<PAGE>
Investing
[EATON VANCE [PICTURE OF
LOGO APPEARS for the EARTH APPEARS
HERE] HERE]
21st
Century
Semiannual Report April 30, 1998
EATON VANCE
[PICTURE OF
DESKTOP STRATEGIC
APPEARS HERE] INCOME
FUND
Global Management-Global Distribution
[PICTURE OF
BUILDINGS
APPEARS HERE]
<PAGE>
Eaton Vance Strategic Income Fund as of April 30, 1998
INVESTMENT UPDATE
[PHOTO OF MARK S. VENEZIA APPEARS HERE]
Mark S. Venezia,
Portfolio Manager
Investment Environment
- --------------------------------------------------------------------------------
The Global Bond Markets
. U.S. interest rates finished little changed, with 10-year Treasury bond
yields at 5.67% at April 30. The U.S. high-yield market remained strong, as a
robust stock market, continued low inflation, and falling interest rates
contributed to the search for yield among high-yield corporate investors.
. While remaining volatile, the emerging bond markets outside of Asia recovered
much of the ground lost in the October 1997 downturn. Brady bonds were
especially strong performers.
. Europe was characterized by falling interest rates. German 10-year bond yields
fell to 4.99% at April 30. Meanwhile, some Asian emerging nations made
tentative progress toward economic reforms. Japan, however, slipped deeper
into recession, with Japanese 10-year government bond yields falling to 1.7%.
The Fund
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Performance for the Past Six Months
. The Fund's Class A shares had a total return of 2.5% during the period from
inception on January 23, 1998 through April 30, 1998./1/ This return resulted
from an increase in net asset value per share (NAV) to $10.03 on April 30,
1998 from $10.00 on January 23, 1998, and the reinvestment of $0.222 in
dividend income.
. The Fund's Class B shares had a total return of 4.0% during the six months
ended April 30, 1998./1/ This return resulted from no change in NAV from $9.47
on October 31, 1997 and the reinvestment of $0.372 in dividend income.
. The Fund's Class C shares had a total return of 4.2% during the six months
ended April 30, 1998./1/ This return resulted from an increase in NAV to
$11.96 on April 30, 1998 from $11.95 on October 31, 1997 and the reinvestment
of $0.479 in dividend income.
Recent Portfolio Developments
. For their risk-adjusted performance through April 30, the Fund's C shares
earned a Five-Star Overall rating among taxable bond funds covered by
Morningstar, Inc./2/ -- a nationally recognized monitor of mutual fund
performance. The Fund's B shares earned a Four-Star Overall Rating./2/
. The Portfolio's U.S. mortgage-backed securities (MBS) position rose from
56.6% in October to 60.0% at April 30. Amid the increasing volatility of the
world's markets, MBS stood out for their high quality and relative stability.
U.S. high-yield bonds were modestly reduced following their recent
outperformance.
. The Portfolio increased its exposure to emerging markets, especially in Asia,
where spreads widened dramatically following the October selloff. Selective
purchases were made in Latin America and under-valued Asian markets such as
Hong Kong and the Philippines.
Selected Portfolio Investments
. In Asia, the Portfolio targeted selected corporate issues, including Asia
Pulp & Paper, an Indonesian paper company; J.G. Summit, a Philippine
conglomerate with property and retail interests; and Guangdong Enterprises, a
Hong Kong-based vehicle for investment in China's Guangdong province.
. In Latin America, the Portfolio increased its exposure to Brazil. Interest
rates have declined since October as pressure on the Brazilian real eased. The
Portfolio added some Argentine corporates, including Telefonica de Argentina,
which provides telephone service for Argentina's southern region, and
Transener, a supplier of electrical grids and transformers.
. In Eastern Europe, the Portfolio maintained its Bulgarian Brady bond
position. Bulgarian bonds performed exceptionally well as the trend toward
capitalism continues to sweep through the former communist strongholds of
Eastern Europe.
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Mutual fund shares are not insured 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, 1998
Performance/3/ Class A* Class B Class C
- --------------------------------------------------------------------------------
Average Annual Total Returns (at net asset value)
- --------------------------------------------------------------------------------
One Year N/A 8.0% 8.4%
Five Years N/A 8.6 N.A.
Life of Fund+ 2.5 7.3 11.1
SEC Average Annual Total Returns (including sales charge or applicable CDSC)
- --------------------------------------------------------------------------------
One Year N/A 3.1% 7.4%
Five Years N/A 8.3 N.A.
Life of Fund+ -2.4 7.3 11.1
*Cumulative total returns
+Inception date: Class A: (1/23/98); Class B: (11/26/90); Class C: (5/25/94)
/1/These returns do not include the 4.75% maximum sales charge for the Fund's
Class A shares or the applicable contingent deferred sales charges (CDSC) for
the Fund's Class B and Class C shares. /2/ Morningstar proprietary ratings
reflect historical risk-adjusted performance through 4/30/98 and are subject
to change every month. Funds are assigned ratings from 1 star (lowest) to 5
stars (highest). Morningstar ratings are calculated from the Fund's 3-,5-,
and 10-year average annual returns (with fee adjustment) in excess of 90-day
Treasury bill returns, and a risk factor that reflects fund performance below
90-day Treasury bill returns. The top 10% of the funds in a category receive
5 stars; the next 22.5% receive 4 stars. For the 3-year period, Class B and
Class C shares were rated 5 stars (1418 funds); for the 5-year period, Class
B shares were rated 4 stars (856 funds). /3/ Returns are calculated by
determining the percentage change in net asset value with all distributions
reinvested. SEC average annual returns for Class A reflect a 4.75% sales
charge; for Class B, returns reflect applicable CDSC based on the following
schedule: 5%-1st and 2nd years; 4%-3rd year; 3%-4th year; 2%-5th year; 1%-6th
year; for Class C, one-year returns reflect a 1% CDSC.
Past performance is no guarantee of future results. Investment return and
principal value will fluctuate so that shares, when redeemed, may be worth
more or less than their original cost.
