UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED
MANAGEMENT INVESTMENT COMPANIES
Investment Company Act File Number: 811-22049
International Income Portfolio
(Exact Name of Registrant as Specified in Charter)
Two International Place, Boston, Massachusetts 02110
(Address of Principal Executive Offices)
Maureen A. Gemma
Two International Place, Boston, Massachusetts 02110
(Name and Address of Agent for Services)
(617) 482-8260
(Registrant’s Telephone Number)
October 31
Date of Fiscal Year End
October 31, 2017
Date of Reporting Period
Item 1. Reports to Stockholders
International Income Portfolio
October 31, 2017
Portfolio of Investments
Foreign Government Bonds — 12.5% | ||||||||||||
Security | Principal Amount (000’s omitted) | Value | ||||||||||
Argentina — 0.7% | ||||||||||||
Argentina POM Politica Monetaria, 27.146%, (ARPP7DRR), 6/21/20(1) | ARS | 11,100 | $ | 676,221 | ||||||||
Total Argentina | $ | 676,221 | ||||||||||
Bosnia and Herzegovina — 1.5% | ||||||||||||
Republic of Srpska, 1.50%, 6/30/23 | BAM | 1,092 | $ | 595,016 | ||||||||
Republic of Srpska, 1.50%, 10/30/23 | BAM | 591 | 325,852 | |||||||||
Republic of Srpska, 1.50%, 5/31/25 | BAM | 368 | 199,456 | |||||||||
Republic of Srpska, 1.50%, 12/24/25 | BAM | 481 | 256,869 | |||||||||
Republic of Srpska, 1.50%, 9/25/26 | BAM | 422 | 220,885 | |||||||||
Total Bosnia and Herzegovina | $ | 1,598,078 | ||||||||||
Dominican Republic — 4.6% | ||||||||||||
Dominican Republic, 14.00%, 6/8/18(2) | DOP | 218,600 | $ | 4,703,029 | ||||||||
Total Dominican Republic | $ | 4,703,029 | ||||||||||
Georgia — 1.3% | ||||||||||||
Georgia Treasury Bond, 6.75%, 10/6/18 | GEL | 190 | $ | 72,477 | ||||||||
Georgia Treasury Bond, 8.00%, 6/9/18 | GEL | 159 | 61,209 | |||||||||
Georgia Treasury Bond, 13.375%, 3/10/18 | GEL | 1,570 | 614,405 | |||||||||
Georgia Treasury Bond, 13.75%, 1/14/18 | GEL | 1,400 | 543,237 | |||||||||
Total Georgia | $ | 1,291,328 | ||||||||||
Iceland — 2.9% | ||||||||||||
Republic of Iceland, 6.25%, 2/5/20 | ISK | 302,979 | $ | 2,974,634 | ||||||||
Total Iceland | $ | 2,974,634 | ||||||||||
Serbia — 1.5% | ||||||||||||
Serbia Treasury Bond, 10.00%, 4/27/18 | RSD | 156,300 | $ | 1,577,734 | ||||||||
Total Serbia | $ | 1,577,734 | ||||||||||
Total Foreign Government Bonds | $ | 12,821,024 | ||||||||||
Foreign Corporate Bonds — 1.3% | ||||||||||||
Security | Principal Amount (000’s omitted) | Value | ||||||||||
Argentina — 1.3% | ||||||||||||
Banco Hipotecario SA, 23.708%, (Badlar + 2.50%), 1/12/20(1)(2) | ARS | 24,372 | $ | 1,384,846 | ||||||||
Total Argentina | $ | 1,384,846 | ||||||||||
Total Foreign Corporate Bonds | $ | 1,384,846 | ||||||||||
Collateralized Mortgage Obligations — 0.5% | ||||||||||||
Security | Principal Amount | Value | ||||||||||
Federal Home Loan Mortgage Corp.: |
| |||||||||||
Series 2127, Class PG, 6.25%, 2/15/29 | $ | 115,114 | $ | 126,410 | ||||||||
Federal National Mortgage Association: |
| |||||||||||
Series 2009-62, Class WA, 5.57%, 8/25/39 | 378,674 | 414,675 | ||||||||||
Total Collateralized Mortgage Obligations |
| $ | 541,085 | |||||||||
Mortgage Pass-Throughs — 2.6% | ||||||||||||
Security | Principal Amount | Value | ||||||||||
Federal National Mortgage Association: |
| |||||||||||
1.91%, (COF + 1.25%), with maturity at 2035(3) | $ | 625,435 | $ | 631,816 | ||||||||
3.83%, (COF + 1.78%), with maturity at 2035(3) | 467,920 | 499,862 | ||||||||||
7.00% with maturity at 2033 | 300,203 | 344,926 | ||||||||||
7.50% with maturity at 2035 | 192,044 | 225,252 | ||||||||||
8.50% with maturity at 2032 | 161,872 | 194,904 | ||||||||||
$ | 1,896,760 | |||||||||||
Government National Mortgage Association: |
| |||||||||||
7.00% with maturity at 2035 | $ | 523,231 | $ | 606,932 | ||||||||
9.00% with various maturities to 2024 | 150,659 | 162,393 | ||||||||||
$ | 769,325 | |||||||||||
Total Mortgage Pass-Throughs |
| $ | 2,666,085 | |||||||||
19 | See Notes to Financial Statements. |
International Income Portfolio
October 31, 2017
Portfolio of Investments — continued
Short-Term Investments — 76.5% | ||||||||||||
Foreign Government Securities — 34.4% | ||||||||||||
Security | Principal Amount (000’s omitted) | Value | ||||||||||
Armenia — 0.8% | ||||||||||||
Armenian Treasury Bill, 0.00%, 11/20/17 | AMD | 400,000 | $ | 826,413 | ||||||||
Total Armenia | $ | 826,413 | ||||||||||
Czech Republic — 4.8% | ||||||||||||
Czech Republic Ministry of Finance Bill, 0.00%, 11/3/17 | CZK | 109,000 | $ | 4,948,012 | ||||||||
Total Czech Republic | $ | 4,948,012 | ||||||||||
Egypt — 4.7% | ||||||||||||
Egypt Treasury Bill, 0.00%, 11/7/17 | EGP | 28,675 | $ | 1,624,125 | ||||||||
Egypt Treasury Bill, 0.00%, 1/2/18 | EGP | 4,950 | 272,999 | |||||||||
Egypt Treasury Bill, 0.00%, 4/3/18 | EGP | 10,225 | 541,104 | |||||||||
Egypt Treasury Bill, 0.00%, 5/1/18 | EGP | 47,300 | 2,458,766 | |||||||||
Total Egypt |
| $ | 4,896,994 | |||||||||
Georgia — 2.4% | ||||||||||||
Georgia Treasury Bill, 0.00%, 2/1/18 | GEL | 1,600 | $ | 602,237 | ||||||||
Georgia Treasury Bill, 0.00%, 2/8/18 | GEL | 4,860 | 1,826,876 | |||||||||
Total Georgia |
| $ | 2,429,113 | |||||||||
Kazakhstan — 4.4% | ||||||||||||
National Bank of Kazakhstan Note, 0.00%, 11/1/17 | KZT | 813,121 | $ | 2,426,907 | ||||||||
National Bank of Kazakhstan Note, 0.00%, 11/24/17 | KZT | 275,610 | 817,828 | |||||||||
National Bank of Kazakhstan Note, 0.00%, 1/5/18 | KZT | 103,000 | 302,475 | |||||||||
National Bank of Kazakhstan Note, 0.00%, 1/19/18 | KZT | 345,570 | 1,011,375 | |||||||||
Total Kazakhstan |
| $ | 4,558,585 | |||||||||
Nigeria — 3.0% | ||||||||||||
Nigeria Treasury Bill, 0.00%, 3/15/18 | NGN | 42,300 | $ | 109,833 | ||||||||
Nigeria Treasury Bill, 0.00%, 4/5/18 | NGN | 125,560 | 322,380 | |||||||||
Nigeria Treasury Bill, 0.00%, 4/12/18 | NGN | 270,925 | 693,255 | |||||||||
Nigeria Treasury Bill, 0.00%, 4/19/18 | NGN | 211,520 | 539,419 | |||||||||
Nigeria Treasury Bill, 0.00%, 5/3/18 | NGN | 255,860 | 647,983 | |||||||||
Nigeria Treasury Bill, 0.00%, 7/5/18 | NGN | 103,290 | 253,666 | |||||||||
Nigeria Treasury Bill, 0.00%, 7/12/18 | NGN | 37,560 | 91,940 | |||||||||
Nigeria Treasury Bill, 0.00%, 7/19/18 | NGN | 50,950 | 124,310 | |||||||||
Nigeria Treasury Bill, 0.00%, 8/16/18 | NGN | 12,190 | 29,358 | |||||||||
Nigeria Treasury Bill, 0.00%, 9/13/18 | NGN | 64,020 | 152,364 | |||||||||
Nigeria Treasury Bill, 0.00%, 9/20/18 | NGN | 60,950 | 144,597 | |||||||||
Total Nigeria |
| $ | 3,109,105 | |||||||||
Security | Principal Amount (000’s omitted) | Value | ||||||||||
Sri Lanka — 4.9% | ||||||||||||
Sri Lanka Treasury Bill, 0.00%, 4/6/18 | LKR | 505,000 | $ | 3,166,819 | ||||||||
Sri Lanka Treasury Bill, 0.00%, 4/13/18 | LKR | 295,000 | 1,847,513 | |||||||||
Total Sri Lanka |
| $ | 5,014,332 | |||||||||
Sweden — 4.6% | ||||||||||||
Sweden Treasury Bill, 0.00%, 11/15/17 | SEK | 39,820 | $ | 4,758,099 | ||||||||
Total Sweden |
| $ | 4,758,099 | |||||||||
Uruguay — 4.8% | ||||||||||||
Banco Central Del Uruguay, 0.00%, 4/27/18 | UYU | 18,597 | $ | 612,023 | ||||||||
Uruguay Treasury Bill, 0.00%, 12/14/17 | UYU | 5,674 | 192,475 | |||||||||
Uruguay Treasury Bill, 0.00%, 12/22/17 | UYU | 23,829 | 806,536 | |||||||||
Uruguay Treasury Bill, 0.00%, 2/8/18 | UYU | 24,569 | 822,405 | |||||||||
Uruguay Treasury Bill, 0.00%, 4/5/18 | UYU | 52,482 | 1,737,494 | |||||||||
Uruguay Treasury Bill, 0.00%, 5/4/18 | UYU | 2,269 | 73,864 | |||||||||
Uruguay Treasury Bill, 0.00%, 6/1/18 | UYU | 10,293 | 335,616 | |||||||||
Uruguay Treasury Bill, 0.00%, 6/29/18 | UYU | 1,490 | 48,274 | |||||||||
Uruguay Treasury Bill, 0.00%, 9/21/18 | UYU | 761 | 24,175 | |||||||||
Uruguay Treasury Bill, 0.00%, 10/19/18 | UYU | 7,972 | 251,454 | |||||||||
Total Uruguay |
| $ | 4,904,316 | |||||||||
Total Foreign Government Securities |
| $ | 35,444,969 | |||||||||
U.S. Treasury Obligations — 37.9% | ||||||||||||
Security | Principal Amount (000’s omitted) | Value | ||||||||||
U.S. Treasury Bill, 0.00%, 11/9/17(4) |
| $ | 13,000 | $ | 12,997,238 | |||||||
U.S. Treasury Bill, 0.00%, 12/21/17(4) |
| 11,000 | 10,985,257 | |||||||||
U.S. Treasury Bill, 0.00%, 1/11/18(4) |
| 15,000 | 14,968,673 | |||||||||
Total U.S. Treasury Obligations |
| $ | 38,951,168 | |||||||||
20 | See Notes to Financial Statements. |
International Income Portfolio
October 31, 2017
Portfolio of Investments — continued
Other — 4.2% | ||||||||||||
Description | Units | Value | ||||||||||
Eaton Vance Cash Reserves Fund, LLC, 1.35%(5) |
| 4,279,715 | $ | 4,280,143 | ||||||||
Total Other |
| $ | 4,280,143 | |||||||||
Total Short-Term Investments |
| $ | 78,676,280 | |||||||||
Total Purchased Options — 0.0%(6) |
| $ | 43,912 | |||||||||
Total Investments — 93.4% |
| $ | 96,133,232 | |||||||||
Total Written Options — (0.0)%(6) |
| $ | (43,912 | ) | ||||||||
Other Assets, Less Liabilities — 6.6% |
| $ | 6,822,317 | |||||||||
Net Assets — 100.0% |
| $ | 102,911,637 | |||||||||
The percentage shown for each investment category in the Portfolio of Investments is based on net assets.
