<PAGE>
[E.V. LOGO]
INVESTING FOR THE 21ST CENTURY [EARTH GRAPHIC]
Semiannual Report April 30, 1999
EATON VANCE
STRATEGIC
INCOME
FUND
[BOND GRAPHIC]
[SKY SCRAPERS GRAPHIC]
<PAGE>
EATON VANCE STRATEGIC INCOME FUND AS OF APRIL 30, 1999
INVESTMENT UPDATE
[PHOTO]
Mark S. Venezia
Portfolio Manager
Investment Environment
- -------------------------------------------------------------------------------
- - The global and domestic high-yield bond markets -- key segments of the
Portfolio's investment universe -- have rallied strongly since November 1998,
rebounding from a series of global financial crises that had earlier driven
fixed-income investors to the relative safety of U.S. Treasury bonds. By
year-end, an economic recovery seemed underway in Asia, while stability was
returning to selective Latin America economies.
- - Brazil, a pivotal economy in Latin America, has staged a recovery in recent
months. The Brazilian economic difficulties peaked in January when the
government was forced to devalue the currency and abandon its pegged
exchange rate. However, unlike the Russian and Asian traumas from the
previous year, the effects of this crisis were limited to Brazil and
its neighbor, Argentina. Since the devaluation, Brazil has secured
International Monetary Fund (IMF) help and taken steps to improve its
fiscal situation, helping to restore investor confidence in the emerging
markets.
- - Quality spreads on high-yield bonds, which had risen to more than 600 basis
points (6.0%) over U.S. Treasuries in the volatile period of August-October
1998, have since tightened to approximately 450 basis points (4.5%) as of
April 30, 1999, as confidence has returned to the credit markets.
- - Asia's emerging economies have taken significant steps toward stability
since the autumn chaos. The first step to correcting trade imbalances was
reducing IMPORTS in 1998. More recently, markets have surged as EXPORTS
have finally come back.
The Fund
- -------------------------------------------------------------------------------
PERFORMANCE FOR THE PAST SIX MONTHS
- - The Fund's Class A shares had a total return of 8.35% during the six months
ended April 30, 1999.1 This return resulted from an increase in net asset
value per share (NAV) to $9.54 on April 30, 1999 from $9.22 on October 31,
1998, and the reinvestment of $0.437 in dividend income.
- - The Fund's Class B shares had a total return of 7.80% during the six months
ended April 30, 1999.1 This return resulted from an increase in NAV to $9.02
on April 30, 1999 from $8.72 on October 31, 1998 and the reinvestment of
$0.368 in dividend income.
- - The Fund's Class C shares had a total return of 7.80% during the six months
ended April 30, 1999.1 This return resulted from an increase in NAV to
$11.39 on April 30, 1999 from $11.01 on October 31, 1998 and the reinvestment
of $0.464 in dividend income.
RECENT PORTFOLIO DEVELOPMENTS
- - The most significant change in the Portfolio during the period was an
increased weighting in high-yield domestic bonds. The August-to-October
market rout created excellent values. The Portfolio also took advantage of
opportunities to increase its investments in Asia. The Portfolio established
positions in the newly resurgent economies of Korea, Thailand and Malaysia.
- - The Portfolio's exposure to Ecuador was eliminated, as were its investments
in Argentina, due to the expected negative impact of the Brazilian crisis. As
the global economy continues to recover, commodity prices have started to
rebound. The Portfolio has established several commodity-sensitive positions
in Mexico, Peru, Venezuela and Australia.
- - The Portfolio also lightened its holdings in Bulgaria. Although full-scale
Bulgarian involvement in the war in Yugoslavia is unlikely, the conflict has
hindered Bulgarian trade and investment.
- -------------------------------------------------------------------------------
MUTUAL FUND SHARES ARE NOT INSURED BY THE FDIC AND ARE NOT DEPOSITS OR OTHER
OBLIGATIONS OF, OR GUARANTEED BY, ANY DEPOSITORY INSTITUTION. SHARES ARE
SUBJECT TO INVESTMENT RISKS, INCLUDING POSSIBLE LOSS OF PRINCIPAL INVESTED.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Fund Information
as of April 30, 1999
<TABLE>
<CAPTION>
Performance(2) Class A Class B Class C
- ----------------------------------------------------------------
<S> <C> <C> <C>
Average Annual Total Returns (at net asset value)
- ----------------------------------------------------------------
One Year 4.31% 3.46% 3.34%
Five Years N.A. 9.34 N.A.
Life of Fund+ 5.43 6.82 9.48
SEC Average Annual Total Returns
(including sales charge or applicable CDSC)
- ----------------------------------------------------------------
One Year -0.65% -1.30% 2.39%
Five Years N.A. 9.06 N.A.
Life of Fund+ 1.46 6.82 9.48
</TABLE>
+Inception date: Class A: (1/23/98); Class B: (11/26/90);
Class C: (5/25/94)
(1) This return does not include the Fund's 4.75% maximum sales charge
for Class A shares or the contingent deferred sales charges (CDSC)
for Class B and Class C shares. 2 Returns are calculated by
determining the percentage change in net asset value with all
distributions reinvested. SEC average annual returns for Class A
reflect a 4.75% sales charge; for Class B, returns reflect applicable
CDSC based on the following schedule: 5%-1st and 2nd years; 4%-3rd year;
3%-4th year; 2%-5th year; 1%-6th year; for Class C, one-year returns
reflect a 1% CDSC.
Past performance is no guarantee of future results. Investment return and
principal value will fluctuate so that shares, when redeemed, may be worth
more or less than their original cost.
2
<PAGE>
EATON VANCE STRATEGIC INCOME FUND AS OF APRIL 30, 1999
FINANCIAL STATEMENTS (UNAUDITED)
STATEMENT OF ASSETS AND LIABILITIES
<TABLE>
<CAPTION>
AS OF APRIL 30, 1999
<S> <C>
Assets
- -------------------------------------------------------
Investment in Strategic Income
Portfolio, at value
(identified cost, $137,932,990) $ 137,893,554
Investment in High Income Portfolio, at
value
(identified cost, $43,087,732) 43,611,593
Receivable for Fund shares sold 601,943
Deferred organization expenses 3,617
- -------------------------------------------------------
TOTAL ASSETS $ 182,110,707
- -------------------------------------------------------
Liabilities
- -------------------------------------------------------
Dividends payable $ 766,021
Payable for Fund shares redeemed 156,389
Payable to affiliate for Trustees' fees 37
Other accrued expenses 67,670
- -------------------------------------------------------
TOTAL LIABILITIES $ 990,117
- -------------------------------------------------------
NET ASSETS $ 181,120,590
- -------------------------------------------------------
Sources of Net Assets
- -------------------------------------------------------
Paid-in capital $ 193,325,516
Accumulated net realized loss from
Portfolios (computed on the basis of
identified cost) (14,456,049)
Accumulated undistributed net investment
income 1,766,698
Net unrealized appreciation from
Portfolios (computed on the basis of
identified cost) 484,425
- -------------------------------------------------------
TOTAL $ 181,120,590
- -------------------------------------------------------
Class A Shares
- -------------------------------------------------------
NET ASSETS $ 3,465,483
SHARES OUTSTANDING 363,156
NET ASSET VALUE AND REDEMPTION PRICE PER
SHARE
(net assets DIVIDED BY shares of
beneficial interest outstanding) $ 9.54
MAXIMUM OFFERING PRICE PER SHARE
(100 DIVIDED BY 95.25 of $9.54) $ 10.02
- -------------------------------------------------------
Class B Shares
- -------------------------------------------------------
NET ASSETS $ 153,099,202
SHARES OUTSTANDING 16,965,983
NET ASSET VALUE, OFFERING PRICE AND
REDEMPTION PRICE PER SHARE
(net assets DIVIDED BY shares of
beneficial interest outstanding) $ 9.02
- -------------------------------------------------------
Class C Shares
- -------------------------------------------------------
NET ASSETS $ 24,555,905
SHARES OUTSTANDING 2,155,923
NET ASSET VALUE, OFFERING PRICE AND
REDEMPTION PRICE PER SHARE
(net assets DIVIDED BY shares of
beneficial interest outstanding) $ 11.39
- -------------------------------------------------------
</TABLE>
On sales of $25,000 or more, the offering price of Class A shares is reduced.
