<PAGE>
[LOGO OF EATON [PHOTOGRAPH OF EARTH
VANCE APPEARS APPEARS HERE]
HERE]
Semiannual Report April 30, 1997
[PHOTOGRAPH OF FINANCIAL EV
DOCUMENTS APPEARS HERE] CLASSIC
STRATEGIC
INCOME
FUND
Eaton Vance
Global Management-Global Distribution
[PHOTOGRAPH OF SKYSCRAPERS
APPEARS HERE]
Classic
<PAGE>
EV Classic Strategic Income Fund as of April 30, 1997
INVESTMENT UPDATE
[PHOTOGRAPH OF MARK VENEZIO, PORTFOLIO MANAGER APPEARS HERE]
Investment Environment
- --------------------------------------------------------------------------------
The Global Bond Markets
. U.S. interest rates remained generally higher than foreign benchmark interest
rates during the period. For example, following the March rate hike by the
Federal Reserve, U.S. 10-year bond yields stood at 6.7%, while German bonds
yielded 5.8% and Japan's bond yields were 2.5%.
. Structural reform and the opening of economies continued during the period,
with countries as diverse as Korea, India and Romania taking steps to make
their markets more accessible to offshore investors. As these new markets
become more developed and other emerging markets continue to seek financing,
the universe of rewarding fixed-income investments will continue to expand
accordingly.
The Fund
- --------------------------------------------------------------------------------
Performance for the Past Six Months
. The Fund had a total return of 5.8% during the six months ended April 30,
1997./1/ That return was the result of a decline in net asset value per share
from $12.09 on October 31, 1996 to $12.06 on April 30, 1997, and the
reinvestment of $0.618 in income dividends and $0.105 per share in capital
gain distributions.
. The Fund's one-year performance outpaced the 10.8% average return of 62 Multi-
Sector Income Funds,/2/ according to Lipper Analytical Services, Inc., a
mutual fund ranking service.
Recent Portfolio Strategy
. With foreign interest rates significantly lower than U.S. rates, the Portfolio
continued its shift to the U.S. At April 30, the U.S. represented 65.3% of the
Fund's credit exposure, up from 42.2% on October 31, 1996.
. The Portfolio maintained selected Latin American positions, including Brazil,
Ecuador, Argentina and Colombia dollar-denominated debt. This region fared
well during the period. Brazil and Argentina were upgraded in March by
Standard & Poor's, a major bond ratings agency.
. The Portfolio reduced its foreign exchange exposure substantially. In Eastern
Europe and Asia, we avoided current account deficit-plagued countries such as
the Czech Republic and Thailand. In Western Europe, we took profits in Ireland
and Norway.
U.S. investments
. U.S. Mortgage-backed securities (MBS) were the Portfolio's largest investments
at April 30. With global yield spreads historically narrow, MBS represented a
relatively attractive investment in high-quality, U.S. government-backed
securities.
. Among its high-yield corporate bonds, the Portfolio owned media-related issues
such as cable operator Diamond Cable Communications Co. and broadcaster United
International Holdings, Inc. Cable companies continued to enjoy good
subscriber growth, while the broadcast media sector was swept by a wave of
mergers and acquisitions.
- --------------------------------------------------------------------------------
/1/ This return does not include 1% contingent deferred sales charge incurred by
shareholders redeeming within the first year.
/2/ It is not possible to invest directly in the Lipper average of Multi-Sector
Income Funds.
/3/ Returns are calculated by determining the percentage change in net asset
value with all distributions reinvested. SEC average annual returns reflect
a 1% CDSC on shareholders redeeming within the first year.
/4/ Because the Fund is actively managed, credit and currency exposures are
subject to change.
Past performance is no guarantee of future results. The value of an
investment in the Fund may fluctuate so that shares, when redeemed, may be
worth more or less than their original cost.
- --------------------------------------------------------------------------------
Fund shares are not guaranteed by the FDIC and are not deposits or other
obligations of, or guaranteed by, any depository institution. Shares are subject
to investment risks, including possible loss of principal invested.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Fund Information
as of April 30, 1997
<TABLE>
<CAPTION>
Average Annual Total Returns/3/
- ---------------------------------------
At net asset value
- ---------------------------------------
<S> <C>
One year 15.0%
Life of Fund (5/25/94) 12.1
Including applicable CDSC
- ---------------------------------------
One year 14.0%
Life of Fund (5/25/94) 12.1
</TABLE>
<TABLE>
<CAPTION>
Five Largest Credit Exposures/4/
- ---------------------------------------
By total net assets
<S> <C>
United States 65.3%
Poland 6.7%
Brazil 6.5%
Ireland 4.8%
New Zealand 3.7%
</TABLE>
<TABLE>
<CAPTION>
Five Largest Currency Exposures/4/
- ---------------------------------------
By total net assets
<S> <C>
United States 70.3%
Germany 8.2%
Indonesia 7.2%
Poland 6.7%
Norway 3.5%
</TABLE>
2
<PAGE>
EV Classic Strategic Income Fund as of April 30, 1997
FINANCIAL STATEMENTS (Unaudited)
Statement of Assets and Liabilities
<TABLE>
<CAPTION>
As of April 30, 1997
Assets
- ------------------------------------------------------------------------------------------------------------------------
<S> <C>
Investment in Strategic Income Portfolio, at value (Note 1A)
(identified cost, $567,533) $608,018
Receivable from the Administrator (Note 4) 31,052
Deferred organization expenses (Note 1D) 15,646
- ------------------------------------------------------------------------------------------------------------------------
Total assets $654,716
- ------------------------------------------------------------------------------------------------------------------------
Liabilities
- ------------------------------------------------------------------------------------------------------------------------
Dividends payable $ 1,147
Payable for Fund shares redeemed 50,208
Accrued expenses 3,241
- ------------------------------------------------------------------------------------------------------------------------
Total liabilities $ 54,596
- ------------------------------------------------------------------------------------------------------------------------
Net Assets for 49,749 shares of
beneficial interest outstanding $600,120
- ------------------------------------------------------------------------------------------------------------------------
Sources of Net Assets
- ------------------------------------------------------------------------------------------------------------------------
