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[LOGO]
[PHOTO]
SEMIANNUAL REPORT SEPTEMBER 30, 1999
EATON VANCE
HIGH INCOME
FUND
Global Management-Global Distribution
[PHOTO]
<PAGE>
EATON VANCE HIGH INCOME FUND AS OF SEPTEMBER 30, 1999
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INVESTMENT UPDATE
[PHOTO]
MICHAEL W. WEILHEIMER
PORTFOLIO MANAGER
INVESTMENT ENVIRONMENT
- --------------------------
- - Despite weaker demand from Asia, the U.S. economy has remained robust in 1999.
Ever-vigilant against inflation, the Federal Reserve twice elected to raise
its Federal Funds rate. Ten-year Treasury bond yields rose from 5.24% at
March 31, 1999 to 5.88% by September 30, 1999.
- - Recovering from last year's flight to quality, B-rated bonds presented good
opportunities in the high-yield sector. That segment of the market was beaten
down during last year's pullback.
- - During the summer months, quality spreads - the yield differential between
bonds of varying quality - reached as high as 650 basis points (6.5%) over
Treasury yields, the widest they have been since 1991 and an indication of
value in the high-yield market.
THE FUND
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PERFORMANCE FOR THE PAST SIX MONTHS
- - During the six months ended September 30, 1999, the Fund's Class B shares had
a total return of 0.48%. This return resulted from a decline in net asset
value (NAV) to $7.21 per share on September 30, 1999 from $7.51 on March 31,
1999 and the reinvestment of $0.341 in dividends.(1)
- - The Fund's Class C shares had a total return of 0.40% during the period, the
result of a decline in NAV to $9.48 per share from $9.88 per share and the
reinvestment of $0.445 in dividends.(1)
- - Based on the Fund's most recent distributions and NAVs on September 30, 1999
of $7.21 per share for Class B and $9.48 for Class C, the Class B and Class C
distribution rates were 9.57% and 9.49%, respectively.(2) The SEC30-day yields
for Class B and C shares at September 30, 1999 were 9.26% and 9.24%,
respectively.(3)
- - The CS First Boston High Yield Bond Index had a total return of -1.04% during
the six-month period.(4)
RECENT PORTFOLIO DEVELOPMENTS
- - The Fund's Class B and Class C shares outperformed their peer group averages
during the six months ended September 30, 1999, according to Lipper, Inc., a
nationally recognized monitor of mutual fund performance. The average return
of funds in the High Yield Fund category was -0.87% during the period.(5)
- - Communications and cable companies remained the Portfolio's largest industry
weightings at September 30, 1999. Nextel Communications, Inc., the Portfolio's
largest holding, provides a wide range of digital wireless services, including
cellular, voice mail and paging.
- - In Europe, the Portfolio had a position in Esat Telecom Group PLC, a telecom
provider in Ireland. A leader in fixed-line services, Esat has a 50% ownership
in Esat Digifone, a wireless service provider, and is nearing completion of
its own fiber optic network. The company registered 68% growth in its
corporate customer base in the third quarter of 1999.
- - Among the Portfolio's cable holdings, NTL, Inc. is the largest provider of
cable service in the U.K. In March, the company began an interactive service
that will enable users to shop, send E-mail and conduct financial transactions
through their televisions. The service is expected in coming years to spur
growth in electronic commerce in the U.K. and Europe. Reflecting a strong
interest in the technology, France Telecom and Microsoft have each purchased a
stake in NTL.
- - The Portfolio found some unusual opportunities among casino operators, which
have generated very consistent revenue growth in recent years. The industry's
competitive environment has improved due to a decline in new licensing and
construction. The Portfolio focused on companies such as Hollywood Park, Inc.,
which have avoided Las Vegas and Atlantic City in favor of newer gaming
markets in the midwest and Gulf Coast.
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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.
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FUND INFORMATION
AS OF SEPTEMBER 30, 1999
<TABLE>
<CAPTION>
PERFORMANCE(6) Class B Class C
Average Annual Total Returns (at net asset value)
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<S> <C> <C>
One Year 10.28% 10.26%
Five Years 9.96 9.72
Ten Years 9.08 N.A.
Life of Fund+ 8.96 8.87
<CAPTION>
SEC Average Annual Total Returns (including sales charge or applicable CDSC)
- --------------------------------------------------------------------------------
<S> <C> <C>
One Year 5.28% 9.26%
Five Years 9.69 9.72
Ten Years 9.08 N.A.
Life of Fund+ 8.96 8.87
</TABLE>
+Inception dates: Class B: 8/19/86; Class C: 6/8/94
<TABLE>
TEN LARGEST HOLDINGS(7) By total net assets
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<S> <C>
Nextel Communications 2.6%
PSINet, Inc. 2.4
NTL, Inc. 2.4
Versatel Telecom 2.2
Ono Finance PLC 1.5
Lyondell Chemical Corp. 1.4
MGC Communications, Inc. 1.4
Williams Communications Corp. 1.4
Regal Cinemas, Inc. 1.4
Telewest Communications Corp. 1.3
</TABLE>
(1) Return does not reflect applicable contingent deferred sales charge (CDSC).
(2) The Fund's distribution rate represents actual distributions paid to
shareholders and is calculated by dividing the last distribution per share
(annualized) by the net asset value. (3) The Fund's SEC yield is calculated by
dividing the net investment income per share for the 30-day period by the
offering price at the end of the period and annualizing the result. (4) It is
not possible to invest directly in an Index. (5) It is not possible to invest
directly in a Lipper fund category. (6) Returns are calculated by determining
the percentage change in net asset value with all distributions reinvested.
Class B SEC returns reflect applicable CDSC based on following schedule:
5% - 1st year; 5% - 2nd year; 4% - 3rd year; 3% - 4th year; 2% - 5th year;
1% - 6th year. Class C 1-year return reflects 1% CDSC. (7) Ten largest holdings
represent 18.0% of the Portfolio's investments, determined by dividing the total
market value of the holdings by the Portfolio's total net assets. Holdings are
subject to change.
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 HIGH INCOME FUND AS OF SEPTEMBER 30, 1999
FINANCIAL STATEMENTS (UNAUDITED)
STATEMENT OF ASSETS AND LIABILITIES
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30, 1999
<S> <C>
Assets
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Investment in Portfolio, at value
(identified cost, $827,343,522) $791,012,964
Receivable for Fund shares sold 2,783,483
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TOTAL ASSETS $793,796,447
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Liabilities
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Dividends payable $ 2,924,723
Payable for Fund shares redeemed 2,063,478
Payable to affiliate for Trustees' fees 423
Accrued expenses 605,807
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TOTAL LIABILITIES $ 5,594,431
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NET ASSETS $788,202,016
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Sources of Net Assets
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Paid-in capital $858,556,188
Accumulated net realized loss from
Portfolio (computed on the basis of
identified cost) (37,197,195)
Accumulated undistributed net investment
income 3,173,581
Net unrealized depreciation from
Portfolio (computed on the basis of
identified cost) (36,330,558)
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TOTAL $788,202,016
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Class B Shares
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NET ASSETS $701,555,765
SHARES OUTSTANDING 97,340,123
NET ASSET VALUE, OFFERING PRICE AND
REDEMPTION PRICE PER SHARE
(net assets DIVIDED BY shares of
beneficial interest outstanding) $ 7.21
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Class C Shares
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NET ASSETS $ 86,646,251
SHARES OUTSTANDING 9,144,199
NET ASSET VALUE, OFFERING PRICE AND
REDEMPTION PRICE PER SHARE
(net assets DIVIDED BY shares of
beneficial interest outstanding) $ 9.48
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</TABLE>
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDED
SEPTEMBER 30, 1999
<S> <C>
Investment Income
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Interest allocated from Portfolio $ 37,856,413
Dividends allocated from Portfolio 3,906,958
Miscellaneous income allocated from
Portfolio 293,363
Expenses allocated from Portfolio (2,482,188)
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NET INVESTMENT INCOME FROM PORTFOLIO $ 39,574,546
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Expenses
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Trustees fees and expenses $ 2,903
Distribution and service fees
Class B 3,374,138
Class C 366,484
Transfer and dividend disbursing agent
fees 438,063
Printing and postage 51,296
Registration fees 42,716
Legal and accounting services 17,038
Custodian fee 15,134
Miscellaneous 25,348
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TOTAL EXPENSES $ 4,333,120
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NET INVESTMENT INCOME $ 35,241,426
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Realized and Unrealized
Gain (Loss) from Portfolio
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Net realized gain (loss) --
Investment transactions (identified
cost basis) $ 5,298,912
Foreign currency and forward foreign
currency exchange contract
transactions 264,223
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NET REALIZED GAIN $ 5,563,135
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Change in unrealized appreciation
(depreciation) --
Investments (identified cost basis) $(37,693,582)
Foreign currency and forward foreign
currency exchange contracts (486,991)
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NET CHANGE IN UNREALIZED APPRECIATION
(DEPRECIATION) $(38,180,573)
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NET REALIZED AND UNREALIZED LOSS $(32,617,438)
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NET INCREASE IN NET ASSETS FROM
OPERATIONS $ 2,623,988
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</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
3
<PAGE>
EATON VANCE HIGH INCOME FUND AS OF SEPTEMBER 30, 1999
FINANCIAL STATEMENTS CONT'D
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
SIX MONTHS ENDED
Increase (Decrease) SEPTEMBER 30, 1999 YEAR ENDED
in Net Assets (UNAUDITED) MARCH 31, 1999
<S> <C> <C>
- ----------------------------------------------------------------------------
From operations --
Net investment income $ 35,241,426 $ 64,032,525
Net realized gain (loss) 5,563,135 (5,306,735)
Net change in unrealized
appreciation (depreciation) (38,180,573) (42,231,862)
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NET INCREASE IN NET ASSETS FROM
OPERATIONS $ 2,623,988 $ 16,493,928
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Distributions to shareholders --
From net investment income
Class B $ (32,016,624) $ (57,887,205)
Class C (3,308,788) (3,801,298)
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TOTAL DISTRIBUTIONS TO SHAREHOLDERS $ (35,325,412) $ (61,688,503)
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Transactions in shares of beneficial
interest
Proceeds from sale of shares
Class B $ 111,409,328 $ 170,794,418
Class C 46,657,807 54,928,047
Issued in reorganization of EV
Classic High Income Fund
Class C -- 33,094,017
Net asset value of shares issued to
shareholders in payment of
distributions declared
Class B 9,811,192 18,897,976
Class C 1,592,204 2,251,108
Cost of shares redeemed
Class B (79,442,749) (151,322,234)
Class C (19,924,242) (26,466,468)
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NET INCREASE IN NET ASSETS FROM FUND
SHARE TRANSACTIONS $ 70,103,540 $ 102,176,864
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NET INCREASE IN NET ASSETS $ 37,402,116 $ 56,982,289
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Net Assets
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At beginning of period $ 750,799,900 $ 693,817,611
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AT END OF PERIOD $ 788,202,016 $ 750,799,900
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Accumulated undistributed
net investment income
included in net assets
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AT END OF PERIOD $ 3,173,581 $ 3,257,567
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</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
4
<PAGE>
EATON VANCE HIGH INCOME FUND AS OF SEPTEMBER 30, 1999
FINANCIAL STATEMENTS CONT'D
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
CLASS B
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SIX MONTHS ENDED YEAR ENDED MARCH 31,
SEPTEMBER 30, 1999 ------------------------------------------------
(UNAUDITED) 1999 1998 1997 1996 1995
<S> <C> <C> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------
Net asset value -- Beginning
of period $ 7.510 $ 8.030 $ 7.220 $ 7.100 $ 6.920 $ 7.450
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Income (loss) from operations
- ----------------------------------------------------------------------------------------------------
Net investment income $ 0.337 $ 0.685 $ 0.658 $ 0.652 $ 0.665 $ 0.671
Net realized and unrealized
gain (loss) (0.297) (0.543) 0.774 0.120 0.189 (0.507)
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TOTAL INCOME FROM OPERATIONS $ 0.040 $ 0.142 $ 1.432 $ 0.772 $ 0.854 $ 0.164
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Less distributions
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From net investment income $ (0.340) $(0.662) $(0.622) $(0.646) $(0.665) $ (0.671)
In excess of net investment
income -- -- -- (0.006) (0.009) (0.023)
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TOTAL DISTRIBUTIONS $ (0.340) $(0.662) $(0.622) $(0.652) $(0.674) $ (0.694)
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NET ASSET VALUE -- END OF
PERIOD $ 7.210 $ 7.510 $ 8.030 $ 7.220 $ 7.100 $ 6.920
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TOTAL RETURN(1) 0.48% 2.08% 20.59% 11.37% 12.80% 2.51%
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Ratios/Supplemental Data
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Net assets, end of period
(000's omitted) $701,556 $689,140 $693,818 $598,273 $496,966 $439,171
Ratios (As a percentage of
average daily net assets):
Expenses(2) 1.75%(3) 1.75% 1.73% 1.77% 1.78% 1.78%
Net investment income 9.07%(3) 9.13% 8.58% 8.97% 9.38% 9.52%
Portfolio Turnover of the
Portfolio 55% 105% 137% 78% 88% 11%
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</TABLE>
(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
reinvested at the net asset value on the reinvestment date. Total return is
not computed on an annualized basis.
