<PAGE>
TO SHAREHOLDERS
EV Marathon High Income Fund had a total return of 2.5 percent for the year
ended March 31, 1995. This was the result of a decline in net asset value per
share to $6.92 on March 31, 1995 from $7.45 on March 31, 1994 and the
reinvestment of $0.698 per share in dividends, and does not include contingent
deferred sales charges incurred by redeeming shareholders. For comparison, the
Lehman Brothers High Yield Bond Index, an unmanaged index of corporate bonds,
returned 7.0 percent for the same period.
Based on the Fund's most recent dividend and a net asset value of $6.92, the
Fund had a distribution rate of 9.51 percent at March 31.
AMID A VOLATILE TREASURY MARKET, HIGH YIELD BONDS FARED WELL...
The high yield market, generally thought to be less sensitive to interest rates
and bolstered by robust corporate earnings, was considerably less volatile than
the Treasury market which has undergone large fluctuations in the past year.*
Ten-year Treasury yields, which were around 6.8 percent in March 1994, rose
above 8 percent by November as the Federal Reserve pushed rates higher in an
effort to cut short inflation. However, as inflation fears ebbed at year-end,
Treasury yields fell back to the 7.2 percent level by March 31.
WITH A STRONGER ECONOMY, CREDIT QUALITY IMPROVED WITHIN THE HIGH YIELD SECTOR...
According to Securities Data Corp., issues rated B- or below comprised 18
percent of new high yield issuance in 1994. That is a significant improvement
from 1989, when nearly 30 percent of new debt was rated B- or below. In
addition, interest coverage for new high yield issues - the ratio of free cash
flow to interest payments - rose from 1.6 at the beginning of 1994 to 1.9
percent at year-end, according to Chemical Securities Inc. That statistic
indicates a widening comfort margin for purchasers of high yield debt and
another sign of the improving credit quality of the $272 billion high yield
market.
HIGH INCOME PORTFOLIO: RATINGS BREAKDOWN OF BOND HOLDINGS*
Aaa 2.0%
Baa 1.2%
Ba 9.1%
B1 22.8%
B2 24.4%
B3 28.6%
Caa 8.5%
Non-rated 3.4%
*Moody's Investors Services ratings; percentages based on market value as of
March 31, 1995. Source: Eaton Vance Management.
In the following pages, portfolio manager Hooker Talcott provides additional
information that presents a strong case for EV Marathon High Income Fund as a
long-term, high income investment.
Sincerely,
[Photograph of M. Dozier Gardner]
/s/ M. Dozier Gardner
M.Dozier Gardner
President
May 19, 1995
*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.
MANAGEMENT DISCUSSION
An interview with Hooker Talcott Jr., Vice President and Portfolio Manager of
High Income Portfolio.
Q. HOOKER, HOW WOULD YOU EVALUATE THE FUND'S PERFORMANCE DURING THE SIX-MONTH
PERIOD?
A. The Fund performed relatively well during the six month period. The
principal reason for the Fund's positive performance was that our focus
remained on high coupon bonds trading well away from the volatility that
characterized the Treasury market through much of 1994. Another reason for
the Fund's performance was an emphasis on cyclical issues, which have been
the clear market leaders.
Q. WHAT RECENT CHANGES HAVE YOU MADE TO THE PORTFOLIO?
A. After an extended recovery, the economy has recently showed signs of slowing
somewhat. Therefore, I have reduced the Portfolio's exposure to early-cycle
industries such as home builders and automobiles. While those companies have
fared well, they have seen sales decline modestly in recent months.
Meanwhile, the Portfolio has increased its positions in late-stage cyclicals
such as chemicals, energy companies and paper and packaging companies. In
addition, since the beginning of the year, we have moved into some more
defensive issues such as cable television, casinos, and food companies.
Q. WOULD A SUSTAINED, STABLE-GROWTH ECONOMY BE FAVORABLE FOR THE HIGH YIELD
MARKET?
A. In my view, it would. If interest rates remain stable, we should see
continued improvement in earnings, which would support interest payments for
debt service and help sustain principal payments.
Q. WHAT INDUSTRIES WILL BENEFIT?
A. If the economy maintains a slow-but-steady course for an extended period,
the late cyclical companies that we have emphasized would very likely
continue to prosper. Many late-cycle companies are beneficiaries of
increased capital spending and higher commodity prices that accompany an
advancing economic cycle.
[Photo of Hooker Talcott, Jr.]
HOOKER TALCOTT, JR.
Q. CAN YOU GIVE AN EXAMPLE?
A. Yes. Chemical companies are a good example. The industry is expected to
operate near 85 percent of capacity in 1995, an improvement over 1994, which
was another strong year. Yet, even with the increased capacity, chemical
producers may still be hard-pressed to meet rising demand. According to the
Chemical Manufacturers Association, industry sales could rise as much as 8
percent in 1995.
Two Portfolio holdings, NL Industries and Agricultural Minerals & Chemicals
have each been able to raise prices, while benefiting from the wide-scale
cost cutting of recent years. NL Industries makes titanium dioxide, a
pigmentation chemical used in the manufacture of paints and plastics.
Agricultural Minerals produces specialty chemicals, including nitrogen
fertilizers used in the agriculture sector.
Q. THE DOLLAR HAS WEAKENED SIGNIFICANTLY IN RECENT MONTHS AGAINST THE YEN AND
THE DEUTSCHMARK. WHAT KIND OF IMPACT MIGHT THAT HAVE ON CYCLICAL COMPANIES?
A. That surely helps the global competitiveness of U.S. manufacturers relative
to their counterparts abroad. But while the weaker dollar may help
marginally, the primary driver, by far, has been strong global economic
growth.
These companies have been helped by an economic revival in Europe as well as
the growth in some emerging markets. American Standard, for instance, a
long-time Portfolio holding, has substantial operations in Europe in their
plumbing and transportation businesses. The company should see significant
growth in sales to the expanding markets in Europe.
Q. YOU MENTIONED ADDING SOME DEFENSIVE ISSUES TO THE PORTFOLIO. COULD YOU
EXPAND ON THAT THEME?
A. Certainly. Adding some defensive names to the Portfolio nicely complements
our late cyclical strategy. As I indicated earlier, it's impossible to
consistently predict turns in the economy. If the Fed is a bit overzealous
in combating inflation, the economy could slow significantly. In that event,
defensive issues would benefit. For example, the unit volumes and pricing of
food retailers like Food-4 Less Supermarkets, a large Portfolio investment,
are fairly immune from the fluctuations in the economy. That stability
serves the companies well in a slower economic environment, and they, in
turn, tend to attract the attention of investors.
Q. HOOKER, WHAT IS YOUR OUTLOOK FOR THE HIGH YIELD MARKET?
A. With an upbeat economic picture, the high yield market should continue to
fare well. The economy currently enjoys a climate of moderate growth:
neither weak enough to risk recession nor strong enough to prompt a
resurgence of inflation. Meanwhile, 10-year BB-rated bonds currently offer a
premium of 300 basis points over 10-year Treasuries, a very attractive yield
advantage. While past trends are not always repeated, high yield bonds have
been among the best-performing assets classes during the 1990s. And I
believe the high yield sector continues to represent a major opportunity for
investors seeking high current income.
