<PAGE>
INVESTMENT GRADE INCOME PORTFOLIO AS OF JUNE 30, 2000
PORTFOLIO OF INVESTMENTS (UNAUDITED)
CORPORATE BONDS -- 58.2%
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
SECURITY (000'S OMITTED) VALUE
<S> <C> <C>
-----------------------------------------------------------------------
Air Products and Chemicals, Inc., MTN,
7.34%, 6/15/26 $ 720 $ 709,985
Associates Corp., N.A., 5.96%, 5/15/37 30 29,654
Bellsouth Telecommunications, Inc.,
5.85%, 11/15/45 1,510 1,504,715
BHP Finance, 6.42%, 3/1/26 80 77,366
Commercial Credit Corp., 6.625%, 6/1/15 1,000 989,820
Commercial Credit Corp., 7.875%, 2/1/25 2,000 2,064,700
Dayton Hudson, MTN, 5.865%, 8/15/27 2,490 2,486,987
Eaton Corp., 6.50%, 6/1/25 400 385,968
Eaton Corp., 8.875%, 6/15/19 200 223,528
First Union National Bank of Florida,
6.18%, 2/15/36 125 115,164
Grand Metropolitan Investment Corp.,
7.45%, 4/15/35 3,090 3,094,635
Harris Corp., 6.65%, 8/1/06 3,000 2,972,490
Hertz Corp., 6.30%, 11/15/06 25 24,289
IBM Corp., 6.22%, 8/1/27 65 63,042
Ingersoll-Rand MTN, 6.015%, 2/15/28 25 24,851
Inter-American Development Bank, 6.95%,
8/1/26 220 218,269
Inter-American Development Bank, 8.40%,
9/1/09 3,690 4,014,314
ITT Corp., 8.55%, 6/15/09 450 462,451
Johnson Controls, 7.70%, 3/1/15 3,000 3,056,370
Lowe's Cos., Inc., MTN, 7.11%, 5/15/37 5,000 4,946,450
Mead Corp., 6.84%, 3/1/37 2,000 1,879,360
Motorola, Inc., 6.50%, 9/1/25 3,000 2,916,810
NBD Bank N.A., 8.25%, 11/1/24 135 141,522
Penney (JC) Co., Inc., 7.40%, 4/1/37 2,000 1,808,440
Procter and Gamble Co., 8.00%, 9/1/24 3,000 3,200,010
Seagram (Joseph) & Sons, Inc., 9.65%,
8/15/18 1,030 1,143,207
State Street Bank, 7.35%, 6/15/26 2,450 2,405,900
Tennessee Valley Authority, 5.88%,
4/1/36 3,350 3,194,661
Tennessee Valley Authority, 6.235%,
7/15/45 1,700 1,691,398
Times Mirror Co., 6.61%, 9/15/27 3,250 3,157,408
Transcontinental Gas Pipeline Corp.,
7.08%, 7/15/26 2,600 2,579,382
Tribune Co., MTN, 6.25%, 11/10/26 1,000 985,080
TRW, Inc., MTN, 9.35%, 6/4/20 1,395 1,508,441
Washington Gas Light Co., MTN, 7.50%,
4/1/30 2,000 1,997,020
Willamette Industries, 7.35%, 7/1/26 4,000 3,901,760
-----------------------------------------------------------------------
Total Corporate Bonds
(identified cost $62,623,864) $ 59,975,447
-----------------------------------------------------------------------
</TABLE>
MORTGAGE PASS-THROUGHS -- 4.2%
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
SECURITY (000'S OMITTED) VALUE
<S> <C> <C>
-----------------------------------------------------------------------
FHLMC, PAC CMO, Series 1627-PZ, 5.60%,
8/15/17 $ 1,711 $ 1,701,185
FHLMC, PAC CMO, Series 1630-PE, 5.50%,
5/15/18 285 283,535
FHLMC, PAC CMO, Series 41-F, 10.00%,
5/15/20 727 760,555
FNMA, PAC CMO, Series 1990 24-E,
9.00%, 3/25/20 324 328,329
FNMA, PAC CMO, Series 1992 64-H,
7.50%, 9/25/06 1,227 1,229,721
-----------------------------------------------------------------------
Total Mortgage Pass-Throughs
(identified cost $4,268,136) $ 4,303,325
-----------------------------------------------------------------------
</TABLE>
U.S. TREASURY OBLIGATIONS -- 35.0%
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
SECURITY (000'S OMITTED) VALUE
<S> <C> <C>
-----------------------------------------------------------------------
U.S. Treasury Bond, 7.25%, 8/15/22 $ 3,000 $ 3,375,210
U.S. Treasury Bond, 7.50%, 11/15/16 7,500 8,471,400
U.S. Treasury Bond, 10.75%, 8/15/05 10,000 11,924,200
U.S. Treasury Note, 5.75%, 11/30/02 9,500 9,363,390
U.S. Treasury Note, 6.50%, 5/31/02 3,000 3,004,440
-----------------------------------------------------------------------
Total U.S. Treasury Obligations
(identified cost, $36,408,369) $ 36,138,640
-----------------------------------------------------------------------
</TABLE>
