<PAGE>
EATON VANCE MUNICIPALS TRUST
For the Marathon & Classic High Income Fund Semi-Annual Report
[LOGO]
September 30, 1996
Investment Adviser of
High Income Portfolio
Boston Management and Research
24 Federal Street
Boston, MA 02110
Administrator of
EV Classic & Marathon
High Income Fund
Eaton Vance Management
24 Federal Street
Boston, MA 02110
Principal Underwriter
Eaton Vance Distributors, Inc.
24 Federal Street
Boston, MA 02110
(617) 482-8260
Custodian
Investors Bank & Trust Company
89 South Street
P.O. Box 1537
Boston, MA 02205-1537
Transfer Agent
First Data Investor Services Group
Attn: Eaton Vance Funds
P.O. Box 5123
Westborough, MA 01581-5123
Independent Auditors
Deloitte & Touche LLP
125 Summer Street
Boston, MA 02110
<PAGE>
------------------------
HIGH INCOME PORTFOLIO
PORTFOLIO OF INVESTMENTS
SEPTEMBER 30, 1996
(UNAUDITED)
- --------------------------------------------------------------------------------
CORPORATE BONDS AND NOTES - 93.5%
- --------------------------------------------------------------------------------
FACE
AMOUNT SECURITY VALUE
- --------------------------------------------------------------------------------
AUTOMOTIVE/TRUCK - 2.7%
$ 4,150,000 JPS Automotive Prod. Corp.,
Sr. Notes, 11.125%, 6/15/01 $ 4,274,500
5,500,000 Key Plastics Corp., Sr. Notes, 14%, 11/15/99 5,692,500
800,000 Speedy Muffler King Inc., Senior Notes, 10.875%,
10/1/06 824,000
5,000,000 Terex Corp., Sr. Secured Notes, 13.75%, 5/15/02(1) 5,225,000
------------
$ 16,016,000
------------
BUILDING PRODUCTS - 3.1%
$ 4,250,000 Building Materials Corp., Sr. Sub. Notes,
11.75% (0% until 2000), 7/1/04 $ 3,421,250
8,450,000 Overhead Door Corp., Sr. Notes, 12.25%, 2/1/00 9,126,000
1,750,000 Southdown Inc., Sr. Sub. Notes,
10%, 3/1/06 1,767,500
3,600,000 Tarkett International, Inc., Sr. Sub. Notes,
9%, 3/1/02 3,690,000
------------
$ 18,004,750
------------
CABLE - 7.1%
$ 1,800,000 Amer Telecasting Corp., Sr. Disc. Notes, 14.5%
(0% until 2000), 8/15/05 $ 1,170,000
2,000,000 Cablevision Systems Corp., Sr. Sub. Notes, 10.75%,
4/1/04 2,055,000
2,800,000 Cablevision Systems Corp., Sr. Sub. Notes, 9.25%,
11/1/05 2,709,000
7,000,000 Diamond Cable Communications Co., Sr. Disc. Notes,
11.75% (0% until 2000), 12/15/05 4,515,000
1,600,000 Diamond Cable Communications Co., Sr. Disc. Notes,
13.25% (0% until 1999), 9/30/04 1,216,000
3,470,000 Groupe Videotron, Ltd., Senior Notes, 10.625%,
2/15/05 3,773,625
5,800,000 International CABLETEL, Inc., Sr. Disc Notes,
11.5% (0% until 2001), 2/1/06 3,480,000
8,500,000 Marcus Cable Co., Sr. Disc. Notes, 14.25%
(0% until 2000), 12/15/05 5,780,000
2,800,000 Marcus Cable Co., Senior Debs., 11.875%, 10/1/05 2,961,000
12,153,200 United International Holdings Inc., Sr. Sec. Disc.
