N-CSRS 1 a08-10387_4ncsrs.htm N-CSRS

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM N-CSR

 

CERTIFIED SHAREHOLDER REPORT OF REGISTERED
MANAGEMENT INVESTMENT COMPANIES

 

Investment Company Act file number

811-10609

 

SMID-Cap Portfolio

(Exact name of registrant as specified in charter)

 

The Eaton Vance Building, 255 State Street, Boston, Massachusetts

 

02109

(Address of principal executive offices)

 

(Zip code)

Maureen A. Gemma

The Eaton Vance Building, 255 State Street, Boston, Massachusetts 02109

(Name and address of agent for service)

 

Registrant’s telephone number, including area code:

(617) 482-8260

 

 

Date of fiscal year end:

September 30

 

 

Date of reporting period:

March 31, 2008

 

 



 

Item 1. Reports to Stockholders

 



SMID-Cap Portfolio as of March 31, 2008

PORTFOLIO OF INVESTMENTS (Unaudited)

Common Stocks — 98.5%  
Security   Shares   Value  
Airlines — 1.6%  
SkyWest, Inc.     27,100     $ 572,352    
    $ 572,352    
Automobiles — 1.3%  
Thor Industries, Inc.     14,760     $ 439,405    
    $ 439,405    
Capital Markets — 7.7%  
Affiliated Managers Group, Inc.(1)     15,670     $ 1,421,896    
SEI Investments Co.     52,260       1,290,299    
    $ 2,712,195    
Commercial Banks — 5.1%  
City National Corp.     11,700     $ 578,682    
Cullen/Frost Bankers, Inc.     11,560       613,143    
Westamerica Bancorporation     11,350       597,010    
    $ 1,788,835    
Commercial Services & Supplies — 5.0%  
Copart, Inc.(1)     16,000     $ 620,160    
FTI Consulting, Inc.(1)     16,120       1,145,165    
    $ 1,765,325    
Computer Peripherals — 1.8%  
Diebold, Inc.     16,900     $ 634,595    
    $ 634,595    
Containers & Packaging — 2.1%  
AptarGroup, Inc.     18,670     $ 726,823    
    $ 726,823    
Distributors — 1.2%  
LKQ Corp.(1)     19,420     $ 436,367    
    $ 436,367    
Diversified Consumer Services — 1.8%  
Matthews International Corp., Class A     12,900     $ 622,425    
    $ 622,425    

 

Security   Shares   Value  
Electrical Equipment — 1.3%  
AMETEK, Inc.     10,140     $ 445,247    
    $ 445,247    
Electronic Equipment & Instruments — 4.6%  
Amphenol Corp., Class A     14,290     $ 532,303    
National Instruments Corp.     20,060       524,368    
ScanSource, Inc.(1)     14,970       541,764    
    $ 1,598,435    
Energy Equipment & Services — 1.6%  
FMC Technologies, Inc.(1)     10,020     $ 570,038    
    $ 570,038    
Food Products — 2.0%  
McCormick & Co., Inc.     19,480     $ 720,176    
    $ 720,176    
Gas Utilities — 2.5%  
Energen Corp.     13,920     $ 867,216    
    $ 867,216    
Health Care Equipment & Supplies — 6.4%  
DENTSPLY International, Inc.     18,400     $ 710,240    
Mentor Corp.     29,310       753,853    
Varian Medical Systems, Inc.(1)     16,400       768,176    
    $ 2,232,269    
Health Care Providers & Services — 4.5%  
Henry Schein, Inc.(1)     10,500     $ 602,700    
Owens & Minor, Inc.     12,850       505,519    
Patterson Cos., Inc.(1)     12,790       464,277    
    $ 1,572,496    
Hotels, Restaurants & Leisure — 7.6%  
Ambassadors Group, Inc.     19,250     $ 363,633    
Brinker International, Inc.     30,810       571,526    
International Speedway Corp., Class A     15,500       638,600    
Sonic Corp.(1)     50,120       1,104,645    
    $ 2,678,404    

 

See notes to financial statements
11



SMID-Cap Portfolio as of March 31, 2008

PORTFOLIO OF INVESTMENTS (Unaudited) CONT'D

Security   Shares   Value  
Insurance — 9.0%  
Brown and Brown, Inc.     29,100     $ 505,758    
HCC Insurance Holdings, Inc.     31,530       715,416    
Markel Corp.(1)     2,790       1,227,516    
RLI Corp.     14,560       721,739    
    $ 3,170,429    
IT Services — 1.3%  
Total System Services, Inc.     19,020     $ 450,013    
    $ 450,013    
Life Sciences Tools & Services — 2.7%  
Bio-Rad Laboratories, Inc., Class A(1)     5,780     $ 514,131    
Covance, Inc.(1)     5,190       430,614    
    $ 944,745    
Machinery — 3.0%  
Graco, Inc.     14,840     $ 538,098    
IDEX Corp.     17,050       523,265    
    $ 1,061,363    
Marine — 1.5%  
Kirby Corp.(1)     9,270     $ 528,390    
    $ 528,390    
Media — 3.0%  
Arbitron, Inc.     12,640     $ 545,542    
Morningstar, Inc.(1)     8,310       509,819    
    $ 1,055,361    
Personal Products — 2.8%  
Alberto-Culver Co.     35,370     $ 969,492    
    $ 969,492    
Real Estate Management & Development — 1.2%  
Forest City Enterprises, Inc., Class A     11,670     $ 429,456    
    $ 429,456    
Road & Rail — 1.9%  
Landstar System, Inc.     12,500     $ 652,000    
    $ 652,000    