2
<PAGE>
Eaton Vance Strategic Income Fund as of April 30, 1998
FINANCIAL STATEMENTS (Unaudited)
Statement of Assets and Liabilities
As of April 30, 1998
Assets
- --------------------------------------------------------------------------
Investment in Strategic Income Portfolio, at value
(Note 1A) (identified cost, $136,310,019) $137,340,062
Investment in High Income Portfolio, at value
(Note 1A) (identified cost, $23,011,776) 23,111,414
Receivable for Fund shares sold 490,541
Deferred organization expenses (Note 1D) 7,648
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Total assets $160,949,665
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Liabilities
- --------------------------------------------------------------------------
Dividends payable $ 624,515
Payable for Fund shares redeemed 260,036
Payable to affiliate for Trustees' fees (Note 4) 315
Accrued expenses 108,177
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Total liabilities $ 993,043
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Net Assets $159,956,622
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Sources of Net Assets
- --------------------------------------------------------------------------
Paid-in capital $163,321,676
Accumulated net realized loss on investments from
Portfolios (computed on the basis of identified
cost) (4,767,127)
Accumulated undistributed net investment income 272,392
Net unrealized appreciation of investments from
Portfolios (computed on the basis of identified cost) 1,129,681
- --------------------------------------------------------------------------
Total $159,956,622
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Class A Shares
- --------------------------------------------------------------------------
Net Assets $ 894,640
Shares Outstanding 89,238
Net Asset Value and Redemption Price Per Share
(Net assets / shares of beneficial interest
outstanding) $ 10.03
Offering Price Per Share (100/95.25 of net assets value
per share) $ 10.53
- --------------------------------------------------------------------------
Class B Shares
- --------------------------------------------------------------------------
Net Assets $139,238,357
Shares Outstanding 14,697,504
Net Asset Value, Offering Price and Redemption Price Per
Share (Note 6) (Net assets / shares of beneficial
interest outstanding) $ 9.47
- --------------------------------------------------------------------------
Class C Shares
- --------------------------------------------------------------------------
Net Assets $ 19,823,625
Shares Outstanding 1,657,974
Net Asset Value, Offering Price and Redemption Price Per
Share (Note 6) (Net assets / shares of beneficial
interest outstanding) $ 11.96
- --------------------------------------------------------------------------
On sales of $25,000 or more, the offering price of
Class A shares is reduced.
Statement of Operations
For the Six Months Ended
April 30, 1998
Investment Income (Notes 1B and 8)
- --------------------------------------------------------------------------
Dividend income allocated from Portfolio $ 40,405
Interest income allocated from Portfolios 6,575,451
Expenses allocated from Portfolios (595,543)
- --------------------------------------------------------------------------
Net investment income from Portfolios $ 6,020,313
- --------------------------------------------------------------------------
Expenses
- --------------------------------------------------------------------------
Distribution and service fees (Note 5)
Class B $ 615,882
Class C 77,336
Compensation of Trustees not members of the
Administrator's organization (Note 4) 1,802
Transfer and dividend disbursing agent fees 86,694
Registration fees 23,467
Printing and postage 17,907
Custodian fee 11,479
Amortization of organization expenses (Note 1D) 3,966
Legal and accounting services 3,579
Miscellaneous 10,584
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Total expenses $ 852,696
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Net investment income $ 5,167,617
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Realized and Unrealized
Gain (Loss) from Portfolios (Note 8)
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Net realized gain (loss) --
Investment transactions (identified cost basis) $ 828,507
Financial futures contracts 749,696
Foreign currency transactions 3,553,169
- --------------------------------------------------------------------------
Net realized gain on investment transactions $ 5,131,372
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Change in unrealized appreciation (depreciation) --
Investments $ (825,886)
Financial futures contracts (1,002,524)
Foreign currency and forward foreign currency
exchange contracts (2,581,554)
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Net change in unrealized appreciation (depreciation)
of investments $ (4,409,964)
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Net realized and unrealized gain on investments $ 721,408
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Net increase in net assets from operations $ 5,889,025
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See notes to financial statements.
3
<PAGE>
Eaton Vance Strategic Income Fund as of April 30, 1998
FINANCIAL STATEMENTS CONT'D
Statements of Changes in Net Assets
Six Months Ended Year Ended
Increase (Decrease) April 30, 1998 October 31,
in Net Assets (Unaudited) 1997
- --------------------------------------------------------------------------------
From operations --
Net investment income $ 5,167,617 $ 9,023,317
Net realized gain on
investment transactions 5,131,372 6,394,233
Net change in unrealized
appreciation (depreciation)
of investments (4,409,964) (2,338,181)
- --------------------------------------------------------------------------------
Net increase in net assets
from operations $ 5,889,025 $ 13,079,369
- --------------------------------------------------------------------------------
Distributions to shareholders
(Note 2) --
From net investment income
Class A $ (8,492) $ --
Class B (5,290,905) (9,023,317)
Class C (547,452) --
In excess of net investment
income
Class A (604) --
Class B -- (1,758,107)
Class C (55,861) --
- --------------------------------------------------------------------------------
Total distributions to
shareholders $ (5,903,314) $ (10,781,424)
- --------------------------------------------------------------------------------
Transactions in shares of beneficial
interest (Note 3) --
Proceeds from sale of
shares
Class A $ 888,081 $ --
Class B 17,648,274 21,726,736
Class C 11,675,931 --
Net asset value of shares issued
to shareholders in payment of
distributions declared
Class A 7,413 --
Class B 2,481,816 5,147,130
Class C 467,153 --
Cost of shares redeemed
Class B (11,480,066) (28,246,800)
Class C (713,532) --
- --------------------------------------------------------------------------------
Net increase (decrease) in net
assets from Fund share
transactions $ 20,975,070 $ (1,372,934)
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Contribution from EV Classic
Strategic Income Fund $ 8,399,641 $ --
- --------------------------------------------------------------------------------
Net increase in net assets $ 29,360,422 $ 925,011
- --------------------------------------------------------------------------------
Net Assets
- --------------------------------------------------------------------------------
At beginning of period $130,596,200 $ 129,671,189
- --------------------------------------------------------------------------------
At end of period $159,956,622 $ 130,596,200
- --------------------------------------------------------------------------------
Accumulated undistributed net
investment income included in net
assets
- --------------------------------------------------------------------------------
At end of period $ 272,392 $ 993,951
- --------------------------------------------------------------------------------
See notes to financial statements
4
<PAGE>
Eaton Vance Strategic Income Fund as of April 30, 1998
FINANCIAL STATEMENTS CONT'D
Financial Highlights
<TABLE>
<CAPTION>
Six Months Ended Year Ended October 31,
April 30, 1998 ----------------------------
