<PAGE>
TO SHAREHOLDERS
EV Marathon High Income Fund had a total return of +12.8% for the year ended
March 31, 1996. This was the result of a rise in net asset value per share to
$7.10 on March 31, 1996, from $6.92 on March 31, 1995, and the reinvestment of
$0.675 per share in dividends, and does not include contingent deferred sales
charges incurred by certain redeeming shareholders. The Lehman Brothers High
Yield Bond Index, an unmanaged index of corporate bonds, returned 14.5% for the
same period.
Based on the Fund's most recent dividend and a net asset value of $7.10, the
Fund had a distribution rate of 9.34% at March 31.
FLUCTUATING INTEREST RATES LED TO A VOLATILE MARKET, BUT HIGH-YIELD BONDS
POSTED SOLID RETURNS...
The bond market has been unusually volatile the past year, a result of the
on-again, off-again nature of rancorous budget negotiations and mixed economic
signals. As a measure of changing market conditions, 10-year Treasury yields\+/,
which stood at 7.2% in March 1995, declined to 5.6% at year-end as the Federal
Reserve lowered interest rates in response to weak economic data. However,
spurred by isolated signs of inflation, rates were again on the rise early in
1996. By March, 1996, 10-year Treasury yields had climbed to 6.3%.
\+/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.
HIGH INCOME PORTFOLIO: RATINGS
BREAKDOWN OF BOND HOLDINGS*
NON-
RATED OTHER Aaa Ba B1 B2 B3 Caa
3.3% 1.7% 3.5% 5.4% 12.9% 25.5% 40.5% 7.2%
*Moody's Investors Service ratings; percentages based on market value as of
March 31, 1996. Source: Eaton Vance Management.
A GOOD CLIMATE AHEAD FOR HIGH-YIELD BONDS...
A projected slow-growth economy should provide a very good climate for the
high-yield market, although there is naturally no guarantee of future trends. In
the pages that follow, portfolio manager Hooker Talcott, Jr. provides his
insights into the year just ended, and suggests what may lie ahead for high
yield bond investors.
Sincerely,
[Photo of M. Dozier Gardner]
/s/ M. Dozier Gardner
M. Dozier Gardner
President
May 19, 1996
<PAGE>
MANAGEMENT DISCUSSION
An interview with Hooker Talcott Jr., Vice President and Portfolio Manager of
High Income Portfolio.
Q. HOOKER, WHAT'S YOUR ASSESSMENT OF THE HIGH-YIELD MARKET DURING THE
PAST YEAR?
A. The high-yield market naturally reflected some of the volatility of the
Treasury market. In addition, the high-yield segment felt the impact of
supply pressures as a huge volume of new issuance came to market.
Interestingly, the wave of new supply was met with strong demand from
yield-oriented investors. So the market remained generally in balance from a
supply-and-demand perspective.
Q. WITH THAT AS A BACKDROP, WHAT DROVE THE FUND'S PERFORMANCE?
A. Considering the volatility, the Fund fared quite well. As I've indicated in
past reports, the Fund benefits in periods of volatility from being
positioned well away from the Treasury yield curve. That is, the high
coupons of the high-yield sector makes them less responsive to changes in
interest rates. In addition, given the contradictory messages sent by the
economy, the Fund clearly benefited from having maintained a good balance
between defensive issues and those that are more economically sensitive.
Q. YOU INDICATED THAT THE HIGH-YIELD SECTOR HAS WITNESSED A GOOD DEAL OF NEW
ISSUANCE IN THE PAST YEAR. WHAT ARE THE DIMENSIONS?
A. In the first quarter of 1996
alone, new high-yield issuance
totalled $17.6 billion dollars.
That is well ahead of the pace
set in 1995, when new issuance Hooker Talcott, Jr.
was the second highest on
record. The single largest
source of new issuance - around
50% in the past six months - has
been in the telecommunications
and cable sector, an [Photo of Hooker Talcott, Jr.]
increasingly significant
component of the Portfolio.
Q. WHAT'S BEHIND THE SURGE IN FINANCING ACTIVITY BY THE TELECOMMUNICATIONS
SECTOR?
A. The telecommunications sector is very capital-intensive. The pace of
technological and regulatory change in the sector has prompted many
companies to increase their financing efforts for capital expenditures and
the build-out of systems, as well as to purchase transmission spectrum at
auction. The passage by Congress of telecom legislation in February of this
year unleashed a wave of deregulation that has companies scrambling to enter
related fields that were previously off-limits. As a result, cable
operators, paging service companies, wireless companies and assorted media
companies have greatly increased their exposure to the high-yield market.
Q. RECENT ECONOMIC REPORTS SUGGEST THAT THE ECONOMY MAY NOT BE AS WEAK AS MANY
FEARED SOME MONTHS AGO. WHAT EFFECT MIGHT AN UPTICK IN THE ECONOMY HAVE ON
THE FUND?
A. The Fund is well-positioned to benefit from a stronger-than-expected
economy. Interestingly, there was talk for many months about a "soft
landing." As it turns out, the economy has barely landed at all. And that is
certainly a good sign for the high-yield segment of the market. A
slow-growth economy enables high-yield issuers - especially some of the more
cyclical companies found in the Portfolio - to grow their earnings and cash
flows, strengthen their balance sheets and possibly to realize an
improvement in credit quality.
Q. CAN YOU GIVE SOME EXAMPLES OF THE PORTFOLIO'S CYCLICAL HOLDINGS?
A. Yes. Among the cyclical sectors, we've maintained a fairly large exposure to
paper and forest products, steel companies, and energy. For example, one
large holding, Stone Container, is among the industry leaders in the
production of container board and corrugated containers. A stronger economy
results in more shipments by manufacturers and increased demand for
corrugated containers.
Steel companies, like Republic Engineered Steel, took on a good deal of debt
in recent years to modernize plants and become increasingly competitive with
global producers. That has paid off handsomely, as the companies now operate
more efficiently and will be better positioned to withstand the next
down-cycle. Finally, we've increased our commitments to the energy group,
through exploration companies like Chesapeake Energy Corp. and Trans Texas
Gas Corp. Energy prices have firmed recently with growing global economic
demand, falling inventories, and the failure of Iraqi supply to come to
market. Rising prices have improved the outlook for oil and gas exploration
companies.