(2) Includes the Fund's share of the Portfolio's allocated expenses.
(3) Annualized.
SEE NOTES TO FINANCIAL STATEMENTS
5
<PAGE>
EATON VANCE HIGH INCOME FUND AS OF SEPTEMBER 30, 1999
FINANCIAL STATEMENTS CONT'D
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
CLASS C
----------------------------------------
SIX MONTHS ENDED YEAR ENDED MARCH 31,
SEPTEMBER 30, 1999 --------------------
(UNAUDITED) 1999
<S> <C> <C>
- ------------------------------------------------------------------------
Net asset value -- Beginning
of period $ 9.880 $10.560
- ------------------------------------------------------------------------
Income (loss) from operations
- ------------------------------------------------------------------------
Net investment income $ 0.433 $ 0.901
Net realized and unrealized
loss (0.389) (0.715)
- ------------------------------------------------------------------------
TOTAL INCOME FROM OPERATIONS $ 0.044 $ 0.186
- ------------------------------------------------------------------------
Less distributions
- ------------------------------------------------------------------------
From net investment income $(0.444) $(0.866)
- ------------------------------------------------------------------------
TOTAL DISTRIBUTIONS $(0.444) $(0.866)
- ------------------------------------------------------------------------
NET ASSET VALUE -- END OF
PERIOD $ 9.480 $ 9.880
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TOTAL RETURN(1) 0.40% 2.08%
- ------------------------------------------------------------------------
Ratios/Supplemental Data
- ------------------------------------------------------------------------
Net assets, end of period
(000's omitted) $86,646 $61,660
Ratios (As a percentage of
average daily net assets):
Expenses(2) 1.79%(3) 1.79%
Net investment income 8.93%(3) 9.18%
Portfolio Turnover of the
Portfolio 55% 105%
- ------------------------------------------------------------------------
</TABLE>
(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
reinvested at the net asset value on the reinvestment date. Total return is
not computed on an annualized basis.
(2) Includes the Fund's share of the Portfolio's allocated expenses.
(3) Annualized.
SEE NOTES TO FINANCIAL STATEMENTS
6
<PAGE>
EATON VANCE HIGH INCOME FUND AS OF SEPTEMBER 30, 1999
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
1 Significant Accounting Policies
- -------------------------------------------
Eaton Vance High Income Fund (the Fund) is a diversified series of Eaton
Vance Mutual Funds Trust (the Trust). The Trust is an entity of the type
commonly known as a Massachusetts business trust and is registered under the
Investment Company Act of 1940, as amended, as an open-end, management
investment company. The Fund offers two classes of shares. Class B shares and
Class C shares are sold at net asset value and are subject to a contingent
deferred sales charge (see Note 6). Each class represents a pro rata interest
in the Fund, but votes separately on class-specific matters and (as noted
below) is subject to different expenses. Realized and unrealized gains and
losses 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. Net investment
income, other than class specific expenses, is allocated daily to each class
of shares based upon the ratio of the value of each class' paid shares to the
total value of all paid shares. Each class of shares differs in its
distribution plan and certain other class specific expenses. The Fund invests
all of its investable assets in interests in the High Income Portfolio (the
Portfolio), a New York Trust, having the same investment objective as the
Fund. The value of the Fund's investment in the Portfolio reflects the Fund's
proportionate interest in the net assets of the Portfolio (73.3% at
September 30, 1999). 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 Valuations -- Valuation of securities by the Portfolio is
discussed in Note 1A 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 accounting
principles generally accepted in the United States of America.
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 March 31, 1999, the Fund, for federal
income tax purposes, had a capital loss carryover of $40,459,481, which will
reduce the Fund's taxable income arising from future net realized gain on
investments, if any, to the extent permitted by the Internal Revenue Code and
thus will reduce the amount of distributions to shareholders which would
otherwise be necessary to relieve the Fund of any liability for federal
income or excise tax. Such capital loss carryover will expire on March 31,
2000 ($11,538,107), 2003 ($12,690,352), 2004 ($5,868,015), 2005 ($7,020,394)
and 2007 ($3,342,613), respectively. At March 31, 1999, net capital losses of
$1,770,175 attributable to security transactions incurred after October 31,
1998 are treated as arising on the first day of the Fund's next taxable year.
D Other -- Investment transactions are accounted for on a trade-date basis.
E Use of Estimates -- The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities at the date of the financial statements and the reported amounts
of revenue and expense during the reporting period. Actual results could
differ from those estimates.
F Interim Financial Statements -- The interim financial statements relating to
September 30, 1999 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. Such daily dividends are paid monthly.
Distributions of realized capital gains, if any, are made at least annually.
Shareholders may reinvest capital gain distributions in additional shares of
the Fund at the net asset value as of the ex-dividend date. Distributions are
paid in the form of additional shares of the Fund or, at the election of the
shareholder, in cash. The Fund distinguishes between distributions on a tax
basis and a financial reporting basis. Generally accepted accounting
principles
7
<PAGE>
EATON VANCE HIGH INCOME FUND AS OF SEPTEMBER 30, 1999
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) CONT'D
require that only distributions in excess of tax basis earnings and profits
be reported in the financial statements as a return of capital. Differences
in the recognition or classification of income between the financial
statements and tax earnings and profits which result in over distributions
for financial statement purposes only are classified as distributions in
excess of net investment income or accumulated net realized gains.
Permanent differences between book and tax accounting relating to
distributions are reclassified to paid-in capital.
3 Shares of Beneficial Interest
- -------------------------------------------
The Declaration of Trust permits the Trustees to issue an unlimited number of
full and fractional shares of beneficial interest (without par value). Such
shares may be issued in a number of different series (such as the Fund) and
classes. Transactions in Fund shares were as follows:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
SEPTEMBER 30, 1999 YEAR ENDED
CLASS B (UNAUDITED) MARCH 31, 1999
<S> <C> <C>
----------------------------------------------------------------------------
Sales 14,968,018 22,874,813
Issued to shareholders electing to
receive payments of distributions in
Fund shares 1,316,162 2,521,238
Redemptions (10,663,581) (20,058,915)
----------------------------------------------------------------------------
NET INCREASE 5,620,599 5,337,136
----------------------------------------------------------------------------
<CAPTION>
SIX MONTHS ENDED
SEPTEMBER 30, 1999 YEAR ENDED
CLASS C (UNAUDITED) MARCH 31, 1999
----------------------------------------------------------------------------
<S> <C> <C>
Sales 4,768,847 5,574,324
Issued to shareholders electing to
receive payments of distributions in
Fund shares 162,860 228,574
Redemptions (2,029,283) (2,696,157)
Issued to EV Classic High Income Fund
Shareholders -- 3,135,034
----------------------------------------------------------------------------
NET INCREASE 2,902,424 6,241,775
----------------------------------------------------------------------------
</TABLE>
4 Transactions with Affiliates
- -------------------------------------------
Eaton Vance Management (EVM) serves as the administrator of the Fund, but
receives no compensation. The Portfolio has engaged Boston Management and
Research (BMR), a subsidiary of EVM, to render investment advisory services.
See Note 2 of the Portfolio's Notes to Financial Statements which are
included elsewhere in this report. Except as to Trustees of the Fund and the
Portfolio who are not members of EVM's or BMR's organization, officers and
Trustees receive remuneration for their services to the Fund out of such
investment adviser fee.
Certain officers and Trustees of the Fund and of the Portfolio are officers
of the above organizations.
