<PAGE>
[LOGO] INVESTING
MUTUAL FUNDS FOR THE [GRAPHIC]
21ST
CENTURY-Registered Trademark-
Annual Report October 31, 2000
[GRAPHIC] EATON VANCE
STRATEGIC
INCOME
FUND
[GRAPHIC]
<PAGE>
EATON VANCE STRATEGIC INCOME FUND AS OF OCTOBER 31, 2000
LETTER TO SHAREHOLDERS
[PHOTO]
James B. Hawkes
President
Eaton Vance Strategic Income Fund Class A shares had a total return of 0.88%
during the year ended October 31, 2000. That return was the result of a decrease
in net asset value per share (NAV) from $9.11 on October 31, 1999 to $8.36 on
October 31, 2000, and the reinvestment of $0.847 in dividends.(1)
The Fund's Class B shares had a total return of 0.07% during the year ended
October 31, 2000. That return resulted from a decrease in NAV from $8.61 on
October 31, 1999 to $7.91 on October 31, 2000, and the reinvestment of $0.723 in
dividends.(1)
Class C shares had a total return of 0.02% for the year, the result of a
decrease in NAV from $10.87 on October 31, 1999 to $9.99 on October 31, 2000,
and the reinvestment of $0.904 in dividends.(1)
VOLATILITY WAS THE WATCHWORD IN THE GLOBAL BOND MARKETS IN 2000...
The world's bond markets were characterized by rising volatility in 2000.
Concerns regarding the U.S. economy resulted in the Federal Reserve hiking
interest rates on six occasions between June 1999 and May 2000 for a total of
175 basis points (1.75%). Add to this a volatile stock market concerned with
corporate profits in a slowing U.S. economy. As a result, yield spreads over
U.S. Treasuries for both high-yield corporate bonds and for investment-grade
corporate bonds increased dramatically as market liquidity dried up.
The emerging markets were also characterized by increased volatility, especially
in Asia. While economic trends remained favorable in many Latin American
countries, political uncertainties undermined investor confidence. Still,
emerging markets generally outperformed domestic markets over the fiscal year.
HISTORICALLY, A DIVERSIFIED, GLOBAL APPROACH HAS PROVEN A SOUND FIXED-INCOME
STRATEGY...
Clearly, this year has been difficult for fixed-income investors. However,
history has demonstrated the value of a flexible approach to fixed-income
investing: combining investments in emerging countries having above-average
economic growth and declining inflation with attractive high-yielding
opportunities in the U.S. We believe that approach can again prove a sound
strategy for long-term investors. In the pages that follow, portfolio manager
Mark Venezia provides his insights into the fiscal year just ended, and suggests
what may lie ahead for bond investors in the coming year.
Sincerely,
/s/James B. Hawkes
James B. Hawkes
President
December 7, 2000
-------------------------------------------------------------------------------
FUND INFORMATION
AS OF OCTOBER 31, 2000
<TABLE>
<CAPTION>
PERFORMANCE(2) CLASS A CLASS B CLASS C
----------------------------------------------------------------------------
<S> <C> <C> <C>
Average Annual Total Returns (at net asset value)
----------------------------------------------------------------------------
One Year 0.88% 0.07% 0.02%
Five Years N.A. 7.00 6.30
Life of Fund+ 2.80 5.72 7.10
SEC Average Annual Total Returns (including sales charge or applicable CDSC)
----------------------------------------------------------------------------
One Year -3.86% -4.52% -0.89%
Five Years N.A. 6.71 6.30
Life of Fund+ 1.00 5.72 7.10
</TABLE>
+Inception Dates - Class A: 1/23/98; Class B: 11/26/90; Class C:5/25/94
PORTFOLIO WEIGHTINGS(3)
---------------------------------------------------------------------------
By total investments. Weightings reflect the Fund's investment in Strategic
Income Portfolio (holdings described beginning on page 15) and a 24.1%
investment in High Income Portfolio.
U.S. Investment Grade 49.0%
U.S. High Yield 24.7%
Asia/Pacific 9.5%
Eastern Europe 7.9%
Latin America 7.1%
(1) These returns do not include the 4.75% maximum sales charge for the Fund's
Class A shares or the applicable contingent deferred sales charges (CDSC)
for Class B and Class C shares. (2) Returns are historical and are
calculated by determining the percentage change in net asset value with all
distributions reinvested. SEC returns for Class A reflect the maximum 4.75%
sales charge. SEC returns for Class B 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. SEC 1-Year return for Class C reflects a 1%
CDSC. (3) Because the Portfolio is actively managed, Regional Weightings 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.
<PAGE>
EATON VANCE STRATEGIC INCOME FUND AS OF OCTOBER 31, 2000
MANAGEMENT DISCUSSION
[PHOTO]
Mark S. Venezia
Portfolio Manager
AN INTERVIEW WITH MARK S. VENEZIA,
PORTFOLIO MANAGER OF STRATEGIC INCOME PORTFOLIO.
Q: MARK, 2000 HAS FEATURED SIGNIFICANT VOLATILITY WITHIN THE FINANCIAL
MARKETS. TO WHAT EXTENT HAS THAT VOLATILITY BEEN EVIDENT IN THE PORTFOLIO'S
INVESTMENT UNIVERSE?
A: Virtually all of the markets that comprise the Portfolio's investment
universe experienced severe volatility during the fiscal year. A
combination of rising interest rates, collapsing equity markets, rising oil
prices, a slowing U.S. economy and political uncertainties contributed to
the difficult environment.
While high-yield corporate bonds were devastated, investment-grade
corporates and U.S. government agency bonds were also hard hit during the
period. This was arguably the most difficult year on record for
multi-sector bond investing, and the Fund's performance reflected that
climate.
Q: HOW HAVE YOU POSITIONED THE PORTFOLIO IN RECENT MONTHS?
A: At October 31, 2000, U.S. investment-grade bonds represented about 49% of
the Portfolio, with mortgage-backed securities and U.S. government agencies
constituting the largest portions of that amount. 24.7% of the Portfolio -
an increase of 2% over last year - was invested in domestic high-yield
bonds, including the Portfolio's investments in High Income Portfolio. On a
regional basis, we have maintained investments in Asia and Eastern Europe,
9.5% and 7.9% of the Portfolio, respectively, with another 7.1% in Latin
America. This increase in emerging market exposure is primarily a move into
Eastern Europe, where Russia appears to have turned the corner
economically.
Q: YOU MENTIONED THE DIFFICULTIES IN THE HIGH-YIELD MARKET. COULD YOU EXPAND
ON THAT?
A: The high-yield market has been dominated in recent years by
telecommunication bond issuance, where the demand for capital has weighed
heavily on the market. An example of this exploding demand for capital was
Germany's August auction of third generation wireless licenses, which
commanded $46
-------------------------------------------------------------------------------
Quality Weightings(1)
---------------------------------------
By total investments
[PIE GRAPH]
Investment Grade 54.0%
Below Investment Grade 46.0%
(1) Because the Portfolio is actively managed, Quality Weightings are subject to
change. Weightings include the Fund's investment in Strategic Income
Portfolio (holdings described beginning on page 15) and a 24.1% investment
in High Income Portfolio.
The Portfolio's holdings will change over time. The discussion of specific
holdings reflects only the portfolio manager's view of those holdings as of
the date of this report.
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.
<PAGE>
EATON VANCE STRATEGIC INCOME FUND AS OF OCTOBER 31, 2000
MANAGEMENT DISCUSSION CONT'D
billion in bids. As demand ballooned, even traditional deep-pocket equity
holders - sometimes the last-resort supplier of capital - let some borrowers
fend for themselves.
The numbers illustrate the dimensions of the market decline. For example, the
yield spread over 10-year U.S. Treasuries for the Merrill Lynch High Yield
Master II Index - a widely followed, unmanaged index of high-yield corporate
bonds - rose to around 775 basis points (7.75%) as of October 31, 2000, a 265
basis point increase in the past year alone. Within the dominant telecom sector,
the damage was even more dramatic, with spreads over Treasuries widening 359
basis points over the same period.
Q: AND WHAT ABOUT THE INVESTMENT-GRADE SEGMENT OF THE MARKET?
A: The investment-grade corporate market also registered a decline, due in
part to the fallout from the high-yield sector, but also due to signs of
slower corporate profits. The yield spread of the Merrill Lynch U.S.
Corporate Master Index - an unmanaged index of investment-grade corporate
bonds - widened 70 basis points to the 205 (2.05%) level as measured on
October 31, 2000. Spreads for U.S. agencies also widened significantly.
Whatever restructuring brings to these "old economy" issuers, we are happy
to own them at spreads that are quadruple the level of just three years
ago.
Q: LET'S TURN TO THE EMERGING MARKETS. HOW HAVE THE LATIN AMERICAN MARKETS
PERFOMED IN 2000?
A: The emerging markets produced a mixed picture. Latin America fared
relatively well early in the fiscal year as Brazil's economy generated
stronger than expected growth and Mexico made further progress against
inflation. The Portfolio has maintained a fairly large exposure to
Brazilian Brady bonds. In Mexico, the Portfolio has an investment in
Alestra, a leading provider of long distance phone services. Elsewhere,
political concerns in Peru and Argentina in the second half of the year
have undermined investor confidence and resulted in increased volatility in
Latin America overall.
Q: IN 1999, ASIA LAUNCHED A MAJOR RECOVERY, FOLLOWING THE FISCAL CRISIS OF
1998. HOW WOULD YOU DESCRIBE THE ASIAN MARKETS IN 2000?
A: Asia has fared less well in 2000. Japan's slow recovery has continued,
while deflation and weak domestic demand have slowed China's growth.