(1) | Variable rate security. The stated interest rate represents the rate in effect at October 31, 2017. |
(2) | Security exempt from registration under Regulation S of the Securities Act of 1933, which exempts from registration securities offered and sold outside the United States. Security may not be offered or sold in the United States except pursuant to an exemption from, or in a transaction not subject to, the registration requirements of the Securities Act of 1933. At October 31, 2017, the aggregate value of these securities is $6,087,875 or 5.9% of the Portfolio’s net assets. |
(3) | Adjustable rate mortgage security whose interest rate generally adjusts monthly based on a weighted average of interest rates on the underlying mortgages. The coupon rate may not reflect the applicable index value as interest rates on the underlying mortgages may adjust on various dates and at various intervals and may be subject to lifetime ceilings and lifetime floors and lookback periods. Rate shown is the coupon rate at October 31, 2017. |
(4) | Security (or a portion thereof) has been pledged to cover collateral requirements on open derivative contracts. |
(5) | Affiliated investment company, available to Eaton Vance portfolios and funds, which invests in high quality, U.S. dollar denominated money market instruments. The rate shown is the annualized seven-day yield as of October 31, 2017. |
(6) | Amount is less than 0.05% or (0.05)%, as applicable. |
Currency Options Purchased — 0.0%(6) | ||||||||||||||||||||
Description | Counterparty | Notional Amount | Exercise Price | Expiration Date | Value | |||||||||||||||
Call CAD/ | | Citibank, N.A. |
| USD 2,000,000 | CAD 1.31 | 12/8/17 | $ | 43,912 | ||||||||||||
Total |
| $ | 43,912 | |||||||||||||||||
Currency Options Written — (0.0)%(6) | ||||||||||||||||||||
Description | Counterparty | Notional Amount | Exercise Price | Expiration Date | Value | |||||||||||||||
Call CAD/ | | Citibank, N.A. | | USD 2,000,000 | CAD 1.31 | 12/8/17 | $ | (43,912 | ) | |||||||||||
Total |
| $ | (43,912 | ) | ||||||||||||||||
Forward Foreign Currency Exchange Contracts | ||||||||||||||||||||||||
Currency Purchased | Currency Sold | Counterparty | Settlement Date | Unrealized Appreciation | Unrealized (Depreciation) | |||||||||||||||||||
PHP | 85,855,000 | USD | 1,672,120 | Citibank, N.A. | 11/2/17 | $ | — | $ | (9,069 | ) | ||||||||||||||
PHP | 106,000,000 | USD | 2,051,322 | Nomura International PLC | 11/2/17 | 1,947 | — | |||||||||||||||||
PHP | 24,855,000 | USD | 480,996 | UBS AG | 11/2/17 | 456 | — | |||||||||||||||||
PHP | 45,000,000 | USD | 883,913 | UBS AG | 11/2/17 | — | (12,242 | ) | ||||||||||||||||
USD | 1,661,474 | PHP | 85,855,000 | Citibank, N.A. | 11/2/17 | — | (1,577 | ) | ||||||||||||||||
USD | 2,046,332 | PHP | 106,000,000 | Nomura International PLC | 11/2/17 | — | (6,937 | ) | ||||||||||||||||
USD | 870,844 | PHP | 45,000,000 | UBS AG | 11/2/17 | — | (827 | ) | ||||||||||||||||
USD | 478,902 | PHP | 24,855,000 | UBS AG | 11/2/17 | — | (2,551 | ) | ||||||||||||||||
AUD | 4,500,000 | USD | 3,555,833 | Goldman Sachs International | 11/9/17 | — | (111,983 | ) | ||||||||||||||||
USD | 481,952 | AUD | 608,000 | Australia and New Zealand Banking Group Limited | 11/9/17 | 16,650 | — | |||||||||||||||||
THB | 85,400,000 | USD | 2,560,336 | Deutsche Bank AG | 11/10/17 | 10,374 | — | |||||||||||||||||
UGX | 8,471,500,000 | USD | 2,284,655 | Citibank, N.A. | 11/13/17 | 25,760 | — | |||||||||||||||||
ARS | 10,660,000 | USD | 604,994 | BNP Paribas | 11/15/17 | — | (5,971 | ) |
21 | See Notes to Financial Statements. |
International Income Portfolio
October 31, 2017
Portfolio of Investments — continued
Forward Foreign Currency Exchange Contracts (continued) | ||||||||||||||||||||||||
Currency Purchased | Currency Sold | Counterparty | Settlement Date | Unrealized Appreciation | Unrealized (Depreciation) | |||||||||||||||||||
ARS | 7,487,500 | USD | 398,589 | Citibank, N.A. | 11/16/17 | $ | 21,909 | $ | — | |||||||||||||||
IDR | 67,819,537,000 | USD | 5,043,095 | Standard Chartered Bank | 11/16/17 | — | (48,778 | ) | ||||||||||||||||
USD | 410,380 | IDR | 5,543,000,000 | Standard Chartered Bank | 11/16/17 | 2,186 | — | |||||||||||||||||
USD | 4,562,384 | IDR | 62,276,537,000 | Standard Chartered Bank | 11/16/17 | — | (23,739 | ) | ||||||||||||||||
COP | 6,810,300,000 | USD | 2,301,244 | Standard Chartered Bank | 11/17/17 | — | (65,679 | ) | ||||||||||||||||
COP | 7,889,700,000 | USD | 2,665,980 | The Bank of Nova Scotia | 11/17/17 | — | (76,089 | ) | ||||||||||||||||
AUD | 438,000 | USD | 343,429 | JPMorgan Chase Bank, N.A. | 11/22/17 | — | (8,273 | ) | ||||||||||||||||
CHF | 2,150,000 | USD | 2,241,330 | State Street Bank and Trust Company | 11/22/17 | — | (83,547 | ) | ||||||||||||||||
ILS | 11,040,000 | USD | 3,151,664 | Bank of America, N.A. | 11/22/17 | — | (14,521 | ) | ||||||||||||||||
JPY | 25,520,000 | USD | 227,190 | State Street Bank and Trust Company | 11/22/17 | — | (2,566 | ) | ||||||||||||||||
MXN | 5,700,000 | USD | 300,659 | Societe Generale | 11/22/17 | — | (4,347 | ) | ||||||||||||||||
PLN | 820,000 | USD | 228,240 | State Street Bank and Trust Company | 11/22/17 | — | (2,971 | ) | ||||||||||||||||
TRY | 1,130,000 | USD | 304,499 | Goldman Sachs International | 11/22/17 | — | (8,458 | ) | ||||||||||||||||
USD | 229,171 | CAD | 286,000 | JPMorgan Chase Bank, N.A. | 11/22/17 | 7,444 | — | |||||||||||||||||
USD | 2,230,773 | EUR | 1,900,000 | Barclays Bank PLC | 11/22/17 | 15,270 | — | |||||||||||||||||
USD | 314,025 | ILS | 1,100,000 | Bank of America, N.A. | 11/22/17 | 1,447 | — | |||||||||||||||||
ZAR | 3,100,000 | USD | 227,330 | Goldman Sachs International | 11/22/17 | — | (8,838 | ) | ||||||||||||||||
BRL | 1,000,000 | USD | 314,189 | State Street Bank and Trust Company | 11/24/17 | — | (9,384 | ) | ||||||||||||||||
COP | 950,000,000 | USD | 323,102 | State Street Bank and Trust Company | 11/24/17 | — | (11,450 | ) | ||||||||||||||||
INR | 277,200,000 | USD | 4,248,921 | Citibank, N.A. | 11/24/17 | 24,236 | — | |||||||||||||||||
INR | 14,000,000 | USD | 216,631 | Citibank, N.A. | 11/24/17 | — | (815 | ) | ||||||||||||||||
INR | 5,300,000 | USD | 81,990 | Goldman Sachs International | 11/24/17 | — | (288 | ) | ||||||||||||||||
INR | 8,200,000 | USD | 126,813 | Goldman Sachs International | 11/24/17 | — | (407 | ) | ||||||||||||||||
INR | 3,400,000 | USD | 52,546 | Standard Chartered Bank | 11/24/17 | — | (134 | ) | ||||||||||||||||
INR | 9,800,000 | USD | 151,501 | UBS AG | 11/24/17 | — | (430 | ) | ||||||||||||||||
RUB | 19,000,000 | USD | 329,147 | State Street Bank and Trust Company | 11/24/17 | — | (4,829 | ) | ||||||||||||||||
USD | 4,991,312 | EUR | 4,220,108 | Standard Chartered Bank | 11/30/17 | 68,397 | — | |||||||||||||||||
USD | 904,031 | EUR | 754,000 | Standard Chartered Bank | 11/30/17 | 24,462 | — | |||||||||||||||||
USD | 1,551,761 | EUR | 1,312,000 | Standard Chartered Bank | 11/30/17 | 21,264 | — | |||||||||||||||||
TRY | 10,900,000 | USD | 3,072,032 | Standard Chartered Bank | 12/5/17 | — | (227,257 | ) | ||||||||||||||||
USD | 2,988,757 | TRY | 10,900,000 | Standard Chartered Bank | 12/5/17 | 143,982 | — | |||||||||||||||||
PEN | 6,000,000 | USD | 1,800,720 | State Street Bank and Trust Company | 12/6/17 | 42,390 | — | |||||||||||||||||
PEN | 10,060,000 | USD | 3,071,756 | State Street Bank and Trust Company | 12/6/17 | 18,526 | — | |||||||||||||||||
CAD | 1,290,000 | USD | 1,023,209 | Citibank, N.A. | 12/11/17 | — | (22,910 | ) | ||||||||||||||||
ARS | 29,079,800 | USD | 1,613,304 | BNP Paribas | 12/13/17 | — | (6,128 | ) | ||||||||||||||||
SGD | 3,485,000 | USD | 2,566,128 | Bank of America, N.A. | 12/15/17 | — | (8,554 | ) | ||||||||||||||||
USD | 4,959,516 | EUR | 4,176,452 | Deutsche Bank AG | 12/15/17 | 82,862 | — | |||||||||||||||||
USD | 1,946,195 | EUR | 1,618,000 | JPMorgan Chase Bank, N.A. | 12/21/17 | 56,157 | — | |||||||||||||||||
USD | 3,562,582 | EUR | 2,962,104 | Standard Chartered Bank | 12/21/17 | 102,452 | — | |||||||||||||||||
PLN | 12,100,000 | EUR | 2,845,111 | Standard Chartered Bank | 12/27/17 | 509 | — | |||||||||||||||||
USD | 1,634,675 | EUR | 1,372,212 | Standard Chartered Bank | 1/11/18 | 29,593 | — | |||||||||||||||||
RSD | 238,648,825 | EUR | 1,987,912 | Deutsche Bank AG | 1/18/18 | — | (63 | ) | ||||||||||||||||
EUR | 460,000 | USD | 543,679 | Standard Chartered Bank | 1/19/18 | — | (5,363 | ) | ||||||||||||||||
USD | 3,057,409 | EUR | 2,586,728 | Standard Chartered Bank | 1/19/18 | 30,288 | — | |||||||||||||||||
NOK | 16,363,000 | EUR | 1,738,309 | Deutsche Bank AG | 1/22/18 | — | (27,024 | ) | ||||||||||||||||
PHP | 106,000,000 | USD | 2,026,091 | Nomura International PLC | 2/2/18 | 6,738 | — | |||||||||||||||||
PHP | 24,855,000 | USD | 474,219 | UBS AG | 2/2/18 | 2,441 | — |
22 | See Notes to Financial Statements. |
International Income Portfolio
October 31, 2017