<PAGE>
Comparison of Change in Value of a $10,000 Investment in EV Marathon
High Income Fund (Including Sales Charge) and the Lehman Brothers High Yield
Bond Index
From August 31, 1986, through March 31, 1995
AVERAGE ANNUAL 1 5 Life of
RETURNS Year Year Fund*
- -----------------------------------------------------
With CDSC -2.1% 11.2% 8.3%
Without CDSC 2.5% 11.5% 8.3%
Label A B
- -----------------------------------------------------------------------
Marathon Lehman Brothers
Label Date High Income Fund High Yield Bond Index
- -----------------------------------------------------------------------
1 8/86 10,000 10,000
2 9/86 9,940 10,120
3 10/86 10,287 10,355
4 11/86 10,393 10,327
5 12/86 10,426 10,297
6 1/87 10,718 10,723
7 2/87 10,977 10,951
8 3/87 11,093 11,026
9 4/87 10,875 10,642
10 5/87 10,781 10,719
11 6/87 10,904 10,856
12 7/87 10,917 10,885
13 8/87 11,008 10,953
14 9/87 10,791 10,608
15 10/87 10,345 10,261
16 11/87 10,560 10,557
17 12/87 10,689 10,811
18 1/88 10,885 11,172
19 2/88 11,169 11,534
20 3/88 11,261 11,414
21 4/88 11,377 11,501
22 5/88 11,445 11,518
23 6/88 11,620 11,686
24 7/88 11,798 11,763
25 8/88 11,893 11,746
26 9/88 12,015 11,894
27 10/88 12,155 12,038
28 11/88 12,246 12,109
29 12/88 12,433 12,166
30 1/89 12,499 12,380
31 2/89 12,597 12,407
32 3/89 12,565 12,310
33 4/89 12,583 12,362
34 5/89 12,760 12,602
35 6/89 12,908 12,758
36 7/89 12,950 12,741
37 8/89 12,965 12,785
38 9/89 12,947 12,570
39 10/89 12,710 12,272
40 11/89 12,568 12,247
41 12/89 12,574 12,267
42 1/90 12,281 12,003
43 2/90 11,745 11,756
44 3/90 11,542 12,064
45 4/90 11,636 12,044
46 5/90 11,859 12,276
47 6/90 12,093 12,573
48 7/90 12,362 12,911
49 8/90 11,787 12,177
50 9/90 10,982 11,288
51 10/90 10,618 10,695
52 11/90 10,384 11,029
53 12/90 10,253 11,091
54 1/91 10,136 11,396
55 2/91 10,731 12,642
56 3/91 11,214 13,387
57 4/91 12,053 13,936
58 5/91 12,092 13,961
59 6/91 12,489 14,374
60 7/91 12,971 14,834
61 8/91 13,126 15,175
62 9/91 13,405 15,386
63 10/91 13,891 15,900
64 11/91 14,050 15,983
65 12/91 14,184 16,213
66 1/92 14,755 16,784
67 2/92 15,139 17,198
68 3/92 15,499 17,411
69 4/92 15,667 17,478
70 5/92 15,900 17,724
71 6/92 16,119 17,891
72 7/92 16,335 18,161
73 8/92 16,545 18,399
74 9/92 16,649 18,586
75 10/92 16,402 18,324
76 11/92 16,479 18,555
77 12/92 16,708 18,767
78 1/93 16,992 19,313
79 2/93 17,367 19,653
80 3/93 17,578 19,906
81 4/93 17,718 20,079
82 5/93 17,984 20,318
83 6/93 18,333 20,745
84 7/93 18,535 20,946
85 8/93 18,580 21,122
86 9/93 18,565 21,177
87 10/93 18,972 21,605
88 11/93 19,213 21,709
89 12/93 19,535 21,978
90 1/94 19,920 22,455
91 2/94 20,044 22,396
92 3/94 19,386 21,550
93 4/94 19,158 21,403
94 5/94 19,270 21,414
95 6/94 19,317 21,481
96 7/94 19,232 21,663
97 8/94 19,206 21,816
98 9/94 19,206 21,817
99 10/94 19,211 21,869
100 11/94 18,977 21,594
101 12/94 19,182 21,752
102 1/95 19,263 22,047
103 2/95 19,757 22,803
104 3/95 19,872 23,049
Past performance is not indicative of future results. Investment returns and
principal will fluctuate so that an investor's shares, when redeemed may be
worth more or less than their original cost. Source: Towers Data Systems,
Bethesda, MD.
*Investment operations commenced on 8/19/86.
FUND PERFORMANCE
In accordance with guidelines issued by the Securities and Exchange Commission,
we are including a performance chart that compares your Fund's total return with
that of a broad-based investment index. The lines on the chart represent the
total returns of $10,000 hypothetical investments in EV Marathon High Income
Fund and the unmanaged Lehman Brothers High Yield Bond Index.
THE TOTAL RETURN FIGURES
The blue line on the chart represents the Fund's performance at net asset value.
The Fund's total return figure reflects Fund expenses and transaction costs, and
assumes the reinvestment of income dividends and capital gain distributions.
The black line represents the performance of the Lehman Brothers High Yield Bond
Index, an unmanaged index of high yield bonds. The Index's total return does not
reflect any commissions or expenses that would be incurred if an investor
individually purchased or sold the securities represented in the Index.
<PAGE>
------------------------------------------------
EV MARATHON HIGH INCOME FUND
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
<TABLE>
--------------------------------------------------------------------------------------------------
March 31, 1995
--------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS:
Investment in High Income Portfolio, at value (Note 1A)
(identified cost, $460,291,769) $440,440,128
Receivable for Fund shares sold 1,418,953
------------
Total assets $441,859,081
LIABILITIES:
Dividends payable $1,828,560
Payable for Fund shares redeemed 649,198
Payable to affiliates --
Custodian fee 1,000
Trustees' fees 796
Accrued expenses 208,677
----------
Total liabilities 2,688,231
------------
NET ASSETS for 63,482,613 shares of beneficial interest
outstanding $439,170,850
============
SOURCES OF NET ASSETS:
Paid-in capital $522,994,071
Accumulated distributions in excess of net investment income (1,374,513)
Accumulated undistributed net realized gain (loss) on
investment and financial futures transactions (computed on
the basis of identified cost) (62,597,067)
Unrealized depreciation of investments from Portfolio
(computed on the basis of identified cost) (19,851,641)
------------
Total $439,170,850
============
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PRICE
(NOTE 6) PER SHARE ($439,170,850 / 63,482,613 shares of
beneficial interest) $6.92
=====
</TABLE>
See notes to financial statements
<PAGE>
FINANCIAL STATEMENTS (Continued)
<TABLE>
STATEMENT OF OPERATIONS
----------------------------------------------------------------------------------------------------------------------
For the Year Ended March 31, 1995
----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
INVESTMENT INCOME (NOTE 1B):
Income --
Interest $ 7,324,098
Dividends 32,813
Income allocated from Portfolio 40,009,529
Expenses allocated from Portfolio (2,488,472)
------------
Total income $ 44,877,968
Expenses --
Investment adviser fee (Note 4) $ 422,710
Compensation of Trustees not members of the Investment
Adviser's organization 7,531
Distribution costs (Note 5) 3,797,078
Custodian fee (Note 4) 46,099
Transfer and dividend disbursing agent fees 335,956
Printing and postage 115,900
Registration costs 67,297
Legal and accounting services 49,209
Miscellaneous 125,991
------------
Total expenses 4,967,771
------------
Net investment income $ 39,910,197
------------
REALIZED AND UNREALIZED LOSS ON
INVESTMENTS:
Net realized loss --
Investment transactions, computed on the basis of
identified cost $ (5,091,903)
From Portfolio on investment transactions, computed
on the basis of identified cost (13,209,386)
------------
Net realized loss $(18,301,289)
Change in unrealized depreciation of investments (11,002,226)
------------
Net realized and unrealized loss on investments $(29,303,515)
------------
Net increase in net assets from operations $ 10,606,682
============
</TABLE>
See notes to financial statements
<PAGE>
<TABLE>
<CAPTION>
STATEMENTS OF CHANGES IN NET ASSETS
----------------------------------------------------------------------------------------------
YEAR ENDED MARCH 31,
---------------------------------
1995 1994
------------- -------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
From operations --
Net investment income $ 39,910,197 $ 35,196,445
Net realized gain (loss) on investment transactions
and amounts allocated from Portfolio (18,301,289) 8,028,677
Change in unrealized depreciation of investments (11,002,226) (6,129,675)
------------- -------------
Net increase in net assets from operations $ 10,606,682 $ 37,095,447
------------- -------------
Distributions to shareholders (Note 2) --
From net investment income $ (39,910,197) $ (35,196,445)
In excess of net investment income (1,365,660) (3,914,520)
------------- -------------
Total distributions to shareholders $ (41,275,857) $ (39,110,965)
------------- -------------
Transactions in shares of beneficial interest (Note 3) --