Indonesia and the Philippines continued to struggle with political
uncertainties. We added some defensive investments to the Portfolio,
including China's Tingyi Holdings and Huaneng Power. Tingyi is a
fast-growing Chinese food producer that makes and distributes some of the
region's most popular varieties of noodles, a dietary staple throughout the
China region. Huaneng Power is a major power generator in Guandong and
other coastal provinces in China and has shared in China's strong economic
recovery. The company saw a 37% increase in power generation in 1999 and
has maintained a similar pace in 2000.
Q: HAS EASTERN EUROPE REMAINED A PART OF YOUR EMERGING MARKETS INVESTMENTS?
A: Yes. Eastern Europe's markets have strengthened somewhat with an improved
political and economic outlook for Russia. The new Putin government has
enacted economic and political reforms and has restructured some Soviet-era
debt. In addition, with its large energy reserves, Russia stands to benefit
from the rise in oil prices. The Bulgarian market, where we also have a
position, was negatively impacted by the events in Yugoslavia and Kosovo in
1999. With the improvement in the region in recent months, Bulgarian bonds
have performed relatively well.
<PAGE>
EATON VANCE STRATEGIC INCOME FUND AS OF OCTOBER 31, 2000
MANAGEMENT DISCUSSION CONT'D
Q: YOU INDICATED THAT THE PORTFOLIO HAS A LARGE EXPOSURE TO MORTGAGE-BACKED
SECURITIES AND GOVERNMENT AGENCY BONDS.
A: Yes. Mortgage-backed securities (MBS) and government agency bonds lagged
the Treasury market in 1999 and, as spreads had widened appreciably, we
took the opportunity to increase our commitments in those areas. With the
rise in mortgage rates late last year, prepayment rates for our seasoned
MBS slowed, making this our best-performing U.S. sector.
Q: MARK, WHAT IS YOUR OUTLOOK FOR THE COMING YEAR?
A: To be sure, there are still major hurdles to overcome in the high-yield
market. A less robust economy could result in slower corporate profit
growth. In addition, the debt burden within the telecom sector will likely
weigh on the market for a while before other buyers take advantage of these
exceptional yield spreads. Still, we believe that the high-yield market
represents excellent long-term value.
We further believe that the market has unduly punished many
investment-grade companies in recent months, which has created excellent
buying opportunities in selected situations.
Finally, within the emerging markets, I'm encouraged by the improvement in
some Eastern European countries and the strengthened commitment to reform
in Russia. Meanwhile, Brazil and Mexico have continued their economic
reforms, a favorable development for Latin America. With many foreign
markets having cheapened in recent months, we believe there are some
exceptional values that we can exploit in the year ahead.
[GRAPH]
Comparison of Change in Value of a $10,000 Investment in Eaton Vance Strategic
Income Fund, Class B vs. Lehman Aggregate Bond Index and the Composite of Lipper
Fund Category Averages
<TABLE>
<CAPTION>
Date Fund/NAV Lipper Lehman
<S> <C> <C> <C>
11/30/1990 $10,000 $10,000 10,000
12/31/1990 $9,973 $10,024 10155.81
1/31/1991 $10,091 $10,189 10281.36
2/28/1991 $10,197 $10,201 10369.12
3/31/1991 $10,340 $9,975 10439.05
4/30/1991 $10,438 $10,070 10553.56
5/31/1991 $10,580 $10,086 10615.28
6/30/1991 $10,553 $10,046 10609.88
7/31/1991 $10,550 $10,170 10757.01
8/31/1991 $10,640 $10,254 10989.79
9/30/1991 $10,739 $10,411 11212.48
10/31/1991 $10,819 $10,508 11337.32
11/30/1991 $10,732 $10,511 11441.28
12/31/1991 $10,794 $10,670 11781.06
1/31/1992 $10,840 $10,625 11620.79
2/29/1992 $10,952 $10,687 11696.35
3/31/1992 $10,958 $10,703 11630.41
4/30/1992 $11,109 $10,798 11714.42
5/31/1992 $11,185 $10,912 11935.47
6/30/1992 $11,222 $10,978 12099.73
7/31/1992 $11,239 $11,010 12346.59
8/31/1992 $11,079 $10,969 12471.67
9/30/1992 $10,719 $10,662 12619.50
10/31/1992 $10,662 $10,649 12452.19
11/30/1992 $10,626 $10,570 12456.88
12/31/1992 $10,719 $10,590 12653.06
1/31/1993 $10,762 $10,643 12895.69
2/28/1993 $11,015 $10,725 13121.44
3/31/1993 $11,102 $10,771 13176.11
4/30/1993 $11,192 $10,832 13267.86
5/31/1993 $11,261 $10,914 13284.76
6/30/1993 $11,341 $10,952 13525.52
7/31/1993 $11,545 $10,978 13602.02
8/31/1993 $11,603 $11,018 13840.43
9/30/1993 $11,487 $11,000 13878.45
10/31/1993 $11,782 $11,070 13930.31
11/30/1993 $11,740 $11,032 13811.80
12/31/1993 $11,880 $11,134 13886.66
1/31/1994 $12,073 $11,213 14074.15
2/28/1994 $11,738 $11,048 13829.64
3/31/1994 $11,097 $10,899 13488.68
4/30/1994 $11,184 $10,895 13380.97
5/31/1994 $11,352 $10,906 13379.09
6/30/1994 $10,920 $10,827 13349.53
7/31/1994 $10,973 $10,863 13614.69
8/31/1994 $11,136 $10,907 13631.59
9/30/1994 $11,130 $10,941 13430.95
10/31/1994 $11,154 $10,975 13418.99
11/30/1994 $11,284 $10,993 13389.18
12/31/1994 $11,254 $10,697 13481.64
1/31/1995 $11,047 $10,627 13748.45
2/28/1995 $11,022 $10,672 14075.33
3/31/1995 $10,992 $10,650 14161.68
4/30/1995 $11,474 $10,828 14359.50
5/31/1995 $11,920 $10,974 14915.17
6/30/1995 $11,802 $11,002 15024.52
7/31/1995 $11,898 $11,101 14990.97
8/31/1995 $12,110 $11,150 15171.89
9/30/1995 $12,350 $11,258 15319.49
10/31/1995 $12,419 $11,331 15518.71
11/30/1995 $12,662 $11,411 15751.26
12/31/1995 $12,880 $11,493 15972.31
1/31/1996 $13,394 $11,587 16078.38
2/29/1996 $13,132 $11,555 15798.90
3/31/1996 $13,219 $11,577 15689.08
4/30/1996 $13,500 $11,651 15600.85
5/31/1996 $13,572 $11,696 15569.17
6/30/1996 $13,780 $11,778 15778.25
7/31/1996 $13,812 $11,852 15821.43
8/31/1996 $14,049 $11,908 15794.91
9/30/1996 $14,487 $12,022 16070.16
10/31/1996 $14,714 $12,136 16426.14
11/30/1996 $15,164 $12,254 16707.50
12/31/1996 $15,223 $12,279 16552.15
1/31/1997 $15,539 $12,271 16602.84
2/28/1997 $15,685 $12,269 16644.14
3/31/1997 $15,534 $12,057 16459.70
4/30/1997 $15,640 $12,170 16706.09
5/31/1997 $15,767 $12,404 16864.02
6/30/1997 $15,907 $12,595 17064.18
7/31/1997 $16,219 $12,887 17524.35
8/31/1997 $16,013 $12,820 17374.87
9/30/1997 $16,275 $13,095 17631.12
10/31/1997 $16,250 $12,988 17886.90
11/30/1997 $16,376 $13,062 17969.26
12/31/1997 $16,520 $13,170 18150.18
1/31/1998 $16,648 $13,343 18383.20
2/28/1998 $16,713 $13,438 18369.35
3/31/1998 $16,912 $13,555 18432.48
4/30/1998 $16,897 $13,602 18528.69
5/31/1998 $16,921 $13,582 18704.45
6/30/1998 $16,869 $13,550 18863.08
7/31/1998 $17,002 $13,611 18903.20
8/31/1998 $16,080 $12,825 19210.84
9/30/1998 $16,192 $13,040 19660.68
10/31/1998 $16,217 $12,958 19556.73
11/30/1998 $16,870 $13,373 19667.72
12/31/1998 $16,839 $13,358 19726.86
1/31/1999 $16,864 $13,429 19867.65
2/28/1999 $16,897 $13,281 19520.83
3/31/1999 $17,171 $13,475 19629.01
4/30/1999 $17,481 $13,738 19691.19
5/31/1999 $17,217 $13,446 19518.72
6/30/1999 $17,254 $13,458 19456.53
7/31/1999 $17,238 $13,422 19373.70
8/31/1999 $17,122 $13,338 19363.84
9/30/1999 $17,260 $13,407 19588.64
10/31/1999 $17,403 $13,428 19660.92
11/30/1999 $17,584 $13,552 19659.51
12/31/1999 $17,750 $13,694 19564.71
1/31/2000 $17,752 $13,576 19500.65
2/29/2000 $18,036 $13,769 19736.48
3/31/2000 $18,017 $13,765 19996.48
4/30/2000 $17,890 $13,596 19939.22
5/31/2000 $17,727 $13,429 19930.07
6/30/2000 $18,068 $13,752 20344.71
7/31/2000 $18,178 $13,804 20529.39
8/31/2000 $18,376 $13,911 20826.94
9/30/2000 $18,003 $13,788 20957.88
10/31/2000 $17,543 $13,522 21096.56
</TABLE>
<TABLE>
<CAPTION>
PERFORMANCE** CLASS A CLASS B CLASS C
-------------------------------------------------------------------------------
<S> <C> <C> <C>
Average Annual Total Returns (at net asset value)
-------------------------------------------------------------------------------
One Year 0.88% 0.07% 0.02%
Five Years N.A. 7.00 6.30
Life of Fund+ 2.80 5.72 7.10
SEC Average Annual Total Returns (including sales charge or applicable CDSC)
-------------------------------------------------------------------------------
One Year -3.86% -4.52% -0.89%
Five Years N.A. 6.71 6.30
Life of Fund+ 1.00 5.72 7.10
</TABLE>
+Inception Dates - Class A: 1/23/98; Class B: 11/26/90; Class C:5/25/94
* Source: TowersData, Bethesda, MD. Investment operations commenced 11/26/90.