Notes, 0%, 14%, 11/15/99 8,507,240
8,400,000 Videotron Holdings, PLC, Inc.,
Sr. Disc. Notes, 11% (0% until 2005), 8/15/05 5,565,000
------------
$ 41,731,865
------------
CHEMICALS - 6.1%
$ 5,000,000 Agricultural Minerals & Chemicals, Inc., Sr. Notes,
10.75%, 9/30/03 $ 5,300,000
5,750,000 GI Holdings Corp., Sr. Disc. Notes,
10%, 2/15/06 5,750,000
6,250,000 Pioneer Americas Acq., Senior Notes,
13.375%, 4/1/05 6,890,625
3,200,000 Sterling Chemicals Inc., Sr. Sub. Notes,
11.75%, 8/15/06 3,344,000
3,200,000 Sterling Chemical Holdings, Inc., Sr. Sub.
Disc. Notes, 13.5% (0% until 2001), 8/15/08 1,896,000
3,800,000 Terra Industries Inc., Senior Notes, 10.5%, 6/15/05 4,047,000
4,400,000 Texas Petrochemical Corporation,
Sr. Sub. Notes, 11.125%, 7/1/06(1) 4,642,000
3,700,000 UCC Investors Inc., Sr. Sub. Notes,
11%, 5/1/03 3,875,750
------------
$ 35,745,375
------------
COMMUNICATIONS - 13.6%
$ 6,250,000 Allbritton Comm. Corp., Sr. Sub. Notes
9.75%, 11/30/07 $ 6,046,875
4,000,000 Arch Communications Group, Inc.,
Sr. Disc. Notes, 10.875%
(0% until 2001), 3/15/08 2,240,000
6,800,000 Australis Media LTD., Sub. Disc. Notes, 14%
(0% until 2000), 5/13/03 3,944,000
5,500,000 Brooks Fiber Corp., Sr. Disc. Notes,
10.875% (0% until 2001), 3/1/06 3,382,500
3,280,000 CS Wireless Systems, Inc., 1st Mtg. Notes,
11.375% (0% until 2001), 3/1/06(1) 1,689,200
7,200,000 Dial Call Communications Inc.,
Sr. Red. Notes,
12.25% (0% until 1999), 4/15/04 4,968,000
3,200,000 Echostar Satellite Broadcasting Corp.,
Sr. Sub. Notes,
13.125% (0% until 2000), 3/15/04 2,184,000
7,100,000 EZ Communications Corp, Sr. Sub. Notes,
9.75%, 12/1/05 7,206,500
5,000,000 Galaxy Telecom LP., Sr. Sub. Notes,
12.375%, 10/1/05 5,350,000
4,000,000 Heartland Wireless Corp., Senior Notes
13%, 4/15/03 4,360,000
11,200,000 Microcell Telecommunication, Inc.,
Sr. Disc. Notes,
14%, (0% until 2001), 6/1/06(1) 6,272,000
4,800,000 Millicom International Cellular, Inc.,
Sr. Sub. Notes,
13.5%, (0% until 2001), 6/1/06(1) 2,742,000
3,200,000 Mobilemedia Corp., Sr. Sub. Notes, 9.375%, 11/1/07 2,560,000
6,600,000 Newsquest Cap L.P., Sr. Sub. Notes,
11%, 5/1/06 6,814,500
5,600,000 Nextlink Communications Corp.,
Senior Notes, 12.5%, 4/15/06 5,768,000
4,000,000 Orbcomm Global L.P., Senior Notes,
14%, 8/15/04(1) 4,120,000
6,500,000 Pricellular Wireless Comm. Corp.,
Sr. Sub. Disc. Notes,
12.25% (0% until 1998), 10/1/03 5,232,500
4,800,000 Sullivan Broadcasting Corp., Sr. Sub. Notes,
10.25%, 12/15/05 4,824,000
------------
$ 79,704,075
------------
ENERGY - 7.9%
$ 1,600,000 AES Corporation, Sr. Sub. Notes, 10.25%, 7/15/06 $ 1,700,000
5,500,000 Cal Energy Co., Senior Notes,
9.5%, 9/15/06(1) 5,582,500
3,200,000 Chesapeake Energy Corporation, Senior Notes,
