[LOGO OMITTED: DOOR]
EV Classic
Strategic Income
Fund
Semi-Annual
Shareholder Report
April 30, 1996
To Shareholders
EV Classic Strategic Income Fund had a total return of 5.9% during the six
months ended April 30, 1996. That return was the result of a rise in net
asset value per share to $11.58 from $11.33 on October 31, 1995 and the
reinvestment of $0.379 in dividend income. It does not include the effect
of contingent deferred sales charges on shareholders redeeming within the
first year. Based on the April dividend and the closing net asset value of
$11.58, the Fund's distribution rate was 7.82%.
1995 brought a turnaround in
global bond markets...
Following a tumultuous period in 1994, global bond investors had a good
deal to cheer about in 1995 as many of the global markets underwent a
significant turnaround. With the memories of the Mexican peso crisis and
the unnerving volatility of 1994 behind them, investors enjoyed strong
performances in emerging markets. Investors realized that the sharp sell-
off of the previous year was unwarranted. In addition, the dollar demon-
strated considerable strength against major
currencies such as the German mark, which boosted the Fund's investment
returns in peripheral European markets.
As inflation declines around the
world, a diversified global bond
portfolio merits attention...
One of the most important stories of the decade is the progress made in
fighting inflation around the world. That progress has been very evident
here in the U.S., and equally impressive abroad. As most investors know,
inflation typically leads to higher interest rates, which hurts
outstanding bond issues. In the early 1980s, the U.S. battled inflation
rates of 15% and saw long-term bond yields surpass 14%. In the U.K. and
western Europe, high inflation caused economies to falter. And in Latin
America, Brazil battled annual inflation rates in excess of 1000%!
Fortunately, sanity has prevailed. With a renewed political resolve, an
increasingly integrated global economy and a trend toward free-market
economies, much has been done to beat back the ravages of inflation. That,
in turn, has made global fixed-income markets increasingly attractive for
fixed-income investors. While foreign bonds, of course, entail a degree of
political and currency exposure, more investors are seeking to take
advantage of their compelling yields. The approach of Strategic Income
Portfolio is to incorporate these global opportunities with U.S.
investment-grade bonds and high-yield bonds. While past performance is
naturally no guarantee of future results, this recent period has
demonstrated the strength of a globally diversified portfolio.
In the pages that follow, portfolio manager Mark Venezia reviews the
market turnaround of the past six months and highlights the changes he has
made to the Fund during this period.
Sincerely,
/S/James B. Hawkes
James B. Hawkes
President
June 10, 1996
Management Discussion
An interview with Mark S. Venezia,
vice president and portfolio manager
of Strategic Income Portfolio.
Q. Mark, the Fund fared very well in the past six months. To what do you
attribute its performance?
A. Many of the trends that worked against the Fund in late 1994 and early
1995 were actually reversed as the year wore on. As a result, the Fund
performed especially well from November through early February of this
year. The Brady bond markets* in Brazil, Argentina, Ecuador and Poland -
which had been oversold in the wake of the Mexican peso crisis of late
1994 - made a strong recovery as investors sensed that the markets
represented good value. We saw similar strength in Europe and in the
Dollar Bloc nations, - Australia, New Zealand, and Canada - which were
also well-represented in the Fund.
*Named after former U.S. Treasury secretary Nicholas Brady, Brady bonds
are dollar-denominated bonds that are issued by foreign countries and
collateralized by U.S. Treasuries.
Q. Have you made any significant changes
to the Portfolio in recent months?
A. Yes. The Portfolio is considerably more conservative than it was six
months ago, with the U.S. playing a greater role. I've cut back in some
countries that have had especially strong bond market rallies, and
reallocated some of those proceeds into attractively valued U.S. assets,
such as mortgage-backed securities. In aggregate, the Portfolio has a
lower duration - a measure of interest rate sensitivity - down to 2.6
years from 2.9 years in October. With respect to strategic allocations,
the Portfolio had 41.6% of its investments in dollar-denominated investment
grade bonds at April 30, up from 24.1% in October; 38.6% of the Portfolio's
investments were in foreign investment grade bonds, down from 42.7% in
October; finally, 19.8% of the Portfolio was composed of high-yield bonds,
down from 33.2% in October.
Q. In what countries have you cut back
your commitments?
A. We've significantly reduced our positions in Latin America - including
both Brady and non-Brady bonds - as the Latin bond markets have risen too
far, too fast. In addition, we sold some of our holdings in the non-U.S.
Dollar Bloc countries - Australia and New Zealand - following the
appreciation in those currencies. Finally, we've reduced our positions in
Asia. As a result of large current account deficits - a combination of
trade deficits and shortfalls in interest payments - there is an
increasing likelihood that these countries may devalue their currencies at
some point.
Q. Latin America has long been a
prominent part of the Portfolio. What
prompted you to reduce your stake in
the region?
A. The performance of some Latin markets has, frankly, overstated the
progress made in their economies. Thus, while I am not necessarily
pessimistic with respect to Latin America, I have grown increasingly
cautious. For example, Brazil has made significant progress in managing
inflation and stabilizing its economy. In addition, Brazil has embarked on
pension reform. However, while the situation has improved, problems still
exist. Brazil has pursued a high interest rate policy to keep inflation
down; these high rates have, in turn, attracted a surplus of foreign
capital. The country has issued a good deal of debt to absorb this excess
foreign capital and prevent a run-up in the currency. That has exacerbated
the already high fiscal deficits, which remain a problem.
In Argentina, Finance Minister Cavallo, the architect of Argentina's
economic reforms, is once again in control of the country's economy. With
the political in-fighting having abated, political stability has helped
Argentina regain the confidence of investors. However, it is not yet clear
that the country is out of its recession. With that uncertainty, we have
reduced our Argentine exposure.
Portfolio Investments:
Top five weightings
according to...
...Regional Credit Exposure
allocations based U.S. 47.5%
on the location Poland 9.4
of the issuer of each Ireland 8.9
security. This shows Brazil 7.7
that the Portfolio's New Zealand 7.5
largest holdings
were in the U.S.
and Poland.
...The Portfolio's Currency Allocation
holdings broken U.S. 40.3%
down by country Indonesia 9.2
of currency Czech Republic 9.0
denomination. Ireland 7.7
This shows where New Zealand 6.3
movements in
foreign exchange
rates will have the
greatest impact
on the Fund's
share price.
...The contribution Interest Rate
of a country Sensitivity*
weighting to the Ireland 21.2%
Portfolio's duration. Germany 21.1
This shows where U.S. 20.4
changing interest Australia 18.5
rates will have the Denmark 14.8
greatest impact
on share prices.
*Calculated by determining the interest rate sensitivity of
the Portfolio's positions in each country and dividing by the
Portfolio's overall interest rate sensitivity.
