To Shareholders
Eaton Vance Income Fund of Boston had a total return of 6.2% for the six months
ended March 31, 1996. That return was the result of a rise in net asset value
per share to $7.99 on March 31, 1996, from $7.92 on September 30, 1995, and the
reinvestment of $0.409 per share in dividends. The return to shareholders who
have recently purchased the Fund will have been reduced by a maximum sales
charge of 3.75%. The Lehman Brothers High Yield Bond Index returned 4.9% for
the six-month period.
Based on the Fund's most recent dividend and a net asset value per share of
$7.99, the Fund had a distribution rate of 10.1% at March 31.
FLUCTUATING INTEREST RATES LED TO A VOLATILE MARKET, BUT HIGH-YIELD BONDS POSTED
SOLID RETURNS...
The bond market has been unusually volatile the past year, a result of the
on-again, off-again nature of rancorous budget negotiations and mixed economic
signals. As a measure of changing market conditions, 10-year Treasury yields,*
which stood at 7.2% in March 1995, declined to 5.6% at year-end as the Federal
Reserve lowered interest rates in response to weak economic data. However,
spurred by isolated signs of inflation, rates were again on the rise early in
1996. By March, 1996, 10-year Treasury yields had climbed to 6.3%.
*High yield bonds carry a higher degree of investment risk, while the principal
and interest of Treasury issues are guaranteed by the U.S. government. High
yield bonds are considered speculative because they present greater risks of
price volatility and default.
INCOME FUND OF BOSTON: RATINGS
BREAKDOWN OF BOND HOLDINGS*
NON-
RATED OTHER Aaa Caa Ba B1 B3 B2
3.5% 1.8% 3.3% 6.7% 5.6% 11.8% 40.5% 26.8%
*Moody's Investors Services ratings; percentages based on market
value as of March 31, 1996. Source: Eaton Vance Management.
A GOOD CLIMATE AHEAD FOR HIGH-YIELD BONDS...
A projected slow-growth economy should provide a very good climate for the
high-yield market, although there is naturally no guarantee of future trends.
In the pages that follow, portfolio manager Hooker Talcott, Jr. provides his
insights into the period just ended, and suggests what may lie ahead for high
yield bond investors.
Sincerely,
[Photo of M. Dozier Gardner]
/s/ M. Dozier Gardner
M. Dozier Gardner
President
May 19, 1996
<PAGE>
Management Discussion
An interview with Hooker Talcott Jr., Vice President and Portfolio Manager of
Eaton Vance Income Fund of Boston.
Q. HOOKER, WHAT'S YOUR ASSESSMENT OF THE HIGH-YIELD MARKET DURING THE PAST YEAR?
A. The high-yield market naturally reflected some of the volatility of the
Treasury market. In addition, the high-yield segment felt the impact of
supply pressures as a huge volume of new issuance came to market.
Interestingly, the wave of new supply was met with strong demand from
yield-oriented investors. So the market remained generally in balance from a
supply-and-demand perspective.
Q. WITH THAT AS A BACKDROP, WHAT DROVE THE FUND'S PERFORMANCE?
A. Considering the volatility, the Fund fared quite well. As I've indicated in
past reports, the Fund benefits in periods of volatility from being
positioned well away from the Treasury yield curve. That is, the high
coupons of high-yield bonds make them less responsive to changes in interest
rates. In addition, given the contradictory messages sent by the economy,
the Fund clearly benefited from having maintained a good balance between
defensive issues and those that are more economically sensitive.
Q. YOU INDICATED THAT THE HIGH-YIELD SECTOR HAS WITNESSED A GOOD DEAL OF NEW
ISSUANCE IN THE PAST YEAR. WHAT ARE THE DIMENSIONS?
A. In the first quarter of 1996 alone, -------------------------------
new high-yield issuance totalled $17.6
billion dollars. That is well ahead of
the pace set in 1995, when new
issuance was the second highest on [Photo of Hooker Talcott, Jr.]
record. The single largest source of
new issuance - around 50% in the past
six months - has been in the
telecommunications and cable sector,
an increasingly significant component
of the Portfolio. -------------------------------
Hooker Talcott, Jr.
Q. WHAT'S BEHIND THE SURGE IN FINANCING ACTIVITY BY THE TELECOM SECTOR?
A. The telecom sector is very capital-intensive. The pace of technological and
regulatory change in the telecom sector has prompted many companies to
increase their financing efforts for capital expenditures and build-out of
systems, as well as to purchase transmission spectrum at auction. The
passage by Congress of telecom legislation in February of this year
unleashed a wave of deregulation that has companies scrambling to enter
related fields that were previously off-limits. As a result, cable
operators, paging service companies, wireless companies and assorted media
companies have greatly increased their exposure to the high-yield market.
Q. RECENT ECONOMIC REPORTS SUGGEST THAT THE ECONOMY MAY NOT BE AS WEAK AS MANY
FEARED SOME MONTHS AGO. WHAT EFFECT MIGHT AN UPTICK IN THE ECONOMY HAVE ON
THE FUND?
A. The Fund is well-positioned to benefit from a stronger-than-expected
economy. Interestingly, there was talk for many months about a "soft
landing." As it turns out, the economy has barely landed at all. And that is
certainly a good sign for the high-yield segment of the market. A
slow-growth economy enables high-yield issuers - especially some of the more
cyclical companies found in the Portfolio - to grow their earnings and cash
flows, strengthen their balance sheets and possibly to realize an
improvement in credit quality.