9.125%, 4/15/06 3,160,000
2,900,000 Clark USA, Inc., Senior Notes, 10.875%, 12/1/05 2,950,750
2,400,000 Coda Energy Inc., Sr. Sub. Notes, 10.5%, 4/1/06 2,472,000
2,850,000 El Paso Electric Co., 1st Mtg. Notes, 9.4%, 5/1/11 2,935,500
6,300,000 Mariner Energy Corporation, Sr. Sub. Notes,
10.5%, 8/1/06 6,520,500
4,100,000 Mesa Operating Company, Sr. Sub. Notes,
10.625%, 7/1/06 4,305,000
2,881,985 Midland Cogeneration Venture, Sr. Sec. Lease
Oblig., 10.33%, 7/23/02 3,026,085
2,200,000 Midland Funding II, Sec. Lease Oblig.,
11.75%, 7/23/05 2,370,346
2,300,000 Plains Resources Inc., Sr. Sub. Notes,
10.25%, 3/15/06 2,392,000
5,700,000 Trans Texas Gas Corp., Sr. Sec. Notes,
11.5%, 6/15/02 6,056,250
2,420,000 Tuboscope Vetco Intl. Corp., Sr. Sub. Debs.,
10.75%, 4/15/03 2,571,250
------------
$ 46,042,181
------------
FOOD/RESTAURANTS/HOTELS - 6.2%
$ 6,600,000 Flagstar Corp., Sub. Debs.,
10.75%, 9/15/01 $ 5,857,500
4,400,000 Inflo Holdings Corp.,
Promissory Notes,
10% (0% until 1999) 1/27/07d 3,080,000
6,000,000 Keebler Corporation, Sr. Sub. Notes,
10.75%, 7/1/06(1) 6,390,000
4,437,000 PM Holdings Corp., Sr. Sub. Notes, 11.5%
(0% until 2000), 9/1/05 2,662,200
5,775,000 Purina Mills, Inc., Sr. Sec. Sub. Notes,
10.25%, 9/1/03 5,890,500
7,000,000 Specialty Foods Corp., Senior Notes,
10.25%, 8/15/01 6,440,000
5,300,000 Van De Kamps, Inc., Sr. Sub. Notes, 12%, 9/15/05 5,763,750
------------
$ 36,083,950
------------
HEALTHCARE - 4.3%
$ 4,800,000 Dade International Inc., Sr. Sub. Notes,
11.125%, 5/1/06 $ 5,136,000
5,200,000 Maxxim Medical, Inc., Sr. Sub. Notes,
10.5%, 8/1/06(1) 5,395,000
6,100,000 Ordna Corp., Sr. Sub. Notes,
11.375%, 8/15/04 6,801,500
3,200,000 Owens & Minor, Inc., Sr. Sub. Notes,
10.875%, 6/1/06 3,344,000
3,200,000 Paracelsus Healthcare Corp., Sr. Sub. Notes,
10%, 8/15/06 3,312,000
1,300,000 Unilab Corp., Senior Notes,
11%, 04/1/06 1,027,000
------------
$ 25,015,500
------------
HIGH TECH - 2.5%
$ 2,704,000 Blue Bell Funding Inc., Sec. Ext. Notes,
11.85%, 5/1/99 $ 2,704,000
5,500,000 GS Technologies Corp., Senior Notes,
12.25%, 10/1/05 5,692,500
3,000,000 Unisys Corp., Senior Notes,
15%, 7/1/97 variable 3,172,500
3,200,000 Unisys Corp., Senior Notes,
12%, 4/15/03 3,312,000
------------
$ 14,881,000
------------
METALS - 2.7%
$ 3,500,000 Euramax International PLC, Sr. Sub. Notes,
11.25%, 10/1/06(1) $ 3,587,500
4,000,000 Gulf States Steel, Inc., First Mtg. Notes,
13.5%, 4/15/03 3,560,000
3,800,000 Kaiser Aluminum Corp., Sr. Sub. Notes,
12.75%, 2/1/03 4,123,000
1,500,000 Maxxam Group Inc., Sr. Sec. Notes, 11.25%, 8/1/03 1,537,500
2,900,000 Oregon Steel Mills Corp., 1st Mtg. Notes,
11%, 6/15/03 3,048,625
------------
$ 15,856,625
------------
MFG/MACHINERY - 9.8%