 

Security   Shares   Value  
Software — 8.1%  
ANSYS, Inc.(1)     17,060     $ 588,911    
FactSet Research Systems, Inc.     17,920       965,350    
Fair Isaac Corp.     22,670       487,858    
Jack Henry & Associates, Inc.     32,100       791,907    
    $ 2,834,026    
Specialty Retail — 5.9%  
Aaron Rents, Inc.     30,940     $ 666,448    
O'Reilly Automotive, Inc.(1)     34,870       994,492    
Sally Beauty Holdings, Inc.(1)     61,700       425,730    
    $ 2,086,670    
Total Common Stocks
(identified cost $32,683,035)
  $ 34,564,548    
Total Investments — 98.5%
(identified cost $32,683,035)
  $ 34,564,548    
Other Assets, Less Liabilities — 1.5%   $ 543,856    
Net Assets — 100.0%   $ 35,108,404    

 

(1)  Non-income producing security.

See notes to financial statements
12




SMID-Cap Portfolio as of March 31, 2008

FINANCIAL STATEMENTS (Unaudited)

Statement of Assets and Liabilities

As of March 31, 2008

Assets  
Investments, at value (identified cost, $32,683,035)   $ 34,564,548    
Cash     425,540    
Receivable for investments sold     147,744    
Dividends and interest receivable     23,203    
Total assets   $ 35,161,035    
Liabilities  
Payable to affiliate for investment adviser fee   $ 23,295    
Payable to affiliate for Trustees' fees     110    
Accrued expenses     29,226    
Total liabilities   $ 52,631    
Net Assets applicable to investors' interest in Portfolio   $ 35,108,404    
Sources of Net Assets  
Net proceeds from capital contributions and withdrawals   $ 33,226,891    
Net unrealized appreciation (computed on the basis of identified cost)     1,881,513    
Total   $ 35,108,404    

 

Statement of Operations

For the Six Months Ended
March 31, 2008

Investment Income  
Dividends   $ 150,769    
Interest     20,741    
Total investment income   $ 171,510    
Expenses  
Investment adviser fee   $ 168,513    
Trustees' fees and expenses     999    
Custodian fee     16,255    
Legal and accounting services     12,819    
Miscellaneous     767    
Total expenses   $ 199,353    
Deduct —
Waiver of investment adviser fee
  $ 35,486    
Allocation of expenses to the investment adviser and sub-adviser     3,762    
Reduction of custodian fee     5    
Total expense reductions   $ 39,253    
Net expenses   $ 160,100    
Net investment income   $ 11,410    
Realized and Unrealized Gain (Loss)  
Net realized gain (loss) —
Investment transactions (identified cost basis)
  $ 1,479,588    
Net realized gain   $ 1,479,588    
Change in unrealized appreciation (depreciation) —
Investments (identified cost basis)
  $ (2,830,100 )  
Net change in unrealized appreciation (depreciation)   $ (2,830,100 )  
Net realized and unrealized loss   $ (1,350,512 )  
Net decrease in net assets from operations   $ (1,339,102 )  

 

See notes to financial statements
13



SMID-Cap Portfolio as of March 31, 2008

FINANCIAL STATEMENTS CONT'D

Statements of Changes in Net Assets

Increase (Decrease)
in Net Assets
  Six Months Ended
March 31, 2008
(Unaudited)
  Year Ended
September 30, 2007
 
From operations —
Net investment income
  $ 11,410     $ 1,523    
Net realized gain from
investment transactions
    1,479,588       4,595,599    
Net change in unrealized appreciation
(depreciation) from investments
    (2,830,100 )     (700,232 )  
Net increase (decrease) in net assets
from operations
  $ (1,339,102 )   $ 3,896,890    
Capital transactions —
Contributions
  $ 8,116,398     $ 14,891,571    
Withdrawals     (4,710,168 )     (8,271,196 )  
Net increase in net assets from
capital transactions
  $ 3,406,230     $ 6,620,375    
Net increase in net assets   $ 2,067,128     $ 10,517,265    
Net Assets  
At beginning of period   $ 33,041,276     $ 22,524,011    
At end of period   $ 35,108,404     $ 33,041,276    

 

