS TRUST
ESTABLISHED UNDER MASSACHUSETTS LAW ON AUGUST 21, 1990. THE CORPORATION CHANGED
ITS NAME TO EATON VANCE INVESTMENT FUND, INC. ON AUGUST 17, 1993. THE FUND IS A
MUTUAL FUND - AN OPEN-END NON-DIVERSIFIED MANAGEMENT INVESTMENT COMPANY. The
Board of Directors of the Corporation are responsible for the overall management
and supervision of its affairs. The authorized capital stock of the Fund
consists of one billion shares of common stock, par value $0.0001 per share. The
Board of Directors has authority under the Articles of Incorporation to create
and classify shares of capital stock in separate series without further action
by shareholders and because the Corporation can offer separate series (such as
the Fund) it is known as a "series company". When issued and outstanding, the
shares are fully paid and nonassessable by the Fund and redeemable as described
under "How to Redeem 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 liquidation of the Fund, shareholders are entitled to share pro rata in
the net assets of the Fund available for distribution to shareholders.
THE PORTFOLIO IS ORGANIZED AS A TRUST UNDER THE LAWS OF THE STATE OF NEW
YORK AND IS TREATED AS A PARTNERSHIP FOR FEDERAL TAX PURPOSES. The Portfolio, as
well as the Corporation, intends to comply with all applicable Federal and state
securities laws. The Portfolio's Declaration of Trust, as amended, provides that
the Fund and other entities permitted to invest in the Portfolio (e.g., other
U.S. and foreign investment companies, and common and commingled trust funds)
will each be liable for all obligations of the Portfolio. However, the risk of
the Fund incurring financial loss on account of such liability is limited to
circumstances in which both inadequate insurance exists and the Portfolio itself
is unable to meet its obligations. Accordingly, the Directors of the Corporation
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,
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 different 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, see "How the Fund and the
Portfolio Invest their Assets". Further information regarding the investment
practices of the Portfolio may also be found in the Statement of Additional
Information.
The Directors of the Corporation 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 Directors 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 Fund may withdraw (completely redeem) all its assets from the Portfolio
at any time if the Board of Directors of the Corporation 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 Directors of the Corporation and the Trustees of the Portfolio without
obtaining the approval of the shareholders of the Fund or the investors in the
Portfolio. 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.
In the event the Fund withdraws all of its assets from the Portfolio, or the
Board of Directors of the Corporation determines that the investment objective
of the Portfolio is no longer consistent with the investment objective of the
Fund, the Board of Directors of the Corporation would consider what action might
be taken, including investing all 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 may,
in the future, 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 funds investing in the Portfolio may
be adversely affected by the actions of larger funds investing in the Portfolio.
For example, if a large fund withdraws from the Portfolio, the remaining funds
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.
The Directors of the Corporation, including a majority of non-interested
Directors, have approved written procedures designed to identify and address any
potential conflicts of interest arising from the fact that the Directors of the
Corporation 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 Directors or
Trustees and officers of each of the Corporation and the Portfolio, see the
Statement of Additional Information.
MANAGEMENT OF THE FUND AND THE PORTFOLIO
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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. BMR's expertise in the management of fixed-income
securities ranges from government obligations, high-grade corporate and
municipal securities, foreign debt and bank loan interests to higher yielding
instruments. BMR's fixed-income division is armed with the research and
technical ability to gain immediate access to interest rate data around the
world.
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 equal to the aggregate of
(a) a daily asset based fee computed by applying the annual asset rate
applicable to that portion of the total daily net assets in each
Category as indicated below, plus
(b) a daily income based fee computed by applying the daily income rate
applicable to that portion of the total daily gross income (which
portion shall bear the same relationship to the total daily gross income
on such day as that portion of the total daily net assets in the same
Category bears to the total daily net assets on such day) in each
Category as indicated below:
<TABLE>
<CAPTION>
ANNUAL DAILY
CATEGORY DAILY NET ASSETS ASSET RATE INCOME RATE
- -------- ---------------- ---------- -----------
<S> <C> <C> <C> <C>
1 up to $500 million ................................................... 0.275% 2.75%
2 $500 million but less than $1 billion ................................ 0.250% 2.50%
3 $1 billion but less than $1.5 billion ................................ 0.225% 2.25%
4 $1.5 billion but less than $2 billion ................................ 0.200% 2.00%
5 $2 billion but less than $3 billion .................................. 0.175% 1.75%
6 $3 billion and over .................................................. 0.150% 1.50%
</TABLE>
Total daily gross income is the total gross investment income, exclusive of
capital gains and losses on investments and before deduction of expenses, earned
each day by the Portfolio.
As at October 31, 1994, the Portfolio had net assets of $236,468,766. For
the period from the start of business, March 1, 1994, to October 31, 1994, the
Portfolio paid BMR advisory fees equivalent to 0.49% (annualized) of the
Portfolio's average daily net assets for such period.
BMR also furnishes for the use of the Portfolio office space and all
necessary office facilities, equipment and personnel, and investment advisory,
statistical and research facilities and has arranged for certain members of the
Eaton Vance organization to serve without salary as officers or Trustees of the
Portfolio. The Portfolio is responsible for the payment of all expenses other
than those expressly stated to be payable by BMR under the investment advisory
agreement.
The Portfolio believes that most of the obligations which it will acquire
for its portfolio will be normally traded on a net basis (without commission)
through broker-dealers and banks acting for their own account. Such firms
attempt to profit from such transactions by buying at the bid price and selling
at the higher asked price of the market, and the difference is customarily
referred to as the spread. In selecting firms which will execute portfolio
transactions BMR judges their professional ability and quality of service and
uses its best efforts to obtain execution at prices which are advantageous to
the Portfolio and at reasonably competitive spreads. 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 firms to execute
portfolio transactions.
Mark S. Venezia has acted as the portfolio manager of the Portfolio since
it commenced operations. Mr. Venezia has been a Vice President of Eaton Vance
since 1987 and of BMR since 1992.
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 Portfolio also engages BMR as its Administrator under an administration
agreement. Under the administration agreement, BMR is responsible for reviewing
and supervising the provision of custody services to the Portfolio and making
related reports and recommendations to the Board of Trustees of the Portfolio;
for providing certain valuation, legal, accounting and tax services in
connection with investments with foreign issuers or guarantors, investments
denominated in foreign currencies and transactions in derivative instruments;
and for such other special services as the Board may direct. BMR also furnishes
the office facilities and personnel necessary for providing these services. As
compensation for these services, BMR receives a monthly administration fee at an
annual rate of .15% of the Portfolio's average daily net assets.
The Corporation has retained the services of Eaton Vance under an
administrative services agreement to act as Administrator of the Fund. The
Corporation has not retained the services of an investment adviser since the
Corporation seeks to achieve the investment objective of the Fund by investing
the Fund's assets in the Portfolio. Under the administrative services agreement,
Eaton Vance provides the Fund with general office facilities and supervises the
overall administration of the Fund. For these services for the Fund, Eaton Vance
currently receives no compensation. The Directors of the Corporation may
determine, in the future, to compensate Eaton Vance for its services to the Fund
under the administrative services agreement. For the period from the start of
business, May 25, 1994, to October 31, 1994, the operating expenses of the Fund
reflect an allocation of expenses to the Administrator.
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 and the administration agreement, by
Eaton Vance under the administrative services agreement, or by EVD under the
distribution agreement. Such costs and expenses to be borne by the Portfolio and
the Fund, as the case may be, include, without limitation: custody and transfer
agency fees and expenses, including those incurred for determining net asset
value and keeping accounting books and records; expenses of pricing and
valuation services; the cost of share certificates; membership dues in
investment company organizations; expenses of acquiring, holding and disposing
of securities and other investments; fees and expenses of registering under the
securities laws and the governmental fees; expenses of reporting to shareholders
and investors; proxy statements and other expenses of shareholders' or
investors' meetings; insurance premiums; printing and mailing expenses;
interest, taxes and corporate fees; legal and accounting expenses; compensation
and expenses of Trustees not affiliated with BMR or Eaton Vance; and investment
advisory and administration fees and, if any, administrative services fees. The
Portfolio and the Fund will also each bear expenses incurred in connection with
litigation in which the Portfolio or the Fund, as the case may be, is a party
and any legal obligation to indemnify its respective officers, Directors or
Trustees with respect thereto.
DISTRIBUTION PLAN
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THE FUND FINANCES DISTRIBUTION ACTIVITIES AND HAS ADOPTED A DISTRIBUTION PLAN
(THE "PLAN") PURSUANT TO RULE 12B-1 UNDER THE 1940 ACT. 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 also subject to, and complies with, the
sales charge rule of the National Association of Securities Dealers, Inc. (the
"NASD Rule"). The Plan is described in the Statement of Additional Information,
and the following is a brief 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 6.25% 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 monthly sales commissions to Authorized Firms in
amounts anticipated to be equivalent to .75%, annualized, of the assets
maintained in the Fund by their customers. Such commissions will compensate
Authorized Firms for the sale of Fund shares to their customers. The Plan is
designed to permit an investor to purchase Fund shares through an Authorized
Firm without incurring an initial sales charge and without the assessment of a
contingent deferred sales charge upon redemption, and at the same time permit
the Principal Underwriter to compensate Authorized Firms and other persons in
connection with the sale of Fund shares.
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.
Accordingly, 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. 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 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.
The amount payable to the Principal Underwriter 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 by the
Fund. 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 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 Corporation on behalf of the Fund and the
Principal Underwriter. The Plan continues in effect through and including March
1, 1995, 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 Directors of the Corporation who are not interested persons of the
Corporation 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
Directors") and (ii) all of the Directors 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 Directors or
by a vote of a majority of the outstanding voting securities of the Fund.
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 commissions 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 period from the start of business, May 25, 1994, to October 31, 1994
the Fund made no sales commission payments under the Plan. As at October 31,
1994 there were no outstanding Uncovered Distribution Charges of the Principal
Underwriter under the Plan.
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
Directors of the Corporation have initially implemented the Plan by authorizing
the Fund to make monthly service fee payments to the Principal Underwriter in
amounts not expected to exceed .25% of the Fund's average daily net assets for
any fiscal year. The Principal Underwriter will make monthly service fee
payments to Authorized Firms in amounts anticipated to be equivalent to .25%
annualized, of the assets maintained in the Fund by their customers. As
permitted by the NASD Rule, such payments are made for personal services and/or
the maintenance of shareholder accounts. Service fees paid to the Principal
Underwriter and Authorized Firms 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 period from the start of business, May 25, 1994, to October 31, 1994,
the fund made no service fee payments under the Plan.
The Plan as currently implemented by the Directors 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.
It is anticipated that the Eaton Vance organization will profit by reason of the
operation of the Plan through increases in the Fund's assets (thereby increasing
the advisory fees payable to BMR by the Portfolio) resulting from sale of Fund
shares and through amounts paid under the Plan to the Principal Underwriter.
The Principal Underwriter may, from time to time, at its own expense,
provide additional incentives to financial service 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 financial
service 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 financial service firms at the time of
sale by notice to the selling group.
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.
VALUING FUND SHARES
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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 normally 4:00 p.m. New York time. 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 Board of Directors of the
Corporation. 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 substantially all of 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).
Authorized Firms must communicate an investors order to the Principal
Underwriter prior to the close of the Principal Underwriter's business day to
receive that day's net asset value per Fund share. It is the Authorized Firms'
responsibility to transmit orders promptly to the Principal Underwriter, which
is a wholly-owned subsidiary of Eaton Vance.
The Portfolio's net asset value is also determined as of the close of
regular trading on the Exchange 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. 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 AS SHOWN BY THE CURRENT NET ASSET VALUE.
HOW TO BUY FUND SHARES
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SHARES OF A FUND MAY BE PURCHASED FOR CASH OR MAY BE ACQUIRED IN EXCHANGE FOR
SECURITIES. Investors may purchase shares of the Fund through Authorized Firms
at the net asset value per share of the Fund next determined after an order is
effective. The Fund may suspend the offering of shares at anytime and may refuse
an order for the purchase of shares.
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 Draft Investing
accounts, which may be established with an investment of $50 or more. See "Eaton
Vance Shareholder Services".
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 his or her participation in the plan, the 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 Fund Shares."
ACQUIRING FUND SHARES IN EXCHANGE FOR SECURITIES. IBT, as escrow agent, will
receive securities acceptable to Eaton Vance, as Administrator, in exchange for
Fund shares 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 current market price for such securities but
does not guarantee the best available price. Eaton Vance will absorb any
transaction costs, such as commissions, on the sale of securities.
Securities determined to be acceptable should be transferred via book entry
or physically delivered, in proper form for transfer, through an 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 EV Marathon Strategic Income Fund
IN THE CASE OF PHYSICAL DELIVERY:
Investors Bank & Trust Company
Attention: EV Marathon Strategic Income Fund
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. Exchanging securities
for Fund shares may create a taxable gain or loss. Each investor should consult
his tax adviser with respect to the particular Federal, state and local tax
consequences of exchanging securities for Fund shares.
IF YOU DON'T HAVE AN AUTHORIZED FIRM, EATON VANCE CAN RECOMMEND ONE.
HOW TO REDEEM FUND SHARES
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A SHAREHOLDER MAY REDEEM HIS FUND SHARES BY DELIVERING TO THE SHAREHOLDER
SERVICES GROUP, INC., BOS725, P.O. BOX 1559, BOSTON, MA 02104, during its
business hours a written request for redemption in good order, plus any stock
certificates with executed stock powers. The redemption price will be based on
the net asset value per Fund share next computed after such delivery. Good order
means that all relevant documents 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 (the "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 in good order by The
Shareholder Services Group, Inc., the Fund will make payment in cash for the net
asset value of the redeemed shares as of the date determined above, reduced by
the amount of any applicable contingent deferred sales charge described below
and the amount of any Federal income tax required to be withheld. Although the
Fund normally expects to make payment in cash for redeemed shares, the
Corporation, 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. The securities so distributed would be valued
pursuant to the Portfolio's valuation procedures. If a shareholder received a
distribution in kind, the shareholder could incur brokerage or other charges in
converting the securities to cash.
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. The value of such shares is based upon the net
asset value calculated after EVD, as the Fund's agent, receives the order. It is
the Authorized Firm's responsibility to transmit promptly repurchase orders to
EVD. Throughout this Prospectus, the word "redemption" is generally meant to
include a repurchase.
If shares were recently purchased, the proceeds of redemption (or
repurchase) 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 may be delayed up to 15 days from the purchase date when
the purchase check has not yet cleared. Redemptions or repurchases may 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 given 60 days written notice to make an
additional purchase. 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 redemptions 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.
REPORTS TO SHAREHOLDERS
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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 income tax returns.
THE LIFETIME INVESTING ACCOUNT/DISTRIBUTION OPTIONS
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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 to the Fund's Transfer Agent.
At least quarterly, shareholders will receive a statement showing complete
details of any transaction and the current share balance in the account. THE
LIFETIME INVESTING ACCOUNT ALSO PERMITS A SHAREHOLDER TO MAKE ADDITIONAL
INVESTMENTS 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
also be directed by telephone to EATON VANCE SHAREHOLDER SERVICES at 800-225-
6265, extension 2, or in writing to The Shareholder Services Group, Inc., BOS
725, P.O. Box 1559, Boston, MA 02104 (Please provide the name of The
Shareholder, the Fund and the account number).
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 account statement.
Share Option -- Dividends and capital gains will be reinvested in additional
shares.
Income Option -- Dividends will be paid in cash, and capital gains will be
reinvested in additional shares.
Cash Option -- Dividends and capital gains will be paid in cash.
The Share Option will be assigned if no other option is specified.
Distributions, including those reinvested, will be reduced by any withholding
required under the 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 in shares 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. In addition to the distribution options set
forth above, dividends and/or capial 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.
"STREET NAME" ACCOUNTS. If shares of the Fund are held in a "street name"
account with an Authorized Firm, all recordkeeping, transaction processing and
payments of distributions relating to the beneficial owner's account will be
performed by the Authorized Firm, and not by the Fund and its transfer agent.
Since the Fund will have no record of the beneficial owner's transactions, a
beneficial owner should contact the Authorized Firm to purchase, redeem or
exchange shares, to make changes in or give instructions concerning the account,
or to obtain information about the account. The transfer of shares in a "street
name" account to an account with another dealer or to an account directly with
the Fund involves special procedures and will require the beneficial owner to
obtain historical purchase information about the shares in the account from the
Authorized Firm. 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.
UNDER A LIFETIME INVESTING ACCOUNT A SHAREHOLDER CAN MAKE ADDITIONAL INVESTMENTS
BY SENDING A CHECK FOR $50 OR MORE.
THE EATON VANCE EXCHANGE PRIVILEGE
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Shares of the Fund currently may be exchanged for shares of one or more of the
following funds in the EV Classic Limited Maturity Tax Free Fund, (the "Classic
Limited Maturity Funds"). Any such exchange will be made on the basis of the net
asset value per share of each fund at the time of exchange, provided that such
exchange offers are available only in states where shares of the fund being
acquired may legally be 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 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 Fund Shares") and share certificates, if any. Consult the Shareholder
Services Group, Inc. for additional information concerning the exchange
privilege. Applications are prospectuses of the other funds are available for
Authorized Firms or the Principal Underwriter. An exchange may result in a
taxable gain or loss. These offers are available only in states where shares of
the fund being acquired may be legally sold.
Shares of certain other funds advised or administered by Eaton Vance may be
similarly exchanged for shares of the Fund at their respective net asset values
per share, but subject to any restrictions or qualifications set forth in their
current prospectuses.
Telephone exchanges between the other funds and shares of the Fund 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.
EATON VANCE SHAREHOLDER SERVICES
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THE FUND OFFERS THE FOLLOWING SERVICES, WHICH 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 from 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 the Fund
may be mailed directly to The Shareholder Services Group, Inc., BOS725, P.O. Box
1559, Boston, MA 02104 at any time -- whether or not dividends are reinvested.
The name of the shareholder, the Fund and the account number should accompany
each investment.
BANK DRAFT INVESTING -- FOR REGULAR SHARE ACCUMULATION: Cash investments of $50
or more may be made through the shareholder's checking account via bank draft
each month or quarter. The $1,000 minimum initial investment and small account
redemption policy are waived for Bank Draft Investing 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 estabished. A minimum deposit
of $5,000 in shares is required.
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
-- 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.
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 these plans, all
distributions will be automatically reinvested in additional shares.
DISTRIBUTIONS AND TAXES
- ------------------------------------------------------------------------------
SUBSTANTIALLY ALL OF THE INVESTMENT INCOME ALLOCATED TO THE FUND BY THE
PORTFOLIO, LESS THE FUND'S DIRECT AND ALLOCATED EXPENSES, WILL BE DECLARED DAILY
AS A DISTRIBUTION TO FUND SHAREHOLDERS OF RECORD AT THE TIME OF DECLARATION.
Such distributions, whether taken in cash or reinvested in additional shares,
will ordinarily be paid on the twenty-second day of each month or the next
business day thereafter. The Fund anticipates that the entire monthly
distribution, whether paid in cash or additional shares of the Fund, will
constitute taxable income to the shareholders for Federal income tax purposes.
Daily distribution crediting will commence on the day that collected funds for
the purchase of Fund shares are available at the Transfer Agent. Shareholders
reinvesting the monthly distribution should continue to treat the amount of the
entire distribution as the tax cost basis of the additional shares acquired by
reason of such reinvestment. Shareholders will receive timely Federal income tax
information as to the taxable status of all distributions made by the Fund
during the calendar year. The Fund's net realized capital gains, if any, consist
of the net realized capital gains allocated to the Fund by the Portfolio for tax
purposes, after taking into account any available capital loss carryovers; the
Fund's net realized capital gains, if any, will be distributed at least once a
year, usually in December.
Distributions of the Fund which are derived from the Fund's allocated share
of the Portfolio's net investment income, net short-term capital gains and
certain foreign exchange gains are taxable to shareholders as ordinary income,
whether paid in cash or reinvested in additional shares.
Certain distributions declared 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.
Capital gains, if any, realized on sales of investments and on options and
futures transactions during the fiscal year, which ends on October 31, will be
offset by any capital loss carryovers and will be distributed annually, usually
in December, in compliance with the distribution requirements of the Code.
Distributions of long-term capital gains included therein are taxable to
shareholders as such, whether paid in cash or additional shares of the Fund and
regardless of the length of time Fund shares have been owned by the shareholder.
If you purchase shares shortly before the record date of a distribution, you
will pay the full price for the shares and then receive some portion of the
price back as a taxable distribution.
Income realized by the Portfolio from certain instruments and allocated to
the Fund may be subject to foreign income taxes on certain investments and the
Fund may make an election under Section 853 of the Code that would allow Fund
shareholders to claim a credit or deduction on their Federal income tax returns
for (and treat as additional amounts distributed to them) their pro rata portion
of the Fund's allocated share of qualified taxes paid by the Portfolio to
foreign countries. This election may be made annually only if more than 50% of
the assets of the Fund including its allocable share of the Portfolio assets, at
the close of a taxable year consists of securities in foreign corporations. The
Fund will send a written notice of any such election (not later than sixty (60)
days after the close of its taxable year) to each shareholder indicating the
amount to be treated by him as his proportionate share of such taxes.
Availability of foreign tax credits or deductions for shareholders is subject to
certain additional restrictions and limitations at the Fund and shareholder
levels.
In order to qualify as a regulated investment company under the Internal
Revenue Code (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.
The Fund has elected to be treated, has qualified, and intends to continue
to qualify each year as a regulated investment company under the Code.
Accordingly, the Fund intends to satisfy certain requirements relating to
sources of its income and diversification of its assets and to distribute 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 to the Fund. As a partnership under the Code, the Portfolio also does
not pay Federal income or excise taxes.
As long as the Fund qualifies as a regulated investment company and does not
pay Federal income tax, it will not be required to pay Maryland or Massachusetts
corporate income or excise taxes.
Shareholders should consult their own tax advisers with respect to the
local, state, Federal and foreign tax consequence of investing in the Fund.
PERFORMANCE AND YIELD INFORMATION
- ------------------------------------------------------------------------------
FROM TIME TO TIME, THE FUND MAY ADVERTISE ITS YIELD AND/OR AVERAGE ANNUAL TOTAL
RETURN. The yield for the Fund will be 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 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 net asset value
per share. The Fund's effective distribution rate is computed by dividing the
distribution rate by the ratio used to annualize the distribution and
reinvesting the resulting amount for a full year on the basis of such ratio. The
effective distribution rate will be higher than the distribution rate because of
the compounding effect of the assumed reinvestment. The Fund's yield is
calculated using a standardized formula the income component of which is
computed from the yields to maturity of all debt obligations held by the
Portfolio based on the market value of such obligations on the day preceding the
30 day period (with all purchases and sales of securities during such period
included in the income calculation on a settlement date basis). In contrast, 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 and short-term capital gain actually earned by the Fund during
the month (see "Distributions and Taxes").
The investment results of the Fund will fluctuate over time, and any
presentation of the Fund's yield, distribution rate or total return for any
prior period should not be considered as a representation of what an investment
may earn or what an investor's yield or total return may be in any future
period. If the expenses of the Fund or the Portfolio are paid by Eaton Vance,
the Fund's performance will be higher.
<PAGE>
INVESTMENT ADVISER AND
ADMINISTRATOR OF
STRATEGIC INCOME PORTFOLIO
Boston Management and Research
24 Federal Street
Boston, MA 02110
ADMINISTRATOR OF
EV CLASSIC
STRATEGIC INCOME FUND
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
EV CLASSIC
STRATEGIC INCOME FUND
24 FEDERAL STREET
BOSTON, MA 02110
C-SIP
EV Classic
Strategic
Income Fund
Prospectus
March 1, 1995
<PAGE>
PART A
INFORMATION REQUIRED IN A PROSPECTUS
EV MARATHON STRATEGIC INCOME FUND
EV MARATHON STRATEGIC INCOME FUND (THE "FUND") IS A MUTUAL FUND SEEKING A
HIGH LEVEL OF INCOME, CONSISTENT WITH PRUDENT INVESTMENT RISK, BY INVESTING IN A
GLOBAL PORTFOLIO CONSISTING PRIMARILY OF HIGH GRADE DEBT SECURITIES AND HAVING A
DOLLAR WEIGHTED AVERAGE MATURITY OF NOT MORE THAN THREE YEARS. THE FUND INVESTS
ITS ASSETS IN THE STRATEGIC INCOME PORTFOLIO (THE "PORTFOLIO"), A
NON-DIVERSIFIED OPEN-END INVESTMENT COMPANY HAVING THE SAME INVESTMENT OBJECTIVE
AS THE FUND, RATHER THAN BY DIRECTLY INVESTING IN AND MANAGING ITS OWN PORTFOLIO
OF SECURITIES AS WITH HISTORICALLY STRUCTURED MUTUAL FUNDS. THE FUND IS A SERIES
OF EATON VANCE INVESTMENT FUND, INC. (THE "CORPORATION").
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 March 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 and the Portfolio. The offices
of the Investment Adviser and the Administrator are located at 24 Federal
Street, Boston, MA 02110.
- ------------------------------------------------------------------------------
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>
TABLE OF CONTENTS
<CAPTION>
PAGE PAGE
<S> <C> <C>
Shareholder and Fund Expenses ..................... 2 How to Buy Fund Shares ........................ 20
The Fund's Financial Highlights ................... 3 How to Redeem Fund Shares ..................... 21
The Fund's Investment Objective ................... 4 Reports to Shareholders ....................... 23
How the Fund and the Portfolio Invest The Lifetime Investing Account/Distribution
their Assets .................................... 4 Options ..................................... 23
Organization of the Fund and the Portfolio ........ 12 The Eaton Vance Exchange Privilege ............ 24
Management of the Fund and the Portfolio .......... 15 Eaton Vance Shareholder Services ............. 26
Distribution Plan ................................. 17 Distributions and Taxes ....................... 27
Valuing Fund Shares ............................... 19 Performance Information ....................... 28
- ------------------------------------------------------------------------------------------------------------
PROSPECTUS DATED MARCH 1, 1995
</TABLE>
<TABLE>
SHAREHOLDER AND FUND EXPENSES<F1>
- ---------------------------------------------------------------------------------------------------------------
<S> <C>
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 Five Years (as a percentage of
redemption proceeds exclusive of all reinvestments and
capital appreciation in the account)<F2> 3%-0%
ANNUAL FUND AND ALLOCATED PORTFOLIO OPERATING EXPENSES
(as a percentage of average daily net assets)
Investment Adviser Fee<F3><F4> 0.54%
Rule 12b-1 Distribution (and Service) Fees 0.95%
Other Expenses (including administration fee of .15%) 0.51%
---
Total Operating Expenses 2.00%
---
---
<CAPTION>
EXAMPLE 1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
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: $50 $83 $108 $233
An investor would pay the following expenses on the same investment,
assuming (a) 5% annual return and (b) no redemptions: $20 $63 $108 $233
Notes:
<FN>
<F1>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 Directors of the Corporation believe that
over time the aggregate per share expenses of the Fund and the Portfolio
should be approximately equal to the per share expenses which the Fund would
incur if the Directors 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 and the amounts included in the
Example are based on the Fund's and the Portfolio's results for the fiscal
year ended October 31, 1994. The table and Example should not be considered
a representation of past or future expenses and actual expenses may be
greater or less than those shown. 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 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".
<F2>No contingent deferred sales charge is imposed on (a) shares purchased more
than four years prior to the redemption, (b) shares acquired through the
reinvestment of dividends and distributions and (c) any appreciation in
value of other shares in the account (see "How to Redeem 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".
<F3>The Portfolio's monthly advisory fee has two components, a fee based on
daily net assets and a fee based on daily gross income, as set forth in the
fee schedule on page 15.
<F4>As of the close of business on February 28, 1994, the Fund transferred its
assets to the Portfolio in exchange for an interest in the Portfolio. Prior
to such date, the Fund retained Eaton Vance Management as its investment
adviser.
<F5>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".
</TABLE>
THE FUND'S FINANCIAL HIGHLIGHTS
- ------------------------------------------------------------------------------
The following information should be read in conjunction with the financial
statements included in the Statement of Additional Information, all of which has
been so included in reliance upon the report of Coopers & Lybrand L.L.P.,
independent accountants, as experts in accounting and auditing. Further
information regarding the performance of the Fund is contained in the Fund's
annual report to shareholders which may be obtained without charge by contacting
the Fund's Principal Underwriter.
YEAR ENDED OCTOBER 31,\1/
-----------------------------------------
1994++++ 1993 1992 1991++
--------- --------- --------- --------
NET ASSET VALUE -- Beginning
of year $ 9.410 $ 9.120 $ 9.920 $ 10.000
-------- -------- -------- --------
INCOME FROM OPERATIONS:
Net investment income $ 0.645 $ 0.239 $ 0.816 $ 0.786
Net realized and unrealized
(loss) gain on investments (1.135) 0.683 (0.943) (0.022)+++
-------- -------- -------- --------
Total (loss) income from
operations $ (0.490) $ 0.922 $ (0.127) $ 0.764
-------- -------- -------- --------
LESS DISTRIBUTIONS:
From net investment income $ (0.343) $ (0.632) $ (0.673) $ (0.786)
In excess of net investment
income\2/ -- -- -- (0.058)
From tax return of capital (0.290) -- -- --
-------- -------- -------- --------
Total distributions $ (0.633) $ (0.632) $ (0.673) $ (0.844)
-------- -------- -------- --------
NET ASSET VALUE -- end of year $ 8.290 $ 9.410 $ 9.120 $ 9.920
-------- -------- -------- --------
-------- -------- -------- --------
TOTAL RETURN\3/ (5.33%) 10.51% (1.45%) 7.97%
RATIOS/SUPPLEMENTAL DATA (to
average daily net assets):
Expenses 2.00%\4/ 1.99% 1.95% 2.11%+
Net investment income 7.24% 7.53% 8.20% 8.24%+
PORTFOLIO TURNOVER\5/ 55% 55% 56% 20%
NET ASSETS AT END OF PERIOD
(000's omitted) $233,139 $381,227 $533,253 $589,182
+Computed on an annualized basis.
++For the period from the start of business, November 26, 1990, to October 31,
1991.
+++The per share amount is not in accord with the net realized and unrealized
gain for the period due to the timing of the sales of Fund shares and the
amount of per-share realized and unrealized gains and losses at such time.
++++Per share amounts have been calculated using the monthly average share
method which more approximately presents the per share data for the period,
since the use of the undistributed method does not accord with the results
of operations.
\1/During the fiscal years ended 1993, 1992 and 1991, the Fund was making
investments directly in securities. As of the close of business February
28, 1994, the Fund transferred substantially all of its assets to the
Portfolio in exchange for an interest in the Portfolio.
\2/Distributions from paid-in-capital for the year ended October 31, 1991 has
been restated to conform with the treatment permitted under current
financial reporting standards.
\3/Total return is calculated assuming a purchase at the net asset value on
the first day and a sale at the net asset value on the last day of each
period reported. Dividends and distributions, if any, are assumed to be
reinvested at the net asset value on the payable date.
\4/Includes the Fund's share of the Portfolio's allocated expenses for the
period from March 1, 1994, to October 31, 1994.
\5/Portfolio Turnover represents the rate of portfolio activity for the period
while 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 in the
Fund's annual report.
THE FUND'S INVESTMENT OBJECTIVE
- ------------------------------------------------------------------------------
EV MARATHON STRATEGIC INCOME FUND'S INVESTMENT OBJECTIVE IS A HIGH LEVEL OF
INCOME, CONSISTENT WITH PRUDENT INVESTMENT RISK, BY INVESTING IN A GLOBAL
PORTFOLIO CONSISTING PRIMARILY OF HIGH GRADE DEBT SECURITIES AND HAVING A DOLLAR
WEIGHTED AVERAGE MATURITY OF NOT MORE THAN THREE YEARS. The Fund currently seeks
to meet its investment objective by investing its assets in the Strategic Income
Portfolio, a separate registered investment company with the same investment
objective as the Fund. The Portfolio's investment adviser is Boston Management
and Research ("BMR" or the "Investment Adviser"). The Fund's and the Portfolio's
investment objective are nonfundamental and may be changed when authorized by a
vote of the Directors of the Corporation or the Trustees of the Portfolio,
respectively, without obtaining the approval of the Fund's shareholders or the
investors in the Portfolio, as the case may be.
HOW THE FUND AND THE PORTFOLIO INVEST THEIR ASSETS
- ------------------------------------------------------------------------------
In pursuing its investment objective, the Investment Adviser will strategically
allocate the Portfolio's investments among different countries and currencies
based on its perception of the most favorable markets and issuers, the relative
yield and appreciation potential of a particular country's securities and the
relationship of a country's currency to the U.S. Dollar. The Portfolio will,
under normal market conditions, invest in the securities of issuers in at least
three countries, one of which may be the United States. The Portfolio may, for
temporary defensive purposes, invest up to 100% of its total assets in U.S.
securities. Investments will be allocated among particular industries or types
of securities based on each issuer's fundamental economic strength, credit
quality, relative interest rate spreads and interest rate trends.
The Portfolio seeks to minimize credit risk and fluctuations in net asset
value. The Portfolio will pursue investment opportunities in both U.S. and
foreign markets, and may invest a substantial portion of its assets in debt
obligations denominated in foreign currencies. While the Portfolio intends to
invest at least 25% of its total assets in U.S. Dollar denominated debt
obligations, such investment will not limit the foreign currency exposure that
may result from the Portfolio's investments in foreign currency forward exchange
contracts, options, futures, options on futures, and currency swaps. The
Portfolio may not invest more than 25% of its total assets in securities
denominated in a single currency other than the U.S. Dollar and may not invest
more than 25% of its total assets in the securities of issuers located in a
single country other than the United States at the time of purchase; these 25%
limitations do not apply to the Portfolio's positions in forward contracts,
options, futures contracts, options on futures or currency swaps.
DEBT SECURITIES. The Portfolio seeks to minimize investment risk by, among other
strategies, investing primarily in high grade debt securities, which are: (i)
debt securities issued or guaranteed by the U.S. Government, its agencies or
instrumentalities ("U.S. Government securities"); (ii) obligations issued or
guaranteed by a foreign government or any of its political subdivisions,
authorities, agencies, or instrumentalities, or by supra- national entities,
provided that such obligations are rated AAA, AA or A or a comparable rating by
Standard & Poor's Corporation ("S&P") or Duff & Phelps Inc. ("Duff"), or Aaa, Aa
or A or a comparable rating by Moody's Investors Service, Inc. ("Moody's")
("High Grade Ratings") or, if unrated, are determined by the Investment Adviser
to be of equivalent credit quality; (iii) corporate debt securities having at
least one High Grade Rating or, if unrated, determined by the Investment Adviser
to be of equivalent credit quality; (iv) certificates of deposit and bankers'
acceptances issued or guaranteed by, or time deposits maintained at, banks
(including foreign branches of U.S. banks or U.S. or foreign branches of foreign
banks) having total assets of more than $500 million and determined by the
Investment Adviser to be of comparable credit quality to securities with High
Grade Ratings; and (v) commercial paper and other short-term securities rated
A-1 or A-2 by S&P, Prime-1 or Prime-2 by Moody's, Fitch-1 or Fitch-2 by Fitch
Investors Service, Inc. ("Fitch"), or Duff 1 or Duff 2 by Duff or, if not rated,
issued by U.S. or foreign companies, governments, or other entities having
outstanding debt securities with a High Grade Rating or determined by the
Investment Adviser to be high grade, and loan participation interests having a
remaining term not exceeding one year in loans made by banks to such companies.
The remainder of the Portfolio, up to 50% of total assets, may be invested in
investment grade securities (rated BBB by S&P or Duff, Baa by Moody's, or the
equivalent) which have speculative characteristics, or in a combination of
investment grade and below investment grade securities.
Debt securities that are rated below investment grade are commonly referred
to as "junk bonds". The Portfolio will invest less than 35% of its total assets
in such securities, which may include securities in the lowest rating
categories. The Portfolio is more likely to purchase sovereign debt obligations,
as opposed to U.S. corporate obligations. Sovereign debt and other below
investment grade and unrated securities will have speculative characteristics in
varying degrees. While such obligations 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 securities are subject to the risk of an issuer's inability
to meet principal and interest payments on the obligations (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 market
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 securities, the
Portfolio may incur additional expense seeking recovery of its investment. In
the event the rating of a security held by the Portfolio is downgraded, causing
the Portfolio to exceed 35% limitation set forth above, the Investment Adviser
will (in an orderly fashion within a reasonable period of time) dispose of such
securities as it deems necessary in order to comply with the limitation. See the
Appendix to this Prospectus for the asset composition of the Portfolio for the
fiscal year ended October 31, 1994. For a description of securities ratings, see
the Statement of Additional Information.
The income producing securities in which the Portfolio invests may have
fixed, variable or floating interest rates, constitute a broad mix of asset
classes, and may include convertible bonds, securities of real estate investment
trusts and natural resource companies, stripped debt obligations, closed-end
investment companies (that invest primarily in debt securities the Portfolio
could invest in), preferred, preference and convertible stocks, equipment lease
certificates, equipment trust certificates, conditional sales contracts and debt
obligations collateralized by, or representing interests in pools of, mortgages
and other types of loans ("asset-backed obligations"). The Portfolio may also
invest in loans and loan participations. The Portfolio may invest a portion of
its assets in fixed and floating rate loans and loan interests, which generally
will be fully collateralized. Such investments must meet the Investment
Adviser's creditworthiness guidelines, as applied to the borrower or, as the
case may be, an agent lending bank or other financial intermediary. Loan
interests may take the form of participation interests in, assignments of or
novations of a loan during its secondary distribution, or direct interests
during a primary distribution. Loan interests may be acquired from banks or
other financial institutions, and the Portfolio may derive its rights directly
from the borrower. Prepayment of loan interests may reduce the yield of the Fund
depending upon the returns available on investments at the time of prepayment.
FOREIGN INVESTMENTS AND FOREIGN CURRENCY CONSIDERATIONS. The Portfolio invests
in debt securities denominated in the currencies of countries whose governments
are considered stable by the Investment Adviser. In addition to the U.S. Dollar,
such currencies include, among others, the Australian Dollar, British Pound
Sterling, Canadian Dollar, European Currency Unit ("ECU"), Finnish Markka,
French Franc, German Mark, Greek Drachma, Irish Punt, Italian Lira, Japanese
Yen, Spanish Peseta and Swiss Franc. The Portfolio may also invest in debt
securities denominated in currencies of developing countries such as the
Malaysian Ringgit, Indonesian Rupiah, Brazilian Cruzeiro, Peruvian New Sol and
the Mexican Peso. An issuer of debt securities purchased by the Portfolio may be
domiciled in a country other than the country in whose currency the instrument
is denominated. To the extent that the Portfolio's investments are diversified
as to currency, it is expected by the Investment Adviser that fluctuations in
the value of a particular currency may be offset by fluctuations in the value of
other currencies in which the Portfolio's securities are denominated.
Changes in exchange rates for the foreign currencies in which the
Portfolio's investments are denominated may adversely affect the value of such
investments and the value of Fund shares. The Portfolio may hedge against
foreign currency risk by investing in instruments indexed to a specific
currency, entering into forward foreign currency exchange contracts and currency
swaps, engaging in transactions in futures contracts on currency and options on
such futures contracts and purchasing and writing options on currency.
The Portfolio may invest in debt securities issued by supranational
organizations such as: the World Bank, which was chartered to finance
development projects in developing member countries; the European Community,
which is a twelve-nation organization engaged in cooperative economic
activities; the European Coal and Steel Community, which is an economic union of
various European nations' steel and coal industries; and the Asian Development
Bank, which is an international development bank established to lend funds,
promote investment and provide technical assistance to member nations in the
Asian and Pacific regions.
Investing in securities issued by foreign governments and corporations
involves considerations and possible risks not typically associated with
investing in obligations issued by the U.S. Government and domestic
corporations. The values of foreign investments are affected by changes in
currency rates or exchange control regulations, application of foreign tax laws,
including withholding taxes, changes in governmental administration or economic
or monetary policy (in this country or abroad) or changed circumstances in
dealings between nations. Costs are incurred in connection with conversions
between various currencies. In addition, foreign brokerage commissions are
generally higher than in the United States, and foreign securities markets may
be less liquid, more volatile and less subject to governmental supervision than
in the United States. Investments in foreign countries could be affected by
other factors not present in the United States, including expropriation,
confiscatory taxation, lack of uniform accounting and auditing standards and
potential difficulties in enforcing contractual obligations and could be subject
to settlement delays.
The Portfolio may invest in the debt securities of issuers in developing
countries in Eastern Europe, Asia, Latin America and elsewhere to the extent
such securities meet the Portfolio's quality standards. The economies of some of
these countries are currently suffering both from the stagnation resulting from
centralized economic planning and control and the higher prices and unemployment
associated with the transition to market economies. Unstable economic and
political conditions may adversely affect the ability of issuers of debt
securities located in these countries to meet their obligations under such
securities.
INTEREST RATE RISK MANAGEMENT. The net asset value of the Fund shares will
reflect the value of its interest in the Portfolio (which in turn, reflects the
underlying value of the Portfolio's assets and liabilities) and will change in
response to interest rate fluctuations. When interest rates decline, the value
of debt securities held by the Portfolio can be expected to rise. Conversely,
when interest rates rise, the value of debt securities held by the Portfolio can
be expected to decline. Although a shorter maturity is generally associated with
a lower level of market value volatility, since interest rate trends are
different for each country, it is possible that interest rate changes affecting
the value of the Portfolio's investments in one country may be offset by
countervailing changes affecting the Portfolio's investments in another country.
Thus, the Portfolio's policy of diversifying its investments among several
countries may reduce its susceptibility to interest rate volatility.
The Portfolio will maintain a dollar weighted average portfolio maturity of
not more than three years. In measuring the dollar weighted average portfolio
maturity of the Portfolio, the Portfolio will use the concept of "duration",
adjusted to account for the volatility-reducing effect of diversifying a debt
portfolio among several countries. Duration represents the dollar weighted
average maturity of expected cash flows (i.e. interest and principal payments)
on one or more debt obligations, discounted to their present values. The
duration of a floating rate security will be defined as the time to the next
interest payment. The duration of an obligation is usually less than its stated
maturity and is related to the degree of volatility in the market value of the
obligation. Maturity measures only the time until a bond or other debt security
provides its final payment; it takes no account of the pattern of a security's
payments over time. Duration takes both interest and principal payments into
account and, thus, in the Investment Adviser's opinion, is a more accurate
measure of a debt security's price sensitivity in response to changes in
interest rates. In computing the duration of its portfolio, the Portfolio will
have to estimate the duration of debt obligations that are subject to prepayment
or redemption by the issuer, based on projected cash flows from such
obligations.
The Portfolio may use various techniques to shorten or lengthen the dollar
weighted average maturity of its portfolio, including the acquisition of debt
obligations at a premium or discount, transactions in futures contracts and
options on futures and interest rate swaps. Subject to the requirement that the
dollar weighted average portfolio maturity will not exceed three years, the
Portfolio may invest in individual debt obligations of any maturity, including
obligations with a remaining stated maturity of more than three years.
U.S. GOVERNMENT SECURITIES. U.S. Government securities that the Portfolio may
invest in include (1) U.S. Treasury obligations, which differ in their interest
rates, maturities and times of issuance: U.S. Treasury bills (maturities of one
year or less), U.S. Treasury notes (maturities of one to ten years) and U.S.