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDED
APRIL 30, 1999
<S> <C>
Investment Income
- ------------------------------------------------------
Interest allocated from Portfolios $ 8,183,544
Dividends allocated from Portfolios 214,061
Expenses allocated from Portfolios (705,721)
- ------------------------------------------------------
NET INVESTMENT INCOME FROM PORTFOLIOS $ 7,691,884
- ------------------------------------------------------
Expenses
- ------------------------------------------------------
Distribution and service fees
Class B $ 669,854
Class C 108,462
Trustees fees and expenses 2,614
Transfer and dividend disbursing agent
fees 80,896
Legal and accounting services 19,829
Registration fees 18,378
Printing and postage 14,128
Custodian fee 12,638
Amortization of organization expenses 3,988
Miscellaneous 18,020
- ------------------------------------------------------
TOTAL EXPENSES $ 948,807
- ------------------------------------------------------
NET INVESTMENT INCOME $ 6,743,077
- ------------------------------------------------------
Realized and Unrealized Gain (Loss) from Portfolios
- ------------------------------------------------------
Net realized gain (loss) --
Investment transactions (identified
cost basis) $ (1,101,210)
Financial futures contracts (831,916)
Options 188,125
Foreign currency transactions (546,280)
- ------------------------------------------------------
NET REALIZED LOSS $ (2,291,281)
- ------------------------------------------------------
Change in unrealized appreciation
(depreciation) --
Investments $ 7,460,429
Financial futures contracts 107,302
Options (110,000)
Foreign currency and forward foreign
currency exchange contracts 1,016,721
- ------------------------------------------------------
NET CHANGE IN UNREALIZED APPRECIATION
(DEPRECIATION) $ 8,474,452
- ------------------------------------------------------
NET REALIZED AND UNREALIZED GAIN $ 6,183,171
- ------------------------------------------------------
NET INCREASE IN NET ASSETS FROM
OPERATIONS $ 12,926,248
- ------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
3
<PAGE>
EATON VANCE STRATEGIC INCOME FUND AS OF APRIL 30, 1999
FINANCIAL STATEMENTS CONT'D
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
SIX MONTHS ENDED
Increase (Decrease) APRIL 30, 1999 YEAR ENDED
in Net Assets (UNAUDITED) OCTOBER 31, 1998
<S> <C> <C>
- -------------------------------------------------------------------------------
From operations --
Net investment income $ 6,743,077 $ 11,629,772
Net realized gain (loss) (2,291,281) 880,442
Net change in unrealized appreciation
(depreciation) 8,474,452 (13,529,672)
- -------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN NET ASSETS
FROM OPERATIONS $ 12,926,248 $ (1,019,458)
- -------------------------------------------------------------------------------
Distributions to shareholders --
From net investment income
Class A $ (125,145) $ (69,136)
Class B (6,105,318) (11,029,458)
Class C (903,187) (1,413,057)
In excess of net investment income
Class A -- (2,776)
Class C -- (84,937)
- -------------------------------------------------------------------------------
TOTAL DISTRIBUTIONS TO SHAREHOLDERS $ (7,133,650) $ (12,599,364)
- -------------------------------------------------------------------------------
Transactions in shares of beneficial
interest --
Proceeds from sale of shares
Class A $ 1,559,610 $ 2,660,681
Class B 20,384,728 38,733,721
Class C 6,434,352 20,456,268
Issued in reorganization of EV
Classic Strategic Income Fund -- 8,399,641
Net asset value of shares issued to
shareholders in payment of
distributions declared
Class A 80,233 34,786
Class B 2,594,630 5,045,715
Class C 518,496 1,065,842
Cost of shares redeemed
Class A (272,602) (579,130)
Class B (13,353,128) (24,263,796)
Class C (2,639,747) (8,509,686)
- -------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS FROM FUND
SHARE TRANSACTIONS $ 15,306,572 $ 43,044,042
- -------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS $ 21,099,170 $ 29,425,220
- -------------------------------------------------------------------------------
Net Assets
- -------------------------------------------------------------------------------
At beginning of period $ 160,021,420 $ 130,596,200
- -------------------------------------------------------------------------------
AT END OF PERIOD $ 181,120,590 $ 160,021,420
- -------------------------------------------------------------------------------
Accumulated undistributed
net investment income
included in net assets
- -------------------------------------------------------------------------------
AT END OF PERIOD $ 1,766,698 $ 2,157,271
- -------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
4
<PAGE>
EATON VANCE STRATEGIC INCOME FUND AS OF APRIL 30, 1999
FINANCIAL STATEMENTS CONT'D
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
SIX MONTHS ENDED
APRIL 30, 1999
(UNAUDITED)
-------------------------
CLASS A CLASS B CLASS C
<S> <C> <C> <C>
- -----------------------------------------------------------------------------------
Net asset value -- Beginning of
period $ 9.220 $ 8.720 $11.010
- -----------------------------------------------------------------------------------
Income (loss) from operations
- -----------------------------------------------------------------------------------
Net investment income $ 0.358 $ 0.341 $ 0.416
Net realized and unrealized gain
(loss) 0.396 0.327 0.424
- -----------------------------------------------------------------------------------
TOTAL INCOME (LOSS) FROM
OPERATIONS $ 0.754 $ 0.668 $ 0.840
- -----------------------------------------------------------------------------------
Less distributions
- -----------------------------------------------------------------------------------
From net investment income $ (0.434) $ (0.368) $(0.460)
In excess of net investment income -- -- --
From paid-in capital -- -- --
- -----------------------------------------------------------------------------------
TOTAL DISTRIBUTIONS $ (0.434) $ (0.368) $(0.460)
- -----------------------------------------------------------------------------------
NET ASSET VALUE -- END OF PERIOD $ 9.54 $ 9.020 $11.390
- -----------------------------------------------------------------------------------
TOTAL RETURN(3) 8.35% 7.80% 7.80%
- -----------------------------------------------------------------------------------
Ratios/Supplemental Data
- -----------------------------------------------------------------------------------
Net assets, end of period (000's
omitted) $ 3,465 $153,099 $24,556
Ratios (As a percentage of average
daily net assets): Expenses(4) 1.04%(5) 1.95%(5) 2.03%(5)
Net investment income 8.76%(5) 7.93%(5) 7.82%(5)
Portfolio turnover(6) -- -- --
- -----------------------------------------------------------------------------------
<CAPTION>
YEAR ENDED OCTOBER 31,
1998 1997 1996 1995 1994(1)
------------------------------------ ---------- ---------- ---------- ----------
CLASS A(2) CLASS B CLASS C CLASS B CLASS B CLASS B CLASS B
<S> <C> <C> <C> <C> <C> <C> <C>
- -----------------------------------
Net asset value -- Beginning of
period $ 10.000 $ 9.470 $11.950 $ 9.310 $ 8.500 $ 8.290 $ 9.410
- -----------------------------------
Income (loss) from operations
- -----------------------------------
Net investment income $ 0.668 $ 0.684 $ 0.869 $ 0.657 $ 0.655 $ 0.726 $ 0.645
Net realized and unrealized gain
(loss) (0.767) (0.686) (0.872) 0.288 0.858 0.167 (1.135)
- -----------------------------------
TOTAL INCOME (LOSS) FROM
OPERATIONS $ (0.099) $ (0.002) $(0.003) $ 0.945 $ 1.513 $ 0.893 $ (0.490)
- -----------------------------------
Less distributions
- -----------------------------------
From net investment income $ (0.654) $ (0.748) $(0.884) $ (0.657) $ (0.655) $ (0.361) $ (0.343)
In excess of net investment income (0.027) -- (0.053) (0.128) (0.048) -- --
From paid-in capital -- -- -- -- -- (0.322) (0.290)
- -----------------------------------
TOTAL DISTRIBUTIONS $ (0.681) $ (0.748) $(0.937) $ (0.785) $ (0.703) $ (0.683) $ (0.633)
- -----------------------------------
NET ASSET VALUE -- END OF PERIOD $ 9.220 $ 8.720 $11.010 $ 9.470 $ 9.310 $ 8.500 $ 8.290
- -----------------------------------
TOTAL RETURN(3) (1.29)% (0.20)% (0.15)% 10.44% 18.48% 11.34% (5.33)%
- -----------------------------------
Ratios/Supplemental Data
- -----------------------------------
Net assets, end of period (000's
omitted) $ 2,009 $138,495 $19,518 $130,596 $129,671 $150,767 $233,139
Ratios (As a percentage of average
daily net assets): Expenses(4) 1.03% 1.96% 2.03% 2.08% 2.17% 2.18% 2.00%
Net investment income 8.44% 7.40% 7.37% 6.91% 7.38% 7.85% 7.24%
Portfolio turnover(6) -- -- -- -- -- -- 55%
- -----------------------------------
</TABLE>
(1) Net investment income per share was computed using average shares
outstanding.