See notes to financial statements
14



SMID-Cap Portfolio as of March 31, 2008

FINANCIAL STATEMENTS CONT'D

Supplementary Data

    Six Months Ended
March 31, 2008
  Year Ended September 30,  
    (Unaudited)   2007   2006   2005   2004   2003  
Ratios/Supplemental Data  
Ratios (As a percentage of average daily net assets):  
Expenses before custodian fee reduction(1)(2)     0.95 %(3)     0.96 %     1.23 %     1.25 %     1.28 %     1.05 %  
Net investment income (loss)     0.07 %(3)     0.01 %     (0.13 )%     (0.31 )%     (0.22 )%     0.03 %  
Portfolio Turnover     23 %     84 %     34 %     38 %     28 %     54 %  
Total Return     (4.04 )%(4)     16.70 %     7.67 %     17.42 %     17.15 %     24.24 %  
Net assets, end of period (000's omitted)   $ 35,108     $ 33,041     $ 22,524     $ 22,763     $ 19,433     $ 14,462    

 

(1)  The investment adviser waived a portion of its investment advisory fee and/or subsidized certain operating expenses (equal to 0.23%, 0.27%, less than 0.01%, 0.01%, 0.01% and 0.28% of average daily net assets for the six months ended March 31, 2008 and the years ended September 30, 2007, 2006, 2005, 2004 and 2003, respectively). A portion of the waiver and subsidy was borne by the sub-adviser. Absent this waiver, total return would be lower.

(2)  Excludes the effect of custody fee credits, if any, of less than 0.005%.

(3)  Annualized.

(4)  Not annualized.

See notes to financial statements
15




SMID-Cap Portfolio as of March 31, 2008

NOTES TO FINANCIAL STATEMENTS (Unaudited)

1  Significant Accounting Policies

SMID-Cap Portfolio (the Portfolio) is a New York trust registered under the Investment Company Act of 1940, as amended (the 1940 Act), as a diversified, open-end management investment company. The Portfolio's investment objective is to achieve long-term capital growth by investing in a diversified selection of common stocks of small to mid-sized companies having market capitalizations within the range of companies comprising the Russell 2500 Index. The Declaration of Trust permits the Trustees to issue interests in the Portfolio. At March 31, 2008, Eaton Vance-Atlanta Capital SMID-Cap Fund and Eaton Vance Equity Asset Allocation Fund held an interest of 86.4% and 5.3%, respectively, in the Portfolio.

The following is a summary of significant accounting policies of the Portfolio. The policies are in conformity with accounting principles generally accepted in the United States of America.

A  Investment Valuation — Equity securities listed on a U.S. securities exchange generally are valued at the last sale price on the day of valuation or, if no sales took place on such date, at the mean between the closing bid and asked prices therefore on the exchange where such securities are principally traded. Equity securities listed on the NASDAQ Global or Global Select Market generally are valued at the NASDAQ official closing price. Unlisted or listed securities for which closing sales prices or closing quotations are not available are valued at the mean between the latest available bid and asked prices or, in the case of preferred equity securities that are not listed or traded in the over-the-counter market, by an independent pricing service. Short-term debt securities with a remaining maturity of sixty days or less are valued at amortized cost, which approximates market value. If short-term debt securities are acquired with a remaining maturity of more than sixty days, they will be valued by a pricing service. Other fixed income and debt securities, including listed securities and securities for which price quotations are available, will normally be valued on the basis of valuations furnished by a pricing service. Foreign securities and currencies are valued in U.S. dollars, based on foreign currency exchange rate quotations supplied by an independent quotation service. The daily valuation of exchange-traded foreign securities generally is determined as of the close of trading on the principal exchange on which such securities trade. Events occurring after the close of trading on foreign exchanges may result in adjustments to the valuation of foreign securities to more accurately reflect their fair value as of the close of regular trading on the New York Stock Exchange. When valuing foreign equity securities that meet certain criteria, the Trustees have approved the use of a fair value service that values such securities to reflect market trading that occurs after the close of the applicable foreign markets of comparable securities or other instruments that have a strong correlation to the fair-valued securities. Investments for which valuations or market quotations are not readily available are valued at fair value using methods determined in good faith by or at the direction of the Trustees of the Portfolio considering relevant factors, data and information including the market value of freely tradable securities of the same class in the principal market on which such securities are normally traded.

B  Investment Transactions — Investment transactions for financial statement purposes are accounted for on a trade date basis. Realized gains and losses on investments sold are determined on the basis of identified cost.

C  Income — Dividend income is recorded on the ex-dividend date for dividends received in cash and/or securities. Interest income is recorded on the basis of interest accrued, adjusted for amortization of premium or accretion of discount.

D  Federal Taxes — The Portfolio has elected to be treated as a partnership for federal tax purposes. No provision is made by the Portfolio for federal or state taxes on any taxable income of the Portfolio because each investor in the Portfolio is ultimately responsible for the payment of any taxes on its share of taxable income. Since at least one of the Portfolio's investors is a regulated investment company that invests all or substantially all of its assets in the Portfolio, the Portfolio normally must satisfy the applicable source of income and diversification requirements (under the Internal Revenue Code) in order for its investors to satisfy them. The Portfolio will allocate, at least annually among its investors, each investor's distributive share of the Portfolio's net investment income, net realized capital gains and any other items of income, gain, loss, deduction or credit.

