<PAGE>
STRATEGIC INCOME PORTFOLIO AS OF APRIL 30, 1999
PORTFOLIO OF INVESTMENTS
<TABLE>
<S> <C> <C>
BONDS & NOTES -- 90.4%
<CAPTION>
PRINCIPAL U.S. $ VALUE
<S> <C> <C>
- ---------------------------------------------------------------------------------------
Bulgaria -- 2.0% U.S. Dollar
- ---------------------------------------------------------------------------------------
Bulgaria Discount Bond (Brady), 5.875%, 7/28/24(1) 4,000,000 $ 2,745,000
- ---------------------------------------------------------------------------------------
Total Bulgaria (identified cost, $2,464,216) $ 2,745,000
- ---------------------------------------------------------------------------------------
Greece -- 2.5% Greek Drachma
- ---------------------------------------------------------------------------------------
Hellenic Republic, 9.20%, 3/21/02 1,000,000,000 $ 3,439,919
- ---------------------------------------------------------------------------------------
Total Greece (identified cost, $3,762,330) $ 3,439,919
- ---------------------------------------------------------------------------------------
Hong Kong -- 0.7% U.S. Dollar
- ---------------------------------------------------------------------------------------
Guangdong Enterprises, 8.75%, 12/15/03 3,000,000 $ 915,000
- ---------------------------------------------------------------------------------------
Total Hong Kong (identified cost, $2,766,774) $ 915,000
- ---------------------------------------------------------------------------------------
Indonesia -- 3.3% U.S. Dollar
- ---------------------------------------------------------------------------------------
APP Global Finance III, 9.289%, 4/17/02(1) 1,600,000 $ 1,096,000
DGS International Finance, 10.00%, 6/01/07 2,000,000 1,480,000
Indah Kiat Finance Mauritius, Sr. Unsec. Notes,
10.00%, 7/01/07 1,750,000 1,195,723
Indah Kiat International Finance, 6.15%, 3/14/00 Yen 125,000,000 893,044
- ---------------------------------------------------------------------------------------
Total Indonesia (identified cost, $4,798,457) $ 4,664,767
- ---------------------------------------------------------------------------------------
Malaysia -- 1.4% U.S. Dollar
- ---------------------------------------------------------------------------------------
Petronas, 7.125%, 10/18/06 2,000,000 $ 1,923,900
- ---------------------------------------------------------------------------------------
Total Malaysia (identified cost, $1,803,735) $ 1,923,900
- ---------------------------------------------------------------------------------------
Mexico -- 6.2% U.S. Dollar
- ---------------------------------------------------------------------------------------
Mexican Discount Bond (Brady), Series B,
w/attached warrants, 6.039%, 12/31/19(1) 4,000,000 $ 3,465,000
Mexican Discount Bond (Brady), Series D,
w/attached warrants, 6.098%, 12/31/19(1) 6,000,000 5,197,499
- ---------------------------------------------------------------------------------------
Total Mexico (identified cost, $8,089,395) $ 8,662,499
- ---------------------------------------------------------------------------------------
Peru -- 5.1% U.S. Dollar
- ---------------------------------------------------------------------------------------
Peru FLIRB (Brady), 3.75%, 3/07/17(1) 7,000,000 $ 4,353,125
Peru PDI (Brady), 4.50%, 3/07/17(1) 4,000,000 2,722,500
- ---------------------------------------------------------------------------------------
Total Peru (identified cost, $5,906,817) $ 7,075,625
- ---------------------------------------------------------------------------------------
Philippines -- 3.9% U.S. Dollar
- ---------------------------------------------------------------------------------------
JG Summit Cayman, 3.50%, 12/23/03 3,000,000 $ 2,250,000
Republic of Philippines, 9.875%, 1/15/19 3,000,000 3,099,375
- ---------------------------------------------------------------------------------------
Total Philippines (identified cost, $5,171,725) $ 5,349,375
- ---------------------------------------------------------------------------------------
<CAPTION>
PRINCIPAL U.S. $ VALUE
<S> <C> <C>
- ---------------------------------------------------------------------------------------
Republic of Korea -- 1.8% U.S. Dollar
- ---------------------------------------------------------------------------------------
Samsung Electronics Ltd., 0.00%, 12/31/07 1,550,000 $ 1,565,500
SK Telecom, 7.75%, 4/29/04 1,000,000 996,000
- ---------------------------------------------------------------------------------------
Total Republic of Korea
(identified cost, $2,397,480) $ 2,561,500
- ---------------------------------------------------------------------------------------
