<PAGE>
To Shareholders
EV Classic High Income Fund had a total return of 1.9 percent for the period
from inception on June 8, 1994 through March 31, 1995, the result of a decline
in net asset value per share to $9.43 on March 31, 1995 from $10.00 on June 8,
1994 and the reinvestment of $0.740 per share in dividends, and does not include
the effect of contingent deferred sales charges incurred by redeeming
shareholders.
Based on the most recent dividend and a net asset value per share of $9.43 on
March 31, the Fund had a distribution rate of 9.49 percent.
AMID A VOLATILE TREASURY MARKET, HIGH YIELD BONDS FARED WELL...
The high yield market, 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 percent at the beginning of 1994 to
1.9 percent by 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 Classic High Income Fund as a
high income, long-term investment.
[Photograph Sincerely,
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.
<PAGE>
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.
- -------------------
[Photograph 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 nitro-gen
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 counter-parts 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.
COMPARISON OF CHANGE IN VALUE OF A $10,000 INVESTMENT IN EV CLASSIC HIGH INCOME
FUND (INCLUDING SALES CHARGE) AND THE LEHMAN BROTHERS HIGH YIELD BOND INDEX From
June 30, 1994, through March 31, 1995
CUMULATIVE Life of
TOTAL RETURN Fund*
- --------------------------------------------
With CDSC 0.9%
- --------------------------------------------
Without CDSC 1.9%
- --------------------------------------------
EV CLASSIC HIGH INCOME FUND -- $10,202
Assumes entire investment was redeemed on 3/31/95 and maximum applicable
contingent deferred sales charge (CDSC) was deducted from redemption proceeds.
Label A B
- -------------------------------------------------------------
Lehman Brothers
Classic High High Yield
Label Date Income Fund Bond Index
- -------------------------------------------------------------
1 6/94 10000 10000
2 7/94 10009 10085
3 8/94 9980 10156
4 9/94 9982 10157
5 10/94 9987 10181
6 11/94 9867 10053
7 12/94 9937 10127
8 1/95 10008 10264
9 2/95 10260 10616
10 3/95 10302 10730
Past performance is not indicative of future results. Investment returns and
principal will fluctuate so that an investors' shares, when redeemed, may be
worth more or less than their original cost. Source: Towers Data Systems,
Bethesda, MD.
*Investment operations commenced on 6/8/94.
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 securities market index. The lines on the chart represent
the total returns of $10,000 hypothetical investments in the 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 portfolio 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, a broad-based, widely recognized 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 CLASSIC HIGH INCOME FUND
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
- --------------------------------------------------------------------------------
March 31, 1995
------------------------------------------------------------------------------
ASSETS:
Investment in High Income Portfolio at value (Note 1A)
(identified cost, $2,141,426) $2,111,687
Receivable for Fund shares sold 122,265
Receivable from the Administrator (Note 4) 37,087
Deferred organization expenses (Note 1D) 40,285
----------
Total assets $2,311,324
LIABILITIES:
Dividends payable $ 5,031
Payable for Fund shares redeemed 191,249
Payable to affiliate --
Custodian fee 84
Accrued expenses 38,504
-----------
Total liabilities 234,868
----------
NET ASSETS for 220,196 shares of beneficial
interest outstanding $2,076,456
==========
SOURCES OF NET ASSETS:
Paid-in capital $2,118,788
Accumulated net realized loss on investment transactions
(computed on the basis of identified cost) (12,278)
Accumulated distributions in excess of net investment income (315)
Unrealized depreciation of investments from Portfolio
(computed on the basis of identified cost) (29,739)
----------
Total $2,076,456
==========
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PRICE (NOTE 6)
PER SHARE
($2,076,456 / 220,196 shares of beneficial interest) $9.43
=====
See notes to financial statements
<PAGE>
STATEMENT OF OPERATIONS
- --------------------------------------------------------------------------------
For the period from the start of business, June 8, 1994, to March 31, 1995
- --------------------------------------------------------------------------------
INVESTMENT INCOME (NOTE 1B):
Income allocated from Portfolio $131,276
Expenses allocated from Portfolio (8,243)
---------
Total investment income $123,033
Expenses --
Distribution costs (Note 5) $11,711
Custodian fee (Note 4) 751
Printing and postage 15,810
Registration costs 14,211
Amortization of organization expense (Note 1D) 7,735
Legal and accounting services 1,266