5 Distribution and Service Plans
- -------------------------------------------
The Fund has in effect distribution plans for Class B (the Class B Plan) and
Class C (the Class C Plan) pursuant to Rule 12b-1 under the Investment
Company Act of 1940 (collectively, the Plans). 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 daily net assets attributable to both
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) 5% and 6.25% of
the aggregate amount received by the Fund for the Class B and Class C shares
sold, respectively, plus, (ii) interest 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
$2,636,055 and $274,863 for Class B and Class C shares, respectively, to EVD
for the six months ended September 30, 1999, representing 0.75% (annualized)
of average daily net assets for Class B and Class C shares. At September 30,
1999 the amount of Uncovered Distribution Charges of EVD calculated under the
Plan was approximately $20,857,000 and $6,884,000 for Class B and Class C
shares, respectively.
The Plans also authorize the Fund to make payments of service fees to EVD,
investment dealers and other persons in amounts not exceeding 0.25% of the
Fund's average daily net assets attributable to Class B and Class C shares
for each fiscal year. The Trustees initially implemented the Plans by
authorizing the Fund to make quarterly payments of service fees to EVD and
investment dealers equal to 0.25% per annum of the Fund's average daily net
assets attributable to Class B shares based on the value of Fund shares sold
by such persons and remaining outstanding for at least one year. On
October 4, 1999, the Trustees approved service fee payments equal to 0.25%
per annum on the Fund's average daily net assets attributed to Class B
8
<PAGE>
EATON VANCE HIGH INCOME FUND AS OF SEPTEMBER 30, 1999
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) CONT'D
shares for any fiscal year on shares of the Fund sold on or after
October 12, 1999. The Class C plan requires the Fund to make monthly payments
of service fees in amounts not expected to exceed 0.25% per annum of the
Fund's average daily net assets attributable to Class C shares. Service fee
payments for the six months ended September 30, 1999 amounted to $738,083 and
$91,621 for Class B and Class C, respectively. Service fee payments are made
for personal services and/or the maintenance of shareholder accounts. Service
fees paid to EVD and investment dealers 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 where there are no
outstanding Uncovered Distribution Charges of EVD.
Certain officers and Trustees of the Fund are officers or directors of EVD.
6 Contingent Deferred Sales Charge
- -------------------------------------------
A contingent deferred sales charge (CDSC) generally is imposed on redemptions
of Class B shares made within six 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 gains distributions. Class B CDSC is
imposed at declining rates that begin at 5% in the case of redemptions in the
first and second year after purchase, declining one percentage point each
subsequent year. No CDSC is levied on shares which have been sold to EVM or
its affiliates or to their respective employees or clients and may be waived
under certain other limited conditions. 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 retained by the Fund. EVD received
approximately $761,000 and $11,000 of CDSC paid by shareholders for Class B
shares and Class C shares, respectively, for the six months ended
September 30, 1999.
7 Investment Transactions
- -------------------------------------------
Increases and decreases in the Fund's investment in the Portfolio for the six
months ended September 30, 1999, aggregated $159,573,833 and $128,600,966,
respectively.
8 Transfer of Net Assets
- -------------------------------------------
On April 1, 1998, EV Marathon High Income Fund acquired the net assets of the
EV Classic High Income Fund pursuant to an Agreement and Plan of
Reorganization dated June 23, 1997. In accordance with the agreement, EV
Marathon High Income Fund, at the closing, issued 3,135,034 Class C shares of
the Fund having an aggregate value of $33,094,017. As a result, the Fund
issued one Class C share for each share of EV Classic High Income Fund. The
transaction was structured for tax purposes to qualify as a tax free
reorganization under the Internal Revenue Code. The EV Classic High Income
Fund's net assets at the date of the transaction were $33,094,017, including
$1,444,205 of unrealized appreciation. Directly after the merger, the
combined net assets of the Eaton Vance High Income Fund (formerly EV Marathon
High Income Fund) were $726,911,628 with a net asset value of $8.03 and
$10.56 for Class B shares and Class C shares, respectively.
9
<PAGE>
HIGH INCOME PORTFOLIO AS OF SEPTEMBER 30, 1999
PORTFOLIO OF INVESTMENTS (UNAUDITED)
(EXPRESSED IN UNITED STATES DOLLARS)
<TABLE>
<CAPTION>
CORPORATE BONDS & NOTES -- 84.9%
PRINCIPAL
AMOUNT
SECURITY (000'S OMITTED) VALUE
<S> <C> <C> <C>
- -------------------------------------------------------------------------------
Aerospace and Defense -- 0.7%
- -------------------------------------------------------------------------------
Dunlop Stand Aero Holdings, Sr. Notes,
11.875%, 5/15/09(1) $ 3,900 $ 3,939,000
Transdigm, Inc., 10.375%, 12/1/08 3,700 3,570,500
- -------------------------------------------------------------------------------
$ 7,509,500
- -------------------------------------------------------------------------------
Apparel -- 0.6%
- -------------------------------------------------------------------------------
William Carter Co., Sr. Sub. Notes,
10.375%, 12/1/06 $ 6,275 $ 6,180,875
- -------------------------------------------------------------------------------
$ 6,180,875
- -------------------------------------------------------------------------------
Auto and Parts -- 1.4%
- -------------------------------------------------------------------------------
Dura Operating Corp., Sr. Sub. Notes,
9.00%, 5/1/09(1) EUR 8,000 $ 7,969,192
JL French Automotive Casting, Sr. Sub.
Notes, 11.50%, 6/1/09(1) $ 6,225 6,178,312
Talon Automotive Group, Sr. Sub. Notes,
9.625%, 5/1/08 1,100 937,750
- -------------------------------------------------------------------------------
$ 15,085,254
- -------------------------------------------------------------------------------
Broadcasting and Cable -- 10.8%
- -------------------------------------------------------------------------------
ACME Television Services, Inc., 10.875%
(0% until 2000), 9/30/04 $ 2,250 $ 1,946,250
Avalon Cable Holdings, LLC, Sr. Disc.
Notes, 11.875% (0% until 2003), 12/1/08 11,400 7,353,000
Avalon Cable of Michigan LLC, Sr. Sub
Notes, 9.375%, 12/1/08 1,600 1,608,000
Charter Communication Holdings LLC, Sr.
Notes, 8.625% (0% until 2009), 4/1/09(1) 1,600 1,520,000
Charter Communication, Sr. Disc. Notes,
9.92% (0% until 2004), 4/1/11(1) 16,800 10,080,000
Diamond Cable Communications Co., Sr.
Disc. Notes, 11.75% (0% until 2000),
12/15/05 3,000 2,692,500
Digital Television Services, Inc.,
Guaranteed Notes, 12.50%, 8/1/07 6,410 6,762,550
Golden Sky Systems, 12.375%, 8/1/06 5,240 5,606,800
Golden Sky Systems, Sr. Disc. Notes,
13.50% (0% until 2004), 3/1/07(1) 11,445 6,437,812
Muzak Holdings LLC, Sr. Disc. Notes,
13.00% (0% until 2004), 3/15/10(1) 6,563 3,740,910
Muzak Holdings LLC, Sr. Sub. Notes,
9.875%, 3/15/09(1) 4,400 4,202,000
PRINCIPAL
AMOUNT
SECURITY (000'S OMITTED) VALUE
<S> <C> <C> <C>
- -------------------------------------------------------------------------------
Broadcasting and Cable (continued)
- -------------------------------------------------------------------------------
NTL, Inc., Sr. Notes, 10.00%, 2/15/07 $ 7,080 $ 7,248,150
NTL, Inc., Sr. Notes, 11.50%, 10/1/08 11,600 12,470,000
NTL, Inc., Sr. Notes, 12.375% (0%
until 2003), 10/1/08 4,900 3,344,250
Ono Finance PLC, 13.00%, 5/1/09(1) EUR 10,887 11,404,132
Ono Finance PLC, 13.00%, 5/1/09(1) EUR 3,800 4,169,976
RCN Corp., Sr. Disc. Notes, 9.80% (0%
until 2003), 2/15/08 2,250 1,355,625
Telemundo Holdings, Inc., Sr. Disc.
Notes, 11.50% (0% until 2003), 8/15/08 9,050 5,282,937
Telewest Communication PLC, 9.875% (0%
until 2004), 4/15/09(1) GBP 2,000 2,041,908
Telewest Communication PLC, Debs.,
9.625%, 10/1/06 640 648,000
Telewest Communication PLC, Debs.,
11.00% (0% until 2000), 10/1/07 10,190 9,094,575
Telewest Communication PLC, Sr. Disc.
Notes, 9.25% (0% until 2004), 4/15/09 3,600 2,196,000
United International Holdings, Inc., Sr.
Disc. Notes, 10.75% (0% until 2003),
2/15/08 7,935 4,840,350
- -------------------------------------------------------------------------------
$ 116,045,725
- -------------------------------------------------------------------------------
Business Services - Miscellaneous -- 4.0%
- -------------------------------------------------------------------------------
Allied Waste, Sr. Sub Notes,
10.00%, 8/1/09(1) $ 11,600 $ 10,672,000
AP Holdings, Inc., Sr. Disc. Notes,
11.25% (0% until 2003), 3/15/08 8,550 4,339,125
Apcoa, Inc., Guaranteed Sr. Sub. Notes,
9.25%, 3/15/08 3,320 2,846,900
Cybernet Internet Service,
14.00%, 7/1/09(1) 3,200 3,216,000
Federal Data Corp., Sr. Sub. Notes,
10.125%, 8/1/05 4,740 3,910,500
Intertek Finance PLC, Sr. Sub. Notes,
10.25%, 11/1/06 5,600 5,180,000
Richmont Marketing Specialists,
10.125%, 12/15/07(1) 17,770 13,460,775
- -------------------------------------------------------------------------------
$ 43,625,300
- -------------------------------------------------------------------------------
Business Services - Rental & Leasing -- 3.2%
- -------------------------------------------------------------------------------
Anthony Crane Rental LP, Guaranteed Sr.
Notes, 10.375%, 8/1/08 $ 4,000 $ 3,600,000
NationsRent, Inc., Guaranteed Sr. Sub.
Notes, 10.375%, 12/15/08 7,200 7,146,000
Neff Corp., 10.25%, 6/1/08 4,050 4,029,750
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
10
<PAGE>
HIGH INCOME PORTFOLIO AS OF SEPTEMBER 30, 1999
PORTFOLIO OF INVESTMENTS (UNAUDITED) CONT'D
(EXPRESSED IN UNITED STATES DOLLARS)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
SECURITY (000'S OMITTED) VALUE
<S> <C> <C> <C>
- -------------------------------------------------------------------------------
Business Services - Rental & Leasing (continued)
- -------------------------------------------------------------------------------
Neff Corp., Guaranteed Sr. Sub. Notes,
10.25%, 6/1/08 $ 6,150 $ 6,119,250
SBA Communications Corp., Sr. Disc.