Q. Is there any country that has performed
especially well for the Fund?
A. Yes. The Fund has benefited from its large position in Poland in recent
months. Poland is one of the emerging success stories in central Europe,
having enjoyed Gross Domestic Product (GDP) growth for four years running.
Its growth rate tops not only the other countries in the region, but
those of Latin America and all but a few of the Asian Tigers. To be sure,
inflation is still higher than desired, but much progress has been made.
Our largest positions in Poland consisted of Polish Treasury bills, which
carry yields higher than 20%. The Polish currency is being devalued at a
scheduled rate, which means that, even with depreciation factored in, the
dollar investor continues to receive a very attractive net return. We also
own dollar-denominated, Polish Brady bonds, which performed very well.
Because Poland is now considered an investment grade credit, their
significant yield premium still makes Polish securities a good value. The
Fund also benefited from cross-hedging between the Polish zloty and the
weak German mark.
Poland: In The Headlines...
GDP Growth. . . . . . . . . . . . . . . . . 7.0%
Inflation rate. . . . . . . . . . . . . . .21.6%
Exports. . . . . . . . . . . . . . . . . .$22.8B
[GRAPHIC OF POLISH FLAG OMITTED]
Population. . . . . . . . .38.6M
GDP . . . . . . . . . . . .$114B
Reserves . . . . . . . . . .$15B
Total External Debt. . . . . . . . . . . . .$44B
Per Capita Income. . . . . . . . . . . . .$3,300
*Source: J.P. Morgan, Emerging Market Economic Statistics.
Data for 1995.
[GRAPHIC MAP OF POLAND AND SURROUNDING COUNTRIES OMITTED]
Q. Do the shifting Russian political tides
pose a threat to the Polish success story?
A. Yes, this certainly makes Poland vulnerable to events. Still, it is
unlikely that even a Communist victory would affect the Polish economy or
its political dynamics in the short run. Simply too many people have
benefited from capitalism. Furthermore, it's important to remember that
Poland enjoys the fastest economic growth rate of all the former Warsaw
Pact nations. Given the country's success to date, it's most unlikely that
a Communist victory in Russia would result in a significant rollback of
free-market reforms in Poland.
Strategic Allocation*
[PIE CHART OMITTED AS FOLLOWS:]
High Yield 19.8%
U.S. Investment Grade 41.6%
Foreign Investment Grade 38.6%
*Based on market value as of 4/30/96
Q. And what about western Europe?
A. European interest rates have not risen as much in the past six months
as U.S. interest rates. In addition, the dollar strengthened from 1.41
German marks to 1.54 during the period. That was a favorable development
because the Fund was positioned to benefit from a strong dollar. There
were substantial indirect benefits from a stronger dollar. The Portfolio
had positions in Ireland, Denmark, Finland, Greece, and Spain. All of
those currencies and bond markets perform better than their cross-hedges*
when the mark is weak.
Q. What country are you especially
enthusiastic about in the coming year?
A. Ireland has enjoyed a very stable currency versus the mark. Ireland
has managed to contain inflation, while keeping fiscal deficits low.
However, because its economy is so closely identified with the U.K., Irish
bond yields remain around 120 basis points above those of the core
European countries. When there is weakness in the British pound, the Irish
punt tends to suffer as well. That makes the Irish currency artificially
cheap. However, due to its progress in reducing its debt levels, Ireland
is likely to be among the founding members of the European monetary union.
Therefore, Ireland represents a major opportunity as monetary union edges
closer to reality.
Q. In closing, Mark, what is your
market outlook?
A. Considering the market's strength in the past year, I think
selectivity will be the key over the short-term. As I indicated earlier,
Ireland should be a strong beneficiary of European monetary union, while
Poland is making admirable progress against inflation. And, of course, we
continue to find excellent opportunities here in the U.S. Over the
longer-term, the continuing global assault on inflation bodes well for
bond investors. Given the flexibility of strategic investing, I believe
the coming year will provide us many more opportunities.
*Cross-hedging involves the purchase of money market instruments in
higher-yielding currencies and the simultaneous sale of lower-yielding
currencies.
EV Classic Strategic Income Fund
Financial Statements
<TABLE>
<CAPTION>
Statement of Assets and Liabilities
April 30, 1996
(Unaudited)
Assets:
<S> <C> <C>
Investment in Strategic Income Portfolio (Portfolio), at value (Note 1A) $ 1,363,201
Receivable for Fund shares sold 78,274
Receivable from the Administrator (Note 4) 21,150
Deferred organization expenses (Note 1C) 24,225
--------------
Total assets $ 1,486,850
Liabilities:
Dividends payable $ 2,342
Accrued expenses 46,930
-------------
Total liabilities 49,272
--------------
Net Assets for 124,178 shares of beneficial interest outstanding $ 1,437,578
==============
Sources of Net Assets:
Paid-in capital $ 1,408,589
Accumulated net realized gain on investment transactions
(computed on the basis of identified cost) 3,169
Unrealized appreciation of investments from Portfolio
(computed on the basis of identified cost) 25,829
Distributions in excess of net investment income (9)
--------------
Total $ 1,437,578
==============
Net Asset Value and Redemption Price Per Share
($1,437,578 (divided by) 124,178 shares of beneficial interest) $11.58
======
The accompanying notes are an integral part of the financial statements
</TABLE>
<TABLE>
<CAPTION>
Statement of Operations
For the Six Months Ended April 30, 1996
(Unaudited)
<S> <C> <C>
Investment Income (Note 1B):
Interest income allocated from Portfolio 15,907
Expenses allocated from Portfolio (1,290)
-------------
Total investment income $ 14,617
Expenses --
Custodian fees (Note 4) $ 997
Distribution fees (Note 4) 1,593
Transfer and dividend disbursing agent fees 219
Printing and postage 11,007
Legal and accounting services 3,237
Amortization of organization expenses (Note 1C) 4,272
Miscellaneous 1,396
-------------
Total expenses $ 22,721
Deduct allocation of expenses to the Administrator (Note 4) (21,150)
-------------
Net expenses 1,571
-------------
Net investment income $ 13,046
-------------
Realized and Unrealized Gain (Loss) on Investments:
Net realized gain (loss) from Portfolio (identified cost basis) (including net
loss due to foreign currency rate fluctuations of $1,953) --
Investment transactions $ 3,750
Financial futures contracts (4,000)
Foreign currency and forward foreign currency exchange contracts 2,814
-------------
Net realized gain on investments $ 2,564
Change in unrealized appreciation of investments 24,809
-------------
Net realized and unrealized gain on investments $ 27,373
-------------
Net increase in net assets from operations $ 40,419
=============
The accompanying notes are an integral part of the financial statements
</TABLE>
<TABLE>
<CAPTION>
Statements of Changes in Net Assets
Six Months Ended
April 30, 1996 Year Ended
(Unaudited) October 31, 1995
------------- --------------
Increase (Decrease) in Net Assets:
From operations --
<S> <C> <C>
Net investment income $ 13,046 $ 1,031
Net realized gain (loss) on investments 2,564 (441)
Change in unrealized appreciation of investments 24,809 1,001