Transfer and dividend disbursing agent fees 885
Miscellaneous 325
--------
Total expenses $52,694
Deduct allocation of expenses to the
Administrator (Note 4) 37,087
--------
Net expenses 15,607
---------
Net investment income $107,426
---------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized loss from Portfolio on investment transactions
(identified cost basis) $(12,278)
Unrealized depreciation on investments (29,739)
---------
Net realized and unrealized loss $(42,017)
---------
Net increase in net assets from operations $ 65,409
=========
See notes to financial statements
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
For the period from the start of business, June 8, 1994, to March 31, 1995
- --------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS:
From operations --
Net investment income $ 107,426
Net realized loss on investments (12,278)
Unrealized depreciation of investments (29,739)
----------
Net increase in net assets from operations $ 65,409
----------
Distributions to shareholders (Note 2) --
From net investment income $ (107,426)
In excess of net investment income (3,796)
----------
Total distributions to shareholders $ (111,222)
----------
Transactions in shares of beneficial interest (Note 3) --
Proceeds from sales of shares $4,486,001
Net asset value of shares issued to shareholders
in payment of distributions declared 61,821
Cost of shares redeemed (2,425,563)
----------
Increase in net assets from Fund share transactions $2,122,259
----------
Net increase in net assets $2,076,446
NET ASSETS:
At beginning of period 10
----------
At end of period (including accumulated distributions
in excess of net investment income of $315) $2,076,456
==========
See notes to financial statements
<PAGE>
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
For the period from the start of business, June 8, 1994, to March 31, 1995
- --------------------------------------------------------------------------------
NET ASSET VALUE, beginning of period $ 10.000
-----------
INCOME (LOSS) FROM OPERATIONS:
Net investment income $ 0.735
Net realized and unrealized loss on
investments (0.544)
-----------
Total income from operations $ 0.191
-----------
LESS DISTRIBUTIONS:
From net investment income $ (0.735)
In excess of net investment income (0.026)
-----------
Total distributions $ (0.761)
-----------
NET ASSET VALUE, end of period $ 9.430
===========
TOTAL RETURN\2/ 1.89%
RATIOS/SUPPLEMENTAL DATA*:
Net assets, end of period (000 omitted) $2,076
Ratio of net expenses to average daily net
assets\1/ 2.04%+
Ratio of net investment income to average
daily net assets 9.17%+
*For the period from the start of business, June 8, 1994, to March 31, 1995,
the operating expenses of the Fund reflect an allocation of expenses to the
Administrator. Had such action not been taken, net investment income per share
and the ratios would have been as follows:
NET INVESTMENT INCOME PER SHARE $ 0.482
===========
RATIOS (As a percentage of average daily net assets):
Expenses\1/ 5.20%+
======
Net investment income 6.01%+
+Computed on an annualized basis.
\1/Includes the Fund's share of High Income Portfolio's allocated expenses.
\2/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
invested at the net asset value on the payable date.
See notes to financial statements
<PAGE>
----------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
----------------------------------------------------------------------------
(1) SIGNIFICANT ACCOUNTING POLICIES
EV Classic 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. The Fund
invests all of its investable assets in interests in the High Income Portfolio
(the Portfolio), a New York Trust, having the same investment objective as the
Fund. The value of the Fund's investment in the Portfolio reflects the Fund's
proportionate interest in the net assets of the Portfolio (0.5% 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.
C. FEDERAL TAXES -- The Fund's policy is to comply with the provisions of the
Internal Revenue Code applicable to regulated investment companies and to
distribute to shareholders each year all of its net investment 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 $5,248 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 carryover will expire on March 31, 2003. Additionally, net
losses of $7,342 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. DEFERRED ORGANIZATION EXPENSES -- Costs incurred by the Fund in connection
with its organization, including registration costs, are being amortized on the
straight-line basis over five years.
E. DISTRIBUTION COSTS -- For book purposes, commissions paid on the sale of the
Fund's shares and other distribution costs are charged to operations. For tax
purposes, commissions paid were charged to paid-in capital prior to November 23,
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).