(2) For the period from the commencement of offering of Class A shares, January
23, 1998, to October 31, 1998.
(3) Total return is calculated assuming a purchase at the net asset value on
the first day and a sale at the net asset value on the last day of each
period reported. Dividends and distributions, if any, are assumed
reinvested at the net asset value on the reinvestment date. Total return is
not computed on an annualized basis.
(4) Includes the Fund's share of the Portfolio's allocated expenses for the
period the Fund was investing in the Portfolio.
(5) Annualized.
(6) Portfolio Turnover represents the rate of portfolio activity for the period
while the Fund was making investments directly in securities. The portfolio
turnover rate for the period since the Fund transferred all of its
investable assets to the Portfolio is shown in the Portfolio's financial
statements which are included elsewhere in this report.
SEE NOTES TO FINANCIAL STATEMENTS
5
<PAGE>
EATON VANCE STRATEGIC INCOME FUND AS OF APRIL 30, 1999
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
1 Significant Accounting Policies
- -------------------------------------------
Eaton Vance Strategic Income Fund (the Fund) is a non-diversified series of
Eaton Vance Mutual Funds Trust (the Trust). The Fund is registered under the
Investment Company Act of 1940, as amended, as an open-end management
investment company. The Fund offers three classes of shares. Class A shares
are generally sold subject to a sales charge imposed at the time of purchase.
Class B and Class C shares are sold at net asset value and are subject to a
contingent deferred sales charge (see Note 6). 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
currently invests all of its investable assets in interests in two
Portfolios, Strategic Income Portfolio and High Income Portfolio (the
Portfolios), New York Trusts which have investment objectives consistent with
that of the Fund. The value of the Fund's investment in the Portfolios
reflects the Fund's proportionate interest in the net assets of the Strategic
Income Portfolio and the High Income Portfolio (99.99% and 4.2% at April 30,
1999, respectively). The performance of the Fund is directly affected by the
performance of the Portfolios. The financial statements of the Strategic
Income Portfolio, including the portfolio of investments, are included
elsewhere in this report and should be read in conjunction with the Fund's
financial statements. See Note 8 for further information on the results of
operations of High Income Portfolio. A copy of the financial statements of
High Income Portfolio is available upon request from Eaton Vance
Distributors.
The following is a summary of significant accounting policies consistently
followed by the Fund in preparation of its financial statements. The policies
are in conformity with generally accepted accounting principles.
A Investment Valuation -- Valuation of securities by the Strategic Income
Portfolio is discussed in Note 1A of the Portfolio's Notes to Financial
Statements, which are included elsewhere in this report. High Income
Portfolio's valuation policies are as follows: Investments listed on
securities exchanges or in the NASDAQ National Market are valued at closing
sale prices. Listed or unlisted investments for which closing sale prices are
not available are valued at the mean between the latest bid and asked prices.
Fixed income investments (other than short-term obligations), including
listed investments and investments for which price quotations are available,
will normally be valued on the basis of market valuations furnished by a
pricing service. Financial futures contracts listed on commodity exchanges
are valued at closing settlement prices. Short-term obligations, maturing in
sixty days or less, are valued at amortized cost, which approximates value.
Investments for which there are no quotations or valuations are valued at
fair value using methods determined in good faith by or at the direction of
the Trustees.
B Income -- The Fund's net investment income consists of the Fund's pro rata
share of the net investment income of the Portfolios, less all actual and
accrued expenses of the Fund determined in accordance with generally accepted
accounting principles.
C Federal Taxes -- The Fund's policy is to comply with the provisions of the
Internal Revenue Code applicable to regulated investment companies and to
distribute to shareholders each year all of its taxable income, including any
net realized gain on investments. Accordingly, no provision for Federal
income or excise tax is necessary. At October 31, 1998, the Fund, for Federal
income tax purposes, had a capital loss carryover of $11,072,444, which will
reduce the Fund's taxable income arising from future net realized gains on
investments, if any, to the extent permitted by the Internal Revenue Code,
and thus will reduce the amount of the distributions to shareholders which
would otherwise be necessary to relieve the Fund of any liability for federal
income or excise tax. Such capital loss carryovers will expire on October 31,
2002 ($4,214,275), October 31, 2003 ($4,613,119) and October 31, 2006
($2,245,050).
D Use of Estimates -- The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities at the date of the financial statements and the reported amounts
of income and expenses during the reporting period. Actual results could
differ from those estimates.
6
<PAGE>
EATON VANCE STRATEGIC INCOME FUND AS OF APRIL 30, 1999
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) CONT'D
E Interim Financial Statements -- The interim financial statements relating to
April 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. Distributions are paid monthly. Distributions of
allocated realized capital gains, if any, are made at least annually.
Shareholders may reinvest income and capital gain distributions in additional
shares of the Fund at the net asset value as of the ex-dividend date.
Distributions are paid in the form of additional shares or, at the election
of the shareholder, in cash. The Fund distinguishes between distributions on
a tax basis and a financial reporting basis. Generally accepted accounting
principles require that only distributions in excess of tax basis earnings
and profits be reported in the financial statements as a return of capital.
Differences in the recognition or classification of income between the
financial statements and tax earnings and profits which result in
over-distributions for financial statement purposes only are classified as
distributions in excess of net investment income or accumulated net realized
gains. Permanent differences between book and tax accounting relating to
distributions are reclassified to paid-in capital.
3 Shares of Beneficial Interest
- -------------------------------------------
The Declaration of Trust permits the Trustees to issue an unlimited number of
full and fractional shares (without par value). Transactions in Fund shares
were as follows:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
APRIL 30, 1999 YEAR ENDED
CLASS A (UNAUDITED) OCTOBER 31, 1998(1)
<S> <C> <C>
- --------------------------------------------------------------------------------
Sales 165,711 276,254
Issued to shareholders electing to
receive payments of distributions in
Fund shares 8,495 3,622
Redemptions (28,896) (62,030)
- --------------------------------------------------------------------------------
NET INCREASE 145,310 217,846
- --------------------------------------------------------------------------------
</TABLE>
(1) For the period from the commencement of offering of Class A shares, January
23, 1998, to October 31, 1998.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
APRIL 30, 1999 YEAR ENDED
CLASS B (UNAUDITED) OCTOBER 31, 1998
<S> <C> <C>
- -----------------------------------------------------------------------------
Sales 2,290,618 4,165,687
Issued to shareholders electing to
receive payments of distributions in
Fund shares 290,896 543,656
Redemptions (1,502,450) (2,609,018)
- -----------------------------------------------------------------------------
NET INCREASE 1,079,064 2,100,325
- -----------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
SIX MONTHS ENDED
APRIL 30, 1999 YEAR ENDED
CLASS C (UNAUDITED) OCTOBER 31, 1998
<S> <C> <C>
- -----------------------------------------------------------------------------
Sales 571,588 1,727,701
Issued to shareholders electing to
receive payments of distributions in
Fund shares 46,077 91,129
Redemptions (235,197) (748,223)
Issued to EV Classic Strategic Income
Fund shareholders -- 702,848
- -----------------------------------------------------------------------------
NET INCREASE 382,468 1,773,455
- -----------------------------------------------------------------------------
</TABLE>
4 Investment Adviser Fee and Other Transactions with Affiliates
- -------------------------------------------
Eaton Vance Management (EVM) serves as the administrator of the Fund, but
receives no compensation. The Portfolios have engaged Boston Management and
Research (BMR), a subsidiary of EVM, to render investment advisory services.
See Note 2 of each of the Portfolios' Notes to financial statements. Certain
of the officers and Trustees of the Fund and of the Portfolio are officers of
the above organizations (see Note 5). Except as to Trustees of the Fund and
the Portfolios who are not members of EVM's organization, officers and
Trustees receive remuneration for their services to the Fund out of such
investment adviser fee. Eaton Vance Distributors, Inc. (EVD), a subsidiary of
EVM and the Fund's principal underwriter, received $1,912 as its portion of
the sales charge on sales of Class A shares for the six months ended April
30, 1999.
