<PAGE>
TO SHAREHOLDERS
EV Marathon High Income Fund had a total return of 6.9% for the six months ended
September 30, 1995. This was the result of a rise in net asset value per share
to $7.05 on September 30, 1995, from $6.92 on March 31, 1995, and the
reinvestment of $0.34 per share in income dividends. It does not include
contingent deferred sales charges incurred by certain redeeming shareholders.
For comparison, the Lehman Brothers High Yield Bond Index, an unmanaged index of
corporate bonds, returned 9.1% for the same period.
Based on the Fund's most recent dividend and a net asset value of $7.05, the
Fund had a distribution rate of 9.6% at September 30.
THE HIGH YIELD MARKET CROSSES THE $300 BILLION THRESHOLD IN 1995...
New issuance has again been brisk in 1995, totaling about $20 billion through
September. While that is somewhat lower than the pace of recent years, $35
billion in 1994 and $54 billion in 1993, it shows a continuing reliance by
corporations on the high yield market for financing. By the end of September,
the high yield market had crossed a major threshold, reaching $300 billion in
market capitalization, according to Securities Data Corp. That figure
demonstrates the rapid growth of a market that measured only $120 billion in
1986. Importantly, the new supply has been met by strong demand from investors.
WITH GROWTH HAS COME IMPROVED MARKET LIQUIDITY...
The growth of the high yield market has resulted in improved liquidity, an
important investment criterion for investors. Quality, too, continues to
improve. As one indication of that trend, net upgrades in the market totaled
nearly $10 billion through September alone, according to a recent high yield
market review by CS First Boston.
These trends should provide a favorable background for EV Marathon High Income
Fund. In the following pages, portfolio manager Hooker Talcott reviews the past
year and discusses the outlook for income-seeking investors in the high yield
market.
- ---------------------
[ Photo of
M. Dozier Gardner ]
- ---------------------
Sincerely,
/s/ M. Dozier Gardner
M. Dozier Gardner
President
November 20, 1995
- --------------------------------------------------------------------------------
HIGH INCOME PORTFOLIO: RATINGS
BREAKDOWN OF BOND HOLDINGS*
Aaa ........................ 2.3%
Non-rated .................. 0.4%
Ba ......................... 9.0%
B1 ......................... 13.1%
B2 ......................... 26.0%
B3 ......................... 41.3%
Caa ........................ 7.2%
*Moody's Investors Services ratings; percentages based on market value as of
September 30, 1995.
Source: Eaton Vance Management.
- --------------------------------------------------------------------------------
<PAGE>
MANAGEMENT DISCUSSION
An interview with Hooker Talcott, Jr., Vice President and Portfolio Manager of
High Income Portfolio.
Q. HOOKER, HOW WOULD YOU EVALUATE THE FUND'S PERFORMANCE DURING THE YEAR?
A. Although the market has been somewhat difficult to negotiate, the Fund
posted a good positive total return during the year, up 11.3%. However, the
Treasury market certainly provided a volatile backdrop, and the Fund
underperformed the Lehman Brothers High Yield Bond Index. The primary reason
for the Fund's underperformance was our emphasis on lower-rated,
higher-yielding bonds. These do not respond to the U.S. Treasury* market to
the same degree that higher-rated bonds in the high yield universe do.
Yield spreads - the difference in yields between bonds of varying quality -
widened in the period, meaning that higher-yielding, B-rated bonds - the
primary investment universe of the Portfolio - slightly underperformed their
BB-rated counterparts. I think it's fair to say that, given the difficult
terrain for the high yield market, the Fund fared satisfactorily in this
period. It's important for shareholders to remember that the Fund tends to
emphasize high current yields. Over the long-term, the compounding of those
higher yields can have a significant and beneficial effect on long-term
returns.
Q. HOW HAVE YOU ALTERED THE PORTFOLIO?
A. I've continued the restructuring that I mentioned in our last report.
Namely, decreasing the Portfolio's exposure to cyclical issues, while
increasing our exposure to defensive issues. The current mix is
approxi-mately 65% defensive bonds and 35% cyclical bonds. A year ago, those
percentages were roughly reversed.
- ---------------------
[ Photo of
Hooker Talcott, Jr. ]
- ---------------------
Q. WHAT GROUPS HAVE YOU BEEN BUYING?
A. I've focused on areas of the economy where cash flow and earnings are likely
to remain strong, regardless of the direction of the economy. Those areas
include consumer products, healthcare, cable and broadcasting.
We've purchased companies such as Van de Kamp's, a food processing and
packaging company, and American Safety Razor, a maker of shaving
accessories. These makers of consumer staples are less dependent on a strong
economy than cyclical industries. Health care providers, such as Universal
Healthcare, tend to maintain their growth rates even in a slowing economic
climate. Elsewhere, we've retained an exposure to the cable and broadcasting
segments. Cable television operators, like Marcus Cable, and broadcasters,
such as Young Broadcasting, continue to enjoy good growth.
*High yield bonds carry a higher degree of investment risk, while the principal
and interest of Treasury issues are guaranteed by the U.S. government. High
yield bonds are considered speculative because they present greater risks of
price volatility and default.
<PAGE>
Q. AND WHAT SECTORS HAVE YOU AVOIDED?
A. While the Federal Reserve has apparently managed to engineer a soft landing,
the economy remains in a very delicate balance. At the retail level,
consumers are nearing the upper reaches of their available credit limits,
according to bank industry data. Since consumer spending accounts for around
60% of economic activity in the U.S., that's a cause for concern. We've
therefore lightened up on autos, retailers, and apparel makers.
In the manufacturing sector, inventories have crept higher in recent months.
As Fed chairman Greenspan noted recently, that's a trend that bears watching
because it may signal a slowdown in future manufacturing activity.
Therefore, we've also reduced our holdings among the steels, metals, and
heavy manu-facturers. Moreover, the trends I've mentioned above suggest that
the economic cycle is reaching a more mature stage.
Q. WE'VE DISCUSSED YOUR BUY DISCIPLINE IN PAST REPORTS. BUT WHAT DRIVES YOU TO
SELL A BOND HOLDING?
A. At Eaton Vance, we follow a very credit-intensive approach. Through
"bottom-up" research, we monitor companies very closely for any change in
their creditworthiness. We search for signs of deteriorating fundamentals or
changing economic conditions that might adversely affect the company's
future cash flows or earnings prospects. Equally as important, we try to be
alert to signs that a bond may have reached what we believe is its full
price potential. In that event, we may elect to sell and redirect our
investment into bonds that we believe represent better value.
Q. COULD YOU GIVE A RECENT EXAMPLE?
A. Yes. The Portfolio recently sold an Inland Steel issue, which we had
purchased in 1991 at a yield near 12%. As the manufacturing side of the
economy recovered in the early 1990s, and demand rose both domestically and
abroad, Inland's results improved significantly, and the bonds performed
very well. We sold the issue recently at a yield of 8.5%, after significant
price appreciation. At that level we felt the bonds were fully priced and
chose to look for opportunities elsewhere.
Q. HOOKER, WHAT IS YOUR OUTLOOK FOR THE HIGH-YIELD MARKET?
A. While the economy is clearly less robust than it was six months ago, the
high yield market should continue to fare relatively well. Given the Fed's
success in controlling inflation, we should see less volatility in interest
rates generally. A slow-growth economy will continue to benefit some sectors
of the economy. Meanwhile, yield spreads on 10-year B-rated bonds have
widened to 500 basis points over 10-year Treasuries. Naturally, there are
additional risks associated with high yield bonds, and past trends don't
always guarantee future performance. But in my view, the high yield sector
continues to offer unusual value and good opportunities for the
income-oriented investor.