------------- -------------
Net increase in net assets from operations $ 40,419 $ 1,591
------------- ------------
Distributions to shareholders (Note 2) --
From net investment income $ (13,046) $ --
In excess of net investment income (599) --
- -------------- --------------
Total distributions $ (13,645) $ --
------------- -------------
Transactions in shares of capital stock (Note 3) --
Proceeds from sale of shares $ 1,391,768 $ --
Net asset value of shares issued to shareholders
in payment of distributions declared 9,981 --
Cost of shares redeemed (2,350) (62)
------------- -------------
Increase (decrease) in net assets from Fund share transactions $ 1,399,399 $ (62)
------------- -------------
Net increase in net assets $ 1,426,173 $ 1,529
Net Assets:
At beginning of period 11,405 9,876
------------- ------------
At end of period (including undistributed (distributions in
excess of) net investment income of ($9) and
$590, respectively) $ 1,437,578 $ 11,405
============= =============
The accompanying notes are an integral part of the financial statements
</TABLE>
<TABLE>
<CAPTION>
Financial Highlights
Six Months Ended Year Ended October 31,
April 30, 1996 -----------------------
(Unaudited)++ 1995 1994*
------------- ---------- ----------
<S> <C> <C> <C>
Net asset value -- Beginning of period $ 11.330 $ 9.750 $ 10.000
-------- -------- --------
Income from operations:
Net investment income $ 0.360 $ 1.021 $ 0.348
Net realized and unrealized gain (loss) on investments 0.269 0.559 (0.495)
-------- -------- --------
Total income (loss) from operations $ 0.629 $ 1.580 $ (0.147)
-------- -------- --------
Less distributions:
From net investment income $ (0.360) $ -- $ (0.103)
In excess of net investment income (0.019) -- --
-------- -------- --------
Total distributions $ (0.379) $ -- $ (0.103)
-------- -------- --------
Net asset value -- End of period $ 11.580 $ 11.330 $ 9.750
========= ======== ========
Total Return (2) 5.93% 16.21% (1.41%)
Ratios/Supplemental Data **
Ratio of net expenses to average net assets (1) 1.64%+ 0.90% 0.76%+
Ratio of net investment income to average net assets 7.47%+ 9.84% 7.74%+
Net assets, end of period (000's omitted) $ 1,438 $ 11 $ 10
** For the six months ended April 30, 1996, the year ended October 31, 1995 and for the period from
the start of business, May 25, 1994, to October 31, 1994 the operating expenses of the Fund reflect
an allocation of expenses to the Administrator. Had such action not been taken, net investment
loss per share and the ratios would have been as follows:
Net investment loss per share $ (0.257) $(13.000) $(6.900)
Ratios (As a percentage of average net assets):
Expenses (1) 13.75%+ 131.85% 160.83%+
Net investment loss (4.64%)+ (121.12%) (152.33%)+
Note: Per share amounts have been computed using average shares outstanding during the period.
+ Computed on an annualized basis
++ Per share amounts have been calculated using the monthly average share method which more
approximately presents the per share data for the period, since the use of the undistributed
method does not accord with the results of operations.
* For the period from the start of business, May 25, 1994, to October 31, 1994.
(1) Includes the Fund's share of Strategic Income Portfolio's allocated expenses.
(2) 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.
The accompanying notes are an integral part of the financial statements
</TABLE>
Notes to Financial Statements
(Unaudited)
(1) Significant Accounting Policies
EV Classic Strategic Income Fund (the Fund), is a non-diversified series
of Eaton Vance Mutual Funds Trust. The Fund is registered under the
Investment Company Act of 1940, as amended, as an open-end management
investment company. The Fund invests all of its investable assets in
interests in the Strategic 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 (1.0% at April 30, 1996.)
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. Deferred Organization Expenses -
Costs incurred by the Fund in connection with its organization,
including registration costs, are being amortized on the straight-line
basis over five years beginning on the date the Fund commenced
operations.
D. Use of Estimates - The preparation of 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 revenue and expense during the
reporting period. Actual results could differ from those estimates.
E. Other - Investment transactions are accounted for on a trade date
basis.
F. Interim Financial Information - The interim financial statements
relating to April 30, 1996 and for the period 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 as a dividend to shareholders
of record at the time of declaration. Distributions, if any, are paid
monthly. Distributions of allocated realized capital gains, if any, are
made at least annually. Shareholders may reinvest capital gain
distributions in additional shares of the Fund at the net asset value as
of the ex-dividend date. Distributions are paid in the form of
additional shares or, at the election of the shareholder, in cash. The
Fund distinguishes between distributions on a tax basis and a financial
reporting basis. Generally accepted accounting principles require that
only distributions in excess of tax basis earnings and profits be
reported in the financial statements as a return of capital. Differences
in the recognition or classification or income between the financial
statements and tax earnings and profits which result in temporary over
distributions for financial statement purposes are classified as
distributions in excess of net investment income or accumulated net
realized gains. Permanent differences between book and tax accounting
relating to distributions are reclassified to paid-in capital.
(3) Capital Stock
At April 30, 1996 there were one billion shares of $0.0001 par value
capital stock authorized. Transactions in capital stock were as follows:
Six Months Ended Year Ended
April 30, 1996 October 31,
(Unaudited) 1995
---------------- ------------
Sales 122,512 --
Issued to shareholders electing
to receive payments of
distributions in capital stock 863 --
Redemptions (204) (6)
-------- ------
Net increase (decrease) 123,171 (6)
======== ======
(4) Transactions with Affiliates
Eaton Vance Management (EVM) serves as the administrator of the Fund,
but currently receives no compensation for these services. The Portfolio
has engaged Boston Management and Research (BMR), a subsidiary of EVM,
to render investment advisory services. See Note 2 of the Portfolio's
Notes to Financial Statements which are included elsewhere in this
report. To enhance the net income of the Fund, $21,150, of expenses
related to the operation of the Fund were allocated, on a preliminary
basis, to EVM. Except as to Trustees of the Fund and the Portfolio who
are not members of EVM's or BMR's organization, officers and Trustees
receive remuneration for their services to the Fund out of such
investment adviser fee. Investors Bank & Trust Company (IBT) serves as
custodian to the Fund and the Portfolio. Prior to November 10, 1995
(IBT) was an affiliate of EVM. Pursuant to the custodian agreement, IBT
receives a fee reduced by credits which are determined based on the
average cash balances the Fund or the Portfolio maintains with IBT. All
significant credit balances used to reduce the Funds' custody fees are
reported as a reduction of expenses in the statement of operations.