Portfolio of Investments — continued
Forward Foreign Currency Exchange Contracts (continued) | ||||||||||||||||||||||||
Currency Purchased | Currency Sold | Counterparty | Settlement Date | Unrealized Appreciation | Unrealized (Depreciation) | |||||||||||||||||||
RUB | 202,152,669 | USD | 3,295,609 | Bank of America, N.A. | 2/9/18 | $ | 116,012 | $ | — | |||||||||||||||
USD | 326,052 | RUB | 20,000,000 | Bank of America, N.A. | 2/9/18 | — | (11,478 | ) | ||||||||||||||||
USD | 1,344,007 | RUB | 79,955,000 | HSBC Bank USA, N.A. | 2/9/18 | — | (5,350 | ) | ||||||||||||||||
RUB | 168,000,000 | USD | 2,804,042 | BNP Paribas | 3/29/18 | 10,961 | — | |||||||||||||||||
RSD | 406,323,188 | EUR | 3,149,792 | Deutsche Bank AG | 4/3/18 | 247,944 | — | |||||||||||||||||
$ | 1,132,657 | $ | (840,827 | ) |
Futures Contracts | ||||||||||||||||||
Description | Number of Contracts | Position | Expiration Month/Year | Notional Amount | Value/Net Appreciation | |||||||||||||
Interest Rate Futures | ||||||||||||||||||
U.S. 5-Year Treasury Note | 11 | Short | Dec-17 | $ | (1,289,063 | ) | $ | 13,522 | ||||||||||
U.S. 10-Year Treasury Note | 4 | Short | Dec-17 | (499,750 | ) | 7,566 | ||||||||||||
$ | 21,088 |
Abbreviations:
ARPP7DRR | – | Argentina Central Bank 7-day Repo Reference Rate | ||
COF | – | Cost of Funds 11th District |
Currency Abbreviations:
AMD | – | Armenian Dram | ||
ARS | – | Argentine Peso | ||
AUD | – | Australian Dollar | ||
BAM | – | Bosnia-Herzegovina Convertible Mark | ||
BRL | – | Brazilian Real | ||
CAD | – | Canadian Dollar | ||
CHF | – | Swiss Franc | ||
COP | – | Colombian Peso | ||
CZK | – | Czech Koruna | ||
DOP | – | Dominican Peso | ||
EGP | – | Egyptian Pound | ||
EUR | – | Euro | ||
GEL | – | Georgian Lari | ||
IDR | – | Indonesian Rupiah | ||
ILS | – | Israeli Shekel | ||
INR | – | Indian Rupee | ||
ISK | – | Icelandic Krona | ||
JPY | – | Japanese Yen |
KZT | – | Kazakhstani Tenge | ||
LKR | – | Sri Lankan Rupee | ||
MXN | – | Mexican Peso | ||
NGN | – | Nigerian Naira | ||
NOK | – | Norwegian Krone | ||
PEN | – | Peruvian Sol | ||
PHP | – | Philippine Peso | ||
PLN | – | Polish Zloty | ||
RSD | – | Serbian Dinar | ||
RUB | – | Russian Ruble | ||
SEK | – | Swedish Krona | ||
SGD | – | Singapore Dollar | ||
THB | – | Thai Baht | ||
TRY | – | New Turkish Lira | ||
UGX | – | Ugandan Shilling | ||
USD | – | United States Dollar | ||
UYU | – | Uruguayan Peso | ||
ZAR | – | South African Rand |
23 | See Notes to Financial Statements. |
International Income Portfolio
October 31, 2017
Statement of Assets and Liabilities
Assets | October 31, 2017 | |||
Unaffiliated investments, at value (identified cost, $92,276,138) | $ | 91,853,089 | ||
Affiliated investment, at value (identified cost, $4,280,170) | 4,280,143 | |||
Cash | 4,432,892 | |||
Deposits for derivatives collateral — forward foreign currency exchange contracts | 489,501 | |||
Foreign currency, at value (identified cost, $147,347) | 165,399 | |||
Interest receivable | 563,037 | |||
Dividends receivable from affiliated investment | 4,744 | |||
Receivable for investments sold | 2,446,596 | |||
Receivable for variation margin on open financial futures contracts | 1,083 | |||
Receivable for open forward foreign currency exchange contracts | 1,132,657 | |||
Tax reclaims receivable | 2,486 | |||
Receivable from affiliate | 17,777 | |||
Total assets | $ | 105,389,404 | ||
Liabilities | ||||
Cash collateral due to brokers | $ | 489,501 | ||
Written options outstanding, at value (premiums received, $96,090) | 43,912 | |||
Payable for investments purchased | 883,716 | |||
Payable for open forward foreign currency exchange contracts | 840,827 | |||
Payable to affiliates: | ||||
Investment adviser fee | 54,578 | |||
Trustees’ fees | 559 | |||
Accrued expenses | 164,674 | |||
Total liabilities | $ | 2,477,767 | ||
Net Assets applicable to investors’ interest in Portfolio | $ | 102,911,637 | ||
Sources of Net Assets | ||||
Investors’ capital | $ | 102,955,195 | ||
Net unrealized depreciation | (43,558 | ) | ||
Total | $ | 102,911,637 |
24 | See Notes to Financial Statements. |
International Income Portfolio
October 31, 2017
Statement of Operations
Investment Income | Year Ended October 31, 2017 | |||
Interest (net of foreign taxes, $61,230) | $ | 4,293,034 | ||
Dividends from affiliated investment | 67,774 | |||
Total investment income | $ | 4,360,808 | ||
Expenses | ||||
Investment adviser fee | $ | 714,395 | ||
Trustees’ fees and expenses | 7,125 | |||
Custodian fee | 132,536 | |||
Legal and accounting services | 183,975 | |||
Miscellaneous | 24,405 | |||
Total expenses | $ | 1,062,436 | ||
Deduct — | ||||
Allocation of expenses to affiliate | $ | 150,675 | ||
Total expense reductions | $ | 150,675 | ||
Net expenses | $ | 911,761 | ||
Net investment income | $ | 3,449,047 | ||
Realized and Unrealized Gain (Loss) | ||||
Net realized gain (loss) — | ||||
Investment transactions (net of foreign capital gains taxes of $32,414) | $ | 62,316 | ||
Investment transactions — affiliated investment | (105 | ) | ||
Written options | 128,500 | |||
Financial futures contracts | 26,424 | |||
Foreign currency transactions | 282,395 | |||
Forward foreign currency exchange contracts | 2,185,776 | |||
Net realized gain | $ | 2,685,306 | ||
Change in unrealized appreciation (depreciation) — | ||||
Investments | $ | 3,006,743 | ||
Investments — affiliated investment | (314 | ) | ||
Written options | (9,195 | ) | ||
Financial futures contracts | 6,940 | |||
Foreign currency | 85,288 | |||
Forward foreign currency exchange contracts | 420,015 | |||
Net change in unrealized appreciation (depreciation) | $ | 3,509,477 | ||
Net realized and unrealized gain | $ | 6,194,783 | ||
Net increase in net assets from operations | $ | 9,643,830 |
25 | See Notes to Financial Statements. |
International Income Portfolio
October 31, 2017
Statements of Changes in Net Assets
Year Ended October 31, | ||||||||
Increase (Decrease) in Net Assets | 2017 | 2016 | ||||||
From operations — | ||||||||
Net investment income | $ | 3,449,047 | $ | 5,517,184 | ||||
Net realized gain (loss) | 2,685,306 | (15,408,564 | ) | |||||
Net change in unrealized appreciation (depreciation) | 3,509,477 | 15,080,767 | ||||||
Net increase in net assets from operations | $ | 9,643,830 | $ | 5,189,387 | ||||
Capital transactions — | ||||||||
Contributions | $ | 10,334,842 | $ | 17,940,662 | ||||
Withdrawals | (55,782,953 | ) | (121,664,915 | ) | ||||
Net decrease in net assets from capital transactions | $ | (45,448,111 | ) | $ | (103,724,253 | ) | ||
Net decrease in net assets | $ | (35,804,281 | ) | $ | (98,534,866 | ) | ||
Net Assets | ||||||||
At beginning of year | $ | 138,715,918 | $ | 237,250,784 | ||||
At end of year | $ | 102,911,637 | $ | 138,715,918 |
26 | See Notes to Financial Statements. |
International Income Portfolio
October 31, 2017
Financial Highlights
Year Ended October 31, | ||||||||||||||||||||
Ratios/Supplemental Data | 2017 | 2016 | 2015 | 2014 | 2013 | |||||||||||||||
Ratios (as a percentage of average daily net assets): | ||||||||||||||||||||
Expenses(1) | 0.80 | %(2) | 0.81 | %(2)(3) | 0.81 | %(2)(3) | 0.83 | % | 0.83 | % | ||||||||||
Net investment income | 3.02 | % | 3.17 | % | 3.56 | % | 3.49 | % | 3.20 | % | ||||||||||
Portfolio Turnover | 29 | % | 38 | % | 23 | % | 42 | % | 21 | % | ||||||||||
Total Return | 9.09 | %(2) | 3.25 | %(2) | (5.84 | )%(2) | 0.90 | % | (0.35 | )% | ||||||||||
Net assets, end of year (000’s omitted) | $ | 102,912 | $ | 138,716 | $ | 237,251 | $ | 607,664 | $ | 1,002,404 |
(1) | Excludes the effect of custody fee credits, if any, of less than 0.005%. Effective September 1, 2015, custody fee credits, which were earned on cash deposit balances, were discontinued by the custodian. |
(2) | The investment adviser reimbursed certain operating expenses (equal to 0.13%, 0.08% and 0.04% of average daily net assets for the years ended October 31, 2017, 2016 and 2015, respectively). Absent this reimbursement, total return would be lower. |
(3) | Includes interest expense of 0.01% for each of the years ended October 31, 2016 and 2015. |
27 | See Notes to Financial Statements. |
International Income Portfolio
October 31, 2017
Notes to Financial Statements
1 Significant Accounting Policies
International Income Portfolio (the Portfolio) is a Massachusetts business trust registered under the Investment Company Act of 1940, as amended (the 1940 Act), as a diversified, open-end management investment company. The Portfolio’s investment objective is total return. The Declaration of Trust permits the Trustees to issue interests in the Portfolio. At October 31, 2017, Eaton Vance Diversified Currency Income Fund held a 99.9% interest 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 (U.S. GAAP). The Portfolio is an investment company and follows accounting and reporting guidance in the Financial Accounting Standards Board (FASB) Accounting Standards Codification Topic 946.