Thailand -- 2.7% U.S. Dollar
- ---------------------------------------------------------------------------------------
Bangkok Bank, 8.75%, 3/15/07(2) 2,000,000 $ 1,800,000
Siam Commercial Bank, 7.50%, 3/15/06(2) 2,400,000 1,992,000
- ---------------------------------------------------------------------------------------
Total Thailand (identified cost, $3,609,915) $ 3,792,000
- ---------------------------------------------------------------------------------------
United Kingdom -- 0.8% Deutsche Mark
- ---------------------------------------------------------------------------------------
Esprit Telecom Group PLC, 11.00%, 6/15/08 2,000,000 $ 1,189,292
- ---------------------------------------------------------------------------------------
Total United Kingdom
(identified cost, $1,117,631) $ 1,189,292
- ---------------------------------------------------------------------------------------
United States -- 57.1% U.S. Dollar
- ---------------------------------------------------------------------------------------
CORPORATE BONDS & NOTES -- 3.0%
Baltimore Natural Gas and Electric, 6.73%, 6/12/12 400,000 $ 414,168
Commercial Credit Corp., 7.875%, 2/01/25 1,000,000 1,104,130
Dayton Hudson Medium Term Notes, 9.52%, 6/10/15 350,000 423,357
TRW Inc., Medium Term Notes, 9.35%, 6/04/20 1,900,000 2,261,684
- ---------------------------------------------------------------------------------------
TOTAL CORPORATE BONDS & NOTES (IDENTIFIED COST, $3,976,978) $ 4,203,339
- ---------------------------------------------------------------------------------------
MORTGAGE PASS-THROUGHS -- 52.5%
Federal Home Loan Mortgage Corp.:
4.75%, with maturity at 2001 6,278 $ 6,203
8.00%, with various maturities to 2021 7,793,823 8,125,423
8.50%, with various maturities to 2019 1,565,147 1,668,324
9.00%, with maturity at 2019 472,411 508,070
9.25%, with various maturities to 2016 5,086,129 5,431,055
9.50%, with maturity at 2015 1,708,940 1,826,401
9.75%, with maturity at 2020 648,493 701,125
10.50%, with maturity at 2020 906,717 1,003,233
11.00%, with maturity at 2019 1,905,716 2,109,784
11.25%, with maturity at 2010 262,983 290,921
12.50%, with various maturities to 2019 2,175,586 2,517,449
12.75%, with maturity at 2013 122,581 140,601
13.25%, with maturity at 2013 102,253 118,690
13.50%, with maturity at 2019 250,742 293,341
- ---------------------------------------------------------------------------------------
$ 24,740,620
- ---------------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
10
<PAGE>
STRATEGIC INCOME PORTFOLIO AS OF APRIL 30, 1999
PORTFOLIO OF INVESTMENTS CONT'D
<TABLE>
<CAPTION>
PRINCIPAL U.S. $ VALUE
- ---------------------------------------------------------------------------------------
<S> <C> <C>
United States (continued) U.S. Dollar
- ---------------------------------------------------------------------------------------
Federal National Government Loan:
9.00%, with maturity at 2021 1,664,887 $ 1,795,469
9.50%, with maturity at 2013 1,874,215 2,040,884
11.00%, with maturity at 2025 868,644 978,322
- ---------------------------------------------------------------------------------------
$ 4,814,675
- ---------------------------------------------------------------------------------------
Federal National Mortgage Association:
5.00%, with maturity at 2003 63,064 $ 62,454
5.50%, with maturity at 2012 4,086 4,057
7.00%, with maturity at 2014 3,861,215 4,002,871
7.50%, with various maturities to 2018 2,485,649 2,582,115
8.00%, with various maturities to 2019 2,138,354 2,239,754
8.50%, with various maturities to 2026 10,344,634 10,933,950
9.00%, with various maturities to 2016 2,589,600 2,759,808
12.00%, with maturity at 2015 728,136 831,943
12.50%, with various maturities to 2019 5,593,798 6,460,316
12.75%, with maturity at 2014 111,622 130,426
13.00%, with various maturities to 2015 2,222,410 2,592,156
13.25%, with maturity at 2014 197,995 234,870
13.50%, with various maturities to 2015 1,288,524 1,505,729
14.75%, with various maturities to 2012 1,781,007 2,162,330
- ---------------------------------------------------------------------------------------
$ 36,502,779
- ---------------------------------------------------------------------------------------
Government National Mortgage Association:
6.50%, with various maturities to 2002 467,729 $ 472,096
7.50%, with various maturities to 2017 686,912 724,118
8.30%, with maturity at 2020 987,493 1,053,567
8.50%, with maturity at 2009 898,735 945,391
9.00%, with maturity at 2016 598,223 644,868
12.50%, with maturity at 2019 2,360,049 2,733,736
13.50%, with various maturities to 2014 229,472 273,077