Proceeds from sales of shares $ 207,324,262 $ 191,903,479
Net asset value of shares issued to shareholders in
payment of distributions declared 13,076,279 13,305,995
Cost of shares redeemed (149,819,353) (136,788,695)
------------- -------------
Increase in net assets from Fund share transactions $ 70,581,188 $ 68,420,779
------------- -------------
Net increase in net assets $ 39,912,013 $ 66,405,261
NET ASSETS:
At beginning of year 399,258,837 332,853,576
------------- -------------
At end of year (including accumulated distributions in
excess of net investment income of $1,374,513 and
$1,977,488, respectively) $ 439,170,850 $ 399,258,837
============= =============
</TABLE>
<PAGE>
FINANCIAL STATEMENTS (Continued)
<TABLE>
FINANCIAL HIGHLIGHTS
----------------------------------------------------------------------------------------------------------------
YEAR ENDED MARCH 31,
--------------------------------------------------------------------
1995 1994 1993 1992 1991
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, beginning of year $ 7.450 $ 7.480 $ 7.380 $ 6.120 $ 7.430
-------- -------- -------- -------- --------
INCOME (LOSS) FROM OPERATIONS:
Net investment income $ 0.671 $ 0.697 $ 0.767 $ 0.825 $ 0.973
Net realized and unrealized gain
(loss) on investments (0.507) 0.047 0.170 1.356 (1.187)
-------- -------- -------- -------- --------
Total income (loss) from operations $ 0.164 $ 0.744 $ 0.937 $ 2.181 $ (0.214)
-------- -------- -------- -------- --------
LESS DISTRIBUTIONS:
From net investment income $ (0.671) $ (0.697) $ (0.767) $ (0.825) $ (0.973)
In excess of net investment income (0.023) (0.077) (0.070) (0.096) (0.123)
-------- -------- -------- -------- --------
Total distributions $ (0.694) $ (0.774) $ (0.837) $ (0.921) $ (1.096)
-------- -------- -------- -------- --------
NET ASSET VALUE, end of year $ 6.920 $ 7.450 $ 7.480 $ 7.380 $ 6.120
======== ======== ======== ======== ========
TOTAL RETURN<F3> 2.51% 10.28% 13.41% 38.21% (2.84)%
RATIOS/
SUPPLEMENTAL DATA:
Net assets, end of year (000 omitted) $439,171 $399,259 $332,854 $252,967 $170,655
Ratio of expenses to average daily net
assets<F1> 1.78% 1.82% 2.09% 2.19% 2.37%
Ratio of net investment income to
average daily net assets 9.52% 9.09% 10.31% 12.00% 14.54%
PORTFOLIO TURNOVER<F2> 11% 96% 91% 82% 57%
<FN>
<F1> Includes the Fund's share of High Income Portfolio's allocated expenses for
the period from June 1, 1994, to March 31, 1995.
<F2> Portfolio Turnover represents the rate of portfolio activity for the period
while the Fund was making investments directly in securities. The portfolio
turnover for the period since the Fund transferred substantially all of its
investable assets to the Portfolio is shown in the Portfolio's financial
statements which are included elsewhere in this report.
<F3> 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.
</FN>
</TABLE>
<PAGE>
--------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
(1) SIGNIFICANT ACCOUNTING POLICIES
EV Marathon High Income Fund (the Fund) is a diversified series of Eaton Vance
High Income Trust (the Trust). The Trust is an entity of the type commonly known
as a Massachusetts business trust and is registered under the Investment Company
Act of 1940, as amended, as an open-end, management investment company. On May
31, 1994, the Fund transferred substantially all of its investable assets to the
High Income Portfolio (the Portfolio) in exchange for an interest in the
Portfolio. The Fund invests all of its investable assets in interests in the
Portfolio, a New York Trust, having the same investment objective as the Fund.
The value of the Fund's investment in the Portfolio reflects the Fund's
proportionate interest in the net assets of the Portfolio (99.5% at March 31,
1995). The performance of the Fund is directly affected by the performance of
the Portfolio. The financial statements of the Portfolio, including the
portfolio of investments, are included elsewhere in this report and should be
read in conjunction with the Fund's financial statements. The following is a
summary of significant accounting policies consistently followed by the Fund in
the preparation of its financial statements. The policies are in conformity with
generally accepted accounting principles.
A. INVESTMENT VALUATION - Valuation of securities by the Portfolio is discussed
in Note 1 of the Portfolio's Notes to Financial Statements which are included
elsewhere in this report.
B. INCOME - The Fund's net investment income consists of the Fund's pro rata
share of the net investment income of the Portfolio, less all actual and accrued
expenses of the Fund determined in accordance with generally accepted accounting
principles. Prior to the Fund's investment in the Portfolio, the Fund held its
investments directly. For investments held directly, interest income was
determined on the basis of interest accrued, adjusted for amortization of
premium or discount when required for federal income tax purposes. Dividend
income was recorded on the ex-dividend date for dividends received in cash or
securities.
C. FEDERAL TAXES - The Fund's policy is to comply with the provisions of the
Internal Revenue Code applicable to regulated investment companies and
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 March 31, 1995, the Fund, for federal income tax purposes, had
a capital loss carryover of $56,981,950 which will reduce the Fund's taxable
income arising from future net realized gain on investments, if any, to the
extent permitted by the Internal Revenue Code, and thus will reduce the amount
of 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 March 31, 1999 ($21,013,203), 2000 ($23,278,421),
and 2003 ($12,690,326), respectively. Additionally, net losses of $5,574,371
attributable to security transactions incurred after October 31, 1994, are
treated as arising on the first day of the Fund's next taxable year.
D. DISTRIBUTION COSTS - For book purposes, commissions paid on the sale of Fund
shares and other distribution costs are charged to operations. For tax purposes,
commissions paid were charged to paid-in capital prior to November 16, 1994 and
subsequently charged to operations. The change in the tax accounting practice
was prompted by a recent Internal Revenue Service Ruling and has no effect on
either the Fund's current yield or total return (Notes 2 and 5).
E. OTHER - Investment transactions are accounted for on a trade date basis.
F. RECLASSIFICATION - Certain prior year amounts have been reclassified to
conform to the current year presentation.
<PAGE>
NOTES TO FINANCIAL STATEMENTS (Continued)
- --------------------------------------------------------------------------------
(2) DISTRIBUTIONS TO SHAREHOLDERS
The net income of the Fund is determined daily and substantially all of the net
income so determined is declared daily as a dividend to shareholders of record
at the time of declaration. Such daily dividends will be paid monthly.
Distributions of realized capital gains, if any, are made at least annually.
Shareholders may reinvest capital gain distributions in additional shares of the
Fund at the net asset value as of the ex-dividend date. Distributions are paid
in the form of additional shares of the Fund or, at the election of the
shareholder, in cash. The Fund distinguishes between distributions on a tax
basis and a financial reporting basis. Generally accepted accounting principles
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. During
the period from April 1, 1994 to November 15, 1994, $1,968,635 was reclassified
from distributions in excess of net investment income to paid in capital, due to
permanent differences between book and tax accounting for distribution costs.
Net investment income, net realized gains and net assets were not affected by
this reclassification.
- --------------------------------------------------------------------------------
(3) SHARES OF BENEFICIAL INTEREST
The Declaration of Trust permits the Trustees to issue an unlimited number of
full and fractional shares of beneficial interest (without par value).