Paid-in capital $498,472
Accumulated net realized gain on investment transactions, financial futures
contracts and foreign currency (computed on the basis of identified cost) 78,401
Accumulated distributions in excess of net investment income (17,238)
Unrealized appreciation of investments from Portfolio (computed on the basis
of identified cost) 40,485
- ------------------------------------------------------------------------------------------------------------------------
Total $600,120
- ------------------------------------------------------------------------------------------------------------------------
Net Asset Value, Offering and Redemption
Price Per Share (Note 6)
- ------------------------------------------------------------------------------------------------------------------------
($600,120 / 49,749 shares of
beneficial interest outstanding) $ 12.06
- ------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Statement of Operations
For the Six Months Ended
April 30, 1997
Investment Income
- ------------------------------------------------------------------------------------------------------------------------
<S> <C>
Interest income allocated from Portfolio $ 69,449
Expenses allocated from Portfolio (6,664)
- ------------------------------------------------------------------------------------------------------------------------
Net investment income from Portfolio $ 62,785
- ------------------------------------------------------------------------------------------------------------------------
Expenses
- ------------------------------------------------------------------------------------------------------------------------
Distribution fees (Note 5) $ 7,716
Transfer and dividend disbursing agent fees 673
Printing and postage 11,028
Registration fees 10,335
Legal and accounting services 4,542
Amortization of organization expenses (Note 1D) 3,965
Custodian fee 1,500
Miscellaneous 2,075
- ------------------------------------------------------------------------------------------------------------------------
Total expenses $ 41,834
- ------------------------------------------------------------------------------------------------------------------------
Deduct --
Preliminary allocation of expenses to the Administrator (Note 4) $ 31,052
- ------------------------------------------------------------------------------------------------------------------------
Total expense reductions $ 31,052
- ------------------------------------------------------------------------------------------------------------------------
Net expenses $ 10,782
- ------------------------------------------------------------------------------------------------------------------------
Net investment income $ 52,003
- ------------------------------------------------------------------------------------------------------------------------
Realized and Unrealized
Gain (Loss) from Portfolio
- ------------------------------------------------------------------------------------------------------------------------
Net realized gain (loss) --
Investment transactions (identified cost basis) $ 16,060
Financial futures contracts 8,772
Foreign currency transactions 58,296
- ------------------------------------------------------------------------------------------------------------------------
Net realized gain on investments $ 83,128
- ------------------------------------------------------------------------------------------------------------------------
Change in unrealized appreciation (depreciation) --
Investment transactions $(33,147)
Financial futures contracts (6,940)
Foreign currency transactions 6,794
- ------------------------------------------------------------------------------------------------------------------------
Net change in unrealized appreciation (depreciation) of investments $(33,293)
- ------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain on investments $ 49,835
- ------------------------------------------------------------------------------------------------------------------------
Net increase in net assets from operations $101,838
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
See notes to financial statements
3
<PAGE>
EV Classic Strategic Income Fund as of April 30, 1997
FINANCIAL STATEMENTS CONT'D
Statements of Changes in Net Assets
<TABLE>
<CAPTION>
Six Months Ended
Increase (Decrease) April 30, 1997 Year Ended
in Net Assets (Unaudited) October 31, 1996
- ----------------------------------------------------------------------
<S> <C> <C>
From operations --
Net investment income $ 52,003 $ 69,084
Net realized gain on
investments 83,128 34,139
Net change in unrealized
appreciation
(depreciation) of
investments (33,293) 72,758
- ----------------------------------------------------------------------
Net increase in net assets
from operations $ 101,838 $ 175,981
- ----------------------------------------------------------------------
Distributions to
shareholders --
From net investment income $ (65,492) $ (69,084)
In excess of net
investment income (17,238) (9,026)
From net realized gain on
investments (16,323) --
- ----------------------------------------------------------------------
Total distributions to
shareholders $ (99,053) $ (78,110)
- ----------------------------------------------------------------------
Transactions in shares of
beneficial
interest (Note 3) --
Proceeds from sale of
shares $ 706,999 $1,623,722
Net asset value of shares
issued to shareholders
in payment of
distributions declared 77,147 65,510
Cost of shares redeemed (1,880,074) (105,245)
- ----------------------------------------------------------------------
Net increase (decrease) in
net assets from Fund
share transactions $(1,095,928) $1,583,987
- ----------------------------------------------------------------------
Net increase (decrease) in
net assets $(1,093,143) $1,681,858
- ----------------------------------------------------------------------
Net Assets
- ----------------------------------------------------------------------
At beginning of period $ 1,693,263 $ 11,405
- ----------------------------------------------------------------------
At end of period $ 600,120 $1,693,263
- ----------------------------------------------------------------------
Accumulated undistributed
(distributions in excess of) net
investment income included in net
assets
- ----------------------------------------------------------------------
At end of period $ (17,238) $ 13,489
- ----------------------------------------------------------------------
</TABLE>
See notes to financial statements
4
<PAGE>
EV Classic Strategic Income Fund as of April 30, 1997
FINANCIAL STATEMENTS CONT'D
Financial Highlights
<TABLE>
<CAPTION>
Six Months Ended Year Ended October 31,