(Unaudited) 1997 1996
-------------------------------------- ----------------------------
Class A* Class B Class C Class B Class B
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value-- Beginning of period $10.000 $ 9.470 $ 11.950 $ 9.310 $ 8.500
- --------------------------------------------------------------------------------------------------------------------
Income (loss) from operations
- --------------------------------------------------------------------------------------------------------------------
Net investment income $ 0.207 $ 0.322 $ 0.424 $ 0.657 $ 0.655
Net realized and unrealized gain (loss) on
investments 0.045 0.050 0.053 0.288 0.858
- --------------------------------------------------------------------------------------------------------------------
Total income (loss) from operations $ 0.252 $ 0.372 $ 0.477 $ 0.945 $ 1.513
- --------------------------------------------------------------------------------------------------------------------
Less distributions
- --------------------------------------------------------------------------------------------------------------------
From net investment income $ (0.207) $ (0.372) $ (0.424) $ (0.657) $ (0.655)
In excess of net investment income (0.015) -- (0.043) (0.128) (0.048)
From paid-in capital -- -- -- -- --
- --------------------------------------------------------------------------------------------------------------------
Total distributions $ (0.222) $ (0.372) $ (0.467) $ (0.785) $ (0.703)
- --------------------------------------------------------------------------------------------------------------------
Net asset value-- End of period $ 10.030 $ 9.470 $ 11.960 $ 9.470 $ 9.310
- --------------------------------------------------------------------------------------------------------------------
Total Return /(1)/ 2.53% 3.98% 4.15% 10.44% 18.48%
- --------------------------------------------------------------------------------------------------------------------
Ratios/Supplemental Data
- --------------------------------------------------------------------------------------------------------------------
Net assets, end of period (000's omitted) $ 895 $ 139,238 $ 19,824 $ 130,596 $ 129,671
Ratio of net expenses to average daily net
assets /(2)/ 0.81%+ 1.93%+ 1.99%+ 2.08% 2.17%
Ratio of net investment income to average
daily net assets 7.12%+ 6.90%+ 6.83%+ 6.91% 7.38%
Portfolio Turnover /(3)/ -- -- -- -- --
- --------------------------------------------------------------------------------------------------------------------
<CAPTION>
Year Ended October 31,
-------------------------------------------
1995 1994++ 1993
-------------------------------------------
Class B Class B Class B
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net asset value-- Beginning of period $ 8.290 $ 9.410 $ 9.120
- ------------------------------------------------------------------------------------------
Income (loss) from operations
- ------------------------------------------------------------------------------------------
Net investment income $ 0.726 $ 0.645 $ 0.239
Net realized and unrealized gain (loss) on
investments 0.167 (1.135) 0.683
- ------------------------------------------------------------------------------------------
Total income (loss) from operations $ 0.893 $ (0.490) $ 0.922
- ------------------------------------------------------------------------------------------
Less distributions
- ------------------------------------------------------------------------------------------
From net investment income $ (0.361) $ (0.343) $ (0.632)
In excess of net investment income -- -- --
From paid-in capital (0.322) (0.290) --
- ------------------------------------------------------------------------------------------
Total distributions $ (0.683) $ (0.633) $ (0.632)
- ------------------------------------------------------------------------------------------
Net asset value-- End of period $ 8.500 $ 8.290 $ 9.410
- ------------------------------------------------------------------------------------------
Total Return /(1)/ 11.34% (5.33)% 10.51%
- ------------------------------------------------------------------------------------------
Ratios/Supplemental Data
- ------------------------------------------------------------------------------------------
Net assets, end of period (000's omitted) $ 150,767 $233,139 $381,227
Ratio of net expenses to average daily net
assets /(2)/ 2.18% 2.00% 1.99%
Ratio of net investment income to average
daily net assets 7.85% 7.24% 7.53%
Portfolio Turnover /(3)/ -- 55% 55%
- ------------------------------------------------------------------------------------------
</TABLE>
+ Annualized.
++ Per share data has been computed based on average shares outstanding
during the period.
* For the period from the commencement of offering of Class A shares,
January 23, 1998 to April 30, 1998.
/(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 its corresponding Portfolio's allocated
expenses.
/(3)/ 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 each Portfolio's
financial statements.
See notes to financial statements
5
<PAGE>
Eaton Vance Strategic Income Fund as of April 30, 1998
NOTES TO FINANCIAL STATEMENTS (Unaudited)
1 Significant Accounting Policies
-----------------------------------------------------------------------------
Eaton Vance 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 offers three classes of shares. Class A shares
are sold subject to a sales charge imposed at the time of purchase. Class B
and Class C shares are sold at net asset value and are subject to a
contingent deferred sales charge (see Note 6). All classes of shares have
equal rights to assets and voting privileges. Realized and unrealized gains
and losses and net investment income, other than class specific expenses, are
allocated daily to each class of shares based on the relative net assets of
each class to the total net assets of the Fund. Each class of shares differs
in its distribution plan and certain other class specific expenses. The Fund
currently invests all of its investable assets in interests in two
Portfolios, Strategic Income Portfolio and High Income Portfolio (the
Portfolios), New York Trusts which have investment objectives consistent with
that of the Fund. The value of the Fund's investment in the Portfolios
reflects the Fund's proportionate interest in the net assets of the Strategic
Income Portfolio and the High Income Portfolio (100.0% and 2.4% at April 30,
1998, respectively). The performance of the Fund is directly affected by the
performance of the Portfolios. The financial statements of the Strategic
Income Portfolio, including the portfolio of investments, are included
elsewhere in this report and should be read in conjunction with the Fund's
financial statements. See Note 8 for further information on the results of
operations of High Income Portfolio. A copy of the financial statements of
High Income Portfolio is available upon request from Eaton Vance
Distributors.
The following is a summary of significant accounting policies consistently
followed by the Fund in preparation of its financial statements. The policies
are in conformity with generally accepted accounting principles.
A Investment Valuation -- Valuation of securities by the Strategic Income
Portfolio is discussed in Note 1A of the Portfolios Notes to Financial
Statements, which are included elsewhere in this report. High Income
Portfolio's valuation policies are as follows: 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 quotations or valuations are valued at
fair value using methods determined in good faith by or at the direction of
the Trustees.
B Income -- The Fund's net investment income consists of the Fund's pro rata
share of the net investment income of the Portfolios, 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. At October 31, 1997, the Fund, for Federal
income tax purposes, had a capital loss carryover of $9,088,297, which will
reduce the Fund's taxable income arising from future net realized gains 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 carryovers will expire on October 31,
2002 ($4,475,178), and October 31, 2003 ($4,613,119).