Treasury bonds (generally maturities of greater than ten years) and (2)
obligations issued or guaranteed by U.S. Government agencies and
instrumentalities which are supported by any of the following: (a) the full
faith and credit of the U.S. Treasury, (b) the right of the issuer to borrow any
amount limited to a specific line of credit from the U.S. Treasury, (c)
discretionary authority of the U.S. Government to purchase certain obligations
of the U.S. Government agency or instrumentality or (d) the credit of the agency
or instrumentality. The Portfolio may also invest in any other security or
agreement collateralized or otherwise secured by U.S. Government securities.
Agencies and instrumentalities of the U.S. Government include but are not
limited to: Federal Land Banks, Federal Financing Banks, Banks for Cooperatives,
Federal Intermediate Credit Banks, Farm Credit Banks, Federal Home Loan Banks,
Federal Home Loan Mortgage Corporation, Federal National Mortgage Association,
Student Loan Marketing Association, United States Postal Service, Chrysler
Corporate Loan Guarantee Board, Small Business Administration, Tennessee Valley
Authority and any other enterprise established or sponsored by the U.S.
Government.
ZERO COUPON AND PAYMENT IN KIND BONDS. The Portfolio may invest in zero coupon
bonds, deferred interest bonds and bonds on which the interest is payable in
kind ("PIK bonds"). Zero coupon and deferred interest bonds are debt obligations
which are issued at a significant discount from face value. The discount
approximates the total amount of interest the bonds will accrue and compound
over the period until maturity or the first interest accrual date at a rate of
interest reflecting the market rate of the security at the time of issuance.
While zero coupon bonds do not require the periodic payment of interest,
deferred interest bonds provide for a period of delay before the regular payment
of interest begins. Although this period of delay is different for each deferred
interest bond, a typical period is approximately one-third of the bond's term to
maturity. PIK bonds are debt obligations which provide that the issuer thereof
may, at its option, pay interest on such bonds in cash or in the form of
additional debt obligations. Such investments benefit the issuer by mitigating
its need for cash to meet debt service, but also require a higher rate of return
to attract investors who are willing to defer receipt of such cash. Such
investments experience greater volatility in market value due to changes in
interest rates than debt obligations which provide for regular payments of
interest. The Portfolio will accrue income on such investments for tax and
accounting purposes, in accordance with applicable law, the Fund's proportionate
share of which income is distributable to shareholders of the Fund. Because no
cash is received at the time such income is accrued, the Portfolio may be
required to liquidate other portfolio securities to generate cash that the Fund
may withdraw from the Portfolio to enable the Fund to satisfy its distribution
obligations.
DERIVATIVE INSTRUMENTS. The Portfolio may purchase or enter into the derivative
instruments described below to enhance return, to hedge against fluctuations in
interest rates, securities prices or currency exchange rates, to change the
duration of the Portfolio's fixed income portfolio or as a substitute for the
purchase or sale of securities or currency. The Portfolio's investments in
derivative securities may include certain indexed securities. The Portfolio's
transactions in derivative contracts may include the purchase or sale of futures
contracts on securities, indices or currency; options on futures contracts;
options on currency; forward contracts to purchase or sell currency; currency
and interest rate swaps; and interest rate caps, floors and collars.
All of the Portfolio's transactions in derivative instruments involve a risk
of loss or depreciation due to unanticipated adverse changes in interest rates,
securities prices or currency exchange rates. The loss on derivative contracts
(other than purchased options, caps, floors and collars) may exceed the
Portfolio's initial investment in these contracts. In addition, the Portfolio
may lose the entire premium paid for purchased options, caps, floors and collars
that expire before they can be profitably exercised by the Portfolio.
Indexed Investments. The Portfolio may invest in instruments which are
indexed to certain specific foreign currency exchange rates. The terms of such
instruments may provide that their principal amounts or just their coupon
interest rates are adjusted upwards or downwards (but not below zero) at
maturity or on established coupon payment dates to reflect changes in the
exchange rate between two currencies while the obligation is outstanding. An
indexed security may be leveraged to the extent that the magnitude of any change
in the interest rate or principal payable on an indexed security is a multiple
of the change in the reference price. Thus, indexed securities may decline in
value due to adverse market changes in the relevant exchange rates. The
Portfolio has provided an undertaking to the Securities and Exchange Commission
("SEC") to establish and maintain a segregated account consisting of cash, U.S.
Government securities or other high grade liquid debt securities having a value
equal to the aggregate principal amount of the Portfolio's currency indexed
investments. The Portfolio may invest without limitation in instruments indexed
to foreign currency rates. The market values of currency linked securities may
be very volatile and may decline during periods of unstable currency exchange
rates.
Derivative Contracts. The Portfolio may purchase and sell a variety of
derivative contracts, including futures contracts on securities, indices or
currency; options on futures contracts; options on currency; forward contracts
to purchase or sell currency; currency and interest rate swaps; and interest
rate caps, floors and collars. The Portfolio incurs liability to a counterparty
in connection with transactions in futures contracts, forward contracts and
swaps and in selling options, caps, floors and collars. The Portfolio pays a
premium for purchased options, caps, floors and collars. In addition, the
Portfolio incurs transaction costs in opening and closing positions in
derivative contracts.
Forward Foreign Currency Exchange Contracts. The Portfolio may enter into
forward foreign currency exchange contracts. A forward foreign currency exchange
contract is a contract individually negotiated and privately traded by currency
traders and their customers. A forward contract involves an obligation to
purchase or sell a specific currency 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 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. The purpose of
entering into these contracts is to minimize the risk to the Portfolio from
adverse changes in the relationship between the U.S. Dollar and foreign
currencies. In addition, the Portfolio may purchase forward contracts for
non-hedging purposes when the Investment Adviser anticipates that the foreign
currency will appreciate in value, but securities denominated in that currency
do not present attractive investment opportunities. However, forward contracts
may limit potential gain from a positive change in the relationship between the
U.S. Dollar and foreign currencies. Unanticipated changes in currency prices may
result in poorer overall performance for the Fund than if the Portfolio had not
entered into forward foreign currency exchange contracts.
Options on Foreign Currencies. The Portfolio may write covered put and call
options and purchase put and call options on foreign currencies for the purpose
of protecting against declines in the dollar value of portfolio securities and
against increases in the dollar cost of securities to be acquired. The Portfolio
may use options on currency to cross-hedge, which involves writing or purchasing
options on one currency to hedge against changes in exchange rates for a
different, but related currency. As with other types of options, however, the
writing of an option on foreign currency will constitute only a partial hedge,
up to the amount of the premium received, and the Portfolio could be required to
purchase or sell foreign currencies at disadvantageous exchange rates, thereby
incurring losses. The purchase of an option on foreign currency may be used to
hedge against fluctuations in exchange rates although, in the event of exchange
rate movements adverse to the Portfolio's position, it may forfeit the entire
amount of the premium plus related transaction costs. In addition, the Portfolio
may purchase call options on currency for non-hedging purposes when the
Investment Adviser anticipates that the currency will appreciate in value, but
the securities denominated in that currency do not present attractive investment
opportunities.
Futures Contracts and Options on Futures Contracts. A change in the level of
currency exchange rates or interest rates may affect the value of the
Portfolio's investments (or of investments that the Portfolio expects to make).
To hedge against such changes in such rates or prices or for non- hedging
purposes, the Portfolio may purchase and sell various kinds of futures contracts
and write and purchase call and put options on any of such futures contracts; it
may also enter into closing purchase and sale transactions with respect to any
of such contracts and options. The futures contracts may be based on various
securities in which the Portfolio may invest, foreign currencies, certificates
of deposit, Eurodollar time deposits, securities indices, economic indices (such
as the Commodity Research Bureau Futures Price Index) and other financial
instruments and indices. The Portfolio will engage in futures and related
options transactions only for bona fide hedging or non- hedging purposes as
defined in or permitted by regulations of the Commodity Futures Trading
Commission ("CFTC"). The Portfolio may engage in cross-hedging by purchasing or
selling futures or options on a security or currency different from the security
or currency position being hedged if the Investment Adviser determines that
there is a historical pattern of correlation between the two securities or
currencies.
The Portfolio may not purchase or sell futures contracts or purchase or sell
related options, except for closing purchase or sale transactions, if
immediately thereafter the sum of the amount of margin deposits on and premiums
paid for the Portfolio's outstanding non-hedging positions in futures and
options on futures would exceed 5% of the market value of the Portfolio's net
assets. There are no other percentage limitations on the amount of the
Portfolio's assets that may be committed to futures transactions and the
Portfolio may enter into futures positions with respect to 100% of its assets.
These transactions involve brokerage costs, require margin deposits and, in the
case of contracts and options obligating the Portfolio to purchase securities or
currency, require the Portfolio to segregate cash, U.S. government and other
liquid high grade debt securities in an amount equal to the underlying value of
such contracts and options.
Interest Rate and Currency Swaps. The Portfolio may enter into interest rate
and currency swaps both for hedging purposes and to enhance return. The
Portfolio will typically use interest rate swaps to shorten the effective
maturity of its portfolio. Interest rate swaps involve the exchange by the
Portfolio with another party of their respective commitments to pay or receive
interest, e.g., an exchange of fixed rate payments for floating rate payments.
Currency swaps involve the exchange of their respective rights to make or
receive payments in specified currencies. Since interest rate and currency swaps
are individually negotiated, the Portfolio expects to achieve an acceptable
degree of correlation between its portfolio investments and interest rate or
currency swap positions entered into for hedging purposes.
The Portfolio will only enter into interest rate swaps on a net basis, i.e.,
the two payment streams are netted out, with the Portfolio receiving or paying,
as the case may be, only the net amount of the two payments. Interest rate swaps
do not involve the delivery of securities or principal. Accordingly, the risk of
loss with respect to interest rate swaps is limited to the net amount of
interest payments that the Portfolio is contractually obligated to make. If the
other party to an interest rate swap defaults, the Portfolio's risk of loss
consists of the net amount of interest payments that the Portfolio is
contractually entitled to receive. In contrast, currency swaps usually involve
the delivery of the entire payment stream in one designated currency in exchange
for the entire payment stream in the other designated currency. Therefore, the
entire principal value of a currency swap is subject to the risk that the other
party to the swap will default on its contractual delivery obligations.
The use of interest rate and currency swaps is a highly specialized activity
which involves investment techniques and risks different from those associated
with ordinary portfolio securities transactions. The Investment Adviser has used
interest rate and currency swaps only to a limited extent but has utilized other
types of hedging techniques. If the Investment Adviser is incorrect in its
forecasts of market values, interest rates and currency exchange rates, the
investment performance of the Fund would be less favorable than it would have
been if swaps were not used.
Risks Associated With Derivative Securities and Contracts. The risks
associated with the Portfolio's transactions in derivative securities and
contracts may include some or all of the following: (1) market risk; (2)
leverage and volatility risk; (3) correlation risk; (4) credit risk; and (5)
liquidity and valuation risk.
Market Risk. Investments in mortgage-backed and indexed securities are
subject to the prepayment, extension, interest rate and other market risks
described above. Entering into a derivative contract involves a risk that the
applicable market will move against the Portfolio's position and that the
Portfolio will incur a loss. For derivative contracts other than purchased
options, this loss may exceed the amount of the initial investment made or the
premium received by the Portfolio.
Leverage and Volatility Risk. Derivative instruments may sometimes increase
or leverage the Portfolio's exposure to a particular market risk. Leverage
enhances the price volatility of derivative instruments held by the Portfolio.
The Portfolio may partially offset the leverage inherent in derivative contracts
by maintaining a segregated account consisting of cash and liquid, high grade
debt securities, by holding offsetting portfolio securities or currency
positions or by covering written options.
Correlation Risk. The Portfolio's success in using derivative instruments to
hedge portfolio assets depends on the degree of price correlation between the
derivative instrument 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's assets.
Credit Risk. Derivative securities and over-the-counter derivative
contracts involve a risk that the issuer or counterparty will fail to perform
its contractual obligations.
Liquidity and Valuation Risk. Some derivative securities are not readily
marketable or may become illiquid under adverse market conditions. In addition,
during periods of extreme market volatility, a commodity or option exchange may
suspend or limit trading in an exchange-traded derivative contract, which may
make the contract temporarily illiquid and difficult to price. The staff of the
SEC takes the position that certain over-the-counter options and all swaps,
caps, floors and collars are subject to the Portfolio's 15% limit on illiquid
investments. The Portfolio's ability to terminate over-the-counter derivative
contracts may depend on the cooperation of the counterparties to such contracts.
For thinly traded derivative securities and contracts, the only source of price
quotations may be the selling dealer or counterparty.
LENDING OF PORTFOLIO SECURITIES. The Portfolio may seek to earn additional
income by lending portfolio securities to broker-dealers or other institutional
borrowers. 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 at
the same time pay a transaction fee to such borrowers. As with other extensions
of credit there are risks of delay in recovery or even loss of rights in the
securities loaned if the borrower of the securities fails financially. However,
the loans will be made only to organizations deemed by the Investment Adviser to
be of good standing and when, in its judgment, the consideration which can be
earned from securities loans of this type justifies the attendant risk. The
financial condition of the borrower will be monitored by the Investment Adviser
on an ongoing basis. If the Investment Adviser 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.
REPURCHASE AGREEMENTS. The Portfolio may enter into repurchase agreements with
respect to its permitted investments, but currently intends to do so only with
member banks of the Federal Reserve System or with primary dealers in U.S.
Government securities. Under a repurchase agreement the Portfolio buys a
security at one price and simultaneously promises to sell that same security
back to the seller at a higher price. The repurchase date is usually within
seven days of the original purchase date. At no time will the Portfolio commit
more than 15% of its net assets to repurchase agreements which mature in more
than seven days and in illiquid securities. Repurchase agreements are deemed to
be loans under the Investment Company Act of 1940 (the "1940 Act"). In all cases
the Investment Adviser must be satisfied with the creditworthiness of the other
party to the agreement before entering into a repurchase agreement. In the event
of the bankruptcy of the other party to a repurchase agreement, the Portfolio
might experience delays in recovering its cash. To the extent that, in the
meantime, the value of the securities the Portfolio purchased may have
decreased, the Portfolio could experience a loss.
REVERSE REPURCHASE AGREEMENTS. The Portfolio may enter into reverse repurchase
agreements. Under a reverse repurchase agreement, the Portfolio temporarily
transfers possession of a portfolio instrument to another party, such as a bank
or broker-dealer, in return for cash. At the same time, the Portfolio agrees to
repurchase the instrument at an agreed upon time (normally within seven days)
and price, which reflects an interest payment. The Portfolio could also enter
into reverse repurchase agreements as a means of raising cash to satisfy
redemption requests without the necessity of selling portfolio assets.
When the Portfolio enters into a reverse repurchase agreement for such
purposes described above, any fluctuations in the market value of either the
securities transferred to another party or the securities in which the proceeds
may be invested would affect the market value of the Portfolio's assets. As a
result, such transactions may increase fluctuations in the market value of the
Portfolio's assets. While there is a risk that large fluctuations in the market
value of the Portfolio's assets could affect the Portfolio's net asset value per
share, this risk is not significantly increased by entering into reverse
repurchase agreements, in the opinion of the Investment Adviser. Because reverse
repurchase agreements may be considered to be the practical equivalent of
borrowing funds, they constitute a form of leverage. If the Portfolio reinvests
the proceeds of a reverse repurchase agreement at a rate lower than the cost of
the agreement, entering into the agreement will lower the Fund's yield.
The Portfolio may also enter into reverse repurchase agreements in order to
hedge against a possible decline in the value of the foreign currency in which a
debt security is denominated. In these transactions, the Portfolio sells a debt
security denominated in a foreign currency for delivery in the current month and
simultaneously contracts to repurchase the same security on a specified future
date. The foreign currency cash proceeds from the sale of the debt security are
then converted into U.S. Dollars. Thus, as a result of the transaction, the
Portfolio continues to be subject to fluctuations in the value of the security,
but not to fluctuations in the value of the currency in which the security is
denominated. Because these reverse repurchase transactions are entered into to
hedge foreign currency risk and not for leverage purposes, they will not be
treated as borrowing for purposes of the Portfolio's investment restriction
concerning borrowing.
CERTAIN INVESTMENT POLICIES. The Fund and the Portfolio have adopted certain
fundamental investment restrictions and policies which are enumerated in detail
in the Statement of Additional Information and which may not be changed unless
authorized by a shareholder vote or an investor vote, respectively. Among these
fundamental restrictions, neither the Fund nor the Portfolio may (1) borrow
money or issue senior securities except as permitted by the 1940 Act, or (2)
purchase securities on margin (but they may obtain such short-term credits as
may be necessary for the clearance of purchases and sales of securities). Except
for the fundamental investment restrictions and policies specifically enumerated
in the Statement of Additional Information, the investment objective and
policies of the Fund and the Portfolio are not fundamental policies and
accordingly may be changed by the Board of Directors of the Corporation and the
Trustees of 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
investment objectives different from the objectives which an investor considered
appropriate at the time the investor became a shareholder in the Fund.
"NON-DIVERSIFIED" INVESTMENT COMPANY. The Portfolio is a "non-diversified"
investment company under the 1940 Act, which means that the Portfolio is not
limited in the proportion of its assets that may be invested in the securities
of a single issuer. However, the Portfolio intends to conduct its operations so
as to enable the Fund to qualify as a "regulated investment company" for
purposes of the Internal Revenue Code, which will relieve the Fund of any
liability for Federal income tax to the extent its earnings are distributed to
shareholders. See "Distributions and Taxes." To enable the Fund to so qualify,
among other requirements, the Portfolio will limit its investments so that, at
the close of each quarter of the taxable year, (i) not more than 25% of the
market value of the Portfolio's total assets will be invested in the securities
of a single issuer, and (ii) with respect to 50% of the market value of its
total assets, not more than 5% of the market value of its total assets will be
invested in the securities of a single issuer and the Portfolio will not own
more than 10% of the outstanding voting securities of a single issuer. The
Portfolio's investments in U.S. Government securities and regulated investment
companies, if any, are not subject to these limitations. Because the Portfolio
may invest in a smaller number of individual issuers than a diversified
investment company, an investment in the Fund may present greater risk to an
investor than an investment in a diversified investment company.
ORGANIZATION OF THE FUND AND THE PORTFOLIO
- ------------------------------------------------------------------------------
THE FUND IS A SERIES OF THE CORPORATION, WHICH WAS INCORPORATED UNDER MARYLAND
LAW ON OCTOBER 4, 1990, AS AMENDED, AS THE SUCCESSOR TO A BUSINESS TRUST
ESTABLISHED UNDER MASSACHUSETTS LAW ON AUGUST 21, 1990. THE CORPORATION CHANGED
ITS NAME TO EATON VANCE INVESTMENT FUND, INC. ON AUGUST 17, 1993. THE FUND IS A
MUTUAL FUND - AN OPEN-END NON-DIVERSIFIED MANAGEMENT INVESTMENT COMPANY. The
Board of Directors of the Corporation are responsible for the overall management
and supervision of its affairs. The authorized capital stock of the Fund
consists of one billion shares of common stock, par value $0.0001 per share. The
Board of Directors has authority under the Articles of Incorporation to create
and classify shares of capital stock in separate series without further action
by shareholders and because the Corporation can offer separate series (such as
the Fund) it is known as a "series company". When issued and outstanding, the
shares are fully paid and nonassessable by the Fund and redeemable as described
under "How to Redeem 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 liquidation of the Fund, shareholders are entitled to share pro rata in
the net assets of the Fund available for distribution to shareholders.
THE PORTFOLIO IS ORGANIZED AS A TRUST UNDER THE LAWS OF THE STATE OF NEW
YORK AND IS TREATED AS A PARTNERSHIP FOR FEDERAL TAX PURPOSES. The Portfolio, as
well as the Corporation, intends to comply with all applicable Federal and state
securities laws. The Portfolio's Declaration of Trust, as amended, provides that
the Fund and other entities permitted to invest in the Portfolio (e.g., other
U.S. and foreign investment companies, and common and commingled trust funds)
will each be liable for all obligations of the Portfolio. However, the risk of
the Fund incurring financial loss on account of such liability is limited to
circumstances in which both inadequate insurance exists and the Portfolio itself
is unable to meet its obligations. Accordingly, the Directors of the Corporation
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 different 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, see "How the Fund and the
Portfolio Invest their Assets". Further information regarding the investment
practices of the Portfolio may also be found in the Statement of Additional
Information.
The Directors of the Corporation 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 Directors 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 public
shareholders of the Fund have previously approved the policy of investing the
Fund's assets in an interest in the Portfolio.
The Fund may withdraw (completely redeem) all its assets from the Portfolio
at any time if the Board of Directors of the Corporation 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 Directors of the Corporation and the Trustees of the Portfolio without
obtaining the approval of the shareholders of the Fund or the investors in the
Portfolio. Any such change of the investment objective 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 Fund Shares". In the event the Fund withdraws all of its
assets from the Portfolio, or the Board of Directors of the Corporation
determines that the investment objective of the Portfolio is no longer
consistent with the investment objective of the Fund, the Board of Directors of
the Corporation would consider what action might be taken, including investing
all 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 funds investing in the Portfolio may be adversely
affected by the actions of larger funds investing in the Portfolio. For example,
if a large fund withdraws from the Portfolio, the remaining funds 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 mutual 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.
The Directors of the Corporation, including a majority of the non-
interested Directors, have approved written procedures designed to identify and
address any potential conflicts of interest arising from the fact that the
Directors of the Corporation 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 Directors or Trustees and officers of the Corporation and the
Portfolio, see the Statement of Additional Information.
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. BMR's expertise in the management of fixed-income
securities ranges from government obligations, high-grade corporate and
municipal securities, foreign debt and bank loan interests to higher yielding
instruments. BMR's fixed-income division is armed with the research and
technical ability to gain immediate access to interest rate data around the
world.
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 equal to the aggregate of
(a) a daily asset based fee computed by applying the annual asset rate
applicable to that portion of the total daily net assets in each
Category as indicated below, plus
(b) a daily income based fee computed by applying the daily income rate
applicable to that portion of the total daily gross income (which
portion shall bear the same relationship to the total daily gross income
on such day as that portion of the total daily net assets in the same
Category bears to the total daily net assets on such day) in each
Category as indicated below:
ANNUAL DAILY
CATEGORY DAILY NET ASSETS ASSET RATE INCOME RATE
- -------- ---------------- ---------- -----------
1 up to $500 million ........................ 0.275% 2.75%
2 $500 million but less than $1 billion ..... 0.250% 2.50%
3 $1 billion but less than $1.5 billion ..... 0.225% 2.25%
4 $1.5 billion but less than $2 billion ..... 0.200% 2.00%
5 $2 billion but less than $3 billion ....... 0.175% 1.75%
6 $3 billion and over ....................... 0.150% 1.50%
Total daily gross income is the total gross investment income, exclusive of
capital gains and losses on investments and before deduction of expenses, earned
each day by the Portfolio.
As at October 31, 1994, the Portfolio had net assets of $236,468,766. For
the period from the start of business, March 1, 1994, to October 31, 1994, the
Portfolio paid BMR advisory fees equivalent to 0.49% (annualized) of the
Portfolio's average daily net assets for such period.
As of the close of business, February 28, 1994, the Fund transferred its
assets to the Portfolio in exchange for an interest in the Portfolio. Prior to
such date, the Fund retained Eaton Vance as its investment adviser pursuant to
the same fee schedule. As at October 31, 1994, the Fund had net assets of
$233,139,102. For the period from November 1, 1993 to March 1, 1994, the Fund
paid Eaton Vance advisory fees equivalent to 0.54% (annualized) of the Fund's
average daily net assets for such period.
BMR also furnishes for the use of the Portfolio office space and all
necessary office facilities, equipment and personnel, and investment advisory,
statistical and research facilities and has arranged for certain members of the
Eaton Vance organization to serve without salary as officers or Trustees of the
Portfolio. The Portfolio is responsible for the payment of all expenses other
than those expressly stated to be payable by BMR under the investment advisory
agreement.
The Portfolio believes that most of the obligations which it will acquire
for its portfolio will be normally traded on a net basis (without commission)
through broker-dealers and banks acting for their own account. Such firms
attempt to profit from such transactions by buying at the bid price and selling
at the higher asked price of the market, and the difference is customarily
referred to as the spread. In selecting firms which will execute portfolio
transactions BMR judges their professional ability and quality of service and
uses its best efforts to obtain execution at prices which are advantageous to
the Portfolio and at reasonably competitive spreads. 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 firms to execute
portfolio transactions.
Mark S. Venezia has acted as the portfolio manager of the Portfolio since it
commenced operations. He was the Fund's portfolio manager from its inception
until the date its assets were transferred to the Portfolio. Mr. Venezia has
been a Vice President of Eaton Vance since 1987 and of BMR since 1992.
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 Portfolio also engages BMR as its Administrator under an administration
agreement. Under the administration agreement, BMR is responsible for reviewing
and supervising the provision of custody services to the Portfolio and making
related reports and recommendations to the Board of Trustees of the Portfolio;
for providing certain valuation, legal, accounting and tax services in
connection with investments with foreign issuers or guarantors, investments
denominated in foreign currencies and transactions in derivative instruments;
and for such other special services as the Board may direct. BMR also furnishes
the office facilities and personnel necessary for providing these services. As
compensation for these services, BMR receives a monthly administration fee at an
annual rate of .15% of the Portfolio's average daily net assets.
The Corporation has retained the services of Eaton Vance under an
administrative services agreement to act as Administrator of the Fund. The
Corporation has not retained the services of an investment adviser since the
Corporation seeks to achieve the investment objective of the Fund by investing
the Fund's assets in the Portfolio. Under the administrative services agreement,
Eaton Vance provides the Fund with general office facilities and supervises the
overall administration of the Fund. For these services for the Fund, Eaton Vance
currently receives no compensation. The Directors of the Corporation may
determine, in the future, to compensate Eaton Vance for its services to the Fund
under the administrative services agreement. As of the close of business,
February 28, 1994, the Fund transferred its assets to the Portfolio in exchange
for an interest in the Portfolio. Prior to such date the Fund retained Eaton
Vance as its administrator, under an Administration Agreement (which is no
longer in effect) for which Eaton Vance received a monthly administration fee at
an annual rate of .15% of the Fund's average daily net assets.
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 and the administration agreement, by
Eaton Vance under the administrative services agreement, or by EVD under the
distribution agreement. Such costs and expenses to be borne by the Portfolio and
the Fund, as the case may be, include, without limitation: custody and transfer
agency fees and expenses, including those incurred for determining net asset
value and keeping accounting books and records; expenses of pricing and
valuation services; the cost of share certificates; membership dues in
investment company organizations; expenses of acquiring, holding and disposing
of securities and other investments; fees and expenses of registering under the
securities laws and the governmental fees; expenses of reporting to shareholders
and investors; proxy statements and other expenses of shareholders' or
investors' meetings; insurance premiums; printing and mailing expenses;
interest, taxes and corporate fees; legal and accounting expenses; compensation
and expenses of Trustees not affiliated with BMR or Eaton Vance; and investment
advisory and administration fees and, if any, administrative services fees. The
Portfolio and the Fund will also each bear expenses incurred in connection with
litigation in which the Portfolio or the Fund, as the case may be, is a party
and any legal obligation to indemnify its respective officers, Directors or
Trustees with respect thereto.
DISTRIBUTION PLAN
- --------------------------------------------------------------------------------
THE FUND FINANCES DISTRIBUTION ACTIVITIES AND HAS ADOPTED A DISTRIBUTION PLAN
(THE "PLAN") PURSUANT TO RULE 12B-1 UNDER THE 1940 ACT. 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 also subject to, and complies with, the
sales charge rule of the National Association of Securities Dealers, Inc. (the
"NASD Rule"). The Plan is described in the Statement of Additional Information,
and the following is a brief 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 4.5% 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 a financial service firm (an "Authorized Firm") at the time of
sale equal to 3.5% 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.
Accordingly, 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.
The amount payable to the Principal Underwriter pursuant to the Plan 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 by the Fund. 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 to the Principal Underwriter whenever there exist Uncovered
Distribution Charges under the Plan.
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 Corporation on behalf of the Fund and the
Principal Underwriter. The Plan continues in effect through and including April
28, 1995, 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 Directors of the Corporation who are not interested persons of the
Corporation 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
Directors") and (ii) all of the Directors 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 Directors or
by a vote of a majority of the outstanding voting securities of the Fund.
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.
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 commissions 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 October 31, 1994, the Fund paid sales commissions
under the Plan equivalent to 0.75% of the Fund's average daily net assets for
such year. As at October 31, 1994 the outstanding Uncovered Distribution Charges
of the Principal Underwriter calculated under the Plan amounted to
approximately, $17,473,000 (which amount was equivalent to 7.5% of the Fund's
net assets on such day).
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
Directors of the Corporation 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 .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 October 31, 1994, the Fund made service fee payments
equivalent to .20% of the Fund's average daily net assets for such year.
The Plan as currently implemented by the Directors 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.
It is anticipated that the Eaton Vance organization will profit by reason of the
operation of the Plan through increases in the Fund's assets (thereby increasing
the advisory fees payable to BMR by the Portfolio) resulting from sale of Fund
shares and through amounts paid under the Plan to the Principal Underwriter and
contingent deferred sales charges paid to the Principal Underwriter.
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.
VALUING FUND SHARES
- ------------------------------------------------------------------------------
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 (normally 4:00 p.m. New York time). 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 Board of Directors of
the Corporation. 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 substantially all of 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).
Authorized Firms must communicate an investors order to the Principal
Underwriter prior to the close of the Principal Underwriter's business day to
receive that day's net asset value per Fund share. It is the Authorized Firms'
responsibility to transmit orders promptly to the Principal Underwriter, which
is a wholly-owned subsidiary of Eaton Vance.
The Portfolio's net asset value is determined as of the close of regular
trading on the Exchange by IBT (as custodian and agent for the Portfolio), in
the manner authorized by the Trustees of the Portfolio. Most debt securities are
valued on the basis of market valuations furnished by pricing services. 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 AS SHOWN BY THE CURRENT NET ASSET VALUE.
HOW TO BUY FUND SHARES
- ------------------------------------------------------------------------------
SHARES OF A FUND MAY BE PURCHASED FOR CASH OR MAY BE ACQUIRED IN EXCHANGE FOR
SECURITIES. Investors may purchase shares of the Fund through Authorized Firms
at the net asset value per share of the Fund next determined after an order is
effective. The Fund may suspend the offering of shares at anytime and may refuse
an order for the purchase of shares.
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 Draft Investing
accounts, which may be established with an investment of $50 or more. See "Eaton
Vance Shareholder Services".
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 his or her participation in the plan, the 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 Fund Shares."
ACQUIRING FUND SHARES IN EXCHANGE FOR SECURITIES. IBT, as escrow agent, will
receive securities acceptable to Eaton Vance, as Administrator, in exchange for
Fund shares 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 current market price for such securities but
does not guarantee the best available price. Eaton Vance will absorb any
transaction costs, such as commissions, on the sale of securities.
Securities determined to be acceptable should be transferred via book entry
or physically delivered, in proper form for transfer, through an 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 EV Marathon Strategic Income Fund
IN THE CASE OF PHYSICAL DELIVERY:
Investors Bank & Trust Company
Attention: EV Marathon Strategic Income Fund
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, must 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. 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.
IF YOU DON'T HAVE AN AUTHORIZED FIRM, EATON VANCE CAN RECOMMEND ONE.
HOW TO REDEEM FUND SHARES
- ------------------------------------------------------------------------------
A SHAREHOLDER MAY REDEEM FUND SHARES BY DELIVERING TO THE SHAREHOLDER SERVICES
GROUP, INC., BOS725, P.O. BOX 1559, BOSTON, MA 02104, during its business hours
a written request for redemption in good order, plus any stock certificates with
executed stock powers. The redemption price will be based on the net asset value
per share next computed after such delivery. Good order means that all relevant
documents 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 SEC 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 in good order by The
Shareholder Services Group, Inc., the Fund will make payment in cash for the net
asset value of the redeemed shares as of the date determined above, reduced by
the amount of any applicable contingent deferred sales charge described below
and Federal income tax required to be withheld. Although the Fund normally
expects to make payment in cash for redeemed shares, the Corporation, 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. The securities so distributed would be valued pursuant to the
Portfolio's valuation procedures. If a shareholder received a distribution in
kind, the shareholder could incur brokerage or other charges in converting the
securities to cash.
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. The value of such shares is based upon the net
asset value calculated after EVD, as the Fund's agent, receives the order. It is
the Authorized Firm's responsibility to transmit promptly repurchase orders to
EVD. Throughout this Prospectus, the word "redemption" is generally meant to
include a repurchase.
If shares were recently purchased, the proceeds of redemption (or
repurchase) 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 may be delayed up to 15 days from the purchase date when
the purchase check has not yet cleared. Redemptions or repurchases may 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 given 60 days written notice to make an
additional purchase. 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 redemptions 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.
CONTINGENT DEFERRED SALES CHARGE. Shares redeemed within the first four years of
their purchase (except shares acquired through the reinvestment of
distributions) generally will be subject to a contingent deferred sales charge.
This 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 four years prior to the redemption, (b) all
shares in the account acquired through reinvestment of monthly distributions and
capital gains distributions, and (c) the increase, if any, of value of all other
shares in the account (namely those purchased within the four 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; i.e., 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 ........................... 3.0%
Second .......................... 2.5%
Third ........................... 2.0%
Fourth .......................... 1.0%
Fifth and following ............. 0.0%
In calculating the contingent deferred sales charge upon the redemption of
Fund shares acquired in an exchange for shares of the funds 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 exchanged shares. The contingent deferred
sales charge will be waived for shares redeemed (1) pursuant to a Withdrawal
Plan (see "Eaton Vance Shareholder Services") or (2) as part of a required
distribution from a tax-sheltered retirement plan.
No contingent deferred sales charge will be imposed on Fund shares which
have been sold to Eaton Vance, or its affiliates, their respective employees or
clients or to the Directors of the Fund or on redemptions of shares purchased on
or after January 27, 1995 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). The contingent
deferred sales charge will be paid to the Principal Underwriter or the Fund.
When paid to the Principal Underwriter it will reduce the amount of Uncovered
Distribution Charges calculated under the Fund's Distribution Plan. See
"Distribution Plan."
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 DIVIDENDS 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 CHARGE WOULD BE
IMPOSED ON $1,000 OF THE REDEMPTION. THE RATE WOULD BE 2.5% BECAUSE IT WAS IN
THE SECOND YEAR AFTER THE PURCHASE WAS MADE AND THE CHARGE WOULD BE $25.
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 income tax returns.
THE LIFETIME INVESTING ACCOUNT/DISTRIBUTION OPTIONS
- ------------------------------------------------------------------------------
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.
At least quarterly, shareholders will receive a statement showing complete
details of any transaction and the current share balance in the account. THE
LIFETIME INVESTING ACCOUNT ALSO PERMITS A SHAREHOLDER TO MAKE ADDITIONAL
INVESTMENTS 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., BOS 725,
P.O. Box 1559, Boston, MA 02104 (Please provide the name of the shareholder, the
Fund and the account number).
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 account statement.
Share Option -- Dividends and capital gains will be reinvested in additional
shares.
Income Option -- Dividends will be paid in cash, and capital gains will be
reinvested in additional shares.
Cash Option -- Dividends and capital gains will be paid in cash.
The Share Option will be assigned if no other option is specified.
Distributions, including those reinvested, will be reduced by any withholding
required under the 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 in shares 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. In addition to the distribution options set
forth above, dividends and/or capial 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.
"STREET NAME" ACCOUNTS. If shares of the Fund are held in a "street name"
account with an Authorized Firm, all recordkeeping, transaction processing and
payments of distributions relating to the beneficial owner's account will be
performed by the Authorized Firm, and not by the Fund and its transfer agent.
Since the Fund will have no record of the beneficial owner's transactions, a
beneficial owner should contact the Authorized Firm to purchase, redeem or
exchange shares, to make changes in or give instructions concerning the account,
or to obtain information about the account. The transfer of shares in a "street
name" account to an account with another dealer or to an account directly with
the Fund involves special procedures and will require the beneficial owner to
obtain historical purchase information about the shares in the account from the
Authorized Firm. 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.
UNDER A LIFETIME INVESTING ACCOUNT A SHAREHOLDER CAN MAKE ADDITIONAL INVESTMENTS
BY SENDING A CHECK FOR $50 OR MORE.
THE EATON VANCE EXCHANGE PRIVILEGE
- ------------------------------------------------------------------------------
Shares of the Fund currently may be exchanged for Class I shares of one or more
of the EV Marathon Limited Maturity Tax Free Funds which are distributed with a
contingent deferred sales charge. Shares of the Fund may also be exchanged for
shares of Eaton Vance Prime Rate Reserves which are distributed with an early
withdrawal charge. Any such exchange will be made on the basis of the net asset
value per share of each fund at the time of exchange, provided that such
exchange offers are available only in states where shares of the fund being
acquired may legally be sold. Effective March 31, 1995, Fund shares may be
exchanged for one or more funds in the EV Marathon Group of Funds (which
includes Eaton Vance Equity-Income Trust and any EV Marathon fund) or, when
publicly available, Eaton Vance Money Market Fund (availability expected on or
about April 3, 1995) which are distributed subject to a contingent deferred
sales charge. Funds shares purchased directly or acquired in an exchange from
any EV Marathon Limited Maturity Fund may also be exchanged for shares of Eaton
Vance Prime Rate Reserves which are subject to an early withdrawal charge.
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 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 Fund Shares"). Consult the Shareholder Services Group,
Inc. for additional information concerning the exchange privilege.
Applications and prospectuses of the other funds are available from Authorized
Firms or the Principal Underwriter.
No contingent deferred sales charge is imposed on exchanges. For purposes of
calculating the contingent deferred sales charge upon 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 exchanged shares. For the contingent deferred sales
charge or early withdrawal charge schedule applicable to the Fund, Eaton Vance
Prime Rate Reserves and any Class I shares of an EV Marathon Limited Maturity
Tax Free Fund, see "How to Redeem Fund Shares". The contingent deferred sales
charge schedule applicable to the other EV Marathon Funds is 5%, 5%, 4%, 3%, 2%,
or 1% in the event of a redemption occurring in the first, second, third,
fourth, fifth or sixth year, respectively, after the original share purchase.
Shares of certain other funds advised or administered by Eaton Vance may be
exchanged for shares of the Fund at their respective net asset values per share,
but subject to any restrictions or qualifications set forth in their current
prospectuses.
Telephone exchanges are accepted by The Shareholder Services Group, Inc.
provided 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). Shares acquired by telephone
exchanges must be registered in the same name(s) and with the same address as
the shares being exchanged. 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
- ------------------------------------------------------------------------------
THE FUND OFFERS THE FOLLOWING SERVICES, WHICH 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 the Fund
may be mailed directly to The Shareholder Services Group, Inc., BOS725, P.O. Box
1559, Boston, MA 02104 at any time -- whether or not dividends are reinvested.
The name of the shareholder, the Fund and the account number should accompany
each investment.
BANK DRAFT INVESTING -- FOR REGULAR SHARE ACCUMULATION: Cash investments of $50
or more may be made through the shareholder's checking account via bank draft
each month or quarter. 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 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 next
determined net asset value 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 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
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.
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,
distributions will be automatically reinvested in additional shares.
DISTRIBUTIONS AND TAXES
- ------------------------------------------------------------------------------
SUBSTANTIALLY ALL OF THE INVESTMENT INCOME ALLOCATED TO THE FUND BY THE
PORTFOLIO, LESS THE FUND'S DIRECT AND ALLOCATED EXPENSES, WILL BE DECLARED DAILY
AS A DISTRIBUTION TO FUND SHAREHOLDERS OF RECORD AT THE TIME OF DECLARATION.
Such distributions, whether taken in cash or reinvested in additional shares,
will ordinarily be paid on the last day of each month or the next business day
thereafter. The Fund anticipates that the entire monthly distribution, whether
paid in cash or additional shares of the Fund, will constitute taxable income to
the shareholders, for Federal income tax purposes. Shareholders reinvesting the
monthly distribution should treat the amount of the entire distribution as the
tax cost basis of the additional shares acquired by reason of such reinvestment.
Daily distribution crediting will commence on the day that collected funds for
the purchase of Fund shares are available at the Transfer Agent. Shareholders of
the Fund will receive timely Federal income tax information as to the taxable
status of all distributions made by the Fund during the calendar year. The
Fund's net realized capital gains, if any, consist of the net realized capital
gains allocated to the Fund by the Portfolio for tax purposes, after taking into
account any available capital loss carryovers; the Fund's net realized capital
gains, if any, will be distributed at least once a year, usually in December.
Distributions of the Fund which are derived from the Fund's allocated share
of the Portfolio's net investment income, net short-term capital gains and
certain foreign exchange gains are taxable to shareholders as ordinary income,
whether paid in cash or reinvested in additional shares.
Certain distributions declared 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.
Capital gains, if any, realized on sales of investments and on options and
futures transactions during the fiscal year, which ends on October 31, will be
offset by any capital loss carryovers and will be distributed annually, usually
in December, in compliance with the distribution requirements of the Code.
Distributions of long-term capital gains included therein are taxable to
shareholders as such, whether paid in cash or additional shares of the Fund and
regardless of the length of time Fund shares have been owned by the shareholder.
If shares are purchased shortly before the record date of a distribution, the
shareholder will pay the full price for the shares and then receive some portion
of the price back as a taxable distribution.
Income realized by the Portfolio from certain instruments and allocated to
the Fund may be subject to foreign income taxes on certain investments and the
Fund may make an election under Section 853 of the Code that would allow Fund
shareholders to claim a credit or deduction on their Federal income tax returns
for (and treat as additional amounts distributed to them) their pro rata portion
of the Fund's allocated share of qualified taxes paid by the Portfolio to
foreign countries. This election may be made annually only if more than 50% of
the assets of the Fund including its allocable share of the Portfolio assets, at
the close of a taxable year consists of securities in foreign corporations. The
Fund will send a written notice of any such election (not later than sixty (60)
days after the close of its taxable year) to each shareholder indicating the
amount to be treated by him as his proportionate share of such taxes.
Availability of foreign tax credits or deductions for shareholders is subject to
certain additional restrictions and limitations at the Fund and shareholder
levels.
In order to qualify as a regulated investment company under the Internal
Revenue Code (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.
The Fund has elected to be treated, has qualified, and intends to continue
to qualify each year as a regulated investment company under the Code.
Accordingly, the Fund intends to satisfy certain requirements relating to
sources of its income and diversification of its assets and to distribute 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 to the Fund. As a partnership under the Code, the Portfolio also does
not pay Federal income or excise taxes.
As long as the Fund qualifies as a regulated investment company and does not
pay Federal income tax, it will not be required to pay Maryland or Massachusetts
corporate income or excise taxes.
Shareholders should consult their own tax advisers with respect to the
local, state, Federal and foreign tax consequence of investing in the Fund.
PERFORMANCE INFORMATION
- ------------------------------------------------------------------------------
FROM TIME TO TIME, THE FUND MAY ADVERTISE ITS YIELD AND/OR AVERAGE ANNUAL TOTAL
RETURN. The yield for the Fund will be 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 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 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.