A Investment Valuation — The following methodologies are used to determine the market value or fair value of investments.
Debt Obligations. Debt obligations are generally valued on the basis of valuations provided by third party pricing services, as derived from such services’ pricing models. Inputs to the models may include, but are not limited to, reported trades, executable bid and asked prices, broker/dealer quotations, prices or yields of securities with similar characteristics, interest rates, anticipated prepayments, benchmark curves or information pertaining to the issuer, as well as industry and economic events. The pricing services may use a matrix approach, which considers information regarding securities with similar characteristics to determine the valuation for a security. Short-term obligations purchased with a remaining maturity of sixty days or less for which a valuation from a third party pricing service is not readily available may be valued at amortized cost, which approximates fair value.
Derivatives. U.S. exchange-traded options are valued at the mean between the bid and asked prices at valuation time as reported by the Options Price Reporting Authority. Non U.S. exchange-traded options and over-the-counter options (including options on securities, indices and foreign currencies) are valued by a third party pricing service using techniques that consider factors including the value of the underlying instrument, the volatility of the underlying instrument and the period of time until option expiration. Financial futures contracts are valued at the closing settlement price established by the board of trade or exchange on which they are traded. Forward foreign currency exchange contracts are generally valued at the mean of the average bid and average asked prices that are reported by currency dealers to a third party pricing service at the valuation time. Such third party pricing service valuations are supplied for specific settlement periods and the Portfolio’s forward foreign currency exchange contracts are valued at an interpolated rate between the closest preceding and subsequent settlement period reported by the third party pricing service.
Foreign Securities and Currencies. Foreign securities and currencies are valued in U.S. dollars, based on foreign currency exchange rate quotations supplied by a third party pricing service. The pricing service uses a proprietary model to determine the exchange rate. Inputs to the model include reported trades and implied bid/ask spreads.
Affiliated Fund. The Portfolio may invest in Eaton Vance Cash Reserves Fund, LLC (Cash Reserves Fund), an affiliated investment company managed by Eaton Vance Management (EVM). While Cash Reserves Fund is not a registered money market mutual fund, it conducts all of its investment activities in accordance with the requirements of Rule 2a-7 under the 1940 Act. Investments in Cash Reserves Fund are valued at the closing net asset value per unit on the valuation day. Cash Reserves Fund generally values its investment securities based on available market quotations provided by a third party pricing service.
Fair Valuation. Investments for which valuations or market quotations are not readily available or are deemed unreliable are valued at fair value using methods determined in good faith by or at the direction of the Trustees of the Portfolio in a manner that fairly reflects the security’s value, or the amount that the Portfolio might reasonably expect to receive for the security upon its current sale in the ordinary course. Each such determination is based on a consideration of relevant factors, which are likely to vary from one pricing context to another. These factors may include, but are not limited to, the type of security, the existence of any contractual restrictions on the security’s disposition, the price and extent of public trading in similar securities of the issuer or of comparable companies or entities, quotations or relevant information obtained from broker/dealers or other market participants, information obtained from the issuer, analysts, and/or the appropriate stock exchange (for exchange-traded securities), an analysis of the company’s or entity’s financial condition, and an evaluation of the forces that influence the issuer and the market(s) in which the security is purchased and sold.
B Investment Transactions — Investment transactions for financial statement purposes are accounted for on a trade date basis. Realized gains and losses on investments sold are determined on the basis of identified cost.
C Income — Interest income is recorded on the basis of interest accrued, adjusted for amortization of premium or accretion of discount. Withholding taxes on foreign interest have been provided for in accordance with the Portfolio’s understanding of the applicable countries’ tax rules and rates. Dividend income is recorded on the ex-dividend date for dividends received in cash and/or securities.
D Federal and Other Taxes — The Portfolio has elected to be treated as a partnership for federal tax purposes. No provision is made by the Portfolio for federal or state taxes on any taxable income of the Portfolio because each investor in the Portfolio is ultimately responsible for the payment of any taxes on its share of taxable income. Since at least one of the Portfolio’s investors is a regulated investment company that invests all or substantially all of its 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 losses and any other items of income, gain, loss, deduction or credit.
28 |
International Income Portfolio
October 31, 2017
Notes to Financial Statements — continued
In addition to the requirements of the Internal Revenue Code, the Portfolio may also be subject to local taxes on the recognition of capital gains in certain countries. In determining the daily net asset value, the Portfolio estimates the accrual for such taxes, if any, based on the unrealized appreciation on certain portfolio securities and the related tax rates. Taxes attributable to unrealized appreciation are included in the change in unrealized appreciation (depreciation) on investments. Capital gains taxes on securities sold are included in net realized gain (loss) on investments.
As of October 31, 2017, the Portfolio had no uncertain tax positions that would require financial statement recognition, de-recognition, or disclosure. The Portfolio files a U.S. federal income tax return annually after its fiscal year-end, which is subject to examination by the Internal Revenue Service for a period of three years from the date of filing.
E Foreign Currency Translation — Investment valuations, other assets, and liabilities initially expressed in foreign currencies are translated each business day into U.S. dollars based upon current exchange rates. Purchases and sales of foreign investment securities and income and expenses denominated in foreign currencies are translated into U.S. dollars based upon currency exchange rates in effect 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 results from fluctuations in foreign currency exchange rates is not separately disclosed.
F Use of Estimates — The preparation of the financial statements in conformity with U.S. GAAP 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 expense during the reporting period. Actual results could differ from those estimates.
G Indemnifications — Under the Portfolio’s organizational documents, its officers and Trustees may be indemnified against certain liabilities and expenses arising out of the performance of their duties to the Portfolio. Under Massachusetts law, if certain conditions prevail, interestholders in the Portfolio could be deemed to have personal liability for the obligations of the Portfolio. However, the Portfolio’s Declaration of Trust contains an express disclaimer of liability on the part of Portfolio interestholders and the By-laws provide that the Portfolio shall assume the defense on behalf of any Portfolio interestholder. Moreover, the By-laws also provide for indemnification out of Portfolio property of any interestholder held personally liable solely by reason of being or having been an interestholder for all loss or expense arising from such liability. Additionally, in the normal course of business, the Portfolio enters into agreements with service providers that may contain indemnification clauses. The Portfolio’s maximum exposure under these arrangements is unknown as this would involve future claims that may be made against the Portfolio that have not yet occurred.
H Financial Futures Contracts — Upon entering into a financial futures contract, the Portfolio is required to deposit with the broker, either in cash or securities, an amount equal to a certain percentage of the contract amount (initial margin). Subsequent payments, known as variation margin, are made or received by the Portfolio each business day, depending on the daily fluctuations in the value of the underlying security, and are recorded as unrealized gains or losses by the Portfolio. Gains (losses) are realized upon the expiration or closing of the financial futures contracts. Should market conditions change unexpectedly, the Portfolio may not achieve the anticipated benefits of the financial futures contracts and may realize a loss. Futures contracts have minimal counterparty risk as they are exchange traded and the clearinghouse for the exchange is substituted as the counterparty, guaranteeing counterparty performance.
I 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. The forward foreign currency exchange contracts are adjusted by the daily exchange rate of the underlying currency and any gains or losses are recorded as unrealized until such time as the contracts have been closed. 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.
J Written Options — Upon the writing of a call or a put option, the premium received by the Portfolio is included in the Statement of Assets and Liabilities as a liability. The amount of the liability is subsequently marked-to-market to reflect the current market value of the option written, in accordance with the Portfolio’s policies on investment valuations discussed above. Premiums received from writing options which expire are treated as realized gains. Premiums received from writing options which are exercised or are closed are added to or offset against the proceeds or amount paid on the transaction to determine the realized gain or loss. When an index option is exercised, the Portfolio is required to deliver an amount of cash determined by the excess of the strike price of the option over the value of the index (in the case of a put) or the excess of the value of the index over the strike price of the option (in the case of a call) at contract termination. If a put option on a security is exercised, the premium reduces the cost basis of the securities purchased by the Portfolio. The Portfolio, as a writer of an option, may have no control over whether the underlying securities or other assets 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 or other assets underlying the written option. The Portfolio may also bear the risk of not being able to enter into a closing transaction if a liquid secondary market does not exist.
K Purchased Options — Upon the purchase of a call or put option, the premium paid by the Portfolio is included in the Statement of Assets and Liabilities as an investment. The amount of the investment is subsequently marked-to-market to reflect the current market value of the option purchased, in accordance with the Portfolio’s policies on investment valuations discussed above. As the purchaser of an index option, the Portfolio has the right to receive a cash payment equal to any depreciation in the value of the index below the strike price of the option (in the case of a put) or equal to any appreciation in the value of the index over the strike price of the option (in the case of a call) as of the valuation date of the option. If an option which the Portfolio had purchased expires on the stipulated expiration date, the Portfolio will realize a loss in the amount of the cost of the option. If the Portfolio enters into a
29 |
International Income Portfolio
October 31, 2017
Notes to Financial Statements — continued
closing sale transaction, the Portfolio will realize a gain or loss, depending on whether the sales proceeds from the closing sale transaction are greater or less than the cost of the option. If the Portfolio exercises a put option on a security, it will realize a gain or loss from the sale of the underlying security, and the proceeds from such sale will be decreased by the premium originally paid. If the Portfolio exercises a call option on a security, the cost of the security which the Portfolio purchases upon exercise will be increased by the premium originally paid. The risk associated with purchasing options is limited to the premium originally paid. Purchased options traded over-the-counter involve risk that the issuer or counterparty will fail to perform its contractual obligations.