Q. HOOKER, IN YOUR VIEW, WHAT IS THE OUTLOOK FOR THE HIGH-YIELD MARKET?
A. While the market has clearly been strong in the past year and there is some
uncertainty as to the course of the economy, the outlook for the high-yield
market remains positive. As I indicated earlier, heavy supply has received
an enthusiastic reception from investors. Naturally, past trends cannot
guarantee future results, but history has shown the high-yield sector as a
source of good, long-term investment opportunity.
COMPARISON OF CHANGE IN VALUE OF A $10,000 INVESTMENT IN EV MARATHON
HIGH INCOME FUND (INCLUDING SALES CHARGE) AND THE LEHMAN BROTHERS HIGH YIELD
BOND INDEX
From August 31, 1986, through March 31, 1996
----------------------------------------------
AVG. ANNUAL 1 5 LIFE OF
RETURNS YEAR YEAR FUND*
----------------------------------------------
With CDSC 7.8% 14.6% 8.7%
Without CDSC 12.8% 14.9% 8.7%
----------------------------------------------
date M. High Income Lehman High Yield
8/86+ 10000 10000
9/86 9940 10120
10/86 10287 10355
11/86 10393 10327
12/86 10426 10297
1/87 10718 10723
2/87 10977 10951
3/87 11093 11026
4/87 10875 10642
5/87 10781 10719
6/87 10904 10856
7/87 10917 10885
8/87 11008 10953
9/87 10791 10608
10/87 10345 10261
11/87 10560 10557
12/87 10689 10811
1/88 10885 11172
2/88 11169 11534
3/88 11261 11414
4/88 11377 11501
5/88 11445 11518
6/88 11620 11686
7/88 11798 11763
8/88 11893 11746
9/88 12015 11894
10/88 12155 12038
11/88 12246 12109
12/88 12433 12166
1/89 12499 12380
2/89 12597 12407
3/89 12565 12310
4/89 12583 12362
5/89 12760 12602
6/89 12908 12758
7/89 12950 12741
8/89 12965 12785
9/89 12947 12570
10/89 12710 12272
11/89 12568 12247
12/89 12574 12267
1/90 12281 12003
2/90 11745 11756
3/90 11542 12064
4/90 11636 12044
5/90 11859 12276
6/90 12093 12573
7/90 12362 12911
8/90 11788 12177
9/90 10982 11288
10/90 10618 10695
11/90 10384 11029
12/90 10253 11091
1/91 10136 11396
2/91 10731 12642
3/91 11214 13387
4/91 12053 13936
5/91 12092 13961
6/91 12489 14374
7/91 12971 14834
8/91 13126 15175
9/91 13405 15386
10/91 13891 15900
11/91 14050 15983
12/91 14184 16213
1/92 14755 16784
2/92 15139 17198
3/92 15499 17411
4/92 15667 17478
5/92 15900 17724
6/92 16119 17891
7/92 16335 18161
8/92 16545 18399
9/92 16649 18586
10/92 16402 18324
11/92 16479 18555
12/92 16708 18767
1/93 16993 19313
2/93 17367 19653
3/93 17578 19906
4/93 17718 20079
5/93 17984 20318
6/93 18333 20745
7/93 18536 20946
8/93 18580 21122
9/93 18565 21177
10/93 18972 21605
11/93 19213 21709
12/93 19535 21978
1/94 19920 22455
2/94 20044 22396
3/94 19386 21550
4/94 19158 21403
5/94 19270 21414
6/94 19317 21481
7/94 19232 21663
8/94 19206 21816
9/94 19206 21817
10/94 19211 21869
11/94 18977 21594
12/94 19182 21752
1/95 19263 22047
2/95 19757 22803
3/95 19872 23049
4/95 20418 23635
5/95 20858 24298
6/95 20881 24460
7/95 21201 24761
8/95 21093 24839
9/95 21234 25144
10/95 21256 25227
11/95 21456 25522
12/95 21841 25923
1/96 22174 26379
2/96 22503 26400
3/96 22416 26382
Past performance is not indicative of future results. Investment returns and
principal value will fluctuate so that an investor's shares, when redeemed, may
be worth more or less than their original cost. Source: Towers Data Systems,
Bethesda, MD. *Investment operations commenced 8/16/86. +Index information is
available only at month-end; therefore, the line comparison begins at the next
month-end following the commencement of the Fund's investment operations.
FUND PERFORMANCE
In accordance with guidelines issued by the Securities and Exchange Commission,
we are including a performance chart that compares your Fund's total return with
that of a broad-based investment index. The lines on the chart represent the
total returns of $10,000 hypothetical investments in EV Marathon High Income
Fund and the unmanaged Lehman Brothers High Yield Bond Index.
THE TOTAL RETURN FIGURES
The blue line on the chart represents the Fund's performance at net asset value.
The Fund's total return figure reflects Fund expenses and transaction costs, and
assumes the reinvestment of income dividends and capital gain distributions.
The black line represents the performance of the Lehman Brothers High Yield Bond
Index, an unmanaged index of high-yield bonds. The Index's total return does not
reflect any commissions or expenses that would be incurred if an investor
individually purchased or sold the securities represented in the Index. It is
not possible to invest in the Index itself.