<PAGE>
EV MARATHON HIGH INCOME FUND
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
- ------------------------------------------------------------------------------
September 30, 1995 (Unaudited)
- ------------------------------------------------------------------------------
ASSETS:
Investment in High Income Portfolio, at value
(Note 1A) (identified cost, $493,960,682) $482,334,581
Receivable for Fund shares sold 1,278,765
------------
Total assets $483,613,346
LIABILITIES:
Dividends payable $1,894,273
Payable for Fund shares redeemed 974,721
Payable to affiliates --
Trustees' fees 853
Custodian fee 1,500
Accrued expenses 271,595
----------
Total liabilities 3,142,942
------------
NET ASSETS for 68,174,930 shares of beneficial
interest outstanding $480,470,404
============
SOURCES OF NET ASSETS:
Paid-in capital $556,303,667
Accumlated distributions in excess of net
investment income (1,463,633)
Accumulated undistributed net realized loss on
investment and financial futures transactions
(computed on the basis of identified cost) (62,743,529)
Unrealized depreciation of investments from
Portfolio (computed on the basis of identified
cost) (11,626,101)
------------
Total $480,470,404
============
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION
PRICE (NOTE 6) PER SHARE ($480,470,404 /
68,174,930 shares of beneficial interest) $7.05
=====
See notes to financial statements
<PAGE>
STATEMENT OF OPERATIONS
- ------------------------------------------------------------------------------
For the Six Months Ended September 30, 1995 (Unaudited)
- --------------------------------------------------------------------------------
INVESTMENT INCOME (NOTE 1B):
Income allocated from Portfolio $26,450,541
Expenses allocated from Portfolio (1,676,060)
-----------
Net investment income from Portfolio $24,774,481
Expenses -
Compensation of Trustees not members of the
Administrators organization (Note 4) $ 2,489
Custodian fee (Notes 4) 14,000
Distribution costs (Note 5) 2,130,000
Transfer and dividend disbursing agent fees 181,623
Legal and accounting services 47,742
Printing and postage 30,810
Registration costs 18,084
Miscellaneous 113,134
----------
Total expenses 2,537,882
-----------
Net investment income $22,236,599
-----------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized loss from Portfolio on investment
transactions (identified cost basis) $ (146,462)
Change in unrealized appreciation of investments 8,225,540
-----------
Net realized and unrealized gain on investments $ 8,079,078
-----------
Net increase in net assets from operations $30,315,677
===========
See notes to financial statements
<PAGE>
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------
SIX MONTHS
ENDED
SEPTEMBER 30, YEAR ENDED
1995 MARCH 31,
(UNAUDITED) 1995
------------ ------------
INCREASE (DECREASE) IN NET ASSETS:
From operations --
Net investment income $ 22,236,599 $ 39,910,197
Net realized loss on investments (146,462) (18,301,289)
Change in unrealized appreciation
(depreciation) of investments 8,225,540 (11,002,226)
------------ ------------
Net increase in net assets
from operations $ 30,315,677 $ 10,606,682
------------ ------------
Distributions to shareholders (Note 2) --
From net investment income $(22,236,599) $(39,910,197)
In excess of net investment income (89,120) (1,365,660)
------------ ------------
Total distributions to shareholders $(22,325,719) $(41,275,857)
------------ ------------
Transactions in shares of beneficial interest
(Note 3) --
Proceeds from sales of shares $ 79,307,774 $207,324,262
Net asset value of shares issued
to shareholders in payment of
distributions declared 7,175,751 13,076,279
Cost of shares redeemed (53,173,929) (149,819,353)
------------ ------------
Increase in net assets from
Fund share transactions $ 33,309,596 $ 70,581,188
------------ ------------
Net increase in net assets $ 41,299,554 $ 39,912,013
NET ASSETS:
At beginning of period 439,170,850 399,258,837
------------ ------------
At end of period (including accumulated
distributions in excess of net investment
income of $1,463,633 and $1,374,513,
respectively) $480,470,404 $439,170,850
============ ============
See notes to financial statements
<PAGE>
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------------------------------------
SIX MONTHS ENDED YEAR ENDED MARCH 31,
SEPTEMBER 30, 1995 --------------------------------------------------
(UNAUDITED) 1995 1994 1993 1992 1991
------------------ -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, beginning of year $ 6.920 $ 7.450 $ 7.480 $ 7.380 $ 6.120 $ 7.430
-------- -------- -------- -------- -------- --------
INCOME (LOSS) FROM OPERATIONS:
Net investment income $ 0.338 $ 0.671 $ 0.697 $ 0.767 $ 0.825 $ 0.973
Net realized and unrealized gain
(loss) on investments 0.131 (0.507) 0.047 0.170 1.356 (1.187)
-------- -------- -------- -------- -------- --------
Total income (loss) from operations $ 0.469 $ 0.164 $ 0.744 $ 0.937 $ 2.181 $ (0.214)
-------- -------- -------- -------- -------- --------
LESS DISTRIBUTIONS:
From net investment income $ (0.338) $ (0.671) $ (0.697) $ (0.767) $ (0.825) $ (0.973)
In excess of net investment income (0.001) (0.023) (0.077) (0.070) (0.096) (0.123)
-------- -------- -------- -------- -------- --------
Total distributions $ (0.339) $ (0.694) $ (0.774) $ (0.837) $ (0.921) $ (1.096)
-------- -------- -------- -------- -------- --------
NET ASSET VALUE, end of year $ 7.050 $ 6.920 $ 7.450 $ 7.480 $ 7.380 $ 6.120
======== ======== ======== ======== ======== ========
TOTAL RETURN(3) 6.86% 2.51% 10.28% 13.41% 38.21% (2.84%)
RATIOS/SUPPLEMENTAL DATA:
Net assets at end of period (000 omitted) $480,470 $439,171 $399,259 $332,854 $252,967 $170,655
Ratio of expenses to average daily
net assets(1) 1.80%+ 1.78% 1.82% 2.09% 2.19% 2.37%
Ratio of net investment income to
average daily net assets 9.49%+ 9.52% 9.09% 10.31% 12.00% 14.54%
PORTFOLIO TURNOVER(2) -- 11% 96% 91% 82% 57%
+ Computed on an annualized basis.
(1)Includes the Fund's share of High Income Portfolio's allocated expenses for the period from June 1, 1994, to
March 31, 1995 and for the six months ended September 30, 1995.
(2)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.
(3)Total investment return is calculated assuming a purchase at the net asset value on the first day and a sale
at the net asset value on the last day of each period reported. Dividends and distributions, if any, are
assumed to be reinvested at the net asset value on the payable date.
</TABLE>
See notes to financial statements
<PAGE>
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
- --------------------------------------------------------------------------------
(1) SIGNIFICANT ACCOUNTING POLICIES
EV Marathon High Income Fund (the Fund) is a diversified series of Eaton Vance
Mutual Funds Trust (the Trust). The Trust is an entity of the type commonly
known as a Massachusetts business trust and is registered under the Investment
Company Act of 1940, as amended, as an open-end, management investment company.