Transactions in Fund shares were as follows:
YEAR ENDED MARCH 31,
--------------------------
1995 1994
----------- ----------
Sales 29,118,150 25,279,584
Issued to shareholders electing to receive
payment of distributions in Fund shares 1,855,391 1,751,099
Redemptions (21,060,719) (17,977,317)
----------- -----------
Net increase 9,912,822 9,053,366
=========== ===========
- --------------------------------------------------------------------------------
(4) INVESTMENT ADVISER FEE AND OTHER TRANSACTIONS WITH AFFILIATES
Prior to May 31, 1994 (when the Fund transferred substantially all of its
investable assets to the Portfolio in exchange for an interest in the
Portfolio), the Fund retained Eaton Vance Management (EVM) as its investment
adviser. The investment adviser fee was earned by EVM as compensation for
management and investment advisory services rendered to the Fund. The fee was
based upon a percentage of average daily net assets plus a percentage of gross
income (i.e., income other than gains from the sale of securities). For the
period from April 1, 1994 to May 31, 1994, the fee was equivalent to 0.63%
(annualized) of the Fund's average net assets for such period and amounted to
$422,710. Since May 31, 1994, Eaton Vance has served only as the administrator
of the Fund, but receives no compensation. The Portfolio has engaged Boston
Management and Research (BMR), a subsidiary of EVM, to render investment
advisory services. See Note 2 of the Portfolio's Notes to Financial Statements
which are included elsewhere in this report. Except as to Trustees of the Fund
and the Portfolio who are not members of EVM's or BMR's organization, officers
and Trustees receive remuneration for their services to the Fund out of such
investment adviser fee. Investors Bank & Trust Company (IBT), an affiliate of
EVM, serves as custodian of the Fund and the Portfolio. Pursuant to the
respective custodian agreements, IBT receives a fee reduced by credits which are
determined based on the average cash balances the Fund or the Portfolio
maintains with IBT. Certain of the officers and Trustees of the Fund and
Portfolio are officers and directors/trustees of the above organizations (Note
5).
<PAGE>
- --------------------------------------------------------------------------------
(5) DISTRIBUTION PLAN
The Fund has adopted a distribution plan (the Plan) pursuant to Rule 12b-1 under
the Investment Company Act of 1940. The Plan requires the Fund to pay the
Principal Underwriter, Eaton Vance Distributors, Inc. (EVD), amounts equal to
1/365 of 0.75% of the Fund's daily net assets, 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% of the
aggregate amount received by the Fund for shares sold plus, (ii) distribution
fees calculated by applying the rate of 1% over the prevailing prime rate to the
outstanding balance of Uncovered Distribution Charges of EVD reduced by the
aggregate amount of contingent deferred sales charges (see Note 6) and daily
amounts theretofore paid to EVD. 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. The Fund paid or accrued $3,144,405 to or payable to EVD
for the year ended March 31, 1995, representing 0.75% (annualized) of average
daily net assets. At March 31, 1995, the amount of Uncovered Distribution
Charges of EVD calculated under the Plan was approximately $14,688,000.
In addition, the Plan authorizes the Fund to make payments of service fees to
the Principal Underwriter, Authorized Firms and other persons in amounts not to
exceed 0.25% of the Fund's average daily net assets for each fiscal year. The
Trustees have implemented the Plan by authorizing the Fund to make quarterly
payments of service fees to the Principal Underwriter and Authorized Firms in
amounts not to exceed 0.25% per annum of the Fund's average daily net assets
based on the value of the Fund shares sold by such persons and remaining
outstanding for at least one year. The Fund paid or accrued service fees to or
payable to EVD for the year ended March 31, 1995, in the amount of $652,673.
Service fee payments are made for personal services and/or the maintenance of
shareholder accounts. Service fees are separate and distinct from the sales
commissions and distribution fees payable by the Fund to EVD, and, as such, are
not subject to automatic discontinuance when there are no outstanding Uncovered
Distribution Charges of EVD.
Certain officers and Trustees of the Fund are officers or directors of EVD.
- --------------------------------------------------------------------------------
(6) CONTINGENT DEFERRED SALES CHARGE
A contingent deferred sales charge (CDSC) is imposed on any redemption of Fund
shares made within six years of purchase. Generally, the CDSC is based upon the
lower of the net asset value at date of redemption or date of purchase. No
charge is levied on shares acquired by reinvestment of dividends or capital gain
distributions. The CDSC is imposed at declining rates that begin at 5% in the
case of redemptions in the first and second year after purchase (6% and 5%,
respectively, for shares purchased prior to August 1, 1994), declining one
percentage point each subsequent year. No CDSC is levied on shares which have
been sold to the Investment Adviser or its affiliates or to their respective
employees. CDSC is paid to EVD to reduce the amount of Uncovered Distribution
Charges calculated under the Fund's Distribution Plan. If no Uncovered
Distribution Charges exist, the CDSC will be credited to the Fund. EVD received
approximately $1,644,000 of CDSC paid by shareholders for the year ended March
31, 1995.
- --------------------------------------------------------------------------------
(7) INVESTMENT TRANSACTIONS
On May 31, 1994, the Fund transferred substantially all of its assets to the
Portfolio in exchange for an interest in the Portfolio. Increases and decreases
in the Fund's investment in the Portfolio for the period from June 1, 1994 to
March 31, 1995 aggregated $154,719,881 and $147,798,039, respectively. Purchases
and sales of investment securities, other than U.S. government securities and
short-term obligations, during the period from April 1, 1994 to May 31, 1994,
aggregated $62,284,755 and $43,257,400, respectively.
<PAGE>
INDEPENDENT AUDITORS' REPORT
- --------------------------------------------------------------------------------
To the Trustees and Shareholders of Eaton Vance High Income Trust:
We have audited the accompanying statement of assets and liabilities of EV
Marathon High Income Fund (one of the series constituting the Eaton Vance High
Income Trust) as of March 31, 1995, the related statement of operations for the
year then ended, the statements of changes in net assets for the years ended
March 31, 1995 and 1994 and the financial highlights for each of the years in