$ 2,400,000 Alvey Systems, Inc., Sr. Sub. Notes
11.375%, 1/31/03 $ 2,514,000
6,000,000 Applied Extrusion Inc., Senior Notes, 11.5%, 4/1/02 6,225,000
3,300,000 Day International Group, Inc., Sr. Sub. Notes,
11.125%, 6/1/05 3,448,500
2,250,000 Dictaphone Corp., Sr. Sub. Notes, 11.75%, 8/1/05 2,047,500
3,225,000 Essex Group, Inc., Senior Notes,
10%, 5/1/03 3,305,625
2,850,000 Howmet Corp., Sr. Sub. Notes,
10%, 12/1/03 3,056,625
8,680,000 Imo Industries, Inc., Sr. Sub. Notes,
11.75%, 5/1/06 9,114,000
2,000,000 K & F Industries, Inc., Sr. Sub. Notes,
10.375%, 9/1/04 2,070,000
5,550,000 Monarch Acquisition Corp., Senior Notes,
12.5%, 7/1/03 6,160,500
5,500,000 Newflo Corp., Sub. Notes,
13.25%, 11/15/02 6,077,500
6,350,000 Plastic Specialties & Tech, Inc., Sr. Sec. Notes,
11.25%, 12/01/03 6,445,250
8,800,000 Shared Tech/Fairchild Corp.,
Sr. Disc. Notes,
12.25% (0% until 1999), 3/1/06 6,864,000
------------
$ 57,328,500
------------
MISCELLANEOUS - 5.4%
$ 2,900,000 Alliance Entertainment Corp., Sr. Sub. Notes,
11.25%, 7/15/05 $ 2,755,000
4,000,000 Alliant Tech Systems Inc., Sr. Sub. Notes,
11.75%, 3/1/03 4,330,000
5,600,000 First Nationwide Escrow, Inc., Sr. Sub. Notes,
10.625%, 10/1/03(1) 5,859,000
2,400,000 Imax Corp., Senior Notes, 7%, 3/1/01 2,394,000
800,000 Iron Mountain, Inc., Sr. Sub. Notes,
10.125%, 10/1/06 800,000
4,000,000 Lifestyle Furnishings Inc., Sr. Sub. Notes,
10.875%, 8/1/06(1) 4,140,000
6,900,000 Selmer Company, Inc., Sr. Sub. Notes, 11%, 5/15/05 7,245,000
4,000,000 Young Broadcasting Corp., Sr. Sub. Notes,
10.125%, 2/15/05 3,980,000
------------
$ 31,503,000
------------
PAPER/PACKAGING - 7.6%
$ 3,250,000 American Pad & Paper Co., Sr. Sub. Notes,
13%, 11/15/05 $ 3,729,375
3,250,000 Container Corp., Sr. Notes (Ser. B), 10.75%, 5/1/02 3,412,500
3,897,940 Fort Howard Corp., Sr. Sec. Notes, 11%, 1/2/02 4,053,856
5,700,000 Gaylord Container Corp., Sr. Sub. Disc. Debs.,
12.75% (0% until 1996), 5/15/05 6,255,750
3,665,000 Repap Wisconsin, Inc., 2nd Party
Sr. Sec. Notes, 9.875%, 5/1/06 3,591,700
6,850,000 Riverwood International Corp.,
Sr. Sub. Notes, 10.875%, 4/1/08 6,747,250
3,000,000 S.D. Warren Company Inc., Sr. Sub. Notes,
12%, 12/15/04 3,232,500
829,000 Silgan Corp., Sr. Notes, 13.25%
(0% until 1996), 12/15/02 841,435
1,500,000 Silgan Corp., Sr. Sub. Notes,
11.75%, 6/15/02 1,590,000
4,500,000 Stone Container Corp., First Mtg. Notes,
10.75%, 10/1/02 4,725,000
3,200,000 Stone Container Corp., Sr. Notes, 12.625%, 7/15/98 3,360,000
2,950,000 U.S. Can Company, Sr. Sub. Notes, 13.5%, 1/15/02 3,104,875
------------
$ 44,644,241
------------
RECREATION - 4.9%
$ 5,000,000 Aztar Corp., Sr. Sub. Notes,
13.75%, 10/1/04 $ 5,650,000
4,800,000 Cinemark, USA, Inc., Sr. Sub. Notes,