April 30, 1997 ------------------------------------
(Unaudited) 1996 1995++ 1994*++
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net asset value -- Beginning of period $12.090 $11.330 $ 9.750 $10.000
- ------------------------------------------------------------------------------------------------------
Income (loss) from operations
- ------------------------------------------------------------------------------------------------------
Net investment income $ 0.175 $ 0.804 $ 1.021 $ 0.348
Net realized and unrealized gain (loss) on
investments 0.518 0.865 0.559 (0.495)
- ------------------------------------------------------------------------------------------------------
Total income (loss) from operations $ 0.693 $ 1.669 $ 1.580 $(0.147)
- ------------------------------------------------------------------------------------------------------
Less distributions
- ------------------------------------------------------------------------------------------------------
From net investment income $(0.489) $(0.804) $ -- $(0.103)
In excess of net investment income (0.129) (0.105) -- --
From net realized gain on investments (0.105) -- -- --
- ------------------------------------------------------------------------------------------------------
Total distributions $(0.723) $(0.909) $ -- $(0.103)
- ------------------------------------------------------------------------------------------------------
Net asset value -- End of period $12.060 $12.090 $11.330 $ 9.750
- ------------------------------------------------------------------------------------------------------
Total Return/(1)/ 5.84% 15.09% 16.21% (1.41)%
- ------------------------------------------------------------------------------------------------------
Ratios/Supplemental Data+
- ------------------------------------------------------------------------------------------------------
Net assets, end of period (000 omitted) $ 600 $ 1,693 $ 11 $ 10
Ratio of net expenses to average net assets /(2)/ 2.22%+ 2.38% 0.90% 0.76%+
Ratio of net investment income to average net
assets 6.63%+ 7.08% 9.84% 7.74%+
</TABLE>
+ The operating expenses of the Fund reflect an allocation of expenses to the
Administrator. Had such action not been taken, the ratios and net investment
income (loss) per share would have been as follows:
<TABLE>
<S> <C> <C> <C> <C>
Ratios (As a percentage of average daily net assets):
Expenses /(2)/ 6.18%+ 8.71% 131.85% 160.83%+
Net investment income 2.67%+ 0.75% (121.12)% (152.33)%+
Net investment income (loss) per share $ 0.071 $ 0.085 $(13.000) $(6.900)
</TABLE>
+ Annualized.
++ Per share amounts have been calculated using average shares outstanding.
* For the period from the start of business, May 25, 1994, to October 31,
1994.
/(1)/ 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 not
computed on an annualized basis.
/(2)/ Includes the Fund's share of the Portfolio's allocated expenses.
See notes to financial statements
5
<PAGE>
EV Classic Strategic Income Fund as of April 30, 1997
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 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 (0.5% at April 30, 1997). 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 each year all of its taxable income, including
any net realized gain on investments.
Accordingly, no provision for Federal income or excise tax is necessary.
D 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.
E 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 income and expenses during the reporting period. Actual results could
differ from those estimates.
F Expense Reduction -- Investors Bank & Trust Company (IBT) serves as
custodian to the Fund and the Portfolio. Pursuant to the respective
custodian agreements, IBT receives fees reduced by credits which are
determined based on the average daily cash balances the Fund or the
Portfolio maintains with IBT. All significant credit balances used to reduce
the Fund's custodian fees are reflected as a reduction of operating expenses
on the Statement of Operations.
G Interim Financial Information -- The interim financial statements relating
to April 30, 1997 and for the six months then ended have not been audited by
independent certified public accountants, but in the opinion of the Fund's
management reflect all adjustments, consisting only of normal recurring
adjustments, necessary for the fair presentation of the financial statements.
2 Distributions to Shareholders
------------------------------------------------------------------------------
The net income of the Fund is determined daily and substantially all of the
net income so determined is declared 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 of 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.
6
<PAGE>
EV Classic Strategic Income Fund as of April 30, 1997
NOTES TO FINANCIAL STATEMENTS (Unaudited) CONT'D
3 Capital Stock
------------------------------------------------------------------------------
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 capital stock were as follows:
<TABLE>
<CAPTION>
Six Months Ended
April 30, 1997 Year Ended
(Unaudited) October 31, 1996
------------------------------------------------------------------------------
<S> <C> <C>
Sales 57,822 142,327
Issued to shareholders electing to
receive payments of distributions
in capital stock 6,344 5,582
Redemptions (154,516) (8,817)
------------------------------------------------------------------------------
Net increase (decrease) (90,350) 139,092
------------------------------------------------------------------------------
</TABLE>
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, $31,052, of expenses related to the operation of the Fund
were allocated to EVM, on a preliminary basis. Certain of the officers and
Trustees of the Fund and Portfolio are officers and directors/trustees of the
above organizations (Note 5). 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.
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, which is approved
annually, 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.
For the six months ended April 30, 1997, the Fund paid or accrued $5,905, to
EVD. At April 30, 1997, the amount of Uncovered Distribution Charges of EVD
calculated under the Plan was approximately $116,000.
In addition, the Plan permits the Fund to make monthly payments of service
fees to the Principal Underwriter in amounts not exceeding 0.25% of the Fund's
average daily net assets for any fiscal year. The Trustees of the Trust have
initially implemented the Plan by authorizing the Fund to make monthly service
fee payments to the Principal Underwriter and Authorized Firms 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, 1997 in the amount of $1,811.