7
<PAGE>
EATON VANCE STRATEGIC INCOME FUND AS OF APRIL 30, 1999
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) CONT'D
5 Distribution and Service Plans
- -------------------------------------------
The Fund has adopted a Service Plan for the Fund's Class A shares (the "Class
A Plan") that is designed to meet the service fee requirements of the sales
charge rule of the National Association of Securities Dealers, Inc. The Class
A Plan provides that the Fund may make service fee payments for personal
services and/or the maintenance of shareholder accounts to the Principal
Underwriter, financial service firms ("investment dealers") and other persons
in amounts not exceeding 0.25% of average daily net assets for Class A shares
for any fiscal year. The Trustees have initially implemented the Class A Plan
by authorizing Class A to make quarterly service fee payments to the
Principal Underwriter and investment dealers in amounts not expected to
exceed 0.25% of the average daily net assets for any fiscal year which is
based on the value of Class A shares sold by such persons and remaining
outstanding for at least twelve months.
The Fund has also adopted distribution plans (Class B Plan and Class C Plan,
the Plans) pursuant to Rule 12b-1 under the Investment Company Act of 1940.
The Plans, which are approved annually, 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 Class B and Class C average daily net assets, for
providing ongoing distribution services and facilities to the Fund. The Fund
will automatically discontinue payments to EVD during any period in which
there are no outstanding Uncovered Distribution Charges, which are equivalent
to the sum of (i) 5% and 6.25% of the aggregate amount received by the Fund
for 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 due 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 amount payable to EVD with respect to each day is
accrued on such day as a liability of the Fund and, accordingly, reduces the
Fund's net assets. For the six months ended April 30, 1999, the Fund paid or
accrued $546,077 and $81,346, respectively, to or payable to EVD representing
0.75% of average daily net assets of Class B and Class C shares,
respectively. At April 30, 1999, the amount of Uncovered Distribution Charges
of EVD calculated under the Plans was approximately $22,882,000 and
$2,004,000 for Class B and Class C shares, respectively.
In addition, the Plans authorize the Fund to make payments of service fees to
EVD, investment dealers, and other persons in amounts not exceeding 0.25% of
their average daily net assets for each fiscal year. Service fee payments are
made for personal services and/or the maintenance of shareholder accounts.
Under the Class B Plan, this fee is paid quarterly in arrears based on the
value of Class B shares sold by such persons and remaining outstanding for at
least twelve months. Under the Class C Plan, EVD currently expects to pay to
an investment dealer (a) a service fee (except on exchange transactions and
reinvestments) at the time of sale equal to 0.25% of the purchase price of
the Class C shares sold by such Firm and (b) monthly service fees
approximately equivalent to 1/12 of 0.25% of the value of Class C shares sold
by such Firm and remaining outstanding for at least one year. During the
first year after a purchase of Class C shares, EVD will retain the service
fee as reimbursement for the service fee payment made to investment dealers
at the time of sale. Service fee payments for the six months ended April 30,
1999 amounted to $123,777 and $27,116, for Class B and Class C, respectively.
Service fees are separate and distinct from the sales commissions and
distribution fees payable by the Fund to EVD, and as such are not subject to
automatic discontinuance when there are no outstanding Uncovered Distribution
Charges of EVD.
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 and on redemptions of
Class C shares made within one year of purchase. Generally, the CDSC is based
on the lower of the net asset value at the date of redemption or date of
purchase. No charge is levied on shares acquired by reinvestment of dividends
or capital gains distributions. The Class B CDSC is imposed at declining
rates that begin at 5% in the case of redemption's in the first and second
years of redemption after purchase, declining one percentage point each
subsequent year. Class C shares will be subject to a 1% CDSC if redeemed
within one year of purchase. No CDSC is levied on shares which have been sold
to EVM or its affiliates or to their respective employees or clients 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 funds Distribution Plans. CDSC charges received when no Uncovered
Distribution Charges exist will be credited to the Fund. EVD received
approximately $78,000 and $3,000 of CDSC paid by shareholders of Class B and
Class C shares, respectively, during the six months ended April 30, 1999.
8
<PAGE>
EATON VANCE STRATEGIC INCOME FUND AS OF APRIL 30, 1999
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) CONT'D
7 Investment Transactions
- -------------------------------------------
Increases and decreases in the Fund's investment in the Strategic Income
Portfolio for the six months ended April 30, 1999, aggregated $29,280,617 and
$38,073,346, respectively. Increases in the Fund's investment in the High
Income Portfolio aggregated $16,000,000.
8 Investment in Portfolios
- -------------------------------------------
For the six months ended April 30, 1999, the Fund was allocated net
investment income and realized and unrealized gain (loss) from the Portfolios
as follows:
<TABLE>
<CAPTION>
STRATEGIC
INCOME HIGH INCOME
PORTFOLIO PORTFOLIO TOTAL
<S> <C> <C> <C>
- ------------------------------------------------------------------------------------
Dividend income $ -- $ 214,061 $ 214,061
Interest income 6,186,179 1,997,365 8,183,544
Expenses (578,692) (127,029) (705,721)
- ------------------------------------------------------------------------------------
NET INVESTMENT INCOME $ 5,607,487 $ 2,084,397 $ 7,691,884
- ------------------------------------------------------------------------------------
Net realized gain (loss)--
Investments (identified cost basis) $ (1,777,846) $ 676,636 $ (1,101,210)
Financial futures contracts (831,916) -- (831,916)
Options 188,125 -- 188,125
Foreign currency transactions (546,280) -- (546,280)
- ------------------------------------------------------------------------------------
NET REALIZED GAIN $ (2,967,917) $ 676,636 $ (2,291,281)
- ------------------------------------------------------------------------------------
Change in unrealized appreciation
(depreciation)
Investments $ 4,586,758 $ 2,873,671 $ 7,460,429
Financial futures contracts 107,302 -- 107,302
Options (110,000) -- (110,000)
Foreign currency, and forward foreign
currency exchange contracts 1,016,721 -- 1,016,721
- ------------------------------------------------------------------------------------
NET CHANGE IN UNREALIZED APPRECIATION
(DEPRECIATION) $ 5,600,781 $ 2,873,671 $ 8,474,452
- ------------------------------------------------------------------------------------
</TABLE>
9 Transfer of Net Assets
- -------------------------------------------
On November 1, 1997, EV Marathon Strategic Income Fund acquired the net
assets of EV Classic Strategic Income Fund pursuant to an Agreement and Plan
of Reorganization dated June 23, 1997. In accordance with the agreement, EV
Marathon Strategic Income Fund, at the closing, issued 702,848 Class C shares
of the Fund having an aggregate value of $8,399,641. As a result, the Fund
issued one Class C share for each share of EV Classic Strategic Income Fund.
The transaction was structured for tax purposes to qualify as a tax free
reorganization under the Internal Revenue Code. The EV Classic Strategic
Income Fund's net assets at the date of the transaction were $8,399,641,
including $33,282 of unrealized appreciation, and a net asset value per share
of $11.95. Directly after the merger, the combined net assets of the Eaton
Vance Strategic Income Fund (formerly "EV Marathon Strategic Income Fund")
were $138,995,841 with a net asset value of $9.47 and $11.95 for Class B
shares and Class C shares, respectively.