Index information is only available at month-end; therefore, the line
comparison begins at the next month-end following the commencement of the
Fund's investment operations.
The chart compares the Fund's total return with that of the Lehman Aggregate
Bond Index, an unmanaged, broad-based index containing only investment-grade,
fixed-income securities traded in the U.S . Securities in the Index are
included without regard to their duration. The lines on the chart represent
the total returns of $10,000 hypothetical investments in the Fund and the
Indices. Returns are calculated by determining the percentage change in net
asset value (NAV) with all distributions reinvested. The chart also offers a
comparison with a Composite of Lipper Fund Category averages, reflecting the
average total returns of the funds in the same categories as this Fund. The
fund categories are established by Lipper, Inc., a nationally recognized
monitor of mutual fund performance. Funds within a category have similar
investment policies. The Composite is provided because the Fund amended its
investment policies on March 1, 1997, allowing the Fund to invest in a
portfolio with a dollar-weighted average maturity of any duration. In
connection with this change, the Fund's Lipper category also changed.
Reflecting that change, the performance of a Composite is based on the Lipper
Short World Multi-Market Income Funds category from November 30, 1990 through
March 1, 1997, and thereafter, on the Lipper Multi-Sector Income Funds
category. An investment in the Fund's Class A shares on 1/31/98 at net asset
value would have been worth $10,882 on October 31, 2000; $10,364 including the
4.75% sales charge. An investment in the Fund's Class C shares on 5/31/94 at
net asset value would have been worth $15,551 on October 31, 2000. The Index's
and Composite's total returns do not reflect commissions or expenses that
would have been incurred if an investor individually purchased or sold the
securities represented in the Index. It is not possible to invest directly in
an Index or a Composite.
**Returns are historical and are calculated by determining the percentage change
in net asset value with all distributions reinvested. SEC returns for Class A
reflect the maximum 4.75% sales charge. SEC returns for Class B 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. SEC 1-year return for
Class C reflects 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.
<PAGE>
EATON VANCE STRATEGIC INCOME FUND AS OF OCTOBER 31, 2000
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
<TABLE>
<CAPTION>
AS OF OCTOBER 31, 2000
<S> <C>
Assets
------------------------------------------------------
Investment in Strategic Income
Portfolio, at value (identified cost,
$165,694,701) $154,712,173
Investment in High Income Portfolio, at
value (identified cost, $57,038,939) 48,856,308
Receivable for Fund shares sold 676,423
------------------------------------------------------
TOTAL ASSETS $204,244,904
------------------------------------------------------
Liabilities
------------------------------------------------------
Dividends payable $ 914,674
Payable for Fund shares redeemed 342,313
Payable to affiliate for service fees 16,925
Payable to affiliate for Trustees' fees 446
Accrued expenses 62,784
------------------------------------------------------
TOTAL LIABILITIES $ 1,337,142
------------------------------------------------------
NET ASSETS $202,907,762
------------------------------------------------------
Sources of Net Assets
------------------------------------------------------
Paid-in capital $240,263,664
Accumulated net realized loss from
Portfolios (computed on the basis of
identified cost) (18,498,416)
Accumulated undistributed net investment
income 307,673
Net unrealized depreciation from
Portfolios (computed on the basis of
identified cost) (19,165,159)
------------------------------------------------------
TOTAL $202,907,762
------------------------------------------------------
Class A Shares
------------------------------------------------------
NET ASSETS $ 10,349,563
SHARES OUTSTANDING 1,237,982
NET ASSET VALUE AND REDEMPTION PRICE PER
SHARE
(net assets DIVIDED BY shares of
beneficial interest outstanding) $ 8.36
MAXIMUM OFFERING PRICE PER SHARE
(100 DIVIDED BY 95.25 of $8.36) $ 8.78
------------------------------------------------------
Class B Shares
------------------------------------------------------
NET ASSETS $152,534,935
SHARES OUTSTANDING 19,284,633
NET ASSET VALUE, OFFERING PRICE AND
REDEMPTION PRICE PER SHARE (NOTE 6)
(net assets DIVIDED BY shares of
beneficial interest outstanding) $ 7.91
------------------------------------------------------
Class C Shares
------------------------------------------------------
NET ASSETS $ 40,023,264
SHARES OUTSTANDING 4,006,795
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PRICE
PER SHARE (NOTE 6)
(net assets DIVIDED BY shares of
beneficial interest outstanding) $ 9.99
------------------------------------------------------
</TABLE>
On sales of $25,000 or more, the offering price of Class A shares is reduced.
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
OCTOBER 31, 2000
<S> <C>
Investment Income
------------------------------------------------------
Interest allocated from Portfolios $ 19,136,119
Dividends allocated from Portfolios 674,223
Miscellaneous income 296,513
Expenses allocated from Portfolios (1,596,932)
------------------------------------------------------
NET INVESTMENT INCOME $ 18,509,923
------------------------------------------------------
Expenses
------------------------------------------------------
Trustees' fees and expenses $ 4,585
Distribution and service fees
Class A 15,494
Class B 1,538,142
Class C 352,271
Transfer and dividend disbursing agent
fees 242,500
Registration fees 44,921
Legal and accounting services 35,012
Printing and postage 33,187
Custodian fee 26,415
Miscellaneous 50,592
------------------------------------------------------
TOTAL EXPENSES $ 2,343,119
------------------------------------------------------
NET INVESTMENT INCOME $ 16,166,804
------------------------------------------------------
Realized and Unrealized Gain (Loss) from Portfolios
------------------------------------------------------
Net realized gain (loss) --
Investment transactions (identified
cost basis) $ (777,946)
Financial futures contracts (920,337)
Foreign currency and forward foreign
currency exchange contract
transactions 2,209,693
------------------------------------------------------
NET REALIZED GAIN $ 511,410
------------------------------------------------------
Change in unrealized appreciation
(depreciation) --
Investments (identified cost basis) $(16,416,140)
Financial futures contracts (383,397)
Interest rate swap contracts (343,706)
Foreign currency and forward foreign
currency exchange contracts 198,518
------------------------------------------------------
NET CHANGE IN UNREALIZED APPRECIATION
(DEPRECIATION) $(16,944,725)
------------------------------------------------------
NET REALIZED AND UNREALIZED LOSS $(16,433,315)
------------------------------------------------------
NET DECREASE IN NET ASSETS FROM
OPERATIONS $ (266,511)
------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
6
<PAGE>
EATON VANCE STRATEGIC INCOME FUND AS OF OCTOBER 31, 2000
FINANCIAL STATEMENTS CONT'D
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
INCREASE (DECREASE) IN NET ASSETS OCTOBER 31, 2000 OCTOBER 31, 1999
<S> <C> <C>
----------------------------------------------------------------------------
From operations --
Net investment income $ 16,166,804 $ 14,891,288
Net realized gain (loss) 511,410 (8,489,980)
Net change in unrealized appreciation
(depreciation) (16,944,725) 5,769,593
----------------------------------------------------------------------------
NET INCREASE (DECREASE) IN NET ASSETS
FROM OPERATIONS $ (266,511) $ 12,170,901
----------------------------------------------------------------------------
Distributions to shareholders --
----------------------------------------------------------------------------
From net investment income
Class A $ (775,997) $ (336,914)
Class B (13,468,477) (11,738,650)
Class C (2,905,217) (1,942,599)
In excess of net investment income
Class A (26,975) --
Class C (67,939)
Tax return of capital
Class A -- (22,890)
Class B -- (797,540)
Class C -- (131,983)
----------------------------------------------------------------------------
TOTAL DISTRIBUTIONS TO SHAREHOLDERS $ (17,244,605) $ (14,970,576)
----------------------------------------------------------------------------
Transactions in shares of beneficial
interest --
Proceeds from sale of shares
Class A $ 6,080,796 $ 4,478,258
Class B 34,784,887 40,594,578
Class C 17,813,994 15,813,624
Net asset value of shares issued to
shareholders in payment of
distributions declared
Class A 510,911 237,539
Class B 4,354,473 4,915,690
Class C 1,499,440 1,141,637
Cost of shares redeemed
Class A (1,440,195) (549,826)
Class B (28,998,451) (26,086,695)
Class C (6,887,535) (5,065,992)
----------------------------------------------------------------------------
NET INCREASE IN NET ASSETS FROM FUND
SHARE TRANSACTIONS $ 27,718,320 $ 35,478,813
----------------------------------------------------------------------------
NET INCREASE IN NET ASSETS $ 10,207,204 $ 32,679,138
----------------------------------------------------------------------------
Net Assets
----------------------------------------------------------------------------
At beginning of year $ 192,700,558 $ 160,021,420
----------------------------------------------------------------------------
AT END OF YEAR $ 202,907,762 $ 192,700,558
----------------------------------------------------------------------------
Accumulated undistributed net investement income included
in net assets
----------------------------------------------------------------------------
AT END OF YEAR $ 307,673 $ 1,578,900
----------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
7
<PAGE>
EATON VANCE STRATEGIC INCOME FUND AS OF OCTOBER 31, 2000
FINANCIAL STATEMENTS CONT'D
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
CLASS A
--------------------------------------
YEAR ENDED OCTOBER 31,
--------------------------------------
2000 1999(1) 1998(2)
<S> <C> <C> <C>
------------------------------------------------------------------------
Net asset value -- Beginning
of year $ 9.110 $ 9.220 $10.000
------------------------------------------------------------------------
Income (loss) from operations
------------------------------------------------------------------------
Net investment income $ 0.795 $ 0.852 $ 0.668
Net realized and unrealized
loss (0.698) (0.095) (0.767)
------------------------------------------------------------------------
TOTAL INCOME (LOSS) FROM
OPERATIONS $ 0.097 $ 0.757 $(0.099)
------------------------------------------------------------------------
Less distributions
------------------------------------------------------------------------
From net investment income $(0.819) $(0.819) $(0.654)
In excess of net investment
income (0.028) -- (0.027)
Tax return of capital -- (0.048) --
------------------------------------------------------------------------
TOTAL DISTRIBUTIONS $(0.847) $(0.867) $(0.681)
------------------------------------------------------------------------
NET ASSET VALUE -- END OF
PERIOD $ 8.360 $ 9.110 $ 9.220
------------------------------------------------------------------------
TOTAL RETURN(3) 0.88% 8.40% (1.29)%
------------------------------------------------------------------------
Ratios/Supplemental Data
------------------------------------------------------------------------
Net assets, end of year (000's
omitted) $10,350 $ 6,050 $ 2,009
Ratios (As a percentage of
average daily net assets):
Expenses(4) 1.19% 1.08% 1.03%(5)
Net investment income 8.83% 9.20% 8.44%(5)
Portfolio Turnover of
Strategic Income Portfolio 49% 47% 71%
------------------------------------------------------------------------
</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 Portfolios' allocated expenses.