the five-year period ended March 31, 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 audit 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. 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, such financial statements and financial highlights present
fairly, in all material respects, the financial position of EV Marathon High
Income Fund at March 31, 1995, the results of its operations, the changes in its
net assets, and its financial highlights for the respective stated periods in
conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Boston, Massachusetts
May 5, 1995
<PAGE>
<TABLE>
-----------------------------------------------------------------------------------------
HIGH INCOME PORTFOLIO
PORTFOLIO OF INVESTMENTS
MARCH 31, 1995
-----------------------------------------------------------------------------------------
CORPORATE BONDS AND NOTES - 94.0%
-----------------------------------------------------------------------------------------
<CAPTION>
FACE
AMOUNT SECURITY VALUE
-----------------------------------------------------------------------------------------
<S> <C> <C>
AUTOMOTIVE/TRUCK - 6.2%
$2,770,000 Exide Corporation, Sr. Notes, 10.75%, 12/15/2002 $ 2,783,850
3,800,000 JPS Automotive Prod.Corp., Sr. Notes, 11.125%, 6/15/2001 3,705,000
3,000,000 Key Plastics, Sr. Notes, 14%, 11/15/1999 3,270,000
5,035,000 Motor Wheel Corp., Sr. Notes, 11.5%, 3/1/2000 4,279,750
1,600,000 SPX Corporation, Sr. Sub. Notes 11.750%, 6/1/2002 1,668,000
4,199,400 Terex Corp., Sr. Secured Notes, 13%, 8/1/1996 4,094,415
1,450,000 Terex Corp., Sr. Sub. Notes, 13.5%, 7/1//1997 1,384,750
6,000,000 Truck Components, Sr. Notes, 12.25%, 6/30/2001 6,240,000
------------
$ 27,425,765
------------
BUILDING PRODUCTS - 6.2%
$3,500,000 American Standard, Sr. Notes, 11.375%, 5/15/2004 $ 3,797,500
1,600,000 American Standard, Sr. Notes, 10.5% (0% until 1998), 6/1/2005 1,088,000
7,400,000 Building Materials Corp., Sr. Sub. Notes, 11.75% (0% until
2000), 7/1/2004 3,996,000
4,800,000 Eagle Industries Inc., Sr. Disc. Notes, 10.5% (0% until 1998),
7/15/2003 3,120,000
5,600,000 Overhead Door Corp., Sr. Notes, 12.25%, 2/1/2000 5,768,000
3,200,000 Schuller International Group Inc., Sr. Notes, 10.875%,
12/15/2004 3,368,000
1,750,000 Southdown Inc., Sr. Sub. Notes, 14%, 10/15/2001 1,931,563
3,600,000 Tarkett International, Sr. Sub. Notes, 9%, 3/1/2002 3,366,000
1,250,000 USG Corp., Sr. Notes, 8.75%, 3/1/2017 1,125,000
------------
$ 27,560,063
------------
CHEMICALS - 7.3%
$5,500,000 Agricultural Minerals & Chemicals, Sr. Notes, 10.75%,
9/30/2003 $ 5,637,500
6,300,000 GI Holdings, Sr. Discount Notes, 11.125% (0% until 1995),
10/1/1998 4,063,500
9,000,000 Indspec Chemical Co., Sr. Sub. Notes, 11.50% (0% until
1998), 12/01/2003 5,310,000
5,800,000 NL Industries Inc., Sr. Sec. Notes, 11.750%, 10/15/2003 5,945,000
2,650,000 NL Industries Inc., Sr. Disc. Notes,
13% (0% until 1998), 10/15/2005 1,709,250
4,000,000 Rexene Corp, Sr. Notes, 11.75%, 12/1/2004 4,080,000
2,050,000 Uniroyal Chemical Corp., Senior Notes, 10.5%, 5/1/2002 2,060,250
3,700,000 Uniroyal Chemical Corp., Senior Sub. Notes, 11%, 5/1/2003 3,718,500
------------
$ 32,524,000
------------
COMMUNICATIONS - 3.8%
$3,500,000 Cablevision Industries Inc., Sr. Notes, 10.75%, 1/30/2002 $ 3,675,000
4,050,000 CF Cable TV, Sr. Notes, 11.625%, 2/15/2005 4,151,250
7,200,000 Dial Call Communications Inc., Sr. Red. Notes, 12.25% (0%
until 1999), 4/15/2004 2,772,000
4,000,000 Diamond Cable Communications Co., Sr. Disc. Notes, 13.25%
(0% until 1999), 9/30/2004 2,280,000
7,840,000 United International Holdings Inc., Sr. Sec. Disc. Notes,
0%, 11/15/1999 4,116,000
------------
$ 16,994,250
------------
ENERGY - 7.5%
$4,000,000 Empire Gas Corp., Sr. Sec. Notes,
12.875% (7% until 1999), 7/15/2004 $ 2,720,000
5,600,000 Gulf Canada Resources Ltd., Sr. Sub. Notes, 9.25%,
1/15/2004 5,320,000
3,200,000 MCV Subordinated Secured Lease Obligations, 11.75%, 7/23/2005 3,104,000
4,800,000 Mesa Capital Corp., Sec. Disc. Notes, 12.75% (0% until
1995), 6/30/1998 4,632,000
3,403,541 Midland Cogeneration Venture, Sr. Sec. Lease Oblig.,
10.33%, 7/23/2002 3,386,524
2,700,000 Petroleum Heat & Power Inc., Sub. Debs., 12.25%, 2/1/2005 2,794,500
2,567,000 Synergy Group Inc., Sr. Notes,
9.5%, 9/15/2000(1) 1,796,900
6,500,000 Trans Texas Gas Corp., Sr. Sec. Notes, 10.5%, 9/1/2000 6,540,625
2,420,000 Tuboscope Vetco, Sr. Sub. Debs.,
10.75%, 4/15/2003 2,432,100
800,000 YPF Sociedad Anonima, Negot. Oblig. Notes, 8%, 2/15/2004 632,000
------------
$ 33,358,649
------------
FOOD/RESTAURANTS/HOTELS - 8.0%
$6,000,000 American Restaurant Group Inc., Sr. Sec. Notes, 12%, 9/15/1998 $ 5,460,000
7,255,000 BFI Acquisition Corp., Sr. Sub. Notes (Series A) 12%, 12/1/2001 6,964,800
9,730,000 Flagstar Corp., Sub. Debs., 11.25%, 11/1/2004 8,173,200
2,021,500 Host Marriott, Sr. Notes., 11.25%, 7/18/2005 2,031,608
5,200,000 Purina Mills, Sr. Sec. Sub. Notes, 10.25%, 9/1/2003 5,070,000
4,000,000 Seven Up/RC Bottling Co., Sr. Sec. Notes, 11.5%, 8/1/1999 3,460,000
4,950,000 Specialty Foods Corp., Sr. Disc. Debs., 13% (0% until
1999), 8/15/2005 2,475,000
2,000,000 Specialty Foods Corp., Sr. Notes, 10.25%, 8/15/2001 1,950,000
------------
$ 35,584,608
------------
HEALTHCARE - 3.8%
$6,000,000 Dade International Inc., Sr. Sub. Notes, 13%, 2/1/2005+ $ 6,135,000
2,400,000 National Medical Enterprises Inc., Sr. Notes, 10.125%, 3/1/2005 2,463,000
7,700,000 Ordna Corp., Sr. Sub. Notes, 11.375%, 8/15/2004 8,181,250
------------
$ 16,779,250
------------
HIGH TECH - 1.4%
$2,750,000 Blue Bell Funding Inc., Sec. Ext. Notes, 11.85%, 5/1/1999 $ 2,860,000
3,100,000 Unisys Corp., Sr. Notes, 13.5%, 7/1/1997 3,386,750
------------
$ 6,246,750
------------
METALS - 10.8%
$7,000,000 Acme Metals Inc., Sr. Notes, 12.5%, 8/1/2002 $ 7,000,000
2,500,000 AK Steel Corp., Sr. Notes, 10.75%, 4/1/2004 2,521,875
4,000,000 Federal Industries Ltd., Sr. Notes, 10.25%, 6/15/2000 3,780,000
2,250,000 Inland Steel Corp., First Mtg. Bonds, 12%, 12/1/1998 2,413,125
5,900,000 Jorgensen Earle Co., Sr. Notes, 10.75%, 3/1/2000 5,708,250
4,000,000 Kaiser Aluminum, Sr. Sub. Notes, 12.75%, 2/1/2003 4,140,000
2,400,000 Maxxam Group Inc., Sr. Sec. Notes, 11.250%, 8/1/2003 2,268,000
2,800,000 Maxxam Group Inc., Sr. Sec. Disc. Notes, 12.25% (0% until
1998), 8/1/2003 1,596,000
6,900,000 Republic Engineered Steels Inc., First Mtg., 9.875%,
12/15/2001 6,279,000
2,353,280 Stelco Inc., SF Debentures, 13.5%, 10/01/2000 CAD 1,699,186
4,000,000 Ucar Global Enterprises, Sr. Sub. Notes, 12%, 1/15/2005+ 4,200,000
2,250,000 Weirton Steel Corp., Sr. Notes, 11.5%, 3/1/1998 2,255,625
3,820,000 Weirton Steel Corp., Sr. Notes, 10.875%, 10/15/1999 3,724,500
------------
$ 47,585,561
------------
MANUFACTURING/MACHINERY - 5.3%