COMMERCIAL PAPER -- 0.9%
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
SECURITY (000'S OMITTED) VALUE
<S> <C> <C>
-----------------------------------------------------------------------
Associates Corp. of North America,
6.89%, 7/3/00 $ 893 $ 892,658
-----------------------------------------------------------------------
Total Commercial Paper
(at amortized cost $892,658) $ 892,658
-----------------------------------------------------------------------
Total Investments -- 98.3%
(identified cost $104,193,027) $101,310,070
-----------------------------------------------------------------------
Other Assets, Less Liabilities -- 1.7% $ 1,759,140
-----------------------------------------------------------------------
Net Assets -- 100.0% $103,069,210
-----------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
20
<PAGE>
INVESTMENT GRADE INCOME PORTFOLIO AS OF JUNE 30, 2000
FINANCIAL STATEMENTS (UNAUDITED)
STATEMENT OF ASSETS AND LIABILITIES
<TABLE>
<CAPTION>
AS OF JUNE 30, 2000
<S> <C>
Assets
------------------------------------------------------
Investments, at value
(identified cost, $104,193,027) $101,310,070
Cash 685
Interest receivable 1,990,518
------------------------------------------------------
TOTAL ASSETS $103,301,273
------------------------------------------------------
Liabilities
------------------------------------------------------
Payable for investments purchased $ 218,567
Payable to affiliate for Trustees' fees 2,047
Accrued expenses 11,449
------------------------------------------------------
TOTAL LIABILITIES $ 232,063
------------------------------------------------------
NET ASSETS APPLICABLE TO INVESTORS'
INTEREST IN PORTFOLIO $103,069,210
------------------------------------------------------
Sources of Net Assets
------------------------------------------------------
Net proceeds from capital contributions
and withdrawals $105,952,167
Net unrealized depreciation (computed on
the basis of identified cost) (2,882,957)
------------------------------------------------------
TOTAL $103,069,210
------------------------------------------------------
</TABLE>
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE PERIOD ENDED
JUNE 30, 2000
<S> <C>
Investment Income
-----------------------------------------------------
Interest $ 2,323,691
-----------------------------------------------------
TOTAL INVESTMENT INCOME $ 2,323,691
-----------------------------------------------------
Expenses
-----------------------------------------------------
Investment adviser fee $ 207,551
Trustees fees and expenses 2,630
Custodian fee 19,000
Legal and accounting services 7,836
Miscellaneous 113
-----------------------------------------------------
TOTAL EXPENSES $ 237,130
-----------------------------------------------------
NET INVESTMENT INCOME $ 2,086,561
-----------------------------------------------------
Realized and Unrealized Gain (Loss)
-----------------------------------------------------
Net realized gain (loss) --
Investment transactions (identified
cost basis) $(1,519,708)
-----------------------------------------------------
NET REALIZED LOSS $(1,519,708)
-----------------------------------------------------
Change in unrealized appreciation
(depreciation) --
Investments (identified cost basis) $ 2,155,756
-----------------------------------------------------
NET CHANGE IN UNREALIZED APPRECIATION
(DEPRECIATION) $ 2,155,756
-----------------------------------------------------
NET REALIZED AND UNREALIZED GAIN $ 636,048
-----------------------------------------------------
NET INCREASE IN NET ASSETS FROM
OPERATIONS $ 2,722,609
-----------------------------------------------------
</TABLE>
(1) For the period from the start of business, March 7, 2000, to June 30,
2000.