Q. CAN YOU GIVE SOME EXAMPLES OF THE PORTFOLIO'S CYCLICAL HOLDINGS?
A. Yes. Among the cyclical sectors, we've maintained a fairly large exposure to
paper and forest products, steel companies, and energy. For example, one
large holding, Stone Container, is among the industry leaders in the
production of container board and corrugated containers. A stronger economy
results in more shipments by manufacturers and increased demand for
corrugated containers. Steel companies, like Republic Engineered Steels
Inc., took on a good deal of debt in recent years to modernize plants and
become increasingly competitive with global producers. That has paid off
handsomely, as the companies now operate more efficiently and will be better
positioned to withstand the next down-cycle. Finally, we've increased our
commitments to the energy group, through exploration companies like
Chesapeake Energy Corp. and Trans Texas Gas Corp. Energy prices have firmed
recently with growing global economic demand, falling inventories, and the
failure of Iraqi supply to come to market. Rising prices have improved the
outlook for oil and gas exploration companies.
Q. HOOKER, IN YOUR VIEW, WHAT IS THE OUTLOOK FOR THE HIGH-YIELD MARKET?
A. While the market has clearly been strong in the past year and there is some
uncertainty as to the course of the economy, the outlook for the high-yield
market remains positive. As I indicated earlier, heavy supply has received
an enthusiastic reception from investors. Naturally, past trends cannot
guarantee future results, but history has proven the high-yield sector a
source of good, long-term investment opportunity.
<PAGE>
--------------------------------------------
PORTFOLIO OF INVESTMENTS
MARCH 31, 1996
- -----------------------------------------------------------------------------
CORPORATE BONDS AND NOTES -- 92.6%
- -----------------------------------------------------------------------------
SECURITY FACE AMOUNT VALUE
- -----------------------------------------------------------------------------
AUTOMOTIVE/TRUCK -- 2.2%
JPS Automotive Prod. Corp.,
Sr. Notes, 11.125%, 6/15/01 $1,500,000 $ 1,485,000
Key Plastics, Sr. Notes, 14%, 11/15/99 1,200,000 1,224,000
------------
$ 2,709,000
------------
BUILDING PRODUCTS -- 4.5%
Building Materials Corp., Sr. Sub. Notes,
11.75% (0% until 2000), 7/1/04 $2,000,000 1,480,000
Overhead Door Corp., Sr. Notes,
12.25%, 2/1/00 1,500,000 1,507,500
Southdown Inc., Sr. Sub. Notes,
10%, 3/1/06(1) 1,500,000 1,500,000
Tarkett International, Sr. Sub. Notes,
9%, 3/1/02 900,000 936,000
------------
$ 5,423,500
------------
CHEMICALS -- 6.2%
Agricultural Minerals & Chemicals,
Sr. Notes, 10.75%, 9/30/03 $1,000,000 $ 1,085,000
GI Holdings, Sr. Disc. Notes, 10%, 2/15/06(1) 962,000 962,000
GI Holdings, Sr. Disc. Notes, 0%, 10/1/98 192,000 153,120
NL Industries Inc., Sr. Sec. Notes,
11.75%, 10/15/03 1,000,000 1,037,500
NL Industries Inc., Sr. Disc. Notes,
13% (0% until 1998), 10/15/05 1,250,000 937,500
Pioneer Americas Acq., Sr. Notes, 13.375%, 4/1/05 1,650,000 1,761,375
Terra Industries Inc., Sr. Notes, 10.5%, 6/15/05 700,000 759,500
Uniroyal Chemical Corp., Sr. Sub.
Notes, 11%, 5/1/03 800,000 820,000
------------
$ 7,515,995
------------
COMMUNICATIONS -- 21.2%
American Telecasting, Sr. Disc. Notes,
14.5% (0% until 2000), 8/15/05 $1,800,000 $ 1,183,500
Arch Communications, Sr. Disc Notes,
10.875% (0% until 2001), 3/15/08 1,000,000 572,500
Australis Media LTD., Sub. Disc. Notes,
14% (0% until 2000), 5/15/03 1,700,000 1,173,000
Brooks Fiber Prop., Sr. Disc. Notes,
10.875% (0% until 2001), 3/1/06(1) 1,500,000 870,000
Cablevision Systems Corp., Sr. Sub.
Notes, 9.25%, 11/1/05 700,000 700,000
Chancellor Broadcasting Co., Sr. Sub.
Notes, 9.375%, 10/01/04 600,000 567,000
CS Wireless Systems, Inc., Sr. Disc. Notes,
11.375% (0% until 2001), 3/1/06(1) 1,020,000 561,000
Dial Call Communications Inc., Sr. Red. Notes,
12.25% (0% until 1999), 4/15/04 1,800,000 1,134,000
Diamond Cable Communications Co., Sr. Disc. Notes,
13.25% (0% until 1999), 9/30/04 400,000 284,000
Diamond Cable Co., Senior Notes,
11.75% (0% until 2000), 12/15/05 1,900,000 1,111,500
EZ Communications, Sr. Notes, 9.75%, 12/1/05 1,300,000 1,293,500
Galaxy Telecom LP., Sr. Sub. Notes,
12.375%, 10/1/05 1,000,000 1,055,000
Granite Broadcasting Corp., Sr. Sub. Notes,
10.375%, 5/15/05 950,000 960,688
Groupe Videotron Ltd., Sr. Notes,
10.625%, 2/15/05 1,000,000 1,050,000
Heartland Wireless Communications Corp., Senior
Notes, 14%, 4/15/03(1) 1,550,000 1,720,500
In-Flight Phone Corp., Sr. Disc. Notes,
14% (0% until 1999), 5/15/02 400,000 124,000
International Cabletel, Inc., Sr. Notes,
11.5%, (0% until 2001), 2/1/06(1) 1,450,000 819,250
Marcus Cable Co., Sr. Disc. Notes,
14.25% (0% until 2000), 12/15/05 2,500,000 1,600,000
Marcus Cable Co., Sr. Debs., 11.875%, 10/1/05 200,000 213,000
MFS Communications, Sr. Disc. Notes,
8.875% (0% until 2001), 1/15/06 1,625,000 1,007,500
Mobilemedia Corporation, Sr. Sub. Notes,
9.375%, 11/1/07 800,000 784,000
Mobilemedia Communications Corp., Sr. Sub. Notes,
10.5% (0% until 1998), 12/1/03 1,000,000 770,000
Pricellular Wireless Comm., Sr. Sub. Disc. Notes,
12.25% (0% until 1998), 10/1/03 1,500,000 1,177,500
Rogers Communications, Inc.,
Sr. Notes, 9.125%, 1/15/06 600,000 580,500
Sullivan Broadcasting, Sr. Sub. Notes,
10.25%, 12/15/05(1) 1,050,000 1,039,500
United International Holdings Inc., Sr. Sec. Disc.