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 1/365 of 0.75% of the Fund's daily net assets,
for providing ongoing distribution services and facilities to the Fund.
The Fund will automatically discontinue payments to EVD during any
period in which there are no outstanding Uncovered Distribution Charges,
which are equivalent to the sum of (i) 6.25% of the aggregate amount
received by the Fund for shares sold plus (ii) distribution fees
calculated by applying the rate of 1% over the prevailing prime rate to
the outstanding balance of Uncovered Distribution Charges of EVD,
reduced by amounts theretofore paid to EVD. The amount payable to EVD
with respect to each day is accrued on such day as a liability of the
Fund and, accordingly, reduces the Fund's net assets. The Fund paid or
accrued $1,219, to or payable to EVD for the six months ended April 30,
1996. At April 30, 1996, the amount of Uncovered Distributions Charges
of EVD calculated under the Plan was approximately $87,000.
In addition, the Plan permits the Fund to make monthly payments of
service fees to the Principal Underwriter in amounts not expected to
exceed 0.25% of the Fund's average daily net assets for any fiscal year.
The Directors of the Corporation have initially implemented the Plan by
authorizing the Fund to make monthly service fee payments to the
Principal Underwriter in amounts not expected to exceed 0.25% of the
Fund's average daily net assets for any fiscal year. The Fund paid or
accrued service fees to or payable to EVD for the six months ended April
30, 1996, in the amount of $374. EVD makes monthly service fee payments
to Authorized Firms in amounts anticipated to be equivalent to 0.25%,
annualized, of the assets maintained in the Fund by their customers. On
sales of shares made on January 30, 1995 and thereafter, EVD pays to an
Authorized Firm a service fee at the time of sale equal to 0.25% of the
purchase price of the shares sold by such Firm and monthly payments of
service fees in amounts not expected to exceed 0.25% per annum of the
Fund's average daily net assets based on the value of Fund shares sold
by such Firm and remaining outstanding for at least one year. During the
first year after a purchase of Fund shares, EVD will retain the service
fee as reimbursement for the service fee payment made to the Authorized
Firm at the time of sale. Service fee payments are made for personal
services and/or maintenance of shareholder accounts. Service fees paid
to EVD and Authorized Firms are separate and distinct from the sales
commissions and distribution fees payable by the Fund to EVD, and as
such are not subject to automatic discontinuance when there are no
outstanding Uncovered Distribution Charges of EVD.
Certain of the officers of the Fund and Directors of the Corporation are
officers or directors of EVD.
(6) Contingent Deferred Sales Charge
For shares purchased on or after January 30, 1995, a contingent deferred
sales charge (CDSC) is imposed on any redemption of Fund shares made
within one year 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 dividend or
capital gain distributions. No CDSC is levied on shares which have been
sold to EVD or its affiliates or to their respective employees or
clients. CDSC charges are paid to EVD to reduce the amount of Uncovered
Distribution Charges calculated under the Fund's Distribution Plan. CDSC
charges received when no Uncovered Distribution Charges exist will be
credited to the Fund. For the six months ended April 30, 1996, EVD
received no CDSC paid by shareholders.
(7) Investment Transactions
Increases and decreases in the Fund's investment in the Portfolio for
the six months ended April 30, 1996 aggregated $1,327,198 and $17,147,
respectively.
<TABLE>
<CAPTION>
Strategic Income Portfolio
Portfolio of Investments
April 30, 1996
Principal U.S. $ Value
- ------------------------------------------------------------------------------------------------------------
Bonds & Notes -- 89.4%
- ------------------------------------------------------------------------------------------------------------
<S> <S> <S>
ARGENTINA, 4.0% U.S. Dollars
Argentina Discount Bond (Brady), 6.5625%, 3/31/23
(identified cost $4,718,125) 8,000,000 $ 5,515,000
---------------
AUSTRALIA, 0.6% Australian Dollars
State Electricity - Victoria, 9.25%, 9/18/03
(identified cost $733,564) 1,000,000 $ 787,350
---------------
BRAZIL, 7.6% U.S. Dollars
Brazil Discount Bond, (Brady), 6.5%, 4/15/24
(identified cost $8,530,563) 15,500,000 $ 10,491,563
---------------
CZECH REPUBLIC, 4.4% Czech Korunas
CEZ (Czech Electric Company), 14.375%, 1/27/01
(identified cost $6,022,084) 159,710,000 $ 6,090,514
---------------
DENMARK, 5.2% Danish Krone
Denmark Government, 8%, 3/15/06
(identified cost $7,156,882) 40,000,000 $ 7,129,242
---------------
ECUADOR, 2.0% U.S. Dollars
Ecuador Discount Bond (Brady), 6.0625%, 2/28/25
(identified cost $2,711,875) 5,000,000 $ 2,815,625
----------------
IRELAND, 8.6% Irish Pound
Irish Government, 8%, 8/18/06 3,000,000 $ 4,828,537
Irish Government, 9.25%, 7/11/03 4,000,000 6,975,849
---------------
Total Ireland (identified cost, $11,599,951) $ 11,804,386
---------------
NEW ZEALAND, 7.3% New Zealand Dollars
New Zealand Government, 6.5%, 2/15/00 4,000,000 $ 2,534,743
New Zealand Government, 8%, 11/15/06 4,800,000 3,170,213
New Zealand Government, 10%, 3/15/02 6,000,000 4,337,623
---------------
Total New Zealand (identified cost, $9,762,499) $ 10,042,579
---------------
POLAND, 9.4% Polish Zloty
Polish Government T-Bill, 0%, 5/8/96 4,210,000 $ 1,577,289
Polish Government T-Bill, 0%, 6/12/96 5,600,000 2,056,018
Polish Government T-Bill, 0%, 6/19/96 3,340,000 1,220,723
Polish Government T-Bill, 0%, 7/31/96 9,500,000 3,393,888
U.S. Dollars
Poland Discount Bond, (Brady), 6.4375%, 10/27/24 5,000,000 4,646,875
---------------
Total Poland (identified cost, $12,215,438) $ 12,894,793
---------------
SPAIN, 2.4% Spanish Pesetas
Spanish Government, 10.1%, 2/28/01
(identified cost, $3,382,193) 400,000,000 $ 3,337,317
---------------
UNITED STATES, 37.8% U.S. Dollars
Corporate Bonds & Notes, 8.8%
Agricultural Minerals & Chemicals, Sr. Notes, 10.75%, 9/30/03 1,000,000 $ 1,060,000
Applied Extrusion, Sr. Notes, 11.5%, 4/1/02 1,000,000 1,030,000
Dade International, Inc., 13%, 2/01/05 500,000 590,000
Dayton Hudson, Medium Term Note, 9.52%, 6/10/15 350,000 403,536
Dayton Hudson, Medium Term Note, 9.5%, 6/10/15 665,000 765,421
Dayton Hudson, Medium Term Note, 9.35%, 6/16/20 600,000 666,330
Overhead Door Corp., Sr. Notes, 12.25%, 2/1/00 500,000 505,000
Purina Mills, Sr. Sub. Notes, 10.25%, 9/1/03 1,000,000 995,000
Roadmaster Industries, Inc., Sr. Sub. Notes, 11.75%, 7/15/02 475,000 384,750
SD Warren Co., 12%, 12/15/04 1,000,000 1,042,500
Selmer Company, Inc., Sr. Sub. Notes, 11%, 5/15/05 500,000 515,000
Stone Container Corp., Sr. Sub. Debs., 10.75%, 10/1/02 500,000 500,000
TRW, Inc., Medium Term Note, 9.35%, 6/4/20 1,900,000 2,255,547
United International Holdings, Inc., Sr. Sec. Disc.