Notes, 12.00% (0% to 2003), 3/1/08 4,350 2,349,000
Spectrasite Holdings, Inc., Sr. Disc.
Notes, 11.25% (0% until 2004),
4/15/09(1) 2,900 1,450,000
Spectrasite Holdings, Inc., Sr. Disc.
Notes, 12.00% (0% until 2003), 7/15/08 7,100 4,011,500
Unisite, Inc., Sub. Notes, 13.00% (0%
until 2000), 12/15/04(1) 4,500 5,644,800
- -------------------------------------------------------------------------------
$ 34,350,300
- -------------------------------------------------------------------------------
Cable - Telecommunications -- 0.3%
- -------------------------------------------------------------------------------
United Pan-Europe, Sr. Disc. Notes,
12.50% (0% until 2004), 8/1/09(1) $ 5,400 $ 3,064,500
- -------------------------------------------------------------------------------
$ 3,064,500
- -------------------------------------------------------------------------------
Chemicals -- 1.5%
- -------------------------------------------------------------------------------
Huntsman Corp., Sr. Sub. Notes,
9.50%, 7/1/07 $ 1,000 $ 942,500
Lyondell Chemical Co., 9.625%, 5/1/07 4,000 3,990,000
Lyondell Chemical Co., Sr. Sub. Notes,
10.875%, 5/1/09 11,350 11,463,500
- -------------------------------------------------------------------------------
$ 16,396,000
- -------------------------------------------------------------------------------
Consumer Products -- 1.3%
- -------------------------------------------------------------------------------
Amscan Holdings, Inc., Sr. Sub. Notes,
9.875%, 12/15/07 $ 4,480 $ 3,516,800
Glenoit Corp., Sr. Sub. Notes,
11.00%, 4/15/07 9,000 5,895,000
Icon Health and Fitness, Inc.,
12.00%, 9/27/05(1) 1,421 781,443
Jafra Cosmetics International, Inc.,
Guaranteed Sr. Sub. Notes,
11.75%, 5/1/08 4,000 3,460,000
- -------------------------------------------------------------------------------
$ 13,653,243
- -------------------------------------------------------------------------------
Containers and Packaging -- 0.6%
- -------------------------------------------------------------------------------
Consolidated Container Co. LLC, Sr. Sub.
Notes, 10.125%, 7/15/09(1) $ 3,200 $ 3,232,000
Consumers International, Inc., Sr.
Notes, 10.25%, 4/1/05 3,935 3,757,925
- -------------------------------------------------------------------------------
$ 6,989,925
- -------------------------------------------------------------------------------
PRINCIPAL
AMOUNT
SECURITY (000'S OMITTED) VALUE
<S> <C> <C> <C>
- -------------------------------------------------------------------------------
Drugs -- 0.8%
- -------------------------------------------------------------------------------
Biovail Corp., Sr. Notes,
10.875%, 11/15/05 $ 3,550 $ 3,683,125
King Pharmaceutical, Inc.,
10.75%, 2/15/09 5,000 5,175,000
- -------------------------------------------------------------------------------
$ 8,858,125
- -------------------------------------------------------------------------------
Electronic Equipment -- 2.6%
- -------------------------------------------------------------------------------
Amkor Technologies, Inc., Sr. Notes,
9.25%, 5/1/06(1) $ 400 $ 399,000
Amkor Technologies, Inc., Sr. Sub Notes,
10.50%, 5/1/09(1) 10,300 10,068,250
Jordan Telecom Products, Inc., Sr. Disc.
Notes, 11.75% (0% until 2000), 8/1/07 9,565 8,130,250
Viasystems, Inc., Sr. Sub. Notes,
9.75%, 6/1/07 3,600 3,114,000
Viasystems, Inc., Sr. Sub. Notes, Series
B, 9.75%, 6/1/07 3,565 3,083,725
Wavetek Corp., Sr. Sub. Notes,
10.125%, 6/15/07 3,360 2,839,200
- -------------------------------------------------------------------------------
$ 27,634,425
- -------------------------------------------------------------------------------
Entertainment -- 3.0%
- -------------------------------------------------------------------------------
Loews Cineplex Entertainment Corp., Sr.
Sub. Notes, 8.875%, 8/1/08 $ 1,000 $ 900,000
Marvel Enterprise, Inc.,
12.00%, 6/15/09 10,100 9,241,500
Premier Parks, Inc., Sr. Disc. Notes,
10.00% (0% until 2003), 4/1/08 5,100 3,264,000
Premier Parks, Inc., Sr. Notes,
9.75%, 6/15/07 4,250 4,143,750
Regal Cinemas, Inc., Sr. Sub. Notes,
8.875%, 12/15/10 10,905 7,251,825
Regal Cinemas, Inc., Sr. Sub. Notes,
9.50%, 6/1/08 10,925 7,483,625
- -------------------------------------------------------------------------------
$ 32,284,700
- -------------------------------------------------------------------------------
Financial Services -- 0.5%
- -------------------------------------------------------------------------------
Willis Corroon Corp., 9.00%, 2/1/09 $ 6,400 $ 5,792,000
- -------------------------------------------------------------------------------
$ 5,792,000
- -------------------------------------------------------------------------------
Foods -- 4.3%
- -------------------------------------------------------------------------------
B & G Foods, Inc., Sub. Notes,
9.625%, 8/1/07 $ 7,445 $ 6,737,725
Cott Corp., Sr. Notes, 8.50%, 5/1/07 3,950 3,693,250
Del Monte Corp., Sr. Notes,
12.25%, 4/15/07 9,979 10,927,005
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
11
<PAGE>
HIGH INCOME PORTFOLIO AS OF SEPTEMBER 30, 1999
PORTFOLIO OF INVESTMENTS (UNAUDITED) CONT'D
(EXPRESSED IN UNITED STATES DOLLARS)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
SECURITY (000'S OMITTED) VALUE
<S> <C> <C> <C>
- -------------------------------------------------------------------------------
Foods (continued)
- -------------------------------------------------------------------------------
Del Monte Foods Co., Sr. Disc. Notes,
12.50% (0% until 2002), 12/15/07 $ 3,515 $ 2,671,400
Eagle Family Foods, Inc., Guaranteed Sr.
Notes, 8.75%, 1/15/08 2,800 2,142,000
International Home Foods, Inc., Sr. Sub.
Notes, 10.375%, 11/1/06 9,000 9,202,500
Luigino's, Inc., Sr. Sub. Notes,
10.00%, 2/1/06 3,175 2,984,500
Premier International Foods, Sr. Notes,
12.00%, 9/1/09(1) 8,250 8,291,250
- -------------------------------------------------------------------------------
$ 46,649,630
- -------------------------------------------------------------------------------
Health Services -- 0.9%
- -------------------------------------------------------------------------------
Alliance Imaging, Sr. Sub Notes,
9.625%, 12/15/05 $ 2,700 $ 2,743,875
Lifepoint Hospital Holdings, Sr. Sub.
Notes, 10.75%, 5/15/09(1) 7,320 7,283,400
- -------------------------------------------------------------------------------
$ 10,027,275
- -------------------------------------------------------------------------------
Information Technology Services -- 7.4%
- -------------------------------------------------------------------------------
Covad Communication Group, Sr. Disc.
Notes, 13.50% (0% until 2003), 3/15/08 $ 3,250 $ 1,690,000
Diva Systems Corp., Sr. Notes, 12.625%
(0% until 2003), 3/1/08 9,000 2,835,000
Dolphin Telecom, Sr. Disc. Notes, 14.00%
(0% until 2004), 5/15/09(1) 13,375 5,550,625
Esprit Telecom Group PLC, Sr. Notes,
10.875%, 6/15/08 8,825 8,957,375
Exodus Communications, Inc., Sr. Notes,
11.25%, 7/1/08(1) 6,370 6,513,325
Exodus Communications, Inc., Sr. Notes,
11.25%, 7/1/08 6,965 7,121,712
IPC Information Systems, Sr. Disc.
Notes, 10.875% (0% until 2001), 5/1/08 7,000 5,293,750
PSINet, Inc., 11.00%, 8/1/09(1) EUR 3,000 3,100,314
PSINet, Inc., Sr. Notes,
11.00%, 8/1/09(1) 16,450 16,326,625
PSINet, Inc., Sr. Notes,
11.50%, 11/1/08 6,100 6,176,250
Verio, Inc., Sr. Notes, 11.25%, 12/1/08 12,390 12,730,725
Verio, Inc., Sr. Notes, 13.50%, 6/15/04 3,200 3,464,000
- -------------------------------------------------------------------------------
$ 79,759,701
- -------------------------------------------------------------------------------
PRINCIPAL
AMOUNT
SECURITY (000'S OMITTED) VALUE
<S> <C> <C> <C>
- -------------------------------------------------------------------------------
Lodging and Gaming -- 4.8%
- -------------------------------------------------------------------------------
Coast Hotels & Casino, Inc.,
9.50%, 4/1/09 $ 3,700 $ 3,496,500
HMH Properties, 7.875%, 8/1/08(1) 9,188 8,246,230
Hollywood Casino Corp., 11.25%, 5/1/07 9,100 9,191,000
Hollywood Casino Corp., First Mortgage
Bonds, 13.00%, 8/1/06(1) 8,150 8,435,250
Hollywood Park, Inc., Sr. Sub. Notes,
9.50%, 8/1/07 5,120 5,017,600
Majestic Star Casino LLC,
10.875%, 7/1/06(1) 7,000 6,895,000
Waterford Gaming LLC, Sr. Notes,
9.50%, 3/15/10(1) 10,447 10,185,825
- -------------------------------------------------------------------------------
$ 51,467,405
- -------------------------------------------------------------------------------
Manufacturing -- 1.2%
- -------------------------------------------------------------------------------
Cherokee International, Sr. Sub Notes,
10.50%, 5/1/09(1) $ 4,875 $ 4,509,375
High Voltage Engineering, Sr. Notes,
10.50%, 8/15/04 2,400 2,196,000
Roller Bearing Holdings Co., Sr. Disc.