In June 2006, the Financial Accounting Standards Board (FASB) issued FASB Interpretation No. 48 (FIN 48), "Accounting for Uncertainty in Income Taxes – an interpretation of FASB Statement No. 109". FIN 48 clarifies the accounting for uncertainty in income taxes recognized in accordance with FASB Statement No. 109, "Accounting for Income Taxes". This interpretation prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. It also provides guidance on de-recognition, classification,


16



SMID-Cap Portfolio as of March 31, 2008

NOTES TO FINANCIAL STATEMENTS (Unaudited) CONT'D

interest and penalties, accounting in interim periods, disclosure and transition. FIN 48 is effective on the last business day of the first required financial reporting period for fiscal years beginning after December 15, 2006. Management has concluded that as of March 31, 2008, there are no uncertain tax positions that would require financial statement recognition, de-recognition, or disclosure. Each of the Portfolio's federal tax returns filed in the 3-year period ended September 30, 2007 remains subject to examination by the Internal Revenue Service.

E  Expense Reduction — State Street Bank and Trust Company (SSBT) serves as custodian of the Portfolio. Pursuant to the custodian agreement, SSBT receives a fee reduced by credits, which are determined based on the average daily cash balance the Portfolio maintains with SSBT. All credit balances, if any, used to reduce the Portfolio's custodian fees are reported as a reduction of expenses in the Statement of Operations.

F  Use of Estimates — The preparation of the financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of income and expense during the reporting period. Actual results could differ from those estimates.

G  Indemnifications — Under the Portfolio's organizational documents, its officers and Trustees may be indemnified against certain liabilities and expenses arising out of the performance of their duties to the Portfolio. Interestholders in the Portfolio are jointly and severally liable for the liabilities and obligations of the Portfolio in the event that the Portfolio fails to satisfy such liabilities and obligations; provided, however, that, to the extent assets are available in the Portfolio, the Portfolio may, under certain circumstances, indemnify interestholders from and against any claim or liability to which such holder may become subject by reason of being or having been an interestholder in the Portfolio. Additionally, in the normal course of business, the Portfolio enters into agreements with service providers that may contain indemnification clauses. The Portfolio's maximum exposure under these arrangements is unknown as this would involve future claims that may be made against the Portfolio that have not yet occurred.

H  Interim Financial Statements — The interim financial statements relating to March 31, 2008 and for the six months then ended have not been audited by an independent registered public accounting firm, but in the opinion of the Portfolio's management, reflect all adjustments, consisting only of normal recurring adjustments, necessary for the fair presentation of the financial statements.

2  Investment Adviser Fee and Other Transactions with Affiliates

The investment adviser fee is earned by Boston Management and Research (BMR), a subsidiary of Eaton Vance Management (EVM), as compensation for management and investment advisory services rendered to the Portfolio. The fee is computed at an annual rate of 1.00% of the Portfolio's average daily net assets up to $500 million and at reduced rates as daily net assets exceed that level, and is payable monthly. Pursuant to a sub-advisory agreement, BMR pays Atlanta Capital Management Company, LLC (Atlanta Capital), an affiliate of EVM, a portion of its advisory fee for sub-advisory services provided to the Portfolio. For the six months ended March 31, 2008, the adviser fee was 1.00% (annualized) of the Portfolio's average daily net assets and amounted to $168,513. Effective October 17, 2006, BMR and Atlanta Capital have agreed to waive a portion of their respective investment advisory and sub-advisory fees so that the investment adviser fee will be equal to 0.80% annually of the Portfolio's average daily net assets. This agreement may be changed or terminated on or after January 31, 2009. For the six months ended March 31, 2008, BMR waived $33,703 of its advisory fee. Atlanta Capital, in turn, waived $25,276 of its sub-advisory fee. BMR has also agreed to reduce the investment adviser fee by an amount equal to that portion of commissions paid to broker dealers in execution of security transactions attributed to the Portfolio that is consideration for third-party research services. For the six months ended March 31, 2008, BMR waived $1,783 of its adviser fee. Atlanta Capital, in turn, waived $1,783 of its sub-advisory fee. In addition, pursuant to a voluntary expense reimbursement, BMR and Atlanta Capital were allocated $940 and $2,822, respectively, of the Portfolio's operating expenses for the six months ended March 31, 2008.

Except for Trustees of the Portfolio who are not members of EVM's or BMR's organizations, officers and Trustees receive remuneration for their services to the Portfolio out of the investment adviser fee. Trustees of the Portfolio who are not affiliated with the investment adviser may elect to defer receipt of all or a percentage of their annual fees in accordance with the terms of the Trustees Deferred Compensation Plan. For the six months ended March 31, 2008, no significant amounts have been deferred. Certain officers and Trustees of the Portfolio are officers of the above organizations.