Notes, 0%, 11/15/99 1,500,000 952,500
Westpoint Stevens, Sr. Sub. Notes, 9.375%, 12/15/05 500,000 490,000
---------------
Total United States Corporate Bonds & Notes
(identified cost, $11,791,128) $ 12,155,584
---------------
Mortgage Pass-Throughs, 27.3% U.S. Dollars
Federal Home Loan Mortgage Corp. Participation Certificates:
4.75%, with various maturities to 2003 60,898 $ 59,211
5.5%, with maturity at 2019 48,614 48,180
8%, with various maturities to 2021 4,997,613 5,098,086
8.5%, with various maturities to 2024 6,147,705 6,390,704
9%, with maturity at 2019 1,145,114 1,206,184
12.5%, with maturity at 2011 190,782 215,452
12.75%, with maturity at 2013 204,099 232,985
13.25%, with maturity at 2013 244,781 283,349
13.5%, with maturity at 2019 612,744 710,114
---------------
$ 14,244,265
---------------
Federal National Mortgage Association
Mortgage-Backed Securities:
4.75%, with maturity at 1999 108,836 $ 106,307
5%, with maturity at 2003 197,794 190,818
5.5%, with various maturities to 2012 201,571 197,219
7.5%, with maturity at 2002 1,083,188 1,094,206
8%, with various maturities to 2013 4,494,788 4,597,984
8.5%, with maturity at 2018 587,012 609,336
9%, with various maturities to 2017 4,505,385 4,728,146
12.75%, with maturity at 2014 237,949 276,267
13%, with various maturities to 2015 1,561,943 1,808,078
13.25%, with maturity at 2014 305,672 359,912
13.5%, with various maturities to 2015 1,410,546 1,623,180
14.75%, with various maturities at 2012 3,346,760 4,040,410
---------------
$ 19,631,863
---------------
Government National Mortgage Association:
6.5%, with various maturities at 2007 1,442,604 $ 1,432,476
9%, with maturity at 2016 1,375,859 1,451,635
13.5%, with various maturities at 2014 623,539 742,291
---------------
$ 3,626,402
---------------
Total Mortgage Pass-Throughs (identified cost, $37,583,363) $ 37,502,530
---------------
U.S. Government Securities -- U.S. Dollars
U.S. Treasury Bond, 11.75%, 2/15/01+
(identified cost, $2,603,438) 2,000,000 $ 2,436,560
---------------
Total United States (identified cost, $51,977,929) $ 52,094,674
---------------
Total Bonds & Notes (identified cost, $118,811,103) $ 123,003,043
---------------
- ------------------------------------------------------------------------------------------------------------
Short-Term Obligations -- 9.5%
- ------------------------------------------------------------------------------------------------------------
Banque National De Paris, Euro Time-Deposit, U.S. Dollars
Cayman Islands, 5.375%, 5/1/96 4,400,000 $ 4,400,657
Dai-Ichi Kangyo Bank-N.Y., Cayman Time-Deposit, 5.3125%, 5/1/96 5,105,164 5,105,917
Postipanki-N.Y., Cayman Time-Deposit, 5.375%, 5/1/96 3,603,113 3,603,651
---------------
Total Short-Term Obligations $ 13,110,225
---------------
Total Investments (identified cost, $131,921,328) $ 136,113,268
Options Written by Fund -- 0.0%
Option to Deliver/Receive, Strike Price, Expiration Month:
New Zealand Dollars
USD/NZD, $0.6720, May 1996
(premium received, $23,385) 3,000,000 (39,340)
Other Assets, less Liabilities, 1.1% 1,611,830
---------------
Net Assets, 100% $ 137,685,758
===============
+Security pledged as collateral on financial futures contracts.