Notes, 0%, 11/15/99 2,710,000 1,747,950
Videotron Holdings, Sr. Disc. Notes,
11% (0% until 2000), 8/15/05 2,600,000 1,651,000
------------
$ 25,750,388
------------
ENERGY -- 6.1%
Clark USA Inc., Sr. Notes, 10.875%, 12/1/05(1) $ 600,000 $ 627,000
El Paso Electric Company, First Mtg. Notes,
9.4%, 5/1/11 650,000 658,125
Gulf Canada Resources Ltd., Sr. Sub.
Notes, 9.25%, 1/15/04 1,000,000 1,015,000
MCV Subordinated Secured Lease Obligation,
11.75%, 7/23/05 1,200,000 1,266,468
Mesa Capital Corp., Sec. Disc. Notes,
12.75%, 6/30/98 600,000 586,500
Midland Cogeneration Venture, Sr. Sec. Lease
Oblig., 10.33%, 7/23/02 771,509 812,978
Plains Resources, Sr. Sub. Notes,
10.25%, 3/15/06(1) 900,000 902,250
Trans Texas Gas Corp., Sr. Sec. Notes,
11.5%, 6/15/02 700,000 689,500
Tuboscope Vetco, Sr. Sub. Debs.,
10.75%, 4/15/03 500,000 522,500
Vintage Petroleum Corp., Sr. Sub. Notes,
9%, 12/15/05 300,000 292,500
------------
$ 7,372,821
------------
FOOD/RESTAURANTS/HOTELS -- 6.8%
Courtyard by Marriott, Sr. Notes, 10.75%, 2/1/08(1) $1,000,000 $ 990,000
Flagstar Corp., Sub. Debs., 10.75%, 9/15/01 1,750,000 1,575,000
HMC Acquisition Properties,
Sr. Notes, 9%, 12/15/07(1) 1,100,000 1,039,500
PM Holdings Corp., Sr. Sub. Notes,
11.5% (0% until 2000), 9/1/05 675,000 384,750
Purina Mills, Sr. Sec. Sub. Notes, 10.25%, 9/1/03 1,200,000 1,230,000
Seven Up/RC Bottling Co., Sr. Sec. Notes,
11.5%, 8/1/99* 720,000 432,000
Specialty Foods Corp., Sr. Sub. Notes,
10.25%, 8/15/01 1,500,000 1,357,500
Van De Kamps, Inc., Sr. Sub. Notes, 12%, 9/15/05 1,200,000 1,284,000
------------
$ 8,292,750
------------
HEALTHCARE -- 4.1%
Dade International Inc., Sr. Sub. Notes,
13%, 2/1/05 $1,200,000 $ 1,380,000
Ordna Corp., Sr. Sub. Notes, 11.375%, 8/15/04 1,425,000 1,603,125
Regency Health, Sr. Sub. Notes,
9.875%, 10/15/02 1,000,000 1,015,000
Unilab Corp., Sr. Notes, 11%, 4/1/06 1,000,000 985,000
------------
$ 4,983,125
------------
HIGH TECH -- 3.0%
Blue Bell Funding Inc., Sec. Ext. Notes, 11.85%,
5/1/99 $ 742,000 $ 704,900
GS Technologies Corp., Sr. Notes, 12.25%, 10/1/05 1,500,000 1,507,500
Unisys Corp., Sr. Notes, 12%, 4/15/2003(1) 400,000 395,308
Unisys Corp., Sr. Notes, Variable Rate, 7/1/97 1,000,000 1,065,000
------------
$ 3,672,708
------------
METALS -- 3.7%
Acme Metals Inc., Sr. Notes, 12.5%, 8/1/02 $1,000,000 $ 1,032,500
Gulf States Steel, First Mtg. Notes, 13.5%, 4/15/03 1,000,000 915,000
Kaiser Aluminum, Sr. Sub. Notes, 12.75%, 2/1/03 1,000,000 1,060,000
Maxxam Group Inc., Sr. Sec. Notes, 11.25%, 8/1/03 500,000 475,000
Republic Engineered Steels Inc., First Mtg.,
9.875%, 12/15/01 500,000 457,500
Ucar Global Enterprises, Sr. Sub. Notes,
12%, 1/15/05 525,000 603,750
------------
$ 4,543,750
------------
MANUFACTURING/MACHINERY -- 8.6%
Alvey Systems Inc., Sr. Sub. Notes,
11.375%, 1/31/03(1) $ 600,000 $ 625,500
Applied Extrusion Inc., Sr. Notes, 11.5%, 4/1/02 1,500,000 1,552,500
Day International Group, Inc., Sr. Sub. Notes,
11.125%, 6/1/05 1,000,000 1,035,000
Dictaphone Corp., Sr. Sub. Notes, 11.75%, 8/1/05 500,000 500,000
Monarch Acquisition Corp., Sr. Notes, 12.5%, 7/1/03 1,300,000 1,391,000
Newflo Corp., Sub. Notes, 13.25%, 11/15/02 1,400,000 1,470,000
Plastic Specialties & Tech, Sr. Sec. Notes,
11.25%, 12/1/03 750,000 750,000
RBX Corporation, Sr. Sub. Notes, 11.25%, 10/15/05(1) 1,000,000 975,000
Shared Tech/Fairchild, Sr. Disc. Notes,
12.25% (0% until 1999), 3/1/06(1) 1,200,000 852,000
Waters Corp., Sr. Sub. Notes, 12.75%, 9/30/04 1,125,000 1,344,375
------------
$ 10,495,375
------------
MISCELLANEOUS -- 5.6%
Alliance Entertainment Corp., Sr. Sub. Notes,
11.25%, 7/15/05 $ 900,000 $ 891,000
Alliant Tech Systems Inc., Sr. Sub. Notes,
11.75%, 3/1/03 1,000,000 1,100,000