9.625%, 8/1/08(1) 4,800,000
1,200,000 E & S Holdings Corporation, Sr. Sub. Notes,
10.375%, 10/1/06(1) 1,200,000
4,000,000 Eldorado Resorts, LLC, Sr. Sub. Notes,
10.5%, 8/15/06(1) 4,140,000
6,000,000 Harvey Casinos, LLC, Sr. Sub. Notes,
10.625%, 6/1/06 6,262,500
3,400,000 Trump Atlantic City Associates, Co., 1st Mtg.
Notes, 11.25%, 5/1/06 3,349,000
3,000,000 Trump Holdings & Funding, Inc.,
Senior Notes, 15.50%, 6/15/05 3,480,000
------------
$ 28,881,500
------------
RETAILING - 6.5%
$ 5,200,000 Apparel Retailers Inc., Sr. Disc. Debs., 12.75%,
(0% until 1998) 8/15/05 $ 4,576,000
4,200,000 Duane Reade, G.P., Sr. Notes,
12%, 9/15/02 4,074,000
5,200,000 Knoll, Inc., Sr. Sub. Notes,
10.875%, 3/15/06 5,512,000
3,850,000 Levitz Furniture Corp., Sr. Sub. Notes,
9.625%, 7/15/03 2,849,000
800,000 Levitz Furniture Corp., Sr. Sub. Notes,
13.375%, 10/15/98 776,000
2,000,000 Pathmark Stores Inc., Jr. Sub., Disc. Notes,
11.625%, 6/15/02 2,045,000
3,600,000 Pathmark Stores Inc.,
Jr. Sub., Disc. Notes,
10.75%, (0% until 1999) 11/1/03 2,385,000
5,500,000 Ralphs Grocery Co., Sr. Sub Notes, 13.75%, 6/15/05 5,830,000
4,000,000 Smith's Food & Drug Corp., Sr. Sub. Notes,
11.25%, 5/15/07 4,250,000
5,530,000 Specialty Retailers, Inc., Sr. Sub. Notes,
11%, 8/15/03 5,695,900
------------
$ 37,992,900
------------
TEXTILES - 3.1%
$ 5,200,000 Clark - Schwebel, Inc., Senior Notes,
10.5%, 4/15/06 $ 5,460,000
2,500,000 Collins & Aikman Corp., Sr. Sub. Notes,
11.5%, 4/15/06 2,631,250
5,800,000 Dan River Inc., Sr. Sub. Notes, 10.125%, 12/15/03 5,742,000
4,500,000 Westpoint Stevens, Inc., Sr. Sub. Debs.,
9.375%, 12/15/05 4,511,250
------------
$ 18,344,500
------------
TOTAL CORPORATE BONDS AND NOTES
(identified cost, $534,091,572) $547,775,962
------------
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PREFERRED STOCK - 0.8%
- --------------------------------------------------------------------------------
$ 29,696 Cablevision Systems Corp.,
11.125% (PIK), 2/15/96 $ 2,887,936
48,000 S.D. Warren Company W/Warrants, 14%, 12/15/06* 1,728,000
------------
TOTAL PREFERRED STOCKS
(identified cost, $4,137,205) $ 4,615,936
------------
- --------------------------------------------------------------------------------
COMMON STOCKS, WARRANTS AND RIGHTS - 0.6%
- --------------------------------------------------------------------------------
SHARES/
WARRANTS
- --------------------------------------------------------------------------------
AUTO/TRUCK - 0.3%
214,839 Bucyrus - Erie Company, Common* $ 1,906,696
------------
CHEMICALS - 0.0%
9,908 UCC Invt. Hldgs., Cl A Common(1)* $ 142,428
------------
COMMUNICATIONS - 0.1%
2,600 American Telecasting, Inc., Wts. $ 70,200
1,600 In Flight Phone Corp., Wts.