<PAGE>
EV MARATHON HIGH INCOME FUND
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
- ------------------------------------------------------------------------------
March 31, 1996
- ------------------------------------------------------------------------------
ASSETS:
Investment in High Income Portfolio, at value (Note 1A)
(identified cost, $501,296,194) $498,601,745
Receivable for Fund shares sold 1,392,963
------------
Total assets $499,994,708
LIABILITIES:
Dividends payable $2,005,199
Payable for Fund shares redeemed 725,369
Payable to affiliate --
Trustees' fees 826
Accrued expenses 297,734
----------
Total liabilities 3,029,128
------------
NET ASSETS for 70,032,517 shares of beneficial
interest outstanding $496,965,580
============
SOURCES OF NET ASSETS:
Paid-in capital $569,306,661
Accumulated distributions in excess of net
investment income (2,044,407)
Accumulated net realized loss on investment and
financial futures transactions
(computed on the basis of identified cost) (67,602,225)
Unrealized depreciation of investments from
Portfolio (computed on the basis of identified
cost) (2,694,449)
------------
Total $496,965,580
============
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION
PRICE (NOTE 6) PER SHARE
($496,965,580 / 70,032,517 shares of beneficial
interest) $7.10
=====
See notes to financial statements
<PAGE>
FINANCIAL STATEMENTS (Continued)
STATEMENT OF OPERATIONS
- ------------------------------------------------------------------------------
For the Year Ended March 31, 1996
- ------------------------------------------------------------------------------
INVESTMENT INCOME (NOTE 1B):
Income allocated from Portfolio $53,531,485
Expenses allocated from Portfolio (3,400,143)
-----------
Net investment income from Portfolio $50,131,342
Expenses --
Compensation of Trustees not members of the
Administrator's organization (Note 4) $ 3,284
Custodian fee (Note 4) 25,250
Distribution costs (Note 5) 4,394,532
Transfer and dividend disbursing agent fees 371,033
Printing and postage 81,163
Registration costs 59,995
Legal and accounting services 17,472
Miscellaneous 202,674
----------
Total expenses 5,155,403
-----------
Net investment income $44,975,939
-----------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized loss from Portfolio on investment
transactions (identified cost basis) $(5,110,133)
Change in unrealized appreciation of investments 17,157,192
-----------
Net realized and unrealized gain $12,047,059
-----------
Net increase in net assets resulting from
operations $57,022,998
===========
See notes to financial statements
<PAGE>
STATEMENTS OF CHANGES IN NET ASSETS
- ------------------------------------------------------------------------------
YEAR ENDED MARCH 31,
-----------------------------
1996 1995
-------- --------
INCREASE (DECREASE) IN NET ASSETS:
From operations --
Net investment income $ 44,975,939 $ 39,910,197
Net realized loss on investments (5,110,133) (18,301,289)
Change in unrealized
appreciation (depreciation) of
investments 17,157,192 (11,002,226)
------------ ------------
Net increase in net assets
from operations $ 57,022,998 $ 10,606,682
------------ ------------
Distributions to shareholders
(Note 2) --
From net investment income $(44,975,939) $(39,910,197)
In excess of net investment
income (625,821) (1,365,660)
------------ $-----------
Total distributions to
shareholders $(45,601,760) $(41,275,857)
------------ ------------
Transactions in shares of beneficial
interest (Note 3) --
Proceeds from sales of shares $153,699,352 $207,324,262
Net asset value of shares issued
to shareholders in payment of
distributions declared 14,446,691 13,076,279
Cost of shares redeemed (121,772,551) (149,819,353)
------------ ------------
Increase in net assets from
Fund share transactions $ 46,373,492 $ 70,581,188
------------ ------------
Net increase in net assets $ 57,794,730 $ 39,912,013
NET ASSETS:
At beginning of year 439,170,850 399,258,837
------------ ------------
At end of year (including
accumulated distributions in
excess of net investment income
of $2,044,407 and $1,374,513,
respectively) $496,965,580 $439,170,850
============ ============
See notes to financial statements
<PAGE>
FINANCIAL STATEMENTS (Continued)
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS
- ---------------------------------------------------------------------------------------------------------------
YEAR ENDED MARCH 31,
------------------------------------------------------------------------
1996 1995 1994 1993 1992
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, beginning of year $ 6.920 $ 7.450 $ 7.480 $ 7.380 $ 6.120
------------ ------------ ------------ ------------ ------------
INCOME FROM OPERATIONS:
Net investment income $ 0.665 $ 0.671 $ 0.697 $ 0.767 $ 0.825
Net realized and unrealized gain
(loss) on investments 0.189 (0.507) 0.047 0.170 1.356
------------ ------------ ------------ ------------ ------------
Total income from operations $ 0.854 $ 0.164 $ 0.744 $ 0.937 $ 2.181
------------ ------------ ------------ ------------ ------------
LESS DISTRIBUTIONS:
From net investment income $ (0.665) $ (0.671) $ (0.697) $ (0.767) $ (0.825)
In excess of net investment income (0.009) (0.023) (0.077) (0.070) (0.096)
------------ ------------ ------------ ------------ ------------
Total distributions $ (0.674) $ (0.694) $ (0.774) $ (0.837) $ (0.921)
------------ ------------ ------------ ------------ ------------
NET ASSET VALUE, end of year $ 7.100 $ 6.920 $ 7.450 $ 7.480 $ 7.380
============ ============ ============ ============ ============
TOTAL RETURN(3) 12.8% 2.51% 10.28% 13.41% 38.21%
RATIOS/SUPPLEMENTAL DATA:
Net assets at end of period (000
omitted) $ 496,966 $ 439,171 $ 399,259 $ 332,854 $ 252,967
Ratio of net expenses to average
daily net assets(1) 1.78% 1.78% 1.82% 2.09% 2.19%
Ratio of net investment income to
average daily net assets 9.38% 9.52% 9.09% 10.31% 12.00%
PORTFOLIO TURNOVER(2) -- 11% 96% 91% 82%
(1)Includes the Fund's share of High Income Portfolio's allocated expenses subsequent to June 1, 1994.
(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 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. Total return is calculated on a non-annualized basis.
</TABLE>
See notes to financial statements
<PAGE>
NOTES TO FINANCIAL STATEMENTS
(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
(97.5% at March 31, 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. 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, 1996, the Fund, for federal income tax
purposes, had a capital loss carryover of $62,849,991 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), 2003 ($12,690,352), and 2004 ($5,868,015), respectively.
Additionally, net losses of $4,676,080 attributable to security transactions
and net losses of $39,208 attributable to currency transactions incurred after
October 31, 1995, are treated as arising on the first day of the Fund's next
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. 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.
- ------------------------------------------------------------------------------
(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:
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31
------------------------------
1996 1995
-------- --------
<S> <C> <C>
Sales 21,673,656 29,118,150
Issued to shareholders electing to receive payment of
distributions in Fund shares 2,037,734 1,855,391
Redemptions (17,161,486) (21,060,719)
----------- -----------
Net increase 6,549,904 9,912,822
=========== ===========
</TABLE>
- ------------------------------------------------------------------------------
(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), serves as custodian of the
Fund and the Portfolio. Prior to November 10, 1995, IBT was an affiliate of
EVM and BMR. 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. No significant credit balances
were used to reduce the Fund's custody fees. 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
$3,601,214 to or payable to EVD for the year ended March 31, 1996,
representing 0.75% (annualized) of average daily net assets. At March 31,
1996, the amount of Uncovered Distribution Charges of EVD calculated under the
Plan was approximately $15,354,000.