Howmet Corp., Sr. Sub. Notes, 10%, 12/1/03(1) 650,000 687,375
Imax Corp., Sr. Notes, 10% (7% until 1997), 3/1/01 600,000 597,000
Roadmaster Industries Inc., Sr. Sub. Notes,
11.75%, 7/15/02 975,000 721,500
Selmer Company, Inc., Sr. Sub. Notes, 11%, 5/15/05 1,600,000 1,664,000
Williamhouse-Regency of Del.,
Sr. Sub. Notes, 13%, 11/15/05(1) 1,000,000 1,105,000
------------
$ 6,765,875
------------
PAPER/PACKAGING -- 8.5%
Container Corp., Sr. Notes (Ser. B), 10.75%, 5/1/02 $ 850,000 $ 869,125
Fort Howard Corp., Sr. Sec. Notes, 11%, 1/2/02 636,123 667,929
Gaylord Container Corp., Sr. Sub. Disc. Debs.,
12.75%, 5/15/05 1,300,000 1,313,000
Portola Packaging Corp., Sr. Notes,
10.75%, 10/1/05 1,000,000 1,050,000
Riverwood International, Sr. Sub. Notes,
10.875%, 4/1/08 1,750,000 1,745,625
S.D. Warren Company Inc., Sr. Sub. Notes,
12%, 12/15/04 1,000,000 1,055,000
Silgan Corp., Sr. Notes, 11.75%, 6/15/02 500,000 532,500
Silgan Corp., Sr. Sub. Notes, 13.25%, 12/15/02 500,000 490,000
Stone Container Corp., First Mtg. Notes,
10.75%, 10/1/02 1,000,000 992,500
Stone Container Corp., Sr. Notes, 12.625%, 7/15/98 800,000 844,000
U.S. Can Company, Sr. Sub. Notes, 13.5%, 1/15/02 750,000 795,000
------------
$ 10,354,679
------------
RECREATION -- 4.1%
AMF Group, Inc., Sr. Sub. Notes,
10.875%, 3/15/06(1) $1,000,000 $ 995,000
AMF Group, Inc., Sr. Disc. Notes,
12.25% (0% until 2000), 3/15/06(1) 200,000 109,000
Aztar Corp., Sr. Sub. Notes, 13.75%, 10/1/04 1,000,000 1,115,000
Trump Holdings & Funding,
Sr. Notes, 15.5%, 6/15/05 1,000,000 1,145,000
Trump Taj Mahal, First Mtg. Bonds (PIK),
11.35%, 11/15/99 1,524,215 1,602,331
------------
$ 4,966,331
------------
RETAILING -- 6.1%
Apparel Retailers Inc., Sr. Disc. Debs., 12.75% (0%
until 1998), 8/15/05 $1,400,000 $ 980,000
Brunos, Inc., Sr. Sub. Notes, 10.5%, 8/1/05 1,425,000 1,368,000
Duane Reade, G.P., Sr. Notes, 12%, 9/15/02 1,200,000 1,140,000
Knoll Inc., Sr. Sub. Notes, 10.875%, 3/15/06(1) 500,000 510,000
Levitz Furniture Corp., Sr. Sub. Notes,
9.625%, 7/15/03 250,000 155,000
Pathmark Stores Inc., Jr. Sub., Disc. Notes,
10.75% (0% until 1999), 11/1/03 1,500,000 892,500
Ralphs Grocery Company, Inc.,
Sr. Sub. Notes, 13.75%, 6/15/05 1,500,000 1,530,000
Specialty Retailers, Inc., Sr. Sub. Notes,
11%, 8/15/03 900,000 877,500
------------
$ 7,453,000
------------
TEXTILES -- 1.9%
Dan River Inc., Sr. Sub. Notes, 10.125%, 12/15/03 $1,450,000 $ 1,377,500
Westpoint Stevens, Sr. Sub. Debs., 9.375%, 12/15/05 1,000,000 987,500
------------
$ 2,365,000
------------
TOTAL CORPORATE BONDS AND NOTES
(identified cost, $111,555,077) $112,664,297
------------
- -----------------------------------------------------------------------------
PREFERRED STOCKS -- 1.3%
- -----------------------------------------------------------------------------
SECURITY SHARES VALUE
- -----------------------------------------------------------------------------
Cablevision Systems Corp., 11.125% (PIK) 10,000 $ 1,000,000
S.D. Warren Company w/Warrants, 14%* 12,000 372,000
Terex CV Pfd w/Warrants(1)* 8,000 200,000
------------
TOTAL PREFERRED STOCKS
(identified cost, $1,510,400) $ 1,572,000
------------
- -----------------------------------------------------------------------------
COMMON STOCKS, WARRANTS AND RIGHTS -- 1.3%
- -----------------------------------------------------------------------------
SHARES/WARRANTS
- -----------------------------------------------------------------------------
AUTO/TRUCK -- 0.6%
Bucyrus - Erie Company, Common* 87,279 $ 698,232
------------
CABLE -- 0.0%
American Telecasting, Wts.* 1,400 $ 47,600
------------
CHEMICALS -- 0.1%
UCC Invt. Hldgs., Class A Common+* 7,431 $ 83,599
------------
COMMUNICATIONS -- 0.0%
Dial Call Communications, Wts., Exp. 4/15/04+* 1,800 $ 450