- ---------------------------------------------------------------------------------------
$ 6,846,853
- ---------------------------------------------------------------------------------------
TOTAL MORTGAGE PASS-THROUGHS (IDENTIFIED COST, $72,886,480) $ 72,904,927
- ---------------------------------------------------------------------------------------
<CAPTION>
PRINCIPAL U.S. $ VALUE
<S> <C> <C>
- ---------------------------------------------------------------------------------------
U.S. TREASURY BOND -- 1.6%
United States Treasury Bond, 11.75%, 2/15/01(3)
(identified cost, $2,603,438) 2,000,000 $ 2,223,740
- ---------------------------------------------------------------------------------------
Total United States
(identified cost, $79,466,896) $ 79,332,006
- ---------------------------------------------------------------------------------------
Venezuela -- 2.9% U.S. Dollar
- ---------------------------------------------------------------------------------------
PDVSA Finance Ltd., 9.75%, 2/15/10(2) 4,000,000 $ 4,008,766
- ---------------------------------------------------------------------------------------
Total Venezuela (identified cost, $3,976,280) $ 4,008,766
- ---------------------------------------------------------------------------------------
Total Bonds & Notes (identified cost $125,331,651)
$ 125,659,649
- ---------------------------------------------------------------------------------------
SHORT-TERM INVESTMENTS -- 9.6%
U.S. Dollar
- ---------------------------------------------------------------------------------------
Banque National De Paris Euro Time-deposit Cayman
Islands, 4.813%, 5/03/99 7,700,000 $ 7,700,000
Skandinaviska Enskilada Bankentime Deposit,
4.875%, 5/03/99 5,602,927 5,602,927
- ---------------------------------------------------------------------------------------
Total Short-Term Investments
(at amortized cost $13,302,927) $ 13,302,927
- ---------------------------------------------------------------------------------------
Total Investments -- 100.0%
(identified cost $138,634,578) $ 138,962,576
- ---------------------------------------------------------------------------------------
</TABLE>
(1) Variable rate security. Rate indicated is the rate at April 30, 1999.
(2) Security exempt from registration under Rule 144A of the Securities Act of
1933. These securities may be resold in transactions exempt from
registration, normally to qualified institutional buyers. It is the
Portfolio's intention to hold this security until maturity.
(3) Security (or a portion thereof) has been segregated to cover margin
requirements on open financial futures contracts.
SEE NOTES TO FINANCIAL STATEMENTS
11
<PAGE>
STRATEGIC INCOME PORTFOLIO AS OF APRIL 30, 1999
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
<TABLE>
<CAPTION>
AS OF APRIL 30, 1999
<S> <C>
Assets
- -------------------------------------------------------
Investments, at value (identified cost,
$138,634,578) $ 138,962,576
Cash 13,729
Receivable for investments sold 291,450
Interest receivable 1,692,167
Net receivable for open forward foreign
currency contracts 58,616
- -------------------------------------------------------
TOTAL ASSETS $ 141,018,538
- -------------------------------------------------------
Liabilities
- -------------------------------------------------------
Payable for investments purchased $ 2,905,842
Payable for daily variation margin on
financial futures contracts 182,287
Payable to affiliate for Trustees' fees 91
Other accrued expenses 36,753
- -------------------------------------------------------
TOTAL LIABILITIES $ 3,124,973
- -------------------------------------------------------
NET ASSETS APPLICABLE TO INVESTORS'
INTEREST IN PORTFOLIO $ 137,893,565
- -------------------------------------------------------
Sources of Net Assets
- -------------------------------------------------------
Net proceeds from capital contributions
and withdrawals $ 137,933,001
Net unrealized depreciation (computed on
the basis of identified cost) (39,436)
- -------------------------------------------------------
TOTAL $ 137,893,565
- -------------------------------------------------------
</TABLE>
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDED
APRIL 30, 1999
<S> <C>
Investment Income
- ------------------------------------------------------
Interest $ 6,186,179
- ------------------------------------------------------
TOTAL INVESTMENT INCOME $ 6,186,179
- ------------------------------------------------------
Expenses
- ------------------------------------------------------
Investment adviser fee $ 354,183
Administration fee 99,693
Trustees fees and expenses 8,684
Custodian fee 56,697
Legal and accounting services 54,807