EVD currently expects to pay 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 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.
7
<PAGE>
EV Classic Strategic Income Fund as of April 30, 1997
NOTES TO FINANCIAL STATEMENTS (Unaudited) CONT'D
6 Contingent Deferred Sales Charge
------------------------------------------------------------------------------
A contingent deferred sales charge (CDSC) of 1% 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. EVD
received $266 of CDSC for the six months ended April 30, 1997.
7 Investment Transactions
------------------------------------------------------------------------------
Increases and decreases in the Fund's investment in the Portfolio for the six
months ended April 30, 1997, aggregated $798,839 and $1,984,622, respectively.
8 Special Meeting of Stockholders
------------------------------------------------------------------------------
The Fund held a special meeting of stockholders on February 26, 1997. On
December 31, 1996, the record date for the meeting, the Fund had 159,014.119
shares outstanding, of which 138,580.511 shares were represented at the
meeting. The votes at the meeting were as follows:
Item 1: To consider and act upon a proposal to modify the investment objective
of the Fund.
<TABLE>
<CAPTION>
Number of Shares
------------------------------------------------------------------------------
<S> <C>
Affirmative 137,489.714
Against 427.797
Abstain 663.000
------------------------------------------------------------------------------
</TABLE>
Item 2: To consider and act upon a proposal to adopt a revised investment
structure wherein the Fund would have the ability to invest in one or more
investment companies with consistent, but somewhat different, investment
policies than the Fund.
<TABLE>
<CAPTION>
Number of Shares
------------------------------------------------------------------------------
<S> <C>
Affirmative 137,489.714
Against 427.797
Abstain 663.000
------------------------------------------------------------------------------
</TABLE>
Item 3: To ratify the selection of Coopers & Lybrand L.L.P. as the independent
accountants of the Fund.
<TABLE>
<CAPTION>
Number of Shares
------------------------------------------------------------------------------
<S> <C>
Affirmative 137,917.511
Against 0.000
Abstain 663.000
------------------------------------------------------------------------------
</TABLE>
8
<PAGE>
Strategic Income Portfolio as of April 30, 1997
PORTFOLIO OF INVESTMENTS
Bonds & Notes -- 88.7%
<TABLE>
<CAPTION>
Principal U.S. $ Value
- --------------------------------------------------------------------------------
<S> <C> <C>
Argentina -- 2.4% U.S. Dollar
- --------------------------------------------------------------------------------
Argentina Discount Bond (Brady), 6.375%,
3/31/23 3,750,000 $ 3,103,125
- --------------------------------------------------------------------------------
Total Argentina (identified cost, $2,546,798) $ 3,103,125
- --------------------------------------------------------------------------------
Australia -- 0.6% Australian Dollar
- --------------------------------------------------------------------------------
State Electricity - Victoria, 9.25%, 9/18/03 1,000,000 $ 822,191
- --------------------------------------------------------------------------------
Total Australia (identified cost, $733,564) $ 822,191
- --------------------------------------------------------------------------------
Brazil -- 6.6% U.S. Dollar
- --------------------------------------------------------------------------------
Brazil Discount Bond (Brady), 6.875%,
4/15/24 10,500,000 $ 8,459,062
- --------------------------------------------------------------------------------
Total Brazil (identified cost, $6,472,627) $ 8,459,062
- --------------------------------------------------------------------------------
Colombia -- 1.8% U.S. Dollar
- --------------------------------------------------------------------------------
FEN, 9.375%, 6/15/06 2,200,000 $ 2,303,125
- --------------------------------------------------------------------------------
Total Colombia (identified cost, $2,233,000) $ 2,303,125
- --------------------------------------------------------------------------------
Ecuador -- 2.2% U.S. Dollar
- --------------------------------------------------------------------------------
Ecuador Discount Bond (Brady), 6.438%,
2/28/25 4,100,000 $ 2,749,563
- --------------------------------------------------------------------------------
Total Ecuador (identified cost, $2,483,844) $ 2,749,563
- --------------------------------------------------------------------------------
Ireland -- 4.7% Irish Punt
- --------------------------------------------------------------------------------
Irish Government, 9.25%, 7/11/03 3,500,000 $ 6,056,989
- --------------------------------------------------------------------------------
Total Ireland (identified cost, $6,052,161) $ 6,056,989
- --------------------------------------------------------------------------------
Morocco -- 1.4% Deutsche Mark
- --------------------------------------------------------------------------------
Snap Limited, 11.50%, 1/29/09 3,000,000 $ 1,827,053
- --------------------------------------------------------------------------------
Total Morocco (identified cost, $1,853,583) $ 1,827,053
- --------------------------------------------------------------------------------
New Zealand -- 3.7% New Zealand Dollar
- --------------------------------------------------------------------------------
New Zealand Government, 8.00%, 4/15/04 6,850,000 $ 4,768,445
- --------------------------------------------------------------------------------
Total New Zealand (identified cost, $4,740,584) $ 4,768,445
- --------------------------------------------------------------------------------
Norway -- 3.5% Norwegian Krone
- --------------------------------------------------------------------------------
Norway Government, 6.75%, 1/15/07 20,000,000 $ 2,928,173
Norway Government, 7.00%, 5/31/01 10,000,000 1,512,211
- --------------------------------------------------------------------------------
Total Norway (identified cost, $4,587,443) $ 4,440,384
- --------------------------------------------------------------------------------
Poland -- 6.9% Polish Zloty
- --------------------------------------------------------------------------------
Polish T-bill, 0.00%, 5/07/97 12,940,000 $ 4,074,985
Polish T-bill, 0.00%, 6/18/97 4,040,000 1,241,828
Polish T-bill, 0.00%, 7/30/97 11,510,000 3,453,728
- --------------------------------------------------------------------------------
Total Poland (identified cost, $9,041,328) $ 8,770,541
- --------------------------------------------------------------------------------
The Philippines -- 0.9% U.S. Dollar
- --------------------------------------------------------------------------------
JG Summit Cayman, 3.50%, 12/23/03 1,500,000 $ 1,095,000
- --------------------------------------------------------------------------------
Total The Philippines (identified cost,
$1,178,795) $ 1,095,000
- --------------------------------------------------------------------------------
United Kingdom -- 1.7% U.S. Dollar
- --------------------------------------------------------------------------------
Diamond Cable Communications Co., 144A, Sr. Disc.