D Use of Estimates -- The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities at the date of the financial statements and the reported amounts
of income and expenses during the reporting period. Actual results could
differ from those estimates.
6
<PAGE>
Eaton Vance Strategic Income Fund as of April 30, 1998
NOTES TO FINANCIAL STATEMENTS (Unaudited) CONT'D
E Expense Reduction -- Investors Bank & Trust Company (IBT) serves as
custodian to the Fund and the Portfolios. 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
Portfolios maintain with IBT. All significant credit balances used to reduce
the Fund's custodian fees are reflected as a reduction of expenses on the
Statement of Operations.
F Interim Financial Information -- The interim financial statements relating
to April 30, 1998 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 are paid monthly. Distributions of
allocated realized capital gains, if any, are made at least annually.
Shareholders may reinvest income and 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
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 (without par value). Transactions in Fund shares
were as follows:
Six Months Ended
April 30, 1998*
Class A (Unaudited)
-----------------------------------------------------------------------------
Sales 88,501
Issued to shareholders electing
to receive payment of
distributions in Fund shares 737
Redemptions ---
-----------------------------------------------------------------------------
Net increase 89,238
-----------------------------------------------------------------------------
* For the period from the commencement of offering of Class A shares, January
23, 1998, to April 30, 1998.
Six Months Ended
April 30, 1998 Year Ended
Class B (Unaudited) October 31, 1997
-----------------------------------------------------------------------------
Sales 1,857,396 2,277,649
Issued to shareholders
electing to receive
payments of distributions
in Fund shares 261,281 539,780
Redemptions (1,207,767) (2,963,088)
-----------------------------------------------------------------------------
Net increase (decrease) 910,910 (145,659)
-----------------------------------------------------------------------------
Six Months Ended
April 30, 1998
Class C (Unaudited)
-----------------------------------------------------------------------------
Sales 975,692
Issued to shareholders electing
to receive payment of
distributions in Fund shares 38,971
Redemptions (59,537)
Issued to EV Classic Strategic
Income 702,848
Fund shareholders
-----------------------------------------------------------------------------
Net increase 1,657,974
-----------------------------------------------------------------------------
7
<PAGE>
Eaton Vance Strategic Income Fund as of April 30, 1998
NOTES TO FINANCIAL STATEMENTS (Unaudited) CONT'D
4 Investment Adviser Fee and Other Transactions with Affiliates
-----------------------------------------------------------------------------
Eaton Vance Management (EVM) serves as the administrator of the Fund, but
receives no compensation. The Portfolios have engaged Boston Management and
Research (BMR), a subsidiary of EVM, to render investment advisory services.
See Note 2 of each of the Portfolios' Notes to financial statements. Certain
of the officers and Trustees of the Fund and Portfolios' are officers and
directors/trustees of the above organizations (Note 5). Except as to Trustees
of the Fund and the Portfolios who are not members of EVM's organization,
officers and Trustees receive remuneration for their services to the Fund out
of such investment adviser fee. Eaton Vance Distributors, Inc. (EVD), a
subsidiary of EVM and the Fund's principal underwriter, received $1,636 as
its portion of the sales charge on sales of Class A shares for the period
ended April 30, 1998.
5 Distribution Plan
-----------------------------------------------------------------------------
The Fund has adopted distribution plans (Class B Plan and Class C Plan, the
Plans) pursuant to Rule 12b-1 under the Investment Company Act of 1940. The
Plans require the Fund to pay the Principal Underwriter, Eaton Vance
Distributors, Inc. (EVD) amounts equal to 1/365 of 0.75% of the Fund's
average daily net assets attributable to Class B and Class C shares 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) 4.50% and 6.25% of the aggregate amount received by the
Fund for the Class B and Class C shares sold, respectively, 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 of each respective class reduced by the aggregate amount of contingent
deferred sales charges (see Note 6) and daily amounts theretofore paid to EVD
by each respective class. The Fund paid or accrued $502,601 and $58,002 for
Class B and Class C shares, respectively, for the six months ended April 30,
1998, to or payable to EVD representing 0.75% (annualized) of average daily
net assets for Class B and Class C shares. At April 30, 1998, the amount of
Uncovered Distribution Charges of EVD calculated under the Plan was
approximately $20,537,000 and $1,322,000 for Class B and Class C shares,
respectively.
In addition, the Plans authorize the Fund to make payments of service fees to
the Principal Underwriter, Authorized Firms and other persons in amounts not
exceeding 0.25% of the Fund's average daily net assets attributable to Class
A, Class B and Class C shares for each fiscal year. The Trustees have
initially implemented the Plans by authorizing the Fund to make quarterly
payments of service fees to the Principal Underwriter and Authorized Firms in
amounts not expected to exceed 0.25% per annum of the Fund's average daily
net assets attributable to Class A, Class B and Class C shares based on the
value of Fund shares sold by such persons and remaining outstanding for at
least twelve months. Service fee payments are made for personal services
and/or the maintenance of shareholder accounts. Service fees 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. Service fee
payments for the six months ended April 30, 1998 amounted to $113,281 and
$19,334 for Class B and Class C shares, respectively.
6 Contingent Deferred Sales Charge
-----------------------------------------------------------------------------
A contingent deferred sales charge (CDSC) is imposed on any redemption of
Class B shares made within four years of purchase. A CDSC of 1% is imposed on
any redemption of Class C 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 dividends or capital gain distributions. The Class B CDSC is imposed at
declining rates that begin at 3% in the first year of redemption after
purchase, declining one-half of one percentage point in the second and third
years and one percentage point in the fourth and fifth years. Class C shares
will be subject to a 1% CDSC if redeemed within one year of purchase. No CDSC
is levied on shares which have been sold to EVM 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 Plans. CDSC charges received when no Uncovered Distribution
Charges exist will be credited to the Fund. EVD received approximately $8,000
and $4,000 of CDSC paid by shareholders for Class B shares and Class C
shares, respectively for the six months ended April 30, 1998.
8
<PAGE>
Eaton Vance Strategic Income Fund as of April 30, 1998
NOTES TO FINANCIAL STATEMENTS (Unaudited) CONT'D
7 Investment Transactions
-----------------------------------------------------------------------------
Increases and decreases in the Fund's investment in the Strategic Income
Portfolio for the six months ended April 30, 1998, aggregated $30,905,717 and
$19,878,402, respectively. Increases and decreases in the Fund's investment
in the High Income Portfolio aggregated $3,000,000 and $0, respectively.
