<PAGE>
The Eaton Vance Mutual Funds Trust
For the High Income Portfolio
[LOGO]
Annual Shareholder Report
March 31, 1996
Investment Adviser of High Income Portfolio
Boston Management and Research
24 Federal Street
Boston, MA 02110
Administrator
Eaton Vance Management
24 Federal Street
Boston, MA 02110
(617)482-8260
Principal Underwriter
Eaton Vance Distributors, Inc.
24 Federal Street
Boston, MA 02110
(617)482-8260
Custodian
Investors Bank & Trust Company
89 South Street
P.O. Box 1537
Boston, MA 02205-1537
Transfer Agent
First Data Investor Services Group, Inc.
BOS725
P.O. Box 1559
Boston, MA 02104
Independent Auditors
Deloitte & Touche LLP
125 Summer Street
Boston, MA 02110
<PAGE>
-------------------------------
HIGH INCOME PORTFOLIO
PORTFOLIO OF INVESTMENTS
MARCH 31, 1996
(EXPRESSED IN UNITED STATES DOLLARS)
- -------------------------------------------------------------------------------
CORPORATE BONDS AND NOTES - 93.6%
- -------------------------------------------------------------------------------
FACE
AMOUNT SECURITY VALUE
- -------------------------------------------------------------------------------
AUTOMOTIVE/TRUCK - 4.0%
$6,750,000 JPS Automotive Prod. Corp., Sr. Notes,
11.125%, 6/15/01 $ 6,682,500
3,800,000 Key Plastics, Sr. Notes, 14%, 11/15/99 3,876,000
5,035,000 Motor Wheel Corp., Senior Notes, 11.5%, 3/1/00 5,035,000
5,000,000 Terex Corp., Sr. Secured Notes,
13.75%, 5/15/02(1)
4,968,750
------------
$ 20,562,250
------------
BUILDING PRODUCTS - 3.6%
$8,250,000 Building Materials Corp., Sr. Sub. Notes,
11.75% (0% until 2000), 7/1/04 $ 6,105,000
7,100,000 Overhead Door Corp., Sr. Notes, 12.25%, 2/1/00 7,135,500
1,500,000 Southdown Inc., Sr. Sub. Notes., 10%,
3/1/06(1) 1,500,000
3,600,000 Tarkett International, Sr. Sub. Notes, 9%, 3/1/02 3,744,000
------------
$ 18,484,500
------------
CABLE - 2.3%
$4,200,000 Amer Telecasting, Sr. Disc. Notes 14.5%
(0% until 2000), 8/15/05 $ 2,761,500
3,470,000 Groupe Videotron 10.625%, 2/15/05 3,643,500
5,800,000 International CABLETEL, Inc., Sr. Disc Notes,
11.5% (0% until 2001), 2/1/06(1) 3,277,000
2,400,000 Rogers Comm. Inc., 9.125%, 1/15/06 2,322,000
------------
$ 12,004,000
------------
CHEMICALS - 7.0%
$5,000,000 Agricultural Minerals & Chemicals, Sr. Notes,
10.75%, 9/30/03 $ 5,425,000
4,503,000 GI Holdings, Sr. Discount Notes, 10%, 2/15/06(1) 4,503,000
1,448,000 GI Holdings, Sr. Disc, Notes, 0%, 10/1/98 1,154,780
5,000,000 NL Industries Inc., Sr. Sec. Notes, 11.75%,
10/15/03 5,187,500
4,250,000 NL Industries Inc., Sr. Disc. Notes, 13%
(0% until 1998), 10/15/05 3,187,500
7,850,000 Pioneer Americas Acq., Senior Notes,
13.625%, 4/1/05 8,379,875
3,800,000 Terra Industries Inc., Senior Notes, 10.5%,
6/15/05 4,123,000
3,700,000 UCC Investors, Sr. Sub. Notes, 11%, 5/1/03 3,792,500
------------
$ 35,753,155
------------
COMMUNICATIONS - 19.0%
$2,000,000 Allbritton Comm., Sr. Sub. Notes 9.75%,
11/30/07 $ 1,885,000
4,100,000 Alliance Entertainment Corp., Sr. Sub.