Amortization of organization expenses 1,558
Miscellaneous 3,070
- ------------------------------------------------------
TOTAL EXPENSES $ 578,692
- ------------------------------------------------------
NET INVESTMENT INCOME $ 5,607,487
- ------------------------------------------------------
Realized and Unrealized Gain (Loss)
- ------------------------------------------------------
Net realized gain (loss) --
Investment transactions (identified
cost basis) $ (1,777,846)
Financial futures contracts (831,916)
Options 188,125
Foreign currency transactions (546,280)
- ------------------------------------------------------
NET REALIZED LOSS $ (2,967,917)
- ------------------------------------------------------
Change in unrealized appreciation
(depreciation) --
Investments (identified cost basis) $ 4,586,758
Financial futures contracts 107,302
Options (110,000)
Foreign currency and forward foreign
currency exchange contracts 1,016,721
- ------------------------------------------------------
NET CHANGE IN UNREALIZED APPRECIATION
(DEPRECIATION) $ 5,600,781
- ------------------------------------------------------
NET REALIZED AND UNREALIZED GAIN $ 2,632,864
- ------------------------------------------------------
NET INCREASE IN NET ASSETS FROM
OPERATIONS $ 8,240,351
- ------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
12
<PAGE>
STRATEGIC INCOME PORTFOLIO AS OF APRIL 30, 1999
FINANCIAL STATEMENTS CONT'D
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
Increase (Decrease) SIX MONTHS ENDED YEAR ENDED
in Net Assets APRIL 30, 1999 OCTOBER 31, 1998
<S> <C> <C>
- --------------------------------------------------------------------------------
From operations --
Net investment income $ 5,607,487 $ 11,309,422
Net realized gain (loss) (2,967,917) 1,190,706
Net change in unrealized appreciation
(depreciation) 5,600,781 (11,251,878)
- --------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS FROM
OPERATIONS $ 8,240,351 $ 1,248,250
- --------------------------------------------------------------------------------
Capital transactions --
Contributions $ 29,280,617 $ 63,230,486
Withdrawals (38,073,346) (47,288,792)
- --------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN NET ASSETS
FROM CAPITAL TRANSACTIONS $ (8,792,729) $ 15,941,694
- --------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN NET ASSETS $ (552,378) $ 17,189,944
- --------------------------------------------------------------------------------
Net Assets
- --------------------------------------------------------------------------------
At beginning of period $ 138,445,943 $ 121,255,999
- --------------------------------------------------------------------------------
AT END OF PERIOD $ 137,893,565 $ 138,445,943
- --------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
13
<PAGE>
STRATEGIC INCOME PORTFOLIO AS OF APRIL 30, 1999
FINANCIAL STATEMENTS CONT'D
SUPPLEMENTARY DATA
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
SIX MONTHS ENDED ---------------------------------------------------------
APRIL 30, 1999 1998 1997 1996 1995 1994(1)
<S> <C> <C> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------
Ratios to average daily net assets
- ---------------------------------------------------------------------------------------------------------------------
Expenses 0.88%(2) 0.83% 0.86% 0.86% 0.84% 0.82%(2)
Net investment income 8.53%(2) 8.31% 8.06% 8.62% 9.08% 8.41%(2)
Portfolio Turnover 29% 71% 77% 71% 78% 71%
- ---------------------------------------------------------------------------------------------------------------------
NET ASSETS, END OF PERIOD (000'S
OMITTED) $137,894 $138,446 $121,256 $132,407 $152,583 $236,469
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) For the period from the start of business, March 1, 1994, to October 31,
1994.
(2) Annualized.
SEE NOTES TO FINANCIAL STATEMENTS
14
<PAGE>
STRATEGIC INCOME PORTFOLIO AS OF APRIL 30, 1999
NOTES TO FINANCIAL STATEMENTS
1 Significant Accounting Policies
- -------------------------------------------
Strategic Income Portfolio (the Portfolio) is registered under the Investment
Company Act of 1940 as a non-diversified open-end investment company. The
Portfolio, which was organized as a trust under the laws of the State of New
York in 1992, seeks to provide a high level of income by investing in a
global portfolio consisting primarily of high grade debt securities. The
Declaration of Trust permits the Trustees to issue beneficial interests in
the Portfolio. The following is a summary of significant accounting policies
of the Portfolio. The policies are in conformity with generally accepted
accounting principles.