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 year ended March 31, 1996, in the amount of
$793,318. 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 $1,715,000 of CDSC paid by shareholders for the
year ended March 31, 1996.
- ------------------------------------------------------------------------------
(7) INVESTMENT TRANSACTIONS
Increases and decreases in the Fund's investment in the Portfolio for the year
ended March 31, 1996, aggregated $157,753,700 and $161,770,484, respectively.
<PAGE>
INDEPENDENT AUDITORS' REPORT
- ------------------------------------------------------------------------------
TO THE TRUSTEES AND SHAREHOLDERS OF
EATON VANCE MUTUAL FUNDS TRUST:
We have audited the accompanying statement of assets and liabilities of EV
Marathon High Income Fund (one of the series constituting the Eaton Vance
Mutual Funds Trust) as of March 31, 1996, the related statement of operations
for the year then ended, the statements of changes in net assets for the years
ended March 31, 1996 and 1995 and the financial highlights for each of the
years in the five-year period ended March 31, 1996. These financial
statements and financial highlights are the responsibility of the Trust's
management. Our responsibility is to express an opinion on these financial
statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements and
financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, such financial statements and financial highlights present
fairly, in all material respects, the financial position of EV Marathon High
Income Fund at March 31, 1996, the results of its operations, the changes in
its net assets, and its financial highlights for the respective stated periods
in conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
BOSTON, MASSACHUSETTS
APRIL 30, 1996
<PAGE>
-------------------------------
HIGH INCOME PORTFOLIO
PORTFOLIO OF INVESTMENTS
MARCH 31, 1996
(EXPRESSED IN UNITED STATES DOLLARS)
- -------------------------------------------------------------------------------
CORPORATE BONDS AND NOTES - 93.6%
- -------------------------------------------------------------------------------
FACE
AMOUNT SECURITY VALUE
- -------------------------------------------------------------------------------
AUTOMOTIVE/TRUCK - 4.0%
$6,750,000 JPS Automotive Prod. Corp., Sr. Notes,
11.125%, 6/15/01 $ 6,682,500
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 5,035,000
5,000,000 Terex Corp., Sr. Secured Notes,
13.75%, 5/15/02(1)
4,968,750
------------
$ 20,562,250
------------
BUILDING PRODUCTS - 3.6%
$8,250,000 Building Materials Corp., Sr. Sub. Notes,
11.75% (0% until 2000), 7/1/04 $ 6,105,000
7,100,000 Overhead Door Corp., Sr. Notes, 12.25%, 2/1/00 7,135,500
1,500,000 Southdown Inc., Sr. Sub. Notes., 10%,
3/1/06(1) 1,500,000
3,600,000 Tarkett International, Sr. Sub. Notes, 9%, 3/1/02 3,744,000
------------
$ 18,484,500
------------
CABLE - 2.3%
$4,200,000 Amer Telecasting, Sr. Disc. Notes 14.5%
(0% until 2000), 8/15/05 $ 2,761,500
3,470,000 Groupe Videotron 10.625%, 2/15/05 3,643,500
5,800,000 International CABLETEL, Inc., Sr. Disc Notes,
11.5% (0% until 2001), 2/1/06(1) 3,277,000
2,400,000 Rogers Comm. Inc., 9.125%, 1/15/06 2,322,000
------------
$ 12,004,000
------------
CHEMICALS - 7.0%
$5,000,000 Agricultural Minerals & Chemicals, Sr. Notes,
10.75%, 9/30/03 $ 5,425,000
4,503,000 GI Holdings, Sr. Discount Notes, 10%, 2/15/06(1) 4,503,000
1,448,000 GI Holdings, Sr. Disc, Notes, 0%, 10/1/98 1,154,780
5,000,000 NL Industries Inc., Sr. Sec. Notes, 11.75%,
10/15/03 5,187,500
4,250,000 NL Industries Inc., Sr. Disc. Notes, 13%
(0% until 1998), 10/15/05 3,187,500
7,850,000 Pioneer Americas Acq., Senior Notes,
13.625%, 4/1/05 8,379,875
3,800,000 Terra Industries Inc., Senior Notes, 10.5%,
6/15/05 4,123,000
3,700,000 UCC Investors, Sr. Sub. Notes, 11%, 5/1/03 3,792,500
------------
$ 35,753,155
------------
COMMUNICATIONS - 19.0%
$2,000,000 Allbritton Comm., Sr. Sub. Notes 9.75%,
11/30/07 $ 1,885,000
4,100,000 Alliance Entertainment Corp., Sr. Sub.
Notes, 11.25%, 7/15/05 4,059,000
4,000,000 Arch Communications, Sr. Disc. Notes,
10.875% (0% until 2001), 3/15/08 2,290,000
6,800,000 Australis Media LTD., Sub Disc. Notes,
14% (0% until 2000), 5/13/03 4,692,000
5,500,000 Brooks Fiber, Sr. Disc. Notes, 10.875%
(0% until 2001), 3/1/06(1) 3,190,000
2,800,000 Cablevision Systems, Sr. Sub. Notes,
9.25%, 11/1/05 2,800,000
2,400,000 Chancellor Broadcasting, Sr. Sub. Notes,
9.375%, 10/1/04 2,268,000
2,900,000 Clark USA, Inc., Senior Notes,
10.875%, 12/1/05(1) 3,030,500
4,480,000 CS Wireless Systems, Inc., 1st Mtg. Notes,
11.375% (0% until 2001), 3/1/06(1) 2,464,000
7,200,000 Dial Call Communications Inc., Sr. Red. Notes,
12.25% (0% until 1999), 4/15/04 4,536,000
8,600,000 Diamond Cable Communications Co.,
Sr. Disc. Notes, 11.75% (0% until 2000),
12/15/05 5,031,000
1,600,000 Diamond Cable Communications Co., Sr. Disc.