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 net asset value
per share. The Fund's effective distribution rate is computed by dividing the
distribution rate by the ratio used to annualize the distribution and
reinvesting the resulting amount for a full year on the basis of such ratio. The
effective distribution rate will be higher than the distribution rate because of
the compounding effect of the assumed reinvestment. The Fund's yield is
calculated using a standardized formula the income component of which is
computed from the yields to maturity of all debt obligations held by the
Portfolio based on the market value of such obligations on the day preceding the
30-day period (with all purchases and sales of securities during such period
included in the income calculation on a settlement date basis). In contrast, 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 and short-term capital gain actually earned by the Fund during
the month.
Investors should note that the investment results of the Fund will fluctuate
over time, and any presentation of the Fund's yield, distribution rate or total
return for any prior period should not be considered as a representation of what
an investment may earn or what an investor's yield or total return may be in any
future period.
<PAGE>
APPENDIX A
STRATEGIC INCOME PORTFOLIO
ASSET COMPOSITION INFORMATION
FOR FISCAL YEAR ENDED OCTOBER 31, 1994
PERCENT OF
NET ASSETS
----------
Debt Securities -- Moody's Rating
Aaa .............................................. 37.4%
Aa1 .............................................. 3.7
Aa2 .............................................. 26.8
Aa3 .............................................. 6.4
A1 ............................................... 4.6
A3 ............................................... .7
Ba2 .............................................. .7
Ba3 .............................................. 2.2
B2 ............................................... 11.0
B3 ............................................... 2.7
CCC .............................................. .1
Unrated .......................................... 3.7
----
Total ............................................ 100.0%
The chart above indicated the weighted average composition for the fiscal
year ended October 31, 1994, with the debt securities rated by Moody's Investors
Service, Inc. separated into the indicated categories. The weighted average
indicated above was calculated on a dollar weighted basis and was computed as at
the end of each month during the fiscal year. The chart is for the period
November 1, 1993, to the close of business February 28, 1994, for the Fund (when
the Fund transferred its assets to the Portfolio in exchange for an interest in
the Portfolio), and for the period March 1, 1994, to October 31, 1994, for the
Portfolio. The chart does not necessarily indicate what the composition of the
Portfolio will be in the current and subsequent fiscal years.
For the description of Moody's Investors Service, Inc's. ratings of debt
securities, see Appendix A to the Statement of Additional Information.
<PAGE>
INVESTMENT ADVISER AND ADMINISTRATOR
OF STRATEGIC INCOME PORTFOLIO
Boston Management and Research
24 Federal Street
Boston, MA 02110
ADMINISTRATOR OF EATON VANCE
STRATEGIC INCOME FUND
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
EV MARATHON
STRATEGIC INCOME FUND
24 FEDERAL STREET
BOSTON, MA 02110
M-SSIP
EV MARATHON
STRATEGIC INCOME
FUND
PROSPECTUS
MARCH 1, 1995
<PAGE>
PART B
INFORMATION REQUIRED IN A STATEMENT OF ADDITIONAL INFORMATION
STATEMENT OF
ADDITIONAL INFORMATION
March 1, 1995
EV CLASSIC STRATEGIC INCOME FUND
24 Federal Street
Boston, Massachusetts 02110
(800) 225-6265
- ------------------------------------------------------------------------------
TABLE OF CONTENTS Page
Investment Objective and Policies ............................... 2
Investment Restrictions ......................................... 9
Directors or Trustees and Officers .............................. 10
Control Persons and Principal Holders of Securities ............. 12
Investment Adviser and Administrator ............................ 12
Custodian ....................................................... 16
Service for Withdrawal .......................................... 15
Determination of Net Asset Value ................................ 16
Investment Performance .......................................... 17
Taxes ........................................................... 18
Principal Underwriter ........................................... 20
Distribution Plan ............................................... 20
Portfolio Security Transactions ................................. 21
Other Information ............................................... 23
Independent Accountants ......................................... 24
Financial Statements ............................................ 25
Appendices ...................................................... 46
- ------------------------------------------------------------------------------
THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT A PROSPECTUS AND IS AUTHORIZED
FOR DISTRIBUTION TO PROSPECTIVE INVESTORS ONLY IF PRECEDED OR ACCOMPANIED BY THE
PROSPECTUS OF EV CLASSIC STRATEGIC INCOME FUND (THE "FUND") DATED MARCH 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 EATON VANCE DISTRIBUTORS, INC. (THE
"PRINCIPAL UNDERWRITER") (SEE BACK COVER FOR ADDRESS AND PHONE NUMBER).
INVESTMENT OBJECTIVE AND POLICIES
INVESTMENT OBJECTIVE
The investment objective of EV Classic Strategic Income Fund (the "Fund"), a
non-diversified series of Eaton Vance Investment Fund, Inc. (the "Corporation"),
is a high level of income, consistent with prudent investment risk, by investing
in a global portfolio consisting primarily of high grade debt securities and
having a dollar weighted average maturity of not more than three years. The Fund
currently seeks to meet its investment objective by investing its assets in the
Strategic Income Portfolio (the "Portfolio"), a separate registered investment
company with the same investment objective as the Fund.
Since 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 and supplements the discussion
contained in the Fund's Prospectus.
INCOME PRODUCING SECURITIES
Included in the income producing securities in which the Portfolio may
invest are preferred and preference stocks, convertible bonds, securities of
real estate investment trusts and natural resource companies, stripped debt
obligations, closed-end investment companies (that invest primarily in debt
securities the Portfolio could invest in), equipment lease certificates,
equipment trust certificates and conditional sales contracts. Preference stocks
are stocks that have many characteristics of preferred stocks, but are typically
junior to an existing class of preferred stocks. Securities of real estate
investment trusts, such as debentures, are affected by conditions in the real
estate industry and interest rates. Securities of natural resource companies are
subject to price fluctuation based upon inflationary pressures and demand for
natural resources. Stripped debt obligations are comprised of principal only or
interest only obligations. The value of closed-end investment company
securities, which are generally traded on an exchange, is affected by demand for
those securities regardless of the demand for the underlying portfolio assets.
Equipment lease certificates are debt obligations secured by leases on equipment
(such as railroad cars, airplanes or office equipment), with the issuer of the
certificate being the owner and lessor of the equipment. The issuers of
equipment lease certificates tend to be industrial, transportation and leasing
companies. Equipment trust certificates are debt obligations secured by an
interest in property (such as railroad cars or airplanes), the title of which is
held by a trustee while the property is being used by the borrower. Conditional
sales contracts are agreements under which the seller of property continues to
hold title to the property until the purchase price is fully paid or other
conditions are met by the buyer. The Portfolio has no current intention of
investing more than 5% of its total assets in any of these types of securities.
The Portfolio may purchase fixed-rate bonds which have a demand feature
allowing the holder to redeem the bonds at specified times. These bonds are more
defensive than conventional long-term bonds (protecting to some degree against a
rise in interest rates) while providing greater opportunity than comparable
intermediate term bonds, since the Portfolio may retain the bond if interest
rates decline. By acquiring these kinds of bonds the Portfolio obtains the
contractual right to require the issuer of the bonds to purchase the security at
an agreed upon price, which right is contained in the obligation itself rather
than in a separate agreement or instrument. Since this right is assignable only
with the bond, the Portfolio will not assign any separate value to such right.
The Portfolio may also purchase floating or variable rate obligations. The
Portfolio has no current intention during the coming year of investing more than
5% of its total assets in bonds with demand features.
The Portfolio's investments in high yield, high risk obligations rated below
investment grade, which have speculative characteristics, bear special risks.
They are subject to greater credit risks, including the possibility of default
or bankruptcy of the issuer. The value of such investments may also be subject
to a greater degree of volatility in response to interest rate fluctuations,
economic downturns and changes in the financial condition of the issuer. These
securities generally are less liquid than higher quality securities. During
periods of deteriorating economic conditions and contractions in the credit
markets, the ability of such issuers to service their debt, meet projected goals
or obtain additional financing may be impaired.
The Portfolio may invest in obligations of domestic and foreign companies in
the group consisting of the banking and the financial services industries.
Companies in the banking industry include U.S. and foreign commercial banking
institutions (including their parent holding companies). Companies in the
financial services industry include finance companies, diversified financial
services companies and insurance and insurance holding companies. Companies
engaged primarily in the investment banking, securities, investment advisory or
investment company business are not deemed to be in the financial services
industry for this purpose. The securities held by the Portfolio may be affected
by economic or regulatory developments in or related to such industries.
Sustained increases in interest rates can adversely affect the availability and
cost of funds for an institution's lending activities, and a deterioration in
general economic conditions could increase the institution's exposure to credit
losses.
A bank from whom the Portfolio acquires a loan participation interest may be
treated as a co-issuer for tax diversification purposes to the extent that the
Portfolio does not have direct recourse against the borrower of the underlying
loan and is therefore relying on the credit of such bank. For industry
concentration purposes, the Investment Adviser will consider all relevant
factors in determining the issuer of a loan interest, including: the credit
quality of the borrower, the amount and quality of the collateral, the terms of
the loan agreement and the other relevant agreements (including inter-creditor
agreements), the degree to which the credit of such interpositioned person was
deemed material to the decision to purchase the loan interest, the interest rate
environment, and general economic conditions applicable to the borrower and such
interpositioned person.
MORTGAGE ROLLS
The Portfolio may enter into mortgage "dollar rolls" in which the Portfolio
sells mortgage-backed securities for delivery in the current month and
simultaneously contracts to repurchase substantially similar (same type, coupon
and maturity) securities on a specified future date. During the roll period, the
Portfolio foregoes principal and interest paid on the mortgage-backed
securities. The Portfolio is compensated by the difference between the current
sales price and the lower forward price for the future purchase (often referred
to as the "drop") as well as by the interest earned on the cash proceeds of the
initial sale. A "covered roll" is a specific type of dollar roll for which there
is an offsetting cash position or a cash equivalent security position which
matures on or before the forward settlement date of the dollar roll transaction.
The Portfolio will only enter into covered rolls. Covered rolls are not treated
as a borrowing or other senior security and will be excluded from the
calculation of the Portfolio's borrowings and other senior securities.
LENDING OF PORTFOLIO 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 Securities and Exchange Commission, such loans are
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. Cash equivalents include
certificates of deposit, commercial paper and other short-term money market
instruments. The Portfolio would have the right to call a loan and obtain the
securities loaned at any time on up to five business days' notice.
FOREIGN INVESTMENTS
Investing in foreign issuers involves certain special considerations,
including those set forth below, which are not typically associated with
investing in U.S. issuers. Since investments in foreign issuers may involve
currencies of foreign countries, and since the Portfolio may temporarily hold
funds in bank deposits in foreign currencies during completion of investment
programs, the Portfolio may be affected favorably or unfavorably by changes in
currency rates and in exchange control regulations and may incur costs in
connection with conversions between various currencies.
Since foreign companies are not subject to uniform accounting, auditing and
financial reporting standards, practices and requirements comparable to those
applicable to U.S. companies, there may be less publicly available information
about a foreign company than about a domestic company. Volume and liquidity in
most foreign bond markets is less than in the United States and securities of
some foreign companies are less liquid and more volatile than securities of
comparable U.S. companies. Fixed commissions on foreign stock exchanges are
generally higher than negotiated commissions on U.S. exchanges, although the
Portfolio endeavors to achieve the most favorable net results on its portfolio
transactions. There is generally less government supervision and regulation of
securities exchanges, broker-dealers and listed companies than in the United
States. Mail service between the United States and foreign countries may be
slower or less reliable than within the United States, thus increasing the risk
of delayed settlements of portfolio transactions or loss of certificates for
portfolio securities. The Portfolio may be required to pay for securities before
delivery. In addition, with respect to certain foreign countries, there is the
possibility of expropriation or confiscatory taxation, political or social
instability, or diplomatic developments which could affect the Portfolio's
investments in those countries. Moreover, individual foreign economies may
differ favorably or unfavorably from the U.S. economy in such respects as growth
of gross national product, rate of inflation, capital reinvestment, resource
self-sufficiency and balance of payments position.
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS
The Portfolio may enter into forward foreign currency exchange contracts. A
forward foreign currency exchange contract involves an obligation to purchase or
sell a specific currency at a future date, which may be any fixed number of days
from the date of the contract agreed upon by the parties, at a price set at the
time of the contract. These contracts are traded in the interbank market
conducted directly between currency traders (usually large commercial banks) and
their customers. A forward contract generally has no deposit requirement, and no
commissions are charged at any stage for trades.
At the maturity of a forward contract the Portfolio may either accept or
make delivery of the currency specified in the contract or, at or prior to
maturity, enter into a closing purchase transaction involving the purchase or
sale of an offsetting contract. Closing purchase transactions with respect to
forward contracts are often effected with the currency trader who is a party to
the original forward contract.
The Portfolio may enter into forward foreign currency exchange contracts in
several circumstances. First, when the Portfolio enters into a contract for the
purchase or sale of a security denominated in a foreign currency, or when the
Portfolio anticipates the receipt in a foreign currency of dividend or interest
payments on such a security which it holds, the Portfolio may desire to "lock
in" the U.S. dollar price of the security or the U.S. dollar equivalent of such
dividend or interest payment, as the case may be. By entering into a forward
contract for the purchase or sale, for a fixed amount of dollars, of the amount
of foreign currency involved in the underlying transactions, the Portfolio will
attempt to protect itself against an adverse change in the relationship between
the U.S. dollar and the subject foreign currency during the period between the
date on which the security is purchased or sold, or on which the dividend or
interest payment is declared, and the date on which such payments are made or
received.
Additionally, when management of the Portfolio believes that the currency of
a particular foreign country may suffer a substantial decline against the U.S.
dollar, it may enter into a forward contract to sell, for a fixed amount of
dollars, the amount of foreign currency approximating the value of some or all
of the securities held by the Portfolio denominated in such foreign currency.
The precise matching of the forward contract amounts and the value of the
securities involved will not generally be possible because the future value of
such securities in foreign currencies will change as a consequence of market
movements in the value of those securities between the date on which the
contract is entered into and the date it matures. The precise projection of
short-term currency market movements is not possible, and short-term hedging
provides a means of fixing the dollar value of only a portion of the Portfolio's
foreign assets.
The Portfolio's custodian will place cash or liquid high grade debt
securities into a segregated account of the Portfolio in an amount equal to the
value of the Portfolio's total assets, reduced by the value of any offsetting
forward or written or purchased option position on the same or a related
currency, committed to the consummation of forward foreign currency exchange
contracts requiring the Portfolio to purchase foreign currencies or forward
contracts entered into for non-hedging purposes. If the value of the securities
placed in the segregated account declines, additional cash or securities will be
placed in the account on a daily basis so that the value of the account will
equal the amount of the Portfolio's commitments with respect to such contracts,
net of any offsetting forward contracts or options positions.
The Portfolio generally will not enter into a forward contract with a term
of greater than one year. Using forward contracts to protect the value of the
securities held by the Portfolio against a decline in the value of a currency
does not eliminate fluctuations in the underlying prices of the securities. It
simply establishes a rate of exchange which the Portfolio can achieve at some
future point in time.
While the Portfolio will enter into forward contracts to reduce currency
exchange rate risks, transactions in such contracts involve certain other risks.
Thus, while the Portfolio may benefit from such transactions, unanticipated
changes in currency prices may result in a poorer overall performance for the
Fund than if the Portfolio had not engaged in any such transactions. Moreover,
there may be imperfect correlation between the securities held by the Portfolio
denominated in a particular currency and forward contracts entered into by the
Portfolio. Such imperfect correlation may prevent the Portfolio from achieving a
complete hedge or expose the Portfolio to risk of foreign exchange loss.
WRITING AND PURCHASING CURRENCY CALL AND PUT OPTIONS
The Portfolio may write covered put and call options and purchase put and
call options on foreign currencies for the purpose of protecting against
declines in the dollar value of portfolio securities and against increases in
the dollar cost of securities to be acquired. A call option written by the
Portfolio obligates the Portfolio to sell specified currency to the holder of
the option at a specified price if the option is exercised at any time before
the expiration date. A put option written by the Portfolio would obligate the
Portfolio to purchase specified currency from the option holder at a specified
price if the option is exercised at any time before the expiration date.
A call option written by the Portfolio may be covered by segregating assets
denominated in the currency on which the call option is written. A written call
option or put option may also be covered by maintaining cash or high grade
liquid debt securities (either of which may be denominated in any currency) in a
segregated account, by entering into an offsetting forward contract and/or by
purchasing an offsetting option or any other option on the same or a related
currency and/or by purchasing an offsetting option or any other option which, by
virtue of its exercise price or otherwise, reduces the Portfolio's net exposure
on its written option position.
The writing of currency options involves a risk that the Portfolio will,
upon exercise of the option, be required to sell currency subject to a call at a
price that is less than the currency's market value or be required to purchase
currency subject to a put at a price that exceeds the currency's market value.
The Portfolio may terminate its obligations under a call or put option by
purchasing an option identical to the one it has written. Such purchases are
referred to as "closing purchase transactions." The Portfolio would also be able
to enter into closing sale transactions in order to realize gains or minimize
losses on options purchased by the Portfolio.
The Portfolio would normally purchase call options in anticipation of an
increase in the dollar value of currency in which securities to be acquired by
the Portfolio are denominated. The purchase of a call option would entitle the
Portfolio, in return for the premium paid, to purchase specified currency at a
specified price during the option period. The Portfolio would ordinarily realize
a gain if, during the option period, the value of such currency exceeded the sum
of the exercise price, the premium paid and transaction costs; otherwise the
Portfolio would realize a loss on the purchase of the call option.
The Portfolio would normally purchase put options in anticipation of a
decline in the dollar value of currency in which securities in its portfolio
("protective puts") are denominated. The purchase of a put option would entitle
the Portfolio, in exchange for the premium paid, to sell specified currency at a
specified price during the option period. The purchase of protective puts is
designed merely to offset or hedge against a decline in the dollar value of the
securities held by the Portfolio due to currency exchange rate fluctuations. The
Portfolio would ordinarily realize a gain if, during the option period, the
value of the underlying currency decreased below the exercise price sufficiently
to cover the premium and transaction costs; otherwise the Portfolio would
realize a loss on the purchase of the put option. Gains and losses on the
purchase of protective put options would tend to be offset by countervailing
changes in the value of underlying currency.
SPECIAL RISKS ASSOCIATED WITH OPTIONS ON CURRENCY
An exchange traded options position may be closed out only on an options
exchange which provides a secondary market for an option of the same series.
Although the Portfolio will generally purchase or write only those options for
which there appears to be an active secondary market, there is no assurance that
a liquid secondary market on an exchange will exist for any particular option,
or at any particular time. For some options no secondary market on an exchange
may exist. In such event, it might not be possible to effect closing
transactions in particular options, with the result that the Portfolio would
have to exercise its options in order to realize any profit and would incur
transaction costs upon the sale of underlying securities pursuant to the
exercise of put options. If the Portfolio as a covered call option writer is
unable to effect a closing purchase transaction in a secondary market, it will
not be able to sell the underlying currency (or security denominated in that
currency) until the option expires or it delivers the underlying currency upon
exercise.
Reasons for the absence of a liquid secondary market on an exchange include
the following: (i) there may be insufficient trading interest in certain
options; (ii) restrictions may be imposed by an exchange on opening transactions
or closing transactions or both; (iii) trading halts, suspensions or other
restrictions may be imposed with respect to particular classes or series of
options or underlying securities; (iv) unusual or unforeseen circumstances may
interrupt normal operations on an exchange; (v) the facilities of an exchange or
the Options Clearing Corporation may not at all times be adequate to handle
current trading volume; or (vi) one or more exchanges could, for economic or
other reasons, decide or be compelled at some future date to discontinue the
trading of options (or a particular class or series of options), in which event
the secondary market on that exchange (or in that class or series of options)
would cease to exist, although outstanding options on that exchange that had
been issued by the Options Clearing Corporation as a result of trades on that
exchange would continue to be exercisable in accordance with their terms.
There is no assurance that higher than anticipated trading activity or other
unforeseen events might not, at times, render certain of the facilities of the
Options Clearing Corporation inadequate, and thereby result in the institution
by an exchange of special procedures which may interfere with the timely
execution of customers' orders.
The Portfolio may purchase and write over-the-counter options to the extent
consistent with its limitation on investments in illiquid securities, as
described in the Fund's prospectus. Trading in over-the-counter options is
subject to the risk that the other party will be unable or unwilling to close-
out options purchased or written by the Portfolio. The staff of the Securities
and Exchange Commission takes the position that purchased over-the-counter
options and assets used to cover written over-the-counter options are illiquid
securities. However, with respect to options written with primary dealers in
U.S. Government securities or with dealers on the Federal Reserve's approved
list for foreign exchange dealers pursuant to an agreement requiring a closing
purchase transaction at a formula price, the amount of illiquid securities may
be calculated with reference to the repurchase formula.
The Portfolio intends to write covered call options on foreign currencies. A
call option written on a foreign currency by the Portfolio is "covered" if the
Portfolio owns the underlying foreign currency covered by the call or has an
absolute and immediate right to acquire that foreign currency without additional
cash consideration (or for additional cash consideration held in a segregated
account by its custodian) upon conversion or exchange of other foreign currency
held in its portfolio. A call option is also covered if the Portfolio has a call
on the same foreign currency and in the same principal amount as the call
written where the exercise price of the call held (a) is equal to or less than
the exercise price of the call written or (b) is greater than the exercise price
of the call written if the difference is maintained by the Portfolio in cash,
U.S. Government Securities and other high grade liquid debt securities in a
segregated account with its custodian.
The amount of the premiums which the Portfolio may pay or receive may be
adversely affected as new or existing institutions, including other investment
companies, engage in or increase their option purchasing and writing activities.
FUTURES CONTRACTS
A change in the level of currency exchange rates or interest rates may
affect the value of the Portfolio's investments (or of investments that the
Portfolio expects to make). To hedge against such changes in such rates or
prices or for non-hedging purposes, the Portfolio may enter into (i) futures
contracts for the purchase or sale of securities, (ii) futures contracts on
securities indices; (iii) futures contracts on other financial instruments and
indices and (iv) futures contracts on foreign currencies. A futures contract may
generally be described as an agreement between two parties to buy and sell
particular financial instruments for an agreed price during a designated month
(or to deliver the final cash settlement price, in the case of a contract
relating to an index or otherwise not calling for physical delivery at the end
of trading in the contract). All futures contracts entered into by the Portfolio
are traded on U.S. exchanges or boards of trade that are licensed and regulated
by the Commodity Futures Trading Commission ("CFTC") or on foreign exchanges.
FUTURES ON SECURITIES OR CURRENCIES. A futures contract on a security or
currency is a binding contractual commitment which, if held to maturity, will
result in an obligation to make or accept delivery, during a particular month,
of securities or currency having a standardized face value and rate of return or
currency. By purchasing futures on securities or currency, the Portfolio will
legally obligate itself to accept delivery of the underlying security or
currency and pay the agreed price; by selling futures on securities or currency,
it will legally obligate itself to make delivery of the security or currency
against payment of the agreed price. Open futures positions on securities or
currency are valued at the most recent settlement price, unless such price does
not reflect the fair value of the contract, in which case the positions will be
valued by or under the direction of the Board of Trustees of the Portfolio.
Positions taken in the futures markets are not normally held to maturity,
but are instead liquidated through offsetting transactions which may result in a
profit or a loss. While the Portfolio's futures contracts on securities or
currency will usually be liquidated in this manner, it may instead make or take
delivery of the underlying securities or currency whenever it appears
economically advantageous for the Portfolio to do so. A clearing corporation
associated with the exchange on which futures on securities or currency are
traded guarantees that, if still open, the sale or purchase will be performed on
the settlement date.
FUTURES CONTRACTS ON SECURITIES INDICES. Futures contracts on securities or
other indices do not require the physical delivery of securities, but merely
provide for profits and losses resulting from changes in the market value of a
contract to be credited or debited at the close of each trading day to the
respective accounts of the parties to the contract. On the contract's expiration
date a final cash settlement occurs and the futures position is simply closed
out. Changes in the market value of a particular futures contract reflect
changes in the level of the index on which the futures contract is based.
HEDGING STRATEGIES. Hedging by use of futures contracts seeks to establish more
certainly than would otherwise be possible the effective price, rate of return
or currency exchange rate on portfolio securities or securities that the
Portfolio owns or proposes to acquire. The Portfolio may, for example, take a
"short" position in the futures market by selling futures contracts in order to
hedge against an anticipated rise in interest rates or a decline in market
prices or foreign currency rates that would adversely affect the dollar value of
the securities held by the Portfolio. Such futures contracts may include
contracts for the future delivery of securities held by the Portfolio or
securities with characteristics similar to those of the securities held by the
Portfolio. Similarly, the Portfolio may sell futures contracts on currency in
which its securities are denominated or in one currency to hedge against
fluctuations in the value of securities denominated in a different currency if
there is an established historical pattern of correlation between the two
currencies. 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. Although under some circumstances
prices of securities held by the Portfolio may be more or less volatile than
prices of such futures contracts, the Investment Adviser will attempt to
estimate the extent of this difference in volatility based on historical
patterns and to compensate for it by having the Portfolio enter into a greater
or lesser number of futures contracts or by attempting to achieve only a partial
hedge against price changes affecting the securities held by the Portfolio. When
hedging of this character is successful, any depreciation in the value of
portfolio securities will substantially be offset by appreciation in the value
of the futures position.
On other occasions, the Portfolio may take a "long" position by purchasing
such futures contracts. This would be done, for example, when the Portfolio
anticipates the subsequent purchase of particular securities when it has the
necessary cash, but expects the prices or currency exchange rates then available
in the applicable market to be less favorable than prices or rates that are
currently available.
OPTIONS ON FUTURES
The Portfolio may purchase and write call and put options on futures
contracts which are traded on a United States or foreign exchange or board of
trade. An option on a futures contract gives the purchaser the right, in return
for the premium paid, to assume a position in a futures contract at a specified
exercise price at any time during the option period. Upon exercise of the
option, the writer of the option is obligated to convey the appropriate futures
position to the holder of the option. If an option is exercised on the last
trading day before the expiration date of the option, a cash settlement will be
made in an amount equal to the difference between the closing price of the
futures contract and the exercise price of the option.
The Portfolio may use options on futures contracts solely for bona fide
hedging purposes as defined below or for non-hedging purposes subject to the
limitations imposed by CFTC regulations. If the Portfolio purchases a call (put)
option on a futures contract it benefits from any increase (decrease) in the
value of the futures contract, but is subject to the risk of decrease (increase)
in value of the futures contract. The benefits received are reduced by the
amount of the premium and transaction costs paid by the Portfolio for the
option. If market conditions do not favor the exercise of the option, the
Portfolio's loss is limited to the amount of such premium and transaction costs
paid by the Portfolio for the option.
If the Portfolio writes a call (put) option on a futures contract, the
Portfolio receives a premium but assumes the risk of a rise (decline) in value
in the underlying futures contract. If the option is not exercised, the
Portfolio gains the amount of the premium, which may partially offset
unfavorable changes due to interest rate or currency exchange rate fluctuations
in the value of securities held or to be acquired for the Portfolio. If the
option is exercised, the Portfolio will incur a loss, which will be reduced by
the amount of the premium it receives. However, depending on the degree of
correlation between changes in the value of its portfolio securities (or the
currency in which they are denominated) and changes in the value of futures
positions, the Portfolio's losses from writing options on futures may be
partially offset by favorable changes in the value of portfolio securities or in
the cost of securities to be acquired.
The holder or writer of an option on a futures contract may terminate its
position by selling or purchasing an offsetting option of the same series. There
is no guarantee that such closing transactions can be effected. The Portfolio's
ability to establish and close out positions on such options will be subject to
the development and maintenance of a liquid market.
LIMITATIONS ON THE USE OF FUTURES CONTRACTS AND OPTIONS ON FUTURES
The Portfolio will engage in futures and related options transactions only
for bona fide hedging or non-hedging purposes as defined in or as permitted by
CFTC regulations. The Portfolio will determine that the price fluctuations in
the futures contracts and options on futures used for hedging purposes are
substantially related to price fluctuations in securities held by the Portfolio
or which it expects to purchase. Except as stated below, the Portfolio's futures
transactions will be entered into for traditional hedging purposes -- i.e.,
futures contracts will be sold to protect against a decline in the price of
securities (or the currency in which they are denominated) that the Portfolio
owns, or futures contracts will be purchased to protect the Portfolio against an
increase in the price of securities (or the currency in which they are
denominated) it intends to purchase. As evidence of this hedging intent, the
Portfolio expects that on 75% or more of the occasions on which it takes a long
futures (or option) position (involving the purchase of futures contracts), the
Portfolio will have purchased, or will be in the process of purchasing,
equivalent amounts of related securities (or assets denominated in the related
currency) in the cash market at the time when the futures (or option) position
is closed out. However, in particular cases, when it is economically
advantageous for the Portfolio to do so, a long futures position may be
terminated (or an option may expire) without the corresponding purchase of
securities or other assets. As an alternative to compliance with the bona fide
hedging definition, a CFTC regulation permits the Portfolio to elect to comply
with a different test, under which the aggregate initial margin and premiums
required to establish non-hedging positions in futures contracts and options on
futures will not exceed 5% of the Portfolio's net asset value after taking into
account unrealized profits and losses on such positions and excluding the
in-the-money amount of such options. 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 Internal Revenue Code for
maintaining the qualification of the Fund as a regulated investment company for
Federal income tax purposes (see "Taxes").
The Portfolio will be required, in connection with transactions in futures
contracts and the writing of options on futures, to make margin deposits, which
will be held by the Portfolio's custodian for the benefit of the futures
commission merchant through whom the Portfolio engages in such futures and
options transactions. Cash or liquid high grade debt securities required to be
segregated in connection with a "long" futures position taken by the Portfolio
will also be held by the custodian in a segregated account and will be marked to
market daily.
INTEREST RATE AND CURRENCY SWAPS
The Portfolio will only enter into interest rate swaps on a net basis, i.e.,
the two payment streams are netted out with the Portfolio receiving or paying,
as the case may be, only the net amount of the two payments. In contrast,
currency swaps usually involve the delivery of the entire payment stream in one
designated currency in exchange for the entire payment stream in the other
designated currency. Inasmuch as the Portfolio maintains a segregated account
with respect to all interest rate and currency swaps, the Portfolio and its
Investment Adviser believe that such obligations do not constitute senior
securities (as defined in the Investment Company Act of 1940) and, accordingly,
will not treat them as being subject to the Portfolio's borrowing restrictions.
The net amount of the excess, if any, of the Portfolio's obligations over its
entitlements with respect to each interest rate or currency swap will be accrued
on a daily basis and an amount of cash or liquid high grade debt securities
having an aggregate net asset value at least equal to the accrued excess will be
maintained in a segregated account by the Portfolio's custodian. The Portfolio
will not enter into any interest rate or currency swap unless the credit quality
of the unsecured senior debt or the claims-paying ability of the other party
thereto is considered to be investment grade by the Investment Adviser. If there
is a default by the other party to such a transaction, the Portfolio will have
contractual remedies pursuant to the agreements related to the transaction. The
swap market has grown substantially in recent years with a large number of banks
and investment banking firms acting both as principals and as agents utilizing
standardized swap documentation. As a result, the swap market has become
relatively liquid in comparison with the markets for other similar instruments
which are traded in the interbank market.
REVERSE REPURCHASE AGREEMENTS
The Portfolio may enter into reverse repurchase agreements. Under a reverse
repurchase agreement, the Portfolio temporarily transfers possession of a
portfolio instrument to another party, such as a bank or broker-dealer, in
return for cash. At the same time, the Portfolio agrees to repurchase the
instrument at an agreed upon time (normally within seven days) and price, which
reflects an interest payment. The Portfolio could also enter into reverse
repurchase agreements as a means of raising cash to satisfy redemption requests
without the necessity of selling portfolio assets.
When the Portfolio enters into a reverse repurchase agreement, any
fluctuations in the market value of either the securities transferred to another
party or the securities in which the proceeds may be invested would affect the
market value of the Portfolio's assets. As a result, such transactions may
increase fluctuations in the market value of the Portfolio's assets. While there
is a risk that large fluctuations in the market value of the Portfolio's assets
could affect the Fund's net asset value per share, this risk is not
significantly increased by entering into reverse repurchase agreements, in the
opinion of the Investment Adviser. Because reverse repurchase agreements may be
considered to be the practical equivalent of borrowing funds, they constitute a
form of leverage. If the Portfolio reinvests the proceeds of a reverse
repurchase agreement at a rate lower than the cost of the agreement, entering
into the agreement will lower the Fund's yield. While the Investment Adviser
does not consider reverse repurchase agreements to involve a traditional
borrowing of money, reverse repurchase agreements will be included within
"borrowings" contained in the Fund's investment restriction (2) set forth below.
At all times that a reverse repurchase agreement for borrowing purposes is
outstanding, the Portfolio will maintain cash or high grade liquid securities in
a segregated account at its custodian bank with a value at least equal to its
obligation under the agreement. Securities and other assets held in the
segregated account may not be sold while the reverse repurchase agreement is
outstanding, unless other suitable assets are substituted. To the extent that
the Portfolio enters into reverse repurchase agreements for hedging purposes as
described in the Fund's prospectus, the Portfolio will not be required to
maintain the segregated account described above.
PORTFOLIO TURNOVER
The Portfolio cannot accurately predict its portfolio turnover rate, but it
is anticipated that the annual turnover rate will generally not exceed 100%
(excluding turnover of securities having a maturity of one year or less). A 100%
annual turnover rate would occur, for example, if all the securities held by the
Portfolio were replaced in a period of one year. A high turnover rate (such as
100% or more) necessarily involves greater expenses to the Portfolio and may
result in the realization of substantial net short-term capital gains. The
Portfolio may engage in active short-term trading to benefit from yield
disparities among different issues of securities or among the markets for fixed
income securities of different countries, to seek short-term profits during
periods of fluctuating interest rates, or for other reasons. Such trading will
increase the Portfolio's rate of turnover and the incidence of net short-term
capital gain distributions allocated to the Fund by the Portfolio which are
taxable to Fund shareholders as ordinary income.
INVESTMENT RESTRICTIONS
The following 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) Purchase any security (other than securities issued or guaranteed by the
U.S. Government or any of its agencies or instrumentalities) if such purchase,
at the time thereof, would cause 25% or more of the Fund's total assets (taken
at market value) to be invested in the securities of issuers in any single
industry, provided that the electric, gas and telephone utility industries shall
be treated as separate industries for purposes of this restriction;
(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) Purchase or sell real estate, although it may purchase and sell
securities which are secured by real estate and securities of companies which
invest or deal in real estate;
(6) Purchase or sell physical commodities or futures contracts for the
purchase or sale of physical commodities, provided that the Fund may enter into
all types of futures and forward contracts on currency, securities and
securities, economic and other indices and may purchase and sell options on such
futures contracts; or
(7) Make loans to any person, except by (a) the acquisition of debt
instruments 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 all of its investable assets in an open-end management
investment company with substantially the same investment objective, policies
and restrictions as the Fund.
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 Corporation is
requested to vote on a change in the investment restrictions of the Portfolio,
the Corporation 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
Directors of the Corporation 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, the Fund and the Portfolio may not: (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 Directors of the Corporation or the Trustees of
the Portfolio, or its delegate, determine to be liquid, based upon the trading
markets for the specific security; (b) make short sales of securities or
maintain a short position, unless at all times when a short position is open it
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); (c) 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 Director of the Corporation or is
a member, officer, director or trustee of any investment adviser of the
Corporation 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); (d) purchase oil, gas or
other mineral leases or purchase partnership interests in oil, gas or other
mineral exploration or development programs; (e) invest more than 5% of its
total assets (taken at current value) in the securities of issuers which,
including their predecessors, have been in operation for less than three years;
(f) purchase put or call options on securities if after such purchase more than
5% of its net assets, as measured by the aggregate of the premiums paid for such
options, would be invested in such options; and (g) purchase warrants with a
value in excess of 5% of net assets, or warrants which are not listed on the New
York or American Stock Exchange with a value in excess of 2% of its net assets.
The Portfolio has no current intention during the current year of engaging in
short sales.
In order to permit the sale of shares of the Fund in certain states, the
Fund may make commitments more restrictive than the fundamental 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.
DIRECTORS OR TRUSTEES AND OFFICERS
The Directors and officers of the Corporation and the Trustees and
officers of 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 Director, 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") which is a wholly-owned subsidiary of Eaton Vance Management ("Eaton
Vance"); Eaton Vance's wholly-owned subsidiary, Eaton Vance Distributors, Inc.
("EVD"), the principal underwriter of the Fund; Eaton Vance's parent, Eaton
Vance Corp. ("EVC"); and BMR's and Eaton Vance's trustee, Eaton Vance, Inc.
("EV"). Eaton Vance and EV are both wholly-owned subsidiaries of EVC. Those
Directors and officers who are "interested persons" of the Corporation or those
Trustees and officers who are "interested persons" of the Portfolio, BMR, Eaton
Vance, EVC, EV, or EVD as defined in the 1940 Act, by virtue of their
affiliation with any one or more of the Corporation, the Portfolio, BMR, Eaton
Vance, EVC, EV or EVD are indicated by an asterisk (*).
DIRECTORS OF THE CORPORATION AND TRUSTEES OF THE PORTFOLIO
JAMES B. HAWKES (53), President, Director and Trustee*
Executive Vice President, 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.
LANDON T. CLAY (68), Director and Trustee*
Chairman of BMR, Eaton Vance, EVC and EV and a Director of EVC and EV. Director
or Trustee and officer of various investment companies managed by Eaton Vance
or BMR.
DONALD R. DWIGHT (63), Director and 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), Director and Trustee
Jacob H. Schiff, Professor of Investment Banking, Harvard Business School.
Director or Trustee of various investment companies managed by Eaton Vance
or BMR.
Address: Harvard Business School, Soldiers Field Road, Boston, Massachusetts
02163
NORTON H. REAMER (59), Director and 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), Director and Trustee
Director, Fiduciary Trust Company. Director or Trustee of various investment
companies managed by Eaton Vance or BMR.
Address: 175 Federal Street, Boston, Massachusetts 02110
JACK L. TREYNOR (65), Director and 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 CORPORATION AND THE PORTFOLIO
MARK VENEZIA (45), 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 (49), 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.
JAMES F. ALBAN (33), Assistant Treasurer*
Assistant Vice President of BMR since August 11, 1992 and of Eaton Vance and EV
since January 17, 1992 and employee of Eaton Vance since September 23, 1991.
Tax Consultant and Audit Senior with Deloitte & Touche (1987-1991). Officer of
various investment companies managed by Eaton Vance or BMR. Mr. Alban was
elected Assistant Treasurer of the Fund on December 16, 1991.
MARK P. DOMAN (34), Assistant Vice President*
Regional Representative of Eaton Vance Distributors, Inc.
Address: 136 N. Broad Street, Philadelphia, Pennsylvania 19106
Messrs. Thorndike (Chairman), Hayes and Reamer are members of the Special
Committee of the Board of Directors of the Corporation and the Board of Trustees
of the Portfolio. The Special Committee's functions include a continuous review
of the Corporation's contractual relationship with the administrator, the
Portfolio's contractual relationship with the investment adviser, making
recommendations to the Board regarding the compensation of those Directors and
Trustees who are not members of the Eaton Vance organization, and making
recommendations to the Directors and Trustees regarding candidates to fill
vacancies, as and when they occur, in the ranks of those Directors and Trustees
who are not "interested persons" of the Corporation, the Portfolio, or the Eaton
Vance organization.
Messrs. Treynor (Chairman) and Dwight are members of the Audit Committee of
the Board of Directors of the Corporation and the Board of Trustees of the
Portfolio. The Audit Committee's functions include making recommendations to the
Board regarding the selection of the independent accountants, and reviewing with
such accountants and the Treasurer of the Corporation 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 Corporation.
The fees and expenses of those Directors of the Corporation and of the
Portfolio who are not members of the Eaton Vance organization are paid by the
Fund (and the other series of the Corporation) and the Portfolio, respectively.
During the fiscal year ended October 31, 1994, the Directors of the Corporation
and the Trustees of the Portfolio received the following compensation in their
capacities as Directors of the Corporation and Trustees of the Portfolio, and,
during the year ended December 31, 1994, received the following compensation in
their capacities as Directors or Trustees of the other funds in the Eaton Vance
Fund Complex\1/:
<TABLE>
<CAPTION>
AGGREGATE AGGREGATE RETIREMENT TOTAL COMPENSATION
COMPENSATION COMPENSATION BENEFIT ACCRUED FROM CORPORATION
NAME FROM FUND FROM PORTFOLIO FROM FUND COMPLEX AND FUND COMPLEX
---- ------------ -------------- ----------------- ----------------
<S> <C> <C> <C> <C>
Donald R. Dwight --0-- $1,576 $8,750 $135,000
Samuel L. Hayes, III --0-- 1,574 8,865 142,500
Norton H. Reamer --0-- 1,548 --0-- 135,000
John L. Thorndike --0-- 1,609 --0-- 140,000
Jack L. Treynor --0-- 1,625 --0-- 140,000
- ----------
</TABLE>
\1/ The Eaton Vance Fund Complex consists of 201 registered investment companies
or series thereof.
Trustees of the Portfolio that are not affiliated with the Investment
Adviser may elect to defer receipt of all or a percentage of their annual fees
in accordance with the terms of 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 SHARES
As of January 31, 1995, Eaton Vance owned 1,012 shares of the Fund, being
all of the shares of the Fund outstanding on such date. Eaton Vance is a
Massachusetts business trust and a wholly-owned subsidiary of EVC.
INVESTMENT ADVISER AND ADMINISTRATOR
The Portfolio engages BMR as investment adviser pursuant to an Investment
Advisory Agreement dated March 1, 1994. 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,
foreign debt, 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 fee equal to the aggregate of (a) a daily asset based fee computed by
applying the annual asset rate applicable to that portion of the total daily net
assets in each Category as indicated below, plus (b) a daily income based fee
computed by applying the daily income rate applicable to that portion of the
total daily gross income (which portion shall bear the same relationship to the
total daily gross income on such day as that portion of the total daily net
assets in the same Category bears to the total daily net assets on such day) in
each Category as indicated below:
ANNUAL DAILY
CATEGORY DAILY NET ASSETS ASSET RATE INCOME RATE
- -------- ---------------- ---------- -----------
1 up to $500 million ...................... 0.275% 2.75%
2 $500 million but less than $1 billion ... 0.250% 2.50%
3 $1 billion but less than $1.5 billion ... 0.225% 2.25%
4 $1.5 billion but less than $2 billion ... 0.200% 2.00%
5 $2 billion but less than $3 billion ..... 0.175% 1.75%
6 $3 billion and over ..................... 0.150% 1.50%
As at October 31, 1994, the Portfolio had net assets of $236,468,766. For
the period from the start of business March 1, 1994 to October 31, 1994, the
Portfolio paid BMR advisory fees of $1,004,670 (equivalent to 0.49% (annualized)
of the Portfolio's average daily net assets for such period).
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.