2 Investment Adviser Fee and Other Transactions with Affiliates
The investment adviser fee is earned by Boston Management and Research (BMR), a subsidiary of EVM, as compensation for investment advisory services rendered to the Portfolio. Pursuant to the investment advisory agreement between the Portfolio and BMR, the fee is computed at an annual rate of 0.625% of the Portfolio’s average daily net assets up to $1 billion, 0.600% from $1 billion but less than $2 billion, and at reduced rates on daily net assets of $2 billion or more, and is payable monthly. For the year ended October 31, 2017, the Portfolio’s investment adviser fee amounted to $714,395 or 0.625% of the Portfolio’s average daily net assets. Pursuant to a voluntary expense reimbursement, BMR was allocated $150,675 of the Portfolio’s operating expenses for the year ended October 31, 2017. The Portfolio invests its cash in Cash Reserves Fund. EVM does not currently receive a fee for advisory services provided to Cash Reserves Fund.
Trustees and officers of the Portfolio who are members of EVM’s or BMR’s organizations receive remuneration for their services to the Portfolio out of the investment adviser fee. Trustees of the Portfolio who are not affiliated with the investment adviser may elect to defer receipt of all or a percentage of their annual fees in accordance with the terms of the Trustees Deferred Compensation Plan. For the year ended October 31, 2017, no significant amounts have been deferred. Certain officers and Trustees of the Portfolio are officers of the above organizations.
3 Purchases and Sales of Investments
Purchases and sales of investments, other than short-term obligations, and including maturities and paydowns, for the year ended October 31, 2017 were as follows:
Purchases | Sales | |||||||
Investments (non-U.S. Government) | $ | 9,543,955 | $ | 53,610,588 | ||||
U.S. Government and Agency Securities | — | 663,096 | ||||||
$ | 9,543,955 | $ | 54,273,684 |
Included in purchases are the cost of securities purchased by the Portfolio from investment companies or accounts advised by EVM or its affiliates of $641,209. Such transactions were executed in accordance with affiliated transaction procedures approved by the Portfolio’s Trustees.
4 Federal Income Tax Basis of Investments
The cost and unrealized appreciation (depreciation) of investments, including open derivative contracts, of the Portfolio at October 31, 2017, as determined on a federal income tax basis, were as follows:
Aggregate cost | $ | 97,250,388 | ||
Gross unrealized appreciation | $ | 960,040 | ||
Gross unrealized depreciation | (1,866,872 | ) | ||
Net unrealized depreciation | $ | (906,832 | ) |
5 Financial Instruments
The Portfolio may trade in financial instruments with off-balance sheet risk in the normal course of its investing activities. These financial instruments may include written options, forward foreign currency exchange contracts and 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 do not necessarily represent the amounts potentially subject to risk. The measurement of the
30 |
International Income Portfolio
October 31, 2017
Notes to Financial Statements — continued
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 October 31, 2017 is included in the Portfolio of Investments. At October 31, 2017, the Portfolio had sufficient cash and/or securities to cover commitments under these contracts.
In the normal course of pursuing its investment objective, the Portfolio is subject to the following risks:
Foreign Exchange Risk: The Portfolio engages in forward foreign currency exchange contracts and currency options to enhance total return, to seek to hedge against fluctuations in currency exchange rates and/or as a substitute for the purchase or sale of securities or currencies.
Interest Rate Risk: The Portfolio utilizes futures contracts to enhance total return, to seek to hedge against fluctuations in interest rates, and/or to change the effective duration of its portfolio.
The Portfolio enters into over-the-counter (OTC) derivatives that may contain provisions whereby the counterparty may terminate the contract under certain conditions, including but not limited to a decline in the Portfolio’s net assets below a certain level over a certain period of time, which would trigger a payment by the Portfolio for those derivatives in a liability position. At October 31, 2017, the fair value of derivatives with credit-related contingent features in a net liability position was $884,739. The aggregate fair value of assets pledged as collateral by the Portfolio for such liability was $51,900 at October 31, 2017.
The OTC derivatives in which the Portfolio invests (except for written options as the Portfolio, not the counterparty, is obligated to perform) are subject to the risk that the counterparty to the contract fails to perform its obligations under the contract. To mitigate this risk, the Portfolio has entered into an International Swaps and Derivatives Association, Inc. Master Agreement (“ISDA Master Agreement”) or similar agreement with substantially all its derivative counterparties. An ISDA Master Agreement is a bilateral agreement between the Portfolio and a counterparty that governs certain OTC derivatives and typically contains, among other things, set-off provisions in the event of a default and/or termination event as defined under the relevant ISDA Master Agreement. Under an ISDA Master Agreement, the Portfolio may, under certain circumstances, offset with the counterparty certain derivative financial instruments’ payables and/or receivables with collateral held and/or posted and create one single net payment. The provisions of the ISDA Master Agreement typically permit a single net payment in the event of default including the bankruptcy or insolvency of the counterparty. However, bankruptcy or insolvency laws of a particular jurisdiction may impose restrictions on or prohibitions against the right of offset in bankruptcy or insolvency. Certain ISDA Master Agreements allow counterparties to OTC derivatives to terminate derivative contracts prior to maturity in the event the Portfolio’s net assets decline by a stated percentage or the Portfolio fails to meet the terms of its ISDA Master Agreements, which would cause the counterparty to accelerate payment by the Portfolio of any net liability owed to it.
The collateral requirements for derivatives traded under an ISDA Master Agreement are governed by a Credit Support Annex to the ISDA Master Agreement. Collateral requirements are determined at the close of business each day and are typically based on changes in market values for each transaction under an ISDA Master Agreement and netted into one amount for such agreement. Generally, the amount of collateral due from or to a counterparty is subject to a minimum transfer threshold amount before a transfer is required, which may vary by counterparty. Collateral pledged for the benefit of the Portfolio and/or counterparty is held in segregated accounts by the Portfolio’s custodian and cannot be sold, re-pledged, assigned or otherwise used while pledged. The portion of such collateral representing cash, if any, is reflected as deposits for derivatives collateral and, in the case of cash pledged by a counterparty for the benefit of the Portfolio, a corresponding liability on the Statement of Assets and Liabilities. Securities pledged by the Portfolio as collateral, if any, are identified as such in the Portfolio of Investments. The carrying amount of the liability for cash collateral due to brokers at October 31, 2017 approximated its fair value. If measured at fair value, such liability would have been considered as Level 2 in the fair value hierarchy (see Note 8) at October 31, 2017.
The fair value of open derivative instruments (not considered to be hedging instruments for accounting disclosure purposes) by risk exposure at October 31, 2017 was as follows:
Fair Value | ||||||||||||
Statement of Assets and Liabilities Caption | Foreign Exchange | Interest Rate | Total | |||||||||
Unaffiliated investments, at value | $ | 43,912 | $ | — | $ | 43,912 | ||||||
Net unrealized depreciation* | — | 21,088 | 21,088 | |||||||||
Receivable for open forward foreign currency exchange contracts | 1,132,657 | — | 1,132,657 | |||||||||
Total Asset Derivatives | $ | 1,176,569 | $ | 21,088 | $ | 1,197,657 | ||||||
Derivatives not subject to master netting or similar agreements | $ | — | $ | 21,088 | $ | 21,088 | ||||||
Total Asset Derivatives subject to master netting or similar agreements | $ | 1,176,569 | $ | — | $ | 1,176,569 |
31 |
International Income Portfolio
October 31, 2017
Notes to Financial Statements — continued
Foreign Exchange | Interest Rate | Total | ||||||||||
Written options outstanding, at value | $ | (43,912 | ) | $ | — | $ | (43,912 | ) | ||||
Payable for open forward foreign currency exchange contracts | (840,827 | ) | — | (840,827 | ) | |||||||
Total Liability Derivatives | $ | (884,739 | ) | $ | — | $ | (884,739 | ) | ||||
Total Liability Derivatives subject to master netting or similar agreements | $ | (884,739 | ) | $ | — | $ | (884,739 | ) |
* | Amount represents cumulative unrealized appreciation or (depreciation) on futures contracts. Only the current day’s variation margin on open futures contracts is reported within the Statement of Assets and Liabilities as Receivable or Payable for variation margin on open financial futures contracts, as applicable. |
The Portfolio’s derivative assets and liabilities at fair value by risk, which are reported gross in the Statement of Assets and Liabilities, are presented in the table above. The following tables present the Portfolio’s derivative assets and liabilities by counterparty, net of amounts available for offset under a master netting agreement and net of the related collateral received by the Portfolio for such assets and pledged by the Portfolio for such liabilities as of October 31, 2017.