F. OTHER -- Investment transactions are accounted for on a trade date basis.
----------------------------------------------------------------------------
(2) DISTRIBUTIONS TO SHAREHOLDERS
The net income of the Fund is determined daily and substantially all of the net
income so determined is declared as a dividend to shareholders of record at the
time of declaration. Distributions of allocable realized capital gains, if any,
are made at least annually. Shareholders may reinvest capital gains
distributions in additional shares of the Fund at the net asset value as of the
ex-dividend date. Distributions are paid in the form of additional shares or, at
the election of the shareholder, in cash. The Fund distinguishes between
distributions on a tax basis and a financial reporting basis and requires that
only distributions in excess of tax basis earnings and profits are 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. During the period from June 8, 1994 to November
22, 1994, $3,481 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 these reclassifications.
----------------------------------------------------------------------------
(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 for the period from the start of business, June 8,
1994, to March 31, 1995, were as follows:
Sales 466,843
Issued to shareholders electing to receive
payments of distributions in Fund shares 6,559
Redemptions (253,207)
-------
Net increase 220,195
=======
----------------------------------------------------------------------------
(4) TRANSACTIONS WITH AFFILIATES
Eaton Vance Management (EVM) serves as the administrator of the Fund, but
receives no compensation. The Portfolio has engaged Boston Management and
Research (BMR), a subsidiary of EVM, to render investment advisory services. See
Note 2 of the Portfolio's Notes to Financial Statements which are included
elsewhere in this report. To enhance the net income of the Fund, $37,087 of
expenses related to the operation of the Fund were allocated to EVM.
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/or directors/trustees of the
above organizations (Note 5).
----------------------------------------------------------------------------
(5) DISTRIBUTION PLAN
The Fund has adopted a distribution plan (the Plan) pursuant to Rule 12b-1 under
the Investment Company Act of 1940. Effective January 30, 1995, the Trustees of
the Fund adopted an Amended Distribution Plan. 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) 6.25% 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 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 $8,783 to or payable to
EVD for the period from the start of business, June 8, 1994, to 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 $200,000.
In addition, the Plan permits the Fund to make payments of service fees to the
Principal Underwriter in amounts not to exceed 0.25% of the Fund's average daily
net assets for any fiscal year. The Trustees have initially implemented the Plan
by authorizing the Fund to make monthly service fee payments to the Principal
Underwriter in amounts not to exceed 0.25% of the Fund's average daily net
assets for any fiscal year. The Fund paid or accrued service fees to or payable
to EVD for the period from the start of business, June 8, 1994, to March 31,
1995, in the amount of $2,928. Pursuant to the Amended Distribution Plan, on
sales made prior to January 30, 1995, EVD makes monthly service fee payments to
Authorized Firms in amounts equivalent to 0.25%, annualized, of the assets
maintained in the Fund by their customers. On sales of shares made on January
31, 1995 and thereafter, EVD currently expects to pay to an Authorized Firm a
service fee at the time of sale equal to 0.25% of the purchase price of the
shares sold by such Firm and monthly payments of service fees in amounts not
expected to exceed 0.25% per annum of the Fund's average daily net assets based
on the value of Fund shares sold by such Firm and remaining outstanding for at
least one year. During the first year after purchase of Fund shares, EVD will
retain the service fee as reimbursement for the service fee payment made to the
Authorized Firm at the time of sale. Service fee payments are made for personal
services and/or maintenance of shareholder accounts. Service fees paid to EVD
and Authorized Firms 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 CHARGES
For shares purchased on or after January 30, 1995, a contingent deferred sales
charge (CDSC) of 1% is imposed on any redemption of Fund shares made within one
year of purchase. Generally, the CDSC is based upon the lower of the net asset
value at date of redemption or date of purchase. No charge is levied on shares
acquired by reinvestment of dividends or capital gains distributions. No CDSC is
levied on shares which have been sold to EVD or its affiliates or to their
respective employees or clients. CDSC charges are paid to EVD to reduce the
amount of Uncovered Distribution Charges calculated under the Fund's
Distribution Plan. CDSC received when no Uncovered Distribution Charges exist
will be credited to the Fund. For the year ended March 31, 1995, EVD received no
CDSC paid by shareholders.