8 Investment in Portfolios
-----------------------------------------------------------------------------
For the six months ended April 30, 1998, the Fund was allocated net
investment income and realized and unrealized gain (loss) from the Portfolios
as follows:
Strategic Income High Income
Portfolio Portfolio Total
-----------------------------------------------------------------------------
Dividend income $ -- $ 40,405 40,405
Interest income 5,597,181 978,270 6,575,451
Expenses (532,435) (63,108) (595,543)
-----------------------------------------------------------------------------
Net investment income $ 5,064,746 $955,567 $ 6,020,313
-----------------------------------------------------------------------------
Net realized gain (loss)--
Investment transactions $ 270,766 $557,741 $ 828,507
Financial futures contracts 749,696 -- 749,696
Foreign currency transactions 3,553,169 -- 3,553,169
-----------------------------------------------------------------------------
Net realized gain on investments $ 4,573,631 $557,741 $ 5,131,372
-----------------------------------------------------------------------------
Change in unrealized
appreciation (depreciation)
Investment transactions $ (997,540) $171,654 $ (825,886)
Financial futures contracts (1,002,524) -- (1,002,524)
Foreign currency transactions (2,581,554) -- (2,581,554)
-----------------------------------------------------------------------------
Net change in unrealized
appreciation (depreciation)
of investments $(4,581,618) $171,654 $(4,409,964)
-----------------------------------------------------------------------------
9 Transfer of Net Assets
----------------------------------------------------------------------------
On November 1, 1997, EV Marathon Strategic Income Fund acquired the net
assets of EV Classic Strategic Income Fund pursuant to an Agreement and Plan
of Reorganization dated June 23, 1997. In accordance with the agreement, EV
Marathon Strategic Income Fund, at the closing, issued 702,848 Class C shares
of the Fund having an aggregate value of $8,399,641. As a result, the Fund
issued one Class C share for each share of EV Classic Strategic Income Fund.
The transaction was structured for tax purposes to qualify as a tax free
reorganization under the Internal Revenue Code. The EV Classic Strategic
Income Fund's net assets at the date of the transaction were $8,399,641,
including $33,282 of unrealized appreciation, and a net asset value per share
of $11.95. Directly after the merger, the combined net assets of the Eaton
Vance Strategic Income Fund (formerly "EV Marathon Strategic Income Fund")
were $138,995,841 with a net asset value of $9.47 and $11.95 for Class B
shares and Class C shares, respectively.
10 Name Change
-----------------------------------------------------------------------------
Effective November 1, 1997, EV Marathon Strategic Income Fund changed its
name to Eaton Vance Strategic Income Fund.
9
<PAGE>
Strategic Income Portfolio as of April 30, 1998
PORTFOLIO OF INVESTMENTS
Bonds & Notes -- 92.4%
Principal U.S. $ Value
- --------------------------------------------------------------------------------
Argentina -- 5.4% U.S. Dollar
- --------------------------------------------------------------------------------
Argentina Discount Bond (Brady),
6.875%, 3/31/23/(1)/ 4,750,000 $ 4,096,875
Telefonica Argentina, 9.125%, 5/07/08 1,500,000 1,507,500
Transener, 9.25%, 4/01/08 2,000,000 2,002,500
- --------------------------------------------------------------------------------
Total Argentina (identified cost, $6,927,279) $ 7,606,875
- --------------------------------------------------------------------------------
Brazil -- 5.1% U.S. Dollar
- --------------------------------------------------------------------------------
Brazil Discount Bond (Brady), 6.625%,
4/15/24/(1)/ 7,000,000 $ 5,884,410
Brazil IDU Bond (Brady), 6.875%, 1/01/01/(1)/ 1,400,000 1,366,582
- --------------------------------------------------------------------------------
Total Brazil (identified cost, $6,692,405) $ 7,250,992
- --------------------------------------------------------------------------------
Bulgaria -- 1.2% U.S. Dollar
- --------------------------------------------------------------------------------
Bulgaria Discount Bond (Brady), 6.563%,
7/28/24/(1)/ 2,000,000 $ 1,645,000
- --------------------------------------------------------------------------------
Total Bulgaria (identified cost, $1,565,860) $ 1,645,000
- --------------------------------------------------------------------------------
Ecuador -- 2.4% U.S. Dollar
- --------------------------------------------------------------------------------
Ecuador Discount Bond (Brady), 6.625%,
2/28/25/(1)/ 1,600,000 $ 1,177,008
Ecuador Par Bond (Brady), 3.50%, 2/28/25/(1)/ 4,000,000 2,182,520
- --------------------------------------------------------------------------------
Total Ecuador (identified cost, $3,210,120) $ 3,359,528
- --------------------------------------------------------------------------------
Hong Kong -- 5.3% U.S. Dollar
- --------------------------------------------------------------------------------
Cathay International Ltd., 13.00%, 4/15/08 2,000,000 $ 2,012,500
Guangdong Enterprises, 8.75%, 12/15/03 3,000,000 2,754,900
Guangdong Investment Ltd., 3.25%, 4/07/03/(4)/ 3,000,000 2,741,250
- --------------------------------------------------------------------------------
Total Hong Kong (identified cost, $7,723,871) $ 7,508,650
- --------------------------------------------------------------------------------
Indonesia -- 0.8% U.S. Dollar
- --------------------------------------------------------------------------------
APP Global Finance III, 9.969%, 4/17/02/(1)(2)/ 600,000 $ 456,600
Indah Kiat Finance Mauritius, Sr. Unsec. Notes,
10.00%, 7/01/07 750,000 611,250
- --------------------------------------------------------------------------------
Total Indonesia (identified cost, $1,207,897) $ 1,067,850
- --------------------------------------------------------------------------------
Morocco -- 1.2% Deutsche Mark
- --------------------------------------------------------------------------------
Snap Limited, 11.50%, 1/29/09 2,750,001 $ 1,673,553
- --------------------------------------------------------------------------------
Total Morocco (identified cost, $1,699,118) $ 1,673,553
- --------------------------------------------------------------------------------
Norway -- 3.1% Norwegian Krone
- --------------------------------------------------------------------------------