Counterparty | Derivative Assets Subject to Master Netting Agreement | Derivatives Available for Offset | Non-cash Collateral Received(a) | Cash Collateral Received(a) | Net Amount of Derivative Assets(b) | |||||||||||||||
Australia and New Zealand Banking Group Limited | $ | 16,650 | $ | — | $ | — | $ | — | $ | 16,650 | ||||||||||
Bank of America, N.A. | 117,459 | (34,553 | ) | (19,645 | ) | — | 63,261 | |||||||||||||
Barclays Bank PLC | 15,270 | — | — | — | 15,270 | |||||||||||||||
BNP Paribas | 10,961 | (10,961 | ) | — | — | — | ||||||||||||||
Citibank, N.A. | 115,817 | (78,283 | ) | — | (37,534 | ) | — | |||||||||||||
Deutsche Bank AG | 341,180 | (27,087 | ) | — | (280,000 | ) | 34,093 | |||||||||||||
JPMorgan Chase Bank, N.A. | 63,601 | (8,273 | ) | — | (55,328 | ) | — | |||||||||||||
Nomura International PLC | 8,685 | (6,937 | ) | — | — | 1,748 | ||||||||||||||
Standard Chartered Bank | 423,133 | (370,950 | ) | — | (52,183 | ) | — | |||||||||||||
State Street Bank and Trust Company | 60,916 | (60,916 | ) | — | — | — | ||||||||||||||
UBS AG | 2,897 | (2,897 | ) | — | — | — | ||||||||||||||
$ | 1,176,569 | $ | (600,857 | ) | $ | (19,645 | ) | $ | (425,045 | ) | $ | 131,022 |
32 |
International Income Portfolio
October 31, 2017
Notes to Financial Statements — continued
Counterparty | Derivative Liabilities Subject to Master Netting Agreement | Derivatives Available for Offset | Non-cash Collateral Pledged(a) | Cash Collateral Pledged(a) | Net Amount of Derivative Liabilities(c) | |||||||||||||||
Bank of America, N.A. | $ | (34,553 | ) | $ | 34,553 | $ | — | $ | — | $ | — | |||||||||
BNP Paribas | (12,099 | ) | 10,961 | 1,138 | — | — | ||||||||||||||
Citibank, N.A. | (78,283 | ) | 78,283 | — | — | — | ||||||||||||||
Deutsche Bank AG | (27,087 | ) | 27,087 | — | — | — | ||||||||||||||
Goldman Sachs International | (129,974 | ) | — | 39,916 | — | (90,058 | ) | |||||||||||||
HSBC Bank USA, N.A. | (5,350 | ) | — | — | — | (5,350 | ) | |||||||||||||
JPMorgan Chase Bank, N.A. | (8,273 | ) | 8,273 | — | — | — | ||||||||||||||
Nomura International PLC | (6,937 | ) | 6,937 | — | — | — | ||||||||||||||
Societe Generale | (4,347 | ) | — | — | — | (4,347 | ) | |||||||||||||
Standard Chartered Bank | (370,950 | ) | 370,950 | — | — | — | ||||||||||||||
State Street Bank and Trust Company | (114,747 | ) | 60,916 | — | — | (53,831 | ) | |||||||||||||
The Bank of Nova Scotia | (76,089 | ) | — | — | — | (76,089 | ) | |||||||||||||
UBS AG | (16,050 | ) | 2,897 | — | — | (13,153 | ) | |||||||||||||
$ | (884,739 | ) | $ | 600,857 | $ | 41,054 | $ | — | $ | (242,828 | ) |
(a) | In some instances, the total collateral received and/or pledged may be more than the amount shown due to overcollateralization. |
(b) | Net amount represents the net amount due from the counterparty in the event of default. |
(c) | Net amount represents the net amount payable to the counterparty in the event of default. |
The effect of derivative instruments (not considered to be hedging instruments for accounting disclosure purposes) on the Statement of Operations by risk exposure for the year ended October 31, 2017 was as follows:
Statement of Operations Caption | Foreign Exchange | Interest Rate | ||||||
Net realized gain (loss) — | ||||||||
Investment transactions | $ | (8,678 | ) | $ | — | |||
Written options | 128,500 | — | ||||||
Financial futures contracts | — | 26,424 | ||||||
Forward foreign currency exchange contracts | 2,185,776 | — | ||||||
Total | $ | 2,305,598 | $ | 26,424 | ||||
Change in unrealized appreciation (depreciation) — | ||||||||
Investments | $ | 35,324 | $ | — | ||||
Written options | (9,195 | ) | — | |||||
Financial futures contracts | — | 6,940 | ||||||
Forward foreign currency exchange contracts | 420,015 | — | ||||||
Total | $ | 446,144 | $ | 6,940 |
33 |
International Income Portfolio
October 31, 2017
Notes to Financial Statements — continued
The average notional cost of futures contracts and average notional amounts of other derivative contracts outstanding during the year ended October 31, 2017, which are indicative of the volume of these derivative types, were approximately as follows:
Futures Contracts — Short | Forward Foreign Currency Exchange Contracts* | |||||
$1,804,000 | $ | 125,815,000 |
* | The average notional amount for forward foreign currency exchange contracts is based on the absolute value of notional amounts of currency purchased and currency sold. |
The average principal amount of purchased currency options contracts and written currency options contracts outstanding during the year ended October 31, 2017, which are indicative of the volume of these derivative types, were approximately $8,284,000 and $5,426,000, respectively.
6 Line of Credit
The Portfolio participates with other portfolios and funds managed by EVM and its affiliates in a $625 million unsecured line of credit agreement with a group of banks, which is in effect through October 30, 2018. Borrowings are made by the Portfolio solely to facilitate the handling of unusual and/or unanticipated short-term cash requirements. Interest is charged to the Portfolio based on its borrowings at an amount above either the Eurodollar rate or Federal Funds rate. In addition, a fee computed at an annual rate of 0.15% on the daily unused portion of the line of credit is allocated among the participating portfolios and funds at the end of each quarter. Because the line of credit is not available exclusively to the Portfolio, it may be unable to borrow some or all of its requested amounts at any particular time. The Portfolio did not have any significant borrowings or allocated fees during the year ended October 31, 2017.
7 Risks Associated with Foreign Investments
The Portfolio’s investments in foreign instruments can be adversely affected by changes in currency exchange rates and political, economic and market developments abroad. In emerging or less developed countries, these risks can be more significant. Investment markets in emerging market countries are typically substantially smaller, less liquid and more volatile than the major markets in developed countries. Emerging market countries may have relatively unstable governments and economies. Emerging market investments often are subject to speculative trading, which typically contributes to volatility.
The Portfolio may have difficulties enforcing its legal or contractual rights in a foreign country. Economic data as reported by foreign governments and other issuers may be delayed, inaccurate or fraudulent. In the event of a default by a sovereign entity, there are typically no assets to be seized or cash flows to be attached. Furthermore, the willingness or ability of a foreign government to renegotiate defaulted debt may be limited.
8 Fair Value Measurements
Under generally accepted accounting principles for fair value measurements, a three-tier hierarchy to prioritize the assumptions, referred to as inputs, is used in valuation techniques to measure fair value. The three-tier hierarchy of inputs is summarized in the three broad levels listed below.
• | Level 1 – quoted prices in active markets for identical investments |
• | Level 2 – other significant observable inputs (including quoted prices for similar investments, interest rates, prepayment speeds, credit risk, etc.) |
• | Level 3 – significant unobservable inputs (including a fund’s own assumptions in determining the fair value of investments) |
In cases where the inputs used to measure fair value fall in different levels of the fair value hierarchy, the level disclosed is determined based on the lowest level input that is significant to the fair value measurement in its entirety. The inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities.
34 |
International Income Portfolio
October 31, 2017
Notes to Financial Statements — continued
At October 31, 2017, the hierarchy of inputs used in valuing the Portfolio’s investments and open derivative instruments, which are carried at value, were as follows:
Asset Description | Level 1 | Level 2 | Level 3 | Total | ||||||||||||
Foreign Government Bonds | $ | — | $ | 12,821,024 | $ | — | $ | 12,821,024 | ||||||||
Foreign Corporate Bonds | — | 1,384,846 | — | 1,384,846 | ||||||||||||
Collateralized Mortgage Obligations | — | 541,085 | — | 541,085 | ||||||||||||
Mortgage Pass-Throughs | — | 2,666,085 | — | 2,666,085 | ||||||||||||
Short-Term Investments — | ||||||||||||||||
Foreign Government Securities | — | 35,444,969 | — | 35,444,969 | ||||||||||||
U.S. Treasury Obligations | — | 38,951,168 | — | 38,951,168 | ||||||||||||
Other | — | 4,280,143 | — | 4,280,143 | ||||||||||||
Currency Options Purchased | — | 43,912 | — | 43,912 | ||||||||||||
Total Investments | $ | — | $ | 96,133,232 | $ | — | $ | 96,133,232 | ||||||||
Forward Foreign Currency Exchange Contracts | $ | — | $ | 1,132,657 | $ | — | $ | 1,132,657 | ||||||||
Futures Contracts | 21,088 | — | — | 21,088 | ||||||||||||
Total | $ | 21,088 | $ | 97,265,889 | $ | — | $ | 97,286,977 | ||||||||
Liability Description | ||||||||||||||||
Currency Options Written | $ | — | $ | (43,912 | ) | $ | — | $ | (43,912 | ) | ||||||
Forward Foreign Currency Exchange Contracts | — | (840,827 | ) | — | (840,827 | ) | ||||||||||
Total | $ | — | $ | (884,739 | ) | $ | — | $ | (884,739 | ) |
The Portfolio held no investments or other financial instruments as of October 31, 2016 whose fair value was determined using Level 3 inputs. At October 31, 2017, there were no investments transferred between Level 1 and Level 2 during the year then ended.
35 |
International Income Portfolio
October 31, 2017
Report of Independent Registered Public Accounting Firm
To the Trustees and Investors of International Income Portfolio:
We have audited the accompanying statement of assets and liabilities of International Income Portfolio (the “Portfolio”), including the portfolio of investments, as of October 31, 2017, and the related statement of operations for the year then ended, the statements of changes in net assets for each of the two years in the period then ended, and the financial highlights for each of the five years in the period then ended. These financial statements and financial highlights are the responsibility of the Portfolio’s management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. The Portfolio is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Portfolio’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also 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, as well as evaluating the overall financial statement presentation. Our procedures included confirmation of securities owned as of October 31, 2017, by correspondence with the custodian and brokers; where replies were not received from brokers, we performed other auditing procedures. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of International Income Portfolio as of October 31, 2017, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended, and the financial highlights for each of the five years in the period then ended, in conformity with accounting principles generally accepted in the United States of America.
DELOITTE & TOUCHE LLP
Boston, Massachusetts
December 21, 2017
36 |
Eaton Vance
Diversified Currency Income Fund
October 31, 2017
Management and Organization
Fund Management. The Trustees of Eaton Vance Mutual Funds Trust (the Trust) and International Income Portfolio (the Portfolio) are responsible for the overall management and supervision of the Trust’s and Portfolio’s affairs. The Trustees and officers of the Trust and the Portfolio are listed below. Except as indicated, each individual has held the office shown or other offices in the same company for the last five years. Trustees and officers of the Trust and the Portfolio hold indefinite terms of office. The “Noninterested Trustees” consist of those Trustees who are not “interested persons” of the Trust and the Portfolio, as that term is defined under the 1940 Act. The business address of each Trustee and officer is Two International Place, Boston, Massachusetts 02110. As used below, “EVC” refers to Eaton Vance Corp., “EV” refers to Eaton Vance, Inc., “EVM” refers to Eaton Vance Management, “BMR” refers to Boston Management and Research and “EVD” refers to Eaton Vance Distributors, Inc. EVC and EV are the corporate parent and trustee, respectively, of EVM and BMR. EVD is the Fund’s principal underwriter, the Portfolio’s placement agent and a wholly-owned subsidiary of EVC. Each officer affiliated with Eaton Vance may hold a position with other Eaton Vance affiliates that is comparable to his or her position with EVM listed below. Each Trustee oversees 176 portfolios in the Eaton Vance Complex (including all master and feeder funds in a master feeder structure). Each officer serves as an officer of certain other Eaton Vance funds. Each Trustee and officer serves until his or her successor is elected.