(5) Annualized.
SEE NOTES TO FINANCIAL STATEMENTS
8
<PAGE>
EATON VANCE STRATEGIC INCOME FUND AS OF OCTOBER 31, 2000
FINANCIAL STATEMENTS CONT'D
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
CLASS B
---------------------------------------------------------------
YEAR ENDED OCTOBER 31,
---------------------------------------------------------------
2000 1999(1) 1998 1997 1996
<S> <C> <C> <C> <C> <C>
-------------------------------------------------------------------------------------------------
Net asset value -- Beginning
of year $ 8.610 $ 8.720 $ 9.470 $ 9.310 $ 8.500
-------------------------------------------------------------------------------------------------
Income (loss) from operations
-------------------------------------------------------------------------------------------------
Net investment income $ 0.674 $ 0.731 $ 0.684 $ 0.657 $ 0.655
Net realized and unrealized
gain (loss) (0.651) (0.105) (0.686) 0.288 0.858
-------------------------------------------------------------------------------------------------
TOTAL INCOME (LOSS) FROM
OPERATIONS $ 0.023 $ 0.626 $ (0.002) $ 0.945 $ 1.513
-------------------------------------------------------------------------------------------------
Less distributions
-------------------------------------------------------------------------------------------------
From net investment income $ (0.723) $ (0.688) $ (0.748) $ (0.657) $ (0.655)
In excess of net investment
income -- -- -- (0.128) (0.048)
Tax return of capital -- (0.048) -- -- --
-------------------------------------------------------------------------------------------------
TOTAL DISTRIBUTIONS $ (0.723) $ (0.736) $ (0.748) $ (0.785) $ (0.703)
-------------------------------------------------------------------------------------------------
NET ASSET VALUE -- END OF YEAR $ 7.910 $ 8.610 $ 8.720 $ 9.470 $ 9.310
-------------------------------------------------------------------------------------------------
TOTAL RETURN(2) 0.07% 7.32% (0.20)% 10.44% 18.48%
-------------------------------------------------------------------------------------------------
Ratios/Supplemental Data
-------------------------------------------------------------------------------------------------
Net assets, end of year (000's
omitted) $152,535 $155,768 $138,495 $130,596 $129,671
Ratios (As a percentage of
average daily net assets):
Expenses(3) 1.98% 1.96% 1.96% 2.08% 2.17%
Net investment income 7.99% 8.31% 7.40% 6.91% 7.38%
Portfolio Turnover of
Strategic Income Portfolio 49% 47% 71% 77% 71%
-------------------------------------------------------------------------------------------------
</TABLE>
(1) Net investment income per share was computed using average shares
outstanding.
(2) 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.
(3) Includes the Fund's share of the Portfolios' allocated expenses.
SEE NOTES TO FINANCIAL STATEMENTS
9
<PAGE>
EATON VANCE STRATEGIC INCOME FUND AS OF OCTOBER 31, 2000
FINANCIAL STATEMENTS CONT'D
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
CLASS C
-----------------------------------
YEAR ENDED OCTOBER 31,
-----------------------------------
2000 1999(1) 1998
<S> <C> <C> <C>
---------------------------------------------------------------------
Net asset value -- Beginning
of year $10.870 $11.010 $11.950
---------------------------------------------------------------------
Income (loss) from operations
---------------------------------------------------------------------
Net investment income $ 0.850 $ 0.912 $ 0.869
Net realized and unrealized
loss (0.826) (0.132) (0.872)
---------------------------------------------------------------------
TOTAL INCOME (LOSS) FROM
OPERATIONS $ 0.024 $ 0.780 $(0.003)
---------------------------------------------------------------------
Less distributions
---------------------------------------------------------------------
From net investment income $(0.883) $(0.872) $(0.884)
In excess of net investment
income (0.021) -- (0.053)
Tax return of capital -- (0.048) --
---------------------------------------------------------------------
TOTAL DISTRIBUTIONS $(0.904) $(0.920) $(0.937)
---------------------------------------------------------------------
NET ASSET VALUE -- END OF YEAR $ 9.990 $10.870 $11.010
---------------------------------------------------------------------
TOTAL RETURN(2) 0.02% 7.23% (0.15)%
---------------------------------------------------------------------
Ratios/Supplemental Data
---------------------------------------------------------------------
Net assets, end of year (000's
omitted) $40,023 $30,882 $19,518
Ratios (As a percentage of
average daily net assets):
Expenses(3) 2.00% 2.03% 2.03%
Net investment income 7.94% 8.22% 7.37%
Portfolio Turnover of
Strategic Income Portfolio 49% 47% 71%
---------------------------------------------------------------------
</TABLE>
(1) Net investment income per share was computed using average shares
outstanding.
(2) 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.
(3) Includes the Fund's share of the Portfolios' allocated expenses.
SEE NOTES TO FINANCIAL STATEMENTS
10
<PAGE>
EATON VANCE STRATEGIC INCOME FUND AS OF OCTOBER 31, 2000
NOTES TO FINANCIAL STATEMENTS
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 generally
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 (99.9% and 4.2%
at October 31, 2000, 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 the 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, 2000, the Fund, for Federal
income tax purposes, had a capital loss carryover of $18,037,683, 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 ($3,507,409), October 31, 2003 ($4,613,119),
October 31, 2006 ($1,984,147) and October 31, 2007 ($7,933,008). Capital loss
carryovers utilized during the year ended October 31, 2000 were $967,769.
D 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 expense during the reporting period. Actual results could
differ from those estimates.
11
<PAGE>
EATON VANCE STRATEGIC INCOME FUND AS OF OCTOBER 31, 2000
NOTES TO FINANCIAL STATEMENTS CONT'D
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 Funds Declaration of Trust permits the Trustees to issue an unlimited
number of full and fractional shares of beneficial interest (without par
value). Transactions in Fund shares were as follows:
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
-----------------------
CLASS A 2000 1999
<S> <C> <C>
-----------------------------------------------------------------
Sales 676,661 479,935
Issued to shareholders electing to
receive payments of distributions in
Fund shares 57,597 25,638
Redemptions (160,724) (58,971)
-----------------------------------------------------------------
NET INCREASE 573,534 446,602
-----------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
------------------------
CLASS B 2000 1999
<S> <C> <C>
------------------------------------------------------------------
Sales 4,097,293 4,608,260
Issued to shareholders electing to
receive payments of distributions in
Fund shares 516,598 557,297
Redemptions (3,415,961) (2,965,773)
------------------------------------------------------------------
NET INCREASE 1,197,930 2,199,784
------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
------------------------
CLASS C 2000 1999
<S> <C> <C>
------------------------------------------------------------------
Sales 1,664,127 1,420,517
Issued to shareholders electing to
receive payments of distributions in
Fund shares 140,922 102,858
Redemptions (639,130) (455,954)
------------------------------------------------------------------
NET INCREASE 1,165,919 1,067,421
------------------------------------------------------------------
</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. 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. Certain officers and Trustees
of the Fund and of the Portfolios are officers of the above organizations
(see Note 5). The Fund was informed that Eaton Vance Distributors, Inc.
(EVD), a subsidiary of EVM and the Fund's principal underwriter, received
$5,477 as its portion of the sales charge on sales of Class A shares for the
ended October 31, 2000.