Notes, 11.25%, 7/15/05 4,059,000
4,000,000 Arch Communications, Sr. Disc. Notes,
10.875% (0% until 2001), 3/15/08 2,290,000
6,800,000 Australis Media LTD., Sub Disc. Notes,
14% (0% until 2000), 5/13/03 4,692,000
5,500,000 Brooks Fiber, Sr. Disc. Notes, 10.875%
(0% until 2001), 3/1/06(1) 3,190,000
2,800,000 Cablevision Systems, Sr. Sub. Notes,
9.25%, 11/1/05 2,800,000
2,400,000 Chancellor Broadcasting, Sr. Sub. Notes,
9.375%, 10/1/04 2,268,000
2,900,000 Clark USA, Inc., Senior Notes,
10.875%, 12/1/05(1) 3,030,500
4,480,000 CS Wireless Systems, Inc., 1st Mtg. Notes,
11.375% (0% until 2001), 3/1/06(1) 2,464,000
7,200,000 Dial Call Communications Inc., Sr. Red. Notes,
12.25% (0% until 1999), 4/15/04 4,536,000
8,600,000 Diamond Cable Communications Co.,
Sr. Disc. Notes, 11.75% (0% until 2000),
12/15/05 5,031,000
1,600,000 Diamond Cable Communications Co., Sr. Disc.
Notes, 13.25% (0% until 1999), 9/30/04 1,136,000
4,700,000 EZ Communications Corp, Sr. Sub. Notes,
9.75%, 12/1/05 4,676,500
5,000,000 Galaxy Telecom LP., Sr. Sub. Notes, 12.375%,
10/1/05 5,275,000
4,050,000 Granite Broadcasting Corp., Sr. Sub. Notes,
10.375%, 5/15/05 4,095,563
4,000,000 Heartland Wireless, Senior Notes 13%, 4/15/03(1) 4,420,000
1,600,000 In-Flight Phone Corp., Sr. Disc. Notes, 14%
(0% until 2002), 5/15/02 496,000
8,500,000 Marcus Cable Co., Sr. Disc. Notes, 14.25%
(0% until 2000), 12/15/05 5,440,000
2,800,000 Marcus Cable Co., Senior Debs., 11.875%, 10/1/05 2,982,000
4,875,000 MFS Communications Corp., Sr. Disc. Notes,
8.875% (0% until 2001), 11/15/06 3,022,500
3,200,000 Mobilemedia Corp., Sr. Sub. Notes, 9.375%,
11/1/07 3,136,000
6,500,000 Pricellular Wireless Comm., Sr Sub. Disc.
Nts. 12.25% (0% until 1998), 10/1/03 5,102,500
3,600,000 Sullivan Broadcasting, Sr. Sub. Notes,
10.25%, 12/15/2005(1) 3,564,000
12,153,200 United International Holdings Inc., Sr.