Notes, 10.75%, (0% until 2002), 2/15/07 2,000,000 $ 1,190,000
Newsquest Capital Corp., Sr. Sub. Notes,
11.00%, 5/01/06 1,000,000 1,045,000
- --------------------------------------------------------------------------------
Total United Kingdom (identified cost, $2,224,199) $ 2,235,000
- --------------------------------------------------------------------------------
United States -- 52.3% U.S. Dollar
- --------------------------------------------------------------------------------
Corporate Bonds & Notes -- 5.0%
Agricultural Minerals & Chemicals Inc.,
Sr. Notes, 10.75%, 9/30/03 1,000,000 $ 1,065,000
Applied Extrusion Inc., Sr. Notes,
11.50%, 4/01/02 1,000,000 1,045,000
Dayton Hudson Mountain, 9.52%, 6/10/15 350,000 392,060
Overhead Door Corp., Sr. Notes,
12.25%, 2/01/00 500,000 527,500
TRW Inc., Medium Term Notes, 9.35%, 6/04/20 1,900,000 2,240,100
United International-Series B, 0.00%,
11/15/99 1,500,000 1,087,500
- --------------------------------------------------------------------------------
Total Corporate Bonds & Notes (identified
cost, $6,070,158) $ 6,357,160
- --------------------------------------------------------------------------------
Mortgage Pass-Throughs -- 47.3%
- --------------------------------------------------------------------------------
Federal Home Loan Mortgage Corp.:
4.75%, with various maturities to 2003 33,735 $ 32,853
5.50%, with maturity at 2019 10,816 10,814
8.00%, with various maturities to 2021 4,184,693 4,282,177
8.50%, with various maturities to 2024 4,981,955 5,205,024
9.00%, with maturity at 2019 898,561 952,688
12.50%, with maturity at 2011 112,119 127,982
12.75%, with maturity at 2013 198,341 229,861
13.25%, with maturity at 2013 145,862 170,532
13.50%, with maturity at 2019 495,156 585,264
- --------------------------------------------------------------------------------
$11,597,195
- --------------------------------------------------------------------------------
Federal National Mortage Association:
4.75%, with maturity at 1999 34,601 $ 34,216
5.00%, with maturity at 2003 127,554 123,767
5.50%, with various maturities to 2012 88,780 88,099
7.50%, with various maturities to 2018 2,482,565 2,511,417
8.00%, with various maturities to 2013 3,778,952 3,870,819
8.50%, with various maturities to 2026 3,416,488 3,585,293
9.00%, with various maturities to 2017 7,665,871 8,099,357
12.00%, with maturity at 2015 1,707,245 1,955,097
12.50%, with various maturities to 2019 5,500,218 6,412,614
12.75%, with maturity at 2014 177,994 208,993
13.00%, with various maturities to 2015 3,984,084 4,678,235
13.25%, with maturity at 2014 234,128 279,444
</TABLE>
See notes to financial statements
9
<PAGE>
Strategic Income Portfolio as of April 30, 1997
PORTFOLIO OF INVESTMENTS CONT'D
<TABLE>
<CAPTION>
Principal U.S. $ Value
- -------------------------------------------------------------------------------
<S> <C> <C>
United States (continued)
- -------------------------------------------------------------------------------
13.50%, with various
maturities to 2015 2,187,464 $ 2,583,690
14.75%, with various
maturities to 2012 2,646,817 3,251,672
- --------------------------------------------------------------------------------
$37,682,713
- --------------------------------------------------------------------------------
Government National Mortgage Association:
6.50%, with various maturities to 2007 1,142,604 $ 1,137,450
7.50%, with various maturities to 2017 1,415,903 1,433,589
8.00%, with maturity at 2017 4,505,632 4,649,506
9.00%, with maturity at 2016 1,169,909 1,244,500
13.50%, with various maturities to 2014 439,379 528,807
- --------------------------------------------------------------------------------
$ 8,993,852
- --------------------------------------------------------------------------------
Total Mortgage Pass-Throughs (identified cost, $58,329,874) $58,273,760
- --------------------------------------------------------------------------------
United States Treasury Bond, 11.75%, 2/15/01/(1)/
(identified cost, $2,603,438) 2,000,000 $ 2,345,620
- --------------------------------------------------------------------------------
Total United States (identified cost, $67,003,470) $66,976,540
- --------------------------------------------------------------------------------
Total Bonds & Notes
(identified cost $111,151,396) $113,607,018
- --------------------------------------------------------------------------------
<CAPTION>
Short-Term Investments -- 11.3% U.S. Dollar
<S> <C> <C>
Banque National De Paris, Euro Time-deposit
Cayman Islands, 5.688%, 5/01/97 5,500,000 $ 5,500,000
Postipanki-n.y. Cayman Time Deposit, 5.450%,
5/01/97 3,000,000 3,000,000
Skandinaviska Enskilada Banken Time Deposit,
5.470%, 5/02/97 6,000,000 6,000,000
- --------------------------------------------------------------------------------
Total Short-Term Investments
(at amortized cost $14,500,000) $14,500,000
- --------------------------------------------------------------------------------
Total Investments -- 100%
(identified cost $125,651,396) $128,107,018
- --------------------------------------------------------------------------------
</TABLE>
/(1)/ Security has been segregated to cover margin requirements on open
financial futures contracts.