17



SMID-Cap Portfolio as of March 31, 2008

NOTES TO FINANCIAL STATEMENTS (Unaudited) CONT'D

3  Purchases and Sales of Investments

Purchases and sales of investments, other than short-term obligations, aggregated $11,740,957 and $7,505,810, respectively, for the six months ended March 31, 2008.

4  Federal Income Tax Basis of Investments

The cost and unrealized appreciation (depreciation) of investments of the Portfolio at March 31, 2008, as determined on a federal income tax basis, were as follows:

Aggregate cost   $ 32,776,659    
Gross unrealized appreciation   $ 4,327,734    
Gross unrealized depreciation     (2,539,845 )  
Net unrealized appreciation   $ 1,787,889    

 

5  Line of Credit

The Portfolio participates with other portfolios and funds managed by EVM and its affiliates in a $200 million unsecured line of credit agreement with a group of banks. Borrowings are made by the Portfolio solely to facilitate the handling of unusual and/or unanticipated short-term cash requirements. Interest is charged to the Portfolio based on its borrowings at an amount above either the Eurodollar rate or Federal Funds rate. In addition, a fee computed at an annual rate of 0.07% on the daily unused portion of the line of credit is allocated among the participating portfolios and funds at the end of each quarter. The Portfolio did not have any significant borrowings or allocated fees during the six months March 31, 2008.

6  Recently Issued Accounting Pronouncement

In September 2006, the FASB issued Statement of Financial Accounting Standards No. 157 (FAS 157), "Fair Value Measurements". FAS 157 defines fair value, establishes a framework for measuring fair value in accordance with generally accepted accounting principles and expands disclosure about fair value measurements. FAS 157 is effective for fiscal years beginning after November 15, 2007. As of March 31, 2008, management does not believe the adoption of FAS 157 will impact the amounts reported in the financial statements; however, additional disclosures may be required about the inputs used to develop the measurements of fair value and the effect of certain of the measurements on changes in net assets for the period.


18




Eaton Vance-Atlanta Capital SMID-Cap Fund

BOARD OF TRUSTEES' ANNUAL APPROVAL OF THE INVESTMENT ADVISORY AGREEMENT

Overview of the Contract Review Process

The Investment Company Act of 1940, as amended (the "1940 Act"), provides, in substance, that each investment advisory agreement between a fund and its investment adviser will continue in effect from year to year only if its continuance is approved at least annually by the fund's board of trustees, including by a vote of a majority of the trustees who are not "interested persons" of the fund ("Independent Trustees"), cast in person at a meeting called for the purpose of considering such approval.

At a meeting of the Boards of Trustees (each a "Board") of the Eaton Vance group of mutual funds (the "Eaton Vance Funds") held on April 23, 2007, the Board, including a majority of the Independent Trustees, voted to approve continuation of existing advisory and sub-advisory agreements for the Eaton Vance Funds for an additional one-year period. In voting its approval, the Board relied upon the affirmative recommendation of the Special Committee of the Board, which is a committee comprised exclusively of Independent Trustees. Prior to making its recommendation, the Special Committee reviewed information furnished for a series of meetings of the Special Committee held in February, March and April 2007. Such information included, among other things, the following:

Information about Fees, Performance and Expenses

•  An independent report comparing the advisory and related fees paid by each fund with fees paid by comparable funds;

•  An independent report comparing each fund's total expense ratio and its components to comparable funds;

•  An independent report comparing the investment performance of each fund to the investment performance of comparable funds over various time periods;

•  Data regarding investment performance in comparison to relevant peer groups of funds and appropriate indices;

•  Comparative information concerning fees charged by each adviser for managing other mutual funds and institutional accounts using investment strategies and techniques similar to those used in managing the fund;

•  Profitability analyses for each adviser with respect to each fund;

Information about Portfolio Management

•  Descriptions of the investment management services provided to each fund, including the investment strategies and processes employed;

•  Information concerning the allocation of brokerage and the benefits received by each adviser as a result of brokerage allocation, including information concerning the acquisition of research through "soft dollar" benefits received in connection with the funds' brokerage, and the implementation of a soft dollar reimbursement program established with respect to the funds;

•  Data relating to portfolio turnover rates of each fund;

•  The procedures and processes used to determine the fair value of fund assets and actions taken to monitor and test the effectiveness of such procedures and processes;

Information about each Adviser

•  Reports detailing the financial results and condition of each adviser;

•  Descriptions of the qualifications, education and experience of the individual investment professionals whose responsibilities include portfolio management and investment research for the funds, and information relating to their compensation and responsibilities with respect to managing other mutual funds and investment accounts;

•  Copies of the Codes of Ethics of each adviser and its affiliates, together with information relating to compliance with and the administration of such codes;

•  Copies of or descriptions of each adviser's proxy voting policies and procedures;

•  Information concerning the resources devoted to compliance efforts undertaken by each adviser and its affiliates on behalf of the funds (including descriptions of various compliance programs) and their record of compliance with investment policies and restrictions, including policies with respect to market-timing, late trading and selective portfolio disclosure, and with policies on personal securities transactions;

•  Descriptions of the business continuity and disaster recovery plans of each adviser and its affiliates;

Other Relevant Information

•  Information concerning the nature, cost and character of the administrative and other non-investment management services provided by Eaton Vance Management and its affiliates;

•  Information concerning management of the relationship with the custodian, subcustodians and fund accountants by each adviser or the funds' administrator; and

•  The terms of each advisory agreement.