In Flight Phone Corp., Wts., Exp. 8/31/02* 400 0
United International Hldg. Inc.,
Wts. Exp. 11/15/99+* 1,960 58,800
------------
$ 59,250
------------
FOOD -- 0.0%
Servam Corp., Common* 884 $ 0
Servam Corp., $2.00 Wts. Exp. 4/1/01+* 7,864 0
Servam Corp., $4.50 Wts. Exp. 4/1/01+* 1,768 0
Specialty Foods Acquisition, Common(1)* 12,000 9,000
------------
$ 9,000
------------
INDUSTRIAL -- 0.0%
Thermadyne Holdings Corp., Common+* 777 $ 14,569
------------
MANUFACTURING -- 0.5%
Pullman Company, Common+* 43,702 $ 349,616
Southdown Inc., Wts., Exp. 10/31/96+* 7,500 31,875
Terex Corporation, Rights, Exp. 8/1/96+* 2,700 135
Terex Corporation, Rights, Exp. 8/1/96+* 375 19
Terex Corporation, Rights, Exp. 7/1/97+* 1,790 179
Terex Corp., Wts., Exp. 12/31/00+* 8,000 108,000
Triangle Wire & Cable, Common+* 31,667 63,333
------------
$ 553,157
------------
METALS -- 0.0%
Gulf States Steel, Wts.(1)* 1,000 $ 50
------------
MISCELLANEOUS -- 0.0%
Australis Media, Wts.+* 1,700 $ 0
------------
PAPER/PACKAGING -- 0.0%
S.D. Warren Company, Wts., Exp. 12/15/06* 12,000 $ 54,000
------------
RETAILING -- 0.0%
Waxman Industries Inc., Wts., Exp. 9/1/96+* 14,000 $ 140
------------
TOTAL COMMON STOCKS, WARRANTS AND
RIGHTS (identified cost, $3,687,461) $ 1,519,597
------------
- -----------------------------------------------------------------------------
SHORT-TERM OBLIGATION -- 3.1%
- -----------------------------------------------------------------------------
FACE AMOUNT
- -----------------------------------------------------------------------------
COMMERCIAL PAPER
Prudential Funding
5.45%, 4/1/96, at amortized cost $3,738,000 $ 3,738,000
------------
TOTAL INVESTMENTS
(identified cost, $120,490,938) $119,493,894
OTHER ASSETS, LESS LIABILITIES -- 1.7% 2,124,121
------------
NET ASSETS -- 100% $121,618,015
============
* Non-income producing security.
+ Restricted security (Note 8).
(1) Security exempt from registration under Rule 144A of the Securities Act of
1933. These securities may be resold in transactions exempt from
registration, normally to qualified institutional buyers. At the period end,
the value of these securities amounted to $17,494,233 or 14.4% of net
assets.
The accompanying notes are an integral part of the financial statements
<PAGE>
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
- ------------------------------------------------------------------------------
March 31, 1996
- ------------------------------------------------------------------------------
ASSETS:
Investments, at value (Note 1A) (identified cost,
$120,490,938) $119,493,894
Cash 2,152
Receivable for investments sold 300,058
Receivable for Trust shares sold 595,501
Interest and dividends receivable 2,735,870
------------
Total assets $123,127,475
LIABILITIES:
Dividends payable $483,166
Payable for investments purchased 884,750
Payable for Trust shares redeemed 77,746
Payable to affiliate --
Trustees' fee (Note 4) 3,619
Accrued expenses 60,179
--------
Total liabilities 1,509,460
------------
NET ASSETS for 15,228,315 shares of
beneficial interest outstanding $121,618,015
============
SOURCES OF NET ASSETS:
Paid-in capital $139,152,165
Accumulated net realized loss on
investment transactions (computed on the
basis of identified cost) (15,630,992)
Unrealized depreciation of investments
(computed on the basis of identified cost) (993,769)
Accumulated distributions in excess of net
investment income (909,389)
------------
Total $121,618,015
============
NET ASSET VALUE AND REDEMPTION PRICE PER SHARE
($121,618,015 / 15,228,315 shares of
beneficial interest) $7.99
=====
COMPUTATION OF OFFERING PRICE:
(Offering price per share 100/96.25 of $7.99) $8.30
=====
On sales of $50,000 or more, the offering price is reduced.