Notes, 13.00% (0% until 2002),
6/15/09(1) 12,875 6,630,625
- -------------------------------------------------------------------------------
$ 13,336,000
- -------------------------------------------------------------------------------
Oil and Gas - Equipment and Services -- 1.3%
- -------------------------------------------------------------------------------
Grant Geophysical, Inc., Sr. Notes,
9.75%, 2/15/08 $ 4,000 $ 2,300,000
R&B Falcon Corp., 9.50%, 12/15/08 3,440 3,311,000
RBF Finance Co., 11.375%, 3/15/09 2,900 3,074,000
Universal Compression, Inc., Sr. Disc.
Notes, 9.875% (0% until 2003), 2/15/08 9,400 5,640,000
- -------------------------------------------------------------------------------
$ 14,325,000
- -------------------------------------------------------------------------------
Oil and Gas - Exploration and Production -- 2.8%
- -------------------------------------------------------------------------------
Chesapeake Energy Corp., 9.125%, 4/15/06 $ 4,000 $ 3,710,000
Chesapeake Energy Corp., Sr. Notes,
7.875%, 3/15/04 1,320 1,174,800
Chesapeake Energy Corp., Sr. Notes,
8.50%, 3/15/12 8,480 6,911,200
Comstock Resources, Inc., Sr. Notes,
11.25%, 5/1/07(1) 5,850 6,040,125
Energy Corp. of America, Sr. Sub. Notes,
9.50%, 5/15/07 2,340 2,108,925
Gothic Production Corp.,
11.125%, 5/1/05 4,800 4,152,000
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
12
<PAGE>
HIGH INCOME PORTFOLIO AS OF SEPTEMBER 30, 1999
PORTFOLIO OF INVESTMENTS (UNAUDITED) CONT'D
(EXPRESSED IN UNITED STATES DOLLARS)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
SECURITY (000'S OMITTED) VALUE
<S> <C> <C> <C>
- -------------------------------------------------------------------------------
Oil and Gas - Exploration and Production (continued)
- -------------------------------------------------------------------------------
Gulf Canada Resources, Ltd., Sr. Notes,
8.375%, 11/15/05 $ 2,200 $ 2,163,788
Plains Resources, Inc., Sr. Sub. Notes,
10.25%, 3/15/06(1) 3,750 3,806,250
- -------------------------------------------------------------------------------
$ 30,067,088
- -------------------------------------------------------------------------------
Oil and Gas - Refining -- 0.3%
- -------------------------------------------------------------------------------
Western Natural Gas, Sr. Sub. Notes,
10.00%, 6/15/09(1) $ 3,000 $ 3,082,500
- -------------------------------------------------------------------------------
$ 3,082,500
- -------------------------------------------------------------------------------
Paper and Forest Products -- 1.4%
- -------------------------------------------------------------------------------
Asia Pulp and Paper, Debs,
12.00%, 12/29/49 $ 6,000 $ 3,480,000
Indah Kiat Finance Mauritius, Sr. Unsec.
Notes, 10.00%, 7/1/07 3,400 1,904,000
Kappa Beheer BV, 12.50% (0%
until 2004), 7/15/09(1) EUR 7,500 4,434,728
Pindo Deli Finance Mauritius, Ltd.,
Guaranteed Sr. Notes, 10.75%, 10/1/07 2,400 1,302,000
Repap New Brunswick, Inc., Sr. Notes,
9.00%, 6/1/04 1,650 1,592,250
Tjiwi Kimia Finance Mauritus, Ltd.,
Guaranteed Sr. Sub. Notes,
10.00%, 8/1/04 3,800 2,099,500
- -------------------------------------------------------------------------------
$ 14,812,478
- -------------------------------------------------------------------------------
Printing and Business Products -- 1.4%
- -------------------------------------------------------------------------------
MDC Communications Corp., Sr. Sub.
Notes, 10.50%, 12/1/06 $ 15,600 $ 15,444,000
- -------------------------------------------------------------------------------
$ 15,444,000
- -------------------------------------------------------------------------------
Publishing -- 0.6%
- -------------------------------------------------------------------------------
American Lawyer Media Corp., Sr. Disc.
Notes, 12.25% (0% to 2002), 12/15/08 $ 2,920 $ 1,861,500
Von Hoffman Press, Inc., Sr. Sub. Notes,
10.875%, 5/15/07(1) 5,095 5,018,575
- -------------------------------------------------------------------------------
$ 6,880,075
- -------------------------------------------------------------------------------
Restaurants -- 0.3%
- -------------------------------------------------------------------------------
Sbarro, Inc., Sr. Notes,
11.00%, 9/15/09(1) $ 3,000 $ 2,961,540
- -------------------------------------------------------------------------------
$ 2,961,540
- -------------------------------------------------------------------------------
PRINCIPAL
AMOUNT
SECURITY (000'S OMITTED) VALUE
<S> <C> <C> <C>
- -------------------------------------------------------------------------------
Retail - Food and Drug -- 2.5%
- -------------------------------------------------------------------------------
AFC Enterprises, Inc., Sr. Sub Notes,
10.25%, 5/15/07 $ 9,600 $ 9,420,000
Pantry, Inc., Sr. Sub. Notes,
10.25%, 10/15/07 10,870 10,897,175
Star Markets Co., Sr. Sub. Notes,
13.00%, 11/1/04 6,200 6,665,000
- -------------------------------------------------------------------------------
$ 26,982,175
- -------------------------------------------------------------------------------
Retail - General -- 2.5%
- -------------------------------------------------------------------------------
Advance Holding Corp., Sr. Debs.,
12.875% (0% until 2003), 4/15/09 $ 4,000 $ 2,200,000
Advance Stores Co., Inc., Sr. Sub.
Notes, 10.25%, 4/15/08 8,400 7,854,000
Ames Department Stores, Sr. Notes,
10.00%, 4/15/06 4,825 4,716,438
Kindercare Learning Ctrs., Inc., Sr.
Sub. Notes, 9.50%, 2/15/09 8,100 7,634,250
SpinCycle, Inc., Sr. Disc. Notes, 12.75%
(0% until 2001), 5/1/05 3,400 535,500
Tuesday Morning Corp., Sr. Sub. Notes,
11.00%, 12/15/07 4,057 4,158,425
- -------------------------------------------------------------------------------
$ 27,098,613
- -------------------------------------------------------------------------------
Semiconductors -- 0.7%
- -------------------------------------------------------------------------------
Intersil Corp., 13.25%, 8/15/09(1) $ 1,250 $ 1,303,125
SCG Holding Corp., Sr. Sub. Notes,
12.00%, 8/1/09(1) 6,500 6,703,125
- -------------------------------------------------------------------------------
$ 8,006,250
- -------------------------------------------------------------------------------
Transportation -- 1.5%
- -------------------------------------------------------------------------------
Budget Group, Inc., Sr. Notes,
9.125%, 4/1/06 $ 7,760 $ 6,867,600
MTL, Inc., 10.498%, 6/15/06 1,600 1,416,000
Pacer International, Inc., Sr. Sub.
Notes, 11.75%, 6/1/07(1) 7,544 7,506,280
- -------------------------------------------------------------------------------
$ 15,789,880
- -------------------------------------------------------------------------------
Wireless Communication Services -- 5.9%
- -------------------------------------------------------------------------------
Airgate PCS, Inc., 13.50% (0%
until 2004), 10/1/09 $ 8,000 $ 4,340,000
Clearnet Communications, Sr. Disc.
Notes, 14.75% (0% until 2000), 12/15/05 5,125 4,817,500
Dobson/Sygnet Communications, Inc., Sr.
Notes, 12.25%, 12/15/08 4,700 4,935,000
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
13
<PAGE>
HIGH INCOME PORTFOLIO AS OF SEPTEMBER 30, 1999
PORTFOLIO OF INVESTMENTS (UNAUDITED) CONT'D
(EXPRESSED IN UNITED STATES DOLLARS)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
SECURITY (000'S OMITTED) VALUE
<S> <C> <C> <C>
- -------------------------------------------------------------------------------
Wireless Communication Services (continued)
- -------------------------------------------------------------------------------
Loral Space and Commerce, Sr. Notes,
9.50%, 1/15/06 $ 2,880 $ 2,469,600
Nextel Communications, Inc., Sr. Disc.
Notes, 9.75% (0% until 1999), 8/15/04 1,190 1,201,900
Nextel Communications, Inc., Sr. Disc.
Notes, 10.65% (0% until 2002), 9/15/07 12,410 9,198,913
Nextel Communications, Sr. Disc. Notes,
14.00% (0% until 2004), 2/1/09 8,750 5,162,500
Nextel International, Inc., Sr. Disc.
Notes, 12.125% (0% until 2003), 4/15/08 15,000 7,612,500
Tritel PCS, Inc., Sr. Disc. Notes,
12.75% (0% until 2004), 5/15/09(1) 3,000 1,710,000
Williams Communications Corp.,
10.875%, 10/1/09 15,600 15,482,844
Winstar Communications, Inc., Sr. Disc.
Notes, 14.00% (0% until 2000), 10/15/05 8,000 6,760,000
- -------------------------------------------------------------------------------
$ 63,690,757
- -------------------------------------------------------------------------------
Wireline Communication Services -
International -- 9.0%
- -------------------------------------------------------------------------------
Alestra SA, Sr. Notes,
12.125%, 5/15/06(1) $ 5,000 $ 4,812,500
Carrier1, Sr. Notes, 13.25%, 2/15/09 14,500 14,790,000
Completel Europe NV, Sr. Disc. Notes,
14.00% (0% until 2004), 2/15/09(1) 7,840 4,135,600
Energis PLC, 9.50%, 6/15/09(1) GBP 3,200 5,164,051
Esat Telecom Group PLC, Sr. Deferred
Coupon Notes, 12.50% (0% until 2002),
2/1/07 5,315 3,853,375
Esprit Telecom Group PLC, Sr. Notes,
11.50%, 12/15/07 12,600 12,978,000
Facilicom International, Sr. Notes,
10.50%, 1/15/08 4,640 3,944,000
Jazztel PLC, Sr. Notes, with warrants,
14.00%, 4/1/09 EUR 2,000 2,390,000
Primus Telecom Group, Sr. Notes,
11.25%, 1/15/09 3,750 3,581,250
Primus Telecom Group, Sr. Notes,
11.75%, 8/1/04 4,600 4,508,000
RSL Communications PLC, Guaranteed Sr.