The Fund invests all of its investable assets in interests in the High 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
(98.5% at September 30, 1995). The performance of the Fund is directly affected
by the performance of the Portfolio. The financial statements of the Portfolio,
including the portfolio of investments, are included elsewhere in this report
and should be read in conjunction with the Fund's financial statements. The
following is a summary of significant accounting policies consistently followed
by the Fund in the preparation of its financial statements. The policies are in
conformity with generally accepted accounting principles.
A. INVESTMENT VALUATION -- 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. 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 all of its taxable income, including any net realized
gain on investments. Accordingly, no provision for federal income or excise tax
is necessary. At March 31, 1995, the Fund, for federal income tax purposes, had
a capital loss carryover of $56,981,950 which will reduce the Fund's taxable
income arising from future net realized gain on investments, if any, to the
extent permitted by the Internal Revenue Code, and thus will reduce the amount
of 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 carryover will expire on March 31, 1999 ($21,013,203), 2000 ($23,278,421),
and 2003 ($12,690,326), respectively. Additionally, net losses of $5,574,371
attributable to security transactions incurred after October 31, 1994, are
treated as arising on the first day of the Fund's current taxable year.
D. OTHER -- Investment transactions are accounted for on a trade date basis.
E. RECLASSIFICATION -- Certain prior year amounts have been reclassified to
conform to the current year presentation.
F. INTERIM FINANCIAL INFORMATION -- The interim financial statements relating to
September 30, 1995 and for the six months then ended have not been audited by
independent certified public accountants, but in the opinion of the Fund's
management reflect all adjustments, consisting only of normal recurring
adjustments, necessary for the fair presentation of the financial statements.
- --------------------------------------------------------------------------------
(2) DISTRIBUTIONS TO SHAREHOLDERS
The net income of the Fund is determined daily and substantially all of the net
income so determined is declared daily as a dividend to shareholders of record
at the time of declaration. Such daily dividends will be paid monthly.
Distributions of 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 of the Fund or, at the election of the
shareholder, in cash. The Fund distinguishes between distributions on a tax
basis and a financial reporting basis. Generally accepted accounting principles
require that only distributions in excess of tax basis earnings and profits be
reported in the financial statements as a return of capital. Differences in the
recognition or classification of income between the financial statements and tax
earnings and profits which result in over- distributions for financial statement
purposes only are classified as distributions in excess of net investment income
or accumulated net realized gains. Permanent differences between book and tax
accounting relating to distributions are reclassified to paid-in capital.
- --------------------------------------------------------------------------------
(3) SHARES OF BENEFICIAL INTEREST
The Declaration of Trust permits the Trustees to issue an unlimited number of
full and fractional shares of beneficial interest (without par value).
Transactions in Fund shares were as follows:
SIX MONTHS
ENDED
SEPTEMBER 30, YEAR ENDED
1995 MARCH 31,
(UNAUDITED) 1995
------------- -------------
Sales 11,172,232 25,279,584
Issued to shareholders electing to receive
payment of distributions in Fund shares 1,010,708 1,751,099
Redemptions (7,490,623) (17,977,317)
---------- ----------
Net increase 4,692,317 9,053,366
========== ==========
- --------------------------------------------------------------------------------
(4) TRANSACTIONS WITH AFFILIATES
Eaton Vance Management (EVM) serves as the administrator of the Fund, but
receives no compensation. The Portfolio has engaged Boston Management and
Research (BMR), a subsidiary of EVM, to render investment advisory services. See
Note 2 of the Portfolio's Notes to Financial Statements which are included
elsewhere in this report. Except as to Trustees of the Fund and the Portfolio
who are not members of EVM's or BMR's organization, officers and Trustees
receive remuneration for their services to the Fund out of such investment
adviser fee. Investors Bank & Trust Company (IBT), an affiliate of EVM, serves
as custodian of the Fund and the Portfolio. Pursuant to the respective custodian
agreements, IBT receives a fee reduced by credits which are determined based on
the average cash balances the Fund or the Portfolio maintains with IBT. Certain
of the officers and Trustees of the Fund and Portfolio are officers and
directors/trustees of the above organizations (Note 5).
- --------------------------------------------------------------------------------
(5) DISTRIBUTION PLAN
The Fund has adopted a Distribution Plan (the "Plan") pursuant to Rule 12b-1
under the Investment Company Act of 1940. The Plan requires the Fund to pay the
Principal Underwriter, Eaton Vance Distributors, Inc. (EVD), amounts equal to
1/365th 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) 5% of the
aggregate amount received by the Fund for shares sold plus, (ii) distribution
fees calculated by applying the rate of 1% over the prevailing prime rate to the
outstanding balance of Uncovered Distribution Charges of EVD reduced by the
aggregate amount of contingent deferred sales charges (see Note 6) and 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 paid or accrued $1,756,366 to or payable to EVD
for the six months ended September 30, 1995, representing 0.75% (annualized) of
average daily net assets. At September 30, 1995, the amount of Uncovered
Distribution Charges of EVD calculated under the Plan was approximately
$15,220,000.
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
to exceed 0.25% of the Fund's average daily net assets for each fiscal year. The
Trustees have implemented the Plan by authorizing the Fund to make quarterly
payments of service fees to the Principal Underwriter and Authorized Firms in
amounts not to exceed 0.25% per annum of the Fund's average daily net assets
based on the value of the Fund shares sold by such persons and remaining
outstanding for at least one year. The Fund paid or accrued service fees to or
payable to EVD for the six months ended September 30, 1995, in the amount of
$373,634. Service fee payments are made for personal services and/or the
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.
Certain officers and Trustees of the Fund are officers or directors of EVD.
- --------------------------------------------------------------------------------
(6) CONTINGENT DEFERRED SALES CHARGE
A contingent deferred sales charge (CDSC) is imposed on any redemption of Fund
shares made within six years of purchase. Generally, the CDSC is based upon the
lower of the net asset value at date of redemption or date of purchase. No
charge is levied on shares acquired by reinvestment of dividends or capital gain
distributions. The CDSC is imposed at declining rates that begin at 5% in the
case of redemptions in the first and second year after purchase, declining one
percentage point each subsequent year. No CDSC is levied on shares which have
been sold to the Investment Adviser or its affiliates or to their respective
employees. CDSC is paid to EVD to reduce the amount of Uncovered Distribution
Charges calculated under the Fund's Distribution Plan. If no Uncovered
Distribution Charges exist, the CDSC will be credited to the Fund. EVD received
approximately $865,000 of CDSC paid by shareholders for the six months ended
September 30, 1995.
- --------------------------------------------------------------------------------
(7) INVESTMENT TRANSACTIONS
Increases and decreases in the Fund's investment in the Portfolio for the six
months ended September 30, 1995 aggregated $81,599,460 and $72,558,566,
respectively.
<PAGE>
-----------------------------------------
HIGH INCOME PORTFOLIO
PORTFOLIO OF INVESTMENTS
SEPTEMBER 30, 1995
(Expressed in United States Dollars)
- ----------------------------------------------------------------------
CORPORATE BONDS AND NOTES -- 95.7%
- ----------------------------------------------------------------------
FACE AMOUNT SECURITY VALUE
- ----------------------------------------------------------------------
AUTOMOTIVE/TRUCK - 5.4%
$ 2,770,000 Exide Corporation, Sr. Notes,
10.75%, 12/15/02 $ 2,950,050
6,750,000 JPS Automotive Prod. Corp., Sr. Notes,
11.125%, 6/15/01 6,817,500
3,800,000 Key Plastics, Sr. Notes, 14%, 11/15/99 3,876,000
5,035,000 Motor Wheel Corp., Senior Notes,
11.5%, 3/1/00 4,581,850
5,000,000 Terex Corp., Sr. Secured Notes,
13.75%, 5/15/02+ 4,100,000
4,000,000 Walbro Corp., Senior Notes,
9.875% 7/15/05+ 3,960,000
------------
$ 26,285,400
------------
BUILDING PRODUCTS - 5.0%
$ 3,500,000 American Standard, Sr. Notes,
11.375%, 5/15/04 $ 3,850,000
7,400,000 Building Materials Corp., Sr. Sub. Notes
11.75%, (0% until 2000), 7/1/04 4,588,000
7,100,000 Overhead Door Corp., Sr. Notes,
12.25%, 2/1/00 6,922,500
3,200,000 Schuller International Group Inc., Sr.