The Portfolio has also engaged BMR to act as its Administrator under an
Administration Agreement. The Administration Agreement with BMR remains in
effect until February 28, 1995 and shall continue in full force and effect
indefinitely thereafter, but only so long as such continuance is approved at
least annually (i) by the Trustees of the Portfolio and (ii) by the vote of a
majority of those Trustees of the Portfolio who are not interested persons of
the Portfolio or of the Administrator. Under the Administration Agreement, BMR
is obligated to (a) review and supervise the provision of all domestic and
foreign custodial services to the Portfolio, and to make such reports and
recommendations to the Board of Trustees of the Portfolio concerning the
provision of such services as the Board deems appropriate; (b) provide to the
Portfolio certain valuation, legal, accounting and tax assistance and services
in connection with the Portfolio's (i) investments in (A) securities,
obligations and commercial paper that are denominated in foreign currencies or
the European Currency Unit ("ECU"), or that are issued or guaranteed by foreign
entities, (B) certificates of deposit and bankers' acceptances issued or
guaranteed by, or time deposits maintained at, foreign banks or foreign branches
of U.S. banks, and (C) participation interests in loans by U.S. or foreign banks
that are made to foreign borrowers or that are denominated in foreign currencies
or the ECU; and (ii) transactions in derivative instruments, including
instruments indexed to foreign exchange rates, forward foreign currency exchange
contracts, put and call options on foreign currencies, futures contracts and
options on such contracts, and interest rate and currency swaps; and (c) provide
to the Portfolio such other special administrative services as the Board from
time to time shall instruct BMR to furnish under the Administration Agreement.
In return for these special services, the Portfolio pays BMR as compensation
under the Administration Agreement a monthly fee in the amount of .0125%
(equivalent to .15% annually) of the average daily net assets of the Portfolio.
For the period March 1, 1994, to October 31, 1994, the Portfolio paid BMR
administration fees of $284,828.
The Portfolio will be responsible for all costs and expenses not expressly
stated to be payable by BMR under the Administration Agreement. Such costs and
expenses to be borne by the Portfolio include, without limitation, the fees and
expenses of the Portfolio's custodian and transfer agent, including those
incurred for determining the Portfolio's net asset value and keeping the
Portfolio's books; expenses of pricing and valuation services; the cost of
interest certificates; membership dues in investment company organizations;
brokerage commissions and fees; fees and expenses of registering its interests;
expenses of reports to investors, proxy statements, and other expenses of
investor's meetings; insurance premiums; printing and mailing expenses;
interest, taxes and corporate fees; legal and accounting expenses; compensation
and expenses of Trustees not affiliated with BMR; and investment advisory and
administration fees. The Portfolio will also bear expenses incurred in
connection with litigation in which the Portfolio is a party and the legal
obligation the Portfolio may have to indemnify its officers and Trustees with
respect thereto.
As indicated in the Prospectus, Eaton Vance serves as Administrator of the
Fund under an Administrative Services Agreement, but receives no compensation
for providing administrative services to the Fund. Under its agreement with the
Fund, Eaton Vance has been engaged to administer the Fund's affairs, subject to
the supervision of the Directors of the Corporation, 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 Corporation 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 Directors of the Corporation, (xvii) compensation and expenses
of Directors of the Corporation 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 Corporation to indemnify its Directors and officers with
respect thereto. For the period from the start of business, May 25, 1994, to
October 31, 1994, all of the operating expenses of the Fund in the ammount of
$7,345 were allocated to the Administrator.
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 January 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. Hawkes and Otis are
officers or Directors of the Corporation and officers or Trustees of the
Portfolio and are members of the EVC, BMR, Eaton Vance and EV organizations.
Messrs. Alban, Venezia, O'Connor and Ms. Sanders are officers of the Corporation
and officers of the Portfolio and are also members of the BMR, Eaton Vance and
EV organizations. Mr. Doman is an officer of the Corporation and an employee of
EVD. 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 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. Eaton Vance, BMR, EVC 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
Fund 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 custody fees which are competitive within the
industry. The fees for the Portfolio relate to 1) bookkeeping and valuation
services provided at an annual rate, 2) activity charges based upon the volume
of investment related transactions, and 3) reimbursement of out-of-pocket
expenses. These fees are then reduced by a credit for cash balances of the
Portfolio at the custodian equal to 75% of the 91-day, U.S. Treasury Bill
auction rate applied to the Portfolio's average daily collected balances. The
fee for the Fund relates to bookkeeping and valuation services and is based upon
a percentage of the Fund's net assets. 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 the additional examinations by the Portfolio's independent certified
public accountants as called for by such Rule. For the period from the start of
business, May 25, 1994, to October 31, 1994 the Fund paid no Custody fees to
IBT. During the fiscal year ended October 31, 1994, the Portfolio paid IBT
$191,871.
SERVICE FOR WITHDRAWAL
By a standard agreement, the Corporation's Transfer Agent will send to the
shareholder regular monthly or quarterly payments of any designated amount based
upon the value of the shares held. The checks will be drawn from share
redemptions and hence are a return of principal. Income dividends 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) will have to be deposited with the
Transfer Agent. The maintenance of a withdrawal plan concurrently with purchases
of additional Fund shares would be disadvantageous because of the sales charge
included in such purchases. A shareholder may not have a withdrawal plan in
effect at the same time he has authorized Bank Draft 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 IBT, the custodian (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, Washington's Birthday, Good
Friday (a New York Stock Exchange holiday), Memorial Day, Independence Day,
Labor Day, Thanksgiving Day and Christmas Day.
Debt securities (other than mortgage-backed, "pass-through" securities and
short-term obligations maturing in sixty days or less), including listed
securities and securities for which price quotations are available and forward
contracts, will normally be valued on the basis of market valuations furnished
by pricing services. Mortgage-backed "pass-through" securities are valued using
a matrix pricing system which takes into account closing bond valuations, yield
differentials, anticipated prepayments and interest rates. Financial futures
contracts listed on commodity exchanges and exchange-traded options are valued
at closing settlement prices. Over-the-counter options are valued at the mean
between the bid and asked prices provided by dealers. Short-term obligations and
money market securities maturing in sixty days or less are valued at amortized
cost which approximates value. Non-U.S. dollar denominated short-term
obligations maturing in sixty days or less are valued at amortized cost as
calculated in the base currency and translated into U.S. dollars at the current
exchange rate. Investments for which market quotations are unavailable are
valued at fair value using methods determined in good faith by or at the
direction of the Trustees of the Portfolio.
The value of all assets and liabilities expressed in foreign currencies will
be converted into U.S. dollar values at the mean between the buying and selling
rates of such currencies against U.S. dollars last quoted on one of the
principal markets for such currencies. Generally, trading in foreign securities,
derivative instruments and currencies is substantially completed each day at
various times prior to the time the Portfolio calculates its net asset value. If
an event materially affecting the values of such securities, instruments or
currencies occurs between the time such values are determined and the time net
asset value is calculated, such securities, instruments or currencies may be
valued at fair value.
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. The investor's
percentage of the aggregate interest in the Portfolio will then be recomputed as
a percentage equal to the 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.
INVESTMENT PERFORMANCE
The Fund's 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
results. The calculation assumes that all dividends and distributions are
reinvested at net asset value on the reinvestment dates during 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 30-day period by the
net asset value per share on the last day of the period and annualizing the
resulting figure. Net investment income per share is calculated from the yields
to maturity of all debt obligations held by the Portfolio based on the market
value of such obligations, at the beginning of such period, 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 Fund's yield for the 30-day period ended
October 31, 1994 was 10.06%. If a portion of the Fund's expenses had not been
allocated to the Administrator, the Fund would have had lower returns.
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 net asset value
per share. The Fund's effective distribution rate is computed by dividing the
distribution rate by the ratio used to annualize the distribution and
reinvesting the resulting amount for a full year on the basis of such ratio. The
effective distribution rate will be higher than the distribution rate because of
the compounding effect of the assumed reinvestment. The Fund's yield is
calculated using a standardized formula, the income component of which is
computed from the yields to maturity of all debt obligations held by the
Portfolio based on the market value of such obligations on the day preceding the
thirty day period (with all purchases and sales of securities during such period
included in the income calculation on a settlement date basis), 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 and short-term capital gain actually earned by the Fund during
the month (see "Distributions and Taxes" in the Fund's current Prospectus).
The tables below indicate 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 May 25, 1994 through October 31, 1994.
<PAGE>
<TABLE>
<CAPTION>
VALUE OF A $1,000 INVESTMENT
VALUE OF TOTAL RETURN
INVESTMENT INVESTMENT AMOUNT OF INVESTMENT --------------------
PERIOD DATE INVESTMENT ON 10/31/94 CUMULATIVE ANNUALIZED
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Life of the Fund* 5/24/94 $1,000 $967,69** -1.41** --
</TABLE>
<TABLE>
<CAPTION>
PERCENTAGE CHANGES 5/24/94-10/31/94
NET ASSET VALUE TO NET ASSET VALUE
WITH ALL DISTRIBUTIONS REINVESTED
---------------------------------------------------------------------------------------
PERIOD ENDED ANNUAL CUMULATIVE AVERAGE ANNUAL
--------- ---- ------ ---------
<S> <C> <C> <C>
10/31/94 -- -1.41%** --
</TABLE>
Past performance is not indicative of future results. Investment return and
principal value will fluctuate; shares, when redeemed, may be worth more or less
than original cost.
- ----------
Investment operations began on May 25, 1994.
**If a portion of the Fund's expenses had not been subsidized, the Fund would
have had lower returns.
The Fund's total return may be compared to the Commodity Research Bureau
Futures Price Index and various domestic, international and global securities
indices. The Fund's total return and comparisons with these indices may be used
in advertisements and in information furnished to present or prospective
shareholders. The Fund's performance may differ from that of other investors in
the Portfolio, including the other investment companies.
From time to time, evaluations of the Fund's performance made by independent
sources, e.g. Lipper Analytical Services, Inc., CDA/Wiesenberger and
Morningstar, Inc., may be used in advertisements and in information furnished to
present or prospective shareholders.
From time to time, information showing the effects of compounding interest
may be included in advertisements and other material furnished to present and
prospective shareholders. Compounding is the process of earning interest 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 percent 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 interest from the
first year, is the compound interest. $1,000 compounded annually at 9 percent
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 that 7 percent grows to $1,967 at
the end of 10 years and $3,870 at the end of 20 years. At 12 percent 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.
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
FEDERAL INCOME TAXES
Each series of Eaton Vance Investment Fund, Inc. is treated as a separate
entity for Federal income tax purposes. The Fund has elected to be treated, has
qualified, and intends to continue to qualify each year as a regulated
investment company 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 to the Fund. The Fund so qualified for its fiscal year ended October 31,
1994. See Notes to Financial Statements. Because the Fund invests substantially
all of 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, each investor's distributive share of the
Portfolio's net taxable (if any) and tax-exempt investment income, net realized
capital gains, and any other items of income, gain, loss, deduction or credit.
For purposes of applying the requirements of the Code regarding qualification as
a regulated investment company, 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 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,
after reduction by any available capital loss carryforwards, and 100% of any
income 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.
The Portfolio's transactions in options, futures contracts and forward
contracts will be subject to special tax rules that may affect the amount,
timing and character of the Fund's 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
periods of Portfolio securities and conversion of short-term into long-term
capital losses. The Portfolio may make certain elections to mitigate adverse
consequences of these tax rules and may have to limit its activities in options,
futures contracts and forward contracts in order to enable the Fund to maintain
its qualification as a regulated investment company.
The Portfolio may be subject to foreign withholding taxes with respect to
income derived from foreign securities. These taxes may be reduced or eliminated
under the terms of an applicable U.S. income tax treaty. Since it is expected
that more than 50% of the value of the total assets of the Fund taking into
account its allocable share of the Portfolio's total assets, at the close of any
taxable year will consist of securities issued by foreign corporations, the Fund
may be eligible to pass through to shareholders their proportionate shares of
foreign taxes paid by the Fund, with the result that shareholders would include
such proportionate shares in income subject to Federal income tax and would be
entitled to take a foreign tax credit or deduction for such foreign taxes,
subject to certain limitations. Certain foreign exchange gains and losses
realized by the Fund will be treated as ordinary income and losses. Certain uses
of foreign currency, foreign currency options, futures and forward contracts,
and interest rate and currency swaps, and investment by the Portfolio in 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 regulated
investment company and/or avoid imposition of a tax on the Fund.
The Portfolio's investment in zero coupon, deferred interest and payment in
kind securities will cause it to realize income prior to the receipt of cash
payments with respect to these securities. Such income will be allocated daily
to interests in the Portfolio in order to enable the Fund to distribute its
proportionate share of this income and avoid a tax payable by the Fund. The
Portfolio may be required to liquidate portfolio securities that it might
otherwise have continued to hold in order to generate cash that the Fund may
withdraw from the Portfolio for subsequent distribution to Fund shareholders.
The appropriate tax accounting for dollar rolls is also uncertain in some
respects, and the Portfolio's use of such rolls may accordingly be limited in
order to preserve the Fund's qualification as a regulated investment company.
Investments in lower-rated or unrated securities may present special tax
issues for the Portfolio and hence for the Fund to the extent actual or
anticipated defaults may be more likely with respect to such securities. Tax
rules are not entirely clear about issues such as when the Portfolio may cease
to accrue interest, original issue discount, or market discount; when and to
what extent deductions may be taken for bad debts or worthless securities; how
payments received on obligations in default should be allocated between
principal and income; and whether exchanges of debt obligations in a workout
context are taxable.
Distributions of taxable net investment income, the excess of net short-term
capital gains over net long-term capital losses 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. Only a small portion, if any, of such
distributions of net investment income made by the Fund may qualify for the
dividends-received deduction for corporations, subject to applicable limitations
under the Code. Distributions of the excess of net long-term capital gains over
net short-term capital losses (including any capital losses 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
in additional shares and regardless of the length of time their shares of the
Fund have been held.
Any loss realized upon the redemption or exchange of shares 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. All or a portion of any loss realized upon a taxable disposition of
Fund shares may be disallowed under "wash sale" rules if other shares of the
Fund are purchased (whether through the reinvestment of distributions or
otherwise) within 30 days before or after such disposition.
Special tax rules apply to Individual Retirement Accounts ("IRAs") and other
retirement plans, and persons investing through such plans should consult their
tax advisers for more information. The deductibility of such contributions may
be restricted or eliminated for particular shareholders.
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
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 Fund had qualified to do business in the Commonwealth of Pennsylvania
and, therefore, was subject to the Pennsylvania foreign franchise and corporate
net income tax in respect of its business activities in Pennsylvania. The Fund
paid no taxes for the fiscal year ended October 31, 1994. In 1995, however, the
Fund took actions to cease doing business in Pennsylvania and does not intend to
pay Pennsylvania foreign franchise and corporate net income tax in Pennsylvania.
Accordingly, Fund shareholders should consult their tax advisers regarding the
applicability of Pennsylvania local and county personal property taxes.
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 are borne by the Principal Underwriter. The fees
and expenses of qualifying and registering and maintaining qualifications and
registrations of the Fund and its shares under Federal and state securities laws
are borne by the Fund. 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 Distribution Plan relating to such payments
are included in the Distribution Agreement. The Distribution Agreement is
renewable annually by the Corporation's Board of Directors (including a majority
of its Directors who are not interested persons of the Corporation 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 Directors 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 its agent in
repurchasing shares at the rate of $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. During the period from the start of
business May 25, 1994, to October 31, 1994 there were no repurchase
transactions.
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 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, subject to the NASD Rule, will pay the Principal Underwriter amounts
representing (i) sales commissions equal to 6.25% of the amount received by the
Fund for each share sold and (ii) distribution fees approximately calculated by
applying the rate of 1% over the prevailing prime rate to the outstanding
balance of uncovered distribution charges of the Principal Underwriter.
In calculating daily the amount of uncovered distribution charges,
distribution charges will include the aggregate amount of sales commissions and
distribution fees theretofore paid plus the aggregate amount of sales
commissions and distribution fees which the Principal Underwriter is entitled to
be paid under the Plan since its inception. Payments theretofore paid and
payable under the Plan by the Fund 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.
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 amounts 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 of all
payments theretofore received by the Principal Underwriter 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.
The amount of uncovered distribution charges of the Principal Underwriter is
computed daily. 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 (including redemptions involving exchanges of Fund shares for shares
of another fund in the Eaton Vance Classic 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.
For the period May 25, 1994, to October 31, 1994, the Fund made no sales
commission payments under the Plan. As at October 31, 1994, there were no
outstanding Uncovered Distribution Charges under the Plan.
The Plan also authorizes the Fund to make payments of service fees for the
period May 25, 1994, to October 31, 1994 the Fund made no service fee payments
under the Plan.
Pursuant to Rule 12b-1, the Plan has been approved by the Fund's initial
sole shareholder (Eaton Vance) and by the Board of Directors of the Corporation,
including the the Directors of the Corporation who are not interested persons of
the Corporation and who have no direct or indirect financial interest in the
operation of the Plan or any agreements related to the Plan. The provisions of
the Plan relating to the payments of sales commissions and distribution fees to
the Principal Underwriter are also included in the Distribution Agreement
between the Corporation on behalf of the Fund and the Principal Underwriter. The
Plan and Distribution Agreement currently remain in effect until March 1, 1995.
The Plan continues in effect through and including March 1, 1995, 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 Under the Plan the
President or a Vice President of the Corporation shall provide to the Directors
for their review, and the Directors 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 Directors in
the manner described above. So long as the Plan is in effect, the selection and
nomination of the Directors who are not interested persons of the Corporation
shall be committed to the discretion of the Directors who are not such
interested persons.
The Directors believe that the Plan will be a significant factor in the
growth of the Fund's assets, resulting 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 Directors 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 executing firm, are made by BMR.
BMR is also responsible for the execution of transactions for all other accounts
managed by it.
BMR places the portfolio security transactions of the Portfolio and of all
other accounts managed by it for execution with many firms. BMR uses its best
efforts to obtain execution of portfolio security transactions at prices which
are advantageous to the Portfolio and at reasonably competitive spreads or (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
nature and character of the market for the security, the confidentiality, speed
and certainty of effective execution required for the transaction, the general
execution and operational capabilities of the executing firm, the reputation,
reliability, experience and financial condition of the firm, the value and
quality of the services rendered by the firm in this and other transactions, and
the reasonableness of the spread or commission, if any. The debt securities and
obligations purchased and sold by the Portfolio are generally traded in the
domestic or foreign over-the-counter markets on a net basis (i.e. without
commission) through broker-dealers and banks acting for their own account rather
than as brokers, or otherwise involve transactions directly with the issuer of
such obligations. Such firms attempt to profit from such transactions by buying
at the bid price and selling at the higher asked price of the market for such
obligations, and the difference between the bid and asked price is customarily
referred to as the spread. The Portfolio may also purchase debt securities from
domestic and foreign underwriters, the cost of which may include undisclosed
fees and concessions to the underwriters. Transactions in foreign obligations
usually involve the payment of fixed brokerage commissions when executed on
foreign securities exchanges, which commissions are generally higher than those
in the United States. Although spreads or commissions on portfolio security
transactions will, in the judgment of BMR, be reasonable in relation to the
value of the services provided, spreads or commissions exceeding those which
another firm might charge may be paid to firms who were selected to execute
transactions on behalf of the Portfolio and BMR's other clients 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
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; effecting securities transactions and performing functions
incidental thereto (such as clearance and settlement); and the "Research
Services" referred to in the next paragraph.
It is a common practice of the investment advisory industry and of 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 which execute portfolio transactions for the clients of such advisers and
from third parties with which such broker-dealers have arrangements. Consistent
with this practice, BMR 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 and
recommendations as to the purchase and sale of securities and other portfolio
transactions, financial, industry and trade publications, news and information
services, pricing and quotation equipment and services, and research oriented
computer hardware, software, data bases and services. Any particular Research
Service obtained through a broker-dealer may be used by BMR in connection with
client accounts other than those accounts which pay commissions to such
broker-dealer. Any such Research Service may be broadly useful and of value to
BMR in rendering investment advisory services to all or a significant portion of
its clients, or may be relevant and useful for the management of only one
client's account or of a few clients' accounts, or may be useful for the
management of merely a segment of certain clients' accounts, regardless of
whether any such account or accounts paid commissions to the broker-dealer
through which such Research Service was obtained. The advisory fee paid by the
Portfolio is not reduced because BMR receives such Research Services. BMR
evaluates the nature and quality of the various Research Services obtained
through broker-dealer firms and attempts to allocate sufficient 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 and
execute portfolio security transactions at advantageous prices and at reasonably
competitive spreads or commission rates, BMR is authorized to consider as a
factor in the selection of any 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 purchasing
municipal obligations 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 Directors of the Corporation and the
Trustees of the Portfolio that the benefits available from the BMR organization
outweigh any disadvantage that may arise from exposure to simultaneous
transactions. For the period from the start of business, March 1, 1994, to
October 31, 1994, the Portfolio paid foreign brokerage commissions on its
portfolio security transactions amounting to $6,875.
OTHER INFORMATION
The Corporation was incorporated under Maryland law on October 4, 1990, as
amended, as the successor to a Massachusetts business trust organized on August
21, 1990. The Corporation (formerly, Eaton Vance Short-Term Global Income Fund,
Inc.) changed its name to Eaton Vance Investment Fund, Inc. on August 17, 1993.
The Fund changed its name from "EV Classic Short-Term Strategic Income Fund" to
EV Classic Strategic Income Fund" on March 1, 1995. Eaton Vance, pursuant to its
agreement with the Corporation, 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 Corporation's Articles of Incorporation (the "Articles") provide
indemnification for the Directors and officers of the Corporation, but nothing
in the Articles protects a Director 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. The Director may amend the Articles without the vote or consent of
shareholders to add additional series of shares. As permitted by Maryland law,
there will normally be no meetings of shareholders for the purpose of electing
Directors unless and until such time as less than a majority of the Directors of
the Corporation holding office have been elected by shareholders. In such event,
the Directors then in office will call a shareholders' meeting for the election
of some or all Directors. Except for the foregoing circumstances and unless
removed by action of the shareholders in accordance with the Corporation's
by-laws, the Directors shall continue to hold office and may appoint successor
Directors. The 1940 Act provides that the Directors of the Corporation shall
promptly call a meeting of shareholders for the purpose of voting upon a
question of removal of a Director when requested in writing so to do by the
record holders of not less than 10 per centum of the outstanding shares.
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 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 right to redeem shares of the Fund can be suspended and the payment of
the redemption price deferred when the Exchange is closed (other than for
customary weekend and holiday closings), during periods when trading on the
Exchange is restricted as determined by the 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.
INDEPENDENT ACCOUNTANTS
Coopers & Lybrand L.L.P., One Post Office Square, Boston, Massachusetts
02109, are the independent accountants for 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.
<PAGE>
<TABLE>
EV Classic Short-Term Strategic Income Fund
Financial Statements
Statement of Assets and Liabilities
- -----------------------------------------------------------------------------------------------
October 31, 1994
- -----------------------------------------------------------------------------------------------
<CAPTION>
<S> <C> <C>
Assets:
Investment in Short-Term Income Portfolio (Portfolio),
at value (Note 1A) $7,416
Receivable from the Administrator (Note 4) 7,345
Deferred organization expenses (Note 1C) 36,494
-------
Total assets $51,255
Liabilities:
Accrued expenses $41,379
-------
Total liabilities 41,379
-------
Net Assets $9,876
=======
Sources of Net Assets:
Paid-in capital $10,110
Accumulated net realized loss on investment and financial futures
transactions from Portfolio (computed on the basis of identified
cost) (253)
Unrealized appreciation of investments and financial futures
contracts from Portfolio (computed on the basis of identified
cost) 19
-------
Total $9,876
=======
Shares of Beneficial Interest 1,013
=======
Net Asset Value and Redemption Price Per Share
($9,876 / 1,013 shares of beneficial interest) $9.75
=======
</TABLE>
<PAGE>
<TABLE>
Statement of Operations
- ------------------------------------------------------------------------------------------------------------------------------
For the period from the start of business, May 25, 1994, to October 31, 1994
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
INVESTMENT INCOME (NOTE 1B):
Interest income allocated from Portfolio $ 390
Expenses allocated from Portfolio (35)
------
Total investment income $ 355
Expenses -
Amortization of organization expenses (Note 1C) $3,506
Registration fees 1,151
Miscellaneous 2,688
------
Total expenses $7,345
Deduct allocation of expenses to the Administrator (Note 4) 7,345
------
Net expenses -
------
Net investment income $ 355
------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized gain (loss) from Portfolio (identified cost basis) (including
net loss due to foreign currency rate fluctuations of $35) -
Investment security transactions ($164)
Financial futures contracts (175)
Foreign currency and foreign currency contracts (169)
-----
Net realized loss on investments ($508)
Unrealized appreciation of investments 19
------
Net realized and unrealized loss ($489)
------
Net decrease in net assets from operations ($134)
======
The accompanying notes are an integral part of the financial statements
</TABLE>
<PAGE>
<TABLE>
Statement of Changes in Net Assets
- ----------------------------------------------------------------------------------
For the period from the start of business, May 25, 1994, to October 31, 1994
- ----------------------------------------------------------------------------------
<CAPTION>
<S> <C>
INCREASE (DECREASE) IN NET ASSETS:
From operations -
Net investment income $355
Net realized loss on investments (508)
Unrealized appreciation of investments 19
--------
Net decrease in net assets from operations ($134)
--------
Dividends to shareholders from net investment income (Note 2) - ($108)
--------
Transactions in shares of beneficial interest (Note 3) -
Proceeds from sales of shares $10,000
Net asset value of shares issued to shareholders in
payment of distributions declared 108
Cost of shares redeemed -
--------
Increase in net assets from Fund share transactions $10,108
--------
Net increase in net assets $9,866
NET ASSETS:
At beginning of period 10
--------
At end of period $9,876
========
</TABLE>
The accompanying notes are an integral part of the financial statements
<PAGE>
<TABLE>
Financial Highlights
- -----------------------------------------------------------------------------------
For the period from the start of business, May 25, 1994, to October 31, 1994
- -----------------------------------------------------------------------------------
<CAPTION>
<S> <C>
Net asset value, beginning of period $10.000
Income(loss) from operations:
Net investment income $ 0.348
Net realized and unrealized gain(loss) on investments (0.495)
--------
Total income(loss) from operations $(0.147)
Less distributions:
From net investment income $(0.103)
--------
Net asset value, end of period $ 9.750
========
Total Return (1.41%)
Ratios/Supplemental Data*:
Net assets, end of period (000 omitted) $ 10
Ratio of net expenses to average net assets (1) 0.76% +
Ratio of net investment income to average net assets 7.74% +
*For the period from the start of business, May 25, 1994, to
October 31, 1994, the operating expenses of the Fund reflect
an allocation of expenses to the Administrator. Had such
action not been taken, net investment loss per share and
the ratios would have been as follows:
Net investment loss per share $(6.900)
========
RATIOS (As a percentage of average net assets):
Expenses (1) 160.83% +
Net investment loss 152.33% +
+ Computed on an annualized basis.
(1) Includes the Fund's share of Short-Term Income Portfolio's allocated
expenses.
</TABLE>
The accompanying notes are an integral part of the financial statements
<PAGE>
NOTES TO FINANCIAL STATEMENTS
(1) SIGNIFICANT ACCOUNTING POLICIES
EV Classic Short-Term Strategic Income Fund (the Fund) is a non-diversified
series of Eaton Vance Investment Fund Inc. (the Corporation), which was
incorporated under Maryland law on October 4, 1990, (as Eaton Vance Short-Term
Global Income Fund, Inc.) as the successor to a Massachusetts business trust
organized on August 21, 1990. The Corporation changed its name to Eaton Vance
Investment Fund Inc. on August 17, 1993. The Fund is registered under the
Investment Company Act of 1940, as amended, as an open- end management
investment company. The Fund invests all of its investable assets in interests
in Short-Term Income 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 (0.003% at October 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 - Valuation of securities by the Portfolio is
discussed in Note 1 of the Portfolio's Notes to Financial Statements which are
included elsewhere in this report.
B. INCOME - The Fund's net investment income consists of the Fund's pro rata
share of the net investment income of the Portfolio, less all actual and
accrued expenses of the Fund determined in accordance with generally accepted
accounting principles.
C. DEFERRED ORGANIZATION EXPENSES - Costs incurred by the Fund in connection
with its organization, including registration costs, are being amortized on the
straight-line basis over five years beginning on the date the Fund commenced
operations.
D. DISTRIBUTION COSTS - For book purposes, commissions paid on the sale of
shares and other distribution costs are charged to operations. For tax
purposes, commissions paid are charged to paid-in capital (Note 5).
E. OTHER - Investment transactions are accounted for on a trade date basis.
(2) DISTRIBUTIONS TO SHAREHOLDERS
The net income of the Fund is determined daily and substantially all of the net
income so determined is declared as a dividend to shareholders of record at the
time of declaration. In addition, the Fund declares each day an amount equal
to the excess of tax basis net income over book net income, which amount is
reported for financial statement purposes as a distribution in excess of net
investment income. Distributions are paid monthly. Distributions of allocated
realized capital gains, if any, are made at least annually. Shareholders may
reinvest capital gain distributions in additional shares of the Fund at the net
asset value as of the ex-dividend date. Distributions are paid in the form of
additional shares or, at the election of the shareholder, in cash. The Fund
distinguishes between distributions on a tax basis and a financial reporting
basis. Generally accepted accounting principles require that only
distributions in excess of tax basis earnings and profits be reported in the
financial statements as a return of capital. Differences in the recognition or
classification of income between the financial statements and tax earnings and
profits which result in temporary over distributions for financial statement
purposes are classified as distributions in excess of net investment income or
accumulated net realized gains. Permanent differences between book and tax
accounting relating to distributions are reclassified to paid-in capital.
<PAGE>
(3) CAPITAL STOCK
At October 31, 1994 there were one billion shares of $0.0001 par value capital
stock authorized. Transactions in capital stock for the period from the start
of business, May 25, 1994, to October 31, 1994, were as follows:
<TABLE>
<S> <C>
Sales 1,000
Issued to shareholders electing
to receive payments of
distributions in capital stock 13
Redemptions -
Net increase 1,013
=====
</TABLE>
(4) TRANSACTIONS WITH AFFILIATES
Eaton Vance Management (EVM) serves as the administrator of the Fund, but
currently receives no compensation for these services. The Portfolio has
engaged Boston Management and Research (BMR), a subsidiary of EVM, to render
investment advisory services. See Note 2 of the Portfolio's Notes to Financial
Statements which are included elsewhere in this report. To enhance the net
income of the Fund, $7,345, of expenses related to the operation of the Fund
were allocated to EVM. Except as to Trustees of the Fund and the Portfolio who
are not members of EVM's or BMR's organization, officers and Trustees receive
remuneration for their services to the Fund out of such investment adviser fee.
Investors Bank & Trust Company (IBT), an affiliate of EVM, serves as custodian
to the Fund and the Portfolio. Pursuant to the respective custodian
agreements, IBT receives a fee reduced by credits which are determined based on
the average cash balances the Fund or the Portfolio maintains with IBT.
Certain of the officers and Directors of the Fund and Portfolio are officers
and directors/trustees of the above organizations (Note 5).
(5) DISTRIBUTION PLAN
The Fund has adopted a distribution plan (the Plan) pursuant to Rule 12b-1
under the Investment Company Act of 1940. The Plan requires the Fund to pay
the Principal Underwriter, Eaton Vance Distributors, Inc. (EVD), amounts equal
to 1/365 of 0.75% of the Fund's daily net assets, for providing ongoing
distribution services and facilities to the Fund. The Fund will automatically
discontinue payments to EVD during any period in which there are no outstanding
Uncovered Distribution Charges, which are equivalent to the sum of (i) 6.25% of
the aggregate amount received by the Fund for shares sold plus (ii)
distribution fees calculated by applying the rate of 1% over the prevailing
prime rate to the outstanding balance of Uncovered Distribution Charges of EVD,
reduced by amounts theretofore paid to EVD. The amount payable to EVD with
respect to each day is accrued on such day as a liability of the Fund and,
accordingly, reduces the Fund's net assets. EVD earned no daily compensation
for the period from the start of business, May 25, 1994, to October 31, 1994.
In addition, the Plan permits the Fund to make monthly payments of service
fees to the Principal Underwriter, in amounts not expected to exceed 0.25% of
the Fund's average daily net assets for any fiscal year. The Directors of the
Corporation have initially implemented the Plan by authorizing the Fund to make
monthly payments of service fees to the Principal Underwriter in amounts not
expected to exceed 0.25% of the Fund's average daily net assets for any fiscal
year. Service fee payments are made for personal services and/or maintenance
of shareholder accounts. Service fees paid to EVD and Authorized Firms are
separate and distinct from the sales commissions and distribution fees payable
by the Fund to EVD, and as such are not subject to automatic discontinuance
when there are no outstanding Uncovered Distribution Charges of EVD. No
provision for service fee payments was made for the period from the start of
business, May 25, 1994, to October 31, 1994.
Certain of the officers of the Fund and Directors of the Corporation are
officers or directors of EVD.
(6) INVESTMENT TRANSACTIONS
Increases and decreases in the Fund's investment in the Portfolio for the
period from the start of business May 25, 1994, to October 31, 1994, aggregated
$12,079 and $4,663, respectively.
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE BOARD OF DIRECTORS OF EATON VANCE
INVESTMENT FUND, INC. AND SHAREHOLDERS OF
EV CLASSIC SHORT-TERM STRATEGIC INCOME FUND
We have audited the accompanying statement of assets and liabilities of EV
Classic Short-Term Strategic Income Fund, a series of Eaton Vance Investment
Fund, Inc. as of October 31, 1994, the related statement of operations, changes
in net assets, and the financial highlights for the period from the start of
business, May 25, 1994, to October 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.
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. 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
Classic Short-Term Strategic Income Fund, a series of Eaton Vance Investment
Fund, Inc. as of October 31, 1994, the results of its operations, changes in
its net assets and the financial highlights for the period from the start of
business, May 25, 1994, to October 31, 1994, in conformity with generally
accepted accounting principles.
COOPERS & LYBRAND L.L.P.
Boston, Massachusetts
December 15, 1994
<PAGE>
APPENDIX A
DESCRIPTION OF MOODY'S INVESTORS SERVICE, INC.'S CORPORATE BOND RATINGS:
INVESTMENT GRADE
Aaa: Bonds which are rated Aaa are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as
"gilt-edge". Interest payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various protective elements are
likely to change, such changes as can be visualized are most unlikely to impair
the fundamentally strong position of such issues.
Aa: Bonds which are rated Aa are judged to be of high quality by all standards.
Together with the Aaa group they comprise what are generally known as high grade
bonds. They are rated lower than the best bonds because margins of protection
may not be as large as in Aaa securities or fluctuations of protective elements
may be of greater amplitude or there may be other elements present which make
the long-term risks appear somewhat larger than in Aaa securities.
A: Bonds which are rated A possess many favorable investment attributes and are
to be considered as upper medium grade obligations. Factors giving security to
principal and interest are considered adequate, but elements may be present
which suggest a susceptibility to impairment sometime in the future.
Baa: Bonds which are rated Baa are considered as medium grade obligations, i.e.,
they are neither highly protected nor poorly secured. Interest payments and
principal security appear adequate for the present, but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
SPECULATIVE GRADE
Ba: Bonds which are rated Ba are judged to have speculative elements; their
future cannot be considered as well assured. Often the protection of interest
and principal payments may be very moderate and thereby not well safe-guarded
during both good and bad times over the future. Uncertainty of position
characterizes bonds in this class.
B: Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
Caa: Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal or
interest.
Ca: Bonds which are rated Ca represent obligations which are speculative in a
high degree. Such issues are often in default or have other marked shortcomings.
C; Bonds which are rated C are the lowest rated class of bonds and issues so
rated can be regarded as having extremely poor prospects of ever attaining any
real investment standing.
NOTE: Moody's applies numerical modifiers, 1, 2 and 3 in each generic rating
classification from Aa through B in its corporated bond rating system. The
modifier 1 indicates that the security ranks in the higher end of its generic
rating category; the modifier 2 indicates a mid-range ranking; and the modifier
3 indicates that the issue ranks in the lower end of its generic rating
category.
COMMERCIAL PAPER
Moody's commercial paper ratings are opinions of the ability of issuers to repay
punctually promissory obligations not having an original maturity in excess of
nine months.
Issuers rated PRIME-1 or P-1 (or related supporting institutions) have a
superior capacity for repayment of short-term promissory obligations. Prime-1 or
P-1 repayment capacity will normally be evidenced by the following
characteristics:
-- Leading market positions in well established industries.
-- High rates of return on funds employed.
-- Conservative capitalization structures with moderate reliance on debt and
ample asset protection.
-- Broad margins in earnings coverage of fixed financial charges and high
internal cash generation.
-- Well established access to a range of financial markets and assured
sources of alternate liquidity.
Issuers rated PRIME-2 or P-2 (or related supporting institutions) have a strong
capacity for repayment of short-term promissory obligations. This will normally
be evidenced by many of the characteristics cited above but to a lesser degree.
Earnings trends and coverage ratios, while sound, will be more subject to
variation. Capitalization characteristics, while still appropriate, may be more
affected by external conditions. Ample alternate liquidity is maintained.
DESCRIPTION OF STANDARD & POOR'S CORPORATION'S CORPORATE BOND RATINGS:
INVESTMENT GRADE
AAA: Bonds rated AAA have the highest rating assigned by Standard & Poor's to a
debt obligation. Capacity to pay interest and repay principal is extremely
strong.
AA: Bonds rated AA have a very strong capacity to pay interest and repay
principal and differ from the higher rated issues only in small degree.
A: Bonds rated A have a strong capacity to pay interest and repay principal
although they are somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than bonds in higher rated categories.
BBB: Bonds rated BBB are regarded as having an adequate capacity to pay interest
and repay principal. Whereas they normally exhibit adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
bonds in this category than for bonds in higher rated categories.
SPECULATIVE GRADE
Debt rated BB, B, CCC, CC, and C is regarded as having predominantly speculative
characteristics with respect to capacity to pay interest and repay principal. BB
indicates the least degree of speculation and C the highest. While such debt
will likely have some quality and protective characteristics, these are
outweighed by large uncertainties or major exposures to adverse conditions.
BB: Debt rated BB has less near-term vulnerability to default than other
speculative issues. However, it faces major ongoing uncertainties or exposure to
adverse business, financial, or economic conditions which could lead to
inadequate capacity to meet timely interest and principal payments. The BB
rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied BBB - rating.
B: Debt rated B has a greater vulnerability to default but currently has the
capacity to meet interest payments and principal repayments. Adverse business,
financial, or economic conditions will likely impair capacity or willingness to
pay interest and repay principal.
The B rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied BB or BB - rating.
CCC: Debt rated CCC has a currently identifiable vulnerability to default, and
is dependent upon favorable business, financial, and economic conditions to meet
timely payment of interest and repayment of principal. In the event of adverse
business, financial, or economic conditions, it is not likely to have the
capacity to pay interest and repay principal.
The CCC rating category is also used for debt subordinated to senior debt that
is assigned an actual or implied B or B - rating.
CC: The rating CC is typically applied to debt subordinated to senior debt which
is assigned an actual or implied CCC debt rating.
C: The rating C is typically applied to debt subordinated to senior debt which
is assigned an actual or implied CCC - debt rating. The C rating may be used to
cover a situation where a bankruptcy petition has been filed, but debt service
payments are continued.
C1: The Rating C1 is reserved for income bonds on which no interest is being
paid.
D: Debt rated D is in payment default. The D rating category is used when
interest payments or principal payments are not made on the date due even if the
applicable grace period has not expired, unless Standard & Poor's believes that
such payments will be made during such grace period. The D rating also will be
used upon the filing of a bankruptcy petition if debt service payments are
jeopardized.
PLUS (+) OR MINUS (-): The ratings from AA to CCC may be modified by the
addition of a plus or minus sign to show relative standing within the major
rating categories.
NR: Bonds may lack a Standard & Poor's rating because no public rating has been
requested, because there is insufficient information on which to base a rating,
or because Standard & Poor's does not rate a particular type of obligation as a
matter of policy.
NOTES: Bonds which are unrated expose the investor to risks with respect
capacity to pay interest or repay principal which are similar to the risks of
lower-rated obligations. The Portfolio is dependent on the Investment Adviser's
judgment, analysis and experience in the evaluation of such bonds.
Investors should note that the assignment of a rating to a bond by a rating
service may not reflect the effect of recent developments on the issuer's
ability to make interest and principal payments.
COMMERCIAL PAPER
Standard & Poor's commercial paper ratings are current assessments of the
likelihood of timely payment of debts having an original maturity of no more
than 365 days.
A: Issues assigned this highest rating are regarded as having the greatest
capacity for timely payment. Issues in this category are delineated with the
numbers 1, 2 and 3 to indicate the relative degree of safety.
A-1: This designation indicates that the degree of safety regarding timely
payment is either overwhelming or very strong. Those issues determined to
possess overwhelming safety characteristics are denoted with a plus (+) sign
designation.
A-2: Capacity for timely payment on issues with this designation is strong.
However, the relative degree of safety is not as high as for issues designated
"A-1".
A-3: Issues carrying this designation have a satisfactory capacity for timely
payment. They are, however, somewhat more vulnerable to the adverse effects of
changes in circumstances than obligations carrying the higher designations.
FITCH INVESTORS SERVICE, INC.
INVESTMENT GRADE BOND RATINGS
AAA: Bonds considered to be investment grade and of the highest credit quality.
The obligor has an exceptionally strong ability to pay interest and repay
principal, which is unlikely to be affected by reasonably foreseeable events.
AA: Bonds considered to be investment grade and of very high credit quality. The
obligor's ability to pay interest and repay principal is very strong, although
not quite as strong as bonds rated "AAA". Because bonds rated in the "AAA" and
"AA" categories are not significantly vulnerable to foreseeable future
developments, short-term debt of these issuers is generally rated "F- 1+".
A: Bonds considered to be investment grade and of high credit quality. The
obligors ability to pay interest and repay principal is considered to be strong,
but may be more vulnerable to adverse changes in economic conditions and
circumstances than bonds with higher ratings.
BBB: Bonds considered to be investment grade and of satisfactory credit quality.
The obligor's ability to pay interest and repay principal is considered to be
adequate. Adverse changes in economic conditions and circumstances, however, are
more likely to have adverse impact on these bonds, and therefore, impair timely
payment. The likelihood that the ratings of these bonds will fall below
investment grade is higher than for bonds with higher ratings.
HIGH YIELD BOND RATINGS
BB: Bonds are considered speculative. The obligor's ability to pay interest and
repay principal may be affected over time by adverse economic changes. However,
business and financial alternatives can be identified which could assist the
obligor in satisfying its debt service requirements.
B: Bonds are considered highly speculative. While bonds in this class are
currently meeting debt service requirements, the probability of continued timely
payment of principal and interest reflects the obligor's limited margin of
safety and the need for reasonable business and economic activity throughout the
life of the issue.
CCC: Bonds have certain identifiable characteristics which, if not remedied, may
lead to default. The ability to meet obligations requires an advantageous
business and economic environment.
CC: Bonds are minimally protected. Default in payment of interest and/or
principal seems probable over time.
C: Bonds are in imminent default in payment of interest or principal.
DDD, DD, AND D: Bonds are in default of interest and/or principal payments. Such
bonds are extremely speculative and should be valued on the basis of their
ultimate recovery value in liquidation or reorganization of the obligor. "DDD"
represents the highest potential for recovery on these bonds, and"D" represents
the lowest potential for recovery.
PLUS (+) OR MINUS (-): The ratings from AA to C may be modified by the addition
of a plus or minus sign to indicate the relative position of a credit within the
rating category.
NR: Indicates that Fitch does not rate the specific issue.
CONDITIONAL: A conditional rating is premised on the successful completion of a
project or the occurrence of a specific event.