A Investment Valuation -- Debt securities (other than mortgage-backed,
"pass-through," securities and short-term obligations maturing in sixty days
or less), including listed securities and securities for which price
quotations are available and forward contracts, will normally be valued on
the basis of market valuations furnished by pricing services. Mortgage
backed, "pass-through," securities are valued using an independent matrix
pricing system applied by the advisor which takes into account closing bond
valuations, yield differentials, anticipated prepayments and interest rates
provided by dealers. Financial futures contracts listed on commodity
exchanges and exchange-traded options are valued at closing settlement
prices. Short-term obligations and money-market securities maturing in sixty
days or less are valued at amortized cost which approximates value. Non-U.S.
dollar denominated short-term obligations are valued at amortized cost as
calculated in the base currency and translated to U.S. dollars at the current
exchange rate. Investments for which market quotations are unavailable are
valued at fair value using methods determined in good faith by or at the
direction of the Trustees of the Portfolio.
B Income -- Interest income is determined on the basis of interest accrued and
discount earned, adjusted for amortization of discount when required for
federal income tax purposes.
C Gains and Losses From Investment Transactions -- Realized gains and losses
from investment transactions are recorded on the basis of identified cost. For
book purposes, gains and losses are not recognized until disposition. For
federal tax purposes, the Portfolio is subject to special tax rules that may
affect the amount, timing and character of gains recognized on certain of the
Portfolio's investments.
D Income Taxes -- The Portfolio is treated as a partnership for federal tax
purposes. No provision is made by the Portfolio for federal or state taxes on
any taxable income of the Portfolio because each investor in the Portfolio is
ultimately responsible for the payment of any taxes. Since some of the
Portfolio's investors are regulated investment companies that invest all or
substantially all of their assets in the Portfolio, the Portfolio normally
must satisfy the applicable source of income and diversification requirements
(under the Code) in order for its investors to satisfy them. The Portfolio
will allocate at least annually among its investors each investor's
distributive share of the Portfolio's net investment income, net realized
capital gains, and any other items of income, gain, loss, deduction or
credit.
E Financial Futures Contracts -- Upon entering into a financial futures
contract, the Portfolio is required to deposit an amount ("initial margin"),
either in cash or securities, equal to a certain percentage of the purchase
price indicated in the financial futures contract. Subsequent payments are
made or received by the Portfolio ("variation margin") each day, dependent on
the daily fluctuations in the value of the underlying security, and are
recorded for book purposes as unrealized gains or losses by the Portfolio.
The Portfolio's investment in financial futures contracts is designed for
both hedging against anticipated future changes in interest or currency
exchange rates and investment purposes. Should interest or currency exchange
rates move unexpectedly, the Portfolio may not achieve the anticipated
benefits of the financial futures contracts and may realize a loss. If the
Portfolio enters into a closing transaction, the Portfolio will realize, for
book purposes, a gain or loss equal to the difference between the value of
the financial futures contract to sell and financial futures contract to buy.
F Foreign Currency Translation -- Investment valuations, other assets, and
liabilities initially expressed in foreign currencies are converted each
business day into U.S. dollars based upon current exchange rates. Purchases
and sales of foreign investment securities and income and expenses are
converted into U.S. dollars based upon currency exchange rates prevailing on
the respective dates of such transactions. Recognized gains or losses on
investment transactions attributable to changes in foreign currency exchange
rates are recorded for financial statement purposes as net realized gains and
losses on investments. That portion of unrealized gains and losses on
investments that result from fluctuations in foreign currency exchange rates
are not separately disclosed.
G Written Options -- The Portfolio may write call or put options for which
premiums are received and are recorded as liabilities, and are subsequently
adjusted to the
15
<PAGE>
STRATEGIC INCOME PORTFOLIO AS OF APRIL 30, 1999
NOTES TO FINANCIAL STATEMENTS CONT'D
current value of the options written. Premiums received from writing options
which expire are treated as realized gains. Premiums received from writing
options which are exercised or are closed are offset against the proceeds or
amount paid on the transaction to determine the realized gain or loss. If a
put option is exercised, the premium reduces the cost basis of the securities
purchased by the Portfolio. The Portfolio as writer of an option may have no
control over whether the underlying securities may be sold (call) or
purchased (put) and as a result bears the market risk of an unfavorable
change in the price of the securities underlying the written option.