Notes, 10.875%, 12/15/04 3,520,000
1,750,000 Southdown Inc., Sr. Sub. Notes.,
14%, 10/15/01 1,933,750
3,600,000 Tarkett International, Sr. Sub. Notes,
9%, 3/1/02 3,672,000
------------
$ 24,486,250
------------
CHEMICALS - 7.2%
$ 5,000,000 Agricultural Minerals & Chemicals, Sr.
Notes, 10.75%, 9/30/03 $ 5,237,500
6,700,000 GI Holdings, Sr. Discount Notes,
11.125% (0% until 1995), 10/1/98 4,857,500
5,000,000 NL Industries Inc., Sr. Sec. Notes,
11.75%, 10/15/03 5,275,000
4,250,000 NL Industries Inc., Sr. Disc. Notes,
13% (0% until 1998), 10/15/05 3,145,000
7,000,000 Pioneer Americas Acq., Senior Notes,
13.625%, 4/1/05+ 7,175,000
1,800,000 Rexene Corp, Sr. Notes,
11.75%, 12/1/04 1,930,500
3,800,000 Terra Industries Inc., Senior Notes,
10.5%, 6/15/05 3,999,500
3,700,000 Uniroyal Chemical Corp., Senior Sub.
Notes, 11%, 5/1/03 3,783,250
------------
$ 35,403,250
------------
COMMUNICATIONS - 11.6%
$ 6,800,000 Australis Media LTD., Sub Disc. Notes, 14%
(0% until 2000), 5/13/03 $ 4,080,000
7,200,000 Dial Call Communications Inc., Sr. Red.
Notes, 12.25% (0% until 1998),
4/15/04 3,798,000
6,400,000 Diamond Cable Communications Co.,
Sr. Disc. Notes, 13.25% (0% until
1999), 9/30/04 4,256,000
5,000,000 Galaxy Telecom LP., Sr. Sub. Notes,
12.375%, 10/1/05 5,000,000
6,000,000 Granite Broadcasting Corp., Sr. Sub.
Notes, 10.375%, 5/15/05 6,120,000
2,400,000 Imax Corp., Sr. Notes, 7%, 3/1/01 2,268,000
6,000,000 In-Flight Phone Corp., Sr. Disc. Notes, 14%
(0% until 1998), 5/15/02+ 2,460,000
4,100,000 IXC Communications Inc., Senior
Notes 13%, 10/1/05+ 4,038,500
8,500,000 Marcus Cable Co., Sr. Disc. Notes,
14.25% (0% until 2000), 12/15/05 4,930,000
2,800,000 Marcus Cable Co., Senior Debs.,
11.875%, 10/1/05 2,828,000
3,700,000 Pricellular Wireless Comm., Sr. Sub.
Disc. Nts. 12.25% (0% until 1998),
10/1/03 2,627,000
9,340,000 United International Holdings Inc., Sr.
Sec. Disc. Notes, 0%, 11/15/99 5,697,400
8,400,000 Videotron Holdings, Sr. Disc. Notes,
11% (0% until 2000), 8/15/05 4,851,000
4,000,000 Young Broadcasting Corp., Sr. Sub.
Notes, 10.125%, 2/15/05+ 4,200,000
------------
$ 57,153,900
------------
ENERGY - 5.8%
$ 7,200,000 Gulf Canada Resources Ltd., Sr. Sub.
Notes, 9.25%, 1/15/04 $ 7,128,000
6,200,000 MCV Subordinated Secured Lease
Obligations, 11.75%, 7/23/05 6,479,000
4,800,000 Mesa Capital Corp., Sec. Disc. Notes,
12.75%, 6/30/98 4,428,000
3,216,364 Midland Cogeneration Venture, Sr. Sec.
Lease Oblig., 10.33%, 7/23/02 3,357,080
4,150,000 Trans Texas Gas Corp., Sr. Sec. Notes,
11.5%, 6/15/02 4,347,125
2,420,000 Tuboscope Vetco, Sr. Sub. Debs.,
10.75%, 4/15/03 2,468,400
------------
$ 28,207,605
------------
FOOD/RESTAURANTS/HOTELS - 7.8%
$ 4,000,000 American Restaurant Group Inc., Sr.
Sec. Notes, 12%, 9/15/98 $ 2,940,000
7,255,000 BFI Acquisition Corp., Sr. Sub. Notes
(Series A) 12%, 12/1/01 5,078,500
9,850,000 Flagstar Corp., Sub. Debs.,
10.75%, 9/15/01 9,259,000
5,200,000 Purina Mills, Sr. Sec. Sub. Notes,
10.25%, 9/1/03 5,330,000
5,735,000 Seven Up/RC Bottling Co., Sr. Sec.
Notes, 11.5%, 8/1/99* 2,466,050
2,050,000 Specialty Foods Corp., Sr. Disc. Debs.,
13%, (0% until 1999) 8/15/05 1,086,500
2,000,000 Specialty Foods Corp., Sr. Notes,
10.25%, 8/15/01 1,905,000
6,500,000 Specialty Foods Corp., Sr. Notes,
11.125%, 10/1/02+ 6,467,500
3,650,000 Van De Kamps, Inc., Sr. Sub. Notes,
12%, 9/15/05+ 3,704,750
------------
$ 38,237,300
------------
HEALTHCARE - 3.6%
$ 6,800,000 Dade International Inc., Sr. Sub. Notes,
13%, 2/1/05 $ 7,276,000
2,550,000 Genesis Health Ventures, Sr. Sub. Notes,
9.75%, 6/15/05 2,658,375
6,100,000 Ordna Health Corp., Sr. Sub. Notes,
11.375%, 8/15/04 6,786,250
1,000,000 Universal Health Services Corp., Sr.
Notes, 8.75%, 8/15/05 991,760
------------
$ 17,712,385
------------
HIGH TECH - 2.1%
$ 2,719,000 Blue Bell Funding Inc., Sec. Ext. Notes,
11.85%, 5/1/99 $ 2,861,748
4,000,000 GS Technologies Corp., Sr. Notes,
12.25%, 10/1/05 4,050,000
3,100,000 Unisys Corp., Sr. Notes, 13.5%, 7/1/97 3,355,750
------------
$ 10,267,498
------------
METALS - 5.4%
$ 3,500,000 Acme Metals Inc., Sr. Notes,
12.5%, 8/1/02 $ 3,465,000
2,000,000 Algoma Steel Corp., Sr. Secured Notes,
12.375%, 7/15/05 1,830,000
4,000,000 Gulf States Steel, First Mtg. Notes,
13.5%, 4/15/03 3,840,000
2,250,000 Inland Steel Corp., First Mtg. Bonds,
12%, 12/1/98 2,452,500
2,000,000 Kaiser Aluminum, Sr. Sub. Notes,
12.75%, 2/1/03 2,165,000
2,400,000 Maxxam Group Inc., Sr. Sec. Notes,
11.250%, 8/1/03 2,346,000
2,800,000 Maxxam Group Inc., Sr. Sec. Disc.