INVESTMENT GRADE SHORT-TERM RATINGS
Fitch's short-term ratings apply to debt obligations that are payable on demand
or have original maturities of generally up to three years, including commercial
paper, certificates of deposit, medium-term notes, and municipal and investment
notes.
F-1+: Exceptionally Strong Credit Quality. Issues assigned this rating are
regarded as having the strongest degree of assurance for timely payment.
F-1: Very Strong Credit Quality. Issues assigned this rating reflect an
assurance of timely payment only slightly less in degree than issues rated
"F-1+".
F-2: Good Credit Quality. Issues assigned this rating have a satisfactory degree
of assurance for timely payment, but the margin of safety is not as great as the
"F-1+" and "F-1" categories.
F-3: Fair Credit Quality. Issues assigned this rating have characteristics
suggesting that the degree of assurance for timely payment is adequate, however,
near-term adverse changes could cause these securities to be rated below
investment grade.
DUFF & PHELPS
INVESTMENT GRADE BOND RATINGS
AAA: Highest credit quality. The risk factors are negligible, being only
slightly more than for risk-free U.S. Treasury debt.
AA+, AA, AND AA-: High credit quality. Protection factors are strong. Risk is
modest but may vary slightly from time to time because of economic conditions.
A+, A, AND A-: Protection factors are average but adequate. However, risk
factors are more variable and greater in periods of economic stress.
BBB+, BBB, AND BBB-: Below average protection factors but still considered
sufficient for prudent investment. Considerable variability in risk during
economic cycles.
HIGH YIELD BOND RATINGS
BB+, BB, AND BB-: Below investment grade but deemed likely to meet obligations
when due. Present or prospective financial protection factors fluctuate
according to industry conditions or company fortunes. Overall quality may move
up or down frequently within this category.
B+, B, AND B-: Below investment grade and possessing risk that obligations will
not be met when due. Financial protection factors will fluctuate widely
according to economic cycles, industry conditions and/or company fortunes.
Potential exists for frequent changes in the rating within this category or into
a higher or lower rating grade.
CCC: Well below investment grade securities. Considerable uncertainty exists as
to timely payment of principal interest or preferred dividends. Protection
factors are narrow and risk can be substantial with unfavorable economic/
industry conditions, and/or with unfavorable company developments.
Preferred stocks are rated on the same scale as bonds but the preferred rating
gives weight to its more junior position in the capital structure. Structured
Financings are also rated on this scale.
COMMERCIAL PAPER/CERTIFICATES OF DEPOSIT
CATEGORY 1: TOP GRADE
DUFF 1 PLUS: Highest certainty of timely payment. Short-term liquidity including
internal operating factors and/or ready access to alternative sources of funds,
is outstanding, and safety is just below risk-free U.S.
Treasury short-term obligations.
DUFF 1: Very high certainty of timely payment. Liquidity factors are excellent
and supported by good fundamental protection factors. Risk factors are minor.
DUFF 1 MINUS: High certainty of timely payment. Liquidity factors are strong and
supported by good fundamental protection factors. Risk factors are very small.
CATEGORY 2: GOOD GRADE
DUFF 2: Good certainty of timely payment. Liquidity factors and company
fundamentals are sound. Although ongoing funding needs may enlarge total
financing requirements, access to capital markets is good. Risk factors are
small.
CATEGORY 3: SATISFACTORY GRADE
DUFF 3: Satisfactory liquidity and other protection factors qualify issue as to
investment grade. Risk factors are larger and subject to more variation.
Nevertheless timely payment is expected.
No ratings are issued for companies whose paper is not deemed to be of
investment grade.
NOTES: Bonds which are unrated expose the investor to risks with respect to
capacity to pay interest or repay principal which are similar to the risks of
lower-rated bonds. The Portfolio is dependent on the Investment Adviser's
judgment, analysis and experience in the evaluation of such bonds.
Investors should note that the assignment of a rating to a bond by a rating
service may not reflect the effect of recent developments on the issuer's
ability to make interest and principal payments.
<PAGE>
Appendix B - Economic & Statistical Information
Size of major bond markets Total publicly issued debt at year-end 1994 (in
billions of US $ equivalents)
Country Amount
United States $7,547
Japan 3,044
Germany 1,581
Italy 781
France 749
Canada 393
United Kingdom 437
Belgium 301
Sweden 186
Country Amount
Netherlands $228
Denmark 227
Switzerland 201
European Currency Unit (ECU) 145
Spain 144
Australia 108
Austria 68
Norway 41
Source: Salomon Brothers
This is a description for the Edgar filing of a pie chart
Europe $5,089 billion (31.5%)
Pacific $3,152 billion (19.5%)
Canada $393 billion (2.4%)
United States $7,547 billion (46.6%)
<PAGE>
Total returns (income plus capital changes) of short-term bonds Maximum 3-year
duration bonds - 12 months ended 12/31/94 (denominated in local currency)
Country Total return
Italy 6.21%
Ireland 4.31
Finland 4.24
Sweden 3.33
United Kingdom 5.24
France 3.43
Canada .99
Country Total return
Netherlands 4.36%
Germany 4.10
New Zealand .59
Australia 1.15
Japan .86
Switzerland 6.05
United States .61
Source: Bloomberg L.P., Reuters
Horizontal Bar Chart omitted for Edgar filing as described above.
U.S. pension assets invested abroad
(in billions of US $)
Year Amount
1979 $1.7
1980 3.5
1981 5.2
1982 7.0
1983 11.7
1984 15.5
1985 27.3
1986 45.2
1987 49.8
Year Amount
1988 $62.0
1989 68.0
1990 87.0
1991 134.7
1992 159.3
1993 248.5
Source: Eaton Vance Management
Pensions & Investments
Mountain Chart omitted for Edgar filing as described above.
Comparative short-term yields
3-month Eurodeposit rates vs. U.S. short-term rates (compounded) at 12/31/94
This is a description for the Edgar filing of a bar chart.
Portugal 10.98%
Mexico 31.99*
Italy 9.34
Indonesia 12.9
Sweden 8.4
Malaysia 5.5
Ireland 6.59
Germany 5.29
Thailand 8.7
Finland 5.94
United Kingdom 6.79
Australia 8.37
New Zealand 9.57
Switzerland 4.19
Canada 7.12
Japan 2.39
U.S.
Money market mutual funds 5.25
3-mo CDs 4.12
Bank money market funds 3.26
Sources: The Wall Street Journal, Reuters
* 91-day T-bill rate. Source: Bloomberg L.P.
<PAGE>
INVESTMENT ADVISER AND
ADMINISTRATOR OF
STRATEGIC INCOME PORTFOLIO
Boston Management and Research
24 Federal Street
Boston, MA 02110
ADMINISTRATOR OF
EV CLASSIC
STRATEGIC INCOME FUND
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
EV CLASSIC
STRATEGIC INCOME FUND
24 FEDERAL STREET
BOSTON, MA 02110
C-SISAI
EV Classic
Strategic
Income Fund
Statement of
Additional
Information
March 1, 1995
<PAGE>
PART B
INFORMATION REQUIRED IN A STATEMENT OF ADDITIONAL INFORMATION
STATEMENT OF
ADDITIONAL INFORMATION
March 1, 1995
EV MARATHON STRATEGIC INCOME FUND
24 Federal Street
Boston, Massachusetts 02110
(800) 225-6265
- ------------------------------------------------------------------------------
TABLE OF CONTENTS Page
Investment Objective and Policies ............................... 2
Investment Restrictions ......................................... 9
Directors or Trustees and Officers .............................. 10
Control Persons and Principal Holders of Securities ............. 12
Investment Adviser and Administrator ............................ 12
Custodian ....................................................... 16
Service for Withdrawal .......................................... 16
Determination of Net Asset Value ................................ 16
Investment Performance .......................................... 17
Taxes ........................................................... 18
Principal Underwriter ........................................... 21
Distribution Plan ............................................... 21
Portfolio Security Transactions ................................. 22
Other Information ............................................... 24
Independent Accountants ......................................... 25
Financial Statements ............................................ 26
Appendices ...................................................... 50
- ------------------------------------------------------------------------------
THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT A PROSPECTUS AND IS
AUTHORIZED FOR DISTRIBUTION TO PROSPECTIVE INVESTORS ONLY IF PRECEDED OR
ACCOMPANIED BY THE PROSPECTUS OF EV MARATHON STRATEGIC INCOME FUND (THE "FUND")
DATED MARCH 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 EATON VANCE
DISTRIBUTORS, INC. (THE "PRINCIPAL UNDERWRITER") (SEE BACK COVER FOR ADDRESS AND
PHONE NUMBER).
<PAGE>
INVESTMENT OBJECTIVE AND POLICIES
INVESTMENT OBJECTIVE
The investment objective of EV Marathon Strategic Income Fund (the "Fund"),
a non-diversified series of Eaton Vance Investment Fund, Inc. (the
"Corporation"), is a high level of income, consistent with prudent investment
risk, by investing in a global portfolio consisting primarily of high grade debt
securities and having a dollar weighted average maturity of not more than three
years. The Fund currently seeks to meet its investment objective by investing
its assets in the Strategic Income Portfolio (the "Portfolio"), a separate
registered investment company with the same investment objective as the Fund.
Since 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 and supplements the
discussion contained in the Fund's Prospectus.
INCOME PRODUCING SECURITIES
Included in the income producing securities in which the Portfolio may
invest are preferred and preference stocks, convertible bonds, securities of
real estate investment trusts and natural resource companies, stripped debt
obligations, closed-end investment companies (that invest primarily in debt
securities the Portfolio could invest in), equipment lease certificates,
equipment trust certificates and conditional sales contracts. Preference stocks
are stocks that have many characteristics of preferred stocks, but are typically
junior to an existing class of preferred stocks. Securities of real estate
investment trusts, such as debentures, are affected by conditions in the real
estate industry and interest rates. Securities of natural resource companies are
subject to price fluctuation based upon inflationary pressures and demand for
natural resources. Stripped debt obligations are comprised of principal only or
interest only obligations. The value of closed-end investment company
securities, which are generally traded on an exchange, is affected by demand for
those securities regardless of the demand for the underlying portfolio assets.
Equipment lease certificates are debt obligations secured by leases on equipment
(such as railroad cars, airplanes or office equipment), with the issuer of the
certificate being the owner and lessor of the equipment. The issuers of
equipment lease certificates tend to be industrial, transportation and leasing
companies. Equipment trust certificates are debt obligations secured by an
interest in property (such as railroad cars or airplanes), the title of which is
held by a trustee while the property is being used by the borrower. Conditional
sales contracts are agreements under which the seller of property continues to
hold title to the property until the purchase price is fully paid or other
conditions are met by the buyer. The Portfolio has no current intention of
investing more than 5% of its total assets in any of these types of securities.
The Portfolio may purchase fixed-rate bonds which have a demand feature
allowing the holder to redeem the bonds at specified times. These bonds are more
defensive than conventional long-term bonds (protecting to some degree against a
rise in interest rates) while providing greater opportunity than comparable
intermediate term bonds, since the Portfolio may retain the bond if interest
rates decline. By acquiring these kinds of bonds the Portfolio obtains the
contractual right to require the issuer of the bonds to purchase the security at
an agreed upon price, which right is contained in the obligation itself rather
than in a separate agreement or instrument. Since this right is assignable only
with the bond, the Portfolio will not assign any separate value to such right.
The Portfolio has no current intention during the coming year of investing more
than 5% of its total assets in bonds with demand features. The Portfolio may
also purchase floating or variable rate obligations and warrants when such
warrants are part of a unit with other securities.
The Portfolio's investments in high yield, high risk obligations rated
below investment grade, which have speculative characteristics, bear special
risks. They are subject to greater credit risks, including the possibility of
default or bankruptcy of the issuer. The value of such investments may also be
subject to a greater degree of volatility in response to interest rate
fluctuations, economic downturns and changes in the financial condition of the
issuer. These securities generally are less liquid than higher quality
securities. During periods of deteriorating economic conditions and contractions
in the credit markets, the ability of such issuers to service their debt, meet
projected goals or obtain additional financing may be impaired. The Portfolio
will also take such action as it considers appropriate in the event of
anticipated financial difficulties default or bankruptcy of either the issuer of
any such obligation or of the underlying source of funds for debt service. Such
action may include retaining the services of various persons and firms
(including affiliates of the Investment Adviser) to evaluate or protect any real
estate, facilities or other assets securing any such obligation or acquired by
the Portfolio as a result of any such event. The Portfolio will incur additional
expenditures in taking protective action with respect to portfolio obligations
in default and assets securing such obligations.
The Portfolio may invest in obligations of domestic and foreign companies
in the group consisting of the banking and the financial services industries.
Companies in the banking industry include U.S. and foreign commercial banking
institutions (including their parent holding companies). Companies in the
financial services industry include finance companies, diversified financial
services companies and insurance and insurance holding companies. Companies
engaged primarily in the investment banking, securities, investment advisory or
investment company business are not deemed to be in the financial services
industry for this purpose. The securities held by the Portfolio may be affected
by economic or regulatory developments in or related to such industries.
Sustained increases in interest rates can adversely affect the availability and
cost of funds for an institution's lending activities, and a deterioration in
general economic conditions could increase the institution's exposure to credit
losses.
A bank from whom the Portfolio acquires a loan participation interest may
be treated as a co-issuer for tax diversification purposes to the extent that
the Portfolio does not have direct recourse against the borrower of the
underlying loan and is therefore relying on the credit of such bank. For
industry concentration purposes, the Investment Adviser will consider all
relevant factors in determining the issuer of a loan interest, including: the
credit quality of the borrower, the amount and quality of the collateral, the
terms of the loan agreement and the other relevant agreements (including
inter-creditor agreements), the degree to which the credit of such
interpositioned person was deemed material to the decision to purchase the loan
interest, the interest rate environment, and general economic conditions
applicable to the borrower and such interpositioned person.
MORTGAGE ROLLS
The Portfolio may enter into mortgage "dollar rolls" in which the Portfolio
sells mortgage-backed securities for delivery in the current month and
simultaneously contracts to repurchase substantially similar (same type, coupon
and maturity) securities on a specified future date. During the roll period, the
Portfolio foregoes principal and interest paid on the mortgage- backed
securities. The Portfolio is compensated by the difference between the current
sales price and the lower forward price for the future purchase (often referred
to as the "drop") as well as by the interest earned on the cash proceeds of the
initial sale. A "covered roll" is a specific type of dollar roll for which there
is an offsetting cash position or a cash equivalent security position which
matures on or before the forward settlement date of the dollar roll transaction.
The Portfolio will only enter into covered rolls. Covered rolls are not treated
as a borrowing or other senior security and will be excluded from the
calculation of the Portfolio's borrowings and other senior securities.
LENDING OF PORTFOLIO 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 Securities and Exchange Commission, such loans are
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. Cash equivalents include
certificates of deposit, commercial paper and other short-term money market
instruments. The Portfolio would have the right to call a loan and obtain the
securities loaned at any time on up to five business days' notice.
FOREIGN INVESTMENTS
Investing in foreign issuers involves certain special considerations,
including those set forth below, which are not typically associated with
investing in U.S. issuers. Since investments in foreign issuers may involve
currencies of foreign countries, and since the Portfolio may temporarily hold
funds in bank deposits in foreign currencies during completion of investment
programs, the Portfolio may be affected favorably or unfavorably by changes in
currency rates and in exchange control regulations and may incur costs in
connection with conversions between various currencies.
Since foreign companies are not subject to uniform accounting, auditing and
financial reporting standards, practices and requirements comparable to those
applicable to U.S. companies, there may be less publicly available information
about a foreign company than about a domestic company. Volume and liquidity in
most foreign bond markets is less than in the United States and securities of
some foreign companies are less liquid and more volatile than securities of
comparable U.S. companies. Fixed commissions on foreign stock exchanges are
generally higher than negotiated commissions on U.S. exchanges, although the
Portfolio endeavors to achieve the most favorable net results on its portfolio
transactions. There is generally less government supervision and regulation of
securities exchanges, broker-dealers and listed companies than in the United
States. Mail service between the United States and foreign countries may be
slower or less reliable than within the United States, thus increasing the risk
of delayed settlements of portfolio transactions or loss of certificates for
portfolio securities. The Portfolio may be required to pay for securities before
delivery. In addition, with respect to certain foreign countries, there is the
possibility of expropriation or confiscatory taxation, political or social
instability, or diplomatic developments which could affect the Portfolio's
investments in those countries. Moreover, individual foreign economies may
differ favorably or unfavorably from the U.S. economy in such respects as growth
of gross national product, rate of inflation, capital reinvestment, resource
self-sufficiency and balance of payments position.
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS
The Portfolio may enter into forward foreign currency exchange contracts. A
forward foreign currency exchange contract involves an obligation to purchase or
sell a specific currency at a future date, which may be any fixed number of days
from the date of the contract agreed upon by the parties, at a price set at the
time of the contract. These contracts are traded in the interbank market
conducted directly between currency traders (usually large commercial banks) and
their customers. A forward contract generally has no deposit requirement, and no
commissions are charged at any stage for trades.
At the maturity of a forward contract the Portfolio may either accept or
make delivery of the currency specified in the contract or, at or prior to
maturity, enter into a closing purchase transaction involving the purchase or
sale of an offsetting contract. Closing purchase transactions with respect to
forward contracts are often effected with the currency trader who is a party to
the original forward contract.
The Portfolio may enter into forward foreign currency exchange contracts in
several circumstances. First, when the Portfolio enters into a contract for the
purchase or sale of a security denominated in a foreign currency, or when the
Portfolio anticipates the receipt in a foreign currency of dividend or interest
payments on such a security which it holds, the Portfolio may desire to "lock
in" the U.S. dollar price of the security or the U.S. dollar equivalent of such
dividend or interest payment, as the case may be. By entering into a forward
contract for the purchase or sale, for a fixed amount of dollars, of the amount
of foreign currency involved in the underlying transactions, the Portfolio will
attempt to protect itself against an adverse change in the relationship between
the U.S. dollar and the subject foreign currency during the period between the
date on which the security is purchased or sold, or on which the dividend or
interest payment is declared, and the date on which such payments are made or
received.
Additionally, when management of the Portfolio believes that the currency
of a particular foreign country may suffer a substantial decline against the
U.S. dollar, it may enter into a forward contract to sell, for a fixed amount of
dollars, the amount of foreign currency approximating the value of some or all
of the securities held by the Portfolio denominated in such foreign currency.
The precise matching of the forward contract amounts and the value of the
securities involved will not generally be possible because the future value of
such securities in foreign currencies will change as a consequence of market
movements in the value of those securities between the date on which the
contract is entered into and the date it matures. The precise projection of
short-term currency market movements is not possible, and short-term hedging
provides a means of fixing the dollar value of only a portion of the Portfolio's
foreign assets.
The Portfolio's custodian will place cash or liquid high grade debt
securities into a segregated account of the Portfolio in an amount equal to the
value of the Portfolio's total assets, reduced by the value of any offsetting
forward or written or purchased option position on the same or a related
currency, committed to the consummation of forward foreign currency exchange
contracts requiring the Portfolio to purchase foreign currencies or forward
contracts entered into for non-hedging purposes. If the value of the securities
placed in the segregated account declines, additional cash or securities will be
placed in the account on a daily basis so that the value of the account will
equal the amount of the Portfolio's commitments with respect to such contracts,
net of any offsetting forward contracts or options positions.
The Portfolio generally will not enter into a forward contract with a term
of greater than one year. Using forward contracts to protect the value of the
securities held by the Portfolio against a decline in the value of a currency
does not eliminate fluctuations in the underlying prices of the securities. It
simply establishes a rate of exchange which the Portfolio can achieve at some
future point in time.
While the Portfolio will enter into forward contracts to reduce currency
exchange rate risks, transactions in such contracts involve certain other risks.
Thus, while the Portfolio may benefit from such transactions, unanticipated
changes in currency prices may result in a poorer overall performance for the
Fund than if the Portfolio had not engaged in any such transactions. Moreover,
there may be imperfect correlation between the securities held by the Portfolio
denominated in a particular currency and forward contracts entered into by the
Portfolio. Such imperfect correlation may prevent the Portfolio from achieving a
complete hedge or expose the Portfolio to risk of foreign exchange loss.
WRITING AND PURCHASING CURRENCY CALL AND PUT OPTIONS
The Portfolio may write covered put and call options and purchase put and
call options on foreign currencies for the purpose of protecting against
declines in the dollar value of portfolio securities and against increases in
the dollar cost of securities to be acquired. A call option written by the
Portfolio obligates the Portfolio to sell specified currency to the holder of
the option at a specified price if the option is exercised at any time before
the expiration date. A put option written by the Portfolio would obligate the
Portfolio to purchase specified currency from the option holder at a specified
price if the option is exercised at any time before the expiration date.
A call option written by the Portfolio may be covered by segregating assets
denominated in the currency on which the call option is written. A written call
option or put option may also be covered by maintaining cash or high grade
liquid debt securities (either of which may be denominated in any currency) in a
segregated account, by entering into an offsetting forward contract and/or by
purchasing an offsetting option or any other option on the same or a related
currency and/or by purchasing an offsetting option or any other option which, by
virtue of its exercise price or otherwise, reduces the Portfolio's net exposure
on its written option position.
The writing of currency options involves a risk that the Portfolio will,
upon exercise of the option, be required to sell currency subject to a call at a
price that is less than the currency's market value or be required to purchase
currency subject to a put at a price that exceeds the currency's market value.
The Portfolio may terminate its obligations under a call or put option by
purchasing an option identical to the one it has written. Such purchases are
referred to as "closing purchase transactions." The Portfolio would also be able
to enter into closing sale transactions in order to realize gains or minimize
losses on options purchased by the Portfolio.
The Portfolio would normally purchase call options in anticipation of an
increase in the dollar value of currency in which securities to be acquired by
the Portfolio are denominated. The purchase of a call option would entitle the
Portfolio, in return for the premium paid, to purchase specified currency at a
specified price during the option period. The Portfolio would ordinarily realize
a gain if, during the option period, the value of such currency exceeded the sum
of the exercise price, the premium paid and transaction costs; otherwise the
Portfolio would realize a loss on the purchase of the call option.
The Portfolio would normally purchase put options in anticipation of a
decline in the dollar value of currency in which securities in its portfolio
("protective puts") are denominated. The purchase of a put option would entitle
the Portfolio, in exchange for the premium paid, to sell specified currency at a
specified price during the option period. The purchase of protective puts is
designed merely to offset or hedge against a decline in the dollar value of the
securities held by the Portfolio due to currency exchange rate fluctuations. The
Portfolio would ordinarily realize a gain if, during the option period, the
value of the underlying currency decreased below the exercise price sufficiently
to cover the premium and transaction costs; otherwise the Portfolio would
realize a loss on the purchase of the put option. Gains and losses on the
purchase of protective put options would tend to be offset by countervailing
changes in the value of underlying currency.
SPECIAL RISKS ASSOCIATED WITH OPTIONS ON CURRENCY
An exchange traded options position may be closed out only on an options
exchange which provides a secondary market for an option of the same series.
Although the Portfolio will generally purchase or write only those options for
which there appears to be an active secondary market, there is no assurance that
a liquid secondary market on an exchange will exist for any particular option,
or at any particular time. For some options no secondary market on an exchange
may exist. In such event, it might not be possible to effect closing
transactions in particular options, with the result that the Portfolio would
have to exercise its options in order to realize any profit and would incur
transaction costs upon the sale of underlying securities pursuant to the
exercise of put options. If the Portfolio as a covered call option writer is
unable to effect a closing purchase transaction in a secondary market, it will
not be able to sell the underlying currency (or security denominated in that
currency) until the option expires or it delivers the underlying currency upon
exercise.
Reasons for the absence of a liquid secondary market on an exchange include
the following: (i) there may be insufficient trading interest in certain
options; (ii) restrictions may be imposed by an exchange on opening transactions
or closing transactions or both; (iii) trading halts, suspensions or other
restrictions may be imposed with respect to particular classes or series of
options or underlying securities; (iv) unusual or unforeseen circumstances may
interrupt normal operations on an exchange; (v) the facilities of an exchange or
the Options Clearing Corporation may not at all times be adequate to handle
current trading volume; or (vi) one or more exchanges could, for economic or
other reasons, decide or be compelled at some future date to discontinue the
trading of options (or a particular class or series of options), in which event
the secondary market on that exchange (or in that class or series of options)
would cease to exist, although outstanding options on that exchange that had
been issued by the Options Clearing Corporation as a result of trades on that
exchange would continue to be exercisable in accordance with their terms.
There is no assurance that higher than anticipated trading activity or
other unforeseen events might not, at times, render certain of the facilities of
the Options Clearing Corporation inadequate, and thereby result in the
institution by an exchange of special procedures which may interfere with the
timely execution of customers' orders.
The Portfolio may purchase and write over-the-counter options to the extent
consistent with its limitation on investments in illiquid securities, as
described in the Fund's prospectus. Trading in over-the-counter options is
subject to the risk that the other party will be unable or unwilling to close-
out options purchased or written by the Portfolio. The staff of the Securities
and Exchange Commission takes the position that purchased over-the-counter
options and assets used to cover written over-the-counter options are illiquid
securities. However, with respect to options written with primary dealers in
U.S. Government securities or with dealers on the Federal Reserve's approved
list for foreign exchange dealers pursuant to an agreement requiring a closing
purchase transaction at a formula price, the amount of illiquid securities may
be calculated with reference to the repurchase formula.
The Portfolio intends to write covered call options on foreign currencies.
A call option written on a foreign currency by the Portfolio is "covered" if the
Portfolio owns the underlying foreign currency covered by the call or has an
absolute and immediate right to acquire that foreign currency without additional
cash consideration (or for additional cash consideration held in a segregated
account by its custodian) upon conversion or exchange of other foreign currency
held in its portfolio. A call option is also covered if the Portfolio has a call
on the same foreign currency and in the same principal amount as the call
written where the exercise price of the call held (a) is equal to or less than
the exercise price of the call written or (b) is greater than the exercise price
of the call written if the difference is maintained by the Portfolio in cash,
U.S. Government Securities and other high grade liquid debt securities in a
segregated account with its custodian.
The amount of the premiums which the Portfolio may pay or receive may be
adversely affected as new or existing institutions, including other investment
companies, engage in or increase their option purchasing and writing activities.
FUTURES CONTRACTS
A change in the level of currency exchange rates or interest rates may
affect the value of the Portfolio's investments (or of investments that the
Portfolio expects to make). To hedge against such changes in such rates or
prices or for non-hedging purposes, the Portfolio may enter into (i) futures
contracts for the purchase or sale of securities, (ii) futures contracts on
securities indices; (iii) futures contracts on other financial instruments and
indices and (iv) futures contracts on foreign currencies. A futures contract may
generally be described as an agreement between two parties to buy and sell
particular financial instruments for an agreed price during a designated month
(or to deliver the final cash settlement price, in the case of a contract
relating to an index or otherwise not calling for physical delivery at the end
of trading in the contract). All futures contracts entered into by the Portfolio
are traded on U.S. exchanges or boards of trade that are licensed and regulated
by the Commodity Futures Trading Commission ("CFTC") or on foreign exchanges.
FUTURES ON SECURITIES OR CURRENCIES. A futures contract on a security or
currency is a binding contractual commitment which, if held to maturity, will
result in an obligation to make or accept delivery, during a particular month,
of securities or currency having a standardized face value and rate of return or
currency. By purchasing futures on securities or currency, the Portfolio will
legally obligate itself to accept delivery of the underlying security or
currency and pay the agreed price; by selling futures on securities or currency,
it will legally obligate itself to make delivery of the security or currency
against payment of the agreed price. Open futures positions on securities or
currency are valued at the most recent settlement price, unless such price does
not reflect the fair value of the contract, in which case the positions will be
valued by or under the direction of the Board of Trustees of the Portfolio.
Positions taken in the futures markets are not normally held to maturity,
but are instead liquidated through offsetting transactions which may result in a
profit or a loss. While the Portfolio's futures contracts on securities or
currency will usually be liquidated in this manner, it may instead make or take
delivery of the underlying securities or currency whenever it appears
economically advantageous for the Portfolio to do so. A clearing corporation
associated with the exchange on which futures on securities or currency are
traded guarantees that, if still open, the sale or purchase will be performed on
the settlement date.
FUTURES CONTRACTS ON SECURITIES INDICES. Futures contracts on securities or
other indices do not require the physical delivery of securities, but merely
provide for profits and losses resulting from changes in the market value of a
contract to be credited or debited at the close of each trading day to the
respective accounts of the parties to the contract. On the contract's expiration
date a final cash settlement occurs and the futures position is simply closed
out. Changes in the market value of a particular futures contract reflect
changes in the level of the index on which the futures contract is based.
HEDGING STRATEGIES. Hedging by use of futures contracts seeks to establish more
certainly than would otherwise be possible the effective price, rate of return
or currency exchange rate on portfolio securities or securities that the
Portfolio owns or proposes to acquire. The Portfolio may, for example, take a
"short" position in the futures market by selling futures contracts in order to
hedge against an anticipated rise in interest rates or a decline in market
prices or foreign currency rates that would adversely affect the dollar value of
the securities held by the Portfolio. Such futures contracts may include
contracts for the future delivery of securities held by the Portfolio or
securities with characteristics similar to those of the securities held by the
Portfolio. Similarly, the Portfolio may sell futures contracts on currency in
which its securities are denominated or in one currency to hedge against
fluctuations in the value of securities denominated in a different currency if
there is an established historical pattern of correlation between the two
currencies. 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. Although under some circumstances
prices of securities held by the Portfolio may be more or less volatile than
prices of such futures contracts, the Investment Adviser will attempt to
estimate the extent of this difference in volatility based on historical
patterns and to compensate for it by having the Portfolio enter into a greater
or lesser number of futures contracts or by attempting to achieve only a partial
hedge against price changes affecting the securities held by the Portfolio. When
hedging of this character is successful, any depreciation in the value of
portfolio securities will substantially be offset by appreciation in the value
of the futures position.
On other occasions, the Portfolio may take a "long" position by purchasing
such futures contracts. This would be done, for example, when the Portfolio
anticipates the subsequent purchase of particular securities when it has the
necessary cash, but expects the prices or currency exchange rates then available
in the applicable market to be less favorable than prices or rates that are
currently available.
OPTIONS ON FUTURES
The Portfolio may purchase and write call and put options on futures
contracts which are traded on a United States or foreign exchange or board of
trade. An option on a futures contract gives the purchaser the right, in return
for the premium paid, to assume a position in a futures contract at a specified
exercise price at any time during the option period. Upon exercise of the
option, the writer of the option is obligated to convey the appropriate futures
position to the holder of the option. If an option is exercised on the last
trading day before the expiration date of the option, a cash settlement will be
made in an amount equal to the difference between the closing price of the
futures contract and the exercise price of the option.
The Portfolio may use options on futures contracts solely for bona fide
hedging purposes as defined below or for non-hedging purposes subject to the
limitations imposed by CFTC regulations. If the Portfolio purchases a call (put)
option on a futures contract it benefits from any increase (decrease) in the
value of the futures contract, but is subject to the risk of decrease (increase)
in value of the futures contract. The benefits received are reduced by the
amount of the premium and transaction costs paid by the Portfolio for the
option. If market conditions do not favor the exercise of the option, the
Portfolio's loss is limited to the amount of such premium and transaction costs
paid by the Portfolio for the option.
If the Portfolio writes a call (put) option on a futures contract, the
Portfolio receives a premium but assumes the risk of a rise (decline) in value
in the underlying futures contract. If the option is not exercised, the
Portfolio gains the amount of the premium, which may partially offset
unfavorable changes due to interest rate or currency exchange rate fluctuations
in the value of securities held or to be acquired for the Portfolio. If the
option is exercised, the Portfolio will incur a loss, which will be reduced by
the amount of the premium it receives. However, depending on the degree of
correlation between changes in the value of its portfolio securities (or the
currency in which they are denominated) and changes in the value of futures
positions, the Portfolio's losses from writing options on futures may be
partially offset by favorable changes in the value of portfolio securities or in
the cost of securities to be acquired.
The holder or writer of an option on a futures contract may terminate its
position by selling or purchasing an offsetting option of the same series. There
is no guarantee that such closing transactions can be effected. The Portfolio's
ability to establish and close out positions on such options will be subject to
the development and maintenance of a liquid market.
LIMITATIONS ON THE USE OF FUTURES CONTRACTS AND OPTIONS ON FUTURES
The Portfolio will engage in futures and related options transactions only
for bona fide hedging or non-hedging purposes as defined in or as permitted by
CFTC regulations. The Portfolio will determine that the price fluctuations in
the futures contracts and options on futures used for hedging purposes are
substantially related to price fluctuations in securities held by the Portfolio
or which it expects to purchase. Except as stated below, the Portfolio's futures
transactions will be entered into for traditional hedging purposes -- i.e.,
futures contracts will be sold to protect against a decline in the price of
securities (or the currency in which they are denominated) that the Portfolio
owns, or futures contracts will be purchased to protect the Portfolio against an
increase in the price of securities (or the currency in which they are
denominated) it intends to purchase. As evidence of this hedging intent, the
Portfolio expects that on 75% or more of the occasions on which it takes a long
futures (or option) position (involving the purchase of futures contracts), the
Portfolio will have purchased, or will be in the process of purchasing,
equivalent amounts of related securities (or assets denominated in the related
currency) in the cash market at the time when the futures (or option) position
is closed out. However, in particular cases, when it is economically
advantageous for the Portfolio to do so, a long futures position may be
terminated (or an option may expire) without the corresponding purchase of
securities or other assets. As an alternative to compliance with the bona fide
hedging definition, a CFTC regulation permits the Portfolio to elect to comply
with a different test, under which the aggregate initial margin and premiums
required to establish non-hedging positions in futures contracts and options on
futures will not exceed 5% of the Portfolio's net asset value after taking into
account unrealized profits and losses on such positions and excluding the
in-the-money amount of such options. 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 Internal Revenue Code for
maintaining the qualification of the Fund as a regulated investment company for
Federal income tax purposes (see "Taxes").
The Portfolio will be required, in connection with transactions in futures
contracts and the writing of options on futures, to make margin deposits, which
will be held by the Portfolio's custodian for the benefit of the futures
commission merchant through whom the Portfolio engages in such futures and
options transactions. Cash or liquid high grade debt securities required to be
segregated in connection with a "long" futures position taken by the Portfolio
will also be held by the custodian in a segregated account and will be marked to
market daily.
INTEREST RATE AND CURRENCY SWAPS
The Portfolio will only enter into interest rate swaps on a net basis,
i.e., the two payment streams are netted out with the Portfolio receiving or
paying, as the case may be, only the net amount of the two payments. In
contrast, currency swaps usually involve the delivery of the entire payment
stream in one designated currency in exchange for the entire payment stream in
the other designated currency. Inasmuch as the Portfolio maintains a segregated
account with respect to all interest rate and currency swaps, the Portfolio and
its Investment Adviser believe that such obligations do not constitute senior
securities (as defined in the Investment Company Act of 1940) and, accordingly,
will not treat them as being subject to the Portfolio's borrowing restrictions.
The net amount of the excess, if any, of the Portfolio's obligations over its
entitlements with respect to each interest rate or currency swap will be accrued
on a daily basis and an amount of cash or liquid high grade debt securities
having an aggregate net asset value at least equal to the accrued excess will be
maintained in a segregated account by the Portfolio's custodian. The Portfolio
will not enter into any interest rate or currency swap unless the credit quality
of the unsecured senior debt or the claims-paying ability of the other party
thereto is considered to be investment grade by the Investment Adviser. If there
is a default by the other party to such a transaction, the Portfolio will have
contractual remedies pursuant to the agreements related to the transaction. The
swap market has grown substantially in recent years with a large number of banks
and investment banking firms acting both as principals and as agents utilizing
standardized swap documentation. As a result, the swap market has become
relatively liquid in comparison with the markets for other similar instruments
which are traded in the interbank market.
REVERSE REPURCHASE AGREEMENTS
The Portfolio may enter into reverse repurchase agreements. Under a reverse
repurchase agreement, the Portfolio temporarily transfers possession of a
portfolio instrument to another party, such as a bank or broker-dealer, in
return for cash. At the same time, the Portfolio agrees to repurchase the
instrument at an agreed upon time (normally within seven days) and price, which
reflects an interest payment. The Portfolio could also enter into reverse
repurchase agreements as a means of raising cash to satisfy redemption requests
without the necessity of selling portfolio assets.
When the Portfolio enters into a reverse repurchase agreement, any
fluctuations in the market value of either the securities transferred to another
party or the securities in which the proceeds may be invested would affect the
market value of the Portfolio's assets. As a result, such transactions may
increase fluctuations in the market value of the Portfolio's assets. While there
is a risk that large fluctuations in the market value of the Portfolio's assets
could affect the Fund's net asset value per share, this risk is not
significantly increased by entering into reverse repurchase agreements, in the
opinion of the Investment Adviser. Because reverse repurchase agreements may be
considered to be the practical equivalent of borrowing funds, they constitute a
form of leverage. If the Portfolio reinvests the proceeds of a reverse
repurchase agreement at a rate lower than the cost of the agreement, entering
into the agreement will lower the Fund's yield. While the Investment Adviser
does not consider reverse repurchase agreements to involve a traditional
borrowing of money, reverse repurchase agreements will be included within
"borrowings" contained in the Fund's investment restriction (2) set forth below.
At all times that a reverse repurchase agreement for borrowing purposes is
outstanding, the Portfolio will maintain cash or high grade liquid securities in
a segregated account at its custodian bank with a value at least equal to its
obligation under the agreement. Securities and other assets held in the
segregated account may not be sold while the reverse repurchase agreement is
outstanding, unless other suitable assets are substituted. To the extent that
the Portfolio enters into reverse repurchase agreements for hedging purposes as
described in the Fund's prospectus, the Portfolio will not be required to
maintain the segregated account described above.
PORTFOLIO TURNOVER
The Portfolio cannot accurately predict its portfolio turnover rate, but it
is anticipated that the annual turnover rate will generally not exceed 100%
(excluding turnover of securities having a maturity of one year or less). A 100%
annual turnover rate would occur, for example, if all the securities held by the
Portfolio were replaced in a period of one year. A high turnover rate (such as
100% or more) necessarily involves greater expenses to the Portfolio and may
result in the realization of substantial net short-term capital gains. The
Portfolio may engage in active short-term trading to benefit from yield
disparities among different issues of securities or among the markets for fixed
income securities of different countries, to seek short-term profits during
periods of fluctuating interest rates, or for other reasons. Such trading will
increase the Portfolio's rate of turnover and the incidence of net short-term
capital gain distributions allocated to the Fund by the Portfolio which are
taxable to Fund shareholders as ordinary income.
INVESTMENT RESTRICTIONS
The following 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) Purchase any security (other than securities issued or guaranteed by
the U.S. Government or any of its agencies or instrumentalities) if such
purchase, at the time thereof, would cause 25% or more of the Fund's total
assets (taken at market value) to be invested in the securities of issuers in
any single industry, provided that the electric, gas and telephone utility
industries shall be treated as separate industries for purposes of this
restriction;
(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) Purchase or sell real estate, although it may purchase and sell
securities which are secured by real estate and securities of companies which
invest or deal in real estate;
(6) Purchase or sell physical commodities or futures contracts for the
purchase or sale of physical commodities, provided that the Fund may enter into
all types of futures and forward contracts on currency, securities and
securities, economic and other indices and may purchase and sell options on such
futures contracts; or
(7) Make loans to any person, except by (a) the acquisition of debt
instruments 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 all of its investable assets in an open-end management
investment company with substantially the same investment objective, policies
and restrictions as the Fund.
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 Corporation is
requested to vote on a change in the investment restrictions of the Portfolio,
the Corporation 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
Directors of the Corporation 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, the Fund and the Portfolio may not: (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 Directors of the Corporation or the Trustees of
the Portfolio, or its delegate, determine to be liquid, based upon the trading
markets for the specific security; (b) make short sales of securities or
maintain a short position, unless at all times when a short position is open it
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); (c) 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 Director of the Corporation or is
a member, officer, director or trustee of any investment adviser of the
Corporation 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); (d) purchase oil, gas or
other mineral leases or purchase partnership interests in oil, gas or other
mineral exploration or development programs; (e) invest more than 5% of its
total assets (taken at current value) in the securities of issuers which,
including their predecessors, have been in operation for less than three years;
(f) purchase put or call options on securities if after such purchase more than
5% of its net assets, as measured by the aggregate of the premiums paid for such
options, would be invested in such options; and (g) purchase warrants with a
value in excess of 5% of net assets, or warrants which are not listed on the New
York or American Stock Exchange with a value in excess of 2% of its net assets.
The Portfolio has no current intention during the current year of engaging in
short sales.
In order to permit the sale of shares of the Fund in certain states, the
Fund may make commitments more restrictive than the fundamental 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.
DIRECTORS OR TRUSTEES AND OFFICERS
The Directors and officers of the Corporation and the Trustees and officers
of 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 Director, 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") which is a wholly-owned subsidiary of Eaton Vance Management ("Eaton
Vance"); Eaton Vance's wholly-owned subsidiary, Eaton Vance Distributors, Inc.
("EVD"), the principal underwriter of the Fund; Eaton Vance's parent, Eaton
Vance Corp. ("EVC"); and BMR's and Eaton Vance's trustee, Eaton Vance, Inc.
("EV"). Eaton Vance and EV are both wholly-owned subsidiaries of EVC. Those
Directors and officers who are "interested persons" of the Corporation or those
Trustees and officers who are "interested persons" of the Portfolio, BMR, Eaton
Vance, EVC, EV, or EVD as defined in the 1940 Act, by virtue of their
affiliation with any one or more of the Corporation, the Portfolio, BMR, Eaton
Vance, EVC, EV or EVD are indicated by an asterisk (*).
DIRECTORS OF THE CORPORATION AND TRUSTEES OF THE PORTFOLIO
JAMES B. HAWKES (53), President, Director and Trustee*
Executive Vice President, 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.
LANDON T. CLAY (68), Director and Trustee*
Chairman of BMR, Eaton Vance, EVC and EV and a Director of EVC and EV. Director
or Trustee and officer of various investment companies managed by Eaton Vance
or BMR.
DONALD R. DWIGHT (63), Director and 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), Director and Trustee
Jacob H. Schiff, Professor of Investment Banking, Harvard Business School.
Director or Trustee of various investment companies managed by Eaton Vance or
BMR.
Address: Harvard Business School, Soldiers Field Road, Boston, Massachusetts
02163
NORTON H. REAMER (59), Director and 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), Director and 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), Director and 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 CORPORATION AND THE PORTFOLIO
MARK VENEZIA (45), 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 (49), 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.
JAMES F. ALBAN (33), Assistant Treasurer*
Assistant Vice President of BMR since August 11, 1992 and of Eaton Vance and EV
since January 17, 1992 and employee of Eaton Vance since September 23, 1991.
Tax Consultant and Audit Senior with Deloitte & Touche (1987-1991). Officer of
various investment companies managed by Eaton Vance or BMR. Mr. Alban was
elected Assistant Treasurer of the Fund on December 16, 1991.