H Forward Foreign Currency Exchange Contracts -- The Portfolio may enter into
forward foreign currency exchange contracts for the purchase or sale of a
specific foreign currency at a fixed price on a future date. Risks may arise
upon entering these contracts from the potential inability of counterparties
to meet the terms of their contracts and from movements in the value of a
foreign currency relative to the U.S. dollar. The Portfolio will enter into
forward contracts for hedging purposes as well as non-hedging purposes. The
forward foreign currency exchange contracts are adjusted by the daily
exchange rate of the underlying currency and any gains or losses are recorded
for financial statement purposes as unrealized until such time as the
contracts have been closed.
I Reverse Repurchase Agreements -- The Portfolio may enter into reverse
repurchase agreements. Under such an agreement, the Portfolio temporarily
transfers possession, but not ownership, of a security to a counterparty, in
return for cash. At the same time, the Portfolio agrees to repurchase the
security at an agreed-upon price and time in the future. The Portfolio may
enter into reverse repurchase agreements for temporary purposes, such as to
fund withdrawals, or for use as hedging instruments where the underlying
security is denominated in a foreign currency. As a form of leverage, reverse
repurchase agreements may increase the risk of fluctuation in the market
value of the Portfolio's assets or in its yield. Liabilities to
counterparties under reverse repurchase agreements are recognized in the
Statement of Assets and Liabilities at the same time at which cash is
received by the Portfolio. The securities underlying such agreements continue
to be treated as owned by the Portfolio and remain in the Portfolio of
investments. Interest charged on amounts borrowed by the Portfolio under
reverse repurchase agreements is accrued daily and offset against interest
income for financial statement purposes.
J Deferred Organization Expenses -- Costs incurred by the Portfolio in
connection with its organization are being amortized on the straight-line
basis over five years.
K Use of Estimates -- The preparation of the financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities at the date of the financial statements and the reported amounts
of income and expenses during the reporting period. Actual results could
differ from those estimates.
L Other -- Investment transactions are accounted for on a trade date basis.
2 Investment Adviser Fee and Other Transactions with Affiliates
- -------------------------------------------
The investment adviser fee is earned by Boston Management and Research (BMR),
a wholly-owned subsidiary of Eaton Vance Management (EVM), as compensation
for management and investment advisory services rendered to the Portfolio.
The fee is based upon a percentage of average daily net assets plus a
percentage of gross income (i.e., income other than gains from the sale of
investments). Such percentages are reduced as average daily net assets exceed
certain levels. For the six months ended April 30, 1999, the fee was
equivalent to 0.54% (annualized) of the Portfolio's average net assets for
such period and amounted to $354,183. An administration fee, computed at an
effective annual rate of 0.15% of average daily net assets was also paid to
BMR for administrative services and office facilities. Such fee amounted to
$99,693 for the six months ended April 30, 1999.
Except as to Trustees of the Portfolio who are not members of EVM's or BMR's
organization, officers and Trustees receive remuneration for their services
to the Portfolio out of such investment adviser fee. Trustees of the
Portfolio that are not affiliated with the Investment Adviser may elect to
defer receipt of all or a portion of their annual fees in accordance with the
terms of the Trustees Deferred Compensation Plan. For the six months ended
April 30, 1999, no significant amounts have been deferred. Certain of the
officers and Trustees of the Portfolios are officers of the above
organizations.
3 Line of Credit
- -------------------------------------------
The Portfolio participates with other portfolios and funds managed by BMR or
EVM and its affiliates in a $130
16
<PAGE>
STRATEGIC INCOME PORTFOLIO AS OF APRIL 30, 1999
NOTES TO FINANCIAL STATEMENTS CONT'D
million unsecured line of credit agreement with a group of banks. The
portfolio may temporarily borrow from the line of credit to satisfy
redemption requests or settle investment transactions. Interest is charged to
each portfolio or fund based on its borrowings at an amount above the
Eurodollar rate or federal funds rate. In addition, a fee computed at an
annual rate of 0.10% on the daily unused portion of the line of credit is
allocated among the participating portfolios and funds at the end of each
quarter. The Portfolio did not have any significant borrowings or allocated
fees during the period.