See notes to financial statements
10
<PAGE>
Strategic Income Portfolio as of April 30, 1997
FINANCIAL STATEMENTS
Statement of Assets & Liabilities
<TABLE>
<CAPTION>
As of April 30, 1997
Assets
- --------------------------------------------------------------
<S> <C>
Investments, at value (Note 1A)
(identified cost $125,651,396) $128,107,018
Cash 76,339
Foreign currency, at value
(identified cost, $5,735) 812
Receivable for investments sold 2,044,141
Interest receivable 1,343,665
Receivable for variation margin on open
financial futures contracts 21,935
Receivable for open forward foreign currency
contracts 3,621,210
Deferred organization expenses (Note 1J) 8,628
- ---------------------------------------------------------------
Total assets $135,223,748
- ---------------------------------------------------------------
Liabilities
- ---------------------------------------------------------------
Payable for investments purchased $ 4,748,323
Payable to affiliate for Trustees' fees 638
Accrued expenses 39,689
- ---------------------------------------------------------------
Total liabilities $ 4,788,650
- ---------------------------------------------------------------
Net Assets applicable to investors' interest
in Portfolio $130,435,098
- ---------------------------------------------------------------
Sources of Net Assets
- ---------------------------------------------------------------
Net proceeds from capital contributions and
withdrawals $124,539,001
- ---------------------------------------------------------------
Unrealized appreciation of investments,
futures, and forward currency
contracts (computed on basis of
identified cost) 5,896,097
- ---------------------------------------------------------------
Total $130,435,098
- ---------------------------------------------------------------
Statement of Operations
For the Six Months Ended
April 30, 1997
Investment Income
- ---------------------------------------------------------------
Interest income $6,028,441
- ---------------------------------------------------------------
Total income $6,028,441
- ---------------------------------------------------------------
Expenses
- ---------------------------------------------------------------
Investment adviser fee (Note 2) $ 348,842
Administration fee (Note 2) 99,129
Compensation of Trustees not members of the
Investment Adviser's organization (Note 2) 4,407
Custodian fee 89,068
Legal and accounting services 36,889
Amortization of organization expenses (Note1J) 2,335
Miscellaneous 2,317
- ---------------------------------------------------------------
Total expenses $ 582,987
- ---------------------------------------------------------------
Net investment income $5,445,454
- ---------------------------------------------------------------
Realized and Unrealized
Gain (Loss) on Investments
- ---------------------------------------------------------------
Net realized gain (loss)(identified cost basis)--
Investment transactions $ 670,688
Financial futures contracts 275,479
Foreign currency and forward foreign currency
exchange transactions 4,604,783
- ---------------------------------------------------------------
Net realized gain on investments $ 5,550,950
- ---------------------------------------------------------------
Change in unrealized appreciation
(depreciation)--
Investments (identified cost basis) $ (2,471,467)
Financial futures contracts (147,034)
Foreign currency and forward foreign
exchange contracts 596,276
- ---------------------------------------------------------------
Net change in unrealized appreciation
(depreciation)
of investments $ (2,022,225)
- ---------------------------------------------------------------
Net realized and unrealized gain on
investments $ 3,528,725
- ---------------------------------------------------------------
Net increase in net assets from operations $8,974,179
- ---------------------------------------------------------------
</TABLE>
See notes to financial statements
11
<PAGE>
Strategic Income Portfolio as of April 30, 1997
FINANCIAL STATEMENTS CONT'D
Statements of Changes in Net Assets
<TABLE>
<CAPTION>
Increase (Decrease) Six Months Ended Year Ended
in Net Assets April 30, 1997 October 31, 1996
- --------------------------------------------------------------------------------
<S> <C> <C>
From operations --
Net investment income $ 5,445,454 $ 11,982,292
Net realized gain on investments 5,550,950 9,573,199
Net change in unrealized
appreciation (depreciation)
of investments (2,022,225) 3,820,588
- --------------------------------------------------------------------------------
Net increase in net assets
from operations $ 8,974,179 $ 25,376,079
- --------------------------------------------------------------------------------
Capital transactions --
Contributions $ 9,999,692 $ 10,557,996
Withdrawals (20,945,572) (56,110,565)
- --------------------------------------------------------------------------------
Net decrease in net assets from
capital transactions $ (10,945,880) $ (45,552,569)
- --------------------------------------------------------------------------------
Total decrease in net assets $ (1,971,701) $ (20,176,490)
- --------------------------------------------------------------------------------
Net Assets
- --------------------------------------------------------------------------------
At beginning of period $ 132,406,799 $ 152,583,289
- --------------------------------------------------------------------------------
At end of period $ 130,435,098 $ 132,406,799
- --------------------------------------------------------------------------------
</TABLE>
See notes to financial statements
12
<PAGE>
Strategic Income Portfolio as of April 30, 1997
FINANCIAL STATEMENTS CONT'D
Supplementary Data
<TABLE>
<CAPTION>
Year Ended October 31,
Six Months Ended -----------------------------------
April 30, 1997 1996 1995 1994*
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Ratios to average daily net assets
- -----------------------------------------------------------------------------------------------------
Expenses 0.88%+ 0.86% 0.84% 0.82%+
Net investment income 8.24%+ 8.62% 9.08% 8.41%+
Portfolio Turnover 26% 71% 78% 71%
- -----------------------------------------------------------------------------------------------------
Net assets, end of period (000s omitted) $130,435 $132,407 $152,583 $236,469
- -----------------------------------------------------------------------------------------------------
+ Annualized.