USD -- United States Dollars
NZD -- New Zealand Dollars
The accompanying notes are an integral part of the financial statements
</TABLE>
<TABLE>
<CAPTION>
Financial Statements
Statement of Assets and Liabilities
April 30, 1996
Assets:
<S> <C> <C>
Investments, at value (Note 1A) (identified cost, $131,921,328) $ 136,113,268
Cash 19,516
Receivable for daily variation margin on open
financial futures contracts (Note 1E) 16,217
Receivable for investments sold 98,736
Net receivable for forward foreign
currency exchange contracts (Note 1H) 2,709,514
Interest receivable 2,162,294
Deferred organization expenses (Note 1J) 13,336
-------------
Total assets $ 141,132,881
Liabilities:
Payable for investments purchased $ 3,393,888
Options written, at value (premium received $23,385) (Note 1G) 39,340
Payable to affiliate --
Trustees' fees (Note 2) 722
Accrued expenses 13,173
-------------
Total liabilities 3,447,123
-------------
Net Assets applicable to investors' interest in Portfolio $ 137,685,758
=============
Sources of Net Assets:
Net proceeds from capital contributions and withdrawals $ 130,521,856
Unrealized appreciation of investments, futures, options and
foreign currency (computed on the basis of identified cost) 7,163,902
-------------
Total $ 137,685,758
=============
The accompanying notes are an integral part of the financial statements
</TABLE>
<TABLE>
<CAPTION>
Statement of Operations
For the Six Months Ended April 30, 1996
<S> <C> <C>
Investment Income:
Interest Income $ 6,774,671
Expenses --
Investment adviser fee (Note 2) $ 385,046
Administration fee (Note 2) 108,103
Compensation of Trustees not members of the
Investment Adviser's organization (Note 2) 4,683
Custodian fee (Note 2) 71,046
Legal and accounting services 22,203
Amortization of organization expenses (Note 1J) 2,348
Miscellaneous 1,902
-------------
Total expenses 595,331
-------------
Net investment income $ 6,179,340
-------------
Realized and Unrealized Gain (Loss) on Investments,
Futures, Options and Foreign Currency:
Net realized gain (loss) (identified cost basis)
(including net loss due to foreign currency rate
fluctuations of $214,422) on --
Investment transactions $ 5,424,499
Financial futures contracts (824,055)
Foreign currency and forward foreign
currency exchange contracts (650,406)
-------------
Net realized gain on investments, futures and
foreign currency $ 3,950,038
Change in unrealized appreciation (depreciation) on --
Investments $ (2,762,175)
Financial futures contracts 736,507
Written options (15,955)
Foreign currency and forward foreign
currency exchange contracts 5,107,790
-------------
Net change in unrealized appreciation of
investments, futures, options and foreign currency 3,066,167
-------------
Net realized and unrealized gain on investments,
futures, options and foreign currency $ 7,016,205
-------------
Net increase in net assets resulting from operations $ 13,195,545
=============
The accompanying notes are an integral part of the financial statements
</TABLE>
<TABLE>
<CAPTION>
Statements of Changes in Net Assets
Six Months Ended Year Ended
April 30, 1996 October 31, 1995
-------------- ----------------
<S> <C> <C>
Increase (Decrease) in Net Assets:
From operations --
Net investment income $ 6,179,340 $ 16,533,049
Net realized gain (loss) on investments, futures and foreign currency transactions 3,950,038 (11,886,837)
Change in unrealized appreciation
of investments, futures, options, and foreign currency 3,066,167 15,637,070
------------- -------------
Net increase in net assets resulting from operations $ 13,195,545 $ 20,283,282
------------- -------------
Capital transactions --
Contributions $ 5,546,210 $ 7,892,611
Withdrawals (33,639,286) (112,061,370)
------------- -------------
Net decrease in net assets resulting from capital transactions $ (28,093,076) $(104,168,759)
------------- -------------
Total decrease in net assets $ (14,897,531) $ (83,885,477)
Net Assets:
At beginning of period 152,583,289 236,468,766
------------- -------------
At end of period $ 137,685,758 $ 152,583,289
============= =============
<CAPTION>
Supplementary Data
Year Ended October 31,
Six Months Ended -----------------------
April 30, 1996 1995 1994*
-------------- ---------- -----------
Ratios (as a percentage of average net assets):
<S> <C> <C> <C>
Expenses 0.83%+ 0.84% 0.82%+
Net investment income 8.59%+ 9.08% 8.41%+
Portfolio Turnover 53% 78% 71%
+Computed on an annualized basis.
*For the period from the start of business, March 1, 1994, to October 31, 1994.
The accompanying notes are an integral part of the financial statements
</TABLE>
Notes to Financial Statements
1) Significant Accounting Policies
Strategic Income Portfolio (the "Portfolio") is registered under the
Investment Company Act of 1940 as a non-diversified open-end investment
company. The Portfolio, which was organized as a trust under the laws of
the State of New York in 1992, seeks to provide a high level of income by
investing in a global portfolio consisting primarily of high grade debt
securities. The Declaration of Trust permits the Trustees to issue
beneficial interests in the Portfolio. Investment operations began on
March 1, 1994, with the acquisition of net assets of $348,433,258 in
exchange for an interest in the Portfolio by one of the Portfolio's
investors. The following is a summary of significant accounting policies
of the Portfolio. The policies are in conformity with generally accepted
accounting principles.
A. Investment Valuations - Debt securities (other than mortgage-backed,
"pass-through," securities and short-term obligations maturing in sixty
days or less), including listed securities and securities for which price
quotations are available and forward contracts, will normally be valued on
the basis of market valuations furnished by pricing services. Mortgage
backed, "pass through" securities are valued using a matrix pricing system
which takes into account yield differentials, anticipated prepayments and
interest rates. Financial futures contracts listed on commodity exchanges
and exchange-traded options are valued at closing settlement price. Short-
term obligations and money-market securities maturing in sixty days or
less are valued at amortized cost which approximates value. Non-U.S.
dollar denominated short-term obligations are valued at amortized cost as
calculated in the base currency and translated into U.S. dollars at the
current exchange rate. Investments for which market quotations are
unavailable are valued at fair value using methods determined in good
faith by or at the direction of the Trustees.
B. Income - Interest income is determined on the basis of interest accrued
and discount earned, adjusted for amortization of discount when required
for federal income tax purposes.
C. Gains and Losses From Security
Transactions - Realized gains and losses from investment transactions are
recorded on the basis of identified cost. For book purposes, gains and
losses are not recognized until disposition. For federal tax purposes, the
Fund is subject to special tax rules that may affect the amount, timing, and
character of gains recognized on certain of the Portfolio's investments.
The Portfolio has elected, under Section 1092 of the Internal Revenue Code
(the "Code"), to utilize mixed straddle accounting for certain designated
classes of activities involving domestic options and domestic financial
futures contracts in determining recognized gains and losses. Under this
method, Section 1256 positions (financial futures contracts and options on
investments or financial futures contracts) and non-Section 1256 positions
(bonds, etc.) are marked-to-market on a daily basis resulting in the
recognition of taxable gains and losses on a daily basis. Such gains or
losses are categorized as short-term or long-term based on aggregation
rules provided in the Code.
D. Income Taxes - The Portfolio is treated as a partnership for federal
tax purposes. No provision is made by the Portfolio for federal or state
taxes on any taxable income of the Portfolio because each investor in the
Portfolio is ultimately responsible for the payment of any taxes. Since
some of the Portfolio's investors are regulated investment companies that
invest all or substantially all of their assets in the Portfolio, the
Portfolio normally must satisfy the applicable source of income and
diversification requirements (under the Code) in order for its investors
to satisfy them. The Portfolio will allocate at least annually among its
investors each investor's distributive share of the Portfolio's net
investment income, net realized capital gains, and any other items of
income, gain, loss, deduction or credit.
E. Financial Futures Contracts - Upon entering into a financial futures
contract, the Portfolio is required to deposit an amount ("initial
margin") either in cash or securities equal to a certain percentage of the
purchase price indicated in the financial futures contract. Subsequent
payments are made or received by the Portfolio ("margin maintenance") each
day, dependent on the daily fluctuations in the value of the underlying
security, and are recorded for book purposes as unrealized gains or losses
by the Portfolio. The Portfolio's investment in financial futures
contracts is designed to hedge against anticipated future changes in
interest or currency exchange rates. Should interest or currency exchange
rates move unexpectedly, the Portfolio may not achieve the anticipated
benefits of the financial futures contracts and may realize a loss. If the
Portfolio enters into a closing transaction, the Portfolio will realize,
for book purposes, a gain or loss equal to the difference between the
value of the financial futures contract to sell and financial futures
contract to buy.