$4,200,000 Applied Extrusion Inc., Sr. Notes, 11.5%, 4/1/2002 $ 4,284,000
6,700,000 Essex Group, Inc., Sr. Notes, 10%, 5/1/2003 6,499,000
5,500,000 Newflo Corp., Sub. Notes, 13.25%, 11/15/2002 5,445,000
7,000,000 Waters Corp., Sr. Sub. Notes, 12.75%, 9/30/2004 7,140,000
------------
$ 23,368,000
------------
MISCELLANEOUS - 7.1%
$4,000,000 Alliant Tech Systems Inc., Sr. Sub. Notes, 11.75%, 3/01/2003+ $ 4,080,000
8,600,000 Corporate Express Inc., Sr. Sub. Notes, 9.125%, 3/15/2004 8,170,000
2,400,000 Imax Corp., Sr. Notes, 7%, 3/1/2001 2,016,000
2,400,000 Pace Industries Inc., Sr. Notes, 10.625%, 12/1/2002 2,196,000
4,500,000 Plastic Specialties & Tech., Sr. Sec. Notes, 11.25%, 12/1/2003 3,982,500
6,400,000 Roadmaster Industries Inc., Sr. Sub. Notes, 11.75%, 7/15/2002 6,160,000
5,150,000 Williamhouse-Regency of Del., Sr. Sub. Deb., 11.5%, 6/15/2005 4,969,750
------------
$ 31,574,250
------------
PAPER/PACKAGING - 10.8%
$2,400,000 Container Corp., Sr. Notes (Ser. B), 10.75%, 5/1/2002 $ 2,472,000
4,027,459 Fort Howard Corp., Sr. Sec. Notes, 11%, 1/2/2002 4,108,008
9,000,000 Gaylord Container Corp., Sr. Sub. Disc. Debs., 12.75% (0% until
1996), 5/15/2005 8,550,000
2,500,000 Owens Illinois Inc., Sr. Notes, 11%, 12/1/2003 2,668,750
3,165,000 Repap Wisconsin, 2nd Party Sr. Sec. Notes, 9.875%, 5/1/2006 2,895,975
2,400,000 Riverwood International, Sr. Sub. Notes, 10.375%, 6/30/2004 2,460,000
3,000,000 S.D. Warren Company Inc., Sr. Sub. Notes, 12%, 12/15/2004+ 3,165,000
5,000,000 Silgan Corp., Sr. Notes, 13.25% (0% until 1996), 12/15/2002 4,450,000
1,500,000 Silgan Corp., Sr. Sub. Notes, 11.75%, 6/15/2002 1,567,500
2,675,000 Southwest Forest Industries, Sub. Debs., 12.125%, 9/15/2001 2,688,375
2,000,000 Stone Container Corp., First Mtg. Notes, 10.75%, 10/1/2002 2,060,000
2,400,000 Stone Container Corp., Sr. Notes, 9.875%, 2/1/2001 2,328,000
1,600,000 Stone Container Corp., Sr. Sub. Debs., 10.75%, 4/01/2002 1,600,000
3,200,000 Stone Container Corp., Sr. Notes, 12.625%, 7/15/1998 3,440,000
2,950,000 U.S. Can Company, Sr. Sub. Notes, 13.5%, 1/15/2002 3,274,500
------------
$ 47,728,108
------------
RECREATION - 2.1%
$2,400,000 Bally's Park Place, First Mtg. Bonds, 9.25%, 3/15/2004 $ 2,124,000
5,600,000 Trump Plaza Funding, First Mtg. Notes, 10.875%, 6/15/2001 4,536,000
3,587,659 Trump Taj Mahal, First Mtg. Bonds, 11.35%, 11/15/1999 2,717,652
------------
$ 9,377,652
------------
RETAILING - 7.5%
$4,000,000 Apparel Retailers Inc., Sr. Disc. Debs., 12.75% (0% until
1998), 8/15/2005 $ 2,320,000
3,400,000 Duane Reade, G.P., Sr. Notes, 12%, 9/15/2002 2,550,000
2,900,000 Florsheim Shoe Company, Sr. Notes, 12.75%, 9/1/2002 2,755,000
5,500,000 Food-4 Less Supermarkets Inc., Sr. Sub. Notes, 13.75%,
6/15/2001 5,912,500
7,725,000 Levitz Furniture Corp., Sr. Sub. Notes, 9.625%, 7/15/2003 5,562,000
6,900,000 Pathmark Stores Inc., Jr. Sub., Disc. Notes, 10.75% (0% until
1999), 11/1/2003 3,691,500
7,150,000 Purity Supreme, Sr. Sec. Notes, 11.750%, 8/1/1999 5,970,250
4,980,000 Specialty Retailers, Inc., Sr. Sub. Notes, 11.%, 8/15/2003 4,581,600
------------
$ 33,342,850
------------
TEXTILES - 3.8%
$2,000,000 CMI Industries Inc., Sr. Sub. Notes, 9.5%, 10/1/2003 $ 1,700,000
5,800,000 Dan River Inc., Sr. Sub. Notes, 10.125%, 12/15/2003 5,495,500
3,596,000 JPS Textile Group, Sr. Sub. Notes, 10.25%, 6/1/1999 2,912,760
7,400,000 Westpoint Stevens, Sr. Sub. Debs., 9.375%, 12/15/2005 6,771,000
------------
$ 16,879,260
------------
TRANSPORTATION - 2.2%
$2,000,000 Delta Air Lines, Inc., Trust Certs., 10.5%, 4/30/2016 $ 2,127,340
3,000,000 Delta Air Lines, Inc., Pass-through Trust Certs., 10.06%,
1/2/2016 3,093,840
4,800,000 Moran Transportation, 1st Mtg. Notes, 11.75%, 7/15/2004 4,608,000
------------
$ 9,829,180
------------
TOTAL CORPORATE BONDS AND NOTES
(IDENTIFIED COST, $429,284,631) $416,158,196
------------
-----------------------------------------------------------------------------------------
PREFERRED STOCKS - 0.4%
-----------------------------------------------------------------------------------------
SHARES SECURITY VALUE
-----------------------------------------------------------------------------------------
7,200 Grand Union Holding, Series C, 12% Pfd.+ $ 0
48,000 SD Warren Company W / Warrants, 14%, 12/15/2006+* 1,440,000
32,000 Terex CV Pfd. (144A) W / Warrants+* 512,000
------------
TOTAL PREFERRED STOCKS
(IDENTIFIED COST, $2,902,000) $ 1,952,000
------------
-----------------------------------------------------------------------------------------
COMMON STOCKS, WARRANTS AND RIGHTS - 0.8%
-----------------------------------------------------------------------------------------
SHARES/
WARRANTS SECURITY VALUE
-----------------------------------------------------------------------------------------
AUTO/TRUCK - 0.2%
214,839 Bucyrus - Erie Company, Common* $ 1,059,154
------------
CHEMICALS - 0.0%
9,908 UCC Invt. Hldgs., Cl A Common+* $ 111,465
------------
COMMUNICATIONS - 0.0%
7,200 Dial Call Communications, Wts.+* $ 1,800
7,840 United International Hldg. Inc.,
Warrants+* 254,800
------------
$ 256,600
------------
ENERGY - 0.0%
5,520 Empire Gas Corp., Wts.+* $ 5,520
------------
FOOD - 0.0%
1,380 Servam Corp., Common* $ 0
12,276 Servam Corp., $2.00 Wts. Exp. 4/1/2001+* 0
2,760 Servam Corp., $4.50 Wts. Exp. 4/1/2001+* 0
48,000 Specialty Foods Acquisition, Common+* 114,000
------------
$ 114,000
------------
INDUSTRIAL - 0.0%
1,814 Thermadyne Holdings Corp., Warrants+* $ 25,850
40,000 Thermadyne Holdings Corp., Common+* 400
------------
$ 26,250
------------
MANUFACTURING - 0.4%
101,973 Pullman Company, Common Stock+* $ 917,757
22,500 Southdown Inc., Wts.+* 95,625
9,300 Terex Corporation, Rights, 8/1/1996+* 4,650
1,125 Terex Corporation, Rights, 8/1/1996+* 422
5,371 Terex Corporation, Rights,7/1/1997+* 4,028
32,000 Terex Corp., Wts.+* 376,000
95,000 Triangle Wire & Cable+* 570,000
22,500 Triangle Wire and Cable, Wts.+* 0
------------
$ 1,968,482
------------
RETAILING - 0.0%
5,198 Purity Supreme, Wts.+* $ 104
6,000 Waxman Industries, Warrants+* 300
------------
$ 404
------------
TOTAL COMMON STOCKS, WARRANTS AND
RIGHTS (IDENTIFIED COST, $9,334,423) $ 3,541,875
------------
-----------------------------------------------------------------------------------------
SHORT-TERM OBLIGATION - 1.9%
-----------------------------------------------------------------------------------------
FACE
AMOUNT SECURITY VALUE
-----------------------------------------------------------------------------------------
$8,274,000 CXC, Inc., 6.32%, 04/03/1995, at amortized cost $ 8,271,095
------------
TOTAL INVESTMENTS
(IDENTIFIED COST, $449,792,149) $429,923,166
OTHER ASSETS, LESS LIABILITIES - 2.9% 12,628,649
------------
NET ASSETS -- 100% $442,551,815
============
* Non-income producing security.