MARK P. DOMAN (34), Assistant Vice President*
Regional Representative of Eaton Vance Distributors, Inc. Address: 136 N. Broad
Street, Philadelphia, Pennsylvania 19106
Messrs. Thorndike (Chairman), Hayes and Reamer are members of the Special
Committee of the Board of Directors of the Corporation and the Board of Trustees
of the Portfolio. The Special Committee's functions include a continuous review
of the Corporation's contractual relationship with the administrator, the
Portfolio's contractual relationship with the investment adviser, making
recommendations to the Board regarding the compensation of those Directors and
Trustees who are not members of the Eaton Vance organization, and making
recommendations to the Directors and Trustees regarding candidates to fill
vacancies, as and when they occur, in the ranks of those Directors and Trustees
who are not "interested persons" of the Corporation, the Portfolio, or the Eaton
Vance organization.
Messrs. Treynor (Chairman) and Dwight are members of the Audit Committee of
the Board of Directors of the Corporation and the Board of Trustees of the
Portfolio. The Audit Committee's functions include making recommendations to the
Board regarding the selection of the independent accountants, and reviewing with
such accountants and the Treasurer of the Corporation 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 Corporation.
The fees and expenses of those Directors of the Corporation and of the
Portfolio who are not members of the Eaton Vance organization are paid by the
Fund (and the other series of the Corporation) and the Portfolio, respectively.
During the fiscal year ended October 31, 1994, the Directors of the Corporation
and the Trustees of the Portfolio received the following compensation in their
capacities as Directors of the Corporation and Trustees of the Portfolio, and,
during the year ended December 31, 1994, received the following compensation in
their capacities as Directors or Trustees of the other funds in the Eaton Vance
Fund Complex\1/:
<TABLE>
<CAPTION>
AGGREGATE AGGREGATE RETIREMENT TOTAL COMPENSATION
COMPENSATION COMPENSATION BENEFIT ACCRUED FROM CORPORATION AND
NAME FROM FUND FROM PORTFOLIO FROM FUND COMPLEX FUND COMPLEX
---- ------------ -------------- ----------------- --------------------
<S> <C> <C> <C> <C>
Donald R. Dwight $2,026 $1,576 $8,750 $135,000
Samuel L. Hayes, III 2,005 1,574 8,865 142,500
Norton H. Reamer 1,950 1,548 --0-- 135,000
John L. Thorndike 2,018 1,609 --0-- 140,000
Jack L. Treynor 2,060 1,625 --0-- 140,000
</TABLE>
- ----------
\1/The Eaton Vance Fund Complex consists of 201 registered investment companies
or series thereof.
Trustees of the Portfolio that are not affiliated with the Investment
Adviser may elect to defer receipt of all or a percentage of their annual fees
in accordance with the terms of 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 SHARES
As of January 31, 1995, the Directors and officers of the Corporation, as a
group, owned in the aggregate less than 1% of the outstanding shares of the
Fund. As of January 31, 1995, Merrill Lynch, Pierce, Fenner & Smith, Inc. of New
Brunswick, New Jersey, was the record owner of approximately 42.3% of the
outstanding shares, which were held on behalf of its customers who are the
beneficial owners of such shares, and as to which it had voting power under
certain limited circumstances. To the knowledge of the Corporation, no other
person beneficially owns 5% or more of its outstanding shares of the Fund.
INVESTMENT ADVISER AND ADMINISTRATOR
The Portfolio engages BMR as investment adviser pursuant to an Investment
Advisory Agreement dated March 1, 1994. 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, foreign debt, 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 fee equal to the aggregate of (a) a daily asset based fee computed by
applying the annual asset rate applicable to that portion of the total daily net
assets in each Category as indicated below, plus (b) a daily income based fee
computed by applying the daily income rate applicable to that portion of the
total daily gross income (which portion shall bear the same relationship to the
total daily gross income on such day as that portion of the total daily net
assets in the same Category bears to the total daily net assets on such day) in
each Category as indicated below:
<PAGE>
<TABLE>
<CAPTION>
ANNUAL DAILY
CATEGORY DAILY NET ASSETS ASSET RATE INCOME RATE
-------- ---------------- ---------- -----------
<S> <C> <C> <C>
1 up to $500 million ......................................... 0.275% 2.75%
2 $500 million but less than $1 billion ...................... 0.250% 2.50%
3 $1 billion but less than $1.5 billion ...................... 0.225% 2.25%
4 $1.5 billion but less than $2 billion ...................... 0.200% 2.00%
5 $2 billion but less than $3 billion ........................ 0.175% 1.75%
6 $3 billion and over ........................................ 0.150% 1.50%
</TABLE>
As at October 31, 1994, the Portfolio had net assets of $236,468,766. For
the period from the start of business March 1, 1994 to October 31, 1994, the
Portfolio paid BMR advisory fees of $1,004,670 (equivalent to 0.49% (annualized)
of the Portfolio's average daily net assets for such period). Prior to the close
of business, February 28, 1994, (when the Fund transferred substantially all of
its assets to the Portfolio in exchange for an interest in the Portfolio), the
Fund retained Eaton Vance as its investment adviser under its investment
advisory agreement. As at October 31, 1994, the Fund had net assets of
$233,139,102. For the period November 1, 1993 to March 1, 1994, the Fund paid
Eaton Vance advisory fees of $658,963 (equivalent to 0.54% (annualized) of the
Fund's average daily net assets for such period). For the fiscal year ended
October 31, 1993, the Fund paid Eaton Vance advisory fees of $2,376,432
(equivalent to 0.54% of the Fund's average net assets for such period. Eaton
Vance received advisory fees of $3,598,076 for the fiscal year ending October
31, 1992 (equivalent to 0.55% of Fund's average daily net assets for such
period). The agreement provided that such fees shall be reduced by the amount,
if any, of any contingent deferred sales charge paid to the Fund's Principal
Underwriter on any day on which there exist no Uncovered Distribution Charges of
the Principal Underwriter as calculated under the Fund's Distribution Plan.
A commitment has been made to a state securities authority that Eaton Vance
will take certain actions, if necessary, so that the Fund's expenses will not
exceed expense limitation requirements of such state. The commitment may be
amended or rescinded by Eaton Vance in response to changes in the requirements
of the state or for other reasons.
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.
The Portfolio has also engaged BMR to act as its Administrator under an
Administration Agreement. The Administration Agreement with BMR remains in
effect until February 28, 1996 and shall continue in full force and effect
indefinitely thereafter, but only so long as such continuance is approved at
least annually (i) by the Trustees of the Portfolio and (ii) by the vote of a
majority of those Trustees of the Portfolio who are not interested persons of
the Portfolio or of the Administrator. Under the Administration Agreement, BMR
is obligated to (a) review and supervise the provision of all domestic and
foreign custodial services to the Portfolio, and to make such reports and
recommendations to the Board of Trustees of the Portfolio concerning the
provision of such services as the Board deems appropriate; (b) provide to the
Portfolio certain valuation, legal, accounting and tax assistance and services
in connection with the Portfolio's (i) investments in (A) securities,
obligations and commercial paper that are denominated in foreign currencies or
the European Currency Unit ("ECU"), or that are issued or guaranteed by foreign
entities, (B) certificates of deposit and bankers' acceptances issued or
guaranteed by, or time deposits maintained at, foreign banks or foreign branches
of U.S. banks, and (C) participation interests in loans by U.S. or foreign banks
that are made to foreign borrowers or that are denominated in foreign currencies
or the ECU; and (ii) transactions in derivative instruments, including
instruments indexed to foreign exchange rates, forward foreign currency exchange
contracts, put and call options on foreign currencies, futures contracts and
options on such contracts, and interest rate and currency swaps; and (c) provide
to the Portfolio such other special administrative services as the Board from
time to time shall instruct BMR to furnish under the Administration Agreement.
In return for these special services, the Portfolio pays BMR as compensation
under the Administration Agreement a monthly fee in the amount of .0125%
(equivalent to .15% annually) of the average daily net assets of the Portfolio.
For the period March 1, 1994, to October 31, 1994, the Portfolio paid BMR
administration fees of $284,828.
The Portfolio will be responsible for all costs and expenses not expressly
stated to be payable by BMR under the Administration Agreement. Such costs and
expenses to be borne by the Portfolio include, without limitation, the fees and
expenses of the Portfolio's custodian and transfer agent, including those
incurred for determining the Portfolio's net asset value and keeping the
Portfolio's books; expenses of pricing and valuation services; the cost of
interest certificates; membership dues in investment company organizations;
brokerage commissions and fees; fees and expenses of registering its interests;
expenses of reports to investors, proxy statements, and other expenses of
investor's meetings; insurance premiums; printing and mailing expenses;
interest, taxes and corporate fees; legal and accounting expenses; compensation
and expenses of Trustees not affiliated with BMR; and investment advisory and
administration fees. The Portfolio will also bear expenses incurred in
connection with litigation in which the Portfolio is a party and the legal
obligation the Portfolio may have to indemnify its officers and Trustees with
respect thereto.
As indicated in the Prospectus, Eaton Vance serves as Administrator of the
Fund under an Administrative Services Agreement, but receives no compensation
for providing administrative services to the Fund. Under its agreement with the
Fund, Eaton Vance has been engaged to administer the Fund's affairs, subject to
the supervision of the Directors of the Corporation, 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 Corporation 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 Directors of the Corporation, (xvii) compensation and expenses
of Directors of the Corporation 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 Corporation to indemnify its Directors and officers with
respect thereto. Prior to the close of business, February 28, 1994 (when the
Fund transferred substantially all of its assets to the Portfolio in exchange
for an interest in the Portfolio), the Fund retained Eaton Vance as its
administrator under its Administration Agreement (which is no longer in effect)
for which Eaton Vance received a monthly administration fee at an annual rate of
.15% of the Fund's average daily net assets. For the period November 1, 1994, to
March 1, 1994, and for the fiscal years ended October 31, 1993 and 1992, the
Fund paid Eaton Vance administration fees of $182,735, $642,861 and $989,372,
respectively. Since March 1, 1994, Eaton Vance has continued to serve as the
administrator of the Fund but receives no compensation for these services.
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 January 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.
Hawkes and Otis are officers or Directors of the Corporation and officers or
Trustees of the Portfolio and are members of the EVC, BMR, Eaton Vance and EV
organizations. Messrs. Alban, Venezia, O'Connor and Ms. Sanders are officers of
the Corporation and officers of the Portfolio and are also members of the BMR,
Eaton Vance and EV organizations. Mr. Doman is an officer of the Corporation and
the Portfolio and an employee of EVD. 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 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. Eaton Vance, BMR, EVC 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
Fund 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 custody fees which are competitive within the
industry. The fees for the Portfolio relate to 1) bookkeeping and valuation
services provided at an annual rate, 2) activity charges based upon the volume
of investment related transactions, and 3) reimbursement of out-of-pocket
expenses. These fees are then reduced by a credit for cash balances of the
Portfolio at the custodian equal to 75% of the 91-day, U.S. Treasury Bill
auction rate applied to the Portfolio's average daily collected balances. The
fee for the Fund relates to bookkeeping and valuation services and is based upon
a percentage of the Fund's net assets. 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 the additional examinations by the Portfolio's independent certified
public accountants as called for by such Rule. During the fiscal year ended
October 31, 1994, the Fund paid IBT $139,168 and the Portfolio paid IBT
$191,871.
SERVICE FOR WITHDRAWAL
By a standard agreement, the Corporation's Transfer Agent will send to the
shareholder regular monthly or quarterly payments of any designated amount based
upon the value of the shares held. The checks will be drawn from share
redemptions and hence, although they are a return of principal may give rise to
gain or loss for tax purposes. Income dividends 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) will have to be deposited with the
Transfer Agent. A shareholder may not have a withdrawal plan in effect at the
same time he has authorized Bank Draft 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 IBT, the custodian (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, Washington's Birthday, Good
Friday (a New York Stock Exchange holiday), Memorial Day, Independence Day,
Labor Day, Thanksgiving Day and Christmas Day.
Debt securities (other than mortgage-backed, "pass-through" securities and
short-term obligations maturing in sixty days or less), including listed
securities and securities for which price quotations are available and forward
contracts, will normally be valued on the basis of market valuations furnished
by pricing services. Mortgage-backed "pass-through" securities are valued using
a matrix pricing system which takes into account closing bond valuations, yield
differentials, anticipated prepayments and interest rates. Financial futures
contracts listed on commodity exchanges and exchange-traded options are valued
at closing settlement prices. Over-the-counter options are valued at the mean
between the bid and asked prices provided by dealers. Short-term obligations and
money market securities maturing in sixty days or less are valued at amortized
cost which approximates value. Non-U.S. dollar denominated short-term
obligations maturing in sixty days or less are valued at amortized cost as
calculated in the base currency and translated into U.S. dollars at the current
exchange rate. Investments for which market quotations are unavailable are
valued at fair value using methods determined in good faith by or at the
direction of the Trustees of the Portfolio.
The value of all assets and liabilities expressed in foreign currencies
will be converted into U.S. dollar values at the mean between the buying and
selling rates of such currencies against U.S. dollars last quoted on one of the
principal markets for such currencies. Generally, trading in foreign securities,
derivative instruments and currencies is substantially completed each day at
various times prior to the time the Portfolio calculates its net asset value. If
an event materially affecting the values of such securities, instruments or
currencies occurs between the time such values are determined and the time net
asset value is calculated, such securities, instruments or currencies may be
valued at fair value.
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. The investor's
percentage of the aggregate interest in the Portfolio will then be recomputed as
a percentage equal to the 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.
INVESTMENT PERFORMANCE
The Fund's 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
results. 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 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 30-day period by the
net asset value per share on the last day of the period and annualizing the
resulting figure. Net investment income per share is calculated from the yields
to maturity of all debt obligations held by the Portfolio based on the market
value of such obligations, at the beginning of such period, 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. This 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 Fund Shares" in the prospectus. The
Fund's yield for the 30-day period ended October 31, 1994 was 7.24%.
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 net asset value
per share. The Fund's effective distribution rate is computed by dividing the
distribution rate by the ratio used to annualize the distribution and
reinvesting the resulting amount for a full year on the basis of such ratio. The
effective distribution rate will be higher than the distribution rate because of
the compounding effect of the assumed reinvestment. The Fund's yield is
calculated using a standardized formula, the income component of which is
computed from the yields to maturity of all debt obligations held by the
Portfolio based on the market value of such obligations on the day preceding the
30-day period (with all purchases and sales of securities during such period
included in the income calculation on a settlement date basis), 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 and short-term capital gain actually earned by the Fund during
the month (see "Distributions and Taxes" in the Fund's current Prospectus). The
Fund's distribution rate (calculated on October 31, 1994 and based on the Fund's
monthly distribution paid October 31, 1994) was 8.28%, and the Fund's effective
distribution rate (calculated on the same date and based on the same monthly
distribution) was 8.60%.
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 the period from the start of business,
November 26, 1990 through October 31, 1994 and for the one year period ended
October 31, 1994.
<TABLE>
<CAPTION>
VALUE OF A $1,000 INVESTMENT
VALUE OF INVEST-
MENT AFTER
VALUE OF INVEST- DEDUCT- TOTAL RETURN BEFORE TOTAL RETURN AFTER
MENT BEFORE DE- ING THE DEDUCTING DEDUCTING
DUCTING THE CON- CONTINGENT THE CONTINGENT DEFERRED THE CONTINGENT DEFERRED
TINGENT DEFERRED DEFERRED SALES SALES CHARGE SALES CHARGE<F2>
INVESTMENT INVESTMENT AMOUNT OF SALES CHARGE CHARGE<F2> ------------------------- -----------------------
PERIOD DATE INVESTMENT 10/31/94 10/31/94 CUMULATIVE ANNUALIZED CUMULATIVE ANNUALIZED
--------- --------- ---------- -------- -------- ---------- ---------- ---------- ----------
Life of the
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Fund<F1> 11/26/90 $1,000 $1,113.16 $1,104.87 11.32% 2.76% 10.49% 2.57%
1 Year Ended
10/31/94 10/31/93 $1,000 $ 946.66 $ 902.61 -5.33% -5.33% -9.74% -9.74%
<CAPTION>
PERCENTAGE CHANGES -- 11/26/90-10/31/94
FISCAL NET ASSET VALUE TO NET ASSET VALUE NET ASSET VALUE TO NET ASSET VALUE
YEAR BEFORE DEDUCTING THE CONTINGENT DEFERRED AFTER DEDUCTING THE CONTINGENT DEFERRED
ENDED SALES CHARGE WITH ALL DISTRIBUTIONS REINVESTED SALES CHARGE WITH ALL DISTRIBUTIONS REINVESTED
- ------- ---------------------------------------------- ----------------------------------------------
ANNUAL CUMULATIVE AVERAGE ANNUAL ANNUAL CUMULATIVE AVERAGE ANNUAL
------ ---------- -------------- ------ ---------- --------------
<C> <C> <C> <C> <C> <C> <C>
10/31/91<F1> -- 7.98% -- -- 5.00% --
10/31/92 -1.45% 6.41% 3.27% -6.05% 4.13% 2.12%
10/31/93 10.51% 17.59% 5.68% 5.51% 15.71% 5.10%
10/31/94 -5.33% 11.32% 2.76% -9.74% 10.49% 2.57%
- ----------
<FN>
<F1> Investment operations began on November 26, 1990.
<F2> No contingent deferred sales charge is imposed on shares purchased more
than four years prior to the redemption, shares acquired through the
reinvestment of dividends and distributions and 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>
Past performance is not indicative of future results. Investment return and
principal value will fluctuate; shares, when redeemed, may be worth more or less
than original cost.
The Fund's total return may be compared to the Commodity Research Bureau
Futures Price Index and various domestic, international and global securities
indices. The Fund's total return and comparisons with these indices may be used
in advertisements and in information furnished to present or prospective
shareholders. The Fund's performance may differ from that of other investors in
the Portfolio, including the other investment companies.
From time to time, evaluations of the Fund's performance made by
independent sources, e.g., Lipper Analytical Services, Inc., CDA/Wiesenberger
and Morningstar, Inc., may be used in advertisements and in information
furnished to present or prospective shareholders.
From time to time, information showing the effects of compounding interest
may be included in advertisements and other material furnished to present and
prospective shareholders. Compounding is the process of earning interest 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 percent 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 interest from the
first year, is the compound interest. $1,000 compounded annually at 9 percent
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 that 7 percent grows to $1,967 at
the end of 10 years and $3,870 at the end of 20 years. At 12 percent 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.
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
FEDERAL INCOME TAXES
Each series of Eaton Vance Investment Fund, Inc. is treated as a separate
entity for Federal income tax purposes. The Fund has elected to be treated, has
qualified, and intends to continue to qualify each year as a regulated
investment company 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 to the Fund. The Fund so qualified for its fiscal year ended October 31,
1994. See Notes to Financial Statements. Because the Fund invests substantially
all of 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, each investor's distributive share of the
Portfolio's net taxable (if any) and tax-exempt investment income, net realized
capital gains, and any other items of income, gain, loss, deduction or credit.
For purposes of applying the requirements of the Code regarding qualification as
a regulated investment company, 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 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,
after reduction by any available capital loss carryforwards, and 100% of any
income 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 February 28, 1994, the Fund contributed
substantially all of its assets to the Portfolio in exchange for an interest in
the Portfolio. The Corporation 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. 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 IRS.
The Portfolio's transactions in options, futures contracts and forward
contracts will be subject to special tax rules that may affect the amount,
timing and character of the Fund's 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
periods of Portfolio securities and conversion of short-term into long-term
capital losses. The Portfolio may make certain elections to mitigate adverse
consequences of these tax rules and may have to limit its activities in options,
futures contracts and forward contracts in order to enable the Fund to maintain
its qualification as a regulated investment company.
The Portfolio may be subject to foreign withholding taxes with respect to
income derived from foreign securities. These taxes may be reduced or eliminated
under the terms of an applicable U.S. income tax treaty. Since it is expected
that more than 50% of the value of the total assets of the Fund taking into
account its allocable share of the Portfolio's total assets, at the close of any
taxable year will consist of securities issued by foreign corporations, the Fund
may be eligible to pass through to shareholders their proportionate shares of
foreign taxes paid by the Fund, with the result that shareholders would include
such proportionate shares in income subject to Federal income tax and would be
entitled to take a foreign tax credit or deduction for such foreign taxes,
subject to certain limitations. Certain foreign exchange gains and losses
realized by the Fund will be treated as ordinary income and losses. Certain uses
of foreign currency, foreign currency options, futures and forward contracts,
and interest rate and currency swaps, and investment by the Portfolio in 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 regulated
investment company and/or avoid imposition of a tax on the Fund.
The Portfolio's investment in zero coupon, deferred interest and payment in
kind securities will cause it to realize income prior to the receipt of cash
payments with respect to these securities. Such income will be allocated daily
to interests in the Portfolio in order to enable the Fund to distribute its
proportionate share of this income and avoid a tax payable by the Fund. The
Portfolio may be required to liquidate portfolio securities that it might
otherwise have continued to hold in order to generate cash that the Fund may
withdraw from the Portfolio for subsequent distribution to Fund shareholders.
The appropriate tax accounting for dollar rolls is also uncertain in some
respects, and the Portfolio's use of such rolls may accordingly be limited in
order to preserve the Fund's qualification as a regulated investment company.
Investments in lower-rated or unrated securities may present special tax
issues for the Portfolio and hence for the Fund to the extent actual or
anticipated defaults may be more likely with respect to such securities. Tax
rules are not entirely clear about issues such as when the Portfolio may cease
to accrue interest, original issue discount, or market discount; when and to
what extent deductions may be taken for bad debts or worthless securities; how
payments received on obligations in default should be allocated between
principal and income; and whether exchanges of debt obligations in a workout
context are taxable.
Distributions of taxable net investment income, the excess of net
short-term capital gains over net long-term capital losses 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. Only a small portion, if any, of such
distributions of net investment income made by the Fund may qualify for the
dividends-received deduction for corporations, subject to applicable limitations
under the Code. Distributions of the excess of net long-term capital gains over
net short-term capital losses (including any capital losses 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
in additional shares and regardless of the length of time their shares of the
Fund have been held.
Any loss realized upon the redemption or exchange of shares 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. All or a portion of any loss realized upon a taxable disposition of
Fund shares may be disallowed under "wash sale" rules if other shares of the
Fund are purchased (whether through the reinvestment of distributions or
otherwise) within 30 days before or after such disposition.
Special tax rules apply to Individual Retirement Accounts ("IRAs") and
other retirement plans, and persons investing through such plans should consult
their tax advisers for more information. The deductibility of such contributions
may be restricted or eliminated for particular shareholders.
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
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 Fund had qualified to do business in the Commonwealth of Pennsylvania
and, therefore, was subject to the Pennsylvania foreign franchise and corporate
net income tax in respect of its business activities in Pennsylvania. The amount
of such taxes was $28,080 for the fiscal year ended October 31, 1994. In 1995,
however, the Fund took actions to cease doing business in Pennsylvania and does
not intend to pay Pennsylvania foreign franchise and corporate net income tax in
Pennsylvania. Accordingly, Fund shareholders should consult their tax advisers
regarding the applicability of Pennsylvania local and county personal property
taxes.
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 are borne by the Principal
Underwriter. The fees and expenses of qualifying and registering and maintaining
qualifications and registrations of the Fund and its shares under Federal and
state securities laws are borne by the Fund. 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 Distribution
Plan relating to such payments are included in the Distribution Agreement. The
Distribution Agreement is renewable annually by the Corporation's Board of
Directors (including a majority of its Directors who are not interested persons
of the Corporation 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 Directors 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 its agent in
repurchasing shares and paid the Principal Underwriter $9,317.50 for the fiscal
year ended October 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.
In calculating daily the amount of uncovered distribution charges,
distribution charges will include the aggregate amount of sales commissions and
distribution fees theretofore paid plus the aggregate amount of sales
commissions and distribution fees which the Principal Underwriter is entitled to
be paid under the Plan since its inception. Payments theretofore paid 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.
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 amounts paid to the Principal Underwriter, including
contingent deferred sales charges 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.
The amount of uncovered distribution charges of the Principal Underwriter
is computed daily to determine whether an amount is to be accrued on such day
and whether any contingent deferred sales charge collected from a redeeming
shareholder is payable to the Fund or to the Principal Underwriter. 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 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.
For the fiscal year ended October 31, 1994, the Fund made sales commission
payments to the Principal Underwriter aggregating $2,311,030, representing .75%
of the Fund's daily net assets for such year, which amount was used by the
Principal Underwriter to partially defray sales commissions aggregating $132,608
paid during such period by the Principal Underwriter to Authorized Firms on
sales of shares of the Fund. As at October 31, 1994 the outstanding uncovered
distribution charges of the Principal Underwriter calculated under the Plan
amounted to approximately $17,473,000 (which amount was equivalent to 7.5% of
the Fund's net assets on such day). During such period contingent deferred sales
charges aggregating approximately $1,547,900 were imposed on early redeeming
shareholders and paid to the Principal Underwriter, which amount was used by the
Principal Underwriter to partially defray such sales commissions.
The Plan also authorizes the Fund to make payments of service fees. During
the fiscal year ending October 31, 1994, the Fund made service fee payments
aggregating $665,173 to the Principal Underwriter, of which $663,446 was paid to
Authorized Firms and the balance was retained by the Principal Underwriter.
Pursuant to Rule 12b-1, the Plan has been approved by the Fund's initial
sole shareholder (Eaton Vance) and by the Board of Directors of the Corporation,
including the Directors of the Corporation who are not interested persons of the
Corporation and who have no direct or indirect financial interest in the
operation of the Plan or any agreements related to the Plan. Under the Plan the
President or a Vice President of the Corporation shall provide to the Directors
for their review, and the Directors 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 Directors in
the manner described above. So long as the Plan is in effect, the selection and
nomination of the Directors who are not interested persons of the Corporation
shall be committed to the discretion of the Directors who are not such
interested persons.
The Directors believe that the Plan has been a significant factor in the
growth of the Fund's assets, resulting in increased investment flexibility and
advantages which have benefited and will continue to 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 Directors 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 executing firm, are made by BMR.
BMR is also responsible for the execution of transactions for all other accounts
managed by it.
BMR places the portfolio security transactions of the Portfolio and of all
other accounts managed by it for execution with many firms. BMR uses its best
efforts to obtain execution of portfolio security transactions at prices which
are advantageous to the Portfolio and at reasonably competitive spreads or (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
nature and character of the market for the security, the confidentiality, speed
and certainty of effective execution required for the transaction, the general
execution and operational capabilities of the executing firm, the reputation,
reliability, experience and financial condition of the firm, the value and
quality of the services rendered by the firm in this and other transactions, and
the reasonableness of the spread or commission, if any. The debt securities and
obligations purchased and sold by the Portfolio are generally traded in the
domestic or foreign over-the-counter markets on a net basis (i.e. without
commission) through broker-dealers and banks acting for their own account rather
than as brokers, or otherwise involve transactions directly with the issuer of
such obligations. Such firms attempt to profit from such transactions by buying
at the bid price and selling at the higher asked price of the market for such
obligations, and the difference between the bid and asked price is customarily
referred to as the spread. The Portfolio may also purchase debt securities from
domestic and foreign underwriters, the cost of which may include undisclosed
fees and concessions to the underwriters. Transactions in foreign obligations
usually involve the payment of fixed brokerage commissions when executed on
foreign securities exchanges, which commissions are generally higher than those
in the United States. Although spreads or commissions on portfolio security
transactions will, in the judgment of BMR, be reasonable in relation to the
value of the services provided, spreads or commissions exceeding those which
another firm might charge may be paid to firms who were selected to execute
transactions on behalf of the Portfolio and BMR's other clients 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
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; effecting securities transactions and performing functions
incidental thereto (such as clearance and settlement); and the "Research
Services" referred to in the next paragraph.
It is a common practice of the investment advisory industry and of 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 which execute portfolio transactions for the clients of such advisers and
from third parties with which such broker-dealers have arrangements. Consistent
with this practice, BMR 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 and
recommendations as to the purchase and sale of securities and other portfolio
transactions, financial, industry and trade publications, news and information
services, pricing and quotation equipment and services, and research oriented
computer hardware, software, data bases and services. Any particular Research
Service obtained through a broker-dealer may be used by BMR in connection with
client accounts other than those accounts which pay commissions to such
broker-dealer. Any such Research Service may be broadly useful and of value to
BMR in rendering investment advisory services to all or a significant portion of
its clients, or may be relevant and useful for the management of only one
client's account or of a few clients' accounts, or may be useful for the
management of merely a segment of certain clients' accounts, regardless of
whether any such account or accounts paid commissions to the broker-dealer
through which such Research Service was obtained. The advisory fee paid by the
Portfolio is not reduced because BMR receives such Research Services. BMR
evaluates the nature and quality of the various Research Services obtained
through broker-dealer firms and attempts to allocate sufficient 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 and
execute portfolio security transactions at advantageous prices and at reasonably
competitive spreads or commission rates, BMR is authorized to consider as a
factor in the selection of any 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 purchasing
municipal obligations 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 Directors of the Corporation and the
Trustees of the Portfolio that the benefits available from the BMR organization
outweigh any disadvantage that may arise from exposure to simultaneous
transactions.
For the period from the start of business, March 1, 1994 to October 31,
1994, the Portfolio paid foreign brokerage commissions on its portfolio security
transactions amounting to $6,875. For the period November 1, 1993 to February
28, 1994, the Fund paid foreign brokerage commissions on its portfolio security
transactions amounting to $6,300. During the fiscal year ended October 31, 1993,
the Fund paid no foreign brokerage commissions on its portfolio security
transactions; for the fiscal year ended October 31, 1992 the Fund paid foreign
brokerage commissions on its portfolio security transactions amounting to
$22,397.
OTHER INFORMATION
The Corporation was incorporated under Maryland law on October 4, 1990, as
amended, as the successor to a Massachusetts business trust organized on August
21, 1990. The Corporation (formerly, Eaton Vance Short-Term Global Income Fund,
Inc.) changed its name to Eaton Vance Investment Fund, Inc. on August 17, 1993.
The Fund changed its name from "EV Marathon Short-Term Strategic Income Fund" to
"EV Marathon Strategic Income Fund" on March 1, 1995. The Fund changed its name
from "Eaton Vance Short-Term Global Income Fund" to "EV Marathon Short-Term
Strategic Income Fund" on June 27, 1994. Eaton Vance, pursuant to its agreement
with the Corporation, 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 Corporation's Articles of Incorporation (the "Articles") provide
indemnification for the Directors and officers of the Corporation, but nothing
in the Articles protects a Director 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. The Director may amend the Articles without the vote or consent of
shareholders to add additional series of shares. As permitted by Maryland law,
there will normally be no meetings of shareholders for the purpose of electing
Directors unless and until such time as less than a majority of the Directors of
the Corporation holding office have been elected by shareholders. In such event,
the Directors then in office will call a shareholders' meeting for the election
of some or all Directors. Except for the foregoing circumstances and unless
removed by action of the shareholders in accordance with the Corporation's
by-laws, the Directors shall continue to hold office and may appoint successor
Directors. The 1940 Act provides that the Directors of the Corporation shall
promptly call a meeting of shareholders for the purpose of voting upon a
question of removal of a Director when requested in writing so to do by the
record holders of not less than 10 per centum of the outstanding shares.
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 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 right to redeem shares of the Fund can be suspended and the payment of
the redemption price deferred when the Exchange is closed (other than for
customary weekend and holiday closings), during periods when trading on the
Exchange is restricted as determined by the 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.
INDEPENDENT ACCOUNTANTS
Coopers & Lybrand L.L.P., One Post Office Square, Boston, Massachusetts
02109, are the independent accountants for 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.
<PAGE>
- --------------------------------------------------------------------------------
EV MARATHON SHORT-TERM STRATEGIC INCOME FUND
FINANCIAL STATEMENTS
<TABLE>
- ------------------------------------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
October 31, 1994
<S> <C> <C>
ASSETS:
Investment in Short-Term Income Portfolio (Portfolio), at value (Note 1A) $236,461,350
Receivable for Fund shares sold 29,431
Deferred organization expenses (Note 1D) 28,895
------------
Total assets $236,519,676
LIABILITIES:
Dividends payable $2,132,041
Payable for Fund shares redeemed 1,142,793
Accrued expenses 105,740
----------
Total liabilities 3,380,574
------------
NET ASSETS for 28,132,865 shares of beneficial interest outstanding $233,139,102
============
SOURCES OF NET ASSETS:
Paid-in capital $261,270,342
Accumulated net realized loss on investment transactions
(computed on the basis of identified cost) (13,407,461)
Unrealized depreciation of investments from Portfolio
(computed on the basis of identified cost) (11,539,354)
Distributions in excess of net investment income (3,184,425)
------------
Total net assets $233,139,102
============
NET ASSET VALUE AND REDEMPTION PRICE (NOTE 7) PER SHARE
($233,139,102 -:- 28,132,865 shares of beneficial interest) $8.29
=====
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS
<PAGE>
FINANCIAL STATEMENTS (CONTINUED)
<TABLE>
- ---------------------------------------------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
Year Ended October 31, 1994
<S> <C> <C>
INVESTMENT INCOME (NOTE 1B):
Interest income $ 11,120,424
Interest income allocated from Portfolio 17,513,377
Expenses allocated from Portfolio (1,564,171)
------------
Total investment income $ 27,069,630
Expenses --
Investment adviser fee (Note 5) $ 658,963
Administration fee (Note 5) 182,735
Compensation of Directors not members of the
Investment Adviser's organization (Note 5) 7,797
Distribution fees (Note 6) 2,930,689
Custodian fees (Note 5) 139,168
Transfer and dividend disbursing agent fees 290,324
Printing and postage 121,091
Legal and accounting services 80,151
Registration fees 29,006
Amortization of organization expenses (Note 1D) 24,195
Miscellaneous 166,782
------------
Total expenses 4,630,901
------------
Net investment income $ 22,438,729
------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized gain (loss) (identified cost basis) (including net loss due to
foreign currency rate fluctuations of $1,021,764)--
Investment security transactions $ 3,647,055
Financial futures 192,256
Written option transactions 1,366,812
Foreign currency and forward foreign currency exchange contracts (5,400,828)
Net realized loss from Portfolio (identified cost basis) (including net gain
due to foreign currency rate fluctuations of $134,438) --
Investment security transactions (8,009,611)
Financial futures (4,990,274)
Foreign currency and forward foreign currency exchange contracts (10,645,867)
------------
Net realized loss on investment transactions $(23,840,457)
Change in unrealized depreciation of investments (16,738,089)
------------
Net realized and unrealized loss on investments $(40,578,546)
------------
Net decrease in net assets resulting from operations $(18,139,817)
============
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS
8
<PAGE>
<TABLE>
- --------------------------------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
<CAPTION>
Year Ended Year Ended
October 31, 1994 October 31, 1993
---------------- ----------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
From operations--
Net investment income $ 22,438,729 $ 33,245,421
Net realized loss on investments (23,840,457) (41,312,667)
Change in unrealized (depreciation) appreciation of investments (16,738,089) 50,268,446
-------------- --------------
Net (decrease) increase in net assets from operations $ (18,139,817) $ 42,201,200
-------------- --------------
Distributions to shareholders (Note 2)--
From net investment income $ (11,940,608) $ (29,736,774)
From tax return of capital (10,103,292) --
-------------- --------------
Total distributions $ (22,043,900) $ (29,736,774)
-------------- --------------
Transactions in shares of capital stock (Note 3)--
Proceeds from sales of shares $ 5,937,845 $ 10,869,320
Net asset value of shares issued to shareholders in payment of
distributions declared 10,738,599 14,923,919
Cost of shares redeemed (124,580,918) (190,283,766)
-------------- --------------
Decrease in net assets from capital stock transactions $(107,904,474) $(164,490,527)
-------------- --------------
Net decrease in net assets $(148,088,191) $(152,026,101)
NET ASSETS:
At beginning of year 381,227,293 533,253,394
-------------- --------------
At end of year (including distributions in excess of net investment
income of $3,184,425 and undistributed net investment income
of $43,918,231, respectively) $ 233,139,102 $ 381,227,293
============= =============
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS
<PAGE>
FINANCIAL STATEMENTS (CONTINUED)
<TABLE>
- --------------------------------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
<CAPTION>
Year Ended October 31,
--------------------------------------------------------
1994++++ 1993 1992 1991
-------- --------- --------- --------
<S> <C> <C> <C> <C>
NET ASSET VALUE -- Beginning of year $ 9.410 $ 9.120 $ 9.920 $ 10.000
-------- -------- -------- --------
INCOME FROM OPERATIONS:
Net investment income $ 0.645 $ 0.239 $ 0.816 $ 0.786
Net realized and unrealized
(loss) gain on investments (1.135) 0.683 (0.943) (0.022)
-------- -------- -------- --------
Total (loss) income from operations $ (0.490) $ 0.922 $ (0.127) $ 0.764
-------- -------- -------- --------
LESS DISTRIBUTIONS:
From net investment income $ (0.343) $ (0.632) $ (0.673) $ (0.786)
From tax return of capital (0.290) -- -- --
From paid-in capital -- -- -- (0.058)
-------- -------- -------- --------
Total distributions $ (0.633) $ (0.632) $ (0.673) $ (0.844)
-------- -------- -------- --------
NET ASSET VALUE -- End of year $ 8.290 $ 9.410 $ 9.120 $ 9.920
======== ======== ======== ========
TOTAL RETURN (5.33%) 10.51% (1.45%) 7.97%
RATIOS/SUPPLEMENTAL DATA (to average
daily net assets):
Expenses 2.00%* 1.99% 1.95% 2.11%
Net investment income 7.24% 7.53% 8.20% 8.24%
PORTFOLIO TURNOVER** 55% 55% 56% 20%
NET ASSETS AT END OF PERIOD (000's omitted) $233,139 $381,227 $533,253 $589,182
<FN>
* Includes the Fund's share of Short-Term Income Portfolio's allocated
expenses for the period from March 1, 1994, to October 31, 1994.
** Portfolio Turnover represents the rate of portfolio activity for the period
while 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.
+ Computed on an annualized basis.
++ For the period from the start of operations, November 26, 1990, to October
31, 1991.
+++ The per share amount is not in accord with the net realized and unrealized
gain for the period due to the timing of the sales of Fund shares and the
amount of per-share realized and unrealized gains and losses at such time.
++++ Per share amounts have been calculated using the monthly average share
method which more approximately presents the per share data for the period,
since the use of the undistributed method does not accord with the results
of operations.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS
</TABLE>
10
<PAGE>
NOTES TO FINANCIAL STATEMENTS
- ----------------------------------------------------------------------------
(1) SIGNIFICANT ACCOUNTING POLICIES
EV Marathon Short-Term Strategic Income Fund (the Fund), formerly Eaton Vance
Short-Term Global Income Fund, is a non-diversified series of Eaton Vance
Investment Fund, Inc. (the Corporation), which was incorporated under Maryland
law on October 4, 1990 (as Eaton Vance Short-Term Global Income Fund, Inc.). The
Fund is registered under the Investment Company Act of 1940, as amended, as an
open-end management investment company. On March 1, 1994, the Fund transferred
substantially all of its investable assets to the Short-Term Income Portfolio
(the Portfolio). The Fund invests all of its investable assets in interests in
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 (99.9% at October 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 determined in accordance with generally accepted accounting
practices. Prior to the Fund's investment in the Portfolio, the Fund held its
investments directly. For investments held directly, interest income was
determined on the basis of interest accrued and discount earned, adjusted for
amortizationof discount when required for federal income tax purposes.
C. FEDERAL TAXES -- The Fund's policy is to comply with the provisions of the
Internal Revenue Code applicable to regulated investment companies and to
distribute to shareholders each year all of its taxable income, including any
net realized gain on investments. Accordingly, no provision for federal income
or excise tax is necessary. At October 31, 1994, the Fund, for federal income
tax purposes, had a capital loss carryover of $14,102,503, which will reduce the
Fund's taxable income arising from future net realized gains on investments, 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 October 31, 1999 ($291,348), October
31, 2000 ($3,750,599), October 31, 2001 ($4,630,516) and October 31, 2002
($5,430,040).
D. DEFERRED ORGANIZATION EXPENSES -- Costs incurred by the Fund in connection
with its organization, including registration costs, are being amortized on the
straight-line basis over five years.
E. DISTRIBUTION COSTS -- For book purposes, commissions paid on the sale of
shares and other distribution costs are charged to operations. For tax purposes,
commissions paid are charged to paid-in capital (Notes 6 and 10).
F. OTHER -- Investment transactions are accounted for on the date the
investments are purchased or sold.
11
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- -------------------------------------------------------------------------------
(2) DISTRIBUTIONS TO SHAREHOLDERS
The net investment income of the Fund is determined daily and substantially all
of the net investment income so determined is declared daily as a dividend to
shareholders of record at the time of declaration. Distributions are paid
monthly. Distributions of allocated realized capital gains, if any, are made at
least annually. Shareholders may reinvest capital gain distributions in
additional shares of the Fund at the net asset value as of the ex-dividend
date. Distributions are paid in the form of additional shares or, at the
election of the shareholder, in cash. The Fund distinguishes between
distributions on a tax basis and a financial reporting basis. Generally accepted
accounting principles require that only distributions in excess of tax basis
earnings and profits be reported in the financial statements as a return of
capital. The Fund incurred a tax return of capital in the amount of $10,103,292
for the year ended October 31, 1994, primarily due to realized losses on foreign
currency and forward foreign currency exchange contracts being classified as
ordinary losses for federal income tax purposes. Differences in the recognition
or classification of income between the financial statements and tax earnings
and profits which result in over-distributions for financial statement purposes
only are classified as distributions in excess of net investment income or
accumulated net realized gains. Permanent differences between book and tax
accounting relating to distributions are reclassified to paid-in capital.
- --------------------------------------------------------------------------------
(3) CAPITAL STOCK
<TABLE>
At October 31, 1994, there were one billion shares of $0.0001 par value capital
stock authorized. Transactions in capital stock were as follows:
<CAPTION>
Year Ended October 31,
-------------------------------
1994 1993
-------------------------------
<S> <C> <C>
Sales 655,615 1,174,404
Issued to shareholders electing to receive payment
of distributions in capital stock 1,221,688 1,615,743
Redemptions (14,266,256) (20,733,797)
------------ ------------
Net decrease (12,388,953) (17,943,650)
============ ============
</TABLE>
- --------------------------------------------------------------------------------
(4) INVESTMENT TRANSACTIONS
On March 1, 1994, the Fund transferred substantially all of its assets to the
Portfolio in exchange for an interest in the Portfolio. Increases and decreases
in the Fund's investment in the Portfolio for the period from March 1, 1994, to
October 31, 1994 aggregated $5,049,104 and $102,164,879, respectively. Purchases
and sales of investments, other than short-term obligations, during the period
from November 1, 1993, to March 1, 1994, aggregated $188,305,634 and
$196,797,543, respectively.
12
<PAGE>
- -------------------------------------------------------------------------------
(5) INVESTMENT ADVISER FEE AND OTHER TRANSACTIONS WITH AFFILIATES
Prior to March 1, 1994 (when the Fund transferred substantially all of its
assets to the Portfolio in exchange for an interest in the Portfolio), the Fund
retained Eaton Vance Management (EVM) as its investment adviser. The investment
adviser fee was earned by EVM as compensation for management and investment
advisory services rendered to the Fund. The fee was based upon a percentage of
average daily net assets plus a percentage of gross investment income (i.e.,
income other than gains from the sales of investments). For the period from
November 1, 1993, to March 1, 1994, the fee was equivalent to 0.54% (annualized)
of the Fund's average net assets for such period and amounted to $658,963. For
the period from November 1, 1993 to March 1, 1994, an administration fee,
computed at an effective annual rate of 0.15% of average net assets was also
paid to EVM for overall administrative services and general office facilities.