19



Eaton Vance-Atlanta Capital SMID-Cap Fund

BOARD OF TRUSTEES' ANNUAL APPROVAL OF THE INVESTMENT ADVISORY AGREEMENT CONT'D

In addition to the information identified above, the Special Committee considered information provided from time to time by each adviser throughout the year at meetings of the Board and its committees. Over the course of the twelve-month period ended April 30, 2007, the Board met ten times and the Special Committee, the Audit Committee and the Governance Committee, each of which is a Committee comprised solely of Independent Trustees, met twelve, fourteen and eight times, respectively. At such meetings, the Trustees received, among other things, presentations by the portfolio managers and other investment professionals of each adviser relating to the investment performance of each fund and the investment strategies used in pursuing the fund's investment objective.

For funds that invest through one or more underlying portfolios, the Board considered similar information about the portfolio(s) when considering the approval of advisory agreements. In addition, in cases where the fund's investment adviser has engaged a sub-adviser, the Board considered similar information about the sub-adviser when considering the approval of any sub-advisory agreement.

The Special Committee was assisted throughout the contract review process by Goodwin Procter LLP, legal counsel for the Independent Trustees. The members of the Special Committee relied upon the advice of such counsel and their own business judgment in determining the material factors to be considered in evaluating each advisory and sub-advisory agreement and the weight to be given to each such factor. The conclusions reached with respect to each advisory and sub-advisory agreement were based on a comprehensive evaluation of all the information provided and not any single factor. Moreover, each member of the Special Committee may have placed varying emphasis on particular factors in reaching conclusions with respect to each advisory and sub-advisory agreement.

Results of the Process

Based on its consideration of the foregoing, and such other information as it deemed relevant, including the factors and conclusions described below, the Special Committee concluded that the continuance of the investment advisory agreement of SMID-Cap Portfolio (the "Portfolio"), the underlying Portfolio in which Eaton Vance-Atlanta Capital SMID-Cap Fund (the "Fund") invests, with Boston Management and Research (the "Adviser") and the sub-advisory agreement with Atlanta Capital Management Company, LLC (the "Sub-adviser"), including the fee structures, is in the interests of shareholders and, therefore, the Special Committee recommended to the Board approval of the agreements. The Board accepted the recommendation of the Special Committee as well as the factors considered and conclusions reached by the Special Committee with respect to the agreements. Accordingly, the Board, including a majority of the Independent Trustees, voted to approve continuation of the investment advisory and sub-advisory agreements for the Portfolio.

Nature, Extent and Quality of Services

In considering whether to approve the investment advisory and sub-advisory agreements of the Portfolio, the Board evaluated the nature, extent and quality of services provided to the Portfolio by the Adviser and the Sub-adviser.

The Board considered the Adviser's and the Sub-adviser's management capabilities and investment process with respect to the types of investments held by the Portfolio, including the education, experience and number of its investment professionals and other personnel who provide portfolio management, investment research, and similar services to the Portfolio and whose responsibilities include supervising the Sub-adviser. The Board also took into account the resources dedicated to portfolio management and other services, including the compensation paid to recruit and retain investment personnel, and the time and attention devoted to the Fund by senior management. With respect to the Sub-adviser, the Board took into account the resources available to the Sub-adviser in fulfilling its duties under the sub-advisory agreement and the Sub-adviser's experience in managing equity portfolios.

The Board reviewed the compliance programs of the Adviser and its affiliates, including the Sub-adviser. Among other matters, the Board considered compliance and reporting matters relating to personal trading by investment personnel, selective disclosure of portfolio holdings, late trading, frequent trading, portfolio valuation, business continuity and the allocation of investment opportunities. The Board also evaluated the responses of the Adviser and its affiliates, including the Sub-adviser, to requests from regulatory authorities such as the Securities and Exchange Commission and the National Association of Securities Dealers.

The Board considered shareholder and other administrative services provided or managed by Eaton Vance Management and its affiliates, including transfer agency and accounting services. The Board evaluated the benefits to shareholders of investing in a fund that is a part of a large family of funds, including the ability, in many cases, to exchange an investment among different funds without incurring additional sales charges.

After consideration of the foregoing factors, among others, the Board concluded that the nature, extent and quality of services provided by the Adviser and Sub-adviser, taken as a whole, are appropriate and consistent with the terms of the respective investment advisory agreements.