Name and Year of Birth | Position(s) with the | Trustee Since(1) | Principal Occupation(s) and Directorships During Past Five Years and Other Relevant Experience | |||
Interested Trustee | ||||||
Thomas E. Faust Jr. 1958 | Trustee | 2007 | Chairman, Chief Executive Officer and President of EVC, Director and President of EV, Chief Executive Officer and President of EVM and BMR, and Director of EVD. Trustee and/or officer of 176 registered investment companies. Mr. Faust is an interested person because of his positions with EVM, BMR, EVD, EVC and EV, which are affiliates of the Trust and the Portfolio. Directorships in the Last Five Years.(2) Director of EVC and Hexavest Inc. (investment management firm). | |||
Noninterested Trustees | ||||||
Mark R. Fetting 1954 | Trustee | 2016 | Private investor. Formerly held various positions at Legg Mason, Inc. (investment management firm) (2000-2012), including President, Chief Executive Officer, Director and Chairman (2008-2012), Senior Executive Vice President (2004-2008) and Executive Vice President (2001-2004). Formerly, President of Legg Mason family of funds (2001-2008). Formerly, Division President and Senior Officer of Prudential Financial Group, Inc. and related companies (investment management firm) (1991-2000). Directorships in the Last Five Years. Formerly, Director and Chairman of Legg Mason, Inc. (2008-2012); Director/Trustee and Chairman of Legg Mason family of funds (14 funds) (2008-2012); and Director/Trustee of the Royce family of funds (35 funds) (2001-2012). | |||
Cynthia E. Frost 1961 | Trustee | 2014 | Private investor. Formerly, Chief Investment Officer of Brown University (university endowment) (2000-2012); Formerly, Portfolio Strategist for Duke Management Company (university endowment manager) (1995-2000); Formerly, Managing Director, Cambridge Associates (investment consulting company) (1989-1995); Formerly, Consultant, Bain and Company (management consulting firm) (1987-1989); Formerly, Senior Equity Analyst, BA Investment Management Company (1983-1985). Directorships in the Last Five Years. None. | |||
George J. Gorman 1952 | Trustee | 2014 | Principal at George J. Gorman LLC (consulting firm). Formerly, Senior Partner at Ernst & Young LLP (a registered public accounting firm) (1974-2009). Directorships in the Last Five Years. Formerly, Trustee of the BofA Funds Series Trust (11 funds) (2011-2014) and of the Ashmore Funds (9 funds) (2010-2014). | |||
Valerie A. Mosley 1960 | Trustee | 2014 | Chairwoman and Chief Executive Officer of Valmo Ventures (a consulting and investment firm). Former Partner and Senior Vice President, Portfolio Manager and Investment Strategist at Wellington Management Company, LLP (investment management firm) (1992-2012). Former Chief Investment Officer, PG Corbin Asset Management (1990-1992). Formerly worked in institutional corporate bond sales at Kidder Peabody (1986-1990). Directorships in the Last Five Years.(2) Director of Dynex Capital, Inc. (mortgage REIT) (since 2013). |
37 |
Eaton Vance
Diversified Currency Income Fund
October 31, 2017
Management and Organization — continued
Name and Year of Birth | Position(s) with the | Trustee Since(1) | Principal Occupation(s) and Directorships During Past Five Years and Other Relevant Experience | |||
Noninterested Trustees (continued) | ||||||
William H. Park 1947 | Chairperson of the Board and Trustee | 2016 (Chairperson); 2003 (Trustee) | Private investor. Formerly, Consultant (management and transactional) (2012-2014). Formerly, Chief Financial Officer, Aveon Group L.P. (investment management firm) (2010-2011). Formerly, Vice Chairman, Commercial Industrial Finance Corp. (specialty finance company) (2006-2010). Formerly, President and Chief Executive Officer, Prizm Capital Management, LLC (investment management firm) (2002-2005). Formerly, Executive Vice President and Chief Financial Officer, United Asset Management Corporation (investment management firm) (1982-2001). Formerly, Senior Manager, Price Waterhouse (now PricewaterhouseCoopers) (a registered public accounting firm) (1972-1981). Directorships in the Last Five Years.(2) None. | |||
Helen Frame Peters 1948 | Trustee | 2008 | Professor of Finance, Carroll School of Management, Boston College. Formerly, Dean, Carroll School of Management, Boston College (2000-2002). Formerly, Chief Investment Officer, Fixed Income, Scudder Kemper Investments (investment management firm) (1998-1999). Formerly, Chief Investment Officer, Equity and Fixed Income, Colonial Management Associates (investment management firm) (1991-1998). Directorships in the Last Five Years.(2) Formerly, Director of BJ’s Wholesale Club, Inc. (wholesale club retailer) (2004-2011). Formerly, Trustee of SPDR Index Shares Funds and SPDR Series Trust (exchange traded funds) (2000-2009). Formerly, Director of Federal Home Loan Bank of Boston (a bank for banks) (2007-2009). | |||
Susan J. Sutherland 1957 | Trustee | 2015 | Private investor. Formerly, Associate, Counsel and Partner at Skadden, Arps, Slate, Meagher & Flom LLP (law firm) (1982-2013). Directorships in the Last Five Years. Formerly, Director of Montpelier Re Holdings Ltd. (global provider of customized insurance and reinsurance products) (2013-2015). | |||
Harriett Tee Taggart 1948 | Trustee | 2011 | Managing Director, Taggart Associates (a professional practice firm). Formerly, Partner and Senior Vice President, Wellington Management Company, LLP (investment management firm) (1983-2006). Directorships in the Last Five Years.(2) Director of Albemarle Corporation (chemicals manufacturer) (since 2007) and The Hanover Group (specialty property and casualty insurance company) (since 2009). Formerly, Director of Lubrizol Corporation (specialty chemicals) (2007-2011). | |||
Scott E. Wennerholm 1959 | Trustee | 2016 | Trustee at Wheelock College (postsecondary institution) (since 2012). Formerly, Consultant at GF Parish Group (executive recruiting firm) (2016-2017). Formerly, Chief Operating Officer and Executive Vice President at BNY Mellon Asset Management (investment management firm) (2005-2011). Formerly, Chief Operating Officer and Chief Financial Officer at Natixis Global Asset Management (investment management firm) (1997-2004). Formerly, Vice President at Fidelity Investments Institutional Services (investment management firm) (1994-1997). Directorships in the Last Five Years. None. | |||
Principal Officers who are not Trustees | ||||||
Name and Year of Birth | Position(s) with the Trust and the Portfolio | Officer Since(3) | Principal Occupation(s) During Past Five Years | |||
Payson F. Swaffield 1956 | President | 2003 | Vice President and Chief Income Investment Officer of EVM and BMR. Also Vice President of Calvert Research and Management (“CRM”). | |||
Maureen A. Gemma 1960 | Vice President, Secretary and Chief Legal Officer | 2005 | Vice President of EVM and BMR. Also Vice President of CRM. |
38 |
Eaton Vance
Diversified Currency Income Fund
October 31, 2017
Management and Organization — continued
Name and Year of Birth | Position(s) with the Trust and the Portfolio | Officer Since(3) | Principal Occupation(s) During Past Five Years | |||
Principal Officers who are not Trustees (continued) | ||||||
James F. Kirchner 1967 | Treasurer | 2007 | Vice President of EVM and BMR. Also Vice President of CRM. | |||
Richard F. Froio 1968 | Chief Compliance Officer | 2017 | Vice President of EVM and BMR since 2017. Formerly Deputy Chief Compliance Officer (Adviser/Funds) and Chief Compliance Officer (Distribution) at PIMCO (2012-2017) and Managing Director at BlackRock/Barclays Global Investors (2009-2012). |
(1) | Year first appointed to serve as Trustee for a fund in the Eaton Vance family of funds. Each Trustee has served continuously since appointment unless indicated otherwise. |
(2) | During their respective tenures, the Trustees (except for Mmes. Frost and Sutherland and Messrs. Fetting, Gorman and Wennerholm) also served as Board members of one or more of the following funds (which operated in the years noted): eUnitsTM 2 Year U.S. Market Participation Trust: Upside to Cap / Buffered Downside (launched in 2012 and terminated in 2014); eUnitsTM 2 Year U.S. Market Participation Trust II: Upside to Cap / Buffered Downside (launched in 2012 and terminated in 2014); and Eaton Vance National Municipal Income Trust (launched in 1998 and terminated in 2009). However, Ms. Mosley did not serve as a Board member of eUnitsTM 2 Year U.S. Market Participation Trust: Upside to Cap / Buffered Downside (launched in 2012 and terminated in 2014). |
(3) | Year first elected to serve as officer of a fund in the Eaton Vance family of funds when the officer has served continuously. Otherwise, year of most recent election as an officer of a fund in the Eaton Vance family of funds. Titles may have changed since initial election. |
The SAI for the Fund includes additional information about the Trustees and officers of the Fund and the Portfolio and can be obtained without charge on Eaton Vance’s website at www.eatonvance.com or by calling 1-800-262-1122.
39 |
Eaton Vance Funds
IMPORTANT NOTICES
Privacy. The Eaton Vance organization is committed to ensuring your financial privacy. Each of the financial institutions identified below has in effect the following policy (“Privacy Policy”) with respect to nonpublic personal information about its customers:
• | Only such information received from you, through application forms or otherwise, and information about your Eaton Vance fund transactions will be collected. This may include information such as name, address, social security number, tax status, account balances and transactions. |
• | None of such information about you (or former customers) will be disclosed to anyone, except as permitted by law (which includes disclosure to employees necessary to service your account). In the normal course of servicing a customer’s account, Eaton Vance may share information with unaffiliated third parties that perform various required services such as transfer agents, custodians and broker-dealers. |
• | Policies and procedures (including physical, electronic and procedural safeguards) are in place that are designed to protect the confidentiality of such information. |
• | We reserve the right to change our Privacy Policy at any time upon proper notification to you. Customers may want to review our Privacy Policy periodically for changes by accessing the link on our homepage: www.eatonvance.com. |
Our pledge of privacy applies to the following entities within the Eaton Vance organization: the Eaton Vance Family of Funds, Eaton Vance Management, Eaton Vance Investment Counsel, Eaton Vance Distributors, Inc., Eaton Vance Trust Company, Eaton Vance Management (International) Limited, Eaton Vance Advisers International Ltd., Eaton Vance Management’s Real Estate Investment Group and Boston Management and Research. In addition, our Privacy Policy applies only to those Eaton Vance customers who are individuals and who have a direct relationship with us. If a customer’s account (i.e., fund shares) is held in the name of a third-party financial advisor/broker-dealer, it is likely that only such advisor’s privacy policies apply to the customer. This notice supersedes all previously issued privacy disclosures. For more information about Eaton Vance’s Privacy Policy, please call 1-800-262-1122.
Delivery of Shareholder Documents. The Securities and Exchange Commission (SEC) permits funds to deliver only one copy of shareholder documents, including prospectuses, proxy statements and shareholder reports, to fund investors with multiple accounts at the same residential or post office box address. This practice is often called “householding” and it helps eliminate duplicate mailings to shareholders. Eaton Vance, or your financial advisor, may household the mailing of your documents indefinitely unless you instruct Eaton Vance, or your financial advisor, otherwise. If you would prefer that your Eaton Vance documents not be householded, please contact Eaton Vance at 1-800-262-1122, or contact your financial advisor. Your instructions that householding not apply to delivery of your Eaton Vance documents will typically be effective within 30 days of receipt by Eaton Vance or your financial advisor. Separate statements will be generated for each separate account and will be householded as described above.
Portfolio Holdings. Each Eaton Vance Fund and its underlying Portfolio(s) (if applicable) will file a schedule of portfolio holdings on Form N-Q with the SEC for the first and third quarters of each fiscal year. The Form N-Q will be available on the Eaton Vance website at www.eatonvance.com, by calling Eaton Vance at 1-800-262-1122 or in the EDGAR database on the SEC’s website at www.sec.gov. Form N-Q may also be reviewed and copied at the SEC’s public reference room in Washington, D.C. (call 1-800-732-0330 for information on the operation of the public reference room).