SEE NOTES TO FINANCIAL STATEMENTS
21
<PAGE>
INVESTMENT GRADE INCOME PORTFOLIO AS OF JUNE 30, 2000
FINANCIAL STATEMENTS CONT'D
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
PERIOD ENDED
INCREASE (DECREASE) JUNE 30, 2000
IN NET ASSETS (UNAUDITED)(1)
<S> <C>
--------------------------------------------------------
From operations --
Net investment income $ 2,086,561
Net realized loss (1,519,708)
Net change in unrealized appreciation
(depreciation) 2,155,756
--------------------------------------------------------
NET INCREASE IN NET ASSETS FROM
OPERATIONS $ 2,722,609
--------------------------------------------------------
Capital transactions --
Net assets contributed by Eaton Vance
Balanced Fund $ 112,515,428
Contributions 462,914
Withdrawals (12,731,751)
--------------------------------------------------------
NET INCREASE IN NET ASSETS FROM CAPITAL
TRANSACTIONS $ 100,246,591
--------------------------------------------------------
NET INCREASE IN NET ASSETS $ 102,969,200
--------------------------------------------------------
Net Assets
--------------------------------------------------------
At beginning of period $ 100,010
--------------------------------------------------------
AT END OF PERIOD $ 103,069,210
--------------------------------------------------------
</TABLE>
(1) For the period from the start of business, March 7, 2000, to June 30,
2000.
SEE NOTES TO FINANCIAL STATEMENTS
22
<PAGE>
INVESTMENT GRADE INCOME PORTFOLIO AS OF JUNE 30, 2000
FINANCIAL STATEMENTS CONT'D
SUPPLEMENTARY DATA
<TABLE>
<CAPTION>
PERIOD ENDED
JUNE 30, 2000
(UNAUDITED)(1)
<S> <C>
------------------------------------------------------
Ratios/Supplemental Data
------------------------------------------------------
Ratios (As a percentage of average
daily net assets):
Expenses 0.72%(2)
Net investment income 6.30%(2)
Portfolio Turnover 26%
------------------------------------------------------
NET ASSETS, END OF PERIOD (000'S
OMITTED) $103,069
------------------------------------------------------
</TABLE>
(1) For the period from the start of business, March 7, 2000 to June 30,
2000.
(2) Annualized.
SEE NOTES TO FINANCIAL STATEMENTS
23
<PAGE>
INVESTMENT GRADE INCOME PORTFOLIO AS OF JUNE 30, 2000
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
1 Significant Accounting Policies
-------------------------------------------
Investment Grade Income Portfolio (the Portfolio) is registered under the
Investment Company Act of 1940, as amended, as a diversified, open-end,
management investment company. The Portfolio, which was organized as a trust
under the laws of the State of New York on February 28, 2000, seeks to
achieve current income and total return by investing in a portfolio
consisting primarily of fixed-income securities. The Declaration of Trust
permits the Trustees to issue interests in the Portfolio. The following is a
summary of significant accounting policies of the Portfolio. The policies are
in conformity with generally accepted accounting principles.
A Investment 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. Short-term obligations and
money market securities maturing in 60 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 to U.S. dollars at the current exchange rate. Investments for
which valuations or market quotations are unavailable are valued at fair
value using methods determined in good faith by or at the direction of
the Trustees.
B Income -- Interest income is determined on the basis of interest accrued,
adjusted for amortization of premium or discount when required for federal
income tax purposes.
C Income Taxes -- The Portfolio has elected to be treated as a partnership for
United States 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 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. Withholding taxes on foreign dividends and
capital gains have been provided for in accordance with the Portfolio's
understanding of the applicable countries' tax rules and rates.
D 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 or losses on
investment transactions attributable to changes in foreign currency exchange
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 results from fluctuations in foreign currency exchange rates
is not separately disclosed.
E Use of Estimates -- The preparation of the financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities at the date of the financial statements and the reported amounts
of income and expense during the reporting period. Actual results could
differ from those estimates.
F Expense Reduction -- Investors Bank & Trust Company (IBT) serves as custodian
to the Portfolio. Pursuant to the respective custodian agreements, IBT
receives a fee reduced by credits which are determined based on the average
daily cash balances the Portfolio maintains with IBT. All significant credit
balances used to reduce the Portfolio's custodian fees are reported as a
reduction of expenses on the Statement of Operations.