+ Restricted Security (Note 6).
(1) Security valued at fair value using methods determined in good faith by or
at the directions of the Trustees.
CAD -- The principal amount of these securities is stated in Canadian
Dollars, the currency in which the security is denominated.
See notes to financial statements
</TABLE>
<PAGE>
------------------------------------------------
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
<TABLE>
----------------------------------------------------------------------------------------------
March 31, 1995
----------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS:
Investments, at value (Note 1A) (identified cost, $449,792,149) $429,923,166
Cash 11,282
Receivable for investments sold 10,221,516
Interest receivable 10,720,665
Deferred organization expenses (Note 1D) 3,501
------------
Total assets $450,880,130
LIABILITIES:
Payable for investments purchased $8,315,501
Payable to affiliates --
Trustees' fees 4,583
Custodian fee 8,231
----------
Total liabilities 8,328,315
------------
NET ASSETS applicable to investors' interest in Portfolio $442,551,815
============
SOURCES OF NET ASSETS:
Net proceeds from capital contributions and withdrawals $462,433,195
Unrealized depreciation of investments (computed on the
basis of identified cost) (19,881,380)
------------
Total $442,551,815
============
See notes to financial statements
</TABLE>
<PAGE>
STATEMENT OF OPERATIONS
<TABLE>
----------------------------------------------------------------------------------------------
For the period from the start of business, June 1, 1994, to March 31, 1995
----------------------------------------------------------------------------------------------
<S> <C> <C>
INVESTMENT INCOME:
Income
Interest (net of foreign withholding tax of $11,324) $ 40,107,992
Dividends 32,813
------------
Total income $ 40,140,805
Expenses --
Compensation of Trustees not members of the Investment
Adviser's organization $ 13,827
Investment adviser fee (Note 2) 2,260,748
Custodian fee (Note 2) 147,500
Legal and accounting services 47,797
Printing 375
Amortization of organization cost (Note 1D) 699
Miscellaneous 25,769
----------
Total expenses 2,496,715
------------
Net investment income $ 37,644,090
------------
REALIZED AND UNREALIZED LOSS ON INVESTMENTS:
Net realized loss on investment transactions (identified
cost basis) $(13,221,664)
Change in unrealized depreciation of investments (7,038,030)
------------
Net realized and unrealized loss on investments $(20,259,694)
------------
Net increase in net assets from operations $ 17,384,396
============
See notes to financial statements
</TABLE>
<PAGE>
FINANCIAL STATEMENTS (Continued)
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
----------------------------------------------------------------------------------------------
For the period from the start of business, June 1, 1994, to March 31, 1995
----------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS:
From operations --
<S> <C>
Net investment income $ 37,644,090
Net realized loss on investment transactions (13,221,664)
Change in unrealized depreciation of investments (7,038,030)
------------
Net increase in net assets from operations $ 17,384,396
------------
Capital transactions --
Contributions $575,199,203
Withdrawals (150,131,814)
------------
Increase in net assets resulting from capital transactions $425,067,389
------------
Total increase in net assets $442,451,785
NET ASSETS:
At beginning of period 100,030
------------
At end of period $442,551,815
============
<CAPTION>
----------------------------------------------------------------------------------------------
SUPPLEMENTARY DATA
----------------------------------------------------------------------------------------------
For the period from the start of business, June 1, 1994, to March 31, 1995
----------------------------------------------------------------------------------------------
<S> <C>
RATIOS (As a percentage of average daily net assets):
Expenses 0.70%<F1>
Net investment income 10.63%<F1>
PORTFOLIO TURNOVER 53%
<FN>
<F1> Computed on an annualized basis.
</FN>
</TABLE>
See notes to financial statements
<PAGE>
------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
(1) SIGNIFICANT ACCOUNTING POLICIES
High Income Portfolio (the Portfolio) is registered under the Investment Company
Act of 1940 as a diversified open-end management investment company which was
organized as a trust under the laws of the State of New York on May 1, 1992. The
Declaration of Trust permits the Trustees to issue interests in the Portfolio.
Investment operations began on June 1, 1994, with the acquisition of securities
with a value of $404,032,967, including unrealized depreciation of $12,843,350,
in exchange for an interest in the Portfolio by one of the Portfolio's
investors. The following is a summary of significant accounting policies of the
Portfolio. 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. 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 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 for
dividends received in cash and or securities.
C. INCOME TAXES -- The Portfolio has elected to be treated as a partnership for
Federal tax purposes. No provision is made by the Portfolio for federal or state
taxes on any taxable income of the Portfolio because each investor in the
Portfolio is ultimately responsible for the payment of any taxes. Since some of
the Portfolio's investors are regulated investment companies that invest all or
substantially all of their assets in the Portfolio, the Portfolio normally must
satisfy the applicable source of income and diversification requirements, (under
the Code) in order for its investors to satisfy them. The Portfolio will
allocate at least annually among its investors each 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.
D. DEFERRED ORGANIZATION EXPENSES -- Costs incurred by the Portfolio in
connection with its organization are being amortized on the straight-line basis
over five years.
E. FINANCIAL FUTURES CONTRACTS -- Upon the entering of a financial futures
contract, the Portfolio is required to deposit ("initial margin") either in cash
or securities an amount equal to a certain percentage of the purchase price
indicated in the financial futures contract. Subsequent payments are made or
received by the Portfolio ("margin maintenance") each day, dependent on the
daily fluctuations in the value of the underlying security, and are recorded for
book purposes as unrealized gains or losses by the Portfolio. The Portfolio's
investment in financial futures contracts is designed only to hedge against
anticipated future changes in interest rates. Should interest rates move
unexpectedly, the Portfolio may not achieve the anticipated benefits of the
financial futures contracts and may realize a loss.
F. 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 securities). For
the period from the start of business, June 1, 1994, to March 31, 1995, the fee
was equivalent to 0.64% (annualized) of the Portfolio's average daily net assets
for such period and amounted to $2,260,748. 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 Fund out of such
investment adviser fee. Investors Bank & Trust Company (IBT), an affiliate of
EVM and BMR, serves as custodian of the Fund. Pursuant to the custodian
agreement, IBT receives a fee reduced by credits which are determined based on
the average daily cash balances the Portfolio maintains with IBT. Certain of the
officers and Trustees of the Portfolio are officers and directors/trustees of
the above organizations.
- --------------------------------------------------------------------------------
(3) INVESTMENTS
The Portfolio invests primarily in debt securities. The ability of the issuers
of the debt securities held by the Portfolio to meet their obligations may be
affected by economic developments in a specific industry. Purchases and sales of
investments, other than U.S. Government securities and short-term obligations,
aggregated $251,567,448 and $212,443,005, respectively.
- --------------------------------------------------------------------------------
(4) LINE OF CREDIT
The Portfolio participates with other portfolios and funds managed by BMR and
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 Portfolio solely to
facilitate the handling of unusual and/or unanticipated short-term cash
requirements. Interest is charged to each Portfolio 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 and portfolios
at the end of each quarter. The Portfolio did not have any significant
borrowings or allocated fees during the year.