* For the period from the start of business, March 1, 1994, to October 31, 1994.
</TABLE>
See notes to financial statements
13
<PAGE>
Strategic Income Portfolio as of April 30, 1997
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.
The following is a summary of significant accounting policies of the
Portfolio. The policies are in conformity with generally accepted accounting
principles.
A Investment Valuation -- 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 to 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 Investment 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 Portfolio 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 ("variation margin") 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 or losses on
investment transactions attributable to changes in foreign currency exchange
rates are recorded for financial statement purposes as net realized gains and
losses on investments.
14
<PAGE>
Strategic Income Portfolio as of April 30, 1997
NOTES TO FINANCIAL STATEMENTS cont'd
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
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 denominated in a foreign currency. 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 Expenses -- Costs incurred by the Portfolio in
connection with its organization are being amortized on the straight-line
basis over five years.
K Expense Reduction -- Investors Bank & Trust Company (IBT) serves as
custodian of the Portfolio. Pursuant to the custodian agreement, IBT
receives a fee reduced by credits which are determined based on the average
daily cash balance the Portfolio maintains with IBT. All significant credit
balances used to reduce the Portfolio's custodian fees are reflected as a
reduction of operating expenses on the Statement of Operations.
L Use of Estimates -- The preparation of the financial statements in
conformity with generally accepted accounting principles requires management
to make estimates and assumptions that affect the reported amounts of assets
and liabilities at the date of the financial statements and the reported
amounts of income and expenses during the reporting period. Actual results
could differ from those estimates.
M 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 investments). Such percentages are reduced as average daily net
assets exceed certain levels. For the six months ended April 30, 1997, the
fee was equivalent to 0.53% (annualized) of the Portfolio's average net
assets for such period and amounted to $348,842. 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 $99,129 for the six months ended April 30, 1997.
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 Portfolio out of such investment adviser fee. Trustees of the
Portfolio
15
<PAGE>
Strategic Income Portfolio as of April 30, 1997
NOTES TO FINANCIAL STATEMENTS Cont'd
that are not affiliated with the Investment Adviser may elect to defer receipt
of all or a portion of their annual fees in accordance with the terms of the
Trustees Deferred Compensation Plan. For six months ended April 30, 1997, no
significant amounts have been deferred. Certain of the officers and Trustees
of the Portfolios are officers and directors/trustees of the above
organizations.
3 Line of Credit
------------------------------------------------------------------------------
The Portfolio participates with other portfolios and funds managed by BMR or
EVM and its affiliates in a $120 million unsecured line of credit agreement
with a group of banks. 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 the bank's base rate or an amount above either the bank's
adjusted certificate of deposit rate, a Eurodollar rate or a federal funds
effective rate. In addition, a fee computed at an annual rate of 0.15% on the
daily unused portion of the 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 Investment Transactions
------------------------------------------------------------------------------
The Portfolio invests primarily in foreign government and U.S. Government debt
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. The Portfolio regularly invests in lower rated and comparable quality
unrated high yield securities. These investments have different risks than
investments in debt securities rated investment grade and held by the
Portfolio. Risk of loss upon default by the borrower is significantly greater
with respect to such debt securities than with other debt securities because
these securities are generally unsecured and are more sensitive to adverse
economic conditions, such as recession or increasing interest rates, than are
investment grade issuers. At April 30, 1997, the Portfolio had invested
approximately 18% of its net assets or approximately $23,515,000 in high yield
securities. Purchases and sales of investments, other than short-term
obligations, for the six months ended April 30, 1997 were as follows:
<TABLE>
<CAPTION>
Purchases
------------------------------------------------------------------------------
<S> <C>
Investments (non-U.S. Government) $ 31,149,916
U.S. Government Securities 16,845,338
------------------------------------------------------------------------------
$ 47,995,254
------------------------------------------------------------------------------
Sales
------------------------------------------------------------------------------
Investments (non-U.S. Government) $ 49,898,608
U.S. Government Securities -
------------------------------------------------------------------------------
$ 49,898,608
------------------------------------------------------------------------------
</TABLE>
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 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, 1997
is as follows:
Forward Foreign Currency Exchange Contracts
<TABLE>
<CAPTION>
Sales
------------------------------------------------------------------------------
Net Unrealized
Settlement In Exchange For Appreciation
Date Deliver (in U.S. dollars) (Depreciation)
------------------------------------------------------------------------------
<S> <C> <C> <C>