20



Eaton Vance-Atlanta Capital SMID-Cap Fund

BOARD OF TRUSTEES' ANNUAL APPROVAL OF THE INVESTMENT ADVISORY AGREEMENT CONT'D

Fund Performance

The Board compared the Fund's investment performance to a relevant universe of similarly managed funds identified by an independent data provider and appropriate benchmark indices. The Board reviewed comparative performance data for the one-year period ended September 30, 2006 for the Fund. The Board noted that, unlike many other funds in its peer group, the Fund is managed by the Sub-adviser with an emphasis on higher quality growth companies. The Board also reviewed information provided by the Sub-adviser concerning the relative performance of the Fund compared with other mutual funds that focus on higher quality growth companies. The Board concluded that the performance of the Fund was satisfactory.

Management Fees and Expenses

The Board reviewed contractual investment advisory fee rates, including any administrative fee rates, payable by the Portfolio and by the Fund (referred to collectively as "management fees"). As part of its review, the Board considered the Portfolio's and the Fund's management fees and total expense ratio for the year ended September 30, 2006, as compared to a group of similarly managed funds selected by an independent data provider. The Board considered the fact that the Adviser had waived fees and/or paid expenses of the Fund and noted that in October 2006 the Adviser implemented additional waivers/reimbursements with respect to the Portfolio.

After reviewing the foregoing information, and in light of the nature, extent and quality of the services provided by the Adviser, the Board concluded with respect to the Portfolio and the Fund that the management fees charged to the Portfolio and the Fund for advisory and related services and the total expense ratio of the Fund are reasonable.

Profitability

The Board reviewed the level of profits realized by the Adviser and its affiliates, including the Sub-adviser, in providing investment advisory and administrative services to the Fund and the Portfolio and to all Eaton Vance Funds as a group. The Board considered the level of profits realized without regard to revenue sharing or other payments by the Adviser and its affiliates to third parties in respect of distribution services. The Board also considered other direct or indirect benefits received by the Adviser and its affiliates, including the Sub-adviser, in connection with its relationship with the Portfolio, including the benefits of research services that may be available to the Adviser or the Sub-adviser as a result of securities transactions effected for the Portfolio and other investment advisory clients.

The Board concluded that, in light of the foregoing factors and the nature, extent and quality of the services rendered, the profits realized by the Adviser and its affiliates, including the Sub-adviser, are reasonable.

Economies of Scale

In reviewing management fees and profitability, the Board also considered the extent to which the Adviser and its affiliates, including the Sub-adviser, on the one hand, and the Fund, on the other hand, can expect to realize benefits from economies of scale as the assets of the Fund increase. The Board acknowledged the difficulty in accurately measuring the benefits resulting from the economies of scale with respect to the management of any specific fund or group of funds. The Board reviewed data summarizing the increases and decreases in the assets of the Fund and of all Eaton Vance Funds as a group over various time periods, and evaluated the extent to which the total expense ratio of the Fund and the profitability of the Adviser and its affiliates, including the Sub-adviser, may have been affected by such increases or decreases. Based upon the foregoing, the Board concluded that the benefits from economies of scale are currently being shared equitably by the Adviser and its affiliates, including the Sub-adviser, and the Fund. The Board also concluded that, assuming reasonably foreseeable increases in the assets of the Portfolio, the structure of the advisory fee, which includes breakpoints at several asset levels, can be expected to cause the Adviser and its affiliates, including the Sub-adviser, and the Fund to continue to share such benefits equitably.


21




Eaton Vance-Atlanta Capital SMID-Cap Fund

INVESTMENT MANAGEMENT

Eaton Vance-Atlanta Capital SMID-Cap Fund

Officers
Thomas E. Faust Jr.
Trustee and President
Barbara E. Campbell
Treasurer
Maureen A. Gemma
Secretary
Paul M. O'Neil
Chief Compliance Officer
John E. Pelletier
Chief Legal Officer
  Trustees
Ralph F. Verni
Chairman
Benjamin C. Esty
Allen R. Freedman
William H. Park
Ronald A. Pearlman
Norton H. Reamer
Heidi L. Steiger
Lynn A. Stout
 

 

SMID-Cap Portfolio

Officers
Duncan W. Richardson
President
Thomas E. Faust Jr.
Trustee and Vice President
William O. Bell, IV
Vice President
W. Matthew Hereford
Vice President
Charles B. Reed
Vice President
Barbara E. Campbell
Treasurer
Maureen A. Gemma
Secretary
Paul M. O'Neil
Chief Compliance Officer
John E. Pelletier
Chief Legal Officer
  Trustees
Ralph F. Verni
Chairman
Benjamin C. Esty
Allen R. Freedman
William H. Park
Ronald A. Pearlman
Norton H. Reamer
Heidi L. Steiger
Lynn A. Stout
 

 


22



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Investment Adviser of SMID-Cap Portfolio
Boston Management and Research

The Eaton Vance Building
255 State Street
Boston, MA 02109

Sub-Adviser of SMID-Cap Portfolio
Atlanta Capital Management Company, LLC

1349 West Peachtree Street
Suite 1600
Atlanta, GA 30309

Administrator of Eaton Vance-Atlanta Capital SMID-Cap Fund
Eaton Vance Management

The Eaton Vance Building
255 State Street
Boston, MA 02109

Principal Underwriter
Eaton Vance Distributors, Inc.