9
<PAGE>
STRATEGIC INCOME PORTFOLIO AS OF APRIL 30, 1999
PORTFOLIO OF INVESTMENTS
<TABLE>
<S> <C> <C>
BONDS & NOTES -- 90.4%
<CAPTION>
PRINCIPAL U.S. $ VALUE
<S> <C> <C>
- ---------------------------------------------------------------------------------------
Bulgaria -- 2.0% U.S. Dollar
- ---------------------------------------------------------------------------------------
Bulgaria Discount Bond (Brady), 5.875%, 7/28/24(1) 4,000,000 $ 2,745,000
- ---------------------------------------------------------------------------------------
Total Bulgaria (identified cost, $2,464,216) $ 2,745,000
- ---------------------------------------------------------------------------------------
Greece -- 2.5% Greek Drachma
- ---------------------------------------------------------------------------------------
Hellenic Republic, 9.20%, 3/21/02 1,000,000,000 $ 3,439,919
- ---------------------------------------------------------------------------------------
Total Greece (identified cost, $3,762,330) $ 3,439,919
- ---------------------------------------------------------------------------------------
Hong Kong -- 0.7% U.S. Dollar
- ---------------------------------------------------------------------------------------
Guangdong Enterprises, 8.75%, 12/15/03 3,000,000 $ 915,000
- ---------------------------------------------------------------------------------------
Total Hong Kong (identified cost, $2,766,774) $ 915,000
- ---------------------------------------------------------------------------------------
Indonesia -- 3.3% U.S. Dollar
- ---------------------------------------------------------------------------------------
APP Global Finance III, 9.289%, 4/17/02(1) 1,600,000 $ 1,096,000
DGS International Finance, 10.00%, 6/01/07 2,000,000 1,480,000
Indah Kiat Finance Mauritius, Sr. Unsec. Notes,
10.00%, 7/01/07 1,750,000 1,195,723
Indah Kiat International Finance, 6.15%, 3/14/00 Yen 125,000,000 893,044
- ---------------------------------------------------------------------------------------
Total Indonesia (identified cost, $4,798,457) $ 4,664,767
- ---------------------------------------------------------------------------------------
Malaysia -- 1.4% U.S. Dollar
- ---------------------------------------------------------------------------------------
Petronas, 7.125%, 10/18/06 2,000,000 $ 1,923,900
- ---------------------------------------------------------------------------------------
Total Malaysia (identified cost, $1,803,735) $ 1,923,900
- ---------------------------------------------------------------------------------------
Mexico -- 6.2% U.S. Dollar
- ---------------------------------------------------------------------------------------
Mexican Discount Bond (Brady), Series B,
w/attached warrants, 6.039%, 12/31/19(1) 4,000,000 $ 3,465,000
Mexican Discount Bond (Brady), Series D,
w/attached warrants, 6.098%, 12/31/19(1) 6,000,000 5,197,499
- ---------------------------------------------------------------------------------------
Total Mexico (identified cost, $8,089,395) $ 8,662,499
- ---------------------------------------------------------------------------------------
Peru -- 5.1% U.S. Dollar
- ---------------------------------------------------------------------------------------
Peru FLIRB (Brady), 3.75%, 3/07/17(1) 7,000,000 $ 4,353,125
Peru PDI (Brady), 4.50%, 3/07/17(1) 4,000,000 2,722,500
- ---------------------------------------------------------------------------------------
Total Peru (identified cost, $5,906,817) $ 7,075,625
- ---------------------------------------------------------------------------------------
Philippines -- 3.9% U.S. Dollar
- ---------------------------------------------------------------------------------------
JG Summit Cayman, 3.50%, 12/23/03 3,000,000 $ 2,250,000
Republic of Philippines, 9.875%, 1/15/19 3,000,000 3,099,375
- ---------------------------------------------------------------------------------------
Total Philippines (identified cost, $5,171,725) $ 5,349,375
- ---------------------------------------------------------------------------------------
<CAPTION>
PRINCIPAL U.S. $ VALUE
<S> <C> <C>
- ---------------------------------------------------------------------------------------
Republic of Korea -- 1.8% U.S. Dollar
- ---------------------------------------------------------------------------------------
Samsung Electronics Ltd., 0.00%, 12/31/07 1,550,000 $ 1,565,500
SK Telecom, 7.75%, 4/29/04 1,000,000 996,000
- ---------------------------------------------------------------------------------------
Total Republic of Korea
(identified cost, $2,397,480) $ 2,561,500
- ---------------------------------------------------------------------------------------
Thailand -- 2.7% U.S. Dollar
- ---------------------------------------------------------------------------------------
Bangkok Bank, 8.75%, 3/15/07(2) 2,000,000 $ 1,800,000
Siam Commercial Bank, 7.50%, 3/15/06(2) 2,400,000 1,992,000
- ---------------------------------------------------------------------------------------
Total Thailand (identified cost, $3,609,915) $ 3,792,000
- ---------------------------------------------------------------------------------------
United Kingdom -- 0.8% Deutsche Mark
- ---------------------------------------------------------------------------------------
Esprit Telecom Group PLC, 11.00%, 6/15/08 2,000,000 $ 1,189,292
- ---------------------------------------------------------------------------------------
Total United Kingdom
(identified cost, $1,117,631) $ 1,189,292
- ---------------------------------------------------------------------------------------
United States -- 57.1% U.S. Dollar
- ---------------------------------------------------------------------------------------
CORPORATE BONDS & NOTES -- 3.0%
Baltimore Natural Gas and Electric, 6.73%, 6/12/12 400,000 $ 414,168
Commercial Credit Corp., 7.875%, 2/01/25 1,000,000 1,104,130
Dayton Hudson Medium Term Notes, 9.52%, 6/10/15 350,000 423,357
TRW Inc., Medium Term Notes, 9.35%, 6/04/20 1,900,000 2,261,684
- ---------------------------------------------------------------------------------------
TOTAL CORPORATE BONDS & NOTES (IDENTIFIED COST, $3,976,978) $ 4,203,339
- ---------------------------------------------------------------------------------------
MORTGAGE PASS-THROUGHS -- 52.5%
Federal Home Loan Mortgage Corp.:
4.75%, with maturity at 2001 6,278 $ 6,203
8.00%, with various maturities to 2021 7,793,823 8,125,423
8.50%, with various maturities to 2019 1,565,147 1,668,324
9.00%, with maturity at 2019 472,411 508,070
9.25%, with various maturities to 2016 5,086,129 5,431,055
9.50%, with maturity at 2015 1,708,940 1,826,401
9.75%, with maturity at 2020 648,493 701,125
10.50%, with maturity at 2020 906,717 1,003,233
11.00%, with maturity at 2019 1,905,716 2,109,784
11.25%, with maturity at 2010 262,983 290,921
12.50%, with various maturities to 2019 2,175,586 2,517,449
12.75%, with maturity at 2013 122,581 140,601
13.25%, with maturity at 2013 102,253 118,690
13.50%, with maturity at 2019 250,742 293,341
- ---------------------------------------------------------------------------------------
$ 24,740,620
- ---------------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
10
<PAGE>
STRATEGIC INCOME PORTFOLIO AS OF APRIL 30, 1999
PORTFOLIO OF INVESTMENTS CONT'D
<TABLE>
<CAPTION>
PRINCIPAL U.S. $ VALUE
- ---------------------------------------------------------------------------------------
<S> <C> <C>
United States (continued) U.S. Dollar
- ---------------------------------------------------------------------------------------
Federal National Government Loan:
9.00%, with maturity at 2021 1,664,887 $ 1,795,469
9.50%, with maturity at 2013 1,874,215 2,040,884
11.00%, with maturity at 2025 868,644 978,322
- ---------------------------------------------------------------------------------------
$ 4,814,675
- ---------------------------------------------------------------------------------------
Federal National Mortgage Association:
5.00%, with maturity at 2003 63,064 $ 62,454
5.50%, with maturity at 2012 4,086 4,057
7.00%, with maturity at 2014 3,861,215 4,002,871
7.50%, with various maturities to 2018 2,485,649 2,582,115
8.00%, with various maturities to 2019 2,138,354 2,239,754
8.50%, with various maturities to 2026 10,344,634 10,933,950
9.00%, with various maturities to 2016 2,589,600 2,759,808
12.00%, with maturity at 2015 728,136 831,943
12.50%, with various maturities to 2019 5,593,798 6,460,316
12.75%, with maturity at 2014 111,622 130,426
13.00%, with various maturities to 2015 2,222,410 2,592,156
13.25%, with maturity at 2014 197,995 234,870
13.50%, with various maturities to 2015 1,288,524 1,505,729
14.75%, with various maturities to 2012 1,781,007 2,162,330
- ---------------------------------------------------------------------------------------
$ 36,502,779
- ---------------------------------------------------------------------------------------
Government National Mortgage Association:
6.50%, with various maturities to 2002 467,729 $ 472,096
7.50%, with various maturities to 2017 686,912 724,118
8.30%, with maturity at 2020 987,493 1,053,567
8.50%, with maturity at 2009 898,735 945,391
9.00%, with maturity at 2016 598,223 644,868
12.50%, with maturity at 2019 2,360,049 2,733,736
13.50%, with various maturities to 2014 229,472 273,077
- ---------------------------------------------------------------------------------------
$ 6,846,853
- ---------------------------------------------------------------------------------------
TOTAL MORTGAGE PASS-THROUGHS (IDENTIFIED COST, $72,886,480) $ 72,904,927
- ---------------------------------------------------------------------------------------
<CAPTION>
PRINCIPAL U.S. $ VALUE
<S> <C> <C>
- ---------------------------------------------------------------------------------------
U.S. TREASURY BOND -- 1.6%
United States Treasury Bond, 11.75%, 2/15/01(3)
(identified cost, $2,603,438) 2,000,000 $ 2,223,740
- ---------------------------------------------------------------------------------------
Total United States
(identified cost, $79,466,896) $ 79,332,006
- ---------------------------------------------------------------------------------------
Venezuela -- 2.9% U.S. Dollar
- ---------------------------------------------------------------------------------------
PDVSA Finance Ltd., 9.75%, 2/15/10(2) 4,000,000 $ 4,008,766
- ---------------------------------------------------------------------------------------
Total Venezuela (identified cost, $3,976,280) $ 4,008,766
- ---------------------------------------------------------------------------------------
Total Bonds & Notes (identified cost $125,331,651)
$ 125,659,649
- ---------------------------------------------------------------------------------------
SHORT-TERM INVESTMENTS -- 9.6%
U.S. Dollar
- ---------------------------------------------------------------------------------------
Banque National De Paris Euro Time-deposit Cayman
Islands, 4.813%, 5/03/99 7,700,000 $ 7,700,000
Skandinaviska Enskilada Bankentime Deposit,
4.875%, 5/03/99 5,602,927 5,602,927
- ---------------------------------------------------------------------------------------
Total Short-Term Investments
(at amortized cost $13,302,927) $ 13,302,927
- ---------------------------------------------------------------------------------------
Total Investments -- 100.0%
(identified cost $138,634,578) $ 138,962,576
- ---------------------------------------------------------------------------------------
</TABLE>
(1) Variable rate security. Rate indicated is the rate at April 30, 1999.