Notes, 12.25% (0% until 1998), 8/1/03 1,827,000
4,525,000 Republic Engineered Steels Inc., First
Mtg., 9.875%, 12/15/01 4,219,562
2,353,280 Stelco Inc., SF Debentures,
13.5%, 10/1/00 (CAD) 1,760,253
2,105,000 Ucar Global Enterprises, Sr. Sub. Notes,
12% 1/15/05 2,347,075
------------
$ 26,252,390
------------
MANUFACTURING/MACHINERY - 8.6%
$ 4,200,000 Applied Extrusion Inc., Sr. Notes,
11.5%, 4/1/02 $ 4,494,000
3,300,000 Day International Group, Inc., Sr. Sub.
Notes, 11.125%, 6/1/05+ 3,423,750
3,500,000 Dictaphone Corp., Sr. Sub. Notes,
11.75%, 8/1/05 3,447,500
4,225,000 Essex Group, Inc., Sr. Notes,
10%, 5/1/03 4,098,250
4,100,000 Graphic Controls Corp., Sr. Sub. Notes,
12%, 9/15/05+ 4,171,750
5,300,000 Monarch Acquisition Corp., Senior
Notes, 12.5%, 7/1/03+ 5,432,500
5,500,000 Newflo Corp., Sub. Notes,
13.25%, 11/15/02 5,665,000
4,000,000 Plastic Specialties & Tech, Sr. Sec.
Notes, 11.25%, 12/1/03 3,660,000
7,000,000 Waters Corp., Sr. Sub. Notes,
12.75%, 9/30/04 7,595,000
------------
$ 41,987,750
------------
MISCELLANEOUS - 5.5%
$ 4,100,000 Alliance Entertainment Corp., Sr. Sub.
Notes, 11.25%, 7/15/05+ $ 4,089,750
4,000,000 Alliant Tech Systems Inc., Sr. Sub.
Notes, 11.75%, 3/1/03 4,340,000
2,000,000 American Safety Razor Corp., Sr. Notes,
9.875%, 8/1/05+ 2,000,000
8,600,000 Corporate Express Inc., Sr. Sub. Notes,
9.125%, 3/15/04 8,557,000
6,400,000 Roadmaster Industries Inc., Sr. Sub.
Notes, 11.75%, 7/15/02 4,160,000
4,100,000 Selmer Company, Inc., Sr. Sub. Notes, 11%,
5/15/05 3,977,000
------------
$ 27,123,750
------------
PAPER/PACKAGING - 10.1%
$ 2,400,000 Container Corp., Sr. Notes (Ser. B),
10.75%, 5/1/02 $ 2,526,000
4,027,459 Fort Howard Corp., Sr. Sec. Notes,
11%, 1/2/02 4,188,557
4,100,000 Gaylord Container Corp., Sr. Sub. Disc.
Debs., 12.75% (0% until 1996), 5/15/05 4,038,500
2,500,000 Owens Illinois Inc., Sr. Notes,
9.95%, 10/15/04 2,568,750
1,500,000 Portola Packaging Corp., Senior Notes,
10.75%, 10/1/05 1,516,875
3,665,000 Repap New Brunswick, 2nd Party Sr. Sec.
Notes, 9.875%, 5/1/06 3,518,400
2,500,000 Repap New Brunswick, Sr. Sec. Notes,
10.625%, 4/15/05 2,537,500
2,400,000 Riverwood International, Sr. Sub.
Notes, 10.375%, 6/30/04 2,640,000
3,000,000 S.D. Warren Company Inc., Sr. Sub.
Notes, 12%, 12/15/04 3,315,000
5,000,000 Silgan Corp., Sr. Notes,
13.25% (0% until 1996), 12/15/02 4,675,000
1,500,000 Silgan Corp., Sr. Sub. Notes,
11.75%, 6/15/02 1,582,500
2,000,000 Stone Container Corp., First Mtg.
Notes, 10.75%, 10/1/02 2,075,000
3,200,000 Stone Container Corp., Sr. Notes,
12.625%, 7/15/98 3,472,000
2,400,000 Tembec Finance Corp., Sr. Notes,
9.875%, 9/30/05 2,376,000
2,950,000 U.S. Can Company, Sr. Sub. Notes,
13.5%, 1/15/02 3,237,625
5,150,000 Williamhouse-Regency of Del., Sr.
Sub. Deb., 11.5%, 6/15/05 5,098,500
------------
$ 49,366,207
------------
RECREATION - 3.2%
$ 5,000,000 Aztar Corp., Sr. Sub. Notes,
13.75%, 10/1/04 $ 5,381,250
1,700,000 Trump Holdings & Funding, Senior
Notes, 15.50%, 6/15/05 1,683,000
3,100,000 Trump Plaza Funding, First Mtg. Notes,
10.875%, 6/15/01 2,840,375
6,558,515 Trump Taj Mahal, First Mtg. Bonds,
11.35%, 11/15/99 5,820,682
------------
$ 15,725,307
------------
RETAILING - 9.7%
$ 5,600,000 Apparel Retailers Inc., Sr. Disc. Debs.,
12.75% (0% until 1998), 8/15/05 $ 3,416,000
6,575,000 Brunos, Inc., Sr. Sub. Notes,
10.5%, 8/1/05 6,377,750
4,000,000 Dominick's Finer Foods, Inc., Sr. Sub.
Notes, 10.875%, 5/1/05+ 4,060,000
4,200,000 Duane Reade, G.P., Sr. Notes,
12%, 9/15/02 3,843,000
4,700,000 Levitz Furniture Corp., Sr. Sub. Notes,
9.625%, 7/15/03 3,736,500
2,000,000 Pathmark Stores Inc., Jr. Sub., Disc.
Notes, 9.625%, 5/1/03 1,970,000
8,500,000 Pathmark Stores Inc., Jr. Sub., Disc.
Notes, 10.75% (0% until 1999),
11/1/03 5,503,750
5,550,000 Purity Supreme, Sr. Sec. Notes,
11.75%, 8/1/99 6,063,375
2,000,000 Ralphs Grocery Company, Inc., Sr. Sub.