Norway Government, 6.75%, 1/15/07 20,000,000 $ 2,930,017
Norway Government, 7.00%, 5/31/01 10,000,000 1,419,445
- --------------------------------------------------------------------------------
Total Norway (identified cost, $4,587,443) $ 4,349,462
- --------------------------------------------------------------------------------
Philippines -- 2.3% U.S. Dollar
- --------------------------------------------------------------------------------
JG Summit Cayman, 3.50%, 12/23/03 2,500,000 $ 1,468,750
Philippine Par Bond (Brady), 6.50%, 12/01/17/(1)/ 2,000,000 1,780,000
- --------------------------------------------------------------------------------
Total Philippines (identified cost, $3,582,718) $ 3,248,750
- --------------------------------------------------------------------------------
United Kingdom -- 0.5% U.S. Dollar
- --------------------------------------------------------------------------------
Newsquest Capital Corp., Sr. Sub. Note,
11.00%, 5/01/06 595,000 $ 669,375
- --------------------------------------------------------------------------------
Total United Kingdom (identified cost, $611,894) $ 669,375
- --------------------------------------------------------------------------------
United States -- 65.1% U.S. Dollar
- --------------------------------------------------------------------------------
Corporate Bonds & Notes -- 3.5%
Applied Extrusion Inc., Sr. Notes, 11.50%,
4/01/02 1,000,000 $ 1,065,000
Dayton Hudson Medium Term Notes,
9.52%, 6/10/15 350,000 441,588
TRW Inc., Medium Term Notes, 9.35%, 6/04/20 1,900,000 2,435,344
United International Holdings, 10.75%, (0%
until 2/15/03), 2/15/08 1,500,000 948,750
- --------------------------------------------------------------------------------
Total Corporate Bonds & Notes (identified cost, $4,325,507) $ 4,890,682
- --------------------------------------------------------------------------------
Mortgage Pass-Throughs -- 60.0%
Federal Home Loan Mortgage Corp.:
4.75%, with various maturities to 2003 19,729 $ 19,204
5.50%, with maturity at 2019 866 863
8.00%, with various maturities to 2021 11,008,187 11,433,105
8.50%, with various maturities to 2019 2,329,263 2,469,510
9.00%, with maturity at 2019 703,128 754,420
9.25%, with maturity at 2010 2,007,590 2,131,564
9.50%, with maturity at 2015 2,318,056 2,475,779
11.00%, with maturity at 2019 2,680,070 2,981,846
12.50%, with various maturities to 2019 2,959,596 3,453,481
12.75%, with maturity at 2013 154,367 179,160
13.25%, with maturity at 2013 119,637 140,535
13.50%, with maturity at 2019 370,015 439,333
- --------------------------------------------------------------------------------
$ 26,478,800
- --------------------------------------------------------------------------------
Federal National Mortgage Association:
4.75%, with maturity at 1999 4,996 $ 4,960
5.00%, with maturity at 2003 88,298 86,435
5.50%, with various maturities to 2012 14,883 14,744
7.50%, with various maturities to 2018 3,838,924 3,948,198
8.00%, with various maturities to 2013 4,676,592 4,857,232
8.25%, with maturity at 2007 2,992,893 3,099,755
8.50%, with various maturities to 2026 13,045,669 13,747,131
9.00%, with maturity at 2010 1,598,722 1,697,937
12.00%, with maturity at 2015 1,217,663 1,403,854
12.50%, with various maturities to 2019 7,391,528 8,605,460
12.75%, with maturity at 2014 139,247 164,963
See notes to financial statements
10
<PAGE>
Strategic Income Portfolio as of April 30, 1998
PORTFOLIO OF INVESTMENTS CONT'D
Principal U.S. $ Value
- --------------------------------------------------------------------------------
United States (continued)
- --------------------------------------------------------------------------------
Federal National Mortgage Association (cont'd):
13.00%, with various maturities to 2015 3,041,733 $ 3,594,592
13.25%, with maturity at 2014 230,635 277,132
13.50%, with various maturities to 2015 1,706,227 2,020,861
14.75%, with various maturities to 2012 2,167,682 2,670,041
- --------------------------------------------------------------------------------
$ 46,193,295
- --------------------------------------------------------------------------------
Government National Mortgage Association:
6.50%, with various maturities to 2007 767,604 $ 770,478
7.50%, with various maturities to 2017 1,235,522 1,291,373
8.00%, with maturity at 2008 2,861,171 2,984,430
8.50%, with maturity at 2009 1,315,642 1,378,099
9.00%, with maturity at 2016 914,105 977,136
12.50%, with maturity at 2019 3,267,669 3,813,242
13.50%, with various maturities to 2014 302,076 364,403
- --------------------------------------------------------------------------------
$ 11,579,161
- --------------------------------------------------------------------------------
Total Mortgage Pass-Throughs (identified cost, $84,235,374) $ 84,251,256
- --------------------------------------------------------------------------------
U.S. Treasury Bond -- 1.6%
United States Treasury Bond, 11.75%, 2/15/01/(3)/
(identified cost, $2,603,438) 2,000,000 $ 2,311,240
- --------------------------------------------------------------------------------
Total United States (identified cost, $91,164,319) $ 91,453,178
- --------------------------------------------------------------------------------
Total Bonds & Notes
(identified cost $128,972,924) $ 129,833,213
- --------------------------------------------------------------------------------
Short-Term Investments -- 7.6%
U.S. Dollar
- --------------------------------------------------------------------------------
Banque National De Paris, Euro Time-deposit
Cayman Islands, 5.500%, 5/01/98 6,200,000 $ 6,200,000
Postipanki, NY Cayman Time Deposit,
5.500%, 5/01/98 4,502,032 4,502,032
- --------------------------------------------------------------------------------
Total Short-Term Investments
(at amortized cost $10,702,032) $ 10,702,032
- --------------------------------------------------------------------------------
Total Investments -- 100.0%
(identified cost $139,674,956) $ 140,535,245
- --------------------------------------------------------------------------------
/(1)/ Variable rate security. Rate indicated is the rate at April 30, 1998.
/(2)/ Security valued at fair value using methods determined in good faith by or
at the direction of the Trustees.
/(3)/ Security (or a portion thereof) has been segregated to cover margin
requirements on open financial futures contracts.
/(4)/ 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.