(2) 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. It is the
Portfolio's intention to hold this security until maturity.
(3) Security (or a portion thereof) has been segregated to cover margin
requirements on open financial futures contracts.
SEE NOTES TO FINANCIAL STATEMENTS
11
<PAGE>
STRATEGIC INCOME PORTFOLIO AS OF APRIL 30, 1999
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
<TABLE>
<CAPTION>
AS OF APRIL 30, 1999
<S> <C>
Assets
- -------------------------------------------------------
Investments, at value (identified cost,
$138,634,578) $ 138,962,576
Cash 13,729
Receivable for investments sold 291,450
Interest receivable 1,692,167
Net receivable for open forward foreign
currency contracts 58,616
- -------------------------------------------------------
TOTAL ASSETS $ 141,018,538
- -------------------------------------------------------
Liabilities
- -------------------------------------------------------
Payable for investments purchased $ 2,905,842
Payable for daily variation margin on
financial futures contracts 182,287
Payable to affiliate for Trustees' fees 91
Other accrued expenses 36,753
- -------------------------------------------------------
TOTAL LIABILITIES $ 3,124,973
- -------------------------------------------------------
NET ASSETS APPLICABLE TO INVESTORS'
INTEREST IN PORTFOLIO $ 137,893,565
- -------------------------------------------------------
Sources of Net Assets
- -------------------------------------------------------
Net proceeds from capital contributions
and withdrawals $ 137,933,001
Net unrealized depreciation (computed on
the basis of identified cost) (39,436)
- -------------------------------------------------------
TOTAL $ 137,893,565
- -------------------------------------------------------
</TABLE>
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDED
APRIL 30, 1999
<S> <C>
Investment Income
- ------------------------------------------------------
Interest $ 6,186,179
- ------------------------------------------------------
TOTAL INVESTMENT INCOME $ 6,186,179
- ------------------------------------------------------
Expenses
- ------------------------------------------------------
Investment adviser fee $ 354,183
Administration fee 99,693
Trustees fees and expenses 8,684
Custodian fee 56,697
Legal and accounting services 54,807
Amortization of organization expenses 1,558
Miscellaneous 3,070
- ------------------------------------------------------
TOTAL EXPENSES $ 578,692
- ------------------------------------------------------
NET INVESTMENT INCOME $ 5,607,487
- ------------------------------------------------------
Realized and Unrealized Gain (Loss)
- ------------------------------------------------------
Net realized gain (loss) --
Investment transactions (identified
cost basis) $ (1,777,846)
Financial futures contracts (831,916)
Options 188,125
Foreign currency transactions (546,280)
- ------------------------------------------------------
NET REALIZED LOSS $ (2,967,917)
- ------------------------------------------------------
Change in unrealized appreciation
(depreciation) --
Investments (identified cost basis) $ 4,586,758
Financial futures contracts 107,302
Options (110,000)
Foreign currency and forward foreign
currency exchange contracts 1,016,721
- ------------------------------------------------------
NET CHANGE IN UNREALIZED APPRECIATION
(DEPRECIATION) $ 5,600,781
- ------------------------------------------------------
NET REALIZED AND UNREALIZED GAIN $ 2,632,864
- ------------------------------------------------------
NET INCREASE IN NET ASSETS FROM
OPERATIONS $ 8,240,351
- ------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
12
<PAGE>
STRATEGIC INCOME PORTFOLIO AS OF APRIL 30, 1999
FINANCIAL STATEMENTS CONT'D
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
Increase (Decrease) SIX MONTHS ENDED YEAR ENDED
in Net Assets APRIL 30, 1999 OCTOBER 31, 1998
<S> <C> <C>
- --------------------------------------------------------------------------------
From operations --
Net investment income $ 5,607,487 $ 11,309,422
Net realized gain (loss) (2,967,917) 1,190,706
Net change in unrealized appreciation
(depreciation) 5,600,781 (11,251,878)
- --------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS FROM
OPERATIONS $ 8,240,351 $ 1,248,250
- --------------------------------------------------------------------------------
Capital transactions --
Contributions $ 29,280,617 $ 63,230,486
Withdrawals (38,073,346) (47,288,792)
- --------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN NET ASSETS
FROM CAPITAL TRANSACTIONS $ (8,792,729) $ 15,941,694
- --------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN NET ASSETS $ (552,378) $ 17,189,944
- --------------------------------------------------------------------------------
Net Assets
- --------------------------------------------------------------------------------
At beginning of period $ 138,445,943 $ 121,255,999
- --------------------------------------------------------------------------------
AT END OF PERIOD $ 137,893,565 $ 138,445,943
- --------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
13
<PAGE>
STRATEGIC INCOME PORTFOLIO AS OF APRIL 30, 1999
FINANCIAL STATEMENTS CONT'D
SUPPLEMENTARY DATA
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
SIX MONTHS ENDED ---------------------------------------------------------
APRIL 30, 1999 1998 1997 1996 1995 1994(1)
<S> <C> <C> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------
Ratios to average daily net assets
- ---------------------------------------------------------------------------------------------------------------------
Expenses 0.88%(2) 0.83% 0.86% 0.86% 0.84% 0.82%(2)
Net investment income 8.53%(2) 8.31% 8.06% 8.62% 9.08% 8.41%(2)
Portfolio Turnover 29% 71% 77% 71% 78% 71%
- ---------------------------------------------------------------------------------------------------------------------
NET ASSETS, END OF PERIOD (000'S
OMITTED) $137,894 $138,446 $121,256 $132,407 $152,583 $236,469
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) For the period from the start of business, March 1, 1994, to October 31,
1994.
(2) Annualized.
SEE NOTES TO FINANCIAL STATEMENTS
14
<PAGE>
STRATEGIC INCOME PORTFOLIO AS OF APRIL 30, 1999
NOTES TO FINANCIAL STATEMENTS
1 Significant Accounting Policies
- -------------------------------------------
Strategic Income Portfolio (the Portfolio) is registered under the Investment
Company Act of 1940 as a non-diversified open-end investment company. The
Portfolio, which was organized as a trust under the laws of the State of New
York in 1992, seeks to provide a high level of income by investing in a
global portfolio consisting primarily of high grade debt securities. The
Declaration of Trust permits the Trustees to issue beneficial interests in
the Portfolio. The following is a summary of significant accounting policies
of the Portfolio. The policies are in conformity with generally accepted
accounting principles.