The accompanying notes are an integral part of the financial statements
<PAGE>
STATEMENT OF OPERATIONS
- ------------------------------------------------------------------------------
For The Six Months Ended March 31, 1996
- ------------------------------------------------------------------------------
INVESTMENT INCOME:
Interest income $6,233,813
Expenses --
Investment adviser fee (Note 4) $ 354,481
Compensation of Trustees not members of
the Investment Adviser's organization 21,498
Service fees (Note 5) 52,722
Custodian fees (Note 4) 37,078
Transfer and dividend disbursing agent
fees 54,259
Printing and postage 50,542
Legal and accounting services 25,744
Registration costs 21,441
Miscellaneous 1,501
----------
Total expenses 619,266
----------
Net investment income $5,614,547
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS:
Net realized loss on investment transactions
(identified cost basis) ($567,070 net loss
for federal income tax purposes) $ (567,070)
Change in unrealized appreciation of
investments 1,617,905
----------
Net realized and unrealized gain on
investments 1,050,835
----------
Net increase in net assets from
operations $6,665,382
==========
The accompanying notes are an integral part of the financial statements
<PAGE>
STATEMENTS OF CHANGES IN NET ASSETS
- ------------------------------------------------------------------------------
SIX MONTHS
ENDED YEAR ENDED
MARCH 31, SEPTEMBER
1996 30, 1995
---------- ------------
INCREASE (DECREASE) IN NET ASSETS:
From operations --
Net investment income $ 5,614,547 $ 10,558,509
Net realized loss on investment
transactions (567,070) (2,502,141)
Change in unrealized appreciation of
investments 1,617,905 2,497,668
------------ ------------
Net increase in net assets from
operations $ 6,665,382 $ 10,554,036
------------ ------------
Distributions to shareholders --
From net investment income $ (5,614,547) $(10,503,271)
In excess of net investment income (182,760) --
------------ ------------
Total distributions to shareholders $ (5,797,307) $(10,503,271)
------------ ------------
Net increase from Trust share
transactions (Note 2) $ 14,335,969 $ 2,880,933
------------ ------------
Net increase in net assets $ 15,204,044 $ 2,931,698
NET ASSETS:
At beginning of period 106,413,971 103,482,273
------------ ------------
At end of period (including distributions
in excess of net investment
income of $909,389 and $726,629
respectively) $121,618,015 $106,413,971
============ ============
The accompanying notes are an integral part of the financial statements
<PAGE>
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS
- -----------------------------------------------------------------------------------------------------------------------------------
SIX MONTHS YEAR ENDED SEPTEMBER 30,
ENDED ----------------------------------------------------------------
MARCH 31, 1996 1995 1994 1993 1992 1991
-------------- ---------- ---------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, beginning of year $ 7.92 $ 7.90 $ 8.40 $ 8.33 $ 7.56 $ 6.89
-------- -------- -------- ------- ------- -------
INCOME FROM OPERATIONS:
Net investment income $ 0.40 $ 0.82 $ 0.83 $ 0.92 $ 0.97 $ 1.04
Net realized and unrealized gain (loss) on
investments 0.08 0.02 (0.47) 0.07 0.77 0.71
-------- -------- -------- ------- ------- -------
Total income from operations $ 0.48 $ 0.84 $ 0.36 $ 0.99 $ 1.74 $ 1.75
-------- -------- -------- ------- ------- -------
LESS DISTRIBUTIONS:
From net investment income $ (0.40) $ (0.82) $ (0.81) $ (0.92) $ (0.97) $ (1.04)
From paid-in capital -- -- -- -- -- (0.04)
In excess of net investment income (0.01) -- (0.05) -- -- --
-------- -------- -------- ------- ------- -------
Total distributions $ (0.41) $ (0.82) $ (0.86) $ (0.92) $ (0.97) $ (1.08)
-------- -------- -------- ------- ------- -------
NET ASSET VALUE, end of year $ 7.99 $ 7.92 $ 7.90 $ 8.40 $ 8.33 $ 7.56
======== ======== ======== ======= ======= =======
TOTAL RETURN(1) 6.17% 11.25% 4.25% 12.59% 24.25% 28.53%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year (000's omitted) $121,618 $106,414 $103,482 $95,123 $85,778 $70,773
Ratio of net expenses to average daily net
assets 1.09%+ 1.09% 1.04% 1.03% 1.08% 1.15%
Ratio of net investment income to average
daily net assets 9.90%+ 10.50% 9.75% 11.01% 12.02% 15.36%
PORTFOLIO TURNOVER 41% 84% 70% 102% 90% 80%
- ------------------
(1) Total investment return is calculated assuming a purchase at the net asset value on the first day and a sale at
the net asset value on the last day of each period reported. Dividends and distributions, if any, are assumed to
be reinvested at the net asset value on the payable date.
+ Annualized.
</TABLE>
The accompanying notes are an integral part of the financial statements
<PAGE>
--------------------------------------------
NOTES TO FINANCIAL STATEMENTS
- ------------------------------------------------------------------------------
(1) SIGNIFICANT ACCOUNTING POLICIES
Eaton Vance Income Fund of Boston (the Trust), a Massachusetts business trust,
is registered under the Investment Company Act of 1940, as amended, as a
diversified, open-end, management investment company. The following is a
summary of significant accounting policies consistently followed by the Trust
in the preparation of its financial statements. The policies are in conformity
with generally accepted accounting principles.
A. INVESTMENT VALUATIONS -- Investments listed on securities exchanges or in
the NASDAQ National Market are valued at closing sale prices. Listed or
unlisted investments for which closing sale prices are not available are
valued at the mean between the latest bid and asked prices. Fixed income
investments (other than short-term obligations), including listed investments
and investments for which price quotations are available, will normally be
valued on the basis of market valuations furnished by a pricing service.
Short-term obligations, maturing in sixty days or less, are valued at
amortized cost, which approximates value. Investments for which there is no
quotation or valuation are valued at fair value using methods determined in
good faith by or at the direction of the Trustees.
B. INCOME -- Interest income is determined on the basis of interest accrued,
adjusted for amortization of premium or discount when required for federal
income tax purposes. Dividend income is recorded on the ex-dividend date.
C. FEDERAL TAXES -- The Trust's policy is to comply with the provisions of the
Internal Revenue Code applicable to regulated investment companies and to
distribute to shareholders all of its taxable income, including any net realized
gain on investments. Accordingly, no provision for federal income or excise tax
is necessary. At September 30, 1995, the Trust, for federal income tax purposes,
had a capital loss carryover of $12,557,485 which will reduce the Trust'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 Trust of any liability for federal income or excise tax. Such
capital loss carryovers will expire on September 30, 1999 ($7,407,810), 2000
($5,148,498) and 2003 ($1,177). Additionally, at September 30, 1995, net capital
losses of $2,416,189 attributable to security transactions incurred after
October 31, 1994, are treated as arising on the first day of the Fund's current
taxable year.