5 Distribution and Service Plans
-------------------------------------------
The Fund has in effect distribution plans for Class B shares (Class B Plan)
and Class C shares (Class C Plan) pursuant to Rule 12b-1 under the Investment
Company Act of 1940 and a service plan for Class A shares (Class A Plan)
(collectively, the Plans). The Class B and Class C Plans require the Fund to
pay EVD, amounts equal to 1/365 of 0.75% of the Fund's average daily net
assets attributable to Class B and Class C shares, for providing ongoing
distribution services and facilities to the Fund. The Fund will automatically
discontinue payments to EVD during any period in which there are no
outstanding Uncovered Distribution Charges, which are equivalent to the sum
of (i) 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
12
<PAGE>
EATON VANCE STRATEGIC INCOME FUND AS OF OCTOBER 31, 2000
NOTES TO FINANCIAL STATEMENTS CONT'D
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 year ended
October 31, 2000, the Fund paid or accrued $1,184,532 and $264,203,
respectively, to or payable to EVD representing 0.75% of average daily net
assets of Class B and Class C shares, respectively. At October 31, 2000, the
amount of Uncovered Distribution Charges of EVD calculated under the Plans
was approximately $26,343,000 and $3,637,000 for Class B and Class C shares,
respectively.
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 the
Fund's average daily net assets attributable to Class A, Class B, and
Class C shares for each fiscal year. Service fee payments will be made for
personal services and/or the maintenance of shareholder accounts. Service
fees are separate and distinct from the sales and commissions and
distribution fees payable by the Fund to EVD, and, as such are not subject to
automatic discontinuance when there are no outstanding Uncovered Distribution
Charges of EVD. Service fee payments for the year ended October 31, 2000
amounted to $15,494, $353,610, and $88,068 for Class A, Class B, and Class C
shares, respectively.
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 redemptions 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 Fund's Distribution Plans. CDSC charges received when no Uncovered
Distribution Charges exist will be credited to the Fund. The Fund has been
informed that EVD received approximately $173,000 and $16,000 of CDSC paid by
shareholders of Class B and Class C shares, respectively, during the year
ended October 31, 2000.
7 Investment Transactions
-------------------------------------------
Increases and decreases in the Fund's investment in the Strategic Income
Portfolio for the year ended October 31, 2000, aggregated $58,894,662 and
$58,443,527, respectively. Increases and decreases in the Fund's investment
in the High Income Portfolio for the year ended October 31, 2000 aggregated
$16,000,000 and $8,000,000, respectively.
8 Investment in Portfolios
-------------------------------------------
For the year ended October 31, 2000, 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 $ 221,810 $ 452,413 $ 674,223
Interest income 14,189,858 4,946,261 19,136,119
Expenses (1,296,066) (300,866) (1,596,932)
---------------------------------------------------------------------------------
NET INVESTMENT INCOME $ 13,115,602 $ 5,097,808 $ 18,213,410
---------------------------------------------------------------------------------
Net realized gain (loss) --
Investment transactions
(identified cost basis) $ 611,333 $(1,389,279) $ (777,946)
Financial futures contracts (920,337) -- (920,337)
Foreign currency and forward foreign
currency exchange contract
transactions 1,710,982 498,711 2,209,693
---------------------------------------------------------------------------------
NET REALIZED GAIN (LOSS) ON INVESTMENTS $ 1,401,978 $ (890,568) $ 511,410
---------------------------------------------------------------------------------
Change in unrealized appreciation
(depreciation)
Investments $(10,010,022) $(6,406,118) $(16,416,140)
Financial futures contracts (383,397) -- (383,397)
Interest rate swap contracts (343,706) -- (343,706)
Foreign currency and forward foreign
currency exchange contracts 198,518 -- 198,518
---------------------------------------------------------------------------------
NET CHANGE IN UNREALIZED APPRECIATION
(DEPRECIATION) $(10,538,607) $(6,406,118) $(16,944,725)
---------------------------------------------------------------------------------
</TABLE>
13
<PAGE>
EATON VANCE STRATEGIC INCOME FUND AS OF OCTOBER 31, 2000
INDEPENDENT ACCOUNTANTS' REPORT
TO THE TRUSTEES AND SHAREHOLDERS
OF EATON VANCE STRATEGIC INCOME FUND:
---------------------------------------------
In our opinion, the accompanying statement of assets and liabilities, and the
related statements of operations and of changes in net assets and the financial
highlights present fairly, in all material respects, the financial position of
Eaton Vance Strategic Income Fund (the "Fund") at October 31, 2000, and the
results of its operations, the changes in its net assets and the financial
highlights for the periods presented, in conformity with accounting principles
generally accepted in the United States of America. These financial statements
and financial highlights (hereafter referred to as "financial statements") are
the responsibility of the Fund'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 auditing standards
generally accepted in the United States of America, 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 provide a reasonable basis for our opinion.
PricewaterhouseCoopers LLP
Boston, Massachusetts
December 11, 2000
14
<PAGE>
STRATEGIC INCOME PORTFOLIO AS OF OCTOBER 31, 2000
PORTFOLIO OF INVESTMENTS
BONDS & NOTES -- 93.0%
<TABLE>
<CAPTION>
SECURITY PRINCIPAL U.S. $ VALUE
<S> <C> <C> <C>
-------------------------------------------------------------------------------
Argentina -- 2.1%
-------------------------------------------------------------------------------
Cablevision SA, 13.75%, 4/30/07 $ 4,000,000 $ 3,240,000
-------------------------------------------------------------------------------
Total Argentina (identified cost $3,909,193) $ 3,240,000
-------------------------------------------------------------------------------
Brazil -- 4.5%
-------------------------------------------------------------------------------
Brazil Discount Bond (Brady),
7.625%, 4/15/24(1) $ 9,000,000 $ 6,918,750
-------------------------------------------------------------------------------
Total Brazil (identified cost $7,100,212) $ 6,918,750
-------------------------------------------------------------------------------
Bulgaria -- 1.9%
-------------------------------------------------------------------------------
Bulgaria Discount Bond (Brady), Series
A, 7.75%, 7/28/24(1) $ 4,000,000 $ 3,010,000
-------------------------------------------------------------------------------
Total Bulgaria (identified cost $2,579,117) $ 3,010,000
-------------------------------------------------------------------------------
China -- 4.1%
-------------------------------------------------------------------------------
China Mobile Ltd., 2.25%, 11/3/05(2) $ 1,250,000 $ 1,301,562
Huaneng Power International PLC,
1.75%, 5/21/04(2) 3,000,000 3,468,750
Tingyi (CI) Holdings Corp.,
1.625%, 7/17/02(2) 1,500,000 1,638,750
-------------------------------------------------------------------------------
Total China (identified cost $6,247,500) $ 6,409,062
-------------------------------------------------------------------------------
Ecuador -- 1.5%
-------------------------------------------------------------------------------
Republic of Ecuador,
4.00%, 8/15/30(1)(3) $ 6,000,000 $ 2,289,000
-------------------------------------------------------------------------------
Total Ecuador (identified cost $2,280,000) $ 2,289,000
-------------------------------------------------------------------------------
Indonesia -- 2.2%
-------------------------------------------------------------------------------
APP China Group Ltd., 14.00%, 3/15/10 $ 2,000,000 $ 820,000
APP Finance VI, 0.00%, 11/18/12(2) 4,000,000 410,000
APP Finance VII, 3.50%, 4/30/03(2) 2,000,000 890,000
DGS International Finance,
10.00%, 6/1/07 2,000,000 330,000
Indah Kiat Finance Mauritius, Sr. Unsec.