Notes, 13.25% (0% until 1999), 9/30/04 1,136,000
4,700,000 EZ Communications Corp, Sr. Sub. Notes,
9.75%, 12/1/05 4,676,500
5,000,000 Galaxy Telecom LP., Sr. Sub. Notes, 12.375%,
10/1/05 5,275,000
4,050,000 Granite Broadcasting Corp., Sr. Sub. Notes,
10.375%, 5/15/05 4,095,563
4,000,000 Heartland Wireless, Senior Notes 13%, 4/15/03(1) 4,420,000
1,600,000 In-Flight Phone Corp., Sr. Disc. Notes, 14%
(0% until 2002), 5/15/02 496,000
8,500,000 Marcus Cable Co., Sr. Disc. Notes, 14.25%
(0% until 2000), 12/15/05 5,440,000
2,800,000 Marcus Cable Co., Senior Debs., 11.875%, 10/1/05 2,982,000
4,875,000 MFS Communications Corp., Sr. Disc. Notes,
8.875% (0% until 2001), 11/15/06 3,022,500
3,200,000 Mobilemedia Corp., Sr. Sub. Notes, 9.375%,
11/1/07 3,136,000
6,500,000 Pricellular Wireless Comm., Sr Sub. Disc.
Nts. 12.25% (0% until 1998), 10/1/03 5,102,500
3,600,000 Sullivan Broadcasting, Sr. Sub. Notes,
10.25%, 12/15/2005(1) 3,564,000
12,153,200 United International Holdings Inc., Sr.
Sec. Disc. Notes, 0%, 11/15/99 7,838,814
8,400,000 Videotron Holdings, Sr. Disc. Notes, 11%
(0% until 2000), 8/15/05 5,334,000
4,000,000 Young Broadcasting Corp., Sr. Sub. Notes,
10.125%, 2/15/05 4,040,000
------------
$ 96,804,377
------------
ENERGY - 5.7%
$2,850,000 El Paso Electric Co., 1st Mtg. Notes,
9.4%, 5/1/11 $ 2,885,625
3,000,000 Gulf Canada Resources Ltd., Sr. Sub. Notes,
9.25%, 1/15/04 3,045,000
6,200,000 MCV Subordinated Secured Lease Obligations,
11.75%, 7/23/05 6,543,418
2,400,000 Mesa Capital Corp., Sec. Disc. Notes,
12.75%, 6/30/98 2,346,000
3,086,036 Midland Cogeneration Venture, Sr. Sec. Lease
Oblig., 10.33%, 7/23/02 3,251,910
3,600,000 Plains Resources, Sr. Sub. Notes, 10.25%,
3/15/06(1) 3,609,000
3,300,000 Trans Texas Gas Corp., Sr. Sec. Notes,
11.5%, 6/15/02 3,250,500
2,420,000 Tuboscope Vetco, Sr. Sub. Debs., 10.75%,
4/15/03 2,528,900
1,450,000 Vintage Petro, Sr. Sub. Notes, 9%, 12/15/05 1,413,750
------------
$ 28,874,103
------------
FOOD/RESTAURANTS/HOTELS - 7.3%
$4,000,000 Courtyard by Marriott, Senior Notes,
10.75%, 2/1/08(1) $ 3,960,000
8,250,000 Flagstar Corp., Sub. Debs., 10.75%, 9/15/01 7,425,000
3,900,000 HMC Acquisition Properties, Senior Notes,
9%, 12/15/07(1) 3,685,500
2,762,000 PM Holdings Corp., 11.5% (0% until 2000), 9/1/05 1,574,340
6,075,000 Purina Mills, Sr. Sec. Sub. Notes,
10.25%, 9/1/03 6,226,875
3,735,000 Seven Up / RC Bottling Co., Sr. Sec. Notes,
11.5%, 8/1/99* 2,241,000
7,000,000 Specialty Foods Corp., Senior Notes, 10.25%,
8/15/01 6,335,000
5,300,000 Van De Kamps, Inc., Sr. Sub. Notes, 12%,
9/15/05 5,671,000
------------
$ 37,118,715
------------
HEALTHCARE - 3.8%
$6,800,000 Dade International Inc., Sr. Sub. Notes,
13%, 2/1/05 $ 7,820,000
6,100,000 Ordna Corp., Sr. Sub. Notes, 11.375%, 8/15/04 6,862,500
1,000,000 Regency Health, Sr. Sub. Notes, 9.875%,
10/15/02 1,015,000
4,000,000 Unilab Corp., Senior Notes, 11%, 4/1/06 3,940,000
------------
$ 19,637,500
------------
HIGH TECH - 2.5%
$2,719,000 Blue Bell Funding Inc., Sec. Ext. Notes,
11.85%, 5/1/99 $ 2,583,050
5,500,000 GS Technologies Corp., Senior Notes, 12.25%,
10/1/05 5,527,500
3,000,000 Unisys Corp., Senior Notes, Variable Rates,
7/1/97 3,195,000
1,600,000 Unisys Corp., Senior Notes, 12%, 4/15/03(1) 1,581,232
------------
$ 12,886,782
------------
METALS - 3.2%
$3,840,000 Acme Metals Inc., Sr. Notes, 12.5%, 8/1/02 $ 3,964,800
4,000,000 Gulf States Steel, First Mtg. Notes,
13.5%, 4/15/03 3,660,000
3,000,000 Kaiser Aluminum, Sr. Sub. Notes, 12.75%,
2/1/03 3,180,000
1,500,000 Maxxam Group Inc., Sr. Sec. Notes, 11.25%,
8/1/03 1,425,000
2,025,000 Republic Engineered Steels Inc., First
Mtg., 9.875%, 12/15/01 1,852,875
2,105,000 Ucar Global Enterprises, Sr. Sub.
Notes, 12%, 1/15/05 2,420,750
------------
$ 16,503,425
------------
MANUFACTURING/MACHINERY - 9.0%
$6,000,000 Applied Extrusion Inc., Senior Notes,
11.5%, 4/1/02 $ 6,210,000
3,300,000 Day International Group, Inc., Sr. Sub.