D. DISTRIBUTIONS TO SHAREHOLDERS -- The net investment income of the Trust is
determined daily, and substantially all of the net investment income so
determined is declared daily as a dividend to shareholders of record at the
time of declaration. Distributions are paid monthly. Distributions of realized
capital gains, if any, are made at least annually. Shareholders may reinvest
capital gain distributions in additional shares of the Trust at the net asset
value as of the ex-dividend date. Distributions are paid in the form of
additional shares of the Trust or, at the election of the shareholder, in
cash. The Trust distinguishes between distributions on a tax basis and a
financial reporting basis. Generally accepted accounting principles require
that only distributions in excess of tax basis earnings and profits be
reported in the financial statements as a return of capital. Differences in
the recognition or classification of income between the financial statements
and tax earnings and profits which result in temporary over-distributions for
financial statement purposes are classified as distributions in excess of net
investment income or accumulated net realized gains. Permanent differences
between book and tax accounting relating to distributions are reclassified to
paid-in capital.
E. USE OF ESTIMATES -- The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities at the date of the financial statements and the reported amounts
of revenue and expense during the reporting period. Actual results could
differ from those estimates.
F. OTHER -- Investment transactions are accounted for on the date the
investments are purchased or sold. Gains and losses on securities sold are
determined on the basis of identified cost.
- ------------------------------------------------------------------------------
(2) SHARES OF BENEFICIAL INTEREST
The Declaration of Trust permits the Trustees to issue an unlimited number of
full and fractional shares of beneficial interest (without par value).
Transactions in Trust shares were as follows:
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
MARCH 31, 1996 SEPTEMBER 30, 1995
---------------------------- -----------------------------
SHARES AMOUNT SHARES AMOUNT
--------- ----------- --------- -----------
<S> <C> <C> <C> <C>
Sales 2,474,729 $19,781,211 2,247,830 $17,720,814
Issued to shareholders electing to receive
payment of distributions in Trust shares 387,692 3,093,723 748,929 5,876,531
Repurchases (1,068,418) (8,538,965) (2,656,086) (20,716,412)
--------- ----------- --------- -----------
Net increase 1,794,003 $14,335,969 340,673 $ 2,880,933
========= =========== ========= ===========
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
(3) PURCHASES AND SALES OF INVESTMENTS
The Trust invests primarily in debt securities. The ability of the issuers of
the debt securities held by the Trust to meet their obligations may be
affected by economic developments in a specific industry. Purchases and sales
of investments, other than U.S. Government securities and short-term
obligations, aggregated $55,529,733 and $44,647,118, respectively.
- ------------------------------------------------------------------------------
(4) INVESTMENT ADVISER FEE AND OTHER TRANSACTIONS WITH AFFILIATES
The investment adviser fee, computed at the monthly rate of 5/96 of 1% (5/8 of
1% annually) of the Trust's average monthly net assets, was earned by Eaton
Vance Management (EVM) as compensation for management and investment advisory
services rendered to the Trust. Except as to Trustees of the Trust who are not
members of EVM's organization, officers and Trustees receive remuneration for
their services to the Trust out of such investment adviser fee. Eaton Vance
Distributors, Inc., a subsidiary of EVM and the Trust's principal underwriter,
did not receive any of the sales charge on sales of Trust shares during the six
months ended March 31, 1996. Investors Bank & Trust Company (IBT), serves as
custodian of the Trust. Prior to November 10, 1995, IBT was an affiliate of EVM.
Pursuant to the custodian agreement, IBT receives a fee reduced by credits which
are determined based on the average daily cash balances the Trust maintains with
IBT. No significant credit balances were used to reduce the Fund's custodian
fee. Certain of the officers and Trustees of the Trust are officers and
directors/trustees of the above organizations.
- ------------------------------------------------------------------------------
(5) SERVICE PLAN
The Trustees of the Trust on behalf of the Fund have adopted a Service Plan
designed to meet the requirements of the revised sales charge rule of The
National Association of Securities Dealers Inc. The Service Plan provides that
the Trust may make service fee payments to the Principal Underwriter, Eaton
Vance Distributors, Inc., a subsidiary of Eaton Vance Management, Authorized
Firms or other persons in amounts not exceeding 0.25% of the Trust's average
daily net assets for any fiscal year. The Trustees have implemented the
Service plan by authorizing the Fund to make quarterly service fee payments to
the Principal Underwriter and Authorized Firms in amounts not expected to
exceed 0.25% of that portion of the Trust's average daily net assets for any
fiscal year which is attributable to shares of the Trust sold on or after May
22, 1989 by such persons and remaining outstanding for at least twelve months.
Such payments are made for personal services and/or the maintenance of
shareholder accounts. Pursuant to the Plan, the Trust made provisions of
$52,722 under the Plan to the Principal Underwriter and Authorized Firms
during the six months ended March 31, 1996.
- ------------------------------------------------------------------------------
(6) LINE OF CREDIT
The Trust participates with other funds managed by EVM in a $120 million
unsecured line of credit agreement with a bank. The line of credit consists of
a $20 million committed facility and a $100 million discretionary facility.
Borrowings will be made by the Trust solely to facilitate the handling of
unusual and/or unanticipated short term cash requirements. Interest is charged
to each fund based on its borrowings at an amount above either the bank's
adjusted certificate of deposit rate, a variable adjusted certificate of
deposit rate, or a federal funds effective rate. In addition, a fee computed
at an annual rate of 1/4 of 1% on the $20 million committed facility and on
the daily unused portion of the $100 million discretionary facility is
allocated among the participating funds at the end of each quarter. The Trust
did not have any significant borrowings or allocated fees during the period.