Notes, 11%, 6/15/05 1,870,000
5,500,000 Ralphs Grocery Co., Sr. Sub. Notes,
13.75%, 6/15/05 5,802,500
4,980,000 Specialty Retailers, Inc., Sr. Sub. Notes,
11%, 8/15/03 4,681,200
------------
$ 47,324,075
------------
TEXTILES - 3.8%
$ 2,000,000 CMI Industries Inc., Sr. Sub. Notes,
9.5%, 10/1/03 $ 1,840,000
5,800,000 Dan River Inc., Sr. Sub. Notes,
10.125%, 12/15/03 5,843,500
3,596,000 JPS Textile Group, Sr. Sub. Notes,
10.25%, 6/1/99 3,164,480
8,200,000 Westpoint Stevens, Sr. Sub. Debs.,
9.375%, 12/15/05 7,974,500
------------
$ 18,822,480
------------
TRANSPORTATION - 0.9%
$ 4,800,000 Moran Transportation, 1st Mtg. Notes,
11.75%, 7/15/04 $ 4,488,000
------------
TOTAL CORPORATE BONDS AND NOTES
(identified cost, $475,139,450) $468,843,547
------------
- ----------------------------------------------------------------------
PREFERRED STOCKS - 0.4%
- ----------------------------------------------------------------------
SHARES SECURITY VALUE
- ----------------------------------------------------------------------
48,000 SD Warren Company W/Warrants,
14%, 12/15/06* $ 1,464,000
32,000 Terex Corp., 13% CV Pfd. (144A)
W/Warrants+* 416,000
------------
TOTAL PREFERRED STOCKS
(identified cost, $2,041,600) $ 1,880,000
-----------
- ----------------------------------------------------------------------
COMMON STOCKS, WARRANTS AND RIGHTS - 0.8%
- ----------------------------------------------------------------------
SHARES/
WARRANTS SECURITY VALUE
- ----------------------------------------------------------------------
AUTO/TRUCK - 0.4%
214,839 Bucyrus - Erie Company, Common* $ 1,906,696
------------
CHEMICALS - 0.0%
9,908 UCC Invt. Hldgs., Cl A Common+* $ 111,465
------------
COMMUNICATIONS - 0.0%
7,200 Dial Call Communications, Wts.+* $ 1,800
7,840 United International Hldg. Inc.,
Warrants+* 235,200
------------
$ 237,000
------------
ENERGY - 0.0%
5,520 Empire Gas Corp., Wts.+* $ 5,520
------------
FOOD - 0.0%
1,380 Servam Corp., Common* $ 0
12,276 Servam Corp., $2.00 Wts. Exp.
4/1/01+* 0
2,760 Servam Corp., $4.50 Wts. Exp.
4/1/01+* 0
48,000 Specialty Foods Acquisition,
Common+* 84,000
------------
$ 84,000
------------
INDUSTRIAL - 0.0%
1,814 Thermadyne Holdings Corp.,
Common+* $ 32,652
40,000 Thermadyne Holdings Corp.,
Common+* 400
------------
$ 33,052
------------
MANUFACTURING - 0.3%
101,973 Pullman Company, Common Stock+* $ 815,784
22,500 Southdown Inc., Wts.+* 95,625
9,300 Terex Corp., Rights, Exp. 8/1/96+* 4,650
1,125 Terex Corp., Rights, Exp. 8/1/96+* 563
5,371 Terex Corp., Rights, Exp. 7/1/97+* 4,028
32,000 Terex Corp., Wts.+* 304,000
95,000 Triangle Wire & Cable, Common+* 237,500
22,500 Triangle Wire and Cable, Wts.+* 0
------------
$ 1,462,150
------------
METALS - 0.0%
4,000 Gulf States Steel, Warrants+* $ 200
------------
MISCELLANEOUS - 0.0%
6,800 Australis Media, Warrants+* $ 0
------------
PAPER/PACKAGING - 0.1%
48,000 SD Warren Company, Warrants* $ 288,000
------------
RETAILING - 0.0%
5,198 Purity Supreme, Wts., Exp. 8/1/99+* $ 4,002
6,000 Waxman Industries, Inc., Warrants* 300
------------
$ 4,302
------------
TOTAL COMMON STOCKS,
WARRANTS AND RIGHTS
(IDENTIFIED COST, $9,334,423) $ 4,132,385
------------
- ----------------------------------------------------------------------
SHORT-TERM OBLIGATION - 2.3%
- ----------------------------------------------------------------------
FACE AMOUNT SECURITY VALUE
- ----------------------------------------------------------------------
COMMERCIAL PAPER
Melville Corp.,
$11,123,000 6.60%, 10/2/95, at amortized cost $ 11,124,920
------------
TOTAL INVESTMENTS
(IDENTIFIED COST, $497,640,393) $485,980,852
OTHER ASSETS,
LESS LIABILITIES - 0.8% 3,756,680
-------------
NET ASSETS - 100% $489,737,532
============
* Non-income producing security.
+ Restricted Security (Note 6).
CAD -- The principal amount of these securities is stated in Canadian Dollars,
the currency in which the security is denominated.
See notes to financial statements
<PAGE>
-----------------------------------------
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
- ------------------------------------------------------------------------------
September 30, 1995
(Expressed in United States Dollars)
- ------------------------------------------------------------------------------
ASSETS:
Investments, at value (Note 1A) (identified cost,
$497,640,393) $485,980,852
Cash 6,240
Receivable for investments sold 6,824,052
Interest receivable 12,139,700
Deferred organization expenses (Note 1D) 16,570
------------
Total assets $504,967,414
LIABILITIES:
Payable for investments purchased $15,216,905
Payable to affiliates --
Trustees' fees 4,467
Custodian fee 8,510
-----------
Total liabilities 15,229,882
------------
NET ASSETS applicable to investors' interest in Portfolio $489,737,532
============
SOURCES OF NET ASSETS:
Net proceeds from capital contributions and
withdrawals $501,405,114
Unrealized depreciation of investments (computed
on the basis of identified cost) (11,667,582)
------------
Total $489,737,532
============
See notes to financial statements
<PAGE>
STATEMENT OF OPERATIONS
- ------------------------------------------------------------------------------
For the Six Months Ended September 30, 1995
(Expressed in United States Dollars)
- ------------------------------------------------------------------------------
INVESTMENT INCOME:
Interest income $26,711,639
Expenses --
Investment adviser fee (Note 2) $1,501,871
Compensation of Trustees not members of the
Investment Adviser's organization 9,071
Custodian fee (Note 2) 107,886
Legal and accounting services 53,380
Printing and postage 2,929
Amortization of organization expenses (Note 1D) 1,920
Miscellaneous 15,647
----------
Total expenses 1,692,704
-----------
Net investment income $25,018,935
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized loss on investment transactions
(identified cost basis) $ (146,502)
Decrease in unrealized depreciation of
investments 8,213,798
----------
Net realized and unrealized gain on
investments $ 8,067,296
-----------
Net increase in net assets from operations $33,086,231
===========
See notes to financial statements
<PAGE>
STATEMENTS OF CHANGES IN NET ASSETS
- ------------------------------------------------------------------------------
(Expressed in United States Dollars)
- ------------------------------------------------------------------------------
SIX MONTHS
ENDED YEAR ENDED
SEPTEMBER 30, MARCH 31,
------------- ----------
1995 1995*
INCREASE (DECREASE) IN NET ASSETS:
From operations --
Net investment income $ 25,018,935 $ 37,644,090
Net realized loss on investment transactions (146,502) (13,221,664)
Change in unrealized appreciation
(depreciation) of investments 8,213,798 (7,038,030)
------------ ------------
Net increase in net assets from operations $ 33,086,231 $ 17,384,396
------------ ------------
Capital transactions --
Contributions $ 89,303,785 $575,199,203
Withdrawals (75,204,299) (150,131,814)
------------ ------------
Increase in net assets resulting from
capital transactions $ 14,099,486 $425,067,389
------------ ------------
Total increase in net assets $ 47,185,717 $442,451,785
NET ASSETS:
At beginning of period 442,551,815 100,030
------------ ------------
At end of period $489,737,532 $442,551,815
============ ============
- ------------------------------------------------------------------------------
SUPPLEMENTARY DATA
- ------------------------------------------------------------------------------
SIX MONTHS
ENDED YEAR ENDED
SEPTEMBER 30, MARCH 31,
------------- ----------
1995 1995*
RATIOS (As a percentage of average daily net assets):
Expenses 0.71%+ 0.70%+
Net investment income 10.53%+ 10.63%+
PORTFOLIO TURNOVER 42% 53%
+ Computed on an annualized basis.