See notes to financial statements
11
<PAGE>
Strategic Income Portfolio as of April 30, 1998
FINANCIAL STATEMENTS
Statement of Assets & Liabilities
As of April 30, 1998
Assets
- --------------------------------------------------------------------------------
Investments, at value (Note 1A) (identified
cost, $139,674,956) $ 140,535,245
Cash 5,175
Receivable for investments sold 2,097,252
Interest receivable 1,623,881
Receivable for open forward foreign currency
contracts (Note 1H) 371,479
Deferred organization expenses (Note 1J) 3,919
- --------------------------------------------------------------------------------
Total assets $ 144,636,951
- --------------------------------------------------------------------------------
Liabilities
- --------------------------------------------------------------------------------
Payable for investments purchased $ 7,255,900
Payable for daily variation margin on open
financial futures contracts (Note 1E) 180
Payable to affiliate for Trustees' fees (Note 2) 837
Accrued expenses 39,961
- --------------------------------------------------------------------------------
Total liabilities $ 7,296,878
- --------------------------------------------------------------------------------
Net Assets applicable to investors' interest
in Portfolio $ 137,340,073
- --------------------------------------------------------------------------------
Sources of Net Assets
- --------------------------------------------------------------------------------
Net proceeds from capital contributions
and withdrawals $ 136,310,030
Net unrealized appreciation of investments
(computed on the basis of identified cost) 1,030,043
- --------------------------------------------------------------------------------
Total $ 137,340,073
- --------------------------------------------------------------------------------
Statement of Operations
For the Six Months Ended
April 30, 1998
Investment Income (Note 1B)
- --------------------------------------------------------------------------------
Interest income $ 5,597,181
- --------------------------------------------------------------------------------
Total income $ 5,597,181
- --------------------------------------------------------------------------------
Expenses
- --------------------------------------------------------------------------------
Investment adviser fee (Note 2) $ 332,476
Administration fee (Note 2) 97,531
Compensation of Trustees not members of the
Investment Adviser's organization (Note 2) 4,838
Custodian fee 58,624
Legal and accounting services 35,804
Amortization of organization expenses (Note 1J) 2,335
Miscellaneous 827
- --------------------------------------------------------------------------------
Total expenses $ 532,435
- --------------------------------------------------------------------------------
Net investment income $ 5,064,746
- --------------------------------------------------------------------------------
Realized and Unrealized
Gain (Loss) on Investments
- --------------------------------------------------------------------------------
Net realized gain (loss)--
Investment transactions (identified cost basis) $ 270,766
Financial futures contracts 749,696
Foreign currency transactions 3,553,169
- --------------------------------------------------------------------------------
Net realized gain on investment transactions $ 4,573,631
- --------------------------------------------------------------------------------
Change in unrealized appreciation (depreciation) --
Investments (identified cost basis) $ (997,539)
Financial futures contracts (1,002,525)
Foreign currency and forward foreign currency
exchange contracts (2,581,554)
- --------------------------------------------------------------------------------
Net change in unrealized appreciation (depreciation)
of investments $ (4,581,618)
- --------------------------------------------------------------------------------
Net realized and unrealized loss on investments $ (7,987)
- --------------------------------------------------------------------------------
Net increase in net assets from operations $ 5,056,759
- --------------------------------------------------------------------------------
See notes to financial statements
12
<PAGE>
Strategic Income Portfolio as of April 30, 1998
FINANCIAL STATEMENTS CONT'D
Statements of Changes in Net Assets
<TABLE>
<CAPTION>
Increase (Decrease) Six Months Ended Year Ended
in Net Assets April 30, 1998 October 31, 1997
- ----------------------------------------------------------------------------------
<S> <C> <C>
From operations --
Net investment income $ 5,064,746 $ 10,516,988
Net realized gain on
investment transactions 4,573,631 6,359,975
Net change in unrealized
appreciation (depreciation)
of investments (4,581,618) (2,306,661)
- ----------------------------------------------------------------------------------
Net increase in net assets
from operations $ 5,056,759 $ 14,570,302
- ----------------------------------------------------------------------------------
Capital transactions --
Contributions $ 30,905,717 $ 36,154,026
Withdrawals (19,878,402) (61,875,128)
- ----------------------------------------------------------------------------------
Net increase (decrease) in net assets
from capital transactions $ 11,027,315 $ (25,721,102)
- ----------------------------------------------------------------------------------
Net increase (decrease) in net assets $ 16,084,074 $ (11,150,800)
- ----------------------------------------------------------------------------------
Net Assets
- ----------------------------------------------------------------------------------
At beginning of period $ 121,255,999 $ 132,406,799
- ----------------------------------------------------------------------------------
At end of period $ 137,340,073 $ 121,255,999
- ----------------------------------------------------------------------------------
</TABLE>
See notes to financial statements
13
<PAGE>
Strategic Income Portfolio as of April 30, 1998
FINANCIAL STATEMENTS CONT'D
Supplementary Data
<TABLE>
<CAPTION>
Year Ended October 31,
Six Months Ended -------------------------------------------------------
April 30, 1998 1997 1996 1995 1994*
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Ratios to average daily net assets
- -----------------------------------------------------------------------------------------------------------------------
Expenses 0.82%+ 0.86% 0.86% 0.84% 0.82%+
Net investment income 7.78%+ 8.06% 8.62% 9.08% 8.41%+
Portfolio Turnover 34% 77% 71% 78% 71%
- -----------------------------------------------------------------------------------------------------------------------
Net assets, end of period (000's omitted) $137,340 $121,256 $132,407 $152,583 $236,469
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
+ Annualized.
* For the period from the start of business, March 1, 1994, to October 31, 1994.
See notes to financial statements
14
<PAGE>
Strategic Income Portfolio as of April 30, 1998
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 an independent matrix pricing
system applied by the advisor which takes into account closing bond
valuations, yield differentials, anticipated prepayments and interest rates
provided by dealers. Financial futures contracts listed on commodity exchanges
and exchange-traded options are valued at closing settlement prices.
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.
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. That portion of unrealized gains and losses on
investments that result from fluctuations in foreign currency exchange rates
are not separately disclosed.
15
<PAGE>
Strategic Income Portfolio as of April 30, 1998
NOTES TO FINANCIAL STATEMENTS CONT'D
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, 1998, the fee was equivalent to
0.51% (annualized) of the Portfolio's average net assets for such period and
amounted to $332,476. 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 $97,531
for the six months ended April 30, 1998.