Sec. Disc. Notes, 0%, 11/15/99 7,838,814
8,400,000 Videotron Holdings, Sr. Disc. Notes, 11%
(0% until 2000), 8/15/05 5,334,000
4,000,000 Young Broadcasting Corp., Sr. Sub. Notes,
10.125%, 2/15/05 4,040,000
------------
$ 96,804,377
------------
ENERGY - 5.7%
$2,850,000 El Paso Electric Co., 1st Mtg. Notes,
9.4%, 5/1/11 $ 2,885,625
3,000,000 Gulf Canada Resources Ltd., Sr. Sub. Notes,
9.25%, 1/15/04 3,045,000
6,200,000 MCV Subordinated Secured Lease Obligations,
11.75%, 7/23/05 6,543,418
2,400,000 Mesa Capital Corp., Sec. Disc. Notes,
12.75%, 6/30/98 2,346,000
3,086,036 Midland Cogeneration Venture, Sr. Sec. Lease
Oblig., 10.33%, 7/23/02 3,251,910
3,600,000 Plains Resources, Sr. Sub. Notes, 10.25%,
3/15/06(1) 3,609,000
3,300,000 Trans Texas Gas Corp., Sr. Sec. Notes,
11.5%, 6/15/02 3,250,500
2,420,000 Tuboscope Vetco, Sr. Sub. Debs., 10.75%,
4/15/03 2,528,900
1,450,000 Vintage Petro, Sr. Sub. Notes, 9%, 12/15/05 1,413,750
------------
$ 28,874,103
------------
FOOD/RESTAURANTS/HOTELS - 7.3%
$4,000,000 Courtyard by Marriott, Senior Notes,
10.75%, 2/1/08(1) $ 3,960,000
8,250,000 Flagstar Corp., Sub. Debs., 10.75%, 9/15/01 7,425,000
3,900,000 HMC Acquisition Properties, Senior Notes,
9%, 12/15/07(1) 3,685,500
2,762,000 PM Holdings Corp., 11.5% (0% until 2000), 9/1/05 1,574,340
6,075,000 Purina Mills, Sr. Sec. Sub. Notes,
10.25%, 9/1/03 6,226,875
3,735,000 Seven Up / RC Bottling Co., Sr. Sec. Notes,
11.5%, 8/1/99* 2,241,000
7,000,000 Specialty Foods Corp., Senior Notes, 10.25%,
8/15/01 6,335,000
5,300,000 Van De Kamps, Inc., Sr. Sub. Notes, 12%,
9/15/05 5,671,000
------------
$ 37,118,715
------------
HEALTHCARE - 3.8%
$6,800,000 Dade International Inc., Sr. Sub. Notes,
13%, 2/1/05 $ 7,820,000
6,100,000 Ordna Corp., Sr. Sub. Notes, 11.375%, 8/15/04 6,862,500
1,000,000 Regency Health, Sr. Sub. Notes, 9.875%,
10/15/02 1,015,000
4,000,000 Unilab Corp., Senior Notes, 11%, 4/1/06 3,940,000
------------
$ 19,637,500
------------
HIGH TECH - 2.5%
$2,719,000 Blue Bell Funding Inc., Sec. Ext. Notes,
11.85%, 5/1/99 $ 2,583,050
5,500,000 GS Technologies Corp., Senior Notes, 12.25%,
10/1/05 5,527,500
3,000,000 Unisys Corp., Senior Notes, Variable Rates,
7/1/97 3,195,000
1,600,000 Unisys Corp., Senior Notes, 12%, 4/15/03(1) 1,581,232
------------
$ 12,886,782
------------
METALS - 3.2%
$3,840,000 Acme Metals Inc., Sr. Notes, 12.5%, 8/1/02 $ 3,964,800
4,000,000 Gulf States Steel, First Mtg. Notes,
13.5%, 4/15/03 3,660,000
3,000,000 Kaiser Aluminum, Sr. Sub. Notes, 12.75%,
2/1/03 3,180,000
1,500,000 Maxxam Group Inc., Sr. Sec. Notes, 11.25%,
8/1/03 1,425,000
2,025,000 Republic Engineered Steels Inc., First
Mtg., 9.875%, 12/15/01 1,852,875
2,105,000 Ucar Global Enterprises, Sr. Sub.
Notes, 12%, 1/15/05 2,420,750
------------
$ 16,503,425
------------
MANUFACTURING/MACHINERY - 9.0%
$6,000,000 Applied Extrusion Inc., Senior Notes,
11.5%, 4/1/02 $ 6,210,000
3,300,000 Day International Group, Inc., Sr. Sub.