Notes, 11.125%, 6/1/05 3,415,500
2,250,000 Dictaphone Corp., Sr. Sub. Notes, 11.75%,
8/1/05 2,250,000
3,225,000 Essex Group, Inc., Senior Notes, 10%, 5/1/03 3,257,250
2,850,000 Howmet Corp., Sr. Sub. Notes, 10%, 12/1/03(1) 3,013,875
5,550,000 Monarch Acquisition Corp., Senior Notes,
12.5%, 7/1/03 5,938,500
5,500,000 Newflo Corp., Sub. Notes, 13.25%, 11/15/02 5,775,000
4,750,000 Plastic Specialties & Tech, Sr. Sec. Notes,
11.25%, 12/1/03 4,750,000
2,000,000 RBX Corp., Sr. Sub. Notes, 11.25%, 10/15/05(1) 1,950,000
4,800,000 Shared Tech/Fairchild 12.25% (0% until 1999),
3/1/06(1) 3,408,000
5,250,000 Waters Tech. Corp., Sr. Sub. Notes, 12.75%,
9/30/04 6,273,750
------------
$ 46,241,875
------------
MISCELLANEOUS - 4.5%
$4,000,000 Alliant Tech Systems Inc., Sr. Sub. Notes,
11.75%, 3/1/03 $ 4,400,000
2,400,000 Imax Corp., Senior Notes, 10% (7% until 1997),
3/1/01 2,388,000
4,850,000 Roadmaster Industries Inc., Sr. Sub. Notes,
11.75%, 7/15/02 3,589,000
6,900,000 Selmer Company, Inc., Sr. Sub. Notes, 11%,
5/15/05 7,176,000
5,000,000 Williamhouse-Regency of Del., Sr. Sub. Deb.,
13%, 11/15/05(1) 5,525,000
------------
$ 23,078,000
------------
PAPER/PACKAGING - 7.6%
$2,400,000 Container Corp., Sr. Notes (Ser. B),
10.75%, 5/1/02 $ 2,454,000
3,907,613 Fort Howard Corp., Sr. Sec. Notes,
11%, 1/2/02 4,102,994
4,100,000 Gaylord Container Corp., Sr. Sub. Disc.
Debs., 12.75%, 5/15/05 4,141,000
1,500,000 Portola Packaging Corp., Senior Notes,
10.75%, 10/1/05 1,575,000
3,665,000 Repap Wisconsin, 2nd Party Sr. Sec. Notes,
9.875%, 5/1/06 3,353,475
5,250,000 Riverwood International, Sr. Sub. Notes,
10.875%, 4/1/08 5,236,875
3,000,000 S.D. Warren Company Inc., Sr. Sub. Notes,
12%, 12/15/04 3,165,000
2,500,000 Silgan Corp., Sr. Notes,
13.25%, 12/15/02 2,450,000
1,500,000 Silgan Corp., Sr. Sub. Notes,
11.75%, 6/15/02 1,597,500
4,500,000 Stone Container Corp., First Mtg. Notes,
10.75%, 10/1/02 4,466,250
3,200,000 Stone Container Corp., Sr. Notes, 12.625%,
7/15/98 3,376,000
2,950,000 U.S. Can Company, Sr. Sub. Notes, 13.5%,
1/15/02 3,127,000
------------
$ 39,045,094
------------
RECREATION - 4.0%
$4,000,000 AMF Group, Inc., Sr. Disc. Notes, 10.875%,
3/15/06(1) $ 3,980,000
800,000 AMF Group, Inc., Sr. Disc. Notes, 12.25%
(0% until 2000), 3/15/06(1) 436,000
5,000,000 Aztar Corp., Sr. Sub. Notes, 13.75%, 10/1/04 5,575,000
3,000,000 Trump Holdings & Funding, Senior Notes,
15.5%, 6/15/05 3,435,000
6,558,515 Trump Taj Mahal, First Mtg Bonds, 11.35%
(PIK), 11/15/99 6,894,639
------------
$ 20,320,639
------------
RETAILING - 7.3%
$5,600,000 Apparel Retailers Inc., Sr. Disc. Debs.,
12.75% (0% until 1998), 8/15/05 $ 3,920,000
6,575,000 Brunos, Inc., Sr. Sub. Notes, 10.5%, 8/1/05 6,312,000
4,200,000 Duane Reade, G.P., Sr. Notes, 12%, 9/15/02 3,990,000
2,000,000 Knoll, Inc., Sr. Sub. Notes, 10.875%, 3/15/06(1) 2,040,000
3,050,000 Levitz Furniture Corp., Sr. Sub. Notes,
9.625%, 7/15/03 1,891,000
2,000,000 Pathmark Stores Inc., Jr. Sub., Disc.
Notes, 11.625%, 6/15/02 1,950,000
8,500,000 Pathmark Stores Inc., Jr. Sub., Disc.
Notes, 10.75% (0% until 1999), 11/1/03 5,057,500
2,000,000 Ralphs Grocery Company, Inc., Sr. Sub. Notes,
11%, 6/15/05 1,800,000
5,500,000 Ralphs Grocery Co., Sr. Sub Notes, 13.75%,
6/15/05 5,610,000
4,980,000 Specialty Retailers, Inc., Sr. Sub. Notes,
11%, 8/15/03 4,855,500
------------
$ 37,426,000
------------
TEXTILES - 2.3%
$2,000,000 CMI Industries Inc., Sr. Sub. Notes, 9.5%,
10/1/03 $ 1,580,000
5,800,000 Dan River Inc., Sr. Sub. Notes, 10.125%,
12/15/03 5,510,000
4,500,000 Westpoint Stevens, Sr. Sub. Debs., 9.375%,
12/15/05 4,443,750
------------
$ 11,533,750
------------
TRANSPORTATION - 0.5%
$2,400,000 Alvey Systems Inc., Sr. Sub. Notes 11.375%,
1/31/03(1) $ 2,502,000
------------
TOTAL CORPORATE BONDS AND NOTES
(IDENTIFIED COST, $476,227,065) $478,776,165
------------
- ------------------------------------------------------------------------------
PREFERRED STOCK - 1.2%
- ------------------------------------------------------------------------------
SHARES/
WARRANTS SECURITY VALUE
- ------------------------------------------------------------------------------
40,000 Cablevision Systems Corp.,
11.125% (PIK), 2/15/96 $ 4,000,000
48,000 SD Warren Company W / Warrants, 14%, 12/15/06* 1,488,000
32,000 Terex Corp., 13% CV. Pfd w/warrants(1)* 800,000
------------
TOTAL PREFERRED STOCK
(IDENTIFIED COST, $6,041,600) $ 6,288,000
------------
- ------------------------------------------------------------------------------
COMMON STOCKS, WARRANTS AND RIGHTS - 0.8%
- ------------------------------------------------------------------------------
SHARES/
WARRANTS SECURITY VALUE
- ------------------------------------------------------------------------------
AUTO/TRUCK - 0.3%
214,839 Bucyrus-Erie Company, Common* $ 1,718,712
------------
CHEMICALS - 0.0%
9,908 UCC Invt Hldgs, Cl A Common+* $ 111,465
------------
COMMUNICATIONS - 0.0%
2,600 American Telecasting, Wts.* $ 88,400
7,200 Dial Call Communications, Exp. 4/15/04
Wts.(SD)+ 1,800
1,600 In Flight Phone Corp., Wts. Exp. 8/31/2002+* 0
7,840 United International Hldg. Inc., Wts.