----------------------------------------------------------------------------
(7) INVESTMENT TRANSACTIONS
Increases and decreases in the Fund's investment in the Portfolio for the period
from June 8, 1994 to March 31, 1995 aggregated $4,364,436 and $2,333,775,
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
Classic High Income Fund (one of the series constituting the Eaton Vance High
Income Trust) as of March 31, 1995, and the related statement of operations, the
statement of changes in net assets and the financial highlights for the period
from the start of business, June 8, 1994, to 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 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 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 audit provides 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 Classic High
Income Fund at March 31, 1995, the results of its operations, changes in its net
assets, and its financial highlights for the period from the start of business,
June 8, 1994, to March 31, 1995, in conformity with generally accepted
accounting principles.
DELOITTE & TOUCHE LLP
Boston, Massachusetts
May 5, 1995
<PAGE>
<TABLE>
<CAPTION>
HIGH INCOME PORTFOLIO
PORTFOLIO OF INVESTMENTS
MARCH 31, 1995
- -------------------------------------------------------------------------------------------------
CORPORATE BONDS AND NOTES - 94.0%
- -------------------------------------------------------------------------------------------------
FACE
AMOUNT SECURITY VALUE
- -------------------------------------------------------------------------------------------------
<C> <S> <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<F3> 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<F2> $ 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<F2> 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<F2> $ 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<F2> 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
------------
<CAPTION>
- -------------------------------------------------------------------------------------------------
PREFERRED STOCKS - 0.4%
- -------------------------------------------------------------------------------------------------
SHARES SECURITY VALUE
- -------------------------------------------------------------------------------------------------
<C> <S> <C>
7,200 Grand Union Holding, Series C, 12% Pfd.<F2> $ 0
48,000 SD Warren Company W / Warrants, 14%, 12/15/2006<F2><F1> 1,440,000
32,000 Terex CV Pfd. (144A) W / Warrants<F2><F1> 512,000
-------------
TOTAL PREFERRED STOCKS (IDENTIFIED COST, $2,902,000) $ 1,952,000
-------------
<CAPTION>
- -------------------------------------------------------------------------------------------------
COMMON STOCKS, WARRANTS AND RIGHTS - 0.8%
- -------------------------------------------------------------------------------------------------
SHARES/WARRANTS SECURITY VALUE
- -------------------------------------------------------------------------------------------------
<C> <S> <C>
AUTO/TRUCK - 0.2%
214,839 Bucyrus - Erie Company, Common<F1> $ 1,059,154
-------------
CHEMICALS - 0.0%
9,908 UCC Invt. Hldgs., Cl A Common<F2><F1> $ 111,465
-------------
COMMUNICATIONS - 0.0%
7,200 Dial Call Communications, Wts.<F2><F1> $ 1,800
7,840 United International Hldg. Inc., Warrants<F2><F1> 254,800
-------------
$ 256,600
-------------
ENERGY - 0.0%
5,520 Empire Gas Corp., Wts.<F2><F1> $ 5,520
-------------
FOOD - 0.0%
1,380 Servam Corp., Common<F1> $ 0
12,276 Servam Corp., $2.00 Wts. Exp. 4/1/2001<F2><F1> 0
2,760 Servam Corp., $4.50 Wts. Exp. 4/1/2001<F2><F1> 0
48,000 Specialty Foods Acquisition, Common<F2><F1> 114,000
-------------
$ 114,000
-------------
INDUSTRIAL - 0.0%
1,814 Thermadyne Holdings Corp., Warrants<F2><F1> $ 25,850
40,000 Thermadyne Holdings Corp., Common<F2><F1> 400
-------------
$ 26,250
-------------
MANUFACTURING - 0.4%
101,973 Pullman Company, Common Stock<F2><F1> $ 917,757
22,500 Southdown Inc., Wts.<F2><F1> 95,625
9,300 Terex Corporation, Rights, 8/1/1996<F2><F1> 4,650
1,125 Terex Corporation, Rights, 8/1/1996<F2><F1> 422
5,371 Terex Corporation, Rights,7/1/1997<F2><F1> 4,028
32,000 Terex Corp., Wts.<F2><F1> 376,000
95,000 Triangle Wire & Cable<F2><F1> 570,000
22,500 Triangle Wire and Cable, Wts.<F2><F1> 0
-------------
$ 1,968,482
-------------
RETAILING - 0.0%
5,198 Purity Supreme, Wts.<F2><F1> $ 104
6,000 Waxman Industries, Warrants<F2><F1> 300
-------------
$ 404
-------------
TOTAL COMMON STOCKS, WARRANTS AND
RIGHTS (IDENTIFIED COST, $9,334,423) $ 3,541,875
-------------
<CAPTION>
- -------------------------------------------------------------------------------------------------
SHORT-TERM OBLIGATION - 1.9%
- -------------------------------------------------------------------------------------------------
FACE
AMOUNT SECURITY VALUE
- -------------------------------------------------------------------------------------------------
<S> <C> <C>
$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
=============
<FN>
<F1>Non-income producing security.