The Eaton Vance Building
255 State Street
Boston, MA 02109
(617) 482-8260

Custodian
State Street Bank and Trust Company

200 Clarendon Street
Boston, MA 02116

Transfer Agent
PFPC Inc.

Attn: Eaton Vance Funds
P.O. Box 9653
Providence, RI 02940-9653
(800) 262-1122

Eaton Vance-Atlanta Capital SMID-Cap Fund
The Eaton Vance Building
255 State Street
Boston, MA 02109

This report must be preceded or accompanied by a current prospectus. Before investing, investors should consider carefully the Fund's investment objective(s), risks, and charges and expenses. The Fund's current prospectus contains this and other information about the Fund and is available through your financial advisor. Please read the prospectus carefully before you invest or send money. For further information please call 1-800-225-6265.



1452-5/08  ASCSRC




 

Item 2. Code of Ethics

 

The registrant has adopted a code of ethics applicable to its Principal Executive Officer, Principal Financial Officer and Principal Accounting Officer.  The registrant undertakes to provide a copy of such code of ethics to any person upon request, without charge, by calling 1-800-262-1122.

 

Item 3. Audit Committee Financial Expert

 

The registrant’s Board has designated William H. Park and Norton H. Reamer, each an independent trustee, as its audit committee financial experts.  Mr. Park is a certified public accountant who is the Vice Chairman of Commercial Industrial Finance Corp (specialty finance company). Previously, he served as President and Chief Executive Officer of Prizm Capital Management, LLC (investment management firm) and as Executive Vice President and Chief Financial Officer of United Asset Management Corporation (“UAM”) (a holding company owning institutional investment management firms). Mr. Reamer is the President, Chief Executive Officer and a Director of Asset Management Finance Corp. (a specialty finance company serving the investment management industry) and is President of Unicorn Corporation (an investment and financial advisory services company).  Formerly, Mr. Reamer was Chairman and Chief Operating Officer of Hellman, Jordan Management Co., Inc. (an investment management company) and Advisory Director of Berkshire Capital Corporation (an investment banking firm), Chairman of the Board of UAM and Chairman, President and Director of the UAM Funds (mutual funds).

 

Item 4. Principal Accountant Fees and Services

 

Not required in this filing

 

Item 5.  Audit Committee of Listed registrants

 

Not required in this filing.

 

Item 6. Schedule of Investments

 

Please see schedule of investments contained in the Report to Stockholders included under Item 1 of this Form N-CSR.

 

Item 7. Disclosure of Proxy Voting Policies and Procedures for Closed-End Management Investment Companies

 

Not required in this filing.

 

Item 8. Portfolio Managers of Closed-End Management Investment Companies

 

Not required in this filing.

 

Item 9. Purchases of Equity Securities by Closed-End Management Investment Company and Affiliated Purchasers.

 

Not required in this filing.

 

Item 10. Submission of Matters to a Vote of Security Holders.

 

No Material Changes.

 



 

Item 11. Controls and Procedures

 

(a) It is the conclusion of the registrant’s principal executive officer and principal financial officer that the effectiveness of the registrant’s current disclosure controls and procedures (such disclosure controls and procedures having been evaluated within 90 days of the date of this filing) provide reasonable assurance that the information required to be disclosed by the registrant has been recorded, processed, summarized and reported within the time period specified in the Commission’s rules and forms and that the information required to be disclosed by the registrant has been accumulated and communicated to the registrant’s principal executive officer and principal financial officer in order to allow timely decisions regarding required disclosure.

 

(b) There have been no changes in the registrant’s internal controls over financial reporting during the second fiscal quarter of the period covered by this report that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting.

 

Item 12. Exhibits

 

(a)(1)

Registrant’s Code of Ethics – Not applicable (please see Item 2).

(a)(2)(i)

Treasurer’s Section 302 certification.

(a)(2)(ii)

President’s Section 302 certification.

(b)

Combined Section 906 certification.

 



 

Signatures

 

Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

By:

/s/Duncan W. Richardson

 

 

Duncan W. Richardson

 

 

President

 

 

 

 

 

 

 

Date:

May 13, 2008

 

 

Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

 

 

By:

/s/Barbara E. Campbell

 

 

Barbara E. Campbell

 

 

Treasurer

 

 

 

 

 

 

 

Date:

May 13, 2008

 

 

 

 

 

 

 

By:

/s/Duncan W. Richardson

 

 

Duncan W. Richardson

 

 

President

 

 

 

 

 

 

 

Date:

May 13, 2008