Exp. 11/15/99+* 235,200
------------
$ 325,400
------------
FOOD - 0.0%
1,380 Servam Corp., Common* $ 0
12,276 Servam Corp., $2.00 Wts. Exp. 4/1/2001+* 0
2,760 Servam Corp., $4.50 Wts. Exp. 4/1/2001+* 0
48,000 Specialty Foods Acquisition, Common(1)* 36,000
------------
$ 36,000
------------
INDUSTRIAL - 0.0%
40,000 Thermadyne Holdings Corp., Common+* $ 400
------------
MANUFACTURING - 0.3%
101,973 Pullman Company, Common Stock+* $ 815,784
22,500 Southdown Inc., Wts. Exp. 10/31/96+* 95,625
10,425 Terex Corporation, Rights, Exp. 8/1/96+* 521
5,370 Terex Corporation, Rights Exp. 7/1/97+* 537
32,000 Terex Corp., Wts. Exp. 12/31/00+* 432,000
95,000 Triangle Wire & Cable, Inc., Common+* 190,000
-------------
$ 1,534,467
-------------
METALS - 0.0%
4,000 Gulf States Steel, Wts.(1)* $ 200
------------
MISCELLANEOUS - 0.0%
6,800 Australis Media, Wts.+* $ 0
------------
<PAGE>
PAPER / PACKAGING - 0.0%
48,000 SD Warren Company, Wts. Exp. 12/15/06* $ 216,000
------------
RETAILING - 0.0%
6,000 Waxman Industries, Wts. Exp. 9/1/96+* $ 60
------------
TOTAL COMMON STOCKS, WARRANTS AND RIGHTS
(IDENTIFIED COST, $9,361,823) $ 3,942,704
------------
- ------------------------------------------------------------------------------
SHORT-TERM OBLIGATION -- 3.3%
- ------------------------------------------------------------------------------
FACE
AMOUNT SECURITY VALUE
- ------------------------------------------------------------------------------
COMMERCIAL PAPER
$16,805,000 Prudential Funding
5.45%, 4/1/96, at amortized cost $ 16,805,000
------------
TOTAL INVESTMENTS (IDENTIFIED COST, $508,435,488) $505,811,869
OTHER ASSETS, LESS LIABILITIES -- 1.1% 5,535,270
------------
NET ASSETS - 100% $511,347,139
============
*Non-income producing security.
+Restricted Security (Note 6).
(1)Security exempt from registration under Rule 144A of the Securities Act of
1933. These securities may be resold in transactions exempt from
registration, normally to qualified institutional buyers. At March 31, 1996,
the value of these securities amounted to $67,444,057 or 13.2% of net assets.
See notes to financial statements
<PAGE>
-------------------------------
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
- ------------------------------------------------------------------------------
March 31, 1996
(Expressed in United States Dollars)
- ------------------------------------------------------------------------------
ASSETS:
Investments, at value (Note 1A) (identified cost,
$508,435,488) $505,811,869
Cash 43,941
Receivable for investments sold 1,702,455
Interest receivable 11,869,419
Deferred organization expenses (Note 1D) 14,292
------------
Total assets $519,441,976
LIABILITIES:
Payable for investments purchased $8,075,666
Payable to affiliate --
Trustees' fees 5,327
Accrued expenses 13,844
----------
Total liabilities 8,094,837
------------
NET ASSETS applicable to investors' interest in Portfolio $511,347,139
============
SOURCES OF NET ASSETS:
Net proceeds from capital contributions and
withdrawals $513,970,758
Unrealized depreciation of investments (computed
on the basis of identified cost) (2,623,619)
------------
Total $511,347,139
============
See notes to financial statements
<PAGE>
STATEMENT OF OPERATIONS
- ------------------------------------------------------------------------------
For the Year Ended March 31, 1996
(Expressed in United States Dollars)
- ------------------------------------------------------------------------------
INVESTMENT INCOME:
Interest income $54,348,850
Expenses --
Investment adviser fee (Note 2) $3,094,793
Compensation of Trustees not members of the
Investment Adviser's organization 18,861
Custodian fee (Note 2) 218,175
Legal and accounting services 91,555
Amortization of organization expenses (Note 1D) 4,186
Miscellaneous 24,628
-----------
Total expenses 3,452,198
-----------
Net investment income $50,896,652
-----------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized loss on investment transactions
(identified cost basis) $(5,151,523)
Change in unrealized appreciation on investments 17,257,761
-----------
Net realized and unrealized gain on investments $12,106,238
-----------
Net increase in net assets from operations $63,002,890
===========
See notes to financial statements
<PAGE>
STATEMENTS OF CHANGES IN NET ASSETS
(Expressed in United States Dollars)
- ------------------------------------------------------------------------------
YEAR ENDED MARCH 31,
------------------------------------
1996 1995*
----------------- -----------------
INCREASE (DECREASE) IN NET ASSETS:
From operations --
Net investment income $ 50,896,652 $ 37,644,090
Net realized loss on investment
transactions (5,151,523) (13,221,664)
Change in unrealized appreciation
(depreciation) of investments 17,257,761 (7,038,030)
------------ -------------
Net increase in net assets from
operations $ 63,002,890 $ 17,384,396
------------ ------------
Capital transactions --
Contributions $172,948,713 $575,199,203
Withdrawals (167,156,279) (150,131,814)
------------ -------------
Increase in net assets
resulting from capital
transactions $ 5,792,434 $425,067,389
------------ ------------
Total increase in net assets $ 68,795,324 $442,451,785
NET ASSETS:
At beginning of year 442,551,815 100,030
------------ ------------
At end of year $511,347,139 $442,551,815
============ ============
*For the period from the start of business, June 1, 1994, to March 31, 1995.