Notes, 11.125%, 6/1/05 3,415,500
2,250,000 Dictaphone Corp., Sr. Sub. Notes, 11.75%,
8/1/05 2,250,000
3,225,000 Essex Group, Inc., Senior Notes, 10%, 5/1/03 3,257,250
2,850,000 Howmet Corp., Sr. Sub. Notes, 10%, 12/1/03(1) 3,013,875
5,550,000 Monarch Acquisition Corp., Senior Notes,
12.5%, 7/1/03 5,938,500
5,500,000 Newflo Corp., Sub. Notes, 13.25%, 11/15/02 5,775,000
4,750,000 Plastic Specialties & Tech, Sr. Sec. Notes,
11.25%, 12/1/03 4,750,000
2,000,000 RBX Corp., Sr. Sub. Notes, 11.25%, 10/15/05(1) 1,950,000
4,800,000 Shared Tech/Fairchild 12.25% (0% until 1999),
3/1/06(1) 3,408,000
5,250,000 Waters Tech. Corp., Sr. Sub. Notes, 12.75%,
9/30/04 6,273,750
------------
$ 46,241,875
------------
MISCELLANEOUS - 4.5%
$4,000,000 Alliant Tech Systems Inc., Sr. Sub. Notes,
11.75%, 3/1/03 $ 4,400,000
2,400,000 Imax Corp., Senior Notes, 10% (7% until 1997),
3/1/01 2,388,000
4,850,000 Roadmaster Industries Inc., Sr. Sub. Notes,
11.75%, 7/15/02 3,589,000
6,900,000 Selmer Company, Inc., Sr. Sub. Notes, 11%,
5/15/05 7,176,000
5,000,000 Williamhouse-Regency of Del., Sr. Sub. Deb.,
13%, 11/15/05(1) 5,525,000
------------
$ 23,078,000
------------
PAPER/PACKAGING - 7.6%
$2,400,000 Container Corp., Sr. Notes (Ser. B),
10.75%, 5/1/02 $ 2,454,000
3,907,613 Fort Howard Corp., Sr. Sec. Notes,
11%, 1/2/02 4,102,994
4,100,000 Gaylord Container Corp., Sr. Sub. Disc.
Debs., 12.75%, 5/15/05 4,141,000
1,500,000 Portola Packaging Corp., Senior Notes,
10.75%, 10/1/05 1,575,000
3,665,000 Repap Wisconsin, 2nd Party Sr. Sec. Notes,
9.875%, 5/1/06 3,353,475
5,250,000 Riverwood International, Sr. Sub. Notes,
10.875%, 4/1/08 5,236,875
3,000,000 S.D. Warren Company Inc., Sr. Sub. Notes,
12%, 12/15/04 3,165,000
2,500,000 Silgan Corp., Sr. Notes,
13.25%, 12/15/02 2,450,000
1,500,000 Silgan Corp., Sr. Sub. Notes,
11.75%, 6/15/02 1,597,500
4,500,000 Stone Container Corp., First Mtg. Notes,
10.75%, 10/1/02 4,466,250
3,200,000 Stone Container Corp., Sr. Notes, 12.625%,
7/15/98 3,376,000
2,950,000 U.S. Can Company, Sr. Sub. Notes, 13.5%,
1/15/02 3,127,000
------------
$ 39,045,094
------------
RECREATION - 4.0%
$4,000,000 AMF Group, Inc., Sr. Disc. Notes, 10.875%,
3/15/06(1) $ 3,980,000
800,000 AMF Group, Inc., Sr. Disc. Notes, 12.25%
(0% until 2000), 3/15/06(1) 436,000
5,000,000 Aztar Corp., Sr. Sub. Notes, 13.75%, 10/1/04 5,575,000
3,000,000 Trump Holdings & Funding, Senior Notes,
15.5%, 6/15/05 3,435,000
6,558,515 Trump Taj Mahal, First Mtg Bonds, 11.35%
(PIK), 11/15/99 6,894,639
------------
$ 20,320,639
------------
RETAILING - 7.3%
$5,600,000 Apparel Retailers Inc., Sr. Disc. Debs.,
12.75% (0% until 1998), 8/15/05 $ 3,920,000
6,575,000 Brunos, Inc., Sr. Sub. Notes, 10.5%, 8/1/05 6,312,000
4,200,000 Duane Reade, G.P., Sr. Notes, 12%, 9/15/02 3,990,000
2,000,000 Knoll, Inc., Sr. Sub. Notes, 10.875%, 3/15/06(1) 2,040,000
3,050,000 Levitz Furniture Corp., Sr. Sub. Notes,
9.625%, 7/15/03 1,891,000
2,000,000 Pathmark Stores Inc., Jr. Sub., Disc.