Such fee amounted to $182,735 for the period. Since March 1, 1994, Eaton Vance
has continued to serve as the administrator of the Fund, but currently receives
no compensation for these services.
The Portfolio has engaged Boston Management and Research (BMR), a subsidiary of
EVM, to render investment advisory services. See Note 2 of the Portfolio's Notes
to Financial Statements which are included elsewhere in this report.
Except as to Trustees of the Fund and the Portfolio who are not members of EVM's
organization, officers and Trustees receive remuneration for their services to
the Fund out of such investment adviser fee. Investors Bank & Trust Company
(IBT), an affiliate of EVM, serves as custodian of the Fund and the Portfolio.
Pursuant to the respective custodian agreements, IBT receives a fee reduced by
credits which are determined based on the average cash balances the Fund or the
Portfolio maintains with IBT. Certain of the officers and Directors of the Fund
and Portfolio are officers and directors/trustees of the above organizations
(Note 6).
- -------------------------------------------------------------------------------
6) DISTRIBUTION PLAN
The Fund has adopted a distribution plan (the "Plan") pursuant to Rule 12b-1
under the Investment Company Act of 1940. The Plan requires the Fund to pay the
Principal Underwriter, Eaton Vance Distributors, Inc. (EVD), equal to 1/365th of
0.75% of the Fund's daily net assets, for providing ongoing distribution
services and facilities to the Fund. The Fund will automatically discontinue
payments to EVD during any period in which there are no Outstanding Uncovered
Distribution Charges, which are equivalent to the sum of (i) 4.50% 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 7) and daily
amounts theretofore paid to EVD. The amount payable to EVD with respect to each
day is accrued on such day as a liability of the Fund and, accordingly, reduces
the Fund's net assets. The Fund accrued $2,311,030 to EVD for the year ended
October 31, 1994 representing 0.75% (annualized) of average daily net assets. At
October 31, 1994, the amount of Uncovered Distribution Charges of EVD calculated
under the Plan was approximately $17,473,000.
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
Directors of the Corporation have implemented the Plan by authorizing the Fund
13
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
(6) DISTRIBUTION PLAN (CONTINUED)
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. Provision for
service fee payments during the year ended October 31, 1994 amounted to
$619,659. Service fee payments will be 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 EVD, and as
such are not subject to automatic discontinuance when there are no outstanding
Uncovered Distribution Charges of EVD.
Certain of the officers of the Fund and Directors of the Corporation are
officers or directorsof EVD.
- --------------------------------------------------------------------------------
(7) CONTINGENT DEFERRED SALES CHARGE
A contingent deferred sales charge (CDSC) is imposed on any redemption of Fund
shares made within four 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 3% in the
first year of redemption after purchase, declining one-half of one percentage
point in the second and third years and one percentage point in the fourth and
fifth years. 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 credited to the Fund. EVD received approximately
$1,547,900 of CDSC paid by shareholders for the year ended October 31, 1994.
- --------------------------------------------------------------------------------
(8) LINE OF CREDIT
Prior to March 1, 1994, the Fund participated with other funds managed by EVM in
a $120 million unsecured line of credit agreement with a bank. The line of
credit consisted of a $20 million committed facility and a $100 million
discretionary facility. Interest was charged to each fund based on its
borrowings at an amount above either the bank's adjusted certificate of deposit
rate, a variable adjusted certificate of deposit rate, or a federal funds
effective rate. In addition, a fee computed at an annual rate of 1C4 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 at the
end of each quarter. The Fund did not have anysignificant borrowings or
allocated fees during the period from November 1, 1993, to March 1, 1994. Since
March 1, 1994, the Portfolio participates in the line of credit agreement (See
note 3 to the Portfolio's financial statements.)
14
<PAGE>
- -------------------------------------------------------------------------------
(9) FINANCIAL INSTRUMENTS
The Fund regularly traded 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 included written options,
forward foreign currency exchange contracts and financial futures contracts and
may have involved, to a varying degree, elements of risk in excess of the
amounts recognized for financial statement purposes.The notional or contractual
amounts of these instruments represent the investment the Fund had in particular
classes of financial instruments and does not necessarily represent the amounts
potentially subject to risk. The measurement of the risks associated with these
instruments is meaningful only when all related and offsetting transactions are
considered. A summary of obligations under these financial instruments for the
period from November 1, 1993, to March 1, 1994, was as follows:
WRITTEN OPTION TRANSACTIONS
<TABLE>
Transactions in written options for the period from November 1, 1993 to March 1,
1994 were as follows:
<CAPTION>
Principal Amounts
of Contracts
(000 omitted) Premiums
----------------- ----------
<S> <C> <C>
Outstanding, beginning of period $ 25,000 $ 192,256
Options written: 0 0
Options exercised: 0 0
Options expired:
Canadian Dollars (25,000) (192,256)
-------- ---------
Outstanding, end of period $ 0 $ 0
======== =========
</TABLE>
- --------------------------------------------------------------------------------
(10) SUBSEQUENT EVENT
A recent Internal Revenue Service ruling requires that sales commissions paid by
the Fund pursuant to its Distribution Plan be expensed for tax purposes (rather
than charged to paid-in capital as the Fund has done in the past). The Fund
changed its tax accounting practice to conform to the ruling on December 1,
1994. The change will have no effect on the Fund's current yield or total
return.
15
<PAGE>
- --------------------------------------------------------------------------------
REPORT OF INDEPENDENT ACCOUNTANTS
- --------------------------------------------------------------------------------
TO THE BOARD OF DIRECTORS OF EATON VANCE INVESTMENT FUND, INC. AND SHAREHOLDERS
OF EV MARATHON SHORT-TERM STRATEGIC INCOME FUND:
We have audited the accompanying statement of assets and liabilities of EV
Marathon Short-Term Strategic Income Fund, a series of Eaton Vance Investment
Fund, Inc. as of October 31, 1994, the related statement of operations for the
year then ended, the statement of changes in net assets for the two years then
ended and the financial highlights for each of the three years in the period
ended October 31, 1994, and for the period from the start of operations,
November 26, 1990, to October 31, 1991. 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 audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of EV
Marathon Short-Term Strategic Income Fund, a series of Eaton Vance Investment
Fund, Inc., as of October 31, 1994, the results of its operations for the year
then ended, the changes in its net assets for the two years then ended and the
financial highlights for the three years ended October 31, 1994, and for the
period from the start of operations, November 26, 1990, to October 31, 1991, in
conformity with generally accepted accounting principles.
COOPERS & LYBRAND L.L.P.
Boston, Massachusetts
December 15, 1994
16
<PAGE>
<TABLE>
- ---------------------------------------------------------------------------------------------------
SHORT-TERM INCOME PORTFOLIO
PORTFOLIO OF INVESTMENTS
OCTOBER 31, 1994
- ---------------------------------------------------------------------------------------------------
<CAPTION>
PRINCIPAL U.S.$ VALUE
- ---------------------------------------------------------------------------------------------------
BONDS & NOTES --95.8%
- ---------------------------------------------------------------------------------------------------
<S> <C> <C>
ARGENTINA, 10.2% U.S. Dollars
Argentina Discount Bond, (Brady), 5.8125%, 3/31/23
(identified cost, $26,948,500) 35,400,000 $24,204,750
-----------
AUSTRALIA, 7.7% Australian Dollars
Commonwealth Bank of Australia, 13.75%, 9/21/99 5,000,000 $ 4,147,322
Commonwealth Bank of Australia, 11%, 10/16/01 9,000,000 6,743,712
State Bank of New South Wales, 9%, 9/17/02 10,000,000 6,717,363
State Electricity -- Victoria, 9.25%, 9/18/03 1,000,000 666,169
-----------
Total Australia (identified cost, $19,968,579) $18,274,566
-----------
BRAZIL, 6.9% U.S. Dollars
Brazil IDU Bond, 6.0625%, 1/1/01 8,820,000 $ 7,232,400
Brazil Eligible Interest Bond, 6.6875%, 4/15/06 6,000,000 4,050,000
Brazil Discount Bond, (Brady), 6.6875%, 4/15/24 7,800,000 5,060,250
-----------
Total Brazil (identified cost, $16,076,219) $16,342,650
-----------
COSTA RICA, 3.2% U.S. Dollars
Costa Rica Interest Series B, (Brady), 5.8125%, 5/21/05 1,536,075 $ 1,305,664
Costa Rica Principal Series A, (Brady), 6.25%, 5/21/10 10,000,000 6,250,000
-----------
Total Costa Rica (identified cost, $8,113,334) $ 7,555,664
-----------
CZECH REPUBLIC, 2.7% Czech Korunas
CEZ, 14.375%, 1/27/01
(identified cost, $6,022,084) 159,710,000 $ 6,393,511
-----------
DENMARK, 2.5% Danish Krone
Denmark Government, 9%, 11/15/00
(identified cost, $6,155,561) 35,000,000 $ 5,969,976
-----------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS
17
<PAGE>
<TABLE>
PORTFOLIO OF INVESTMENTS (CONTINUED)
- -----------------------------------------------------------------------------------------------
<CAPTION>
PRINCIPAL U.S.$ VALUE
- -----------------------------------------------------------------------------------------------
<S> <C> <C>
FINLAND, 13.9% Finnish Markka
Republic of Finland, 11%, 1/15/99 40,000,000 $ 9,115,400
Finnish Housing Fund, 11%, 3/15/01 15,000,000 3,378,870
Finnish Housing Fund, 10.5%, 6/15/01 82,000,000 18,079,442
Finnish Housing Fund, 10.75%, 3/15/02 10,000,000 2,250,420
------------
Total Finland (identified cost, $33,294,037) $ 32,824,132
------------
ICELAND, 2.7% Icelandic Kornur
Nordic Investment Bank, 6.75%, 11/29/96
(identified cost, $6,842,285) 400,000,000 $ 6,449,200
------------
Ireland, 3.4% Irish Pound
Irish Government, 9.25%, 7/11/03
(identified cost, $8,244,835) 5,000,000 $ 8,154,504
------------
NEW ZEALAND, 13.9% New Zealand Dollars
Abbey National, 0%, 10/4/96 6,900,000 $ 3,573,617
New Zealand Government, 8%, 7/15/98 24,000,000 14,339,720
New Zealand Government, 10%, 3/15/02 23,000,000 14,853,788
------------
Total New Zealand (identified cost, $32,101,740) $ 32,767,125
------------
PHILIPPINES, 5.5% U.S. Dollars
Philippine Par Bond, (Brady), 5.25%, 12/1/17 5,000,000 $ 3,093,750
Morgan Guaranty Trust Philippine Peso --
Linked Certificate of Deposit, 0%, 12/29/94 3,000,000 3,105,117
Morgan Guaranty Trust Philippine Peso --
Linked Certificate of Deposit, 0%, 1/30/95 7,000,000 6,840,568
------------
Total Philippines (identified cost, $13,052,649) $ 13,039,435
------------
THAILAND, 4.4% Thailand Baht
Finance One Certificate of Deposit, 0%, 2/1/95 50,000,000 $ 1,955,600
Deutsche Bank Certificate of Deposit, 8.75%, 9/19/96 60,000,000 2,402,820
ABN -- Amro Bank Hong Kong -- Certificate of Deposit,
9/1%, 8/5/97 150,000,000 6,003,450
------------
Total Thailand (identified cost, $10,347,639) $ 10,361,870
------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
<PAGE>
<TABLE>
- -----------------------------------------------------------------------------------------------
<CAPTION>
PRINCIPAL U.S.$ VALUE
- -----------------------------------------------------------------------------------------------
<S> <C> <C>
UNITED STATES, 18.8%
CORPORATE BONDS & NOTES, 7.8%
ACME Metals Inc, Sr. Sec. Notes, 12.5%, 8/1/02 500,000 $ 500,000
Agricultural Minerals & Chemicals, Sr. Notes,
10.75%, 9/30/03 1,000,000 1,020,000
American Restaurant Group, Sr. Sec. Notes, 12%, 9/15/98 1,000,000 950,000
Anchor Glass, Sr. Notes, 9.875%, 12/15/08 1,000,000 910,000
Applied Extrusion, Sr. Notes, 11.5%, 4/1/02 1,000,000 1,010,000
Cablevision Industries, Debs., 9.25%, 4/1/08 1,000,000 890,000
Dayton Hudson Medium Term Note, 9.5%, 6/10/15 665,000 707,961
Dayton Hudson Medium Term Note, 9.52%, 6/10/15 350,000 373,326
Dayton Hudson Medium Term Note, 9.35%, 6/16/20 600,000 642,632
Corporate Express Inc., Sr. Sub. Notes, 9.125%, 3/15/04 500,000 460,000
Flagstar Corp., Sr. Sub. Debs., 11.25%, 11/1/04 1,000,000 850,000
General Electric Capital Corp., 8.625%, 6/15/08 250,000 257,398
General Electric Capital Corp., 8.30%, 9/20/09 2,000,000 2,064,140
ITT Corp., 8.5%, 10/15/01 500,000 503,085
ITT Corp., 8.55%, 6/15/09 270,000 278,620
Jorgensen Earle, Sr. Notes, 10.75%, 3/1/00 1,000,000 1,000,000
Moran Transportation, 1st Mortgage Bond,
11.75%, 7/15/04 1,000,000 1,010,000
NL Industries Inc., Sr. Sec. Disc. Notes,
13% (0% until 10/15/98), 10/15/05 1,000,000 620,000
Purina Mills, Sr. Sub. Notes, 10.25%, 9/1/03 1,000,000 970,000
Stone Container Corp., Sr. Sub. Debs.,
10.75%, 10/1/02 500,000 492,500
Waters Corporation, Sr. Sub. Notes, 12/75%, 9/30/04 1,000,000 1,010,000
Weirton Steel Corp., Sr. Notes, 10.875%, 10/15/99 1,000,000 1,012,500
Westpoint Stevens, Sr. Sub. Notes, 9.375%, 12/15/05 1,000,000 893,750
------------
Total United States Corporate Bonds & Notes
(identified cost, $18,638,699) $ 18,425,912
------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS
<PAGE>
<TABLE>
PORTFOLIO OF INVESTMENTS (CONTINUED)
- -----------------------------------------------------------------------------------------------
<CAPTION>
PRINCIPAL U.S.$ VALUE
- -----------------------------------------------------------------------------------------------
<S> <C> <C>
MORTGAGE PASS-THROUGHS, 9.4%
Federal Home Loan Mortgage Corp. Participation Certificates:
4.75%, with various maturities to 2003 297,818 $ 286,513
5.5%, with various maturities to 2019 440,010 420,505
7.75%, with maturity at 2008 325,912 319,148
12.5%, with various maturities to 2013 846,179 941,330
12.75%, with maturity at 2013 246,797 274,504
13.25%, with various maturities to 2013 399,342 446,957
13.5%, with maturity at 2019 881,344 1,002,419
14%, with various maturities to 2014 3,003,600 3,436,008
14.5%, with maturity at 2010 156,580 180,394
------------
$ 7,307,778
------------
Federal National Mortgage Association
Mortgage-Backed Securities:
4.75%, with maturity at 1999 226,001 $ 215,706
5%, with maturity at 2003 308,598 289,423
5.5%, with various maturities to 2012 379,231 363,590
12.75%, with maturity at 2014 283,416 319,111
13%, with various maturities to 2015 2,309,967 2,588,536
13.25%, with maturity at 2014 310,685 351,335
13.5%, with various maturities to 2015 1,896,080 2,145,240
14.75%, with various maturities to 2012 4,303,974 5,048,653
------------
$ 11,321,594
------------
Government National Mortgage Association:
6.5%, with various maturities to 2002 2,100,081 $ 2,009,157
8.25%, with maturity at 2008 677,545 686,045
13.5%, with various maturities at 2014 798,000 916,814
------------
$ 3,612,016
------------
Total Mortgage Pass-Throughs $ 22,241,388
------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS
<PAGE>
<TABLE>
- -----------------------------------------------------------------------------------------------
<CAPTION>
PRINCIPAL U.S.$ VALUE
- -----------------------------------------------------------------------------------------------
<S> <C> <C>
UNITED STATES TREASURY BOND, 1.6%
U.S. Treasury Bond, 11.75%, 2/15/01+
(identified cost, $3,862,188) 3,000,000 $ 3,621,738
------------
Total United States (identified cost, $44,973,069) $ 44,289,038
------------
TOTAL BONDS & NOTES (IDENTIFIED COST, $232,140,531) $226,626,421
------------
- -----------------------------------------------------------------------------------------------
OPTIONS PURCHASED BY FUND -- 0.1%
- -----------------------------------------------------------------------------------------------
OPTION TO DELIVER/RECEIVE, STRIKE PRICE, EXPIRATION MONTH:
Swedish Krona
Swedish Government Bond, 10.25%, 5/05/03/SEK,
92.094, November 1994 (premium paid $292,982) 100,000,000 $ 8,036
------------
- -----------------------------------------------------------------------------------------------
SHORT-TERM OBLIGATIONS -- 2.8%
- -----------------------------------------------------------------------------------------------
Banque National De Paris, Euro Time-Deposit
Cayman Islands, 4.75%, 11/1/94 5,600,000 $ 5,600,000
Postipanki -- N.Y., Cayman Time Deposit, 4.75%, 11/1/94 1,000,000 1,000,000
Salomon Brothers Inc. Repurchase Agreement, 4.75%,
dated 10/31/94, 11/01/94 90,000 90,000
------------
Total Short-Term Obligations, at amortized cost $ 6,690,000
------------
Total Investments (identified cost, $239,123,513), 98.7% $233,324,457
OTHER ASSETS, LESS LIABILITIES, 1.3% 3,144,309
------------
NET ASSETS, 100% $236,468,766
============
<FN>
+ Security pledged as collateral on financial futures contracts.
SEK -- Swedish Krona
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS
21
<PAGE>
<TABLE>
- ----------------------------------------------------------------------------------------------------------------------------
FINANCIAL STATEMENTS
- ----------------------------------------------------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
OCTOBER 31, 1994
<S> <C> <C>
ASSETS:
Investments, at value (Note 1A) (identified cost, $239,123,513) $ 233,324,457
Cash 395
Foreign currency, at value (cost, $2,046,864) 2,081,276
Receivable for investments sold 7,610,593
Interest receivable 6,649,563
Deferred organization expenses (Note 1J) 20,392
---------------
Total assets $ 249,686,676
LIABILITIES:
Payable for investments purchased $ 6,859,384
Payable for forward foreign currency exchange contracts 6,272,443
Payable for daily variation margin on financial futures contracts 45,153
Accrued expenses 40,930
--------------
Total liabilities 13,217,910
---------------
NET ASSETS applicable to investors' interest in Portfolio $ 236,468,766
===============
SOURCES OF NET ASSETS:
Net proceeds from capital contributions and withdrawals $ 248,008,101
Unrealized depreciation of investments (computed on the basis of
identified cost) (11,539,335)
---------------
Total $ 236,468,766
===============
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS
22
<PAGE>
<TABLE>
- --------------------------------------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
For the period from the start of business, March 1, 1994, to October 31, 1994
<S> <C> <C>
INVESTMENT INCOME (NOTE 1B):
Interest income -- $ 17,513,766
Expenses --
Investment adviser fee (Note 2) $ 1,004,670
Administration fee (Note 2) 284,828
Compensation of Directors not members of the
Investment Adviser's organization (Note 2) 4,895
Custodian fee (Note 2) 191,871
Legal and accounting services 49,964
Registration costs 1,265
Amortization of organization expenses (Note 1J) 3,161
Miscellaneous 23,552
-------------
Total expenses 1,564,206
---------------
Net investment income $ 15,949,560
---------------
REALIZED AND UNREALIZED LOSS ON INVESTMENTS:
Net realized loss (identified cost basis) (including net gain due to foreign
currency rate fluctuations of $134,438) --
Investment transactions $ (8,009,774)
Financial futures (4,990,449)
Foreign currency and forward foreign currency exchange contracts (10,646,036)
-------------
Net realized loss on investments $ (23,646,259)
Unrealized depreciation of investments (7,159,575)
---------------
Net realized and unrealized loss of investments $ (30,805,834)
---------------
Net decrease in net assets resulting from operations $ (14,856,274)
===============
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS
23
<PAGE>
<TABLE>
<CAPTION>
FINANCIAL STATEMENTS (CONTINUED)
- -----------------------------------------------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS
For the period from the start of business, March 1, 1994, to October 31, 1994
<S> <C>
INCREASE (DECREASE) IN NET ASSETS:
From operations --
Net investment income $ 15,949,560
Net realized loss on investments (23,646,259)
Unrealized depreciation of investments (7,159,575)
--------------
Net decrease in net assets resulting from operations $ (14,856,274)
--------------
Capital transactions --
Contributions $ 353,394,561
Withdrawals (102,169,541)
--------------
Increase in net assets resulting from capital transactions $ 251,225,020
--------------
Total increase in net assets $ 236,368,746
NET ASSETS:
At beginning of period 100,020
--------------
At end of period $ 236,468,766
==============
- -----------------------------------------------------------------------------------------------
SUPPLEMENTARY DATA
For the period from the start of business, March 1, 1994, to October 31, 1994
RATIOS (as a percentage of average net assets)
Expenses 0.82%+
Net investment income 8.41%+
PORTFOLIO TURNOVER 71%
+ Computed on an annualized basis
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS
<PAGE>
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
1) SIGNIFICANT ACCOUNTING POLICIES
Short-Term Income Portfolio (the Portfolio) is registered under the Investment
Company Act of 1940 as a non-diversified open-end investment company which was
organized as a trust under the laws of the State of New York in 1992. The
Declaration of Trust permits the Trustees to issue beneficial interests in the
Portfolio. Investment operations began on March 1, 1994, with the acquisition of
net assets of $348,433,258 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 -- Debt securities (other than mortgage-backed,
"pass-through," securities and short-term obligations maturing in sixty days or
less), including listed securities and securities for which price quotations are
available and forward contracts, will normally be valued on the basis of market
valuations furnished by pricing services. Mortgage backed, "pass through"
securities are valued using a matrix pricing system which takes into account
closing bond valuations, yield differentials, anticipated prepayments and
interest rates. Financial futures contracts listed on commodity exchanges and
exchange-traded options are valued at closing settlement price. Short-term
obligations and money-market securities maturing in sixty days or less are
valued at amortized cost which approximates value. Non-U.S. dollar denominated
short-term obligations are valued at amortized cost as calculated in the base
currency and translated into U.S. dollars at the current exchange rate.
Investments for which market quotations are unavailable are valued at fair value
using methods determined in good faith by or at the direction of the Trustees.
B. INCOME -- Interest income is determined on the basis of interest accrued and
discount earned, adjusted for amortization of discount when required for federal
income tax purposes.
C. GAINS AND LOSSES FROM SECURITY TRANSACTIONS -- For book purposes, gains and
losses are not recognized until disposition. For federal tax purposes, the Fund
is subject to special tax rules that may affect the amount, timing, and
character of gains recognized on certain of the Portfolio's investments. The
Portfolio has elected, under Section 1092 of the Internal Revenue Code, to
utilize mixed straddle accounting for certain designated classes of activities
involving domestic options and domestic financial futures contracts in
determining recognized gains and losses. Under this method, Section 1256
positions (financial futures contracts and options on investments or financial
futures contracts) and non-Section 1256 positions (bonds, etc.) are
marked-to-market on a daily basis resulting in the recognition of taxable gains
and losses on a daily basis. Such gains or losses are categorized as short-term
or long-term based on aggregation rules provided in the Code.
D. INCOME TAXES -- The Portfolio is treated as a partnership for federal tax
purposes. No provision is made by the Portfolio for federal or state taxes on
any taxable income of the Portfolio because each investor in the Portfolio is
ultimately responsible for the payment of any taxes. Since some of the
Portfolio's investors are regulated investment companies that invest all or
substantially all of their assets in the Portfolio, the Portfolio normally must
satisfy the applicable source of income and diversification requirements (under
the Code) in order for its investors to satisfy them. The Portfolio will
allocate at least annually among its investors each investor's distributive
share of the Portfolio's net investment income, net realized capital gains, and
any other items of income, gain, loss, deduction or credit.
E. 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.
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
Subsequent payments are made or received by the Portfolio ("margin maintenance")
each day, dependent on the daily fluctuations in the value of the underlying
security, and are recorded for book purposes as unrealized gains or losses by
the Portfolio. The Portfolio's investment in financial futures contracts is
designed only to hedge against anticipated future changes in interest or
currency exchange rates. Should interest or currency exchange rates move
unexpectedly, the Portfolio may not achieve the anticipated benefits of the
financial futures contracts and may realize a loss. If the Portfolio enters into
a closing transaction, the Portfolio will realize, for book purposes, a gain or
loss equal to the difference between the value of the financial futures contract
to sell and financial futures contract to buy.
F. FOREIGN CURRENCY TRANSLATION -- Investment valuations, other assets, and
liabilities initially expressed in foreign currencies are converted each
business day into U.S. dollars based upon current exchange rates. Purchases and
sales of foreign investment securities and income and expenses are converted
into U.S. dollars based upon currency exchange rates prevailing on the
respective dates of such transactions. Recognized gains and losses on investment
transactions attributable to foreign currency rates are recorded for financial
statement purposes as net realized gains and losses on investments. That portion
of unrealized gains and losses on investments that result from fluctuations in
foreign currency exchange rates are not separately disclosed.
G. WRITTEN OPTIONS -- The Portfolio may write call or put options for which
premiums are received and are recorded as liabilities, and are subsequently
adjusted to the current value of the options written. Premiums received from
writing options which expire are treated as realized gains. Premiums received
from writing options which are exercised or are closed are offset against the
proceeds or amount paid on the transaction to determine the realized gain or
loss. If a put option is exercised, the premium reduces the cost basis of the
securities purchased by the Portfolio. The Portfolio as a writer of an option
may have no control over whether the underlying securities may be sold (call) or
purchased (put) and as a result bears the market risk of an unfavorable change
in the price of the securities underlying the written option.
H. FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS -- The Portfolio may enter into
forward foreign currency exchange contracts for the purchase or sale of a
specific foreign currency at a fixed price on a future date. Risks may arise
upon entering these contracts from the potential inability of counterparties to
meet the terms of their contracts and from movements in the value of a foreign
currency relative to the U.S. dollar. The Portfolio will enter into forward
contracts for hedging purposes as well as non-hedging purposes. The forward
foreign currency exchange contracts are adjusted by the daily exchange rate of
the underlying currency and any gains or losses are recorded for financial
statement purposes as unrealized until such time as the contracts have been
closed or offset.
I. REVERSE REPURCHASE AGREEMENTS -- The Portfolio may enter into reverse
repurchase agreements. Under such an agreement, the Portfolio temporarily
transfers possession, but not ownership, of a security to a counterparty, in
return for cash. At the same time, the Portfolio agrees to repurchase the
security at an agreed-upon price and time in the future. The Portfolio may enter
into reverse repurchase agreements for temporary purposes, such as to fund
redemptions, or for use as hedging instruments where the underlying security is
foreign denominated. As a form of leverage, reverse repurchase agreements may
increase the risk of fluctuation in the market value of the Portfolio's assets
or in its yield. Liabilities to counterparties under reverse repurchase
agreements are recognized in the statement of assets and liabilities at the same
time at which cash is received by the Fund. The securities underlying such
agreements continue to be treated as owned by the Fund and remain in the
Portfolio of investments. Interest charged on amounts borrowed by the Portfolio
under reverse repurchase agreements is accrued daily and offset against interest
income for financial statement purposes.
26
<PAGE>
- --------------------------------------------------------------------------------
J. DEFERRED ORGANIZATION EXPENSE -- Costs incurred by the Portfolio in
connection with its organization are being amortized on the straight-line basis
over five years.
K. OTHER -- Investment transactions are accounted for on the date the
investments are purchased or sold.
- --------------------------------------------------------------------------------
(2) INVESTMENT ADVISER FEE AND OTHER TRANSACTIONS WITH AFFILIATES
The investment adviser fee is earned by Boston Management and Research (BMR), a
wholly-owned subsidiary of Eaton Vance Management (EVM), as compensation for
management and investment advisory services rendered to the Portfolio. The fee
is based upon a percentage of average daily net assets plus a percentage of
gross investment income (i.e., income other than gains from the sale of
investments). Such percentages are reduced as average daily net assets exceed
certain levels. For the period from the start of business, March 1, 1994, to
October 31, 1994, the fee was equivalent to0.49% (annualized) of the Portfolio's
average net assets for such period and amounted to $1,004,670. An administration
fee, computed at an effective annual rate of 0.15% of average daily net assets
was also paid to BMR for administrative services and office facilities. Such fee
amounted to $284,828 for the period from the start of business, March 1, 1994,
to October 31, 1994.
Except for Trustees of the Portfolio who are not members of EVM's or BMR's
organization, officers and Trustees receive remuneration for their services to
the Portfolio out of such investment adviser fee. 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 of the Portfolio and Directors of the
Corporation are officers and directors/trustees of the above organizations.
- --------------------------------------------------------------------------------
(3) LINE OF CREDIT
The Portfolio participates with other portfolios and funds managed by BMR or EVM
in a $120 million unsecured line of credit agreement with a bank. The line of
credit consists of a $20 million committed facility and a $100 million
discretionary facility. Borrowings will be made by the Portfolio solely to
facilitate the handling of unusual and/or unanticipated short-term cash
requirements. Interest is charged to each portfolio or fund based on its
borrowings at an amount above either the bank's adjusted certificate of deposit
rate, a variable adjusted certificate of deposit rate, or a federal funds
effective rate. In addition, a fee computed at an annual rate of 1/4 of 1% on
the $20 million committed facility and on the daily unused portion of the $100
million discretionary facility is allocated among the participating portfolios
and funds at the end of each quarter. The Portfolio did not have any significant
borrowings or allocated fees during the period from March 1, 1994, to October
31, 1994.
27
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
(4) INVESTMENTS
<TABLE>
The Portfolio invests primarily in foreign debt securities and U.S. Government
securities, the aggregate of which have a dollar weighted average maturity of
not more than three years. The ability of the issuers of the debt securities to
meet their obligations may be affected by economic developments in a specific
industry or country. Purchases and sales of investments, other than short- term
obligations, for the period from the start of business, March 1, 1994, to
October 31, 1994, were as follows:
<S> <C>
Purchases --
Investments (non-U.S. Government) $186,217,365
U.S. Government Securities --
------------
$186,217,365
============
Sales --
Investments (non-U.S. Government) $215,246,119
U.S. Government Securities 30,195,867
------------
$245,441,986
============
</TABLE>
- --------------------------------------------------------------------------------
(5) FINANCIAL INSTRUMENTS
The Portfolio regularly trades in financial instruments with off-balance sheet
risk in the normal course of its investing activities to assist in managing
exposure to various market risks. These financial instruments include written
options, forward foreign currency exchange contracts and financial futures
contracts and may involve, to a varying degree, elements of risk in excess of
the amounts recognized for financial statement purposes.
The notional or contractual amounts of these instruments represent the
investment the Portfolio has in particular classes of financial instruments and
does not necessarily represent the amounts potentially subject to risk. The
measurement of the risks associated with these instruments is meaningful only
when all related and offsetting transactions are considered.
<TABLE>
A summary of obligations under these financial instruments at October 31, 1994
is as follows:
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS
<CAPTION>
Sales
- ----
In Exchange Net Unrealized
Settlement For (in U.S. Appreciation
Date Deliver Dollars) (Depreciation)
- -------------- ------------------------------ --------------- ----------------
<S> <C> <C> <C> <C>
11/14/94-2/22/95 Belgian Franc 1,667,765,401 $ 48,538,463 $ (5,249,752)
11/03/94 Deutsche Mark 8,200,456 5,203,698 (233,405)
11/30/94-1/11/95 Finnish Markka 122,453,197 24,585,183 (1,890,521)
6/15/95 Japanese Yen 1,500,000,000 14,943,216 (849,578)
--------------- ----------------
$ 93,270,560 $ (8,223,256)
=============== ================
</TABLE>
28
<PAGE>
- --------------------------------------------------------------------------------
(5) FINANCIAL INSTRUMENTS (CONTINUED)
<TABLE>
<CAPTION>
Purchases
- ---------
Deliver Net Unrealized
Settlement (in United Appreciation
Date In Exchange for States Dollars) (Depreciation)
- ------------------- ----------------------------------- ---------------- --------------
<S> <C> <C> <C> <C>
12/8/94-12/21/94 Australian Dollar 14,364,306 $ 10,608,752 $ 34,039
11/30/94-12/29/94 Canadian Dollar 26,439,186 19,185,278 364,334
11/3/94-1/23/95 Deutsche Mark 18,321,265 12,209,152 (54,837)
2/6/95-3/13/95 Indonesian Rupiah 37,000,000,000 16,365,499 284,794
1/20/95 Indian Rupee 252,200,000 8,000,000 23,236
11/15/94-11/30/94 Italian Lira 26,578,254,451 16,294,212 898,737
1/30/95 Japanese Yen 324,000,000 3,367,108 (781)
3/6/95 Singapore Dollar 13,300,000 8,886,810 211,811
11/14/94-12/28/94 Thai Baht 550,000,000 21,811,572 189,480
--------------- --------------
$ 116,728,383 $ 1,950,813
=============== ==============
</TABLE>
<TABLE>
<CAPTION>
Futures Contracts
Net Unrealized
Appreciation
Expiration Date Contracts Position (Depreciation)
- ------------------- ----------------------------------- ---------- --------------
<S> <C> <C> <C>
12/94 50 U.S. 30 year Bond Futures Short $ 201,562
12/94 40 U.S. 10 year Bond Futures Short 86,250
12/94 390 U.S. 5 year Bond Futures Short 833,407
12/94 300 Canadian 10 year Bond Futures Long (418,954)
12/94 90 Australian 10 year Bond Futures Long (159,713)
12/94 45 10 year Oat Bond Futures Short 23,836
--------------
$ 566,388
==============
</TABLE>
At October 31, 1994, the Portfolio had sufficient cash and/or securities to
cover margin requirements on open futures contracts.
WRITTEN OPTION TRANSACTIONS
- --------------------------------------------------------------------------------
(6) FEDERAL INCOME TAX BASIS OF INVESTMENTS
The cost and unrealized appreciation/depreciation in value of the investments
owned at October 31, 1994, as computed on a federal income tax basis, were as
follows:
<TABLE>
<S> <C>
Aggregate cost $ 238,409,103
===============
Gross unrealized depreciation $ 9,511,403
Gross unrealized appreciation 4,426,757
---------------
Net unrealized depreciation $ 5,084,646
===============
</TABLE>
29
<PAGE>
- --------------------------------------------------------------------------------
REPORT OF INDEPENDENT ACCOUNTANTS
- --------------------------------------------------------------------------------
TO THE TRUSTEES AND INVESTORS OF SHORT-TERM INCOME PORTFOLIO:
We have audited the accompanying statement of assets and liabilities of
Short-Term Income Portfolio, including the portfolio of investments, as of
October 31, 1994, the related statements of operations, changes in net assets
and supplementary data for the period from March 1, 1994 (start of business) to
October 31, 1994. 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
audit.
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 supplementary data are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. Our
procedures included confirmation of securities owned as of October 31, 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 supplementary data referred to
above present fairly, in all material respects, the financial position of
Short-Term Income Portfolio as of October 31, 1994, the results of its
operations, changes in its net assets and the supplementary data for the period
from March 1, 1994 (start of business) to October 31, 1994, in conformity with
generally accepted accounting principles.
COOPERS & LYBRAND L.L.P.
Boston, Massachusetts
December 15, 1994
<PAGE>
APPENDIX A
DESCRIPTION OF SECURITIES RATINGS\1/
DESCRIPTION OF MOODY'S INVESTORS SERVICE, INC.'S CORPORATE BOND RATINGS:
AAA: Bonds which are rated Aaa are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as
"gilt-edged". Interest payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various protective elements are
likely to change, such changes as can be visualized are most unlikely to impair
the fundamentally strong position of such issues.
AA: Bonds which are rated Aa are judged to be of high quality by all standards.
Together with the Aaa group they comprise what are generally known as high grade
bonds. They are rated lower than the best bonds because margins of protection
may not be as large as in Aaa securities or fluctuations of protective elements
may be of greater amplitude or there may be other elements present which make
the long-term risk appear somewhat larger than in Aaa securities.
A: Bonds which are rated A possess many favorable investment attributes and are
to be considered as upper medium grade obligations. Factors giving security to
principal and interest are considered adequate, but elements may be present
which suggest a susceptibility to impairment sometime in the future.
BAA: Bonds which are rated Baa are considered as medium grade obligations,
(i.e., they are neither highly protected nor poorly secured). Interest payments
and principal security appear adequate for the present, but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
BA: Bonds which are rated Ba are judged to have speculative elements; their
future cannot be considered as well assured. Often the protection of interest
and principal payments may be very moderate and thereby not well safe-guarded
during both good and bad times over the future. Uncertainty of position
characterizes bonds in this class.
B: Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
CAA: Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal
or interest.
CA: Bonds which are rated Ca represent obligations which are speculative in a
high degree. Such issues are often in default or have other marked
shortcomings.
C: Bonds which are rated C are the lowest rated class of bonds and issues so
rated can be regarded as having extremely poor prospects of ever attaining any
real investment standing.
NOTE: Moody's applies numerical modifiers, 1, 2 and 3 in each generic rating
classification from Aa through B in its corporated bond rating system. The
modifier 1 indicates that the security ranks in the higher end of its generic
rating category; the modifier 2 indicates a mid-range ranking; and the modifier
3 indicates that the issue ranks in the lower end of its generic rating
category.
SHORT-TERM DEBT
Moody's short-term debt ratings are opinions of the ability of issuers to repay
punctually promissory obligations not having an original maturity in excess of
one year.
Issuers rated PRIME-1 or P-1 (or supporting institutions) have a superior
ability for repayment of senior short-term debt obligations. Prime-1 or P-1
repayment ability will often be evidenced by many of the following
characteristics:
-- Leading market positions in well established industries.
-- High rates of return on funds employed.
-- Conservative capitalization structure with moderate reliance on debt and
ample asset protection.
-- Broad margins in earnings coverage of fixed financial charges and high
internal cash generation.
-- Well established access to a range of financial markets and assured
sources of alternate liquidity.
Issuers rated PRIME-2 or P-2 (or supporting institutions) have a strong ability
for repayment of senior short-term debt obligations. This will normally be
evidenced by many of the characteristics cited above but to a lesser degree.
Earnings trends and coverage ratios, while sound, may be more subject to
variation. Capitalization characteristics, while still appropriate, may be more
affected by external conditions. Ample alternate liquidity is maintained.
DESCRIPTION OF STANDARD & POOR'S RATINGS GROUP CORPORATE BOND RATINGS:
INVESTMENT GRADE
AAA: Debt rated AAA has the highest rating assigned by S&P's to a debt
obligation. Capacity to pay interest and repay principal is extremely strong.
AA: Debt rated AA has a very strong capacity to pay interest and repay principal
and differs from the higher rated issues only in small degree.
A: Debt rated A has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than bonds in higher rated categories.
BBB: Debt rated BBB is regarded as having an adequate capacity to pay interest
and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
bonds in this category than for bonds in higher rated categories.
SPECULATIVE GRADE
Debt rated BB, B, CCC, CC, and C is regarded as having predominantly speculative
characteristics with respect to capacity to pay interest and repay principal. BB
indicates the least degree of speculation and C the highest. While such debt
will likely have some quality and protective characteristics, these are
outweighed by large uncertainties or major exposures to adverse conditions.
BB: Debt rated BB has less near-term vulnerability to default than other
speculative issues. However, it faces major ongoing uncertainties or exposure to
adverse business, financial, or economic conditions which could lead to
inadequate capacity to meet timely interest and principal payments. The BB
rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied BBB- rating.
B: Debt rated B has a greater vulnerability to default but currently has the
capacity to meet interest payments and principal repayments. Adverse business,
financial, or economic conditions will likely impair capacity or willingness to
pay interest and repay principal.
The B rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied BB or BB- rating.
CCC: Debt rated CCC has a currently identifiable vulnerability to default, and
is dependent upon favorable business, financial, and economic conditions to meet
timely payment of interest and repayment of principal. In the event of adverse
business, financial, or economic conditions, it is not likely to have the
capacity to pay interest and repay principal.
The CCC rating category is also used for debt subordinated to senior debt that
is assigned an actual or implied B or B- rating.
CC: The rating CC is typically applied to debt subordinated to senior debt
which is assigned an actual or implied CCC debt rating.
C: The rating C is typically applied to debt subordinated to senior debt which
is assigned an actual or implied CCC- debt rating. The C rating may be used to
cover a situation where a bankruptcy petition has been filed, but debt service
payments are continued.
C1: The Rating C1 is reserved for income bonds on which no interest is being
paid.
D: Debt rated D is in payment default. The D rating category is used when
interest payments or principal payments are not made on the date due even if the
applicable grace period has not expired, unless Standard & Poor's believes that
such payments will be made during such grace period. The D rating also will be
used upon the filing of a bankruptcy petition if debt service payments are
jeopardized.
PLUS (+) OR MINUS (-): The ratings from AA to CCC may be modified by the
addition of a plus or minus sign to show relative standing within the major
rating categories.
NR: Bonds may lack a S&P's rating because no public rating has been requested,
because there is insufficient information on which to base a rating, or because
S&P's does not rate a particular type of obligation as a matter of policy.
COMMERCIAL PAPER
A: S&P's commercial paper rating is a current assessment of the likelihood of
timely payment of debt considered short-term in the relevant market.
A-1: This highest category indicates that the degree of safety regarding timely
payment is strong. Those issues determined to possess extremely strong safety
characteristics are denoted with a plus (+) sign designation.
A-2: Capacity for timely payment on issues with this designation is
satisfactory. However, the relative degree of safety is not as high as for
issues designated "A-1".
A-3: Issues carrying this designation have adequate capacity for timely payment.
They are, however, more vulnerable to the adverse effects of changes in
circumstances than obligations carrying the higher designations.
FITCH INVESTORS SERVICE, INC.
INVESTMENT GRADE BOND RATINGS
AAA: Bonds considered to be investment grade and of the highest credit quality.
The obligor has an exceptionally strong ability to pay interest and repay
principal, which is unlikely to be affected by reasonably foreseeable events.
AA: Bonds considered to be investment grade and of very high credit quality. The
obligor's ability to pay interest and repay principal is very strong, although
not quite as strong as bonds rated "AAA". Because bonds rated in the "AAA" and
"AA" categories are not significantly vulnerable to foreseeable future
developments, short-term debt of these issuers is generally rated "F- 1+".
A: Bonds considered to be investment grade and of high credit quality. The
obligors ability to pay interest and repay principal is considered to be strong,
but may be more vulnerable to adverse changes in economic conditions and
circumstances than bonds with higher ratings.
BBB: Bonds considered to be investment grade and of satisfactory credit quality.
The obligor's ability to pay interest and repay principal is considered to be
adequate. Adverse changes in economic conditions and circumstances, however, are
more likely to have adverse impact on these bonds, and therefore, impair timely
payment. The likelihood that the ratings of these bonds will fall below
investment grade is higher than for bonds with higher ratings.
HIGH YIELD BOND RATINGS
BB: Bonds are considered speculative. The obligor's ability to pay interest and
repay principal may be affected over time by adverse economic changes. However,
business and financial alternatives can be identified which could assist the
obligor in satisfying its debt service requirements.