<F2>Restricted Security (Note 6).
<F3>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.
</TABLE>
See notes to financial statements
<PAGE>
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
- --------------------------------------------------------------------------------
March 31, 1995
- --------------------------------------------------------------------------------
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
<PAGE>
STATEMENT OF OPERATIONS
- --------------------------------------------------------------------------------
For the period from the start of business, June 1, 1994, to March 31, 1995
- --------------------------------------------------------------------------------
INVESTMENT INCOME:
Income
Interest (net of foreign withholding tax of $11,324) $ 40,107,992
-----------
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
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
For the period from the start of business, June 1, 1994, to March 31, 1995
- --------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS:
From operations --
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
- -------------------------------------------------------------------------------
SUPPLEMENTARY DATA
- -------------------------------------------------------------------------------
For the period from the start of business, June 1, 1994, to March 31, 1995
- -------------------------------------------------------------------------------
RATIOS (As a percentage of average daily net assets):
Expenses 0.70%+
Net investment income 10.63%+
PORTFOLIO TURNOVER 53%
+Computed on an annualized basis.
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
</TABLE>
<TABLE>
<CAPTION>
COMMON STOCK, WARRANTS AND RIGHTS
---------------------------------
<S> <C> <C> <C> <C>
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>
INVESTMENT MANAGEMENT
EV CLASSIC OFFICERS INDEPENDENT TRUSTEES
HIGH INCOME FUND M. DOZIER GARDNER DONALD R. DWIGHT
24 Federal Street President, Trustee President, Dwight Partners, Inc.
Boston, MA 02110 JAMES B. HAWKES Chairman, Newspapers of
Vice President, Trustee New England, Inc.
HOOKER TALCOTT, JR. SAMUEL L. HAYES, III
Vice President Jacob H. Schiff Professor of
JAMES L. O'CONNOR Investment Banking, Harvard
Treasurer University Graduate School of
THOMAS OTIS Business Administration
Secretary NORTON H. REAMER
BARBARA E.CAMPBELL President and Director,
Assistant Treasurer United Asset Management
JANET E. SANDERS Corporation
Assistant Treasurer JOHN L. THORNDIKE
and Assistant Secretary Director, Fiduciary Company
A. JOHN MURPHY Incorporated
Assistant Secretary JACK L. TREYNOR
Investment Adviser
and Consultant
----------------------------------------------------------
HIGH INCOME OFFICERS INDEPENDENT TRUSTEES
PORTFOLIO M. DOZIER GARDNER DONALD R. DWIGHT
24 Federal Street President, Trustee President, Dwight Partners, Inc.
Boston, MA 02110 JAMES B. HAWKES Chairman, Newspapers of
Vice President, Trustee New England, Inc.
HOOKER TALCOTT, JR. SAMUEL L. HAYES, III
Vice President and Jacob H. Schiff Professor of
Portfolio Manager Investment Banking, Harvard
JAMES L. O'CONNOR University Graduate School of
Treasurer Business Administration
THOMAS OTIS NORTON H. REAMER
Secretary President and Director,
BARBARA E. CAMPBELL United Asset Management
Assistant Treasurer Corporation
JANET E. SANDERS JOHN L. THORNDIKE
Assistant Treasurer Director, Fiduciary Company
and Assistant Secretary Incorporated
A. JOHN MURPHY JACK L. TREYNOR
Assistant Secretary Investment Adviser
and Consultant
<PAGE>
INVESTMENT ADVISER OF
HIGH INCOME PORTFOLIO
Boston Management and Research
24 Federal Street
Boston, MA 02110
ADMINISTRATOR OF
EV CLASSIC
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 CLASSIC HIGH INCOME FUND
24 FEDERAL STREET
BOSTON, MA 02110
C-HISRC
EV CLASSIC
HIGH INCOME
FUND
ANNUAL SHAREHOLDER REPORT
MARCH 31, 1995