- ------------------------------------------------------------------------------
(7) FEDERAL INCOME TAX BASIS OF INVESTMENTS
The cost and unrealized depreciation/appreciation in value of the investments
owned at March 31, 1996, as computed on a federal income tax basis, are as
follows:
Aggregate cost $120,490,938
============
Gross unrealized depreciation $ 5,611,077
Gross unrealized appreciation 4,617,308
------------
Net unrealized depreciation $ 993,769
============
- ------------------------------------------------------------------------------
(8) RESTRICTED SECURITIES
At March 31, 1996, the Trust owned the following securities (representing 0.6%
of net assets) which were restricted as to public resale and not registered
under the Securities Act of 1933 (excluding Rule 144A Securities). The Trust
has various registration rights (exercisable under a variety of circumstances)
with respect to these securities. The fair value of these securities is
determined based on valuations provided by brokers when available, or if not
available, they are valued at fair value using methods determined in good
faith by or at the direction of the Trustees.
<TABLE>
<CAPTION>
DESCRIPTION DATES OF ACQUISITION SHARES COST FAIR VALUE
- ----------- -------------------- ------ ---- ----------
COMMON STOCKS, WARRANTS AND RIGHTS
- ----------------------------------
<S> <C> <C> <C> <C>
Australis Media, Wts. 5/26/95 1,700 $ 0 $ 0
Dial Call Communications, Wts. Exp. 4/15/04 10/04/94 1,800 0 450
Pullman Company, Common 2/22/95 43,702 1,267,788 349,616
Servam Corp., $2.00 Wts., Exp. 4/1/01 8/28/91 7,864 0 0
Servam Corp., $4.50 Wts., Exp. 4/1/01 8/28/91 1,768 0 0
Southdown, Inc., Wts., Exp. 10/31/96 10/28/91 7,500 22,500 31,875
Terex Corp., Rights, Exp. 7/1/97 11/7/94 1,790 0 179
Terex Corp., Rights, Exp. 8/1/96 8/20/92-8/2/94 375 0 19
Terex Corp., Rights, Exp. 8/1/96 7/24/92 2,700 0 135
Terex Corp., Wts., Exp. 12/31/00 12/15/93 8,000 1,600 108,000
Thermadyne Holdings Corp., Common 5/17/94 777 18,900 14,569
Triangle Wire & Cable Inc., Common 5/2/94 31,667 750,000 63,333
UCC Invt. Holdings, Class A Common 12/5/89 7,431 7,431 83,599
United International Hldg. Inc., Wts. 11/16/94 1,960 55,546 58,800
Waxman Industries, Inc., Wts. 10/1/91 14,000 14,000 140
----------- --------
$ 2,137,765 $710,715
=========== ========
</TABLE>
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
- ------------------------------------------------------------------------------
TO THE TRUSTEES AND SHAREHOLDERS OF
EATON VANCE INCOME FUND OF BOSTON:
We have audited the accompanying statement of assets and liabilities of
Eaton Vance Income Fund of Boston, including the investment portfolio, as of
March 31, 1996, the related statement of operations for the six months then
ended, the statements of changes in net assets for the six months then ended and
for the year ended September 30, 1995, and the financial highlights for the six
months ended March 31, 1996 and for each of the five years in the period ended
September 30, 1995. These financial statements and financial highlights are the
responsibility of the Trust's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of March
31, 1996 by correspondence with the custodian and brokers. An audit also
includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position of
Eaton Vance Income Fund of Boston as of March 31, 1996, the results of its
operations for the six months then ended, the changes in its net assets for the
six months then ended and for the year ended September 30, 1995, and the
financial highlights for the six months ended March 31, 1996 and for each of the
five years in the period ended September 30, 1995, in conformity with generally
accepted accounting principles.
COOPERS & LYBRAND L.L.P.
BOSTON, MASSACHUSETTS
APRIL 22, 1996
<PAGE>
--------------------------------------------
INVESTMENT MANAGEMENT
EATON VANCE OFFICERS INDEPENDENT TRUSTEES
INCOME FUND M. DOZIER GARDNER KENNETH C. KNIGHT
OF BOSTON President and Trustee Consultant
24 Federal Street HOOKER TALCOTT, JR. DONALD R. DWIGHT
Boston, MA 02110 Vice President and President, Dwight Partners, Inc.
Co-Portfolio Manager Chairman, Newspapers of
MICHAEL W. WEILHEIMER New England, Inc.
Vice President and ROBERT GLUCK
Co-Portfolio Manager Management Consultant
JAMES L. O'CONNOR SAMUEL L. HAYES, III
Treasurer Jacob H. Schiff Professor of
THOMAS OTIS Investment Banking,
Secretary Harvard University Graduate
School of Business
Administration
NORTON H. REAMER
President and Director,
United Asset Management
Corporation
JOHN L. THORNDIKE
Director,
Fiduciary Company Incorporated
<PAGE>
ADMINISTRATOR OF
EATON VANCE
INCOME FUND OF BOSTON
Eaton Vance Management
24 Federal Street
Boston, MA 02110
PRINCIPAL UNDERWRITER
Eaton Vance Distributors, Inc.
24 Federal Street
Boston, MA 02110
(617) 482-8260
CUSTODIAN
Investors Bank & Trust Company
89 South Street
P.O. Box 1537
Boston, MA 02205-1537
TRANSFER AGENT
First Data Investor Services Group, Inc.
BOS725
P.O. Box 1559
Boston, MA 02104
LEGAL COUNSEL
Gordon Altman Butowsky Weitzen
Shalov & Wein
114 West 47th Street
New York, NY 10036
INDEPENDENT ACCOUNTANTS
Coopers & Lybrand L.L.P.
One Post Office Square
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.
EATON VANCE
INCOME FUND OF BOSTON
24 FEDERAL STREET
BOSTON, MA 02110 T-IBSRC-5/96
EATON VANCE
INCOME FUND
OF BOSTON
SEMI-ANNUAL
SHAREHOLDER REPORT
MARCH 31, 1996