B: Bonds are considered highly speculative. While bonds in this class are
currently meeting debt service requirements, the probability of continued timely
payment of principal and interest reflects the obligor's limited margin of
safety and the need for reasonable business and economic activity throughout the
life of the issue.
CCC: Bonds have certain identifiable characteristics which, if not remedied,
may lead to default. The ability to meet obligations requires an advantageous
business and economic environment.
CC: Bonds are minimally protected. Default in payment of interest and/or
principal seems probable over time.
C: Bonds are in imminent default in payment of interest or principal.
DDD, DD, AND D: Bonds are in default of interest and/or principal payments. Such
bonds are extremely speculative and should be valued on the basis of their
ultimate recovery value in liquidation or reorganization of the obligor. "DDD"
represents the highest potential for recovery on these bonds, and"D" represents
the lowest potential for recovery.
PLUS (+) OR MINUS (-): The ratings from AA to C may be modified by the addition
of a plus or minus sign to indicate the relative position of a credit within the
rating category.
NR: Indicates that Fitch does not rate the specific issue.
CONDITIONAL: A conditional rating is premised on the successful completion of
a project or the occurrence of a specific event.
INVESTMENT GRADE SHORT-TERM RATINGS
Fitch's short-term ratings apply to debt obligations that are payable on demand
or have original maturities of generally up to three years, including commercial
paper, certificates of deposit, medium-term notes, and municipal and investment
notes.
F-1+: Exceptionally Strong Credit Quality. Issues assigned this rating are
regarded as having the strongest degree of assurance for timely payment.
F-1: Very Strong Credit Quality. Issues assigned this rating reflect an
assurance of timely payment only slightly less in degree than issues rated "F-
1+".
F-2: Good Credit Quality. Issues assigned this rating have a satisfactory
degree of assurance for timely payment, but the margin of safety is not as
great as the "F-1+" and "F-1" categories.
F-3: Fair Credit Quality. Issues assigned this rating have characteristics
suggesting that the degree of assurance for timely payment is adequate, however,
near-term adverse changes could cause these securities to be rated below
investment grade.
DUFF & PHELPS
INVESTMENT GRADE BOND RATINGS
AAA: Highest credit quality. The risk factors are negligible, being only
slightly more than for risk-free U.S. Treasury debt.
AA+, AA, AND AA-: High credit quality. Protection factors are strong. Risk is
modest but may vary slightly from time to time because of economic conditions.
A+, A, AND A-: Protection factors are average but adequate. However, risk
factors are more variable and greater in periods of economic stress.
BBB+, BBB, AND BBB-: Below average protection factors but still considered
sufficient for prudent investment. Considerable variability in risk during
economic cycles.
HIGH YIELD BOND RATINGS
BB+, BB, AND BB-: Below investment grade but deemed likely to meet obligations
when due. Present or prospective financial protection factors fluctuate
according to industry conditions or company fortunes. Overall quality may move
up or down frequently within this category.
B+, B, AND B-: Below investment grade and possessing risk that obligations will
not be met when due. Financial protection factors will fluctuate widely
according to economic cycles, industry conditions and/or company fortunes.
Potential exists for frequent changes in the rating within this category or into
a higher or lower rating grade.
CCC: Well below investment grade securities. Considerable uncertainty exists as
to timely payment of principal interest or preferred dividends. Protection
factors are narrow and risk can be substantial with unfavorable economic/
industry conditions, and/or with unfavorable company developments.
Preferred stocks are rated on the same scale as bonds but the preferred rating
gives weight to its more junior position in the capital structure. Structured
Financings are also rated on this scale.
COMMERCIAL PAPER/CERTIFICATES OF DEPOSIT
CATEGORY 1: TOP GRADE
DUFF 1 PLUS: Highest certainty of timely payment. Short-term liquidity including
internal operating factors and/or ready access to alternative sources of funds,
is outstanding, and safety is just below risk-free U.S.
Treasury short-term obligations.
DUFF 1: Very high certainty of timely payment. Liquidity factors are excellent
and supported by good fundamental protection factors. Risk factors are minor.
DUFF 1 MINUS: High certainty of timely payment. Liquidity factors are strong
and supported by good fundamental protection factors. Risk factors are very
small.
CATEGORY 2: GOOD GRADE
DUFF 2: Good certainty of timely payment. Liquidity factors and company
fundamentals are sound. Although ongoing funding needs may enlarge total
financing requirements, access to capital markets is good. Risk factors are
small.
CATEGORY 3: SATISFACTORY GRADE
DUFF 3: Satisfactory liquidity and other protection factors qualify issue as to
investment grade. Risk factors are larger and subject to more variation.
Nevertheless timely payment is expected.
No ratings are issued for companies whose paper is not deemed to be of
investment grade.
* * * *
NOTES:
\1/ The ratings indicated herein are believed to be the most recent ratings
available at the date of this Registration Statement for the securities
listed. Ratings are generally given to securities at the time of issuance.
While the rating agencies may from time to time revise such ratings, they
undertake no obligation to do so, and the ratings indicated do not
necessarily represent ratings which would be given to these securities on
the date of the Portfolio's fiscal year end.
Bonds which are unrated expose the investor to risks with respect to capacity to
pay interest or repay principal which are similar to the risks of lower- rated
bonds. The Portfolio is dependent on the Investment Adviser's judgment, analysis
and experience in the evaluation of such bonds.
Investors should note that the assignment of a rating to a bond by a rating
service may not reflect the effect of recent developments on the issuer's
ability to make interest and principal payments.
<PAGE>
Appendix B -- Economic & Statistical Information
Size of major bond markets
Total publicly issued debt at year-end 1994
(in billions of US $ equivalents)
Country Amount
United States $7,547
Japan 3,044
Germany 1,581
Italy 781
France 749
Canada 393
United Kingdom 437
Belgium 301
Sweden 186
Country Amount
Netherlands $ 228
Denmark 227
Switzerland 201
European Currency Unit (ECU) 145
Spain 144
Australia 108
Austria 68
Norway 41
Source: Salomon Brothers
This is a description for the Edgar filing of a pie chart.
Europe $5,089 billion (31.5%)
Pacific $3,152 billion (19.5%)
Canada $393 billion (2.4%)
United States $7,547 billion (46.6%)
<PAGE>
Total returns (income plus capital changes) of short-term bonds
Maximum 3-year duration bonds -- 12 months ended 12/31/94
(denominated in local currency)
Country Total return
Italy 6.21%
Ireland 4.31
Finland 4.24
Sweden 3.33
United Kingdom 5.24
France 3.43
Canada .99
Country Total return
Netherlands 4.36%
Germany 4.10
New Zealand .59
Australia 1.15
Japan .86
Switzerland 6.05
United States .61
Source: Bloomberg L.P., Reuters
Horizontal Bar Chart omitted for Edgar filing as described above.
<PAGE>
U.S. pension assets invested abroad
(in billions of US $)
Year Amount
1979 $ 1.7
1980 3.5
1981 5.2
1982 7.0
1983 11.7
1984 15.5
1985 27.3
1986 45.2
1987 49.8
Year Amount
1988 $ 62.0
1989 68.0
1990 87.0
1991 134.7
1992 159.3
1993 248.5
Source: Eaton Vance Management Pensions & Investments
Mountain Chart omitted for Edgar filing as described above.
<PAGE>
Comparative short-term yields
3-month Eurodeposit rates vs. U.S. short-term rates
(compounded) at 12/31/94
This is a description for the Edgar filing of a bar chart.
Portugal 10.98%
Mexico 31.99*
Italy 9.34
Indonesia 12.9
Sweden 8.4
Malaysia 5.5
Ireland 6.59
Germany 5.29
Thailand 8.7
Finland 5.94
United Kingdom 6.79
Australia 8.37
New Zealand 9.57
Switzerland 4.19
Canada 7.12
Japan 2.39
U.S.
Money market mutual funds 5.25
3-mo CDs 4.12
Bank money market funds 3.26
Sources: The Wall Street Journal, Reuters
*91-day T-bill rate. Source: Bloomberg L.P.
<PAGE>
INVESTMENT ADVISER AND ADMINISTRATOR
OF STRATEGIC INCOME PORTFOLIO
Boston Management and Research
24 Federal Street
Boston, MA 02110
ADMINISTRATOR OF EATON VANCE
STRATEGIC INCOME FUND
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 Service 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
EV MARATHON
STRATEGIC INCOME FUND
24 FEDERAL STREET
BOSTON, MA 02110
M-SISAI
EV MARATHON
STRATEGIC
INCOME
FUND
STATEMENT OF
ADDITIONAL
INFORMATION
MARCH 1, 1995
<PAGE>
PART C
OTHER INFORMATION
ITEM 24: FINANCIAL STATEMENTS AND EXHIBITS
(A) INCLUDED IN PART A:
FOR EV CLASSIC STRATEGIC INCOME FUND:
Financial Highlights for the period from the start of business, May
25, 1994, to October 31, 1994
FOR EV MARATHON STRATEGIC INCOME FUND:
Financial Highlights for each of the three years ended October 31,
1994 and for the period from the start of business, November 26,
1990, to October 31, 1991
INCLUDED IN PART B:
FOR EV CLASSIC STRATEGIC INCOME FUND:
Statements of Assets and Liabilities as of October 31, 1994
Statements of Operations for the period from the start of business,
May 25, 1994, to October 31, 1994
Statements of Changes in Net Assets for period from the start of
business, May 25, 1994, to October 31, 1994
Financial Highlights from the start of business, May 25, 1994, to
October 31, 1994
Notes to Financial Statements
Report of Independent Accountants
Financial Statements for Strategic Income Portfolio
Portfolio of Investments -- October 31, 1994
Statement of Assets and Liabilities
Statement of Operations
Statement of Changes in Net Assets Supplementary Data
Notes to Financial Statements
Report of Independent Accountants
FOR EV MARATHON STRATEGIC INCOME FUND:
Statements of Assets and Liabilities as of October 31, 1994
Statements of Operations for the year ended October 31, 1994
Statements of Changes in Net Assets for each of the two years ended
October 31, 1994
Financial Highlights for the three years ended October 31, 1994 and
for the period from the start of business, November 26, 1990, to
October 31, 1991
Notes to Financial Statements
Report of Independent Accountants
Financial Statements for Strategic Income Portfolio
Portfolio of Investments -- October 31, 1994
Statement of Assets and Liabilities
Statement of Operations
Statement of Changes in Net Assets
Supplementary Data
Notes to Financial Statements
Report of Independent Accountants
(B) EXHIBITS:
(1)(a) Articles of Incorporation filed as Exhibit (1) to Pre-
Effective Amendment No. 1 and incorporated herein by
reference.
(b) Articles of Amendment dated August 17, 1993 filed as Exhibit
(1)(b) to Post-Effective Amendment No. 5 and incorporated
herein by reference.
(c) Form of Articles Supplementary filed as Exhibit (1)(c) to
Post-Effective Amendment No. 5 and incorporated herein by
reference.
(2) By-Laws filed as Exhibit (2) to Post-Effective Amendment No.
3 and incorporated herein by reference.
(3) Not applicable
(4) Not applicable
(5) Investment Advisory Contract with Eaton Vance Management
dated November 20, 1990 filed as Exhibit (5) to Post-
Effective Amendment No. 1 and incorporated herein by
reference.
(6)(a)(1) Amended Distribution Agreement with Eaton Vance
Distributors, Inc. dated July 7, 1993 for Eaton Vance Short-
Term Global Income Fund filed as Exhibit (6)(a)(1) to Post-
Effective Amendment No. 5 and incorporated herein by
reference.
(a)(2) Form of Distribution Agreement with Eaton Vance
Distributors, Inc. for EV Classic Short-Term Strategic
Income Fund filed as Exhibit (6)(a)(2) to Post-Effective
Amendment No. 5 and incorporated herein by reference.
(b) Selling Group Agreement between Eaton Vance Distributors,
Inc. and Authorized Firms filed as Exhibit (6)(b) to Post-
Effective Amendment No. 5 and incorporated herein by
reference.
(c) Schedule of Dealer Discounts and Sales Charges filed as
Exhibit (6)(c) to Post-Effective Amendment No. 5 and
incorporated herein by reference.
(7) Not applicable
(8) Custodian Agreement with Investors Bank & Trust Company
dated December 17, 1990 filed as Exhibit (8) to Post-
Effective Amendment No. 1 and incorporated herein by
reference.
(9)(a) Form of Administration Services Agreement with Eaton Vance
Management for Eaton Vance Short-Term Global Income Fund
filed as Exhibit 9(a) to Post-Effective Amendment No. 5 and
incorporated herein by reference.
(b) Form of Administration Services Agreement with Eaton Vance
Management for EV Classic Short-Term Strategic Income Fund
filed as Exhibit 9(b) to Post-Effective Amendment No. 5 and
incorporated herein by reference.
(10) Opinion of Counsel filed herewith.
(11)(a) Consent of Independent Accountants for EV Marathon Short-
Term Global Income Fund filed herewith.
(b) Consent of Independent Accountants for EV Classic Short-Term
Strategic Income Fund filed herewith.
(12) Not applicable
(13) Letter Agreement with Eaton Vance Management, Inc., filed as
Exhibit (13) to Pre-Effective Amendment No. 1 and
incorporated herein by reference.
(14) Not applicable
(15)(a) Amended Distribution Plan pursuant to Rule 12b-1 under the
Investment Company Act of 1940 dated July 7, 1993 for Eaton
Vance Short-Term Global Income Fund filed as Exhibit (15)(a)
to Post-Effective Amendment No. 5 and incorporated herein by
reference.
(b) Form of Distribution Plan pursuant to Rule 12b-1 under the
Investment Company Act of 1940 for EV Classic Short-Term
Strategic Income Fund filed as Exhibit (15)(b) to Post-
Effective Amendment No. 5 and incorporated herein by
reference.
(16) Schedules for Computation of Performance Quotations filed
herewith.
(17)(a) Power of Attorney dated December 27, 1993, for Eaton Vance
Investment Fund, Inc. filed as Exhibit (17)(a) to Post-
Effective Amendment No. 5 and incorporated herein by
reference.
(b) Power of Attorney dated December 27, 1993, for Short-Term
Global Income Portfolio filed as Exhibit (17)(b) to Post-
Effective Amendment No. 5 and incorporated herein by
reference.
ITEM 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT
Not applicable
ITEM 26. NUMBER OF HOLDERS OF SECURITIES
(1) (2)
NUMBER OF RECORD HOLDERS
TITLE OF CLASS AS OF JANUARY 31, 1995
-------------- ------------------------
Shares of common stock of
EV Classic Short-Term Strategic Income Fund 3
EV Marathon Short-Term Strategic Income Fund 8,840
ITEM 27. INDEMNIFICATION
No change from the information set forth in Item 27 of Form N-1A, filed as
Pre-Effective Amendment No. 2 to the Registration Statement under the Securities
Act of 1933 and Amendment No. 2 under the Investment Company Act of 1940, which
information is incorporated herein by reference.
Registrant's Directors and officers are insured under a mutual fund errors
and omissions insurance policy covering loss incured by reason of negligent
errors and omissions committed in their capacities as such.
ITEM 28. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER
Reference is made to the information set forth under the caption "Investment
Adviser and Administrator" in the Statement of Additional Information, which
information is incorporated herein by reference.
ITEM 29. PRINCIPAL UNDERWRITER
(A) Registrant's principal underwriter, Eaton Vance Distributors, Inc., a
wholly-owned subsidiary of Eaton Vance Management is the principal
underwriter for each of the mutual funds named below:
<TABLE>
<CAPTION>
<S> <C>
EV Classic Alabama Tax Free Fund EV Classic Mississippi Tax Free Fund
EV Classic Arizona Tax Free Fund EV Classic Missouri Tax Free Fund
EV Classic Arkansas Tax Free Fund EV Classic National Limited Maturity Tax Free Fund
EV Classic California Limited Maturity EV Classic National Municipals Fund
Tax Free Fund EV Classic New Jersey Limited Maturity
EV Classic California Municipals Fund Tax Free Fund
EV Classic Colorado Tax Free Fund EV Classic New Jersey Tax Free Fund
EV Classic Connecticut Limited Maturity EV Classic New York Limited Maturity
Tax Free Fund Tax Free Fund
EV Classic Connecticut Tax Free Fund EV Classic New York Tax Free Fund
EV Classic Florida Insured Tax Free Fund EV Classic North Carolina Tax Free Fund
EV Classic Florida Limited Maturity EV Classic Ohio Limited Maturity Tax Free Fund
Tax Free Fund EV Classic Ohio Tax Free Fund
EV Classic Florida Tax Free Fund EV Classic Oregon Tax Free Fund
EV Classic Georgia Tax Free Fund EV Classic Pennsylvania Limited Maturity
EV Classic Government Obligations Fund Tax Free Fund
EV Classic Greater China Growth Fund EV Classic Pennsylvania Tax Free Fund
EV Classic Growth Fund EV Classic Rhode Island Tax Free Fund
EV Classic Hawaii Tax Free Fund EV Classic Short-Term Strategic Income Fund
EV Classic High Income Fund EV Classic South Carolina Tax Free Fund
EV Classic Investors Fund EV Classic Special Equities Fund
EV Classic Kansas Tax Free Fund EV Classic Stock Fund
EV Classic Kentucky Tax Free Fund EV Classic Tennessee Tax Free Fund
EV Classic Louisiana Tax Free Fund EV Classic Texas Tax Free Fund
EV Classic Maryland Tax Free Fund EV Classic Total Return Fund
EV Classic Massachusetts Limited Maturity EV Classic Virginia Tax Free Fund
Tax Free Fund EV Classic West Virginia Tax Free Fund
EV Classic Massachusetts Tax Free Fund EV Marathon Alabama Tax Free Fund
EV Classic Michigan Limited Maturity EV Marathon Arizona Limited Maturity
Tax Free Fund Tax Free Fund
EV Classic Michigan Tax Free Fund EV Marathon Arizona Tax Free Fund
EV Classic Minnesota Tax Free Fund EV Marathon Arkansas Tax Free Fund
<PAGE>
EV Marathon California Limited Maturity EV Marathon Oregon Tax Free Fund
Tax Free Fund EV Marathon Pennsylvania Limited Maturity
EV Marathon California Municipals Fund Tax Free Fund
EV Marathon Colorado Tax Free Fund EV Marathon Pennsylvania Tax Free Fund
EV Marathon Connecticut Limited Maturity EV Marathon Rhode Island Tax Free Fund
Tax Free Fund EV Marathon Short-Term Strategic
EV Marathon Connecticut Tax Free Fund Income Fund
EV Marathon Emerging Markets Fund EV Marathon South Carolina Tax Free Fund
Eaton Vance Equity-Income Trust EV Marathon Special Equities Fund
EV Marathon Florida Insured Tax Free Fund EV Marathon Stock Fund
EV Marathon Florida Limited Maturity EV Marathon Tennessee Tax Free Fund
Tax Free Fund EV Marathon Texas Tax Free Fund
EV Marathon Florida Tax Free Fund EV Marathon Total Return Fund
EV Marathon Georgia Tax Free Fund EV Marathon Virginia Limited Maturity
EV Marathon Gold & Natural Resources Fund Tax Free Fund
EV Marathon Government Obligations Fund EV Marathon Virginia Tax Free Fund
EV Marathon Greater China Growth Fund EV Marathon West Virginia Tax Free Fund
EV Marathon Greater India Fund EV Traditional California Municipals Fund
EV Marathon Growth Fund EV Traditional Connecticut Tax Free Fund
EV Marathon Hawaii Tax Free Fund EV Traditional Emerging Markets Fund
EV Marathon High Income Fund EV Traditional Florida Insured Tax Free Fund
EV Marathon Investors Fund EV Traditional Florida Limited Maturity
EV Marathon Kansas Tax Free Fund Tax Free Fund
EV Marathon Kentucky Tax Free Fund EV Traditional Florida Tax Free Fund
EV Marathon Louisiana Tax Free Fund EV Traditional Government Obligations Fund
EV Marathon Maryland Tax Free Fund EV Traditional Greater China Growth Fund
EV Marathon Massachusetts Limited Maturity EV Traditional Greater India Fund
Tax Free Fund EV Traditional Growth Fund
EV Marathon Massachusetts Tax Free Fund Eaton Vance Income Fund of Boston
EV Marathon Michigan Limited Maturity EV Traditional Investors Fund
Tax Free Fund Eaton Vance Municipal Bond Fund L.P.
EV Marathon Michigan Tax Free Fund EV Traditional National Limited Maturity
EV Marathon Minnesota Tax Free Fund Tax Free Fund
EV Marathon Mississippi Tax Free Fund EV Traditional National Municipals Fund
EV Marathon Missouri Tax Free Fund EV Traditional New Jersey Tax Free Fund
EV Marathon National Limited Maturity EV Traditional New York Limited Maturity
Tax Free Fund Tax Free Fund
EV Marathon National Municipals Fund EV Traditional New York Tax Free Fund
EV Marathon New Jersey Limited Maturity EV Traditional Pennsylvania Tax Free Fund
Tax Free Fund EV Traditional Special Equities Fund
EV Marathon New Jersey Tax Free Fund EV Traditional Stock Fund
EV Marathon New York Limited Maturity EV Traditional Total Return Fund
Tax Free Fund Eaton Vance Cash Management Fund
EV Marathon New York Tax Free Fund Eaton Vance Liquid Assets Trust
EV Marathon North Carolina Limited Maturity Eaton Vance Prime Rate Reserves
Tax Free Fund Eaton Vance Short-Term Treasury Fund
EV Marathon North Carolina Tax Free Fund Eaton Vance Tax Free Reserves
EV Marathon Ohio Limited Maturity Tax Free Fund Massachusetts Municipal Bond Portfolio
EV Marathon Ohio Tax Free Fund
</TABLE>
<PAGE>
(B)
<TABLE>
<CAPTION>
(1) (2) (3)
NAME AND PRINCIPAL POSITIONS AND OFFICES POSITIONS AND OFFICE
BUSINESS ADDRESS WITH PRINCIPAL UNDERWRITER WITH REGISTRANT
------------------ -------------------------- --------------------
<S> <C> <C>
James B. Hawkes<F1> President and Director President and
Trustee
William M. Steul<F1> Vice President and Director None
Wharton P. Whitaker<F1> President and Director None
Howard D. Barr Vice President None
2750 Royal View Court
Oakland, Michigan
Nancy E. Belza Vice President None
463-1 Buena Vista East
San Francisco, California
Chris Berg Vice President None
45 Windsor Lane
Palm Beach Gardens, Florida
H. Day Brigham, Jr.<F1> Vice President None
Susan W. Bukima Vice President None
106 Princess Street
Alexandria, Virginia
Jeffrey W. Butterfield Vice President None
9378 Mirror Road
Columbus, Indiana
Mark A. Carlson<F1> Vice President None
Jeffrey Chernoff Vice President None
115 Concourse West
Bright Waters, New York
William A. Clemmer<F1> Vice President None
James S. Comforti Vice President None
1859 Crest Drive
Encinitas, California
Mark P. Doman Vice President None
107 Pine Street
Philadelphia, Pennsylvania
Michael A. Foster Vice President None
850 Kelsey Court
Centerville, Ohio
William M. Gillen Vice President None
280 Rea Street
North Andover, Massachusetts
Hugh S. Gilmartin Vice President None
1531-184th Avenue, NE
Bellevue, Washington
Richard E. Houghton<F1> Vice President None
Brian Jacobs<F1> Senior Vice President None
Stephen D. Jonhson Vice President None
13340 Providence Lake Drive
Alpharetta, Georgia
Thomas J. Marcello Vice President None
553 Belleville Avenue
Glen Ridge, New Jersey
Timothy D. McCarthy Vice President None
9801 Germantown Pike
Lincoln Woods Apt. 416
Lafayette Hill, Pennsylvania
Morgan C. Mohrman<F1> Senior Vice President None
Gregory B. Norris Vice President None
6 Halidon Court
Palm Beach Gardens, Florida
Thomas Otis<F1> Secretary and Clerk Secretary
George D. Owen Vice President None
1911 Wildwood Court
Blue Springs, Missouri
F. Anthony Robinson Vice President None
510 Gravely Hill Road
Wakefield, Rhode Island
Benjamin A. Rowland, Jr.<F1> Vice President, None
Treasurer and Director
John P. Rynne<F1> Vice President None
George V.F. Schwab, Jr. Vice President None
9501 Hampton Oaks Lane
Charlotte, North Carolina
Cornelius J. Sullivan<F1> Vice President None
Maureen C. Tallon Vice President None
518 Armistead Drive
Nashville, Tennessee
David M. Thill Vice President None
126 Albert Drive
Lancaster, New York
William T. Toner Vice President None
747 Lilac Drive
Santa Barbara, California
Chris Volf Vice President None
6517 Thoroughbred Loop
Odessa, Florida
Donald E. Webber<F1> Senior Vice President None
Sue Wilder Vice President None
141 East 89th Street
New York, New York
- ---------
<F1> Address is 24 Federal Street, Boston, MA 02110
</TABLE>
(C) Not applicable
ITEM 30. LOCATION OF ACCOUNTS AND RECORDS
All applicable accounts, books and documents required to be maintained by
the Registrant by Section 31(a) of the Investment Company Act of 1940 and the
Rules promulgated thereunder are in the possession and custody of the
Registrant's custodian, Investors Bank & Trust Company, 24 Federal Street,
Boston, MA 02110 and 89 South Street, Boston, MA 02110 and its transfer agent,
The Shareholder Services Group, Inc., 53 State Street, Boston, MA 02104, with
the exception of certain corporate documents and portfolio trading documents
which are in the possession and custody of Eaton Vance Management, 24 Federal
Street, Boston, MA 02110. Registrant is informed that all applicable accounts,
books and documents required to be maintained by registered investment advisers
are in the custody and possession of Eaton Vance Management.
ITEM 31. MANAGEMENT SERVICES
Not applicable
ITEM 32. UNDERTAKINGS
The Registrant also undertakes to furnish to each person to whom a
prospectus is delivered a copy of the latest annual report to shareholders, upon
request and without charge.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant has duly caused this amendment to
its Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Boston, and Commonwealth of
Massachusetts, on the 21st day of February, 1995.
EATON VANCE INVESTMENT FUND, INC.
By: /s/ JAMES B. HAWKES
-------------------------------
JAMES B. HAWKES, President
Pursuant to the requirements of the Securities Act of 1933, this Post-
Effective Amendment to the Registration Statement has been signed below by the
following persons in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
Director, President and
Principal Executive
/s/ JAMES B. HAWKES Officer February 21, 1995
- ------------------------------
JAMES B. HAWKES
Treasurer and Principal
Financial and
/s/ JAMES L. O'CONNOR Accounting Officer February 21, 1995
- ------------------------------
JAMES L. O'CONNOR
LANDON T. CLAY* Trustee February 21, 1995
- ------------------------------
LANDON T. CLAY
DONALD R. DWIGHT* Trustee February 21, 1995
- ------------------------------
DONALD R. DWIGHT
SAMUEL L. HAYES, III* Trustee February 21, 1995
- ------------------------------
SAMUEL L. HAYES, III
NORTON H. REAMER* Trustee February 21, 1995
- ------------------------------
NORTON H. REAMER
JOHN L. THORNDIKE* Trustee February 21, 1995
- ------------------------------
JOHN L. THORNDIKE
JACK L. TREYNOR* Trustee February 21, 1995
- ------------------------------
JACK L. TREYNOR
*By: /s/ H. DAY BRIGHAM, JR.
---------------------
H. DAY BRIGHAM, JR.
As attorney-in-fact
</TABLE>
<PAGE>
SIGNATURES
Short-Term Income Portfolio has duly caused this Post-Effective Amendment
to the Registration Statement on Form N-1A of Eaton Vance Investment Fund, Inc.
(File No. 33-36507) to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Boston, and Commonwealth of Massachusetts, on
the 21st day of February, 1995.
SHORT-TERM INCOME PORTFOLIO
By: /s/ JAMES B. HAWKES
-------------------------------
JAMES B. HAWKES, President
This Post-Effective Amendment to the Registration Statement on Form N-1A of
Eaton Vance Investment Fund, Inc. (File No. 33-36507) has been signed below by
the following persons in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
Director, President and
Principal Executive
/s/ JAMES B. HAWKES Officer February 21, 1995
- ------------------------------
JAMES B. HAWKES
Treasurer and Principal
Financial and
/s/ JAMES L. O'CONNOR Accounting Officer February 21, 1995
- ------------------------------
JAMES L. O'CONNOR
LANDON T. CLAY* Trustee February 21, 1995
- ------------------------------
LANDON T. CLAY
DONALD R. DWIGHT* Trustee February 21, 1995
- ------------------------------
DONALD R. DWIGHT
SAMUEL L. HAYES, III* Trustee February 21, 1995
- ------------------------------
SAMUEL L. HAYES, III
NORTON H. REAMER* Trustee February 21, 1995
- ------------------------------
NORTON H. REAMER
JOHN L. THORNDIKE* Trustee February 21, 1995
- ------------------------------
JOHN L. THORNDIKE
JACK L. TREYNOR* Trustee February 21, 1995
- ------------------------------
JACK L. TREYNOR
*By: /s/ H. DAY BRIGHAM, JR.
---------------------
H. DAY BRIGHAM, JR.
As attorney-in-fact
</TABLE>
<PAGE>
RULE 483(A) EXHIBIT INDEX
The following exhibits are filed as part of this amendment to the Registration
Statement pursuant to General Instructions E of Form N-1A.
<TABLE>
<CAPTION>
PAGE IN SEQUENTIAL
EXHIBIT NO. DESCRIPTION NUMBERING SYSTEM
- ----------- ----------- ----------------
<C> <C> <C>
(10) Opinion of Counsel.
(11)(a) Consent of Independent Accountants for EV Marathon Short-Term
Strategic Income Fund.
(b) Consent of Independent Accountants for EV Classic Short-Term Strategic
Income Fund.
(16) Schedules for Computation of Performance Quotations.
</TABLE>
EXHIBIT 99.10
February 27, 1995
Eaton Vance Investment Fund, Inc.
24 Federal Street
Boston, MA 02110
Re: 13,647,073 shares of EV Marathon Short-Term Strategic Income Fund
Dear Sirs:
I have acted as internal counsel to Eaton Vance Investment Fund, Inc.,
a Maryland corporation (the "Corporation"), in connection with Post-Effective
Amendment No. 6 to the Corporation's Registration Statement on Form N-1A being
filed electronically with the Securities and Exchange Commission (1933 Act File
No. 33-36507) (as amended, the "Registration Statement") covering an aggregate
of 13,647,073 shares (the "Shares") of EV Marathon Short-Term Strategic Income
Fund (the "Fund"), a series of the capital stock of the Corporation. In that
capacity, I have reviewed the charter and bylaws of the Corporation, the
Registration Statement, the corporate action taken by the Corporation that
provides for the issuance and sale of the Shares as contemplated by the
Registration Statement, and such other materials and matters as I have deemed
necessary for the issuance of this opinion.
The Corporation is authorized to issue 1,000,000,000 shares of the
Fund. I am informed by the Corporation's treasurer that as of February 21, 1995,
23,355,149 shares of the Fund were issued and outstanding. Pursuant to Section
2-310(a)(2) of the Maryland General Corporation Law, shares of the Fund acquired
by the Corporation constitute authorized but unissued shares of the Fund.
Based upon the foregoing and limited in all respects to applicable
Maryland law, I am of the opinion that the Shares have been duly and validly
authorized and, when issued against receipt of the consideration contemplated by
the Registration Statement, will have been legally issued and will be fully paid
and non-assessable.
I am a member of the bar of Massachusetts and of New York and have
acted as internal legal counsel for the Corporation in connection with said
Post-Effective Amendment, and I hereby consent to the filing of this opinion as
an exhibit to the Registration Statement.
Very truly yours,
/s/ H. Day Brigham, Jr.
H. Day Brigham, Jr.
Vice President, Eaton Vance Management
EXHIBIT 99.(11)(A)
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this Post-Effective Amendment No. 6 to the
Registration Statement on Form N-1A (1933 Act File No. 33-36507) of Eaton Vance
Investment Fund, Inc. (formerly Eaton Vance Short-Term Global Income Fund,
Inc.): EV Marathon Short-Term Strategic Income Fund (the "Fund") of our report
dated December 15, 1994 on our audit of the financial statements and financial
highlights of the Fund and of our report on our audit of the financial
statements and supplementary data of Short-Term Income Portfolio dated December
15, 1994, which reports are included in the Annual Report to Shareholders for
the year ended October 31, 1994, which is included in this Registration
Statement.
We also consent to the reference to our Firm under the caption "The Fund's
Financial Highlights" in the Prospectus and under the caption "Independent
Accountants" in the Statement of Additional Information of the Registration
Statement.
/s/ COOPERS & LYBRAND L.L.P.
-----------------------------
COOPERS & LYBRAND L.L.P.
Boston, Massachusetts
February 24, 1995
EXHIBIT 99.(11)(B)
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this Post-Effective Amendment No. 6 to the
Registration Statement (1933 Act File No. 33-36507) of Eaton Vance Investment
Fund, Inc. (formerly Eaton Vance Short-Term Global Income Fund, Inc.): of EV
Classic Short-Term Strategic Income Fund (the "Fund") of our report dated
December 15, 1994 on our audit of the financial statements and financial
highlights of the Fund and of our report dated on our audit of the financial
statements and supplementary data of Short-Term Income Portfolio dated December
15, 1994, which reports are included in the Annual Report to Shareholders for
the year ended October 31, 1994, which is included in this Registration
Statement.
We also consent to the reference to our Firm under the caption "The Fund's
Financial Highlights" in the Prospectus and under the caption "Independent
Accountants" in the Statement of Additional Information of the Registration
Statement.
/s/ COOPERS & LYBRAND L.L.P.
-----------------------------
COOPERS & LYBRAND L.L.P.
Boston, Massachusetts
February 24, 1995
<PAGE>
Exhibit 99.16
EV CLASSIC SHORT-TERM STRATEGIC INCOME FUND
CALCULATION OF YIELD
For the 30 days ended 10/31/94:
Interest Income Earned: $86
Plus
----------
Equal Gross Income: $86
Minus Expenses: $5
----------
Equal Net Investment Income: $81
Divided by Average daily number of shares
outstanding that were entitled
to receive dividends: 1,012
----------
Equal Net Investment Income Earned Per Share: $0.0800
Maximum Offering Price Per Share 10/31/94: $9.75
30 Day Yield*: 10.06%
* Yield is calculated on a bond equivalent rate as follows:
6
2[(($0.080/$9.75)+1) -1]
<PAGE>
EV CLASSIC SHORT-TERM STRATEGIC INCOME FUND
INVESTMENT PERFORMANCE
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 ending October 31, 1994. Past performance is not indicative
of future results. Investment return and principal value will fluctuate and
shares, when redeemed, may be worth more or less than their original cost.
<TABLE>
<CAPTION>
NUMBER OF
SHARES GAINED
NAV THROUGH TOTAL
INVEST- INVEST- AMT OF NUMBER DATE OF REINVESTMENT OF NUMBER OF 10/31/94 10/31/94 TOTAL RETURN
MENT MENT INVEST- OF SHARES INVEST- ALL DISTRIBUTIONS SHARES AS NET ASSET VALUE OF THROUGH 10/31/94
PERIOD DATE MENT PURCHASED MENT THROUGH 10/31/94 OF 10/31/94 VALUE<F2> INVESTMENT CUMULATIVE<F1> ANNUALIZED<F3>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
LIFE OF 05/25/94 $1,000 100.000 $10.00 1.121 101.121 $9.75 $985.93 -1.41% NA
THE FUND
(0.44 YRS)
<FN>
<F1> Cumulative total return (net asset value to net asset value) is calculated
by dividing the cumulative net asset value on 10/31/94 by the initial net
asset value.
<F2> 10/31/94 Net Asset Value is an unaudited figure.
<F3> Average annual total return is the average annual compounded rate of return
based on the cumulative value for each period. It is calculated by taking
the nth root of 1 + the cumulative total return, where n = the number of
years invested.
</TABLE>
<PAGE>
Exhibit 16
EV MARATHON SHORT-TERM STRATEGIC INCOME FUND
CALCULATION OF YIELD
For the 30 days ended 10/31/94:
Interest Income Earned: $1,838,128
Plus
----------
Equal Gross Income: $1,838,128
Minus Expenses: $414,480
----------
Equal Net Investment Income: $1,423,648
Divided by Average daily number of shares
outstanding that were entitled
to receive dividends: 28,880,739
----------
Equal Net Investment Income Earned Per Share: $0.0493
Maximum Offering Price Per Share 10/31/94: $8.28
30 Day Yield*: 7.24%
* Yield is calculated on a bond equivalent rate as follows:
6
2[(($0.0493/$8.29)+1) -1]
<PAGE>
EV MARATHON SHORT-TERM STRATEGIC FUND
INVESTMENT PERFORMANCE
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 ending October 31, 1994. Past performance is not indicative
of future results. Investment return and principal value will fluctuate and
shares, when redeemed, may be worth more or less than their original cost.
<TABLE>
<CAPTION>
TOTAL TOTAL
RETURN RETURN
10/31/94 10/31/94 THROUGH THOUGH
VALUE OF VALUE OF 10/31/94 10/31/94
NO. OF SHARES TOTAL INVEST- INVEST- BEFORE AFTER
NO. OF NAV ON GAINED THROUGH NO. OF MENT MENT DEDUCTING DEDUCTING
INVEST- INVEST- AMT OF SHARES DATE OF REINVESTMENT OF SHARES BEFORE AFTER THE CDSC THE CDSC *
MENT MENT INVEST- PUR- INVEST- ALL DISTRIBUTIONS AS OF 10/31/94 DEDUCTING DEDUCTING
PERIOD DATE MENT CHASED MENT THROUGH 10/31/94 10/31/94 NAV+ THE CDSC THE CDSC* CUMUL^ ANN++ CUMUL^^ ANN++
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
LIFE OF 11/26/90 $1,000 100.000 $10.00 34.277 134.277 $8.29 $1,113.16 $1,104.87 11.32% 2.76% 10.49% 2.57%
THE FUND
(3.93 YRS)
1 YR ENDED
10/31/94 10/31/93 $1,000 106.270 $9.41 7.923 114.193 $8.29 $946.66 $902.61 -5.33% -5.33% -9.74% -9.74
* No contingent deferred sales charge (CDSC) is imposed on shares purchased more than six years prior to the redemption,
shares acquired through the reinvestment of dividends and distributions and 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 in the Eaton
Vance Marathon Group of Funds.
^ Cumulative total return (net asset value to net asset value) is calculated by dividing the cumulative net asset value on
10/31/94 by the initial net asset value.
^^ Cumulative total return (net asset value to net asset value) is calculated by dividing the cumulative net asset value on
10/31/94 by the initial net asset value and subtracting the CDSC.
+ 10/31/94 Net Asset Value is an unaudited figure
++ Average annual total return is the average annual compounded rate of return based on the cumulative value for each period.
It is calculated by taking the nth root of 1 + the cumulative total return, where n = the number of years invested.
</TABLE>
<PAGE>
EV MARATHON SHORT-TERM STRATEGIC INCOME FUND
CALCULATION OF DISTRIBUTION RATE
AND EFFECTIVE DISTRIBUTION RATE
AS OF 10/31/94
DISTRIBUTION RATE
Annualize
Most Recent
Monthly : ( $0.058263012 / 31) x 365
Distribution
Divide by
Current Maximum : $8.29
Offering Price
Distribution
Rate Equals : 0.0828 ( or 8.28% )
EFFECTIVE DISTRIBUTION RATE
Divide
Distribution : 0.0828
Rate by 365/31 ------ + 1
( or 11.774 ) 11.774
and Add1.
The Resulting
Number Equals : 1.0070
Take this
Number to the 11.774
365/31st ( or : ( 1.0070 ) - 1
11.774 ) power
and Subtract 1.
Effective
Distribution : 0.0866 ( or 8.60% )
Rate Equals
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000867240
<NAME> EATON VANCE INVESTMENT FUND, INC.
<SERIES>
<NUMBER> 1
<NAME> EV MARATHON SHORT-TERM STRATEGIC INCOME FUND
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> OCT-31-1994
<PERIOD-END> OCT-31-1994
<INVESTMENTS-AT-COST> 248,000
<INVESTMENTS-AT-VALUE> 236,461
<RECEIVABLES> 29
<ASSETS-OTHER> 29
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 236,519
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 3,380
<TOTAL-LIABILITIES> 3,380
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 261,720
<SHARES-COMMON-STOCK> 28,132
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (11,539)
<NET-ASSETS> 233,139
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 11,120
<OTHER-INCOME> 15,949
<EXPENSES-NET> 4,631
<NET-INVESTMENT-INCOME> 22,438
<REALIZED-GAINS-CURRENT> (23,840)
<APPREC-INCREASE-CURRENT> (16,738)
<NET-CHANGE-FROM-OPS> 0
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 11,940
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 0
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<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 0
<AVERAGE-NET-ASSETS> 279,493
<PER-SHARE-NAV-BEGIN> 0
<PER-SHARE-NII> 0
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0.343
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<PER-SHARE-NAV-END> 8.29
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<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000867240
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<SERIES>
<NUMBER> 2
<NAME> EV CLASSIC SHORT-TERM STRATEGIC INCOME FUND
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> OCT-31-1994
<PERIOD-END> OCT-31-1994
<INVESTMENTS-AT-COST> 7
<INVESTMENTS-AT-VALUE> 7
<RECEIVABLES> 7
<ASSETS-OTHER> 37
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 51
<PAYABLE-FOR-SECURITIES> 0
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<OTHER-ITEMS-LIABILITIES> 41
<TOTAL-LIABILITIES> 41
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 10
<SHARES-COMMON-STOCK> 1
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<ACCUMULATED-NET-GAINS> 0
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<EXPENSES-NET> 7
<NET-INVESTMENT-INCOME> 1
<REALIZED-GAINS-CURRENT> (0)
<APPREC-INCREASE-CURRENT> (0)
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<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 0
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 0
<AVERAGE-NET-ASSETS> 10
<PER-SHARE-NAV-BEGIN> 0
<PER-SHARE-NII> 0
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0.103
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 9.75
<EXPENSE-RATIO> 160.83
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000918706
<NAME> SHORT-TERM INCOME PORTFOLIO
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> OCT-31-1994
<PERIOD-END> OCT-31-1994
<INVESTMENTS-AT-COST> 239,123
<INVESTMENTS-AT-VALUE> 233,324
<RECEIVABLES> 14,260
<ASSETS-OTHER> 2,081
<OTHER-ITEMS-ASSETS> 21
<TOTAL-ASSETS> 249,685
<PAYABLE-FOR-SECURITIES> 6,859
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 6,358
<TOTAL-LIABILITIES> 13,217
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 0
<SHARES-COMMON-STOCK> 0
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 236,468
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 17,514
<OTHER-INCOME> 0
<EXPENSES-NET> 1564
<NET-INVESTMENT-INCOME> 15,950
<REALIZED-GAINS-CURRENT> (23,646)
<APPREC-INCREASE-CURRENT> (7,159)
<NET-CHANGE-FROM-OPS> 0
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 0
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 0
<AVERAGE-NET-ASSETS> 309,789
<PER-SHARE-NAV-BEGIN> 0
<PER-SHARE-NII> 0
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 0
<EXPENSE-RATIO> 0.82
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