A Investment Valuation -- Debt securities (other than mortgage-backed,
"pass-through," securities and short-term obligations maturing in sixty days
or less), including listed securities and securities for which price
quotations are available and forward contracts, will normally be valued on
the basis of market valuations furnished by pricing services. Mortgage
backed, "pass-through," securities are valued using an independent matrix
pricing system applied by the advisor which takes into account closing bond
valuations, yield differentials, anticipated prepayments and interest rates
provided by dealers. Financial futures contracts listed on commodity
exchanges and exchange-traded options are valued at closing settlement
prices. Short-term obligations and money-market securities maturing in sixty
days or less are valued at amortized cost which approximates value. Non-U.S.
dollar denominated short-term obligations are valued at amortized cost as
calculated in the base currency and translated to U.S. dollars at the current
exchange rate. Investments for which market quotations are unavailable are
valued at fair value using methods determined in good faith by or at the
direction of the Trustees of the Portfolio.
B Income -- Interest income is determined on the basis of interest accrued and
discount earned, adjusted for amortization of discount when required for
federal income tax purposes.
C Gains and Losses From Investment Transactions -- Realized gains and losses
from investment transactions are recorded on the basis of identified cost. For
book purposes, gains and losses are not recognized until disposition. For
federal tax purposes, the Portfolio is subject to special tax rules that may
affect the amount, timing and character of gains recognized on certain of the
Portfolio's investments.
D Income Taxes -- The Portfolio is treated as a partnership for federal tax
purposes. No provision is made by the Portfolio for federal or state taxes on
any taxable income of the Portfolio because each investor in the Portfolio is
ultimately responsible for the payment of any taxes. Since some of the
Portfolio's investors are regulated investment companies that invest all or
substantially all of their assets in the Portfolio, the Portfolio normally
must satisfy the applicable source of income and diversification requirements
(under the Code) in order for its investors to satisfy them. The Portfolio
will allocate at least annually among its investors each investor's
distributive share of the Portfolio's net investment income, net realized
capital gains, and any other items of income, gain, loss, deduction or
credit.
E Financial Futures Contracts -- Upon entering into a financial futures
contract, the Portfolio is required to deposit an amount ("initial margin"),
either in cash or securities, equal to a certain percentage of the purchase
price indicated in the financial futures contract. Subsequent payments are
made or received by the Portfolio ("variation margin") each day, dependent on
the daily fluctuations in the value of the underlying security, and are
recorded for book purposes as unrealized gains or losses by the Portfolio.
The Portfolio's investment in financial futures contracts is designed for
both hedging against anticipated future changes in interest or currency
exchange rates and investment purposes. Should interest or currency exchange
rates move unexpectedly, the Portfolio may not achieve the anticipated
benefits of the financial futures contracts and may realize a loss. If the
Portfolio enters into a closing transaction, the Portfolio will realize, for
book purposes, a gain or loss equal to the difference between the value of
the financial futures contract to sell and financial futures contract to buy.
F Foreign Currency Translation -- Investment valuations, other assets, and
liabilities initially expressed in foreign currencies are converted each
business day into U.S. dollars based upon current exchange rates. Purchases
and sales of foreign investment securities and income and expenses are
converted into U.S. dollars based upon currency exchange rates prevailing on
the respective dates of such transactions. Recognized gains or losses on
investment transactions attributable to changes in foreign currency exchange
rates are recorded for financial statement purposes as net realized gains and
losses on investments. That portion of unrealized gains and losses on
investments that result from fluctuations in foreign currency exchange rates
are not separately disclosed.
G Written Options -- The Portfolio may write call or put options for which
premiums are received and are recorded as liabilities, and are subsequently
adjusted to the
15
<PAGE>
STRATEGIC INCOME PORTFOLIO AS OF APRIL 30, 1999
NOTES TO FINANCIAL STATEMENTS CONT'D
current value of the options written. Premiums received from writing options
which expire are treated as realized gains. Premiums received from writing
options which are exercised or are closed are offset against the proceeds or
amount paid on the transaction to determine the realized gain or loss. If a
put option is exercised, the premium reduces the cost basis of the securities
purchased by the Portfolio. The Portfolio as writer of an option may have no
control over whether the underlying securities may be sold (call) or
purchased (put) and as a result bears the market risk of an unfavorable
change in the price of the securities underlying the written option.
H Forward Foreign Currency Exchange Contracts -- The Portfolio may enter into
forward foreign currency exchange contracts for the purchase or sale of a
specific foreign currency at a fixed price on a future date. Risks may arise
upon entering these contracts from the potential inability of counterparties
to meet the terms of their contracts and from movements in the value of a
foreign currency relative to the U.S. dollar. The Portfolio will enter into
forward contracts for hedging purposes as well as non-hedging purposes. The
forward foreign currency exchange contracts are adjusted by the daily
exchange rate of the underlying currency and any gains or losses are recorded
for financial statement purposes as unrealized until such time as the
contracts have been closed.
I Reverse Repurchase Agreements -- The Portfolio may enter into reverse
repurchase agreements. Under such an agreement, the Portfolio temporarily
transfers possession, but not ownership, of a security to a counterparty, in
return for cash. At the same time, the Portfolio agrees to repurchase the
security at an agreed-upon price and time in the future. The Portfolio may
enter into reverse repurchase agreements for temporary purposes, such as to
fund withdrawals, or for use as hedging instruments where the underlying
security is denominated in a foreign currency. As a form of leverage, reverse
repurchase agreements may increase the risk of fluctuation in the market
value of the Portfolio's assets or in its yield. Liabilities to
counterparties under reverse repurchase agreements are recognized in the
Statement of Assets and Liabilities at the same time at which cash is
received by the Portfolio. The securities underlying such agreements continue
to be treated as owned by the Portfolio and remain in the Portfolio of
investments. Interest charged on amounts borrowed by the Portfolio under
reverse repurchase agreements is accrued daily and offset against interest
income for financial statement purposes.
J Deferred Organization Expenses -- Costs incurred by the Portfolio in
connection with its organization are being amortized on the straight-line
basis over five years.
K Use of Estimates -- The preparation of the financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities at the date of the financial statements and the reported amounts
of income and expenses during the reporting period. Actual results could
differ from those estimates.
L Other -- Investment transactions are accounted for on a trade date basis.
2 Investment Adviser Fee and Other Transactions with Affiliates
- -------------------------------------------
The investment adviser fee is earned by Boston Management and Research (BMR),
a wholly-owned subsidiary of Eaton Vance Management (EVM), as compensation
for management and investment advisory services rendered to the Portfolio.
The fee is based upon a percentage of average daily net assets plus a
percentage of gross income (i.e., income other than gains from the sale of
investments). Such percentages are reduced as average daily net assets exceed
certain levels. For the six months ended April 30, 1999, the fee was
equivalent to 0.54% (annualized) of the Portfolio's average net assets for
such period and amounted to $354,183. An administration fee, computed at an
effective annual rate of 0.15% of average daily net assets was also paid to
BMR for administrative services and office facilities. Such fee amounted to
$99,693 for the six months ended April 30, 1999.
Except as to Trustees of the Portfolio who are not members of EVM's or BMR's
organization, officers and Trustees receive remuneration for their services
to the Portfolio out of such investment adviser fee. Trustees of the
Portfolio that are not affiliated with the Investment Adviser may elect to
defer receipt of all or a portion of their annual fees in accordance with the
terms of the Trustees Deferred Compensation Plan. For the six months ended
April 30, 1999, no significant amounts have been deferred. Certain of the
officers and Trustees of the Portfolios are officers of the above
organizations.
3 Line of Credit
- -------------------------------------------
The Portfolio participates with other portfolios and funds managed by BMR or
EVM and its affiliates in a $130
16
<PAGE>
STRATEGIC INCOME PORTFOLIO AS OF APRIL 30, 1999
NOTES TO FINANCIAL STATEMENTS CONT'D
million unsecured line of credit agreement with a group of banks. The
portfolio may temporarily borrow from the line of credit to satisfy
redemption requests or settle investment transactions. Interest is charged to
each portfolio or fund based on its borrowings at an amount above the
Eurodollar rate or federal funds rate. In addition, a fee computed at an
annual rate of 0.10% on the daily unused portion of the line of credit is
allocated among the participating portfolios and funds at the end of each
quarter. The Portfolio did not have any significant borrowings or allocated
fees during the period.