Exp. 8/31/200 0
7,200 Nextel Communications, Inc., Wts.
Exp. 4/25/99 1,800
7,840 United International Hldg. Inc., Warrants* 156,800
------------
$ 228,800
------------
FOOD - 0.0%
1,380 Servam Corp., Common* $ 0
12,276 Servam Corp., $2.00 Wts.
Exp. 4/1/01* 0
2,760 Servam Corp., $4.50 Wts.
Exp. 4/1/01* 0
48,000 Specialty Foods Acquisition Corp., Common(1)* 36,000
------------
$ 36,000
------------
INDUSTRIAL - 0.0%
40,000 Thermadyne Holdings Corp., Common+* $ 400
------------
MANUFACTURING - 0.2%
13,500 Southdown Inc., Wts.,
Exp. 10/31/96+* $ 121,500
5,371 Terex Corporation, Rights,
Exp. 7/1/97+* 537
32,000 Terex Corp., Wts. Exp. 12/31/00+* 704,000
95,000 Triangle Wire & Cable, Inc.+* 190,000
------------
$ 1,016,037
------------
METALS - 0.0%
4,000 Gulf States Steel, Inc., Warrants* $ 200
------------
MISCELLANEOUS - 0.0%
6,800 Australis Media, Ltd, Warrants+* $ 0
------------
PAPER/PACKAGING - 0.0%
48,000 S.D. Warren Company, Warrants, Exp. 12/15/06* $ 192,000
------------
TOTAL COMMON STOCKS, WARRANTS AND RIGHTS
(identified cost, $6,379,495) $ 3,522,561
------------
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SHORT-TERM OBLIGATIONS - 2.1%
- --------------------------------------------------------------------------------
FACE
AMOUNT SECURITY VALUE
- --------------------------------------------------------------------------------
COMMERCIAL PAPER
$4,756,000 Associates Corp. of North America, 5.8%, 10/1/96 $ 4,756,000
7,536,000 General Electric Capital Co.,
5.32%, 10/1/96 7,536,000
------------
TOTAL SHORT-TERM OBLIGATIONS, AT AMORTIZED COST $ 12,292,000
------------
TOTAL INVESTMENTS (identified cost, $556,900,272) $568,206,459
OTHER ASSETS, LESS LIABILITIES - 3.0% 17,681,244
------------
NET ASSETS - 100% $585,887,703
============
*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 September 30,
1996, the value of these securities amounted to $65,962,628 or 11.3% of net
assets.