- --------------------------------------------------------------------------------
(5) FEDERAL INCOME TAX BASIS OF INVESTMENTS
The cost and unrealized depreciation/appreciation in value of the investments
owned at March 31, 1995, as computed on a federal income tax basis, were as
follows:
Aggregate cost $449,792,149
============
Gross unrealized depreciation $ 26,758,562
Gross unrealized appreciation 6,889,579
------------
Net unrealized depreciation $ 19,868,983
============
- --------------------------------------------------------------------------------
(6) NOT READILY MARKETABLE SECURITIES
At March 31, 1995, the Trust owned the following securities (constituting 4.97%
of net assets) which were not readily marketable at such date. The Trust has
various registration rights (exercisable under a variety of circumstances) with
respect to certain of 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 DATE OF ACQUISITION SHARES/FACE COST FAIR VALUE
- ----------- ------------------- ----------- ---- ----------
CORPORATE BONDS AND NOTES
- -------------------------
<S> <C> <C> <C> <C>
Alliant Tech Systems Inc., Sr. Sub. Notes, 3/7/95 4,000,000 $ 4,020,000 $ 4,080,000
11.75% 3/01/2003
Dade International Inc., Sr. Sub. Notes, 12/9/94-12/27/94 6,000,000 6,012,500 6,135,000
13%, 2/01/2005 2/13/95
S.D. Warren Company Inc., Sr. Sub. Notes, 12/13/94-12/20/94 3,000,000 3,002,250 3,165,000
12%, 12/15/2004
Ucar Global Enterprises, Sr. Sub. Notes, 1/20/95 4,000,000 4,092,000 4,200,000
12%, 1/15/2005
COMMON STOCK, WARRANTS AND RIGHTS
- ---------------------------------
Dial Call Communications, Wts. 10/4/94 7,200 0 1,800
Empire Gas Corp., Wts. 1/27/95 5,520 0 5,520
Pullman Company, Common 2/22/95 101,973 2,949,328 917,757
Purity Supreme, Warrants Exp. 8/1/1999 7/29/92 5,198 0 104
Servam Corp., $2.00 Warrants, Exp. 4/1/2001 12/15/87 12,276 0 0
Servam Corp., $4.50 Warrants, Exp. 4/1/2001 12/15/87 2,760 0 0
Southdown Inc., Wts. 10/28/91 22,500 67,500 95,625
Specialty Foods Acquisition Common 8/10/93 48,000 34,886 114,000
Terex Corporation, Rights, Exp. 7/1/1997 11/07/94 5,371 0 4,028
Terex Corporation, Rights, Exp. 8/1/1996 8/20/92-7/1/94 1,125 0 422
8/2/94
Terex Corporation, Rights, Exp. 8/1/1996 7/24/92 9,300 0 4,650
Terex Corporation, Wts. 12/15/93 32,000 6,400 376,000
Thermadyne Holdings Corp., Warrants 5/17/94 1,814 44,100 25,850
Thermadyne Holdings Corp., Common 4/03/89 40,000 28,800 400
Triangle Wire & Cable, Common 3/17/94 95,000 2,250,000 570,000
Triangle Wire & Cable, Warrants 10/28/91 22,500 0 0
UCC Invt. Hldgs., Cl A Common 10/24/86 9,908 9,834 111,465
United International Hldg. Inc., Warrants 10/01/91 7,840 222,186 254,800
Waxman Industries, Warrants 10/01/91 6,000 6,000 300
PREFERRED STOCKS
----------------
Grand Union Holding, Series C, 12% Preferred 3/17/94 7,200 860,400 0
S.D. Warren Company, 14% Preferred 12/13/94-1/26/95 48,000 1,248,000 1,440,000
Terex Corporation, CV Preferred 12/15/93 32,000 793,600 512,000
----------- ___________
$25,647,784 $22,014,721
=========== ===========
</TABLE>
<PAGE>
INDEPENDENT AUDITORS' REPORT
- -------------------------------------------------------------------------------
To the Trustees and Investors of
High Income Portfolio:
We have audited the accompanying statement of assets and liabilities, including
the portfolio of investments, of High Income Portfolio as of March 31, 1995, and
the related statement of operations, the statement of changes in net assets and
the supplementary data for the period from the start of business, June 1, 1994,
to March 31, 1995. These financial statements and supplementary data are the
responsibility of the Trust's management. Our responsibility is to express an
opinion on these financial statements and supplementary data based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements and supplementary data are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. Our
procedures included confirmation of securities owned at March 31, 1995 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 audit provides a reasonable basis for our opinion.
In our opinion, such financial statements and supplementary data present fairly,
in all material respects, the financial position of High Income Portfolio at
March 31, 1995, the results of its operations, changes in its net assets, and
its supplementary data for the period from the start of business, June 1, 1994,
to March 31, 1995, in conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Boston, Massachusetts
May 5, 1995
<PAGE>
<TABLE>
<CAPTION>
INVESTMENT MANAGEMENT
<S> <C> <C>
EV MARATHON OFFICERS INDEPENDENT TRUSTEES
HIGH INCOME FUND M. DOZIER GARDNER DONALD R. DWIGHT
24 Federal Street President, Trustee President,
Boston, MA 02110 JAMES B. HAWKES Dwight Partners, Inc.
Vice President, Trustee Chairman, Newspapers of
HOOKER TALCOTT, JR. New England, Inc.
Vice President SAMUEL L. HAYES, III
JAMES J. O'CONNOR Jacob H. Schiff Professor of
Treasurer Investment Banking, Harvard
THOMAS OTIS University Graduate School
Secretary of Business Administration
BARBARA E. CAMPBELL NORTON H. REAMER
Assistant Treasurer President and Director, United
JANET E. SANDERS Asset Management Corporation
Assistant Treasurer and JOHN L. THORNDIKE
Assistant Secretary Director,
A. JOHN MURPHY Fiduciary Company Incorporated
Assistant Secretary JACK L. TREYNOR
Investment Adviser and Consultant
----------------------------------------------------------------------------
HIGH INCOME OFFICERS INDEPENDENT TRUSTEES
PORTFOLIO THOMAS J. FETTER DONALD R. DWIGHT
24 Federal Street President President,
Boston, MA 02110 JAMES B. HAWKES Dwight Partners, Inc.
Vice President, Trustee Chairman, Newspapers of
HOOKER TALCOTT, JR. New England, Inc.
Vice President and Portfolio Manager SAMUEL L. HAYES, III
JAMES J. O'CONNOR Jacob H. Schiff Professor of
Treasurer Investment Banking, Harvard
THOMAS OTIS University Graduate School
Secretary of Business Administration
BARBARA E. CAMPBELL NORTON H. REAMER
Assistant Treasurer President and Director, United
JANET E. SANDERS Asset Management Corporation
Assistant Treasurer and JOHN L. THORNDIKE
Assistant Secretary Director,
A. JOHN MURPHY Fiduciary Company Incorporated
Assistant Secretary JACK L. TREYNOR
Investment Adviser and Consultant
</TABLE>
<PAGE>
INVESTMENT ADVISER OF
HIGH INCOME PORTFOLIO
Boston Management and Research
24 Federal Street
Boston, MA 02110
ADMINISTRATOR OF
EV MARATHON HIGH INCOME FUND
Eaton Vance Management
24 Federal Street
Boston, MA 02110
PRINCIPAL UNDERWRITER
Eaton Vance Distributors, Inc.
24 Federal Street
Boston, MA 02110
(617) 482-8260
CUSTODIAN
Investors Bank & Trust Company
24 Federal Street
Boston, MA 02110
TRANSFER AGENT
The Shareholder Services Group, Inc.
BOS725
P.O. Box 1559
Boston, MA 02104
INDEPENDENT AUDITORS
Deloitte & Touche LLP
125 Summer Street
Boston, MA 02110
This report must be preceded or accompanied by a current prospectus which
contains more complete information on the Fund, including its distribution plan,
sales charges and expenses. Please read the prospectus carefully before you
invest or send money.
EV MARATHON HIGH INCOME FUND
24 FEDERAL STREET
BOSTON, MA 02110
M-HISRC
[LOGO]
EV MARATHON
HIGH INCOME
FUND
ANNUAL
SHAREHOLDER REPORT
MARCH 31, 1995