F. Foreign Currency Translation - Investment valuations, other assets, and
liabilities initially expressed in foreign currencies are converted each
business day into U.S. dollars based upon current exchange rates.
Purchases and sales of foreign investment securities and income and
expenses are converted into U.S. dollars based upon currency exchange
rates prevailing on the respective dates of such transactions. Recognized
gains and losses on investment transactions attributable to foreign
currency rates are recorded for financial statement purposes as net
realized gains and losses on investments. That portion of unrealized gains
and losses on investments that result from fluctuations in foreign
currency exchange rates are not separately disclosed.
G. Written Options - The Portfolio may write call or put options for which
premiums are received and are recorded as liabilities, and are
subsequently adjusted to the current value of the options written.
Premiums received from writing options which expire are treated as
realized gains. Premiums received from writing options which are exercised
or are closed are offset against the proceeds or amount paid on the
transaction to determine the realized gain or loss. If a put option is
exercised, the premium reduces the cost basis of the securities purchased
by the Portfolio. The Portfolio as a writer of an option may have no
control over whether the underlying securities may be sold (call) or
purchased (put) and as a result bears the market risk of an unfavorable
change in the price of the securities underlying the written option.
H. Forward Foreign Currency Exchange Contracts - The Portfolio may enter
into forward foreign currency exchange contracts for the purchase or sale
of a specific foreign currency at a fixed price on a future date. Risks
may arise upon entering these contracts from the potential inability of
counterparties to meet the terms of their contracts and from movements in
the value of a foreign currency relative to the U.S. dollar. The Portfolio
will enter into forward contracts for hedging purposes as well as non-
hedging purposes. The forward foreign currency exchange contracts are
adjusted by the daily exchange rate of the underlying currency and any
gains or losses are recorded for financial statement purposes as
unrealized until such time as the contracts have been closed.
I. Reverse Repurchase Agreements - The Portfolio may enter into reverse
repurchase agreements. Under such an agreement, the Portfolio temporarily
transfers possession, but not ownership, of a security to a counterparty,
in return for cash. At the same time, the Portfolio agrees to repurchase
the security at an agreed-upon price and time in the future. The Portfolio
may enter into reverse repurchase agreements for temporary purposes, such
as to fund withdrawals, or for use as hedging instruments where the
underlying security is foreign denominated. As a form of leverage, reverse
repurchase agreements may increase the risk of fluctuation in the market
value of the Portfolio's assets or in its yield. Liabilities to
counterparties under reverse repurchase agreements are recognized in the
statement of assets and liabilities at the same time at which cash is
received by the Portfolio. The securities underlying such agreements
continue to be treated as owned by the Portfolio and remain in the
Portfolio of investments. Interest charged on amounts borrowed by the
Portfolio under reverse repurchase agreements is accrued daily and offset
against interest income for financial statement purposes.
J. Deferred Organization Expense - Costs incurred by the Portfolio in
connection with its organization are being amortized on the straight-line
basis over five years.
K. Use of Estimates - The preparation of 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 revenue and expense during the reporting
period. Actual results could differ from those estimates.
L. 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 investment income (i.e., income other
than gains from the sale of investments). Such percentages are reduced as
average daily net assets exceed certain levels. For the six months ended
April 30, 1996, the fee was equivalent to 0.53% (annualized) of the
Portfolio's average net assets for such period and amounted to $385,046.
An administration fee, computed at an effective annual rate of 0.15% of
average daily net assets was also paid to BMR for administrative services
and office facilities. Such fee amounted to $108,103 for the six months
ended April 30, 1996.
Except for Trustees of the Portfolio who are not members of EVM's or BMR's
organization, officers and Trustees receive remuneration for their
services to the Portfolio out of such investment adviser fee. Investors
Bank & Trust Company (IBT) serves as custodian of the Portfolio. Prior to
November 10, 1995, IBT was an affiliate of EVM. 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.
All significant credit balances used to reduce the Porfolio's custody fees
are reported as a reduction of expenses in the statement of operations.
Certain officers of the Portfolio and Directors of the Corporation are
officers and directors/trustees of the above organizations. Trustees of
the Portfolio 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 six months ended April 30, 1996, no significant
amounts have been deferred.
(3) Line of Credit
The Portfolio participates with other portfolios and funds managed by BMR
or EVM in a $120 million unsecured line of credit agreement with a bank.
The line of credit consists of a $20 million committed facility and a $100
million discretionary facility. Borrowings will be made by the Portfolio
solely to facilitate the handling of unusual and/or unanticipated short-
term cash requirements. Interest is charged to each portfolio or fund
based on its borrowings at an amount above either the bank's adjusted
certificate of deposit rate, a variable adjusted certificate of deposit
rate, or a federal funds effective rate. In addition, a fee computed at an
annual rate of 1/4 of 1% on the $20 million committed facility and on the
daily unused portion of the $100 million discretionary facility is
allocated among the participating portfolios and funds at the end of each
quarter. The Portfolio did not have any significant borrowings or
allocated fees during the period.
(4) Investments
The Portfolio invests primarily in foreign government debt securities and
U.S. Government securities. The ability of the issuers of the debt
securities to meet their obligations may be affected by economic
developments in a specific industry or country. Purchases and sales of
investments, other than short-term obligations, for the six months ended
April 30, 1996 were as follows:
Purchases -
Investments (non-U.S. Government) $48,293,260
U.S. Government Securities 21,853,727
-----------
$70,146,987
===========
Sales -
Investments (non-U.S. Government) $89,762,194
U.S. Government Securities 1,284,688
-----------
$91,046,882
===========
(5) Financial Instruments
The Portfolio regularly trades in financial instruments with off-balance
sheet risk in the normal course of its investing activities to assist in
managing exposure to various market risks. These financial instruments
include written options, forward foreign currency exchange contracts and
financial futures contracts and may involve, to a varying degree, elements
of risk in excess of the amounts recognized for financial statement
purposes. The notional or contractual amounts of these instruments
represent the investment the Portfolio has in particular classes of
financial instruments and does not necessarily represent the amounts
potentially subject to risk. The measurement of the risks associated with
these instruments is meaningful only when all related and offsetting
transactions are considered.