16
<PAGE>
Strategic Income Portfolio as of April 30, 1998
NOTES TO FINANCIAL STATEMENTS CONT'D
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
that are not affiliated with the Investment Adviser may elect to defer receipt
of all or a portion of their annual fees in accordance with the terms of the
Trustees Deferred Compensation Plan. For the six months ended April 30, 1998,
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 $100 million unsecured line of credit agreement
with a group of banks. The portfolio may temporarily borrow from the line of
credit to satisfy redemption requests or settle investment transactions.
Interest is charged to each portfolio or fund based on its borrowings at an
amount above the Eurodollar rate or federal funds rate. In addition, a fee
computed at an annual rate of 0.10% on the daily unused portion of the line of
credit is allocated among the participating portfolios and funds at the end of
each quarter. The Portfolio did not have any significant borrowings or
allocated fees during the period.
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, 1998, the Portfolio had invested
approximately 19.7% of its net assets or approximately $27,038,000 in high
yield securities. Purchases and sales of investments, other than short-term
obligations, for the six months ended April 30, 1998 were as follows:
Purchases
-----------------------------------------------------------------------------
Investments (non-U.S. Government) $35,521,060
U.S. Government Securities 27,365,826
-----------------------------------------------------------------------------
$62,886,886
-----------------------------------------------------------------------------
Sales
-----------------------------------------------------------------------------
Investments (non-U.S. Government) $26,838,583
U.S. Government Securities 12,623,309
-----------------------------------------------------------------------------
$39,461,892
-----------------------------------------------------------------------------
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, 1998 is
as follows:
Forward Foreign Currency Exchange Contracts
------------------------------------------------------------------------------
Sales
------------------------------------------------------------------------------
Net Unrealized
Settlement In Exchange For Appreciation
Date Deliver (in U.S.dollars) (Depreciation)
------------------------------------------------------------------------------
5/29/98 Belgian Franc
44,186,341 $ 1,187,805 $ (9,448)
5/6/98- Japanese Yen
7/17/98 1,031,300,000 8,168,070 292,021
6/11/98 New Taiwan Dollar
130,800,000 4,000,000 43,318
5/18/98 Republic of Korea Won
3,250,000,000 2,169,559 (215,587)
6/30/98 Singapore Dollar
4,800,000 3,000,938 (21,174)
5/29/98- Swiss Franc
6/4/98 6,559,513 4,527,532 127,906
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$23,053,904 $217,036
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17
<PAGE>
Strategic Income Portfolio as of April 30, 1998
NOTES TO FINANCIAL STATEMENTS CONT'D
Purchases
-----------------------------------------------------------------------------
Net Unrealized
Settlement Deliver Appreciation
Date In Exchange For (in U.S.dollars) (Depreciation)
------------------------------------------------------------------------------
6/4/98 Greek Drachma
1,000,000,000 $ 3,395,586 $(230,703)
5/18/98 Republic of Korea Won
3,250,000,000 2,000,000 385,146
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$ 5,395,586 $ 154,443
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Futures Contracts
------------------------------------------------------------------------------
Net
Unrealized
Expiration Appreciation
Date Contracts Position (Depreciation)
------------------------------------------------------------------------------
6/98 12 Japanese 10 year Bond Futures Short $(181,355)
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$(181,355)
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At April 30, 1998, 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, 1998, as computed on a federal income tax basis, were as
follows:
Aggregate cost $140,399,441
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Gross unrealized appreciation $ 1,840,993
Gross unrealized depreciation (1,705,189)
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Net unrealized appreciation $ 135,804
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18
<PAGE>
Strategic Income Portfolio as of April 30, 1998
INDEPENDENT AUDITORS' REPORT
To the Board of Trustees and Investors
of Strategic Income Portfolio
- --------------------------------------------------------------------------------
We have audited the accompanying statement of assets and liabilities of
Strategic Income Portfolio (the Portfolio), including the portfolio of
investments, as of April 30, 1998, the related statement of operations for the
six months then ended, the statement of changes in net assets for the six months
ended April 30, 1998 and the year ended October 31, 1997, and the supplementary
data for the six months ended April 30, 1998 and each of the three years ended
October 31, 1997, 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, 1998 by correspondence with the custodian. 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, 1998, the results of its operations for the six month
period then ended, the changes in its net assets for the six months then ended
and the year ended October 31, 1997, and the supplementary data for the six
months ended April 30, 1998, each of the three years ended October 31, 1997, and
for the period from March 1, 1994 (start of business) to October 31, 1994, in
conformity with generally accepted accounting principles.
COOPERS & LYBRAND L.L.P.
Boston, Massachusetts
May 29, 1998
19
<PAGE>
Eaton Vance Strategic Income Fund as of April 30, 1998
INVESTMENT MANAGEMENT
Eaton Vance Strategic Income Fund
Officers Independent Trustees
M. Dozier Gardner Donald R. Dwight
President and Trustee President, Dwight Partners, Inc.
James B. Hawkes Samuel L. Hayes, III
Vice President and Trustee Jacob H. Schiff Professor of Investment
Banking, Harvard University Graduate
William H. Ahern, Jr. School of Business Administration
Vice President
Norton H. Reamer
Thomas J. Fetter Chairman and Chief Executive Officer,
Vice President United Asset Management Corporation
Robert B. MacIntosh John L. Thorndike
Vice President Formerly Director, Fiduciary Company
Incorporated
Michael B. Terry
Vice President Jack L. Treynor
Investment Adviser and Consultant
James L. O'Connor
Treasurer
Alan R. Dynner
Secretary
Strategic Income Portfolio
Officers Independent Trustees
James B. Hawkes Donald R. Dwight
President and Trustee President, Dwight Partners, Inc.
Mark S. Venezia Samuel L. Hayes, III
Vice President and Jacob H. Schiff Professor of Investment
Portfolio Manager Banking, Harvard University Graduate
School of Business Administration
James L. O'Connor
Treasurer Norton H. Reamer
Chairman and Chief Executive Officer,
Alan R. Dynner United Asset Management Corporation
Secretary
John L. Thorndike
Formerly Director, Fiduciary Company
Incorporated
Jack L. Treynor
Investment Adviser and Consultant
20
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<PAGE>
Investment Adviser of
Strategic Income Portfolio
Boston Management and Research
24 Federal Street
Boston, MA 02110
Administrator of Eaton Vance
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
200 Clarendon Street
Boston, MA 02116
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 L.L.P
One Post Office Square
Boston, MA 02109
Eaton Vance Strategic Income Fund
24 Federal 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.
- --------------------------------------------------------------------------------
SISRC-6/98