4 Investment Transactions
- -------------------------------------------
The Portfolio invests primarily in foreign government and U.S. Government
debt securities. The ability of the issuers of the debt securities to meet
their obligations may be affected by economic developments in a specific
industry or country. The Portfolio regularly invests in lower rated and
comparable quality unrated high yield securities. These investments have
different risks than investments in debt securities rated investment grade
and held by the Portfolio. Risk of loss upon default by the borrower is
significantly greater with respect to such debt securities than with other
debt securities because these securities are generally unsecured and are more
sensitive to adverse economic conditions, such as recession or increasing
interest rates, than are investment grade issuers. At April 30, 1999, the
Portfolio had invested approximately 26.1% of its net assets or approximately
$35,959,000 in high yield securities. Purchases and sales of investments,
other than short-term obligations, for the six months ended April 30, 1999
were as follows:
<TABLE>
<CAPTION>
PURCHASES
<S> <C>
- -------------------------------------------------------
Investments (non-U.S. Government) $ 33,100,168
U.S. Government Securities 3,601,875
- -------------------------------------------------------
$ 36,702,043
- -------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
SALES
<S> <C>
- -------------------------------------------------------
Investments (non-U.S. Government) $ 37,042,578
U.S. Government Securities 11,834,766
- -------------------------------------------------------
$ 48,877,344
- -------------------------------------------------------
</TABLE>
5 Financial Instruments
- -------------------------------------------
The Portfolio regularly trades in financial instruments with off-balance
sheet risk in the normal course of its investing activities to assist in
managing exposure to various market risks. These financial instruments
include written options, forward foreign currency contracts and financial
futures contracts and may involve, to a varying degree, elements of risk in
excess of the amounts recognized for financial statement purposes. The
notional or contractual amounts of these instruments represent the investment
the Portfolio has in particular classes of financial instruments and does not
necessarily represent the amounts potentially subject to risk. The
measurement of the risks associated with these instruments is meaningful only
when all related and offsetting transactions are considered. A summary of
obligations under these financial instruments at April 30, 1999 is as
follows:
<TABLE>
<CAPTION>
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS
- -----------------------------------------------------------------------
SALES
- -----------------------------------------------------------------------
NET
UNREALIZED
SETTLEMENT IN EXCHANGE FOR APPRECIATION
DATE(S) DELIVER (IN U.S. DOLLARS) (DEPRECIATION)
<C> <S> <C> <C>
- -----------------------------------------------------------------------
6/22/99 Euro
6,327,000 $ 6,721,185 $ 34,849
6/30/99 Japanese Yen
1,036,991,267 8,736,867 40,666
5/25/99 Republic of Korea Won
3,700,000,000 3,110,987 (97,957)
- -----------------------------------------------------------------------
$ 18,569,039 $(22,442)
- -----------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
PURCHASES
- -----------------------------------------------------------------------
NET
UNREALIZED
SETTLEMENT DELIVER APPRECIATION
DATE(S) IN EXCHANGE FOR (IN U.S. DOLLARS) (DEPRECIATION)
<C> <S> <C> <C>
- -----------------------------------------------------------------------
5/28/99 Australian Dollar
2,800,000 $ 1,853,743 $ 23,803
5/06/99 Japanese Yen
107,991,267 903,111 (1,604)
5/12/99 Philippine Peso
62,560,000 1,642,055 58,859
- -----------------------------------------------------------------------
$ 4,398,909 $ 81,058
- -----------------------------------------------------------------------
</TABLE>
17
<PAGE>
STRATEGIC INCOME PORTFOLIO AS OF APRIL 30, 1999
NOTES TO FINANCIAL STATEMENTS CONT'D
<TABLE>
<CAPTION>
FUTURES CONTRACTS
- ----------------------------------------------------------------------------------
NET UNREALIZED
EXPIRATION APPRECIATION
DATE(S) CONTRACTS POSITION (DEPRECIATION)
<C> <S> <C> <C>
- ----------------------------------------------------------------------------------
6/08/99 35 Euro 10 year Bond Futures Long $ 88,294
6/15/99 84 Australian 10 year Bond Futures Long 49,427
6/21/99 13 Japanese 10 year Bond Futures Short (428,222)
6/30/99 73 US 30 year Bond Futures Long (54,454)
- ----------------------------------------------------------------------------------
$ (344,955)
- ----------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
WRITTEN CALL OPTIONS
- ---------------------------------------------------------------------------------
NUMBER OF CONTRACTS PREMIUMS
<S> <C> <C>
- ---------------------------------------------------------------------------------
Outstanding, beginning of period 160 $ 188,125
- ---------------------------------------------------------------------------------
Options expired (160) (188,125)
- ---------------------------------------------------------------------------------
Outstanding, end of period 0 $ 0
- ---------------------------------------------------------------------------------
</TABLE>
At April 30, 1999, the Portfolio had sufficient cash and/or securities to
cover potential obligations arising from open futures and forward contracts,
as well as margin requirements on open futures contracts.