Notes, 10.00%, 7/1/07 1,000,000 380,000
Indah Kiat International Finance,
12.50%, 6/15/06 1,000,000 530,000
-------------------------------------------------------------------------------
Total Indonesia (identified cost $6,633,819) $ 3,360,000
-------------------------------------------------------------------------------
Mexico -- 1.1%
-------------------------------------------------------------------------------
Alestra SA, Sr. Notes, 12.625%, 5/15/09 $ 2,000,000 $ 1,705,000
-------------------------------------------------------------------------------
Total Mexico (identified cost $1,789,844) $ 1,705,000
-------------------------------------------------------------------------------
<CAPTION>
SECURITY PRINCIPAL U.S. $ VALUE
<S> <C> <C> <C>
-------------------------------------------------------------------------------
Morocco -- 0.4%
-------------------------------------------------------------------------------
Snap Ltd., 11.50%, 1/29/09 DEM 1,612,500 $ 586,828
-------------------------------------------------------------------------------
Total Morocco (identified cost $796,346) $ 586,828
-------------------------------------------------------------------------------
Philippines -- 0.5%
-------------------------------------------------------------------------------
Bayan Telecommunications,
13.50%, 7/15/06(3) $ 2,000,000 $ 730,000
-------------------------------------------------------------------------------
Total Philippines (identified cost $1,887,649) $ 730,000
-------------------------------------------------------------------------------
Poland -- 3.0%
-------------------------------------------------------------------------------
Poland Government Bond, 8.50%, 2/12/05 PLN 28,000,000 $ 4,708,284
-------------------------------------------------------------------------------
Total Poland (identified cost $5,832,191) $ 4,708,284
-------------------------------------------------------------------------------
Qatar -- 0.6%
-------------------------------------------------------------------------------
State of Qatar, 9.75%, 6/15/30 $ 1,000,000 $ 973,475
-------------------------------------------------------------------------------
Total Qatar (identified cost $979,723) $ 973,475
-------------------------------------------------------------------------------
Republic of Korea -- 1.6%
-------------------------------------------------------------------------------
Cho Hung Bank, Sub. Notes,
11.50%, 4/1/10(3) $ 1,500,000 $ 1,440,000
Korea Hanvit Bank, Sub. Notes,
11.75%, 3/1/10 1,000,000 962,500
-------------------------------------------------------------------------------
Total Republic of Korea (identified cost $2,486,329)
$ 2,402,500
-------------------------------------------------------------------------------
Russia -- 2.0%
-------------------------------------------------------------------------------
Russia Federation, 2.25%, 3/31/30 $ 8,000,000 $ 3,020,000
-------------------------------------------------------------------------------
Total Russia (identified cost $3,108,800) $ 3,020,000
-------------------------------------------------------------------------------
Taiwan -- 3.1%
-------------------------------------------------------------------------------
Macronix International Co.,
1.00%, 2/1/05(2) $ 500,000 $ 518,750
Macronix International Co.,
1.00%, 2/1/05(2)(3) 1,500,000 1,556,250
Mosel Vitelic, Inc.,
1.00%, 2/2/05(2)(3) 3,000,000 2,850,000
-------------------------------------------------------------------------------
Total Taiwan (identified cost $5,523,125) $ 4,925,000
-------------------------------------------------------------------------------
Turkey -- 2.5%
-------------------------------------------------------------------------------
Republic of Turkey, 11.75%, 6/15/10 $ 3,000,000 $ 2,913,750
Republic of Turkey, 11.875%, 1/15/30 1,000,000 978,750
-------------------------------------------------------------------------------
Total Turkey (identified cost $4,090,000) $ 3,892,500
-------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
15
<PAGE>
STRATEGIC INCOME PORTFOLIO AS OF OCTOBER 31, 2000
PORTFOLIO OF INVESTMENTS CONT'D
<TABLE>
<CAPTION>
SECURITY PRINCIPAL U.S. $ VALUE
<S> <C> <C> <C>
-------------------------------------------------------------------------------
United Kingdom -- 0.1%
-------------------------------------------------------------------------------
Esprit Telecom Group PLC,
11.00%, 6/15/08 DEM 2,000,000 $ 151,635
-------------------------------------------------------------------------------
Total United Kingdom (identified cost $1,117,631)
$ 151,635
-------------------------------------------------------------------------------
United States -- 61.8%
-------------------------------------------------------------------------------
CORPORATE BONDS & NOTES -- 15.3%
American Greetings, 6.10%, 8/1/28 $ 1,000,000 $ 893,790
AT&T Corp., 6.50%, 3/15/29 4,000,000 3,150,360
Baltimore Natural Gas and Electric,
6.73%, 6/12/12 400,000 398,884
Bellsouth Capital Fund, 6.04%, 11/15/26 300,000 298,410
Beneficial Corp., 8.40%, 5/15/08 330,000 339,953
Coca-Cola Enterprise, Deb.,
7.00%, 10/1/26 375,000 368,745
Commercial Credit Corp., 7.875%, 2/1/25 2,000,000 2,025,320
Dayton Hudson, Medium Term Notes,
9.52%, 6/10/15 350,000 411,442
Eaton Corp., 8.875%, 6/15/19 500,000 531,100
Ford Holdings, 9.30%, 3/1/30 1,000,000 1,104,320
Ford Motor Co., 7.45%, 7/16/31 2,000,000 1,848,640
General Motors Acceptance Corp.,
8.875%, 6/1/10 1,000,000 1,074,200
Grand Metropolitan Investment Corp.,
7.45%, 4/15/35 350,000 355,022
Ingersoll-Rand Co., 6.48%, 6/1/25 1,050,000 1,001,773
Ingersoll-Rand Co., Deb.,
6.443%, 11/15/27 120,000 110,934
Johnson Controls, 7.70%, 3/1/15 1,500,000 1,504,275
Level 3 Communication Inc., Sr. Notes,
11.25%, 3/15/10 EUR 1,000,000 726,603
Motorola, Inc., 6.50%, 9/1/25 300,000 292,080
Motorola, Inc., 8.40%, 8/15/31 1,500,000 1,601,205
NBD Bank N.A., 8.25%, 11/1/24 610,000 647,393
Northwest National Gas, 6.80%, 5/21/07 250,000 249,425
Procter and Gamble Co., 8.00%, 9/1/24 1,500,000 1,611,135
TRW, Inc., Medium Term Notes,
9.35%, 6/4/20 1,900,000 2,040,011
Willamette Industries, Deb.,
7.35%, 7/1/26 50,000 49,476
Worldcom, Inc., 7.75%, 4/1/27 1,000,000 1,006,870
-------------------------------------------------------------------------------
Total Corporate Bonds & Notes (identified cost $25,039,486)
$ 23,641,366
-------------------------------------------------------------------------------
MORTGAGE PASS-THROUGHS -- 32.9%
Federal Home Loan Mortgage Corp.:
4.75% with maturity at 2001 $ 219 $ 216
8.00% with various maturities to 2021 4,058,465 4,135,789
8.15% with maturity at 2021 3,824,601 3,908,211
8.50% with various maturities to 2019 1,085,131 1,126,737
9.00% with maturity at 2019 313,105 328,919
9.25% with various maturities to 2016 3,443,586 3,593,725
<CAPTION>
SECURITY PRINCIPAL U.S. $ VALUE
<S> <C> <C> <C>
-------------------------------------------------------------------------------
United States (continued)
-------------------------------------------------------------------------------
9.50% with maturity at 2015 $ 1,197,006 $ 1,250,621
9.75% with various maturities to 2020 798,473 844,611
10.50% with maturity at 2020 571,895 620,814
11.00% with maturity at 2019 1,303,814 1,412,853
11.25% with maturity at 2010 206,951 223,395
12.50% with various maturities to
2019 1,413,073 1,597,968
12.75% with maturity at 2013 83,261 93,685
13.25% with maturity at 2013 58,305 66,480
13.50% with maturity at 2019 178,441 204,223
-------------------------------------------------------------------------------
$ 19,408,247
-------------------------------------------------------------------------------
Federal National Mortgage Association:
5.00% with maturity at 2003 $ 23,522 $ 23,025
5.50% with maturity at 2012 2,914 2,834
7.00% with maturity at 2014 3,108,327 3,140,252
7.50% with various maturities to 2018 1,743,610 1,767,283
8.00% with various maturities to 2019 1,400,965 1,434,885
8.50% with various maturities to 2026 4,034,228 4,184,328
9.00% with various maturities to 2021 3,423,628 3,581,019
9.50% with maturity at 2013 1,238,777 1,312,743
11.00% with maturity at 2025 572,149 628,506
11.50% with maturity at 2019 1,225,152 1,379,264
12.00% with maturity at 2015 502,627 563,739
12.50% with maturity at 2015 2,831,597 3,199,254
12.75% with maturity at 2014 75,261 86,884
13.00% with various maturities to
2027 1,517,816 1,744,978
13.25% with maturity at 2014 147,214 172,285
13.50% with various maturities to
2015 745,561 852,829
14.75% with maturity at 2012 1,346,790 1,604,342
-------------------------------------------------------------------------------
$ 25,678,450
-------------------------------------------------------------------------------
Government National Mortgage Association:
6.50% with maturity at 2002 $ 342,604 $ 339,510
7.50% with maturity at 2017 485,896 502,059
7.75% with maturity at 2019 501,235 510,949
8.30% with maturity at 2020 741,761 771,699
8.50% with maturity at 2009 522,781 537,452
9.00% with various maturities to 2016 1,141,631 1,194,288
12.50% with maturity at 2019 1,555,635 1,769,960
13.50% with maturity at 2014 141,868 165,800
-------------------------------------------------------------------------------
$ 5,791,717
-------------------------------------------------------------------------------
Total Mortgage Pass-Throughs (identified cost $51,719,361)
$ 50,878,414
-------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
16
<PAGE>
STRATEGIC INCOME PORTFOLIO AS OF OCTOBER 31, 2000
PORTFOLIO OF INVESTMENTS CONT'D
<TABLE>
<CAPTION>
SECURITY PRINCIPAL U.S. $ VALUE
<S> <C> <C> <C>
-------------------------------------------------------------------------------
United States (continued)
-------------------------------------------------------------------------------
U.S. GOVERNMENT AGENCY DEBENTURES -- 12.3%
Federal Home Loan Mortgage Corp.,
6.45%, 4/29/09 $ 6,000,000 $ 5,703,600
Federal Home Loan Mortgage Corp.,
6.625%, 9/15/09 3,000,000 2,981,250
Federal National Mortgage Association,
6.25%, 5/15/29 11,000,000 10,285,000
-------------------------------------------------------------------------------
Total U.S. Government Agency Debentures (identified cost,
$18,726,566) $ 18,969,850
-------------------------------------------------------------------------------
U.S. Treasury Obligations -- 1.3%
-------------------------------------------------------------------------------
United States Treasury Bond,
11.75%, 2/15/01(4) --
(identified cost $2,603,438) $ 2,000,000 $ 2,029,680
-------------------------------------------------------------------------------
Total United States (identified cost $98,088,851)
$ 95,519,310
-------------------------------------------------------------------------------
Total Bonds & Notes (identified cost $154,450,330)
$143,841,344
-------------------------------------------------------------------------------
</TABLE>
WARRANTS -- 0.0%
<TABLE>
<CAPTION>
SECURITY SHARES VALUE
<S> <C> <C> <C>
-------------------------------------------------------------------------------
Indonesia -- 0.0%
-------------------------------------------------------------------------------
Asia Pulp and Paper 2,000 $ 0
-------------------------------------------------------------------------------
Total Indonesia (identified cost $0) $ 0
-------------------------------------------------------------------------------
Total Warrants (identified cost $0) $ 0
-------------------------------------------------------------------------------
</TABLE>
U.S. COMMON STOCKS -- 2.4%
<TABLE>
<CAPTION>
SECURITY SHARES VALUE
<S> <C> <C> <C>
-------------------------------------------------------------------------------
REITS -- 2.4%
-------------------------------------------------------------------------------
Archstone Communities Trust 35,800 $ 843,537
Duke-Weeks Realty Corp. 36,500 864,594
Plum Creek Timber Co., Inc. 31,400 814,438
Public Storage, Inc. 52,800 1,188,000
-------------------------------------------------------------------------------
Total U.S. Common Stocks (identified cost $3,558,534)
$ 3,710,569
-------------------------------------------------------------------------------
</TABLE>
SHORT-TERM INVESTMENTS -- 5.5%
<TABLE>
<CAPTION>
SECURITY PRINCIPAL VALUE
<S> <C> <C> <C>
-------------------------------------------------------------------------------
Banque National De Paris Euro
Time-Deposit Cayman Islands, 6.45%,
11/1/00 $ 8,600,000 $ 8,600,000
-------------------------------------------------------------------------------
Total Short-Term Investments (at amortized cost $8,600,000)
$ 8,600,000
-------------------------------------------------------------------------------
Total Investments -- 100.9%
(identified cost $166,608,864) $156,151,913
-------------------------------------------------------------------------------
Other Assets, Less Liabilities -- (0.9)% $ (1,439,729)
-------------------------------------------------------------------------------
Net Assets -- 100.0% $154,712,184
-------------------------------------------------------------------------------
</TABLE>
REIT - Real Estate Investment Trust
EUR - Euro Dollar
DEM - Deutsche Mark
PLN - Polish Zloty
(1) Variable rate security.