Notes, 11.625%, 6/15/02 1,950,000
8,500,000 Pathmark Stores Inc., Jr. Sub., Disc.
Notes, 10.75% (0% until 1999), 11/1/03 5,057,500
2,000,000 Ralphs Grocery Company, Inc., Sr. Sub. Notes,
11%, 6/15/05 1,800,000
5,500,000 Ralphs Grocery Co., Sr. Sub Notes, 13.75%,
6/15/05 5,610,000
4,980,000 Specialty Retailers, Inc., Sr. Sub. Notes,
11%, 8/15/03 4,855,500
------------
$ 37,426,000
------------
TEXTILES - 2.3%
$2,000,000 CMI Industries Inc., Sr. Sub. Notes, 9.5%,
10/1/03 $ 1,580,000
5,800,000 Dan River Inc., Sr. Sub. Notes, 10.125%,
12/15/03 5,510,000
4,500,000 Westpoint Stevens, Sr. Sub. Debs., 9.375%,
12/15/05 4,443,750
------------
$ 11,533,750
------------
TRANSPORTATION - 0.5%
$2,400,000 Alvey Systems Inc., Sr. Sub. Notes 11.375%,
1/31/03(1) $ 2,502,000
------------
TOTAL CORPORATE BONDS AND NOTES
(IDENTIFIED COST, $476,227,065) $478,776,165
------------
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PREFERRED STOCK - 1.2%
- ------------------------------------------------------------------------------
SHARES/
WARRANTS SECURITY VALUE
- ------------------------------------------------------------------------------
40,000 Cablevision Systems Corp.,
11.125% (PIK), 2/15/96 $ 4,000,000
48,000 SD Warren Company W / Warrants, 14%, 12/15/06* 1,488,000
32,000 Terex Corp., 13% CV. Pfd w/warrants(1)* 800,000
------------
TOTAL PREFERRED STOCK
(IDENTIFIED COST, $6,041,600) $ 6,288,000
------------
- ------------------------------------------------------------------------------
COMMON STOCKS, WARRANTS AND RIGHTS - 0.8%
- ------------------------------------------------------------------------------
SHARES/
WARRANTS SECURITY VALUE
- ------------------------------------------------------------------------------
AUTO/TRUCK - 0.3%
214,839 Bucyrus-Erie Company, Common* $ 1,718,712
------------
CHEMICALS - 0.0%
9,908 UCC Invt Hldgs, Cl A Common+* $ 111,465
------------
COMMUNICATIONS - 0.0%
2,600 American Telecasting, Wts.* $ 88,400
7,200 Dial Call Communications, Exp. 4/15/04
Wts.(SD)+ 1,800
1,600 In Flight Phone Corp., Wts. Exp. 8/31/2002+* 0
7,840 United International Hldg. Inc., Wts.