G Other -- Investment transactions are accounted for on a trade date basis.
Realized gains and losses are computed based on the specific identification
of the security sold.
H Interim Financial Statements -- The interim financial statements relating to
June 30, 2000 and for the period then ended have not been audited by
independent certified public accountants, but in the opinion of the
Portfolio's management reflect all adjustments, consisting only of normal
recurring adjustments, necessary for the fair presentation of the financial
statements.
24
<PAGE>
INVESTMENT GRADE INCOME PORTFOLIO AS OF JUNE 30, 2000
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) CONT'D
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 computed at the monthly rate of 5/96 of 1% (0.625% annualized) of
the Portfolio's average daily net assets up to $300 million and 1/24 of 1%
(0.50% annualized) of average daily net assets of $300 million and more. For
the period ended June 30, 2000 the fee was equivalent to 0.61% of the
Portfolio's average net assets for such period and amounted to $207,551.
Except as to Trustees of the Portfolio who are not members of EVM's or BMR's
organization, officers and Trustees receive remuneration for their service to
the Portfolio out of such investment adviser fee. Certain officers and
Trustees of the Portfolio are officers of the above organizations. Trustees
of the Portfolio that are not affiliated with the Investment Adviser may
elect to defer receipt of all or a portion of their annual fees in accordance
with the terms of the Trustees Deferred Compensation Plan. For the period
ended June 30, 2000, no significant amounts have been deferred.
3 Investment Transactions
-------------------------------------------
Purchases and sales of investments, other than U.S. Government securities and
short-term obligations, aggregated $4,304,388 and $13,969,936, respectively.
Purchases and sales of U.S. Government agency securities aggregated
$21,028,344 and $20,089,919, respectively.
4 Federal Income Tax Basis of Investments
-------------------------------------------
The cost and unrealized appreciation (depreciation) in value of the
investments owned at June 30, 2000, as computed on a federal income tax
basis, were as follows:
<TABLE>
<S> <C>
AGGREGATE COST $104,193,027
------------------------------------------------------
Gross unrealized appreciation $ 313,546
Gross unrealized depreciation (3,196,503)
------------------------------------------------------
NET UNREALIZED DEPRECIATION $ (2,882,957)
------------------------------------------------------
</TABLE>
5 Line of Credit
-------------------------------------------
The Portfolio participates with other portfolios and funds managed by BMR and
EVM and its affiliates in a $150 million unsecured line of credit agreement
with a group of banks. The Portfolio may temporarily borrow from the line of
credit to satisfy redemption requests or settle investment transactions.
Interest is charged to each portfolio or fund based on its borrowings at an
amount above the Eurodollar rate or federal funds rate. In addition, a fee
computed at an annual rate of 0.10% on the daily unused portion of the line
of credit is allocated among the participating portfolios and funds at the
end of each quarter. The Portfolio did not have any significant borrowings or
allocated fees during the period ended June 30, 2000.
6 Transfer of Net Assets
-------------------------------------------
Prior to the opening of business on March 7, 2000, Eaton Vance Balanced Fund,
pursuant to an Agreement and Plan of Reorganization dated February 29, 2000,
contributed to the Portfolio net assets of $112,515,428, in exchange for an
interest therein, including $5,038,713 of net unrealized depreciation. The
transaction was structured for tax purposes to qualify as a tax free exchange
under the Internal Revenue Code.
25
<PAGE>
EATON VANCE BALANCED FUND AS OF JUNE 30, 2000
INVESTMENT MANAGEMENT
INVESTMENT GRADE INCOME PORTFOLIO
Officers
James B. Hawkes
President and Trustee
Arieh Coll
Vice President
Michael B. Terry
Vice President and
Portfolio Manager
James L. O'Connor
Treasurer
Alan R. Dynner
Secretary
Trustees
Jessica M. Bibliowicz
President and Chief Executive Officer,
National Financial Partners
Donald R. Dwight
President, Dwight Partners, Inc.
Samuel L. Hayes, III
Jacob H. Schiff Professor of Investment Banking
Emeritus, Harvard University Graduate School of
Business Administration
Norton H. Reamer
Chairman of the Board,
United Asset Management Corporation
Lynn A. Stout
Professor of Law,
Georgetown University Law Center
Jack L. Treynor
Investment Adviser and Consultant
26