A summary of obligations under these financial instruments at April 30,
1996 is as follows:
<TABLE>
<CAPTION>
Forward Foreign Currency Exchange Contracts
Sales
- ------
In Exchange For Net Unrealized
Settlement (in United States Appreciation
Date Deliver Dollars) (Depreciation)
- ----------------- --------------------------------- ----------------- --------------
<S> <C> <C> <C>
11/15/96-11/29/96 Belgian Franc 930,959,031 $ 32,198,318 $ 2,238,105
5/13/96 Canadian Dollar 4,000,000 2,925,688 (14,129)
5/2/96-6/21/96 Swiss Franc 13,611,273 11,474,220 541,364
6/10/96 Irish Pound 1,057,919 1,665,481 20,325
5/13/96-6/21/96 Japanese Yen 966,000,000 9,399,082 121,626
6/10/96 New Zealand Dollars 809,921 518,349 (35,008)
6/12/96 Swedish Krona 30,000,000 4,267,000 (148,411)
----------------- --------------
$ 62,448,138 $ 2,723,872
================= ==============
Purchases
- ---------
Deliver Net Unrealized
Settlement (in United Appreciation
Date In Exchange For States Dollars) (Depreciation)
- ----------------- --------------------------------- ----------------- --------------
5/9/96 Australian Dollar 1,000,000 $ 748,300 $ 38,611
5/13/96-7/26/96 Canadian Dollar 7,750,000 5,671,678 27,490
5/2/96-8/2/96 Swiss Franc 7,200,000 5,813,017 --
5/28/96 Czech Republic Krona 169,905,000 6,230,473 (145,196)
8/28/96 Greek Drachma 1,000,000,000 3,998,957 (4,257)
5/7/96-10/16/96 Indonesian Rupiah 30,250,000,000 12,680,461 48,154
6/18/96 Indian Rupee 98,395,000 2,750,000 33,819
7/15/96 Philippine Peso 106,264,000 4,000,000 12,324
5/2/96 Polish Zloty 9,020,105 3,402,144 --
6/12/96 Swedish Krona 30,000,000 4,459,044 (43,632)
6/21/96 New Taiwan Dollar 109,180,000 4,000,000 18,329
----------------- --------------
$ 53,754,074 $ (14,358)
================= ==============
Futures Contracts
Net Unrealized
Appreciation
Expiration Date Contracts Position (Depreciation)
- --------------- --------- -------- --------------
6/96 75 U.S. 30 year Bond Futures Short $ 322,756
6/96 107 U.S. 5 year Bond Futures Short 173,767
6/96 106 Australian 10 year Bond Futures Long 140,723
6/96 106 Canadian 10 year Bond Futures Long (168,514)
6/96 62 German 10 year Bond Futures Long 12,264
6/96 140 French 10 year Bond Futures Short (232,771)
6/96 2 Japanese 10 year Bond Futures Short (6,779)
--------------
$ 241,446
==============
</TABLE>
At April 30, 1996, the Portfolio had sufficient cash and/or securities to
cover margin requirements on open futures contracts.
Written Option Transactions
Transactions in written options for the period ended April 30, 1996 were
as follows:
Number
of Contracts Premiums
---------------- ------------
Outstanding, beginning of period -- --
Options written 3,000 $23,385
Options exercised -- --
Options expired -- --
------------ --------
Outstanding, end of period 3,000 $23,385
============ ========
(6) Federal Income Tax Basis of Investments
The cost and unrealized appreciation/depreciation in value of the
investments owned at April 30, 1996, as computed on a federal income tax
basis, were as follows:
Aggregate cost $ 132,036,123
=============
Gross unrealized appreciation $ 4,591,562
Gross unrealized depreciation 516,365
-------------
Net unrealized appreciation $ 4,075,197
=============
Report of Independent Accountants
To the Trustees and Investors of Strategic
Income Portfolio:
We have audited the accompanying statement of assets and liabilities of
Strategic Income Portfolio (the "Portfolio"), including the portfolio of
investments, as of April 30, 1996, the related statement of operations for
the six months then ended, the statements of changes in net assets for the
six months ended April 30, 1996 and the year ended October 31, 1995 and
the supplementary data for the six months ended April 30, 1996, the year
ended October 31, 1995, and for the period from March 1, 1994 (start of
business) to October 31, 1994. These financial statements and
supplementary data are the responsibility of the Portfolio's management.
Our responsibility is to express an opinion on these financial statements
and supplementary data based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements and
supplementary data are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. Our procedures included
confirmation of securities owned as of April 30, 1996 by correspondence
with the custodian and brokers. An audit also includes assessing the
accounting principles used and significant estimates made by management,
as well as evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and supplementary data referred
to above present fairly, in all material respects, the financial position
of Strategic Income Portfolio as of April 30, 1996, the results of its
operations, changes in net assets and the supplementary data for the six
months ended April 30, 1996, the year ended October 31, 1995, and for the
period from March 1, 1994 (start of business) to October 31, 1994, in
conformity with generally accepted accounting principles.
COOPERS & LYBRAND L.L.P.
Boston, Massachusetts
May 24, 1996
Investment Management
EV Classic
Strategic Income Fund
- ---------------------
Officers
M. Dozier Gardner
President, Trustee
James B. Hawkes
Vice President, Trustee
H. Day Brigham, Jr.
Vice President
William H. Ahern, Jr.
Vice President
Michael B. Terry
Vice President
James L. O'Connor
Treasurer
Thomas Otis
Secretary
Independent Trustees
Donald R. Dwight
President, Dwight Partners, Inc.
Chairman, Newspapers of New England, Inc.
Samuel L. Hayes, III
Jacob H. Schiff Professor of Investment Banking,
Harvard University Graduate School of Business
Administration
Norton H. Reamer
President and Director, United Asset Management
Corporation
John L. Thorndike
Director, Fiduciary Company Incorporated
Jack L. Treynor
Investment Adviser and Consultant
Strategic
Income Portfolio
- ----------------
Officers
James B. Hawkes
President, Trustee
Mark S. Venezia
Vice President
James L. O'Connor
Treasurer
Thomas Otis
Secretary
Independent Trustees
Donald R. Dwight
President, Dwight Partners, Inc.
Chairman, Newspapers of New England, Inc.
Samuel L. Hayes, III
Jacob H. Schiff Professor of Investment Banking,
Harvard University Graduate School of Business
Administration
Norton H. Reamer
President and Director, United Asset Management Corporation
John L. Thorndike
Director, Fiduciary Company Incorporated
Jack L. Treynor
Investment Adviser and Consultant
Investment Adviser of
Strategic Income Portfolio
Boston Management and Research
24 Federal Street
Boston, MA 02110
Administrator of EV Classic
Strategic Income Fund
Eaton Vance Management
24 Federal Street
Boston, MA 02110
Principal Underwriter
Eaton Vance Distributors, Inc.
24 Federal Street
Boston, MA 02110
(617) 482-8260
Custodian
Investors Bank & Trust Company
89 South Street
P.O. Box 1537
Boston, MA 02205-1537
Transfer and Dividend Disbursing Agent
First Data Investor Services Group, Inc.
BOS725
P.O. Box 1559
Boston, MA 02104
Independent Accountants
Coopers & Lybrand L.L.P.
One Post Office Square
Boston, MA 02109
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 Classic Strategic
Income Fund
24 Federal Street
Boston, MA 02110
C-SGSRC-6/96C