*For the period from the start of business, June 1, 1994, to March 31, 1995.
See notes to financial statements
<PAGE>
-----------------------------------------
NOTES TO FINANCIAL STATEMENTS
(Expressed in United States Dollars)
- --------------------------------------------------------------------------------
(1) SIGNIFICANT ACCOUNTING POLICIES
High Income Portfolio (the Portfolio) is registered under the Investment Company
Act of 1940 as a diversified open-end management investment company which was
organized as a trust under the laws of the State of New York on May 1, 1992. The
Declaration of Trust permits the Trustees to issue interests in the Portfolio.
The following is a summary of significant accounting policies of the Portfolio.
The policies are in conformity with accounting principles generally accepted in
the United States of America.
A. INVESTMENT VALUATIONS -- Investments listed on securities exchanges or in the
NASDAQ National Market are valued at closing sale prices. Listed or unlisted
investments for which closing sale prices are not available are valued at the
mean between the latest bid and asked prices. Fixed income investments (other
than short-term obligations), including listed investments and investments for
which price quotations are available, will normally be valued on the basis of
market valuations furnished by a pricing service. Financial futures contracts
listed on commodity exchanges are valued at closing settlement prices.
Short-term obligations, maturing in sixty days or less, are valued at amortized
cost, which approximates value. Investments for which there is no quotation or
valuation 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. Dividend income is recorded on the ex-dividend date for
dividends received in cash and or securities.
C. INCOME 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. 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.
D. DEFERRED ORGANIZATION EXPENSES -- Costs incurred by the Portfolio in
connection with its organization are being amortized on the straight-line basis
over five years.
E. FINANCIAL FUTURES CONTRACTS -- Upon the entering of a financial futures
contract, the Portfolio is required to deposit ("initial margin") either in cash
or securities an amount equal to a certain percentage of the purchase price
indicated in the financial futures contract. Subsequent payments are made or
received by the Portfolio ("margin maintenance") each day, dependent on the
daily fluctuations in the value of the underlying security, and are recorded for
book purposes as unrealized gains or losses by the Portfolio. The Portfolio's
investment in financial futures contracts is designed only to hedge against
anticipated future changes in interest rates. Should interest rates move
unexpectedly, the Portfolio may not achieve the anticipated benefits of the
financial futures contracts and may realize a loss.
F. OTHER -- Investment transactions are accounted for on a trade date basis.
- --------------------------------------------------------------------------------
(2) INVESTMENT ADVISER FEE AND OTHER TRANSACTIONS WITH AFFILIATES
The investment adviser fee is earned by Boston Management and Research (BMR), a
wholly-owned subsidiary of Eaton Vance Management (EVM), as compensation for
management and investment advisory services rendered to the Portfolio. The fee
is based upon a percentage of average daily net assets plus a percentage of
gross income (i.e., income other than gains from the sale of securities). For
the six months ended September 30, 1995, the fee was equivalent to 0.63%
(annualized) of the Portfolio's average daily net assets for such period and
amounted to $1,501,871. Except as to Trustees of the Portfolio who are not
members of EVM's or BMR's organization, officers and Trustees receive
remuneration for their services to the Fund out of such investment adviser fee.
Investors Bank & Trust Company (IBT), an affiliate of EVM and BMR, serves as
custodian of the Portfolio. Pursuant to the custodian agreement, IBT receives a
fee reduced by credits which are determined based on the average daily cash
balances the Portfolio maintains with IBT. Certain of the officers and Trustees
of the Portfolio are officers and directors/trustees of the above organizations.
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 Trustee Deferred Compensation Plan. For the six
months ended September 30, 1995, no significant amounts have been deferred.
- --------------------------------------------------------------------------------
(3) INVESTMENTS
The Portfolio invests primarily in debt securities. The ability of the issuers
of the debt securities held by the Portfolio to meet their obligations may be
affected by economic developments in a specific industry. Purchases and sales of
investments, other than U.S. Government securities and short-term obligations,
aggregated $226,648,137 and $186,595,718, respectively.
- --------------------------------------------------------------------------------
(4) LINE OF CREDIT
The Portfolio participates with other portfolios and funds managed by BMR and
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 based on its borrowings at
an amount above either the bank's adjusted certificate of deposit rate, a
variable adjusted certificate of deposit rate, or a federal funds effective
rate. In addition, a fee computed at an annual rate of 1/4 of 1% on the $20
million committed facility and on the daily unused portion of the $100 million
discretionary facility is allocated among the participating funds and portfolios
at the end of each quarter. The Portfolio did not have any significant
borrowings or allocated fees during the period.
- --------------------------------------------------------------------------------
(5) FEDERAL INCOME TAX BASIS OF INVESTMENTS
The cost and unrealized depreciation/appreciation in value of the investments
owned at September 30, 1995, as computed on a federal income tax basis, were as
follows:
Aggregate cost $497,640,393
============
Gross unrealized depreciation $ 24,353,994
Gross unrealized appreciation 12,694,453
------------
Net unrealized depreciation $ 11,659,541
============
<PAGE>
- --------------------------------------------------------------------------------
(6) NOT READILY MARKETABLE SECURITIES
At September 30, 1995, the Portfolio owned the following securities
(constituting 12.6% of net assets) which were not readily marketable at such
date. The Portfolio has various registration rights (exercisable under a variety
of circumstances) with respect to certain of these securities. The fair value of
these securities is determined based on valuations provided by brokers when
available, or if not available, they are valued at fair value using methods
determined in good faith by or at the direction of the Trustees.
<TABLE>
<CAPTION>
CORPORATE BONDS AND NOTES
- -------------------------
DESCRIPTION DATES OF ACQUISITION SHARES/FACE COST FAIR VALUE
- ----------- -------------------- ----------- ---- ----------
(EXPRESSED IN U.S. DOLLARS)
<S> <C> <C> <C> <C>
Alliance Entertainment
Corp., Sr. Sub. Notes,
11.25%, 7/15/05 7/18/95 4,100,000 $ 4,127,125 $ 4,089,750
American Safety Razor
Corp., Sr. Notes,
9.875%, 8/1/05 7/27/95 2,000,000 2,000,000 2,000,000
Day International Group,
Inc., Sr. Sub. Notes,
11.125%, 6/1/05 5/26/95-6/2/95 3,300,000 3,336,000 3,423,750
Dominick's Finer Foods,
Inc., Sr. Sub Notes,
10.875%, 5/1/05 4/27/95-6/15/95 4,000,000 4,000,000 4,060,000
Graphic Controls Corp.,
Sr. Sub. Notes, 12%, 9/
15/05 9/21/95 4,100,000 4,100,000 4,171,750
In-Flight Phone Corp., Sr.
Disc. Notes, 14%
(0% until 1998), 5/15/02 4/28/95 6,000,000 3,989,040 2,460,000
IXC Communications Inc.,
Sr. Notes, 13%, 10/1/05 9/25/95 4,100,000 3,987,045 4,038,500
Monarch Acquisition Corp.,
Sr. Notes,
12.5%, 7/1/03 6/23/95 5,300,000 5,300,000 5,432,500
Pioneer Americas Acq.,
Senior Notes,
13.625%, 4/1/05 4/13/95-7/13/95-8/24/95 7,000,000 7,139,500 7,175,000
Specialty Foods Corp., Sr.