6 Federal Income Tax Basis of Investments (Unaudited)
- -------------------------------------------
The cost and unrealized appreciation/depreciation in value of the investments
owned at April 30, 1999, as computed on a federal income tax basis, were as
follows:
<TABLE>
<S> <C>
AGGREGATE COST $ 139,101,882
- -------------------------------------------------------
Gross unrealized appreciation $ 3,034,047
Gross unrealized depreciation (3,173,353)
- -------------------------------------------------------
NET UNREALIZED DEPRECIATION $ (139,306)
- -------------------------------------------------------
</TABLE>
18
<PAGE>
STRATEGIC INCOME PORTFOLIO AS OF APRIL 30, 1999
INDEPENDENT ACCOUNTANTS' REPORT
TO THE TRUSTEES AND INVESTORS
OF STRATEGIC INCOME PORTFOLIO:
- ---------------------------------------------
In our opinion, the accompanying statement of assets and liabilities, including
the portfolio of investments, and the related statements of operations and of
changes in net assets and supplementary data present fairly, in all material
respects, the financial position of Strategic Income Portfolio (the "Portfolio")
at April 30, 1999, the results of its operations for the six months then ended,
the changes in its net assets for the six months ended April 30, 1999 and the
year ended October 31, 1998, and the supplementary data for the six months ended
April 30, 1999 and each of the four years ended October 31, and for the period
from the start of business, March 1, 1994, to October 31, 1994, in conformity
with generally accepted accounting principles. These financial statements and
supplementary data (hereafter referred to as "financial statements") are the
responsibility of the Portfolio's management; our responsibility is to express
an opinion on these financial statements based on our audits. We conducted our
audits of these financial statements in accordance with generally accepted
auditing standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of securities at April 30, 1999 by
correspondence with the custodian and brokers, provide a reasonable basis for
the opinion expressed above.
PricewaterhouseCoopers LLP
Boston, Massachusetts
June 10, 1999
19
<PAGE>
EATON VANCE STRATEGIC INCOME FUND AS OF APRIL 30, 1999
INVESTMENT MANAGEMENT
EATON VANCE STRATEGIC INCOME PORTFOLIO
Officers
James B. Hawkes
President and Trustee
Mark S. Venezia
Vice President and
Portfolio Manager
James L. O'Connor
Treasurer
Alan R. Dynner
Secretary
Trustees
Jessica M. Bibliowicz
President and Chief Executive Officer
National Financial Partners
Donald R. Dwight
President, Dwight Partners, Inc.
Samuel L. Hayes, III
Jacob H. Schiff Professor of Investment
Banking Emeritus, Harvard University Graduate
School of Business Administration
Norton H. Reamer
Chairman and Chief Executive Officer,
United Asset Management Corporation
Lynn A. Stout
Professor of Law,
Georgetown University Law Center
John L. Thorndike
Former Director, Fiduciary Company Incorporated
Jack L. Treynor
Investment Adviser and Consultant
HIGH INCOME PORTFOLIO
Officers
James B. Hawkes
President and Trustee
Michael W. Weilheimer
Vice President and
Portfolio Manager
James L. O'Connor
Treasurer
Alan R. Dynner
Secretary
Independent Trustees
Jessica M. Bibliowicz
President and Chief Executive Officer,
National Financial Partners
Donald R. Dwight
President, Dwight Partners, Inc.
Samuel L. Hayes, III
Jacob H. Schiff Professor of Investment Banking
Emeritus, Harvard University Graduate School of
Business Administration
Norton H. Reamer
Chairman and Chief Executive Officer,
United Asset Management Corporation
Lynn A. Stout
Professor of Law,
Georgetown University Law Center
John L. Thorndike
Former Director, Fiduciary Company Incorporated
Jack L. Treynor
Investment Adviser and Consultant
20