(2) Convertible Bond.
(3) 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.
(4) Security (or a portion thereof) has been segregated to cover margin
requirements on open financial futures contracts.
SEE NOTES TO FINANCIAL STATEMENTS
17
<PAGE>
STRATEGIC INCOME PORTFOLIO AS OF OCTOBER 31, 2000
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
<TABLE>
<CAPTION>
AS OF OCTOBER 31, 2000
<S> <C>
Assets
------------------------------------------------------
Investments, at value
(identified cost, $166,608,864) $156,151,913
Cash 80,601
Receivable for investments sold 889,039
Interest receivable 2,952,611
Receivable for daily variation margin on
open financial futures contracts, net 16,513
Receivable for open forward foreign
currency contracts 307,746
Prepaid expenses 1,620
------------------------------------------------------
TOTAL ASSETS $160,400,043
------------------------------------------------------
Liabilities
------------------------------------------------------
Payable for investments purchased $ 5,202,465
Payable to affiliate for Trustees' fees 1,678
Payable for open forward foreign
currency contracts 106,362
Payable for open swap contracts 343,706
Accrued expenses 33,648
------------------------------------------------------
TOTAL LIABILITIES $ 5,687,859
------------------------------------------------------
NET ASSETS APPLICABLE TO INVESTORS'
INTEREST IN PORTFOLIO $154,712,184
------------------------------------------------------
Sources of Net Assets
------------------------------------------------------
Net proceeds from capital contributions
and withdrawals $165,694,712
Net unrealized depreciation (computed on
the basis of identified cost) (10,982,528)
------------------------------------------------------
TOTAL $154,712,184
------------------------------------------------------
</TABLE>
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
OCTOBER 31, 2000
<S> <C>
Investment Income
------------------------------------------------------
Interest $ 14,189,858
Dividends 221,810
------------------------------------------------------
TOTAL INVESTMENT INCOME $ 14,411,668
------------------------------------------------------
Expenses
------------------------------------------------------
Investment adviser fee $ 827,576
Administration fee 235,441
Trustees' fees and expenses 17,352
Legal and accounting services 119,534
Custodian fee 92,498
Miscellaneous 3,665
------------------------------------------------------
TOTAL EXPENSES $ 1,296,066
------------------------------------------------------
NET INVESTMENT INCOME $ 13,115,602
------------------------------------------------------
Realized and Unrealized
Gain (Loss)
------------------------------------------------------
Net realized gain (loss) --
Investment transactions (identified
cost basis) $ 611,334
Financial futures contracts (920,337)
Foreign currency and forward foreign
currency exchange contract
transactions 1,710,982
------------------------------------------------------
NET REALIZED GAIN $ 1,401,979
------------------------------------------------------
Change in unrealized appreciation
(depreciation) --
Investments (identified cost basis) $(10,010,024)
Financial futures contracts (377,683)
Interest rate swap contracts (343,706)
Foreign currency and forward foreign
currency exchange contracts 192,806
------------------------------------------------------
NET CHANGE IN UNREALIZED APPRECIATION
(DEPRECIATION) $(10,538,607)
------------------------------------------------------
NET REALIZED AND UNREALIZED LOSS $ (9,136,628)
------------------------------------------------------
NET INCREASE IN NET ASSETS FROM
OPERATIONS $ 3,978,974
------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
18
<PAGE>
STRATEGIC INCOME PORTFOLIO AS OF OCTOBER 31, 2000
FINANCIAL STATEMENTS CONT'D
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
INCREASE (DECREASE) YEAR ENDED YEAR ENDED
IN NET ASSETS OCTOBER 31, 2000 OCTOBER 31, 1999
<S> <C> <C>
----------------------------------------------------------------------------
From operations --
Net investment income $ 13,115,602 $ 12,637,218
Net realized gain (loss) 1,401,979 (8,710,614)
Net change in unrealized appreciation
(depreciation) (10,538,607) 5,196,296
----------------------------------------------------------------------------
NET INCREASE IN NET ASSETS FROM
OPERATIONS $ 3,978,974 $ 9,122,900
----------------------------------------------------------------------------
Capital transactions --
Contributions $ 58,894,662 $ 63,662,682
Withdrawals (58,443,527) (60,949,450)
----------------------------------------------------------------------------
NET INCREASE IN NET ASSETS FROM CAPITAL
TRANSACTIONS $ 451,135 $ 2,713,232
----------------------------------------------------------------------------
NET INCREASE IN NET ASSETS $ 4,430,109 $ 11,836,132
----------------------------------------------------------------------------
Net Assets
----------------------------------------------------------------------------
At beginning of year $ 150,282,075 $ 138,445,943
----------------------------------------------------------------------------
AT END OF YEAR $ 154,712,184 $ 150,282,075
----------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
19
<PAGE>
STRATEGIC INCOME PORTFOLIO AS OF OCTOBER 31, 2000
FINANCIAL STATEMENTS CONT'D
SUPPLEMENTARY DATA
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
-------------------------------------------------------------
2000 1999 1998 1997 1996
<S> <C> <C> <C> <C> <C>
-----------------------------------------------------------------------------------------------
Ratios/Supplemental Data
-----------------------------------------------------------------------------------------------
Ratios (As a percentage of
average daily net assets):
Expenses 0.83% 0.86% 0.83% 0.86% 0.86%
Net investment income 8.36% 9.14% 8.31% 8.06% 8.62%
Portfolio Turnover 49% 47% 71% 77% 71%
-----------------------------------------------------------------------------------------------
NET ASSETS, END OF YEAR (000'S
OMITTED) $154,712 $150,282 $138,446 $121,256 $132,407
-----------------------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
20
<PAGE>
STRATEGIC INCOME PORTFOLIO AS OF OCTOBER 31, 2000
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 achieve 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. Equity securities listed on securities exchanges or in the NASDAQ
National Market are valued at closing sales prices or, if there has been no
sale, at the mean between the closing bid and asked prices. Unlisted
securities are valued at the mean between the latest available bid and asked
prices. Financial futures contracts listed on commodity exchanges and
exchange-traded options are valued at closing settlement prices. Short-term
obligations and money-market securities maturing in sixty days or less are
valued at amortized cost which approximates value. Non-U.S. dollar
denominated short-term obligations are valued at amortized cost as calculated
in the base currency and translated to U.S. dollars at the current exchange
rate. Investments for which market quotations are unavailable are valued at
fair value using methods determined in good faith by or at the direction of
the Trustees.
B Income -- Interest income is determined on the basis of interest accrued and
discount earned, adjusted for amortization of premium or accretion of
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. However, if the ex-dividend date has passed, certain dividends
from foreign securities are recorded as the Portfolio is informed of the
ex-dividend date. Dividend income may include dividends that represent
returns of capital 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 at least one of
the Portfolio's investors is a regulated investment company that invests all
or substantially all of its 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
investors distributive share of the Portfolio's net investment income, net
realized capital gains, and any other items of income, gain, loss, deduction
or credit. Withholding taxes on foreign dividends and capital gains have been
provided for in accordance with the Portfolio's understanding of the
applicable countries' tax rules and rates.
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
21
<PAGE>
STRATEGIC INCOME PORTFOLIO AS OF OCTOBER 31, 2000
NOTES TO FINANCIAL STATEMENTS CONT'D
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 Written Options -- The Portfolio may write call or put options for which
premiums are received and are recorded as liabilities, and are subsequently
adjusted to the current value of the options written. Premiums received from
writing options which expire are treated as realized gains. Premiums received
from writing options which are exercised or are closed are offset against the
proceeds or amount paid on the transaction to determine the realized gain or
loss. If a put option is exercised, the premium reduces the cost basis of the
securities purchased by the Portfolio. The Portfolio as writer of an option
may have no control over whether the underlying securities may be sold (call)
or purchased (put) and as a result bears the market risk of an unfavorable
change in the price of the securities underlying the written option.
H Forward Foreign Currency Exchange Contracts -- The Portfolio may enter into
forward foreign currency exchange contracts for the purchase or sale of a
specific foreign currency at a fixed price on a future date. Risks may arise
upon entering these contracts from the potential inability of counterparties
to meet the terms of their contracts and from movements in the value of a
foreign currency relative to the U.S. dollar. The Portfolio will enter into
forward contracts for hedging purposes as well as non-hedging purposes. The
forward foreign currency exchange contracts are adjusted by the daily
exchange rate of the underlying currency and any gains or losses are recorded
for financial statement purposes as unrealized until such time as the
contracts have been closed.