Exp. 11/15/99+* 235,200
------------
$ 325,400
------------
FOOD - 0.0%
1,380 Servam Corp., Common* $ 0
12,276 Servam Corp., $2.00 Wts. Exp. 4/1/2001+* 0
2,760 Servam Corp., $4.50 Wts. Exp. 4/1/2001+* 0
48,000 Specialty Foods Acquisition, Common(1)* 36,000
------------
$ 36,000
------------
INDUSTRIAL - 0.0%
40,000 Thermadyne Holdings Corp., Common+* $ 400
------------
MANUFACTURING - 0.3%
101,973 Pullman Company, Common Stock+* $ 815,784
22,500 Southdown Inc., Wts. Exp. 10/31/96+* 95,625
10,425 Terex Corporation, Rights, Exp. 8/1/96+* 521
5,370 Terex Corporation, Rights Exp. 7/1/97+* 537
32,000 Terex Corp., Wts. Exp. 12/31/00+* 432,000
95,000 Triangle Wire & Cable, Inc., Common+* 190,000
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$ 1,534,467
-------------
METALS - 0.0%
4,000 Gulf States Steel, Wts.(1)* $ 200
------------
MISCELLANEOUS - 0.0%
6,800 Australis Media, Wts.+* $ 0
------------
<PAGE>
PAPER / PACKAGING - 0.0%
48,000 SD Warren Company, Wts. Exp. 12/15/06* $ 216,000
------------
RETAILING - 0.0%
6,000 Waxman Industries, Wts. Exp. 9/1/96+* $ 60
------------
TOTAL COMMON STOCKS, WARRANTS AND RIGHTS
(IDENTIFIED COST, $9,361,823) $ 3,942,704
------------
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SHORT-TERM OBLIGATION -- 3.3%
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FACE
AMOUNT SECURITY VALUE
- ------------------------------------------------------------------------------
COMMERCIAL PAPER
$16,805,000 Prudential Funding
5.45%, 4/1/96, at amortized cost $ 16,805,000
------------
TOTAL INVESTMENTS (IDENTIFIED COST, $508,435,488) $505,811,869
OTHER ASSETS, LESS LIABILITIES -- 1.1% 5,535,270
------------
NET ASSETS - 100% $511,347,139
============
*Non-income producing security.
+Restricted Security (Note 6).
(1)Security exempt from registration under Rule 144A of the Securities Act of
1933. These securities may be resold in transactions exempt from
registration, normally to qualified institutional buyers. At March 31, 1996,
the value of these securities amounted to $67,444,057 or 13.2% of net assets.
See notes to financial statements
<PAGE>
-------------------------------
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
- ------------------------------------------------------------------------------
March 31, 1996
(Expressed in United States Dollars)
- ------------------------------------------------------------------------------
ASSETS:
Investments, at value (Note 1A) (identified cost,
$508,435,488) $505,811,869
Cash 43,941
Receivable for investments sold 1,702,455
Interest receivable 11,869,419
Deferred organization expenses (Note 1D) 14,292
------------
Total assets $519,441,976
LIABILITIES:
Payable for investments purchased $8,075,666
Payable to affiliate --
Trustees' fees 5,327
Accrued expenses 13,844
----------
Total liabilities 8,094,837
------------
NET ASSETS applicable to investors' interest in Portfolio $511,347,139
============
SOURCES OF NET ASSETS:
Net proceeds from capital contributions and
withdrawals $513,970,758
Unrealized depreciation of investments (computed
on the basis of identified cost) (2,623,619)
------------
Total $511,347,139
============
See notes to financial statements
<PAGE>
STATEMENT OF OPERATIONS
- ------------------------------------------------------------------------------
For the Year Ended March 31, 1996
(Expressed in United States Dollars)
- ------------------------------------------------------------------------------
INVESTMENT INCOME:
Interest income $54,348,850
Expenses --
Investment adviser fee (Note 2) $3,094,793
Compensation of Trustees not members of the
Investment Adviser's organization 18,861
Custodian fee (Note 2) 218,175
Legal and accounting services 91,555
Amortization of organization expenses (Note 1D) 4,186
Miscellaneous 24,628
-----------
Total expenses 3,452,198
-----------
Net investment income $50,896,652
-----------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized loss on investment transactions
(identified cost basis) $(5,151,523)
Change in unrealized appreciation on investments 17,257,761
-----------
Net realized and unrealized gain on investments $12,106,238
-----------
Net increase in net assets from operations $63,002,890
===========
See notes to financial statements
<PAGE>
STATEMENTS OF CHANGES IN NET ASSETS
(Expressed in United States Dollars)
- ------------------------------------------------------------------------------
YEAR ENDED MARCH 31,
------------------------------------
1996 1995*
----------------- -----------------