7/1/97 Australian Dollar
4,000,000 $ 3,129,200 $ 4,461
11/5/97- Belgian Franc
11/17/97 721,805,951 23,745,222 3,275,994
5/5/97 Czech Koruna
63,360,188 2,036,729 (5,457)
5/2/97 Deutsche Mark
15,385,467 8,904,459 32,174
5/19/97 British Pound Sterling
4,000,000 6,488,600 3,777
7/24/97 Irish Punt
4,140,000 6,450,120 257,146
</TABLE>
16
<PAGE>
Strategic Income Portfolio as of April 30, 1997
NOTES TO FINANCIAL STATEMENTS CONT'D
Forward Foreign Currency Exchange Contracts (continued)
<TABLE>
<CAPTION>
Sales
- ------------------------------------------------------------------------------
Net Unrealized
Settlement In Exchange For Appreciation
Date Deliver (in U.S. dollars) (Depreciation)
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
6/3/97- Japanese Yen
6/27/97 643,870,496 5,324,981 214,515
7/23/97 Republic of Korea Won
2,206,250,000 2,515,678 --
8/1/97 New Zealand Dollar
6,848,378 4,739,078 3,835
- --------------------------------------------------------------------------------
$63,334,067 $3,786,445
- --------------------------------------------------------------------------------
<CAPTION>
Purchases
- -----------------------------------------------------------------------------
Net Unrealized
Settlement Deliver Appreciation
Date In Exchange For (in U.S. dollars) (Depreciation)
- -----------------------------------------------------------------------------
<S> <C> <C> <C>
5/2/97- Deutsche Mark
5/9/97 30,210,467 $17,487,877 $ (62,270)
5/19/97 British Pound Sterling
4,000,000 6,554,400 (69,577)
5/6/97- Indonesian Rupiah
12/17/97 23,301,750,000 9,476,156 (70,122)
7/18/97 Indian Rupee
126,525,000 3,500,000 13,835
7/23/97 Republic of Korea Won
2,206,250,000 2,500,000 15,678
5/1/97 New Zealand Dollar
6,848,378 4,751,952 (3,773)
5/19/97 Philippine Peso
53,156,000 2,000,000 10,994
- -----------------------------------------------------------------------------
$46,270,385 $(165,235)
- -----------------------------------------------------------------------------
<CAPTION>
Futures Contracts
- -----------------------------------------------------------------------------
Net Unrealized
Expiration Appreciation
Date Contracts Position (Depreciation)
- -----------------------------------------------------------------------------
<S> <C> <C> <C>
6/97 17 US Treasury
Bond Futures Short $ (14,442)
6/97 59 Canadian 10 year
Bond Futures Long (133,715)
6/97 77 German 10 Year
Bond Futures Long (94,621)
6/97 62 French 10 Year
Bond Futures Short 25,970
6/97 6 Japanese 10 year
Bond Futures Short 13,806
6/97 27 Italian 10 year
Bond Futures Short (12,854)
- -----------------------------------------------------------------------------
$(215,856)
- -----------------------------------------------------------------------------
</TABLE>
At April 30, 1997, the Portfolio had sufficient cash and/or securities to
cover potential obligations arising from open futures and forward contracts,
as well as margin requirements on open futures contracts.
6 Federal Income Tax Basis of Investments (Unaudited)
------------------------------------------------------------------------------
The cost and unrealized appreciation/depreciation in value of the investments
owned at April 30, 1997, as computed on a federal income tax basis, were as
follows:
<TABLE>
<S> <C>
Aggregate cost $ 125,712,579
------------------------------------------------------------------------------
Gross unrealized appreciation $ 3,010,721
Gross unrealized depreciation (616,282)
------------------------------------------------------------------------------
Net unrealized appreciation $ 2,394,439
------------------------------------------------------------------------------
</TABLE>
17
<PAGE>
EV Strategic Income Portfolio as of April 30, 1997
INDEPENDENT AUDITORS' REPORT
To the Board of Trustees and Shareholders
of Strategic Income Portfolio
------------------------------------------------------------------------------
We have audited the accompanying statement of assets and liabilities,
including the portfolio of investments, of Strategic Income Portfolio (the
Portfolio) as of April 30, 1997, the related statement of operations for the
six month period then ended, the statement of changes in net assets for the
six months ended April 30, 1997 and the year ended October 31, 1996, and the
supplementary data for the six months ended April 30, 1997, each of the two
years ended October 31, 1996, 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, 1997 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 the
Portfolio, as of April 30, 1997, the results of its operations for the six
month period then ended, the changes in its net assets for the six months
ended April 30, 1997 and the year ended October 31, 1996, and the
supplementary data for the six months ended April 30, 1997, each of the two
years ended October 31, 1996, and for the period from March 1, 1994 (start of
business) to October 31, 1994, in conformity with generally accepted
accounting principles.
COOPERS & LYBRAND LLP
Boston, Massachusetts
June 2, 1997
18
<PAGE>
EV Classic Strategic Income Fund as of April 30, 1997
INVESTMENT MANAGEMENT
EV Classic Strategic Income Fund
Officers
M. Dozier Gardner
President and Trustee
James B. Hawkes
Vice President and Trustee
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
Formerly Director, Fiduciary Company Incorporated
Jack L. Treynor
Investment Adviser and Consultant
Strategic Income Portfolio
Officers
James B. Hawkes
President and 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
Formerly Director, Fiduciary Company Incorporated
Jack L. Treynor
Investment Adviser and Consultant
19
<PAGE>
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.
Attention: Eaton Vance Funds
P.O. Box 5123
Westborough, MA 01581-5123
Independent Accountants
Coopers & Lybrand LLP
One Post Office Square
Boston, MA 02109
EV Classic Strategic Income Fund
24 Federal Street
Boston, MA 02110
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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.
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C-SGSRC-6/97