The accompanying notes are an integral part of the financial statements
<PAGE>
------------------------------------
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
- ------------------------------------------------------------------------------
September 30, 1996 (Unaudited)
(Expressed in United States Dollars)
- ------------------------------------------------------------------------------
ASSETS:
Investments, at value (Note 1A) (identified cost,
$556,900,272) $568,206,459
Cash 1,248
Receivable for investments sold 8,933,590
Interest receivable 14,599,646
Deferred organization expenses (Note 1D) 12,026
Other receivables 2,124
------------
Total assets $591,755,093
LIABILITIES:
Payable for investments purchased $5,826,750
Payable to affiliate --
Trustees' fees 5,213
Accrued expenses 35,427
----------
Total liabilities 5,867,390
------------
NET ASSETS applicable to investors' interest in Portfolio $585,887,703
============
SOURCES OF NET ASSETS:
Net proceeds from capital contributions and withdrawals $574,581,516
Unrealized appreciation of investments (computed
on the basis of identified cost) 11,306,187
------------
Total $585,887,703
============
See notes to financial statements
<PAGE>
STATEMENT OF OPERATIONS
- ------------------------------------------------------------------------------
For the Six Months Ended September 30, 1996 (Unaudited)
(Expressed in United States Dollars)
- ------------------------------------------------------------------------------
INVESTMENT INCOME:
Interest income $29,743,139
Expenses --
Investment adviser fee (Note 2) $1,701,758
Compensation of Trustees not members of the
Investment Adviser's organization 10,466
Custodian fee (Note 1H) 113,447
Legal and accounting services 7,950
Amortization of organization expenses (Note 1D) 2,266
Miscellaneous 6,858
----------
Total expenses 1,842,745
-----------
Net investment income $27,900,394
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized loss on investment transactions
(identified cost basis) $(2,107,744)
Change in unrealized appreciation of investments 13,929,806
-----------
Net realized and unrealized gain on investments $11,822,062
-----------
Net increase in net assets from operations $39,722,456
===========
See notes to financial statements
<PAGE>
STATEMENTS OF CHANGES IN NET ASSETS
- ------------------------------------------------------------------------------
(Expressed in United States Dollars)
- ------------------------------------------------------------------------------
SIX MONTHS
ENDED
SEPTEMBER 30, YEAR ENDED
1996 MARCH 31,
(UNAUDITED) 1996
------------- -----------
INCREASE (DECREASE) IN NET ASSETS:
From operations --
Net investment income $ 27,900,394 $ 50,896,652
Net realized loss on investment transactions (2,107,744) (5,151,523)
Change in unrealized appreciation of
investments 13,929,806 17,257,761
------------ ------------
Net increase in net assets from operations $ 39,722,456 $ 63,002,890
------------ ------------
Capital transactions --
Contributions $109,532,226 $172,948,713
Withdrawals (74,714,118) (167,156,279)
------------ ------------
Increase in net assets resulting from
capital transactions $ 34,818,108 $ 5,792,434
------------ ------------
Total increase in net assets $ 74,540,564 $ 68,795,324
NET ASSETS:
At beginning of period 511,347,139 442,551,815
------------ ------------
At end of period $585,887,703 $511,347,139
============ ============
- ------------------------------------------------------------------------------
SUPPLEMENTARY DATA
- ------------------------------------------------------------------------------
SIX MONTHS ENDED YEAR ENDED MARCH 31,
SEPTEMBER 30, 1996 --------------------
(UNAUDITED) 1996 1995*
------------------ -------- --------
RATIOS (As a percentage of
average daily net assets):
Expenses 0.68%+ 0.71% 0.70%+
Net investment income 10.21%+ 10.41% 10.63%+
PORTFOLIO TURNOVER 39% 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
(UNAUDITED)
(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.
H. EXPENSE REDUCTION -- Investors Bank and Trust Company (IBT) serves as
custodian of the Portfolio. Pursuant to the custodian agreement, IBT receives
a fee reduced by credits which are determined based on the average daily cash
balance the Portfolio maintains with IBT. Any significant credit balance used
to reduce the Portfolio's custodian fee is reflected as a reduction of
operating expenses in the statement of operations.
I. INTERIM FINANCIAL INFORMATION -- The interim financial statements relating
to September 30, 1996 and for the six months then ended have not been audited
by independent certified public accountants, but in the opinion of the
Portfolio's management reflect all adjustments, consisting only of normal
recurring adjustments, necessary for the fair presentation of the financial
statements.
- ------------------------------------------------------------------------------
(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 six months ended September 30, 1996, the fee was equivalent to 0.62%
(annualized) of the Portfolio's average daily net assets and amounted to
$1,701,758. 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. 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 six months ended September 30, 1996, no significant
amounts have been deferred.