Proxy Voting. From time to time, funds are required to vote proxies related to the securities held by the funds. The Eaton Vance Funds or their underlying Portfolios (if applicable) vote proxies according to a set of policies and procedures approved by the Funds’ and Portfolios’ Boards. You may obtain a description of these policies and procedures and information on how the Funds or Portfolios voted proxies relating to portfolio securities during the most recent 12-month period ended June 30, without charge, upon request, by calling 1-800-262-1122 and by accessing the SEC’s website at www.sec.gov.
40 |
Investment Adviser of International Income Portfolio
Boston Management and Research
Two International Place
Boston, MA 02110
Investment Adviser and Administrator of Eaton Vance Diversified Currency Income Fund
Eaton Vance Management
Two International Place
Boston, MA 02110
Principal Underwriter*
Eaton Vance Distributors, Inc.
Two International Place
Boston, MA 02110
(617) 482-8260
Custodian
State Street Bank and Trust Company
State Street Financial Center, One Lincoln Street
Boston, MA 02111
Transfer Agent
BNY Mellon Investment Servicing (US) Inc.
Attn: Eaton Vance Funds
P.O. Box 9653
Providence, RI 02940-9653
(800) 262-1122
Independent Registered Public Accounting Firm
Deloitte & Touche LLP
200 Berkeley Street
Boston, MA 02116-5022
Fund Offices
Two International Place
Boston, MA 02110
* | FINRA BrokerCheck. Investors may check the background of their Investment Professional by contacting the Financial Industry Regulatory Authority (FINRA). FINRA BrokerCheck is a free tool to help investors check the professional background of current and former FINRA-registered securities firms and brokers. FINRA BrokerCheck is available by calling 1-800-289-9999 and at www.FINRA.org. The FINRA BrokerCheck brochure describing this program is available to investors at www.FINRA.org. |
3042 10.31.17
Item 2. Code of Ethics
The registrant has adopted a code of ethics applicable to its Principal Executive Officer, Principal Financial Officer and Principal Accounting Officer. The registrant undertakes to provide a copy of such code of ethics to any person upon request, without charge, by calling 1-800-262-1122. The registrant has amended the code of ethics as described in Form N-CSR during the period covered by this report to make clarifying changes consistent with Rule 21F-17 of the Securities Exchange Act of 1934, as amended. The registrant has not granted any waiver, including an implicit waiver, from a provision of the code of ethics as described in Form N-CSR during the period covered by this report.
Item 3. Audit Committee Financial Expert
The registrant’s Board has designated William H. Park, an independent trustee, as its audit committee financial expert. Mr. Park is a certified public accountant who is a private investor. Previously, he served as a consultant, as the Chief Financial Officer of Aveon Group, L.P. (an investment management firm), as the Vice Chairman of Commercial Industrial Finance Corp. (specialty finance company), as President and Chief Executive Officer of Prizm Capital Management, LLC (investment management firm), as Executive Vice President and Chief Financial Officer of United Asset Management Corporation (an institutional investment management firm) and as a Senior Manager at Price Waterhouse (now PricewaterhouseCoopers) (an independent registered public accounting firm).
Item 4. Principal Accountant Fees and Services
Rule 2-01(c)(1)(ii)(A) of Regulation S-X (the “Loan Rule”) prohibits an accounting firm, such as the Portfolio’s principal accountant, Deloitte & Touche LLP (“D&T”), from having certain financial relationships with their audit clients and affiliated entities. Specifically, the Loan Rule provides, in relevant part, that an accounting firm generally would not be independent if it or a “covered person” of the accounting firm (within the meaning of applicable SEC rules relating to auditor independence) receives a loan from a lender that is a “record or beneficial owner of more than ten percent of the audit client’s equity securities.” Based on information provided to the Audit Committee of the Board of Trustees (the “Audit Committee”) of the Eaton Vance family of funds by D&T, certain relationships between D&T and its affiliates (“Deloitte Entities”) and one or more lenders who are record owners of shares of one or more funds within the Eaton Vance family of funds (the “Funds”) implicate the Loan Rule, calling into question D&T’s independence with respect to the Funds. The Funds are providing this disclosure to explain the facts and circumstances as well as D&T’s conclusions concerning D&T’s objectivity and impartiality with respect to the audits of the Funds notwithstanding the existence of one or more breaches of the Loan Rule.
On June 20, 2016, the U.S. Securities and Exchange Commission (the “SEC”) issued no-action relief to another mutual fund complex (see Fidelity Management & Research Company et al., No-Action Letter (June 20, 2016) (the “No-Action Letter”)) related to an auditor independence issue arising under the Loan Rule. In the No-Action Letter, the SEC indicated that it would not recommend enforcement action against the fund group if the auditor is not in compliance with the Loan Rule provided that: (1) the auditor has complied with PCAOB Rule 3526(b)(1) and 3526(b)(2); (2) the auditor’s non-compliance under the Loan Rule is with respect to certain lending relationships; and (3) notwithstanding such non-compliance, the auditor has concluded that it is objective and impartial with respect to the issues encompassed within its engagement as auditor of the funds. The SEC has indicated that the no-action relief will expire 18 months from its issuance.
Based on information provided by D&T to the Audit Committee, the requirements of the No-Action Letter appear to be met with respect to D&T’s lending relationships described above. Among other things, D&T has advised the Audit Committee of its conclusion that the consequences of the breach of the Loan Rule have been satisfactorily addressed, that D&T’s objectivity and impartiality in the planning and conduct of the audits of the
Fund’s financial statements has not been compromised and that, notwithstanding the breach, D&T is in a position to continue as the auditor for the Funds and D&T does not believe any actions need to be taken with respect to previously issued reports by D&T. D&T has advised the Audit Committee that these conclusions were based in part on its consideration of the No-Action Letter and other relevant information communicated to the Audit Committee.
(a)-(d)
The following table presents the aggregate fees billed to the registrant for the registrant’s fiscal years ended October 31, 2016 and October 31, 2017 by D&T for professional services rendered for the audit of the registrant’s annual financial statements and fees billed for other services rendered by D&T during such periods.
Fiscal Years Ended | 10/31/16 | 10/31/17 | ||||||
Audit Fees | $ | 58,697 | $ | 58,848 | ||||
Audit-Related Fees(1) | $ | 0 | $ | 0 | ||||
Tax Fees(2) | $ | 25,160 | $ | 18,859 | ||||
All Other Fees(3) | $ | 0 | $ | 0 | ||||
|
|
|
| |||||
Total | $ | 83,857 | $ | 77,707 | ||||
|
|
|
|
(1) | Audit-related fees consist of the aggregate fees billed for assurance and related services that are reasonably related to the performance of the audit of the registrant’s financial statements and are not reported under the category of audit fees. |
(2) | Tax fees consist of the aggregate fees billed for professional services rendered by the principal accountant relating to tax compliance, tax advice, and tax planning and specifically include fees for tax return preparation and other tax related compliance/planning matters. |
(3) | All other fees consist of the aggregate fees billed for products and services provided by the principal accountant other than audit, audit-related, and tax services. |
(e)(1) The registrant’s audit committee has adopted policies and procedures relating to the pre-approval of services provided by the registrant’s principal accountant (the “Pre-Approval Policies”). The Pre-Approval Policies establish a framework intended to assist the audit committee in the proper discharge of its pre-approval responsibilities. As a general matter, the Pre-Approval Policies (i) specify certain types of audit, audit-related, tax, and other services determined to be pre-approved by the audit committee; and (ii) delineate specific procedures governing the mechanics of the pre-approval process, including the approval and monitoring of audit and non-audit service fees. Unless a service is specifically pre-approved under the Pre-Approval Policies, it must be separately pre-approved by the audit committee.
The Pre-Approval Policies and the types of audit and non-audit services pre-approved therein must be reviewed and ratified by the registrant’s audit committee at least annually. The registrant’s audit committee maintains full responsibility for the appointment, compensation, and oversight of the work of the registrant’s principal accountant.
(e)(2) No services described in paragraphs (b)-(d) above were approved by the registrant’s audit committee pursuant to the “de minimis exception” set forth in Rule 2-01 (c)(7)(i)(C) of Regulation S-X.
(f) Not applicable.
(g) The following table presents (i) the aggregate non-audit fees (i.e., fees for audit-related, tax, and other services) billed to the registrant by D&T for the registrant’s fiscal years ended October 31, 2016 and October 31, 2017; and (ii) the aggregate non-audit fees (i.e., fees for audit-related, tax, and other services) billed to the Eaton Vance organization by D&T for the same time periods.
Fiscal Years Ended | 10/31/16 | 10/31/17 | ||||||
Registrant | $ | 25,160 | $ | 18,859 | ||||
Eaton Vance(1) | $ | 56,434 | $ | 148,018 |
(1) | Certain subsidiaries of Eaton Vance Corp. provide ongoing services to the registrant. |
(h) The registrant’s audit committee has considered whether the provision by the registrant’s principal accountant of non-audit services to the registrant’s investment adviser and any entity controlling, controlled by, or under common control with the adviser that provides ongoing services to the registrant that were not pre-approved pursuant to Rule 2-01(c)(7)(ii) of Regulation S-X is compatible with maintaining the principal accountant’s independence.
Item 5. Audit Committee of Listed Registrants
Not applicable.
Item 6. Schedule of Investments
Please see schedule of investments contained in the Report to Stockholders included under Item 1 of this Form N-CSR.
Item 7. Disclosure of Proxy Voting Policies and Procedures for Closed-End Management Investment Companies
Not applicable.
Item 8. Portfolio Managers of Closed-End Management Investment Companies
Not applicable.
Item 9. Purchases of Equity Securities by Closed-End Management Investment Company and Affiliated Purchasers
Not applicable.
Item 10. Submission of Matters to a Vote of Security Holders
No material changes.
Item 11. Controls and Procedures
(a) It is the conclusion of the registrant’s principal executive officer and principal financial officer that the effectiveness of the registrant’s current disclosure controls and procedures (such disclosure controls and procedures having been evaluated within 90 days of the date of this filing) provide reasonable assurance that the
information required to be disclosed by the registrant has been recorded, processed, summarized and reported within the time period specified in the Commission’s rules and forms and that the information required to be disclosed by the registrant has been accumulated and communicated to the registrant’s principal executive officer and principal financial officer in order to allow timely decisions regarding required disclosure.
(b) There have been no changes in the registrant’s internal controls over financial reporting during the second fiscal quarter of the period covered by this report that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting.
Item 12. Exhibits
(a)(1) | Registrant’s Code of Ethics – Not applicable (please see Item 2). | |
(a)(2)(i) | Treasurer’s Section 302 certification. | |
(a)(2)(ii) | President’s Section 302 certification. | |
(b) | Combined Section 906 certification. |
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
International Income Portfolio |
By: | /s/ Payson F. Swaffield | |
Payson F. Swaffield | ||
President | ||
Date: | December 22, 2017 |
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
By: | /s/ James F. Kirchner | |
James F. Kirchner | ||
Treasurer | ||
Date: | December 22, 2017 | |
By: | /s/ Payson F. Swaffield | |
Payson F. Swaffield | ||
President | ||
Date: | December 22, 2017 |