I Reverse Repurchase Agreements -- The Portfolio may enter into reverse
repurchase agreements. Under such an agreement, the Portfolio temporarily
transfers possession, but not ownership, of a security to a counterparty, in
return for cash. At the same time, the Portfolio agrees to repurchase the
security at an agreed-upon price and time in the future. The Portfolio may
enter into reverse repurchase agreements for temporary purposes, such as to
fund withdrawals, or for use as hedging instruments where the underlying
security is denominated in a foreign currency. As a form of leverage, reverse
repurchase agreements may increase the risk of fluctuation in the market
value of the Portfolio's assets or in its yield. Liabilities to
counterparties under reverse repurchase agreements are recognized in the
Statement of Assets and Liabilities at the same time at which cash is
received by the Portfolio. The securities underlying such agreements continue
to be treated as owned by the Portfolio and remain in the Portfolio of
Investments. Interest charged on amounts borrowed by the Portfolio under
reverse repurchase agreements is accrued daily and offset against interest
income for financial statement purposes.
J Interest Rate Swaps -- The Portfolio has entered into interest rate swap
agreements to enhance return, to hedge against fluctuations in securities
prices or interest rates or as substitution for the purchase or sale of
securities. Pursuant to these agreements the Portfolio makes monthly payments
at a rate equal to a predetermined spread to the one-month LIBOR. In
exchange, the Portfolio receives payments based on the rate of return of a
benchmark industry index. During the term of the outstanding swap agreement,
changes in the underlying value of the swap are recorded as unrealized gains
and losses. Payments received or made at the end of the measurement period
are recorded as realized gains or losses. The value of the swap is determined
by changes in the relationship between two rates of interest. The Portfolio
is exposed to credit loss in the event of non-performance by the swap
counterparty. However, the Portfolio does not anticipate non-performance by
the counterparty. Risk may also arise from the unanticipated movements in
value of interest rates.
K Expense Reduction -- Investors Bank & Trust Company (IBT) serves as custodian
of the Portfolio. Pursuant to the custodian agreement, IBT receives a fee
reduced by credits which are determined based on the average daily cash
balance the Portfolio maintains with IBT. All significant credits used to
reduce the Portfolios custodian fees are reported separately as a reduction
of total expenses in the Statement of Operations. For the year ended October
31, 2000, $3,177 in credits were used to reduce the Portfolio's custodian
fee.
L Use of Estimates -- The preparation of the financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities at the date of the financial
22
<PAGE>
STRATEGIC INCOME PORTFOLIO AS OF OCTOBER 31, 2000
NOTES TO FINANCIAL STATEMENTS CONT'D
statements and the reported amounts of income and expense during the
reporting period. Actual results could differ from those estimates.
M Other -- Investment transactions are accounted for on a trade date basis.
2 Investment Adviser Fee and Other Transactions with Affiliates
-------------------------------------------
The investment adviser fee is earned by Boston Management and Research (BMR),
a wholly-owned subsidiary of Eaton Vance Management (EVM), as compensation
for management and investment advisory services rendered to the Portfolio.
The fee is based upon a percentage of average daily net assets plus a
percentage of gross income (i.e., income other than gains from the sale of
investments). Such percentages are reduced as average daily net assets exceed
certain levels. For the year ended October 31, 2000, the fee was equivalent
to 0.53% of the Portfolio's average net assets for such period and amounted
to $827,576. 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 $235,441 for the year
ended October 31, 2000.
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 year ended October
31, 2000, no significant amounts have been deferred. Certain 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 $150 million unsecured line of credit agreement
with a group of banks. Borrowings will be made by the Portfolio solely to
facilitate the handling of unusual and unanticipated short-term cash
requirements. 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 year ended October 31,
2000.
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 October 31, 2000, the
Portfolio had invested approximately 25.8% of its net assets or approximately
$39,898,000 in high yield securities. Purchases and sales of investments,
other than short-term obligations, for the year ended October 31, 2000 were
as follows:
<TABLE>
<S> <C>
PURCHASES
-----------------------------------------------------
Investments (non-U.S. Government) $74,280,603
U.S. Government Securities 10,455,023
-----------------------------------------------------
$84,735,626
-----------------------------------------------------
SALES
-----------------------------------------------------
Investments (non-U.S. Government) $54,367,224
U.S. Government Securities 17,543,565
-----------------------------------------------------
$71,910,789
-----------------------------------------------------
</TABLE>
5 Financial Instruments
-------------------------------------------
The Portfolio regularly trades in financial instruments with off-balance
sheet risk in the normal course of its investing activities and to assist in
managing exposure to various market risks. These financial instruments
include written options, forward foreign currency contracts, financial
futures contracts and interest rate swaps 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
23
<PAGE>
STRATEGIC INCOME PORTFOLIO AS OF OCTOBER 31, 2000
NOTES TO FINANCIAL STATEMENTS CONT'D
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 October 31, 2000 is as follows:
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS
<TABLE>
<CAPTION>
SALES
----------------------------------------------------------------------------------------
SETTLEMENT IN EXCHANGE FOR NET UNREALIZED
DATE(S) DELIVER (IN U.S. DOLLARS) APPRECIATION
<C> <S> <C> <C>
----------------------------------------------------------------------------------------
11/6/00 Euro Dollar
9,250,000 $ 8,093,750 $ 253,497
11/30/00 Japanese Yen
833,179,110 7,728,934 54,249
----------------------------------------------------------------------------------------
$ 15,822,684 $ 307,746
----------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
PURCHASES
----------------------------------------------------------------------------------------
SETTLEMENT DELIVER NET UNREALIZED
DATE(S) IN EXCHANGE FOR (IN U.S. DOLLARS) DEPRECIATION
<C> <S> <C> <C>
----------------------------------------------------------------------------------------
11/20/00 Australian Dollar
5,700,000 $ 2,984,919 $ (40,014)
11/6/00 Euro Dollar
3,227,851 2,802,259 (66,348)
----------------------------------------------------------------------------------------
$ 5,787,178 $ (106,362)
----------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
FUTURES CONTRACTS
----------------------------------------------------------------------------------------------------------------
NET UNREALIZED
EXPIRATION APPRECIATION
DATE(S) CONTRACTS POSITION (DEPRECIATION)
<C> <S> <C> <C>
----------------------------------------------------------------------------------------------------------------
12/00 35 Euro-Bond Long $ 6,405
12/00 13 Japanese Bond Short (318,839)
----------------------------------------------------------------------------------------------------------------
$ (312,434)
----------------------------------------------------------------------------------------------------------------
</TABLE>
At October 31, 2000, 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.
The Portfolio has entered into an interest rate swap agreement with Goldman
Sachs Capital Markets whereby the Portfolio makes monthly payments at a rate
equal to the one-month LIBOR plus 0.1% on the notional amount of $10,000,000.
In exchange, the Portfolio receives payments equal to the total return on the
Lehman Brothers High Yield Bond Index on the same notional amount. The value
of the contract, which terminates at April 1, 2001, is recorded as a payable
for open swap contracts of $343,706 at October 31, 2000.
6 Federal Income Tax Basis of Investments
-------------------------------------------
The cost and unrealized appreciation (depreciation) in value of the
investment securities at October 31, 2000, as computed on a federal income
tax basis, were as follows:
<TABLE>
<S> <C>
AGGREGATE COST $166,730,491
------------------------------------------------------
Gross unrealized appreciation $ 1,116,186
Gross unrealized depreciation (11,694,764)
------------------------------------------------------
NET UNREALIZED DEPRECIATION $(10,578,578)
------------------------------------------------------
</TABLE>
24
<PAGE>
STRATEGIC INCOME PORTFOLIO AS OF OCTOBER 31, 2000
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 the supplementary data present fairly, in all material
respects, the financial position of Strategic Income Portfolio (the "Portfolio")
at October 31, 2000, and the results of its operations, the changes in its net
assets, and the supplementary data for the periods presented, in conformity with
accounting principles generally accepted in the United States of America. 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 auditing standards generally accepted in the United States of America,
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 October 31, 2000 by correspondence with the
custodian and brokers, provide a reasonable basis for our opinion.
PricewaterhouseCoopers LLP
Boston, Massachusetts
December 11, 2000
25
<PAGE>
EATON VANCE STRATEGIC INCOME FUND AS OF OCTOBER 31, 2000
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
Michael R. Mach
Vice President
Armin J. Lang
Vice President
Robert B. MacIntosh
Vice President
Edward E. Smiley, Jr.
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 Operating Officer,
Hellman, Jordan Management Co., Inc.
President, Jordan Simmons Capital LLC
and Unicorn Corporation
Lynn A. Stout
Professor of Law,
Georgetown University Law Center
Jack L. Treynor
Investment Adviser and Consultant
STRATEGIC INCOME PORTFOLIO
Officers
James B. Hawkes
President and Trustee
Mark S. Venezia
Vice President
James L. O'Connor
Treasurer
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 Operating Officer,
Hellman, Jordan Management Co., Inc.
President, Jordan Simmons Capital LLC
and Unicorn Corporation
Lynn A. Stout
Professor of Law,
Georgetown University Law Center
Jack L Treynor
Investment Adviser and Consultant
26
<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
PFPC, INC.
Attn: Eaton Vance Funds
P.O. Box 9653
Providence, RI 02904-9653
(800) 262-1122
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.
-------------------------------------------------------------------------------
02B-12/00 SISRC