INCREASE (DECREASE) IN NET ASSETS:
From operations --
Net investment income $ 50,896,652 $ 37,644,090
Net realized loss on investment
transactions (5,151,523) (13,221,664)
Change in unrealized appreciation
(depreciation) of investments 17,257,761 (7,038,030)
----------- ----------------
Net increase in net assets from
operations $ 63,002,890 $ 17,384,396
----------- ----------------
Capital transactions --
Contributions $172,948,713 $575,199,203
Withdrawals (167,156,279) (150,131,814)
----------- ----------------
Increase in net assets
resulting from capital
transactions $ 5,792,434 $425,067,389
----------- ----------------
Total increase in net assets $ 68,795,324 $442,451,785
NET ASSETS:
At beginning of year 442,551,815 100,030
----------- ----------------
At end of year $511,347,139 $442,551,815
============ ============
*For the period from the start of business, June 1, 1994, to March 31, 1995.
- ------------------------------------------------------------------------------
SUPPLEMENTARY DATA
- ------------------------------------------------------------------------------
YEAR ENDED MARCH 31,
------------------------------------
1996 1995*
----------------- -----------------
RATIOS (As a percentage of average
daily net assets):
Expenses 0.71% 0.70%+
Net investment income 10.41% 10.63%+
PORTFOLIO TURNOVER 88% 53%
+Computed on an annualized basis.
*For the period from the start of business, June 1, 1994, to March 31, 1995.
See notes to financial statements
<PAGE>
-------------------------------
NOTES TO FINANCIAL STATEMENTS
(Expressed in United States Dollars)
(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. The following is a summary of significant accounting policies
of the Portfolio. The policies are in conformity with accounting principles
generally accepted in the United States of America.
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 are 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 United States 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 Internal Revenue 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.
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. USE OF ESTIMATES -- The preparation of financial statements in conformity
with accounting principles generally accepted in the United States of America
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities at the date of the financial statements and
the reported amounts of revenue and expense during the reporting period.
Actual results could differ from those estimates.
G. OTHER -- Investment transactions are accounted for on a trade date basis.
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(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 year ended March 31, 1996, the fee was equivalent to 0.63% (annualized) of
the Portfolio's average daily net assets for such period and amounted to
$3,094,793. 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), serves as custodian of the Portfolio. Prior to November
10, 1995, IBT was an affiliate of EVM and BMR. 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. No
significant credit balances were used to reduce the Portfolio's custody fees.
Certain of the officers and Trustees of the Portfolio are officers and
directors/trustees of the above organizations. 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
Trustee Deferred Compensation Plan. For the year ended March 31, 1996, no
significant amounts have been deferred.
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(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 $459,046,658 and $412,888,560, respectively.
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(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.
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(5) FEDERAL INCOME TAX BASIS OF INVESTMENTS
The cost and unrealized depreciation/appreciation in value of the investments
owned at March 31, 1996, as computed on a federal income tax basis, were as
follows:
Aggregate cost $508,435,488
============
Gross unrealized depreciation $ 17,405,536
Gross unrealized appreciation 14,781,917
------------
Net unrealized depreciation $ 2,623,619
============
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(6) RESTRICTED SECURITIES
At March 31, 1996, the Portfolio owned the following securities (constituting
0.4% of net assets) which were restricted as to public resale and not
registered under the Securities Act of 1933 (excluding Rule 144A securities).
The Portfolio 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.