Notes, 10.50%, 11/15/08 2,000 1,830,000
RSL Communications, Ltd., Sr. Notes,
12.25%, 11/15/06 4,190 4,169,050
Tele1 Europe BV, Sr. Notes,
13.00%, 5/15/09(1) 2,400 2,364,000
PRINCIPAL
AMOUNT
SECURITY (000'S OMITTED) VALUE
<S> <C> <C> <C>
- -------------------------------------------------------------------------------
Wireline Communication Services -
International (continued)
- -------------------------------------------------------------------------------
Versatel Telecom B.V., Sr. Notes,
13.25%, 5/15/08 $ 14,000 $ 14,245,000
Versatel Telecom, Sr. Notes,
11.875%, 7/15/09 2,045 1,938,055
Versatel Telecom, Sr. Notes,
11.875%, 7/15/09 EUR 5,200 5,207,675
Viatel, Inc., Sr. Disc. Notes, 12.50%
(0% until 2003), 4/15/08 7,165 3,976,575
Viatel, Inc., Sr. Notes,
11.25%, 4/15/08 3,305 3,073,650
- -------------------------------------------------------------------------------
$ 96,960,781
- -------------------------------------------------------------------------------
Wireline Communication Services -
North America -- 4.8%
- -------------------------------------------------------------------------------
Allegiance Telecom, Inc., Sr. Notes,
12.875%, 5/15/08 $ 10,755 $ 11,722,950
Focal Communications Corp., Sr. Disc.
Notes, 12.125% (0% until 2003), 2/15/08 9,450 5,362,875
GST Telecommunications, Sr. Sub. Notes,
12.75%, 11/15/07 3,700 3,718,500
Hyperion Telecommunication, Inc., Sr.
Sub. Notes, 12.00%, 11/1/07 4,000 4,040,000
Hyperion Telecommunications, Inc., Sr.
Notes, 12.25%, 9/1/04 125 131,719
Level 3 Communications, Inc., Sr. Disc.
Notes, 10.50% (0% until 2003), 12/1/08 4,700 2,661,375
MGC Communications, Inc., Sr. Notes,
13.00%, 10/1/04 5,520 4,885,200
Nextlink Communications, Inc., Sr.
Notes, 12.50%, 4/15/06 6,720 7,140,000
Worldwide Fiber, Inc., Sr. Notes,
12.00%, 8/1/09(1) 6,000 5,910,000
Worldwide Fiber, Inc., Sr. Notes,
12.50%, 12/15/05 5,800 5,901,500
- -------------------------------------------------------------------------------
$ 51,474,119
- -------------------------------------------------------------------------------
Total Corporate Bonds & Notes
(identified cost $967,738,496) $ 916,285,139
- -------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
14
<PAGE>
HIGH INCOME PORTFOLIO AS OF SEPTEMBER 30, 1999
PORTFOLIO OF INVESTMENTS (UNAUDITED) CONT'D
(EXPRESSED IN UNITED STATES DOLLARS)
<TABLE>
<CAPTION>
COMMON STOCKS, WARRANTS AND RIGHTS -- 0.9%
SECURITY SHARES VALUE
<S> <C> <C> <C>
- -------------------------------------------------------------------------------
Broadcasting and Cable -- 0.0%
- -------------------------------------------------------------------------------
Pegasus Communications Corp.,
Warrants(2)(3) 5,640 $ 296,043
UIH Australia/Pacific, Inc.,
Warrants(2)(3) 3,600 36
- -------------------------------------------------------------------------------
$ 296,079
- -------------------------------------------------------------------------------
Business Services - Rental & Leasing -- 0.0%
- -------------------------------------------------------------------------------
Unisite, Inc., Warrants(2)(3) 2,252 $ 0
- -------------------------------------------------------------------------------
$ 0
- -------------------------------------------------------------------------------
Chemicals -- 0.0%
- -------------------------------------------------------------------------------
Sterling Chemicals Holdings, Inc.,
Common(3) 9,600 $ 31,200
- -------------------------------------------------------------------------------
$ 31,200
- -------------------------------------------------------------------------------
Consumer Products -- 0.0%
- -------------------------------------------------------------------------------
HF Holdings, Inc., Warrants(2)(3) 13,600 $ 0
- -------------------------------------------------------------------------------
$ 0
- -------------------------------------------------------------------------------
Electronic Equipment -- 0.0%
- -------------------------------------------------------------------------------
Jordan Telecom Products, Inc.,
Common(2)(3) 2,500 $ 0
- -------------------------------------------------------------------------------
$ 0
- -------------------------------------------------------------------------------
Foods -- 0.0%
- -------------------------------------------------------------------------------
Specialty Foods Acquisition Corp.,
Common(2)(3) 48,000 $ 480
- -------------------------------------------------------------------------------
$ 480
- -------------------------------------------------------------------------------
Information Technology Services -- 0.0%
- -------------------------------------------------------------------------------
Cellnet Data Systems, Inc., Warrants,
Exp. 10/1/07(1)(3) 8,000 $ 80
Diva Systems Corp., Warrants(2)(3) 27,000 0
Verio, Inc., Common(3) 9,134 284,011
- -------------------------------------------------------------------------------
$ 284,091
- -------------------------------------------------------------------------------
Lodging and Gaming -- 0.0%
- -------------------------------------------------------------------------------
Peninsula Gaming LLC, Warrants(2)(3) 25,351 $ 152,107
- -------------------------------------------------------------------------------
$ 152,107
- -------------------------------------------------------------------------------
SECURITY SHARES VALUE
<S> <C> <C> <C>
- -------------------------------------------------------------------------------
Machinery -- 0.0%
- -------------------------------------------------------------------------------
MMH Holdings, Inc., Common(3) 20 $ 0
- -------------------------------------------------------------------------------
$ 0
- -------------------------------------------------------------------------------
Oil and Gas - Equipment and Services -- 0.4%
- -------------------------------------------------------------------------------
Key Energy Services, Inc.,
Warrants(2)(3) 1,900 $ 28,500
R&B Falcon Corp., Warrants(1)(3) 5,400 1,350,000
Weatherford International, Inc., Common 82,636 2,644,352
- -------------------------------------------------------------------------------
$ 4,022,852
- -------------------------------------------------------------------------------
Retail - General -- 0.0%
- -------------------------------------------------------------------------------
SpinCycle, Inc., Warrants(2)(3) 3,400 $ 0
- -------------------------------------------------------------------------------
$ 0
- -------------------------------------------------------------------------------
Wireline Communication Services -
International -- 0.2%
- -------------------------------------------------------------------------------
Carrier1, Warrants(2)(3) 14,500 $ 145
Esat Holdings, Ltd., Common 16,552 296,074
Primus Telecom Group, Warrants,
Exp. 8/1/04(2)(3) 4,600 117,043
Tele1 Europe BV, Warrants(2)(3) 2,400 168,000
Versatel Telecom B.V., Warrants(2)(3) 14,000 1,598,163
- -------------------------------------------------------------------------------
$ 2,179,425
- -------------------------------------------------------------------------------
Wireline Communication Services -
North America -- 0.3%
- -------------------------------------------------------------------------------
Allegiance Telecom, Inc., Common 19,786 $ 1,041,238
AT & T Canada, Inc., Common 3,086 193,839
Hyperion Telecommunications, Inc.,
Class A, Common(3) 24,240 599,940
Intermedia Communications, Inc.,
Common(3) 22,434 488,625
MGC Communications, Inc. Warrants,
Exp. 10/1/04(1)(3) 5,680 571,188
OpTel, Inc., Common(2)(3) 5,840 788
- -------------------------------------------------------------------------------
$ 2,895,618
- -------------------------------------------------------------------------------
Total Common Stocks, Warrants and Rights
(identified cost $5,356,008) $ 9,861,852
- -------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
15
<PAGE>
HIGH INCOME PORTFOLIO AS OF SEPTEMBER 30, 1999
PORTFOLIO OF INVESTMENTS (UNAUDITED) CONT'D
(EXPRESSED IN UNITED STATES DOLLARS)
<TABLE>
<CAPTION>
PREFERRED STOCKS -- 8.9%
SECURITY SHARES VALUE
<S> <C> <C> <C>
- -------------------------------------------------------------------------------
Apparel -- 0.0%
- -------------------------------------------------------------------------------
Cluett American Corp., 12.50% (PIK) 148 $ 2,950
- -------------------------------------------------------------------------------
$ 2,950
- -------------------------------------------------------------------------------
Broadcasting and Cable -- 2.6%
- -------------------------------------------------------------------------------
Adelphia Communications Corp., 13% (PIK) 48,000 $ 5,232,000
CSC Holdings, Inc., Series M, 11.125%
(PIK) 130,435 14,021,763
Pegasus Communications Corp., 12.75%
(PIK) 9,155 9,063,087
- -------------------------------------------------------------------------------
$ 28,316,850
- -------------------------------------------------------------------------------
Business Services - Rental & Leasing -- 1.0%
- -------------------------------------------------------------------------------
Crown Castle International Corp. 8,789 $ 8,876,890
Unisite, Inc., 8.5%(2) 3,239 1,744,159
- -------------------------------------------------------------------------------
$ 10,621,049
- -------------------------------------------------------------------------------
Containers and Packaging -- 0.5%
- -------------------------------------------------------------------------------
Packaging Corp. of America, 12.375%
(PIK)(1) 52,000 $ 5,668,000
- -------------------------------------------------------------------------------
$ 5,668,000
- -------------------------------------------------------------------------------
Electronic Equipment -- 0.3%
- -------------------------------------------------------------------------------
Jordan Telecom Products, Inc., 13.25%
(PIK) 3,247 $ 3,247,000
- -------------------------------------------------------------------------------
$ 3,247,000
- -------------------------------------------------------------------------------
Machinery -- 0.0%
- -------------------------------------------------------------------------------
MMH Holdings, Inc., 12% (PIK) 1,831 $ 274,650
- -------------------------------------------------------------------------------
$ 274,650
- -------------------------------------------------------------------------------
Oil and Gas - Equipment and Services -- 0.5%
- -------------------------------------------------------------------------------
R&B Falcon Corp. 5,606 $ 5,325,700
- -------------------------------------------------------------------------------
$ 5,325,700
- -------------------------------------------------------------------------------
Wireless Communication Services -- 1.3%
- -------------------------------------------------------------------------------
Dobson Communications Corp., 12.25%
(PIK) 4,551 $ 4,095,900
Nextel Communications, Inc., 11.125%
(PIK) 5,664 5,437,440
Rural Cellular Corp., 11.375% (PIK) 4,600 4,692,000
- -------------------------------------------------------------------------------
$ 14,225,340
- -------------------------------------------------------------------------------
SECURITY SHARES VALUE
<S> <C> <C> <C>
- -------------------------------------------------------------------------------
Wireline Communication Services -
International -- 1.2%
- -------------------------------------------------------------------------------
Global Crossing Holding, Ltd., 10.5% 11,700 $ 12,343,500
- -------------------------------------------------------------------------------
$ 12,343,500
- -------------------------------------------------------------------------------
Wireline Communication Services -
North America -- 1.5%
- -------------------------------------------------------------------------------
E.spire Communications, Inc., 12.75%
(PIK) 5,011 $ 1,553,410
Intermedia Communications, Inc., 7%
(PIK)(1) 185,000 3,931,250
IXC Communications, Inc., Series B,
12.5% (PIK) 9,258 9,767,190
Nextlink Communications, Inc., 14% (PIK) 23,977 1,186,861
- -------------------------------------------------------------------------------
$ 16,438,711
- -------------------------------------------------------------------------------
Total Preferred Stocks
(identified cost $103,468,983) $ 96,463,750
- -------------------------------------------------------------------------------
SHORT-TERM INVESTMENTS -- 5.4%
PRINCIPAL
AMOUNT
SECURITY (000'S OMITTED) VALUE
<S> <C> <C> <C>
- -------------------------------------------------------------------------------
Associates Corp., 5.55%, 10/1/99 $ 27,686 $ 27,686,000
General Electric Capital Co., 5.55%,
10/1/99 30,000 30,000,000
- -------------------------------------------------------------------------------
Total Short-Term Investments
(at amortized cost, $57,686,000) $ 57,686,000
- -------------------------------------------------------------------------------
Total Investments -- 100.1%
(identified cost $1,134,249,487) $1,080,296,741
- -------------------------------------------------------------------------------
Other Assets, Less Liabilities -- (0.1)% $ (1,341,182)
- -------------------------------------------------------------------------------
Net Assets -- 100.0% $1,078,955,559
- -------------------------------------------------------------------------------
</TABLE>
(PIK) - Payment in kind.