4 Investment Transactions
- -------------------------------------------
The Portfolio invests primarily in foreign government and U.S. Government
debt securities. The ability of the issuers of the debt securities to meet
their obligations may be affected by economic developments in a specific
industry or country. The Portfolio regularly invests in lower rated and
comparable quality unrated high yield securities. These investments have
different risks than investments in debt securities rated investment grade
and held by the Portfolio. Risk of loss upon default by the borrower is
significantly greater with respect to such debt securities than with other
debt securities because these securities are generally unsecured and are more
sensitive to adverse economic conditions, such as recession or increasing
interest rates, than are investment grade issuers. At April 30, 1999, the
Portfolio had invested approximately 26.1% of its net assets or approximately
$35,959,000 in high yield securities. Purchases and sales of investments,
other than short-term obligations, for the six months ended April 30, 1999
were as follows:
<TABLE>
<CAPTION>
PURCHASES
<S> <C>
- -------------------------------------------------------
Investments (non-U.S. Government) $ 33,100,168
U.S. Government Securities 3,601,875
- -------------------------------------------------------
$ 36,702,043
- -------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
SALES
<S> <C>
- -------------------------------------------------------
Investments (non-U.S. Government) $ 37,042,578
U.S. Government Securities 11,834,766
- -------------------------------------------------------
$ 48,877,344
- -------------------------------------------------------
</TABLE>
5 Financial Instruments
- -------------------------------------------
The Portfolio regularly trades in financial instruments with off-balance
sheet risk in the normal course of its investing activities to assist in
managing exposure to various market risks. These financial instruments
include written options, 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 April 30, 1999 is as
follows:
<TABLE>
<CAPTION>
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS
- -----------------------------------------------------------------------
SALES
- -----------------------------------------------------------------------
NET
UNREALIZED
SETTLEMENT IN EXCHANGE FOR APPRECIATION
DATE(S) DELIVER (IN U.S. DOLLARS) (DEPRECIATION)
<C> <S> <C> <C>
- -----------------------------------------------------------------------
6/22/99 Euro
6,327,000 $ 6,721,185 $ 34,849
6/30/99 Japanese Yen
1,036,991,267 8,736,867 40,666
5/25/99 Republic of Korea Won
3,700,000,000 3,110,987 (97,957)
- -----------------------------------------------------------------------
$ 18,569,039 $(22,442)
- -----------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
PURCHASES
- -----------------------------------------------------------------------
NET
UNREALIZED
SETTLEMENT DELIVER APPRECIATION
DATE(S) IN EXCHANGE FOR (IN U.S. DOLLARS) (DEPRECIATION)
<C> <S> <C> <C>
- -----------------------------------------------------------------------
5/28/99 Australian Dollar
2,800,000 $ 1,853,743 $ 23,803
5/06/99 Japanese Yen
107,991,267 903,111 (1,604)
5/12/99 Philippine Peso
62,560,000 1,642,055 58,859
- -----------------------------------------------------------------------
$ 4,398,909 $ 81,058
- -----------------------------------------------------------------------
</TABLE>
17
<PAGE>
STRATEGIC INCOME PORTFOLIO AS OF APRIL 30, 1999
NOTES TO FINANCIAL STATEMENTS CONT'D
<TABLE>
<CAPTION>
FUTURES CONTRACTS
- ----------------------------------------------------------------------------------
NET UNREALIZED
EXPIRATION APPRECIATION
DATE(S) CONTRACTS POSITION (DEPRECIATION)
<C> <S> <C> <C>
- ----------------------------------------------------------------------------------
6/08/99 35 Euro 10 year Bond Futures Long $ 88,294
6/15/99 84 Australian 10 year Bond Futures Long 49,427
6/21/99 13 Japanese 10 year Bond Futures Short (428,222)
6/30/99 73 US 30 year Bond Futures Long (54,454)
- ----------------------------------------------------------------------------------
$ (344,955)
- ----------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
WRITTEN CALL OPTIONS
- ---------------------------------------------------------------------------------
NUMBER OF CONTRACTS PREMIUMS
<S> <C> <C>
- ---------------------------------------------------------------------------------
Outstanding, beginning of period 160 $ 188,125
- ---------------------------------------------------------------------------------
Options expired (160) (188,125)
- ---------------------------------------------------------------------------------
Outstanding, end of period 0 $ 0
- ---------------------------------------------------------------------------------
</TABLE>
At April 30, 1999, the Portfolio had sufficient cash and/or securities to
cover potential obligations arising from open futures and forward contracts,
as well as margin requirements on open futures contracts.
6 Federal Income Tax Basis of Investments (Unaudited)
- -------------------------------------------
The cost and unrealized appreciation/depreciation in value of the investments
owned at April 30, 1999, as computed on a federal income tax basis, were as
follows:
<TABLE>
<S> <C>
AGGREGATE COST $ 139,101,882
- -------------------------------------------------------
Gross unrealized appreciation $ 3,034,047
Gross unrealized depreciation (3,173,353)
- -------------------------------------------------------
NET UNREALIZED DEPRECIATION $ (139,306)
- -------------------------------------------------------
</TABLE>
18
<PAGE>
STRATEGIC INCOME PORTFOLIO AS OF APRIL 30, 1999
INDEPENDENT ACCOUNTANTS' REPORT
TO THE TRUSTEES AND INVESTORS
OF STRATEGIC INCOME PORTFOLIO:
- ---------------------------------------------
In our opinion, the accompanying statement of assets and liabilities, including
the portfolio of investments, and the related statements of operations and of
changes in net assets and supplementary data present fairly, in all material
respects, the financial position of Strategic Income Portfolio (the "Portfolio")
at April 30, 1999, the results of its operations for the six months then ended,
the changes in its net assets for the six months ended April 30, 1999 and the
year ended October 31, 1998, and the supplementary data for the six months ended
April 30, 1999 and each of the four years ended October 31, and for the period
from the start of business, March 1, 1994, to October 31, 1994, in conformity
with generally accepted accounting principles. These financial statements and
supplementary data (hereafter referred to as "financial statements") are the
responsibility of the Portfolio's management; our responsibility is to express
an opinion on these financial statements based on our audits. We conducted our
audits of these financial statements in accordance with generally accepted
auditing standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of securities at April 30, 1999 by
correspondence with the custodian and brokers, provide a reasonable basis for
the opinion expressed above.
PricewaterhouseCoopers LLP
Boston, Massachusetts
June 10, 1999
19
<PAGE>
EATON VANCE STRATEGIC INCOME FUND AS OF APRIL 30, 1999
INVESTMENT MANAGEMENT
EATON VANCE STRATEGIC INCOME FUND
Officers
James B. Hawkes
President and Trustee
William H. Ahern, Jr.
Vice President
Thomas J. Fetter
Vice President
Robert B. MacIntosh
Vice President
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
John L. Thorndike
Former Director, Fiduciary Company Incorporated
Jack L. Treynor
Investment Adviser and Consultant
STRATEGIC INCOME PORTFOLIO
Officers
James B. Hawkes
President and Trustee
Mark S. Venezia
Vice President 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
John L. Thorndike
Former Director, Fiduciary Company Incorporated
Jack L. Treynor
Investment Adviser and Consultant
20
<PAGE>
EATON VANCE STRATEGIC INCOME FUND AS OF APRIL 30, 1999
INVESTMENT MANAGEMENT CONT'D
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
Independent 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
John L. Thorndike
Former Director, Fiduciary Company Incorporated
Jack L. Treynor
Investment Adviser and Consultant
21
<PAGE>
INVESTMENT ADVISER OF
STRATEGIC INCOME PORTFOLIO
Boston Management and Research
The Eaton Vance Building
255 State Street
Boston, MA 02109
ADMINISTRATOR OF EATON VANCE
STRATEGIC 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
(617) 482-8260
CUSTODIAN
Investors Bank & Trust Company
200 Clarendon Street
Boston, MA 02116
TRANSFER AND DIVIDEND DISBURSING AGENT
First Data Investor Services Group, Inc.
Attention: Eaton Vance Funds
P.O. Box 5123
Westborough, MA 01581-5123
INDEPENDENT ACCOUNTANTS
PricewaterhouseCoopers LLP
160 Federal Street
Boston, MA 02110
EATON VANCE STRATEGIC INCOME FUND
THE EATON VANCE BUILDING
255 STATE STREET
BOSTON, MA 02109
- -------------------------------------------------------------------------------
This report must be preceded or accompanied by a current prospectus which
contains more complete information on the Fund, including its distribution
plan, sales charges and expenses. Please read the prospectus carefully before
you invest or send money.
- -------------------------------------------------------------------------------
2-2145-6/99 SISRC-6/99