Notes, 11.125%, 10/1/02 7/12/95-8/22/95 6,500,000 6,485,000 6,467,500
Terex Corp., Sr. Secured
Notes, 13.75%, 5/15/02 4/27/95 5,000,000 5,000,000 4,100,000
Van De Kamps, Inc., Sr.
Sub. Notes, 12%, 9/19/05 9/14/95-9/15/95 3,650,000 3,678,875 3,704,750
Walbro Corp., Sr. Notes,
9.875%, 7/15/05 7/21/95-7/24/95-7/28/95 4,000,000 4,003,338 3,960,000
Young Broadcasting Corp.,
Sr. Sub. Notes,
10.125%, 2/15/05 6/7/95 4,000,000 4,000,000 4,200,000
<PAGE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------
CORPORATE STOCKS, WARRANTS AND RIGHTS
- -------------------------------------
DESCRIPTION DATES OF ACQUISITION SHARES/FACE COST FAIR VALUE
- ----------- -------------------- ----------- ---- ----------
(EXPRESSED IN U.S. DOLLARS)
<S> <C> <C> <C> <C>
Australis Media, Warrants 5/26/95 6,800 $ 0 $ 0
Dial Call Communications,
Warrants 10/4/94 7,200 0 1,800
Empire Gas Corp., Warrants 1/27/95 5,520 0 5,520
Gulf States Steel,
Warrants 8/22/95 4,000 0 200
Pullman Company, Common 2/22/95 101,973 2,949,328 815,784
Purity Supreme, Wts., Exp.
8/1/99 7/29/92 5,198 0 4,002
Servam Corp., $2.00 Wts.
4/1/01 12/15/87 12,276 0 0
Servam Corp., $4.50 Wts.
4/1/01 12/15/87 2,760 0 0
Southdown, Inc., Warrants 10/28/91 22,500 67,500 95,625
Specialty Foods
Acquisition, Common 8/10/93 48,000 34,886 84,000
Terex, CV Preferred 12/15/93 32,000 793,600 416,000
Terex Corp., Rights, 8/1/
96 7/24/92 9,300 0 4,650
Terex Corp., Rights 11/7/94 5,371 0 4,028
Terex Corp., Rights 8/20/92-7/1/94-8/2/94 1,125 0 563
Terex Corp., Warrants 12/15/93 32,000 6,400 304,000
Thermadyne Holdings Corp.,
Common 5/17/94 1,814 44,100 32,652
Thermadyne Holdings Corp.,
Common 4/3/89 40,000 28,800 400
Triangle Wire & Cable,
Inc., Common 3/17/94 95,000 2,250,000 237,500
Triangle Wire & Cable,
Inc., Warrants 10/28/91 22,500 0 0
UCC Invt. Holdings, Class
A Common 10/24/86 9,908 9,834 111,465
United International
Holdings Inc., Warrants 10/1/91 7,840 222,186 235,200
Waxman Industries, Inc.,
Warrants 10/1/91 6,000 6,000 300
----------- -----------
$67,558,557 $61,637,189
=========== ===========
</TABLE>
<PAGE>
TO THE TRUSTEES AND INVESTORS OF
HIGH INCOME PORTFOLIO:
We have audited the accompanying statement of assets and liabilities, including
the portfolio of investments, of High Income Portfolio as of September 30, 1995,
and the related statement of operations for the six months then ended and the
statements of changes in net assets and the supplementary data for the six
months then ended and for the period from the start of business, June 1, 1994,
to March 31, 1995 (all expressed in United States dollars). These financial
statements and supplementary data are the responsibility of the Portfolio's
management. Our responsibility is to express an opinion on these financial
statements and supplementary data based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. 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 at September 30, 1995 by correspondence with the custodian and
brokers; where replies were not received from brokers we performed other
auditing procedures. 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, such financial statements and supplementary data present fairly,
in all material respects, the financial position of High Income Portfolio at
September 30, 1995, the results of its operations, changes in its net assets,
and its supplementary data for the respective stated periods, in conformity with
accounting principles generally accepted in the United States of America.
DELOITTE & TOUCHE
GRAND CAYMAN, CAYMAN ISLANDS
BRITISH WEST INDIES
OCTOBER 31, 1995
<PAGE>
<TABLE>
<CAPTION>
INVESTMENT MANAGEMENT
<S> <C> <C>
EV MARATHON OFFICERS INDEPENDENT TRUSTEES
HIGH INCOME FUND M. DOZIER GARDNER DONALD R. DWIGHT
24 Federal Street President, Trustee President, Dwight Partners, Inc.
Boston, MA 02110 Chairman, Newspapers of
JAMES B. HAWKES New England, Inc.
Vice President, Trustee
SAMUEL L. HAYES, III
H. DAY BRIGHAM, JR. Jacob H. Schiff Professor of
Vice President Investment Banking, Harvard
University Graduate School of
WILLIAM H. AHERN, JR. Business Administration
Vice President
NORTON H. REAMER
MICHAEL B. TERRY President and Director, United Asset
Vice President Management Corporation
JAMES L. O'CONNOR JOHN L. THORNDIKE
Treasurer Director, Fiduciary Company
Incorporated
THOMAS OTIS
Secretary JACK L. TREYNOR
Investment Adviser and Consultant
- ------------------------------------------------------------------------------------
HIGH INCOME OFFICERS INDEPENDENT TRUSTEES
PORTFOLIO M. DOZIER GARDNER DONALD R. DWIGHT
24 Federal Street President, Trustee President, Dwight Partners, Inc.
Boston, MA 02110 Chairman, Newspapers of
JAMES B. HAWKES New England, Inc.
Vice President, Trustee
SAMUEL L. HAYES, III
HOOKER TALCOTT, JR. Jacob H. Schiff Professor of
Vice President and Investment Banking, Harvard
Portfolio Manager University Graduate School of
Business Administration
WILLIAM CHISHOLM
Vice President NORTON H. REAMER
President and Director, United Asset
RAYMOND O'NEILL Management Corporation
Vice President
JOHN L. THORNDIKE
MICHEL NORMANDEAU Director, Fiduciary Company
Vice President Incorporated
JAMES L. O'CONNOR JACK L. TREYNOR
Treasurer Investment Adviser and
Consultant
THOMAS OTIS
Secretary
</TABLE>
<PAGE>
INVESTMENT ADVISER OF
HIGH INCOME PORTFOLIO
Boston Management and Research
24 Federal Street
Boston, MA 02110
ADMINISTRATOR OF
EV MARATHON HIGH INCOME FUND
Eaton Vance Management
24 Federal Street
Boston, MA 02110
PRINCIPAL UNDERWRITER
Eaton Vance Distributors, Inc.
24 Federal Street
Boston, MA 02110
(617) 482-8260
CUSTODIAN
Investors Bank & Trust Company
24 Federal Street
Boston, MA 02110
TRANSFER AGENT
The Shareholder Services Group, Inc.
BOS725
P.O. Box 1559
Boston, MA 02104
This report must be preceded or accompanied by a current prospectus which
contains more complete information on the Fund, including its distribution plan,
sales charges and expenses. Please read the prospectus carefully before you
invest or send money.
EV MARATHON HIGH INCOME FUND
24 FEDERAL STREET
BOSTON, MA 02110
M-HISRC
[LOGO]
EV MARATHON
HIGH INCOME
FUND
SEMI-ANNUAL
SHAREHOLDER REPORT
SEPTEMBER 30, 1995