EUR - Euro Dollar
GBP - British Pound
(1) Security exempt from registration under Rule 144A of the Securities Act of
1933. These securities may be resold in transactions exempt from
registration, normally to qualified institutional buyers.
(2) Restricted security.
(3) Non-income producing security.
SEE NOTES TO FINANCIAL STATEMENTS
16
<PAGE>
HIGH INCOME PORTFOLIO AS OF SEPTEMBER 30, 1999
FINANCIAL STATEMENTS (UNAUDITED)
STATEMENT OF ASSETS AND LIABILITIES
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30, 1999
(EXPRESSED UNITED STATES DOLLARS)
<S> <C>
Assets
- --------------------------------------------------------
Investments, at value
(identified cost, $1,134,249,487) $1,080,296,741
Cash 9,789
Receivable for investments sold 8,796,155
Interest receivable 24,808,610
- --------------------------------------------------------
TOTAL ASSETS $1,113,911,295
- --------------------------------------------------------
Liabilities
- --------------------------------------------------------
Payable for investments purchased $ 34,169,644
Payable for open forward currency
contracts 669,552
Payable for non-resident alien
witholding tax 59,338
Payable to affiliate for Trustees' fees 2,871
Accrued expenses 54,331
- --------------------------------------------------------
TOTAL LIABILITIES $ 34,955,736
- --------------------------------------------------------
NET ASSETS APPLICABLE TO INVESTORS'
INTEREST IN PORTFOLIO $1,078,955,559
- --------------------------------------------------------
Sources of Net Assets
- --------------------------------------------------------
Net proceeds from capital contributions
and withdrawals $1,133,571,652
Net unrealized depreciation (computed on
the basis of identified cost) (54,616,093)
- --------------------------------------------------------
TOTAL $1,078,955,559
- --------------------------------------------------------
</TABLE>
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDED
SEPTEMBER 30, 1999
(EXPRESSED UNITED STATES DOLLARS)
<S> <C>
Investment Income
- ------------------------------------------------------
Interest $ 52,114,244
Dividends 5,378,941
Miscellaneous 405,255
- ------------------------------------------------------
TOTAL INVESTMENT INCOME $ 57,898,440
- ------------------------------------------------------
Expenses
- ------------------------------------------------------
Investment adviser fee $ 3,168,877
Trustees fees and expenses 19,721
Custodian fee 165,772
Legal and accounting services 57,255
Amortization of organization expenses 736
Miscellaneous 4,880
- ------------------------------------------------------
TOTAL EXPENSES $ 3,417,241
- ------------------------------------------------------
NET INVESTMENT INCOME $ 54,481,199
- ------------------------------------------------------
Realized and Unrealized
Gain (Loss)
- ------------------------------------------------------
Net realized gain (loss) --
Investment transactions (identified
cost basis) $ 7,259,037
Foreign currency and forward foreign
currency exchange contract
transactions 366,180
- ------------------------------------------------------
NET REALIZED GAIN $ 7,625,217
- ------------------------------------------------------
Change in unrealized appreciation
(depreciation) --
Investments (identified cost basis) $(51,951,543)
Foreign currency and forward foreign
currency exchange contracts (663,347)
- ------------------------------------------------------
NET CHANGE IN UNREALIZED APPRECIATION
(DEPRECIATION) $(52,614,890)
- ------------------------------------------------------
NET REALIZED AND UNREALIZED LOSS $(44,989,673)
- ------------------------------------------------------
NET INCREASE IN NET ASSETS FROM
OPERATIONS $ 9,491,526
- ------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
17
<PAGE>
HIGH INCOME PORTFOLIO AS OF SEPTEMBER 30, 1999
FINANCIAL STATEMENTS CONT'D
STATEMENTS OF CHANGES IN NET ASSETS
(EXPRESSED UNITED STATES DOLLARS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
Increase (Decrease) SEPTEMBER 30, 1999 YEAR ENDED
IN NET ASSETS (UNAUDITED) MARCH 31, 1999
<S> <C> <C>
- ----------------------------------------------------------------------------
From operations --
Net investment income $ 54,481,199 $ 99,349,959
Net realized gain (loss) 7,625,217 (13,513,235)
Net change in unrealized
appreciation (depreciation) (52,614,890) (53,977,702)
- ----------------------------------------------------------------------------
NET INCREASE IN NET ASSETS FROM
OPERATIONS $ 9,491,526 $ 31,859,022
- ----------------------------------------------------------------------------
Capital transactions --
Contributions $ 198,097,701 $ 376,878,683
Withdrawals (167,856,267) (330,015,816)
- ----------------------------------------------------------------------------
NET INCREASE IN NET ASSETS FROM
CAPITAL TRANSACTIONS $ 30,241,434 $ 46,862,867
- ----------------------------------------------------------------------------
NET INCREASE IN NET ASSETS $ 39,732,960 $ 78,721,889
- ----------------------------------------------------------------------------
Net Assets
- ----------------------------------------------------------------------------
At beginning of period $ 1,039,222,599 $ 960,500,710
- ----------------------------------------------------------------------------
AT END OF PERIOD $ 1,078,955,559 $1,039,222,599
- ----------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
18
<PAGE>
HIGH INCOME PORTFOLIO AS OF SEPTEMBER 30, 1999
FINANCIAL STATEMENTS CONT'D
SUPPLEMENTARY DATA
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED MARCH 31,
SEPTEMBER 30, 1999 -----------------------------------------------------
(UNAUDITED) 1999 1998 1997 1996 1995(1)
<S> <C> <C> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------
Ratios to average daily net assets
- ---------------------------------------------------------------------------------------------------------
Expenses 0.64%(2) 0.65% 0.63% 0.67% 0.71% 0.70%(2)
Net investment income 10.13%(2) 10.23% 9.63% 10.02% 10.41% 10.63%(2)
Portfolio Turnover 55% 150% 137% 78% 88% 53%
- ---------------------------------------------------------------------------------------------------------
NET ASSETS, END OF PERIOD
(000'S OMITTED) $1,078,956 $1,039,223 $960,501 $706,711 $511,347 $442,552
- ---------------------------------------------------------------------------------------------------------
</TABLE>
(1) For the period from the start of business, June 1, 1994, to March 31, 1995.
(2) Annualized.
SEE NOTES TO FINANCIAL STATEMENTS
19
<PAGE>
HIGH INCOME PORTFOLIO AS OF SEPTEMBER 30, 1999
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
(EXPRESSED IN UNITED STATES DOLLARS)
1 Significant Accounting Policies
- -------------------------------------------
High Income Portfolio (the Portfolio) is registered under the Investment
Company Act of 1940 as a diversified open-end management investment company
which was organized as a trust under the laws of the State of New York on
May 1, 1992. The Declaration of Trust permits the Trustees to issue interests
in the Portfolio. The following is a summary of significant accounting
policies of the Portfolio. The policies are in conformity with accounting
principles generally accepted in the United States of America.
A Investment Valuations -- Investments listed on securities exchanges or in the
NASDAQ National Market are valued at closing sale prices. Listed or unlisted
investments for which closing sale prices are not available are valued at the
mean between the latest bid and asked prices. Fixed income investments (other
than short-term obligations), including listed investments and investments
for which price quotations are available, will normally be valued on the
basis of market valuations furnished by a pricing service. Financial futures
contracts listed on commodity exchanges are valued at closing settlement
prices. Short-term obligations, maturing in sixty days or less, are valued at
amortized cost, which approximates value. Investments for which there are no
quotations or valuations are valued at fair value using methods determined in
good faith by or at the direction of the Trustees.
B Income -- Interest income is determined on the basis of interest accrued,
adjusted for amortization of premium or discount when required for federal
income tax purposes. Dividend income is recorded on the ex-dividend date for
dividends received in cash and/or securities.
C Income Taxes -- The Portfolio has elected to be treated as a partnership for
United States Federal tax purposes. No provision is made by the Portfolio for
federal or state taxes on any taxable income of the Portfolio because each
investor in the Portfolio is ultimately responsible for the payment of any
taxes. Since some of the Portfolio's investors are regulated investment
companies that invest all or substantially all of their assets in the
Portfolio, the Portfolio normally must satisfy the applicable source of
income and diversification requirements (under the Internal Revenue Code) in
order for its investors to satisfy them. The Portfolio will allocate at least
annually among its investors each investor's distributive share of the
Portfolio's net taxable investment income, net realized capital gains, and
any other items of income, gain, loss, deduction or credit.