- ------------------------------------------------------------------------------
(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 $253,797,449 and $204,123,816, respectively, for the six
months ended September 30, 1996.
- ------------------------------------------------------------------------------
(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, a portion
of which is discretionary. 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 or fund based on its
borrowings at an amount above either the bank's adjusted certificate of deposit
rate, a variable adjusted certificate of deposit rate or a federal funds
effective rate. In addition, a fee computed at an annual rate of 1/4 of 1% on
the daily unused portion of the facility 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 six months ended September
30, 1996.
- ------------------------------------------------------------------------------
(5) FEDERAL INCOME TAX BASIS OF INVESTMENTS
The cost and unrealized appreciation/depreciation in value of the investments
owned at September 30, 1996, as computed on a federal income tax basis, were
as follows:
Aggregate cost $556,900,272
============
Gross unrealized appreciation $ 20,996,019
Gross unrealized depreciation 9,689,832
------------
Net unrealized appreciation $ 11,306,187
============
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(6) RESTRICTED SECURITIES
At September 30, 1996, the Portfolio owned the following securities
(constituting 0.7% 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.
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CORPORATE NOTE
- --------------
DESCRIPTION DATES OF ACQUISITION SHARES COST FAIR VALUE
- ----------- -------------------- ------ ---- ----------
<S> <C> <C> <C> <C>
Inflo Holdings Corp., Promissory Notes,
10.75%, 7/1/06 9/13/96 4,400,000 $2,884,000 $3,080,000
COMMON STOCKS, WARRANTS AND RIGHTS
- ----------------------------------
Australis Media, Wts. 5/26/95 6,800 0 0
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 13,500 40,500 121,500
Terex Corp., Rights, Exp. 7/1/97 11/07/94 5,371 0 537
Terex Corp., Wts., Exp. 12/31/00 12/15/93 32,000 6,400 704,000
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
---------- ----------
$5,209,700 $4,096,437
========== ==========
</TABLE>
<PAGE>
INVESTMENT MANAGEMENT FOR PORTFOLIOS
OFFICERS INDEPENDENT TRUSTEES
M. DOZIER GARDNER DONALD R. DWIGHT
President, Trustee President, Dwight Partners, Inc.
Chairman, Newspapers of
JAMES B. HAWKES New England, Inc.
Vice President, Trustee
SAMUEL L. HAYES, III
H. DAY BRIGHAM, JR. Jacob H. Schiff Professor of
Vice President Investment Banking,
Harvard University
WILLIAM H. AHERN, JR. Graduate School of
Vice President Business Administration
MICHAEL B. TERRY NORTON H. REAMER
Vice President President and Director, United Asset
Management Corporation
JAMES L. O'CONNOR
Treasurer JOHN L. THORNDIKE
Director, Fiduciary Company
THOMAS OTIS Incorporated
Secretary
JACK L. TREYNOR
Investment Adviser and Consultant
HIGH INCOME
PORTFOLIO
24 Federal Street
Boston, MA 02110
OFFICERS INDEPENDENT TRUSTEES
M. DOZIER GARDNER DONALD R. DWIGHT
President, Trustee President, Dwight Partners, Inc.
Chairman, Newspapers of
JAMES B. HAWKES New England, Inc.
Vice President, Trustee
SAMUEL L. HAYES, III
HOOKER TALCOTT, JR. Jacob H. Schiff Professor of
Vice President and Investment Banking, Harvard
Portfolio Manager University Graduate School of
Business Administration
WILLIAM CHISHOLM
Vice President NORTON H. REAMER
President and Director, United Asset
RAYMOND O'NEILL Management Corporation
Vice President
JOHN L. THORNDIKE
MICHEL NORMANDEAU Director, Fiduciary Company
Vice President Incorporated
MICHAEL W. WEILHEIMER JACK L. TREYNOR
Vice President Investment Adviser and Consultant
JAMES L. O'CONNOR
Treasurer
THOMAS OTIS
Secretary