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<PAGE>
<TABLE>
<CAPTION>
COMMON STOCKS, WARRANTS AND RIGHTS
- ----------------------------------
DESCRIPTION DATES OF ACQUISITION SHARES COST FAIR VALUE
- ----------- -------------------- ------ ---- ----------
<S> <C> <C> <C> <C>
Australis Media, Wts. 5/26/95 6,800 $ 0 $ 0
Dial Call Communications, Wts.,
Exp. 4/15/04 10/04/94 7,200 0 1,800
In Flight Phone Corp., Wts., Exp. 8/31/2002 11/28/95 1,600 0 0
Pullman Company, Common Stock 2/22/95 101,973 2,949,328 815,784
Servam Corp., $2.00 Wts., Exp. 4/1/01 12/15/87 12,276 0 0
Servam Corp., $4.50 Wts., Exp. 4/1/2001 12/15/87 2,760 0 0
Southdown Inc., Wts., Exp. 10/31/96 10/28/91 22,500 67,500 95,625
Terex Corp., Rights, Exp. 7/1/97 11/07/94 5,370 0 537
Terex Corp., Rights, Exp. 8/1/96 8/20/92, 7/01/94, 8/02/94 1,125 0 56
Terex Corp., Rights, Exp. 8/1/96 7/24/92 9,300 0 465
Terex Corp., Wts., Exp. 12/31/00 12/15/93 32,000 6,400 432,000
Thermadyne Holdings Corp., Common 4/03/89 40,000 28,800 400
Triangle Wire & Cable Inc., Common 3/17/94 95,000 2,250,000 190,000
UCC Invt. Holdings, Cl. A Common 10/24/86 9,908 9,834 111,465
United International Hldg., Inc., Wts. 10/01/91 7,840 222,186 235,200
Waxman Industries, Wts., Exp. 9/1/96 10/01/91 6,000 6,000 60
---------- ----------
$5,540,048 $1,883,392
========== ==========
</TABLE>
<PAGE>
INDEPENDENT AUDITORS' REPORT
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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, 1996, and the related statement of operations for the year then ended and
the statements of changes in net assets and the supplementary data for the
year then ended and for the period from the start of business, June 1, 1994,
to March 31, 1995 (all expressed in United States dollars). These financial
statements and supplementary data are the responsibility of the Portfolio's
management. Our responsibility is to express an opinion on these financial
statements and supplementary data based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. 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, 1996 by correspondence with the
custodian and brokers; where replies were not received from brokers we
performed other auditing procedures. An audit also includes assessing the
accounting principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation. We believe
that our audits provide a reasonable basis for our opinion.
In our opinion, such financial statements and supplementary data present
fairly, in all material respects, the financial position of High Income
Portfolio at March 31, 1996, the results of its operations, changes in its net
assets, and its supplementary data for the respective stated periods in
conformity with accounting principles generally accepted in the United States
of America.
DELOITTE & TOUCHE
GRAND CAYMAN, CAYMAN ISLANDS
BRITISH WEST INDIES
APRIL 30, 1996
<PAGE>
INVESTMENT MANAGEMENT FOR HIGH INCOME PORTFOLIO
OFFICERS INDEPENDENT TRUSTEES
M. DOZIER GARDNER DONALD R. DWIGHT
President, Trustee President, Dwight Partners, Inc.
Chairman, Newspapers of New England, Inc.
JAMES B. HAWKES
Vice President, Trustee SAMUEL L. HAYES, III
Jacob H. Schiff Professor of
HOOKER TALCOTT, JR. Investment Banking,
Vice President and Harvard University Graduate School
Portfolio Manager of Business Administration
WILLIAM CHISHOLM NORTON H. REAMER
Vice President President and Director, United Asset
Management Corporation
RAYMOND O'NEILL
Vice President JOHN L. THORNDIKE
Vice President and Director,
MICHEL NORMANDEAU Fiduciary Company Incorporated
Vice President
JACK L. TREYNOR
MICHAEL W. WEILHEIMER Investment Adviser and Consultant
Vice President
JAMES L. O'CONNOR
Treasurer
THOMAS OTIS
Secretary