- ------------------------------------------------------------------------------
SUPPLEMENTARY DATA
- ------------------------------------------------------------------------------
YEAR ENDED MARCH 31,
------------------------------------
1996 1995*
----------------- -----------------
RATIOS (As a percentage of average
daily net assets):
Expenses 0.71% 0.70%+
Net investment income 10.41% 10.63%+
PORTFOLIO TURNOVER 88% 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 are 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 United States Federal tax purposes. No provision is made by the Portfolio
for federal or state taxes on any taxable income of the Portfolio because each
investor in the Portfolio is ultimately responsible for the payment of any
taxes. Since 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 Internal Revenue Code), in order
for its investors to satisfy them. The Portfolio will allocate at least
annually among its investors each investor's distributive share of the
Portfolio's net investment income, net realized capital gains, and any other
items of income, gain, loss, deduction or credit.
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. USE OF ESTIMATES -- The preparation of financial statements in conformity
with accounting principles generally accepted in the United States of America
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities at the date of the financial statements and
the reported amounts of revenue and expense during the reporting period.
Actual results could differ from those estimates.
G. 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 year ended March 31, 1996, the fee was equivalent to 0.63% (annualized) of
the Portfolio's average daily net assets for such period and amounted to
$3,094,793. 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), serves as custodian of the Portfolio. Prior to November
10, 1995, IBT was an affiliate of EVM and BMR. 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. No
significant credit balances were used to reduce the Portfolio's custody fees.
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 year ended March 31, 1996, 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 $459,046,658 and $412,888,560, 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 year.
- ------------------------------------------------------------------------------
(5) FEDERAL INCOME TAX BASIS OF INVESTMENTS
The cost and unrealized depreciation/appreciation in value of the investments
owned at March 31, 1996, as computed on a federal income tax basis, were as
follows:
Aggregate cost $508,435,488
============
Gross unrealized depreciation $ 17,405,536
Gross unrealized appreciation 14,781,917
------------
Net unrealized depreciation $ 2,623,619
============
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(6) RESTRICTED SECURITIES
At March 31, 1996, the Portfolio owned the following securities (constituting
0.4% of net assets) which were restricted as to public resale and not
registered under the Securities Act of 1933 (excluding Rule 144A securities).
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.
- ------------------------------------------------------------------------------
<PAGE>
<TABLE>
<CAPTION>
COMMON STOCKS, WARRANTS AND RIGHTS
- ----------------------------------
DESCRIPTION DATES OF ACQUISITION SHARES COST FAIR VALUE
- ----------- -------------------- ------ ---- ----------
<S> <C> <C> <C> <C>
Australis Media, Wts. 5/26/95 6,800 $ 0 $ 0
Dial Call Communications, Wts.,
Exp. 4/15/04 10/04/94 7,200 0 1,800
In Flight Phone Corp., Wts., Exp. 8/31/2002 11/28/95 1,600 0 0
Pullman Company, Common Stock 2/22/95 101,973 2,949,328 815,784
Servam Corp., $2.00 Wts., Exp. 4/1/01 12/15/87 12,276 0 0
Servam Corp., $4.50 Wts., Exp. 4/1/2001 12/15/87 2,760 0 0
Southdown Inc., Wts., Exp. 10/31/96 10/28/91 22,500 67,500 95,625
Terex Corp., Rights, Exp. 7/1/97 11/07/94 5,370 0 537
Terex Corp., Rights, Exp. 8/1/96 8/20/92, 7/01/94, 8/02/94 1,125 0 56
Terex Corp., Rights, Exp. 8/1/96 7/24/92 9,300 0 465
Terex Corp., Wts., Exp. 12/31/00 12/15/93 32,000 6,400 432,000
Thermadyne Holdings Corp., Common 4/03/89 40,000 28,800 400
Triangle Wire & Cable Inc., Common 3/17/94 95,000 2,250,000 190,000
UCC Invt. Holdings, Cl. A Common 10/24/86 9,908 9,834 111,465
United International Hldg., Inc., Wts. 10/01/91 7,840 222,186 235,200
Waxman Industries, Wts., Exp. 9/1/96 10/01/91 6,000 6,000 60
---------- ----------
$5,540,048 $1,883,392
========== ==========
</TABLE>
<PAGE>
INDEPENDENT AUDITORS' REPORT
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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 March
31, 1996, and the related statement of operations for the year then ended and
the statements of changes in net assets and the supplementary data for the
year 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 March 31, 1996 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 March 31, 1996, 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
APRIL 30, 1996
<PAGE>
INVESTMENT MANAGEMENT
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 JAMES B. HAWKES Chairman, Newspapers of
Vice President, Trustee New England, Inc.
H. DAY BRIGHAM, JR. SAMUEL L. HAYES, III
Vice President Jacob H. Schiff Professor of
WILLIAM H. AHERN, JR. Investment Banking, Harvard
Vice President University Graduate School of
MICHAEL B. TERRY Business Administration
Vice President NORTON H. REAMER
JAMES L. O'CONNOR President and Director, United Asset
Treasurer Management Corporation
THOMAS OTIS JOHN L. THORNDIKE
Secretary Director, Fiduciary Company
Incorporated
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 JAMES B. HAWKES Chairman, Newspapers of
Vice President, Trustee New England, Inc.
HOOKER TALCOTT, JR. SAMUEL L. HAYES, III
Vice President and Jacob H. Schiff Professor of
Portfolio Manager Investment Banking, Harvard
WILLIAM CHISHOLM University Graduate School of
Vice President Business Administration
RAYMOND O'NEILL NORTON H. REAMER
Vice President President and Director, United Asset
MICHEL NORMANDEAU Management Corporation
Vice President JOHN L. THORNDIKE
MICHAEL W. WEILHEIMER Director, Fiduciary Company
Vice President Incorporated
JAMES L. O'CONNOR JACK L. TREYNOR
Treasurer Investment Adviser and
THOMAS OTIS Consultant
Secretary
<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
89 South Street
P.O. Box 1537
Boston, MA 02205-1537
TRANSFER AGENT
First Data Investor Services Group, Inc.
BOS725
P.O. Box 1559
Boston, MA 02104
AUDITORS
Deloitte & Touche LLP
125 Summer Street
Boston, MA 02110
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
EV MARATHON
HIGH INCOME
FUND
ANNUAL
SHAREHOLDER REPORT
MARCH 31, 1996
M-HISRC-5/96