D Deferred Organization Expenses -- Costs incurred by the Portfolio in
connection with its organization are being amortized on the straight-line
basis over five years.
E Financial Futures Contracts -- Upon the entering of a financial futures
contract, the Portfolio is required to deposit ("initial margin") either in
cash or securities an amount equal to a certain percentage of the purchase
price indicated in the financial futures contract. Subsequent payments are
made or received by the Portfolio ("margin maintenance") each day, dependent
on the daily fluctuations in the value of the underlying security, and are
recorded for book purposes as unrealized gains or losses by the Portfolio.
The Portfolio's investment in financial futures contracts is designed only to
hedge against anticipated future changes in interest rates. Should interest
rates move unexpectedly, the Portfolio may not achieve the anticipated
benefits of the financial futures contracts and may realize a loss.
F 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 results from fluctuations in foreign currency exchange rates
is not separately disclosed.
G 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.
20
<PAGE>
HIGH INCOME PORTFOLIO AS OF SEPTEMBER 30, 1999
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) CONT'D
(EXPRESSED IN UNITED STATES DOLLARS)
H Use of Estimates -- The preparation of the financial statements in conformity
with accounting principles generally accepted in the United States of America
requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities at the date of the financial
statements and the reported amount of revenue and expense during the
reporting period. Actual results could differ from those estimates.
I Other -- Investment transactions are accounted for on a trade date basis.
J Interim Financial Statements -- The interim financial statements relating to
September 30, 1999 and for the six months then ended have not been audited by
independent certified public accountants, but in the opinion of the
Portfolio's management reflect all adjustments, consisting only of normal
recurring adjustments, necessary for the fair presentation of the financial
statements.
2 Investment Adviser Fee and Other Transactions with Affiliates
- -------------------------------------------
The investment adviser fee is earned by Boston Management and Research (BMR),
a wholly-owned subsidiary of Eaton Vance Management (EVM), as compensation
for management and investment advisory services rendered to the Portfolio.
The fee is based upon a percentage of average daily net assets plus a
percentage of gross income (i.e., income other than gains from the sale of
securities). For the six months ended September 30, 1999, the fee was
equivalent to 0.59% (annualized) of the Portfolios average daily net assets
and amounted to $3,168,877. 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. Certain officers and Trustees of the Portfolio are officers of
the above organizations. Trustees of the Portfolio that are not affiliated
with the Investment Adviser may elect to defer receipt of all or a portion of
their annual fees in accordance with the terms of the Trustees Deferred
Compensation Plan. For the six months ended September 30, 1999, no
significant amounts have been deferred.
3 Investments
- -------------------------------------------
The Portfolio invests primarily in debt securities. The ability of the
issuers of the debt securities held by the Portfolio to meet their
obligations may be affected by economic developments in a specific industry.
Purchases and sales of investments, other than U.S. Government securities and
short-term obligations, aggregated $642,158,891 and $566,642,529,
respectively, for the six months ended September 30, 1999.
4 Line of Credit
- -------------------------------------------
The Portfolio participates with other portfolios and funds managed by BMR and
EVM and its affiliates in a $130 million ($120 million effective October 12,
1999) 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 either 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 six
months ended September 30, 1999.
5 Financial Instruments
- -------------------------------------------
The Portfolio regularly trades in financial instruments with off-balance
sheet risk in the normal course of its investing activities to assist in
managing exposure to various market risks. These financial instruments
include written options, forward foreign currency contracts and financial
futures contracts and may involve, to a varying degree, elements of risk in
excess of the amounts recognized for financial statement purposes. The
notional or contractual amounts of these instruments represent the investment
the Portfolio has in particular classes of financial instruments and does not
necessarily represent the amounts potentially subject to risk. The
measurement of the risks associated with these instruments is meaningful only
when all related and offsetting transactions are considered. A summary of
obligations under these financial instruments at September 30, 1999 is as
follows:
<TABLE>
<CAPTION>
SALES
---------------------------------------------------------------------------------------------
SETTLEMENT IN EXCHANGE FOR NET UNREALIZED
DATE DELIVER (IN U.S. DOLLARS) DEPRECIATION
<C> <S> <C> <C>
---------------------------------------------------------------------------------------------
11/19/99 British Pound Sterling
4,503,712 $ 7,216,748 $(199,965)
11/19/99- European Currency Unit
11/22/99 24,283,656 25,510,701 (469,587)
---------------------------------------------------------------------------------------------
$32,727,449 $(669,552)
---------------------------------------------------------------------------------------------
</TABLE>
21
<PAGE>
HIGH INCOME PORTFOLIO AS OF SEPTEMBER 30, 1999
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) CONT'D
(EXPRESSED IN UNITED STATES DOLLARS)
6 Federal Income Tax Basis of Investments
- -------------------------------------------
The cost and unrealized appreciation/depreciation in the value of the
investments owned at September 30, 1999, as computed on a federal income tax
basis, were as follows:
<TABLE>
<S> <C>
AGGREGATE COST $1,134,249,487
--------------------------------------------------------
Gross unrealized appreciation $ 18,564,572
Gross unrealized depreciation (72,517,318)
--------------------------------------------------------
NET UNREALIZED DEPRECIATION $ (53,952,746)
--------------------------------------------------------
</TABLE>
7 Restricted Securities
- -------------------------------------------
At September 30, 1999, the Portfolio owned the following securities
(representing 38% of net assets) which were restricted as to public resale
and not registered under the Securities Act of 1933. The Portfolio has
various registration rights (exercisable under a variety of circumstances)
with respect to these securities. The fair value of these securities is
determined based on valuations provided by brokers when available, or if not
available, they are valued at fair value using methods determined in good
faith by or at the direction of the Trustees.
<TABLE>
<CAPTION>
DATE OF
DESCRIPTION ACQUISITION SHARES/FACE COST FAIR VALUE
<S> <C> <C> <C> <C>
------------------------------------------------------------------------------------------
COMMON STOCKS, WARRANTS AND RIGHTS
------------------------------------------------------------------------------------------
Carrier1, Warrants 9/09/99 14,500 $ 0 $ 145
Diva Systems Corp., Warrants 12/30/98- 27,000 90 0
9/21/99
HF Holdings, Inc., Warrants 13,600 0 0
Jordan Telecom Products, Inc., Common 4/15/98- 2,500 0 0
1/15/99
Key Energy Services, Inc., Warrants 7/22/99 1,900 28,500 28,500
OpTel, Inc., Common 10/21/97- 5,840 40 788
10/22/97
Pegasus Communications Corp., Warrants 12/02/98- 5,640 105,480 296,043
12/07/98
Peninsula Gaming LLC, Warrants 7/08/99 25,351 0 152,107
Primus Telecom Group, Warrants, Exp. 5/14/98- 4,600 0 117,043
8/1/04 11/06/98
5/10/99
Specialty Foods Acquisition Corp., 8/10/93 48,000 34,886 480
Common
SpinCycle, Inc., Warrants 4/24/98 3,400 0 0
Tele1 Europe BV, Warrants 9/23/99 2,400 0 168,000
UIH Australia/Pacific, Inc., Warrants 2/05/98 3,600 0 36
Unisite, Inc., Warrants 12/09/97 2,252 0 0
Versatel Telecom B.V., Warrants 5/20/98- 14,000 0 1,598,163
1/29/99
------------------------------------------------------------------------------------------
$ 168,996 $2,361,305
------------------------------------------------------------------------------------------
PREFERRED STOCKS
------------------------------------------------------------------------------------------
Unisite, Inc., 8.5% 12/09/97 3,239 1,499,847 1,744,159
------------------------------------------------------------------------------------------
$1,499,847 $1,744,159
------------------------------------------------------------------------------------------
</TABLE>
22
<PAGE>
EATON VANCE HIGH INCOME FUND AS OF SEPTEMBER 30, 1999
INVESTMENT MANAGEMENT
EATON VANCE HIGH INCOME FUND
Officers
James B. Hawkes
President and Trustee
Willam H. Ahern, Jr.
Vice President
Thomas J. Fetter
Vice President
Armin Lang
Vice President
Robert B. MacIntosh
Vice President
Edward E. Smiley, Jr.
Vice President
James L. O'Connor
Treasuer
Alan R. Dynner
Secretary
Trustees
Jessica M. Bibliowicz
President and Chief Executive Officer,
National Financial Partners
Donald R. Dwight
President, Dwight Partners, Inc.
Samuel L. Hayes, III
Jacob H. Schiff Professor of Investment Banking
Emeritus, Harvard University Graduate School
of Business Administration
Norton H. Reamer
Chairman and Chief Executive Officer,
United Asset Management Corporation
Lynn A. Stout
Professor of Law,
Georgetown University Law Center
Jack L. Treynor
Investment Adviser and Consultant
HIGH INCOME PORTFOLIO
Officers
James B. Hawkes
President and Trustee
Michael W. Weilheimer
Vice President and
Portfolio Manager
James L. O'Connor
Treasurer
Alan R. Dynner
Secretary
Trustees
Jessica M. Bibliowicz
President and Chief Executive Officer, National Financial Partners
Donald R. Dwight
President, Dwight Partners, Inc.
Samuel L. Hayes, III
Jacob H. Schiff Professor of Investment Banking
Emeritus, Harvard University Graduate School
of Business Administration
Norton H. Reamer
Chairman and Chief Executive Officer,
United Asset Management Corporation
Lynn A. Stout
Professor of Law,
Georgetown University Law Center
Jack L. Treynor
Investment Adviser and Consultant
23
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INVESTMENT ADVISER OF
HIGH INCOME PORTFOLIO
Boston Management and Research
The Eaton Vance Building
255 State Street
Boston, MA 02109
ADMINISTRATOR OF
EATON VANCE HIGH INCOME FUND
Eaton Vance Management
The Eaton Vance Building
255 State Street
Boston, MA 02109
PRINCIPAL UNDERWRITER
Eaton Vance Distributors, Inc.
The Eaton Vance Building
255 State Street
Boston, MA 02109
CUSTODIAN
Investors Bank & Trust Company
200 Clarendon Street
Boston, MA 02116
TRANSFER AGENT
First Data Investor Services Group, Inc.
Attention: Eaton Vance Funds
P.O. Box 5123
Westborough, MA 01581-5123
Eaton Vance High Income Fund
The Eaton Vance Building
255 State Street
Boston, MA 02109
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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 sales charges and
expenses. Please read the prospectus carefully before you invest or send money.
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HISRC-9/99 4-2679-9/99
